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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------------------- to ---------------------
Commission File No. 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 208-769-4100
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is registered
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Common Stock, par value 25 cents per share )
Preferred Share Purchase Rights )
Liquid Yield Option Notes Due 2004 ) New York Stock Exchange
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Series B Cumulative Convertible Preferred Stock,
par value 25 cents per share )
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Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock, $.25 par value per share
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(Title of Class)
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 XX . No .
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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. [ X ]
The aggregate market value of the Registrant's voting Common Stock held by
non-affiliates was $427,958,537 as of February 25, 1994. There were 34,582,508
shares of the Registrant's Common Stock outstanding as of February 25, 1994.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the information
contained in the Proxy Statement for the 1994 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
1993 fiscal year. See Part III.
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PART I
Item 1. Business1
GENERAL
Hecla Mining Company (the Company), originally incorporated in 1891, is
principally engaged in the exploration, development and mining of precious
and nonferrous metals, including gold, silver, lead and zinc, and certain
industrial minerals. The Company owns or has interests in six precious
and nonferrous metals properties and five industrial minerals businesses.
In 1993, the Company's attributable gold and silver production was 60,715
ounces and 2,974,698 ounces, respectively. The Company also shipped
approximately 888,000 tons of industrial minerals products during this
period, including ball clay, kaolin, feldspar, landscape materials, and
specialty aggregates.
The Company's principal producing metals properties include the La Choya
gold mine, located in Sonora, Mexico, which began operations in January
1994; the Lucky Friday silver mine, located near Mullan, Idaho, which is a
significant primary producer of silver in North America; the Republic gold
mine, located in the state of Washington, historically one of the
lowest-cost gold operations in North America; and the Greens Creek mine,
located near Juneau, Alaska, a large polymetallic mine in which the
Company owns 29.7% interest. In April 1993, operations at the Greens
Creek mine were suspended by the manager of the mine in response to
depressed metals prices.
The Company's industrial minerals businesses consist of Kentucky-Tennessee
Clay Company (Ball Clay and Kaolin Divisions), K-T Feldspar Corporation,
K-T Clay de Mexico, S.A. de C.V., Colorado Aggregate Company of New
Mexico, and Mountain West Bark Products, Inc. The Company's industrial
minerals segment has positioned itself as a leading producer of three of
the four basic ingredients required to manufacture ceramic and porcelain
products, including sanitaryware, pottery, dinnerware, electric
insulators, and tile. At current production rates, the Company has over
20 years of proven and probable reserves of ball clay, kaolin and
feldspar. During 1993, the industrial minerals businesses provided
approximately $6.6 million of cash from operations which served to
partially offset the impact of decreasing gold production from the
Company's metals segment.
On December 29, 1993, the Company, two wholly owned Canadian subsidiaries
of the Company, and Equinox Resources Ltd. (Equinox), a mining,
exploration and development company, incorporated under the laws of the
Province of British Columbia and headquartered in Vancouver, Canada,
executed an Acquisition Agreement providing for the Company's acquisition
of Equinox. Pursuant to the Acquisition Agreement and related Plan of
Arrangement, upon consummation of the transactions contemplated thereby,
(i) Equinox common shareholders will receive 0.3 common share of the
Company (Company common shares), for each outstanding Equinox common
share, (ii) holders of Equinox's Series "A" production participating
preferred shares will receive
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1For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 27.
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newly issued production notes of the Company with the same material terms
and conditions, and (iii) outstanding Equinox options and warrants will
become exercisable for Company common shares. In connection with the
acquisition of Equinox, the Company expects to issue approximately 6.3
million Company common shares, including shares issuable upon exercise of
outstanding options and warrants.
The Board of Directors of the Company and Equinox have each approved the
Acquisition Agreement. On February 25, 1994, the shareholders of Equinox
also approved the Acquisition Agreement. However, the transactions
contemplated by the Acquisition Agreement are subject to a number of
conditions including, without limitation, approval by a Canadian court of
the Plan of Arrangement.
If consummated, the Company will acquire Equinox's primary producing
property, the American Girl gold mine, located in Imperial County,
California, which is operated by its joint venture partner MK Gold
Company. In addition, the Company believes that Equinox's Rosebud gold
property, located in Pershing County, Nevada, has significant exploration
and development potential.
The Company's strategy is to focus its efforts and resources on the
development and construction of the Grouse Creek gold project and to
expand its gold and silver reserves via a combination of acquisition and
exploration efforts. During 1994, the Company's most important priority
will be the timely development and construction of the Grouse Creek gold
project which is expected to commence production during the fourth quarter
of 1994. Additionally, the Company's exploration plan consists primarily
of exploring for additional reserves and mineralization at or in the
vicinity of the Republic and La Choya gold mines, the Lucky Friday and
Greens Creek silver mines and the Grouse Creek gold project. At the same
time, the Company will continue to evaluate acquisition and other
exploration opportunities, primarily in North America, that will
complement its existing operations.
The Company's revenues and profitability are strongly influenced by the
world prices of silver, gold, lead and zinc. Metals prices fluctuate
widely and are affected by numerous factors beyond the Company's control,
including inflation and worldwide forces of supply and demand. The
aggregate effect of these factors is not possible to accurately predict.
Sales of metal concentrates and products are made principally to custom
smelters and metal traders. The percentage of revenue contributed by each
class of product is reflected in the following table:
Years
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Product 1993 1992 1991
----------------- ----- ----- -----
Gold 25.5% 30.8% 43.8%
Silver 8.5 12.0 10.9
Lead 4.4 7.4 6.0
Industrial minerals 54.6 42.5 34.5
All others 7.0 7.3 4.8
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Reference is made to Note 1 of Notes to Consolidated Financial Statements
for information with respect to export sales.
The principal executive offices of the Company are located at 6500
Mineral Drive, Coeur d'Alene, Idaho 83814-8788, telephone (208)
769-4100.
METALS SEGMENT
La Choya Gold Mine - Sonora, Mexico
The La Choya gold mine is located 30 miles south of the U.S. border in
the State of Sonora, Mexico, and is the Company's first operation outside
the U.S. and Canada. In May 1992, the Company exercised its option to
purchase the Mexican mineral concessions related to this property, which
includes a land position of over 36,000 acres.
The La Choya gold mine commenced operations in January 1994. The Company
expects to produce approximately 63,000 ounces of gold in each of 1994,
1995 and 1996. Current proven and probable gold reserves at the La Choya
gold mine are expected to be substantially depleted in 1996 or early
1997.
An exploration drilling program is planned for 1994 to attempt to expand
the gold reserves at the La Choya gold mine. The Company believes there
is the potential to discover additional gold reserves within the mining
concessions currently controlled by the Company. The drilling program
will continue with the objective of expanding the current project and
extending the life of the mine.
As of December 31, 1993, the Company has expended approximately $18.8
million (excluding capitalized interest) on the purchase and development
of the La Choya gold mine. Electrical power is provided by on-site
diesel generators. The following table presents the proven and probable
ore reserves for the La Choya gold mine for the periods indicated:
Year Total Gold Gold
Ended Reserves Avg. Grade Content
12/31 (Tons) (oz/ton) (ozs.)
----- -------- ---------- -------
1993 6,138,000 0.037 225,500
1992 4,283,277 0.039 167,000
At December 31, 1993, there were 87 employees at the La Choya gold mine.
The National Union of Mine, Metallurgical and Related Workers of the
Mexican Republic is the bargaining agent for the La Choya gold mine
employees. The current labor agreement expires on September 7, 1994.
Grouse Creek Gold Project - Idaho
The Grouse Creek gold project is located in central Idaho, 27 miles
southwest of the town of Challis in the Yankee Fork Mining District.
Mineral rights comprising the Grouse Creek gold project cover 21.4 square
miles. The Grouse Creek gold project consists of 18 patented lode mining
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claims and two patented placer claims, 43 unpatented millsite claims, and
17 unpatented lode claims for which patent applications are pending. With
respect to the 17 unpatented lode claims, the Company has received the
first half of a Mineral Entry Final Certificate. Upon certification by a
United States Federal Mineral Examiner and issuance of patents for these
claims, all of the current proven and probable reserves at the Grouse
Creek gold project will be located within patented mining claims. The
remainder of the mineral rights in the Yankee Fork Mining District consist
of 846 unpatented claims.
The Company acquired these patented and unpatented mining claims as a
result of its acquisition of CoCa Mines Inc. (CoCa) in 1991. During 1989
CoCa purchased the assets of Geodome Resources Limited and its limited
partner interests in the Grouse Creek project. As partial consideration,
CoCa issued 1,023,169 shares of Common Stock valued at $9.5 million and
472,427 warrants to purchase Common Stock valued at $0.2 million. In
addition, CoCa issued promissory notes payable to purchase limited partner
interests in the Grouse Creek property acquired from Geodome Resources
Limited (See Note 7 of Notes to Consolidated Financial Statements).
On February 8, 1994, the Company sold to Great Lakes Minerals, Inc. of
Toronto (Great Lakes) a 20% undivided interest in the Company's Grouse
Creek gold project. Proceeds received from the sale, totaling $13.3
million, represent the sales price of $6.8 million for 20% of the amount
spent by the Company on acquisition, exploration and development of the
project through June 30, 1993, including a fixed premium of $1.25 million,
plus Great Lakes' pro-rata share of construction costs for Grouse Creek
from July 1, 1993 through January 31, 1994. Pursuant to the acquisition
and joint venture agreements, Great Lakes is required to fund its 20%
pro-rata portion of remaining capital expenditures required to bring the
Grouse Creek project to commercial production. In addition, these
agreements provide that Great Lakes has the option, at any time prior to
12 months following the commencement of commercial production at the
Grouse Creek gold project, to purchase up to an additional 10% undivided
interest in the project and fund its increased share of capital
expenditures.
As of December 31, 1993, the Company and its predecessors had expended
approximately $54.0 million (excluding capitalized interest) on the
acquisition, exploration and development of the Grouse Creek project.
Based on the current mine plan, the Company's share of additional capital
costs for the project are expected to total approximately $50.0 million in
1994 and $3.4 million (primarily for equipment) during 1995. The Company
currently estimates that production will commence during the fourth
quarter 1994, with full production achieved in 1995. The Company
estimates, that assuming timely commencement of production during the
fourth quarter, its share of total production at the Grouse Creek gold
project will be approximately 53,000 gold ounces in 1994 and 106,000 gold
ounces in 1995.
Two distinct mineral deposits have been identified at the Grouse Creek
project: the Sunbeam deposit and the Grouse deposit, which includes the
Grouse pit and the Grouse underground high-grade ore zone.
As a result of drilling programs conducted in 1991 and 1992, the Company
discovered the Underground Deposit, a high-grade gold ore zone beneath the
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proposed Upper Grouse Pit, approximately 500 feet below the existing
surface. The Underground Deposit is open at depth and has good potential
to contain additional high-grade ore.
The Sunbeam deposit was defined by 721 reverse circulation test holes
totaling 198,097 feet and 22 diamond core drill holes totaling 7,152 feet.
Test-hole drilling has been completed on an approximate 75-foot grid over
the Sunbeam deposit. The deposit is above the water table. The Upper
Grouse Pit has been defined by 416 reverse circulation test holes totaling
175,508 feet and 22 diamond core drill holes totaling 8,488 feet. The
higher sections of the deposit are drilled on an approximate 75- to
100-foot grid. Portions of the Upper Grouse Pit ore body are below the
water table. The deeper high-grade gold ore zone in the Underground
Deposit has been defined by a reverse circulation test-hole grid pattern
on approximately 50-foot centers.
The following table presents the Company's share of the proven and
probable ore reserves for the Grouse Creek gold project for the periods
indicated:
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (Tons) (oz./ton) (ozs.) (oz./ton) (ozs.)
----- ---------- ---------- ------- ---------- ---------
1993(1) 12,104,000 0.055 671,200 1.07 12,972,800
----
1992 14,467,000 0.057 831,000 1.21 17,474,000
----
1991 15,018,600 0.048 719,150 1.2 17,276,810
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(1) 1993 proven and probable ore reserves reflect only the
Company's share (80%) pursuant to the February 8, 1994,
sale of a 20% interest in its Grouse Creek project to
Great Lakes Minerals, Inc. of Toronto, Canada.
Pursuant to the mine plan, the Sunbeam Deposit and the Underground Deposit
are to be mined simultaneously beginning in the fourth quarter of 1994,
followed by the Upper Grouse Pit. The mine plan for the Underground
Deposit proposes a panel cut-and- fill method. The ore zone is
approximately 30-feet thick and will be mined in panels 10-feet high and
20-feet wide. Cemented backfill will be used to obtain nearly 100%
extraction of the underground reserve. Conventional underground mining
equipment will be used for drilling, blasting, loading, and hauling. Both
the Sunbeam Deposit and the Upper Grouse Pit will use conventional surface
mining methods. Blasthole assays will be used to determine ore grade
material. The material will be segregated and hauled by off-highway
trucks to the mill. Waste material will be hauled to a waste storage area
or will be used as construction material in the tailings dam. Both
deposits will mine ore on 20-foot benches. The milling process involves a
6,000-ton-per-day gold recovery facility. The recovery process involves
crushing and grinding of the ore and recovering approximately 50% of the
gold in a gravity circuit. The remaining gold and silver is dissolved in
a weak
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sodium cyanide solution and recovered with carbon adsorption and
Merrill-Crowe precipitation. Overall recoveries are currently estimated
at 94% gold and 41% silver for ore from the Sunbeam Deposit, 74% gold and
64% silver for ore from the Upper Grouse Pit and 95% gold and 85% silver
from the Underground Deposit. A refinery on the property will produce
dore that will be further processed by commercial refiners. The tailings
from the cyanide process will be impounded in a 15.5 million ton capacity
double-lined tailings pond. All permits for this facility have been
approved.
The Sunbeam Deposit will be mined at a rate of 7,700 tons of ore per day
at a cut-off grade of 0.020 ounce per ton of gold equivalent and a
stripping ratio of 3.2:1. The Upper Grouse Pit will be mined at
approximately the same rate and will have a cut-off grade of 0.031 ounce
per ton of gold equivalent and a stripping ratio of 5.1:1. Based upon the
information developed to date, the Underground Deposit is expected to
produce 183,000 tons of ore in each of 1994 and 1995 containing
approximately 96,000 ounces of gold and over 400,000 ounces of silver.
The Company is currently developing the Underground Deposit.
Reclamation activities include the partial backfill and revegetation of
the Sunbeam Deposit and the Grouse Deposit and covering, recontouring and
revegetating the tailings surface and construction of a permanent
spillway. The waste dump and haul roads will be recontoured and
revegetated. Process facilities will be removed and foundations will be
buried. Concurrent reclamation practices will be employed whenever
possible. The reclamation plans have been approved by the appropriate
state and federal agencies.
The Company believes that there is excellent potential for extending and
discovering additional gold reserves at the project including a
continuation of the high-grade underground mineralization which remains
unexplored under most of the deposits. To date, the Company has
identified 15 exploration targets. Within the immediate area of the Upper
Grouse Pit, the Company also believes that there could be additional
high-grade zones accessible through the underground operations. An
exploration program will be undertaken during 1994 to begin to evaluate
the economic potential of areas below and adjacent to the Upper Grouse
Pit.
Lucky Friday Mine - Coeur d'Alene Mining District - Idaho
The Lucky Friday, a deep underground silver and lead mine, located in
northern Idaho and 100% owned by the Company, has been a producing mine
for the Company since 1958. The mine operated continuously until low
metals prices and rockburst activity forced the suspension of operations
in April 1986. During the shutdown, the Company's engineers began
converting portions of the mine to a mechanized underhand mining method
designed to increase productivity and reduce rockburst activity.
Production was resumed at the Lucky Friday mine in June 1987 and has
continued uninterrupted since that time.
The ore-bearing structure at the Lucky Friday mine is the Lucky Friday
Vein, a fissure vein typical of many in the Coeur d'Alene Mining District.
The ore body is located in the Revett Formation which is known to provide
excellent host rocks for a number of ore bodies in the Coeur d'Alene
District. The Lucky Friday Vein strikes northeasterly and dips steeply to
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the south, with an average width of six to seven feet. The principal ore
minerals are galena and tetrahedrite, with minor amounts of sphalerite and
chalcopyrite. It appears that the ore occurs as a single continuous ore
body in and along the Lucky Friday Vein. The major part of the ore body
has extended from the 1200-foot level to and below the 5660-foot level,
which is currently being developed.
The ore produced from the mine is processed in a 1,000-ton-per-day
conventional flotation mill at a current rate of 700 tons per day at the
Lucky Friday mine site. The flotation process produces both a silver-lead
concentrate and a zinc concentrate. During 1993 approximately 98% of the
silver, 97% of the lead, and 86% of the zinc were recovered. The Company
believes that adequate provision has been made for disposal of mine waste
and mill tailings in a manner which complies with current federal and
state environmental requirements.
The Lucky Friday mine's mill facility and surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 32 years ago. The Company maintains and
modernizes the plant and equipment on an ongoing basis. Significant
improvements to the mill include installation of coarse ore feeder bins in
1982, a new ball mill in 1984, installation in 1989 of a new zinc column
cell to improve the purity of zinc concentrates, and in 1991, upgrading of
tailings pumps. Improvements to the mine include construction of the
Silver Shaft and installation of a new compressor plant during 1980
through 1983; installation of a new ventilation system during 1985; and,
since 1986, construction of a new ore pass system servicing the Silver
Shaft at the deepest levels of the mine. The net book value of the Lucky
Friday mine property and its associated plant and equipment was $28.1
million as of December 31, 1993. Washington Water Power Company supplies
electrical power to the Lucky Friday mine.
The Lucky Friday silver-lead concentrate product is shipped primarily to
the ASARCO smelter at East Helena, Montana. The silver contained in the
concentrates is returned to the Company under a tolling arrangement. The
Company then sells the tolled silver to major metal brokers. The pricing
of the silver is based on worldwide bullion markets. The lead and gold
contained in the concentrates are sold to ASARCO. The Lucky Friday zinc
concentrates are shipped to Cominco's smelter in Trail, British Columbia,
Canada, and are sold under an agreement with Cominco Ltd.
In the event agreements with ASARCO and Cominco are terminated, the
Company believes that new agreements could be negotiated with other
smelters at terms that would not have a material effect upon the overall
results of operations or financial condition of the Company.
Based on the Company's experience in operating deep mines in the Coeur
d'Alene Mining District, where the persistence of mineralization to
greater depths may be reliably inferred from operating experience and
geological data, the Company's policy is to develop new levels at a
minimum rate consistent with the requirements for uninterrupted and
efficient ore production. A new level is developed and brought into
production only to replace diminishing ore reserves from levels being
mined out.
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The length and strength of the ore body have not materially diminished on
the lowest developed level of the mine. Based upon this factor, drilling
data and extensive knowledge of the geologic character of the deposit, and
many years of operating experience in the Lucky Friday mine and Coeur
d'Alene Mining District, there are no geologic factors known at present
which appear to prevent the continuation of the Lucky Friday ore body for
a considerable distance below the lowermost working level. Although there
can be no assurance of the extent and quality of the mineralization which
may be developed at greater depths, the existing data and operating
experience justify, in the opinion of the Company's management and based
upon industry standards, the conclusion that the mineralization will
extend well below the 6200-foot level, which is the existing bottom of the
mine's Silver Shaft.
The principal mining method, underhand cut and fill, was piloted in 1985
and 1986, and has since been fully implemented. This method utilizes
mechanized equipment, a ramp system and cemented sand fill. The method
has proven effective in reducing mining costs and limiting rockburst
activity. Without this mining method, the mine would be unworkable in
certain stopes because of the unstable nature of the rock. However,
rockbursting continues to be a concern in the one-mile-deep mine.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of silver produced for the past five
years is set forth in the table below:
Years
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Production (100%) 1993 1992 1991 1990 1989
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Ore milled (tons) 179,579 175,170 152,150 147,671 138,720
Silver (ounces) 2,122,738 2,031,779 1,850,531 1,894,944 1,904,038
Gold (ounces) 972 965 928 916 944
Lead (tons) 19,795 21,336 18,857 17,333 16,094
Zinc (tons) 4,385 4,213 3,164 3,306 3,253
Copper (tons) 339 129 175 49 281
Proven and Probable
Mineral Reserves1
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Total tons 414,315 446,105 440,060 527,830 458,800
Silver (oz. per ton) 14.4 14.3 13.6 14.5 16.1
Lead (percent) 14.3 13.4 12.8 13.4 14.4
Zinc (percent) 3.0 2.3 2.8 2.7 2.4
Average Cost per Ounce
of Silver Produced
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Cash Production Costs $ 5.54 $ 4.12 $ 5.01 $ 4.54 $ 4.57
Full Production Cost $ 6.77 $ 5.35 $ 6.20 $ 6.25 $ 6.35
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1 Reserves lying above or between developed levels are
classified as proven reserves. Reserves lying below
the lowest developed level,
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projected to 100 feet below the lowest level or to one-half
the exposed strike length, whichever is less, are classified
as probable reserves. Mineralization known to exist from
drill-hole intercepts does not meet the Company's current
proven or probable reserve criteria and is excluded from these
reserve categories.
During 1991, the Company discovered several mineralized structures
containing some high-grade silver ores in an area known as the Gold Hunter
property, about 5,000 feet northwest of the existing Lucky Friday
workings. In an extensive exploration program in 1992, the Company
undertook an underground evaluation of the Gold Hunter property
mineralization. The program discovered mineralization containing
significant amounts of silver and lead in an area accessible from the
4050-foot level of the Lucky Friday mine. The exploration program and a
feasibility study were completed during 1993. The Company's decision
regarding development of the Gold Hunter property is pending. The Gold
Hunter property is controlled by the Company under a long-term operating
agreement, which entitles the Company, as operator, to a 79.08% interest
in the net profits from operations from the Gold Hunter properties. The
Company will be obligated to pay a royalty after it has recouped its costs
to explore and develop the properties, which as of December 31, 1993,
totaled approximately $7.9 million. If the Gold Hunter property is
further developed, the Company currently estimates that $10-15 million of
capital expenditures would be required.
At December 31, 1993, there were 139 employees at the Lucky Friday mine.
The United Steelworkers of America is the bargaining agent for the Lucky
Friday hourly employees. The current labor agreement expires on June 12,
1996, and will be continued for an additional three years if the Company
develops the Gold Hunter property.
Republic Mine - Republic, Washington
The Company owns and operates the Republic mine located in the Republic
Mining District near Republic, Washington, which consists of several
associated deposits and properties, a mill and ancillary surface plants.
The property is readily accessible year-round by all-weather roads. The
mine produces gold-silver ore which is milled on the property. Products
of the mill are a gold-silver flotation concentrate and a gold-silver
dore.
The Company's land position in the Republic area consists of approximately
five square miles, where the Company is currently focusing exploration
efforts in search of additional gold mineralization. If additional
reserves are not discovered and developed, the Company expects that gold
reserves at the Republic mine will be substantially depleted in early 1995
and mining operations will cease. As further described below, the Company
has undertaken a significant exploration program to determine if there are
additional reserves on the property.
The mine is an underground operation using both conventional and
smaller-scaled mechanized underground mining methods. Access is provided
by shafts and a ramp decline. The ore from the mine is processed in a
325-ton-per-day flotation and cyanidation mill. Combined average recovery
for 1993 in the two mill products (flotation concentrate and dore)
amounted
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to 91% of the gold and 80% of the silver contained in the crude ore. The
Company believes that adequate provision has been made for disposal of
mine waste and mill tailings in a manner which complies with current
federal and state environmental requirements.
The Republic mine's mill facility and surface and underground equipment
are in good working condition. The mill was constructed approximately 57
years ago. The Company maintains and modernizes the plant and equipment
on an ongoing basis. Significant improvements include, during 1989
through 1992, expansion of mill capacity, enhanced metals recovery through
installation of a counter-current decantation circuit, a closed ore
crushing circuit, an enhanced metals concentrate leaching and
electrowinning recovery circuit and a small refinery to further enhance
the value of the mine's products prior to shipment. Improvements to the
mine include a decline and development drift which the Company drove
during 1990 to improve access to mineralized areas, as well as allowing
direct underground access by rubber-tired vehicles and improving
ventilation. The net book value of the Republic mine property and its
associated plant and equipment is approximately $11.4 million as of
December 31, 1993. Ferry County P.U.D. supplies electrical power to the
Republic mine.
The mineral-bearing structures in the Republic Mining District are
dominantly quartz fillings in fissure veins. Less commonly,
mineralization is hosted by volcanic and sedimentary wall rocks near the
veins. Principal ore minerals are electrum, native gold and silver with a
variety of sulfosalts and selenides. The mine has been developed on 13
levels from the surface to a vertical depth of 1,750 feet. Since 1984,
the Golden Promise deposit of the mine has been developed on seven levels.
Ongoing exploration and development of the Golden Promise deposit are
complicated by post-ore faulting and by the occurrence of several styles
of mineralization. Development drilling during 1993 located several
ore-grade intercepts 250 feet below the lowest working level of the Golden
Promise (See "Exploration" for additional discussion of the Golden
Promise).
Flotation concentrates produced from the Company's Republic mill are
smelted by ASARCO Incorporated at East Helena, Montana. The silver
contained in the concentrates is sold directly to ASARCO. The dore
product is shipped to Johnson Matthey's refinery at Salt Lake City, Utah,
for further refining. The gold contained in the concentrate and the gold
and silver contained in the dore are then sold by the Company to metal
brokers, primarily under short-term contracts. Pricing of silver and gold
is based on worldwide bullion markets.
If ASARCO or Johnson Matthey should be unable to receive or process the
products, the Company believes that other purchasers or processors for the
products could be found without causing a material effect upon the overall
results of operations or financial condition of the Company.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of gold produced for the past five
years is set forth in the table below:
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Years
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Production (100%) 1993 1992 1991 1990 1989
- ------------------ ------- ------- ------- ------- -------
Ore milled (tons) 110,846 102,631 96,562 92,843 82,961
Gold (Au) (ounces) 49,601 58,343 77,736 81,397 74,335
Silver (Ag) (ounces) 276,688 299,957 311,445 326,346 301,432
Proven and Probable
Mineral Reserves(1)
- ----------------
Total tons 103,533 269,736 401,318 437,580 412,300
Gold (oz. per ton) 0.43 0.52 0.53 0.65 0.81
Silver (oz. per ton) 2.7 3.2 3.2 3.5 3.3
Average Cost per
Ounce of Gold Produced
- ----------------------
Cash Production Costs $ 207.43 $ 176.47 $ 143.40 $ 127.97 $ 121.02
Full Production Cost $ 261.73 $ 220.64 $ 176.44 $ 142.92 $ 130.32
- -------------------------------
(1) Reserves represent diluted in-place grades and do not reflect losses
in the recovery processes. Dilution was effected through
application of 1.0 feet on either side of the vein for any sample
thicker than 2.1 feet. For samples thinner than 2.1 feet, dilution
was effected with whatever thickness was necessary to equal 4.0
feet. Diluent grades are zero ounces per ton for both gold and
silver.
In 1993 a negative ore reserve adjustment was made totaling approximately
39,000 ounces of gold and 235,000 ounces of silver. Most of the
adjustment was necessary when development encountered erratic
mineralization in an upper level ore zone which was previously estimated
to be continuous reducing the tonnage available for mining by 33,765 tons.
Other various adjustments attributable to the reduction totaled 867 tons.
There were 116 people employed at the Republic mine at December 31, 1993.
Employees at Republic are not represented by a bargaining agent.
Cactus Mine - Mojave, California
The Cactus mine consists of approximately 1,600 acres of leasehold lands,
mining claims and millsites, located approximately 85 miles northeast of
Los Angeles, California, in the Mojave Mining District. The property is
readily accessible year-round by all-weather roads. The Company currently
has a 63.75% effective interest in Cactus Gold Mines Company (Cactus) and
manages Cactus' two open-pit heap leach mines, the Middle Buttes and
Shumake. The Company, as manager of Cactus, receives a management fee
equal to 2% of net revenues of Cactus as defined in the mining venture
agreement and is reimbursed for costs incurred on behalf of Cactus.
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The Middle Buttes mine began production in August 1986. During 1991,
operations were completed at the Middle Buttes mine, and the remaining
recoverable gold was processed. Development of the Shumake mine was
completed in November 1988, with commercial production beginning in
December 1988. Mining operations at the Shumake mine were completed in
February 1992. The Company's share of gold recovery from the heap is
estimated to be 3,250 ounces in 1994, which is expected to be the final
year of production. Reclamation efforts are ongoing.
The book value of the Company's interest in the Cactus mine property and
its associated plant and equipment was fully depreciated as of December
31, 1993. Southern CalEdison supplies electrical power to the Cactus
mine.
Cactus is owned 75% by Middle Buttes Partners Limited (MBPL) and 25% by
Compass Mining Inc. MBPL is a limited partnership in which the Company is
both the sole general partner (52.50%) and a limited partner (11.25%).
The Company, as general partner of MBPL, receives 75% of the production
from Cactus subject to payment of 11.25% of the net cash flows to the
other limited partner of MBPL.
The following table sets forth the information with respect to the
Company's share of production, proven and probable mineral reserves, and
average cost per ounce of gold produced for the past five years.
Years
------------------------------------------------------------------------
Production (75%) 19931 19921 1991 1990 1989
------------------- --------- --------- --------- --------- ---------
Ore processed (tons) - - 315,328 1,760,714 1,750,275 1,704,518
Gold (ounces) 7,316 27,212 40,434 45,005 44,567
Silver (ounces) 24,165 114,415 162,760 184,349 199,982
Proven and Probable
Mineral Reserves
-------------------
Total tons - - - - 234,140 1,615,182 3,804,750
Gold (oz. per ton) - - - - 0.04 0.03 0.06
Average Cost per
Ounce of Gold Produced
----------------------
Cash Production Costs $ 242 $ 213 $ 246 $ 226 $ 276
Full Production Cost $ 309 $ 337 $ 437 $ 366 $ 371
-------------------------------
(1) Mining operations were completed in February 1992. Gold recovery
from the heap continued through 1993, but is expected to be
completed in 1994.
Current operations at Cactus include approximately 17 employees. The
employees at Cactus are not represented by a bargaining agent.
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Granduc Mines Limited - British Columbia, Canada
On January 24, 1994, the Company sold its entire investment in Granduc by
selling 2,000,000 Granduc common shares to Conwest Exploration Company
Limited and 815,330 Granduc common shares to Jascan Resources Inc., both
of which are Toronto, Ontario, Canada based companies. The Company
recognized a gain on the sale of approximately $1,327,000 in the first
quarter of 1994.
INDUSTRIAL MINERALS SEGMENT
The Company's principal industrial minerals assets are its ball clay
operations in Kentucky, Tennessee, and Mississippi; its kaolin operations
in South Carolina and Georgia; its feldspar operations in North Carolina;
its clay slurry plant in Monterrey, Mexico; its lawn and garden products
operations in southern Idaho and western Montana; and its specialty
aggregate operations (primarily scoria) in southern Colorado and northern
New Mexico. The Company conducts these operations through five wholly
owned subsidiaries: (1) Kentucky-Tennessee Clay Company (K-T Clay),
which operates its Ball Clay and Kaolin Divisions; (2) K-T Feldspar
Corporation (K-T Feldspar), which operates the feldspar business; (3) K-T
Clay de Mexico, S.A. de C.V. (K-T Mexico), which operates the clay slurry
plant business; (4) Mountain West Bark Products, Inc. (Mountain West),
which operates a lawn and garden products business; and (5) Colorado
Aggregate Company (CAC), which operates the Company's specialty aggregate
business.
K-T Clay Ball Clay Division
K-T Clay is one of the nation's major suppliers of premium ball clay.
Ball clay is of sedimentary origin and consists of several basic clay
minerals along with a slight amount of organic content, a combination of
materials that gives ball clay its unique character. The principal use
of ball clay is in the ceramic and porcelain fields, which includes use
for such items as pottery, dinnerware, tile, electrical insulators and
sanitaryware. Ball clay is also used in refractories and abrasives and
has applications in other specialty industries as well.
Mining of ball clay is accomplished through strip mining methods. The
mining activity requires definition drilling and the removal of
overburden in order to expose the clay strata to be mined. Mining
activity is selective based on clay grade and strata control. The clays
are mined with loaders and backhoes, loaded into trucks and hauled to one
of K-T Clay's plants for processing. Processing of ball clay consists of
shredding and classification of clay by various grades, hammer or roller
milling to reduce particle size, drying and packaging. The grades can be
shipped in bulk or blended and bagged in order to meet a particular
customer's requirements. A particular clay or blend of several clays can
also be shipped to customers in slurry form in tanker trucks or rail
cars.
There are many grades of ball clay which K-T Clay mines, processes and
blends to meet the specifications and requirements of its various
customers. Different uses may require mixtures of ball clay having
substantially different physical properties, and K-T Clay, through many
years of experience and ongoing research performed in its laboratories,
-13-
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possesses the expertise that enables it to respond to changes in customer
requirements with minimal advance notice. The marketing of ball clays is
directed from K-T Clay's headquarters in Mayfield, Kentucky. K-T Clay's
marketing personnel are trained in ceramic engineering or related
technical fields, which also has enabled K-T Clay to respond to changes
in its customer requirements.
K-T Clay mines and processes different grades of ball clays in Kentucky,
Tennessee and Mississippi. K-T Clay has identified or delineated
deposits of ball clay on numerous properties. Such properties are either
owned in fee simple or held under long-term lease. The royalties or
other holding costs of leased properties are consistent with the
industry, and the expiration of any particular lease would not affect K-T
Clay's ability to operate at current levels of operations. K-T Clay has
sufficient reserve positions to maintain current operations in excess of
20 years. K-T Clay is also continuously exploring for new deposits of
ball clay, either to replace certain grades of clay that may become mined
out or to locate new deposits that can be mined at lower cost.
Minimum standards for strip mining reclamation have been established by
various governmental agencies which affect K-T Clay's ball clay mining
operations. The Tennessee Surface Mining Law and the Mississippi
Geological Economics and Topographical Survey, Division of Mining and
Reclamation, require K-T Clay to post a performance bond on acreage to be
disturbed. The release of the bond is dependent on the successful
grading, seeding and planting of spoil areas associated with current
mining operations. In addition, the United States Environmental
Protection Agency has issued guidelines and performance standards which
K-T Clay must meet. K-T Clay may be required to obtain other licenses or
permits from time to time, but it is not expected that any such
requirements will have a material effect upon the Company's results of
operations or financial condition.
There were 166 people employed by K-T Clay at its ball clay operations as
of December 31, 1993. Some of the hourly employees are represented by
the United Steelworkers of America. The three-year labor agreement will
expire on February 8, 1997.
K-T Clay Kaolin Division
K-T Clay acquired the kaolin operations and assets of Cyprus Minerals
Company's clay division on February 17, 1989, including kaolin mines and
plants at Deepstep and Sandersville, Georgia, and Aiken, South Carolina.
Kaolin, or china clay, is a near white clay of sedimentary origin, and is
consumed in a variety of end uses including ceramic whiteware, textile
grade fiberglass, as rubber and paper filler, and in miscellaneous
plastics, adhesives and pigment applications. Kaolin is a unique
industrial mineral because of its wide range of chemical and physical
properties. The Kaolin Division of K-T Clay mines, processes, and blends
numerous grades of clay to meet the specifications and requirements of
its customers.
Markets for K-T Clay's kaolin products are similar to ball clay and
adverse shifts in market demand could occur due to mineral substitution
and
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decreased demand for end-use products, which could adversely impact the
demand for kaolin. Kaolin currently competes with minerals such as
calcium carbonate in many filler applications, but the substitution of
other minerals for kaolin in ceramic and fiberglass applications is
limited. The marketing of kaolin to the ceramics industry is carried out
by K-T Clay's sales force. Marketing to other industries is done through
sales and distribution agents.
Mining of kaolin is done by open-pit methods. Ore bodies are identified
and delineated by exploration drilling and overburden is removed by
scrapers down to favorable clay strata. Select mining of clay is then
accomplished by backhoe with over-the- road truck haulage to the
processing and stockpiling facilities. K-T Clay operates kaolin mines in
Georgia, serving its processing plants located at Sandersville and
Deepstep, Georgia. K-T Clay also operates kaolin mines located in South
Carolina, serving a processing plant located in Aiken, South Carolina.
Processing of the clays is completed by the air-floating method where
clay is shredded, dried, ground and separated by particle size at the
Sandersville, Deepstep and Aiken locations. In addition, clay is also
processed into a water slurry mixture at the Sandersville location.
K-T Clay's Kaolin Division holds in excess of 20 years of reserves based
on current sales and product mix. Reserves are held on fee simple and
leased property and K-T Clay plans to continue a very active kaolin
exploration and development program.
The Kaolin Division operates its mines in Georgia and South Carolina
under mine permits issued by the Environmental Protection Division,
Department of Natural Resources of the State of Georgia, and the Land
Resource Conservation Commission, Division of Mining and Reclamation of
the State of South Carolina. All mines and processing plants have
current permit status and are in good standing.
There were 92 people employed by K-T Clay at its Kaolin Division as of
December 31, 1993, with less than 25% of the labor force being
represented by the Cement, Lime, Gypsum and Allied Workers, Division of
International Brotherhood of Boilermakers. The current labor contract at
the Sandersville, Georgia operation expires on March 1, 1995.
Both the Ball Clay and Kaolin Divisions of K-T Clay's plants and
equipment have been operational in excess of 25 years. The Company has
upgraded and modernized these facilities over the years and has a
continuing maintenance program to maintain the plant and equipment in
good physical and operating condition. The net book value of the K-T
Clay property and its associated plant and equipment was $19.1 million as
of December 31, 1993. K-T Clay utilizes power from several public
utilities as well as local utility co-operatives located in the vicinity
of K-T Clay's operating plants.
K-T Feldspar Corporation
The Company acquired the operations and assets of K-T Feldspar on
December 13, 1990, including sodium feldspar mines and a processing plant
located near Spruce Pine, North Carolina. Feldspars are a mineral group
-15-
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that are the major constituents of igneous rocks and important
constituents of other major rock types. The feldspars are the most
widespread mineral group and make up 60% of the earth's crust.
Chemically the feldspars are aluminosilicates that contain potassium,
sodium and calcium.
K-T Feldspar mines, processes and blends sodium feldspar and
feldspar-silica products. It also produces by-product mica concentrate
and construction sand. K-T Feldspar products are primarily used in the
ceramic whiteware, glass and paint industries.
Markets for feldspar have fluctuated slightly over time as a result of
mature market conditions. However, adverse shifts in market demand could
occur due to mineral substitution and decreased demand for end-use
products. Feldspar currently competes with nepheline syenite in some
market segments and substitution between minerals is linked to economics,
physical-chemical characteristics and supplier reliability. The
marketing of feldspar to the ceramics and filler industries is carried
out by K-T Clay's sales force and through sales and distribution agents.
Feldspar ore is mined by open-pit methods using a 40-foot bench mining
plan. Ore is drilled and blasted, loaded by hydraulic shovel or
front-end loader into off-highway dump trucks and transported to the
processing plant. K-T Feldspar operates several mine locations in the
Spruce Pine, North Carolina area, all serving the centrally located
processing plant. Processing of the feldspar ores consists of crushing,
grinding, density separation, flotation, drying and high intensity
magnetic separation.
K-T Feldspar holds in excess of 20 years of reserves based on current
sales, product mix and lease terms. Reserves are held on fee simple and
leased properties.
K-T Feldspar operates its mines and plant under permits issued by the
North Carolina Department of Natural Resources and Community Development.
All permits are in good standing.
K-T Feldspar's plant and equipment have been operational in excess of 25
years. The Company has upgraded and modernized these facilities over the
years and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of the K-T Feldspar property and its associated plant and equipment was
$5.8 million as of December 31, 1993. Carolina Power & Light Company, a
regulated public utility, provides the electric power utilized for
operations at K-T Feldspar.
There were 44 employees employed by K-T Feldspar as of December 31, 1993;
none of whom are represented by a bargaining agent.
K-T Clay de Mexico, S.A. de C.V.
In 1993, K-T Clay substantially completed construction of its clay slurry
plant in Monterrey, Mexico, which now supplies clay slurry to the Mexican
ceramics industry. Bulk semi-dry clay is shipped by rail from K-T Clay's
domestic operations to the K-T Mexico slurry plant in Monterrey. The
clay
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is blended to customer specifications and converted to a slurry form for
final shipment to its customers.
Approximately $5.8 million was expended in constructing the clay slurry
plant. K-T Mexico utilizes electrical power from the local public
utility. There were 14 people employed by K-T Mexico as of December 31,
1993, who are represented by a bargaining agent.
Mountain West Bark Products, Inc.
The Company acquired the operations and assets of Mountain West in
December 1993 (See Note 2 of Notes to Consolidated Financial Statements).
Mountain West's primary business is the purchasing, processing and
marketing of certain waste products from lumber milling operations in the
western intermountain region. These products are sold as organic soil
amendments, organic landscape mulches and organic decorative ground cover
for landscape purposes.
The waste products are purchased by Mountain West and transported by
truck for processing to plants at two locations: Rexburg, Idaho and
Superior, Montana. The plants are located near the sources of supply to
reduce trucking costs. The principal customers are lawn and garden
retail yards, lawn and garden product distributors and discount retail
chain stores. The processing plants are owned by Mountain West and the
sources of waste bark supply are held under contracts.
Most of the annual sales take place in the first six months of the year
due to the seasonality of the market. The plants have operated in excess
of 13 years at Rexburg and five years at Superior. The plants are
maintained and upgraded continually and are in good working order.
The net book value of the associated plant and equipment was
approximately $4.6 million as of December 31, 1993. Utah Power and Light
and Montana Power Company provide electrical power utilized by the
operations at Rexburg and Superior, respectively.
Mountain West employed 68 employees as of December 31, 1993; none of whom
are represented by a bargaining agent.
Colorado Aggregate Company
CAC mines and sells volcanic rock (scoria) for use as briquettes in gas
barbecue grills, as landscaping mulch and decorative ground cover, and as
gravel bedding in aquariums. Volcanic scoria is a lightweight
clinker-like material produced during gaseous volcanic eruptions that
form cinder cones. These cones occur frequently in the geological
environment but are unique by density, texture and color.
The Company operates mines at Mesita, Colorado, and in northern New
Mexico as well as processing plants at San Acacio and Antonito, Colorado.
All mining is open pit with minimal requirements for the removal of
overburden.
The principal customers for scoria briquettes are manufacturers and
retailers of gas barbecue grills. Landscapers, distributors of
landscaping
-17-
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materials, lawn and garden retailers and discount chain stores are the
principal customers for scoria landscape stone.
The Mesita mine is owned by CAC. Due to the seasonal nature of CAC's
business, it is usually anticipated that most of its annual sales and
profits will be generated in the first two quarters of each calendar
year. The Company has over 20 years of mineral reserves at the Mesita,
Colorado, location and has developed in excess of 15 years of mineral
reserves at the Red Hill mine in northern New Mexico which is under lease
from the Bureau of Land Management.
CAC's plants and equipment have been operational in excess of 20 years.
The Company has upgraded and modernized these facilities over the years
and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of CAC's property and its associated plants and equipment was $4.0
million as of December 31, 1993. Public Service Company of Colorado and
San Luis Valley Electric Co-operative provide the electric power utilized
for operations at CAC.
CAC employed 68 employees as of December 31, 1993; none of whom are
represented by a bargaining agent.
SPECIALTY METALS SEGMENT
Apex Facility - Utah
Acquired in 1989 from Musto Exploration Ltd., of Vancouver, British
Columbia, the Apex facility is located in Washington County approximately
23 miles west of St. George, Utah, on the east flank of the Beaverdam
Mountains at an elevation of 5,600 feet. The mine property consists of
24 patented mining claims and nine unpatented lode mining claims accessed
by year-round all-weathered roads. Two of the unpatented lode mining
claims are leased. The total surface area covered by the mine properties
is approximately 700 acres.
The Apex facility was constructed in 1984 by St. George Mining
Corporation, a wholly owned subsidiary of Musto Exploration Ltd. The
plant and equipment are in good working condition and are maintained on
an ongoing basis. Improvements to the plant since the Company acquired
it in 1989 include redesigning the plant flow sheet, increasing metals
leaching capacity, the addition of copper and germanium solvent
extraction circuits, adding copper electrowinning facilities, upgrading
liners and leak detection systems in the tailings ponds, and constructing
a tailings neutralization plant. The net book value of the Apex facility
property and its associated plant and equipment was $3.0 million as of
December 31, 1993. The Apex facility is provided electrical power by
Utah Power and Light Company.
The Company suspended mining operations and processing activities at the
Apex mine in 1990 due to depressed germanium and gallium prices. Based
on its periodic review of the status of various mining properties, the
Company determined in the fourth quarter of 1992 that a write-down of
approximately $13.5 million was necessary to properly reflect the
estimated net
-18-
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realizable value of the Apex facility. There were 26 employees at the
Apex facility at December 31, 1993; none of whom are represented by a
bargaining agent.
Although the Company's strategy has primarily focused on expanding its
precious metal and industrial mineral operations, the Company continues
to investigate specialty mineral opportunities for its modern processing
facility located in southern Utah. During 1993, the Apex facility
continued production of cobalt chemicals and process trials of
metallurgical residues. The Company believes that it has achieved good
project performance during 1993 and plans to continue to develop the Apex
facility to produce cobalt chemicals and specialty metals assuming
satisfactory economics can be achieved.
PROPERTIES ON STANDBY
General
Various mining operations of the Company have been placed on a standby
basis. Placing a mining property on a standby basis during periods of
depressed metals prices, thereby preserving a depletable asset, is common
in the mining industry. The most important of these properties are
described below.
Greens Creek Mine - Admiralty Island, Alaska
At December 31, 1993, the Company held a 29.7% interest in the Greens
Creek mine, located on Admiralty Island, near Juneau, Alaska, through a
joint venture arrangement with Kennecott Greens Creek Mining Company, the
manager of the mine, a wholly owned subsidiary of Kennecott Corporation,
and CSX Alaska Mining Inc. Greens Creek is a polymetallic deposit
containing silver, zinc, gold, and lead. Effective January 1, 1993, the
Company increased its interest in the Greens Creek joint venture from
28.08% to 29.7% when the Company elected its right, under the joint
venture agreement, to acquire its allocable portion of Exalas Resources
Corporation's 5.54% joint venture interest offered to the other parties.
Greens Creek lies within the Admiralty Island National Monument, an
environmentally sensitive area. The Greens Creek property includes 17
patented lode claims, and one patented millsite claim in addition to
property leased from the U.S. Forest Service. The entire project is
accessed and served by 13 miles of road and consists of an ore
concentrating mill, tailings impoundment, a ship-loading facility and
ferry dock.
In February 1993, as a result of depressed metals prices, the decision
was made by the manager to suspend operations at the Greens Creek mine.
Commercial production ceased in April 1993, and the mine and mill were
placed on a standby basis. Limited mine development activities have
continued at the mine. All operating and environmental permits are being
maintained in anticipation of a resumption of operations once economic
conditions improve.
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During operations, ore from the Greens Creek mine, a trackless
underground operation, is milled at a 1,320-ton-per-day mill at the mine
site. The mill produces saleable lead, zinc and bulk lead/zinc
concentrates. The three concentrate products were predominantly sold to
a number of major European and Asian smelters. A lesser amount of the
concentrates was sold to metal merchants under short-term agreements.
The concentrates are shipped from a marine terminal located about nine
miles from the mine site.
The Greens Creek mill plant facility and surface and underground
equipment are in good working condition. The mill was originally
constructed about six years ago. The manager of the joint venture
maintains the plant and equipment on an ongoing basis. Improvements to
the mill during 1992 were directed to increasing mill processing rates
and improving metals separation capability. Specific improvements
included increasing flotation capacity by installing larger float cells
and column cells and increasing grinding capacity by installing two
vertical regrinding mills. The Greens Creek mine uses electrical power
provided by diesel-powered generators located on-site. The net book
value of the Company's interest in the Greens Creek mine property and its
associated plant and equipment was $49.2 million as of December 31, 1993.
The Greens Creek deposit consists of zinc, lead, and iron sulfides and
copper-silver sulfides and sulfosalts with substantial contained gold and
silver values, having a vein-like to blanket-like form of variable
thickness. The ore is thought to have been laid down by an "exhalative"
process (i.e., volcanic-related rifts or vents deposited base and
precious metals onto an ocean floor). Subsequently, the blanket-like
mineralization was severely folded by several generations of tectonic
events.
The estimated mineral reserves for the Greens Creek mine are calculated
by Greens Creek Mining Company's engineering department with support from
Kennecott Corporation's technical staff and are not independently
confirmed by the Company. Information with respect to the Company's
share of production, proven and probable mineral reserves, and average
cost per ounce of silver produced is set forth in the table below:
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Years
--------------------------------------------------------------------------------------------------------
Production 19931(29.7%) 1992(28%) 1991(28%) 1990(28%) 19892(28%)
- ----------------- ------------ --------- --------- --------- ----------
Ore milled (tons) 33,638 123,526 120,187 107,445 74,108
Silver (ounces) 551,107 1,959,368 2,178,141 2,144,389 1,446,365
Gold (ounces) 2,826 9,094 10,505 10,705 6,588
Zinc (tons) 3,453 11,385 11,906 10,391 5,559
Lead (tons) 1,298 4,650 4,863 4,698 2,685
Proven and Probable
Mineral Reserves
- -------------------
Total tons 1,911,000 3,422,000 3,876,000 1,776,400 817,000
Silver (ounces per ton) 16.0 12.7 13.3 15.1 21.4
Gold (ounces per ton) 0.14 0.13 0.12 0.13 0.19
Zinc (percent) 14.4 13.2 12.8 12.4 8.4
Lead (percent) 4.7 4.0 4.0 4.2 3.4
Average Cost per
Ounce of Silver Produced
- ------------------------
Cash Production Costs $ 5.11 $ 4.82 $ 3.94 $ 2.52 $ 4.32
Full Production Cost $ 7.16 $ 6.54 $ 5.43 $ 4.69 $ 7.25
- -------------------------------
1 Operations were suspended in April 1993 and placed on a standby
basis.
2 Production commenced in March 1989.
Ore reserve criteria and estimation techniques used for year-end 1993
reserves differed substantially from those used in prior years. Among
these changes were the adoption of block modeling techniques in place of
the sectional methods for a major section of the mine, a reevaluation of
cut-off criteria, and the development of refinements to in-situ net
smelter return estimates involving projected smelting terms and
distribution or recovery of metals in the three concentrate products and
metal price changes. In addition, more rigorous criteria for reserve
classification were applied to the probable reserves category. These
changes and the deduction for production in 1993 resulted in a reduction
in proven and probable mineral reserves from 3.4 million tons at December
31, 1992, to 1.9 million tons at December 31, 1993.
In 1993, drilling in the southwest area of the mine encountered an
additional mineralized zone containing higher than mine average gold and
silver content. The Company's interest in this mineral-bearing material
would amount to approximately 840,000 tons at 33.71 ounces of silver per
ton, 0.27 ounce of gold per ton, 13.36% zinc, and 5.84% lead. Sufficient
drilling in the southwest area has not yet been completed to classify the
mineralized zone as proven and probable mineral reserves. Drilling is
expected to continue in 1994 to define the nature and extent of this
resource.
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In January 1994, the manager of the Greens Creek mine initiated a
feasibility study to determine the advisability of placing the mine,
including the mineral-bearing material of the southwest area, back into
production. The feasibility study is expected to be completed during the
fourth quarter of 1994 or the first quarter of 1995.
At December 31, 1993 there were 26 employees at the Greens Creek Joint
Venture. The employees at the Greens Creek Joint Venture are not
represented by a bargaining agent.
Yellow Pine - Idaho
The Yellow Pine gold mine is located in Valley County, Idaho, about 50
miles east of McCall in central Idaho, and is accessed by secondary roads
and air. The property consists of 26 patented claims which are held by
the Company under lease from the Bradley Mining Company of San Francisco,
California, and 57 unpatented claims. The lease provides for production
royalties equal to 6% of net smelter returns plus 10% of cumulative cash
flow, and also provides for a minimum royalty payment of $3,500 per month
reduced by current production royalties. Production from the oxide
mineralization ceased in 1992; the operation has been undergoing
reclamation since that time. Mineralized sulfide material, estimated at
between 15 and 20 million tons containing approximately 0.09 ounce of
gold per ton, is also located on the property. The Company continues to
evaluate the economic feasibility of developing this extensive
gold-bearing deposit.
Hog Heaven - Montana
The Company controls all of the mineral rights and necessary surface
rights to approximately 6,720 acres known as Hog Heaven, located 25 miles
south of Kalispell in northwestern Montana. The property has mineralized
material totaling approximately 3,886,000 tons containing 0.019 ounce of
gold per ton and 6.16 ounces of silver per ton. At present metals
prices, the Company believes it is uneconomical to bring the property
into production.
The Company owns fee simple mineral interests on 6.5 of the 10.5 sections
it controls. Approximately 95% of the project's presently known
mineralization is believed to be contained on those 6.5 sections. The
Company leases the remaining 4 sections which are subject to a 5% royalty
rate. Three of these sections are also subject to annual advance royalty
payments of $12,500 for 1991 through 2007 and the remaining section is
subject to annual rentals of $1,920 per year for 1993-1996.
The property is subject to two noninterest-bearing production payments.
The obligation to Canadian Superior Mining Company (U.S.) (Superior) of
$2,650,000 is payable out of 10% of Hog Heaven net profits after the
return to the Company, with interest, of all funds invested by it
subsequent to May 15, 1982. The second obligation of $1,315,000 payable
to former partners of a predecessor partnership is also payable out of
10% of net profits of Hog Heaven and begins after payment in full to
Superior.
Based on its periodic review of the status of various mining properties,
the Company determined in the fourth quarter of 1992 that a write-down of
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approximately $7.0 million was necessary to properly reflect the
estimated net realizable value of the Hog Heaven property.
Escalante Mine - Utah
The Escalante mine is located in Iron County approximately 40 miles west
of Cedar City in southwest Utah. The total surface area covered by the
mine properties is presently about 800 acres. The Company ceased mining
operations at the Escalante mine on December 30, 1988, and the milling of
stockpiled ore was completed in August 1990. The currently known ore
body at the Escalante mine has been mined out and exploration efforts to
discover more ore have not been successful. The mill has been placed on
care-and-maintenance status.
Lisbon Valley Project - Utah
The Company leases a block of property comprising approximately 1,100
acres of private, state and county lands in the Lisbon Valley district
about 30 miles south of Moab in San Juan County, Utah. In 1976, the
Company entered into a joint venture with Union Carbide Corporation (now
succeeded in interest by Umetco Minerals Corporation, a wholly owned
subsidiary of Union Carbide) whereby Union Carbide became the operator of
the property. The joint venture agreement provides for equal sharing of
all costs and production. A second agreement provides for the milling of
the Company's share of production at Union Carbide's mill. In December
1982, the property was placed on a maintenance and standby basis because
of the depressed markets for uranium and vanadium. It is fully developed
and ready for production mining. However, at current metals prices, the
Company believes it is uneconomical to place the property into
production.
Based on its periodic review of the status of various mining properties,
the Company determined in the fourth quarter of 1992 that a write-down of
approximately $3.5 million was necessary to properly reflect the
estimated net realizable value of the Lisbon Valley Project.
OTHER INTERESTS
Uranium Royalties
The Company receives minimum royalties from certain of its uranium
properties located in the Ambrosia District near Grants, New Mexico,
leased by the Company to Rio Algom Corporation, successor to Kerr-McGee
Corporation. The leases covering the properties continue in effect so
long as these royalties are paid, but terminate if defined mining
operations are not conducted on such properties during a continuous
period of 36 months. Although uranium mining operations have been
suspended on the properties, Rio Algom continues to recover uranium from
the underground leach solutions from which the Company will continue to
receive royalties.
The Company also holds a 2% royalty interest from uranium ores mined from
certain other properties in the Ambrosia Lake District, which are owned
by others.
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The Company does not have current independent or verified mineral reserve
estimates for any of such properties. In addition, in view of the
severely depressed market price for uranium which now exists, uranium
royalties are immaterial to the operating results of the Company.
Uranium Mill Tailings
The Company has been involved in a number of remediation issues related
to uranium mill tailings located at properties in Colorado and New
Mexico. The Company will reclaim a site located near Naturita, Colorado,
where it processed uranium tailings under a uranium tailings processing
license originally issued to the Company by the State of Colorado. The
Company is currently working with the State of Colorado Department of
Health to develop a reclamation plan for this site. During 1993, the
Nuclear Regulatory Commission terminated the Company's license for a site
in New Mexico (Johnny M) after successfully completing the required
reclamation.
Exploration
The Company conducts exploration activities from its headquarters in
Coeur d'Alene, Idaho. The Company owns or controls patented and
unpatented mining claims, fee land, mineral concessions, and state and
private leases in ten states in the U.S. and two Mexican states. The
Company's strategy regarding reserve replacement is to concentrate its
efforts on (1) existing operations where an infrastructure already
exists, (2) other properties presently being developed and advanced-stage
exploration properties that have been identified as having potential for
additional discoveries, and (3) advanced-stage exploration acquisition
opportunities. The Company is currently concentrating its exploration
activities of existing operations at the Republic and La Choya gold mines
and the Lucky Friday and Greens Creek silver mines. The Company is also
continuing exploration activities at the Grouse Creek gold project. The
Company remains active in other exploration areas and is seeking
advanced-stage acquisition opportunities in the United States, Canada and
Mexico.
As part of its strategy to increase its development and expansion of
currently producing gold properties, the Company continues to focus its
efforts on the exploration (and development) of the Republic mine. With
the completion of the underground decline into the Golden Promise area of
the mine, the Company has secondary access to that area as well as a base
for further exploration. The Company has already identified numerous
gold targets through a surface and underground drilling program and is
currently working to access these targets from the underground decline.
For other activities at the mine see "Metals Segment - Republic Mine -
Republic, Washington."
In February 1992, the Company discovered several mineralized structures
located about 5,000 feet northwest of the existing Lucky Friday mine
workings in an area referred to as the Gold Hunter. An exploration and
development program to determine the size, content and economic
feasibility of mining the mineralization continued during 1992 and was
completed in 1993. The Company's decision regarding development of the
Gold Hunter is pending (See "Metals Segment - Lucky Friday Mine - Coeur
d'Alene Mining District - Idaho" for additional discussion regarding the
Gold Hunter).
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Assuming the consummation of the planned acquisition of Equinox in March
1994, the Company believes there are significant exploration and
development opportunities at the Rosebud gold property located in
Pershing County, Nevada. Additionally, the Equinox acquisition will also
bring the American Girl gold mine, located in Imperial County,
California, and a host of other exploration properties.
Properties are continually being added to or dropped from this inventory
as a result of exploration and acquisition activities. Exploration
expenditures for the three years ending December 31, 1993, 1992 and 1991
were approximately $4.4 million, $7.7 million and $5.7 million,
respectively.
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set forth in
Note 11 of Notes to the Consolidated Financial Statements.
COMPETITION
The Company is engaged in the mining and processing of gold, silver and
other nonferrous metals and industrial minerals in the United States.
The Company encounters strong competition from other mining companies in
connection with the acquisition of properties producing, or capable of
producing, gold, silver and industrial minerals. The Company also
competes with other mining companies in connection with the recruiting
and retention of qualified employees knowledgeable in mining operations.
Silver and gold are worldwide commodities and, accordingly, the Company
sells its production at world market prices. The table below reflects
the volatility of silver and gold prices:
Average Metal Prices
--------------------------------------------------------------
Silver Gold
Year (per oz.-Handy & Harman) (per oz.-London Final)
---- ------------------------------ ----------------------
1993 $ 4.30 $ 360
1992 $ 3.94 $ 344
1991 $ 4.04 $ 362
1990 $ 4.82 $ 383
1989 $ 5.50 $ 381
The Company cannot compare sales from its ball clay mining operations with
sales of other ball clay producers because the principal competitors are
either family-owned or divisions of larger, diversified companies, but the
Company believes that K-T Clay is the largest producer of ball clay in the
United States. With the acquisition of kaolin assets from Cyprus Minerals
Company in 1989, the Company has also become an important producer in the
United States of ceramic-grade kaolin. The principal competitors of the
Company in the ball clay industry are H. C. Spinks Clay Company, Watts
Blake Bearne & Company, and Old Hickory Clay Company. The principal
competitors of the Company in the kaolin industry, are Albion Kaolin
Company, Evans Clay Company, JM Huber Corporation, English China Clay
Company and Dry Branch Kaolin Company. The Company, with the acquisition
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of Indusmin Incorporated's feldspar assets, is also a major producer and
supplier of sodium feldspar products. The principal competitors of the
Company in the feldspar industry are Feldspar Corporation and Unimin
Corporation.
The Company competes with other producers of scoria and with manufacturers
of ceramic briquettes in the production and sale of briquettes. The
Company has limited information as to the size of the barbecue briquette
industry, but believes that it supplies a major portion of the scoria
briquettes used in gas barbecue grills. Price and natural product
characteristics, such as color, uniformity of size, lack of contained
moisture and density, are important competitive considerations. The
Company believes that it has a significant portion of the landscape scoria
market east of the Continental Divide.
Mountain West competes with other producers of lawn and garden and soil
products, decorative bark products and landscape mulches. The principal
competitors are either privately owned companies or divisions of larger
diversified companies that operate in numerous regional markets. The
Company has limited information about the sales of competing products in
its overall markets but believes it supplies a significant portion of the
market for its product in the intermountain region.
With respect to the acquisition of mineral interests and exploration
activities, which in terms of continuing growth and success may be the
most important area of the Company's activities, the Company competes with
numerous persons and with companies, many of which are substantially
larger than the Company and have considerably greater resources.
SAFETY AND ENVIRONMENTAL REGULATION
The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the Department
of Labor (MSHA) under provisions of the Federal Mine Safety and Health Act
of 1977. It is the Company's policy to comply with the directives and
regulations of MSHA. In addition, the Company takes such necessary
actions as, in its judgment, are required to provide for the safety and
health of its employees. MSHA directives have had no material adverse
impact on the Company's results of operations or financial condition, and
the Company believes that it is substantially in compliance with the
regulations promulgated by MSHA.
The Company's operations are also subject to regulation under various
federal and state environmental laws and regulations. The most
significant of these laws deal with mined land reclamation, waste water
discharges and solid wastes from mines, mills, and further processing
operations (see Note 8 of Notes to Consolidated Financial Statements).
The Company does not believe that these laws and regulations have a
material adverse effect on its results of operations or financial
condition at this time. However, charges by smelters to which the Company
sells its metallic concentrates and products have substantially increased
over a period of years because of requirements that smelters meet revised
environmental quality standards. Smelters are also subject to
environmental protection laws and regulations. The Company has no control
over the smelters' operations or their
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compliance with environmental laws and regulations. If the smelting
capacity of the United States was significantly further reduced because of
environmental requirements, it is possible that the Company's operations
could be adversely affected.
While the Company believes that it is in substantial compliance with
current applicable environmental regulations, changes in federal and state
regulatory policies may, at some future date, impose additional costs and
operating requirements upon the Company. In addition, the future
development of other Company holdings may require the acquisition of
permits from various governmental agencies. Such future changes in
federal and state regulatory policies on the Company's exploration and
development activities could adversely affect the Company.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries employed 919
people.
GLOSSARY OF CERTAIN MINING TERMS
BALL CLAY -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
CASH PRODUCTION COSTS -- Includes all direct and indirect operating cash
costs incurred at each operating mine.
CASH PRODUCTION COSTS PER OUNCE - Calculated based upon total cash
production costs, as defined herein, net of by-product revenues earned
from all metals other than the primary metal produced at each mine,
divided by the total ounces of the primary metal produced.
DECLINE -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self- propelled equipment.
Such underground openings are often driven in an upward or downward
spiral, much the same as a spiral staircase.
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
DORE -- Unparted gold and silver poured into molds when molten to form
buttons or bars. Further refining is necessary to separate the gold and
silver.
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FELDSPARS -- Aluminosilicates that contain potassium, sodium and calcium.
Feldspar products are primarily used in the ceramic whiteware, glass and
paint industries.
FULL PRODUCTION COSTS -- Includes all cash production costs, as defined,
plus depreciation, depletion and amortization relating to each operating
mine.
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FULL PRODUCTION COSTS PER OUNCE - Calculated based upon total full
production costs, as defined, divided by the total ounces of the primary
metal produced.
GRADE -- The average assay of a ton of ore, reflecting metal content.
HEAP LEACHING -- A process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve
minerals or metals out of the ore.
KAOLIN -- A fine, white clay used as a filler or extender in ceramics and
refractories.
MILL -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to affect recovery
of the pure metal.
MINERAL-BEARING MATERIAL -- Material for which quantitative estimates are
based on inferences from known mineralization, or on drill-hole samples
too few in number to allow for classification as probable reserves.
ORE -- Material that can be mined and processed at a positive cash flow.
PATENTED MINING CLAIM -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the
title of which has been conveyed from the federal government to a private
party pursuant to the patenting requirements of the General Mining Law.
PROVEN AND PROBABLE MINERAL RESERVES -- Reserves that reflect estimates of
the quantities and grades of mineralized material at the Company's mines
which the Company believes can be recovered and sold at prices in excess
of the cash cost of production. The estimates are based largely on
current costs and on projected prices and demand for the Company's
products. Mineral reserves are stated separately for each of the
Company's mines based upon factors relevant to each mine. Proven and
probable mineral reserves for the Greens Creek mine (in which the Company
owns a 29.7% interest) are based on calculations of reserves provided to
the Company by the operator of such property that have been reviewed but
not independently confirmed by the Company. Greens Creek Mining Company's
estimates of proven reserves and probable reserves at December 31, 1993
and 1992 are based on silver prices of $4.75 and $4.50 per ounce, gold
prices of $350 and $340 per ounce, zinc prices of $0.57 and $0.60 per
pound, and lead prices of $0.28 and $0.33 per pound, respectively.
Changes in reserves represent general indicators of the results of efforts
to develop additional reserves as existing reserves are depleted through
production. Grades of ore fed to process may be different from stated
reserve grades because of variation in grades in areas mined from time to
time, mining dilution and other factors. Reserves should not be
interpreted as assurances of mine life or of the profitability of current
or future operations. The Company's estimates of proven reserves and
probable reserves at December 31, 1993 and 1992 are based on gold prices
of $375 and $350 per ounce, silver prices of $4.50 and $4.00 per ounce,
lead
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prices of $0.23 and $0.30 per pound, and zinc prices of $0.44 and $0.55
per pound, respectively.
PROBABLE RESERVES -- Resources for which tonnage and grade and/or quality
are computed primarily from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation.
PROVEN RESERVES -- Resources for which tonnage is computed from dimensions
revealed in outcrops, trenches, workings or drill holes and for which the
grade and/or quality is computed from the results of detailed sampling.
The sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established. The computed tonnage
and grade are judged to be accurate, within limits which are stated, and
no such limit is judged to be different from the computed tonnage or grade
by more than 20%.
RESERVES -- That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "Ore" when dealing with
metalliferous minerals.
ROCKBURST -- Explosive rock failures caused by the pressure exerted by
rock adjacent to mine openings far below the surface.
SAND FILL -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
SHAFT -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
STOPE -- An underground excavation from which ore has been extracted
either above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all precious metals.
The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
UNDERHAND MINING -- The primary mining method employed in the Lucky Friday
mine utilizing mechanized equipment, a ramp system and cemented sand fill.
The method has proven effective in reducing mining cost and rockburst
activity.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which
remains with the federal government. The holder of a valid, unpatented
lode mining claim is granted certain rights including the right to explore
and mine such claim under the General Mining Law.
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31
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
Item 2. Properties
The Company's principal mineral properties are described in Item 1 above.
The Company also has interests in other mineral properties in the United
States and Mexico. Although some of such properties are known to contain
significant quantities of mineralization, they are not considered material
to the Company's operations at the present time. Encouraging results from
further exploration or increases in the market prices of certain metals
could, in the future, make such properties considerably more important to
the business of the Company taken as a whole.
The general corporate office of the Company is located in Coeur d'Alene,
Idaho, on a tract of land containing approximately 13 acres. The Company
also owns and plans to subdivide and sell approximately 70 adjacent acres.
The administrative offices of the Company's ball clay, kaolin and feldspar
operations are located five miles southwest of Mayfield, Kentucky.
Additionally, there are general offices and laboratory facilities at each
operating location. The Company also owns approximately 1,600 acres of
land principally for use in connection with milling and storage
operations.
The general offices of the scoria operations are located in Alamosa,
Colorado. The Company owns a parcel of land of approximately 20 acres in
the vicinity of Blanca, Colorado, on which are located building, storage
and shipping facilities utilized in its scoria business, and a bagging
plant for landscape scoria. An additional bagging facility, utilized for
scoria briquettes, is located at San Acacio, Colorado.
The general offices of Mountain West Bark Products, Inc. are located in
Rexburg, Idaho. Processing facilities are located in both Rexburg, Idaho
and Superior, Montana.
Item 3. Legal Proceedings
Reference is made to Note 8 of the Notes to Consolidated Financial
Statements included in this report for information regarding legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) (i) Shares of the Common Stock, par value $.25 per share of the
Company (the Common Stock), are traded on the New York Stock
Exchange, Inc., New York, New York.
(ii) The price range of the Common Stock on the New York Stock
Exchange for the past two years was as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1993 - High $ 10.38 $ 14.50 $ 15.25 $ 11.88
- Low 7.38 9.88 9.13 9.63
1992 - High $ 12.00 $ 10.75 $ 10.38 $ 8.88
- Low 10.00 9.13 8.88 7.38
(b) As of December 31, 1993, there were 13,549 holders of record of the
Common Stock.
(c) There were no Common Stock cash dividends paid in 1993 or 1992. The
amount and frequency of cash dividends are significantly influenced
by metals prices, operating results and the Company's cash
requirements.
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Item 6. Selected Financial Data
(dollars in thousands except for per-share amounts)
Years Ended December 31,
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
Total revenue $ 84,812 $ 113,079 $ 119,787 $ 162,669 $ 122,216
========= ========= ========= ========= =========
Income (loss) before cumulative effect of
changes in accounting principles $ (11,735) $ (49,186) $ (15,430) $ 6,711 $ (20,449)
Cumulative effect of changes in accounting
principles - - (103) - - - - - -
--------- --------- --------- --------- ---------
Net income (loss) (11,735) (49,289) (15,430) 6,711 (20,449)
Preferred stock dividends (4,070) - - - - - - - -
--------- --------- --------- --------- ---------
Net income (loss) applicable to
common shareholders $ (15,805) $ (49,289) $ (15,430) $ 6,711 $ (20,449)
========= ========= ========= ========= =========
Income (loss) per common share before
cumulative effect of changes in
accounting principles and after
preferred stock dividends $ (0.48) $ (1.59) $ (0.51) $ 0.22 $ (0.68)
========= ========= ========= ========= =========
Net income (loss) per common share $ (0.48) $ (1.60) $ (0.51) $ 0.22 $ (0.68)
========= ========= ========= ========= =========
Total assets $ 332,878 $ 222,443 $ 258,121 $ 270,085 $ 261,624
========= ========= ========= ========= =========
Long-term debt - Notes and contracts
payable1 $ 49,489 $ 70,382 $ 76,866 $ 71,062 $ 67,009
========= ========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ 0.05 $ 0.05
========= ========= ========= ========= =========
Cash dividends per preferred share $ 1.77 $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Common shares issued 34,644,734 31,651,192 30,308,680 30,118,729 30,093,642
Shareholders of record 13,549 14,859 17,127 18,032 18,863
Employees 919 826 911 981 999
- ---------------------------------
1 Includes $94,000, $181,000 and $260,000, for 1991, 1990 and 1989,
respectively, of long-term debt which is recorded in other
noncurrent liabilities.
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34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations1
INTRODUCTION
The Company is primarily involved in the exploration, development, mining, and
processing of gold, silver, lead, zinc, and industrial minerals. As such, the
Company's revenues and profitability are strongly influenced by world prices of
gold, silver, lead, and zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including inflation and
worldwide forces of supply and demand. The aggregate effect of these factors
is not possible to accurately predict.
The Company recorded net losses applicable to common shareholders for each of
the past three years ended December 31, 1993, primarily as a result of: (1) a
reduction in carrying values of certain mining properties, losses on
investments and provisions for closed operations and environmental matters
totaling $2.7 million in 1993, $42.7 million in 1992 and $3.6 million in 1991;
(2) depressed gold, silver, lead, and zinc prices; and (3) decreased gold
production due to the depletion of oxide ore reserves at the Cactus and Yellow
Pine mines and the decline in ore grade at the Republic mine.
The volatility of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its assets, exercise judgment as to
whether price changes are temporary or are likely to persist (See "Competition
- - Average Metal Prices"). The Company performs a comprehensive evaluation of
the recoverability of its assets on a periodic basis. The evaluation includes
a review of future cash flows against the carrying value of the asset. Asset
write-downs may occur if the Company determines that the carrying values
attributed to project assets are not recoverable given reasonable expectations
for future market conditions.
In 1994, the Company expects to produce approximately 106,000 ounces of gold,
including 63,000 ounces from the La Choya gold mine, 38,000 ounces of gold from
the Republic mine and an additional 5,000 ounces of gold from other sources.
Assuming the timely commencement of production at the Grouse Creek gold project
in the fourth quarter of 1994, the Company's planned 1994 total gold production
could increase by up to 53,000 ounces to 159,000 ounces, based upon its 80%
interest in the project. Assuming the consummation of the planned acquisition
of Equinox Resources Limited (Equinox) in March 1994, the Company's planned
1994 gold production is expected to increase 25,000 ounces to 184,000 ounces,
principally resulting from Equinox's interest in the American Girl mine (See
Note 2 of Notes to Consolidated Financial Statements). The Company's gold
production increase in 1994 is based upon assuming a full year of production at
the La Choya mine and the start-up of production at the Grouse Creek gold
project in the fourth quarter of 1994, which offsets the expected decrease in
gold production at the Republic mine. The Company's level of gold production
for 1994 will depend, in part, upon the timely commencement of production at
the Grouse Creek property.
- ------------------------
1For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 27.
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35
The Company's share of silver production for the year ended December 31, 1993,
was 3.0 million ounces. Estimated silver production for 1994 is 2.7 million
ounces. The decrease in estimated silver production in 1994 compared to 1993
is principally due to the suspension of operations at Greens Creek which
commenced in April 1993.
During the year ended December 31, 1993, the Company shipped 888,000 tons of
industrial minerals including ball clay, kaolin, feldspar, and specialty
aggregates. The Company currently estimates that it will ship 945,000 tons of
industrial minerals during 1994. Additionally, the Company expects to ship
591,000 cubic yards of landscape material in 1994 from its newly acquired
subsidiary, Mountain West.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's historical
Consolidated Financial Statements set forth elsewhere herein.
Results of Operations
1993 vs 1992
A net loss of approximately $11.7 million, or $0.36 per common share, was
incurred in 1993 compared to a net loss of $49.3 million, or $1.60 per common
share, in 1992. After $4.1 million in dividends to holders of the Company's
Series B Cumulative Convertible Preferred Stock (Series B Preferred Stock), the
Company's net loss applicable to common shareholders for 1993 was $15.8
million, or $0.48 per common share. The 1993 loss was due to a variety of
factors, the most significant of which are discussed below.