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Note 14 - Acquisition of Klondex Mines Ltd. | 9 Months Ended
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Sep. 30, 2018
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | Note 14. Acquisition of Klondex Mines Ltd. On July 20, 2018, we acquired all of the issued and outstanding common shares of Klondex Mines Ltd. ("Klondex") for consideration valued at $2.24 per Klondex share (the "Arrangement"). The acquisition resulted in our 100% ownership of three producing gold mines, along with interests in various gold exploration properties, in northern Nevada. The acquisition is expected to increase our annual gold production, gives us ownership of operating gold mines and identified gold reserves and other mineralized material, and provides access to a large land package with known mineralization. Under the terms of the Arrangement, each holder of Klondex common shares had the option to receive either (i) $2.47 in cash (the “Cash Alternative”), (ii) 0.6272 of a Hecla share per Klondex share (the “Share Alternative”), or (iii) US$0.8411 in cash and 0.4136 of a Hecla share per Klondex share (the “Combined Alternative”), subject in the case of the Cash Alternative and the Share Alternative to pro-ration based on a maximum cash consideration of $153.2 million and a maximum number of Hecla shares issued of 75,276,176. Klondex shareholders also received shares of a newly formed company which holds the Canadian assets previously owned by Klondex (Havilah Mining Corporation (“Havilah”)). Klondex had 180,499,319 issued and outstanding common shares prior to consummation of the Arrangement. An additional 1,549,626 Klondex common shares were issued immediately prior to consummation of the Arrangement related to conversion of in-the-money Klondex options and certain outstanding restricted share units, resulting in a total of 182,048,945 issued and outstanding Klondex common shares at the time of consummation of the Arrangement. In connection with the Arrangement, we also issued an aggregate of 4,136,000 warrants to purchase one share of our common stock (“Hecla Warrants”) to holders of warrants to purchase Klondex common shares. Of the Hecla Warrants, 2,068,000 have an exercise price of $8.02 and expire in April 2032, and 2,068,000 have an exercise price of $1.57 and expire in February 2029. In addition, we settled share-based payment awards held by Klondex directors and employees for cash of $2.0 million. Consideration for the Arrangement was cash of $161.7 million, 75,276,176 shares of our common stock valued at $242.4 million, and issuance of the Hecla Warrants valued at $10.2 million, for total consideration of $414.2 million. The cash consideration includes $7.0 million for our subscription for common shares of Havilah and $1.5 million for settlement of certain equity compensation instruments. The following summarizes the preliminary allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the date of acquisition (in thousands):
Consideration: |  |  |  |
Cash payments |  | $ | 161,704 |
Hecla stock issued (75,276,176 shares at $3.22 per share) |  |  | 242,389 |
Hecla warrants issued |  |  | 10,155 |
Total consideration |  | $ | 414,248 |
Fair value of net assets acquired: |  |  |  |
Assets: |  |  |  |
Cash |  | $ | 12,874 |
Accounts receivable |  |  | 3,453 |
Inventory - supplies |  |  | 6,564 |
Inventory - finished goods, in-process material and stockpiled ore |  |  | 10,302 |
Other current assets |  |  | 2,583 |
Properties, plants, equipment and mineral interests |  |  | 502,285 |
Non-current investments |  |  | 1,596 |
Non-current restricted cash and investments |  |  | 9,504 |
Total assets |  |  | 549,161 |
Liabilities: |  |  |  |
Accounts payable and accrued liabilities |  |  | 17,270 |
Accrued payroll and related benefits |  |  | 10,352 |
Accrued taxes |  |  | 421 |
Lease liability |  |  | 2,080 |
Debt |  |  | 35,086 |
Asset retirement obligation |  |  | 19,571 |
Deferred tax liability |  |  | 50,133 |
Total liabilities |  |  | 134,913 |
Net assets |  | $ | 414,248 |
We do not believe there are any specific elements of the allocation of purchase price above that are subject to change. However, the overall allocation is preliminary and is subject to change. Our results for the nine months ended September 30, 2018 include sales of products of $11.5 million and a net loss of $10.1 million since the acquisition date related to the operations acquired through the Arrangement. The unaudited pro forma financial information below represents the combined results of our operations as if the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the periods presented, nor is it indicative of future operating results.
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(in thousands, except per share amounts) |  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
Sales |  | $ | 156,731 |  |  | $ | 182,489 |  |  | $ | 543,741 |  |  | $ | 573,950 |
Net (loss) income |  |  | (20,735 | ) |  |  | (8,877 | ) |  |  | 4,694 |  |  |  | 2,523 |
(Loss) income applicable to common shareholders |  |  | (20,873 | ) |  |  | (9,015 | ) |  |  | 4,280 |  |  |  | (2,937 | )
Basic and diluted (loss) income per common share |  |  | (0.04 | ) |  |  | (0.02 | ) |  |  | 0.01 |  |  |  | (0.01 | )
The pro forma financial information includes adjustments to eliminate amounts related to the Canadian assets previously owned by Klondex, which were transferred to Havilah and not acquired by us, and costs related to the acquisition.

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