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Note 13 - Acquisition of Klondex | 3 Months Ended
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Mar. 31, 2019
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | Note 13. Acquisition of Klondex On July 20, 2018, we acquired all of the issued and outstanding common shares of Klondex Mines Ltd. ("Klondex") for consideration valued at $2.27 per Klondex share (the "Arrangement"). The acquisition resulted in our 100% ownership of three land packages in northern Nevada totaling approximately 110 square miles and containing operating or previously-operating mines with a history of high-grade gold production, along with various other gold properties. We believe the acquisition has the potential to increase our annual gold production. Under the terms of the Arrangement, each holder of Klondex common shares had the option to receive either (i) $2.47 in cash per Klondex share (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 $9.8 million, for total consideration of $413.9 million. The Hecla Warrants were valued using the Black-Scholes model and based on the exercise price and term of the warrants, the price of our common stock at the time of issuance of the warrants, and assumptions for the discount rate and volatility and dividend rate of our common stock. 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 |  |  | 9,830 |
Total consideration |  | $ | 413,923 |
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 |  |  | 10,088 |
Other current assets |  |  | 2,583 |
Properties, plants, equipment and mineral interests |  |  | 512,807 |
Non-current investments |  |  | 1,596 |
Non-current restricted cash and investments |  |  | 9,504 |
Total assets |  |  | 559,469 |
Liabilities: |  |  |  |
Accounts payable and accrued liabilities |  |  | 17,799 |
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 |  |  | 60,237 |
Total liabilities |  |  | 145,546 |
Net assets |  | $ | 413,923 |
The allocation of purchase price above is preliminary, as the valuation of certain components of properties, plants, equipment and mineral interests, along with the related deferred tax balances, are under review and subject to change. In the first quarter of 2019, we adjusted the previously-reported preliminary allocation of purchase price by decreasing (i) Inventory - finished goods, in-process material and stockpiled ore, (ii) Properties, plants, equipment and mineral interests, and (iii) Non-current deferred tax liability by $0.2 million, $8.7 million, and $9.1 million, respectively, and increasing Accounts payable and accrued liabilities by $0.5 million. We are currently undertaking a review of spending at the Nevada operations which may result in the following changes at the Fire Creek mine: a reduction in capital spending; ceasing current production and only developing to spirals 9,10 and 11; or a temporary cessation of all mine operations at Fire Creek. As a result, the values of certain components of properties, plants, equipment and mineral interests could be adjusted in the second quarter of 2019 when we expect to finalize the allocation of the Klondex purchase price. The outcome of the review may constitute a triggering event requiring assessment of the carrying value of our long-lived assets at Fire Creek with the potential to impact near-term estimated cash flows. The mineral interests at Fire Creek have a preliminary carrying value of approximately $220 million, of which approximately $46 million is depletable. We may recognize an impairment, which could be material, if the carrying value of the assets exceeds the estimated future undiscounted cash flows expected to result from their use and eventual disposition.

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