HECLA MINING CO/DE/ (HL) FY 2023 MD&A

Overview

Established in 1891, we are the oldest operating precious metals mining company in the United States. We are the largest silver producer in the United States, producing over 45% of 2022 U.S. silver production at our Greens Creek and Lucky Friday operations. We also produce gold at our Casa Berardi and Greens Creek operations. In addition, we are developing the Keno Hill mine in the Yukon Territory, Canada which we acquired in September 2022. We began ramp-up of the Keno Hill mill during the second quarter of 2023, with production commencing in June 2023. Based upon the jurisdictions in which we operate, we believe we have lower political and economic risk compared to other mining companies whose mines are located in other parts of the world. Our current exploration interests are located in the United States, Canada and Mexico. Our operating and strategic framework is based on expanding our production and locating and developing new resource potential in a safe and responsible manner.

Acquisition of ATAC Resources Ltd.

On July 7, 2023, we completed the acquisition of ATAC Resources Ltd. ("ATAC"), a Canadian publicly traded company, for total consideration of approximately $19.4 million through the issuance of 3,676,904 shares of Hecla common stock to ATAC shareholders based on the share exchange ratio of 0.0166 Hecla share for each ATAC common share, and $0.6 million of acquisition costs. The acquisition was deemed to be an asset acquisition under GAAP as substantially all of the fair value of the gross assets acquired was concentrated in a single asset group being mineral interests. The total consideration was assigned to the estimated fair values of the assets acquired and liabilities assumed, with $18.1 million assigned to mineral interests. As part of the acquisition, we also acquired 5,502,956 units consisting of (i) shares of Cascadia Minerals Ltd. (“Cascadia”) representing a 19.9% stake, and (ii) full warrants with a five-year term for a CAD$2 million cash investment in Cascadia. Cascadia will be managed by the former management of ATAC, who will explore specific properties in the Yukon and British Columbia. We have the right to appoint two directors to Cascadia’s board.

2023 Highlights

Operational:

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Produced 14.3 million ounces of silver and 151,259 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for 2023, 2022 and 2021.

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Keno Hill produced 1.5 million ounces of silver, with the Bermingham deposit achieving the highest mined tonnage in December; initiated a safety action plan to build a strong operational foundation at the mine.

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Continued our trend of strong safety performance, as our All Injury Frequency Rate (“AIFR”) for 2023 was 1.45.

Financial:

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Reported sales of $720.2 million.

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Generated $75.5 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion.

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Made capital expenditures (excluding lease additions and other non-cash items) of approximately $223.9 million, including $70.1 million at Casa Berardi, $43.5 million at Greens Creek, $65.3 million at Lucky Friday, and $44.7 million at Keno Hill.

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Returned $15.7 million to our stockholders through dividend payments.

Our average realized prices for silver, gold and lead increased in 2023 compared to 2022 while zinc decreased. Our average realized gold price increased while our realized price for silver, lead and zinc prices decreased in 2022 compared to 2021. See the Consolidated Results of Operations section below for information on our average realized metals prices for 2023, 2022 and 2021. Lead

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and zinc represent important by-products at our Greens Creek and Lucky Friday segments, and gold is also a significant by-product at Greens Creek.

See the Consolidated Results of Operations section below for a discussion of the factors impacting income applicable to common stockholders for the three years ended December 31, 2023, 2022 and 2021.

Key Issues Impacting our Business

Our current business strategy is to focus our financial and human resources in the following areas:

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executing value enhancing transactions, such as with the recently completed ATAC acquisition;

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advancing the development and ramp up of the Keno Hill mine with the anticipation of commencement of commercial production before the end of 2024;

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operating our properties safely, in an environmentally responsible and cost-effective manner;

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maintaining and investing in exploration and pre-development projects in the vicinities of mining districts and projects we believe to be under-explored and under-invested: Greens Creek on Alaska's Admiralty Island located near Juneau; North Idaho's Silver Valley in the historic Coeur d'Alene Mining District; the silver-producing district near Durango, Mexico; in the vicinity of our Casa Berardi mine and the Heva-Hosco project in the Abitibi region of northwestern Quebec, Canada; our projects located in two districts in Nevada; our projects in the Keno Hill mining district in the Yukon Territory, Canada; northwestern Montana; the Creede district of southwestern Colorado; the Kinskuch project in British Columbia, Canada; and the Republic Mining District in Washington state;

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improving operations at each of our mines, which includes incurring costs for new technologies and equipment;

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expanding our proven and probable reserves, mineral resources and production capacity at our properties;

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conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments;

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advancing permitting of the Libby Exploration project in Montana; and

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seeking opportunities to acquire and invest in mining and exploration properties and companies.

We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association’s CORESafety program. We seek to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in investigations and inspections by MSHA, the Commission of Labor Standards, Pay Equity and Occupational Health and Safety in Quebec, the Workers' Safety and Compensation Board in the Yukon and the Mexico Ministry of Economy and Mining and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See Item 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law.

A number of key factors may impact the execution of our strategy, including regulatory issues, metals prices and inflationary pressures on input costs. Metals prices can be very volatile and are influenced by a number of factors beyond our control (except on a limited basis through the use of derivative contracts). See Item 7. Critical Accounting Estimates and Note 10 of Notes to Consolidated Financial Statements. While we believe longer-term global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue.

Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so. We utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) from time to time zinc and lead that we forecast for future concentrate shipments. In addition, we have in place a $150 million revolving credit agreement, with an option to be increased in an aggregate amount not to exceed $75 million. As of December 31, 2023, $6.9 million was used for letters of credit, and $128.0 million was drawn on the facility leaving approximately $15.1 million available for borrowing.

Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Item 1A. Risk Factors and in Note 16 of Notes to Consolidated Financial Statements, it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans. We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may be

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significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible.

Reserve and resource estimation is a major risk inherent in mining. Our reserve and resource estimates, which underlie (i) our mining and investment plans, (ii) the valuation of a significant portion of our long-term assets and (iii) depreciation, depletion and amortization expense, may change based on economic factors and actual production experience. Until ore is mined and processed, the volumes and grades of our reserves and resources must be considered as estimates. Our reserves are depleted as we mine. Reserves and resources can also change as a result of changes in economic and operating assumptions. See Item 1A. Risk Factors - Our mineral reserve and resource estimates may be imprecise.

Consolidated Results of Operations

Total metal sales for the years ended December 31, 2023, 2022 and 2021, and the approximate variances attributed to differences in metals prices, sales volumes and smelter terms, were as follows:

Average market and realized metals prices for 2023, 2022 and 2021 were as follows:

Average realized prices differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices. Due to the time elapsed between shipment of concentrates and final settlement with customers, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement. For 2023 and 2021 we recorded positive price adjustments to provisional settlements of $18.2 million and $9.3 million, respectively, and $20.8 million in net negative price adjustments to provisional settlements in 2022. The price adjustments related to silver, gold, zinc and lead contained in our concentrate sales were partially offset by gains and losses on forward contracts for those metals for each year (see Note 10 of Notes to Consolidated Financial Statements for more information). The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc. Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in products sold during the period.

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Total metals production and sales volumes for each period are shown in the following table:

The difference between what we report as “ounces/tons produced” and “payable ounces/tons sold” is attributable to the difference between the quantities of metals contained in our products versus the portion of those metals actually paid for by our customers pursuant to of our sales contract terms. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.

Sales, total cost of sales, gross profit (loss), Cash Cost, After By-product Credits, per Ounce (“Cash Cost”) (non-GAAP) and AISC (non-GAAP) at our operating units for 2023, 2022 and 2021 were as follows (in thousands, except for Cash Cost and AISC):

(1)
A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

(2)
The calculation of AISC for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining capital and production and related costs and sustaining capital expenditures for Lucky Friday until the suspension of production during August 2023 following an underground fire for the remainder of 2023

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(3)
Includes results for San Sebastian, which was an operating segment prior to 2021.

(4)
Other includes $5.3 million of sales and total cost of sales for the year ended December 31, 2023 and $0.5 million of sales and total cost of sales for the year ended December 31, 2022, related to the environmental services business acquired as part of the Alexco acquisition.

While revenue from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product of Greens Creek, Lucky Friday, and Keno Hill is appropriate because:

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silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future;

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we have historically presented the Greens Creek and Lucky Friday units as primary silver producers, based on the original analysis that justified putting the project into production, and the same analysis applies to the Keno Hill unit, and further we believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year;

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metallurgical treatment maximizes silver recovery;

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the Greens Creek, Lucky Friday and Keno Hill deposits are massive sulfide deposits containing an unusually high proportion of silver; and

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in most of their working areas, Greens Creek, Lucky Friday and Keno Hill utilize selective mining methods in which silver is the metal targeted for highest recovery.

Accordingly, we believe the identification of gold, lead and zinc as by-product credits at Greens Creek, Lucky Friday and Keno Hill is appropriate because of their lower economic value compared to silver and due to the fact that silver is the primary product we intend to produce at those locations. In addition, we have not consistently received sufficient revenue from any single by-product metal to warrant classification of such as a co-product.

We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. Because for Greens Creek, Lucky Friday and Keno Hill we consider zinc, lead and gold to be by-products of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.

We believe the identification of silver as a by-product credit is appropriate at Casa Berardi and the Nevada Operations because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce. In addition, we do not receive sufficient revenue from silver at the Casa Berardi or Nevada Operations to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Casa Berardi and Nevada Operations, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce.

For the year ended December 31, 2023, we reported loss applicable to common stockholders of $84.8 million compared to a loss of $37.9 million and income of $34.5 million in 2022 and 2021, respectively. The following factors contributed to those differences:

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Variances in gross profit (loss) at our operations as illustrated in the table above. See the Greens Creek, Lucky Friday, Keno Hill, Casa Berardi, and Nevada Operations sections below.

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General and administrative costs were $42.7 million, $43.4 million and $34.6 million in 2023, 2022 and 2021 respectively. The decrease in 2023 of $0.7 million reflects lower incentive compensation accruals compared to 2022 partially offset by annual compensation adjustments effective July 1. The increase in 2022 of $8.8 million compared to 2021 reflects the acquisition of Alexco, higher incentive compensation accruals and annual incentive compensation adjustments.

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Exploration and pre-development expense was $32.5 million, $46.0 million and $47.9 million in 2023, 2022 and 2021, respectively. In 2023 exploration and pre-development expense decreased by $13.5 million as exploration activities were focused primarily at Keno Hill, Casa Berardi, Greens Creek and Nevada Operations, with pre-development activities incurred at the Hatter Graben in Nevada and the Libby Exploration project in Montana.

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Provision for closed operations and environmental matters of $7.6 million in 2023 compared to $8.8 million in 2022 and $14.6 million in 2021. The decrease in 2023 compared to 2022 of $1.2 million is primarily due to less reclamation activities

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at Johnny M in 2023 compared to 2022. The decrease in 2022 compared to 2021 of $5.8 million is primarily due to the settlement in 2021 of a lawsuit for $6.5 million related to a 1989 agreement entered into by our subsidiary, CoCa Mines, Inc. and its subsidiary, Creede Resources, Inc.

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Ramp-up and suspension costs were $76.3 million, $24.1 million and $23.0 million in 2023, 2022 and 2021, respectively. Ramp-up and suspension costs in 2023 include $29.8 million (2022: $2.3 million) related to the ramp up of Keno Hill, $25.5 million related to the suspension of production at Lucky Friday due to the underground fire that occurred in the #2 shaft and $2.2 million at Casa Berardi due its operations being suspended for 20 days in June, due to Quebec wildfires. During 2020, San Sebastian and Nevada were placed on care and maintenance and each of 2021, 2022 and 2023 include care and maintenance costs for these sites.

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Other operating income of $1.4 million and expense of $6.3 million and $14.3 million in 2023, 2022 and 2021, respectively. The income in 2023 compared to the expense in 2022 was primarily due to the receipt of $5.9 million in insurance proceeds in May related to an insurance coverage lawsuit.

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Fair value adjustments, net resulted in gains of $2.9 million and losses of $4.7 million and $35.8 million in 2023, 2022 and 2021, respectively. The components for each period are summarized in the following table (in thousands):

Prior to November 1, 2021, we did not designate and account for any of our base metal derivative contracts as cash flow hedges for accounting purposes and accordingly any changes in fair value of our base metals derivative contracts were recognized in gain (loss) on derivative contracts. Subsequent to November 1, 2021, any gains or losses on base metals derivative contracts designated as cash flow hedges are deferred in other comprehensive income until the transaction occurs.

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Net foreign exchange loss of $3.8 million in 2023, compared to a gain of $7.2 million and $0.4 million in 2022 and 2021, respectively, on translation of our monetary assets and liabilities at Casa Berardi, Keno Hill and San Sebastian.

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Interest expense of $43.3 million, $42.8 million and $41.9 million in 2023, 2022 and 2021, respectively. The interest in 2023, 2022 and 2021 was primarily related to our Senior Notes with 2023 also including interest expense of $2.8 million on amounts drawn on our revolving credit facility.

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Income and mining tax provision of $1.2 million compared to a benefit of $7.6 million and $29.6 million in 2022 and 2021, respectively, with the benefit in 2021 including $58.4 million for a reduction in the valuation allowance for U.S. deferred tax assets. See Corporate Matters and Note 7 of Notes to Consolidated Financial Statements for more information.

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Greens Creek

(1)
A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP). At Greens Creek, gold, zinc and lead are considered to be by-products of our silver production, and the values of those metals therefore offset operating costs within our calculations of Cash Cost and AISC, After By-product Credits, per Silver Ounce.

Gross profit increased by $22.3 million to $124.6 million in 2023 from $102.3 million in 2022, as higher realized prices for all metals sold other than zinc and higher payable metal quantities for all metals sold compared to 2022, was offset by higher production costs reflecting more tons milled, and related higher labor, maintenance and consumables costs. See Item 1A. Risk Factors - Our profitability could be affected by inflation, including the prices of other commodities for a discussion of certain risks related to our operations profitability.

Gross profit decreased by $69.4 million to $102.3 million in 2022 from $171.7 million in 2021, as lower realized prices for all metals sold other than gold, and lower payable metal quantities sold compared to 2021, was further compounded by higher production costs reflecting inflationary pressures and more tons milled, and unfavorable changes in concentrate smelter terms.

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Capital additions increased by $6.6 million in 2023 to $43.5 million compared to 2022. Significant components of the 2023 capital additions were development of $19.4 million, $9.8 million in mobile equipment, and $1.6 million in claims purchases.

The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for 2023 compared to 2022 and 2021:

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

The increase in Cash Cost and AISC, each After By-product Credits, per Silver Ounce in 2023 compared to 2022 was primarily due to higher production costs related to labor, maintenance and consumables and lower by-product credits. The increase in Cash Cost and AISC, each After By-product Credits, per Silver Ounce in 2022 compared to 2021 was primarily due to higher production costs and sustaining capital expenditures, partially offset by higher by-product credits and production.

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Lucky Friday

(1)
A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP). At Lucky Friday, lead and zinc are considered to be by-products of our silver production, and the values of those metals therefore offset operating costs within our calculations of Cash Cost and AISC, each After By-product Credits, per Silver Ounce.

During August 2023, the production at the mine was suspended due to a fire that occured while repairing an unused station in the #2 ventilation shaft, which is also the secondary egress (required by MSHA regulations). By early September, the fire had been extinguished, normal ventilation was reestablished and the workforce recalled. Following evaluation of alternatives, it was determined that in order to safely bring the mine back into production in the most rapid and cost effective way, a new secondary egress needed to be developed to bypass the damaged portion of the #2 shaft. The new egress includes extension of an existing ramp 1,600 feet, installation of a 290-foot-long manway raise, and development of an 850 foot ventilation raise. Production was suspended for the remainder of 2023. Following an MSHA inspection on January 9, 2024, production was resumed.

The Company has property and business interruption insurance coverage with an underground sub-limit of $50.0 million. On January 3, 2024, the Company received a coverage letter from the insurance carrier establishing coverage up to the underground sub-limit of $50.0 million, less any applicable deductions. There can be no assurance as to the total amount or timing of when we will start receiving such proceeds.

Gross profit in 2023 of $32.1 million, was $0.9 million higher than 2022, due to higher grades, higher realized silver and lead prices and higher tons milled per day prior to the shutdown in August compared to 2022. For the year ended December 31, 2023, $25.5 million of site specific suspension costs were included within Ramp-up and suspension costs on our consolidated statements of operations and comprehensive (loss) income.

Gross profit in 2022 of $31.2 million, was $2.7 million lower than 2021, due to lower realized prices and higher production costs in 2022 reflecting inflationary cost pressures and more tons milled. See Item 1A. Risk Factors - Our profitability could be affected by inflation, including the prices of other commodities for a discussion of certain risks related to our operations profitability.

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Total capital additions increased by $14.3 million in 2023 to $65.3 million compared to 2022 as investments were made to support sustained higher throughput and costs were incurred to build the secondary egress following the August 2023 fire. Significant components related to development ($21.7 million), the service hoist ($8.3 million), coarse ore bunker ($6.6 million), shaft and related infrastructure ($4.4 million), drilling ($4.9 million) and underground mobile equipment ($4.6 million).

The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for 2023, 2022 and 2021.

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

The increase in Cash Cost and AISC, each After By-product Credits, per Silver Ounce in 2023 compared to 2022 was due to lower by-product credits in 2023. The decrease in Cash Cost and AISC, each After By-product Credits, per Silver Ounce in 2022

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compared to 2021 was due to increased silver production and higher by-product credits, partially offset by higher production costs and sustaining capital expenditures.

Keno Hill

We acquired our Keno Hill operations as part of the Alexco acquisition in September 2022, and have focused on development activities and began ramp-up of the mill during the second quarter. A number of safety related matters have slowed the ramp up as Hecla's injury-free standard drives the pace of production and development at Keno Hill. A safety action plan focusing on training, supervision, mining practices, and implementation of the safety processes has been initiated and should be executed during 2024. The average throughput during the ramp-up of the mill has been 230 tons per day, with silver grades milled of 27.7 ounces per ton. Tonnage mined was constrained by delays in infrastructure construction which has impacted development rates. Key underground infrastructure projects completed include the shotcrete plant and the cemented rockfill plant. Modifications to the secondary crushing circuit were also completed which are expected to increase crusher availability and efficiency.

During the year ended December 31, 2023, Keno Hill recorded sales and total cost of sales of $35.5 million, related to the concentrate produced and sold during the ramp up. During the year ended December 31, 2023, $29.8 million of site specific ramp up costs were included within Ramp-up and suspension costs and $4.7 million of site specific exploration costs were included within Exploration and pre-development as reported on our consolidated statements of operations and comprehensive (loss) income. During the year ended December 31, 2023, Keno Hill recorded capital additions of $44.7 million, of which $29.6 million related to mine development and $11.3 million to mobile equipment purchases, crusher modifications and camp upgrades.

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Casa Berardi

(1)
A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP). At Casa Berardi, silver is considered to be a by-product of our gold production, and the value of silver therefore offsets operating costs within our calculations of Cash Cost and AISC, each After By-product Credits, per Gold Ounce.

As part of the Casa Berardi mine transition from an underground/open pit operation to an open pit only operation, the lower margin east mine underground operations were closed in July 2023 and only the better margin stopes of the west underground mine will be mined until mid-2024, at which time most underground activity will stop except for exploration. This strategic change resulted in production and sales decreasing significantly compared to the comparable periods in 2022 and 2021. Following the end of underground mining in mid-2024, Casa Berardi is expected to produce gold only from the 160 open pit, and at lower levels than historic production. We expect production from the 160 pit to halt in 2027, at which point we expect a gap in production from 2028 to 2030 when no ore is mined and our focus at that time will be on investing in infrastructure and equipment, stripping and permitting the expected additional open pits, Principal and West Mine Crown Pillar. From 2028 to 2030, there is not expected to be any cash flow from Casa Berardi to offset its operating and capital expenses, and instead our liquidity and capital resources are expected to come from our other operating segments. We expect to resume mining at Casa Berardi in 2030, and significant free cash flow is expected after 2030.

Gross loss increased by $29.9 million to $43.7 million in 2023 compared to $13.8 million in 2022 as higher average realized gold prices did not offset the impact of lower gold production. This increase in gross loss includes $12.7 million in product inventory net realizable value write downs due to a combination of higher direct production costs and higher depreciation, depletion and amortization expense effective July 2023, reflecting the accelerated amortization of the west underground mine. The increase in gross loss was also due to the processing of lower grade ore tonnage from both the underground and surface operations, higher costs related to mill maintenance and optimization activities, higher underground maintenance costs resulting from repairs and replacements of major components for the production fleet, and higher fuel and other consumables costs, compared to 2022. Suspension costs amounted to $2.2 million for 2023, as Casa Berardi's operations were suspended for 20 days in June, due to wildfires in Quebec which resulted in the Quebec Ministry of Natural Resources and Forests closing certain forest lands and access roads. No production or sales took place during the suspension period. See Item 1A. Risk Factors - Our profitability could be affected by inflation, including the prices of other commodities for a discussion of certain risks related to our operation's profitability.

Gross profit decreased by $29.1 million to a gross loss of $13.8 million in 2022 compared to 2021 as higher average realized gold prices did not offset the impact of lower gold production and higher cost of sales. The higher cost of sales in 2022 resulted from increased production costs due to: (i) increase in ore tonnage by 4% compared to 2021 as more lower grade surface material was processed, (ii)

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higher operating costs reflecting inflationary pressures particularly for labor and consumables, (iii) higher mill contractor costs related to maintenance and optimization activities, and (iv) higher underground maintenance costs resulting from repairs and replacements of major components for the production fleet. Depreciation, depletion and amortization expense was lower in 2022 compared to 2021 due to the impact of higher reserves in 2021 on units-of-production depreciation and lower asset additions and sales quantities. See Item 1A. Risk Factors - Our profitability could be affected by inflation, including the prices of other commodities for a discussion of certain risks related to our operation's profitability.

Total capital additions increased by $30.4 million in 2023 compared to 2022 primarily due to purchases of new surface fleet equipment as the mine transitions from an underground to an open pit operation and the construction of tailings storage facilities. Significant components of 2023 capital expenditures were tailings dam construction costs of $41.0 million, $18.2 million on machinery and equipment, and $11.2 million on development. Total capital additions decreased by $10.0 million in 2022 compared to 2021 primarily due to completion of the new 160 zone open pit mine development in 2021, which commenced ore production during the fourth quarter of 2021.

The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for 2023, 2022 and 2021:

The following table summarizes the components of Cash Cost, After By-product Credits, per Gold Ounce:

The following table summarizes the components of AISC, After By-product Credits, per Gold Ounce:

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The increase in Cash Cost and AISC, each After By-product Credits, per Gold Ounce for 2023 compared to 2022 and 2021 was primarily driven by lower gold production as Casa Berardi transitions from an underground/open pit operation to an open pit only operation, as discussed above.

Nevada Operations

Following the strategic decision to suspend the Nevada Operations in 2019, all development was suspended and production and related revenue was generated from previously developed areas. During 2023, revenue was generated from the sale of carbon. During 2022, mining of remnant refractory ore was undertaken during the third and fourth quarters, with the refractory ore sold to a third party. During 2021, production and revenue was generated from processing of the stockpiled non-refractory ore at the Midas mill and third-party processing of refractory ore in a roaster and autoclave facility, respectively. The gross loss in 2022 and 2021 resulted primarily from inventory write-downs. See Item 1A. Risk Factors - Our profitability could be affected by inflation, including the prices of other commodities" for a discussion of certain risks related to our operations profitability.

We spent $5.9 million on exploration activities and pre-development activities during 2023. Suspension-related costs are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of total cost of sales and other direct production costs and depreciation, depletion and amortization, total production costs per ton and Cash Cost and AISC, After By-product Credits, per Gold Ounce.

See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition Risks for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of the Nevada assets.

Corporate Matters

Employee Benefit Plans

Our defined benefit pension plans, while providing a significant benefit to our employees, have historically represented a significant liability to us. During 2023, the funded status of our plans assets increased slightly to $27.5 million at December 31, 2023 from $27.0 million at December 31, 2022. During 2023, we contributed a total of approximately $1.0 million in shares of our common stock to the plans (see Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for more information). We do not expect to be required to contribute to our defined benefit plans in 2024, but we may choose to do so. See Note 6 of Notes to Consolidated Financial Statements for more information. We periodically examine the defined benefit pension plans and supplemental excess retirement plan for affordability and competitiveness.

Income and Mining Taxes

Our deferred tax assets and liabilities are measured at the currently enacted tax rates that are expected to apply in years in which they are expected to be paid for or realized. Each reporting period we assess the realizability of our tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including historical operating results, estimates of future sources of taxable income, carry-forward periods available, the existence of prudent and feasible tax planning strategies and other relevant factors.

Our organizational structure requires us to have two U.S. tax groups that do not consolidate. Hecla Mining Company and subsidiaries (“Hecla U.S. Group”) has a net deferred tax asset of $2.9 million at December 31, 2023 compared to $21.0 million at December 31, 2022. The decrease of $18.1 million is primarily related to utilization of tax loss carryforward and reduction of deferred tax liabilities. In 2021 a release of valuation allowance of $58.4 million was recorded, based on a change in circumstances and weight of applicable evidence reviewed to support a more likely than not conclusion for utilization of the deferred tax assets. We are relying on all available evidence including reversal of deferred taxable temporary differences and a forecast of future taxable income along with a history of positive earnings to support the release.

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Klondex Mines Ltd (“Klondex”) is a separate U.S. tax group (“Nevada U.S. Group”) that has a net deferred tax liability of $30.8 million and $30.7 million at December 31, 2023 and 2022, respectively. The increase of $0.1 million is due to the tax liability of indefinite life mineral property.

Our net Canadian deferred tax liability at December 31, 2023 was $74.1 million, a decrease of $21.1 million from the $95.2 million net deferred tax liability at December 31, 2022. The decrease was due to current period activity.

Our Mexican net deferred tax asset at December 31, 2023 remains at zero with no change from December 31, 2022. The valuation allowance increased $13.2 million due to inability to recognize the benefit of tax losses incurred related to exploration activities at our operations in Mexico.

As a result of the Tax Cuts and Jobs Act (“TCJA”) enacted in December 2017, under Internal Revenue Code Section 174, a requirement to capitalize and amortize research and experimental expenditures for tax years beginning after December 31, 2021 is now effective. This modification has not materially impacted us.

As discussed in Note 7 of Notes to Consolidated Financial Statements, our effective tax rate for 2023 was negative 1%, reflecting a tax expense of $1.2 million on pre-tax loss of $83.0 million, compared to 17% for 2022, reflecting a tax benefit of $7.6 million on a pre-tax loss of $44.9 million. We are subject to income taxes in the United States and other foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings in different jurisdictions, the U.S. deduction for percentage depletion, fluctuation in foreign currency exchange rates and deferred tax asset valuation allowance changes. As a result, the 2023 effective tax rate could vary significantly from that of 2022. The other relevant provisions of the TCJA that became effective in 2018 consist of global intangible low-taxed income tax and base erosion and anti-abuse tax; however, these provisions have not materially impacted us.

Reconciliation of Total Cost of Sales to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP)

The tables below present reconciliations between the most comparable GAAP measure of total cost of sales to the non-GAAP measures of (i) Cash Cost, Before By-product Credits, (ii) Cash Cost, After By-product Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After By-product Credits for our operations and for the Company for the years ended December 31, 2023, 2022 and 2021.

Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce are measures developed by precious metals companies (including the Silver Institute and the World Gold Council) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP measures as we report them are the same as those reported by other mining companies.

Cash Cost, After By-product Credits, per Ounce is an important operating statistic that we utilize to measure each mine's operating performance. We use AISC, After By-product Credits, per Ounce as a measure of our mines' net cash flow after costs for reclamation and sustaining capital. This is similar to the Cash Cost, After By-product Credits, per Ounce non-GAAP measure we report, but also includes reclamation and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a silver and gold mining company, we also use these statistics on an aggregate basis - aggregating the Greens Creek and Lucky Friday mines to compare our performance with that of other silver mining companies, and aggregating Casa Berardi and Nevada Operations for comparison with other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics.

Cash Cost, Before By-product Credits and AISC, Before By-product Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site general and administrative costs, royalties and mining production taxes. AISC, Before By-product Credits for each mine also includes reclamation and sustaining capital costs. AISC, Before By-product Credits for our consolidated silver properties also includes corporate costs for general and administrative expense and sustaining capital costs. By-product credits include revenues earned from all metals other than the primary metal produced at each unit. As depicted in the tables below, by-product credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies.

In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received

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from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective.

In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective.

The Casa Berardi and Nevada Operations and combined gold properties information below reports Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce for the production of gold, their primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi and Nevada Operations. Only costs and ounces produced relating to units with the same primary product are combined to represent Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce. Thus, the gold produced at our Casa Berardi and Nevada Operations units is not included as a by-product credit when calculating Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the total of Greens Creek and Lucky Friday, our combined silver properties. Similarly, the silver produced at our other two units is not included as a by-product credit when calculating the gold metrics for Casa Berardi and Nevada Operations.

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(1)
Includes all direct and indirect operating costs related to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining and marketing expense, on-site general and administrative costs and royalties, before by-product revenues earned from all metals other than the primary metal produced at each operation. AISC, Before By-product Credits also includes reclamation and sustaining capital costs.

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(2)
AISC, Before By-product Credits for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining capital.

(3)
During the three months ended March 31, 2023, the Company completed the necessary studies to conclude usage of the F-160 pit as a tailings storage facility after mining is complete. As a result, a portion of the mining costs have been excluded from Cash Cost, Before By-product Credits and AISC, Before By-product Credits.

(4)
Other includes $5.3 million of sales and cost of sales for the year ended December 31, 2023 and $0.5 million of sales and cost of sales for the year ended December 31, 2022, related to the environmental services business acquired as part of the Alexco acquisition.

(5)
Prior years presentation has been adjusted to conform with current year presentation to eliminate exploration costs from the calculation of AISC, Before By-product Credits as exploration is an activity directed at the Corporate level to find new mineral reserve and resource deposits, and therefore we believe it is inappropriate to include exploration costs in the calculation of AISC, Before By-product Credits for a specific mining operation.

(6)
Keno Hill is in the production ramp-up phase and $29.8 million of ramp-up costs are excluded from the calculation of total cost of sales, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

(7)
Casa Berardi operations were suspended in June 2023 in response to the directive of the Quebec Ministry of Natural Resources and Forests as a result of fires in the region. Suspension costs amounted to $2.2 million for the year ended December 31, 2023, and are excluded from the calculation of total cost of sales, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

(8)
Lucky Friday operations were suspended in August 2023 following the underground fire in the #2 shaft secondary egress. The portion of cash costs, sustaining costs, by-product credits, and silver production incurred since the suspension are excluded from the calculation of total cost of sales, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, and AISC, Before By-product Credits, and AISC, After By-product Credits.

Financial Liquidity and Capital Resources

Liquidity overview

We have a disciplined cash management strategy of maintaining financial flexibility to execute our capital priorities and provide long-term value to our stockholders. Consistent with that strategy, we aim to maintain an acceptable level of net debt and sufficient liquidity to fund debt service costs, operations, capital expenditures, exploration and pre-development projects, while returning cash to stockholders through dividends and potential share repurchases.

At December 31, 2023, we had $106.4 million in cash and cash equivalents, of which $7.6 million was held in foreign subsidiaries' local currency that we anticipate utilizing for near-term operating, exploration or capital costs by those foreign subsidiaries. At December 31, 2023, we had utilized $134.9 million drawn on our credit facility with $6.9 million for letters of credit and the remainder as borrowings. We also have USD cash and cash equivalent balances held by our foreign subsidiaries that, if repatriated, may be subject to withholding taxes. We expect that there would be no additional tax burden upon repatriation after considering the cash cost associated with the withholding taxes. Our liquidity and capital resources are reliant on our revolving credit facility and other financing activities in addition to cash provided by our operations.

Pursuant to our common stock dividend policy described in Note 12 of Notes to Consolidated Financial Statements, our Board of Directors declared and paid dividends on common stock totaling $15.2 million in 2023, $12.4 million in 2022 and $20.1 million in 2021. Our dividend policy has a silver-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend. In each of May and September 2021, our Board of Directors approved an increase in our silver-linked dividend policy by $0.01 per year, and in September 2021 also approved a reduction in the minimum realized silver price threshold to $20 from $25 per ounce. We realized silver prices of $22.62, $23.67, $23.71 and $23.47 in the first, second, third and fourth quarters of 2023, respectively, thus satisfying the criterion for the silver-linked dividend component of our common stock dividend policy. As a result, on May 10, 2023, August 8, 2023, November 6, 2023, and February 13, 2024 our Board of Directors declared quarterly cash dividends of $0.00625 per share of common stock, consisting of $0.00375 per share for the minimum dividend component and $0.0025 per share for the silver-linked dividend component of our dividend policy.

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For illustrative purposes only, the table below summarizes potential dividend amounts under our dividend policy.

As discussed in Note 12 of Notes to Consolidated Financial Statements, pursuant to an equity distribution agreement dated February 18, 2021, we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents in “at-the-market” (ATM) offerings. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any sales of shares under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. During March, April and December 2023, we sold 10,645,198 shares under the agreement for proceeds of $56.7 million, net of commissions and fees of approximately $0.9 million. In total since September 2022 through December 31, 2023, we have sold 14,505,397 shares under the agreement for total proceeds of $74.0 million, net of commissions and fees of $1.2 million.

As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential at-the-market sales of common stock, and availability under our Credit Agreement (refer to Note 9 of Notes to Consolidated Financial Statements), we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report. Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes and our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”) issued to Investissement Québec, a financing arm of the Québec government, which have total principal of CAD$48.2 million and bear interest at a rate of 6.515%; principal and interest payments under our Credit Agreement; deferral of revenues, ramp-up and suspension costs at certain of our operations; capital expenditures at our operations; potential acquisitions of other mining companies or properties; regulatory matters; litigation; potential repurchases of our common stock under the program described above; and payment of dividends on common stock, if declared by our board of directors. We currently estimate a range of approximately $190 to $210 million will be spent in 2024 on capital expenditures, primarily for equipment, infrastructure, and development at our mines, before any lease financing. We also estimate exploration and pre-development expenditures will total approximately $32 million in 2024. Our expenditures for these items and our related plans for 2024 may change based upon our financial position, metals prices, and other considerations. Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors. A sustained downturn in metals prices, significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or the sources of liquidity discussed above, or other factors beyond our control could impact our plans. See Item 1A. Risk Factors - An extended decline in metals prices, an increase in operating or capital costs, or treatment charges, mine accidents or closures, increasing regulatory obligations, or our inability to convert resources or exploration targets to reserves may cause us to record write-downs, which could negatively impact our results of operations and We have a substantial amount of debt that could impair our financial health and prevent us from fulfilling our obligations under our existing and future indebtedness.

We may defer some capital expenditures and/or exploration and pre-development activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. We cannot assure you that such financing will be available to us.

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Our liquid assets excluding restricted cash and cash equivalents include (in millions):

Cash and cash equivalents increased by $1.7 million in 2023, for the reasons discussed below. Cash and cash equivalents held in foreign currencies represents balances in CAD, and decreased by $10.3 million in 2023 due to a decrease in CAD held at our Canadian operations. The value of current and non-current marketable equity securities increased by $9.7 million.

Cash provided by operating activities decreased by $14.4 million in 2023 compared to 2022. The decrease was due to lower income, adjusted for non-cash items, further compounded by the negative impact of working capital and other operating asset and liability changes. Income, adjusted for non-cash items, was lower by $4.8 million primarily due to increased loss from operations, which was mainly a result of higher ramp-up and suspension costs associated with continued ramp-up at Keno Hill and suspension of operations at Lucky Friday. Working capital and other operating asset and liability changes resulted in a net cash decrease of $9.6 million in 2023 compared to 2022. Significant variances in working capital changes between 2023 and 2022 resulted from lower cash flows from changes in other current and non-current assets and accrued payroll and related benefits.

Cash provided by operating activities decreased by $130.4 million in 2022 compared to 2021. The decrease was due to lower income, adjusted for non-cash items, further compounded by the negative impact of working capital and other operating asset and liability changes. Income, adjusted for non-cash items, was lower by $82.3 million primarily due to lower income from operations, which was mainly a result of lower realized silver, lead and zinc prices, higher treatment charges and an insignificant contribution from the Nevada Operations in 2022. Working capital and other operating asset and liability changes resulted in a net cash decrease of $29.3 million in 2022 compared to an increase in cash of $18.9 million in 2021. Significant variances in working capital changes between 2022 and 2021 resulted from lower cash flows from changes in inventories and accounts payable and accrued liabilities.

Capital expenditures, excluding $16.1 million in non-cash finance lease additions, were $223.9 million in 2023, which was $74.5 million higher than 2022. The major components of this increase were from an increase of $30.4 million at Casa Berardi primarily due to purchases of new surface fleet equipment as the mine transitions from an underground to an open pit operation and the construction of tailings storage facilities, an increase of $24.9 million at Keno Hill related to mine development, mobile equipment purchases, crusher modifications and camp upgrades, and an increase of $14.3 million at Lucky Friday as investments were made to support sustained higher throughput and costs were incurred to build the secondary egress following the August 2023 fire. During 2023, we acquired investments in other mining companies and short term investments for a total of $9.0 million.

Capital expenditures, excluding $11.9 million in non-cash finance lease additions, were $149.4 million in 2022, which was $40.3 million higher than 2021. The increase included $19.7 million for Keno Hill following the Alexco acquisition and higher expenditures at Greens Creek and Lucky Friday, partially offset by lower expenditures at Casa Berardi. As a result of the Alexco acquisition, we assumed a cash balance of $9.0 million, net of transaction costs of $5.1 million, however, we had previously advanced $25.0 million to Alexco pre-acquisition, to enable them to fund development of the Keno Hill mining district prior to acquisition closing. During 2022, we acquired investments in other mining companies and short term investments for a total of $32.0 million, and disposed of the short-term investments and a mining company investment, generating total proceeds of $9.4 million.

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During 2023, we drew down a cumulative $239 million and repaid a cumulative $111 million on our Credit Agreement. During 2022, we drew down and repaid $25.0 million on our Credit Agreement. We had no borrowings or repayments of debt during 2021. In 2023, 2022 and 2021, we paid total cash dividends on our common and preferred stock of $15.7 million, $12.9 million and $20.7 million, respectively. We made payments on our finance leases of $10.6 million, $7.6 million, and $7.3 million in 2023, 2021, and 2021, respectively. We issued stock under our ATM program described above for net proceeds of $56.7 million and $17.3 million in 2023 and 2022, respectively. We also purchased shares of our common stock for $2.0 million, $3.7 million, and $4.5 million in 2023, 2022, and 2021, respectively, as a result of our employees' election to utilize net share settlement to satisfy their tax withholding obligations related to incentive compensation paid in stock and vesting of restricted stock units. See Note 12 of Notes to Consolidated Financial Statements for more information.

Exchange rate fluctuations between the U.S. dollar and the Canadian dollar and Mexican peso resulted in an increase in our cash balance of $1.1 million, and decreases of $0.3 million and $0.5 million, during 2023, 2022 and 2021, respectively.

Contractual Obligations and Contingent Liabilities and Commitments

The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, IQ Notes, revolving credit facility, outstanding purchase orders and certain service contract commitments, and lease arrangements as of December 31, 2023 (in thousands):

(1)
Consists of open purchase orders and commitments of approximately $11.4 million, $8.1 million, $10.7 million, $2.8 million and $3.5 million for various capital and non-capital items at Greens Creek, Lucky Friday, Keno Hill, Casa Berardi and Nevada Operations, respectively.

(2)
The Credit Agreement provides for a $150 million revolving credit facility. We had net draws of $128 million and $6.9 million in letters of credit outstanding as of December 31, 2023. The amounts in the table above assumes no additional amounts will be drawn in future periods, and includes only the standby fee on the current undrawn balance and accrued interest. For more information on our Credit Agreement, see Note 9 of Notes to Consolidated Financial Statements.

(3)
Includes scheduled finance lease payments of $7.6 million, $6.3 million, $8.2 million, and $7.7 million for equipment at Greens Creek, Lucky Friday, Casa Berardi, and Keno Hill, respectively. For more information, see Note 9 of Notes to Consolidated Financial Statements.

(4)
We enter into operating leases in the normal course of business. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease arrangements. For more information, see Note 9 of Notes to Consolidated Financial Statements.

(5)
On February 19, 2020, we completed an offering of $475 million in aggregate principal amount of our Senior Notes. The Senior Notes bear interest at a rate of 7.25% per year with interest payable on February 15 and August 15 of each year, commencing August 15, 2020. For more information, see Note 9 of Notes to Consolidated Financial Statements.

(6)
On July 9, 2020, we entered into a note purchase agreement pursuant to which we issued our IQ Notes for CAD$50 million (approximately USD$36.8 million at the time of the transaction) in aggregate principal amount. The IQ Notes bear interest on amounts outstanding at a rate of 6.515% per year, payable on January 9 and July 9 of each year, commencing January 9, 2021. For more information, see Note 9 of Notes to Consolidated Financial Statements.

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We record liabilities for estimated costs associated with mine closure, reclamation of land and other environmental matters. At December 31, 2023, our liabilities for these matters totaled $120.5 million. Future expenditures related to closure, reclamation and environmental expenditures at our other sites are difficult to estimate, although we anticipate we will incur expenditures relating to these obligations over the next 30 years. For additional information relating to our environmental obligations, see Note 5 of Notes to Consolidated Financial Statements and Item 1A. Risk Factors – Our environmental obligations may exceed the provisions we have made. As discussed in Note 16 of Notes to Consolidated Financial Statements, we are involved in various other legal proceedings which may result in obligations in excess of provisions we have made.

Critical Accounting Estimates

Our significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements. As described in such Note 2, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. Our estimates are based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

We believe that our most critical accounting estimates are related to future metals prices; obligations for environmental, reclamation, and closure matters; mineral reserves and resources; accounting for business combinations; valuation of deferred tax assets and assumptions used in accounting for our pension plans, as they require us to make assumptions that are highly uncertain at the time the accounting estimates are made and changes in them are reasonably likely to occur from period to period. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors, and the Audit Committee has reviewed the disclosures presented below. In addition, there are other items within our financial statements that require estimation, but are not deemed to be critical. However, changes in estimates used in these and other items could have a material impact on our financial statements.

Future Metals Prices

Metals prices are key components in estimates that determine the valuation of some of our significant assets and liabilities, including properties, plants, equipment and mineral interests, deferred tax assets, and certain accounts receivable. Metals prices are also an important component in the estimation of reserves and resources. As shown above in Item 1. – Business, metals prices have historically been volatile. Silver demand arises from investment demand, particularly in exchange-traded funds, industrial demand, and consumer demand. Gold demand arises primarily from investment and consumer demand. Investment demand for silver and gold can be influenced by several factors, including: the value of the U.S. dollar and other currencies, changing U.S. budget deficits, widening availability of exchange-traded funds, interest rate levels, the health of credit markets, and inflationary expectations. Uncertainty related to (i) the political environment in the U.S., (ii) U.S. and global trading policies (including tariffs), (iii) a global economic recovery, and (iv) recent uncertainty in China, could result in continued investment demand for precious metals. Industrial demand for silver is closely linked to world Gross Domestic Product growth and industrial fabrication levels, as it is difficult to substitute for silver in industrial fabrication. Consumer demand is driven significantly by demand for jewelry and other retail products. We believe that long-term industrial and economic trends, including demand for metals to decarbonize the economy and urbanization and growth of the middle class in countries such as China and India, will result in continued consumer demand for silver and gold and industrial demand for silver. There can be no assurance whether these trends will continue or how they will impact prices of the metals we produce. In the past, we have recorded impairments to our asset carrying values because of low prices, and we can offer no assurance that prices will either remain at their current levels or increase.

Processes supporting valuation of our assets and liabilities that are most significantly affected by metals prices include analysis of asset carrying values, depreciation, reserves and resources, and deferred income taxes. On at least an annual basis - and more frequently if circumstances warrant - we examine our depreciation rates, reserve estimates, and the valuation allowances on our deferred tax assets. We examine the carrying values of our assets as changes in facts and circumstances warrant. In our evaluation of carrying values and deferred taxes, we apply several pricing views to our forecasting model, including current prices, analyst price estimates, forward-curve prices, and historical prices (see Mineral Reserves and Resources, below, regarding prices used for reserve and resource estimates). Using applicable accounting guidance and our view of metals markets, we use the probability-weighted average of the various methods to determine whether the values of our assets are fairly stated, and to determine the level of valuation allowances, if any, on our deferred tax assets. In addition, estimates of future metals prices are used in the valuation of certain assets in the determination of the purchase price allocations for our acquisitions (see Business Combinations below).

Sales of concentrates sold directly to customers are recorded as revenues upon completion of the performance obligations and transfer of control of the product to the customer (generally at the time of shipment) using estimated forward metals prices for the estimated month of settlement. Due to the time elapsed between shipment of concentrates to the customer and final settlement with the customer, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales and trade accounts receivable are adjusted to estimated settlement prices until final settlement by the customer. Changes in metals prices between shipment and final

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settlement result in changes to revenues and accounts receivable previously recorded upon shipment. As a result, our trade accounts receivable balances related to concentrate sales are subject to changes in metals prices until final settlement occurs. For more information, see Note 4 of Notes to Consolidated Financial Statements.

We utilize financially-settled forward contracts to manage our exposure to changes in prices for silver, gold, zinc and lead. See Item 7A. – Quantitative and Qualitative Disclosures About Market Risk - Commodity-Price Risk Management below for more information on our contract programs. Effective November 1, 2021, we designated the contracts for lead and zinc as hedges for accounting purposes, with gains and losses deferred to accumulated other comprehensive income until the hedged product ships. Prior to November 1, 2021, these contracts were not designated as hedges for accounting purposes and were therefore marked-to-market through earnings each period. Changes in silver, gold, zinc and lead prices between the dates that the contracts are entered into and their settlements will result in changes to the fair value asset or liability associated with the contracts, with a corresponding gain or loss for silver and gold contracts recognized in earnings and gain or loss for lead and zinc contracts deferred to accumulated other comprehensive income (loss).

Obligations for Environmental, Reclamation and Closure Matters

Accrued reclamation and closure costs can represent a significant and variable liability on our balance sheet. We have estimated our liabilities under appropriate accounting guidance; however, the ranges of liability could exceed the liabilities recognized. If substantial damages were awarded, claims were settled, or remediation costs incurred in excess of our accruals, our financial results or condition could be materially adversely affected.

Mineral Reserves and Resources

Critical estimates are inherent in the process of determining our reserves and resources. Our reserves and resources are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility, future recoveries, capital expenditures and production costs. See Item 2. – Properties above for the metals price assumptions used in our estimates of reserves and resources as of December 31, 2023, 2022 and 2021. Our assessment of reserves and resources occurs at least annually, and periodically utilizes external audits.

Reserves and resources are a key component in the valuation of our properties, plants and equipment. Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves and resources are also a key component in forecasts, with which we compare future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. Our forecasts are also used in determining the level of valuation allowances on our deferred tax assets. Reserves and resources also play a key role in the valuation of certain assets in the determination of the purchase price allocations for acquisitions. Annual reserve and resource estimates are also used to determine conversions of resources and exploration targets beyond the known reserve resulting from business combinations to depreciable reserves, in periods subsequent to the business combinations (see Business Combinations below). Reserves and resources are a culmination of many estimates and are not guarantees that we will recover the indicated quantities of metals or that we will do so at a profitable level.

Business Combinations

When acquiring a company, we first evaluate whether the transaction should be accounted for as an asset acquisition or a business combination. If substantially all, generally interpreted as greater than 90% of the fair value is attributable to a single asset, the transaction is accounted for as an asset acquisition, and the transaction costs are capitalized. In a business combination, transaction costs are expensed. Regardless of whether we account for an acquisition as an asset acquisition or business combination, we are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The valuation of assets acquired and liabilities assumed requires management to make significant estimates and assumptions, especially with respect to long-lived assets (including resources and exploration targets beyond the known reserve). These estimates include future metals prices and mineral reserves and resources, as discussed above. Management may also be required to make estimates related to the valuation of deferred tax assets or liabilities as part of the purchase price allocation for business combinations. In some cases, we use third-party appraisers to determine the fair values of property and other identifiable assets.

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Valuation of Deferred Tax Assets

Our deferred income tax assets include certain future tax benefits. We record a valuation allowance against any portion of those deferred income tax assets when we believe, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. We review the likelihood that we will realize the benefit of our deferred tax assets and therefore the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with all other available positive and negative evidence.

Certain categories of evidence carry more weight in the analysis than others based upon the extent to which the evidence may be objectively verified. We look to the nature and severity of cumulative pretax losses (if any) in the current three-year period ending on the evaluation date or the expectation of future pretax losses and the existence and frequency of prior cumulative pretax losses.

We utilize a rolling twelve quarters of pre-tax income or loss as a measure of our cumulative results in recent years. Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. However, a cumulative three year loss is not solely determinative of the need for a valuation allowance. We also consider all other available positive and negative evidence in our analysis.

Other factors considered in the determination of the probability of the realization of the deferred tax assets include, but are not limited to:

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Earnings history;

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Projected future financial and taxable income based upon existing reserves and long-term estimates of commodity prices;

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The duration of statutory carry forward periods;

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Prudent and feasible tax planning strategies readily available that may alter the timing of reversal of the temporary difference;

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Nature of temporary differences and predictability of reversal patterns of existing temporary differences; and

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The sensitivity of future forecasted results to commodity prices and other factors.

The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence is recent pretax losses and/or expectations of future pretax losses. Such objective evidence limits the ability to consider other subjective evidence including projections for future growth. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

See Note 7 of Notes to Consolidated Financial Statements for additional detail on the valuation allowance.

Pension Plan Accounting Assumptions

We are required to make a number of assumptions in estimating the future benefit obligations for, and fair value of assets included in, our pension plans, which impact the amount of liability and net periodic pension cost recognized related to our plans. These include assumptions for applicable discount rates, the expected rate of return on plan assets and the rate of future employee compensation increases. See Note 6 of Notes to Consolidated Financial Statements for more information on the accounting for our pension plans and the related assumptions.

New Accounting Pronouncements

Accounting Standards Updates Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden on accounting for contract modifications caused by reference rate reform. In January 2021, ASU 2021-01, Reference Rate Reform (Topic 848): Scope was issued which broadened the scope of ASU 2020-04 to include certain derivative instruments. In December 2022, ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, was issued which deferred the sunset date of ASU 2020-04. The guidance

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is effective for all entities as of March 12, 2020 through December 31, 2024. The guidance may be adopted over time as reference rate reform activities occur and should be applied on a prospective basis. Certain of our derivative instruments previously referenced London Interbank Offered Rate ("LIBOR") based rates and have been amended to eliminate the LIBOR-based rate references prior to July 1, 2023. There have been no significant impacts to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates.

Accounting Standards Updates to Become Effective in Future Periods

In August 2023, the FASB issued ASU 2023-05, Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which clarifies the business combination accounting for joint venture formations. The amendments in the ASU seek to reduce diversity in practice that has resulted from a lack of authoritative guidance regarding the accounting for the formation of joint ventures in separate financial statements. The amendments also seek to clarify the initial measurement of joint venture net assets, including businesses contributed to a joint venture. The guidance is applicable to all entities involved in the formation of a joint venture. The amendments are effective for all joint venture formations with a formation date on or after January 1, 2025. Early adoption and retrospective application of the amendments are permitted. We do not expect adoption of the new guidance to have a material impact on our consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, amending reportable segment disclosure requirements to include disclosure of incremental segment information on an annual and interim basis. Among the disclosure enhancements are new disclosures regarding significant segment expenses that are regularly provided to the chief operating decision-maker and included within each reported measure of segment profit or loss, as well as other segment items bridging segment revenue to each reported measure of segment profit or loss. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and are applied retrospectively. Early adoption is permitted. We are currently evaluating the impact of this update on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, amending income tax disclosure requirements for the effective tax rate reconciliation and income taxes paid. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024 and are applied prospectively. Early adoption and retrospective application of the amendments are permitted. We are currently evaluating the impact of this update on our consolidated financial statements and disclosures.

Guarantor Subsidiaries

Presented below are Hecla’s condensed consolidating financial statements as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla's subsidiaries of the Senior Notes and IQ Notes (see Note 9 of Notes to Consolidated Financial Statements for more information). As of December 31, 2023, the Guarantors consist of the following Hecla 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; Hecla Juneau Mining Company; Klondex Holdings Inc.; Klondex Gold & Silver Mining Co.; Klondex Midas Holdings Limited; Klondex Aurora Mine Inc.; Klondex Hollister Mine Inc.; Hecla Quebec, Inc.; and Alexco Resource Corp. We completed the offering of the Senior Notes on February 19, 2020 under our shelf registration statement previously filed with the SEC. We issued the IQ Notes in four equal tranches between July and October 2020.

The condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries are reflected in the eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-party customers, vendors, and other parties. Examples of such eliminations include the following:

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Investments in subsidiaries. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.

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Capital contributions. Certain of Hecla's subsidiaries do not generate cash flow, either at all or that is sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. Generally on an annual basis, when not otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.

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Debt. At times, inter-company debt agreements have been established between certain of Hecla's subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.

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Dividends. Certain of Hecla's subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On at least an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.

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Deferred taxes. Our ability to realize deferred tax assets and liabilities is considered for two consolidated tax groups of subsidiaries within the United States: The Nevada U.S. Group and the Hecla U.S. Group. Within each tax group, all subsidiaries' estimated future taxable income contributes to the ability of their tax group to realize all such assets and liabilities. However, when Hecla's subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary's deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary may possess deferred tax assets whose realization depends on the future taxable income of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.

Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.

Condensed Consolidating Balance Sheets