Edgar Filing: HECLA MINING CO/DE/

hecla_10k-123109.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

Form 10-K

____________________

S	Annual report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 2009

Commission file No. 1-8491

HECLA MINING COMPANY

(Exact name of registrant as specified in its charter)

Delaware	77–0664171
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6500 N. Mineral Drive, Suite 200 Coeur d’Alene, Idaho	83815-9408
(Address of principal executive offices)	(Zip Code)

208-769-4100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.25 per share		New York Stock Exchange
Series B Cumulative Convertible Preferred Stock, par value $0.25 per share		New York Stock Exchange
6.5% Mandatory Convertible Preferred Stock, par value $0.25 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ___ No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x Accelerated Filer o

Non-Accelerated Filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the registrant’s voting Common Stock held by nonaffiliates was $629,953,816 as of June 30, 2009. There were 235,662,125 shares of the registrant’s Common Stock outstanding as of June 30, 2009, and 242,028,528 shares as of February 16, 2010.

Documents incorporated by reference herein:

To the extent herein specifically referenced in Part III, the information contained in the Proxy Statement for the 2010 Annual Meeting of Shareholders of the registrant, which will be filed with the Commission pursuant to Regulation 14A within 120 days of the end of the registrant’s 2009 fiscal year is incorporated herein by reference. See Part III.

TABLE OF CONTENTS

Special Note on Forward-Looking Statements	1
PART I	1
Item 1. Business	1
Introduction	1
Products and Segments	3
Employees	4
Available Information	4
Item 1A. Risk Factors	4
Item 1B. Unresolved Staff Comments	14
Item 2. Property Descriptions	15
The Greens Creek Unit	15
The Lucky Friday Unit	17
Item 3. Legal Proceedings	19
Item 4. Submission of Matters to a Vote of Security Holders	19
PART II	20
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6. Selected Financial Data	23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Overview	24
Results of Operations	25
The Greens Creek Segment	27
The Lucky Friday Segment	30
Discontinued Operations - The La Camorra Unit	31
Corporate Matters	31
Reconciliation of Total Cash Costs (non-GAAP) to Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP)	32
Financial Liquidity and Capital Resources	33
Contractual Obligations and Contingent Liabilities and Commitments	35
Off-Balance Sheet Arrangements	36
Critical Accounting Estimates	36
New Accounting Pronouncements	37
Forward-Looking Statements	37
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	38
Short-term Investments	38
Commodity-Price Risk Management	38
Interest-Rate Risk Management	38
Provisional Sales	38
Item 8. Financial Statements and Supplementary Data	39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	40
Item 9A. Controls and Procedures	40
Disclosure Controls and Procedures	40
Management’s Annual Report on Internal Control over Financial Reporting	40
Attestation Report of Independent Registered Public Accounting Firm	41
Changes in Internal Control over Financial Reporting	42
Item 9B. Other Information	42
PART III	42
Item 10. Directors, Executive Officers and Corporate Governance	42
Item 11. Executive Compensation	44
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
Item 13. Certain Relationships and Related Transactions and Director Independence	44
Item 14. Principal Accounting Fees and Services	45
PART IV	46
Item 15. Exhibits, Financial Statement Schedules	46
Signatures	47
Index to Consolidated Financial Statements	F-1
Index to Exhibits	F-47

Table of Contents

Special Note on Forward-Looking Statements

Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” and are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our forward-looking statements include our current expectations and projections about future results, performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words such as “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “could,” “intend,” “plan,” “estimate” and similar expressions. These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

These risks, uncertainties and other factors include, but are not limited to, those set forth under Item 1A. — Business — Risk Factors. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. Projections included in this Form 10-K have been prepared based on assumptions, which we believe to be reasonable, but not in accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the Securities and Exchange Commission (“SEC”). Actual results will vary, perhaps materially, and we undertake no obligation to update the projections at any future date. You are strongly cautioned not to place undue reliance on such projections. All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business

For information regarding the organization of our business segments and our significant customers, see Note 11 of Notes to Consolidated Financial Statements.

Information set forth in Items 1A, 1B and 2 are incorporated by reference into this Item 1.

Introduction

Hecla Mining Company has provided precious and base metals to the U.S. economy and worldwide since its incorporation in 1891 (in this report, “we” or “our” or “us” refers to Hecla Mining Company and our affiliates and subsidiaries). We discover, acquire, develop, produce, and market silver, gold, lead and zinc. In doing so, we intend to manage our business activities in a safe, environmentally responsible and cost-effective manner.

We produce lead, zinc and bulk concentrates, which we sell to custom smelters, and unrefined gold bullion bars (doré), which may be sold as doré or further refined before sale to precious metals traders. We are organized and managed into two segments that encompass our operating units: the Greens Creek and Lucky Friday units.

Prior to the first quarter of 2009, we reported an additional segment, the San Sebastian unit, for our various properties and exploration activities in Mexico. However, as a result of a decrease in exploration activity there in 2009, and our ownership of 100% of Greens Creek (discussed further below), we have determined that the San Sebastian unit no longer meets the criteria for disclosure as a reportable segment as of and for year ended December 31, 2009.

Prior to the second quarter of 2008, we also reported a fourth segment, the La Camorra unit, representing our operations and various exploration activities in Venezuela. On July 8, 2008, we completed the sale of our wholly owned subsidiaries holding our business and operations in Venezuela. Our Venezuelan activities are reported as discontinued operations on the Consolidated Statement of Operations for all periods presented (see Note 12 of Notes to Consolidated Financial Statements for more information). As a result, we have determined that it is no longer appropriate to present a separate segment representing our operations in Venezuela.

On April 16, 2008, we completed the acquisition of all of the ownership interest of the two indirect Rio Tinto, PLC subsidiaries holding a 70.3% interest in the Greens Creek mine. Our wholly-owned subsidiary, Hecla Alaska LLC, previously owned an undivided 29.7% joint venture interest in the assets of Greens Creek. The acquisition gives our various subsidiaries ownership of 100% of the Greens Creek mine. More information on the acquisition can be found in Note 18 of Notes to Consolidated Financial Statements.

The map below shows the locations of our operating units and our exploration projects, as well as our corporate offices located in Coeur d’Alene, Idaho and Vancouver, British Columbia.

Table of Contents

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

Operating our properties cost-effectively;

Expanding our proven and probable reserves and production capacity at our operating properties;

Maintaining and investing in exploration projects in the vicinities of four mining districts we believe to be under-explored and under-invested: North Idaho’s Silver Valley in the historic Coeur d’Alene Mining District; at our Greens Creek unit on Alaska’s Admiralty Island, located offshore of Juneau; the silver producing district near Durango, Mexico; and the Creede district of Southwestern Colorado;

Continuing to seek opportunities to acquire and invest in mining properties and companies; and

Seeking opportunities for growth both internally and through acquisitions. See the Results of Operations and Financial Liquidity and Capital Resources sections below.

Below is a summary of net income (loss) for each of the last five years (in thousands):

	Year Ended December 31,
	2009		2008			2007		2006		2005
Net income (loss)	$	67,826	$	(66,563	)	$	53,197	$	69,122	$	(25,360	)

Our financial results over the last five years have been impacted by:OUr thousands)mber net income or loss for each of the last five yearsarious factors that impact by reference.enner & Smith inc

Fluctuations in prices of the metals we produce. The high and low daily closing market prices for silver, gold, lead and zinc for each of the last five years are illustrated by the table below:

	2009		2008		2007		2006		2005
Silver (per oz.):
High	$	19.18	$	20.92	$	15.82	$	14.94	$	9.23
Low	$	10.51	$	8.88	$	11.67	$	8.83	$	6.39
Gold (per oz.):
High	$	1,212.50	$	1,011.25	$	841.10	$	725.00	$	536.50
Low	$	810.00	$	712.50	$	608.40	$	524.75	$	411.10
Lead (per lb.):
High	$	1.11	$	1.57	$	1.81	$	0.82	$	0.52
Low	$	0.45	$	0.40	$	0.71	$	0.41	$	0.37
Zinc (per lb.):
High	$	1.17	$	1.28	$	1.93	$	2.10	$	0.87
Low	$	0.48	$	0.47	$	1.00	$	0.87	$	0.53

While Hecla’s average realized prices for all four metals increased in 2009 compared to 2008 and were higher than average market prices in 2009, due in part to the timing of concentrate shipments and their final settlement in comparison to fluctuating prices, we believe that market metal price trends are a significant factor in our operating and financial performance. Because we are unable to predict fluctuations in prices for metals and have limited control over the timing of our concentrate shipments, there can be no assurance that our realized prices will exceed or even meet average market metals prices for any future period. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations for a summary of average market and realized prices for each of the three years ended December 31, 2009, 2008 and 2007. Our results of operations are significantly impacted by fluctuations in the prices of silver, gold, lead and zinc, which are affected by numerous factors beyond our control. See Item 1A. Risk Factors – Financial Risks – A substantial or extended decline in metals prices would have a material adverse effect on us for information on the various factors that can impact prices of the metals we produce;

Table of Contents

Exploration and pre-production development expenditures totaling $9.2 million, $22.5 million, $17.0 million, $22.8 million and $17.9 million, respectively, for the years ended December 31, 2009, 2008, 2007, 2006 and 2005. These amounts include expenditures for the now-divested Hollister Development Block, as its development progressed until the sale of our interest in the project in April 2007, of $2.2 million, $14.4 million and $9.4 million, respectively, for the years ended December 31, 2007, 2006 and 2005. In addition, exploration for the year ended December 31, 2005 included $2.2 million for expenditures at the Noche Buena gold exploration property in Mexico, which was sold in April 2006;

Provision for closed operations and environmental matters of $7.7 million, $4.3 million, $49.2 million, $3.5 million and $1.3 million, respectively, for the years ended December 31, 2009, 2008, 2007, 2006 and 2005. The 2007 amount includes an increase of $44.7 million to our estimated liabilities for environmental remediation in Idaho’s Coeur d’Alene Basin and the Bunker Hill Superfund Site;

Variability in prices for diesel fuel and amounts of fuel used, and variability in prices for other consumables, which have impacted production costs at our operations;

Our acquisition of the remaining 70.3% of the Greens Creek mine for $758.5 million in April 2008, a portion of which was funded by a $140 million term loan and $220 million bridge loan. We recorded interest expense related to these credit facilities, including amortization of loan fees and interest rate swap adjustments, of $10.1 million and $19.1 million, respectively in 2009 and 2008. The amount of interest expense in 2009 is net of $1.9 million in capitalized interest. We also recorded approximately $6.0 million in expense in 2009 for additional debt-related fees. We completed repayment of the bridge loan balance in February 2009 and repayment of the term loan balance in October 2009;

The 2008-2009 global financial crisis and recession, which impacted metals prices, production costs, and our access to capital markets;

An increase in the number of shares of our common stock outstanding;

Losses from discontinued operations, net of tax, for the years ended December 31, 2008, 2007 and 2005 of $17.4 million, $15.0 million and $7.4 million, respectively, and income from discontinued operations, net of tax, for the year ended December 31, 2006 of $4.3 million; and

Decreased production, and the eventual suspension of mining operations at the San Sebastian unit in Mexico in the fourth quarter of 2005.

A comprehensive discussion of our financial results for the years ended December 31, 2009, 2008 and 2007, individual operating unit performance, general corporate expenses and other significant items can be found in Item 7. — Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, as well as the Consolidated Financial Statements and Notes thereto.

Products and Segments

Our segments are differentiated by geographic region and principal products produced. We produce zinc, lead and bulk concentrates at our Greens Creek unit and lead and zinc concentrates at our Lucky Friday unit, which we sell to custom smelters on contract, and unrefined gold bullion bars (doré) at Greens Creek, which are sold directly to customers or further refined before sale to precious metals traders. The concentrates produced at our Greens Creek and Lucky Friday units contain silver, zinc and lead, and the concentrates produced at Greens Creek also contain gold. Our segments as of December 31, 2009 included:

The Greens Creek unit, a joint venture arrangement which is 100%-owned by us through our subsidiaries Hecla Alaska LLC, Hecla Greens Creek Mining Company and Hecla Juneau Mining Company. We acquired 70.3% of our ownership of Greens Creek in April 2008 from indirect subsidiaries of Rio Tinto, plc. Greens Creek is located on Admiralty Island, near Juneau, Alaska, and has been in production since 1989, with a temporary shutdown from April 1993 through July 1996. During 2009, Greens Creek contributed $229.3 million, or 73.4%, to our consolidated sales; and

Table of Contents

The Lucky Friday unit located in northern Idaho. Lucky Friday is, through our subsidiaries Hecla Limited and Silver Hunter Mining Company, 100%-owned and has been a producing mine for us since 1958. During 2009, Lucky Friday contributed $83.2 million, or 26.6%, to our consolidated sales.

The table below summarizes our production for the years ended December 31, 2009, 2008 and 2007, which reflects our previous 29.7% ownership of Greens Creek until April 16, 2008, and our 100% ownership thereafter.

	Year
	2009		2008		2007
Silver (ounces)		10,989,660		8,709,517		5,642,558
Gold (ounces)		67,278		76,810		107,708
Lead (tons)		44,263		35,023		24,549
Zinc (tons)		80,995		61,441		26,621

The gold production amounts above include 22,160 and 87,490 ounces, respectively, for years ended December 31, 2008 and 2007 produced at our discontinued Venezuelan operations sold in July 2008.

Employees

As of December 31, 2009, we employed 656 people, and believe relations with our employees are generally good.

Many of the employees at our Lucky Friday unit are represented by a union. The collective bargaining agreement with workers at our Lucky Friday unit expires on April 30, 2010. We anticipate that we will reach a satisfactory contract with the union, although there can be no assurance that this can be done or that it can be done without disruptions to production. During the past five years, labor strikes and work slow-downs adversely affected our production in Mexico and at our now-divested Venezuelan operations. Similar labor problems could affect our financial results or condition in the future.

Available Information

Hecla Mining Company is a Delaware corporation Our principal executive offices are located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408. Our telephone number is (208) 769-4100. Our web site address is www.hecla-mining.com. We file our annual, quarterly and current reports and amendments to these reports with the SEC, copies of which are available on our website or from the SEC free of charge (www.sec.gov or 800-SEC-0330 or the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549). Charters of our audit, compensation, corporate governance, and directors’ nominating committees, as well as our Code of Ethics for the Chief Executive Officer and Senior Financial Officers and our Code of Business Conduct and Ethics for Directors, Officers and Employees, are also available on our website. We will provide copies of these materials to shareholders upon request using the above-listed contact information, directed to the attention of Investor Relations.

We have included the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) certifications regarding our public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to this report. Additionally, we filed with the New York Stock Exchange (“NYSE”) the CEO’s certification regarding our compliance with the NYSE’s Corporate Governance Listing Standards (“Listing Standards”) pursuant to Section 303A.12(a) of the Listing Standards, which certification was dated June 8, 2009, and indicated that the CEO was not aware of any violations of the Listing Standards.

Item 1A. Risk Factors

The following risks and uncertainties, together with the other information set forth in this Form 10-K, should be carefully considered by those who invest in our securities. Any of the following risks could materially adversely affect our business, financial condition or operating results and could decrease the value of our common and/or preferred stock.

Table of Contents

FINANCIAL RISKS

The global financial crisis may have an impact on our business and financial condition in ways that we currently cannot predict.

The continued credit crisis and related turmoil in the global financial system has had and may continue to have an impact on our business and financial position. The financial crisis may limit our ability to raise capital through credit and equity markets. As discussed further below, the prices of the metals that we produce are affected by a number of factors, and it is unknown how these factors may be impacted by a continuation of the financial crisis.

We have had losses that could reoccur in the future.

Although we reported net income for the years ended December 31, 2009 and 2007 of $67.8 million and $53.2 million, respectively, we reported a net loss for the year ended December 31, 2008 of $66.6 million. A comparison of operating results over the past three years can be found in Results of Operations in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Many of the factors affecting our operating results are beyond our control, including the volatility of metals prices; smelter terms; diesel fuel prices; interest rates; global or regional political or economic policies; inflation; developments and crises; governmental regulations; continuity of orebodies; and speculation and sales by central banks and other holders and producers of gold and silver in response to these factors. We cannot foresee whether our operations will continue to generate sufficient revenue in order for us to generate net cash from operating activities. There can be no assurance that we will not experience net losses in the future.

Commodity hedging activities could expose us to losses.

We periodically enter into hedging activities, such as forward sales contracts and commodity put and call option contracts, to manage the prices received on the metals we produce. Such hedging activities are utilized to attempt to insulate our operating results from declines in prices for those metals. However, hedging may prevent us from realizing possible revenues in the event that the market price of a metal exceeds the price stated in a forward sale or call option contract. In addition, we may experience losses if a counterparty fails to purchase under a contract when the contract price exceeds the spot price of a commodity. At December 31, 2009, we had no commodity hedging contracts.

Our profitability could be affected by the prices of other commodities.

Our business activities are highly dependent on the costs of commodities such as fuel, steel and cement. The recent prices for such commodities have been volatile and may increase our costs of production and development. A material increase in costs at any of our operating properties could have a significant effect on our profitability. For additional discussion, see Results of Operations in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our accounting and other estimates may be imprecise.

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts and related disclosure of assets, liabilities, revenue and expenses at the date of the consolidated financial statements and reporting periods. The more significant areas requiring the use of management assumptions and estimates relate to:

mineral reserves that are the basis for future cash flow estimates and units-of-production depreciation, depletion and amortization calculations;

future metals prices;

environmental, reclamation and closure obligations;

asset impairments;

reserves for contingencies and litigation; and

deferred tax asset valuation allowance.

Actual results may differ materially from these estimates using different assumptions or conditions. For additional information, see Critical Accounting Estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 1 — Significant Accounting Policies of Notes to Consolidated Financial Statements and the risk factors: “Our development of new orebodies and other capital costs may cost more and provide less return than we estimated,” “Our ore reserve estimates may be imprecise” and “Our environmental remediation obligations may exceed the provisions we have made.”

Table of Contents

A substantial or extended decline in metals prices would have a material adverse effect on us.

Our revenue is derived from the sale of silver, gold, lead and zinc and, as a result, our earnings are directly related to the prices of these metals. Silver, gold, lead and zinc prices fluctuate widely and are affected by numerous factors, including:

speculative activities;

relative exchange rates of the U.S. dollar;

global and regional demand and production;

recession or reduced economic activity; and

other political and economic conditions.

These factors are largely beyond our control and are difficult to predict. If the market prices for these metals fall below our production or development costs for a sustained period of time, we will experience losses and may have to discontinue exploration, development or operations, or incur asset write-downs at one or more of our properties.

The following table sets forth the average daily closing prices of the following metals for the year ended December 31, 1995, 2002 and each year thereafter through 2009.

	2009		2008		2007		2006		2005		2004		2003		2002		1995
Silver (1) (per oz.)	$	14.65	$	15.02	$	13.39	$	11.57	$	7.31	$	6.66	$	4.88	$	4.60	$	5.20
Gold (2) (per oz.)	$	972.98	$	871.71	$	696.66	$	604.34	$	444.45	$	409.21	$	363.51	$	309.97	$	384.16
Lead (3) (per lb.)	$	0.78	$	0.95	$	1.17	$	0.58	$	0.44	$	0.40	$	0.23	$	0.21	$	0.29
Zinc (4) (per lb.)	$	0.75	$	0.85	$	1.47	$	1.49	$	0.63	$	0.48	$	0.38	$	0.35	$	0.47

______________

(1)	London Fix

(2)	London Final

(3)	London Metals Exchange — Cash

(4)	London Metals Exchange — Special High Grade — Cash

On February 16, 2010, the closing prices for silver, gold, lead and zinc were $15.82 per ounce, $1,115.25 per ounce, $0.97 per pound and $0.99 per pound, respectively.

An extended decline in metals prices or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations.

We review the recoverability of the cost of our long-lived assets by estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment, measured by comparing an asset’s carrying value to its fair value, must be recognized when the carrying value of the asset exceeds these cash flows, and recognizing impairment write-downs could negatively impact our results of operations. Metal price estimates are a key component used in the analysis of the carrying values of our assets. We evaluated the December 31, 2009 carrying values of long-lived assets at our Greens Creek and Lucky Friday segments by comparing them to the average estimated undiscounted cash flows resulting from operating plans using various metals price scenarios. Our estimates of undiscounted cash flows for each of our properties also include an estimation of the market value of the exploration potential beyond the current operating plans. Because the average estimated undiscounted cash flows exceeded the asset carrying values, we did not record impairments as of December 31, 2009. However, if the prices of silver, gold, zinc and lead decline for an extended period of time or we fail to control production costs or realize the mineable ore reserves or exploration potential at our mining properties, we may be required to recognize asset write-downs in the future. In addition, the perceived market value of the exploration potential of our properties is dependent upon prevailing metals prices as well as our ability to discover economic ore. A decline in metals prices for an extended period of time or our inability to convert exploration potential to reserves could significantly reduce our estimations of the value of the exploration potential at our properties and result in asset write-downs.

Table of Contents

Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income

We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized. Otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. Metal price estimates are a key component used in the determination of our ability to realize the expected future benefit of our deferred tax assets. To the extent that future taxable income differs significantly from estimates as a result of a decline in metals prices or other factors, our ability to realize the deferred tax assets could be impacted. Additionally, future issuances of common stock or common stock equivalents could limit our ability to utilize our net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. Future changes in tax law or changes in ownership structure could limit our ability to obtain future tax benefits. As of December 31, 2009, our current and non-current deferred tax asset balances were $7.2 million and $38.5 million, respectively. See Note 5 of Notes to Consolidated Financial Statements for further discussion of our deferred tax assets.

Returns for Investments in Pension Plans and Pension Plan Funding Requirements Are Uncertain

We maintain pension plans for employees, which provide for specified payments after retirement for certain employees. The ability of the pension plans to provide the specified benefits depends on our funding of the plans and returns on investments made by the plans. Returns, if any, on investments are subject to fluctuations based on investment choices and market conditions. A sustained period of low returns or losses on investments could require us to fund the pension plans to a greater extent than anticipated.

OPERATION, DEVELOPMENT, EXPLORATION AND ACQUISITION RISKS

We may be subject to a number of unanticipated risks related to inadequate infrastructure.

Mining, processing, development and exploration activities depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect our mining operations.

Our development of new orebodies and other capital costs may cost more and provide less return than we estimated.

Capitalized development projects may cost more and provide less return than we estimate. If we are unable to realize a return on these investments, we may incur a related asset write-down that could adversely affect our financial results or condition.

Our ability to sustain or increase our current level of production of metals partly depends on our ability to develop new orebodies and/or expand existing mining operations. Before we can begin a development project, we must first determine whether it is economically feasible to do so. This determination is based on estimates of several factors, including:

ore reserves;

expected recovery rates of metals from the ore;

future metals prices;

facility and equipment costs;

availability of affordable sources of power and adequacy of water supply;

exploration and drilling success;

capital and operating costs of a development project;

environmental considerations and permitting;

adequate access to the site, including competing land uses (such as agriculture);

applicable tax rates;

Table of Contents

assumptions used in determining the value of our pension plan assets and liabilities;

foreign currency fluctuation and inflation rates; and

availability of financing.

These estimates are based on geological and other interpretive data, which may be imprecise. As a result, actual operating and capital costs and returns from a development project may differ substantially from our estimates as a result of which it may not be economically feasible to continue with a development project.

Our ore reserve estimates may be imprecise.

Our ore reserve figures and costs are primarily estimates and are not guarantees that we will recover the indicated quantities of these metals. You are strongly cautioned not to place undue reliance on estimates of reserves. Reserves are estimates made by our professional technical personnel, and no assurance can be given that the estimated amount of metal or the indicated level of recovery of these metals will be realized. Reserve estimation is an interpretive process based upon available data and various assumptions. Our reserve estimates may change based on actual production experience. Further, reserves are valued based on estimates of costs and metals prices, which may not be consistent among our operating and non-operating properties. The economic value of ore reserves may be adversely affected by:

declines in the market price of the various metals we mine;

increased production or capital costs;

reduction in the grade or tonnage of the deposit;

increase in the dilution of the ore; and

reduced recovery rates.

Short-term operating factors relating to our ore reserves, such as the need to sequentially develop orebodies and the processing of new or different ore grades, may adversely affect our cash flow. We may use forward sales contracts and other hedging techniques to partially offset the effects of a drop in the market prices of the metals we mine. However, if the prices of metals that we produce decline substantially below the levels used to calculate reserves for an extended period, we could experience:

delays in new project development;

net losses;

reduced cash flow;

reductions in reserves; and

write-downs of asset values.

Efforts to expand the finite lives of our mines may not be successful or could result in significant demands on our liquidity, which could hinder our growth and decrease the value of our stock.

One of the risks we face is that our mines have a relatively small amount of proven and probable reserves, primarily because we have low volume, underground operations. Thus, we must continually replace depleted ore reserves. Our ability to expand or replace ore reserves primarily depends on the success of our exploration programs. Mineral exploration, particularly for silver and gold, is highly speculative and expensive. It involves many risks and is often non-productive. Even if we believe we have found a valuable mineral deposit, it may be several years before production from that deposit is possible. During that time, it may become no longer feasible to produce those minerals for economic, regulatory, political or other reasons. As a result of high costs and other uncertainties, we may not be able to expand or replace our existing ore reserves as they are depleted, which would adversely affect our business and financial position in the future.

Over the past years we have evaluated alternatives for deeper access at the Lucky Friday mine in order to expand its operational life. As a result, we have initiated engineering, procurement of long lead time equipment, development, and other early-stage activities relating to construction of an internal shaft at Lucky Friday. Upon completion, the internal shaft would allow us to mine mineralized material below our current workings and provide deeper platforms for exploration. Construction of the internal shaft would take approximately five years and involve significant capital expenditures. Should we decide to continue with construction of the internal shaft, our ability to fund this project, along with our other capital requirements, would depend to a large extent on our operating performance. A significant decrease in metals prices, an increase in operating costs or an increase in the capital cost could potentially require us to suspend the project or access additional capital though debt financing, the sale of securities, or other external sources. This additional financing could be costly or unavailable.

Table of Contents

Our joint development and operating arrangements may not be successful.

We have entered into, and may in the future enter into joint venture arrangements in order to share the risks and costs of developing and operating properties. In a typical joint venture arrangement, the partners own a proportionate share of the assets, are entitled to indemnification from each other and are only responsible for any future liabilities in proportion to their interest in the joint venture. If a party fails to perform its obligations under a joint venture agreement, we could incur liabilities and losses in excess of our pro-rata share of the joint venture. We make investments in exploration and development projects that may have to be written off in the event we do not proceed to a commercially viable mining operation.

On February 21, 2008, we announced that our wholly-owned subsidiary, Rio Grande Silver Inc., acquired the right to earn into a 70% joint venture interest in an approximately 25-square-mile consolidated land package in the Creede Mining District of Colorado. For more information on the terms of the agreement, see Note 18 of Notes to Consolidated Financial Statements.

Our ability to market our metals production may be affected by disruptions or closures of custom smelters and/or refining facilities.

We sell substantially all of our metallic concentrates to custom smelters, with our doré bars sent to refiners for further processing before being sold to metal traders. If our ability to sell concentrates to our contracted smelters becomes unavailable to us, it is possible our operations could be adversely affected. See Note 11 of Notes to Consolidated Financial Statements for more information on the distribution of our sales and our significant customers.

We face inherent risks in acquisitions of other mining companies or properties that may adversely impact our growth strategy.

Mines have limited lives, which is an inherent risk in acquiring mining properties. We are actively seeking to expand our mineral reserves by acquiring other mining companies or properties. Although we are pursuing opportunities that we feel are in the best interest of our investors, these pursuits are costly and often unproductive. Inherent risks in acquisitions we may undertake in the future could adversely affect our current business and financial condition and our growth.

There is a limited supply of desirable mineral lands available in the United States and foreign countries where we would consider conducting exploration and/or production activities, and any acquisition we may undertake is subject to inherent risks. In addition to the risk associated with limited mine lives, we may not realize the value of the companies or properties that are acquired due to a possible decline in metals prices, failure to obtain permits, labor problems, changes in regulatory environment, failure to achieve anticipated synergies, an inability to obtain financing and other factors previously described. Acquisitions of other mining companies or properties may also expose us to new geographic, political, operating, and geological risks. In addition, we face strong competition for companies and properties from other mining companies, some of which have greater financial resources than we do, and we may be unable to acquire attractive companies and mining properties on terms that we consider acceptable.

Our business depends on good relations with our employees.

We are dependent upon the ability and experience of our executive officers, managers, employees and other personnel, including those residing outside of the U.S., and there can be no assurance that we will be able to retain all of such employees. We compete with other companies both within and outside the mining industry in connection with the recruiting and retention of qualified employees knowledgeable of the mining business. The loss of these persons or our inability to attract and retain additional highly skilled employees could have an adverse effect on our business and future operations. Our labor contract with our employees at our Lucky Friday unit expires on April 30, 2010. Although we intend to negotiate a new agreement on a timely basis, there can be no assurance that we will do so or that the terms of any new agreement will be favorable to us.

Mining accidents or other adverse events at an operation could decrease our anticipated production.

Production may be reduced below our historical or estimated levels as a result of mining accidents; unfavorable ground conditions; work stoppages or slow-downs; lower than expected ore grades; the metallurgical characteristics of the ore that are less economic than anticipated; or our equipment or facilities fail to operate properly or as expected.

Table of Contents

Our operations may be adversely affected by risks and hazards associated with the mining industry that may not be fully covered by insurance.

Our business is subject to a number of risks and hazards including:

environmental hazards;

political and country risks;

civil unrest or terrorism;

industrial accidents;

labor disputes or strikes;

unusual or unexpected geologic formations;

cave-ins;

explosive rock failures; and

unanticipated hydrologic conditions, including flooding and periodic interruptions due to inclement or hazardous weather conditions.

Such risks could result in:

personal injury or fatalities;

damage to or destruction of mineral properties or producing facilities;

environmental damage;

delays in exploration, development or mining;

monetary losses; and

legal liability.

We maintain insurance to protect against losses that may result from some of these risks at levels consistent with our historical experience, industry practice and circumstances surrounding each identified risk. Insurance against environmental risks is generally either unavailable or, we believe, too expensive for us, and we therefore do not maintain environmental insurance. Occurrence of events for which we are not insured may have an adverse effect on our business.

Our foreign activities are subject to additional inherent risks.

We sold our mining operations and assets in Venezuela in July 2008, but still currently conduct exploration projects in Mexico and continue to own assets, real estate and mineral interests there. We anticipate that we will continue to conduct operations in Mexico and possibly other international locations in the future. Because we conduct operations internationally, we are subject to political and economic risks such as:

the effects of local political, labor and economic developments and unrest;

significant or abrupt changes in the applicable regulatory or legal climate;

exchange controls and export restrictions;

expropriation or nationalization of assets with inadequate compensation;

currency fluctuations and repatriation restrictions;

invalidation of governmental orders, permits or agreements;

renegotiation or nullification of existing concessions, licenses, permits and contracts;

corruption, demands for improper payments, expropriation, and uncertain legal enforcement and physical security;

disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations;

fuel or other commodity shortages;

illegal mining;

Table of Contents

laws or policies of foreign countries and the United States affecting trade, investment and taxation;

civil disturbances, war and terrorist actions; and

seizures of assets.

Consequently, our exploration, development and production activities outside of the United States may be substantially affected by factors beyond our control, any of which could materially adversely affect our financial condition or results of operations.

LEGAL, MARKET AND REGULATORY RISKS

We are currently involved in ongoing legal disputes that may materially adversely affect us.

There are several ongoing legal disputes in which we are involved. If any of these disputes results in a substantial monetary judgment against us, is settled on unfavorable terms or otherwise impacts our operations, our financial results or condition could be materially adversely affected. For example, we may ultimately incur environmental remediation costs or the plaintiffs in environmental proceedings may be awarded damages substantially in excess of the amounts we have accrued. For a description of the lawsuits in which we are involved, see Note 7 of Notes to Consolidated Financial Statements.

We are required to obtain governmental and lessor approvals and permits in order to conduct mining operations.

In the ordinary course of business, mining companies are required to seek governmental and lessor approvals and permits for expansion of existing operations or for the commencement of new operations. Obtaining the necessary governmental permits is a complex, time-consuming and costly process. The duration and success of our efforts to obtain permits are contingent upon many variables not within our control. Obtaining environmental permits, including the approval of reclamation plans, may increase costs and cause delays depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority. There can be no assurance that all necessary approvals and permits will be obtained and, if obtained, that the costs involved will not exceed those that we previously estimated. It is possible that the costs and delays associated with the compliance with such standards and regulations could become such that we would not proceed with the development or operation.

We face substantial governmental regulation and environmental risk.

Our business is subject to extensive U.S. and foreign, federal, state and local laws and regulations governing development, production, labor standards, occupational health, waste disposal, use of toxic substances, environmental regulations, mine safety and other matters. See risk titled “Our environmental remediation obligations may exceed the provisions we have made.” We have been and are currently involved in lawsuits or disputes in which we have been accused of causing environmental damage, violating environmental laws, or violating environmental permits, and we may be subject to similar lawsuits or disputes in the future. New legislation and regulations may be adopted or permit limits reduced at any time that result in additional operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties.

Legislative and regulatory measures to address climate change and green house gas emissions are in various phases of consideration. If adopted, such measures could increase our cost of environmental compliance and also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard to existing and new facilities. Proposed measures could also result in increased cost of fuel and other consumables used at our operations, including the diesel generation of electricity at our Greens Creek operation if we are unable to access utility power. Climate change legislation may also affect our smelter customers who burn fossil fuels, resulting in increased costs to us, and may affect the market for the metals we produce with effects on prices that are not possible for us to predict.

In late 2008 and during 2009, we experienced a number of water permit exceedances for water discharges at our Lucky Friday unit. In April 2009, we entered into a Consent Agreement and Final Order (“CAFO”) and a Compliance Order with the EPA, which included an extended compliance timeline. In connection with the CAFO, we agreed to pay an administrative penalty to the EPA of $177,500 to settle any liability for such exceedances. We are undertaking efforts that we believe will be successful in bringing our water discharges at the Lucky Friday unit into compliance with the permit, but cannot provide assurances that we will be able to fully comply with the permit limits, particularly in the near future. Any future non-compliance with the permit limits or other regulatory or environmental requirements could lead to future penalties, regulatory or other legal action, damages, or otherwise impact our operations and financial results.

From time to time, the U.S. Congress considers proposed amendments to the General Mining Law of 1872, as amended, which governs mining claims and related activities on federal lands. The extent of any future changes is not known and the potential impact on us as a result of U.S. Congressional action is difficult to predict. Changes to the General Mining Law, if adopted, could adversely affect our ability to economically develop mineral reserves on federal lands.

Table of Contents

Our environmental remediation obligations may exceed the provisions we have made.

We are subject to significant environmental obligations, particularly in northern Idaho. At December 31, 2009, we had accrued $131.2 million as a provision for environmental remediation, $90.5 million of which relates to our various liabilities in Idaho, and there is a significant risk that the costs of remediation could materially exceed this provision. For an overview of our potential environmental liabilities, see Note 7 of Notes to Consolidated Financial Statements.

The titles to some of our properties may be defective or challenged.

Unpatented mining claims constitute a significant portion of our undeveloped property holdings, the validity of which could be uncertain and may be contested. Although we have conducted title reviews of our property holdings, title review does not necessarily preclude third parties from challenging our title. In accordance with mining industry practice, we do not generally obtain title opinions until we decide to develop a property. Therefore, while we have attempted to acquire satisfactory title to our undeveloped properties, some titles may be defective.

The price of our stock has a history of volatility and could decline in the future.

Our common and preferred stocks are listed on the New York Stock Exchange. The market price for our stock has been volatile, often based on:

changes in metals prices, particularly silver;

our results of operations and financial condition as reflected in our public news releases or periodic filings with the Securities and Exchange Commission;

fluctuating proven and probable reserves;

factors unrelated to our financial performance or future prospects, such as global economic developments and market perceptions of the attractiveness of particular industries;

political and regulatory risk;

the success of our exploration programs;

ability to meet production estimates;

environmental and legal risk;

the extent of analytical coverage concerning our business; and

the trading volume and general market interest in our securities.

The market price of our stock at any given point in time may not accurately reflect our long-term value, and may prevent shareholders from realizing a profit on their investment.

Our Series B Preferred Stock has a liquidation preference of $50 per share or $7.9 million.

If we were liquidated, holders of our preferred stock would be entitled to receive approximately $7.9 million (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our Common Stock would be entitled to receive any proceeds. Our Series B Preferred Stock ranks on parity with our Mandatory Convertible Preferred Stock.

Our Mandatory Convertible Preferred Stock has a liquidation preference of $100 per share or $201.3 million.

If we were liquidated, holders of our preferred stock would be entitled to receive approximately $201.3 million (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our Common Stock would be entitled to receive any proceeds. Our Mandatory Convertible Preferred Stock ranks on parity with our Series B Preferred Stock.

We may not be able to pay preferred stock dividends in the future.

Since July 2005, we paid regular quarterly dividends on our Series B Preferred Stock through the third quarter of 2008. The annual dividend payable on the Series B Preferred Stock is currently $0.6 million. Prior to the fourth quarter of 2004, we had not declared preferred dividends on Series B Preferred Stock since the second quarter of 2000. In December 2007, we issued 6.5% Mandatory Convertible Preferred Stock with an annual dividend of $13.1 million, each of which quarterly dividend payments have been made through the third quarter of 2008. Series B Preferred Stock and Mandatory Convertible Preferred Stock dividends due on January 1, 2009, for the fourth quarter of 2008 and dividends due for the three quarters thereafter were deferred. In January 2010 we paid all dividends in arrears and dividends due for the fourth quarter of 2009 for the Series B and Mandatory Convertible preferred stock. However, there can be no assurance that we will continue to pay dividends in the future.

Table of Contents

Additional issuances of equity securities by us would dilute the ownership of our existing stockholders and could reduce our earnings per share.

We may issue equity in the future in connection with acquisitions, strategic transactions or for other purposes. Any such acquisition could be material to us and could significantly increase the size and scope of our business, including our market capitalization. We may also be required to issue Common Stock upon the conversion of our Mandatory Convertible Preferred Stock and may pay dividends on our Mandatory Convertible Preferred Stock in shares of our Common Stock. To the extent we issue any additional equity securities, the ownership of our existing stockholders would be diluted and our earnings per share could be reduced. As of December 31, 2009 there were warrants outstanding for purchase of 38,694,316 shares of our common stock. The warrants give the holders the right to purchase our common stock at the following prices: $2.45 (7,682,927 shares), $2.56 (460,976 shares), $2.50 (18,376,500 shares), and $3.68 (12,173,913). Warrants to purchase 12,173,193 shares at $3.68 per share expire in June 2010, while the remaining warrants expire in June and August 2014. See Note 9 of Notes to Consolidated Financial Statements.

The issuance of additional shares of our preferred stock or common stock in the future could adversely affect holders of Common Stock.

The market price of our Common Stock is likely to be influenced by our preferred stock. For example, the market price of our Common Stock could become more volatile and could be depressed by:

investors’ anticipation of the potential resale in the market of a substantial number of additional shares of our Common Stock received upon conversion of the Mandatory Convertible Preferred Stock or as dividends thereon; and

our failure to pay dividends on our currently outstanding Series B Preferred Stock or Mandatory Convertible Preferred Stock, which would prevent us from paying dividends to holders of our Common Stock.

In addition, our board of directors is authorized to issue additional classes or series of preferred stock without any action on the part of our stockholders. This includes the power to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over Common Stock with respect to dividends or upon the liquidation, dissolution or winding up of the business and other terms. If we issue preferred stock in the future that has preference over our Common Stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our Common Stock, the rights of holders of the Common Stock or the market price of the Common Stock could be adversely affected. As noted above, as of December 31, 2009, there were warrants outstanding to purchase a total of 38,694,316 shares of our common stock.

We may issue substantial additional shares of Common Stock or other securities in connection with acquisition transactions or for other purposes, to the extent permitted by our credit facility. Any such acquisition could be material to us and could significantly increase the size and scope of our business. Issuances or sales of substantial amounts of additional Common Stock or the perception that such issuances or sales could occur may cause prevailing market prices for our Common Stock to decline and could result in dilution to our stockholders. See If a large number of shares of our Common Stock is sold in the public market, the sales could reduce the trading price of our Common Stock and impede our ability to raise future capital.

If a large number of shares of our Common Stock are sold in the public market, the sales could reduce the trading price of our Common Stock, impede our ability to raise future capital.

We cannot predict what effect, if any, future issuances by us of our Common Stock or other equity will have on the market price of our Common Stock. In addition, shares of our Common Stock that we issue in connection with an acquisition may not be subject to resale restrictions. We may issue substantial additional shares of Common Stock or other securities in connection with material acquisition transactions. The market price of our Common Stock could decline if certain large holders of our Common Stock, or recipients of our Common Stock in connection with an acquisition, sell all or a significant portion of their shares of Common Stock or are perceived by the market as intending to sell these shares other than in an orderly manner. In addition, these sales could also impair our ability to raise capital through the sale of additional Common Stock in the capital markets.

Table of Contents

The provisions in our certificate of incorporation, our by-laws and Delaware law could delay or deter tender offers or takeover attempts that may offer a premium for our Common Stock.

The provisions in our certificate of incorporation, our by-laws and Delaware law could make it more difficult for a third party to acquire control of us, even if that transaction would be beneficial to stockholders. These impediments include:

the classification of our board of directors into three classes serving staggered three-year terms, which makes it more difficult to quickly replace board members;

the ability of our board of directors to issue shares of preferred stock with rights as it deems appropriate without stockholder approval;

a provision that special meetings of our board of directors may be called only by our chief executive officer or a majority of our board of directors;

a provision that special meetings of stockholders may only be called pursuant to a resolution approved by a majority of our entire board of directors;

a prohibition against action by written consent of our stockholders;

a provision that our board members may only be removed for cause and by an affirmative vote of at least 80% of the outstanding voting stock;

a provision that our stockholders comply with advance-notice provisions to bring director nominations or other matters before meetings of our stockholders;

a prohibition against certain business combinations with an acquirer of 15% or more of our Common Stock for three years after such acquisition unless the stock acquisition or the business combination is approved by our board prior to the acquisition of the 15% interest, or after such acquisition our board and the holders of two-thirds of the other Common Stock approve the business combination; and

a prohibition against our entering into certain business combinations with interested stockholders without the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of voting stock.

The existence of these provisions may deprive stockholders of an opportunity to sell our stock at a premium over prevailing prices. The potential inability of our stockholders to obtain a control premium could adversely affect the market price for our Common Stock.

If we cannot meet the New York Stock Exchange continued listing requirements, the NYSE may delist our Common Stock.

Our Common Stock is currently listed on the NYSE. In the future, if we were not be able to meet the continued listing requirements of the NYSE, which require, among other things, that the average closing price of our common stock be above $1.00 over 30 consecutive trading days. Our closing stock price on February 16, 2010 was $5.51.

If we are unable to satisfy the NYSE criteria for continued listing, our Common Stock would be subject to delisting. A delisting of our Common Stock could negatively impact us by, among other things, reducing the liquidity and market price of our Common Stock; reducing the number of investors willing to hold or acquire our Common Stock, which could negatively impact our ability to raise equity financing; decreasing the amount of news and analyst coverage for the Company; and limiting our ability to issue additional securities or obtain additional financing in the future. In addition, delisting from the NYSE might negatively impact our reputation and, as a consequence, our business.

Item 1B. Unresolved Staff Comments

None.

Table of Contents

Item 2. Property Descriptions

OPERATING PROPERTIES

The Greens Creek Unit

Our various subsidiaries own 100% of the Greens Creek Mine located in Southeast Alaska. The Greens Creek orebody contains silver, zinc, gold and lead, and lies adjacent to the Admiralty Island National Monument, an environmentally sensitive area. The Greens Creek property includes 17 patented lode claims and one patented mill site claim, in addition to property leased from the U.S. Forest Service. Greens Creek also has title to mineral rights on 7,500 acres of federal land adjacent to the properties. The entire project is accessed by boat and served by 13 miles of road and consists of the mine, an ore concentrating mill, a tailings impoundment area, a ship-loading facility, camp facilities and a ferry dock. The map below illustrates the location and access to Greens Creek:

Prior to April 16, 2008, we owned a 29.7% interest in Greens Creek. On April 16, 2008, we completed the acquisition of all of the equity of two Rio Tinto subsidiaries holding a 70.3% interest in the Greens Creek mine for approximately $750 million. The acquisition gives our various subsidiaries control of 100% of the Greens Creek mine, as our wholly-owned subsidiary, Hecla Alaska LLC, owned an undivided 29.7% joint venture interest in the assets of Greens Creek prior to our acquisition of the remaining 70.3% interest.

The Greens Creek deposit is a polymetallic, stratiform, massive sulfide deposit. The host rock consists of predominantly marine sedimentary, and mafic to ultramafic volcanic and plutonic rocks, which have been subjected to multiple periods of deformation. These deformational episodes have imposed intense tectonic fabrics on the rocks. Mineralization occurs discontinuously along the contact between a structural hanging wall of quartz mica carbonate phyllites and a structural footwall of graphitic and calcareous argillite. Major sulfide minerals are pyrite, sphalerite, galena, and tetrahedrite/tennanite.

Pursuant to a 1996 land exchange agreement, the joint venture transferred private property equal to a value of $1.0 million to the U.S. Forest Service and received exploration and mining rights to approximately 7,500 acres of land with mining potential surrounding the existing mine. Production from new ore discoveries on the exchanged lands will be subject to federal royalties included in the land exchange agreement. The royalty is only due on production from reserves that are not part of Greens Creek’s extralateral rights. Thus far, there has been no production triggering payment of the royalty. The royalty is 3% if the average value of the ore during a year is greater than $120 per ton of ore, and 0.75% if the value is $120 per ton or less. The benchmark of $120 per ton is adjusted annually according to the Gross Domestic Product (GDP) Implicit Price Deflator until the year 2016, and at December 31, 2009, was at approximately $158 per ton when applying the latest GDP Implicit Price Deflator observation.

Greens Creek is an underground mine which produces approximately 2,100 tons of ore per day. The primary mining methods are cut and fill and longhole stoping. The ore is processed on site at a mill, which produces lead, zinc and bulk concentrates, as well as gold doré. In 2009, ore was processed at an average rate of approximately 2,167 tons per day. During 2009, mill recovery totaled approximately 72% silver, 79% zinc, 69% lead and 64% gold. The doré is sold to a precious metal refiner and on the open market and the three concentrate products are sold to a number of major smelters worldwide. Concentrates are shipped from a marine terminal located on Admiralty Island about nine miles from the mine site.

Table of Contents

The Greens Creek unit has historically been powered completely by diesel generators located on site. However, an agreement was reached during 2005 to purchase excess hydroelectric power from the local power company, Alaska Electric Light and Power Company (“AEL&P”). Installation of the necessary infrastructure was completed in 2006, and use of hydroelectric power commenced during the third quarter of 2006. This project has reduced production costs at Greens Creek to the extent power has been available. Low lake levels and increased demand in the Juneau area combined to restrict the amount of power available to Greens Creek during 2007 and 2008. However, the mine received an increased proportion of its power needs from AEL&P during 2009. We expect to receive most, if not all, of the mine’s power from AEL&P in 2010, and expect this to continue for the foreseeable future as a result of new capacity installed by AEL&P in 2009.

The employees at Greens Creek are employees of our Hecla Greens Creek Mining Company, our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 329 employees at the Greens Creek unit at December 31, 2009. All equipment, infrastructure and facilities, including camp and concentrate storage facilities, are in good condition.

As of December 31, 2009, we have recorded a $35.3 million asset retirement obligation for reclamation and closure costs. We maintain a $30 million reclamation bond secured by the restricted cash balance of $7.6 million for Greens Creek. The net book value of the Greens Creek unit property and its associated plant, equipment and mineral interests was approximately $703 million as of December 31, 2009.

Information with respect to production, average costs per ounce of silver produced and proven and probable ore reserves is set forth in the following table, and represents our 100% ownership of Greens Creek after April 16, 2008, and our previous 29.7% ownership prior to that date.

	Years Ended December 31,
Production (6)	2009		2008		2007
Ore milled (tons)		790,871		598,931		217,691
Silver (ounces)		7,459,170		5,829,253		2,570,701
Gold (ounces)		67,278		54,650		20,218
Zinc (tons)		70,379		52,055		18,612
Lead (tons)		22,253		16,630		6,252

Average Cost per Ounce of Silver Produced (1)
Total cash costs	$	0.35	$	3.29	$	(5.27	)
Total production costs	$	7.65	$	8.52	$	(1.93	)

Probable Ore Reserves (2,3,4,5,6,7)
Total tons		8,314,700		8,064,700		2,513,700
Silver (ounces per ton)		12.1		13.7		13.7
Gold (ounces per ton)		0.10		0.11		0.11
Zinc (percent)		10.3		10.5		10.2
Lead (percent)		3.6		3.8		3.8
Contained silver (ounces)		100,973,300		110,583,200		34,497,800
Contained gold (ounces)		847,400		870,100		270,000
Contained zinc (tons)		852,900		850,700		255,900
Contained lead (tons)		303,300		308,700		95,300

______________

(1)

Includes by-product credits from gold, lead and zinc production. Cash costs per ounce of silver represent measurements that are not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe cash costs per ounce of silver provide an indicator of profitability and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other mining operating properties. A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found in Item 7. — MD&A, under Reconciliation of Total Cash Costs (non-GAAP) to Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

(2)

Estimates of proven and probable ore reserves for the Greens Creek unit as of December 2009, 2008 and 2007 are derived from successive generations of reserve and feasibility analyses for different areas of the mine, using a separate assessment of metals prices for each year. The weighted average prices used for reserve estimates in 2007, prior to our acquisition of the remaining 70.3% interest in Greens Creek, were determined by the geology and engineering staff of the Kennecott Greens Creek Mining Company, then an indirect subsidiary of Rio Tinto, plc, with our technical support. The 2007 prices differ from the prices used by us, for example, in making such calculations for our Lucky Friday unit for that year. We reviewed the geologic interpretation and reserve methodology, but the reserve compilation for 2007 for Greens Creek was not independently confirmed by us in its entirety. The average prices used for the Greens Creek unit were:

Table of Contents

	December 31,
	2009		2008		2007
Silver (per ounce)	$	13.75	$	12.25	$	8.00
Gold (per ounce)	$	775	$	650	$	529
Lead (per pound)	$	0.70	$	0.80	$	0.27
Zinc (per pound)	$	0.70	$	0.80	$	0.58

(3)	Ore reserves represent in-place material, diluted and adjusted for expected mining recovery. Mill recoveries of ore reserve grades differ by ore zones and are expected to average 74% for silver, 68% for gold, 77% for zinc and 73% for lead.

(4)

The changes in reserves in 2009 versus 2008 are due to lower anticipated ore grades and depletion due to production, partially offset by the addition of new drill data and increases in forecasted precious metals prices. The changes in reserves in 2008 versus 2007 are due to our acquisition of the remaining 70.3% of Greens Creek in April 2008, along with the addition of new drill data and increases in forecasted precious metals prices, partially offset by depletion due to production.

(5)

We only report probable reserves at the Greens Creek unit, which are based on average drill spacing of 50 to 100 feet. Proven reserves typically require that mining samples are partly the basis of the ore grade estimates used, while probable reserve grade estimates can be based entirely on drilling results. Cutoff grade assumptions vary by orebody and are developed based on reserve prices, anticipated mill recoveries and smelter payables and cash operating costs. Cutoff grades range from $97 per ton net smelter return to $107 per ton net smelter return.

(6)	Reflects our 29.7% ownership interest until April 16, 2008, and our 100% ownership thereafter.

(7)	An independent review by AMEC E&C, Inc. was completed in 2008 for the 2007 reserve models for the 5250N and Northwest West zones.

The average silver grade has decreased in 2009 relative to 2008. This decrease is primarily due to additional drilling which has reduced the impact of higher-grade zones included in 2008. In addition, the increase in silver prices has reduced cutoff grade along with greater reliance on higher-volume long-hole stoping, which has the impact of reducing overall ore grades.

The Lucky Friday Unit

Since 1958, we have owned and operated the Lucky Friday unit, a deep underground silver, lead and zinc mine located in the Coeur d’Alene Mining District in northern Idaho. Lucky Friday is one-quarter mile east of Mullan, Idaho, and is adjacent to U.S. Interstate 90. Below is a map illustrating the location and access to the Lucky Friday unit:

There have been two ore-bearing structures mined at the Lucky Friday unit. The first, mined through 2001, was the Lucky Friday vein, a fissure vein typical of many in the Coeur d’Alene Mining District. The orebody is located in the Revett Formation, which is known to provide excellent host rocks for a number of orebodies in the Coeur d’Alene Mining District. The Lucky Friday vein strikes northeasterly and dips steeply to the south with an average width of six to seven feet. Its principal ore minerals are galena and tetrahedrite with minor amounts of sphalerite and chalcopyrite. The ore occurs as a single continuous orebody in and along the Lucky Friday vein. The major part of the orebody has extended from the 1,200-foot level to and below the 6,020-foot level.

Table of Contents

The second ore-bearing structure, known as the Lucky Friday Expansion Area, has been mined since 1997 pursuant to an operating agreement with Independence Lead Mines Company (“Independence’). During 1991, we discovered several mineralized structures containing some high-grade silver ores in an area known as the Gold Hunter property, approximately 5,000 feet northwest of the then existing Lucky Friday workings. This discovery led to the development of the Gold Hunter property on the 4900 level. On November 6, 2008, we completed the acquisition of substantially all of the assets of Independence, including all future interest or royalty obligation to Independence and the mining claims pertaining to their agreement with us (see Note 18 of Notes to Consolidated Financial Statements for further discussion).

The principal mining method at the Lucky Friday unit is ramp access, cut and fill. This method utilizes rubber-tired equipment to access the veins through ramps developed outside of the orebody. Once a cut is taken along the strike of the vein, it is backfilled with cemented tailings and the next cut is accessed, either above or below, from the ramp system.

The ore produced from Lucky Friday is processed in a conventional flotation mill, which produces both a lead concentrate and a zinc concentrate. In 2009, ore was processed at an average rate of approximately 950 tons per day. During 2009, mill recovery totaled approximately 94% silver, 93% lead and 89% zinc. All silver-lead and zinc concentrate production during 2009 was shipped to Teck Cominco Limited’s smelter in Trail, British Columbia, Canada.

Information with respect to the Lucky Friday unit’s production, average cost per ounce of silver produced and proven and probable ore reserves for the past three years is set forth in the table below.

	Years Ended December 31,
Production	2009		2008		2007
Ore milled (tons)		346,395		317,777		323,659
Silver (ounces)		3,530,490		2,880,264		3,071,857
Lead (tons)		22,010		18,393		18,297
Zinc (tons)		10,616		9,386		8,009

Average Cost per Ounce of Silver Produced (1)
Total cash costs	$	5.21	$	6.06	$	(0.75	)
Total production costs	$	8.02	$	7.87	$	0.52

Proven Ore Reserves (2,3,4)
Total tons		1,358,200		1,270,000		760,700
Silver (ounces per ton)		12.3		12.4		12.3
Lead (percent)		8.0		7.8		7.2
Zinc (percent)		2.6		2.5		2.5
Contained silver (ounces)		16,640,300		15,800,800		9,324,800
Contained lead (tons)		109,100		98,700		54,500
Contained zinc (tons)		35,100		31,600		18,900

Probable Ore Reserves (2,3,4)
Total tons		1,577,000		523,400		680,000
Silver (ounces per ton)		13.9		11.6		11.9
Lead (percent)		8.9		6.5		7.5
Zinc (percent)		2.9		2.7		2.5
Contained silver (ounces)		21,947,600		6,046,800		8,065,200
Contained lead (tons)		140,300		33,900		50,900
Contained zinc (tons)		46,100		14,300		16,700

Total Proven and Probable Ore Reserves (2,3,4)
Total tons		2,935,200		1,793,400		1,440,700
Silver (ounces per ton)		13.1		12.2		12.1
Lead (percent)		8.5		7.4		7.3
Zinc (percent)		2.8		2.6		2.5
Contained silver (ounces)		38,587,900		21,847,500		17,390,000
Contained lead (tons)		249,400		132,600		105,400
Contained zinc (tons)		81,200		45,900		35,600

Table of Contents

______________

(1)

Includes by-product credits from lead and zinc production. Cash costs per ounce of silver represent measurements that are not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe cash costs per ounce of silver provide an indicator of profitability and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other mining operating properties. A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found in Item 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Total Cash Costs (non-GAAP) to Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

(2)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve prices, anticipated mill recoveries and smelter payables and cash operating costs. Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at the Lucky Friday, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade. The cutoff grade at the Lucky Friday ranges from $72 per ton NSR to $84 per ton NSR. Our estimates of proven and probable reserves are based on the following metals prices:

	December 31,
	2009		2008		2007
Silver (per ounce)	$	13.75	$	12.25	$	10.00
Lead (per pound)	$	0.70	$	0.80	$	0.60
Zinc (per pound)	$	0.70	$	0.80	$	1.00

(3)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. Mill recoveries are expected to be 93% for silver, 93% for lead and 86% for zinc. Zinc recovery has improved from historical levels due to mill upgrades completed during 2007, 2006 and 2005.

(4)

The changes in reserves in 2009 versus 2008, and in 2008 versus 2007, are due to addition of data from new drill holes and development work, higher anticipated ore grades, and increases in forecasted metals prices, which has resulted in the addition of new reserves based on updated estimates, partially offset by depletion due to production. The change in reserves in 2009 versus 2008 is also attributed to potential expansion of the mine plan resulting from deeper access beyond the current workings.

(5)	An independent audit by Scott Wilson Roscoe Postle Associates, Inc. was completed in January 2010 for the 2009 reserve model at the Lucky Friday mine.

During 2008, we initiated engineering, procurement and development activities relating to construction of an internal shaft at the Lucky Friday mine, which, upon completion, will provide access from the 4900 level down to the 8000 level of the mine. However, the project was temporarily placed on hold in the fourth quarter of 2008 due to then prevailing metals prices. Detailed engineering, long lead time procurement, and other early-stage activities for the internal shaft project resumed in 2009. Current activities include engineering, purchase of long lead time equipment including hoists and service trucks, and pre-development construction from existing workings to the proposed shaft collar, hoist room and other facilities on the 4900 level.

Ultimate reclamation activities are anticipated to include stabilization of tailings ponds and waste rock areas. No final reclamation activities were performed in 2009, and at December 31, 2009, an asset retirement obligation of approximately $1.1 million had been recorded for reclamation and closure costs. The net book value of the Lucky Friday unit property and its associated plant, equipment and mineral interests was approximately $102.0 million as of December 31, 2009. The construction of the facilities at Lucky Friday ranges from the 1950s to 2009, and all are in good physical condition. In 2005, 2006 and 2007, we made capital improvements to our processing plant to improve concentrate grades and metal recoveries. Additions included a three-stage crushing system, increased flotation capacity and two new flash cells, new column cells and tailings thickeners, and an on-stream analyzer. The plant is maintained by our employees with assistance from outside contractors as required.

At December 31, 2009, there were 253 employees at the Lucky Friday unit. The United Steelworkers of America is the bargaining agent for the Lucky Friday’s 198 hourly employees. The current labor agreement expires on April 30, 2010.

Avista Corporation supplies electrical power to the Lucky Friday unit.

Item 3. Legal Proceedings

For a discussion of our legal proceedings, see Note 7 of Notes to Consolidated Financial Statements.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2009.

Table of Contents

Executive Officers of the Registrant

Information set forth in Part III, Item 10 is incorporated by reference into this Part I, Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)

(i)

Shares of our common stock are traded on the New York Stock Exchange, Inc.

(ii)

Our common stock quarterly high and low sale prices for the past two years were as follows:

		First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2009	– High	$	2.95	$	3.89	$	5.04	$	7.47
	– Low	$	1.17	$	1.85	$	2.26	$	3.79
2008	– High	$	12.79	$	13.14	$	10.00	$	4.93
	– Low	$	8.05	$	7.40	$	4.00	$	0.99

(b)	As of February 16, 2010, there were 7,607 shareholders of record of the common stock.

(c)

On January 4, 2010, we paid all cumulative, unpaid dividends on both our Series B and Mandatory Convertible Preferred Stock. No dividends have been declared on our common stock in the last three years and we have no plans for payment of dividends on common stock. We cannot pay dividends on our common stock if we fail to pay dividends on our Series B or Mandatory Convertible Preferred Stock. Prior to January 2010, quarterly dividends were paid on our Series B Preferred Stock through the first three quarters of 2008, with $0.7 million for cumulative, unpaid dividends at December 31, 2009 for the fourth quarter 2008 and year ended December 31, 2009. Prior to January 2010, dividends have been paid on our Mandatory Convertible Preferred Stock through the first three quarters of 2008, with cumulative, unpaid dividends of $16.5 million at December 31, 2009 for the fourth quarter of 2008 and year ended December 31, 2009. The dividends paid in January 2010 on our Series B Preferred Stock were paid in cash, while the dividends on our Mandatory Convertible Preferred Stock were paid in shares of our common stock.

(d)	The following table provides information as of December 31, 2009, regarding our compensation plans under which equity securities are authorized for issuance:

	Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options		Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders:
1995 Stock Incentive Plan		1,571,450		6.46		2,332,216
Stock Plan for Nonemployee Directors		-		N/A		712,886
Key Employee Deferred Compensation Plan		100,000		3.65		2,552,899
Total		1,671,450		6.29		5,598,001

See Notes 8 and 9 of Notes to Consolidated Financial Statements for information regarding the above plans.

(e)	We did not sell any unregistered securities in 2007. During 2008 and 2009, we issued unregistered securities as follows:

On January 17, 2008, we issued 550,000 unregistered common shares to fund our donation to the Hecla Charitable Foundation.

On January 24, 2008, we issued 118,333 unregistered common shares in a private placement pursuant to section 4(2) of the 1933 Act and Regulation D to an accredited investor to acquire properties in the Silver Valley of Northern Idaho.

Table of Contents

On February 21, 2008, we issued 927,716 unregistered common shares in a private placement pursuant to section 4(2) of the 1933 Act and Regulation D to an accredited investor to acquire a joint venture interest (see Note 18 of Notes to Consolidated Financial Statements).

On April 16, 2008, we issued 4,365,000 unregistered common shares in a private placement pursuant to section 4(2) of the 1933 Act and Regulation D to an accredited investor to partially fund our acquisition of the remaining 70.3% interest in the Greens Creek Joint Venture (see Note 18 of Notes to Consolidated Financial Statements).

On October 24, 2008, we issued 633,360 unregistered common shares in a private placement pursuant to section 4(2) of the 1933 Act and Regulation D to an accredited investor as the result of an amendment to a joint venture buy-in agreement (see Note 18 of Notes to Consolidated Financial Statements).

On February 10, 2009, we issued 42,621 unregistered shares of our 12% Convertible Preferred Stock to our various lenders listed in the Fourth Amendment to our Credit Agreement filed as exhibit 10.5 to our Current Report on Form 8-K filed on February 4, 2009. The shares were not registered under the Securities Act of 1933 in reliance on Section 4(2) of such Act and Regulation D thereunder and issued as a fee to the lenders for the deferral of principal payments under the Fourth Amendment.

On June 4, 2009, we issued unregistered equity securities in a private placement pursuant to Section 4(2) of the Securities Act of 1933 Act and Regulation D thereunder to accredited investors. The securities consist of 17,391,302 shares of our common stock and Series 4 Warrants to purchase 12,173,913 shares of our common stock. The Series 4 Warrants have an exercise price of $3.68 per share, subject to certain adjustments. They became exercisable on December 7, 2009 and remain exercisable during the 181 day period following that date. The proceeds from the issuance were used to repay a portion of the prior outstanding balance on our amended and restated credit facility.

(f)	Comparison of Five-Year Cumulative Total Shareholder Return—December 2004 through December 2009(1):

Hecla Mining Company, S&P 500, S&P 500 Gold Index, and Custom Peer Group(2)

Table of Contents

Date	Hecla Mining		S&P 500		S&P 500 Gold Index		2008 Old Peer Group 2		2009 New Peer Group 3

December 2004	$	100.00	$	100.00	$	100.00	$	100.00	$	100.00
December 2005	$	69.64	$	104.91	$	121.39	$	126.35	$	128.26
December 2006	$	131.39	$	121.48	$	103.45	$	188.43	$	182.50
December 2007	$	160.38	$	128.16	$	112.92	$	224.55	$	197.57
December 2008	$	48.03	$	80.74	$	95.05	$	175.56	$	139.95
December 2009	$	106.00	$	102.11	$	111.47	$	223.33	$	226.71

(1)	Total shareholder return assuming $100 invested on December 31, 2004 and reinvestment of dividends on quarterly basis.

(2)	Agnico-Eagle Mines Ltd., Centerra Gold, Inc., Coeur d’Alene Mines Corp., Golden Star Resources Ltd., IAMGOLD Corporation, Kinross Gold Corporation, Northgate Minerals Corporation, Pan American Silver Corp., Stillwater Mining Company, Yamana Gold Inc.

(3)	Agnico-Eagle Mines Ltd., Centerra Gold, Inc., Coeur d’Alene Mines Corp., Eldorado Gold Corp., Gammon Gold Inc., Golden Star Resources Ltd., IAMGOLD Corporation, Northgate Minerals Corporation, Pan American Silver Corp., Stillwater Mining Company

Table of Contents

Item 6. Selected Financial Data

The following table (in thousands, except per share amounts, common shares issued, shareholders of record, and employees) sets forth selected historical consolidated financial data as of and for each of the years ended December 31, 2005 through 2009, and is derived from our audited financial statements. The data set forth below should be read in conjunction with, and is qualified in its entirety by, our Consolidated Financial Statements and the Notes thereto.

	2009			2008			2007			2006			2005
Sales of products	$	312,548		$	204,665		$	157,640		$	126,108		$	74,488
Net income (loss) from continuing operations	$	67,826		$	(37,173	)	$	68,157		$	64,788		$	(17,951	)
Income (loss) from discontinued operations, net of tax	$	---		$	(17,395	)	$	(14,960	)	$	4,334		$	(7,409	)
Loss on disposal of discontinued operations, net of tax	$	---		$	(11,995	)	$	---		$	---		$	---
Net income (loss)	$	67,826		$	(66,563	)	$	53,197		$	69,122		$	(25,360	)
Preferred stock dividends (1,2)	$	(13,633	)	$	(13,633	)	$	(1,024	)	$	(552	)	$	(552	)
Income (loss) applicable to common shareholders	$	54,193		$	(80,196	)	$	52,173		$	68,570		$	(25,912	)
Basic income (loss) per common share	$	0.24		$	(0.57	)	$	0.43		$	0.57		$	(0.22	)
Diluted income (loss) per common share	$	0.23		$	(0.57	)	$	0.43		$	0.57		$	(0.22	)
Total assets	$	1,046,784		$	988,791		$	650,737		$	346,269		$	272,166
Accrued reclamation & closure costs	$	131,201		$	121,347		$	106,139		$	65,904		$	69,242
Noncurrent portion of debt and capital leases	$	3,281		$	113,649		$	---		$	---		$	3,000
Cash dividends paid per common share	$	---		$	---		$	---		$	---		$	---
Cash dividends paid per Series B preferred share (1)	$	---		$	3.50		$	3.50		$	3.50		$	18.38
Cash dividends paid per Mandatory Convertible Preferred share (2)	$	---		$	3.48		$	---		$	---		$	---
Common shares issued		238,415,742			180,461,371			121,456,837			119,828,707			118,602,135
Mandatory Convertible Preferred shares issued		2,012,500			2,012,500			2,012,500			---			---
Series B Preferred shares issued		157,816			157,816			157,816			157,816			157,816
Shareholders of record		7,647			7,936			6,598			6,815			7,568
Employees		656			742			871			1,155			1,191

______________

(1)

As of December 31, 2004, we had not declared or paid a total of $2.3 million of Series B preferred stock dividends. The $2.3 million in cumulative, undeclared dividends were paid in July 2005. A $0.875 per share dividend was declared on the 157,816 outstanding Series B preferred shares in December 2004, and paid in January 2005, and additional dividends totaling $0.4 million were declared and paid during 2005. A total of $2.9 million in dividends paid during 2005 are included in the amount reported as cash dividends paid per Series B preferred share for 2005, and $0.6 million in dividends declared during 2005 were included in the determination of loss applicable to common stockholders. During 2006 and 2007, $0.6 million in Series B preferred dividends were declared and paid. During 2008, $0.4 million in Series B preferred dividends were declared and paid, while $0.1 million in dividends for the fourth quarter of 2008 were deferred. Series B preferred dividends for the first three quarters of 2009, which totaled $0.6 million, were also deferred. In December 2009, we declared all dividends in arrears on our Series B preferred stock of $0.6 million and the scheduled $0.1 dividend for the fourth quarter of 2009. These dividends were paid in cash in January 2010. Therefore, dividends declared on our Series B preferred shares of $0.7 million were included in the determination of income applicable to common shareholders for 2009 with no cash paid for Series B preferred dividends during 2009.

(2)

Cumulative undeclared, unpaid Mandatory Convertible Preferred Stock dividends for the period from issuance to December 31, 2007 totaled $0.5 million, and are reported in determining income applicable to common shareholders for the year ended December 31, 2007. The $0.5 million in cumulative undeclared dividends were paid in April 2008. During 2008, $9.8 million in Mandatory Convertible Preferred dividends were declared and paid. $6.5 million of the dividends declared in 2008 were paid in cash, and are included in the amount reported as cash dividends paid per Mandatory Convertible Preferred Share, and $3.3 million of the dividends declared in 2008 were paid in our Common Stock. Mandatory Convertible Preferred Stock dividends for the fourth quarter of 2008 totaling $3.3 million were deferred. Dividends on our Mandatory Convertible Preferred Stock totaling $9.8 million for the first three quarters of 2009 were deferred. In December 2009, we declared the $13.1 million in dividends in arrears on our Mandatory Convertible Preferred Stock and the scheduled $3.3 million dividend for the fourth quarter of 2009. These dividends were paid in shares of our common stock in January 2010. Therefore, dividends declared on our Mandatory Convertible Preferred Stock of $13.1 million were included in the determination of income applicable to common shareholders for 2009 with no cash paid for Mandatory Convertible Preferred Stock dividends in 2009.

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Established in 1891 in northern Idaho’s Silver Valley, Hecla Mining Company has long been well known in the mining world and financial markets as a quality producer of silver and gold. Headquartered in Coeur d’Alene, Idaho, this international, NYSE-traded company is 119 years old. Our production profile includes:

Silver, gold, lead, and zinc contained in concentrates shipped to various smelters

Gold doré

Our operating properties and exploration interests are located in jurisdictions with relatively moderate political and economic risk in the United States and Mexico, and are located in historically successful mining districts. We have two business segments for financial reporting purposes: the Greens Creek operating unit on Admiralty Island in Alaska and the Lucky Friday operating unit in Idaho.

Our operating and strategic framework is based on expanding our production and locating and developing new resource potential. In 2009, we

Attained record revenue, gross profit, and cash flow from operating activities, milestones directly related to our acquisition of the remaining 70.3% interest of the Greens Creek Mine near Juneau, Alaska in 2008.

Produced record ore volume through our Lucky Friday mine near Mullan, Idaho.

Significantly boosted our financial liquidity, fully repaying all outstanding debt and ending the year with a cash and cash equivalents balance of over $104 million.

Increased our exploration budget during the year compared to our expectations at the beginning of the year by 40%, drilling targets at each of our four land packages in Alaska, Idaho, Colorado, and Mexico.

Like many companies, we were affected by the global financial crisis and recession. After seeing the silver price fall from a high of $20.92 to a low of $8.88 in 2008, we saw prices rebound to an average of $14.65 for the year and $17.58 for the fourth quarter of 2009. Similar volatility was shown by our important base metals by-products, lead and zinc, which fell by two-thirds during 2008, but have since rebounded to levels double their low points in 2008. The increased exposure to metals prices offered by our ownership of 100% of Greens Creek in 2009, combined with cost controls across the board, put us in a position to benefit significantly from the price recovery and achieve the milestones described above.

Our increased production, resulting both from operational efforts and full-year 100% ownership of Greens Creek, rebounding metals prices, and proceeds from issuances of equity securities allowed us to fully repay the $161.7 million in debt outstanding at December 31, 2008, and to redeem preferred shares and hedging instruments related to the debt. Our cost management efforts made significant contributions to our results as well. Greens Creek mining and milling costs fell by 18% per ton in 2009, attributable both to the efforts of our people and to decreased fuel costs following completion of a dam giving us access to additional hydroelectric power. Our mining and milling costs at Lucky Friday declined by 5% in the same period due to a cost reduction program.

We increased our production of silver to a record 10.9 million ounces in 2009, up from 8.7 million ounces in 2008. Production of lead and zinc, important by-products at our Lucky Friday and Greens Creek mines, also increased to record levels in 2009, with production of lead higher by 26% and zinc by 32% due to higher ore volumes and grades at both operations and our acquisition of the remaining interest in Greens Creek.

Revenues increased by 53% in 2009 over 2008, resulting from higher realized prices, the full-year ownership of Greens Creek, and higher ore throughput and grades.

We reported diluted income per share of $0.23 in 2009 compared to a loss of $0.57 in 2008. Gross profit from operations improved to $101.1 million in 2009 from $17.9 million in 2008 as a result of higher realized prices for all four metals we sell and lower operating costs per ton, although our results were dampened somewhat, as anticipated, by higher depreciation of our newly-acquired 70.3% interest in Greens Creek and increased depreciable assets at Lucky Friday. Exploration costs were 59% lower in 2009 due to cost reduction efforts through the first part of the year, but increased in the fourth quarter. General and administrative costs increased by $4.7 million in 2009 primarily resulting from severance costs related to a reduction in workforce, and to decreases to the valuation of stock appreciation rights in 2008 that did not recur in 2009. We recorded gains on sales of investments and fixed assets, net of losses on impairments of investments, of $7.3 million in 2009 versus $7.9 in 2008. In 2009 we recorded a $7.1 million tax benefit from a decreased valuation allowance on deferred tax assets. In 2008 we recorded an overall tax provision, as we did not decrease the valuation allowance as a result of declining metals prices at that time.

Table of Contents

The factors driving metals prices are beyond our control and are difficult to predict. As noted above, prices have been highly volatile in the last two years. Average prices in 2009 compared to those in 2008 and 2007 are illustrated in the Results of Operations section below.

Key Issues

We intend to achieve our strategy of increasing production and expanding our proven and probable reserves through development and exploration, as well as by future acquisitions. Our strategic plan requires that we manage several pervasive challenges and risks inherent in conducting mining, development, exploration and metal sales at multiple locations.

One such risk involves metals prices. While the metals mining industry enjoyed continued strength in metals prices from 2006 through mid-2008, we have no control over prices. As noted above, silver, lead and zinc prices have been highly volatile, falling sharply in the last quarter of 2008 and recovering through 2009. Industrial demand of silver is closely linked to world GDP growth and to industrial fabrication levels, as it is difficult to substitute silver in industrial fabrication. We believe that global economic conditions are beginning to improve and that industrial trends, including growth of the middle class in countries like China and India, will result in continued consumer and industrial demand for silver. Investment demand for silver and gold has been relatively strong for the past three years and is influenced by various factors, including: the strength of the U.S. Dollar and other currencies, expanding U.S. budget deficits, widening availability of exchange-traded commodity funds, interest rate levels, the health of credit markets, and inflationary expectations. Uncertainty towards a global economic recovery could result in continued investment demand for precious metals. However, there can be no assurance whether these trends will continue or to how they will impact prices of the metals we produce.

We must make our strategic plans in the context of significant uncertainty about future revenues, which may impact new opportunities that require many years and substantial cost from discovery to production. We approach this challenge by investing exploration and capital in districts with an established history of success, and in managing our operations in a manner that seeks to mitigate the effects of lower prices. In the coming year we anticipate an increase in exploration activity compared to 2009 at or near our operating mines at Greens Creek and Lucky Friday, as well as at our exploration projects in Colorado and Mexico.

The recent unprecedented volatility in global financial markets poses a significant challenge to our ability to access credit and equity markets and to sell our products at a profit. We have seen our share price rebound from its lowest levels in 2008 and have eliminated our debt partly by increasing our shares outstanding by 32% during 2009 and issuing warrants at exercises prices ranging from $2.50 to $3.68 per share. We have also entered into a three-year, $60 million revolving credit agreement under which there are no outstanding borrowings as of December 31, 2009, yet our ability to retain the facility depends in part on financial thresholds driven by the prices of products we sell.

Another challenge is the risk associated with environmental litigation and ongoing reclamation activities. As described in Note 7 of Notes to Consolidated Financial Statements, it is possible that our estimate of these liabilities may change in the future, affecting our strategic plans. In addition, proposed measures to address climate change and green house gas emissions could have an adverse impact on our operations and financial performance in the future (see Item 1A. Risk Factors – Legal, Market and Regulatory Risks - We face substantial governmental regulation and environmental risk). In accordance with our environmental policy, we attempt to conduct our operating activities in a manner that minimizes risks to public health and safety. We attempt to design and manage our projects to reasonably minimize risk and negative effects on the environment. We intend to continue to strive to ensure that our activities are conducted in compliance with applicable laws and regulations and to attempt to settle the environmental litigation.

Reserve estimation is a major risk inherent in mining. Our reserve estimates, which drive our mining and investment plans and many of our costs, may change based on economic factors and actual production experience. Until ore is actually mined and processed, the volumes and grades of our reserves must be considered as estimates. Our reserves are depleted as we mine. Reserves can also change as a result of changes in metals prices and costs, as well as economic and operating assumptions.

Results of Operations

For the year ended December 31, 2009, we reported income applicable to common shareholders of $54.2 million compared to a loss applicable to common shareholders of $80.2 million in 2008 and income applicable to common shareholders of $52.2 million in 2007. The following factors led to the improved results for the year ended December 31, 2009 compared to 2008 and 2007:

Table of Contents

Increased gross profit at our Greens Creek unit in 2009 compared to 2008 and 2007. Gross profit in 2009 at our Lucky Friday unit was higher compared to 2008, but was lower compared to gross profit for 2007. See the Greens Creek Segment and Lucky Friday Segment sections below for further discussion of operating results.

Losses from discontinued operations at the now-divested La Camorra unit for the years ended December 31, 2008 and 2007 of $17.4 million and $15.0 million, respectively. There was no such comparable loss reported in 2009 as we completed the sale of our discontinued Venezuelan operations in July 2008 (see the Discontinued Operations – La Camorra Unit section below). In addition, we recorded a loss on the sale of our interests in Venezuela, net of related income tax effect, of $12.0 million in 2008 (see Note 12 of Notes to Consolidated Financial Statements for more information).

A decrease in exploration expense to $9.2 million in 2009 compared to $22.5 million in 2008 and $15.9 million in 2007 as a result of an overall cash conservation effort. The termination of an employee benefit plan resulting in a non-cash gain of $9.0 million recognized in the first quarter of 2009 (see Note 8 of Notes to Consolidated Financial Statements for more information).

The sale of our Velardeña mill in Mexico in March 2009 generating a pre-tax gain of $6.2 million (see Note 14 of Notes to Consolidated Financial Statements for more information).

The sale of our investment in Aquiline Resources Inc. stock for proceeds and a pre-tax gain of approximately $4.1 million in the fourth quarter of 2009.

Interest expense, net of interest capitalized, decreased to $11.3 million in 2009 from $19.6 million for the year ended December 31, 2008 due to repayments of debt incurred for the acquisition of the remaining 70.3% ownership interest in Greens Creek. See Note 6 of Notes to the Consolidated Financial Statements for more information on our debt facilities.

Valuation allowance adjustments to our deferred tax asset balances resulted in a $7.1 million net income tax benefit recognized in 2009 compared to a $3.6 million income tax provision in 2008 and a $10.5 million income tax benefit recognized in 2007 (see Note 5 of Notes to the Consolidated Financial Statements for further discussion).

An adjustment of $44.7 million in 2007 to increase our estimated liabilities for environmental remediation in Idaho’s Coeur d’Alene Basin and the Bunker Hill Superfund Site. During the second quarter of 2007, we finalized a proposed multi-year clean-up plan for the upper portion of the Coeur d’Alene Basin, together with an estimate of related costs to implement the plan. Based on that work and a reassessment of our other potential liabilities in the Basin, we increased our accrual for remediation in the Basin by $42 million. We also accrued an additional $2.7 million for the remaining Bunker Hill Superfund Site work. However, we also recorded an increase of approximately $4.0 million in the fourth quarter of 2009 to our estimated liabilities for environmental remediation at our Grouse Creek unit ($3.2 million) and the Bunker Hill Superfund Site ($0.8 million) as a result of revisions to the reclamation work plans. For additional discussion, see Bunker Hill Superfund Site and Coeur d’Alene River Basin Environmental Claims in Note 7 of Notes to the Consolidated Financial Statements.

We committed to a donation of our common stock valued at $5.1 million in 2007 for the creation of Hecla Charitable Foundation, an organization that will fund charitable contributions with particular emphasis in those communities in which Hecla has employees or operations.

Higher average prices for gold produced at our operations in 2009 compared to 2008 and 2007. The following table summarizes average market prices and our realized prices for silver, gold, lead and zinc for the years ended December 31, 2009, 2008 and 2007:

		December 31,
		2009		2008		2007
Silver —	London PM Fix ($/ounce)	$	14.65	$	15.02	$	13.39
	Realized price per ounce	$	15.63	$	14.40	$	13.78
Gold —	London PM Fix ($/ounce)	$	973	$	872	$	697
	Realized price per ounce	$	1,017	$	865	$	731
Lead —	LME Final Cash Buyer ($/pound)	$	0.78	$	0.95	$	1.17
	Realized price per pound	$	0.88	$	0.83	$	1.23
Zinc —	LME Final Cash Buyer ($/pound)	$	0.75	$	0.85	$	1.47
	Realized price per pound	$	0.90	$	0.71	$	1.24

Table of Contents

Concentrate sales are generally recorded as revenues at the time of shipment. Due to the time elapsed between shipment of concentrates and final settlement with the smelters, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metal prices each period through final settlement. The differences between our realized metal prices and average market prices are due in part to price adjustments included in our revenues resulting from the difference between metal prices upon transfer of title of concentrates to the buyer and metal prices at the time of final settlement. For 2009, we reported positive adjustments to provisional settlements of $25.6 million compared to negative adjustments to provisional settlements of $25.7 million in 2008 and $3.1 million in 2007. Our realized prices for silver and gold were higher in 2009 compared to 2008 and 2007. Realized prices in 2009 for lead and zinc were higher than their 2008 levels, but lower than our realized prices for those metals in 2007. While Hecla’s average realized prices for all four metals exceeded average market prices in 2009, we believe that market metal price trends are a significant factor in our operating and financial performance. Because we are unable to predict fluctuations in prices for metals and have limited control over the timing of our concentrate shipments, there can be no assurance that our realized prices will exceed or even meet average market metals prices for any future period.

Other significant variances affecting the comparison of our income applicable to common shareholders for 2009 to results for 2008 and 2007 were as follows:

Lower average market prices for zinc and lead in 2009 compared to 2007 as illustrated by the table above.

The sale of our interest in the Hollister Development Block gold exploration project in April 2007, which resulted in a pre-tax gain of $63.1 million reported in the second quarter of 2007.

Higher debt-related fees in 2009 due to $4.3 million in expense recognized in the first quarter of 2009 for preferred shares issued pursuant to our amended and restated credit agreement and $1.7 million in professional fees incurred in 2009 related to compliance with our amended and restated credit agreement. See Note 6 and Note 9 of Notes to Consolidated Financial Statements for more information.

Preferred stock dividends of $13.6 million for the years ended December 31, 2009 and 2008 compared to $1.0 million for 2007. The increase in 2009 and 2008 is due to the issuance of 2,012,500 shares of Mandatory Convertible Preferred Stock in December 2007. The net proceeds from the preferred stock issuance were utilized for the purchase of the remaining interest in the Greens Creek joint venture.

In the second quarter of 2009 we recognized a $3.0 million loss on impairment of shares of Rusoro stock received in the 2008 sale of our discontinued Venezuelan operations (see Note 2 of Notes to the Consolidated Financial Statements for further discussion).

Greens Creek Segment

Below is a comparison of the operating results and key production statistics of our Greens Creek segment, which reflects our 29.7% ownership share through April 16, 2008 and our 100% ownership thereafter. See Note 18 of Notes to Consolidated Financial Statements for further discussion of the acquisition of the 70.3% interest in Greens Creek. Dollars are presented in thousands, except for per ton and per ounce amounts.

Table of Contents

	Years Ended December 31,
	2009			2008			2007
Sales	$	229,318		$	141,103		$	75,213
Cost of sales and other direct production costs	$	(103,670	)	$	(110,540	)	$	(30,240	)
Depreciation, depletion and amortization	$	(52,909	)	$	(30,022	)	$	(8,440	)
Gross Profit	$	72,739		$	541		$	36,533

Tons of ore milled		790,871			598,931			217,691
Production:
Silver (ounces)		7,459,170			5,829,253			2,570,701
Gold (ounces)		67,278			54,650			20,218
Zinc (tons)		70,379			52,055			18,612
Lead (tons)		22,253			16,630			6,252
Payable metal quantities sold:
Silver (ounces)		6,482,439			5,143,758			2,240,092
Gold (ounces)		54,801			44,977			15,543
Zinc (tons)		52,928			39,433			14,187
Lead (tons)		16,749			13,877			4,748
Ore grades:
Silver ounces per ton		13.01			13.69			15.45
Gold ounces per ton		0.13			0.14			0.14
Zinc percent		10.13			10.13			9.67
Lead percent		3.64			3.59			3.66
Total cash cost per silver ounce (1)	$	0.35		$	3.29		$	(5.27	)

______________

(1)

A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found in Reconciliation of Total Cash Costs to Costs (non-GAAP) of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

The increase in gross profit during 2009 compared to 2008 and 2007 was primarily the result of the following factors:

Positive price adjustments to revenues of $22.2 million during 2009 compared to negative price adjustments of $22.9 million in 2008 and $2.5 million in 2007. Price adjustments to our revenues result from changes in the estimated settlement prices for our provisionally priced concentrate sales.

An increase in our share of production due to our acquisition of the remaining 70.3% of Greens Creek in April 2008.

Cost of sales in 2008 included the excess of fair value over cost of the finished and in-process product inventory acquired upon purchase of the 70.3% ownership interest. Upon the sale of the acquired inventory, the excess of fair market value over costs was expensed, which increased cost of sales and decreased gross profit margin in 2008 by $16.6 million.

Lower production costs, which decreased in 2009 by 19% and 16%, respectively, per ton of ore milled, compared to 2008 and 2007, respectively. The lower costs are primarily due to increased availability of grid/hydroelectric power, lower diesel prices and improved ore production.

Higher average prices for gold in 2009 compared to 2008 and 2007.

These factors were partially offset by:

A decline in average market prices for zinc and lead from their levels in 2007.

Higher depreciation, depletion and amortization expense in 2009 by $22.9 million compared to 2008 and $44.5 million compared to 2007 as a result of the fair market valuation of the acquired 70.3% share of property, plant, equipment and mineral interests at the acquisition date, additional depreciable assets placed into service, and an increase in units-of-production depreciation driven by higher production in 2009.

Silver ore grades in 2009 that were lower by 5% and 16%, respectively, compared to 2008 and 2007.

Table of Contents

Mine license taxes that increased in 2009 by $4.6 million compared to 2008 and $3.4 million compared to 2007. The higher taxes are due to the increased profits resulting from the factors discussed above.

The Greens Creek operation is partially powered by diesel generators, and production costs are significantly affected by fluctuations in fuel prices. Infrastructure has been installed that allows hydroelectric power to be supplied to Greens Creek by AEL&P via a submarine cable from North Douglas Island, near Juneau, to Admiralty Island, where Greens Creek is located. This project has reduced production costs at Greens Creek to the extent power has been available. During 2009, the mine received an increased proportion of its power needs from AEL&P. We expect this to continue in the foreseeable future.

The $2.94 decrease in total cash cost per silver ounce in 2009 compared to 2008 is primarily due to production costs and treatment and freight costs that decreased by $2.21 and $0.59 per ounce, respectively, and by-product credits that increased by $0.71 per ounce, partially offset by production taxes that increased by $0.59 per ounce. The $8.56 increase in total cash costs per silver ounce in 2008 compared to 2007 is attributable to lower by-product credits by $2.24 per ounce and production costs and treatment and freight that increased by $2.77 and $2.34 per ounce, respectively. While value from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product is appropriate because:

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

we have historically presented Greens Creek as a producer primarily of silver, based on the original analysis that justified putting the project into production, and believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year;

metallurgical treatment maximizes silver recovery;

the Greens Creek deposit is a massive sulfide deposit containing an unusually high proportion of silver; and

in most of its working areas, Greens Creek utilizes selective mining methods in which silver is the metal targeted for highest recovery.

We periodically review our proven and probable reserves to ensure that reporting of primary products and by-products is appropriate. Within our cost per ounce calculations, because we consider zinc, lead and gold to be by-products of our silver production, the values of these metals offset operating costs.

Table of Contents

The Lucky Friday Segment

The following is a comparison of the operating results and key production statistics of our Lucky Friday segment (dollars are in thousands, except per ounce amounts):

	Years Ended December 31,
	2009			2008			2007
Sales	$	83,230		$	63,562		$	82,427
Cost of sales and other direct production costs	$	(44,972	)	$	(41,059	)	$	(37,291	)
Depreciation, depletion and amortization	$	(9,928	)	$	(5,185	)	$	(3,883	)
Gross profit	$	28,330		$	17,318		$	41,253

Tons of ore milled		346,395			317,777			323,659
Production:
Silver (ounces)		3,530,490			2,880,264			3,071,857
Lead (tons)		22,010			18,393			18,297
Zinc (tons)		10,616			9,386			8,009
Payable metal quantities sold:
Silver (ounces)		3,316,034			2,697,089			2,869,322
Lead (tons)		20,461			16,915			17,362
Zinc (tons)		7,794			6,299			5,076
Ore grades:
Silver ounces per ton		10.86			9.70			10.27
Lead percent		6.82			6.23			6.12
Zinc percent		3.46			3.52			3.16
Total cash cost per silver ounce (1)	$	5.21		$	6.06		$	(0.75	)

______________

(1)

A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below in Reconciliation of Total Cash Costs (non-GAAP) to Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

The $11.0 million increase in gross profit for 2009 compared to 2008 is primarily the result of higher production, due to higher silver ore grades and increased mill tonnage, and a 6% decrease in production costs. In addition, positive price adjustments to revenues of $3.4 million impacted results for 2009 due to increases in metals prices between transfer of title of concentrates to buyers and final settlement during the year. Revenues for 2008 at Lucky Friday included $2.8 million in negative price adjustments. The $23.9 million decrease in gross profit in 2008 compared to 2007 resulted primarily from lower average lead and zinc prices, a 22% increase in production costs, and silver ore grades that decreased by 6%. In addition, the $2.8 million in negative price adjustments for 2008 were higher than $0.6 million in negative price adjustments for 2007.

The decrease in total cash costs per silver ounce in 2009 compared to 2008 is primarily due to lower production costs and treatment and freight costs by $1.87 and $1.34 per ounce, respectively. The lower costs were partially offset by a decrease in by-product credits by $2.10 per ounce due to lower average lead and zinc prices. The $6.81 increase in total cash costs in 2008 compared to 2007 is attributed to lower by-product credits by $2.21 per ounce and higher production costs and treatment and freight costs by $2.37 and $1.33 per ounce, respectively. While value from lead and zinc is significant at the Lucky Friday, we believe that identification of silver as the primary product, with zinc and lead as by-products, is appropriate because:

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

the Lucky Friday unit is situated in a mining district long associated with silver production; and

the Lucky Friday unit generally utilizes selective mining methods to target silver production.

We periodically review our proven and probable reserves to ensure that reporting of primary products and by-products is appropriate. Within our cost per ounce calculations, because we consider zinc and lead to be by-products of our silver production, the values of these metals offset operating costs.

Table of Contents

Discontinued Operations - The La Camorra Unit

During the third quarter of 2008, we sold our wholly owned subsidiaries holding our business and operations of the La Camorra Unit to Rusoro Mining, Ltd. (“Rusoro”) for $20 million in cash and 3,595,781 shares of Rusoro common stock. The results of our Venezuelan operations have been reported in discontinued operations for all periods presented. See Note 12 of Notes to Consolidated Financial Statements for more information.

The following is a comparison of operating results and key production statistics for our discontinued Venezuelan operations, which included the La Camorra mine, a custom milling business and Mina Isidora (dollars are in thousands, except per ounce amounts):

	Years ended December 31,
	2008			2007
Sales	$	23,855		$	68,920
Cost of sales and other direct production costs		(21,656	)		(52,212	)
Depreciation, depletion and amortization		(4,785	)		(14,557	)
Gross profit (loss)	$	(2,586	)	$	2,151
Tons of ore milled		25,516			142,927
Gold ounces produced		22,160			87,490
Gold ounce per ton		0.894			0.629

Corporate Matters

Other significant variances affecting 2009 results compared to 2008 results were as follows:

General and administrative expense was higher by $4.7 million in 2009 due to negative mark-to-market adjustments for the valuation of stock appreciation rights in 2008 and costs incurred for workforce reductions, partially offset by decreased staffing.

Increase in other operating expense of $2.6 million in 2009 primarily due to an increase in pension benefit costs recognized resulting from a decrease in the expected returns calculated for plan assets due to lower plan asset values.

$2.7 million decrease in interest income in 2009 as a result of lower cash balances.

Lower interest expense, net of amount capitalized, in 2009 by $8.2 million due to payoff of our bridge facility balance in February 2009 and payoff of our term facility balance in October 2009. See Note 6 of Notes to Consolidated Financial Statements for more information on our credit facilities.

An income tax benefit of $7.7 million in 2009 compared to an income tax provision of $3.8 million in 2008. The 2009 income tax benefit is primarily related to a $7.1 million reduction in the valuation allowance for our deferred tax asset balances in the fourth quarter. See Note 5 to Notes to Consolidated Financial Statements for further discussion.

Other significant variances affecting our 2008 results compared to 2007 results were as follows:

Lower general and administrative expenses in 2008 by approximately $1.3 million, primarily due to a reduction in the value of stock appreciation rights, resulting from lower stock prices, and a decrease in incentive compensation, partially offset by increased staffing.

Overall increase in exploration expense in 2008 of $6.5 million as a result of a surface drilling and generative exploration program in North Idaho’s Silver Valley, the initiation of a drilling program in the Creede Mining District in Colorado, the addition of exploration costs relating to our acquisition of the remaining 70.3% of Greens Creek, increased underground exploration at our Lucky Friday unit, and continued exploration activity at our San Sebastian unit in Mexico.

Table of Contents

Lower pre development expense in 2008 due to our sale of the Hollister Development Block project in Nevada in April 2007.