Shareholders have filed a lawsuit against Hecla Mining Co. alleging the it provided misleading information about its Nevada mine operations.
The lawsuit, filed May 24 in the U.S. District Court for the Southern District of New York by shareholders Jeffrey and Cheryl Batter, alleges the Coeur d’Alene-based mining company misled investors about the profitability of its Nevada mine operations.
The two shareholders are seeking to certify the lawsuit as class action on behalf of all shareholders who bought Hecla stock between March 19, 2018 and May 8, 2019.
The lawsuit states Hecla was aware that its Nevada operations had problems such as excessive water, unavailability of equipment and lack of development needed for consistent production, among other things.
A Hecla spokesman denied the allegations, when contacted by the Spokane Journal of Business.
“We do believe this lawsuit is without merit and will defend it vigorously,” Luke Russell, Hecla’s vice president of external affairs, told the Journal in a story published Thursday. Russell declined to provide additional comments, citing a company policy against commenting on ongoing litigation.
In March 2018, Hecla acquired Klondex Mines Ltd. for $462 million, which was a high-grade underground gold producer with its Fire Creek, Midas and Hollister mines in Nevada.
When Hecla announced first-quarter financial results on May 9, it disclosed negative cash flow, as well as a comprehensive review and suspension of annual production for its Nevada mine operations.
During a conference call with investors, Hecla CEO and President Phillips Baker Jr. said the company recognized problems with Fire Creek, stating the amount of water at the mine had increased, making conditions worse, and it was unclear whether there would be a positive return on its investment in the mines, according to the lawsuit.
Hecla reported a $25.7 million net loss to shareholders for the first quarter, with more than $13 million attributed to its Nevada mine operations, according to a company news release.
Hecla’s share price tumbled to 21 cents per share – an 11% drop – closing at $1.56 per share following the announcement. By comparison, Hecla’s shares closed at $2.04 a share on May 8.
The plaintiffs stated the statutory safe harbor related to forward-looking statements doesn’t apply to Hecla because many of those statements were not identified as such by the company.
Hecla announced Thursday it has taken action to reduce spending at its Nevada mines.
“Hecla has a strong commitment to operate within cash flow as demonstrated by the positive free cash flow over the past three years and longer,” Baker said. “However, the Nevada operations have not generated the cash flow we had hoped for, so we are curtailing most development and reducing the workforce with the goal of the operation generating positive cash flow in the second half of the year.”
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