Capital Markets

Hecla Hits Credit Gold Mine

An investor will provide a $65 million equity infusion that the mining company will use to pay off a bridge loan.
Stephen TaubFebruary 5, 2009

Hecla Mining Co. has taken a dilutive approach to paying off a bridge loan facility. The 118 year-old silver and gold miner said Canaccord Capital Corp. and Canaccord Adams have agreed to purchase 32 million units of Hecla for $65.6 million. Each unit will consist of one common share of Hecla and one-half common share purchase warrant.

Hecla will use the proceeds to repay the $40 million facility, as well as for general working capital requirements, including debt amortization. Its stock, though, fell more than 15 percent on the news.

In addition, Hecla granted the underwriters an option to purchase up to 4.8 million additional units to cover over-allotments, if any, which would bring Hecla’s total gross proceeds to $75.4 million.

“This transaction makes the amendment to the credit facility effective with the repayment of the $40 million bridge loan,” said Hecla CEO Phillips S. Baker Jr. “With no principal amortization payment dates in 2009, we will focus on driving our costs down and growing our production and reserve base.”

Hecla announced on Tuesday that it is amending its loan agreement to reschedule all 2009 term debt payments to 2010 and 2011. The equity underwriting was part of the deal to make the amendment effective.

“This amendment will provide Hecla with the time to optimize our business and capital structure by moving about $50 million of debt payments from this year to two years from now and $16 million into next year,” said Baker. “We were able to amend our credit facility in these uncertain economic times due to the quality of our mines and people and the support of our banks.”

Hecla’s credit facility was put in place to fund the acquisition of the Greens Creek mine. Of the $380 million borrowed, Hecla has paid back about $220 million. The $161 million outstanding consists of the $40 million bridge loan and a $121 million term facility.

The fourth amendment to the credit facility provides that upon repayment of the bridge loan from a $50 million or more equity or subordinated debt offering before February 13, $66.7 million of term debt payments due in 2009 will be rescheduled to 2010 and 2011. Equal quarterly payments totaling $60 million are to be made in 2010 with a final $61.7 million payment due March 31, 2011. The interest rate under the loan agreement is unchanged.

In consideration for the modified credit facility, Hecla will semiannually issue convertible preferred stock to its banking syndicate in an amount equal to 3.75 percent of the term debt outstanding. The stock will have a dividend of 12 percent per annum and be convertible into Hecla common shares.