Hecla Mining Company
- Company Name
- Hecla Mining Company
- Stock Symbol
- Class Period
- March 19, 2018 to May 8, 2019
- Motion Deadline
- July 23, 2019
- Southern District of New York
The complaint charges Hecla and certain of its officers with violations of the Securities Exchange Act of 1934. Hecla discovers, acquires, develops, and produces silver, gold, lead, and zinc. On March 19, 2018, Hecla announced it was acquiring three high-grade Nevada gold mines through the acquisition of Klondex Mines Ltd. (“Klondex”) for a mix of cash and stock worth $462 million. Hecla’s President and CEO, Phillips S. Baker, represented that “Klondex’s three operating mines . . . are some of the highest-grade gold mines in the world” and that “[a]fter extensive due diligence, we see significant opportunity to improve costs, throughput and recoveries over time with our expertise.” After the acquisition closed in July 2018, these Nevada operations became a fifth operating segment.
The complaint alleges that during the Class Period, defendants falsely and misleadingly represented that the Company’s Nevada operations would be “accretive” and cash flow positive, or at the very least “self-funding.” According to the complaint, however, the defendants knew from their extensive due diligence that the Company’s Nevada operations faced many undisclosed material problems that would prevent the operations from being cash flow positive, or even cash flow neutral. Specifically, defendants were aware that the Nevada operations had material problems in terms of excessive water, equipment availability, achieving enough development to have consistent production, and lack of characterization of ore types, among other things. As a result of this information being withheld from the market, Hecla securities traded at artificially inflated prices during the Class Period, with its stock price reaching a high of nearly $4.00 per share.
Then on May 9, 2019, before the market opened, Hecla issued a press release in which the Company disclosed it was undertaking a “comprehensive review” of, and had suspended annual production and cost estimates for, its Nevada operations and admitted that the Nevada operations were cash flow negative. In the release, defendant Baker stated that “‘the operating metrics, including cost, grade and negative cash flow, were unacceptable. We are reviewing our Nevada operations to determine the best path forward and expect results of this review in the second quarter. In the meantime, we are suspending our annual Nevada estimates for production and cost.’” On this news, the price of Hecla common stock declined by 23.5% over two trading days, from a closing price of $2.04 per share on May 8, 2019, to a close of $1.56 per share on May 10, 2019.