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Thursday, February 29, 2024
Courthouse News Service
Thursday, February 29, 2024 | Back issues
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Investors Lash Hecla Mining for Shoddy Safety

BOISE (CN) - Hecla Mining's shoddy safety practices claimed two lives, forced the shutdown of its most productive mine and cost investors millions of dollars, shareholders say in a derivative complaint.

The consolidated federal complaint claims that Hecla ran its Lucky Friday silver mine, in the Idaho Panhandle, in an "unsafe manner" for years. Tunnel collapses killed a miner on April 15, 2011 and again on Nov. 17 that year, according to the complaint.

Less than a month later, on Dec. 14, seven miners were hospitalized after a rock burst, a spontaneous, violent fracture that occurs in deep mines.

The U.S. Mine Safety and Health Administration then shut down the Lucky Friday mines, issuing 59 citations and fining Hecla $1 million, according to the 91-page complaint.

The 3-page Table of Contents alone contains a welter of allegations against Hecla and its defendant directors, including a "long history of noncompliance despite increased safety regulations"; that the "history of citations at Hecla and the Lucky Friday Mine increase[d] between 2002 and 2011"; that "the Lucky Friday Mine has received more safety citations than its larger counterpart, the Greens Creek Mine"; that "the Lucky Friday mine had a pattern of repeatedly violating the same MSHA regulations"; that "the Lucky Friday Mine was more dangerous than the national average"; and that the "cause of the closure was a failure to comply with mandatory standards."

The Lucky Friday was Hecla's flagship silver mine. Hecla also produces gold, lead and zinc, but most of its revenue comes from silver. Its two most profitable mines, the Lucky Friday and Greens Creek, near Juneau, Hecla brought in $335 million in silver sales in 2011, 70 percent of the company's annual revenue, according to the complaint.

Lucky Friday, one of the deepest mines in the nation, was repeatedly cited for safety violations from 2002 through 2011, but Hecla failed to remedy any of them, the shareholders says.

Rock bursts and tunnel collapses occurred repeatedly since 2006: five times between August 2010 and March 2011 alone, according to the complaint.

The shareholders claim they lost earnings from the revenue potential of the Lucky Friday mine, and the stock also suffered because of the harm to the company's reputation.

"The Lucky Friday mine has been, and still is, closed for almost a year, resulting in losses to the company of approximately $80 million to $100 million," the complaint states. "On February 21, 2012, Hecla disclosed that it will cost an additional $50 million to bring the Lucky Friday mine into compliance with MSHA safety regulations. In the wake of the January 11, 2012 mine closure and MSHA findings, Hecla's value plunged more than 21 percent, or $1.23 per share to close at $4.41 compared to the previous trading day's closing of $5.84, erasing almost $344 million in market capitalization."

The defendant directors "breached their duties to protect Hecla from the known and extreme risk of material adverse consequences associated with inadequate safety controls at the Lucky Friday mine," the complaint states. "Plaintiffs bring this action to hold the individual defendants accountable for the substantial damages that their actions and conscious inactions have and will continue to cause the company."

The shareholders seek damages for breach of fiduciary duty and unjust enrichment, and an injunction ordering Hecla to bring the Lucky Friday mine into compliance with safety regulations.

Director defendants include CEO Phillips S. Baker Jr.; senior vice president and CFO James A. Sabala; Chairman of the Board Ted Crumley; director and former Congressman George R. Nethercutt Jr., who specialized in mining legislation; director, audit committee chairman and safety committee member John H. Bowles; director and chairman of the safety committee Terry V. Rogers; and directors and safety committee members Charles B. Stanley and Anthony P. Taylor.

The plaintiffs seek disgorgement of "ill-gotten gains from insider selling," restitution, damages and an injunction reforming Hecla's safety practices and restricting its insider stock sales.

Their lead counsel is Sam Johnson, with Johnson & Monteleone, of Boise.

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