Philip Gordon ISBN 1996 Bruce S. Bistline ISBN 1988 GORDON...

Case 2:12cv-00042-BLW Document 85 Filed 10/16/12 Page 1 of 129

Philip Gordon ISBN 1996 Bruce S. Bistline ISBN 1988 GORDON LAW OFFICES 623 West Hays Street Boise, ID 83702 Telephone: (208) 345-7100 Facsimile: (208) 345-0050 E-mail: pgordongordonlawoffice.com

Liaison Counsel for Lead Plaintiffs

James M. Hughes (pro hac vice) Marlon E. Kimpson (pro hac vice) Vincent I. Parrett (pro hac vice) Ann K. Ritter (pro hac vice) Badge Humphries (pro hac vice) MOTLEY RICE LLC 28 Bridgeside Blvd. Mt. Pleasant, SC 29464 Telephone: (843) 216-9000 Facsimile: (843) 216-9440 E-mail: jhughesmotleyrice. com

Lead Counsel for Lead Plaintiffs

Additional Counsel listed in Signature Page

UNITED STATES DISTRICT COURT DISTRICT OF IDAHO

BRICKLAYERS OF WESTERN PENNSYLVANIA PENSION PLAN, Individually and on Behalf of All Others Similarly Situated,

Plaintiff,

vs.

HECLA MINING COMPANY, PHILLIPS S. BAKER, JR. and JAMES A. SABALA,

Case No. 1:12-cv-00042-BLW

CLASS ACTION

CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS

Defendants. ) DEMAND FOR JURY TRIAL


TABLE OF CONTENTS

1. INTRODUCTION .................................................................................................... 1

II. JURISDICTION AND VENUE ............................................................................... 9

III. PARTIES .................................................................................................................. 10

IV. FRAUDULENT SCHEME AND COURSE OF BUSINESS .................................. 11

V. BACKGROUND ...................................................................................................... 12

A. Hecla's Lucky Friday #4 Shaft Project ........................................................ 14

B. The April 15, 2011 Fatal Fall of Ground Accident....................................... 14

C. Fall Of Ground Incidents Were Common Before The Fatal April 2011

Event............................................................................................................. 17

1. The September 2008 Fall of Ground Incident .................................. 17

2. The April 2009 Fall of Ground Incident ........................................... 19

3. The September 2009 Fall of Ground Incident .................................. 19

4. Similar Incidents in February, March, May, June, and July of 2010

andMarch 2011 ................................................................................ 19

D. The November-December 2011 Rock Bursts ............................................... 20

1. The November 16, 2011 Rock Burst ................................................ 20

2. The December 14, 2011 Rock Burst Injures Seven Miners.............. 21

3. Similar Incidents in August, September, and November 2010......... 25

E. The Fatal Accident on November 17, 2011 .................................................. 26

F. Safety Violations Lead to Increased and Serious Concerns About the

SilverShaft................................................................................................... 27

1. Citations and Orders Issued from December 16-19, 2012................ 27

2. Results of "Special Emphasis" Inspections Beginning December

20, 2011 ............................................................................................ 36

3. Lucky Friday is Shut Down .............................................................. 38

4. The January 17-19, 2012 Structural Investigation of the Silver

Shaft.................................................................................................. 44

VI. DEFENDANTS' FALSE AND MISLEADING STATEMENTS ISSUED

DURING THE CLASS PERIOD ............................................................................ 47

A. Defendants' False Statements Concerning Safety ....................................... 49

1. Statements in SEC Filings ................................................................ 49

2. Social Responsibility Report............................................................. 51

3. Investor Presentations ....................................................................... 53

CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS


4. Press Releases, Earnings Calls, and Interviews ............................. 56

B. Defendants' False Statements Concerning the #4 Shaft ............................ 66

C. Defendants' False Statements Concerning Low Costs, Growth Potential,

and the Condition of Lucky Friday Mine .................................................. 68

D. Defendants' False Statements Concerning Risk Disclosures .................... 94

E. SOX Certifications ..................................................................................... 94

VII. THE DEFENDANTS' CLASS PERIOD STATEMENTS VIOLATED GAAP.. 96

A. Hecla Failed to Disclose Contingent Liabilities and Significant Risks ..... 96

B. Hecla Failed to Disclose Known Trends or Uncertainties in Violation of

SECRegulations ....................................................................................... .98

VIII. POST-CLASS PERIOD DISCLOSURES............................................................. 100

IX. ADDITIONAL ALLEGATIONS REGARDING SCIENTER AND

FRAUDULENT INTENT ..................................................................................... 104

A. Defendants' Motive to Keep Costs Artificially Low and Expand

Production With Inadequately Maintained Infrastructure ......................... 104

B. Dodd-Frank Certifications ......................................................................... 107

C. Defendants' Statements About Lucky Friday and the Silver Shaft ........... 111

X. LOSS CAUSATION.............................................................................................. 118

XI. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-

MARKET DOCTRINE ........................................................................................ 120

XII. NO SAFE HARBOR ............................................................................................. 121

XIII. CLASS ACTION ALLEGATIONS ...................................................................... 122

COUNTI ........................................................................................................................... 123

COUNTII .......................................................................................................................... 124

JURYDEMAND ............................................................................................................... 124

CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS ii


I. INTRODUCTION

1. This is a securities class action on behalf of all persons who purchased or

otherwise acquired Hecla Mining Company ("Hecla" or the "Company") securities between

October 26, 2010, and January 11, 2012, inclusive (the "Class Period"), against Hecla and

certain of its officers and/or directors for violations of the Securities Exchange Act of 1934

("1934 Act").

2. Hecla is a silver mining company based in Coeur d'Alene, Idaho. Since 2009,

Hecla has had two operating units: the Lucky Friday mine, Hecla's flagship mine located less

than 60 miles from corporate headquarters, and its Alaskan operations at Greens Creek.

3. In addition to being Hecla's flagship, the Lucky Friday mine has represented

32.12%, 31.79%, and 31.47% of the Company's entire silver production for the years 2009,

2010, and 2011, respectively. Lucky Friday contributed $83.2 million (26.6%), $105.5 (25%),

and $134.7 million (28%) to the Company's consolidated sales during these years. For 2009,

2010, and 2011, Lucky Friday had approximately 253, 262, and 272 employees.

4. The Lucky Friday mine is one of the nation's deepest underground silver mines.

The mine is accessed by two shafts, the #2 shaft built in 1960 and the mile-deep Silver Shaft

built in 1983. Since its completion, the Silver Shaft had been the mine's primary shaft. It serves

as the sole means for transporting miners, materials, and ore. The #2 Shaft now serves as an

escape route, required by the Federal Mine Safety & Health Act of 1977, Public Law 91-173, as

amended by Public Law 95164* (the "Mine Act"). Both of the shafts must be maintained to

provide safe means of travel for miners at all times, as well as to transfer ore to the surface.

5. For years, Hecla touted its competitive advantage as being the largest and lowest

cash cost silver producer in the United States. The Company uses the non-Generally Accepted

Accounting Principles ("GAAP") measurement of "total cash costs per ounce" as the measuring

CONSOLIDATED AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 1


stick against its rivals. According to the Company, its "Total Cash Costs Per Ounce" is

"[c]alculated based on total cash costs . . . net of by-product revenues earned from all metals

other than the primary metal produced at each unit, divided by the total ounces of the primary

metal produced."

6. Over the past two decades, Hecla faced massive potential legal liability -

described by analysts as "a poison pill limiting the company's corporate options" - stemming

from the release of wastes in northern Idaho. Until the Company finally settled these claims on

June 13, 2011, for a colossal $263.4 million, the specter of this impending liability diminished

the Company's appeal to investors. In an attempt to overcome this black mark, Hecla set about

accentuating any positives that it could, particularly its status as the lowest-cost producer of

silver in the United States. In order to achieve this, however, the Company deliberately and/or

recklessly eschewed compliance with applicable safety regulations in order to keep and maintain

the low costs per ounce of silver production.

7. During the Class Period, Defendants issued materially false and misleading

statements regarding the Company's business and financial results, in particular, by understating

costs and risks as Defendants failed to undertake mandatory safety and infrastructure

maintenance to keep total costs per ounce lower than competitors. In so doing, Defendants failed

to disclose severe operational problems and mine safety failures at its Lucky Friday unit as they

misled investors about its safety performance, cost-per-ounce produced, and its infrastructure's

capacity to dramatically withstand expanded production. As a result of Defendants' false and

misleading statements and omissions, Hecla's stock traded at artificially inflated prices during

the Class Period, reaching a closing price high of $11.34 per share on December 29, 2010.



8. In April 2011, a major 'Tall of ground"' killed a miner when his work area

collapsed on top of him in a rock burst-prone 2 section of the Lucky Friday mine. The

Department of Labor's Mine Safety and Health Administration ("MSHA") determined after the

fatality that "Mine management has engaged in aggravated conduct constituting more than

ordinary negligence by directing the pillar to be mined as the stope 3 advanced and allowing

miners to work under inadequately supported ground ,4 MSHA concluded: This is an

unwarrantable failure to comply with a mandatory standard"

9. In November 2011, another safety failure claimed the life of a worker when he

was buried alive in, and crushed by, shaft waste product while he was attempting to clear

plugged material into the dump loading chute below. After this fatality, MSHA concluded that

"Mine management engaged in aggravated conduct constituting more than ordinary

negligence in that they were aware that the miners were working off material that had the

potential (to) be blocked while only using a self-retracting lanyard?"

10. Also in November 2011, a rock burst occurred along the "5900 drift," or mine

tunnel, that extended laterally over a mile below the surface from the main shaft to the newest

active mining area. As a result of the rock burst, MSHA ordered managers at the Lucky Friday

mine to perform twice-daily seismic monitoring of stress in rocks in mine shafts.

1 A fall of ground is a fall of rock from the roof (back) or side (rib) into a mine opening. 2 A rock burst is a violent expulsion of rock from the walls of a mine opening caused by heavy pressure on brittle rocks in deep mines where mining has deprived the rock of support on one side.

A stope is a step-like excavation underground for the removal of ore that is formed as the ore is mined in successive layers.

Unless otherwise noted, all emphasis is added.



11. Then, in December 2011, another rock burst in the same area along the 5900 drift

caused a nearly catastrophic accident in which seven miners were injured when a major ground

fall occurred in the same rock burst-prone area. MSHA determined that:

The company continued to record inaccurate readings on the East Low gauge until another violent rock burst occurred on the East wall that seriously injured 7 miners. The company has engaged in aggravated conduct constituting more than ordinary negligence in that they were aware that the East Low gauge was defective and assigned miners to work in an area without knowing if the East wall was building stress. This order is an unwarrantable failure to comply with a mandatory standard This violation is an unwarrantable failure to comply with a mandatory standard

12. Following the December rock burst, the Company suspended operations at the

Lucky Friday mine, announcing that mining operations would resume in February 2012.

13. Based on this series of events, federal mining regulators ordered a "special

emphasis" inspection of the Lucky Friday mine. In early December, MSHA issued an accident

report, finding that Hecla had violated safety requirements that led to the death of the miner in

the April incident. In conjunction with the report, the Company received four citations and faced

a nearly $1 million fine.

14. During continuing inspections in December following the rock burst, MSHA

found serious violation after serious violation, many involving "unwarrantable failures" to

comply with mandatory safety standards.

15. December 16, 2011: "There are three . . . retractable lanyards on the 4900 station

that are defective . . . . The mine operator has just had a recent fatality due to the incorrect use of

fall protection which should have heightened there [sic] awareness on this hazard." MSHA

found that "[T]he mine management engaged in aggravated conduct constituting more than

ordinary negligence in that they recently had a fatal accident relating to fall protection and

should have had a heightened awareness of this hazard, this was also an obvious condition at



the shaft station. This violation is an unwarrantable failure to comply with a [mandatory

standard]."

16. December 19, 2011:

"Ground support was not being maintained to the ground at the 4550 55 Ramp main haulage drift. . . . Management stated that this area had been like this for an extended period of time." MSHA's determination: "Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew the support condition had not changed for 6 to 9 months and allowed access through the affected area exposing the miners to fall of ground hazards. This is an unwarrantable failure to comply with a mandatory standard"

17. December 19, 2011:

"Ground support was not maintained to the ground at the 55 ramp 4960 level downward towards the 5080 sub level. The drift is accessed daily for mining operations by miners and management." MSHA concluded that "Management stated that this drift had been like this for an extended period of time. Management engaged in aggravated conduct constituting more than ordinary negligence in that knew [sic] the support conditions had not changed for 6-8 months and allowed access through the affected area exposing the miners to fall of ground hazards. This is an unwarrantable failure to comply with a mandatory standard"

18. December 19, 2011: "From the 5180 level to 5280 sub-level on the 5400 ramp

had many areas of the existing ground support that had not been maintained. . . . Management

engaged in aggravated conduct constituting more than ordinary negligence in that they knew

ground control was bad and employees were exposed to falling material hazards. This

violation is an unwarrantable failure to comply with a mandatory standard"

19. December 19, 2011: "The ground control was not maintained on the 54 down

ramp at the 5080 level . . . . This is a main haulage way and miners are exposed to this daily

creating falling rock hazards." MSHA found that "This was an obvious and extensive hazard

that is easily seen and management is in the area daily. Management engaged in aggravated

conduct constituting more than ordinary negligence in that they knew ground control was bad



and employees were exposed to falling material hazards. This violation is an unwarrantable

failure to comply with a mandatory standard?'

20. December 19, 2011: "The mine did not have a secondary escape from the lowest

level of the 55 ramp . . . . The mine stated down below that level is a development drift and did

not think a secondary was applicable."

21. December 20, 2011: "The mine did not have systematic procedures for testing

and inspecting the shaft developed and followed on the Silver Shaft. This is evident from the

hazards found during shaft inspection."

22. December 20, 2011: "The Silver shaft only had one compartment inspected

each 7 days. The mine checked the north conveyance one week and the south conveyance the

second week This is an incomplete weekly inspection. It would be difficult to make a good

inspection on both sides of the shaft from one side."

23. On January 5, 2012, MSHA issued a closure order for the Lucky Friday mine due

to the degradation of many critical shaft components and required the removal of built-up

material. Federal inspectors determined, among other things, that sand and concrete material had

been leaking from a deteriorating pressurized pipe into the shaft for a number of years and that

the loose material hanging in the shaft, along with significant support structure damage,

presented a major hazard for any continued use for production or regular man hoisting. The sand

and concrete material had already damaged a number of areas of the shaft and presented a

continued safety hazard because it could break off and fall down the shaft, potentially causing

fatal injuries to miners or catastrophic damage.

24. MSHA ordered the mine to close because it was too dangerous to operate in its

condition. Although Hecla regularly challenges MSHA citations and orders that pose a threat to


Case 2:12cvM0042BLW Document 85 FUed 10/16/12 Page 10 of 129

continuing production, the Company did not appeal the order closing the mine despite the

tremendous costs the closure would entail both in terms of actual expenses and lost production.

In light of the tremendous costs to the Company, the only plausible inference from Defendants'

decision not to challenge the order is that the shutdown was warranted.

25. On January 11, 2012, Hecla announced that the Lucky Friday mine would be

closed for up to a year based on the MSHA order that required the Company to engage in an

extensive clean-up of the mine, and install adequate ground support in the 5900 drift, to meet

safety regulations. As a result of the closure, Hecla reduced its estimated silver production for

2012 from more than 9 million ounces to around 7 million ounces.

26. On this news, Hecla stock dropped $1.23 per share, to close at $4.61 per share on

January 11, 2012, a one-day decline of 21% on volume of 53.6 million shares.

27. As the incidents described above played out at Lucky Friday, Defendants

continued to tout their low-cost production, bold expansion plans, and commitment to safety to

bolster the Company's share price. For instance, on the same day as the November rockburst,

Defendant Baker took to the airwaves to do just that and discuss a new "very creative" dividend

the Board had approved made possible only by Hecla's low-cost production. When asked why

investors who were wary of Hecla's massive historical environmental liabilities should buy the

Company's shares, Baker boasted, "the big money-making driver for this company is the low

costs that we already have."

28. As another example, Hecla published its first ever Social Responsibility Report to

allay investors' concerns about the Company's environmental liabilities and safety record after

Lucky Friday's April fatality. In that report's section on safety, Defendants reported key safety

metrics for 2009 and 2010 - lost-time incidents and lost-time incident rates - that were false and



significantly lower than what Lead Plaintiffs' investigation has revealed were reported to

MSHA. According to the Social Responsibility Report's data, Hecla's lost-time incident rates

were much lower than national averages, when in fact those rates were worse than national

averages based on numbers reported to MSHA. Right after November's rockburst incident and

Lucky Friday's second fatality in seven months, Defendants again presented these false incident

rates as part of a November 30, 2011 presentation on Social Responsibility later made available

on Hecla's website.

29. Over the past two decades, Hecla faced massive potential legal liability -

described by analysts as "a poison pill limiting the company's corporate options" - stemming

from the release of wastes in northern Idaho. Until the Company finally settled these claims on

June 13, 2011, for a colossal $263.4 million, the specter of this impending liability diminished

the Company's appeal to investors. In an attempt to overcome this black mark, Hecla set about

accentuating any positives that it could, particularly its status as the lowest-cost producer of

silver in the United States. In order to achieve this, however, the Company deliberately and/or

recklessly eschewed compliance with applicable safety regulations in order to keep and maintain

the low costs per ounce of silver production.

30. The true facts, which were known by the Defendants but concealed from the

investing public during the Class Period, were as follows:

a. The Company only achieved its claim as the largest and lowest cash cost

silver producer in the United States by violating safety laws and deferring necessary

maintenance;

b. The Company was not in compliance with critical ground control and

shaft safety regulations at its Lucky Friday mine;


Case 2:12cvM0042BLW Document 85 Filed 10/16/12 Page 12 of 129

C. The Company failed properly to inspect the Silver Shaft as required for

many years and had allowed sand and concrete material improperly to build up in the Silver

Shaft over a period of years, creating a safety hazard;

d. Following the December closure, the Company would be unable to

reestablish mining operations at the Lucky Friday mine by February 2012 because the significant

number of ground control violations could not have been corrected within the time frame

projected. Defendants also were aware of identified shaft deficiencies and ignored the time

necessary properly to correct those conditions;

e. The Company improperly accounted for its contingent liabilities in

violation of GAAP; and

f. Based on the foregoing, Defendants lacked a reasonable basis for their

positive statements about the Company's operations and its expected silver production.

31. As a result of Defendants' false and misleading statements and omissions, Hecla

stock traded at artificially inflated levels during the Class Period. However, after the above

revelations seeped into the market, massive sales of the Company's shares caused their value to

plummet over 59% from their Class Period closing high.

II. JURISDICTION AND VENUE

32. Jurisdiction is conferred by § 27 of the 1934 Act. The claims asserted herein arise

under §§ 10(b) and 20(a) of the 1934 Act and Securities and Exchange Commission ("SEC")

Rule lOb-S.

33. Venue is proper in this district pursuant to § 27 of the 1934 Act. Many of the

false and misleading statements were made in or issued from this district.



34. Hecla's registered agent is located in Boise, Idaho. Certain of the acts and

conduct complained of herein, including the dissemination of materially false and misleading

information to the investing public, occurred in this district.

35. In connection with the acts and conduct alleged in this complaint, Defendants,

directly or indirectly, used the means and instrumentalities of interstate commerce, including, but

not limited to, the mails and interstate wire and telephone communications.

III. PARTIES

36. Lead Plaintiffs LRI Invest S.A. and City of Atlanta General Employees' Pension

Fund purchased securities of Hecla during the Class Period and were damaged as the result of

Defendants' wrongdoing as alleged in this Complaint.

37. Defendant Hecla is engaged in discovering, acquiring, developing, producing, and

marketing silver, gold, lead, and zinc.

38. Defendant Phillips S. Baker, Jr. ("Baker") is, and at all relevant times was, the

Company's President, Chief Executive Officer ("CEO") and a director. Defendant Baker has

been Hecla's CEO since May 2003; its President since November 2001; and a director since

November 2001. As a director, he has served as a member of the Company's Executive

Committee since 2003 and as its Chairperson since 2007. Before November 2001, Baker was

Hecla's Chief Financial Officer ("CFO") from May 2001 to June 2003; its Chief Operating

Officer ("COO") from November 2001 to May 2003; and a Vice President from May 2001 to

November 2001. Before joining Hecla, Mr. Baker served as Vice President and CFO of Battle

Mountain Gold Company (a gold mining company) from March 1998 to January 2001.

39. Defendant James A. Sabala ("Sabala") is, and at all relevant times was, the

Company's CFO and Senior Vice President. Defendant Sabala was appointed Hecla's Senior

Vice President in March 2008 and CFO in May 2008. Before his employment with Hecla,



Sabala was Executive Vice President-CFO of Coeur d'Alene Mines Corporation (a mining

company) from 2003 to February 2008 and served as Vice President-CFO of Stillwater Mining

Company (a mining company) from 1998 to 2002. From 1981 to 1998, Sabala also held various

positions with Coeur d'Alene Mines Corporation, including Controller, Treasurer, Secretary-

Treasurer, Vice President-Finance, and Senior Vice President-CFO.

40. The Defendants named above in ¶J 38-39 are referred to herein as the "Individual

Defendants."

41. The Individual Defendants, because of their positions with the Company,

possessed the power and authority to control the contents of Hecla's quarterly reports, press

releases, and presentations to securities analysts, money and portfolio managers, and institutional

investors, i.e., the market. They were provided with copies of the Company's reports and press

releases alleged herein to be misleading before or shortly after their issuance and had the ability

and opportunity to prevent their issuance or cause them to be corrected. Because of their

positions with the Company, and their access to material non-public information available to

them but not to the public, the Individual Defendants knew that the adverse facts specified herein

had not been disclosed to, and were being concealed from, the public and that the positive

representations being made were then materially false and misleading. The Individual

Defendants are liable for the false statements pleaded herein.

IV. FRAUDULENT SCHEME AND COURSE OF BUSINESS

42. Defendants are liable for: (i) making false statements and (ii) failing to disclose

adverse facts known to them about Hecla that the Defendants had a duty to disclose to prevent

their affirmative statements from being false and misleading. Defendants' fraudulent scheme

and course of business that operated as a fraud or deceit on purchasers of Hecla securities was a

success because it: (i) deceived the investing public regarding Hecla's prospects and business,



(ii) artificially inflated the price of Hecla common stock, and (iii) caused Lead Plaintiffs and

other members of the Class to purchase Hecla securities at inflated prices.

V. BACKGROUND

43. Hecla was founded in 1891 and is based in Coeur d'Alene, Idaho. The Company,

together with its subsidiaries, operates mines that produce silver, gold, lead, and zinc; however,

silver production is the Company's primary focus. It sells the lead and zinc to help defray the

cost of mining silver at Lucky Friday. Hecla holds 100% interest in the Greens Creek operating

unit located near Admiralty Island in Alaska and 100% interest in the Lucky Friday operating

unit located close to its corporate headquarters in Mullan, Idaho. The Lucky Friday mine is

operated by Hecla Limited, which is a wholly owned subsidiary of Hecla.

44. Hecla is a heavily regulated company. As Defendants acknowledged in each

quarterly and annual SEC filing during the Class Period, "[o]ur mines are operated subject to the

regulation of [MSHA], under the [Mine Act]." With the Mine Act, Congress gave mine

operators the primary responsibility to prevent unsafe working conditions and practices in their

mines:

SEC. 2. Congress declares that -

(a) the first priority and concern of all in the coal or other mining industry must be the health and safety of its most precious resource - the miner;

(b) deaths and serious injuries from unsafe and unhealthful conditions and practices in the coal or other mines cause grief and suffering to the miners and to their families;

(c) there is an urgent need to provide more effective means and measures for improving the working conditions and practices in the Nation's coal or other mines in order to prevent death and serious physical harm, and in order to prevent occupational diseases originating in such mines;

(d) the existence of unsafe and unhealthful conditions and practices in the Nation's coal or other mines is a serious impediment to the future growth of the coal or other mining industry and cannot be tolerated;



(e) the operators of such mines with the assistance of the miners have the primary responsibility to prevent the existence of such conditions and practices in such mines;

45. Hecla's Lucky Friday mine consists of the original timbered #2 Shaft built in

1960, the concrete-lined Silver Shaft built in 1983, and the partially completed #4 internal shaft

(winze) 5 that is currently being built off the Silver Shaft, starting at 4900 feet below the surface.

46. Many of the allegations in this Complaint involve the Lucky Friday Silver Shaft,

the main transport route for miners, material, and muck (broken up ore and rock). The Silver

Shaft is circular shaped and has an 18-foot inside diameter with a 12-inch-thick (minimum)

concrete liner. See Ex. A. The shaft contains four compartments divided by shaft sets. See Ex.

B. The shaft sets consist of three steel beams at each interval. The north-south beam (called the

"bunton beam") spans the width of the shaft and splits the shaft into a west side and an east side,

with the east side being larger. The east side is split equally with an east-west beam (called the

"divider beam"), which is a common beam that supports two guides: one for the north

compartment cage and one for the south compartment cage. The north and south compartments

of the east side are used for raising and lowering personnel and machinery, and for raising muck.

47. On the west side of the shaft, the third steel beam is oriented east-west and divides

the west side of the shaft into two unequally sized compartments. On the west side, the manway,

a stairway compartment, is located on the north side of the beam and is much smaller that the

chippy compartment, 6 which is located on the south side of the beam. Importantly, although it is

referred to as the chippy compartment at the Silver Shaft, it did not house a chippy hoist during

the Class Period, and thus did not permit a person to travel the length of that compartment to

A winz is an opening in an underground mine that is sunk downward from inside. 6 A chippy is a hoist used to lower and raise men and materials, rather than ore, from a compartment.



inspect it. Instead, the chippy compartment of the Silver Shaft had a 42-inch-diameter

corrugated metal ventilation pipe, along with several power lines and a backfill line running

down it. There are also air, water, pump, and backfill lines in the north and south compartments

of the west side, and additional power lines in the manway compartment.

A. Hecla's Lucky Friday #4 Shaft Project

48. On October 25, 2010, Hecla issued a press release announcing an update to the

Lucky Friday #4 Shaft Project at the Company's Lucky Friday mine. The Company reported

that the mine could increase its annual silver production by approximately 50% from its current

levels and extend the mine life beyond 2030. The release stated in part:

"This is a major milestone in the mine's history and we are very excited about the organic growth opportunity at Lucky Friday," said Phillips S. Baker, Jr., President and Chief Executive Officer. "The mine has been in production for more than 68 years and we believe that it may extend much further into the future with the addition of the #4 Shaft. With no debt and approximately $200 million of cash on hand at June 30, 2010, Hecla is currently well positioned to fund all of its capital requirements internally."

Project Update

The development of a new #4 Shaft and related infrastructure at Lucky Friday, when completed, would increase annual silver production from current levels of approximately 3 million ounces to S million ounces, with an expected average total cash cost of less than $4.00 per ounce of silver in the first five years of operation. The two key drivers for this potential increase of silver production are: 1) ore grade is expected to increase from the current grade of 10.4 ounces of silver per ton to over 14 ounces of silver per ton (a corresponding increase in lead ore grade is also expected); and 2) mill throughput of ore is expected to increase from approximately 350 thousand tons to 375 thousand tons annually.

Critically, the construction of the #4 Shaft could be accomplished, however, only if the main

Silver Shaft was operational.

B. The April 15, 2011 Fatal Fall of Ground Accident

49. On April 15, 2011, veteran miner Larry Marek, age 53, was killed while watering

down a muck pile in a stope. A rock fall approximately 90 feet long, 20 feet wide, and 30 feet



high struck him. The event occurred at the 6150-15 stope, cut #3. Each working level is

designated by the depth of the level below the shaft collar; i.e., the 6150 level was approximately

6,150 feet from the surface. The stopes were numbered, with stopes 11, 12, 14, 15, and 16

active.

50. MSHA was notified of the accident on April 15, 2011, at 5:57 p.m. by the

National Call Center, and MSHA personnel were immediately dispatched to the mine. A

command center was established to coordinate efforts with the rescue crews. Rescue crews

worked to remove material from the ground failure location and mined a rescue drift in an

attempt to reach the location from the west side. The victim's body was recovered on April 24,

2011. The cause of death was attributed to blunt force trauma.

51. MSHA's accident investigation team assembled on April 15, 2011. They traveled

to the mine, conducted a physical inspection of the scene, interviewed employees, and reviewed

documents and work procedures relevant to the accident. MSHA conducted the investigation

with the assistance of mine management, employees, and miners' representatives.

52. MSHA conducted a root cause analysis, and determined that:

Management did not conduct an evaluation, engineering analysis, or risk assessment to determine the structural integrity of the stope back The back that struck the victim was comprised of a combination of paste fill and waste pillar. As shown on projection maps, geologic structure in the form of joints, faults, and fractures intersected the waste pillar at various angles. These intersecting discontinuities cut the pillar rock mass into angular blocks and wedges which facilitated gravity failure. The large blocks and wedges observed in the fall rubble were not sufficiently supported by the 6-foot long rock bolts installed in the undercut surface of the waste pillar.

Management policies, procedures, and controls failed to ensure appropriate supervisors or other designated persons examined and tested ground conditions to determine if additional ground control measures needed to be taken to ensure the safety of miners prior to commencing work in the stope.



53. MSHA concluded:

The accident occurred because management did not have policies and procedures that provided for the safe mining of split stopes in a multi-vein deposit. Man agem ent failed to design, install, and maintain a support system to control the ground in places where miners worked and traveled Additionally, management failed to ensure that appropriate supervisors or other designated persons examined or tested the ground conditions where th efall occurred

54. MSHA issued a Section 1030) Order (Recovery and Preservation of Evidence) on

the day of the accident, which was terminated on October 14, 2011, after Hecla management

developed a 53-foot sill pillar between the stope where the accident occurred and the next cut

below, which created a safety buffer between the two areas.

55. On August 8, 2011, MSHA issued a Section 104(d) Citation and a Section

104(d)(1) Order to Hecla for its unwarrantable failure to comply with a mandatory health or

safety standard that significantly and substantially contributes to the cause and effect of a mine

safety or health hazard. The Citation stated:

A fatal accident occurred at this mine on April 15, 2011, when a miner was struck by falling material while working in the 6150-15-3 West stope. A substantial quantity of material (measuring approximately 25 feet in width, 74 feet in length, and 25 feet in height) fell 10 feet from the stope back after portions of a supporting pillar were removed to extract ore. Ground support was necessary in the stope to mine safely but the ground support utilized was not adequate. The ground control was not designed, installed and/or maintained in a manner that was capable of supporting the ground in such a wide stope when the support pillar was removed. Mine management has engaged in aggravated conduct constituting more than ordinary negligence by directing the pillar to be mined as the stope advanced and allowing miners to work under inadequately supported ground This is an unwarrantable failure to comply with a mandatory standard

The Order read:

A fatal accident occurred at this mine on April 15, 2011, when a miner was struck by falling material while working in the 6150-15-3 West stope. A substantial quantity of material (measuring approximately 25 feet in width, 74 feet in length, and 25 feet in height) fell 10 feet from the stope back after portions of a supporting pillar were removed to extract ore. Management failed to adequately examine and test the ground conditions to determine if additional measures needed to be taken. This was necessary due to constantly changing ground



conditions; they were mining a wide stope and removing the support pillar. The operator has engaged in aggravated conduct constituting more than ordinary negligence, as they needed to make examinations and conduct tests to ensure that all feasible precautions were taken. This is an unwarrantable failure to comply with a mandatory standard

56. The Citation and Order were terminated on October 21, 2011, after Hecla

management developed new ground support standards that prohibit mining under an intervening

waste pillar and the practice of mining wide stopes, and which address procedures for examining

and testing the ground conditions.

57. The fall of ground that resulted in the death of Larry Marek was remarkably

similar to other earlier ground control failures at Lucky Friday, described below.

C. Fall Of Ground Incidents Were Common Before The Fatal April 2011 Event

1. The September 20081'all of Ground Incident

58. Almost three years before the fatal fall of roof accident in 2011, MSHA did an

Evaluation of Rock Burst Potential, Rock Burst Mitigation Practices, and Ground Conditions at

Hecla on October 7-8, 2008. The memorandum on the investigation is dated December 2, 2008.

Findings are always reviewed with mine management at close out conferences conducted at the

end of any inspection and investigation. The memorandum noted that

[a] week prior to the underground investigation, a large back [i.e., roof] failure occurred in the 14 stope on the 5750 level. A seismic event was recorded around the time of the failure and there is a general belief that the two events were related, although neither the exact location of the seismic event nor the exact time of the failure could be ascertained. The failure occurred in an exceptionally wide (25 foot) stope and was bounded by intersecting faults in the back."

The back failure was thought to have occurred on Sunday, September 21, when no production

was being done. The evaluator noted that "[h]ad it occurred a few hours earlier or later, it is

likely that a fatality or fatalities would have resulted." The report further stated:

[t]he mine has a 48-channel micro seismic monitoring system in place, although management acknowledged that not all channels are currently working. Data



from the system includes the time, location, coordinates, and magnitude (in mm) of the event. . . . The degree of damage caused is also noted in the database The monitoring of rock burst events basically serves as a confirmation of reports from underground crews and the recording of individual events does not mitigate the threat to mining personnel.

With this rock burst, however, a senior mine engineer at Hecla said that the mine's locater

system was not operational, and so the actual location of the seismic event was not known.

59. Hecla management argued that as they moved from the Lucky Friday vein, which

was generally in hard, brittle rock prone to frequent rock bursts, to the production area known as

the Gold Hunter deposit, which is in softer rock, the danger from rock bursts would decrease.

The evaluator agreed to a point: "The frequency of events in the Gold Hunter veins, based on

data provided by the mine, partially supports this contention: a few events per week as opposed

to several per day, as was experienced in the Lucky Friday vein. It is not uncommon for a week

to go by without an event in the Gold Hunter."

60. But MSHA concluded that "Management's contention that rock bursts in the Gold

Hunter reserves will not be as severe of a problem as they were in the Lucky Friday vein appears

to be confirmed by data from their micro seismic monitoring system. However, even though the

frequency and magnitude of events may be significantly less in the Gold Hunter area, rock bursts

will still occur, especially as the mining front descends below the 5900 level."

61. One of the general rules MSHA noted in reducing rock bursts was that "[s]tope

widths should be kept to a minimum," and it suggested:

A protocol for installed support relative to stope width should be developed and a maximum allowable stope width should be established. Criteria for determining a maximum allowable stope width should take into account the potential for wedge failure as well as rock burst potential. An ultimate stope width should also be established regardless of ground conditions. In areas where the width of single veins or several, closely space veins exceed the ultimate stope width, extraction should be accomplished by mining two or more panels, with each cut backfilled prior to making the next cut.



2. The April 2009 Fall of Ground Incident

62. At some time between the end of the night shift on March 31, 2009, and the

beginning of the day shift on April 1, 2009, the cemented sandfill in the slot and intersection of

the 5900-12 stope failed. The failure was approximately 35 feet long through the intersection, 30

feet into the west stope, and five feet into the east stope.

3. The September 20091'all of Ground Incident

63. On the morning of September 21, 2009, a miner discovered there had been a fall

of ground during the weekend at 5500-12 stope. Backfill that was installed approximately two-

and-a-half years before had failed, resulting in a failure of approximately 3 feet high, 11 feet

long, and 12 feet wide. The MSHA inspector noted that "[flf a miner had been in the intersection

when the failure occurred a very serious accident could have occurred." The inspector issued a

citation on September 22, 2009.

64. The MSHA inspector noted that the material that fell had been supported with

bolts and chain link wire. The chain link wire was torn down with the fall of ground. The

inspector noted that "[t]he fill had become crushed & cracked due to the movement and

pressure of the ground The wire and possibly the bolts have oxidized over the years." After

Hecla installed a sand wall to prevent access to the area, the citation was terminated on

September 25, 2009.

4. Similar Incidents in February, March, May, June, and July of 2010 and March 2011

65. The Lucky Friday mine experienced several other similar fall of ground and roof

related incidents throughout the months of February, April, May, June, and July 2010, and in

March 2011. On February 15, 2010, a rib failure occurred when approximately 10 feet of the

right rib in the 14E stope fell out. The mass was measured at 9 feet high, 10 feet long, and 4 feet



deep. On March 26, 2010, a rock fell while a miner was bolting the back of an area. The rock

struck the miner causing a laceration that required stitches. On May 6, 2010, a rock fell off the

face of an area and hit a miner in the foot while he was loading a round of explosives. On May

14, 2010, a laborer was barring down a rock off of a face, when the rock slid down and struck

him in the left thigh. On June 28, 2010, at 7:45 pm, it was discovered that some of the back and

a 4-foot split set had fallen out of the back of an area when the previous day shift had blasted.

On July 13, 2010, two 4-foot split set bolts fell out of the back of an area as a result of blasting to

advance the face. On March 4, 2011, a section of the back of an area came down as miners were

in the process of relieving the area. The miners were on an intersection trying to relieve some

bags in the wire and re-bolt when a 6-foot high, 10-foot long, 8-foot wide section of the back

came down.

D. The November-December 2011 Rock Bursts

66. Within a month's time, in late 2011, two powerful rock bursts shook the Lucky

Friday mine, the latter of which injured seven miners. Similar incidents had been common in the

Lucky Friday mine, including a series of rock bursts over three months in 2010.

1. The November 16, 2011 Rock Burst

67. On November 16, 2011, shortly after 1 a.m., Hecla reported a seismic event that

caused a rock burst in approximately the same location as the fatal incident in April 2011 at 5900

feet below surface, in the area of the pillar that crosses through the 30 vein. This rock burst was

triggered by mine blasting at the end of a shift. As a result, no one was in the area at the time of

the incident and no injuries were reported.

Barring down is prying off loose rock after blasting to prevent danger of ground fall.



68. Hecla stated to MSHA: "We experienced a rock burst on the 5900 mainline

during our scheduled blasting time. The rock burst measured over a 2.8 Richter. The rock burst

caused some damage in the 5900 54 Ramp as well."

69. As a result of the rock burst, MSHA ordered managers at the Lucky Friday mine

to perform twice-daily monitoring of stress in rocks in mine shafts. On November 16, 2011,

MSHA issued an order [103k order 8605614] to Hecla:

to insure the safety of miners at the mine after a violent rock burst occurred. The order was subsequently modified to insure a safe means to repair the damaged area. Subsequent action number 8605614-3 states that the mine operator will conduct two daily surveys at the start and end of the first shift to determine weather [sic] movement is occurring to indicate if stress levels are increasing. The operator submitted a plan that these readings would be taken twice a day at the same time.

70. Hecla was later cited for failing to keep one of the monitors functional and

recording false readings.

2. The December 14, 2011 Rock Burst Injures Seven Miners

71. A month after the November 16, 2011 rock burst, another rock burst occurred in

the same area, injuring seven miners and closing the Lucky Friday Silver Shaft again. Hecla sent

out the following news release following the rock burst:

HECLA REPORTS ROCK BURST UNRELATED TO PREVIOUS EVENTS AT THE LUCKY FRIDAY MINE

FOR IMMEDIATE RELEASE December 15, 2011

COEUR D'ALENE, Idaho Hecla Mining Company ("Hecla") (NYSE:HL) is reporting that the rock burst that injured seven miners Wednesday night at the Lucky Friday mine near Mullan, Idaho, is unrelated to two previous fatal accidents which occurred earlier in the year. In addition, all seven Hecla miners are expected to fully recover from their non-life-threatening injuries. Most of the miners were treated and released by area hospitals, with the most serious injuries involving lacerations, a broken arm and a broken pelvis. There were 25 Hecla employees and 18 contractor employees underground in the mine at the



time of the rock burst. All were immediately evacuated, and most were not in the vicinity of the affected area.

"Thankfully, our miners were not more seriously injured and all seven are expected to fully recover," said Phil Baker, President and Chief Executive Officer for Hecla. "There's no connection to the previous fatal events. Our peoples' safety is very important to us, and we are working hard to get the mine back on track to its longstanding safety record prior to this year, characterized by more than 25 years and 8.5 million man-hours without a fatality."

On November 16, 2011, shortly after 1 am., Hecla reported a seismic event that caused a rock burst in approximately the same location as this most recent incident at 5900 feet below surface, in the area of the pillar that crosses through the 30 vein. This rock burst was triggered by mine blasting at the end of a shift. As a result, no one was in the area at the time of the incident and no injuries were reported.

The most recent incident also occurred at 5900 feet below the surface. Rock failures around a mining excavation can be triggered by natural occurrences or by mine blasting. Baker said Hecla was in the process of installing designed tunnel supports, which consist of a steel liner and other materials such as shotcrete, in that particular area. This method is very similar to that used in road construction in underground tunnels which is meant to provide a support canopy for the roadway.

"Both rock bursts occurred approximately in the same location; however, this most recent event was not triggered by mine blasting, since blasting had not taken place within the previous 24 hours. Consequently, we need more information about what triggered this rock burst," Baker said. "The mine is currently shut down to give us time to examine this in conjunction with federal Mine Safety and Health Administration representatives."

72. A December 15, 2011 article in the Spokesman Review provided the following

account:

Three miners remained in North Idaho hospitals this morning after a rock burst at the Lucky Friday Mine in Mullan, Idaho, injured seven miners Wednesday night.

The rock burst was strong enough to register on seismographs.

It was the third accident at the mine this year. Two miners died - one in April and one last month - in the other incidents.

Seven miners Wednesday night were transported by air and ambulance to area hospitals, according to the Shoshone County Sheriff's Office.



Six were taken to Shoshone Medical Center, where two were held overnight for observation, a nursing supervisor said. Injuries were mostly cuts and bruises.

A seventh miner was taken to Kootenai Medical Center and was listed in fair condition there this morning.

Their identities were not released.

All crew members got out of the mine.

Seismographs throughout the region recorded the energy of the rock burst as a 2.2-magnitude quake, but scientists said the shaking came from the burst itself. The readings gave the location as Mullan.

"That was the signature of the rock burst, I believe," said Mike Stickney, director of the Earthquake Studies Office at the Montana Bureau of Mines and Geology.

A team from the U.S. Department of Labor's Mine Safety and Health Administration was sent to the mine overnight to investigate the accident.

The agency ordered the mine closed and will keep it closed until it determines work conditions again are safe, spokeswoman Amy Louviere said this morning.

Phil Baker, president and CEO of Hecla Mining Co., the operator of the mine, said in a statement, "We are thankful that all employees are out of the mine and have been accounted for, and that those injured have been treated. The safety of our employees is our primary concern."

Baker said the company will investigate the cause of what the company described as seismic activity that led to the burst.

The miners were installing a liner system in a "haulage way," an area used for moving ore with vehicles. The liner - a mix of mesh and a concrete fill material - was being installed to control rock bursts and was part of an effort to ensure mine safety, said Melanie Hennessey, vice president of investor relations for Hecla.

Reports from Wednesday night indicated that an emergency call was made to Shoshone County authorities at 7:51 p.m. to report buried miners. Law enforcement, medical emergency personnel and an underground mine rescue team were dispatched to the deep underground silver, lead and zinc mine.

The miners were trapped 5,900 feet underground after a rock burst, said Hennessey. She said no rock blasting had taken place for the past 24 hours, so the incident was deemed due to seismic activity, not mining operations.

73. Defendant Baker downplayed any possible connection between the November 16

and December 14, 2011 rock bursts. "Both rock bursts occurred approximately in the same



location; however, this most recent event was not triggered by mine blasting since blasting had

not taken place within the past 24 hours. Consequently, we need more information about

what triggered this rock burst" Baker implied that the Company was not responsible for the

December rock burst, adding, "Clearly, we are working with forces of nature here."

74. According to the director of the Earthquake Studies Office at the Montana Bureau

of Mines, Mike Stickey, Defendant Baker's statements were false. He said that the shaking

recorded came from the rock burst itself, not a "force of nature," and that the burst was recorded

as a 2.2 magnitude event.

75. In its investigation of the December 14 rock burst, MSHA issued Order No.

8565565 on December 21, 2011, which stated:

The mine operator worked in the face of 103k order 8605614, this order was issued by MSHA on November 16, 2011. This order was issued to insure the safety of miners at the mine after a violent rock burst occurred and was subsequently modified to insure a safe means to repair the damaged area. Subsequent action number 8605614-03 states that the mine operator will conduct two daily surveys at the start and end of the first shift to determine weather [sic] movement is occurring to indicate if stress levels are increasing. The operator submitted a plan that these readings would be taken twice a day at the same time. On December 14, 2011 the operator failed to take the last reading just prior to another violent rock burst that resulted in serious injuries to seven miners. The Mine Superintendent stated that the readings could not be taken because steel liner was installed over the gauges and the gauges could not be read Upon inspection it was found that the stress gauges were provided with extended wire so that they could be read during the installation of the liner. If this reading was taken it may have indicated high levels, which have removed miners from the 2nd rock burst This condition has not been designated as "significant and substantial" because the conduct violated a provision of the Mine Act rather than a mandatory safety or health standard.

The MSHA inspector noted in a check box on the Order that the degree of negligence involved

was "Reckless Disregard?'

76. Another inspector issued a follow-up order in May of 2012, which stated:

The mining procedure in place at the time of a massive rock burst, which occurred on 12/17/2012 [should be 12/14/2011], was not designed to reduce the occurrence



of a rock burst. This Rock Burst resulted in serious injuries to seven miners that were in the I-Drift Pillar performing repair work from a previous rock burst that occurred on 11/16/2011. The mining method in place during the accident was to mine the main sill pillar above the 5900 I-Drift pillar. The company was warned that the rehabilitation should proceed with caution, and that a better understanding of the cause of the previous burst, in relation to mining into the Sill Pillar, was needed Mine Management engaged in aggravated conduct constituting more than ordinary negligence in that they were aware that mining into the main sill pillar could cause added stress to the 5900 I-Drift pillar but directed the mining to be done. This order is an unwarrantable failure to comply with a mandatory standard This violation is an unwarrantable failure to comply with a mandatory standard

This inspector also noted the level of negligence in the Order as "Reckless Disregard "

77. The inspector also issued another Order, No. 8559615, on May 15, 2012, which

stated:

The mine operator failed to adequately examine the I-Drift Pillar while additional ground support was installed. Stress monitors were installed to evaluate the stress levels in the pillar after a violent rock burst occurred on November 16, 2011. These stress monitors were installed as monitoring devices for examination of stress levels in the damaged pillar. Of the three stress gauges installed, the East Low gauge never read stress levels. The company continued to record inaccurate readings on the East Low gauge until another violent rock burst occurred on the East wall that seriously injured 7 miners. The company has engaged in aggravated conduct constituting more than ordinary negligence in that they were aware that the East Low gauge was defective and assigned miners to work in an area without knowing if the East wall was building stress. This order is an unwarrantable failure to comply with a mandatory standard This violation is an unwarrantable failure to comply with a mandatory standard

The inspector also noted that the degree of negligence involved was "Reckless Disregari"

3. Similar Incidents in August, September, and November 2010

78. The Lucky Friday mine experienced other similar rock bursts in the months of

August, September, and November 2010. On August 24, 2010, a rock burst occurred at blasting

time during the day shift, which caused a portion of the back of an area to come out. The

affected area measured 5 feet high, 11 feet long, and 4 feet wide. The rock burst also caused

bolts to be sheared off in the back. On September 10, 2010, a rock burst occurred at blasting



time during the day shift. The rock burst caused a portion of the back of an area to come out.

The affected area measured 6 feet high, 18 feet long, and 4 feet wide. On September 23, 2010, a

rock burst occurred at blasting time during the afternoon shift. The affected area measured 8 feet

long and 4 feet wide. The rock burst also knocked out a 4 foot bolt. On November 16, 2010, a

rock burst occurred at blasting time during the day shift, and blocked the roadway in the drift.

The affect area measured 6 feet high, 14 feet long, and 8 feet wide. The rock burst also caused a

section of the back in the 54 ramp to come out.

E. The Fatal Accident on November 17, 2011

79. On November 17, 2011, Brandon Gray ("Gray"), a contractor miner, was injured

while attempting to free plugged material in a bin excavation. The victim and a coworker, Jason

Figueroa ("Figueroa"), another contractor miner, entered the bin from the top to remove

blockage below them. The material gave way, engulfing them. Figueroa was partially buried

but was freed from the material, treated at a hospital, and released the same day. Gray was

completely engulfed in the material. Gray was freed from the material and hospitalized, but died

on November 19, 2011, as a result of his injuries.

80. MSHA determined that the accident occurred because of Hecla's failure to ensure

miners were provided with the proper personal protective equipment when required to remove

blocked material in the bin. The miners were standing on the plugged material wearing

harnesses attached to self-retracting lifelines. However, the lifelines used were designed for an

unobstructed fall path. When the material suddenly flowed and the victims fell, there was not

sufficient speed to cause the self-retracting lifelines to lock before the victims were engulfed in

the material. The slow rate of fall for the miners working on top of the material in the bin did not

permit the devices to lock. Additionally, MSHA found, the miners did not receive the proper

training to safely perform the task of removing the blocked material from the bin.



81. On February 8, 2012, MSHA issued Hecla an Order under the provisions of

§ 104(d)(2) of the Mine Act for a violation of 30 CFR 57.16002(c):

A fatal accident occurred at this mine on November 17, 2011, when a miner was engulfed by blocked material in a bin. The victim and a coworker entered the bin to remove the blockage from below them when the material gave way, engulfing them in the material. The miners entered the bin wearing safety harnesses and self-retracting lanyards, but they did not have lifelines suitably fastened. A second person per lifeline, similarly equipped, was not present. Mine management personnel have been working underground with the contractor on a shift to shift basis since the beginning of the contract with Cementation, and have been in the bin when miners were working on potential falling/sliding material while only being tied off by self-retracting lanyards. Mine management engaged in aggravated conduct constituting more than ordinary negligence in that they were aware that the miners were working off material that had the potential [to] be blocked while only using a self-retracting lanyard

F. Safety Violations Lead to Increased and Serious Concerns About the Silver Shaft

82. Immediately after the December 14, 2011 rock burst, MSHA engaged in

accelerated inspections into all aspects of the Lucky Friday mine, and the Silver Shaft in

particular, because of the numerous rock burst incidents, injuries, and two fatalities. The

following are some of the Citations and Orders issued by MSHA in the period after the

December rock burst.

1. Citations and Orders Issued from December 16-19, 2012

83. December 16, 2011, Section 104(d)(1) ("Unwarrantable Failure") Citation

6483334:

There are three Sala Block retractable lanyards on the 4900 station that are defective (serial number 5022972, 5022627 and one illegible). The red button is protruding out according to the manufacture this makes the lanyards defective. The blocks are used as 2 to 3 times per week to unload materials from the shaft. The mine operator has just had a recent fatality due to the incorrect use of fall protection which should have heightened there awareness on this hazard. The mine management engaged in aggravated conduct constituting more than ordinary negligence in that they recently had a fatal accident relating to fall protection and should have had a heightened awarness [sic] of this hazard, this



was also an obvious condition at the shaft station. This violation is an unwarrantable failure to comply with a [mandatory standard

The inspector noted that this violation was "significant and substantial," that the degree of

negligence was "high," and that the violation could have resulted in a fatality.

84. December 16, 2011, Citation 6483337:

The ground control was not maintained between the ore and waste dump area at the 4900 ore and waste pocket. There was an area of approximately 4 by 3 foot were [sic] the wire mesh had been torn from the [rib] leaving loose material exposed. The material measured from 1 to 8 inches, landed near the rib and barred down with some effort. This creates the hazard of material falling onto a miner causing cuts or sprains. The area is accessed as needed to go between the waste and ore dump area.

The degree of negligence noted for this Citation was changed from "high" to "moderate" because

Hecla stated that the "area was not traveled often by foot and had gone unnoticed."


Ground support was not maintained to control the ground at the 4900 Muck Bay #1. There were three openings in the chain link fence which allowed loose rocks to be barred down t[h]rough the openings. The openings were approximately 1' to 2' diameter. Rocks were from approximately 4" to 16" diameter. Should the rocks fall through the unmaintained fence and hit a miner a serious injury would occur.

The inspector noted that this violation was "Significant and Substantial" and the degree of

negligence was "High."


Ground support was not being maintained to control the ground condition at the 4900 Muck Bay #2. There were two opening[s] approximately 3' by 2' diameter in the chain link fence which allowed loose rocks to be barred down through the openings. The loose rocks were up to 6" diameter which were barred through the openings. The back was approximately 12' to 14' high. Should more loose rocks fall through the openings and hit a miner a[n] injury would occur.

The inspector noted that the degree of negligence was "High."




Ground support was not maintained to control the ground at the 4900 main drift between the E and W chute on the right rib. There was an opening approximately 3' by 5' f[ro]m 5' to 10' above ground level. A rock approximately 3' by 2' was barred through the opening to the ground in the main drift. Should more loose rocks fall through the unmaintained opening and hit a miner a serious injury would occur.




Ground support was not being maintained to control the ground conditions at the 4050 Silver Shaft Station. There was an opening in the torn fence support approximately 5' by 9' allowing rocks up to approximately 14" by 8" to be barred from the corner of the rib. The exposed loose rock was located next to the access way at the bottom of the stairs to the rail drift with foot prints present in the affected area. Should the loose rock fall and hit a miner walking through the area a serious injury would occur.


Ground support was not being maintained to the ground conditions at the 54 up-Ramp. There were several areas with large openings in the broken wire approximately 7' to 8' high and 8' wide and the drift 10' high to the back. There were multiple rocks that were barred through the opening on the fence. Should the loose rocks fall through the openings and hit a miner am] injury would occur.



90. December 19, 2011, Section 104(d)(1) ("Unwarrantable Failure") Order 8556916:

Ground support was not being maintained to the ground at the 4550 55 Ramp main haulage drift. There were openings in the fence exposing the loose rocks to on [sic] both ribs and the back. The support wire fence was torn up over 6' from ground level. There were rocks up to 12" long by 3" wide that were easily barred down to the ground. There were several baskets hanging full of loose rock. Should the loose rock fall and hit a miner a serious injury would occur. Management stated that this area had been like this for an extended period of time. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew the support condition had not changed for 6 to 9 months and allowed access through the affected area exposing the



miners to fall of ground hazards. This is an unwarrantable failure to comply with a mandatory standard



91. December 20 [19 is correct date], 2011, Section 104(d)(1) ("Unwarrantable

Failure") Citation 8556917:

Ground support was not maintained to the ground at the 55 ramp 4960 level downward towards the 5080 sub level. There was loose ground was [sic] exposed from the fence being torn and not repaired. The majority of the damaged [sic] was located on the ribs up to approximately 7' high in most places in the drift. Large rocks up to 24" long by 14" wide by 5" thick were easily barred down to the main haulage road. There were openings in the fence in the back of the drift with loose rocks present. This order includes all areas of the damaged ground support and loose ground conditions from the 4960 level down to 5080 sub level. The drift is accessed daily for mining operations by miners and management. Management stated that this drift had been like this for an extended period of time Management engaged in aggravated conduct constituting more than ordinary negligence in that knew [sic] the support conditions had not changed for 6-8 months and allowed access through the affected area exposing the miners to fall of ground hazards. This is an unwarrantable failure to comply with a mandatory standard




Ground support was not being maintained to the ground at the 55 ramp 5080 level downward to the 5131 sub level. There were sections of the drift with torn wire fence with the majority of the damage located on the ribs up to approximately 8' high. There were several bulging baskets full of loose rock hanging off the ribs. This order includes all areas of the damaged support and loose ground conditions from the 4540 level down to the 4960 sub level. The drift is accessed daily for mining operations by miners and management. Management stated that this drift had been like this for an extended period of time. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew the support conditions had not changed for 6 to 8 months and allowed access through the affected area exposing the miners to fall of ground hazards. This is an unwarrantable failure to comply with a mandatory standard






Ground support was not being maintained to the ground at the 55 ramp 5130 down to the bottom of the ramp. There were sections in the drift with torn wire fence, with the majority of the damage located approximately 7' high. There were loose rocks up to approximately 2' long that were easily barred through the openings of the damaged wire fence. This order includes all areas of the damaged support and loose ground conditions from the 5130 level to the bottom of the ramp. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew the support conditions had not changed for 6 to 8 months and allowed access through the affected area exposing the miners to fall of ground hazards. This is an unwarrantable failure to comply with a mandatory standard




From the 5180 level to 5280 sub-level on the 5400 ramp had many areas of the existing ground support that had not been maintained. The existing ground support was 4ft split set 6ft dewey-dawg boths and chain link fencing. The haul trucks and LHS's and other equipment have torn the wire and smashed and torn the rock bolts. Which resulted in areas of loose ground and hazardous conditions for the miners. The majority of the damage was located on the ribs approx. 8ft down to the sill. This order includes all areas of damaged ground support and loose ground conditions from 5180 to the 5280 sub level. The management and miners use this ramp daily to access the current work areas. LHD's and underground haul trucks use these areas to more material. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew ground control was bad and employees were exposed to falling material hazards. This violation is an unwarrantable failure to comply with a mandatory standard




The ground control was not maintained on the 54 down ramp at the 5080 level. There were several areas with holes in the wire and loose material close to the



holes in the back. The ribs also had loose material for approximately 200 feet in d[i]fferent places. This is a main haulage way and miners are exposed to this daily creating falling rock hazards. This was an obvious and extensive hazard that is easily seen and management is in the area daily. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew ground control was bad and employees were exposed to falling material hazards. This violation is an unwarrantable failure to comply with a mandatory standard




The timber cap at the 4520 area is cracked and there are other areas where the ground control was not maintained. The timber cap had 2 horizontal cracks that measured approximately 6 feet. There were baskets that had large amounts of material that needed relief and rehabbed. This creates a hazard of ground fall to personnel that enter this area at twice a year to check the stench bottles and other times when the stench as been released in an emergency. Management stated this area has been like this for years but did not address it because it is not used often. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew ground control was bad and employees were exposed to falling material hazards. This violation is an unwarrantable failure to comply with a mandatory standard.


negligence was "High." Under the category "Injury or Illness could reasonably be expected to

be:" the inspector checked "FataL"


The ground control was not maintained on the 54 up ramp at the 4780 level. There were several large areas of pockets on the back and squeezing ground and pockets on the rib. The ribs also had wood plates that were crushed by the ground, loose material on the ribs, and holes in the screen on the back. This creates a hazard of the ground falling onto personnel that enter this area at twice a year to check the stench bottles and at least once a month to check a fire extinguisher on a piece of equipment in the area. Management stated this area has been like this for years but did not address it because it is not used often. This was an obvious and extensive hazard that is easily seen. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew ground control was bad and employees were exposed to falling



material hazards. This violation is an unwarrantable failure to comply with a mandatory standard




From the 5550 5400 ramp 1400 stope including the 1400 stope muck bay to the 5600 sub-level had many areas of the existing ground support that had not been maintained. The existing ground support was 4ft split set rock bolts, 6 ft resin bolts and chain link fencing. The haul trucks and LHD's and other equipment have torn the wire and smashed and torn the rock bolts. Which resulted in areas of loose ground and hazardous conditions for the miners. The majority of the damage was located on the ribs approx. 8ft down to the sill. This order includes all areas of the damaged ground support and loose ground conditions from 5550 sub-level to the 5600 sub-level. The management and miners use this ramp daily to access the current work areas. The LHD's and underground haul trucks use these areas to move material. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew ground control was damaged and employees were exposed to falling material hazards. This violation is an unwarrantable failure to comply with a mandatory standard




From the 5600 sub-level on the 5400 ramp to the 5700 sub-level including the 5650 muck bay had many areas of the existing ground support that had not been maintained. The existing ground support was 4ft split set bolts, 6ft resin bolts, and chain link fencing. The haul trucks and LHD's and other equipment have torn the wire and smashed and torn the rock bolts. This resulted in areas of loose ground and hazardous conditions for the miners. The majority of the damage was located on the ribs approx. 8ft down to the sill. This order includes all areas of damaged ground support and loose ground conditions from 5600 sub-level to 5700 sub-level on the 5400 ramp. The management and miners use this ramp daily to access the current work areas. LHD's and underground haul trucks use these to move material. Management engaged in aggravated conduct constituting more than ordinary negligence in that they knew the ground control was damaged and employees were exposed to falling material hazards. This violation is an unwarrantable failure to comply with a mandatory standard




negligence was "High." The inspector also noted that "Standard 57.3360 was cited 43 times in

two years at mine 1000088 [Lucky Friday] (41 to the operator, 2 to a contractor)." The

significant number of repeat violations of the same or similar standard would clearly put senior

management on notice that their ground control program was not adequate.

100. Standard 57.3360 provides as follows:

30 CFR §57.3360 Ground support use (Underground Only)

Ground support shall be used where ground conditions, or mining experience in similar ground conditions in the mine, indicate that it is necessary. When ground support is necessary, the support system shall be designed, installed, and maintained to control the ground in places where persons work or travel in performing their assigned tasks. Damaged, loosened, or dislodged timber use for ground support which creates a hazard to persons shall be repaired or replaced prior to any work or travel in the affected area.

This standard requires that ground support be installed in areas where necessary or in areas where similar ground conditions indicate that it is necessary. Support is to be designed, installed, and maintained to control the affected ground where persons work or travel. Damaged, loosened, or dislodged timber that creates a hazard shall be repaired or replaced prior to work or travel in the affected area.

101. As MSHA expanded their investigation and inspection of the Lucky Friday mine

following the December 14, 2011 rock burst, it became clear that conditions in the mine were

inexcusable, that miners often lacked secondary escape routes, and that Hecla had no real

inspection routine required to detect deficiencies and dangers in the Silver Shaft. The MSHA

inspectors' Citations and Orders reveal the severity of the conditions resulting from Hecla's lack

of safety inspections and procedures.


The mine did not have a secondary escape from the lowest level of the 55 ramp. The mine has a production stope at the 6200 - 15 stope and there is only one escape out. This creates the hazard of miners being trapped if there [sic] one escape is blocked due to a ground fall. The area is accessed daily for production



mining activities. The mine stated down below that level is a development drift and did not think a secondary was applicable.



be:" the inspector checked "FataL" The inspector also noted that "The mine is currently under

a "k" order and all mining has ceased?'


The mine did not have a secondary escape from the lowest level of the 56 ramp. The mine has a production stope at the 6150 stope and there is only one escape out. This creates the hazard of miners being trapped if there [sic] one escape is blocked due to a ground fall. The area is accessed daily for production mining activities. The mine stated down below that that level is a development drift and did not think a secondary was applicable






The mine did not have a secondary escape from the lowest level of the 52 ramp. The mine has a production stope at the 6150 stope and there is only one escape out. This creates the hazard of miners being trapped if there [sic] one escape is blocked due to a ground fall. The area is accessed daily for production mining activities. The mine stated down below that that level is a development drift and did not think a secondary was applicable.







2. Results of "Special Emphasis" Inspections Beginning December 20, 2011

105. On December 20, 2011, MSHA began what is known as a "special emphasis"

inspection of the Silver Shaft after identifying the problems already noted and issued even more

citations and orders to Hecla concerning serious safety violations.


There are several missing bolts and bolts that are not tight in the Silver Shaft. There were several set with sticking out 1/8 to 1/4 inch and broken bolts on sets 11 - 56 on the sand line, pump column, Airline and shaft guide. This creates the hazard of catastrophic failure to these pipes and guide and serious injuries to occur. The shaft is used daily to run miners, and materials to the different levels of the mine.

The inspector noted that the degree of negligence was "High" and that any injury could

reasonably be expected to be "FataL"


There were several shaft sets with loose sand mixture concrete on them. One area had several 6 to 8 inch pieces that were hanging on the side of the pipe, at set 62 the[r]e was a large amount measuring approximately 2 feet thick by 3 feet long and was loose. This creates the hazard of material falling down the shaft and injuring personnel. The shaft is used daily to transport material and miners to different levels, it is also accessed every week for shaft inspection.



be:" the inspector checked "FataL" The inspector also noted that "The shaft was shut down

until the loose material could be cleaned off, therefore this citation is extended?'

108. The inspectors soon realized that Hecla has no systematic inspection procedures

for the Silver Shaft, and that any inspections it had done were woefully inadequate.


The mine did not have systematic procedures for testing and inspecting the shaft developed and followed on the Silver Shaft. This is evident from the



hazards found during shaft inspection. The mine needs a procedure to follow to keep up maintenance on the shaft without systematic procedures miners could receive serious injuries when riding the conveyance.

The inspector also stated that "The shaft is presently shut down for maintenance, therefore this

citation is extended for the mine to come up with a procedure."


The mine did not have systematic procedures for testing and inspecting the shaft developed and followed on the secondary shaft. This is cvi dent from the hazards found during the shaft inspection. The mine needs a procedure to follow to keep up maintenance on the shaft without systematic procedures miners could receive serious injuries when riding the conveyance.


The Silver shaft only had one compartment inspected each 7 days. The mine checked the north conveyance one week and the south conveyance the second week This is an incomplete weekly inspection. It would be difficult to make a good inspection on both sides of the shaftfrom one side.


The Secondary shaft only had one compartment inspected each 7 days. The mine checked the north conveyance one week and the south conveyance the second week This is an incomplete weekly inspection. It would be difficult to make a good inspection on both sides of the shaft from one side.

113. On December 21, 2011, Hecla issued the following press release:

HECLA PROVIDES UPDATE ON LUCKY FRIDAY AND ANNOUNCES HECLA'S 2012 PRODUCTION ESTIMATE

FOR IMMEDIATE RELEASE December 21, 2011

COEUR D'ALENE, Idaho - Hecla Mining Company ("Hecla") (NYSE:HL) reports that in order to ensure safe and efficient operations for its personnel, Hecla will develop a new haulage way to bypass the rock burst that occurred at the Lucky Friday mine near Mullan, Idaho, on December 14. Creating the bypass and reestablishing mine production is expected to be complete by the end of February 2012.

Hecla's silver output remains within its previous estimates with 2011 production expected at more than 9 million ounces and cash cost estimates



remaining unchanged at approximately $1.00 per ounce, net of by-products. For 2012, Hecla expects to increase silver production to more than 9.5 million ounces including the loss of two months of production at the Lucky Friday mine while the bypass is completed.

Phil Baker, Hecla's President and Chief Executive Officer said: "While 2011 has been a difficult year for Hecla and the Lucky Friday, the previous 25 years at the Lucky Friday have been characterized by an extraordinary safety record. Looking forward, our goal, which we will relentlessly pursue, is to reestablish the same safety and operating performance decades into the future. I am happy to report that everyone who was injured on December 14 has been released from the hospital and is on the road to recovery."

Hecla will not repair the area where the rock burst occurred. Instead, Hecla is planning a 750-foot bypass creating a new haulage way, which will be a significant distance from where the rock burst occurred and in a previously mined area reducing the risk of future rock bursts.

Hecla expects that a majority of Lucky Friday employees will stay at the mine to work on the bypass or other Lucky Friday projects. Any remaining qualified employees will be given the opportunity to work at Hecla's other properties.

Hecla closed the mine when the accident occurred on December 14 to ensure employee safety, investigate the accident, and evaluate alternative plans. Subsequently, the federal Mine Safety and Health Administration ("MSHA") issued an order closing the mine. Hecla is working with MSHA to finalize the investigation and lift the closure order to start the development of the new haulage way, resume construction of the #4 Shaft, and work on other maintenance projects.

114. When MSHA returned in January 2012, however, it found that Hecla had made

little progress in correcting the violations and orders it was issued during the previous calendar

year.

3. Lucky Friday is Shut Down

115. On January 5, 2012, Hecla was issued a 104(b) noncompliance Order, number

8599596. Such orders are issued when a mine operator fails to correct previously cited

conditions and there are no mitigating factors to support an extension of time for abatement:



Upon inspection of the shaft, it was found that loose material had not been taken down. Not enough progress was being made to remove the loose material in the shaft.

The inspector noted that the Order applied to "the entire silver shaft."

116. MSHA issued an order closing the Silver Shaft on January 5, 2012, but Hecla

officials continued to negotiate with MSHA about ways to avert a long-term closure. Even after

January 5, however, MSHA continued to find serious safety issues.

117. January 6, 2012, Order 8599597:

No procedure for conducting an adequate inspection of the silver shaft was completely developed

Again, the inspector noted that the Order applied to "the silver shaft."

118. January 11, 2012, Order 8599602:

The ground support system used in the access drift from the surface to the #2 shaft was not being maintained in places where miners travel. The drift is used each shift by two miners working in the 2 shaft. The drift is approximately 8 to 10 feet in width and up to 11 feet in height. Upon inspection loose material was found to exist on the ribs and scaled down. Also found were afew supports both, wood and steel, that had signs of deterioration. From rot and corrosion which can laI/.Tect the integerity [sic] of the supports. Also found were areas on the rib where the existing supports were not effective due to not being tight against the rib. This mine has experienced rock burst in the past and is not an uncommon event if a person were to be struck by falling rock a fatal crushing injury could occur. Management engaged in aggravated conduct constituting more than ordinary negligence in that due to the fact that since this was an area travel[ed] daily and because of the past citations issued underground for similar conditions, should have been more alert to such existing conditions. This violation is an unwarrantable failure to comply with mandatory standards.



be:" the inspector checked "FataL"



119. On January 11, 2012, Hecla shocked its investors and the market with the news

that the Lucky Friday mine would be closed for approximately a year for "temporary care and

maintenance":

HECLA REPORTS TEMPORARY CARE AND MAINTENANCE AT LUCKY FRIDAY MINE

FOR IMMEDIATE RELEASE January 11, 2012

COEUR D'ALENE, Idaho - Hecla Mining Company ("Hecla") (NYSE:HL) reports that the Mine Safety and Health Administration ("MSHA") has ordered the Silver Shaft at the Lucky Friday mine in Mullan, Idaho closed for removal of built-up material in the shaft. This order is pursuant to the investigation following the December 14, 2011 rock burst. Compliance with the order is expected to take through year-end. Hecla's 2012 silver production is now estimated to be approximately 7 million ounces.

"While we are disappointed with this order and are considering what action we might take, work has already begun to resume production as quickly as possible," said Phil Baker, Hecla's President and Chief Executive Officer. "The Lucky Friday mine is a world-class mine that we see producing silver for decades to come. Hecla and the Lucky Friday mine have faced challenges in the past and we will once again overcome them."

The Silver Shaft is a one-mile deep shaft from surface and the primary access to the Lucky Friday mine. The sand and concrete material to be removed from the shaft has built up over a number ofyears and is expected to be removed primarily by power washing. All other significant activities at the mine including construction of the #4 Shaft and bypass around the rock burst are on hold. Care and maintenance of the underground will be focused on the 4900 level where the #4 Shaft infrastructure is located. Production is expected to resume in early 2013.

120. The same day that Hecla announced the closing of the Silver Shaft, Defendant

Baker held a conference call describing Hecla's position on the matter:

[A]s we announced in the press release, we have been ordered to clean the buildup material in the shaft of the Lucky Friday. This is the Silver Shaft. The Silver Shaft was commissioned in 1983, and it's been in almost continuous operation since then. It's an 18-foot diameter shaft. It's over a mile deep. If you go to, I guess, the webcast there's some slides available, if you go to the webcast, you can see a slide that shows a picture of the Silver Shaft, at least the bottom, well I'd say the half of it. And it shows the place where we're currently mining



on the 30 vein and the work that we've talked about for some time on the #4 Shaft.

The shaft that we have is over a mile deep. It's one of two ways that we have to get into the mine. The other is the #2 Shaft, and that's the shaft that was built in about 1960. In order to produce from the mine, it was necessary that we have two entrances to the mine. So, we've had the Silver Shaft and the #2 Shaft. With the order that requires that we clean this shaft, we only have one entrance, so we are not able to operate and produce ore. This Silver Shaft is divided into two compartments. The east compartment has two conveyances in it for men and materials and for rock. The west compartment is essentially unused and has been for the past 30 years. Also within this is power lines, vent lines, sand lines. Lines are a tailings-concrete mix of material that goes back into the mine and acts as the backfill.

Occasionally, these sand lines over the past 30 years have leaks in them, depositing cement-like material on the walls of the shaft in various lines. We had a rock burst in - two rock bursts over the course of November and December in the mine. And those rock bursts, if you look at that drawing on the website, were on the 5900 level. And that level is a mile-long tunnel, a mile-long haulage way. And so, those rock bursts that we had were well into that tunnel, not quite the full mile distance, but very close to where you see the 30 Vein - in fact, right at the 30 Vein, now that I mention it.

So, it is roughly a mile. The thing - the inspection that has occurred with respect to the Silver Shaft was not specifically related to the rock burst, but it was done by MSHA. They've come in and done a thorough investigation and inspection of the whole operation, including the Silver Shaft. And so, they issued what is called a citation, saying that we needed to clean the loose material which - we cleaned the material, but when they came back in, they concluded that the material needed to be cI caned further. And we had not met the time constraint that they had given us, which was 10 days.

And so, under the order that they issued, we are not able to use the shaft for anything other than the cleaning of it. We believe that there's no hazards to miners in the conveyance and any hazards to the miners on the work deck that's used to inspect and repair and maintain the shafts are mitigated But MSHA's belief is that the shaft needs to be cleaned down from the surface bottom as the best way to mitigate any hazards that would exist in the shaft.

We're going to continue to discuss with MSHA if there's other approaches that could be better, and we will certainly consider if an administrative appeal is appropriate But in the meantime, we are in the process of planning the clean-down from the surface, and the release we gave today is an indication of that.

But when we think about the financial impact on Hecla, at least, initially, it's minimal since the Lucky Friday roughly spends the cash flow it generates in



investing in the #4 Shaft and the other things that it does. So, what this primarily does is delay the access to the higher grade, deeper material. And then, of course, there is the holding costs and the clean-up cost that are associated with this and on the order of magnitude $20 million-odd is probably the best guess that we'd have at this point We certainly will spend more time working through what our holding costs will be and the cost of the clean-up.

As a result of the Lucky Friday being down, we will only produce 7 million ounces of silver which will come from the Greens Creek mine. Main point that I guess I want to end with, and then I'll be happy to take questions, is we have the need to get the Silver Shaft back up and running. And we are prepared to do this clean-down in order to get that to happen, because we're very confident in the future of the Lucky Friday. It is a great ore body. It has great employees and it has a very long burn in front of it.

121. After his initial statement, Defendant Baker attempted to respond to questions

from analysts. In answering one question, Baker simply misrepresented management's

inspection practices, directly contradicting what MSHA had found regarding Hecla's inadequate

inspection procedures for the Silver Shaft:

Analyst: [A]nd, I guess, that my last question, and then I'll turn it over, is - obviously, this is something I would assume that you guys keep track of internally in terms of your own maintenance and your own housekeeping that you would keep an eye on these sand lines and materials that builds up. Or is this something that just hadn't - I mean, in your opinion, obviously, you wouldn't have expected that this was a significant issue. I'm just kind of wondering how this situation came that kind of caught everybody off guard that this had built up. Is it something that you lookfor or you normally don't really pay much mind to?

CEO Baker: Look, we inspect the shaft weekly and consistently do that. I think that's a good practice and probably also a regulatory requirement We also have had that practice for, I'm not sure how long, but certainly it's been for a long period of time

122. Defendant Baker also was asked whether there was any chance for appeal. He

responded that "there is an administrative process that you can go through. And we'll certainly

consider whether that's the appropriate thing to do." Hecla, however, never initiated any appeal

of the mine closure, which, given the amount of money at stake, would not have made any sense

if Defendants had any grounds for appeal.



123. On January 13, 2012, two days after Hecla announced the closing of the mine,

Joseph Main ("Main"), assistant secretary of labor for mine safety and health, said that the

conditions in the Silver Shaft were similar to problems at a Nevada gold mine where a 2010 shaft

accident killed two workers. Main said that federal inspectors at the Silver Shaft became

concerned about the workers' safety "because of conditions in the shaft." He also emphasized

that MSHA is "not in the business of putting miners out of work; we're in the business of making

sure that the conditions they work in are safe." Of the Silver Shaft, Main said that "I don't think

that you'd be riding down an elevator shaft with the kinds of conditions that we are talking

about, that our folks identified. Think about going down an elevator shaft with looming pieces

of material [overhead] or a long stretch of pipe that could break loose."

124. Concerning the leaking pipe in the Silver Shaft that transports sand and cement

into the mine, Neal Merrifield ("Merrifield"), MSHA's administrator for metal and non-metal

safety, also said two days after the January 11, 2012 closure that "[o]ur concern is that we really

don't have a good idea about the total condition of that pipe." Merrifield said that if the pipe

were to burst, or if concrete deposits from the leaks were to tear loose from the shaft's walls,

workers traveling in the shaft could be killed: "You can imagine what would happen if one of

these rocks would fall 6,000 feet and hit somebody or strike the cage."

125. Merrifield said that the situation at the Lucky Friday's Silver Shaft was similar to

the 2010 accident at Barrick Gold's Meikle Mine in Nevada. In that accident, two workers were

trying to unplug a pipe in the mine shaft. The 24-inch pipe burst and the falling pipe and other

debris struck and killed two workers below.

126. The December 20, 2011 inspection that flagged problems at the Silver Shaft was a

"special emphasis" inspection developed by MSHA after the Upper Big Branch Mine explosion,



which killed 29 coal miners in West Virginia in 2010. Mines with recent accidents and fatalities

get additional attention from inspectors. Main said, "Keep in mind, this mine had two fatal

accidents in the last year. In addition, they had a major rock burst that could have resulted in

seven additional fatalities."

4. The January 17-19, 2012 Structural Investigation of the Silver Shaft

127. MSHA announced more disturbing safety news even after Hecla announced that

the Lucky Friday mine would be closed for approximately a year. On January 17-19, 2012,

MSHA engineers conducted a structural investigation of the Silver Shaft, and the report on the

investigation is dated March 6, 2012. This report directly contradicts Hecla's news releases and

Defendant Baker's statements concerning the Silver Shaft, and details the problems that had built

up over years.

128. The inspectors noted that a 6-inch-diameter backfill line runs down the shaft on

the south wall and reduces to a 4-inch-diamter line at the 4900 level. They observed that in the

past these pipes have worn out and leaked, with the leaked material spraying out and coating the

shaft liner, the utility lines, the beams and their connections, and the 42-inch-diameter ventilation

pipe.

129. According to MSHA, problems with the Silver Shaft were identified on December

20, 2011, during a special emphasis inspection. MSHA issued an order to Hecla on January 5,

2012, for failing to remove overhead hazards in the shaft.

130. Because there is no chippy hoist at the top of the south compartment of the west

side of the shaft, the inspectors conducted the inspection by looking out the door on the west side

of the south conveyance on the east half, as well through an opening on the east side of the same

conveyance. The inspectors noted that "[w]hile these two vantages provided limited viewing



around the circumference of the shaft, our inspection crew was able to observe enough

conditions to make a determination of whether unsafe hazards existed in the shaft."

131. The March 6, 2012 report on the January 17-19 inspection states:

The inspection started at the top of the shaft and proceeded down to the bottom of the shaft. The conveyance moved at approximately 50 feet per minute (the slowest speed setting possible) and bell cords were used to signal to the surface to stop the conveyance for more detailed observations where suspected conditions were found.

There were multiple hazards identified in the shaft during the inspection. A detail of the cataloged conditions is listed in Appendix A. The following is a summary of the major categories identified.

1. The concrete liner was spa/led and cracked at various locations. The damaged areas of the shaft are likely the result of high horizontal stress squeezing the shaft. When the spalled material breaks off it is a falling material hazard. At some areas, the liner had delaminated/broken into larger slabs (photos 2-5) [attached as Exs. C-F].

2. Backfill material had sprayed from wear holes and joints in the 6-inch-diameter backfill pipe (which transitions to a 4-inch line). The backfill had hardened and coated the shaft liner, shaft sets, utility lines, and 42-inch ventilation pipe. The material had built-up to an estimated depth of up to 12 inches thick at some locations. The backfill was in most cases adhering to the objects it came in contact with, but there was evidence of places where the material had broken offpower lines and the wall and had fallen down the shaft (photos 6-10) [attached as Exs. 0-fl.

3. The 42-inch-diameter corrugated metal pipe ventilation line, which is no longer in service, had impact damage and was torn at some locations. Also, the pipe was corroded and backfill material had built up on it, which was adding additional weight to the pipe. The pipe straps/clamps that secured the pipe to the west side divider beam were compromised and at a few locations it appears the pipe had slipped and chains were used to secure the pipe (photos 11-14) [attached as Exs. L-O].

4. The bunion and divider beams, and their connections to the shaft liner, were deteriorated and damaged at afew locations. There were corroded wall brackets that were delaminating and had buckled. The damage was caused by either impact or shaft squeeze. The operator related a previous incident, where drill steel slid off the conveyance and into the shaft. A few of the bunton beams had broken bolts and were not adequately attached to the wall brackets. The shaft sets need to be properly secured and supported by the wall brackets, as they support the guides for the two conveyances. The shaft sets hold the guides in place and



provide lateral support to them in the event the conveyances impact the guides or if emergency braking is necessary (photos 15-16) [attached as Exs. P-Q].

5. Muck had accumulated on station run-arounds (i.e. travel ways located along the edges of the shaft openings at various stations in the shaft). The spilled material was held in place by vertically standing metal grating. The rock had accumulated to heights in excess of 6 to 8feet (photo 17) [attached as Ex. R].

132. The Silver Shaft inspectors concluded:

There were significant hazards identified in the Silver Shaft that could result in the fall of materials. These included: spalled and cracked concrete liner at numerous places; a deteriorated 42-inch ventilation pipe that had been damaged, corroded and coated with hardened backfill material that previously leaked from the backfill line; sagging and heavily coated power lines suspended from the shaft wall; hardened backfill material that had accumulated on the shaft liner and shaft sets, which had in a few locations broken from the walls and off the utility lines; accumulated muck that built-up on travel ways along the edges of the shaft opening at several stations in the shaft; and loose large concrete slabs below the 5800 level that were marginally held in place by wire mesh and bolts. In addition, in a few locations, the wall brackets, shaft set beams, and their connections needed to be repaired or replaced, as they were damaged or deteriorated.

It did not appear that the shaft had been adequately maintained and these hazards need to be corrected or removed in order to ensure the safety of the miners using the conveyance systems. The operator's proposed plan to clean down the shaft seems to adequately address all five categories delineated in the findings section above.

133. In a January 25, 2012 Department of Labor news release entitled "MSHA

Announces Results of December Impact Inspections," the agency explained why it had been

stepping up inspections beginning in April 2010 and announced some of the results of those

inspections:

The U.S. Department of Labor's Mine Safety and Health Administration today announced the federal inspectors issued 321 citations and orders during special impact inspections conducted at 10 coal mines and three metal/nonmetal mines last month. The coal mines were issued 174 citations and 19 orders, while the metal/nonmetal operations were issued 112 citations and 16 orders.

These inspections, which began in force in April 2010 following the explosion at the Upper Big Branch Mine, involve mines that merit increased agency attention and enforcement due to their poor compliance history or particular compliance concerns, including high numbers of violations or closure orders;



frequent hazard complaints or hotline calls; plan compliance issues; inadequate workplace examinations; a high number of accidents, injuries or illnesses; and adverse conditions such as increased methane liberation, faulty roof conditions and inadequate ventilation.

* * *

As a second example from last month, MSHA conducted an impact inspection Dec. 16-23 at Hecla Limited's Lucky Friday Mine in Shoshone County, Idaho. Inspectors issued 59 citations and 15 orders to Hecla Ltd. and 22 citations to Cementation USA Inc., an independent contractor.

Among the violations cited was a repeated failure to maintain established ground support systems throughout the mine. In addition, ground support fixtures in several areas had not been installed or torqued properly; shafts had not been systematically inspected, tested and maintained, and steel structures in the shaft were not kept clean of hazardous materials; multiple areas of the mine had not been provided with two separate escapeways; explosives magazines had not been constructed and located to protect miners from the risk of unintended explosions; underground shop doors were improperly constructed to ensure fire protection; elevated walkways in multiple areas were not provided with substantially constructed handrails; and travel areas were not kept clean and orderly, resulting in slip, trip and fall hazards.

Two miners died at Lucky Friday Mine in 2011. In December, seven miners were trapped underground when a roof fall occurred, three of whom required hospitalization.

Since April 2010, MSHA has conducted 387 impact inspections, which have resulted in a total of 6,931 citations, 701 orders and 23 safeguards.

VI. DEFENDANTS' FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD

134. Before and during the Class Period, Defendants made materially false and

misleading statements and omissions regarding Hecla's regulatory compliance, the safety of its

operations, its costs of production, and its ability to maintain or increase the rate of silver and

other metals production at the Company.

135. In particular, Hecla consistently touted itself to investors as a low cost producer -

indeed, the largest and lowest cash cost silver producer in the United States. What the Company



did not do, however, was explain to investors the real reasons why it could produce such results:

because it ignored safety regulations in order to achieve low costs and increase profits.

136. Defendants' false statements and omissions created or maintained inflation in

Hecla's stock price during the Class Period, including by preventing price declines that would

have resulted from complete, accurate, and truthful disclosure of information about the safety

and regulatory compliance of Hecla's mines and other concealed conditions at the Company's

operations as alleged herein. The true facts, which were known by the Defendants but concealed

from the investing public during the Class Period, were as follows:

a. The Company only achieved its claim as the largest and lowest cash cost

silver producer in the United States by violating safety laws and deferring necessary

maintenance;

b. The Company was not in compliance with critical ground control and

shaft safety regulations at its Lucky Friday mine;

C. The Company failed properly to inspect the Silver Shaft as required for

many years and had allowed sand and concrete material improperly to build up in the Silver

Shaft over a period of years, creating a safety hazard;

d. Following the December closure, the Company would be unable to

reestablish mining operations at the Lucky Friday mine by February 2012 because the significant

number of ground control violations could not have been corrected within the time frame

projected. Defendants also were aware of identified shaft deficiencies and ignored the time

necessary to properly correct those conditions;

e. The Company improperly accounted for its contingent liabilities in

violation of GAAP; and



f. Based on the foregoing, Defendants lacked a reasonable basis for their

positive statements about the Company's operations and its expected silver production.

A. Defendants' False Statements Concerning Safety

137. Throughout the Class Period, the Defendants issued numerous statements to the

market concerning their commitment to, and supposed compliance with, applicable safety

regulations.

1. Statements in SEC Filings

138. On February 25, 2011, Hecla filed a Form 10-K for the 2010 financial year with

the SEC. With respect to safety, the Company stated that:

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 strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; openly communicating with employees; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid reoccurrence; and involving employees in the establishment of safety standards. We attempt to implement reasonable best practices with respect to mine safety and emergency preparedness.

As a result of industry-wide fatal accidents in recent years, primarily at underground coal mines, there has been an increase in mining regulation in the United States. This increase has taken the form of vigorous enforcement of existing laws and regulations, and the adoption of new safety and training regulations, primarily by the U.S. Labor Department's Mine Safety and Health Administration. In addition, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission was directed to issue new rules regarding the disclosure of mine safety data. These changes may have a significant effect on our future operating costs, in the form of increased costs for monitoring and administration of and by regulatory agencies. Furthermore, to the extent our competitors operate their mines in a less-regulated jurisdiction, we may be disadvantaged.



139. The statements in ¶ 138, above, were materially false and misleading when made.

As set forth in greater detail above, statements professing that the Company "strive[d] to achieve

excellent mine safety," "establishLedi, followLedi and improveFedi safety standards," and

"attempt[s] to implement reasonable best practices with respect to mine safety and emergency

preparedness" were false and misleading when made because production, not safety, was the first

priority at Hecla during the Class Period. This is demonstrated by unsafe working conditions at

Hecla mines. Moreover, Defendants knew that once this non-compliance was uncovered, they

would face regulatory punishment, including the likely closure of the Lucky Friday mine, to the

detriment of the Company's financial results. See supra Section V.

140. In March 2011, Hecla released its Annual Report for 2010. Addressing safety, the

Annual Report stated that "Lucky Friday's people emphasize safety. . . at all times." This was

false and misleading for the same reasons as given in ¶ 139, above.

141. On May 9, 2011, Hecla filed with the SEC a Form 10-Q for the 1Q 2011. In it,

the Company addressed safety and noted the fatality of April 15, 2011. Once again, Hecla stated

that it "intend[s] to manage our business activities in a safe, environmentally responsible and

cost-effective manner." The filing also stated that the Company's "current business strategy is

to focus our financial and human resources in the following areas: operating our properties

safely and cost-effectively ....

142. Similarly, the Company's Form 10-Qs for 2Q 2011 and 3Q 2011 contained

identical statements to those in the 1Q 2011 Form 10-K, above. These statements and the

statements in ¶ 141 were materially false and misleading when made for the same reasons as

given in ¶ 139, above.



2. Social Responsibility Report

143. In the aftermath of Larry Marek's death, Hecla issued a Social Responsibility

Report detailing its commitment to social responsibility. In it, the Company stated:

Hecla adheres to responsible mining practices in . . . health and safety programs.

* * *

We are committed to being a responsible company in many ways: by prioritizing the health and safety of our employees.

* * *

Hecla's board of directors, through the Health, Safety, Environmental, and Technical Committee, monitors performance, reviews policies, and tracks emerging trends in health and safety and environmental practices - including legislation and proposed regulations affecting Hecla.

* * *

The HEALTH AND SAFETY of our employees and contractors is of utmost importance, which is why we're always looking for ways to enhance the health of each employee and mitigate potential safety threats in the workplace

* * *

Safety meetings are held regularly to identify risks and promote a culture of safety in the workplace.

* * *

Our top priority remains protecting our workforce and mitigating risks, and we're committed to the continuous improvement of our health and safety practices.

144. The statements in ¶ 143, above, were materially false and misleading when made

for the same reasons as those given in ¶ 139, above.

145. The 2010 Social Responsibility Report also reported the number of lost time

injuries for 2008-2010:

A PATH TO SUCCESS Hecla tracks a variety of safety performance indicators: injuries, near misses, and equipment damage. Each year, our goal is to reduce



safety incidents and improve upon the previous year's performance. The choice for all employees is clear: when a conflict arises between production and safety, safety should always come first

146. As illustrated below, for 2009, the Company reported that it lost nine days to

injuries, at an incident rate of 1.4. For 2010, this figure was 13, at an incident rate of 1.8.

147. These statements in the Social Responsibility Report in ¶J 145-46, above, were

false and misleading because Hecla grossly underreported the number of days lost to injury.

According to data Hecla reported to MSHA, 15 days were lost to operator injuries in 2009 -

eight at the Lucky Friday mine and seven at the Greens Creek mine - at incident rates of 3.22

and 1.95, respectively. For 2010, there was a total of 18 days lost to operator injuries - eight at

the Lucky Friday mine and ten at Greens Creek - at incident rates of 3.16 and 2.45, respectively.

As illustrated below, these actual incident rates for the Lucky Friday mine are also significant

because they are well above the national incident rates of 2.10 for 2009 and 2.59 for 2010.

Hecla, on the other hand, reported incident rates that were far below that national incident rate

8 See Hecla Mining Co., Social Responsibility Report, at 5, available at http://www.hecla-mining. com/documents/HMCSocialResponsibility.pdf



and therefore gave investors the false impression that Hecla's operations were much safer than

they were.

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3. Investor Presentations

148. On July 18, 2011, at the Global Hunter Securities Energy, China, Metals and

Mining Conference, Melanie Hennessey ("Hennessey"), the Company's Vice President of

Investor Relations, stated that "I think in terms of social responsibility there's three cornerstones

to that program that's dear to our heart and the health and safety of our employees is a top

priority and something that we strive to improve continuously."

149. The statement in ¶ 148, above, was false and misleading because far from being a

"top priority" and something that the Company "strive[d] to improve continuously," the health

and safety of Hecla's employees was of limited concern. Consequently, for the reasons given in

¶ 139, this statement was materially false and misleading when made.

150. On August 10, 2011, at the Jeffries & Co. Global Industrial and A&D

Conference, Defendant Sabala commented explicitly on safety at Hecla:



Lastly, a bit about Hecla's social responsibility. You may ask, why I'm going to mention this. And its one reason is, where we do business in the communities, we do business, it's very important that we're a good citizen. It's very important that we operate in an environmentally responsible way and that our workers go home safe.

151. The statement in ¶ 150, above professing the importance to Hecla that "our

workers go home safe" was false and misleading for the reasons given in ¶ 139.

152. On November 30, 2011, the Company gave a presentation entitled "Social

Responsibility Working with our Stakeholder" at the 2011 NWMA 117th Annual Meeting.

During it, Hecla once again grossly misreported its accident figures purporting to represent

"Hecla Safety Performance" and incorporated the same figures as those in the 2010 Social

Responsibility Report (nine lost days for 2009, at an incident rate of 1.4, and 13 lost days for

2010, at an incident rate of 1.8). See ¶ 146.

153. The statements in ¶ 152 were false and misleading because Hecla grossly

underreported the number of days lost to injury. According to the MSHA database, 15 days were

lost to operator injuries in 2009 - eight at the Lucky Friday mine and seven at the Greens Creek

mine - at incident rates of 3.22 and 1.95, respectively. For 2010, there was a total of 18 days lost

to operator injuries - eight at the Lucky Friday mine and ten at Greens Creek - at incident rates

of 3.16 and 2.45, respectively. These actual incident rates for the Lucky Friday mine are also

significant because they are well above the national incident rates of 2.1 Ofor 2009 and 2.59 for

2010. Hecla, on the other hand, reported incident rates that were far below that national incident

rate and therefore gave investors the false impression that Hecla's operations were much safer

than they were.

154. On December 6, 2011, Hennessey addressed the Wall Street Institutional Investor

Conference:



[W]e have two very stable properties, low cost properties that offer tremendous exploration upside.

* * *

I think, I would [be] remiss, if I didn't speak about the recent accidents that occurred at the Lucky Friday. Unfortunately, over the last seven month period, we have two fatalities. Understanding that, this is really a mining community, we have at the Lucky Friday third generation miners. This has been very difficult for the Group including for the corporate offices, for the two offices, the mine had not had a fatality in 25 years. It had worked 8.5 million man hours without a fatality.

And so, these are two completely different events. One was a fall of ground, which occurred back in April, which is, which was a configuration that we have used for many years for which, we never had any challenges with. And so there we are now, have reevaluated those configurations and changed them to not really meet these types of challenges and to reduce having any types of accidents of this nature in the future. I think it's really a matter of increasing our knowledge. The more we increase our knowledge, the better we will be at ensuring the safety of our workforce. The second accident occurred in the number four shaft, it was the one of the Cementation worker. Cementation have been working on the development of the number four shaft since late 2009.

And this was in the construction of a band in the shaft and they were, and if you can, I know it's hard to picture, but if you can imagine the band is about 16 feet in diameter and the ground below is, there was about 10 feet below ground that was being removed. And for some reasons, the ground below them, which was not moving at the time started to move slowly. And so, both individuals that were working in that area, both miners were wearing their fall arrest protection. And fall arrest protection is like a seat belt. So, it's only triggered with a rapid movement and in this instance the rock, as you may, it was like an hourglass. So, it was moving slowly initially and was not enough to trigger the fall arrest and one of the individuals triggered his own fall arrest and the other was not able to.

So, we have now, we've worked with Cementation to change the way that the bands are being constructed. Cementation has been in business for over 70 years. They are a company that's out of South Africa. They have been doing band constructions of that nature for many years. This was not an unusual activity. This is their area of expertise and not only did Hecla hire them for their expertise in shaft building, but they also hired them for their safety record. So, we're all working together at ensuring that we improve our knowledge to reduce such an accident from occurring. And we truly remain unwavering to our commitment to learn from these terrible events and to just move forward on a better footing with better understanding of our properties and ground control.

And I forgot to mention as well that, we have hired two internal, at both of our properties, we've hired two internal not geologist, but a ground control expert that



will work with our external consultants that we have had for many years. And those will be evaluating the ground conditions and so forth. So, we should, those are some of the changes that have been put in place already.

155. The statements in ¶ 154, above, were false and misleading for the reasons given in

¶ 139.

4. Press Releases, Earnings Calls, and Interviews

156. On November 18, 2011, Hecla issued a press release reporting an accident at the

Lucky Friday mine. The release stated in part:

Hecla Mining Company ("Hecla") reports an accident occurred at its Lucky Friday mine in Northern Idaho on November 17, 2011.

The accident occurred as part of the construction of the #4 Shaft at the Lucky Friday operation. Two contractors were involved in the accident during routine activities involving the construction of a 16-foot diameter underground rock bin (a storage area for broken rock). The work involved drilling, blasting, and mucking of rock into a previously constructed area. Both men were believed to be wearing all required personal protection equipment, including fall protection. For reasons that are unknown at this time, the two men were drawn into material that was moving underneath them. Both contractors were removed from the area and transported to the hospital, and one has been released. All personnel are accounted for.

"Our thoughts and prayers are with the family and for a safe recovery of the injured contractor," said Phil Baker, President and Chief Executive Officer. "Operating our mines safely is a top priority for Hecla, and we will continue to work to prevent such incidents from occurring."

The accident is being investigated by the Company and representatives from the federal Mine Safety and Health Administration. The workers' families have been notified. The Lucky Friday mine has temporarily ceased mining to investigate this accident.

157. Later, on November 19, 2011, Hecla issued another press release announcing an

update to the Lucky Friday mine accident on November 18, 2011:

Hecla Mining Company ("Hecla") is saddened by the news that Brandon Lloyd Gray, the 26-year-old miner critically injured at its Lucky Friday mine in North Idaho on November 17, succumbed to his injuries early Saturday morning with his family at his side. Gray, a miner since 2008, had been working for



Cementation Inc. since February 2011, a company that is under contract for the construction of the mine's #4 Shaft.

"We are deeply saddened by Brandon's passing," said Phil Baker, President and Chief Executive Officer. "Everyone at Hecla extends our sincere condolences to his family and loved ones."

Mike Nadon, President of Cementation U.S.A. said, "The whole Cementation family is grieving this terrible loss, and our immediate focus is in supporting Brandon's family with our assistance and our prayers."

Immediately following the accident, Hecla chose to cease mining operations at the Lucky Friday mine in order to focus our attention on the emergency response and to provide support to the affected employees and families of both Hecla and Cementation. The federal Mine Safety and Health Administration ("MSHA") subsequently issued a 1030) order. An integrated team of Hecla and Cementation as well as representatives from MSHA are investigating the accident, which is unrelated to the fall of ground accident that occurred on April 15, 2011. A start-up date for resuming operations has not yet been established.

"Hecla is committed to preventing such accidents from happening," added Phil Baker, President and Chief Executive Officer. "We will continue to emphasize safety throughout all of our properties."

158. On December 2, 2011, Hecla issued a press release entitled "Hecla Responds to

MSHA's Accident Report," which stated in part:

Hecla Mining Company ("Hecla") received the Report of Investigation ("Report") from the United States Department of Labor Mine Safety and Health Administration ("MSHA") relating to the April 15, 2011 fatal accident at the Lucky Friday mine in Mullan, Idaho.

Prior to the fall of ground in April, Hecla's safety record at the Lucky Friday mine was excellent. Hecla employees, past and present, worked for more than 25 years, and 8.5 million man-hours without a fatality. During that same time period, the Company continued to make strides in accident reduction.

"Our Company works hard each day to have our miners return home safely to their families at the end of their shift. This has been a gut-wrenching time for our Company and for our communities," said Phil Baker, President and Chief Executive Officer. "In my opinion and upon examination, the Report does not substantiate MSHA 's previously issued citations."

Hecla has already worked with MSHA to address issues outlined in the Report which resulted in the re-opening of the mine and continued operations. However, Hecla is contesting the citations referenced in the Report. For example,



contrary to MSHA's claims, the work was being conducted in accordance with Hecla's ground control plan. Hecla understands MSHA is planning on posting the Report on its website in the near future.

159. On December 5, 2011, in response to the death of Larry Marek, Defendant Baker

gave an interview, during which he stated: "If there's anything that we want, it's to operate

these mines as safely as you can possibly operate them. . . when we look at these reports, we

look for the opportunities to improve our activities."

160. On December 15, 2011, Hecla issued a press release regarding a rock burst that

had occurred in the Lucky Friday mine, entitled "Hecla Reports Update on Lucky Friday Mine,"

which stated in part:

Hecla Mining Company ("Hecla") reports that all miners have been safely removed from the Lucky Friday mine near Mullan, Idaho, following a rock burst that occurred Wednesday, December 14, at approximately 7:40 p.m.

"We are thankful that all employees are out of the mine and have been accounted for, and that those injured have been treated. The safety of our employees is our primary concern," said Phil Baker, President and Chief Executive Officer. "The mine is currently shut down, and once we have cared for our people, we will be investigating the cause of the seismic activity."

The incident occurred at 5900 feet below the surface. Seven people were transported to local hospitals and treated for non-life-threatening injuries. No mine blasting had taken place anywhere in the mine for the previous 24 hours; therefore, the rock burst is unrelated to mining activities. The mine is currently closed pending further investigation. The federal Mine Safety and Health Administration has been notified and investigators are en route to the mine.

161. The statements in ¶J 156-60 were materially false and misleading when made for

the reasons given in ¶ 139, above.

162. Later, on December 16, 2011, the Company issued a press release entitled "Hecla

Reports Rock Burst Unrelated to Previous Events at the Lucky Friday Mine," which stated in

part:

Hecla Mining Company ("Hecla") is reporting that the rock burst that injured seven miners Wednesday night at the Lucky Friday mine near Mullan,



Idaho, is unrelated to two previous fatal accidents which occurred earlier in the year. In addition, all seven Hecla miners are expected to fully recover from their non-life-threatening injuries. Most of the miners were treated and released by area hospitals, with the most serious injuries involving lacerations, a broken arm and a broken pelvis. There were 25 Hecla employees and 18 contractor employees underground in the mine at the time of the rock burst. All were immediately evacuated, and most were not in the vicinity of the affected area.

"Thankfully, our miners were not more seriously injured and all seven are expected to fully recover," said Phil Baker, President and Chief Executive Officer for Hecla. "There's no connection to the previous fatal events. Our peoples' safety is very important to us, and we are working hard to get the mine back on track to its longstanding safety record prior to this year, characterized by more than 25 years and 8.5 million man-hours without a fatality."

On November 16, 2011, shortly after 1 am., Hecla reported a seismic event that caused a rock burst in approximately the same location as this most recent incident at 5900 feet below surface, in the area of the pillar that crosses through the 30 vein. This rock burst was triggered by mine blasting at the end of a shift. As a result, no one was in the area at the time of the incident and no injuries were reported.

The most recent incident also occurred at 5900 feet below the surface. Rock failures around a mining excavation can be triggered by natural occurrences or by mine blasting. Baker said Hecla was in the process of installing designed tunnel supports, which consist of a steel liner and other materials such as shotcrete, in that particular area. This method is very similar to that used in road construction in underground tunnels which is meant to provide a support canopy for the roadway.

"Both rock bursts occurred approximately in the same location; however, this most recent event was not triggered by mine blasting, since blasting had not taken place within the previous 24 hours. Consequently, we need more information about what triggered this rock burst," Baker said. "The mine is currently shut down to give us time to examine this in conjunction with federal Mine Safety and Health Administration representatives."

163. The statements in ¶ 162 were materially false and misleading when made. As set

forth in greater detail above, the rock bursts and other incidents were related, among other things,

to Defendants' rampant violations of safety regulations throughout the Lucky Friday mine.

Defendants' statements professing that the Company's commitment to safety were false and

misleading when made because production, not safety, was the top priority at Hecla during the



Class Period. This is demonstrated by unsafe working conditions at Hecla mines. Moreover,

Defendants knew that once this non-compliance was uncovered, which, if discovered, would

result in the shutdown of mines and stoppage of production altogether, to the detriment of the

Company's financial results. See supra Section V.

164. On January 11, 2012, Hecla issued a press release entitled "Hecla Reports

Temporary Care and Maintenance at Lucky Friday Mine," which stated in part:

Hecla Mining Company ("Hecla") reports that the Mine Safety and Health Administration ("MSHA") has ordered the Silver Shaft at the Lucky Friday mine in Mullan, Idaho closed for removal of built-up material in the shaft. This order is pursuant to the investigation following the December 14, 2011 rock burst. Compliance with the order is expected to take through year-end. Hecla's 2012 silver production is now estimated to be approximately 7 million ounces.

"While we are disappointed with this order and are considering what action we might take, work has already begun to resume production as quickly as possible," said Phil Baker, Hecla's President and Chief Executive Officer. "The Lucky Friday mine is a world-class mine that we see producing silver for decades to come. Hecla and the Lucky Friday mine have faced challenges in the past and we will once again overcome them."

The Silver Shaft is a one-mile deep shaft from surface and the primary access to the Lucky Friday mine. The sand and concrete material to be removed from the shaft has built up over a number of years and is expected to be removed primarily by power washing. All other significant activities at the mine including construction of the #4 Shaft and bypass around the rock burst are on hold. Care and maintenance of the underground will be focused on the 4900 level where the #4 Shaft infrastructure is located. Production is expected to resume in early 2013.

165. The same day Hecla announced the closing of the Silver Shaft, Defendant Baker

held a conference call describing Hecla's point of view on the matter:

[A]s we announced in the press release, we have been ordered to clean the buildup material in the shaft of the Lucky Friday. This is the Silver Shaft. The Silver Shaft was commissioned in 1983, and it's been in almost continuous operation since then. It's an 18-foot diameter shaft. It's over a mile deep. If you go to, I guess, the webcast there's some slides available, if you go to the webcast, you can see a slide that shows a picture of the Silver Shaft, at least the bottom, well I'd say the half of it. And it shows the place where we're currently mining on the 30 vein and the work that we've talked about for some time on the #4 Shaft.



The shaft that we have is over a mile deep. It's one of two ways that we have to get into the mine. The other is the #2 Shaft, and that's the shaft that was built in about 1960. In order to produce from the mine, it was necessary that we have two entrances to the mine. So, we've had the Silver Shaft and the #2 Shaft. With the order that requires that we clean this shaft, we only have one entrance, so we are not able to operate and produce ore. This Silver Shaft is divided into two compartments. The east compartment has two conveyances in it for men and materials and for rock. The west compartment is essentially unused and has been for the past 30 years. Also within this is power lines, vent lines, sand lines. Lines are a tailings-concrete mix of material that goes back into the mine and acts as the backfill.

Occasionally, these sand lines over the past 30 years have leaks in them, depositing cement-like material on the walls of the shaft in various lines. We had a rock burst in - two rock bursts over the course of November and December in the mine. And those rock bursts, if you look at that drawing on the website, were on the 5900 level. And that level is a mile-long tunnel, a mile-long haulage way. And so, those rock bursts that we had were well into that tunnel, not quite the full mile distance, but very close to where you see the 30 Vein - in fact, right at the 30 Vein, now that I mention it.

So, it is roughly a mile. The thing - the inspection that has occurred with respect to the Silver Shaft was not specifically related to the rock burst, but it was done by MSHA. They've come in and done a thorough investigation and inspection of the whole operation, including the Silver Shaft. And so, they issued what is called a citation, saying that we needed to clean the loose material which - we cleaned the material, but when they came back in, they concluded that the material needed to be cI caned further. And we had not met the time constraint that they had given us, which was 10 days.

And so, under the order that they issued, we are not able to use the shaft for anything other than the cleaning of it. We believe that there's no hazards to miners in the conveyance and any hazards to the miners on the work deck that's used to inspect and repair and maintain the shafts are mitigated But MSHA's belief is that the shaft needs to be cleaned down from the surface bottom as the best way to mitigate any hazards that would exist in the shaft.

We're going to continue to discuss with MSHA if there's other approaches that could be better, and we will certainly consider if an administrative appeal is appropriate But in the meantime, we are in the process of planning the clean-down from the surface, and the release we gave today is an indication of that.

But when we think about the financial impact on Hecla, at least, initially, it's minimal since the Lucky Friday roughly spends the cash flow it generates in investing in the #4 Shaft and the other things that it does. So, what this primarily does is delay the access to the higher grade, deeper material. And then, of course, there is the holding costs and the clean-up cost that are associated with



this and on the order of magnitude $20 million-odd is probably the best guess that we'd have at this point We certainly will spend more time working through what our holding costs will be and the cost of the clean-up.

As a result of the Lucky Friday being down, we will only produce 7 million ounces of silver which will come from the Greens Creek mine. Main point that I guess I want to end with, and then I'll be happy to take questions, is we have the need to get the Silver Shaft back up and running. And we are prepared to do this clean-down in order to get that to happen, because we're very confident in the future of the Lucky Friday. It is a great ore body. It has great employees and it has a very long burn in front of it.

166. Defendant Baker's simplistic statement that "we have been ordered to clean the

buildup material in the shaft of the Lucky Friday" was materially false and misleading when

made. Hecla had also been ordered to repair damaged structures, utility supports, and sand line

support bracket and other major problems within the shaft. This was far from a simple matter of

power washing the walls.

167. Defendant Baker's statement that "the west compartment is essentially unused

and has been for the past 30 years" was materially false and misleading when made. In fact, the

mine could not function without the utilities on this side of the shaft. The west compartment also

had a manway (stairway) that was not navigable because of neglect.

168. Defendant Baker's statement that MSHA "concluded that the material needed to

be cleaned further" was materially false and misleading when made. MSHA issued Hecla a

noncompliance 104(b) order for failing to correct what was cited in a timely manner and Hecla

offered no justification for MSHA to extend the time to comply.

169. Defendant Baker's statement that "and then, of course, there is the holding costs

and the clean-up cost that are associated with this and on the order of magnitude $20 million-odd

is probably the best guess that we'd have at this point" was materially false and misleading when

made because Baker told MSHA at the time that it was likely going to cost over $90 million to

rehabilitate the Silver Shaft.



170. After his initial statement, Defendant Baker attempted to respond to questions

from analysts. In answering one question, Baker simply misrepresented management's

inspection practices, directly contradicting what MSHA had found regarding Hecla's inadequate

inspection procedures for the Silver Shaft:

Analyst Question: [A]nd, I guess, that my last question, and then I'll turn it over, is - obviously, this is something I would assume that you guys keep track of internally in terms of your own maintenance and your own housekeeping that you would keep an eye on these sand lines and materials that builds up. Or is this something that just hadn't - I mean, in your opinion, obviously, you wouldn't have expected that this was a significant issue. I'm just kind of wondering how this situation came that kind of caught everybody off guard that this had built up. Is it something that you look for or you normally don't really pay much mind to?

CEO Baker: Look, we inspect the shaft weekly and consistently do that. I think that's a good practice and probably also a regulatory requirement. We also have had that practice for, I'm not sure how long, but certainly it's been for a long period of time.

171. Defendant Baker's statement that "we inspect the shaft weekly and consistently

do that" was materially false and misleading when made. Hecla inspected only one quarter of

the shaft weekly, and only alternated between quarters of the shaft every other week. This was

Hecla's practice for many years, and Hecla was always out of compliance concerning inspection

of the Silver Shaft.

172. Defendant Baker also was asked whether there was any chance for appeal. He

responded that "there is an administrative process that you can go through. And we'll certainly

consider whether that's the appropriate thing to do." Hecla, however, never initiated any appeal

of the mine closure, which, given the amount of money at stake, would not have made any sense

if Defendants had any grounds for appeal.

173. Baker again defended Hecla's Silver Shaft as a safe operation:

Analyst Question: The Mine Safety and Health Admin group or representatives in their investigation, I guess, is the investigation done? Have they completed



their exercise? And it seems as though they've maybe used this as an excuse to shut down the mine. I'm not sure if there's pending more investigations of the rock burst activity, which is obviously of more concern, I guess, in my view. Is the shaft itself is operating in an unsafe way or, I mean, it seems a little extreme and sort of as you said, sort of unrelated But it seems to be like a cleanliness issue, I mean, if you can otherwise elaborate.

CEO Baker: Look, Steve, I guess, I will say as empathically as one can say, we believe that we have operated that shaft in a completely safe manner and have been for an extended - since it's been in operation. If you go back and look at the shaft, we have had very few incidents over the course of its 30-year history of any sort of injury at all or any sort of event or incident. And, certainly, in the 11 years I've been at Hecla that has been the case.

So, we think its record has been very good. We would not suggest to you that the rock burst is any way related to this specifically, in other words, it doesn't have anything to do with the geotechnical aspects of that shaft. That shaft is very stable.

And when you say you're concerned with the rock burst, the rock burst incident only happened because we had a haulage way that was going through the 30 Vein, which we had mined around and had created the pillar.

Analyst: Yes.

CEO Baker: And it was known that that pillar would have a potential to burst

Analyst: Okay.

CEO Baker: And the thing that ended up happening was we ended up not being able to predict when that burst might happen. So, hence why we had a plan to build a bypass around the pillar where the stresses have built up. So, now I don't have any concerns about the long-term viability of the Lucky Friday and the rock bursting. This is not the same rock burst issue that one would've seen 30 years ago. The ground that we're in, in the Gold Hunter, the 30 Vein area is very good ground to mine within.

174. Defendant Baker's statement that "I will say as empathically as one can say, we

believe that we have operated that shaft in a completely safe manner and have been for an

extended - since it's been in operation" was materially false and misleading when made because

the shaft had not been inspected properly for many years.

175. Defendant Baker then expressed his "surprise" at the safety issues that had taken

place in the Lucky Friday mine over the past year:



Analyst: Just wondered, operationally, if you are going to put in place different safety procedures and so on to tighten things up?

CEO Baker: Well, let me say that as the year has rolled on and it's on the back of a 25-year history of a great safety record at the Lucky Friday, we have been surprised that we've had these incidents that occurred during the course of the year. And so, we have said, how do we improve to prevent the sorts of things that have happened plus other things. And so, we are very focused on that.

176. Baker also reiterated his view that the accidents at Lucky Friday were not related,

that the events were "unusual," and that Hecla could not have done anything better to prevent

such accidents:

Analyst: Okay. And just, you kind of have stated this, but just with these recent events of this year, after so long of a time where nothing really of any consequence safety-wise happened, is Lucky Friday, I mean, can you just state - well, as much as you can, just eliminate any doubt as much as you can that this is going to impact the expansion of Lucky Friday. I mean, I guess that's something that is in the air when you have these incidents that - is it unrelated - it seems like it's unrelated, but then can you just speak to that as much as you can?

* * *

CEO Baker: And so, we want to - it's going to be - while it's unrelated, we've got to make sure the whole mine is safe as we can make it. And we're doing that and we'll get back to that sort of standard that we've had over the last 25 years. And we think that these events that have happened are unusual events. But we're going to make sure that we've learned from them and we improve on the way the mine functions. And as we develop the #4 Shaft, we're going to going to go into material that is very similar to what we have been mining.

So, we have lots of knowledge, but we're going to improve our knowledge and operate in even a better fashion, if you can do that. So, we're paying attention to what's happened to us. And it's not a situation where we feel like we've done anything inappropriate or we could have done anything better. But we're learning from it. And we're going to make things better regardless.

177. Defendant Baker's statements that "we think that these events that have happened

are unusual events" and "it's not a situation where we feel like we've done anything

inappropriate or we could have done anything better" were materially false and misleading when

made because MSHA could not have issued a stack of violations if Defendant Baker was correct.



The ground failure that killed Larry Marek in April 2011 was predictable given the warnings in

the stope.

178. On the January 11, 2012 news, Hecla stock dropped $1.23 per share, to close at

$4.61 per share on January 11, 2012, a one-day decline of2l% on volume of 53.6 million shares.

B. Defendants' False Statements Concerning the #4 Shaft

179. Throughout the Class Period, the Defendants repeated touted the role the #4 Shaft

would play in the Company's future production and earnings. On an earnings call with analysts

on October 27, 2010, Defendant Baker assured investors of the ability of the Silver Shaft to

support increased production made possible by the #4 Shaft:

Now we have approached this project incrementally for a number of reasons including the need to engineer and organize the building and the infrastructure of a new mine inside one that is operating at full capacity. We wanted to methodically build and test the process for dealing with the additional men, materials and waste rock that has to go to the surface through that Silver Shaft.

So that line that you see to the left in that picture, everything has to go up and down via that shaft. And of course we are operating at full capacity. And after working the better part of a year, we think George, Mike and their teams have a firm handle on it and have substantially reduced the risks of either production interruptions or slowdown of construction.

* * *

We know the economics support the project and the work we are doing is substantially reducing the project risks and think I ultimately will result in a better facility that maximizes the ore body by going as deep as possible without impacting production.

180. The statements in ¶ 179, above, were false and misleading because Defendant

Baker omitted material facts: that work could not continue on the new #4 Shaft if the Silver

Shaft had to be shut down for safety reasons; that the Silver Shaft was in a deplorable condition

as a result of many years of operation without needed maintenance and remediation; that the

Company had not been in compliance with regulations governing the inspection of the Silver



Shaft; and that there was a risk - that eventually materialized - that when MSHA did a thorough

inspection of the Silver Shaft the agency would order the Silver Shaft to close until it was safe

for the miners to work in. By omitting this information, the Company failed to give investors

full information needed to make the statements complete and accurate.

181. Similarly, in a February 24, 2011 press release, Hecla stated that: "The #4 Shaft

Project at Lucky Friday is progressing well and Hecla believes that the project could increase

Lucky Friday's annual silver production by approximately 60% from current levels and extend

the mine life beyond 2030."

182. Hecla continued to reassure investors of the progress of the #4 Shaft in a press

release dated August 8, 2011. Announcing final board approval of the Lucky Friday #4 Shaft

project, the press release stated in part:

"Hecla is now positioned to significantly grow production over the next five years," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "With approval of the #4 Shaft Project, developments at the Greens Creek mine and the scoping studies in the Silver Valley, San Juan Silver, and San Sebastian properties, we have a goal of 15 million ounces of annual silver production by 2016. We believe our strong financial position combined with cash flow generation from Greens Creek and Lucky Friday would be sufficient to cover our settlement obligations, sustaining and capital expenditures, pre-development projects, and exploration programs."

183. On a November 8, 2011 earnings call, Defendant Baker addressed the #4 Shaft

and safety:

This quarter, the Board also approved the completion of the Lucky Friday 4 Shaft, an investment that grows production 60%, generates returns, and extends the mine life for decades. It's very unusual in the precious metals industry to have a mine life that's measured in decades. I fully expect that this shaft, because of the longevity it gives the mine, and the access to geology, will provide benefits we cannot currently contemplate. If you think about it, the number 2 Shaft at the Lucky Friday was built in 1960, and the silver shaft in 1982, and what we're mining today was never contemplated at that point.

* * *



The other important thing to mention is the project has gone 2 years without a lost-time accident. Nothing is more important to us than safety, and we are pleased that our contractor, Cementation, is as committed as we are. So, I want to congratulate George Sturgis, our VP who heads our project team, Cementation, the contractor, and the workforce for a great job. We think because of this commitment to safety, the 4 Shaft remains on time and on budget.

184. The statements in ¶J 181-83, above, were false and misleading for the same

reasons as those detailed in ¶ 180.

C. Defendants' False Statements Concerning Low Costs, Growth Potential, and the Condition of Lucky Friday Mine

185. On October 26, 2010, Hecla issued a press release entitled "Hecla Reports a 30%

Increase in Cash Flow from Its Operations in Q3 Compared to the Same Period in 2009." In it,

the Company reported net income of $19.8 million, or $0.06 diluted earnings per share ("EPS"),

in the third quarter of 2010. Further, the Company reported silver production of 2.7 million

ounces at a total cash cost of negative $1.01 per ounce for the quarter. The press release also

stated in part:

"Both Greens Creek and Lucky Friday had a good quarter and have generated more net cash from operating activities so far this year, compared to the full year of 2009, which was a record for Hecla," said Phillips S. Baker Jr., President and Chief Executive Officer. "Our cash position, strong operating performance and district size properties in the U.S. and Mexico, position us well to fund development and capital projects, as well as take advantage of other potential opportunities that may arise."

* * *

Lucky Friday

At the Lucky Friday mine in Idaho, silver production was 0.8 million ounces at a total cash cost of $3.38 per ounce compared to 0.9 million ounces at a total cash cost of $3.42 per ounce in the same quarter in 2009. For the first nine months of 2010, Lucky Friday produced 2.5 million ounces of silver at a total cash cost of $3.67 per ounce, compared to 2.7 million ounces of silver at a total cash cost of $5.89 in the same period the prior year.

The third quarter total cash cost decrease of $0.04 per ounce of silver compared to the same period in the prior year, was mainly due to higher lead and zinc by-



product credits resulting from increased average market prices for those metals and partially offset by higher price-sensitive production costs and taxes. For the nine months ended September 30, 2010, the $2.22 decrease in total cash cost per ounce of silver compared to the same period in 2009, is attributable to higher byproduct credits and partially offset by costs that are sensitive to metals price increases.

186. The statements in ¶ 185, above, were false and misleading because the

Company's improved performance was brought about, in part, through savings achieved through

non-compliance with applicable mandatory safety regulations. As set forth in greater detail

above, Hecla failed to disclose that in order to achieve these results, operations at the Lucky

Friday mine were prioritizing, and intended to continue to prioritize, production over safety and

were undertaken in an unsafe and illegal manner, jeopardizing the lives and safety of its

employees in violation of regulatory requirements, which, if discovered, would result in the

shutdown of the Lucky Friday mine and stoppage of production altogether, to the detriment of

the Company's financial results. Moreover, once Hecla informed investors as to the reasons

behind the figures reported, the Defendants were under an obligation to inform the market as to

the true reasons why these figures were achieved, which included non-compliance with

applicable safety regulations.

187. On October 27, 2010, Hecla filed a Form 10-Q for the 3Q of 2010. In it, the

Company stated that:

The following factors had a positive impact on the results for the third quarter and first nine months of 2010 compared to the same periods in 2009:

Increased gross profit at our Greens Creek and Lucky Friday units by $13.2 million and $3.2 million, respectively, for the third quarter of 2010 and by $40.6 million and $14.4 million, respectively, for the first nine months of 2010 compared to the same 2009 periods . . .

* * *

The $3.2 million and $14.4 million increases in gross profit for the third quarter and first nine months of 2010 compared to the same 2009 periods is primarily the



result of higher realized silver prices for the third quarter of 2010 and higher realized silver, lead, and zinc price in the first nine months of 2010, as discussed in Results of Operations above, and increased mill throughput. The impact of these factors was partially offset by lower silver, lead and zinc ore grades. Gross profit at the Lucky Friday was also affected by net positive price adjustments of $0.8 million and $0.3 million in the third quarter and first nine months of 2010, respectively, compared to net positive price adjustments of $1.1 million and $2.6 million for the comparable 2009 periods.

* * *

In addition, a stoppage of mining activities for approximately two weeks in the second quarter of 2010 for repairs in a shaft designated as a secondary escape way adversely impacted production.

The $0.04 decrease in total cash cost per silver ounce for the third quarter of 2010 compared to the same 2009 period is due primarily to $1.57 per ounce higher lead and zinc by-product credits resulting from increased average market prices for those metals, partially offset by higher production costs and production taxes by $1.20 and $0.18 per ounce, respectively. The $2.22 decrease in total cash cost per silver ounce for the nine-months ended September 30, 2010 compared to the same 2009 period is attributed to $3.73 per ounce higher by-product credits partially offset by higher production costs and treatment and freight by $1.38 and $0.15 per ounce, respectively.

188. Again, because Hecla failed to disclose the basis for the results, the statements

were false and misleading for the same reasons discussed in ¶ 186, above.

189. That same day, Hecla conducted an earnings conference call with analysts.

During it, Defendant Baker stated that:

We had another quarter with negative cash costs of $1.01 which Jim [Sabala] will discuss in greater detail. These low costs reflect the quality of the assets and the capabilities of our operating team.

* * *

[T]he company continues to be the lowest-cost silver producer in North America with total cash costs of negative $1.01 per ounce.

190. By failing to attribute the fact that the Company was, at least in part, the "lowest-

cost silver producer in North America" to Hecla's non-compliance with applicable safety



regulations, the statement in ¶ 189 was false and misleading for the same reasons discussed in

¶ 186, above.

191. On February 24, 2011, the Company issued a press release, which was also

incorporated in a Form 8-K filed with the SEC that same day. Hecla reported a net loss of $9.7

million, or $0.05 diluted EPS, for the fourth quarter of 2010. Additionally, the Company

reported net income of $35.4 million, or $0.13 diluted EPS, for the full year 2010. Hecla also

reported full year silver production of 10.6 million ounces at a total cash cost of negative $1.46

per ounce, net of byproducts. The release further stated:

"The fourth quarter and year-end results were record setting in a number of areas, reflecting increased throughput and low costs at our Greens Creek and Lucky Friday operations, and strong metals prices," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "After considering all investing and financing activities, we generated $178.9 million in net cash flow last year. Our strong balance sheet and growing cash flow should be sufficient to meet our financial obligations of a potential Basin litigation settlement, as well as continuing to fund capital projects to expand our operations and explore our large land packages in the U.S. and Mexico."

* * *

Lucky Friday

Full year silver production at Lucky Friday was 3.4 million ounces and 819,317 ounces in the fourth quarter, compared to 3.5 million ounces and 865,595 ounces, in the respective periods in 2009. The overall decrease in production year-over-year and quarter-over-quarter is primarily due to lower silver ore grade, which was expected. The operation achieved record lead and zinc production in 2010 with 21,619 tons and 9,286 tons, respectively, which included 5,356 tons and 2,214 tons, respectively, in the fourth quarter.

Total cash cost at Lucky Friday for the full year was $3.76 per ounce, net of by-product credits and $4.06 per ounce in the fourth quarter, net of by-product credits, in comparison to $5.21 and $3.10 per ounce, respectively, for the same periods in 2009. The decrease in total cash cost per ounce year-over-year is due to higher by-product credits resulting from higher lead and zinc prices, partially offset by higher employee profit sharing, production costs, expensed site infrastructure, and treatment and freight costs. The increase in total cash cost per ounce over the fourth quarter in 2009 is attributable to lower silver grades.



192. By failing to attribute the Company's results to Hecla's non-compliance with

applicable safety regulations, the statements in ¶ 191 were false and misleading for the same

reasons discussed in ¶ 186, above.

193. In a Form 10-K filed on February 25, 2011, Hecla addressed the Lucky Friday

mine's financial performance. In pertinent part, the Form 10-K stated:

The following factors had a positive impact on results for the year ended December 31, 2010 compared to 2009 and 2008:

• Increased gross profit at our Greens Creek and Lucky Friday units in 2010 compared to 2009 and 2008.

* * *

The increase in gross profit for 2010 compared to 2009 and 2008 is primarily due to:

• Higher average market and realized prices for all metals produced at the Lucky Friday (further discussed in Results of Operations above).

• A decrease in production costs by 4% and 9%, on a per ton basis, compared to 2009 and 2008, respectively.

Gross profit for 2010 was also impacted by silver ore grades that decreased by 6% compared to 2009, but that exceeded 2008 levels by 6%. In addition, positive price adjustments to revenues of $2.1 million and $3.4 million impacted results for 2010 and 2009, respectively, 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. 2010 revenues include net losses of $1.0 million on forward contracts related to zinc and lead contained in concentrates shipped in 2010. The base metal forward contract program was initiated in April 2010, and there were no comparable losses impacting 2009 and 2008 gross profit.

The $1.45 decrease in total cash costs per silver ounce in 2010 compared to 2009 is due primarily to higher by-product credits by $2.95 per ounce resulting from higher lead and zinc prices, partially offset by higher employee profit sharing, production, expensed site infrastructure, and treatment and freight costs by $0.72, $0.34, $0.33, and $0.13 per ounce, respectively. The $0.85 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.






195. On February 25, 2011, the Company hosted an earnings call with analysts.

During that call, Defendant Baker stated that:

Key drivers for the reduction in cash cost per ounce of silver of negative $1.46 for the year are higher metals prices increase byproduct production. The increase in cash costs of negative $0.14 per ounce of silver for the quarter is due to lower byproduct credits. These low costs reflect the quality of the assets and the capabilities of our operating team, both operating teams. When you combine that with the realized silver price of $22 for the year and $32 for the quarter, Hecla generated $198 million in net cash flow and $86 million of that happened in the fourth quarter. That is the most cash flow in our 120-year history by a wide margin.

* * *

We continue to experience the lowest per ounce cash costs in the industry. Our per-ounce cash costs were negative $1.46 for the year and negative $0.14 in the fourth quarter. Cash costs are down year-over-year due to the high metals prices and increased byproduct production. While costs for the fourth quarter are up slightly when compared to the same period of the prior year, this is primarily the result of lower relative byproduct credits on a per-ounce basis.

* * *

So what are we expecting for 2011?

* * *

We think total costs will be $0 per ounce of silver produced at recent metals prices . .

196. By failing to attribute the low per ounce costs to Hecla's non-compliance with



197. The market reacted positively to the news of these results and the Company's

stock price increased from a closing price of $10.09 per share on February 24, 2011 to a closing



price of $10.79 per share on February 25, 2011, an increase of $0.70 per share, or approximately

6.9%.

198. Had investors known that Hecla was concealing widespread regulatory and safety

violations at its operations, the price of Hecla securities would not have risen as much, if at all,

on this news, as investors would have realized that (i) the Company's per-ton costs of production

would need to increase significantly above historic levels to meet mine safety standards and

other regulatory requirements and (ii) the Company's existing operations gave rise to a

heightened risk of regulatory fines, work stoppages, legal claims, and mine disasters that would

further jeopardize Hecla's financial condition and prospects for success.

199. In March 2011, Hecla released its Annual Report for 2010. In it, Defendant

Baker's message to shareholders stated that "Hecla's brand-name recognition, the stable

locations and quality of our mining assets, and our low-cost production are all qualities that set

us apart. We're well-positioned to continue to grow andprosper." Defendant Baker also wrote:

Our two properties, Greens Creek and Lucky Friday, are unique mines that have been operating for 21 and 68 years, respectively, and have long mine lives ahead of them. They produce about 30% of all the silver in the U.S. We are in an exceptional position, because many employees have worked at the mines for decades and, in some cases, we have third-generation employees. This experience translates into solid, secure operations which are constantly evolving.

* * *

At Lucky Friday, an evolution has occurred over the past five years as the mill was entirely rebuilt and a new tailings facility was completed. And to access deeper and richer ore, a new shaft is being developed. In 2010, more than a mile of excavation was completed while achieving record ore tonnage. It is anticipated that when completed, the shaft will increase silver production 60% by 2016 and generate long-term value. Mike Dexter, the operation's general manager for the past decade, has retired. He left the property in great shape and in John Jordan's capable hands as the new general manager.

200. The statements in ¶ 199, above, were false and misleading because the Company

did not have "stable locations," and was not in "great shape" and "well-positioned to continue to



grow and prosper." On the contrary, as set forth in greater detail above, Hecla's operations at the

Lucky Friday mine prioritized short-term production at the expense of regulatory and safety

compliance, which, when uncovered, would result in regulatory action and the closing of the

Lucky Friday mine, to the longer term detriment of the Company's operations.

201. Hecla also included a graph that reflected the expanding margins per ounce of

silver:

202. This graph was false and misleading because it did not explain that the

Company's expanding margins were brought about, in part, through savings achieved through

non-compliance with applicable mandatory safety regulations. As set forth in greater detail

above, Hecla failed to disclose that in order to achieve expanding margins, operations at the

Lucky Friday mine were prioritizing, and intended to continue to prioritize, production over

safety and were undertaken in an unsafe and illegal manner, jeopardizing the lives and safety of

its employees in violation of regulatory requirements, which, if discovered, would result in the



shutdown of the Lucky Friday mine and stoppage of production altogether, and would result in

much lower margins.

203. On May 9, 2011, Hecla issued a press release, which was incorporated in a Form

8-K filed with the SEC that same day, announcing its 1Q 2011 financial results. The Company

reported net income of $43.4 million, or $0.15 diluted EPS, for the first quarter of 2011 and

quarterly silver production of 2.5 million ounces at a total cash cost of $1.03 per ounce, net of

by-products. The release further stated in part:

"Hecla 's first quarter results were records for revenue, gross profit, and net income reflecting the strong operating performance and metals prices," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "We expect our balance sheet and growing cash flow will meet our financial obligations, fund capital projects that expand our operations, and advance organic growth projects on our large land packages in the U.S. and Mexico....

* * *

Hecla reported strong first quarter 2011 revenues and cash flow from operating activities as a result of Lucky Friday's and Greens Creek's performance and higher metals prices.

* * *

Lucky Friday

First quarter silver production at Lucky Friday was 0.8 million ounces, which was slightly lower than the same period in 2010. The overall decrease in production quarter-over-quarter is primarily due to lower silver ore grade.

Total cash cost at Lucky Friday was $4.99 per ounce, net of by-product credits, in comparison to $3.21 per ounce, for the same period in 2010. The increase in total cash cost per ounce quarter-over-quarter is mainly due to higher treatment and freight costs, employee profit-sharing due to higher metals prices, and increased production costs. This was partially off-set by higher lead and zinc by-product credits. Mining and milling costs per ton increased in the first quarter 2011 by 10% and 6%, respectively, due to a decrease in tonnage produced, increased fuel costs, and consumable underground materials.

On April 15, 2011, a fatal accident occurred at the Lucky Friday Mine resulting in our decision to immediately halt all operations at the mine (other than rescue efforts) for a period of 10 days. The accident involved a localized fall of ground



at 6150 level in the west 15 stope. The Mine Safety Health Administration ("MSHA") had representatives on-site during the rescue and recovery effort. They will access the mine during the investigation. Stopes 15 and 12 are currently closed; however, it is not anticipated to impact guidance.

204. That same day, Hecla filed a Form 10-Q for 1Q 2011. With respect to the

Company's financial results, the Form 10-Q stated, in pertinent part, as follows:

The following factors led to the improved results for the first three months of 2011 compared to the same period in 2010:

• Increased gross profit at our Greens Creek and Lucky Friday units by $42.0 million and $10.1 million, respectively (see The Greens Creek Segment and The Lucky Friday Segment sections below);

* * *

The $10.0 million increase in gross profit for the first quarter of 2011 compared to the same 2010 period resulted primarily from significantly higher realized silver, lead and zinc prices, partially offset by lower mill throughput and ore grades. Cost of sales and other direct production costs increased by 14% in the first quarter of 2011 compared to the first quarter of 2010 due primarily to increases in employee profit sharing and taxes, due to increased profitability. Depreciation was lower in the first quarter of 2011 compared to the same period in 2010 due to a reduction in units-of-production depreciation incidental to an extension of expected mine life at Lucky Friday. Production costs increased on a per ton basis in the 2011 period compared to the same period in 2010, with a 10% increase in mining cost per ton, as well as a 6% increase in milling cost per ton, primarily due to a decrease in tonnage produced, increased fuel costs, consumable underground materials, reagents, power and maintenance supplies.

The $1.78 increase in total cash costs per silver ounce in the first quarter of 2011 compared to the 2010 period is attributed to higher treatment and freight, profit sharing, and production costs of, $2.32, $2.09 and $2.08 per ounce, respectively. This is partially offset by higher lead and zinc by-product credits of $3.82 per ounce resulting from increased prices for those metals.

205. Also on May 9, 2011, the Company hosted an earnings call with analysts. During

that call, Defendant Baker stated that:

It was a very good quarter with new records set in our 120-year history for revenue, gross profits and net income. The new record was set because silver production was at 2.5 million ounces as we expected and the other metals hit our targets. Costs were right at $1 per ounce, the lowest in North America and



maybe even the world and realized silver prices averaged $36 per ounce, which is the most in our history.

* * *

And I think you have an idea of our high-quality assets with the performance that we have had in the past quarters. So let me talk about our ability to grow the assets we have in hand . . . . We are engineering organic growth with the current assets on hand and see tremendous potential to add value at minimal cost.

206. Similarly, Defendant Sabala stated that the Company "continue[d] to experience

among the lowest per ounce cash cost[s] in the industry." He further stated that "the Lucky

Friday is a long-term low-cost mine that is getting better."


applicable safety regulations, the statements in ¶J 203-06 were false and misleading for the same


208. Moreover, during the same earnings call, the following conversation took place

concerning the April 15, 2011 accident:

We are now back in operations at the Lucky Friday as we continue to investigate both stope 15 where the incident occurred and stope 12, which has similar geometry have shut down. Fortunately, it will not impact our guidance of 9 million to 10 million ounces of silver. There will be some cost of the rescue recovery investigation efforts and maybe some impact on operating costs. How much, I don't know, but I don't expect it to be significant to the economics of the mine.

* * *

Analyst: Great, okay, thanks. And then last question on Lucky Friday, given the unfortunate incident and the subsequent closures of stopes 15 and 12, has that changed your plan at all for this year or grade profile or anything that we might be thinking about?

CEO Baker: It didn't seem tome it has. Jim [Sabala], does it - are you—?

CFO Sabala: Not significantly when you look at the global economics.

CEO Baker: Yes, yes. Look, there is probably a couple hundred thousand ounce impact that this has on us. So no, we are not anticipating any major change.



209. The statements in ¶ 208, above, were false and misleading because Defendants

knew that once MSHA's investigation into the fatality was completed, the serious safety

breaches at the Lucky Friday mine that the Defendants had hidden from investors would be

discovered, resulting in the likelihood that the Lucky Friday mine would be closed and

production halted, to the detriment of the Company's silver output.

210. The market reacted positively to the news of Hecla's Qi 2011 financial results

and the Company's stock price increased from a closing price of $8.09 per share on May 6, 2011

(the last trading day before the press release) to a closing price of $8.65 per share on May 9,

2011, an increase of $0.56 per share, or approximately 6.9%.








212. On July 18, 2011, at the Global Hunter Securities Energy, China, Metals and

Mining Conference, the Company informed investors of the following:

So just as a summary and why we are the "Go To" silver producer, we are the largest silver producer in the US, with long life, low cost mines, and we are generating very strong financial and operating results from two world-class assets. We are inexpensive on a price to NAV metric and cash flow and we have a healthy balance sheet and we are ideally positioned to grow the Company going forward.



213. By failing to attribute the fact that the Company had low cost mines and achieved

strong results in part because of the non-compliance with applicable safety regulations, the

statement in ¶ 212 was false and misleading for the same reasons discussed in ¶ 186, above.

214. Again, the market reacted positively to the news of these results and the

Company's stock price increased from a closing price of $8.19 per share on July 15, 2011 (the

last trading day before the conference) to a closing price of $8.45 per share on May 9, 2011, an

increase of $0.26 per share, or approximately 3.2%.








216. On August 9, 2011, Hecla issued a press release announcing its 2Q 2011 financial

results. The Company reported net income of $33.3 million, or $0.11 diluted EPS, for the

second quarter of 2011. Further, the Company reported for the second quarter silver production

of 2.3 million ounces at a total cash cost of $0.52 per ounce, net of by-products. The press

release also stated in part:

"Hecla had solid operational and financial results year-to-date generating significant cash flow from Greens Creek and Lucky Friday to fund our capital projects and meet our environmental settlement obligations," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "The #4 Shaft Project combined with the new pre-development initiatives at our four properties are expected to increase production by approximately 50-60% over the next S years.



"We continue to benefit from high silver margins even with increasing industry cost pressures. Hecla's cost increase during the quarter is mainly attributable to higher metals prices, which was partially offset by strong by-product credits. Both Greens Creek and Lucky Friday remain among the lowest cost mines in the silver space."

* * *

Second quarter silver cash costs, net of by-product credits, was $0.52 per ounce compared to negative $1.82 per ounce in the same period in 2010. Based on current 2011 production guidance and cost estimates and assuming recent metals prices for the second half of 2011, total cash costs, net of by-product credits, are expected to be approximately $1.00 per ounce of silver for the year 2011.

* * *

Lucky Friday

Silver production at Lucky Friday was 0.8 million ounces in the second quarter of 2011 and 1.5 million ounces in the first half of 2011, compared to 0.8 million ounces and 1.7 million ounces, in the respective periods in 2010. The overall decrease in production year-over-year is primarily due to lower silver ore grade, which was expected.

Mining and milling costs were up by 9% for both the second quarter and six-month period ended June 30, 2011. The increase was driven primarily by increased cost of fuel, consumable underground materials, reagents, power, and maintenance supplies.

Total cash cost per ounce of silver produced at Lucky Friday was $6.46 and $5.74, net of by-product credits, for the second and first half of 2011, respectively, compared to $4.47 and $3.81, for the same respective periods in 2010. The increase in total cash cost per ounce quarter-over-quarter and year-over-year is primarily due to higher employee profit sharing, production costs, expensed site infrastructure, and treatment costs, which are partially offset by higher by-product credits resulting from higher zinc and lead prices. Higher profit sharing and treatment costs are due to higher metals prices.

217. By failing to attribute the fact that Hecla had "among the lowest cost mines" and

achieved strong results in part because of the Defendants' non-compliance with applicable safety

regulations, the statements in ¶ 216 were false and misleading for the same reasons discussed in

¶ 186, above.



218. Also on August 9, 2011, the Company filed a Form 10-Q with the SEC for the 2Q

2011. Tn it, Hecla stated:

[T]n April 2011, a fatal accident occurred at the Lucky Friday Mine which is currently being investigated by Hecla and the Mine Safety Health Administration ("MSHA"). As a result of the MSHA investigation (the results of which have not yet been provided to us as of the date of this report), Hecla Limited may be issued enforcement actions as well as penalties (including monetary) from MSHA or other governmental agencies. Although there can be no assurance as to the ultimate disposition of these other matters, we believe the outcome of these other proceedings will not have a material adverse effect on our results from operations or financial position.

219. The statement in ¶ 218, above, was materially false and misleading because the

Defendants had no reasonable basis to assert that the proceedings related to the fatality would not

have a materially adverse effect on the Company's financial position. On the contrary, the

Defendants either knew, or recklessly disregarded, that once MSHA's investigation was

completed, the extent of Hecla's safety violations would be uncovered, its Lucky Friday mine

would be closed, and production halted.

220. The Form 10-Q also addressed the Company's financial results as follows:

The following factors led to the improved results for the second quarter and first six months of 2011 compared to the same periods in 2010:

Increased gross profit at our Greens Creek and Lucky Friday units by $17.8 million and $11.9 million, respectively, for the second quarter of 2011, and by $59.8 million and $22.0 million, respectively, for the first six months of 2011 compared to the same periods in 2010 (see The Greens Creek Segment and The Lucky Friday Segment sections below).

Increased average prices for silver, gold, zinc and lead for the 2011 periods . .

* * *

The $11.9 million and $22.0 million increases in gross profit for the second quarter and first six months of 2011, respectively, compared to the same periods in 2010 resulted primarily from significantly higher silver, lead and zinc prices, partially offset by lower base metal ore grades. Cost of sales and other direct production costs increased by 26% and 20% in the second quarter and first six



months of 2011, respectively, compared to the same periods in 2010 due primarily to increases in employee profit sharing and taxes, due to increased profitability.

* * *

Mining and milling costs per ton increased by 9% in both the second quarter and first six months of 2011 compared to the same periods in 2010 primarily due to increased costs of fuel, consumable underground materials, reagents, power, and maintenance supplies.

The $1.99 increase in total cash costs per silver ounce for the second quarter of 2011, compared to the same period in 2010 is due primarily to higher treatment and freight and employee profit sharing and other costs of $2.80 and $2.04, respectively. This is partially offset by higher lead and zinc by-product credits of $2.27 per ounce from increased prices for those metals and lower production costs of $0.58 per ounce. Cash costs per silver ounce increased by $1.93 for the six-month period ended June 30, 2011 compared to the same 2010 period primarily because of higher employee profit sharing and other costs, treatment and freight, and production costs of $2.16, $1.98 and $0.77, respectively. This is partially offset by higher lead and zinc by-product credits of $2.98 per ounce from increased prices from those metals.

221. On August 9, 2011, the Company held an earnings call with analysts to discuss

the Q2 2011 financial results. During that call, Defendant Baker stated that Hecla's "[s]ilver

production was $2.3 million ounces, costs were $0.52 per ounce which remain among the lowest

in the world and realized silver prices averaged $35 an ounce, almost all of it is margin."

222. During that call, Defendant Sabala stated as follows:

[W]e continue to experience among the lowest cash costs per ounce in the industry achieving excellent margins. Our per ounce cash costs were $0.52 for the second quarter of 2011. Cash costs are up compared to the same period last year due to higher production costs, treatment costs, line license tax and employee profit sharing which are due to higher metals prices. However, we're glad to see those costs go up a little bit because the benefits of these higher prices far outstrip the costs associated there with. And our production of $35.28 per ounce of silver produced was up from $20.78 per ounce in the second quarter of 2010. Based on our current 2011 production guidance and cost estimates and assuming recent metals prices for the second half of this year, total cash cost net of byproduct credits are expected to be about $1 per ounce for the year 2011.



223. By failing to attribute the fact that the Company's financial results had been

achieved in part because of the non-compliance with applicable safety regulations, the statements

in ¶J 220-22 were false and misleading for the same reasons discussed in ¶ 186, above.


stock price increased from a closing price of $6.66 per share on August 8, 2011 to a closing price

of $7.27 per share on August 9, 2011, an increase of $0.61 per share, or approximately 9.2%.








226. On August 10, 2011, Defendant Sabala spoke at the Jeffries & Co. Global

Industrial and A&D Conference. During this conference he stated that:

First off, Hecla for those of who aren't aware of Hecla is the largest silver producer in the United States with 9 to 10 million ounces being produced this year. And I think that's very important, because of all of our operations are in the U.S. with extremely low costs, so they are very low risk. We've been in business for 120 years. So, these properties are mature properties. So, there is very low risk in terms of our development production profile.

* * *

That doesn't even take into account the fact that we are U.S. production, U.S. operation, very predictable cash cost, very predictable production stream. So, needless to say, we feel there is opportunity in the valuation.

* * *

The key behind Hecla and the key behind its properties are they are very low cash cost, they are high grade mines.



* * *

Rion can see that that cash cost pattern has been very stable, very predictable, and allows us to be at the absolute bottom of the cost curve, which puts us in a very good competitive position.

* * *

And the Lucky Friday continues in the best years are ahead of it.

227. By failing to attribute the fact that the Company's financial results had been

achieved in part because of the non-compliance with applicable safety regulations, the statements

in ¶ 226 were false and misleading for the same reasons discussed in ¶ 186, above.

228. On September 13, 2011, an unidentified Hecla representative stated the following

at the Rodman and Renshaw Global Investment Conference:

So another way that we deliver value is this cost structure that we have. Across the bottom of this in silver, you can barely see it there, is the cash cost per ounce So consistently we've been somewhere around zero. A high of $4.20, a low of negative $2.81. You can see that we're continuing to have those sort of results today. So we generate today three times the margin we generated in 2006.

* * *

The silver shaft is the shaft to surface, it's a one-mile shaft that's been in place since 1982, and it will continue to operate as long as we are operating in this mine. It's a great set of infrastructure, it's a concrete-lined shaft; a very, very stable shaft. We are developing off the 4,900 a new shaft that will go from here down to 8,800 feet below the surface.

* * *

And we're growing. We see the ability to grow our production by 50% by 2016. And I'll talk about where that growth is coming from. It's low-risk growth, it's low cost growth, it's low capital growth, at least on a relative basis given that sort of size increase.

* * *

So we currently are the deepest mine in the US, we're going to get a lot deeper. And it's something that we're familiar with, this is what we've been doing for 100 years is mining it quite deep - a quite deep mine.



229. The statements in ¶228, above, were false and misleading because the

Defendants knew that the Silver Shaft was not "very, very stable" because of years of

noncompliance with safety regulations. Further, the Company failed to inform investors that its

low cost growth and positive financial results had been achieved in part because of the non-

compliance with applicable safety regulations, therefore making the statements in ¶ 228 false and

misleading for the same reasons discussed in ¶ 186, above.

230. On November 8, 2011, Hecla issued a press release announcing its 3Q 2011

financial results. The Company reported net income of $55.8 million, or $0.19 diluted EPS, for

the third quarter of 2011. Further, the Company reported for the quarter silver production of 2.3

million ounces at a total cash cost of $0.67 per ounce, net of by-products. The press release also

stated in part:

"Hecla's financial position and asset base is the strongest it's been in its history after a unique third quarter generating the highest net income and cash position, establishing a dividend, approving the #4 Shaft, initiating work to reopen three mines, and settling the Basin litigation," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "From this quarter, we are poised to grow production 50% over the next five years."

* * *

Lucky Friday Mine - Idaho

Silver production at Lucky Friday was 0.9 million ounces in the third quarter of 2011 and 2.5 million ounces in the first nine months of 2011, which is substantially equal to the silver production for the respective periods in 2010.

Mining and milling costs per ton were up by 7% and 11%, respectively, for the third quarter and up by 9% and 10%, respectively, for the first nine months of 2011, driven primarily by increased cost of fuel, consumable underground materials, reagents, electric power, and maintenance supplies.

Total cash cost per ounce of silver produced at Lucky Friday was $5.94 and $5.82, net of by-product credits, for the third quarter and first nine months of 2011, respectively, compared to $3.38 and $3.67, for the same periods in 2010. The increase in total cash cost per ounce quarter-over-quarter was primarily due to higher employee profit sharing, higher treatment costs, and lower lead and zinc



by-product credits by $1.82, $0.72, and $1.06 per ounce, respectively, which were partially offset by lower production costs of $1.12 per ounce. Higher profit sharing and treatment costs were due to higher metals prices and lower by-product credits as the result of lower lead and zinc production.

231. Also on November 8, 2011, the Company filed a Form 10-Q with the SEC for the

3Q 2011. In it, Hecla reported that "[t]he $15.0 million and $37.0 million increases in gross

profit for the third quarter and first nine months of 2011, respectively, compared to the same

periods in 2010 resulted primarily from significantly higher silver, lead and zinc prices and

improved silver ore grades incidental to the phasing of work places." The Company further

reported:

The following factors led to the improved results for the third quarter and first nine months of 2011 compared to the same periods in 2010:

• Increased gross profit at our Greens Creek unit by $58.1 million for the nine-month period ended September 30, 2011, and at our Lucky Friday unit by $15.0 million and $37.0 million, respectively, for the third quarter and first nine months of 2011. However, gross profit at Greens Creek decreased by $1.7 million in the third quarter of 2011 compared to the same period in 2010. See The Greens Creek Segment and The Lucky Friday Segment sections below.

• Increased average prices for silver, gold, zinc and lead for the 2011 periods, as illustrated by the following table:

* * *

The $15.0 million and $37.0 million increases in gross profit for the third quarter and first nine months of 2011, respectively, compared to the same periods in 2010 resulted primarily from significantly higher silver, lead and zinc prices and improved silver ore grades incidental to the phasing of work places. Cost of sales and other direct production costs increased by 17% and 19% in the third quarter and first nine months of 2011, respectively, compared to the same periods in 2010 due primarily to increases in employee profit sharing and taxes, due to increased profitability.

* * *

Mining and milling costs per ton increased by 7% and 11%, respectively, in the third quarter of 2011 and 9% and 10%, respectively, in the first nine months of 2011 compared to the same periods in 2010 primarily due to increased costs of



fuel, consumable underground materials, reagents, power, and maintenance supplies.

The $2.56 increase in total cash costs per silver ounce for the third quarter of 2011 compared to the same period in 2010 is due primarily to higher profit sharing and other costs by $1.82 per ounce, higher treatment and freight costs by $0.72 per ounce, and lower lead and zinc by-product credits by $1.06 per ounce. The lower by-product credits are due to reduced production of those metals. These factors were partially offset by lower production costs of $1.12 per ounce. Cash costs per silver ounce increased by $2.15 for the nine-month period ended September 30, 2011 compared to the same 2010 period primarily because of higher employee profit sharing and other costs, treatment and freight, and production costs of $2.05, $1.53 and $0.05, respectively. This was partially offset by higher lead and zinc by-product credits of $1.51 per ounce from increased prices from those metals.

The difference between what we report as "production" and "payable metal quantities sold" is due essentially to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually payable by our smelter customers according to the terms of the smelter contracts. The decrease in payable quantities sold for nine-month period ended September 30, 2011 compared to the same period in 2010 is attributable to the decrease in production due to a 10-day shut-down of operations in April at Lucky Friday as the result of an accident.

232. The statements in ¶J230-31, above, were false and misleading because the

Company failed to inform investors that its financial results and future growth projections had

been achieved in part, and were based in part, on a policy of non-compliance with applicable

safety regulations. Consequently, the statements in ¶J 230-31 were false and misleading for the

same reasons discussed in ¶ 186, above.

233. The Company once again addressed the effect of the April 2011 fatality as

follows:

[T]n April 2011, a fatal accident occurred at the Lucky Friday Mine which was investigated by Hecla and the Mine Safety Health Administration ("MSHA"). As a result of the MSHA investigation (the results of which have not yet been provided to us as of the date of this report), Hecla Limited may be issued enforcement actions as well as penalties (including monetary) from MSHA or other governmental agencies. Although there can be no assurance as to the ultimate disposition of these other matters, we believe the outcome of these other



proceedings will not have a material adverse effect on our results from operations or financial position.

234. The statement in ¶ 233, above, was false and misleading because the Company

lacked a reasonable basis for stating that the MSHA investigation would not have a materially

adverse effect on production or financial results. On the contrary, Hecla knew that once the

MSHA investigation was complete, the Company's safety violations would be uncovered and

would likely result in the shutdown of the Lucky Friday mine and stoppage of production

altogether, to the detriment of the Company's financial results.

235. Also on November 8, 2011, the Company held an earnings call with analysts.

During this call, Defendant Baker again noted the low costs of silver: "costs were $0.67 per

ounce, which remain among the lowest in the world." During the call, Defendant Baker also

stated:

Now for the third quarter results. In the press release, I said this was a unique quarter in Hecla's long history. First, financially it was an excellent quarter with solid financial and operating results. Sales were $121 million, and net income was a quarterly record. Silver production was as expected at 2.3 million ounces, and costs were $0.67 per ounce, which remain among the lowest in the world. And realized silver prices averaged $37 per ounce, so almost all of that was margin. Cash from operating activities was $61 million, increasing our cash position to a record $414 million.


failed to inform investors that the reason, in part, for its financial results and low production

costs had been achieved in part through non-compliance with applicable safety regulations.

Consequently, the statements in ¶ 235 were false and misleading for the same reasons discussed

in ¶ 186, above.

237. On November 16, 2011, Defendant Baker spoke at the Dahlman Rose Metals,

Mining & Materials Conference. During this conference, Defendant Baker stated that:



[W]e've been in the mining business for actually 120 years this year in fact, this past month. So, we've been running mines for that period of time and we understand the risks associated with those mines and let's say take risky business.

One of the things that characterizes Hecla is the risk profile of our assets are very different than rest of the folks and silver space and I think that will be evident at the end of the presentation. But I want you to keep that idea in mind is the difference between Hecla and its peers.

* * *

We are the largest U.S. producer of silver. We produce 9 to 10 million ounces a year that is roughly 25% of all the silver produced in U.S. We are a company with an extraordinarily low cost profile and we've been consistently with that cost profile. We have now in front of us growth that we'll increase our production by about 50% over the next five years.

We are a company with an extraordinarily low cost profile and we've been consistently [sic] with that cost profile.

* * *

We deliver value for shareholders by the cost structure that we had and on this slide it shows cost along the bottom, the silver bars that you see and you see that since 2006, our lowest cost here was 2007, where we had negative $2.81 cash cost a highest cost were $4.20 and our cash cost we would expect to be somewhere in between those two levels over time, over the next five years, for this year, our cash cost would be about a $1.

You can see the realized price of silver across the top that's what that line is $12.10 back in 2006, $37 today and you can see the margin has grown at the same rate that the price of silver has grown where we have margins there are three times what they were in 2006. This is a unique sort of cost structure and it's unique [in] how that cost structure has been able to be so consistent and stable. As a result of this cost structure, these are the source of cash growth from operations that we had over the last five quarters and what that has turned into and this goes back to the third quarter of 2009, it's free cash flow and that free cash flow has gone under the balance sheet. We picked Q3 '09 because the last financing we did was Q2 '09. So all of that growth that you're seeing in our cash on the balance sheet has come as a result of operating cash flow. Very little there has been some options that have been exercised, but very little is result of financing or selling assets.


failed to inform investors that Hecla's "extraordinarily low cost profile" had been achieved, and



the projections for 50% growth over the next five years were based, in part, on non-compliance

with applicable safety regulations. Consequently, the statements in ¶ 237 were false and

misleading for the same reasons discussed in ¶ 186, above.

239. On November 21, 2011, Hecla issued a press release entitled "Hecla Maintains

2011 Production and Cash Cost Guidance," which stated in part:

Hecla Mining Company ("Hecla") reports that the suspension of operation on November 18 at its Lucky Friday mine is not expected to impact the 2011 silver production guidance of 9 to 10 million ounces and cash cost of approximately $1.00 per ounce, net of by-products.

240. The statement in ¶ 239, above, was false and misleading because the Company

failed to inform investors that the Defendants knew that once the extent of the Company's non-

compliance with applicable safety regulations was uncovered by the MSHA investigation, Hecla

would face regulatory punishment, including the likelihood that the Lucky Friday mine would be

closed down, thereby negatively impacting silver production to the detriment of the Company's

financial results.

241. At the Wall Street Institutional Investor Conference on December 6, 2011, Ms.

Hennessey addressed the Company's financial results:

So, moving to our low cash cost. As you can see here, we have, if you look at the bottom of the chart, you will see the silver bars, that's the actual cash cost. And we go back to 2006 to really show you the consistency in our cash cost over the last while. And again this is net of by-product credit. Then the blue bar is our margin to the silver pricing. As you can see, we've achieved $36.35 in the third quarter.

And the gold bar that you see is the realized silver price for that given quarter. And so, if you think of us as a cash cost producer that ranges anywhere from negative $2 to plus $4. We wouldn't anticipate much change from that. And therefore, what this has done is that it really has enabled us to generate significant cash flow. And the reason why Igo back to the third quarter of 2010 in this slide is, because this is strictly cash flow from operating activity. So, this cash flow generation has, in the third quarter achieved 60.7 million. And really if you look back over the last two years, on average we generate free cash flow of



0.5 million a day. So, that's after CapEx, after exploration G&A, it's pure free cash flow.


failed to inform investors that Hecla's financial results had been achieved, and its projections

were based, in part, on non-compliance with applicable safety regulations. Consequently, the

statements in ¶ 241 were false and misleading for the same reasons discussed in ¶ 186, above.


stock price increased from a closing price of $5.98 per share on December 5, 2011 to a closing

price of $6.53 per share on December 6, 2011, an increase of $0.55 per share, or approximately

9.2%.

244. Had investors known that the Company was concealing widespread regulatory

and safety violations at its operations, the price of Hecla securities would not have risen as much,

if at all, on this news, as investors would have realized that: (i) the Company's per-ton costs of

production would need to increase significantly above historic levels to meet mine safety

standards and other regulatory requirements; and (ii) the Company's existing operations gave

rise to a heightened risk of regulatory fines, work stoppages, legal claims, and mine disasters that

would further jeopardize Hecla's financial condition and prospects for success.

245. On December 21, 2011, Hecla issued a press release entitled "Hecla Provides

Update on Lucky Friday and Announces Hecla's 2012 Production Estimate," which stated in

part:

Hecla Mining Company ("Hecla") reports that in order to ensure safe and efficient operations for its personnel, Hecla will develop a new haulage way to bypass the rock burst that occurred at the Lucky Friday mine near Mullan, Idaho, on December 14. Creating the bypass and reestablishing mine production is expected to be complete by the end of February 2012.

Hecla's silver output remains within its previous estimates with 2011 production expected at more than 9 million ounces and cash cost estimates remaining



unchanged at approximately $1.00 per ounce, net of by-products. For 2012, Hecla expects to increase silver production to more than 9.5 million ounces including the loss of two months of production at the Lucky Friday mine while the bypass is completed.

Phil Baker, Hecla's President and Chief Executive Officer said: "While 2011 has been a difficult year for Hecla and the Lucky Friday, the previous 25 years at the Lucky Friday have been characterized by an extraordinary safety record. Looking forward, our goal, which we will relentlessly pursue, is to reestablish the same safety and operating performance decades into the future. I am happy to report that everyone who was injured on December 14 has been released from the hospital and is on the road to recovery."

Hecla will not repair the area where the rock burst occurred. Instead, Hecla is planning a 750-foot bypass creating a new haulage way, which will be a significant distance from where the rock burst occurred and in a previously mined area reducing the risk of future rock bursts.

Hecla expects that a majority of Lucky Friday employees will stay at the mine to work on the bypass or other Lucky Friday projects. Any remaining qualified employees will be given the opportunity to work at Hecla's other properties.

Hecla closed the mine when the accident occurred on December 14 to ensure employee safety, investigate the accident, and evaluate alternative plans. Subsequently, the federal Mine Safety and Health Administration ("MSHA") issued an order closing the mine. Hecla is working with MSHA to finalize the investigation and lift the closure order to start the development of the new haulage way, resume construction of the #4 Shaft, and work on other maintenance projects.

246. The statements in ¶ 245, above, were false and misleading because the Defendants

did not have a reasonable basis for their claims that the Company could expect to see an increase

in silver production in 2012. On the contrary, the Defendants knew that once the extent of the

Hecla's non-compliance with applicable safety regulations was uncovered by MSHA, they

would face regulatory punishment, including the likelihood that the Lucky Friday mine would be

closed, and silver production would be halted.



D. Defendants' False Statements Concerning Risk Disclosures

247. In the Company's Form 10-K for 2010, filed on February 25, 2011; 1Q 2011

Form 10-Q, filed on May 9, 2011; and 2Q 2011 Form 10-Q, filed on August 9, 2011, Hecla

stated:

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

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. For example, in the second quarter of 2010, mining activities at the Lucky Friday mine stopped for approximately two weeks due to some deterioration of shaft infrastructure at the #2 Shaft, which is the mine's secondary escape way. That stoppage adversely impacted production in the second quarter of 2010. Upon completion of repairs to #2 Shaft, the mine returned to normal production.

248. The statements in ¶ 247, above, were materially false and misleading when made

because, as set forth in greater detail above, Hecla failed to acknowledge the rampant violations

of safety regulations and the deplorable condition of the Silver Shaft during the Class Period, the

consequences of which Defendants knew would, if discovered, lead to the closure of the Lucky

Friday and production stoppage.

E. SOX Certifications

249. In connection with the Forms 10-Q and 10-K filed with the SEC during the Class

Period, Defendants Baker and Sabala submitted false and misleading certifications pursuant to

the Sarbanes-Oxley Act ("SOX Certifications"). As an initial matter, the Individual Defendants

certified that "[t]he information contained in the report fairly presents, in all material respects,

the financial condition and results of operations of Hecla." These SOX Certifications further

stated that:



1. I have reviewed this [quarterly/annual] report on Form [10-Qu0-K] of Hecla;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected,



or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

250. The SOX Certifications identified in ¶ 249, above, were materially false and

misleading because Defendants Baker and Sabala were at that time aware of and/or recklessly

disregarded material weaknesses in Hecla's system of internal controls that were not disclosed to

the investing public.

VII. THE DEFENDANTS' CLASS PERIOD STATEMENTS VIOLATED GAAP

A. Hecla Failed to Disclose Contingent Liabilities and Significant Risks

251. Throughout the Class Period, the Defendants knew or recklessly disregarded that

Hecla's financial statements failed to disclose in conformity with GAAP the Company's

contingent liabilities and significant risks.

252. GAAP is recognized by the SEC as the uniform rules, conventions, and

procedures necessary to define accepted accounting practice at a particular time. SEC

Regulation S-X requires that publically traded companies present their annual financial

statements in accordance with GAAP. 17 C.F.R. § 210.4-01(a)(1). SEC Regulation S-X

requires that interim financial statements also comply with GAAP, with the general exception

that interim financial statements may omit disclosures which would substantially duplicate those


Case 2:12cv00042-BLW Document 85 Filed l-0/16/12 Page 100 of 129

disclosures that accompany the annual financial statements. 17 C.F.R. §210.10.01(a).

However, GAAP considers certain company disclosures (e.g., loss contingencies) to be so

important to an informed investment decision that they may not be omitted from interim

financial statements even if included in annual financial statements. Article 10-01 of SEC

Regulation S-X provides that disclosures in interim period financial statements may be

abbreviated and need not duplicate the disclosure contained in the most recent audited financial

statements, except that "where material contingencies exist, disclosure of such matters shall be

provided even though a significant change since year end may not have occurred" Id.

253. GAAP requires that financial statements disclose contingencies when there is a

reasonable possibility (i.e., more than remote but less than likely) that a loss may have been

incurred. ASC 450-20-50-3. The disclosure shall indicate the nature of the contingency and

shall give an estimate of the possible loss, a range of loss, or state that such an estimate cannot be

made. ASC 450-20-50-4.

254. In addition, GAAP requires that financial statements disclose significant risks and

uncertainties associated with an entity's business. See Risks and Uncertainties, ASC 275-10-05-

1.

255. In violation of GAAP, Hecla's Class Period financial statements failed to disclose

that it engaged in certain practices by failing to comply with mandatory MHSA regulations

exposing it to certain contingent liabilities and significant risks.

256. In violation of GAAP, Hecla failed to disclose the existence of these practices or

the potential adverse consequences ensuing from such practices, including (i) citations; (ii)

potential fines; and (iii) potentially more severe consequences, identified herein at ¶J 54-55, 63-

64, 69-70, 75-77, 81, 83-99, 102-112, 114-118.


Case 2:12cv00042BLW Document 85 Filed 10/16/12 Page 101 of 129

B. Hecla Failed to Disclose Known Trends or Uncertainties in Violation of SEC Regulations

257. The Defendants knew or should have known when Hecla filed SEC Forms 10-K

and 10-Q during the Class Period that the Company's financial statements without explanation

were materially misleading, and that known trends and uncertainties related to its Lucky Friday

mine would reasonably be expected to have a material adverse impact on Hecla's financial

condition.

258. Item 7 of SEC Form 10-K and Item 2 of SEC Form 10-Q, Management's

Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") require

the issuer to furnish information required by Item 303 of Regulation S-K. 17 C.F.R. 229.303. In

discussing results of operations, Item 303 of Regulation S-K requires the registrant to:

[D]escribe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.

259. The instructions to paragraph 303(a) further state:

The discussion and analysis shall focus specifically on material events and uncertainties known to management that would cause reported financial information not to be necessarily indicative of future operating results . .

260. Thus, Item 303(a) requires additional disclosures when reported financial

information is not indicative of future operating results or financial condition or when required to

make the financial information as presented not misleading.

261. In addition, the SEC, in its May 18, 1989 Interpretive Release No. 34-2683 1, has

indicated that registrants should employ the following two-step analysis in determining when a

known trend or uncertainty is required to be included in the MD&A disclosure pursuant to Item

303 of Regulation S-K:


Case 2:12cv00042-BLW Document 85 Filed 10/16/12 Page 102 of 129

A disclosure duty exists where a trend, demand, commitment, event or uncertainty is both presently known to management and is reasonably likely to have a material effect on the registrant's financial condition or results of operations.

262. Nonetheless, SEC Forms 10-K and 10-Q issued by Hecla during the Class Period

failed to disclose that the Company's pattern of aggressive mining, identified herein at ¶J 52-53,

55, 64, 75-77, 79-82, 83-99, 101-12, 114-18, for the purpose of inflating Hecla's operating

results, including its failure to design, install, and maintain adequate support systems, perform

routine maintenance and inspections, and offer adequate safety training, were all reasonably

likely to have a material adverse effect on Hecla's operating results. Such disclosure was

necessary for a proper understanding and evaluation of the Company's operating performance

and an informed investment decision.

263. As a result, the Company used improper accounting practices in violation of

GAAP and SEC reporting requirements to falsely inflate and report revenues and earnings in the

interim quarters and fiscal years.

264. During the Class Period, as detailed herein, the Defendants made false and

misleading statements and engaged in a scheme to deceive the market and a course of conduct

that artificially inflated the price of Hecla securities and operated as a fraud or deceit on Class

Period purchasers of Hecla securities by misrepresenting the Company's business and prospects.

Later, when the Defendants' prior misrepresentations and fraudulent conduct became apparent to

the market, the price of Hecla securities fell precipitously, as the prior artificial inflation came

out of the price over time. As a result of their purchases of Hecla securities during the Class

Period, Plaintiffs and other members of the Class suffered economic loss, i.e., damages, under

the federal securities laws.



VIII. POST-CLASS PERIOD DISCLOSURES

265. On January 25, 2012, MSHA issued a press release entitled "MSHA announces

results of December impact inspections." The press release reported that:

MSHA conducted an impact inspection Dec. 16-23 at Hecla Limited's Lucky Friday Mine in Shoshone County, Idaho. Inspectors issued 59 citations and 15 orders to Hecla Ltd and 22 citations to Cementation USA Inc, an independent contractor.

Among the violations cited was a repeated failure to maintain established ground support systems throughout the mine. In addition, ground support fixtures in several areas had not been installed or torqued properly; shafts had not been systematically inspected, tested and maintained, and steel structures in the shaft were not kept clean of hazardous materials; multiple areas of the mine had not been provided with two separate escapeways; explosives magazines had not been constructed and located to protect miners from the risk of unintended explosions; underground shop doors were improperly constructed to ensure fire protection; elevated walkways in multiple areas were not provided with substantially constructed handrails; and travel areas were not kept clean and orderly, resulting in slip, trip and fall hazards.

Two miners died at Lucky Friday Mine in 2011. In December, seven miners were trapped underground when a roof fall occurred, three of whom required hospitalization.

266. MHSA also issued a report in connection with its investigation of the death of

Larry Marek on April 15, 2011. The report highlighted that Hecla compromised safety in order

removed to extract ore. In pertinent part, the report stated as follows:

A substantial quantity of material (measuring approximately 25 feet in width, 74 feet in length, and 25 feet in height) fell 10 feet from the stope back after portions of a supporting pillar were removed to extract ore. Ground support was necessary in the stope to mine safely but the ground support utilized was not adequate. The ground control was not designed, installed and/ or maintained in a manner that was capable of supporting the ground in such a wide stope when the support pillar was removed. Mine management has engaged in aggravated conduct constituting more than ordinary negligence by directing the pillar to be mined as the stope advanced and allowing miners to work under inadequately supported ground This is an unwarrantable failure to comply with a mandatory standard.

* * *



Management failed to adequately examine and test the ground conditions to determine if additional measures needed to be taken. This was necessary due to constantly changing ground conditions; they were mining a wide stope and removing the support pillar. The operator has engaged in aggravated conduct constituting more than ordinary negligence, as they needed to make examinations and conduct tests to ensure that all feasible precautions were taken. This is an unwarrantable failure to comply with a mandatory standard

267. The report concluded with the following damning assessment:

The accident occurred because management did not have policies and procedures that provided for the safe mining of split stopes in a multi-vein deposit. Management failed to design, install, and maintain a support system to control the ground in places where miners worked and traveled Additionally, management failed to ensure that appropriate supervisors or other designated persons examined or tested the ground conditions where th efall occurred

268. Hecla's failure to comply with mandatory MHSA standards had a material,

adverse effect on the Company's operating results. For example, on February 21, 2012, when

Hecla released a press release, incorporated into a Form 8-K that same day, detailing its results

for the year ended December 31, 2011, Defendants disclosed, in pertinent part, the following:

Silver production at Lucky Friday was 3.0 million ounces for the year and .5 million ounces in the fourth quarter, compared to 3.4 million ounces and .8 million ounces in the respective periods in 2010. The overall decrease in production was primarily due to lower ore throughput resulting from the interruptions to operations during 2011.

Total cash cost per ounce of silver produced at Lucky Friday was $6.47 and $9.68, net of by-product credits, for the full year and fourth quarter, respectively, compared to $3.76 and $4.06, for the same periods in 2010.

* * *

In the fourth quarter, interruptions in mine operations adversely affected cost per ounce due to the inefficiencies of startup and shutdown cycles. As a result, production costs per ounce were higher by $1.24 than in the fourth quarter of 2010.

269. On April 9, 2012, Hecla held a conference call to discuss the Temporary Care and

Maintenance at Lucky Friday Mine. During the call, Defendant Baker made the following

statements regarding the cleanup at the mine:


Case 2:12cv00042-BLW Document 85 Filed l-0/16/12 Page 105 of 129

This silver shaft is divided into two compartments; the east compartment has two conveyances in it for men and materials and for rock. The west compartment is essentially unused and has been for the past 30 years. Also, within the shaft is, power lines, vent lines, sand lines. The sand lines are a tailings-concrete mix of material that goes back into the mine and acts as the backfill.

Occasionally, these sand lines over the past 30 years have leaked— have leaks in them, depositing cement-like material on the walls of the shaft in various lines.

* * *

MSHA, they've come in and done a thorough investigation and inspection of the whole operation, including the silver shaft. And so they issued a - what is called a citation, saying that we needed to clean the loose material, which we cleaned the material, but when they came back in, they concluded that the material needed to be cleanedfurther and we had not met the time constraint that they had given us, which was 10 days. And so under the order that they issued, we are not able to use the shaft for anything other than the cleaning of it.

Now, we believe that there's no hazards to miners in the conveyance and any hazards to the miners on the work deck that's used to inspect and repair and maintain the shafts are mitigated. But MSHA 's belief is that the shaft needs to be cleaned down from the surface to the bottom as the best way to mitigate any hazards that would exist in the shaft.

270. On May 8, 2012, the Company filed a Form 10-Q in which it announced its Qi

2012 results. In connection with Lucky Friday mine, Hecla disclosed, in pertinent part, the

following:

At the Lucky Friday mine, the $19.9 million decrease in gross profit in the first quarter compared to the same period in 2011 resulted from the temporary suspension of production at the mine during the 2012 period. The mine's Silver Shaft is undergoing rehabilitation and extensive improvements, with operations and silver production expected to resume as planned in early 2013.

* * *

Care and maintenance costs incurred at the Lucky Friday totaled $6.2 million for the first quarter of 2012.

271. In connection with the Lucky Friday mine, the Company's Qi Form 10-Q,

disclosed, in pertinent part, the following:



We expect to incur non-capitalized expenses of approximately $17.5 million for the care and maintenance of the mine, based on the assumption that the mine will be on standby for the remainder of 2012 as this work is completed.

272. Along with increased costs related to care and maintenance, Hecla was also

adversely and materially impacted in its ability to generate cash flows from operations. For

example, during the first quarter of 2012 cash provided from operations decreased by $19.5

million, or 32 percent, compared to the same period in 2011, as a result of lower income. The

Company's Qi Form 10-Q stated that the reason for the decrease was due to "suspension of

production at the Lucky Friday mine during the 2012 period while rehabilitation work on the

Silver Shaft is being performed ....

273. On August 7, 2012, Hecla filed its Q2 2012 Form 10-Q. In connection with the

Lucky Friday mine, the Company's Form 10-Q for the second quarter 2012, disclosed, in

pertinent part, the following:

The $20.8 million and $40.7 million decreases in gross profit for the second quarter and first six months of 2012 compared to the same periods in 2011 resulted from the suspension of production at the Lucky Friday mine during 2012.

274. The Company also disclosed in the 2Q 2012 Form 10-Q that it had incurred a

total of $12.6 million of care and maintenance costs during the suspension of production. The

Form 10-Q also disclosed the following anticipated costs, including, but not limited to, "$26

million to remove loose cementitious material from the shaft and other shaft improvements and

$24 million on other capital projects" and "non-capitalized expenses of approximately $26

million for the care and maintenance of the mine." The more significant impact to Hecla, and

which Hecla touted throughout the Class Period, was its ability to generate cash from operations.

As a result of the temporary closure of the Lucky Friday mine, cash generation was materially

and adversely impacted. For example, during the first half of 2012 cash provided by operating

activities decreased by $96.0 million, or 75.5%, compared to the same period in 2011, as a result



of lower income. The Company explained in the Form 10-Q that the lower income was

"primarily attributable to the suspension of production at the Lucky Friday mine during the 2012

period while rehabilitation work on the Silver Shaft is being performed ....

IX. ADDITIONAL ALLEGATIONS REGARDING SCIENTER AND FRAUDULENT INTENT

275. As Hecla's most senior executives, the Individual Defendants were active,

culpable, and primary participants in the fraud, as evidenced by their knowing issuance and

control over the Company's materially false and misleading statements. The ongoing fraudulent

scheme described herein could not have been perpetrated over the Class Period without the

knowledge, complicity, and/or acquiescence of personnel at the highest level of the Company,

including Defendants Baker and Sabala. Baker, serving as CEO, President, a director, Chair of

the Executive Committee, and former CEO and CFO, was well aware of the amount of money

spent on maintenance and safety at Lucky Friday, an amount that was not disclosed to investors.

Sabala, as CFO, certainly was as well. Both men have long histories in the mining industry and

are very familiar with the costs incurred to adequately maintain and safely run a metal mine.

A. Defendants' Motive to Keep Costs Artificially Low and Expand Production With Inadequately Maintained Infrastructure

276. Throughout the Class Period, Defendants sought to pump up the Company's share

price to overcome the effect of Hecla's massive environmental liabilities associated with two-

decade old claims stemming from releases of wastes from its mining operations at the Bunker

Hill Mining and Metallurgical Complex Superfund Site in northern Idaho. 9 A J.P. Morgan

analyst stated that the environmental litigation "has effectively been a poison pill limiting the

On June 13, 2011, the Company settled this litigation with the United States, the Coeur d'Alene Tribe, and the state of Idaho for $263.4 million plus interest over a three-year period, with an initial payment of $167 million.



company's corporate options for many years." Consequently, in order to counteract the costs

associated with the environmental litigation, Defendants drove production while cutting corners

on safety and maintenance to keep costs-per-ounce artificially low and developed low-cost

expansion plans utilizing what poorly maintained infrastructure already existed. Defendants

even came up with what some analysts called a "very creative" dividend approach that took

advantage of the Company's understated costs to lure investors and prop up the Company's

flagging share price.

277. In a November 17, 2012 appearance on Fox Business news still featured on

Hecla's website, Defendant Baker discussed these topics at length on the day before the record

date for this new creative dividend:

Host: Last week Hecla Mining said its third quarter net income soared nearly 200%. Ok, can the company which also mines silver and lead, can they fend off the competition? Joining us now in a Fox Business exclusive is Phillips Baker. He is Hecla's CEO and President. Good to have you here.

CEO Baker: Great to be here.

* * *

Host: The stock itself is down about 24% year over year but yet . . . uh . . . you know, Coeur d'Alene, one of your competitors is moving higher. To what do you attribute something like that? Do people not get your story or were you hit by other things that we should know about?

CEO Baker: Um . . . there was an event that occurred that we put behind us. We've had litigation with.

Host: Right.

CEO Baker: the federal government for 20 years.

Host: Environmental litigation.

CEO Baker: Environmental litigation. Not anything that we did wrong. The way the legislation works is you can do everything right and . . . but if there's pollution that needs to be dealt with, you're liable for it.

Host: Well . . . well ...



CEO Baker: So we settled that litigation and that's now all behind us.

* * *

CEO Baker: [S]o we've . . . we've settled that litigation. We ended up having a hit to our stock as a result of that. We expected that and now the stock should be coming back.

Host: Let's talk about where you're expanding. You've got a Lucky Friday mine in Idaho but you're also expanding in Mexico. That's going to be further on down the line. But what's going to be your big money-making driver for this company in the next year?

Baker: Well, look, the big money-making driver for this company is the low costs that we already have Our cost ofproduction is roughly $1 per ounce So with this $30, $40 price of silver, we're generating $30 to $40 worth of margin. We're generating free cash flow and have consistently for the last two years. In

fad. . . uh . . . it was about $350 million offree cash flow over the last two years.

Host: Do you expect to do further expansion? We're looking at the two big mines you have here. You've got the one in Mexico that you're working on. I don't know. People look at you and say, "oh, you're a silver miner." They don't realize the capital expenditure that you have to put in to just dig into the ground before you even find anything.

Baker: Yeah. . . yes, we have really four initiatives. First is the Lucky Friday mine and that's that deepening of that mine that's been operating since 1942.

Host: And there's still more silver coming out of there?

Baker: Ah . . . There's still . . . look, we have more silver in front of us than we've mined in the past.

Host: How deep do you have to go down for it?

Baker: Well, we're currently a mile underground and we're putting a new shaft that will take us to about a mile and three-quarters.

* * *

Host: I want to get to your dividend You've done something. . . what some analysts feel is very creative. You've linked your dividend to the price of silver. At what price am I in the money and at what level price does the dividend price go down to zero?

CEO Baker: At this point, we. . . we, the dividend is initiated at $30 silver. Our realized price of $30 for the third quarter our realized price was $37.



Host: So you're kicking in about what? . . . 1.2% for a dividend at this point?

CEO Baker: At this point it's about one and a quarter.

Host: Okay.

CEO Baker: Urn . . . we're . . . so we're going to pay two cents in fact. The dividend record date is tomorrow. Ah... we'll pay two cents. This is the start of what we hope will be years of dividend payouts. Cause we have. . . we have that sort of margin that allows us to do that

B. Dodd-Frank Certifications

278. Throughout the Class Period, the Defendants certified that Hecla is a heavily

regulated industry: "Our mines are operated subject to the regulation of [MSHA], under the

[Mine Act]."

279. The Dodd-Frank Wall Street Reform and Consumer Protection Act became

effective on August 20, 2010, and it required Defendants to certify the number of violations,

orders, and citations in Forms 10-Qs and 10-Ks as specified in Section 1503:

SEC. 1503. REPORTING REQUIREMENTS REGARDING COAL OR OTHER MINE SAFETY.

(a) REPORTING MINE SAFETY INFORMATION. —Each issuer that is required to file reports pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o) and that is an operator, or that has a subsidiary that is an operator, of a coal or other mine shall include, in each periodic report filed with the Commission under the securities laws on or after the date of enactment of this Act, the following information for the time period covered by such report:

(1) For each coal or other mine of which the issuer or a subsidiary of the issuer is an operator—

(A) the total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Federal Mine Safety and Health Act of 1977 (30 U.S.C. 814) for which the operator received a citation from the Mine Safety and Health Administration;

(B) the total number of orders issued under section 104(b) of such Act (30 U.S.C. 814(b));



(C) the total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section 104(d) of such Act (30 U.S.C. 814(d));

(D) the total number of flagrant violations under section 110(b)(2) of such Act (30 U.S.C. 820(b)(2));

(E) the total number of imminent danger orders issued under section 107(a) of such Act (30 U.S.0 817(a));

(F) the total dollar value of proposed assessments from the Mine Safety and Health Administration under such Act (30 U.S.C. 801 et seq.); and

(0) the total number of mining-related fatalities.

(2) A list of such coal or other mines, of which the issuer or a subsidiary of the issuer is an operator, that receive written notice from the Mine Safety and Health Administration of—

(A) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under section 104(e) of such Act (30 U.S.C. 814(e)); or

(B) the potential to have such a pattern.

(3) Any pending legal action before the Federal Mine Safety and Health Review Commission involving such coal or other mine.

(b) REPORTING SHUTDOWNS AND PATTERNS OF VIOLATIONS.—Beginning on and after the date of enactment of this Act, each issuer that is an operator, or that has a subsidiary that is an operator, of a coal or other mine shall file a current report with the Commission on Form 8-K (or any successor form) disclosing the following regarding each coal or other mine of which the issues or subsidiary is an operator:

(1) The receipt of an imminent danger order issued under section 107(a) of the Federal Mine Safety and Health Act of 1977 (30 U.S.C. 817(a)).

(2) The receipt of written notice from the Mine Safety and Health Administration that the coal or other mine has—

(A) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and



substantially contributed to the cause and effect of coal or other mine health or safety hazards under section 104(e) of such Act (30 U.S.C. 814(e)); or

(B) the potential to have such a pattern.

280. In Hecla's 2010 Form 10-K filed with the SEC on February 25, 2011, Defendants

Baker and sabala certified that M5HA had issued the Lucky Friday mine nine citations pursuant

to Section 104 of the Mine Act for violations of mandatory health or safety standards that could

significantly and substantially contribute to a mine safety or health hazard, so-called 5&5

violations. According to the Form 10-Q that Defendants certified and filed with the SEC on May

9, 2011, for the first quarter of 2011, Lucky Friday received another such citation.

281. Then, in the second quarter of 2011, Defendants certified in a Form 10-Q filed on

August 9, 2011, that Lucky Friday had received "twenty-seven (2 7) such citations" during that

quarter alone— three times the number of citations they certified that Lucky Friday had

received during all of 2011. And in the third quarter of 2011, according to Defendants, Lucky

Friday received another "seven (7) such citations" for 5&5 violations. As Defendants certified,

within a six month period in 2011, Hecla's flagship mine had received nearly four times the

number of 5&5 citations it had received during all of 2010.

282. By the end of 2011, according to the Form 10-K certified by Defendants and filed

with the SEC on February 22, 2012, Hecla's flagship mine had received "67 such citations" -

nine-and-a-half times the S&S citations it received during the same period in 2010 (according

to Defendants' previous filings). Defendants also certified in this filing that Lucky Friday had

received 20 so-called "withdrawal" or "failure-to-abate" orders under Section 104(b)- issued

when the mine operator fails to abate the conditions identified in a Section 104(a) citation within

the time period set by the inspector. According to Defendants, Lucky Friday had received no

such orders during all of 2010.


Case 2:12cv00042-BLW Document 85 FãHecl 10/16/12 Page 113 of 129

283. Having certified the accuracy of this data to shareholders in Forms 10-Q and 10-

K, Defendants cannot now claim ignorance of these red flags showing sharply escalating, serious

violations of mine safety laws at the Company's flagship mine less than 60 miles away from

their offices. The nature and the severity of the citations and orders was apparent to Defendants

but not investors, who did not have access to the data available to Defendants regarding the

violations, the expenditures on safety and mine maintenance, the nature and extent of mine plans,

risk assessments, and similar information for the Lucky Friday mine.

284. Moreover, just as the Defendants were forced to publish this data in SEC filings,

they also sought to assuage investors by publishing the Company's first Corporate Social

Responsibility report, in which they stated that they track safety data, and presented materially

misstated lost-time injuries for 2009 and 2010 and corresponding lost-time injury rates as "Hecla

Safety Performance" to represent that they were on a path to success and that "Hecla tracks a

variety of safety performance indicators: injuries, near misses, and equipment damage."

285. The same impression was further represented by Defendants' repeatedly assuring

investors that "Health & Safety is a top priority - every employee should go home to their

families safe and healthy," that, in the words of Defendant Baker, "[nothing is more important

to us than safety," and that "[safety of employees always comes first." With regard to safety

monitoring and accident prevention, Defendants further assured that "[a]ll accidents/injuries can

be prevented," that "[working safely is a condition of employment" at Hecla, that "[a]ll

operating exposures can be safeguarded," and that "[s]mall accidents can lead up to larger ones;

[Hecla] must continuously focus on safety as work expands" (Presentation at the Annual

Meeting of Shareholders 2010 on May 5, 2010):


k I s

I :4

.1: .:

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Case 2:12cv00042-BLW Document 85 Filed I-0/16/12 Page 114 of 129

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C. Defendants' Statements About L

and the Silver Shaft

286. As noted by Defendant Baker in a November 8, 2011 conference call with

investors, it is "very unusual in the precious metals industry to have a mine life that's measured

in decades." It is particularly unusual when the mine operates for 25 years with minimal capital

investment. In a November 21, 2007 conference call with investors, Defendant Baker

characterized the state of the Lucky Friday mine as follows:

This is a mine whose last major capital influx was in 1982 when the mile deep Silver Shaft was built. Since then, the Lucky Friday has operated in what I would call a depression for the silver price for the last 20 years. Only minimal capital investment was made in the mine. Now, we are talking about what can this mine do if we make 150-200 million capital investment?

287. Having neglected Lucky Friday for 25 years, with that announcement the

Company embarked on a plan to evaluate Lucky Friday, the Silver Shaft, and other infrastructure



as part of comprehensive pre-feasibility studies, characterized by the Company's 2007 Annual

Report:

Given the vast resource and future potential at Lucky Friday, a pre-feasibility study is underway to outline how Hecla could increase annual production, decrease production costs, and increase the minable resource. The study, expected to be completed in late 2008, is examining the viability of a new or expanded mill and a new surface shaft to the existing levels. Meanwhile, because we know mineralization continues much deeper than where we're currently mining, engineering studies are underway to determine whether an underground shaft, or winze, is viable to access the ore we've already identified down to the 6,400-foot level, putting ourselves in position to mine down to the 8,000-foot level.

288. As explained by that report, the proposed $150-200 million investment in Lucky

Friday would represent three to four times the Company's entire net income for that year ($53

million).

289. Over the course of more than two years, the Company would spend $15 million

evaluating Lucky Friday, the Silver Shaft, a potential additional shaft from the surface, and an

internal shaft (or winze) in an effort to lengthen the life of the mine and increase production.

Defendant Baker characterized this comprehensive evaluation as follows in a conference call

with investors and analysts on April 28, 2010:

And we also engineered a number of options new shaft from surface extending the existing Silver Shaft, ramping down from the silver shaft, and an internal shaft, and considered lots of permutations of those options. After a hiatus in 2008 and early 2009, we concluded that the internal shaft was the right approach and started moving forward, buying long lead time gear, beginning basic excavation, and engineering the scope and schedule. To date, we've spent about $15 million on a project that we expect to cost between $150 million and $200 million and take about five years to complete. We are still evaluating and engineering various aspects of the project such as refrigeration and what the ultimate depth will be.

290. By deciding to forego the option of building a new shaft from the surface, the

Defendants doubled down on their bet that the existing infrastructure, particularly the Silver

Shaft, could continue in operation and handle a substantial increase in production. Because the


Case 2:12cv00042-BLW Document 85 Filed I-0/16/12 Page 116 of 129

Mine Act requires Lucky Friday to have two operational escape ways from the deepest level of

the mine, the decision to continue to rely on the #2 Shaft and the Silver Shaft to provide access

for the mine meant that both needed to remain in good working order for production to be

maintained and for the construction of the #4 Shaft. As Defendants well understood and

represented to investors that they understood, the continuing operation of the Silver Shaft would

be essential to Lucky Friday's production and their strategy for growth.

291. A failure of the Silver Shaft could be severe. Beginning with the Form 10-Q for

the first quarter of 2010 (filed with the SEC on the same day as the conference call, April 28,

2010), the Defendants' public filings demonstrated their understanding of the crucial importance

of the Silver Shaft's continuing operation based on the decision following the engineering

evaluation to sink an internal shaft without adding another surface shaft:

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 construction activities for an internal shaft at Lucky Friday. If construction of the shaft is undertaken, 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.

292. According to Defendant Baker, as explained during a July 28, 2010 conference

call, the evaluation that went into the plan for an internal shaft was thorough, as was the analysis

of alternatives, which included a shaft from the surface that would have decreased the risks of

relying on the Silver Shaft and the #2 Shaft for mine ingress and egress. As Baker conceded,

ultimately, the decision came down to cost, not safety:



Analyst: With regard to Lucky Friday, would you go a little further into what the rationale was for deciding on an internal shaft as opposed to other alternatives?

CEO Baker: Sure, Anthony. We spent some time looking at a number of different alternatives. I don't remember the number it was, but it was double digit. And ultimately the conclusion was you have an ore body that goes quite deep and by having this internal shaft, we can get to it quicker than we would be able to with some sort of ramping system and we can go deeper with that system. I mean we ultimately think we might need to be in a position to go as deep as 10,000 feet, where we're contemplating at this point first phase of this shaft going to 8800. But we certainly see that there's no reason this ore body won't continue deeper than that and so we want to be in position to go deeper.

Analyst: Right. And I would also presume it would probably be less expensive than having an entirely new shaft from the surface?

CEO Baker: Yes, we did consider a new shaft from the surface and that would be quite costly.

293. During the second quarter of 2010, shaft maintenance issues with the #2 Shaft

caused a shutdown of Lucky Friday for two weeks, which significantly affected the Company's

overall production and served as a red flag to Defendants. As explained in the Form 10-Q for

that quarter, "a stoppage of mining activities for approximately two weeks in the second quarter

of 2010 for repairs in a shaft designated as a secondary escape way adversely impacted

production." During a July 28, 2010 conference call with investors and analysts, Defendant

Baker described this failure as follows:

But during the quarter, we had a failure in the exhaust shaft and secondary escape-way that required extensive rehabilitation, shutting down the mine for a few weeks. Our team managed to get the rehab done and accelerate the preventative maintenance, so it had no impact on our production guidance and only slight impact on costs.

294. Defendants mentioned this incident in particular in acknowledging via certified

Forms 10-Q and 10-K from February 25, 2011, that a failure to maintain either the #2 Shaft or

the Silver Shaft represented significant risk to the Company's performance and its $200 million



5-plus-year expansion plans as demonstrated by the #2 Shaft incident in the second quarter of

2010:

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 Form 10-K ore that are less economic than anticipated; or our equipment or facilities fail to operate properly or as expected. For example, in the second quarter of 2010, mining activities at the Lucky Friday mine stopped for approximately two weeks due to some deterioration of shaft infrastructure at the #2 Shaft, which is the mine's secondary escape way. That stoppage adversely impacted production in the second quarter of 2010. Upon completion of repairs to #2 Shaft, the mine returned to normal production.

295. At the beginning of the Class Period, Defendants assured investors that the Silver

Shaft was up to the task of handling continued production and construction activities for the #4

Shaft. As Defendant Baker demonstrated on a October 27, 2010 call with analysts and investors,

he had access to engineers on his staff who with intimate knowledge of all aspects of the Silver

Shaft, including George Sturgis, Vice President - Project Development, who was in charge of

engineering and sinking the #4 Shaft and who had worked for Hecla for over 30 years and helped

develop the Silver Shaft, and Mike Vector, Vice President and General Manager at the Lucky

Friday Operation for the past decade. To demonstrate his personal knowledge of the intimate

workings of the Silver Shaft and the #4 Shaft's construction, Defendant Baker stated as follows:

Melanie introduced Mike and George and have asked them to join us today because Mike has been the GM at the Lucky Friday for the past decade which has been a period of intense change. I think that he now has this operation prepared for the next change that will come as a result of the development of the #4 Shaft.

And George has been working on shafts and other major construction projects for the past 30 years, including the development of the Silver Shaft. If you go to slide 19 you will see that Silver Shaft in the picture. It is the green line that is on the left hand side of that picture. I'm going to talk more about the picture in a moment, but first, we are just very excited about this project and its economics. We issue[] a press release Monday providing some specifics of the project's very strong economics. Using a relatively low price deck of $15 silver and $0.80 of lead/zinc, the internal rate of return pre-tax is 20%. if you consider the $50



million of sunk costs, the IRR is still 15%. And because the operating costs are so low, even at $11 silver it generates an 11% return. The returns are strong because silver production increases 50% from 3 million to S million ounces.

The capital expenditure[] for the project is going to be between $150 million and $200 million. And $50 million will already be spent by yearend. Now we have approached this project incrementally for a number of reasons including the need to engineer and organize the building and the infrastructure of a new mine inside one that is operating at full capacity. We wanted to methodically build and test the process for dealing with the additional men, materials and waste rock that has to go to the surface through that Silver Shaft.

So that line that you see to the left in that picture, everything has to go up and down via that shaft. And of course we are operating at full capacity. And after working the better part of a year, we think George, Mike and their teams have a firm handle on it and have substantially reduced the risks of either production interruptions or slowdown of construction.

* * *

Finally, I expect the Board approval no later than mid-2011 but the project in the meantime will be moving ahead incrementally. We know the economics support the project and the work we are doing is substantially reducing the project risks and think I ultimately will result in a better facility that maximizes the ore body by going as deep as possible without impacting production.

* * *

Analyst: Okay, and you are at about 3 million ounces now and you said you are going to do what you can to make sure that existing production would not be impacted by loss of efficiency and productivity?

CEO Baker: Yes, and I think we have a great handle on that. Mike and George and their people have been working with having the two activities happening concurrently for the most part of almost all of this year. So we really do have things working well. So I am not anticipating either production being interrupted or shaft development being delayed as people get in the way of one another. We are avoiding that.

296. For such a crucial project at such a crucial time and with access to the men

directly in charge of the Silver Shaft who had methodically evaluated its condition and capacity,

Defendant Baker had personal knowledge of the Silver Shaft's condition or was extremely

reckless in making such statements to shareholders if he did not. By having direct access to

these men, Defendant Baker had personal knowledge of the fact or acted with extreme



recklessness in not knowing that the chippy hoist initially designed to be included with the Silver

Shaft was never installed to allow for proper inspection of the Silver Shaft.

297. In the 2010 Annual Report dated March 2, 2011, Defendant Baker's statements

indicated his personal knowledge of the physical condition of Hecla's mines: "Hecla's brand-

name recognition, the stable locations and quality of our mining assets, and our low-cost

production are all qualities that set us apart." With respect to Lucky Friday in particular,

Defendant Baker stated that Mike Dexter, who had retired after being the mine's general

manager for the past decade, "left the property in great shape." As stated by Defendants in that

document, the Silver Shaft was integral to their expansion plans:

A Strategy for Growth

The Silver Shaft is an integral part of Hecla's strategy for growth at the Lucky Friday mine. Successful exploration and in-mine resource expansions at the Lucky Friday have prompted development of the new #4 Shaft that should extend mine life and increase annual silver production.

298. Defendant Baker's personal knowledge of the condition of the Silver Shaft or his

extreme recklessness in not knowing is further demonstrated by his statements to analysts and

investors during a September 13, 2011 conference call:

The silver shaft is the shaft to surface, it's a one-mile shaft that's been in place since 1982, and it will continue to operate as long as we are operating in this mine. It's a great set of infrastructure, it's a concrete-lined shaft; a very, very stable shaft.

299. As previously discussed and demonstrated by the attached photographs, the

deplorable condition of the Silver Shaft was obvious and had been so for some time. Defendant

Baker would ultimately acknowledge this fact in a January 11, 2012 conference call:

Look, we inspect the shaft weekly. And consistently do that. I think that is good practice, and probably also a regulatory requirement We also have had that practice for - I'm not sure how long, but certainly it has been for a long period of time We, in addition, we have, on a quarterly basis, go through and have it inspected with MSHA. Some of this material was put in place even at the


Case 2:12cv00042BLW Document 85 Filed l-0/16/12 Page 121 of 129

construction of the shaft going back to 1983. Certainly not all of it. Some has built up over the years as these sand lines have broken. I'm not sure when the last time we had a sand line break, and I'm not sure if Larry knows, given how new he is to the Company, but it is not afrequent event.

300. Tellingly, the Company did not challenge MSHA's shutting down the Lucky

Friday mine and requiring the Silver Shaft's remediation, despite the tremendous cost of the shut

down and remediation to the Company.

X. LOSS CAUSATION

301. During the Class Period, the Defendants engaged in a scheme to deceive investors

and the market and a course of conduct that artificially inflated and maintained Hecla's common

stock price and operated as a fraud or deceit on Class Period purchasers of the Company's

publicly traded securities by misrepresenting and omitting material information about the

Hecla's business performance, operational capabilities, and safety practices at the Lucky Friday

mine. When the Defendants' prior misrepresentations and omissions about the these problems

became apparent to the market, Hecla's securities prices fell precipitously as the prior artificial

inflation came out of the price. As a result of their purchases of Hecla securities, during the

Class Period, Plaintiffs and other members of the Class, as defined in ¶ 1, suffered economic

loss, i.e., damages, under the federal securities laws.

302. As illustrated in the chart below, the Defendants' false statements and omissions,

identified herein at ¶J 134-250, had the intended effect and caused the Company's stock to trade

at artificially inflated levels up to an intra-day trading price high of $11.56 per share during the

Class Period:


Case 2:12cv00042BLW Document 85 FãHecl 10/16/12 Page 122 of 129

Hecla Mining Company $15

$12

I-

-c

0 C

1/11/12: Market learns Lucky Friday mine W11 be closed for up to a year for an extensive clean-up to meet safety regulations.

$0

9/13/2010 12/13/2010 3/13/2011 6/13/2011 9/13/2011 12/13/2011

303. As a direct result of disclosure on January 11, 2012, Hecla's securities prices

suffered an abnormal decline in value. After information had entered the market that the Lucky

Friday mine would be closed for up to a year, the Company's close of trading stock price

dropped $1.23 per share, or 21%, from the prior day's close of trading price, on heavy trading

volume. This drop removed the inflation from Hecla's securities prices, causing real economic

loss to investors who had purchased the securities during the Class Period.

304. The decline in the Company's securities prices at the end of the Class Period was

a direct result of the nature and extent of the Defendants' prior false statements and omissions

being revealed to investors and the market. The timing and magnitude of Hecla's securities price

decline negate any inference that the loss suffered by Plaintiffs and other Class members was

caused by changed market conditions, macroeconomic or industry factors, or Company-specific

facts unrelated to the Defendants' fraudulent conduct. The economic loss, i.e., damages,

suffered by Plaintiffs and other members of the Class, was a direct result of the Defendants'



fraudulent scheme to artificially inflate the Company's securities prices and maintain the price at

artificially inflated levels and the subsequent significant decline in the value of Hecla's securities

prices when Defendants' prior misrepresentations and omissions were revealed.

XI. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

305. At all relevant times, the market for Hecla common stock was an efficient market

for the following reasons, among others:

a. Hecla common stock met the requirements for listing, and was listed and

actively traded on the New York Stock Exchange ("NYSE"), an efficient market;

b. Hecla had a large market capitalization in excess of $1.3 billion

throughout the Class Period;

C. During the Class Period, 50.8 million shares of Hecla common stock were

traded on an average weekly basis. On average, approximately 272.7 million shares were

outstanding during the Class Period. Approximately 18.8% of all outstanding shares were

bought and sold on an average weekly basis during the Class Period, demonstrating a very active

and broad market for Hecla common stock and permitting a strong presumption of an efficient

market; 10

d. As a regulated issuer, Hecla filed periodic public reports with the SEC and

the NYSE;

e. Hecla regularly communicated with public investors via established

market mechanisms, including regular disseminations of press releases on national circuits of

major newswires and through other wide-ranging public disclosures, such as communications

with the financial press and other similar reporting services;

10 Price and volume data was obtained from Bloomberg Financial.



f. Hecla was followed by securities analysts who wrote reports that were

distributed to the sales force and certain customers of their respective brokerage firms;

g. Numerous brokers traded and a large number of institutional investors

held Hecla common stock during the Class Period; 11 and

h. Unexpected material news about Hecla was reflected and incorporated

into the Company's common stock price during the Class Period.

306. As a result of the foregoing, the market for Hecla common stock promptly

digested current information regarding Hecla from all publically available sources and reflected

such information in Hecla's common stock price. Under these circumstances, all purchasers of

Hecla common stock during the Class Period suffered similar injury through their purchase of

Hecla common stock at artificially inflated prices and a presumption of reliance applies.

XII. NO SAFE HARBOR

Hecla's verbal "Safe Harbor" warnings accompanying its oral forward-looking

statements ("FLS") issued during the Class Period were ineffective to shield those statements

from liability. The Defendants are also liable for any false or misleading FLS pleaded because,

at the time each FLS was made, the speaker knew the FLS was false or misleading and the FLS

was authorized and/or approved by an executive officer of Hecla who knew that the FLS was

false. None of the historic or present tense statements made by Defendants were assumptions

underlying or relating to any plan, projection, or statement of future economic performance, as

they were not stated to be such assumptions underlying or relating to any projection or statement

of future economic performance when made, nor were any of the projections or forecasts made


Id.


by Defendants expressly related to or stated to be dependent on those historic or present tense

statements when made.

XIII. CLASS ACTION ALLEGATIONS

307. Plaintiffs bring this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired Hecla

securities during the Class Period (the "Class"). Excluded from the Class are Defendants and

their families, the officers and directors of the Company, at all relevant times, members of their

immediate families and their legal representatives, heirs, successors, or assigns, and any entity in

which Defendants have or had a controlling interest.

308. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits

to the parties and the Court. Hecla has more than 279 million shares of stock outstanding, owned

by hundreds, if not thousands, of persons.

309. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

a. whether Defendants violated the 1934 Act;

b. whether Defendants omitted and/or misrepresented material facts;

C. whether Defendants' statements omitted material facts necessary to make

the statements made, in light of the circumstances under which they were made, not misleading;

d. whether Defendants knew or deliberately disregarded that their statements

were false and misleading;

e. whether the price of Hecla securities was artificially inflated; and



f. the extent of damage sustained by Class members and the appropriate

measure of damages.

310. Plaintiffs' claims are typical of those of the Class because Plaintiffs and the Class

sustained damages from Defendants' wrongful conduct.

311. Plaintiffs will adequately protect the interests of the Class and have retained

counsel who are experienced in class action securities litigation. Plaintiffs have no interests

which conflict with those of the Class.

312. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

COUNT I

For Violation of § 10(b) of the 1934 Act and Rule lOb-S Against All Defendants

313. Plaintiffs incorporate ¶J 1-312 by reference.

314. During the Class Period, Defendants disseminated or approved the false

statements specified above, which they knew or deliberately disregarded were misleading in that

they contained misrepresentations and failed to disclose material facts necessary in order to make

the statements made, in light of the circumstances under which they were made, not misleading.

315. Defendants violated § 10(b) of the 1934 Act and Rule lOb-S in that they:

a. employed devices, schemes and artifices to defraud;

b. made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading; or



C. engaged in acts, practices and a course of business that operated as a fraud

or deceit upon plaintiff and others similarly situated in connection with their purchases of Hecla

common stock during the Class Period.

316. Plaintiff and the Class have suffered damages in that, in reliance on the integrity

of the market, they paid artificially inflated prices for Hecla securities. Plaintiff and the Class

would not have purchased Hecla securities at the prices they paid, or at all, if they had been

aware that the market price had been artificially and falsely inflated by defendants' misleading

statements.

COUNT II

For Violation of § 20(a) of the 1934 Act Against All Defendants

317. Plaintiffs incorporate ¶J 1-316 by reference.

318. The Individual Defendants acted as controlling persons of Hecla within the

meaning of § 20(a) of the 1934 Act. By virtue of their positions with the Company, and

ownership of Hecla stock, the Individual Defendants had the power and authority to cause Hecla

to engage in the wrongful conduct complained of herein. Hecla controlled the Individual

Defendants and all of its employees. By reason of such conduct, Defendants are liable pursuant

to § 20(a) of the 1934 Act.

JURY DEMAND

Plaintiffs demand a trial by jury.

DATED: October 16, 2012 GORDON LAW OFFICES

/s/Philiy Gordon Philip Gordon ISBN 1996 Bruce S. Bistline ISBN 1988 623 West Hays Street



Boise, ID 83702 Telephone: (208) 345-7100 Facsimile: (208) 345-0050 (fax) Email: pgordongordonlawoffices.com

bbistlinegordonlawoffices.com

Liaison Counsel for Lead Plaintiffs

James M. Hughes (pro hac vice) Marlon E. Kimpson (pro hac vice) Vincent I. Parrett (pro hac vice) Ann K. Ritter (pro hac vice) Badge Humphries (pro hac vice) MOTLEY RICE LLC 28 Bridgeside Boulevard Mt. Pleasant, SC 29464 Telephone: (843) 216-9000 Facsimile: (843) 216-9440 Email: jhughesmotleyrice.com

[email protected] vparrettmotleyrice.com

[email protected] bhumpbriesmotleyrice. com

Lead Counsel for Lead Plaintiffs

Brian 0. O'Mara ROBBINS GELLER RUDMAN & DOWD LLP 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: (619) 231-1058 Facsimile: (619) 231-7423 Email: bomarargrdlaw.com

John K. Grant ROBBINS GELLER RUDMAN & DOWD LLP Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 Telephone: (415) 288-4545 Facsimile: (415) 288-4534 Email: jobngrgrdlaw.com

Additional Counsel for Plaintiffs



CERTIFICATE OF SERVICE

I hereby certify that on October 16, 2012, I authorized the electronic filing of the

foregoing with the Clerk of the Court using the CM/ECF system which will send notification of

such filing to the parties registered to the Court's CM/ECF system for this action.

/5/ Philip Gordon Philip Gordon


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