UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| (Mark One) | |
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended December 31, 2014 | |
| OR | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to | |
Commission File Number 1-8641
COEUR MINING, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 82-0109423 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
104 S. Michigan Ave. Suite 900 Chicago, IL (Address of principal executive offices) | 60603 (Zip Code) |
Registrant’s telephone number, including area code: (312) 489-5800
Securities Registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Stock, par value $0.01 per share | New York Stock Exchange | |
| Warrants Exercisable for Common Stock (expiring April 16, 2017) | New York Stock Exchange/Toronto Stock Exchange | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
$945,619,031
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of February 19, 2015, 103,342,296 shares of Common Stock, par value $0.01 per share
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Part III of the Form 10-K is incorporated by reference from the registrant’s definitive proxy statement for the 2015 Annual Meeting of Stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
1
COEUR MINING, INC.
FORM 10-K
INDEX
| PART I | ||
| PART II | ||
| PART III | ||
Directors, Executive Officers and Corporate Governance | ||
Certain Relationships and Related Transactions, and Director Independence | ||
| PART IV | ||
2
PART I
| Item 1. | Business |
INTRODUCTION
Coeur Mining, Inc. (“Coeur”,“the Company”, or "we") is a large silver producer with significant gold production and mines located in the United States, Mexico, and Bolivia; a silver streaming interest in Australia; and exploration projects in Mexico and Argentina. The Company operates the Palmarejo mine, San Bartolomé mine, Kensington mine, and Rochester mine and also owns Coeur Capital, which is primarily comprised of the Endeavor silver stream, other precious metal royalties, and strategic investments. The Company’s principal sources of revenue are its operating mines and the Endeavor silver stream.
Coeur was incorporated as an Idaho corporation in 1928 under the name Coeur d'Alene Mines Corporation. On May 16, 2013, Coeur changed its state of incorporation from the State of Idaho to the State of Delaware and changed its name to Coeur Mining, Inc.
OVERVIEW OF MINING PROPERTIES AND INTERESTS
The Company’s operating properties and interests are described below:
| • | Coeur owns 100% of Coeur Mexicana S.A. de C.V. ("Coeur Mexicana"), which has operated the underground and surface Palmarejo silver and gold complex in Mexico since 2009. Palmarejo produced 6.6 million ounces of silver and 86,673 ounces of gold in 2014. The Company controls a large land position around its existing operations. In 2009, Coeur Mexicana entered into a gold production royalty with Franco-Nevada Corporation covering 50% of the Palmarejo life of mine gold production. In 2014, Coeur Mexicana terminated the gold production royalty effective upon completion of the minimum ounce delivery requirement and subsequently entered into a gold stream agreement with a subsidiary of Franco-Nevada Corporation. In December 2014, the Company announced the acquisition of Paramount Gold and Silver Corp. ("Paramount"), which owns the San Miguel project that is adjacent to Coeur's Palmarejo mine. The transaction is expected to close in the second quarter of 2015. |
| • | Coeur owns 100% of Coeur Rochester, Inc. ("Coeur Rochester"), which has operated the Rochester mine, a silver and gold surface mining operation located in northwestern Nevada, since 1986. Rochester produced 4.2 million ounces of silver and 44,888 ounces of gold in 2014. Coeur Rochester is obligated to pay a 3.4% net smelter returns ("NSR") royalty on up to 39.4 million silver equivalent ounces produced and sold from a portion of the Rochester mine effective in 2014. |
| • | Coeur owns 100% of Empresa Minera Manquiri S.A. ("Manquiri"), a Bolivian company that controls the mining rights for the San Bartolomé mine, which is a surface silver mine in Bolivia where Coeur commenced commercial production in 2008. San Bartolomé produced 5.9 million ounces of silver in 2014. |
| • | Coeur owns 100% of Coeur Alaska, Inc. ("Coeur Alaska"), which owns the Kensington mine, an underground gold mine located north of Juneau, Alaska. The Kensington mine began commercial production in 2010. Kensington produced 117,823 ounces of gold in 2014. |
| • | Coeur owns 100% of Coeur Capital, Inc. (“Coeur Capital”), which holds the Company's streaming and royalty interests, along with its portfolio of strategic equity investments. The Endeavor silver stream, acquired in 2005 for $44.0 million, consists of all silver production and reserves (up to 20.0 million payable ounces) at the Endeavor mine in New South Wales, Australia, which is owned and operated by Cobar Operations Pty. Limited, a wholly-owned subsidiary of CBH Resources Ltd. (“CBH”). The Endeavor mine is an underground zinc, lead and silver mine, which has been in production since 1983. Endeavor produced 0.6 million ounces of silver in 2014. At December 31, 2014, the Company has received a total of 5.4 million ounces under the streaming agreement. |
Coeur Capital also holds a tiered royalty on McEwen Mining Inc.’s El Gallo/Magistral mine in Mexico, currently paying a 3.5% NSR royalty, a 1.5% NSR royalty on Dynasty Metals & Mining, Inc.’s Zaruma mine in Ecuador, a 2.0% NSR royalty on Mandalay Resources Corp.’s Cerro Bayo mine in Chile, and other non-producing royalties.
| • | Another Coeur subsidiary owns an 80% interest in a 2.5% royalty on Newmont Mining Corporation's Correnso mine in New Zealand. |
| • | Coeur owns 100% of the La Preciosa silver-gold exploration project in Durango state, Mexico. In 2014, the Company announced results of a feasibility study for the project and has deferred construction activities based on its disciplined capital deployment philosophy and commitment to retaining a flexible, liquid balance sheet. |
| • | Coeur owns 100% of the Joaquin silver and gold exploration project located in the Santa Cruz province of southern Argentina. The Company commenced exploration of this large property located north of the Company's Martha silver mine in 2007 and has since defined silver and gold mineralization in two deposits. |
3
| • | In January 2015, the Company announced the acquisition of the Wharf gold mine located near Lead, South Dakota. The transaction is expected to close in the first quarter of 2015. |
| • | Coeur owns 100% of Coeur Argentina S.R.L., which operated the Martha mine located in Argentina through 2012. |
The Company also has interests in exploration stage properties located in the United States, Chile, Argentina, Bolivia, and Mexico with no mineable ore reserves.
SILVER AND GOLD PRICES
The Company’s operating results are substantially dependent upon the market prices of silver and gold, which can fluctuate widely. The volatility of such prices is illustrated by the following table, which sets forth the high and low prices of silver (fixing price as reported by the London Bullion Market Association) and gold (PM fixing price as reported by London Gold Market Fixing Limited) per ounce during the periods indicated:
| Year Ended December 31, | |||||||||||
| 2014 | 2013 | 2012 | |||||||||
| High | Low | High | Low | High | Low | ||||||
| Silver | $22.05 | $15.28 | $32.23 | $18.61 | $37.23 | $26.67 | |||||
| Gold | $1,385 | $1,142 | $1,694 | $1,192 | $1,792 | $1,540 | |||||
MARKETING
All of the Company's mining operations produce silver and gold in doré form except the Kensington mine which produces a gold concentrate. The Endeavor mine, in which Coeur Capital holds a silver stream, produces lead and zinc concentrates with a high silver content, from which the Company recovers its payable silver ounces. The Company refines its precious metals doré and concentrates using a geographically diverse group of third party refiners and smelters in the United States, Switzerland, China, and Japan.
The Company's doré is refined into gold and silver bullion according to benchmark standards set by the London Bullion Market Association, which regulates the acceptable requirements for bullion traded in the London precious metals markets. The Company then sells its silver and gold bullion to multi-national banks, bullion trading houses, and refiners across the globe. The Company has seven trading counterparties and the sales of metals to these companies amounted to approximately 63%, 72%, and 91% of total metal sales for the years ended December 31, 2014, 2013, and 2012, respectively. Generally, the loss of a single bullion trading counterparty would not adversely affect the Company due to the liquidity of the markets and the availability of alternative trading counterparties.
The Company's concentrates are sold to smelters under purchase and sale agreements, and the smelters pay the Company for the gold or silver recovered from the concentrates. The Company currently has seven trading counterparties for its concentrates, and the sales to these companies amounted to approximately 37%, 28%, and 9% of total metal sales for the years ended December 31, 2014, 2013, and 2012, respectively. While the loss of any one smelter may have a material adverse effect if alternate smelters are not available, the Company believes that there is sufficient global capacity available to address the loss of a smelter.
HEDGING ACTIVITIES
The Company’s strategy is to provide stockholders with exposure to silver and gold prices by selling silver and gold production at market prices. The Company has entered into derivative contracts to protect the selling price for certain anticipated silver and gold production and to manage risks associated with foreign currencies. For additional information see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" and Note 11 -- Derivative Financial Instruments in the notes to the consolidated financial statements.
GOVERNMENT REGULATION
General
The Company’s activities are subject to extensive federal, state and local laws governing the protection of the environment, prospecting, development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. The costs associated with compliance with such regulatory requirements are substantial and possible future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development and continued operation of the Company’s properties, the extent of which cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards and regulations which may entail significant costs and delays. Although the Company has been recognized for its commitment to environmental responsibility and believes it is in substantial compliance with applicable laws and regulations, amendments to current laws and regulations, more stringent
4
application or interpretation of these laws and regulations through judicial review or administrative action or the adoption of new laws could have a material adverse effect upon the Company and its results of operations.
Estimated future reclamation costs are based primarily on legal and regulatory requirements. At December 31, 2014, $67.2 million was accrued for reclamation costs relating to currently developed and producing properties. The Company is also involved in several matters concerning environmental obligations associated with former mining activities. Based upon the Company’s best estimate of its liabilities for these items, $3.6 million was accrued at December 31, 2014. These amounts are included in reclamation and mine closure liabilities on the consolidated balance sheet.
Federal Environmental Laws
Certain mining wastes from extraction and beneficiation of ores would be considered hazardous waste under the Resource Conservation and Recovery Act (“RCRA”) and state law equivalents, but are currently exempt from the extensive set of Environmental Protection Agency (“EPA”) regulations governing hazardous waste. If the Company’s mine wastes were treated as hazardous waste under RCRA or such wastes resulted in operations being designated as “Superfund” sites under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) or state law equivalents for cleanup, material expenditures could be required for the construction of additional waste disposal facilities, for other remediation expenditures, or for natural resource damages. Under CERCLA, any present or past owners or operators of a Superfund site generally may be held liable and may be forced to undertake remedial cleanup action or to pay for the government’s cleanup efforts. Such owners or operators may also be liable to governmental entities for the cost of damages to natural resources, which may be substantial. Additional regulations or requirements may also be imposed upon the Company’s operations and tailings and waste disposal areas in Alaska and Nevada under the Clean Water Act (“CWA”) and state law equivalents. Air emissions are subject to the Clean Air Act and its state equivalents as well. The Company has reviewed and considered current federal legislation relating to climate change and does not believe it to have a material effect on its operations. Future changes in federal or state laws or regulations could have a material adverse effect upon the Company and its results of operations.
Proposed Mining Legislation
A portion of the Company’s U.S. mining properties are on unpatented mining claims on federal lands. Legislation has been introduced regularly in the U.S. Congress over the last decade to change the Mining Law of 1872 as amended (the "Mining Law"), under which the Company holds these unpatented mining claims. It is possible that the Mining Law may be amended or replaced by less favorable legislation in the future. Previously proposed legislation contained a production royalty obligation, new environmental standards and conditions, additional reclamation requirements and extensive new procedural steps which would likely result in delays in permitting. The ultimate content of future proposed legislation, if enacted, is uncertain. If a royalty on unpatented mining claims were imposed, the profitability of the Company’s U.S. operations could be materially adversely affected. In addition, the U.S. Forest Service and the U.S. Bureau of Land Management ("BLM") have considered revising regulations governing operations under the Mining Law on federal lands they administer, which, if implemented, may result in additional procedures and environmental conditions and standards on those lands. The majority of the Company’s operations are either outside of the United States or on private patented lands and would be unaffected by potential legislation.
Any such reform of the Mining Law or BLM and U.S. Forest Service regulations thereunder could increase the costs of mining activities on unpatented mining claims, or could materially impair the ability of the Company to develop or continue operations which derive ore from federal lands, and as a result could have an adverse effect on the Company and its results of operations. Until such time, if any, as new reform legislation or regulations are enacted, the ultimate effects and costs of compliance on the Company cannot be estimated.
Foreign Government Regulations
Bolivia, where the San Bartolomé mine is located, and Mexico, where the Palmarejo mine and the La Preciosa exploration project are located, have both adopted laws and guidelines for environmental permitting that are similar to those in effect in the United States and other South American countries. The permitting process requires a thorough study to determine the baseline condition of the mining site and surrounding area, an environmental impact analysis, and proposed mitigation measures to minimize and offset the environmental impact of mining operations. The Company has received all permits required to operate the San Bartolomé and Palmarejo mines, and has received all permits necessary for its exploration activities at the La Preciosa exploration project.
The mining properties of the Company that are located in Argentina are subject to various government laws and regulations pertaining to the protection of the air, surface and ground water, and the environment in general, as well as the health of the work force, labor standards and the socio-economic impacts of mining facilities upon the communities. The Company believes it is in substantial compliance with all applicable laws and regulations to which it is subject in Argentina.
5
The Company does not directly hold any interest in mining properties in Australia. However, the Company owns a silver stream on CBH's Endeavor mine. CBH is responsible for the mining operation and compliance with laws and regulations, and the Company is not responsible for compliance. The Company is, however, at risk for any production stoppages resulting from non-compliance. CBH’s mining property is subject to a range of laws and regulations pertaining to the protection of the air, surface water, ground water, noise, site rehabilitation and the environment in general, as well as the occupational health and safety of the work force, labor standards and the socio-economic impacts of mining facilities among local communities. In addition, the various federal and state native title laws and regulations recognize and protect the rights and interests in Australia of Aboriginal and Torres Strait Islander people in land and waters and may restrict mining and exploration activity and/or result in additional costs. CBH is required to deal with a number of governmental departments in connection with the development and exploitation of its mining property. The Company is not aware of any substantial non-compliance with applicable laws and regulations to which CBH is subject in Australia.
Maintenance of Claims
United States
At mining properties in the United States, including the Rochester and Kensington mines, operations are conducted upon both patented and unpatented mining claims. Pursuant to applicable federal law it is necessary to pay to the Secretary of the Interior, on or before August 31 of each year, a claim maintenance fee of $140 per claim. This claim maintenance fee is in lieu of the assessment work requirement contained in applicable mining laws. In addition, Nevada holders of unpatented mining claims are required to pay the county recorder of the county in which the claim is situated an annual fee of $8.50 per claim. For unpatented claims in Alaska, the Company is required to pay a variable, annual rental fee based on the age of the claim and must perform annual labor or make an annual payment in lieu of annual labor. No maintenance fees are payable for federal patented claims. Patented claims are similar to land held by an owner who is entitled to the entire interest in the property with unconditional power of disposition and are subject to local ad valorem property taxes.
Mexico
In order to carry out mining activities in Mexico, the Company is required to obtain a mining concession from the General Bureau of Mining, which belongs to the Ministry of Economy of the Federal Government, or be assigned previously granted concession rights, and both must be recorded with the Public Registry of Mining. In addition, mining works may have to be authorized by other authorities when performed in certain areas, including ejidos (communal owners of land recognized by the federal laws in Mexico), villages, dams, channels, general communications ways, submarine shelves of islands, islets and reefs, marine beds and subsoil and federal maritime-terrestrial zones. Reports have to be filed with the General Bureau of Mining in May of each year, evidencing previous calendar year mining investment and works. Annual reports, detailing production results, must be submitted by January 30 for each concession bearing production and all concessions over six years of age. Bi-annual mining duties are payable in January and July of each year and, beginning in 2014, holders of mining concessions must pay annually and no later than the last business day of March a special mining fee based on 7.5% of the income before interest and certain other permitted deductions derived from the transfer or sale of minerals, plus 0.5% of gross revenues from sales of gold, silver and platinum. Failure to pay any of these duties and submit the required reports could lead to cancellation of the concessions. Upon expiration or cancellation of the concession, certain obligations remain, such as filing technical reports and ground support.
Bolivia
The Bolivian state owns the resources at San Bartolomé. The Bolivian state-owned mining organization, Corporación Minera de Bolivia (“COMIBOL”), is the underlying manager of all of the mining rights relating to the San Bartolomé mine. Bolivia’s ownership derives from the Supreme Decree 3196 issued in October 1952, when the government nationalized most of the mines in Potosí. COMIBOL has leased the mining rights for the surface silver and tin bearing sediment to several Potosí cooperatives. The cooperatives have subleased their mining rights to Coeur’s subsidiary, Manquiri, through a series of “joint venture” contracts. In addition to those agreements with the cooperatives, Manquiri holds additional mining rights under lease agreements directly with COMIBOL. All of Manquiri’s mining and surface rights collectively constitute the San Bartolomé project. For additional information regarding the maintenance of its claims to the San Bartolomé mine, see "Item 2. Properties -- Silver and Gold Mining Properties, Bolivia-San Bartolomé."
Argentina
Minerals are owned by the provincial governments, which impose a maximum 3% mine-mouth royalty on mineral production. The first step in acquiring mining rights is filing an exploration permit ("Cateo"), which gives exclusive prospecting rights for the requested area for a period of time, generally up to three years. The maximum size of each Cateo is 10,000 hectares; a maximum of 20 Cateos, or 200,000 hectares, can be held by a single entity in any one province.
The holder of a Cateo has exclusive right to establish a discovery concession ("Manifestacion de Descubrimiento" or “MD”) on that Cateo, but MDs can also be set without a Cateo on any land not covered by another party's Cateo. MDs are filed
6
as either a vein or disseminated discovery. A square protection zone can be declared around the discovery of up to 840 hectares for a vein MD, or up to 7,000 hectares for a disseminated MD. The protection zone grants the discoverer exclusive rights for an indefinite period, during which the discoverer must provide an annual report presenting a program of exploration work and investments related to the protection zone. An MD can be upgraded to an exploitation concession ("Concesion de Explotacion or "Mina"), which gives the holder the right to begin commercial extraction of minerals.
Australia
At the Endeavor mining property in Australia operated by CBH, operations are conducted on designated mining leases issued by the relevant state government mining department. Mining leases are issued for a specific term and include a range of environmental and other conditions including the payment of production royalties, annual lease fees and the use of cash or a bank guarantee as security for reclamation liabilities. The amounts required to be paid to secure reclamation liabilities are determined on a case by case basis. In addition, according to public sources, CBH holds a range of exploration titles and permits, which are also issued by the respective state government mining departments for specified terms and require payment of annual fees and completion of designated expenditure programs to maintain title. In Australia, minerals in the ground are owned by the state until severed from the ground through mining operations.
EMPLOYEES
The number of full-time employees of the Company at December 31, 2014 was:
| U.S. Corporate and Other | 69 | |
| Rochester Mine | 295 | |
| Kensington Mine | 322 | |
San Bartolomé Mine(1) | 361 | |
| Palmarejo Mine | 821 | |
| Total | 1,868 | |
| (1) | The Company maintains a labor agreement in South America with Sindicato de Trabajadorés Mineras de la Empresa Manquiri S.A. at the San Bartolomé mine in Bolivia. The San Bartolomé mine labor agreement is in effect for 2015. At December 31, 2014, approximately 12% of the Company’s global labor force was covered by collective bargaining agreements. |
BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
Management believes the following strengths provide the Company with significant competitive advantages:
Strong track record of developing and operating mines
The Company has successfully acquired, developed, and operated a portfolio of operating mines since its founding in 1928. In 2014, it produced 17.2 million ounces of silver and 249,384 ounces of gold at costs applicable to sales of $14.71 per silver equivalent ounce at its primary silver mines and $951 per ounce of gold at its Kensington mine.
Silver Production Gold Production 
Operating and commodity diversity
The Company's silver and gold production comes from five operating mines located in four countries. The Company operates the Palmarejo silver and gold mine in Mexico, the San Bartolomé silver mine in Bolivia, the Kensington gold mine in Alaska, and the Rochester silver and gold mine in Nevada. In addition, the Company owns a silver stream on the Endeavor mine in Australia. The Company also owns the La Preciosa and Joaquin silver and gold exploration projects in Mexico and Argentina, respectively. In December 2014, the Company announced the acquisition of Paramount, which owns the San Miguel project that is adjacent to Coeur's Palmarejo mine. The transaction is expected to close in the second quarter of 2015. In January 2015, the
7
Company announced the acquisition of the Wharf gold mine located near Lead, South Dakota. The transaction is expected to close in the first quarter of 2015. The Company's metal sales breakdown by operating mine and metal is set out below:
2014 Silver Sales by Mine (millions of ounces) 2014 Gold Sales by Mine (ounces)
Experienced management team
The Company has built a high-caliber management team of devoted professionals with extensive mining industry expertise. President and Chief Executive Officer, Mitchell Krebs, Senior Vice President and Chief Financial Officer, Peter Mitchell, and Senior Vice President and Chief Operating Officer, Frank Hanagarne, each has significant experience in the mining industry. The board of directors also brings diverse industry backgrounds and a depth of professional experience to the Company.
Capitalizing on prior development program
The Company has spent significant capital in commissioning or expanding its four operating mines. The following table provides the percentage contribution to the Company’s total revenues by mine during the past five years, excluding discontinued operations:
| Coeur Percentage Ownership at December 31, | Percentage of Total Revenues For The Year Ended December 31, | ||||||||||||||||
| Mine/Location | 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||
| Palmarejo Mine, Mexico | 100% | 38 | % | 43 | % | 49 | % | 50 | % | 45 | % | ||||||
| San Bartolomé Mine, Bolivia | 100% | 19 | 19 | 20 | 26 | 28 | |||||||||||
| Kensington Mine, United States | 100% | 22 | 20 | 12 | 15 | 4 | |||||||||||
| Rochester Mine, United States | 100% | 20 | 16 | 15 | 6 | 11 | |||||||||||
| Martha Mine, Argentina | 100% | — | — | 2 | 1 | 10 | |||||||||||
Coeur Capital(1) | 100% | 1 | 2 | 2 | 2 | 2 | |||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| (1) | Primarily revenue from the Endeavor silver stream (Australia). |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains numerous forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to the Company’s gold and silver mining business, including statements regarding potential acquisitions, mineral reserve and mineralized material estimates, exploration and development efforts, estimated production, costs, capital expenditures, expenses, metals prices, sufficiency of assets, ability to discharge liabilities, and initiatives to maximize net cash flow, enhance revenues, reduce operating and non-operating costs, future economic benefits generated by assets relative to current valuations (see p. 37 impairment discussion), manage working capital efficiently, liquidity management, financing needs, and environmental compliance expenditures. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risk factors set forth below under Item 1A and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7, (ii) the risk that regulatory and other approvals for pending acquisition transactions are not obtained on the proposed terms and on schedule and the risk that pending acquisition transactions will not be consummated, (iii) the risks and hazards inherent in the mining business (including risks inherent in developing large-scale mining projects, environmental hazards, industrial accidents, weather or geologically related conditions), (iv) changes in the market prices of gold and silver and a sustained lower price environment, (v) the uncertainties inherent in the Company’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays, ground conditions and grade variability, (vi) any future labor disputes or work stoppages (involving the Company and its subsidiaries or third parties), (vii) the uncertainties inherent in the estimation of gold and silver
8
reserves and mineralized material, (viii) changes that could result from the Company’s future acquisition of new mining properties or businesses, (ix) reliance on third parties to operate certain mines where the Company owns silver production and reserves, (x) the absence of control over mining operations in which the Company or any of its subsidiaries holds royalty or streaming interests and risks related to these mining operations (including results of mining and exploration activities, environmental, economic and political risks, and changes in mine plans and project parameters); (xi) the loss of access to any third-party smelter to which the Company markets silver and gold, (xii) the effects of environmental and other governmental regulations, (xiii) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, and (xiv) the Company’s ability to raise additional financing necessary to conduct its business, make payments or refinance its debt. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.
CAUTIONARY NOTE REGARDING DISCLOSURE OF MINERAL PROPERTIES
Reserves, Resources and Mineralized Material
Coeur Mining, Inc. is subject to the reporting requirements of the Exchange Act and applicable Canadian securities laws, and as a result we report our mineral reserves according to two different standards. Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). The definitions of NI 43-101 are adopted from those given by the Canadian Institute of Mining, Metallurgy and Petroleum. U.S. reporting requirements, however, are governed by Securities and Exchange Commission ("SEC") Industry Guide 7 (“Guide 7”). Both sets of reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but embody different approaches and definitions. Under Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
In our public filings in Canada and in certain other announcements not filed with the SEC, we disclose measured, indicated and inferred resources, each as defined in NI 43-101, in addition to our mineral reserves. U.S. investors are cautioned that, while the terms “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources” are recognized and required by Canadian securities laws, Guide 7 does not recognize them. The estimation of measured resources and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves, and therefore U.S. investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into Guide 7 compliant reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources, and therefore it cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category. Therefore, investors are cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.
In this Annual Report on Form 10-K and in our other filings with the SEC, we modify our estimates made in compliance with NI 43-101 to conform to Guide 7 for reporting in the United States. In this Form 10-K, we use the term “mineralized material” to describe mineralization in mineral deposits that do not constitute “reserves” under U.S. standards. “Mineralized material” is substantially equivalent to measured and indicated mineral resources (exclusive of reserves) as disclosed for reporting purposes in Canada, except that the SEC only permits issuers to report "mineralized material" in tonnage and average grade without reference to contained ounces. We provide disclosure of mineralized material to allow a means of comparing our projects to those of other companies in the mining industry, many of which are Canadian and report pursuant to NI 43-101, and to comply with applicable disclosure requirements. We caution you not to assume that all or any part of mineralized material will ever be converted into Guide 7 compliant reserves.
Technical Reports and Qualified Persons
As required by Canadian securities laws, we hereby notify Canadian investors that the scientific and technical information concerning our mineral projects in this Form 10-K have been reviewed and approved by a “qualified person” under NI 43-101, namely our Vice President, Technical Services, W. David Tyler. For a description of the key assumptions, parameters and methods used to estimate mineral reserves included in this Form 10-K, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant factors, Canadian investors may view technical reports prepared for each of our properties as filed on SEDAR at http://www.sedar.com. Neither the technical reports nor the statements of any qualified person filed with the Canadian securities regulatory authorities are included in, or incorporated by reference in, this Form 10-K. Because the definitions and standards of NI 43-101 differ from those of Guide 7, investors are cautioned that information contained in reports prepared pursuant to NI 43-101, like the technical reports, may not be comparable to similar information that we can disclose in this Form 10-K or the other reports we file with the SEC.
9
AVAILABLE INFORMATION
Coeur makes available, free of charge, on its website (http://www.coeur.com), its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements, as well as Forms 3, 4 and 5 with respect to its common stock, as soon as reasonably practicable after such reports are electronically filed with the SEC. Copies of Coeur’s Corporate Governance Guidelines, charters of the key committees of the Board of Directors (Audit, Compensation, Nominating and Corporate Governance, and Environmental, Health, Safety, and Social Responsibility Committees) and its Code of Business Conduct and Ethics, applicable to the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, among others, are available at the Company’s website. Information contained on the Company’s website is not a part of this report.
Item 1A. | Risk Factors |
The Company's results of operations, cash flows and operating costs are highly dependent upon the market prices of silver and gold and other commodities, which are volatile and beyond the Company's control. The Company's use of derivative contracts to protect against such volatility exposes us to risk of opportunity loss, mark-to-market accounting adjustments and exposure to counterparty credit risk.
Silver and gold are exchange-traded commodities, and their prices are volatile. During the twelve months ended December 31, 2014, the price of silver ranged from a low of $15.28 per ounce to a high of $22.05 per ounce, and the price of gold ranged from a low of $1,142 per ounce to a high of $1,385 per ounce. The closing market prices of silver and gold on February 19, 2015 were $16.73 per ounce and $1,208 per ounce, respectively.
Silver and gold prices are affected by many factors beyond the Company’s control, including U.S. dollar strength or weakness, prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, global currency values, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. In addition, Exchange Traded Funds (“ETFs”), which have substantially facilitated the ability of large and small investors to buy and sell precious metals, have become significant holders of gold and silver. Factors that are generally understood to contribute to a decline in the prices of silver and gold include a strengthening of the U.S. dollar, net outflows from gold and silver ETFs, bullion sales by private and government holders and global economic conditions and/or fiscal policies that negatively impact large consumer markets.
Because the Company derives all of its revenues from sales of silver and gold, its results of operations and cash flows will fluctuate as the prices of these metals increase or decrease. A period of significant and sustained lower gold and silver prices would materially and adversely affect the results of operations and cash flows. Additionally, if market prices for silver and gold decline or remain at relatively low levels for a sustained period of time, the Company may have to revise its operating plans, including reducing operating costs and capital expenditures, terminating or suspending mining operations at one or more of its properties and discontinuing certain exploration and development plans. The Company may be unable to decrease its costs in an amount sufficient to offset reductions in revenues, and may incur losses.
Operating costs at the Company’s mines are also affected by the price of input commodities, such as fuel, electricity, labor, chemical reagents, explosives, steel and concrete. Prices for these input commodities are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, consumer or industrial demand and other factors. Continued volatility in the prices of commodities and other supplies the Company purchases could lead to higher costs, which would adversely affect results of operations and cash flows.
The significant and sustained decline in gold and silver prices during 2013 and 2014 caused the Company to write down certain of its long-lived assets and, in the future, such declines could cause one or more of the Company’s mining properties to become less profitable, which could require the Company to record additional write-downs of long-lived assets. Such write-downs may adversely affect the Company’s results of operations and financial condition.
The Company reviews its long-lived assets for recoverability pursuant to the Financial Accounting Standard Board’s Accounting Standards Codification Section 360 (“ASC 360”). Under that standard, the Company reviews the recoverability of its long-lived assets, such as its mining properties, upon a triggering event. Such review involves the Company estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment, measured by comparing an asset’s carrying value to its fair value, must be recognized when the carrying value of the asset exceeds these cash flows. The Company conducts a review of the financial performance of its mines in connection with the preparation of its financial statements for each reported period and determines whether any triggering events are indicated.
10
The Company’s assessment of the recoverability of its long-lived assets at December 31, 2014 and 2013 under ASC 360 indicated that write-downs of its long-lived assets of $1,472.7 million and $773.0 million, respectively, were required. These non-cash impairment charges resulted in write-downs in the Company's Statement of Comprehensive Income (Loss) and reduced the carrying value of Mining properties and Property, plant, and equipment on the Company’s balance sheet at December 31, 2014 and 2013. See Note 4 -- Write-Downs in the notes to the Consolidated Financial Statements for further detail.
If there are further significant and sustained declines in silver and gold prices or if the currently low silver or gold prices remain at such prices, or if the Company fails to control production and operating costs or realize the mineable ore reserves at its mining properties, the Company may terminate or suspend mining operations at one or more of its properties. These events could require a further write-down of the carrying value of the Company’s assets. Any such actions would adversely affect the Company’s results of operations and financial condition.
The Company may record other types of additional mining property charges in the future if it sells a property for a price less than its carrying value or has to increase reclamation liabilities in connection with the closure and reclamation of a property. Any additional write-downs of mining properties could adversely affect the Company’s results of operations and financial condition.
The Company’s future growth will depend upon its ability to develop new mines, either through exploration at existing properties or by acquisition from other mining companies.
Because mines have limited lives based on proven and probable ore reserves, an important element of the Company’s business strategy is the opportunistic acquisition of silver and gold mines, properties and businesses or interests therein. The Company’s ability to achieve significant additional growth in revenues and cash flows will depend upon success in further developing existing properties and developing or acquiring new mining properties. During 2011, the Company successfully constructed a new leach pad at the Company’s Rochester mine. Development of other major mining properties at Palmarejo, San Bartolomé and Kensington has been substantially completed. Since December 2012, the Company has owned 100% of the Joaquin silver-gold exploration project located in the Santa Cruz province of southern Argentina. As a result of its acquisition of Orko (now Coeur La Preciosa Silver Corp.) in April 2013, the Company also holds the La Preciosa silver-gold exploration project in the state of Durango, Mexico. In addition, the Company announced in December 2014 the acquisition of Paramount and in January 2015 the acquisition of the Wharf gold mine, both of which are expected to close in the first half of 2015. These strategies are inherently risky, and the Company cannot assure that it will be able to successfully develop existing or new mining properties or acquire additional mining properties on favorable economic terms or at all.
The Company may be unable to complete and successfully integrate an announced acquisition, including the recently announced Paramount and Wharf gold mine acquisitions.
The Company expects to continue to evaluate acquisition opportunities and pursue those opportunities it believes are in the Company’s long-term best interests. There can be no assurance that the anticipated benefits of any such acquisition will be realized. The success of any acquisition will depend upon the Company’s ability to effectively manage the integration and operations of entities or properties it acquires and to realize other anticipated benefits. The process of managing acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of management resources, which may divert management’s focus and resources from other strategic opportunities and from operational matters during this process.
Any acquisition would be accompanied by risks, including:
| • | a significant change in commodity prices after the Company has committed to complete the transaction and established the purchase price or exchange ratio; |
| • | a material orebody may prove to be below expectations; |
| • | difficulties integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization; and |
| • | the acquired business or assets may have unknown liabilities which may be significant. |
In addition, in connection with an acquisition, the Company may incur indebtedness or issue equity securities or securities convertible into equity securities, resulting in increased interest expense, or dilution of the percentage ownership of existing stockholders. The Company cannot predict the impact of future acquisitions on the price of its common stock, or assure that it would be able to obtain any necessary financing on acceptable terms. Unprofitable acquisitions, or additional indebtedness or issuances of securities in connection with such acquisitions, may negatively affect results of operations.
11
The completion of the previously announced Paramount and Wharf gold mine acquisitions are subject to us obtaining all required third party regulatory and governmental approvals and the satisfaction or waiver of all other conditions to completion of the acquisitions, and, in the case of the Paramount acquisition, obtaining approval of the Company’s stockholders. There can be no assurance that the Company or the acquisition counterparty will be able to satisfy these conditions on a timely basis or at all. In addition, the Company’s systems, procedures and controls may be inadequate to support the expansion of our operations resulting from these acquisitions. The Company’s future operating results could be affected by the ability of its officers and key employees to manage the changing business conditions and to integrate the Paramount assets and the Wharf gold mine operation into Coeur. There may also be liabilities, such as environmental liabilities, or significant capital expenditures that the Company failed to discover or have underestimated in connection with these announced acquisitions. Any such liabilities or capital expenditure requirements could have a material adverse effect on the Company’s business, financial condition or future prospects.
The Company’s use of derivative contracts to protect against market price volatility exposes it to risk of opportunity loss, mark-to-market fair value adjustments and exposure to counterparty credit risk.
From time to time, the Company may enter into price risk management contracts to protect against fluctuations in the price of gold and silver and changes in the prices of fuel and other input costs. These contracts could include forward sales or purchase contracts, futures contracts, purchased or sold put and call options and other derivative instruments.
Any use of forward or futures contracts can expose the Company to risk of an opportunity loss. The use of derivative contracts may also result in significant mark-to-market fair value adjustments, which may have a material adverse impact on reported financial results. The Company is exposed to credit risk with contract counterparties, including, but not limited to, sales contracts and derivative contracts. In the event of nonperformance in connection with a contract, the Company could be exposed to a loss of value for that contract.
The Company is an international company and is exposed to political and social risks in the countries in which it has significant operations or interests.
A majority of the Company’s revenues are generated by operations outside the United States, and it is subject to significant risks inherent in mineral extraction by foreign companies and contracts with government owned entities. Exploration, development, production and closure activities in many countries are potentially subject to heightened political and social risks that are beyond the Company’s control. These risks include the possible unilateral cancellation or forced renegotiation of contracts, unfavorable changes in foreign laws and regulations, royalty and tax increases, claims by governmental entities or indigenous communities, expropriation or nationalization of property and other risks arising out of foreign sovereignty over areas in which operations are conducted. The right to export silver and gold may depend on obtaining certain licenses and quotas, which could be delayed or denied at the discretion of the relevant regulatory authorities. In addition, the Company’s rights under local law may be less secure in countries where judicial systems are susceptible to manipulation and intimidation by government agencies, non-governmental organizations or civic groups.
Any of these developments could require the Company to curtail or terminate operations at its mines, incur significant costs to meet newly-imposed environmental or other standards, pay greater royalties or higher prices for labor or services and recognize higher taxes, which could materially and adversely affect financial condition, results of operations and cash flows.
These risks may be higher in developing countries in which the Company may expand its exploration for and development of mineral deposits. Potential operations in these areas increase the Company’s exposure to risks of war, local economic conditions, political disruption, civil disturbance and governmental policies that may disrupt its operations.
The Company’s ongoing and future success depends on developing and maintaining productive relationships with the communities, including indigenous peoples, and other stakeholders in its operating locations. The Company believes its operations can provide valuable benefits to surrounding communities, in terms of direct employment, training and skills development and other benefits associated with ongoing payment of taxes. In addition, the Company seeks to maintain its partnerships and relationships with local communities and stakeholders in a variety of ways, including in-kind contributions, volunteer time, sponsorships and donations. Notwithstanding the Company’s ongoing efforts, local communities and stakeholders can become dissatisfied with its activities, which may result in civil unrest, protests, direct action or campaigns against it. Any such occurrences could materially and adversely affect the Company’s financial condition, results of operations and cash flows.
12
The Company’s operations outside the United States also expose it to economic and operational risks.
The Company’s operations outside the United States also expose it to economic and operational risks. Local economic conditions can cause shortages of skilled workers and supplies, increase costs and adversely affect the security of operations. In addition, higher incidences of criminal activity and violence in the area of some of the Company’s foreign operations, including drug-cartel related violence in Mexico, could adversely affect the Company’s ability to operate in an optimal fashion and may impose greater risks of theft and greater risks as to personnel and property security. These conditions could lead to lower productivity and higher costs, which would adversely affect results of operations and cash flows. The Company sells gold and silver doré in U.S. dollars, but it conducts operations outside the United States in local currency. Currency exchange movements could also adversely affect results of operations.
Silver and gold mining involves significant production and operational risks.
Silver and gold mining involves significant production and operational risks, including those related to uncertain mineral exploration success, unexpected geological or mining conditions, the difficulty of development of new deposits, unfavorable climate conditions, equipment or service failures, current unavailability of or delays in installing and commissioning plants and equipment, import or customs delays and other general operating risks.
Commencement of mining can reveal mineralization or geologic formations, including higher than expected content of other minerals that can be difficult to separate from silver, which can result in unexpectedly low recovery rates. Problems also may arise due to the quality or failure of locally obtained equipment or interruptions to services (such as power, water, fuel or transport or processing capacity) or technical support, which could result in the failure to achieve expected target dates for exploration, or could cause production activities to require greater capital expenditure to achieve expected recoveries. Many of these production and operational risks are beyond the Company’s control. Delays in commencing successful mining activities at new or expanded mines, disruptions in production and low recovery rates could have adverse effects on the Company’s financial condition, results of operations and cash flows.
The estimation of ore reserves is imprecise and depends upon subjective factors. Estimated ore reserves may not be realized in actual production. The Company’s results of operations and financial position may be adversely affected by inaccurate estimates.
The ore reserve figures presented in the Company’s public filings are estimates made by the Company’s technical personnel and independent mining consultants with whom the Company contracts. Reserve estimates are a function of geological and engineering analyses that require the Company to make assumptions about production costs, recoveries and silver and gold market prices. Reserve estimation is an imprecise and subjective process. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation, judgment and experience. Assumptions about silver and gold market prices are subject to great uncertainty as those prices have fluctuated widely in the past. Declines in the market prices of silver or gold may render reserves containing relatively lower grades of ore uneconomic to exploit, and the Company may be required to reduce reserve estimates, discontinue development or mining at one or more of its properties or write down assets as impaired. Should the Company encounter mineralization or geologic formations at any of its mines or projects different from those predicted, it may adjust its reserve estimates and alter its mining plans. Either of these alternatives may adversely affect actual production and financial condition, results of operations and cash flows.
The Company’s estimates of future production, costs, and financial results are imprecise, depend upon subjective factors and may not be realized in actual production and such estimates speak only as of their respective dates.
The Company has in the past, and may in the future, provide estimates and projections of its future production, costs and financial results. Any such information is forward-looking. Such estimates are made by the Company’s management and technical personnel and depend on numerous assumptions, including assumptions about the availability, accessibility, sufficiency and quality of ore, the Company’s costs of production, the market prices of silver and gold, the Company’s ability to sustain and increase production levels, the sufficiency of its infrastructure, the performance of its personnel and equipment, its ability to maintain and obtain mining interests and permits and its compliance with existing and future laws and regulations. Actual results and experience may differ materially from these assumptions. Any such production, cost, or financial results estimates speak only as of the date on which they are made, and the Company disclaims any intent or obligation to update such estimates, whether as a result of new information, future events or otherwise.
13
Forward sales and royalty arrangements can result in limiting the Company’s ability to take advantage of increased metal prices while increasing its exposure to lower metal prices.
The Company has in the past entered into, and may in the future enter into, arrangements under which it has agreed to make royalty or similar payments to lenders or other third parties in amounts that are based on expected production and price levels for gold or silver. The Company enters into such arrangements when it concludes that they provide it with necessary capital to develop a specific mining property on favorable terms or to achieve other business objectives. Royalty or similar payment obligations, however, can limit the Company’s ability to realize the full effects of rising gold or silver prices and require the Company to make potentially significant cash payments if the mine fails to achieve specified minimum production levels.
The Company’s future operating performance may not generate cash flows sufficient to meet debt payment obligations.
As of December 31, 2014, the Company had approximately $478.4 million of outstanding indebtedness. In addition, the Company's total debt excludes $34.0 million for future minimum estimated gold production royalty payments due from Coeur Mexicana to Franco-Nevada. The liabilities associated with these gold production royalty payments increase as the price of gold increases. The Company’s ability to make scheduled debt payments on outstanding indebtedness will depend on future results of operations and cash flows. The Company’s results of operations and cash flows, in part, are subject to economic factors beyond its control, including the market prices of silver and gold. The Company may not be able to generate enough cash flow to meet obligations and commitments. If the Company cannot generate sufficient cash flow from operations to service debt, it may need to further refinance debt, dispose of assets or issue equity to obtain the necessary funds.
The Company cannot predict whether it would be able to refinance debt, issue equity or dispose of assets to raise funds on a timely basis or on satisfactory terms.
The Company might be unable to raise additional financing necessary to meet capital needs, conduct business, make payments when due or refinance debt.
The Company might need to raise additional funds in order to meet capital needs, implement its business plan, refinance debt or acquire complementary assets. Any required additional financing might not be available on commercially reasonable terms, or at all. If the Company raises additional funds by issuing equity securities or securities convertible into equity securities, holders of its common stock could experience significant dilution of their ownership interest, and these securities could have rights senior to those of the holders of common stock.
Any downgrade in the credit ratings assigned to the Company’s debt securities could increase future borrowing costs and adversely affect the availability of new financing.
There can be no assurance that any rating currently assigned by Standard & Poor’s Rating Services or Moody’s Investors Service to the Company will remain unchanged for any given period of time or that a rating will not be lowered if, in that rating agency’s judgment, future circumstances relating to the basis of the rating so warrant. If the Company is unable to maintain its outstanding debt and financial ratios at levels acceptable to the credit rating agencies, or should the Company’s business prospects or financial results deteriorate, our ratings could be downgraded by the rating agencies. A downgrade by the rating agencies could adversely affect the value of the Company’s outstanding debt securities, its existing debt and its ability to obtain new financing on favorable terms, if at all, and increase borrowing costs, which in turn could impair the Company’s results of operations and financial position.
The Company’s ability to recognize the benefits of deferred tax assets is dependent on future taxable income.
The Company recognizes the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized, otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income and the application of existing tax laws in each jurisdiction. To the extent that taxable income differs significantly from estimates, the Company’s ability to realize the deferred tax assets could be impacted. Additionally, future changes in tax laws could limit the Company’s ability to obtain the future tax benefits represented by our deferred tax assets. At December 31, 2014, the Company’s current and long-term deferred tax assets were $7.4 million and $60.2 million, respectively.
14
The Company’s business is subject to U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and reputational harm.
The Company operates in certain jurisdictions that have experienced governmental and private sector corruption to some degree. For example, the U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. The Company’s Code of Business Ethics and Conduct and other corporate policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. There can be no assurance that the Company’s internal control policies and procedures always will protect it from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees or agents. As such, the Company’s corporate policies and processes may not prevent all potential breaches of law or other governance practices. Violations of these laws, or allegations of such violations, could lead to civil and criminal fines and penalties, litigation, and loss of operating licenses or permits, and may damage the Company’s reputation, which could have a material adverse effect on the Company’s business, financial position and results of operations.
Significant investment risks and operational costs are associated with exploration, development and mining activities. These risks and costs may result in lower economic returns and may adversely affect the Company’s business.
The Company’s ability to sustain or increase its present production levels depends in part on successful exploration and development of new ore bodies and expansion of existing mining operations. Substantial expenditures are required to establish ore reserves, to extract metals from ores and, in the case of new properties, to construct mining and processing facilities.
Mineral exploration, particularly for silver and gold, involves many risks and is frequently unproductive. Even if mineral deposits are found, those deposits may be insufficient in quantity and quality to return a profit from production, or it may take a number of years until production is possible, during which time the economic viability of the project may change. Few properties that are explored are ultimately developed into producing mines. The commercial viability of a mineral deposit, once developed, depends on a number of factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; government regulations including taxes, royalties and land tenure; land use; importing and exporting of minerals; environmental protection; mineral prices; completion of favorable feasibility studies; issuance and maintenance of necessary permits; and receipt of adequate financing. Factors that affect adequacy of infrastructure include: reliability of roads, bridges, power sources and water supply; unusual or infrequent weather phenomena; sabotage; and government or other interference in the maintenance or provision of such infrastructure. All of these factors are highly cyclical. The exact effect of these factors cannot be accurately predicted, but the combination may result in not receiving an adequate return on invested capital.
In addition, exploration projects may have no operating history upon which to base estimates of future operating costs and capital requirements. Exploration project items such as estimates of reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data, obtained from a limited number of drill holes and other sampling techniques, and feasibility studies. Estimates of cash operating costs are then derived based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. As a result, actual operating costs and economic returns of any and all exploration projects may materially differ from the costs and returns estimated, and accordingly, the Company’s financial condition, results of operations and cash flows may be negatively affected.
A significant delay or disruption in sales of concentrates as a result of the unexpected discontinuation of purchases by smelter customers could have a material adverse effect on results of operations.
The Company currently markets gold concentrates to third-party smelters in China and Japan. The loss of any one smelter could have a material adverse effect on the Company if alternative smelters were unavailable. The Company cannot ensure that alternative smelters would be available if the need for them were to arise or that it would not experience delays or disruptions in sales that would materially and adversely affect results of operations.
There are significant hazards associated with mining activities, some of which may not be fully covered by insurance.
The mining business is subject to risks and hazards, including environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, cave-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability.
15
Insurance fully covering many environmental risks, including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production, is not generally available. Any liabilities that the Company incurs for these risks and hazards could be significant and could adversely affect results of operations, cash flows and financial condition.
The Company is subject to significant governmental regulations, including the Federal Mine Safety and Health Act, and related costs and delays may negatively affect its business.
Mining activities are subject to extensive federal, state, local and foreign laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.
U.S. surface and underground mines like the Kensington and Rochester mines are continuously inspected by the U.S. Mine Safety and Health Administration (“MSHA”), which inspections often lead to notices of violation. Recently, the MSHA has been conducting more frequent and more comprehensive inspections of mining operations in general.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. In addition, any of the Company’s U.S. mines could be subject to a temporary or extended shutdown as a result of a violation alleged by the MSHA. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Any such penalties, fines, sanctions or shutdowns could have a material adverse effect on the Company’s business and results of operations.
Compliance with environmental regulations and litigation based on environmental regulations could require significant expenditures.
Environmental regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation, and set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner that may require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for mining companies and their officers, directors and employees. The Company may incur environmental costs that could have a material adverse effect on financial condition and results of operations. Any failure to remedy an environmental problem could require it to suspend operations or enter into interim compliance measures pending completion of the required remedy. The environmental standards that ultimately may be imposed at a mine site affect the cost of remediation and could exceed the financial accruals that the Company has made for such remediation. The potential exposure may be significant and could have a material adverse effect on the Company’s financial condition and results of operations.
Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of prior and current operations, including operations conducted by other mining companies many years ago at sites located on properties that the Company currently or formerly owned. These lawsuits could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions. Substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in the Company’s operations. The Company cannot assure that any such law, regulation, enforcement or private claim would not have a material adverse effect on its financial condition, results of operations or cash flows.
Some of the mining wastes from the Company’s U.S. mines currently are exempt to a limited extent from the extensive set of U.S. Environmental Protection Agency (the “USEPA”) regulations governing hazardous waste under the Resource Conservation and Recovery Act (“RCRA”). If the USEPA were to repeal this exemption, and designate these mining wastes as hazardous under RCRA, the Company would be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste storage or disposal facilities. In addition, if any of these wastes causes contamination in or damage to the environment at a U.S. mining facility, that facility could be designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). Under CERCLA, any present owner or operator of a Superfund site or the owner or operator at the time of contamination may be held jointly and severally liable regardless of fault, and may be forced to undertake extensive remedial cleanup action or to pay for the cleanup efforts. The
16
owner or operator also may be liable to federal, state and tribal governmental entities for the cost of damages to natural resources, which could be substantial. Additional regulations or requirements also are imposed on the Company’s tailings and waste disposal areas in Alaska under the federal Clean Water Act (“CWA”) and in Nevada under the Nevada Water Pollution Control Law which implements the CWA.
Airborne emissions are subject to controls under air pollution statutes implementing the Clean Air Act in Nevada and Alaska. In addition, there are numerous legislative and regulatory proposals related to climate change, including legislation pending in the U.S. Congress to require reductions in greenhouse gas emissions. Adoption of these proposals could have a material adverse effect on results of operations and cash flows.
Continuation of the Company’s mining operations is dependent on the availability of sufficient and affordable water supplies.
The Company’s mining operations require significant quantities of water for mining, ore processing and related support facilities. In particular, the Company’s properties in Mexico are in areas where water is scarce and competition among users for continuing access to water is significant. Continuous production and mine development is dependent on the Company’s ability to acquire and maintain water rights and claims and to defeat claims adverse to current water uses in legal proceedings. Although each of the Company’s operating mines currently has sufficient water rights and claims to cover its operational demands, the Company cannot predict the potential outcome of pending or future legal proceedings relating to water rights, claims and uses. Water shortages may also result from weather or environmental and climate impacts out of the Company’s control. Shortages in water supply could result in production and processing interruptions. In addition, the scarcity of water in certain regions could result in increased costs to obtain sufficient quantities of water to conduct the Company's operations. The loss of some or all water rights, in whole or in part, or shortages of water to which we have rights or significantly higher costs to obtain sufficient quantities of water could require the Company to curtail or shut down mining production and could prevent the Company from pursuing expansion or development opportunities, which could adversely affect the Company's results of operations and financial condition. Laws and regulations may be introduced in some jurisdictions in which the Company operates which could also limit access to sufficient water resources, thus adversely affecting the Company’s operations.
The Company relies on third parties who own, maintain and operate the mines underlying its streaming and royalty assets.
The Endeavor mine is owned, maintained and operated by Cobar, a wholly owned subsidiary of CBH. However, pursuant to a silver sale and purchase agreement, the Company’s wholly owned subsidiary, CDE Australia Pty. Ltd. (“CDE Australia”), has acquired all silver production and reserves at the Endeavor mine, up to a total of 20.0 million payable ounces. CDE Australia has agreed to pay Cobar an operating cost contribution of $1.00 for each ounce of payable silver plus 50% of the amount by which the silver price exceeds $7.00 per ounce, subject to annual adjustments for inflation. In addition, the Company currently holds a tiered royalty on McEwen Mining Inc.’s El Gallo/Magistral mine in Mexico, currently paying a 3.5% NSR, a 1.5% NSR on Dynasty Metals & Mining, Inc.’s Zaruma mine in Ecuador, a 2.0% NSR on Mandalay Resources Corp.’s Cerro Bayo mine in Chile, and an 80% interest in a 2.5% royalty on Newmont Mining Corporation’s Correnso mine in New Zealand, as well as several royalties on mining assets that are not yet developed and plans to acquire additional streaming and royalty interests in the future.
The Company relies on third parties to own, maintain and operate the mining projects underlying its royalty and streaming interests, which exposes it to substantial counterparty risk. These third parties may fail to adequately or appropriately operate or maintain their respective projects or may be unable or unwilling to fulfill their obligations under their agreements with the Company.
The Company cannot ensure that each of these third parties will not suffer financial hardship, will continue as a going concern or will not enter bankruptcy or otherwise liquidate. Any such event could expose the Company to significant costs and could limit the amounts, if any, the Company could recover in any proceeding against any such third party for breach of their agreement with the Company. There can be no assurance that the production from any of these mining operations will meet forecasted production targets. At any time, any of the owners or operators of these mining operations may decide to suspend or discontinue operations. In addition, the owners or operators of projects that are not yet operational in which the Company may hold royalty or streaming interests may decide to delay or not to proceed with commencing commercial production. Any failure, inability or refusal of a counterparty to meet its obligations to the Company under these royalty or streaming arrangements could have a material adverse effect on the Company’s business, results of operations or financial condition.
The Company is required to obtain and renew governmental permits in order to conduct operations, a process which is often costly and time-consuming. The Company’s ability to obtain necessary government permits to expand operations or begin new operations can be materially affected by third party activists.
In the normal course of its business, the Company is required to obtain and renew governmental permits for exploration, operations and expansion of existing operations and for the development of new projects. Obtaining and renewing governmental
17
permits is a complex and time-consuming process. The timeliness and success of permitting efforts are contingent upon many variables not within the Company's control, including the interpretation of permit approval requirements administered by the applicable permitting authority. The Company may not be able to obtain or renew permits that are necessary to its operations or the cost and time required to obtain or renew permits may exceed the Company's expectations. Any unexpected delays or costs associated with the permitting process could delay the development or impede the operation of a mine, which in turn could materially adversely affect the Company's revenues and future growth.
Private parties such as environmental activists frequently attempt to intervene in the permitting process and to persuade regulators to deny necessary permits or seek to overturn permits that have been issued. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. These third party actions can materially increase the costs and cause delays in the permitting process and could cause the Company to not proceed with the development or expansion of a mine.
In June 2013, Coeur submitted a proposed amendment to the plan of operations for the Rochester mine (“POA 10”) to the BLM to expand leach pad capacity. Absent POA 10 approval, Coeur anticipates that the capacity under the existing leach pad will be insufficient after 2017. If POA 10 is not approved on a timely basis or at all, or if the permitting process is delayed for any reason, including to address public comments, the Company’s future growth plans at Rochester could be materially adversely affected which could have a material adverse effect on the Company’s financial condition and results of operations.
The Company’s exploration projects, La Preciosa and Joaquin, are subject to significant development, operational and regulatory risks.
As exploration projects, La Preciosa and Joaquin are subject to numerous risks. The economic feasibility of an exploration project is based on many factors such as: estimation of mineral reserves, anticipated metallurgical recoveries, environmental considerations and permitting, future metals prices, and anticipated capital and operating costs of these projects. For the La Preciosa project, the Company’s 2014 feasibility study derived estimates of costs and economic returns based upon anticipated tonnage and grades of reserves to be mined and processed, the configuration of the mineral body, expected recovery rates, estimated expenditures, anticipated climatic conditions and other factors. As a result, it is possible that actual costs and economic returns will differ significantly from those estimated for the project in the feasibility study. Further, when the Company ultimately determines to proceed with project construction, the Company may be unable to complete project and environmental permitting within an economically acceptable time frame.
As a result of these and related risks, future estimates of or actual costs and economic returns of the La Preciosa and Joaquin projects may materially differ from the estimated costs and returns for these projects.
The Company’s operations in Bolivia are subject to political risks.
In May 2014, the new Bolivian mining law was enacted. The Company has been assessing the potential effects of the legislation on its Bolivian operations but any effects remain uncertain until the regulations implementing the law are enacted. The law regulates royalties and provides for mining contracts with the government rather than concession holding. If the regulations promulgated under the new mining law mandate a renegotiation of the terms of our existing contracts with the Bolivian state-owned mining company, Corporacion Minera de Bolivia (“COMIBOL”) and the mining cooperatives, this could materially adversely affect the profitability and cash flow of our operations in Bolivia. It is also uncertain if any new mining or investment policies or shifts in political attitude may further affect mining in Bolivia.
In addition, companies are also operating under Law No. 403 of September 18, 2013, and its regulatory Supreme Decree, which provides for the reversion of mining rights if the Ministry of Mines verifies that a person with mining rights has not initiated mining activities or developed the mining rights. The contracts with COMIBOL and the cooperatives are excluded from the application of Law No. 403. In April 2014, our subsidiary in Bolivia was served by the Bolivian government with a reversion decision affecting nine mining rights wholly-owned by our subsidiary. The affected area is not in an area of active mining by the Company and the Company’s San Bartolomé operations were not targeted as an area of interest in the decision since all of our past and current mining activity is performed through our contracts with COMIBOL and the mining cooperatives.
On October 14, 2009, the Bolivian state-owned mining organization, COMIBOL, announced by resolution that it was temporarily suspending mining activities above the elevation of 4,400 meters above sea level while stability studies of Cerro Rico mountain are undertaken. The Company holds rights to mine above this elevation under valid contracts with COMIBOL as well as under authorized contracts with local mining cooperatives that hold their rights under contract themselves with COMIBOL. The Company temporarily adjusted its mine plan to confine mining activities to the ore deposits below 4,400 meters above sea
18
level and timely notified COMIBOL of the need to lift the restriction. Mining in other areas above the 4,400 meter level continues to be suspended.
The suspension may reduce production until the Company is able to resume mining above 4,400 meters. It is uncertain at this time how long the suspension will remain in place. If COMIBOL decides to restrict access above the 4,400 meter level on a permanent basis, the Company may need to write down the carrying value of the asset. It is also uncertain if any new mining or investment policies or shifts in political attitude may affect mining in Bolivia.
Although the Company previously carried political risk insurance with respect to the San Bartolomé mine in Bolivia, it no longer does. In determining whether to renew the coverage, the Company based its assessment on the political risk environment and the likelihood of a timely and material claim payout against the cost of carrying political risk insurance, which was approximately $2.1 million per year as of the most recent period ended December 16, 2013.
The Company’s business depends on good relations with its employees.
The Company may experience labor disputes, work stoppages or other disruptions in production that could adversely affect its business and results of operations. Labor disruptions may be used to advocate labor, political or social goals, particularly at non-U.S. mines. For example, labor disruptions may occur in sympathy with strikes or labor unrest in other sectors of local economies. During the past three years, two of the Company’s mines have experienced work stoppages, each of which was resolved within a short period of time and had no material effect on operations. The Company cannot assure that work stoppages or other disruptions will not occur in the future. Any such work stoppage or disruption could expose the Company to significant costs and have a material adverse effect on its business, results of operations or financial condition.
At December 31, 2014, unions represented approximately 12% of the Company’s global workforce, all of which were comprised of workers at the San Bartolomé mine in Bolivia. The Company has a labor agreement at the San Bartolomé mine which is in effect for 2015. The Company cannot predict whether this agreement will be renewed on similar terms or at all, whether future labor disruptions will occur or, if disruptions do occur, how long they will last.
Disputes regarding the Company’s mining claims, concessions or surface rights to land in the vicinity of the Company’s mining projects, could adversely impact operations.
The validity of mining or exploration claims, concessions or rights, which constitute most of the Company’s property holdings, is often uncertain and may be contested. The Company has used commercially reasonable efforts, in accordance with industry standard, to investigate its title or claims to its various properties, however, no assurance can be given that applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining claims, concessions or rights or that such exploration and mining claims, concessions or rights will not be challenged by third parties. Although the Company has attempted to acquire satisfactory title to undeveloped properties, in accordance with mining industry practice it does not generally obtain title opinions until a decision is made to develop a property. As a result, some titles, particularly titles to undeveloped properties may be defective. Defective title to any of the Company’s exploration and mining claims, concessions or rights could result in litigation, insurance claims and potential losses affecting its business as a whole. There may be challenges to the title of any of the claims comprising the Company’s projects that, if successful, could impair development and operations. A defect could result in the Company losing all or a portion of its right, title, estate and interest in and to the properties to which the title defect relates.
In Mexico, while mineral rights are administered by the federal government through federally issued mining concessions, ejidos control surface or surface access rights to the land. An ejido may sell or lease lands directly to a private entity. While the Company has agreements or is in the process of negotiating agreements with the ejidos that impact all of its projects in Mexico, some of these agreements may be subject to renegotiation. In Bolivia, we obtain surface rights from cooperatives, through a series of “joint venture” contracts. Changes to the existing agreements or leases or failure to reach agreement in any negotiations may have a significant impact on operations at the Company’s projects and may, on occasion, lead to litigation. Further, the Bolivian government under Law No. 403 may have the ability to reverse our wholly-owned mining rights. Any such reversion decision could adversely impact our future mining plans.
The Company is subject to litigation and may be subject to additional litigation in the future.
In connection with the announcement of the Paramount acquisition, lawsuits have been filed and are pending as of the date hereof, seeking, among other things, to enjoin the transaction, and an adverse ruling in any of these lawsuits may prevent the transaction from being effective or from becoming effective within the expected time frame. While Paramount’s and Coeur’s respective directors and management teams believe that the allegations in the complaints are without merit and intend to defend
19
vigorously against these allegations, the Company cannot make assurances as to the outcome of these, or any similar future lawsuits, including the costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation or settlement of these claims. If any plaintiffs are successful in obtaining an injunction with respect to the merger, such an injunction may prevent the completion of the transaction on the agreed upon terms, in the expected time frame or altogether. Whether the plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect the operation of Coeur’s business.
In addition, the Company is currently, and may in the future become, subject to other litigation, arbitration or proceedings with other parties. If decided adversely to the Company, these legal proceedings, or others that could be brought against the Company in the future, could have a material adverse effect on our financial position or prospects. For a more detailed discussion of pending litigation, see Note 20 to the Consolidated Financial Statements. In the event of a dispute arising at the Company’s foreign operations, the Company may be subject to the exclusive jurisdiction of foreign courts or arbitral panels, or may not be successful in subjecting foreign persons to the jurisdiction of courts or arbitral panels in the United States. The Company’s inability to enforce its rights and the enforcement of rights on a prejudicial basis by foreign courts or arbitral panels could have an adverse effect on the Company’s results of operations and financial position.
The Company has the ability to issue additional equity securities, which would lead to dilution of its issued and outstanding common stock and may materially and adversely affect the price of its common stock.
The issuance of additional equity securities or securities convertible into equity securities would result in dilution of the Company's existing stockholders' equity ownership. The Company is authorized to issue, without stockholder approval, 10,000,000 shares of preferred stock in one or more series, to establish the number of shares to be included in each series and to fix the designation, powers, preferences and relative participating, optional, conversion and other special rights of the shares of each series as well as the qualification, limitations or restrictions on each series. Any series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of its common stock. If the Company issues additional equity securities, the price of its common stock may be materially and adversely affected.
Item 1B. Unresolved Staff Comments
None.
20
Item 2. Properties
SILVER AND GOLD MINING PROPERTIES
Coeur Mining's significant production and development properties are described below. Operating statistics are presented in the section entitled "Operating Statistics" below.
Mexico — Palmarejo
The Palmarejo surface and underground silver and gold mine, and associated milling operation, owned and operated by Coeur Mexicana, is located in the state of Chihuahua, Mexico. Access to the property is provided by air, rail, and all-weather paved and gravel roads from the state capitol of Chihuahua. Silver and gold production from Palmarejo was approximately 6.6 million ounces and 86,673 ounces in 2014, respectively. At December 31, 2014, we reported 30.7 million ounces of silver reserves and 487,710 ounces of gold reserves at Palmarejo.
The Company’s large property position at Palmarejo consists of 36 contiguous mining concessions totaling approximately 30,350 acres (approximately 12,282 hectares) in size, located in the southwest part of the state of Chihuahua. Coeur Mexicana owns 100% of the legal and beneficial interests in and to these mining concessions, which cover over 47 square miles. All of the Company’s ore reserves are located within these mining concessions. All mining concessions owned by Coeur Mexicana are valid until at least 2029. In addition to Palmarejo, the Company also owns 17 mining concessions, encompassing approximately 20,845 acres (approximately 8,436 hectares) at the Yécora exploration stage property, principally located in the state of Sonora, but which also extends into the state of Chihuahua, and two mining concessions covering approximately 17,717 acres (approximately 7,170 hectares) at the La Guitarra exploration stage property in Chihuahua, southeast of Palmarejo.
The Palmarejo mine is located on the western flank of the Sierra Madre Occidental, a mountain range that comprises the central spine of northern Mexico. The north-northwest trending Sierra Madre Occidental is composed of a relatively flat-lying sequence of Tertiary volcanic rocks that forms a volcanic plateau, cut by numerous igneous intrusive rocks. This volcanic plateau is deeply incised in the Palmarejo mine area, forming steep-walled canyons. The Sierra Madre Occidental gives way to the west
21
to an extensional terrain that represents the southward continuation of the Basin and Range Province of the western United States, and then to the coastal plain of western Mexico.
The gold and silver deposits at the Palmarejo mine, typical of many of the other silver and gold deposits in the Sierra Madre, are classified as epithermal deposits and are hosted in multiple veins, breccias, and fractures. These geologic structures trend generally northwest to southeast and dip either southwest or northeast. The dip on the structures ranges from about 45 degrees to 70 degrees. In the mineralized portions of the structures gold and silver are zoned from top to bottom with higher silver values occurring in the upper parts of the deposit and higher gold values in the lower parts, sometimes accompanied by base metal mineralization, though local variations are common. The Palmarejo property contains a number of mineralized zones or areas of interest. The most important of these to date is the Palmarejo zone in the north of the mining concessions, which covers the old Palmarejo gold-silver mine formed at the intersection of the northwest-southeast trending La Prieta and La Blanca gold-and-silver bearing structures. In addition to Palmarejo, other mineralized vein and alteration systems in the district area have been identified all roughly sub-parallel to the Palmarejo zone. The most significant of these additional targets are the Guadalupe (including Animas) and La Patria vein systems in the southern part of the property, which are currently under development and exploration by the Company.
In 2009, Coeur Mexicana entered into a gold production royalty transaction with Franco-Nevada Corporation under which Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced by Coeur from the Palmarejo mine. A total of 84,915 ounces of gold remain outstanding at December 31, 2014 under the minimum royalty obligation. On October 2, 2014, Coeur Mexicana terminated the Palmarejo gold production royalty effective upon completion of the minimum ounce delivery requirement. Subsequently, Coeur Mexicana entered into a gold stream agreement with a subsidiary of Franco-Nevada Corporation whereby Coeur Mexicana will sell 50% of Palmarejo gold production upon completion of the gold production royalty minimum ounce delivery requirement for the lesser of $800 or spot price per ounce.
Paramount owns the San Miguel project that is located immediately adjacent to Coeur's Palmarejo mine. San Miguel is expected to become a part of the Palmarejo mine if Coeur's acquisition of Paramount closes, which is expected to occur in the second quarter of 2015.
USA — Rochester
The Rochester mine, and associated heap leach facilities, is an open pit silver and gold mine located in Pershing County, Nevada, approximately 12 miles north of the city of Lovelock. The Company owns 100% of the Rochester Mine through Coeur Rochester. The mine consists of the main Rochester deposit and the adjacent Nevada Packard deposit, southwest of Rochester. The Rochester mine is fully supported with electricity, supplied by a local power company on their public grid, telephone and radio communications, production water wells, and processing, maintenance, warehouse, and office facilities. All of these facilities are in good operating condition with no major maintenance expected. Ore is mined using conventional open pit methods, with gold and silver recovered by heap leaching of crushed open-pit ore placed on pads located within the Rochester mining area. Based upon actual operating experience and metallurgical testing, the Company estimates ultimate recovery rates from the crushed ore of 61.0% for silver, depending on the ore being leached, and 92.0% for gold. Silver and gold production from Rochester was approximately 4.2 million ounces and 44,888 ounces in 2014, respectively. At December 31, 2014, we reported 80.2 million ounces of silver reserves and 518,000 ounces of gold reserves at Rochester.
Coeur Rochester lands consist of approximately 11,272 net acres, which encompasses 619 Federal unpatented lode claims, appropriating approximately 9,669 net acres of Public Land, 21 patented lode claims, consisting of approximately 357 acres, interests owned in approximately 1,420 gross acres of additional real property and certain rights in and to approximately 442 acres, held either through lease, letter agreement or license.
The Company acquired the Rochester property from ASARCO in 1983 and commenced mining in 1986. No mining or processing was conducted at Rochester by the prior owner. The Company acquired its initial interest in the adjacent Nevada Packard property in 1996, completed the full purchase in 1999 and commenced mining in 2003. However, mining of the Nevada Packard property has since ceased. The prior owner conducted very limited mining and processing at Nevada Packard. Collectively, the Rochester and Nevada Packard properties, together with other adjacent and contiguous lands subsequently acquired, comprise the Rochester silver and gold processing operation. The Federal unpatented lode claims are maintained via annual filings and timely payment of claim maintenance fees to the BLM, which acts as administrator of the claims.
At Rochester, silver and gold mineralization is hosted in folded and faulted volcanic rocks of the Rochester Formation and overlying Weaver Formation. Silver and gold, consisting of silver sulfosalt minerals, argentite, silver-bearing tetrahedrite and minor native gold, are contained in zones of multiple quartz veins and veinlets (vein, vein swarms and stockworks) with variable amounts of pyrite.
22
The Company is obligated to pay a NSR royalty to ASARCO, the prior owner, when the average quarterly market price of silver equals or exceeds $23.60 per ounce indexed for inflation up to a maximum rate of 5% with the condition that Rochester achieves positive cash flow for the applicable year. If cash flow at Rochester is negative in any calendar year, the maximum royalty payable is $250,000.
Coeur Rochester is obligated to pay a 3.4% NSR royalty on up to 39.4 million silver equivalent ounces produced and sold from a portion of the Rochester mine (including stockpile ore, mineral processing facilities and mining claims located in the Sections set forth in the NSR royalty agreement) commencing January 1, 2014. For each calendar quarter, the royalty is payable on the actual sales prices received at the time of sale (exclusive of gains or losses associated with trading activities), less refining costs, of gold and silver produced and sold from the Rochester mine. At December 31, 2014, 35.5 million silver equivalent ounces remain subject to the 3.4% NSR royalty.
USA — Kensington
The Kensington underground gold mine and associated milling facilities are located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Company controls 100% of the mine through Coeur Alaska. The mine is accessed by a horizontal tunnel and utilizes conventional and mechanized underground mining methods. Ore is processed in a flotation mill that produces a concentrate that is sold to third party smelters. Waste material is deposited in an impoundment facility on the property. Power is supplied to the site by on-site diesel generators. Access to the mine is by either a combination of road vehicles, boat, helicopter, floatplane, or by boat direct from Juneau. Gold production from Kensington was 117,823 ounces in 2014. At December 31, 2014, we reported 629,362 ounces of gold reserves at Kensington.
Coeur Alaska controls two contiguous property groups: the Kensington Group and Jualin Group. The Kensington Group, totaling approximately 3,969 net acres, consists of 51 patented lode and patented mill site claims comprising approximately 766 net acres, 284 Federal unpatented lode claims covering approximately 3,108 net acres, and 13 State of Alaska mining claims covering approximately 95 net acres. The Jualin Group, totaling approximately 8,399 net acres, is composed of 23 patented lode and patented mill site claims covering approximately 388 net acres, 471 Federal unpatented lode claims and 1 Federal unpatented mill Site claim appropriating approximately 7,916 net acres, and 30 State of Alaska mining claims comprising approximately 346 net acres. 14 of the 23 patented lode claims cover private surface estate only. The mineral estate, within the boundaries of these 14 patented lode claims is owned by the State of Alaska, the mineral rights to which are secured by State of Alaska mining claims. The Company controls properties comprising the Jualin Group, under a lease agreement with Hyak Mining Company, which is valid until August 5, 2035 and thereafter, provided mining and production are actively occurring within and from the leased premises.
The Federal unpatented lode and Federal unpatented mill site claims are maintained via annual filings and timely payment of claim maintenance fees to the BLM, which acts as administrator of the claims. State of Alaska mining claims are maintained via filings and fees to the Alaska Department of Natural Resources, Division of Mining, Land and Water and the Juneau Recorder’s Office. Real property taxes are paid annually to the City and Borough of Juneau for the patented lode claims. Lease payments are paid annually and all leases are in good standing.
The Kensington ore deposit consists of multiple gold bearing mesothermal, quartz, carbonate and pyrite vein swarms and discrete quartz-pyrite veins hosted in Cretaceous-aged Jualin diorite. Most of the gold is contained in calaverite (AuTe2) that occurs in association with native gold as inclusions in and interstitial to pyrite grains and in microfractures in pyrite.
Bolivia — San Bartolomé
The San Bartolomé silver mine, and associated milling operation, operated by Manquiri, is located on the flanks of the Cerro Rico Mountain bordering the town of Potosí, in the department of Potosí, Bolivia. Access to the property and Manquiri’s processing facilities is by paved and all-weather gravel roads leading south-southwest from Potosí. Silver was first discovered in the area around 1545. Mining of silver and lesser amounts of tin and base metals has been conducted nearly continuously since that time from multiple underground mines driven into Cerro Rico. Silver production from San Bartolomé was approximately 5.9 million ounces in 2014. At December 31, 2014, we reported 46.0 million ounces of silver reserves at San Bartolomé.
The silver mineralization at San Bartolomé is hosted in unconsolidated sediments (pallacos), reworked sediments (sucus and troceras), and oxide stockpiles and dumps (desmontes) from past mining that occurred on Cerro Rico. Cerro Rico is a prominent mountain in the region that reaches an elevation of over 15,400 feet (over 4,700 meters). It is composed of Tertiary-aged volcanic and intrusive rocks that were emplaced into and over older sedimentary, and volcanic, basement rocks. Silver, along with tin and base metals, is located in multiple veins and vein swarms and stockworks that occur in a northeast trending belt, which transects Cerro Rico. The upper parts of the Cerro Rico mineralized system were subsequently eroded and re-deposited into the flanking gravel deposits. Silver is hosted in all portions of the pallacos, sucus, and troceras with the best grades segregated to the coarser-grained silicified fragments. These deposits lend themselves to simple, free digging surface mining techniques and can be extracted
23
without drilling and blasting. Of the several pallaco deposits that are controlled by Manquiri and surround Cerro Rico, three are of primary importance and are known as Huacajchi, Diablo, and Santa Rita.
The mineral and mining rights for the San Bartolomé mine are held through a mixture of joint venture agreements, long-term lease agreements, and Autorizaciones Transitorias Especiales (similar to mining concessions) with seven independent mining cooperatives and the Bolivian state-owned mining organization COMIBOL. Manquiri controls 2.5 acres (1.01 hectares) of land at San Bartolomé, around Cerro Rico, through these agreements and Autorizaciones Transitorias Especiales and approximately 8,587 acres (3,475 hectares) of Autorizaciones Transitorias Especiales at the Rio Blanco property, a gold exploration target south of Potosí. The San Bartolomé agreements expire between 2021 and 2028 and are generally subject to a production royalty payable partially to the cooperatives and partially to COMIBOL. The royalty rate is 3% at silver prices below $4 per ounce and 6% at prices above $8 per ounce. The rate is a factor of 75% of the silver price between $4 and $8. The Company has additional mining rights, known as the Plahipo project, which include the mining rights to oxide dumps adjacent to the original property package. The oxide dumps included in the Plahipo project are subject to a sliding scale royalty payable to COMIBOL that is a function of silver price. Manquiri incurred royalty payment obligations to COMIBOL and the Cooperatives for these mining rights totaling $4.2 million and $5.3 million for the years ended 2014 and 2013, respectively.
STREAMING AND ROYALTY INTERESTS
Australia — Endeavor
The Endeavor mine and associated mill facility is an underground silver and base metal operation located in north-central New South Wales, Australia, about 447 miles (720 kilometers) from Sydney. Access to the mine is by paved roads 30 miles (18 kilometers) to the northwest from the community of Cobar. The ore reserves at Endeavor are covered by five consolidated mining leases issued by the state of New South Wales to Cobar Operations Pty. Limited (“Cobar”), a wholly owned subsidiary of CBH Resources Ltd. (“CBH”), which in turn is a wholly owned subsidiary of Toho Zinc Co. Ltd., a company listed on the Tokyo Stock Exchange. The leases form a contiguous block of 10,121 acres in size and expire between 2019 and 2027. The mine employs bulk mining methods and utilizes a conventional flotation mill to produce a concentrate that is sold to a third-party smelter. Power to the mine and processing facilities is provided by the grid servicing the local communities. The property and equipment are maintained in good working condition by CBH through a regular preventive maintenance program with periodic improvements as required. Silver production from Endeavor was approximately 0.6 million ounces in 2014. At December 31, 2014, we reported 4.9 million ounces of silver reserves at Endeavor.
The Endeavor mine has been in production since 1983 and is owned and operated by CBH. On May 23, 2005, CDE Australia Pty. Ltd. (“CDE Australia”), a wholly owned subsidiary of Coeur Capital, acquired all of the silver production and reserves, up to a maximum 17.7 million payable ounces, contained at the Endeavor Mine, for $44.0 million including transaction fees. Under the terms of the original agreement, CDE Australia paid Cobar $15.4 million of cash at the closing. In addition, CDE Australia agreed to pay Cobar approximately $26.5 million upon the receipt of a report confirming that the reserves at the Endeavor mine are equal to or greater than the reported ore reserves for 2004. CDE Australia originally committed to pay Cobar an operating cost contribution of $1.00 for each ounce of payable silver (indexed annually and currently $1.29 an ounce) plus a further increment when the silver price exceeds $5.23 per ounce. This further increment was to have begun on the second anniversary of this agreement and is 50% of the amount by which the silver price exceeds $5.23 per ounce. A cost contribution of $0.25 per ounce is also payable by CDE Australia in respect of new ounces of proven and probable silver reserves as they are discovered. During the first quarter of 2007, $2.1 million was paid for additional ounces of proven and probable silver reserves under the terms of the contract. The Company is not required to contribute to ongoing capital costs at the mine.
On March 28, 2006, CDE Australia reached an agreement with CBH to modify the terms of the original silver purchase agreement. Under the modified terms, CDE Australia owns all silver production and reserves up to a total of 20.0 million payable ounces, up from 17.7 million payable ounces in the original agreement. The silver price-sharing provision was deferred until such time as CDE Australia had received approximately two million cumulative ounces of silver from the mine or June 2007, whichever was later. In addition, the silver price-sharing threshold increased to $7.00 per ounce, from the previous level of $5.23 per ounce. The conditions relating to the second payment were also modified and tied to certain paste fill plant performance criteria and mill throughput tests. In January 2008, the mine met the criteria for payment of the additional $26.2 million. This amount was paid on April 1, 2008, plus accrued interest at the rate of 7.5% per annum from January 24, 2008. Expansion of the ore reserve will be required to achieve the maximum payable ounces of silver production as set forth in the modified contract. It is expected that future expansion to the ore reserve will occur as a result of the conversion of portions of the property’s existing inventory of mineralized material and future exploration discoveries near the mine.
At Endeavor, silver, lead, zinc and lesser amounts of copper mineralization are contained within sulfide lenses hosted in fine-grained sedimentary rocks of the Paleozoic-aged Amphitheatre Group. Sulfide lenses are elliptically-shaped, steeply-dipping to the southwest and strike to the northwest. Principal ore minerals are galena, sphalerite and chalcopyrite. Silver occurs with both lead- and zinc-rich sulfide zones.
24
Mexico — El Gallo
The El Gallo/Magistral complex is operated by McEwen Mining and is located in Mexico’s State of Sinaloa, along the foothills of the Sierra Madre Mountains. The complex includes the El Gallo and Palmarito silver deposits and the Magistral gold deposit, located within an eight mile (13 kilometer) radius. The Company, through its wholly-owned subsidiary Coeur Capital, owns a tiered royalty on the mine's production for the life of mine, currently paying a 3.5% NSR royalty.
Ecuador — Zaruma
The Zaruma gold mine is operated and developed by Dynasty Metals & Mining and is located in the cantons of Zaruma and Portovelo, Province of El Oro, Ecuador. The mine is in pre-commercial production, with processing of ore to doré occurring at a processing plant located in Zaruma, Ecuador. The Company, through its wholly-owned subsidiary Coeur Capital, owns a 1.5% NSR royalty on the mine's production for the life of mine.
Chile — Cerro Bayo
The Cerro Bayo underground silver-gold mine is operated by Mandalay Resources and is located in southern Chile, approximately 81 miles (130 kilometers) south of Coyhaique. The Company, through its wholly-owned subsidiary Coeur Capital, owns a 2.0% NSR royalty on the mine's production for the life of mine.
New Zealand — Correnso
The Correnso underground gold mine is operated by Newmont Mining Corporation and is located near the town of Waihi, New Zealand. The Company owns an 80% interest in a 2.5% royalty on the mine's production for the life of the mine.
Other Royalties
The Company also owns several royalties on non-producing properties.
EXPLORATION STAGE PROPERTIES
Mexico — La Preciosa Project
On April 16, 2013, the Company completed its acquisition of Orko Silver Corporation (since renamed Coeur La Preciosa Silver Corp.), which owns the mining concessions of the La Preciosa project. La Preciosa is an advanced-stage silver and gold exploration project located approximately 52 miles (84 kilometers) northeast of the city of Durango in Durango State, Mexico. The La Preciosa property comprises 14 mining concessions, covering an area of approximately 95,340 acres (approximately 38,583 hectares), located along the eastern flank of the Sierra Madre Occidental Mountain range. At December 31, 2014, we reported 118.7 million ounces of silver reserves and 202,079 ounces of gold reserves at La Preciosa The Company completed a feasibility study in 2014, and has deferred construction activities until expected returns improve.
The Tertiary age epithermal quartz veins containing economic levels of silver and gold mineralization are hosted in Cretaceous age conglomerate and Tertiary age andesitic volcanic rocks. The veins at the La Preciosa have been classified as low- to intermediate-sulfidation type. Two major vein and vein breccia systems are exposed on hills and ridges on either side of an approximately 800 meter wide valley. The dominant geological feature on the Property is the northwest-trending La Preciosa Ridge which hosts the north-striking and westward-dipping main vein system, which includes the Martha, Abundancia, Gloria, Pica, Luz Elena, Sur, and Nueva veins. These veins are crosscut by east-striking, south-dipping transversal veins. The major vein breccia system to the east of La Preciosa Ridge on the eastern side of the valley floor includes the northwest striking Zona Oriente and Zona Oriente Extension, which is believed to be the surface expression of the Martha vein.
Argentina — Joaquin Project
The Joaquin silver and gold exploration project is located in the Santa Cruz province of southern Argentina, approximately 43 miles (70 kilometers) north of the Company's now dormant Martha mine. The property is accessed by all-weather dirt roads, leading north-northeast from the town of Gobernador Gregores. The Joaquin property encompasses over 60,444 acres (24,461 hectares) of Cateos and MDs. On December 21, 2012, the Company completed its acquisition of the equity interests of Mirasol Argentina SRL. Coeur previously held a 51% interest in the project.
The geology of the Joaquin property consists dominantly of various volcanic rocks of the Jurassic-aged Chon Aike Formation, the host to most of the precious metal deposits discovered to date in the Santa Cruz province, with lesser amounts of
25
intrusive rocks associated with the Chon Aike Formation. Collectively, the volcanic and intrusive rock units form a prominent geologic domain in the province termed the Deseado Massif. Silver and gold mineralization at Joaquin occurs in epithermal veins, breccia, stockwork veinlets and mantos within the favorable units of the Chon Aike Formation. Occurrences of lead and zinc mineralization have also been discovered. Locally, the rocks of the Deseado Massif are covered by Tertiary-aged basalt and younger unconsolidated sediments, that post-date silver and gold mineralization.
Argentina — Martha Mine
The Martha underground silver and gold mine is located in the Santa Cruz province of southern Argentina, owned by Coeur Argentina S.R.L., a wholly owned subsidiary of the Company. The Martha mine ceased active mining operations in September 2012. The mineral rights for the Martha property are fully owned by Coeur Argentina S.R.L. Surface rights covering the Martha deposit are controlled by the 138 square mile (35,705 hectare) Cerro Primero de Abril Estancia, which is owned by Coeur Argentina S.R.L.
EXPLORATION AND DEVELOPMENT ACTIVITY
Exploration expense was $21.7 million, $22.4 million, and $26.3 million in 2014, 2013 and 2012, respectively. Coeur's exploration program completed over 446,547 feet (136,108 meters) of combined core and reverse circulation drilling in 2014.
Mexico — Palmarejo
Exploration in 2014 was focused primarily around the Palmarejo surface and underground mines. A total of $6.9 million was spent in 2014 on mapping, sampling, drill target generation, and drilling to identify and define new silver and gold mineralization, for a total of 82,617 feet (25,182 meters). The Company expects to spend $4.7 million in 2015 to discover and expand silver and gold mineralization in the Guadalupe-Independencia corridor, and for new project reviews in Mexico.
USA — Kensington
Exploration in 2014 consisted of drilling 187,558 feet (57,168 meters) at Kensington. A total of $8.0 million was spent in 2014, primarily to expand and define mineralization in the main Kensington deposit, while discovery drilling was primarily focused on the high-grade Jualin area south of main Kensington. The Company expects to spend $2.2 million in 2015 for additional expansion at Jualin and South Kensington.
USA — Rochester
The Company spent $2.5 million on exploration at Rochester to conduct programs focused on expansion and definition drilling in 2014, which amounted to 164,417 feet (50,114 meters) for the year. The Company expects to spend $1.2 million in 2015 for additional target generation and drill testing around Rochester.
Bolivia — San Bartolomé
In 2014, the Company spent $0.1 million to complete trenching and sampling at several silver-bearing gravel deposits to expand and define known silver mineralization. The Company expects to spend $0.4 million in 2015 for follow-up trenching and sampling around San Bartolomé and for land holding costs.
Project Evaluation
The Company spent $2.5 million in 2014 to evaluate and explore several new project opportunities in the United States and Mexico with a total of 11,955 feet (3,656 meters) drilled at the Wonder Project in Nevada. The Company expects to spend $2.5 million in 2015 for additional drilling at the Wonder Project and several other projects.
OPERATING STATISTICS
| Palmarejo | Rochester | ||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
| Ore tons milled | 2,135,088 | 2,322,660 | 2,114,366 | 13,154,429 | 10,693,654 | 8,926,598 | |||||||||||||||||
| Ore grade silver (oz./ton) | 3.97 | 4.21 | 4.70 | 0.57 | 0.55 | 0.51 | |||||||||||||||||
| Ore grade gold (oz./ton) | 0.05 | 0.06 | 0.05 | 0.004 | 0.003 | 0.004 | |||||||||||||||||
| Recovery/Ag oz. (%) | 77.5 | 77.7 | 83.0 | 50.0 | 41.1 | 51.7 | |||||||||||||||||
| Recovery/Au oz. (%) | 80.5 | 84.2 | 94.4 | 85.7 | 89.4 | 80.8 | |||||||||||||||||
| Silver produced (oz.) | 6,558,091 | 7,603,144 | 8,236,013 | 4,189,071 | 2,798,937 | 2,801,405 | |||||||||||||||||
| Gold produced (oz.) | 86,673 | 116,536 | 106,038 | 44,888 | 30,860 | 38,066 | |||||||||||||||||
Costs applicable to sales/oz.(1) | $ | 15.40 | $ | 13.25 | $ | 13.19 | $ | 14.49 | $ | 15.54 | $ | 16.13 | |||||||||||
26
| San Bartolomé | Endeavor | ||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
| Ore tons milled | 1,749,423 | 1,679,839 | 1,477,271 | 792,694 | 791,116 | 791,209 | |||||||||||||||||
| Ore grade silver (oz./ton) | 3.80 | 3.93 | 4.49 | 1.63 | 1.85 | 2.26 | |||||||||||||||||
| Recovery/Ag oz. (%) | 88.1 | 90.0 | 89.5 | 45.6 | 41.3 | 37.2 | |||||||||||||||||
| Silver produced (oz.) | 5,851,678 | 5,940,538 | 5,930,394 | 589,585 | 605,832 | 665,876 | |||||||||||||||||
Costs applicable to sales/oz.(1) | $ | 14.29 | $ | 14.28 | $ | 12.40 | $ | 7.17 | $ | 9.61 | $ | 13.48 | |||||||||||
| Kensington | |||||||||||
| 2014 | 2013 | 2012 | |||||||||
| Ore tons milled | 635,960 | 553,717 | 394,780 | ||||||||
| Ore grade gold (oz./ton) | 0.20 | 0.22 | 0.22 | ||||||||
| Recovery/Au oz. (%) | 94.0 | 94.2 | 93.2 | ||||||||
| Gold produced (oz.) | 117,823 | 111,951 | 80,071 | ||||||||
Costs applicable to sales/oz.(1) | $ | 951 | $ | 901 | $ | 1,214 | |||||
(1) See Non-GAAP Financial Performance Measures
PROVEN AND PROBABLE RESERVES
Silver Reserves at December 31, 2014(1)(2)(3) | ||||||||||||||||||||||||||||
| Proven Reserves | Probable Reserves | Proven and Probable Reserves | ||||||||||||||||||||||||||
| Tons (000s) | Grade (oz./ton) | Ounces (000s) | Tons (000s) | Grade (oz./ton) | Ounces (000s) | Tons (000s) | Grade (oz./ton) | Ounces (000s) | Metallurgical Recovery | |||||||||||||||||||
Palmarejo(5) | 1,089 | 3.37 | 3,670 | 5,627 | 4.80 | 27,007 | 6,716 | 4.57 | 30,677 | 81-83% | ||||||||||||||||||
San Bartolomé(6) | 1,206 | 2.73 | 3,287 | 13,337 | 3.20 | 42,724 | 14,543 | 3.16 | 46,011 | 74-83% | ||||||||||||||||||
Rochester(7) | 89,077 | 0.56 | 49,786 | 56,158 | 0.54 | 30,418 | 145,235 | 0.55 | 80,204 | 61% | ||||||||||||||||||
Endeavor(8) | 1,323 | 1.82 | 2,411 | 1,102 | 2.24 | 2,469 | 2,425 | 2.01 | 4,880 | 50% | ||||||||||||||||||
La Preciosa(9) | 18,830 | 3.16 | 59,534 | 21,851 | 2.71 | 59,196 | 40,681 | 2.92 | 118,730 | 84% | ||||||||||||||||||
| Total Silver | 111,525 | 118,688 | 98,075 | 161,814 | 209,600 | 280,502 | ||||||||||||||||||||||
Gold Reserves at December 31, 2014(1)(2)(3) | ||||||||||||||||||||||||||||
| Proven Reserves | Probable Reserves | Proven and Probable Reserves | ||||||||||||||||||||||||||
| Tons (000s) | Grade (oz./ton) | Ounces | Tons (000s) | Grade (oz./ton) | Ounces | Tons (000s) | Grade (oz./ton) | Ounces | Metallurgical Recovery | |||||||||||||||||||
Kensington(4) | 417 | 0.188 | 78,281 | 2,986 | 0.185 | 551,081 | 3,403 | 0.185 | 629,362 | 95% | ||||||||||||||||||
Palmarejo(5) | 1,089 | 0.043 | 46,423 | 5,627 | 0.078 | 441,287 | 6,716 | 0.073 | 487,710 | 85-87% | ||||||||||||||||||
Rochester(7) | 89,077 | 0.004 | 346,000 | 56,158 | 0.003 | 172,000 | 145,235 | 0.004 | 518,000 | 92% | ||||||||||||||||||
La Preciosa(9) | 18,830 | 0.006 | 110,940 | 21,851 | 0.004 | 91,139 | 40,681 | 0.005 | 202,079 | 61% | ||||||||||||||||||
| Total Gold | 109,413 | 581,644 | 86,622 | 1,255,507 | 196,035 | 1,837,151 | ||||||||||||||||||||||
Silver Reserves at December 31, 2013(1)(2)(3) | ||||||||||||||||||||||||||||
| Proven Reserves | Probable Reserves | Proven and Probable Reserves | ||||||||||||||||||||||||||
| Tons (000s) | Grade (oz./ton) | Ounces (000s) | Tons (000s) | Grade (oz./ton) | Ounces (000s) | Tons (000s) | Grade (oz./ton) | Ounces (000s) | Metallurgical Recovery | |||||||||||||||||||
Palmarejo(5) | 5,100 | 3.68 | 18,762 | 6,135 | 3.73 | 22,891 | 11,235 | 3.71 | 41,653 | 63-80% | ||||||||||||||||||
San Bartolomé(6) | 1,206 | 2.87 | 3,456 | 39,700 | 2.52 | 100,072 | 40,906 | 2.53 | 103,528 | 77-86% | ||||||||||||||||||
Rochester(7) | 132,188 | 0.53 | 69,915 | 55,046 | 0.57 | 31,454 | 187,234 | 0.54 | 101,369 | 61% | ||||||||||||||||||
Endeavor(8) | 2,646 | 2.58 | 6,820 | 1,433 | 1.41 | 2,026 | 4,079 | 2.17 | 8,846 | 45% | ||||||||||||||||||
| Total Silver | 141,140 | 0.70 | 98,953 | 102,314 | 1.53 | 156,443 | 243,454 | 1.05 | 255,396 | |||||||||||||||||||
27
Gold Reserves at December 31, 2013(1)(2)(3) | ||||||||||||||||||||||||||||
| Proven Reserves | Probable Reserves | Proven and Probable Reserves | ||||||||||||||||||||||||||
| Tons (000s) | Grade (oz./ton) | Ounces | Tons (000s) | Grade (oz./ton) | Ounces | Tons (000s) | Grade (oz./ton) | Ounces | Metallurgical Recovery | |||||||||||||||||||
Kensington(4) | 354 | 0.243 | 86,000 | 5,662 | 0.158 | 897,000 | 6,016 | 0.163 | 983,000 | 94.5% | ||||||||||||||||||
Palmarejo(5) | 5,100 | 0.050 | 255,620 | 6,135 | 0.051 | 313,000 | 11,235 | 0.051 | 568,620 | 93% | ||||||||||||||||||
Rochester(7) | 132,188 | 0.004 | 551,000 | 55,046 | 0.002 | 130,000 | 187,234 | 0.004 | 681,000 | 92% | ||||||||||||||||||
| Total Gold | 137,642 | 0.006 | 892,620 | 66,843 | 0.020 | 1,340,000 | 204,485 | 0.011 | 2,232,620 | |||||||||||||||||||
| (1) | Certain definitions: |
The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination.
The term “proven (measured) reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that size, shape, depth and mineral content of reserves are well established.
The term “probable (indicated) reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. Proven and probable reserves include silver attributable to Coeur’s ownership or economic interest in the Endeavor project.
The term “cutoff grade” means the lowest grade of mineralized material considered economic to process. Cutoff grades vary between deposits depending upon prevailing economic conditions, mineability of the deposit, by-products, amenability of the mineralized material to silver or gold extraction and type of milling or leaching facilities available.
| (2) | Effective at December 31, 2014. Assumed metal prices for estimated 2014 proven and probable reserves were $19.00 per ounce of silver and $1,275 per ounce of gold except where otherwise noted. Assumed metal prices for estimated 2013 proven and probable reserves were $25.00 per ounce of silver and $1,450 per ounce of gold except where otherwise noted. |
| (3) | Mineral reserve estimates, with the exception of Endeavor, were prepared by the Company's technical staff with the assistance of independent consulting firms. Endeavor mineral reserve estimates were prepared by the CBH Resources Ltd. staff and reviewed by the Company’s technical staff. |
| (4) | Calculated based on cutoff assuming the metal prices noted above. The cutoff grade for mineral reserves is 0.15 oz/ton Au |
| (5) | Calculated based on cutoff assuming the metal prices noted above. The cutoff grades for mineral reserves range from 2.9 to 3.5 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 58.4)) for underground, and 1.4 to 1.9 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 71.7)) for open pit. |
| (6) | Calculated based on cutoff assuming the metal prices noted above. The cutoff grades for mineral reserves range from 85 to 133 g/tonne Ag based on material. |
| (7) | Calculated based on cutoff assuming the metal prices noted above. The cutoff grade for mineral reserves is 0.48 oz/ton AgEq (silver equivalent = Ag oz/ton + (Au oz/ton × 102)). |
| (8) | Effective at June 30, 2014, which is the end of the most recent fiscal year of the operator, CBH Resources Ltd. These totals do not include additions or depletions through December 31, 2013. Mineral reserves were estimated with a cutoff grade of 10.0% combined lead and zinc. Metal prices used were $2,400 per metric ton of zinc, $2,200 per metric ton of lead, and $20.00 per ounce of silver. |
| (9) | Calculated based on cutoff assuming the metal prices noted above. A Net Smelter Return (“NSR”) cutoff of $16.88/tonne was used, based on the following parameters: NSR = [(Ag price per ounce - refining charge) × plant recovery × payable recovery] + [(Au price per ounce - refining charge) × plant recovery × payable recovery] |
MINERALIZED MATERIAL
Mineralized Material at December 31, 2014(1)(2)(3)(4) | ||||||||
| Tons (000s) | Silver Grade (oz./ton) | Gold Grade (oz./ton) | ||||||
Palmarejo Mine, Mexico(5) | 4,971 | 4.78 | 0.084 | |||||
San Bartolomé Mine, Bolivia(6) | 7,033 | 1.91 | — | |||||
Kensington Mine, USA(7) | 1,566 | — | 0.244 | |||||
Rochester Mine, USA(8) | 173,201 | 0.43 | 0.003 | |||||
Endeavor Mine, Australia(9) | 12,897 | 2.33 | — | |||||
La Preciosa Project, Mexico(10) | 7,114 | 1.63 | 0.003 | |||||
Joaquin Project, Argentina(11) | 11,551 | 4.68 | 0.003 | |||||
Lejano Project, Argentina(12) | 631 | 3.09 | 0.011 | |||||
Martha Property, Argentina(13) | 57 | 13.57 | 0.017 | |||||
| Total Mineralized Material | 219,021 | |||||||
28
Mineralized Material at December 31, 2013(1)(2)(3)(4) | ||||||||
| Tons (000s) | Silver Grade (oz./ton) | Gold Grade (oz./ton) | ||||||
Palmarejo Mine, Mexico(5) | 26,302 | 2.17 | 0.043 | |||||
San Bartolomé Mine, Bolivia(6) | 17,015 | 2.17 | — | |||||
Kensington Mine, USA(7) | 2,686 | — | 0.210 | |||||
Rochester Mine, USA(8) | 141,722 | 0.44 | 0.003 | |||||
Endeavor Mine, Australia(9) | 14,991 | 2.43 | — | |||||
La Preciosa Project, Mexico(10) | 49,350 | 2.54 | 0.005 | |||||
Joaquin Project, Argentina(11) | 16,963 | 3.82 | 0.004 | |||||
Lejano Project, Argentina(12) | 1,233 | 2.42 | 0.008 | |||||
Martha Property, Argentina(13) | 57 | 13.57 | 0.017 | |||||
| Total Mineralized Material | 270,319 | |||||||
| (1) | Assumed metal prices for estimated 2014 mineralized material were $22.00 per ounce of silver and $1,300 per ounce of gold. Assumed metal prices for estimated 2013 mineralized material were $29.00 per ounce of silver and $1,600 per ounce of gold. |
| (2) | Estimated with mining cost parameters and initial metallurgical test results. |
| (3) | Estimates were prepared by a number of different consulting groups and supervised by the Company's personnel. |
| (4) | Estimated using 3-dimensional geologic modeling and geostatistical evaluation of the exploration drill data. Mineralized material is reported exclusive of reserves. “Mineralized material” as used in this Annual Report on Form 10-K, although permissible under Guide 7, does not indicate “reserves” by SEC standards. There is no certainty that any part of the reported mineralized material will ever be confirmed or converted into Guide 7 compliant “reserves”. |
| (5) | Calculated based on cutoff assuming the metal prices noted above. Cutoff grades for mineralized material at Palmarejo is: underground mineralized material 2.74 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 65.4)); and open pit mineralized material 1.35 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 65.5)). Cutoff grades for mineralized material at Guadalupe is: underground mineralized material 3.39 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 52.1)); and open pit mineralized material 1.87 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 52.1)). New drilling (current through mid-2014) has been included in the mineralized material estimate. Cutoff grades for Independencia underground mineralized material is 90 g/tonne AuEq (gold equivalent = Au g/tonne + (Ag g/tonne × 60)). |
| (6) | Calculated based on cutoff assuming the metal prices noted above. Cutoff grades for mineralized material range from 73 to 127 g/tonne Ag based on material. |
| (7) | Calculated based on cutoff assuming the metal prices noted above. The cutoff grade for mineralized material is 0.123 oz/ton Au. |
| (8) | Calculated based on cutoff assuming the metal prices noted above. The cutoff grade for mineralized material is 0.41 oz/ton AgEq (silver equivalent = Ag oz/ton + (Au oz/ton × 93)). |
| (9) | Prepared by CBH Resources Ltd. staff and reviewed by the Company’s technical staff. |
| (10) | Calculated based on cutoff assuming the metal prices noted above. A Net Smelter Return (“NSR”) cutoff of $16.88/tonne was used, based on the following parameters: NSR = [(Ag price per ounce - refining charge) × plant recovery × payable recovery] + [(Au price per ounce - refining charge) × plant recovery × payable recovery] |
| (11) | Calculated based on a cutoff assuming the metal prices noted above. The cutoff grade for mineralized material is 35.52 g/tonne Ag for oxides and 27.35 g/tonne Ag for sulfides. |
| (12) | Calculated based on a cutoff assuming the metal prices noted above. The cutoff grade for mineralized material is 45.66 g/tonne Ag for oxides and 27.35 g/tonne Ag for sulfides. |
| (13) | No changes were made to cutoff grades in 2014 for the Martha project. |
| Item 3. | Legal Proceedings. |
For a discussion of legal proceedings, see Note 20 -- Commitments and Contingencies in the notes to the consolidated financial statements included herein.
Item 4. Mine Safety Disclosures
Information pertaining to mine safety matters is reported in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act in Exhibit 95.1 attached to this Form 10-K.
29
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The following table sets forth, for the periods indicated, the high and low closing sales prices of the common stock as reported by the NYSE:
| 2014 | 2013 | ||||||||||||||
| High | Low | High | Low | ||||||||||||
| First Quarter | $ | 11.92 | $ | 9.29 | $ | 25.20 | $ | 18.03 | |||||||
| Second Quarter | $ | 9.63 | $ | 6.69 | $ | 18.51 | $ | 11.49 | |||||||
| Third Quarter | $ | 9.28 | $ | 4.96 | $ | 16.57 | $ | 11.54 | |||||||
| Fourth Quarter | $ | 5.28 | $ | 3.40 | $ | 13.05 | $ | 10.00 | |||||||
| 2015 | |||||||||||||||
| First Quarter through February 19, 2015 | $ | 7.27 | $ | 5.30 | |||||||||||
The Company has not paid cash dividends on its common stock since 1996. Future dividends, if any, will be determined by the Company’s Board of Directors and will depend upon the Company’s results of operations, financial condition, capital requirements and other factors.
On February 19, 2015, there were outstanding 103,342,296 shares of the Company’s common stock which were held by approximately 1,500 stockholders of record.
30
STOCK PERFORMANCE CHART
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG COEUR MINING, S&P 500 INDEX AND PEER GROUP INDEX
The following performance graph compares the performance of the Company's common stock during the period beginning December 31, 2009 and ending December 31, 2014 to the S&P 500 and a Peer Group Index consisting of the following companies: Agnico-Eagle Mines Limited, Alamos Gold Inc., Allied Nevada Gold Corporation, AuRico Gold Inc., Centerra Gold Inc., First Majestic Silver, Hecla Mining Company, Hochschild Mining, New Gold, Pan American Silver Corporation, Silver Standard Resources, Inc., and Stillwater Mining Company.
The graph assumes a $100 investment in the Company's common stock and in each of the indexes at the beginning of the period, and a reinvestment of dividends paid on such investments throughout the five-year period.
Dec. 2010 | Dec. 2011 | Dec. 2012 | Dec. 2013 | Dec. 2014 | ||||||
| Coeur Mining | 151.27 | 133.67 | 136.21 | 60.08 | 28.29 | |||||
| S&P 500 Index | 115.06 | 117.49 | 136.30 | 180.44 | 205.14 | |||||
| Peer Group | 163.83 | 109.54 | 119.44 | 59.67 | 53.54 | |||||
This stock performance information is “furnished” and shall not be deemed to be “soliciting material” or subject to Rule 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by reference.
31
| Item 6. | Selected Financial Data |
The following table summarizes certain selected consolidated financial data with respect to the Company and should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.
| Year ended December 31, | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| Revenue | $ | 635,742 | $ | 745,994 | $ | 895,492 | $ | 1,021,200 | $ | 515,457 | ||||||||||
| COSTS AND EXPENSES | ||||||||||||||||||||
| Costs applicable to sales | 477,945 | 463,663 | 454,562 | 419,547 | 256,096 | |||||||||||||||
| Amortization | 162,436 | 229,564 | 216,032 | 221,852 | 139,285 | |||||||||||||||
| Other operating costs and expenses | 88,622 | 124,933 | 63,333 | 72,596 | 43,636 | |||||||||||||||
| Write-downs | 1,472,721 | 772,993 | 5,825 | — | — | |||||||||||||||
| Operating income (loss) from continuing operations | (1,565,982 | ) | (845,159 | ) | 155,740 | 307,205 | 76,440 | |||||||||||||
| Other income (expense), net | (49,146 | ) | 36,480 | (36,256 | ) | (98,960 | ) | (167,565 | ) | |||||||||||
| Income (loss) from continuing operations before income taxes | (1,615,128 | ) | (808,679 | ) | 119,484 | 208,245 | (91,125 | ) | ||||||||||||
| Income and mining tax (expense) benefit | 459,244 | 158,116 | (70,807 | ) | (114,746 | ) | 7,941 | |||||||||||||
| Income (loss) from continuing operations | (1,155,884 | ) | (650,563 | ) | 48,677 | 93,499 | (83,184 | ) | ||||||||||||
| Income (loss) from discontinued operations | — | — | — | — | (6,029 | ) | ||||||||||||||
| Gain (loss) on sale of net assets of discontinued operation | — | — | — | — | (2,095 | ) | ||||||||||||||
| Net income (loss) | $ | (1,155,884 | ) | $ | (650,563 | ) | $ | 48,677 | $ | 93,499 | $ | (91,308 | ) | |||||||
| Income (loss) Per Share | ||||||||||||||||||||
| Basic: | ||||||||||||||||||||
| Continuing operations | $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | $ | 1.05 | $ | (0.95 | ) | |||||||
Discontinued operations(1) | — | — | — | — | (0.10 | ) | ||||||||||||||
| $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | $ | 1.05 | $ | (1.05 | ) | ||||||||
| Diluted: | ||||||||||||||||||||
| Continuing operations | $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | $ | 1.04 | $ | (0.95 | ) | |||||||
Discontinued operations(1) | — | — | — | — | (0.10 | ) | ||||||||||||||
| $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | $ | 1.04 | $ | (1.05 | ) | ||||||||
| At December 31, | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| Total assets | $ | 1,455,418 | $ | 2,885,978 | $ | 3,221,401 | $ | 3,264,441 | $ | 3,157,527 | ||||||||||
| Working capital | $ | 400,114 | $ | 386,669 | $ | 167,930 | $ | 212,862 | $ | (4,506 | ) | |||||||||
| Long-term liabilities | $ | 696,410 | $ | 1,010,850 | $ | 784,869 | $ | 875,639 | $ | 846,043 | ||||||||||
| Stockholders’ equity | $ | 585,318 | $ | 1,730,567 | $ | 2,198,280 | $ | 2,136,721 | $ | 2,040,767 | ||||||||||
| (1) | In August 2010, the Company sold its 100% interest in subsidiary Compañía Minera Cerro Bayo (“Minera Cerro Bayo”) to Mandalay Resources Corporation (“Mandalay”). The Company realized a loss on the sale of approximately $2.1 million, net of income taxes. |
32
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Coeur Mining, Inc. and its subsidiaries (collectively "the Company", "our", or "we"). We use certain non-GAAP financial performance measures in our MD&A such as costs applicable to sales, all-in sustaining costs, and adjusted net income. For a detailed description of each of these non-GAAP measures, please see "Non-GAAP Financial Performance Measures" at the end of this item.
Overview
We are a large silver producer with significant gold production and mines located in the United States, Mexico, and Bolivia; exploration projects in Mexico and Argentina; and streaming and royalty interests in Australia, Mexico, Ecuador, Chile, and New Zealand. The Palmarejo, San Bartolomé, Kensington, and Rochester mines, each of which is operated by the Company, and the Endeavor silver stream constitute our principal sources of revenue. The Company also owns other precious metal royalties.
Our strategy is to discover, acquire, develop and operate low-cost silver and gold mines and acquire precious metal streaming and royalty interests that together produce long-term cash flow, provide opportunities for growth through continued exploration, and generate superior and sustainable returns for stockholders. Management focuses on maximizing net cash flow through identifying and implementing revenue enhancement opportunities, reducing operating and non-operating costs, consistent capital discipline, and efficient management of working capital.
2014 Highlights
| • | Metal sales of $632.5 million and royalty revenue of $3.2 million |
| • | Production of 32.2 million silver equivalent ounces, consisting of 17.2 million silver ounces and 249,384 gold ounces |
| • | Costs applicable to sales were $14.71 per silver equivalent ounce and $951 per gold ounce (see "Non-GAAP Financial Performance Measures") |
| • | All-in sustaining costs were $19.72 per silver equivalent ounce (see "Non-GAAP Financial Performance Measures") |
| • | General and administrative expenses were reduced by 26.2% to $40.8 million |
| • | Non-cash impairment charges of $1,472.7 million ($1,021.8 million after tax) |
| • | Adjusted net loss of $112.0 million or $1.09 per share (see "Non-GAAP Financial Performance Measures") |
| • | Cash flow from operating activities of $52.9 million |
| • | Ending balance of $270.9 million in cash and cash equivalents |
| • | Capital expenditures of $64.2 million, down 36% from prior year |
| • | Terminated the Palmarejo gold production royalty, effective upon completion of the minimum ounce delivery requirement in the third quarter of 2016, and sold a new gold stream for 50% of then-remaining Palmarejo gold production to a subsidiary of Franco-Nevada |
| • | Announced the planned acquisition of Paramount Gold and Silver Corp. |
| • | Subsequent to year-end, announced the planned acquisition of the Wharf gold mine |
Consolidated Performance
Net loss was $1,155.9 million in 2014 compared to Net loss of $650.6 million in 2013. The higher Net loss in 2014 is primarily due to the $1,021.8 million after-tax impairment charge and lower average realized silver and gold prices.
The Company produced 17.2 million ounces of silver and 249,384 ounces of gold in 2014, compared to 16.9 million ounces of silver and 259,347 ounces of gold in 2013. Silver production increased in 2014 due to higher recoveries and tons placed at Rochester, partly offset by lower grade and mill throughput at Palmarejo. Gold production decreased in 2014 due to lower grade and mill throughput at Palmarejo, partly offset by higher mill throughput at Kensington and higher recoveries at Rochester. Costs applicable to sales were $14.71 per silver equivalent ounce and $951 per gold ounce in 2014, compared to $13.85 per silver equivalent ounce and $901 per gold ounce in 2013. Costs applicable to sales per silver equivalent ounce increased in 2014 due to higher unit costs at Palmarejo, partly offset by lower unit costs at Rochester. Costs applicable to sales per gold ounce increased in 2014 due to higher unit costs at Kensington.
33
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
Silver ounces produced(2) | 17,188,425 | 16,948,451 | 17,633,688 | |||||||||
Gold ounces produced(2) | 249,384 | 259,347 | 224,175 | |||||||||
Silver equivalent ounces produced(1) | 32,151,465 | 32,509,271 | 31,084,188 | |||||||||
Silver ounces sold(2) | 17,423,662 | 17,105,259 | 17,400,287 | |||||||||
Gold ounces sold(2) | 242,655 | 263,048 | 211,981 | |||||||||
Silver equivalent ounces sold(1) | 31,982,962 | 32,888,139 | 30,645,467 | |||||||||
| Average realized price per silver ounce | $ | 18.87 | $ | 23.94 | $ | 31.81 | ||||||
| Average realized price per gold ounce | $ | 1,252 | $ | 1,327 | $ | 1,336 | ||||||
Costs applicable to sales per silver equivalent ounce(3) (excluding Kensington) | $ | 14.71 | $ | 13.85 | $ | 13.93 | ||||||
Costs applicable to sales per gold ounce(3) (Kensington) | $ | 951 | $ | 901 | $ | 1,214 | ||||||
All-in sustaining costs per silver equivalent ounce(3) | $ | 19.72 | $ | 19.83 | $ | 21.30 | ||||||
| (1) | Silver equivalent ounces calculated using a 60:1 silver to gold ratio. |
| (2) | Payable basis. Production before smelter losses was 17,267,419, 17,011,193, and 18,025,206 silver ounces and 252,187, 262,217, and 226,486 gold ounces in 2014, 2013, and 2012, respectively. Sales before smelter losses were 17,501,617, 17,188,539, and 17,965,383 silver ounces and 245,280, 264,493, and 213,185 gold ounces in 2014, 2013, and 2012, respectively. |
| (3) | See "Non-GAAP Financial Performance Measures." |
Looking Forward
We continue to focus on operational excellence, cost containment and prudent capital deployment to deliver on our plans, resulting in the following expectations for 2015:
| • | Silver equivalent production of 31.8 - 34.8 million ounces, consisting of 14.8 - 16.0 million ounces of silver and 284,000 - 313,000 ounces of gold |
| • | Costs applicable to sales per silver equivalent ounce of $12.50 - $14.00 at Rochester, $13.50 - $15.00 at San Bartolomé, and $16.25 - $17.75 at Palmarejo. |
| • | Costs applicable to sales of $900 - $975 per gold ounce at Kensington and $750 - $825 per gold equivalent ounce at Wharf |
| • | Capital expenditures of $90 - $105 million |
| • | General and administrative expenses of $36 - $39 million |
| • | Exploration expense at the Company's current assets of $10 - $12 million |
These projections assume the previously announced acquisition of the Wharf gold mine from Goldcorp, Inc. closes on February 20, 2015. Projections for Wharf are based on guidance provided by Goldcorp on January 12, 2015.
Consolidated Financial Results
2014 compared to 2013
Revenue
Metal sales decreased by $113.5 million, or 15.2%, to $632.5 million due to lower average realized silver and gold prices and lower gold ounces sold as a result of shipping delays from the Kensington mine due to a labor dispute affecting ports on the west coast of the U.S. The Company sold 17.4 million silver ounces and 242,655 gold ounces, compared to sales of 17.1 million silver ounces and 263,048 gold ounces. The Company realized average silver and gold prices of $18.87 per ounce and $1,252 per ounce, respectively, compared to average realized prices of $23.94 per ounce and $1,327 per ounce, respectively. Silver contributed 52% of sales and gold contributed 48%, compared to 53% of sales from silver and 47% from gold. Royalty revenue increased $3.2 million, primarily due to the acquisition of royalty assets by Coeur Capital in the fourth quarter of 2013.
34
Costs Applicable to Sales
Costs applicable to sales increased by $14.3 million, or 3.1%, to $477.9 million. The increase in costs applicable to sales is primarily due to higher production at Rochester. For a complete discussion of costs applicable to sales, see "Results of Operations" below.
Amortization
Amortization decreased by $67.1 million, or 29.2%, primarily due to lower amortizable mineral interests and mining equipment as a result of the 2013 write-downs at the Palmarejo and Kensington mines.
Expenses
General and administrative expenses decreased $14.5 million, or 26.2%, primarily due to lower relocation costs compared to 2013.
Exploration expense decreased 2.8% to $21.7 million, primarily as a result of reduced exploration activity near the Company’s Joaquin project in Argentina, mostly offset by higher exploration at Kensington.
The $32.0 million Litigation settlement in 2013 relates to the settlement of the Rochester claims dispute. In connection with the settlement, Coeur Rochester acquired all mining claims in dispute in exchange for a one-time $10.0 million cash payment and granting a 3.4% NSR royalty on up to 39.4 million silver equivalent ounces from the Rochester mine beginning January 1, 2014.
Pre-development, reclamation, and other expenses increased 71.5% to $26.0 million, primarily due to La Preciosa feasibility study costs, which was completed in July 2014.
Write-downs were $1,472.7 million ($1,021.8 million after tax) compared to $773.0 million ($504.5 million after tax). The non-cash impairment charges were largely driven by significant decreases in long-term metal price assumptions and revised mine plans in the fourth quarter. The 2014 write-down was primarily related to the Palmarejo, Kensington, and San Bartolomé mines and the La Preciosa and Joaquin exploration projects.
Other Income and Expenses
Non-cash fair value adjustments, net, including other-than-temporary impairments of equity securities, reflected a loss of $3.0 million compared to a gain of $64.5 million, primarily due to changes in future metal prices on the Palmarejo gold production royalty and the Rochester 3.4% NSR royalty obligation.
Interest income and other, net decreased by $11.9 million to income of $1.4 million, compared to income of $13.3 million, primarily due to the substitution of certain reclamation bonds for restricted cash in 2013.
Interest expense (net of capitalized interest) increased to $47.5 million from $41.3 million primarily due to the March 2014 issuance of an additional $150 million of 7.875% Senior Notes due 2021 (the "Senior Notes") and the write-off of costs associated with a credit agreement terminated in 2014.
Income and Mining Taxes
The Company reported an income and mining tax benefit of approximately $459.2 million compared to income and mining tax benefit of $158.1 million. The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
| Year ended December 31, 2014 | Year ended December 31, 2013 | ||||||||||||
| In thousands | Income (loss) before tax | Tax (expense) benefit | Income (loss) before tax | Tax (expense) benefit | |||||||||
| United States | $ | (213,883 | ) | $ | (482 | ) | $ | (242,562 | ) | $ | 78,176 | ||
| Argentina | (82,093 | ) | 24,408 | (8,814 | ) | 7,925 | |||||||
| Mexico | (1,204,983 | ) | 415,944 | (592,111 | ) | 85,805 | |||||||
| Bolivia | (107,547 | ) | 18,114 | 36,280 | (10,938 | ) | |||||||
| Other jurisdictions | (6,622 | ) | 1,260 | (1,472 | ) | (2,852 | ) | ||||||
| $ | (1,615,128 | ) | $ | 459,244 | $ | (808,679 | ) | $ | 158,116 | ||||
In both periods, the Company recorded tax expense that differs from an amount calculated at the statutory rate primarily due to (i) a full valuation allowance against the deferred tax assets relating to losses incurred in the United States and certain foreign locations, (ii) the impact of foreign exchange adjustments on deferred tax account balances, reserves for uncertain tax
35
positions, and foreign earnings not considered as permanently reinvested with respect to certain foreign locations, and (iii) differences in foreign tax rates in its foreign locations. In addition, in both periods the Company recognized a deferred tax benefit of $451.0 million and $179.8 million, respectively, due to the impairment of certain assets. In conjunction with these items, the Company's consolidated effective income tax rate is a function of the combined effective tax rates in the jurisdictions in which it operates. Variations in the relative proportions of jurisdictional income and loss result in significant fluctuations in its consolidated effective tax rate.
2013 compared to 2012
Revenue
Metal sales decreased by $149.5 million, or 16.7%, due to lower silver production at Palmarejo and lower average realized silver and gold prices, partially offset by higher gold production at Kensington and Palmarejo. The Company sold 17.2 million ounces of silver and 264,493 ounces of gold, compared to sales of 18.0 million ounces of silver and 213,185 ounces of gold. The Company realized average silver and gold prices of $23.14 per ounce and $1,387 per ounce, respectively, compared with realized average prices of $30.92 per ounce and $1,665 per ounce, respectively. Silver contributed 53% of sales and gold contributed 47%, compared to 61% of sales from silver and 39% from gold.
Costs Applicable to Sales
Costs applicable to sales increased by $9.1 million, or 2.0%, to $463.7 million. The increase in costs applicable to sales is primarily due to higher production at Kensington and higher mining and milling costs, partially offset by lower consumption of materials, supplies, and other consumables.
Amortization
Amortization increased by $14.0 million, or 6.4%, primarily the result of increased gold production at Kensington, partially offset by lower silver production at Palmarejo.
Costs and Expenses
General and administrative expenses increased $22.4 million or 67.8%, primarily due to higher business development expenses and related legal costs, and one-time expenditures associated with the corporate office relocation.
Exploration expenses decreased by $3.9 million or 14.9% primarily as a result of lower exploration activity near the Company’s existing properties.
Litigation settlement of $32.0 million relates to the settlement of the Rochester claims dispute in 2013 described above.
Write-downs totaled $773.0 million compared to $5.8 million. The 2013 write-down was primarily due to an impairment of the Palmarejo and Kensington mines due to a decrease in the Company's long-term silver and gold price assumptions. The decrease in silver and gold price assumptions represented significant changes in the business, requiring the Company to evaluate for impairment. For purposes of this evaluation, estimates of future cash flows of the individual reporting units were used to determine fair value.
Pre-development, care and maintenance and other expenses were $11.9 million, an increase of $10.6 million over 2012, primarily due to feasibility expenditures at La Preciosa and settlement of a royalty dispute at San Bartolomé.
Other Income and Expenses
Non-cash fair value adjustments, net were a gain of $82.8 million compared to a loss of $23.5 million, primarily due to the impact of changing gold prices on the Palmarejo gold production royalty obligation.
Interest income and other, net decreased by $1.7 million to $13.3 million, compared to $15.0 million, primarily due to lower foreign currency gains and a business interruption insurance recovery at San Bartolomé in 2012, partially offset by gains on the substitution of certain reclamation bonds for restricted cash.
Interest expense, net of capitalized interest, increased to $41.3 million from $26.2 million due to interest paid on the Senior Notes.
Income and Mining Taxes
The Company reported an income tax benefit of approximately $158.1 million compared to a provision of $70.8 million. The following table summarizes the components of the Company’s income tax provision:
36
| Year ended December 31, 2013 | Year ended December 31, 2012 | ||||||||||||
| In thousands | Income (loss) before tax | Tax (expense) benefit | Income (loss) before tax | Tax (expense) benefit | |||||||||
| United States | $ | (242,562 | ) | $ | 78,176 | $ | 37,047 | $ | (6,774 | ) | |||
| Argentina | (8,814 | ) | 7,925 | (18,659 | ) | 976 | |||||||
| Mexico | (592,111 | ) | 85,805 | 39,689 | (18,393 | ) | |||||||
| Bolivia | 36,280 | (10,938 | ) | 103,263 | (44,633 | ) | |||||||
| Other jurisdictions | (1,472 | ) | (2,852 | ) | (41,856 | ) | (1,983 | ) | |||||
| $ | (808,679 | ) | $ | 158,116 | $ | 119,484 | $ | (70,807 | ) | ||||
In 2013, the Company recognized a current provision in the U.S. and certain foreign jurisdictions primarily related to inflationary adjustments on non-monetary assets and the Company being subject to the state mining tax and Mexico IETU tax, which is a form of alternative minimum tax. The Company has recognized $3.0 million of expenses, including interest and penalties, for uncertain tax positions for the years ended 2008, 2009, 2010, 2011, and 2012 and an additional $2.2 million of expense for the year ended 2013. Finally, the Company recognized a deferred tax benefit of $177.2 million in 2013. The significant components of this benefit include the impacts of the impairment of mineral interests in Mexico, the change in the Company’s permanent reinvestment assertion related to Mexico, and the recognition of deferred taxes on current year temporary differences, partially offset by tax rate changes in Mexico and an increase in the Company’s valuation allowance.
In the fourth quarter of 2013, the Company changed its position regarding the accumulated earnings and basis difference with respect to its investment in its Coeur Mexicana mining operations, concluding they were permanently reinvested. The Company continues to maintain this position. In periods prior to the quarter ended December 31, 2013, it was the Company's position that such earnings were not permanently reinvested. For the year ended December 31, 2013, the impact of the tax benefit attributable to the reversal of the provision for this item of $81.0 million is reflected.
Results of Operations
Palmarejo
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Tons milled | 2,135,088 | 2,322,660 | 2,114,366 | |||||||||
| Silver ounces produced | 6,558,091 | 7,603,144 | 8,236,013 | |||||||||
| Gold ounces produced | 86,673 | 116,536 | 106,038 | |||||||||
| Silver equivalent ounces produced | 11,758,471 | 14,595,304 | 14,598,293 | |||||||||
Costs applicable to sales per silver equivalent ounce(1) | $ | 15.40 | $ | 13.25 | $ | 13.19 | ||||||
(1) See Non-GAAP Financial Performance Measures
2014 compared to 2013
Silver equivalent production decreased due primarily to lower ore grades and mill throughput. Metal sales were $244.0 million, or 39% of metal sales, compared with $324.0 million, or 43% of metal sales. Costs applicable to sales per ounce increased due to lower production, higher underground mining and maintenance costs, an $11.3 million inventory adjustment, and the new 0.5% revenue mining duty. Amortization decreased to $69.4 million compared to $133.5 million due to lower amortizable mineral interests and mining equipment, and lower production. Capital expenditures decreased to $26.1 million compared to $33.7 million.
2013 compared to 2012
Silver equivalent production was generally consistent. Metal sales were $324.0 million, or 43% of metal sales, compared with $442.1 million, or 49% of metal sales. Costs applicable to sales per ounce were mostly unchanged. Amortization decreased to $134.2 million compared to $146.6 million due to lower production. Capital expenditures were $33.7 million compared to $38.5 million.
37
Rochester
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Tons placed | 14,739,808 | 12,311,918 | 10,688,606 | |||||||||
| Silver ounces produced | 4,189,071 | 2,798,937 | 2,801,405 | |||||||||
| Gold ounces produced | 44,888 | 30,860 | 38,066 | |||||||||
| Silver equivalent ounces produced | 6,882,351 | 4,650,537 | 5,085,365 | |||||||||
Costs applicable to sales per silver equivalent ounce(1) | $ | 14.49 | $ | 15.54 | $ | 16.13 | ||||||
(1) See Non-GAAP Financial Performance Measures
2014 compared to 2013
Silver equivalent production increased substantially as a result of higher tons placed and higher gold grade. Metal sales were $123.8 million, or 20% of Coeur’s metal sales, compared with $119.3 million, or 16% of metal sales. Costs applicable to sales per ounce decreased 7% due to higher production and lower mining costs, partially offset by higher leaching and maintenance costs. Amortization was $20.8 million compared to $8.9 million due to higher production. Capital expenditures decreased to $11.9 million compared to $29.4 million as the Stage III leach pad expansion was completed in 2013.
2013 compared to 2012
Silver equivalent production decreased due to the Stage III leach pad expansion and related timing of leach recoveries. A significant amount of crushed ore was stacked on the expanded leach pad during the construction phase while leaching commenced upon completion of the project late in the year. Metal sales were $119.3 million, or 16% of Coeur’s metal sales, compared with $132.4 million, or 15% of metal sales. Costs applicable to sales per ounce decreased due to timing of recoveries as a result of the Stage III leach pad expansion. Amortization was $10.6 million compared to $8.1 million, due to the completion of capital projects. Capital expenditures were $29.4 million compared to $11.8 million.
Kensington
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Tons milled | 635,960 | 553,717 | 394,780 | |||||||||
| Gold ounces produced | 117,823 | 111,951 | 80,071 | |||||||||
Costs applicable to sales per gold ounce(1) | $ | 951 | $ | 901 | $ | 1,214 | ||||||
(1) See Non-GAAP Financial Performance Measures
2014 compared to 2013
Gold production increased due to higher mill throughput, partially offset by lower grade. Metal sales were $137.0 million, or 22% of metal sales, compared to $148.8 million, which represented 20% of Coeur’s metal sales. Metal sales were negatively impacted by delayed gold shipments from the mine due to a labor dispute affecting ports on the west coast of the U.S., resulting in approximately 10,000 ounces of finished goods inventory unable to be shipped in 2014. Costs applicable to sales per ounce increased due to higher mining and water treatment costs. Amortization was $43.6 million compared to $62.8 million due to lower amortizable mineral interests and mining equipment. Capital expenditures were $16.2 million compared to $21.4 million.
2013 compared to 2012
Gold production increased due to higher mill throughput and the mill achieving a nearly 97% recovery rate. Metal sales were $148.8 million, or 20% of Coeur’s metal sales, compared with $111.0 million, or 12% of metal sales. Costs applicable to sales per ounce decreased due to higher production and lower overhead and support costs, partially offset by higher mining costs. Amortization was $63.2 million compared to $41.6 million, due to higher production. Capital expenditures were $21.4 million compared to $37.0 million.
38
San Bartolomé
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Tons milled | 1,749,423 | 1,679,839 | 1,477,271 | |||||||||
| Silver ounces produced | 5,851,678 | 5,940,538 | 5,930,394 | |||||||||
Costs applicable to sales per silver equivalent ounce(1) | $ | 14.29 | $ | 14.28 | $ | 12.40 | ||||||
(1) See Non-GAAP Financial Performance Measures
2014 compared to 2013
Silver production decreased slightly due to lower grade, partly offset by higher mill throughput. Silver sales were $117.7 million, or 19% of metal sales, compared with $141.7 million, or 19% of metal sales. Costs applicable to sales per ounce were mostly unchanged. Amortization was $19.4 million compared to $19.1 million. Capital expenditures were $7.9 million compared to $11.6 million.
2013 compared to 2012
Silver production increased due to higher mill throughput, mostly offset by lower grade. Silver sales were $141.7 million, or 19% of metal sales, compared with $178.0 million, or 20% of metal sales. Costs applicable to sales per ounce increased due to higher mining and milling costs. Amortization was $19.6 million compared to $16.7 million, primarily due to completion of capital projects and higher production. Capital expenditures were $11.6 million compared to $25.7 million.
Coeur Capital
| Year ended December 31, | ||||||||||||
| Endeavor Silver Stream | 2014 | 2013 | 2012 | |||||||||
| Tons milled | 792,694 | 791,116 | 791,209 | |||||||||
| Silver ounces produced | 589,585 | 605,832 | 665,876 | |||||||||
Costs applicable to sales/oz(1) | $ | 7.17 | $ | 9.61 | $ | 13.48 | ||||||
(1) See Non-GAAP Financial Performance Measures
2014 compared to 2013
Metal sales were $10.0 million compared to $12.9 million. Silver production decreased due to lower grade. Royalty revenue was $3.2 million compared to nil, primarily due to the acquisition of Global Royalty Corp. in December 2013. Costs applicable to sales per ounce decreased due to the impact of lower silver prices on the Endeavor silver stream's price sharing agreement. Amortization increased to $7.0 million compared to $3.8 million due to depletion of royalty interests in 2014.
2013 compared to 2012
Silver production decreased slightly due to lower ore grade, partially offset by higher recovery. Metal sales were $12.9 million compared to $18.8 million. Costs applicable to sales per ounce decreased due to lower silver prices. Amortization decreased to $3.8 million from $4.6 million due to lower production.
39
Liquidity and Capital Resources
Cash Provided by Operating Activities
Net cash provided by operating activities was $52.9 million, $113.5 million, and $271.6 million in 2014, 2013, and 2012, respectively, and was impacted by the following key factors:
| Year ended December 31, | |||||||||||
| 2014 | 2013 | 2012 | |||||||||
| Consolidated silver equivalent ounces sold | 31,982,962 | 32,888,139 | 30,645,467 | ||||||||
| Average realized price per silver equivalent ounce | $ | 19.88 | $ | 22.68 | $ | 29.22 | |||||
Costs applicable to sales per silver equivalent ounce(1) | (14.94 | ) | (14.10 | ) | (14.83 | ) | |||||
| Operating margin per silver equivalent ounce | $ | 4.94 | $ | 8.58 | $ | 14.39 | |||||
(1) See Non-GAAP Financial Performance Measures
| Year ended December 31, | |||||||||||
| In thousands | 2014 | 2013 | 2012 | ||||||||
| Cash flow before changes in operating assets and liabilities | $ | 39,423 | $ | 149,848 | $ | 338,713 | |||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables and other current assets | (20,609 | ) | 663 | 9,756 | |||||||
| Prepaid expenses and other | 5,635 | (15,165 | ) | 2,489 | |||||||
| Inventories | 12,971 | 4,031 | (48,305 | ) | |||||||
| Accounts payable and accrued liabilities | 15,507 | (25,910 | ) | (31,019 | ) | ||||||
| CASH PROVIDED BY OPERATING ACTIVITIES | $ | 52,927 | $ | 113,467 | $ | 271,634 | |||||
Cash provided by operating activities decreased $60.5 million in 2014 compared to 2013 primarily due to lower average realized silver and gold prices and lower gold ounces sold, partially offset by higher silver ounces sold, lower costs applicable to sales per gold ounce and a decrease in working capital. 2014 metal sales were $92.1 million lower due to lower average realized price per silver equivalent ounce and $18.2 million lower due to lower silver equivalent ounces sold. The decrease in silver equivalent ounces sold was primarily due to delayed gold shipments from the Kensington mine as a result of a labor dispute affecting ports on the west coast of the U.S. Cash provided by operating activities decreased $158.2 million in 2013 compared to 2012 primarily due to lower average realized silver and gold prices and lower silver ounces sold, partially offset by higher gold ounces sold, lower costs applicable to sales per gold ounce, and a smaller increase to working capital. 2013 metal sales were $200.4 million lower due to lower average realized price per silver equivalent ounce, partially offset by $50.9 million due to higher silver equivalent ounces sold.
The Company’s financial position at December 31, 2014, and the expected operating cash flows over the next twelve months, lead management to believe that the Company’s liquid assets are sufficient to fund currently planned capital expenditures for existing operations and to discharge liabilities as they come due. Please refer to the “Looking Forward” section of this MD&A for a more detailed description of capital expenditures planned for 2015. The Company remains well-positioned to take advantage of strategic opportunities as they become available.
Cash Used in Investing Activities
Net cash used in investing activities in 2014 was $81.7 million compared to $186.5 million in 2013, primarily due to lower capital expenditures and the acquisition of Orko Silver Corporation in 2013, partly offset by the purchases of NSR royalties on non-producing exploration properties in 2014. The Company spent $64.2 million on capital expenditures in 2014, compared with $100.8 million in 2013. Capital expenditures in 2014 were primarily related to underground development at Palmarejo and Kensington, underground development of the Guadalupe deposit at Palmarejo, and San Bartolomé tailings expansion, compared to the Stage III Rochester expansion and underground development at Palmarejo and Kensington in 2013.
Net cash used in investing activities in 2013 was $186.5 million, compared to $133.1 million in 2012. The increase was primarily due to the acquisitions of Orko Silver Corporation and Global Royalty Corporation described below. The Company had net proceeds from investments of $26.7 million in 2013, compared with $8.7 million in 2012. The Company spent $100.8 million on capital expenditures in 2013, compared with $115.6 million during 2012. Capital expenditures in 2013 were primarily related to leach pad expansion and process improvement at Rochester as well as underground development at Palmarejo and Kensington.
In 2013, the Company completed its acquisition of Orko Silver Corporation, which held the La Preciosa silver-gold project in Durango, Mexico in exchange for a total of approximately 11.6 million shares of Coeur common stock, a total cash
40
payment of approximately $99.1 million, 1.6 million warrants, and assumption of liabilities of $2.6 million. The Company also completed its acquisition of 100% of the common shares of Global Royalty Corporation, which held NSR royalties on the El Gallo complex in Mexico and the Zaruma mine in Ecuador, in exchange for a total of 2.1 million shares of Coeur common stock and a total cash payment, inclusive of payment of assumed debt, of $3.8 million.
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities in 2014 was $93.0 million compared to $154.3 million in 2013. The decrease in cash provided by financing activities is primarily the result of the follow-on offering of $150 million of Senior Notes, partly offset by the repurchase of $15.1 million of Senior Notes in 2014 and the impact of lower gold prices on Palmarejo gold production royalty payments. In contrast, 2013 included the original offering of $300 million of Senior Notes which was partly offset by the repurchase of $43.3 million of Convertible Notes and $27.6 million of common stock repurchases and the impact of higher gold prices on Palmarejo gold production royalty payments.
Net cash provided by financing activities in 2013 was $154.3 million compared to net cash used in financing activities of $188.1 million in 2012. The increase in cash provided by financing activities is primarily the result of the issuance of $300 million of 7.875% senior notes due 2021 in the first quarter of 2013. During 2013, the Company paid $117.7 million to settle existing debt and royalty obligations, primarily the $43.3 million repayment of the 3.25% convertible senior notes due 2028 and payments on the Palmarejo gold production royalty. During 2012, the Company paid $171.9 million to settle existing debt and royalty obligations, primarily the repayment of the Coeur Alaska term loan facility and payments on the Palmarejo gold production royalty.
Contractual Obligations
The following table summarizes the Company’s contractual obligations at December 31, 2014 and the effect such obligations are expected to have on its liquidity and cash flow in future periods.
| Payments Due by Period | ||||||||||||||||||||
| Contractual Obligations | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | More Than 5 Years | |||||||||||||||
| Long-term debt obligations: | ||||||||||||||||||||
| Convertible debt | $ | 5,334 | $ | 5,334 | $ | — | $ | — | $ | — | ||||||||||
| Senior debt | 437,454 | — | — | — | 437,454 | |||||||||||||||
| Interest on debt | 209,077 | 34,165 | 68,329 | 68,329 | 38,254 | |||||||||||||||
| 651,865 | 39,499 | 68,329 | 68,329 | 475,708 | ||||||||||||||||
Capital lease obligations(1) | 22,967 | 8,763 | 11,021 | 2,834 | 349 | |||||||||||||||
| Operating lease obligations: | ||||||||||||||||||||
| Hyak mining lease | 5,635 | 268 | 537 | 537 | 4,293 | |||||||||||||||
| Operating leases | 23,175 | 4,020 | 7,038 | 6,482 | 5,635 | |||||||||||||||
| 5,635 | 268 | 537 | 537 | 4,293 | ||||||||||||||||
| Other long-term obligations: | ||||||||||||||||||||
Reclamation and mine closure(2) | 149,868 | 4,161 | 8,966 | 12,765 | 123,976 | |||||||||||||||
| Lines of credit and other financing | 14,785 | 4,481 | 10,304 | — | — | |||||||||||||||
Severance payments(3) | 7,369 | 2,317 | — | — | 5,052 | |||||||||||||||
| Palmarejo royalty obligation | 65,760 | 41,981 | 23,779 | — | — | |||||||||||||||
| 237,782 | 52,940 | 43,049 | 12,765 | 129,028 | ||||||||||||||||
| Total | $ | 918,249 | $ | 92,707 | $ | 111,915 | $ | 81,631 | $ | 609,029 | ||||||||||
| (1) | The Company has entered into various capital lease agreements for commitments primarily over the next two years. |
| (2) | Reclamation and mine closure amounts represent the Company’s estimate of the cash flows associated with its legal obligation to reclaim and remediate mining properties. This amount will decrease as reclamation and remediation work is completed. Amounts shown on the table are undiscounted. |
| (3) | Accrued government-mandated severance at the Palmarejo mine, San Bartolomé mine, and Coeur South America. |
Environmental Compliance Expenditures
For the years ended December 31, 2014, 2013, and 2012, the Company spent $5.6 million, $5.9 million, and $9.6 million, respectively, in connection with routine environmental compliance activities at its operating properties. The Company estimates that environmental compliance expenditures during 2015 will be approximately $7.1 million. Future environmental compliance
41
expenditures will be determined by governmental regulations and the overall scope of the Company’s operating and development activities.
Other Liquidity Matters
On March 20, 2014, Coeur Alaska and Coeur Rochester notified the administrative agent under the Credit Agreement that they were terminating the revolving credit facility, effective March 25, 2014. No amounts were outstanding under the revolving credit facility at the time of termination, and no early termination penalty was payable in connection with the termination.
The Company asserts that its earnings from the Palmarejo operation are permanently reinvested. Therefore, no provision has been made for United States federal and state income taxes on the Company's tax basis differences in Mexico, which primarily relate to accumulated foreign earnings that have been reinvested and are expected to be reinvested outside the United States indefinitely. The Company does not believe that the amounts permanently reinvested will have a material impact on liquidity.
The Company may elect to defer some capital investment activities or to secure additional capital to ensure it maintains sufficient liquidity. In addition, if the Company decides to pursue the acquisition of additional mineral interests, new capital projects, or acquisitions of new properties, mines or companies, additional financing activities may be necessary. There can be no assurances that such financing will be available when or if needed upon acceptable terms, or at all.
Critical Accounting Policies and Accounting Developments
Listed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates and assumptions involved and the magnitude of the asset, liability, revenue, and expense being reported. For a discussion of recent accounting pronouncements, see Note 2 -- Summary of Significant Accounting Policies in the notes to the consolidated financial statements.
Revenue Recognition
Revenue includes sales value received for the Company’s principal products, silver and gold, and royalty revenues received. Revenue is recognized when title to silver and gold passes to the buyer and when collectability is reasonably assured. Title passes to the buyer based on terms of the sales contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets; for example, the London Bullion Market for both gold and silver.
Under the Company’s concentrate sales contracts with third-party smelters, final gold and silver prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. Revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. The contracts, in general, provide for provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on the average applicable price for the specified future quotational period and generally occurs from three to six months after shipment. Final sales are settled using smelter weights and settlement assays (average of assays exchanged and/or umpire assay results) and are priced as specified in the smelter contract. The Company’s provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final gold and silver settlement.
Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of its financial statements, the reported amounts of revenue and expenses during the reporting period, and mined reserves. There can be no assurance that actual results will not differ from those estimates. There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond the Company’s control. Ore reserve estimates are based upon engineering evaluations of samplings of drill holes and other openings. These estimates involve assumptions regarding future silver and gold prices, the geology of its mines, the mining methods it uses and the related costs it incurs to develop and mine its reserves. Changes in these assumptions could result in material adjustments to the Company’s reserve estimates. The Company uses reserve estimates in determining the units-of-production amortization and evaluating mine assets for potential impairment.
Amortization
The Company amortizes its property, plant, and equipment, mining properties, and mine development using the units-of-production method over the estimated life of the ore body based on its proven and probable reserves or the straight-line method over the useful life, whichever is shorter. The accounting estimates related to amortization are critical accounting estimates because (1) the determination of reserves involves uncertainties with respect to the ultimate geology of its reserves and the assumptions
42
used in determining the economic feasibility of mining those reserves and (2) changes in estimated proven and probable reserves and useful asset lives can have a material impact on net income.
Write-downs
We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pre-tax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected silver and gold prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The significant assumptions used in determining future cash flows for each mine site asset group at December 31, 2014, apart from production cost and capitalized expenditure assumptions unique to each operation, included long-term silver and gold prices of $19.00 and $1,275 per ounce (consistent with the Company’s long-term reserve prices), respectively, and discount rates ranging from 8.0% - 10.75% (to reflect project and country-specific risks). During 2014, 2013, and 2012, we recorded impairments of $1,472.7 million, $773.0 million, and $5.8 million, respectively, to reduce the carrying value of mining properties and property, plant and equipment as part of Write-downs. See Note 4 -- Write-Downs for additional detail.
Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of silver and gold that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.
Silver and gold prices are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors may affect the key assumptions used in the Company’s impairment testing. Various factors could impact our ability to achieve forecasted production levels from proven and probable reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. Actual results may vary from the Company’s estimates and result in additional write-downs.
Ore on Leach Pads
The heap leach process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes.
The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which were assayed to determine estimated quantities of contained metal. The Company estimates the quantity of ore by utilizing global positioning satellite survey techniques. The Company then processes the ore through crushing facilities where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or market, with cost being determined using a weighted average cost method.
The historical cost of the metal that is expected to be extracted within twelve months is classified as current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pads, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates and rely upon laboratory testwork. Testwork consists of 60 day leach columns from which the Company projects metal recoveries up to five years in the future. The quantities of metal contained
43
in the ore are estimated based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over more than twenty years of leach pad operations at the Rochester mine. The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The ultimate recovery will not be known until leaching operations cease. Historically, our operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of silver and gold on our leach pads.
Reclamation and Remediation
The Company recognizes obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period in Pre-development, Reclamation, and Other. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced. Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the discounted costs expected to be incurred at the site. Such cost estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised.
Derivatives
The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in the value of derivative instruments are recorded each period in Fair value adjustments, net. Management applies judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding commodity prices, market volatilities, and foreign currency exchange rates.
Income Taxes
The Company computes income taxes using an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences or benefits of temporary differences between the financial reporting bases and the tax bases of assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance has been provided for the portion of the Company’s net deferred tax assets for which it is more likely than not that they will not be realized.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company’s practice is to recognize interest and/or penalties related to income tax matters as income tax expense.
Non-GAAP Financial Performance Measures
Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by U.S. generally accepted accounting principles ("GAAP"). These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.
Adjusted Net Income (Loss)
Management uses Adjusted net income (loss) to evaluate the Company's operating performance and to plan and forecast its operations. The Company believes the use of Adjusted net income (loss) reflects the underlying operating performance of our core business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Management's determination of the components of Adjusted net income (loss) are evaluated periodically and are based, in part, on a review of non-GAAP financial measures used by mining industry analysts.
44
Net income (loss) is reconciled to Adjusted net income (loss) in the table below, with amounts presented after-tax:
| In thousands except per share amounts | Year ended December 31, | ||||||||||
| 2014 | 2013 | 2012 | |||||||||
| Net income (loss) | $ | (1,155,884 | ) | $ | (650,563 | ) | $ | 48,677 | |||
| Fair value adjustments, net | (4,323 | ) | (59,908 | ) | 14,171 | ||||||
| Stock-based compensation | 8,976 | 4,611 | 7,657 | ||||||||
| Impairment of equity securities | 6,593 | 18,308 | 605 | ||||||||
| Accretion of royalty obligation | 6,976 | 12,349 | 13,397 | ||||||||
| Write-downs | 1,021,756 | 593,214 | 3,786 | ||||||||
| Litigation settlement | — | 32,046 | — | ||||||||
| Gain on sale of building | — | (1,200 | ) | — | |||||||
| Gain on commutation of reclamation bonding arrangements | — | (7,609 | ) | — | |||||||
| (Gain) loss on debt extinguishments | (426 | ) | — | 1,036 | |||||||
| Loss on revolving credit facility termination | 3,035 | — | — | ||||||||
| Inventory adjustments | 14,482 | 5,691 | 2,203 | ||||||||
| Foreign exchange (gain) loss on deferred taxes | (13,180 | ) | 11,760 | (18,731 | ) | ||||||
| Adjusted net income (loss) | $ | (111,995 | ) | $ | (41,301 | ) | $ | 72,801 | |||
| Adjusted net income (loss) per share | $ | (1.09 | ) | $ | (0.42 | ) | $ | 0.81 | |||
Costs Applicable to Sales and All-in Sustaining Costs
Management uses Costs applicable to sales ("CAS") and All-in sustaining costs (“AISC") to evaluate the Company’s current operating performance and life of mine performance from discovery through reclamation. We believe these measures assist analysts, investors and other stakeholders in understanding the costs associated with producing silver and assessing our operating performance and ability to generate free cash flow from operations. These measures may not be indicative of operating profit or cash flow from operations as determined under GAAP. Management believes converting the benefit from selling gold into silver equivalent ounces (silver to gold ratio of 60:1) best allows management, analysts, investors and other stakeholders to evaluate the operating performance of the Company. Other companies may calculate CAS and AISC differently as a result of reflecting the benefit from selling non-silver metals as a by-product credit rather than converting to silver equivalent ounces, differences in the determination of sustaining capital expenditures, and differences in underlying accounting principles and accounting frameworks such as in International Financial Reporting Standards.
45
| Year Ended December 31, 2014 | Silver | Gold | ||||||||||||||||||||||||||
| Palmarejo | San Bartolomé | Rochester | Endeavor | Total | Kensington | Total | ||||||||||||||||||||||
| Costs applicable to sales, including amortization (U.S. GAAP) | $ | 256,707 | $ | 109,082 | $ | 112,252 | $ | 8,514 | $ | 486,555 | $ | 148,961 | $ | 635,516 | ||||||||||||||
| Amortization | 69,431 | 19,423 | 20,790 | 4,308 | 113,952 | 43,619 | 157,571 | |||||||||||||||||||||
| Costs applicable to sales | $ | 187,276 | $ | 89,659 | $ | 91,462 | $ | 4,206 | $ | 372,603 | $ | 105,342 | $ | 477,945 | ||||||||||||||
| Silver equivalent ounces sold | 12,161,719 | 6,275,769 | 6,309,912 | 586,242 | 25,333,642 | |||||||||||||||||||||||
| Gold ounces sold | 110,822 | |||||||||||||||||||||||||||
| Costs applicable to sales per ounce | $ | 15.40 | $ | 14.29 | $ | 14.49 | $ | 7.17 | $ | 14.71 | $ | 951 | ||||||||||||||||
| Treatment and refining costs | 4,943 | |||||||||||||||||||||||||||
| Sustaining capital | 61,199 | |||||||||||||||||||||||||||
| General and administrative | 40,845 | |||||||||||||||||||||||||||
| Exploration | 21,740 | |||||||||||||||||||||||||||
| Reclamation | 7,468 | |||||||||||||||||||||||||||
| Project/pre-development costs | 16,588 | |||||||||||||||||||||||||||
| All-in sustaining costs | $ | 630,728 | ||||||||||||||||||||||||||
| Silver equivalent ounces sold | 25,333,642 | |||||||||||||||||||||||||||
| Kensington silver equivalent ounces sold | 6,649,320 | |||||||||||||||||||||||||||
| Consolidated silver equivalent ounces sold | 31,982,962 | |||||||||||||||||||||||||||
| All-in sustaining costs per silver equivalent ounce | $ | 19.72 | ||||||||||||||||||||||||||
| Year Ended December 31, 2013 | Silver | Gold | ||||||||||||||||||||||||||
| Palmarejo | San Bartolomé | Rochester | Endeavor | Total | Kensington | Total | ||||||||||||||||||||||
| Costs applicable to sales, including amortization (U.S. GAAP) | $ | 322,107 | $ | 105,930 | $ | 86,759 | $ | 9,575 | $ | 524,371 | $ | 167,325 | $ | 691,696 | ||||||||||||||
| Amortization | 133,535 | 19,103 | 8,890 | 3,755 | 165,283 | 62,750 | 228,033 | |||||||||||||||||||||
| Costs applicable to sales | $ | 188,572 | $ | 86,827 | $ | 77,869 | $ | 5,820 | $ | 359,088 | $ | 104,575 | $ | 463,663 | ||||||||||||||
| Silver equivalent ounces sold | 14,227,657 | 6,079,156 | 5,012,194 | 605,832 | 25,924,839 | |||||||||||||||||||||||
| Gold ounces sold | 116,055 | |||||||||||||||||||||||||||
| Costs applicable to sales per ounce | $ | 13.25 | $ | 14.28 | $ | 15.54 | $ | 9.61 | $ | 13.85 | $ | 901 | ||||||||||||||||
| Treatment and refining costs | 6,964 | |||||||||||||||||||||||||||
| Sustaining capital | 88,305 | |||||||||||||||||||||||||||
| General and administrative | 55,343 | |||||||||||||||||||||||||||
| Exploration | 22,360 | |||||||||||||||||||||||||||
| Reclamation | 3,746 | |||||||||||||||||||||||||||
| Project/pre-development costs | 11,869 | |||||||||||||||||||||||||||
| All-in sustaining costs | $ | 652,250 | ||||||||||||||||||||||||||
| Silver equivalent ounces sold | 25,924,839 | |||||||||||||||||||||||||||
| Kensington silver equivalent ounces sold | 6,963,300 | |||||||||||||||||||||||||||
| Consolidated silver equivalent ounces sold | 32,888,139 | |||||||||||||||||||||||||||
| All-in sustaining costs per silver equivalent ounce | $ | 19.83 | ||||||||||||||||||||||||||
46
Year Ended December 31, 2012 | Silver | Gold | ||||||||||||||||||||||||||||||
| Palmarejo | San Bartolomé | Rochester | Endeavor | Martha | Total | Kensington | Total | |||||||||||||||||||||||||
| Costs applicable to sales, including amortization (U.S. GAAP) | $ | 344,073 | $ | 88,137 | $ | 80,085 | $ | 13,456 | $ | 18,198 | $ | 543,949 | $ | 128,734 | $ | 672,683 | ||||||||||||||||
| Amortization | 146,557 | 16,707 | 8,065 | 4,632 | 515 | 176,476 | 41,645 | 218,121 | ||||||||||||||||||||||||
| Costs applicable to sales | $ | 197,516 | $ | 71,430 | $ | 72,020 | $ | 8,824 | $ | 17,683 | $ | 367,473 | $ | 87,089 | $ | 454,562 | ||||||||||||||||
| Silver equivalent ounces sold | 14,979,088 | 5,760,840 | 4,465,076 | 654,683 | 526,320 | 26,386,007 | ||||||||||||||||||||||||||
| Gold ounces sold | 70,991 | |||||||||||||||||||||||||||||||
| Costs applicable to sales per ounce | $ | 13.19 | $ | 12.40 | $ | 16.13 | $ | 13.48 | $ | 33.60 | $ | 13.93 | $ | 1,214 | ||||||||||||||||||
| Treatment and refining costs | 10,254 | |||||||||||||||||||||||||||||||
| Sustaining capital | 124,264 | |||||||||||||||||||||||||||||||
| General and administrative | 32,977 | |||||||||||||||||||||||||||||||
| Exploration | 26,270 | |||||||||||||||||||||||||||||||
| Reclamation | 3,192 | |||||||||||||||||||||||||||||||
| Project/pre-development costs | 1,261 | |||||||||||||||||||||||||||||||
| All-in sustaining costs | $ | 652,780 | ||||||||||||||||||||||||||||||
| Silver equivalent ounces sold | 26,386,007 | |||||||||||||||||||||||||||||||
| Kensington silver equivalent ounces sold | 4,259,460 | |||||||||||||||||||||||||||||||
| Consolidated silver equivalent ounces sold | 30,645,467 | |||||||||||||||||||||||||||||||
| All-in sustaining costs per silver equivalent ounce | $ | 21.30 | ||||||||||||||||||||||||||||||
47
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
The Company is exposed to various market risks as a part of its operations and engages in risk management strategies to mitigate these risks. The Company continually evaluates the potential benefits of engaging in these strategies based on current market conditions. The Company does not actively engage in the practice of trading derivative instruments for profit. For additional information regarding forward-looking statements and risks and uncertainties that could impact the Company, please refer to Item 1 - Cautionary Statement Concerning Forward-Looking Statements and Item 1A - Risk Factors in this report. Actual results and actions could differ materially from those discussed below.
Gold and Silver Price
Gold and silver prices may fluctuate widely due to numerous factors such as U.S. dollar strength or weakness, demand, investor sentiment, inflation or deflation, and global mine production. The Company's profitability and cash flow may be significantly impacted by changes in the market price of gold and silver.
Gold and Silver Hedging
To mitigate the risks associated with gold and silver price fluctuations, the Company may enter into option contracts to hedge future production. At December 31, 2014, the Company has outstanding put spread contracts on 1,250,000 ounces of silver and 24,000 ounces of gold. The weighted average high and low strike prices on the silver put spreads are $18.00 per ounce and $16.00 per ounce, respectively. The weighted average high and low strike prices on the gold put spreads are $1,200 and $1,050, respectively.
If the market price of silver and gold were to average less than the high strike price but more than the low strike price during the contract period, the Company would receive the difference between the average market price and the high strike price for the contracted volume over the contract period. If the market price of silver and gold were to average less than the low strike price during the contract period, the Company would receive the difference between the average market price and the high strike price for the contracted volume over the contract period, and the Company would be required to pay the difference between the average market price and the low strike price for the contracted volume over the contract period. The Company may be exposed to non-performance risk by counterparties as a result of its hedging activities. This exposure would be limited to the amount that the spot price of the metal falls short of the contract price.
The put spread contracts are generally net cash settled and expire during the first quarter of 2015. At December 31, 2014, the fair market value of the put spreads was a net asset of $2.8 million. A 10% increase or decrease in the price of silver and gold at December 31, 2014 would result in gains of $0.7 million and $7.0 million on settlement, respectively.
Provisional Gold and Silver Sales
The Company enters into sales contracts with third-party smelters which generally provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract. Depending on the difference between the price at the time of sale and the final settlement price, embedded derivatives are recorded as either a derivative asset or liability. The embedded derivatives do not qualify for hedge accounting and, as a result, are marked to the market gold and silver price at the end of each period from the provisional sale date to the date of final settlement. The mark-to-market gains and losses are recorded in earnings.
At December 31, 2014, the Company had outstanding provisionally priced sales of 0.6 million ounces of silver and 29,137 ounces of gold at prices of $16.35 and $1,221, respectively. A 10% change in realized silver price would cause revenue to vary approximately $1.0 million and a 10% change in realized gold price would cause revenue to vary approximately $3.6 million.
Palmarejo Gold Production Royalty
On January 21, 2009, Coeur Mexicana entered into a gold production royalty transaction with a subsidiary of Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties and includes a minimum obligation of 4,167 gold ounces per month which terminates when payments in respect of 400,000 gold ounces have been made. The minimum royalty obligation is considered an embedded derivative financial instrument due to the impact of fluctuating gold prices on the underlying gold ounces.
As of December 31, 2014, a total of 84,915 ounces of gold remain outstanding under the minimum royalty obligation. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 11.8% at December 31, 2014. The fair value of the embedded derivative at December 31, 2014 was a liability of $21.9 million. A 10% change in the price of gold would result in a change in the fair value of the net derivative liability at December 31, 2014 to vary by approximately $8.7 million.
48
Foreign Currency
The Company operates, or has mineral interests, in several foreign countries including Australia, Bolivia, Chile, Mexico, Argentina, Ecuador, and New Zealand, which exposes it to foreign currency exchange rate risks. Foreign currency exchange rates are influenced by world market factors beyond the Company's control such as supply and demand for U.S. and foreign currencies. Fluctuations in local currency exchange rates in relation to the U.S. dollar may significantly impact profitability and cash flow.
Foreign Currency Hedging
To manage foreign currency risk, the Company may enter into forward foreign currency contracts and option contracts when the Company believes such contracts would be beneficial. The forward contracts enable the Company to purchase a fixed amount of foreign currency at a fixed exchange rate, and options enable to Company to lock in a specific exchange rate range. The forward contracts and options do not qualify as hedges and, as a result, are marked to the foreign currency exchange rate at the end of each period. The mark-to-market gains and losses are recorded in earnings.
During the year ended December 31, 2014, the Company had forward foreign currency exchange contracts as well as options to reduce the foreign exchange risk associated with forecasted Mexican peso operating costs at its Palmarejo mine and development costs at La Preciosa, none of which remained outstanding at December 31, 2014.
Additional information about the Company’s derivative financial instruments may be found in Note 11 -- Derivative Financial Instruments in the notes to the consolidated financial statements.
49
| Item 8. | Financial Statements and Supplementary Data |
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Coeur Mining, Inc.:
We have audited the accompanying consolidated balance sheets of Coeur Mining, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income (loss), changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Coeur Mining, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Coeur Mining, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 20, 2015 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
/s/ KPMG LLP
Chicago, Illinois
February 20, 2015
50
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Coeur Mining, Inc.:
We have audited Coeur Mining, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Coeur Mining, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Coeur Mining, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Coeur Mining, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income (loss), changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2014, and our report dated February 20, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Chicago, Illinois
February 20, 2015
51
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Notes | In thousands, except share data | |||||||||||
| Revenue | 3 | $ | 635,742 | $ | 745,994 | $ | 895,492 | |||||
| COSTS AND EXPENSES | ||||||||||||
Costs applicable to sales(1) | 3 | 477,945 | 463,663 | 454,562 | ||||||||
| Amortization | 162,436 | 229,564 | 216,032 | |||||||||
| General and administrative | 40,845 | 55,343 | 32,977 | |||||||||
| Exploration | 21,740 | 22,360 | 26,270 | |||||||||
| Litigation settlement | 20 | — | 32,046 | — | ||||||||
| Write-downs | 1,472,721 | 772,993 | 5,825 | |||||||||
| Pre-development, reclamation, and other | 26,037 | 15,184 | 4,086 | |||||||||
| Total costs and expenses | 2,201,724 | 1,591,153 | 739,752 | |||||||||
| OTHER INCOME (EXPENSE), NET | ||||||||||||
| Loss on debt extinguishments | — | — | (1,036 | ) | ||||||||
| Fair value adjustments, net | 10 | 3,618 | 82,768 | (23,487 | ) | |||||||
| Impairment of equity securities | 13 | (6,593 | ) | (18,308 | ) | (605 | ) | |||||
| Interest income and other, net | 1,375 | 13,323 | 15,041 | |||||||||
| Interest expense, net of capitalized interest | 18 | (47,546 | ) | (41,303 | ) | (26,169 | ) | |||||
| Total other income (expense), net | (49,146 | ) | 36,480 | (36,256 | ) | |||||||
| Income (loss) before income and mining taxes | (1,615,128 | ) | (808,679 | ) | 119,484 | |||||||
| Income and mining tax (expense) benefit | 8 | 459,244 | 158,116 | (70,807 | ) | |||||||
| NET INCOME (LOSS) | $ | (1,155,884 | ) | $ | (650,563 | ) | $ | 48,677 | ||||
| OTHER COMPREHENSIVE INCOME (LOSS), net of tax: | ||||||||||||
| Unrealized gain (loss) on equity securities, net of tax of $1,446 and $5,362 in 2014 and 2013, respectively | (2,290 | ) | (8,489 | ) | (3,351 | ) | ||||||
| Reclassification adjustments for impairment of equity securities, net of tax of $(2,552) and $(7,087) in 2014 and 2013, respectively | 4,042 | 11,221 | 605 | |||||||||
| Reclassification adjustments for realized loss on sale of equity securities, net of tax of $(219) and $(53) in 2014 and 2013, respectively | 346 | 83 | — | |||||||||
| Other comprehensive income (loss) | 2,098 | 2,815 | (2,746 | ) | ||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (1,153,786 | ) | $ | (647,748 | ) | $ | 45,931 | ||||
| NET INCOME (LOSS) PER SHARE | 9 | |||||||||||
| Basic | $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | ||||
| Diluted | $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | ||||
(1) Excludes amortization.
The accompanying notes are an integral part of these consolidated financial statements.
52
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Notes | In thousands | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income (loss) | $ | (1,155,884 | ) | (650,563 | ) | 48,677 | ||||||
| Adjustments: | ||||||||||||
| Amortization | 162,436 | 229,564 | 216,032 | |||||||||
| Accretion | 16,246 | 20,810 | 24,550 | |||||||||
| Deferred income taxes | (470,897 | ) | (177,178 | ) | 16,163 | |||||||
| Loss on termination of revolving credit facility | 3,035 | — | 1,036 | |||||||||
| Fair value adjustments, net | (3,721 | ) | (80,399 | ) | 18,421 | |||||||
| Litigation settlement | 20 | — | 22,046 | — | ||||||||
| Stock-based compensation | 6 | 9,288 | 4,812 | 8,010 | ||||||||
| (Gain) loss on sale of assets | (35 | ) | (9,801 | ) | 1,101 | |||||||
| Impairment of equity securities | 13 | 6,593 | 18,308 | 605 | ||||||||
| Write-downs | 1,472,721 | 772,993 | 5,825 | |||||||||
| Other | (359 | ) | (744 | ) | (1,707 | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Receivables | (20,609 | ) | 663 | 9,756 | ||||||||
| Prepaid expenses and other current assets | 5,635 | (15,165 | ) | 2,489 | ||||||||
| Inventory and ore on leach pads | 12,971 | 4,031 | (48,305 | ) | ||||||||
| Accounts payable and accrued liabilities | 15,507 | (25,910 | ) | (31,019 | ) | |||||||
| CASH PROVIDED BY OPERATING ACTIVITIES | 52,927 | 113,467 | 271,634 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Capital expenditures | (64,244 | ) | (100,813 | ) | (115,641 | ) | ||||||
| Acquisitions | 12 | (21,329 | ) | (116,898 | ) | (29,297 | ) | |||||
| Purchase of short-term investments and equity securities | (50,513 | ) | (8,052 | ) | (12,959 | ) | ||||||
| Sales and maturities of short-term investments and equity securities | 54,344 | 34,796 | 21,695 | |||||||||
| Other | 8 | 4,478 | 3,087 | |||||||||
| CASH USED IN INVESTING ACTIVITIES | (81,734 | ) | (186,489 | ) | (133,115 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Issuance of notes and bank borrowings | 18 | 167,784 | 300,000 | — | ||||||||
| Payments on long-term debt and capital leases | (25,902 | ) | (60,628 | ) | (97,170 | ) | ||||||
| Gold production royalty payments | (48,395 | ) | (57,034 | ) | (74,734 | ) | ||||||
| Share repurchases | — | (27,552 | ) | (19,971 | ) | |||||||
| Other | (509 | ) | (514 | ) | 3,784 | |||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 92,978 | 154,272 | (188,091 | ) | ||||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 64,171 | 81,250 | (49,572 | ) | ||||||||
| Cash and cash equivalents at beginning of period | 206,690 | 125,440 | 175,012 | |||||||||
| Cash and cash equivalents at end of period | $ | 270,861 | $ | 206,690 | $ | 125,440 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
53
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2014 | December 31, 2013 | ||||||||
| ASSETS | Notes | In thousands, except share data | |||||||
| CURRENT ASSETS | |||||||||
| Cash and cash equivalents | $ | 270,861 | $ | 206,690 | |||||
| Receivables | 14 | 116,921 | 81,074 | ||||||
| Ore on leach pads | 15 | 48,204 | 50,495 | ||||||
| Inventory | 15 | 114,931 | 132,023 | ||||||
| Deferred tax assets | 7,364 | 35,008 | |||||||
| Prepaid expenses and other | 15,523 | 25,940 | |||||||
| 573,804 | 531,230 | ||||||||
| NON-CURRENT ASSETS | |||||||||
| Property, plant, and equipment, net | 16 | 227,911 | 486,273 | ||||||
| Mining properties, net | 17 | 501,192 | 1,751,501 | ||||||
| Ore on leach pads | 15 | 37,889 | 31,528 | ||||||
| Restricted assets | 7,037 | 7,014 | |||||||
| Equity securities | 13 | 5,982 | 14,521 | ||||||
| Receivables | 14 | 21,686 | 36,574 | ||||||
| Debt issuance costs, net | 9,851 | 10,812 | |||||||
| Deferred tax assets | 60,151 | 1,189 | |||||||
| Other | 9,915 | 15,336 | |||||||
| TOTAL ASSETS | $ | 1,455,418 | $ | 2,885,978 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
| CURRENT LIABILITIES | |||||||||
| Accounts payable | $ | 49,052 | $ | 53,847 | |||||
| Accrued liabilities and other | 51,513 | 38,266 | |||||||
| Debt | 18 | 17,498 | 2,505 | ||||||
| Royalty obligations | 10,11 | 43,678 | 48,019 | ||||||
| Reclamation | 5 | 3,871 | 913 | ||||||
| Deferred tax liabilities | 8,078 | 1,011 | |||||||
| 173,690 | 144,561 | ||||||||
| NON-CURRENT LIABILITIES | |||||||||
| Debt | 18 | 460,899 | 306,130 | ||||||
| Royalty obligations | 10,11 | 27,651 | 65,142 | ||||||
| Reclamation | 5 | 66,943 | 57,515 | ||||||
| Deferred tax liabilities | 111,006 | 556,246 | |||||||
| Other long-term liabilities | 29,911 | 25,817 | |||||||
| 696,410 | 1,010,850 | ||||||||
| STOCKHOLDERS’ EQUITY | |||||||||
| Common stock, par value $0.01 per share; authorized 150,000,000 shares, issued and outstanding 103,384,408 at December 31, 2014 and 102,843,003 at December 31, 2013 | 1,034 | 1,028 | |||||||
| Additional paid-in capital | 2,789,695 | 2,781,164 | |||||||
| Accumulated other comprehensive income (loss) | (2,808 | ) | (4,906 | ) | |||||
| Accumulated deficit | (2,202,603 | ) | (1,046,719 | ) | |||||
| 585,318 | 1,730,567 | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,455,418 | $ | 2,885,978 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
54
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
| In thousands | Common Stock Shares | Common Stock Par Value | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||
| Balances at December 31, 2011 | 89,655 | $ | 897 | $ | 2,585,632 | $ | (444,833 | ) | $ | (4,975 | ) | $ | 2,136,721 | |||||||||
| Net income (loss) | — | — | — | 48,677 | — | 48,677 | ||||||||||||||||
| Other comprehensive loss | — | — | — | — | (2,746 | ) | (2,746 | ) | ||||||||||||||
| Common stock share buyback | (893 | ) | (9 | ) | (19,962 | ) | — | — | (19,971 | ) | ||||||||||||
| Common stock issued for the acquisition of Joaquin property | 1,310 | 13 | 29,987 | — | — | 30,000 | ||||||||||||||||
| Common stock issued under long-term incentive plans, net | 270 | 2 | 5,597 | — | — | 5,599 | ||||||||||||||||
| Balances at December 31, 2012 | 90,342 | $ | 903 | $ | 2,601,254 | $ | (396,156 | ) | $ | (7,721 | ) | $ | 2,198,280 | |||||||||
| Net income (loss) | — | — | — | (650,563 | ) | — | (650,563 | ) | ||||||||||||||
| Other comprehensive income | — | — | — | — | 2,815 | 2,815 | ||||||||||||||||
| Common stock share buyback | (1,691 | ) | (17 | ) | (27,535 | ) | — | — | (27,552 | ) | ||||||||||||
| Common stock issued for the acquisition of Orko Silver Corporation | 11,573 | 116 | 179,024 | — | — | 179,140 | ||||||||||||||||
| Common stock issued for the acquisition of Global Royalty Corporation | 2,130 | 21 | 22,177 | — | — | 22,198 | ||||||||||||||||
| Common stock issued under long-term incentive plans, net | 489 | 5 | 6,244 | — | — | 6,249 | ||||||||||||||||
| Balances at December 31, 2013 | 102,843 | $ | 1,028 | $ | 2,781,164 | $ | (1,046,719 | ) | $ | (4,906 | ) | $ | 1,730,567 | |||||||||
| Net income (loss) | — | — | — | (1,155,884 | ) | — | (1,155,884 | ) | ||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 2,098 | 2,098 | ||||||||||||||||
| Common stock issued under long-term incentive plans, net | 541 | 6 | 8,531 | — | — | 8,537 | ||||||||||||||||
| Balances at December 31, 2014 | 103,384 | $ | 1,034 | $ | 2,789,695 | $ | (2,202,603 | ) | $ | (2,808 | ) | $ | 585,318 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
55
Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE 1 - NATURE OF OPERATIONS
Coeur Mining, Inc. (“Coeur” or “the Company”) is a large silver producer with significant gold production and mines located in the United States, Mexico, and Bolivia; streaming and royalty interests in Australia, New Zealand, Mexico, Ecuador, and Chile; and exploration projects in Mexico and Argentina. The Company operates the Palmarejo, San Bartolomé, Kensington, and Rochester mines, and owns the Endeavor silver stream, all of which constitute the Company's principal sources of revenues.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The Company's Consolidated Financial Statements have been prepared in accordance with United States Generally Accepted Accounting Principles. The preparation of the Company's Consolidated Financial Statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of-production amortization calculations, environmental, reclamation and closure obligations, estimates of recoverable silver and gold in leach pad inventories, estimates of fair value for certain reporting units and asset impairments, valuation allowances for deferred tax assets, and the fair value and accounting treatment of financial instruments, equity securities, and derivative instruments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results will differ from the amounts estimated in these financial statements.
Principles of Consolidation
The Consolidated Financial Statements include the wholly-owned subsidiaries of the Company, the most significant of which are Empresa Minera Manquiri S.A., Coeur Mexicana S.A. de C.V., Coeur Rochester, Inc., Coeur Alaska, Inc., and Coeur Capital, Inc. All intercompany balances and transactions have been eliminated. The Company's investments in entities in which it has less than 20% ownership interest are accounted for using the cost method.
Revenue Recognition
Revenue is recognized, net of treatment and refining charges, when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable.
Under the Company’s concentrate sales contracts with third-party smelters, gold and silver prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. Revenues and costs applicable to sales are recorded on a gross basis under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. The contracts, in general, provide for provisional payment based upon provisional assays and forward metal prices. Final settlement is based on the average applicable price for the specified future quotational period and generally occurs from three to six months after shipment. The Company’s provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final gold and silver settlement.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments with an original maturity of three months or less. The Company minimizes its credit risk by investing its cash and cash equivalents with major U.S. and international banks and financial institutions located principally in the United States with a minimum credit rating of A1, as defined by Standard & Poor’s. The Company’s management believes that no concentration of credit risk exists with respect to the investment of its cash and cash equivalents.
Receivables
Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts, if deemed necessary. Management evaluates the collectability of receivable account balances to determine the allowance, if any. Management considers the other party's credit risk and financial condition, as well as current and projected economic and market conditions, in determining the amount of the allowance. Receivable balances are written off when management determines that the balance is uncollectible.
56
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Ore on Leach Pads
The heap leach process extracts silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes.
The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company estimates the quantity of ore by utilizing global positioning satellite survey techniques. The Company then processes the ore through crushing facilities where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or market, with cost being determined using a weighted average cost method.
The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that is expected to be extracted beyond twelve months is classified as non-current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pad, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates, which are inherently inaccurate due to the nature of the leaching process. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over more than twenty years of leach pad operations at the Rochester mine. The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.
Metal and Other Inventory
Inventories include concentrate, doré, and operating materials and supplies. The classification of inventory is determined by the stage at which the ore is in the production process. All inventories are stated at the lower of cost or market, with cost being determined using a weighted average cost method. Concentrate and doré inventory includes product at the mine site and product held by refineries. Concentrate inventories associated with the Endeavor mine are held by third parties. Metal inventory costs include direct labor, materials, depreciation, depletion and amortization as well as overhead costs relating to mining activities.
Property, Plant, and Equipment
Expenditures for new facilities, assets acquired pursuant to capital leases, new assets or expenditures that extend the useful lives of existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such facilities, lease term, or the useful life of the individual assets. Productive lives range from 7 to 30 years for buildings and improvements and 3 to 10 years for machinery and equipment. Certain mining equipment is depreciated using the units-of-production method based upon estimated total proven and probable reserves.
Mining Properties and Mine Development
Capitalization of mine development costs begins once all operating permits have been secured, mineralization is classified as proven and probable reserves and a final feasibility study has been completed. Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as exploration or pre-development expense. Mine development costs are amortized using the units of production method over the estimated life of the ore body based on recoverable ounces to be mined from proven and probable reserves. Interest expense allocable to the cost of developing mining properties and to construct new facilities is capitalized until assets are ready for their intended use.
Drilling and related costs incurred at the Company’s operating mines are expensed as incurred in Exploration, unless the Company can conclude with a high degree of confidence, prior to the commencement of a drilling program, that the drilling costs will result in the conversion of a mineral resource into proven and probable reserves. The Company’s assessment is based on the following factors: results from previous drill programs; results from geological models; results from a mine scoping study
57
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
confirming economic viability of the resource; and preliminary estimates of mine inventory, ore grade, cash flow and mine life. In addition, the Company must have all permitting and/or contractual requirements necessary to have the right to and/or control of the future benefit from the targeted ore body. The costs of a drilling program that meet these criteria are capitalized as mine development costs. Drilling and related costs of approximately $8.9 million and $11.6 million at December 31, 2014 and 2013, respectively, were capitalized.
The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in Costs applicable to sales in the same period as the revenue from the sale of inventory.
Mineral Interests
Significant payments related to the acquisition of land and mineral rights are capitalized. Prior to acquiring such land or mineral rights, the Company generally makes a preliminary evaluation to determine that the property has significant potential to develop an economic ore body. The time between initial acquisition and full evaluation of a property’s potential is variable and is determined by many factors including: location relative to existing infrastructure, the property’s stage of development, geological controls and metal prices. If a mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on recoverable ounces to be mined from proven and probable reserves. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value.
Write-downs
We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pre-tax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected silver and gold prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. The significant assumptions used in determining future cash flows for each mine site asset group at December 31, 2014, apart from production cost and capitalized expenditure assumptions unique to each operation, included long-term silver and gold prices of $19.00 and $1,275 per ounce (consistent with the Company’s long-term reserve prices), respectively, and discount rates ranging from 8.0% - 10.75% (to reflect project and country-specific risks). During 2014, 2013, and 2012, we recorded impairments of $1,472.7 million, $773.0 million, and $5.8 million, respectively, to reduce the carrying value of mining properties and property, plant and equipment as part of Write-downs. See Note 4 -- Write-Downs for additional detail.
Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of silver and gold that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.
Silver and gold prices are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors may affect the key assumptions used in the Company’s impairment testing. Various factors could impact our ability to achieve forecasted production levels from proven and probable reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. Actual results may vary from the Company’s estimates and result in additional Write-downs.
58
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Restricted Assets
The Company, under the terms of its self-insurance and bonding agreements with certain banks, lending institutions and regulatory agencies, is required to collateralize certain portions of its obligations. The Company has collateralized these obligations by assigning certificates of deposit that have maturity dates ranging from three months to a year, to the respective institutions or agencies. At December 31, 2014 and 2013, the Company held certificates of deposit and cash under these agreements of $7.0 million and $7.0 million, respectively, restricted for these purposes. The ultimate timing of the release of the collateralized amounts is dependent on the timing and closure of each mine and repayment of the facility. In order to release the collateral, the Company must seek approval from certain government agencies responsible for monitoring the mine closure status. Collateral could also be released to the extent the Company is able to secure alternative financial assurance satisfactory to the regulatory agencies. The Company believes there is a reasonable probability that the collateral will remain in place beyond a twelve-month period and has therefore classified these investments as long-term.
Reclamation and Remediation Costs
The Company recognizes obligations for the expected future retirement of tangible long-lived assets and other associated asset retirement costs. The fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period in Pre-development, reclamation, and other. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced. Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the discounted costs expected to be incurred at the site. Such cost estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in estimates are reflected prospectively in the period an estimate is revised.
Foreign Currency
The assets and liabilities of the Company’s foreign subsidiaries are measured using U.S. dollars as their functional currency. Revenues and expenses are translated at the average exchange rate for the period. Foreign currency transaction gains and losses are included in the determination of net income or loss.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in the value of derivative instruments are recorded each period in the Consolidated Statement of Comprehensive Income (Loss) in Fair value adjustments, net. Management applies judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding commodity prices, market volatilities, and foreign currency exchange rates.
Stock-based Compensation Plans
The Company estimates the fair value of stock options using the Black-Scholes option pricing model and stock appreciation rights (“SARs”) awards using market comparison. Stock options granted are accounted for as equity-based awards and SARs are accounted for as liability-based awards. The value of the SARs is remeasured at each reporting date. The Company estimates the fair value of performance share and performance unit grants using a Monte Carlo simulation valuation model. Performance shares granted are accounted for as equity based awards and performance shares units are accounted for as liability-based awards. The Company estimates forfeitures of stock-based awards based on historical data and periodically adjusts the forfeiture rate. The adjustment of the forfeiture rate is recorded as a cumulative adjustment in the period the forfeiture estimate is changed. Compensation costs related to stock based compensation are included in General and administrative expenses, Costs applicable to sales, and Property, plant, and equipment, net as deemed appropriate.
Restricted stock and restricted stock units granted under the Company’s incentive plans are accounted for based on the market value of the underlying shares on the date of grant and vest in equal installments annually over three years. Restricted stock awards are accounted for as equity-based awards and restricted stock unit awards are accounted for as liability-based awards. Restricted stock units are remeasured at each reporting date. Restricted stock units are settled in cash based on the number of vested restricted stock units multiplied by the current market price of the common shares when vested. Holders of the restricted stock are entitled to vote the shares and to receive any dividends declared on the shares.
Income and Mining Taxes
The Company uses an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences or benefits of temporary differences between the financial reporting basis and the tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse.
59
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance has been provided for the portion of the Company’s net deferred tax assets for which it is more likely than not that they will not be realized.
Recent Accounting Standards
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The updated guidance provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. These changes become effective prospectively for the Company's fiscal year beginning January 1, 2017. The Company is currently evaluating the potential impact of these changes on the Company's consolidated financial position, results of operations, and cash flows.
NOTE 3 – SEGMENT REPORTING
The Company’s operating segments include the Palmarejo, San Bartolomé, Rochester, and Kensington mines, La Preciosa, and Coeur Capital. All operating segments are engaged in the discovery and mining of gold and silver and generate the majority of their revenues from the sale of these precious metals with the exception of Coeur Capital, which holds the Endeavor silver stream and other precious metals royalties. Other includes the Joaquin project, Martha mine, corporate headquarters, elimination of intersegment transactions, and other items necessary to reconcile to consolidated amounts.
Revenues from silver sales were $328.5 million, $394.5 million and $549.7 million in 2014, 2013, and 2012, respectively. Revenues from gold sales were $304.0 million, $351.5 million and $345.8 million in 2014, 2013, and 2012, respectively.
Financial information relating to the Company’s segments is as follows (in thousands):
| Year ended December 31, 2014 | Palmarejo Mine | San Bartolomé Mine | Kensington Mine | Rochester Mine | La Preciosa | Coeur Capital | Other | Total | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||
| Metal sales | $ | 244,003 | $ | 117,749 | $ | 136,960 | $ | 123,768 | $ | — | $ | 10,046 | $ | — | $ | 632,526 | |||||||||||||||
| Royalties | — | — | — | — | — | 3,216 | — | 3,216 | |||||||||||||||||||||||
| 244,003 | 117,749 | 136,960 | 123,768 | — | 13,262 | — | 635,742 | ||||||||||||||||||||||||
| Costs and Expenses | |||||||||||||||||||||||||||||||
Costs applicable to sales(1) | 187,276 | 89,659 | 105,342 | 91,462 | — | 4,206 | — | 477,945 | |||||||||||||||||||||||
| Amortization | 69,431 | 19,423 | 43,619 | 20,790 | 84 | 7,015 | 2,074 | 162,436 | |||||||||||||||||||||||
| Exploration | 6,671 | 120 | 8,005 | 2,636 | 236 | 515 | 3,557 | 21,740 | |||||||||||||||||||||||
| Write-downs | 784,038 | 118,754 | 107,832 | — | 372,466 | 6,202 | 83,429 | 1,472,721 | |||||||||||||||||||||||
| Other operating expense (income) | 620 | (251 | ) | 796 | 2,813 | 13,961 | 938 | 48,005 | 66,882 | ||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||
| Interest income and other, net | 131 | 2,461 | (22 | ) | 105 | (523 | ) | (7,141 | ) | (229 | ) | (5,218 | ) | ||||||||||||||||||
| Interest expense, net | (9,320 | ) | (52 | ) | (214 | ) | (679 | ) | — | (1 | ) | (37,280 | ) | (47,546 | ) | ||||||||||||||||
| Fair value adjustments, net | (1,847 | ) | — | — | 3,653 | — | — | 1,812 | 3,618 | ||||||||||||||||||||||
| Income and mining tax (expense) benefit | 283,685 | 18,114 | — | (2,224 | ) | 132,151 | 1,212 | 26,306 | 459,244 | ||||||||||||||||||||||
| Net income (loss) | $ | (531,384 | ) | $ | (89,433 | ) | $ | (128,870 | ) | $ | 6,922 | $ | (255,119 | ) | $ | (11,544 | ) | $ | (146,456 | ) | $ | (1,155,884 | ) | ||||||||
Segment assets(2) | $ | 341,367 | $ | 188,616 | $ | 215,973 | $ | 196,765 | $ | 39,701 | $ | 59,848 | $ | 41,987 | $ | 1,084,257 | |||||||||||||||
| Capital expenditures | $ | 26,084 | $ | 7,937 | $ | 16,220 | $ | 11,898 | $ | 255 | $ | — | $ | 1,850 | $ | 64,244 | |||||||||||||||
(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant, and equipment, and mineral interests
60
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| Year ended December 31, 2013 | Palmarejo Mine | San Bartolomé Mine | Kensington Mine | Rochester Mine | La Preciosa | Coeur Capital | Other | Total | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||
| Metal sales | $ | 324,040 | $ | 141,721 | $ | 148,769 | $ | 119,254 | $ | — | $ | 12,871 | $ | (661 | ) | $ | 745,994 | ||||||||||||||
| Royalties | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
| 324,040 | 141,721 | 148,769 | 119,254 | — | 12,871 | (661 | ) | 745,994 | |||||||||||||||||||||||
| Costs and Expenses | |||||||||||||||||||||||||||||||
Costs applicable to sales(1) | 188,572 | 86,827 | 104,575 | 77,869 | — | 5,820 | — | 463,663 | |||||||||||||||||||||||
| Amortization | 133,535 | 19,103 | 62,750 | 8,890 | 24 | 3,755 | 1,507 | 229,564 | |||||||||||||||||||||||
| Exploration | 7,161 | 111 | 4,199 | 2,653 | 80 | 2,069 | 6,087 | 22,360 | |||||||||||||||||||||||
| Write-downs | 642,094 | — | 130,694 | — | — | — | 205 | 772,993 | |||||||||||||||||||||||
| Other operating expense (income) | 705 | 6,205 | 735 | 36,265 | 3,237 | 1,397 | 54,029 | 102,573 | |||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||
| Interest income and other, net | 906 | 2,582 | (187 | ) | (318 | ) | 15 | (19,474 | ) | 11,491 | (4,985 | ) | |||||||||||||||||||
| Interest expense, net | (15,123 | ) | (74 | ) | (424 | ) | (20 | ) | — | — | (25,662 | ) | (41,303 | ) | |||||||||||||||||
| Fair value adjustments, net | 76,218 | — | 7,480 | 416 | — | — | (1,346 | ) | 82,768 | ||||||||||||||||||||||
| Income and mining tax (expense) benefit | 107,748 | (10,938 | ) | (1 | ) | (2,332 | ) | (20,856 | ) | 2,179 | 82,316 | 158,116 | |||||||||||||||||||
| Net income (loss) | $ | (478,278 | ) | $ | 21,045 | $ | (147,316 | ) | $ | (8,677 | ) | $ | (24,182 | ) | $ | (17,465 | ) | $ | 4,310 | $ | (650,563 | ) | |||||||||
Segment assets(2) | $ | 1,164,852 | $ | 289,272 | $ | 343,144 | $ | 176,789 | $ | 410,335 | $ | 62,678 | $ | 111,749 | $ | 2,558,819 | |||||||||||||||
| Capital expenditures | $ | 33,730 | $ | 11,568 | $ | 21,404 | $ | 29,406 | $ | 1,122 | $ | — | $ | 3,583 | $ | 100,813 | |||||||||||||||
(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant, and equipment, and mineral interests
| Year ended December 31, 2012 | Palmarejo Mine | San Bartolomé Mine | Kensington Mine | Rochester Mine | Coeur Capital | Other | Total | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||
| Metal sales | $ | 442,098 | $ | 178,005 | $ | 110,987 | $ | 132,392 | $ | 18,848 | $ | 13,162 | $ | 895,492 | |||||||||||||
| Royalties | — | — | — | — | — | — | — | ||||||||||||||||||||
| 442,098 | 178,005 | 110,987 | 132,392 | 18,848 | 13,162 | 895,492 | |||||||||||||||||||||
| Costs and Expenses | |||||||||||||||||||||||||||
Costs applicable to sales(1) | 197,478 | 71,428 | 87,089 | 72,061 | 8,824 | 17,682 | 454,562 | ||||||||||||||||||||
| Amortization | 145,945 | 16,624 | 41,241 | 6,784 | 4,632 | 806 | 216,032 | ||||||||||||||||||||
| Exploration | 7,575 | 159 | 3,283 | 3,591 | 1,056 | 10,606 | 26,270 | ||||||||||||||||||||
| Write-downs | — | — | — | — | — | 5,825 | 5,825 | ||||||||||||||||||||
| Other operating expense (income) | 661 | 165 | 478 | 2,682 | (736 | ) | 33,813 | 37,063 | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||
| Interest income and other, net | 4,017 | 9,719 | (77 | ) | 358 | (77 | ) | 496 | 14,436 | ||||||||||||||||||
| Interest expense, net | (18,938 | ) | (72 | ) | (2,972 | ) | (26 | ) | — | (4,161 | ) | (26,169 | ) | ||||||||||||||
| Loss on debt extinguishment | — | — | (1,036 | ) | — | — | — | (1,036 | ) | ||||||||||||||||||
| Fair value adjustments, net | (31,054 | ) | — | 4,089 | — | — | 3,478 | (23,487 | ) | ||||||||||||||||||
| Income and mining tax (expense) benefit | (18,066 | ) | (44,632 | ) | — | (2,195 | ) | (327 | ) | (5,587 | ) | (70,807 | ) | ||||||||||||||
| Net income (loss) | $ | 26,398 | $ | 54,644 | $ | (21,100 | ) | $ | 45,411 | $ | 4,668 | $ | (61,344 | ) | $ | 48,677 | |||||||||||
Segment assets(2) | $ | 1,905,269 | $ | 302,922 | $ | 508,658 | $ | 104,373 | $ | 32,656 | $ | 120,178 | $ | 2,974,056 | |||||||||||||
| Capital expenditures | $ | 38,456 | $ | 25,672 | $ | 36,994 | $ | 11,794 | $ | — | $ | 2,725 | $ | 115,641 | |||||||||||||
(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant, and equipment, and mineral interests
| In thousands | December 31, 2014 | December 31, 2013 | |||||
| Assets | |||||||
| Total assets for reportable segments | $ | 1,084,257 | $ | 2,558,819 | |||
| Cash and cash equivalents | 270,861 | 206,690 | |||||
| Other assets | 100,300 | 120,469 | |||||
| Total consolidated assets | $ | 1,455,418 | $ | 2,885,978 | |||
61
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Geographic Information
| In thousands | December 31, 2014 | December 31, 2013 | |||||
| Long Lived Assets | |||||||
| Mexico | $ | 298,101 | $ | 1,487,228 | |||
| United States | 275,594 | 384,626 | |||||
| Bolivia | 107,960 | 235,085 | |||||
| Australia | 21,362 | 25,668 | |||||
| Argentina | 10,970 | 94,705 | |||||
| Other | 15,116 | 10,462 | |||||
| Total | $ | 729,103 | $ | 2,237,774 | |||
| Year ended December 31, | |||||||||||
| In thousands | 2014 | 2013 | 2012 | ||||||||
| Revenue | |||||||||||
| United States | $ | 260,728 | $ | 268,023 | $ | 243,379 | |||||
| Mexico | 245,493 | 324,040 | 442,098 | ||||||||
| Bolivia | 117,749 | 141,721 | 178,005 | ||||||||
| Australia | 10,046 | 12,871 | 18,848 | ||||||||
| Other | $ | 1,726 | $ | (661 | ) | $ | 13,162 | ||||
| Total | $ | 635,742 | $ | 745,994 | $ | 895,492 | |||||
The Company's doré is refined into gold and silver bullion according to benchmark standards set by the London Bullion Market Association, which regulates the acceptable requirements for bullion traded in the London precious metals markets. The Company then sells its silver and gold bullion to multi-national banks, bullion trading houses, and refiners across the globe. The Company has seven bullion trading counterparties and the sales of metals to these companies amounted to approximately 63%, 72%, and 91% of total metal sales for the years ended December 31, 2014, 2013, and 2012, respectively. Generally, the loss of a single bullion trading counterparty would not adversely affect the Company due to sufficient liquidity of the markets and ample alternative trading counterparties.
The Company's concentrates are sold to smelters under purchase and sale agreements, and the smelters pay the Company for the gold or silver recovered from the concentrates. The Company currently has seven smelting and refining customers for its concentrates, and the sales to these companies amounted to approximately 37%, 28%, and 9% of total metal sales for the years ended December 31, 2014, 2013, and 2012, respectively. The loss of any one smelting and refining client may have a material adverse effect on sales if alternate smelters and refiners are not available. The Company believes sufficient global capacity exists in case of the loss of any one smelter.
The following table indicates customers that represent 10% or more of total sales of metal for at least one of the years December 31, 2014, 2013, and 2012 (in millions):
| Years Ended December 31, | ||||||||||||||
| Customer | 2014 | 2013 | 2012 | Segments reporting revenue | ||||||||||
| Mitsui & Co. | $ | 133.8 | $ | 70.3 | $ | 65.6 | Palmarejo, Rochester | |||||||
| TD Securities | 106.7 | 106.7 | 65.8 | Palmarejo, Rochester | ||||||||||
| Standard Bank | 87.5 | 69.0 | 72.3 | Palmarejo, Rochester | ||||||||||
| China National Gold | 86.8 | 81.5 | 43.8 | Kensington | ||||||||||
| Johnson Matthey | 71.8 | 66.4 | 1.7 | San Bartolomé | ||||||||||
| Valcambi | 33.9 | 77.2 | 414.4 | Palmarejo, San Bartolomé | ||||||||||
| INTL Commodities | 22.4 | 84.6 | 58.0 | Palmarejo, San Bartolomé, Rochester | ||||||||||
| Auramet | 10.8 | 111.7 | 94.6 | Palmarejo, San Bartolomé, Kensington, Rochester | ||||||||||
62
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4 – WRITE-DOWNS
| Year ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Mining properties | ||||||||||||
| Palmarejo | 668,803 | 539,359 | — | |||||||||
| San Bartolomé | 32,328 | — | — | |||||||||
| Kensington | 67,671 | 82,337 | — | |||||||||
| La Preciosa | 371,411 | — | — | |||||||||
| Joaquin | 83,429 | — | — | |||||||||
| Coeur Capital (El Gallo) | 6,202 | — | — | |||||||||
| Martha | — | 205 | 5,825 | |||||||||
| 1,229,844 | 621,901 | 5,825 | ||||||||||
| Property, plant, and equipment | ||||||||||||
| Palmarejo | $ | 115,235 | $ | 102,735 | $ | — | ||||||
| San Bartolomé | 86,426 | — | — | |||||||||
| Kensington | 40,161 | 48,357 | — | |||||||||
| La Preciosa | 1,055 | — | — | |||||||||
| 242,877 | 151,092 | — | ||||||||||
| Total | $ | 1,472,721 | $ | 772,993 | $ | 5,825 | ||||||
The 2014 write-down of $1,472.7 million ($1,021.8 million net of tax) was primarily due to a $784.0 million impairment of the Palmarejo mine ($504.5 million net of tax) and a $372.5 million impairment of the La Preciosa project ($244.9 million net of tax). The non-cash impairment charges were largely driven by significant decreases in long-term metal price assumptions and revised mine plans in the fourth quarter. For purposes of this evaluation, estimates of future cash flows of the individual reporting units were used to determine fair value. The estimated cash flows were derived from life-of-mine plans, developed using long-term pricing reflective of the current price environment and management’s projections for operating costs.
The 2013 write-down of $773.0 million was primarily due to a $642.1 million impairment of the Palmarejo mine ($462.3 million net of tax) and a $130.7 million impairment of the Kensington mine due to a decrease in the Company's long-term silver and gold price assumptions reflective of the current silver and gold price environment.
The 2012 write-down of $5.8 million was due to the cessation of mining operations at the Martha Mine.
NOTE 5 – RECLAMATION
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties. The Company uses assumptions about future costs, mineral prices, mineral processing recovery rates, production levels, capital costs, and reclamation costs. On an ongoing basis, management evaluates its estimates and assumptions, and future expenditures could differ from current estimates.
Changes to the Company’s asset retirement obligations (included in Reclamation) are as follows:
| In thousands | Year ended December 31, | ||||||
| 2014 | 2013 | ||||||
| Asset retirement obligation - Beginning | $ | 55,966 | $ | 33,008 | |||
| Accretion | 4,826 | 3,316 | |||||
| Additions and changes in estimates | 6,748 | 19,670 | |||||
| Settlements | (326 | ) | (28 | ) | |||
| Asset retirement obligation - Ending | $ | 67,214 | $ | 55,966 | |||
The Company has accrued $3.6 million and $2.5 million at December 31, 2014 and December 31, 2013, respectively, for reclamation liabilities related to former mining activities. These amounts are also included in Reclamation.
63
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 6 – STOCK-BASED COMPENSATION
The Company has stock incentive plans for executives and eligible employees. Stock awards include stock options, restricted stock, and performance shares. The Company previously awarded stock appreciation rights, restricted stock units, and performance share units. Stock-based compensation expense for the years ended December 31, 2014, 2013, and 2012 was $9.3 million, $4.8 million, and $8.0 million, respectively. At December 31, 2014, there was $8.7 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 1.6 years.
Stock Options and Stock Appreciation Rights
Stock options and stock appreciation rights (SARs) granted under the Company’s incentive plans vest over three years and are exercisable over a period not to exceed ten years from the grant date. The exercise price of the stock options is equal to the fair market value of the shares on the date of the grant. The value of each stock option award is estimated using the Black-Scholes option pricing model. Stock options are accounted for as equity awards and SARs are accounted for as liability awards and remeasured at each reporting date. SARs, when vested, provide the participant the right to receive cash equal to the excess of the market price of the shares over the exercise price when exercised.
The following table sets forth the weighted average fair value of stock options and the assumptions used to estimate the fair value of the stock options using the Black-Scholes option valuation model:
| 2014 | 2013 | 2012 | |||||||||
| Weighted average fair value of stock options granted | $ | 3.79 | $ | 12.60 | $ | 15.77 | |||||
| Volatility | 50.93 | % | 76.74 | % | 70.56 | % | |||||
| Expected life in years | 3.9 | 5.0 | 5.5 | ||||||||
| Risk-free interest rate | 1.25 | % | 0.84 | % | 0.89 | % | |||||
| Dividend yield | — | — | — | ||||||||
The following table summarizes stock option and SAR activity for the years ended December 31, 2014, 2013, and 2012:
| Stock Options | SARs | ||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||
| Outstanding at December 31, 2011 | 321,607 | $ | 24.60 | 107,639 | $ | 13.46 | |||||||
| Granted | 151,102 | 26.97 | — | — | |||||||||
| Exercised | (40,173 | ) | 11.84 | (34,385 | ) | 12.73 | |||||||
| Canceled/forfeited | (62,536 | ) | 29.22 | (4,389 | ) | 15.40 | |||||||
| Outstanding at December 31, 2012 | 370,000 | 30.20 | 68,865 | 13.83 | |||||||||
| Granted | 190,452 | 20.41 | — | — | |||||||||
| Exercised | (13,027 | ) | 10.77 | (6,617 | ) | 13.14 | |||||||
| Canceled/forfeited | (131,855 | ) | 29.30 | (12,039 | ) | 15.40 | |||||||
| Outstanding at December 31, 2013 | 415,570 | 27.36 | 50,209 | 14.15 | |||||||||
| Granted | 415,172 | 9.45 | — | — | |||||||||
| Canceled/forfeited | (232,396 | ) | 23.94 | (3,637 | ) | 15.40 | |||||||
| Outstanding at December 31, 2014 | 598,346 | $ | 16.26 | 46,572 | $ | 14.06 | |||||||
64
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| Options Outstanding | Options Exercisable | |||||||||||||||||
Range of Exercise Price | Number Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Number Exercisable | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||||
| $ 0.00-$10.00 | 284,866 | $ | 9.34 | 9.04 | 11,034 | $ | 10.00 | 4.09 | ||||||||||
| $10.00-$20.00 | 121,540 | 15.51 | 8.43 | 33,646 | 17.33 | 8.11 | ||||||||||||
| $20.00-$30.00 | 176,777 | 25.68 | 6.88 | 107,546 | 26.37 | 6.27 | ||||||||||||
| $30.00-$40.00 | 9,566 | 38.25 | 2.44 | 9,566 | 38.25 | 2.44 | ||||||||||||
| $40.00-$50.00 | 3,336 | 48.50 | 3.03 | 3,336 | 48.50 | 3.03 | ||||||||||||
| $50.00-$60.00 | 2,261 | 51.40 | 1.14 | 2,261 | 51.40 | 1.14 | ||||||||||||
| 598,346 | $ | 16.26 | 167,389 | $ | 24.93 | |||||||||||||
At December 31, 2014, there was $0.7 million of unrecognized compensation cost related to non-vested stock options and SARs to be recognized over a weighted average period of 1.3 years.
Restricted Stock and Restricted Stock Units
Restricted stock granted under the Company’s incentive plans are accounted for based on the market value of the underlying shares on the date of grant and vest in equal installments annually over three years. Restricted stock awards are accounted for as equity awards and restricted stock unit awards were accounted for as liability awards. Restricted stock units were remeasured at each reporting date and settled in cash based on the number of vested restricted stock units multiplied by the current market price of the common shares when vested. Holders of restricted stock are entitled to vote the shares and to receive any dividends declared on the shares.
The following table summarizes restricted stock and restricted stock units activity for the years ended December 31, 2014, 2013, and 2012:
| Restricted Stock | Restricted Stock Units | ||||||||||||
Number of Shares | Weighted Average Grant Date Fair Value | Number of Units | Weighted Average Fair Value | ||||||||||
| Outstanding at December 31, 2011 | 173,509 | 11.37 | 45,518 | 27.32 | |||||||||
| Granted | 230,096 | 26.40 | — | — | |||||||||
| Vested | (95,336 | ) | 23.15 | (31,456 | ) | 25.92 | |||||||
| Cancelled/Forfeited | (68,571 | ) | 27.43 | (2,651 | ) | 24.60 | |||||||
| Outstanding at December 31, 2012 | 239,698 | 25.38 | 11,411 | 24.14 | |||||||||
| Granted | 573,467 | 15.38 | — | — | |||||||||
| Vested | (90,963 | ) | 26.83 | (11,411 | ) | 22.74 | |||||||
| Cancelled/Forfeited | (109,116 | ) | 23.30 | — | — | ||||||||
| Outstanding at December 31, 2013 | 613,086 | $ | 16.68 | — | $ | — | |||||||
| Granted | 695,897 | 9.83 | — | — | |||||||||
| Vested | (234,103 | ) | 17.16 | — | — | ||||||||
| Cancelled/Forfeited | (172,881 | ) | 11.87 | — | — | ||||||||
| Outstanding at December 31, 2014 | 901,999 | $ | 12.19 | — | $ | — | |||||||
At December 31, 2014, there was $3.4 million of unrecognized compensation cost related to restricted stock and restricted stock unit awards to be recognized over a weighted-average period of 1.4 years.
Performance Shares and Performance Share Units
Performance shares granted under the Company’s incentive plans are accounted for at fair value using a Monte Carlo simulation valuation model on the date of grant. Performance share awards are accounted for as equity awards and performance units are accounted for as liability-based awards and remeasured each reporting date. Vesting is contingent on meeting certain market conditions based on relative total stockholder return and on meeting internal performance conditions. The performance shares vest at the end of the three-year service period if market and service conditions are met. The existence of a market condition
65
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
requires recognition of compensation cost for the performance share awards over the requisite period regardless of whether the market condition is satisfied. Performance share units were settled in cash based on the current market price of the common shares when vested.
The following table summarizes performance shares and performance units’ activity for the years ended December 31, 2014, 2013, and 2012:
| Performance Shares | Performance Units | ||||||||||||
Number of Shares | Weighted Average Grant Date Fair Value | Number of Units | Weighted Average Fair Value | ||||||||||
| Outstanding at December 31, 2011 | 105,929 | $ | 16.29 | 84,539 | $ | 35.41 | |||||||
| Granted | 145,508 | 25.78 | 32,498 | — | |||||||||
| Vested | (111,703 | ) | 7.96 | (74,845 | ) | 31.17 | |||||||
| Cancelled/Forfeited | (30,575 | ) | 42.11 | (7,953 | ) | 49.20 | |||||||
| Outstanding at December 31, 2012 | 109,159 | 26.92 | 34,239 | 39.78 | |||||||||
| Granted | 173,773 | 23.35 | 34,239 | 38.02 | |||||||||
| Vested | (4,160 | ) | 30.97 | (68,478 | ) | 38.02 | |||||||
| Cancelled/Forfeited | (68,377 | ) | 34.49 | — | — | ||||||||
| Outstanding at December 31, 2013 | 210,395 | 28.04 | — | — | |||||||||
| Granted | 358,398 | 12.21 | — | — | |||||||||
| Vested | (34,611 | ) | 27.18 | — | — | ||||||||
| Cancelled/Forfeited | (17,352 | ) | 27.15 | — | — | ||||||||
| Outstanding at December 31, 2014 | 516,830 | $ | 17.61 | — | $ | — | |||||||
At December 31, 2014, there was $2.9 million of unrecognized compensation cost related to performance shares to be recognized over a weighted average period of 1.8 years.
Supplemental Incentive Plan
During 2014, the Company adopted a supplemental incentive plan, under which benefits are payable upon achievement of certain performance and market conditions. The maximum potential bonus under the plan is $3.8 million, of which $2.8 million may be settled in cash or stock at the Company’s discretion. At December 31, 2014, $0.6 million has been accrued for this plan.
NOTE 7 – RETIREMENT SAVINGS PLAN
The Company has a 401(k) retirement savings plan that covers all eligible U.S. employees. Eligible employees may elect to contribute up to 75% of base salary, subject to ERISA limitations. The Company makes matching contributions equal to 100% of the employee’s contribution up to 4% of the employee's compensation. The Company may also provide a voluntary, noncontributory defined contribution based on a percentage of eligible employee's salary. Total plan expenses recognized for the years ended December 31, 2014, 2013, and 2012 were $2.6 million, $4.1 million, and $4.1 million, respectively.
NOTE 8 – INCOME AND MINING TAXES
The components of Income (loss) before income taxes are below:
| Year ended December 31, | |||||||||||
| in thousands | 2014 | 2013 | 2012 | ||||||||
| United States | $ | (213,883 | ) | $ | (242,562 | ) | $ | (3,443 | ) | ||
| Foreign | (1,401,245 | ) | (566,117 | ) | 122,927 | ||||||
| Total | $ | (1,615,128 | ) | $ | (808,679 | ) | $ | 119,484 | |||
66
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The components of the consolidated Income and mining tax (expense) benefit from continuing operations are below:
| Year ended December 31, | |||||||||||
| in thousands | 2014 | 2013 | 2012 | ||||||||
| Current: | |||||||||||
| United States | $ | 904 | $ | 4 | $ | (257 | ) | ||||
| United States — State mining taxes | (879 | ) | (714 | ) | (2,195 | ) | |||||
| United States — Foreign withholding tax | (6,250 | ) | 397 | (736 | ) | ||||||
| Argentina | (71 | ) | (137 | ) | 976 | ||||||
| Australia | — | (914 | ) | (1,760 | ) | ||||||
| Mexico | (1,124 | ) | (9,046 | ) | (7,814 | ) | |||||
| Bolivia | (4,008 | ) | (6,716 | ) | (43,546 | ) | |||||
| Canada | (145 | ) | (1,936 | ) | — | ||||||
| Deferred: | |||||||||||
| Argentina | 24,478 | 8,062 | — | ||||||||
| Australia | (401 | ) | (2 | ) | (223 | ) | |||||
| Bolivia | 22,122 | (4,222 | ) | (1,087 | ) | ||||||
| Canada | 1,807 | — | — | ||||||||
| Mexico | 417,068 | 94,851 | (10,579 | ) | |||||||
| United States | 5,743 | 78,489 | (3,586 | ) | |||||||
| Income tax (expense) benefit | $ | 459,244 | $ | 158,116 | $ | (70,807 | ) | ||||
A reconciliation of the Company’s effective tax rate with the federal statutory tax rate for the periods indicated is below:
| Year ended December 31, | |||||||||||
| in thousands | 2014 | 2013 | 2012 | ||||||||
| Tax benefit (expense) from continuing operations | $ | 565,295 | $ | 283,038 | $ | (41,819 | ) | ||||
| State tax provision from continuing operations | 20,253 | 2,245 | (3,151 | ) | |||||||
| Percentage depletion and related deductions | — | — | 7,461 | ||||||||
| Change in valuation allowance | (128,344 | ) | (106,802 | ) | (12,651 | ) | |||||
| Non-deductible imputed interest | — | (214 | ) | (525 | ) | ||||||
| Uncertain tax positions | (4,425 | ) | (5,209 | ) | (9,849 | ) | |||||
| U.S. and foreign non-deductible expenses | (4,892 | ) | (2,383 | ) | (4,206 | ) | |||||
| Foreign exchange rates | 23,672 | 13,937 | (10,416 | ) | |||||||
| Foreign inflation and indexing | 3,765 | 2,937 | 712 | ||||||||
| Foreign tax rate differences | (63,930 | ) | (24,108 | ) | 3,967 | ||||||
| Foreign withholding and other foreign taxes | 91,882 | (100,331 | ) | (5,861 | ) | ||||||
| Foreign tax credits and other, net | (44,032 | ) | 13,153 | 5,531 | |||||||
| Change in Mexico permanent reinvestment assertion | — | 81,853 | — | ||||||||
| $ | 459,244 | $ | 158,116 | $ | (70,807 | ) | |||||
67
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
At December 31, 2014 and 2013, the significant components of the Company’s deferred tax assets and liabilities are below:
| Year ended December 31, | |||||||
| In thousands | 2014 | 2013 | |||||
| Deferred tax liabilities: | |||||||
| Mineral properties | $ | — | $ | 344,152 | |||
| Mexican mining royalty tax | 7,586 | 76,386 | |||||
| Foreign subsidiaries — unremitted earnings | 45,249 | 182,464 | |||||
| Inventory | 1,100 | 2,746 | |||||
| Property, plant, and equipment, net | — | 33,094 | |||||
| $ | 53,935 | $ | 638,842 | ||||
| Deferred tax assets: | |||||||
| Net operating loss carryforwards | 153,689 | 130,170 | |||||
| Mineral properties | 70,510 | — | |||||
| Property, plant, and equipment | 46,042 | — | |||||
| Foreign subsidiaries — future tax credits | — | 163,947 | |||||
| Royalty and other long-term debt | 5,863 | 11,616 | |||||
| Capital loss carryforwards | 35,251 | 34,930 | |||||
| Asset retirement obligation | 21,586 | 18,589 | |||||
| Unrealized foreign currency loss and other | 8,213 | 9,567 | |||||
| Accrued expenses | 14,773 | 14,756 | |||||
| Tax credit carryforwards | 56,322 | 23,585 | |||||
| 412,249 | 407,160 | ||||||
| Valuation allowance | (409,883 | ) | (289,378 | ) | |||
| 2,366 | 117,782 | ||||||
| Net deferred tax liabilities | $ | 51,569 | $ | 521,060 | |||
The Company has evaluated the amount of taxable income and periods over which it must be earned to allow for realization of the deferred tax assets. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon this analysis, the Company has recorded valuation allowances as follows:
| Year ended December 31, | |||||||
| In thousands | 2014 | 2013 | |||||
| U.S. | $ | 305,534 | $ | 236,653 | |||
| Argentina | 21,520 | 17,005 | |||||
| Canada | 2,009 | 4,453 | |||||
| Bolivia | 15,948 | — | |||||
| Mexico | 33,189 | — | |||||
| New Zealand | 28,710 | 27,292 | |||||
| Other | 2,973 | 3,975 | |||||
| $ | 409,883 | $ | 289,378 | ||||
68
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of the beginning and ending amount related to unrecognized tax benefits is below (in thousands):
| Unrecognized tax benefits at January 1, 2013 | $ | 10,511 | |
| Gross increase to current period tax positions | 2,231 | ||
| Gross increase to prior period tax positions | 2,761 | ||
| Reductions in unrecognized tax benefits resulting from a lapse of the applicable statue of limitations | (32 | ) | |
| Unrecognized tax benefits at December 31, 2013 | $ | 15,471 | |
| Gross increase to current period tax positions | 1,856 | ||
| Gross increase to prior period tax positions | 524 | ||
| Reductions in unrecognized tax benefits resulting from a lapse of the applicable statue of limitations | (1,767 | ) | |
| Unrecognized tax benefits at December 31, 2014 | $ | 16,084 | |
At December 31, 2014, 2013, and 2012, $16.1 million, $14.3 million, and $10.3 million, respectively, of these gross unrecognized benefits would, if recognized, decrease the Company's effective tax rate. The Company is not able to estimate the amount of change in the Company's gross unrecognized tax benefits within the next twelve months.
The Company classifies interest and penalties associated with uncertain tax positions as a component of income tax expense and has recognized interest and penalties of $2.9 million, $4.1 million, and $2.5 million as of 2014, 2013, and 2012, respectively.
The Company files income tax returns in various U.S. federal and state jurisdictions, in all identified foreign jurisdictions and various others. The statute of limitations remains open from 2012 for the US federal jurisdiction and from 2005 for certain other foreign jurisdictions. During 2014, the U.S. Internal Revenue Service concluded its examination of the Company's 2009, 2010, and 2011 tax years.
In the fourth quarter of 2013, the Company made an assertion that earnings are permanently reinvested in its Coeur Mexicana mining operations entity which resulted in an income tax benefit of $81 million. Therefore, at December 31, 2014, no provision has been made for United States federal and state income taxes on the Company's outside tax basis differences in Mexico, which primarily relate to accumulated foreign earnings which have been reinvested and are expected to be reinvested outside the United States indefinitely.
During 2007, the Company incurred an ownership change which generally limits the availability of existing tax attributes, including net operating loss carryforwards to reduce future taxable income. The Company has the following tax attribute carryforwards at December 31, 2014, by jurisdiction (in thousands):
| U.S. | Argentina | Canada | Mexico | New Zealand | Other | Total | ||||||||||||||
| Regular net operating losses | 245,683 | 16,588 | 1,633 | 49,747 | 102,535 | 22,952 | 439,138 | |||||||||||||
| Alternative minimum tax net operating losses | 117,362 | — | — | — | — | — | 117,362 | |||||||||||||
| Capital losses | 91,019 | — | — | — | — | — | 91,019 | |||||||||||||
| Alternative minimum tax credits | 4,142 | — | — | — | — | — | 4,142 | |||||||||||||
| Foreign tax credits | 52,181 | — | — | — | — | — | 52,181 | |||||||||||||
The U.S. net operating losses expire from 2019 through 2034 and the Canada net operating losses will expire from 2029 through 2034. The Mexico net operating losses expire from 2017 to 2024, while the remaining net operating losses from the foreign jurisdictions have an indefinite carryforward period. The U.S. capital losses expire in 2015 while the Canada capital losses generally have an indefinite carryforward period. Alternative minimum tax credits do not expire and foreign tax credits expire if unused beginning in 2019.
69
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 9 – NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the years ended December 31, 2014, 2013, and 2012, 1,871,681, 1,111,021, and 479,767 shares, respectively, of common stock equivalents related to equity-based awards were not included in the diluted per share calculation as the shares would be antidilutive.
The 3.25% Convertible Senior Notes were not included in the computation of diluted net income (loss) per share for the years ended December 31, 2014, 2013, and 2012 because there is no excess value upon conversion over the principal amount of the Notes.
| Year ended December 31, | |||||||||||
| In thousands except per share amounts | 2014 | 2013 | 2012 | ||||||||
| Net income (loss) available to common stockholders | $ | (1,155,884 | ) | $ | (650,563 | ) | $ | 48,677 | |||
| Weighted average shares: | |||||||||||
| Basic | 102,441 | 97,864 | 89,437 | ||||||||
| Effect of stock-based compensation plans | — | — | 166 | ||||||||
| Diluted | 102,441 | 97,864 | 89,603 | ||||||||
| Income (loss) per share: | |||||||||||
| Basic | $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | |||
| Diluted | $ | (11.28 | ) | $ | (6.65 | ) | $ | 0.54 | |||
NOTE 10 – FAIR VALUE MEASUREMENTS
The following table presents the components of Fair value adjustments, net:
| Year ended December 31, | ||||||||||||
| In thousands | 2014 | 2013 | 2012 | |||||||||
| Palmarejo royalty obligation embedded derivative | $ | (2,001 | ) | $ | 76,200 | $ | (31,053 | ) | ||||
| Rochester NSR royalty obligation | 3,653 | 416 | — | |||||||||
| Silver and gold options | 1,058 | 7,119 | 4,302 | |||||||||
| Foreign exchange contracts | 908 | (967 | ) | 3,264 | ||||||||
| Fair value adjustments, net | $ | 3,618 | $ | 82,768 | $ | (23,487 | ) | |||||
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), secondary priority to quoted prices in inactive markets or observable inputs (Level 2), and the lowest priority to unobservable inputs (Level 3).
70
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
| Fair Value at December 31, 2014 | |||||||||||||||
| In thousands | Total | Level 1 | Level 2 | Level 3 | |||||||||||
| Assets: | |||||||||||||||
| Short-term investments | $ | 138 | $ | 138 | $ | — | $ | — | |||||||
| Equity securities | 5,982 | 4,603 | — | 1,379 | |||||||||||
| Silver and gold options | 3,882 | — | 3,882 | — | |||||||||||
| $ | 10,002 | $ | 4,741 | $ | 3,882 | $ | 1,379 | ||||||||
| Liabilities: | |||||||||||||||
| Palmarejo royalty obligation embedded derivative | $ | 21,912 | $ | — | $ | — | $ | 21,912 | |||||||
| Rochester NSR royalty obligation | 15,370 | — | — | 15,370 | |||||||||||
| Silver and gold options | 1,039 | — | 1,039 | — | |||||||||||
| Other derivative instruments, net | 805 | — | 805 | — | |||||||||||
| $ | 39,126 | $ | — | $ | 1,844 | $ | 37,282 | ||||||||
| Fair Value at December 31, 2013 | |||||||||||||||
| In thousands | Total | Level 1 | Level 2 | Level 3 | |||||||||||
| Assets: | |||||||||||||||
| Equity securities | $ | 14,521 | $ | 14,521 | $ | — | $ | — | |||||||
| Silver and gold options | 135 | — | 135 | — | |||||||||||
| $ | 14,656 | $ | 14,521 | $ | 135 | $ | — | ||||||||
| Liabilities: | |||||||||||||||
| Palmarejo royalty obligation embedded derivative | $ | 40,338 | $ | — | $ | — | $ | 40,338 | |||||||
| Rochester NSR royalty obligation | 21,630 | — | — | 21,630 | |||||||||||
| Other derivative instruments, net | 1,591 | — | 1,591 | — | |||||||||||
| $ | 63,559 | $ | — | $ | 1,591 | $ | 61,968 | ||||||||
The Company’s short-term investments and investments in equity securities are recorded at fair market value in the financial statements based primarily on quoted market prices. Such instruments are classified within Level 1 of the fair value hierarchy. For certain of the equity securities quoted market prices are not available. These securities are valued using pricing models which require the use of observable and unobservable inputs. In 2014, these securities were reclassified from Level 1 to Level 3 in the fair value hierarchy.
The Company’s silver and gold options and other derivative instruments, net, which relate to concentrate sales contracts and foreign exchange contracts, are valued using pricing models, which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves, credit spreads, and other unobservable inputs. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
The estimated fair value of the Palmarejo royalty obligation embedded derivative and Rochester NSR royalty obligation was estimated based on observable market data including contractual terms, forward silver and gold prices, yield curves and credit spreads. The Company’s current mine plans are a significant unobservable input used in the estimated fair value of the Palmarejo royalty obligation embedded derivative and Rochester NSR royalty obligation. Therefore, the Company has classified the Palmarejo royalty obligation embedded derivative and Rochester NSR royalty obligation as Level 3 financial liabilities. Based on the current mine plans, expected royalty durations of 1.7 years and 3.2 years were used to estimate the fair value of the Palmarejo royalty obligation embedded derivative and Rochester NSR royalty obligation, respectively, at December 31, 2014.
71
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following tables present the changes in the fair value of the Company's Level 3 financial liabilities for the years ended December 31, 2014 and 2013:
| Year ended December 31, 2014 | |||||||||||||||||||||||
| In thousands | Balance at the beginning of the period | Additions | Revaluation | Settlements | Transfers from Level 1 | Balance at the end of the period | |||||||||||||||||
| Palmarejo royalty obligation embedded derivative | $ | 40,338 | $ | — | $ | 2,001 | $ | (20,427 | ) | $ | — | $ | 21,912 | ||||||||||
| Rochester NSR royalty obligation | 21,630 | — | (3,653 | ) | (2,607 | ) | — | 15,370 | |||||||||||||||
| Equity securities | — | 69 | (55 | ) | — | 1,365 | 1,379 | ||||||||||||||||
| Year ended December 31, 2013 | |||||||||||||||||||||||
| In thousands | Balance at the beginning of the period | Additions | Revaluation | Settlements | Transfers from Level 2 | Balance at the end of the period | |||||||||||||||||
| Palmarejo royalty obligation embedded derivative | $ | — | $ | — | $ | (76,200 | ) | $ | (28,560 | ) | $ | 145,098 | $ | 40,338 | |||||||||
| Rochester NSR royalty obligation | — | 22,046 | (416 | ) | — | — | 21,630 | ||||||||||||||||
During 2014, Coeur recorded write-downs related to Property, plant, and equipment and Mining properties totaling $1,472.7 million ($1,021.8 million net of tax). The fair values of Property, plant, and equipment and Mining properties were estimated using a discounted cash flow approach. The discounted cash flow model used significant unobservable inputs and is therefore classified within Level 3 for the fair value hierarchy. The following table sets forth the quantitative and qualitative information related to the unobservable inputs used in the calculation of the Company's non-recurring Level 3 fair value measurements:
| Description | Valuation technique | Unobservable input | Range / Weighted Average |
Property, plant, and equipment and Mining properties | Discounted cash flow | Discount rate | 8.0% - 10.75% |
| Long-term silver price | $19.00 | ||
| Long-term gold price | $1,275 | ||
During 2013, Coeur recorded write-downs related to Property, plant, and equipment and Mining properties totaling $773.0 million ($593.2 million net of tax). The fair values of Property, plant, and equipment and Mining properties were estimated using a discounted cash flow approach. The discounted cash flow model used significant unobservable inputs and is therefore classified within Level 3 for the fair value hierarchy. The following table sets forth the quantitative and qualitative information related to the unobservable inputs used in the calculation of the Company's non-recurring Level 3 fair value measurements:
| Description | Valuation technique | Unobservable input | Range / Weighted Average |
Property, plant, and equipment and Mining properties | Discounted cash flow | Discount rate | 8.5% - 10.5% |
| Long-term silver price | $25.00 | ||
| Long-term gold price | $1,450 | ||
72
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The fair value of financial assets and liabilities carried at book value in the financial statements at December 31, 2014 and December 31, 2013 is presented in the following table:
| December 31, 2014 | |||||||||||||||||||
| In thousands | Book Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||
| Liabilities: | |||||||||||||||||||
| 3.25% Convertible Senior Notes due 2028 | $ | 5,334 | $ | 4,979 | $ | — | $ | 4,979 | $ | — | |||||||||
| 7.875% Senior Notes due 2021 | 437,454 | 343,305 | — | 343,305 | — | ||||||||||||||
| San Bartolomé Line of Credit | 14,785 | 14,785 | — | 14,785 | — | ||||||||||||||
| Palmarejo gold production royalty obligation | 34,047 | 38,290 | — | — | 38,290 | ||||||||||||||
| December 31, 2013 | |||||||||||||||||||
| In thousands | Book Value | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||
| Liabilities: | |||||||||||||||||||
| 3.25% Convertible Senior Notes due 2028 | $ | 5,334 | $ | 5,067 | $ | 5,067 | $ | — | $ | — | |||||||||
| 7.875% Senior Notes due 2021 | 300,000 | 307,314 | 307,314 | — | — | ||||||||||||||
| Palmarejo gold production royalty obligation | 51,193 | 65,212 | — | — | 65,212 | ||||||||||||||
The fair value at December 31, 2014 and December 31, 2013 of the 3.25% Convertible Senior Notes and 7.875% Senior Notes outstanding were estimated using quoted market prices. The fair value of debt was transferred to Level 2 from Level 1 of the fair value hierarchy in 2014 due to observability of quoted market prices.
The San Bartolomé line of credit was originated by a third party at December 31, 2014 and, as a result, book value is assumed to be fair value.
The fair value of the Palmarejo gold production royalty obligation is estimated based on observable market data including contractual terms, forward silver and gold prices, yield curves, and credit spreads. The Company’s current mine plan is a significant input used in the estimated fair value of the Palmarejo gold production royalty obligation and is considered company specific and unobservable. Therefore, the Company has classified the Palmarejo gold production royalty obligation as a Level 3 financial liability. Based on the current mine plan, an expected royalty duration of 1.7 years was used to estimate the fair value of the Palmarejo gold production royalty obligation at December 31, 2014.
NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS
Palmarejo Gold Production Royalty
On January 21, 2009, the Company's subsidiary, Coeur Mexicana S.A. de C.V. ("Coeur Mexicana"), entered into a gold production royalty agreement with a subsidiary of Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties. The royalty transaction includes a minimum obligation of 4,167 gold ounces per month and terminates when payments of 400,000 gold ounces have been made. At December 31, 2014, a total of 84,915 gold ounces remain outstanding under the original obligation.
The price volatility associated with the minimum royalty obligation is considered an embedded derivative. The Company is required to recognize the change in fair value of the remaining minimum obligation due to changing gold prices. Unrealized gains are recognized in periods when the gold price has decreased from the previous period and unrealized losses are recognized in periods when the gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 11.8% and 5.7% at December 31, 2014 and December 31, 2013, respectively. The fair value of the embedded derivative at December 31, 2014 and December 31, 2013 was a liability of $21.9 million and $40.3 million, respectively. For the years ended December 31, 2014, 2013, and 2012 the fair value adjustments were gains of $18.4 million, $104.8 million, and $14.3 million.
Payments on the royalty obligation decrease the carrying amount of the minimum obligation and the derivative liability. Each monthly payment is an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of the actual gold production per month multiplied by the excess of the monthly average market price of gold above $408 per ounce, subject to a 1% annual inflation adjustment. For the years ended December 31, 2014, 2013, and 2012, realized losses on settlement of the liabilities were $20.4 million, $28.6 million, and $45.4 million, respectively. The fair value adjustments and realized losses are included in Fair value adjustments, net.
73
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Foreign Exchange Contracts
At December 31, 2014, the Company had no outstanding call and put option contracts, or collars. At December 31, 2013, the Company had MXN foreign exchange forward contracts on $12.0 million in U.S. dollars. These contracts required the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 12.21 MXN to each U.S. dollar and the fair value of those contracts was a liability of $0.9 million at December 31, 2013. In addition, at December 31, 2013, the Company had outstanding collars on $45.0 million with a weighted-average strike price of 12.60 MXN for the floor and 14.80 MXN for the ceiling. The fair value of these contracts was nil at December 31, 2013.
For the years ended December 31, 2014, 2013, and 2012, the Company recorded mark-to-market gains of nil, losses of $1.0 million, and gains of $3.3 million, respectively, on MXN forward contracts and collars. These mark-to-market adjustments are reflected in Fair value adjustments, net. For the years ended December 31, 2014, 2013, and 2012, the Company recorded realized losses of $0.9 million, realized gains of $0.6 million, and realized losses of $1.6 million, respectively, in Costs applicable to sales.
Provisional Gold and Silver Sales
The Company's sales to third-party smelters, in general, provide for a provisional payment based upon preliminary assays and forward metal prices. The provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivatives do not qualify for hedge accounting and are marked to market through earnings each period until final settlement. Changes in silver and gold prices resulted in provisional pricing mark-to-market losses of $0.1 million, losses of $2.0 million, and gains of $1.7 million in the years ended December 31, 2014, 2013, and 2012, respectively. At December 31, 2014, the Company had outstanding provisionally priced sales of 0.6 million ounces of silver and 29,137 ounces of gold at prices of $16.35 and $1,221, respectively.
Silver and Gold Options
At December 31, 2014, the Company has outstanding put spread contracts on 1,250,000 ounces of silver and 24,000 ounces of gold. The weighted average high and low strike prices on the silver put spreads are $18.00 per ounce and $16.00 per ounce, respectively. The weighted average high and low strike prices on the gold put spreads are $1,200 and $1,050, respectively.
If the market price of silver and gold were to average less than the high strike price but more than the low strike price during the contract period, the Company would receive the difference between the average market price and the high strike price for the contracted volume over the contract period. If the market price of silver and gold were to average less than the low strike price during the contract period, the Company would receive the difference between the average market price and the high strike price for the contracted volume over the contract period, and the Company would be required to pay the difference between the average market price and the low strike price for the contracted volume over the contract period.
The put spread contracts are generally net cash settled and expire in the first quarter of 2015. At December 31, 2014, the fair market value of the put spreads was a net asset of $2.8 million.
At December 31, 2013, the Company had outstanding put options allowing it to net settle 25,000 ounces of gold and 1,250,000 ounces of silver at weighted average prices of $1,150 per ounce and $17.00 per ounce, respectively, if the market price of gold or silver were to average less than the strike price during the contract period. At December 31, 2013, the fair market value of these contracts was a net asset of $0.1 million.
During the years ended December 31, 2014, 2013, and 2012, the Company recorded unrealized gains of $1.5 million, unrealized gains of $8.9 million, and unrealized gains of $8.6 million, respectively, related to outstanding options which was included in Fair value adjustments, net. The Company also recognized realized losses of $0.6 million, nil, and nil, respectively, resulting from expiring and terminated contracts during the years ended December 31, 2014, 2013, and 2012.
74
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
At December 31, 2014, the Company had the following derivative instruments that settle in each of the years indicated:
| In thousands except average prices and notional ounces | 2015 | 2016 | Thereafter | ||||||||
| Palmarejo gold production royalty | $ | 41,981 | $ | 23,779 | $ | — | |||||
| Average gold price in excess of minimum contractual deduction | $ | 775 | $ | 774 | $ | — | |||||
| Notional ounces | 54,171 | 30,744 | — | ||||||||
| Silver concentrate sales contracts | $ | 10,392 | $ | — | $ | — | |||||
| Average silver price | $ | 16.35 | $ | — | $ | — | |||||
| Notional ounces | 635,614 | — | — | ||||||||
| Gold concentrate sales contracts | $ | 35,576 | $ | — | $ | — | |||||
| Average gold price | $ | 1,221 | $ | — | $ | — | |||||
| Notional ounces | 29,137 | — | — | ||||||||
| Gold put options purchased | $ | 14,400 | $ | — | $ | — | |||||
| Average gold strike price | $ | 1,200 | $ | — | $ | — | |||||
| Notional ounces | 12,000 | — | — | ||||||||
| Silver put options purchased | $ | 11,250 | $ | — | $ | — | |||||
| Average silver strike price | $ | 18.00 | $ | — | $ | — | |||||
| Notional ounces | 625,000 | — | — | ||||||||
| Gold put options sold | $ | (12,600 | ) | $ | — | $ | — | ||||
| Average gold strike price | $ | 1,050 | $ | — | $ | — | |||||
| Notional ounces | 12,000 | — | — | ||||||||
| Silver put options sold | $ | (10,000 | ) | $ | — | $ | — | ||||
| Average silver strike price | $ | 16.00 | $ | — | $ | — | |||||
| Notional ounces | 625,000 | — | — | ||||||||
The following summarizes the classification of the fair value of the derivative instruments:
| December 31, 2014 | |||||||||||||||
| In thousands | Prepaid expenses and other | Accrued liabilities and other | Current portion of royalty obligation | Non-current portion of royalty obligation | |||||||||||
| Palmarejo gold production royalty | $ | — | $ | — | $ | 14,405 | $ | 7,507 | |||||||
| Silver and gold options | 3,882 | 1,039 | |||||||||||||
| Concentrate sales contracts | 43 | 848 | |||||||||||||
| $ | 3,925 | $ | 1,887 | $ | 14,405 | $ | 7,507 | ||||||||
| December 31, 2013 | |||||||||||||||
| Prepaid expenses and other | Accrued liabilities and other | Current portion of royalty obligation | Non-current portion of royalty obligation | ||||||||||||
| Foreign exchange contracts | $ | 38 | $ | 947 | $ | — | $ | — | |||||||
| Palmarejo gold production royalty | — | — | 17,650 | 22,688 | |||||||||||
| Silver and gold options | 135 | — | — | — | |||||||||||
| Concentrate sales contracts | 11 | 693 | — | — | |||||||||||
| $ | 184 | $ | 1,640 | $ | 17,650 | $ | 22,688 | ||||||||
75
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following represent mark-to-market gains (losses) on derivative instruments for the years ended December 31, 2014, 2013, and 2012 (in thousands):
| Year ended December 31, | |||||||||||||
| Financial statement line | Derivative | 2014 | 2013 | 2012 | |||||||||
| Sales of metal | Concentrate sales contracts | $ | (123 | ) | $ | (1,995 | ) | $ | 1,682 | ||||
| Costs applicable to sales | Foreign exchange contracts | 924 | 589 | (1,621 | ) | ||||||||
| Fair value adjustments, net | Foreign exchange contracts | (16 | ) | (985 | ) | 3,264 | |||||||
| Fair value adjustments, net | Palmarejo gold royalty | (2,001 | ) | 76,200 | (31,053 | ) | |||||||
| Fair value adjustments, net | Silver and gold options | 1,058 | 7,119 | 4,302 | |||||||||
| $ | (158 | ) | $ | 80,928 | $ | (23,426 | ) | ||||||
Credit Risk
The credit risk exposure related to any derivative instrument is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company enters into contracts with financial institutions management deems credit worthy and limits credit exposure to each institution. The Company does not anticipate non-performance by any of its counterparties. In addition, to allow for situations where derivative positions may need to be revised, the Company transacts only in markets that management considers highly liquid.
NOTE 12 – ACQUISITIONS
On December 16, 2014, the Company entered into a merger agreement under which it will issue, in exchange for each issued and outstanding share of Paramount Gold and Silver Corp. ("Paramount"), 0.2016 shares of common stock of the Company, subject to closing conditions being satisfied. Immediately prior to completion of the merger, Paramount will spin-off to its existing stockholders a separate, publicly traded company, expected to be named Paramount Nevada Gold Corp. (“SpinCo”), a subsidiary that owns the Sleeper Gold Project and other assets in Nevada. As part of the transaction, subject to satisfaction of closing conditions, Coeur will make a loan to Paramount in the principal amount of $8.5 million and Paramount will contribute all of the proceeds of such loan to SpinCo as an equity contribution, and SpinCo will issue to Coeur, in exchange for a cash payment by Coeur in the amount of $1.5 million, newly issued shares of SpinCo common stock amounting to 4.9% of the outstanding SpinCo common stock after issuance.
On December 16, 2014, the Company acquired a 0.7% NSR royalty on Paramount's San Miguel project in a separate transaction not conditioned on the successful acquisition of Paramount for $5.3 million.
On July 2, 2014, the Company acquired a pre-existing 3.0% NSR royalty on the La Preciosa silver-gold project for $12.0 million.
On May 27, 2014, the Company's subsidiary, Coeur Capital, Inc., entered into an NSR royalty agreement with Northair Silver Corp. (formerly, International Northair Mines, Ltd., "Northair"). Pursuant to the agreement, the Company paid $2.2 million cash on May 27, 2014 for a 1.25% NSR and $1.8 million on September 2, 2014 for an additional 1.25% NSR royalty payable on future production from Northair's La Cigarra silver project located in north central Mexico.
The Company completed the acquisition of Global Royalty Corporation (“GRC”) on December 13, 2013. The transaction was accounted for as a business combination. Upon completion of the acquisition, the Company holds NSRs on the El Gallo complex in Mexico and the Zaruma mine in Ecuador. The Company incurred $0.3 million of acquisition-related costs in 2013 related to the acquisition of GRC which are included in General and administrative expense in the Consolidated Statement of Comprehensive Income (Loss).
Total consideration paid and fair value of assets acquired in the GRC acquisition are as follows (in thousands):
| Total purchase price | 26,047 | ||
| Total liabilities assumed | 8,605 | ||
| Total consideration | $ | 34,652 | |
| Total assets acquired | $ | 34,652 | |
On April 16, 2013, the Company completed its acquisition of Orko Silver Corporation (“Orko”). As a result of the acquisition, the Company owns the La Preciosa silver-gold project in the state of Durango, Mexico. The transaction was accounted for as a purchase of mineral interests since La Preciosa is an exploration stage project.
76
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Total consideration paid and fair value of assets acquired in the Orko acquisition are as follows (in thousands):
| Total purchase price | 295,841 | ||
| Total liabilities assumed | 116,955 | ||
| Total consideration | $ | 412,796 | |
| Total assets acquired | $ | 412,796 | |
NOTE 13 – INVESTMENTS
The Company invests part of its cash balances in a managed portfolio of liquid investments, including highly-rated corporate bonds, classified as short-term investments. The Company also invests in equity securities of silver and gold exploration and development companies. These investments are classified as available-for-sale and are measured at fair value in the financial statements with unrealized gains and losses recorded in Other comprehensive income (loss).
| At December 31, 2014 | |||||||||||||||
| In thousands | Cost | Gross Unrealized Losses | Gross Unrealized Gains | Estimated Fair Value | |||||||||||
| Equity securities | $ | 5,687 | $ | (8 | ) | $ | 303 | $ | 5,982 | ||||||
| At December 31, 2013 | |||||||||||||||
| In thousands | Cost | Gross Unrealized Losses | Gross Unrealized Gains | Estimated Fair Value | |||||||||||
| Equity securities | $ | 17,649 | $ | (3,300 | ) | $ | 172 | $ | 14,521 | ||||||
The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized and the fair values of those securities, aggregated by the length of time the individual securities have been in a continuous unrealized loss position, at December 31, 2014:
| Less than twelve months | Twelve months or more | Total | ||||||||||||||||||
| In thousands | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | ||||||||||||||
| Equity securities | $ | (8 | ) | $ | 38 | $ | — | $ | — | $ | (8 | ) | $ | 38 | ||||||
During 2014, the Company sold $49.1 million of short-term investments and $5.2 million of equity securities which resulted in the recognition of a realized loss of $0.6 million. The Company recognized net of tax unrealized losses of $2.3 million, $8.5 million, and $3.4 million in the years ended December 31, 2014, 2013, and 2012, respectively, in Other comprehensive income (loss). The Company performs a quarterly assessment on each of its equity securities with unrealized losses to determine if the security is other than temporarily impaired. The Company recorded other-than-temporary impairment losses of $6.6 million, $18.3 million and $0.6 million in the years ended December 31, 2014, 2013, and 2012, respectively.
NOTE 14 – RECEIVABLES
Receivables consist of the following:
| In thousands | December 31, 2014 | December 31, 2013 | |||||
| Current receivables: | |||||||
| Trade receivables | $ | 20,448 | $ | 17,303 | |||
| Income tax receivable | 30,045 | 8,363 | |||||
| Value added tax receivable | 63,805 | 49,168 | |||||
| Other | 2,623 | 6,240 | |||||
| $ | 116,921 | $ | 81,074 | ||||
| Non-current receivables: | |||||||
| Value added tax receivable | $ | 21,686 | $ | 36,574 | |||
| Total Receivables | $ | 138,607 | $ | 117,648 | |||
77
NOTE 15 – INVENTORY AND ORE ON LEACH PADS
Inventory consists of the following:
| In thousands | December 31, 2014 | December 31, 2013 | |||||
| Inventory: | |||||||
| Concentrate | $ | 23,563 | $ | 14,855 | |||
| Precious metals | 40,870 | 52,250 | |||||
| Supplies | 50,498 | 64,918 | |||||
| $ | 114,931 | $ | 132,023 | ||||
| Ore on Leach Pads: | |||||||
| Current | $ | 48,204 | $ | 50,495 | |||
| Non-Current | 37,889 | 31,528 | |||||
| $ | 86,093 | $ | 82,023 | ||||
| Total Inventory and Ore on Leach Pads | $ | 201,024 | $ | 214,046 | |||
NOTE 16 – PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
| In thousands | December 31, 2014 | December 31, 2013 | |||||
| Land | $ | 1,752 | $ | 1,764 | |||
| Facilities and equipment | 647,181 | 855,318 | |||||
| Capital leases | 28,680 | 16,133 | |||||
| 677,613 | 873,215 | ||||||
| Accumulated amortization | (464,852 | ) | (395,520 | ) | |||
| 212,761 | 477,695 | ||||||
| Construction in progress | 15,150 | 8,578 | |||||
| Property, plant, and equipment, net | $ | 227,911 | $ | 486,273 | |||
Rent expense for operating lease agreements was $11.2 million, $16.7 million and $14.1 million for the years ended December 31, 2014, 2013, and 2012, respectively.
78
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 17 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
| December 31, 2014 | Palmarejo | San Bartolomé | Kensington | Rochester | La Preciosa | Joaquin | Coeur Capital | Total | |||||||||||||||||||||||
| Mine development | $ | 137,821 | $ | 49,305 | $ | 217,138 | $ | 153,535 | $ | — | $ | — | $ | — | $ | 557,799 | |||||||||||||||
| Accumulated amortization | (121,906 | ) | (26,106 | ) | (106,865 | ) | (113,533 | ) | — | — | — | (368,410 | ) | ||||||||||||||||||
| 15,915 | 23,199 | 110,273 | 40,002 | — | — | — | 189,389 | ||||||||||||||||||||||||
| Mineral interests | 521,349 | 17,560 | — | — | 49,059 | 10,000 | 81,461 | 679,429 | |||||||||||||||||||||||
| Accumulated amortization | (332,032 | ) | (10,143 | ) | — | — | — | — | (25,451 | ) | (367,626 | ) | |||||||||||||||||||
| 189,317 | 7,417 | — | — | 49,059 | 10,000 | 56,010 | 311,803 | ||||||||||||||||||||||||
| Mining properties, net | $ | 205,232 | $ | 30,616 | $ | 110,273 | $ | 40,002 | $ | 49,059 | $ | 10,000 | $ | 56,010 | $ | 501,192 | |||||||||||||||
| December 31, 2013 | Palmarejo | San Bartolomé | Kensington | Rochester | La Preciosa | Joaquin | Coeur Capital | Total | |||||||||||||||||||||||
| Mine development | $ | 151,845 | $ | 70,761 | $ | 268,351 | $ | 150,348 | $ | — | $ | — | $ | — | $ | 641,305 | |||||||||||||||
| Accumulated amortization | (110,143 | ) | (22,236 | ) | (80,032 | ) | (103,130 | ) | — | — | — | (315,541 | ) | ||||||||||||||||||
| 41,702 | 48,525 | 188,319 | 47,218 | — | — | — | 325,764 | ||||||||||||||||||||||||
| Mineral interests | 1,146,572 | 26,643 | — | — | 408,352 | 93,429 | 78,133 | 1,753,129 | |||||||||||||||||||||||
| Accumulated amortization | (300,187 | ) | (8,759 | ) | — | — | — | — | (18,446 | ) | (327,392 | ) | |||||||||||||||||||
| 846,385 | 17,884 | — | — | 408,352 | 93,429 | 59,687 | 1,425,737 | ||||||||||||||||||||||||
| Mining properties, net | $ | 888,087 | $ | 66,409 | $ | 188,319 | $ | 47,218 | $ | 408,352 | $ | 93,429 | $ | 59,687 | $ | 1,751,501 | |||||||||||||||
The Palmarejo mine is an underground and open pit silver and gold mine located in the State of Chihuahua in northern Mexico, and the company controls a large portion of the properties surrounding the mine. The Palmarejo mine commenced production in April 2009.
The San Bartolomé mine is a silver mine located near the city of Potosi, Bolivia. The mineral rights for the San Bartolomé project are held through long-term joint venture/lease agreements with several local independent mining co-operatives and the Bolivian state owned mining organization, (“COMIBOL”). The Company commenced commercial production at San Bartolomé in June 2008.
The Kensington mine is an underground gold mine and consists of the Kensington and adjacent Jualin properties located north-northwest of Juneau, Alaska. The Company commenced commercial production in July 2010.
The Company has conducted operations at the Rochester silver and gold mine, located in northwestern Nevada, since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods.
The La Preciosa silver and gold project is located in the State of Durango in northern Mexico. The Company completed a feasibility study in 2014 and has deferred construction activities until expected returns improve.
The Joaquin silver and gold project is located in the Santa Cruz province of southern Argentina. The Company commenced exploration of the property located north of the Company's Martha silver mine in November 2007.
The Company's mineral interests held by Coeur Capital primarily consist of the Endeavor silver stream acquired by the Company in May 2005 and amended in March 2006, under which the Company owns all silver production and reserves up to a total of 20.0 million payable ounces at the Endeavor mine in Australia, which is owned and operated by Cobar Operations Pty. Limited, a wholly-owned subsidiary of CBH Resources Ltd. The Company has received 5.4 million payable ounces to-date and the current ore reserve contains 1.7 million payable ounces.
Coeur Capital also holds royalties on McEwen Mining Inc.’s El Gallo/Magistral mine in Mexico, currently paying a 3.5% NSR royalty, a 1.5% NSR royalty on Dynasty Metals & Mining, Inc.’s Zaruma mine in Ecuador, a 2.0% NSR royalty on Mandalay Resources Corp.’s Cerro Bayo mine in Chile, and royalties on other non-producing properties. Another Coeur subsidiary owns
79
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
an 80% interest in a 2.5% royalty on Newmont Mining Corporation's Correnso mine in New Zealand. Royalty revenue is immaterial to the Company.
NOTE 18 – DEBT
Long-term debt and capital lease obligations at December 31, 2014 and December 31, 2013 are as follows:
| December 31, 2014 | December 31, 2013 | ||||||||||||||
| In thousands | Current | Non-Current | Current | Non-Current | |||||||||||
| 3.25% Convertible Senior Notes due 2028 | $ | 5,334 | $ | — | $ | — | $ | 5,334 | |||||||
| 7.875% Senior Notes due 2021 | — | 437,454 | — | 300,000 | |||||||||||
| San Bartolomé Letter of Credit | 4,481 | 10,304 | — | — | |||||||||||
| Capital lease obligations | 7,683 | 13,141 | 2,505 | 796 | |||||||||||
| $ | 17,498 | $ | 460,899 | $ | 2,505 | $ | 306,130 | ||||||||
Minimum future lease payments under capital and operating leases with terms longer than one year are $12.8 million in 2015, $12.0 million in 2016, $6.1 million in 2017, $4.6 million in 2018, $4.7 million in 2019, and $6.0 million thereafter.
7.875% Senior Notes due 2021
During the year ended December 31, 2014, the Company repurchased $15.1 million in aggregate principal amount of its 7.875% Senior Notes due 2021 (the "Senior Notes"), resulting in a balance of $437.5 million at December 31, 2014.
On March 12, 2014, the Company completed a follow-on offering of $150 million in aggregate principal amount of its Senior Notes (the “Additional Notes”) in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The Additional Notes constitute a further issuance of the Original Notes (as defined below) and form a single series of debt securities with the Original Notes. Upon completion of Coeur’s offering of the Additional Notes, the aggregate principal amount of the outstanding Senior Notes was $450 million. The Company commenced an exchange offer for the Additional Notes on April 10, 2014 to exchange the Additional Notes for freely transferable notes containing substantially similar terms, in accordance with the registration rights granted to the holders of the Additional Notes when they were issued. The exchange offer was consummated on May 9, 2014.
On January 29, 2013, the Company completed an offering of $300 million in aggregate principal amount of 7.875% Senior Notes due 2021 (the “Original Notes”) in a private placement conducted pursuant to the Securities Act. The Company commenced an exchange offer for the Original Notes on September 30, 2013 to exchange the Original Notes for freely transferable notes containing substantially similar terms, in accordance with the registration rights granted to the holders of the Original Notes when they were issued. The exchange offer was consummated on November 5, 2013.
3.25% Convertible Senior Notes due 2028
Per the indenture governing the 3.25% Convertible Senior Notes due 2028 (the “Convertible Notes”), the Company announced on February 13, 2013 that it was offering to repurchase all of the Convertible Notes. As of February 12, 2013, there was $48.7 million aggregate principal amount of Convertible Notes outstanding. The Company repurchased $43.3 million in aggregate principal amount, leaving a balance of $5.3 million at December 31, 2014. The Convertible Notes are classified as current liabilities at December 31, 2014 as a result of the holders' option to require the Company to repurchase the notes on March 15, 2015.
Revolving Credit Facility
On August 1, 2012, Coeur Alaska, Inc. and Coeur Rochester, Inc. (the “Borrowers”), each a wholly-owned subsidiary of the Company, entered into a Credit Agreement (as subsequently amended on January 16, 2014, the “Credit Agreement”) by and among the Company, the Borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The Credit Agreement provided for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $100.0 million, which principal amount may be increased, subject to receiving additional commitments therefor, by up to $50.0 million.
On March 20, 2014, the Borrowers notified the administrative agent that they were terminating the Revolving Credit Facility, effective March 25, 2014. The Company wrote off $3.0 million related to the termination of the Credit Agreement in the year ended December 31, 2014. No amounts were outstanding under the Revolving Credit Facility at the time of termination, and no early termination penalty was payable in connection with the termination.
80
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Lines of Credit
At December 31, 2014, San Bartolomé had two outstanding lines of credit. The first line of credit is for $12.0 million bearing interest at 6.0% per annum, maturing in 360 days. The second line of credit is for $15.0 million bearing interest at 6.0%, maturing in three years. Both lines of credit are secured with machinery and equipment. There is an aggregate outstanding balance of $14.8 million on both lines of credit at December 31, 2014.
Palmarejo Gold Production Royalty Obligation
On January 21, 2009, Coeur Mexicana entered into a gold production royalty transaction with a subsidiary of Franco-Nevada Corporation under which the subsidiary of Franco-Nevada Corporation purchased a royalty covering 50% of the life of mine gold to be produced from its Palmarejo silver and gold mine in Mexico.
The royalty agreement provides for a minimum obligation to be paid monthly on a total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period. Each monthly payment is an amount equal to the greater of 4,167 ounces of gold or 50% of actual gold production multiplied by the excess of the monthly average market price of gold above $408 per ounce, subject to a 1% annual inflation compounding adjustment. Payments under the royalty agreement are made in cash or gold bullion. During the years ended December 31, 2014, 2013, and 2012, the Company paid $48.4 million, $57.0 million, and $74.7 million, respectively. At December 31, 2014, payments had been made on a total of 315,085 ounces of gold with further payments to be made on an additional 84,915 ounces of gold.
The Company used an implicit interest rate of 30.5% to discount the original royalty obligation, based on the fair value of the consideration received projected over the expected future cash flows at inception of the obligation. The discounted obligation is accreted to its expected future value over the expected minimum payment period based on the implicit interest rate. The Company recognized accretion expense for the years ended December 31, 2014, 2013, and 2012 of $10.8 million, $17.6 million, and $19.1 million, respectively. At December 31, 2014 and December 31, 2013, the remaining minimum obligation under the royalty agreement was $34.0 million and $51.2 million, respectively.
Interest Expense
Interest expense consists of the following:
| Year ended December 31, | |||||||||||
| In thousands | 2014 | 2013 | 2012 | ||||||||
| 3.25% Convertible Senior Notes due 2028 | $ | 173 | $ | 466 | $ | 1,581 | |||||
| 7.875% Senior Notes due 2021 | 32,741 | 21,853 | — | ||||||||
| Revolving Credit Facility | 179 | 612 | 213 | ||||||||
| Loss on Revolving Credit Facility | 3,035 | — | 2,339 | ||||||||
| Capital lease obligations | 972 | 415 | 997 | ||||||||
| Other debt obligations | — | 291 | 881 | ||||||||
| Accretion of Palmarejo gold production royalty obligation | 10,773 | 17,641 | 19,139 | ||||||||
| Amortization of debt issuance costs | 1,740 | 2,143 | 1,146 | ||||||||
| Accretion of debt (premium) discount | (357 | ) | 576 | 2,536 | |||||||
| Capitalized interest | (1,710 | ) | (2,694 | ) | (2,663 | ) | |||||
| Total interest expense, net of capitalized interest | $ | 47,546 | $ | 41,303 | $ | 26,169 | |||||
NOTE 19 - SUPPLEMENTAL GUARANTOR INFORMATION
The following Condensed Consolidating Financial Statements are presented to satisfy disclosure requirements of Rule 3-10 of Regulation S-X resulting from the guarantees by Coeur Alaska, Inc., Coeur Explorations, Inc., Coeur Rochester, Inc., Coeur South America Corp., and Coeur Capital, Inc. (collectively, the “Subsidiary Guarantors”) of the $434.9 million aggregate principal amount of Senior Notes. The following schedules present Condensed Consolidating Financial Statements of (a) Coeur, the parent company; (b) the Subsidiary Guarantors; and (c) certain wholly owned domestic and foreign subsidiaries of the Company (collectively, the “Non-Guarantor Subsidiaries”). Each of the Subsidiary Guarantors is 100% owned by Coeur and the guarantees are full and unconditional. There are no restrictions on the ability of Coeur to obtain funds from its subsidiaries by dividend or loan.
81
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2014
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenue | $ | — | $ | 261,963 | $ | 373,779 | $ | — | $ | 635,742 | ||||||||||
| COSTS AND EXPENSES | ||||||||||||||||||||
Costs applicable to sales(1) | — | 196,805 | 281,140 | — | 477,945 | |||||||||||||||
| Amortization | 1,805 | 65,100 | 95,531 | — | 162,436 | |||||||||||||||
| General and administrative | 39,976 | 6 | 863 | — | 40,845 | |||||||||||||||
| Exploration | 3,560 | 11,157 | 7,023 | — | 21,740 | |||||||||||||||
| Write-downs | — | 107,832 | 1,364,889 | — | 1,472,721 | |||||||||||||||
| Pre-development, reclamation, and other | 8,813 | 3,889 | 13,335 | — | 26,037 | |||||||||||||||
| Total costs and expenses | 54,154 | 384,789 | 1,762,781 | — | 2,201,724 | |||||||||||||||
| OTHER INCOME (EXPENSE), NET | ||||||||||||||||||||
| Fair value adjustments, net | 1,812 | 3,653 | (1,847 | ) | — | 3,618 | ||||||||||||||
| Impairment of equity securities | — | (6,593 | ) | — | — | (6,593 | ) | |||||||||||||
| Interest income and other, net | 4,406 | (430 | ) | 227 | (2,828 | ) | 1,375 | |||||||||||||
| Interest expense, net of capitalized interest | (38,389 | ) | (891 | ) | (11,094 | ) | 2,828 | (47,546 | ) | |||||||||||
| Total other income (expense), net | (32,171 | ) | (4,261 | ) | (12,714 | ) | — | (49,146 | ) | |||||||||||
| Income (Loss) before income and mining taxes | (86,325 | ) | (127,087 | ) | (1,401,716 | ) | — | (1,615,128 | ) | |||||||||||
| Income and mining tax (expense) benefit | 1,742 | (2,224 | ) | 459,726 | — | 459,244 | ||||||||||||||
| Income (Loss) after income and mining taxes | (84,583 | ) | (129,311 | ) | (941,990 | ) | — | (1,155,884 | ) | |||||||||||
| Equity income (loss) in consolidated subsidiaries | (1,071,301 | ) | (4,181 | ) | — | 1,075,482 | — | |||||||||||||
| NET INCOME (LOSS) | $ | (1,155,884 | ) | $ | (133,492 | ) | $ | (941,990 | ) | $ | 1,075,482 | $ | (1,155,884 | ) | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS), net of tax: | ||||||||||||||||||||
| Unrealized gain (loss) on equity securities, net of tax | (2,290 | ) | (2,272 | ) | — | 2,272 | (2,290 | ) | ||||||||||||
| Reclassification adjustments for impairment of equity securities, net of tax | 4,042 | 4,042 | — | (4,042 | ) | 4,042 | ||||||||||||||
| Reclassification adjustments for realized loss on sale of equity securities, net of tax | 346 | 328 | — | (328 | ) | 346 | ||||||||||||||
| Other comprehensive income (loss) | 2,098 | 2,098 | — | (2,098 | ) | 2,098 | ||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (1,153,786 | ) | $ | (131,394 | ) | $ | (941,990 | ) | $ | 1,073,384 | $ | (1,153,786 | ) | ||||||
(1) Excludes amortization.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2013
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenue | $ | — | $ | 268,023 | $ | 477,971 | $ | — | $ | 745,994 | ||||||||||
| COSTS AND EXPENSES | ||||||||||||||||||||
Costs applicable to sales(1) | — | 182,444 | 281,219 | — | 463,663 | |||||||||||||||
| Amortization | 1,066 | 71,655 | 156,843 | — | 229,564 | |||||||||||||||
| General and administrative | 50,213 | 3,245 | 1,885 | — | 55,343 | |||||||||||||||
| Exploration | 1,602 | 8,920 | 11,838 | — | 22,360 | |||||||||||||||
| Litigation settlement | — | 32,046 | — | — | 32,046 | |||||||||||||||
| Write-downs | — | 130,694 | 642,299 | — | 772,993 | |||||||||||||||
| Pre-development, reclamation, and other | — | 3,093 | 12,091 | — | 15,184 | |||||||||||||||
| Total costs and expenses | 52,881 | 432,097 | 1,106,175 | — | 1,591,153 | |||||||||||||||
| OTHER INCOME (EXPENSE), NET | ||||||||||||||||||||
| Fair value adjustments, net | (1,346 | ) | 7,896 | 76,218 | — | 82,768 | ||||||||||||||
| Impairment of equity securities | (18,097 | ) | (211 | ) | — | — | (18,308 | ) | ||||||||||||
| Interest income and other, net | 13,408 | (1,539 | ) | 4,602 | (3,148 | ) | 13,323 | |||||||||||||
| Interest expense, net of capitalized interest | (25,652 | ) | (445 | ) | (18,354 | ) | 3,148 | (41,303 | ) | |||||||||||
| Total other income (expense), net | (31,687 | ) | 5,701 | 62,466 | — | 36,480 | ||||||||||||||
| Income (Loss) before income and mining taxes | (84,568 | ) | (158,373 | ) | (565,738 | ) | — | (808,679 | ) | |||||||||||
| Income and mining tax (expense) benefit | 78,332 | (155 | ) | 79,939 | — | 158,116 | ||||||||||||||
| Income (Loss) after income and mining taxes | (6,236 | ) | (158,528 | ) | (485,799 | ) | — | (650,563 | ) | |||||||||||
| Equity income (loss) in consolidated subsidiaries | (644,327 | ) | (68 | ) | — | 644,395 | — | |||||||||||||
| NET INCOME (LOSS) | $ | (650,563 | ) | $ | (158,596 | ) | $ | (485,799 | ) | $ | 644,395 | $ | (650,563 | ) | ||||||
| OTHER COMPREHENSIVE INCOME (LOSS), net of tax: | ||||||||||||||||||||
| Unrealized gain (loss) on equity securities, net of tax | (8,489 | ) | (552 | ) | — | 552 | (8,489 | ) | ||||||||||||
| Reclassification adjustments for impairment of equity securities, net of tax | 11,221 | 211 | — | (211 | ) | 11,221 | ||||||||||||||
| Reclassification adjustments for realized loss on sale of equity securities, net of tax | 83 | — | — | — | 83 | |||||||||||||||
| Other comprehensive income (loss) | 2,815 | (341 | ) | — | 341 | 2,815 | ||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (647,748 | ) | $ | (158,937 | ) | $ | (485,799 | ) | $ | 644,736 | $ | (647,748 | ) | ||||||
(1) Excludes amortization.
82
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2012
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Revenue | $ | — | $ | 243,380 | $ | 652,112 | $ | — | $ | 895,492 | ||||||||||
| COSTS AND EXPENSES | ||||||||||||||||||||
Costs applicable to sales(1) | — | 159,151 | 295,411 | — | 454,562 | |||||||||||||||
| Amortization | 521 | 48,065 | 167,446 | — | 216,032 | |||||||||||||||
| General and administrative | 30,699 | 1,101 | 1,177 | — | 32,977 | |||||||||||||||
| Exploration | 1,946 | 7,930 | 16,394 | — | 26,270 | |||||||||||||||
| Write-downs | — | — | 5,825 | — | 5,825 | |||||||||||||||
| Pre-development, reclamation, and other | — | 1,323 | 2,763 | — | 4,086 | |||||||||||||||
| Total costs and expenses | 33,166 | 217,570 | 489,016 | — | 739,752 | |||||||||||||||
| Loss on debt extinguishments | — | (1,036 | ) | — | — | (1,036 | ) | |||||||||||||
| Fair value adjustments, net | 3,477 | 4,089 | (31,053 | ) | — | (23,487 | ) | |||||||||||||
| Impairment of equity securities | (605 | ) | — | — | — | (605 | ) | |||||||||||||
| Interest income and other, net | 5,744 | 859 | 13,071 | (4,633 | ) | 15,041 | ||||||||||||||
| Interest expense, net of capitalized interest | (4,158 | ) | (2,997 | ) | (23,647 | ) | 4,633 | (26,169 | ) | |||||||||||
| Total other income (expense), net | 4,458 | 915 | (41,629 | ) | — | (36,256 | ) | |||||||||||||
| Income (Loss) before income and mining taxes | (28,708 | ) | 26,725 | 121,467 | — | 119,484 | ||||||||||||||
| Income and mining tax (expense) benefit | (3,844 | ) | (2,930 | ) | (64,033 | ) | — | (70,807 | ) | |||||||||||
| Income (Loss) after income and mining taxes | (32,552 | ) | 23,795 | 57,434 | — | 48,677 | ||||||||||||||
| Equity income (loss) in consolidated subsidiaries | 81,229 | — | — | (81,229 | ) | — | ||||||||||||||
| NET INCOME (LOSS) | $ | 48,677 | $ | 23,795 | $ | 57,434 | $ | (81,229 | ) | $ | 48,677 | |||||||||
| OTHER COMPREHENSIVE INCOME (LOSS), net of tax: | ||||||||||||||||||||
| Unrealized gain (loss) on equity securities, net of tax | (3,351 | ) | — | — | — | (3,351 | ) | |||||||||||||
| Reclassification adjustments for impairment of equity securities, net of tax | 605 | — | — | — | 605 | |||||||||||||||
| Other comprehensive income (loss) | (2,746 | ) | — | — | — | (2,746 | ) | |||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | 45,931 | $ | 23,795 | $ | 57,434 | $ | (81,229 | ) | $ | 45,931 | |||||||||
(1) Excludes amortization.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2014
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
| Cash provided by (used in) operating activities | $ | (1,144,474 | ) | $ | 41,292 | $ | 80,627 | $ | 1,075,482 | 52,927 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | — | — | — | |||||||||||||||||
| Capital expenditures | (1,849 | ) | (28,118 | ) | (34,277 | ) | — | (64,244 | ) | |||||||||||
| Purchase of short term investments and equity securities | (50,013 | ) | (429 | ) | (71 | ) | — | (50,513 | ) | |||||||||||
| Sales and maturities of short term investments and equity securities | 49,069 | 5,261 | 14 | — | 54,344 | |||||||||||||||
| Acquisitions | (12,079 | ) | (4,000 | ) | (5,250 | ) | — | (21,329 | ) | |||||||||||
| Other | — | 48 | (40 | ) | — | 8 | ||||||||||||||
| Investments in consolidated subsidiaries | 1,120,382 | 4,106 | — | (1,124,488 | ) | — | ||||||||||||||
| CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 1,105,510 | (23,132 | ) | (39,624 | ) | (1,124,488 | ) | (81,734 | ) | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Issuance of notes and bank borrowings | 153,000 | — | 14,784 | — | 167,784 | |||||||||||||||
| Payments on long-term debt, capital leases, and associated costs | (18,545 | ) | (6,114 | ) | (1,243 | ) | — | (25,902 | ) | |||||||||||
| Gold production royalty payments | — | — | (48,395 | ) | — | (48,395 | ) | |||||||||||||
| Net intercompany financing activity | (21,697 | ) | (7,256 | ) | (20,053 | ) | 49,006 | — | ||||||||||||
| Other | (509 | ) | — | — | — | (509 | ) | |||||||||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 112,249 | (13,370 | ) | (54,907 | ) | 49,006 | 92,978 | |||||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 73,285 | 4,790 | (13,904 | ) | — | 64,171 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 137,076 | 991 | 68,623 | — | 206,690 | |||||||||||||||
| Cash and cash equivalents at end of period | $ | 210,361 | $ | 5,781 | $ | 54,719 | $ | — | $ | 270,861 | ||||||||||
83
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2013
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
| Cash provided by (used in) operating activities | $ | (701,653 | ) | $ | 17,456 | $ | 151,491 | $ | 646,173 | $ | 113,467 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||||||
| Capital expenditures | (3,573 | ) | (50,810 | ) | (46,430 | ) | — | (100,813 | ) | |||||||||||
| Purchase of short term investments and equity securities | (2,921 | ) | (66 | ) | (5,065 | ) | — | (8,052 | ) | |||||||||||
| Sales and maturities of short term investments and equity securities | 29,274 | 75 | 5,447 | — | 34,796 | |||||||||||||||
| Acquisitions | (113,214 | ) | (3,684 | ) | — | — | (116,898 | ) | ||||||||||||
| Other | 3,266 | 444 | 768 | — | 4,478 | |||||||||||||||
| Investments in consolidated subsidiaries | 642,617 | 68 | 3,488 | (646,173 | ) | — | ||||||||||||||
| CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 555,449 | (53,973 | ) | (41,792 | ) | (646,173 | ) | (186,489 | ) | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Issuance of notes and bank borrowings | 300,000 | — | — | — | 300,000 | |||||||||||||||
| Payments on long-term debt, capital leases, and associated costs | (52,568 | ) | (3,171 | ) | (4,889 | ) | — | (60,628 | ) | |||||||||||
| Gold production royalty payments | — | — | (57,034 | ) | — | (57,034 | ) | |||||||||||||
| Share repurchases | (27,552 | ) | — | — | — | (27,552 | ) | |||||||||||||
| Net intercompany financing activity | (22,874 | ) | 40,279 | (17,405 | ) | — | — | |||||||||||||
| Other | (514 | ) | — | — | — | (514 | ) | |||||||||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 196,492 | 37,108 | (79,328 | ) | — | 154,272 | ||||||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 50,288 | 591 | 30,371 | — | 81,250 | |||||||||||||||
| Cash and cash equivalents at beginning of period | 86,788 | 400 | 38,252 | — | 125,440 | |||||||||||||||
| Cash and cash equivalents at end of period | $ | 137,076 | $ | 991 | $ | 68,623 | $ | — | $ | 206,690 | ||||||||||
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2012
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||
| Cash provided by (used in) operating activities | $ | 58,754 | $ | 37,426 | $ | 256,683 | $ | (81,229 | ) | 271,634 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||||||
| Capital expenditures | (1,531 | ) | (48,788 | ) | (65,322 | ) | — | (115,641 | ) | |||||||||||
| Purchase of short term investments and equity securities | (12,913 | ) | (46 | ) | — | — | (12,959 | ) | ||||||||||||
| Sales and maturities of short term investments and equity securities | 21,590 | 45 | 60 | — | 21,695 | |||||||||||||||
| Acquisitions | (29,338 | ) | — | 41 | — | (29,297 | ) | |||||||||||||
| Other | 3,538 | 130 | (581 | ) | — | 3,087 | ||||||||||||||
| Investments in consolidated subsidiaries | (81,229 | ) | — | — | 81,229 | — | ||||||||||||||
| CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (99,883 | ) | (48,659 | ) | (65,802 | ) | 81,229 | (133,115 | ) | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Payments on long-term debt, capital leases, and associated costs | (4,005 | ) | (79,839 | ) | (13,326 | ) | — | (97,170 | ) | |||||||||||
| Gold production royalty payments | — | — | (74,734 | ) | — | (74,734 | ) | |||||||||||||
| Share repurchases | (19,971 | ) | — | — | — | (19,971 | ) | |||||||||||||
| Net intercompany financing activity | 67,082 | 86,394 | (153,476 | ) | — | — | ||||||||||||||
| Other | (861 | ) | 4,645 | — | — | 3,784 | ||||||||||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 42,245 | 11,200 | (241,536 | ) | — | (188,091 | ) | |||||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 1,116 | (33 | ) | (50,655 | ) | — | (49,572 | ) | ||||||||||||
| Cash and cash equivalents at beginning of period | 85,672 | 433 | 88,907 | — | 175,012 | |||||||||||||||
| Cash and cash equivalents at end of period | $ | 86,788 | $ | 400 | $ | 38,252 | $ | — | $ | 125,440 | ||||||||||
84
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2014
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 210,361 | $ | 5,781 | $ | 54,719 | $ | — | $ | 270,861 | ||||||||||
| Receivables | 87 | 11,151 | 105,683 | — | 116,921 | |||||||||||||||
| Ore on leach pads | — | 48,204 | — | — | 48,204 | |||||||||||||||
| Inventory | — | 54,983 | 59,948 | — | 114,931 | |||||||||||||||
| Deferred tax assets | 393 | — | 6,971 | — | 7,364 | |||||||||||||||
| Prepaid expenses and other | 6,349 | 4,557 | 4,617 | — | 15,523 | |||||||||||||||
| 217,190 | 124,676 | 231,938 | — | 573,804 | ||||||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||||||
| Property, plant, and equipment, net | 6,155 | 107,084 | 114,672 | — | 227,911 | |||||||||||||||
| Mining properties, net | 12,004 | 159,124 | 330,064 | — | 501,192 | |||||||||||||||
| Ore on leach pads | — | 37,889 | — | — | 37,889 | |||||||||||||||
| Restricted assets | 897 | 50 | 6,090 | — | 7,037 | |||||||||||||||
| Equity securities | — | 5,982 | — | — | 5,982 | |||||||||||||||
| Receivables | — | — | 21,686 | — | 21,686 | |||||||||||||||
| Debt issuance costs, net | 9,851 | — | — | — | 9,851 | |||||||||||||||
| Deferred tax assets | 30,419 | — | 29,732 | — | 60,151 | |||||||||||||||
| Net investment in subsidiaries | 128,913 | 45,615 | — | (174,528 | ) | — | ||||||||||||||
| Other | 50,813 | 5,522 | 4,394 | (50,814 | ) | 9,915 | ||||||||||||||
| TOTAL ASSETS | $ | 456,242 | $ | 485,942 | $ | 738,576 | $ | (225,342 | ) | $ | 1,455,418 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||
| Accounts payable | $ | 3,414 | $ | 13,391 | $ | 32,247 | $ | — | $ | 49,052 | ||||||||||
| Accrued liabilities and other | 22,588 | 11,207 | 17,718 | — | 51,513 | |||||||||||||||
| Debt | 5,334 | 7,476 | 4,688 | — | 17,498 | |||||||||||||||
| Royalty obligations | — | 5,747 | 37,931 | — | 43,678 | |||||||||||||||
| Reclamation | — | 3,401 | 1,621 | (1,151 | ) | 3,871 | ||||||||||||||
| Deferred tax liabilities | 7,142 | 848 | 88 | — | 8,078 | |||||||||||||||
| 38,478 | 42,070 | 94,293 | (1,151 | ) | 173,690 | |||||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||||||||
| Debt | 437,455 | 12,806 | 61,452 | (50,814 | ) | 460,899 | ||||||||||||||
| Royalty obligations | — | 9,623 | 18,028 | — | 27,651 | |||||||||||||||
| Reclamation | — | 46,792 | 19,000 | 1,151 | 66,943 | |||||||||||||||
| Deferred tax liabilities | 53,201 | 2,963 | 54,842 | — | 111,006 | |||||||||||||||
| Other long-term liabilities | 2,582 | 469 | 26,860 | — | 29,911 | |||||||||||||||
| Intercompany payable (receivable) | (660,792 | ) | 427,156 | 233,636 | — | — | ||||||||||||||
| (167,554 | ) | 499,809 | 413,818 | (49,663 | ) | 696,410 | ||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Common stock | 1,034 | 250 | 128,299 | (128,549 | ) | 1,034 | ||||||||||||||
| Additional paid-in capital | 2,789,695 | 79,712 | 1,682,830 | (1,762,542 | ) | 2,789,695 | ||||||||||||||
| Accumulated deficit | (2,202,603 | ) | (133,091 | ) | (1,580,664 | ) | 1,713,755 | (2,202,603 | ) | |||||||||||
| Accumulated other comprehensive income (loss) | (2,808 | ) | (2,808 | ) | — | 2,808 | (2,808 | ) | ||||||||||||
| 585,318 | (55,937 | ) | 230,465 | (174,528 | ) | 585,318 | ||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 456,242 | $ | 485,942 | $ | 738,576 | $ | (225,342 | ) | $ | 1,455,418 | |||||||||
85
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2013
| In thousands | Coeur Mining, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 137,076 | $ | 991 | $ | 68,623 | $ | — | $ | 206,690 | ||||||||||
| Receivables | 530 | 19,982 | 60,562 | — | 81,074 | |||||||||||||||
| Ore on leach pads | — | 50,495 | — | — | 50,495 | |||||||||||||||
| Inventory | — | 35,290 | 96,733 | — | 132,023 | |||||||||||||||
| Deferred tax assets | — | — | 35,008 | — | 35,008 | |||||||||||||||
| Prepaid expenses and other | 4,128 | 5,282 | 16,530 | — | 25,940 | |||||||||||||||
| 141,734 | 112,040 | 277,456 | — | 531,230 | ||||||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||||||
| Property, plant, and equipment, net | 5,980 | 143,118 | 337,175 | — | 486,273 | |||||||||||||||
| Mining properties, net | — | 235,537 | 1,515,964 | — | 1,751,501 | |||||||||||||||
| Ore on leach pads | — | 31,528 | — | — | 31,528 | |||||||||||||||
| Restricted assets | 830 | 50 | 6,134 | — | 7,014 | |||||||||||||||
| Equity securities | — | 14,521 | — | — | 14,521 | |||||||||||||||
| Receivables | — | — | 36,574 | — | 36,574 | |||||||||||||||
| Debt issuance costs, net | 10,812 | — | — | — | 10,812 | |||||||||||||||
| Deferred tax assets | 955 | — | 234 | — | 1,189 | |||||||||||||||
| Net investment in subsidiaries | 1,242,480 | 46,215 | 1,578,799 | (2,867,494 | ) | — | ||||||||||||||
| Other | 53,858 | 14,616 | 320,425 | (373,563 | ) | 15,336 | ||||||||||||||
| TOTAL ASSETS | $ | 1,456,649 | $ | 597,625 | $ | 4,072,761 | $ | (3,241,057 | ) | $ | 2,885,978 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||
| Accounts payable | $ | 1,963 | $ | 15,864 | $ | 36,020 | $ | — | $ | 53,847 | ||||||||||
| Accrued liabilities and other | 16,693 | 8,016 | 14,611 | (1,054 | ) | 38,266 | ||||||||||||||
| Debt | — | 1,262 | 309,472 | (308,229 | ) | 2,505 | ||||||||||||||
| Royalty obligations | — | 3,934 | 44,085 | — | 48,019 | |||||||||||||||
| Reclamation | — | — | 794 | 119 | 913 | |||||||||||||||
| Deferred tax liabilities | — | — | 1,011 | — | 1,011 | |||||||||||||||
| 18,656 | 29,076 | 405,993 | (309,164 | ) | 144,561 | |||||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||||||||
| Debt | 305,335 | 255 | 64,820 | (64,280 | ) | 306,130 | ||||||||||||||
| Royalty obligations | — | 17,696 | 47,446 | — | 65,142 | |||||||||||||||
| Reclamation | — | 45,894 | 11,740 | (119 | ) | 57,515 | ||||||||||||||
| Deferred tax liabilities | 37,095 | 1,618 | 517,533 | — | 556,246 | |||||||||||||||
| Other long-term liabilities | 2,467 | 544 | 22,806 | — | 25,817 | |||||||||||||||
| Intercompany payable (receivable) | (637,471 | ) | 427,085 | 210,386 | — | — | ||||||||||||||
| (292,574 | ) | 493,092 | 874,731 | (64,399 | ) | 1,010,850 | ||||||||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Common stock | 1,028 | 250 | 122,666 | (122,916 | ) | 1,028 | ||||||||||||||
| Additional paid-in capital | 2,781,164 | 79,712 | 3,258,037 | (3,337,749 | ) | 2,781,164 | ||||||||||||||
| Accumulated deficit | (1,046,719 | ) | 401 | (588,666 | ) | 588,265 | (1,046,719 | ) | ||||||||||||
| Accumulated other comprehensive income (loss) | (4,906 | ) | (4,906 | ) | — | 4,906 | (4,906 | ) | ||||||||||||
| 1,730,567 | 75,457 | 2,792,037 | (2,867,494 | ) | 1,730,567 | |||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,456,649 | $ | 597,625 | $ | 4,072,761 | $ | (3,241,057 | ) | $ | 2,885,978 | |||||||||
86
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 20 – COMMITMENTS AND CONTINGENCIES
Labor Union Contracts
The Company maintains a labor agreement with Sindicato de Trabajadores Mineros de la Empresa Manquiri S.A. at the San Bartolomé mine in Bolivia. The San Bartolomé mine labor agreement, which became effective January 28, 2010, is currently active and does not have a fixed term. At December 31, 2014, approximately 12% of the Company’s global labor force was covered by this collective bargaining agreement. The Company cannot predict whether this agreement will be renewed on similar terms or at all, whether future labor disruptions will occur or, if disruptions do occur, how long they will last.
Rochester Production Royalties
The Company acquired the Rochester property from ASARCO, a subsidiary of Grupo Mexico S.A. de C.V., in 1983. The Company is obligated to pay a NSR royalty interest to ASARCO when the market price of silver equals or exceeds $23.60 per ounce up to a maximum rate of 5% with the condition that Rochester achieves positive cash flow for the applicable year. If cash flow at Rochester is negative in any calendar year, the maximum royalty payable is $250,000.
Commencing January 1, 2014, Coeur Rochester is obligated to pay a 3.4% NSR royalty on up to 39.4 million silver equivalent ounces produced and sold from a portion of the Rochester mine, payable on a quarterly basis. For each calendar quarter, the royalty will be payable on the actual sales prices received (exclusive of gains or losses associated with trading activities), less refining costs, of gold and silver produced and sold from the applicable portions of the Rochester mine. Changes in the Company's mine plan and silver and gold prices result in the recognition of mark-to-market gains or losses in Fair value adjustments, net. At December 31, 2014, payments had been made on 4.0 million silver equivalent ounces with further payments to be made on 35.5 million silver equivalent ounces.
Palmarejo Gold Production Royalty
On January 21, 2009, Coeur Mexicana entered into a gold production royalty agreement with a subsidiary of Franco-Nevada Corporation under which the subsidiary of Franco-Nevada Corporation purchased a royalty covering 50% of the life of mine gold to be produced from its Palmarejo silver and gold mine in Mexico. The royalty agreement provides for a minimum obligation to be paid monthly on a total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight-year period. Please see Note 11 -- Derivative Financial Instruments for further discussion on the royalty obligation.
On October 2, 2014, Coeur Mexicana terminated the Palmarejo gold production royalty in exchange for a termination payment of $2.0 million, effective upon completion of the minimum ounce delivery requirement. Subsequently, Coeur Mexicana entered into a gold stream agreement with a subsidiary of Franco-Nevada Corporation whereby Coeur Mexicana will sell 50% of Palmarejo gold production upon completion of the gold production royalty minimum ounce delivery requirement for the lesser of $800 or spot price per ounce. Under the gold stream agreement, Coeur Mexicana will receive an aggregate $22.0 million deposit toward future deliveries under the gold stream agreement, payable in five quarterly payments beginning in the first quarter 2015.
Sites Related to Callahan Mining Corporation
In 1991, the Company acquired all of the outstanding common stock of Callahan Mining Corporation. The Company has received requests for information or notices of potential liability from state or federal agencies with regard to Callahan's operations at sites in Maine, Colorado and Washington. The Company did not make any decisions with respect to generation, transport or disposal of hazardous waste at these sites. Therefore, the Company believes that it is not liable for any potential cleanup costs either directly as an operator or indirectly as a parent. The Company anticipates that further agency interaction may be possible with respect to these sites.
Callahan operated a mine and mill in Brooksville, Maine from 1968 until 1972 and subsequently disposed of the property. In 2000, the U.S. Environmental Protection Agency, or EPA, made a formal request to the Company for information regarding the site. The site was placed on the National Priorities List on September 5, 2002, and the Maine Department of Transportation, a partial owner of the property, signed a consent order in 2005. In January 2009, the EPA and the State of Maine made additional formal requests to the Company for information relating to the site, to which the Company responded. The first phase of cleanup at the site began in April 2011.
The Van Stone Mine in Stevens County, Washington consists of several parcels of land and was mined from 1926 until 1993 by multiple owners. Callahan sold its parcel in 1990. In February 2010, the State of Washington Department of Ecology notified Callahan that it, among others, is a potentially liable person (PLP) under Washington law. Asarco LLC ("Asarco"), an affiliate of American Smelting and Refining Company, which developed the mill on the site in 1951, settled for $3.5 million. Another potentially liable person, Vaagen Brothers, signed a consent order which allows access to the site for a Remedial Investigation and Feasibility Study. Neither the Company nor Callahan has received any further notices from the Washington Department of Ecology. On June 5, 2012, Asarco filed a lawsuit in the U.S. District Court for the Eastern District of Washington against five named defendants, including Callahan, seeking contribution for the $3.5 million settlement. Callahan filed a response
87
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
and defense to the lawsuit on December 11, 2012 and stating it did not believe it had any liability to Asarco. On November 11, 2014, following the entry of the parties into a settlement agreement, the Court granted a joint motion to dismiss the proceedings between Asarco and Callahan.
Under lease and option agreements with several owners, Callahan was involved with the Akron Mine located in Gunnison County, Colorado from 1937-1960. The United States Forest Service (“USFS”) made formal requests for information to Callahan regarding the site in December 2003, February 2007, March 2013, and November 2013. Callahan timely responded to each request. In August 2014, Callahan received a notice of potential CERCLA liability from the USFS regarding environmental contamination at the Akron Mine. Callahan and the USFS are currently in discussions regarding this matter.
Bolivian Temporary Restriction on Mining above 4,400 Meters
On October 14, 2009, the Bolivian state-owned mining organization, COMIBOL, announced by resolution that it was temporarily suspending mining activities above the elevation of 4,400 meters above sea level while stability studies of Cerro Rico mountain are undertaken. The Company holds rights to mine above this elevation under valid contracts with COMIBOL as well as under authorized contracts with local mining cooperatives that hold their rights under contract themselves with COMIBOL. The Company temporarily adjusted its mine plan to confine mining activities to the ore deposits below 4,400 meters above sea level and timely notified COMIBOL of the need to lift the restriction. Mining in other areas above the 4,400 meter level continues to be suspended.
The suspension may reduce production until the Company is able to resume mining above 4,400 meters. It is uncertain at this time how long the suspension will remain in place. If COMIBOL decides to restrict access above the 4,400 meter level on a permanent basis, the Company may need to write down the carrying value of the asset. It is also uncertain if any new mining or investment policies or shifts in political attitude may affect mining in Bolivia.
Settlement of Unpatented Mining Claims Dispute at Rochester in Nevada
In the second quarter of 2013, Coeur Rochester settled all claims associated with a dispute involving ownership of unpatented mining claims surrounding the Coeur Rochester operation and, in connection therewith, agreed to make a one-time $10.0 million cash payment and granted the 3.4% NSR royalty described above under "Rochester Production Royalties." The above settlement resulted in a $32.0 million charge in the year ended December 31, 2013.
Pending Paramount Transaction Litigation
Since the announcement of the Company’s proposed acquisition of Paramount, six lawsuits have been filed related to the merger agreement in the Court of Chancery of the State of Delaware. The lawsuits assert a variety of causes of action concerning the transaction, including claims against Paramount’s directors for alleged breaches of fiduciary duty in connection with the proposed transaction, and claims against the Company for allegedly aiding and abetting such breaches of fiduciary duty. On February 18, 2015, the court entered an order consolidating the lawsuits and providing that the consolidated case shall be captioned In re Paramount Gold and Silver Corp. Stockholders Litigation, Consolidated C.A. No. 10499-VCN. The consolidation order directs the plaintiffs to file a consolidated amended complaint, to designate operative discovery requests, and to designate an operative motion to expedite proceedings as soon as practicable. Defendants are not obligated to respond to complaints, motions, or discovery requests previously filed or served in any of the six constituent actions. The Company cannot predict the outcome of these or any other lawsuits that might be filed subsequent to the date hereof relating to the transaction, nor can the Company predict the amount of time and expense that will be required to resolve these lawsuits. The Company intends to defend vigorously against these consolidated actions.
88
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 21 - SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents non-cash financing and investing activities and other cash flow information:
| Year ended December 31, | ||||||||
| Non-cash financing and investing activities: | 2014 | 2013 | 2012 | |||||
| Capital lease obligations | 24,879 | — | 1,857 | |||||
| Non-cash acquisitions and related deferred taxes | — | 317,826 | 64,133 | |||||
| Other cash flow information: | ||||||||
| Interest paid | 30,691 | 14,139 | 6,092 | |||||
| Income taxes paid | 20,198 | 26,585 | 54,680 | |||||
NOTE 22 - SUBSEQUENT EVENTS
On January 12, 2015, the Company entered into a definitive agreement with a subsidiary of Goldcorp Inc. to acquire 100% of the Wharf gold mine, a producing gold mine located near Lead, South Dakota, for cash consideration of $105 million. Wharf is located in the Black Hills mining district of South Dakota and has been in production for over 30 years, during which it has produced over 2.0 million ounces of gold. The mine has a current reserve base of 560,000 ounces of gold and is expected to produce 85,000 - 90,000 ounces of gold in 2015, based on Goldcorp Inc.'s public disclosures.
89
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth a summary of the unaudited quarterly results of operations for the years ended December 31, 2014 and 2013 (in thousands, except per share data):
| Q1 | Q2 | Q3 | Q4 | ||||||||||||
| 2014 | |||||||||||||||
| Metal sales | $ | 159,633 | $ | 164,562 | $ | 170,938 | $ | 140,609 | |||||||
| Costs applicable to sales | 106,896 | 118,687 | 125,910 | 126,452 | |||||||||||
| Amortization | 40,459 | 41,422 | 41,985 | 38,570 | |||||||||||
| Exploration | 4,217 | 5,153 | 6,587 | 5,783 | |||||||||||
Other operating expenses (General and administrative, Pre-development, reclamation, and other, and Write-downs)(1) | 20,880 | 18,158 | 12,759 | 1,446,961 | |||||||||||
| Net income (loss) | (37,191 | ) | (43,121 | ) | 3,466 | (1,079,038 | ) | ||||||||
| Cash provided by (used in) operating activities | (9,627 | ) | 30,490 | 31,266 | 798 | ||||||||||
| Capital expenditures | 11,936 | 15,356 | 16,784 | 20,168 | |||||||||||
| Basic net income (loss) per share | $ | (0.36 | ) | $ | (0.42 | ) | $ | 0.03 | $ | (10.53 | ) | ||||
| Diluted net income (loss) per share | $ | (0.36 | ) | $ | (0.42 | ) | $ | 0.03 | $ | (10.53 | ) | ||||
(1) The Company performed impairment testing of long-lived assets in the fourth quarter of 2014 and, based on the results of the impairment testing, recorded a write-down of $1,472.7 million to long-lived assets.
| Q1 | Q2 | Q3 | Q4 | ||||||||||||
| 2013 | |||||||||||||||
| Metal sales | $ | 171,797 | $ | 204,525 | $ | 200,825 | $ | 168,847 | |||||||
| Costs applicable to sales | 88,784 | 142,924 | 131,728 | 100,227 | |||||||||||
| Amortization | 50,436 | 57,653 | 60,874 | 60,601 | |||||||||||
| Exploration | 6,841 | 6,774 | 3,305 | 5,440 | |||||||||||
| Other operating expenses (General and administrative, Pre-development, reclamation, and other, and Write-downs) | 14,831 | 48,131 | 20,195 | 792,409 | |||||||||||
| Net income (loss) | 12,270 | (35,040 | ) | (46,265 | ) | (581,528 | ) | ||||||||
| Cash provided by operating activities | 12,934 | 63,338 | 26,804 | 10,391 | |||||||||||
| Capital expenditures | 12,827 | 27,201 | 32,726 | 28,059 | |||||||||||
| Basic net income (loss) per share | $ | 0.14 | $ | (0.35 | ) | $ | (0.46 | ) | $ | (5.98 | ) | ||||
| Diluted net income (loss) per share | $ | 0.14 | $ | (0.35 | ) | $ | (0.46 | ) | $ | (5.98 | ) | ||||
(1) The Company performed impairment testing of long-lived assets in the fourth quarter of 2013 and, based on the results of the impairment testing, recorded a write-down of $773.0 million to long-lived assets.
90
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| Item 9A. | Controls and Procedures |
| (a) | Disclosure Controls and Procedures |
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by it in its periodic reports filed with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer, and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation of the Company’s disclosure controls and procedures conducted by the Company’s Chief Executive Officer and Chief Financial Officer, such officers concluded that the Company’s disclosure controls and procedures were effective and operating at a reasonable assurance level as of December 31, 2014.
| (b) | Management’s Report on Internal Control Over Financial Reporting |
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Securities Exchange Act of 1934 defines internal control over financial reporting in Rule 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, 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 and includes those policies and procedures that:
| • | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (1992). Based upon its assessment, management concluded that, as of December 31, 2014, the Company’s internal control over financial reporting was effective.
The effectiveness of internal control over financial reporting as of December 31, 2014 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.
| (c) | Changes in Internal Control Over Financial Reporting |
There have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
| Item 9B. | Other Information |
None.
91
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from the Company’s definitive proxy statement for the 2015 Annual Meeting of Stockholders filed pursuant to Regulation 14A, or an amendment hereto, to be filed not later than 120 days after the end of the fiscal year covered by this report under the captions “Proposal No. 1 Election of Directors”, “Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Guidelines and Code of Business Conduct and Ethics” and “Audit Committee Report”.
| Item 11. | Executive Compensation |
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company’s definitive proxy statement for the 2015 Annual Meeting of Stockholders filed pursuant to Regulation 14A, or an amendment hereto, to be filed not later than 120 days after the end of the fiscal year covered by this report under the captions “Compensation Discussion and Analysis,” “2014 Summary Compensation Table,” “2014 Grants of Plan-Based Awards,” “Outstanding Equity Awards at 2014 Year End,” “2014 Option Exercises and Stock Vested,” “Pension Benefits and Nonqualified Deferred Compensation,” “Director Compensation” and “Compensation Committee Report.”
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Pursuant to General Instruction G(3) of Form 10-K, certain information called for by this item is hereby incorporated by reference from the Company’s definitive proxy statement for the 2015 Annual Meeting of Stockholders filed pursuant to Regulation 14A, or an amendment hereto, to be not later than 120 days after the end of the fiscal year covered by this report under the caption “Share Ownership.”
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2014 regarding the Company’s equity compensation plans.
| Plan category | Number of shares to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (1) | |||||||
| (a) | (b) | (c) | ||||||||
| Equity compensation plans approved by security holders | 598,346 | $16.26 | 1,264,030 | |||||||
| Equity compensation plans not approved by security holders | — | — | — | |||||||
| Total | 598,346 | $ | 16.26 | 1,264,030 | ||||||
| (1) | Amounts include 516,830 performance shares that cliff vest three years after the date of grant if certain market and performance criteria are met, if the recipient remains an employee of the Company and subject to approval of the Compensation Committee of the Board of Directors. |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company’s definitive proxy statement for the 2015 Annual Meeting of Stockholders filed pursuant to Regulation 14A, or an amendment hereto, to be filed not later than 120 days after the end of the fiscal year covered by this report under the captions “Related Person Transactions”, “Committees of the Board of Directors and Attendance”, and “Director Independence”.
Item 14. | Principal Accountant Fees and Services |
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company’s definitive proxy statement for the 2015 Annual Meeting of Stockholders filed pursuant to Regulation 14A, or an amendment hereto, to be filed not later than 120 days after the end of the fiscal year covered by this report under the captions “Audit and Non-Audit Fees” and “Audit Committee Policies and Procedures for Pre-Approval of Independent Auditor Services.”
92
PART IV
| Item 15. | Exhibits, Financial Statement Schedules |
(a) The Company's consolidated financial statements and notes, together with the report thereon of KPMG LLP dated February 20, 2015, are included herein as part of Item 8. Financial Statements and Supplementary Data above.
(b) The following listed documents are filed as Exhibits to this report:
Exhibits Index
| 2.1 | Arrangement Agreement, dated February 20, 2013, among the Registrant, 0961994 B.C. Ltd. and Orko Silver Corp. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on February 20, 2013). |
| 2.2 | Memorandum of Agreement, dated March 12, 2013, among the Registrant, 0961994 B.C. Ltd. and Orko Silver Corp. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on March 13, 2013). |
| 2.3 | Agreement and Plan of Merger, dated as of December 16, 2014, among the Registration, Hollywood Merger Sub, Inc., Paramount Gold and Silver Corp. and Paramount Nevada Gold Corp. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on December 18, 2014). |
| 2.4 | Stock Purchase Agreement, dated as of January 12, 2015, among Coeur Mining, Inc. and Goldcorp America Holdings Inc. (Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on January 13, 2015). |
| 3.1 | Delaware Certificate of Conversion of the Registrant, effective as of May 16, 2013 (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K12B filed on May 16, 2013). |
| 3.2 | Delaware Certificate of Incorporation of the Registrant, effective as of May 16, 2013 (Incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K12B filed on May 16, 2013). |
| 3.3 | Amended and Restated Bylaws of the Registrant, effective September 16, 2013 (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 20, 2013). |
| 4.1 | Warrant Agreement dated as of April 16, 2013, by and among the Registrant, Computershare Trust Company, N.A. and Computershare, Inc., as Warrant Agent (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 16, 2013). |
| 4.2 | Form of Common Stock Share Certificate of the Registrant. (Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K12B filed on May 16, 2013). |
| 4.3 | Form of Warrant Certificate of the Registrant (Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K12B filed on May 16, 2013). |
| 4.4 | Indenture dated as of March 18, 2008, by and between the Registrant and the Bank of New York relating to the Registrant’s 3.25% Convertible Senior Notes due 2028 (Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on March 20, 2008). |
| 4.5 | First Supplemental Indenture dated as of March 18, 2008 to Indenture dated as of March 18, 2008, by and between the Registrant and the Bank of New York relating to the Registrant’s 3.25% Convertible Senior Notes due 2028 (Incorporated herein by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on March 20, 2008). |
| 4.6 | Indenture, dated January 29, 2013, among the Registrant, as issuer, certain subsidiaries of the Registrant, as guarantors thereto, and The Bank of New York Mellon, as trustee (Incorporated herein by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012). |
| 4.7 | First Supplemental Indenture, dated December 16, 2013, among the Registrant, as issuer, certain subsidiaries of the Registrant, as guarantors thereto, and The Bank of New York Mellon, as trustee (Filed herewith). |
| 10.1 | 401k Plan of the Registrant. (Incorporated by reference to Exhibit 10(pp) to the Registrant’s Annual Report on Form 10-K filed on March 29, 1995).* |
| 10.2 | Amended and Restated 2005 Non-Employee Directors’ Equity Incentive Plan, as amended for the Registrant’s reverse stock split. (Incorporated herein by reference to Exhibit 10(b) to the Registrant’s Annual Report on Form 10-K filed on February 26, 2010).* |
| 10.3 | Amended Mining Lease, effective as of August 5, 2005, between Hyak Mining Company, Inc. and Coeur Alaska, Inc. (Incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on August 12, 2005). |
| 10.4 | Amended and Restated Silver Sale and Purchase Agreement, dated March 28, 2006, between CDE Australia Pty Limited and Cobar Operations Pty Limited (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.) (Incorporated herein by reference to Exhibit 10(b) to the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2006). |
93
| 10.5 | Supplemental Agreement in respect of the Amended and Restated Silver Sale and Purchase Agreement, dated January 29, 2008, between CDE Australia Pty Limited and Cobar Operations Pty Limited (Incorporated herein by reference to Exhibit 10(cc) to the Registrant’s Annual Report on Form 10-K filed on February 29, 2008). |
| 10.6 | Gold royalty stream agreement, dated as of January 21, 2009, by and between the Registrant and Franco-Nevada (Incorporated herein by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on May 11, 2009). |
| 10.7 | Credit Agreement, dated August 1, 2012, by and among the Registrant, Coeur Alaska, Inc. and Coeur Rochester, Inc., as the borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on August 7, 2012). |
| 10.8 | Amendment No. 1 to Credit Agreement, dated January 16, 2014, by and among the Registrant, as the parent, Coeur Alaska, Inc. and Coeur Rochester, Inc., as the borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form S-3 (Reg. No. 333-193652) filed on January 30, 2014). |
| 10.9 | Offer letter dated February 4, 2013 from the Registrant to Frank L. Hanagarne, Jr. (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 7, 2013).* |
| 10.10 | Offer letter dated February 4, 2013 from the Registrant to Peter Mitchell (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 9, 2013).* |
| 10.11 | Form of Indemnification Agreement (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2013). |
| 10.12 | Amended and Restated Executive Severance Policy of the Registrant (Incorporated herein by reference to Exhibit 10.21 to the Registrant’s Amendment No. 1 to Form S-4 (Reg. No. 333-191133) filed on September 23, 2013).* |
| 10.13 | Agreement and General Release dated September 16, 2013 between the Registrant and Donald J. Birak (Incorporated herein by reference to Exhibit 10.28 to the Registrant’s Amendment No. 1 to Form S-4 (Reg. No. 333-191133) filed on September 23, 2013).* |
| 10.14 | Agreement and General Release dated September 19, 2013 between the Registrant and Luke Russell (Incorporated herein by reference to Exhibit 10.29 to the Registrant’s Amendment No. 1 to Form S-4 (Reg. No. 333-191133) filed on September 23, 2013).* |
| 10.15 | Amended and Restated 2003 Long-Term Incentive Plan of the Registrant, effective as of October 1, 2013 (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2013).* |
| 10.16 | Form of Restricted Stock Award Agreement (Incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2013).* |
| 10.17 | Form of Incentive Stock Option Award Agreement (Incorporated herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2013).* |
| 10.18 | Form of Non-Qualified Stock Option Award Agreement (Incorporated herein by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2013).* |
| 10.19 | Form of Performance Share Award Agreement (Incorporated herein by reference to Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2013).* |
| 10.20 | Form of Performance Unit Award Agreement (Incorporated herein by reference to Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q filed on November 6, 2013).* |
| 10.21 | Form of Cash-Settled Stock Appreciation Right Award Agreement (Incorporated herein by reference to Exhibit 10.10 to the Registrant's Quarterly Report filed on November 6, 2013).* |
| 10.22 | Offer letter dated February 15, 2013 from the Registrant to Casey M. Nault. (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 7, 2014).* |
| 10.23 | Offer letter dated February 15, 2013 from the Registrant to Keagan J. Kerr. (Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 7, 2014).* |
| 10.24 | Supplemental Incentive Agreement dated July 30, 2014 between the Registrant and Mitchell J. Krebs. (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 1, 2014).* |
| 10.25 | Amended and Restated Employment Agreement dated July 30, 2014 between the Registration and Mitchell J. Krebs. (Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 1, 2014).* |
| 10.26 | Voting and Support Agreement, dated as of December 16, 2014, among Coeur Mining, Inc. and various stockholders of Paramount. (Incorporated herein by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on December 18, 2014). |
| 12 | Computation of Ratio of Earnings to Fixed Charges. (Filed herewith). |
| 21 | List of subsidiaries of the Registrant. (Filed herewith). |
| 23 | Consent of KPMG LLP, Independent Registered Public Accounting Firm (Filed herewith). |
94
| 31.1 | Certification of the CEO (Filed herewith). |
| 31.2 | Certification of the CFO (Filed herewith). |
| 32.1 | CEO Section 1350 Certification (Filed herewith). |
| 32.2 | CFO Section 1350 Certification (Filed herewith). |
| 95.1 | Mine Safety Disclosure (Filed herewith). |
| 101.INS | XBRL Instance Document** |
| 101.SCH | XBRL Taxonomy Extension Schema** |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase** |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase** |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase** |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase** |
* Management contract or compensatory plan or arrangement
** The following financial information from Coeur Mining, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (Extensible Business Reporting Language): Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Cash Flows, Consolidated Balance Sheets, and Consolidated Statement of Changes in Stockholders' Equity
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COEUR MINING, INC.
(Registrant)
| Date: | February 20, 2015 | By: | /s/ Mitchell J. Krebs |
Mitchell J. Krebs (Director, President, and Chief Executive Officer) | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Mitchell J. Krebs______________________ Mitchell J. Krebs | Director, President, and Chief Executive Officer (Principal Executive Officer) | February 20, 2015 | ||
/s/ Peter C. Mitchell______________________ Peter C. Mitchell | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | February 20, 2015 | ||
/s/ Mark Spurbeck_______________________ Mark Spurbeck | Vice President, Finance (Principal Accounting Officer) | February 20, 2015 | ||
/s/ Linda L. Adamany_____________________ Linda L. Adamany | Director | February 20, 2015 | ||
/s/ Kevin S. Crutchfield___________________ Kevin S. Crutchfield | Director | February 20, 2015 | ||
/s/ Sebastian Edwards_____________________ Sebastian Edwards | Director | February 20, 2015 | ||
/s/ Randolph E. Gress_____________________ Randolph E. Gress | Director | February 20, 2015 | ||
/s/ Robert E. Mellor______________________ Robert E. Mellor | Director | February 20, 2015 | ||
/s/ John H. Robinson______________________ John H. Robinson | Director | February 20, 2015 | ||
/s/ J. Kenneth Thompson___________________ J. Kenneth Thompson | Director | February 20, 2015 | ||
96