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, 2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number 1-8641
COEUR D'ALENE MINES CORPORATION
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(Exact name of registrant as specified in its charter)
Idaho 82-0109423
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Front Ave., P. O. Box "I"
Coeur d'Alene, Idaho 83816
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(Address of principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (208) 667-3511
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Securities Registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00
6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. (The aggregate market value is computed by
reference to the last sale price of such stock, as of March 16, 2001, which
was $1.16 per share.)
$42,978,079
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 16, 2001.
37,050,068 shares of Common Stock, Par Value $1.00
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-K is incorporated
by reference from the registrant's definitive proxy statement which will be
filed pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year covered by this report.
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PART I
Item 1. Business
Introduction
Coeur d'Alene Mines Corporation is engaged through its subsidiaries in
the operation and/or ownership, development and exploration of silver and gold
mining properties and companies located primarily within the United States
(Nevada, Idaho and Alaska) and South America (Bolivia and Chile). Coeur
d'Alene Mines Corporation and its subsidiaries are hereinafter referred to
collectively as "Coeur" or the "Company."
Overview of Mining Properties and Interests
The Company's most significant mining properties and interests are:
o The Rochester Mine is a silver and gold surface mining operation
located in northwestern Nevada and is 100% owned and operated by
Coeur. It is one of the largest and lowest cost of production primary
silver mines in the United States. During 1999, the Company acquired
the mineral rights to the Nevada Packard property which is located
two miles south of the Rochester mine. The Company is in the process
of permitting the Nevada Packard property in order to commence mining
activity;
o Coeur owns 100% of the capital stock of Coeur Silver Valley ("Silver
Valley"), which owns and operates the Galena underground silver mine
that resumed production in May 1997, and also owns the Coeur
underground silver mine that discontinued operations on July 2, 1998.
In addition, Silver Valley owns the Caladay property that adjoins the
Galena Mine, and has operating control of several contiguous
exploration properties in the Coeur d'Alene Silver Mining District of
Idaho;
o The Fachinal Mine is an open pit and underground gold and silver mine
which is wholly-owned and operated by Coeur and located in southern
Chile, South America. The Company suspended operations at Fachinal in
December of 2000 in order to fully evaluate and develop a newly
discovered zone of high-grade gold and silver mineralization;
o The Petorca Mine is an underground and surface gold and silver mine
which is wholly-owned and operated by Coeur and is located in central
Chile, South America;
o The Company owns 100% of the Kensington Property, located north of
Juneau, Alaska and is developing it as a proposed underground gold
mine. An independently prepared optimization study completed in late
1998 estimated cash operating costs of $190 per ounce of gold and
estimated capital costs to develop the mine of $192 million;
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o Coeur owns 100% of Empressa Minera Manquiri S.A. ("Manquiri"), a
Bolivian company, that controls the mining rights for the San
Bartolome silver project, which is a silver development property in
Bolivia; and
Coeur also has interests in other properties which are the subject of
silver or gold exploration activities at which no mineable ore reserves have
yet been delineated.
Exploratory Mining Properties
The Company either directly or through wholly-owned subsidiaries owns,
leases and has interests in certain exploration-stage mining properties
located in the United States, Chile and Bolivia. In keeping with its overall
efforts to focus its resources, the Company conducted approximately 70% of its
exploration activities during 2000 on or near existing properties where
infrastructure and production facilities are already in place.
In addition to its exploration program around existing mines, the Company
also controls or has options to acquire a number of early-stage prospects,
including the Wonder silver property located in Nevada.
Significant Developments in 2000
On March 15, 2000, each outstanding share of the Company's outstanding
Mandatory Adjustable Redeemable Convertible Securities (MARCS) was mandatorily
converted into 1.111 shares of common stock. The Company issued a total of
approximately 7.9 million shares of common stock in connection with the
mandatory conversion.
In September 2000, the Company signed an exploration agreement with an
option to purchase the Wonder silver property located in northwestern Nevada,
approximately 120 miles east of Reno. The Company commenced a drilling program
at the property in an effort to develop a new source of low-cost silver
production.
In November 2000, the Company announced the discovery of a new area of
gold and silver mineralization. The Cerro Bayo zone, which is located
approximately nine miles east of the Fachinal Mine's processing facilities,
has significantly higher grade ore than any material previously mined. The
Company suspended operations at its Fachinal Mine in order to complete a
detailed development plan for the new zone, which the Company believes has the
potential to significantly improve the economics of the Fachinal Mine.
During 2000, the Company repurchased a total of $31.7 million in face
value of its outstanding Convertible Subordinated Debentures, for a purchase
price of $14.1 million. As a result of these repurchases, the Company recorded
an extraordinary gain of $16.1 million net of tender offer expenses and taxes.
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Of the $31.7 million descried above, approximately $7.0 million principal
amount of its 6% Convertible Subordinated Debentures due 2002 were repurchased
pursuant to a cash tender offer that closed in June 2000. The price paid by
the Company for the repurchased debentures was approximately $5.0 million plus
accrued and unpaid interest. The Company recorded an extraordinary gain of
approximately $1.1 million, net of tender offer expenses, as a result of the
repurchase.
The balance of the repurchases of Convertible Subordinated Debentures,
other than the above-described tender offer, were approximately $2.1 million
principal amount of 6% Convertible Subordinated Debentures, approximately $.6
million principal amount of 6.375% Convertible Subordinated Debentures and
approximately $22.0 million principal amount of its outstanding 7 1/4%
Convertible Subordinated Debentures due 2005. The price paid by the Company
for these repurchases was approximately $9.1 million plus accrued and unpaid
interest. As a result of those additional repurchases, the Company recorded an
extraordinary gain of approximately $15.0 million.
During 2000, the Company organized as a new, wholly-owned subsidiary,
Mine Depot Inc., the mission of which is to develop and market internet-based
e-business tools for mining companies and their suppliers of products and
services designed to create time and cost savings and make existing processes
more efficient.
During 2000, the Company organized as a new, wholly-owned subsidiary,
Earthworks Technology Inc., the mission of which is to provide environmental
services for all phases of the mining operation life cycle. Services would
include new project permitting and environmental impact statement development,
environmental audits, and reclamation and closure planning and implementation.
Significant Developments in Early 2001
On January 11, 2001, subsequent to the year ended December 31, 2000, the
Company announced that it received notice from the New York Stock Exchange
that the Company had fallen below the continued listing requirement that
either its total market capitalization or its shareholders' equity amount to
at least $50 million. On January 11, 2001, the Company submitted a plan to the
New York Stock Exchange reflecting the Company's belief that by May 27, 2002
(within 18 months of receipt of the Exchange's notice), the Company can be in
compliance with that listing requirement and qualify for continued listing on
the New York Stock Exchange. The Company believes that the plan, when
implemented, should result in an increase in the Company's shareholders'
equity above the required $50 million minimum amount.
Consistent with the Company's stated strategy to focus primarily on the
development of its silver assets, Coeur initiated a program to sell its
non-core gold holdings. Consequently, on February 7, 2001, the Company sold
its 50% shareholding in Gasgoyne Gold Mines NL ("Gasgoyne") for A$28.1 million
(US$15.6 million) in cash. Gasgoyne owns 50% of the Yilgarn Star Mine located
in Western Australia and certain other exploration stage properties. The
purchaser was Sons of Gwalia Ltd., an Australian corporation who owned the
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other 50% of Gasgoyne. As a result of the anticipated transaction, the Company
recorded at December 31, 2000 a writedown of $12.2 million reflecting the
excess carrying value of the Gasgoyne shares over the sales price.
On February 26, 2001, the Company announced that it had formally engaged
a financial advisor to assist with the sale of Coeur's gold interests in
Chile. These interests consist of the Fachinal and Petorca mines, various
exploration properties and other financial assets.
On March 16, 2001, representatives of the United States and the Company
reached an agreement in principle to settle the lawsuit filed by the
Government in March 1996 in the U.S. District Court for the District of Idaho
alleging response costs and damages to federal natural resources in the Coeur
d'Alene River Basin as a result of alleged releases of hazardous substances
from prior mining activities in the area. The terms of the proposed
settlement, which are subject to final Justice Department and Court approval
and are discussed below under Item 3 ("Legal Proceedings"), provide for
payments by the Company to the Government of approximately $3.9 million plus a
maximum of $3.0 million of future conditional net smelter royalty payments. As
a result, the Company recorded an expense of approximately $4.2 million for
settlement of this lawsuit, including legal fees and other costs, in 2000.
On March 19, 2001, the Company issued a total of 1,787,500 shares of its
Common Stock to two holders of a total of $5 million principal amount of the
Company's outstanding 7 1/4% Convertible Subordinated Debentures due 2005 in
exchange for such Debentures. The Company's financial statements for the
quarter ending March 31, 2001 will record an extraordinary gain of
approximately $3.0 million representing the excess of the extinguished
principal amount of the Debenture liability over the value of the shares
issued by the Company in exchange, net of offering costs and taxes.
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Business Strategy
The Company's business strategy is to capitalize on the ore
reserve/mineralized material bases located at its operating mines and the
expertise of its management team to become the leading primary silver
production company via long-term, cash flow generating growth. The principal
elements of the Company's business strategy are as follows: (i) increase the
Company's silver production and reserves in order to remain the nation's
largest primary silver producer and one of the world's larger primary silver
producers; (ii) decrease cash costs and increase production at Coeur's
existing silver mining operations; (iii) acquire operating mines, exploration
and/or development properties with a view to reducing the Company's cash and
total costs, provide short-term positive cash flow return and expand its
silver production base and reserves; and (iv) continue to explore for new
silver discoveries primarily near its existing mine sites.
Sources of Revenue
The Rochester Mine, Silver Valley, Fachinal Mine, and Petorca Mine which
are operated by the Company, and the Company's interest in the Yilgarn Star
Mine held by Gasgoyne, constituted the Company's principal sources of mining
revenues in 2000. The following table sets forth information regarding the
percentage contribution to the Company's total revenues (i.e., revenues from
the sale of concentrates and dore plus other income) by the sources of those
revenues during the past five years:
Coeur Percentage
Ownership at Percentage of Total Revenues
Mine/Company December 31, 2000 in Years Ended December 31,
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1996 1997 1998 1999 2000
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Rochester Mine................ 100% 59.3% 40.5% 56.2% 49.2% 51.3%
Petorca Mine(1)............... 100 2.8 11.3 8.5 8.0 6.5%
Fachinal Mine(2).............. 100 - 9.8 14.6 8.0 9.6%
Silver Valley(3).............. 100 0.5 0.9 (.9) 4.6 17.0%
Gasgoyne(4)................... 50 0.9 5.2 12.1 9.2 9.2%
Golden Cross Mine(5).......... 80 26.0 23.7 0.2 19.4 -
Other......................... - 10.5 8.6 9.3 1.6 6.4%
---- ---- ---- ---- -----
100% 100% 100% 100% 100%
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(1) Increased ownership to 100% from 51% in September 1996.
(2) Commenced commercial production on January 1, 1997 for financial
reporting purposes. Operations suspended on December 1, 2000.
(3) The Company increased its ownership interest in Silver Valley from 50% to
100% on September 9, 1999. The Company's interest in Silver Valley
accounted for approximately 3.0 % of total revenues for the approximate
eight months subsequent to its start-up in May 1996. The Company changed
its method of accounting for Silver Valley from the proportionate
consolidation method to the equity method of accounting at the time of
the acquisition. On September 9, 1999, the Company commenced accounting
for Silver Valley on a fully consolidated basis.
(4) The Company's interest in Gasgoyne accounted for approximately 1.2% of
total revenues for the approximate six months subsequent to its
acquisition by the Company in May 1996. The reported percentages reflect
the fact that Coeur's interest in Gasgoyne's revenue was 35% from May
1996 to February 1997, 36% from March 1997 to May 1997 and 50% after May
1997. The Company's interest in Gasgoyne is reported in accordance with
the equity method.
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(5) The Company discontinued mining and milling operations at the Golden
Cross Mine, an underground and surface gold mining operation in New
Zealand, in April 1998. The revenue received in 1999 represents the net
proceeds received from the settlement of the outstanding litigation with
Cyprus relating to the Golden Cross mine.
Definitions
The following sets forth definitions of certain important mining terms used in
this report.
"Cash Costs" are costs directly related to the physical activities of
producing silver and gold, and include mining, processing and other plant
costs, deferred mining adjustments, third-party refining and smelting costs,
marketing expense, on-site general and administrative costs, royalties,
in-mine drilling expenditures that are related to production and other direct
costs, but exclude depreciation, depletion and amortization, corporate general
and administrative expense, mineral exploration, financing costs and accruals
for mine reclamation.
"Dore" is bullion produced by smelting which contains gold, silver and minor
amounts of impurities.
"Gold" is a metallic element with minimum fineness of 999 parts per 1000 parts
pure gold.
"Heap Leaching Process" is a process of extracting gold and silver by placing
broken ore on an impermeable pad and applying a dilute cyanide solution that
dissolves a portion of the contained gold and silver, which are then recovered
in metallurgical processes.
"Noncash costs" are costs that are typically accounted for ratably over the
life of an operation and include depreciation, depletion and amortization of
capital assets, accruals for the costs of final reclamation and long-term
monitoring and care that are usually incurred at the end of mine life, and the
amortization of the economic cost of property acquisitions, but exclude
amortization of deferred tax purchase adjustments relating to property
acquisitions established in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes."
"Total production costs" are the sum of cash costs and noncash costs.
"Mineralized Material" is gold and silver bearing material that has been
physically delineated by one or more of a number of methods including
drilling, underground work, surface trenching and other types of sampling.
This material has been found to contain a sufficient amount of mineralization
of an average grade of metal or metals to have economic potential that
warrants further exploration evaluation. While this material is not currently
or may never be classified as reserves, it is reported as mineralized material
only if the potential exists for reclassification into the reserves category.
This material cannot be classified in the reserves category until final
technical, economic and legal factors have been determined. Under United
States Securities and Exchange Commissions standards, a mineral deposit does
not qualify as a reserve unless the recoveries from the deposit are expected
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to be sufficient to recover total cash and non-cash costs for the mine and
related facilities.
"Ore Reserve" is the part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
"Probable Reserve" is a part of a mineralized deposit which can be extracted
or produced economically and legally at the time of the reserve determination.
The quantity and grade and/or quality of a probable reserve is computed from
information similar to that used for a proven reserve, 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 reserves, is high enough to assume continuity between points of
observation. Mining dilution has been factored into the estimation of probable
reserves. The Company used long-term price estimates of $5.50 per ounce of
silver and $300 per ounce of gold in estimating probable reserves at December
31, 2000.
"Proven Reserves" are a portion of a mineral deposit which can be extracted or
produced economically and legally at the time of the reserve determination.
The quantity of a proven reserve 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 the sites for inspections, sampling
and measurement are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of a proven reserve is
well-established. Mining dilution has been factored into the estimation of
proven reserves. The Company used long-term price estimates of $5.50 per ounce
of silver and $300 per ounce of gold in estimating proven reserves at December
31, 2000.
"Run-of-mine Ore" is mined ore which has not been subjected to any
pretreatment, such as washing, sorting or crushing prior to processing.
"Silver" is a metallic element with minimum fineness of 995 parts per 1000
parts pure silver.
"Stripping Ratio" is the ratio of the number of tons of waste material to the
number of tons of ore extracted at an open-pit mine.
"Ton" means a short ton which is equivalent to 2,000 pounds, unless otherwise
specified.
Important Factors relating to Forward-Looking Statements
This report contains numerous forward-looking statements relating to the
Company's gold and silver mining business, including estimated production
data, expected operating schedules and other operating data and permit and
other regulatory approvals. 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 production, operating schedules and results of operations could differ
materially from those projected in the forward-looking statements. The factors
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that could cause actual results to differ materially from those projected in
the forward-looking statements include (i) the risks and hazards inherent in
the mining business (including environmental hazards, industrial accidents,
weather or geologically related conditions), (ii) changes in the market prices
of gold and silver, (iii) the uncertainties inherent in the Company's
production, exploratory and developmental activities, including risks relating
to permitting and regulatory delays, (iv) the uncertainties inherent in the
estimation of gold and silver ore reserves, (v) changes that could result from
the Company's future acquisition of new mining properties or businesses, (vi)
the effects of environmental and other governmental regulations, and (vii) the
risks inherent in the ownership or operation of or investment in mining
properties or businesses in foreign countries.
Silver and Gold Operations
North America
Rochester Mine
The Rochester Mine is a silver and gold surface mine located in Pershing
County, Nevada, approximately 25 road miles northeast of Lovelock. The mine
commenced operations in 1986. The Company owns 100% of the Rochester Mine by
virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc. ("Coeur
Rochester"). The property consists of 16 patented and 541 unpatented
contiguous mining claims and 54 mill-site claims totaling approximately 11,000
acres.
Production at Rochester in 2000 was approximately 6.7 million ounces of
silver and 75,900 ounces of gold, compared to 6.2 ounces of silver and
approximately 70,400 ounces of gold in the prior year. Cash costs per
equivalent ounce of silver decreased to $3.90 per ounce in 2000, compared to
$3.97 per ounce in 1999. Despite mining lower grade ore during 2000,
production increased and cash costs decreased due to the implementation of
several operating improvements that included increasing the capacity of the
conveyor system and the crushing circuit as well as increasing the solution
flow on the leach pad by approximately 15%.
The mine utilizes the heap leaching process to extract both silver and
gold from ore mined using conventional open pit methods. Approximately 45,760
tons of ore and waste per day were mined from the open pit in 2000 compared to
45,100 tons per day in 1999. The average strip ratio for the remaining life of
the mine will vary based primarily on future gold and silver prices. However,
the average strip ratio is anticipated to be less than 1:1.
Ore is crushed to approximately 3/8 inch and is then transported by
conveyor and 85 and 150 ton trucks to leaching pads where solution is applied
via drip irrigation to dissolve the silver and gold contained in the ore.
Certain low-grade ores are hauled directly, as run-of-mine, by 85 ton haul
trucks to leaching pads where solution is applied to dissolve the silver and
gold contained in the ore. The solutions containing the dissolved silver and
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gold are collected in a processing plant where the zinc precipitation method
is used to recover the silver and gold from solution.
Based upon actual operating experience and certain metallurgical testing,
the Company estimates recovery rates of 59% for silver and 90% for gold. The
leach cycle at the Rochester Mine requires approximately seven years from the
point ore is placed on the leach pad until all recoverable metal is recovered.
However, a significant proportion of metal recovery occurs in the early years.
The first phase of a comprehensive in-pit and near-pit ore definition and
exploration program consisting of 114 reverse circulation drill holes totaling
more than 40,000 feet was completed in mid-2000. A follow-up phase 2 drilling
program of 46 holes totaling 22,000 feet was completed by the end of the year.
The emphasis of the second phase of the drill program was on areas to the east
and south outside of the ultimate pit boundary and a selected area to the
southwest of the pit. As a result of the exploration and in-fill drilling
program at and near Rochester during 2000, the Company was able to virtually
replace all gold and silver reserves mined during 2000 and significantly
increase mineralized material. In addition, the program also extended the
limits of potentially economic mineralization well beyond the current pit
boundary, especially to the east and south of the Rochester pit.
Simultaneously with the phase 2 exploration program at and near
Rochester, drilling also was carried out at the Nevada Packard satellite
deposit, located approximately one and one half miles to the south of the main
pit. At the Nevada Packard property, which was purchased by the Company in
August 1999, a total of 73 drill holes were completed during 2000 comprising
almost 24,000 feet. The exploration program increased the proven and probable
reserves and identified two new zones of mineralization which will be
investigated further during 2001. The Company expects to complete the
permitting of Nevada Packard in 2001 and commence construction of a haul road
connecting Nevada Packard to the Rochester processing facilities. This would
allow production to commence in 2002.
The Company's capital expenditures at the Rochester Mine totaled
approximately $2.2 million in 2000, of which approximately $1.0 million was
used to expand the stage II leach pad. The Company plans approximately $1.6
million of capital expenditures at the mine during 2001, most of which is for
Nevada Packard development.
Asarco, the prior lessee, has a net smelter royalty interest which is
payable only when the market price of silver equals or exceeds $19.01 per
ounce up to maximum rate of 5%.
Year-end Proven and Probable Ore Reserves - Rochester Mine
(includes Nevada Packard)
1999 2000
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Tons (000's) 48,272 53,844
Ounces of silver per ton 1.09 0.93
Contained ounces of silver (000's) 52,508 49,966
Ounces of gold per ton 0.008 0.008
Contained ounces of gold 381,000 410,000
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Year-end Mineralized Material
1999 2000
---- ----
Tons (000's) 46,393 65,897
Ounces of silver per ton 0.82 0.65
Ounces of gold per ton 0.01 0.005
Operating Data
1999 2000
---- ----
Production
Tons ore mined (000's) 9,569 11,276
Tons crushed/leached (000's) 9,537 10,996
Ore grade silver (oz./ton) 1.25 1.10
Ore grade gold (oz./ton) 0.009 0.009
Silver produced (oz.) 6,195,169 6,678,274
Gold produced (oz.) 70,396 75,886
Cost per Ounce of Silver Equivalent(1)
Cash costs $3.97 $3.90
Noncash costs 0.81 1.12
-----------------------------
Total production costs $4.78 $5.02
(1) Silver equivalent gold production is calculated by multiplying actual
gold ounces produced by the ratio of the yearly average gold price to
silver price. This total is then added to actual silver production for
the year to determine total silver equivalent production for purposes of
calculating cash and noncash costs per ounce.
Coeur Silver Valley ("Silver Valley")
As previously noted, Coeur acquired 50% of Silver Valley from Asarco on
September 9, 1999, thereby increasing its ownership interest to 100%. The
benefits identified by Coeur when it consummated that acquisition included (i)
an increase of 1.8 million ounces in Coeur's estimated annual silver
production, (ii) the addition of 16.2 million ounces of silver to Coeur's
proven and probable reserves and 6.0 million ounces to Coeur's silver
resources, (iii) the potential to further increase reserves and resources
through systematic exploration, (iv) the potential to increase production at
the Galena Mine and reduce cash costs, and (v) the consolidation of Coeur's
ownership position and control of Idaho's Silver Valley.
Silver Valley owns the Coeur and Galena Mines and the Caladay property
situated in the Coeur d'Alene Mining District of Idaho. Effective January 1,
1995, Coeur, Callahan Mining Corporation ("Callahan"), a wholly-owned
subsidiary of Coeur, and Asarco transferred their interests in the Coeur and
Galena Mines and Caladay property to Silver Valley, an entity created for that
sole purpose. As a result, Coeur and Asarco owned 50% of Silver Valley. During
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1995, Silver Valley conducted a planned underground development program that
increased ore reserves at the Galena Mine. As a result of this program and
increased silver prices, a decision was made on February 8, 1996 by Silver
Valley to reopen the mines.
Silver Valley recommenced operations at the Coeur mine portion of its
property in June 1996 and continued mining existing reserves there through
July 2, 1998, when operations were terminated after known reserves at the
Coeur mine were depleted. Silver Valley resumed production at the Galena Mine
in May 1997 and operations continue.
Silver Valley plans to continue exploratory and developmental activities
at the Coeur, Galena and Caladay Mines as well as at several contiguous
properties in the Coeur d'Alene Mining District with a view toward the
development of new silver reserves and resources.
Galena Mine
The Galena Mine property is located immediately west of the City of
Wallace in Shoshone County in northern Idaho. The property consists of 52
patented mining claims and 25 unpatented mining claims totalling approximately
1,100 acres.
Coeur's production in 2000 was 4.0 million ounces of silver, an increase
of 82% as compared to 2.2 million ounces in 1999. The Company's increased
ownership in September 1999 accounts for the majority of the increase in
production. However, the 4.0 million ounces of silver produced in 2000 was a
new record for Coeur Silver Valley and resulted from improved ore grades from
the more productive vein structures at depth and an increase in mill
throughput. Consequently, total cash costs in 2000 declined by 10% to $4.59
per ounce of silver as compared to $5.09 per ounce in the preceding year.
Furthermore, the rapid pace of underground development has provided greater
access to the wider, higher-grade vein systems.
The Galena Mine is an underground silver-copper mine and is served by two
vertical shafts. The No. 3 shaft is the primary production shaft and is 5,800
feet deep. The Galena shaft primarily provides utility access for water,
electrical power and sand backfill for underground operations.
The mine utilizes the drift and fill mining method with sand backfill to
extract ore from the high grade silver-copper vein deposits that constitute
the majority of the ore reserves. Silver and copper are recovered by a
flotation mill that produces a silver rich concentrate which is sold to
third-party smelters in the United States and Canada. Silver recovery through
the mill averaged 96% in 2000, consistent with 1999.
Waste material from the milling process is deposited in a tailings pond
located approximately two miles from the minesite. The tailings containment
pond has capacity for approximately nine additional years at current
production rates.
The initial phase of an aggressive exploration program conducted during
2000 was successful. Diamond drilling intersected an 11-foot section of the
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294 vein in the West Argentine area of the property that graded 23.9 ounces of
silver per ton and 1.4% copper. This ore grade intercept was encountered 280
feet west of any previously known mineralization. In addition, the same hole
intercepted a second mineralized zone contained within the Polaris fault of
20.6 feet grading 6.6 ounces of silver per ton and 1.1% copper including 5.9
feet at a grade of 10.4 ounces of silver per ton and 2.2% copper. This second
zone likely represents a new discovery within the Polaris fault and is similar
in many respects to the high-grade 72 vein that is currently one of the mine's
most productive sources of silver ore. More significantly, the second
intersection is over 2,000 feet west of the current development of the 72 vein
and confirms Coeur's belief that many areas of the property outside of
existing mining operations have excellent potential for the development of new
reserves and resources.
Total capital expenditures by Silver Valley at the Galena Mine in 2000
were $6.4 million of which $5.4 million was for mine development. Coeur made
this significant investment in capital at the Galena mine as part of a
long-term strategy to increase annual production to 5.0 million ounces.
Silver Valley has planned for capital expenditures of approximately $2.9
million for the Galena Mine during 2001. Mine development will again account
for the majority of this expenditure. Also included in 2001's capital plan are
funds necessary to convert from conventional mining to mechanized mining
methods on a limited basis. This change should result in increased production
and decreased cash costs and is a significant step towards achieving Coeur's
target 5.0 million ounces of silver per year.
Year-end Proven and Probable Ore Reserves - Galena Mine (1)
1999 2000
---- ----
Tons (000's) 1,858 1,621
Ounces of silver per ton 18.51 19.13
Contained ounces of silver (000's) 34,386 31,015
Year-end Mineralized Material (2)
1999 2000
---- ----
Tons (000's) 1,200 1,731
Ounces of silver per ton 10.31 11.11
Operating Data (Coeur's interest)
1999(3) 2000(3)
---- ----
Production
Tons ore milled 131,646 204,576
Ore grade silver (oz./ton) 17.61 20.43
Recovery (%) 97 96
Silver produced (oz.) 2,238,370 4,013,891
-14-
Cost per Ounce of Silver
Cash costs $5.09 $4.59
Noncash costs 0.93 0.68
---------------------------
Total production costs $6.02 $5.27
(1) The Galena Mine reserve estimate is based on a minimum mining width of 4
to 4.5 feet diluted to 5.0 feet minimum width for most silver-copper and
silver-lead veins. Cutoff grade is based on the cost of breaking and
producing ore from a stope, but does not include development costs and
administrative overhead.
(2) Mineralized material includes both the Galena and Coeur mines.
(3) Operating data in 1999 reflects the Company's 50% interest in the Galena
mine from January 1 to August 31 and 100% interest from September 1 to
December 31, 1999. Operating data in 2000 reflects the Company's 100%
interest.
Coeur Mine
-15-
The Coeur Mine is an underground silver mine located adjacent to the
Galena Mine in the Coeur d'Alene Mining District in Idaho, and consists of
approximately 868 acres comprised of 38 patented mining claims and four
unpatented mining claims.
Operations at the Coeur Mine were suspended on April 3, 1991 due to then
prevailing silver prices and placed on a care and maintenance basis to
conserve ore reserves. Silver Valley resumed production activities at the
Coeur Mine in June 1996 and terminated operations there on July 2, 1998 after
known reserves were depleted.
There was no mining activity at the Coeur Mine in 2000 and the property
remained on care and maintenance. However, the Company believes that
significant potential exists to discover additional high grade silver veins
beneath the current limit of the underground workings.
Caladay Property
The Caladay property adjoins the Galena Mine. Prior to its acquisition by
the Company in 1991, approximately $32.5 million was expended on the property
to construct surface facilities, a 5,101 ft. deep shaft and associated
underground workings to explore the property. Based on Silver Valley's
analysis of existing Galena Mine underground workings and drilling results on
the Galena Property, the Company believes that similar geologic conditions
which exist at the Galena may extend into the Caladay property below the level
of the current Caladay workings. In addition, the Caladay facilities are used
to benefit the Galena Mine operations, by exhausting ventilation.
South America - Chile
On February 26, 2001, the Company announced that it had formally engaged
Macquarie North American as a financial advisor to assist with the sale of
Coeur's gold holdings in Chile. These holdings consist of the Fachinal and
Petorca mines, exploration properties and other financial assets.
Fachinal Mine
In January 1990, the Company acquired through its wholly-owned
subsidiary, CDE Chilean Mining Corporation, ownership of the Fachinal gold and
silver property. The Company completed the construction of the Fachinal Mine
in October 1995 when initial mining operations started. Commercial production
for financial accounting purposes commenced on January 1, 1997.
The Fachinal property covers about 90 square miles and is located south
of Coihaique, the capital of Region XI in southern Chile, and approximately 10
miles west of the town of Chile Chico. The project lies on the east side of
the Andes mountain range at an elevation ranging from 600 to 4,500 feet and is
serviced by a gravel road from Chile Chico. The Fachinal property is known to
include multiple epithermal veins containing gold and silver. The Company has
-16-
been granted exploitation concessions (the Chilean equivalent to an unpatented
claim except that the owner does not have title to the surface which must be
separately acquired from the surface owner) covering the mineralized areas of
the Fachinal property as well as the necessary surface rights to permit
mining.
Mining at Fachinal occurs both on the surface and underground. Surface
mining is by the open pit and slot cut methods while underground mining is
done by the raise mining and shrinkage methods. During 2000, approximately 25%
of Fachinal's ore was derived from underground mining and 32% from open pit
areas and 43% from the slot-cut areas.
Ore is processed on site by a mill which uses the standard flotation
process to produce a high grade gold and silver concentrate. The concentrate
is sold to third-party smelters, primarily in Japan. The mill has a design
capacity of 1,650 tons per day. The Company estimates, based on operating
experience, recovery rates of 87% for gold and 88% for silver. Electrical
power is generated on-site by diesel generators and process water is obtained
from a combination of the adjacent General Carrera Lake and from tailings
re-circulation.
Silver and Gold production at Fachinal during 2000 was approximately 0.9
million ounces of silver and 16,000 ounces of gold, compared to 1.1 million
ounces of silver and 25,500 ounces of gold in 1999. Total cash costs in 2000
increased to $447 per gold equivalent ounce compared to $304 per gold
equivalent ounce in 1999. The shortfall in production and the increase in cash
costs were due to lower ore grades and a reduction in tons milled and due to
severe winter conditions throughout most of southern Chile that restricted
development and access to the most productive areas of the mine for several
months.
During the latter half of 2000, the Company aggressively continued its
exploration program at Fachinal. These efforts resulted in the discovery of
the new Cerro Bayo zone approximately nine miles east of the processing
facilities. This zone includes a vein structure named Lucero that has a
greater strike length, width and grade than anything previously encountered in
the district. The Cerro Bayo zone, which consists of multiple veins and
veinlettes is characterized by a surface expression of at least 8,200 feet
along strike and is up to 3,300 feet in width. Today, the Lucero vein appears
to be the primary ore chute within this zone and has been traced for more than
2,600 feet along strike and to approximately 250 feet at depth. The Lucero
vein is open in all directions and contains sections that are characterized by
high-grade gold and silver mineralization. During the fourth quarter of 2000,
the Company suspended operations at Fachinal while it continued its evaluation
of the new zone and formulates detailed development and mining plans.
Based on extensive drilling, channel sampling, resource evaluation and
engineering analysis completed during 2000 and January 2001, proven and
probable reserves of 208,000 gold equivalent ounces have been delineated to
date. In addition, mineralized material of 585,000 tons with average grades of
0.08 ounces of gold per ton and 5.0 ounces of silver per ton have been
identified in the Cerro Bayo zone.
-17-
During 1999, the Company exercised its option to purchase 100% of the
Furioso property located approximately 50 miles southwest of the Fachinal
mine. The high-grade Furioso ores will be processed at the Fachinal mill.
Estimated cash costs at Furioso are $120 per gold equivalent ounce. During
2000, the Company completed its 11-mile portion of a new road to allow haulage
of Furioso ore to Fachinal at a cost of $1.8 million. The government has
committed to, and is currently working to complete, the balance of the access
road. Production from Furioso is expected to start when the development plans
for Cerro Bayo are completed and Coeur makes a decision to re-start
operations.
Total capital expenditures at the Fachinal Mine in 2000, were $2.6
million, primarily for Furioso road development. The Company plans minimal
capital expenditures at Fachinal in 2001.
During the first two years of commercial production (i.e. 1997 and 1998),
the Fachinal Mine experienced ore reserve complications and operations
problems that resulted in significantly higher than expected cash costs. As a
result, at December 31, 1998, the Company reviewed the carrying value of the
Fachinal Mine and recorded an impairment write-down of $42.9 million,
reflecting its expectation that it would not recover the full value of its
remaining investment.
Year-end Proven and Probable Ore Reserves (1) - Fachinal Mine
1999 2000
---- ----
Tons (000's) 510 787
Ounces of silver per ton 4.27 8.69
Contained ounces of silver (000's) 2,181 6,838
Ounces of gold per ton 0.11 0.17
Contained ounces of gold 56,000 134,000
Year-end Mineralized Material (1)
1999 2000
---- ----
Tons (000's) 1,961 2,166
Ounces of silver per ton 5.18 4.80
Ounces of gold per ton 0.11 .09
-18-
Operating Data
1999 2000
---- ----
Production
Tons ore milled 444,691 327,646
Ore grade gold (oz./ton) 0.064 0.056
Ore grade silver (oz./ton) 2.84 3.30
Recovery gold (%) 87 88
Recovery silver (%) 89 87
Gold produced (oz.) 25,480 16,077
Silver produced (oz.) 1,099,342 939,882
Cost per Ounce of Gold Equivalent(2)
Cash costs $304 $447
Noncash costs 64 143
-----------------------------
Total production costs $368 $590
(1) Proven and probable ore reserves and mineralized material includes the
Furioso property.
(2) Gold equivalent gold production is calculated by dividing actual silver
ounces produced by the ratio of the yearly average silver price to gold
price. This total is then added to actual gold production for the year to
determine total gold equivalent production for purposes of calculating
cash and noncash costs per ounce.
Although the government and economy of Chile has been stable in recent
years, the ownership of property in a foreign country is always subject to the
risk of expropriation or nationalization with inadequate compensation. Any
foreign operation or investment may also be adversely affected by exchange
controls, currency fluctuations, taxation and laws or policies of particular
countries as well as laws and policies of the United States affecting foreign
trade, investment and taxation.
Petorca Mine
Coeur owns 100% of the Petorca Mine located on approximately 34,000 acres
in the western Andean foothills approximately 90 miles north of Santiago,
Chile. In July 1994, the Company acquired an interest in Compania Minera CDE
El Bronce, a Chilean corporation ("CDE El Bronce") that owned the producing El
Bronce Mine, now known as the Petorca Mine. In September 1996, the Company
increased its ownership interest of CDE El Bronce to 100%.
The property consists of 64 exploitation concessions and 10 exploration
concessions. Surface rights to permit mining on the property have been granted
by the private owners. Ore is produced from a complex system of precious
metals bearing, epithermal, quartz-veins hosted in Cretaceous volcanic rocks.
Petorca is primarily an underground gold mine which is serviced by adits
at different levels and underground ramps. The mine uses trackless cut and
fill sublevel caving with uncemented backfill and shrinkage mining methods.
Ore is hauled to the mill in 20-ton trucks. During 2000, the Company began
developing by surface mining methods the satellite San Lorenzo deposit. San
-19-
Lorenzo is primarily a copper deposit with lower grade gold. Ore from San
Lorenzo is processed at the main Petorca milling facilities.
The processing plant has two grinding circuits with a total capacity of
900 tons per day but has been operating on a reduced schedule due to ore
availability. Approximately 35% of the total gold produced is recovered by
gravity methods to produce a gold dore. The remaining gold and silver are
recovered by traditional flotation methods which produce a high-grade
concentrate which is sold to third-party smelters, primarily in Japan. The
Company estimates, based on operating experience, average recovery rates of
91% for gold and 84% for silver.
Electrical power is purchased from a local distributor that is connected
to the main Chilean power grid. Process water is pumped from the Petorca river
and in part recovered from a re-circulating system from the tailings
impoundment area.
Gold production at Petorca in 2000 was 26,891 ounces of gold and 57,854
ounces of silver compared to 29,382 ounces of gold and 63,952 ounces of silver
in 1999. Total cash costs per equivalent ounce of gold in 2000 were $345 per
ounce compared to $271 per ounce in 1999. The decrease in production in 2000
and corresponding increase in cash costs was primarily attributable to the
mining of lower-grade ore, partially offset by increased mill throughput.
Operations also were adversely affected by the severe winter weather
conditions. In addition, an accident severely restricted access to high-grade
areas of the mine during the first quarter of 2000. During the third quarter
of 2000, mining commenced at the San Lorenzo copper-gold satellite deposit.
Waste removal progressed for much of the fourth quarter of 2000 in preparation
for ore extraction, which is scheduled to commence in 2001. Ore from San
Lorenzo will supplement the primary underground ore supply and allow the mill
to operate closer to its design capacity.
Capital expenditures at Petorca in 2000 were $.7 million, primarily for
mine development. Similar levels of capital spending are anticipated for 2001.
Due to continued operating losses incurred at the mine and a significant
decline in the price of gold, the Company recorded a $54.5 million impairment
write-down in the first quarter of 1998.
Coeur has an obligation to pay the prior owner of CDE El Bronce a 3% net
smelter return royalty, payable quarterly, which commenced on January 1, 1997.
From July 1998 to December 2000, the prior owner agreed to a 2.4% net smelter
return royalty.
Year-end Proven and Probable Ore Reserves - Petorca Mine
1999 2000
---- ----
Tons (000's) 377 406
Ounces of silver per ton 0.59 0.65
Contained ounces of silver (000's) 222 264
Ounces of gold per ton 0.23 0.18
Contained ounces of gold 85,000 73,000
-20-
Year-end Mineralized Material
1999 2000
---- ----
Tons (000's) 933 1,845
Ounces of silver per ton 0.55 0.55
Ounces of gold per ton 0.29 0.25
Operating Data
1999 2000
---- ----
Production
Tons ore milled 191,929 235,665
Ore grade gold (oz./ton) 0.166 0.126
Ore grade silver (oz./ton) 0.39 0.34
Recovery gold (%) 92 91
Recovery silver (%) 85 72
Gold produced (oz.) 29,382 26,891
Silver produced (oz.) 69,952 57,854
Cost per Ounce of Gold (1)
Cash costs $271 $345
Noncash costs 14 9
--------------------------
Total production costs $285 $354
(1) Certain mineralized veins remain geologically open both vertically and
horizontally.
Australia
Consistent with its strategy to focus primarily on the Company's silver
assets, Coeur sold its shareholding in Gasgoyne on February 7, 2001 for A$28.1
million (US$15.6 million).
As a consequence of the sale by Coeur of its shareholding in Gasgoyne,
which was effective December 31, 2000, the Company recorded a write-down to
mining properties of $12.2 million in the fourth quarter of 2000 to reflect
the excess book value of the Gasgoyne shares above sale proceeds.
Gasgoyne Gold Mines NL ("Gasgoyne")- Yilgarn Star Mine
In May 1996, Coeur acquired approximately 35% of the outstanding shares
of capital stock of Gasgoyne, an Australian gold mining company, in exchange
for a total of 1,419,832 shares of Coeur common stock and cash totaling
approximately $15.4 million. In May 1997, Coeur acquired an additional 14% of
the outstanding shares of Gasgoyne for $14.9 million, as a result of which
Coeur's ownership interest in Gasgoyne increased to 50%. Coeur's interest in
Gasgoyne was being accounted for using the equity method. The remaining 50%
interest in Gasgoyne is held by Sons of Gwalia Ltd., an Australian corporation
headquartered in Perth, Western Australia.
-21-
Gasgoyne is engaged in the exploration, development and ownership of gold
properties located in Western Australia. Gasgoyne's principal asset is its
interest in the Yilgarn Star Mine in the Marvel Loch region, located
approximately 220 miles east of Perth. The Yilgarn Star Mine is operated as a
Joint Venture with Sons of Gwalia Ltd. Sons of Gwalia operates and has a 45%
interest in the Yilgarn Star mine and Gasgoyne has a 50% interest; the
remaining interest is held by a private party. As a result of its holding in
Gasgoyne, the Company had a 25% indirect interest in the Yilgarn Star Mine.
Coeur's 25% share of production from the Yilgarn Star Mine was 26,000
ounces of gold in 2000, compared to 26,400 ounces in 1999. Cash costs
decreased from $287 per ounce in 1999 to $227 per ounce in 2000. The reduction
in cash costs was achieved in spite of the scheduled mining of lower-grade
ore. Operating improvements implemented in 1999 to the crushing circuit and
change in the mining method, plus a weaker Australia dollar, contributed to
the decline in cash costs in 2000.
During the fourth quarter of 1999, the Company evaluated the
recoverability of its investment in the Yilgarn Star mine. Using a $325 per
ounce gold price and based on undiscounted future cash flows, in accordance
with the standards set forth in SFAS 121, the Company determined that its
investment in property, plant and equipment at the Yilgarn Star mine in
Australia was impaired. The total amount of the impairment, based on
discounted cash flows was $16.2 million at December 31, 1999, and was recorded
in the fourth quarter.
The following tables present Coeur's 25% interest in the reserves,
mineralized material and operating results from the Yilgarn Star Mine:
Year-end Proven and Probable Ore Reserves - Yilgarn Star Mine
1999
----
Tons (000's) 816
Ounces of gold per ton 0.17
Contained ounces of gold 138,000
Year-end Mineralized Material
1999
Tons (000's) ----
1,942
Ounces of gold per ton 0.12
Operating Data (Coeur's 25% interest)
1999 2000
---- ----
Production
Tons ore milled 226,181 215,170
Ore grade gold (oz./ton) 0.125 0.129
Recovery (%) 94 93.7
Gold produced (oz.) 26,398 26,046
-22-
Cost per Ounce of Gold
Cash costs $287 $227
Noncash costs 200 116
----------------------------
Total production costs $487 $343
(1) Coeur's interest in the Yilgarn Star mine's proven and probable ore
reserves and mineralized material at December 31, 2000 was nil,
reflecting the sale of Coeur's interest in Gasgoyne which was effective
December 31, 2000.
Development Properties
Kensington Gold Project
On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur
Alaska, Inc. ("Coeur Alaska"), acquired the 50% ownership interest of Echo Bay
Exploration Inc. ("Echo Bay") in the Kensington property from Echo Bay and
Echo Bay Alaska, Inc. (collectively the "Sellers"), giving Coeur 100%
ownership of the Kensington property. The property is located on the east side
of Lynn Canal between Juneau and Haines, Alaska. As a result of that
transaction, Coeur assumed full ownership and operating control of the
project. Pursuant to the Venture Termination and Asset Purchase Agreement
among Coeur Alaska and the Sellers, dated as of June 30, 1995, Coeur Alaska
paid to the Sellers a total of $32.5 million and, pursuant to the Royalty Deed
set forth as an exhibit to the Venture Termination and Asset Purchase
Agreement, Coeur Alaska agreed to pay Echo Bay a scaled net smelter return
royalty on 1 million ounces of future gold production after Coeur Alaska
recoups the $32.5 million purchase price and its construction expenditures
incurred after July 7, 1995 in connection with placing the property into
commercial production. The royalty ranges from 1% at $400 gold prices to a
maximum of 2 1/2% at gold prices above $475, with the royalty to be capped at
1 million ounces of production. The Kensington project consists of
approximately 6,000 acres, of which approximately 750 acres are patented
claims. The Kensington ore deposit consists of multiple, precious metals
bearing, mesothermal, quartz, carbonate, pyrite vein swarms and discrete
quartz-pyrite veins hosted in the Cretaceous age Jualin diorite. The
gold-telluride-mineral calaverite is associated with the pyrite
mineralization. The following proven and probable ore reserve table (see
updated optimization study below).
Year-end Proven and Probable Ore Reserves - Kensington Property
1999 2000(1)
---- ----
Tons (000's) 13,893 10,946
Ounces of gold per ton 0.136 0.16
Contained ounces of gold 1,896,000 1,751,000
-23-
Year-end Mineralized Material
1999 2000
---- ----
Tons (000's) 10,510 12,014
Ounces of gold per ton 0.13 0.12
(1) The proven and probable reserves estimate is derived from the
original 1998 Bechtel feasibility study, adjusted for a revised mine
plan and updated capital and operating cost estimates.
Not all Kensington ore zones have been fully delineated at depth and
several peripheral zones and veins remain to be explored. The Company
possesses the right to develop the Jualin property, an exploratory property
located adjacent to the Kensington Property. The Jualin property consists of
approximately 9,400 acres, of which approximately 345 acres are patented
claims. The Company's rights to develop the Jualin property are subject to an
agreement which must be renewed in May 2008.
During 1999 and 2000, the Company's efforts at Kensington continued to be
directed toward the permitting process and further project optimization
studies. In December 1998, the Company announced the completion of the
independent optimization study which contained a new mine plan that requires
extensive permit modifications due to the significant change to the planned
method of tailings disposal. Based on the results of the optimization study
the Company estimated that the project's cash operating costs could be reduced
to approximately $190 per ounce of gold and total capital costs to develop the
mine should be reduced to approximately $192 million.
While not yet fully complete, continued project optimization during 2000
has indicated that the capital cost to develop the property could be further
reduced. Those optimization efforts included: 1) a proposed reduction in
process throughput combined with a corresponding increase to the grade of ore
to be mined, 2) a relocation of the plant site, 3) a change to the method and
routing of personnel and supplies transportation, and 4) a possible
alternative tailings management system. The Company will continue to examine
these new alternatives given the potential capital cost savings.
Total expenditures by the Company at the Kensington property were $3.1
million, of which $1.6 million was capitalized in 2000. Such expenditures were
used to continue the permitting and optimization activities. The Company plans
approximately $2.0 million in project expenditures during 2001, which are
planned for technical support, engineering studies required to complete the
modified permitting activities and site maintenance.
During 1998, the Company recorded a $121.5 million write-down reflecting
the use of a $350 per ounce gold price assumption, pursuant to SFAS 121.
Impairment reviews were performed in 2000 and 1999 using long-term average
gold price assumptions of $314 per ounce and $325 per ounce, respectively. No
further write-downs were required as a result of these reviews.
Coeur remains committed to completing the permitting process. However, no
assurance can be given as to whether or when the required regulatory approvals
will be obtained or as to whether the Company will place the Kensington
project into commercial production.
-24-
The San Bartolome Project
Coeur acquired 100% of the equity in Empressa Miner Manquiri S.A.
("Manquiri") from Asarco on September 9, 1999. Manquiri's principal asset is
the mining rights in the San Bartolome project, a silver development property
located near the city of Potosi, Bolivia, on the flanks of Cerro Rico which
has been a world class silver producing district for many centuries, having
produced in excess of 1.0 billion ounces of silver. The San Bartolome project
consists of six distinct silver-bearing gravel deposits, which are locally
referred to as pallaco or sucu deposits. These deposits lend themselves to
simple, free digging surface mining techniques which can be extracted without
drilling and blasting. The deposits were formed as a result of erosion of the
silicified silver-rich upper part of the Cerro Rico mountain.
The mineral rights for the San Bartolome project are held through
long-term lease agreements with several independent mining cooperatives and
the Bolivian State Mining Company, COMIBOL. At present, 67 square kilometers
of concessions (16,600 acres) are controlled by Manquiri. The JV/lease
agreements are subject to a 4% production royalty payable partially to the
Cooperatives and COMIBOL. During the current exploration stage, the properties
are subject to monthly payments totaling approximately US $25,500.
Of the six pallacos deposits which are controlled by Coeur and surround
Cerro Rico, three are of primary importance and are known as Huachajchi,
Diablo (consisting of Diablo Norte, Diablo Sur and Diablo Este) and Santa
Rita. During 2000, the Company completed an intensive field program which
culminated in the completion of a pre-feasibility study. The field program
included detailed exploration, bulk sampling, definition drilling,
metallurgical studies and environmental baseline data collection. Coeur
retained a third party geological consulting firm to incorporate the new data
from the field program in an updated resource estimate. As a result, the San
Bartolome resource increased 15%, to 41.1 million tons with an average grade
of 2.98 ounces of silver per ton or 122 million ounces of contained silver.
Approximately 93% of the new resource is classified as measured and indicated.
To assist with the pre-feasibility study, which was completed during
2000, Coeur retained third party engineering and geological consulting firms
to examine and verify all data used in the study, including the resource
estimation, process flow sheet design, site plan layout and detailed estimates
of all operating and capital costs. The study incorporates a cyanide milling
flow sheet with a wet pre-concentration screen circuit.
The study concludes that a 7,000 to 7,500 ton per day mining operation
could be constructed at an estimated capital cost of $60 to $70 million
(inclusive of working capital, owner's costs and taxes and duties). The
operation would be capable of producing, on average, 5.5 to 6.0 million ounces
of silver per year at an estimated cash cost of $3.50 per ounce over a
projected mine life in excess of eight years.
The Company is continuing with an optimization program designed to
further increase resources, enhance recoveries and examine equipment
-25-
alternatives. When complete and depending on the price of silver, the Company
will make a decision on proceeding to a full scale feasibility study.
Coeur spent approximately $2.7 million progressing the San Bartolome
project during 2000 and plans approximately $2.9 million of exploration and
project development expenditures during 2001.
The San Bartolome project involves risks that are inherent in any mining
venture, as well as particular risks associated with the location of the
project. The resource estimates indicated by the geologic studies performed to
date are preliminary in nature and may differ materially after further
development and metallurgical testing is completed. Also, managing mining
projects in the altiplano area of Bolivia, where Cerro Rico is located,
presents logistical challenges. The political and cultural differences of a
foreign country may also present challenges.
Year-end Mineralized Material - San Bartolome Project
1999 2000
---- ----
Tons (000's) 34,335 41,096
Ounces of gold per ton 3.05 2.97
Silver and Gold Prices
The Company's operating results are substantially dependent upon the
world market prices of silver and gold. The Company has no control over silver
and gold prices, 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 (as reported by Handy and Harman) and gold (London Metal Exchange
final quotation) per ounce during the periods indicated:
Year Ended December 31,
------------------------------------------------------------------------------
1997 1998 1999 2000
------------------ ------------------------------------------------------
High Low High Low High Low High Low
---------------------------------------------------------------------
Silver - $ 6.21 $ 4.21 $ 7.31 $ 4.72 $ 5.77 $ 4.91 $ 5.53 $ 4.60
Gold - $366.55 $283.00 $313.15 $273.40 $325.50 $252.80 $312.70 $263.80
Marketing
Coeur has historically sold the gold and silver from its mines both
pursuant to forward contracts and at spot prices prevailing at the time of
sale. Entering into forward sale contracts is a strategy which can be used to
enhance revenues and/or mitigate some of the risks associated with fluctuating
precious metals prices. The Company continually evaluates the potential
benefits of engaging in these strategies based on the then current market
conditions. Coeur had no future silver production hedged at December 31, 2000.
In order to ensure certain minimum cash flows and reduce the impact of any
declines in gold prices, however, the Company has established the prices to be
received in the future for a portion of its gold production by entering into a
combination of forward sales agreements and put and call options. At December
31, 2000, approximately 15% of the Company's estimated annual production of
gold over the next two years was committed under the Company's gold hedging
program.
-26-
Exploration Activity
Coeur, either directly or through its wholly-owned subsidiaries, owns,
leases and has interests in certain exploration-stage mining properties
located in the United States, Chile and Bolivia. Exploration and development
expenses of approximately $8.5 million and $9.4 million were incurred by the
Company in connection with exploration and development activities in 1999 and
2000, respectively.
In keeping with the Company's overall efforts to focus its resources,
Coeur conducted more than 70% of the 2000 exploration program on or near
existing properties where infrastructure and production facilities are already
in place. The Company will continue this exploration focus in 2001.
In addition to its exploration program around existing mines, the Company
also controls a number of early-stage prospects, the most promising of which
is the Wonder silver property located in Nevada. The property package consists
of 70 patented lode claims and a 123-acre townsite. Coeur acquired an option
to explore and purchase the property in September of 2000.
The Wonder mine, located on the property, was a historic silver and gold
producer where 6.7 million ounces of silver and 72,000 ounces of gold were
mined underground prior to the start of the Second World War.
Coeur is evaluating the potential to discover and develop bulk tonnage
deposits adjacent to the known steeply dipping high grade vein systems that
have been identified on the property.
During the fourth quarter of 2000, the Company conducted a limited
reverse circulation drill program on the property, testing the most obvious
targets. In addition, Coeur is still in the process of conducting a
property-wide surface reconnaissance program, which will continue in 2001.
Coeur's near mine exploration program in 2000 was devoted mainly to the
discovery and development of new reserves and resources at existing
operations, particularly at Fachinal, Rochester and Silver Valley. This
program resulted in the major new discovery of the Cerro Bayo deposit at
Fachinal.
Considerable progress was also made at Silver Valley and Rochester. The
program at Silver Valley significantly extended some of the most productive
veins at depth and identified a number of promising exploration targets to be
tested in 2001, especially in the West Argentine area of the mine.
At Rochester, a major reverse circulation drilling program added new
reserves and resources and also extended the limits of potentially economic
mineralization well beyond the current pit boundary, especially to the east
and south of the Rochester pit. In addition, mineralization was extended both
laterally and at depth at the Nevada Packard satellite deposit. Two new
-27-
mineralized zones, called the east and west zones, were also discovered during
the year.
Provisions of the Transaction Agreement and Shareholder Agreement with Asarco
As discussed above, Coeur consummated an acquisition of certain silver
assets and properties from Asarco on September 9, 1999 in exchange for 7.125
million shares of Coeur Common Stock. Pursuant to the Transaction Agreement
between Coeur and Asarco, dated May 13, 1999 and amended and restated as of
June 22, 1999, and which was approved by the Company's stockholders at the
Annual Meeting on September 8, 1999, Asarco must, during the five years
following the acquisition, obtain the consent of Coeur to any sale of such
shares, and Asarco may not sell any of such shares to anyone other than an
affiliate of Asarco or in a widely distributed public offering. Pursuant to
the Shareholder Agreement, dated as of September 9, 1999, between Coeur and
Asarco (the "Shareholder Agreement"), Asarco has the right to nominate two
directors for election to the Coeur Board of Directors. If Asarco voluntarily
sells or transfers its shares of Coeur Common Stock to any person other than
an affiliate and, as a result, its ownership is reduced to less than 10% of
Coeur's Outstanding Common Stock, Asarco will have the right to nominate only
one director, which right will continue so long as Asarco owns at least 1% of
Coeur's outstanding Common Stock. Under the Shareholder Agreement, Asarco
further agreed that without the consent of Coeur's Board of Directors, Asarco
will not acquire Common Stock or other voting securities of Coeur, or any
rights or options to buy any of such securities, if after any such
acquisition, Asarco would own more than 20% of the total voting power of all
outstanding voting equities securities of Coeur. Asarco has certain rights to
request Coeur to register Asarco's shares of Coeur Common Stock under the
Securities Act of 1933.
The Shareholder Agreement further provides that until Asarco holds less
than 10% of Coeur's outstanding Common Stock, the following actions by Coeur
will require the prior written consent of Asarco: (i) approval of capital
expenditure budgets and any single project requiring a capital expenditure in
excess of $100 million; (ii) approval of any financial institution, terms and
conditions and amounts with respect to any standard lines of credit or
borrowings to be utilized or secured by Coeur exceeding $100 million; (iii)
the creation of any lien in excess of $100 million on the assets of Coeur or
any of its subsidiaries; (iv) the discharge of auditors when a material
dispute exists in connection with the auditing of Coeur's books, records or
financial statements; (v) the liquidation, dissolution or general winding-up
of Coeur or any material subsidiary or the filing on behalf of Coeur or any
material subsidiary of any voluntary petition seeking relief under the
bankruptcy laws of the relevant jurisdiction; (vi) any material change in the
nature of Coeur's business from its current business of precious metals mining
and other businesses directly related thereto; (vii) the issuance by Coeur of
any Common Stock or other class of its capital stock for consideration other
than cash for a value in excess of $100 million; (viii) any material amendment
of the By-Laws or Articles of Incorporation of Coeur which would conflict
with, or in any way be inconsistent with, the terms of the Shareholder
Agreement; and (ix) any increase in the number of directors of Coeur above
eleven. Asarco will be deemed to have consented to any of the above actions if
-28-
(i) the action shall have been included as a specific agenda item for a
meeting of Coeur's Board of Directors, (ii) the written agenda together with
all relevant information relating to the proposed action shall have been
delivered to directors in advance of such meeting and (iii) at such meeting
directors nominated by Asarco vote in favor of such action. Also, no consent
of Asarco will be required for any Coeur debt restructuring, including any
exchange, subject to certain conditions.
Asarco was acquired by Grupo Mexico S.A. on November 17, 1999, subsequent
to Coeur's entering into the Shareholder Agreement. At the Company's Annual
Meeting of Shareholders on May 9, 2000, two persons designated by Grupo Mexico
S.A. de C.V. were elected to serve as members of the Company's Board of
Directors.
Government Regulation
General
During 2000, the Company was not cited for any violations of
environmental or operating regulations and permits.
The Company's commitment to environmental responsibility has been
recognized in 19 awards received since 1987, which included the Dupont/Conoco
Environmental Leadership Award, awarded to the Company on October 1, 1991 by a
judging panel that included representatives from environmental organizations
and the federal government and the "Star" award granted on June 23, 1993 by
the National Environmental Development Association, and the Environmental
Waikato Regional Council award for Golden Cross environmental initiative
granted on May 15, 1995. In 1994, the Company's Chairman and Chief Executive
Officer, and in 1997, the Company's Vice President of Environmental and
Governmental Affairs, were awarded the American Institute of Mining,
Metallurgical and Petroleum Engineers' Environmental Conservation
Distinguished Service Award.
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. Although such regulations have
never required the Company to close any mine and the Company is not presently
subject to any material regulatory proceedings related to such 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 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 Coeur 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, the more stringent implementation
-29-
thereof through judicial review or administrative action or the adoption of
new laws could have a materially adverse effect upon the Company.
For the years ended December 31, 2000, 1999 and 1998, the Company
expended $7.8 million, $7.0 million and $8.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties and expects to expend approximately $7.4 million for that purpose
in 2001. In addition, since the inception of the Kensington project through
December 31, 2000, the Company expended approximately $18.8 million on
environmental and permitting activities at the property and expects to spend
approximately $.6 million there for that purpose in 2001. The expenditures at
Kensington have been capitalized as part of its development cost. Future
environmental expenditures will be determined by governmental regulations and
the overall scope of the Company's operating and development activities.
Federal Environmental Laws
Mining wastes are currently exempt to a limited extent from the extensive
set of Environmental Protection Agency ("EPA") regulations governing hazardous
waste, although such wastes may be subject to regulation under state law as a
solid or hazardous waste. The EPA plans to develop a program to regulate
mining waste pursuant to its solid waste management authority under the
Resource Conservation and Recovery Act ("RCRA"). Certain processing and other
wastes are currently regulated as hazardous wastes by the EPA under RCRA. The
EPA is studying how mine wastes from extraction and benefication should be
managed and regulated. If the Company's mine wastes were treated as hazardous
waste or such wastes resulted in operations being designated as a "Superfund"
site under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund") for cleanup, material expenditures
would be required for the construction of additional waste disposal facilities
or for other remediation expenditures. Under CERCLA, any present owner or
operator of a Superfund site or an owner or operator at the time of its
contamination generally may be held liable and may be forced to undertake
remedial cleanup action or to pay for the government's cleanup efforts.
Additional regulations or requirements may also be imposed upon the Company's
tailings and waste disposal in Idaho and Alaska under the Federal Clean Water
Act ("CWA") and state law counterparts, and in Nevada under the Nevada Water
Pollution Control Law which implements the CWA. Air emissions are subject to
controls under Nevada's, Idaho's and Alaska's air pollution statutes
implementing the Clean Air Act.
Natural Resources Laws
The Company is subject to federal and state laws designed to protect
natural resources. In March 1996, the United States Government commenced a
lawsuit against various defendants, including the Company, asserting claims
under CERCLA and the CWA for alleged damages to federal natural resources in
the Coeur d'Alene River Basin of northern Idaho as a result of alleged
releases of hazardous substances from mining activities conducted in the area
since the late 1800s. On March 16, 2001, the Company and representatives of
the U.S. Government advised the United States District Court for the District
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of Idaho that the parties had reached an agreement in principle to settle the
suit, as more fully discussed under Item 3 below.
Proposed Mining Legislation
Recent legislative developments may affect the cost of and ability of
mining claimants to use the Mining Law of 1872, as amended, (the "Mining Act")
to acquire or use federal lands for mining operations. Since October 1994, a
moratorium has been imposed on processing new patent applications for mining
claims. Management believes that this moratorium will not affect the status of
patent applications outstanding prior to the moratorium.
Legislation is presently being considered in the U.S. Congress to change
the Mining Act under which the Company holds mining claims on public lands. It
is possible that the Mining Act will be amended or be replaced by more onerous
legislation in the future. The legislation under consideration, as well as
regulations under development by the Bureau of Land Management, contain new
environmental standards and conditions, additional reclamation requirements
and extensive new procedural steps which would be likely to result in delays
in permitting.
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the Mining Act. If
enacted, such legislation may materially impair the ability of the Company to
develop or continue operations which derive ore from federal lands. No such
bills have been passed and the extent of the changes, if any, which may be
enacted by Congress is not presently known. A significant portion of Coeur's
U.S. mining properties are on public lands. Any reform of the Mining Act or
regulations thereunder based on these initiatives could increase the costs of
mining activities on unpatented mining claims, 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
The mining properties of the Company that are located in Chile are
subject to various government laws and regulations pertaining to the
protection of the air, surface water, ground water and the environment in
general, as well as the health of the work force, labor standards and the
socioeconomic 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 Chile.
The Republic of Bolivia, where the San Bartolome project is located, has
adopted laws and guidelines for environmental permitting that are similar to
those in effect in the United States and other South American countries. A
recently established State Council for the Environment (CODEMA) has
responsibility to define policy, approve plans and programs, control
regulatory activities and enforce compliance. The permitting process requires
a thorough study to determine the baseline condition of the mining site and
-31-
surrounding area, an environmental impact analysis, and proposed mitigation
measures to minimize and offset the environmental impact of mining operations.
Maintenance of Claims
At mining properties in the United States, including the Rochester,
Kensington, Coeur, Galena and Caladay mines, operations are conducted in part
upon unpatented mining claims, as well as patented mining claims. Pursuant to
applicable federal law it is necessary, in order to maintain the unpatented
claims, to pay to the Secretary of the Interior, on or before August 31 of
each year, a claim maintenance fee of $100 per claim. This claim maintenance
fee is in lieu of the assessment work requirement contained in the Mining Law
of 1872. In addition, in 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 $3.50 per claim. No maintenance fees are payable for
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.
In Chile, operations are conducted upon mineral concessions granted by
the national government. For exploitation concessions (somewhat similar to a
U.S. patented claim), to maintain the concession, an annual tax is payable to
the government before March 31 of each year in the approximate amount of $1.14
per hectare. For exploration concessions, to maintain the right, the annual
tax is approximately $.30 per hectare. An exploration concession is valid for
a three-year period. It may be renewed for new periods unless a third party
claims the right to explore upon the property, in which event the exploration
concession must be converted to an exploitation concession in order to
maintain the rights to the concession.
Employees
The number of full-time employees at December 31, 2000 of Coeur d'Alene
Mines Corporation and its subsidiaries was:
United States Corporate Staff & Office 37
Coeur Silver Valley Mine 1 227
Coeur Rochester Mine 240
Kensington Property 5
Chilean Corporate Staff & Office 13
Chilean Exploration Staff 22
Petorca Mine 1 306
Fachinal Mine 1 8
Other 1
----
Total 859
The number of full-time employees at December 31, 2000 in jointly-owned
operations in which Coeur participates was:
Yilgarn Star 1 184
Golden Cross Mine 11
-----
Total 195
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1 Operations where a portion of the employees are represented by a
labor union.
The current collective agreement with Cia Minera CDE Petorca started June
1, 1999 and will expire May 31, 2002. The agreement with Cia Minera CDE
Fachinal Ltda. started September 1, 1999 and will expire August 31, 2001. The
Company also maintains a labor agreement at its Coeur Silver Valley mine. The
agreement is effective from October 1, 1999 through December 13, 2002 and is
with the United Steelworkers of America. Labor relations at all represented
mines are believed to be good.
Item 2. Properties.
Information regarding the Company's properties is set forth under Item 1
above.
Item 3. Legal Proceedings.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho by the United States against various
defendants, including the Company, asserting claims under CERCLA and the Clean
Water Act for alleged damages to federal natural resources in the Coeur
d'Alene River Basin of Northern Idaho as a result of alleged releases of
hazardous substances from mining activities conducted in the area since the
late 1800s.
On March 16, 2001, the Company and representatives of the U.S.
Government, including the Environmental Protection Agency, the Department of
Interior and the Department of Agriculture, reached an agreement in principle
to settle the lawsuit, which represents the only suit in which the Company has
been named as a party. Effectiveness of the settlement and related dismissal
of the lawsuit against the Company is subject to final Justice Department and
Court approval. Pursuant to the terms of the proposed settlement, the Company
will pay the U.S. Government a total of approximately $3.9 million, of which
$3.3 million will be paid within 15 days after effectiveness of the settlement
and the remaining $.6 million will be paid within 45 days after effectiveness
of the settlement. In addition, the Company will (i) pay the United States 50%
of any future recoveries from insurance companies for claims for defense and
indemnification coverage under general liability insurance policies in excess
of $600,000, (ii) accomplish certain cleanup work on the Mineral Point
property (i.e., the former Coeur Mine site) and Calladay property, and (iii)
make available certain real property to be used as a waste repository.
Finally, commencing five years after effectiveness of the settlement, the
Company will be obligated to pay net smelter royalties on its operating
properties, up to a maximum of $3 million, amounting to a 2% net smelter
royalty on silver production if the price of silver exceeds $6.50 per ounce,
and a $5.00 per ounce net smelter royalty on gold production if the price of
gold exceeds $325 per ounce. The royalty would run for 15 years commencing
-33-
five years after effectiveness of the settlement. When the settlement
agreement becomes effective, the Court will issue a consent decree dismissing
the action against the Company. The Company recorded $4.2 million of expenses
in the fourth quarter of 2000 in connection with the expected settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy and Harmon Refining Group, Inc.,
to which the Rochester Mine had historically sent approximately 50% of its
dore, filed for Chapter 11 bankruptcy. The Company had an inventory at the
refinery of approximately 67,000 ounces of silver and 5,000 ounces of gold
that has been delivered to certain creditors of Handy and Harmon. The dore
inventory has a cost basis of $1.7 million. On February 27, 2001, the Company
commenced a lawsuit against Handy and Harmon and certain others in the U.S.
Bankruptcy Court for the District of Connecticut seeking recovery of the
metals and/or damages. Although the Company believes it has a basis for full
recovery, it is premature to predict the outcome of the lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders.
--------------------------------------------------------------------
Not applicable.
Item 4A. Executive Officers of the Registrant.
-------------------------------------
The following table sets forth certain information regarding the
Company's current executive officers:
Office with Apointed
Name Age the Company Office
- ---- --- --------------- --------
Dennis E. Wheeler 58 Chairman of the Board 1992
President 1980
Chief Executive Officer 1986
Robert Martinez 54 Senior Vice President 1998
Chief Operating Officer
Geoffrey A. Burns 41 Senior Vice President
Chief Financial Officer 1999
Gary W. Banbury 48 Vice President - Administration 1999
and Human Resources
Steven L. Busby 41 Vice President - Engineering 2000
James K. Duff 56 Vice President 1996
Business Development
Dieter A. Krewedl 57 Vice President - Exploration 1998
-34-
Robert T. Richins 53 Vice President 1989
Environmental Services and
Governmental Affairs
Jeffrey C. Smith 47 Vice President - 2000
North American Operations
Wayne L. Vincent 39 Controller 1998
Chief Accounting Officer 1999
James N. Meek 49 Treasurer 1999
Messrs. Wheeler, Martinez, Richins, Duff, Banbury, Vincent and Meek have
been principally employed by the Company for more than the past five years.
Prior to his appointment as Senior Vice President and Chief Operating Officer
on May 15, 1998, Mr. Martinez had served as Vice President - Operations since
April, 1997 and previously was Vice President - Engineering, Operational
Services and South American Operations of the Company. Prior to his
appointment as Vice President and Chief Financial Officer in March 1999, Mr.
Burns was Chief Financial Officer and Controller for Prime Resources Group,
Inc and Homestake Canada Inc., respectively, from June 1992. He became a
Senior Vice President of the Company in June 2000. Prior to his appointment as
Vice President - Administration and Human Resources, Mr. Banbury held the
position of Vice President - Human Resources from 1998 to 2000, prior thereto
as Manager of Human Resources with the Company. Prior to his appointment as
Vice President - Business Development, Mr. Duff held the position of Director
of New Business Development. Prior to his appointment as Vice
President-Exploration on October 8, 1998, Mr. Krewedl was Vice President of
Exploration for Echo Bay Mines, LTD. Mr. Smith became Vice President and
General Manager of the Company's Rochester Mine in 1998 and was appointed Vice
President - North American Operations in July 2000. Prior to joining the
Company in 1998, Mr. Smith had spent 11 years with Echo Bay Mines Ltd., the
last four years of which he was General Manager of the McCoy/Cove Mine in
Nevada. Prior to his appointment as Controller and Chief Accounting Officer,
Mr. Vincent held the position of Manager of Financial Accounting with the
Company for the prior eight years. Prior to his appointment as Treasurer, Mr.
Meek held the position of Assistant Treasurer and Manager of Budget and
Forecasting. Prior to his appointment as Vice President - Engineering on
January 1, 2000, Mr. Busby held the position of Director - Technical Services.
Part II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.
---------------------------------------------------------------------
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") and the Pacific Coast Exchange. 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:
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High Low
-------- ---------
1999: First Quarter $ 6.0000 $ 3.8750
Second Quarter 5.0000 3.7500
Third Quarter 5.0625 4.0000
Fourth Quarter 5.2500 3.1250
2000: First Quarter $4.1250 $ 2.8750
Second Quarter 3.8750 2.3125
Third Quarter 2.3750 1.3125
Fourth Quarter 1.6875 0.8125
The Company paid per share cash distributions or dividends on its Common
Stock of $.15 on April 19, 1996. In March 1997, the Company announced the
Board's decision not to pay a dividend on its Common Stock in April 1997.
Future distributions or dividends on the Common Stock, if any, will be
determined by the Company's Board of Directors and will depend upon the
Company's results of operations, financial conditions, capital requirements
and other factors.
At March 16, 2001, there were 6,185 record holders of the Company's
outstanding Common Stock.
-36-
PART II
Item 6. Selected Financial Data
The following table summarizes certain selected consolidated financial
data with respect to the Company and its subsidiaries and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report.
Years ended December 31,
---------------------------------------------------------------------------------
Income Statement Data: 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands except per share data)
Revenues:
Sales of metal $90,724 $131,161 $102,505 $86,318 $ 93,174
Other income(1) 13,348 20,739 9,469 22,628 8,032
------- ------- ------- ------- --------
Total revenues 104,072 151,900 111,974 108,946 101,206
Costs and expenses:
Production costs 72,368 103,254 70,163 66,896 86,661
Depreciation and depletion 10,166 31,883 28,555 19,620 20,785
Administrative and general 11,565 12,910 12,249 9,281 9,714
Mining exploration 7,676 7,925 9,241 8,518 9,412
Interest expense 3,635 10,253 13,662 16,408 16,999
Write-down of mining properties
and other(2) 54,416 - 223,597 20,204 21,236
------- -------- ------- ------- --------
Total expenses 159,826 166,225 357,467 140,927 164,807
Net loss from operations before
Income taxes (55,754) (14,325) (245,493) (31,981) (63,601)
(Provision) benefit for
income taxes 1,184 242 (919) (332) (348)
-------- -------- ---------- --------- -----------
Loss before extraordinary item (54,570) (14,083) (246,412) (32,313) (63,949)
Extraordinary item - early
retirement of debt (net of
tax of zero)(3) - - 12,158 3,990 16,136
--------- --------- ----------- --------- -----------
Net loss $ (54,570) $ (14,083) $(234,254) $(28,323) (47,813)
========== ========== ========== ========= ===========
Net loss attributable
to Common Shareholders $ (62,967) $ (24,615) $(244,786) $ (38,855) $ (49,993)
========== ========== ========== ========== ==========
Basic and Diluted Earnings Per
Share Data:
Net loss before
extraordinary item $ (2.93) $ (1.12) $ (11.73) $ (1.77) $ (1.87)
Extraordinary item - early
retirement of debt(net of tax) - - .55 .16 .46
---------- ---------- ---------- ---------- ----------
Net loss attributable
to common shareholders $ (2.93) $ (1.12) $ (11.18) $ (1.61) $ (1.41)
========== ========== ========== ========== ==========
Cash dividends paid per
common share $ .15 $ - $ - $ - $ -
========== ========== ========== ========== ==========
Weighted average shares of
common stock 21,465 21,890 21,899 24,185 35,439
========== ========== ========== ========== ==========
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December 31,
----------------------------------------------------------------------------------------------------------------
Balance Sheet Data: 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands)
Total assets $580,330 $658,702 $365,980 $354,047 $271,377
Working capital $179,626 $221,610 $153,837 $157,885 $ 92,982
Long-term liabilities $202,566 $298,152 $258,340 $264,709 $228,659
Shareholders' equity $346,198 $322,089 $ 77,067 $ 68,165 $ 17,440
(1) Included in other income for the year 2000 are: (i) a gain recorded on
mark to market of the Company's gold call positions sold of $4.1 million, and
(ii) loss on investment in Pan American Silver Corp. stock of 2.3 million.
Included in other income for 1999 are: (i) a gain of $21.1 million in
settlement of a lawsuit, and (ii) a loss recorded on mark to market of the
Company's gold call positions sold of $4.3 million.
Included in other income for 1997 are: (i) the receipt of $8.0 million of
insurance proceeds for business interruption and property damage at the Golden
Cross Mine, and (ii) a gain of $5.3 million arising from the sale of gold
purchased in the open market which was delivered pursuant to fixed price
forward contracts in the first quarter of 1997.
(2) As a consequence of the February 7, 2001 sale of the Company's
shareholding in Gasgoyne Gold Mines NL, which had an effective date of
December 31, 2000, the Company recorded a write-down of $12.2 million to
reflect the excess book value of its shareholding in Gasgoyne above the $15.6
million sales price.
On March 16, 2001, representatives of the United States and the Company
reached an agreement in principle to settle the lawsuit filed by the
Government in March 1996 in the U.S. District Court for the District of Idaho
alleging response cost damages to federal natural resources in the Coeur
d'Alene River Basin as a result of alleged releases of hazardous substances
from prior mining activities in the area. The terms of the proposed
settlement, which are subject to final Justice Department and Court approval
and are discussed above under Item 3 ("Legal Proceedings"), provide for
payments by the Company to the Government of approximately $3.9 million plus a
maximum of $3.0 million of future conditional net smelter royalty payments. As
a result, the Company recorded an expense of approximately $4.2 million for
settlement of this lawsuit, including $3.9 million in payments and estimated
legal fees and other costs.
During the fourth quarter of 1999, the Company evaluated the recoverability of
its investment in Yilgarn Star Mine. Using a $325 per ounce gold price and
based on undiscounted future cash flows, in accordance with the standards set
fourth in SFAS 121, the Company determined that its investment in property,
plant and equipment at the Yilgarn Star Mine in Australia was impaired. The
total amount of the impairment, based on discounted cash flows was $16.2
million, and was recorded in the fourth quarter of 1999.
During the first quarter of 1998, the Petorca mine continued to operate at a
loss in spite of on-going efforts to improve ore grades and reduce operating
costs. An evaluation of operations was completed and as a result of this
evaluation, the Company determined that a write-down was required to properly
reflect the estimated realizable value of Petorca's mining properties and
assets in accordance with the standards set forth in SFAS 121. Consequently,
the Company recorded a non-cash write-down for impairment in the first quarter
of 1998 of $54.5 million relating to its investment in the Petorca mine. The
charge included approximately $8.3 million to satisfy the estimated
remediation and reclamation liabilities at Petorca and to provide for
estimated termination costs.
-38-
During the fourth quarter of 1998, the Company evaluated the recoverability of
investments in both the Fachinal Mine and Kensington property. Using a $350
per ounce gold price and based on estimated undiscounted future cash flows,
the Company determined that its investments in property, plant and equipment
at the Fachinal Mine in Southern Chile and at the Kensington property in
Alaska were impaired. The total amount of the impairment based on discounted
cash flows was $42.9 million and $121.5 million for the Fachinal Mine and
Kensington property, respectively, at December 31, 1998 and was recorded in
the fourth quarter.
In December 1998, the Company performed an analysis of the closure accrual for
the Golden Cross Mine. As a result, the Company determined that there was a
shortfall in the closure accrual and recognized an additional expense of $4.3
million.
During the second quarter of 1996, the Company determined that certain
adjustments were required to properly reflect the estimated net realizable
value of the Golden Cross mine. The Golden Cross Mine and the nearby Waihi
East property were written down by approximately $53 million due to increased
expenditure requirements related to remediation of ground movement which
impacted the tailings impoundment area and the ultimate viability of the mine.
The write-down included amounts necessary to increase the Company's recorded
remediation and reclamation liability at Golden Cross to approximately $7.0
million as of December 31, 1996. In addition, the Faride property in Chile was
written down by $1.2 million due to management's decision not to exercise its
final option payment on the project.
(3) During July, September and December 1999, the Company repurchased
approximately $10.2 million principal amount of its outstanding 6% Convertible
Subordinated Debentures due 2002 for a total purchase price of approximately
$6.2 million, excluding purchased interest of $.2 million. Associated with
-39-
this transaction, the Company eliminated $.1 million of capitalized bond
issuance cost. As a result, the Company has recorded an extraordinary gain of
approximately $4 million, net of taxes of zero, during 1999 on the reduction
of its indebtedness.
During July, August and December 1998, the Company repurchased approximately
$4.0 million principal amount of its outstanding 6% Convertible Subordinated
Debentures due 2002, approximately $36.5 million principal amount of its 7
1/4% Convertible Subordinated Debentures due 2005, and approximately $1.6
million principal amount of its 6.375% Convertible Subordinated Debentures due
2004 for a total purchase price of approximately $28.5 million, excluding
purchased interest of approximately $616,000. Associated with this
transaction, the Company eliminated $1.4 million of capitalized bond issuance
costs. The Company anticipates that as a result of the cancellation of the
repurchased debentures, annual interest paid by the Company will be reduced by
approximately $3.0 million. As a result of the buyback of these debentures,
the Company has recorded an extraordinary gain of approximately $12.2 million,
net of taxes, during 1998 on the reduction of its indebtedness.
In June, 2000, the Company repurchased approximately $7.0 million principal
amount of its 6% Convertible Subordinated Debentures due 2002 pursuant to a
cash tender offer that commenced on May 9, 2000 and expired as scheduled on
June 8, 2000. The price paid by the Company for the repurchased debentures was
approximately $5.0 million plus accrued and unpaid interest of $3,500. During
the quarter ended June 30, 2000, the Company recorded an extraordinary gain of
approximately $1.1 million, net of tender offer expenses, as a result of the
repurchase.
During the fourth quarter of 2000, the Company repurchased approximately $2.1
million principal amount of its 6% Convertible Subordinated Debentures and
approximately $22.0 million principal amount of its outstanding 7 1/4%
Convertible Subordinated Debentures due 2005. The price paid by the Company
for those repurchased debentures was approximately $8.9 million. As a result
of those additional repurchases, the Company recorded an extraordinary gain of
approximately $15.0 million.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
General
The results of the Company's operations are significantly affected by the
market prices of gold and silver which fluctuate widely and are affected by
many factors beyond the Company's control, including interest rates,
expectations regarding inflation, currency values, governmental decisions
regarding the disposal of precious metals stockpiles, global and regional
political and economic conditions, and other factors.
Operating Mines
The Company owns and operates the following producing mines:
1) Rochester mine, a heap leach silver and gold mine in Nevada
2) Galena mine, an underground silver mine in the Coeur d'Alene district of
Idaho
3) Petorca mine, an underground gold mine in Chile; and
4) Fachinal mine, an open pit and underground gold and silver mine in Chile
Prior to the sale in February 2001, the Company previously owned 50% of
Gasgoyne Gold Mines NL, an Australian gold mining company ("Gasgoyne"), which
owns 50% of the Yilgarn Star mine in Western Australia and various other
exploration properties. On February 7, 2001, the Company sold this interest to
Sons of Gwalia for A$28.1 million (US$15.6 million).
On April 28, 1998, the Company discontinued mining operations at the
Golden Cross mine in New Zealand, in which the Company had an 80% operating
interest.
Total Production and Reserves
The Company's total production in 2000 was 11.7 million ounces of silver
and 145,000 ounces of gold, compared to 9.6 million ounces of silver and
152,000 ounces of gold in 1999. Coeur estimates that production in 2001 will
be approximately 11.5 million ounces of silver and 82,000 ounces of gold.
Total estimated proven and probable reserves at December 31, 2000 were
approximately 88.1 million ounces of silver and 2.4 million ounces of gold,
compared to silver and gold reserves at December 31, 1999 of approximately
89.3 million ounces and 2.6 million ounces, respectively.
SFAS 121 Impairment Reviews; Write-down of Mining Properties
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the Company reviews the carrying value of its
assets whenever events or changes in circumstances indicate that the carrying
amount of its assets may not be fully recoverable. Generally, SFAS 121
provides that an asset impairment exists if the total amount of the estimated
-41-
future undiscounted cash flows of the asset are less than the carrying value
of the asset. If it is determined that impairment exists, the amount of the
impairment loss that should be recorded, if any, is the amount by which the
carrying value of the asset exceeds its fair value.
As of December 31, 2000, due to the continuing low gold price, the
Company reviewed the carrying value of all its properties using long-term
prices starting at $275 and increasing to $300 per ounce for gold and $4.90
increasing to $5.50 per ounce for silver. As a result of this review, the
Company determined that the undiscounted estimated future cash flows were
sufficient to fully recover the carrying value of its investments. During the
year ended December 31, 1999, based on an assumed gold price of $325 per ounce
and a silver price of $5.50 per ounce, the Company recorded a SFAS 121
write-down of $16.2 million to its investment in Gasgoyne.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
-----------------------------------------------------------------------------
Sales of Metal
Sales of concentrates and dore increased by $6.9 million, or 7.9%, for
the year ended December 31, 2000 as compared to the same period of 1999,
primarily attributable to higher silver production levels at the Rochester and
Silver Valley mines, offset in part by decreases in the realized silver price
and the amount of gold produced. During 2000, the Company produced a total of
11.7 million ounces of silver and 145,000 ounces of gold compared to 9.6
million ounces of silver and 152,000 ounces of gold in 1999.
Spot silver and gold prices averaged $5.00 and $279 per ounce,
respectively, in 2000 compared to $5.25 and $279 per ounce, respectively, in
1999. During 2000, the Company realized average silver and gold prices of
$4.94 and $307 per ounce, respectively, compared with realized prices of $5.23
and $319, respectively, in 1999.
Other Income
Interest and other income decreased by $14.6 million, or 65%, in 2000
compared to 1999. The decrease was primarily due to a $21.1 million net gain
from the favorable settlement in the third quarter of 1999 of a lawsuit with
Cyprus Minerals Company relating to the Golden Cross mine, reduced by a loss
of $4.3 million arising from the non-cash mark to market adjustment on gold
call options sold by the Company.
-42-
Expenses and Write-downs
1999 2000
---- ----
Production Costs 66.9 86.7
Depreciation/Depletion 19.6 20.8
Administrative and General 9.3 9.7
Exploration 8.5 9.4
Interest Expenses 16.4 17.0
Write-down and Other 20.2 21.2
($ millions)
For the year ended December 31, 2000, total expenses increased by $23.9
million. The increase is primarily attributable to the increased production
costs as a result of the increase in ownership of the Galena mine in increased
production costs at the Fachinal and Petorca mines.
Production costs increased by $19.8 million in 2000. The increase was
primarily due to increased ownership of the Galena mine from 50% to 100% in
September 1999 and increased cash costs per ounce at the Fachinal and Petorca
mines. Depreciation and depletion expense increased $1.2 million in 2000
compared to 1999, primarily due to higher production at the Rochester and
Galena mines. Administration and general expenses increased $.4 million in
2000, 5% above 1999. Exploration expense for 2000 increased by $.9 million, or
10%, compared to 1999.
Cash costs per ounce of silver equivalent at the Rochester mine decreased
to $3.90 in 2000 compared to $3.97 per ounce in 1999. The decrease was due to
operating improvements that included increasing the capacity of the conveyor
system and the crushing circuit as well as increasing solution flow on the
leach pad by approximately 15%. Cash costs at Silver Valley were $4.59 per
silver ounce in 2000 compared to $5.09 in 1999. The decrease was primarily a
result of improved ore grades from more productive vein structures at depth
and an increase in mill throughput. Cash costs at the Petorca mine in 2000
averaged $345 per ounce of gold versus $271 in 1999. The increase was the
result of the mining of lower grade ore, partially offset by increases in tons
mined and in mill throughput. Cash costs at Fachinal were $447 per ounce for
the year ended December 31, 2000 compared to $304 per ounce in the previous
year. The increase was primarily due to a shortfall in production partially
due to lower ore grades and a reduction in tons milled, but mainly due to
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continuation of severe winter weather conditions that affected most of
southern Chile. The cash costs at the Yilgarn Star mine for the year ended
December 31, 2000 were $227 per gold ounce compared to $287 per gold ounce for
1999. The reduction in cash costs was achieved in spite of the scheduled
mining of lower grade ore, by implementing operating improvements to the
crushing circuit, and a weaker Australian dollar.
Write-downs of mining properties and other expenses amounted to $21.2
million in 2000, primarily as a result of (i) a write-down of $12.2 million
reflecting the excess book value of the Company's shares in Gasgoyne above the
$15.6 million price for which the Company sold such shares on February 7,
2001, and (ii) recognition of $4.2 million in connection with the expected
settlement of the federal natural resources lawsuit, of which $3.9 million
represents payments expected to be made by the Company to the U.S. Government
and the balance consists of estimated land transfer expenses and legal fees.
Write-downs of mining properties and other expenses in 1999 amounted to $20.2
million primarily as a result of the $16.2 million SFAS 121 impairment
write-down of the Yilgarn Star mine.
Net Loss
The Company's loss before income taxes and extraordinary items was $63.6
million in 2000 compared to a loss before income taxes and extraordinary items
of $32.0 million in 1999. The Company reported an income tax provision of $.3
million for 2000 and 1999. In 2000, the Company recorded an extraordinary gain
on the early retirement of debt (net of taxes) of $16.1 million and paid $2.2
million in preferred stock dividends. As a result, the Company reported a net
loss attributable to common shareholders of $50.0 million, or $1.41 per share
in 2000, compared to $38.9 million, or $1.61 per share in 1999. The reduced
per share amount of the net loss attributable to common shareholders in 2000,
notwithstanding the increased total dollar amount of such net loss, was due to
the increase in the weighted average number of shares of common stock
outstanding during 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
--------------------------------------------------------------------
Sales of Metal
Sales of concentrates and dore' decreased by $16.2 million, or 15.8%, for
the year ended December 31, 1999 as compared to the same period of 1998
primarily as a result of lower production levels at Rochester and Fachinal
mines and a decreased realized silver price. During 1999, the Company produced
a total of 9,596,833 ounces of silver and 151,656 ounces of gold compared to
10,703,178 ounces of silver and 209,959 ounces of gold in 1998. Spot silver
and gold prices averaged $5.25 and $279 per ounce, respectively, in 1999
compared to $5.53 and $294 per ounce in 1998. During 1999, the Company
realized average silver and gold prices of $5.23 and $319, respectively,
compared with realized prices of $5.37 and $312 in 1998.
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Other Income
Interest and other income increased by $13.2 million, or 139%, in 1999
compared to 1998. The increase was primarily the result of: (i) the receipt of
$21.1 million in net proceeds from the favorable settlement in the third
quarter of 1999 of a lawsuit with Cyprus Minerals Company relating to the
Golden Cross mine, offset by (ii) a loss of $4.3 million arising from the non
cash mark to market adjustment on gold call options sold by the Company.
Expenses and Write-downs
1999 1998
---- ----
Production Costs 66.9 70.2
Depreciation/Depletion 19.6 28.6
Administrative and General 9.3 12.2
Exploration 8.5 9.2
Interest Expenses 16.4 13.7
Write-down and Other 20.2 223.6
($ millions)
For the year ended December 31, 1999, total expenses decreased by $216.5
million. The decrease is primarily attributable to the combined $218.9 million
write-downs of the Petorca and Fachinal mines and the Kensington property and
an adjustment of $4.2 million to the closure accrual at Golden Cross in the
fourth quarter of 1998 compared to the $16.2 million write-down of the
Company's investment in Gasgoyne in 1999.
Production costs decreased by $3.3 million in 1999. The decrease was
primarily due to lower production levels in 1999. Depreciation and depletion
decreased $9.0 million in 1999 compared to 1998, primarily due to lower
production and the reduction in carrying value at the Fachinal mine in 1998.
Administration and general expenses decreased $3.0 million in 1999, or 24%
below 1998. The decrease was due to the implementation of a comprehensive cost
reduction program. Exploration expense for 1999 decreased by $.7 million, or
8%, under 1998.
The cash costs per ounce of silver equivalent at the Rochester mine
decreased to $3.97 in 1999 compared to $4.07 per ounce in 1998. The decrease
was due to a lower strip ratio in the open pit in 1999. Cash costs at Silver
Valley were $5.09 per silver ounce in 1999 compared to $4.39 in 1998. Cash
costs at the Petorca Mine in 1999 averaged $271 per ounce of gold versus $336
in 1998. The decrease was the result of improved productivity following
implementation of a modified mining plan. Cash costs at Fachinal were $304 per
ounce for the year ended December 31, 1999 compared to $314 per ounce in the
previous year. The decrease was primarily a result of cost savings programs
-45-
implemented in 1999. The cash costs at the Yilgarn Star mine for the year
ended December 31, 1999 were $287 per gold ounce compared to $215 per gold
ounce for 1998. The increase resulted from: (i) the planned transition from
open pit mining to higher cost underground mining, (ii) reduced ore grade and
throughput, particularly in the fourth quarter; and (iii) flooding of portions
of the underground mine by unusually heavy rains which delayed the development
and extraction of higher-grade ore.
Net Loss
The Company's loss before income taxes and extraordinary items was $32.0
million in 1999 compared to a loss of $245.5 million in 1998. The Company
reported an income tax provision of $.3 million for 1999, compared to $.9
million in 1998. In 1999, the Company recorded an extraordinary gain on early
retirement of debt (net of taxes) of $4.0, the Company reported a net loss
attributable to common shareholders of $38.9 million, or $1.61 per share, in
1999, compared to $244.8 million, or $11.18 per share in 1998.
Liquidity and Capital Resources
Working Capital; Cash and Cash Equivalents
The Company's working capital at December 31, 2000 was approximately
$93.0 million compared to $157.9 million at December 31, 1999. The ratio of
current assets to current liabilities was 4.7 to one at December 31, 2000
compared to 8.5 to one at December 31, 1999.
Net cash used in operating activities in 2000 was $23.8 million compared
with $2.9 million provided by operating activities in 1999. The most
significant non-cash items partially offsetting the net loss from continuing
operations in 2000 were $26.7 million of depreciation, depletion and
amortization expense, and non-cash write-downs of $14.5 million.
A total of $10.0 million was used in investing activities in 2000
compared to $26.1 million used in 1999. The most significant investing
activities in 2000 were: (i)$15.2 million in proceeds from the sale of
short-term investments, offset by $12.7 million used to purchase short-term
investments, (ii) $1.8 million spent on developmental properties, and (iii)
$9.6 million spent on operational mining properties.
The Company's financing activities used $17.9 million during 2000
compared to $17.2 million used in 1999. The most significant financing
activities in 2000 were the $14.9 million used to repurchase long-term debt
and $2.6 million in dividends paid to preferred shareholders. As a result, the
Company's net cash decreased in 2000 by $51.7 million compared with a net cash
decrease of $40.4 million in 1999.
The Company's capital budget for the year 2001 is estimated at $8.7
million. Expenditures for remediation and reclamation for the year 2001 are
-46-
estimated to be $1.7 million. The Company has budgeted $7.6 million for
exploration and pre-feasibility development in 2001, primarily to add reserves
at its operating properties and to continue to evaluate the San Bartolome
project in Bolivia. The Company expects that all of these cash requirements
will be fulfilled by cash flow from continuing operations augmented by its
cash on hand.
Conversion of MARCS to Common Shares
On March 15, 2000, the Company mandatorily converted its 7,077,833
outstanding shares of MARCS into 7,863,000 shares of common stock, and the
final dividend payment of $2.6 million on the MARCS was made as of that date.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho by the United States against various
defendants, including the Company, asserting claims under CERCLA and the Clean
Water Act for alleged damages to federal natural resources in the Coeur
d'Alene River Basin of Northern Idaho as a result of alleged releases of
hazardous substances from mining activities conducted in the area since the
late 1800s.
On March 16, 2001, the Company and representatives of the U.S.
Government, including the Environmental Protection Agency, the Department of
Interior and the Department of Agriculture, reached an agreement in principle
to settle the lawsuit, which represents the only suit in which the Company has
been named as a party. Effectiveness of the settlement and related dismissal
of the lawsuit against the Company is subject to final Justice Department and
Court approval. Pursuant to the terms of the proposed settlement, the Company
will pay the U.S. Government a total of approximately $3.9 million, of which
$3.3 million will be paid within 15 days after effectiveness of the settlement
and the remaining $.6 million will be paid within 45 days after effectiveness
of the settlement. In addition, the Company will (i) pay the United States 50%
of any future recoveries from insurance companies for claims for defense and
indemnification coverage under general liability insurance policies in excess
of $600,000, (ii) accomplish certain cleanup work on the Mineral Point
property (i.e., the former Coeur Mine site) and Calladay property, and (iii)
make available certain real property to be used as a waste repository.
Finally, commencing five years after effectiveness of the settlement, the
Company will be obligated to pay net smelter royalties on its operating
properties, up to a maximum of $3 million, amounting to a 2% net smelter
royalty on silver production if the price of silver exceeds $6.50 per ounce,
and a $5.00 per ounce net smelter royalty on gold production if the price of
gold exceeds $325 per ounce. The royalty would run for 15 years commencing
five years after effectiveness of the settlement. When the settlement
agreement becomes effective, the Court will issue a consent decree dismissing
the action against the Company. The Company recorded $4.2 million of expenses
in the fourth quarter of 2000 in connection with the expected settlement.
-47-
Proposed Legislation
Recent legislative developments may affect the cost of and ability of
mining claimants to use the Mining Law of 1872, as amended, (the "Mining Act")
to acquire or use federal lands for mining operations. Since October 1994, a
moratorium has been imposed on processing new patent applications for mining
claims. Management believes that this moratorium will not affect the status of
patent applications outstanding prior to the moratorium.
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the Mining Act. If
enacted, such legislation may materially impair the ability of the Company to
develop or continue operations which derive ore from federal lands. No such
bills have been passed and the extent of the changes, if any, which may be
enacted by Congress are not presently known.
Environmental Compliance Expenditures
For the years ended December 31, 2000, 1999 and 1998, the Company
expended $7.8 million, $7.0 million and $8.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties. Such activities at the Rochester, Golden Cross, Petorca and
Fachinal mines include monitoring, bonding, earth moving, water treatment and
revegetation activities. In addition, since the inception of the Kensington
project through December 31, 2000, the Company had expended a total of $18.8
million on environmental and permitting activities at the property.
The Company estimates that environmental compliance expenditures at its
Kensington developmental property during 2001 will be $.6 million to obtain
permit modifications and other regulatory authorizations. Future environmental
expenditures will be determined by governmental regulations and the overall
scope of the Company's operating and development activities. The Company
places a very high priority on its compliance with environmental regulations.
Capitalized Development Expenditures
During 2000, the Company expended $1.6 million for engineering,
optimization studies and permitting costs at the Kensington property, $2.2
million at the Rochester mine, $2.6 million for continuing mine development at
the Fachinal mine, $.7 million at the Petorca mine and $6.4 million at the
Galena mine. During 2001, the Company plans to expend $2.0 million at
Kensington, $1.6 million for developmental activities at the Rochester mine,
$2.9 million at the Galena mine. If the Company were to decide to construct a
mining facility at Kensington, the Company currently estimates the cost at
approximately $181 million over an eighteen-month period for construction and
development.
Realization of Net Operating Loss Carryforwards
The Company has reviewed its net deferred tax asset, together with net
operating loss carryforwards, and has not recognized potential tax benefits
-48-
arising therefrom on the view that it is more likely than not that the
deferred deductions and losses will not be realized in future years. In making
this determination, the Company has considered the Company's history of tax
losses incurred since 1989, current gold and silver prices and the ability of
the Company to use accelerated depletion and amortization methods in the
determination of taxable income.
Issuance of Common Stock in Exchange for Outstanding Debentures in March 2001
On March 19, 2001, the Company issued a total of 1,787,500 shares of
Common Stock to two holders of a total of $5 million principal amount of the
Company's outstanding 7 1/4% Convertible Subordinated Debentures due 2005 in
exchange for such Debentures. The Company's financial statements for the
quarter ending March 31, 2001, will record an extraordinary gain of
approximately $3.0 million representing the excess of the extinguished
principal amount of that Debenture liability over the value of the shares
issued by the Company in exchange, net of offering costs and taxes. The
Company paid approximately $140,000 of accrued interest on the Debentures in
connection with the exchange transactions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to various market risks as a part of its
operations. In an effort to mitigate losses associated with these risks, the
Company may, at times, enter into derivative financial instruments. These may
take the form of forward sales contracts, foreign currency exchange contracts
and interest rate swaps. The Company does not actively engage in the practice
of trading derivative securities for profit. This discussion of the Company's
market risk assessments contains "forward looking statements" that contain
risks and uncertainties. Actual results and actions could differ materially
from those discussed below.
The Company's operating results are substantially dependent upon the
world market prices of silver and gold. The Company has no control over silver
and gold prices, which can fluctuate widely and are affected by numerous
factors, such as supply and demand and investor sentiment. In order to
mitigate some of the risk associated with these fluctuations, the Company will
at times, enter into forward sale contracts and/or, put/call option contracts
to hedge the effects of price fluctuations. The Company continually evaluates
the potential benefits of engaging in these strategies based on current market
conditions. The Company may be exposed to nonperformance by counterparties or,
during periods of significant price fluctuation, margin calls as a result of
its hedging activities.
The Company operates and therefore incurs expenses in Bolivia and Chile.
This exposes the Company to risks associated with fluctuations in the exchange
rate, relative to the U.S. dollar, of the currencies involved. As part of its
program to manage foreign currency risk, the Company will enter into foreign
currency forward exchange contracts. These contracts enable the Company to
purchase a fixed amount of foreign currency at a predetermined price. Gains
and losses on foreign exchange contracts that are related to firm commitments
are designated as hedges and are deferred and recognized in the same period as
-49-
the related transaction. All other contracts that do not qualify as hedges are
marked to market and the resulting gains or losses are recorded in income,
currently. The Company continually evaluates the potential benefits of
entering into these contracts to mitigate foreign currency risk and proceeds
when it believes that the exchange rates are most beneficial.
All of the Company's long-term debt at December 31, 2000 is fixed rate
based. The Company's exposure to interest rate risk, therefore, is limited to
the amount it could pay at current market rates. The Company currently does
not have any derivative financial instruments to offset the fluctuations in
the market interest rate. It may choose to use instruments, such as interest
rate swaps, in the future to manage the risk associated with interest rate
changes.
See Note M - Financial Instruments, to the consolidated financial
statements for a table which summarizes the Company's gold and foreign
exchange hedging activities at December 31, 2000.
Long-term debt obligations and related interest rates are presented in
detail in Note I to the consolidated financial statements.
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Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The consolidated financial statements required hereunder and contained
herein are listed under Item 14(a) below.
Item 9. Changes and Disagreements With Accountants on Accounting and Financial
Disclosure
----------------------------------------------------------------------
Not applicable
Part III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
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
an amendment to this Form 10-K to be filed not later than 120 days after the
end of the fiscal year covered by this report. Information regarding the
Company's executive officers is set forth above under Item 4A of this Form
10-K.
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 an amendment to this
Form 10-K to be filed not later than 120 days after the end of the fiscal year
covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
---------------------------------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference from an amendment to this
Form 10-K to be filed not later than 120 days after the end of the fiscal year
covered by this report.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference from an amendment to this
Form 10-K to be filed not later than 120 days after the end of the fiscal year
covered by this report.
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Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) The following financial statements are filed herewith:
(1) The following consolidated financial statements of Coeur d'Alene
Mines Corporation and subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 1999 and 2000.
Consolidated Statements of Operations - Years Ended December 31,
1998, 1999 and 2000.
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1998, 1999 and 2000.
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1999 and 2000.
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K: No Current Reports on Form 8-K were filed by the
Company during the fourth quarter of 2000.
(c) Exhibits: The following listed documents are filed as Exhibits to this
report:
3(a) - Articles of Incorporation of the
Registrant and amendments thereto.
(Incorporated herein by reference to
Exhibit 3(a) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.)
3(b) - Bylaws of the Registrant and amendments
thereto. (Incorporated herein by
reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.)
3(c) - Certificate of Designations, Powers and
Preferences of the Series A Junior
Preferred Stock of the Registrant, as
filed with Idaho Secretary of State on
May 25, 1989 (Incorporated by reference
to Exhibit 4(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989.)
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3(d) - Restated and Amended Articles of
Incorporation of the Registrant as filed
with the Secretary of State of the State
of Idaho effective September 13, 1999.
(Incorporated herein by reference to
Exhibit 3 to the Company's Quarterly
Report on Form 10-Q for the quarter
ended September 30, 1999.)
4(a) - Specimen certificate of the Registrant's
stock. (Incorporated herein by reference
to Exhibit 4 to the Registrant's
Registration Statement on Form S-2 (File
No. 2-84174).)
4(b) - Form of Indenture, dated as of October
15, 1997, between the Registrant and
Bankers Trust Company, as Trustee.
(Incorporated herein by reference to
Exhibit No. 4 to the Registrant's
Current Report on Form 8-K filed on
October 16, 1997.)
10(a) - Executive Compensation Program.
(Incorporated herein by reference to
Exhibit 10(e) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1989.) *
10(b) - Lease agreement, dated as of October 10,
1986, between Manufacturers Hanover
Commercial Corporation and
Coeur-Rochester, Inc. (Incorporated
herein by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K,
dated October 10, 1986.)
10(c) - Indenture, dated as of June 10, 1987,
between the Registrant and Citibank,
N.A., as Trustee, relating to the
Registrant's 6% Convertible Subordinated
Debentures Due 2002. (Incorporated
herein by reference to Exhibit 4 to the
Registrant's Current Report on Form 8-K
dated June 10, 1987.)
10(d) - Agreement, dated January 1, 1994,
between Coeur-Rochester, Inc. and
Johnson Matthey Inc. (Incorporated
herein by reference to Exhibit 10(m) of
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.)
-------------
* Management contract or compensatory plan
-53-
10(e) - Refining Agreement dated January 24,
1994, between the Registrant and Handy &
Harman. (Incorporated herein by
reference to Exhibit 10(n) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
10(f) - Master Equipment Lease No. 099-03566-01,
dated as of December 28, 1988, between
Idaho First National Bank and the
Registrant. (Incorporated herein by
reference to Exhibit 10(w) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.)
10(g) - Master Equipment Lease No. 01893, dated
as of December 28, 1988, between Cargill
Leasing Corporation and the Registrant.
(Incorporated herein by reference to
Exhibit 10(x) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.)
10(h) - Rights Agreement, dated as of May 11,
1999, between the Registrant and
ChaseMellon Shareholder Services,
L.L.C., as Rights Agent. (Incorporated
herein by reference to Exhibit 1 to the
Registrant's Form 8-A relating to the
registration of the Rights on the New
York and Pacific Stock Exchanges.)
10(i) - Amended and Restated Profit Sharing
Retirement Plan of the Registrant.
(Incorporated herein by reference to
Exhibit 10(ff) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.) *
10(j) - Indenture, dated as of January 26, 1994,
between the Registrant and Bankers Trust
Company relating to the Registrant's 6
3/8% Convertible Subordinated Debentures
Due 2004. (Incorporated herein by
reference to Exhibit 10(gg) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
10(k) - Purchase Agreement, dated January 18,
1994, between the Registrant and Kidder,
Peabody & Co. Incorporated relating to
the 6 3/8% Convertible Subordinated
Debentures Due 2004. (Incorporated
herein by reference to Exhibit 10(hh) to
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.)
-------------
* Management contract or compensatory plan
-54-
10(l) - Registration Rights Agreement, dated
January 26, 1994, between the Registrant
and Kidder, Peabody & Co., Incorporated
relating to the 6 3/8% Convertible
Subordinated Debentures Due 2004.
(Incorporated herein by reference to
Exhibit 10(ii) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.)
10(m) - 1993 Annual Incentive Plan and Long-Term
Performance Share Plan of the
Registrant. (Incorporated herein by
reference to Exhibit 10(jj) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.) *
10(n) - Supplemental Retirement and Deferred
Compensation Plan, dated January 1,
1993, of the Registrant. (Incorporated
herein by reference to Exhibit 10(kk) to
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.) *
10(o) - Lease Agreement, dated January 12, 1994,
between First Security Bank of Idaho and
Coeur Rochester, Inc. (Incorporated
herein by reference to Exhibit 10(mm) to
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.)
10(p) - Non-employee Directors' Retirement Plan
effective as of March 19, 1993, of the
Registrant. (Incorporated herein by
reference to Exhibit 10(oo) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.) *
10(q) - Extension of Employment and Severance
Agreement between the Registrant and
Dennis E. Wheeler, dated June 28, 1994.
(Incorporated by reference to Exhibit 10
(nn) to the Registrant's Annual Report
on Form 10-K for the year ended December
31, 1994.)*
10(r) - Form of letter extending the terms of
the Severance Agreements between the
Registrant and Al Wilder, Robert
Martinez, James Duff and Michael
Tippett. (Incorporated by reference to
Exhibit 10(oo) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)*
-------------
* Management contract or compensatory plan
-55-
10(s) - 401k Plan of the Registrant.
(Incorporated by reference to Exhibit 10
(pp) to the Registrants Annual Report on
Form 10-K for the year ended December
31, 1994.)*
10(t) - Option Agreement of October 24, 1994
between Compania Minera El Bronce and
CDE Chilean Mining Corporation.
(Incorporated by reference to Exhibit
10(qq) to the Registrant's Annual Report
on Form 10-K for the year ended December
31, 1994.)
10(u) - Limited Recourse Project Financing
Agreement, dated April 19, 1995, between
the Registrant and N.M. Rothschild &
Sons, Ltd. (Incorporated herein by
reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30,
1995.)
10(v) - Venture Termination and Asset Purchase
Agreement, dated as of June 30, 1995,
among Coeur Alaska, Inc., Echo Bay
Alaska, Inc. and Echo Bay Exploration,
Inc. (Incorporated herein by reference
to Exhibit 10 to the Company's Current
Report on Form 8-K dated July 7, 1995.)
10(w) - Form of Offer, dated January 29, 1996,
by the Registrant to acquire all the
ordinary shares of Gasgoyne Gold Mines
NL. (Incorporated herein by reference to
Exhibit 10(a) to the Registrant's
Current Report on Form 8-K filed January
31, 1996 (date of earliest event
reported - December 21, 1995).)
10(x) - Part A Statement of the Registrant
relating to its offer to acquire all the
ordinary shares of Gasgoyne Gold Mines
NL. (Incorporated herein by reference to
Exhibit 10(b) to the Registrant's
Current Report on Form 8-K filed January
31, 1996 (date of earliest event
reported - December 21, 1995).)
10(y) - Call Option Agreement Over Shares, dated
December 20, 1995, between the
Registrant and Ioma Pty Ltd.
(Incorporated herein by reference to
Exhibit 10(c) to the Registrant's
Current Report on Form 8-K filed January
31, 1996 (date of earliest event
reported - December 21, 1995).)
-------------
* Management contract or compensatory plan
-56-
10(z) - Agreement for the Purchase and Sale of
Shares, dated August 30, 1996, by
Compania Minera El Bronce to CDE Chilean
Mining Corporation and Coeur d'Alene
Mines Corporation. (Incorporated herein
by reference to Exhibit 10(a) of the
Registrant's Current Report on Form 8-K
filed November 5, 1996 (date of earliest
event reported - September 4, 1996).)
10(aa) - Amendment, dated August 30, 1996, to
Purchase and Sale, Cancellation and
Receipt of Payment of Purchase Sale
Installments and Release of Mortgage,
Chattel Mortgages and Prohibitions
between Compania Minera El Bronce and
Compania Minera CDE El Bronce.
(Incorporated herein by reference to
Exhibit 10(b) of the Registrant's
Current Report on Form 8-K filed
November 5, 1996 (date of earliest event
reported - September 4, 1996).)
10(bb) - Loan Agreement, dated as of December 23,
1996, among the Registrant (as the
Borrower), NM Rothschild & Sons Limited
and Bayerische Vereinsbank AG (as the
Banks) and NM Rothschild & Sons Limited
(as the Agent for the Banks).
(Incorporated herein by reference to
Exhibit 10(kk) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1996.)
10(cc) - Purchase Agreement, dated as of October
7, 1997, between the Registrant and
Lazard Freres & Co. LLC. (Incorporated
herein by reference to Exhibit 10(a) to
the Registrant's Current Report on Form
8-K filed on October 16, 1997.)
10(dd) - Registration Rights Agreement, dated as
of October 15, 1997, between the
Registrant and Lazard Freres & Co. LLC.
(Incorporated herein by reference to
Exhibit 10(b) to the Registrant's
Current Report on Form 8-K filed on
October 16, 1997.)
10(ee) - Mining Lease, effective as of June 1,
1997, between Silver Valley Resources
and American Silver Mining Company.
(Incorporated herein by reference to
Exhibit 10(a) to the Registrant's
Registration Statement on Form S-3 (File
No. 333-40513).)
10(ff) - Mining Lease, effective as of April 23,
1996, between Silver Valley Resources
Corporation and Sterling Mining Company.
(Incorporated herein by reference to
Exhibit 10(b) to the Registrant's
Registration Statement on Form S-3 (File
No. 333-40513).)
-57-
10(gg) - Mining Lease, effective as of March 21,
1997, between Silver Valley Resources
Corporation and Silver Buckle Mines,
Inc. (Incorporated herein by reference
to Exhibit 10(c) to the Registrant's
Registration Statement on Form S-3 (File
No. 333-40513).)
10(hh) - Mining Lease, effective as of March 21,
1997, between Silver Valley Resources
Corporation and Placer Creek Mining
Company. (Incorporated herein by
reference to Exhibit 10(d) to the
Registrant's Registration Statement on
Form S-3 (File No. 333-40513).)
10(ii) - Agreement for Sale and Issuance of
Shares, dated May 7, 1997, among Sons of
Gwalia Ltd, Burmine Investments Pty
Limited, Orion Resources NL and Coeur
Australia Pty Ltd. (Incorporated herein
by reference to Exhibit 10(pp) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.)
10(jj) - Letter agreement, dated May 7, 1997,
between the Registrant and Sons of
Gwalia Ltd. (Incorporated herein by
reference to Exhibit 10(qq) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.)
10(kk) - Shareholders Agreement, dated May 7,
1997, among Sons of Gwalia Ltd., Burmine
Investments Pty Ltd., Orion Resources
NL, Coeur Australia Pty Ltd. and
Gasgoyne Gold Mines NL. (Incorporated
herein by reference to Exhibit 10(rr) to
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1997.)
10(ll) - Management Services Agreement, dated May
7, 1997, among Sons of Gwalia Ltd.,
Coeur Australia Pty Ltd. and Gasgoyne
Gold Mines NL. (Incorporated herein by
reference to Exhibit 10(ss) to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.)
10(mm) - Amended and Restated Transaction
Agreement by and between Asarco
Incorporated and Coeur d'Alene Mines
Corporation, dated May 13, 1999 and
amended and restated as of June 22,
1999. (Incorporated herein by reference
to Exhibit A to the Registrant's Proxy
Statement, dated July 28, 1999, used in
connection with the Registrant's Annual
Meeting of Shareholders held on
September 8, 1999.)
-58-
10(nn) - Shareholder Agreement (dated as of
September 9, 1999) by and between Asarco
Incorporated and Coeur d'Alene Mines
Corporation. (Incorporated herein by
reference to Exhibit B to the
Registrant's Proxy Statement, dated July
28, 1999, used in connection with the
Registrant's Annual Meeting of
Shareholders held on September 8, 1999.)
21 - List of subsidiaries of the Registrant.
(Filed herewith)
23(a) - Consent of Arthur Andersen LLP (Filed
herewith)
23(b) - Consent of Ernst & Young LLP (Filed
herewith)
(d) Independent auditors' reports are included herein as follows:
Coeur d'Alene Mines Corporation
Report of Arthur Andersen LLP at December 31, 2000 and for the two
years in the period ended December 31, 2000.
Report of Ernst & Young LLP for the year ended December 31, 1998.
-59-
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 d'Alene Mines Corporation
(Registrant)
Date: March 29, 2001 By: /s/DENNIS E. WHEELER
--------------------
Dennis E. Wheeler
(Chairman, 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.
Signature
-----------
/s/DENNIS E. WHEELER Chairman, President, March 29, 2001
-------------------- Chief Executive Officer
Dennis E. Wheeler and Director
/s/GEOFFREY A. BURNS Vice President March 29, 2001
------------------- Chief Financial Officer
Geoffrey A. Burns
/s/CECIL D. ANDRUS Director March 26, 2001
------------------
Cecil D. Andrus
/s/JOSEPH C. BENNETT Director March 26, 2001
--------------------
Joseph C. Bennett
Director
--------------------
James J. Curran
/s/JAMES A. MCCLURE Director March 26, 2001
-------------------
James A. McClure
-60-
/s/ROBERT E. MELLOR Director March 26, 2001
-------------------
Robert E. Mellor
/s/JOHN H. ROBINSON Director March 29, 2001
--------------------
John H. Robinson
/s/TIMOTHY R. WINTERER Director March 27, 2001
----------------------
Timothy R. Winterer
Director
----------------------
Daniel Tellechea Salido
Director
-------------------------
Xavier Garcia de Quevesto
Topete
-61-
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
To the Shareholders and Board of Directors of
Coeur d'Alene Mines Corporation:
We have audited the accompanying consolidated balance sheets of Coeur
d'Alene Mines Corporation (an Idaho corporation) and subsidiaries (the
"Company") as of December 31, 2000 and 1999, and the related consolidated
statements of operations and comprehensive loss, changes in shareholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Coeur
d'Alene Mines Corporation and subsidiaries as of December 31, 2000 and 1999,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Denver, Colorado,
February 16, 2001,
(except with respect to the matter discussed in Note O,
as to which the date is March 16, 2001).
F-2
REPORT OF ERNST AND YOUNG INDEPENDENT AUDITORS
Shareholders and Board of Directors
Coeur d'Alene Mines Corporation
We have audited the accompanying consolidated statements of operations,
changes in shareholders' equity, and cash flows for the period ended December
31, 1998, of Coeur d'Alene Mines Corporation and subsidiaries. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Coeur d'Alene Mines Corporation and subsidiaries at December 31,
1998, in conformity with accounting principles generally accepted in the
United States.
Ernst & Young LLP
Seattle, Washington,
April 14, 1999
F-3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
December 31,
2000 1999
--------- --------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 35,227 $ 86,935
Short-term investments, including
restricted collateral of $10.4 million
and $5.8 million, respectively 18,344 22,978
Receivables, net 9,710 15,376
Inventories 54,979 53,769
-------- --------
118,260 179,058
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 97,996 96,592
Less accumulated depreciation (61,256) (54,265)
--------- ---------
36,740 42,327
MINING PROPERTIES
Operational mining properties 113,409 106,455
Less accumulated depletion (71,225) (62,431)
--------- ---------
42,184 44,024
Developmental properties 51,800 50,781
-------- --------
93,984 94,805
OTHER ASSETS
Investment in unconsolidated affiliate 15,264 29,008
Notes receivable 263 345
Debt issuance costs, net of accumulated
amortization 3,621 5,378
Other 3,245 3,126
-------- --------
22,393 37,857
-------- --------
Total assets $271,377 $354,047
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
December 31,
2000 1999
-------- --------
(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,073 $ 4,693
Accrued liabilities 9,799 5,046
Accrued interest payable 4,474 5,064
Accrued salaries and wages 5,723 5,005
Current portion of remediation costs 1,209 1,365
--------- ---------
25,278 21,173
LONG-TERM LIABILITIES
6% convertible subordinated debentures
due 2002 26,511 35,582
6 3/8% convertible subordinated debentures
due 2004 92,820 93,372
7 1/4% convertible subordinated debentures
due 2005 85,238 107,277
Other long-term liabilities 24,090 28,478
--------- ---------
228,659 264,709
COMMITMENTS AND CONTINGENCIES
(See Notes G,L,M and O)
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share(a class of preferred stock) -
authorized 7,500,000 shares, 0 and 7,077,833
issued and outstanding in 2000, and 1999,
respectively - 7,078
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares, issued
38,109,279 and 30,240,428 in 2000 and 1999
(1,059,211 shares held in treasury) 38,109 30,240
Additional Paid in Capital 387,625 391,031
Accumulated deficit (394,932) (347,119)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive (loss) income (172) 125
--------- ---------
17,440 68,165
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $271,377 $354,047
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
12 MONTHS ENDED
DECEMBER 31,
-------------------------------------------------
2000 1999 1998
--------- ---------- -----------
(In thousands except per share data)
REVENUES
Sales of metal $ 93,174 $ 86,318 $102,505
Earnings(loss)from
unconsolidated affiliate 1,103 (1,096) (2,130)
Interest and other 6,929 23,724 11,599
--------- --------- ---------
Total revenues 101,206 108,946 111,974
COSTS and Expenses
Production 86,661 66,896 70,163
Depreciation and depletion 20,785 19,620 28,555
Administrative and general 9,714 9,281 12,249
Exploration 9,412 8,518 9,241
Interest 16,999 16,408 13,662
Write-down of mining properties
and other 21,236 20,204 223,597
-------- --------- ---------
Total cost and expenses 164,807 140,927 357,467
-------- --------- ----------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES AND
EXTRAORDINARY ITEM (63,601) (31,981) (245,493)
Income tax provision (348) (332) (919)
--------- -------- ----------
Loss before
extraordinary item (63,949) (32,313) (246,412)
Extraordinary item - gain on
early retirement of debt 16,136 3,990 12,158
-------- --------- ----------
NET LOSS (47,813) (28,323) (234,254)
Unrealized holding (loss) gain
on securities (297) 288 (308)
--------- --------- ----------
COMPREHENSIVE LOSS $(48,110) $(28,035) $(234,562)
========= ========= ==========
Net loss $(47,813) $(28,323) $(234,254)
Preferred stock dividends (2,180) (10,532) (10,532)
--------- -------- ----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(49,993) $(38,855) $(244,786)
========= ========= ==========
BASIC AND DILUTED LOSS PER SHARE:
Weighted average number
of shares of common stock 35,439 24,185 21,899
========= ========= ==========
Loss before
extraordinary item $ (1.87) $ (1.77) $ (11.73)
Extraordinary item - gain on
early retirement of debt .46 .16 .55
--------- -------- ----------
Net loss per common share $ (1.41) $ (1.61) $ (11.18)
========= ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY For Years Ended December
31, 2000, 1999, and 1998
(In Thousands)
Accumulated
Other
Preferred Additional Comprehensive
Stock Common Paid in Accumulated Shares Held Income
(MARCS) Stock Capital Deficit in Treasury (Loss) Total
-------- ------ ------- --------- ------------ ------ -------
Balance at December 31, 1997 $7,078 $ 22,950 $ 389,648 $ (84,542) $(13,190) $ 145 $322,089
Comprehensive Loss:
Net Loss (234,254) (234,254)
Unrealized Loss
on Marketable Securities (308) (308)
Cash Dividends (10,532) (10,532)
Other 8 64 72
--------- -------- ---------- ---------- --------- ------ ---------
Balance at December 31, 1998 7,078 22,958 379,180 (318,796) (13,190) (163) 77,067
Comprehensive Loss:
Net Loss (28,323) (28,323)
Unrealized Gain on
Marketable Securities 288 288
Cash Dividends (10,532) (10,532)
Stock Issued for Purchase of Asarco
Assets 7,125 21,820 28,945
Stock Issued for Purchase of
Nevada-Packard Property 155 515 670
Other 2 48 50
--------- -------- ---------- ---------- --------- ------ ---------
Balance at December 31, 1999 7,078 30,240 391,031 (347,119) (13,190) 125 68,165
Comprehensive Loss:
Net Loss (47,813) (47,813)
Unrealized Loss on
Marketable Securities (297) (297)
Cash Dividends (2,633) (2,633)
Stock Issued for MARCS Conversion
(7,078) 7,863 -
(785)
Other
6 12 18
--------- --------- --------- -------------- --------- --------- ------
Balance at December 31, 2000 $ - $38,109 $387,625 $(394,932) $(13,190) $ (172) $17,440
========= ========= ========= ============== ========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
12 MONTHS ENDED
DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------ ----------- ---------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(47,813) $(28,323) $(234,254)
Add (deduct) noncash items:
Depreciation and depletion 20,785 19,620 28,555
Amortization 5,897 2,388 2,456
Gain on early retirement of debt (16,136) (3,990) (12,158)
Other charges 375 (309) 936
Write-down of mining properties 12,207 18,685 223,172
Undistributed (gain) loss on investment
in unconsolidated affiliate (1,103) 1,096 2,130
Unrealized (gain)loss on written call options (4,069) 4,302 -
Loss on short-term investment 2,304 - -
Changes in Operating Assets and Liabilities:
Receivables 5,666 225 (2,946)
Inventories (1,210) (7,377) (10,176)
Accounts payable and accrued liabilities (709) (3,370) (11,408)
---------- -------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (23,806) 2,947 (13,693)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (12,703) (22,507) (17,886)
Proceeds from sales of short-term investments 15,220 9,746 114,276
Investment in unconsolidated affiliate 380 (396) (4,868)
Purchases of property, plant and equipment (2,242) (1,399) (3,209)
Proceeds from sale of assets 768 986 7,944
Expenditures on operational mining properties (9,588) (4,190) (9,619)
Expenditures on developmental properties (1,823) (9,346) (17,558)
Other (38) 967 1,220
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (10,026) (26,139) 70,300
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt (14,869) (6,089) (28,477)
Payment of cash dividends (2,633) (10,532) (10,532)
Other (374) (587) (4,467)
---------- ---------- ---------
NET CASH USED IN FINANCING ACTIVITIES (17,876) (17,208) (43,476)
---------- ---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (51,708) (40,400) 13,131
Cash and cash equivalents at beginning
of period 86,935 127,335 114,204
--------- --------- ----------
Cash and cash equivalents at end of period $ 35,227 $ 86,935 $ 127,335
========= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Dollar amounts in thousands, unless otherwise specified)
NOTE A--BUSINESS OF COEUR D'ALENE MINES CORPORATION
Coeur d'Alene Mines Corporation and its subsidiaries (collectively,
"Coeur" or the "Company") is principally engaged in silver and gold mining and
related activities including exploration, development, and mining at its
properties located in the United States (Nevada, Idaho and Alaska) and South
America (Bolivia and Chile).
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the wholly-owned subsidiaries of the Company, the most significant of
which are Coeur Rochester Inc., Coeur Silver Valley Inc., Coeur Alaska, Inc.,
CDE Fachinal Ltd., Compania Minera CDE Petorca, Coeur Australia (50% owner of
Gasgoyne Gold Mines NL), and Empressa Minera Manquiri S.R.L. The consolidated
financial statements also include all entities in which voting control of more
than 50% is held by the Company. Intercompany balances and transactions have
been eliminated in consolidation. Investments in joint ventures where the
Company has ownership of 50% or less and funds its proportionate share of
expenses are accounted for under the equity method.
Revenue Recognition: Revenue is recognized when title to silver and gold
passes at the shipment or delivery point. The effects of forward sales
contracts and purchased put contracts are reflected in revenue at the date the
related precious metals are delivered or the contracts expire.
Cash and Cash Equivalents: Cash and cash equivalents include all
highly-liquid investments with a maturity of three months or less at the date
of purchase. The Company minimizes its credit risk by investing its cash and
equivalents with major international banks and financial institutions located
principally in the United States, Canada and Australia 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
investment of its cash and equivalents.
Inventories: Inventories of ore on leach pads and in the milling process
are valued based on actual costs incurred to place such ores into production,
less costs allocated to minerals recovered through the leaching and milling
processes. Inherent in this valuation is an estimate of the percentage of the
minerals on leach pads and in process that will ultimately be recovered.
Management evaluates this estimate on an ongoing basis. Adjustments to the
recovery rate are accounted for prospectively. All other inventories are
stated at the lower of cost or market, with cost being determined using the
first-in, first-out and weighted average cost methods. Concentrate and dore'
inventory includes product at the mine site and product held by refineries,
and are valued at lower of cost or market.
Property, Plant, and Equipment: Property, plant, and equipment are
recorded at cost. Depreciation, using the straight-line method, is provided
F-9
over the estimated useful lives of the assets, which are 7 to 31 years for
buildings and improvements, 3 to 13 years for machinery and equipment and 3 to
7 years for furniture and fixtures. Certain mining equipment is depreciated
using the units-of-production method based upon estimated total proven and
probable reserves. Maintenance and repairs are expensed as incurred.
Mining Properties: Values for mining properties represent acquisition
costs and/or the fair value of consideration paid plus developmental costs.
Cost depletion has been recorded based on the units-of-production method based
on proven and probable reserves. Management evaluates the net carrying value
of all operations, property by property, when events or conditions indicate
that the potential for permanent impairment of value exists. The Company
utilizes the methodology set forth in Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the Impairment of Long Lived Assets
and Long Lived Assets to be Disposed Of" to evaluate the recoverability of
capitalized mineral property costs. Since SFAS No. 121 requires the use of
forward-looking projections, the Company must use estimates to generate a
life-of-mine undiscounted cash flow forecast. These estimates are based on
projections made by the Company's engineers and geologists, projected
operating and capital costs necessary to process the estimated product, each
project's mine plan including the type, quantity and ore grade expected to be
mined, estimated metallurgical recovery and other factors which may have an
impact upon a project's future cash flow. In addition, the Company is required
to estimate the selling price of metal produced.
Reclamation Costs: Post-closure reclamation and site restoration costs
are estimated based on environmental regulatory requirements and are accrued
ratably over the life of the mine using the units-of-production method. At
December 31, 2000 and 1999, the Company has recorded accrued reclamation costs
of $19.2 million and $17.3 million, respectively, net of estimated equipment
salvage values.
Exploration and Development: The value of exploration properties acquired
is capitalized at the fair market value of the consideration paid. After it is
determined that proven and probable reserves exist on a particular property,
the property is classified as a developmental property and all costs related
to the further development of the property are capitalized. Prior to the
establishment of proven and probable reserves, all costs relative to
exploration and evaluation of a property are expensed as incurred. In order to
classify an identified mineral resource as proven and probable reserves, the
Company must have completed a favorable feasibility study. Mine development
costs incurred to access reserves on producing mines are also capitalized.
Short-term Investments: Short-term investments principally consist of
highly-liquid United States and foreign government and corporate securities
with original maturities in excess of three months. The Company classifies all
short-term investments as available-for-sale securities. Unrealized gains and
losses on these investments are recorded in accumulated other comprehensive
loss as a separate component of shareholders' equity. Any decline in market
value judged to be other than temporary are recognized in determining net
income. Realized gains and losses on these investments are included in
determining net income.
F-10
Foreign Currency: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. 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.
Derivative Financial Instruments: The Company uses derivative financial
instruments as part of an overall risk-management strategy. These instruments
are used as a means of hedging exposure to precious metals prices and foreign
currency exchange rates. The Company does not hold or issue derivative
financial instruments for trading purposes. Written options do not qualify for
hedge accounting and are marked to market each reporting period with
corresponding changes in fair value recorded to operations as Other Income.
The Company uses forward sales contracts and combinations of put and call
options to hedge its exposure to precious metals prices. The underlying hedged
production is designated at the inception of the hedge. Deferral accounting is
applied only if the derivatives continue to reduce the price risk associated
with the underlying hedged production. Contracted prices on forward sales
contracts and options are recognized in product sales as the designated
production is delivered or sold. In the event of early settlement of hedge
contracts, gains and losses are deferred and recognized in income at the
originally designated delivery date.
The Company uses foreign currency contracts to hedge its exposure to
movements in the foreign currency translation amounts for anticipated
transactions. These contracts are marked-to-market to earnings each reporting
period.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires that all derivatives be recognized as assets or liabilities and
be measured at fair value. Gains or losses resulting from changes in the
values of those derivatives will be accounted for depending on the use of the
derivatives and whether they qualify for hedge accounting as either a fair
value hedge or a cash flow hedge. The adoption of SFAS No. 133 by the Company
on January 1, 2001 will not have a material affect of the financial statements
of the Company.
Comprehensive Loss: In addition to net loss, comprehensive loss includes
all changes in equity during a period, except those resulting from investments
by and distributions to owners.
Loss Per Share: Loss per share is computed by dividing the net loss
attributable to common stock by the weighted average number of common shares
outstanding during each period. The effect of potentially dilutive stock
options outstanding was antidilutive in 2000, 1999 and 1998.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
the Company's management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
F-11
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications: Certain reclassifications of prior year balances have
been made to conform to current year presentation.
NOTE C--SUBSEQUENT EVENTS
Sale of Shareholding in Gasgoyne Gold Mines NL
On February 7, 2001, the Company sold its 50% shareholding in Gasgoyne
Gold Mines NL of Australia ("Gasgoyne") for A$28.1 million (US $15.6 million)
in cash. The purchaser was Sons of Gwalia Ltd., an Australian corporation
headquartered in Perth, Western Australia, who owned the other 50% interest in
Gasgoyne.
The principal assets of Gasgoyne are its 50% ownership of the Yilgarn
Star mine and exploration tenements located in Western Australia. Also
included in the sale was Coeur's share of Gasgoyne's gold hedge position of
approximately 90,000 ounces.
As a result of the transaction, the Company recorded a write-down of
$12.2 million in December 2000, reflecting the excess of the carrying value of
the Company's Gasgoyne shares over the sale price.
Issuance of Common Stock in Exchange for 7 1/4% Convertible Subordinated
Debentures
On March 19, 2001, the Company issued a total of 1,787,500 shares of its
Common Stock to two holders of a total of $5 million principal amount of the
Company's outstanding 7 1/4% Convertible Subordinated Debentures due 2005 in
exchange for such Debentures. The Company's financial statements for the
quarter ending March 31, 2001 will record an extraordinary gain of
approximately $3.0 million representing the excess of the extinguished
principal amount of the Debenture liability over the value of the shares
issued by the Company in exchange, net of offering costs and taxes.
NOTE D--SFAS NO. 121 IMPAIRMENT REVIEWS
During the fourth quarter of 2000, the Company performed impairment
reviews on all it's operational and development properties in accordance with
the standards set forth in SFAS No. 121, and based on undiscounted estimated
future cash flows and/or fair market value assessments, using long-term price
assumptions starting at $4.90 and increasing to $5.50 per ounce for silver and
$275 and increasing to $300 per ounce for gold, the Company determined that
its investments in property, plant and equipment for the operating and
development properties were not impaired at December 31, 2000.
During the fourth quarter of 1999, the Company recorded an impairment of
its investment in the Yilgarn Star mine. Using a long-term gold price
assumption of $325 per ounce and based on undiscounted future cash flows, the
Company determined that its investment in the Yilgarn Star mine in Australia
was impaired. The total amount of the impairment, based on discounted cash
flows was $16.2 million at December 31, 1999, and was recorded in the fourth
quarter.
F-12
During the first quarter of 1998, the Petorca mine continued to operate
at a loss in spite of on-going efforts to improve ore grades and reduce
operating costs. An evaluation of operations was completed and as a result of
this evaluation, the Company determined that a write-down was required to
properly reflect the estimated realizable value of Petorca's mining properties
and assets in accordance with the standards set forth in SFAS No. 121.
Consequently, the Company recorded a non-cash write-down for impairment in the
first quarter of 1998 of $54.5 million relating to its investment in the
Petorca mine. The charge included approximately $8.3 million to satisfy the
estimated remediation and reclamation liabilities at Petorca and to provide
for estimated termination costs.
During the fourth quarter of 1998, the Company evaluated the
recoverability of investments in both the Fachinal Mine and Kensington
property. Using a $350 per ounce gold price and based on estimated
undiscounted future cash flows, the Company determined that its investments in
property, plant and equipment at the Fachinal Mine in Southern Chile and at
the Kensington property in Alaska were impaired. The total amount of the
impairment based on discounted cash flows was $42.9 million and $121.5 million
for the Fachinal Mine and Kensington property, respectively, at December 31,
1998 and was recorded in the fourth quarter.
F-13
NOTE E--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost of available-for-sale securities is adjusted for
premium and discount amortization. Such amortization is included in Other
Income. The following is a summary of available-for-sale securities:
Available-For-Sale Securities
----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
As of December 31, 2000 Cost Losses Gains Value
------------------------ ---------- ------------ ----------- ---------
U.S. Corporate debt securities $ 15,529 $ - $ - $ 15,529
Equity Securities 3,000 174 2 2,828
---------- ------------ ----------- ---------
$ 18,529 $ 174 $ 2 $ 18,357
========== ============ =========== =========
As of December 31, 1999
-----------------------
U.S. Corporate debt securities $ 16,709 $ - $ - $ 16,709
Equity Securities 6,157 171 296 6,282
---------- ------------ ----------- ---------
$ 22,866 $ 171 $ 296 $ 22,991
========== ============ =========== =========
The gross realized gains on sales of available-for-sale securities
totaled $0 million and $.6 million during 2000 and 1999, respectively. The
gross realized losses totaled $2.5 million, including $2.3 million of realized
loss on other than temporary decline in market value of investments, and $.2
million during 2000 and 1999 respectively. The gross realized gains and losses
are based on a carrying value (cost net of discount or premium) of $17.2
million and $9.4 million of short-term investments sold or adjusted for other
than temporary decline in market value during 2000 and 1999,respectively.
Short-term investments mature at various dates through February 2001.
The Company, under the terms of its lease, self insurance, and bonding
agreements with certain banks, lending institutions and regulator agencies, is
required to collateralize certain portions of the Company's obligations. The
Company has collaterized these obligations by assigning certificates of
deposit that have maturity dates ranging from three months to a year, to the
respective institution or agency. At December 31, 2000 and December 31, 1999,
the Company had certificates of deposit under these agreements of $10.4
million and $5.8 million, respectively, restricted for this purpose.
NOTE F--INVENTORIES
Inventories consist of the following:
December 31,
2000 1999
---- ----
In-process and on leach pads $ 43,595 $ 43,494
Concentrate and dore' inventory 6,258 5,594
Supplies 5,126 4,681
-------- --------
$ 54,979 $ 53,769
======== =========
The Handy and Harmon refinery, to which Rochester Mine had historically
sent approximately 50% of its dore', filed for Chapter 11 Bankruptcy during
the first quarter of 2000. The Company had in inventory, at the refinery,
approximately 67,000 ounces of silver and approximately 5,000 ounces of gold
F-14
that has been delivered to certain creditors of Handy & Harmon. On February
27, 2001, the Company commenced litigation to recover its dore', with a cost
basis of $1.8 million, and believes it has a basis for full recovery.
Accordingly, no impairment has been recorded for this asset. Although the
Company believes it has a basis for full recovery, it is premature to predict
the outcome of the lawsuit.
NOTE G--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
December 31,
2000 1999
---- ----
Land $ 2,040 $ 2,407
Buildings and improvements 41,240 41,508
Machinery and equipment 54,546 52,590
Capital leases of equipment 170 87
--------- ---------
97,996 96,592
Accumulated depreciation (61,256) (54,265)
--------- ---------
$ 36,740 $ 42,327
========= ==========
The Company has entered into various operating lease agreements which
expire over a period of five years. Total rent expense charged to operations
under these agreements was $4.7 million, $4.0 million and $4.5 million for
2000, 1999, 1998, respectively.
Minimum lease payments under operating leases are as follows:
Year Ending
December 31, Operating
------------ ----------
2001 $ 2,865
2002 2,419
2003 1,833
2004 1,236
2005 125
--------
$ 8,478
========
F-15
NOTE H - MINING PROPERTIES
Capitalized costs for mining properties December 31,
consist of the following: 2000 1999
----- -----
Operational mining properties:
Rochester Mine, less accumulated
depletion of $58,156
and $51,290 $ 22,575 $ 30,510
Coeur Silver Valley, less accumulated
depletion of $12,344 and $10,811 16,021 12,169
Fachinal Mine, less accumulated depletion
of $195 and $0 3,116 1,145
Petorca Mine, less accumulated
depletion of $530 and $330 472 200
--------- ---------
TOTAL OPERATIONAL MINING PROPERTIES 42,184 44,024
Developmental mining properties:
Kensington 28,047 26,211
San Bartolome 18,850 19,554
Other 4,903 5,016
--------- ---------
TOTAL DEVELOPMENTAL MINING PROPERTIES 51,800 50,781
--------- ---------
TOTAL MINING PROPERTIES $ 93,984 $ 94,805
========= =========
Operational Mining Properties
The Rochester Mine: The Company owns and operates this silver and gold
surface mine. The Company has conducted operations at the Rochester Mine since
September 1986. The mine utilizes the heap-leaching process to extract both
silver and gold from ore mined using open pit methods. Rochester is one of the
largest primary silver mines in the United States and is a significant gold
producer as well.
Galena Mine: Coeur Silver Valley owns and operates the Galena underground
silver-copper mine, located near the city of Wallace, in Shoshone County,
Northern Idaho. On September 9, 1999, the Company acquired the remaining 50%
of Coeur Silver Valley resulting in 100% ownership for the Company. The mine
utilizes the drift and fill mining method with sand backfill to extract ore
from the high grade silver-copper vein deposits that constitute the majority
of the ore reserves.
Fachinal Mine: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile. Commercial production for
financial reporting purposes commenced on January 1, 1997. The Company
suspended operations in the fourth quarter 2000 to fully evaluate and develop
a recently discovered zone of high-grade gold and silver mineralization.
Petorca Mine: The Company owns and operates the Petorca gold and silver
underground mine located in central Chile approximately 90 miles north of
Santiago.
Yilgarn Star Mine: The Company had a 25% indirect interest in the Yilgarn
Star mine in Western Australia. The mine is a surface and underground gold
mine operated by Sons of Gwalia. Coeur sold its interest in the Yilgarn Star
mine in February 2001. (See Note C.)
F-16
Developmental Properties
San Bartolome Project: On September 9, 1999, the Company acquired
Empressa Minera Manquiri ("Manquiri"). Manquiri's principal asset is the San
Bartolome project, a silver exploration and development property located near
the city of Potosi, Bolivia. The San Bartolome project consists of
silver-bearing gravel deposits which lend themselves to simple surface mining
methods. The mineral rights for the San Bartolome project are held through
long-term joint venture/lease agreements with several local independent mining
co-operatives and the Bolivian State owned mining company, COMIBOL. As
consideration for these JV/leases, production from San Bartolome is subject to
a royalty of 4% payable to the cooperatives and COMIBOL.
Kensington Project: Kensington is a gold property located near Juneau,
Alaska, which has been permitted for development based on a feasibility study
which was completed in early 1998. However, due to the currently depressed
gold price, the Company has continued with engineering optimization efforts to
reduce estimated capital costs and operating costs. The property is subject to
a royalty which ranges from 1% at $400 gold prices to a maximum of 2 1/2% at
gold prices above $475, with a royalty cap at 1 million ounces of production.
NOTE I-LONG-TERM DEBT
The $26.5 million principal amount of 6% Convertible Subordinated
Debentures Due 2002 are convertible into shares of Coeur Common Stock at the
option of the holder prior to maturity, unless previously redeemed, at a
conversion rate of approximately 38 shares of Common Stock for each one
thousand dollars of principal (equivalent to a conversion price of $25.57 per
share of Common Stock). The Company is required to make annual interest
payments. The debentures have no other funding requirements until maturity on
June 10, 2002.
The $92.8 million principal amount of 6 3/8% Convertible Subordinated
Debentures Due 2004 are convertible into shares of Common Stock at the option
of the holder on or before January 31, 2004, unless previously redeemed, at a
conversion price of $25.77 per share. The Company is required to make
semi-annual interest payments. The debentures are redeemable at the option of
the Company. The debentures have no other funding requirements until maturity
on January 31, 2004.
The $85.2 million principal amount of 7.25% Convertible Subordinated
Debentures due 2005 are convertible into shares of Common Stock at the option
of the holder on or before October 31, 2005, unless previously redeemed, at a
conversion price of $17.45 per share, subject to adjustment in certain events.
The Company is required to make semi-annual interest payments. The debentures
are redeemable at the option of the Company on or after October 31, 2000, and
have no other funding requirements until maturity on October 31, 2005.
F-17
The following table sets forth repurchases for each year:
Carrying Repurchase Issuance Extraordinary
2000: Amount Amount Cost Gain
--------- ---------- -------- -------------
6% debentures $ 9.1 million $ 6.4 million $ 60,000 $ 1.8 million
6 3/8% debentures $ .6 million $ .2 million $ 7,700 $ .4 million
7 1/4% debentures $22.0 million $ 7.5 million $600,000 $13.9 million
1999:
6% debentures $10.2 million $ 6.2 million $100,000 $ 4.0 million
1998:
6% debentures $ 4.0 million $ 2.9 million $ 52,320 $ 1.1 million
6 3/8% debentures $ 1.6 million $ .9 million $ 37,627 $ .7 million
7 1/4% debentures $36.5 million $24.7 million $1.4 million $10.4 million
The carrying amounts and fair values of long-term borrowings, as of
December 31, 2000 and 1999, consisted of the following. The fair value of the
long-term borrowing is determined by market transactions on or near December
31, 2000 and 1999, respectively.
December 31, 2000 December 31, 1999
---------------------------------------------------
Convertible
Subordinated Carrying Fair Carrying Fair
Debenture Value Value Value Value
------------------------------------------------------------------------------
6% due 2002 $ 26,511 $ 16,238 $ 35,582 $ 22,684
6.375% due 2004 $ 92,820 $ 26,454 $ 93,372 $ 49,721
7.25% due 2005 $ 85,238 $ 24,549 $107,277 $ 59,807
Total interest accrued in 2000, 1999, and 1998 was $17.0 million, $17.8
million, and $20.4 million, respectively, of which $0 million, $1.4 million,
and $6.8 million, respectively, was capitalized as a cost of certain
properties under development.
Interest paid was $16.5 million, $17.0 million, and $20.3 million, in
2000, 1999, and 1998, respectively.
F-18
NOTE J--INCOME TAXES
The components of the provision for income taxes in the consolidated
statements of operations are as follows:
Years Ended December 31,
--------------------------------------------
2000 1999 1998
------ ------ ------
Current $ 348 $ 332 $ 919
Deferred - - -
-------- ------- -------
PROVISION FOR INCOME TAX $ 348 $ 332 $ 919
======== ======= =======
As of December 31, 2000 and 1999 the significant components of the
Company's net deferred tax liability were as follows:
Years Ended December 31,
----------------------------------
2000 1999
--------- ---------
Deferred tax liabilities:
PP&E, net $ 7,051 $ 9,051
--------- ---------
Total deferred tax liabilities $ 7,051 $ 9,051
========= =========
Deferred tax assets:
Net operating loss carryforwards $106,836 $101,505
AMT credit carryforwards 1,734 1,734
Business credit carryforwards 205 205
--------- ---------
Total deferred tax assets 108,775 103,444
Mineral properties impairment 64,533 58,863
Unrealized hedging losses 1,730 1,626
Other 4,583 2,165
Valuation allowance for deferred
tax assets (172,570) (157,047)
--------- ---------
Net deferred tax assets $ 7,051 $ 9,051
========= =========
Net deferred tax liabilities $ - $ -
========= =========
The valuation allowance represents the amount of deferred tax assets that
more likely than not will not be realized in future years. Changes in the
valuation allowance relate primarily to losses which are not currently
recognized. The Company has reviewed its net deferred tax assets, together
with net operating loss carryforwards, and has not recognized potential tax
benefits arising therefrom because at this time management believes it is more
likely than not that the benefits will not be realized in future years.
The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings during the
three-year period ended December 31, 2000. It is not practicable to estimate
the tax liabilities which would result upon such repatriation.
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
F-19
Years Ended December 31,
------------------------------------
2000 1999 1998
------- ------- -------
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Tax effect of foreign affiliates'
statutory rates 7.4% 11.6% 7.6%
Percentage depletion (17.9%) (21.2%) (1.4%)
Interest on foreign subsidiary debt 11.5% 18.4% 1.7%
Change in valuation allowance 34.5% 25.7% 27.1%
Other (net) .5% 1.6% -
------- ------- -------
EFFECTIVE TAX RATE 1.0% 1.1% 0%
======= ======= =======
For tax purposes, as of December 31, 2000, the Company has operating loss
carryforwards as follows, which expire in 2007 through 2020 for U.S.
carryforwards. New Zealand, Australian and Chilean laws provide for indefinite
carryforwards of net operating losses. Utilization of U.S. net operating
losses may be subject to limitations due to potential changes in ownership.
U.S. New Zealand Australia Chile Total
-------- ----------- ----------- -------- ---------
Regular losses $146,822 $ 91,371 $ 727 $160,351 $399,271
AMT credits 1,743 1,743
General business credits 205 205
The operating loss carryforwards by year of expiration are as follows:
Year of
Expiration Regular Tax
---------- -----------
2007 $ 10,561
2008 10,417
2009 8,994
2011 72,146
2012 4,424
2019 36,372
2020 3,908
---------- -
Total $ 146,822
========== =
As of December 31, 2000, Callahan Mining Corporation, a subsidiary, has
net operating loss carryforwards of approximately $17.4 million which expire
through 2006. The utilization of Callahan Mining Corporation's net operating
losses are subject to limitations.
NOTE K --SHAREHOLDERS' EQUITY AND STOCK PLANS
In 1996, the Company completed a public preferred stock offering of
Mandatory Adjustable Redeemable Convertible Securities ("MARCS"). The Company
issued 7,077,833 shares of MARCS which were offered at a public offering price
of $21.25 per share. Net proceeds to the Company from the offering was $144.6
million. On March 15, 2000, Coeur made the final dividend payment of $2.6
million and the MARCS were mandatorily converted into common shares. Each
outstanding MARCS was converted into 1.111 common shares of the Company. As a
result of the conversion, the Company issued approximately 7.9 million common
shares.
F-20
On May 11, 1999, the Company's shareholders adopted a new shareholder
rights plan. The plan entitles each holder of the Company's Common Stock to
one right. Each right entitles the holder to purchase one one-hundredth of a
share of newly authorized Series B Junior Preferred Stock. The exercise price
is $100, making the price per full preferred share ten thousand dollars. The
rights will not be distributed and become exercisable unless and until ten
business days after a person acquires 20% of the outstanding common shares or
commences an offer that would result in the ownership of 30% or more of the
shares. Each right also carries the right to receive upon exercise that number
of Coeur common shares which has a market value equal to two times the
exercise price. Each preferred share issued is entitled to receive 100 times
the dividend declared per share of Common Stock and 100 votes for each share
of Common Stock and is entitled to 100 times the liquidation payment made per
common share. The Board may elect to redeem the rights prior to their
exercisability at a price of one cent ($.01) per right. The new rights will
expire on May 24, 2009, unless earlier redeemed or exchanged by the Company.
Any preferred shares issued are not redeemable. At December 31, 2000 and 1999,
there were a total of 37,050,068 and 29,181,217 outstanding rights which was
equal to the number of outstanding shares of common stock.
The Company has an Annual Incentive Plan (the "Annual Plan"), a Long-Term
Incentive Plan (the "Long-Term Plan") and a Directors' Plan (the "Directors'
Plan"). Benefits were payable in cash under the Annual Plan in 2000, 1999 and
1998.
Under the Long-Term and Directors' Plans, benefits consist of (i)
non-qualified and incentive stock options that are exercisable at prices equal
to the fair market value of the shares on the date of grant and vest
cumulatively at an annual rate of 25% during the four-year period following
the date of grant, and (ii) performance units comprised of Common Stock and
cash, the value of which is determined four years after the award. The first
award performance units were granted in 1994. During 2000, options for 233,294
shares were issued under these plans. As of December 31, 2000 and December 31,
1999, nonqualified and incentive stock options to purchase 708,266 shares and
502,506 shares, respectively, were outstanding under the Long-Term and
Directors' Plans. The options are exercisable at prices ranging from $2.63 to
$27.00 per share. In December 2000, the Board of Directors passed a resolution
to request shareholders to authorize an additional 1,000,000 shares for
issuance under these plans.
The Company has a Non-Employee Directors' Stock Option Plan under which
200,000 shares of Common Stock are authorized for issuance and which were
approved by the shareholders in May 1995. In December 2000, the Board of
Directors passed a resolution to put forward for shareholder approval the
authorization of an additional 500,000 shares for issuance under the Plan.
Under the Plan, options are granted only in lieu of an optionee's foregone
annual directors' fees. As of December 31, 2000, December 31, 1999 and
December 31, 1998, a total of 46,691, 25,917 and 21,005 options, respectively,
had been granted in lieu of $.1 million, $.1 million and $.1 million,
respectively, of foregone directors' fees.
Total employee compensation expense charged to operations under these
Plans were $1.8 million, $.8 million, and $1.4 million for 2000, 1999, and
1998, respectively. A summary of the Company's stock option activity and
F-21
related information for the years ended December 31, 2000, 1999 and 1998
follows:
Weighted Average Weighted Average
Shares Exercise Price Value of Options
----------------------------------------------------
Stock options outstanding
at January 1, 1998 612,447 $ 16.05 $ 2.61
Issued 75,925 6.17
Canceled/expired (246,530) 15.62
--------- ---------
Stock options outstanding
at December 31, 1998 441,842 $ 14.59 $ 3.51
Issued 130,086 4.69
Canceled/expired (69,422) 12.60
--------- ---------
Stock options outstanding
at December 31, 1999 502,506 $ 11.99 $ 2.56
Issued 233,294 3.52
Canceled/expired (27,534) 11.29
--------- ---------
Stock options outstanding
at December 31, 2000 708,266 $ 9.47
========= =========
Stock options exercisable at December 31, 2000, 1999 and 1998 were
366,602, 283,987 and 222,299, respectively.
The following table summarizes information for options currently
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs.) Price Exercisable Price
--------------------------------------------------------------------------------------------------------------------------
$ 2.630 to $ 8.938 390,264 9.45 $ 4.26 120,116 $ 4.69
$13.125 to $17.938 239,094 6.13 $14.68 167,578 $15.18
$18.000 to $27.000 78,908 5.12 $19.44 78,908 $19.44
-------- ------- ------ -------- ------
708,266 7.85 $ 9.47 366,602 $12.66
======== ========
F-22
As of December 31, 2000, 1,614,398 shares were available for future
grants under these incentive Plans and 9,523,363 shares of Common Stock were
reserved for potential conversion of Subordinated Convertible Debentures.
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
accounting and reporting standards for stock-based employee compensation plans
and defines a fair value based method of accounting for these equity
instruments. The method measures compensation expense based on the estimated
fair value of the award and recognizes that expense over the vesting period.
The Company has adopted the disclosure - only provision of SFAS No. 123 and
therefore continues to account for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, because options are granted at fair market value, no compensation
expense has been recognized for options issued under the Company's stock
option plans. Had compensation expense been recognized based on the fair value
at the date of the grant for the options awarded under the plans, pro-forma
amounts of the Company's net loss and net loss per share would have been as
follows:
Years Ended December 31,
2000 1999 1998
------ ------- -------
Net loss attributable to
common shareholders $(49,993) $(38,855) $(244,786)
Net loss pro forma $(50,321) $(39,065) $(245,144)
Basic and diluted net loss
per share as reported $ (1.41) $ (1.61) $ (11.18)
Basic and diluted net loss
per share pro forma $ (1.42) $ (1.62) $ (11.20)
The fair value of each option grant was estimated using the Black Scholes
option pricing model with the following weighted average assumptions: risk
free interest rate of 6.0%, 6.2% and 6.2% for 2000, 1999 and 1998,
respectively; expected option life of 4-10 years for officers and directors;
expected volatility of 92%, 55% and 43% for 2000, 1999 and 1998, respectively,
and no expected dividends. The effect of applying SFAS No. 123 for providing
pro forma disclosures for fiscal years 2000, 1999 and 1998 is not likely to be
representative of the effects in future years because options vest over a
four-year period and additional awards generally are made each year.
NOTE L--EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
-------------------
In connection with the acquisition of certain Asarco silver assets,
acquired in 1999, the Company is required to maintain non-contributory defined
benefit pension plans covering substantially all employees at Coeur Silver
Valley. Benefits for salaried plans are based on salary and years of service.
Hourly plans are based on negotiated benefits and years of service.
The Company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set fourth in the Employee
Retirement Income Security Act of 1974, plus such additional tax deductible
F-23
amounts as may be advisable under the circumstances. Plan assets are invested
principally in commingled stock funds, mutual funds and securities issued by
the United States Government.
The components of net periodic benefit costs are as follows:
For the Year Ended December 31, 2000 1999
---------------------------------------------------------------------------
Service cost $ 152 $161
Interest cost 107 70
Expected return on plan assets (76) (38)
Amortization of prior service cost 31 -
Amortization of transitional obligation - -
Recognized actuarial loss (14) -
----------------------------------------------------------------------------
Net periodic benefit cost $ 200 $193
========================================================================
The change in benefit obligation and plan assets and a reconciliation of
funded status are as follows:
At December 31, 2000 1999
------------------------------------------------------------------------------
Change in benefit obligation
Projected benefit obligation at
beginning of year $ 1,019 $ 1,040
Service cost 152 161
Interest cost 107 70
Plan amendments 353 -
Benefits paid (33) (21)
Actuarial loss (248) (231)
------------------------------------------------------------------------------
Projected benefit obligation at
end of year $ 1,350 $ 1,019
==============================================================================
Change in plan assets
Fair value of plan assets at
beginning of year $ 760 $ 454
Actual return on plan assets (5) 77
Plan amendment - -
Employer contributions 493 250
Benefits paid (33) (21)
Administrative expenses - -
------------------------------------------------------------------------------
Fair value of plan assets at
end of year $ 1,215 $ 760
==============================================================================
Reconciliation of funded status
Funded status $ (135) $ (259)
Unrecognized actuarial gain (422) -
Unrecognized transition obligation - -
Unrecognized prior service cost 321 (270)
------------------------------------------------------------------------------
Net amount of asset reflected
in consolidated balance sheet $ (236) $ (529)
==============================================================================
Weighted average assumptions
Discount rate 8.0% 8.1%
Expected long-term rate of return
on plan assets 8.5% 8.5%
Rate of compensation increase 3.0% 5.0%
==============================================================================
Defined Contribution Plan
-------------------------
The Company provides a noncontributory defined contribution retirement
plan for all eligible U.S. employees. Total plan expenses charged to
operations were $.8 million, $.9 million, and $.8 million for 2000, 1999, and
1998, respectively, which is based on a percentage of salary of qualified
employees.
F-24
401(k) Plan
The Company maintains a savings plan (which qualifies under Section
401(k) of the U.S. Internal Revenue code) covering all eligible U.S.
employees. Under the plan, employees may elect to contribute up to 16% of
their cash compensation, subject to ERISA limitations. The Company is required
to make matching cash contributions equal to 50% of the employees'
contribution or up to 3% of the employees' compensation. Employees have the
option of investing in seven different types of investment funds. Total plan
expenses charged to operations were $.4 million, $.4 million and $.5 million
in 2000, 1999, and 1998, respectively.
NOTE M--FINANCIAL INSTRUMENTS
Off-Balance Sheet Risks
The Company enters into forward foreign exchange contracts denominated in
foreign currencies. The purpose of the Company's foreign exchange hedging
program is to protect the Company from risk that the eventual dollar cash
flows will be adversely affected by changes in exchange rates. At December 31,
2000, 1999, and 1998, the Company had forward foreign exchange contracts of
$8.1 million, $3.6 million, and $4.6 million in USD, respectively.
The Company enters into forward metal sales contracts to manage a portion
of its cash flows against fluctuating gold and silver prices. As of December
31, 2000, the Company had sold 24,000 ounces of gold for delivery on various
dates through 2002 at an average price of $324.17. For metal delivery
contracts, the realized price pursuant to the contract is recognized when
physical gold or silver is delivered in satisfaction of the contract. For the
years ended December 31, 2000 and 1999, Coeur recorded non-cash earnings of
$4.0 million and a non-cash charge of $4.3 million to operations,
respectively. At December 31, 2000, based on the spot gold price of $274.45
per ounce, the Company's complete hedging position was valued at $2.4 million,
including the call options sold.
The Company realized cash gains of $4.0 million arising from the
deliveries of gold into purchased put options and forward contracts during
2000.
Further discussions of other financial instruments held by the Company
are included in Note E and Note I.
The following table summarizes the information at December 31, 2000,
associated with the Company's financial and derivative financial instruments:
Fair Value
2001 2002 2003 2004 Thereafter Total 12/31/00
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt
Fixed Rate $ - $ 26,511 $ - $92,820 $ 85,238 $204,569 $ 67,241
Average Interest
Rate 6.691% 6.739% 6.794% 6.942% 7.250% -
F-25
Derivative Financial
Instruments
Gold Forward Sales - USD
Ounces 12,000 12,000 - - - 24,000 $ 847
Price Per Ounce $316.51 $ 331.84 - - - -
Gold Put Options
Purchased - AUD (1)
Ounces 30,000 30,000 30,000 - - 90,000 $ 2,424
Price Per Ounce $597.00 $ 597.00 $ 597.00 - -
Gold Call Options
Sold - USD (2)
Ounces - - - - 56,000 56,000 $ (870)
Price Per
Ounce $ - $ - $ - $ - $ 345.00
Foreign Currency
Contracts
Chile Peso - USD $ 8,100 $ - $ - $ - $ - $ 8,100 $ (125)
Exchange Rate
(CLP to USD) 566.69 - - - - -
(1) This derivative is held in Gasgoyne, which is an equity investment.
Gasgoyne was sold by the Company in February 2001 and this contract was
included as part of the sale. The put options purchased have a knock-out
provision whereby the options will terminate if gold trades above AUD $541
(USD $300) per ounce prior to the exercise date.
(2) The call options sold have a knock-out provision whereby the calls will
terminate if gold trades below $300 per ounce after December 27, 2002.
F-26
The table below summarizes, by contract, the contractual amounts of the
Company's forward exchange and forward metals contracts at December 31, 2000.
2000
----------------------
Forward Unrealized
Contracts Gain (Loss)
--------- -----------
Currency:
Chile $ 8,100 $ (125)
Forward Metal
Sales (1) $ 36,257 $ 4,970
(1) Includes Gasgoyne forward contracts totaling $28,477 and unrealized gains
of $3,776.
For the years ended December 31, 2000, 1999, and 1998, the Company
realized a gain (loss) from its foreign exchange programs of $(1.0) million,
$.1 million and $(.5) million, respectively.
The credit risk exposure related to all hedging activities is limited to
the unrealized gains on outstanding contracts based on current market prices.
To reduce counter-party credit exposure, the Company deals only with a group
of large credit-worthy financial institutions, and limits credit exposure to
each. In addition, to allow for situations where positions may need to be
reversed, the Company deals only in markets that it considers highly liquid.
The Company does not anticipate non-performance by any of these counter
parties.
NOTE N--SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-making group is comprised of the Chief Executive Officer, Chief
Financial Officer and the Chief Operating Officer.
The operating segments are managed separately because each segment
represents a distinct use of company resources and contribution to Company
cash flows in its respective geographic area. The Company's reportable
operating segments include the Rochester, Coeur Silver Valley, Fachinal, and
Petorca mining properties, Coeur Australia (50% owner of Gasgoyne Gold Mines
NL), and exploration and development properties. All operating segments are
engaged in the discovery and/or mining of gold and silver and generate the
majority of their revenues from the sale of these precious metals.
Intersegment revenues consist of precious metals sales to the Company's metals
marketing division and are transferred at the market value of the respective
metal on the date of transfer. The other segment includes the corporate
headquarters, elimination of intersegment transactions and other items
necessary to reconcile to consolidated amounts. Revenues in the other segment
includes sales through a wholly owned commodity marketing subsidiary, and are
generated principally from interest received from the Company's cash and
investments that are not allocated to the operating segments. The accounting
policies of the operating segments are the same as those described in the
F-27
summary of significant accounting policies above. The Company evaluates
performance and allocates resources based on profit or loss before interest,
income taxes, depreciation and amortization, unusual and infrequent items, and
extraordinary items.
Revenues from gold sales were $43.5 million, $48.9 million, and $55.7
million in 2000, 1999, and 1998, respectively. Revenues from silver sales were
$57.3 million, $43.7 million, and $46.8 million in 2000, 1999, 1998,
respectively.
Coeur Exploration
December 31, 2000 Silver Coeur And
Rochester Valley Fachinal Petorca Australia Development Other Total
-----------------------------------------------------------------------------------------------
Net sales and revenues to
External customers $ 25 $17,202 $ 9,756 $ 6,566 $ 9,337 - $ 58,320 $101,206
Intersegment net sales and
revenues 51,938 - - - - - (51,938) -
-------------------------------------------------------------------------------------------------
Total net sales and
revenues $51,963 $17,202 $ 9,756 $ 6,566 $ 9,337 - $ 6,382 $101,206
=================================================================================================
Depreciation and amortization 14,815 2,735 5,138 235 2,260 19 1,481 26,683
Interest income - - 22 6 172 - 4,207 4,407
Interest expense - 14 (3) - - 16,988 16,999
-
Gain on metal hedging - - - - - - 3,970 3,970
Writedown of mine property - (411) - (12,207) - (2,372) (14,990)
-
Income tax expense 1 - - 75 - 272 348
-
Earnings from non-consolidated
Subsidiary - - - - 1,103 - - 1,103
Gain on early retirement
Of debt - - - - - - 16,136 16,136
Profit (loss) 13,506 615 (6,328) (1,837) 1,930 (1,282) (11,304) (4,700)
Investments in non-consolidated
subsidiary - - - - 15,264 - - 15,264
Segment assets (A) 81,130 28,282 24,882 2,769 429 57,921 195,413
Expenditures for property 2,169 6,363 2,636 662 - 1,823 - 13,653
F-28
Coeur Exploration
Silver Coeur And
Rochester Valley Fachinal Petorca Australia Development Other Total
-------------------------------------------------------------------------------------------------
December 31, 1999
Net sales and revenues
to external customers $ (119) $4,960 $8,756 $ 9,086 $ 9,983 $ (323) $ 76,603 $108,946
Intersegment net sales
and revenues 51,312 - - - - - (51,312) -
-------------------------------------------------------------------------------------------------
Total net sales and
revenues $51,193 $4,960 $8,756 $ 9,086 $ 9,983 $ (323) $ 25,291 $108,946
=================================================================================================
Depreciation and
Amortization $ 9,539 $681 $5,025 $(1,020) $ 4,490 $ 364 $ 2,929 $ 22,008
Interest income - - 66 20 65 13 5,444 5,608
Interest expense - - 32 27 - - 16,349 16,408
Gain on Cyprus Settlement - - - - - - 21,140 21,140
Loss on Metal Hedging - - - - - - (4,302) (4,302)
Writedown of Mine Property - - - - (16,193) - (2,492) (18,685)
Income tax (credit) expense - (11) - - 23 - 320 332
Earnings (losses) from non-
consolidated subsidiary - - - - (1,180) - 84 (1,096)
Gain on early retirement
of debt - - - - - - 3,990 3,990
Profit (loss) 18,993 (276) (3,023) (556) 203 (4,784) (2,529) 8,028
Investments in non-
consolidated subsidiary - - - - 29,008 - - 29,008
Segment assets(A) 89,110 24,438 29,386 3,374 1,818 49,880 8,271 206,277
Expenditures for property 3,815 947 1,355 300 - 7,958 560 14,935
=================================================================================================
Exploration
Coeur And Other Total
December 31, 1998 Rochester Fachinal Petorca Australia Development
--------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $ (82) $ 16,324 $ 9,436 $13,860 $ (449) $ 72,885 $ 111,974
Intersegment net sales and
revenues 62,911 - - - - (62,911) -
-----------------------------------------------------------------------------------------------
Total net sales and revenues $ 62,829 $ 16,324 $ 9,436 $13,860 $ (449) $ 9,974 $ 111,974
===============================================================================================
Depreciation and amortization $ 7,910 $ 12,028 $ 1,807 $ 7,060 $ 83 $ 1,723 $ 31,011
Interest income 17 91 31 54 43 9,263 9,499
Interest expense - 65 218 - - 13,379 13,662
Gain on forward sale contracts - - - - - 1,167 1,167
Writedown of mine properties - (42,900) (53,904) - (122,102) (4,266) (223,172)
Income tax (credit) expense - - - (53) - 972 919
Losses from non-consolidated
subsidiaries - - - (1,175) - (955) (2,130)
Gain on early retirement of debt - - - - - 12,158 12,158
Profit (loss) 33,080 (6,976) (2,158) 1,120 (4,938) 1,890 22,018
Investments in non-consolidated
subsidiaries - - - 50,627 - 16,287 66,914
Segment assets (A) 86,362 32,915 4,845 193 23,070 11,573 158,958
Expenditures for property 6,903 2,801 1,843 - 18,654 185 30,386
Notes: (A) Segment assets consist of receivables, inventories, property,
plant and equipment, and mining properties.
F-29
Segment Reporting
2000 1999 1998
--------------------------------
Profit (loss)
Total profit or loss for reportable segments $ (4,700) $ 8,028 $ 22,018
Gain (loss) on legal settlements (4,200) 21,140 -
Gain (loss) on metal hedging 3,971 (4,302) -
Depreciation and amortization (26,683) (21,753) (30,677)
Interest expense (16,999) (16,408) (13,662)
Writedown of mine property and other (14,990) (18,685) (223,172)
--------------------------------
Loss before income taxes $ (63,601) $(31,981) $(245,493)
================================
Assets
Total assets for reportable segments $ 195,413 $ 206,277 $ 158,958
Cash and cash equivalents 35,227 86,935 127,335
Short-term investments 18,344 22,978 1,753
Other assets 22,393 37,857 77,934
---------------------------------
Total consolidated assets $ 271,377 $ 354,047 $ 365,980
=================================
Segment Reporting
Geographic Information
----------------------
Mining
2000: Revenues Properties
--------------------------------------
United States $ 75,875 $ 90,384
Chile 15,989 20,890
Australia 9,337 -
New Zealand 5 569
Bolivia - 18,873
Other Foreign Countries - 8
--------------------------------------
Total $101,206 $130,724
======================================
Mining
1999: Revenues Properties
--------------------------------------
United States $ 60,297 $ 94,356
Chile 17,521 22,356
Australia 9,983 -
New Zealand 21,146 855
Other Foreign Countries (1) 19,565
-------------------------------------
Total $108,946 $137,132
=====================================
Mining
1998: Revenues Properties
--------------------------------------
United States $ 72,326 $ 73,153
Chile 25,802 25,291
Australia 13,860 -
New Zealand - 5,178
Other Foreign Countries (14) 14
-------------------------------------
Total $111,974 $103,636
=====================================
Revenues are geographically separated based upon the country in which
operations and the underlying assets generating revenues reside.
F-30
NOTE O--LITIGATION
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho by the United States against various
defendants, including the Company, asserting claims under CERCLA and the Clean
Water Act for alleged damages to federal natural resources in the Coeur
d'Alene River Basin of Northern Idaho as a result of alleged releases of
hazardous substances from mining activities conducted in the area since the
late 1800s.
On March 16, 2001, the Company and representatives of the U.S.
Government, including the Environmental Protection Agency, the Department of
Interior and the Department of Agriculture, reached an agreement in principle
to settle the lawsuit, which represents the only suit in which the Company has
been named a party. Effectiveness of the settlement and related dismissal of
the lawsuit against the Company is subject to final Justice Department and
Court approval. Pursuant to the terms of the proposed settlement, the Company
will pay the U.S. Government a total of approximately $3.9 million, of which
$3.3 million will be paid within 15 days after effectiveness of the settlement
and the remaining $.6 million will be paid within 45 days after effectiveness
of the settlement. In addition, the Company will (i) pay the United States 50%
of any future recoveries from insurance companies for claims for defense and
indemnification coverage under general liability insurance policies in excess
of $600,000, (ii) accomplish certain cleanup work on the Mineral Point
property (i.e., the former Coeur Mine site) and Calladay property, and (iii)
make available certain real property to be used as a waste repository.
Finally, commencing five years after effectiveness of the settlement, the
Company will be obligated to pay net smelter royalties on its operating
properties, up to a maximum of $3 million, amounting to a 2% net smelter
royalty on silver production if the price of silver exceeds $6.50 per ounce,
and a $5.00 per ounce net smelter royalty on gold production if the price of
gold exceeds $325 per ounce. The royalty would run for 15 years commencing
five years after effectiveness of the settlement. When the settlement
agreement becomes effective, the Court will issue a consent decree dismissing
the action against the Company.
As a result of the settlement, the Company has recorded a charge to other
expense of $4.2 million in the fourth quarter of 2000 which includes $3.9
million of settlement payments, the land transfer expenses and related legal
fees.
F-31
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy and Harmon Refining Group, Inc.,
to which the Rochester Mine had historically sent approximately 50% of its
dore, filed for Chapter 11 bankruptcy. The Company had an inventory at the
refinery of approximately 67,000 ounces of silver and 5,000 ounces of gold
that has been delivered to certain creditors of Handy and Harmon. The dore
inventory has a cost basis of $1.8 million. On February 27, 2001, the Company
commenced a lawsuit against Handy and Harmon and certain others in the U.S.
Bankruptcy Court for the District of Connecticut seeking recovery of the
metals and/or damages. Although the Company believes it has a basis for full
recovery, it is premature to predict the outcome of the lawsuit.
F-32
NOTE P --SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 2000 and 1999:
First Second Third Fourth
Quarter Quarter Quarter Quarter (b)(c)(d)
--------- --------- --------- --------
(In Thousands - Except Per Share Data)
2000
----
Net revenues $ 17,904 $ 29,488 $ 29,724 $ 24,090
Net loss before
extraordinary gain $ (9,922) $(11,573) $ (8,558) $(33,896)(c)
Net loss(a) $ (9,835) $(10,462) $ (8,456) $(19,060)(c)
Net loss attributable
to common shareholders(a) $(12,015) $(10,462) $ (8,456) $(19,060)(c)
Basic and diluted net loss
per share before extraordinary gain $ (.39) $ (.31) $ (.23) $ (.91)
Basic and diluted net loss
per share attributable to
common shareholders(a) $ (.39) $ (.28) $ (.23) $ (.51)
1999(e)
Net revenues $ 19,344 $ 21,675 $ 38,439(f) $ 29,488
Net income (loss) before
extraordinary gain $ (7,273) $ (6,979) $ 7,020 $(25,081)(c)
Net income (loss) $ (7,273) $ (6,979) $ 9,610(g) $(23,681)(c)(g)
Net income (loss) attributable
to common shareholders $ (9,906) $ (9,612) $ 6,977 $(26,314)(c)
Basic and diluted net income (loss)
per share before extraordinary gain $ (.45) $ (.44) $ .18 $ (.95)
Basic and diluted net income (loss)
per share attributable to
common shareholders $ (.45) $ (.44) $ .29 $ (.90)
(a)Includes extraordinary gain on early retirement of debt of
approximately $1.0 million in the first quarter 2000, approximately
$1.1 million in the second quarter 2000, approximately $1.0 million in
the third quarter 2000, and approximately $14.8 million in the fourth
quarter 2000.
(b)Includes realized loss on other than temporary impairment of available
for sale securities of $2.3 million in the fourth quarter 2000.
F-33
(c)Includes writedown of mining properties of approximately $12.2 million
and $16.2 million in the fourth quarters of 2000 and 1999,
respectively, and $4.2 million expense for settlement of a legal suit
in the fourth quarter of 2000.
(d)Includes mark-to-market gain (loss) of $1.6 million in the first
quarter of 2000, ($.5) million in the second quarter of 2000, $2.1
million in the third quarter of 2000, and $.9 million in the fourth
quarter of 2000, on written call options.
(e)Included mark-to-market gain (loss) of ($5.8) and $1.5 million in the
third and fourth quarter of 1999, respectively, on written call
options.
(f)Includes the receipt of $21.1 million in settlement of the Cyprus
litigation suit.
(g)Includes extraordinary gain on early retirement of debt of
approximately $2.6 million in the third quarter 1999, and
approximately $1.4 million in the fourth quarter 1999.
F-34