UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
------
COEUR D'ALENE MINES CORPORATION
(Exact name of registrant as specified on its charter)
IDAHO 82-0109423
- ------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. Employer Ident. No.)
incorporation or organization)
P. O. Box I, Coeur d'Alene, Idaho 83816-0316
- --------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:(208) 667-3511
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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
----- -----
-------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of Issuer's classes of common stock, as of the latest practicable date:
Common stock, par value $1.00, of which 43,095,186 shares were issued and
outstanding as of May 11, 2001.
COEUR D'ALENE MINES CORPORATION
INDEX
-----
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
March 31, 2001 and December 31, 2000
Consolidated Statements of Operations -- 5
Three Months Ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows -- 6
Three Months Ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 22
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, December 31,
2001 2000
----------- -----------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 45,468 $ 35,227
Short-term investments 14,375 18,344
Receivables 8,892 9,710
Inventories 53,938 54,979
--------- --------
TOTAL CURRENT ASSETS 122,673 118,260
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 98,139 97,996
Less accumulated depreciation (61,919) (61,256)
--------- ---------
36,220 36,740
MINING PROPERTIES
Operational mining properties 114,468 113,409
Less accumulated depletion (73,287) (71,225)
--------- ---------
41,181 42,184
Developmental properties 52,222 51,800
--------- --------
93,403 93,984
OTHER ASSETS
Investments in unconsolidated affiliates - 15,264
Notes receivable 231 263
Debt issuance costs, net of accumulated
amortization 3,243 3,621
Other 3,307 3,245
--------- --------
6,781 22,393
--------- --------
$259,077 $271,377
========= ========
See notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
March 31, December 31,
2001 2000
---------- -----------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,114 4,073
Accrued liabilities 9,730 9,799
Accrued interest payable 4,766 4,474
Accrued salaries and wages 4,699 5,723
Current portion of remediation costs 909 1,209
-------- --------
TOTAL CURRENT LIABILITIES 24,218 25,278
LONG-TERM LIABILITIES
6% convertible subordinated debentures
due 2002 26,096 26,511
6 3/8% convertible subordinated debentures
due 2004 92,860 92,860
7 1/4% convertible subordinated debentures
due 2005 80,198 85,198
Other long-term liabilities 24,020 24,090
--------- ---------
TOTAL LONG-TERM LIABILITIES 223,174 228,659
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares,
issued 39,900,451 and 38,109,279 shares
in 2001 and 2000 (including 1,059,211
shares held in treasury) 39,900 38,109
Capital surplus 387,732 387,625
Accumulated deficit (403,000) (394,932)
Repurchased and nonvested shares (13,190) (13,190)
Accumulated other comprehensive loss:
Unrealized gain (loss) on short-term
investments 243 ( 172)
--------- ---------
11,685 17,440
--------- ---------
$259,077 $271,377
======== =========
See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
THREE MONTHS ENDED
March 31,
--------------------------
2001 2000
--------- ---------
(In thousands, except for per share data)
REVENUES
Product sales $ 18,006 $ 14,841
Interest and other revenues 16 3,063
--------- --------
Total Revenues 18,022 17,904
COSTS AND EXPENSES
Production 18,257 13,467
Depreciation and depletion 2,817 4,907
Administrative and general 2,277 3,121
Exploration 1,958 2,140
Interest 3,744 3,956
Other 217 135
--------- ---------
Total Costs and Expenses 29,270 27,726
--------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES AND
EXTRAORDINARY ITEM (11,248) (9,822)
Income tax provision 1 100
--------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEM (11,249) (9,922)
Extraordinary item - early
retirement of debt
(net of taxes) 3,181 87
--------- ---------
NET LOSS (8,068) (9,835)
Unrealized holding gain (loss)
on securities 415 (1,339)
--------- ---------
COMPREHENSIVE LOSS $ (7,653) $(11,174)
========= =========
NET LOSS $ (8,068) $ (9,835)
Preferred stock dividends 0 2,180
--------- ---------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (8,068) $(12,015)
========= =========
BASIC AND DILUTED EARNINGS PER SHARE:
Weighted average number
of shares of Common Stock 37,308 30,569
========= =========
Loss before extraordinary item $ (.31) $ (.39)
Extraordinary item - early
retirement of debt (net of taxes) .09 .00
--------- ---------
Net loss per share attributable
to common shareholders $ (.22) $ (.39)
========= =========
See notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------------
2001 2000
---------- ----------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,068) $ (9,835)
Add (deduct) noncash items:
Depreciation and depletion 2,817 4,907
Gain on early retirement of debt (net of tax) (3,181) (87)
Other 2,189 1,589
Undistributed (earnings) loss on investment
in unconsolidated subsidiary 0 (482)
Unrealized gain on written call options (379) (1,554)
Changes in Operating Assets and Liabilities:
Receivables 818 7,271
Inventories 1,041 (7,637)
Accounts payable and accrued liabilities (1,208) (1,965)
--------- ----------
NET CASH USED IN OPERATING ACTIVITIES (5,971) (7,793)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (1,255) (4,276)
Proceeds from sales of short-term investments 5,266 12,073
Proceeds from sale of assets 14,733 591
Expenditures on mining assets (1,977) (3,947)
Other (259) 103
--------- ----------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 16,508 4,544
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of cash dividends - (2,633)
Other (296) (198)
--------- ----------
NET CASH USED IN FINANCING ACTIVITIES (296) (2,831)
--------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 10,241 $ (6,080)
Cash and cash equivalents at beginning
of period 35,227 86,935
--------- ----------
Cash and cash equivalents at end of period $ 45,468 $ 80,855
========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE
During the 1st quarter of 2001 the Company repurchased $5.0 million
principal amount of its outstanding 7 1/4% Convertible Subordinate
Debentures in exchange for 1,787,500 shares of common stock.
See notes to consolidated financial statements.
6
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Coeur
d'Alene Mines Corporation Annual Report on Form 10-K for the year ended December
31, 2000.
NOTE B: Inventories
Inventories are comprised of the following:
MARCH 31, DECEMBER 31,
2001 2000
---------- -----------
(In Thousands)
In process and on leach pads $ 43,230 43,595
Concentrate and dore' inventory 5,454 6,258
Supplies 5,254 5,126
--------- ---------
53,938 $ 54,979
========= =========
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred, 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. 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. Dore inventory includes product at
the mine site and product held by refineries.
The Handy and Harmon refinery, to which the Rochester Mine sent
approximately 50% of its dore, filed for Chapter 11 Bankruptcy during
7
the first quarter of 2000. The Company has in inventory, at the refinery,
approximately 67,000 ounces of silver and approximately 5,000 ounces of gold,
being held pending resolution of the Bankruptcy proceeding. At this time, the
Company has initiated litigation against Handy and Harmon and its former lenders
in an effort to recover the gold and silver previously delivered by Coeur
d'Alene Mines Corporation ("Coeur" or the "Company") to Handy and Harmon
refining. The Company maintains that title to the metal was never transferred to
Handy and Harmon and therefore believes it has a basis to recover all the
inventory being held. The book value of such inventory at March 31, 2001 was
$1.8 million.
NOTE C: Income Taxes
The Company has reviewed its net deferred tax asset for the three-month
period ended March 31, 2001, together with net operating loss carryforwards, and
has decided to forego recognition of potential tax benefits arising therefrom.
In making this determination, the Company has considered the Company's history
of tax losses incurred since 1989, the current level of gold and silver prices
and the ability of the Company to use accelerated depletion and amortization
methods in the determination of taxable income. As a result, the Company's net
deferred tax asset has been fully reserved.
NOTE D: Long-Term Debt
On March 19, 2001, the Company repurchased $5 million principal amount of
it's outstanding 7 1/4% Convertible Subordinated Debentures due 2005 in exchange
for 1,787,500 shares of common stock. As a result of the repurchase, the Company
has recorded an extraordinary gain of approximately $3.0 million, net of taxes
of zero, during the first quarter of 2001 on the reduction of its indebtedness.
The share price used as consideration was based upon market prices at the time
of the transaction.
In three additional privately negotiated transactions completed in April
2001, the Company repurchased, in aggregate, $11 million principal amount of its
outstanding 7 1/4% Convertible Subordinated Debentures due 2005 in exchange for
4,257,618 shares of common stock. As a result of the transactions completed in
April, the Company expects to record an extraordinary gain of approximately $5.6
million, net of offering costs and taxes in the quarter ending June 30, 2001.
8
NOTE E: Assets Available for Sale
During the first quarter of 2001, Coeur formally engaged Macquarie North
America Limited to assist with the sale of the Company's gold mining and related
assets in Chile. These assets consist of the Fachinal and Petorca mines,
exploration properties and other financial assets with a carrying amount of
which at March 31, 2001 of approximately a net $21.4 million.
NOTE F: Segment Reporting
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 the Company's
cash flows in its respective geographic area. The Company's reportable operating
segments include the Rochester, Coeur Silver Valley, Fachinal, and Petorca
mining properties, the Kensington development property, and the Company's
exploration programs which includes the San Bartolome silver development
property. 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 metal sales to
the Company's metals marketing division and are transferred at the market value
of the respective metal on the date of the transfer. The Other segment includes
earnings (loss) from unconsolidated subsidiaries accounted for by the equity
method, the corporate headquarters, elimination of intersegment transactions and
other items necessary to reconcile to consolidated amounts. Revenues in the
other segment 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 summary of significant accounting policies in the Company's
Annual Report on Form 10-K. The Company evaluates performance and allocates
resources based on each segments profit or loss before interest, income taxes,
depreciation and amortization, unusual and infrequent items, and extraordinary
items.
9
Segment Reporting
(In Thousands)
Rochester Silver Valley Fachinal Petorca Exploration Other Total
-------------------------------------------------------------------------------------------
March 31, 2001
Total net sales and revenues $ 13,012 $ 4,456 $ (54) $ 870 $ - $ (262) $ 18,022
==================================================================================================================================
Depreciation and amortization 2,675 703 - 133 5 331 3,847
Interest income - - (0.8) (2) - (529) (532)
Interest expense - - 574 - - 3,169 3,744
Other Expense - 131 69 - - 17 217
Income tax (credit) expense - 1 - - - - 1
Gain on early retirement of debt - - - - - 3,181 3,181
Profit (loss) 1,531 (5) (77) (490) (301) (4,478) (3,820)
Segment assets (A) 77,672 27,944 23,895 3,573 67 59,302 192,453
Capital expenditures for property 166 757 672 - 15 367 1,977
March 31, 2000
Total net sales and revenues $ 12,036 $ 3,577 $ 188 $ 586 $ 73 $ 1,444 $ 17,904
==================================================================================================================================
Depreciation and amortization 3,507 572 1,256 53 21 899 6,308
Interest income - - (5) (2) (8) (1,359) (1,374)
Interest expense - - - - - 3,956 3,956
Income tax (credit) expense - 1 - - - 99 100
Earnings (losses) from non-consolidated
affiliates - - - - - 482 482
Gain on early retirement of debt - - - - - 87 87
Profit (loss) 3,169 (882) (242) (471) (1,551) 421 443
Investments in non-consolidated affiliates - - - - - 28,892 28,892
Segment assets (A) 87,369 23,591 30,165 2,656 20,087 41,633 205,501
Capital expenditures for property 294 974 1,324 49 1,306 3,947
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
Segment Reporting
(in thousands)
2001 2000
-----------------------------
Profit (loss)
Total profit or loss from reportable segments $ (3,820) $ 443
Depreciation expense (3,847) (6,308)
Interest expense (3,744) (3,956)
Other 163 -
-----------------------------
Loss before income taxes $(11,248) $ (9,822)
=============================
Assets
Total assets for reportable segments $ 192,453 $ 205,501
Cash and cash equivalents 45,468 80,855
Short-term investments 14,375 13,652
Other assets 6,781 37,420
-----------------------------
Total consolidated assets $ 259,077 $ 337,428
=============================
10
Geographic Information
- ----------------------
(In thousands) Long-Lived
2001: Revenues Assets
--------------------------------------
United States $18,311 $88,795
Chile 35 21,417
Bolivia - 18,881
Other Foreign Countries (324) 530
--------------------------------------
Consolidated Total $18,022 $129,623
======================================
Long-Lived
2000: Revenues Assets
--------------------------------------
United States $14,881 $ 93,165
Chile 845 22,570
Bolivia - 19,564
Other Foreign Countries 2,178 691
--------------------------------------
Consolidated Total $17,904 $135,990
======================================
Revenues are geographically separated based upon the country in which operations
and the underlying assets generating those revenues reside.
NOTE G: Hedging
For the first quarter of 2001 the Company recorded a realized gain of
approximately $.2 million in connection with the hedge program and an additional
$.4 million of mark to market gain on the call options. The Company has 21,000
ounces in forward sales in its gold protection program (2001-9,000 ounces,
2002-12,000 ounces), whereby over the next two years the Company will receive an
average price of $326.03.
The following table summarizes the information at March 31, 2001 associated
with the Company's financial and derivative financial instruments that are
sensitive to changes in interest rates, commodity prices and foreign exchange
rates. For long term debt obligations, the table presents principal cash flows
and related average interest rates. For gold put and call options and amortizing
forward sales, the table presents ounces expected to be delivered and the
related average price per ounce in Australian dollars. For foreign currency
exchange contracts, the table presents the notional amount in Chilean Peso's to
be purchased along with the average foreign exchange rate.
11
Fair
Value
(dollars in thousands) 2001 2002 2003 2004 Thereafter Total 3/31/00
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt $ - $ 26,096 $ - $ 92,860 $ 80,198 $199,154 $ 74,909
Fixed Rate
Average Interest Rate 6.717% 6.782% 6.843% 7.190% 7.250%
Derivative Financial
Instruments
Gold Forward
Sales - USD
Ounces 9,000 12,000 - - - 21,000 $1,203
Price Per Ounce $ 316.51 $ 318.28 $ - $ - $ -
Gold Call Options
Sold - USD
Ounces (1) - - - - 56,000 56,000 $(484)
Price Per Ounce - $ - $ - $ - $ 345.00
Foreign Currency
Contracts
Chilean Peso's $ 5,400 $ - $ - $ - $ 5,400 $(235)
Exchange Rate
(Chilean Peso to $569.15 $ - $ - $ - $ -
US$)
(1) The call options sold have a knock-out provision whereby the calls for 56,000 ounces will terminate if gold trades
below $300 per ounce after December 27, 2002.
NOTE H: New Accounting Standard
On January 1, 2000 the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments and hedging activities. SFAS 133 requires the Company
to recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value on
an on-going basis. The adoption of SFAS No. 133 has had no effect on the
Company's financial statements.
NOTE I: 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
12
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 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.
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.
NOTE J: Reclassification
Certain reclassifications of prior-year balances have been made to conform
to current year classifications.
13
Item 2. 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 may fluctuate widely and are affected by
many factors beyond the Company's control, including, without limitation,
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.
The average price of silver and gold in the first quarter of 2001 was $4.56
and $263 per ounce, respectively. The market price of silver (Handy & Harman)
and gold (London Final) on May ___, 2001 were $____ per ounce and $____ per
ounce, respectively.
The Company's currently operating mines are the Rochester mine in Nevada,
the Galena mine in the Coeur d'Alene Mining District of Idaho, and the Petorca
mine in Chile.
This document contains numerous forward-looking statements relating to the
Company's gold and silver mining business. The United States Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for certain forward
looking statements. Operating, exploration and financial data, and other
statements in this document are based on information the company believes
reasonable, but involve significant uncertainties as to future gold and silver
prices, costs, ore grades, estimation of gold and silver reserves, mining and
processing conditions, changes that could result from the Company's future
acquisition of new mining properties or businesses, the risks and hazards
inherent in the mining business (including environmental hazards, industrial
accidents, weather or geologically related conditions), regulatory and
permitting matters, and risks inherent in the ownership and operation of, or
investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following table sets forth the amounts of gold and silver produced by
the mining properties owned by the Company or in which the Company has an
interest, based on the amounts attributable to the Company's ownership interest,
and the cash and full costs of such production during the three-month periods
ended March 31, 2001 and 2000:
14
THREE MONTHS ENDED
March 31,
-------------------------
2001 2000
--------- ---------
ROCHESTER MINE
Gold ozs. 19,519 15,457
Silver ozs. 1,501,649 1,538,260
Cash Costs per equiv. oz./silver $3.88 $4.27
Full Costs per equiv. oz./silver $4.84 $5.45
GALENA MINE
Silver ozs. 1,107,941 790,792
Cash Costs per oz./silver $4.36 $5.82
Full Costs per oz./silver $5.01 $6.54
PRIMARY SILVER MINES
--------- ---------
Consolidated Cash Costs per
equivalent oz.of silver $4.02 $4.65
--------- ---------
YILGARN STAR MINE (Note A)
Gold ozs. N/A 6,120
Cash Costs per oz./gold N/A $268
Full Costs per oz./gold N/A $378
FACHINAL MINE (Note B)
Gold ozs. N/A 5,415
Silver ozs. N/A 263,726
Cash Costs per equiv. oz./gold N/A $338
Full Costs per equiv. oz./gold N/A $462
PETORCA MINE
Gold ozs. 7,159 5,172
Silver ozs. 22,127 10,642
Cash Costs per oz./gold $354 $384
Full Costs per oz./gold $373 $395
PRIMARY GOLD MINES
--------- ---------
Consolidated Cash Costs per
equivalent oz.of gold $354 $365
--------- ---------
CONSOLIDATED TOTAL METAL PRODUCTION
Gold ozs. 26,678 32,164
Silver ozs. 2,631,717 2,603,390
Note A: On February 7, 2001, the Company sold its interest in the Yilgarn Star
Mine, effective December 31, 2000.
Note B: The Company placed the Fachinal Mine on temporary standby effective
December 7, 2000.
OPERATING HIGHLIGHTS
- --------------------
North America
Rochester Mine (Nevada)
- ----------------------
The Rochester Mine produced 1.5 million ounces of silver and 19,519 ounces
of gold in the first quarter of 2001 compared to 1.54 million ounces of silver
and 15,457 ounces of gold in the first quarter of the prior year. The increase
in gold production was largely anticipated as the planned mining sequence for
2001
15
concentrated in a gold-rich area of the main pit. Cash costs for the period
declined to $3.88 per silver equivalent ounce from $4.27 per ounce in 2000. The
decline in cash costs is due in part to the higher gold production but also to
the number of operating improvements carried out last year, particularly
upgrading the crushing circuit, changing the blasting pattern to increase ore
fragmentation and adjusting the leach solution chemistry. Additional
modifications to increase crushing capacity at Rochester, will be completed by
the end of May.
To follow up on last year's very successful mine exploration program, Coeur
commenced reverse circulation drilling at Rochester on March 20. By the end of
the month, 12 holes comprising 5,200 feet were completed and the data is
currently being analyzed. In early April, drilling commenced at the Nevada
Packard satellite deposit located to the south of the main pit.
Coeur Silver Valley (Idaho)
- --------------------------
Silver production at Coeur Silver Valley (the Galena mine) increased by
more than 40 percent to 1.1 million ounces in 2001 compared to 0.79 million
ounces in the first quarter of last year. Total cash costs for the quarter were
down in excess of 25 percent at $4.36 per ounce from $5.82 per ounce in 2000.
The increase in production and decrease in cash costs was due to comprehensive
underground development and optimization programs instituted in the prior year.
This has provided greater access to the recently discovered high-grade vein
systems at depth. These vein structures also tend to be wider than most of the
vein systems mined in the upper levels and this has enabled Coeur to increase
mill throughput and further lower costs.
As the development of these deeper vein systems progressed, the mine staff
completed intensive studies that supported the Company's decision to introduce
trackless mining equipment in these areas. To date, trackless mining and
drilling equipment have been transported underground, an underground hoist has
been installed and ramp construction is well underway. Coeur expects the initial
production of ore from trackless mining by the end of June of this year.
Exploration drilling is presently underway to extend the high grade 72 vein
up dip and to the west of current operations as well as the detailed evaluation
of the 117 vein on the 3700 level of the mine.
Chile
- -----
Earlier this year, Coeur formally engaged Macquarie North America Limited
to assist with the sale of the Company's gold holdings in Chile. These holdings
consist of the Fachinal and Petorca mines, exploration properties and other
financial assets.
16
Fachinal Mine
- -------------
Coeur suspended operations at the Fachinal mine in the fourth quarter of
2000 to evaluate and fully develop the Cerro Bayo gold-silver discovery.
Although there was no mining activity in the latest quarter, surface mapping and
detailed sampling programs were carried out to extend the limits of the Cerro
Bayo zone, and have provided positive results.
Petorca
- -------
At Petorca, gold and silver production increased to 7,159 ounces and 22,127
ounces respectively, compared to 5,172 ounces of gold and 10,642 ounces of
silver in the first quarter of 2000. Total cash costs for gold were $354 per
ounce compared to $384 per ounce in the prior year's first quarter.
Australia
Yilgarn Star (Western Australia)
- -------------------------------
Consistent with the Company's stated strategy to focus primarily on the
development of its silver assets, Coeur initiated a program in early 2001 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 other
50% of Gasgoyne.
The sale was effective as at December 31, 2000, and as a result Coeur did
not have an interest in the Yilgarn Star Mine's production in the first quarter
of 2001.
DEVELOPMENT PROJECTS
- --------------------
San Bartolome (Bolivia)
- ----------------------
Late last year, Coeur completed a comprehensive prefeasibility study at its
San Bartolome silver development project near the town of Potosi, Bolivia. The
San Bartolome project is located adjacent to Cerro Rico mountain, one of world's
historic and most prolific silver producing regions. The prefeasibility study
defined a resource of 122 million contained ounces of silver of which 93 percent
was classified as measured and indicated. In addition, a detailed process flow
sheet design and site plan layout was completed as well as comprehensive
estimates of all operating and capital costs. All data has been checked and
verified by third-party engineering and geological consulting firms.
17
During this year's first quarter, work continued primarily to expand
the existing resource and carry out further metallurgical studies to optimize
silver recoveries and possibly recover tin as a by-product. Alternate tailings
disposal sites were also examined and additional baseline environmental data was
collected.
Coeur intends to commence a formal feasibility study during 2001.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 2001 Compared to Three Months
Ended March 31, 2000.
----------------------------------------------------------
Revenues
- --------
Despite sharply lower realized gold and silver prices, product sales in the
first quarter of 2001 increased by $3.2 million, or 21%, from the first quarter
of 2000 to $18.0 million. The increase in sales is primarily attributable to
increased production of silver and concentrate inventory sales from the Galena
and Petorca mines. In the first quarter of 2001, the Company produced a total of
2,631,717 ounces of silver and 26,678 ounces of gold compared to 2,603,390
ounces of silver and 32,164 ounces of gold in the first quarter of 2000. In the
first quarter of 2001, the Company realized average silver and gold prices of
$4.52 and $270, respectively, compared with realized average prices of $5.19 and
$342, respectively, in the prior year's first quarter. The decline in gold
production was due primarily to the sale of the Company's interest in Gasgoyne,
as well as the lack of production from Fachinal. This was partially offset by
higher gold production at Rochester and Petorca.
Interest and other income in the first quarter of 2001 decreased by $3.0
million compared with the first quarter of 2000. The decrease is primarily due
to a $1.2 million decrease in gains recorded on the mark to market adjustment
for the call option portion of the Company's hedge program and $.7 million less
interest income received as a result of lower interest rates and lower cash
balances.
Costs and Expenses
- ------------------
Production costs in the first quarter of 2001 increased by $4.8 million, or
36%, from the first quarter of 2000 to $18.3 million. The increase in production
costs is primarily a result of increased sales for the first quarter of 2001
over the first quarter of 2000.
Depreciation and amortization decreased in the first quarter of 2001 by
$2.1 million, or 43%, from the prior year's first quarter, primarily due to no
depletion or amortization taken at the Fachinal mine due to temporary suspension
of operations, resulting in no
18
production, and no depletion associated with the Yilgarn Star mine due to sale
of the Company's interest in early February 2001.
Administrative and general expenses decreased $.8 million in the first
quarter of 2001 compared to 2000, due to decreased annual incentive awards in
2001.
Net Loss
- --------
As a result of the above mentioned factors, as well as debt retirement
discussed below, the Company's net loss amounted to $8.1 million in the first
quarter of 2001 compared to a net loss of $9.8 million in the first quarter of
2000. The net loss attributable to common shareholders was $8.1 million for the
first quarter of 2001, or $.22 per share, compared to $12.0 million for the
first quarter of 2000, or $.39 per share.
Debt Reduction Program
- ----------------------
One of the Company's major objectives over the past three years has been to
reduce the level of its long-term debt and consequent interest payments. To the
end of April 2001, Coeur had reduced its long-term debt by more than $100
million, recognizing extraordinary gains of approximately $41 million over the
past three years.
On March 19, 2001, the Company exchanged 1,787,500 of its common shares for
$5 million principal value of its 7 1/4 percent Convertible Subordinated
Debentures due 2005, recording an extraordinary gain of $3.0 million in the
first quarter of 2001.
On April 30, 2001, the Company announced that it completed three similar
transactions, exchanging a total of 4,257,618 common shares for a principal
amount of $11 million of its 7 1/4 percent Convertible Subordinated Debentures
due 2005. As a consequence of these latest transactions, Coeur's total
outstanding convertible debt had been reduced to $188.1 million at April 30,
2001, and annual interest expense will be decreased by approximately $1.2
million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working Capital; Cash and Cash Equivalents
The Company's working capital at March 31, 2001 was approximately $98.5
million compared to $93.0 million at December 31, 2000. The ratio of current
assets to current liabilities was 5.1 to 1.0 at March 31, 2001 compared to 4.7
to 1.0 at December 31, 2000.
Net cash used in operating activities in the three months ended March 31,
2001 was $6.0 million compared to $7.8 million in the three months ended March
31, 2000. Net cash provided from investing activities in the 2001 period was
$16.5 million compared to net cash
19
provided in investing activities of $4.5 million in the prior year's comparable
period. The cash provided in the 2001 period was attributable to net proceeds of
$14.7 million received from the sale of the Company's interest in Gasgoyne and
proceeds from sale of short-term investments and marketable securities of $4.0
million net of purchases in the first three months of 2001, offset by capital
expenditures primarily at the Fachinal and Galena Mines, and the Kensington
Development property. Net cash used in financing activities was $.3 million in
the first three months of 2001, compared to $2.8 million used in the first three
months of 2000. As a result of the above, cash and cash equivalents increased by
$10.2 million in the first three months of 2001 compared to a decrease of $6.1
million for the comparable period in 2000.
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
20
becomes effective, the Court will issue a consent decree dismissing the action
against the Company.
As a result of the settlement, the Company 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.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to various market risks as a part of its operations.
As 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. The Company continually evaluates the potential
benefits of engaging in these strategies based on the then current market
conditions. The Company may be exposed to nonperformance by counterparties as a
result of its hedging activities. This exposure would be limited to the amount
that the spot price of the metal falls short of the contract price.
21
The Company operates in several foreign countries, specifically Bolivia and
Chile, which exposes it to risks associated with fluctuations in the exchange
rates 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 currencies. Gains and losses on foreign exchange contracts that are
related to firm commitments are designated and effective as hedges and are
deferred and recognized in the same period as the related transaction. All other
contracts that do not qualify as hedges are mark-to-market and the resulting
gains or losses are recorded in income. 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 March 31, 2001 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 G - Hedging, to the consolidated financial statements for a table
which summarizes the Company's gold and foreign exchange hedging activities at
March 31, 2001.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits. None.
b) Reports on Form 8-K. None.
22
SIGNATURES
Pursuant to the requirements 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)
Dated May 14, 2001 /s/ Dennis E. Wheeler
-------------------------
DENNIS E. WHEELER
Chairman, President and
Chief Executive Officer
Dated May 14, 2001 /s/ Geoffrey A. Burns
-------------------------
GEOFFREY A. BURNS
Vice President and
Chief Financial Officer
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