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 June 30, 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 43,099,640 shares were issued and
outstanding as of August 09, 2001.
COEUR D'ALENE MINES CORPORATION
INDEX
-----
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
June 30, 2001 and December 31, 2000
Consolidated Statements of Operations and
Comprehensive Loss -- 5
Three Months and Six Months Ended June 30, 2001
and 2000
Consolidated Statements of Cash Flows -- 6
Three Months and Six Months Ended June 30, 2001
and 2000
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 16
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 27
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
2
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
June 30, December 31,
2001 2000
--------- ---------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 33,057 $ 35,227
Short-term investments 14,873 18,344
Receivables 5,783 9,710
Inventories 52,339 54,979
--------- ---------
TOTAL CURRENT ASSETS 106,052 118,260
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 99,321 97,996
Less accumulated depreciation (62,313) (61,256)
--------- ---------
37,008 36,740
MINING PROPERTIES
Operational mining properties 114,552 113,409
Less accumulated depletion (75,012) (71,225)
--------- ---------
39,540 42,184
Developmental properties 52,661 51,800
-------- ---------
92,201 93,984
OTHER ASSETS
Investments in unconsolidated affiliates - 15,264
Notes receivable 238 263
Debt issuance costs, net of accumulated
amortization 2,838 3,621
Other 3,341 3,245
--------- ---------
6,417 22,393
--------- ---------
$241,678 $271,377
========= =========
See notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
June 30, December 31,
2001 2000
--------- ---------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,482 4,073
Accrued liabilities 7,368 11,008
Accrued interest payable 3,483 4,474
Accrued salaries and wages 4,436 5,723
6% convertible subordinated debentures due 2002 23,871 -
--------- ---------
TOTAL CURRENT LIABILITIES 41,640 25,278
LONG-TERM LIABILITIES
6% convertible subordinated debentures
due 2002 2,044 26,511
6 3/8% convertible subordinated debentures
due 2004 92,860 92,860
7 1/4% convertible subordinated debentures
due 2005 69,180 85,198
Other long-term liabilities 22,588 24,090
--------- ---------
TOTAL LONG-TERM LIABILITIES 186,672 228,659
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares,
issued 44,158,851 and 38,109,279 shares
in 2001 and 2000 (including 1,059,211
shares held in treasury) 44,159 38,109
Capital surplus 388,495 387,625
Accumulated deficit (406,637) (394,932)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive income(loss) 539 ( 172)
--------- ---------
13,366 17,440
--------- ---------
$241,678 $271,377
========= =========
See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three and Six Months Ended June 30, 2001 and 2000
(Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(In thousands except for per share data)
REVENUES
Product sales $ 18,213 $ 28,021 $ 36,219 $ 42,862
Interest and other 1,838 1,467 1,854 4,530
--------- --------- --------- ---------
Total Revenues 20,051 29,488 38,073 47,392
COSTS AND EXPENSES
Production 17,836 25,609 36,093 39,076
Depreciation and amortization 2,549 5,902 5,366 10,809
Administrative and general 2,163 2,095 4,440 5,216
Exploration 2,437 2,441 4,395 4,581
Interest 3,638 3,881 7,382 7,837
Other 856 1,028 1,073 1,163
--------- --------- --------- ---------
Total Costs and Expenses 29,479 40,956 58,749 68,682
--------- --------- --------- ---------
NET LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (9,428) (11,468) (20,676) (21,290)
Income tax provision - 105 1 205
--------- --------- --------- ---------
NET LOSS BEFORE EXTRAORDIANARY ITEM (9,428) (11,573) (20,677) (21,495)
Extraordinary item - early
retirement of debt
(net of taxes) 5,791 1,111 8,972 1,198
--------- --------- --------- ---------
NET LOSS (3,637) (10,462) (11,705) (20,297)
Unrealized holding gain (loss)
on securities 296 (185) 711 (1,649)
--------- --------- --------- ---------
COMPREHENSIVE LOSS $ (3,341) $(10,647) $(10,994) $(21,946)
========= ========= ========= =========
NET LOSS (3,637) (10,462) (11,705) (20,297)
Preferred stock dividends - - - 2,180
--------- --------- --------- ---------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (3,637) $(10,462) $(11,705) $(22,477)
========= ========= ========= =========
BASIC AND DILUTED LOSS PER SHARE DATA
Weighted average number
of shares of Common Stock 43,100 37,050 39,729 33,810
======== ========= ========= =========
Loss before extraordinary item $ (0.21) $ (0.31) $ (0.52) $ (0.70)
Extraordinary item - early
Retirement of debt(net of taxes) 0.13 0.03 0.23 0.04
--------- --------- --------- ---------
Net Loss per share attributable
to Common Shareholders $ (0.08) $ (0.28) $ (0.29) $ (0.66)
========= ========= ========= =========
See notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three and Six Months Ended June 30, 2001 and 2000
(Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,637) $(10,462) $(11,705) $(20,297)
Add (deduct) noncash items:
Depreciation, depletion, and amortization 2,549 5,902 5,366 10,809
Gain on early retirement of debt (net of taxes) (5,791) (1,111) (8,972) (1,198)
Other 622 954 2,811 2,543
Undistributed earnings of investment
in unconsolidated subsidiary - (78) - (560)
Unrealized (gain)loss on written calls 158 511 (221) (1,043)
Changes in Operating Assets and Liabilities:
Receivables 3,108 (2,100) 3,927 5,171
Inventories 1,600 4,683 2,640 (2,954)
Accounts payable and accrued liabilities (8,603) (1,391) (9,811) (3,356)
--------- --------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (9,994) (3,092) (15,965) (10,885)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (468) (4,187) (1,723) (8,463)
Proceeds from sales of short-term investments 337 - 5,603 12,073
Proceeds from sale of assets - 99 14,733 690
Expenditures on mining assets (1,908) (4,406) (3,885) (8,353)
Other (303) (20) (562) 83
--------- --------- --------- ---------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (2,342) (8,514) 14,166 (3,970)
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt - (5,841) - (5,999)
Payment of cash dividends - - - (2,633)
Other (75) (118) (371) (158)
--------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (75) (5,959) (371) (8,790)
--------- --------- --------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (12,411) (17,565) (2,170) (23,645)
Cash and cash equivalents at beginning
of period 45,468 80,855 35,227 86,935
--------- --------- --------- ---------
Cash and cash equivalents at June 30 $ 33,057 $ 63,290 $ 33,057 $ 63,290
========= ========= ========= =========
Supplemental Cash Flow disclosure
During the 2nd quarter of 2001 the Company repurchased $11.0 million principal amount of its
outstanding 7-1/4% Convertible Subordinated Debentures in exchange for 4,257,618 shares of common
stock.
During the 1st quarter of 2001, the Company repurchased $5.0 million principal amount of its
outstanding 7-1/4% Convertible Subordinated 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
(Unaudited)
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 and six month periods ended June 30, 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: Short-term Investments
Coeur d'Alene Mines Corporation ("Coeur" or the "Company"), under the terms
of its lease, self insurance, and bonding agreements with banks, lending
institutions and regulator agencies, is required to collateralize a certain
portion 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
June 30, 2001 and December 31, 2000, the Company had certificates of deposit
under these agreements of $11.1 million and $10.4 million, respectively,
restricted for this purpose.
The insurance company that issued the surety bond required under Nevada law
to cover our estimated $17.8 million of future mine closure reclamation costs
relating to the Rochester Mine recently filed for liquidation. We are currently
attempting to arrange for a replacement insurer, and will be required to provide
adequate financial consideration to the State of Nevada to assure our continued
compliance with our reclamation liability obligation.
7
NOTE C: Inventories
Inventories are comprised of the following:
JUNE 30, DECEMBER 31,
2001 2000
------------ -----------
(In Thousands)
In process and on leach pads $ 43,111 43,595
Concentrate and dore' inventory 4,170 6,258
Supplies 5,058 5,126
--------- ---------
$ 52,339 $ 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 historically
sent approximately 50% of its dore, filed for Chapter 11 Bankruptcy during 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,
which has not been returned 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 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 the entire inventory being held. The book value of such
inventory at June 30, 2001 was approximately $1.8 million.
NOTE D: Income Taxes
The Company has reviewed its net deferred tax asset as of June 30, 2001,
together with net operating loss carry forwards, 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 E: Long-Term Debt
In three privately negotiated transactions completed in the second quarter
of 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,
the Company recorded an extraordinary gain in the second quarter ending June 30,
2001 of approximately $5.8 million, net of deferred offering costs and taxes.
8
In the first quarter of 2001, the Company repurchased $5 million principal
amount of its 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 in all of these transactions was
based upon market prices at the time of each respective transaction.
On June 29, 2001, the Company commenced an offer to exchange newly issued
13-3/8% Convertible Senior Subordinated Notes due December 31, 2003 ("13-3/8%
Notes") for the Company's outstanding 7-1/4% Convertible Subordinated Debentures
due October 31, 2005 ("7 1/4% Debentures"), 6-3/8% Convertible Subordinated
Debentures due January 31, 2004("6-3/8% Debentures") and 6% Convertible
Subordinated Debentures due June 10, 2002 ("6% Debentures") (the "Exchange
Offer").
The Company offered to issue up to a total of $71,340,000 principal amount
of 13-3/8% Notes in exchange for up to 80% of its outstanding 7-1/4% and 6-3/8%
Debentures and up to 25% of its outstanding 6% Debentures. The Company offered
$1,000 principal amount of 13-3/8% Notes for each $2,000 principal amount of
7-1/4% or 6-3/8% Debentures, and $1,000 principal amount of 13-3/8% Notes for
each $1,000 principal amount of 6% Debentures validly tendered and accepted in
the exchange offer.
The 13-3/8% Notes are Senior in right of payment to the outstanding
7-1/4%, 6-3/8% and 6% Debentures. In addition, the 13-3/8% Notes are convertible
into Coeur common stock, at any time following the date of issuance on August 1,
2001, and prior to maturity. The minimum conversion price is $1.35 per share,
subject to adjustment. The 13-3/8% Notes are redeemable at the option of the
Company two years after issuance, subject to certain conditions, and at the
option of the holders in the event of a change in control.
On July 30, 2001 the Company completed the Exchange Offer. The
principal amounts of Debentures validly tendered and accepted for exchange were
as follows: $54,530,000 of the 7-1/4% Debentures, $26,526,000 of the 6-3/8%
Debentures and $2,044,000 of the 6% Debentures.
As a result of the Exchange Offer, the Company issued on August 1,
2001, $42,572,000 principal amount of its 13-3/8% Notes in exchange for the
outstanding 7-1/4%, 6-3/8% and 6% Debentures which were tendered and accepted in
the Exchange Offer.
The Exchange Offer has reduced Coeur's outstanding long-term debt by
approximately $39.9 million and increased shareholders' equity by approximately
$38.6 million.
9
In addition, the Company also offered for sale to holders of Coeur's
outstanding Debentures who participated in the Exchange Offer, the right to
purchase for cash additional 13-3/8% Notes (the "Cash Offer"). The Company sold
$74,000 principal amount of 13-3/8% Notes in the Cash Offer.
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 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.
10
Segment Reporting
(In Thousands)
Silver
Rochester Valley Fachinal Petorca Exploration Other Total
--------------------------------------------------------------------------------------------
June 30, 2001
Total net sales and revenues $ 24,408 $ 8,531 $ 160 $ 3,451 $ - $ 1,522 $ 38,073
==================================================================================================================================
Depreciation and amortization 4,501 1,459 - 265 11 609 6,846
Interest income - - 1 2 - 1,147 1,151
Interest expense - - - - - 7,382 7,382
Gain on forward sale contracts - - - - - 221 221
Income tax (credit) expense - 1 - - - - 1
Gain on early retirement of debt - - - - - 8,972 8,972
Profit (loss) 2,702 (418) (1,528) (1,050) (810) (4,492) (5,596)
Investments in non-consolidated
affiliates - - - - - 12 12
Segment assets (A) 76,437 27,526 23,296 2,885 183 57,003 187,330
Capital expenditures for property 611 1,730 801 - 30 713 3,885
June 30, 2000
Total net sales and revenues $ 25,279 $ 7,815 $ 4,157 $ 2,703 $ (90) $ 7,520 $ 47,392
==================================================================================================================================
Depreciation and amortization 7,372 1,289 2,550 108 44 1,822 13,185
Interest income - - 8 4 9 2,520 2,542
Interest expense - - 14 - - 7,824 7,837
Income tax (credit) expense - 1 - - - 204 205
Earnings (losses) from
non-consolidated affiliates - - - - - 561 561
Gain on early retirement of debt - - - - - 1,198 1,198
Profit (loss) 6,800 (692) (3,367) (844) (2,593) 429 (267)
Investments in non-consolidated
affiliates - - - - - 28,389 28,389
Segment assets (A) 84,763 25,361 29,042 2,534 52,055 8,046 201,800
Capital expenditures for property 760 2,508 2,048 129 2,873 34 8,353
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
11
Segment Reporting Cont.
(In Thousands)
June 30,
2001 2000
------------------------- ------------------------
(Loss)
- ------
Total loss from reportable segments $ (5,596) $ (267)
Depreciation, depletion and amortization expense (6,846) (13,185)
Interest expense (7,382) (7,837)
Other (852) -
------------------------- ------------------------
Loss before income taxes $(20,676) $ (21,290)
========================= ========================
June 30,
2001 2000
------------------------- ------------------------
Assets
- ------
Total assets for reportable segments $ 187,330 $ 201,800
Cash and cash equivalents 33,057 63,290
Short-term investments 3,951 18,309
Other assets 17,340 36,629
------------------------- ------------------------
Total consolidated assets $ 241,678 $ 320,028
========================= ========================
Geographic Information
- ----------------------
(In thousands) Long-Lived
2001: Revenues Assets
------------------------- ------------------------
United States $36,016 $88,394
Chile 1,857 21,406
Bolivia - 18,850
Other Foreign Countries 200 559
------------------------- ------------------------
Consolidated Total $38,073 $ 129,209
========================= ========================
Long-Lived
2000: Revenues Assets
------------------------- ------------------------
United States $35,720 $ 93,186
Chile 6,774 22,175
Bolivia - 18,850
Other Foreign Countries 4,898 662
------------------------- ------------------------
Consolidated Total $47,392 $134,873
========================= ========================
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 half of 2001 the Company recorded a realized gain of
approximately $.3 million in connection with the hedge program and an additional
$.2 million of mark to market gain on the call options. The Company has 34,500
ounces in forward sales in its gold protection program (2001-15,000 ounces,
2002-19,500 ounces), whereby over the next two years the Company will receive an
average price of $308.28.
The following table summarizes the information at June 30, 2001 associated
with the Company's financial and derivative financial instruments that are
sensitive to changes in interest rates,
12
commodity prices and foreign exchange rates. For long-term debt obligations, the
table presents principal cash flows and related average interest rates. For gold
call options and amortizing forward sales, the table presents ounces contracted
to be delivered and the related average price per ounce in U.S. 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.
Fair
Value
(dollars in thousands) 2001 2002 2003 2004 Thereafter Total 6/30/01
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt (prior
to exchange) $ - $ 25,915 $ - $ 92,860 $ 69,180 $ 187,955 $ 92,387
Fixed Rate
Average Interest Rate 6.717% 6.782% 6.843% 7.190% 7.250%
Derivative Financial
Instruments
Gold Forward
Sales - USD
Ounces 15,000 19,500 - - - 34,500 $ 1,111
Price Per Ounce $299.42 $ 315.10 $ - $ - $ -
Gold Call Options
Sold - USD
Ounces (1) - - - - 56,000 56,000 $ (641)
Price Per Ounce - $ - $ - $ - $ 346.46
Foreign Currency
Contracts
Chilean Peso's $ 2,700 $ - $ - $ - $ 2,700 $ (251)
Exchange Rate (Chilean
Peso to US$) $573.09 $ - $ - $ - $ -
(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
In June 2001, The FASB issued SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets", which requires all business
combinations to be accounted for using the purchase method and changes the
treatment of goodwill created in a business combination. The adoption of these
two statements is not expected to have an impact on the Company.
On July 5th, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". That standard requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
a cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles
13
the obligation for its recorded amount or incurs a gain or loss upon settlement.
The standard is effective for fiscal years beginning after June 15, 2002.
The Company is currently assessing the effect of adopting SFAS No. 143 on its
financial statements and will adopt the statement on January 1, 2003.
NOTE I: Litigation
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 to settle the lawsuit, which
represents the only suit in which the Company has been named a party. Pursuant
to the terms of the Consent Decree dated May 14, 2001, the Company has paid the
U.S. Government a total of approximately $3.9 million, of which $3.3 million was
paid in May 2001 and the remaining $.6 million was paid in June 2001. 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.
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
14
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.
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 for the first half of 2001 was $4.48
and $266 per ounce, respectively. The market prices of silver (Handy & Harmon)
and gold (London Final) on August 9, 2001 were $4.18 per ounce and $270.00 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, which was shut-down and placed on a care and maintenance the end
of July 2001.
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.
15
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 and
six-month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
ROCHESTER MINE
Gold ozs. 20,504 18,903 40,023 34,360
Silver ozs. 1,488,598 1,760,212 2,990,247 3,298,472
Cash Costs per oz./silver $3.72 $3.78 $3.80 $4.00
Full Costs per oz./silver $4.35 $4.91 $4.59 $5.16
Galena Mine
Silver ozs. 1,032,966 906,593 2,140,907 1,697,355
Cash Costs per oz./silver $4.61 $4.79 $4.48 $5.27
Full Costs per oz./silver $5.30 $5.57 $5.15 $6.02
PRIMARY SILVER MINES
Consolidated Cash Cost per
Equivalent oz. of silver $3.96 $4.65 $3.99 $4.31
YILGARN STAR MINE
Gold ozs. N/A 6,474 N/A 12,593
Cash Costs per oz./gold N/A $201 N/A $234
Full Costs per oz./gold N/A $326 N/A $352
FACHINAL MINE
Gold ozs. N/A 4,004 N/A 9,419
Silver ozs. N/A 295,703 N/A 559,429
Cash Costs per oz./gold N/A $379 N/A $358
Full Costs per oz./gold N/A $517 N/A $489
PETORCA MINE
Gold ozs. 6,772 6,468 13,931 11,640
Silver ozs. 35,611 17,297 57,738 27,939
Cash Costs per oz./gold $342 $339 $347 $359
Full Costs per oz./gold $361 $348 $367 $369
PRIMARY GOLD MINES
Consolidated Cash Cost per
Equivalent oz. of gold $342 $329 $348 $323
CONSOLIDATED PRODUCTION TOTALS
Gold ozs. 27,276 35,849 53,954 68,012
Silver ozs. 2,557,174 2,979,805 5,188,891 5,583,195
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)
- ----------------------
Coeur's Rochester Mine produced 1.49 million ounces of silver and
20,504 ounces of gold during the second quarter of 2001 compared
16
to 1.76 million ounces of silver and 18,903 ounces of gold in the second quarter
of the previous year. Cash costs for the latest period declined to $3.72 per
silver equivalent ounce from $3.78 per ounce in 2000.
As planned, mining is currently taking place in a gold-rich area of the
open pit, which accounts for the higher gold production and slightly lower
silver production. Operations continue to benefit from a number of improvements
carried out last year and earlier in the current year. The most recent of these
was the installation of new crusher screens, which has already increased crusher
throughput.
Additional reverse circulation drilling was carried out at Rochester to
follow up last year's excellent results. By the end of June, 47 holes totaling
21,020 feet were completed and the drill data is currently being analyzed and
evaluated. Much of the drill program so far has been focused on areas to the
south and west of current pit operations where additional reserves and resources
can likely be developed most rapidly. At the nearby Nevada Packard deposit,
Coeur has completed 38 reverse circulation holes comprising 11,360 feet, which
has successfully extended mineralization, especially in the East zone discovered
last year. Drilling will recommence at Nevada Packard by mid-August. Some of the
best results obtained so far include 130 feet grading 4.44 silver equivalent
ounces per ton from an area south of the current Rochester pit and a 110-foot
intersection from the East zone at Nevada Packard, grading 8.34 silver
equivalent ounces per ton.
The Coeur Rochester team also received a Certificate of Honor from the
Joseph H. Holmes Safety Association for working over 4 million hours without
incurring a single fatality or permanently disabling accident.
Coeur Silver Valley (Idaho)
- ---------------------------
Silver production from Coeur Silver Valley increased by almost 14 percent
to 1.03 million ounces in the second quarter of 2001 compared to 0.91 million
ounces in the second quarter of the prior year. Total cash costs for the quarter
declined to $4.61 per ounce form $4.79 per ounce in 2000. The increase in
production and corresponding decrease in cash costs is directly the result of
the accelerated underground development program to develop new vein structures
that are wider and higher in grade than many of the other vein systems mined to
date. These vein structures are enabling Coeur to implement trackless mining in
selected areas. When operational late in the third quarter, the trackless mining
initiative will lead to further increases in production and reductions in cash
costs.
Most of Coeur's exploration drilling at Silver Valley this year is focused
on defining and expanding the most productive vein structures, such as the 117
and 72 veins. Drilling on the 72 vein between the 4600 and 4900 levels have
delineated significant high-grade resources, which is the up-dip extension of
ore-grade mineralization discovered last year. More recently, the Company has
begun to trace the 117 vein upward from the 3,700 level to the 3,400
17
level with excellent results. Development of the 117 high-grade vein on the
3,700 level is now underway.
South America
Chile
- -----
At the end of last year, Coeur made the decision to suspend operations at
its Fachinal mine in Chile. This was done partially in response to high costs
and low precious metals prices, but mainly to evaluate the new Cerro Bayo
discovery. At the end of June, the decision was also made to suspend operations
at the Petorca mine.
In the first quarter, after careful consideration, Coeur decided to place
all of its Chilean mining assets up for sale subject to receiving an appropriate
price. Although this process is continuing, Coeur is concurrently carrying out a
confirmation drilling program in conjunction with the development of a detailed
mine plan for Cerro Bayo. Results to date indicate that mining of this new zone
can provide a good economic return even at current metal prices, which Coeur is
prepared to do if it does not receive an acceptable offer.
Development Projects
San Bartolome (Bolivia)
- ----------------------
In 2000, Coeur completed a comprehensive feasibility study at its San
Bartolome silver development project in Bolivia. Results of the study confirmed
a technically feasible and economically attractive silver mining project.
Coeur's study concludes that following a capital investment of $60 to $70
million, a mining and milling operation could produce, on average, approximately
6 million ounces of silver annually for eight years at an estimated cash cost of
$3.50 per ounce. In addition, the study identified a number of optimization
opportunities that if successful, could significantly enhance the economic
returns of the project using an average life-of-mine silver price of $5.00 per
ounce.
Coeur is aggressively pursuing these optimization opportunities, which the
Company believes will not only enhance the economic return but will also improve
the technical merits and substantially reduce project risk. As an example, Coeur
is pleased to announce that it has recently acquired substantial exploration and
mining rights over a large prospective area immediately adjacent to the San
Bartolome property. In mid-June, Coeur reached an agreement to secure these
rights from the Bolivian State Mining Company, La Corporacion Minera de Bolivia
("Comibol") for nominal rental payments and a four percent net smelter royalty.
Detailed evaluation of the area covered by the agreement is already underway.
Coeur believes that these lands could provide a substantial increase in the
existing 122 million-ounce resource.
18
In addition, the Company is very encouraged with results obtained from its
most recent technical and cost optimization studies. Coeur will continue to
advance this project and intends to conduct a formal feasibility study later
this year.
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended June 30, 2001 Compared to Three Months
Ended June 30, 2000.
---------------------------------------------------------
Revenues
- --------
Due to sharply lower realized gold and silver prices, product sales in the
second quarter of 2001 decreased by $9.8 million, or 35%, from the second
quarter of 2000 to $18.2 million. The decrease in sales is primarily
attributable to decreased production of silver from the Rochester mine and
decreased gold production from the Yilgarn Star and Fachinal mines, as well as
lower gold and silver prices realized, compared to the same three month period
in 2000. In the second quarter of 2001, the Company produced a total of
2,557,175 ounces of silver and 27,276 ounces of gold compared to 2,979,805
ounces of silver and 35,849 ounces of gold in the second quarter of 2000. In the
second quarter of 2001, the Company realized average silver and gold prices of
$4.37 and $273, respectively, compared with realized average prices of $5.04 and
$310, respectively, in the prior year's second 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 second quarter of 2001 increased by $0.4
million compared with the second quarter of 2000. The increase is primarily due
to gain recorded on the sale of short-term investments offset in part by lower
interest income received as a result of lower interest rates and lower cash
balances.
Costs and Expenses
- ------------------
Production costs in the second quarter of 2001 decreased by $7.8 million,
or 30%, from the second quarter of 2000 to $17.8 million. The decrease in
production costs is primarily a result of decreased production at Fachinal and
Yilgarn Star mines for the second quarter of 2001 from the second quarter of
2000.
Depreciation and amortization decreased in the second quarter of 2001 by
$3.4 million, or 57%, from the prior year's second quarter, primarily due to no
depletion or amortization taken at the Fachinal mine due to temporary suspension
of operations, resulting in no production, and no depletion associated with the
Yilgarn Star mine due to sale of the Company's interest in early February 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 $3.6
19
million in the second quarter of 2001 compared to a net loss of $10.5 million in
the second quarter of 2000. The net loss attributable to common shareholders was
$0.08 per share for the second quarter of 2001, compared to $0.28 per share for
the second quarter of 2000.
Debt Reduction Program
- ----------------------
During the second quarter of 2001, the Company completed three
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 transactions, Coeur's total outstanding
convertible debt had been reduced to $188.1 million at June 30, 2001, and
interest expense will decrease by approximately $1.2 million annually.
Six Months Ended June 30, 2001 Compared to Six Months
Ended June 30, 2000.
-----------------------------------------------------
Revenues
- --------
Product sales in the first half of 2001 decreased by $6.5 million, or 15%,
from the first half of 2000 to $36.2 million. The decrease in sales is primarily
attributable to lower realized gold and silver prices and decreased production
of silver from the Rochester mine and decreased gold production from the Yilgarn
Star and Fachinal mines, compared to the same six month period in 2000. In the
first half of 2001, the Company produced a total of 5,188,892 ounces of silver
and 53,954 ounces of gold compared to 5,583,195 ounces of silver and 68,012
ounces of gold in the first half of 2000. In the first half of 2001, the Company
realized average silver and gold prices of $4.45 and $272, respectively,
compared with realized average prices of $5.09 and $319, respectively, in the
prior year's first half. 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 half of 2001 decreased by $2.7
million compared with the first half of 2000. The decrease is primarily due to
less interest income received as a result of lower interest rates and lower cash
balances and a $1.1 million gain recorded in the first half of 2000 on the mark
to market adjustment of the call option portion of the Company's hedge program.
Costs and Expenses
- ------------------
Production costs in the first half of 2001 decreased by $3.0 million, or
8%, from the first half of 2000 to $36.1 million. The decrease in production
costs is primarily a result of decreased
20
production at Fachinal and Yilgarn Star mines for the first half of 2001 over
the first half of 2000.
Depreciation and amortization decreased in the first half of 2001 by $5.4
million, or 50%, from the prior year's first half, primarily due to no depletion
or amortization taken at the Fachinal mine due to temporary suspension of
operations, resulting in no 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 half
of 2001 compared to 2000, due to continuing efforts to conserve cash.
Net Loss
- --------
As a result of the above mentioned factors, as well as debt retirement
discussed below, the Company's net loss amounted to $11.7 million in the first
half of 2001 compared to a net loss of $20.3 million in the first half of 2000.
The net loss attributable to common shareholders was $0.29 per share for the
first half of 2001, compared to $0.66 per share for the first half of 2000.
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 July 2001, Coeur had reduced its long-term debt by more than $140
million, recognizing extraordinary gains of approximately $81 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 half 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 decrease by approximately $1.2 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working Capital; Cash and Cash Equivalents
The Company's working capital at June 30, 2001 decreased by $28.6 million
to approximately $64.4 million compared to $93.0 million at December 31, 2000.
The decrease is primarily a result of reclassification of a portion of the
Company's 6% Convertible Subordinated Debentures Due 2002 to a current liability
in June 2001.
21
The ratio of current assets to current liabilities was 2.5 to 1.0 at June 30,
2001 compared to 4.7 to 1.0 at December 31, 2000.
Net cash used in operating activities in the three months ended June 30,
2001 was $10.0 million compared to $3.1 million in the three months ended June
30, 2000, primarily resulting from a decrease in current liabilities. Net cash
used in investing activities in the 2001 period was $2.3 million compared to net
cash used in investing activities of $8.5 million in the prior year's comparable
period. The decrease primarily resulted from a reduction in capital expenditures
and a reduction in purchases of short-term investments. Net cash used in
financing activities was $75,000 in the second quarter of 2001, compared to $6.0
million used in the second quarter of 2000. Approximately $5.9 million of debt
payments were made in the second quarter of 2000. As a result of the above, cash
and cash equivalents decreased by $12.4 million in the second quarter of 2001
compared to a decrease of $17.6 million for the comparable period in 2000.
Net cash used in operating activities in the six months ended June 30, 2001
was $16.0 million compared to $10.9 million in the six months ended June 30,
2000 primarily resulting from a decrease in current liabilities. Net cash
received in investing activities in the 2001 period was $14.1 million compared
to net cash used in investing activities of $4.0 million in the prior year's
comparable period. The decrease primarily resulted from the proceeds from the
sale of the Company's 50% interest in Gasgoyne Gold Mines and a reduction in
capital expenditures. Net cash used in financing activities was $371,000 in the
six months of 2001, compared to $8.8 million used in the six months of 2000.
Approximately $6.0 million of debt payments and approximately $2.6 million of
dividend payments on the MARCS were made in the second quarter of 2000. As a
result of the above, cash and cash equivalents decreased by $2.2 million in the
six months of 2001 compared to a decrease of $23.6 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 to settle the lawsuit, which
represents the only suit in which the Company has been named a party. Pursuant
to the terms of the Consent Decree dated May 14, 2001, the Company has paid the
U.S. Government a total of approximately $3.9 million, of which $3.3 million was
paid in May 2001 and the remaining $.6 million was paid
22
in June 2001. 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.
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.
Recent Exchange Offer
On June 29, 2001, the Company commenced an offer to exchange newly issued
13-3/8% Convertible Senior Subordinated Notes due December 31, 2003 ("13-3/8%
Notes") for the Company's outstanding 7-1/4% Convertible Subordinated Debentures
due October 31, 2005 ("7 1/4% Debentures"), 6-3/8% Convertible Subordinated
Debentures due January 31, 2004 ("6-3/8% Debentures") and 6% Convertible
Subordinated Debentures due June 10, 2002 ("6% Debentures") (the "Exchange
Offer").
The Company offered to issue up to a total of $71,340,000 principal amount
of 13-3/8% Notes in exchange for up to 80% of its outstanding 7-1/4% and 6-3/8%
Debentures and up to 25% of its
23
outstanding 6% Debentures. The Company offered $1,000 principal amount of
13-3/8% Notes for each $2,000 principal amount of 7-1/4% or 6-3/8% Debentures,
and $1,000 principal amount of 13-3/8% Notes for each $1,000 principal amount of
6% Debentures validly tendered and accepted in the exchange offer.
The 13-3/8% Notes are Senior in right of payment to the outstanding 7-1/4%,
6-3/8% and 6% Debentures. In addition, the 13-3/8% Notes are convertible into
Coeur common stock, at any time following the date of issue on August 1, 2001,
and prior to maturity. The conversion price is $1.35 per share, subject to
adjustment. The 13-3/8% Notes are redeemable at the option of the Company two
years after issuance, subject to certain conditions, and at the option of the
holders in the event of a change in control.
On July 30, 2001 the Company completed the Exchange Offer. The principal
amounts of Debentures validly tendered and accepted for exchange were as
follows: $54,530,000 of the 7-1/4% Debentures, $26,526,000 of the 6-3/8%
Debentures and $2,044,000 of the 6% Debentures.
As a result of the Exchange Offer, the Company issued on August 1, 2001,
$42,572,000 principal amount of its 13-3/8% Notes in exchange for the
outstanding 7-1/4%, 6-3/8% and 6% Debentures which were tendered and accepted in
the Exchange Offer.
The Exchange Offer has reduced Coeur's outstanding long-term debt by
approximately $39.9 million and increased shareholders' equity by approximately
$38.6 million. Shareholders' equity at June 20, 2001, as adjusted for that
increase, amounts to $52.0 million.
In addition, the Company also offered for sale to holders of Coeur's
outstanding Debentures who participated in the Exchange Offer, the right to
purchase for cash additional 13-3/8% Notes (the "Cash Offer"). The Company sold
$74,000 principal amount of 13-3/8% Notes in the Cash Offer.
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
24
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.
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 June 30, 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
June 30, 2001.
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
4. Indenture, dated as of August 1, 2001, between the
registrant and The Bank of New York, as Trustee, relating to
the 13 3/8% Convertible Senior Subordinated Notes due
December 31, 2003.
b) Reports on Form 8-K. None.
25
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 August 9, 2001 /s/ Dennis E. Wheeler
-------------------------
DENNIS E. WHEELER
Chairman, President and
Chief Executive Officer
Dated August 9, 2001 /s/ Geoffrey A. Burns
-------------------------
GEOFFREY A. BURNS
Vice President and
Chief Financial Officer
26