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 September 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 offices) (Zip Code)
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 44,318,312 shares were issued and
outstanding as of November 12, 2001.
COEUR D'ALENE MINES CORPORATION
INDEX
Page
No.
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 2001 and December 31, 2000
Consolidated Statements of Operations and
Comprehensive Income (Loss) -- 5
Three Months and Nine Months Ended September 30, 2001
and 2000
Consolidated Statements of Cash Flows -- 6
Three Months and Nine Months Ended September 30, 2001
and 2000
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 26
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
2
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 19,812 $ 35,227
Short-term investments 15,241 18,344
Receivables 6,290 9,710
Inventories 51,706 54,979
---------- ----------
TOTAL CURRENT ASSETS 93,049 118,260
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 99,234 97,996
Less accumulated depreciation (62,412) (61,256)
---------- ----------
36,821 36,740
MINING PROPERTIES
Operational mining properties 114,973 113,409
Less accumulated depletion (77,087) (71,225)
---------- ----------
37,886 42,184
Developmental properties 53,166 51,800
---------- ----------
91,052 93,984
OTHER ASSETS
Investments in unconsolidated affiliates - 15,264
Debt issuance costs, net of accumulated
amortization 3,412 3,621
Other 4,035 3,508
---------- ----------
7,447 22,393
---------- ----------
$ 228,369 $ 271,377
========== ==========
See notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,064 $ 4,073
Accrued liabilities 9,050 11,008
Accrued interest payable 2,581 4,474
Accrued salaries and wages 4,532 5,723
6% convertible subordinated
debentures due 2002 23,171 -
----------- ----------
TOTAL CURRENT LIABILITIES 41,398 25,278
LONG-TERM LIABILITIES
6% convertible subordinated debentures
due June 2002 - 26,511
13 3/8% convertible senior subordinated
debentures due December 2003 41,908 -
6 3/8% convertible subordinated
debentures due January 2004 66,270 92,860
7 1/4% convertible subordinated
debentures due October 2005 14,650 85,198
Other long-term liabilities 21,921 24,090
----------- ----------
TOTAL LONG-TERM LIABILITIES 144,749 228,659
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share -
authorized 125,000,000 shares, issued
45,377,523 and 38,109,279 shares in 2001
and 2000 (including 1,059,211 shares
held in treasury) 45,378 38,109
Capital surplus 388,832 387,625
Accumulated deficit (379,703) (394,932)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive income
(loss) 907 (172)
----------- ----------
42,222 17,440
----------- ----------
$ 228,369 $ 271,377
=========== ==========
See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three and Nine Months Ended September 30, 2001 and 2000
(Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(In thousands except for per share data)
REVENUES
Product sales $ 16,224 $ 26,490 $ 52,443 $ 69,352
Interest and other 842 3,234 2,696 7 764
----------- ----------- ----------- -----------
Total Revenues 17,066 29,724 55,139 77,116
COSTS AND EXPENSES
Production 16,028 24,440 52,121 63,516
Depreciation and depletion 2,678 4,810 8,044 15,619
Administrative and general 2,561 2,320 7,001 7,536
Exploration 2,750 1,846 7,145 6,427
Interest 3,466 3,761 10,848 11,598
Other 1,909 995 2,982 2,158
----------- ----------- ----------- -----------
Total Costs and Expenses 29,392 38,172 88,141 106,854
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (12,326) (8,448) (33,002) (29,738)
Income tax benefit (provision) 15 (110) 14 (315)
----------- ----------- ----------- -----------
NET LOSS BEFORE EXTRAORDIANARY
ITEM (12,311) (8 558) (32,988) (30,053)
Extraordinary item - early
retirement of debt (net of
taxes) 39,245 102 48,217 1,300
----------- ----------- ----------- -----------
NET INCOME (LOSS) 26,934 (8,456) 15,229 (28,753)
Unrealized holding gain (loss)
on securities 367 (68) 1,078 (1,717)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 27,301 $ (8,524) $ 16,307 $ (30,470)
=========== =========== =========== ===========
NET INCOME (LOSS) $ 26,934 $ (8,456) $ 15,229 $ (28,753)
Preferred stock dividends - - - 2,180
----------- ----------- ----------- -----------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON SHAREHOLDERS $ 26,934 $ (8,456) $ 15,229 $ (30,933)
=========== =========== =========== ===========
BASIC AND DILUTED INCOME (LOSS)
PER SHARE DATA
Weighted average number
of shares of Common Stock 43,639 37,050 41,047 34,898
=========== =========== =========== ===========
Net loss before extraordinary
item $ (0.28) $ (0.23) $ (0.80) $ (0.92)
Extraordinary item - early
Retirement of debt(net of
taxes) 0.90 - 1.17 0.03
----------- ----------- ----------- -----------
Net Income (loss) per share
attributable to Common
Shareholders $ 0.62 $ (0.23) $ 0.37 $ (0.89)
=========== =========== =========== ===========
See notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three and Nine Months Ended September 30, 2001 and 2000
(Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 26,934 $ (8,456) $ 15,229 $ (28,753)
Add (deduct) noncash items:
Depreciation and depletion 2,678 4,810 8,044 15,619
Gain on early retirement of debt
(net of taxes) (39,245) (100) (48,217) (1,300)
Other 743 2,038 3,554 4,583
Undistributed earnings of investment
in unconsolidated subsidiary - (319) - (879)
Unrealized gain on written calls (259) (2,146) (480) (3,189)
Changes in Operating Assets and
Liabilities:
Receivables (508) (3,112) 3,419 2,059
Inventories 186 1,317 2,826 (1,637)
Accounts payable and accrued
liabilities (311) (211) (10,122) (3,567)
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (9,782) (6,179) (25,747) (17,064)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of short-term investments - (2,327) (1,255) (10,790)
Proceeds from sales of
short-term investments - 1,700 5,603 13,773
Proceeds from sale of assets - (425) 14,733 (1,411)
Expenditures on mining assets (900) (4,423) (5,253) (11,790)
Other (5) (11) (567) 72
----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (905) (5,376) 13,261 (9,346)
CASH FLOWS FROM FINANCING
ACTIVITIES
Retirement of long-term debt (445) (241) (753) (6,240)
Payment of cash dividends - - - (2,180)
Payment of Exchange Offer costs (1,951) - (1,951) -
Other (162) (111) (225) (269)
----------- ----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,558) (352) (2,929) (9,142)
----------- ----------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (13,245) (11,907) (15,415) (35,552)
Cash and cash equivalents at
beginning of period 33,057 63,290 35,227 86,935
----------- ----------- ----------- -----------
Cash and cash equivalents at
September 30 $ 19,812 $ 51,383 $ 19,812 $ 51,383
=========== =========== =========== ===========
Supplemental Cash Flow disclosure:
During the 3rd quarter of 2001, the Company issued a total of $43.2 million principal amount of
13 3/8% Convertible Senior Subordinated Notes in connection with an exchange offer extended to the
holders of outstanding convertible subordinated debentures. See Note F.
During the 3rd quarter of 2001, $1.3 million of the newly issued 13 3/8% notes were converted
to approximately 1.2 million shares of common stock.
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 nine-month periods ended September 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 : Cash and Available Operating Cash
Available operating cash as of September 30, 2001, consists of $35.1
million of cash, cash equivalents and short-term investments. In June 2002, the
Company is obligated to repay its 6 3/8% Convertible Debentures that are
currently recorded at $23.2 million. Additionally, as of September 30, 2001,
$11.1 million of the short-term investments collateralize reclamation bonds.
These items, together with its recent operating deficits, its remaining debt
service costs and capital development plans, require that the Company continue
to aggressively pursue further opportunities to reduce debt, restructure its
reclamation bonding requirements, and/or sell certain of its assets in order to
enhance its financial position.
NOTE C: 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
7
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 September 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
working with the State of Nevada to provide financial assurance satisfactory to
the State to our future reclamation liability obligation. Such financial
assurance could be in the form of a replacement bond, cash or security interest
in the Rochester mine or combination thereof.
NOTE D: Inventories
Inventories are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(In thousands)
In process and on leach pads $ 43,875 $ 43,595
Concentrate and dore' inventory 2,783 6,258
Supplies 5,048 5,126
-------- --------
$ 51,706 $ 54,979
======== ========
Inventories of ore on leach pads and in the milling process are valued
based on the lower of market or 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 inventory being held. The fair value of such
inventory at September 30, 2001 was estimated at $1.2 million. Handy & Harmon's
Chapter 11 liquidation plan was confirmed by the Bankruptcy Court in August 2001
8
and on November 3, 2001, the Company received approximately $294,000 from Handy
& Harmon as a partial payment under the plan.
NOTE E: Income Taxes
The Company has reviewed its net deferred tax asset as of September 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 F: Long-Term Debt
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 Company can elect to pay interest in cash or
stock, at its sole discretion. The conversion price is $1.35 per share, subject
to adjustment. At any time prior to December 31, 2003, the holders of the 13
3/8% Notes may elect to convert their Notes to equity. The Company may elect to
automatically convert the Notes during the first two years after issuance if the
closing price of the common stock exceeds 200% of the conversion price for at
least 20 trading days during a 30-day trading day period ending within five
trading days prior to the notice of automatic conversion. If an automatic
conversion occurs within the first two years after issuance, or if holders elect
to convert their Notes within the first two years after issuance and prior to
notice of any automatic
9
conversion, the Company will make a payment to holders in cash, or at the
Company's option, in common stock, equal to two full years of interest, less
interest actually paid. 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, $26,590,000 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,
$42,629,000 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.
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
$25,000 principal amount of 13-3/8% Notes in the Cash 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.
As a result of the Exchange Offer the Company recorded $39.2 million in
extraordinary gain, net of offer costs. Subsequent to the Exchange Offer, $1.3
million of the 13 3/8% Notes were converted to approximately 1.2 million shares
of common stock.
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.
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 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.
10
The share price used as consideration in all of these transactions was
based upon market prices at the time of each respective transaction.
NOTE G: 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 San Bartolome and Kensington development properties, and
the Company's exploration programs. All operating segments are engaged in the
discovery, development and/or mining of silver and gold 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.
11
Segment Reporting
(In Thousands)
Silver
Rochester Valley Fachinal Petorca Exploration Other Total
--------- --------- --------- --------- ----------- --------- ---------
Nine Months Ended
September 30, 2001
Total net sales and revenues $ 35,814 $ 11,703 $ 221 $ 5,960 $ - $ 1,441 $ 55,139
==================================================================================================================
Depreciation and amortization 6,583 2,317 - 398 17 722 10,037
Interest income - - 2 3 - 1,444 1,448
Interest expense - - - - - 10,848 10,848
Gain on forward sale contracts - - - - - 480 480
Income tax (credit) expense - 1 - - - (15) (14)
Gain on early retirement of
debt - - - - - 48,217 48,217
Profit (loss) 4,067 (1,122) (2,861) (1,222) (1,110) (7,110) (9,357)
Segment assets (A) 75,140 28,037 23,182 1,289 55 58,168 185,869
Capital expenditures for
property 815 2,376 801 - - 1,260 5,252
Nine Months Ended
September 30, 2000
Total net sales and revenues $ 38,810 $ 12,293 $ 8,357 $ 4,851 $ 6,841 $ (270) $ 45,019
==================================================================================================================
Depreciation and amortization 11,192 2,013 3,843 171 64 2,750 20,033
Interest income - - 13 5 10 3,512 3,540
Interest expense - - 14 1 - 11,583 11,598
Income tax (credit) expense - 1 - - - 314 315
Earnings (losses) from
non-consolidated affiliates - - - - - 1,237 1,237
Gain on early retirement of
debt - - - - - 1,300 1,300
Profit (loss) $ 10,957 $ 209 $ (3,825) $ (1,251) $ (3,959) $ (3,427) $ (1,296)
Investments in non-
consolidated affiliates - - - - - 28,071 28,071
Segment assets (A) $ 3,552 $ 26,770 $ 28,492 $ 3,740 $ 53,767 $ 7,217 $203,538
Capital expenditures for
property $ 1,669 $ 4,305 $ 2,281 $ 387 $ 4,518 $ 42 $ 13,202
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
Segment Reporting Cont. Nine Months Ended September 30,
(In Thousands) 2001 2000
---------- ----------
(Loss)
Total loss from reportable segments $ (9,357) $ (1,296)
Gain on Metal Hedging 480 3,189
Depreciation, depletion and amortization expense (10,037) (20,033)
Interest expense (10,848) (11,598)
Other (3,240)
--------- ---------
Loss before income taxes $ (33,002) $ (29,738)
========= =========
Nine Months Ended September 30,
2001 2000
---------- ----------
Assets
Total assets for reportable segments $ 185,869 $ 203,538
Cash and cash equivalents 19,812 51,383
Short-term investments 15,241 18,869
Other assets 7,447 36,104
--------- ---------
Total consolidated assets $ 228,369 $ 309,894
========= =========
12
Geographic Information
(In thousands) Long-Lived
As of September 30, 2001: Revenues Assets
---------- ----------
United States $ 51,983 $ 87,211
Chile 3,548 21,263
Bolivia - 18,856
Other Foreign Countries (392) 543
--------- ---------
Consolidated Total $ 55,139 $ 127,873
========= =========
Long-Lived
As of September 30, 2000: Revenues Assets
---------- ----------
United States $ 57,337 $ 93,948
Chile 12,937 21,467
Bolivia - 18,856
Other Foreign Countries 6,842 547
--------- ---------
Consolidated Total $ 77,116 $ 134,815
========- =========
Revenues are geographically separated based upon the country in which operations
and the underlying assets generating those revenues reside.
NOTE H: Hedging
For the first nine months of 2001 the Company recorded a realized gain of
approximately $.4 million in connection with the hedge program and an additional
$.5 million of mark to market gain on the call options. The Company has 12,000
ounces in forward sales in its gold protection program (in 2001 4,500 ounces,
and in 2002 7,500 ounces), whereby over the next two years the Company will
receive an average price of $287.59 per ounce.
The following table summarizes the information at September 30, 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 call options and forward
sales, the table presents ounces contracted to be delivered and the related
average price per ounce in U.S. dollars.
Fair
Value
(dollars in thousands) 2001 2002 2003 2004 2005 Total 9/30/01
- ----------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt $ - $23,171 $41,908 $66,270 $14,650 $145,999 $ 78,724
Fixed Rate
Average Interest Rate 6.717% 6.782% 6.843% 7.190% 7.250%
13
Derivative Financial
Instruments
Gold Forward
Sales - USD
Ounces 4,500 7,500 - - - 12,000 $ 1,111
Price Per Ounce $286.40 $288.31 $ - $ - $ -
Gold Call Options
Sold - USD
Ounces (1) - - - - 24,640 24,640 $ (641)
Price Per Ounce - $ - $ - $ - $346.46
(1) The call options sold have a knock-out provision whereby the calls for 24,640 ounces will
terminate if gold trades below $300 per ounce after December 27, 2002.
NOTE I: New Accounting Standard
In June 2001, The Financial Acconting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" that established standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. The statement provides for an initial recognition of the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred when a reasonable estimate of fair value can be made. The
asset retirement obligation is recorded as a liability with a corresponding
increase to the carrying amount of the related long-lived asset. Subsequently,
the asset retirement cost is allocated to expense using a systematic and
rational allocation method and is adjusted to reflect period-to-period changes
in the liability resulting from passage of time and revisions to either timing
or the amount of the original estimate. The statement is effective for fiscal
years beginning after June 15, 2002 and the Company does not anticipate a
significant impact upon adoption.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" that established a single
accounting model, based on the framework of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
for long-lived assets to be disposed of by sale. The statement is effective for
fiscal years beginning after December 15, 2001 and the Company does not expect
any significant impact upon adoption.
14
NOTE J: 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.
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 fair market value of the
inventory has been estimated to be $1.2 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
recovery, it is premature to predict the outcome of the lawsuit. Handy &
Harmon's Chapter 11
15
liquidation plan was confirmed by the Bankruptcy Court in August 2001 and on
November 3, 2001, the Company received approximately $294,000 from Handy &
Harmon as a partial payment under the plan.
NOTE K: 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 market price of silver and gold for the first nine months of
2001 was $4.42 and $269 per ounce, respectively. The market prices of silver
(Handy & Harmon) and gold (London Final) on November 9, 2001 were $4.10 per
ounce and $277.00 per ounce, respectively.
Results for the nine month period of 2001 include activities from 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 care
and maintenance at the end of August 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
16
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 and
nine-month periods ended September 30, 2001 and 2000:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
ROCHESTER MINE
Gold ozs. 18,171 19,334 58,194 53,694
Silver ozs. 1,483,382 1,649,567 4,473,629 4,948,039
Cash Costs per oz./silver $3.80 $4.01 $3.80 $4.01
Full Costs per oz./silver $4.56 $5.12 $4.57 $5.15
Galena Mine
Silver ozs. 1,060,191 1,156,262 3,201,098 2,853,617
Cash Costs per oz./silver $4.97 $3.93 $4.64 $4.73
Full Costs per oz./silver $5.80 $4.56 $5.36 $5.43
PRIMARY SILVER MINES
Consolidated Cash Cost per
Equivalent oz. of silver $4.14 $3.99 $4.04 $4.20
YILGARN STAR MINE (A)
Gold ozs. N/A 6,628 N/A 19,221
Cash Costs per oz./gold N/A $232 N/A $233
Full Costs per oz./gold N/A $346 N/A $350
FACHINAL MINE (B)
Gold ozs. N/A 4,449 N/A 13,868
Silver ozs. N/A 240,226 N/A 799,655
Cash Costs per oz./gold N/A $413 N/A $375
Full Costs per oz./gold N/A $561 N/A $511
PETORCA MINE (C)
Gold ozs. 3,563 7,437 17,494 19,077
Silver ozs. 27,274 14,251 85,012 42,190
Cash Costs per oz./gold $300 $337 $339 $350
Full Costs per oz./gold $325 $345 $359 $359
PRIMARY GOLD MINES
Consolidated Cash Cost per
Equivalent oz. of gold $300 $336 $339 $327
CONSOLIDATED PRODUCTION
TOTALS
Gold ozs. 21,734 37,848 75,688 105,860
Silver ozs. 2,570,847 3,060,306 7,759,738 8,643,501
Note A: On February 7, 2001, the Company sold its interest in the Yilgarn Star
Mine, effective December 31, 2000.
17
Note B: The Company placed the Fachinal Mine on temporary standby effective
December 7, 2000.
Note C: The Company placed the Petorca Mine on temporary standby effective
August 2001.
Operating Highlights
North America
Rochester Mine (Nevada)
Coeur's Rochester mine produced 1.5 million ounces of silver and 18,171
ounces of gold, together equal to 2.6 million silver equivalent ounces, during
the third quarter of 2001 compared to 1.6 million ounces of silver and 19,334
ounces of gold, together equal to 2.7 million silver equivalent ounces, in the
third quarter of the prior year. Total cash costs for the latest three-month
period declined to $3.80 per ounce as compared to $4.01 in the third quarter of
2000.
Mining operations during the quarter were largely confined to a gold-rich
section of the Rochester pit that is expected to continue for the remainder of
the year. Both silver and gold output were slightly lower than the comparable
quarter in 2000 solely as a result of drought conditions that have persisted
throughout much of this year in Nevada which have significantly reduced solution
flow to the leach pads. The Company expects that the gold and silver delivered
to the leach pads during the drought period will be recovered in subsequent
quarters. Despite the lower production, operating improvements instituted this
year and in 2000 resulted in more than a 5% decline in cash costs from the
previous year's third quarter to $3.80 per ounce.
Coeur is continuing its program to reduce costs at Rochester as well as to
replace reserves mined in 2001 and define new resources. A total of 37,000 feet
in 88 reverse circulation holes have been drilled at and near the Rochester pit
so far this year mainly to the south and west of the current pit boundary.
Results are currently being analyzed and will be incorporated into an updated
reserve model by year-end. At the Nevada Packard satellite deposit, all work
required for permitting the deposit for mining has been submitted to regulatory
authorities.
In October of this year, Coeur's Rochester mine was officially presented
with the Sentinels of Safety Award for metal and non-metal surface mining
operations. This is the industry's highest safety award. In addition, Rochester
has also received a Certificate of Honor from the Joseph H. Holmes Safety
Association for working over four million hours without incurring a single
permanently disabling injury or fatality.
18
Coeur Silver Valley - Galena Mine (Idaho)
In the latest quarter, silver production from Coeur Silver Valley was 1.06
million ounces, down slightly from the 1.16 million ounces produced in the third
quarter of 2000. For the nine months ended September 30, 2001 silver production
climbed 12% to 3.2 million ounces as compared to the first nine month of 2000.
Total cash costs for the current quarter rose to $4.97 per ounce compared to
$3.93 per ounce in the third quarter of the prior year. Cash costs for the first
nine months of 2001 declined to $4.64 per ounce compared to $4.73 per ounce in
the first nine months of 2000.
Throughout much of the most recent quarter, normal mining operations were
hampered by difficult ground conditions which have also temporarily set back
production from areas where the Company has implemented trackless mining.
Measures have been taken to alleviate the situation and Coeur expects to be back
on track with the mechanized mining initiative by late in the fourth quarter.
Much of the exploration drilling carried out in 2001 has focused on
extending the high-grade 117 vein up to and beyond the 3,400 level in the mine.
The most recent results have encountered this vein structure on the 3,000 level
and definition drilling continues. Work is also continuing to extend the
high-grade 72 vein and Polaris Fault Zone and test a possible extension of the
Silver Vein, historically one of the most prolific systems in the Galena mine at
the 1,600 level. As a result of these efforts, Coeur expects to fully replace
silver ounces mined in 2001.
Development Projects
South America
Cerro Bayo (Chile)
At Coeur's Cerro Bayo property (formerly the Fachinal mine) in Southern
Chile, the Company has completed a detailed three-year plan based on mining
proven and probable reserves only. The plan projects annual production of
approximately 70,000 gold equivalent ounces at an estimated total cash cost of
$195 per ounce. The plan proposes a combination of open pit and shallow
underground mining. Construction of two ramps to intersect the high grade Lucero
vein, the heart of the Cerro Bayo deposit, commenced on November 1, 2001.
Initial production is scheduled for May 2002. The total investment to develop
Cerro Bayo for production is estimated at $5 to $6 million, which includes a
significant recoverable working capital component. Independent third party
studies have confirmed Coeur's belief that the mining of Cerro Bayo can provide
an attractive rate of return at current gold and silver prices.
19
The Company has completed confirmation drilling and the latest phase of its
exploration program which has led to the development of additional reserves and
resources. The latest reserve and resource calculations have all been endorsed
by independent third party consultants. To date, a proven and probable reserve
of 217,000 gold equivalent ounces has been defined at a fully diluted average
grade of 0.27 gold equivalent ounces per ton. Total reserves plus resources
amount to 535,000 gold equivalent ounces at an average grade of 0.24 ounces per
ton. Perhaps more significant is the fact that a majority of the reserves and
resources identified to date are located in two high grade zones that average in
excess of one-half ounce per ton gold equivalent. Furthermore, Coeur believes
that the majority of the Cerro Bayo resources will be converted to mineable
reserves as operations progress.
Recent progress has confirmed that considerable exploration potential at
Cerro Bayo remains beyond that described above. Not only have significant
resources been identified, but the high-grade Lucero vein remains open at depth
and along strike. Exploration drilling of the Lucero vein continues. In
addition, the Company has identified a large number of high-grade veins on
surface which have not as yet been drill tested.
Coeur will continue to evaluate whether to sell any of its Chilean precious
metals assets, including Cerro Bayo. Any offer must reflect the fair value of
the properties and their substantial additional exploration potential.
San Bartolome (Bolivia)
Coeur is also pleased to report a number of positive developments at its
San Bartolome silver project near Potosi, Bolivia. The final feasibility study
is scheduled for completion in the first quarter of 2002. Coeur is confident
that this study will succeed in upgrading a large portion of the 122-million
ounce resource to proven and probable reserves. The Company recently acquired
additional exploration and development rights in the immediate area. Based on
work completed to date, Coeur expects a significant increase in the 122-million
ounce silver resource outlined to date. In addition, a number of recent
developments have enabled Coeur to continue to move this project forward:
o Coeur's wholly owned Bolivian subsidiary, Empresa Minera Manquiri S.A., has
been awarded a grant of $760,000 by the U.S. Trade and Development Agency
to complete the final feasibility study for the project.
o Expected favorable tax rulings in Bolivia will result in significant
reductions in up front working capital requirements.
o Water rights and electric power have been secured at rates which are lower
than expected.
20
o An alternative tailings disposal plan is being prospected which could
significantly reduce capital requirements.
The Company is also pursuing other opportunities in the Potosi area to
further enhance the potential economic returns of its San Bartolome project.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000.
--------------------------------------------------------------------
Revenues
Due to sharply lower realized gold and silver prices, product sales in the
third quarter of 2001 decreased by $10.3 million, or 39%, from the third quarter
of 2000 to $16.2 million. The decrease in sales is primarily attributable to
decreased production of silver from the Rochester and Galena mines and decreased
silver and gold production due to the suspension of operations at the Petorca
and Fachinal mines and the sale of the Yilgarn star mine earlier this year, as
well as lower gold and silver prices realized, compared to the same three month
period in 2000. In the third quarter of 2001, the Company produced a total of
2,570,847 ounces of silver and 21,734 ounces of gold compared to 3,060,306
ounces of silver and 37,848 ounces of gold in the second quarter of 2000. In the
third quarter of 2001, the Company realized average silver and gold prices of
$4.26 and $278, respectively, compared with realized average prices of $4.93 and
$302, respectively, in the prior year's third 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 third quarter of 2001 decreased by $2.4
million compared with the third quarter of 2000. The decrease is primarily due
to $2.2 million mark to market gain on the call option portion of the Company's
hedge program recorded in the third quarter of 2000 and lower interest income
received as a result of lower interest rates and lower cash balances.
Costs and Expenses
Production costs in the third quarter of 2001 decreased by $8.4 million, or
34%, from the third quarter of 2000 to $16.0 million. The decrease in production
costs is primarily a result of decreased production at Fachinal for the third
quarter of 2001 from the third quarter of 2000 and the sale of Yilgarn Star mine
in the first quarter of 2001.
21
Depreciation and amortization decreased in the third quarter of 2001 by
$2.1 million, or 44%, from the prior year's third 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.
Exploration expense increased $.9 million for the third quarter of 2001
over the third quarter of 2000 to $2.8 million, primarily due to increased
expense at the San Bartolome and Cerro Bayo development properties.
Net Income
As a result of the above mentioned factors, as well as the extraordinary
item recorded in connection with the debt retirement discussed below under "Debt
Reduction Program," the Company's net income amounted to $26.9 million in the
third quarter of 2001 compared to a net loss of $8.5 million in the third
quarter of 2000. The net income attributable to common shareholders was $0.62
per share for the third quarter of 2001, compared to a net loss of $0.23 per
share for the third quarter of 2000.
Nine Months Ended September 30,2001 Compared to Nine Months Ended September
30, 2000.
---------------------------------------------------------------------------
Revenues
Product sales in the first half of 2001 decreased by $16.9 million, or 24%,
from the first nine months of 2000 to $52.4 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, Petorca and Fachinal mines, offset in part by increased gold
production at the Rochester mine, compared to the same nine month period in
2000. In the first nine months of 2001, the Company produced a total of
7,759,738 ounces of silver and 75,688 ounces of gold compared to 8,643,501
ounces of silver and 105,860 ounces of gold in the first nine months of 2000. In
the first nine months of 2001, the Company realized average silver and gold
prices of $4.40 and $274, respectively, compared with realized average prices of
$5.05 and $310, respectively, in the prior year's first nine months. 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.
Interest and other income in the first nine months of 2001 decreased by
$5.1 million compared with the first nine months of 2000. The decrease is
primarily due to less interest income received
22
as a result of lower interest rates and lower cash balances and a $3.3 million
gain recorded in the first nine months 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 $11.4 million, or
18%, from the first nine months of 2000 to $52.1 million. The decrease in
production costs is primarily a result of decreased production at Fachinal for
the first nine months of 2001 over the first nine months of 2000 and the sale of
Yilgarn Star mine in the first quarter of 2001.
Depreciation and amortization decreased in the first nine months of 2001 by
$7.6 million, or 48%, from the prior year's first nine months, 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 $.5 million in the first nine
months of 2001 compared to 2000, due to continuing efforts to conserve cash.
Exploration expenses increased $.7 million in the first nine months of 2001
compared to 2000, due to increased expenses at the San Bartolome and Cerro Bayo
properties.
Interest expenses decreased $.8 million in the first nine months of 2001
compared to 2000, due to the Company's debt reduction program discussed below.
Net Loss
As a result of the above mentioned factors, as well as the extraordinary
item recorded in connection with the debt retirement discussed below under "Debt
Reduction Program," the Company's net income amounted to $15.2 million in the
first nine months of 2001 compared to a net loss of $28.8 million in the first
nine months of 2000. The net income attributable to common shareholders was
$0.37 per share for the first nine months of 2001, compared to a net loss $0.89
per share for the first nine months of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
Available operating cash as of September 30, 2001, consists of $35.1
million of cash, cash equivalents and short-term investments. In June 2002, the
Company is obligated to repay its 6 3/8%
23
Convertible Debentures that are currently recorded at $23.2 million.
Additionally, as of September 30, 2001, $11.1 million of the short-term
investments collateralize reclamation bonds. These items, together with its
recent operating deficits, its remaining debt service costs and capital
development plans, require that the Company continue to aggressively pursue
further opportunities to reduce debt, restructure its reclamation bonding
requirements, and/or sell certain of its assets in order to enhance its
financial position.
The Company's working capital at September 30, 2001 decreased by $41.3
million to approximately $51.7 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. The ratio of current assets to current liabilities was 2.2 to 1.0
at September 30, 2001 compared to 4.7 to 1.0 at December 31, 2000.
Net cash used in operating activities in the quarter ended September 30,
2001 was $9.8 million compared to $6.2 million in the quarter ended September
30, 2000, primarily as a result of lower realized gold and silver prices and
lower production in the comparable period. Net cash received in investing
activities in the quarter ended September 30, 2001 was $.9 million compared to
net cash used in investing activities of $5.4 million in the prior year's
comparable period. The decrease primarily resulted from a reduction in capital
expenditures. Net cash used in financing activities was $2.6 million in the
quarter ended September 30, 2001, compared to $.4 million used in the quarter
ended September 30, 2000. Approximately $.4 million of debt payments and
approximately $2.0 million of Exchange Offer costs were paid in the third
quarter 2001. As a result of the above, cash and cash equivalents decreased by
$13.2 million in the third quarter of 2001 compared to a decrease of $11.9
million for the comparable period in 2000.
Net cash used in operating activities in the nine months ended September
30, 2001 was $25.7 million compared to $17.1 million in the nine months ended
September 30, 2000, primarily resulting from lower realized prices for gold and
silver, lower production of gold and silver, along with decreases of certain
liabilities. Net cash provided by investing activities in the 2001 period was
$13.3 million compared to net cash used in investing activities of $9.3 million
in the prior year's comparable period. The decrease primarily resulted from
receipt of proceeds from the sale of the Company's interest in the Yilgarn Star
mine in Australia. Net cash used in financing activities was $2.6 million for
the first nine months of 2001, compared to $9.1 million used in the first nine
months of 2000. As a result of the above, cash and cash equivalents decreased by
$15.4 million in the first nine months of 2001 compared to a decrease of $35.6
million for the comparable period in 2000.
24
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 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 fair market value of the
inventory has been estimated to be $1.2 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
25
the Company believes it has a basis for recovery, it is premature to predict the
outcome of the lawsuit. Handy & Harmon's Chapter 11 liquidation plan was
confirmed by the Bankruptcy Court in August 2001 and on November 3, 2001, the
Company received approximately $294,000 from Handy & Harmon as a partial payment
under the plan.
Debt Reduction Program
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 Company can elect to pay interest in cash or
stock, at its sole discretion. The conversion price is $1.35 per share, subject
to adjustment. At any time prior to December 31, 2003, the holders of the 13
3/8% Notes may elect to convert their Notes to equity. The Company may elect to
automatically convert the Notes during the first two years after issuance if the
closing price of the common stock exceeds 200% of the conversion price for at
least 20 trading days during a 30-day trading day period ending within five
trading days prior to the notice of automatic conversion. If an automatic
conversion occurs within the first two years after issuance, or if holders elect
to convert their Notes within the first two years after issuance and prior to
notice of any automatic conversion, the Company will make a payment to holders
in cash, or at the Company's option, in common stock, equal to two full years of
interest, less interest actually paid. 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.
26
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, $26,590,000 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,
$42,629,000 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.
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
$25,000 principal amount of 13-3/8% Notes in the Cash 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.
As a result of the Exchange Offer the Company recorded $39.2 million in
extraordinary gain, net of offer costs. Subsequent to the Exchange Offer, $1.3
million of the 13 3/8% Notes were converted to approximately 1.2 million shares
of common stock.
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.
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 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.
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
27
risks, the Company may, at times, enter into derivative financial instruments.
These may take at various times, 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.
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 September 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 H - Hedging, to the consolidated financial statements for a table
which summarizes the Company's gold and foreign exchange hedging activities at
September 30, 2001.
28
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on October 9, 2001.
Of the Company's total 43,662,973 shares of common stock outstanding on August
17, 2001 (the record date), 37,555,088 shares (or 86% of the outstanding) were
represented in person or by proxy at the Annual Meeting.
The first proposal was the election of directors. The following persons
were nominated and elected to serve as members of the Board of Directors for one
year or until their successors are elected and qualified by the votes indicated:
Cecil D Andrus - 36,165,805 for and 1,389,283 withheld; Joseph C. Bennett -
36,213,296 for and 1,341,792 withheld; James J. Curran - 36,252,692 for and
1,302,396 withheld; James A. McClure - 36,191,455 for and 1,363,633 withheld;
Robert E. Mellor - 36,185,045 for and 1,370,043 withheld; John H. Robinson -
36,187,525 for and 1,367,563 withheld; Timothy R. Winterer - 36,243,322 for and
1,311,766 withheld; Daniel Tellechea Salido - 36,213,827 for and 1,341,261
withheld; Xavier Garcia de Quevedo Topete - 36,214,991 for and 1,340,097
withheld; and Dennis E. Wheeler - 36,093,090 for and 1,461,998 withheld.
The second proposal was the proposed amendment of the Company's Executive
Compensation Program to authorize the reservation of an additional 1,000,000
shares of common stock for issuance under the program. The proposal was approved
by the holders of more than the required majority of the shares of common stock
voting at the meeting. The proposal was approved by a vote of 33,185,675 shares
for (representing 76% of the shares voting), 3,928,150 shares against with
441,263 shares abstaining.
The third proposal was the proposed amendment of the Company's Non-Employee
Directors' Stock Option Plan to authorize the reservation of an additional
500,000 shares of common stock for issuance under options to be granted under
the plan. The proposal was approved by the holders of more than the required
majority of the shares of common stock voting at the meeting. The proposal was
approved by a vote of 33,393,585 shares for (representing 76.48% of the shares
voting), 3,708,076 shares against with 453,427 shares abstaining.
The fourth proposal was the proposed ratification of the Board of
Directors' selection of Arthur Andersen LLP as the Company's independent
accounting firm for the year ended December 31, 2001. The proposal was approved
by the holders of more than the required majority of the shares of common stock
voting at the meeting. The proposal was approved by a vote of 36,584,999 shares
for (representing 83.79% of the shares voting), 596,177 shares against with
373,912 shares abstaining.
29
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits. None.
b) Reports on Form 8-K. None.
30
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 November 14, 2001 /S/ Dennis E. Wheeler
-------------------------------------
DENNIS E. WHEELER
Chairman, President and
Chief Executive Officer
Dated November 14, 2001 /s/ Geoffrey A. Burns
-------------------------------------
GEOFFREY A. BURNS
Vice President and
Chief Financial Officer
31