SECURITIES AND EXCHANGE COMMISSION Washington, D. C. ----------------- 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, 1997 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 --------------------------------- ---------- (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 21,890,568 shares were issued and outstanding as of November 10, 1997. COEUR D'ALENE MINES CORPORATION INDEX PAGE NO. PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996 3-4 Consolidated Statements of Operations -- Nine Months Ended September 30, 1997 and 1996 5 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-19 PART II. Other Information. Item 1. Legal Proceedings 19-20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES -2- PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS UNAUDITED COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1997 1996 ------------------------------------- (In Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 44,189 $ 43,455 Short-term investments 78,343 124,172 Receivables 10,354 11,573 Inventories 32,827 31,992 --------- --------- TOTAL CURRENT ASSETS 165,713 211,192 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment 119,343 118,993 Less accumulated depreciation 56,626 50,743 --------- --------- 62,717 68,250 MINING PROPERTIES Operational mining properties 239,985 171,517 Less accumulated depletion 54,469 38,264 --------- --------- 185,516 133,253 Developmental properties 129,266 110,985 --------- --------- 314,782 244,238 OTHER ASSETS Investment in unconsolidated affiliate 48,231 Notes receivable 8,490 4,000 Debt issuance costs, net of accumulated amortization 3,474 4,081 Restricted funds 2,949 Marketable equity securities and other 1,988 338 --------- --------- 16,901 56,650 --------- --------- $560,113 $580,330 ========= ========= -3- UNAUDITED COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1997 1996 ------------------------------------- (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,350 $ 4,327 Accrued liabilities 6,531 4,976 Accrued interest payable 3,027 4,968 Accrued salaries and wages 5,908 5,242 Bank loans 8,898 8,021 Current portion of remediation costs 8,500 3,500 Other current liabilities 317 532 --------- --------- TOTAL CURRENT LIABILITIES 37,531 31,566 LONG-TERM LIABILITIES 6% subordinated convertible debentures 49,840 49,840 6 3/8% subordinated convertible debentures 95,000 100,000 Long-term borrowings 41,059 39,900 Deferred income taxes 3,138 Other long-term liabilities 4,438 12,826 --------- --------- TOTAL LONG-TERM LIABILITIES 193,475 202,566 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Mandatory Adjustable Redeemable Convertible Securities (MARCS), par value $1.00 per share,(a class of preferred stock) authorized 7,500,000 shares, 7,077,833 issued and outstanding 7,078 7,078 Common Stock, par value $1.00 per share- authorized 60,000,000 shares, issued 22,950,182 shares (including 1,059,211 shares held in treasury) 22,950 22,950 Capital surplus 392,280 400,187 Accumulated deficit (78,724) (70,459) Unrealized losses on available-for-sale securities (1,287) (352) Repurchased and nonvested shares (13,190) (13,206) --------- --------- 329,107 346,198 --------- --------- $560,113 $580,330 ========= ========= See notes to consolidated financial statements. -4- UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three Months Ended September 30, 1997 and 1996 Nine Months Ended September 30, 1997 and 1996 3 MONTHS ENDED 9 MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- ----------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- (In thousands except for per share data) INCOME Sales of concentrates and dore' $ 38,628 $ 21,559 $ 96,757 $ 62,920 Less cost of mine operations 40,684 18,480 103,258 56,622 ---------- ---------- ---------- ---------- Gross Profit (Loss) (2,056) 3,079 (6,501) 6,298 OTHER INCOME Interest and other 2,843 5,004 20,427 9,158 ---------- ---------- ---------- ---------- Total Income 787 8,083 13,926 15,456 EXPENSES Administration 1,016 952 3,295 3,007 Accounting and legal 449 487 1,334 1,130 General corporate 1,223 1,873 4,837 5,273 Interest 1,982 1,016 6,330 2,476 Mining exploration 2,385 2,488 6,397 5,183 Write down of mining properties 33 54,415 ---------- ---------- ---------- ---------- Total Expenses 7,055 6,849 22,193 71,484 ---------- ---------- ---------- ---------- NET LOSS BEFORE TAXES (6,268) 1,234 (8,267) (56,028) Income tax benefit 644 2 1,158 ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (6,268) $ 1,878 $ (8,265) $ (54,870) ========== ========== ========== ========== NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (8,903) $ (754) $ (16,164) $ (60,634) ========== ========== ========== ========== EARNINGS PER SHARE DATA Earnings per share data: Weighted average number of shares of Common Stock and equivalents used in calculation 21,891 21,893 21,891 21,327 ========== ========== ========== ========== Net Income (Loss) Per Share $ (.29) $ .09 $ (.38) $ (2.57) ========== ========== ========== ========== Net Loss per share attributable to Common Shareholders $ (.41) $ (.03) $ (.74) $ (2.84) ========== ========== ========== ========== Fully Diluted Earnings Per Share: Weighted average number of shares of common stock outstanding 34,800 ========== Net Income Per Share $ .06 ========== Cash dividends per share $ .15 ========== -5- UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Nine months ended September 30, 1997 and 1996 1997 1996 ----------- ----------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (8,265) $ (54,870) Add (less) noncash items: Depreciation, depletion and amortization 24,614 9,234 (Gain) Loss on disposition of assets (170) 53,142 Other changes (439) (1,402) ----------- ----------- CASH PROVIDED BY OPERATING ACTIVITIES BEFORE WORKING CAPITAL CHANGES 15,740 6,104 Change in working capital: Receivables 3,071 (360) Inventories (485) 130 Accounts payable and accrued liabilities (6,781) (5,452) Interest payable (1,941) (1,989) ----------- ----------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 9,604 (1,567) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of El Bronce (net of cash received) (14,208) Investment in mining company (14,643) (20,057) Purchase of property, plant, and equipment (1,678) (2,503) Proceeds from sales of marketable securities 123,263 51,136 Purchase of short-term investments (78,582) (118,697) Expenditures on developmental properties (9,849) (9,085) Expenditures on operational mining properties (12,529) (25,026) Proceeds from sale of discontinued operations 863 2,566 Other assets (2,095) 603 ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,750 (135,271) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of preferred stock 144,626 Proceeds from bank loans 19,227 Retirement of long-term debt (4,807) (1,688) Payment of cash dividends (7,899) (8,395) Other (914) (206) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,620) 153,564 ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 734 16,726 Cash and cash equivalents at beginning of year 43,455 16,485 ----------- ----------- CASH AND CASH EQUIVALENTS AT SEPTEMBER 30, 1997 AND 1996 $ 44,189 $ 33,211 =========== =========== See notes to consolidated financial statements. -6- Coeur d'Alene Mines Corporation and Subsidiaries Notes to Consolidated Financial Statements NOTE A: Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles 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 and nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. 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, 1996. NOTE B: Inventories Inventories are comprised of the following: SEPTEMBER 30, DECEMBER 31, 1997 1996 -------- -------- (In Thousands) In process and on leach pads $ 18,008 $ 19,948 Concentrate inventory 6,498 4,996 Dore' inventory 3,486 739 Supplies 4,835 6,309 --------- --------- $ 32,827 $ 31,992 ========= ========= Inventories of ore on leach pads and in the milling process are valued based on actual costs incurred to place such ore into production, less costs allocated to minerals recovered through the leaching and milling processes. Inherent in this valuation is an estimate of the percentage of the minerals on leach pads and in process that will ultimately be recovered. Management evaluates this estimate on an ongoing basis. Adjustments to the recovery are accounted for prospectively. All other inventories are stated at the lower of cost or market with cost being determined using first -7- in, first out and weighted average cost methods. Dore' inventory includes product at the mine site and product held by refineries. NOTE C: Investment of Mining Company On June 6, 1997, the Company acquired, for approximately US$14.6 million in cash, an additional 14% interest in Gasgoyne Gold Mines NL of Australia, increasing its total ownership to 50%. The acquisition has been accounted for as a purchase. Effective June 6, 1997, the investment in Gasgoyne will be accounted for on a proportionate consolidation basis. NOTE D: Income Taxes The Company has not recorded an income tax benefit for the three and nine-month periods ended September 30, 1997 as it is currently not assured of the realizability of operating loss carryforwards. The related deferred tax asset has been fully reserved. NOTE E: Subsequent Events In October 1997, the Company completed an offering of $143,750,000 principal amount of 7.25% Convertible Subordinated Debentures due 2005 which are convertible into shares of common stock on or before October 31, 2005, unless previously redeemed, at a conversion price of $17.45 per share, subject to adjustment in certain events. The Company is required to make semi-annual interest payments. The debentures are redeemable at the option of the Company on or after October 31, 2000, have no other funding requirements until maturity, mature October 31, 2005. During the second and third quarters of 1997, the Company purchased 11,379,048 shares of an Australian company, Eagle Mining Corporation N.L. ("Eagle"), for a total of US$26.2 million. Eagle was subsequently purchased by another Australian company pursuant to a tender offer on October 3, 1997 for $228.7 million. As a result, the Company will receive proceeds of $24.7 million in the fourth quarter of 1997 and report a loss on the sale of $1.5 million. -8- NOTE F: New Accounting Standard In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted in the fourth quarter of 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. Adoption of the standard would have had no effect on the net loss per share for the three-month periods ended September 30, 1997 and 1996 and the nine-month periods ended September 30, 1997 and 1996. The Company has not yet determined what the impact of Statement 128 will be on the calculation of fully diluted earnings per share. NOTE G: Reclassifications 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 -------------------------------------------------------------------- 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 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 Company's currently operating mines are the Rochester Mine in Nevada, which it wholly owns and operates; the Golden Cross Mine in New Zealand, in which the Company has an 80% operating interest and which is planned to be closed during the last quarter of 1997 or the first quarter of 1998; the El Bronce Mine, a wholly-owned Chilean gold mine; and the Fachinal Mine, a Chilean gold mine wholly-owned by the Company. The Company also has significant interests in other companies that operate gold and silver mines. The Company owns 50% of Silver Valley Resources Corporation ("Silver Valley"), which owns -9- and operates the Coeur Mine (where operations resumed in June 1996 and are expected to continue until early 1999) and the Galena Mine (where operations resumed in June 1997) in the Coeur d'Alene Mining District of Idaho. In May 1996, the Company acquired 35% of Gasgoyne Gold Mines NL, an Australian gold mining company ("Gasgoyne"), which owns a 50% interest in the Yilgarn-Star Gold Mine in Australia. In June 1997, the Company increased its ownership interest in Gasgoyne to 50%. The market price of gold has declined to levels that are the lowest since 1985. The market price of silver to date in 1997 is lower than the annual average market prices experienced since 1993. The third quarter average price of gold was $339. The market prices of silver (Handy & Harman) and gold (London final) on November 10, 1997 were $4.88 per ounce and $310.75 per ounce respectively. If the current price range in the low $300's continues, the Company will need to reduce production costs and/or expand minable ore reserves at its Chilean gold mines, Fachinal and El Bronce, to operate the mines profitably. Also, if such prices continue, the Company may elect to place such mines on temporary standby and halt production there to conserve ore reserves until gold prices increase. The Company is required by Financial Accounting Standards Statement 121 to review the valuations of its mining properties. Such a review was last completed October 8, 1997. Should currently depressed price levels continue for an extended period of time and/or if the Company is unable to reduce production costs or expand minable ore reserves at the Company's mining properties, the Company may need to effect asset writedowns, particularly in the case of the Fachinal and El Bronce Mines and the Kensington Property. A production decision at the Kensington Property, in which Coeur had invested a total of $118.2 million (including $25.0 million of capitalized interest) at September 30, 1997, is subject to a realized price of gold through spot or forward sales of at least $400 per ounce and the receipt of required key permits, satisfactory completion of a project optimization study and approval by the Company's Board of Directors. The U.S. Forest Service issued a decision approving the Supplemental Environmental Impact Statement for the Kensington Project on August 15, 1997. On October 2, 1997, a coalition of environmental organizations filed an appeal challenging the decision. On November 13, 1997, the appeal was denied. In addition, on November 4, 1997, the City and Borough of Juneau issued the Large Mine Permit for the Kensington Mine. The -10- Company anticipates that it will receive the remaining key permits relating to the Kensington Project by the end of 1997. Currently, Coeur is working on a mine optimization study intended to reduce the project's capital and operating costs, and a development program designed to increase the current 1.9 million ounce gold reserve. Coeur does not intend to develop Kensington unless the optimization study and developmental program demonstrate the results required to make Kensington an economically viable project. The Company's business plan is to continue to acquire mining properties and/or businesses that are operational or expected to become operational in the near future so that they can reasonably be expected to contribute to the Company's near-term cash flow from operations and expand the Company's gold and/or silver production. This report contains certain forward-looking statements relating to the Company's gold and silver mining business, including estimated production data, expected operating schedules and other operating data. Actual production, operating schedules and results of operations could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) changes in the market prices of gold and silver, (ii) the uncertainties inherent in the Company's production, exploratory and developmental activities, including risks related to permitting and regulatory delays, (iii) the uncertainties inherent in the estimation of gold and silver ore reserves, (iv) changes that could result from the Company's future acquisition of new mining properties or businesses, (v) the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), (vi) the effects of environmental and other governmental regulations, and (vii) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. The following table sets forth the amounts of gold and silver produced by the Company's mining properties owned by the Company or in which it has an interest, based on the amounts -11- attributable to the Company's ownership interests, and the cash and full costs of such production during the three and nine month periods ended September 30, 1996 and 1997: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- ----------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- ROCHESTER MINE Gold ozs. 27,359 20,145 65,398 51,659 Silver ozs. 1,811,415 1,542,188 5,023,757 4,483,700 Cash Costs per oz./silver $3.49 $3.32 $3.74 $3.56 Full Costs per oz./silver $4.04 $3.84 $4.34 $4.11 GOLDEN CROSS MINE Gold ozs. 23,123 16,317 61,804 46,441 Silver ozs. 72,795 43,022 216,919 150,578 Cash Costs per oz./gold $206.70 $329.88 $247.09 $378.48 Full Costs per oz./gold $247.23 $339.70 $292.65 $424.77 FACHINAL MINE Gold ozs. 6,763 5,039 23,417 16,871 Silver ozs. 487,256 496,266 1,581,125 1,564,261 Cash Costs per oz./gold $389.81 N/A $350.21 N/A Full Costs per oz./gold $593.07 N/A $529.19 N/A EL BRONCE MINE Gold ozs. 12,816 9,305 36,398 22,496 Silver ozs. 26,494 20,333 73,803 48,175 Cash Costs per oz./gold $314.74 $294.31 $335.58 $296.84 Full Costs per oz./gold $376.41 $320.02 $397.57 $322.55 COEUR MINE Silver ozs. 164,697 330,985 925,908 486,049 Cash Costs per oz./silver $3.89 $2.89 $2.79 $3.67 Full Costs per oz./silver $4.89 $3.54 $3.72 $4.34 GALENA MINE Silver ozs. 370,420 N/A 370,420 N/A Cash Costs per oz./silver $3.58 N/A $4.79 N/A Full Costs per oz./silver $4.64 N/A $6.10 N/A YILGARN STAR MINE Gold ozs. 9,131 5,332 26,192 8,137 Cash Costs per oz./gold $300.32 $254.87 $259.78 $259.46 Full Costs per oz./gold $475.28 $342.62 $409.22 $351.43 CONSOLIDATED TOTALS Gold ozs. 79,192 56,138 213,209 145,604 Silver ozs. 2,933,077 2,432,794 8,191,932 6,732,763 -12- RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996. ------------------------------------------------------------------------- SALES AND GROSS PROFITS Sales of concentrates and dore' increased by $17,069,000, or 79%, for the third quarter of 1997 over the same quarter of 1996. The increase is primarily attributable to increased sales of metals produced at the Fachinal and El Bronce Mines due to i) the classification of the Fachinal Mine as an operating property for accounting purposes as of January 1, 1997, and ii) the Company's increased ownership of the El Bronce Mine from 50% to 100% commencing in the third quarter of 1996. In the third quarter of 1997, the Company produced a total of 2,933,077 ounces of silver and 79,192 ounces of gold compared to 2,432,794 ounces of silver and 56,138 ounces of gold in the third quarter of 1996. Silver and gold prices averaged $4.53 and $323.65 per ounce, respectively, in the third quarter of 1997 compared with $5.05 and $384.65 per ounce, respectively, in the third quarter of 1996. On November 10, 1997, the market prices of silver (Handy & Harman) and gold (London Final) were $4.88 and $310.75, respectively. In the third quarter of 1997, the Company realized average silver and gold prices of $4.57 and $333.41, respectively, compared with average market prices of $5.05 and $390.23, respectively, realized in the prior year's third quarter. The cost of mine operations for the third quarter of 1997 increased by $22,204,000, or 120%, above the prior year's comparable quarter. The increase is primarily attributable to the following factors: i) the Company increased its ownership in the El Bronce Mine from 50% to 100% commencing late in the third quarter of 1996, which resulted in a proportionate increase in the cost of mine operations in the third quarter of 1997; and ii) the Company classified the Fachinal Mine as an operating property for accounting purposes as of January 1, 1997, and began recording cost of mine operations at the Fachinal Mine on that date. Of the approximately $22 million increase in the cost of mine operations, $7.6 million, or 34%, were noncash expenses attributable to the 430% increase in depreciation, depletion and amortization expense recorded in the third quarter of 1997 over the prior year's third quarter. The increase in these noncash expenses primarily resulted from the Company's increased El -13- Bronce ownership interest and the fact that no such expenses were being recorded by Fachinal since it was still under development in the third quarter of 1996. The gross loss from mining operations in the third quarter of 1997 amounted to $2.1 million compared to a gross profit from mining operations of $3.1 million in the third quarter of 1996. The $5.1 million decrease in gross profits is due to the above mentioned changes in sales and cost of mine operations coupled with substantially lower gold and silver prices realized in the third quarter of 1997 as compared to the third quarter of the prior year. INTEREST AND OTHER INCOME Interest and other income decreased by $2,161,000, or 43%, in the third quarter of 1997 compared to the third quarter of 1996. The decrease is primarily the result of lower average balances of cash and short-term investments. In addition, during the third quarter of 1996, the Company reported a gain of $1.3 million on the sale of certain marketable securities. EXPENSES For the third quarter of 1997, total expenses increased by $.2 million, or 3%, above the prior year's comparable quarter. The increase is primarily the result of a $1.0 million increase in interest expense which was partially offset by a $.7 million decrease in general corporate expenses. NET INCOME (LOSS) As a result of the above, the Company reported a net loss of $6,268,000, or $.29 per primary share, and a net loss of $8,903,000, or $.29 per share, attributable to common shareholders for the third quarter of 1997 compared with net income of $1,878,000, or $.09 per primary share, net income of $.06 per fully diluted share and a net loss of $754,000, or $.03 per share, attributable to common shareholders for the third quarter of 1996. -14- NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 ------------------------------------------------------------------------- SALES AND GROSS PROFITS Sales of concentrates and dore' increased by $33,837,000, or 54%, for the first nine months of 1997 from the same period of 1996 and is primarily attributable to increased sales of metals produced at the Fachinal and El Bronce Mine due to i) the classification of the Fachinal Mine as an operating property for accounting purposes as of January 1, 1997, and ii) the Company's increased ownership of the El Bronce Mine from 50% to 100% commencing in the third quarter of 1996. In the first nine months of 1997, the Company produced a total of 8,191,932 ounces of silver and 213,209 ounces of gold compared to 6,732,763 ounces of silver and 145,604 ounces of gold in the nine-month period of 1996. Silver and gold prices averaged $4.77 and $339.28 per ounce, respectively, in the first nine months of 1997 compared to $5.29 and $391.60 per ounce, respectively, in 1996's comparable period. On November 10, 1997, the market price of silver (Handy & Harman) was $4.88 and the market price of gold (London Final) was $310.75 per ounce. During the first nine months of 1997, the Company realized average silver and gold prices of $4.75 and $343.87, respectively, compared with average market prices of $5.32 and $395.68, respectively, realized in the prior year's comparable period. The cost of mine operations in the first nine months of 1997 increased by $46,636,000, or 82%, above the prior year's comparable nine-month period. The increase is primarily attributable to the fact that i) the Company increased its ownership in the El Bronce Mine from 50% to 100% commencing late in the third quarter of 1996, which resulted in a proportionate increase in the cost of mine operations during the nine-month period ended September 30, 1997; and ii) the Company classified the Fachinal Mine as an operating property for accounting purposes as of January 1, 1997, and began recording cost of mine operations at the Fachinal Mine on that date. Of the approximately $46.6 million increase in the cost of mine operations, $14.4 million or 30.8% were noncash expenses attributable to the 199.4% increase in depreciation, depletion and amortization expense recorded in the nine months ended September 30, 1997 over the prior year's comparable period. The increase in these noncash expenses primarily resulted from the -15- Company's increased El Bronce ownership interest and the fact that no such expenses were being recorded by Fachinal during 1996. The gross loss from mining operations in the first nine months of 1997 amounted to $6.5 million compared to a gross profit from mining operations of $6.3 million in the same period of 1996. The $12.8 million decrease in gross profits is due to the above mentioned changes in sales and cost of mine operations coupled with substantially lower gold and silver prices realized in the nine months ended September 30, 1997. INTEREST AND OTHER INCOME Interest and other income increased by $11.3 million, or 123%, in the first nine months of 1997 compared to the same period in 1996. The increase is primarily the result of i) the receipt of $8 million of insurance proceeds for business interruption and property damage at the Golden Cross Mine in the second quarter of 1997, and ii) a gain of $5.3 million arising from the sale of gold purchased on the open market which was delivered pursuant to fixed-price forward contracts in the first quarter of 1997. EXPENSES For the first nine months of 1997, total expenses decreased by $49.3 million. The decrease is primarily attributable to the $54.4 million writedown of mining properties recorded in the second quarter of 1996. In the first nine months of 1997, interest expense increased by $3,854,000, primarily attributable to the reclassification of the Fachinal Mine from a development- stage property to an operating property. Effective in 1997, interest expense on the Fachinal construction loan, which was previously capitalized during the development stage, is charged to operating expense. Mining exploration expense for the first nine months of 1997 increased by $1,214,000, or 23%, over the prior year's comparable nine-month period. NET INCOME (LOSS) As a result of the above, the Company's loss before income taxes amounted to $8,267,000 in the first nine months of 1997 compared to a loss of $56,028,000 in the first nine months of 1996. The Company reported an income tax benefit of $2,000 for the first nine months of 1997, compared to $1,158,000 in the -16- first nine months of 1996. As a result, the Company reported a net loss of $8,265,000, or $.38 per share, and a net loss attributable to common shareholders of $16,164,000, or $.74 per share, in the first nine months of 1997, compared to a net loss of $54,870,000, or $2.57 per share, and a net loss attributable to common shareholders of $60,634,000, or $2.84 per share, in the first nine months of 1996. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL; CASH AND CASH EQUIVALENTS The Company's working capital at September 30, 1997 was approximately $128.2 million compared to $179.6 million at December 31, 1996. The ratio of current assets to current liabilities was 4.4 to one at September 30, 1997 compared to 6.7 to one at December 31, 1996. Net cash provided by operating activities for the first nine months of 1997 increased by $11.2 million to $9.6 million from $1.6 million used in operating activities during the first nine months of 1996. A total of $4.7 million of cash was provided by investing activities in the first nine months of 1997 compared to $135.3 million used in investing activities in the first nine months of 1996. Of the $135.3 million used in investing activities during the first nine months of 1996, $118.7 million relates to the purchase of investment grade intermediate term investments. The Company's financing activities used $13.6 million of cash during the first nine months of 1997 compared with $153.6 million provided by financing activities for the first nine months of 1996. During the second and third quarters of 1997, the Company purchased 11,379,048 shares of an Australian company, Eagle Mining Corporation N.L. ("Eagle"), for a total of US$26.2 million. Eagle was subsequently purchased by another Australian company pursuant to a tender offer on October 3, 1997 for $228.7 million. As a result, the Company sold its interest in Eagle and will receive proceeds of $24.7 million in the fourth quarter of 1997 and report a loss on the sale of $1.5 million. As a result of the above, the Company's net cash increase for the first nine months of 1997 was $.7 million compared with a net cash increase of $16.7 million for the first nine months of 1996. For the nine months ended September 30, 1997 and 1996, the Company expended $3.7 million and $2 million, respectively, in connection with environmental compliance activities at its -17- operating properties. For the nine months ended September 30, 1997, the Company expended a total of approximately $2.5 million on environmental and permitting activities at the Kensington property, which expenditures have been capitalized as part of its development cost. SALE OF 7 1/4 CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005 In October 1997, the Company sold $143,750,000 aggregate principal amount of 7 1/4% Convertible Subordinated Debentures due 2005 (the "Debentures") to Lazard Freres & Co. LLC (the "Purchaser") pursuant to exemptions from registration under the Securities Act of 1933 (the "Act"). The Debentures are convertible into shares of the Company's Common Stock on or before October 31, 2005, unless previously redeemed, at a conversion price of $17.45 per share, subject to adjustment in certain events. The Debentures are redeemable, in whole or in part, at any time on or after October 31, 2000. Pursuant to a Registration Rights Agreement, dated as of October 15, 1997, between the Company and Purchaser, the Company is obligated to file with the Securities and Exchange Commission and use its best efforts to cause to become effective a shelf registration statement to cover resales of the Debentures and shares of Common Stock issuable upon conversion thereof and to maintain the effectiveness of such registration statement until October 31, 1999, subject to adjustment in certain circumstances. The Company received approximately $139 million of net proceeds from the sale of the Debentures. Of that amount, approximately $42.9 million has been used to repay bank debt (as discussed below) and the balance will be used for other corporate purposes, including the possible acquisition of or investment in additional silver and gold mining properties or businesses. REPAYMENT OF BANK INDEBTEDNESS On October 31, 1997, the Company used approximately $42.9 million of the net proceeds of the sale of Debentures to repay (i) approximately $24 million borrowed under a project loan facility agreement with a bank syndicate lead by N.M. Rothschild & Sons Ltd. relating to the Company's construction of the Fachinal Mine and (ii) approximately $18.9 million borrowed under the Company's $20.0 million line of credit agreement with Rothschild Australia Ltd. in connection with the Company's investment in Gasgoyne. -18- FEDERAL NATURAL RESOURCES ACTION On March 22, 1996, an action was filed in the United States District Court for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against various defendants, including the Company, asserting claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 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 releases of hazardous substances from mining activities conducted in the area since the late 1800s. No specific monetary damages are identified in the complaint. However, in July 1996, the government indicated damages may approximate $982 million. The United States asserts that the defendants are jointly and severally liable for costs and expenses incurred by the United States in investigation, removal and remedial action and the restoration or replacement of affected natural resources. In 1986 and 1992 the Company had settled similar issues with the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes that those prior settlements exonerate it of further involvement with alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously defend this matter and, in March 1997 and September 1997 filed motions for summary judgment which are pending decision by the court. At this initial stage of the action, it is not possible to predict its ultimate outcome. PART II. Other Information. ITEM 1. LEGAL PROCEEDINGS On July 2, 1997 a suit was filed by a purchaser of the Company's common stock in Federal District Court for the District of Colorado naming the Company and certain of its officers and its independent auditor as defendants. Plaintiff alleges that the Company violated the Securities Exchange Act of 1934 during the period January 1, 1995 to July 11, 1996, and seeks certification of the law suit as a class action. The class members are alleged to be those persons who purchased publicly traded debt and equity securities of the Company during the time period stated. On September 22, 1997 an amended complaint was filed in the proceeding adding other security holders as additional plaintiffs. The action seeks unspecified compensatory damages, pre-judgment and post-judgment interest, attorney's fees and costs of litigation. The complaint asserts that the defendants knew material adverse non-public information -19- about the Company's financial results which was not disclosed, and which related to the Golden Cross and Fachinal Mines; and that the defendants intentionally and fraudulently disseminated false statements which were misleading and failed to disclose material facts. The Company believes the allegations are without merit and intends to vigorously defend against them. On October 27, 1997, the Company, its auditors and the individual defendants filed with the Court motions to dismiss the amended complaint on the ground that it fails to state a valid claim. No assurances can be given at this early stage of the action as to its ultimate outcome. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS No. 27 Financial Data Schedule (b) REPORTS ON FORM 8-K No Forms 8-K were filed during the quarter ended September 30, 1997. A Form 8-K was filed on October 16, 1997. -20- 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 13, 1997 /s/DENNIS E. WHEELER ----------------------- Dennis E. Wheeler Chairman, President and Chief Executive Officer Dated November 13, 1997 /s/JAMES A. SABALA ----------------------- James A. Sabala Senior Vice President and Chief Financial Officer