1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ______________________ to _____________________
Commission File Number 1-10012
SUNSHINE MINING AND REFINING COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2618333
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5956 Sherry Lane, Suite 1621, Dallas, Texas 75225
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code (214) 265-1377
--------------
877 W. Main, Suite 600, Boise, Idaho 83702
- --------------------------------------------------------------------------------
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
---- -----
Number of Shares Outstanding
Title of Each Class of Common Stock at May 15, 2001
- ----------------------------------- ----------------------------
Common Stock, $.01 par value 50,000,000
Page 1 of 14
2
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
Reorganized Predecessor
Company Company
March 31, December 31,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash investments $ 912 $ 291
Silver bullion 10 10
Accounts receivable 569 1,626
Inventories 1,194 1,500
Assets available for sale 736 1,006
Other current assets 938 731
------------ ------------
Total current assets 4,359 5,164
Property, plant and equipment, at cost 25,657 40,933
Less accumulated depreciation,
depletion and amortization (197) (26,262)
------------ ------------
25,460 14,671
Investments and other assets 1,266 2,757
------------ ------------
Total assets $ 31,085 $ 22,592
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise:
Current liabilities:
Accounts payable $ 507 $ 697
Accrued expenses 1,831 1,643
------------ ------------
Total current liabilities 2,338 2,340
Long-term debt 3,730 1,530
Accrued pension and other postretirement benefits 5,813 5,230
Other long-term liabilities and deferred credits 697 779
Liability for call option on Sunshine Argentina, Inc. 2,740 --
Liabilities subject to compromise -- 48,991
Redeemable common stock (45,000 shares) 14,467 --
Stockholders' equity (deficit):
Common stock--$.01 par value;
75,000 shares authorized; shares issued:
March 31, 2001 - 5,000
December 31, 2000 - 49,264 50 493
Paid-in capital 2,713 729,956
Other comprehensive loss -- (884)
Accumulated deficit (1,463) (764,733)
------------ ------------
1,300 (35,168)
Less treasury stock, at cost:
March 31, 2001 - 0 shares
December 31, 2000 - 579 shares -- (1,110)
------------ ------------
1,300 (36,278)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 31,085 $ 22,592
============ ============
See accompanying notes.
-2-
3
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Reorganized
Company Predecessor Company
Two Months Ended One Month Ended Quarter Ended
March 3 January 3 March 31,
2001 2001 2000
----------- ----------- -----------
Operating revenues $ 904 $ 2,015 $ 7,177
Mark to market loss -- -- (166)
----------- ----------- -----------
904 2,015 7,011
----------- ----------- -----------
Costs and expenses:
Cost of revenues (784) (1,714) (6,369)
Depreciation, depletion
and amortization (4) (3) (332)
Property closing and holding costs (1,045) (96) --
Exploration -- -- (376)
Selling, general and
administrative expense (538) (208) (1,098)
----------- ----------- -----------
(2,371) (2,021) (8,175)
----------- ----------- -----------
Other income (expense)
Interest income 5 -- 19
Interest and debt expense:
Contractual interest and debt expense (140) (371) (2,935)
Reduction attributable to bankruptcy -- 316 --
----------- ----------- -----------
(140) (55) (2,935)
Other, net 139 6 8
----------- ----------- -----------
4 (49) (2,908)
----------- ----------- -----------
Loss before reorganization items (1,463) (55) (4,072)
Reorganization items:
Adjust accounts to fair value -- 8,239 --
Professional fees -- (785) --
Interest earned while in Chapter 11 -- 2 --
----------- ----------- -----------
Net loss before extraordinary item (1,463) 7,401 (4,072)
Extraordinary item:
Gain on debt discharge -- 28,876 --
----------- ----------- -----------
Net income (loss) $ (1,463) $ 36,277 $ (4,072)
=========== =========== ===========
Basic and diluted loss
per common share: $ (0.03)
===========
Weighted average common shares outstanding 50,000
===========
See accompanying notes.
-3-
4
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reorganized
Company Predecessor Company
Two Months Ended One Month Ended Quarter Ended
March 3 January 31 March 31,
2001 2001 2000
----------- ----------- -----------
Cash used by operating activities:
Net loss $ (1,463) $ 36,277 $ (4,072)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation, depletion and amortization 4 3 332
Interest on Senior Conv & 10% Notes paid
or payable in stock -- -- 1,720
Common stock issued for interest on
Senior Convertible Notes -- -- 573
Adjust accounts to fair value -- (8,239) --
Gain on debt discharge -- (28,876) --
Net (increase) decrease in:
Silver bullion -- -- 140
Accounts receivable 1,376 (631) (173)
Inventories 126 193 15
Other assets and deferred charges -- (30) 107
Net increase (decrease) in:
Accounts payable and accrued expenses (625) 582 432
Accrued pension and other postretirement benefits (3) (46) (51)
Other liabilities and deferred credits (311) 84 (22)
----------- ----------- -----------
Net cash used by operations (896) (683) (999)
----------- ----------- -----------
Cash provided (used) by investing activities:
Additions to property, plant and equipment -- -- (650)
Sale of silver bullion -- -- 2,248
----------- ----------- -----------
Net cash provided by investing activities -- -- 1,598
----------- ----------- -----------
Cash provided by financing activities:
Proceeds from issuance of long term debt 1,650 550 0
----------- ----------- -----------
Increase (decrease) in cash and cash investments 754 (133) 599
Cash and cash investments, beginning of period 158 291 628
----------- ----------- -----------
Cash and cash investments, end of period $ 912 $ 158 $ 1,227
=========== =========== ===========
Supplemental cash flow information -
Interest paid in cash $ 99 $ 38 $ 80
=========== =========== ===========
Noncash financing transactions:
Common stock issued upon conversion of debt -- -- 1,031
Common stock issued for
mandatory prepayment of debt -- -- 1,250
Common stock issued for payment of interest -- -- 544
Cash flows related to reorganization items:
Operations activities:
Interest received on accumulated cash -- 2 --
Payment of professional fees 322 102 --
Financing activities -- -- --
Investing activities -- -- --
See accompanying notes.
-4-
5
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2001
1. VOLUNTARY FILING UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
Sunshine's business and profitability have been negatively
affected by an extremely lengthy period of low silver prices. Since
1988, the price of silver has averaged less than $5.00 per ounce
compared to an average price of approximately $9.50 per ounce over the
prior 10 years. Given the depressed price of silver compared to the
Company's cash production costs, the Company's operations have
generated a negative cash flow for several years.
On August 23, 2000 (the "Petition Date") Sunshine Mining and
Refining Company ("Sunshine" or the "Company") and three of its
subsidiaries (the "Debtor Subsidiaries" and together with the Company,
the "Debtors") filed voluntary petitions for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for
the District of Delaware (Case No. 00-3409 (MFW)). Under Chapter 11,
certain claims against the Debtors in existence prior to the filing of
the petitions for relief under the federal bankruptcy laws are stayed
while the Debtors continue business operations as
Debtors-in-possession. These claims are reflected in the December 31,
2000 balance sheet as "liabilities subject to compromise." Claims
secured by the Debtors' assets ("secured claims") also are stayed,
although the holders of such claims have the right to move the court
for relief from the stay.
The Debtors received approval from the Bankruptcy Court to pay
or otherwise honor certain of its prepetition obligations, including
employee wages and retirement benefits and certain prepetition claims
of certain critical suppliers of goods and services.
The Third Amended and Restated Joint Chapter 11 Plan of
Reorganization as modified December 5, 2000 (the "Plan") was confirmed
on December 5, 2000 (the "Confirmation Order"). Under the terms of the
Confirmation Order, certain conditions precedent existed to the
effectiveness of the Plan set forth in the Plan and the Confirmation
Order. The effective date of the Plan was February 5, 2001 (the
"Effective Date"). (See Note 2 for discussion of the Plan.)
To fund continuing operations, the Company procured a $5
million Debtor-in-possession credit facility (the "DIP Facility").
2. PLAN OF REORGANIZATION
The Plan, cosponsored by four of the Company's major
bondholders holding more than 70% of the Company's outstanding
indebtedness (the "Cosponsoring Bondholders"), became effective on
February 5, 2001 and provided that:
o The "old common stock" of Sunshine was canceled (as were all
existing issues of warrants and options). Common stockholders
with 100 or more shares of common stock as of the Effective
Date received a pro rata distribution of approximately 3.4% of
the "new common stock." Of the total new shares of stock
outstanding (50 million shares) existing common stock holders
received approximately 1.7 million shares.
o All of the Company's pre-bankruptcy funded debt and certain
other liabilities (totaling approximately $49 million) was
canceled and converted to equity.
o Approximately 90% of the new common stock is held by
affiliates of Elliott Associates, L.P. and Stonehill Capital
Management LLC (the "Principal Shareholders"). They have
appointed four members to the Company's five-member Board of
Directors. In addition, the Principal Shareholders have a Call
Option which allows them, upon the occurrence of certain
adverse events, to acquire Sunshine Argentina, the owner of
the Pirquitas Mine in Argentina, the Company's principal
asset.
o The Confirmation Order required that, prior to the Effective
Date, the Company obtain approval of a new consent decree from
the Idaho District Court releasing the Company from a 1994
Consent Decree which obligated it to remediate certain
property in the Bunker Hill Superfund Site. The new Consent
Decree was entered on January 22, 2001. The Confirmation Order
also required the incorporation of the agreement reached with
certain agencies of the United
5
6
States and the Coeur d'Alene Indian Tribe regarding certain
covenants not to sue the Company for potentially significant
environmental claims. In consideration for the releases and
agreement not to sue, the Company agreed to issue the
plaintiffs ten-year warrants to acquire up to 4.975 million
shares of the Company's New Common stock at an exercise price
of $.66 per share; to deed to the plaintiffs certain
timberland it owns in North Idaho; to pay a sliding scale
royalty commencing at silver prices in excess of $6.00 per
ounce on production from the Sunshine Mine; and to perform
certain test work and remediation at the ConSil mine site.
3. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements of Sunshine Mining and Refining Company ("Sunshine" or the
"Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America 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 accounting principles
generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the quarter
ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2001. For further
information, refer to the consolidated financial statements and
footnotes thereto included in Sunshine's report on Form 10-K for the
year ended December 31, 2000.
The financial statements for the period ended March 31, 2001
reflect accounting principles and practices set forth in AICPA
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under The Bankruptcy Code" ("SOP 90-7"). Pursuant to the
guidance of SOP 90-7, the Company adopted "fresh start" reporting as of
January 31, 2001. Under "fresh start" reporting, the reorganization
value of the entity is allocated to the entity's assets. The net effect
of all fresh start reporting adjustments resulted in income of $8.2
million, which is reflected in the Statement of Operations for the one
month ended January 31, 2001 in accordance with SOP 90-7. The effective
date is considered to be the close of business on January 31, 2001 for
financial reporting purposes. The periods presented prior to January
31, 2001 have been designated "Predecessor Company" and the periods
subsequent to January 31, 2001 have been designated "Successor
Company." As a result of the implementation of fresh start reporting,
the financial statements of the Company after the effective date are
not comparable to the Company's financial statements for prior periods.
Net income (loss) per share data is not presented for periods
prior to January 31, 2001 because of the general lack of comparability
as a result of the reorganization of the Company and implementation of
fresh start reporting by the Company.
The reorganization and the adoption of fresh start reporting
resulted in the following adjustments to the Company's Condensed
Consolidated Balance Sheet as of January 31, 2001:
Predecessor Reorganization and Reorganized
Company Fresh Start Adjustments Company
---------- ------------------------------ ----------
January 31, January 31,
(In thousands) 2001 Debit Credit 2001
- ----------------------------------------------------- ---------- ---------- ---------- ----------
ASSETS
Total current assets $ 5,195 $ -- $ 71(a) $ 5,124
Property, plant and equipment, net 14,669 10,794(a) -- 25,463
Other assets 2,780 -- 1,530(a) 1,250
---------- ---------- ---------- ----------
$ 22,644 $ 10,794 $ 1,601 $ 31,837
========== ========== ========== ==========
6
7
LIABILITIES AND STOCK-HOLDERS' EQUITY (DEFICIT)
Total current liabilities $ 2,641 $ -- $ 321(a) $ 2,962
Noncurrent liabilities 57,118 48,846(b) 633(a) 8,905
Liability for call option on Sunshine
Argentina, Inc. -- -- 2,740(c) 2,740
---------- ---------- ---------- ----------
Total Liabilities 59,759 48,846 3,694 14,607
Redeemable common stock -- -- 14,467(d) 14,467
Stockholders' equity (deficit):
Common stock 492 492(e) 50(f) 50
Paid in capital 729,957 729,957(e) 2,713(f) 2,713
Accumulated other comprehensive
loss (884) -- 884(e) --
Accumulated deficit (765,570) -- 765,570(e) --
Less treasury stock at cost (1,110) -- 1,110(e) --
---------- ---------- ---------- ----------
(37,115) 730,449 769,289 1,725
---------- ---------- ---------- ----------
$ 22,644 $ 779,295 $ 788,488 $ 31,837
=========== ========== ========== ==========
Explanations of reorganization and fresh start adjustment columns of the balance
sheet are as follows:
(a) To adjust property, plant and equipment, other assets and liabilities
to estimated current fair value. The book value for the Pirquitas Mine
is increased by approximately $11 million and the book value of other
properties is reduced by approximately $200 thousand. Property, plant
and equipment after adjustments consists of the following:
Pirquitas Mine $24,750
Land 380
Other mining interests 333
------------
$25,463
(b) To reflect the cancellation of debt and other liabilities pursuant to
the Plan.
(c) To record the estimated fair value of the liability for the Call Option
issued pursuant to the Plan. (See Note 2.)
(d) To reflect the new common stock issued to the Principal Shareholders
which, in certain instances, the Company would be required to
repurchase from the Principal Shareholders.
(e) To eliminate the old stockholders' equity (deficit).
(f) To reflect the issuance of new common stock and warrants to other than
Principal Shareholders.
4. EXTRAORDINARY ITEM
The extraordinary items recorded for the one month ended
January 31, 2001 are comprised of the write-off of the unamortized debt
issuance costs and the extraordinary gain on debt discharge recognized
as a result of the consummation of the Plan as follows (in thousands):
Write off of unamortized debt issuance costs $ (92)
Discharge of debt, liabilities and associated accrued interest 48,938
Estimated value of securities issued (19,970)
-----------
Extraordinary gain $ 28,876
5. INVENTORIES
The components of inventory consist of the following:
March 31 December 31
2001 2000
---------- ----------
Precious Metals Inventories:
Work in process $ -- $ 187
Finished goods 14 28
Materials and supplies inventories 1,180 1,285
---------- ----------
$ 1,194 $ 1,500
========== ==========
7
8
6. DEBTOR IN POSSESSION FINANCING/EXIT FINANCING FACILITY
The Company obtained a $5 million post-petition
debtor-in-possession financing facility (the "DIP Facility") with
affiliates of the Cosponsoring Bondholders. Sunshine Argentina, Inc., a
wholly-owned subsidiary, was the borrower under the DIP Facility. The
base rate of interest under the DIP Facility was 15% per annum with a
$150 thousand commitment fee that was expensed in 2000. Borrowings
under the DIP Facility were secured by substantially all of the
Company's assets. After the Plan became effective, the outstanding
balance under the DIP facility of approximately $2.7 million was rolled
into an Exit Financing Facility with the same lenders with repayment
due within eighteen months. The Exit Financing Facility has a maximum
commitment of $5 million, an interest rate of 15% and a commitment fee
of $150 thousand. The remaining availability under the Exit Financing
Facility at May 11, 2001 is approximately $470 thousand.
7. CLOSURE OF THE SUNSHINE MINE
On February 2, 2001, Sunshine received Notice that the smelter
to which the Sunshine Mine shipped concentrates was closing and would
no longer accept deliveries. Management sought alternatives for the
production from the Sunshine Mine but was not successful in securing an
economically viable alternate arrangement. As a result, Sunshine
notified employees that a mass lay-off of the majority of the Sunshine
Mine employees would occur on February 16, 2001, and the mine was
placed on a care and maintenance status. Since the closure of the
Sunshine Mine on February 16, the Company has no sources of revenues.
In addition, we have been incurring significant costs associated with
the closure of the mine, including funding severance benefits and
accrued vacation liability and costs associated with preparing the mine
for an extended period of care and maintenance. Offsetting a portion of
these costs has been proceeds from the liquidation of certain equipment
at the property, including the entire fleet of diesel equipment. The
decision to liquidate the equipment was based on, among other things,
the expectation that during an extended shutdown period, the equipment
would deteriorate significantly.
SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Three Months Ended March 31, 2001 and 2000
Certain matters discussed in this report are "forward-looking
statements" intended to qualify for the safe harbor from liability established
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are all statements other than statements of historical fact,
including without limitation those that are identified by the use of the words
"anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts" and similar expressions. Such statements address future plans,
objectives, expectations and events or conditions concerning various matters
such as mining exploration, capital expenditures, earnings, litigation,
liquidity and capital resources and accounting matters. Actual results in each
case could differ materially from those currently anticipated in such
statements, by reason of factors including without limitation, actual results of
exploration, silver prices, imprecision of reserve estimates, future economic
conditions, regulations, competition and other circumstances affecting
anticipated revenue and costs. Any forward-looking statement speaks only as of
the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement. Readers are cautioned not to
place undue reliance on these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
The Company and three of its principal subsidiaries filed for
protection under Chapter 11 on August 23, 2000. The Elliott Group and the
Stonehill Group, whose affiliates were the Company's principal creditors, were
co-proponents with the Company of the Plan of
8
9
Reorganization which was filed contemporaneously with the bankruptcy filing.
Upon emergence from bankruptcy, the Stonehill Group and the Elliott Group became
the Company's principal owners, owning approximately 90% of the Company's common
stock.
Highwood Partners, L.P. and Stonehill Capital Management, LLC,
affiliates of the Elliott Group and the Stonehill Group, provided the
Debtor-in-Possession (DIP) financing which was used by the Company and its
affiliates as its principal source of funding during the bankruptcy. Upon the
Effectiveness of the Plan, on February 5, 2001, approximately $2.7 million was
borrowed under the DIP facility. The Stonehill and Elliott affiliates are also
providing the Exit Financing Facility, which repaid advances under the DIP
facility and has funded the Company since its emergence from bankruptcy. The
Exit Financing Facility bears interest at a fixed rate of 15% per annum in the
maximum principal amount of $5,000,000. The facility is secured by substantially
all of the assets of Sunshine and its subsidiaries, including the Pirquitas
Mine. The proceeds of all advances under such facility are to be utilized solely
(a) to provide funds necessary to the conduct of the business of Sunshine and
its subsidiaries in the ordinary course in accordance with an approved budget,
(b) to reimburse fees and disbursements paid by lenders and their professionals
in accordance with the budget, and (c) as otherwise contemplated or permitted by
the budget. The Exit Financing Facility is the Company's only source of working
capital, other than asset disposals, at the present time. The remaining
availability under the Exit Financing Facility is approximately $470 thousand as
of May 15, 2001.
On February 2, 2001, Sunshine received Notice that the smelter to which
the Sunshine Mine shipped concentrates was closing and would no longer accept
deliveries. Management sought alternatives for the production from the Sunshine
Mine but was not successful in securing an economically viable alternate
arrangement. As a result, Sunshine notified employees that a mass lay-off of the
majority of the Sunshine Mine employees would occur on February 16, 2001, and
the mine was placed on a care and maintenance status.
Since the closure of the Sunshine Mine on February 16, the Company has
no sources of revenues. In addition, we have been incurring significant costs
associated with the closure of the mine, including funding severance benefits
and accrued vacation liability and costs associated with preparing the mine for
an extended period of care and maintenance. Offsetting a portion of these costs
has been proceeds from the liquidation of equipment at the property, including
the entire fleet of diesel equipment. The decision to liquidate the equipment
was based on, among other things, the expectation that during an extended
shutdown period, the equipment would deteriorate significantly.
It is expected that the reopening of the mine would require a
substantial improvement in silver prices. However, due to lack of available
funds, the Company has significantly cut back exploration and development since
the end of 1999, including stopping the so-called ConSil ramp project.
Therefore, access to economically recoverable reserves will be limited upon any
reopening of the mine, and, before commercial operations can be restarted, a
substantial exploration and development effort will be required. In addition,
substantial equipment additions will be required to replace the equipment being
sold.
The remaining availability under the Exit Facility will be exhausted
within a matter of weeks. The Company is engaged in a review of its strategic
options in order to address its financing difficulties. Among these is the
consideration of a sale of some or all of its assets, the merger of the Company
with another company, or a joint venture arrangement on some of its properties,
including Pirquitas. If the Company is unable to successfully negotiate and
close any such alternative in advance of using all the availability under the
Exit Financing Facility or if the Company becomes in default under that
Facility, the Company may be required to, among other things, seek modifications
in the terms of the Exit Financing Facility, seek protection under the
bankruptcy laws, or cease operations altogether. Any of these would be expected
to have a significant negative effect on the price of the Company's common
stock.
Registration Rights Agreement. Under the Plan of Reorganization,
Sunshine entered into a Registration Rights Agreement with members of the
Stonehill Group and the Elliott Group under which the shares of new common stock
issued to them are to be registered under federal securities laws. Such
agreement requires the filing and effectiveness of a Registration Statement
within specified periods of time and other matters. In the event that certain of
the commitments under such agreement are not satisfied, each of the holders has
a right to provide Sunshine with written notice thereof (a "Put Notice") which
would require Sunshine to pay to each such holder (in cash or shares of common
stock at the option of the holder) a specified amount of funds and/or in certain
instances, to repurchase the securities from the holder for a
9
10
"Mandatory Repurchase Price" equal to 115% of the Market Price on the date the
holder acquires the right to require Sunshine to repurchase such shares. The
Company does not have adequate liquidity to satisfy such a put obligation.
Argentina Transaction; Call Option Agreement. Under the terms of the
Plan and the Confirmation Order on the Effective Date, the capital stock of
Argentina was cancelled and Argentina issued the "New Argentina Stock." Sunshine
caused the incorporation and organization of Sunshine International Mining,
Inc., a Delaware corporation ("International"), all of the issued and
outstanding stock of which is owned by Sunshine. Sunshine contributed to the
capital of International all of the New Argentina Stock such that Argentina
became a wholly-owned subsidiary of International which in turn is a
wholly-owned subsidiary of Sunshine. Simultaneously Sunshine, International and
Argentina entered into a Call Option Agreement dated February 5, 2001, with the
Elliott Group and the Stonehill Group, pursuant to which International granted
(i) a contingent call option to each holder within the Elliott Group and the
Stonehill Group to purchase, collectively, up to 100% of the shares of New
Argentina Stock for $1 million and (ii) a first priority perfected security
interest in the New Argentina Stock. Such call option(s) was granted to purchase
a maximum number of shares of New Argentina Stock at a specified purchase price
which option is to be reduced proportionately in the event the Elliott Group
holders and/or the Stonehill Group holders sell more than 50% of their shares of
New Common Stock of Sunshine received. For example, if the Elliott Group holders
were to sell 55% of their shares of Sunshine Common Stock initially received,
then the maximum number of New Argentina Stock that the Elliott Group holders
could purchase in the aggregate upon exercise of their Call Options would be
reduced by a percentage equal to (55% - 50%) x 2, or 10%. The term of each Call
Option expires at the time of exercise in full of such Call Option, or if the
market capitalization of Sunshine shall exceed $150,000,000 for at least 60
consecutive days or on the tenth anniversary of the Effective Date of the Plan.
The Call Option becomes exercisable upon the occurrence of any one or more of
nine separate events, including (i) the de-listing of the Sunshine New Common
Stock from an "Approved Market," (ii) suspension of the Sunshine New Common
Stock from trading on an Approved Market for at least seven consecutive calendar
days, (iii) reduction in the overall market capitalization of Sunshine to less
than $15,000,000 for at least fifteen consecutive calendar days, (iv) a
bankruptcy proceeding occurring with respect to Sunshine or one of its
subsidiaries, (v) Sunshine fails to comply with its obligations in the Call
Option Agreement, and (vi) other events, including any default under the "Exit
Financing Facility." The Call Option, once exercisable, may be exercised at any
time by any of the holders thereof. The effect of the Call Option(s) is to
potentially allow the Elliott Group holders and the Stonehill Group holders (and
certain of their successors and assigns) to acquire Sunshine Argentina which in
turns owns the Pirquitas Mine and other assets. Should such an event occur,
Sunshine's investment in the property, carried on the balance sheet at
$24,750,000, would no longer be an asset of Sunshine, nor would the assigned
proven and probable reserves totaling 129.6 million ounces of silver, along with
59,000 tons of tin and 273,000 tons of zinc. The New Argentina Stock has been
pledged under the Call Option Agreement under a separate Pledge Agreement to the
Elliott Group holders and the Stonehill Group holders and delivered to Wells
Fargo Bank Minnesota, N.A. as administrative and pledge agent.
Failure to comply with the terms of the Registration Rights Agreement
or the Call Option Agreement would result in significant adverse impacts on the
Company, including further impairing its limited available liquidity and the
loss of its principal asset. These would be expected to adversely effect the
ability of the Company to achieve any of the strategic options it intends to
pursue, and could lead to a bankruptcy filing or the cessation of operations
altogether. Such events would be expected to have a significant negative effect
on the price of the common stock.
The opinion of the Company's independent certified public accountants
covering the 2000 year expressed substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first quarter of 2001 was $1.6
million compared to $1.0 million in the first quarter of 2000.
Investing activities in the first quarter of 2000 included $2.3 million
proceeds from sale of investment silver bullion and $650 thousand of net
additions to property, plant and equipment including $462 thousand for the
development of Pirquitas.
10
11
Cash provided by financing activities in 2001 primarily consists of
$1.65 million proceeds from borrowings under the DIP and Exit Financing
Facility.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2000
On December 5, 2000, the Company's Plan was confirmed by the United
States Bankruptcy Court and the Company emerged from bankruptcy on February 5,
2001. As a result of the reorganization and the recording of the restructuring
transaction and implementation of fresh start reporting, the Company's results
of operations after February 5, 2001, are not comparable to results reported in
prior periods. See Notes 2 and 3 for information on consummation of the Plan of
Reorganization and implementation of fresh start reporting.
Consolidated Results of Operations:
Quarter Ended Quarter Ended
(In thousands) March 31, 2001 March 31, 2000
- ---------------------------------------------------- -------------- --------------
Operating revenues $ 2,919 $ 7,177
Mark to market loss -- (166)
------------ ------------
2,919 7,011
------------ ------------
Costs and expenses:
Cost of revenues (2,498) (6,369)
Depreciation, depletion and amortization (7) (332)
Property closing and holding costs (1,141) --
Exploration -- (376)
Selling, general and administrative expense (746) (1,098)
------------ ------------
(4,392) (8,175)
------------ ------------
Other income (expense)
Interest income 5 19
Interest and debt expense:
Contractual interest and debt expense (511) (2,935)
Reduction attributable to bankruptcy 316 --
------------ ------------
(195) (2,935)
Other, net 145 8
------------ ------------
(45) (2,908)
------------ ------------
Loss before reorganization items (1,518) (4,072)
Reorganization items:
Adjust accounts to fair value 8,239 --
Professional fees (785) --
Interest earned while in Chapter 11 2 --
------------ ------------
Net income (loss) before extraordinary item $ 5,938 $ (4,072)
============ ============
Consolidated operating revenues decreased approximately $4.3 million
(59.3%) for the first quarter of 2001 compared to the first quarter of 2000. The
decrease in operating revenues primarily resulted from a 713,000 ounce decrease
in ounces of silver sold in the 2001 period, and a $0.44 decrease in average
price received per ounce of silver sold (580,545 ounces of silver at an average
of $4.62 per ounce in the 2001 quarter compared to 1,293,626 ounces at an
average of $5.06 per ounce in the 2000 quarter) along with a $300 thousand
decrease in by-product revenue. Sales in the 2001 quarter decreased primarily
due to the closure of the Sunshine Mine on February 16, 2001.
Mark to market loss on silver held for investment amounted to $166
thousand in the 2000 quarter. No silver was held for investment during the 2001
period.
Cost of revenues decreased $3.9 million (60.8%) (from $6.4 million in
the first quarter of 2000 to $2.5 million in the 2001 quarter) primarily due to
a decrease in ounces of silver produced. Net cash operating costs decreased $.59
per ounce to $3.90 per ounce of silver primarily due to a reduction in
development cost and lower metallurgical costs due to the shutdown of the
antimony plant in October 2000.
11
12
Silver production totaled 519,177 ounces produced from 20,722 tons at
26.17 ounces per ton in 2001 versus 1,268,877 ounces from 52,042 tons at 24.49
ounces per ton in 2000. The decrease in production was primarily due to the
closure of the Sunshine Mine on February 16, 2001.
Property shutdown and holding costs in the current quarter consisted of
approximately $800 thousand of costs incurred to place the Sunshine Mine on care
and maintenance status. The remaining holding costs of approximately $340
thousand were primarily costs to hold the Pirquitas Mine.
General and administrative costs decreased $352 thousand due primarily
to reductions in staff.
Interest and debt expense decreased $2.7 million primarily due to the
cancellation of debt pursuant to the Plan.
In the 2001 period, other income of $145 thousand was primarily due to
gains from the sale of certain equipment.
SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 23, 2000 (the "Petition Date"), Sunshine Mining and Refining
Company ("Sunshine") and its wholly-owned subsidiaries, Sunshine Argentina, Inc.
("Argentina"), Sunshine Precious Metals, Inc. ("Metals"), and Sunshine
Exploration, Inc. ("Exploration"), all filed voluntary petitions for relief
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. The primary cause number is In Re: Sunshine Mining
and Refining Company, Case No. 00-3409(MWF). The four separate cases were
procedurally (but not substantively) consolidated for joint administration (the
"Proceeding"). During the pendency of the Proceeding, the Third Amended and
Restated Joint Chapter 11 Plan of Reorganization as modified December 5, 2000
was approved (the "Plan") by an Order Confirming the Third Amended and Restated
Joint Chapter 11 Plan of Reorganization (the "Confirmation Order"). The Plan
Effective Date was February 5, 2001. Incorporation by reference is made to
Sunshine's Current Report on Form 8-K for event reported February 5, 2001 as
filed with the Securities and Exchange Commission (the "Commission") for a
description of the effect of the Plan and Confirmation Order, cancellation of
certain securities, the issuance of new securities, entry of a new consent
decree, a settlement with Asarco, and other matters. Consistent with the
provisions of the Bankruptcy Code, on the Effective Date of the Plan, title to
all assets and property of the estates of the "debtors" passed to and invested
in the "Reorganized Debtors" (Sunshine and its subsidiaries) free and clear of
all claims, allowed interest, liens, charges and other rights of creditors or
equity holders arising prior to the Effective Date. The rights afforded under
the Plan and treatment of Claims and interests under the Plan have been in
exchange for and in complete satisfaction, discharge and release of all Claims
and termination of all interests of any nature whatsoever arising on or before
the Effective Date, including accrued interest on claims from the Petition Date.
The Bankruptcy Court has retained exclusive jurisdiction over the Reorganization
Cases for various matters to sort out any claims and to determine any
controversies or disputes, as well as all matters set forth in the Confirmation
Order.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to the Plan and the Confirmation Order, on the Effective Date,
all of the "old common stock" of Sunshine was cancelled, retired and eliminated
with no consideration paid therefor, and Sunshine was deemed to have issued the
"New Mining Stock," which is shares of Common Stock, par value $0.01 per share.
Under the Amended and Restated Certificate of Incorporation of Sunshine filed
with the Secretary of State of Delaware on February 16, 2001, pursuant to the
Plan, Sunshine's authorized common stock from and after the Effective Date
consists of 200 million shares of Common Stock, par value $0.01 per share. Of
that class, approximately 50 million shares of Common Stock, par value $0.01 per
share, were issued as the "New Mining Stock" under the terms of the Plan to
those designated as recipients therefor under the Plan which generally were
certain creditors of Sunshine and others who in turn gifted a portion
(approximately 3.4%) of such New Mining Stock to the former common stockholders
on a pro-rata basis, but
12
13
only to accounts holding in excess of 100 shares of "old common stock." Sunshine
distributed certificates representing shares of "New Mining Stock" to holders
during February 2001. Certificates representing "old common stock" did not need
to be surrendered. The CUSIP Number of the "New Mining Stock" is 867833-60-0.
Additionally, in connection with the Plan and the settlement of certain
litigation, Sunshine also issued certain Warrants to purchase Sunshine Common
Stock as follows:
(a) Under the terms of a settlement with the United States on
behalf of the United States Environmental Protection Agency ("EPA"),
the United States Department of the Interior ("DOI") and the United
States Department of Agriculture ("Agriculture") (collectively the
"Government") and the Coeur d'Alene Tribe (the "Tribe") through a
consent decree (the "New Consent Decree") involving Sunshine and Metals
in cases numbered CIV96-0122-N-EJL and CIV91-0342-N-EJL, pending in the
United States District Court for the District of Idaho (the "NRD
Actions"), Sunshine issued to the Government and the Tribe warrants to
purchase 9.95% of Sunshine's New Common Stock (i) with a strike price
for such warrants equal to the strike price of any management options
provided under the Plan based on an equity value of Sunshine of $33
million (resulting in an exercise price of $0.66 per share), (ii) with
a cashless exercise feature, (iii) terminating on the tenth anniversary
of the Effective Date of the Plan (which would be February 5, 2011),
(iv) that are exempt from initial registration pursuant to 11 U.S.C.
Section 1145, (v) that are freely transferable to any other entity at
any time, and (vi) that are subject to ordinary terms and conditions,
including standard anti-dilution language of warrants of this nature
reasonably acceptable to the proponents of the Plan, the Government and
the Tribe.
(b) Sunshine and Asarco Incorporated ("Asarco") entered into a
stipulation in connection with the Proceeding under which Asarco was
paid $125,000 in cash on the Effective Date of the Plan for an allowed
administrative claim, and Asarco received with respect to its allowed
general unsecured claim on the Effective Date of the Plan shares of new
common stock totaling 324,265 shares, and warrants to purchase an
additional 324,625 of Sunshine Common Stock (i) with a strike price for
such warrants equal to the strike price of management options under the
Plan based on an equity value of Sunshine of $33 million (which works
out to be $0.66 per share), (ii) with a cashless exercise feature,
(iii) that are exempt from initial registration, (iv) that are freely
transferable to any other entity at any time, (v) that are subject to
ordinary terms and conditions, including standard anti-dilution
language of warrants of similar nature reasonably acceptable to the
Plan proponents and Asarco, and (vi) that terminate on the fifth
anniversary of the Effective Date of the Plan (February 5, 2006).
In addition, in connection with the Plan, Sunshine issued certain
options to management covering an aggregate of 2,300,000 shares of Common Stock
and reserved an additional 200,000 shares of Common Stock for the grant of
future options.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
During the period covered by this report, Registrant
filed a Current Report on Form 8-K for event occurring
February 5, 2001, which reported matters under Items 2, 3, 5,
6 and 7.
13
14
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 hereto duly authorized.
SUNSHINE MINING AND REFINING COMPANY
Dated: May 18, 2000 By: /s/ WILLIAM W. DAVIS
-----------------------------------------
William W. Davis
President and Chief Financial Officer
14