SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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
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Commission File Number 1-8641
COEUR D'ALENE MINES CORPORATION
(Exact name of registrant as specified in its charter)
Idaho 82-0109423
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Front Ave., P. O. Box "I"
Coeur d'Alene, Idaho 83816
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(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (208) 667-3511
Securities Registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1.00 per share
6 3/8% Convertible Subordinated Debentures due January 31, 2004
7 1/4% Convertible Subordinated Debentures due October 31, 2005
13 3/8% Convertible Senior Subordinated Notes due December 31, 2003
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. (The aggregate market value is computed by reference to the
last sale price of such stock, as of March 22, 2002, which was $1.23 per share.)
$69,832,070
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 22, 2002.
56,774,041 shares of Common Stock, Par Value $1.00
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-K is incorporated by
reference from the registrant's definitive proxy statement which will be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
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PART I
Item 1. Business
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INTRODUCTION
Coeur d'Alene Mines Corporation is the largest primary silver producer in
North America and is engaged through its subsidiaries in the operation and/or
ownership, development and exploration of silver and gold mining properties and
companies located primarily within the United States (Nevada, Idaho and Alaska)
and South America (Bolivia and Chile). Coeur d'Alene Mines Corporation and its
subsidiaries are hereinafter referred to collectively as "Coeur" or the
"Company."
OVERVIEW OF MINING PROPERTIES AND INTERESTS
The Company's most significant mining properties and interests are:
o The Rochester Mine is a silver and gold surface mining operation located in
northwestern Nevada and is 100% owned and operated by Coeur. It is one of
the largest and lowest cost of production primary silver mines in the
United States. During 1999, the Company acquired the mineral rights to the
Nevada Packard property which is located one and one-half miles south of
the Rochester mine. The Company is in the process of permitting the Nevada
Packard property and may commence mining there in the second half of 2002.
o Coeur owns 100% of the capital stock of Coeur Silver Valley ("Silver
Valley"), which owns and operates the Galena underground silver mine that
resumed production in May 1997 and owns the Coeur underground silver mine
that discontinued operations on July 2, 1998. In addition, Silver Valley
owns the Caladay property that adjoins the Galena Mine and has operating
control of several contiguous exploration properties in the Coeur d'Alene
Silver Mining District of Idaho.
o Coeur owns 100% of the Cerro Bayo Mine (formerly the Fachinal Mine) in
southern Chile, which is a high grade gold and silver underground mine. The
Cerro Bayo deposit was discovered during 2000 and exploration drilling
continued thereafter. Initial ramp development commenced in late 2001 and
ore processing is scheduled to start in May 2002. The Company previously
suspended operations at the Fachinal Mine, adjacent to the Cerro Bayo
deposit, in December of 2000 in order to develop the Cerro Bayo Mine and
prepare it for production.
o Coeur owns 100% of Empressa Minera Manquiri S.A. ("Manquiri"), a Bolivian
company, that controls the mining rights for the San Bartolome silver
project, which is a silver property in Bolivia where a final feasibility
study is scheduled for completion in 2002. Depending on the price of
silver, construction and development of San Bartolome could start in late
2002 with production commencing in 2004.
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o The Company owns 100% of the Kensington Property, located north of Juneau,
Alaska and is evaluating it as an underground gold mine. Optimization
studies completed in 1999 and 2000 estimated cash operating costs of $200
per ounce of gold and estimated capital costs to develop the mine of
approximately $150 million. Coeur is currently in the process of seeking a
joint venture partner for the Kensington Property.
Coeur also has interests in other properties which are the subject of
silver or gold exploration activities at which no mineable ore reserves have yet
been delineated.
Exploratory Mining Properties
The Company either directly or through wholly-owned subsidiaries owns,
leases and has interests in certain exploration-stage mining properties located
in the United States and Chile. In keeping with its overall efforts to focus its
resources, the Company conducted approximately 52% of its exploration activities
during 2001 on or near existing properties where infrastructure and production
facilities are already in place.
SIGNIFICANT DEVELOPMENTS IN 2001
o On February 7, 2001, the Company sold (effective as of December 31, 2000)
its 50% shareholding in Gasgoyne Gold Mines NL ("Gasgoyne"), which owns 50%
of the Yilgarn Star Mine located in Western Australia and certain other
exploration stage properties.
o In connection with its ongoing debt restructuring programs, the Company
reduced its convertible indebtedness by $59.1 million during 2001, enabling
the Company to record an extraordinary gain of $48.2 and significantly
reduce future interest payments.
o The Company commenced the development of the 100%-owned Cerro Bayo
high-grade gold and silver mine in Chile, where production is expected to
begin in May 2002.
o The Company commenced a final feasibility study at its 100%-owned San
Bartolome silver property in Bolivia with the assistance of a $760,000
grant from the U.S. Trade and Development Agency.
o The Company introduced trackless mining in selected areas of the Galena
Mine at Silver Valley that will improve productivity and significantly
reduce future cash costs.
o In March 2001, the Company entered into a final settlement agreement with
the U.S. Government, which terminated the Company's involvement and
obligations with respect to litigation for the cleanup of the Coeur d'Alene
Basin.
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o The Company was awarded the industry's top safety honor in 2001, the
Sentinals of Safety Award for surface mining operations at the Company's
Rochester mine near Lovelock, Nevada.
o In January 2001, the Company announced that it received notice from the New
York Stock Exchange that the Company had fallen below the continued listing
requirement relating to its market capitalization and shareholders' equity.
During the year, the Company submitted and periodically updated a plan
pursuant to which it expects to be in compliance with that listing
requirement by May 27, 2002 (within 18 months of receipt of the Exchange's
notice).
o The Petorca Mine, an underground and surface gold and silver mine
wholly-owned and operated by Coeur in central Chile, was closed by the
Company in August 2001.
SIGNIFICANT DEVELOPMENTS IN EARLY 2002
o In connection with its ongoing debt restructing programs, Coeur further
reduced its convertible indebtedness by $9.1 million during the period
January 1, 2002 to March 15, 2002. The Company has entered into agreements,
which are expected to close before March 31, 2002 to exchange $3.4 million
in face value of its 6% Convertible Subordinated Debentures due June 2002
for 3.4 million shares of the Company's common stock. In addition, $5.7
million of the Company's 13 3/8% Convertible Senior Subordinated Notes due
December 2003, were voluntarily converted into 4.7 million shares of the
Company's common stock per the terms of the indenture.
o The Company discovered additional high-grade gold and silver mineralization
at the Cerro Bayo property in southern Chile in January and February 2002.
o In February 2002, the Company entered into agreements in principle to
acquire 100% of the Martha high-grade underground silver mine from Yamana
Resources Inc. The Martha mine is located in Argentina approximately 270
miles east of the Cerro Bayo Mine. Ore produced from the Martha Mine will
be transported to and processed at the Cerro Bayo Mine. In addition, the
Company has agreed to purchase by way of a private placement 10.0 million
shares (approximately 10%) of Yamana Resources, Inc. common stock.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on the ore
reserve/mineralized material bases located at its operating mines and the
expertise of its management team to become the leading primary silver production
company through long-term, cash flow generating growth. The principal elements
of the Company's business strategy are as follows: (i) increase the Company's
silver production and reserves in order to remain the nation's largest primary
silver producer and one of the world's larger primary silver producers; (ii)
decrease cash costs and increase production
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at the Company's existing silver mining operations; (iii) acquire operating
mines, exploration and/or development properties with a view to reducing the
Company's cash and total costs, provide short-term positive cash flow return and
expand its silver production base and reserves; and (iv) continue to explore for
new silver discoveries primarily near its existing mine sites.
SOURCES OF REVENUE
The Rochester Mine and Silver Valley's Galena Mine, each operated by the
Company, constituted the Company's principal sources of mining revenues in 2001.
The following table sets forth information regarding the percentage contribution
to the Company's total revenues (i.e., revenues from the sale of concentrates
and dore plus other income) by the sources of those revenues during the past
five years:
Percentage of Total Revenues
Coeur Percentage in Years Ended December 31,
Ownership at -----------------------------------------------------------------
Mine/Company December 31, 2001 1997 1998 1999 2000 2001
- ------------------- ------------------- ---- ---- ---- ---- ----
Rochester Mine................ 100% 40.5% 56.2% 49.2% 51.3% 68.2%
Petorca Mine(1)............... 100% 11.3 8.5 8.0 6.5 7.0
Fachinal Mine(2).............. 100 9.8 14.6 8.0 9.6 0.2
Silver Valley(3).............. 100 0.9 (0.9) 4.6 17.0 22.0
Gasgoyne(4) . . . . . -- 5.2 12.1 9.2 9.2 (1.2)
Golden Cross Mine(5).......... 80 23.7 0.2 19.4 - -
Other......................... -- 8.6 9.3 1.6 6.4 3.8
----- ----- ----- ----- ----
100% 100% 100% 100% 100%
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(1) The Petorca Mine was closed in August 2001.
(2) Operations at the Fachinal mine were suspended December 2000.
(3) The Company increased its ownership interest in Silver Valley from 50% to 100%, and commenced
accounting for Silver Valley on a fully consolidated basis on September 9, 1999.
(4) The reported percentages reflect the fact that Coeur's interest in Gasgoyne's revenue was 35%
prior to February 1997, 36% from March 1997 to May 1997 and 50% after May 1997. The Company's
interest in Gasgoyne was reported in accordance with the equity method. The Company's interest
in Gasgoyne was sold on February 7, 2001.
(5) The Company discontinued mining and milling operations at the Golden Cross Mine in New Zealand
in April 1998. The revenue received in 1999 represents the net proceeds received from the
settlement of the outstanding litigation with Cyprus relating to the Golden Cross mine.
DEFINITIONS
The following sets forth definitions of certain important mining terms used
in this report.
"Cash Costs" are costs directly related to the physical activities of producing
silver and gold, and include mining, processing and other plant costs, deferred
mining adjustments, third-party refining and smelting costs, marketing expense,
on-site general and administrative costs, royalties, in-mine drilling
expenditures that are related to production and other direct costs, but exclude
depreciation, depletion and amortization, corporate general and administrative
expense, mineral exploration, financing costs and accruals for mine reclamation.
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"Dore" is bullion produced by smelting which contains gold, silver and minor
amounts of impurities.
"Gold" is a metallic element with minimum fineness of 999 parts per 1000 parts
pure gold.
"Heap Leaching Process" is a process of extracting gold and silver by placing
broken ore on an impermeable pad and applying a diluted cyanide solution that
dissolves a portion of the contained gold and silver, which are then recovered
in metallurgical processes.
"Noncash costs" are costs that are typically accounted for ratably over the life
of an operation and include depreciation, depletion and amortization of capital
assets, accruals for the costs of final reclamation and long-term monitoring and
care that are usually incurred at the end of mine life, and the amortization of
the economic cost of property acquisitions, but exclude amortization of deferred
tax purchase adjustments relating to property acquisitions.
"Total production costs" are the sum of cash costs and noncash costs.
"Mineralized Material" is gold and silver bearing material that has been
physically delineated by one or more of a number of methods including drilling,
underground work, surface trenching and other types of sampling. This material
has been found to contain a sufficient amount of mineralization of an average
grade of metal or metals to have economic potential that warrants further
exploration evaluation. While this material is not currently or may never be
classified as reserves, it is reported as mineralized material only if the
potential exists for reclassification into the reserves category. This material
cannot be classified in the reserves category until final technical, economic
and legal factors have been determined. Under United States Securities and
Exchange Commissions standards, a mineral deposit does not qualify as a reserve
unless the recoveries from the deposit are expected to be sufficient to recover
total cash and non-cash costs for the mine and related facilities.
"Ore Reserve" is the part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
"Probable Reserve" is a part of a mineralized deposit which can be extracted or
produced economically and legally at the time of the reserve determination. The
quantity and grade and/or quality of a probable reserve is computed from
information similar to that used for a proven reserve, but the sites for
inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
Mining dilution has been factored into the estimation of probable reserves. The
Company used short-term and long-term price estimates of $4.50, $5.00 and $5.50
thereafter per ounce of silver in 2002, 2003, and 2004 thereafter respectively,
and $275 and $300 thereafter per
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ounce of gold in 2002 and 2003 thereafter, respectively, in estimating probable
reserves at December 31, 2001.
"Proven Reserves" are a portion of a mineral deposit which can be extracted or
produced economically and legally at the time of the reserve determination. The
quantity of a proven reserve is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade and/or quality are computed from the
results of detailed sampling and the sites for inspections, sampling and
measurement are spaced so closely and the geologic character is so well defined
that size, shape, depth and mineral content of a proven reserve is
well-established. Mining dilution has been factored into the estimation of
proven reserves. The Company used short-term and long-term price estimates of
$4.50, $5.00 and $5.50 thereafter per ounce of silver in 2002, 2003, and 2004
thereafter respectively, and $275 and $300 thereafter per ounce of gold in 2002
and 2003 thereafter, respectively, in estimating probable reserves at December
31, 2001.
"Run-of-mine Ore" is mined ore which has not been subjected to any pretreatment,
such as washing, sorting or crushing prior to processing.
"Silver" is a metallic element with minimum fineness of 995 parts per 1000 parts
pure silver.
"Stripping Ratio" is the ratio of the number of tons of waste material to the
number of tons of ore extracted at an open-pit mine.
"Ton" means a short ton which is equivalent to 2,000 pounds, unless otherwise
specified.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
This report contains numerous forward-looking statements relating to the
Company's gold and silver mining business, including estimated production data,
expected operating schedules and other operating data and permit and other
regulatory approvals. Such forward-looking statements are identified by the use
of words such as "believes," "intends," "expects," "hopes," "may," "should,"
"plan," "projected," "contemplates," "anticipates" or similar words. Actual
production, operating schedules, results of operations, ore reserve and resource
estimates and other projections and estimates 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) the risk factors set forth below under this Item 1, (ii)
the risks and hazards inherent in the mining business (including environmental
hazards, industrial accidents, weather or geologically related conditions),
(iii) changes in the market prices of gold and silver, (iv) the uncertainties
inherent in the Company's production, exploratory and developmental activities,
including risks relating to permitting and regulatory delays, (v) the
uncertainties inherent in the estimation of gold and silver ore reserves, (vi)
changes that could result from the Company's future acquisition of new mining
properties or businesses, (vii) the effects of environmental and other
governmental regulations, and (viii) the risks inherent in the ownership or
operation of or investment in mining properties
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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.
SILVER AND GOLD MINING OPERATIONS
North America
Rochester Mine - (World's 7th Largest Primary Silver Mine)
The Rochester Mine is a silver and gold surface mine located in Pershing
County, Nevada, approximately 25 road miles northeast of Lovelock. The mine
commenced operations in 1986. The Company owns 100% of the Rochester Mine by
virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc. ("Coeur
Rochester"). The property consists of 16 patented and 541 unpatented contiguous
mining claims and 54 mill-site claims totaling approximately 11,000 acres.
Production at Rochester in 2001 was approximately 6.3 million ounces of
silver and 78,201 ounces of gold, compared to 6.7 million ounces of silver and
approximately 75,886 million ounces of gold in 2000. Mining operations for much
of 2001 were confined to areas within and along the south and west boundaries of
the Rochester pit. Cash costs per equivalent ounce of silver decreased by 6% to
$3.65 per ounce in 2001, compared to $3.90 per ounce in 2000. Reduced cash costs
were largely the result of ongoing optimization and cost cutting measures.
The mine utilizes the heap leaching process to extract both silver and gold
from ore mined using conventional open pit methods. Approximately 40,560 tons of
ore and waste per day were mined from the open pit in 2001 compared to 45,760
tons per day in 2000. The average strip ratio for the remaining life of the mine
will vary based primarily on future gold and silver prices; however, it is
anticipated to be less than 1:1.
Ore is crushed to approximately 3/8 inch and is then transported by
conveyor and 85 and 150 ton trucks to leaching pads where solution is applied
via drip irrigation to dissolve the silver and gold contained in the ore.
Certain low-grade ores are hauled directly, as run-of-mine, by 85 ton haul
trucks to leaching pads where solution is applied to dissolve the silver and
gold contained in the ore. The solutions containing the dissolved silver and
gold are collected in a processing plant where the zinc precipitation method is
used to recover the silver and gold from solution.
Based upon actual operating experience and certain metallurgical testing,
the Company estimates recovery rates of 59% for silver and 89% for gold. The
leach cycle at the Rochester Mine requires approximately seven years from the
point ore is placed on the leach pad until all recoverable metal is recovered.
However, a significant proportion of metal recovery occurs in the early years.
A total of 152 reserve circulation and diamond drill holes were completed
during 2001 comprising approximately 57,769 feet, including Nevada
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Packard drilling. Coeur has continued its program to reduce costs at Rochester
as well as to replace reserves mined in 2001. A total of 37,000 feet in 88
reverse circulation holes were drilled at and near the Rochester pit in 2001
mainly to the south and west of the current pit boundary. As a result of the
exploration efforts, Coeur added 9.4 million tons of proven and probable
reserves containing 5.6 million ounces of silver, replacing 48% of the silver
reserves mined during 2001, and containing 27,000 ounces of gold, replacing 30%
of the gold reserves mined during 2001.
At the Nevada Packard satellite deposit, all work required for permitting
the deposit for mining has been submitted to regulatory authorities in 2001.
Mining at Nevada Packard is scheduled to commence in the second half of 2002.
In October of 2001, Coeur's Rochester mine was presented with the Sentinals
of Safety Award for metal and non-metal surface mining operations. This is a
very prestigious achievement as it represents the industry's highest safety
award and the dedication and commitment of Coeur's Rochester employees to mine
safety. Rochester also received a Certificate of Honor from the Joseph H. Holmes
Safety Association for completing over four million working hours without the
incidence of a single fatality or permanently disabling injury.
The Company's capital expenditures at the Rochester Mine totaled
approximately $0.8 million in 2001. The Company plans approximately $2.2 million
of capital expenditures at the mine during 2002, most of which is for Nevada
Packard development, and planned expansion of the Stage IV leach pad.
Asarco Incorporated ("Asarco"), the prior lessee, has a net smelter royalty
interest which is payable only when the market price of silver equals or exceeds
$17.57 per ounce up to maximum rate of 5%. No royalties were required to be paid
by the Company during the three years ended December 31, 2001.
Year-end Proven and Probable Ore Reserves - Rochester Mine
(includes Nevada Packard)
2000 2001
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Tons (000's) 53,844 51,400
Ounces of silver per ton 0.93 0.85
Contained ounces of silver (000's) 49,966 43,902
Ounces of gold per ton 0.008 0.007
Contained ounces of gold 410,000 349,000
Year-end Mineralized Material
2000 2001
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Tons (000's) 65,897 61,815
Ounces of silver per ton 0.65 0.75
Ounces of gold per ton 0.005 0.005
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Operating Data
2000 2001
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Production
Tons ore mined (000's) 11,276 10,630
Tons crushed/leached (000's) 10,996 11,884
Ore grade silver (oz./ton) 1.10 0.98
Ore grade gold (oz./ton) 0.009 0.008
Silver produced (oz.) 6,678,274 6,348,292
Gold produced (oz.) 75,886 78,200
Cost per Ounce of Silver Equivalent(1)
Cash costs $3.90 $3.65
Noncash costs 1.12 0.79
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Total production costs $5.02 $4.44
(1) Silver equivalent gold production is calculated by multiplying actual
gold ounces produced by the ratio of the yearly average gold price to
silver price. This total is then added to actual silver production for
the year to determine total silver equivalent production for purposes
of calculating cash and noncash costs per ounce.
Coeur Silver Valley - (World's 11th Largest Primary Silver Mine)
The Company acquired 50% of Silver Valley from Asarco on September 9, 1999,
thereby increasing the Company's ownership interest to 100%. The benefits
identified by Coeur when it consummated that acquisition included (i) an
increase of 1.8 million ounces in the Company's estimated annual silver
production, (ii) the addition of 16.2 million ounces of silver to its proven and
probable reserves and 6.0 million ounces to its silver resources, (iii) the
potential to further increase reserves and resources through systematic
exploration, (iv) the potential to increase production at the Galena Mine and
reduce cash costs, and (v) the consolidation of the Company's ownership position
and control of Idaho's Silver Valley.
Silver Valley owns the Coeur and Galena Mines and the Caladay property
situated in the Coeur d'Alene Mining District of Idaho. Silver Valley
recommenced operations at the Coeur mine portion of its property in June 1996
and continued mining existing reserves there through July 2, 1998, when
operations were terminated after known reserves at the Coeur mine were depleted.
Silver Valley resumed production at the Galena Mine in May 1997 and operations
continue.
Silver Valley plans to continue exploratory and developmental activities at
the Coeur, Galena and Caladay Mines as well as at several contiguous properties
in the Coeur d'Alene Mining District with a view toward the development of new
silver reserves and resources.
Galena Mine
The Galena Mine property is located immediately west of the City of Wallace
in Shoshone County in northern Idaho. The property consists of 52
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patented mining claims and 25 unpatented mining claims totalling approximately
1,100 acres.
Silver production at the Galena Mine in 2001 was 4.5 million ounces of
silver, an increase of 12% as compared to 4.0 million ounces in 2000.
Accelerated underground development has provided much improved access to the
higher-grade, most productive vein systems at depth such as the 117 and 72
veins.
Total cash costs for 2001 increased slightly to $4.62 per ounce compared to
$4.59 per ounce in 2000. Cash costs would have been significantly lower than the
previous year except for difficult ground conditions that temporarily restricted
full access to some of the high-grade veins and set production back from areas
designed for mechanized mining and bulk stoping. Measures have been taken to
alleviate these problems and the mechanized mining initiative has resumed. The
introduction of a new sand backfill system has also been instrumental in
significant operating improvements experienced in January 2002 when cash costs
declined to $4.05 per ounce of silver produced.
A comprehensive geological study of the immediate mine area has led to a
much greater understanding of the various stratigraphic and structural ore
controls at Coeur Silver Valley. As a direct consequence, Coeur has been able to
discover new high-grade silver veins and to more efficiently extend many of the
most prolific vein systems to depth and, in some instances, back towards the
upper levels of the Galena Mine. Of particular importance is the very productive
117 vein that has already been traced back up to the 3,100 level. The 2001
exploration drilling program consisted of 129 diamond drill holes totaling
39,513 feet. The Company added 210,000 tons of proven and probable reserves
containing 6.0 million ounces of silver during 2001, which more than replaced
reserves mined during the year.
The Galena Mine is an underground silver-copper mine and is served by two
vertical shafts. The No. 3 shaft is the primary production shaft and is 5,800
feet deep. The Galena shaft primarily provides utility access for water,
electrical power and sand backfill for underground operations.
The mine utilizes the drift and fill mining method with sand backfill to
extract ore from the high grade silver-copper vein deposits that constitute the
majority of the ore reserves. Silver and copper are recovered by a flotation
mill that produces a silver rich concentrate which is sold to third-party
smelters in Canada. Silver recovery through the mill averaged 96% in 2001 and in
2000.
Waste material from the milling process is deposited in a tailings pond
located approximately two miles from the minesite. The tailings containment pond
has capacity for approximately nine additional years at current production
rates.
Total capital expenditures by Silver Valley at the Galena Mine in 2001 were
$3.2 million of which $2.2 million was for mine development. Coeur made this
significant capital investment at the Galena Mine as part of a long-term
strategy to increase annual production to five million ounces.
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Silver Valley has planned for capital expenditures of approximately $2.1
million for the Galena Mine during 2002. Mine development will again account for
the majority of this expenditure.
Year-end Proven and Probable Ore Reserves - Galena Mine (1)
2000 2001
----- ----
Tons (000's) 1,621 1,634
Ounces of silver per ton 19.13 19.77
Contained ounces of silver (000's) 31,015 32,300
Year-end Mineralized Material (2)
2000 2001
---- ----
Tons (000's) 1,731 1,734
Ounces of silver per ton 11.11 10.73
Operating Data (Coeur's interest)
2000 2001
---- ----
Production
Tons ore milled 204,576 198,294
Ore grade silver (oz./ton) 20.43 23.66
Recovery (%) 96 96
Silver produced (oz.) 4,013,891 4,507,652
Cost per Ounce of Silver
Cash costs $4.59 $4.62
Noncash costs 0.68 0.76
--------------------
Total production costs $5.27 $5.38
(1) The Galena Mine reserve estimate is based on a minimum mining
width of 4 to 4.5 feet diluted to 5.0 feet minimum width for most
silver-copper and silver-lead veins. Cutoff grade is based on the
cost of breaking and producing ore from a stope, but does not
include development costs and administrative overhead.
(2) Mineralized material includes both the Galena and Coeur mines.
Coeur Mine
The Coeur Mine is an underground silver mine located adjacent to the Galena
Mine in the Coeur d'Alene Mining District in Idaho, and consists of
approximately 868 acres comprised of 38 patented mining claims and four
unpatented mining claims.
Operations at the Coeur Mine were suspended on April 3, 1991 due to then
prevailing silver prices and placed on a care and maintenance basis to conserve
ore reserves. Silver Valley resumed production activities at the
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Coeur Mine in June 1996 and terminated operations there on July 2, 1998 after
known reserves were depleted.
There was no mining activity at the Coeur Mine in 2002 and the property
remained on care and maintenance. However, the Company believes that significant
potential exists to discover additional high grade silver veins beneath the
current limit of the underground workings.
Caladay Property
The Caladay property adjoins the Galena Mine. Prior to its acquisition by
the Company in 1991, approximately $32.5 million was expended on the property to
construct surface facilities, a 5,101 ft. deep shaft and associated underground
workings to explore the property. Based on Silver Valley's analysis of existing
Galena Mine underground workings and drilling results on the Galena Property,
the Company believes that similar geologic conditions which exist at the Galena
may extend into the Caladay property below the level of the current Caladay
workings. In addition, the Caladay facilities are used to benefit the Galena
Mine operations, by exhausting ventilation.
SILVER AND GOLD DEVELOPMENT PROPERTIES
In early 2001, the Company announced its intention to consider the sale of
its Chilean properties, including the Fachinal and Petorca Mines. In early 2002,
the Company announced that it would no longer consider offers to purchase the
Fachinal Mine and that it would commence development of the Cerro Bayo property
which is located nine miles east of the Fachinal Mine processing facilities.
Mining operations at the Fachinal and Petorca Mines were discontinued in
December 2000 and August 2001, respectively.
South America
Chile - Cerro Bayo Mine (formerly the Fachinal Mine)
The Fachinal property covers about 90 square miles and is located south of
Coihaique, the capital of Region XI in southern Chile, and approximately 10
miles west of the town of Chile Chico. The project lies on the east side of the
Andes mountain range at an elevation ranging from 600 to 4,500 feet and is
serviced by a gravel road from Chile Chico. The Fachinal property is known to
include multiple epithermal veins containing gold and silver. The Company has
been granted exploitation concessions (the Chilean equivalent to an unpatented
claim except that the owner does not have title to the surface which must be
separately acquired from the surface owner) covering the mineralized areas of
the Fachinal property as well as the necessary surface rights to permit mining.
Mining operations at the Fachinal Mine, which consisted of both surface and
underground mining, were discontinued in December 2000 in order for the Company
to focus on the development of the Cerro Bayo deposit. The Company changed the
name of the Fachinal Mine to the Cerro Bayo Mine in late 2001.
14
The ore processing mill at the Cerro Bayo Mine uses the standard flotation
process to produce a high grade gold and silver concentrate. The concentrate
previously processed at this mill was sold to third-party smelters, primarily in
Japan. The mill has a design capacity of 1,650 tons per day. The Company
estimates, based on operating experience, recovery rates of 90% for gold and 89%
for silver. Electrical power is generated on-site by diesel generators and
process water is obtained from a combination of the adjacent General Carrera
Lake and from tailings re-circulation.
During 2001, the Company aggressively continued its exploration and
development program at the Cerro Bayo deposit, which is located approximately
nine miles east of the processing facilities. This zone includes a vein
structure named Lucero that has a greater strike length, width and grade than
anything previously encountered in the district. The Cerro Bayo deposit, which
consists of multiple veins and veinlettes is characterized by a surface
expression of at least 8,200 feet along strike and is up to 3,300 feet in width.
The Lucero vein, which at the present time contains the majority of the reserves
within this zone, has been traced for more than 2,600 feet along strike and to
approximately 250 feet at depth. The Lucero vein is open in all directions and
contains sections that are characterized by high-grade gold and silver
mineralization.
Construction of two ramps to intersect the high-grade Lucero Vein in the
Cerro Bayo deposit commenced in November 2001 and were completed in February
2002. During construction, three additional mineralized high-grade gold and
silver vein systems were discovered, the Celia, Soledad East and Andrea, in
addition to a mineralized loop of the main Lucero vein. Completion of the two
access ramps provided new geological information as well as new discoveries.
Sampling programs on both the Lucero and Luz Eliana veins also have encountered
grades and thickness in excess of reserve model expectations. Development
drifting is underway to the north and south of the upper and lower access ramp
along the Lucero and Luz Eliana veins toward previously delineated high-grade
ore zones. Both surface and underground diamond drill programs are also underway
to test these vein structures for additional high-grade gold and silver
mineralization.
Coeur previously had prepared a detailed three-year mine plan based solely
on proven and probable reserves with initial production to begin in May 2002. In
light of the recent discoveries, projected production in 2002 has been increased
from approximately 60,000 gold equivalent ounces to 82,000 gold equivalent
ounces. Total cash costs are estimated to be less than $150 per ounce in the
initial year of mining operations.
The total capital investment to develop Cerro Bayo for production is
estimated at approximately $5 million to $6 million, which includes a
significant recoverable working capital component. Total capital expenditures at
the Cerro Bayo property in 2001 were $2.3 million and the Company plans
approximately $2.5 million of additional capital expenditures there in 2002. The
Company has been in contact with several banks and lending institutions
interested in providing short-term project financing to cover the needs for
working capital and continued development.
15
During 1999, the Company exercised its option to purchase 100% of the
Furioso property located approximately 50 miles southwest of the Cerro Bayo
mine. The high-grade Furioso ores will be processed at the Cerro Bayo mill.
During 2000, the Company completed its 11-mile portion of a new road to allow
haulage of Furioso ore to Cerro Bayo at a cost of $1.8 million. The government
has committed to, and is currently working to complete, the balance of the
access road. Production from Furioso is expected to start in the third quarter
of 2002 and will be in addition to ore mined from the Cerro Bayo deposit.
Year-end Proven and Probable Ore Reserves (1) - Cerro Bayo Mine
2000 2001
---- ----
Tons (000's) 787 855
Ounces of silver per ton 8.69 8.25
Contained ounces of silver (000's) 6,838 7,047
Ounces of gold per ton 0.17 0.14
Contained ounces of gold 134,000 122,000
Year-end Mineralized Material (1)
2000 2001
---- ----
Tons (000's) 2,166 1,675
Ounces of silver per ton 4.80 7.10
Ounces of gold per ton 0.09 0.12
Operating Data(2)
2000 2001
---- ----
Production
Tons ore milled 327,646 --
Ore grade gold (oz./ton) 0.056 --
Ore grade silver (oz./ton) 3.30 --
Recovery gold (%) 88 --
Recovery silver (%) 87 --
Gold produced (oz.) 16,077 --
Silver produced (oz.) 939,882 --
Cost per Ounce of Gold Equivalent(3)
Cash costs $447 --
Noncash costs 143 --
---------------------
Total production costs $590 --
(1) Proven and probable ore reserves and mineralized material include
the Furioso property.
(2) Operations at the Cerro Bayo Mine were discontinued in December
2000.
(3) Gold equivalent gold production is calculated by dividing actual
silver ounces produced by the ratio of the yearly average silver
price to gold price. This total is then added to actual gold
production for the year to determine total gold equivalent
production for purposes of calculating cash and noncash costs per
ounce.
16
Although the government and economy of Chile has been stable in recent
years, the ownership of property in a foreign country is always subject to the
risk of expropriation or nationalization with inadequate compensation. Any
foreign operation or investment may also be adversely affected by exchange
controls, currency fluctuations, taxation and laws or policies of particular
countries as well as laws and policies of the United States affecting foreign
trade, investment and taxation.
Chile - Petorca Mine
Coeur owns 100% of the Petorca Mine located on approximately 34,000 acres
in the western Andean foothills approximately 90 miles north of Santiago, Chile.
In July 1994, the Company acquired an interest in Compania Minera CDE El Bronce,
a Chilean corporation ("CDE El Bronce") that owned the producing El Bronce Mine,
now known as the Petorca Mine. In September 1996, the Company increased its
ownership interest of CDE El Bronce to 100%.
The property consists of 64 exploitation concessions and 10 exploration
concessions. Surface rights to permit mining on the property have been granted
by the private owners. Ore is produced from a complex system of precious metals
bearing, epithermal, quartz-veins hosted in Cretaceous volcanic rocks.
Petorca is primarily an underground gold mine which is serviced by adits at
different levels and underground ramps. The mine uses trackless cut and fill
sublevel caving with uncemented backfill and shrinkage mining methods. Ore is
hauled to the mill in 20-ton trucks. During 2000, the Company began developing
by surface mining methods the satellite San Lorenzo deposit. San Lorenzo is
primarily a copper deposit with lower grade gold. Ore from San Lorenzo is
processed at the main Petorca milling facilities.
The processing plant has two grinding circuits with a total capacity of 900
tons per day but has been operating on a reduced schedule due to ore
availability. Approximately 35% of the total gold produced is recovered by
gravity methods to produce a gold dore. The remaining gold and silver are
recovered by traditional flotation methods which produce a high-grade
concentrate which is sold to third-party smelters, primarily in Japan. The
Company estimates, based on operating experience, average recovery rates of 91%
for gold and 84% for silver.
Electrical power is purchased from a local distributor that is connected to
the main Chilean power grid. Process water is pumped from the Petorca river and
in part recovered from a re-circulating system from the tailings impoundment
area.
Gold production at Petorca in 2001 was 17,945 ounces of gold and 86,599
ounces of silver compared to 26,891 ounces of gold and 57,854 ounces of silver
in 2000. Total cash costs per equivalent ounce of gold in 2001 were $346 per
ounce compared to $345 per ounce in 2000. The decrease in production in 2001 was
attributable to the Company's decision to suspend mining operations in the third
quarter of 2001, due to continuing operating loses. The Petorca mine has been
placed on care and maintenance pending a
17
significant increase in the price of gold. The Company continues to evaluate
opportunities to sell the property.
Capital expenditures at Petorca in 2001 were zero.
Coeur has an obligation to pay the prior owner of CDE El Bronce a 3% net
smelter return royalty, payable quarterly, which commenced on January 1, 1997.
From July 1998 to December 2000, the prior owner agreed to a 2.4% net smelter
return royalty.
Year-end Proven and Probable Ore Reserves - Petorca Mine
2000 2001(2)
---- ----
Tons (000's) 406 313
Ounces of silver per ton 0.65 0.61
Contained ounces of silver (000's) 264 189
Ounces of gold per ton 0.18 0.19
Contained ounces of gold 73,000 61,000
Year-end Mineralized Material
2000 2001
---- ----
Tons (000's) 1,845 1,844
Ounces of silver per ton 0.55 0.55
Ounces of gold per ton 0.25 0.25
Operating Data
2000 2001(1)
---- ----
Production
Tons ore milled 235,665 146,160
Ore grade gold (oz./ton) 0.126 0.127
Ore grade silver (oz./ton) 0.34 0.75
Recovery gold (%) 91 97
Recovery silver (%) 72 79
Gold produced (oz.) 26,891 17,945
Silver produced (oz.) 57,854 86,599
Cost per Ounce of Gold (1)
Cash costs $345 $346
Noncash costs 9 20
---------------------
Total production costs $354 $366
(1) The Company has closed the Petorca mine effective August 2001.
(2) Stated reserves are the remaining reserve of the January 1, 2001
reserve after subtracting undiluted production during 2001.
Bolivia - The San Bartolome Project
Coeur acquired 100% of the equity in Empressa Miner Manquiri S.A.
("Manquiri") from Asarco on September 9, 1999. Manquiri's principal asset is the
mining rights in the San Bartolome project, a silver development
18
property located near the city of Potosi, Bolivia, on the flanks of Cerro Rico
which has been a world class silver producing district for many centuries,
having produced in excess of 1.0 billion ounces of silver. The San Bartolome
project consists of six distinct silver-bearing gravel deposits, which are
locally referred to as pallaco or sucu deposits. These deposits lend themselves
to simple, free digging surface mining techniques and can be extracted without
drilling and blasting. The deposits were formed as a result of erosion of the
silicified silver-rich upper part of the Cerro Rico mountain.
The mineral rights for the San Bartolome project are held through long-term
lease agreements with several independent mining cooperatives and the Bolivian
State Mining Company ("COMIBOL"). Manquiri controls 67 square kilometers of
concessions (16,600 acres). The JV/lease agreements are subject to a 4%
production royalty payable partially to the Cooperatives and COMIBOL. During the
current exploration stage, the properties are subject to monthly payments
totaling approximately US $25,500.
Of the six pallacos deposits which are controlled by Coeur and surround
Cerro Rico, three are of primary importance and are known as Huachajchi, Diablo
(consisting of Diablo Norte, Diablo Sur and Diablo Este) and Santa Rita. During
2000, the Company completed an intensive field program which culminated in the
completion of a pre-feasibility study. The field program included detailed
exploration, bulk sampling, definition drilling, metallurgical studies and
environmental baseline data collection. Coeur retained a third party geological
consulting firm to incorporate the new data from the field program in an updated
resource estimate. As a result, the San Bartolome resource increased 15%, to
41.1 million tons with an average grade of 2.97 ounces of silver per ton or 122
million ounces of contained silver. Approximately 93% of the new resource is
classified as measured and indicated.
To assist with the pre-feasibility study, which was completed during 2000,
Coeur retained third party engineering and geological consulting firms to
examine and verify all data used in the study, including the resource
estimation, process flow sheet design, site plan layout and detailed estimates
of all operating and capital costs. The study incorporated a cyanide milling
flow sheet with a wet pre-concentration screen circuit. [In addition, the study
identified a number of optimization opportunities, that if successful, could
significantly enhance the economic returns of the project. During 2001, Coeur
aggressively pursued these optimization opportunities which included: securing
additional mining rights, evaluating the recovery of tin as a byproduct, process
flow sheet enhancement and securing favorable in-country tax treatment.
Prior to the project optimization work, the pre-feasibility study concluded
that a 7,000 to 7,500 ton per day mining operation could be constructed at an
estimated capital cost of $60 to $70 million (inclusive of working capital,
owner's costs and taxes and duties). The operation would be capable of
producing, on average, 5.5 to 6.0 million ounces of silver per year at an
estimated cash cost of $3.50 per ounce over a projected mine life of eight to
ten years.
19
In the last quarter of 2001, the Company was awarded a grant of $760,000 by
the U.S. Trade and Development Agency to complete a final feasibility study
which is currently in progress. Originally, Coeur had planned to complete the
feasibility study by the end of the first quarter of 2002. However, the
completion date for the feasibility study is likely to be extended as the
Company continues to evaluate positive breakthroughs on the metallurgical front,
specifically the potential economic recovery of tin as a by-product. This is in
addition to a number of other project improvements already secured which include
favorable tax treatment, the securing of electric power and water rights
significantly below initial estimates, and securing from COMIBOL additional
mining rights.
Based on the pre-feasibility study, subsequent geological work and
including the pallaco extensions granted by COMIBOL, Coeur has increased its
estimate of the contained silver resource to approximately 127 million ounces at
San Bartolome. Once the final feasibility is completed, Coeur expects a large
proportion of these resources will be upgraded to proven and probable reserves.
Coeur expended approximately $3.7 million and $2.7 million on exploration
at the San Bartolome project in 2001 and 2000, respectively, and plans
approximately $3.4 million for feasibility study, additional exploration and
project development expenditures during 2002.
The San Bartolome project involves risks that are inherent in any mining
venture, as well as particular risks associated with the location of the
project. The resource estimates indicated by the geologic studies performed to
date are preliminary in nature and may differ materially after further
metallurgical testing is completed. Also, managing mining projects in the
altiplano area of Bolivia, where Cerro Rico is located, presents logistical
challenges. The political and cultural differences of a foreign country may also
present challenges.
Year-end Mineralized Material - San Bartolome Project
2000 2001
---- ----
Tons (000's) 41,096 40,297
Ounces of gold per ton 2.97 3.14
Alaska - Kensington Gold Project
On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur Alaska,
Inc. ("Coeur Alaska"), acquired the 50% ownership interest of Echo Bay
Exploration Inc. ("Echo Bay") in the Kensington property from Echo Bay and Echo
Bay Alaska, Inc. (collectively the "Sellers"), giving Coeur 100% ownership of
the Kensington property. The property is located on the east side of Lynn Canal
between Juneau and Haines, Alaska. As a result of that transaction, Coeur
assumed full ownership and operating control of the project. Pursuant to the
Venture Termination and Asset Purchase Agreement among Coeur Alaska and the
Sellers, dated as of June 30, 1995, Coeur Alaska paid to the Sellers a total of
$32.5 million and, pursuant to the Royalty Deed set forth as an exhibit to the
Venture Termination and Asset Purchase Agreement, Coeur Alaska agreed to pay
Echo Bay a scaled net smelter return
20
royalty on 1 million ounces of future gold production after Coeur Alaska recoups
the $32.5 million purchase price and its construction and development
expenditures incurred after July 7, 1995 in connection with placing the property
into commercial production. The royalty ranges from 1% at $400 gold prices to a
maximum of 2 1/2% at gold prices above $475, with the royalty to be capped at 1
million ounces of production. The Kensington project consists of approximately
6,000 acres, of which approximately 750 acres are patented claims.
The Kensington ore deposit consists of multiple, precious metals bearing,
mesothermal, quartz, carbonate, pyrite vein swarms and discrete quartz-pyrite
veins hosted in the Cretaceous age Jualin diorite. The gold-telluride-mineral
calaverite is associated with the pyrite mineralization. The following proven
and probable ore reserve table.
Year-end Proven and Probable Ore Reserves - Kensington Property
2000 and 2001
-------------
Tons (000's) 10,946
Ounces of gold per ton 0.16
Contained ounces of gold 1,751,000
Year-end Mineralized Material
2000 and 2001
-------------
Tons (000's) 12,014
Ounces of gold per ton 0.12
The proven and probable reserves estimate is derived from the original
1998 Bechtel feasibility study, adjusted for a revised mine plan and
updated capital and operating cost estimates.
Not all Kensington ore zones have been fully delineated at depth and
several peripheral zones and veins remain to be explored. The Company possesses
the right to develop the Jualin property, an exploratory property located
adjacent to the Kensington Property. The Jualin property consists of
approximately 9,400 acres, of which approximately 345 acres are patented claims.
The Company's rights to develop the Jualin property are subject to an agreement
which must be renewed in May 2008.
During 2000 and 2001, the Company's efforts at Kensington continued to be
directed toward the permitting process and further project optimization studies.
In December 1998, the Company announced the completion of the independent
optimization study which contained a new mine plan that requires limited permit
modifications due to the changes to the planned method of tailings disposal.
Based on the results of the optimization studies completed in 1999 and 2000 the
Company estimated that the project's cash operating costs could be reduced to
approximately $200 per ounce of gold and total capital costs to develop the mine
should be reduced to approximately $150 million.
While not yet fully complete, continued project optimization during 2000
and 2001 has indicated that the capital cost to develop the property
21
could be further reduced. Those optimization efforts included: 1) a proposed
reduction in process throughput combined with a corresponding increase to the
grade of ore to be mined, 2) a relocation of the plant site, 3) a change to the
method and routing of personnel and supplies transportation, and 4) a possible
alternative tailings management system. The Company will continue to examine
these new alternatives given the potential capital cost savings.
Total expenditures by the Company at the Kensington property were $1.3
million. Such expenditures were used to continue the permitting and optimization
activities. The Company plans approximately $2.0 million in project expenditures
during 2002, which are planned for technical support, engineering studies
required to complete the modified permitting activities and site maintenance.
During the fourth quarter of 2001, the Company performed an impairment
review on the Kensington property and determined that its carrying amount for
the Kensington was impaired at December 31, 2001. As a result, the Company
recorded an impairment loss of $6.1 million on the investment. During 1998 the
Company completed an impairment review and recorded a $121.5 million write-down
pursuant to SFAS 121.
Coeur continues to complete the permitting process. In addition, in 2002
Coeur has commenced the process of seeking a joint venture partner to assist
with the development of the Kensington property. However, no assurance can be
given as to whether or when the required regulatory approvals will be obtained
or as to whether the Company will place the Kensington project into commercial
production.
South America - Argentina - Martha Mine
In February 2002, the Company announced that it had entered into agreements
in principle to acquire 138,000 acres of prospective ground including the Martha
high-grade underground silver mine located in Argentina, approximately 270 miles
southeast of the Cerro Bayo Mine, and to make a strategic investment in Yamana
Resources Inc. ("Yamana"), a mining company with holdings in Argentina.
Consummation of the transactions is subject to satisfactory completion of due
diligence, regulatory approval and execution of definitive agreements. It is
expected that Coeur will acquire 100% of the 138,000 acres including the Martha
Mine for $2.5 million and will acquire approximately 10% of the outstanding
common shares of Yamana for approximately $0.6 million. Upon consummation of the
transactions, Coeur intends to commence shipment of Martha's stockpiled
high-grade ore to the Cerro Bayo Mine for processing. On a gold equivalent
basis, Coeur estimates that the acquisition would increase Cerro Bayo's
projected 2002 production by 50%.
EXPLORATION ACTIVITY
Coeur, either directly or through its wholly-owned subsidiaries, owns,
leases and has interests in certain exploration-stage mining properties located
in the United States, Chile and Bolivia. Exploration and development expenses of
approximately $6.4 million and $6.7 million were incurred by the
22
Company in connection with exploration activities in 2001 and 2000,
respectively.
In keeping with the Company's overall efforts to focus its resources, Coeur
conducted more than 38% of the 2001 exploration program on or near existing
properties where infrastructure and production facilities are already in place.
The Company will continue this exploration focus in 2002.
Puchuldiza Gold Property
On November 28, 2001, the Company signed an exploration agreement with
Barrick Gold Corporation relating to Coeur's Puchuldiza gold property located
approximately 155 miles northeast of the port city of Inquique in northern
Chile. Under the terms of the agreement, Barrick can earn a 75% interest in the
property for exploration expenditures of $2.25 million over the next five years.
For an additional $5.75 million in exploration spending, Barrick can increase
its property interest to 85%. Coeur, however, can recover its full 25% interest
by making a cash payment to Barrick equivalent to 25% of Barrick's additional
expenditure of $5.75 million, plus a 50% penalty.
Puchuldiza is considered to be geologically unique in Chile in that it
appears to be a large epithermal hot spring deposit in a setting very similar to
other high-grade gold depositis in the USA, New Zealand and Japan. Gold
mineralization can be found throughout the property in systems of veins,
veinlets and stockworks developed in explosion breccias and silicified zones.
Geologic resource estimates calculated to date at Puchuldiza range from 492,000
to 983,000 ounces of gold depending on various cut-off grades and price
assumptions. Coeur believes that there is considerable potential to expand the
current near-surface resource. In addition, preliminary work has indicated that
the possible existence of a large high-grade feeder system at depth underlying
the near-surface mineralization.
Other Exploration Developments
Coeur's near mine exploration program in 2001 was devoted mainly to the
discovery and development of new reserves and resources at existing operations,
particularly at Cerro Bayo, Rochester and Silver Valley.
Considerable progress was also made at Silver Valley, where the exploration
significantly extended some of the most productive veins at depth and towards
the upper levels of the mine. As a result of 2001's exploration activity at
Silver Valley, proven and probable reserves were added which more than replaced
reserves mined during the year.
At Rochester, a major reverse circulation drilling program added new
reserves and resources effectively replacing approximately 50% of the ore
processed in 2001.
23
Golden Cross Mine
On April 30, 1993 the Company acquired an 80% interest in the Golden Cross
Mine at which mining activities were substantially discontinued in April 1998.
The mine was a gold and silver surface and underground mining operation located
near Waihi, New Zealand. The Company has been completing the required
reclamation work necessary in order to close the mine property and exit the
country.
During 2001 the Company incurred approximately $1.1 million in remedial and
reclamation costs in an effort to complete this process. The Company is
approximately 95% complete with this work and intends to file an exit strategy
with the government of New Zealand in 2002.
SILVER AND GOLD PRICES
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. The volatility of such prices is
illustrated by the following table, which sets forth the high and low prices of
silver (as reported by Handy and Harman) and gold (London Metal Exchange final
quotation) per ounce during the periods indicated:
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------------------------------------
1998 1999 2000 2001
----------------------------------------------------------------------------------------------------------
High Low High Low High Low High Low
----------------------------------------------------------------------------------------------------------
Silver $ 7.31 $ 4.72 $ 5.77 $ 4.91 $ 5.53 $ 4.60 $ 4.81 $ 4.06
Gold $313.15 $273.40 $325.50 $252.80 $312.70 $263.80 $293.25 $255.55
- --------------------------------------------------------------------------------------------------------------------------
MARKETING
Coeur has historically sold the gold and silver from its mines both
pursuant to forward contracts and at spot prices prevailing at the time of sale.
Entering into forward sale contracts is a strategy which can be used to enhance
revenues and/or mitigate some of the risks associated with fluctuating precious
metals prices. The Company continually evaluates the potential benefits of
engaging in these strategies based on the then current market conditions. Coeur
had no future silver production hedged at December 31, 2001. In order to ensure
certain minimum cash flows and reduce the impact of any declines in gold prices,
however, the Company has established the prices to be received in the future for
a portion of its gold production by entering into a combination of forward sales
agreements and put and call options. At December 31, 2001, approximately 8% of
the Company's estimated annual production of gold over the next year was
committed under the Company's gold hedging program.
PROVSIONS OF THE TRANSACTION AGREEMENT AND SHAREHOLDER AGREEMENT WITH ASARCO
Coeur consummated an acquisition of certain silver assets and properties
from Asarco on September 9, 1999 in exchange for 7.125 million shares of Coeur
Common Stock. Pursuant to the Transaction Agreement between Coeur and Asarco,
dated May 13, 1999 and amended and restated as of June 22,
24
1999, and which was approved by the Company's stockholders at the Annual Meeting
on September 8, 1999, Asarco must, during the five years following the
acquisition, obtain the consent of Coeur to any sale of such shares, and Asarco
may not sell any of such shares to anyone other than an affiliate of Asarco or
in a widely distributed public offering.
Pursuant to the Shareholder Agreement, dated as of September 9, 1999,
between Coeur and Asarco (the "Shareholder Agreement"), Asarco has the right to
nominate two directors for election to the Coeur Board of Directors. If Asarco
voluntarily sells or transfers its shares of Coeur Common Stock to any person
other than an affiliate and, as a result, its ownership is reduced to less than
10% of Coeur's Outstanding Common Stock, Asarco will have the right to nominate
only one director, which right will continue so long as Asarco owns at least 1%
of Coeur's outstanding Common Stock. Under the Shareholder Agreement, Asarco
further agreed that without the consent of Coeur's Board of Directors, Asarco
will not acquire Common Stock or other voting securities of Coeur, or any rights
or options to buy any of such securities, if after any such acquisition, Asarco
would own more than 20% of the total voting power of all outstanding voting
equities securities of Coeur. Asarco has certain rights to request Coeur to
register Asarco's shares of Coeur Common Stock under the Securities Act of 1933.
The Shareholder Agreement further provides that until Asarco holds less
than 10% of Coeur's outstanding Common Stock, the following actions by Coeur
will require the prior written consent of Asarco: (i) approval of capital
expenditure budgets and any single project requiring a capital expenditure in
excess of $100 million; (ii) approval of any financial institution, terms and
conditions and amounts with respect to any standard lines of credit or
borrowings to be utilized or secured by Coeur exceeding $100 million; (iii) the
creation of any lien in excess of $100 million on the assets of Coeur or any of
its subsidiaries; (iv) the discharge of auditors when a material dispute exists
in connection with the auditing of Coeur's books, records or financial
statements; (v) the liquidation, dissolution or general winding-up of Coeur or
any material subsidiary or the filing on behalf of Coeur or any material
subsidiary of any voluntary petition seeking relief under the bankruptcy laws of
the relevant jurisdiction; (vi) any material change in the nature of Coeur's
business from its current business of precious metals mining and other
businesses directly related thereto; (vii) the issuance by Coeur of any Common
Stock or other class of its capital stock for consideration other than cash for
a value in excess of $100 million; (viii) any material amendment of the By-Laws
or Articles of Incorporation of Coeur which would conflict with, or in any way
be inconsistent with, the terms of the Shareholder Agreement; and (ix) any
increase in the number of directors of Coeur above eleven. Asarco will be deemed
to have consented to any of the above actions if (i) the action shall have been
included as a specific agenda item for a meeting of Coeur's Board of Directors,
(ii) the written agenda together with all relevant information relating to the
proposed action shall have been delivered to directors in advance of such
meeting and (iii) at such meeting directors nominated by Asarco vote in favor of
such action. Also, no consent of Asarco will be required for any Coeur debt
restructuring, including any exchange, subject to certain conditions.
25
Asarco was acquired by Grupo Mexico S.A. on November 17, 1999, subsequent
to Coeur's entering into the Shareholder Agreement. At the Company's Annual
Meeting of Shareholders on May 9, 2000, two persons designated by Grupo Mexico
S.A. de C.V. were elected to serve as members of the Company's Board of
Directors.
GOVERNMENT REGULATION
General
During 2001 the Company was not cited for any violations of environmental
or operating regulations and permits. The Company's commitment to environmental
responsibility has been recognized in 19 awards received since 1987, which
included the Dupont/Conoco Environmental Leadership Award, awarded to the
Company on October 1, 1991 by a judging panel that included representatives from
environmental organizations and the federal government and the "Star" award
granted on June 23, 1993 by the National Environmental Development Association,
and the Environmental Waikato Regional Council award for Golden Cross
environmental initiative granted on May 15, 1995. In 1994, the Company's
Chairman and Chief Executive Officer, and in 1997, the Company's Vice President
of Environmental and Governmental Affairs, were awarded the American Institute
of Mining, Metallurgical and Petroleum Engineers' Environmental Conservation
Distinguished Service Award.
The Company's activities are subject to extensive federal, state and local
laws governing the protection of the environment, prospecting, development,
production, taxes, labor standards, occupational health, mine safety, toxic
substances and other matters. Although such regulations have never required the
Company to close any mine and the Company is not presently subject to any
material regulatory proceedings related to such matters, the costs associated
with compliance with such regulatory requirements are substantial and possible
future legislation and regulations could cause additional expense, capital
expenditures, restrictions and delays in the development of the Company's
properties, the extent of which cannot be predicted. In the context of
environmental permitting, including the approval of reclamation plans, the
Company must comply with known standards and regulations which may entail
significant costs and delays. Although Coeur has been recognized for its
commitment to environmental responsibility and believes it is in substantial
compliance with applicable laws and regulations, amendments to current laws and
regulations, the more stringent implementation thereof through judicial review
or administrative action or the adoption of new laws could have a materially
adverse effect upon the Company.
For the years ended December 31, 2001, 2000 and 1999, the Company expended
$5.5 million, $7.0 million and $7.8 million, respectively, in connection with
routine environmental compliance activities at its operating properties and
expects to expend approximately $5.0 million for that purpose in 2002. Future
environmental expenditures will be determined by governmental regulations and
the overall scope of the Company's operating and development activities.
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Federal Environmental Laws
Mining wastes are currently exempt to a limited extent from the extensive
set of Environmental Protection Agency ("EPA") regulations governing hazardous
waste, although such wastes may be subject to regulation under state law as a
solid or hazardous waste. The EPA plans to develop a program to regulate mining
waste pursuant to its solid waste management authority under the Resource
Conservation and Recovery Act ("RCRA"). Certain processing and other wastes are
currently regulated as hazardous wastes by the EPA under RCRA. The EPA is
studying how mine wastes from extraction and benefication should be managed and
regulated. If the Company's mine wastes were treated as hazardous waste or such
wastes resulted in operations being designated as a "Superfund" site under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or "Superfund") for cleanup, material expenditures would be required for the
construction of additional waste disposal facilities or for other remediation
expenditures. Under CERCLA, any present owner or operator of a Superfund site or
an owner or operator at the time of its contamination generally may be held
liable and may be forced to undertake remedial cleanup action or to pay for the
government's cleanup efforts. Additional regulations or requirements may also be
imposed upon the Company's tailings and waste disposal in Idaho and Alaska under
the Federal Clean Water Act ("CWA") and state law counterparts, and in Nevada
under the Nevada Water Pollution Control Law which implements the CWA. Air
emissions are subject to controls under Nevada's, Idaho's and Alaska's air
pollution statutes implementing the Clean Air Act.
Natural Resources Laws
The Company is subject to federal and state laws designed to protect
natural resources. In March 1996, the United States Government commenced a
lawsuit against various defendants, including the Company, asserting claims
under CERCLA and the CWA 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
advised the United States District Court for the District of Idaho that the
parties settled the suit, as more fully discussed under Item 3 below.
Proposed Mining Legislation
Recent legislative developments may affect the cost of and ability of
mining claimants to use the Mining Law of 1872, as amended, (the "Mining Act")
to acquire or use federal lands for mining operations. Since October 1994, a
moratorium has been imposed on processing new patent applications for mining
claims. Management believes that this moratorium will not affect the status of
patent applications outstanding prior to the moratorium.
Legislation is presently being considered in the U.S. Congress to change
the Mining Act under which the Company holds mining claims on public lands. It
is possible that the Mining Act will be amended or be replaced by more onerous
legislation in the future. The legislation under consideration,
27
as well as regulations under development by the Bureau of Land Management,
contain new environmental standards and conditions, additional reclamation
requirements and extensive new procedural steps which would be likely to result
in delays in permitting.
During the last several Congressional sessions, bills have been introduced
which would supplant or materially alter the Mining Act. If enacted, such
legislation may materially impair the ability of the Company to develop or
continue operations which derive ore from federal lands. No such bills have been
passed and the extent of the changes, if any, which may be enacted by Congress
is not presently known. A significant portion of Coeur's U.S. mining properties
are on public lands. Any reform of the Mining Act or regulations thereunder
based on these initiatives could increase the costs of mining activities on
unpatented mining claims, and as a result could have an adverse effect on the
Company and its results of operations. Until such time, if any, as new reform
legislation or regulations are enacted, the ultimate effects and costs of
compliance on the Company cannot be estimated.
Foreign Government Regulations
The mining properties of the Company that are located in Chile are subject
to various government laws and regulations pertaining to the protection of the
air, surface water, ground water and the environment in general, as well as the
health of the work force, labor standards and the socioeconomic impacts of
mining facilities upon the communities. The Company believes it is in
substantial compliance with all applicable laws and regulations to which it is
subject in Chile.
The Republic of Bolivia, where the San Bartolome project is located, has
adopted laws and guidelines for environmental permitting that are similar to
those in effect in the United States and other South American countries. A
recently established State Council for the Environment (CODEMA) has
responsibility to define policy, approve plans and programs, control regulatory
activities and enforce compliance. The permitting process requires a thorough
study to determine the baseline condition of the mining site and surrounding
area, an environmental impact analysis, and proposed mitigation measures to
minimize and offset the environmental impact of mining operations.
Maintenance of Claims
At mining properties in the United States, including the Rochester,
Kensington, Coeur, Galena and Caladay mines, operations are conducted in part
upon unpatented mining claims, as well as patented mining claims. Pursuant to
applicable federal law it is necessary, in order to maintain the unpatented
claims, to pay to the Secretary of the Interior, on or before August 31 of each
year, a claim maintenance fee of $100 per claim. This claim maintenance fee is
in lieu of the assessment work requirement contained in the Mining Law of 1872.
In addition, in Nevada, holders of unpatented mining claims are required to pay
the county recorder of the county in which the claim is situated an annual fee
of $3.50 per claim. No maintenance fees are payable for patented claims.
Patented claims are
28
similar to land held by an owner who is entitled to the entire interest in the
property with unconditional power of disposition.
In Chile, operations are conducted upon mineral concessions granted by the
national government. For exploitation concessions (somewhat similar to a U.S.
patented claim), to maintain the concession, an annual tax is payable to the
government before March 31 of each year in the approximate amount of $1.14 per
hectare. For exploration concessions, to maintain the right, the annual tax is
approximately $.30 per hectare. An exploration concession is valid for a
three-year period. It may be renewed for new periods unless a third party claims
the right to explore upon the property, in which event the exploration
concession must be converted to an exploitation concession in order to maintain
the rights to the concession.
EMPLOYEES
The number of full-time employees at December 31, 2001 of Coeur d'Alene
Mines Corporation and its subsidiaries was:
United States Corporate Staff & Office................... 26
Silver Valley - Galena Mine 1............................ 223
Rochester Mine........................................... 225
Kensington Property...................................... 5
Chilean Corporate Staff & Office......................... 7
Cerro Bayo Project/Fachinal Mine 1 ...................... 15
Other.................................................... 5
Total................................................. 506
1 Operations where a portion of the employees are represented by a labor
union.
The Company maintains a labor agreement at its Coeur Silver Valley mine.
The agreement is effective from October 1, 1999 through December 13, 2002 and is
with the United Steelworkers of America. Labor relations at all of the Company's
mines are believed to be good.
RISK FACTORS
The following information sets forth information relating to important
risks and uncertainties that could materially adversely affect the Company's
business, financial condition or operating results. References to "we," "our"
and "us" in these risk factors refer to the Company. Additional risks and
uncertainties that we do not presently know or that we currently deem immaterial
may also impair our business operations.
If we are unable to pay our debts upon their maturity, it may be necessary for
us to seek relief under Chapter 11 of the Bankruptcy Code.
Absent an increase in precious metals prices and/or an increase in our cash
flow, our large amount of indebtedness may require us to seek relief under
Chapter 11 of the Bankruptcy Code. Chapter 11 permits a company to remain in
control of its business, protected by a stay of all creditor
29
action while the company seeks to negotiate and confirm a plan of reorganization
with its creditors. We might not be successful in any attempt to confirm a plan
of reorganization with our creditors. If we were to commence a Chapter 11
proceeding, we would expect our relationships with customers and our employee
morale to be adversely affected. Many Chapter 11 cases are unsuccessful and
virtually all involve substantial expense. When a company is unsuccessful in
obtaining confirmation of a plan of reorganization, the assets of the company
usually are liquidated. Furthermore, under a Shareholder Agreement dated as of
May 13, 1999 between Coeur and Asarco Incorporated, for so long as Asarco or any
of its affiliates holds at least 10% of our outstanding common stock, we would
need Asarco's written consent to seek relief under Chapter 11. The need for us
to obtain that consent could make our pursuit of Chapter 11 relief more
difficult.
In a bankruptcy case, holders of our senior indebtedness, which amounted to
approximately $1.3 million at December 31, 2001, would be entitled to receive
full payment on their claims before the holders of our 13 3/8% convertible
senior subordinated notes due 2003 ($35.7 million at March 15, 2002). Our 13
3/8% convertible senior subordinated notes would be senior to holders of our 6%
convertible subordinated debentures due 2002, 6 3/8% convertible subordinated
debentures due 2004 and 7 1/4% convertible subordinated debentures due 2005.
We do not presently have sufficient free cash to pay the principal amount
of our outstanding 6% convertible subordinated debentures due 2002 when they
mature on June 10, 2002.
As of March 22, 2002, we had outstanding $19.8 million of our 6%
convertible subordinated debentures due 2002 that mature on June 10, 2002. Our
cash, cash equivalents and short-term investments at December 31, 2001 totaled
approximately $18.2 million. We plan to increase our liquidity to be able to
fund the retirement of maturing 6% debentures by exchanging equity or debt
securities for outstanding 6% debentures, arranging financing relating to the
start-up of the Cerro Bayo Mine and/or the possible sale of other debt or equity
securities or assets.
Our common stock may be delisted by the New York Stock Exchange if we do not
comply with its listing maintenance requirements.
Our common stock is listed on the NYSE. In November 2000, the NYSE advised
us that we were not in compliance with the continued listing standard requiring
a total market capitalization of publicly tradeable shares of not less than $50
million and shareholders' equity of not less than $50 million. In January 2001,
we submitted to the NYSE, and have periodically updated, a plan to achieve
compliance with the listing standards by May 27, 2002 (i.e., within 18 months of
our receipt of the NYSE's notice). The NYSE's rules provide that our shares of
common stock could be delisted if, by May 27, 2002, we are unable to (i) have
our market capitalization and shareholders' equity each equal or exceed $50
million; or (ii) achieve average market capitalization over a consecutive 30
trading-day period of $60 million with either (a) shareholders' equity of at
least $40 million or (b) an increase in shareholders' equity of at least $40
million
30
since we were notified by the NYSE that we were below the continued listing
standard. At December 31, 2001, our shareholders' equity was approximately $26.8
million. At March 22, 2002, our market capitalization was approximately $70
million.
In December 2001, the NYSE notified us that because the market price of our
common stock had been less than $1.00 per share for a period in excess of 30
consecutive trading days, the shares would be subject to possible delisting
unless such share price deficiency is cured by the later of six months following
our receipt of the Exchange's notice of the deficiency or promptly after our
next annual meeting of shareholders if shareholder approval of an action
relating to the deficiency is to be taken.
Delisting of our common stock could cause a reduction in the liquidity of
an investment in our common stock, convertible notes and debentures. Delisting
also could reduce the ability of holders of our common stock to purchase or sell
shares as quickly and as inexpensively as they have done historically. This lack
of liquidity also could make it more difficult for us to raise capital in the
future.
We have incurred losses in the last five years and expect to continue to do so.
We have incurred net losses in the last five years, and have had losses
from continuing operations in each of those periods. Significantly contributing
to the losses were:
o historically low gold market prices;
o our deliberate pursuit of a growth policy calling for the acquisition of
mining properties and companies and financing such growth principally by
incurring convertible indebtedness; and
o significant write-offs for impaired assets in 1998 ($223.6 million), 1999
($20.2 million), 2000 ($21.2 million) and 2001 ($6.1 million).
Market prices for silver and gold are currently below our full production
costs for these metals. If silver and gold prices remain depressed or decline
further and we are unable to reduce our production costs below prevailing price
levels, our losses will continue. Because low silver and gold prices may make
mining at our properties uneconomical, if these prices remain depressed or
decline further, we may be required to recognize additional impairment
write-downs. This would increase our operating losses.
We have not had sufficient earnings to cover fixed charges in recent years and
presently expect that situation to continue.
As a result of our net losses, our earnings have not been adequate to
satisfy fixed charges (i.e., interest, preferred stock dividends and that
portion of rent deemed representative of interest) in each of the last five
years. The amounts by which earnings were inadequate to cover fixed charges
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were approximately 18.1 million in 1997, $239.1 million in 1998, $33.3 million
in 1999, $63.6 million in 2000 and $51.3 million in 2001, respectively. As of
December 31, 2001, we were required to make fixed payments on the following
securities:
o $23.2 million principal amount of our 6% convertible subordinated
debentures due 2002, requiring annual interest payments of approximately
$0.6 million until their maturity on June 10, 2002;
o $41.4 million principal amount of our 13 3/8% convertible senior
subordinated notes, requiring annual interest (in cash or common stock, at
our option) of approximately $5.5 million until their maturity in December
31, 2003;
o $66.3 principal amount of our 6 3/8% convertible subordinated debentures
due 2004, requiring annual interest payments of approximately $4.2 million
until their maturity on January 31, 2004; and
o $14.7 million principal amount of our 7 1/4% convertible subordinated
debentures due 2005, requiring annual interest payments of approximately
$1.1 million until their maturity on October 31, 2005.
We do not expect that the 6%, 6-3/8% or 7-1/4% convertible subordinated
debentures will be converted into common stock in the foreseeable future because
the conversion price of each issue substantially exceeds the current market
price of our common stock. For the period January 1, 2002 to March 15, 2002 a
total of $5.7 million in principal of the 13-3/8% Notes had converted onto
common stock reducing the amount outstanding to $35.7 million.
We expect to satisfy our fixed charges and other expense obligations in the
future from cash flow from operations and, if cash flow from operations is
insufficient, from working capital, which amounted to approximately $39.8
million at December 31, 2001, and, if necessary, the sale of assets or equity or
debt securities. We have recently been experiencing negative cash flow from
operating activities. The amount of net cash used in, as opposed to provided by,
our operating activities amounted to approximately $29.9 million in 2001 and
$23.8 million in 2000. The availability of future cash flow from operations or
working capital to fund the payment of interest on our debentures and other
fixed charges will be dependent upon numerous factors, including our results of
operations, silver and gold prices, levels and costs of production at our mining
properties, the amount of our capital expenditures and expenditures for
acquisitions, developmental and exploratory activities, and the extent to which
we are able to reduce the amount of our indebtedness through additional
exchanges.
The market price of silver over which we have no control, is volatile and is at
a historically low level that adversely affects us.
Because we derive greater than 60% of our revenues from sales of silver,
our earnings are directly related to the price of this metal.
32
Silver prices fluctuate widely and are affected by many factors beyond our
control, including interest rates, expectations regarding inflation,
speculation, currency values, governmental decisions regarding the disposal of
precious metals stockpiles, global and regional demand and production, political
and economic conditions and other factors.
Market prices for silver are at their lowest levels since 1995 and are
currently below our full production costs. The market price of silver (as
reported by Handy & Harman) on March 22, 2002 was $4.55 per ounce. The price of
silver may remain depressed and may decline even further in the future. Factors
that are generally understood to have contributed to the recent decline in the
price of silver include sales by private and government holders, the emergence
of China as a large net seller and a general global economic slowdown.
If the silver price remains at this level for a sustained period, our net
losses will continue, we may suspend mining at one or more of our properties
until the price increases, and we may be required to record additional asset
impairment write-downs pursuant to SFAS 121 (as discussed below).
We have recorded significant write-downs of mining properties in recent years
and may have to recognize additional write-downs in the future.
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," established accounting standards for impairment of the value of long-lived
assets such as mining properties. SFAS 121 requires a company to review the
recoverability of its assets by estimating the future undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
Impairment must be recognized when the carrying value of the asset exceeds these
cash flows.
Recognizing impairment write-downs has hurt our results of operations in
recent years. We have recorded significant write-downs of our mining properties,
including write-downs effected pursuant to SFAS 121 in recent years, amounting
to $218.9 million in 1998 and $16.2 million in 1999, $12.2 million in 2000 and
$6.1 million in 2001. The 1998 write-downs included $54.5 million at the Petorca
Mine in Chile, $42.9 million at the Fachinal Mine in Chile and $121.5 million at
the Kensington property in Alaska. The Kensington property is not yet a
producing property and may never become one. The 1999 write-downs consisted of
$16.2 million at the Yilgarn Star Mine in Australia. The 2000 write-down
included an impairment of $12.2 million for our investment in Gasgoyne Gold
Mines NL. The 2001 write-down consisted of an additional impairment of $6.1
million at the Kensington property.
While we do not believe that any of our other properties presently requires
a write-down pursuant to SFAS 121, if silver prices remain depressed for a
sustained period of time and/or we fail to reduce production costs or expand
mineable ore reserves at our mining properties, we may recognize further asset
write-downs.
33
We also might have to record other types of additional mining property
write-downs in the future to the extent a property is sold by us for a price
less than the carrying value of the property or reserves have to be created in
connection with the closure and reclamation of a property.
The estimation of ore reserves is imprecise and subjective, requiring the use of
uncertain metals market prices and other assumptions. Estimated ore reserves may
not be realized in future actual production and operating results.
The ore reserve figures presented in this report are estimates made by our
technical personnel. Reserve estimates are a function of geological and
engineering analysis and also require us to make assumptions about production
costs and silver and gold market prices. Reserve estimation is necessarily an
imprecise and subjective process and the accuracy of such estimates is a
function of the quality of available data and of engineering and geological
interpretation, judgment and experience. Assumptions about silver and gold
market prices are subject to great uncertainty as those prices have fluctuated
widely in the past. Declines in the market prices of silver or gold may render
reserves containing relatively lower grades of ore uneconomic to exploit, and we
may be required to further reduce reserve estimates, discontinue development or
mining at one or more of our properties, or write down assets as impaired.
Should we encounter mineralization or geologic formations at any of our mines or
projects different from those predicted by drilling, sampling and similar
examinations, then our reserve estimates may be adjusted and mining plans may be
altered, which may adversely affect our actual production and operating results.
Ore reserves at most of our mining properties operated by us are the subject of
verification by independent consulting geologists or mining engineers. Ore
reserves at mining properties in which we have an ownership interest but which
are operated by other companies are prepared by such companies, reviewed by us
and may not be subject to independent verification.
Silver and gold reserves at mining properties owned by us and in which we
have an ownership interest were calculated at or about December 31, 2001. Our
ore reserve determinations generally are based upon a short-term and long-term
silver price of $4.50, $5.00 and $5.50 thereafter per ounce for 2002, 2003, and
2004 thereafter respectively, and a gold price of $275 and $300 thereafter per
ounce for 2002 and 2003 thereafter, respectively.
Significant risks and costs are associated with our exploration, development and
mining activities.
Our ability to sustain or increase our present production levels depends in
part on successful exploration and development of new ore bodies and/or
expansion of existing mining operations. Mineral exploration, particularly for
silver and gold, involves many risks and frequently is not productive. If and
when mineralization is discovered, it may take a number of years until
production is possible, during which time the economic viability of the project
may change. Substantial expenditures are required to establish ore reserves,
extract the metals from the ores and, in the case of new properties, to
construct mining and processing facilities. The
34
economic feasibility of any individual development project and all such projects
collectively is based upon, among other things, estimates of the size and grade
of ore reserves, proximity to infrastructures and other resources (such as water
and power), metallurgical recoveries, production rates and capital and operating
costs of such development projects, and future metals prices. Development
projects are also subject to the completion of favorable feasibility studies,
issuance of necessary permits and receipt of adequate financing.
Development projects may have no operating history upon which to base
estimates of future operating costs and capital requirements. Particularly for
development projects, estimates of reserves, metal recoveries and cash operating
costs are to a large extent based upon the interpretation of geologic data
obtained from a limited number of drill holes and other sampling techniques and
feasibility studies. Estimates of cash operating costs are then derived based
upon anticipated tonnage and grades of ore to be mined and processed, the
configuration of the orebody, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climate conditions and
other factors. As a result, actual cash operating costs and economic returns of
any and all development projects may materially differ from the costs and
returns estimated.
Our silver and gold production may decline in the future.
Our future silver and gold production may decline as a result of the
exhaustion of reserves and possible closure of mines. It has been and will
continue to be our business strategy to conduct silver and gold exploratory
activities at our existing mining and exploratory properties as well as at new
exploratory projects, and to acquire silver and gold mining properties and/or
businesses that possess mineable ore reserves and are expected to become
operational in the near future. Although that is our business strategy, we can
provide no assurance that our silver and gold production in the future will not
decline.
There are significant risks associated with our mining activities, not all of
which are fully covered by insurance.
The mining business is generally subject to risks and hazards, including
quantity of production, quality of the ore, environmental hazards, industrial
accidents, the encountering of unusual or unexpected geological formations,
cave-ins, flooding, earthquakes and periodic interruptions due to inclement or
hazardous weather conditions. These occurrences could result in damage to, or
destruction of, mineral properties or production facilities, personal injury or
death, environmental damage, reduced production and delays in mining, asset
write-downs, monetary losses and possible legal liability. Although we maintain
insurance in an amount that we consider to be adequate, liabilities might exceed
policy limits, in which event we could incur significant costs that could
adversely affect our results of operation. Insurance fully covering many
environmental risks (including potential liability for pollution or other
hazards as a result of disposal of waste products occurring from exploration and
production) is not generally available to us or to other companies in the
industry.
35
We are subject to significant environmental and other governmental regulations
that can require substantial expenses and capital expenditures.
Our mining activities are subject to extensive federal, state, local and
foreign laws and regulations governing environmental protection, natural
resources, prospecting, development, production, post-closure reclamation,
taxes, labor standards, occupational health and safety including, mine safety,
toxic substances and other matters. Although these laws and regulations have
never required us to close any mine, the costs associated with compliance with
such laws and regulations are substantial and possible future laws and
regulations, or more stringent enforcement thereof by governmental authorities
could cause additional expense, capital expenditures, restrictions on or
suspensions of our operations and delays in the development of our properties.
Moreover, these laws and regulations allow governmental authorities and private
parties to bring lawsuits based upon damages to property and injury to persons
resulting from the environmental, health and safety impacts of our past and
current operations, and can lead to the imposition of substantial fines,
penalties and other civil and criminal sanctions. Risks of substantial costs and
liabilities, including for the restoration of the environment after the closure
of our mines, are inherent in our operations. Although we believe we are in
substantial compliance with applicable laws and regulations, we cannot assure
you that any such law, regulation, enforcement or private claim will not have a
material adverse effect on our business, financial condition or results of
operations.
Certain of our mining wastes are currently exempt to a limited extent from
the extensive set of federal Environmental Protection Agency (EPA) regulations
governing hazardous waste under the Resource Conservation and Recovery Act
(RCRA). If the EPA designates these wastes as hazardous under RCRA in the
future, we would be required to expend additional amounts on the handling of
such wastes and to make significant expenditures on the construction of
hazardous waste disposal facilities. In addition, regardless of whether these
wastes are designated as hazardous under RCRA, if they cause contamination in or
damage to the environment at a mining facility, such facility may be designated
as a "Superfund" site under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). Under CERCLA, any owner or operator of
a Superfund site since the time of its contamination may be held liable and may
be forced to undertake extensive remedial cleanup action or to pay for the
government's cleanup efforts. Additional regulations or requirements are also
imposed upon our tailings and waste disposal areas in Idaho and Alaska under the
federal Clean Water Act (CWA) and in Nevada under the Nevada Water Pollution
Control Law which implements the CWA. Airborne emissions are subject to controls
under the air pollution statutes implementing the Clean Air Act in Nevada, Idaho
and Alaska. In the context of environmental permitting, including the approval
of reclamation plans, we must comply with standards and regulations which entail
significant costs and can entail significant delays.
Significant risks are associated with our foreign operations and activities.
Chile and Bolivia are the most significant foreign countries in which we
directly or indirectly own or operate mining properties or developmental
36
projects. We also conduct exploratory projects in Chile and Bolivia. Although
the governments and economies of these countries have been relatively stable in
recent years, property ownership in a foreign country generally is subject to
the risk of expropriation or nationalization with inadequate compensation. Any
foreign operations or investment may also be adversely affected by exchange
controls, currency fluctuations, taxation and laws or policies of particular
countries as well as laws and policies of the United States affecting foreign
trade investment and taxation.
There are significant risks associated with any future acquisitions by us.
An important element of our business strategy has been the opportunistic
acquisition of silver and gold mines, properties and businesses. While it is our
practice to engage independent mining consultants to assist in evaluating and
making acquisitions, mining properties acquired by us in the future might not be
developed profitably or, if profitable when acquired, that profitability might
not be sustained. In connection with any future acquisitions, we may incur
indebtedness or issue equity securities, resulting in dilution of the percentage
ownership of existing shareholders. We intend to seek shareholder approval for
any such acquisitions only to the extent required by applicable law, regulations
or stock exchange rules.
Finding and acquiring new mineral properties is very difficult and competitive.
Because mines have limited lives based on proven and probable ore reserves,
we, like other mining companies are continually seeking to replace and expand
our ore reserves. Identifying promising mining properties is difficult.
Furthermore, we encounter strong competition from other mining companies in
connection with the acquisition of properties producing or capable of producing
silver and gold. Many of these companies have greater financial resources than
we do. Consequently, we may be unable to replace and expand current ore reserves
through the acquisition of new mining properties on terms we consider
acceptable.
Significant risks are associated with our purchases of currencies of foreign
countries in which we do business.
We may enter into agreements which require us to purchase currencies of
foreign countries in which we do business in order to ensure fixed exchange
rates. In the event that actual exchange rates vary from those set forth in the
hedge contracts, we will experience U.S. dollar-denominated currency gains or
losses.
We may have to use some of our cash to provide financial assurance relating to
our Rochester Mine's future reclamation liability.
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 filed for liquidation in the first quarter of
2001. We are currently attempting to arrange for an
37
alternative bonding arrangement with the State of Nevada as well as a
replacement surety bond with another insurance company. If, however, we are
unable to make alternative bonding arrangements or find a replacement insurer,
we will be required to provide other adequate financial consideration to the
State of Nevada to assure our continued compliance with our reclamation
liability obligation.
Third parties may dispute our unpatented mining claims.
The validity of unpatented mining claims, which constitute a significant
portion of our property holdings in the United States, is often uncertain and
may be contested. Although we have attempted to acquire satisfactory title to
undeveloped properties, we, in accordance with mining industry practice, do not
generally obtain title opinions until a decision is made to develop a property,
with the attendant risk that some titles, particularly titles to undeveloped
properties, may be defective.
We are required to obtain government permits to expand operations or begin new
operations, which is often a costly and time-consuming process.
Mining companies are required to seek governmental permits for expansion of
existing operations or for the commencement of new operations. Obtaining the
necessary governmental permits is a complex and time-consuming process involving
numerous jurisdictions and often involving public hearings and costly
undertakings on our part. The duration and success of permitting efforts are
contingent on many factors that are out of our control. Government permitting
may increase costs and cause delays depending on the nature of the activity to
be permitted, and in an extreme case, could cause us to not proceed with the
development of a mine.
Item 2. Properties.
Information regarding the Company's properties is set forth under Item 1
above.
Item 3. Legal Proceedings.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District Court
for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
On March 16, 2001, the Company and representatives of the U.S. Government,
including the Environmental Protection Agency, the Department of Interior and
the Department of Agriculture, reached an agreement in principle to settle the
lawsuit, which represents the only suit in which the Company has been named as a
party. Pursuant to the terms of the Consent
38
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 $0.6 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. The Company recorded $4.2
million of expenses, which included $3.9 million of settlement payments, in the
fourth quarter of 2000 in connection with the settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group, Inc.
("Handy & Harman"), 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 & Harman.
On February 27, 2001, the Company commenced a lawsuit against Handy & Harman and
certain others in the U.S. Bankruptcy Court for the District of Connecticut
seeking recovery of the metals and/or damages. Handy & Harman'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 &
Harman as a partial payment under the plan. The liquidating custodian of Handy &
Harman under the liquidation plan recently advised the Company that Handy &
Harman intends to file suit against the Company prior to March 28, 2002 for the
value of 100,000 ounces of silver (i.e., approximately $500,000) as a preference
based on the Company's draw-down of its account at Handy & Harman in mid-March
2000. As a result of this more recent legal action, the Company has made the
determination that it is unlikely that we will receive any further distributions
from the Bankruptcy Court, and has reduced the carrying amount for the
inventory to zero and has recorded a loss of $1.4 million in 2001. Management of
the Company and legal council believe that the threatened claims are without
merit, and will vigorously defend any such suit.
Bunker Hill action
On January 7, 2002, a private class action suit, Baugh v. Asarco, et al.,
was filed in the Idaho District Court for the First District (Lawsuit No.
2002131) in Kootenai County, Idaho against the companies that have been
defendants in the prior Bunker Hill and natural resources litigation in the
Coeur d'Alene Basin, including the Company, by eight northern Idaho residents
seeking medical benefits and property compensation from the mining
39
companies involved in the Bunker Hill Superfund site. At this early stage of the
litigation, the Company cannot predict the outcome of this suit.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
Item 4A. Executive Officers of the Registrant.
------------------------------------
The following table sets forth certain information regarding the Company's
current executive officers:
Office with Appointed
Name Age the Company to Office
Dennis E. Wheeler 59 Chairman of the Board 1992
President 1980
Chief Executive Officer 1986
Robert Martinez 55 Senior Vice President 1998
Chief Operating Officer
Geoffrey A. Burns 42 Senior Vice President 1999
Chief Financial Officer
Dieter A. Krewedl 58 Senior Vice President
- Exploration 1998
Gary W. Banbury 49 Vice President - Administration 2001
and Human Resources
James K. Duff 57 Vice President 1996
Business Development
Troy J. Fierro 38 Vice President - Mining Services 2001
Wayne L. Vincent 40 Controller 1998
Chief Accounting Officer 1999
James N. Meek 50 Treasurer 1999
Messrs. Wheeler, Martinez, Duff, Banbury, Vincent and Meek have been
principally employed by the Company for more than the past five years. Prior to
his appointment as Senior Vice President and Chief Operating Officer on May 15,
1998, Mr. Martinez had served as Vice President - Operations since April, 1997
and previously was Vice President - Engineering, Operational Services and South
American Operations of the Company. Prior to his appointment as Vice President
and Chief Financial Officer in March 1999, Mr. Burns was Chief Financial Officer
and Controller for Prime Resources Group, Inc. and Homestake Canada Inc.,
respectively, from June 1992. He became a Senior Vice President of the Company
in June 2000. Prior to his appointment as Vice President - Administration and
Human Resources, Mr. Banbury held the position of Vice President - Human
Resources from 1998 to 2000, prior
40
thereto as Manager of Human Resources with the Company. Prior to his appointment
as Vice President - Business Development, Mr. Duff held the position of Director
of New Business Development. Prior to his appointment as Vice
President-Exploration on October 8, 1998, Mr. Krewedl was Vice President of
Exploration for Echo Bay Mines, LTD. Prior to his appointment as Vice President
- - Mining Services in May 2001, Mr. Fierro held the position of Vice President -
General Manager at the Company's Rochester Mine. Prior to his appointment as
Controller and Chief Accounting Officer, Mr. Vincent held the position of
Manager of Financial Accounting with the Company for the prior eight years.
Prior to his appointment as Treasurer, Mr. Meek held the position of Assistant
Treasurer and Manager of Budget and Forecasting.
Part II
-------
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.
---------------------------------------------------------
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") and the Pacific Coast Exchange. The following table sets forth, for the
periods indicated, the high and low closing sales prices of the Common Stock as
reported by the NYSE:
High Low
-------- ----------
2000: First Quarter $4.1250 $ 2.8750
Second Quarter 3.8750 2.3125
Third Quarter 2.3750 1.3125
Fourth Quarter 1.6875 0.8125
2001: First Quarter 1.600 0.875
Second Quarter 1.950 1.000
Third Quarter 1.280 0.730
Fourth Quarter 0.940 0.650
The Company has not paid per share cash distributions or dividends on its
Common Stock since 1996. Future distributions or dividends on the Common Stock,
if any, will be determined by the Company's Board of Directors and will depend
upon the Company's results of operations, financial conditions, capital
requirements and other factors.
At March 22, 2002, there were 5,773 record holders of the Company's
outstanding Common Stock.
Sales of Securities Without Registration Under the Securities Act of 1933.
During the year ended December 31, 2001, the Company issued a total of
6,045,118 shares of common stock in exchange for outstanding 7 1/4% Convertible
Subordinated Debentures due 2005 ("7 1/4% Debentures") without registration
under the Securities Act of 1933. Of such exchanges, 1,787,500 shares were
issued on March 19, 2001 in exchange for $5 million principal
41
amount of 7 1/4% Debentures, and 4,257,618 shares were issued on April 30, 2001
in exchange for $11 million principal amount of 7 1/4% Debentures. No
underwriters were used in connection with the above transactions. The sales of
common stock were effected in reliance upon the exemption from registration
provided by Section 3(a)(9) thereof, as they consisted solely of exchanges of
securities with existing security holders exclusively where no commission or
other remuneration was paid or given directly or indirectly for soliciting such
exchanges.
PART II
Item 6. Selected Financial Data
-----------------------
The following table summarizes certain selected consolidated financial data
with respect to the Company and its subsidiaries and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report.
1997 1998 1999 2000 2001
Income Statement Data: ---- ---- ---- ---- ----
(In thousands except per share data)
Revenues:
Sales of metal $ 131,161 $ 102,505 $ 86,318 $ 93,174 $ 69,200
Other income(1) 20,739 9,469 22,628 8,032 2,712
--------- --------- --------- --------- ---------
Total revenues 151,900 111,974 108,946 101,206 71,912
Costs and expenses:
Production costs 103,254 70,163 66,896 86,661 69,149
Depreciation and depletion 31,883 28,555 19,620 20,785 11,347
Administrative and general 12,910 12,249 9,281 9,714 8,714
Mining exploration 7,925 9,241 8,518 9,412 10,046
Interest expense 10,253 13,662 16,408 16,999 14,592
Write-down of mining properties and
other(2) -- 223,597 20,204 21,236 9,354
--------- --------- --------- --------- ---------
Total expenses 166,225 357,467 140,927 164,807 123,202
Net loss from operations before
Income taxes (14,325) (245,493) (31,981) (63,601) (51,290)
(Provision) benefit for
income taxes 242 (919) (332) (348) 6
--------- --------- --------- --------- ---------
Loss before extraordinary item (14,083) (246,412) (32,313) (63,949) (51,284)
Extraordinary item - early
Retirement of debt (net of
Tax of zero)(3) -- 12,158 3,990 16,136 48,217
--------- --------- --------- --------- ---------
Net loss $ (14,083) $(234,254) $ (28,323) $ (47,813) $ (3,067)
========= ========= ========= ========= =========
Net loss attributable
To Common Shareholders $ (24,615) $(244,786) $ (38,855) $ (49,993) $ (3,067)
========= ========= ========= ========= =========
Basic and Diluted Earnings Per
Share Data:
Net loss before
Extraordinary item $ (1.12) $ (11.73) $ (1.77) $ (1.87) $ (1.22)
Extraordinary item - early -- .55 .16 .46 1.15
--------- --------- --------- --------- ---------
Retirement of debt(net of tax)
Net loss attributable
To common shareholders $ (1.12) $ (11.18) $ (1.61) $ (1.41) $ (0.07)
========= ========= ========= ========= =========
Cash dividends paid per
Common share $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Weighted average shares of
Common stock 21,890 21,899 24,185 35,439 41,946
========= ========= ========= ========= =========
42
December 31,
-----------------------------------------------------------------
Balance Sheet Data: 1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(In thousands)
Total assets $658,702 $365,980 $354,047 $271,377 $210,380
Working capital $221,610 $153,837 $157,885 $ 92,982 $ 39,843
Long-term liabilities $298,152 $258,340 $264,709 $228,659 $141,877
Shareholders' equity $322,089 $ 77,067 $ 68,165 $ 17,440 $ 26,788
(1) Included in other income for the year 2000 are: (i) a gain recorded on mark
to market of the Company's gold call positions sold of $4.1 million, and
(ii) loss on investment in Pan American Silver Corp. stock of 2.3 million.
Included in other income for 1999 are: (i) a gain of $21.1 million in
settlement of a lawsuit, and (ii) a loss recorded on mark to market of the
Company's gold call positions sold of $4.3 million.
Included in other income for 1997 are: (i) the receipt of $8.0 million of
insurance proceeds for business interruption and property damage at the
Golden Cross Mine, and (ii) a gain of $5.3 million arising from the sale of
gold purchased in the open market which was delivered pursuant to fixed
price forward contracts in the first quarter of 1997.
(2) During the fourth quarter of 2001, the Company evaluated the recoverability
of its investment in Kensington development property and determined that
its investment in the Kensington development property was impared. The
total amount of the impairment was $6.1 million, and was recorded in the
fourth quarter of 2001.
As a consequence of the February 7, 2001 sale of the Company's shareholding
in Gasgoyne Gold Mines NL, which had an effective date of December 31,
2000, the Company recorded a write-down of $12.2 million in 2000 to reflect
the excess book value of its shareholding in Gasgoyne above the $15.6
million sales price.
On March 16, 2001, representatives of the United States and the Company
reached an agreement in principle to settle the lawsuit filed by the
Government in March 1996 in the U.S. District Court for the District of
Idaho alleging response cost damages to federal natural resources in the
Coeur d'Alene River Basin as a result of alleged releases of hazardous
substances from prior mining activities in the area. The terms of the
proposed settlement, which are subject to final Justice Department and
Court approval and are discussed above under Item 3 ("Legal Proceedings"),
provide for payments by the Company to the Government of approximately $3.9
million plus a maximum of $3.0 million of future conditional net smelter
royalty payments. As a result, during fiscal 2001, the Company recorded an
expense of approximately $4.2 million for settlement of this lawsuit,
including $3.9 million in payments and estimated legal fees and other
costs.
During the fourth quarter of 1999, the Company evaluated the recoverability
of its investment in Yilgarn Star Mine. Using a $325 per ounce gold price
and based on undiscounted future cash flows, in accordance with the
standards set fourth in SFAS 121, the Company determined that its
investment in property, plant and equipment at the Yilgarn Star Mine in
Australia was impaired. The total amount of the impairment, based on
discounted cash flows was $16.2 million, and was recorded in the fourth
quarter of 1999.
During the first quarter of 1998, the Petorca mine continued to operate at
a loss in spite of on-going efforts to improve ore grades and reduce
operating costs. An evaluation of operations was completed and as a result
of this evaluation, the Company determined that a write-down was required
to properly reflect the estimated realizable value of Petorca's mining
properties and assets in accordance with the standards set forth in SFAS
121. Consequently, the Company recorded a non-cash write-down for
impairment in the first quarter of 1998 of $54.5 million relating to its
investment in the Petorca mine. The charge included approximately $8.3
million to satisfy the estimated remediation and reclamation liabilities at
Petorca and to provide for estimated termination costs.
During the fourth quarter of 1998, the Company evaluated the recoverability
of investments in both the Fachinal Mine and Kensington property. Using a
$350 per ounce gold price and based on estimated undiscounted future cash
flows, the Company determined that its investments in property, plant and
equipment at the Fachinal Mine in Southern Chile and at the Kensington
property in Alaska were impaired. The total amount of the impairment based
on discounted cash flows was $42.9 million and $121.5 million for the
Fachinal Mine and Kensington property, respectively, at December 31, 1998
and was recorded in the fourth quarter.
In December 1998, the Company performed an analysis of the closure accrual
for the Golden Cross Mine. As a result, the Company determined that there
was a shortfall in the closure accrual and recognized an additional expense
of $4.3 million.
(3) During the first and second quarters of 2001, the Company issued 6,045,118
shares of common stock in exchange for approximately $16 million in
principal amount of its 7-1/4% Convertible Subordinated Debentures due
2005, and recorded an extraordinary gain of approximately $8.9 million.
During the thrid quarter of 2001, the Company completed an exchange offer
whereby existing convertible subordinated debenture holders could exchange
their existing debt for the newly registered 13 3/8% Convertible Senior
Subordinated Notes due 2003. As a result of the exchange
43
offer, the Company recorded an extraordinary gain of $39.2 million, net of
taxes and offering costs in the third quarter of 2001.
During the fourth quarter of 2000, the Company repurchased approximately
$2.1 million principal amount of its 6% Convertible Subordinated Debentures
and approximately $22.0 million principal amount of its outstanding 7 1/4%
Convertible Subordinated Debentures due 2005. The price paid by the Company
for those repurchased debentures was approximately $8.9 million. As a
result of those additional repurchases, the Company recorded an
extraordinary gain of approximately $15.0 million.
In June, 2000, the Company repurchased approximately $7.0 million principal
amount of its 6% Convertible Subordinated Debentures due 2002 pursuant to a
cash tender offer that commenced on May 9, 2000 and expired as scheduled on
June 8, 2000. The price paid by the Company for the repurchased debentures
was approximately $5.0 million plus accrued and unpaid interest of $3,500.
During the quarter ended June 30, 2000, the Company recorded an
extraordinary gain of approximately $1.1 million, net of tender offer
expenses, as a result of the repurchase.
During July, September and December 1999, the Company repurchased
approximately $10.2 million principal amount of its outstanding 6%
Convertible Subordinated Debentures due 2002 for a total purchase price of
approximately $6.2 million, excluding purchased interest of $.2 million.
Associated with this transaction, the Company eliminated $.1 million of
capitalized bond issuance cost. As a result, the Company has recorded an
extraordinary gain of approximately $4 million, net of taxes of zero,
during 1999 on the reduction of its indebtedness.
During July, August and December 1998, the Company repurchased
approximately $4.0 million principal amount of its outstanding 6%
Convertible Subordinated Debentures due 2002, approximately $36.5 million
principal amount of its 7 1/4% Convertible Subordinated Debentures due
2005, and approximately $1.6 million principal amount of its 6.375%
Convertible Subordinated Debentures due 2004 for a total purchase price of
approximately $28.5 million, excluding purchased interest of approximately
$616,000. Associated with this transaction, the Company eliminated $1.4
million of capitalized bond issuance costs. The Company anticipates that as
a result of the cancellation of the repurchased debentures, annual interest
paid by the Company will be reduced by approximately $3.0 million. As a
result of the buyback of these debentures, the Company has recorded an
extraordinary gain of approximately $12.2 million, net of taxes, during
1998 on the reduction of its indebtedness.
Item 7. 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 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.
Critical Accounting Policies and Estimates
Our consolidated financial statements are impacted by the accounting
policies used and the estimates and assumptions made by management during their
preparation. We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note B in the Notes to the Consolidated Financial
Statements of this Annual Report on Form 10-K. Note that our preparation of this
Annual Report on Form 10-K requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of
44
our financial statements, and the reported amounts of revenue and expenses
during the reporting period. There can be no assurance that actual results will
not differ from those estimates. The most critical accounting principles upon
which the Company's financial status depends are those requiring estimates of
recoverable ounces from proven and probable reserves and/or assumptions of
future commodity prices. Such estimates and assumptions affect the value of
inventories (which are stated at the lower of average cost or net realizable
value) and the potential impairment of long-lived assets. These estimates and
assumptions also affect the rate at which depreciation and amortization are
charged to earnings.
Property, Plant, and Equipment balances are stated at cost, reduced by
provisions to recognize economic impairment in value when management determines
that such impairment has occurred. Mineral property, buildings and improvements,
and machinery and equipment are depreciated using either the straight-line
method or the units-of-production method over the estimated useful lives as of
the in-service date or date of major improvements. We evaluate the realizability
of our long-lived assets, property, plant and equipment, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss exists when estimated undiscounted cash flows
expected to result from the use of the asset and its eventual disposition are
less than its carrying amount. Any impairment loss recognized represents the
excess of the asset's carrying value as compared to its estimated fair value.
Reclamation and Remediation costs are based principally on legal and
regulatory requirements. Management estimates costs associated with reclamation
of mining properties as well as remediation cost for inactive properties. Such
costs related to active mines are accrued and charged over the expected
operating lives of the mines using the units-of-production method.
The estimated undiscounted cash flows generated by our assets and the
estimated liabilities for reclamation and remediation are determined using the
Company's assumptions about future costs, mineral prices, mineral processing
recovery rates, production levels and capital and reclamation costs. Such
assumptions are based on the Company's current mining plan and the best
available information for making such estimates. On an ongoing basis, management
evaluates its estimates and assumptions; however, actual amount could differ
from those based on such estimates and assumptions.
Significant Mining Properties
The Company's currently operating mines consist of the Rochester Mine, a
heap leach silver and gold mine in northern Nevada of which the Company owns
100%, and the Galena Mine, an underground silver mine in Idaho that is 100%
owned by Coeur's wholly-owned subsidiary, Coeur Silver Valley, Inc. The Company
suspended operations at its wholly-owned Fachinal Mine in Chile in December 2000
in order to focus its efforts on the adjacent Cerro Bayo Project where Coeur
plans to commence gold and silver production at an open pit and underground mine
in May 2002. The Company also owns 100% of the San Bartolome silver project in
Bolivia where it is conducting final feasibility studies and expects to commence
silver production in 2004, and
45
the Kensington property in Alaska where Coeur is considering the possible
development of an underground gold mine.
Risk Factors; Forward-Looking Statements
For information relating to important risks and uncertainties that could
materially adversely affect the Company's business, financial condition or
operating results, reference is made to the disclosure set forth under Item 1
above under the caption "Risk Factors." In addition, because the following
discussion includes numerous forward-looking statements relating to the Company,
its results of operations and financial condition and business, reference is
made to the information set forth above in Item 1 under the caption "Important
Factors Relating to Forward-Looking Statements."
Total Production and Reserves
The Company's total production in 2001 was 10.9 million ounces of silver
and 96,000 ounces of gold, compared to 11.7 million ounces of silver and 145,000
ounces of gold in 2000. Coeur estimates that production in 2002 will be
approximately 12.8 million ounces of silver and 93,000 ounces of gold. Total
estimated proven and probable reserves at December 31, 2001 were approximately
83.4 million ounces of silver and 2.3 million ounces of gold, compared to silver
and gold reserves at December 31, 2000 of approximately 88.1 million ounces and
2.4 million ounces, respectively.
SFAS 121 Impairment Reviews; Write-down of Mining Properties
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" ("SFAS 121"), the Company reviews the carrying value of its assets
whenever events or changes in circumstances indicate that the carrying amount of
its assets may not be fully recoverable. As of December 31, 2001, due to the
continuing low prices of silver and gold, the Company reviewed the carrying
value of all its properties based on an assumed long-term gold prices starting
at $275 and increasing to $300 per ounce and silver prices starting at $4.50 and
increasing to $5.50 per ounce. As a result of that review, the Company recorded
a $6.1 million write-down in the carrying value of its Kensington property
during the year ended December 31, 2001.
Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues
Sales of concentrates and dore in the year ended December 31, 2001
decreased by $24.0 million, or 26%, from the year ended December 31, 2000 to
$69.2 million. The decrease in sales was primarily attributable to lower
realized gold and silver prices and decreased production of silver from most of
its mines, offset in part by increased gold production at the Rochester
46
mine and increased Silver production at the Galena mine compared to 2000. In the
year ended December 31, 2001, the Company produced a total of 10.9 million
ounces of silver and 96,000 ounces of gold compared to 11.7 million ounces of
silver and 145,000 ounces of gold in 2000. In the year ended December 31, 2001,
Company realized average silver and gold prices of $4.34 and $275, respectively,
compared with realized average prices of $4.94 and $307, respectively, in the
prior year. The decline in gold production was primarily due 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 higher
silver production at Galena.
Interest and other income in the year ended December 31, 2001 decreased by
$5.3 million compared with year ended December 31, 2000. The decrease is
primarily due to less interest income received as a result of lower interest
rates and lower cash balances and a $4.1 million gain recorded in 2000 on the
mark to market adjustment of the call option portion of the Company's hedge
program.
Costs, Expenses and Write-downs
The following table sets forth year 2001 versus year 2000 costs, expenses
and write-downs:
Production Costs ____________________________________69.1
_______________________________________________86.7
Depreciation/Depletion _______________11.3
______________________20.8
Administration and General _____8.7
_________9.7
Exploration ____6.4
_____6.7
Pre-feasibility Expense ___3.7
__2.7
Interest Expense _______________14.6
__________________17
Write-down and Other ______9.4
_______________________21.2
($ in millions)
Production costs in the year ended December 31, 2001 decreased by $17.5
million, or 20%, from the year ended December 31, 2000 to $69.1 million. The
decrease in production costs is primarily a result of decreased production at
Fachinal in 2001 and the sale of the Yilgarn Star mine in the first quarter of
2001.
Depreciation and amortization decreased in the year ended December 31, 2001
by $9.4 million, or 45%, from the prior year, primarily due to there
47
being no depletion or amortization taken at the Fachinal mine due to its
temporary suspension of operations 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 $1.0 million in the year
ended December 31, 2001 compared to 2000, due to continuing efforts to conserve
cash.
Exploration expenses decreased $0.3 million in the year ended December 31,
2001 compared to 2000, due to reduced spending.
Pre-feasability expense recorded in the year ended 2001 increased $1.0
million compared to the same period of 2000 due to increased expenses at San
Bartolome.
Interest expenses decreased $2.4 million in the year ended December 31,
2001 compared to 2000, due to the Company's debt reduction program discussed
below.
Write-downs of mining properties and other expenses amounted to $9.4
million in 2001, primarily as a result of (i) a write-down of $6.1 million in
the carrying value of the Kensington property, (ii) the $1.4 million write-down
of inventory resulting from the Handy & Harmon bankruptcy and (iii) $1.4 million
of holding costs at Fachinal and Kensington. Write-downs of mining properties
and other expenses in 2000 amounted to a total of $21.2 million, primarily as a
result of (i) a write-down of $12.2 million reflecting the excess book value of
the Company's shares in Gasgoyne above the $15.6 million price for which the
Company sold such shares on February 7, 2001; and (ii) recognition of $4.2
million in connection with the settlement of the federal natural resources
lawsuit, of which $3.9 million represented payments made by the Company to the
U.S. Government and the balance consisted of estimated land transfer expenses
and legal fees.
Income Taxes and Extraordinary Items
As a result of the above, the Company's net loss from continuing operations
before taxes and extraordinary items amounted to approximately $51.3 million in
2001 compared to $63.6 million in 2000. An income tax benefit of $6,000 was
recorded in 2001, compared to a provision for income taxes of approximately
$348,000 in 2000. The Company's loss before extraordinary items therefore
amounted to $51.3 million in 2001 compared to $63.9 million in 2000. As more
fully discussed below under "Debt Reduction Program," the Company recorded an
extraordinary gain of approximately $48.2 million in 2001, compared to an
extraordinary gain of $16.1 million in 2000, in connection with the Company's
early retirement of debt.
Net Loss
As a result of the above, the Company's net loss amounted to approximately
$3.1 million in the year ended December 31, 2001 compared to a net loss of $47.8
million in the year ended December 31, 2000. The net loss attributable to common
shareholders was $0.07 per share for the year ended
48
December 31, 2001, compared to a net loss $1.41 per share for the year ended
December 31, 2000. During 2000, the Company paid approximately $2.2 million of
dividends to the holders of its outstanding MARCs, which were mandatorily
converted into common stock on March 15, 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues
Sales of concentrates and dore increased by $6.9 million, or 7.9%, for the
year ended December 31, 2000 as compared to the same period of 1999, primarily
as a result of higher silver production levels at the Rochester and Silver
Valley mines, offset in part by decreases in the realized silver price and the
amount of gold produced. During 2000, the Company produced a total of 11.7
million ounces of silver and 145,000 ounces of gold compared to 9.6 million
ounces of silver and 152,000 ounces of gold in 1999.
Spot silver and gold prices averaged $5.00 and $279 per ounce,
respectively, in 2000 compared to $5.25 and $279 per ounce, respectively, in
1999. During 2000, the Company realized average silver and gold prices of $4.94
and $307 per ounce, respectively, compared with realized prices of $5.23 and
$319, respectively, in 1999.
Interest and other income decreased by $14.6 million, or 65%, in 2000
compared to 1999. The decrease was primarily due to a $21.1 million net gain
from the favorable settlement in the third quarter of 1999 of a lawsuit with
Cyprus Minerals Company relating to the Golden Cross mine, reduced by a loss of
$4.3 million arising from the non-cash mark to market adjustment on gold call
options sold by the Company.
Costs, Expenses and Write-downs
The following table sets forth year 2000 versus year 1999 costs, expenses
and write downs:
49
Production Costs _______________________________________________86.7
____________________________________66.9
Depreciation/Depletion ______________________20.8
_____________________19.6
Administration and General _________9.7
________9.3
Exploration _____6.7
_______7.1
Pre-feasibility Expense __2.7
_1.3
Interest Expense __________________17
_________________16.4
Write-down and Other _______________________21.2
______________________20.2
($ in millions)
For the year ended December 31, 2000, total expenses increased by $23.9
million. The increase is primarily attributable to the increased production
costs as a result of the increase in ownership of the Galena mine and increased
production costs at the Fachinal and Petorca mines.
Production costs increased by $19.8 million in 2000. The increase was
primarily due to increased ownership of the Galena mine from 50% to 100% in
September 1999 and increased cash costs per ounce at the Fachinal and Petorca
mines. Depreciation and depletion expense increased $1.2 million in 2000
compared to 1999, primarily due to higher production at the Rochester and Galena
mines. Administration and general expenses increased $0.4 million in 2000, 5%
above 1999. Exploration expense for 2000 decreased by $0.4 million, or 10%,
compared to 1999. Pre-feasibility expenditures increased due to increased level
of expenditures at the San Bartolome silver project in Bolivia.
Cash costs per ounce of silver equivalent at the Rochester mine decreased
to $3.90 in 2000 compared to $3.97 per ounce in 1999. The decrease was due to
operating improvements that included increasing the capacity of the conveyor
system and the crushing circuit as well as increasing solution flow on the leach
pad by approximately 15%. Cash costs at the Galena Mine were $4.59 per silver
ounce in 2000 compared to $5.09 in 1999. The decrease was primarily a result of
improved ore grades from more productive vein structures at depth and an
increase in mill throughput. Cash costs at the Petorca mine in 2000 averaged
$345 per ounce of gold versus $271 in 1999. The increase was the result of the
mining of lower grade ore, partially offset by increases in tons mined and in
mill throughput. Cash costs at Fachinal were $447 per ounce for the year ended
December 31, 2000 compared to $304 per ounce in the previous year. The increase
was primarily due to a shortfall in production partially due to
50
lower ore grades and a reduction in tons milled, but mainly due to severe winter
weather conditions that affected most of southern Chile. The cash costs at the
Yilgarn Star mine for the year ended December 31, 2000 were $227 per gold ounce
compared to $287 per gold ounce for 1999. The reduction in cash costs was
achieved in spite of the scheduled mining of lower grade ore, by implementing
operating improvements to the crushing circuit, and a weaker Australian dollar.
Write-downs of mining properties and other expenses amounted to $21.2
million in 2000, primarily as a result of:
o a write-down of $12.2 million reflecting the excess book value of the
Company's shares in Gasgoyne above the $15.6 million price for which the
Company sold such shares on February 7, 2001, and
o recognition of $4.2 million in connection with the settlement of the
federal natural resources lawsuit, of which $3.9 million represented
payments to be made by the Company to the U.S. Government and the balance
consisted of estimated land transfer expenses, minor clean-up costs and
legal fees. Write-downs of mining properties and other expenses in 1999
amounted to $20.2 million primarily as a result of the $16.2 million SFAS
121 impairment write-down of the Yilgarn Star mine.
Income Taxes and Extraordinary Items
As a result of the above, the Company's loss before income taxes and
extraordinary items was $63.6 million in 2000 compared to a loss before income
taxes and extraordinary items of $32.0 million in 1999. The Company reported an
income tax provision of $300,000 for 2000 and 1999. In 2000, the Company
recorded an extraordinary gain on the early retirement of debt (net of taxes) of
$16.1 million and paid $2.2 million in preferred stock dividends.
Net Loss
As a result of the above, the Company reported a net loss attributable to
common shareholders of $50.0 million, or $1.41 per share in 2000, compared to
$38.9 million, or $1.61 per share, in 1999. The reduced per share amount of the
net loss attributable to common shareholders in 2000, notwithstanding the
increased total dollar amount of such net loss, was due to the increase in the
weighted average number of shares of common stock outstanding during 2000.
Liquidity and Capital Resources
Working Capital; Cash and Cash Equivalents
The Company's working capital at December 31, 2001 was approximately $39.8
million compared to $93.0 million at December 31, 2000. The ratio of current
assets to current liabilities was two to one at December 31, 2001 compared to
4.7 to one at December 31, 2000. The reduction in working
51
capital is primarily the result of the 6% Convertible Subordinated Debentures
due 2002 being reclassified as a current liability and cash used in operations.
Net cash used in operating activities in 2001 was $29.9 million compared
with $23.8 million used in operating activities in 2000. The most significant
non-cash items included in the net loss in 2001 were (1) $48.2 million
extraordinary gain on the early retirement of debt, (2) $6.1 million write-down
on the carrying amount of Kensington development property, and (3) $2.9 million
interest expenses on the 13-3/8% Convertible Senior Subordinated Notes due 2003
paid with common stock.
A total of $12.6 million was provided by investing activities in 2001
compared to $10.0 million used in 2000. The most significant investing activity
in 2001 was the sale of the Company's interest in Gasgoyne for cash proceeds of
approximately $14.9 million.
The Company's financing activities used $3.2 million during 2001 compared
to $17.9 million used in 2000. The most significant financing activities in 2001
were $2.2 million cash costs on the exchange offer described later in MD&A and
$0.7 million used to repurchase debentures. As a result, the Company's net cash
decreased in 2001 by $20.5 million compared with a net cash decrease of $51.7
million in 2000.
At December 31, 2001, the Company had outstanding $23.2 million principal
amount of its 6% Convertible Subordinated Debentures due 2002 (the "6%
Debentures") which mature on June 10, 2002. The Company's cash and cash
equivalents and short-term investments at December 31, 2001 totaled
approximately $18.2 million. As a result of private exchange transactions
completed between January 1, 2002 and March 22, 2002, the total amount of
outstanding 6% Debentures had been reduced to $ 19.8 million.
The Company is endeavoring to increase its liquidity and/or further reduce
the principal amount of its outstanding 6% Debentures in order to be able to
fund the payment upon maturity of outstanding 6% Debentures on June 10, 2002 by:
o Effecting additional private exchange transactions under which either
common stock or 13-3/8% Convertible Senior Subordinated Notes due December
31, 2003 (the "13-3/8% Notes") will be exchanged for outstanding 6%
Debentures;
o The placement of bank debt to fund the start up of, or the sale of an
equity interest in, the Company's Cerro Bayo Mine in southern Chile; and/or
o The private sale of other debt or equity securities.
o The potential sale of certain assets of the Company.
The Company presently plans to complete one or more of the above
transactions prior to June 10, 2002. The Company believes in that regard,
52
cash flows from mining operations, the proceeds from financings and/or reduced
indebtedness resulting from additional exchange transactions will enable the
Company to fund the retirement of maturing 6% Debentures on June 10, 2002 and
other anticipated capital expenditures during the balance of 2002. In that
regard, the Company estimates that it will expend approximately $6.8 million of
capital expenditures during 2002, which includes approximately $2.5 million for
development at Cerro Bayo, and $2.2 million at Rochester Mine, including $1.0
million for pad expansion and $2.1 million at Galena mine for resource
development
No assurance can be given that the Company will be able to increase its
liquidity and/or further reduce the principal amount of its outstanding 6%
Debentures. The Company's liquidity will be adversely affected if such
transactions are not effected on satisfactory terms. If the Company fails to pay
the principal amount of the 6% Debentures on their maturity when due, such
failure will be deemed to be an event of default under the Indenture relating to
the 6% Debentures and entitle the trustee to declare the 6% Debentures to be
immediately due and payable. Furthermore, such a default also would constitute
an event of default under the Indentures relating to the 13-3/8% Notes, 6-3/8%
Debentures and 7-1/4% Debentures, which could cause these Notes or Debentures,
the total outstanding principal amount of which amounted to $122.3 million at
December 31, 2001, to be immediately due and payable. Such events could cause
the Company to seek relief under the Chapter 11 of the Bankruptcy Code.
Debt Reduction Program
During the past four years, the Company has pursued a program of
restructuring and reducing its outstanding indebtedness.
1998-2000 Repurchases
In 1998, the Company repurchased approximately $4.0 million principal
amount of its outstanding 6% Debentures, approximately $36.5 million principal
amount of its outstanding 7-1/4% Debentures and $1.6 million principal amount of
its outstanding 6-3/8% Debentures for a total purchase price of approximately
$28.5 million. During 1999, the Company repurchased approximately $10.2 million
principal amount of its outstanding 6% Debentures for a total purchase price of
approximately $6.2 million. During 2000, the Company repurchased approximately
$9.1 million principal amount of its outstanding 6% Debentures and $22.0 million
principal amount of its outstanding 7 1/4% Debentures for a total purchase price
of approximately $13.9 million.
2001 Transactions
Public Exchange Offer
On June 29, 2001, the Company commenced an offer to exchange its new
13-3/8% Notes in exchange for its outstanding 6%, 6-3/8% and 7-1/4% Debentures.
The Company offered $1,000 principal amount of 13-3/8% Notes for each $2,000
principal amount of 6-3/8% and 7-1/4% Debentures, and $1,000 principal amount of
13-3/8% Notes in exchange for each $1,000 principal
53
amount of 6% Debentures. The exchange offer was completed on July 30, 2001 and
on August 1, 2001, the Company issued a total of approximately $42.6 million
principal amount of 13-3/8% Notes in exchange for the approximately $2.0 million
principal amount of 6% Debentures, $26.6 million principal amount of 6-3/8%
Debentures and $54.5 million principal amount of 7-1/4% Debentures that were
tendered and accepted in the exchange offer. In addition, the Company sold
$25,000 principal amount of 13-3/8% Notes for cash in connection with the offer.
The exchange offer reduced the Company'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 an
extraordinary gain of approximately $39.2 million, net of offer costs.
The 13-3/8% Notes are senior in right of payment to the 6%, 6-3/8% and
7-1/4% Debentures. The 13-3/8% Notes are convertible into Coeur common stock, at
any time prior to maturity at a conversion price of $1.35 per share, subject to
adjustment. Interest is payable semi-annually on June 30 and December 31 of each
year. The Company is entitled to elect to pay interest in cash or stock, in its
sole discretion. The Company elected to pay the $2.9 million of interest payable
on December 31, 2001 in common stock, issuing a total of 3.4 million shares of
common stock in payment thereof. At any time prior to December 31, 2003, the
holders of 13-3/8% Notes may elect to convert their notes into common stock. The
Company may elect to automatically convert the 13-3/8% 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
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 13-3/8% 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.
By December 31, 2001, the holders of a total of approximately $1.8 million
principal amount of 13-3/8% Notes had converted their notes into a total of 1.7
million shares of common stock. Subsequent to December 31, 2001 and prior to
March 15, 2002, the holders of an additional $5.7 million principal amount of
13-3/8% Notes converted their notes into a total of 5.1 million shares of common
stock.
Private Exchange Transactions
In the first quarter of 2001, the Company repurchased $5.0 million
principal amount of outstanding 7-1/4% Debentures in exchange for 1,787,500
shares of common stock. As a result, the Company
54
recorded an extraordinary gain of approximately $3.0 million, net of taxes of
zero, in connection with the reduction of indebtedness. In the second quarter of
2001, the Company repurchased a total of $11.0 million principal amount of
7-1/4% Debentures in exchange for 4,257,618 shares of common stock. As a result,
the Company recorded an extraordinary gain of approximately $5.8 million, net of
deferred offering costs and taxes.
2002 Exchanges and Conversions
During the period from January 1, 2002 to March 22, 2002, the Company
repurchased a total of $3.4 million principal amount of 6% Debentures in
exchange for a total of 3.4 million shares of common stock. In addition, during
this period, $5.7 million principal amount of the 13-3/8% Notes voluntarily
converted to 5.1 million shares of common stock, including shares for interest
in accordance with the make whole provision.
As stated above, the Company is endeavoring to effect additional
repurchases of its outstanding 6% Debentures in privately negotiated exchange
transactions prior to the maturity of the 6% Debentures on June 10, 2002.
Building Loan
Under the terms of the Company's building loan agreement with Wells Fargo
bank the company agreed to have the terms of the building loan reviewed after a
five year interval ending on December 4, 2001, at which time the terms could be
renegotiated. Wells Fargo has chosen at this time not to renegotiate the loan
making the entire amount of $1.3 million due on December 4, 2001. The bank has
extended the Company some time to seek alternative financing and the company is
in the process of doing so. During this time the company has continued to make
payments to the bank under the original terms of the agreement and will continue
to do so until alternative financing can be attained. As a result, the amount of
$1.3 million has been included in current liabilities at December 31, 2001. The
Company intends to have alternative financing in place shortly after the end of
the first quarter. If the company is unable to find alternative financing the
remaining amount of the loan will be paid to the bank.
Agreement to Acquire the Martha Mine
In February 2002, the Company reached agreements in principle to fully
acquire the Martha high-grade underground silver mine and other silver
exploration properties located in Argentina, approximately 270 miles east of the
Company's Cerro Bayo mine, and to make a strategic investment in Yamana
Resources Inc. ("Yamana"), a mining company with holdings in Argentina.
Upon completion of final documentation, Coeur intends to immediately
commence shipment of the Martha Mine's stockpiled high-grade ore to its 100
percent-owned Cerro Bayo Mine in Southern Chile for processing. Production at
Cerro Bayo is scheduled to begin in May of this year and is expected to produce
over 82,000 gold equivalent ounces in 2002 at a total cash cost of under $150
per ounce. On a gold equivalent basis, the acquisition of the Martha Mine is
expected to increase Cerro Bayo's 2002 production 50 percent to 123,000 gold
equivalent ounces and even further decrease cash operating costs.
55
Under the terms of the agreements, Coeur will acquire 100 percent of
Yamana-owned Compania Minera Polimet S.A. ("Polimet"), an Argentinean
corporation, which owns the Martha Mine and other silver exploration properties
for total cash consideration of $2.5 million. The payment will be made to
Northgate Exploration Ltd. ("Northgate") in order to satisfy Yamana's total
outstanding indebtedness to Northgate. Additionally, Coeur will acquire ten
million common shares of Yamana, equivalent to approximately 10% of Yamana on a
fully diluted basis, for $600,000.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District Court
for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
On March 16, 2001, the Company and representatives of the U.S. Government,
including the Environmental Protection Agency, the Department of Interior and
the Department of Agriculture, reached an agreement in principle to settle the
lawsuit, which represents the only suit in which the Company has been named as 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
$0.6 million, (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. The Company recorded $4.2 million of expenses,
which included $3.9 million of settlement payments, in the fourth quarter of
2000 in connection with the settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group, Inc.,
("Handy & Harman") to which the Rochester Mine had historically sent
approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had
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 & Harman.
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 & Harman and
certain others in the U.S. Bankruptcy Court for the
56
District of Connecticut seeking recovery of the metals and/or damages. Handy &
Harman'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 & Harman as a partial payment under the plan. The liquidating
custodian of Handy & Harman under the liquidation plan recently advised the
Company that Handy & Harman intends to file suit against the Company prior to
March 28, 2002 for the value of 100,000 ounces of silver (i.e., approximately
$500,000) as a preference based on the Company's draw-down of its account at
Handy & Harman in mid-March 2000. Based on this more recent legal action, the
Company has determined that the recovery of any additional amounts would be
remote. As a result, the Company has recorded a $1.4 million write-down of the
carrying amount in the fourth quarter of 2001. Management of the Company and
legal counsel believe that the threatened claims are without merit, and will
vigorously any such suit.
Bunker Hill Action
On January 7, 2002, a private class action suit captioned Baugh v. Asarco,
et al., was filed in the Idaho District Court for the First District (Lawsuit
No. 2002131) in Kootenai County, Idaho against the companies that have been
defendants in the prior Bunker Hill and natural resources litigation in the
Coeur d'Alene Basin, including the Company, by eight northern Idaho residents
seeking medical benefits and property compensation from the mining companies
involved in the Bunker Hill Superfund site. At this early stage of the
litigation, the Company cannot predict the outcome of this suit.
Proposed Mining Legislation
Recent legislative developments may affect the cost of and ability of
mining claimants to use the Mining Law of 1872, as amended, (the "Mining Act")
to acquire or use federal lands for mining operations. Since October 1994, a
moratorium has been imposed on processing new patent applications for mining
claims. Management believes that this moratorium will not affect the status of
patent applications outstanding prior to the moratorium.
Legislation is presently being considered in the U.S. Congress to change
the Mining Act under which the Company holds mining claims on public lands. It
is possible that the Mining Act will be amended or be replaced by more onerous
legislation in the future. The legislation under consideration, as well as
regulations under development by the Bureau of Land Management, contain new
environmental standards and conditions, additional reclamation requirements and
extensive new procedural steps which would be likely to result in delays in
permitting.
During the last several congressional sessions, bills have been introduced
which would supplant or materially alter the Mining Act. If enacted, such
legislation may materially impair the ability of the Company to develop or
continue operations which derive ore from federal lands. No such bills have been
passed and the extent of the changes, if any, which may be enacted by Congress
is not presently known. A significant portion of Coeur's U.S. mining properties
are on public lands. Any reform of the Mining Act or regulations thereunder
based on these initiatives could
57
increase the costs of mining activities on unpatented mining claims, and as a
result could have an adverse effect on the Company and its results of
operations. Until such time, if any, as new reform legislation or regulations
are enacted, the ultimate effects and costs of compliance on the Company cannot
be estimated.
Environmental Compliance Expenditures
For the years ended December 31, 1999, 2000 and 2001, the Company expended
$7.0 million, $7.8 million and $5.5 million, respectively, in connection with
routine environmental compliance activities at its operating properties. Such
activities at the Rochester and Golden Cross mines include monitoring, bonding,
earth moving, water treatment and revegetation activities.
The Company estimates that environmental compliance expenditures at its
Kensington developmental property during 2002 will be approximately $600,000 to
obtain permit modifications and other regulatory authorizations. Future
environmental expenditures will be determined by governmental regulations and
the overall scope of the Company's operating and development activities. The
Company places a very high priority on its compliance with environmental
regulations.
Development Expenditures
During 2001, the Company expended $0.6 million for engineering,
optimization studies and permitting costs at the Kensington development
property, $8 million at the Rochester mine, $2.3 million for continuing mine
development at the Cerro Bayo property, $3.9 million at the Galena Mine. During
2002, the Company plans to expend $2.0 million at Kensington, $2.2 million for
developmental activities at the Rochester mine, $2.0 million at the Galena mine
and $2.5 million at Cerro Bayo
Realization of Net Operating Loss Carryforwards
The Company has reviewed its net deferred tax asset, together with net
operating loss carryforwards, and has not recognized potential tax benefits
arising therefrom on the view that it is more likely than not that the deferred
deductions and losses will not be realized in future years. In making this
determination, the Company has considered the Company's history of tax losses
incurred since 1989, current gold and silver prices and the ability of the
Company to use accelerated depletion and amortization methods in the
determination of taxable income.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company is exposed to various market risks as a part of its operations.
In an effort to mitigate losses associated with these risks, the Company may, at
times, enter into derivative financial instruments. These may take the form of
forward sales contracts, foreign currency exchange contracts and interest rate
swaps. The Company does not actively engage in the practice of trading
derivative securities for profit. This discussion of the Company's market risk
assessments contains "forward
58
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 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 has
historically sold silver and gold produced by our mines pursuant to forward
contracts and at spot prices prevailing at the time of sale. Since 1999, we have
not engaged in any silver hedging activities.
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 marked 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 December 31, 2001, is fixed-rate
based. The Company's exposure to interest rate risk, therefore, is limited to
the amount it could pay at current market rates. The Company currently does not
have any derivative financial instruments to offset the fluctuations in the
market interest rate. It may choose to use instruments, such as interest rate
swaps, in the future to manage the risk associated with interest rate changes.
See Note O - Financial Instruments, to the consolidated financial
statements for a table which summarizes the Company's gold and foreign exchange
hedging activities at December 31, 2001.
Long-term debt obligations and related interest rates are presented in
detail in Note I to the consolidated financial statements.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The consolidated financial statements required hereunder and contained
herein are listed under Item 14(a) below.
59
Item 9. Changes and Disagreements With Accountants on Accounting and
Financial Disclosure
------------------------------------------------------------
Not applicable
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item regarding directors is hereby incorporated by reference from an
amendment to this Form 10-K to be filed not later than 120 days after the end of
the fiscal year covered by this report. Information regarding the Company's
executive officers is set forth above under Item 4A of this Form 10-K.
Item 11. Executive Compensation
----------------------
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference from an amendment to this
Form 10-K to be filed not later than 120 days after the end of the fiscal year
covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
---------------------------------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference from an amendment to this
Form 10-K to be filed not later than 120 days after the end of the fiscal year
covered by this report.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the information called
for by this item is hereby incorporated by reference from an amendment to this
Form 10-K to be filed not later than 120 days after the end of the fiscal year
covered by this report.
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) The following financial statements are filed herewith:
(1) The following consolidated financial statements of Coeur d'Alene
Mines Corporation and subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 2000 and 2001.
Consolidated Statements of Operations - Years Ended December 31,
1999, 2000 and 2001.
60
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1999, 2000 and 2001.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 2000 and 2001.
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K: No Current Reports on Form 8-K were filed by the
Company during the fourth quarter of 2001.
(c) Exhibits: The following listed documents are filed as Exhibits to this
report:
3(a) - Articles of Incorporation of the Registrant and amendments
thereto. (Incorporated herein by reference to Exhibit 3(a)
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988.)
3(b) - Bylaws of the Registrant and amendments thereto.
(Incorporated herein by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.)
3(c) - Certificate of Designations, Powers and Preferences of the
Series A Junior Preferred Stock of the Registrant, as filed
with Idaho Secretary of State on May 25, 1989 (Incorporated
by reference to Exhibit 4(a) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1989.)
3(d) - Restated and Amended Articles of Incorporation of the
Registrant as filed with the Secretary of State of the State
of Idaho effective September 13, 1999. (Incorporated herein
by reference to Exhibit 3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999.)
4(a) - Specimen certificate of the Registrant's stock.
(Incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-2 (File No.
2-84174).)
4(b) - Indenture, dated as of June 10, 1987, between the Registrant
and Citibank, N.A., as Trustee, relating to the Registrant's
6% Convertible Subordinated Debentures Due 2002.
(Incorporated herein by reference to Exhibit 4 to the
Registrant's Current Report on Form 8-K dated June 10,
1987.)
4(c) - Form of Indenture, dated as of October 15, 1997, between the
Registrant and Bankers Trust Company, as Trustee, relating
to the Registrant's 7 1/4% Convertible
61
Subordinated Debentures due 2005. (Incorporated herein by
reference to Exhibit No. 4 to the Registrant's Current
Report on Form 8-K filed on October 16, 1997.)
4(d) - Indenture, dated as of January 26, 1994, between the
Registrant and Bankers Trust Company relating to the
Registrant's 6 3/8% Convertible Subordinated Debentures Due
2004. (Incorporated herein by reference to Exhibit 10(gg) to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.)
4(e) - Form of Indenture, dated as of August 1, 2001, between the
Registrant and The Bank of New York, as Trustee, relating to
the Registrant's 13 3/8% Convertible Senior Subordinated
Notes due December 31, 2003. (Incorporated by reference to
Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002.)
10(a) - Executive Compensation Program. (Incorporated herein by
reference to Exhibit 10(e) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989.)*
10(b) - Lease agreement, dated as of October 10, 1986, between
Manufacturers Hanover Commercial Corporation and
Coeur-Rochester, Inc. (Incorporated herein by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K,
dated October 10, 1986.)
10(c) - Agreement, dated January 1, 1994, between Coeur-Rochester,
Inc. and Johnson Matthey Inc. (Incorporated herein by
reference to Exhibit 10(m) of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.)
10(d) - Refining Agreement dated January 24, 1994, between the
Registrant and Handy & Harman. (Incorporated herein by
reference to Exhibit 10(n) of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.)
10(e) - Master Equipment Lease No. 099-03566-01, dated as of
December 28, 1988, between Idaho First National Bank and the
Registrant. (Incorporated herein by reference to Exhibit
10(w) of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.)
- -----------
* Management contract or compensatory plan.
62
10(f) - Master Equipment Lease No. 01893, dated as of December 28,
1988, between Cargill Leasing Corporation and the
Registrant. (Incorporated herein by reference to Exhibit
10(x) of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.)
10(g) - Rights Agreement, dated as of May 11, 1999, between the
Registrant and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent. (Incorporated herein by reference to Exhibit 1
to the Registrant's Form 8-A relating to the registration of
the Rights on the New York and Pacific Stock Exchanges.)
10(h) - Amended and Restated Profit Sharing Retirement Plan of the
Registrant. (Incorporated herein by reference to Exhibit
10(ff) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.) *
10(i) - 1993 Annual Incentive Plan and Long-Term Performance Share
Plan of the Registrant. (Incorporated herein by reference to
Exhibit 10(jj) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.)*
10(j) - Supplemental Retirement and Deferred Compensation Plan,
dated January 1, 1993, of the Registrant. (Incorporated
herein by reference to Exhibit 10(kk) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1993.)*
10(k) - Lease Agreement, dated January 12, 1994, between First
Security Bank of Idaho and Coeur Rochester, Inc.
(Incorporated herein by reference to Exhibit 10(mm) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.)
10(l) - Non-employee Directors' Retirement Plan effective as of
March 19, 1993, of the Registrant. (Incorporated herein by
reference to Exhibit 10(oo) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.)*
10(m) - Extension of Employment and Severance Agreement between the
Registrant and Dennis E. Wheeler, dated June 28, 1994.
(Incorporated by reference to Exhibit 10 (nn) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.)*
- -----------
* Management contract or compensatory plan.
63
10(n) - 401k Plan of the Registrant. (Incorporated by reference to
Exhibit 10 (pp) to the Registrants Annual Report on Form
10-K for the year ended December 31, 1994.)*
10(o) - Option Agreement of October 24, 1994 between Compania Minera
El Bronce and CDE Chilean Mining Corporation. (Incorporated
by reference to Exhibit 10(qq) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.)
10(p) - Limited Recourse Project Financing Agreement, dated April
19, 1995, between the Registrant and N.M. Rothschild & Sons,
Ltd. (Incorporated herein by reference to Exhibit 10(b) to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.)
10(q) - Venture Termination and Asset Purchase Agreement, dated as
of June 30, 1995, among Coeur Alaska, Inc., Echo Bay Alaska,
Inc. and Echo Bay Exploration, Inc. (Incorporated herein by
reference to Exhibit 10 to the Company's Current Report on
Form 8-K dated July 7, 1995.)
10(r) - Form of Offer, dated January 29, 1996, by the Registrant to
acquire all the ordinary shares of Gasgoyne Gold Mines NL.
(Incorporated herein by reference to Exhibit 10(a) to the
Registrant's Current Report on Form 8-K filed January 31,
1996 (date of earliest event reported - December 21, 1995).)
10(s) - Part A Statement of the Registrant relating to its offer to
acquire all the ordinary shares of Gasgoyne Gold Mines NL.
(Incorporated herein by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K filed January 31,
1996 (date of earliest event reported - December 21, 1995).)
10(t) - Call Option Agreement Over Shares, dated December 20, 1995,
between the Registrant and Ioma Pty Ltd. (Incorporated
herein by reference to Exhibit 10(c) to the Registrant's
Current Report on Form 8-K filed January 31, 1996 (date of
earliest event reported - December 21, 1995).)
64
10(u) - Agreement for the Purchase and Sale of Shares, dated August
30, 1996, by Compania Minera El Bronce to CDE Chilean Mining
Corporation and Coeur d'Alene Mines Corporation.
(Incorporated herein by reference to Exhibit 10(a) of the
Registrant's Current Report on Form 8-K filed November 5,
1996 (date of earliest event reported - September 4, 1996).)
10(v) - Amendment, dated August 30, 1996, to Purchase and Sale,
Cancellation and Receipt of Payment of Purchase Sale
Installments and Release of Mortgage, Chattel Mortgages and
Prohibitions between Compania Minera El Bronce and Compania
Minera CDE El Bronce. (Incorporated herein by reference to
Exhibit 10(b) of the Registrant's Current Report on Form 8-K
filed November 5, 1996 (date of earliest event reported -
September 4, 1996).)
10(w) - Loan Agreement, dated as of December 23, 1996, among the
Registrant (as the Borrower), NM Rothschild & Sons Limited
and Bayerische Vereinsbank AG (as the Banks) and NM
Rothschild & Sons Limited (as the Agent for the Banks).
(Incorporated herein by reference to Exhibit 10(kk) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.)
10(x) - Mining Lease, effective as of June 1, 1997, between Silver
Valley Resources and American Silver Mining Company.
(Incorporated herein by reference to Exhibit 10(a) to the
Registrant's Registration Statement on Form S-3 (File No.
333-40513).)
10(y) - Mining Lease, effective as of April 23, 1996, between Silver
Valley Resources Corporation and Sterling Mining Company.
(Incorporated herein by reference to Exhibit 10(b) to the
Registrant's Registration Statement on Form S-3 (File No.
333-40513).)
10(z) - Mining Lease, effective as of March 21, 1997, between Silver
Valley Resources Corporation and Silver Buckle Mines, Inc.
(Incorporated herein by reference to Exhibit 10(c) to the
Registrant's Registration Statement on Form S-3 (File No.
333-40513).)
10(aa) - Mining Lease, effective as of March 21, 1997, between Silver
Valley Resources Corporation and Placer Creek Mining
Company. (Incorporated herein by reference to Exhibit 10(d)
to the Registrant's Registration Statement on Form S-3 (File
No. 333-40513).)
65
10(bb) - Agreement for Sale and Issuance of Shares, dated May 7,
1997, among Sons of Gwalia Ltd, Burmine Investments Pty
Limited, Orion Resources NL and Coeur Australia Pty Ltd.
(Incorporated herein by reference to Exhibit 10(pp) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.)
10(cc) - Letter agreement, dated May 7, 1997, between the Registrant
and Sons of Gwalia Ltd. (Incorporated herein by reference to
Exhibit 10(qq) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997.)
10(dd) - Shareholders Agreement, dated May 7, 1997, among Sons of
Gwalia Ltd., Burmine Investments Pty Ltd., Orion Resources
NL, Coeur Australia Pty Ltd. and Gasgoyne Gold Mines NL.
(Incorporated herein by reference to Exhibit 10(rr) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.)
10(ee) - Management Services Agreement, dated May 7, 1997, among Sons
of Gwalia Ltd., Coeur Australia Pty Ltd. and Gasgoyne Gold
Mines NL. (Incorporated herein by reference to Exhibit
10(ss) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.)
10(ff) - Amended and Restated Transaction Agreement by and between
Asarco Incorporated and Coeur d'Alene Mines Corporation,
dated May 13, 1999 and amended and restated as of June 22,
1999. (Incorporated herein by reference to Exhibit A to the
Registrant's Proxy Statement, dated July 28, 1999, used in
connection with the Registrant's Annual Meeting of
Shareholders held on September 8, 1999.)
10(gg) - Shareholder Agreement (dated as of September 9, 1999) by and
between Asarco Incorporated and Coeur d'Alene Mines
Corporation. (Incorporated herein by reference to Exhibit B
to the Registrant's Proxy Statement, dated July 28, 1999,
used in connection with the Registrant's Annual Meeting of
Shareholders held on September 8, 1999.)
66
10(hh) - Form of severance/change in control agreements entered into
by the Registrant with each of its executive officers
(Dennis E. Wheeler - March 30, 1989, Robert Martinez - March
30, 1989, Geoffrey A. Burns - March 23, 1999, Gary W.
Banbury - March 19, 1998, James K. Duff - March 17, 1997,
Dieter A. Krewedl - October 29, 1998, Troy Fierro - November
11, 2001, Wayne L. Vincent - October 29, 1998 and James N.
Meek - March 11, 1999). (Filed herewith.) 10(ii) Employment
agreement, dated as of October 12, 2001, between the
Registrant and Robert Martinez. (Filed herewith.)
10(jj) - Employment agreement, dated as of October 12, 2001, between
the Registrant and Dieter Krewedl. (Filed herewith.)
10(kk) - Employment agreement, dated as of October 12, 2001, between
the Registrant and Gary W. Banbury. (Filed herewith.)
21 - List of subsidiaries of the Registrant. (Filed herewith.)
23 - Consent of Arthur Andersen LLP. (Filed herewith.)
99.1 - Letter, dated March 28, 2002, Form Registrant to SEC.
(Filed herewith.)
(d) Independent auditors' reports are included herein as follows:
Coeur d'Alene Mines Corporation
Report of Arthur Andersen LLP at December 31, 2001 and for each of the
three years in the period ended December 31, 2001.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: March 28, 2002 By: /s/ Dennis E. Wheeler
------------------------------
Dennis E. Wheeler
(Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ Dennis E. Wheeler Chairman, President, March 28, 2002
- ------------------------------- Chief Executive Officer
Dennis E. Wheeler and Director
/s/ Geoffrey A. Burns Vice President March 28, 2002
- ------------------------------- Chief Financial Officer
Geoffrey A. Burns
/s/ Wayne L. Vincent Controller and Chief March 28, 2002
- ------------------------------- Accounting Officer
Wayne L. Vincent
/s/ Cecil D. Andrus Director March 19, 2002
- -------------------------------
Cecil D. Andrus
/s/ Joseph C. Bennett Director March 19, 2002
- -------------------------------
Joseph C. Bennett
/s/ James J. Curran Director March 19, 2002
- -------------------------------
James J. Curran
/s/ James A. McClure Director March 19, 2002
- -------------------------------
James A. McClure
68
/s/ Robert E. Mellor Director March 19, 2002
- -------------------------------
Robert E. Mellor
/s/ John H. Robinson Director March 25, 2002
- -------------------------------
John H. Robinson
/s/ Timothy R. Winterer Director March 19, 2002
- -------------------------------
Timothy R. Winterer
/s/ Daniel Tellechea Salido Director March 22, 2002
- -------------------------------
Daniel Tellechea Salido
/s/ Xavier Garcia de Quevesdo Topete Director March 22, 2002
- ------------------------------------
Xavier Garcia de Quevesdo Topete
69
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2001
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Coeur d'Alene Mines Corporation:
We have audited the accompanying consolidated balance sheets of Coeur d'Alene
Mines Corporation (an Idaho corporation) and subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of operations and
comprehensive loss, changes in shareholders' equity, and cash flows for each of
the three years ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Coeur d'Alene
Mines Corporation and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note C to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has a significant portion of its convertible debentures that
need to be repaid or refinanced in June 2002 and declining amounts of cash and
cash equivalents and unrestricted short-term investments, all of which raise
substantial doubt about its ability to continue as a going concern. Management's
plans to address these matters are also described in Note C.
/S/ Arthur Andersen LLP
Denver, Colorado,
February 15, 2002.
F-2
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
December 31,
2001 2000
--------- ----------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 14,714 $ 35,227
Short-term investments 3,437 7,915
Restricted short-term investments 11,219 10,429
Receivables, net 5,902 9,710
Inventories 46,286 54,979
--------- ---------
81,558 118,260
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 99,096 97,996
Less accumulated depreciation (63,017) (61,256)
--------- ---------
36,079 36,740
MINING PROPERTIES
Operational mining properties 116,852 113,409
Less accumulated depletion (79,697) (71,225)
--------- ---------
37,155 42,184
Developmental properties 46,685 51,800
--------- ---------
83,840 93,984
OTHER ASSETS
Investment in unconsolidated affili a te -- 15,264
Debt issuance costs, net 3,262 3,621
Other 5,641 3,508
--------- ---------
8,903 22,393
--------- ---------
Total assets $ 210,380 $ 271,377
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
December 31,
2001 2000
--------- ---------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,721 $ 4,073
Accrued liabilities 5,503 9,799
Accrued interest payable 2,720 4,474
Accrued salaries and wages 4,542 5,723
Current portion of remediation costs 2,058 1,209
6% Convertible Subordinated Debentures
due June 2002 23,171 --
--------- ---------
41,715 25,278
LONG-TERM LIABILITIES
6% Convertible Subordinated Debentures
due June 2002 -- 26,511
13 3/8% Convertible Senior Subordinated Notes
due December 2003 41,399 --
6 3/8% Convertible Subordinated Debentures
due January 2004 66,270 92,820
7 1/4% Convertible Subordinated Debentures
due October 2005 14,650 85,238
Reclamation and mine closure 14,462 17,284
Other long-term liabilities 5,096 6,806
--------- ---------
141,877 228,659
COMMITMENTS AND CONTINGENCIES
(See Notes K, L, M, N, O and R)
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares,
issued 49,278,232 and 38,109,279 in
2001 and 2000 (1,059,211 shares held
in treasury) 49,278 38,109
Additional paid in capital 388,050 387,625
Accumulated deficit (397,999) (394,932)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive income (loss) 649 (172)
--------- ---------
26,788 17,440
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 210,380 $ 271,377
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
12 MONTHS ENDED
DECEMBER 31,
-------------------------------------
2001 2000 1999
--------- -------- ----------
(In Thousands, except per share data)
REVENUES
Sales of metal $ 69,200 $ 93,174 $ 86,318
Earnings (loss) from
unconsolidated affiliate -- 1,103 (1,096)
Interest and other 2,712 6,929 23,724
--------- --------- ---------
Total revenues 71,912 101,206 108,946
COSTS and Expenses
Production 69,149 86,661 66,896
Depreciation and depletion 11,347 20,785 19,620
Administrative and general 8,714 9,714 9,281
Exploration 6,362 6,737 7,170
Pre-feasibility 3,684 2,675 1,348
Interest 14,592 16,999 16,408
Write-down of mining properties
and other 9,354 21,236 20,204
--------- --------- ---------
Total cost and expenses 123,202 164,807 140,927
--------- --------- ---------
NET LOSS BEFORE TAXES AND
EXTRAORDINARY ITEM (51,290) (63,601) (31,981)
Income tax (provision) benefit 6 (348) (332)
--------- --------- ---------
Loss before extraordinary item (51,284) (63,949) (32,313)
Extraordinary item - gain on exchange
and early retirement of debt 48,217 16,136 3,990
--------- --------- ---------
NET LOSS (3,067) (47,813) (28,323)
Unrealized holding gain (loss)
on securities 821 (297) 288
--------- --------- ---------
COMPREHENSIVE LOSS $ (2,246) $ (48,110) $ (28,035)
========= ========= =========
Net loss $ (3,067) $ (47,813) $ (28,323)
Preferred stock dividends -- (2,180) (10,532)
--------- --------- ---------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (3,067) $ (49,993) $ (38,855)
========= ========= =========
BASIC AND DILUTED LOSS PER SHARE:
Weighted average number
of shares of common stock 41,946 35,439 24,185
========= ========= =========
Loss before extraordinary item $ (1.22) $ (1.87) $ (1.77)
Extraordinary item - gain on exchange
and early retirement of debt 1.15 .46 .16
--------- --------- ---------
Net loss per common share $ (0.07) $ (1.41) $ (1.61)
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
For Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
Accumulated
Other
Preferred Additional Shares Comprehensive
Stock Common Paid in Accumulated Held in Income
(MARCS) Stock Capital Deficit Treasury (Loss) Total
------- ----- ------- ------- -------- ------ -----
Balances at December 31, 1998 $ 7,078 $ 22,958 $ 379,180 $(318,796) $ (13,190) $ (163) $ 77,067
Net Loss -- -- -- (28,323) -- -- (28,323)
Unrealized Gain on
Marketable Securities -- -- -- -- -- 288 288
Cash Dividends -- -- (10,532) -- -- -- (10,532)
Stock Issued for Purchase of Asarco
Assets -- 7,125 21,820 -- -- -- 28,945
Stock Issued for Purchase of
Nevada-Packard Property -- 155 515 -- -- -- 670
Other -- 2 48 -- -- -- 50
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1999 7,078 30,240 391,031 (347,119) (13,190) 125 68,165
Net Loss -- -- -- (47,813) -- -- (47,813)
Unrealized Loss on
Marketable Securities -- -- -- -- -- (297) (297)
Cash Dividends -- -- (2,633) -- -- -- (2,633)
Stock Issued for MARCS
Conversion (7,078) 7,863 (785) -- -- -- --
Other -- 6 12 -- -- -- 18
--------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 2000 -- 38,109 387,625 (394,932) (13,190) (172) 17,440
Net Loss -- -- -- (3,067) -- -- (3,067)
Unrealized Gain on
Marketable Securities -- -- -- -- -- 821 821
Conversions of Convertible
Subordinated Debentures to
Common stock -- 1,697 468 -- -- -- 2,165
Repurchases of Convertible
Subordinated Debentures to
Common stock -- 6,045 871 -- -- -- 6,916
Interest on Convertible Senior
Subordinated Notes paid in
Common stock -- 3,422 (913) -- -- -- 2,509
Other -- 5 (1) -- -- -- 4
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 2001 $ -- $ 49,278 $ 388,050 $(397,999) $ (13,190) $ 649 $ 26,788
========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
12 MONTHS ENDED
DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,067) $ (47,813) $ (28,323)
Add (deduct) noncash items:
Depreciation and depletion 11,347 20,785 19,620
Gain on early retirement of Convertible
Subordinated Debentures (48,217) (16,136) (3,990)
Interest expense on Convertible Senior
Subordinated Notes paid in Common Stock 2,868 -- --
Loss on write down of Handy & Harmon
inventory 1,354 -- --
Other charges 1,780 6,272 2,079
Write-down of mining properties 6,087 12,207 18,685
Undistributed (gain) loss on investment
in unconsolidated affiliate -- (1,103) 1,096
Unrealized (gain) loss on written call
options (526) (4,069) 4,302
(Gain) loss on sale of short-term investment (431) 2,304 --
Changes in Operating Assets and Liabilities:
Receivables 3,807 5,666 225
Inventories 4,616 (1,210) (7,377)
Accounts payable and accrued liabilities (9,514) (709) (3,370)
--------- --------- ---------
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (29,896) (23,806) 2,947
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (1,256) (12,703) (22,507)
Proceeds from sales of short-term investments 6,195 15,220 9,746
Investment in unconsolidated affiliate -- 380 (396)
Proceeds from sale of assets 14,857 768 986
Expenditures on mining assets (6,956) (13,653) (14,935)
Other (208) (38) 967
--------- --------- ---------
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 12,632 (10,026) (26,139)
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt (743) (14,869) (6,089)
Payment of cash dividends on MARCS
Preferred Stock -- (2,633) (10,532)
Debt issuance costs (2,204) -- --
Other (302) (374) (587)
--------- --------- ---------
CASH USED IN FINANCING ACTIVITIES: (3,249) (17,876) (17,208)
--------- --------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (20,513) (51,708) (40,400)
Cash and cash equivalents at beginning
of period 35,227 86,935 127,335
--------- --------- ---------
Cash and cash equivalents at end of period $ 14,714 $ 35,227 $ 86,935
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise specified)
NOTE A--BUSINESS OF COEUR D'ALENE MINES CORPORATION
Coeur d'Alene Mines Corporation and its subsidiaries (collectively,
"Coeur" or the "Company") is principally engaged in silver and gold mining and
related activities including exploration, development, and mining at its
properties located in the United States (Nevada, Idaho and Alaska) and South
America (Bolivia and Chile).
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the wholly-owned subsidiaries of the Company, the most significant of
which are Coeur Rochester Inc., Coeur Silver Valley Inc., Coeur Alaska, Inc.,
CDE Cerro Bayo Ltd., Compania Minera CDE Petorca, Coeur Australia and Empressa
Minera Manquiri S.R.L. The consolidated financial statements also include all
entities in which voting control of more than 50% is held by the Company.
Intercompany balances and transactions have been eliminated in consolidation.
Investments in corporate joint ventures where the Company has ownership of 50%
or less and funds its proportionate share of expenses are accounted for under
the equity method.
Revenue Recognition: Revenue is recognized when title to silver and gold
passes at the shipment or delivery point to the buyer. The effects of forward
sales contracts and purchased put contracts are reflected in revenue at the date
the related precious metals are delivered or the contracts expire.
Cash and Cash Equivalents: Cash and cash equivalents include all
highly-liquid investments with a maturity of three months or less at the date of
purchase. The Company minimizes its credit risk by investing its cash and cash
equivalents with major international banks and financial institutions located
principally in the United States, Canada and Australia with a minimum credit
rating of A1 as defined by Standard & Poor's. The Company's management believes
that no concentration of credit risk exists with respect to investment of its
cash and cash equivalents.
Short-term Investments: Short-term investments principally consist of
highly-liquid United States and foreign government and corporate securities with
original maturities in excess of three months and less than one year. The
Company classifies all short-term investments as available-for-sale securities.
Unrealized gains and losses on these investments are recorded in accumulated
other comprehensive income (loss) as a separate component of shareholders'
equity. Any decline in market value judged to be other than temporary is
recognized in determining net income. Realized gains and losses from the sale of
these investments are included in determining net income (loss).
Inventories: Inventories of ore on leach pads and in the milling process
are valued based on actual costs incurred to place such ores 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
F-8
ultimately be recovered. Management evaluates this estimate on an ongoing basis.
Adjustments to the recovery rate are accounted for prospectively. All
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.
Concentrate and dore' inventory includes product at the mine site and product
held by refineries and are also valued at lower of cost or market.
Property, Plant, and Equipment: Expenditures for new facilities or
expenditures that extend the useful lives of existing facilities are capitalized
and depreciated using straight-line method at rates sufficient to depreciate
such costs over the estimated productive lives of such facilities. Productive
lives range from 7 to 31 years for buildings and improvements, 3 to 13 years for
machinery and equipment and 3 to 7 years for furniture and fixtures. Certain
mining equipment is depreciated using the units-of-production method based upon
estimated total proven and probable reserves. Maintenance and repairs are
expensed as incurred.
Operational Mining Properties and Mine Development: Mineral exploration
costs are expensed as incurred. When it has been determined that a mineral
property can be economically developed as a result of establishing proven and
probable reserves, the costs incurred to develop such property including costs
to further delineate the ore body and remove over burden to initially expose the
ore body, are capitalized. Such costs, are amortized using the
unit-of-production method over the estimated life of the ore body based on
proven and probable reserves. Significant payments related to the acquisition of
the land and mineral rights are capitalized as incurred. If a mineable ore body
is discovered such costs are amortized when production begins using the
units-of-production method based on proven and probable reserves. If no minable
ore body is discovered, such costs are expensed in the period in which it is
determined the property has no future economic value. Interest expense allocable
to the cost of developing mining properties and to construct new facilities is
capitalized until assets are ready for their intended use. Gains or losses from
sales or retirements of assets are included in other income or expense.
Asset Impairment: Management reviews and evaluates its long-lived assets
for impairment when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. The Company utilizes the methodology
set forth in Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long Lived Assets and Long Lived Assets to be
Disposed Of" to evaluate the recoverability of capitalized mineral property
costs. An impairment is considered to exist if total estimated future cash flows
or probability-weighted cash flows on an undiscounted basis, is less than the
carrying amount of the asset. An impairment loss is measured and recorded based
on discounted estimated future cash flows or the application of an expected
present value technique to estimate fair value in the absence of a market price.
Future cash flows include estimates of proven and probable recoverable ounces,
gold and silver prices (considering current and historical prices, price trends
and related factors), production levels, capital and reclamation costs, all
based on detailed engineering life-of-mine plans. In estimating future cash
flows, assets are grouped at the lowest level for which there are identifiable
cash flows that are largely independent of cash flows from other groups.
Generally, all assets at a particular mine are used together to generate cash
flow. Assumptions
F-9
underlying future cash flow estimates are subject to risks and uncertainties.
Any differences between significant assumptions and market conditions and/or the
Company's performance could have material effect on the Company's financial
position and results of operations (see note D).
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 was adopted on
January 1, 2002, and there was no impact upon adoption.
Reclamation and Remediation Costs: Estimated future costs are based
principally on legal and regulatory requirements. Such costs related to active
mines are accrued and charged over the expected operating lives of the mines
using the unit-of-production method. Future remediation costs for inactive mines
are accrued based on management's best estimate at the end of each period of the
undiscounted costs expected to be incurred at the site. Such cost estimates
include, where applicable, ongoing care and maintenance and monitoring costs.
Changes in estimates are reflected in earnings in the period an estimate is
revised.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which established a uniform methodology for accounting
for estimated reclamation and abandonment costs. The statement will be adopted
January 1, 2003, when the Company will record the estimated present value of
reclamation liabilities and change the carrying amount of the related asset.
Subsequently, the reclamation costs will be allocated to expense over the live
of the related assets and will be adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the original
present value estimate. The Company is in the process of quantifying the effect
of adoption.
Foreign Currency: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. Revenues and expenses are translated at the average exchange rate for
the period. Foreign currency transaction gains and losses are included in the
determination of net income.
Derivative Financial Instruments: The Company uses derivative financial
instruments as part of an overall risk-management strategy. These instruments
are used as a means of hedging exposure to precious metals prices and foreign
currency exchange rates. The Company does not hold or issue derivative financial
instruments for trading purposes. Written options do not qualify for hedge
accounting and are marked to market each reporting period with corresponding
changes in fair value recorded to operations as other income.
The Company uses forward sales contracts and combinations of put and call
options to fix a portion of its exposure to precious metals prices. The
underlying production for forward sales contracts is designated for physical
delivery at the inception of the derivative. If the Company enters into
derivatives that qualify for hedge accounting, deferral accounting is applied
only if the derivatives continue to reduce the price risk associated with the
underlying hedged production. Contracted prices on forward sales contracts are
recognized in product sales as the
F-10
designated production is delivered or sold. In the event of early settlement of
hedge contracts, gains and losses are deferred and recognized in income at the
originally designated delivery date.
The Company uses foreign currency contracts to hedge its exposure to
movements in the foreign currency translation amounts for anticipated
transactions. These contracts are marked-to-market to earnings each reporting
period.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires that all derivatives be recognized as assets or
liabilities and be measured at fair value. Gains or losses resulting from
changes in the values of those derivatives will be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting as
either a fair value hedge or a cash flow hedge. The adoption of SFAS No. 133 by
the Company on January 1, 2001 did not have a material affect to the
consolidated financial statements of the Company.
Income Taxes: The Company accounts for income taxes using the liability
method, recognizing certain temporary differences between the financial
reporting basis of the Company's liabilities and assets and the related income
tax basis for such liabilities and assets. This method generates a net deferred
income tax liability or asset for the Company as of the end of the year, as
measured by the statutory tax rates in effect as enacted. The Company derives
its deferred income tax charge or benefit by recording the change in the net
deferred income tax liability or asset balance for the year.
The Company's deferred income tax assets include certain future tax
benefits. The Company records a valuation allowance against any portion of those
deferred income tax assets that it believes will more likely than not fail to be
realized.
Comprehensive Income (Loss): In addition to net loss, comprehensive
income (loss) includes all changes in equity during a period, except those
resulting from investments by and distributions to owners. Items of
comprehensive income include foreign currency exchanges, the effective portions
of hedges and unrealized gains and losses on investments classified as available
for sale.
Loss Per Share: Loss per share is computed by dividing the net loss
attributable to common stock by the weighted average number of common shares
outstanding during each period. All stock options outstanding at each period end
have been excluded from the weighted average share calculation. The effect of
potentially dilutive stock options outstanding was antidilutive in 2001, 2000
and 1999.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-11
Reclassifications: Certain reclassifications of prior year balances have
been made to conform to current year presentation.
NOTE C--LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2001, the Company had outstanding $23.2 million principal
amount of its 6% Convertible Subordinated Debentures (the "6% Debentures") which
mature on June 10, 2002. The Company's cash and cash equivalents and short-term
investments at December 31, 2001 totaled approximately $18.2 million.
The Company is endeavoring to increase its liquidity and/or further
reduce the principal amount of its outstanding 6% Debentures in order to be able
to fund the payment due on June 10, 2002 by:
o Effecting additional private exchange transactions under which either
common stock or 13-3/8% Convertible Senior Subordinated Notes due
December 31, 2003 (the "13-3/8% Notes") will be exchanged for outstanding
6% Debentures;
o The placement of bank debt to fund the start up of, or the sale of an
equity interest in, the Company's Cerro Bayo Mine in southern Chile;
and/or
o The private sale of other debt or equity securities.
o The potential sale of certain assets of the Company.
The Company presently plans to complete one or more of the above
transactions prior to June 10, 2002. The Company believes that cash flows from
mining operations plus completing one or more of the above mentioned
transactions would enable the Company to fund the retirement of maturing 6%
Debentures on June 10, 2002 and other anticipated capital expenditures required
during the balance of 2002. However, no assurance can be given that the Company
will be able to increase its liquidity and/or further reduce the principal
amount of its outstanding 6% Debentures. The Company's liquidity will be
adversely affected if such transactions are not effected on satisfactory terms.
If the Company fails to pay the principal amount of the 6% Debentures on their
maturity when due, such failure will be deemed to be an event of default under
the Indenture relating to the 6% Debentures and entitle the trustee to declare
the 6% Debentures to be immediately due and payable. Furthermore, such a default
also would constitute an event of default under the Indentures relating to the
13-3/8% Notes, 6-3/8% Debentures and 7-1/4% Debentures, which could cause these
Notes or Debentures to be immediately due and payable.
The Company has also suffered recurring losses and has seen its available
cash balances decline as a result of cash used in operations. Management expects
such losses to continue unless mineral prices increase. Cash costs of production
were reduced at the Company's primary silver mines this year and management
expects to continue to focus efforts on overall cost reduction at the mine sites
and in corporate activities. The Company has also estimated that it expects to
spend approximately $6.8 million on capital improvements during the next year,
some of which is discretionary and could be reduced, if necessary. The
accompanying financial statements have been prepared assuming that the Company
will
F-12
continue as a going concern. The current situation raises 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 asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern. Failure to achieve the necessary debt exchanges,
financing and/or cost reductions could cause the Company to seek relief under
Chapter 11 of the Bankruptcy Code.
NOTE D-SUBSEQUENT EVENTS - Unaudited
Agreement to acquire the Martha Mine
In February 2002, the Company reached agreements in principle to fully
acquire the Martha high-grade underground silver mine and other silver
exploration properties located in Argentina, approximately 270 miles east of the
Company's Cerro Bayo mine, and to make a strategic investment in Yamana
Resources Inc. ("Yamana"), a mining company with holdings in Argentina.
Exchanges and Conversions of Convertible Subordinated Debentures
During the period from January 1, 2002 through March 22, 2002, the
Company has negotiated the exchange of $3.4 million principal amount of the 6%
Convertible Subordinated Debentures due June 2002 for 3.4 million shares of the
Company's common stock.
In addition, during the period from January 1, 2002 through March 22,
2002, $5.7 million principal amount of the 13-3/8% Convertible Senior
Subordinated Notes due 2003 were converted at the option of the holders into 5.1
million shares of common stock.
NOTE E--SFAS NO. 121 IMPAIRMENT REVIEWS
During the fourth quarter of 2001, the Company performed impairment
reviews on all its' operational and development properties in accordance with
its policies. Undiscounted estimated future cash flows and/or fair market value
assessments, using long-term price assumptions starting at $4.50 and increasing
to $5.50 per ounce of silver and $275, increasing to $300 per ounce for gold.
The Company determined that its carrying amount for Kensington development
property was impaired at December 31, 2001. As a result, the Company recorded an
impairment loss of $6.1 million reducing the carrying value of the Kensington
development property. Impairments were not indicated at the Company's remaining
investments in property, plant and equipment for all other operating and
development properties as of December 31, 2001.
During the fourth quarter of 2000, the Company also performed impairment
reviews on all it's operational and development properties. Undiscounted
estimated future cash flows and/or fair market value assessments were determined
using long-term price assumptions starting at $4.90 and increasing to $5.50 per
ounce for silver and $275 and increasing to $300 per ounce for gold, the Company
determined that its investments in property, plant and equipment for the
operating and development properties were not impaired at December 31, 2000.
During the fourth quarter of 1999, the Company recorded an impairment of
its investment in the Yilgarn Star mine. Using a long-term gold price assumption
of $325 per ounce and based on undiscounted future cash flows,
F-13
the Company determined that its investment in the Yilgarn Star mine in Australia
was impaired. The total amount of the impairment, based on discounted cash flows
was $16.2 million at December 31, 1999 and was recorded in the fourth quarter.
NOTE F--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost of available-for-sale securities is adjusted for
premium and discount amortization. Such amortization is included in Other
Income. The following is a summary of available-for-sale securities:
Available-For-Sale Securities
----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
As of December 31, 2001 Cost Losses Gains Value
----------------------- ----------------- ----------------- ----------------- -------------------
U.S. Corporate debt securities $ 12,319 $ - $ - $ 12,319
Equity Securities 1,699 173 822 2,348
------------------ ------------------ ------------------ -------------------
$ 14,018 $ 173 $ 822 $ 14,667
================== ================== ================== ===================
As of December 31, 2000
U.S. Corporate debt securities $ 15,529 $ - $ - $ 15,529
Equity Securities 3,000 174 2 2,828
------------------ ------------------ ------------------ -------------------
$ 18,529 $ 174 $ 2 $ 18,357
================== ================== ================== ===================
The gross realized gains on sales of available-for-sale securities
totaled $0, $0 and $0.6 million during 2001, 2000 and 1999, respectively. The
gross realized losses totaled $0.4 million, $2.5 million, and $0.2 million
during 2001, 2000 and 1999 respectively. The gross realized gains and losses are
based on a carrying value (cost net of discount or premium) of $4.8 million,
$17.2 million and $9.4 million of short-term investments sold or adjusted for
other than temporary decline in market value during 2001, 2000 and 1999,
respectively. Short-term investments mature at various dates through August
2002.
NOTE G--SHORT-TERM INVESTMENTS - RESTRICTED
The Company, under the terms of its lease, self insurance, and bonding
agreements with certain banks, lending institutions and regulator agencies is
required to collateralize certain portions of the Company's obligations. The
Company has collaterized these obligations by assigning certificates of deposit
that have maturity dates ranging from three months to a year, to the respective
institution or agency. At December 31, 2001 and December 31, 2000, the Company
had certificates of deposit under these agreements of $11.2 million and $10.4
million, respectively, restricted for this purpose.
F-14
NOTE H--INVENTORIES
Inventories consist of the following:
December 31,
2001 2000
---------- ---------
In-process and on leach pads $ 39,794 $ 43,595
Concentrate and dore' inventory 1,567 6,258
Supplies 4,925 5,126
-------- --------
$ 46,286 $ 54,979
======== =========
Long-term inventory in-process and on
leach pads (included in other assets) $ 2,725 $ -
======== ========
NOTE I--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31,
2001 2000
-------- ---------
Land$ 1,977 $ 2,040
Buildings and improvements 41,582 41,240
Machinery and equipment 55,537 54,546
Capital leases of equipment - 170
--------- ---------
99,096 97,996
Accumulated depreciation (63,017) (61,256)
--------- ---------
$ 36,079 $ 36,740
========= =========
The Company has entered into various operating lease agreements which
expire over a period of five years. Total rent expense charged to operations
under these agreements was $3.2 million, $4.7 million and $4.0 million for 2001,
2000, 1999, respectively.
Minimum lease payments under operating leases in effect through 2005 are
as follows:
Year Ending
December 31,
2002 2,419
2003 1,833
2004 1,236
2005 125
$ 5,613
========
NOTE J - MINING PROPERTIES
Capitalized costs for mining properties December 31,
consist of the following: 2001 2000
---------- ----------
Operational mining properties:
Rochester Mine, less accumulated
depletion of $64,261 and $58,156 $ 15,646 $ 22,575
Coeur Silver Valley, less accumulated
depletion of $14,434 and $12,344 16,145 16,021
Cerro Bayo Mine, less accumulated depletion
of $0 and $195(1) 5,364 3,116
Petorca Mine, less accumulated
depletion of $1,002 and $530 - 472
-------- --------
TOTAL OPERATIONAL MINING PROPERTIES 37,155 42,184
Developmental mining properties:
Kensington 24,983 28,047
San Bartolome 18,825 18,850
Other 2,877 4,903
-------- --------
TOTAL DEVELOPMENTAL MINING PROPERTIES 46,685 51,800
-------- --------
TOTAL MINING PROPERTIES $ 83,840 $ 93,984
======== ========
F-15
(1) Certain assets and their associated accumulated depreciation were
written off during 2001.
Operational Mining Properties
The Rochester Mine: The Company has conducted operations at the Rochester
Mine, located in Western Nevada, since September 1986. The mine utilizes the
heap-leaching process to extract both silver and gold from ore mined using open
pit methods. Rochester's primary product is silver with gold produced as a
by-product.
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 filed for liquidation in the first quarter
of 2001. We are currently attempting to arrange for an alternative bonding
arrangement with the State of Nevada as well as a replacement surety bond with
another insurance company. If, however, we are unable to make alternative
bonding arrangements or find a replacement insurer, we will be required to
provide other adequate financial consideration to the State of Nevada to assure
our continued compliance with our reclamation liability obligation.
Galena Mine: Coeur Silver Valley owns and operates the Galena underground
silver-copper mine, located near the city of Wallace, in Northern Idaho. On
September 9, 1999, the Company acquired the remaining 50% of Coeur Silver Valley
resulting in 100% ownership for the Company. The mine utilizes the drift and
fill mining method with sand backfill to extract ore from the high grade
silver-copper vein deposits that constitute the majority of the ore reserves.
Developmental Properties
Cerro Bayo Mine: The Cerro Bayo Mine is a gold and silver open pit and
underground mine located in southern Chile. Commercial production is expected to
commence in May of 2002.
San Bartolome Project: On September 9, 1999, the Company acquired
Empressa Minera Manquiri ("Manquiri"). Manquiri's principal asset is the San
Bartolome project, a silver exploration and development property located near
the city of Potosi, Bolivia. The San Bartolome project consists of
silver-bearing gravel deposits which lend themselves to simple surface mining
methods. The mineral rights for the San Bartolome project are held through
long-term joint venture/lease agreements with several local independent mining
co-operatives and the Bolivian State owned mining company, ("COMIBOL"). As
consideration for these JV/leases, production from San Bartolome is subject to a
royalty of 4% payable to the co-operatives and COMIBOL.
Kensington Project: Kensington is a gold property located near Juneau,
Alaska, which has been permitted for development based on a feasibility study
which was completed in early 1998. However, due to the currently
F-16
depressed gold price, the Company has continued to study ways to further reduce
estimated capital costs and operating costs.
Former Operational Mines
Petorca Mine: The Company owns the Petorca gold and silver underground
mine located in central Chile approximately 90 miles north of Santiago. The
Company suspended operations at the mine site in the third quarter of 2001 and
does not expect to re-open this mine in the foreseeable future.
Gasgoyne Gold Mines NL: On February 7, 2001, the Company sold its 50%
shareholding in Gasgoyne Gold Mines NL of Australia ("Gasgoyne") for A$28.1
million (US $15.6 million) in cash. Also included in the sale was Coeur's share
of Gasgoyne's gold hedge position of approximately 90,000 ounces. The purchaser
was Sons of Gwalia Ltd., an Australian corporation headquartered in Perth,
Western Australia, who owned the other 50% interest in Gasgoyne.
As a result of the transaction, the Company recorded a write-down of
$12.2 million in December 2000, reflecting the excess of the carrying value of
the Company's Gasgoyne shares over the sale price.
NOTE K-LONG-TERM DEBT
Exchange Offer
On June 29, 2001, the Company commenced an offer to exchange newly issued
13-3/8% Convertible Senior Subordinated Notes due December 31, 2003 ("13-3/8%
Notes") for the Company's outstanding 7-1/4% Convertible Subordinated Debentures
due October 31, 2005 ("7-1/4% Debentures"), 6-3/8% Convertible Subordinated
Debentures due January 31, 2004 ("6-3/8% Debentures") and 6% Convertible
Subordinated Debentures due June 10, 2002 ("6% Debentures") (the "Exchange
Offer").
The Company offered to issue up to a total of $71,340,000 principal
amount of 13-3/8% Notes in exchange for up to 80% of its outstanding 7-1/4% and
6-3/8% Debentures and up to 25% of its 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 13-3/8% 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
F-17
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: $54,535,000 of the 7-1/4% Debentures, $26,595,000 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% Debentures, 6-3/8% Debentures 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.
Net of offering costs, 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.
In 2001, as a result of the Exchange Offer the Company recorded $39.2
million in extraordinary gain, net of offering costs. Subsequent to the Exchange
Offer, $1.8 million of the 13-3/8% Notes were converted into approximately 1.7
million shares of common stock.
Additional Exchanges
In three privately negotiated transactions completed in the second
quarter of 2001, the Company repurchased, in aggregate, $11.0 million principal
amount of its outstanding 7-1/4% Debentures due 2005 in exchange for 4,257,618
shares of the Company's 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 taxes.
In the first quarter of 2001, the Company repurchased $5.0 million
principal amount of its outstanding 7-1/4% Debentures due 2005 in exchange for
1,787,500 shares of the Company's 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. Repurchases were also made in 2000 and 1999.
The share price used as consideration in all of these transactions was
based upon market prices at the time of each respective transaction.
The following table sets forth repurchases for each year in millions:
F-18
Carrying Repurchase Issuance Extraordinary
2001: Amount Amount Cost Gain
------- ------ ---- ----
7-1/4% Debentures $16.0 $ 6.9 $ .128 $ 9.0
2000:
6% Debentures $ 9.1 $ 6.4 $ .060 $ 1.8
6-3/8% Debentures $ .6 $ .2 $ .008 $ .4
7-1/4% Debentures $22.0 $ 7.5 $ .600 $13.9
1999:
6% debentures $10.2 $ 6.2 $ .100 $ 4.0
6% Debentures
The $23.2 million principal amount of 6% Debentures Due 2002 outstanding
at December 31, 2001 are convertible into shares of Coeur common stock at the
option of the holder prior to maturity, unless previously redeemed, at a
conversion rate of approximately 38 shares of common stock for each one thousand
dollars of principal (equivalent to a conversion price of $25.57 per share of
common stock). The Company is required to make annual interest payments. The
debentures have no other funding requirements until maturity on June 10, 2002.
13-3/8% Debentures
The $41.4 million principal amount of 13-3/8% Notes Due 2003 outstanding
at December 31, 2001 are convertible into shares of common stock at the option
of the holder prior to maturity, unless previously redeemed, at a conversion
price of $1.35 per share, subject to adjustment. 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 with five
trading days prior to the notice of automatic conversion.
6-3/8% Debentures
The $66.3 million principal amount of 6-3/8% Debentures Due 2004
outstanding at December 31, 2001 are convertible into shares of common stock at
the option of the holder on or before January 31, 2004, unless previously
redeemed, at a conversion price of $25.77 per share. The Company is required to
make semi-annual interest payments. The debentures are redeemable at the option
of the Company. The debentures have no other funding requirements until maturity
on January 31, 2004.
7-1/4% Debentures
The $14.7 million principal amount of 7-1/4% Debentures due 2005
outstanding at December 31, 2001 are convertible into shares of Common Stock at
the option of the holder 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, and have no other funding requirements until maturity on October 31,
2005.
The carrying amounts and fair values of long-term borrowings, as of
December 31, 2001 and 2000, consisted of the following. The fair value of the
long-term borrowing is determined by market transactions on or near December 31,
2001 and 2000, respectively.
F-19
December 31, 2001 December 31, 2000
----------------------- ---------------------
Convertible Carrying Fair Carrying Fair
Debentures Value Value Value Value
---------------- --------- -------- -------- ---------
6% Debentures due 2002 $ 23,171 $ 14,366 $ 26,511 $ 16,238
13-3/8% Debentures due 2003 $ 41,399 $ 29,082 $ -- $ --
6-3/8% Debentures due 2004 $ 66,270 $ 23,360 $ 85,238 $ 24,549
7-1/4% Notes due 2005 $ 14,650 $ 4,835 $ 92,820 $ 26,454
Total interest expense on Notes for the year ended December 31, 2001,
2000, and 1999 was $15.6 million, $17.0 million, and $17.8 million,
respectively, of which $0, $0, and $1.4 million, respectively, was capitalized
as a cost of certain properties under development.
Interest paid was $16.2 million, of which $2.9 million was paid in stock,
$16.5 million, and $17.0 million, in 2001, 2000, and 1999, respectively.
Building Loan
Under the terms of the Company's building loan agreement with Wells Fargo
bank the company agreed to have the terms of the building loan reviewed after a
five year interval ending on December 4, 2001, at which time the terms could be
renegotiated. Wells Fargo has chosen at this time not to renegotiate the loan
making the entire amount of $1.3 million due on December 4, 2001. The bank has
extended the Company some time to seek alternative financing and the company is
in the process of doing so. During this time the company has continued to make
payments to the bank under the original terms of the agreement and will continue
to do so until alternative financing can be attained. As a result, the amount of
$1.3 million has been included in current liabilities at December 31, 2001. The
Company intends to have alternative financing in place shortly after the end of
the first quarter. If the company is unable to find alternative financing the
remaining amount of the loan will be paid to the bank.
NOTE L--INCOME TAXES
The components of the provision for income taxes in the consolidated
statements of operations are as follows:
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
--------- -------- -------
Current $ 6 $ (348) $ (332)
Deferred - - -
-------- ------- --------
Benefit (provision)
for income tax $ 6 $ (348) $ (332)
======== ======= ========
As of December 31, 2001, 2000 and 1999 the significant components of the
Company's net deferred tax liability were as follows:
F-20
Years Ended December 31,
-----------------------------------
2001 2000 1999
--------- --------- --------
Deferred tax liabilities:
PP&E, net $ 6,560 $ 7,051 $ 9,051
-------- -------- --------
Total deferred tax liabilities $ 6,560 $ 7,051 $ 9,051
======== ======== ========
Deferred tax assets:
Net operating loss carryforwards $109,526 $106,836 $101,505
AMT credit carryforwards 1,459 1,734 1,734
Business credit carryforwards 205 205 205
-------- -------- --------
Total deferred tax assets 111,190 108,775 103,444
Mineral properties impairment 66,663 64,533 58,863
Unrealized hedging losses 1,443 1,730 1,626
Other 3,101 4,583 2,165
Valuation allowance for deferred
tax assets (175,837) (172,570) (157,047)
-------- -------- --------
Net deferred tax assets $ 6,560 $ 7,051 $ 9,051
======== ======== ========
Net deferred tax liabilities $ - $ - $ -
======== ======== ========
Changes in the valuation allowance relate primarily to losses which are
not currently recognized. The Company has reviewed its net deferred tax assets,
together with net operating loss carryforwards and has not recognized potential
tax benefits arising therefrom because at this time management believes it is
more likely than not that the benefits will not be realized in future years.
The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings during the
three-year period ended December 31, 2001. It is not practicable to estimate the
tax liabilities which would result upon such repatriation.
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
Years Ended December 31,
------------------------------
2001 2000 1999
-------- ------- -----
Tax benefit on continuing operations
computed at statutory rates 35.0% (35.0%) (35.0%)
Tax effect of foreign affiliates'
statutory rates 59.1% 7.4% 11.6%
Percentage depletion (238.5%) (17.9%) (21.2%)
Interest on foreign subsidiary debt 110.8% 11.5% 18.4
Change in valuation allowance 16.5% 34.5% 25.7%
Non-deductible interest 81.8% - -
Other (net) 5.3% .5% 1.6%
------- ------- -----
Effective tax rate 0.0% 1.0% 1.1%
======= ====== ======
For tax purposes, as of December 31, 2001, the Company has operating loss
carryforwards as follows, which expire in 2007 through 2020 for U.S.
carryforwards. New Zealand, Australian and Chilean laws provide for indefinite
carryforwards of net operating losses. Utilization of U.S. net operating losses
may be subject to limitations due to potential changes in ownership.
F-21
New
U.S. Zealand Australia Chile Total
---- ------- --------- ----- -----
Regular Losses $153,600 $ 91,371 $2,494 $163,876 $411,341
ATM credits 1,459 - - - 1,459
General business credits 205 - - - 205
The operating loss carryforwards by year of expiration are as follows:
Year of
Expiration Regular Tax
---------- -----------
2007 $ 9,730
2008 10,417
2009 8,994
2011 72,146
2012 4,424
2019 35,975
2020 11,914
---------
Total $ 153,600
=========
As of December 31, 2001, Callahan Mining Corporation, a subsidiary, has
net operating loss carryforwards of approximately $17.5 million which expire
through 2006. The utilization of Callahan Mining Corporation's net operating
losses are subject to limitations.
NOTE M--SHAREHOLDERS' EQUITY AND STOCK PLANS
In 1996, the Company completed a public preferred stock offering of
Mandatory Adjustable Redeemable Convertible Securities ("MARCS"). The Company
issued 7,077,833 shares of MARCS which were offered at a public offering price
of $21.25 per share. Net proceeds to the Company from the offering was $144.6
million. On March 15, 2000, Coeur made the final dividend payment of $2.6
million and the MARCS were mandatorily converted into common shares. Each
outstanding MARCS was converted into 1.111 common shares of the Company. As a
result of the conversion, the Company issued approximately 7.9 million common
shares.
On May 11, 1999, the Company's shareholders adopted a new shareholder
rights plan. The plan entitles each holder of the Company's common stock to one
right. Each right entitles the holder to purchase one one-hundredth of a share
of newly authorized Series B Junior Preferred Stock. The exercise price is $100,
making the price per full preferred share ten thousand dollars. The rights will
not be distributed and become exercisable unless and until ten business days
after a person acquires 20% of the outstanding common shares or commences an
offer that would result in the ownership of 30% or more of the shares. Each
right also carries the right to receive upon exercise that number of Coeur
common shares which has a market value equal to two times the exercise price.
Each preferred share issued is entitled to receive 100 times the dividend
declared per share of common stock and 100 votes for each share of common stock
and is entitled to 100 times the liquidation payment made per common share. The
Board may elect to redeem the rights prior to their exercisability at a price of
one cent ($0.01) per right. The new rights will expire on May 24, 2009, unless
earlier redeemed or exchanged by the Company. Any preferred shares issued are
not redeemable. At December 31, 2001 and 2000, there were a total of 48,219,021
and 37,050,068 outstanding rights which was equal to the net number of
outstanding shares of common stock.
F-22
The Company has an Annual Incentive Plan (the "Annual Plan"), a Long-Term
Incentive Plan (the "Long-Term Plan") and a Directors' Plan (the "Directors'
Plan"). Benefits were payable in cash under the Annual Plan in 2001, 2000 and
1999.
Under the Long-Term and Directors' Plans, benefits consist of (i)
non-qualified and incentive stock options that are exercisable at prices equal
to the fair market value of the shares on the date of grant and vest
cumulatively at an annual rate of 25% during the four-year period following the
date of grant and (ii) performance units comprised of common stock and cash, the
value of which is determined four years after the award. The first award
performance units were granted in 1994. During 2001, options for 403,443 shares
were issued under these plans. As of December 31, 2001 and 2000, nonqualified
and incentive stock options to purchase 779,064 shares and 708,266 shares,
respectively, were outstanding under the Long-Term Plan and the Directors'
Plans. The options are exercisable at prices ranging from $0.74 to $27.00 per
share. In December 2000, the Board of Directors passed a resolution to request
shareholders to authorize an additional 1,000,000 shares for issuance under
these plans.
The Company has a Non-Employee Directors' Stock Option Plan (the "Plan")
under which 200,000 shares of Common Stock are authorized for issuance and which
were approved by the shareholders in May 1995. In December 2000, the Board of
Directors passed a resolution to put forward for shareholder approval the
authorization of an additional 500,000 shares for issuance under the Plan. Under
the Plan, options are granted only in lieu of an optionee's foregone annual
directors' fees. As of December 31, 2001, 2000 and 1999, a total of 134,612,
46,691 and 25,917 options, respectively, had been granted in lieu of $0.1
million, $0.1 million and $0.1 million, respectively, of foregone directors'
fees.
Total employee compensation expense charged to operations under these
Plans were $0.7 million, $1.8 million, and $0.8 million for 2001, 2000, and
1999, respectively. A summary of the Company's stock option activity and related
information for the years ended December 31, 2001, 2000 and 1999 follows:
Weighted Average
Weighted Average Fair Value of
Shares Exercise Price Options Granted
Stock options outstanding
at January 1, 1999 441,842 $ 14.59
Issued 130,086 4.69 $ 3.51
Canceled/expired (69,422) 12.60
----------- --------
Stock options outstanding
at December 31, 1999 502,506 $ 11.99
Issued 233,294 3.52 $ 2.56
Canceled/expired (27,534) 11.29
----------- --------
Stock options outstanding
at December 31, 2000 708,266 $ 9.47
Issued 403,443 .81 $ 0.81
Canceled/expired (332,645) 14.02
----------- --------
Stock options outstanding
at December 31, 2001 779,064 $ 2.81
========== ========
F-23
Stock options exercisable at December 31, 2001, 2000 and 1999 were,
609,089, 366,602 and 283,987, respectively.
The following table summarizes information for options currently
outstanding at December 31, 2001:
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------
Weighted Average
Remaining Weighted Weighted
Range of Exercise Prices Number Contractual Life Average Number Average
Outstanding (Yrs.) Exercise Price Exercisable Exercise Price
- ------------------------------- ------------------ ------------------- --------------- --------------- ---------------
$ 0.740 to $ 1.000 403,443 9.67 $ 0.81 403,443 $ 0.81
$ 2.630 to $ 4.813 309,551 5.39 $ 3.96 148,651 $ 4.06
$ 6.110 to $27.000 66,070 5.88 $ 9.64 56,995 $10.21
-------- ------ ------ ------- ------
779,064 7.65 $ 2.81 609,089 $ 2.48
======= =======
As of December 31, 2001, 1,654,498 shares were available for future
grants under these incentive Plans and 35,360,279 shares of common stock were
reserved for potential conversion of Convertible Subordinated Debentures.
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
accounting and reporting standards for stock-based employee compensation plans
and defines a fair value based method of accounting for these equity
instruments. The method measures compensation expense based on the estimated
fair value of the award and recognizes that expense over the vesting period. The
Company has adopted the disclosure only provision of SFAS No. 123 and therefore
continues to account for stock options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
because options are granted at fair market value, no compensation expense has
been recognized for options issued under the Company's stock option plans. Had
compensation expense been recognized based on the fair value at the date of the
grant for the options awarded under the plans, unaudited pro forma amounts of
the Company's net loss and net loss per share would have been as follows:
Years Ended December 31,
2001 2000 1999
-------------- --------------- -------------
Net loss attributable to
Common shareholders $(3,067) $ (49,993) $ (38,855)
Unaudited net loss pro
Forma $(3,350) $ (50,321) $ (39,065)
Basic and diluted net
loss per share as
reported $ (0.07) $ (1.41) $ (1.61)
Unaudited basic and
diluted net loss per
share pro forma $ (0.08) $ (1.42) $ (1.62)
The fair value of each option grant was estimated using the Black Scholes
option pricing model with the following weighted average assumptions: risk free
interest rate of 1.25%, 6.0% and 6.2% for 2001, 2000 and 1999, respectively;
expected option life of 4-10 years for officers and directors; expected
volatility of 93%, 92% and 55% for 2001, 2000 and 1999, respectively, and no
expected dividends. The effect of applying SFAS No. 123 for providing unaudited
pro forma disclosures for fiscal years 2001, 2000 and 1999 is not likely to be
representative of the
F-24
effects in future years because options vest over a four-year period and
additional awards generally are made each year.
NOTE N-EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
In connection with the acquisition of certain Asarco silver assets,
acquired in 1999, the Company is required to maintain non-contributory defined
benefit pension plans covering substantially all employees at Coeur Silver
Valley. Benefits for salaried plans are based on salary and years of service.
Hourly plans are based on negotiated benefits and years of service.
The Company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set fourth in the Employee
Retirement Income Security Act of 1974 plus such additional tax deductible
amounts as may be advisable under the circumstances. Plan assets are invested
principally in commingled stock funds, mutual funds and securities issued by the
United States Government.
The components of net periodic benefit costs are as follows:
For the Year Ended December 31,
--------------------------------------
2001 2000 1999
----------- -------------- -----------
Service cost $ 179 $ 152 $161
Interest cost 138 107 70
Expected return on plan assets (121) (76) (38)
Amortization of prior service cost 31 31 -
Amortization of transitional obligation - - -
Recognized actuarial loss 35 (14) -
----------- -------------- -----------
Net periodic benefit cost $ 262 $ 200 $193
=========== ============== ===========
The change in benefit obligation and plan assets and a reconciliation of
funded status are as follows:
At December 31,
-------------------------------------------------
2001 2000 1999
----------------- ------------------ -------------
Change in benefit obligation
Projected benefit obligation at
Beginning of year $ 1,350 $ 1,019 $ 1,040
Service cost 179 152 161
Interest cost 138 107 70
Plan amendments - 353 -
Benefits paid (56) (33) (21)
Actuarial loss (gain) 1,092 (248) (231)
- ----------------------------------------------- ----------------- ------------------ ------------
Projected benefit obligation at
end of year $ 2,703 $ 1,350 $ 1,019
=============================================== ================= ================== ============
Change in plan assets
Fair value of plan assets at
Beginning of year $ 1,215 $ 760 $ 454
Actual return on plan assets (106) (5) 77
Plan amendment - - -
Employer contributions 591 493 250
Benefits paid (56) (33) (21)
Administrative expenses - - -
- ----------------------------------------------- ----------------- ------------------ ------------
Fair value of plan assets at
end of year $ 1,644 $ 1,215 $ 760
=============================================== ================= ================== ============
Reconciliation of funded status
Funded status $ (1,059) $ (135) $(259)
Unrecognized actuarial gain 1,379 (422) -
Unrecognized transition obligation - - -
Unrecognized prior service cost 367 321 (270)
- ----------------------------------------------- ----------------- ------------------ ------------
Net amount of asset (liability)
Reflected in consolidated
balance sheet $ 687 $ (236) $(529)
=============================================== ================= ================== ============
Weighted average assumptions
Discount rate 7.5% 8.0% 8.1%
Expected long-term rate of return
on plan assets 8.5% 8.5% 8.5%
Rate of compensation increase 5.0% 3.0% 5.0%
=============================================== ================= ================== ============
F-25
Defined Contribution Plan
The Company provides a noncontributory defined contribution retirement
plan for all eligible U.S. employees. Total plan expenses charged to operations
were $0.7 million, $0.8 million, and $0.9 million for 2001, 2000, and 1999,
respectively, which is based on a percentage of salary of qualified employees.
401(k) Plan
The Company maintains a savings plan (which qualifies under Section
401(k) of the U.S. Internal Revenue code) covering all eligible U.S. employees.
Under the plan, employees may elect to contribute up to 16% of their cash
compensation, subject to ERISA limitations. The Company is required to make
matching cash contributions equal to 50% of the employees' contribution or up to
3% of the employees' compensation. Employees have the option of investing in
seven different types of investment funds. Total plan expenses charged to
operations were $0.3 million, $0.4 million and $0.4 million in 2001, 2000, and
1999, respectively.
NOTE O-FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts denominated in
foreign currencies. The purpose of the Company's foreign exchange hedging
program is to protect the Company from risk that the eventual dollar cash flows
will be adversely affected by changes in exchange rates. At December 31, 2001,
2000, and 1999, the Company had forward foreign exchange contracts of $0, $8.1
million, and $3.6 million in U.S. dollars, respectively.
The Company enters into forward metal sales contracts to manage a portion
of its cash flows against fluctuating gold and silver prices. As of December 31,
2001, the Company had sold 7,500 ounces of gold for physical delivery on various
dates through 2002 at an average price of $288.31. For metal delivery contracts,
the realized price pursuant to the contract is recognized when physical gold or
silver is delivered in satisfaction of the contract. For the years ended
December 31, 2001, 2000 and 1999, Coeur recorded non-cash earnings of $0.4
million, $0.6 million and a non-cash charge of $4.3 million to operations,
respectively.
Further discussions of other financial instruments held by the Company
are included in Notes E and J.
The following table summarizes the information at December 31, 2001,
associated with the Company's financial and derivative financial instruments:
F-26
Fair Value
2002 2003 2004 2005 Total 12/31/01
------------------------------------------------------------------------------------------------------------------------
Liabilities
Short and Long Term Debt
Fixed Rate $ 23,171 $ 41,399 $66,270 $ 14,650 $145,490 $ 71,643
Average Interest Rate 8.629% 8.849% 7.007% 7.25%
Derivative Financial Instruments
Gold Forward Sales - USD
Ounces 7,500 - - - 7,500 $ 89
Price Per Ounce $ 288.31 - - - -
Gold Call Options Sold - USD (1)
Ounces - - - 24,640 24,640 $(213)
Price Per Ounce $ - $ - $ - $ 346.46
(1) The call options sold have a knock-out provision whereby the calls will terminate if gold trades below $300
per ounce after December 27, 2002.
For the years ended December 31, 2001, 2000, and 1999, the Company
realized a gain (loss) from its foreign exchange programs of $0.4 million,
$(1.0) million and $.1 million, respectively.
The credit risk exposure related to all hedging activities is limited to
the unrealized gains on outstanding contracts based on current market prices. To
reduce counter-party credit exposure, the Company deals only with a group of
large credit-worthy financial institutions and limits credit exposure to each.
In addition, to allow for situations where positions may need to be reversed the
Company deals only in markets that it considers highly liquid. The Company does
not anticipate non-performance by any of these counter parties.
NOTE P-Supplemental Cash Flow Information
During the 3rd quarter of 2001, the Company issued a total of $43.2
million principal amount of 13-3/8% Notes in connection with an exchange offer
extended to the holders of outstanding convertible subordinated debentures, as
more fully described in Note K.
During the 4th quarter the Company issued 3.4 million shares to the
holders of the 13-3/8% Notes for the interest due on December 31, 2001 of $2.5
million, as more fully described in Note K.
During the 3rd and 4th quarters of 2001, $1.8 million of the newly issued
13 3/8% Notes were converted to approximately 1.7 million shares of common stock
as more fully described in Note K.
During the 2nd quarter of 2001 the Company repurchased $11.0 million
principal amount of its outstanding 7-1/4% Debentures in exchange for 4,257,618
shares of common stock, as more fully described in Note K.
During the 1st quarter of 2001, the Company repurchased $5.0 million
principal amount of its outstanding 7-1/4% Debentures in exchange for 1,787,500
shares of common stock, as more fully described in Note K.
NOTE Q-SEGMENT INFORMATION
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
F-27
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 Company cash
flows in its respective geographic area. The Company's reportable operating
segments include the Rochester, Coeur Silver Valley, Cerro Bayo, Petorca, Coeur
Australia and exploration and development properties. All operating segments are
engaged in the discovery and/or mining of gold and silver and generate the
majority of their revenues from the sale of these precious metals. Intersegment
revenues consist of precious metals sales to the Company's metals marketing
division and are transferred at the market value of the respective metal on the
date of transfer. The other segment includes the corporate headquarters,
elimination of intersegment transactions and other items necessary to reconcile
to consolidated amounts. Revenues in the other segment includes sales through a
wholly owned commodity marketing subsidiary and 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
above. The Company evaluates performance and allocates resources based on profit
or loss before interest, income taxes, depreciation and amortization, unusual
and infrequent items, and extraordinary items.
Revenues from gold sales were $29.3 million, $43.5 million, and $48.9
million in 2001, 2000, and 1999, respectively. Revenues from silver sales were
$49.0 million, $57.3 million, and $43.7 million in 2001, 2000, 1999,
respectively.
Coeur Exploration
Silver And
December 31, 2001 Rochester Valley Fachinal Petorca Development Other Total
----------------------------------------------------------------------------------------
Total net sales and
revenues $48,786 $15,478 $ 149 $ 5,639 - $ 1,860 $ 71,912
Depreciation and amortization 9,205 3,448 172 530 24 (2,032) 11,347
Interest income - - 2 3 - 1,681 1,687
Interest expepense - - 2,330 (1) - 12,263 14,592
Gain on metals derivatives - - - - - 526 526
Writedown of mine property - - (966) 1,585 - (9,971) (9,352)
Income tax benefit (provision) - 1 - - - (7) (6)
Earnings from non-consolidated
Subsidiary - - - - - - -
Gain on early retirement
Of debt - - - - - 48,217 48,217
Profit (loss) 5,191 (1,700) (3,740) (1,983) (1,357) (12,629) (16,218)
Investments in non-consolidated
subsidiary - - - - - - -
Segment assets (A) 68,298 28,998 24,244 717 48 52,527 174,832
Expenditures for property 790 3,193 2,317 - 30 626 6,956
F-28
Coeur Exploration
Silver Coeur And
December 31, 2000 Rochester Valley Fachinal Petorca Australia Development Other Total
--------------------------------------------------------------------------------------------------
Total net sales and
revenues $51,963 $17,202 $ 9,756 $ 6,566 $ 9,337 - $ 6,382 $101,206
Depreciation and amortization 14,815 2,735 5,138 235 2,260 19 1,481 26,683
Interest income - - 22 6 172 - 4,207 4,407
Interest expense - - 14 (3) - - 16,988 16,999
Gain on metal hedging - - - - - - 3,970 3,970
Writedown of mine property - - (411) - (12,207) - (2,372) (14,990)
Income tax expense - 1 - - 75 - 272 348
Earnings from non-consolidated
Subsidiary - - - - 1,103 - - 1,103
Gain on early retirement
Of debt - - - - - - 16,136 16,136
Profit (loss) 13,506 615 (6,328) (1,837) 1,930 (1,282) (11,304) (4,700)
Investments in non-
consolidated subsidiary - - - - 15,264 - - 15,264
Segment assets (A) 81,130 28,282 24,882 2,769 429 57,921 195,413
Expenditures for property 2,169 6,363 2,636 662 - 1,823 - 13,653
Coeur Exploration
Silver Coeur And
Rochester Valley Fachinal Petorca Australia Development Other Total
-----------------------------------------------------------------------------------------------------
December 31, 1999
Total net sales and
revenues $51,193 $4,960 $8,756 $9,086 $ 9,983 $(323) $25,291 $108,946
Depreciation and
Amortization $ 9,539 $681 $5,025 $(1,020) $ 4,490 $364 $ 2,929 $22,008
Interest income - - 66 20 65 13 5,444 5,608
Interest expense - - 32 27 - - 16,349 16,408
Gain on Cyprus Settlement - - - - - - 21,140 21,140
Loss on Metal Hedging - - - - - - (4,302) (4,302)
Writedown of Mine Property - - - - (16,193) - (2,492) (18,685)
Income tax (credit) expense - (11) - - 23 - 320 332
Earnings (losses) from non-
Consolidated subsidiary - - - - (1,180) - 84 (1,096)
Gain on early retirement
of debt - - - - - - 3,990 3,990
Profit (loss) 18,993 (276) (3,023) (556) 203 (4,784) (2,529) 8,028
Investments in non-
Consolidated subsidiary - - - - 29,008 - - 29,008
Segment assets(A) 89,110 24,438 29,386 3,374 1,818 49,880 8,271 206,277
Expenditures for property 3,815 947 1,355 300 - 7,958 560 14,935
Notes: (A) Segment assets consist of receivables, inventories, property, plant and equipment, and mining properties.
Segment Reporting
2001 2000 1999
-----------------------------------------------
Profit (loss)
Total profit or loss for reportable segments $ (16,218) $ (4,700) $ 8,028
Gain (loss) on legal settlements - (4,200) 21,140
Gain (loss) on metal hedging 526 3,971 (4,302)
Depreciation and amortization (11,762) (26,683) (21,753)
Interest expense (14,592) (16,999) (16,408)
Writedown of mine property and other (9,244) (14,990) (18,685)
-----------------------------------------------
Loss before income taxes $ (51,290) $ (63,601) $ (31,981)
===============================================
Assets
Total assets for reportable segments $ 172,107 $ 195,413 $ 206,277
Cash and cash equivalents 14,714 35,227 86,935
Short-term investments 14,656 18,344 22,978
Other assets 8,903 22,393 37,857
-----------------------------------------------
Total consolidated assets $ 210,380 $ 271,377 $ 354,047
===============================================
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Segment Reporting
Geographic Information
2001: Revenues Mining
Properties
---------------------------
United States $ 68,348 $ 78,142
Chile 5,190 22,477
Other Foreign Countries (1,626) 19,300
---------------------------
Total $ 71,912 $119,919
===========================
Mining
2000: Revenues Properties
---------------------------
United States $ 75,875 $ 90,384
Chile 15,989 20,890
Australia 9,337 -
New Zealand 5 569
Bolivia - 18,873
Other Foreign Countries - 8
---------------------------
Total $101,206 $130,724
===========================
Mining
1999: Revenues Properties
---------------------------
United States $ 60,297 $ 94,356
Chile 17,521 22,356
Australia 9,983 -
New Zealand 21,146 855
Other Foreign Countries (1) 19,565
---------------------------
Total $108,946 $137,132
===========================
Revenues are geographically separated based upon the country in which operations
and the underlying assets generating revenues reside.
NOTE R-LITIGATION
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
On March 16, 2001, the Company and representatives of the U.S.
Government, including the Environmental Protection Agency, the Department of
Interior and the Department of Agriculture, reached an agreement in principle to
settle the lawsuit, which represents the only suit in which the Company has been
named as 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 $0.6 million, (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. The Company
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recorded $4.2 million of expenses, which included $3.9 million of settlement
payments, in the fourth quarter of 2000 in connection with the settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group,
Inc.("Handy & Harman"), to which the Rochester Mine had historically sent
approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had
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 & Harman.
On February 27, 2001 the Company commenced a lawsuit against Handy & Harman and
certain others in the U.S. Bankruptcy Court for the District of Connecticut
seeking recovery of the metals and/or damages. Handy & Harman'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 &
Harman as a partial payment under the plan. The liquidating custodian of Handy &
Harman under the liquidation plan recently advised the Company that Handy &
Harman intends to file suit against the Company prior to March 28, 2002 for the
value of 100,000 ounces of silver (i.e., approximately $500,000) as a preference
based on the Company's draw-down of its account at Handy & Harman in mid-March
2000. Based on this more recent legal action, the Company has determined that
the recovery of any additional amounts would be remote. As a result the Company
has recorded a $1.4 million write-down of the carrying amount in the fourth
quarter of 2001. Management of the Company and legal counsel believe that the
threatened claims are without merit, and will vigorously defend any such suit.
Bunker Hill Action
On January 7, 2002, a private class action suit captioned Baugh vs.
Asarco, et al., was filed in the Idaho District Court for the First District
(Lawsuit No. 2002131) in Kootenai County, Idaho against the companies that have
been defendants in the prior Bunker Hill and natural resources litigation in the
Coeur d'Alene Basin, including the Company, by eight northern Idaho residents
seeking medical benefits and property compensation from the mining companies
involved in the Bunker Hill Superfund site. At this early stage of the
litigation, the Company cannot predict the outcome of this suit.
Proposed Mining Legislation
Recent legislative developments may affect the cost of and ability of
mining claimants to use the Mining Law of 1872, as amended, (the "Mining Act")
to acquire or use federal lands for mining operations. Since October 1994, a
moratorium has been imposed on processing new patent applications for mining
claims. Management believes that this moratorium will not affect the status of
patent applications outstanding prior to the moratorium.
Legislation is presently being considered in the U.S. Congress to change
the Mining Act under which the Company holds mining claims on public lands. It
is possible that the Mining Act will be amended or be replaced by more onerous
legislation in the future. The legislation under consideration, as well as
regulations under development by the Bureau of Land Management, contain new
environmental standards and conditions, additional reclamation requirements and
extensive new procedural steps which would be likely to result in delays in
permitting.
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the Mining Act. If enacted,
such legislation may materially impair the ability of the Company to develop or
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continue operations which derive ore from federal lands. No such bills have been
passed and the extent of the changes, if any, which may be enacted by Congress
is not presently known. A significant portion of Coeur's U.S. mining properties
are on public lands. Any reform of the Mining Act or regulations thereunder
based on these initiatives could increase the costs of mining activities on
unpatented mining claims, and as a result could have an adverse effect on the
Company and its results of operations. Until such time, if any, as new reform
legislation or regulations are enacted, the ultimate effects and costs of
compliance on the Company cannot be estimated.
NOTE S-SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 2001 and 2000:
First Second Third Fourth
Quarter Quarter Quarter Quarter (f)
--------- --------- --------- -----------
(In Thousands - Except Per Share Data)
2001
----
Net revenues(d) $ 18,022 $ 20,051 $ 17,066 $ 16,773
Net loss before
extraordinary gain $(11,249) $ (9,428) $ (12,311) $(18,302)(c)
Net loss(a)(b) $ (8,068) $ (3,637) $ 26,934 $(18,296)(c)
Net loss attributable
to common shareholders(a)(b) $ (8,068) $ (3,637) $ 26,934 $(18,296)(c)
Basic and diluted net loss
per share before extraordinary gain $ (0.31) $ (0.21) $ (0.28) $ (0.41)(c)
Basic and diluted net loss
per share attributable to
common shareholders(a)(b) $ (0.22) $ (0.08) $ (0.62) $ (0.41)(c)
2000 (g)
----
Net revenues $ 17,904 $ 29,488 $ 29,724 $ 24,090
Net loss before
extraordinary gain $ (9,922) $(11,573) $ (8,558) $(33,896)(c)
Net loss(e) $ (9,835) $(10,462) $ (8,456) $(19,060)(c)
Net loss attributable
to common shareholders(e) $(12,015) $(10,462) $ (8,456) $(19,060)(c)
Basic and diluted net loss
per share before extraordinary gain $ (0.39) $ (0.31) $ (0.23) $ (0.91)(c)
Basic and diluted net loss
per share attributable to
common shareholders(e) $ (0.39) $ (0.28) $ (0.23) $ (0.51)(c)
(a) Includes extraordinary gain on early retirement of debt of approximately $3.0 million in the
first quarter of 2001 and $5.8 million in the second quarter of 2001.
(b) Includes extraordinary gain on the exchange offer of approximately $39.2 million in the third
quarter of 2001.
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(c) Includes writedown of mining properties of approximately $6.1 million, $12.2 million and
$16.2 million in the fourth quarters of 2001, 2000 and 1999, respectively, and $4.2 million
expense for settlement of a legal suit in the fourth quarter of 2000.
(d) Included mark-to-market gain (loss) of($4.0) million in the first quarter of 2001, ($0.2)
million in the second quarter of 2001, and $.1 million in the fourth quarter of 2001.
(e) Includes extraordinary gain on early retirement of debt of approximately $1.0 million in the
first quarter 2000, approximately $1.1 million in the second quarter 2000, approximately $1.0
million in the third quarter 2000, and approximately $14.8 million in the fourth quarter
2000.
(f) Includes realized loss on other than temporary impairment of available for sale securities of
$2.3 million in the fourth quarter 2000.
(g) Includes mark-to-market gain (loss) of $1.6 million in the first quarter of 2000, ($.5)
million in the second quarter of 2000, $2.1 million in the third quarter of 2000, and $.9
million in the fourth quarter of 2000, on written call options.
F-33