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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
COEUR D'ALENE MINES CORPORATION
(Exact name of registrant as specified on its charter)
IDAHO 82-0109423
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer Ident. No.)
incorporation or organization)
P. O. Box I, Coeur d'Alene, Idaho 83816-0316
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(208) 667-3511
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
-------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of Issuer's classes of common stock, as of the latest practicable date:
Common stock, par value $1.00, of which 99,961,479 shares were issued and
outstanding as of November 8, 2002.
COEUR D'ALENE MINES CORPORATION
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 2002 and December 31, 2001
Consolidated Statements of Operations and
Comprehensive Income (Loss) -- 5
Three and Nine Months Ended September 30, 2002
and 2001
Consolidated Statements of Cash Flows -- 6
Three and Nine Months Ended September 30, 2002
and 2001
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 21
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 35
Item 4. Controls and Procedures 37
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 37
Item 6. Exhibits and Reports on Form 8-K 38
Signatures 39
Certifications of CEO and CFO 40
2
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 7,217 $ 14,714
Short-term investments 199 3,437
Receivables and prepaid expenses 8,116 5,902
Inventories 42,425 46,286
--------- ---------
TOTAL CURRENT ASSETS 57,957 70,339
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 100,108 99,096
Less accumulated depreciation (69,448) (65,422)
--------- ---------
30,660 33,674
MINING PROPERTIES
Operational mining properties 122,947 117,555
Less accumulated depletion (84,198) (79,697)
--------- ---------
38,649 37,858
Developmental properties 46,912 46,685
--------- ---------
85,661 84,543
OTHER ASSETS
Restricted investments 11,203 11,219
Debt issuance costs, net of
accumulated amortization 1,721 3,262
Other 5,609 7,343
--------- ---------
18,533 21,824
--------- ---------
$ 192,811 $ 210,380
========= =========
See notes to consolidated financial statements.
3
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,239 $ 3,721
Working capital facility 942 -
Accrued liabilities 6,167 7,561
Accrued interest payable 2,341 2,720
Accrued salaries and wages 4,488 4,542
6% convertible subordinated debentures
due 2002 - 23,171
--------- ---------
TOTAL CURRENT LIABILITIES 19,177 41,715
LONG-TERM LIABILITIES
13 3/8% convertible senior subordinated
notes due December 2003 (Series I) 15,493 41,399
13 3/8% convertible senior subordinated
notes due December 2003 (Series II)
(net of discount of $1,482) 5,902 -
6 3/8% convertible subordinated debentures
due January 2004 65,457 66,270
7 1/4% convertible subordinated debentures
due October 2005 14,394 14,650
Reclamation and mine closure 14,025 14,462
Other long-term liabilities 5,795 5,096
--------- ---------
TOTAL LONG-TERM LIABILITIES 121,066 141,877
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share-
authorized 250,000,000 shares, issued
100,345,650 and 49,278,232 shares at
September 30, and December 31, 2001
(including 1,059,211 shares held in
treasury), respectively 100,346 49,278
Capital surplus 398,904 388,050
Accumulated deficit (433,090) (397,999)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive income (402) 649
--------- ---------
52,568 26,788
--------- ---------
$ 192,811 $ 210,380
========= =========
See notes to consolidated financial statements.
4
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
(In thousands except for per share data)
REVENUES
Product sales $ 24,424 $ 16,224 $ 60,458 $ 52,443
Interest and other 2,110 842 5,201 2,696
--------- --------- --------- ---------
Total Revenues 26,534 17,066 65,659 55,139
COSTS AND EXPENSES
Production 24,648 16,028 58,924 52,121
Depreciation and depletion 2,719 2,678 8,130 8,044
Administrative and general 1,155 2,172 5,724 6,612
Exploration 786 1,941 2,397 5,215
Prefeasibility 518 809 2,300 1,930
Interest 7,583 3,466 17,431 10,848
Other 1,464 2,298 2,924 3,371
Loss (gain) on
retirement of debt - (39,245) 2,920 (48,217)
--------- --------- --------- ---------
Total Costs and Expenses 38,873 (9,853) 100,750 39,924
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES (12,339) 26,919 (35,091) 15,215
Income tax benefit - 15 - 14
--------- --------- --------- ---------
NET INCOME (LOSS) (12,339) 26,934 (35,091) 15,229
Unrealized holding gain
(loss) on securities (574) 367 (1,051) 1,078
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (12,913) $ 27,301 $ (36,142) $ 16,307
========= ========= ========= =========
BASIC INCOME (LOSS) PER
SHARE DATA
Weighted average number
of shares of Common Stock 87,742 43,639 69,354 41,047
========= ========= ========= =========
Net Income (Loss) per share $(0.14) $0.62 $(0.51) $0.37
========= ========= ========= =========
DILUTED INCOME (LOSS) PER
SHARE DATA
Weighted average diluted
number of shares of Common
Stock 87,742 70,754 69,354 52,391
========= ========= ========= =========
Net Income (Loss) per share $(0.14) $0.41 $(0.51) $0.33
========= ========= ========= =========
See notes to consolidated financial statements.
5
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Nine Months Ended September 30, 2002 and 2001
(Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
(In Thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (12,339) $ 26,934 $ (35,091) $ 15,229
Add (deduct) noncash items:
Depreciation and depletion 2,719 2,678 8,130 8,044
(Gain) loss on early
retirement of debt - (39,245) 2,920 (48,217)
Other 294 743 1,212 3,554
Non-cash interest expense 4,235 - 9,623 -
Unrealized gain on written
calls - (259) - (480)
Changes in Operating Assets
and Liabilities:
Receivables (1,758) (508) (2,193) 3,419
Inventories 4,914 186 6,288 2,826
Accounts payable and
accrued liabilities (338) (311) 1,416 (10,122)
--------- --------- --------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (2,273) (9,782) (7,695) (25,747)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of short-term
investments (8,900) - (9,682) (1,255)
Proceeds from sales of
short-term investments 9,116 - 12,800 5,603
Proceeds from sale of
assets 259 - 265 14,733
Expenditures on mining
assets (3,200) (900) (7,931) (5,253)
Other (452) (5) (474) (567)
--------- --------- --------- ---------
NET CASH (USED IN)
PROVIDED BY INVESTING
ACTIVITIES (3,177) (905) (5,022) 13,261
CASH FLOWS FROM FINANCING
ACTIVITIES
Retirement of debt - (445) (9,427) (753)
Proceeds from issuance of
long-term debt, net of
issuance costs (192) (1,951) 13,858 (1,951)
Other 904 (162) 789 (225)
--------- --------- --------- ---------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES 712 (2,558) 5,220 (2,929)
--------- --------- --------- ---------
DECREASE IN CASH AND CASH
EQUIVALENTS (4,738) (13,245) (7,497) (15,415)
Cash and cash equivalents
at beginning of period 11,955 33,057 14,714 35,227
--------- --------- --------- ---------
Cash and cash equivalents
at end of period $ 7,217 $ 19,812 $ 7,217 $ 19,812
========= ========= ========= =========
See notes to consolidated financial statements.
6
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A: Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month and nine-month periods ended September 30, 2002 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Coeur
d'Alene Mines Corporation ("Coeur" or the "Company") Annual Report on Form 10-K
for the year ended December 31, 2001, as amended.
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. The Company has
no investments in entities in which it has greater than 50% ownership interest
accounted for using the equity method. 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. The Company has no
investments in entities in which it has greater than 20% ownership interest
accounted for using the cost 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
7
contracts are reflected in revenue at the date the related precious metals are
delivered or the contracts expire. All by-product sales and third party smelting
and refining costs are recorded as revenue product sales. By-product sales are
primarily derived from copper which is produced as part of the silver recovery
process at Coeur Silver Valley. On an annual basis, by-product sales represent
less than 5% of revenues recognized as product sales.
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 and Chile 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, 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 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 loss.
Inventories: Inventories include ore on leach pads, ore in the milling
processes, concentrates, dore and ore in stockpiles. The classification of
inventory is determined by the stage at which the ore is in the production
process. The gold and silver content of inventories of ore on leach pads is
calculated based on samples taken of the ore prior to placement on the leach
pad. The ore on leach pads is then valued based on the lower of actual costs
incurred or estimated net realizable value based upon the period ending prices
of gold and silver. Material that does not contain a minimum quantity of gold
and silver is not placed on the leach pad and is classified as waste with no
value. Inventories of ore in stock piles and ore in the milling process are also
sampled for gold and silver content and are valued based on the lower of actual
costs incurred or estimated net realizable value based upon the period ending
prices of gold and silver. Material that does not contain a minimum quantity of
gold and silver to cover estimated processing expense to recover the contained
gold and silver is not classified as inventory and is assigned no value.
Inherent in estimating net realizable value is an estimate of the percentage of
the minerals on leach pads and in process that will ultimately be recovered.
There have been no adjustments to the recovery rates used in estimated net
realizable value for the periods presented in these financial statements.
8
Management evaluates this estimate on an ongoing basis and adjustments 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, new assets
or expenditures that extend the useful lives of existing facilities are
capitalized and depreciated using the straight-line method at rates sufficient
to depreciate such costs over the shorter of estimated productive lives of such
facilities or the useful life of the individual assets. 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. Prior to acquiring such land or
mineral rights the Company generally makes a preliminary evaluation to determine
that the property has significant potential to develop an economic ore body. The
time between initial acquisition and full evaluation of a property's potential
is variable and is determined by many factors including: location relative to
existing infrastructure, the property's stage of development, geological
controls and metal prices. 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 mineable 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
9
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
assets, including property plant and equipment, mineral property, development
property, and any deferred costs such as deferred stripping. 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.
Assumptions 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 a material effect on the
Company's financial position and results of operations. 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, in estimating future cash flows, all assets are grouped at a
particular mine for which there is identifiable cash flow.
In August 2001, the Financial Accounting Standards Board ("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, for long-lived assets to be disposed of by sale. The statement was adopted
on January 1, 2002, and there was no impact on the Company upon adoption.
Restricted Investments: The Company, under the terms of its lease, self
insurance, and bonding agreements with certain banks, lending institutions and
regulatory agencies, is required to collateralize certain portions of the
Company's obligations. The Company has collateralized these obligations by
assigning certificates of deposit that have maturity dates ranging from three
months to a year, to the respective institutions or agency. At September 30,
2002 and December 31, 2001, the Company had certificates of deposit under these
agreements of $11.2 million restricted for this purpose. The ultimate timing for
the release of the colaterallized amounts is dependent on the timing and closure
of each mine. In order to release the collateral, the Company must seek approval
from certain government agencies responsible for monitoring the mine closure
status. Collateral could also be released to the extent the Company was able to
secure alternative financial assurance satisfactory to the regulatory agencies.
The Company believes there is a reasonable probability that the collateral will
remain in place
10
beyond a twelve-month period and has therefore classified these investments as
long-term.
Deferred Stripping Costs: Deferred stripping costs are unique to the mining
industry and are determined based on the Company's estimates for the life of
mine strip ratio for each mine. These costs are capitalized in periods when the
life of mine ratio is below the current mining strip ratio, and amortized during
periods where the life of mine strip ratio is above the current strip ratio. The
Rochester mine is the only mine that has previously capitalized deferred
stripping costs. The life of mine strip ratio that was used to accumulate the
deferred stripping amounts was 1.8 to 1 (waste to ore) and was based on the
estimated average stripping ratio for the life of the mine, compared to the then
current ratio of 2.2 to 1 (waste to ore) for the periods presented in the
Consolidated Statements of Operations and Comprehensive Income (Loss). The
deferred stripping costs have been amortized as waste and ore have been removed
from the Rochester mine pit. At present the remaining life of mine plan
estimates the future stripping ratio as 1.1 to 1 (waste to ore), and the
remaining costs will be amortized over the remaining life of the mine. At
September 30, 2002 and December 31, 2001 the carrying amount of the deferred
stripping costs were $1.6 million and $1.7 million, respectively, and are
included in other assets in the accompanying balance sheet. No additional
deferred stripping costs were capitalized during the periods presented. Based on
current reserves and current production levels the amortization would be no less
than four years. The amounts that were amortized for the nine months ended
September 30, 2002 and September 30, 2001 were $0.1 million and $0.3 million,
respectively, which are included in depreciation and depletion in the
Consolidated Statements of Operations and Comprehensive Income (Loss).
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 Standard 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 life
of the related assets and will be adjusted for changes
11
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 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 in Chilean pesos. These contracts are marked-to-market to other
Comprehensive Income (Loss) each reporting period.
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
12
against any portion of those deferred income tax assets that it believes will
more likely than not fail to be realized.
Comprehensive Income: In addition to net loss, comprehensive income
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.
Income (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
dilutive income per share was $0.39 and $0.33 in the three month and nine month
periods ending September 30, 2001. The effect of potentially dilutive stock
options outstanding was antidilutive in the three and nine month periods ending
September 30, 2002.
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.
Reclassifications: Certain reclassifications of prior year balances have
been made to conform to current year presentation. The Company has reclassified
restricted investments to long-term restricted investments in the December 31,
2001 balance sheet to conform to the September 30, 2002 balance sheet.
Note C: Business Acquisitions and Dispositions
On November 8, 2002, the company sold certain timber lands to Stimson
Lumber Company for the sum of $3,850,000, with net proceeds to the company in
the approximate amount of $3,650,000. All mineral and water rights to these
lands were reserved to the Company and were not sold as a part of the
transaction.
On August 30, 2002 the Company sold its interest in the Petorca mine and
recorded a gain of $1.7 million.
On April 2, 2002, the Company completed the acquisition of Compania Minera
Polimet S.A. ("Polimet") from Yamana Resources Inc. ("Yamana") for $2.5 million
in cash. The acquisition of Polimet has been accounted for under the purchase
method of accounting in accordance with APB No. 16. The carrying values of
assets and
13
liabilities other than the mining properties have been estimated to approximate
fair market value. Polimet owns 100% of the Martha Mine and an exploration land
package consisting of approximately 202,000 acres located in the western portion
of the Santa Cruz Province, Argentina. The results of operations of Polimet have
been included in the Company's financial statements for the time period after
the date of acquisition, April 2, 2002. Coeur also acquired the right to
purchase 10 million common shares of Yamana for an additional $600,000. The
Company purchased 5 million shares in May, and 2.5 million shares in September,
and is expected to complete the purchase of 2.5 million shares in December.
NOTE D: Inventories
Inventories are comprised of the following:
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ -----------
(In Thousands)
In process, stockpiles and on leach pads $ 32,244 39,794
Concentrate and dore' inventory 5,542 1,567
Supplies 4,639 4,925
-------- --------
$ 42,425 $ 46,286
======== ========
Long-term in process and on leach pads $ - $ 2,725
======== ========
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred or estimated net realized value, less costs
allocated to minerals recovered through the leaching and milling processes.
Inherent in estimating net realized value is an estimate of the percentage of
the minerals on leach pads and in process that will ultimately be recovered. 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.
NOTE E: Income Taxes
The Company has reviewed its net deferred tax asset as of September 30,
2002, together with net operating loss carry forwards, and has decided to forego
recognition of potential tax benefits arising therefrom. In making this
determination, the Company has considered the Company's history of tax losses
incurred since 1989, the current level of gold and silver prices and the ability
of the Company to use accelerated depletion and amortization methods in the
determination of taxable income. As a result, the Company's net deferred tax
asset has been fully reserved at September 30, 2002 and December 31, 2001.
14
NOTE F: Long-Term Debt and Supplemental Cash Flow Information
During the 3rd quarter of 2002, holders of $9.9 million of the Series I 13
3/8% Convertible Senior Subordinated Notes due December 31, 2003 (the "Series I
13 3/8% Notes") voluntarily converted such notes, in accordance with the
original terms, into approximately 7.3 million shares of Common Stock. In
addition, 0.8 million shares of common stock were issued as payment for $1.4
million of interest expense on the Series I 13 3/8% Notes.
During the 3rd quarter of 2002 holders of $14.1 million of Series II 13
3/8% Convertible Senior Subordinated Notes due December 31, 2003 (the "Series II
13 3/8% Notes") voluntarily converted such notes, in accordance with the
original terms, into approximately 10.4 million shares of common stock. The
Series I 13 3/8% Notes and the Series II 13 3/8% Notes are collectively referred
to hereinafter as the "13 3/8% Notes." In addition, 1.7 million shares of common
stock were issued as payment for $2.8 million of interest expense on the Series
II 13 3/8% Notes.
During the 2nd quarter of 2002 the Company repurchased $10.3 million, $0.8
million and $0.3 million principal amount of its outstanding 6%, 6-3/8% and
7-1/4% Convertible Subordinated Debentures, respectively, in exchange for 11.9
million shares of common stock and recorded a loss of approximately $2.9
million. In addition, holders of $10.3 million of the Series I 13-3/8% Notes
voluntarily converted, in accordance with the original terms, into approximately
7.7 million shares of common stock. In addition, 2.7 million shares of common
stock were issued as payment for $4.2 million of interest expense on the Series
I 13 3/8% Notes.
In May 2002, the Company issued $21.5 million principal amount of Series II
13 3/8% Notes due December 2003, for proceeds of approximately $13.9 million,
net of discount of $5.5 million and net of offering costs of approximately $2.1
million.
During the 1st quarter of 2002 the Company repurchased $3.5 million
principal amount of its outstanding 6% Convertible Subordinated Debentures in
exchange for approximately 3.4 million shares of common stock. In addition,
holders of $5.7 million principal amount of Series I 13-3/8% Notes voluntarily
converted their Notes into 5.1 million shares of common stock.
During the 3rd quarter of 2001, the Company issued a total of $43.2 million
principal amount of Series I 13 3/8% Notes in connection with an exchange offer
extended to the holders of outstanding convertible subordinated debentures.
During the 3rd quarter of 2001, $1.3 million of the Series I 13 3/8% Notes
were converted into approximately 1.2 million shares of common stock.
15
During the 2nd quarter of 2001 the Company repurchased $11.0 million
principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures
in exchange for approximately 4.3 million shares of common stock.
During the 1st quarter of 2001, the Company repurchased $5.0 million
principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures
in exchange for approximately 1.8 million shares of common stock.
NOTE G: Segment Reporting
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision making group is comprised of the Chief Executive Officer, the Chief
Financial Officer and the Chief Operating Officer.
The operating segments are managed separately because each segment
represents a distinct use of Company resources and contribution to the Company's
cash flows in its respective geographic area. The Company's reportable operating
segments are the Rochester, Coeur Silver Valley and Cerro Bayo mining
properties, the Kensington development property, and the Company's exploration
programs, which includes the San Bartolome silver development property. All
operating segments are engaged in the discovery and/or mining of gold and silver
and generate the majority of their revenues from the sale of precious metal
concentrates and/or refined precious metals. The Coeur Silver Valley and Cerro
Bayo mines sell precious metal concentrates, typically under long term contracts
to smelters located in Canada (Noranda Inc. and Cominco Ltd.) and Japan
(Sumitomo Ltd. and DOWA Mining Company). Refined gold and silver produced by the
Rochester mine is primarily sold on a spot basis to precious metal trading banks
such as Standard Bank, Morgan Stanley, Mitsui and N.M. Rothschild.
Intersegment revenues consist of precious metal sales to the Company's
metals marketing division and are transferred at the market value of the
respective metal on the date of the transfer. The other segment includes
earnings from unconsolidated subsidiaries accounted for by the equity method,
the corporate headquarters, elimination of intersegment transactions and other
items necessary to reconcile to consolidated amounts. Revenues in the other
segment are generated principally from interest received from the Company's cash
and investments that are not allocated to the operating segments. The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies in the Company's Annual Report on
Form 10-K. The Company evaluates performance and allocates resources based on
each segment's profit or
16
loss before interest, income taxes, depreciation and amortization, unusual and
infrequent items, and extraordinary items.
Segment Reporting
(In Thousands)
Rochester Galena Cerro Bayo Martha
Mine Mine Mine Mine Exploration Other Total
--------- -------- ---------- -------- ----------- -------- --------
Nine Months Ended
September 30, 2002
Total net sales and revenues $ 38,629 $ 18,178 $ 6,269 $ 218 $ 3,126 $ (761) $ 65,659
Depreciation and depletion 2,915 2,418 2,327 169 33 268 8,130
Reclamation expense 863 474 - - - - 1,337
Interest income - - 2 - - 244 246
Interest expense - - 20 - - 17,411 17,431
Care and maintenance and other - 350 614 10 - 1,949 2,924
Write-down of mine property and 245 396 819 1,460
other
Loss on early retirement of debt - - - - - (2,920) (2,920)
Profit (loss) (1,716) 4,609 2,398 (276) (914) (6,449) (2,348)
Segment assets (A) 58,952 27,642 29,675 3,030 19,286 29,841 168,426
Capital expenditures for property 769 1,484 3,062 73 16 36 5,440
Rochester Galena Cerro Bayo Petorca
Mine Mine Mine Mine Exploration Other Total
--------- -------- ---------- -------- ----------- -------- --------
Nine Months Ended
September 30, 2001
Total net sales and revenues $ 35,814 $ 11,703 $ 221 $ 5,960 $ - $ 1,441 $ 55,139
Depreciation and depletion 5,497 1,870 - 398 47 232 8,044
Reclamation expense 1,087 446 - - - - 1,533
Interest income - - 2 3 2 1,441 1,448
Interest expense - - - 1 - 10,847 10,848
Gain on forward sale contracts - - - - - 221 221
Care and maintenance and other - 355 1,173 486 103 864 2,981
Income tax (credit) expense - 1 - - - (15) (14)
Earnings (losses) from - - - - (1,603) - (1,603)
non-consolidated affiliates
Gain on early retirement of debt - - - - - 48,217 48,217
Profit (loss) 4,067 (768) (1,688) (734) (6,523) (3,950) (9,596)
Segment assets (A) 75,140 28,037 23,182 1,289 19,163 39,060 185,870
Capital expenditures for property 815 2,376 801 - 30 1,231 5,253
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
17
Segment Reporting Cont.
(In Thousands) Nine Months Ended September 30,
2002 2001
-------------- --------------
Income (Loss)
- -------------
Total loss from reportable segments $ (2,348) $ (9,596)
Depreciation, depletion and amortization expense (8,130) (8,044)
Reclamation expense (1,337) (1,533)
Interest expense (17,431) (10,848)
(Loss) gain on early retirement of debt (2,920) 48,217
Other (2,925) (2,981)
--------- ---------
Loss before income taxes $ (35,091) $ 15,215
========= =========
September 30,
2002 2001
-------------- --------------
Assets
- ------
Total assets for reportable segments $ 168,425 $ 185,870
Cash and cash equivalents 7,217 19,812
Short-term and restricted investments 11,402 15,241
Other assets 5,766 7,446
--------- ---------
Total consolidated assets $ 192,811 $ 228,369
========= =========
Geographic Information
- ----------------------
(In thousands) Long-Lived
September 30, 2002 Revenues(a) Assets
-------------- --------------
United States $ 56,047 $ 74,814
Chile 9,395 21,837
Bolivia - 18,865
Other Foreign Countries 217 2,369
--------- ---------
Consolidated Total $ 65,659 $ 117,885
========= =========
Long-Lived
September 30, 2001 Revenues Assets
-------------- --------------
United States $ 51,983 $ 87,211
Chile 3,548 21,263
Bolivia - 18,871
Other Foreign Countries (392) 528
--------- ---------
Consolidated Total $ 55,139 $ 127,873
========= =========
(a) Revenues are geographically separated based upon the country in which
operations and the underlying assets generating those revenues reside.
NOTE H: Hedging
For the first nine months of 2002 the Company recorded a realized loss of
approximately $0.2 million in connection with its hedge program. The Company has
30,000 ounces in forward sales in its gold price protection program, whereby
over the next 15 months the Company will receive an average price of $324 per
ounce.
18
The following table summarizes the information at September 30, 2002
associated with the Company's financial and derivative financial instruments
that are sensitive to changes in interest rates, commodity prices and foreign
exchange rates. For long-term debt obligations, the table presents principal
cash flows and related average interest rates. For gold call options and
amortizing forward sales, the table presents ounces contracted to be delivered
and the related average price per ounce in U.S. dollars. For foreign currency
exchange contracts, the table presents the notional amount in Chilean Peso's to
be purchased along with the average foreign exchange rate.
Fair
Value
(dollars in thousands) 2002 2003 2004 2005 2006 Thereafter Total 9/30/02
- --------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt
Fixed Rate $ - $22,877 $65,457 $14,394 $ - $ - $102,728 $98,026
Average Interest Rate 10.208% 8.056% 7.006% 7.250%
Derivative Financial
Instruments
Gold Forward
Sales - USD
Ounces 6,000 24,000 - - - - 30,000 $ 9
Price Per Ounce $ 325 $ 324 - - - - -
Foreign Currency
Contracts
Chilean Peso - USD $ 1,350 $ 3,000 - - - - $ 4,350 $ (213)
Exchange Rate 716 716 - - - - -
(CLP to USD)
Fair value is determined by trading information on or near the balance
sheet date. Long term debt represents the face amount of the outstanding
convertible debentures and timing of when these become due. Interest rates
presented in the table are calculated using the weighted average of the
outstanding face amount of each debenture for the period remaining in each
period presented. All long term debt is denominated in US dollars.
NOTE I: New Accounting Standards and Requirements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). Under SFAS No. 145, most gains and losses from
extinguishments of debt will not be classified as extraordinary items unless
they meet much more narrow criteria in Accounting Principles Board Opinion No.
30 "Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30"). SFAS No. 145 may be early
19
adopted, but is otherwise effective for fiscal years beginning after May 15,
2002, and must be adopted with retroactive effect.
The Company has elected to early adopt this standard and under SFAS No.
145, the Company has made the determination that its gains and losses from early
extinguishment of debt do not fall under APB Opinion No. 30. Consequently, the
Company has reclassified all prior extraordinary items relating to the early
extinguishment of debt to be included as part of loss from continuing operations
NOTE J: Litigation and Other Events
Noranda Smelter Strike
On June 18, 2002, the Company received notification from Noranda that the
employees working at its smelter in Quebec were on strike. This smelter is where
Coeur Silver Valley sells essentially 100% of its concentrate. As of September
30, 2002 the employees were on strike, but Noranda had removed the "Force
Majure" under the terms of the Company's concentrate sales contract and have
continued to purchase the concentrate sent to them by Coeur Silver Valley.
Management believes that Noranda will continue to purchase all produced
concentrate from Coeur Silver Valley. However, the Company would see a
significant decrease in product sales from Coeur Silver Valley in the event that
Noranda were to exercise its Force Majure rights. In the third quarter the
Company was able to sell 750 tons of concentrate in the spot market to an
alternative buyer. In the event that Noranda exercises Force Majure in the
future, we would pursue alternative buyers.
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 filed suit against the Company in March 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 silver held by 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 recorded a $1.4 million write-down
20
of the carrying amount in the fourth quarter of 2001. Management of the Company
and legal counsel believe that the claims are without merit, and are vigorously
defending the suit.
Baugh Class 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 five families seeking medical
benefits and property compensation from the mining companies involved in the
Bunker Hill Superfund site. Damages for diminution in property value, trespass
and nuisance were claimed. In addition, it was alleged that the court should
make provision for medical monitoring and oversight of certain cleanup
activities. On October 16, 2002 the court dismissed the complaint in response to
motions by the defendants, with leave granted to the plaintiffs to amend their
complaint within 60 days from the date of dismissal.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis includes references to total cash
costs per ounce of gold and silver produced both on an individual mine basis and
on a consolidated basis. Total cash costs per ounce represent a non- U.S. GAAP
measurement that management uses to monitor and evaluate the performance of its
mining operations. A reconciliation of total cash costs per ounce to U.S. GAAP
"Production Expenses" is also provided here-in and should be referred to when
reading the total cash cost per ounce measurement.
General
The results of the Company's operations are significantly affected by the
market prices of silver and gold which may fluctuate widely and are affected by
many factors beyond the Company's control, including, without limitation,
interest rates, expectations regarding inflation, currency values, governmental
decisions regarding the disposal of precious metals stockpiles, global and
regional political and economic conditions, and other factors.
21
The average prices of silver(Handy & Harman)and gold(London Final)for the
first nine months of 2002 were $4.66 and $306 per ounce, respectively. The
market prices of silver and gold on November 8, 2002 were $4.56 per ounce and
$322 per ounce, respectively.
The Company's operating mines are the Rochester mine in Nevada, the Galena
mine in the Coeur d'Alene Mining District of Idaho, the Cerro Bayo and Furioso
mines in Chile, and the Mina Martha mine in Argentina.
This document contains numerous forward-looking statements relating to the
Company's gold and silver mining business. The United States Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for certain
forward-looking statements. Operating, exploration and financial data, and other
statements in this document are based on information the Company believes
reasonable, but involve significant uncertainties as to future gold and silver
prices, costs, ore grades, estimation of gold and silver reserves, mining and
processing conditions, changes that could result from the Company's future
acquisition of new mining properties or businesses, the risks and hazards
inherent in the mining business (including environmental hazards, industrial
accidents, weather or geologically related conditions), regulatory and
permitting matters, and risks inherent in the ownership and operation of, or
investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following table sets forth the amounts of silver and gold produced by
the following mining properties, each of which is wholly owned by the Company,
and the cash and full costs of such production during the three-month and
nine-month periods ended September 30, 2002 and 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
ROCHESTER MINE
Gold ozs. 18,885 18,171 52,440 58,194
Silver ozs. 1,717,151 1,483,382 4,770,361 4,473,629
Cash Costs per oz./silver(a) $2.83 $3.42 $3.11 $3.31
Full Costs per oz./silver $3.44 $4.17 $3.87 $4.71
Galena Mine
Silver ozs. 1,188,262 1,060,191 4,045,253 3,201,098
Cash Costs per oz./silver(a) $4.54 $4.97 $4.20 $4.64
Full Costs per oz./silver $5.34 $5.80 $4.91 $5.37
22
CERRO BAYO MINE
Gold ozs. 15,081 N/A 21,000 N/A
Silver ozs. 881,348 N/A 1,141,891 N/A
Cash Costs per oz./silver(a) $0.91 N/A $1.21 N/A
Full Costs per oz./silver $1.95 N/A $3.25 N/A
PRIMARY SILVER MINES
Consolidated Cash Cost per
ounce of silver $2.92 $4.07 $3.33 $3.87
PETORCA MINE(b)
Gold ozs. N/A 3,563 N/A 17,494
Silver ozs. N/A 27,274 N/A 85,012
Cash Costs per oz./gold(a) N/A $306 N/A $340
Full Costs per oz./gold N/A $331 N/A $360
PRIMARY GOLD MINES
Consolidated Cash Cost per
ounce of gold N/A $306 N/A $340
CONSOLIDATED PRODUCTION TOTALS
Gold ozs. 33,966 21,734 73,440 75,688
Silver ozs. 3,786,761 2,570,847 9,957,505 7,759,738
(a) See reconciliation of non-GAAP cash costs to GAAP production costs below
under "Costs and Expenses".
(b) The Petorca mine ceased production in August 2001 and was sold in August
2002.
Note: "Cash Costs per Ounce" are calculated by dividing the cash costs computed
for each of the Company's mining properties for a specified period by the amount
of gold ounces or silver ounces produced by that property during that same
period. Management uses cash costs per ounce produced as a key indicator of the
profitability of each of its mining properties. Gold and silver are sold and
priced in the world financial markets on a US dollar per ounce basis. By
calculating the cash costs from each of the Company's mines on the same unit
basis, management can easily determine the gross margin that each ounce of gold
and silver produced is generating.
"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. Sales of
by-product metals (primarily gold and copper) are deducted from the above in
computing cash costs. Cash costs exclude depreciation, depletion and
amortization, corporate general and administrative expense, exploration,
interest, and pre-feasibility costs and accruals for mine reclamation. Cash
costs are calculated and presented using the
23
"Gold Institute Production Cost Standard" applied consistently for all periods
presented.
Total cash costs per ounce is a non-GAAP measurement and investors are cautioned
not to place undue reliance on it and are urged to read all GAAP accounting
disclosures presented in the consolidated financial statements and accompanying
footnotes, In addition, see the reconciliation of "cash costs" to production
costs under the "Costs and Expenses" set forth below:
Overview of Operations for the three and nine months ended
September 30, 2002
South America
Cerro Bayo (Chile)
o 881,000 ounces of silver and 15,000 ounces of gold produced during the
third quarter at cash costs of $0.91* per ounce of silver.
o Silver production is expected to double and gold production is expected to
increase 50% percent in the fourth quarter of 2002; cash costs are expected
to decline to $0.65* per ounce of silver.
o New high-grade vein structures intersected during recent drilling program.
o On track to produce 3.0 million ounces of silver and 44,000 ounces of gold
for 2002.
During its first full quarter of operations, Cerro Bayo tripled its silver
production and more than doubled its gold production compared to the second
quarter of 2002. Cash costs during the quarter were $0.91* per ounce of silver,
down 61% from the second quarter, primarily due the increase in silver and gold
production.
The Company stepped-up its exploration activities during the third quarter. Four
drill rigs are currently active on the property and the program has been
designed to increase reserves and mineralized material and improve the Company's
geologic understanding of the highly prospective 5 km wide by 10 km long Cerro
Bayo mineralized zone. While drilling on the Celia vein - one of the main
sources of new reserves - Coeur intersected two new veins. Select values from
these intercepts on the new Marta vein located 80 feet west of the Celia vein
included 6.6 feet of 36.3 oz/ton silver and 0.17 oz/ton gold and 4.0 feet of
42.9 oz/ton silver and 0.39 oz/ton gold.
- --------
* See reconciliation of non-GAAP cash costs to GAAP production costs below under
"Costs and Expenses".
24
Drilling activities are scheduled to continue throughout the fourth quarter.
Martha (Argentina)
o During the third quarter approximately 1,800 tons of ore was hauled to
Cerro Bayo for processing averaging 98 ounces per ton silver.
o Poor weather conditions during third quarter slowed the transportation of
ore to Cerro Bayo.
o Positive exploration results were achieved during the quarter.
Coeur began hauling ore from Martha to Cerro Bayo for processing during the
third quarter. However, record rainfall in the region restricted the amount of
ore that was transported. The Company expects to triple the tons of ore that are
shipped to Cerro Bayo during the fourth quarter of 2002.
On November 5, 2002, Coeur announced continued exploration success at Martha.
Since commencing a reverse circulation drill program in August, Coeur has
drilled a total of 52 holes totaling approximately 3,500 meters (11,550 feet).
Based on these results, Coeur has increased its estimate of the total
mineralized material at Martha by 24%. The new mineralized material is located
immediately adjacent to and below the current underground workings and should
extend Martha's mine life. Drilling is also delineating additional high grade
mineralization in the eastern part of the Martha mine, which has the potential
to further increase the total amount of total proven and probable reserves and
mineralized material.
Additional mineralized material is also being delineated along the main Martha
vein at the R-4 prospect located 100 meters (330 feet) east of the Martha mine.
The Company's exploration efforts to date indicate that the main Martha vein is
prospective over a 1,600 meter (5,250 feet) strike length. Drilling continues on
the Martha vein and on the two new veins that have been identified in the area.
Over the coming weeks, Coeur is confident that nearly all of the mineralized
material will be converted to proven and probable reserves and that additional
mineralized material will be added.
North America
Rochester Mine (Nevada) - World's 7th largest silver mine
o 1.7 million ounces of silver and 19,000 ounces of gold produced during the
third quarter of 2002.
o 4.8 million ounces of silver and 52,400 ounces of gold produced during the
first nine months of 2002.
25
o Cash costs of $2.83* per ounce of silver during the third quarter of 2002 -
a 17% decrease from last year's third quarter largely the result of
increased production.
o Projecting approximately 6.3 million ounces of silver and 65,000 ounces of
gold production for 2002 at an average cash cost of approximately $3.20*
per ounce of silver.
Rochester's silver production of 1.7 million ounces represented a 16% increase
over last year's third quarter. Gold production for the same period increased 4%
compared to last year. The production increases are primarily due to several
process modifications that were implemented earlier this year.
Preparations for mining the adjacent Nevada Packard deposit are nearly complete
and ore production is commencing this current quarter.
Looking ahead to 2003, the Company expects to move its existing crusher
facilities to access additional ounces. Combined with mining from Nevada
Packard, Coeur now expects mining at Rochester to continue into 2007, at which
time residual leaching will commence.
Coeur Silver Valley - Galena Mine (Idaho) - World's 11th largest silver mine
o 1.2 million ounces of silver produced during the quarter, representing a
12% increase from last year's third quarter.
o 4.0 million ounces produced during the first nine months of 2002, a 26%
increase as compared to the first nine months of 2001.
o Cash costs of $4.54* per ounce during the third quarter - a 9% decrease
from last year's third quarter. Cash costs for the first nine months of
2002 were $4.20* per ounce compared to $4.64 per ounce during the first
nine months of 2001.
o Projecting 5.2 million ounces of silver production for 2002 at an average
cash cost of approximately $4.30* per ounce.
Production continues to increase and costs continue to decrease compared to
prior periods due to the introduction of mechanized mining in select areas of
the mine earlier this year.
During the third quarter, development work took place in the "upper country" of
the mine to allow the Company to introduce lower cost long-hole bulk mining in
select areas of the mine next year.
- -------------
* See reconciliation of non-GAAP cash costs to GAAP production costs below
under "Costs and Expenses".
26
RESULTS OF OPERATIONS
Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001.
Revenues
Product sales in the third quarter of 2002 increased by $8.2 million, or
51%, from the third quarter of 2001 to $24.4 million. The increase in product
sales is attributable to (i) increased ounces of silver and gold produced
(accounting for $5.6 million, or 68%, of the increase); and (ii) increased
realized silver and gold prices (accounting for $2.6 million, or 32%, of the
increase).
In the third quarter of 2002, the Company produced a total of 3,786,764
ounces of silver and 33,966 ounces of gold, compared to 2,570,847 ounces of
silver and 21,734 ounces of gold in the third quarter of 2001. The most
important contributor to increased production in the third quarter of 2002 was
the Cerro Bayo mine, which commenced operations in April 2002 and produced
881,348 ounces of silver and 15,081 ounces of gold in the quarter. Realized
silver and gold prices increased to $4.65 and $315 per ounce, respectively, in
the third quarter of 2002 compared to $4.26 and $278 in the same quarter of
2001.
Interest and other income in the third quarter of 2002 increased by $1.3
million compared with the third quarter of 2001. The increase was due to a $1.7
million gain recorded on the disposal of the Petorca mine, offset by $0.4
million of lower interest income received as a result of decreased interest
rates and lower cash balances.
Costs and Expenses
Production costs in the third quarter of 2002 increased by $8.6 million, or
54%, from the third quarter of 2001 to $24.6 million. Increased production costs
were a result of the start of production at the Cerro Bayo mine in April 2002.
The following tables present a reconciliation between cash costs per ounce
and GAAP production costs reported in the Statement of Operations:
Three months ended
September 30, 2002
Silver Cerro
Rochester Valley Bayo Total
--------- --------- ------- ---------
Production of Silver (ounces) 1,717,151 1,188,262 881,348 3,786,764
Cash Costs per ounce $2.83 $4.54 $0.91
Total Cash Costs (thousands) $4,860 $5,895 $802 $11,557
27
Add/Subtract:
Third Party Smelting Costs (307) (1,801) (708) (2,816)
By-Product Credit 5,932 667 4,748 11,347
Accrued Reclamation Costs 290 150 - 440
Inventory Variations 4,775 (131) (524) 4,120
Production Costs $15,550 $4,780 $4,318 $24,648
Three months ended
September 30, 2001
Silver
Rochester Valley Petorca Total
--------- --------- ------- ---------
Production of Silver (ounces) 1,483,382 1,060,191 2,543,573
Production of Gold (ounces) 3,563 3,563
Cash Costs per ounce $3.42 $4.97 $306
--------- --------- ------- ---------
Total Cash Costs (thousands) $5,073 $5,269 $1,090 $11,432
Add/Subtract:
Third Party Smelting Costs (195) (1,425) (422) (2,042)
By-Product Credit 4,964 561 328 5,853
Accrued Reclamation Costs 361 205 - 566
Inventory Variations (479) (703) 1,401 219
--------- --------- ------- ---------
Production Costs $9,724 $3,907 $2,397 $16,028
========= ========= ======= =========
Depreciation and amortization increased in the third quarter of 2002 by
$0.04 million, from the prior year's third quarter, due to increased depletion
taken at the Rochester, Galena and Cerro Bayo mines due to increased production
of silver at the mines.
Administrative and general expenses decreased in the third quarter of 2002
compared to the same period in 2001 by $1.0 million due to cost conservation
measures implemented late in 2001.
Exploration expenses decreased by $1.2 million in the third quarter of 2002
compared to the same period in 2001. Exploration expenditures were curtailed in
the first nine months of 2002 to conserve cash. These expenses are expected to
increase in the fourth quarter.
Pre-feasibility expenses on the San Bartolome project were $0.3 million
lower in the third quarter of 2002 as compared to the same quarter of 2001. The
feasibility study for the San Bartolome project has been slowed down due to low
silver prices and in order to review mining alternatives.
Interest expense increased in the third quarter of 2002 over the third
quarter of 2001 to $7.6 million from $3.5 million. Per the terms of the
indentures, an additional $4.2 million in interest was paid to the holders of
$24 million of the 13 3/8% Notes which converted to equity during the third
quarter of 2002.
There was no gain or loss on retirement of debt in the third quarter ending
September 30, 2002, compared to a gain on retirement
28
of debt of $39.2 million in the same quarter of 2001. Refer to "Debt Reduction
Program" discussion below for more detail.
Net Income (Loss)
As a result of the above mentioned factors, the Company's net loss amounted
to $12.3 million in the third quarter of 2002 compared to net income of $26.9
million in the third quarter of 2001. The net loss attributable to common
shareholders was $0.14 per share for the third quarter of 2002, compared to net
income attributable to common shareholders of $0.62 per share for the third
quarter of 2001.
Debt Reduction Program
During the 3rd quarter of 2002, holders of $9.9 million of the Series I 13
3/8% Convertible Senior Subordinated Notes due December 31, 2003 (the "Series I
13 3/8% Notes") voluntarily converted such notes into approximately 7.3 million
shares of common stock. In addition, 0.8 million shares of common stock were
issued as payment for $1.4 million of interest expense on the Series I 13 3/8%
Notes.
During the 3rd quarter of 2002 holders of $14.1 million of Series II 13
3/8% Convertible Senior Subordinated Notes due December 31, 2003 (the "Series II
13 3/8% Notes") voluntarily converted such notes into approximately 10.4 million
shares of common stock. The Series I 13 3/8% Notes and the Series II 13 3/8%
Notes are collectively referred to hereinafter as the "13 3/8% Notes." In
addition, 1.7 million shares of common stock were issued as payment for $2.8
million of interest expense on the Series II 13 3/8% Notes.
During the third quarter of 2001, the Company issued a total of $43.2
million principal amount of Series I 13 3/8% Notes in connection with an
exchange offer extended to the holders of outstanding convertible subordinated
debentures. As a result of the transaction, the Company recorded a gain of $39.2
million on the early retirement of debt.
During the third quarter of 2001, holders of $1.3 million of the Series I
13 3/8% Notes converted into approximately 1.2 million shares of common stock.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001.
Revenues
Product sales in the first nine months of 2002 increased by $8.0 million,
or 15%, from the first nine months of 2001 to $60.5 million. The increase in
product sales is attributable to (i) increased ounces of silver produced, offset
in part by a reduction in the ounces of gold produced (accounting for $5.6
million, or 68%, of the increase);
29
and (ii) increased realized silver and gold prices (accounting for $2.6 million,
or 32%, of the increase). In the first nine months of 2002, the Company produced
a total of 9,957,505 ounces of silver and 73,440 ounces of gold compared to
7,759,738 ounces of silver and 75,688 ounces of gold in the first nine months of
2001. The Cerro Bayo mine, which commenced operations in April 2002, produced
1,141,891 ounces of silver and 21,000 ounces of gold through September 30, 2002.
Silver production also increased at the Galena and Rochester mines. The Petorca
mine, which ceased production in August 2001, produced 85,012 ounces of silver
and 17,494 ounces of gold during the first nine months of 2001. Reduced gold
production at Rochester also contributed to the decrease in gold production in
the first nine months of 2002. In the first nine months of 2002, the Company
realized average silver and gold prices of $4.67 and $306, respectively,
compared with realized average prices of $4.40 and $274, respectively, in the
prior year's first nine months.
Interest and other income in the first nine months of 2002 increased by
$2.5 million compared with the first nine months of 2001. The increase was due
to the receipt of $1.5 million of insurance proceeds relating to a business
interruption claim at the Galena mine and gain on the sale of the Petorca mine
of $1.7 million, offset by lower interest income received as a result of
decreased interest rates and reduced cash balances of $0.7 million.
Costs and Expenses
Production costs in the first nine months of 2002 increased by $6.8
million, or 13%, from the first nine months of 2001 to $58.9 million. Increased
production costs were a result of the start of production at the Cerro Bayo mine
in April of 2002 offset in part by the closure of the Petorca mine in August
2001.
The following tables present a reconciliation between cash costs per ounce
and GAAP production costs reported in the Statement of Operations:
Nine months ended
September 30, 2002
Silver Cerro
Rochester Valley Bayo Total
--------- --------- --------- ---------
Production of Silver (ounces) 4,770,361 4,045,253 1,141,891 9,957,505
Cash Costs per ounce $3.11 $4.20 $1.21
--------- --------- --------- ---------
Total Cash Costs (thousands) $14,836 $16,990 $1,382 $33,208
--------- --------- --------- ---------
Add/Subtract:
Third Party Smelting Costs (791) (5,811) (708) (7,310)
By-Product Credit 16,039 2,350 6,622 25,011
Accrued Reclamation Costs 863 474 - 1,337
Inventory Variations 9,607 49 (2,978) 6,678
--------- --------- --------- ---------
Production Costs $40,554 $14,052 $4,318 $58,924
========= ========= ========= =========
30
Nine months ended
September 30, 2001
Silver
Rochester Valley Petorca Total
--------- --------- --------- ---------
Production of Silver (ounces) 4,473,629 3,201,098 7,674,727
Production of Gold (ounces) 17,495 17,495
Cash Costs per ounce $3.31 $4.64 $340
--------- --------- --------- ---------
Total Cash Costs (thousands) $14,808 $14,853 $5,943 $35,604
Add/Subtract:
Third Party Smelting Costs (611) (4,234) (1,825) (6,670)
By-Product Credit 15,613 1,852 1,489 18,954
Accrued Reclamation Costs 1,087 488 - 1,575
Inventory Variations 1,689 (42) 1,011 2,658
--------- --------- --------- ---------
Production Costs $32,586 $12,917 $6,618 $52,121
========= ========= ========= =========
Depreciation and amortization increased slightly in the first nine months
of 2002 to $8.1 million, from the prior year's first nine months, due to
additional depletion taken at the Rochester, Galena and Cerro Bayo mines based
on increased silver production.
Administrative and general expenses decreased in the first nine months of
2002 by $0.9 million due to cost conservation measures implemented.
Exploration expense decreased in the first nine months of 2002 by $2.8
million to $2.4 million as a result of a concerted effort to conserve cash in
the first nine months of 2002. These costs are expected to increase during the
fourth quarter of 2002.
Interest expenses increased $6.6 million in the first nine months of 2002
compared to 2001. Per the terms of the indenture, an additional $7.6 million in
interest was paid to the holders of $40.0 million of the 13 3/8% Notes which
converted to equity during the first nine months of 2002.
The loss on retirement of debt amounted to $2.9 million for the nine
months ending September 30, 2002, compared to a gain on retirement of debt of
$48.2 million in the same period in 2001. Refer to "Debt Reduction Program"
discussion below for additional detail.
Net Income (Loss)
As a result of the above mentioned factors, the Company incurred a loss of
$35.1 million in the first nine months of 2002 compared to net income of $15.2
million in the first nine months of 2001. The net loss attributable to common
shareholders was $0.51 per share for the first nine months of 2002, compared to
net income per share of $0.37 for the first nine months of 2001.
31
Debt Reduction Program
During the first nine months of 2002 the Company repurchased $13.8 million,
$0.8 million and $1.3 million principal amount of its outstanding 6%, 6 3/8% and
7 1/4% Convertible Subordinated Debentures, respectively, in exchange for 17.6
million shares of common stock and recorded a loss of approximately $2.9
million. In addition, holders of $25.9 million and $14.1 million principal
amount of the Series I and Series II 13 3/8% Notes, respectively, voluntarily
converted their Notes, in accordance with the terms of the indentures, into
approximately 20.9 million and 12.1 million shares of common stock,
respectively.
In May 2002, the Company issued $21.5 million principal amount of Series II
13 3/8% Notes, for proceeds of $13.9 million, net of discount of $5.5 million
and offering costs of approximately $2.1 million.
During the 1st quarter of 2001, the Company repurchased $5.0 million
principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures
in exchange for 1,787,500 shares of common stock.
In three privately negotiated transactions completed in the second quarter
of 2001, the Company repurchased in aggregate, $11 million principal amount of
its outstanding 7 1/4% Debentures in exchange for 4,257,618 shares of common
stock. As a result of the transactions, the Company recorded an extraordinary
gain in the second quarter ending June 30, 2001 of approximately $5.8 million,
net of deferred offering costs and taxes.
During the 3rd quarter of 2001, the Company issued a total of $43.2 million
principal amount of Series I 13 3/8% Notes in connection with an exchange offer
extended to the holders of the Company's other outstanding convertible
subordinated debentures.
During the 3rd quarter of 2001, $1.3 million of the Series I 13 3/8% Notes
were converted into approximately 1.2 million shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at September 30, 2002, increased by $10.2
million to approximately $38.8 million compared to $28.6 million at December 31,
2001. The increase was primarily attributed to the retirement of $23.2 million
of the Company's 6% Debentures that matured on June 10, 2002. The ratio of
current assets to current liabilities was 3.0 to 1.0 at September 30, 2002
compared to 1.7 to 1.0 at December 31, 2001.
32
Net cash used in operating activities in the three months ended September
30, 2002 was $2.3 million compared to net cash used in operating activities of
$9.8 million in the three months ended September 30, 2001. The improvement of
$7.5 million was the result of a reduction in inventories of $4.9 million
partially offset by increased receivables of $1.8 million, lower exploration and
general and administrative expenses of $3.7 million and the payment of $7.6
million of interest expenses with common stock. Net cash used in investing
activities in the third quarter of 2002 was $3.2 million compared to net cash
used in investing activities of $0.9 million in the prior year's comparable
period. The increase in cash used in investing activities primarily resulted
from an increase in capital expenditures of $2.3 million. Net cash provided by
financing activities was $0.7 million in the third quarter of 2002, compared to
$2.6 million used in the third quarter of 2001. The decrease was primarily a
result of $0.9 million of proceeds received under the Company's working capital
facility in 2002 compared to $2.0 million of issue costs for the exchange offer
in the third quarter of 2001. As a result of the above, cash and cash
equivalents decreased by $4.7 million in the third quarter of 2002 compared to a
decrease of $13.2 million for the comparable period in 2001.
Net cash used in operating activities in the nine months ended September
30, 2002 was $7.7 million compared to $25.7 million in the nine months ended
September 30, 2001 primarily resulting from a decrease in current liabilities of
$10.1 million in the first nine months of 2001. Net cash used in investing
activities in the 2002 period was $5.0 million compared to net cash provided by
investing activities of $13.3 million in the prior year's comparable period. The
decrease primarily resulted from the proceeds received in the prior year of
$14.7 million from the sale of the Company's 50% interest in Gasgoyne Gold Mines
and offset in part by an increase in capital expenditures of $2.7 million. Net
cash provided by financing activities was $5.2 million in the nine months of
2002, compared to $3.0 million used in the nine months of 2001. The increase was
primarily a result of $13.9 million from the proceeds received for the issuance
of the Series II 13 3/8% Notes and proceeds received of $0.9 million under the
working capital facility, offset by the retirement of 6% Debentures due June
2002, of $9.4 million. As a result of the above, cash and cash equivalents
decreased by $7.5 million in the nine months of 2002 compared to a decrease of
$15.4 million for the comparable period in 2001.
The Company has improved its working capital position since December 31,
2001 by extinguishing $23.2 million of its 6% debentures due June 10, 2002, with
(a) the proceeds from the issuance in May 2002 of the Series II 13 3/8% Notes
due December 2003 and (b) exchanges of debt for Common Shares. The Company will
continue to make debt reduction and/or restructuring one of its primary
objectives during the next twelve months and believes its debt will
33
be further reduced by additional conversions of 13 3/8% Notes into common equity
during the remainder of this year and into next year. The use of cash in
operations for the past nine months has decreased from prior periods as
indicated above and the Company expects to see continued declines in cash costs
of production at several of its major producing properties during the next year.
At September 30, 2002, the Company had $7.2 million of cash and approximately
$8.0 million available under its working capital facility. Management therefore
believes that its existing and available cash and cash flow from operations will
allow it to meet its obligations for the next twelve months.
Litigation and Other Events
Noranda Smelter Strike
On June 18, 2002, the Company received notification from Noranda that the
employees working at its smelter in Quebec were on strike. This smelter is where
Coeur Silver Valley sells essentially 100% of its concentrate. As of September
30, 2002 the employees were on strike, but Noranda had removed the "Force
Majure" under the terms of the Company's concentrate sales contract and have
continued to purchase the concentrate sent to them by Coeur Silver Valley.
Management believes that Noranda will continue to purchase all produced
concentrate from Coeur Silver Valley. However, the Company would see a
significant decrease in product sales from Coeur Silver Valley in the event that
Noranda were to exercise its Force Majure rights. In the third quarter the
Company was able to sell 750 tons of concentrate in the spot market to an
alternative buyer. In the event that Noranda exercised Force Majure in the
future, we would pursue alternative buyers.
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 filed suit against the Company in March 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 silver held by 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
34
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 claims are
without merit, and are vigorously defending the suit.
Baugh Class 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 five families seeking medical
benefits and property compensation from the mining companies involved in the
Bunker Hill Superfund site. Damages for diminution in property value, trespass
and nuisance were claimed. In addition, it was alleged that the court should
make provision for medical monitoring and oversight of certain cleanup
activities. On October 16, 2002 the court dismissed the complaint in response to
motions by the defendants, with leave granted to the plaintiffs to amend their
complaint within 60 days from the date of dismissal.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks as a part of its operations.
As an effort to mitigate losses associated with these risks, the Company may, at
times, enter into derivative financial instruments. These may take the form of
forward sales contracts, foreign currency exchange contracts and interest rate
swaps. The Company does not actively engage in the practice of trading
derivative securities for profit. This discussion of the Company's market risk
assessments contains "forward looking statements" that contain risks and
uncertainties. Actual results and actions could differ materially from those
discussed below.
The Company's operating results are substantially dependent upon the world
market prices of silver and gold. The Company has no control over silver and
gold prices, which can fluctuate widely and are affected by numerous factors,
such as supply and demand and investor sentiment. In order to mitigate some of
the risk associated with these fluctuations, the Company will at times, enter
into forward sale contracts. The Company continually evaluates the potential
benefits of engaging in these strategies based on the then
35
current market conditions. The Company may be exposed to nonperformance by
counterparties as a result of its hedging activities. This exposure would be
limited to the amount that the spot price of the metal falls short of the
contract price.
The Company operates in several foreign countries, specifically Bolivia,
Argentina 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 in the future for United States dollars at a
pre-determined exchange rate. 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 September 30, 2002 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.
Fair
Value
(dollars in thousands) 2002 2003 2004 2005 2006 Thereafter Total 9/30/02
- --------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt $98,026
Fixed Rate $ - $22,877 $65,457 $14,394 $ - $ - $102,728
Average Interest Rate 10.208% 8.056% 7.006% 7.250%
Derivative Financial
Instruments
Gold Forward Sales -
USD $ 9
Ounces 6,000 24,000 - - - - 30,000
Price Per Ounce $325 $324 - - - - -
Foreign Currency
Contracts
Chilean Peso - USD $ 1,350 $ 3,000 - - - - $ 4,350 $ (213)
Exchange Rate 716 716 - - - - -
(CLP to USD)
Fair value is determined by trading information on or near the balance
sheet date. Long term debt represents the face amount of the outstanding
convertible debentures and timing of when these become due. Interest rates
presented in the table are calculated using the weighted average of the
outstanding face amount of each debenture for
36
the period remaining in each period presented. All long term debt is denominated
in US dollars.
Item 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are effective based on
their evaluation of such controls and procedures as of a date within 90 days
prior to the filing of this report. There were no significant changes in
internal controls or in other factors that significantly affect internal
controls subsequent to the date of their most recent evaluation.
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on September 17,
2002. Of the Company's total 83,895,259 shares of common stock outstanding on
July 30, 2002 (the record date), 60,561,085 shares (or 72.19% of the
outstanding) were represented in person or by proxy at the Annual Meeting.
The first proposal was the election of directors. The following persons
were nominated and elected to serve as members of the Board of Directors for one
year or until their successors are elected and qualified by the votes indicated:
Cecil D Andrus - 59,101,905 for and 1,459,180 withheld; James J. Curran -
59,160,051 for and 1,401,034 withheld; James A. McClure - 59,115,184 for and
1,445,901 withheld; Robert E. Mellor - 59,125,814 for and 1,435,271 withheld;
John H. Robinson - 59,157,582 for and 1,403,503 withheld; Timothy R. Winterer -
59,165,533 for and 1,395,552 withheld; Daniel Tellechea Salido - 59,063,180 for
and 1,497,905 withheld; J. Kenneth Thompson - 59,255,009 for and 1,306,076
withheld; Xavier Garcia de Quevedo Topete - 59,218,781 for and 1,342,304
withheld; and Dennis E. Wheeler - 58,911,484 for and 1,649,601 withheld.
The second proposal was the proposed amendment of the Company's Restated
and Amended Articles of Incorporation approving an increase in the number of
authorized shares of the Company's common stock from 125 million to 250 million
shares. The proposal was approved by the holders of more than the required
majority of the shares of common stock voting at the meeting. The proposal was
approved by a vote of 56,145,724 shares for (representing 66.9% of the shares
voting), 4,201,196 shares against with 214,165 shares abstaining.
The third proposal was the proposed amendment of the Company's Executive
Compensation Program to authorize the reservation of an additional 1,000,000
shares of common stock for issuance under the
37
program. The proposal was approved by the holders of more than the required
majority of the shares of common stock voting at the meeting. The proposal was
approved by a vote of 54,609,791 shares for (representing 65.1% of the shares
voting), 5,738,366 shares against with 212,928 shares abstaining.
The fourth proposal was the proposed amendment of the Company's
Non-Employee Directors' Stock Option Plan and authorize the reservation of an
additional 500,000 shares of common stock for issuance under option to be
granted under the plan. The proposal was approved by the holders of more than
the required majority of the shares of common stock voting at the meeting. The
proposal was approved by a vote of 54,960,120 shares for (representing 65.5% of
the shares voting), 5,370,937 shares against with 230,028 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
3.1 Amendment to Restated and Amended Articles of Incorporation of
the Registrant
99.1 Certification of the CEO
99.2 Certification of the CFO
b) Form 8-K. The Company filed a Report on Form 8-K on July 23, 2002 and
filed an amendment to that Form 8-K on July 26, 2002 (reporting the
Company's determination on July 22, 2002 that the firm of Arthur
Andersen LLP would no longer serve as the Company's independent
accounting firm and the Company's engagement of KPMG LLP to serve as
the Company's independent accounting firm).
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
(Registrant)
Dated November 14, 2002 /s/ Dennis E. Wheeler
-----------------------------------
DENNIS E. WHEELER
Chairman and
Chief Executive Officer
Dated November 14, 2002 /s/ Geoffrey A. Burns
-----------------------------------
GEOFFREY A. BURNS
Senior Vice President and
Chief Financial Officer
39
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Dennis E. Wheeler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Coeur d'Alene Mines
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Dennis E. Wheeler
------------------------------------
Dennis E. Wheeler
Chairman and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Geoffrey A. Burns, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Coeur d'Alene Mines
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Geoffrey A. Burns
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Geoffrey A. Burns
Sr. Vice President and Chief
Financial Officer