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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2003.
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
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COEUR D'ALENE MINES CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
Idaho 82-0109423
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
PO Box I,
505 Front Ave.
Coeur d'Alene, Idaho 83816
--------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(208) 667-3511
------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 under the Exchange Act). 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 140,127,200 shares were issued and
outstanding as of May 9, 2003.
COEUR D'ALENE MINES CORPORATION
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
March 31, 3002 and December 31, 2002
Consolidated Statements of Operations and
Comprehensive Loss -- 5
Three Months Ended March 31, 2003
and 2002
Consolidated Statements of Cash Flows -- 6
Three Months Ended March 31, 2003
and 2002
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 43
Item 4. Controls and Procedures 44
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds 44
Item 6. Exhibits and Reports on Form 8-K 45
Signatures 46
Certifications of CEO and CFO 47
2
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
----------- ------------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 19,288 $ 9,093
Short-term investments 20,550 518
Receivables and prepaid expenses, net 8,345 7,185
Ore on leach pad 12,485 11,082
Metal and other inventory 14,970 14,846
--------- ---------
75,638 42,724
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 77,700 76,194
Less accumulated depreciation (50,455) (49,531)
--------- ---------
27,245 26,663
MINING PROPERTIES
Operational mining properties 108,051 92,149
Less accumulated depletion (83,062) (71,833)
--------- ---------
24,989 20,316
Non-producing and developmental properties 25,365 28,129
Mineral interests 18,825 18,825
--------- ---------
69,179 67,270
OTHER ASSETS
Non-current ore on leach pad 16,641 15,474
Restricted investments 14,087 13,108
Debt issuance costs, net 1,905 1,034
Marketable securities 721 915
Other 6,081 5,900
--------- ---------
39,435 36,431
--------- ---------
Total assets $ 211,497 $ 173,088
========= =========
See notes to consolidated financial statements.
3
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2003 2002
----------- ------------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,586 $ 5,962
Accrued liabilities 4,823 4,334
Accrued interest payable 1,236 1,610
Accrued salaries and wages 3,189 5,594
Current portion of remediation costs 1,002 926
13 3/8% Convertible Senior Subordinated
Notes due December 2003 9,911 12,735
6 3/8% Convertible Subordinated Debentures
due January 2004 28,268 -
Current portion of bank financing 7,296 4,918
--------- ---------
61,311 36,079
LONG-TERM LIABILITIES
9% Convertible Senior Subordinated Notes due
February 2007 (net of discount) 33,857 -
6 3/8% Convertible Subordinated Debentures
due January 2004 - 55,132
7 1/4% Convertible Subordinated Debentures
due October 2005 9,939 11,665
Reclamation and mine closure 21,117 14,458
Other long-term liabilities 8,044 8,456
--------- ---------
72,957 89,711
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1.00 per share-
authorized 250,000,000 shares, issued
141,180,715 and 119,653,267 at March 31,
2003 and December 31, 2002 (1,059,211
shares held in treasury) 141,181 119,653
Additional paid in capital 460,753 420,863
Accumulated deficit (510,397) (479,207)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive loss (1,118) (821)
--------- ---------
77,229 47,298
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 211,497 $ 173,088
========= =========
See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three Months ended March 31,
2003 2002
--------- ----------
(In Thousands, except per share data)
REVENUES
Sales of metal $ 29,001 $ 16,469
Interest and other 262 528
--------- ---------
Total revenues 29,263 16,997
COSTS and Expenses
Production 17,878 18,014
Depreciation and depletion 5,019 1,878
Administrative and general 3,055 2,105
Exploration 1,087 628
Pre-feasibility 377 822
Interest 2,007 4,401
Write-down of mining properties and other holding costs 624 1,045
Loss on exchange and early retirement of debt 28,107 --
--------- ---------
Total cost and expenses 58,154 28,893
--------- ---------
NET LOSS FROM CONTINUING OPERATIONS BEFORE TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (28,891) (11,896)
Income tax benefit 7 --
--------- ---------
NET LOSS BEFORE CUMULATIVE EFFECT IN CHANGE IN
ACCOUNTING PRINCIPLE (28,884) (11,896)
Cumulative effect of change in accounting principle (2,306) --
--------- ---------
Net loss (31,190) (11,896)
Other comprehensive income (loss) (297) 101
--------- ---------
COMPREHENSIVE LOSS $ (31,487) $ (11,795)
========= =========
BASIC AND DILUTED LOSS PER SHARE:
Weighted average number of shares of common stock 133,503 52,389
========= =========
Net loss per common share before cumulative effect
of change in accounting principle $ (0.21) $ (0.23)
Cumulative effect of change in accounting principle (0.02) --
--------- ---------
Net loss per common share $ (0.23) $ (0.23)
========= =========
See notes to consolidated financial statements.
5
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2003 and 2002
(Unaudited)
Three Months
Ended March 31,
2003 2002
--------- ---------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(31,190) $(11,896)
Add (deduct) non-cash items:
Depreciation and depletion 5,019 1,878
Loss (gain) on early retirement of Convertible
Subordinated Debentures 28,107 252
Interest expense on Convertible Senior
Subordinated Notes paid in common stock 1,101 895
Cumulative effect of change in accounting method 2,306 --
Other charges 243 873
Changes in Operating Assets and Liabilities:
Receivables (1,160) (1,298)
Inventories (2,694) 2,722
Accounts payable and accrued liabilities (3,078) 1,056
-------- --------
CASH USED IN OPERATING ACTIVITIES (1,346) (5,519)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (40,750) --
Proceeds from sales of short-term investments 19,720 1,264
Expenditures on mining assets (3,264) (1,554)
Other (50) (137)
-------- --------
CASH USED IN INVESTING ACTIVITIES (24,344) (427)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs (248) --
Proceeds from issuance of 9% Notes 33,786 --
Bank Borrowings on working capital facility 12,155 --
Payments to Bank on working capital facility (9,777) --
Other (31) (61)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: 35,885 (61)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
10,195 (6,007)
Cash and cash equivalents at beginning of period 9,093 14,714
-------- --------
Cash and cash equivalents at end of period $ 19,288 $ 8,707
======== ========
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 of America 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 of America 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 period ended March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2003.
The balance sheet at December 31, 2002 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, 2002.
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 Polimet S.A., 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, depending on the
contract. The effects of forward sales contracts are reflected in revenue at the
date the related precious metals are delivered or the contracts expire. Third
party smelting and refining costs are recorded as a reduction of revenue.
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 considered 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.
7
Ore on Leach Pad: The heap leach process is a process of extracting silver
and gold by placing ore on an impermeable pad and applying a diluted cyanide
solution that dissolves a portion of the contained silver and gold, which are
then recovered in metallurgical processes.
The Company uses several integrated steps to scientifically measure the
metal content of ore placed on the leach pads. As the ore body is drilled in
preparation for the blasting process, samples are taken of the drill residue
which is assayed to determine estimated quantities of contained metal. The
Company estimates the quantity of ore by utilizing global positioning satellite
survey techniques. The Company then processes the ore through a crushing
facility where the output is again weighed and sampled for assaying. A
metallurgical reconciliation with the data collected from the mining operation
is completed with appropriate adjustments made to previous estimates. The
crushed ore is then transported to the leach pad for application of the leaching
solution. As the leach solution is collected from the leach pads, it is
continuously sampled for assaying. The quantity of leach solution is measured by
flow meters throughout the leaching and precipitation process. After
precipitation, the product is converted to dore, which is the final product
produced by the mine. The inventory is stated at lower of cost or market, with
cost being determined using the first-in, first-out and weighted average cost
methods.
The Company reported ore on leach pads of $29.1 million as of March 31,
2003. Of this amount, $12.5 million is reported as a current asset and $16.6
million is reported as a non-current asset. The distinction between current and
non-current is based upon the expected length of time necessary for the leaching
process to remove the metals from the broken ore. The historical cost of the
metal that is expected to be extracted within twelve months is classified as
current and the historical cost of metals contained within the broken ore that
will be extracted beyond twelve months is classified as non-current.
The estimate of both the ultimate recovery expected over time and the
quantity of metal that may be extracted relative to the time the leach process
occurs requires the use of estimates which are inherently inaccurate since they
rely upon laboratory testwork. Testwork consists of 60 day leach columns from
which the Company projects metal recoveries up to five years in the future. The
quantities of metal contained in the ore are based upon actual weights and assay
analysis. The rate at which the leach process extracts gold and silver from the
crushed ore is based upon laboratory column tests and actual experience
occurring over approximately fifteen years of leach pad operations at the
Rochester Mine. The assumptions used by the Company to measure metal content
during each stage of the inventory conversion process includes estimated
recovery rates based on laboratory testing and assaying. The Company
periodically reviews its estimates compared to actual experience and revises its
estimates when appropriate. The length of time necessary to achieve ultimate
recoveries for silver and gold is currently estimated between 5 and 10 years. In
2003, the estimated recoveries for silver and gold used are 61.5% and 93%,
respectively. However, the ultimate recovery will not be known until leaching
operations cease which is currently estimated for 2011.
Metal Inventories and Other: Inventories include concentrate ore, dore, ore
in stockpiles and operating materials and supplies. The classification of
inventory is determined by the stage at which the ore is in the production
process. Inventories of ore in stock piles are 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. 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
8
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
units-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.
Mineral Interests: The Company classifies mineral interests as intangible
assets. The excess of the cost of each mineral interest over its estimated
residual value is amortized over the estimated life of the related mineral
right. Residual values for undeveloped mineral interests represent the expected
fair value of the interests at the time the Company plans to convert, develop,
further explore or dispose of the interests. The residual values represent a
percentage of the carrying value. For mineral interests with proven and probable
reserves, the amortization is based upon the units-of-production method. For
mineral interests with only mineralized material, amortization is based on the
straight-line method based upon the estimated useful life of the mineral
interest. Such amortization for the first quarter of 2003 was not significant.
Asset Impairment: Management reviews and evaluates its long-lived assets
for impairment when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. The Company utilizes the methodology
set forth in Statement of Financial Accounting Standard ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," 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.
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 March 31, 2003
and December 31, 2002, the Company had certificates of deposit under these
9
agreements of $14.1 million and $13.1 million, respectively, restricted for this
purpose. The ultimate timing for the release of the collateralized 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 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). 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 March 31, 2003 and December 31, 2002 the carrying
amount of the deferred stripping costs were $1.4 million and $1.5 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
complete amortization should occur in less than four years. The amounts that
were amortized for the three months ended March 31, 2003 and 2002 were $0.1
million and $0.05 million, respectively.
Reclamation and Remediation Costs: Estimated future reclamation and
remediation costs are based principally on legal and regulatory requirements.
The Company measured the cumulative accretion and accumulated depreciation for
the period from the date the liability would have been recognized if FASB No.
143 were in effect when the Company incurred the liability to the date of the
adoption of FASB No. 143 and has reported these as a cumulative effect of a
change in accounting principle. For the initial measurement of these existing
obligations we have used current information, assumptions, and interest rates.
The Asset Retirement Obligation is measured using assumptions for cash
outflows such as expected labor costs, allocated overhead and equipment charges,
contractor markup and inflation adjustments to determine the total obligation.
The sum of all these costs were discounted, using the credit adjusted
risk-free interest rate (current assumption of 7.5%), from the time we expect to
pay the retirement obligation to the time we incur the obligation. The
measurement objective is to determine the amount a third party would demand to
assume the asset retirement obligation.
Upon initial recognition of a liability for an asset retirement obligation,
the Company capitalizes the asset retirement cost with a corresponding debit to
the carrying amount of the related long-lived asset. The Company will deplete
this amount to operating expense using the units-of-production method. The
Company evaluates the cash flow estimates at the end of each reporting period to
determine whether the estimates continue to be appropriate. Upward revisions in
the amount of undiscounted cash flows will be discounted using the current
credit-adjusted risk-free rate. Downward revisions will be discounted using the
credit-adjusted risk-free rate that existed when the original liability was
recorded.
See Note C.
Foreign Currency: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the date of the
transaction or at 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.
10
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. 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. 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 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 contract. 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
forward 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 computes income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
approach which results in the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of those assets and liabilities, as well as
operating loss and tax credit carryforwards, using enacted tax rates in effect
in the years in which the differences are expected to reverse.
The Company has operating loss carryforwards which expire in 2008 through
2020 for U.S. carryforwards and indefinitely for foreign carryforwards. The
Company has reviewed its net deferred tax assets and has not recognized
potential tax benefits arising therefrom because at this time management
believes it is more likely than not that the benefits will not be realized in
future years. The amount recognized in the current quarter relates to a cash
refund received during the quarter.
Comprehensive Loss: 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 the
following:
March 31, March 31,
2003 2002
--------- ----------
Unrealized gain (loss) on marketable securities
$ (219) $ 101
Change in fair value of derivative hedging, net
of settlement (78) -
-------- -------
Comprehensive income (loss) $ (297) $ 101
======== =======
Loss Per Share: Loss per share is computed by dividing the net loss
attributable to common stock by the weighted average number of common shares
outstanding during each period. All stock options outstanding at each period end
have been excluded from the weighted average share calculation. The effect of
potentially dilutive stock options outstanding was antidilutive in the three
months ended March 31, 2003 and 2002.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
11
Reclassifications: Certain reclassifications of prior year balances have
been made to conform to current year presentation.
Recent Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires
entities to record the fair value of liabilities for retirement obligations of
acquired assets. SFAS No. 143 is effective for fiscal years beginning after June
15, 2002. The Company adopted SFAS No. 143 on January 1, 2003. See Note C -
Cumulative Effect of Change in Accounting Method.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company adopted the provisions of SFAS No. 146 on January
1, 2003, which did not have an effect on the Company's financial position or
results of operations.
In December, 2002 the FASB issued SFAS No. 148, "Accounting for Stock-based
Compensation-Transition and Disclosure." SFAS 148 amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair-value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. At March 31, 2003, the Company had one stock-based employee
compensation plan. The Company accounts for this plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Employee compensation cost reflected in
net income was $28,000 for restricted stock granted under this plan and no
compensation cost is reflected for options granted as all options granted under
this plan had an exercise price equal to the market value of the underlying
common stock on the date of the grant. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended
(In thousands except per share data) March 31,
---------------------
2003 2002
--------- ---------
Net loss attributable to Common shareholders $(31,190) $(11,896)
Unaudited net loss pro forma $(31,200) $(11,906)
Basic and diluted net loss per share as reported $ (0.23) $ (0.23)
Unaudited basic and diluted net loss per share pro forma $ (0.23) $ (0.23)
The provisions of SFAS 148 will not have a material impact on the Company,
as it does not plan to adopt the fair-value method of accounting for stock
options at the current time.
In November, 2002 the FASB issued Financial Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others - an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34" (FIN
45). FIN 45 elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
initial measurement provisions of FIN 45 are applicable on a prospective basis
to guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements are effective for
financial statements of interim or annual periods ending after
12
December 15, 2002. The Company adopted the provisions of FIN 45 on January 1,
2003, which did not have an effect on the Company's financial position or
results of operations.
In January 2003, the FASB issued Financial Interpretation No. 46,
"Consolidation of Variable Interest Entities - an interpretation of ARB No. 51"
(FIN 46). FIN 46 is an interpretation of Accounting Research Bulletin 51,
"Consolidated Financial Statements", and addresses consolidation by business
enterprises of variable interest entities (VIE's). The primary objective of the
Interpretation is to provide guidance on the identification of, and financial
reporting for, entities over which control is achieved through means other than
voting rights; such entities are known as VIE's. FIN 46 requires an enterprise
to consolidate a VIE if that enterprise has a variable interest that will absorb
a majority of the entity's expected losses if they occur, receive a majority of
the entity's expected residual returns if they occur, or both. An enterprise
shall consider the rights and obligations conveyed by its variable interests in
making this determination. This guidance applies immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. It applies
in the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. At this time, the Company does not have a
VIE.
NOTE C - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE INITIAL
IMPLEMENTATION OF FASB NO. 143
Effective with the first quarter of 2003 the Company was required by the
FASB to change the methodology used to recognize its reclamation obligations.
Prior to 2003, the Company recognized a pro rata share of the future estimated
reclamation liability on a units-of-production basis. After January 1, 2003
companies are required to recognize the full discounted estimated future
reclamation liability and set up a corresponding asset to be amortized over the
life of the mine on a units-of-production basis. The impact of this change is
accounted for as a change in accounting principle in the first year of
implementation, and the effects of this change are discussed below.
Upon initial application of FASB No. 143, the Company recognized the
following:
1. A liability of $20.7 million for the existing asset retirement
obligations based on the discounted fair market value of future cash
flows to settle the obligations,
2. An asset of $11.4 million to reflect the retirement cost capitalized
as an increase to the carrying amount of the associated long-lived
asset, offset by $7.6 million of accounting depletion through January
1, 2003, and
3. A cumulative effect of change in accounting principle of $2.3 million
at January 1, 2003.
The Company measured the cumulative accretion and accumulated depreciation
for the period from the date the liability would have been recognized if FASB
No. 143 were in effect when the Company incurred the liability to the date of
the adoption of the Statement and has reported these as a cumulative effect of a
change in accounting principle. For the initial measurement of these existing
obligations the Company used current information, assumptions, and interest
rates. The initial implementation of FASB No. 143 also required the Company to
reverse all previously recognized retirement obligations (reclamation accruals)
as part of the cumulative effect adjustment.
The Asset Retirement Obligation is measured using the following factors: 1)
Expected labor costs, 2) Allocated overhead and equipment charges, 3) Contractor
markup, 4) Inflation adjustment, and 5) Market risk premium.
The sum of all these costs was discounted, using the credit adjusted
risk-free interest rate (current assumption of 7.5%), from the time we expect to
pay the retirement obligation to the time we incur the obligation. The
measurement objective is to determine the amount a third party would demand to
assume the asset retirement obligation.
13
Upon initial recognition of a liability for an asset retirement
obligation, the Company capitalized the asset retirement cost with a
corresponding debit to the carrying amount of the related long-lived asset. The
Company will deplete this amount to operating expense using the
units-of-production method. The Company is not required to re-measure the
obligation at fair value each period, but the Company is required to evaluate
the cash flow estimates at the end of each reporting period to determine whether
the estimates continue to be appropriate. Upward revisions in the amount of
undiscounted cash flows will be discounted using the current credit-adjusted
risk-free rate. Downward revisions will be discounted using the credit-adjusted
risk-free rate that existed when the original liability was recorded.
The following is a description of the changes and pro forma changes to
the Company's asset retirement obligations from January 1 to March 31, of 2003:
Assets: 2003
--------------
(in thousands)
Asset Retirement Obligation - January 1, 2003 $ 20,662
Accretion 387
Additions -
Settlements $ (255)
--------
Asset Retirement Obligation - March 31, 2003 $ 20,794
The following table summarizes the pro forma effects of the application
of SFAS No. 143, as if the Statement had been retrospectively applied for the
periods ending on March 31, 2003 and 2002:
(In thousands except per share data) March 31, March 31,
2003 2002
--------- ---------
Net loss as reported $(31,190) $(11,896)
========= =========
Net loss pro forma $(28,884) $(12,027)
========= =========
Basic and diluted earnings per share as reported $ (0.23) $ (0.23)
========= =========
Basic and diluted earnings per share pro forma $ (0.21) $ (0.23)
========= =========
In addition, had the Company adopted the provisions of SFAS No. 143 prior
to January 1, 2003, the amount of the asset retirement obligations on a pro
forma basis would have been as follows:
(In thousands) Pro Forma Asset
Retirement Obligation
---------------------
January 1, 2000 $ 18,937
===========
December 31, 2000 $ 18,282
===========
December 31, 2001 $ 19,553
===========
December 31, 2002 $ 20,662
===========
The pro forma net loss for the years ended December 31, 2000, 2001, and
2002 are $46.5 million, $3.2 million and $81.5 million, respectively. The pro
forma net loss per share for the years ended December 31, 2000, 2001, and 2002
are $1.31, $0.08 and $1.04, respectively.
NOTE D - ORE ON LEACH PADS
Ore on leach pad consists of the following:
March 31, 2003 December 31, 2002
-------------- -----------------
Ore on leach pad - Current $12,485 $11,082
Ore on leach pad - Non-current 16,641 15,474
------- -------
Total ore on leach pads $29,126 $26,556
======= =======
NOTE E - METAL AND OTHER INVENTORIES
Inventories consist of the following: December 31,
2003 2002
------- -------
Concentrate and dore inventory $10,295 $10,189
Supplies 4,675 4,657
------- -------
Metal and other inventory $14,970 $14,846
======= =======
14
NOTE F - INCOME TAXES
The Company computes income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
approach which results in the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of those assets and liabilities, as well as
operating loss and tax credit carryforwards, using enacted tax rates in effect
in the years in which the differences are expected to reverse. The Company has
operating loss carryforwards which expire in 2008 through 2020 for U.S.
carryforwards and indefinitely for foreign carryforwards. The Company has
reviewed its net deferred tax assets and has not recognized potential tax
benefits arising therefrom because at this time management believes it is more
likely than not that the benefits will not be realized in future years. The
amount recognized in the current quarter relates to a cash refund received
during the quarter.
NOTE G - SUPPLEMENTAL CASH FLOW INFORMATION
During the first quarter of 2003, holders of $2.8 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 original
terms, into approximately 2.1 million shares of common stock. In addition, 0.1
million shares of common stock were issued as payment for $0.2 million of
interest expense on the Series I 13 3/8% Notes.
During the first quarter of 2003, the Company purchased $26.9 million and
$1.7 million principal amount of its outstanding 6 3/8% and 7 1/4% Convertible
Subordinated Debentures, respectively, in exchange for 16.9 million shares of
common stock and recorded a loss on exchange and early retirement of debt of
approximately $28.1 million. In addition, 0.6 million shares of common stock
were issued as payment for $0.9 million of interest expense as part of the
transaction. In conjunction with the issuance of the 9% Convertible Senior
Subordinated Notes, the Company also issued 0.6 million shares of common stock
for partial payment of offering costs of $1.0 million.
During the first quarter of 2003, the Company issued 1.2 million shares of
common stock in conjunction with its long-term incentive program.
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.
NOTE H - LONG-TERM DEBT
On February 26, 2003, the Company completed a private placement of $37.2
million principal amount of 9% Convertible Senior Subordinated Notes due
February 2007 (the "9% Notes"). The net proceeds were approximately $33.8
million, of which $10.0 million will be available for general corporate purposes
and the remainder will be used to retire $22.4 million principal amount of the
remaining $28.3 million principal amount of the Company's 6 3/8% Convertible
Subordinated Debentures due January 2004 (the "6 3/8% Debentures"). The 9% Notes
are senior in right of payment to the 6 3/8% and 7 1/4% Debentures. The 9% Notes
are convertible into Coeur common stock, at any time prior to maturity at a
conversion price of $1.60 per share, subject to adjustment. Interest is payable
semi-annually on February 15 and August 15 of each year. The Company is entitled
to elect to pay interest in cash or stock, at its sole discretion. At any time
prior to February 26, 2007, the holders of 9% Notes may elect to convert their
notes into common stock. The Company may elect to automatically convert the 9%
Notes at any time prior to February 26, 2007 if the closing price of the common
stock exceeds 150% of the conversion price for at least 20 trading days during a
30-day trading period ending
15
within three trading days prior to the notice of automatic conversion. If a
conversion or redemption occurs, the Company will make a payment to holders in
common stock equal to the lesser of $180.00 and the interest payable over the
remaining life of the note for each $1,000 principal amount of notes. The 9%
Notes are redeemable at the option of the Company six months after issuance,
subject to certain conditions, and at the option of the holders in the event of
a change in control. Of the financial advisory fees paid by the Company in
connection with the issuance of the 9% Notes, the Company elected to issue
647,966 unregistered shares of common stock valued at $1.54 per share in lieu of
cash.
NOTE I - 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 loss before interest, income taxes, depreciation and
amortization, unusual and infrequent items, and extraordinary items.
16
Segment Reporting
(In Thousands)
Rochester Cerro Bayo Martha
Mine Galena Mine Mine Mine Exploration Other Total
--------- ----------- ---------- ------ ----------- ----- -----
Three Months Ended March 31, 2003
Total net sales and revenues $ 9,514 $ 5,113 $14,831 $ 843 -- $(1,038) $29,263
Depreciation and depletion 1,105 363 2,941 544 7 59 5,019
Interest income -- -- -- -- -- 69 69
Interest expense -- -- 101 -- -- 1,906 2,007
Income tax (credit) expense -- -- -- -- -- (7) (7)
Loss on early retirement of debt -- -- -- -- -- 28,107 28,107
Profit (loss) 645 470 10,044 (143) (720) (4,054) 6,242
Segment assets (A) 56,775 9,962 30,998 1,973 579 48,578 48,865
Capital expenditures for property 1,695 727 672 75 1 94 3,264
Rochester Cerro Bayo
Mine Galena Mine Mine Exploration Other Total
--------- ----------- ---------- ----------- ----- -----
Three Months Ended March 31, 2002
Total net sales and revenues 12,208 5,592 24 (91) (736) 16,997
Depreciation and depletion 880 796 98 9 95 1,878
Interest income - - - - 118 118
Interest expense - - - - 4,401 4,401
Gain on forward sale contracts - - - - 62 62
Loss on early retirement of debt - - - - (252) (252)
Profit (loss) (2,148) 504 (277) (483) (3,023) (5,427)
Segment assets (A) 66,551 29,086 24,733 260 51,031 171,661
Capital expenditures for property 201 240 1,053 - 60 1,554
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
Segment Reporting Cont.
(In Thousands) Three Months Ended March 31,
2003 2002
--------- ---------
Income (Loss)
Total loss from reportable segments $ 6,242 $ (5,427)
Depreciation, depletion and amortization expense (5,019) (1,878)
Interest expense (2,007) (4,401)
Other (28,107) (190)
-------- --------
Loss before income taxes $(28,891) $(11,896)
======== ========
March 31,
2003 2002
--------- ---------
Assets
Total assets for reportable segments $148,865 $171,661
Cash and cash equivalents 19,288 8,707
Short-term investments 20,550 2,024
Other assets 22,794 17,114
-------- --------
Total consolidated assets $211,497 $199,506
======== ========
17
Geographic Information
(In thousands) Long-Lived
March 31, 2003 Revenues(a) Assets
----------- ----------
United States $ 14,270 $ 57,934
Chile 14,806 18,559
Other Foreign Countries 187 19,931
-------- --------
Consolidated Total $ 29,263 $ 96,424
======== ========
Long-Lived
March 31, 2002 Revenues Assets
-------- ----------
United States $ 17,064 $ 76,747
Chile (67) 22,245
Other Foreign Countries -- 19,299
-------- --------
Consolidated Total $ 16,997 $118,291
======== ========
(a) Revenues are geographically separated based upon the country in which
operations and the underlying assets generating those revenues reside.
NOTE J - Hedging
For the first three months of 2003, the Company recorded a realized loss of
approximately $0.2 million in connection with its hedge program. The Company has
54,000 ounces in forward sales in its gold price protection program, whereby
over the next 15 months the Company will receive an average price of $337 per
ounce.
The following table summarizes the information at March 31, 2003 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) 2003 2004 2005 2006 2007 Total 3/31/03
- ------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt
Fixed Rate $ 9,911 $28,268 $ 9,939 $ - $37,185 $85,303 $88,251
Average Interest Rate 8.435% 8.522% 8.681% 9.000% 9.000%
Derivative Financial
Instruments
Gold Forward
Sales - USD $107
Ounces 40,000 14,000 - - - 54,000
Price Per Ounce $331 $353 - - - $337
Foreign Currency
Contracts $ (88)
Chilean Peso - USD $ 3,975 - - - - $ 3,975
Exchange Rate 712 - - - -
(CLP to USD)
18
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 K - Litigation and Other Events
Noranda Smelter Strike
On June 18, 2002, the Company received notification from Noranda that the
union represented employees working at its Horne smelter in Rouyn-Noranda,
Quebec were on strike and declared Force Majure on receipt of Coeur Silver
Valley's concentrates at that time. This strike was settled on May 7, 2003.
Coeur Silver Valley sells essentially 100% of its concentrate to Noranda for
processing at this smelter. The Company believes that Noranda will continue to
purchase all produced concentrate from Coeur Silver Valley. The Company was able
to sell 700 tons of concentrate during the last half of 2002 and an additional
200 tons during the 1st quarter of 2003 in the spot market to an alternative
buyer.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District Court
for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
On March 16, 2001, the Company and representatives of the U.S. Government,
including the Environmental Protection Agency, the Department of Interior and
the Department of Agriculture, reached an agreement in principle to settle the
lawsuit, which represents the only suit in which the Company has been named as a
party. Pursuant to the terms of the Consent Decree, dated May 14, 2001, the
Company has paid the U.S. Government a total of approximately $3.9 million, of
which $3.3 million was paid in May 2001 and the remaining $.6 million was paid
in June 2001. In addition, the Company will (i) pay the United States 50% of any
future recoveries from insurance companies for claims for defense and
indemnification coverage under general liability insurance policies in excess of
$0.6 million, (ii) accomplish certain cleanup work on the Mineral Point property
(i.e., the former Coeur Mine site) and Caladay property, and (iii) make
available certain real property to be used as a waste repository. Finally,
commencing five years after effectiveness of the settlement, the Company will be
obligated to pay net smelter royalties on its operating properties, up to a
maximum of $3 million, amounting to a 2% net smelter royalty on silver
production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce
net smelter royalty on gold production if the price of gold exceeds $325 per
ounce. The royalty would run for 15 years commencing five years after
effectiveness of the settlement. The Company recorded $4.2 million of expenses,
which included $3.9 million of settlement payments, in the fourth quarter of
2000 in connection with the settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group, Inc.
("Handy & Harman"), to which the Rochester Mine had historically sent
approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had
inventory at the refinery of approximately 67,000 ounces of silver and 5,000
ounces of gold that has been delivered to certain creditors of Handy & Harman.
On February 27, 2001 the Company commenced a lawsuit
19
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 legal action, the
Company determined that the recovery of any additional amounts would be remote.
As a result, the Company recorded a $1.4 million write-down of the remaining
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.
Private Property Damage Action
On January 7, 2002, a private class action suit captioned Baugh v. Asarco,
et al., was filed in the Idaho District Court for the First District (Lawsuit
No. 2002131) in Kootenai County, Idaho against the companies that have been
defendants in the prior Bunker Hill and natural resources litigation in the
Coeur d'Alene Basin, including the Company, by eight northern Idaho residents
seeking medical benefits and real property damages from the mining companies
involved in the Bunker Hill Superfund site. In October 2002, the court conducted
a hearing on motions resulting in an order striking certain of the alleged
causes of action from the complaint, and dismissing the complaint with leave to
amend it. In January 2003, the plaintiffs filed an amended complaint. Certain of
the defendants, including the Company, filed motions to dismiss the complaint,
which will be heard by the court in May 2003. While the Company believes the
suit is without merit, at this early stage of the proceedings, the Company
cannot predict the outcome of this suit.
State of Maine and State of Idaho Superfund Sites Related to Callahan Mining
Corporation
During 2001, the United States Forest Service made a formal request for
information regarding the Deadwood Mine Site located in central Idaho. Callahan
Mining Corporation had operated at this site during the 1940's. The Forest
Service believes that some cleanup action is required at the location. However,
Coeur d'Alene Mines Corporation did not acquire Callahan until 1991, more than
40 years after Callahan disposed of its interest in the Deadwood property. The
Company did not make any decisions with respect to generation, transport or
disposal of hazardous waste at the site. Therefore, it is believed that the
Company is not liable for any cleanup, and if Callahan might be liable, it has
no substantial assets with which to satisfy any such liability. To date no claim
has been made by the United States for any dollar amount of cleanup costs
against either the Company or Callahan.
During 2002, the EPA made a formal request for information regarding a
Callahan mine site in the State of Maine. Callahan operated there in the late
1960's, shut the operations down in the early 1970's and disposed of the
property. The EPA contends that some cleanup action is warranted at the site,
and listed it on the National Priorities List in late 2002. The Company believes
that because it made no decisions with respect to generation, transport or
disposal of hazardous waste at this location, it is not liable for any cleanup
costs. If Callahan might have liability, it has no substantial assets with which
to satisfy such liability. To date, no claim has been made for any dollar amount
of cleanup costs against either the Company or Callahan.
20
Labor-Management Agreement at the Galena Mine
A new labor-management agreement was made with the United Steelworkers of
America, effective March 26, 2003, which covers the hourly workforce at the
Coeur Silver Valley operations.
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 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 herein 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.
The average prices of silver (Handy & Harman) and gold (London Final) for
the first three months of 2003 were $4.69 and $352 per ounce, respectively. The
market prices of silver and gold on May 9, 2003 were $4.81 per ounce and $347.90
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 mine 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.
21
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
periods ended March 31, 2003 and 2002:
Three Months Ended
March 31,
-------------------------
2003 2002
---------- ----------
ROCHESTER MINE
Silver ozs. 1,089,700 1,415,767
Gold ozs. 10,747 16,423
Cash Costs per oz./silver $6.46 $3.71
Full Costs per oz./silver $7.40 $4.58
GALENA MINE
Silver ozs. 1,235,771 1,473,542
Cash Costs per oz./silver $4.22 $3.97
Full Costs per oz./silver $4.51 $4.62
CERRO BAYO/MARTHA MINE (A)
Silver ozs. 1,277,457 N/A
Gold ozs. 22,416 N/A
Cash Costs per oz./silver $(0.29) N/A
Full Costs per oz./silver $2.01 N/A
CONSOLIDATED PRODUCTION TOTALS
Silver ozs. 3,602,928 2,889,309
Gold ozs. 33,163 16,423
Primary Silver Cost per oz. $3.30 $3.92
CONSOLIDATED SALES TOTALS
Silver ozs. sold 4,133,000 2,934,000
Gold ozs. sold 35,000 17,000
Realized price per silver oz. $4.77 $4.45
Realized price per gold oz. $341 $291
(A) The Company commenced production in April 2002. The negative cash cost per
ounce of silver is the result of the gold by-product credit as a reduction of
operating costs. See "Cost and Expenses" below.
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 "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 "Costs and Expenses" set forth below:
22
Operating Highlights
South America
Cerro Bayo (Chile). At Coeur's Cerro Bayo property (formerly the Fachinal
mine) in Southern Chile, the mine produced 1.3 million ounces of silver and
22,416 ounces of gold during the first quarter of 2003. Total cash costs for the
latest three-month period was $(0.29) per ounce. The negative cash cost per
ounce of silver is the result of the gold by-product credit as a reduction of
operating costs. See "Cost and Expenses" below.
Exploration at Cerro Bayo during the first quarter focused on
reserve/resource delineation drilling of the Javiera, Wendy and Tranque Norte
veins. Results from the drilling are expected to produce additional reserves and
resources. General reconnaissance exploration was also carried out on Coeur's
properties in the Santa Cruz Province of Argentina. Results obtained from
drilling adjacent to the R-4 Zone on the Martha mine property and on the Malbec
property located 10 miles north of the Martha mine have indicated the presence
of mineralized zones.
Production at Mina Martha progressed as planned. During the quarter, ore
was developed from the open pit and underground workings. During April, open pit
development was completed and preparations are currently underway to begin
development of the recently discovered R-4 zone.
North America
Rochester Mine (Nevada). Coeur's Rochester mine produced 1.1 million ounces
of silver and 10,747 ounces of gold, during the first quarter of 2003 compared
to 1.4 million ounces of silver and 16,423 ounces of gold in the first quarter
of the prior year. Total cash costs for the latest three-month period increased
to $6.46 per ounce as compared to $3.71 in the first quarter of 2002.
Performance in the quarter was down as a result of placing lower grade ore on
the leach pad, construction activities associated with the crusher relocation
project, construction of a new off-pad haul road and ongoing reclamation
activities. As a result, pit ore to the crusher was replaced with low-grade
stockpiled ore, which ultimately reduced ounce production. With all
non-production related activities complete, pit production will resume as
planned and ounce production will increase over the next several quarters.
Coeur Silver Valley - Galena Mine (Idaho). In the latest quarter, silver
production from Coeur Silver Valley was 1.2 million ounces, down slightly from
the 1.5 million ounces produced in the first quarter of 2002. Total cash costs
for the current quarter rose to $4.22 per ounce compared to $3.97 per ounce in
the first quarter of the prior year. Throughout much of the most recent quarter,
mining operations were hampered by difficult ground conditions in the 117 vein
and lower than expected grades from trackless mining operations. Measures have
been taken to address these short-term issues and to develop an operational base
for future productivity improvements. Coeur initiated a major exploration
program at the Galena mine during the first quarter of 2003. Exploration
drilling has thus far focused on the down dip extension of the 164 vein from the
4900 level and the down dip extension of the silver vein from the 2400 level.
Drilling of other targets located in the `upper country' as well as from the
5500 level are planned during 2003.
Exploration and Development stage Projects
San Bartolome (Bolivia). The final feasibility study at the San Bartolome
silver project near Potosi, Bolivia is scheduled for completion in the third
quarter of 2003. Once the final feasibility is completed, the Company expects a
large portion of the mineralized material will be upgraded to proven and
probable reserves. The Company recently acquired additional exploration and
development rights in the immediate area.
23
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 Compared to Three Months Ended
March 31, 2002
Revenues
Sales of metal in the first quarter of 2003 increased by $12.5 million, or
76%, from the first quarter of 2002 to $29.0 million. The increase in product
sales of metal is attributable to increased production of silver and gold which
accounted for $10.9 million, or 87%, of the increase, and higher realized silver
and gold prices which accounted for $1.6 million, or 13%, of the increase.
In the first quarter of 2003, the Company produced a total of 3,602,928
ounces of silver and 33,163 ounces of gold, compared to 2,889,309 ounces of
silver and 16,423 ounces of gold in the first quarter of 2002. In the first
quarter of 2003, the Company sold 4,133,000 ounces of silver and 35,000 ounces
of gold compared to 2,934,000 ounces of silver and 17,000 ounces of gold for the
same period in 2002. The increase in silver and gold production is the result of
the start-up of operations at the Cerro Bayo and Martha Mines in the second half
of 2002, which accounted for 1,277,457 ounces of silver production and 22,416
ounces of gold production during the first quarter of 2003. Realized silver and
gold prices increased to $4.77 and $341 per ounce, respectively, in the first
quarter of 2003 compared to $4.45 and $291 in the comparable quarter of 2002.
Interest and other income in the first quarter of 2003 decreased by $0.3
million compared with the first quarter of 2002. The decrease was primarily due
to a gain of $0.4 million on the sale of short-term investments recorded in the
first quarter of 2002.
Costs and Expenses
Production costs in the first quarter of 2003 decreased by $0.1 million, or
1%, from the first quarter of 2002 to $17.9 million. The decrease is the result
of a decrease in production costs at the Rochester and Silver Valley mines of
$4.2 million and $0.5 million, respectively, offset by production costs at the
Cerro Bayo mine of $4.8 million, which commenced production in the second half
of 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 March 31, 2003
Rochester Silver Valley Cerro Bayo(1) Total
--------------- ------------------ --------------- ---------------
Production of Silver (ounces) 1,089,700 1,235,771 1,277,457 3,602,928
Cash Costs per ounce $ 6.46 $ 4.22 $ (0.29) $ 3.30
--------------- ------------------ --------------- ---------------
Total Cash Costs (thousands) $ 7,039 $ 5,215 $ (370) $ 11,884
Add/(Subtract):
Third Party Smelting Costs (173) (1,596) (1,995) (3,764)
By-Product Credit 3,777 739 7,921 12,437
Deferred Stripping Adjustment (80) - - (80)
Change in Inventory (1,731) 126 (798) (2,599)
--------------- ------------------ --------------- ---------------
Production Costs $ 8,832 $ 4,484 $ 4,758 $ 17,878
=============== ================== =============== ===============
24
Three months ended March 31, 2002
Rochester Silver Valley Total
--------------------- ---------------------- ---------------
Production of Silver (ounces) 1,415,767 1,473,542 2,889,309
Cash Costs per ounce $ 3.71 $ 3.97 $ 3.92
--------------------- ---------------------- ---------------
Total Cash Costs (thousands) $ 5,252 $ 5,853 $ 11,105
Add/Subtract:
Third Party Smelting Costs (241) (2,071) (2,312)
By-Product Credit 4,769 891 5,661
Accrued Reclamation Costs 266 159 425
Deferred Stripping Adjustment (49) - (49)
Change in Inventory 3,054 129 3,183
--------------------- ---------------------- ---------------
Production Costs $ 13,052 $ 4,962 $ 18,014
===================== ====================== ===============
(1) The Cerro Bayo mine commenced production in the second half of 2002.
Depreciation and amortization increased in the first quarter of 2003 by
$3.1 million, from the prior year's first quarter, due to increased depletion
recorded at the Galena mine in conjunction with the depletion taken for the
asset retirement obligation and commencement of commercial production at the
Cerro Bayo mine.
Administrative and general expenses increased in the first quarter of 2003
compared to the same period in 2002 by $1.0 million due to increased financing
activities and additional SEC filing completed in the first quarter ended March
31, 2003 over the same period in 2002.
Exploration expenses increased by $0.5 million in the first quarter of 2003
compared to the same period in 2002 as a result of the Company's expanded
exploration activities in the Cerro Bayo/Martha mine property areas.
Pre-feasibility expenses decreased by $0.4 million due to lower
pre-feasibility expenses on the San Bartolome project in the first quarter of
2003 as compared to the same quarter of 2002.
Interest expense decreased in the first quarter of 2003 compared with the
first quarter of 2002 to $2.0 million from $4.4 million as a result of a
decrease in the Company's overall debt level because of exchange of debt for
equity. Long-term debt (including the current portion) was $82.0 million at
March 31, 2003, compared with $136.4 million at March 31, 2002.
During the first quarter of 2003, the Company recorded a loss on retirement
of debt of $28.1 million. See "Issuance of 9% Convertible Senior Subordinated
Notes" below.
Cumulative Effect of Accounting Change
Effective with the first quarter of 2003, the Company changed the
methodology used to recognize reclamation expense pursuant to Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations". Prior to 2003, the Company recognized a pro rata share of the
future estimated reclamation liability on a units-of-production basis. After
January 1, 2003, companies are required to recognize the full discounted
estimated future reclamation liability and set up a corresponding asset to be
amortized over the life of the mine on a units-of-production basis. The impact
of this change is accounted for as a change in accounting principal in the first
year of implementation and results in a change of $2.3 million in the first
quarter of 2003. See Footnote B - Summary of Significant Accounting Policies to
the Company's Notes to Consolidated Financial Statements.
25
Net Loss
As a result of the aforementioned factors, the Company's net loss amounted
to $28.9 million, or $0.25 per share, in the first quarter of 2003 compared to a
net loss of $11.9 million, or $0.23 per share, in the first quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at March 31, 2003, increased by $7.7 million
to approximately $14.3 million compared to $6.6 million at December 31, 2002.
The increase was primarily attributed to the increase in cash and cash
equivalents and short-term investments proceeds received from the issuance of
$37.2 million ($33.8 million net of expenses and discount) of 9% Convertible
Senior Subordinated Notes on February 26, 2003. See "Management's Discussion and
Analysis - Issuance of 9% Convertible Senior Subordinated Notes" below. The
ratio of current assets to current liabilities was 1.2 to 1.0 at March 31, 2003
compared to 1.2 to 1.0 at December 31, 2002.
Net cash used in operating activities in the three months ended March 31,
2003 was $1.3 million compared to net cash used in operating activities of $5.5
million in the three months ended March 31, 2002. Net cash used in investing
activities in the first quarter of 2003 was $24.3 million compared to net cash
used in investing activities of $0.4 million in the prior year's comparable
period. The increase in cash used in investing activities primarily resulted
from an increase in short-term investments purchased with the proceeds from the
issuance of the 9% Notes. Net cash provided by financing activities was $35.9
million in the first quarter of 2003, compared to $0.06 million used in the
first quarter of 2002. The increase was primarily a result of $33.8 million of
proceeds from the issuance of the 9% Notes as well as $2.4 million of net
borrowings received under the Company's working capital facility. As a result of
the above, cash and cash equivalents increased by $10.2 million in the first
quarter of 2003 compared to a decrease of $6.0 million for the comparable period
in 2002.
Debt and Capital Resources
The Company has improved its working capital position since December 31,
2002 by completing the issuance of the 9% Convertible Senior Subordinated Notes.
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 may be
further reduced by additional conversions of 13 3/8% Notes into common equity
during the remainder of this year. At March 31, 2003, the Company had $19.3
million of cash and approximately $9.6 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. The Company may continue to seek various forms of financing
in the future.
2003 Exchanges and Conversions
Subsequent to December 31, 2002 and prior to March 15, 2003, the holders of
an additional $2.8 million principal amount of the Series I 13 3/8% Convertible
Senior Subordinated Notes due December 31, 2003 (the "Series I 13 3/8% Notes")
converted their notes into a total of 2.1 million shares of common stock,
including make whole interest payments.
Through February 28, 2003, the holders of the 6 3/8% Debentures exchanged
$26.9 million principal amount for 15.8 million shares of common stock and
holders of the 7 1/4% Debentures exchanged $1.7 million principal amount for 1.1
shares of common stock. In connection with these exchanges, the Company reported
a loss on the early retirement of debt of $28.1 million in the first quarter of
2003.
26
Issuance of 9% Convertible Senior Subordinated Notes
On February 26, 2003, the Company completed a private placement of $37.2
million principal amount of 9% Convertible Senior Subordinated Notes (the "9%
Notes"). The net proceeds were approximately $33.8 million. The 9% Notes are
senior in right of payment to the 6 3/8% and 7 1/4% Convertible Subordinated
Debentures due October 2005. The 9% Notes are convertible into Coeur common
stock, at any time prior to maturity at a conversion price of $1.60 per share,
subject to adjustment. Interest is payable semi-annually on February 15 and
August 15 of each year. The Company is entitled to elect to pay interest in cash
or stock, in its sole discretion. The 9% Notes are redeemable at the option of
the Company six months after issuance, subject to certain conditions, and at the
option of the holders in the event of a change in control. Of the financial
advisory fees paid by the Company in connection with the issuance of the 9%
Notes, the Company elected to issue 647,966 unregistered shares of common stock
valued at $1.54 per share in lieu of cash. See Footnote H - Long-Term Debt for
more discussion.
On March 7, 2003, the Company called for the redemption of approximately
$22.4 million principal amount of the outstanding 6 3/8% Convertible
Subordinated Debentures due January 2004. The redemption was effective on April
9, 2003.
Defined Benefit and Post Retirement Health Care Plans
The funding requirement for the defined benefit plan and the post
retirement health care plan increased by $0.4 million, to $1.1 million in 2002
compared to 2001. This increase was primarily due to the impact of a negative
return on plan assets of $0.2 million in 2002 and an increase of $0.2 million in
the present value of the plan obligations based on increased health care and
pension costs.
Litigation and Other Events
Noranda Smelter Strike
On June 18, 2002, the Company received notification from Noranda that the
union represented employees working at its Horne smelter in Rouyn-Noranda,
Quebec were on strike and declared Force Majure on receipt of Coeur Silver
Valley's concentrates at that time. This strike was settled on May 7, 2003.
Coeur Silver Valley sells essentially 100% of its concentrate to Noranda for
processing at this smelter. The Company believes that Noranda will continue to
purchase all produced concentrate from Coeur Silver Valley. The Company was able
to sell 700 tons of concentrate during the last half of 2002 and an additional
200 tons during the 1st quarter of 2003 in the spot market to an alternative
buyer.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District Court
for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
On March 16, 2001, the Company and representatives of the U.S. Government,
including the Environmental Protection Agency, the Department of Interior and
the Department of Agriculture, reached an agreement in principle to settle the
lawsuit, which represents the only suit in which the Company has been named
27
as a party. Pursuant to the terms of the Consent Decree, dated May 14, 2001, the
Company has paid the U.S. Government a total of approximately $3.9 million, of
which $3.3 million was paid in May 2001 and the remaining $.6 million was paid
in June 2001. In addition, the Company will (i) pay the United States 50% of any
future recoveries from insurance companies for claims for defense and
indemnification coverage under general liability insurance policies in excess of
$0.6 million, (ii) accomplish certain cleanup work on the Mineral Point property
(i.e., the former Coeur Mine site) and Caladay property, and (iii) make
available certain real property to be used as a waste repository. Finally,
commencing five years after effectiveness of the settlement, the Company will be
obligated to pay net smelter royalties on its operating properties, up to a
maximum of $3 million, amounting to a 2% net smelter royalty on silver
production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce
net smelter royalty on gold production if the price of gold exceeds $325 per
ounce. The royalty would run for 15 years commencing five years after
effectiveness of the settlement. The Company recorded $4.2 million of expenses,
which included $3.9 million of settlement payments, in the fourth quarter of
2000 in connection with the settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group, Inc.
("Handy & Harman"), to which the Rochester Mine had historically sent
approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had
inventory at the refinery of approximately 67,000 ounces of silver and 5,000
ounces of gold that has been delivered to certain creditors of Handy & Harman.
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 legal action, the Company determined that the
recovery of any additional amounts would be remote. As a result, the Company
recorded a $1.4 million write-down of the remaining 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.
Private Property Damage Action
On January 7, 2002, a private class action suit captioned Baugh v. Asarco,
et al., was filed in the Idaho District Court for the First District (Lawsuit
No. 2002131) in Kootenai County, Idaho against the companies that have been
defendants in the prior Bunker Hill and natural resources litigation in the
Coeur d'Alene Basin, including the Company, by eight northern Idaho residents
seeking medical benefits and real property damages from the mining companies
involved in the Bunker Hill Superfund site. In October 2002, the court conducted
a hearing on motions resulting in an order striking certain of the alleged
causes of action from the complaint, and dismissing the complaint with leave to
amend it. In January 2003, the plaintiffs filed an amended complaint. Certain of
the defendants, including the Company, filed motions to dismiss the complaint,
which will be heard by the court in May 2003. While the Company believes the
suit is without merit, at this early stage of the proceedings, the Company
cannot predict the outcome of this suit.
State of Maine and State of Idaho Superfund Sites Related to Callahan Mining
Corporation
28
During 2001, the United States Forest Service made a formal request for
information regarding the Deadwood Mine Site located in central Idaho. Callahan
Mining Corporation had operated at this site during the 1940's. The Forest
Service believes that some cleanup action is required at the location. However,
Coeur d'Alene Mines Corporation did not acquire Callahan until 1991, more than
40 years after Callahan disposed of its interest in the Deadwood property. The
Company did not make any decisions with respect to generation, transport or
disposal of hazardous waste at the site. Therefore, it is believed that the
Company is not liable for any cleanup, and if Callahan might be liable, it has
no substantial assets with which to satisfy any such liability. To date no claim
has been made by the United States for any dollar amount of cleanup costs
against either the Company or Callahan.
During 2002, the EPA made a formal request for information regarding a
Callahan mine site in the State of Maine. Callahan operated there in the late
1960's, shut the operations down in the early 1970's and disposed of the
property. The EPA contends that some cleanup action is warranted at the site,
and listed it on the National Priorities List in late 2002. The Company believes
that because it made no decisions with respect to generation, transport or
disposal of hazardous waste at this location, it is not liable for any cleanup
costs. If Callahan might have liability, it has no substantial assets with which
to satisfy such liability. To date, no claim has been made for any dollar amount
of cleanup costs against either the Company or Callahan.
Labor-Management Agreement at the Galena Mine
A new labor-management agreement was made with the United Steelworkers of
America, effective March 26, 2003, which covers the hourly workforce at the
Coeur Silver Valley operations.
RISK FACTORS
The following information sets forth information relating to important
risks and uncertainties that could materially adversely affect the Company's
business, financial condition or operating results. References to "we," "our"
and "us" in these risk factors refer to the Company. Additional risks and
uncertainties that we do not presently know or that we currently deem immaterial
may also impair our business operations.
If presently unexpected circumstances cause us to be unable to pay our debts
upon their maturity, it may be necessary for us to seek other additional
funding, other remedies or possibly even relief under Chapter 11 of the
Bankruptcy Code.
At March 31, 2003, we had a total of approximately $85.3 million of
outstanding notes and debentures, which included approximately $9.9 million of
13 3/8% Senior Subordinated Notes due December 31, 2003, $28.3 million principal
amount of 6 3/8% Convertible Subordinated Debentures due January 31, 2004,
approximately $9.9 million principal amount of 7 1/4% Convertible Subordinated
Debentures due October 31, 2005 and approximately $37.2 million of 9%
Convertible Senior Subordinated Notes. We expect to be able to generate adequate
cash flow and, if necessary, to raise additional debt or equity capital, in
order to service our outstanding indebtedness upon maturity. However, if
presently unexpected circumstances cause us to be unable to service our
indebtedness upon maturity, we may be required to seek other additional funding,
other remedies or possibly even relief under Chapter 11 of the Bankruptcy Code.
We have incurred losses in the last five years and expect to continue to do so.
We have incurred net losses in the last five years, and have had losses
from continuing operations in each of those periods. Significantly contributing
to the losses were:
29
o historically low silver and gold market prices;
o our deliberate pursuit of a growth policy calling for the
acquisition of mining properties and companies and financing such
growth principally by incurring convertible indebtedness; and
o significant write-downs for impaired assets in 1998 ($223.2
million), 1999 ($16.2 million), 2000 ($12.2 million), 2001 ($6.1
million) and 2002 ($19.0 million),
While market prices for silver and gold have recently increased, if silver
and gold prices were to remain at current levels or decline and we are unable to
reduce our production costs below prevailing price levels, our losses will
continue. Because low silver and gold prices may make mining at our properties
uneconomical, if these prices decline, we may be required to recognize
additional impairment write-downs. This would increase our operating losses.
We have not had sufficient earnings to cover fixed charges in recent years and
presently expect that situation to continue.
As a result of our net losses, our earnings have not been adequate to
satisfy fixed charges (i.e., interest, preferred stock dividends and that
portion of rent deemed representative of interest) in each of the last five
years. The amounts by which earnings were inadequate to cover fixed charges were
approximately $227.0 million in 1998, $29.3 million in 1999, $47.5 million in
2000, $3.1 million in 2001 and $81.2 million in 2002, respectively. As of March
31, 2003, we were required to make fixed payments on the following securities:
o $28.2 million principal amount of our 6 3/8% Convertible Subordinated
Debentures 2004, requiring annual interest payments of approximately
$1.8 million until their maturity on January 31, 2004;
o $9.9 million principal amount of our 7 1/4% Convertible Subordinated
Debentures due 2005, requiring annual interest payments of
approximately $1.1 million until their maturity on October 31, 2005;
and
o $9.9 million of our Series I 13 3/8% Senior Convertible Notes due
2003, requiring interest payments (in cash or in common stock) of
approximately $1.3 million in December 2003.
o $37.2 million of our 9% Convertible Senior Subordinated Notes due
2007, requiring annual interest payments (in cash or in common stock)
of approximately $3.3 million until their maturity on February 26,
2007.
On March 7, 2003, we issued a redemption notice for approximately $22.4
million principal amount of our 6 3/8 Convertible Subordinated Debentures due
January 31, 2004. We do not expect that the remaining 6 3/8% or 7 1/4%
convertible subordinated debentures will be converted into common stock in the
foreseeable future because the conversion price of each issue substantially
exceeds the current market price of our common stock. The 9% Convertible Senior
Subordinated Notes are convertible into common stock at a price of $1.60 per
share.
We expect to satisfy our fixed charges and other expense obligations in the
future from cash flow from operations and, if cash flow from operations is
insufficient, from working capital, which amounted to approximately $14.3
million at March 31, 2003, and, if necessary, the sale of assets or equity or
debt securities. We have recently been experiencing negative cash flow from
operating activities. The amount of net cash used
30
in our operating activities amounted to approximately $1.3 million for the first
quarter of 2003 and $5.5 million for the first quarter of 2002. The availability
of future cash flow from operations or working capital to fund the payment of
interest on our debentures and other fixed charges will be dependent upon
numerous factors, including our results of operations, silver and gold prices,
levels and costs of production at our mining properties, the amount of our
capital expenditures and expenditures for acquisitions, developmental and
exploratory activities, and the extent to which we are able to reduce the amount
of our indebtedness through additional exchanges.
The market price of silver over which we have no control, is volatile and is at
a level that adversely affects us.
Because we derive greater than 68.8% of our revenues from sales of silver,
our earnings are directly related to the price of this metal.
Silver prices fluctuate widely and are affected by many factors beyond our
control, including interest rates, expectations regarding inflation,
speculation, currency values, governmental decisions regarding the disposal of
precious metals stockpiles, global and regional demand and production, political
and economic conditions and other factors.
The market price of silver (as reported by Handy & Harman) on May 9, 2003
was $4.81 per ounce. The price of silver may decline in the future. Factors that
are generally understood to contribute to a decline in the price of silver
include sales by private and government holder, and a general global economic
slowdown.
If the silver price becomes depressed for a sustained period, our net
losses will continue, we may suspend mining at one or more of our properties
until the price increases, and we may be required to record additional asset
impairment write-downs pursuant to SFAS 144 (as discussed below).
We have recorded significant write-downs of mining properties in recent years
and may have to recognize additional write-downs in the future.
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," established accounting standards for impairment of the value of long-lived
assets such as mining properties. SFAS 144 require a company to review the
recoverability of its assets by estimating the future undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
Impairment must be recognized when the carrying value of the asset exceeds these
cash flows.
Recognizing impairment write-downs has negatively impacted our results of
operations in recent years. We have recorded significant write-downs of our
mining properties in recent years, amounting to $16.2 million in 1999, $12.2
million in 2000, $6.1 million in 2001 and $19.0 million in 2002. The 1999
write-downs consisted of $16.2 million at the Yilgarn Star Mine in Australia.
The 2000 write-down included an impairment of $12.2 million for our investment
in Gasgoyne Gold Mines NL. The 2001 write-down consisted of an additional
impairment of $6.1 million at the Kensington property, in addition to the $121.5
written-off in 1998. The 2002 write-down consisted of a $19.0 impairment at
Coeur Silver Valley.
While we do not believe that any of our other properties presently requires
a write-down pursuant to SFAS No. 144, if silver prices become depressed for a
sustained period of time and/or we fail to reduce
31
production costs or expand mineable ore reserves at our mining properties, we
may recognize further asset write-downs.
We also might have to record other types of additional mining property
write-downs in the future to the extent a property is sold by us for a price
less than the carrying value of the property or reserves have to be created in
connection with the closure and reclamation of a property.
The estimation of ore reserves is imprecise and subjective, requiring the use of
uncertain metals market prices and other assumptions. Estimated ore reserves may
not be realized in future actual production and operating results.
The ore reserve figures presented in this report are estimates made by our
technical personnel. Reserve estimates are a function of geological and
engineering analysis and also require us to make assumptions about production
costs and silver and gold market prices. Reserve estimation is necessarily an
imprecise and subjective process and the accuracy of such estimates is a
function of the quality of available data and of engineering and geological
interpretation, judgment and experience. Assumptions about silver and gold
market prices are subject to great uncertainty as those prices have fluctuated
widely in the past. Declines in the market prices of silver or gold may render
reserves containing relatively lower grades of ore uneconomic to exploit, and we
may be required to further reduce reserve estimates, discontinue development or
mining at one or more of our properties, or write down assets as impaired.
Should we encounter mineralization or geologic formations at any of our mines or
projects different from those predicted by drilling, sampling and similar
examinations, then our reserve estimates may be adjusted and mining plans may be
altered, which may adversely affect our actual production and operating results.
Ore reserves at most of our mining properties operated by us are the subject of
verification by independent consulting geologists or mining engineers. Ore
reserves at mining properties in which we have an ownership interest but which
are operated by other companies are prepared by such companies, reviewed by us
and may not be subject to independent verification.
Silver and gold reserves at mining properties owned by us and in which we
have an ownership interest were calculated at or about December 31, 2002. Our
ore reserve determinations were based on a silver price of $5.00 per ounce and a
gold price of $350 per ounce.
Significant risks and costs are associated with our exploration, development and
mining activities.
Our ability to sustain or increase our present production levels depends in
part on successful exploration and development of new ore bodies and/or
expansion of existing mining operations. Mineral exploration, particularly for
silver and gold, involves many risks and frequently is not productive. If and
when mineralization is discovered, it may take a number of years until
production is possible, during which time the economic viability of the project
may change. Substantial expenditures are required to establish ore reserves,
extract the metals from the ores and, in the case of new properties, to
construct mining and processing facilities. The economic feasibility of any
individual development project and all such projects collectively is based upon,
among other things, estimates of the size and grade of ore reserves, proximity
to infrastructures and other resources (such as water and power), metallurgical
recoveries, production rates and capital and operating costs of such development
projects, and future metals prices. Development projects are also subject to the
completion of favorable feasibility studies, issuance of necessary permits and
receipt of adequate financing.
Development projects may have no operating history upon which to base
estimates of future operating costs and capital requirements. Particularly for
development projects, estimates of reserves, metal recoveries and
32
cash operating costs are to a large extent based upon the interpretation of
geologic data obtained from a limited number of drill holes and other sampling
techniques and feasibility studies. Estimates of cash operating costs are then
derived based upon anticipated tonnage and grades of ore to be mined and
processed, the configuration of the orebody, expected recovery rates of metals
from the ore, comparable facility and equipment costs, anticipated climate
conditions and other factors. As a result, actual cash operating costs and
economic returns of any and all development projects may materially differ from
the costs and returns estimated.
Our silver and gold production may decline in the future.
Our future silver and gold production may decline as a result of the
exhaustion of reserves and possible closure of mines. It has been and will
continue to be our business strategy to conduct silver and gold exploratory
activities at our existing mining and exploratory properties as well as at new
exploratory projects, and to acquire silver and gold mining properties and/or
businesses that possess mineable ore reserves and are expected to become
operational in the near future. Although that is our business strategy, we can
provide no assurance that our silver and gold production in the future will not
decline.
There are significant risks associated with our mining activities, not all of
which are fully covered by insurance.
The mining business is generally subject to risks and hazards, including
quantity of production, quality of the ore, environmental hazards, industrial
accidents, the encountering of unusual or unexpected geological formations,
cave-ins, flooding, earthquakes and periodic interruptions due to inclement or
hazardous weather conditions. These occurrences could result in damage to, or
destruction of, mineral properties or production facilities, personal injury or
death, environmental damage, reduced production and delays in mining, asset
write-downs, monetary losses and possible legal liability. Although we maintain
insurance in an amount that we consider to be adequate, liabilities might exceed
policy limits, in which event we could incur significant costs that could
adversely affect our results of operation. Insurance fully covering many
environmental risks (including potential liability for pollution or other
hazards as a result of disposal of waste products occurring from exploration and
production) is not generally available to us or to other companies in the
industry.
We are subject to significant environmental and other governmental regulations
that can require substantial expenses and capital expenditures.
Our mining activities are subject to extensive federal, state, local and
foreign laws and regulations governing environmental protection, natural
resources, prospecting, development, production, post-closure reclamation,
taxes, labor standards, occupational health and safety including, mine safety,
toxic substances and other matters. Although these laws and regulations have
never required us to close any mine, the costs associated with compliance with
such laws and regulations are substantial and possible future laws and
regulations, or more stringent enforcement thereof by governmental authorities
could cause additional expense, capital expenditures, restrictions on or
suspensions of our operations and delays in the development of our properties.
Moreover, these laws and regulations allow governmental authorities and private
parties to bring lawsuits based upon damages to property and injury to persons
resulting from the environmental, health and safety impacts of our past and
current operations, and can lead to the imposition of substantial fines,
penalties and other civil and criminal sanctions. Risks of substantial costs and
liabilities, including for the restoration of the environment after the closure
of our mines, are inherent in our operations. Although we believe we are in
substantial compliance with applicable laws and regulations, we cannot assure
you that any such law, regulation, enforcement or private claim will not have a
material adverse effect on our business, financial condition or results of
operations.
33
Certain of our mining wastes are currently exempt to a limited extent from
the extensive set of federal Environmental Protection Agency (EPA) regulations
governing hazardous waste under the Resource Conservation and Recovery Act
(RCRA). If the EPA designates these wastes as hazardous under RCRA in the
future, we would be required to expend additional amounts on the handling of
such wastes and to make significant expenditures on the construction of
hazardous waste disposal facilities. In addition, regardless of whether these
wastes are designated as hazardous under RCRA, if they cause contamination in or
damage to the environment at a mining facility, such facility may be designated
as a "Superfund" site under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). Under CERCLA, any owner or operator of
a Superfund site since the time of its contamination may be held liable and may
be forced to undertake extensive remedial cleanup action or to pay for the
government's cleanup efforts. Additional regulations or requirements are also
imposed upon our tailings and waste disposal areas in Idaho and Alaska under the
federal Clean Water Act (CWA) and in Nevada under the Nevada Water Pollution
Control Law which implements the CWA. Airborne emissions are subject to controls
under the air pollution statutes implementing the Clean Air Act in Nevada, Idaho
and Alaska. In the context of environmental permitting, including the approval
of reclamation plans, we must comply with standards and regulations which entail
significant costs and can entail significant delays.
Significant risks are associated with our foreign operations and activities.
Chile, Argentina and Bolivia are the most significant foreign countries in
which we directly or indirectly own or operate mining properties or
developmental projects. We also conduct exploratory projects in Chile, Argentina
and Bolivia. Although the governments and economies of these countries have been
relatively stable in recent years, property ownership in a foreign country
generally is subject to the risk of expropriation or nationalization with
inadequate compensation. Any foreign operations or investment may also be
adversely affected by exchange controls, currency fluctuations, taxation and
laws or policies of particular countries as well as laws and policies of the
United States affecting foreign trade investment and taxation.
There are significant risks associated with any future acquisitions by us.
An important element of our business strategy has been the opportunistic
acquisition of silver and gold mines, properties and businesses. While it is our
practice to engage independent mining consultants to assist in evaluating and
making acquisitions, mining properties acquired by us in the future might not be
developed profitably or, if profitable when acquired, that profitability might
not be sustained. In connection with any future acquisitions, we may incur
indebtedness or issue equity securities, resulting in dilution of the percentage
ownership of existing shareholders. We intend to seek shareholder approval for
any such acquisitions only to the extent required by applicable law, regulations
or stock exchange rules.
Finding and acquiring new mineral properties is very difficult and competitive.
Because mines have limited lives based on proven and probable ore reserves,
we, like other mining companies are continually seeking to replace and expand
our ore reserves. Identifying promising mining properties is difficult.
Furthermore, we encounter strong competition from other mining companies in
connection with the acquisition of properties producing or capable of producing
silver and gold. Many of these companies have greater financial resources than
we do. Consequently, we may be unable to replace and expand current ore reserves
through the acquisition of new mining properties on terms we consider
acceptable.
Significant risks are associated with our purchases of currencies of foreign
countries in which we do business.
34
We may enter into agreements which require us to purchase currencies of
foreign countries in which we do business in order to ensure fixed exchange
rates. In the event that actual exchange rates vary from those set forth in the
hedge contracts, we will experience U.S. dollar-denominated currency gains or
losses.
We will have to use some of our cash to provide financial assurance relating to
our Rochester Mine's future reclamation liability.
The insurance company that issued the surety bond required under Nevada law
to cover our estimated $21.8 million of future mine closure reclamation costs
relating to the Rochester Mine filed for liquidation in the first quarter of
2001. We have reached an agreement with this insurance company and the State of
Nevada regarding financial assurance for reclamation costs at the Rochester
Mine. This settlement requires us to fund a reclamation escrow account in
amounts calculated based on a formula which takes into account the amount of
silver produced and sold at the Rochester Mine commencing January 1, 2002. We
estimate that the annual funding required by the settlement into this escrow
account will be approximately $3.2 million, which adversely effects our working
capital position.
Third parties may dispute our unpatented mining claims.
The validity of unpatented mining claims, which constitute a significant
portion of our property holdings in the United States, is often uncertain and
may be contested. Although we have attempted to acquire satisfactory title to
undeveloped properties, we, in accordance with mining industry practice, do not
generally obtain title opinions until a decision is made to develop a property,
with the attendant risk that some titles, particularly titles to undeveloped
properties, may be defective.
We are required to obtain government permits to expand operations or begin new
operations, which is often a costly and time-consuming process.
Mining companies are required to seek governmental permits for expansion of
existing operations or for the commencement of new operations. Obtaining the
necessary governmental permits is a complex and time-consuming process involving
numerous jurisdictions and often involving public hearings and costly
undertakings on our part. The duration and success of permitting efforts are
contingent on many factors that are out of our control. Government permitting
may increase costs and cause delays depending on the nature of the activity to
be permitted, and in an extreme case, could cause us to not proceed with the
development of a mine.
The market price of our common stock could decrease as a result of the impact of
an increase in the number of our outstanding shares that may result from
issuances of shares in exchange for our outstanding convertible debt.
We may, from time to time, enter into exchange transactions with holders of
our outstanding convertible debt involving the issuance of additional shares of
common stock. The impact of the issuance of a significant amount of common stock
may place downward pressure on the market price of the common stock.
The market price of our common stock has been volatile and may decline.
The market price of our common stock has been volatile and may decline in
the future. The high and low closing sale prices of our common stock were $4.13
and $0.81 per share in 2000, $1.23 and $0.87 in 2001 and $2.50 and $0.78 in
2002. The closing sale price at May 9, 2003 was $1.51 per share.
35
The market price of our common stock historically has fluctuated widely and been
affected by many factors beyond our control. These factors include:
o the market prices of silver and gold;
o general stock market conditions;
o interest rates;
o expectations regarding inflation;
o currency values; and
o global and regional political and economic conditions and other factors.
The offer and resale of 7.125 million restricted shares of our outstanding
common stock, which we have been required to register for public resale under
the Securities Act of 1933, could impose downward pressure on the market price
of our common stock.
In 1999, we issued 7.125 million shares of our common stock to Asarco in
connection with our acquisition of certain of its silver mining interests. This
represents approximately 5.2% of our currently outstanding common stock. Asarco
exercised its contractual right to request the registration of those shares
under the Securities Act for public resale, subject to a limitation of the sale
of no more than 500,000 shares to any one individual purchaser. The public
offering and resale of such shares would increase the number of outstanding
shares being sold in the public market and could exert downward pressure on the
market price of our shares.
We do not anticipate paying dividends on the common stock.
We do not anticipate paying any cash dividends on the common stock at this
time. Therefore, holders of the common stock will likely not receive a dividend
return on their investment and there is a significant likelihood that holders of
the common stock will not realize any value through the receipt of cash
dividends.
We are subject to anti-takeover provisions in our charter and in our contracts
that could delay or prevent an acquisition of us even if such an acquisition
would be beneficial to our shareholders.
Certain provisions of our articles of incorporation and our contracts could
delay or prevent a third party from acquiring us, even if doing so might be
beneficial to our shareholders. Some of these provisions:
o authorize the issuance of preferred stock which can be created and issued
by the Board of Directors without prior shareholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of the common stock; and
o require that a "fair price" be paid in such business transactions.
We have also implemented a shareholder rights plan which could delay or
prevent a third party from acquiring us.
The uncertainties inherent in estimating inventory mean that our estimates of
current and non-current inventories may not be realized in future actual
production and operating results.
We use estimates, based on prior production results and experiences, to
determine whether heap leach inventory will be recovered more than one year in
the future, and is non-current inventory, or will be recovered within one year,
and is current inventory. The estimates involve assumptions that may not prove
to be consistent with our actual production and operating results. We cannot
determine the amount ultimately recoverable until leaching is completed.
Critical Accounting Policies and Estimates
36
Our consolidated financial statements are impacted by the accounting
policies used and the estimates and assumptions made by management during their
preparation. We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note B in the Notes to the Consolidated Financial
Statements of this Quarterly Report on Form 10-Q. Note that our preparation of
this Quarterly Report on Form 10-Q requires us to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and
the reported amounts of revenue and expenses during the reporting period. There
can be no assurance that actual results will not differ from those estimates.
The most critical accounting principles upon which the Company's financial
status depends are those requiring estimates of recoverable ounces from proven
and probable reserves and/or assumptions of future commodity prices. Such
estimates and assumptions affect the value of inventories (which are stated at
the lower of average cost or net realizable value) and the potential impairment
of long-lived assets. These estimates and assumptions also affect the rate at
which depreciation and amortization are charged to earnings.
Ore on Leach Pad
The Rochester Mine utilizes the heap leach process to extract silver and
gold from ore. The heap leach process is a process of extracting silver and gold
by placing ore on an impermeable pad and applying a diluted cyanide solution
that dissolves a portion of the contained silver and gold, which are then
recovered in metallurgical processes.
The key stages in the conversion of ore into silver and gold are (i) the
blasting process in which the ore is broken into large pieces; (ii) the
processing of the ore through a crushing facility that breaks it into smaller
pieces; (iii) the transportation of the crushed ore to the leach pad where the
leaching solution is applied; (iv) the collection of the leach solution; (v)
subjecting the leach solution to the precipitation process, in which gold and
silver is converted back to a fine solid; (vi) the conversion of the precipitate
into dore; and (vii) the conversion by a third party refinery of the dore into
refined silver and gold bullion.
We use several integrated steps to scientifically measure the metal content
of ore placed on the leach pads during the key stages. As the ore body is
drilled in preparation for the blasting process, samples of the drill residue
are assayed to determine estimated quantities of contained metal. We estimate
the quantity of ore by utilizing global positioning satellite survey techniques.
We then process the ore through a crushing facility where the output is again
weighed and sampled for assaying. A metallurgical reconciliation with the data
collected from the mining operation is completed with appropriate adjustments
made to previous estimates. We then transport the crushed ore to the leach pad
for application of the leaching solution. As the leach solution is collected
from the leach pads, we continuously sample for assaying. We measure the
quantity of leach solution by flow meters throughout the leaching and
precipitation process. After precipitation, the product is converted to dore,
which is the final product produced by the mine. We again sample and assay the
dore. Finally, a third party smelter converts the dore into refined silver and
gold bullion. At this point are we able to determine final ounces of silver and
gold available for sale. We then review this end result and reconcile it to the
estimates we had used and developed throughout the production process. Based on
this review, we adjust our estimation procedures when appropriate.
Our reported inventories include metals estimated to be contained in the
ore on the leach pads of $29.1 million as of March 31, 2003. Of this amount,
$12.5 million is reported as a current asset and $16.6 million is reported as a
noncurrent asset. The distinction between current and noncurrent is based upon
the expected length
37
of time necessary for the leaching process to remove the metals from the broken
ore. The historical cost of the metal that is expected to be extracted within
twelve months is classified as current and the historical cost of metals
contained within the broken ore that will be extracted beyond twelve months is
classified as noncurrent.
The estimate of both the ultimate recovery expected over time, and the
quantity of metal that may be extracted relative to such twelve month period,
requires the use of estimates which are inherently inaccurate since they rely
upon laboratory testwork. Testwork consists of 60 day leach columns from which
we project metal recoveries up to five years in the future. The quantities of
metal contained in the ore are based upon actual weights and assay analysis. The
rate at which the leach process extracts gold and silver from the crushed ore is
based upon laboratory column tests and actual experience occurring over
approximately fifteen years of leach pad operation at the Rochester Mine. The
assumptions we use to measure metal content during each stage of the inventory
conversion process includes estimated recovery rates based on laboratory testing
and assaying. We periodically review our estimates compared to actual experience
and revise our estimates when appropriate. The length of time necessary to
achieve our currently estimated ultimate recoveries of 61.5% for silver and 93%
for gold is estimated to be between 5 and 10 years. However, the ultimate
recovery will not be known until leaching operations cease, which is currently
estimated for 2011.
When we began operations in 1986, based solely on laboratory testing, we
estimated the ultimate recovery of silver and gold at 50% and 80%, respectively.
Since 1986, we have adjusted the expected ultimate recovery 3 times (once in
each of 1989, 1997 and 2003) based upon actual experience gained from leach
operations. In 1989, we increased our estimated recoveries for silver and gold
to 55% and 85%, respectively. The change was accounted for prospectively as a
change in estimate, which had the effect of increasing the estimated recoverable
ounces of silver and gold contained in the heap by 1.6 million ounces and 10,000
ounces, respectively. In 1997, we revised our estimated recoveries for silver
and gold to 59% and 89%, respectively, which increased the estimated recoverable
ounces of silver and gold contained in the heap by 4.7 million ounces and 39,000
ounces, respectively. Finally, in 2003, we revised our estimated recoveries for
silver and gold to 61.5% and 93%, respectively, which increased the estimated
recoverable ounces of silver and gold contained in the heap by 1.8 million
ounces and 41,000 ounces, respectively.
38
If our estimate of ultimate recovery requires adjustment, the impact upon
our inventory valuation and upon our income statement would be as follows:
Positive/Negative Positive/Negative
Change in Silver Recovery Change in Gold Recovery
------------------------- -----------------------
1% 2% 3% 1% 2% 3%
----------- ----------- ----------- ----------- ----------- -----------
Quantity of recoverable
ounces 1.3 million 2.6 million 5.2 million 8,700 17,400 34,800
Positive impact on
future cost of
production per
equivalent silver
ounce for increases
in recovery rates $0.23 $0.41 $0.57 $0.11 $0.21 $0.30
Negative impact on
future cost of
production per
equivalent silver
ounce for decreases
in recovery rates $0.28 $0.64 $1.13 $0.12 $0.26 $0.41
Inventories of ore on leach pads are valued based upon actual costs
incurred to place such ore on the leach pad, less costs allocated to minerals
recovered through the leach process. The costs consist of those production
activities occurring at the mine site and include the costs, including
depreciation, associated with mining, crushing and precipitation circuits. In
addition, refining is provided by a third party refiner to place the metal
extracted from the leach pad in a saleable form. These additional costs are
considered in the valuation of inventory.
Property, Plant and Equipment
Property, Plant, and Equipment balances are stated at cost, reduced by
provisions to recognize economic impairment in value when management determines
that such impairment has occurred. Mineral property, buildings and improvements,
and machinery and equipment are depreciated using either the straight-line
method or the units-of-production method over the estimated useful lives as of
the in-service date or date of major improvements. We evaluate the realizability
of our long-lived assets, property, plant and equipment, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss exists when estimated undiscounted cash flows
expected to result from the use of the asset and its eventual disposition are
less than its carrying amount. Any impairment loss recognized represents the
excess of the asset's carrying value as compared to its estimated fair value.
Reclamation and Remediation Costs
Reclamation and remediation costs are based principally on legal and
regulatory requirements. Management estimates costs associated with reclamation
of mining properties as well as remediation cost for inactive properties. The
estimated undiscounted cash flows generated by our assets and the estimated
liabilities for reclamation and remediation are determined using the Company's
assumptions about future costs, mineral prices, mineral processing recovery
rates, production levels and capital and reclamation costs. Such assumptions are
based on the Company's current mining plan and the best available information
for making such estimates. On an ongoing basis, management evaluates its
estimates and assumptions; however, actual amount could differ from those based
on such estimates and assumptions.
Effective with the first quarter of 2003 the Company was required by the
FASB to change the methodology used to recognize its reclamation obligations.
Prior to 2003, the Company recognized a pro rata share of the future estimated
reclamation liability on a units-of-production basis. After January 1, 2003
39
companies are required to recognize the full discounted estimated future
reclamation liability and set up a corresponding asset to be amortized over the
life of the mine on a units-of-production basis. The impact of this change is
accounted for as a change in accounting principle in the first year of
implementation, and the effects of this change are discussed below.
Upon initial application of FASB No. 143, the Company recognized the
following:
4. A liability of $20.7 million for the existing asset retirement
obligations based on the discounted fair market value of future cash
flows to settle the obligations,
5. An asset of $11.4 million to reflect the retirement cost capitalized
as an increase to the carrying amount of the associated long-lived
asset, offset by $7.6 million of accounting depletion through January
1, 2003, and
6. A cumulative effect of change in accounting principle of $2.3 million
at January 1, 2003.
The Company measured the cumulative accretion and accumulated depreciation
for the period from the date the liability would have been recognized if FASB
No. 143 were in effect when the Company incurred the liability to the date of
the adoption of the Statement and has reported these as a cumulative effect of a
change in accounting principle. For the initial measurement of these existing
obligations the Company used current information, assumptions, and interest
rates. The initial implementation of FASB No. 143 also required the Company to
reverse all previously recognized retirement obligations (reclamation accruals)
as part of the cumulative effect adjustment.
The Asset Retirement Obligation is measured using the following factors: 1)
Expected labor costs, 2) Allocated overhead and equipment charges, 3) Contractor
markup, 4) Inflation adjustment, and 5) Market risk premium.
The sum of all these costs was discounted, using the credit adjusted
risk-free interest rate (current assumption of 7.5%), from the time we expect to
pay the retirement obligation to the time we incur the obligation. The
measurement objective is to determine the amount a third party would demand to
assume the asset retirement obligation.
Upon initial recognition of a liability for an asset retirement obligation,
the Company capitalized the asset retirement cost with a corresponding debit to
the carrying amount of the related long-lived asset. The Company will deplete
this amount to operating expense using the units-of-production method. The
Company is not required to re-measure the obligation at fair value each period,
but the Company is required to evaluate the cash flow estimates at the end of
each reporting period to determine whether the estimates continue to be
appropriate. Upward revisions in the amount of undiscounted cash flows will be
discounted using the current credit-adjusted risk-free rate. Downward revisions
will be discounted using the credit-adjusted risk-free rate that existed when
the original liability was recorded.
The following is a description of the changes and pro forma changes to the
Company's asset retirement obligations from January 1 to March 31, of 2003:
Assets:
2003
----------------
(in thousands)
Asset Retirement Obligation - January 1, 2003 $ 20,662
Accretion 387
Additions -
Settlements $ (255)
----------------
Asset Retirement Obligation - March 31, 2003 $ 20,794
The following table summarizes the pro forma effects of the application of
SFAS No. 143, as if the Statement had been retrospectively applied for the
periods ending on March 31, 2003 and 2002:
40
(In thousands except per share data) March 31, 2003 March 31, 2002
-------------- --------------
Net loss as reported $ (31,190) $ (11,896)
========== ==========
Net loss pro forma $ (28,884) $ (12,027)
========== ==========
Basic and diluted earnings per share as reported $ (0.23) $ (0.23)
========== ==========
Basic and diluted earnings per share pro forma $ (0.21) $ (0.23)
========== ==========
In addition, had the Company adopted the provisions of SFAS No. 143 prior
to January 1, 2003, the amount of the asset retirement obligations on a pro
forma basis would have been as follows:
(In thousands) Pro Forma Asset Retirement Obligation
-------------------------------------
January 1, 2000 $ 18,937
===========
December 31, 2000 $ 18,282
===========
December 31, 2001 $ 19,553
===========
December 31, 2002 $ 20,662
===========
Significant Mining Properties
The Company's currently operating mines consist of the Rochester Mine, a
heap leach silver and gold mine in northern Nevada of which the Company owns
100%; the Galena Mine, an underground silver mine in Idaho that is 100% owned by
Coeur's wholly-owned subsidiary, Coeur Silver Valley, Inc.; the Cerro Bayo mine,
where Coeur commenced gold and silver production at an open pit and underground
mine in May 2002; and the Martha Mine, which commenced underground and open pit
operations in July, 2002. The Company also owns 100% of the San Bartolome silver
project in Bolivia where it is conducting final feasibility studies and expects
to commence silver production in 2005, and the Kensington property in Alaska
where Coeur is in the initial steps of development of an underground gold mine.
Defined Benefit Pension Obligation
Actuarial Present Value of Projected Benefit Obligation:
The actuarial present value of our accumulated plan benefits has been
determined using the following assumptions:
Factor Method
------ ------
Discount Rate for Benefit Obligations 7.0%, Moody's AAA Bond Rating
Long-Term Rate for Assets 7.0%
Salary Increases 5.0%
Form of Benefit Life Annuity
Expenses None Assumed
Considered Compensation Gross Pay as of January 1, 2002
Mortality Table GAM 83' Blended
Disability Table None
Turnover Table T8 withdrawal Table
Fair Value of Assets Market Value
There were no substantive commitments for the benefits other than as stated
in the plan. The actuary has no other relationships with and is independent of
the Company. The discount rate was determined based on Moody's AAA Bond Rating
and the rate applied was within the range of expected experience.
Expected long-term rate of return on plan assets:
The long-term expected rate of return on plan assets for purposes of the
actuarial valuation was assumed to be 7% and 8.5% as of December 31, 2002 and
2001, respectively. This rate was reduced in 2002 to more closely reflect the
actual return on assets based on historical data. The rate used is based on the
plan's experience and asset mix of the portfolio, as well as taking into
consideration the fact that no lump sum distributions are paid from the plan.
The plan had an expected return on plan assets of $0.1 million for each of 2002
and 2001. The actual return on plan assets was a negative $0.2 million and $0.1
million for 2002 and 2001, respectively. The
41
actuarial gains and losses for each period are amortized using a straight-line
method over 10.9 years. This will have a future impact on operations of
approximately $0.3 million per year.
Plan assets and determination of fair value:
The fair value of plan assets is determined using the market value of the
investments held by the plan at December 31 of each year as quoted by public
equity and bond markets. The asset mix is in accordance with the plan's
fiduciary investment policy which allows for 60% equity investments, 35% fixed
income investments and 5% cash and cash equivalents. The current investment
portfolio for the funded portion of the obligation is held in a trust. The
Company's funding policy is to contribute amounts to the plan sufficient to meet
the minimum funding requirements as set forth in the Employee Retirement Income
Security Act of 1974 plus such additional tax deductible amounts as may be
advisable under the circumstances. The Company has funded $0.9 million and $0.6
million in 2002 and 2001, respectively, toward the obligation. The plan assets
are invested principally in commingled stock funds, mutual funds and securities
issued by the United States government.
Pursuant to the plan's fiduciary investment policy, the plan adopts more
specific investment directives from time to time. The plan's current investment
directives are 10% guaranteed investment contracts, 30% fixed income
investments, 30% large company investments and 30% S&P 500 index funds. Based on
this current investment directive, the plan's actual portfolio at December 31,
2002 had 10% guaranteed investment contracts, 32% fixed income investments, 29%
large company investments and 29% S&P 500 index funds. Since the performance of
each asset class of the portfolio within any measurement period will impact its
relative weight in the portfolio, the actual percentage of each asset class in
the portfolio at December 31, 2002 does not match exactly to the current
directive.
The expected long-term rates of return for each asset class within the
portfolio, and therefore the portfolio average, is based on an estimate of the
return for each of the securities within an asset class, which are currently
benchmarked at 8.75% for equity investments, 5.5% for fixed income investments
and 4% for cash and cash equivalents. For each type of investment within the
Trust's portfolio structure, the Trustees evaluate both returns and the
relationship between risk and return. The expectation is that each asset class
will produce a superior risk-adjusted return over a market cycle.
The following table shows the expected rate of return for each asset class
along with the standard deviation or volatility associated with each asset
class.
Expected Rate Standard Deviation
Mix of Return or Volatility
- --------------------------------------- ------------- ------------------
60% equity investments 8.75% 16.00%
30% fixed income investments 5.50% 7.25%
10% cash and cash equivalents 4.00% 1.00%
------------- ------------------
7.40% 11.00%
The Trustees evaluate the level of volatility within the total Trust and
each of its component investments. The Trustees have set maximum volatility
thresholds for each class of investment which consist of 16% for equity
investments, 7.25% for fixed income investments and 1% for cash and cash
equivalents, with the total portfolio volatility expected to not exceed 11%. The
Trustees then compare how these specific investments perform against other
indexed funds and other managed portfolios with similar objectives. The specific
criteria used to measure the performance is as follows:
1) A targeted 7-11% average annualized return based on long-term historical
market data;
2) Expected returns over a market cycle that exceed the total portfolio
indexed benchmark;
3) Volatility that is not substantially greater than the portfolio indexed
benchmark volatility of 11%; and
4) Risk adjusted returns that are above market line analysis when compared
with indexed benchmarks.
42
If the discount rate is 1% below the expected discount rate of benefit
obligations of 7%, pension expense would decrease by $0.2 million annually, and
the accrual for the benefit obligation would decrease by $0.6 million. If the
discount rate is 1% above the expected discount rate the annual pension expense
would increase by $0.1 million and the accrual for the benefit obligation would
increase by $0.5 million. If the future rate of return on plan assets is 1%
below the expected long-term rate of 7%, pension expense would increase by $0.2
million annually and the annual funding requirement would increase by $0.2
million annually. If the future rate of return on plan assets is 1% above the
expected long-term rate, the annual pension expense would decrease by $0.1
million and the annual funding requirement would decrease by $0.1 million.
Post-Retirement Medical Obligations
Actuarial Present Value of Projected Benefit Obligation:
The discount rate was determined based on Moody's AAA Bond Rating and the
rate applied was within the range of expected experience. The medical trend rate
was determined based on the group rated experience. The Company amortizes its
unrecognized, unfunded accumulated post-retirement benefit obligation using a
straight-line method over a 6.9-year period. The 6.9-year estimate is based on a
statistically determined average of estimated future service for the Company's
employees.
Expected long-term rate of return on plan assets
No assets are held in a trust for the post retirement health care plan;
therefore, there is no expected long-term rate of return assumption. A "pay as
you go" funding method is utilized under this plan. The Company contributed $0.2
million to the plan for each of 2002 and 2001.
A 1% increase in the medical trend rate assumption would result in an
additional $9,000 in interest cost and a $0.1 million increase in
post-retirement benefit obligation. A 1% decrease in the medical trend rate
assumption would result in an $8,000 decrease in interest cost and a $0.1
million decrease in post-retirement benefit obligation."
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 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
43
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 March 31, 2003 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) 2003 2004 2005 2006 2007 Total 3/31/03
- --------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt
Fixed Rate $ 9,911 $ 28,268 $ 9,939 $ - $37,185 $85,303 $88,251
Average Interest Rate 8.435% 8.522% 8.681% 9.000% 9.000%
Derivative Financial
Instruments
Gold Forward
Sales - USD $ 107
Ounces 40,000 14,000 - - - 54,000
Price Per Ounce $331 $353 - - - $337
Foreign Currency
Contracts (88)
Chilean Peso - USD $ 3,975 - - - - $ 3,975
Exchange Rate 712 - - - -
(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.
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 2. Changes in Securities and Use of Proceeds.
(c) Sale of Unregistered Securities
On February 26, 2003, the Company privately sold $37.2 million principal
amount of 9% Convertible Senior Subordinated Notes due February 2007 (the "9%
Notes"). The offering was not underwritten. The 9% Notes were sold to a total of
12 institutional investors. The Company received net proceeds of approximately
$33.8 million. Additional information regarding the 9% Notes and the private
placement are set forth above under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
44
Capital Resources - Issuance of 9% Convertible Senior Subordinated Notes"
included under Item 2 of Part I of this report. The 9% Notes were issued
pursuant to an Indenture, dated as of February 26, 2003, between the Company and
the Bank of New York, as trustee. Each of the institutional investors qualified
as an "accredited investor" within the meaning of Rule 501(a) under the Act. Of
the financial advisory fees paid by the Company in connection with the issuance
of the 9% Notes, the Company elected to issue 647,966 unregistered shares of
common stock valued at $1.54 per share in lieu of cash. The private issuance of
9% Notes and common stock was exempt from registration under the Act in reliance
upon Section 4(2) thereof.
Pursuant to the terms of the Purchase Agreements, dated as of February 20,
2003, between the Company and the institutional investors and the related
Registration Rights Agreements, dated as of February 26, 2003, between the
Company and such institutional investors, as well as the Registration Rights
Agreement, dated as of March 20, 2003, between the Company and the financial
advisor, the Company filed Amendment No. 2 to its Registration Statement on Form
S-3 on March 21, 2003, in order to register the 9% Notes that had been issued in
the private placement (as well as the shares of common stock issuable upon
conversion thereof and as interest thereon) and the shares of common stock
issued in lieu of cash financial advisory fees for resale in the future by the
holders thereof under the Act.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
10(a) - Employment agreement, dated as of March 11, 2003,
between the Registrant and Mitchell J. Krebs.
10(b) - Employment agreement, dated as of March 11, 2003,
between the Registrant and Gary Banbury.
10(c) - Employment agreement, dated as of March 11, 2003,
between the Registrant and James N. Meek.
10(d) - Employment agreement, dated as of March 11, 2003,
between the Registrant and Wayne Vincent.
10(e) - Employment Agreement, dated as of January 13, 2003,
between the Registrant and Robert Martinez.
99.1 Certification of the CEO
99.2 Certification of the CFO
(b) Reports on Form 8-K.
On February 27, 2003, the Company filed a Current Report on Form 8-K
reporting the issuance of 9% Convertible Senior Subordinated Notes due
February 2007.
45
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 May 15, 2003 /s/ Dennis E. Wheeler
----------------------------
DENNIS E. WHEELER
Chairman and
Chief Executive Officer
Dated May 15, 2003 /s/ James A. Sabala
----------------------------
JAMES A. SABALA
Executive Vice President and
Chief Financial Officer
46
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: May 15, 2003 /s/ Dennis E. Wheeler
------------------------------------
Dennis E. Wheeler
Chairman and Chief Executive Officer
47
CERTIFICATION OF CHIEF FINANCIAL OFFICER
----------------------------------------
I, James A. Sabala, 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: May 15, 2003 /s/ James A. Sabala
--------------------------------------------
James A. Sabala
Executive Vice President and
Chief Financial Officer
48