Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8641
COEUR D'ALENE MINES CORPORATION
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Idaho 82-0109423
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Front Ave., P. O. Box "I"
Coeur d'Alene, Idaho 83816
----------------------------------------------------------- --------
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (208) 667-3511
Securities Registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00
6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
---------------------------------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
2
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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. (The aggregate market value is computed by
reference to the last sale price of such stock, as of March 17, 2000, which was
$3.38 per share.)
$125,229,000
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 17, 2000.
37,050,068 shares of Common Stock, Par Value $1.00
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-K is
incorporated by reference from the registrant's definitive proxy statement
which will be filed pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
2
3
PART I
ITEM 1. BUSINESS
INTRODUCTION
Coeur d'Alene Mines Corporation is engaged through its subsidiaries
in the operation and/or ownership, development and exploration of silver and
gold mining properties and companies located primarily within the United States
(Nevada, Idaho and Alaska), Western Australia and South America (Bolivia and
Chile). Coeur d'Alene Mines Corporation and its subsidiaries are hereinafter
referred to collectively as "Coeur" or the "Company."
OVERVIEW OF MINING PROPERTIES AND INTERESTS
The Company's most significant mining properties and interests are:
- The ROCHESTER MINE is a silver and gold surface mining
operation located in northwestern Nevada and is 100% owned
and operated by Coeur. It is one of the largest and lowest
cost of production primary silver mines in the United
States. During 1999, the Company acquired the mineral
rights to the NEVADA PACKARD property which is located two
miles south of the Rochester mine;
- Coeur owns 100% of the capital stock of COEUR SILVER VALLEY
("SILVER VALLEY"), which owns and operates the GALENA
underground silver mine that resumed production in May 1997,
and also owns the COEUR underground silver mine that
discontinued operations on July 2, 1998. In addition, Silver
Valley owns the CALADAY property that adjoins the Galena Mine,
and has operating control of several contiguous exploration
properties in the Coeur d'Alene Silver Mining District of
Idaho;
- The FACHINAL MINE is an open pit and underground gold and
silver mine which is wholly-owned and operated by Coeur and
located in southern Chile, South America;
- The PETORCA MINE is an underground gold and silver mine which
is wholly-owned and operated by Coeur and is located in
central Chile, South America;
- Coeur owns 50% of the capital stock of GASGOYNE GOLD MINES NL,
an Australian gold mining company ("Gasgoyne"), which owns
50% of THE YILGARN STAR MINE, and certain other
exploration-stage properties. The Yilgarn Star mine is an
underground gold mine located in Western Australia;
- The KENSINGTON PROPERTY, located north of Juneau, Alaska is
100% owned and operated by Coeur and is being developed as
an underground gold mine. An independently prepared
optimization study completed in late 1998 estimated cash
operating costs of US$190 per ounce of
3
4
gold and estimated capital costs to develop the mine of
$192 million;
- Empressa Minera Manquiri S.A., a Bolivian company, is a
wholly-owned subsidiary of Coeur that controls the mining
rights for the SAN BARTOLOME silver project. San Bartolome is
an early stage silver development property in Bolivia; and
- Coeur owns approximately 3.5% of the outstanding shares of
PAN AMERICAN SILVER CORPORATION, a publicly traded, British
Columbia corporation that is engaged in silver mining and
exploration, and Coeur owns 100% of NPMC, INC., a Delaware
corporation that owns a 20% net profit royalty interest in
the Quiruvilca Silver mine in Peru.
Coeur also has interests in other properties which are the subject of silver or
gold exploration activities at which no mineable ore reserves have yet been
delineated.
SIGNIFICANT DEVELOPMENTS IN 1999
On August 13, 1999, the Company purchased the mineral rights of the
Nevada Packard property which is adjacent to the Rochester Mine in Nevada.
Coeur paid $2.1 million for the property, consisting of $1.4 million in cash
and 155,638 shares of the Company's common stock valued at $0.7 million. The
Nevada Packard property hosts a proven and probable reserve of 9.5 million
ounces of silver equivalent. Nevada Packard is expected to begin production in
2002, supplementing ore mined from the Rochester open pit.
On September 9, 1999, the Company acquired certain silver
properties and assets from ASARCO Inc. ("Asarco") in exchange for 7.125 million
shares of Coeur Common Stock, valued at $28.9 million. The properties and
assets acquired include (i) the 50% interest in Silver Valley not already owned
by Coeur, (ii) 100% of the mining rights for the San Bartolome silver project
in Bolivia, (iii) 1,500,000 common shares of Pan American Silver Corporation
and (iv) a 20% net profit royalty interest in the Quiruvilca Silver Mine in
Peru.
During the third quarter the Company settled an outstanding lawsuit
with Cyprus Minerals Company ("Cyprus") for $31.5 million. Coeur was seeking
damages from Cyprus arising from ground movement and instability which
threatened the integrity of the Golden Cross Mine in New Zealand. As a result
of the settlement, Coeur recorded other income of $21.1 million during the
third quarter of 1999, which was the net amount of the settlement proceeds
after the deduction of $4.4 million payable to the Company's flood insurance
carrier and $6.0 million payable to the plaintiffs in a class action lawsuit.
During the third and fourth quarters of 1999 Coeur repurchased
$10.2 million in face value of the Company's 6% Subordinated Convertible
Debentures which mature in 2002 for $6.1 million. The Company recorded an
extraordinary gain of $4.0 million during 1999 and reduced the outstanding
principal balance of the issue to $35.6 million.
4
5
During the fourth quarter of 1999, due to the continuing low gold
price environment, the Company evaluated the recoverability of its investment
in Yilgarn Star Mine. Using a $325 per ounce gold price and based on
undiscounted future cash flows, in accordance with the standards set fourth in
SFAS 121, the Company determined that its investment in property, plant and
equipment at the Yilgarn Star Mine in Australia was impaired. The total amount
of the impairment, based on discounted cash flows was $16.2 million at December
31, 1999, and was recorded in the fourth quarter.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on the ore
reserve/mineralized material bases located at its operating mines and the
expertise of its management to become the leading primary silver production
company via long-term, profitable growth. The principal elements of the
Company's business strategy are as follows: (i) increase the Company's silver
production and reserves in order to remain the nation's largest primary silver
producer and one of the world's larger primary silver producers; (ii) improve
cash costs and production profiles at Coeur's existing silver and gold mining
operations; (iii) increase and improve the quality of the Company's silver
production and reserves; (iv) acquire operating mines, exploration and/or
development properties with a view to reducing the Company's cash and total
costs, provide short-term positive cash flow return and expand its production
base and reserves; and (v) continue to explore for new silver discoveries
primarily near its existing mine sites.
SOURCES OF REVENUE
The Rochester Mine, Silver Valley, Fachinal Mine, and Petorca Mine
which are operated by the Company, and the Company's interests in the Yilgarn
Star Mine, constituted the Company's principal sources of mining revenues in
1999. The following table sets forth information regarding the percentage
contribution to the Company's total revenues (i.e., revenues from the sale of
concentrates and dore plus other income) by the sources of those revenues
during the past five years:
5
6
Coeur Percentage
Ownership at Percentage of Total Revenues
Mine/Company December 31, 1999 in Year Ended December 31,
- ------------ ----------------- --------------------------------------------------
1995 1996 1997 1998 1999
----- ----- ---- ---- ----
Rochester Mine........................... 100% 57.0% 59.3% 40.5% 56.2% 49.2%
Petorca Mine(1).......................... 100 0.3 2.8 11.3 8.5 8.0
Fachinal Mine(2)......................... 100 - - 9.8 14.6 8.0
Silver Valley(3)......................... 100 - .5 .9 (.9) 4.6
Gasgoyne(4).............................. 50 - 0.9 5.2 12.1 9.2
Golden Cross Mine(5)..................... 80 33.4 26.0 23.7 .2 19.4
Other.................................... - 9.3 10.5 8.6 9.3 1.6
----- ----- ----- ---- ----
100% 100% 100% 100% 100%
==== ==== ===== ==== ====
(1) Increased ownership to 100% from 51% in September 1996.
(2) Commenced commercial production on January 1, 1997 for financial reporting
purposes.
(3) The Company increased its ownership interest in Silver Valley from 50% to
100% on September 9, 1999. The Company's interest in Silver Valley
accounted for approximately 3.0 % of total revenues for the approximately
eight months subsequent to its start-up by the Silver Valley in May 1996.
The Company changed its method of accounting for Silver Valley from the
proportionate consolidation method to the equity method of accounting at
the time of the acquisition and as such included cost of production and
working capital costs, and on September 9, 1999, the Company commenced
accounting for Silver Valley on a fully consolidated basis.
(4) The Company's interest in Gasgoyne accounted for approximately 1.2% of
total revenues for the approximately six months subsequent to its
acquisition by the Company in May 1996. The reported percentages reflect
the fact that Coeur's interest in Gasgoyne's revenue was 35% from May 1996
to February 1997, 36% from March 1997 to May 1997 and 50% after May 1997.
The Company's interest in Gasgoyne is reported in accordance with the
equity method.
(5) The Company discontinued mining and milling operations at the Golden Cross
Mine, an underground and surface gold mining operation in New Zealand, in
April 1998. The revenue received in 1999 represents the net proceeds
received from the settlement of the outstanding litigation with Cyprus
relating to the Golden Cross mine.
DEFINITIONS
The following sets forth definitions of certain important mining terms used in
this report.
"CASH COSTS" are costs directly related to the physical activities of producing
silver and gold, and include mining, processing and other plant costs, deferred
mining adjustments, third-party refining and smelting costs, marketing expense,
on-site general and administrative costs, royalties, in-mine drilling
expenditures that are related to production and other direct costs, but
exclude depreciation, depletion and amortization, corporate general and
administrative expense, mineral exploration, financing costs and accruals for
final mine reclamation.
"DORE" is bullion produced by smelting which contains gold, silver and minor
amounts of impurities.
"GOLD" is a metallic element with minimum fineness of 999 parts per 1000 parts
pure gold.
"HEAP LEACHING PROCESS" is a process of extracting gold and silver by placing
broken ore on an impermeable pad and applying a dilute cyanide
6
7
solution that dissolves a portion of the contained gold and silver, which are
then recovered in metallurgical processes.
"NONCASH COSTS" are costs that are typically accounted for ratably over the
life of an operation and include depreciation, depletion and amortization of
capital assets, accruals for the costs of final reclamation and long-term
monitoring and care that are usually incurred at the end of mine life, and the
amortization of the economic cost of property acquisitions, but exclude
amortization of deferred tax purchase adjustments relating to property
acquisitions established in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" as these deferred tax purchase
adjustments did not involve any economic resources of the Company.
"TOTAL PRODUCTION COSTS" are the sum of cash costs and noncash costs.
"MINERALIZED MATERIAL" is gold and silver bearing material that has been
physically delineated by one or more of a number of methods including drilling,
underground work, surface trenching and other types of sampling. This material
has been found to contain a sufficient amount of mineralization of an average
grade of metal or metals to have economic potential that warrants further
exploration evaluation. While this material is not currently or may never be
classified as reserves, it is reported as mineralized material only if the
potential exists for reclassification into the reserves category. This material
cannot be classified in the reserves category until final technical, economic
and legal factors have been determined and the project containing the material
has been approved for development. Under United States Securities and Exchange
Commissions standards, a mineral deposit does not qualify as a reserve unless
the recoveries from the deposit are expected to be sufficient to recover total
cash and non-cash costs for the mine and related facilities.
"ORE RESERVE" is the part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
"PROBABLE RESERVES" are a part of a mineralized deposit which can be extracted
or produced economically and legally at the time of the reserve determination.
The quantity and grade and/or quality of a probable reserve is computed from
information similar to that used for a proven reserve, but the sites for
inspection, sampling and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
Mining dilution has been factored into the estimation of probable reserves. The
Company used long-term price estimates of $5.50 per ounce of silver and $325
per ounce of gold in estimating probable reserves at December 31, 1999.
"PROVEN RESERVES" are a portion of a mineral deposit which can be extracted or
produced economically and legally at the time of the reserve determination. The
quantity of a proven reserve is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade and/or quality are computed from the
results of detailed sampling and the sites for inspections, sampling and
measurement are spaced so closely and the geologic character is so well defined
that size, shape, depth and mineral content of
7
8
a proven reserve is well-established. Mining dilution has been factored into
the estimation of proven reserves. The Company used long-term price estimates
of $5.50 per ounce of silver and $325 per ounce of gold in estimating proven
reserves at December 31, 1999.
"RUN-OF-MINE ORE" is mined ore which has not been subjected to any pretreatment,
such as washing, sorting or crushing prior to processing.
"SILVER" is a metallic element with minimum fineness of 995 parts per 1000
parts pure silver.
"STRIPPING RATIO" is the ratio of the number of tons of waste to the number of
tons of ore extracted at an open-pit mine.
"TON" means a short ton which is equivalent to 2,000 pounds, unless otherwise
specified.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
This report contains numerous forward-looking statements relating
to the Company's gold and silver mining business, including estimated
production data, expected operating schedules and other operating data and
permit and other regulatory approvals. Such forward-looking statements are
identified by the use of words such as "believes," "intends," "expects,"
"hopes," "may," "should," "plan," "projected," "contemplates," "anticipates" or
similar words. Actual production, operating schedules and results of operations
could differ materially from those projected in the forward-looking statements.
The factors that could cause actual results to differ materially from those
projected in the forward-looking statements include (i) the risks and hazards
inherent in the mining business (including environmental hazards, industrial
accidents, weather or geologically related conditions), (ii) changes in the
market prices of gold and silver, (iii) the uncertainties inherent in the
Company's production, exploratory and developmental activities, including risks
relating to permitting and regulatory delays, (iv) the uncertainties inherent
in the estimation of gold and silver ore reserves, (v) changes that could
result from the Company's future acquisition of new mining properties or
businesses, (vi) the effects of environmental and other governmental
regulations, and (vii) the risks inherent in the ownership or operation of or
investment in mining properties or businesses in foreign countries.
SILVER AND GOLD OPERATIONS
ROCHESTER MINE
The Rochester Mine is a silver and gold surface mine located in
Pershing County, Nevada, approximately 25 road miles northeast of Lovelock. The
mine commenced operations in 1986. The Company owns 100% of the Rochester Mine
by virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc.
("Coeur Rochester").
The property consists of 16 patented and 541 unpatented contiguous
mining claims and 54 mill-site claims totaling approximately 11,000 acres.
8
9
The mine utilizes the heap leaching process to extract both silver
and gold from ore mined using conventional open pit methods. Approximately
45,100 tons of ore and waste per day were mined from the open pit in 1999
compared to 47,600 tons per day in 1998. The average strip ratio for the
remaining life of the mine will vary based primarily on future gold and silver
prices. However, the average strip ratio is anticipated to be less than 1:1.
Ore is crushed to approximately 3/8 inch and is then transported by
conveyor and 85 and 150 ton trucks to leaching pads where solution is applied
via drip irrigation to dissolve the silver and gold contained in the ore.
Certain low-grade ores are hauled directly, as run-of-mine, by 85 ton haul
trucks to leaching pads where solution is applied to dissolve the silver and
gold contained in the ore. The solutions containing the dissolved silver and
gold are collected in a processing plant where the zinc precipitation method is
used to recover the silver and gold from solution.
Based upon actual operating experience and certain metallurgical
testing, the Company estimates recovery rates of 59% for silver and 90% for
gold. The leach cycle at the Rochester Mine requires approximately five to
seven years from the point ore is placed on the leach pad until all recoverable
metal is recovered. However, a significant proportion of metal recovery occurs
in the early years.
During 1999 the Stage IV leach pad was expanded. The expansion,
which is expected to provide leach capacity at current mining rates for an
additional four years, was completed during the third quarter at a cost of
$2.0 million. The loading of crushed ore on the pad commenced at that time.
During 1999, the Company continued its district exploration program
designed to define new targets in the Rochester area. Drilling of several of
these targets encountered significant alteration but failed to identify any
economic mineralization. Exploration activity will continue in 2000 and will be
primarily focused on the Nevada Packard property.
On August 13, 1999, the Company purchased the mineral
rights of the Nevada Packard property two miles south of the Rochester mine for
$2.1 million. Assuming successful permitting, acquisition of the Nevada Packard
property added 9.5 million ounces of silver equivalent to Rochester's proven
and probable reserves. Nevada Packard is expected to begin production in 2002,
supplementing ore mined from the Rochester open pit. Permitting of the Nevada
Packard property is underway. It is expected that any ore mined at Nevada
Packard will be processed at the Rochester facility.
Production at Rochester in 1999 was 6.2 million ounces of silver
and 70,400 ounces of gold, compared to 7.2 million ounces of silver and 88,600
ounces of gold in the prior year. The decrease in production was attributed to
the planned mining sequence, which necessitated the mining of lower-grade ore
in 1999. Despite the production decrease, cash costs per equivalent ounce of
silver were reduced to $3.97 per ounce in 1999 from $4.07 per ounce in 1998.
9
10
The Company's capital expenditures at the Rochester Mine totaled
approximately $4.3 million in 1999, of which approximately $2.1 million was
used to purchase the Nevada Packard property and $2.0 million was used to
construct the stage IV leach pad expansion. The Company plans approximately
$1.9 million of capital expenditures at the mine during 2000, most of which is
for stage II leach pad expansion.
Asarco, the prior lessee, has a net smelter royalty interest which
is payable only when the market price of silver equals or exceeds $18.58 per
ounce up to maximum rate of 5%.
YEAR-END PROVEN AND PROBABLE ORE RESERVES - ROCHESTER MINE
1999 1998
---- ----
Tons (000's) 48,272 54,856
Ounces of silver per ton 1.09 1.08
Contained ounces of silver (000's) 52,508 59,244
Ounces of gold per ton 0.01 0.01
Contained ounces of gold 381,000 494,000
YEAR-END MINERALIZED MATERIAL
1999 1998
---- ----
Tons (000's) 46,393 26,789
Ounces of silver per ton 0.82 0.91
Ounces of gold per ton 0.01 0.01
10
11
OPERATING DATA
1999 1998
---- ----
PRODUCTION
Tons ore mined (000's) 9,569 8,495
Tons crushed/leached (000's) 9,537 8,529
Ore grade silver (oz./ton) 1.25 1.36
Ore grade gold (oz./ton) 0.009 0.009
Silver produced (oz.) 6,195,169 7,225,396
Gold produced (oz.) 70,396 88,615
COST PER OUNCE OF SILVER EQUIVALENT(1)
Cash costs $3.97 $4.07
Noncash costs 0.81 0.60
---------------------------------------------
Total production costs $4.78 $4.67
(1) Silver equivalent gold production is calculated by
multiplying actual gold ounces produced by the ratio of the
yearly average gold price to silver price. This total is
then added to actual silver production for the year to
determine total silver equivalent production for purposes of
calculation cash and noncash costs per ounce.
SILVER VALLEY RESOURCES CORPORATION ("SILVER VALLEY")
As previously noted, Coeur acquired 50% of Silver Valley from
Asarco on September 9, 1999, thereby increasing its ownership interest to 100%.
The benefits identified by Coeur when it consummated that acquisition included
(i) an increase of 1.8 million ounces in Coeur's estimated annual silver
production, (ii) the addition of 16.2 million ounces of silver to Coeur's
proven and probable reserves and 6.0 million ounces to Coeur's silver resources,
(iii) the potential to further increase reserves and resources through
systematic exploration, (iv) the potential to increase production at the
Galena Mine and thereby reduce cash costs and (v) the consolidation of Coeur's
ownership position and control of Idaho's Silver Valley.
Silver Valley owns the Coeur and Galena Mines and the Caladay
property situated in the Coeur d'Alene Mining District of Idaho. Effective
January 1, 1995, Coeur, Callahan Mining Corporation ("Callahan"), a
wholly-owned subsidiary of Coeur, and Asarco transferred their interests in the
Coeur and Galena Mines and Caladay property to Silver Valley, an entity created
for that sole purpose, as a result of which Coeur and Asarco owned 50% of
Silver Valley. During 1995, Silver Valley conducted a planned underground
development program that increased ore reserves at the Galena Mine. As a
result of this program and increased silver prices, a decision was made on
February 8, 1996 by Silver Valley to reopen the mines.
Silver Valley recommenced operations at the Coeur mine portion of
its property in June 1996 and continued mining existing reserves there through
July 2, 1998, when operations were terminated after known reserves were
depleted. Silver Valley resumed production at the Galena Mine in May 1997 and
operations continue.
11
12
Silver Valley plans to continue exploratory and developmental
activities at the Coeur, Galena and Caladay Mines as well as at several
contiguous properties in the Coeur d'Alene Mining District with a view toward
the development of new silver reserves and resources.
GALENA MINE
The Galena Mine property is located immediately west of the City of
Wallace, Shoshone County, northern Idaho.
The property consists of 52 patented mining claims and 25 unpatented
mining claims totalling approximately 1,100 acres.
The Galena Mine is an underground silver-copper mine, and is served
by two vertical shafts. The No. 3 shaft is the primary production shaft and is
5,800 feet deep. The Galena shaft primarily provides utility access for water,
electrical power and sand backfill for underground operations.
The mine utilizes the drift and fill mining method with sand backfill
to extract ore from the high grade silver-copper vein deposits that constitute
the majority of the ore reserves. Silver and copper are recovered by a
flotation mill that produces a silver rich concentrate which is sold to
third-party smelters in the United States and Canada. Silver recovery through
the mill averaged 97% is 1999, consistent with 1998.
Waste material from the milling process is deposited in a tailings
pond located approximately two miles from the minesite. The tailings
containment pond has capacity for approximately nine additional years at
current production rates.
Coeur's share of production in 1999 was 2.2 million ounces of silver
as compared to 1.6 million ounces in 1998. The Company's increased ownership in
the current year accounts for the majority of the increase in production. Cash
costs in 1999 were $5.09 per ounce of silver as compared to $4.39 per ounce in
the preceding year. Lower lead by-product credits, ground control problems and
a utility shaft failure contributed to the increased costs and the mining of
lower grade ores.
The Company is carrying out an aggressive in-mine exploration program
and an extensive regional exploration program at the Galena mine. Initial
indications suggest that there is potential to expand reserves both in the
lower levels of the mine and in the upper levels where previous mining left
significant silver mineralization potential untested.
Work to develop and extend the high grade 117 vein, one of the most
important discoveries in recent years, continued in 1999. The grade of the 117
vein varies between 20 to 60 ounces per ton silver, and has been traced from
the 3,700 foot level to the 5,000 foot level.
Total capital expenditures by Silver Valley at the Galena Mine in
1999 approximated $0.9 million of which $0.6 million was for mine development.
Silver Valley has planned for capital expenditures of approximately $4.3
12
13
million for the Galena Mine during 2000. Mine development will again account
for the majority of this expenditure.
YEAR-END PROVEN AND PROBABLE ORE RESERVES - GALENA MINE (1)
1999(2) 1998 (2)
---- -----
Tons (000's) 1,858 879
Ounces of silver per ton 18.51 18.54
Contained ounces of silver (000's) 34,386 16,286
YEAR-END MINERALIZED MATERIAL
1999(2) 1998(2)
---- ----
Tons (000's) 830 391
Ounces of silver per ton 8.44 8.26
OPERATING DATA (COEUR'S INTEREST)
1999(3) 1998(3)
---- ----
PRODUCTION
Tons ore milled 131,646 88,152
Ore grade silver (oz./ton) 17.61 19.07
Recovery (%) 97 97
Silver produced (oz.) 2,238,370 1,630,182
COST PER OUNCE OF SILVER
Cash costs $5.09 $4.39
Noncash costs 0.93 1.06
----------------------------------------
Total production costs $6.02 $5.45
(1) The Galena Mine reserve estimate is based on a minimum mining
width of 4 to 4.5 feet diluted to 5.0 feet minimum width
for most silver-copper and silver-lead veins. Cutoff grade is
based on the cost of breaking and producing ore from a
stope, but does not include development costs and
administrative overhead.
(2) Proven and probable ore reserves and mineralized material at
December 31, 1998 represent the Company's 50% interest as
compared to 100% at December 31, 1999.
(3) Operating data in 1999 reflects the Company's 50% interest in
the Galena mine from January 1 to August 31 and 100%
interest from September 1 to December 31, 1999. Operating
data in 1998 reflects the Company's 50% interest.
COEUR MINE
The Coeur Mine is an underground silver mine located adjacent to the
Galena Mine in the Coeur d'Alene Mining District in Idaho, and consists of
approximately 868 acres comprised of 38 patented mining claims and four
unpatented mining claims.
Operations at the Coeur Mine were suspended on April 3, 1991 due to
then prevailing silver prices ($3.90 per ounce average for April 1991) and
placed on a care and maintenance basis to conserve ore reserves. Silver Valley
resumed production activities at the Coeur Mine in June 1996 and terminated
operations there on July 2, 1998 after known reserves were depleted.
13
14
There was no mining activity at the Coeur Mine in 1999 and the
property remained on care and maintenance. However, the Company believes that
significant potential exists to discover additional high grade silver veins
beneath the current limit of the underground workings.
YEAR-END MINERALIZED MATERIAL - COEUR MINE
1999(1) 1998(1)
---- ----
Tons (000's) 370 185
Ounces of silver per ton 14.53 14.53
OPERATING DATA (COEUR'S INTEREST)
1999 1998(2)
---- ----
PRODUCTION
Tons ore milled - 10,984
Ore grade silver (oz./ton) - 12.28
Recovery (%) - 97
Silver produced (oz.) - 130,633
COST PER OUNCE OF SILVER
Cash costs - $5.34
Noncash costs - 1.03
-----------------------------------------
Total production costs - $6.37
1. Mineralized material at December 31, 1998 represent the
Company's 50% interest as compared to the Company's 100%
interest at December 31, 1999.
2. Operating data for 1998 represents the Company's 50% share
for the period from January 1 to July 2, 1998 when mining
activities were suspended.
14
15
CALADAY PROPERTY
The Caladay property adjoins the Galena Mine. Prior to its
acquisition by the Company in 1991, approximately $32.5 million was expended on
the property to construct surface facilities, a 5,101 ft. deep shaft and
associated underground workings to explore the property. Based on Silver
Valley's analysis of existing Galena Mine underground workings and drilling
results on the Galena Property, the Company believes that there may be similar
geologic conditions which exist at the Galena extend into the Caladay below the
level of the current Caladay workings. In addition, the Caladay facilities are
used to benefit the Galena Mine operations, by exhausting ventilation.
FACHINAL MINE
In January 1990, the Company acquired through its wholly owned
subsidiary, CDE Chilean Mining Corporation, ownership of the Fachinal gold and
silver property. The Company completed the construction of the Fachinal Mine in
October 1995 when initial mining operations started. Commercial production for
financial accounting purposes commenced on January 1, 1997.
The Fachinal property covers about 90 square miles and is located
south of Coihaique, the capital of Region XI in southern Chile, and
approximately 10 miles west of the town of Chile Chico. The project lies on the
east side of the Andes mountain range at an elevation ranging from 600 to 4,500
feet and is serviced by a gravel road from Chile Chico. The Fachinal property
is known to include multiple epithermal veins containing gold and silver. The
Company has been granted exploitation concessions (the Chilean equivalent to an
unpatented claim except that the owner does not have title to the surface which
must be separately acquired from the surface owner) covering the mineralized
areas of the Fachinal property as well as the necessary surface rights to
permit mining there.
During the first two years of commercial production (i.e. 1997 and
1998), the Fachinal Mine experienced ore reserve complications and operations
problems that resulted in significantly higher than expected cash costs. An
effort to transition from open pit mining to underground mining continued
through 1997 and 1998. As a result, mining at Fachinal occurs both on the
surface and underground. Surface mining is by the open pit and slot cut methods
while underground mining is done by the raise mining and shrinkage methods.
During 1999, approximately 25% of Fachinal's ore was derived from underground
mining and 62% from open pit areas, and 13% from the slot-cut areas.
Ore is processed on site by a mill which uses the standard
flotation process to produce a high grade gold and silver concentrate. The
concentrate is sold to third-party smelters, primarily in Japan. The mill has
a design capacity of 1,650 tons per day. The Company estimates, based on
operating experience, recovery rates of 89% for gold and 88% for silver.
Electrical power is generated on-site by diesel generators and
process water is obtained from a combination of the adjacent General Carrera
lake and from tailings re-circulation.
15
16
During the first quarter of 1999, the Company implemented a revised
operating plan designed to reduce costs. The plan included a 40% reduction in
mine personnel, a 30% decrease in the mill operating schedule, a decrease in
diesel consumption and the renegotiation of key contracts.
Production at Fachinal during 1999 was 1.1 million ounces of silver
and 25,500 ounces of gold compared to 1.6 million ounces of silver and 28,400
ounces of gold in 1998. The decline in production was due, in part, to lower
than planned ore grades encountered in the open pit in the fourth quarter and as
a result of the modified operating plan introduced in 1999.
Cash costs per gold equivalent ounce in 1999 decreased to $304 from
$314 in 1998. Cash costs were reduced to $277 per gold equivalent ounce in the
third quarter of 1999; however, the production decline in the fourth quarter
reversed the declining cost trend established earlier in the year.
Mining efforts have now been redirected to higher grade slot-cut
reserves and the Company expects production in 2000 to improve and cash costs
should decline accordingly.
Adjusting for the disappointments encountered in the open pit
significantly decreased Fachinal's proven and probable reserves. However,
exploration in 1999 was successful in adding significantly higher grade tons to
the mine's mineralized material inventory. At the end of 1999 the Fachinal
property contained a significant mineralized material inventory and the Company
has planned a minimum $1.1 million exploration program for 2000, which will
concentrate on upgrading this inventory to reserve status for mining.
During 1999, the Company exercised its option to purchase 100% of
the Furioso property for $500,000. The high grade Furioso deposit (proven and
probable reserve of 47,000 tons grading 0.76 gold equivalent ounces per ton) is
located approximately 50 miles southwest of the Fachinal mine and is scheduled
to commence production in the fourth quarter of 2000. Furioso ores will be
processed at the Fachinal mill. Estimated cash costs at Furioso are $120 per
gold equivalent ounce. Estimated capital costs to bring Furioso into production,
including both the construction of an access road and the property purchase
cost, are $2.7 million.
Total capital expenditures at the Fachinal Mine in 1999,
excluding the purchase of the Furioso property, were $0.9 million, primarily
for underground mine development and miscellaneous mining and processing
equipment. The Company plans approximately $0.6 million of capital expenditures
at Fachinal in 2000, excluding Furioso development.
At December 31, 1998, the Company reviewed the carrying value of
the Fachinal Mine and recorded an impairment write-down of $42.9 million,
reflecting its expectation that it would not recover the full value of its
remaining investment.
YEAR-END PROVEN AND PROBABLE ORE RESERVES (1) - FACHINAL MINE
1999 1998
---- ----
16
17
Tons (000's) 510 1,475
Ounces of silver per ton 4.27 2.70
Contained ounces of silver (000's) 2,181 3,986
Ounces of gold per ton 0.11 0.07
Contained ounces of gold 56,000 110,000
YEAR-END MINERALIZED MATERIAL (1)
1999 1998
---- ----
Tons (000's) 1,961 3,953
Ounces of silver per ton 5.18 2.16
Ounces of gold per ton 0.11 0.08
OPERATING DATA
1999 1998
---- ----
PRODUCTION
Tons ore milled 444,691 568,051
Ore grade gold (oz./ton) 0.064 0.057
Ore grade silver (oz./ton) 2.84 3.20
Recovery gold (%) 87 88
Recovery silver (%) 89 88
Gold produced (oz.) 25,480 28,358
Silver produced (oz.) 1,099,342 1,596,676
COST PER OUNCE OF GOLD EQUIVALENT(2)
Cash costs $304 $314
Noncash costs 64 206
--------------------------------
Total production costs $368 $520
(1) Proven and probable ore reserves and mineralized material
includes the Furioso property near the Fachinal Mine, which
the Company purchased in 1999.
(2) Gold equivalent gold production is calculated by dividing
actual silver ounces produced by the ratio of the yearly
average silver price to gold price. This total is then
added to actual gold production for the year to determine
total gold equivalent production for purposes of
calculating cash and noncash costs per ounce.
Although the government and economy of Chile has been stable in
recent years, the ownership of property in a foreign country is always subject
to the risk of expropriation or nationalization with inadequate compensation.
Any foreign operation or investment may also be adversely affected by exchange
controls, currency fluctuations, taxation and laws or policies of particular
countries as well as laws and policies of the United States affecting foreign
trade, investment and taxation.
PETORCA MINE
Coeur owns 100% of the Petorca Mine located on approximately 34,000
acres in the western Andean foothills approximately 90 miles north of Santiago,
Chile. In July 1994, the Company acquired an interest in Compania Minera CDE El
Bronce, a Chilean corporation ("CDE El Bronce") that owned the producing El
Bronce Mine, now known as the Petorca Mine. In September 1996, the Company
increased its ownership interest of CDE El Bronce to 100%.
17
18
The property consists of 64 exploitation concessions and 10
exploration concessions. Surface rights to permit mining on the property have
been granted by the private owners. Ore is produced from a complex system of
precious metals bearing, epithermal, quartz-veins hosted in Cretaceous volcanic
rocks.
Petorca is an underground gold mine which is serviced by adits at
different levels and underground ramps. The mine uses trackless cut and fill
sublevel caving with uncemented backfill and shrinkage mining methods. Ore is
hauled to the mill in 20-ton trucks.
The processing plant has two grinding circuits with a total
capacity of 900 tons per day. Approximately 35% of the total gold produced is
recovered by gravity methods to produce a gold dore. The remaining gold and
silver are recovered by traditional flotation methods which produce a
high-grade concentrate which is sold to third-party smelters, primarily in
Japan. The Company estimates, based on operating experience, recovery rates of
92% for gold and 85% for silver.
Electrical power is purchased from a local distributor that is
connected to the main Chilean power grid. Process water is pumped from the
Petorca river and in part recovered from a re-circulating system from the
tailings impoundment area.
Due to operating losses incurred at the mine, the Company recorded
a $54.5 million impairment write-down in the first quarter of 1998.
Subsequent to the write-down, sufficient exploration success was
achieved to allow the mine to continue operations and during the third quarter
of 1998, the Company implemented a modified mining program focused on reducing
cash costs and generating positive operating cash flows. Mine personnel were
reduced by 40%, the mill was put on a reduced operating schedule, mining was
focused on higher-grade veins, and key supply and service contracts were
re-negotiated.
As a result of the modified mining program, production in 1999
declined to 29,400 ounces of gold as compared to 37,700 ounces in 1998.
However, cash costs declined 19% from $336 per ounce in 1998 to $271 per ounce
in 1999.
In addition, exploration success in 1999 added to Petorca's
mineralized material inventory and has provided solid evidence that future
exploration programs may be successful. At the end of 1999, the Company had
defined proven and probable reserves sufficient for two years of operations and
Coeur anticipates having an additional two years of proven and probable
reserves by the end of 2000.
Capital expenditures at Petorca in 1999 were $0.3 million,
primarily for mine development. Similar levels of capital spending are
anticipated for 2000.
Coeur has an obligation to pay the prior owner of CDE El Bronce a 3%
net smelter return royalty, payable quarterly, which commenced on January 1,
18
19
1997. From July 1998 to June 1999, the prior owner agreed to a 2.4% net smelter
return royalty. The agreement for the 2.4% NSR has been extended through the
year 2000.
YEAR-END PROVEN AND PROBABLE ORE RESERVES - PETORCA MINE
1999 1998
---- ----
Tons (000's) 377 424
Ounces of silver per ton 0.59 0.60
Contained ounces of silver (000's) 222 255
Ounces of gold per ton 0.23 0.22
Contained ounces of gold 85,000 95,000
YEAR-END MINERALIZED MATERIAL (1)
1999 1998
---- ----
Tons (000's) 933 858
Ounces of silver per ton 0.55 0.51
Ounces of gold per ton 0.29 0.33
19
20
OPERATING DATA
1999 1998
---- ----
PRODUCTION
Tons ore milled (000's) 191,929 236,016
Ore grade gold (oz./ton) 0.166 0.172
Ore grade silver (oz./ton) 0.391 0.355
Recovery gold (%) 92 93
Recovery silver (%) 85 84
Gold produced (oz.) 29,392 37,746
Silver produced (oz.) 69,952 70,755
COST PER OUNCE OF GOLD (2)
Cash costs $271 $336
Noncash costs 14 44
------------------------------
Total production costs $285 $380
(1) Certain mineralized veins remain geologically open both
vertically and horizontally.
(2) Revenue from silver production at Petorca is treated as a
by-product credit for purposes of calculating cash and
noncash unit costs.
GASGOYNE GOLD MINES NL - YILGARN STAR MINE
In May 1996, Coeur acquired approximately 35% of the outstanding
shares of capital stock of Gasgoyne, an Australian gold mining company, in
exchange for a total of 1,419,832 shares of Coeur common stock and cash
totaling approximately $15.4 million. In May 1997, Coeur acquired an additional
14% of the outstanding shares of Gasgoyne for US$14.9 million, as a result of
which Coeur's ownership interest in Gasgoyne increased to 50%. Coeur's interest
in Gasgoyne is being accounted for using the equity method. The remaining 50%
interest in Gasgoyne is held by Sons of Gwalia Ltd., an Australian corporation
headquartered in Perth, Western Australia.
Gasgoyne is engaged in the exploration, development and ownership
of gold properties located in Western Australia. Gasgoyne's principal asset is
its interest in the Yilgarn Star Mine in the Marvel Loch region, located
approximately 220 miles east of Perth. The Yilgarn Star Mine is operated as a
Joint Venture with Sons of Gwalia Ltd. Sons of Gwalia has a 45% interest in the
Yilgarn Star mine and Gasgoyne has a 50% interest; the remaining interest is
held by a private party. As a result of its holding in Gasgoyne, the Company
has a 25% indirect interest in the Yilgarn Star Mine with Sons of Gwalia having
the remaining 75% interest and operatorship.
The Yilgarn Star Mine commenced production in 1991 as an open pit
gold mine. With most of the surface reserves nearing depletion, the operation
began to develop the higher-grade underground reserves in late 1995. By mid
1998 mining activity was focused underground with supplemental mill feed being
provided by limited surface operations and ore that had been stockpiled during
previous open pit mining operations.
20
21
The Nevoria Mill, which processed ore from the Southern Star mine
open pit, ceased operations in July 1998 and was placed on a care and
maintenance basis following the depletion of reserves at the Southern Star mine.
All ore is now processed by the Star mill, which ran at an average of 2,500
tons per day (100% basis) during 1999 and recovered 95% of the gold from the ore
processed.
The Yilgarn Star Mine is a remote operation. Electrical power is
generated on site by diesel generators and process and potable water is pumped
from a nearby well field. While at the mine, workers are housed in a camp
provided by the Joint Venture, located at the site. Underground mining is
carried out by a contractor while ore processing, support and maintenance
services and administration are provided by Yilgarn Star employees.
Coeur's 25% share of production from the Yilgarn Star Mine was
26,400 ounce of gold in 1999, compared to 39,400 ounces in 1998. Cash costs
increased from $215 per ounce in 1998 to $287 per ounce in 1999. Several factors
contributed to the decrease in production and significant increase in costs: 1)
The Mine completed the transition from open pit plus underground mining to
underground only mining, 2) Ore grades and throughput, particularly in the
fourth quarter of 1999, were below expectations and 3) Flooding of portions of
the underground mine by unusually heavy rains delayed development and
extraction of higher grade ore.
Conversion to footwall mine development, hiring of a new
underground mining contractor and the replacement of the primary crusher should
result in reduced costs in 2000.
In-mine and near-mine exploration did not produce new underground
reserves in 1999. However, the significant regional exploration program
conducted by Gasgoyne in the Marvel Loch and Laverton Regions, two of the most
active gold mining regions in all of Australia, yielded positive results.
Approximately 20 miles to the south of the Yilgarn Star Mine in the Marvel Lock
region, the Company and Sons of Gwalia have discovered a potentially new
open-pit deposit on the Cheritons Find tenement. Drilling to date has
encountered gold values over a strike length of 1,300 feet. Some of the best
intersections, all of which are near surface, are as follows: 1) 10 feet at 1.4
ounces per ton gold, 2) 10 feet at 0.94 ounces per ton gold and 3) 16 feet at
0.37 ounces per ton gold.
The joint venture will continue to explore this new discovery in
2000 and the Company is currently working with Sons of Gwalia to redirect other
previously planned reverse circulation drilling to this new prospect.
During the fourth quarter of 1999, due to the continuing low gold
price environment, the Company evaluated the recoverability of its investment
in Yilgarn Star Mine. Using a $325 per ounce gold price and based on
undiscounted future cash flows, in accordance with the standards set fourth in
SFAS 121, the Company determined that its investment in property, plant and
equipment at the Yilgarn Star Mine in Australia was impaired. The total amount
of the impairment, based on discounted cash flows was $16.2 million at December
31, 1999, and was recorded in the fourth quarter.
21
22
The following tables present Coeur's 25% interest in the reserves,
mineralized material and operating results from the Yilgarn Star Mine:
YEAR-END PROVEN AND PROBABLE ORE RESERVES - YILGARN STAR MINE
1999 1998
---- ----
Tons (000's) 816 1,019
Ounces of gold per ton 0.17 0.17
Contained ounces of gold 138,000 171,000
YEAR-END MINERALIZED MATERIAL
1999 1998
---- ----
Tons (000's) 1,942 1,539
Ounces of gold per ton 0.12 0.14
OPERATING DATA (COEUR'S 25% INTEREST)
1999 1998
---- ----
PRODUCTION
Tons ore milled 226,181 336,460
Ore grade gold (oz./ton) 0.125 0.125
Recovery (%) 94 93
Gold produced (oz.) 26,398 39,381
COST PER OUNCE OF GOLD
Cash costs $287 $215
Noncash costs 200 201
----------------------------
Total production costs $487 $416
KENSINGTON GOLD DEVELOPMENT PROPERTY
On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur
Alaska, Inc. ("Coeur Alaska"), acquired the 50% ownership interest of Echo Bay
Exploration Inc. ("Echo Bay") in the Kensington property from Echo Bay and Echo
Bay Alaska, Inc. (collectively the "Sellers"), giving Coeur 100% ownership of
the Kensington property. The property is located on the east side of Lynn Canal
between Juneau and Haines, Alaska. As a result of that transaction, Coeur
assumed full ownership and operating control of the project. Pursuant to the
Venture Termination and Asset Purchase Agreement among Coeur Alaska and the
Sellers, dated as of June 30, 1995, Coeur Alaska paid to the Sellers a total of
$32.5 million and, pursuant to the Royalty Deed set forth as an exhibit to the
Venture Termination and Asset Purchase Agreement, Coeur Alaska agreed to pay
Echo Bay a scaled net smelter return royalty on 1 million ounces of future gold
production after Coeur Alaska recoups the $32.5 million purchase price and its
construction expenditures incurred after July 7, 1995 in connection with
placing the property into commercial production. The royalty ranges from 1% at
$400 gold prices to a maximum of 2 1/2% at gold prices above $475, with the
royalty to be capped at 1 million ounces of production. The Kensington project
consists of approximately 6,000 acres, of which approximately 750 acres are
patented claims.
22
23
The Kensington ore deposit consists of multiple, precious metals
bearing, mesothermal, quartz, carbonate, pyrite vein swarms and discrete
quartz-pyrite veins hosted in the Cretaceous age Jualin diorite. The
gold-telluride-mineral calaverite is associated with the pyrite mineralization.
The following proven and probable ore reserve table (see updated optimization
study below).
YEAR-END PROVEN AND PROBABLE ORE RESERVES (1)
1999 1998
---- ----
Tons (000's) 13,893 13,893
Ounces of gold per ton 0.14 0.14
Contained ounces of gold 1,896,000 1,896,000
YEAR-END MINERALIZED MATERIAL
1999 1998
---- ----
Tons (000's) 10,510 10,510
Ounces of gold per ton 0.13 0.13
(1) The proven and probable reserves estimate is based on an ore
reserve endorsement dated February 1997 by Steffen,
Robertson & Kirsten, independent mining consultants. The
reserve estimate was based on a long average life of mine
gold price of $410 per ounce.
Not all Kensington ore zones have been fully delineated at depth
and several peripheral zones and veins remain to be explored. The Company
possesses the right to develop the Jualin property, an exploratory property
located adjacent to the Kensington Property. The Jualin property consists of
approximately 9,400 acres, of which approximately 345 acres are patented claims.
During 1998 and 1999, the Company's efforts at Kensington continued
to be directed toward the permitting process and further project optimization
studies. The Company announced in April 1998 that it had obtained all
significant permits required to proceed with development of the mine. However,
in view of continuing low gold prices, the Company initiated an optimization
study, utilizing independent third party consultants, which was intended to
improve the economic viability of the project.
In December 1998, the Company announced the completion of the
independent optimization study which contained a new mine plan that requires
extensive permit modifications. Based on the results of the optimization study
the Company estimated that the project's cash operating costs should be reduced
to approximately $190 per ounce of gold and total capital costs to develop the
mine should be reduced to approximately $192 million.
The 1998 optimization study called for changes relating to the
tailings management system, on-site gold recovery, facility relocation and
increased mill throughput. The tailings management system involved placing most
of the Kensington tailings on the floor of the Lynn Canal via an engineered
system called Underwater Tailings Placement ("UTP"). In the UTP process, only
inert (non-reactive) tailings would be piped directly to the
23
24
sea floor at a depth of approximately 750 feet. The plan also called for
recovering gold on-site with sodium cyanide gold processing in a separate,
fully contained system. Other changes in the mine plan involved relocating
surface facilities such as the ore grinding facilities to an underground
location and increasing the mine production rate.
The proposed use of UTP would require the Company to obtain from
the EPA a site-specific exemption from its rules regulating gold mining. In
addition, modification to the Environmental Protection Agency ("EPA") National
Pollution Discharge Elimination System ("NPDES") permit would be required,
which in turn would most likely require the EPA to prepare a Supplemental
Environmental Impact Statement. Modifications also would be required to the US
Forest Service approval of the Plan of Operations, the Army Corps of Engineers
Section 404 permit for tailings facility construction, and the City and Borough
of Juneau Large Mine Permit. Additional required authorizations of federal,
state and local jurisdictions would be required to reflect the mine plan
changes.
While not yet fully complete, continued project optimization during
1999 has indicated that the capital cost to develop the property could be
further reduced. The 1999 optimization efforts included: 1) A proposed
reduction in process throughput combined with a corresponding increase to the
grade of ore to be mined, 2) A relocation of the plant site, 3) A change to the
method and routing of personnel and supplies transportation, and 4) A possible
alternative tailings management system. The Company will continue to examine
these new alternatives given the potential capital cost savings.
The Company's capital expenditures at the Kensington Property
totaled approximately $6.7 million (excluding capitalized interest) in 1999.
Such expenditures were used to continue the permitting and optimization
activities. The Company plans approximately $5.9 million (excluding capitalized
interest) in project expenditures during 2000, which are planned for technical
support, engineering studies required to complete the modified permitting
activities and site maintenance.
On December 31, 1998, due to the continuing low gold price
environment, the Company reviewed the carrying value of the Kensington property
using a $350 per ounce gold price assumption and recorded a non-cash impairment
write-down of $121.5 million. The write-down does not jeopardize Kensington's
future operating plans. Coeur remains committed to completing the permitting
process in order to prepare the property for a production decision should the
gold price return to historical levels. However, no assurance can be given as
to whether or when the required regulatory approvals will be obtained or as to
whether the Company will place the Kensington project into commercial
production.
THE SAN BARTOLOME PROJECT
Coeur acquired 100% of the equity interest in Empressa Minera
Manquiri S.A. ("Manquiri") from Asarco on September 9, 1999. Manquiri's
principal asset is the mining rights in the San Bartolome project, an early
stage silver development property located near the city of Potosi, Bolivia, on
the flanks of Cerro Rico which has been a world class silver producing district
for many centuries, having produced in excess of 1.0 billion ounces of
24
25
silver. The San Bartolome project consists of six distinct silver-bearing gravel
deposits, which are locally referred to as pallaco or sucu deposits. These
deposits lend themselves to simple, free digging surface mining techniques
which can be extracted without drilling and blasting. The deposits were formed
as a result of erosion of the silicified silver-rich upper part of Cerro Rico.
The mineral rights for the San Bartolome project are held through
long-term lease agreements with several independent mining cooperatives and the
Bolivian State Mining Company, COMIBOL. At present, 67 square kilometers of
concessions (16,600 acres) are controlled by Manquiri. The JV/lease agreements
are subject to a 4% production royalty payable partially to the Cooperatives
and COMIBOL. During the current exploration stage, the properties are subject
to monthly payments totaling approximately US $25,500.
Of the six pallacos deposits which are controlled by Coeur and
surround Cerro Rico, three are of primary importance and are known as:
Huachajchi, Diablo (consisting of Diablo Norte, Diablo Sur and Diablo Este),
and Santa Rita. Since acquiring the property, Coeur has commenced evaluation of
all facets of the project. Coeur's initial detailed drilling and bulk sampling
programs are well underway and are expected to be completed in 2000.
Interpretation of the results is ongoing. Currently underway are resource and
reserve evaluations, metallurgical testing to determine the optimum process
flow sheet, order of magnitude capital cost estimate, and collection of
baseline environmental data for mine permitting.
Resource estimates prepared in March 1999 and a revised Santa Rita
estimate provided in September 1999 by The Winters Company, Coeur's independent
mining consultants, indicate that the San Bartolome property has an estimated
total mineralized material inventory of 104.8 million ounces of silver in the
three main sucu deposits tested, contained in 34.3 million tons of material,
with an average silver grade of 3.1 ounces per ton at a 1.75 ounce per ton
silver cutoff grade.
Coeur plans approximately $4.4 million of exploration and project
development expenditures at San Bartolome during 2000.
The San Bartolome project involves risks that are inherent in any
mining venture, as well as particular risks associated with the location of the
project. The resource estimates indicated by the geologic studies performed to
date are preliminary in nature and may differ materially after further
development and metallurgical testing is completed. Also, managing mining
projects in the altiplano area of Bolivia, where Cerro Rico is located, presents
logistical challenges. The political and cultural differences of a foreign
country may also present challenges.
In addition to the San Bartolome project, Manquiri holds two gold
exploration properties in the Potosi department. Geological mapping, trenching
and sampling have been complete on the Khory Huasi property, which is located
150 kilometers southwest of Potosi and drill targets have been defined. The
Poconota property is located near Kory Huasi, but is at an early stage of
exploration. Coeur has no present plans for the exploration of these properties.
25
26
PAN AMERICAN SILVER CORPORATION INTERESTS
Coeur acquired 1,500,000 shares of common stock of Pan American
Silver Corporation ("Pan American") from Asarco on September 9, 1999, which
shares constituted approximately 5.2% of Pan American's then outstanding shares.
Coeur also recieved warrants to acquire additional Pan American shares which
expired unexercised on December 31, 1999. In addition, Coeur acquired a 20% net
earnings life-of-mine royalty interest in the Quiruvilca Mine in northern Peru.
Pan American is a Vancouver, Canada, based silver mining,
development and exploration company. Its assets include the Quiruvilca Mine in
northern Peru which produced 3.1 million ounces of silver in 1998, and the
Dukat silver development property in Russia. Pan American also has silver
development properties in Mexico and has silver exploration programs in Peru,
Bolivia, Russia and Canada.
Pan American's common stock is traded on the Toronto Stock Exchange
and the NASDAQ National Market. In the fourth quarter of 1999 Coeur sold
320,000 or 21% of the Pan American shares it held, realizing an average price
of $6.82 per share. There are no restrictions on the transfer or sale of the
remaining 1,180,000 shares held by Coeur.
In 1999, Pan American's common stock traded on the NASDAQ National
Market at a high of US $7 9/16, and a low of US $4 3/4. The last sale on
December 31, 1999 was at US $5 1/4. The average daily trading volume in 1999 on
the NASDAQ National Market was 137,000 shares.
As stated above, Coeur also owns a 20% net earnings life-of-mine
royalty payable by Pan American with respect to the Quiruvilca Mine. However,
the royalty is calculated in such a manner that Pan American has historically
been able to allocate sufficient costs to the mine so that the royalty payments
have been deminimus.
SILVER AND GOLD PRICES
The Company's operating results are substantially dependent upon the
world market prices of silver and gold. The Company has no control over silver
and gold prices, which can fluctuate widely. The volatility of such prices is
illustrated by the following table, which sets forth the high and low prices of
silver (as reported by Handy and Harman) and gold (London Metal Exchange final
quotation) per ounce during the periods indicated:
Year Ended December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999
------------------ ------------------- ------------------ ----------------
High Low High Low High Low High Low
-------- --------- -------- ------- ------- ------- ------- -------
Silver - $ 5.79 $ 4.67 $ 6.21 $ 4.21 $ 7.31 $ 4.72 $ 5.77 $ 4.91
Gold - $414.80 $367.40 $366.55 $283.00 $313.15 $273.40 $325.50 $252.80
MARKETING
Coeur has historically sold the gold and silver from its mines both
pursuant to forward contracts and at spot prices prevailing at the time of
26
27
sale. Entering into forward sale contracts is a strategy which can be used to
enhance revenues and/or mitigate some of the risks associated with fluctuating
precious metals prices. The Company continually evaluates the potential
benefits of engaging in these strategies based on the then current market
conditions. Coeur had no future silver production hedged at December 31, 1999.
In order to ensure certain minimum cash flows and reduce the impact of any
declines in gold prices, however, the Company has established the prices to be
received in the future for a portion of its gold production by entering into a
combination of forward sales agreements and put and call options. At December
31, 1999, approximately 30% of the Company's estimated annual production of
gold over the next five years was committed under the Company's gold hedging
program.
EXPLORATORY AND DEVELOPMENTAL MINING PROPERTIES
Coeur, either directly or through its wholly-owned subsidiaries,
owns, leases and has interests in certain exploration-stage mining properties
located in the United States, Chile, Australia and Bolivia. Exploration and
development expenses of approximately $8.5 million, and $9.2 million were
incurred by the Company in connection with exploration and development
activities in 1999 and 1998, respectively.
In keeping with the Company's overall efforts to focus its
resources, Coeur conducted more than 70% of the 1999 exploration program on or
near existing properties where infrastructure and production facilities are
already in place. The Company will continue this exploration focus in 2000.
In addition to its exploration program around existing mines, the
Company also controls a number of early-stage prospects, the most promising of
which is its Carrizalillo silver-gold prospect in north central Chile located
approximately 45 miles southeast of the city of Copiapo. Geochemical surveys,
sampling programs and limited reverse circulation drilling have identified a
number of promising areas of silver-gold mineralization. An initial 3,300 foot
drilling program has been planned.
Recent exploration at Coeur Silver Valley has enabled the Company
to establish a much clearer understanding of the in-mine potential. This
insight was instrumental in the discovery and extension of the 117 vein and the
addition of a potential 1,000 feet of strike length to the high-grade 72 vein
at the 5,500 level. The exploration program has also indicated that there is
potential to develop new reserves and resources not only at depth, but also in
the upper levels of the Galena mine that had been passed over in prior years.
In addition, limited exploration for silver is being conducted adjacent to the
main Galena and Coeur property on land leased from the Sterling Mining
Company, Placer Creek Mining Company, Silver Buckle Mines, Inc. and American
Silver Mining Company.
Gasgoyne Gold Mines NL (50% owned by Coeur) is conducting
exploration programs at the Yilgarn Star Gold Mine and several exploration
properties in the Laverton and Marvel Loch regions of Western Australia.
PROVISIONS OF THE TRANSACTION AGREEMENT AND SHAREHOLDER AGREEMENT WITH ASARCO
27
28
As discussed above, Coeur consummated its acquisition of certain
silver assets and properties from Asarco on September 9, 1999 in exchange for
7.125 million shares of Coeur Common Stock. Pursuant to the Transaction
Agreement between Coeur and Asarco, dated May 13, 1999 and amended and restated
as of June 22, 1999, and which was approved by the Company's stockholders at
the Annual Meeting on September 8, 1999, Asarco must, during the five years
following the acquisition, obtain the consent of Coeur to any sale of such
shares, and Asarco may not sell any of such shares to anyone other than an
affiliate of Asarco or in a widely distributed public offering.
Pursuant to the Shareholder Agreement, dated as of September 9,
1999, between Coeur and Asarco (the "Shareholder Agreement"), Asarco has the
right to nominate two directors for election to the Coeur Board of Directors.
If Asarco voluntarily sells or transfers its shares of Coeur Common Stock to
any person other than an affiliate and, as a result, its ownership is reduced
to less than 10% of Coeur's Outstanding Common Stock, Asarco will have the
right to nominate only one director, which right will continue so long as
Asarco owns at least 1% of Coeur's outstanding Common Stock. Under the
Shareholder Agreement, Asarco further agreed that without the consent of
Coeur's Board of Directors, Asarco will not acquire Common Stock or other
voting securities of Coeur, or any rights or options to buy any of such
securities, if after any such acquisition, Asarco would own more than 20% of
the total voting power of all outstanding voting equities securities of Coeur.
Asarco has certain rights to request Coeur to register Asarco's shares of Coeur
Common Stock under the Securities Act of 1933.
The Shareholder Agreement further provides that until Asarco holds
less than 10% of Coeur's outstanding Common Stock, the following actions by
Coeur will require the prior written consent of Asarco: (i) approval of capital
expenditure budgets and any single project requiring a capital expenditure in
excess of $100 million; (ii) approval of any financial institution, terms and
conditions and amounts with respect to any standard lines of credit or
borrowings to be utilized or secured by Coeur exceeding $100 million; (iii) the
creation of any lien in excess of $100 million on the assets of Coeur or any of
its subsidiaries; (iv) the discharge of auditors when a material dispute exists
in connection with the auditing of Coeur's books, records or financial
statements; (v) the liquidation, dissolution or general winding-up of Coeur or
any material subsidiary or the filing on behalf of Coeur or any material
subsidiary of any voluntary petition seeking relief under the bankruptcy laws
of the relevant jurisdiction; (vi) any material change in the nature of Coeur's
business from its current business of precious metals mining and other
businesses directly related thereto; (vii) the issuance by Coeur of any Common
Stock or other class of its capital stock for consideration other than cash for
a value in excess of $100 million; (viii) any material amendment of the By-Laws
or Articles of Incorporation of Coeur which would conflict with, or in any way
be inconsistent with, the terms of the Shareholder Agreement; and (ix) any
increase in the number of directors of Coeur above eleven. Asarco will be
deemed to have consented to any of the above actions if (i) the action shall
have been included as a specific agenda item for a meeting of Coeur's Board of
Directors, (ii) the written agenda together with all relevant information
relating to the proposed action shall have been delivered to directors in
advance of such meeting and (iii) at such meeting
28
29
directors nominated by Asarco vote in favor of such action. Also, no consent of
Asarco will be required for any Coeur debt restructuring, including any
exchange, subject to certain conditions.
Asarco was acquired by Grupo Mexico S.A. on November 17, 1999,
subsequent to this shareholder Agreement. It is not known at this time, what
impact, if any, the new ownership of Asarco will have on the relationship
between Asarco and the Company. However, the Company expects the terms of the
agreement to remain the same.
GOVERNMENT REGULATION
General
The Company's activities are subject to extensive federal, state and
local laws governing the protection of the environment, prospecting,
development, production, taxes, labor standards, occupational health, mine
safety, toxic substances and other matters. Although such regulations have
never required the Company to close any mine and the Company is not presently
subject to any material regulatory proceedings related to such matters, the
costs associated with compliance with such regulatory requirements are
substantial and possible future legislation and regulations could cause
additional expense, capital expenditures, restrictions and delays in the
development of the Company's properties, the extent of which cannot be
predicted. In the context of environmental permitting, including the approval
of reclamation plans, the Company must comply with known standards and
regulations which may entail significant costs and delays. Although Coeur has
been recognized for its commitment to environmental responsibility and believes
it is in substantial compliance with applicable laws and regulations, amendments
to current laws and regulations, the more stringent implementation thereof
through judicial review or administrative action or the adoption of new laws,
could have a materially adverse effect upon the Company.
For the years ended December 31, 1997, 1998 and 1999, the Company
expended $5.0 million, $8.0 million and $7.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties and expects to expend approximately $6.0 million for that purpose in
2000. In addition, since the inception of the project through December 31, 1999,
the Company expended approximately $18.6 million on environmental and permitting
activities at the Kensington Property and expects to spend approximately $2.2
million there for that purpose in 2000. The expenditures at Kensington have
been capitalized as part of its development cost. Future environmental
expenditures will be determined by governmental regulations and the overall
scope of the Company's operating and development activities.
Federal Environmental Laws
Mining wastes are currently exempt to a limited extent from the
extensive set of Environmental Protection Agency ("EPA") regulations governing
hazardous waste, although such wastes may be subject to regulation under state
law as a solid or hazardous waste. The EPA plans to develop a program to
regulate mining waste pursuant to its solid waste management
29
30
authority under the Resource Conservation and Recovery Act ("RCRA"). Certain
processing and other wastes are currently regulated as hazardous wastes by the
EPA under RCRA. The EPA is studying how mine wastes from extraction and
benefication should be managed and regulated. If the Company's mine wastes were
treated as hazardous waste or such wastes resulted in operations being
designated as a "Superfund" site under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund") for cleanup, material
expenditures would be required for the construction of additional waste
disposal facilities or for other remediation expenditures. Under CERCLA, any
present owner or operator of a Superfund site or an owner or operator at the
time of its contamination generally may be held liable and may be forced to
undertake remedial cleanup action or to pay for the government's cleanup
efforts. Additional regulations or requirements may also be imposed upon the
Company's tailings and waste disposal in Idaho and Alaska under the Federal
Clean Water Act ("CWA") and state law counterparts, and in Nevada under the
Nevada Water Pollution Control Law which implements the CWA. Air emissions are
subject to controls under Nevada's, Idaho's and Alaska's air pollution statutes
implementing the Clean Air Act.
The Company's commitment to environmental responsibility has been
recognized in 19 awards received since 1987, which included the Dupont/Conoco
Environmental Leadership Award, awarded to the Company on October 1, 1991 by a
judging panel that included representatives from environmental organizations
and the federal government and the "Star" award granted on June 23, 1993 by the
National Environmental Development Association, and the Environmental Waikato
Regional Council award for Golden Cross environmental initiative granted on May
15, 1995. In 1994, the Company's Chairman and Chief Executive Officer, and in
1997, the Company's Vice President of Environmental and Governmental Affairs,
were awarded the American Institute of Mining, Metallurgical and Petroleum
Engineers' Environmental Conservation Distinguished Service Award.
Natural Resources Laws
The Company is subject to federal and state laws designed to
protect natural resources. In March 1996, as discussed under Item 3 below, the
United States government commenced a lawsuit against various defendants,
including the Company, asserting claims under CERCLA and the CWA for alleged
damages to federal natural resources in the Coeur d'Alene River Basin of
northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
Proposed Mining Legislation
Legislation is presently being considered in the U.S. Congress to
change the Mining Law of 1872 (the "Mining Act") under which the Company holds
mining claims on public lands. It is possible that the Mining Act will be
amended or be replaced by more onerous legislation in the future. The
legislation under consideration, as well as regulations under development by
the Bureau of Land Management, contain new environmental standards and
conditions, additional reclamation requirements and extensive new procedural
steps which would be likely to result in delays in permitting.
30
31
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the Mining Act. If enacted,
such legislation may materially impair the ability of the Company to develop or
continue operations which derive ore from federal lands. No such bills have
been passed and the extent of the changes, if any, which may be enacted by
Congress is not presently known. A significant portion of Coeur's U.S. mining
properties are on public lands. Any reform of the Mining Act or regulations
thereunder based on these initiatives could increase the costs of mining
activities on unpatented mining claims, and as a result could have an adverse
effect on the Company and its results of operations. Until such time, if any,
as new reform legislation or regulations are enacted, the ultimate effects and
costs of compliance on the Company cannot be estimated.
Foreign Government Regulations
The mining properties of the Company that are located in New Zealand,
where the Company's Golden Cross Mine is the subject of post-closing
reclamation, and Chile are subject to various government laws and regulations
pertaining to the protection of the air, surface water, ground water and the
environment in general, as well as the health of the work force, labor
standards and the socioeconomic impacts of mining facilities upon the
communities. The Company believes it is in substantial compliance with all
applicable laws and regulations to which it is subject in both Chile and New
Zealand.
The Republic of Bolivia, where the San Bartolome project is located,
has adopted laws and guidelines for environmental permitting that are similar
to those in effect in the United States and other South American countries. A
recently established State Council for the Environment (CODEMA) has
responsibility to define policy, approve plans and programs, control regulatory
activities and enforce compliance. The permitting process requires a thorough
study to determine the baseline condition of the mining site and surrounding
area, an environmental impact analysis, and proposed mitigation measures to
minimize and offset the environmental impact of mining operations.
MAINTENANCE OF CLAIMS
At mining properties in the United States, including the Rochester,
Kensington, Coeur, Galena and Caladay mines, operations are conducted in part
upon unpatented mining claims, as well as patented mining claims. Pursuant to
applicable federal law it is necessary, in order to maintain the unpatented
claims, to pay to the Secretary of the Interior, on or before August 31 of each
year, a claim maintenance fee of $100 per claim. This claim maintenance fee is
in lieu of the assessment work requirement contained in the Mining Law of 1872.
In addition, in Nevada, holders of unpatented mining claims are required to pay
the county recorder of the county in which the claim is situated an annual fee
of $3.50 per claim. No maintenance fees are payable for patented claims.
Patented claims are similar to land held by an owner who is entitled to the
entire interest in the property with unconditional power of disposition.
31
32
In Chile, operations are conducted upon mineral concessions granted
by the national government. For exploitation concessions (somewhat similar to a
U.S. patented claim), to maintain the concession, an annual tax is payable to
the government before March 31 of each year in the approximate amount of $1.14
per hectare. For exploration concessions, to maintain the right, the annual tax
is approximately $.30 per hectare. An exploration concession is valid for a
three-year period. It may be renewed for new periods unless a third party
claims the right to explore upon the property, in which event the exploration
concession must be converted to an exploitation concession in order to maintain
the rights to the concession.
EMPLOYEES
The number of full-time employees at March 1, 2000 of Coeur d'Alene Mines
Corporation and its subsidiaries was:
United States Corporate Staff & Office 37
Coeur Silver Valley Mine (1) 209
Coeur Rochester Mine 239
Kensington Property 8
Chilean Corporate Staff & Office 13
Chilean Exploration Staff 23
Petorca Mine (1) 318
Fachinal Mine (1) 228
---
Total 1,075
The number of full-time employees (excluding contractors' employees) at March
1, 2000 in jointly-owned operations in which Coeur participates was:
Yilgarn Star (1) 72
Golden Cross Mine 6
----
Total 78
(1) Oerations where a portion of the employees are represented by
a labor union.
The current collective agreement with Cia Minera CDE Petorca
started June 1, 1999 and will expire May 31, 2002. The agreement with Cia
Minera CDE Fachinal Ltda. started September 1, 1999 and will expire August 31,
2001. The Company also maintains a labor agreement at its Coeur Silver Valley
mine. The agreement is effective from October 1, 1999 through December 13, 2002
and is with the United Steelworkers of America. Labor relations at all
represented mines are believed to be good.
ITEM 2. PROPERTIES.
Information regarding the Company's properties is set forth under
Item 1 above.
ITEM 3. LEGAL PROCEEDINGS.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States
District Court for the District of Idaho by the United States against various
32
33
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.
No specific monetary damages were identified in the complaint. However, in July
1996, the government indicated that damages may approximate $982 million and as
a result of pretrial discovery, it appears the United States believes it can
prove damages over $1 billion. The United States asserts that the defendants
are jointly and severally liable for costs and expenses incurred by the United
States in connection with the investigation, removal and remedial action and
the restoration or replacement of affected natural resources. In 1986 and 1992,
the Company had settled similar issues with the State of Idaho and the Coeur
d'Alene Indian Tribe, respectively, and believes that those prior settlements
exonerate it of further involvement with alleged natural resource damage in the
Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously
defend this matter.
In March 1997, the Company filed a motion for partial summary
judgement relating to the issue of trusteeship, essentially arguing that the
United States does not have authority to sue for damages to state natural
resources and that the 1986 settlement with the state bars the federal claims.
That motion remains pending. In September 1997, the Company filed an additional
motion for partial summary judgement raising the statute of limitations as to
natural resource damages. That motion was granted by the Court on September 30,
1998. The Court's granting of that motion limits the United States' natural
resource damage claims to the 21 square mile Bunker Hill Superfund site area
rather than the entire Coeur d'Alene Basin. Although that ruling limits the
geographic coverage of the United States' action, the ruling does not prohibit
the EPA from attempting to utilize its hazard ranking system which could
potentially broaden the scope of the United States' allegations. The United
States appealed this decision to the United States Court of Appeals for the 9th
Circuit. The Appeal has been argued but not decided. On March 31, 1998, the
Court entered an order denying the plaintiffs' motion to allow the United
States to prove a portion of its case pursuant to an administrative record, and
requiring the parties to submit further facts as to the issue of trusteeship.
Furthermore, in March 1998, the EPA announced its intent to perform a remedial
investigation/feasibility study upon all or parts of the Coeur d'Alene Basin
and, thereby, to apparently focus upon response costs rather than natural
resource damages. In September 1998, the Company filed an additional motion for
partial summary judgment asserting that CERCLA as applied to the Company in the
action is not constitutional under the takings and due process provisions of
the United States Constitution. The court denied this motion on the grounds
that further facts must be developed at trial before the issue can be decided.
Settlement of Golden Cross Lawsuit
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in connection
with Cyprus' sale in April 1993 to the Company of Cyprus
33
34
Exploration and Development Corporation, which owned all the shares of Cyprus
Gold New Zealand Limited, which, in turn, owned an 80% interest in the Golden
Cross Mine in New Zealand. The Company's lawsuit sought rescission and an
unspecified amount of damages arising from alleged misrepresentations and
failure to disclose material facts alleged to have been known by Cyprus
officials regarding ground movement and instability, threatening the integrity
of the mine site at the time of Coeur's purchase of the property. In October
1997, Cyprus filed a counterclaim alleging libel by the Company in its press
release announcing the write-off of the Golden Cross Mine and seeking an
unspecified amount of damages. On February 17, 1999, Cyprus filed a motion to
vacate the trial date and a motion to dismiss the second amended complaint. On
July 12, 1999, the Court entered an order denying the motion to dismiss and the
motion to vacate the trial date. During the third quarter of 1999, the Company
received $31.5 million from Cyprus in connection with the settlement of the
action. The Company recorded other income of approximately $21.1 million during
the third quarter of 1999, which was the net amount of settlement proceeds
after the deduction of a $4.4 million subrogation payment to Coeur's flood
insurance carrier and a $6 million payment to the plaintiffs in the class
action discussed below.
Settlement of Class Action Securities Lawsuit
On July 2, 1997 a suit was filed by purchasers of the Company's
Common Stock in Federal District Court for the District of Colorado naming the
Company and certain of its officers and its independent auditor as defendants.
Plaintiff alleges that the Company violated the Securities Exchange Act of 1934
during the period January 1, 1995 to July 11, 1996, and seeks certification of
the lawsuit as a class action. The class members are alleged to be those
persons who purchased publicly traded debt and equity securities of the Company
during the time period stated. On September 22, 1997, an amended complaint was
filed in the proceeding adding other security holders as additional plaintiffs.
The action seeks unspecified compensatory damages, pre-judgment and
post-judgment interest, attorney's fees and costs of litigation. The complaint
asserts that the defendants knew material adverse non-public information about
the Company's financial results which was not disclosed, and which related to
the Golden Cross and Fachinal Mines; and that the defendants intentionally and
fraudulently disseminated false statements which were misleading and failed to
disclose material facts.
On April 16, 1998, the Court entered an order dismissing the
auditors from the suit and denying the Company's and the individual defendants'
motions to dismiss. On October 9, 1998, the Court heard arguments on the
question on whether a class should be certified and on December 14, 1998, the
Court entered an order certifying a class. In December 1998, the parties to the
suit determined that the further conduct of the case would be protracted and
expensive and commenced discussions with a view toward settlement of the action.
Although the Company continued to deny each of the plaintiffs' claims and
allegations, the Company determined it would be in the best interests of the
Company to settle the suit and agreed to enter into a Stipulation of Settlement
which was filed by the parties with the Court on March 1, 1999. The terms of
the proposed settlement provide that (i) the Company's directors and officers
liability insurance carrier will pay $7 million to a settlement fund for the
benefit of the plaintiffs; and
34
35
(ii) the plaintiffs will be entitled to 50% of the net proceeds, up to a maximum
of $6 million, (after the Company has first recouped its costs and expenses
incurred in litigating its above-described lawsuit against Cyprus relating to
Golden Cross and after deducting an $8 million reserve against the asserted
subrogation claim of the Company's flood insurance carrier) actually received
by the Company from its Golden Cross lawsuit against Cyprus. The Stipulation of
Settlement contains strong denials of liability by the defendants as well as
acknowledgments by the plaintiffs that they were unable to identify significant
evidence to support a large portion of their claims. On July 15, 1999, the
Court gave final approval to the settlement and authorized the submission of
the settlement terms to the class action shareholders.
Dismissal of Derivative Action
On or about August 17, 1998, a purported derivative action was filed
on behalf of the Company against Dennis E. Wheeler, James A. Sabala, James J.
Curran, Joseph C. Bennett, James A. McClure, Cecil D. Andrus and Duane B.
Hagadone in Federal District Court for the District of Idaho. The complaint
alleged that the defendant officers and directors breached their fiduciary
duties by authorizing the Company to purchase the Golden Cross Mine in New
Zealand in 1993 and by allegedly causing or permitting the Company to make
statements that the plaintiffs in the class action securities lawsuit described
above claim were false or misleading during the period from January 1, 1995
through July 11, 1996. The plaintiff sought unspecified damages on behalf of
the Company. On September 9, 1998, the plaintiff voluntarily dismissed the
lawsuit without prejudice in light of Idaho Code Sec. 30-1-742, which requires
a demand to be served on a company at least 90 days prior to the filing of a
derivative action. On September 25, 1998, the plaintiff sent a letter to the
Company's Board of Directors demanding that the Company, among other things,
commence all reasonable steps to settle the class action securities lawsuit
described above, and pursue claims against any officers, directors or
third-party professionals who may have known about the potential problems with
the Golden Cross Mine before the Company purchased an interest in it. The Board
appointed a Special Committee of directors to respond to that demand. On March
9, 1999, the Special Committee recommended that the demand be rejected. The
action previously dismissed without prejudice has been dismissed with prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the
Company's current executive officers:
Office with Appointed
Name Age the Company to Office
- ---- --- --------------------- ---------
Dennis E. Wheeler 57 Chairman of the Board 1992
President 1980
Chief Executive Officer 1986
35
36
Robert Martinez 53 Senior Vice President, 1998
Chief Operating Officer
Geoffrey A. Burns 40 Vice President
Chief Financial Officer 1999
Gary W. Banbury 47 Vice President - Human 1998
Resources
Steven L. Busby 40 Vice President - Engineering 2000
James K. Duff 55 Vice President 1996
Business Development
Dieter A. Krewedl 56 Vice President - Exploration 1998
36
37
Robert T. Richins 52 Vice President 1989
Environmental Services and
Governmental Affairs
Wayne L. Vincent 38 Controller 1998
Chief Accounting Officer 1999
James N. Meek 48 Treasurer 1999
Messrs. Wheeler, Martinez, Richins, Duff, Banbury, Vincent and Meek
have been principally employed by the Company for more than the past five years.
Prior to his appointment as Senior Vice President and Chief Operating Officer
on May 15, 1998, Mr. Martinez had served as Vice President - Operations since
April, 1997 and previously was Vice President - Engineering, Operational
Services and South American Operations of the Company. Prior to his appointment
as Vice President and Chief Financial Officer in March 1999, Mr. Burns was Chief
Financial Officer and Controller for Prime Resources Group, Inc and Homestake
Canada Inc., respectively, from June 1992. Prior to his appointment as Vice
President Human Resources, Mr. Banbury held the position of Manager of Human
Resources with the Company. Prior to his appointment as Vice President Business
Development, Mr. Duff held the position of Director of New Business Development.
Prior to his appointment as Vice President-Exploration on October 8, 1998, Mr.
Krewedl was Vice President of Exploration for Echo Bay Mines, LTD. Prior to his
appointment to his current position in May 1998, Prior to his appointment as
Controller and Chief Accounting Officer, Mr. Vincent held the position of
Manager of Financial Accounting with the Company for the past eight years.
Prior to his appointment as Treasurer, Mr. Meek held the position of Assistant
Treasurer and Manager of Budget and Forecasting. Prior to his appointment as
Vice President - Engineering on January 1, 2000, Mr. Busby held the position of
Director - Technical Services.
37
38
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange
(the "NYSE") and the Pacific Coast Exchange. The following table sets forth,
for the periods indicated, the high and low closing sales prices of the Common
Stock as reported by the NYSE:
High Low
-------- --------
1998: First Quarter $13.0000 $ 8.0000
Second Quarter 13.5000 6.3750
Third Quarter 7.8750 4.0625
Fourth Quarter 7.4375 4.1250
1999: First Quarter $ 6.0000 $ 3.8750
Second Quarter 5.0000 3.7500
Third Quarter 5.0625 4.0000
Fourth Quarter 5.2500 3.1250
The Company paid per share cash distributions or dividends on its
Common Stock of $.15 on each of April 19, 1996 and April 21, 1995. In March
1997, the Company announced the Board's decision not to pay a dividend on its
Common Stock in April 1997. Future distributions or dividends on the Common
Stock, if any, will be determined by the Company's Board of Directors and will
depend upon the Company's results of operations, financial conditions, capital
requirements and other factors.
At March 17, 2000, there were 6,689 record holders of the Company's
outstanding Common Stock.
38
39
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data with respect to the Company and its subsidiaries and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report.
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
INCOME STATEMENT DATA: 1995 1996 1997 1998 1999
------------------- ----------------- ------------------ ------------- ---------------
(In thousands except per share data)
Revenues:
Sales of metal 89,239 90,724 131,161 102,505 86,318
Other income(1) 9,504 (4) 13,348 20,739 9,469 22,628
------ ------- ------- ------- -------
Total revenues 98,743 104,072 151,900 111,974 108,946
Costs and expenses:
Production costs 60,549 72,368 103,254 70,163 66,896
Depreciation and depletion 12,791 10,166 31,883 28,555 19,620
Administrative and general 10,404 11,565 12,910 12,249 9,281
Mining exploration 4,830 7,676 7,925 9,241 8,518
Interest expense 9,746 3,635 10,253 13,662 16,408
Writedown of mine Property(2) 1,481 54,416 - 223,597 20,204
------ ------- ------- ------- -------
Total expenses 99,801 159,826 166,225 357,467 140,927
Net loss from operations before income
Taxes (1,058) (55,754) (14,325) (245,493) (31,981)
(Provision) benefit for
income taxes (200) 1,184 242 (919) (332)
------- ------- ------- ------- -------
Net loss from continuing
Operations (1,258) (54,570) (14,083) (246,412) (32,313)
Income from discontinued
operations(net of taxes)(3) 2,412 - - - -
------- ------- ------- ------- -------
Income(loss) before
extraordinary item 1,154 (54,570) (14,083) (246,412) (32,313)
Extraordinary item - early
retirement of debt(net of
tax of zero)(4) - - - 12,158 3,990
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 1,154 $ (54,570) $ (14,083) $(234,254) $ (28,323)
========== ========== ========== ========== ==========
Net income(loss) attributable
to Common Shareholders $ 1,154 $ (62,967) $ (24,615) $(244,786) $ (38,855)
========== ========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER
SHARE DATA(5):
Net loss from operations $ (.08) $ (2.93) $ (1.12) $ (11.73) $ (1.77)
Income from discontinued
Operations (net of taxes) .15
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item .07 (2.93) (1.12) (11.73) (1.77)
Extraordinary item - early
retirement of debt(net of tax) - - - .55 .16
---------- ---------- ---------- ---------- ----------
Net income (loss) attributable
to common shareholders $ .07 $ (2.93) $ 1.12) $ (11.18) $ (1.61)
========== ========== ========= ========== =========
Cash dividends paid per
Common share $ .15 $ .15 $ - $ - $ -
========== ========== ========= ========== =========
Weighted average shares of
Common stock 15,879 21,465 21,890 21,899 24,185
========== ========== ========= ========== =========
39
40
BALANCE SHEET DATA: 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(In Thousands)
Total assets $445,646 $580,330 $658,702 $365,980 $354,047
Working capital 105,597 179,626 221,610 153,837 157,885
Long-term liabilities 184,789 202,566 298,152 258,340 264,709
Shareholders' equity 239,832 346,198 322,089 77,067 68,165
(1) Included in the results of operations for the year ended December 31, 1995
are (i) a gain of $4.4 million (included in other income) from the sale of gold
and silver purchased in the open market which was in turn delivered pursuant to
fixed price forward contracts during the year; and (ii) $2.4 million of income
from discontinued operations (including the $2.2 million after-tax gain from
the related sale of certain non-mining assets in May 1995) during the year.
Included in the results of operations for 1999 are (i) gain of $21.1
million in settlement of Cyprus litigation suit, (ii) The recorded loss on mark
to market of the Company's call positions for $4.3 million.
Included in the results of operations for 1997 are (i) the receipt of
$8.0 million of insurance proceeds for business interruption and property
damage at the Golden Cross Mine and (ii) a gain of $5.3 million arising from
the sale of gold purchased in the open market which was delivered pursuant to
fixed price forward contracts in the first quarter of 1997.
(2) During the fourth quarter of 1999, due to the continuing low gold price
environment, the Company evaluated the recoverability of its investment in
Yilgarn Star Mine. Using a $325 per ounce gold price and based on undiscounted
future cash flows, in accordance with the standards set fourth in SFAS 121, the
Company determined that its investment in property, plant and equipment at the
Yilgarn Star Mine in Australia was impaired. The total amount of the impairment,
based on discounted cash flows was $16.2 million at December 31, 1999, and was
recorded in the fourth quarter.
During the first quarter of 1998, the Petorca mine continued to operate at
a loss in spite of on-going efforts to improve ore grades and reduce operating
costs. An evaluation of operations was completed and as a result of this
evaluation, the Company determined that a write-down was required to properly
reflect the estimated realizable value of Petorca's mining properties and
assets in accordance with the standards set forth in SFAS 121. Consequently,
the Company recorded a non-cash write-down for impairment in the first quarter
of 1998 of $54.5 million relating to its investment in the Petorca mine. The
charge included approximately $8.3 million to satisfy the estimated remediation
and reclamation liabilities at Petorca and to provide for estimated termination
costs. Subsequent to the write-down, sufficient exploration success was
achieved to allow the mine to continue operations.
During the fourth quarter of 1998, due to the continuing low gold price
environment, the Company evaluated the recoverability of investments in both
the Fachinal Mine and Kensington property. Using a $350 per ounce gold price
and based on estimated undiscounted future cash flows, in accordance with the
standards set forth in SFAS 121, the Company determined that its investments in
property, plant and equipment at the Fachinal Mine in Southern Chile and at the
Kensington property in Alaska were impaired. The total amount of the impairment
based on discounted cash flows was $42.9 million and $121.5 million for the
Fachinal Mine and Kensington property, respectively, at December 31, 1998 and
was recorded in the fourth quarter.
In addition, in December 1998, the Company performed an analysis of the
closure accrual for the Golden Cross Mine. As a result, the Company determined
that there was a shortfall in the closure accrual, and recorded an additional
write-down of $4.3 million in the fourth quarter of 1998. The shortfall was due
to changes in estimates from the initial write-down related to the fair value
of the remaining assets of $9.5 million, offset in part by a $5.3 million
reduction to estimated closure and remediation costs.
During the second quarter of 1996, the Company determined that certain
adjustments were required to properly reflect the estimated net realizable
values of certain mining properties in accordance with FASB statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The Golden Cross Mine and the nearby Waihi East property
were written down by approximately $53 million due to increased expenditure
requirements related to remediation of ground movement which impacts the
tailings impoundment area and the ultimate viability of the mine. The
write-down includes amounts necessary to increase the Company's recorded
remediation and reclamation liabilities at Golden Cross to approximately $7.02
million as of December 31, 1996.
In addition, the Faride property in Chile was written down by $1.2
million due to management's decision not to exercise its final option payment
on the project.
(3) On May 2, 1995, the Company sold the assets of its flexible hose and tubing
division, The Flexaust Company, and shares of a related subsidiary for
approximately $10.0 million, of which approximately $4 million was paid at the
time of closing and the balance was payable over the next five years. The
results of operations and the gain on sale of Flexaust manufacturing segment
are presented as "Discontinued Operations." The Company recorded a pre-tax gain
on the sale of approximately $3.9 million ($2.2 million net of income taxes)
during the second quarter of 1995.
40
41
(4) During July, September and December 1999, the Company repurchased
approximately $10.2 million principal amount of its outstanding 6% convertible
Subordinated Debentures due 2002 for a total purchase price of approximately
$6.2 million, excluding purchased interest of $.2 million. Associated with this
transaction, the Company eliminated $.1 million of capitalized bond issuance
cost. As a result, the Company has recorded an extraordinary gain of
approximately $4 million, net of taxes of zero, during 1999 on the reduction of
its indebtedness.
During July, August and December 1998, the Company repurchased
approximately $4.0 million principal amount of its outstanding 6% Convertible
Subordinated Debentures due 2002, approximately $36.5 million principal amount
of its 7 1/4% Convertible Subordinated Debentures due 2005, and approximately
$1.6 million principal amount of its 6.375% Convertible Subordinated Debentures
due 2004 for a total purchase price of approximately $28.5 million, excluding
purchased interest of approximately $616,000. Associated with this transaction,
the Company eliminated $1.4 million of capitalized bond issuance costs. The
Company anticipates that as a result of the cancellation of the repurchased
debentures, annual interest paid by the Company will be reduced by
approximately $3.0 million. As a result of the buyback of these debentures, the
Company has recorded an extraordinary gain of approximately $12.2 million, net
of taxes, during 1998 on the reduction of its indebtedness.
(5) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share." For further discussion of earnings per share and the impact of
Statement No. 128, see Notes to the consolidated financial statements.
41
42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The results of the Company's operations are significantly affected
by the market prices of gold and silver which fluctuate widely and are affected
by many factors beyond the Company's control, including interest rates,
expectations regarding inflation, currency values, governmental decisions
regarding the disposal of precious metals stockpiles, global and regional
political and economic conditions, and other factors.
Acquisition of Silver Assets from Asarco Incorporated
On September 9, 1999, the Company acquired most of Asarco's silver
mining assets in exchange for the issuance of 7.125 million shares of the
Company's Common Stock. The silver mining assets acquired included Asarco's 50%
interest in Silver Valley Resources Corporation ("Silver Valley"); Asarco's
wholly-owned subsidiary, Empress Minera Manquiri S.R.L., which owns the San
Bartolome property, an early stage silver development property in Bolivia; 1.5
million shares, representing an approximate 5% interest in Pan American Silver
Corporation of Vancouver, British Columbia and warrants for an additional
500,000 shares; and a 100% interest in NPMC, Inc., which owns a 20% net profits
interest in the Quiruvilca Silver Mine in Peru operated by Pan American Silver
Corporation.
Operating Mines
The Company owns and operates the following producing mines:
1) Rochester mine, a heap leach silver and gold mine in Nevada
2) Galena mine, an underground silver mine in the Coeur d'Alene district of
Idaho
3) Petorca mine, an underground gold mine in Chile; and
4) Fachinal mine, an open pit and underground gold and silver mine in Chile
The Company also owns 50% of Gasgoyne Gold Mines NL, an Australian
gold mining company ("Gasgoyne"), which owns 50% of the Yilgarn Star mine in
Western Australia and various other exploration properties. On April 28, 1998,
the Company discontinued mining operations at the Golden Cross mine in New
Zealand, in which the Company had an 80% operating interest.
Total Production and Reserves
The Company's total production in 1999 was 9.6 million ounces of
silver and 151,656 ounces of gold. Coeur estimates that production in 2000 will
be approximately 11.5 million ounces of silver and 160,000 ounces of gold.
Total estimated proven and probable reserves at December 31, 1999 were
approximately 89.3 million ounces of silver and 2.6 million ounces of gold,
compared to silver and gold reserves at December 31, 1998 of approximately
79.8 million ounces and 2.8 million ounces, respectively.
42
43
SFAS 121 Impairment Reviews; Write-down of Mining Properties
In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" ("SFAS 121"), the Company reviews the carrying value of its
assets whenever events or changes in circumstances indicate that the carrying
amount of its assets may not be fully recoverable. Generally, SFAS 121 provides
that an asset impairment exists if the total amount of the estimated future
undiscounted cash flows of the asset are less than the carrying value of the
asset. If it is determined that impairment exists, the amount of the impairment
loss that should be recorded, if any, is the amount by which the carrying value
of the asset exceeds its fair value.
As of December 31, 1999, due to the continuing low-gold price, the
Company reviewed the carrying value of all its properties using long-term prices
of $325 per ounce for gold and $5.50 per ounce for silver. As a result of this
review, the Company determined that the undiscounted estimated future cash flows
were insufficient to fully recover the carrying value of its investment in
Gasgoyne, which owns 50% of the Yilgarn Star mine, and that the assets
therefore were impaired. Accordingly, the Company recorded a write-down of $16.2
million to its investment in Gasgoyne, thereby reducing the carrying value to
$29.0 million.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales of Metal
Sales of concentrates and dore' decreased by $16.2 million, or 15.8%,
for the year ended December 31, 1999 as compared to the same period of 1998
primarily as a result of lower production levels at Rochester and Fachinal mines
and a decreased realized silver price. During 1999, the Company produced a
total of 9,596,833 ounces of silver and 151,656 ounces of gold compared to
10,703,178 ounces of silver and 209,959 ounces of gold in 1998.
Spot silver and gold prices averaged $5.25 and $279 per ounce,
respectively, in 1999 compared to $5.53 and $294 per ounce in 1998. During 1999,
the Company realized average silver and gold prices of $5.23 and $319,
respectively, compared with realized prices of $5.37 and $312 in 1998.
43
44
Other Income
Interest and other income increased by $13.2 million, or 139%, in
1999 compared to 1998. The increase was primarily the result of: (i) the
receipt of $21.1 million in net proceeds from the favorable settlement in the
third quarter of 1999 of a lawsuit with Cyprus Minerals Company relating to the
Golden Cross mine, offset by (ii) a loss of $4.3 million arising from the non
cash mark to market adjustment on gold call options sold by the Company.
Expenses and Write-down of Mining Properties
[BAR CHART]
-----------------------------------------------------------------------
1998 1999
---- ----
Production Costs 66.9 70.2
Depreciation/Depletion 19.6 28.6
Administration and General 9.3 12.2
Exploration 8.5 9.2
Interest Expense 16.4 13.7
Write-down and Other 20.2 223.6
(millions)
-----------------------------------------------------------------------
For the year ended December 31, 1999, total expenses decreased by
$216.5 million. The decrease is primarily attributable to the combined $218.9
million write-downs of the Petorca and Fachinal mines and the Kensington
property, and an adjustment of $4.2 million to the closure accrual at Golden
Cross in the fourth quarter of 1998 compared to the $16.2 million write-down of
the Company's investment in Gasgoyne in 1999.
Production costs decreased by $3.3 million in 1999. The decrease was
primarily due to lower production levels in 1999. Depreciation and depletion
decreased $9 million in 1999 compared to 1998, primarily due to lower
production and the reduction in carrying value at the Fachinal mine in 1998.
Administration and general expenses decreased $2.9 million in 1999, or 24%
below 1998. The decrease was due to the implementation of a comprehensive cost
reduction program. Exploration expense for 1999 decreased by $.7 million, or
7.8%, under 1998.
The cash costs per ounce of silver equivalent at the Rochester mine
decreased to $3.97 in 1999 compared to $4.07 per ounce in 1998. The decrease
was due to a lower strip ratio in the open pit in 1999. Cash costs at Silver
Valley were $5.09 per silver ounce in 1999 compared to $4.39 in 1998. Cash
costs at the Petorca Mine in 1999 averaged $271 per ounce of
44
45
gold versus $336 in 1998. The decrease was the result of improved productivity
following implementation of a modified mining plan. Cash costs at Fachinal were
$304 per ounce for the year ended December 31, 1999 compared to $314 per ounce
in the previous year. The decrease was primarily a result of cost savings
programs implemented in 1999. The cash costs at the Yilgarn Star mine for the
year ended December 31, 1999 were $287 per gold ounce compared to $215 per gold
ounce for 1998. The increase resulted from: (i) the planned transition from
open pit mining to higher cost underground mining, (ii) reduced ore grade and
throughput, particularly in the fourth quarter; and (iii) flooding of portions
of the underground mine by unusually heavy rains which delayed the development
and extraction of higher-grade ore.
Net Loss
The Company's loss before income taxes and extraordinary items was
$32.3 million in 1999 compared to a loss of $245.5 million in 1998. The Company
reported an income tax provision of $.3 million for 1999, compared to $.9
million in 1998. In 1999, the Company recorded an extraordinary gain on early
retirement of debt (net of taxes) of $4 million and paid $10.5 million in
preferred stock dividends. As a result, the Company reported a net loss
attributable to common shareholders of $38.9 million, or $1.61 per share, in
1999, compared to $244.8 million, or $11.18 per share in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales of Metal
Sales of concentrates and dore' decreased by $28.7 million, or 22%,
for the year ended December 31, 1998 as compared to the same period in 1997
primarily as a result of the closure of the Golden Cross mine in New Zealand
and a significantly lower realized gold price partially offset by an improved
realized silver price. During 1998, the Company produced a total of 10,703,178
ounces of silver and 209,959 ounces of gold compared to 11,024,225 ounces of
silver and 290,962 ounces of gold in 1997.
Spot silver and gold prices averaged $5.53 and $294 per ounce,
respectively, in 1998 compared to $4.89 and $331 per ounce in 1997. During 1998,
the Company realized average silver and gold prices of $5.37 and $312,
respectively, compared with realized prices of $4.89 and $335, respectively, in
1997.
45
46
Other Income
Interest and other income decreased by $11.3 million, or 54%, in 1998
compared to 1997. The decrease is primarily the result of: (i) the receipt of $8
million of insurance proceeds for business interruption and property damage at
the Golden Cross Mine in the second quarter of 1997, and (ii) a gain of $5.3
million arising from the sale of gold purchased on the open market which was
delivered pursuant to fixed-price forward contracts in the first quarter of
1997. The decrease is partially offset by a gain of $1.2 million arising from
the sale of silver purchased on the open market which was delivered pursuant to
fixed-price forward contracts in the second quarter of 1998.
Expenses and Write-down of Mining Properties
-----------------------------------------------------------------------
1998 1997
---- ----
Production Costs 70.2 103.3
Depreciation/Depletion 28.6 31.9
Administration and General 12.2 12.9
Exploration 9.2 7.9
Interest Expense 13.7 10.3
Write-down and Other 223.6
($ millions)
-----------------------------------------------------------------------
For the year ended December 31, 1998, total expenses increased by
$191.2 million. The increase is primarily attributable to the combined $218.9
million write-downs of the Petorca and Fachinal mines and the Kensington
property, and an adjustment of $4.2 million to the closure accrual at Golden
Cross in the fourth quarter of 1998. Exploration expense for 1998 increased by
$1.4 million, or 18%, over 1997.
Production costs in 1998 decreased by $33.1 million, or 32%, as
compared to 1997. The decrease is primarily attributable to the fact that the
Company discontinued operations at the Golden Cross mine in early 1998.
In 1997, based upon operating experience and metallurgical testing at
the Rochester property, the Company determined that the amount of silver and
gold that will ultimately be extracted in the heap leach process was
underestimated. Prior to the fourth quarter, the Company estimated it would
recover 55% of the silver and 85% of the gold mined. Effective with the
46
47
fourth quarter of 1997, the Company increased its estimated recovery rates to
59% for silver and 90% for gold. The Company accounted for the effect of the
change prospectively, as a change in accounting estimate.
The cash cost per ounce of silver equivalent at the Rochester mine
decreased to $4.07 in 1998 compared to $4.36 per ounce in 1997. The decrease is
due to a lower open pit strip ratio in 1997 which resulted in an amortization
of deferred stripping costs. Cash costs at Silver Valley were $4.46 per silver
ounce in 1998 compared to $3.74 in 1997 and was the result of the shutdown in
1998 of the Coeur mine. Cash costs at the Petorca Mine in 1998 averaged $336
per ounce of gold produced versus $348 in 1997. The decrease was primarily the
result of mine efficiencies recognized in the third and fourth quarters of 1998.
Net Loss
The Company's loss before income taxes and extraordinary items
amounted to $245.5 million in 1998 compared to a loss of $14.3 million in 1997.
The Company reported an income tax provision of $.9 million for 1998, compared
to an income tax benefit of $.2 in 1997. In 1998, the Company recorded an
extraordinary gain on early retirement of debt (net of taxes) of $12.2 million
and paid $10.5 million in preferred stock dividends. As a result, the Company
reported a net loss attributable to common shareholders of $244.8 million, or
$11.18 per share, in 1998, compared to $24.6 million, or $1.12 per share, in
1997.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at December 31, 1999 was
approximately $157.9 million compared to $153.8 million at December 31, 1998.
The ratio of current assets to current liabilities was 8.5 to one at December
31, 1999 compared to 6.0 to one at December 31, 1997.
Net cash provided by operating activities in 1999 was $2.9 million
compared with $13.7 million used in operating activities in 1998. The most
significant non-cash items offsetting the net loss from continuing operations
in 1999 were $22 million of depreciation, depletion and amortization expense,
and non-cash write-downs of $18.7 million.
A total of $26.1 million was used in investing activities in 1999
compared to $70.3 million provided in 1998. The most significant investing
activities in 1999 were: (i) $9.7 million proceeds from the sale of short-term
investments, offset by $22.5 million used to purchase short-term investments,
(ii) $9.3 million spent on developmental properties, and (iii) $4.1 million
spent on operational mining properties. The Company's financing activities used
$17.2 million during 1999 compared to $43.5 million used in 1998. The most
significant financing activities in 1999 were the $6.1 million used to
repurchase long-term debt and the $10.5 million in dividends paid to preferred
shareholders. As a result, the Company's net cash decreased in 1999 by $40.4
million compared with a net cash increase of $13.1 million in 1998.
47
48
The Company's capital budget for the year 2000 is estimated at
$12.7 million, including capitalized interest of $1.8 million. Expenditures for
remediation and reclamation for the year 2000 are estimated to be $3.1 million.
The Company has budgeted $10.3 for exploration and pre-feasibility development
in 2000, primarily to add reserves at its operating properties and to continue
to evaluate the San Bartolome project in Bolivia. The Company expects that all
of these cash requirements will be fulfilled by cash flow from continuing
operations augmented by its cash on hand.
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.
No specific monetary damages were identified in the complaint. However, in July
1996, the government indicated that damages may approximate $982 million and as
a result of pretrial discovery, it appears the United States believes it can
prove damages over $1 billion.
In March 1997, the Company filed a motion for partial summary
judgement which remains pending. In September 1997, the Company filed an
additional motion for partial summary judgement raising the statute of
limitations as to natural resource damages. That motion was granted by the
Court on September 30, 1998. The Court's granting of that motion limits the
United States' natural resource damage claims to the 21 square mile Bunker Hill
Superfund site area. The United States appealed this decision to the United
States Court of Appeals for the 9th Circuit. The Appeal has been argued but not
decided. Furthermore, in March 1998, the EPA announced its intent to perform a
remedial investigation/feasibility study upon all or parts of the Coeur d'Alene
Basin and, thereby, to apparently focus upon response costs rather than natural
resource damages.
As at December 31, 1999, the matter remained unresolved and the
Company intends to continue to vigorously defend its position. See Note O to
the consolidated financial statements for further discussion of this action.
Proposed Legislation
Recent legislative developments may affect the cost of and ability
of mining claimants to use the Mining Law of 1872, as amended, (the "General
Mining Law") to acquire or use federal lands for mining operations. Since
October 1994, a moratorium has been imposed on processing new patent
applications for mining claims. Management believes that this moratorium will
not affect the status of patent applications outstanding prior to the
moratorium.
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the General Mining Law. If
enacted, such legislation may materially impair the ability of the Company to
develop or continue operations which derive ore from federal
48
49
lands. No such bills have been passed and the extent of the changes, if any,
which may be enacted by Congress are not presently known.
Environmental Compliance Expenditures
For the years ended December 31, 1999, 1998 and 1997, the Company
expended $7.0 million, $8.0 million and $5.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties. Such activities at the Rochester, Golden Cross, Petorca and
Fachinal mines include monitoring, bonding, earth moving, water treatment and
revegetation activities. In addition, since the inception of the Kensington
project through December 31, 1999, the Company had expended a total of $18.6
million on environmental and permitting activities at the property.
The Company estimates that environmental compliance expenditures at
its Kensington developmental property during 2000 will be $2.2 million to
obtain permit modifications and other regulatory authorizations. Future
environmental expenditures will be determined by governmental regulations and
the overall scope of the Company's operating and development activities. The
Company places a very high priority on its compliance with environmental
regulations.
Capitalized Development Expenditures
During 1999, the Company expended $6.5 million (excluding
capitalized interest) for engineering, optimization studies and permitting costs
at the Kensington property, $3.4 million at the Rochester mine, $1.1 million
for continuing mine development at the Fachinal mine, $.2 million at the
Petorca mine and $.6 million at the Galena mine. During 2000, the Company plans
to expend $5.9 million at Kensington, $1.5 million for developmental activities
at the Rochester mine, $4.3 million at the Galena mine and $2.6 for mine
development at Fachinal. If the Company were to decide to construct a mining
facility at Kensington, the Company currently estimates the cost at
approximately $192 million over an eighteen-month period for construction and
development.
Realization of Net Operating Loss Carryforwards
The Company has reviewed its net deferred tax asset, together with
net operating loss carryforwards, and has not recognized potential tax benefits
arising therefrom on the view that it is more likely than not that the deferred
deductions and losses will not be realized in future years. In making this
determination, the Company has considered the Company's history of tax losses
incurred since 1989, current gold and silver prices and the ability of the
Company to use accelerated depletion and amortization methods in the
determination of taxable income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks as a part of its
operations. In an effort to mitigate losses associated with these risks, the
Company may, at times, enter into derivative financial instruments. These may
take the form of forward sales contracts, foreign currency
49
50
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 and/or, put/call option contracts to hedge
the effects of price fluctuations. The Company continually evaluates the
potential benefits of engaging in these strategies based on current market
conditions. The Company may be exposed to nonperformance by counterparties or,
during periods of significant price fluctuation, margin calls as a result of
its hedging activities.
The Company operates and therefore incurs expenses in several
foreign countries (Australia, Bolivia, New Zealand and Chile). This exposes the
Company to risks associated with fluctuations in the exchange rate, relative to
the U.S. dollar, 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 currency at a predetermined price. Gains and losses on
foreign exchange contracts that are related to firm commitments are designated
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, currently. The
Company continually evaluates the potential benefits of entering into these
contracts to mitigate foreign currency risk and proceeds when it believes that
the exchange rates are most beneficial.
All of the Company's long-term debt at December 31, 1999 is fixed
rate based. The Company's exposure to interest rate risk, therefore, is limited
to the amount it could pay at current market rates. The Company currently does
not have any derivative financial instruments to offset the fluctuations in the
market interest rate. It may choose to use instruments, such as interest rate
swaps, in the future to manage the risk associated with interest rate changes.
See Note M - Financial Instruments, to the consolidated financial
statements for a table which summarizes the Company's gold and foreign exchange
hedging activities at December 31, 1999.
Long-term debt obligations and related interest rates are presented
in detail in Note I to the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required hereunder and
contained herein are listed under Item 14(a) below.
50
51
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As announced by the Company on August 2, 1999, the firm of Ernst &
Young LLP ceased to serve as the Company's independent public accountants on
July 27, 1999. On October 25, 1999, the Company engaged the firm of Arthur
Andersen LLP to serve as the Company's independent public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report. Information regarding the Company's executive officers is set
forth above under Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information
called for by this item is hereby incorporated by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this report.
51
52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements are filed herewith:
(1) The following consolidated financial statements of Coeur
d'Alene Mines Corporation and subsidiaries are included in Item 8:
Consolidated Balance Sheets - December 31, 1998 and 1999.
Consolidated Statements of Operations - Years Ended December
31, 1997, 1998 and 1999.
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1997, 1998 and 1999.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K: The Company filed Current Reports on Form 8-K on
October 25, 1999 reporting the Company's engagement of Arthur Andersen
LLP to serve as the Company's independent public accountants.
(c) Exhibits: The following listed documents are filed as Exhibits to this
report:
3(a) - Articles of Incorporation of the Registrant and
amendments thereto. (Incorporated herein by
reference to Exhibit 3(a) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1988.)
3(b) - Bylaws of the Registrant and amendments thereto.
(Incorporated herein by reference to Exhibit
3(b) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1988.)
3(c) - Certificate of Designations, Powers and
Preferences of the Series A Junior Preferred
Stock of the Registrant, as filed with Idaho
Secretary of State on May 25, 1989 (Incorporated
by reference to Exhibit 4(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989.)
3(d) Restated and Amended Articles of Incorporation
of the Registrant as filed with the Secretary of
State of the State of Idaho effective September 13,
1999. (Incorporated herein by reference to Exhibit
3 to the Company's Quarterly Report on
52
53
Form 10-Q for the quarter ended September
30, 1999.)
4(a) - Specimen certificate of the Registrant's stock.
(Incorporated herein by reference to Exhibit 4
to the Registrant's Registration Statement on
Form S-2 (File No. 2-84174).)
4(b) Form of Indenture, dated as of October 15,
1997, between the Registrant and Bankers Trust
Company, as Trustee. (Incorporated herein by
reference to Exhibit No. 4 to the Registrant's
Current Report on Form 8-K filed on October 16,
1997.)
10(a) - Executive Compensation Program. (Incorporated
herein by reference to Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989.) *
10(b) - Lease agreement, dated as of October 10, 1986,
between Manufacturers Hanover Commercial
Corporation and Coeur-Rochester, Inc.
(Incorporated herein by reference to Exhibit 10
(a) to Registrant's Current Report on Form 8-K,
dated October 10, 1986.)
10(c) - Indenture, dated as of June 10, 1987, between the
Registrant and Citibank, N.A., as Trustee,
relating to the Registrant's 6% Convertible
Subordinated Debentures Due 2002. (Incorporated
herein by reference to Exhibit 4 to the
Registrant's Current Report on Form 8-K dated
June 10, 1987.)
10(d) - Agreement, dated January 1, 1994, between
Coeur-Rochester, Inc. and Johnson Matthey Inc.
(Incorporated herein by reference to Exhibit 10
(m) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.)
-------------
* Management contract or compensatory plan
53
54
10(e) - Refining Agreement dated January 24, 1994,
between the Registrant and Handy & Harman.
(Incorporated herein by reference to Exhibit 10(n)
of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.)
10(f) - Master Equipment Lease No. 099-03566-01, dated as
of December 28, 1988, between Idaho First
National Bank and the Registrant. (Incorporated
herein by reference to Exhibit 10(w) of the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.)
10(g) - Master Equipment Lease No. 01893, dated as of
December 28, 1988, between Cargill Leasing
Corporation and the Registrant. (Incorporated
herein by reference to Exhibit 10(x) of the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988.)
10(h) - Rights Agreement, dated as of May 11, 1999,
between the Registrant and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent. (Incorporated
herein by reference to Exhibit 1 to the
Registrant's Form 8-A relating to the registration
of the Rights on the New York and Pacific
Stock Exchanges.)
10(i) - Amended and Restated Profit Sharing Retirement
Plan of the Registrant. (Incorporated herein by
reference to Exhibit 10(ff) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1993.) *
10(j) - Indenture, dated as of January 26, 1994,
between the Registrant and Bankers Trust Company
relating to the Registrant's 6 3/8% Convertible
Subordinated Debentures Due 2004. (Incorporated
herein by reference to Exhibit 10 (gg) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
10(k) - Purchase Agreement, dated January 18, 1994,
between the Registrant and Kidder, Peabody & Co.
Incorporated relating to the 6 3/8% Convertible
Subordinated Debentures Due 2004. (Incorporated
herein by reference to Exhibit 10(hh) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
-------------
* Management contract or compensatory plan
54
55
10(l) - Registration Rights Agreement, dated January 26,
1994, between the Registrant and Kidder,
Peabody & Co., Incorporated relating to the 6
3/8% Convertible Subordinated Debentures Due
2004. (Incorporated herein by reference to
Exhibit 10(ii) to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1993.)
10(m) - 1993 Annual Incentive Plan and Long-Term
Performance Share Plan of the Registrant.
(Incorporated herein by reference to Exhibit 10
(jj) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.) *
10(n) - Supplemental Retirement and Deferred Compensation
Plan, dated January 1, 1993, of the Registrant.
(Incorporated herein by reference to Exhibit 10
(kk) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.) *
10(o) - Lease Agreement, dated January 12, 1994, between
First Security Bank of Idaho and Coeur
Rochester, Inc. (Incorporated herein by reference
to Exhibit 10(mm) to the Registrant's Annual
Report on Form 10-K for the year ended December
31, 1993.)
10(p) - Non-employee Directors' Retirement Plan effective
as of March 19, 1993, of the Registrant.
(Incorporated herein by reference to Exhibit 10
(oo) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.) *
10(q) - Extension of Employment and Severance Agreement
between the Registrant and Dennis E. Wheeler,
dated June 28, 1994. (Incorporated by reference
to Exhibit 10 (nn) to the Registrant's Annual
Report on Form 10-K for the year ended December
31, 1994.)*
10(r) - Form of letter extending the terms of the
Severance Agreements between the Registrant and
Al Wilder, Robert Martinez, James Duff and
Michael Tippett. (Incorporated by reference to
Exhibit 10(oo) to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1994.)*
-------------
* Management contract or compensatory plan
55
56
10(s) - 401k Plan of the Registrant. (Incorporated by
reference to Exhibit 10 (pp) to the Registrants
Annual Report on Form 10-K for the year ended
December 31, 1994.)*
10(t) - Option Agreement of October 24, 1994 between
Compania Minera El Bronce and CDE Chilean Mining
Corporation. (Incorporated by reference to
Exhibit 10(qq) to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1994.)
10(u) - Limited Recourse Project Financing Agreement,
dated April 19, 1995, between the Registrant and
N.M. Rothschild & Sons, Ltd. (Incorporated
herein by reference to Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.)
10(v) - Venture Termination and Asset Purchase Agreement,
dated as of June 30, 1995, among Coeur Alaska,
Inc., Echo Bay Alaska, Inc. and Echo Bay
Exploration, Inc. (Incorporated herein by
reference to Exhibit 10 to the Company's Current
Report on Form 8-K dated July 7, 1995.)
10(w) - Form of Offer, dated January 29, 1996, by the
Registrant to acquire all the ordinary shares of
Gasgoyne Gold Mines NL. (Incorporated herein by
reference to Exhibit 10(a) to the Registrant's
Current Report on Form 8-K filed January 31, 1996
(date of earliest event reported - December 21,
1995).)
10(x) - Part A Statement of the Registrant relating to its
offer to acquire all the ordinary shares of
Gasgoyne Gold Mines NL. (Incorporated herein by
reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K filed January 31, 1996
(date of earliest event reported - December 21,
1995).)
10(y) - Call Option Agreement Over Shares, dated December
20, 1995, between the Registrant and Ioma Pty Ltd.
(Incorporated herein by reference to Exhibit 10
(c) to the Registrant's Current Report on Form
8-K filed January 31, 1996 (date of earliest
event reported - December 21, 1995).)
-------------
* Management contract or compensatory plan
56
57
10(z) - Agreement for the Purchase and Sale of Shares,
dated August 30, 1996, by Compania Minera El
Bronce to CDE Chilean Mining Corporation and
Coeur d'Alene Mines Corporation. (Incorporated
herein by reference to Exhibit 10(a) of the
Registrant's Current Report on Form 8-K filed
November 5, 1996 (date of earliest event reported
- September 4, 1996).)
10(aa) - Amendment, dated August 30, 1996, to Purchase and
Sale, Cancellation and Receipt of Payment of
Purchase Sale Installments and Release of
Mortgage, Chattel Mortgages and Prohibitions
between Compania Minera El Bronce and Compania
Minera CDE El Bronce. (Incorporated herein by
reference to Exhibit 10(b) of the Registrant's
Current Report on Form 8-K filed November 5, 1996
(date of earliest event reported - September 4,
1996).)
10(bb) Loan Agreement, dated as of December 23, 1996,
among the Registrant (as the Borrower), NM
Rothschild & Sons Limited and Bayerische
Vereinsbank AG (as the Banks) and NM Rothschild &
Sons Limited (as the Agent for the Banks).
(Incorporated herein by reference to Exhibit
10(kk) of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.)
10(cc) Purchase Agreement, dated as of October 7, 1997,
between the Registrant and Lazard Freres & Co.
LLC. (Incorporated herein by reference to Exhibit
10(a) to the Registrant's Current Report on Form
8-K filed on October 16, 1997.)
10(dd) Registration Rights Agreement, dated as of October
15, 1997, between the Registrant and Lazard
Freres & Co. LLC. (Incorporated herein by
reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K filed on October 16,
1997.)
10(ee) Mining Lease, effective as of June 1, 1997,
between Silver Valley Resources and American
Silver Mining Company. (Incorporated herein by
reference to Exhibit 10(a) to the Registrant's
Registration Statement on Form S-3 (File No.
333-40513).)
10(ff) - Mining Lease, effective as of April 23, 1996,
between Silver Valley Resources Corporation and
Sterling Mining Company. (Incorporated herein by
reference to Exhibit 10(b) to the Registrant's
Registration Statement on Form S-3 (File No.
333-40513).)
57
58
10(gg) - Mining Lease, effective as of March 21, 1997,
between Silver Valley Resources Corporation and
Silver Buckle Mines, Inc. (Incorporated herein by
reference to Exhibit 10(c) to the Registrant's
Registration Statement on Form S-3 (File No.
333-40513).)
10(hh) - Mining Lease, effective as of March 21, 1997,
between Silver Valley Resources Corporation and
Placer Creek Mining Company. (Incorporated herein
by reference to Exhibit 10(d) to the Registrant's
Registration Statement on Form S-3 (File No.
333-40513).)
10(ii) - Agreement for Sale and Issuance of Shares, dated
May 7, 1997, among Sons of Gwalia Ltd, Burmine
Investments Pty Limited, Orion Resources NL and
Coeur Australia Pty Ltd. (Incorporated herein by
reference to Exhibit 10(pp) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1997.)
10(jj) - Letter agreement, dated May 7, 1997, between the
Registrant and Sons of Gwalia Ltd. (Incorporated
herein by reference to Exhibit 10(qq) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997.)
10(kk) - Shareholders Agreement, dated May 7, 1997, among
Sons of Gwalia Ltd., Burmine Investments Pty
Ltd., Orion Resources NL, Coeur Australia Pty
Ltd. and Gasgoyne Gold Mines NL. (Incorporated
herein by reference to Exhibit 10(rr) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997.)
10(ll) - Management Services Agreement, dated May 7, 1997,
among Sons of Gwalia Ltd., Coeur Australia Pty
Ltd. and Gasgoyne Gold Mines NL. (Incorporated
herein by reference to Exhibit 10(ss) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.)
10(mm) Amended and Restated Transaction Agreement by and
between Asarco Incorporated and Coeur d'Alene
Mines Corporation, dated May 13, 1999 and amended
and restated as of June 22, 1999. (Incorporated
herein by reference to Exhibit A to the
Registrant's Proxy Statement, dated July 28,
1999, used in connection with the Registrant's
Annual Meeting of Shareholders held on September
8, 1999.)
58
59
10(nn) Shareholder Agreement (dated as of September 9,
1999), by and between Asarco Incorporated and
Coeur d'Alene Mines Corporation. (Incorporated
herein by reference to Exhibit B to the
Registrant's Proxy Statement, dated July 28,
1999, used in connection with the Registrant's
Annual Meeting of Shareholders held on September
8, 1999.)
21 - List of subsidiaries of the Registrant.
(Filed herewith)
23(a) - Consent of Arthur Andersen LLP (Filed herewith)
23(b) - Consent of Ernst & Young LLP (Filed herewith)
27 - Financial Data Schedule (Filed herewith)
(d) Independent auditors' reports are included herein as follows:
Coeur d'Alene Mines Corporation
Report of Arthur Andersen LLP at December 31, 1999 and for the one
year in the period ended December 31, 1999.
Report of Ernst & Young LLP at December 31, 1998 and for the two
years in the period ended December 31, 1998.
59
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Coeur d'Alene Mines Corporation
[Registrant]
Date: March 17, 2000 By: /s/ Dennis E. Wheeler
---------------------
Dennis E. Wheeler
(Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ Dennis E. Wheeler Chairman, President, March 17, 2000
- ----------------------
Dennis E. Wheeler Chief Executive Officer
and Director
/s/ Geoffrey A. Burns Vice President March 17, 2000
- ----------------------
Geoffrey A. Burns Chief Financial Officer
/s/ Cecil D. Andrus Director March 17, 2000
- ------------------------
Cecil D. Andrus
/s/ Joseph C. Bennett Director March 17, 2000
- ------------------------
Joseph C. Bennett
/s/ James J. Curran Director March 17, 2000
- ------------------------
James J. Curran
/s/ James A. McClure Director March 17, 2000
- ------------------------
James A. McClure
60
61
/s/ Robert E. Mellor Director March 17, 2000
- ------------------------
Robert E. Mellor
/s/ John H. Robinson Director March 17, 2000
- ------------------------
John H. Robinson
/s/ Timothy R. Winterer Director March 17, 2000
- -----------------------
Timothy R. Winterer
61
62
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
F-1
63
REPORT OF INDEPENDENT PUBLIC ACCOUNTS
To the Shareholders and Board of Directors of
Coeur d'Alene Mines Corporation:
We have audited the accompanying consolidated balance sheet of Coeur d'Alene
Mines Corporation (an Idaho Corporation) and subsidiaries (the "Company") as of
December 31, 1999, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the year ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Coeur d'Alene
Mines Corporation and subsidiaries as of December 31, 1999, and the consolidated
results of their operations and their cash flows for the year ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Denver, Colorado,
February 23, 2000.
F-2
64
REPORT OF ERNST AND YOUNG INDEPENDENT AUDITORS
Shareholders and Board of Directors
Coeur d'Alene Mines Corporation
We have audited the accompanying consolidated balance sheet of Coeur d'Alene
Mines Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Coeur d'Alene
Mines Corporation and subsidiaries at December 31, 1998, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Seattle, Washington,
April 17, 1999
F-3
65
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
December 31,
1999 1998
--------- ---------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 86,935 $ 127,335
Short-term investments 22,978 1,753
Receivables 15,376 11,647
Inventories 53,769 43,675
--------- ---------
TOTAL CURRENT ASSETS 179,058 184,410
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 96,592 79,173
Less accumulated depreciation (54,265) (37,304)
--------- ---------
42,327 41,869
MINING PROPERTIES
Operational mining properties 106,455 82,018
Less accumulated depletion (62,431) (46,149)
--------- ---------
44,024 35,869
Developmental properties 50,781 25,898
--------- ---------
94,805 61,767
OTHER ASSETS
Investments in unconsolidated affiliates 29,008 66,914
Notes receivable 345 1,627
Debt issuance costs, net of accumulated amortization 5,378 6,625
Other 3,126 2,768
--------- ---------
37,857 77,934
--------- ---------
TOTAL ASSETS $ 354,047 $ 365,980
========= =========
The accompanying notes are an integral part of these financial statements.
F-4
66
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
December 31,
1999 1998
--------- ---------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,693 3,512
Accrued liabilities 4,944 12,700
Accrued interest payable 5,064 5,412
Accrued salaries and wages 5,005 5,642
Current portion of remediation costs 1,365 3,052
Current portion of obligations under
capital leases 102 255
--------- ---------
TOTAL CURRENT LIABILITIES 21,173 30,573
LONG-TERM LIABILITIES
6% subordinated convertible debentures
due 2002 35,582 45,803
6 3/8% subordinated convertible debentures
due 2004 93,372 93,372
7 1/4% subordinated convertible debentures
due 2005 107,277 107,277
Other long-term liabilities 28,478 11,888
--------- ---------
TOTAL LONG-TERM LIABILITIES 264,709 258,340
COMMITMENTS AND CONTINGENCIES (see notes G,H,K,L,M,N AND O)
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share(a class of preferred stock) -
authorized 7,500,000 shares, 7,077,833
issued and outstanding 7,078 7,078
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares, issued
30,240,428 and 22,957,835 shares
in 1999 and 1998(including
1,059,211 shares held in treasury) 30,240 22,958
Additional Paid in Capital 391,031 379,180
Accumulated deficit (347,119) (318,796)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive income (loss) 125 (163)
--------- ---------
68,165 77,067
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 354,047 $ 365,980
========= =========
The accompanying notes are an integral part of these financial statements.
F-5
67
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
12 MONTHS ENDED
DECEMBER 31
-------------------------------------------------
1999 1998 1997
--------- --------- ---------
(In thousands except per share data)
REVENUES
Sales of metal $ 86,318 $ 102,505 $ 131,161
(Loss)earnings from
unconsolidated subsidiaries (1,096) (2,130) 783
Interest and other 23,724 11,599 19,956
--------- --------- ---------
Total revenues 108,946 111,974 151,900
COSTS AND EXPENSES
Production 66,896 70,163 103,254
Depreciation and depletion 19,620 28,555 31,883
Administrative and general 9,281 12,249 12,910
Exploration 8,518 9,241 7,925
Interest 16,408 13,662 10,253
Write down of mining properties
and other 20,204 223,597
--------- --------- ---------
Total cost and expenses 140,927 357,467 166,225
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES AND
EXTRAORDINARY ITEM (31,981) (245,493) (14,325)
Income tax (provision) benefit (332) (919) 242
--------- --------- ---------
Loss before
extraordinary item (32,313) (246,412) (14,083)
Extraordinary item - early
retirement of debt 3,990 12,158 -
--------- --------- ---------
NET LOSS (28,323) (234,254) (14,083)
Unrealized holding gain (loss)
on securities 288 (308) 497
--------- --------- ---------
COMPREHENSIVE LOSS $ (28,035) $(234,562) $ (13,586)
========= ========= =========
NET LOSS $ (28,323) $(234,254) (14,083)
Preferred stock dividends (10,532) (10,532) (10,532)
--------- --------- ---------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (38,855) $(244,786) $ (24,615)
========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE:
Weighted average number
of shares of common stock 24,185 21,899 21,890
========= ========= =========
Loss before
extraordinary item $ (1.77) $ (11.73) $ (1.12)
Extraordinary item - early
retirement of debt .16 .55 -
--------- --------- ---------
Net loss per share
attributable to common shareholders $ (1.61) $ (11.18) $ (1.12)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-6
68
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For Years Ended December 31, 1999, 1998, and 1997
(In Thousands)
Preferred Additional
Stock Common Paid In Accumulated
(MARCS) Stock Capital Deficit
------- ----- ------- -------
Balance at December 31, 1996 $ 7,078 $ 22,950 $ 400,187 $ (70,459)
Comprehensive Loss:
Net Loss (14,083)
Other Comprehensive
Income:
Unrealized Gains on Marketable Securities
Cash Dividends (10,532)
Issuance of Shares Under Stock
Compensation Plan (net)
Other (7)
--------- --------- --------- ---------
Balance at December 31, 1997 7,078 22,950 389,648 (84,542)
Comprehensive Loss:
Net Loss (234,254)
Other Comprehensive Loss:
Unrealized Loss On Marketable Securities
Cash Dividends (10,532)
Issuance of Shares Under Stock
Compensation Plan (net) 8 64
--------- --------- --------- ---------
Balance at December 31, 1998 7,078 22,958 379,180 (318,796)
Comprehensive Loss:
Net Loss (28,323)
Comprehensive Loss:
Unrealized Gains on Marketable Securities
Cash Dividends (10,532)
Stock Issued for Purchase of Asarco Assets 7,125 21,820
Stock Issued for Purchase of
Nevada-Packard Property 155 515
Other 2 48
--------- --------- --------- ---------
Balance at December 31, 1999 $ 7,078 $ 30,240 $ 391,031 $(347,119)
========= ========= ========= =========
Accumulated Repurchased
Other and
Comprehensive Nonvested
Income (Loss) Shares Total
------------- ------ -----
Balance at December 31, 1996 $ (352) $ (13,206) $ 346,198
Comprehensive Loss:
Net Loss (14,083)
Other Comprehensive
Income:
Unrealized Gains on Marketable Securities 497 497
Cash Dividends (10,532)
Issuance of Shares Under Stock
Compensation Plan (net) 16 16
Other (7)
--------- --------- ---------
Balance at December 31, 1997 145 (13,190) 322,089
Comprehensive Loss:
Net Loss (234,254)
Other Comprehensive Loss:
Unrealized Loss On Marketable Securities (308) (308)
Cash Dividends (10,532)
Issuance of Shares Under Stock
Compensation Plan (net) 72
--------- --------- ---------
Balance at December 31, 1998 (163) (13,190) 77,067
Comprehensive Loss:
Net Loss (28,323)
Comprehensive Loss:
Unrealized Gains on Marketable Securities 288 288
Cash Dividends (10,532)
Stock Issued for Purchase of Asarco Assets 28,945
Stock Issued for Purchase of
Nevada-Packard Property 670
Other 50
--------- --------- ---------
Balance at December 31, 1999 $ 125 $ (13,190) $ 68,165
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-7
69
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
12 MONTHS ENDED
DECEMBER 31
---------------------------------------------------
1999 1998 1997
----------- ----------- -----------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (28,323) $(234,254) $ (14,083)
Add (deduct) noncash items:
Depreciation and depletion 19,620 28,555 31,883
Amortization 2,388 2,456 2,892
Gain on early retirement of debt (net of tax) (3,990) (12,158) -
Other charges (309) 936 1,236
Write-down of mining properties 18,685 223,172 -
Undistributed loss (gain) on investment
in unconsolidated subsidiary 1,096 2,130 (783)
Unrealized loss on written call options 4,302 - -
Changes in Operating Assets and Liabilities:
Receivables 225 (2,946) 1,907
Inventories (7,377) (10,176) (3,256)
Accounts payable and accrued liabilities (3,370) (11,408) (4,426)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,947 (13,693) 15,370
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (22,507) (17,886) (180,511)
Proceeds from sales of short-term investments 9,746 114,276 204,981
Acquisition of Gasgoyne Gold Mines NL - - (14,643)
Investment in unconsolidated subsidiaries (396) (4,868) (3,570)
Purchases of property, plant and equipment (1,399) (3,209) (2,741)
Proceeds from sale of assets 986 7,944 505
Expenditures on operational mining properties (4,190) (9,619) (9,436)
Expenditures on developmental properties (9,346) (17,558) (14,487)
Other 967 1,220 (2,037)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (26,139) 70,300 (21,939)
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt (6,089) (28,477) (49,513)
Payment of cash dividends (10,532) (10,532) (10,532)
Proceeds from 7 1/4% debentures issuance - - 138,090
Other (587) (4,467) (727)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (17,208) (43,476) 77,318
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,400) 13,131 70,749
Cash and cash equivalents at beginning
of period 127,335 114,204 43,455
--------- --------- ---------
Cash and cash equivalents at end of period $ 86,935 $ 127,335 $ 114,204
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-8
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise specified)
NOTE A--BUSINESS OF COEUR D'ALENE MINES CORPORATION
Coeur d'Alene Mines Corporation and its subsidiaries (collectively,
"Coeur" or "the Company") is principally engaged in silver and gold mining and
related activities including exploration, development, and mining at its
properties located in the United States (Nevada, Idaho and Alaska), New Zealand,
Australia, and South America (Bolivia and Chile).
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the wholly-owned subsidiaries of the Company, the most significant of
which are Coeur Rochester Inc., Silver Valley Resources Corporation, Callahan
Mining Corporation and its subsidiary Coeur New Zealand, Inc., Coeur Alaska,
Inc., CDE Fachinal Ltd., Compania Minera CDE Petorca, Coeur Australia (50% owner
of Gasgoyne Gold Mines NL), and Empressa Minera Manquiri S.R.L. The consolidated
financial statements also include all entities in which voting control of more
than 50% is held by the Company. Intercompany balances and transactions have
been eliminated in consolidation. Investments in 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 investment in the
Golden Cross Mine is an 80% interest in an unincorporated joint venture and is
accounted for on the proportionate consolidation basis.
Revenue Recognition: Revenue is recognized when title to silver and
gold passes at the shipment or delivery point. The effects of forward sales
contracts and purchased put contracts are reflected in revenue at the date the
related precious metals are delivered or the contracts expire.
Cash and Cash Equivalents: Cash and cash equivalents include all
highly-liquid investments with a maturity of three months or less at the date of
purchase. The Company minimizes its credit risk by investing its cash and
equivalents with major international banks and financial institutions located
principally in the United States, Canada and Australia with a minimum credit
rating of A1 as defined by Standard & Poor's. The Company's Management believes
that no concentration of credit risk exists with respect to investment of its
cash and equivalents.
Inventories: Inventories of ore on leach pads and in the milling
process are valued based on actual costs incurred to place such ores into
production, less costs allocated to minerals recovered through the leaching and
milling processes. Inherent in this valuation is an estimate of the percentage
of the minerals on leach pads and in process that will ultimately be recovered.
Management evaluates this estimate on an ongoing basis. Adjustments to the
recovery rate are accounted for prospectively. All other 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 valued
at lower of cost or market.
F-9
71
Property, Plant, and Equipment: Property, plant, and equipment are
recorded at cost. Depreciation, using the straight-line method, is provided over
the estimated useful lives of the assets, which are 7 to 31 years for buildings
and improvements, 3 to 13 years for machinery and equipment and 3 to 7 years for
furniture and fixtures. Certain mining equipment is depreciated using the
units-of-production method based upon estimated total reserves. Maintenance and
repairs are expensed as incurred.
Mining Properties: Values for mining properties represent
acquisition costs and/or the fair value of consideration paid plus developmental
costs. Cost depletion has been recorded based on the units-of-production method
based on proven and probable reserves. Management evaluates the net carrying
value of all operations, property by property, when events or conditions
indicate that an impairment exists, to reach a judgment concerning possible
permanent impairment of value. The Company utilizes the methodology set forth in
Financial Accounting Standards Board Statement No. 121 - Accounting for the
Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of ("SFAS
121") to evaluate the recoverability of capitalized mineral property costs.
Since SFAS 121 requires the use of forward-looking projections, the Company must
use estimates to generate a life-of-mine undiscounted cash flow forecast. These
estimates are based on projections made by the Company's engineers and
geologists, projected operating and capital costs necessary to process the
estimated resources, each project's mine plan including the type, quantity and
ore grade expected to be mined, estimated metallurgical recovery and other
factors which may have an impact upon a project's cash flow. In addition, the
Company is required to estimate the selling price of metal produced. The
Company's estimate is based upon historical silver and gold prices and the
Company's projections, as well as a survey of price assumptions used by other
companies in the industry.
Reclamation Costs: Post-closure reclamation and site restoration
costs are estimated based on environmental regulatory requirements and are
accrued ratably over the life of the mine using the units-of-production method.
At December 31, 1999 and 1998, the Company has recorded accrued reclamation
costs of $17.3 million and $19.4 million, respectively, net of salvage values.
Exploration and Development: The carrying value of exploration
properties acquired is capitalized at the fair market value of the consideration
paid. After it is determined that proven and probable reserves exist on a
particular property, the property is classified as a development property and
all costs related to the further development of the property are capitalized.
Prior to the establishment of proven and probable reserves, all costs relative
to exploration and evaluation of a property are expensed as incurred. In order
to classify a reserve as economic, the Company must have completed a favorable
feasibility study. Mine development costs incurred to access reserves on
producing mines are also capitalized. Interest costs are capitalized on
development properties until the properties are placed into operation.
Short-term Investments: Principally consist of highly-liquid United
States and foreign government and corporate securities with original maturities
in excess of three months. The Company classifies all short-term investments as
available-for-sale securities. Unrealized gains and losses on these investments
are recorded in accumulated other
F-10
72
comprehensive income as a separate component of shareholders' equity, except
that declines in market value judged to be other than temporary are recognized
in determining net income. Realized gains and losses on these investments are
included in determining net income.
Foreign Currency: Substantially all assets and liabilities of
foreign subsidiaries are translated at exchange rates in effect at the end of
each period. Revenues and expenses are translated at the average exchange rate
for the period. Foreign currency transaction gains and losses are included in
the determination of net income.
Derivative Financial Instruments: The Company uses derivative
financial instruments as part of an overall risk-management strategy. These
instruments are used as a means of hedging exposure to precious metals prices
and foreign currency exchange rates. The Company does not hold or issue
derivative financial instruments for trading purposes. Written options do not
qualify for hedge accounting and are marked to market each reporting period with
corresponding charges in fair value recorded to operation in the other income.
The Company uses forward sales contracts and combinations of put and
call options to hedge its exposure to precious metals prices. The underlying
hedged production is designated at the inception of the hedge. Deferral
accounting is applied only if the derivatives continue to reduce the price risk
associated with the underlying hedged production. Contracted prices on forward
sales contracts and options are recognized in product sales as the designated
production is delivered or sold. In the event of early settlement of hedge
contracts, gains and losses are deferred and recognized in income at the
originally designated delivery date.
In June 1998, the Financial Accounting Standards Board issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires that all derivatives be recognized as assets or liabilities and be
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivatives
and whether they qualify for hedge accounting as either a fair value hedge or a
cash flow hedge. SFAS 133 is effective for fiscal years beginning after June 15,
2000.
Comprehensive Income: As of January 1, 1998, the Company adopted
Statement 130, "Reporting Comprehensive Income." Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components,
however, the adoption of the Statement had no impact on the Company's net income
or shareholders' equity. Statement 130 requires unrealized gains or losses on
the Company's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior years financial statements have been reclassified to
conform to the requirements of Statement 130.
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. The effect of potentially dilutive stock options
outstanding was antidilutive in 1999, 1998 and 1997.
F-11
73
Use of Estimates: The preparation of financial statements in
conformity with United States generally accepted accounting principles 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.
Reclassification: Certain reclassifications of prior year balances
have been made to conform to current year presentation.
NOTE C--ACQUISITION OF ASARCO SILVER ASSETS
On September 9, 1999, the Company acquired certain silver assets
from Asarco Incorporated ("Asarco"). The purchase price for the silver assets
from Asarco was approximately $29.8 million and consisted of 7.125 million
shares of Coeur common stock valued at $4.06 per share, plus approximately $.9
million of acquisition costs. The silver assets acquired were (i) 50% interest
in Silver Valley Resources Corporation ("Silver Valley"); (ii) 100% interest in
Empressa Minera Manquiri S.R.L., or any successor ("Manquiri"); (iii) 1.5
million shares of common stock and 500,000 share purchase warrants of Pan
American Silver Corporation; and (iv) 100% interest in Northern Peru Mining
Company Inc. This acquisition was accounted for under the purchase method of
accounting. The carrying values of assets and liabilities other than the mining
properties and long-term intangibles have been estimated to approximate fair
market value.
(in millions) Pan American Total
Silver Valley Manquiri Securities Purchase
------------- -------- ---------- --------
Assets $ 8.09 $ 19.55 $ 7.76 $ 35.40
Liabilities 5.61 5.61
------- ------- ------- -------
Net $ 2.48 $ 19.55 $ 7.76 $ 29.79
======= ======= ======= =======
Supplemental pro forma consolidated financial information for Coeur
that includes the silver assets purchased is presented for the twelve-month
period ending December 31, 1999 and 1998 as if the silver assets were acquired
at the beginning of each of the periods.
(in Thousands except per
share data) December 31, December 31,
1999 1998
---------- ----------
Total Revenues $ 120,544 $ 126,109
Costs and expenses 151,943 371,807
---------- ----------
Loss before taxes
and extraordinary items $ (31,399) $ (245,698)
---------- ----------
Net loss $ (27,761) $ (234,470)
========== ==========
Basic and diluted loss per
share $ (1.58) $ (11.19)
========== ==========
NOTE D--WRITE-DOWN OF MINING PROPERTIES
Yilgarn Star Mine
During the fourth quarter of 1999, due to continuing low gold price
environment, the Company recorded an impairment of its investment in Yilgarn
Star Mine. Using a long-term gold price assumption of $325 per ounce and based
on undiscounted future cash flows, in accordance with the standards set fourth
in SFAS 121, the Company determined that its
F-12
74
investment in the Yilgarn Star Mine in Australia was impaired. The total amount
of the impairment, based on discounted cash flows was $16.2 million at December
31, 1999, and was recorded in the fourth quarter.
Fachinal Mine and Kensington Property
During the fourth quarter of 1998, the Company evaluated the
recoverability of investments in both the Fachinal Mine and Kensington property.
Using a long-term gold price assumption of $350 per ounce and based on estimated
undiscounted future cash flows, in accordance with the standards set forth in
SFAS 121, the Company determined that its investments in property, plant and
equipment at the Fachinal Mine in Southern Chile and at the Kensington property
in Alaska were impaired. The total amount of the impairment based on discounted
cash flows was $42.9 million and $121.5 million for the Fachinal Mine and
Kensington property, respectively, at December 31, 1998 and was recorded in the
fourth quarter of 1998. No further write-downs were required in 1999,.
Petorca Mine
During the first quarter of 1998, the Petorca Mine continued to
operate at a loss in spite of on-going efforts to improve ore grades and reduce
cash costs. As a result, a complete evaluation of operations at Petorca was
undertaken. From this evaluation, the Company determined that the asset was
impaired and a write-down was required. In the first quarter of 1998, the
Company recorded a write-down of $54.5 million relating to the Petorca Mine. No
further write-downs were required in 1999. The charge included approximately
$8.3 million to satisfy the estimated remediation and reclamation liabilities
and to provide for estimated employee termination costs.
Golden Cross Mine
In the third quarter of 1999, the Company determined the estimated
realizable value of fixed assets at the Golden Cross Mine, and recorded a loss
of $2.1 million, thus bringing the balance to net estimated realizable value.
In December 1998, the Company performed an analysis of the
reclamation accrual for the Golden Cross Mine. As a result, the Company
determined that the accrual was inadequate, and recorded an additional charge of
$4.3 million in the fourth quarter of 1998
Other
In 1997, the Faride property in Chile, was written-down by $1.2
million due to management's decision not to exercise its final option payment on
the project.
NOTE E--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost of available-for-sale securities is adjusted for
premium and discount amortization. Such amortization is included in Other
Income. The following is a summary of available-for-sale securities:
Available-For-Sale Securities
----------------------------------------------------------------------------
Gross Gross Estimated
F-13
75
Amortized Unrealized Unrealized Fair
As of December 31, 1999 Cost Losses Gains Value
- ------------------------------ ---------- ---------- ---------- ----------
U.S. Corporate debt securities $ 16,709 $ - $ - $ 16,709
Equity Securities 6,157 171 296 6,282
---------- ---------- ---------- ----------
22,866 $ 171 $ 296 $ 22,991
========== ========== ========== ==========
As of December 31, 1998
- ------------------------------
U.S. Corporate debt securities $ 1,753 $ - $ - $ 1,753
Equity Securities 195 164 1 32
---------- ---------- ---------- ----------
$ 1,948 $ 164 $ 1 $ 1,785
========== ========== ========== ==========
The gross realized gains on sales of available-for-sale securities
totaled $.6 million and $0 during 1999 and 1998, respectively. The gross
realized losses totaled $.2 million and $0 during 1999 and 1998, respectively.
The gross realized gains and losses are based on a carrying value (cost net of
discount or premium) of $9.4 million and $115.1 million of short-term
investments sold during 1999 and 1998, respectively. Short-term investments
mature at various dates through December 2000.
F-14
76
NOTE F--INVENTORIES
Inventories consist of the following:
December 31,
1999 1998
---------- ----------
In process and on leach pads $ 43,494 $ 36,166
Concentrate and dore' inventory 5,594 3,968
Supplies 4,681 3,541
---------- ----------
$ 53,769 $ 43,675
========== ==========
NOTE G--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
December 31,
1999 1998
---------- ----------
Land $ 2,407 $ 1,769
Buildings and improvements 41,508 36,458
Machinery and equipment 52,590 40,388
Capital leases of equipment 87 558
---------- ----------
96,592 79,173
Accumulated depreciation (54,265) (37,304)
---------- ----------
NET PP&E $ 42,327 $ 41,869
========== ==========
The Company has entered into various operating lease agreements
which expire over a period of five to seven years. Total rent expense charged to
operations under these agreements was $4.0 million, $4.5 million and $4.5
million for 1999, 1998, and 1997, respectively.
Minimum lease payments under leases are as follows:
Year Ending
December 31 Capital Operating
----------- ------- ---------
2000 $ 90 $ 2,984
2001 2,528
2002 2,065
2003 1,646
2004 1,151
-------- --------
TOTAL MINIMUM PAYMENTS DUE $ 90 $ 10,374
======== ========
F-15
77
NOTE H - MINING PROPERTIES
Capitalized costs for mining properties December 31,
consist of the following: 1999 1998
-------- --------
Operational mining properties:
Rochester Mine, less accumulated
depletion of $51,290
and $46,124 $ 30,510 $ 35,565
Silver Valley Resources, less accumulated
depletion of $10,811 12,169 -
Fachinal Mine, less accumulated depletion
of $0 and $0 1,145 -
Petorca Mine, less accumulated
depletion of $330 and $25 200 304
-------- --------
TOTAL OPERATIONAL MINING PROPERTIES 44,024 35,869
Developmental mining properties:
Kensington 26,211 18,308
San Bartolome 19,554
Other 5,016 7,590
-------- --------
TOTAL DEVELOPMENTAL MINING PROPERTIES 50,781 25,898
-------- --------
TOTAL MINING PROPERTIES $ 94,805 $ 61,767
======== ========
OPERATIONAL MINING PROPERTIES
The Rochester Mine: The Company owns and operates this silver and
gold surface mining operation. The Company has conducted operations at the
Rochester Mine since September 1986. The mine utilizes the heap-leaching process
to extract both silver and gold from ore mined using open pit methods. Rochester
is one of the largest primary silver mines in the United States and is a
significant gold producer as well.
Galena Mine: Silver Valley owns and operates, the Galena underground
silver-copper mine, located near the city of Wallace, in Shoshone County,
Northern Idaho. On September 9, 1999, the Company acquired the remaining 50% of
Silver Valley that it did not already own. The mine utilizes the drift and fill
mining method with sand backfill to extract ore from the high grade
silver-copper vein deposits that constitute the majority of the ore reserves.
Fachinal Mine: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile. Commercial production for financial
reporting purposes commenced on January 1, 1997. In early 1999, the Company
determined that the carrying value of the Fachinal Mine was impaired and
accordingly wrote down its investment in accordance with SFAS 121. (See Note D).
Petorca Mine: The Company owns and operates the Petorca gold and
silver underground mine located in central Chile approximately 90 miles north of
Santiago. In April 1998, the Company wrote down its investment in Petorca in
accordance with SFAS 121. (See Note D)
DEVELOPMENTAL PROPERTIES
San Bartolome Project: On September 9, 1999 the Company acquired Manquiri (See
Note C). Manquiri's principal asset is the San Bartolome project, a silver
exploration and development property located near the city of Potosi,
F-16
78
Bolivia. The San Bartolome project consists of silver-bearing gravel deposits
which lend themselves to simple surface mining methods. The mineral rights for
the San Bartolome project are held through long-term joint venture/lease
agreements with several local independent mining co-operatives and the Bolivian
State owned mining company, COMIBOL. As consideration for these JV/leases,
production from San Bartolome is subject to a royalty of 4% payable to the
cooperatives and COMIBOL.
Kensington Project: On July 7, 1995, the Company became the 100% owner and
operator of the Kensington property near Juneau, Alaska. Kensington is a gold
property which has been permitted for development based on a feasibility study
which was completed in early 1998. However, due to declining gold prices, the
Company has continued with engineering optimization efforts to reduce estimated
capital costs and operating costs. The property is subject to a royalty which
ranges from 1% at $400 gold prices to a maximum of 2 1/2% at gold prices above
$475, with a royalty cap at 1 million ounces of production. In early 1999, the
Company determined that the asset was impaired and accordingly wrote down its
investment in Kensington in accordance with SFAS 121. (See Note D)
NOTE I-LONG-TERM DEBT
The $35.6 million principal amount of 6% Convertible Subordinated
Debentures Due 2002 are convertible into shares of Coeur Common Stock prior to
maturity, unless previously redeemed, at a conversion rate of approximately 38
shares of Common Stock for each one thousand dollars of principal (equivalent to
a conversion price of $25.57 per share of Common Stock). The Company is required
to make annual interest payments. The debentures are redeemable at the option of
the Company and mature on June 10, 2002.
The $93.4 million principal amount of 6 3/8% Convertible
Subordinated Debentures Due 2004 are convertible into shares of Common Stock on
or before January 31, 2004, unless previously redeemed, at a conversion price of
$25.77 per share. The Company is required to make semi-annual interest payments.
The debentures are redeemable at the option of the Company. The debentures have
no other funding requirements until maturity on January 31, 2004.
The $107.3 million principal amount of 7.25% Convertible
Subordinated Debentures due 2005 are convertible into shares of common stock on
or before October 31, 2005, unless previously redeemed, at a conversion price of
$17.45 per share, subject to adjustment in certain events. The Company is
required to make semi-annual interest payments. The debentures are redeemable at
the option of the Company on or after October 31, 2000, and have no other
funding requirements until maturity on October 31, 2005.
During July, September and December 1999, the Company repurchased
approximately $10.2 million principal amount of its outstanding 6% convertible
Subordinated Debentures due 2002 for a total purchase price of approximately
$6.2 million, excluding purchased interest of $.2 million. Associated with this
transaction, the Company eliminated $.1 million of capitalized bond issuance
costs. As a result, the Company has recorded an extraordinary gain of
approximately $4 million, net of taxes of zero, during 1999 on the reduction of
its indebtedness.
During July, August and December 1998, the Company repurchased
approximately $4.0 million principal amount of its outstanding 6%
F-17
79
Convertible Subordinated Debentures due 2002, approximately $36.5 million
principal amount of its 7 1/4% Convertible Subordinated Debentures due 2005, and
approximately $1.6 million principal amount of its 6.375% Convertible
Subordinated Debentures due 2004 for a total purchase price of approximately
$28.5 million, excluding purchased interest of approximately $.6 million.
Associated with this transaction, the Company eliminated $1.4 million of
capitalized bond issuance costs. As a result of the buyback of these debentures,
the Company has recorded an extraordinary gain of approximately $12.2 million,
net of taxes of zero, during 1998 on the reduction of its indebtedness.
The carrying amounts and fair values of long-term borrowings, as of
December 31, 1999 and 1998, consisted of the following. The fair value of the
long-term borrowing is determined by market transactions on or near December 31,
1999 and 1998, respectively.
December 31, 1999
--------------------------------------
Carrying Fair
Value Value
----------- ---------
6% Convertible
Subordinated
Debentures
Due 2002 $ 35,582 $ 22,684
6.375% Convertible
Subordinated
Debentures
Due 2004 $ 93,372 $ 49,721
7.25% Convertible
Subordinated
Debentures
Due 2005 $107,277 $ 59,807
Total interest accrued in 1999, 1998, and 1997 was $17.8 million,
$20.4 million, and $16.2 million, respectively, of which $1.4 million, $6.8
million, and $5.7 million, respectively, was capitalized as a cost of certain
properties under development.
Interest paid was $17.0 million, $20.3 million, and $13.7 million in
1999, 1998, and 1997, respectively.
F-18
80
NOTE J--INCOME TAXES
The components of the provision (benefit) for income taxes in the
consolidated statements of operations are as follows:
Years Ended December 31,
----------------------------------------------
1999 1998 1997
------- ------- -------
Current $ 332 $ 919 $ (242)
Deferred - - -
------- ------- -------
PROVISION (BENEFIT) FOR
INCOME TAX $ 332 $ 919 $ (242)
======= ======= =======
As of December 31, 1999 and 1998 the significant components of the
Company's net deferred tax liability were as follows:
Year Ended December 31,
-------------------------------
1999 1998
--------- ---------
Deferred tax liabilities:
PP&E, net $ 10,353 $ 10,027
--------- ---------
Total deferred tax liabilities $ 10.353 $ 10,027
========= =========
Deferred tax assets:
Net operating loss carryforwards $ 91,463 $ 91,307
AMT credit carryforwards 2,043 1,734
Business credit carryforwards 542 542
--------- ---------
Total deferred tax assets 94,048 93,583
Mineral properties impairment 74,408 67,263
Unrealized hedging losses 1,626 -
Other 223
Valuation allowance for deferred
tax assets (159,952) (150,819)
--------- ---------
Net deferred tax assets $ 10,353 $ 10,027
========= =========
Net deferred tax liabilities $ -0- $ -0-
========= =========
The valuation allowance represents the amount of deferred tax assets
that more likely than not will not be realized in future years. Changes in the
valuation allowance relate primarily to losses which are not currently
recognized. The Company has reviewed its net deferred tax assets, together with
net operating loss carryforwards, and has not recognized potential tax benefits
arising therefrom because at this time management believes it is more likely
than not that the benefits will not be realized in future years.
The Company intends to reinvest the unremitted earnings of its
non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly,
no provision for U.S. income taxes was required on such earnings during the
three-year period ended December 31, 1999. It is not practicable to estimate the
tax liabilities which would result upon such repatriation.
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
F-19
81
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
-------- -------- --------
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Tax effect of foreign affiliates'
statutory rates 11.6% 7.6% 17.6%
Percentage depletion (21.2%) (1.4%) (12.3%)
Interest on foreign subsidiary debt 18.4% 1.7%
Equity in earnings of unconsolidated
subsidiaries .6%
Change in valuation allowance 25.7% 27.1% 27.4%
Federal tax assessments and
withholding - - .2%
Other (net) 1.6% - (.2%)
--------- -------- ----------
EFFECTIVE TAX RATE 1.1% -0- (1.7%)
========= ======== ==========
For tax purposes, as of December 31, 1999, the Company has operating
loss carryforwards as follows, which expire in 2007 through 2012 for U.S.
carryforwards. New Zealand, Australian and Chilean laws provide for indefinite
carryforwards of net operating losses. Utilization of U.S. net operating losses
may be subject to limitations due to potential changes in ownership.
U.S. New Zealand Australia Chile Total
-------- ----------- --------- -------- --------
Regular losses $102,735 $ 90,411 $ 10,415 $142,340 $345,901
AMT credits 2,043 2,043
General business credits 542 542
The operating loss carryforwards by year of expiration are as
follows:
Year of
Expiration Regular Tax
- ---------- -----------
2007 $ 5,739
2008 10,417
2009 8,994
2010
2011 72,146
2012 5,439
---------
Total $ 102,735
=========
As of December 31, 1999, Callahan Mining Corporation, a subsidiary,
has net operating loss carryforwards of approximately $17.4 million which expire
through 2006. The utilization of Callahan Mining Corporation's net operating
losses are subject to limitations.
F-20
82
NOTE K--SHAREHOLDERS' EQUITY AND STOCK PLANS
In 1996, the Company completed a public preferred stock offering of
Mandatory Adjustable Redeemable Convertible Securities (MARCS). The Company
issued 7,077,833 shares of MARCS which were offered at a public offering price
of $21.25 per share. Net proceeds to the Company from the offering was $144.6
million. Each share of MARCS is mandatorily convertible on March 15, 2000 into
1.111 shares of Common Stock of the Company, subject to adjustment in certain
events, unless converted earlier by the holder into Common Stock or redeemed for
Common Stock by the Company. The annual dividend payable on the MARCS is $1.488
per share, payable quarterly. The dividends are deducted in computing net income
attributable to Common Shareholders.
On May 11 1999, the Company's shareholders adopted a new shareholder
rights plan to replace the earlier plan that had been adopted in 1989 and
expired on May 24, 1999. The new plan, which is substantially similar to the
expired plan, entitles each holder of the Company's Common Stock to one right.
Each right entitles the holder to purchase one one-hundredth of a share of newly
authorized Series B Junior Preferred Stock. The exercise price is $100, making
the price per full preferred share ten thousand dollars. The rights will not be
distributed and become exercisable unless and until ten business days after a
person acquires 20% of the outstanding common shares or commences an offer that
would result in the ownership of 30% or more of the shares. Each right also
carries the right to receive upon exercise that number of Coeur common shares
which has a market value equal to two times the exercise price. Each preferred
share issued is entitled to receive 100 times the dividend declared per share of
Common Stock and 100 votes for each share of Common Stock and is entitled to 100
times the liquidation payment made per common share. The Board may elect to
redeem the rights prior to their exercisability at a price of one cent ($.01)
per right. The new rights will expire on May 24, 2009, unless earlier redeemed
or exchanged by the Company. Any preferred shares issued are not redeemable. At
December 31, 1999 and 1998, there were a total of 29,181,217 and 21,898,624
outstanding rights which was equal to the number of outstanding shares of common
stock.
The Company has an Annual Incentive Plan (the "Annual Plan") and a
Long-Term Incentive Plan (the "Long-Term Plan"). Under the Annual Plan in 1999,
1998 and 1997, benefits were payable in cash.
Under the Long-Term Plan, benefits consist of (i) non-qualified and
incentive stock options that are exercisable at prices equal to the fair market
value of the shares on the date of grant and vest cumulatively at an annual rate
of 25% during the four-year period following the date of grant, and (ii)
performance units comprised of Common Stock and cash, the value of which is
determined four years after the award. The first award performance units were
granted in 1994. During 1999, options for 127,471 shares were issued under the
plan. As of December 31, 1999 and December 31, 1998, nonqualified and incentive
stock options to purchase 499,891 shares and 411,842 shares, respectively, were
outstanding under the Long-Term and Directors' Plans. The options are
exercisable at prices ranging from $2.87 to $27.00 per share.
The Company has a Non-Employee Directors' Stock Option Plan under
which 200,000 shares of Common Stock are authorized for issuance and which was
approved by the shareholders in May 1995. Under the Plan, options are
F-21
83
granted only in lieu of an optionee's foregone annual directors' fees. As of
December 31, 1999, December 31, 1998 and December 31, 1997, a total of 25,917,
21,005 and 16,600 options, respectively, had been granted in lieu of $.1
million, $.1 million and $.1 million, respectively, of foregone directors' fees.
Total employee compensation expense charged to operations under the
Plans was $.8 million, $1.4 million, and $1.5 million for 1999, 1998, and 1997,
respectively. A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
Weighted Average Weighted Average
Shares Exercise Price Value of Option
--------- -------------- ---------------
Stock options outstanding
at January 1, 1998 612,447 $ 16.05
Issued 75,925 6.17 $ 2.61
Canceled/expired (246,530) 15.62
--------- ----------
Stock options outstanding
at 12/31/98 441,842 $ 14.59
Issued 127,471 3.14 $ 1.65
Canceled/expired (69,422) 12.36
--------- ----------
Stock options outstanding
at 12/31/99 499,891 $ 11.99
========= ==========
Stock options exercisable at December 31, 1999 and 1998 were 283,987 and
222,299, respectively.
The following table summarizes information for options currently
outstanding at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs.) Price Exercisable Price
- ------------------- ----------- ----------- -------- ----------- ---------
$2.868 to $5.125 172,789 9.02 $ 3.94 57,418 $ 6.08
$13.125 to $13.75 129,868 6.96 $ 13.18 76,940 $ 13.22
$15.125 to $17.938 109,226 5.28 $ 16.53 79,637 $ 16.38
$18.000 to $27.00 88,008 4.83 $ 20.22 69,992 $ 20.34
------- ------- ------- ------- -------
499,891 4.75 $ 11.99 283,987 $ 13.64
======= =======
As of December 31, 1999 and 1998, 226,418 shares and 361,794 shares,
respectively, were available for future grants under the Plans and 11,162,515
shares of Common Stock were reserved for potential conversion of Convertible
Subordinated Debentures.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" which establishes accounting and reporting standards
for stock-based employee compensation plans. This statement defines a fair value
based method of accounting for these equity instruments. The method measures
compensation expense based on the estimated fair value of the award and
recognizes that cost over the vesting period. The Company has adopted the
disclosure - only provision of Statement No. 123 and therefore continues to
account for stock options in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, because options are granted at fair
market value, no compensation expense has been recognized for options issued
under the Company's stock option plans. Had compensation cost been recognized
based
F-22
84
on the fair value at the date of the grant for the options awarded under the
plans, pro-forma amounts of the Company's net loss and net loss per share would
have been as follows:
Years Ended December 31,
1999 1998 1997
---------- ---------- ----------
Net loss attributable to
common shareholders $ (38,855) $ (244,786) $ (24,615)
Net loss pro forma $ (39,065) $ (245,144) $ (25,014)
Basic and diluted net loss
per share as reported $ (1.61) $ (11.18) $ (1.12)
Basic and diluted net loss
per share pro forma $ (1.62) $ (11.20) $ (1.14)
The fair value of each option grant was estimated using the Black
Scholes option pricing model with the following weighted average assumptions:
risk free interest rates of 4.40% to 7.95%; expected option life of four years
for officers and directors; expected volatility of .472 to .635; and no expected
dividends. The effect of applying Statement No. 123 for providing pro forma
disclosures for fiscal years 1999, 1998 and 1997 is not likely to be
representative of the effects in future years because options vest over a
four-year period and additional awards generally are made each year.
NOTE L--EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
In connection with the acquisition of certain Asarco silver assets
the Company is required to maintain non-contributory defined benefit pension
plans covering substantially all employees at Silver Valley. Benefits for
salaried plans are based on salary and years of service. Hourly plans are based
on negotiated benefits and years of service.
The Company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set fourth in the Employee
Retirement Income Security Act of 1974, plus such additional tax deductible
amounts as may be advisable under the circumstances. Plan assets are invested
principally in commingled stock funds, mutual funds and securities issued by the
United States Government.
The components of net periodic benefit costs are as follows:
For the Year Ended December 31, 1999
- ------------------------------------------------------------------------------------
(in thousands)
Service cost $ 161
Interest cost 70
Expected return on plan assets (38)
Amortization of prior service cost 0
Amortization of transitional obligation 0
Recognized actuarial loss 0
- ------------------------------------------------------------------------------------
Net periodic benefit cost $ 193
====================================================================================
The change in benefit obligation and plan assets and a
reconciliation of funded status are as follows:
F-23
85
At December 31, 1999
- -----------------------------------------------------------------------
(in thousands)
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation at
beginning of year $ 1,040
Service cost 161
Interest cost 70
Plan amendments 0
Benefits paid (21)
Actuarial loss (231)
- -----------------------------------------------------------------------
Projected benefit obligation at
end of year $ 1,019
=======================================================================
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year $ 454
Actual return on plan assets 77
Plan amendment 0
Employer contributions 250
Benefits paid (21)
Administrative expenses 0
- -----------------------------------------------------------------------
Fair value of plan assets at
end of year $ 760
=======================================================================
RECONCILIATION OF FUNDED STATUS
Funded status $ (259)
Unrecognized actuarial gain 0
Unrecognized transition obligation 0
Unrecognized priorservice cost (270)
- -----------------------------------------------------------------------
Net amount of asset reflected
in consolidated balance sheet $ (529)
=======================================================================
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 8.10%
Expected long-term rate of return
On plan assets 8.50%
Rate of compensationincrease 5.00%
=======================================================================
F-24
86
Defined Contribution Plan
The Company provides a noncontributory defined contribution
retirement plan for all eligible U.S. employees. Total plan expense charged to
operations was $.9 million, $.8 million, and $.8 million for 1999, 1998, and
1997, respectively, which is based on a percentage of salary of qualified
employees.
401(k) Plan
Effective January 1, 1995, the Company maintains a savings plan
(which qualifies under Section 401(k) of the U.S. Internal Revenue code)
covering all full-time U.S. employees. Under the plan, employees may elect to
contribute up to 16% of their cash compensation, subject to ERISA limitations.
The Company is required to make matching cash contributions equal to 50% of the
employee's contribution or up to 3% of the employee's compensation. Employees
have the option of investing in seven different types of investment funds. Total
plan expenses charged to operations were $.4 million, $.5 million and $.4
million in 1999, 1998 and 1997, respectively.
NOTE M--FINANCIAL INSTRUMENTS
Off-Balance Sheet Risks
The Company enters into forward foreign exchange contracts
denominated in foreign currencies to hedge certain firm commitments. The purpose
of the Company's foreign exchange hedging program is to protect the Company from
risk that the eventual dollar cash flows resulting from the firm commitments
will be adversely affected by changes in exchange rates. At December 31, 1999,
1998, and 1997, the Company had forward foreign exchange contracts of $3.6
million, $4.6 million, and $1.8 million, respectively.
The Company enters into forward metal sales contracts to manage a
portion of its cash flows against fluctuating gold and silver prices. As of
December 31, 1999, the Company had sold 161,000 ounces of gold for delivery on
various dates through 2003 at an average price of $360.86. For metal delivery
contracts, the realized price pursuant to the contract is recognized when
physical gold or silver is delivered in satisfaction of the contract. On July 1,
1999, Coeur commenced marking to market its metal call options sold, whereby any
change in value is recorded in earnings currently. As a result, for the year
ended 1999, Coeur recognized a $4.3 million non-cash charge to earnings. At
December 31, 1999, based on the spot gold price of $288 per ounce, The Company's
complete hedging position was valued at $3.4 million, including the call options
sold. The Company realized gains of $4.9 million arising from the deliveries of
gold into purchased put options and forward contracts during 1999.
Further discussions of other financial instruments held by the
Company are included in Note E and Note I.
The following table summarizes the information at December 31, 1999,
associated with the Company's financial and derivative financial instruments:
(dollars in thousands) 2000 2001 2002 2003
- ----------------------------------------------------------------------------------------------------------------------------
Fair Value
(dollars in thousands) 2004 Thereafter Total 12/31/99
- -------------------------------------------------------------------------------------------------------------------------
F-25
87
LIABILITIES
Long Term Debt
Fixed Rate $ - - $ 35,582 $ -
Average Interest Rate 6.716% 6.716% 6.782% 6.843%
DERIVATIVE FINANCIAL INSTRUMENTS
Gold Forward Sales - AUD
Ounces 15,600 - - -
Price Per Ounce $ 612.10 - $ - $ -
Gold Put Options
Purchased - AUD (1)
Ounces 14,400 30,000 30,000 30,000
Price Per Ounce $ 597.00 $ 597.00 $ 597.00 $ 597.00
Gold Call Options
Sold - AUD
Ounces 15,000 - - -
Price Per Ounce $ 545.00 $ - $ - $ -
Gold Put Options
Purchased - USD
Ounces 36,000 - - -
Price Per Ounce $ 265.00 - $ - $ -
Gold Call Options
Sold - USD (2)
Ounces - - - -
Price Per Ounce $ - $ - $ - $ -
Amortizing Forward Sales
Ounces (2) 20,000 22,560 22,560 22,560
Price Per Ounce $ 338.58 $ 348.50 $ 348.50 $ 348.50
Foreign Currency Contracts
New Zealand Dollar $ 3,600 $ - $ - $ -
Exchange Rate (NZ$ to US$) 2.124 - - -
LIABILITIES
Long Term Debt $ 132,212
Fixed Rate $ 93,372 $ 107,277 $ 236,231
Average Interest Rate 7.190% 7.250%
DERIVATIVE FINANCIAL INSTRUMENTS
Gold Forward Sales - AUD
$ 1,736
Ounces - - 15,600
Price Per Ounce $ - $ -
Gold Put Options
Purchased - AUD (1) $ 10,584
Ounces - - 104,400
Price Per Ounce $ - $ -
Gold Call Options
Sold - AUD $ -
Ounces - - 15,000
Price Per Ounce $ - $ -
Gold Put Options
Purchased - USD $ -
Ounces - - 36,000
Price Per Ounce $ - $ -
Gold Call Options
Sold - USD (2) $ -
Ounces 56,000 56,000
Price Per Ounce $ - $ 345.00
Amortizing Forward Sales $ 967
Ounces (2) 22,560 78,960 189,200
Price Per Ounce $ 348.50 $ 348.50
Foreign Currency Contracts $ 176
New Zealand Dollar $ - $ - $ 3,600
Exchange Rate (NZ$ to US$) - -
(1) Of the put options purchased, 104,400 ounces have a knock-out provision
whereby the options will terminate if gold trades above $352 per ounce
prior to the exercise date.
(2) The majority of the call options sold have a knock-out provision; whereby
calls for 56,000 ounces will terminate if gold trades below $300 per ounce after
March 31, 2001, and calls for 169,200 ounces will terminate if gold trades below
$310 per ounce at any time after March 31, 2001.
The table below summarizes, by contract, the contractual amounts of
the Company's forward exchange and forward metals contracts at December
31, 1999, 1998 and 1997.
1999 1998 1997
-------------------------- ------------------------- -------------------------
Forward Unrealized Forward Unrealized Forward Unrealized
Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain (Loss)
----------- ------------ ----------- ------------ ---------- ------------
Currency:
New Zealand $ 3,600 $ 176 $ 4,595 $ 391 $ 1,766 $ (7)
Forward Metal
Sales $58,099 $11,369 $50,114 $11,261 $67,875 $ 7,404
F-26
88
Gains and losses related to contracts associated with firm
commitments are deferred and will be recognized as the related commitments
mature. For the years ended December 31, 1999, 1998, and 1997, the Company
realized a gain (loss) from its foreign exchange programs of $.1 million, ($.5)
million and ($.9) million, respectively.
The credit risk exposure related to all hedging activities is
limited to the unrealized gains on outstanding contracts based on current market
prices. To reduce counter-party credit exposure, the Company deals only with a
group of large credit-worthy financial institutions, and limits credit exposure
to each. In addition, to allow for situations where positions may need to be
reversed, the Company deals only in markets that it considers highly liquid. The
Company does not anticipate non-performance by any of these counter parties.
NOTE N--SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-making group is comprised of the Chief Executive Officer, Chief
Financial Officer and the Chief Operating Officer.
The operating segments are managed separately because each segment
represents a distinct use of company resources and contribution to Company cash
flows in its respective geographic area. The Company's reportable operating
segments include the Rochester, Coeur Silver Valley, Golden Cross, Fachinal, and
Petorca mining properties, Coeur Australia (50% owner of Gasgoyne Gold Mines
NL), the Kensington development property, and its exploration program. All
operating segments are engaged in the discovery and/or mining of gold and silver
and generate the majority of their revenues from the sale of these precious
metals. Intersegment revenues consist of precious metals sales to the Company's
metals marketing division and are transferred at the market value of the
respective metal on the date of transfer. The Other segment includes the
corporate headquarters, elimination of intersegment transactions and other items
necessary to reconcile to consolidated amounts. Revenues in the Other segment
includes sales through a wholly owned commodity marketing subsidiary, and are
generated principally from interest received from the Company's cash and
investments that are not allocated to the operating segments. The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies above. The Company evaluates
performance and allocates resources based on profit or loss before interest,
income taxes, depreciation and amortization, unusual and infrequent items, and
extraordinary items.
Revenues from gold sales were $48.9 million, $55.7 million and $89.8
million in 1999, 1998 and 1997, respectively. Revenues from silver sales were
$43.7 million, $46.8 million and $41.4 million in 1999, 1998 and 1997,
respectively.
F-27
89
Coeur d'Alene Mines
Corporation (in thousands)
Segment Reporting
Golden Coeur Silver
Rochester Cross Fachinal Petorca Australia Valley
-----------------------------------------------------------------------------------------
December 31, 1999
Net sales and revenues
To external customers $ (119) $ - $ 8,756 $ 9,086 $ 9,983 $ 4,960
Intersegment net sales
And revenues 51,312 - - - - -
-----------------------------------------------------------------------------------------
Total net sales and
revenues $ 51,193 $ - $ 8,756 $ 9,086 $ 9,983 $ 4,960
=========================================================================================
Depreciation and
Amortization $ 9,539 $ 444 $ 5,025 $ (1,020) $ 4,490 $ 681
Interest income - - 66 20 65 -
Interest expense - - 32 27 - -
Gain on Cyprus Settlement - - - - - -
Loss on Metal Hedging - - - - - -
Writedown of Mine Property - (2,119) - - (16,193) -
Income tax expense - - - - 23 (11)
Earnings (losses) from non-
Consolidated affiliates - - - - (1,180) -
Gain on early retirement
of debt - - - - - -
Profit (loss) 18,993 - (3,023) (556) 203 (276)
Investments in non-
Consolidated affiliates - - - - 29,008 -
Segment assets(A) 89,110 1,244 29,386 3,374 1,818 24,438
Expenditures for property 3,815 - 1,356 300 - 947
Coeur d'Alene Mines
Corporation (in thousands)
Segment Reporting
Kensington Manquiri Exploration Other Total
----------------------------------------------------------------------
December 31, 1999
Net sales and revenues
To external customers $ - $ - $ (323) $ 76,603 $ 108,946
Intersegment net sales
And revenues - - - (51,312) -
----------------------------------------------------------------------
Total net sales and
revenues $ - $ - $ (323) $ 25,291 $ 108,946
======================================================================
Depreciation and
Amortization $ 254 $ - $ 110 $ 2,485 $ 22,008
Interest income - - 13 5,444 5,608
Interest expense - - - 16,349 16,408
Gain on Cyprus Settlement - - - 21,140 21,140
Loss on Metal Hedging - - - 4,302 4,302
Writedown of Mine Property - - - (373) (18,685)
Income tax expense - - - 320 332
Earnings (losses) from non-
Consolidated affiliates - - - 85 (1,095)
Gain on early retirement
of debt - - - 3,990 3,990
Profit (loss) - (1,348) (3,436) (2,529) 8,028
Investments in non-
Consolidated affiliates - - - - 29,008
Segment assets(A) 29,804 19,554 522 7,027 206,277
Expenditures for property 7,903 - 55 560 14,935
December 31, 1998
Golden El Coeur
Rochester Cross Fachinal Bronce Australia
-------------------------------------------------------------------------------------
Net sales and revenues to
External customers $ (82) - $ 16,324 $ 9,436 $ 13,860
Intersegment net sales and
Revenues 62,911 - - - -
-------------------------------------------------------------------------------------
Total net sales and
revenues $ 62,829 - $ 16,324 $ 9,436 $ 13,860
=====================================================================================
Depreciation and amortization $ 7,910 - $ 12,028 $ 1,807 $ 7,060
nterest income 17 - 91 31 54
Interest expense - - 65 218 -
Gain on forward sale contracts - - - - -
Writedown of Mine Property - (4,266) (42,900) (53,904) -
Income tax (credit) expense - - - - (53)
Earnings (losses) from non-
Consolidated affiliates - - - - (1,175)
Gain on early retirement of
debt - - - - -
Profit (loss) 33,080 - (6,976) (2,158) 1,120
Investments in non-consolidated
Affiliates - - - - 50,627
Segment assets (A) 86,362 5,892 32,915 4,845 193
Expenditures for property 6,903 - 2,801 1,843 -
December 31, 1998
Kensington Exploration Other Total
---------------------------------------------------------------------
Net sales and revenues to
External customers - $ (449) $ 72,885 $ 111,974
Intersegment net sales and
Revenues - - (62,911) -
---------------------------------------------------------------------
Total net sales and
revenues - $ (449) $ 9,974 $ 111,974
=====================================================================
Depreciation and amortization $ 334 $ 149 $ 1,723 $ 31,011
nterest income - 43 9,263 9,499
Interest expense - - 13,379 13,662
Gain on forward sale contracts - - 1,167 1,167
Writedown of Mine Property (121,500) (602) - (223,172)
Income tax (credit) expense - - 972 919
Earnings (losses) from non-
Consolidated affiliates - - (955) (2,130)
Gain on early retirement of
debt - - 12,158 12,158
Profit (loss) - (4,938) 1,890 22,018
Investments in non-consolidated
Affiliates - - 16,287 66,914
Segment assets (A) 22,178 892 5,681 158,958
Expenditures for property 18,194 460 185 30,386
F-28
90
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting (continued)
December 31, 1997
Golden El Coeur
Rochester Cross Fachinal Bronce Australia
----------------------------------------------------------------------------------------
Net sales and revenues to external
Customers $ 232 $ 7,513 $ 14,949 $ 17,082 $ 8,111
Intersegment net sales and
Revenues 61,138 28,525 - - -
----------------------------------------------------------------------------------------
Total net sales and revenues $ 61,370 $ 36,038 $ 14,949 $ 17,082 $ 8,111
========================================================================================
Depreciation and amortization $ 10,495 $ 4,040 $ 11,021 $ 2,523 $ 4,899
Interest income 22 46 84 17 288
Interest expense - - 284 795 181
Income from insurance
settlement - 8,000 - - -
Gain on forward sale
contracts - - - - -
Income tax (credit) expense - - - - 69
Earnings (losses) from non-
Consolidated affiliates - - - - (329)
Profit (loss) $ 22,953 $ 14,419 $ (3,827) $ (2,255) $ (418)
Investments in non-consolidated
Affiliates - - - - 56,393
Segment assets (A) $ 73,526 $ 6,863 $ 83,918 $ 47,653 $ 487
Expenditures for property $ 1,179 $ 2,030 $ 4,041 $ 3,524 -
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting (continued)
December 31, 1997
Kensington Exploration Other Total
-----------------------------------------------------------------------
Net sales and revenues to external
Customers $ - $ (103) $ 104,116 $ 151,900
Intersegment net sales and
Revenues - - (89,663) -
-----------------------------------------------------------------------
Total net sales and revenues $ - $ (103) $ 14,453 $ 151,900
=======================================================================
Depreciation and amortization $ 171 $ 189 $ 1,437 $ 34,775
Interest income - 27 8,690 9,174
Interest expense - - 8,993 10,253
Income from insurance
settlement - - - 8,000
Gain on forward sale
contracts - - 5,280 5,280
Income tax (credit) expense - - (311) (242)
Earnings (losses) from non-
Consolidated affiliates - - 1,112 783
Profit (loss) - $ (6,121) $ 5,781 $ 30,532
Investments in non-consolidated
Affiliates - - 16,620 73,013
Segment assets (A) $ 125,879 $ 1,809 $ 14,331 $ 354,466
Expenditures for property $ 14,940 $ 715 $ 14,876 $ 41,305
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property,
plant and equipment, and mining properties.
Coeur d'Alene Mines Corporation
Segment Reporting
1999 1998 1997
--------------------------------------------------------
Profit (loss)
-------------
Total profit or loss for reportable segments $ 8,028 $ 22,018 $ 30,532
Gain on Cyprus lawsuit 21,140 - -
Loss on metal hedging (4,302) - -
Depreciation expense (21,753) (30,677) (34,604)
Interest expense (16,408) (13,662) (10,253)
Writedown of mining properties (18,685) (223,172) -
--------------------------------------------------------
Loss before income taxes and
and extraordinary item $ (31,980) $(245,493) $ (14,325)
========================================================
Assets
- ------
Total assets for reportable segments $ 206,277 $ 158,958 $ 354,466
Cash and cash equivalents 86,935 127,335 114,604
Short-term investments 22,978 1,753 98,437
Other assets 37,857 77,934 91,195
--------------------------------------------------------
Total consolidated assets $ 354,047 $ 365,980 $ 658,702
========================================================
F-29
91
Coeur d'Alene Mines Corporation
Segment Reporting
(In Thousands)
Geographic Information
----------------------
Mining
1999: Revenues Properties
----------------------------------------
United States $ 60,297 $ 94,356
Chile 17,521 22,356
Australia 9,983 -
New Zealand 21,146 855
Other Foreign Countries (1) 19,565
----------------------------------------
Consolidated Total $ 108,946 $ 137,132
========================================
Mining
1998: Revenues Properties
----------------------------------------
United States $ 72,326 $ 73,153
Chile 25,802 25,291
Australia 13,860 -
New Zealand - 5,178
Other Foreign Countries (14) 14
----------------------------------------
Consolidated Total $ 111,974 $ 103,636
========================================
Mining
1997: Revenues Properties
----------------------------------------
United States $ 75,892 $ 177,791
Chile 32,057 121,607
Australia 7,896 3,198
New Zealand 36,053 4,669
Other Foreign Countries 2 171
----------------------------------------
Consolidated Total $ 151,900 $ 307,436
========================================
Revenues are geographically separated based upon the country in which operations
and the underlying assets generating revenues reside.
F-30
92
NOTE O--LITIGATION
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s. No specific
monetary damages were identified in the complaint. However, in July 1996, the
government indicated that damages may approximate $982 million and as a result
of pretrial discovery, it appears the United States believes it can prove
damages over $1 billion. The United States asserts that the defendants are
jointly and severally liable for costs and expenses incurred by the United
States in connection with the investigation, removal and remedial action and the
restoration or replacement of affected natural resources. In 1986 and 1992, the
Company had settled similar issues with the State of Idaho and the Coeur d'Alene
Indian Tribe, respectively, and believes that those prior settlements exonerate
it of further involvement with alleged natural resource damage in the Coeur
d'Alene River Basin. Accordingly, the Company intends to vigorously defend this
matter.
In March 1997, the Company filed a motion for partial summary
judgement relating to the issue of trusteeship, essentially arguing that the
United States does not have authority to sue for damages to state natural
resources and that the 1986 settlement with the state bars the federal claims.
That motion remains pending. In September 1997, the Company filed an additional
motion for partial summary judgement raising the statute of limitations as to
natural resource damages. That motion was granted by the Court on September 30,
1998. The Court's granting of that motion limits the United States' natural
resource damage claims to the 21 square mile Bunker Hill Superfund site area
rather than the entire Coeur d'Alene Basin. Although that ruling limits the
geographic coverage of the United States' action, the ruling does not prohibit
the EPA from attempting to utilize its hazard ranking system which could
potentially broaden the scope of the United States' allegations. The United
States appealed this decision to the United States Court of Appeals for the 9th
Circuit. The Appeal has been argued but not decided. On March 31, 1998, the
Court entered an order denying the plaintiffs' motion to allow the United States
to prove a portion of its case pursuant to an administrative record, and
requiring the parties to submit further facts as to the issue of trusteeship.
Furthermore, in March 1998, the EPA announced its intent to perform a remedial
investigation/feasibility study upon all or parts of the Coeur d'Alene Basin
and, thereby, to apparently focus upon response costs rather than natural
resource damages. In September 1998, the Company filed an additional motion for
partial summary judgment asserting that CERCLA as applied to the Company in the
action is not constitutional under the takings and due process provisions of the
United States Constitution. The court denied this motion on the grounds that
further facts must be developed at trial before the issue can be decided.
F-31
93
Settlement of Golden Cross Lawsuit
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in connection
with Cyprus' sale in April 1993 to the Company of Cyprus Exploration and
Development Corporation, which owned all the shares of Cyprus Gold New Zealand
Limited, which, in turn, owned an 80% interest in the Golden Cross Mine in New
Zealand. The Company's lawsuit sought rescission and an unspecified amount of
damages arising from alleged misrepresentations and failure to disclose material
facts alleged to have been known by Cyprus officials regarding ground movement
and instability, threatening the integrity of the mine site at the time of
Coeur's purchase of the property. In October 1997, Cyprus filed a counterclaim
alleging libel by the Company in its press release announcing the write-off of
the Golden Cross Mine and seeking an unspecified amount of damages. On February
17, 1999, Cyprus filed a motion to vacate the trial date and a motion to dismiss
the second amended complaint. On July 12, 1999, the Court entered an order
denying the motion to dismiss and the motion to vacate the trial date. During
the third quarter of 1999, the Company received $31.5 million from Cyprus in
connection with the settlement of the action. The Company recorded other income
of approximately $21.1 million during the third quarter of 1999, which was the
net amount of settlement proceeds after the deduction of the $4.4 million
payment to Coeur's flood insurance carrier and $6 million payment to the
plaintiffs in the class action discussed below.
Settlement of Class Action Securities Lawsuit
On July 2, 1997 a suit was filed by purchasers of the Company's
Common Stock in Federal District Court for the District of Colorado naming the
Company and certain of its officers and its independent auditor as defendants.
Plaintiff alleges that the Company violated the Securities Exchange Act of 1934
during the period January 1, 1995 to July 11, 1996, and seeks certification of
the law suit as a class action. The class members are alleged to be those
persons who purchased publicly traded debt and equity securities of the Company
during the time period stated. On September 22, 1997, an amended complaint was
filed in the proceeding adding other security holders as additional plaintiffs.
The action seeks unspecified compensatory damages, pre-judgment and
post-judgment interest, attorney's fees and costs of litigation. The complaint
asserted that the defendants knew material adverse non-public information about
the Company's financial results which was not disclosed, and which related to
the Golden Cross and Fachinal Mines; and that the defendants intentionally and
fraudulently disseminated false statements which were misleading and failed to
disclose material facts.
On April 16, 1998, the Court entered an order dismissing the
auditors from the suit and denying the Company's and the individual defendants'
motions to dismiss. On October 9, 1998, the Court heard arguments on the
question on whether a class should be certified and on December 14, 1998, the
Court entered an order certifying a class. In December 1998, the
F-32
94
parties to the suit determined that the further conduct of the case would be
protracted and expensive and commenced discussions with a view toward settlement
of the action. Although the Company continued to deny each of the plaintiffs'
claims and allegations, the Company determined it would be in the best interests
of the Company to settle the suit and agreed to enter into a Stipulation of
Settlement which was filed by the parties with the Court on March 1, 1999. The
terms of the proposed settlement provide that (i) the Company's directors and
officers liability insurance carrier will pay $7 million to a settlement fund
for the benefit of the plaintiffs; and (ii) the plaintiffs will be entitled to
50% of the net proceeds, up to a maximum of $6 million, (after the Company has
first recouped its costs and expenses incurred in litigating its above-described
lawsuit against Cyprus relating to Golden Cross and after deducting an $8
million reserve against the asserted subrogation claim of the Company's flood
insurance carrier) actually received by the Company from its Golden Cross
lawsuit against Cyprus. The Stipulation of Settlement contains strong denials of
liability by the defendants as well as acknowledgments by the plaintiffs that
they were unable to identify significant evidence to support a large portion of
their claims. On July 15, 1999, the Court gave final approval to the settlement
and authorized the submission of the settlement terms to the class action
shareholders.
Dismissal of Derivative Action
On or about August 17, 1998, a purported derivative action was filed
on behalf of the Company against Dennis E. Wheeler, James A. Sabala, James J.
Curran, Joseph C. Bennett, James A. McClure, Cecil D. Andrus and Duane B.
Hagadone in Federal District Court for the District of Idaho. The complaint
alleged that the defendant officers and directors breached their fiduciary
duties by authorizing the Company to purchase the Golden Cross Mine in New
Zealand in 1993 and by allegedly causing or permitting the Company to make
statements that the plaintiffs in the class action securities lawsuit described
above claim were false or misleading during the period from January 1, 1995
through July 11, 1996. The plaintiff sought unspecified damages on behalf of the
Company. On September 9, 1998, the plaintiff voluntarily dismissed the lawsuit
without prejudice in light of Idaho Code Sec. 30-1-742, which requires a demand
to be served on a company at least 90 days prior to the filing of a derivative
action. On September 25, 1998, the plaintiff sent a letter to the Company's
Board of Directors demanding that the Company, among other things, commence all
reasonable steps to settle the class action securities lawsuit described above,
and pursue claims against any officers, directors or third-party professionals
who may have known about the potential problems with the Golden Cross Mine
before the Company purchased an interest in it. The Board appointed a Special
Committee of directors to respond to that demand. On March 9, 1999, the Special
Committee recommended that the demand be rejected. The action previously
dismissed without prejudice has been dismissed with prejudice.
F-33
95
NOTE P--SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1999 and 1998:
First Second Third Fourth
Quarter Quarter Quarter(a) Quarter
------- ------- ---------- -------
(In Thousands - Except Per Share Data)
1999
- ----
Net revenues $ 19,344 $ 21,675 $ 38,439 $ 29,488
Net Income (Loss) before
extraordinary gain $ (7,273) $ (6,979) $ 7,020 $ (25,081)(b)
Net Income (Loss) $ (7,273) $ (6,979) $ 9,610(d) $ (23,681)(b,d)
Net Income (Loss) attributable
to common shareholders $ (9,906) $ (9,612) $ 6,977 $ (26,314)(b)
Basic and diluted net Income (Loss)
per share before extraordinary gain $ (.45) $ (.44) $ .18 $ (.95)
Basic and diluted net Income (Loss)
per share attributable to
common shareholders $ (.45) $ (.44) $ .29 $ (.90)
1998
- ----
Net revenues $ 24,754 $ 34,563 $ 25,856 $ 26,801
Net loss before
extraordinary gain $ (57,961)(c) $ (5,166) $ (6,366) $ (179,919)(c)
Net loss $ (57,961)(c) $ (5,166) $ (21)(d) $ (171,106)(c,d)
Net loss attributable
to common shareholders $ (60,594)(c) $ (7,799) $ (2,654)(d) $ (173,739)(c,d)
Basic and diluted net loss
per share before
extraordinary gain $ (2.77) $ (.36) $ (.41) $ (8.20)
Basic and diluted net loss
per share attributable to
common shareholders $ (2.77) $ (.36) $ (.12) $ (7.93)
(a) Includes the receipt of $21.1 million in settlement of the Cyprus
litigation suit.
(b) Includes writedown of mining properties of approximately $16.2 million in
the fourth quarter of 1999.
(c) Includes writedown of mining properties of approximately $54.5 million in
the first quarter and approximately $168.7 million in the fourth quarter
of 1998.
(d) Includes extraordinary gain on early retirement of debt of approximately
$2.6 million in the third quarter 1999, approximately $1.4 million in the
fourth quarter 1999,and approximately $6.3 million in the third quarter
1998 and approximately $5.8 million in the fourth quarter of 1998.
#77646
F-34