<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A No. 1
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Amendment No. 1 to Annual Report on Form 10-K
for the Year Ended December 31, 1996
COEUR D'ALENE MINES CORPORATION
-----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Idaho 1-8641 82-0109423
--------------------------- ------------ --------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
505 Front Avenue., P.O. Box "I"
Coeur d'Alene, Idaho 83814
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K
for the year ended December 31, 1996, as set forth in the pages attached hereto:
Item 1 - Business
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Items 8 & 14 - Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
By:
/s/ James A. Sabala
-------------------
James A. Sabala
Senior Vice President and
Chief Executive Officer
Date: February 20, 1998
<PAGE> 2
The Form 10-K amendment filed by the Company on January 21, 1998
incorrectly identified itself as Amendment No. 1 to the Annual Report on Form
10-K for the year ended December 31, 1997. It should have identified itself as
Amendment No. 1 to the Annual Report on Form 10-K for Year Ended December 31,
1996. This Form 10-K amendment corrects that error and includes the disclosures
contained in the amendment filed on January 21, 1998. Therefore, the amendment
filed on January 21, 1998 can be disregarded.
PART I
ITEM 1. BUSINESS
Coeur d'Alene Mines Corporation is engaged through its subsidiaries in
the exploration, development, operation and/or ownership of gold and silver
mining properties and companies located primarily within the United States
(Nevada, Idaho and Alaska), Australasia (New Zealand and Australia) and South
America (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, a silver and gold surface mining operation
located in northwestern Nevada, which is 100% owned and
operated by Coeur and which is believed to be one of the
largest and lowest cost of production primary silver mines in
the United States and is a significant gold producer as well;
- the FACHINAL MINE, an open pit and underground gold and silver
mining operation wholly-owned by Coeur and located in southern
Chile, South America, which Coeur acquired in 1990 and at
which initial production commenced in October 1995 and which
entered the commercial production stage as of January 1, 1997;
- the EL BRONCE MINE, a Chilean gold mine in which the Company
acquired operating control and 51% of the operating profits in
October 1994 and in which the Company acquired 100% ownership
in September 1996;
- the GOLDEN CROSS MINE, an underground and surface gold mining
operation located near Waihi, New Zealand in which Coeur has
an 80% operating interest acquired on April 30, 1993, and
Coeur's operation of which is expected to continue through at
least the end of 1997;
- ownership of 50% of the capital stock of SILVER VALLEY
RESOURCES CORPORATION ("SILVER VALLEY"), which owns the COEUR
and the GALENA underground silver mines and the CALADAY
development project in the Coeur d'Alene Mining District of
Idaho where the Coeur Mine resumed production in June 1996;
- ownership of 36% of the capital stock of GASGOYNE GOLD MINES
NL, which the Company expects to increase to 50% during 1997,
an Australian gold mining company ("Gasgoyne"), which owns 50%
of THE YILGARN STAR MINE, a gold mine in Western Australia,
and certain other exploration-stage properties; and
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- 100% of the KENSINGTON PROPERTY, located north of Juneau,
Alaska, which is being developed as an underground gold mine
by Coeur and where it is anticipated that a decision will be
made during the second quarter of 1997 whether construction of
the mine facilities will commence.
Coeur also has interests in other properties which are the subject of silver or
gold exploration activities at which no minable ore reserves have yet been
identified.
SOURCES OF REVENUE
The Rochester Mine, Golden Cross Mine and El Bronce Mine, which are
operated by the Company, and the Company's interests in Silver Valley and
Gasgoyne, constituted the Company's principal sources of mining revenues in
1996. 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 three years:
<TABLE>
<CAPTION>
Percentage of
Coeur
Mine/Company Ownership Percentage of Total Revenues in Year Ended December 31,
------------ --------- -------------------------------------------------------
1994 1995 1996
----------- --------- ----------
<S> <C> <C> <C> <C>
Rochester Mine 100% 56.8% 57.0% 57.6%
Golden Cross Mine 80% 29.8% 33.4% 24.9%
El Bronce Mine(1) 100% 1.0%(2) 0.3% 2.0%
Silver Valley 50% - - 2.2%(3)
Gasgoyne 35% - - .9%(4)
Other - 12.4% 9.3% 12.4%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
(1) The reported percentages of total revenues reflect the fact that
Coeur's interest in the revenue of the mine was 51% until September
1996, when it acquired a 100% ownership interest. Therefore, prior to
September 1996, the Company's share of net profits was reported as
other income.
(2) The El Bronce Mine accounted for approximately 4.0% of total revenues
for the approximately three months subsequent to its start-up by the
company in October 1994.
(3) The Company's interest in Silver Valley accounted for approximately
3.0 % of total revenues for the approximately eight months subsequent
to its acquisition by the Company in May 1996.
(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 Company's interest in
Gasgoyne is reported in accordance with the equity method; therefore,
revenues, net of expenses are reported as other income.
The above table does not reflect the operations of the Fachinal Mine,
which commenced pre-production in late October 1995 and has been accounted for
as a development stage property until December 31, 1996 (i.e., operating costs
have been capitalized net of revenues from pre-commercial production).
Commencing January 1, 1997, the mine will be accounted for as a commercial
production property.
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In January and March 1996, Coeur acquired additional shares of Orion
Resources NL, an Australian gold mining company ("Orion"), as a result of which
Coeur owned 19.2% of Orion's outstanding shares. In September 1996, Coeur sold
its shares of Orion, in connection with which Coeur recognized a gain of
approximately $1.3 million from the sale to Sons of Gwalia, the only other
shareholder in Gasgoyne.
DEFINITIONS
The following sets forth definitions of certain important mining terms used
in this report.
"Dore" - A bullion produced by smelting, containing
gold, silver and minor amounts of impurities.
"Gold" - An alloy with minimum fineness of 999 parts per
1000 pure gold.
"Heaping-
Leaching
Process" - Heap leaching is a process of extracting gold
and silver by placing broken ore on an
impermeable pad and applying a dilute cyanide
solution that dissolves a portion of the
contained gold, which is then recovered in
metallurgical processes.
"Mineralized
Material"- A mineralized underground body which has been
intersected by sufficient closely spaced drill
holes and/or underground sampling to support
sufficient tonnage and average grade of
metal(s) to warrant further exploration-
development work. Such material does not
qualify as an "ore reserve" until a final and
comprehensive economic, technical and legal
feasibility study based upon the test results
is concluded.
"Ore
Reserve" - That part of a mineral deposit which could be
economically and legally extracted or produced
at the time of the reserve determination.
"Probable
Reserves" -Ore reserves for which quantity and grade
and/or quality are computed from information
similar to that used for proven reserves, 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.
"Proven
Reserves" -Ore reserves for which (a) quantity 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 (b) 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
reserve are well-established.
"Ton" - References to a "ton" mean a short ton, which
is 2,000 pounds.
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. 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) changes in the market prices of gold and silver, (ii)
the uncertainties inherent in the Company's production, exploratory and
developmental activities, including risks relating to permitting and
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regulatory delays, (iii) the uncertainties inherent in the estimation of gold
and silver ore reserves, (iv) changes that could result from the Company's
future acquisition of new mining properties or businesses, (v) the risks and
hazards inherent in the mining business (including environmental hazards,
industrial accidents, weather or geologically related conditions), (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.
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 utilizes the heap-leaching process to extract both silver and gold from
ore mined using open-pit methods. The property consists of 16 patented and 544
unpatented contiguous mining claims and 74 mill-site claims totaling
approximately 9,370 acres. The Company owns 100% of the Rochester Mine by
virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc. ("Coeur
Rochester"). Asarco, Inc., the prior lessee, has a net smelter royalty
interest which varies from up to 5% when the market price of silver equals or
exceeds $17.71 per ounce.
Based on the ore reserve-review report dated December 1996, of
Independent Mining Consultants, Inc. ("IMC"), and accounting for production
through December 31, 1996, mineable, proven/probable ore reserves at the
Rochester Mine, as of January 1, 1997, total approximately 71.795 million tons
averaging 1.12 ounces per ton silver and 0.0097 ounces per ton gold. The
reserve estimate is based on a 1.05 ounce per ton silver-equivalent,
breakeven-operational cutoff grade and silver and gold prices of $5.50 and
$385.00, respectively. The average grades do not reflect losses in the recovery
process. The amount of proven and probable reserves will vary depending on the
relative price of silver and gold. In addition, 9.941 million tons of
mineralized material averaging 0.007 ounces per ton gold and 1.11 ounces per
ton silver have been identified.
The Coeur Rochester ore reserve estimate, calculated at various silver
and gold prices, is set forth below:
<TABLE>
<CAPTION>
$ Per Troy Ounce Ore Silver Gold Strip
Gold/Silver Tons Grade Grade Ratio
- ---------------- --------- ---------- ---------- -----
(Thousands) (Ounces/ton) (Ounces/ton)
<S> <C> <C> <C> <C>
$455.00/$6.50 81,736 1.121 .0094 1.07
$385.00/$5.50 71,795 1.122 .0097 1.35
$325.00/$4.65 58,464 1.217 .0107 .85
</TABLE>
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Based upon its experience and certain metallurgical testing, the
Company estimates recovery rates of 55% for silver and 85% for gold. The leach
cycle at the Rochester Mine requires approximately five years from the point
ore is mined until all recoverable metal is recovered. As shown in the
preceding table, the average strip ratio for the remaining life of the mine
will vary based primarily on future gold and silver prices. Furthermore, the
actual strip ratio may vary significantly from year-to-year during the
remaining life of the mine. The realization of the Company's production
estimates is subject to actual rates of recovery, continuity of ore grades,
mining rates, projected operating costs, the levels of silver and gold prices,
and other uncertainties inherent in any mining and processing operation.
The following table sets forth information for the periods indicated
relating to Rochester Mine production. Production may decrease during the
winter due to slower solution flow from the heaps. Such conditions are not
expected to affect annual production levels since mining, crushing and heap
construction are expected to continue during those months at normal rates,
resulting in increased dore' production during warmer weather. Also,
production will vary from time to time depending upon the area being mined.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Ore processed
(tons) 7,356,336 7,247,553 7,759,637 8,243,609 8,127,691
Silver (ounces) 5,431,369 5,943,894 5,937,770 6,481,825 6,251,180
Gold (ounces) 56,562 66,412 56,886 59,307 74,293
</TABLE>
The following table sets forth the costs of production per ounce of
silver and gold on a silver equivalent basis during the periods indicated at
the Rochester Mine. Cash costs include mining, processing and direct
administration costs, financing costs, royalties and exploration expenses. To
obtain the silver equivalent, each ounce of gold produced is multiplied by the
same ratio as the then current ratio of the price of gold to the price of
silver. This silver equivalent gold production is then added to actual silver
production to determine total silver equivalent production.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Cash operating
costs per ounce $ 2.82 $ 3.55 $ 3.57 $ 3.71 $ 3.64
Refining .07 .07 .08 .08 .07
Depreciation, depletion
and amortization
per ounce .40 .54 .59 .61 .54
-------- -------- -------- --------- -------
Total costs per ounce $ 3.29 $ 4.16 $ 4.24 $ 4.40 $ 4.25
======== ======== ======== ========= =======
</TABLE>
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In 1995, the Company completed construction of a new ore conveyor
system. In addition, the waste-to-ore strip ratio declined in 1996 while the
silver equivalent grade of the ore mined increased. Those three factors
beneficially impacted 1996 operations.
On August 8, 1996, Coeur entered into a three-year lease option
agreement with the right to explore and purchase the Nevada Packard property,
adjacent to the Rochester Mine. The property includes 35 claims totaling
approximately 1,200 acres of land. Phase 1 of a 22,000 foot drilling program
began in August 1996.
GOLDEN CROSS MINE
Effective April 30, 1993, a wholly-owned subsidiary of the Company
acquired from a wholly-owned subsidiary of Cyprus Minerals Company all of the
outstanding capital stock of Cyprus Gold New Zealand Limited ("Cyprus NZ"), the
name of which was changed by the Company to Coeur Gold New Zealand Limited
("Coeur NZ"). The principal asset of Coeur NZ is its undivided 80%
participating joint venture interest in the Golden Cross Mine located near
Waihi on the North Island of New Zealand, approximately 100 miles southeast of
Auckland, and certain other exploration properties in New Zealand. The
remaining undivided 20% joint venture interest is owned by a subsidiary of The
Todd Company Limited, a New Zealand corporation.
In addition to all the capital stock of Cyprus NZ, the Company also
acquired from the former parent of Cyprus NZ a term loan receivable from Cyprus
NZ in the principal amount of approximately $53.2 million which was owed by
Cyprus NZ to its former parent and is now owed by Coeur NZ to the Company. A
cash purchase price of approximately $54.0 million was paid by the Company for
the Cyprus NZ capital stock and term loan. The Company accounted for the
acquisition as a purchase transaction.
The Golden Cross Mining License covers an area of approximately 961
acres of which 274 acres are occupied by the current Golden Cross Mine
operation. The mine property includes the open-pit and underground mine
facilities, process plant, tailings pond, water treatment plant and mine
offices which are all accessible by road from the town of Waihi. Construction
of the Golden Cross Mine began in April 1990, and commercial production
commenced in December 1991. Ore is mined from a precious-metals bearing,
epithermal vein system hosted in Tertiary volcanic rocks.
Based upon an open-pit mineral resource report review dated November
1996 by Snowden Associates Pty Ltd, an independent consulting firm, and
accounting for production through December 31, 1996, Coeur Golden Cross
estimates open-pit and underground proven and probable ore reserves totaling
2.989 million tons, averaging 0.086 ounces per ton gold. The open-pit reserve
estimate, totaling 2.476 million tons averaging 0.069 ounces per ton gold, is
based on a 0.029 ounce per ton
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gold cutoff, a gold price of $414 per ounce (including credit for byproduct
revenues) and a currency exchange rate of NZ$ = .69 US$. The
underground-reserve estimate, totaling 513,000 tons averaging 0.165 ounces per
ton gold, is based on a 0.117 ounce per ton cutoff, a gold price of $414.00
(after credit for byproduct revenues) and a currency exchange rate of NZ$ = .69
US$. On March 17, 1997, the price of gold (London final) had declined to
$351.40. The reserve estimate reflects an allowance for extractive dilution
during the mining process, but does not reflect losses during the recovery
process. In addition, the reserve estimate has identified 7.226 million tons of
mineralized material averaging 0.05 ounce per ton gold.
Silver reserves are empirically estimated using past production and
recovery ratios for silver and gold. Open pit and underground silver and gold
ratios have historically averaged 4:1 and 5:1, respectively. Total contained
silver ounces are estimated at 1.112 million ounces, with an average grade of
0.37 ounces of silver per ton, for open pit and underground proven and probable
reserves. No mineralized material grades for silver were estimated.
The following table sets forth Golden Cross Mine production data
attributable to Coeur's 80% interest in the mine:
<TABLE>
<CAPTION>
Eight Months
Ended Year Ended December 31,
December 31, 1993 1994 1995 1996
----------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Ore milled (tons) 492,617 727,427 731,453 827,642
Gold (ounces) 56,898 67,400 83,058 64,365
Silver (ounces) 175,325 222,246 286,216 205,070
</TABLE>
The following table sets forth the costs of production per ounce of
gold during the periods indicated at the Golden Cross Mine. Cash costs include
mining, processing and direct administration costs, royalties and exploration
expenses, but do not include financing costs associated with the term loan owed
by Coeur Gold NZ to the Company. The production costs per ounce of gold for any
period is computed net of by-product credits.
<TABLE>
<CAPTION>
Eight Months
Ended Year Ended December 31,
December 31, 1993 1994 1995 1996
----------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash operating
costs per ounce $216.93 $273.84 $228.16 $365.79
Refining 3.33 3.12 3.54 3.08
Depreciation,
depletion and
amortization
per ounce 116.40 111.53 82.12 38.91
------- ------- ------- -------
$336.66 $388.49 $313.82 $407.78
======= ======= ======= =======
</TABLE>
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The above reported 1994 increase in the cash costs of production per
ounce of gold was primarily attributable to the presence of a harder grinding
ore in the open pit requiring more milling and chemicals in the processing and
a lower grade of ore being provided from the underground portion of the mine.
The 1995 decrease in cash costs was primarily attributable to the availability
of additional higher grade underground production, a better blending of
open-pit and underground ores, and the mining of less waste in the open-pit.
The increases in ore reserves during 1994 and 1995 enabled the Company to lower
the depletion at the mine, which had the effect of reducing non-cash costs per
ounce. The increase in the cash costs in 1996 is attributable to the land
movement issue identified in late 1995 and discussed below. As a result, the
Company was unable to complete a planned expansion of the existing facilities
which would have resulted in lower unit operating costs. (See additional
discussion regarding Golden Cross under Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
The Company estimates the current waste-to-ore strip ratio of the open
pit to be approximately 3.88 to 1. Approximately 2,300 tonnes per day of ore
are currently being mined at the open pit operation. The underground mine is a
trackless operation with a declining access from the surface, currently mining
approximately 700 to 1,000 tonnes per day of ore and utilizing mechanized cut
and fill and long hole benching methods. A 3,000 tonne per day mill processes
ore from both the open pit and underground operations. Coeur NZ estimates that
approximately 87.3% of the gold and 54.4% of the silver contained in the ore
mined is recoverable. The production of gold and silver is subject to the risks
of actual rates of recovery, continuity of ore grades, mining rates, projected
operating costs, possible ground movement, the levels of gold and silver prices
and other uncertainties inherent in any mining and processing operation.
Tailings are treated by a proprietary process that removes and recycles cyanide
used in the milling process.
During the Fall of 1995, the Company became aware of evidence
suggesting that the tailings impoundment at the Gold Cross Mine may have
sustained movement. Subsequent investigation revealed that the impoundment is
situated on a block of land that was apparently moving very slowly down slope
at a variable rate of movement actuated by heavy rainfall events. The movement
is the result of a naturally occurring, deep-seated geologic phenomenon. With
the assistance of independent engineering firms, the Company formulated
remedial measures that included the construction of a drain tunnel, horizontal
and vertical drain holes and buttressing with waste rock all designed to ensure
the stability of the tailings dam. When the Company commenced the
implementation of those remedial measures during the first four months of 1996,
it believed that additional expenditures of approximately $4 million would be
required for the planned measures. As of the end of May, however, it had become
apparent that the geographical area of the down-slope movement was larger than
initially believed, and the project recieved the highest rainfall in
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the past fifteen years. As of June 1996, after obtaining a consensus from
several consulting engineers regarding remedial measures, it appeared that the
amount required to implement the planned program could approximate $11 million.
In addition, it also became evident that (i) production could be expected to
significantly decrease as a result of the Company's inability to implement a
previously planned mill optimization because the dam had not been stabilized
and, (ii) capital and operating costs could be expected to significantly
increase due to the production shortfall and ground movement remediation
program costs. In early July 1996, the Company, following consultation with
its independent accountants, determined that in these circumstances generally
accepted accounting principles called for an asset write-down. On July 10,
1996, the Company announced a $53 million write-down of its interest in the
Golden Cross Mine and the nearby Waihi East property, which included accrual of
the estimated future closure and remediation costs and the entire carrying
value of its 80% interest in the property.
As discussed below under Item 3 ("Legal Proceedings"), Coeur has
asserted legal claims against Cyprus Amax Minerals Company based on alleged
misrepresentations by that company as well as its failure to make certain
required disclosures relating to ground movement and instability when Coeur
purchased the property in 1993.
In the last quarter of 1996, it appeared that the interim slide
remedial measures were stabilizing the extent of the ground movement. In July
1996, the Company filed an application with New Zealand governmental
authorities to permit the raising of the Golden Cross Mine tailings impoundment
crest. On October 31, 1996, the New Zealand regulatory authorities approved
Coeur's application. On October 31, 1996, a local New Zealand environmental
group filed an action seeking to enjoin the Company's raising of the tailings
dam crest. On December 20, 1996, the New Zealand High Court ruled in favor of
Coeur with respect to a motion for preliminary injunction. Coeur believes that
as a result of that crest raising, which is expected to be completed in April
1997, it will be able to implement the previously planned mill optimization and
continue to operate the Golden Cross Mine through at least the end of 1997.
The Company also believes that the continued operation of the mine will have a
beneficial impact on the end-of-mine-life closure and reclamation requirements.
Coeur NZ plans no significant exploratory activities during 1997.
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. As discussed below, the Company completed the construction of
the Fachinal Mine on schedule and under budget in October 1995 when initial
mining operations commenced.
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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 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 located in five
mineralized zones. 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.
Construction of new mining facilities, which includes both underground
and open pit operations, was were completed on schedule in October 1995 with an
estimated 1,600 tons per day of throughput. The milling facility uses
conventional crush/grind/flotation methods to produce a gold/silver
concentrate, which is then shipped to off-site smelters for processing. The
total project construction cost was approximately $41.4 million, which was less
than the originally budgeted $41.8 million. Initial production began in October
1995 at the Fachinal Mine, which is one of the southernmost mining operations
in the world, employing approximately 225 workers. As of December 31, 1996, the
Company had expended a total of $83.5 million (including capitalized interest
of $12.1 million) in connection with the development of the Fachinal Mine.
The following table sets forth Fachinal Mine production data for (i)
the period from October 19, 1995, on which date initial production activities
commenced, through December 31, 1995, and (ii) the year ended December 31,
1996. Because the mine had not yet reached commercial production levels prior
to January 1, 1997, results of the mine's operations have been accounted for as
a development stage property (i.e., costs net of pre-production revenues have
been capitalized).
<TABLE>
<CAPTION>
October 19, 1995 Year
through Ended
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C>
Ore milled (tons) 96,212 591,074
Gold (ounces) 3,586 25,064
Silver (ounces) 334,816 2,154,347
</TABLE>
Open pit and underground ores are being processed in a mill that
processes approximately 584,000 tons per year. Coeur estimates that cash
operating costs at the Fachinal Mine will approximate $272 per gold equivalent
ounce in 1997. Furthermore, Coeur estimates that the Fachinal Mine's
underground and open pit mining operations in 1997 will process approximately
1,600 tons per day.
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During the startup phase, a variance between mine and mill head grades
from those anticipated in the feasibility study occurred. This was caused by
excessive dilution and inadequate grade control procedures in the open pit
mining operations. The Company has addressed these matters by implementing
stricter geologic controls and additional equipment operator training. In July
1996, the Company commenced production activities in a second underground
mining operation at the Fachinal Mine in order to improve gold grades being
delivered to the mill.
Economic, precious metals bearing mineralization at the Fachinal Mine
occur in an extensive epithermal, quartz-veins system hosted in Jurassic
volcanic rocks. Based on an ore reserve review report dated January 1997, by
Micon International Limited, the total remaining, mineable, open-pit and
underground proven and probable reserves at the Fachinal Mine are approximately
3.653 million tons averaging 0.069 ounces per ton gold and 2.78 ounces per ton
silver. The Fachinal Mine's open-pit reserve estimate, totaling 2.713 million
tons averaging 0.053 ounces per ton gold and 2.01 ounces per ton silver, is
based on an internal cutoff grade of 0.041 ounces per ton equivalent gold. The
underground reserve which totals 940,000 tons at 0.115 ounces per ton gold and
5.02 ounces per ton silver is based on internal cutoff grades ranging from
0.088 to 0.117 ounces per ton equivalent gold. Both reserve estimates are
based on gold and silver prices of $400.00 per ounce and $5.50 per ounce,
respectively. Average grades reflect extractive dilution, but not losses
during the recovery process. The Company estimates, based upon thorough
metallurgical testing and initial operating experience, recovery rates between
89% - 94% for gold and 85% - 93% for silver. The open-pit reserve estimate has
also identified 594,000 tons of mineralized material, averaging 0.04 ounces per
ton gold and 1.03 ounces per ton silver. Likewise, the underground resource
estimate has identified an additional 988,000 tons of mineralized material
averaging 0.10 ounces per ton gold and 6.73 ounces per ton silver. Numerous
other attractive exploration targets with known precious-metals mineralization
remain to be evaluated.
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.
EL BRONCE MINE
The El Bronce Mine is an underground, gold-silver mine located on
approximately 34,000 acres in the Andean foothills approximately 90 miles north
of Santiago, Chile. In July 1994, the Company entered into an agreement with
Compania Minera El Bronce de Petorca, a Chilean
12
<PAGE> 13
corporation ("CMEB"), pursuant to which the Company acquired operating control
and a 51% interest in any operating profits and an option exercisable through
July 1997 to also purchase from CMEB a 51% equity interest in Compania Minera
CDE El Bronce, a Chilean corporation ("CDE El Bronce") that owns the producing
El Bronce Mine. On September 4, 1996, the Company exercised its option to
purchase that 51% of the shares of CDE El Bronce and also purchased the
remaining 49% of the shares of CDE El Bronce from CMEB, as a result of which
Coeur increased its ownership interest of CDE El Bronce to 100%. The property
consists of 64 exploitation concessions and 10 exploration concessions. Surface
rights to permit mining on the property have been granted by the private
owners. Ore is produced from an extensive, precious-metals bearing,
epithermal, quartz-vein system hosted in Cretaceous volcanic rocks. Coeur has
expended a total of $30.6 million in connection with its original acquisition
of operating control of the El Bronce Mine, exercise of the option to acquire
51% ownership of CDE El Bronce and acquisition of the remaining 49% of the
shares of CDE El Bronce. In addition, Coeur is obligated to pay CMEB a 3% net
smelter return royalty payable quarterly, commencing on January 1, 1997.
Current exploratory and developmental activities are designed to
increase ore reserves and increase annual gold production to 65,000 ounces in
1997 from the present level of approximately 52,000 ounces of gold. The Company
expended $1.2 million, $3.1 million and $2.9 million during the last half of
1994, 1995 and 1996, respectively, for exploratory and developmental
activities.
The Company plans to gradually increase production above a 600 ton per
day milling rate at the mine, improve the mining method to increase ore
reserves and to restructure the work force. The mill has a 1,200 ton per day
capacity. In addition, the Company is conducting exploratory activities at
three main exploration sites within the exploration-exploitation area
surrounding the mine.
Based on resource-reserve reports dated January 1997 by NCL Ingenieria
& Construction S.A. and CDE El Bronce, proven and probable ore reserves of the
El Bronce Mine total 1.066 million tons averaging 0.21 ounces per ton gold. An
additional 1.269 million tons of mineralized material, averaging 0.34 ounce per
ton gold, has been identified. The reserve is based on an internal cutoff of
0.088 ounces per ton gold. The Company estimates, based on past experience and
metallurgical testing, mill recovery rates are 92% for gold and 89% for silver.
The mineralized system remains geologically open both vertically and
horizontally.
The following table sets forth El Bronce Mine production data
subsequent to its acquisition by Coeur on October 3, 1994. As stated above,
prior to September 4, 1996, the Company had a 51% interest in any operating
profits from the mine. The Company's 5l% interest in the mine's operating
profits from October 3, 1994 through December 31, 1994
13
<PAGE> 14
amounted to $1,023,537 and for the year ended December 31, 1995 amounted to
$763,166. Subsequent to September 4, 1996, the Company has had a 100% interest
in any operating profits from the mine. Giving effect to the Company's 51%
interest through September 4, 1996 and its 100% interest thereafter, the
Company received operating profits from the mine of $522,151 in 1996. The
following data sets forth 100% of the mine's production.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Ore milled (tons) 56,761 286,512 339,509
Gold (ounces) 9,712 43,204 52,917
Silver (ounces) 39,605 142,229 112,633
</TABLE>
The following table sets forth the costs of production per ounce of
gold during the periods set forth below at the El Bronce Mine. Cash costs
include mining, processing and direct administration costs, royalties and
exploration expenses.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash operating costs
per ounce $ 174.67 $ 305.68 $ 259.43
Smelting and refining 30.98 24.69 36.62
Depreciation,
depletion and
amortization
per ounce 20.40 20.51 41.01
--------- --------- --------
$ 226.05 $ 350.88 $ 337.06
========= ========= ========
</TABLE>
Prior to Coeur's assuming ownership, the mine was not investing
sufficient amounts to expand production and cash costs were in excess of $400
per ounce. During 1995, a significant effort was commenced to improve
infrastructure and develop additional mine production areas which are expected
to lead to higher mine output. As a result, operating costs initially increased
as planned; however, during 1996 cash costs declined.
INTEREST IN SILVER VALLEY RESOURCES CORPORATION - THE COEUR D'ALENE MINING
DISTRICT
Silver Valley Resources Corporation ("Silver Valley") owns the Coeur
and Galena Mines and the Caladay project situated in the Coeur d'Alene Mining
District of Idaho. During 1995, Silver Valley commenced an underground
development program designed to increase ore reserves at the Galena Mine.
During the year, 1,496 feet of drifting and 8,499 feet of diamond drilling and
recalculations resulted in the addition of 300,000 tons of ore containing 6.633
million ounces of silver to the
14
<PAGE> 15
ore reserves. 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.
During 1996, underground development and exploration activities
continued. At the Galena Mine, a total of 6,977 feet of drifts, raises, and
cross-cuts were developed, including 29,124 feet of core drilling. An
additional 285,000 tons of reserves were delineated, containing 21.2 ounces per
ton silver, 0.54% copper and 4.30% lead. The additional 6,040,000 silver
ounces were added predominately on the 4,900 to 5,200 levels. In June 1996,
production resumed at the Coeur Mine. It is expected that production at the
Coeur Mine will discontinue in late 1997 or early 1998 unless additional
exploration work adds to the remaining ore reserves; however, production will
resume at the Galena Mine in July 1997.
In late 1994, the Company, Callahan (a wholly-owned subsidiary of the
Company) and Asarco formed Silver Valley, a Delaware corporation, and effective
January 1, 1995, the Company, Callahan and Asarco transferred certain assets,
including their interests in the Coeur, Galena and Caladay mines, to Silver
Valley. Specifically, Asarco contributed Asarco's (i) ownership interest in
the Joint Venture Agreement, dated August 31, 1964, related to the Coeur Mine
property; (ii) interest in the lease, dated January 15, 1947, relating to the
Galena Mine property; (iii) ownership interest in the Osburn tailings pond;
(iv) 75% interest in the royalty deficit related to the Galena Mine property;
and (v) ownership interest in certain other assets located in the Coeur d'Alene
Mining District. Coeur and Callahan contributed Coeur's or Callahan's (i)
ownership and lease interest in the Coeur Mine property; (ii) ownership and
lease interest in the Galena Mine property; (iii) ownership interest in the
Caladay operating agreement; (iv) ownership interest in certain properties
surrounding the above properties; and (v) a 25% interest in the royalty deficit
related to the Galena Mine property.
The Board of Directors of Silver Valley consists of six directors,
three of whom, including the Chairman of the Board, are appointed by Asarco and
three of whom, including the President, are appointed by Coeur. Pursuant to a
Shareholders' Agreement between the parties, certain specified corporate action
requires a majority vote. If the voting results in a tie at any Board Meeting,
the Chairman of the Board of Silver Valley, who also is the Chairman of the
Board of Asarco, will decide the issue. The President of Coeur also is the
President of Silver Valley and serves on its Executive Committee. Certain
other officers of Silver Valley are officers of Coeur or Asarco, which
companies may provide management and other services to Silver Valley upon the
request of its Board of Directors. A summary of the properties owned by Silver
Valley is set forth below.
15
<PAGE> 16
GALENA MINE
The Galena Mine property consists of approximately 1,100 acres lying
immediately west of the City of Wallace, Shoshone County, Idaho adjoining the
Coeur Mine's eastern boundary. The property consists of 52 patented mining
claims and 25 unpatented mining claims. The Galena Mine is primarily an
underground silver-copper mine ,and is served by two vertical shafts.
On July 26, 1992, Asarco, which was the Galena Mine operator,
suspended operations at the Galena Mine due to then prevailing silver prices
($4.31 per ounce average for the month of July 1992) and placed the property on
a care and maintenance basis to conserve ore reserves. Silver Valley expects to
resume production at the Galena Mine in late 1997.
Based on the ore-reserve estimate dated January 1997, of Silver
Valley, proven and probable ore reserves at the Galena Mines total 1.628
million tons averaging 17.76 ounces per ton silver, 2.02% lead and 0.51%
copper. The Silver Valley reserve estimate is based on a minimum mining width
of 4 - 4.5 feet with minimum dilution at 0.5-1.0 along vein margins for most
silver-copper and silver-lead veins. Cutoff grade is based on the cost of
breaking and producing ore from a stope, but do not include development costs
and administrative overhead. The cutoff grade varies from area-to-area within
the mine due to changing silver-copper ratios of the ore.
The reserve estimate has also identified an additional 788,000 tons of
mineralized material which averages 8.43 ounces per ton silver and 0.15% copper
and 3.91% lead.
The following table sets forth information relating to total Galena
Mine production:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1991 1992
---------- ----------
(through
July)
<S> <C> <C>
Ore milled (tons) 182,836 91,617
Silver (ounces) 3,278,650 1,572,501
Copper (pounds) 1,993,649 1,064,085
Gold (ounces) 332 143
</TABLE>
The Company's previous ownership interest in the above production,
giving retroactive effect to Coeur's acquisition of Callahan on December 31,
1991, amounted to 50% through June 11, 1992, and 62.5% thereafter until such
ownership was transferred to Silver Valley effective January 1, 1995. Coeur
will have a 50% interest in any future operating profits from Galena Mine
operations.
16
<PAGE> 17
The total cost of production per ounce of silver (net of credit for
copper byproduct), including mining, processing, direct administrative costs
and exploration expenses, but not including financing costs, royalties and
smelter charges, amounted to $3.94 in 1991 and $4.23 in 1992 prior to the
temporary discontinuation of operations at the Galena Mine on July 26, 1992.
Such costs are not necessarily indicative of actual costs that will be incurred
in connection with future mining operations.
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. Commercial production began in 1976, and total
pre-production expenditures of approximately $20 million were recovered by
April 1979, at which time the Company commenced receiving revenues from its
non-operating joint venture interest in the mine. Asarco was the operator of
the Coeur Mine pursuant to a joint venture agreement with the Company, Callahan
and, prior to November 30, 1990, Hecla. Until November 30, 1990, the Company
owned 40% of the ores produced from the Coeur Mine and was obligated to pay 40%
of the costs. On November 30, 1990, the Company purchased Hecla's 5% interest
thereby increasing the Company's interest to 45%. Effective December 31, 1991,
Coeur increased its non-operating joint venture interest in the mine to 50% as
a result of Coeur's acquisition of Callahan, which had acquired a 5% interest
in the mine in March, 1968. Effective January 1, 1995, Coeur and Asarco
transferred their interests in the Coeur Mine to Silver Valley.
Asarco suspended operations at the Coeur Mine on April 3, 1991 due to
then prevailing silver prices ($3.90 per ounce average for April 1991) and
placed the property on a care and maintenance basis to conserve ore reserves.
Silver Valley resumed production activities at the Coeur Mine in June 1996.
The following table sets forth information, for the periods indicated,
relating to total Coeur Mine production:
<TABLE>
<CAPTION>
Year Ended Three Months Six Months
December 31, Ended March 31, Ended
1990 1991 December 31, 1996
--------- ------------ -----------------
<S> <C> <C> <C>
Ore milled (tons) 147,883 37,165 78,067
Silver (ounces) 2,113,341 379,856 1,666,534
Copper (pounds) 1,843,638 335,865 1,407,771
Gold (ounces) 480 80
</TABLE>
The Company's ownership interest in the above production, giving
retroactive effect to Coeur's acquisition of Callahan's 5% interest on
17
<PAGE> 18
December 31, 1991, amounted to 45% prior to November 30, 1990 and 50%
thereafter.
The following table sets forth the costs of production per ounce of
silver (net of credit for copper by product) at the Coeur Mine. Cash costs
include mining, processing, direct administration costs and exploration
expenses, but do not include financing costs, royalties and smelter charges.
<TABLE>
<CAPTION>
Three Months Six Months
Year Ended Ended Ended
December 31, 1990 March 31, 1991 December 31, 1996
----------------- -------------- -----------------
<S> <C> <C> <C>
Cash operating costs
per ounce $4.68 $5.38 $2.46
Depreciation, depletion
and amortization
per ounce $ $ $ .79
------ ------ ------
$4.68 $5.38 $3.25
====== ====== ======
</TABLE>
Based on a Silver Valley Resources ore reserve report dated January
1997, estimated proven and probable ore-reserves at the Coeur Mine total
285,000 tons averaging 16.27 ounces per ton silver and 0.71% copper. The ore
reserve estimate is based on a minimum mining width of 4.5 to 5.0 feet with a
minimum dilution of 1.0 foot along each margin of the vein. The reserve
estimate has also identified an additional 166,000 tons of mineralized material
which averages 14.42 ounce per ton silver and 0.66% copper.
CALADAY PROJECT
The Caladay Project adjoins the Galena Mine. Prior to its acquisition by the
Company, 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 the same geologic structures which exist at the Galena extend
into the Caladay below the level of the current Caladay workings. In addition,
the Caladay facilities may be used to benefit the Galena Mine operations.
KENSINGTON 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. 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,
18
<PAGE> 19
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. Performance by Coeur Alaska of its
obligations under the agreement is guaranteed by Coeur and performance of the
obligations of the Sellers under the agreement is guaranteed by Echo Bay.
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 Jualin diorite. The
gold-telluride-mineral calaverite is associated with the pyrite mineralization.
Based on an ore reserve endorsement dated February 1997 by Steffen, Robertson &
Kirsten, independent mining consultants, Kensington proven and probable ore
reserves as of January 1, 1997 are estimated at 13.9 million tons at a grade of
0.136 ounces per ton gold, containing 1.9 million gold ounces. The reserve
estimate is based on an average life-of-mine breakeven price of $410 per ounce
of gold. The reserve estimate reflects the effects of extractive dilution
during the mining process, but not losses during the recovery process. An
additional 9.050 million tons of mineralized material averaging 0.120 ounces
per ton gold has been identified. Not all Kensington ore zones have been fully
delineated at depth and several peripheral zones and veins remain to be
explored. Based upon metallurgical testing work, and with the conversion to
off-site processing of flotation concentrates in lieu of on-site cyanidation,
overall metallurgical recovery at Kensington improves to 93.84%, including 96%
flotation recovery, with 2.25% additional losses incurred during final
treatment off-site.
During 1996, activities at Kensington continued to be directed toward
completing the permitting process, project optimization studies and feasibility
study updates. During the year, the Company completed a series of project
enhancements, including off-site ore processing which eliminates on-site
cyanide use and the use of a dry tailings storage facility which eliminates the
need for a tailings dam and reduces the surface area disturbance as well as the
inclusion of paste backfill technology to allow improved extraction of
underground ore. As of December 31, 1996, the Company had invested a total of
$108.1 million (including capitalized interest of $20.8 million) in the
Kensington property.
19
<PAGE> 20
Further development of Kensington is contingent upon several factors,
including an initial gold price of $400 and the ability of the Company to
obtain valid permits. As of March 17, 1997, the market price of gold (London
final) was $351.40 per ounce.
The major permits necessary for the construction and operation of the
facility are U.S. Forest Service ("USFS") approval of the Plan of Operations,
Army Corps of Engineers Section 404 permit for dry tailings facility
construction, an EPA National Pollution Discharge Elimination System ("NPDES")
permit for the discharge of waste water and the City and Borough of Juneau
("CBJ")Large Mine Permit. In 1992, the CBJ Large Mine Permit was approved for
issuance and the USFS approved the Plan of Operations. However, to respond to
concerns expressed by the environmental community, the Company decided in July
1995 and 1996 to make limited changes to the project. This triggered the need
for a Supplemental Environmental Impact Statement ("SEIS") process and
amendment of the key permits.
The changes were made to optimize the project. They have the support
of several environmental groups in Alaska. The key changes made in July 1995
involve relocating the effluent discharge point from Lynn Canal to Sherman
Creek, at a point adjacent to the tailings impoundment, and construction of a
water treatment plant. In addition, the Company proposed to utilize diesel fuel
rather than liquid petroleum gas for power generation. The primary change in
May 1996 was from a tailings impoundment to a dry tailings storage system.
While these changes are not required by law, they are proposed in response to
comments raised by environmental organizations that they prefer fresh water
discharge instead of a marine discharge. As a result, a SEIS was prepared and
associated changes required to be made to the NPDES, the CBJ and USFS operating
plan. Numerous additional minor permits are required by government agencies
which authorize construction and operations. The required state air quality
permits were issued in January 1997.
In February 1997, the USFS issued the draft SEIS, which facilitated
the issuance of the EPA's draft NPDES Permit for the project. In addition, in
February 1997, the Army Corps of Engineers issued its public notice for a
section 404 permit. Following a 45-day comment period, the USFS, EPA and the
Army Corps of Engineers will evaluate any comments recieved with respect to the
draft permits and consider
20
<PAGE> 21
whether any changes therein are warranted. It is expected that the agencies
will then issue the permits in final form. The City and Borough of Juneau is
proceeding with its process to issue its Large Mine Permit.
As previously reported, in 1993 a group opposed to the Kensington
Project appealed the prior CBJ Large Mine Permit approval to the Alaska Supreme
Court. In November 1996, the parties settled the matter and the appeal was
dismissed.
On February 1, 1996, Coeur entered into an agreement with
representatives of a coalition of environmental groups, the Kensington
Coalition, represented in part by the Sierra Club Legal Defense Fund, which is
intended to eliminate potential legal challenge by the groups to the Kensington
project, and which remains to be ratified by various constituent
organizations. Representatives of the parties to that agreement are expected
to approve an amendment to the agreement reflecting the recent change from a
tailings impoundment to a dry tailings storage system. Under the terms of the
agreement, Coeur will provide for additional environmental input at the project
while maintaining its schedule for permitting the property, which permitting
process is currently in its final phase. Pursuant to the agreement, the
environmental groups will not appeal or litigate the permits required for the
project. The coalition of environmental groups are now in the process of
considering ratification of the agreement, which agreement is not binding until
ratified.
In September 1995, Coeur entered into an agreement with the EPA and
the Alaska Department of Environmental Conservation which provides for time
lines to be met by the parties for the permitting process and is expected to
facilitate issuance of final permits by approximately May 1997.
In February 1996, Coeur and a consortium of three Alaska native groups
announced that they reached an agreement which, if a decision is made to
commence construction of the mine, should assist in facilitating construction
and operation of the project, while meeting certain employment and training
goals for the Native groups working on the project. Under the terms of the
agreement between the Company and Goldbelt, Inc., Kake Tribal Corporation and
Klukwan, Inc., the native corporations have agreed to assist the Kensington
project by providing support during permitting and during mine construction and
operation, assisting in communications with local organizations and agencies
involved in mining development, as well as filling certain labor requirements
for the project. Coeur also agreed to develop and participate in training
programs for the jobs that will become available if and when mine construction
begins.
In September 1996, the Company made an agreement with Goldbelt, Inc.,
a Juneau Native corporation, the effect of which is to facilitate the
performance of the Company's obligation to provide 102 units of
21
<PAGE> 22
housing in Juneau. Pursuant to the agreement, Goldbelt will secure the
necessary land, arrange for and supervise construction and arrange non-recourse
financing for the development. In exchange, the Company is obligated to
provide third-party financial assurances with regard to any project loans and
is required to guarantee occupancy rates with regard to multi-family housing
and to guarantee minimum realized sale prices with regard to single family
houses developed for resale.
The Company owns 100% of 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 is patented claims.
INTERESTS IN GASGOYNE GOLD MINES NL
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. Sons of Gwalia Limited, an Australian
gold mining company, ("Sons of Gwalia") conducted a competing offer for
outstanding Gasgoyne shares in connection with which it acquired approximately
61% of Gasgoyne's outstanding shares. As a result of a selective reduction of
capital effected by Gasgoyne in February 1997 by purchasing its publicly held
shares from the shareholders other than Coeur and Sons of Gwalia, Coeur's
ownership interest increased to 36% of Gasgoyne's outstanding shares. It is
the intent of the Company and Sons of Gwalia to equalize their respective
ownership interests in Gasgoyne, thereby giving the Company a 50% interest in
that company or its underlying assets. It is expected that the equalization
will be completed in the second quarter of 1997 and that the additional cost to
Coeur will be approximately $18 million. This acquisition will be funded out
of the Company's existing cash resources.
Gasgoyne is principally engaged in the exploration, development and
ownership of gold properties located in Western Australia. Headquartered in
Perth, Australia, Gasgoyne's principal asset is its 50% interest in the Yilgarn
Star Gold Mine in Marvel Loch, located approximately 70 km east of Perth, which
started production in 1991. Gasgoyne also has 50% interests in the Southern
Star and Nevoria Gold Mines, which are also in the Marvel Loch region of
Australia, and a 45% interest in the Awak Mas Gold Project ("Awak Mas") in
Indonesia.
Coeur's cash payments to Gasgoyne shareholders in connection with the
above-referred exchange offer were financed by a loan facility with Rothschild
Australia Ltd., which provides for a maximum of $20 million of borrowings at an
annual interest rate equal to LIBOR plus 1.5%. Borrowings under that agreement
as of December 31, 1996 amounted to $18.9 million.
22
<PAGE> 23
During the second quarter ended June 30, 1996, Coeur began reporting
its share of Gasgoyne's net results of operations pursuant to the equity method
of accounting for investments. Such amounts are reflected as a component of
other income and interest and amounted to approximately $907,000 for the eight
months ended December 31, 1996.
The following table sets forth information relating to total Yilgarn
Star Gold Mine production during the period from May 1, 1996 to December 31,
1996. Coeur had a 17.5% interest in such production (i.e., 35% of one-half)
for the approximately seven months subsequent to the acquisition of its
interest in Gasgoyne in May 1996.
<TABLE>
<CAPTION>
May 1, 1996
December 31, 1996
-----------------
<S> <C>
Ore milled (tons) 587,582
Gold (ounces) 85,591
</TABLE>
The following table sets forth the costs of production per ounce of
gold during the year ended December 31, 1996. Cash costs include mining,
processing and direct administration costs, royalties and exploration expenses.
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-----------------
<S> <C>
Cash operating costs per ounce $ 214.92
Depreciation, depletion and
amortization per ounce 47.07
---------
$ 261.99
=========
</TABLE>
The Yilgarn Star Gold Mine operated as an open pit surface mine from
1991 through September 1995 and an underground mine commenced operations there
on a limited basis in October 1995.
Yilgarn Star reserves estimated by Gasgoyne Gold Mines, effective
December 30, 1996, are proven reserves of 1.757 million tons averaging 0.107
ounces per ton gold, or a total of 188,000 ounces of gold, and probable
reserves of 2.989 million tons averaging 0.173 ounces per ton or 517,000 ounces
of gold. An additional 2.297 million tons of mineralized material has been
identified at a grade of 0.23 ounces of gold per ton gold.
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
23
<PAGE> 24
Harman) and gold (London final) per ounce during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1993 1994 1995 1996
------------------- ------------------- ------------------- --------------------
High Low High Low High Low High Low
------- ------- ------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silver $ 5.37 $ 3.55 $ 5.76 $ 4.63 $ 6.01 $ 4.36 $ 5.79 $ 4.67
Gold $405.60 $326.10 $396.25 $369.65 $395.55 $372.40 $414.80 $367.40
</TABLE>
MARKETING
Coeur has historically sold its gold and silver from its mines both
pursuant to forward contracts and at spot prices prevailing at the time of sale
to various precious metals firms. Generally, its policy is to sell forward
not more than 50% of its estimated annual gold production; however, actual
forward-selling activities have not approached the 50% threshold. As of
December 31, 1996, the Company had entered into forward contracts to deliver a
total of 146,670 ounces of gold over a three-year period at an average price of
$421.51 per ounce. In January 1997, those forward contract positions were
closed, resulting in a net gain of approximately $5.3 million that will be
recorded in the first quarter of 1997.
EXPLORATORY 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, Guyana, Mexico and New Zealand. Exploration
expenses of approximately $3.9 million, $4.9 million and $7.7 million were
incurred by the Company in connection with exploration activities in 1994, 1995
and 1996, respectively.
GOVERNMENT REGULATION
General
The Company's mining and mineral processing operations and property
exploration and development 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
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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, 1995 and 1996, the Company expended
$2.9 million and $3.1 million, respectively, in connection with routine
environmental compliance activities at its operating properties and expects to
expend approximately $2.4 million for that purpose in 1997. The Company
expended approximately $12.1 million in connection with its ground movement
remediation activities at the Golden Cross Mine in 1996 and expects its
remediation costs at that mine will approximate $2.9 million in 1997. In
addition, as of December 31, 1996, the Company had expended approximately $10.6
million on environmental and permitting activities at the Kensington Property
and expects to spend approximately $3.1 million for that purpose in 1997. 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. The EPA is proceeding with development of a program to
regulate mining waste pursuant to its solid waste management authority under
the Resource Conservation and Recovery Act ("RCRA"). Certain processing and
other wastes, as well as high volume extraction and benefication wastes, are
expected to eventually be regulated by the EPA under RCRA. In this connection,
the EPA is studying regulations concerning how mine wastes 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 owner or operator of the land
since the time of its contamination 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 operations under state environmental
protection laws.
The Company's commitment to environmental responsibility has been
recognized in 14 awards received since 1987, which included the Dupont/Conoco
Environmental Leadership Award, awarded to the Company
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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 1996, the Company's Vice President
of Environmental and Governmental Affairs, were awarded the American Institute
of Mining, Metallurgical and Petroleum Engineers' Environmental Conservation
Distinguished Service Award. The receipt of such awards does not relieve the
Company of its obligations to comply with all applicable environmental laws.
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 parties, including the
Company, asserting claims under CERCLA and under the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene river basin
in northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
Pending Mining Legislation
Legislation is expected to be proposed in 1997 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 considered possible that the Mining Act
will be amended or be replaced by stricter legislation in the future. It is
expected that the legislation will propose strict new environmental standards
and conditions, additional reclamation requirements and extensive new
procedural steps which would be likely to result in delays in permitting. It is
also expected that the proposed legislation may include a royalty of 5% to 8%
on the value of minerals mined on public lands, payable to the U.S. government.
Coeur believes that if and when any royalty is imposed, it will not be a gross
royalty and that it is not likely that such legislation will be adopted in
1997. A significant portion of Coeur's U.S. mining properties are on public
lands. Whether changes will be enacted or the extent of any changes is not
presently known and the potential impact on the Company's United States
activities is difficult to predict.
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Foreign Government Regulations
The mining properties of the Company that are located in New Zealand
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.
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 property with unconditional power of disposition.
In Chile, operations are conducted upon mineral concessions granted
by the national government. For exploitation concessions (somewhat similar to a
U.S. patented claim), to maintain the concession, an annual tax is payable to
the government before March 31 of each year in the approximate amount of $1.14
per hectare. For exploration concessions, to maintain the right, the annual tax
is approximately $.30 per hectare. An exploration concession is valid for a
three year period. It may be renewed for new periods unless a third party
claims the right to explore upon the property, in which event the exploration
concession must be converted to an exploitation concession in order to maintain
the rights to the concession. It is anticipated that the total tax to be paid
before March 31, 1998 for El Bronce is $61,000, for Fachinal $140,000; and for
all other property in Chile $128,000.
In New Zealand, prospecting licenses and mining licenses are issued
by a national government agency. To maintain them the holder must comply with
the detailed provisions of the licenses, which include provisions for work
programs, health and safety, protection of the environment, reclamation,
liability insurance and performance bonds. An annual fee is required to be paid
for the prospecting and mining licenses associated with Golden Cross which, for
the year 1998, is anticipated to be approximately $26,000.
EMPLOYEES
At March 1, 1997, the Company employed a total of 1,217 full-time
employees, of which 43 are located at the Company's executive offices in Coeur
d'Alene, Idaho, 286 are employed at the Rochester Mine, 165 are employed at the
Golden Cross Mine in New Zealand, 704 are employed at the Fachinal and El
Bronce Mines in Chile, and 19 are employed at the Kensington property in
Alaska. The Company maintains labor agreements under country statutes in New
Zealand at the Golden Cross Mine and in Chile at the Fachinal and El Bronce
Mines. The Fachinal and El Bronce Mine labor agreements provide a base wage
with bi-annual cost of living adjustments but no annual escalator, and have
provisions for terms and conditions of work including vacations, holidays,
education, and in the case of the Fachinal Mine, housing. The agreements also
provide for health and pension benefits at the minimum country-mandated levels.
The Fachinal Mine agreement also provides for hours of work and shifts to
accommodate remote living conditions and provides a production bonus equal to
35% of base pay when production exceeds 1,500 tons per day. The agreements at
the El Bronce and Fachinal Mines expire in 1998 and 1999, respectively. In the
opinion of the Company, its labor relations have been satisfactory. The
employees of Silver Valley Resources and Gasgoyne are employees of those
companies.
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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 may 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.
The Company's currently operating mines are the Rochester Mine in
Nevada, which it wholly owns and operates; the Golden Cross Mine in New
Zealand, in which the Company has an 80% operating interest and which the
Company plans to continue to operate through at least the end of 1997; the El
Bronce Mine, a Chilean gold mine of which the Company acquired operating
control in October 1994 and 100% ownership in September 1996; and the Fachinal
Mine, a Chilean gold mine wholly-owned by the Company at which initial
production commenced in late October 1995 and which commenced commercial
production in January 1997.
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The Company also has significant interests in other companies that
operate gold and silver mines. The Company owns 50% of Silver Valley, which
owns and operates the Coeur Mine (where operations resumed in June 1996 and are
expected to continue until late 1997 or early 1998) and the Galena Mine (where
operations are expected to resume in July 1997) in the Coeur d'Alene Mining
District of Idaho. In May 1996, the Company acquired 35% of Gasgoyne, which
owns the Yilgarn Star Gold Mine in Australia.
The Company's total production in 1996 exceeded 214,000 ounces of gold
and 9.5 million ounces of silver, which was the highest in the Company's
history. Coeur estimates that 1997 gold and silver production will approximate
285,000 ounces and 9.8 million ounces, respectively. Total estimated reserves
at December 31, 1996 amounted to approximately 3.4 million ounces of gold and
109.0 million ounces of silver, compared to estimated gold and silver reserves
at December 31, 1995 of approximately 3.5 million ounces and 124.0 million
ounces, respectively.
A production decision at the Kensington property, a wholly-owned
developmental gold property in Alaska, is subject to a market price of gold of
at least $400 per ounce and the receipt of certain required permits. The market
price of gold (London final) on March 17, 1997 was $351.40 per ounce. The
Company is unable to control the timing of the issuance of the remaining
required permits, which are expected to be issued during the second quarter of
1997.
The Company's business plan is to continue to acquire mining
properties and/or businesses that are operational or expected to become
operational in the near future so that they can reasonably be expected to
contribute to the Company's near-term cash flow from operations and expand the
Company's gold and/or silver production.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Sales and Gross Profits
Sales of concentrates and dore' in 1996 increased by $3,492,000, or
4%, over 1995. The increase is primarily attributable to increased gold
production at the Company's Rochester Mine and increased silver production
attributable to Silver Valley Resources. Silver and gold prices averaged $5.18
and $387.70 per ounce, respectively, in 1996 compared to $5.19 and $384.16 per
ounce, respectively, in 1995. During 1996, the Company produced 9,520,009
ounces of silver and 214,130 ounces of gold compared to 7,175,394 ounces of
silver and 167,985 ounces of gold in 1995.
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The cost of mine operations in 1996 increased by $11,073,000, or 15%,
over 1995. The increase is primarily due to the startup, in the second quarter
of 1996, of operations at Silver Valley's Coeur Mine and higher operating costs
at the Golden Cross Mine resulting from deep-seated ground movement under the
tailings dam. Gross profit from mine operations decreased by $7,581,000, or
45%, compared with 1995. Mine operations gross profit as a percent of sales
decreased to 10% in 1996 compared to 19% in 1995. The gross profit decrease
was primarily attributable to a decrease in gold production from the Company's
Golden Cross Mine, start-up costs at Silver Valley's Coeur Mine and higher
operating costs at the Golden Cross Mine during 1996.
The cash operating costs of production per ounce of gold at the Golden
Cross Mine amounted to $365.79 per ounce in 1996, compared to $228.16 per ounce
during 1995. The increase was primarily attributable to the land slide issue
first identified by the Company in late 1995. As a result, the Company was
unable to complete a planned expansion of the existing facilities which would
have resulted in lower unit operating costs. The cash operating costs per ounce
of silver on a silver equivalent basis at the Rochester Mine amounted to $3.64
per ounce in 1996, compared to $3.71 per ounce in 1995. Cash operating costs at
the El Bronce Mine averaged $259.43 per ounce of gold in 1996 compared with
$305.68 during its first full year of operation in 1995. Cash operating costs
at Silver Valley amounted to $2.46 per silver ounce produced subsequent to its
startup in June 1996.
Other Income
Interest and other income in 1996 increased by $3,655,000, or 38%,
compared with 1995. The increase is primarily due to (i) an increase in the
level of the Company's cash and securities portfolio in 1996 primarily
resulting from the public sale of $150.4 million of Mandatory Adjustable
Redeemable Convertible Securities ("MARCS") in March and April 1996, and a gain
of $1,300,000 arising from the sale by the Company of common shares of Orion
Resources, NL in the third quarter of 1996, (ii) a gain of $1,400,000 from the
sale of other fixed assets in the fourth quarter of 1996, and (iii) the
Company's $907,487 share of income resulting from its interest in the
operations of Gasgoyne Gold Mines in 1996.
Expenses and Writedown of Mining Properties
Total expenses, including writedown of mining properties, in 1996
increased by $50,770,000 over 1995. The increase is primarily due to writedowns
of mineral properties of $54,415,000 related to a $53,245,000 writedown of the
Company's interest in the Golden Cross Mine and nearby Waihi East property in
New Zealand and a $1,170,000 writedown of the Company's interest in the Faride
Mine in Chile. The impact of the increase in expenses due to the writedowns is
partially offset by decreases in idle facilities of $1,481,000 and interest
expense of $6,111,000.
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The $53,245,000 charge related to the Company's investment in the
Golden Cross Mine and the nearby Waihi East property, which included accrual of
the estimated future closure and remediation costs and a write-down of the
entire carrying value of the Company's 80% interest in the property, was
announced in July 1996 following the determination by the Company, following
consultation with its independent accountants, that generally accepted
accounting principles called for an asset writedown. The writedown was
necessitated by the Company's discovery in late 1995 of deep-seated ground
movement, actuated by heavy rainfall events not caused by the mine's
operations, under the mine's tailings impoundment. Following investigative
activities and the formulation of remedial measures, the Company's
determination as of June 1996 was the amount required to implement the planned
remedial measures could approximate $11 million. In addition, it had become
evident by that time that (i) production could be expected to significantly
decrease as a result of the Company's inability to implement a previously
planned mill optimization because the dam had not been stabilized, and,
consequently, it was believed the government would not likely consent to a
raising of the tailings dam crest to obtain necessary tailings storage capacity
to accommodate the increased mill throughput, and (ii) capital and operating
costs could be expected to significantly increase due to the production
shortfall and ground movement remediation program costs.
In October 1996, New Zealand regulatory authorities approved the
Company's application to permit the raising of the Golden Cross Mine tailings
impoundment crest and the Company believes it will be able to continue to
operate the mine through at least the end of 1997. The Company also believes
that the continued operations of the mine will have a beneficial impact on the
end-of-mine-life closure and reclamation requirements.
Net Loss From Continuing Operations
As a result of the above, the Company's loss from continuing
operations before income taxes increased to $55,754,000 in 1996 compared to a
loss from continuing operations of $1,058,000 in 1995. The benefit from income
taxes amounted to $1,184,000 in 1996, compared to a provision of $200,000 in
1995. As a result, the Company reported a net loss from continuing operations
of $54,570,000, or $2.54 per share, in 1996, compared to a net loss from
continuing operations of $1,258,000, or $.08 per share, in 1995.
Net Income (Loss)
As a result of the above, the Company reported a net loss of
$54,570,000 ($62,967,000 attributable to Common Shareholders), or $2.54 per
share ($2.93 per share attributable to Common Shareholders), in 1996, compared
to a net income of $1,154,000, or $.07 per share, in 1995.
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Sales and Gross Profits
Sales of concentrates and dore' in 1995 increased by $9,633,000, or
12%, over 1994. The increase is primarily attributable to an increase in gold
and silver production. Silver and gold prices averaged $5.19 and $384.16 per
ounce, respectively, in 1995 compared to $5.28 and $384.01 per ounce,
respectively, in 1994. During 1995, the Company produced 7,175,394 ounces of
silver and 167,985 ounces of gold compared to 6,180,215 ounces of silver and
129,239 ounces of gold in 1994.
The cost of mine operations in 1995 increased by $4,408,000, or 7%,
over 1994. Gross profit from mine operations increased by $5,225,000, or 44%,
over 1994. Mine operations gross profit as a percent of sales increased to 19%
in 1995 compared to 15% in 1994. The gross profit increase was primarily
attributable to the decreases in silver and gold production costs in 1995 and
increased silver and gold production.
The cash operating costs of production per ounce of gold at the Golden
Cross Mine amounted to $228.16 per ounce in 1995, compared to $273.84 per ounce
during 1994. The decrease was primarily attributable to (i) the presence in
1994 of a harder grinding ore in the open pit requiring more milling and
chemicals in the processing and lower grade of ore being provided from the
underground portion of the mine; and (ii) the availability of additional
underground production, a better blending of open-pit and underground ore, and
the mining of less waste in the open pit in 1995. The cash operating costs per
ounce of silver on a silver equivalent basis at the Rochester Mine amounted to
$3.71 per ounce in 1995, compared to $3.57 per ounce in 1994. Cash operating
costs at the El Bronce Mine averaged $305.68 per ounce of gold during its first
full year of operation.
Other Income
Interest and other income in 1995 decreased by $3,083,000, or 24%,
compared with 1994. The decrease is primarily due to (i) a decrease in the
level of the Company's cash and securities portfolio in 1995 and a gain of
$2,700,000 arising from the sale by the Company of common shares of
International Curator in the third quarter of 1994, and (ii) a gain of
approximately $4,400,000 from the sale of gold and silver purchased in the open
market which was then delivered pursuant to fixed price forward contracts
during 1995.
Expenses
Total expenses in 1995 decreased by $1,801,000, or 6%, from 1994. The
decrease is primarily due to a significant decrease in interest expense of
$1,653,000 in 1995 compared to 1994. In addition, a non-recurring write-off of
$800,000 was recorded in 1994 as a result of an
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adverse judgment in a lawsuit described below relating to four promissory
notes made by a predecessor of the Company.
Net Loss From Continuing Operations
As a result of the above, the Company's loss from continuing
operations before income taxes decreased to $1,058,000 in 1995 compared to a
loss from continuing operations of $5,001,000 in 1994. The provision for
income taxes amounted to $200,000 in 1995, compared to a benefit of $265,000 in
1994. As a result, the Company reported a net loss from continuing operations
of $1,258,000, or $ .08 per share, in 1995, compared to a net loss from
continuing operations of $4,736,000, or $.31 per share, in 1994.
Income From Discontinued Operations
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
$10,000,000, of which approximately $4,000,000 was paid at the time of closing
and the balance was payable through five years. The results of operations and
the gain on sale of Flexaust manufacturing segment are presented as
"Discontinued Operations." The Company reports income from discontinued
operations of $2,412,000, or $.15 per share, compared with $793,000, or $.05
per share in 1994.
Net Income (Loss)
As a result of the above, the Company reported net income of
$1,154,000, or $.07 per share, in 1995, compared to a net loss of $3,943,000,
or $.26 per share, in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at December 31, 1996 was $179,626,000
compared to $105,597,000 at December 31, 1995. The ratio of current assets to
current liabilities was 6.69 to one at December 31, 1996 compared to 6.02 to
one at December 31, 1995.
Net cash provided by operating activities in 1996 was $7,784,000
compared with $20,915,000 net cash provided by operating activities in 1995.
The most important non-cash items offsetting the $54,570,000 net loss from
continuing operations in 1996 were (i) the $54,415,000 write down of the
Company's interest in the Golden Cross Mine and Waihi East Property in New
Zealand and (ii) $13,381,000 depreciation, depletion and amortization. A
total of $131,297,000 of cash was used in investing activities in 1996 compared
to $37,852,000 in 1995. The most important factors accounting for the increase
in cash used in investing activities in 1996 were (i) $148,592,000 of purchases
of short-term investments, offset in part by $92,167,000 sales of short-term
investments and marketable securities, and (ii) $44,432,000 expenditures on
operational mining properties. The Company's financing activities provided
$150,483,000 of cash during 1996 compared to $18,274,000 in 1995. The
increase in net cash provided by financing activities in 1996 was primarily
attributable to the $144,626,000 proceeds received by the Company in March 1996
from the public sale of MARCS. As a result of the above, the Company's net
cash increase in 1996 was $26,970,000 compared with a net cash increase of
$1,337,000 in 1995.
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Acquisition of Remaining El Bronce Interest
In July 1994, the Company had made an agreement pursuant to which the
Company acquired operating control, a 51% interest in operating profits, and an
option to acquire a 51% equity interest in the producing El Bronce Mine. On
September 4, 1996, the Company exercised its option to acquire that 51% equity
interest and also purchased the remaining 49% of the shares of El Bronce,
bringing its total ownership interest to 100%. The terms of the purchase
included the payment of $10.5 million in cash, prepayment of the remainder of
the option price in the approximate amount of $3.8 million and a net smelter
return royalty of 3% to be paid to the seller quarterly, commencing on January
1, 1997. The acquisition has been accounted for as a purchase with the excess
of the purchase price over the net book value of the mine ($4.9 million) being
allocated to mining properties.
Public Offering of MARCS
In March 1996, the Company conducted a public offering of $150.4
million of MARCS. The Company sold a total of 7,077,833 shares of MARCS at a
public offering price of $21.25 per share and received net proceeds of $144.6
million. Each share of MARCS is mandatorily convertible four years after
issuance into 1.111 shares of Common Stock of the Company, subject to
adjustment in certain events, unless earlier converted 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.
Interest in Gasgoyne
In May 1996, subject to its tender offer, Coeur issued a total of
1,419,832 shares of Common Stock and paid a total of A$19.5 million (or US$15.4
million based on then prevailing currency exchange rates) to acquire a total of
20,293,691 Gasgoyne shares constituting approximately 35% of Gasgoyne's then
outstanding shares. Coeur's purchase offer for outstanding Gasgoyne shares was
conducted on the basis of seven Coeur shares of Common Stock plus A$96 in
exchange for each 100 Gasgoyne shares. Coeur's cash payments to Gasgoyne
shareholders were financed by a loan facility with Rothschild Australia
Limited, which provides for a maximum of US$20 million of borrowings at an
annual interest rate equal to LIBOR plus 1.5%. In February 1997, Gasgoyne
effected a selective reduction of capital by repurchasing its publicly held
shares from those shareholders other than Coeur and Sons of Gwalia, as a result
of which Coeur's ownership interest increased to 36% of Gasgoyne's outstanding
shares. It is the intent of the Company and Sons of Gwalia to equalize their
respective ownership interests in Gasgoyne, thereby giving the Company a 50%
interest in that company or its underlying assets. It is expected that the
equalization will be completed in the second quarter of 1997 and that the total
cost to
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Coeur will be approximately $18 million. This acquisition will be funded out
of the Company's existing cash resources.
Purchase and Sale of Interest in Orion
On January 24, 1996, at a cost of $10.7 million, Coeur acquired from
Homestake Mining Company ("Homestake") 5.5 million shares of and an option to
acquire an additional 5.0 million shares of Orion held by Homestake. Earlier in
January 1995 and in the last quarter of 1994, Coeur had acquired 3.3 million
outstanding Orion shares for a total cost of $3.8 million on the open market.
On March 26, 1996, Coeur exercised the options previously acquired for a
purchase price of $3.8 million. As a result of the above acquisitions of Orion
shares, which were funded by Coeur's own cash resources, Coeur then held 19.2%
of Orion's outstanding shares. On September 30, 1996, the Company sold its
shares of Orion and recorded a gain of $1.3 million on the transaction.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho (Civ. No. 96-0122-N-EJL) 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 are identified in the
complaint. However, in July 1996, the government indicated damages may
approximate $982 million. The United States asserts that the defendants are
jointly and severally liable for costs and expenses incurred by the U.S.
government in 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
and at an appropriate stage will seek to be dismissed from this action. At
this initial stage of the proceedings it is not possible to predict its
ultimate outcome.
Restructuring of Fachinal Mine Financing
Effective December 23, 1996, the Company restructured the terms of
its $24 million Loan Agreement with a bank syndicate lead by N.M. Rothschild &
Sons, Ltd. ("Rothschild"), the borrowings under which were used by the Company
to finance a portion of the $40.8 million cost of constructing the Fachinal
mining facilities in Chile, which construction was completed in October 1995.
The earlier limited recourse project financing agreement, dated April 19, 1995,
required
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Coeur to guarantee repayment of the borrowing until the project met certain
production and financial covenants, after which the project alone would have
been liable for repayment of the loan. The restructured borrowing is a
general corporate obligation, matures on September 30, 2001 and is repayable in
16 equal quarterly installments commencing on September 1, 1997. Interest is
calculated on a floating rate basis equal to LIBOR plus 1.5% per year.
Environmental Compliance Expenditures
For the years ended December 31, 1996, 1995 and 1994, the Company
expended $3.1 million, $2.9 million, and $3.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties. Such activities at the Rochester, Golden Cross, El Bronce and
Fachinal Mines include monitoring, bonding, earth moving, water treatment and
revegetation activities. In addition, at December 31, 1996, the Company had
expended a total of $10.6 million on environmental and permitting activities at
the Kensington Property, which expenditures have been capitalized as part of
its development cost.
The Company also expended $12.0 million in 1996 in connection with its
ground movement remediation activities at the Golden Cross Mine in New Zealand.
Furthermore, the Company estimates that its remediation costs at that mine in
1997 will approximate $2.9 million.
The Company estimates that environmental compliance expenditures at
its Kensington developmental property during 1997 will approximate $3.1 million
related to activities associated with obtaining permits required for
construction. 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.
Exploration and Development Expenditures
During 1996, the Company expended $7.5 million (excluding capitalized
interest) for developmental costs at the Kensington property, $3.4 million at
the Rochester Mine, $.3 million (excluding capitalized interest) for the
development of the Fachinal Mine, $17.9 million for investment at the El Bronce
Mine and $2.9 million to continue its planned exploration and development
programs. During 1997, the Company presently plans to expend $7.8 million
(excluding capitalized interest) to bring the Kensington property to a
construction decision, $2.4 million for the Fachinal Mine, and $3.2 million for
developmental and exploration activities at the El Bronce Mine. It is expected
that a decision will be made during the second quarter of 1997 as to whether to
place the Kensington Property into commercial production. If the Company were
to decide to construct a Kensington mining facility, the Company estimates that
it would be required to expend approximately $197 million over an
eighteen-month
-36-
<PAGE> 37
period in connection with the construction of the Kensington mining facilities.
The cost of such construction would be financed out of the proceeds of the
public offering of the MARCS as well as project financing, working capital
and/or cash flow sources.
Realization of Net Operating Loss Carryforwards
The Company has reviewed its net deferred tax asset, together with net
operating loss carryforwards, and has determined not to currently recognize
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, the current level of gold and silver
prices and the ability of the Company to use accelerated depletion and
amortization methods in the determination of taxable income.
-37-
<PAGE> 38
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
(1) The following consolidated financial statements of Coeur
d'Alene Mines Corporation and subsidiaries are included in
Item 8.
Consolidated Balance Sheets-December 31, 1995 and 1996.
Consolidated Statements of Operations--Years Ended December
31, 1994, 1995 and 1996.
Consolidated Statements of Changes in Shareholders'
Equity--Years Ended December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows--Years Ended December
31, 1994, 1995 and 1996.
Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K: On November 12, 1996, the Company filed
Amendment No. 1 to its Form 8-K filed on November 5, 1996 reporting
the purchase of the El Bronce Mine.
(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) of the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1989.)
-38-
<PAGE> 39
4 - 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).)
10(c) - 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(d) - 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(e) - 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(f) - Agreement, dated January 1, 1994, between
Coeur-Rochester, Inc. and Johnson Matthey Inc.
(Incorporated herein by reference to Exhibit 10(m) of
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
10(g) - 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(h) - Master Equipment Lease No. 099-03566-01, dated as of
December 28, 1988, between Idaho First National Bank
and the Registrant. (Incorporated herein by
reference to Exhibit 10(w) of the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1988.)
-------------
* Management contract or compensatory plan
-39-
<PAGE> 40
10(i) - 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(j) - Rights Agreement, dated as of May 24, 1989, between
the Registrant and First Interstate Bank of Oregon,
N.A., as Rights Agent. (Incorporated herein by
reference to Exhibit 2 to the Registrant's Form 8-A
relating to the registration of the Rights on the
American and Spokane Stock Exchanges.)
10(k) - Agreement and Plan of Merger, dated as of September
16, 1991, by and among the Registrant, CMC
Acquisition Corporation and Callahan Mining
Corporation. (Incorporated herein by reference to
Exhibit A to the Prospectus, dated November 22, 1991,
contained in the Registrant's Registration Statement
on Form S-4 (File No. 33-44096).
10(l) - Agreement, dated June 11, 1992, between Callahan
Mining Corporation and Hecla Mining Company
(Incorporated herein by reference to Exhibit 10(z) to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992.)
10(m) - Stock Purchase Agreement, dated as of April 30, 1993,
among Coeur New Zealand, Inc., the Registrant, Cyprus
gold New Zealand Limited, Cyprus Exploration and
Development Corporation and Cyprus Minerals Company.
(Incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8K dated April
30, 1993.)
10(n) - 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.) *
-------------
* Management contract or compensatory plan
-40-
<PAGE> 41
10(o) - 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(p) - 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.)
10(q) - 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(r) - 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(s) - 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(t) - 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(u) - Agreement, dated January 1, 1994, between Coeur Gold
New Zealand Limited and Johnson Matthey (Aust.) Ltd.
(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.)
-------------
* Management contract or compensatory plan
-41-
<PAGE> 42
10(v) - 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(w) - 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(x) - Form of letter extending the terms of the Severance
Agreements between the Registrant and James Sabala,
Tom Angelos, Michael Clark, Al Wilder, William Boyd,
Robert Martinez, Kevin Packard, 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.)*
10(y) - 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(z) - 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(aa) - Asset Contribution Agreement, effective as of January
1, 1995, among the Registrant, ASARCO Incorporated,
Callahan Mining Company and Silver Valley Resource
Corporation. (Incorporated herein by reference to
Exhibit 10(ff) to the Company's Annual Report of Form
10-K for the year ended December 31, 1995.)
10(bb) - Asset and Stock Purchase Agreement, dates as of April
28, 1995, among Schauemburg International, Inc., The
Flexaust Company, Inc. and Callahan Mining
Corporation. (Incorporated herein by reference to
Exhibit 2 to the Registrant's Current Report on Form
8-K dated May 2, 1995.)
------------
* Management contract or compensatory plan
-42-
<PAGE> 43
10(cc) - 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(dd) - 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(ee) - Form of Standby Agreement, dated November 15, 1995,
between the Registrant and UBS Securities Inc.
(Incorporated herein by reference to Exhibit 1 to the
Registrant's Registration Statement on Form S-3 (File
No. 33-64255).)
10(ff) - 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(gg) - 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(hh) - 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).)
10(ii) - 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).)
-43-
<PAGE> 44
10(jj) - 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(kk) - 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).
21 - List of subsidiaries of the Registrant.
23 - Consent of Ernst & Young LLP.
27 - Financial Data Schedule
(d) Independent auditors' reports are included herein as follows:
Coeur d'Alene Mines Corporation
Report of Ernst & Young LLP at December 31, 1995, and 1996, and for
each of the three years in the period ended December 31, 1996.
-44-
<PAGE> 45
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
<PAGE> 46
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Shareholders and Board of Directors
Coeur d'Alene Mines Corporation
We have audited the accompanying consolidated balance sheets of Coeur d'Alene
Mines Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. 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 consolidated 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, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Seattle, Washington ERNST & YOUNG LLP
February 5, 1997
except for Note C, as to which the date is
February 18, 1998
F-1
<PAGE> 47
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- ---------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 43,455 $ 16,485
Funds held in escrow 2,271
Short-term investments 124,172 63,077
Receivables 11,573 13,809
Inventories 31,992 30,981
-------- ---------
TOTAL CURRENT ASSETS 211,192 126,623
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 118,993 118,083
Less accumulated depreciation 50,743 34,152
--------- ---------
68,250 83,931
MINING PROPERTIES
Operational mining properties 171,517 150,656
Less accumulated depletion 38,264 38,529
--------- ---------
133,253 112,127
Developmental properties 110,985 108,820
--------- ---------
244,238 220,947
OTHER ASSETS
Investment in unconsolidated affiliate 48,231
Notes receivable 4,000 5,000
Debt issuance costs, net of accumulated
amortization 4,081 4,702
Marketable equity securities and other 338 4,443
---------- ----------
56,650 14,145
---------- ----------
$580,330 $ 445,646
========== ==========
</TABLE>
F-2
<PAGE> 48
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- ---------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,327 $ 5,743
Accrued liabilities 4,976 3,525
Accrued interest payable 4,968 4,526
Accrued salaries and wages 5,242 5,039
Bank loans 8,021
Current portion of remediation costs 3,500
Current portion of obligations under
capital leases 532 2,193
--------- ---------
TOTAL CURRENT LIABILITIES 31,566 21,026
LONG-TERM LIABILITIES
6% subordinated convertible debentures 49,840 50,000
6 3/8% subordinated convertible debentures 100,000 100,000
Long-term borrowings 39,900 24,000
Obligations under capital leases 213
Other long-term liabilities 12,613 9,386
Deferred income taxes 1,402
--------- ---------
TOTAL LONG-TERM LIABILITIES 202,566 184,788
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 10,000,000 shares, 7,077,833
issued and outstanding 7,078
Common Stock, par value $1.00 per share-
authorized 60,000,000 shares, issued 22,950,182
and 21,524,093 shares (including 1,059,211
shares held in treasury) 22,950 21,524
Capital surplus 400,187 247,100
Accumulated deficit (70,459) (15,889)
Unrealized gains (losses) on short-term
investments (352) 361
Repurchased and nonvested shares (13,206) (13,264)
--------- ---------
346,198 239,832
--------- ---------
$580,330 $445,646
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 49
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
INCOME
Sale of concentrates and dore' $ 92,731 $ 89,239 $ 79,606
Less cost of mine operations 83,283 72,210 67,802
--------- --------- ---------
GROSS PROFITS 9,448 17,029 11,804
OTHER INCOME--interest, dividends,
and other 13,159 9,504 12,587
--------- --------- ---------
TOTAL INCOME 22,607 26,533 24,391
EXPENSES
Administration 3,716 3,677 3,825
Accounting and legal 1,753 1,626 2,473
General corporate 7,147 6,207 6,258
Mining exploration 7,695 4,854 3,878
Idle facilities 1,481 1,559
Interest 3,635 9,746 11,399
Writedown of mining properties 54,415
--------- --------- ---------
TOTAL EXPENSES 78,361 27,591 29,392
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (55,754) (1,058) (5,001)
Provision (benefit) for income taxes (1,184) 200 (265)
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS (54,570) (1,258) (4,736)
Income from discontinued operations
(net of taxes) 2,412 793
--------- --------- ---------
NET INCOME (LOSS) $(54,570) $ 1,154 $ (3,943)
========= ========= =========
NET INCOME(LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(62,967) $ 1,154 $ (3,943)
========= ========= =========
EARNINGS PER SHARE DATA
Weighted average number of shares
of Common Stock and equivalents
used in calculation (in thousands) 21,469 15,888 15,388
========= ========= =========
Net loss from continuing operations $ (2.54) $ (.08) $ (.31)
Income from discontinued operations .15 .05
--------- --------- ---------
Net income (loss) per share $ (2.54) $ .07 $ (.26)
========= ========= =========
Net income (loss) attributable to
Common Shareholders:
Net loss from continuing operations $ (2.93) $ (.08) $ (.31)
Income from discontinued operations .15 .05
--------- --------- ---------
Net income (loss) per share $ (2.93) $ .07 $ (.26)
========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $ .15 $ .15 $ .15
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 50
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For Years Ended December 31, 1996, 1995, and 1994
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock
(MARCS) Common Stock
---------------------- -----------------------
Par Par Capital Accumulated
Shares Value Shares Value Surplus Deficit
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 16,394 $16,394 $181,038 $(13,100)
Net Loss (3,943)
Cash Dividends (2,303)
Issuance of Shares Under
Stock Compensation Plan
(net) 19 19 366
Unrealized Losses on
Marketable Securities
Other 220 220 3,780
-------- -------- -------- --------- --------- ---------
Balance at December 31, 1994 16,633 16,633 182,881 (17,043)
Net Income 1,154
Cash Dividends (2,339)
Issuance of Shares Under
Stock Compensation Plan
(net) 24 24 384
Unrealized Gains on
Marketable Securities
Conversion of 7% Debentures 4,867 4,867 66,174
-------- -------- -------- --------- --------- ---------
Balance at December 31, 1995 21,524 21,524 247,100 (15,889)
Net Loss (54,570)
Issuance of MARCS 7,078 7,078 137,548
Cash Dividends (11,028)
Issuance of Shares Under
Stock Compensation Plan
(net)
Shares Issued on
Acquisition of 1,420 1,420 26,467
Unconsolidated
Affiliate
Unrealized Loss on
Marketable Securities
Conversion of 6% Debentures 6 6 150
Other (50)
-------- -------- -------- --------- --------- ---------
7,078 $ 7,078 22,950 $22,950 $400,187 $(70,459)
======== ======== ======== ========= ========= =========
<CAPTION>
Unrealized
Gains Repurchased and
(Losses) on Nonvested Shares
Short-Term ----------------------
Investments Shares Amount Total
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 (1,058) $(13,483) $170,849
Net Loss (3,943)
Cash Dividends (2,303)
Issuance of Shares Under
Stock Compensation Plan
(net) 125 510
Unrealized Losses on
Marketable Securities $(8,820) (8,820)
Other (1) 4,000
--------- -------- --------- ---------
Balance at December 31, 1994 (8,820) (1,059) (13,358) 160,293
Net Income 1,154
Cash Dividends (2,339)
Issuance of Shares Under
Stock Compensation Plan
(net) 94 502
Unrealized Gains on
Marketable Securities 9,181 9,181
Conversion of 7% Debentures 71,041
--------- -------- --------- ---------
Balance at December 31, 1995 361 (1,059) (13,264) 239,832
Net Loss (54,570)
Issuance of MARCS 144,626
Cash Dividends (11,028)
Issuance of Shares Under
Stock Compensation Plan
(net) 58 58
Shares Issued on
Acquisition of 27,887
Unconsolidated
Affiliate
Unrealized Loss on
Marketable Securities (713) (713)
Conversion of 6% Debentures 156
Other (50)
--------- -------- --------- ---------
$ (352) (1,059) $(13,206) $346,198
========= ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 51
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing
operations $(54,570) $ (1,258) $ (4,736)
Add (less) noncash items:
Depreciation, depletion, and
amortization 13,381 16,893 17,537
Deferred income taxes (1,402) (1,786) (629)
(Gain) loss on disposition of property,
plant and equipment (985) 458 132
(Gain) loss on foreign currency
transactions 155 597 (784)
(Gain) loss on disposition of
marketable securities (1,262) 885 (1,542)
Writedown of mining property 54,415
Undistributed earnings of investment in
unconsolidated subsidiary (1,905)
Changes in Operating Assets and Liabilities:
Receivables 3,493 (1,239) (2,932)
Inventories 1,824 3,234 (953)
Accounts payable and
accrued liabilities (5,360) 2,528 759
--------- --------- --------
Net cash provided by continuing operations 7,784 20,312 6,852
Income from discontinued operations 2,412 793
Add (less) noncash items:
Depreciation, depletion and amortization 85 289
Gain (loss) on disposition of
discontinued operations (3,964) 2
Deferred income taxes 1,608 529
Change in operating assets and liabilities
Receivables 601 (267)
Inventories (30) (323)
Accounts payable and accrued liabilities (109) 23
--------- --------- --------
Net cash provided by discontinued
operations 603 1,046
--------- --------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,784 20,915 7,898
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (148,952) (2,424) (107,901)
Investment in unconsolidated affiliate (19,301)
Proceeds from sales of short-term investments
and marketable securities 92,167 70,112 43,349
Purchases of property, plant and
equipment (4,799) (44,895) (9,248)
Proceeds from sale of assets 2,372 1,177 488
Proceeds from sale of discontinued
operations 2,566 3,133
Expenditures on operational mining
properties (44,432) (21,027) (12,737)
Expenditures on developmental
properties (13,066) (42,510) (12,760)
Other 2,148 (1,418) 70
--------- --------- --------
NET CASH USED IN
INVESTING ACTIVITIES (131,297) (37,852) (98,739)
</TABLE>
F-6
<PAGE> 52
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- ---------- ---------
(continued) (In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of obligations under
capital leases (2,041) (2,041) (1,900)
Payment of cash dividends (11,028) (2,339) (2,303)
Proceeds from MARCS issuance 144,626
Proceeds from bond issuance 95,514
Proceeds from bank borrowings 19,186 24,000
Payment of bond conversion costs (1,346)
Retirement of other long-term liabilities (260)
--------- ---------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 150,483 18,274 91,311
--------- ---------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 26,970 1,337 470
Cash and cash equivalents at beginning
of year:
Related to continuing operations 16,485 14,707 14,389
Related to discontinued operations 441 289
--------- ---------- ---------
16,485 15,148 14,678
--------- ---------- ---------
Cash and cash equivalents at end
of year:
Related to continuing operations 43,455 16,485 14,707
Related to discontinued operations 441
--------- ---------- ---------
$ 43,455 $ 16,485 $ 15,148
========= ========== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 53
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 (Coeur or the Company) is principally
engaged through its subsidiaries in the exploration, development, operation
and/or ownership of silver and gold mining properties located in the United
States (Nevada, Idaho and Alaska), Australasia (New Zealand and Australia), and
South America (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., Callahan Mining Corporation and its subsidiary
Coeur New Zealand, Inc., Coeur Alaska, Inc., CDE Fachinal Ltd. and Compania
Minera CDE El Bronce. The consolidated financial statements also include all
entities in which voting control of more than 50% is held by the Company.
Related minority interests are not material and are included in other assets.
Intercompany balances and transactions have been eliminated in consolidation.
Investments in joint ventures are accounted for on a proportionate
consolidation basis, the most significant of which are the Golden Cross Mine
(80%) and Silver Valley Resources Corporation(50%).
Revenue Recognition: Revenue is recognized when title to gold and
silver passes at the shipment or delivery point. The effects of forward sales
are reflected in revenue at the date the related precious metals are delivered
or the contracts expire.
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. Dore' inventory includes
product at the mine site and product held by refineries.
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 and 3 to 13 years for machinery and equipment. Assets
recorded under capital leases are depreciated over the shorter of the lease
terms or estimated useful lives of the assets. Certain mining equipment is
depreciated using the units-of-production method based upon
F-8
<PAGE> 54
estimated total reserves. Maintenance and repairs are charged to operations as
incurred.
Mining Properties: Values for mining properties represent acquisition
costs and/or the fair market value of Common Stock issued for properties 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, on a
regular basis to reach a judgment concerning possible permanent impairment of
value and the need for a write-down in asset value to net realizable value.
These reviews require judgment and the use of estimates, and are affected by
the risks and uncertainties inherent in normal operations. The Company utilizes
the methodology set forth pursuant to Financial Standards Board Statement No.
121 - Accounting for the Impairment of Long-Lived Assets to be Disposed Of
("FAS121") to evaluate the recoverability of capitalized mineral property
costs. Since FAS 121 requires the use of forward-looking projections, the
Company must use estimates to generate a life-of-mine cash flow statement which
may forecast several years into the future. These estimates may include an
estimate of projected mineable resources and mine life or reports of 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 all 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 which is based upon historical averages which
are updated annually to give effect to changing markets over time.
Reclamation Costs: Post-closure reclamation and site restoration
costs are estimated based upon environmental regulatory requirements and are
accrued ratably over the life of the mine using the units-of-production method.
Current expenditures relating to ongoing environmental and reclamation programs
are expensed as incurred. Although the ultimate amount of the obligations to
be incurred is uncertain at December 31, 1996 and 1995, the Company has
recorded accrued liabilities of $6.0 million and $4.3 million as of December
31, 1996 and 1995, respectively. These amounts are included as other long-term
liabilities.
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-stage property and all costs incident 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 complete an evaluation of an ore body to determine that it may be mined
profitably. This determination is made based upon geologic and engineering
studies which analyze the nature of the ore body, the appropriate mining and
metallurgical process, estimates of operating costs, metallurgical recoveries
and forecast metal prices over the estimated mine life. 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. In the event the Company determines that the value
of any capitalized property cannot be recovered by either the mining of
commercial reserves or by sale pursuant to prevailing market prices, an
evaluation of whether an impairment of value under the provisions of FAS 121
has occurred is undertaken. If such an impairment is determined to exist, a
write-down would be effected.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. As of December 31, 1996 and 1995, cash and cash equivalents
included $15.9 million and $15.3 million of cash, respectively. The balance of
the reported amounts consists principally of investment grade commercial paper.
Amounts reported represent cost which approximates fair value.
Short-term Investments: The Company invests in debt and equity
securities which are classified as available for sale, according to provisions
of FAS 115 "Accounting for Certain Investments in Debt and Equity Securities".
Accordingly, securities are carried at fair value, determined by quoted prices.
Unrealized holding gains and losses on such securities are excluded from
earnings and are reported as a separate component of shareholders' equity until
realized.
F-9
<PAGE> 55
Foreign Currencies: Monetary assets and liabilities of the Company's
foreign operations are translated into U.S. dollars at year-end exchange rates
and revenue and expenses are translated at average exchange rates. The
Company's foreign subsidiaries have the U.S. dollar as their functional
currency and, therefore, translation gains and losses are reflected in income.
Nonmonetary assets and liabilities are converted at historical rates. Realized
gains and losses from foreign currency transactions are reflected in operations.
Foreign Currency Forward Exchange Contracts: As part of its program
to manage foreign currency risk, the Company has entered into foreign currency
forward exchange contracts. Contracts related to firm commitments are
designated and effective as hedges. Gains and losses are deferred and
recognized in the same period as the related transactions.
Forward Delivery Contracts: The Company sells refined gold and silver
from its mines to various precious metals refiners pursuant to forward
contracts or at spot prices prevailing at the time of sale. Revenue from
forward sales transactions is recognized as metal is delivered.
Earnings Per Share: Earnings per share is calculated based on the
weighted average number of common stock and common stock equivalents
outstanding, unless the addition of common stock equivalents would be
anti-dilutive.
Use of Estimates: The Company's management has made a number of
estimates and assumptions relating to the reporting of assets, liabilities, and
expenses to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
New Accounting Standard: In 1996, the Company adopted the
disclosure-only requirement of Financial Accounting Standards Board (FASB)
Statement No. 123 "Accounting for Stock-Based Compensation." Accordingly, no
compensation expense has been recognized for options issued under the plan.
The adoption of this disclosure standard has no material effect on the
disclosed results of the Company.
Reclassification: Certain reclassifications of prior year balances
have been made to conform to current year classifications.
NOTE C--ACQUISITION OF A MINING COMPANY AND UNCONSOLIDATED AFFILIATE
El Bronce: In July 1994, the Company had made an agreement
pursuant to which the Company acquired operating control, a 51% interest in
operating profits, and an option to acquire a 51% equity interest in the
producing El Bronce Mine. On September 4, 1996, the Company exercised its
option to acquire that 51% equity interest and also purchased the remaining 49%
of the shares of El Bronce, bringing its total ownership interest to 100%. The
terms of the purchase included the payment of $10.5 million in cash, prepayment
of the remainder of the option price in the
F-10
<PAGE> 56
approximate amount of $3.8 million and a net smelter return royalty of 3% to be
paid to the seller quarterly, commencing on January 1, 1997. The acquisition
has been accounted for as a purchase with the excess of the purchase price over
the net book value of the mine ($4.9 million) being allocated to mining
properties.
Gasgoyne: In May 1996, Coeur acquired approximately 35% of the
outstanding shares of a publicly listed Australian gold producer, Gasgoyne Gold
Mines NL ("Gasgoyne"), by issuing a total of 1,419,832 shares of the Company's
Common Stock and paying a total of approximately $15.4 million to Gasgoyne
shareholders. Coeur cash payments to Gasgoyne shareholders were financed by a
$20.0 million loan facility with Rothschild Australia Ltd., which provided for
borrowings at an annual interest rate equal to LIBOR plus 1.5%. Borrowings
under the agreement were $18.9 million as of December 31, 1996. During the
second quarter ended June 30, 1996, Coeur began reporting its share of
Gasgoyne's net results of operations pursuant to the equity method of
accounting for investments. Such amounts are reflected as a component of
interest and other income.
The following table sets forth a condensed summary of the results of
operations of Gasgoyne for the twelve-month period ended December 31, 1996.
Coeur's proportionate share of Gasgoyne net income is included from May to
December 1996 under the caption "Other Income" in the Company's consolidated
statement of operations.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Total Revenues $35,098
Operating Profit $13,191
Net Income $12,087
</TABLE>
The following pro forma information reflects the Company's results of
operations as if the Gasgoyne transaction, that occurred in May 1996, had
occurred at the beginning of the periods presented.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Total Income $ 22,878 $ 25,985
Net Loss $(54,447) $ (189)
Net Loss per share $ (2.54) $ (.01)
</TABLE>
F-11
<PAGE> 57
NOTE D--WRITE-DOWN OF MINING PROPERTIES
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.
NOTE E--DISCONTINUED OPERATIONS
Flexaust Company
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 $4.0 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 $4.0 million ($2.4 million net of income taxes)
during 1995. Flexaust generated revenues of $3.9 million and net income from
operations of $.056 million in the period from January 1, 1995 to May 5, 1995
the latter of which is reflected as a component of income from discontinued
operations.
F-12
<PAGE> 58
NOTE F--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost of available-for-sale securities is adjusted for
premium and discount amortization. Such amortization is included in Other
Income. The following is a summary of Available-for-Sale Securities as of
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Available-For-Sale Securities
----------------------------------------------------------------------------------
(in thousands) Gross Gross Estimated
Unrealized Unrealized Fair
1996 Cost Losses Gains Value
----------------- ------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
U.S. Corporate $ 83,236 $ 40 $ 2 $ 83,198
U.S. Government 39,658 25 97 39,730
------------- ------------ ----------- ------------
Total Debt Securities 122,894 65 99 122,928
Equity Securities 1,672 389 3 1,286
------------- ------------ ----------- ------------
$124,566 $ 454 $ 102 $124,214
1995
-----------------
U.S. Corporate $ 27,369 $ 6 $ 109 $ 27,472
U.S. Government 30,239 87 30,152
------------- ------------ ----------- ------------
Total Debt Securities 57,608 93 109 57,624
Equity Securities 9,498 239 584 9,843
------------- ------------ ----------- ------------
$ 67,106 $332 $693 $ 67,467
============= ============ =========== ============
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $1.3 million and $.3 million during 1996 and 1995, respectively. The
gross realized losses totaled $.05 million and $1.2 million during 1996 and
1995, respectively. The gross realized gains and losses are based on a
carrying value (cost net of discount or premium) of $90.9 million and $71.3
million of short-term investments sold during 1996 and 1995, respectively.
Short-term investments mature at various dates through December 1997.
On January 26, 1996, for a total consideration of approximately
US$10.7 million, the Company acquired 5.5 million shares and options to acquire
an additional 5.0 million shares of Orion Resources NL, an Australian gold
mining company (Orion). Prior to 1996, Coeur had acquired a total of 3.3
million shares of Orion for a total cost of US$3.8 million. On March 27, 1996,
the Company exercised its option to acquire the additional 5.0 million shares
of Orion. As a result of these transactions, Coeur then held approximately
19.2% of Orion's outstanding shares. On September 28, 1996, the Company sold
its holdings of Orion of 13.8 million shares for A$1.80 per share or
F-13
<PAGE> 59
A$24,894,000, (US$ 19.6 million). As a result, the Company recorded a gain on
the sale of approximately US$1.3 million during 1996.
NOTE G--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- ---------
<S> <C> <C>
In process and on leach pads $ 19,948 $ 25,728
Concentrate inventory 4,996
Dore' inventory 739 2,052
Supplies 6,309 3,201
---------- ---------
$ 31,992 $ 30,981
========== =========
</TABLE>
NOTE H--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- --------
<S> <C> <C>
Land $ 1,350 $ 2,509
Buildings and improvements 60,851 63,444
Machinery and equipment 47,697 43,780
Capital leases of buildings
and equipment 9,095 8,350
--------- ---------
$118,993 $118,083
========= =========
</TABLE>
Assets subject to capital leases consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
Buildings $ 5,105 $ 5,105
Equipment 3,990 3,245
-------- --------
TOTAL BUILDINGS AND EQUIPMENT 9,095 8,350
Rochester operational mining
property 7,871 7,871
-------- --------
16,966 16,221
Less allowance for accumulated
amortization and depletion 9,863 9,255
-------- --------
NET ASSETS SUBJECT TO CAPITAL
LEASES $ 7,103 $ 6,966
======== ========
</TABLE>
Lease amortization is included in depreciation and depletion expense.
F-14
<PAGE> 60
The Company has a lease agreement for the Rochester mineral processing
facilities through October 1998. Upon expiration of the lease, the Company is
entitled to purchase the facilities for the lesser of $5.9 million or fair
market value.
The Company has entered into various operating lease agreements which
expire over a period of five to seven years. The total rent expense charged to
operations under these agreements was $4.6 million, $4.4 million and $3.7
million for 1996, 1995, and 1994, respectively.
Minimum lease payments under leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Capital Operating
----------- --------- ---------
<S> <C> <C> <C>
1997 602 5,818
1998 228 3,820
1999 1,351
2000 343
2001-2003 463
-------- -------
TOTAL MINIMUM PAYMENTS DUE 830 $11,795
=======
Less amount representing
interest 85
--------
PRESENT VALUE OF NET
MINIMUM LEASE PAYMENTS 745
Less current maturities 532
--------
$ 213
========
</TABLE>
F-15
<PAGE> 61
NOTE I - MINING PROPERTIES
<TABLE>
<CAPTION>
Capitalized costs for mining properties December 31,
consist of the following: 1996 1995
--------- ---------
<S> <C> <C>
Operational mining properties:
Rochester Mine, less accumulated
depletion of $36,904
and $32,712 $ 42,372 $ 40,072
Silver Valley Resources, net investment
in mining property 13,207 8,706
El Bronce Mine less accumulated
depletion of $1,360 and $554 36,222 16,469
Fachinal Mine, pre-production phase 41,452 34,200
Golden Cross Mine, less
accumulated depletion of
$5,263 in 1995 12,680
--------- ---------
TOTAL OPERATIONAL MINING PROPERTIES 133,253 112,127
Developmental mining properties:
Kensington 108,100 95,403
Other 2,885 13,417
--------- ---------
TOTAL DEVELOPMENTAL MINING PROPERTIES 110,985 108,820
--------- ---------
TOTAL MINING PROPERTIES $244,238 $220,947
========= =========
</TABLE>
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. It is one of the largest primary silver
mines in the United States and is a significant gold producer as well. A prior
owner of the property has retained a royalty interest that varies up to 5% of
the net smelter revenues of the Rochester property, provided the market price
of silver is at least $17.71.
Golden Cross Mine: On April 30, 1993, the Company acquired an 80%
operating interest in the Golden Cross Mine. The mine is a gold and silver
surface and underground mining operation located near Waihi, New Zealand.
F-16
<PAGE> 62
The Company's 80% interest in the Golden Cross Mine joint venture,
accounted for by the proportionate consolidation method, is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---------- ----------
<S> <C> <C>
Sales of dore' $ 26,293 $ 32,341
Cost of mine operation (28,069) (26,598)
Writedown of mining property (52,036)
---------- ----------
Net income (Loss) before
income taxes $(53,812) $ 5,743
========= =========
Assets $ 2,408 $ 41,926
Liabilities (47,271) (32,809)
--------- ---------
Shareholders' equity (deficit) $(44,863) $ 9,117
========= =========
</TABLE>
See Note D for discussion of 1996 writedown of mining properties.
Silver Valley Resources, Inc.: On January 1, 1995, the Company entered
into an agreement with Asarco Incorporated and formed a new company named
Silver Valley Resources Corporation (Silver Valley). Both Coeur and Asarco
contributed to Silver Valley their respective interests in the Galena and Coeur
Mines as well as other assets and waived certain cash flow entitlements at the
Galena Mine in return for shares of capital stock of Silver Valley. The
transaction resulted in no gain or loss to the Company. Coeur's 50% investment
is included on the balance sheet as operational mining properties. On February
9, 1996, Silver Valley reopened the Coeur and Galena Mines with full production
at the Coeur Mine beginning in June 1996. The two mines had previously been on
standby status.
Fachinal Mine: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile which commenced pre-production in
October 1995 which continued until December 31, 1996. During the fourth quarter
of 1995 and for the year ended December 31, 1996, operating costs were
capitalized as start up costs. Revenue generated during the pre-production
period was credited against deferred start up costs. During 1996, the Company
incurred costs and expenses of $6.0 million in excess of revenues. This amount
has been added to the operational mining property and will be amortized using
the units of production method. Commencing in 1997, the property will be
accounted for as an operating property.
El Bronce Mine: The El Bronce Mine is a gold and silver underground
mine located in central Chile approximately 90 miles north of Santiago. On
September 4, 1996, the Company exercised its option to acquire 51% and
purchased the remaining 49% of the shares of Compania Minera CDE El Bronce,
resulting in ownership interest of 100%.
F-17
<PAGE> 63
DEVELOPMENTAL PROPERTIES
Kensington: On July 7, 1995, the Company became the 100% owner and
operator of the Kensington property near Juneau, Alaska, by acquiring the 50%
interest held by its former joint venture partner, for $32.5 million plus a
scaled net returns royalty on 1 million ounces of future gold production after
Coeur 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 a royalty to be
capped at 1 million ounces of production.
NOTE J--LONG-TERM DEBT
On December 19, 1995, the Company completed the underwritten call for
redemption of its approximately $75.0 million principal amount of 7%
Convertible Subordinated Debentures due 2002 with the entire debenture
indebtedness converted into equity. Debenture holders received approximately
64.6 shares of common stock for each one thousand dollar principal amount with
cash paid in lieu of any fractional shares. Coeur issued a total of
approximately 4.9 million shares of common stock in connection with the
debenture conversions, increasing its total shares of outstanding common stock
to approximately 21.5 million shares.
In 1996, the Company completed a refinancing of the project loan
agreement with a bank syndicate lead by N.M. Rothschild & Sons Ltd. which
substituted a general corporate loan financing for the limited recourse project
financing. The agreement provides for a borrowing of $24.0 million. The
interest rate on the facility is equal to LIBOR plus 1.5%. The borrowing is
repayable in sixteen equal quarterly installments commencing in the third
quarter of 1997.
On June 30, 1996, the Company secured a $50.0 million revolving line
of credit with Rothschild Australia Ltd., in connection with the acquisition of
the Company's investment in Gasgoyne Gold Mines Ltd. As of December 31, 1996,
current borrowings amounted to $18.9 million at an annual interest rate equal
to LIBOR plus 1.5%. The borrowing is repayable by April 30, 1999. On October
19, 1996, at the Company's discretion, $30.0 million of the total commitment
was canceled, leaving $1.1 million of undrawn commitments in place. The
Company's shareholdings of Gasgoyne Gold Mines Ltd. are mortgaged as collateral
against the loan.
The $50 million principal amount of 6% Convertible Subordinated
Debentures Due 2002 are convertible into shares of Common Stock prior to
maturity, unless previously redeemed, at a conversion rate of approximately 38
shares of Common Stock for each one thousand dollar of principal (equivalent to
a conversion price of $25.57 per share of Common Stock). The Company is
required to make an annual interest payment. The debentures are redeemable at
the option of the Company. The debentures mature June 10, 2002.
F-18
<PAGE> 64
The $100 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 on or after January 31,
1997. The debentures, which have no other funding requirements until maturity,
mature January 31, 2004.
The carrying amounts and fair values of long-term borrowings, which
are based on published values on December 31, 1996 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Value Value
--------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
6% Convertible
Subordinated
Debentures
Due 2002 $ 49,840 $ 45,105 $50,000 $44,375
6.375% Convertible
Subordinated
Debentures
Due 2004 $100,000 $ 93,500 $100,000 $93,375
</TABLE>
Total interest accrued in 1996, 1995, and 1994 was $13.1 million,
$17.1 million, and $15.6 million, respectively, of which $9.5 million, $7.4
million, and $4.2 million, was capitalized as a cost of the mines under
development.
Interest paid was $12.1 million, $16.3 million, and $12.1 million in
1996, 1995, and 1994, respectively.
NOTE K--INCOME TAXES
The components of the provision (benefit) for income taxes in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
From Continuing Operations:
Current $ 203 $ 1,986 $ 364
Deferred (1,387) (1,786) (629)
-------- --------- ---------
PROVISION (BENEFIT) FOR
INCOME TAX $(1,184) $ 200 $ (265)
========= ========= =========
From Discontinued Operations:
Current
Deferred 1,608 528
--------- ---------
PROVISION FOR INCOME TAX $ 1,608 $ 528
========= =========
Total:
Current $ 203 $ 1,986 $ 364
Deferred (1,387) (178) (101)
-------- --------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $(1,184) $ 1,808 $ 263
======== ========= =========
</TABLE>
F-19
<PAGE> 65
Deferred taxes arise due to temporary differences in deductions for
tax purposes and for financial statement accounting purposes. The tax effect
and sources of these differences are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Reserve for loss on
mine closure $ (971) $ 100 $ 123
Net mine exploration and
development costs (9,299) (2,715) 1,249
Net lease payments 591 498 470
Regular tax expense(benefit)
on utilization of net
operating losses (32,967) 3,673 (1,197)
Adjustments to net operating
loss and credit carryforwards 1,046 (2,083) (159)
Environmental costs (478) 87 430
Amortization of bond premium 689 (689)
Unrealized investment losses 3,087 (3,087)
Change in valuation
allowance 41,501 (2,420) 2,692
Change in deferred
state taxes (412) (40)
Other (810) (682) 107
-------- -------- ---------
Deferred income tax expense
(benefit) (1,387) (178) (101)
-------- -------- ---------
Less differences attributable to
discontinued operations 1,608 528
-------- -------- ---------
Deferred income tax expense
(benefit) from continuing
operations $(1,387) $(1,786) $ (629)
======== ======== =========
</TABLE>
F-20
<PAGE> 66
As of December 31, 1996 the significant components of the Company's net
deferred tax liability were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
PP&E, net $ 14,132 $ 15,599
State taxes 15
--------- ---------
Total deferred tax liabilities 14,132 15,614
Deferred tax assets:
Net operating loss carryforwards 80,977 20,690
AMT credit carryforwards 1,650 2,097
Business credit carryforward 542 542
--------- ---------
Total deferred tax assets 83,169 23,329
Valuation allowance for deferred
tax assets (69,037) (9,118)
--------- ---------
Net deferred tax assets 14,132 14,211
--------- ---------
Net deferred tax liabilities $ -0- $ 1,403
========= ==========
</TABLE>
Changes in the valuation allowance in 1996 relate primarily to losses
which are not currently recognized. The Company has reviewed its net deferred
tax asset, together with net operating loss carryforwards, and has determined
not to currently recognize 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, the current
level of gold and silver prices and the ability of the Company to use
accelerated depletion and amortization methods in the determination of taxable
income.
Coeur d'Alene Mines Corporation 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, 1996. It is not
practicable to estimate the tax liabilities which would result upon such
repatriation.
F-21
<PAGE> 67
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Percentage depletion (3.3%) (190.0%) (46.1%)
Dividend received deduction (15.4%) (5.2%)
Interest on foreign subsidiary debt 177.7% 37.8%
Equity in earnings of unconsolidated
subsidiaries 49.0%
State income tax provision (25.0%) 0.9%
Change in valuation allowance 38.1% 2.7% 43.4%
Utilization of net operating losses (73.4%) (4.4%)
Federal tax assessments and
withholding 116.7% 9.3%
Other (net) (1.9%) 11.6% (6.0%)
-------- ------- --------
EFFECTIVE TAX RATE ON CONTINUING
OPERATIONS (2.1%) 18.9% (5.3%)
======== ======= ========
</TABLE>
For tax purposes, as of December 31, 1996, the Company has an
operating loss carryforward as follows:
<TABLE>
<CAPTION>
U.S. New Zealand Chile Total
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Regular losses $129,003 $103,365 $11,436 $243,804
AMT losses 86,494 86,494
AMT credits 1,650 1,650
General business credits 542 542
</TABLE>
The operating loss carryforwards by year of expiration are as
follows:
<TABLE>
<CAPTION>
Year of
Expiration Regular Tax AMT Tax
---------- ----------- -------
<S> <C> <C>
2004 $ (8,262)
2005 (6,349) $ (4,887)
2006 (11,041) (4,352)
2007 (10,702)
2008 (10,417) (4,664)
2009 (8,994) (7,282)
2010
2011 (73,238) (65,309)
-------- ---------
Total $(129,003) $(86,494)
========== =========
</TABLE>
New Zealand and Chilean laws provide for indefinite carryforwards of net
operating losses. Under certain circumstances,including a change of ownership
as determined under the Internal Revenue Code, the future utilization of net
operating losses may be limited.
As of December 31, 1996, Callahan Mining Corporation, a subsidiary, has a
net operating loss carryforward of approximately $17.0 million and an
alternative minimum tax loss carryforward of approximately $9.6 million which
expire through 2006. The utilization of Callahan Mining Corporation's net
operating losses is subject to limitations.
NOTE L--SHAREHOLDERS' EQUITY AND STOCK PLANS
On March 8, 1996, the Company completed a public preferred stock
offering of $140.0 million of Mandatory Adjustable Redeemable Convertible
Securities (MARCS). The Company issued 6,588,235 shares of MARCS which were
offered at a public offering price of $21.25 per share. Each share of MARCS is
mandatorily convertible four years after issuance into 1.111 shares of Common
Stock of the Company, subject to adjustment in certain events, unless earlier
converted by the holder into Common Stock or redeemed for Common Stock by the
Company. The annual dividend payable on
F-22
<PAGE> 68
the MARCS will be $1.488 per share, payable quarterly. The dividends are
deducted in computing net income attributable to Common Shareholders. On April
8, 1996, the Company sold an additional 489,598 shares of MARCS to the
underwriters as a result of their exercise of an overallotment option granted
to them in connection with the public offering. With the exercise of the
overallotment option, the Company sold a total of 7,077,833 shares of MARCS
for a total offering price of $150.4 million which resulted in net proceeds to
the Company of $144.6 million.
In June 1989, the shareholders adopted a shareholder rights plan which
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 junior preferred stock. The exercise price is $100, making the
price per full preferred share ten thousand dollars. The rights will not be
distributed and become exercisable unless and until ten days after a person
acquires 20% of the outstanding common shares or commences an offer that would
result in the ownership of 30% or more of the shares. Each right also carries
the right to receive upon exercise that number of Coeur common shares which has
a market value equal to two times the exercise price. Each preferred share
issued is entitled to receive 100 times the dividend declared per share of
Common Stock and 100 votes for each share of Common Stock and is entitled to
100 times the liquidation payment made per common share. The Board may elect
to redeem the rights prior to their exercisability at a price of one cent
($.01) per right. Any preferred shares issued are not redeemable. At December
31, 1996, there were a total of 22,890,971, 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 1996
and 1995, benefits were payable 50% in cash and 50% in shares of Common Stock.
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 1996, options for 62,306 shares were issued under the plan.
As of December 31, 1996 and December 31, 1995, nonqualified stock
options to purchase 303,440 shares and 241,114 shares, respectively, were
outstanding under the Long-Term Plan. The options are exercisable at prices
ranging from $13.75 to $27.00 per share. The Company continues to account for
stock options in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees."
For the year ended December 31, 1995, the Company awarded 21,656
shares of Common Stock under the Annual Plan, representing additional
compensation of $.4 million based on the fair market value of the shares at the
date of the award. In 1996, there were no awards granted under the plan.
F-23
<PAGE> 69
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 granted
only in lieu of an optionee's foregone annual directors' fees. As of December
31, 1996, 23,497 options were granted in lieu of $.2 million of foregone
directors' fees.
Total compensation expense charged to operations under the Plans was
$.9 million, $1.1 million, and $1.4 million for 1996, 1995, and 1994,
respectively.
<TABLE>
<CAPTION>
Exercise
Shares Price
----------- --------
<S> <C> <C>
Stock options outstanding
at 1/1/95 153,600 $ 18.31
Issued 100,692 16.92
Exercised (3,425) 15.13
Canceled (9,753) 19.45
----------- ---------
Stock options outstanding
at 12/31/95 241,114 17.73
Issued 62,326 20.88
----------- --------
Stock options outstanding
at 12/31/96 303,440 $ 18.37
=========== =========
</TABLE>
As of December 31, 1996 and 1995, 447,696 shares and 427,443 shares,
respectively, were available for future grants under the Plans and 5,829,640
shares of Common Stock were reserved for potential conversion of Convertible
Subordinated Debentures.
NOTE M--EMPLOYEE BENEFIT PLANS
The Company provides a noncontributory defined contribution retirement
plan for all eligible employees. Total plan expense charged to operations was
$.6 million, $.5 million, and $.5 million for 1996, 1995, and 1994,
respectively, which is based on a percentage of salary of qualified employees.
Effective January 1, 1995, the Company has adopted 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 10% 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 five different types of investment funds. Total
plan expenses charged to operations were $.4 million and $.3 million in 1996
and 1995, respectively.
F-24
<PAGE> 70
NOTE N--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, 1996, 1995,
and 1994, the Company had forward foreign exchange contracts of $15.8 million,
$41.0 million, and $31.8 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, 1996, the Company had sold 146,670 ounces of gold for delivery on
various dates through 1999 at an average price of $421.51. On January 13, 1997,
the Company realized net profits of approximately $5.3 million from the sale of
gold purchased in the open market which was then delivered pursuant to fixed
price forward contracts for 146,670 ounces of gold.
During 1996, the Company entered into interest rate swap agreements to
reduce the impact of changes in interest rates on its Fachinal financing
facility. Coeur entered into an interest rate swap agreement, which expires on
July 3, 2000, that effectively converts $24.0 million of its floating rate
borrowing into a fixed-rate obligation. Coeur is currently paying a fixed rate
of 5.375%. The Company has no current plans to buy out these agreements.
Further discussions of other financial instruments held by the Company
are included in Note F and Note J.
The table below summarizes, by contract, the contractual amounts of
the Company's forward exchange and forward metals contracts at December 31,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- ------------------------ ------------------------------
Forward Unrealized Forward Unrealized Forward Unrealized
Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain
------------- ------------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Currency:
New Zealand $ 15,845 $ (10) $ 23,269 $ (27) $ 6,218 $ 731
Chilean $ 17,699 $(1,993) $ 22,136 $ 569
Australian $ 3,418 $ 181
Forward Metal
Sales $ 61,823 $ 3,702 $ 29,535 $ 1,528 $ 31,288 $ 358
</TABLE>
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, 1996, 1995, and 1994, the Company realized gains from
its foreign exchange hedging
F-25
<PAGE> 71
programs of $1.4 million, $1.9 million and $1.5 million, respectively. During
1996, the Company capitalized a $2.1 million loss in connection with
development projects.
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. During 1995, the Company realized a gain of $4.4
million arising from the sale of silver and gold purchased on the open market
which was delivered pursuant to forward contracts.
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 nonperformance by any of these counter parties.
NOTE O--LITIGATION
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States
against various defendants, including the Company, asserting claims under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
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 releases of
hazardous substances from mining activities conducted in the area since the
late 1800s. No specific monetary damages are identified in the complaint.
However, in July 1996, the government indicated damages may approximate $982
million. The United States asserts that the defendants are jointly and
separately liable for costs and expenses incurred by the United States in
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
and at an appropriate stage will seek to be dismissed from this action. At this
initial stage of the proceedings, it is not possible to predict its ultimate
outcome.
The Company is also subject to other pending or threatened legal
actions that arise in the normal course of business. In the opinion of
management, liabilities arising from these claims, if any, will not have a
material effect on the financial position of the Company. Depending on the
timing of any future liabilities, the amount of which cannot now be reasonably
estimated, relating to these matters, such amounts could possibly have a
material impact on the results of operations for a given period.
F-26
<PAGE> 72
NOTE P--GEOGRAPHIC SEGMENT INFORMATION
The following table sets forth certain financial information relating
to international and domestic operations.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenues and Other Income:
-------------------------
United States $ 75,815 $ 65,903 $ 63,048
Australasia 27,285 32,967 27,450
South America 2,790 (127) 1,695
---------- ---------- ----------
Consolidated revenues $ 105,890 $ 98,743 $ 92,193
========== ========== ==========
Income (Loss) From Continuing
-----------------------------
Operations Before Income Taxes:
-------------------------------
United States $ 6,167 $ (3,558) $ (5,068)
Australasia (55,491) 5,773 (803)
South American Operations 531 311 921
South American Exploration (6,961) (3,584) (51)
---------- ---------- ----------
Consolidated loss from continuing
operations before taxes $ (55,754) $ (1,058) $ (5,001)
========== ========== =========
Depreciation, Depletion, and Amortization:
-----------------------------------------
United States $ 8,815 $ 9,657 $ 10,707
Australasia 3,182 6,699 6,632
South America 1,384 537 198
--------- --------- -----------
Total $ 13,381 $ 16,893 $ 17,537
========== ========== ==========
Property, Plant, and Equipment Additions
(Including Noncash Expenditures):
--------------------------------
United States $ 2,103 $ 1,512 $ 5,253
Australasia 133 1,975 303
South America 2,563 41,408 3,692
---------- ---------- ----------
Total $ 4,799 $ 44,895 $ 9,248
========== ========== ==========
Identifiable Assets:
-------------------
United States $ 379,635 $ 286,318 $ 318,590
Australasia 51,848 47,114 46,613
South America 148,847 112,214 47,158
---------- ---------- ----------
Consolidated assets $ 580,330 $ 445,646 $ 412,361
========== ========== ==========
</TABLE>
F-27
<PAGE> 73
NOTE Q--SUMMARY OF QUARTERLY FINANCIAL DATA
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- ----------- ---------
(000's-Except Per Share Data)
<S> <C> <C> <C> <C>
1996
----
Net Sales $ 22,609 $ 18,752 $ 21,559 $ 29,811
Gross Margin 3,013 206 3,079 3,150
Net income (loss) 133 (56,881)(b) 1,878 300
Net income (loss) per share .01 (2.63) .09 .01
Net loss per share
attributable to common
shareholders (.02) (2.75) (.03) (.11)
Fully diluted income (loss)
per share (c) (c) .09 (c)
1995
----
Net Sales $ 17,891 $ 23,621 $ 24,803 $ 22,925
Gross Margin $ 1,851 $ 5,689 $ 5,651 $ 3,838
Net income (loss) from
continuing operations $ (3,367) $ 1,239 $ 2,039 $ (1,169)
Net income (loss) $ (3,175) $ 3,408(a) $ 2,039 $ (1,118)
Net Income (loss) per share $ (.20) $ .22(a) $ .13 $ (.07)
Fully diluted income (loss)
per share $ (c) $ .19 $ .12 $ (c)
</TABLE>
(a) Includes income from discontinued operations(net of tax), of
approximately $2.4 million ($.15 per share) related to the sale of
the Flexaust Company in May 1995.
(b) Includes writedown of mining properties of approximately $54.0
million.
(c) Effect of fully diluted earnings per share is antidilutive and is
therefore not presented.
F-28
