SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
COEUR D'ALENE MINES CORPORATION
-----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Idaho 82-0109423
------------------------------- --------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
P.O. Box I, Coeur d'Alene, Idaho 83816-0316
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES _X_ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of Issuer's classes of common stock, as of the latest
practicable date: Common stock, par value $1.00, of which 21,898,614 shares
were issued and outstanding as of August 13, 1998.
1
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COEUR D'ALENE MINES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
June 30, 1998 and December 31, 1997
Consolidated Statements of Operations -- 5
Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows -- 6
Six Months Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. Other Information 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNAUDITED
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 144,997 $ 114,204
Short-term investments 41,025 98,437
Receivables 8,934 11,503
Inventories 42,328 35,927
---------- ----------
TOTAL CURRENT ASSETS 237,284 260,071
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 105,103 119,808
Less accumulated depreciation 54,084 58,097
---------- ----------
51,019 61,711
MINING PROPERTIES
Operational mining properties 127,527 169,969
Less accumulated depletion 55,736 61,477
---------- ----------
71,791 108,492
Developmental properties 140,638 134,236
---------- ----------
212,429 242,728
OTHER ASSETS
Investment in unconsolidated subsidiaries 69,245 76,010
Notes receivable 1,496 8,498
Debt issuance costs, net of accumulated
amortization 8,712 8,809
Other 2,716 875
---------- ----------
82,169 94,192
---------- ----------
$ 582,901 $ 658,702
========== ==========
</TABLE>
3
<PAGE>
UNAUDITED
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,946 $ 5,983
Accrued liabilities 11,972 6,345
Accrued interest payable 4,564 6,631
Accrued salaries and wages 3,926 7,553
Bank loans 4,406
Current portion of remediation costs 7,300 7,300
Current portion of obligations under
capital leases 381 243
---------- ----------
TOTAL CURRENT LIABILITIES 32,089 38,461
LONG-TERM LIABILITIES
6% subordinated convertible debentures due 2002 49,840 49,840
6 3/8% subordinated convertible debentures due 2004 95,000 95,000
7 1/4% subordinated convertible debentures due 2005 143,750 143,750
Other long-term liabilities 8,434 8,403
Long-term borrowings 1,159
---------- ----------
TOTAL LONG-TERM LIABILITIES 297,024 298,152
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 7,500,000 shares, 7,077,833
issued and outstanding 7,078 7,078
Common Stock, par value $1.00 per share-
authorized 60,000,000 shares, issued 22,957,835
and 22,949,779 shares in 1998 and 1997
(including 1,059,211 shares held in treasury) 22,958 22,950
Capital surplus 384,446 389,648
Accumulated deficit (147,667) (84,542)
Other comprehensive accumulated income:
Unrealized gains on short-term investments 163 145
Repurchased and nonvested shares (13,190) (13,190)
---------- ----------
253,788 322,089
---------- ----------
$ 582,901 $ 658,702
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three Months Ended June 30, 1998
and 1997 Six Months Ended June 30,
1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
(In thousands except for per share data)
<S> <C> <C> <C> <C>
INCOME
Sale of concentrates and dore' $ 32,256 $ 33,659 $ 53,422 $ 58,129
Less cost of mine operations 29,950 35,508 49,674 62,574
------------ ------------ ------------ -----------
Gross Profit (Loss) 2,306 (1,849) 3,748 (4,445)
OTHER INCOME
Interest and other 2,307 9,780 5,896 17,586
------------ ------------ ------------ -----------
Total Income 4,613 7,931 9,644 13,141
EXPENSES
Administration 999 1,212 2,020 2,339
Accounting and legal 456 463 927 885
General corporate 1,686 1,934 3,058 3,555
Interest 3,653 2,087 7,468 4,348
Mining exploration 2,557 2,512 4,373 4,011
Write down of mining
properties 54,506
------------ ------------ ------------ -----------
Total Expenses 9,351 8,208 72,352 15,138
------------ ------------ ------------ -----------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES (4,738) (277) (62,708) (1,997)
Income tax (benefit) provision 428 (2) 418 (2)
------------ ------------ ------------ -----------
NET LOSS $ (5,166) $ (275) $ (63,126) $ (1,995)
============ ============ ============ ===========
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (7,799) $ (2,908) $ (68,392) $ (7,261)
============ ============ ============ ===========
BASIC AND DILUTED LOSS PER SHARE DATA
Weighted average number
of shares of Common Stock
and equivalents used in
calculation 21,899 21,890 21,899 21,889
============ ============ ============ ===========
Net Loss per share attributable
to Common Shareholders $ (.36) $ (.13) $ (3.12) $ (.33)
============ ============ ============ ===========
</TABLE>
5
<PAGE>
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (63,126) $ (1,995)
Add noncash items:
Depreciation, depletion and amortization 16,728 13,455
Undistributed losses of unconsolidated subsidiaries 680
Write down of mining properties 54,506
Other changes 286 1,364
---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE
WORKING CAPITAL CHANGES 9,074 12,824
Change in working capital:
Receivables 2,038 2,717
Inventories (8,830) (3,157)
Accounts payable and accrued liabilities (9,187) (4,074)
Interest payable (2,070) (1,432)
---------- ----------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (8,975) 6,878
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in unconsolidated affiliates (3,143) (14,643)
Proceeds from sale of assets 7,667
Purchase of property, plant, and equipment (2,365) (1,264)
Purchase of short-term investments and
marketable securities (17,203) (54,790)
Proceeds from sales of short-term investments and
marketable securities 74,623 100,675
Expenditures on developmental properties (8,098) (6,758)
Expenditures on operational mining properties (1,758) (8,383)
Other assets (645) 814
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 49,078 15,651
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt (3,610)
Payment of cash dividends (5,266) (5,266)
Other (434) (457)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (9,310) (5,723)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 30,793 16,806
Cash and cash equivalents at beginning of year 114,204 43,455
---------- ----------
CASH AND CASH EQUIVALENTS AT
JUNE 30, 1998 AND 1997 $ 144,997 $ 60,261
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three-
and six-month periods ended June 30, 1998, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Coeur d'Alene Mines Corporation annual
report or Form 10-K for the year ended December 31, 1997.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
In process and on leach pads $ 32,440 $ 24,617
Concentrate and dore' inventory 6,342 5,839
Supplies 3,546 5,471
---------- ----------
$ 42,328 $ 35,927
========== ==========
</TABLE>
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred to place such ore 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. During the fourth
quarter of 1997, based on historical operating results and detailed
metallurgical evaluations, the Company changed its estimates of the percentage
of minerals to be recovered through the leaching process at its Rochester
Mine. The change resulted in increased recovery rates from 55% for silver and
85% for gold to 59% for silver and 90% for gold. Management evaluates this
estimate on an ongoing basis. Adjustments to the recovery rates are accounted
7
<PAGE>
for prospectively. The effects of the change for the first six months of 1998
decreased the costs of mine operations by approximately $11.4 million. All
other inventories are stated at the lower-of-cost or market, with cost being
determined using first-in, first-out and weighted-average-cost methods. Dore'
inventory includes product at the mine site and product held by refineries.
NOTE C: Write-down of Mining Property
During the first quarter of 1998, the El Bronce mine continued to
operate at a loss in spite of on-going efforts to improve ore grades and
reduce operating costs. During April 1998, an analysis of El Bronce was
completed to determine whether mine plans could be modified to improve
operations. As a result of this analysis, the Company's management became
aware that facts and circumstances fundamental to the long-term economic
performance of the mine had changed during the first quarter of 1998. Those
changes primarily related to (i) management's determination that wider veins
located through the Company's exploration efforts were unlikely to yield
commercial production and did not warrant the additional capital investment;
and (ii) management's decision to not exercise the Company's option to
purchase the Boton de Oro property adjacent to the El Bronce Mine, which
decision was based on the completion in April 1998 of a feasibility study to
evaluate the possible incorporation of Boton de Oro's mineralization into El
Bronce operations. A complete evaluation of operations at El Bronce was
presented to the Company's Board of Directors for consideration at its regular
meeting held on May 12, 1998. As a result of the evaluation, the Company
determined that a write-down was required to properly reflect the estimated
net realizable value of El Bronce's mining properties and assets in accordance
with the standards set forth in FASB Statement No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of."
(FAS No. 121). Consequently, the Company recorded a charge in the first
quarter of 1998 totaling $54.5 million relating to its investment in the El
Bronce mine. The charge includes approximately $8.3 million to satisfy the
estimated remediation and reclamation liabilities at El Bronce and to provide
for estimated termination costs on the basis that the Company is proceeding to
close the mine.
NOTE D: Long-Term Debt
During July and August 1998, the Company repurchased approximately $3.8
million principal amount of its outstanding 6% Convertible Subordinated
Debentures due 2002 and approximately $23.0 million principal amount of its
8
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7 1/4% Convertible Subordinated Debentures due 2005 for a total purchase price
of approximately $19.6 million, excluding purchased interest of approximately
$425,000. The Company anticipates that as a result of the cancellation of the
repurchased debentures, annual interest paid by the Company will be reduced by
approximately $1.7 million. As a result of the buyback of these debentures,
the Company expects to record an extraordinary gain of approximately $6.3
million, net of taxes, during the third quarter of 1998 on the reduction of
its indebtedness.
NOTE E: Income Taxes
The Company has reviewed its net deferred tax asset for the six-month
period ended June 30, 1998, together with net operating loss carryforwards,
and has determined to forego recognition of potential tax benefits arising
therefrom. In making this determination, the Company has considered the
Company's history of tax losses incurred since 1989 and the current level of
gold and silver prices. As a result, the Company's net deferred tax asset has
been fully reserved.
NOTE F: New Accounting Standard
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. The adoption
of this statement had no impact on the Company's net income or shareholders'
equity. Statement No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of Statement No. 130.
NOTE G: Reclassification
Certain reclassifications of prior year balances have been made to
conform to current year classifications.
Item 2. 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 silver and gold which may fluctuate widely and are
9
<PAGE>
affected by many factors beyond the Company's control, including, without
limitation, interest rates, expectations regarding inflation, currency values,
governmental decisions regarding the disposal of precious metals stockpiles,
global and regional political and economic conditions, and other factors.
The Company's currently operating mines are the Rochester Mine in
Nevada, the Galena mine in the Coeur d'Alene Mining District of Idaho in which
the Company owns a 50% interest through Silver Valley Resources Corporation,
the Yilgarn Star Mine in Australia in which the Company owns a 25% interest
through Gasgoyne Gold Mines NL and the Fachinal and El Bronce mines in Chile.
On April 28, 1998, the Company discontinued all mining and milling operations
at the Golden Cross Mine in New Zealand, in which the Company has an 80%
operating interest. The Company wrote off its investment in the El Bronce Mine
in the first quarter of 1998 and is proceeding with a plan to close the mine.
The market price of gold has declined to levels that are the lowest
since 1985. During the six-month period ending June 30, 1998, the average spot
price of gold was $297.04. The market price of silver (Handy & Harman) and
gold (London Final) on August 10, 1998 were $5.31 per ounce and $285.60 per
ounce, respectively. If the current gold price range in the low $300's
continues for an extended period of time, the Company will need to further
reduce production costs and/or continue to expand minable are reserves at its
Fachinal Mine in Chile to operate the mine profitably. Alternatively, if such
prices continue and reductions in production are not achieved and/or minable
reserves are not expanded, the Company may elect to place the mine on
temporary standby and halt production there to conserve ore reserves until
gold prices increase.
The Company is required by Financial Accounting Standards Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", to review the valuations of its mining properties.
Such a review was recently completed with respect to all of the Company's
properties. During the first quarter of 1998, the El Bronce mine continued to
operate at a loss in spite of on-going efforts to improve ore grades and
reduce operating costs. During April 1998, an analysis of El Bronce was
completed to determine whether mine plans could be modified to improve
operations. As a result of this evaluation, the Company's management became
aware that facts and circumstances fundamental to the long-term economic
performance of the mine had changed during the first quarter of 1998. Those
changes primarily related to (i) management's determination that wider veins
located through the Company's exploration efforts were unlikely to yield
commercial production and did not warrant the additional capital investment;
and (ii) management's decision to not exercise the Company's option to
10
<PAGE>
purchase the Boton de Oro property adjacent to the El Bronce Mine, which
decision was based on the completion in April 1998 of a feasibility study to
evaluate the possible incorporation of Boton de Oro's mineralization into El
Bronce operations. A complete evaluation of operations at El Bronce was
presented to the Company's Board of Directors for consideration at its regular
meeting held on May 12, 1998. As a result of this evaluation, the Company
determined that a write-down was required to properly reflect the estimated
realizable value of El Bronce's mining properties and assets in accordance
with the standards set forth in FASB Statement No. 121. Consequently, the
Company recorded a charge in the first quarter of 1998 totaling $54.5 million
relating to its investment in the El Bronce mine. The charge includes
approximately $8.3 million to satisfy the estimated remediation and
reclamation liabilities at El Bronce and to provide for estimated termination
costs on the basis that the Company is proceeding to close the mine. Due to
the underperformance and planned closure of El Bronce, the Company expects
that gold production at El Bronce for the remainder of 1998 will be
approximately 22,500 gold ounces lower than the 59,900 ounces originally
anticipated in the Company's 1998 budget.
On April 14, 1998, the Company announced that it had received the
Environmental Protection Agency's (EPA) National Pollution Discharge
Elimination System (NPDES) permit for the Kensington property, a wholly-owned
development gold property located 45 miles north of Juneau, Alaska. The State
of Alaska has reviewed and certified that the NPDES complies with state
standards. With receipt of the NPDES permit, the Company has now obtained all
significant permits necessary to proceed with development of the mine. A
production decision at the Kensington property, in which the Company had
invested $130.4 million (including $29.9 million of capitalized interest) at
June 30, 1998, is subject to satisfactory completion of an optimization study
designed to reduce capital and operating costs, satisfactory results from a
development program designed to significantly increase the current 1.9 million
ounce gold reserve and approval by the Company's Board of Directors. The
Company does not intend to develop Kensington unless the optimization study
and development program demonstrate results required to make Kensington an
economically-viable project at prevailing gold prices. Based on current mine
design and market price of gold, there can be no assurances at this time that
the Company will proceed to place the Kensington project into commercial
production.
Should currently depressed gold price levels continue for an extended
period of time and/or if the Company is unable to reduce production costs or
expand commercial ore reserves at the Company's mining properties, the Company
11
<PAGE>
may need to effect additional asset writedowns, particularly in the case of
the Fachinal and Kensington properties.
The Company's business plan is to continue to acquire competitive,
low-cost 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 silver and/or gold production.
This document contains numerous forward-looking statements relating to
the Company's silver and gold mining business. The United States Private
Securities Litigation Reform Act of 1955 provides a "safe harbor" for certain
forward looking statements. Operating, exploration and financial data, and
other statements in this document are based on information the company
believes reasonable, but involve significant uncertainties as to future gold
and silver prices, costs, ore grades, estimation of gold and silver reserves,
mining and processing conditions, changes that could result from the Company's
future acquisition of new mining properties or businesses, the risks and
hazards inherent in the mining business (including environmental hazards,
industrial accidents, weather or geologically related conditions), regulatory
and permitting matters, and risks inherent in the ownership and operation of,
or investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
12
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The following table sets forth the amounts of silver and gold produced
by the mining properties owned by the Company or in which the Company has an
interest, based on the amounts attributable to the Company's ownership
interest, and the cash and full costs of such production during the three- and
six-month periods ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
ROCHESTER MINE
Gold ozs. 20,453 22,215 45,647 38,038
Silver ozs. 1,658,257 1,681,213 3,241,216 3,212,342
Cash Costs per eq. oz./silver $4.26 $3.62 $4.37 $3.76
Full Costs per eq. oz./silver $4.86 $4.21 $4.94 $4.38
GALENA MINE
Silver ozs. 385,313 48,361 764,923 48,361
Cash Costs per oz./silver $4.45 $4.45
Full Costs per oz./silver $5.52 $5.52
COEUR MINE
Silver ozs. 51,298 396,113 130,633 712,851
Cash Costs per oz./silver $6.13 $2.75 $5.34 $2.72
Full Costs per oz./silver $7.19 $3.53 $6.37 $3.67
YILGARN STAR MINE
Gold ozs. 11,175 9,615 23,744 17,060
Cash Costs per oz./gold $242.66 $246.35 $222.29 $252.07
Full Costs per oz./gold $437.97 $405.79 $415.42 $378.06
FACHINAL MINE
Gold ozs. 6,837 8,534 13,804 16,654
Silver ozs. 389,494 493,663 857,914 1,093,869
Cash Costs per eq. oz./gold $306.82 $348.28 $316.71 $333.41
Full Costs per eq. oz./gold $517.77 $520.00 $514.12 $502.09
EL BRONCE MINE
Gold ozs. 10,862 12,288 21,641 23,582
Silver ozs. 23,481 25,039 43,651 47,309
Cash Costs per oz./gold $428.57 $337.27 $404.97 $346.89
Full Costs per oz./gold $491.96 $398.62 $481.70 $409.06
GOLDEN CROSS MINE
Gold ozs. 6,945 21,401 15,858 38,682
Silver ozs. 22,124 72,177 49,536 144,123
Cash Costs per oz./gold $195.14 $248.39 $210.51 $271.22
Full Costs per oz./gold $195.14 $279.39 $210.51 $319.80
CONSOLIDATED TOTALS
Gold ozs. 56,272 74,053 120,694 134,016
Silver ozs. 2,529,967 2,716,566 5,087,873 5,258,855
</TABLE>
13
<PAGE>
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
ROCHESTER MINE
Rochester experienced record precipitation during the first half of 1998
due to the effects of El Nino. As a result, solution processed through the
mill increased resulting in more ounces recovered during the first half of
1998 than originally anticipated in the 1998 budget. However, the excessive
precipitation also resulted in reduced operating efficiencies causing ore tons
mined and placed on the heap pads during the first half of 1998 to be under
budget. Due to the typical delay in the leaching process, ounces recovered
during the third quarter of 1998 are expected to be less than previously
budgeted. The Company plans to increase tons mined during the second half of
1998 in order to replace the anticipated shortfall. By so doing, the Company
anticipates it will meet its originally planned 1998 production at the
Rochester mine of 6.7 million ounces of silver and 77,000 ounces of gold.
The Company is currently undergoing an optimization study consisting of
deep-drilling and metallurgical testing programs at Rochester designed to add
reserves and extend the present 8-year mine life. The Company has retained an
engineering firm to complete the Phase I basic engineering for the fine crush
project currently being evaluated. The project's overall incremental recovery
improvement for silver of approximately 8% and for gold of approximately 3%
over the current recovery levels of 59% and 90%, respectively, has been
preliminarily confirmed. Reduction capabilities with the crushing manufacturer
and geotechnical testing are underway to conduct a planned 8 to 10 thousand
ton bulk test heap during August 1998. Successful application of the fine
crush technology to future mining operations at Rochester is expected to
increase annual production by an estimated 800,000 silver equivalent ounces.
Provided the economics support such a decision, a formal plan to proceed with
the project is expected in the fourth quarter of 1998.
During the second quarter 1998, the Company began the third consecutive
year of drilling on the Nevada Packard property located near the Rochester
mine. The first two phases of exploratory drilling were directed at
establishing mineralization at depth, whereas, the third phase, estimated to
be completed in late fall 1998, will be directed at confirming the near-surface
mineralization believed to exist, thereby allowing finalization of the minable
reserve estimate. At the conclusion of the current phase, the Company will
have completed approximately 33,000 feet of drilling on the property. It is
expected that any ore mined at the Nevada Packard property would be processed
14
<PAGE>
at the Rochester facility.
COEUR AND GALENA MINES
Operations at the Galena mine commenced in May 1997. Accordingly, the
first half of 1997 comparative data is not representative of expected
operating levels.
The increase in cash cost per ounce at the Coeur mine for the first half
of 1998 over the same period of 1997 is primarily due to the fact that
operations at the Coeur mine were winding down as planned during the first six
months and terminated on July 2, 1998.
During the second quarter of 1998, shipments of concentrate from the
Galena and Coeur mines were suspended resulting in a build-up of inventories
due to concern regarding the financial condition of the smelter. Accordingly,
the Joint Venture operator has negotiated placement of concentrates with
Asarco, Noranda and Doe Run and shipment of concentrates resumed in July,
1998.
As part of the ongoing exploration program, underground and surface
diamond drilling have commenced at the Galena and Coeur mines. Results from
Phase 1 drilling are expected in August 1998. Leases on additional parcels of
land adjacent to the mines were executed during the second quarter of 1998,
thereby, further strengthening the Company's land position in the Coeur
d'Alene Mining District.
YILGARN STAR MINE
The increase in full cost per ounce for the first half of 1998 compared
to the same period of 1997 is primarily due to the fact that, in May 1997, the
Company increased its ownership to 50% of Gasgoyne, which owns a 50% interest
in the Yilgarn Star Gold Mine in Australia.
The Nevoria Mill, which processed ore from the open pit, ceased
operations in July 1998 and is expected to be placed on a care and maintenance
basis following the depletion of reserves at the open pit. For the six-months
ended June 30, 1998, the Company's share of production recovered from the
Yilgarn Star mine totaled 23,744 gold ounces of which 7,209 ounces were
attributable to ore processed through the Nevoria Mill. Due to depletion of
reserves at the open pit, the Company expects that its share of gold
production at Yilgarn Star for 1998 will be approximately 37,800 gold ounces,
15
<PAGE>
which is approximately 7,900 gold ounces less than originally anticipated in
the Company's 1998 budget.
The Joint Venture is presently carrying out planned localized and
regional exploration programs designed to increase short-term and long-term
reserves at the Yilgarn Star mine.
FACHINAL MINE
Lower than budgeted production in gold and silver at the Fachinal mine
during the first half of 1998 was principally the result of decreased
production at the Juncos vein due to ramp development necessary to gain access
to the lower end of the deposit. Furthermore, the Guanaco reserves were
reaching the end of their planned life during the first half of the year. Due
to continuing exploration efforts, additional reserves have been identified in
and around the open pit and in the vicinity of Guanaco.
During April 1998, the Company completed its preliminary exploration
program at Furioso, an exploration tenement upon which the Company holds an
option. The property is situated approximately 30 kilometers southwest of the
Fachinal mine. In connection with Furioso, the Company completed an
environmental study during April 1998 and submitted permit applications.
Should the Company exercise its option to acquire Furioso and begin operations
at the site, it is anticipated that ore mined at Furioso would be processed
either on-site or at the Fachinal mill.
GOLDEN CROSS MINE
In accordance with plan, the Company discontinued mining and milling
operations at the Golden Cross mine in New Zealand on April 28, 1998. The
average cash cost per ounce for the first half of 1998 declined from the first
half of 1997 due to the reduction in scope of the Company's mining operations.
Due to a prior write-down of the Golden Cross mine, cash costs per ounce in
the first half of 1998 were equivalent to full costs per ounce during that
same quarter.
Decommissioning of the Golden Cross mine is underway and remediation and
reclamation efforts are proceeding more favorably than planned due to a drier
than normal climate.
16
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended June 30 1998 Compared to Three Months
Ended June 30, 1997.
--------------------------------------------------------
SALES AND GROSS PROFITS
Sales of concentrates and dore' in the second quarter of 1998 decreased
by $1.4 million, or 4%, from the second quarter of 1997. The decrease was
primarily attributable to lower average gold prices, which were partially
offset by higher average silver prices, and decreased silver and gold ounces
sold during the second quarter of 1998 as compared to the second quarter of
1997. In the second quarter of 1998, the Company produced a total of 2,529,967
ounces of silver and 56,272 ounces of gold compared to 2,716,566 ounces of
silver and 74,053 ounces of gold in the second quarter of 1997. Silver and
gold prices averaged $5.71 and $299.90 per ounce, respectively, in the second
quarter of 1998, compared with $4.76 and $343.02 per ounce, respectively, in
the second quarter of 1997. In the second quarter of 1998, the Company
realized average silver and gold prices of $5.84 and $315.61, respectively,
compared with realized prices of $4.79 and $344.78, respectively, in the prior
year's second quarter
The cost of mine operations in the second quarter of 1998 decreased by
$5.6 million, or 16%, from the prior year's comparable quarter. The decrease
is primarily due to the fact that the Company (i) discontinued operations at
the Golden Cross Mine on April 28, 1998; and (ii) changed its recovery rates
at the Rochester Mine during the fourth quarter of 1997 as previously
reported.
Gross profit from mining operations in the second quarter of 1998
amounted to $2.3 million compared to gross losses from mining operations of
$1.8 million in the second quarter of 1997. The $4.2 million increase in gross
profit is due to the above mentioned changes in sales and cost of mine
operations in the second quarter of 1998.
OTHER INCOME
Interest and other income in the second quarter of 1998 decreased by
$7.5 million, or 76%, compared with the second quarter of 1997. The decrease
is primarily the result of the receipt of $8 million of insurance proceeds in
connection with the business interruption and property damage at the Golden
Cross Mine during the second quarter of 1997 offset by a gain of
17
<PAGE>
approximately $1.2 million arising from the sale of silver purchased on the
open market which was delivered pursuant to fixed- price forward contracts in
the second quarter of 1998.
EXPENSES
Total expenses in the second quarter of 1998 increased by $1.1 million
over the prior year's second quarter. The increase is primarily due to an
increase in interest expense of $1.6 million primarily attributable to the
issuance, in the fourth quarter of 1997, of $143.75 million principal amount
of 7 1/4% Convertible Subordinated Debentures due 2005.
NET LOSS
As a result of the above mentioned factors, the Company's net loss
before income taxes amounted to $4.7 million in the second quarter of 1998
compared to a net loss before income taxes of $.3 million in the second
quarter of 1997. In the second quarter of 1998, the Company provided for $.4
million of income taxes as compared to a recorded benefit of $2,000 in the
second quarter of 1997. As a result, the Company's net loss amounted to $5.2
million in the second quarter of 1998 compared to a net loss of $.3 million in
the second quarter of 1997. During the second quarter of 1998, the Company
paid dividends of $2.6 million on its Mandatory Adjustable Redeemable
Convertible Securities (MARCS). As a result, the loss attributable to common
shareholders was $7.8 million, or $.36 per basic and diluted share, for the
second quarter 1998, compared to a loss of $2.9 million, or $.13 per basic and
diluted share, for the second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1997
SALES AND GROSS PROFITS
Sales of concentrates and dore' decreased by $4.7 million, or 8.1%, for
the six months ended June 30, 1998 compared with the same period of 1997. The
decrease was primarily attributable to lower average gold prices, which were
partially offset by higher average silver prices, and decreased silver and
gold ounces sold during the six months ended June 30, 1998 compared to the six
months ended June 30, 1997. During the first six months of 1998, the Company
produced 5,087,873 ounces of silver and 120,694 ounces of gold compared to
5,258,855 ounces of silver and 134,016 ounces of gold in the first six months
of 1997. Silver and gold market prices averaged $5.98 and $297.04 per ounce,
18
<PAGE>
respectively, in the first six months of 1998 compared to $4.89 and $347.09
per ounce, respectively, in the same period in 1997. On August 10, 1998, the
market price of gold (London final) was 285.60 per ounce. In the first six
months of 1998, the Company realized average silver and gold prices of $5.97
and $320.47, respectively, compared to $4.89 and $350.78, respectively, during
the same period in 1997.
The cost of mine operations in the first six months of 1998 decreased by
$12.9 million, or 21%, compared with the first six months of 1997. The
decrease is primarily attributable to the fact that the Company discontinued
operations at the Golden Cross Mine on April 28, 1998.
As a result of the above, gross profit from mine operations amounted to
$3.7 million, in the first six months of 1998 compared to gross losses of $4.4
million from mine operations during the six months ended June 30, 1997. The
$8.1 million increase in gross profits from mine operations is due to the
above mentioned changes in sales and cost of mine operations in the six-month
period ended June 30, 1998.
OTHER INCOME
Other income in the first half of 1998 decreased by $11.7 million, or
66%, compared to the first half of 1997. The decrease is primarily a result of
i) the receipt of $8 million of insurance proceeds for business interruption
and property damage at the Golden Cross Mine in the second quarter of 1997,
and ii) a gain of $5.3 million arising from the sale of gold purchased on the
open market which was delivered pursuant to fixed-price forward contracts in
the first quarter of 1997 offset in part by a gain of approximately $1.2
million arising from the sale of silver purchased on the open market which was
delivered pursuant to fixed-price forward contracts in the second quarter of
1998.
EXPENSES
Total expenses in the first half of 1998 increased by $57.2 million, or
378%, compared with the prior year's six-month period. The increase is
primarily attributable to the $54.5 million writedown of the El Bronce Mine
during the first quarter of 1998. In the first six months of 1998, interest
expense increased by $3.1 million primarily as a result of the issuance, in
the fourth quarter of 1997, of $143.75 million principal amount of 7 1/4%
Convertible Subordinated Debentures due 2005.
19
<PAGE>
NET LOSS
As a result of the above, the Company's loss before income taxes
amounted to $62.7 million in the first six months of 1998 compared to a net
loss before taxes of $2.0 million during the same period last year. In the
first half of 1998, the Company provided $.4 million in income taxes compared
to a recorded benefit of $2,000 in the first half of 1997. As a result, the
Company reports a net loss of $63.1 million in the first half of 1998 compared
to a net loss of $2.0 million in the first half of 1997. During the first six
months of 1998, the Company paid preferred dividends of $5.3 million on its
Mandatory Adjustable Redeemable Convertible Securities (MARCS). As a result,
the loss attributable to common shareholders in the first half of 1998 was
$68.4 million, or $3.12 per basic and diluted share, compared to a net loss of
$7.3 million, or $.33 per basic and diluted share, attributable to common
shareholders in the prior year's comparable period.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL; CASH AND CASH EQUIVALENTS
The Company's working capital at June 30, 1998 was approximately $205.2
million compared to $221.6 million at December 31, 1997. The ratio of current
assets to current liabilities was 7.4 to 1.0 at June 30, 1998 compared to 6.8
to 1.0 at December 31, 1997.
Net cash used in operating activities for the first six months of 1998
was $9.0 million compared to $6.9 million provided by operating activities
during the first six months of 1997. During the first six months of 1998,
operating cashflow was impacted by the buildup of work-in-process inventories,
primarily the result of the change in its estimates of the percentage of
minerals to be recovered through the leaching process at the Rochester Mine.
Net cash provided by investing activities in the first six months of 1998 was
$49.1 million compared to $15.7 million in the prior year's comparable period.
The increase is primarily due to proceeds received from sales of short-term
investments and marketable securities, $7.5 million proceeds from the sale of
the Awak Mas property located in Indonesia, and the purchase of a 14 percent
interest in Gasgoyne which occurred in May 1997. Net cash used in financing
activities was $9.3 million in the first six months of 1998 compared to $5.7
million for the first six months of 1997. As a result of the above, cash and
cash equivalents increased by $30.8 million in the first six months of 1998
compared to a $16.8 million increase for the comparable period in 1997.
20
<PAGE>
DEBENTURE BUYBACK PROGRAM
During July and August 1998, the Company repurchased approximately $3.8
million principal amount of its outstanding 6% Convertible Subordinated
Debentures due 2002 and approximately $23.0 million principal amount of its 7
1/4% Convertible Subordinated Debentures due 2005 for a total purchase price
of approximately $19.6 million, excluding purchased interest of approximately
$425,000. The Company anticipates that as a result of the cancellation of the
repurchased debentures, annual interest paid by the Company will be reduced by
approximately $1.9 million. As a result of the buyback of these debentures,
the Company expects to record an extraordinary gain of approximately $6.3
million, net of taxes, during the third quarter of 1998 on the reduction of
its indebtedness.
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 the
Comprehensive Environmental Resources Compensation and Liability Act (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
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, on March 27, 1997, filed a motion for partial summary judgement seeking
dismissal of the Company from the action as to natural resource damages. In
September 1997, the Company filed an additional motion for summary judgment
raising the statute of limitations as to natural resource damages. On March
31, 1998, the Court entered an order denying the plaintiffs' motion to allow
the United States to prove a portion of its case pursuant to an administrative
21
<PAGE>
record, requiring the parties to submit further facts as to the issue of
trusteeship, and setting oral arguments on the trusteeship and statute of
limitations motions for June 12, 1998. On June 12, 1998, the Court indicated
that a ruling regarding the statute of limitations and prior settlements with
the Coeur d'Alene Indian Tribe and State of Idaho will be forthcoming. In
March 1998, the Environmental Protection Agency announced its intent to
perform a remedial investigation/feasibility study upon all or parts of the
Basin and, thereby, apparently focus upon response costs rather than natural
resource damages. At this initial stage of the proceeding, it is not possible
to predict its ultimate outcome.
SECURITIES LAWSUIT
On July 2, 1997 a suit was filed by purchasers of the Company's common
stock in Federal District Court for the District of Colorado naming the
Company and certain of its officers and its independent auditors as
defendants. Plaintiffs allege the Company violated the Securities Exchange Act
of 1934 during the period January 1, 1995 to July 11, 1996, and seek
certification of the lawsuit as a class action. The class members are alleged
to be those persons who purchased publicly traded debt and equity securities
of the Company during the time period stated. On September 22, 1997 an amended
complaint was filed in the proceeding adding other security holders as
additional plaintiffs. The action seeks unspecified compensatory damages,
pre-judgment and post-judgment interest, attorney's fees and costs of
litigation. The complaint asserts that the defendants knew material adverse
non-public information about the Company's financial results which was not
disclosed, and which related to the Golden Cross and Fachinal Mines; and the
defendants intentionally and fraudulently disseminated statements which were
false and misleading and failed to disclose material facts. The Company
believes the allegations are without merit and intends to vigorously defend
against them. On October 27, 1997, the Company, its auditors and the
individual defendants filed with the Court motions to dismiss the amended
complaint on the grounds that it fails to state a valid claim. On April 16,
1998, the Court entered an order dismissing the auditors from the suit and
denying the Company's and the individual defendants' motions. At the same
time, the Court warned plaintiffs that they will be liable for all of
defendants' attorney's fees and costs of litigation if defendants successfully
bring a motion for summary judgment after the close of discovery. Trial has
been scheduled for July 12, 1999 in Denver, Colorado. No assurances can be
given at this stage of the action as to its ultimate outcome.
22
<PAGE>
GOLDEN CROSS LAWSUIT
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County, alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in
connection with Cyprus' sale in April 1993 to the Company of Cyprus
Exploration and Development Corporation, which owned all the shares of Cyprus
Gold New Zealand Limited, which, in turn, owned an 80 percent interest in the
Golden Cross Mine in New Zealand. The Company's lawsuit seeks recession and an
unspecified amount of damages arising from alleged misrepresentations and
failure to disclose material facts alleged to have been known by Cyprus
officials regarding ground movement and instability, threatening the integrity
of the mine site at the time of the Company's purchase of the property. In
October 1997, Cyprus filed a counterclaim alleging libel by the Company in its
press release announcing the write off of the Golden Cross Mine and seeking an
unspecified amount of damages. Trial has been scheduled for October 18, 1999
in Boise, Idaho. No assurances can be given at this stage of the action as to
its ultimate outcome.
YEAR 2000 CONSEQUENCES
The Company has reviewed all significant computer systems for
compatibility with the change to the year 2000. As a result of that review, a
program is now underway to ensure that all of the Company's significant
computer systems are year 2000 compliant by the end of 1998 by installing
commercially available software packages without significant modification. The
Company's management has carefully evaluated its year 2000 compliance program,
as well as the extent to which it will be affected by non-year 2000 compliant
computer systems of suppliers and other third parties, and anticipates no
material impact on the Company's ability to continue normal business
operations. The Company estimates that the costs associated with
implementation of its year 2000 program will amount to less than $130,000.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 12, 1998.
Messrs. Dennis E. Wheeler, Joseph C. Bennett, Duane B. Hagadone, James
23
<PAGE>
J. Curran, James A. McClure, Cecil D. Andrus and John H. Robinson were
nominated and elected to serve as members of the Board for one year or until
their successors are elected and qualified by a vote of 24,545,504 shares for
and 278,901 shares abstaining.
Shareholders ratified the selection of Ernst & Young to serve as the
Company's public accountants for the current fiscal year by a vote of
24,625,245 shares for, 93,804 shares against, and 105,356 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
No. 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
(Registrant)
Dated August 14, 1998 /s/DENNIS E. WHEELER
---------------------
Dennis E. Wheeler
Chairman, President and
Chief Executive Officer
Dated August 14, 1998 /s/KEVIN L. PACKARD
--------------------
Kevin L. Packard
Vice President,
Chief Financial Officer
and Treasurer
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