SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A No. 2
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Amendment No. 2 to Annual Report on Form 10-K for the Year Ended December 31,
1997
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
---------------------------------------- ----------
(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, 1997, as set forth in the pages attached hereto:
Item 1 - Business
Item 6 - Selected Financial Data
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: March 27, 1998
<PAGE>
ITEM 1. BUSINESS
Coeur d'Alene Mines Corporation is engaged through its subsidiaries in
the exploration, development, operation and/or ownership of silver and gold
mining properties and companies located primarily within the United States
(Nevada, Idaho and Alaska), Australasia (New Zealand and Western 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:
o 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;
o ownership of 50% of the capital stock of SILVER VALLEY RESOURCES
CORPORATION ("SILVER VALLEY"), which owns the COEUR and the GALENA
underground silver mines that resumed production in June 1996 and
May 1997, respectively, the CALADAY project and operating control
of several contiguous properties in the Coeur d'Alene Mining
District of Idaho;
o the FACHINAL MINE, an open pit and underground gold and silver
mining operation wholly-owned and operated by Coeur and located in
southern Chile, South America, which Coeur acquired in 1990, at
which initial production commenced in October 1995. Fachinal was
classified as an operating property for financial reporting
purposes on January 1, 1997;
o the EL BRONCE MINE, an underground Chilean gold and silver mine in
which the Company acquired a 51% operating interest in October
1994 and in which the Company acquired 100% ownership in September
1996;
o ownership of 50% of the capital stock of GASGOYNE GOLD MINES NL,
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;
o ownership of 100% of the KENSINGTON PROPERTY, located north of
Juneau, Alaska, which is being developed as an underground gold
mine by Coeur and where the Company currently is conducting an
optimization study and developmental program; and
o the GOLDEN CROSS MINE, an underground and surface gold mining
operation located near Waihi, New Zealand in which Coeur has an
<PAGE>
80% operating interest acquired on May 3, 1993, and at which
mining activities were substantially discontinued in December
1997.
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.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on its strong ore
reserve base and the expertise of its management to become a leading precious
metals company via long-term, profitable growth. The principal elements of the
Company's business strategy are as follows: (i) increase the Company's
low-cost silver production and reserves in order to remain the nation's
largest silver producer and one of the world's largest primary silver
producers; (ii) improve operating cost and production profiles at Coeur's
existing gold mining operations; (iii) continue increasing the Company's gold
production and reserves in order to continue to provide its shareholders with
an interest in both metals, while lowering its cost of gold production; (iv)
opportunistically acquire operating mines and exploration and development
properties with a view to reducing the Company's operating and production
costs and expanding its production and reserves; (v) continue to explore for
new silver and/or gold assets primarily in North and South America, Mexico,
and Australia as well as at existing mine sites; (vi) focus on opportunities
which provide strong future exploration potential and immediate or near-term
prospects for low-cost silver and/or gold production; and (vii) preserve the
Company's financial ability to weather the gold industry's lowest price level
in eighteen years.
SOURCES OF REVENUE
The Rochester Mine, Fachinal Mine and El Bronce Mine, which are operated
by the Company; the Golden Cross Mine, which was operated by the Company; and
the Company's interests in Silver Valley and Gasgoyne, constituted the
Company's principal sources of mining revenues in 1997. 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 during the past four years:
2
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Coeur
Mine/Company Ownership Percentage of Total Revenues in Year Ended December 31,
------------ --------- -------------------------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C> <C>
Rochester Mine 100% 57.0% 58.2% 38.5%
Golden Cross Mine 80 33.4 25.6 22.5
El Bronce Mine(1) 100 0.3 2.8 10.7
Fachinal Mine(2) 100 - - 9.3
Silver Valley 50 - 2.2 (3) 5.4
Gasgoyne(4) 50 - 0.9 5.4
Other - 9.3 10.3 8.2
----- ----- -----
100% 100% 100%
===== ===== =====
<FN>
(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 Fachinal Mine commenced pre-production activities in late October
1995 and was accounted for as a development stage property until
December 31, 1996 (i.e., operating costs were capitalized net of
revenues from pre-commercial production). Commencing January 1, 1997,
the mine was accounted for as an operating property for financial
reporting purposes.
(3) The Company's interest in Silver Valley accounted for approximately 3.0
% of total revenues for the approximately eight months subsequent to its
start-up by the Silver Valley Resources 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 reported percentages reflect
the fact that Coeur's interest in Gasgoyne revenue was 35% from May 1996
to February 1997, 36% from March 1997 to May 1997 and 50% after May
1997. The Company's interest in Gasgoyne was reported in accordance with
the equity method prior to May 1, 1997; therefore, revenues, net of
expenses are reported as other income for that period.
</FN>
</TABLE>
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
parts pure gold.
"Heap-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
3
<PAGE>
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) the risks and hazards inherent in
the mining business (including environmental hazards, industrial accidents,
weather or geologically related conditions), (ii) changes in the market prices
of gold and silver, (iii) the uncertainties inherent in the Company's
production, exploratory and developmental activities, including risks relating
to permitting and regulatory delays, (iv) the uncertainties inherent in the
estimation of gold and silver ore reserves, (v) changes that could result from
the Company's future acquisition of new mining properties or businesses, (vi)
the effects of environmental and other governmental regulations, and (vii) the
risks inherent in the ownership or operation of or investment in mining
properties or businesses in foreign countries.
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
4
<PAGE>
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 541
unpatented contiguous mining claims and 54 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 up to 5% when the market price of silver equals or
exceeds $18.07 per ounce.
Based on the ore reserve-review report, dated February 1998, of
Independent Mining Consultants, Inc. ("IMC"), and accounting for production
through December 31, 1997, mineable, proven/probable ore reserves at the
Rochester Mine, as of January 1, 1998, totalled approximately 66.264 million
tons averaging 1.120 ounces per ton silver and 0.009 ounces per ton gold. The
reserve estimate is based on a 0.75 ounce per ton silver-equivalent cutoff
grade and silver and gold prices of $6.50 and $350.00, respectively. The
average grades do not reflect losses in the recovery process. The amount of
proven and probable reserves will vary depending on the price of silver and
gold. In addition, 10.752 million tons of mineralized material averaging 0.007
ounces per ton gold and 1.10 ounces per ton silver have been identified.
Based upon its experience and certain metallurgical testing, the Company
estimates recovery rates of 59% for silver and 90% for gold. The leach cycle
at the Rochester Mine requires approximately five 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,
----------------------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Ore processed
(tons) 7,247,553 7,759,637 8,243,609 8,127,691 8,738,471
Silver (ounces) 5,943,894 5,937,770 6,481,825 6,251,180 6,690,704
Gold (ounces) 66,412 56,886 59,307 74,293 90,019
</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 refining costs. To obtain
the silver equivalent, each ounce of gold produced is multiplied by the same
5
<PAGE>
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,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Cash costs per ounce.... $ 3.62 $ 3.65 $ 3.79 $ 3.71 $ 4.36
Depreciation, depletion
and amortization
per ounce............ .54 .59 .61 .54 .67
-------- -------- -------- -------- --------
Total costs per ounce... $ 4.16 $ 4.24 $ 4.40 $ 4.25 $ 5.03
======== ======== ======== ======== ========
</TABLE>
In 1994, 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. The increase in unit costs for 1997 is
a result of a decrease in the mine's strip ratio in 1997 compared with 1996.
As a result, a portion of 1996's mining costs were capitalized in that year
and subsequently amortized in 1997.
The Company's capital expenditures at the Rochester Mine totaled
approximately $1.2 million in 1997. The Company plans approximately $6.2
million of capital expenditures at the mine during 1998 of which approximately
$5.85 million will be used to reacquire the existing processing facility which
is subject to a sale-leaseback agreement entered into in 1986.
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 property situated in the Coeur d'Alene Mining
District of Idaho. Effective January 1, 1995, Coeur, Callahan Mining
Corporation ("Callahan"), a wholly-owned subsidiary of Coeur, and ASARCO Inc.
("ASARCO") transferred their interests in the Coeur and Galena Mines and
Caladay property to Silver Valley, an entity created for that sole purpose, as
a result of which Coeur and ASARCO each now own 50% of Silver Valley. During
1995, Silver Valley conducted an underground development program that
increased ore reserves at the Galena Mine. As a result of this program and
increased silver prices, a decision was made on February 8, 1996 by Silver
Valley to reopen the mines. Underground development and exploration activities
continued during 1996 and 1997.
Silver Valley recommenced operations at the Coeur mine in June 1996 and
plans to continue mining existing reserves there through the second quarter of
1998. Exploration at the Coeur mine is ongoing in an effort to increase silver
reserves and extend the mine's life beyond 1998. Silver Valley resumed
production at the Galena Mine in May 1997.
During 1996 and 1997, Silver Valley entered into agreements with
Sterling Mining Company, Placer Creek Mining Company, Silver Buckle Mines,
Inc. and American Silver Mining Company pursuant to which Silver Valley
obtained operating control of contiguous properties near the Coeur and Galena
Mines in the Coeur d'Alene Mining District in exchange for net profit royalty
interests. Silver Valley silver reserves attributable to Coeur's 50% ownership
6
<PAGE>
interest have been expanded, increasing 32% in 1995, 22% in 1996 and 13% in
1997. Rehabilitation of the mine shaft at the Caladay project is nearing
completion and Silver Valley plans to continue exploratory and developmental
activities at the Coeur, Galena and Caladay Mines as well as at contiguous
properties in the Coeur d'Alene Mining District with a view toward the
expansion of silver reserves there.
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
actions 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. Certain other specified
corporation actions require unanimous approval of the directors. 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.
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 resumed
production at the Galena Mine in May 1997.
Based on the ore-reserve estimate of Silver Valley, dated January 1998,
proven and probable ore reserves as of January 1, 1998 at the Galena Mine
totalled 1.705 million tons averaging 18.17 ounces per ton silver. Included in
the previously quoted reserves are 327,000 tons of ore containing 11.34% lead
and 1,517,200 tons of ore containing .57% copper. The Silver Valley reserve
estimate is based on a minimum mining width of 4 to 4.5 feet diluted to 5.0
feet minimum width for most silver-copper and silver-lead veins. Cutoff grade
is based on the cost of breaking and producing ore from a stope, but does not
include development costs and administrative overhead. 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 784,000 tons of
mineralized material which averages 8.33 ounces per ton silver. Included in
the mineralized material are 264,000 tons containing 0.42% copper and 541,000
tons containing 5.74% lead.
7
<PAGE>
The following table sets forth information relating to total Galena Mine
production:
<TABLE>
<CAPTION>
Year Ended Seven Months Eight Months
December 31, Ended July 30, Ended December 31,
1991 1992 1997
------------ -------------- ------------------
<S> <C> <C> <C>
Ore milled (tons)..... 182,836 91,617 80,012
Silver (ounces)....... 3,278,650 1,572,501 1,456,201
Copper (pounds)....... 1,993,649 1,064,085 1,070,954
</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
currently has a 50% interest in operating profits from Galena Mine operations
by virtue of its 50% ownership of Silver Valley.
The following table sets forth the costs of production per ounce of
silver (net of credit for copper byproduct) at the Galena Mine. Cash costs
include mining, processing, direct administration costs and smelter charges,
but do not include financing costs, royalties and exploration costs.
<TABLE>
<CAPTION>
Year Ended Seven Months Eight Months
December 31, Ended July 30, Ended December 31,
1991 1992 1997
------------ -------------- ------------------
<S> <C> <C> <C>
Cash costs per
ounce ................ $3.94 $4.23 $4.74
Depreciation,
depletion and
amortization per
ounce................ $1.24
----- ----- -----
$3.94 $4.23 $5.98
===== ===== =====
</TABLE>
Activities at the Galena Mine during 1997 revealed a previously
undiscovered vein known as the 123 Vein. The vein has been intersected by both
drilling and underground workings on three levels over a vertical depth of 900
feet and along a maximum horizontal length of up to 230 feet. Approximately
112,000 tons of proven and probable reserves containing 22.55 ounces per ton
of silver and .83% copper were added to the 1998 reserve base.
Total capital expenditures by Silver Valley at the Galena Mine in 1997
approximated $3.7 million. Such expenditures were used to provide additional
mine development and miscellaneous equipment. Silver Valley plans
approximately $3.6 million of mine development and equipment expenditures at
the Galena Mine during 1998.
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. Effective December 31, 1991, Coeur increased its
8
<PAGE>
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 Year Ended
December 31, Ended March 31, Ended December 31,
1990 1991 December 31, 1996 1997
--------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Ore milled (tons)... 147,883 37,165 78,067 110,579
Silver (ounces)..... 2,113,341 379,856 1,666,534 1,978,513
Copper (pounds)..... 1,843,638 336,865 1,407,771 1,621,345
</TABLE>
The Company's ownership interest in the above production, giving
retroactive effect to Coeur's acquisition of Callahan's 5% interest on
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 smelter charges
but do not include financing costs, royalties and exploration costs.
<TABLE>
<CAPTION>
Year Ended Three Months Six Months Year Ended
December 31, Ended March 31, Ended December 31,
1990 1991 December 31, 1996 1997
--------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Cash costs per ounce.. $4.68 $5.38 $3.18 $3.00
.
Depreciation,
depletion
and amortization
per ounce............ .79 .95
$4.68 $5.38 $3.97 $3.95
===== ===== ===== =====
</TABLE>
Based on a Silver Valley Resources ore reserve report dated January
1998, estimated proven and probable ore reserves as of January 1, 1998 at the
Coeur Mine totaled 228,000 tons averaging 15.31 ounces per ton silver and
0.73% 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. An additional 161,000 tons of mineralized material which averages 14.46
ounces per ton silver and 0.66% copper has also been identified.
9
<PAGE>
CALADAY PROPERTY
The Caladay property adjoins the Galena Mine. Prior to its acquisition
by the Company in 1991, approximately $32.5 million was expended on the
property to construct surface facilities, a 5,101 ft. deep shaft and
associated underground workings to explore the property. Based on Silver
Valley's analysis of existing Galena Mine underground workings and drilling
results on the Galena Property, the Company believes that similar 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.
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.
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. 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 included both underground
and open pit operations, was 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 250 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.
Following its opening during 1996 and 1997, unexpected operational
problems and lower than anticipated ore grade in the open pit resulted in
decreased ore reserves and higher than expected cash costs of production that
exceeded current market prices. Production from higher-grade underground
mining at a second underground mining operation commenced in July 1996 and the
property was classified as an operating property for financial reporting
purposes on January 1, 1997. Production from the higher-grade underground
operations has been increased to compensate for the lower open pit ore grades.
Furthermore, with respect to the open pit, an improved ore reserve mine model,
10
<PAGE>
an increase in the pit slope to decrease waste tons mined and a reduction in
manpower have contributed to operational efficiencies. With respect to the
underground mining, an improved mine plan, a manpower reduction, improved
ventilation and drainage, improved safety program and improvements in
contractor performance have favorably effected production and cost
performance. The amount of tonnage processed at the mill has been increased
without a decrease in metal recovery and equipment has been added in the
floatation plant to further improve metal recovery. While these actions have
favorably impacted the Fachinal Mine's operating performance, the cash costs
of production continue to exceed the current spot market price of gold. The
Company intends to continue its implementation of operating improvements and
to identify and implement additional cost-reduction steps in 1998. Additional
reserves must be found in order to achieve the economic criteria upon which
the decision to construct the mine was based. Such economic criteria
contemplated a mine plan that would provide (i) average silver and gold grades
of 3.54 and .077 ounces per ton, respectively; (ii) silver and gold
metallurgical recovery of 89% and 93%, respectively; and (iii) cash operating
costs of $21.65 per metric tonne. For the year ended December 31, 1997, silver
and gold ore grades averaged 4.183 ounces per ton and .057 ounces per ton,
respectively; silver and gold metallurgical recoveries averaged 90% and 90%,
respectively, and cash operating costs averaged $40.42 per ton.
The following table sets forth Fachinal Mine production data for the
period from October 19, 1995, on which date initial production activities
commenced, through December 31, 1995, and the years ended December 31, 1996
and 1997.
<TABLE>
<CAPTION>
October 19, 1995
through Year Ended December 31,
December 31, 1995 1996 1997
----------------- ---- ----
<S> <C> <C> <C>
Ore milled (tons)....... 96,212 591,074 592,976
Gold (ounces)........... 3,586 25,064 30,601
Silver (ounces)......... 334,816 2,154,347 2,243,761
</TABLE>
The following table sets forth the costs of production per ounce of gold
during 1997 at the Fachinal Mine. Cash costs include mining, processing and
direct administration costs, royalties, smelting and refining. Because the
Fachinal Mine had not yet reached commercial production levels prior to
January 1, 1997, results of the mine's operations were accounted for as a
development stage property (i.e., costs net of pre-production revenues were
capitalized). The property was classified as an operating property for
financial reporting purposes on January 1, 1997.
11
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Total cash cost per ounce................... $339.46
Depreciation, depletion and
amortization per ounce..................... $172.86
-------
Total cost per ounce $512.32
=======
</TABLE>
Economic, precious metals bearing mineralization at the Fachinal Mine
occur in an extensive epithermal, quartz-veins system hosted in Jurassic
volcanic rocks. Based on ore reserve review reports dated January 1998, by
Micon International Limited and NCL Ingenieria and Construccion, S.A., the
total remaining, mineable, open-pit and underground proven and probable
reserves as of January 1, 1998 at the Fachinal Mine were approximately 2.051
million tons averaging 0.093 ounces per ton gold and 3.51 ounces per ton
silver. The Fachinal Mine's open-pit reserve base, which includes the NCL
reserve estimate for the OO and NE pits, totals 1.208 million tons averaging
0.062 ounces per ton gold and 2.24 ounces per ton silver. The estimate is
based on an internal cutoff grade of 0.041 to 0.088 ounces per ton equivalent
gold. The underground reserve which totals 844,000 tons at 0.139 ounces per
ton gold and 5.33 ounces per ton silver is based on internal cutoff grades
ranging from 0.102 to 0.146 ounces per ton equivalent gold. Both reserve
estimates are based on gold and silver prices of $373 per ounce and $5.59 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
88% - 91% for gold and 85% - 91% for silver. The open-pit reserve estimate has
also identified 1.642 million tons of mineralized material, averaging 0.06
ounces per ton gold and 1.64 ounces per ton silver. The underground resource
estimate has identified an additional .887 million tons of mineralized
material averaging 0.09 ounces per ton gold and 5.09 ounces per ton silver.
Numerous other attractive exploration targets with known precious-metals
mineralization remain to be evaluated.
Total capital expenditures by the Company at the Fachinal Mine in 1997
approximated $3.7 million. Such expenditures were used to expand mine
development and purchase miscellaneous equipment. The Company plans
approximately $4.9 million of capital expenditures at the Fachinal Mine during
1998 on mine development and miscellaneous capital equipment.
Drilling is underway at the Fachinal Mine's underground and open pit
mines in an effort to increase the existing reserve base. In addition,
developmental activities are being conducted at the Furioso property, located
approximately 40 miles southwest of the Fachinal Mine, where the Company has
estimated additional high grade gold reserves. An internal feasibility study
is being conducted by the Company to determine if Furioso ore reserves may be
processed at existing Fachinal Mine facilities. The Company has an option to
purchase 100% of the Furioso property at a price of $2.0 million on or prior
to June 30, 1999. No assurance can be given that the Company will exercise
that option. Emphasis is being directed at increasing underground higher grade
reserves to replace lower-grade open pit reserves in the production mix.
12
<PAGE>
Reference also is made to "Exploratory Mining Properties" below for additional
information relating to exploratory activities in the Fachinal Mine area.
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 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 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's obligation to pay CMEB a 3% net smelter return royalty, payable
quarterly, commenced on January 1, 1997.
Based on a resource report for five major veins dated January 1998 by
NCL Ingenieria and Construccion, S.A. and a reserve report prepared by CDE El
Bronce, proven and probable ore reserves as of January 1, 1998 at the El
Bronce Mine totalled .862 million tons averaging 0.220 ounces per ton gold. An
additional 1.598 million tons of mineralized material, averaging 0.280 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 84% 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 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
13
<PAGE>
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 and recorded an operating loss of $5.6 million in
1997. The following data sets forth 100% of the mine's production.
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended ---------------------------------------------------------
December 31, 1994 1995 1996 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Ore milled (tons)... 56,761 286,512 339,509 343,296
Gold (ounces)....... 9,712 43,204 52,917 48,181
Silver (ounces)..... 39,605 142,229 112,633 100,626
</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 smelting
and refining.
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended ---------------------------------------------------------
December 31, 1994 1995 1996 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Total cash
costs per ounce... $205.65 $330.37 $296.05 $348.24
Depreciation,
depletion and
amortization
per ounce......... 20.40 20.51 41.01 53.69
------- ------- ------- -------
Total cost per ounce $226.05 $350.88 $337.06 $401.93
======= ======= ======= =======
</TABLE>
The increase in cash costs of production in 1997 was primarily caused by
near drought conditions occurring in the first quarter of 1997, heavy rain
fall occurring in the second quarter of 1997 and a two-week closure of the
mine in August 1997 resulting from heavy rains and flooding. Those
circumstances contributed to increases in cash costs of production to levels
in excess of current market prices.
Ongoing exploration efforts are being conducted to identify, and, if
successful, develop wider veins in order to increase reserves as well as to
lower costs of production. In addition, cash costs of production in 1997
increased primarily because of lower ore grades due to narrow veins in the
area mined which were further complicated by ground support problems. The
Company expended approximately $3.0 million for developmental activities in
1997 and plans to expend approximately $3.8 million for developmental
activities in 1998. During 1998, the Company plans to spend $1.0 million to
modify the metallurgical process at the mine to enable it to produce a dore'
rather than a concentrate. This process is expected to reduce per ounce
operating costs by $25 - $30 per ounce.
14
<PAGE>
In February 1997, Coeur acquired an option to purchase the Boton de Oro
operating gold mine adjacent to the El Bronce Mine, from which ore is
purchased and being processed through Coeur's mill. In addition, Coeur
anticipates additional underground exploration of mineralization believed to
be similar to El Bronce's vein systems. A feasibility study was prepared to
evaluate the possible incorporation of Boton de Oro's mineralization into El
Bronce operations. The option agreement, as amended in early February 1998,
entitles Coeur to purchase 100% of Boton de Oro on or prior to June 1998 at a
price of $2.5 million. In addition, the agreement required Coeur to spend
$500,000 to conduct exploratory activities on the property. No decision has
been made to exercise the option.
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, 1995, Coeur Alaska paid to the Sellers a total
of $32.5 million and, pursuant to the Royalty Deed set forth as an exhibit to
the Venture Termination and Asset Purchase Agreement, Coeur Alaska agreed to
pay Echo Bay a scaled net smelter return royalty on 1 million ounces of future
gold production after Coeur Alaska recoups the $32.5 million purchase price
and its construction expenditures incurred after July 7, 1995 in connection
with placing the property into commercial production. The royalty ranges from
1% at $400 gold prices to a maximum of 2 1/2% at gold prices above $475, with
the royalty to be capped at 1 million ounces of production.
The Kensington 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, 1998 are estimated at 13.893
million tons at a grade of 0.136 ounces per ton gold, containing 1.896 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 95%, with 2.3% additional losses incurred during final
treatment off-site.
During 1997, activities at Kensington continued to be directed toward
completing the permitting process, project optimization studies and
feasibility study updates. The current mine optimization study is intended to
reduce the project's capital and operating costs, and a proposed developmental
drilling program is designed to increase the current 1.9 million ounce gold
15
<PAGE>
reserve. As of December 31, 1997, the Company had invested a total of $122.5
million (including capitalized interest of $26.6 million) in the Kensington
property.
The Company's capital expenditures at the Kensington Property totaled
approximately $9.1 million (excluding capitalized interest) in 1997. Such
capital expenditures were used to continue the permitting and optimization
activities. The Company plans approximately $9.7 million (excluding
capitalized interest) of capital expenditures at the mine during 1998 which
are planned to be used to complete the permitting, optimization activities,
and mine development.
Coeur does not intend to develop the Kensington Property unless the
optimization study and developmental program demonstrate the results required
to make Kensington an economically attractive project. Based on the current
mine design, Kensington requires an average realized price of $400 per ounce
of gold over the life of the project, whether achieved through spot sales or
forward sales contracts, in order to generate the necessary return on
investment. The Company expects to lower the required threshold price
necessary to develop the project based upon the preliminary results of the
optimization study.
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. Final permitting of the Kensington gold project is
nearing completion. The Final Supplemental Environmental Impact Statement has
been issued by the USFS, which is in the process of reviewing the Plan of
Operations for the mine. The CBJ has issued its Large Mine Permit. The State
of Alaska adopted a regulation which provides a site specific water quality
standard for the discharge of total dissolved solids, and has certified EPA's
NPDES permit. It is expected that EPA will issue its final NPDES permit within
the next few weeks. The Army Corps of Engineers has issued its section 404
permit, which is undergoing review by the State of Alaska for consistency with
Alaska regulatory requirements, after which the Corps' permit will be issued
in final form.
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.
16
<PAGE>
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 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 are patented
claims.
INTEREST 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. In May 1997, Coeur
acquired an additional 7,820,907 shares of Gasgoyne, constituting
approximately 14% of the outstanding shares of Gasgoyne, from Sons of Gwalia
for US$14.9 million, as a result of which Coeur's ownership interest in
Gasgoyne was increased to 50% of the outstanding shares.
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 220 miles east of
Perth, which started production in 1991. Gasgoyne also has a 45% interest in
the Awak Mas Gold Project ("Awak Mas") in Indonesia. Gasgoyne sold its
interest in Awak Mas in January 1998 for consideration of US$14.9 million
cash, 10 million shares of Lone Star Exploration NL and a royalty of $2 per
ounce of gold after 2 million ounces have been produced.
During the 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. Coeur's interest in Gasgoyne is being
accounted for under the equity method.
17
<PAGE>
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, and during the year ended December 31, 1997. 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, and a
25% interest (i.e., 50% of one-half) after May 1997:
<TABLE>
<CAPTION>
Eight Months Ended Year Ended
December 31, 1996 December 31, 1997
------------------ -----------------
<S> <C> <C>
Ore milled (tons)..... 587,582 1,502,111
Gold (ounces)......... 85,591 174,848
</TABLE>
The following table sets forth the costs of production per ounce of gold
during the years ended December 31, 1996 and 1997. Cash costs include mining,
processing and direct administration costs, royalties and exploration
expenses.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Cash costs per ounce................ $ 217.91 $ 255.11
Depreciation, depletion and
amortization per ounce............. 99.39 161.35
-------- --------
$ 317.30 $ 416.46
======== ========
</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. The increase in per ounce costs in 1997
compared to 1996 relate to the planned transition of mining at the Yilgarn
Star Mine from an open-pit operation to an underground operation and mining of
the uppermost portion of the underground mine which temporarily resulted in a
lower grade of ore being delivered to the mill.
Yilgarn Star proven and probable reserves as of January 1, 1998
estimated by Gasgoyne Gold Mines totalled 5.858 million tons averaging 0.136
ounces per ton gold, or a total of 796,000 ounces of gold. An additional 2.302
million tons of mineralized material has been identified at a grade of 0.21
ounces gold per ton.
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.
The Golden Cross Mining License covers an area of approximately 961
acres of which 274 acres are occupied by the current Golden Cross Mine
18
<PAGE>
operation. The mine property includes 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. Open pit mining operations were discontinued in
December 1997 and limited mining of underground ores will continue until April
1998, at which time all mining operations will cease.
As disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, the Company announced on July 10, 1996 a $53 million
write-down of its interest in the Golden Cross Mine and the nearby Waihi East
property, which included accrual of the then estimated future closure and
remediation costs and a writedown of the carrying value of the Company's 80%
interest in the property. In the last quarter of 1996, it appeared that the
interim slide remedial measures were successful in stabilizing the extent of
the ground movement and the New Zealand Regulatory Authorities approved the
Company's application to permit the raising of the Golden Cross Mine tailings
impoundment crest. As a result of the completion of the crest raising in early
1997, the Company was able to implement a previously planned mill optimization
and to continue to operate the mine through the end of 1997. Although the
deep-seated ground movement below the Golden Cross Mine tailings impoundment
that necessitated the Company's 1996 write-down appeared to stabilize in late
1996 and during 1997, limited tailings disposal capacity required that open
pit mining activities at the mine be discontinued in December 1997. Limited
mining of underground ores will continue until April 1998, at which time all
mining operations will cease.
In the second quarter of 1997, the Company received its 80% share of a
$10 million insurance recovery relating to business interruption and property
damage at the mine. Since the recovery was not assured at the time of the
original writedown, it was not accrued as part of that writedown; therefore,
the $8 million of insurance proceeds were recorded as other income in 1997.
During 1997, the Company expended approximately $4.5 million in connection
with additional remediation activities at the mine and expects that additional
remediation costs at the mine during 1998 will approximate $1.4 million. In
addition, the Company estimates that the costs, net of salvage revenues, to be
incurred in 1998 in connection with the closure of the mine will approximate
$4.0 million.
The following table sets forth Golden Cross Mine production data
attributable to Coeur's 80% interest in the mine:
<TABLE>
<CAPTION>
Eight Months Year Ended December 31,
Ended ------------------------------------------------------
December 31, 1993 1994 1995 1996 1997
----------------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ore milled (tons)... 492,617 727,427 731,453 827,642 833,836
Gold (ounces)....... 56,898 67,400 83,058 64,365 83,110
Silver (ounces)..... 175,325 222,246 286,216 205,070 271,776
</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
19
<PAGE>
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 Year Ended December 31,
Ended ------------------------------------------------------
December 31, 1993 1994 1995 1996 1997
----------------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total cash
costs per ounce... $220.26 $276.96 $232.74 $369.56 $245.34
Depreciation,
depletion and
amortization
per ounce ........ 116.40 111.53 81.08 38.22 44.13
------- ------- ------- ------- -------
Total cost per ounce $336.66 $388.49 $313.82 $407.78 $289.47
======= ======= ======= ======= =======
</TABLE>
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.
SILVER AND GOLD PRICES
The Company's operating results are substantially dependent upon the
world market prices of silver and gold. The Company has no control over silver
and gold prices, which can fluctuate widely. The volatility of such prices is
illustrated by the following table, which sets forth the high and low prices
of silver (as reported by Handy and Harman) and gold (London final) per ounce
during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1994 1995 1996 1997
------------------- ------------------- ------------------- --------------------
High Low High Low High Low High Low
------- ------- ------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silver $ 5.76 $ 4.63 $ 6.01 $ 4.36 $ 5.79 $ 4.67 $ 6.21 $ 4.21
Gold $396.25 $369.65 $395.55 $372.40 $414.80 $367.40 $366.55 $283.00
</TABLE>
MARKETING
Coeur has historically sold the gold and silver from its mines both
pursuant to forward contracts and at spot prices prevailing at the time of
sale. Entering into forward sale contracts is a strategy used to mitigate some
of the risks associated with fluctuating precious metals prices. The Company
continually evaluates the potential benefits of engaging in these strategies
based on the then current market conditions. At December 31, 1997, the Company
was not a party to any forward sale or purchase contracts other than through
Silver Valley Resources and Gasgoyne. At December 31, 1997, Silver Valley
Resources had purchased contracts in the open market requiring it to purchase
500,000 ounces of silver attributable to Coeur's interest in Silver Valley
Resources at an average cost of $5.70 per ounce. The Company marks these
contracts to market and, accordingly, records any gain or loss on these
contracts on a monthly basis. As of December 31, 1997, Gasgoyne had sold
forward 175,000 ounces of gold attributable to Coeur's interest in the Yilgarn
20
<PAGE>
Star Mine at an average minimum price of approximately A$601 per ounce (or
approximately US$388 per ounce based on currency exchange rates on December
31, 1997).
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 was recorded in 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 $4.9 million, $7.7 million and $8.7
million were incurred by the Company in connection with exploration activities
in 1995, 1996 and 1997, respectively.
Coeur is conducting extensive silver and gold exploratory activities at
or adjacent to its existing mining properties. In particular, exploratory
drilling is being conducted at the Rochester, Fachinal and El Bronce Mines and
nearby properties.
Silver Valley Resources is engaged in exploration projects at the Coeur
and Galena Mines and adjacent Caladay project, including the leased Sterling
Mining Company, Placer Creek Mining Company, Silver Buckle Mines, Inc. and
American Silver Mining Company properties in the Coeur d'Alene Mining District
in northern Idaho, which historically has been one of the largest silver
producing regions in the world; and Gasgoyne is conducting exploratory
activities in Western Australia.
Coeur's most significant other exploration activities are being
conducted in Guyana, Mexico and Chile. At the Groete Creek property, a
low-grade gold, potential bulk volume mining property located near Georgetown,
Guyana, Coeur has completed an internally generated resource calculation that
estimates 76.9 million tons of mineralized material averaging 0.02 ounces of
gold per ton based on a preliminary pit design using a 0.01 ounce per ton gold
cutoff grade. Coeur has an option to purchase 75% of the mineral rights at
Groete Creek on or prior to December 20, 1998 for $700,000. At the KM66
property in the state of Durango, Mexico, which has low-grade silver, bulk
tonnage open pit mining potential, Coeur's continuing drilling program has
indicated silver-zinc-lead mineralization. Coeur has internally estimated 5.3
million tons at 1.65 ounces per ton silver, 0.71% lead and 1.34% zinc at the
KM 66 property. Coeur has an option to purchase 100% of the mineral rights at
the KM 66 property on or before January 2000 for $4.0 million. Finally, Coeur
has several other exploration projects located throughout Chile. The Company
may elect to sell any of its exploration properties during 1998.
21
<PAGE>
GOVERNMENT REGULATION
GENERAL
The Company's activities are subject to extensive federal, state and
local laws governing the protection of the environment, prospecting,
development, production, taxes, labor standards, occupational health, mine
safety, toxic substances and other matters. Although such regulations have
never required the Company to close any mine and the Company is not presently
subject to any material regulatory proceedings related to such matters, the
costs associated with compliance with such regulatory requirements are
substantial and possible future legislation and regulations could cause
additional expense, capital expenditures, restrictions and delays in the
development of the Company's properties, the extent of which cannot be
predicted. In the context of environmental permitting, including the approval
of reclamation plans, the Company must comply with known standards and
regulations which may entail significant costs and delays. Although Coeur has
been recognized for its commitment to environmental responsibility and
believes it is in substantial compliance with applicable laws and regulations,
amendments to current laws and regulations, the more stringent implementation
thereof through judicial review or administrative action or the adoption of
new laws, could have a materially adverse effect upon the Company.
For the years ended December 31, 1996 and 1997, the Company expended
$3.1 million and $5.0 million, respectively, in connection with routine
environmental compliance activities at its operating properties and expects to
expend approximately $7.5 million for that purpose in 1998. The Company
expended approximately $12.1 million and $4.5 million in connection with its
ground movement remediation activities at the Golden Cross Mine in 1996 and
1997, respectively. In addition, since the inception of the project through
December 31, 1997, the Company expended approximately $13.5 million on
environmental and permitting activities at the Kensington Property and expects
to spend approximately $1.7 million there for that purpose in 1998. 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 plans to develop 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
are currently regulated as hazardous wastes by the EPA under RCRA. The EPA is
studying how mine wastes from extraction and benefication should be managed
and regulated. If the Company's mine wastes were treated as hazardous waste or
such wastes resulted in operations being designated as a "Superfund" site
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund") for cleanup, material expenditures would be required
for the construction of additional waste disposal facilities or for other
remediation expenditures. Under CERCLA, any owner or operator of a Superfund
site since the time of its contamination generally may be held liable and may
22
<PAGE>
be forced to undertake remedial cleanup action or to pay for the government's
cleanup efforts. Additional regulations or requirements may also be imposed
upon the Company's tailings and waste disposal in Idaho and Alaska under the
Federal Clean Water Act ("CWA") and in Nevada under the Nevada Water Pollution
Control Law which implements the CWA. Air emissions are subject to controls
under Nevada's, Idaho's and Alaska's air pollution statutes implementing the
Clean Air Act.
The Company's commitment to environmental responsibility has been
recognized in 14 awards received since 1987, which included the Dupont/Conoco
Environmental Leadership Award, awarded to the Company on October 1, 1991 by a
judging panel that included representatives from environmental organizations
and the federal government and the "Star" award granted on June 23, 1993 by
the National Environmental Development Association, and the Environmental
Waikato Regional Council award for Golden Cross environmental initiative
granted on May 15, 1995. In 1994, the Company's Chairman and Chief Executive
Officer, and in 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 defendants, including
the Company, asserting claims under CERCLA and the CWA for alleged damages to
federal natural resources in the Coeur d'Alene River Basin of northern Idaho
as a result of alleged releases of hazardous substances from mining activities
conducted in the area since the late 1800s.
PENDING MINING LEGISLATION
Legislation is presently being considered in the U.S. Congress to change
the Mining Law of 1872 (the "Mining Act") under which the Company holds mining
claims on public lands. It is possible that the Mining Act will be amended or
be replaced by more onerous legislation in the future. The legislation under
consideration, as well as regulations under development by the Bureau of Land
Management, contain new environmental standards and conditions, additional
reclamation requirements and extensive new procedural steps which would be
likely to result in delays in permitting. Among the bills under consideration
are bills calling for an 8% gross royalty, a 2.5% or 5% net smelter return
royalty or a 3.5% net proceeds royalty on the value of minerals mined on
public lands, payable to the U.S. government. The Company believes that if and
when any royalty is imposed, it will not be a gross royalty. A significant
portion of Coeur's U.S. mining properties are on public lands. Any reform of
the Mining Act or regulations thereunder based on these initiatives could
increase the costs of mining activities on unpatented mining claims, and as a
result could have an adverse effect on the Company and its results of
operations. Until such time, if any, as new reform legislation or regulations
23
<PAGE>
are enacted, the ultimate effects and costs of compliance on the Company
cannot be estimated.
FOREIGN GOVERNMENT REGULATIONS
The mining properties of the Company that are located in New Zealand 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 interest in the 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.
24
<PAGE>
EMPLOYEES
At March 1, 1998, the Company employed a total of 949 full-time
employees, of which 42 are located at the Company's executive offices in Coeur
d'Alene, Idaho, 266 are employed at the Rochester Mine, 32 are employed at the
Golden Cross Mine in New Zealand, 588 are employed at the Fachinal and El
Bronce Mines in Chile, and 21 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.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data with respect to the Company and its subsidiaries and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report.
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997 (6)
---------- --------- --------- ---------- ---------
(Thousands Except Per Share Information)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Income:
Sale of concentrates
and dore' $ 67,990 $ 79,606 $ 89,239 $ 92,731 $139,037
Less cost of mine operations 59,804 67,802 72,210 $ 83,283 141,873
--------- --------- --------- --------- ---------
Gross profits 8,186 11,804 17,029 9,448 (2,836) (7)
Other income 5,388 12,587 9,504 $ 13,159 $ 20,945
--------- --------- --------- --------- ---------
Total income 13,574 24,391 26,533 22,607 18,109
Other expenses 31,548 29,392 27,591 23,946 32,434
Writedown of mining properties (4) 54,415
--------- --------- --------- --------- ---------
Total expenses 31,548 29,392 27,591 78,361 32,434
--------- --------- --------- --------- ---------
Net loss from continuing
operations before income
taxes (17,974) (5,001) (1,058) (55,754) (14,325)
Provision (benefit) for
income taxes (3,932) (265) 200 (1,184) (242)
--------- --------- --------- --------- ---------
Net loss from continuing
operations (14,042) (4,736) (1,258) (54,570) (14,083)
Income from discontinued
operations(net of taxes)(1) 752 793 2,412
--------- --------- --------- --------- ---------
Income(loss) before cumulative
effect of change in
accounting method (13,290) (3,943) 1,154 (54,570) (14,083)
Cumulative effect of
change in accounting
method(2) 5,181
--------- --------- --------- --------- ---------
Net income (loss) $ (8,109) $ (3,943) $ 1,154 $(54,570) $(14,083)
========= ========= ========= ========= =========
Net income(loss) attributable
to Common Shareholders $ (8,109) $ (3,943) $ 1,154 $(62,967) $(24,614)
========= ========= ========= ========= =========
Basic and diluted earnings per share
data(3):
Net loss from continuing
operations $ (.92) $ (.31) $ (.08) $ (2.93) $ (1.12)
Income from discontinued
operations (net of taxes) .05 .05 .15
--------- --------- --------- --------- ---------
Income (loss) before
cumulative change in
accounting method (.87) (.26) .07 (2.93) (1.12)
Cumulative effect of change
in accounting method .34
--------- --------- --------- --------- ---------
Net income (loss) attributable
to Common Shareholders $ (.53) $ (.26) $ .07 $ (2.93) $ (1.12)
========= ========= ========= ========= =========
Cash dividends paid per
Common Share $ .15 $ .15 $ .15 $ .15
========= ========= ========= =========
Weighted average
number of shares of
Common Stock 15,308 15,371 15,879 21,465 21,890
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Total Assets $325,249 $412,361 $445,646 $580,330 $661,422
Working capital 104,883 170,087 105,597 179,626 221,610
Long-term liabilities 133,241 234,009 184,789 202,566 300,872
Shareholders' equity 170,849 160,292 239,832 346,198 322,089
<FN>
(1) On May 2, 1995, the Company sold the assets of its flexible hose and
tubing division, The Flexaust Company, and shares of a related
subsidiary for approximately $10.0 million, of which approximately $4
million was paid at the time of closing and the balance is payable over
the next five years. The results of operations and the gain on sale of
Flexaust manufacturing segment are presented as "Discontinued
Operations." The Company recorded a pre-tax gain on the sale of
approximately $3.9 million ($2.2 million net of income taxes) during the
second quarter of 1995.
(2) Effective January 1, 1993, the Company changed its method of accounting
for income taxes by adopting Statement of Financial Accounting Standards
(FAS) 109, "Accounting for Income Taxes." FAS 109 requires an asset and
liability approach to accounting for income taxes and establishes
criteria for recognizing deferred tax assets. Accordingly, the Company
26
<PAGE>
adjusted its existing deferred income tax assets and liabilities to
reflect current statutory income tax rates and previously unrecognized
tax benefits related to federal and certain state net operating loss
carryforwards. FAS 109 also contains new requirements regarding balance
sheet classification and prior business combinations. Hence, the Company
adjusted the carrying values of an incremental interest in the Rochester
Property acquired in 1988 and CDE Chilean Mining Corp. acquired in 1990
to reflect the gross purchase value previously reported net-of-tax. The
cumulative effect of the accounting change on prior years at January 1,
1993 is a nonrecurring gain of $5,181,188, or $.34 per share, and is
included in the Consolidated Statement of Operations for the year ended
December 31, 1993. Other than the cumulative effect, the accounting
change had no material effect on the results of operations for the year
ended December 31, 1993.
(3) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." For further discussion of earnings per share
and the impact of Statement No. 128, see notes to the consolidated
financial statements.
(4) 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.
(5) Included in the results of operations for the year ended December 31,
1995 are (i) a gain of $4.4 million (included in other income) from the
sale of gold and silver purchased in the open market which was in turn
delivered pursuant to fixed price forward contracts during the year; and
(ii) $2.4 million of income from discontinued operations (including the
$2.2 million after-tax gain from the related sale of certain non-mining
assets in May 1995) during the year.
(6) Included in the results of operations for 1997 are (i) the receipt of
$8.0 million of insurance proceeds for business interruption and
property damage at the Golden Cross Mine and (ii) a gain of $5.3 million
arising from the sale of gold purchased in the open market which was
delivered pursuant to fixed price forward contracts in the first quarter
of 1997.
(7) The gross loss from mining operations for 1997 amounted to approximately
$2.8 million compared to a gross profit from mining operations for the
prior year's comparable period of $9.4 million. The decrease primarily
is attributable to (i) substantially lower silver and gold prices in
1997, during which period the average silver and gold prices were $4.89
and $331.10 pr ounce, respectively, compared to $5.18 and $387.70 per
ounce, respectively, in 1996; (ii) the unprofitable operations of the El
Bronce Mine and the fact that the Company increased its ownership of
that mine from 50% to 100% in the third quarter of 1996, which resulted
in a proportionate increase in the cost of mine operations during 1997;
and (iii) the unprofitable operation at the Fachinal Mine and the fact
that the Company classified that mine as an operating property for
accounting purposes as of January 1, 1997, and therefore began recording
cost of mine operation at that mine on that date. Of the approximately
$58.6 million increase in the cost of mine operations in 1997 over the
prior year's comparable period, approximately $19.6 million, or 33.4%,
were non-cash expenses attributable to the 86.4% increase in
depreciation, depletion and amortization expense recorded in the year
ended December 31, 1997. Such increase in non-cash expenses primarily
resulted from the Company's increased El Bronce interest and the fact
that no such expenses were being recorded by Fachinal during 1996.
</FN>
</TABLE>
27
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1997
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
<PAGE>
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, 1997 and 1996, 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, 1997. 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, 1997 and
1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Seattle, Washington /s/ERNST & YOUNG LLP
February 20, 1998
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- ---------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $114,204 $ 43,455
Funds held in escrow 400
Short-term investments 98,437 124,172
Receivables 11,103 11,573
Inventories 35,927 31,992
--------- ---------
TOTAL CURRENT ASSETS 260,071 211,192
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 119,808 118,993
Less accumulated depreciation 58,097 50,743
--------- ---------
61,711 68,250
MINING PROPERTIES
Operational mining properties 245,979 171,517
Less accumulated depletion 61,477 38,264
--------- ---------
184,502 133,253
Developmental properties 134,236 110,985
--------- ---------
318,738 244,238
OTHER ASSETS
Investment in unconsolidated affiliate 48,231
Notes receivable 8,498 4,000
Debt issuance costs, net of accumulated
amortization 8,809 4,081
Other 3,595 338
--------- ---------
20,902 56,650
--------- ---------
$661,422 $580,330
========= =========
</TABLE>
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ---------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,983 $ 4,327
Accrued liabilities 6,345 4,976
Accrued interest payable 6,631 4,968
Accrued salaries and wages 7,553 5,242
Bank loans 4,406 8,021
Current portion of remediation costs 7,300 3,500
Current portion of obligations under
capital leases 243 532
--------- ---------
TOTAL CURRENT LIABILITIES 38,461 31,566
LONG-TERM LIABILITIES
6% subordinated convertible debentures due 2002 49,840 49,840
6 3/8% subordinated convertible debentures due 2004 95,000 100,000
7 1/4% subordinated convertible debentures due 2005 143,750
Long-term borrowings 1,159 39,900
Other long-term liabilities 8,403 12,826
Deferred income taxes 2,720
--------- ---------
TOTAL LONG-TERM LIABILITIES 300,872 202,566
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 22,949,779
and 22,950,182 shares in 1997 and 1996
(including 1,059,211 shares held in treasury) 22,950 22,950
Capital surplus 389,648 400,187
Accumulated deficit (84,542) (70,459)
Unrealized gains (losses) on short-term
investments 145 (352)
Repurchased and nonvested shares (13,190) (13,206)
--------- ---------
322,089 346,198
--------- ---------
$661,422 $580,330
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
INCOME
Sale of concentrates and dore' $139,037 $ 92,731 $ 89,239
Less cost of mine operations 141,873 83,283 72,210
--------- --------- ---------
GROSS PROFITS (LOSS) (2,836) 9,448 17,029
--------- --------- ---------
OTHER INCOME--interest, dividends, and other 20,945 13,159 9,504
TOTAL INCOME 18,109 22,607 26,533
EXPENSES
Administration 4,430 3,716 3,677
Accounting and legal 2,230 1,753 1,626
General corporate 6,732 7,147 6,207
Mining exploration 8,722 7,695 4,854
Interest 10,320 3,635 9,746
Writedown of mining properties 54,415
Idle facilities 1,481
--------- --------- ---------
TOTAL EXPENSES 32,434 78,361 27,591
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (14,325) (55,754) (1,058)
Provision (benefit) for income taxes (242) (1,184) 200
--------- --------- ---------
NET LOSS FROM CONTINUING OPERATIONS (14,083) (54,570) (1,258)
Income from discontinued operations
(net of taxes) 2,412
--------- --------- ---------
NET INCOME (LOSS) $(14,083) $(54,570) $ 1,154
========= ========= =========
NET INCOME(LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(24,614) $(62,967) $ 1,154
========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE DATA
Weighted average number of shares
of Common Stock (in thousands) 21,890 21,465 15,879
========= ========= =========
Net loss attributable to Common Shareholders:
Net loss from continuing operations $ (1.12) $ (2.93) $ (.08)
Income from discontinued operations .15
--------- --------- ---------
Net income (loss) per share $ (1.12) $ (2.93) $ .07
========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $ .15 $ .15
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY For Years Ended
December 31, 1997, 1996, and 1995
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock Unrealized
(MARCS) Common Stock Gains Repurchased and
------------------- ------------------ (Losses) on Non-Vested Shares
Par Par Capital Accumulated Short-Term ------------------
Shares Value Shares Value Surplus Deficit Investments Shares Amount Total
-------- -------- -------- --------- --------- --------- ------------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 16,633 $16,633 $182,881 $(17,043) $(8,820) (1,059) $(13,358) $160,293
1, 1995
Net Income 1,154 1,154
Cash Dividends (2,339) (2,339)
Issuance of Shares Under
Stock Compensation Plan
(net)
24 24 384 94 502
Unrealized Gains on 9,181 9,181
Marketable Securities
Conversion of 7%
Debentures
4,867 4,867 66,174 71,041
----- ------ ------ ------ --------- -------- -------- ------- -------- ---------
Balance at December 31,
1995
21,524 21,524 247,100 (15,889) 361 (1,059) (13,264) 239,832
Net Loss (54,570) (54,570)
Issuance of MARCS 7,078 $7,078 137,548 144,626
Cash Dividends (11,028) (11,028)
Issuance of Shares
Under Stock
Compensation Plan (net) 58 58
Shares Issued on
Acquisition of 1,420 1,420 26,467 27,887
Unconsolidated
Affiliate
Unrealized Loss on
Marketable Securities (713) (713)
Conversion of 6% 6 6 150 156
Debentures
Other (50) (50)
----- ------ ------ ------ --------- -------- -------- ------- -------- ---------
Balance at December 7,078 7,078 22,950 22,950 400,187 (70,459) (352) (1,059) (13,206) 346,198
31, 1996
Net Loss (14,083) (14,083)
Cash Dividends (10,532) (10,532)
Issuance of Shares
Under Stock
Compensation Plan (net) 16 16
Unrealized Gains
on
Marketable Securities 497 497
Other (7) (7)
----- ------ ------ ------ --------- -------- -------- ------- -------- ---------
Balance at December 31,
1997 7,078 $7,078 22,950 $22,950 $389,648 $(84,542) $ 145 (1,059) $(13,190) $322,089
===== ====== ====== ======= ========= ========= ======== ======= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5 / F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (14,083) $ (54,570) $ (1,258)
Add (deduct) noncash items:
Depreciation, depletion, and
amortization 35,631 13,381 16,893
Deferred income taxes (594) (1,402) (1,786)
(Gain) loss on disposition of property,
plant and equipment (102) (985) 458
Loss on foreign currency
transactions 985 155 597
(Gain) loss on disposition of
marketable securities 947 (1,262) 885
Writedown of mining property 54,415
Undistributed (earnings) loss of investment
in unconsolidated subsidiary 214 (1,905)
Changes in Operating Assets and Liabilities:
Receivables 1,907 3,493 (1,239)
Inventories (3,256) 1,824 3,234
Accounts payable and
accrued liabilities (4,426) (5,360) 2,528
----------- ----------- -----------
Net cash provided by continuing operations 17,223 7,784 20,312
Income from discontinued operations 2,412
Add (deduct) noncash items:
Depreciation, depletion and amortization 85
Gain on disposition of
discontinued operations (3,964)
Deferred income taxes 1,608
Change in operating assets and liabilities
Receivables 601
Inventories (30)
Accounts payable and accrued liabilities (109)
----------- ----------- -----------
Net cash provided by discontinued operations 603
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 17,223 7,784 20,915
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (180,511) (148,952) (2,424)
Proceeds from sales of short-term investments
and marketable securities 204,981 92,167 70,112
Acquisition of Gasgoyne Gold Mines NL (14,643) (19,301)
Purchases of property, plant and
equipment (2,898) (4,799) (44,895)
Proceeds from sale of assets 505 2,372 1,177
Proceeds from collection of notes receivable 1,363 2,566
Proceeds from sale of discontinued operations 3,133
Expenditures on operational mining properties (14,838) (44,432) (21,027)
Expenditures on developmental properties (14,351) (13,066) (42,510)
Other (3,400) 2,148 (1,418)
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (23,792) (131,297) (37,852)
</TABLE>
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS,
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of obligations under capital leases (501) (2,041) (2,041)
Payment of cash dividends (10,532) (11,028) (2,339)
Proceeds from MARCS issuance 144,626
Proceeds from 71/4% debentures issuance 138,090
Proceeds from bank borrowings 19,186 24,000
Payment of debenture costs (1,346)
Retirement of long-term debt (49,513)
Retirement of other long-term liabilities (226) (260)
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 77,318 150,483 18,274
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 70,749 26,970 1,337
Cash and cash equivalents at beginning
of year:
Related to continuing operations 43,455 16,485 14,707
Related to discontinued operations 441
----------- ----------- -----------
43,455 16,485 15,148
----------- ----------- -----------
Cash and cash equivalents at end
of year related to continuing operations $ 114,204 $ 43,455 $ 16,485
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
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
and/or liabilities. Intercompany balances and transactions have been
eliminated in consolidation. Investments in joint ventures, where the Company
can take its share of production in physical product and fund its
proportionate share of expenses, are accounted for on a proportionate
consolidation basis. The investment in the Golden Cross Mine is an undivided
interest in an unincorporated joint venture and is accounted for on the
proportionate consolidation basis.
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.
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, 1997 and 1996, cash and cash equivalents
included $15.6 million and $15.9 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.
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, 3 to 13 years for machinery and equipment and 3 to
F-9
<PAGE>
7 years for furniture and fixtures. Certain mining equipment is depreciated
using the units-of-production method based upon estimated total reserves.
Maintenance and repairs are charged to operations as incurred.
MINING PROPERTIES: Values for mining properties represent acquisition
costs and/or the fair value of consideration paid plus developmental costs.
Cost depletion has been recorded based on the units-of-production method based
on proven and probable reserves. Management evaluates the net carrying value
of all operations, property by property, 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. 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 ("FAS
121") 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 be based on
projected mineable resources and mine life and/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, 1997 and 1996, the
Company has recorded accrued reclamation costs of $7.8 million and $6.0
million, net of salvage values, as of December 31, 1997 and 1996,
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. The 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 writedown would be effected.
F-10
<PAGE>
SHORT-TERM INVESTMENTS: The Company invests in debt and equity
securities which are classified as available-for-sale, according to provisions
of Financial Accounting Standard No. 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.
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.
Non-monetary 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: In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share." Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement 128 requirements.
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.
RECLASSIFICATION: Certain reclassifications of prior year balances have
been made to conform to current year presentation.
NOTE C--INVESTMENT IN MINING COMPANIES
EL BRONCE: In July 1994, the Company had 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
F-11
<PAGE>
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.
GASGOYNE: In May 1996, Coeur acquired approximately 35% of the
outstanding shares of Gasgoyne Gold Mines NL ("Gasgoyne"), an Australian gold
mining company, by issuing a total of 1,419,832 shares of the Company's Common
Stock and paying cash totaling approximately $15.4 million to Gasgoyne
shareholders. 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. In May 1997, the Company
acquired, for approximately US$14.6 million in cash, an additional 14%
interest in Gasgoyne, increasing its total ownership to 50%. The acquisition
has been accounted for as a purchase. Concurrent with the increase in
ownership in 1997, the Company entered into several agreements with the other
50% owner which entitled the Company to take a 50% share of Gasgoyne gold
production in kind and which requires the Company to pay 50% of Gasgoyne's
liabilities. The Company reports its share of Gasgoyne earnings pursuant to
the equity method.
The following table sets forth a condensed summary of the results of
operations of Gasgoyne for the twelve-month period ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Total Revenues $30,385 $35,098
Operating Profit $ 3,021 $13,191
Net Income $ 1,129 $12,087
</TABLE>
F-12
<PAGE>
The following pro forma information reflects the Company's results of
operations as if the acquisition of the additional 14% of Gasgoyne, increasing
its total ownership interest to 50%, that occurred in May 1997, had occurred
at the beginning of the periods presented.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Total income $ 17,994 $ 21,532
Net loss $(14,014) $(55,159)
Basic and diluted net
loss per share $ (.64) $ (2.57)
</TABLE>
NOTE D--WRITE-DOWN OF MINING PROPERTIES
On April 30, 1993, the Company acquired an 80% operating interest in the
Golden Cross Mine and at which mining activities were substantially
discontinued in December 1997. The mine is a gold and silver surface and
underground mining operation located near Waihi, New Zealand. During the
second quarter of 1996, the Company determined that certain adjustments were
required to properly reflect the estimated net realizable value of certain
mining properties 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"). The impetus for this
determination began in late July 1995 when physical evidence indicated that
the land adjacent to the tailings impoundment appeared to have sustained some
movement. An investigation to determine the significance of this movement was
undertaken promptly. By September, 1995, consultants advised Coeur Gold New
Zealand Ltd. that the adjacent land had moved and that it may have affected
the tailings dam. However, they advised that certain data would have to be
collected before they could confirm that assessment. That investigation
included the drilling of holes in the land with measurement devices inserted
in the holes (these devices are called "inclinometers"). Further additional
measurement devices called "piezometers" were inserted in still different
holes drilled in the land and the data collected from those and other sources
was sufficient to lead the consultants to conclude by February, 1996 that
significant remedial measures would have to be taken. Based on those
recommendations Coeur Gold estimated the cost of implementation would be
approximately $4 million. That estimate was made in February 1996 and
presented to the Company's Board of Directors at its regular March 1996
meeting.
Continuing evaluation after March 1996 revealed that the geographical
extent of the land movement was larger, wider, longer and more complex than
identified in the February 1996 estimate. By May 1996, as the planned remedial
measures were implemented, the Company determined that the measures, upon
which its previous cost estimates had been based, were not wholly effective.
Additional data was needed, which required more hole drillings and more work
on the ground. It was not until late May 1996 that the Golden Cross managers
and the Company engineers concluded that the cost of remediation would exceed
the initial February 1996 estimate. The estimate was revised to approximately
$11 million in July to account for the more extensive remediation efforts. In
addition, because of the significance of the ground movement, the Company
determined 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 tailings dam had not been stabilized, and,
consequently, it was believed the government would not likely consent to a
F-13
<PAGE>
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.
As a result of the foregoing factors, there was an indication of
potential impairment requiring assessment under FAS No. 121. Consequently, the
Company recorded a charge in the second quarter of 1996 totaling $53 million
relating to its investment in the Golden Cross mine and in the nearby Waihi
East property. The charge included amounts necessary to increase the Company's
recorded remediation and reclamation liabilities at Golden Cross to
approximately $7 million, net of salvage values, 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.
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,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Sales of dore' $ 28,525 $ 26,293
Cost of mine operations (25,585) (28,069)
Insurance proceeds 8,000
Writedown of mining property (52,036)
Net income (loss) before
income taxes $ 10,940 $ (53,812)
========== ==========
</TABLE>
In 1997, $8 million of the reported income was related to the Golden
Cross insurance recovery not measurable or anticipated at the time of the
original writedown. The remaining $2.9 million is related to residual
mining activities which benefited from lower depletion.
<TABLE>
<S> <C> <C>
Assets $ 6,152 $ 2,408
Liabilities (37,933) (47,271)
---------- ----------
Shareholders' deficit $ (31,781) $ (44,863)
========== ==========
</TABLE>
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 the
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-14
<PAGE>
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, 1997 and 1996.
<TABLE>
<CAPTION>
Available-For-Sale Securities
----------------------------------------------------------------------------------
(in thousands) Gross Gross Estimated
Unrealized Unrealized Fair
1997 Cost Losses Gains Value
----------------- ------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
U.S. Corporate $ 49,127 $ 3 $ $ 49,124
U.S. Government 47,570 273 47,843
--------- --------- --------- ---------
Total Debt Securities 96,697 3 273 96,967
Equity Securities 2,373 135 10 2,248
--------- --------- --------- ---------
$ 99,070 $ 138 $ 283 $ 99,215
========= ========= ========= =========
1996
-----------------
U.S. Corporate $ 83,236 $ 40 $ 2 $ 83,198
U.S. Government 39,658 25 97 39,730
--------- --------- --------- ---------
Total Debt 122,894 65 99 122,928
Securities
Equity Securities 1,672 389 3 1,286
--------- --------- --------- ---------
$ 124,566 $ 454 $ 102 $ 124,214
========= ========= ========= =========
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $0 and $1.3 million during 1997 and 1996, respectively. The gross
realized losses totaled $1.6 million and $.05 million during 1997 and 1996,
respectively. The gross realized gains and losses are based on a carrying
value (cost net of discount or premium) of $206.5 million and $90.9 million of
short-term investments sold during 1997 and 1996, respectively. Short-term
investments mature at various dates through November 1998.
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 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,
-----------------------
1997 1996
---- ----
<S> <C> <C>
In process and on leach pads $ 24,617 $ 19,948
Concentrate and dore' inventory 5,839 5,735
Supplies 5,471 6,309
-------- --------
$ 35,927 $ 31,992
======== ========
</TABLE>
F-15
<PAGE>
During the fourth quarter of 1997, based on detailed metallurgical
evaluations, the Company changed its estimates of the percentage of minerals
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 for
prospectively. The effects of the change during the fourth quarter decreased
the cost of mine operations by approximately $7 million or $0.32 per basic and
diluted share.
NOTE H--PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
Property, plant, and equipment consists of the following:
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 1,814 $ 1,350
Buildings and improvements 53,740 60,851
Machinery and equipment 55,159 47,697
Capital leases of buildings
and equipment 9,095 9,095
-------- --------
$119,808 $118,993
======== ========
</TABLE>
<TABLE>
Assets subject to capital leases consist of the following:
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Buildings $ 5,105 $ 5,105
Equipment 3,990 3,990
-------- --------
TOTAL BUILDINGS AND EQUIPMENT 9,095 9,095
Rochester operational mining
property 7,871 7,871
-------- --------
16,966 16,966
Less allowance for accumulated
amortization and depletion 10,648 9,863
-------- --------
NET ASSETS SUBJECT TO CAPITAL
LEASES $ 6,318 $ 7,103
======== ========
</TABLE>
Lease amortization is included in depreciation and depletion expense.
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. Total rent expense charged to
operations under these agreements was $4.5 million, $4.6 million and $4.4
million for 1997, 1996, and 1995, respectively.
F-16
<PAGE>
Minimum lease payments under leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Capital Operating
----------- --------- ---------
<S> <C> <C>
1998 $ 361 $ 4,648
1999 92 2,436
2000 1,212
2001 1,075
2002-2003 2,647
------- -------
TOTAL MINIMUM PAYMENTS DUE 453 $12,018
=======
Less amount representing
interest 31
-------
PRESENT VALUE OF NET
MINIMUM LEASE PAYMENTS 422
Less current maturities 243
-------
$ 179
=======
</TABLE>
NOTE I - MINING PROPERTIES
<TABLE>
<CAPTION>
Capitalized costs for mining properties December 31,
consist of the following: 1997 1996
---- ----
<S> <C> <C>
Operational mining properties:
Rochester Mine, less accumulated
depletion of $41,727
and $36,904 $ 34,585 $ 42,372
Silver Valley Resources, less accumulated
depletion of $1,080 and $224 16,620 13,207
El Bronce Mine less accumulated
depletion of $2,844 and $350 38,577 36,222
Fachinal Mine, less accumulated depletion
of $7,760 in 1997 42,811 41,452
Gasgoyne Gold Mines NL, less accumulated
depletion of $6,401 51,909
-------- --------
TOTAL OPERATIONAL MINING PROPERTIES 184,502 133,253
Developmental mining properties:
Kensington 122,457 108,100
Other 11,779 2,885
-------- --------
TOTAL DEVELOPMENTAL MINING PROPERTIES 134,236 110,985
-------- --------
TOTAL MINING PROPERTIES $318,738 $244,238
======== ========
</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. The mine utilizes the heap-leaching
process to extract both silver and gold from ore mined using open pit methods.
Rochester is one of the largest primary silver mines in the United States and
is a significant gold producer as well. 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
$18.07 per ounce.
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
F-17
<PAGE>
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. In June
1996, Silver Valley reopened the Coeur Mine and plans to continue mining
existing reserves through the second quarter of 1998. Exploration at the Coeur
Mine is ongoing in an effort to increase silver reserves and extend the mine's
life beyond 1998. Silver Valley also resumed production at the Galena Mine in
1997, which has ore reserves sufficient to sustain approximately 10 years of
operation. The two mines had previously been on standby basis.
FACHINAL MINE: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile which operated in pre-production
from October 1995 to 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 based on total reserves. The property was classified as
an operating property for financial reporting purposes on January 1, 1997.
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 an ownership interest of 100%.
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. The interest was acquired
for $32.5 million plus a scaled net returns royalty on 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
In October 1997, the Company completed an offering of $143,750,000
principal amount of 7.25% Convertible Subordinated Debentures due 2005 which
are convertible into shares of common stock on or before October 31, 2005,
unless previously redeemed, at a conversion price of $17.45 per share, subject
to adjustment in certain events. The Company is required to make semi-annual
interest payments. The debentures are redeemable at the option of the Company
on or after October 31, 2000, have no other funding requirements until
maturity, and mature October 31, 2005.
The $49.8 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 dollars of principal (equivalent
F-18
<PAGE>
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 and mature June 10, 2002.
The $95 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.
On October 31, 1997, the Company paid $24 million to retire the existing
loan balance 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 up to $24.0
million. The interest rate on the facility is equal to LIBOR plus 1.5%. The
borrowing was 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 NL. As of December 31, 1996,
borrowings amounted to $18.9 million at an annual interest rate equal to LIBOR
plus 1.5%. In late 1997, all outstanding amounts under the operating line were
repaid in full and the line discontinued.
The carrying amounts and fair values of long-term borrowings, as of
December 31, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Value Value
--------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
6% Convertible
Subordinated
Debentures
Due 2002 $ 49,840 $ 36,750 $ 49,840 $ 45,105
6.375% Convertible
Subordinated
Debentures
Due 2004 $ 95,000 $ 74,338 $100,000 $ 93,500
7.25% Convertible
Subordinated
Debentures
Due 2005 $143,750 $108,902
</TABLE>
Total interest accrued in 1997, 1996, and 1995 was $16.2 million, $13.1
million, and $17.1 million, respectively, of which $5.7 million, $9.5 million,
and $7.4 million, respectively, was capitalized as a cost of the mines under
development.
Interest paid was $13.7 million, $12.1 million, and $16.3 million in
1997, 1996, and 1995, respectively.
NOTE K--INCOME TAXES
The components of the provision (benefit) for income taxes in the
consolidated statements of operations are as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
From Continuing Operations:
Current $ (242) $ 203 $ 1,986
Deferred (1,387) (1,786)
-------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $ (242) $(1,184) $ 200
======== ======== ========
From Discontinued Operations:
Current
Deferred $ 1,608
--------
PROVISION FOR INCOME TAX $ 1,608
========
Total:
Current $ (242) $ 203 $ 1,986
Deferred (1,387) (178)
-------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $ (242) $(1,184) $ 1,808
======== ======== ========
</TABLE>
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,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Reserve for loss on
mine closure $ (1,175) $ (971) $ 100
Net mine exploration and
development costs 1,671 (9,299) (2,715)
Net lease payments 60 591 498
Regular tax expense (benefit)
on utilization of net
operating losses (6,142) (32,967) 3,673
Adjustments to net operating
loss and credit carryforwards (8,660) 1,046 (2,083)
Environmental costs (478) 87
Amortization of bond premium 689
Unrealized investment losses 3,087
Change in valuation
allowance 14,701 1,501 (2,420)
Change in deferred
state taxes (412)
Other (455) (810) (682)
--------- --------- ---------
Deferred income tax expense
(benefit) 0 (1,387) (178)
Less differences attributable
to discontinued operations 1,608
--------- --------- ---------
Deferred income tax expense
(benefit) from continuing
operations $ 0 $ (1,387) $ (1,786)
========= ========= =========
</TABLE>
F-20
<PAGE>
As of December 31, 1997 the significant components of the Company's net
deferred tax liability were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
PP&E, net $ 8,527 $ 14,132
--------- ---------
Total deferred tax liabilities 8,527 14,132
Deferred tax assets:
Net operating loss carryforwards 90,319 80,977
AMT credit carryforwards 1,404 1,650
Business credit carryforwards 542 542
--------- ---------
Total deferred tax assets 92,265 83,169
Valuation allowance for deferred
tax assets (83,738) (69,037)
--------- ---------
Net deferred tax assets 8,527 14,132
--------- ---------
Net deferred tax liabilities $ -0- $ -0-
========= =========
</TABLE>
The valuation allowance represents the amount of deferred tax assets
that more likely than not will not be realized in future years. Changes in the
valuation allowance relate primarily to losses which are not currently
recognized. The Company has reviewed its net deferred tax assets, together
with net operating loss carryforwards, and has decided to forego recognition
of potential tax benefits arising therefrom. In making this determination, the
Company has considered the Company's history of tax losses incurred since
1989, the current level of gold and silver prices and the ability of the
Company to use accelerated depletion and amortization methods in the
determination of taxable income.
The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings during the
three-year period ended December 31, 1997. It is not practicable to estimate
the tax liabilities which would result upon such repatriation.
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Tax effect of foreign affiliates'
statutory rates 17.6%
Percentage depletion (12.3%) (3.3%) (190.0%)
Dividend received deduction (15.4%)
Interest on foreign subsidiary debt 177.7%
Equity in earnings of unconsolidated
subsidiaries .6% 49.0%
State income tax provision (25.0%)
Change in valuation allowance 27.4% 38.1% 2.7%
Utilization of net operating losses (73.4%)
Federal tax assessments and
withholding .2% 116.7%
Other (net) (.2%) (1.9%) 11.6%
-------- -------- --------
EFFECTIVE TAX RATE ON CONTINUING
OPERATIONS (1.7%) (2.1%) 18.9%
======== ======== ========
</TABLE>
For tax purposes, as of December 31, 1997, the Company has operating
loss carryforwards as follows:
<TABLE>
<CAPTION>
U.S. New Zealand Australia Chile Total
-------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Regular losses $133,350 $ 85,582 $ 716 $100,838 $320,486
AMT losses 91,366 91,366
AMT credits 1,404 1,404
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 $ 4,888
2006 11,041 4,352
2007 10,702
2008 10,417 1,084
2009 8,994 9,632
2010
2011 72,146 70,549
2012 5,439 861
---------- ---------
Total $ 133,350 $ 91,366
========== =========
</TABLE>
New Zealand, Australian and Chilean laws provide for indefinite carryforwards
of net operating losses. Utilization of U.S. net operating losses may be
subject to limitations due to potential changes in ownership.
As of December 31, 1997, Callahan Mining Corporation, a subsidiary, has
net operating loss carryforwards of approximately $17.4 million and
alternative minimum tax loss carryforwards of approximately $9.2 million which
expire through 2006. The utilization of Callahan Mining Corporation's net
operating losses are 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
converted earlier by the holder into Common Stock or redeemed for Common Stock
by the Company. The annual dividend payable on the MARCS is $1.488 per share,
payable quarterly. The dividends are deducted in computing net income
attributable to Common Shareholders. On 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
F-22
<PAGE>
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, 1997 and 1996, there were a total of 21,890,971 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
1995, benefits were payable in cash and in shares of Common Stock. Under the
Annual Plan in 1997 and 1996, benefits are payable in cash only. 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.
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 1997, options for 365,381 shares were
issued under the plan. As of December 31, 1997 and December 31, 1996,
nonqualified and incentive stock options to purchase 612,447 shares and
314,727 shares, respectively, were outstanding under the Long-Term and
Directors' Plans. The options are exercisable at prices ranging from $13.125
to $27.00 per share.
The Company has a Non-Employee Directors' Stock Option Plan under which
200,000 shares of Common Stock are authorized for issuance and which was
approved by the shareholders in May 1995. Under the Plan, options are granted
only in lieu of an optionee's foregone annual directors' fees. As of December
31, 1997, December 31, 1996 and December 31, 1995, a total of 16,600, 12,210
and 11,287 options, respectively, had been granted in lieu of $.1 million, $.1
million and $.1 million, respectively, of foregone directors' fees.
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" which establishes
accounting and reporting standards for stock-based employee compensation
plans. This statement defines a fair value based method of accounting for
these equity instruments. The method measures compensation expense based on
the estimated fair value of the award and recognizes that cost over the
vesting period. The Company has adopted the disclosure-only provision of
F-23
<PAGE>
Statement No. 123 and therefore continues to account for stock options in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, because options are granted at fair market value, no
compensation expense has been recognized for options issued under the
Company's stock option plans. Had compensation cost been recognized based on
the fair value at the date of the grant for the options awarded under the
plans, pro-forma amounts of the Company's net income (loss) and net income
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Net income (loss) as reported $(14,083) $(54,570) $ 1,154
Net income (loss) pro forma $(14,482) $(54,772) $ 1,067
Basic and diluted net income
(loss) per share as reported $ (.64) $ (2.54) $ .07
Basic and diluted net income
(loss) per share pro forma $ (.66) $ (2.55) $ .07
</TABLE>
The fair value of each option grant was estimated using the Black
Scholes option pricing model with the following weighted average assumptions:
risk free interest rate of 5.75% to 7.95%; expected option life of 4 years for
officers and directors; expected volatility of .385 to .399; and no expected
dividends. The weighted average value of options granted during the years
ended December 31, 1997, 1996 and 1995 were $5.67, $8.19 and $6.65,
respectively. The effect of applying Statement No. 123 for providing pro forma
disclosures for fiscal years 1997, 1996 and 1995 is not likely to be
representative of the effects in future years because options vest over a
4-year period and additional awards generally are made each year.
Total compensation expense charged to operations under the Plans was
$1.5 million, $.9 million, and $1.1 million for 1997, 1996, and 1995,
respectively. A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
----------- --------------
<S> <C> <C>
Stock options outstanding
at 1/1/96 252,401 $ 17.64
Issued 62,326 20.88
-------- --------
Stock options outstanding
at 12/31/96 314,727 18.28
Issued 365,381 14.52
Canceled (67,661) 18.22
-------- --------
Stock options outstanding
at 12/31/97 612,447 $ 16.05
======== ========
</TABLE>
Stock options exercisable at December 31, 1997 and 1996 were 236,761 and
257,493, respectively.
F-24
<PAGE>
The following table summarizes information for options currently outstanding
at December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
----------------- ----------- ----------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$13.125 to $14.99 254,627 9.1 $13.16 13,500 $ 13.75
$15.000 to $17.99 200,159 7.3 $16.53 114,064 $ 15.95
$18.000 to $27.00 157,661 6.2 $20.09 109,197 $ 20.35
------- ---------
612,447 7.8 $16.05 236,761 $ 17.86
======= =========
</TABLE>
As of December 31, 1997 and 1996, 243,244 shares and 447,696 shares,
respectively, were available for future grants under the Plans and 13,873,438
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 U.S. employees. Total plan expense charged to operations
was $.8 million, $.6 million, and $.5 million for 1997, 1996, and 1995,
respectively, which is based on a percentage of salary of qualified employees.
Effective January 1, 1995, the Company 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, $.4 million and $.3 million
in 1997, 1996 and 1995, respectively.
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, 1997,
1996, and 1995, the Company had forward foreign exchange contracts of $3.0
million, $15.8 million, and $41.0 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, 1997, the Company had sold 175,000 ounces of gold for delivery on
various dates through 2003 at an average price of $387.86. For metal delivery
contracts, the realized price pursuant to the contract is recognized when
physical gold or silver is delivered in satisfaction of the contract. The
Company realized gains of $5.3 million and $4.4 million arising from the sale
F-25
<PAGE>
of silver and gold purchased on the open market which was then delivered
pursuant to fixed-price forward contracts during 1997 and 1995, respectively.
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, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------- -------------------------
Forward Unrealized Forward Unrealized Forward Unrealized
Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain (Loss)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Currency:
New Zealand $ 3,024 $ (7) $ 15,845 $ (10) $ 23,269 $ (27)
Chilean $ 17,699 $ (1,993)
Forward Metal Sales $ 67,875 $ 7,404 $ 61,823 $ 3,702 $ 29,535 $ 1,528
</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, 1997, 1996, and 1995, the Company realized gains
(losses) from its foreign exchange hedging programs of $(.9) million, $1.4
million and $1.9 million, respectively.
The credit risk exposure related to all hedging activities is limited to
the unrealized gains on outstanding contracts based on current market prices.
To reduce counter-party credit exposure, the Company deals only with a group
of large credit-worthy financial institutions, and limits credit exposure to
each. In addition, to allow for situations where positions may need to be
reversed, the Company deals only in markets that it considers highly liquid.
The Company does not anticipate nonperformance by any of these counter
parties.
NOTE O--LITIGATION
On March 22, 1996, an action was filed in the United States District for
the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against
various defendants, including Coeur, asserting claims under CERCLA and the
Clean Water Act for alleged damages to federal natural resources in the Coeur
d'Alene River Basin of Northern Idaho as a result of alleged releases of
hazardous substances from mining activities conducted in the area since the
late 1800s. No specific monetary damages were identified in the complaint.
However, in July 1996, the government indicated that damages may approximate
$982 million. The United States asserts that the defendants are jointly and
severally liable for costs and expenses incurred by the United States in
connection with the investigation, removal and remedial action and the
restoration or replacement of affected natural resources. In 1986 and 1992,
the Company had settled similar issues with the State of Idaho and the Coeur
d'Alene Indian Tribe, respectively, and believes that those prior settlements
exonerate it of further involvement with alleged natural resource damage in
the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously
defend this matter and on March 27, 1997, filed a motion for summary judgment
seeking dismissal of the Company from the action. In September 1997, the
Company filed a motion for summary judgement raising the statute of
limitations. Both motions are pending decision. In March 1998, the EPA
F-26
<PAGE>
announced its intent to perform a remedial investigation/feasibility study
(RI/FS) at all or parts of the Basin, and thereby, apparently focus upon
response costs rather than natural resource damages. At this stage of the
proceeding, it is not possible to predict the ultimate outcome thereof.
On July 15, 1996, Coeur 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 Coeur of Cyprus Exploration and Development
Corporation, which owned all the shares of Cyprus Gold New Zealand Limited,
which, in turn, owned an 80% interest in the Golden Cross Mine in New Zealand.
Coeur'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 Coeur's
purchase of the property. In October 1997, Cyprus filed a counterclaim
alleging libel by Coeur in its press release announcing the write-off of the
Golden Cross Mine and seeking an unspecified amount of damages. Coeur also
filed an action in federal court for the District of Idaho on July 15, 1996
against Cyprus which makes the same allegations as the Idaho State complaint,
but including violations of federal securities laws. The Company voluntarily
dismissed that action in January 1998.
On July 2, 1997, a suit was filed by a shareholder of the Company's
Common Stock in Federal District Court for the District of Colorado naming the
Company and certain of its officers and its independent auditor as defendants.
Plaintiff alleges that the Company violated the Securities Exchange Act of
1934 during the period January 1, 1995 to July 11, 1996, and seeks
certification of the law suit as a class action. The class members are alleged
to be those persons who purchased publicly traded debt and equity securities
of the Company during the time period stated. On September 22, 1997, an
amended complaint was filed in the proceeding adding other purchasers as
additional plaintiffs. The action seeks unspecified compensatory damages,
pre-judgment and post-judgment interest, attorney's fees and costs of
litigation. The complaint asserts that the defendants knew material adverse
non-public information about the Company's financial results which was not
disclosed, and which related to the Golden Cross and Fachinal Mines; and that
the defendants intentionally and fraudulently disseminated false statements
which were misleading and failed to disclose material facts. 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 ground that it fails to state a valid claim. The motions were
argued on January 8, 1998 and are pending decision by the court. No assurances
can be given at this early stage of the action as to 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 relating to these matters, the amount of which cannot now
be reasonably estimated, such amounts could possibly have a material impact on
the results of operations for a given period.
F-27
<PAGE>
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,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
REVENUES AND OTHER INCOME:
United States $ 83,125 $ 75,815 $ 65,903
Australasia 44,923 27,285 32,967
South America 31,934 2,790 (127)
---------- ---------- ----------
Consolidated revenues $ 159,982 $ 105,890 $ 98,743
========== ========== ==========
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES:
United States $ 6,684 $ 6,167 $ (3,558)
Australasia 4,882 (55,491) 5,773
South American Operations (20,705) 531 311
South American Exploration (5,186) (6,961) (3,584)
---------- ---------- ----------
Consolidated net loss from
continuing operations before
income taxes $ (14,325) $ (55,754) $ (1,058)
========== ========== ==========
IDENTIFIABLE ASSETS:
United States $ 437,582 $ 379,635 $ 286,318
Australasia 85,223 51,848 47,114
South America 138,617 148,847 112,214
---------- ---------- ----------
Consolidated assets $ 661,422 $ 580,330 $ 445,646
========== ========== ==========
</TABLE>
F-28
<PAGE>
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, 1997 and 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(000's-Except Per Share Data)
<S> <C> <C> <C> <C>
1997
Net Sales $ 24,670 $ 33,659 $ 38,628 $ 42,280
Gross profit (loss) $ (2,492) $ (1,849) $ (2,056) $ 3,561(d)
Net loss $ (1,721) $ (275)(c) $ (6,268) $ (5,819)
Net loss attributable to
common shareholders $ (4,353) $ (2,908)(c) $ (8,903) $ (8,450)
Basic and diluted net loss
per share (b) $ (.08) $ (.01) $ (.29) $ (.27)
Basic and diluted net loss
per share attributable
to common shareholders (b) $ (.20) $ (.13) $ (.41) $ (.39)
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)(a) $ 1,878 $ 300
Net loss attributable
to common shareholders $ (365) $(59,514) $ (755) $ (2,333)
Basic and diluted net income
(loss) per share (b) $ .01 $ (2.63) $ .09 $ .01
Basic and diluted net loss
per share attributable to
common shareholders (b) $ (.02) $ (2.75) $ (.03) $ (.11)
<FN>
(a) Includes writedown of mining properties of approximately $54.0 million.
(b) The 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with Statement of Financial Accounting
Standard No. 128, "Earnings Per Share."
(c) Includes the receipt of $8 million of insurance proceeds for business
interruption and property damage at the Golden Cross Mine.
(d) Includes the effects of the change in recovery rates at the Rochester
Mine, whereby costs of mine operations decreased by approximately $7
million.
</FN>
</TABLE>
F-29
