SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
COEUR D'ALENE MINES CORPORATION
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(Exact name of Registrant as specified in its charter)
Idaho 82-0109423
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(State or other jurisdiction (IRS Employer
of incorporation) Identification
Number)
P.O. Box I, Coeur d'Alene, Idaho 83816-0316
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
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Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES _X_ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of Issuer's classes of common stock, as of the latest
practicable date: Common stock, par value $1.00, of which 21,898,614 shares
were issued and outstanding as of May 6, 1998.
1
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COEUR D'ALENE MINES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
March 31, 1998 and December 31, 1997
Consolidated Statements of Operations -- 5
Three Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows -- 6
Three Months Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. Other Information. 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
SIGNATURES
2
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UNAUDITED
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
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ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 139,243 $ 114,204
Short-term investments 59,820 98,437
Receivables 9,197 11,503
Inventories 44,608 35,927
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TOTAL CURRENT ASSETS 252,868 260,071
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 115,329 119,808
Less accumulated depreciation 63,779 58,097
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51,550 61,711
MINING PROPERTIES
Operational mining properties 126,925 169,969
Less accumulated depletion 52,607 61,477
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74,318 108,492
Developmental properties 134,908 134,236
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209,226 242,728
OTHER ASSETS
Investment in unconsolidated subsidiaries 71,952 76,010
Notes receivable 3,099 8,498
Debt issuance costs, net of accumulated
amortization 8,626 8,809
Other 2,616 875
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86,293 94,192
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$ 599,937 $ 658,702
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</TABLE>
3
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<TABLE>
<CAPTION>
UNAUDITED
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
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LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 4,699 $ 5,983
Accrued liabilities 4,044 6,345
Accrued interest payable 8,526 6,631
Accrued salaries and wages 4,667 7,553
Bank loans 3,610 4,406
Current portion of remediation costs 7,300 7,300
Current portion of obligations under
capital leases 247 243
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TOTAL CURRENT LIABILITIES 33,093 38,461
LONG-TERM LIABILITIES
6% subordinated convertible debentures due 2002 49,840 49,840
6 3/8% subordinated convertible debentures due 2004 95,000 95,000
7 1/4% subordinated convertible debentures due 2005 143,750 143,750
Other long-term liabilities 16,554 8,403
Long-term borrowings 1,159
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TOTAL LONG-TERM LIABILITIES 305,144 298,152
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 7,500,000 shares, 7,077,833
issued and outstanding 7,078 7,078
Common Stock, par value $1.00 per share-
authorized 60,000,000 shares, issued 22,957,825
and 22,949,779 shares in 1998 and 1997
(including 1,059,211 shares held in treasury) 22,958 22,950
Capital surplus 387,079 389,648
Accumulated deficit (142,502) (84,542)
Other comprehensive accumulated income:
Unrealized gains on short-term investments 277 145
Repurchased and nonvested shares (13,190) (13,190)
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261,700 322,089
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$ 599,937 $ 658,702
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
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UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
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(In thousands except per share amounts)
<S> <C> <C>
INCOME
Sale of concentrates and dore' $ 21,166 $ 24,470
Less cost of mine operations 19,724 26,962
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Gross Profits (Losses) 1,442 (2,492)
Other income - interest, dividends
and other 3,589 7,805
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Total Income 5,031 5,313
EXPENSES
Administration 1,021 1,067
Accounting and legal 471 422
General corporate 1,372 1,783
Mining exploration 1,816 1,500
Interest 3,815 2,262
Write down of mining properties 54,506
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Total expenses 63,001 7,034
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NET LOSS BEFORE INCOME TAXES (57,970) (1,721)
Benefit for income taxes (9)
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NET LOSS $ (57,961) $ (1,721)
========== ==========
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (60,594) $ (4,353)
========== ==========
BASIC AND DILUTED LOSS PER SHARE DATA
Weighted average number of shares
of Common Stock and equivalents used
in calculation (in thousands) 21,899 21,889
========== ==========
Net loss per share attributable to
common shareholders $ (2.77) $ (.20)
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
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UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three months ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (57,961) $ (1,721)
Add (less) noncash items:
Depreciation, depletion and amortization 8,854 7,031
Undistributed profits of unconsolidated
subsidiaries (846) (270)
Write down of mining properties 54,506
Other changes 87 81
Changes in operating assets and liabilities:
Receivables 559 3,066
Inventories (11,109) (4,817)
Accounts payable and accrued liabilities (6,336) (2,884)
Interest payable 1,894 (870)
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CASH USED IN OPERATING ACTIVITIES (10,352) (384)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 7,599
Investment in unconsolidated affiliate (2,307) (20)
Purchase of property, plant, and equipment (916) (336)
Purchase of short-term investments and
marketable securities (10,570) (8,403)
Proceeds from sales of short-term investments
and marketable securities 49,294 34,856
Expenditures on developmental properties (3,378) (3,586)
Expenditures on operational mining properties (1,053) (4,851)
Other assets (334) (228)
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NET CASH PROVIDED BY INVESTING ACTIVITIES 38,335 17,432
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of cash dividends (2,633) (2,633)
Other (311) (237)
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NET CASH USED IN FINANCING ACTIVITIES (2,944) (2,870)
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INCREASE IN CASH AND CASH EQUIVALENTS 25,039 14,178
Cash and cash equivalents at beginning of year 114,204 43,455
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CASH AND CASH EQUIVALENTS AT
MARCH 31, 1998 AND 1997 $ 139,243 $ 57,633
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
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Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Coeur d'Alene Mines Corporation annual report or Form
10-K for the year ended December 31, 1997.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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(In Thousands)
<S> <C> <C>
In process and on leach pads $ 29,057 $ 24,617
Concentrate and dore' inventory 12,006 5,839
Supplies 4,761 5,471
---------- ----------
$ 45,824 $ 35,927
========== ==========
</TABLE>
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred to place such ore into production, less costs
allocated to minerals recovered through the leaching and milling processes.
Inherent in this valuation is an estimate of the percentage of the minerals on
leach pads and in process that will ultimately be recovered. During the fourth
quarter of 1997, based on historical trends and detailed metallurgical
evaluations, the Company changed its estimates of the percentage of minerals
to be recovered through the leaching process at its Rochester Mine. The change
resulted in increased recovery rates from 55% for silver and 85% for gold to
59% for silver and 90% for gold. Management evaluates this estimate on an
ongoing basis. Adjustments to the recovery rates are accounted for
7
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prospectively. All other inventories are stated at the lower-of-cost or
market, with cost being determined using first-in, first-out and
weighted-average-cost methods. Dore' inventory includes product at the mine
site and product held by refineries.
NOTE C: Write-down of Mining Property
During the first quarter of 1998, the El Bronce mine continued to
operate at a loss in spite of on-going efforts to improve ore grades and
reduce operating costs. During April 1998, an analysis of El Bronce was
completed to determine whether mine plans could be modified to improve
operations. As a result of this analysis, Company's management became aware
that facts and circumstances fundamental to the long-term economic performance
of the mine had changed during the first quarter of 1998. Those changes
primarily related to (i) management's determination that wider veins located
through the Company's exploration efforts were unlikely to yield commercial
production and did not warrant the additional capital investment; and (ii)
management's decision to not exercise the Company's option to purchase the
Boton de Oro property adjacent to the El Bronce Mine, which decision was based
on the completion in April 1998 of a feasibility study to evaluate the
possible incorporation of Boton de Oro's mineralization into El Bronce
operations. A complete evaluation of operations at El Bronce was presented to
the Company's Board of Directors for consideration at its regular meeting held
on May 12, 1998. As a result of the evaluation, the Company determined that a
write-down was required to properly reflect the estimated net realizable value
of El Bronce's mining properties and assets in accordance with the standards
set forth in FASB Statement No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." (FAS No. 121).
Consequently, the Company recorded a charge in the first quarter of 1998
totaling $54.5 million relating to its investment in the El Bronce mine. The
charge includes approximately $8.3 million necessary to increase the Company's
recorded remediation and reclamation liabilities at El Bronce and to provide
for estimated termination costs on the basis that the Company is proceeding to
close the mine.
NOTE D: Long-Term Debt
On March 31, 1998, the Securities and Exchange Commission declared
effective the Company's "shelf" Registration Statement covering its 7 1/4%
Convertible Subordinated Debentures due 2005 which were sold in October 1997
to "qualified institutional buyers" and non-U.S. persons in an offering under
8
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Rule 144A and Regulation S under the Securities Act of 1933. The Registration
Statement allows Debentureholders who are listed in the prospectus to publicly
resell their Debentures. Remaining holders may request that their Debentures
be similarly included in the future.
The Debentures have been approved for listing on the New York Stock
Exchange under the symbol CDE05 and Debentures sold pursuant to the
Registration Statement are eligible for trading on that Exchange.
NOTE E: Income Taxes
The Company has reviewed its net deferred tax asset for the three-month
period ended March 31, 1998, 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. As a result,
the Company's net deferred tax asset has been fully reserved.
NOTE F: New Accounting Standard
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. The adoption
of this statement had no impact on the Company's net income or shareholders'
equity. Statement No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of Statement No. 130.
NOTE G: Reclassification
Certain reclassifications of prior-year balances have been made to
conform to current year classifications.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
9
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The results of the Company's operations are significantly affected by
the market prices of gold and silver which may fluctuate widely and are
affected by many factors beyond the Company's control, including, without
limitation, interest rates, expectations regarding inflation, currency values,
governmental decisions regarding the disposal of precious metals stockpiles,
global and regional political and economic conditions, and other factors.
The Company's currently operating mines are the Rochester mine in Nevada
and the Fachinal and El Bronce mines in Chile, all of which are wholly-owned
and operated by the Company. On April 28, 1998, the Company discontinued all
mining and milling operations at the Golden Cross Mine in New Zealand, in
which the Company has an 80% operating interest.
The Company also has significant interests in other companies that
operate gold and silver mines. The Company owns 50% of Silver Valley Resources
Corporation ("Silver Valley"), which owns and operates the Coeur Mine (where
operations resumed in June 1996 and are expected to continue until mid 1998)
and the Galena Mine (where operations resumed in May 1997) in the Coeur
d'Alene Mining District of Idaho. In May 1997, the Company increased its
ownership to 50% of Gasgoyne Gold Mines NL, ("Gasgoyne"), an Australian gold
mining company which owns a 50% interest in the Yilgarn Star Gold Mine in
Australia.
The market price of gold has declined to levels that are the lowest
since 1985. The first quarter average price of gold was $294.18. The market
price of silver (Handy & Harman) and gold (London Final) on May 6, 1998 were
$5.97 per ounce and $301 per ounce, respectively. If the current gold price
range in the low $300's continues, the Company will need to reduce production
costs and/or expand minable ore reserves at its Fachinal Mine in Chile to
operate the mine profitably. Alternatively, if such prices continue, the
Company may elect to place the mine on temporary standby and halt production
there to conserve ore reserves until gold prices increase.
The Company is required by Financial Accounting Standards Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", to review the valuations of its mining properties.
Such a review was recently completed with respect to all of the Company's
properties. During the first quarter of 1998, the El Bronce mine continued to
operate at a loss in spite of on-going efforts to improve ore grades and
reduce operating costs. During April 1998, an analysis of El Bronce was
completed to determine whether mine plans could be modified to improve
10
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operations. As a result of this evaluation, Company's management became aware
that facts and circumstances fundamental to the long-term economic performance
of the mine had changed during the first quarter of 1998. Those changes
primarily related to (i) management's determination that wider veins located
through the Company's exploration efforts were unlikely to yield commercial
production and did not warrant the additional capital investment; and (ii)
management's decision to not exercise the Company's option to purchase the
Boton de Oro property adjacent to the El Bronce Mine, which decision was based
on the completion in April 1998 of a feasibility study to evaluate the
possible incorporation of Boton de Oro's mineralization into El Bronce
operations. A complete evaluation of operations at El Bronce was presented to
the Company's Board of Directors for consideration at its regular meeting held
on May 12, 1998. As a result of this evaluation, the Company determined that a
write-down was required to properly reflect the estimated realizable value of
El Bronce's mining properties and assets in accordance with the standards set
forth in FASB Statement No. 121. Consequently, the Company recorded a charge
in the first quarter of 1998 totaling $54.5 million relating to its investment
in the El Bronce mine. The charge includes approximately $8.3 million
necessary to increase the Company's recorded remediation and reclamation
liabilities at El Bronce and to provide for estimated termination costs on the
basis that the Company is proceeding to close the mine. Due to the
underperformance and planned closure of El Bronce, the Company expects that
gold production for the remainder of 1998 will be approximately 35,000 gold
ounces less than originally anticipated in the Company's 1998 budget.
Should currently depressed price levels continue for an extended period
of time and/or if the Company is unable to reduce production costs or expand
commercial ore reserves at the Company's mining properties, the Company may
need to effect additional asset writedowns, particularly in the case of the
Fachinal and the Kensington properties.
On April 14, 1998, the Company announced that it had received the
Environmental Protection Agency's (EPA) National Pollution Discharge
Elimination System (NPDES) permit for the Kensington property, a wholly-owned
development gold property located 45 miles north of Juneau, Alaska. The State
of Alaska has reviewed and certified that the NPDES complies with state
standards. With receipt of the NPDES permit, the Company has now obtained all
significant permits necessary to proceed with development of the mine. A
production decision at the Kensington property, in which the Company had
invested $126.4 million (including $28.2 million of capitalized interest) at
March 31, 1998, is subject to satisfactory completion of an optimization study
11
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designed to reduce capital and operating costs, satisfactory results from a
development program designed to increase the current 1.9 million ounce gold
reserve and approval by the Company's Board of Directors. The Company does not
intend to develop Kensington unless the optimization study and development
program demonstrate results required to make Kensington an economically-
viable project. Based on current mine design and market price of gold, there
can be no assurances at this time that the Company will proceed to place the
Kensington project into commercial production.
The Company's business plan is to continue to acquire competitive,
low-cost mining properties and/or businesses that are operational or expected
to become operational in the near future so that they can reasonably be
expected to contribute to the Company's near-term cash flow from operations
and expand the Company's gold and/or silver production.
This document contains numerous forward-looking statements relating to
the Company's gold and silver mining business. The United States Private
Securities Litigation Reform Act of 1955 provides a "safe harbor" for certain
forward looking statements. Operating, exploration and financial data, and
other statements in this document are based on information the company
believes reasonable, but involve significant uncertainties as to future gold
and silver prices, costs, ore grades, estimation of gold and silver reserves,
mining and processing conditions, changes that could result from the Company's
future acquisition of new mining properties or businesses, the risks and
hazards inherent in the mining business (including environmental hazards,
industrial accidents, weather or geologically related conditions), regulatory
and permitting matters, and risks inherent in the ownership and operation of,
or investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
12
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The following table sets forth the amounts of gold and silver produced
by the mining properties owned by the Company or in which the Company has an
interest, based on the amounts attributable to the Company's ownership
interest, and the cash and full costs of such production during the
three-month periods ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
ROCHESTER MINE
Gold ozs. 25,194 15,823
Silver ozs. 1,582,960 1,531,129
Cash Costs per oz./silver $4.71 $4.01
Full Costs per oz./silver $5.27 $4.68
GALENA MINE
Silver ozs. 379,610 N/A
Cash Costs per oz./silver $4.44 N/A
Full Costs per oz./silver $5.53 N/A
COEUR MINE
Silver ozs. 79,336 316,738
Cash Costs per oz./silver $4.89 $2.76
Full Costs per oz./silver $5.81 $3.90
YILGARN STAR MINE
Gold ozs. 12,569 7,445
Cash Costs per oz./gold $204.21 $243.58
Full Costs per oz./gold $416.56 $260.83
FACHINAL MINE
Gold ozs. 6,967 8,120
Silver ozs. 468,420 600,206
Cash Costs per oz./gold $324.27 $318.21
Full Costs per oz./gold $509.59 $483.89
EL BRONCE MINE
Gold ozs. 10,779 11,294
Silver ozs. 20,170 22,270
Cash Costs per oz./gold $381.18 $363.99
Full Costs per oz./gold $480.45 $427.04
GOLDEN CROSS MINE
Gold ozs. 8,914 17,281
Silver ozs. 27,412 71,930
Cash Costs per oz./gold $221.20 $299.50
Full Costs per oz./gold $221.20 $369.82
CONSOLIDATED TOTALS
Gold ozs. 64,423 59,963
Silver ozs. 2,557,908 2,542,273
</TABLE>
13
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NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
ROCHESTER MINE
Rochester experienced record precipitation during the first quarter of
1998 due to the effects of El Nino. As a result, solution processed through
the mill increased resulting in more ounces recovered during the first quarter
of 1998. However, the excessive precipitation also resulted in reduced
operating efficiencies causing ore tons mined and placed on the heap pads
during the first quarter of 1998 to be approximately 177,000 tons under
budget. Due to the typical delay in the leaching process, ounces recovered
during the second quarter of 1998 are expected to be less than previously
anticipated. The Company plans to increase tons mined during the second
quarter of 1998 in order to replace the 1998 first quarter shortfall. By so
doing, the Company anticipates it will meet its originally planned production
for 1998.
The Company is currently undergoing an optimization study consisting of
deep-drilling and metallurgical testing programs at Rochester designed to add
reserves and extend the present 8-year mine life.
GALENA MINE
Operations at the Galena mine commenced in May 1997. Accordingly, 1997
first quarter comparative data is not available.
COEUR MINE
The increase in cash cost per ounce for the first quarter of 1998 over
the same quarter of 1997 is primarily due to the fact that operations at the
Coeur mine are winding down and are expected to be completed in mid-1998.
YILGARN STAR MINE
The increase in full cost per ounce for the first quarter of 1998
compared to the same quarter of 1997 is primarily due to the fact that, in May
1997, the Company increased its ownership to 50% of Gasgoyne, which owns a 50%
interest in the Yilgarn Star Gold Mine in Australia. The Joint Venture is
presently carrying out a planned regional exploration program designed to
increase short-term and long-term reserves at the Yilgarn Star mine.
14
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FACHINAL MINE
Lower than budgeted production in gold and silver at the Fachinal mine
during the first quarter of 1998 was principally the result of decreased
production at the Juncos vein due to ramp development necessary to gain access
to the lower end of the deposit. Furthermore, the Guanaco reserves were
reaching the end of their planned life during the first quarter. The GU-8
vein, an extension of Guanaco, is scheduled to begin production in May 1998.
Due to continuing exploration efforts, additional reserves have been
identified in and around the open pit and in the vicinity of Guanaco.
During April 1998, the Company completed its preliminary exploration
program at Furioso, an exploration tenement upon which the Company holds an
option. The property is situated approximately 30 kilometers southwest of the
Fachinal mine. In connection with Furioso, the Company completed an
environmental study during April 1998 and submitted permit applications.
Should the Company exercise its option to acquire Furioso and begin operations
at the site, it is estimated that ore mined at Furioso would be processed at
the Fachinal mill.
GOLDEN CROSS MINE
In accordance with plan, the Company discontinued mining and milling
operations at the Golden Cross mine in New Zealand on April 28, 1998. The
average cash cost per ounce for the first quarter of 1998 declined from the
first quarter of 1997 due to the reduction in scope of the Company's mining
operations. Due to a prior write-down of the Golden Cross mine, cash costs per
ounce in the first quarter of 1998 were equivalent to full costs per ounce
during that same quarter.
Decommissioning of the Golden Cross mine is underway and remediation and
reclamation efforts are proceeding as planned.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1997.
SALES AND GROSS PROFITS
Sales of concentrates and dore' in the first quarter of 1998 decreased
by $3.3 million, or 14%, from the first quarter of 1997. The decrease in sales
is primarily attributable to lower average gold prices and decreased metal
15
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sales from the Golden Cross Mine due to the fact the Company is winding down
operations at the Golden Cross Mine. In the first quarter of 1998, the Company
produced a total of 2,557,908 ounces of silver and 64,423 ounces of gold
compared to 2,542,273 ounces of silver and 59,963 ounces of gold in the first
quarter of 1997. Silver and gold prices averaged $6.25 and $294.18 per ounce,
respectively, in the first quarter of 1998, compared with $5.02 and $351.17
per ounce, respectively, in the first quarter of 1997. In the first quarter of
1998, the Company realized average silver and gold prices of $6.41 and
$326.63, respectively, compared with realized market prices of $5.03 and
$359.21, respectively, in the prior year's first quarter.
The cost of mine operations in the first quarter of 1998 decreased by
$7.2 million, or 27%, from the prior year's comparable quarter. The decrease
is primarily due to the fact that the Company (i) substantially discontinued
operations at the Golden Cross Mine; and (ii) changed its recovery rates at
the Rochester Mine during the fourth quarter of 1997 as previously reported.
Gross profit from mining operations in the first quarter of 1998
amounted to $1.4 million compared to gross losses from mining operations of
$2.5 million in the first quarter of 1997. The $3.9 million increase in gross
profit is due to the above mentioned changes in sales and cost of mine
operations coupled with higher silver prices, offset by lower gold prices,
realized in the first quarter of 1998.
OTHER INCOME
Interest and other income in the first quarter of 1998 decreased by $4.2
million, or 54%, compared with the first quarter of 1997. The decrease is due
primarily to a gain in the first quarter of 1997 of $5.3 million arising from
the sale of gold purchased on the open market which was delivered pursuant to
fixed-price forward contracts.
EXPENSES
Total expenses in the first quarter of 1998 increased by $56.0 million
over the prior year's first quarter. The increase is primarily due to a
write-down of the El Bronce Mine totaling approximately $54.5 million and an
increase in interest expense of $1.6 million. The increase in interest expense
is primarily attributable to the issuance, in the fourth quarter of 1997, of
$143.75 million principal amount of 7 1/4% Convertible Subordinated Debentures
due 2005.
16
<PAGE>
NET LOSS
As a result of the above mentioned factors, the Company's net loss
amounted to $58.0 million in the first quarter of 1998 compared to a net loss
of $1.7 million in the first quarter of 1997. In the first quarter of 1998,
the Company paid dividends of $2.6 million on its Manditorily Adjustable
Redeemable Convertible Securities (MARCS). As a result, the loss attributable
to common shareholders was $60.6 million, or $2.77 per share, for the first
quarter 1998, compared to a loss of $4.4 million, or $.20 per share, for the
first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL; CASH AND CASH EQUIVALENTS
The Company's working capital at March 31, 1998 was approximately $219.8
million compared to $221.6 million at December 31, 1997. The ratio of current
assets to current liabilities was 7.6 to 1.0 at March 31, 1998 compared to 6.8
to 1.0 at December 31, 1997.
Net cash used in operating activities in the first quarter of 1998 was
$10.4 million compared to $.4 million used in operating activities in the
first quarter of 1997. In the first quarter of 1998, operating cashflow was
impacted by the buildup of work-in-progress inventories at Fachinal and Golden
Cross. These inventories were sold early in the second quarter of 1998. Net
cash provided by investing activities in the first quarter of 1998 was $38.3
million compared to $17.4 million in the prior year's comparable period. The
increase is primarily due to proceeds received from sales of short-term
investments and marketable securities. Net cash used in financing activities
was $2.9 million in the first quarter of 1998 and 1997. As a result of the
above, cash and cash equivalents increased by $25.0 million in the first
quarter of 1998 compared to a $14.2 million increase for the comparable period
in 1997.
SHELF REGISTRATION OF 7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005
On March 31, 1998, the Securities and Exchange Commission declared
effective the Company's "shelf" Registration Statement covering its 7 1/4%
Convertible Subordinated Debentures due 2005 which were sold in October 1997
to "qualified institutional buyers" and non-U.S. persons in an offering under
Rule 144A and Regulation S under the Securities Act of 1933. The Registration
17
<PAGE>
Statement allows Debentureholders who were listed in the prospectus to
publicly resell their Debentures. Remaining holders may request that their
Debentures be similarly included in the future.
The Debentures have been approved for listing on the New York Stock
Exchange under the symbol CDE05 and Debentures sold pursuant to the
Registration Statement are eligible for trading on that Exchange.
FEDERAL NATURAL RESOURCES ACTION
On March 22, 1996, an action was filed in the United States District
Court for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States
against various defendants, including the Company, asserting claims under the
Comprehensive Environmental Resources Compensation and Liability Act (CERCLA)
and the Clean Water Act for alleged damages to Federal natural resources in
the Coeur d'Alene River Basin of northern Idaho as a result of alleged
releases of hazardous substances from mining activities conducted in the area
since the late 1800s. No specific monetary damages are identified in the
complaint. However, in July 1996, the government indicated damages may
approximate $982 million. The United States asserts that the defendants are
jointly and severally liable for costs and expenses incurred by the U.S.
government in investigation, removal and remedial action and the restoration
or replacement of affected natural resources. In 1986 and 1992 the Company
settled similar issues with the State of Idaho and the Coeur d'Alene Indian
Tribe, respectively, and believes that those prior settlements exonerate it of
further involvement with alleged natural resource damage in the Coeur d'Alene
River Basin. Accordingly, the Company intends to vigorously defend this matter
and, on March 27, 1997, filed a motion seeking dismissal of the Company from
the action. In September 1997, the Company filed an additional motion for
summary judgment raising the statute of limitations. On March 31, 1998, the
Court entered an order denying the plaintiffs' motion to allow the United
States to prove its case pursuant to an administrative record, requiring the
parties to submit further facts as to the issue of trusteeship, and setting
oral arguments on the trusteeship and statute of limitations motions for June
12, 1998. In March 1998, the Environmental Protection Agency announced its
intent to perform a remedial investigation/feasibility study upon all or parts
of the Basin and, thereby, apparently focus upon response costs rather than
natural resource damages. At this initial stage of the proceeding, it is not
possible to predict its ultimate outcome.
SECURITIES LAWSUIT
18
<PAGE>
On July 2, 1997 a suit was filed by purchasers of the Company's common
stock in Federal District Court for the District of Colorado naming the
Company and certain of its officers and its independent auditors as
defendants. Plaintiffs allege the Company violated the Securities Exchange Act
of 1934 during the period January 1, 1995 to July 11, 1996, and seek
certification of the lawsuit as a class action. The class members are alleged
to be those persons who purchased publicly traded debt and equity securities
of the Company during the time period stated. On September 22, 1997 an amended
complaint was filed in the proceeding adding other security holders as
additional plaintiffs. The action seeks unspecified compensatory damages,
pre-judgment and post-judgment interest, attorney's fees and costs of
litigation. The complaint asserts that the defendants knew material adverse
non-public information about the Company's financial results which was not
disclosed, and which related to the Golden Cross and Fachinal Mines; and the
defendants intentionally and fraudulently disseminated statements which were
false and misleading and failed to disclose material facts. The Company
believes the allegations are without merit and intends to vigorously defend
against them. On October 27, 1997, the Company, its auditors and the
individual defendants filed with the Court motions to dismiss the amended
complaint on the grounds that it fails to state a valid claim. On April 16,
1998, the Court entered an order dismissing the auditors from the suit and
denying the Company's and the individual defendants' motions. At the same
time, the Court warned plaintiffs that they will be liable for all of
defendants' attorney's fees and costs of litigation if defendants successfully
bring a motion for summary judgment after the close of discovery. No
assurances can be given at this early stage of the action as to its ultimate
outcome.
YEAR 2000 CONSEQUENCES
The Company has reviewed all significant computer systems for
compatibility with the change to the year 2000. As a result of that review, a
program is now underway to ensure that all of the Company's significant
computer systems are year 2000 compliant by the end of 1998 by installing
commercially available software packages without significant modification. The
Company's management has carefully evaluated its year 2000 compliance program,
as well as the extent to which it will be affected by non-year 2000 compliant
computer systems of suppliers and other third parties, and anticipates no
material impact on the Company's ability to continue normal business
operations. The Company estimates that the costs associated with
implementation of its year 2000 program will amount to less than $130,000.
19
<PAGE>
PART II. Other Information
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
No. 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On March 17, 1998, the Company filed Amendment No. 4 to its Form
8-K that was filed on April 30, 1996.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
(Registrant)
Dated May 14, 1998 /s/DENNIS E. WHEELER
---------------------
Dennis E. Wheeler
Chairman, President and
Chief Executive Officer
Dated May 14, 1998 /s/KEVIN L. PACKARD
--------------------
Kevin L. Packard
Vice President,
Chief Financial Officer
and Treasurer
21
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