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 September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
COEUR D'ALENE MINES CORPORATION
-----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Idaho 82-0109423
------------------------------- --------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
P.O. Box I, Coeur d'Alene, Idaho 83816-0316
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES _X_ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of Issuer's classes of common stock, as of the latest
practicable date: Common stock, par value $1.00, of which 21,898,624 shares
were issued and outstanding as of November 6, 1998.
<PAGE>
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 1998 and December 31, 1997
Consolidated Statements of Operations -- 5
Three Months Ended September 30, 1998 and 1997
Nine Months Ended September 30, 1998 and 1997
Consolidated Statements of Cash Flows -- 6
Nine Months Ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. Other Information 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 140,959 $ 114,204
Short-term investments 13,590 98,437
Receivables 9,002 11,503
Inventories 44,334 35,927
---------- ----------
TOTAL CURRENT ASSETS 207,885 260,071
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 105,194 119,808
Less accumulated depreciation 55,649 58,097
---------- ----------
49,545 61,711
MINING PROPERTIES
Operational mining properties 128,104 169,969
Less accumulated depletion 59,080 61,477
---------- ----------
69,024 108,492
Developmental properties 147,389 134,236
---------- ----------
216,413 242,728
OTHER ASSETS
Investment in unconsolidated subsidiaries 68,666 76,010
Notes receivable 1,557 8,498
Debt issuance costs, net of accumulated
amortization 7,477 8,809
Other 2,737 875
---------- ----------
80,437 94,192
---------- ----------
$ 554,280 $ 658,702
========== ==========
</TABLE>
3
<PAGE>
UNAUDITED
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,883 $ 5,983
Accrued liabilities 12,355 6,345
Accrued interest payable 5,669 6,631
Accrued salaries and wages 4,235 7,553
Bank loans 4,406
Current portion of remediation costs 3,745 7,300
Current portion of obligations under
capital leases 302 243
---------- ----------
TOTAL CURRENT LIABILITIES 30,189 38,461
LONG-TERM LIABILITIES
6% subordinated convertible debentures due 2002 46,012 49,840
6 3/8% subordinated convertible debentures due 2004 95,000 95,000
7 1/4% subordinated convertible debentures due 2005 120,707 143,750
Other long-term liabilities 11,542 8,403
Long-term borrowings 1,159
---------- ----------
TOTAL LONG-TERM LIABILITIES 273,261 298,152
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 7,500,000 shares, 7,077,833
issued and outstanding 7,078 7,078
Common Stock, par value $1.00 per share-
authorized 60,000,000 shares, issued 22,957,835
and 22,949,779 shares in 1998 and 1997
(including 1,059,211 shares held in treasury) 22,958 22,950
Capital surplus 381,813 389,648
Accumulated deficit (147,689) (84,542)
Other comprehensive accumulated income:
Unrealized gains on short-term investments (140) 145
Repurchased and nonvested shares (13,190) (13,190)
---------- ----------
250,830 322,089
---------- ----------
$ 554,280 $ 658,702
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND
SUBSIDIARIES Three Months Ended
September 30, 1998 and 1997
Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
(In thousands except for per share data)
<S> <C> <C> <C> <C>
INCOME
Sale of concentrates and dore' $ 23,890 $ 38,628 $ 77,312 $ 96,757
Less cost of mine operations 23,404 40,684 73,078 103,258
------------ ------------ ------------ -----------
Gross Profit (Loss) 486 (2,056) 4,234 (6,501)
OTHER INCOME
Interest and other 1,966 2,843 7,862 20,427
------------ ------------ ------------ -----------
Total Income 2,452 787 12,096 13,926
EXPENSES
Administration and corporate 3,259 2,688 9,265 9,466
Interest 3,219 1,982 10,687 6,330
Mining exploration 2,261 2,385 6,633 6,397
Write down of mining
properties 54,506
------------ ------------ ------------ -----------
Total Expenses 8,739 7,055 81,091 22,193
------------ ------------ ------------ -----------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES (6,287) (6,270) (68,995) (8,267)
Income tax (benefit) provision 79 (2) 497 (2)
------------ ------------ ------------ -----------
NET LOSS BEFORE EXTRAORDINARY ITEM $ (6,366) $ (6,268) $ (69,492) $ (8,265)
Early retirement of debt,
net of taxes of $0 6,345 6,345
------------ ------------ ------------ -----------
NET LOSS $ (21) $ (6,268) $ (63,147) $ (8,265)
------------ ------------ ------------ -----------
Unrealized holding loss
on securities (303) (689) (285) (935)
------------ ------------ ------------ -----------
COMPREHENSIVE LOSS $ (324) $ (6,957) $ (63,432) $ (9,200)
============ ============ ============ ===========
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS:
Net loss (21) (6,268) (63,147) (8,265)
Preferred stock dividends $ (2,633) $ (2,633) $ (7,899) $ (7,899)
------------ ------------ ------------ -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (2,654) $ (8,901) $ (71,046) $ (16,164)
============ ============ ============ ===========
BASIC AND DILUTED LOSS PER SHARE DATA
Weighted average number
of shares of Common Stock
and equivalents used in
calculation 21,899 21,891 21,899 21,891
============ ============ ============ ===========
Loss before extraordinary
item, attributable to Common
Shareholders (.41) (.41) (3.53) (.74)
Extraordinary item: Early
retirement of debt, net of
taxes of $0 .29 .29
------------ ------------ ------------ -----------
Net Loss per share attributable
to Common Shareholders $ (.12) $ (.41) $ (3.24) $ (.74)
============ ============ ============ ===========
</TABLE>
5
<PAGE>
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Nine months ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (63,147) $ (8,265)
Add (deduct) noncash items:
Depreciation, depletion and amortization 23,472 24,614
Gain on early retirement of debt (6,345)
Undistributed losses of unconsolidated subsidiaries 1,245
(Gain) loss on disposition of assets 338 (170)
Write down of mining properties 54,506
Other changes 775 (439)
---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE
WORKING CAPITAL CHANGES 10,844 15,740
Change in working capital:
Receivables 719 3,071
Inventories (10,835) (485)
Accounts payable and accrued liabilities (10,166) (6,781)
Interest payable (963) (1,941)
---------- ----------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (10,401) 9,604
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in unconsolidated affiliates (4,591) (14,643)
Proceeds from sales of assets 8,519
Purchases of property, plant, and equipment (2,908) (1,678)
Purchases of short-term investments and
marketable securities (17,203) (78,582)
Proceeds from sales of short-term investments and
marketable securities 102,171 123,263
Expenditures on developmental properties (13,704) (9,849)
Expenditures on operational mining properties (2,554) (12,529)
Other assets (788) (1,232)
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 68,942 4,750
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt (23,179) (4,807)
Payment of cash dividends (7,899) (7,899)
Other (708) (914)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (31,786) (13,620)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 26,755 734
Cash and cash equivalents at beginning of year 114,204 43,455
---------- ----------
CASH AND CASH EQUIVALENTS AT
SEPTEMBER 30, 1998 AND 1997 $ 140,959 $ 44,189
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim periods have been included. Operating
results for the three- and nine-month periods ended September 30, 1998, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Coeur d'Alene Mines Corporation annual report on Form 10-K for
the year ended December 31, 1997.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
In process and on leach pads $ 35,837 $ 24,617
Concentrate and dore' inventory 4,985 5,839
Supplies 3,512 5,471
---------- ----------
$ 44,334 $ 35,927
========== ==========
</TABLE>
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred to place such ore into production, less costs
allocated to minerals recovered through the leaching and milling processes.
Inherent in this valuation is an estimate of the percentage of the minerals on
leach pads and in process that will ultimately be recovered. During the fourth
quarter of 1997, based on historical operating results and detailed
metallurgical evaluations, the Company changed its estimates of the percentage
of minerals to be recovered through the leaching process at its Rochester
Mine. The change resulted in increased recovery rates from 55% for silver and
85% for gold to 59% for silver and 90% for gold. Management evaluates this
estimate on an ongoing basis. Adjustments to the recovery rates are accounted
for prospectively. The effects of the change for the first nine months of 1998
7
<PAGE>
decreased the costs of mine operations by approximately $16.4 million. All
other inventories are stated at the lower-of-cost or market, with cost being
determined using first-in, first-out and weighted-average-cost methods. Dore'
inventory includes product at the mine site and product held by refineries.
NOTE C: Long-Term Debt
During the third quarter, the Company repurchased approximately $3.8
million principal amount of its outstanding 6% Convertible Subordinated
Debentures due 2002 and approximately $23.0 million principal amount of its 7
1/4% Convertible Subordinated Debentures due 2005 for a total purchase price
of approximately $20.0 million, including purchased interest of approximately
$425,000. As a result of the cancellation of the repurchased debentures,
annual interest paid by the Company will be reduced by approximately $1.9
million. The Company has recorded an extraordinary gain of approximately $6.3
million, net of taxes of $0, during the third quarter of 1998 on this
reduction of its indebtedness.
NOTE D: Income Taxes
The Company has reviewed its net deferred tax asset for the nine-month
period ended September 30, 1998, together with net operating loss
carryforwards, and has determined to forego recognition of potential tax
benefits arising therefrom. In making this determination, the Company has
considered the Company's history of tax losses incurred since 1989 and the
current level of gold and silver prices. As a result, the Company's net
deferred tax asset has been fully reserved.
NOTE E: New Accounting Standards
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards 130 (SFAS 130), "Reporting Comprehensive Income". SFAS
130 establishes standards for reporting and display of comprehensive income
and its components. SFAS 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. The adoption of SFAS 130 had no impact on the Company's net income or
shareholders' equity. Prior year financial statements have been reclassified
to conform to the requirements of SFAS 130.
In June 1997, the Financial Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information". Effective for fiscal years
8
<PAGE>
beginning after December 15, 1997, SFAS 131 establishes standards for
reporting and displaying information regarding operating segments in annual
financial statements and requires the reporting of selected financial
information in interim financial reports issued to shareholders. The Company
does not expect the adoption of this standard to have a material impact on the
financial condition or results of the Company.
In June 1998, the Financial Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) which establishes accounting and reporting
standards for derivative instruments and hedging activities. Effective for all
fiscal quarters in years beginning after June 15, 1999, SFAS 133 requires the
Company to recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value on an on-going basis. The Company does not expect
the application of SFAS 133 to have a material impact on the Company's
financial condition or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of
Start-up Activities." The SOP is effective beginning on January 1, 1999, and
requires that start-up costs capitalized prior to January 1, 1999 be
written-off and any future start-up costs to be expensed as incurred. It is
not practical to estimate what the effect of this change will be on 1999
earnings.
NOTE F: Reclassification
Certain reclassifications of prior year balances have been made to
conform to the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The results of the Company's operations are significantly affected by
the market prices of silver and gold which may fluctuate widely and are
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.
This document contains numerous forward-looking statements relating to
the Company's silver and gold mining business. The United States Private
Securities Litigation Reform Act of 1955 provides a "safe harbor" for certain
9
<PAGE>
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.
The Company's currently operating mines are the Rochester Mine in
Nevada, the Galena mine in the Coeur d'Alene Mining District of Idaho in which
the Company owns a 50% interest through Silver Valley Resources Corporation,
the Yilgarn Star Mine in Australia in which the Company owns a 25% interest
through Gasgoyne Gold Mines NL and the Fachinal and El Bronce mines in Chile.
On April 28, 1998, the Company discontinued all mining and milling operations
at the Golden Cross Mine in New Zealand, in which the Company has an 80%
operating interest. Decommissioning and reclamation of the mine is currently
underway.
The market prices of precious metals have declined and continue to
remain at levels that are the lowest since 1985. During the nine-month period
ending September 30, 1998, the average spot prices of gold and silver was
$294.24 and $5.73, respectively. If gold and silver prices remain at current
prices of approximately $295 and $5.00, respectively, for an extended period
of time and reductions in production costs are not achieved and/or maintained
at the Fachinal, El Bronce and/or Galena mines, the Company may elect to place
the mines on temporary standby and halt production at each to conserve
reserves until precious metals prices increase to economic levels.
RECENT SFAS 121 IMPAIRMENT REVIEWS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS 121), the Company reviews the carrying value of its
assets whenever events or changes in circumstances indicate that the carrying
amount of its assets may not be recoverable. The Company's former Chief
Financial Officer resigned on October 23, 1998 for personal reasons and an
10
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active search is underway for his successor. Prior to his departure, he had
been engaged in a review of the valuation of certain mining properties and
recommended that certain writedowns be effected. The Company's management,
involving its executive, financial, mining technical staff, and engineering
personnel, conducted impairment reviews relating to those properties during
October and early November 1998 and, as described below, concluded that the
suggested writedowns were not warranted. Generally, SFAS 121 provides that an
asset impairment exists if the total amount of the estimated future
undiscounted cash flows of the asset is less than the carrying value of the
asset. If it is determined that impairment exists and is permanent in nature,
the amount of impairment loss that should be recorded is the amount by which
the carrying value of the asset exceeds its fair value, which in the case of a
mining property ordinarily would be based on the discounted value of its
estimated future cash flows.
The SFAS 121 impairment reviews by the Company's management required the
identification of reasonable, objective and supportable assumptions and
projections to underlie the estimation of future cash flows. Management's
final positions as to such assumptions and projections were arrived at in a
process that included the consideration of opinions and judgments of the
Company's executive, financial, mining technical staff and engineering
personnel. In many cases, management was required to study differing opinions
and judgments and to arrive at reasonably based assumptions and projections
upon which the SFAS 121 assessments could be based. As a result of these
reviews, the Company's management determined that no impairment write-downs
were required. Management's final assumptions and projections, and the SFAS
121 reviews based thereon, were then discussed with the Company's independent
auditors.
As discussed below, the Company previously reported an impairment loss
of $54.5 million, including estimated remediation, reclamation, and
termination liabilities of approximately $8.3 million, in the first quarter of
1998 with respect to its investment in the El Bronce Mine in Chile.
If changes in circumstances or events adversely affecting the projected
recoverability of the carrying value of the Company's mining properties are
identified in the future, the Company may be required under SFAS 121 to effect
additional asset write-downs.
WRITEDOWN OF PETORCA (EL BRONCE) MINE
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
11
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completed to determine whether mine plans could be modified to improve
operations. As a result of this evaluation, the Company's management became
aware that facts and circumstances fundamental to the long-term economic
performance of the mine had changed during the first quarter of 1998. Those
changes primarily related to (i) management's determination that wider veins
located through the Company's exploration efforts were unlikely to yield
commercial production and did not warrant the additional capital investment;
and (ii) management's decision to not exercise the Company's option to
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 SFAS 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 included approximately $8.3
million to satisfy the estimated remediation and reclamation liabilities at El
Bronce and to provide for estimated termination costs. Due to the
underperformance of El Bronce, the Company expects that gold production at El
Bronce will be approximately 22,500 gold equivalent ounces lower than the
59,900 gold equivalent ounces originally anticipated in the Company's 1998
budget. As described below, the Company has delayed the previously planned
closure of the mine.
SUMMARY OF KENSINGTON DEVELOPMENT PROPERTY
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 obtained all
significant permits necessary to proceed with development of the mine.
During the third quarter of 1998, the Company completed all essential
conditions of the planned optimization study and development program designed
to substantially increase the ore reserves and economics of the project. As a
result of the optimization study, the Company estimates that the project's
operating cash cost per ounce should decrease below $195 and capital costs
should reduce to approximately $192 million. Achieving such operating and
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<PAGE>
capital costs is dependent upon reconfiguring the mine plan and obtaining
permits allowing for such configuration. There is no assurance that such
permits will be obtained.
Based on current and/or proposed mine design and the current market
price of gold, there can be no assurances at this time that the Company will
place the Kensington project into commercial production.
ACQUISITIONS
The Company's business plan is 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 contribute to the
Company's near-term cash flow and expand the Company's silver and/or gold
production.
13
<PAGE>
PRODUCTION AND COSTS OF PRODUCTION
The following table sets forth the amounts of silver and gold produced
by the mining properties owned by the Company or in which the Company has an
interest, based on the amounts attributable to the Company's ownership
interest, and the cash and full costs of such production during the three- and
nine-month periods ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
ROCHESTER MINE
Gold ozs. 19,295 27,359 64,942 65,398
Silver ozs. 1,814,459 1,811,415 5,055,676 5,023,757
Cash Costs per eq. oz./silver $3.98 $3.49 $4.21 $3.74
Full Costs per eq. oz./silver $4.68 $4.04 $4.82 $4.34
GALENA MINE
Silver ozs. 441,988 370,420 1,206,910 370,420
Cash Costs per oz./silver $3.94 $3.58 $4.26 $4.79
Costs per oz./silver $4.97 $4.64 $5.31 $6.10
COEUR MINE
Silver ozs. N/A 164,697 130,633 925,908
Cash Costs per oz./silver N/A $3.89 $5.34 $2.79
Full Costs per oz./silver N/A $4.89 $6.37 $3.72
YILGARN STAR MINE
Gold ozs. 7,544 9,131 31,289 26,192
Cash Costs per oz./gold $232.48 $300.52 $224.75 $259.78
Full Costs per oz./gold $422.36 $475.28 $417.10 $409.22
FACHINAL MINE
Gold ozs. 7,443 6,763 21,247 23,417
Silver ozs. 397,773 487,256 1,255,687 1,581,125
Cash Costs per eq. oz./gold $352.96 $389.81 $328.50 $350.21
Full Costs per eq. oz./gold $542.30 $593.07 $523.44 $529.19
EL BRONCE MINE
Gold ozs. 7,060 12,816 28,702 36,398
Silver ozs. 10,087 26,494 53,738 73,803
Cash Costs per oz./gold $267.37 $314.74 $371.12 $335.58
Full Costs per oz./gold $267.37 $376.41 $428.97 $397.57
GOLDEN CROSS MINE
Gold ozs. N/A 23,123 15,858 61,804
Silver ozs. N/A 72,795 49,536 216,919
Cash Costs per oz./gold N/A $206.70 $210.51 $247.09
Full Costs per oz./gold N/A $247.23 $210.51 $292.65
CONSOLIDATED TOTALS
Gold ozs. 41,342 79,192 162,038 213,209
Silver ozs. 2,664,307 2,933,077 7,752,180 8,191,932
</TABLE>
14
<PAGE>
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
ROCHESTER MINE
Rochester experienced record precipitation during the nine-months ended
September 30, 1998 due to the effects of El Nino. As a result, solution
processed through the mill increased resulting in more ounces recovered during
the nine-months ended September 30, 1998 than originally anticipated in the
1998 budget. However, the excessive precipitation also resulted in reduced
operating efficiencies causing ore tons mined and placed on the heap pads
during the nine-months ended September 30, 1998 to be under budget. Due to the
typical delay in the leaching process, ounces recovered during subsequent
quarters of 1998 are expected to be lower than previously budgeted. However,
it is expected that the shortage in tons placed on the pad will be more than
offset by the higher than normal coverage of leaching solution on the heaps.
Accordingly, the Company anticipates it will meet its originally planned 1998
production at the Rochester mine of 6.7 million ounces of silver and 77,000
ounces of gold.
Previously, the Company announced that it was conducting a planned
optimization study consisting of deep-drilling and metallurgical testing
programs at Rochester designed to add reserves and extend the present 8-year
mine life. The Company retained an engineering firm to complete the Phase I
basic engineering for the fine crush project. The project's overall
incremental recovery improvement for silver of approximately 8 percentage
points and 3 percentage points for gold over the current recovery levels of
59% and 90%, respectively, was preliminarily confirmed with column tests. An 8
to 10 thousand ton bulk test heap is currently being tested to further
substantiate the expected recoveries. Successful application of the fine crush
technology to future mining operations at Rochester was designed to increase
annual production by an estimated 800,000 silver equivalent ounces. However,
as a result of preliminary economic evaluations of the project and the
substantial capital needed to implement the project, a formal plan to proceed
is not expected in the foreseeable future. Additional studies will be
conducted to assess whether the project can be implemented at a lower capital
cost.
During the second quarter of 1998, the Company began the third
consecutive year of drilling on the Nevada Packard property located near the
Rochester mine. The first two phases of exploratory drilling were directed at
establishing mineralization at depth, whereas, the third phase, estimated to
be completed in late fall 1998, is directed at confirming the near-surface
mineralization believed to exist, thereby allowing finalization of the minable
reserve estimate. At the conclusion of the current phase, the Company will
have completed approximately 33,000 feet of drilling on the property.
Preliminary economic studies support moving forward with mining the known
15
<PAGE>
reserve. A decision whether or not to advance the project is anticipated in
the fourth quarter of 1998. It is expected that any ore mined at the Nevada
Packard property would be processed at the Rochester facility.
COEUR AND GALENA MINES
Operations at the Galena mine commenced in May 1997. Accordingly, the
September 30, 1997 comparative data is not representative of expected
operating levels.
The increase in cash cost per ounce at the Coeur mine for the
nine-months ended September 30, 1998 over the same period of 1997 is primarily
due to the fact that, as planned, operations at the Coeur mine were winding
down and terminated on July 2, 1998.
During the second quarter of 1998, shipments of concentrate from the
Galena and Coeur mines were suspended, resulting in a build-up of inventories
due to concern regarding the financial condition of the smelter. Accordingly,
the Joint Venture operator negotiated placement of concentrates with Asarco,
Noranda and Doe Run and shipment of concentrates resumed in July, 1998. It is
expected that concentrate inventories will return to normal levels prior to
the end of the year.
As part of the ongoing exploration program, underground and surface
diamond drilling have commenced at the Galena and Coeur mines. The Phase I
exploration-drilling program at the Coeur and Galena Mines was the initial
step in testing for favorable stratigraphic and structural targets. Drilling
results are inconclusive and must be integrated into the regional geologic
interpretation before their significance can be fully understood. Further
drilling may be required. Leases on additional parcels of land adjacent to the
mines were executed during the second quarter of 1998, thereby, further
strengthening the Company's land position in the Coeur d'Alene Mining
District.
YILGARN STAR MINE
The increase in full cost per ounce for the nine-months ended September
30, 1998 compared to the same period of 1997 is primarily due to the fact
that, in May 1997, the Company increased its ownership to 50% of Gasgoyne,
which owns a 50% interest in the Yilgarn Star Gold Mine in Australia.
16
<PAGE>
The Nevoria Mill, which processed ore from the open pit, ceased
operations in July 1998 and was placed on a care and maintenance basis
following the depletion of reserves at the open pit.
For the nine-months ended September 30, 1998, the Company's share of
production recovered from the Yilgarn Star mine totaled 31,289 gold ounces.
Due to scheduled depletion of open-pit reserves and an unsuccessful open-pit
reserve development program, the Company expects that its share of gold
production at Yilgarn Star for 1998 will be approximately 37,800 gold ounces.
This is approximately 7,900 gold ounces less than originally anticipated in
the Company's 1998 budget. However, it is anticipated that the ounces during
the latter half of 1998 will be produced at a lower cash cost per ounce.
The Joint Venture is presently carrying out planned localized and
regional exploration programs designed to increase short-term and long-term
reserves at the Yilgarn Star mine which may eventually allow for a Nevoria
Mill restart and increased production rates.
FACHINAL MINE
Lower than budgeted production in gold and silver at the Fachinal mine
during the nine-months ended September 30, 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 nine-months ended
September 30, 1998. The September operational management changes were designed
to substantially decrease cost per ounce over the next three months and are
starting to yield positive results. In addition, as a result of continuing
exploration efforts, additional reserves have been identified in and around
the open pit and in the vicinity of Guanaco which should further enhance these
changes.
During April 1998, the Company completed its preliminary exploration
program at Furioso, an exploration tenement upon which the Company holds an
option. The property is situated approximately 30 kilometers southwest of the
Fachinal mine. In connection with Furioso, the Company completed an
environmental study during April 1998 and submitted permit applications.
Should the Company exercise its option to acquire Furioso and begin operations
at the site, it is anticipated that ore mined at Furioso would be processed
either on-site or at the Fachinal mill at a substantial lower cash cost per
ounce.
17
<PAGE>
PETORCA (EL BRONCE) MINE
The Company has delayed its previously planned closure of the Petorca
Mine based upon substantial operating improvements. During the third quarter
of 1998, the Company commenced an improved mining program focused on an
objective of positive cash flow. Petorca achieved this initiative with
production during the third quarter totaling 7,060 and 10,087 gold and silver
ounces respectively at a cash cost of $267 per gold ounce. The Company expects
that the fourth quarter of 1998 will continue to achieve similar operating
improvements. Based on proven and probable reserves, the Company estimates
that operations should continue for an estimated twelve months with similar
production and operating costs.
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 nine-months ended September 30, 1998
declined from that of the same period for 1997 due to the reduction in scope
of the Company's mining operations and improved operating efficiencies. Due to
a prior write-down of the Golden Cross mine, cash costs per ounce in the
nine-months ended September 30, 1998 were equivalent to full costs per ounce
during that same quarter.
Decommissioning of the Golden Cross mine is underway and remediation and
reclamation efforts are proceeding more favorably than planned due to a drier
than normal climate. This should result in decreasing overall closure costs
and the time required to completely reclaim the site.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997.
SALES AND GROSS PROFITS
Sales of concentrates and dore' in the third quarter of 1998 decreased
by $14.7 million, or 38%, from the third quarter of 1997. The decrease was
primarily attributable to lower average gold prices, which were partially
offset by higher average silver prices, and decreased silver and gold ounces
sold during the third quarter of 1998 as compared to the third quarter of
1997. In the third quarter of 1998, the Company produced a total of 2,664,307
ounces of silver and 41,342 ounces of gold compared to 2,933,077 ounces of
silver and 79,192 ounces of gold in the third quarter of 1997. Silver and gold
18
<PAGE>
prices averaged $5.22 and $288.65 per ounce, respectively, in the third
quarter of 1998, compared with $4.53 and $373.65 per ounce, respectively, in
the third quarter of 1997. In the third quarter of 1998, the Company realized
average silver and gold prices of $5.18 and $300.87, respectively, compared
with realized prices of $4.57 and $333.41, respectively, in the prior year's
third quarter.
The cost of mine operations in the third quarter of 1998 decreased by
$17.3 million, or 42%, from the prior year's comparable quarter. The decrease
is primarily due to the fact, that the Company (i) discontinued operations at
the Golden Cross Mine on April 28, 1998; and (ii) as previously reported,
changed its recovery rates at the Rochester Mine during the fourth quarter of
1997.
Gross profit from mining operations in the third quarter of 1998
amounted to $.5 million compared to a gross loss from mining operations of
$2.1 million in the third quarter of 1997. The $2.5 million increase in gross
profit is due to the above mentioned changes in sales and cost of mine
operations in the third quarter of 1998.
OTHER INCOME
Interest and other income in the third quarter of 1998 decreased by $.9
million, or 31%, compared with the third quarter of 1997. The decrease is
primarily the result of foreign currency adjustments.
EXPENSES
Total expenses in the third quarter of 1998 increased by $1.7 million
over the prior year's third quarter. The increase is primarily due to
additional interest expense of $1.2 million resulting from the issuance, in
the fourth quarter of 1997, of $143.75 million principal amount of 7 1/4%
Convertible Subordinated Debentures due 2005.
NET LOSS
As a result of the above mentioned factors, the Company's net loss
before extraordinary items and income taxes amounted to $6.3 million in the
third quarter of 1998 compared to a net loss before extraordinary items and
income taxes of $6.3 million in the third quarter of 1997. In the third
quarter of 1998, the Company provided for $79,000 of income taxes as compared
to a recorded benefit of $2,000 in the third quarter of 1997. In the third
quarter of 1998, the Company recorded an extraordinary gain of $6.3 million
(net of tax) related to the early retirement of subordinated debentures. As a
result, the Company's net loss amounted to $21,000 in the third quarter of
1998 compared to a net loss of $6.3 million in the third quarter of 1997.
19
<PAGE>
During the third quarter of 1998, the Company paid dividends of $2.6 million
on its Mandatory Adjustable Redeemable Convertible Securities (MARCS). As a
result, the net loss attributable to common shareholders was $2.7 million, or
$.12 per basic and diluted share, for the third quarter 1998, compared to a
net loss of $8.9 million, or $.41 per basic and diluted share, for the third
quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
SALES AND GROSS PROFITS
Sales of concentrates and dore' decreased by $19.4 million, or 20%, for
the nine months ended September 30, 1998 compared with the same period of
1997. The decrease was primarily attributable to lower average gold prices,
which were partially offset by higher average silver prices, and decreased
silver and gold ounces sold during the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997. During the first nine
months of 1998, the Company produced 7,752,180 ounces of silver and 162,038
ounces of gold compared to 8,191,932 ounces of silver and 213,209 ounces of
gold in the first nine months of 1997. Silver and gold market prices averaged
$5.73 and $294.24 per ounce, respectively, in the first nine months of 1998
compared to $4.77 and $339.28 per ounce, respectively, in the same period in
1997. In the first nine months of 1998, the Company realized average silver
and gold prices of $5.76 and $314.87, respectively, compared to $4.75 and
$343.87, respectively, during the same period in 1997.
The cost of mine operations in the first nine months of 1998 decreased
by $30.2 million, or 29%, compared with the first nine months of 1997. The
decrease is primarily attributable to the fact that the Company discontinued
operations at the Golden Cross Mine on April 28, 1998.
As a result of the above, gross profit from mine operations amounted to
$4.2 million, in the first nine months of 1998 compared to gross losses from
mine operations of $6.5 million during the nine months ended September 30,
1997. The $10.7 million increase in gross profits from mine operations is due
to the above mentioned changes in sales and cost of mine operations in the
nine-month period ended September 30, 1998.
20
<PAGE>
OTHER INCOME
Other income in the nine months ended September 30, 1998 decreased by
$12.6 million, or 62%, compared to the nine months ended September 30, 1997.
The decrease is primarily a result of i) the receipt of $8 million of
insurance proceeds for business interruption and property damage at the Golden
Cross Mine in the second quarter of 1997, and ii) a gain of $5.3 million
arising from the sale of gold purchased on the open market which was delivered
pursuant to fixed-price forward contracts in the first quarter of 1997 offset
in part by a gain of approximately $1.2 million arising from the sale of
silver purchased on the open market which was delivered pursuant to
fixed-price forward contracts in the second quarter of 1998.
EXPENSES
Total expenses in the nine months ended September 30, 1998 increased by
$58.9 million, or 265%, compared with the prior year's nine-month period. The
increase is primarily attributable to the $54.5 million writedown of the El
Bronce Mine during the first quarter of 1998. In the first nine months of
1998, interest expense increased by $4.4 million primarily as a result of the
issuance, in the fourth quarter of 1997, of $143.75 million principal amount
of 7 1/4% Convertible Subordinated Debentures due 2005.
NET LOSS
As a result of the above, the Company's loss before extraordinary items
and income taxes amounted to $69 million in the first nine months of 1998
compared to a net loss before taxes of $8.3 million during the same period
last year. In the nine months ended September 30, 1998, the Company provided
$.5 million in income taxes compared to a recorded benefit of $2,000 in the
nine months ended September 30, 1997. The Company recorded a $6.3 million (net
of tax) extraordinary gain on early retirement of subordinated debentures in
1998. As a result, the Company reports a net loss of $63.2 million in the nine
months ended September 30, 1998 compared to a net loss of $8.3 million in the
nine months ended September 30, 1997. During the first nine months of 1998,
the Company paid preferred dividends of $7.9 million on its Mandatory
Adjustable Redeemable Convertible Securities (MARCS). As a result, the loss
attributable to common shareholders in the nine months ended September 30,
1998 was $71.0 million, or $3.24 per basic and diluted share, compared to a
net loss of $16.2 million, or $.74 per basic and diluted share, attributable
to common shareholders in the prior year's comparable period.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL; CASH AND CASH EQUIVALENTS
The Company's working capital at September 30, 1998 was approximately
$177.7 million compared to $221.6 million at December 31, 1997. The ratio of
current assets to current liabilities was 6.9 to 1.0 at September 30, 1998
compared to 6.8 to 1.0 at December 31, 1997.
Net cash used in operating activities for the first nine months of 1998
was $10.4 million compared to $9.6 million provided by operating activities
during the first nine months of 1997. During the first nine months of 1998,
operating cashflow was impacted by the buildup of work-in-process inventories,
primarily the result of the change in its estimates of the percentage of
minerals to be recovered through the leaching process at the Rochester Mine
and the change in smelting at Silver Valley Resources. Net cash provided by
investing activities in the first nine months of 1998 was $68.9 million
compared to $4.8 million in the prior year's comparable period. The increase
is primarily due to proceeds received from sales of short-term investments and
marketable securities, $7.5 million of proceeds from the 1998 sale of the Awak
Mas property located in Indonesia, and the purchase of a 14 percent interest
in Gasgoyne which occurred in May 1997. Net cash used in financing activities
was $31.8 million in the first nine months of 1998 compared to $13.6 million
for the first nine months of 1997. The increase in cash used for financing
activities is primarily a result of retirement of long-term debt. As a result
of the above, cash and cash equivalents increased by $26.8 million in the
first nine months of 1998 compared to a $.7 million increase for the
comparable period in 1997.
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
22
<PAGE>
settled similar issues with the State of Idaho and the Coeur d'Alene Indian
Tribe, respectively, and believes that those prior settlements exonerate it of
further involvement with alleged natural resource damage in the Coeur d'Alene
River Basin. Accordingly, the Company intends to vigorously defend this
matter.
In March 1997, the Company filed a motion for partial summary judgement
relating to the issue of trusteeship, essentially arguing that the United
States does not have authority to sue for damages to state natural resources
and that the 1986 settlement with the state bars the federal claims. That
motion remains pending. In September 1997, the Company filed an additional
motion for partial summary judgement raising the statute of limitations as to
natural resource damages. That motion was granted by the Court on September
30, 1998. The Court's granting of that motion limits the United States'
natural resource damage claims to the 21 square mile Bunker Hill Superfund
site area rather than the entire Coeur d'Alene Basin. Although that ruling
limits the geographic coverage of the United States' action, the ruling does
not prohibit the Environmental Protection Agency from attempting to revise its
hazard ranking system which could potentially broaden the scope of the United
States' allegations. On March 31, 1998, the Court entered an order denying the
plaintiffs' motion to allow the United States to prove a portion of its case
pursuant to an administrative record, requiring the parties to submit further
facts as to the issue of trusteeship. Furthermore, in March 1998, the
Environmental Protection Agency announced its intent to perform a remedial
investigation/feasibility study upon all or parts of the Coeur d'Alene Basin
and, thereby, to apparently focus upon response costs rather than natural
resource damages. In September 1998, the Company filed an additional motion
for partial summary judgment asserting that CERCLA as applied to the Company
in the action is not constitutional under the takings and due process
provisions of the United States Constitution. At this stage of the proceeding,
it is not possible to predict its ultimate outcome.
CLASS ACTION SECURITIES LAWSUIT
On July 2, 1997 a suit was filed by purchasers of the Company's common
stock in Federal District Court for the District of Colorado naming the
Company and certain of its officers and its independent 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 purchasers as additional
plaintiffs. The action seeks unspecified compensatory damages, pre-judgment
23
<PAGE>
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 is vigorously defending against them. On
April 16, 1998, the Court entered an order dismissing the auditors from the
suit and denying the Company's and the individual defendants' motions to
dismiss. On October 9, 1998, the Court heard arguments on the question of
whether a class should be certified. That motion has been taken under
advisement. Trial has been scheduled for July 12, 1999 in Denver, Colorado. No
assurances can be given at this stage of the action as to its ultimate
outcome.
DERIVATIVE ACTION
On or about August 17, 1998, a purported derivative action was filed on
behalf of the Company against Dennis E. Wheeler, James A. Sabala, James J.
Curran, Joseph C. Bennett, James A. McClure, Cecil D. Andrus and Duane B.
Hagadone in Federal District Court for the District of Idaho. The complaint
alleged that the defendant officers and directors breached their fiduciary
duties by authorizing the Company to purchase the Golden Cross Mine in New
Zealand in 1993 and by allegedly causing or permitting the Company to make
statements that the plaintiffs in the Class Action Securities Lawsuit
described above claim were false or misleading during the period from January
1, 1995 through July 11, 1996. The plaintiff sought unspecified damages on
behalf of the Company. On September 9, 1998, the plaintiff voluntarily
dismissed the lawsuit without prejudice in light of Idaho Code Sec. 30-1-742,
which requires a demand to be served on a company at least 90 days prior to
the filing of a derivative action. On September 25, 1998, the plaintiff sent a
letter to the Company's Board of Directors demanding that the Company, among
other things, commence all reasonable steps to settle the Securities Lawsuit
described above, and pursue claims against any officers, directors or
third-party professionals who may have known about the potential problems with
the Golden Cross Mine before the Company purchased an interest in it. The
Board has appointed a Special Committee of directors to respond to that
demand.
GOLDEN CROSS LAWSUIT
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County, alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in
24
<PAGE>
connection with Cyprus' sale in April 1993 to the Company of Cyprus
Exploration and Development Corporation, which owned all the shares of Cyprus
Gold New Zealand Limited, which, in turn, owned an 80 percent interest in the
Golden Cross Mine in New Zealand. The Company's lawsuit seeks recession and an
unspecified amount of damages arising from alleged misrepresentations and
failure to disclose material facts alleged to have been known by Cyprus
officials regarding ground movement and instability, threatening the integrity
of the mine site at the time of the Company's purchase of the property. In
October 1997, Cyprus filed a counterclaim alleging libel by the Company in its
press release announcing the write off of the Golden Cross Mine and seeking an
unspecified amount of damages. Trial has been scheduled for October 18, 1999
in Boise, Idaho. No assurances can be given at this stage of the action as to
its ultimate outcome.
PROPOSED LEGISLATION
Recent legislative developments may affect the cost of and ability of
mining claimants to use the Mining Law of 1872, as amended, (the "General
Mining Law") to acquire or use federal lands for mining operations. Since
October 1994, a moratorium has been imposed on processing new patent
applications for mining claims. Management believes that this moratorium will
not affect the status of patent applications outstanding prior to the
moratorium.
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the General Mining Law. If
enacted, such legislation may materially impair the ability of the Company to
develop or continue operations which derive ore from federal lands. As of
November 6, 1998, no such bills have been passed and the extent of the
changes, if any, which may be enacted by Congress is not presently known.
EURO CONVERSION
Effective January 1, 1999, eleven of the 15 member countries of the
European Union will convert to common currency, the "Euro". The Company has
considered the long-term implications of the conversion including potential
modifications to computer systems, potentially increased exchange rate risk,
heightened derivative risk and impact on enforceability of contracts and
accounting practices and procedures. The Company's operations have minimal
exposure to the European economy and the Company expects that the conversion
will not be material to the operations or financial condition of the Company.
25
<PAGE>
YEAR 2000 COMPLIANCE
The Company currently has a program underway to ensure that all
significant computer systems are substantially Year 2000 compliant by the year
ended December 31, 1999. The program is divided into three major components:
(1) identification of all information technology systems ("IT Systems") and
non-information technology systems ("Non-IT Systems") that are not Year 2000
compliant; (2) repair or replacement of the identified non-compliant systems;
and (3) testing of the repaired or replaced systems. The Company has no "in
house" developed or proprietary IT Systems. The Company uses
commercially-developed software, the majority of which is regularly upgraded
through existing maintenance contracts. Parts (1), (2) and (3) of the Year
2000 program are currently underway. Part (1), identification, should be
completed by the end of the current calendar year. Review of the accounting
and financial reporting systems is finished and the Company is continuing to
review Non-IT Systems that have embedded microprocessors in various types of
equipment. Part (2), repairing and replacing, currently continues. Software
vendors have made Year 2000 compliant software revisions available, which the
Company is installing under maintenance agreements. Part (2) is scheduled to
be complete in the Company's second quarter ending June 30, 1999. Part (3),
testing currently continues and is scheduled to finish in the Company's third
quarter ending September 30, 1999.
The Company has been contacting key suppliers and business partners
about the Year 2000 issue. While no assurance can be given that key suppliers
and business partners will remedy their own Year 2000 issues, the Company, to
date, has not identified any material impact on its ability to continue normal
business operations with suppliers or other third parties who fail to address
the issue.
Actual costs associated with implementation of the Company's Year 2000
program are expected to be insignificant to the Company's operations and
financial condition. The Company presently estimates that projected costs,
primarily for professional consulting services, will be less than $200,000.
The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company is into the final testing
stages of its program, the risks from potential Year 2000 failures cannot be
fully assessed. Due to this situation, the Company cannot at this stage begin
final contingency plans. These plans will be developed as potential Year 2000
failures are identified in the final testing stages.
26
<PAGE>
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company does not complete any additional phases, sales
functions and other processes could be impacted. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems' failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
PART II. Other Information
ITEM 5. OTHER INFORMATION
New Securities and Exchange Commission rules regarding stockholder
proposals became effective on June 29, 1998. Pursuant to these rules, if the
Company has not received notice by February 16, 1999 of any matter a
stockholder intends to propose for a vote at the 1999 annual meeting of
shareholders, then a proxy solicited by the Company's Board of Directors may
be voted on such matter in the discretion of the proxy holder, without
discussion of the matter in the proxy statement soliciting such proxy and
without such matter appearing as a separate item on the proxy card.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
No. 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
27
<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 November 13, 1998 /s/DENNIS E. WHEELER
---------------------
Dennis E. Wheeler
Chairman, President and
Chief Executive Officer
Dated November 13, 1998 /s/WAYNE VINCENT
----------------
Wayne Vincent
Controller
28
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