<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A No. 1
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Amendment No. 1 to Annual Report on Form 10-K for the Year Ended
December 31, 1998
COEUR D'ALENE MINES CORPORATION
------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Idaho 1-8641 82-0109423
- ---------------------------- ------------ -------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
505 Front Avenue., P.O. Box "I"
Coeur d'Alene, Idaho 83814
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
The undersigned registrant hereby includes the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
year ended December 31, 1998, as set forth in the pages attached hereto:
Part I. Item 1. Business
Part II. Item 6. Selected Financial Data
Item 7. Management's Discussion and Analyses
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data
Part III. Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and
Related Transactions
Part IV. Item 14(a). Financial Statements
(c) Exhibits 23 and 27
(d) Auditors' Report
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
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COEUR D'ALENE MINES CORPORATION
By: /s/ Dennis E. Wheeler
----------------------------
Dennis E. Wheeler
Chairman, President and
Chief Executive Officer
Date: April 15, 1999
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PART I
ITEM 1. BUSINESS
Coeur d'Alene Mines Corporation is engaged through its subsidiaries in
the operation and/or ownership, development and exploration of silver and gold
mining properties and companies located primarily within the United States
(Nevada, Idaho and Alaska), Australasia (New Zealand and Western Australia) and
South America (Chile). Coeur d'Alene Mines Corporation and its subsidiaries are
hereinafter referred to collectively as "Coeur" or the "Company".
OVERVIEW OF MINING PROPERTIES AND INTERESTS
The Company's most significant mining properties and interests are:
- the ROCHESTER MINE, a silver and gold surface mining operation
located in northwestern Nevada, which is 100% owned and operated
by Coeur and which is one of the largest and lowest cost of
production primary silver mines in the United States;
- ownership of 50% of the capital stock of SILVER VALLEY RESOURCES
CORPORATION ("SILVER VALLEY"), which owns the GALENA underground
silver mine that resumed production in May 1997; the COEUR
underground silver mine that resumed production in June 1996 and
terminated operations on July 2, 1998; the CALADAY property that
adjoins the Galena Mine; and operating control of several
contiguous properties in the Coeur d'Alene Mining District of
Idaho;
- the FACHINAL MINE, an open pit and underground gold and silver
mining operation wholly-owned and operated by Coeur and located in
southern Chile, South America, which Coeur acquired in 1990, at
which initial production commenced in October 1995, which was
classified as an operating property for financial reporting
purposes on January 1, 1997, and with respect to which the Company
recorded a $42.9 million impairment write-down at December 31,
1998;
- the CDE Petorca (or CDE El Bronce) Mine (THE "PETORCA MINE"), an
underground Chilean gold and silver mine in which the Company
acquired a 51% operating interest in October 1994 and 100%
ownership in September 1996, and with respect to which the Company
recorded a $54.5 million impairment write-down in the first
quarter of 1998;
- ownership of 50% of the capital stock of GASGOYNE GOLD MINES NL,
an Australian gold mining company ("Gasgoyne"), which owns 50% of
THE YILGARN STAR MINE, a gold mine in Western Australia, and
certain other exploration-stage properties;
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- ownership of 100% of the KENSINGTON PROPERTY, located north of
Juneau, Alaska, which is being developed as an underground gold
mine by Coeur where the Company recently completed an
independently prepared optimization study which reduced projected
cash operating costs to US$190 per ounce of gold for proven and
probable reserves and capital costs to develop the mine to $192
million, and at which the Company recorded an impairment
write-down of $121.5 million at December 31, 1998; and
- the GOLDEN CROSS MINE, an underground and surface gold mining
operation located near Waihi, New Zealand at which mining and
milling operations were discontinued on April 28, 1998, and at
which reclamation activities were conducted throughout the balance
of 1998.
Coeur also has interests in other properties which are the subject of silver or
gold exploration activities at which no mineable ore reserves have yet been
delineated.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on its ore
reserve/mineralized material bases and the expertise of its management to become
a leading precious metals company via long-term, profitable growth. The
principal elements of the Company's business strategy are as follows: (i)
increase the Company's silver production and reserves in order to remain the
nation's largest primary silver producer and one of the world's larger primary
silver producers; (ii) improve operating cost and production profiles at Coeur's
existing silver and gold mining operations; (iii) increase the Company's silver
and gold production and reserves in order to continue to provide its
shareholders with an interest in both metals, while lowering its cost of gold
and silver production; (iv) acquire operating mines, exploration and/or
development properties with a view to reducing the Company's operating and
production costs and expanding its production and reserves; (v) continue to
explore for new silver and/or gold discoveries primarily in North and South
America and Australia primarily near existing mine sites; (vi) focus on
opportunities which provide strong immediate or near-term prospects for low-cost
silver and/or gold production; and (vii) strengthen the Company's financial
ability to weather the gold industry's lowest price level in nineteen years.
SOURCES OF REVENUE
The Rochester Mine, Fachinal Mine and Petorca Mine, which are operated by
the Company; the Golden Cross Mine, which was operated by the Company; and the
Company's interests in Silver Valley and Gasgoyne, constituted the Company's
principal sources of mining revenues in 1998. The following table sets forth
information regarding the percentage contribution to the Company's total
revenues (i.e., revenues from the sale of concentrates and dore plus other
income) by the sources of those revenues during the past four years:
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<TABLE>
<CAPTION>
Percentage of Percentage of Total Revenues
Mine/Company Coeur Ownership in Year Ended December 31,
- ------------ --------------- ---------------------------------------------------
1995 1996 1997 1998
----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Rochester Mine. . 100% 57.0% 59.3% 40.5% 56.2%
Golden Cross Mine. 80 33.4 26.0 23.7 .2
Petorca Mine(1). . 100 0.3 2.8 11.3 8.5
Fachinal Mine(2) . 100 - - 9.8 14.6
Silver Valley (3). 50 - .5 .9 (.9)
Gasgoyne(4). . . . 50 - 0.9 5.2 12.1
Other. . . . . . . - 9.3 10.5 8.6 9.3
----- ----- ----- -----
100% 100% 100% 100%
===== ==== ===== =====
</TABLE>
- ------------------------------------
(1) The reported percentages of total revenues reflect the fact that
Coeur's interest in the revenue of the mine was 51% until September 1996,
when it acquired a 100% ownership interest. Prior to September 1996, the
Company's share of net profits was reported as other income.
(2) The Fachinal Mine commenced pre-production activities in late October
1995 and was accounted for as a development stage property until December
31, 1996 (i.e., operating costs were capitalized net of revenues from
pre-commercial production). Commencing January 1, 1997, the mine was
accounted for as an operating property for financial reporting purposes.
(3) The Company's interest in Silver Valley accounted for approximately
3.0 % of total revenues for the approximately eight months subsequent to
its start-up by the Silver Valley Resources in May 1996. The Company
changed its method of accounting for Silver Valley Resources from the
proportionate consolidation method to the Equity Method of Accounting and
as such has included cost of production and working capital costs.
(4) The Company's interest in Gasgoyne accounted for approximately 1.2% of
total revenues for the approximately six months subsequent to its
acquisition by the Company in May 1996. The reported percentages reflect
the fact that Coeur's interest in Gasgoyne revenue was 35% from May 1996
to February 1997, 36% from March 1997 to May 1997 and 50% after May 1997.
The Company's interest in Gasgoyne is reported in accordance with the
equity method.
DEFINITIONS
The following sets forth definitions of certain important mining terms used in
this report.
"Dore" - A bullion produced by smelting, containing gold, silver and
minor amounts of impurities.
"Gold" - An alloy with minimum fineness of 999 parts per 1000 parts pure
gold.
"Heap Leaching
Process" - Heap leaching is a process of extracting gold and silver by
placing broken ore on an impermeable pad and applying a dilute
cyanide solution that dissolves a portion of the contained gold
and silver, which are then recovered in metallurgical
processes.
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"Mineralized
Material" - A mineralized underground body which has been intersected by
sufficient closely spaced drill holes and/or underground
sampling to support sufficient tonnage and average grade of
metal(s) to warrant further exploration-development work. Such
material does not qualify as an "ore reserve" until a final and
comprehensive economic, technical and legal feasibility study
based upon evaluation of engineering, mineability and
metallurgical testing is concluded.
"Ore
Reserve" - That part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve
determination.
"Probable
Reserves" - Ore reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven
reserves, but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately
spaced. The degree of assurance, although lower than that for
proven reserves, is high enough to assume continuity between
points of observation.
"Proven
Reserves" - Ore reserves for which (a) quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed
sampling and (b) the sites for inspections, sampling and
measurement are spaced so closely and the geologic character is
so well defined that size, shape, depth and mineral content of
reserve are well-established.
"Ton" - References to a "ton" mean a short ton, which is 2,000 pounds.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
This report contains numerous forward-looking statements relating to the
Company's gold and silver mining business, including estimated production data,
expected operating schedules and other operating data and permit and other
regulatory approvals. Such forward-looking statements are identified by the use
of words such as "believes," "intends," "expects," "hopes," "may," "should,"
"plan," "projected," "contemplates," "anticipates" or similar words. Actual
production, operating schedules and results of operations could differ
materially from those projected in the forward-looking statements. The factors
that could cause actual results to differ materially from those projected in the
forward-looking statements include (i) the risks and hazards inherent in the
mining business (including environmental hazards, industrial accidents, weather
or geologically related conditions), (ii) changes in the market prices of gold
and silver, (iii) the uncertainties inherent in the Company's production,
exploratory
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and developmental activities, including risks relating to permitting and
regulatory delays, (iv) the uncertainties inherent in the estimation of gold and
silver ore reserves, (v) changes that could result from the Company's future
acquisition of new mining properties or businesses, (vi) the effects of
environmental and other governmental regulations, and (vii) the risks inherent
in the ownership or operation of or investment in mining properties or
businesses in foreign countries.
ROCHESTER MINE
The Rochester Mine is a silver and gold surface mine located in Pershing
County, Nevada, approximately 25 road miles northeast of Lovelock. The mine
utilizes the heap leaching process to extract both silver and gold from ore
mined using open pit methods. The property consists of 16 patented and 541
unpatented contiguous mining claims and 54 mill-site claims totaling
approximately 11,000 acres. The Company owns 100% of the Rochester Mine by
virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc. ("Coeur
Rochester"). Asarco, Inc., the prior lessee, has a net smelter royalty interest
which is payable only when the market price of silver equals or exceeds $18.26
per ounce up to minimum rate of 5%.
Based on the ore reserve review report, dated February 1999, of
Independent Mining Consultants, Inc. ("IMC"), and accounting for production
through December 31, 1998, mineable, proven/probable ore reserves at the
Rochester Mine, as of January 1, 1999, totaled approximately 54.856 million tons
averaging 1.08 ounces of silver per ton and 0.009 ounces of gold per ton. The
reserve estimate is based on a 0.75 ounce per ton silver-equivalent cutoff grade
and silver and gold prices of $5.80 and $300.00, respectively. The average
grades do not reflect losses in the recovery process. The amount of estimated
proven and probable reserves vary depending on the prices of silver and gold. In
addition, 26.789 million tons of mineralized material averaging 0.91 ounces of
silver per ton and 0.007 ounces of gold per ton have been identified by Coeur
Rochester. The average strip ratio for the remaining life of the mine will vary
based primarily on future gold and silver prices. Furthermore, the actual strip
ratio may vary significantly from year-to-year during the remaining life of the
mine, however, the average strip ratio is anticipated to be less than 1:1.
The above ore reserve and mineralized material data does not include data
relating to the Nevada Packard property located south of the Rochester Mine,
which the Company has an option to purchase and which is discussed below.
Based upon its actual operating experience and certain metallurgical
testing, the Company estimates recovery rates of 59% for silver and 90% for
gold. The leach cycle at the Rochester Mine requires approximately five years
from the point ore is placed on the leach pad until all recoverable metal is
recovered. However, a significant proportion of metal recovery occurs in the
early years. The realization of the Company's production estimates is subject to
actual rates of recovery, continuity of ore grades, mining rates, areas being
mined, projected
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operating costs, the levels of silver and gold prices, and other uncertainties
inherent in any mining and processing operation.
The following table sets forth information for the periods indicated
relating to Rochester Mine production. Rochester had record silver production in
1998, 7,225,396 ounces, an 8% increase over 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ore processed
(tons). . . . . . 7,759,637 8,243,609 8,127,691 8,738,471 8,529,263
Silver (ounces). . 5,937,770 6,481,825 6,251,180 6,690,704 7,225,396
Gold (ounces). . . 56,886 59,307 74,293 90,019 88,615
</TABLE>
Rochester reduced total costs per ounce by $.36, a 7% reduction from
1997.The following table sets forth the costs of production per ounce of silver
and gold on a silver equivalent basis during the periods indicated at the
Rochester Mine. Cash costs include mining, processing and direct administration
costs, financing costs, royalties and refining costs. Silver equivalent gold
production for the year is calculated by multiplying actual gold ounces produced
by the ratio of the yearly average gold price to the yearly average silver
price. This total is then added to actual silver production for the year to
determine total silver equivalent production.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Cash costs per ounce. . . $ 3.65 $ 3.79 $ 3.71 $ 4.36 $ 4.07
Depreciation, depletion
and amortization
per ounce. . . . . . . .59 .61 .54 .67 .60
-------- --------- --------- --------- --------
Total costs per ounce . . $ 4.24 $ 4.40 $ 4.25 $ 5.03 $ 4.67
======== ========= ========= ========= ========
</TABLE>
A total of three deep drill holes were completed during 1998 to test
multiple feeder structures that could have added ore resources to the Rochester
silver/gold deposit. Sulfide mineralization was encountered; however, only weak
precious metals mineralization was intercepted. Geologic evaluation is
continuing.
The metallurgical test program was completed during 1998 and confirmed
that finer crushing could enhance gold and silver recoveries. The Company
completed a basic engineering study to determine the capital and operating
requirements for fine crushing. However, the results of this study do not
support installation of a fine crushing plant at this time given the current
depressed metal prices. The Company will continue to investigate potential fine
crushing alternatives and other remaining life-of-mine optimization
opportunities.
During the second quarter of 1998, the Company began the third
consecutive year of drilling on the Nevada Packard property located south of the
Rochester
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Mine. The first two phases of exploratory drilling were directed to test
mineralization from surface to depths of 900 feet. The second phase of drilling
completed in August 1998 confirmed the near-surface mineralization, allowing for
a mineable reserve estimate. At the conclusion of the third phase of drilling,
the Company had completed 33,615 feet of drilling on the property.
Preliminary economic evaluations support moving forward with mining the
ore reserves at the Nevada Packard property based on the Company's ore reserve
analysis. The Company estimates that mineable, proven and probable ore reserves
at the Nevada Packard property at January 1, 1999 totaled approximately 3.919
million tons averaging 2.17 ounces of silver per ton and 0.004 ounces of gold
per ton. The reserve estimate is based on a 1.05 ounce per ton silver-equivalent
cutoff grade and silver and gold prices $5.00 and $300.00 per ounce,
respectively. The amount of proven and probable reserves vary depending on the
prices of silver and gold. In addition, 3.039 million tons of mineralized
material averaging 0.95 ounces of silver per ton and 0.003 ounces of gold per
ton have been identified by the Company. The Company has the option to purchase
100% of the Nevada Packard property and is negotiating with respective claim
owners. No assurance can be given that the Company will exercise that option.
Permitting will commence if and when the option is exercised. It is expected
that any ore mined there would be processed at the Rochester facility.
The Company's capital expenditures at the Rochester Mine totaled
approximately $7.1 million in 1998, of which approximately $6.2 million was used
to reacquire the existing processing facility which was subject to a
sale-leaseback agreement entered into in 1986. The Company plans approximately
$4.1 million of capital expenditures at the mine during 1999, most of which is
for an expansion of the Stage IV leach pad.
INTEREST IN SILVER VALLEY RESOURCES CORPORATION - THE COEUR D'ALENE MINING
DISTRICT
Silver Valley Resources Corporation ("Silver Valley") owns the Coeur and
Galena Mines and the Caladay property situated in the Coeur d'Alene Mining
District of Idaho. Effective January 1, 1995, Coeur, Callahan Mining Corporation
("Callahan"), a wholly-owned subsidiary of Coeur, and ASARCO Inc. ("ASARCO")
transferred their interests in the Coeur and Galena Mines and Caladay property
to Silver Valley, an entity created for that sole purpose, as a result of which
Coeur and ASARCO each now own 50% of Silver Valley. During 1995, Silver Valley
conducted a planned underground development program that increased ore reserves
at the Galena Mine. As a result of this program and increased silver prices, a
decision was made on February 8, 1996 by Silver Valley to reopen the mines.
Underground development and exploration activities continued during 1997 and
1998.
Silver Valley recommenced operations at the Coeur mine portion of its
property in June 1996 and continued mining existing reserves there through July
2, 1998, when operations were terminated as planned. Silver Valley resumed
production at the Galena Mine in May 1997 and operations continue.
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Silver Valley silver reserves attributable to Coeur's 50% ownership
interest in both the Galena and Coeur Mines have been expanded, increasing 32%
in 1995, 22% in 1996 and 13% in 1997. In 1998, ore reserves at the Galena
increased 15%. Silver Valley plans to continue exploratory and developmental
activities at the Coeur, Galena and Caladay Mines as well as at several
contiguous properties in the Coeur d'Alene Mining District with a view toward
the development of new silver reserves and resources.
During the second quarter of 1998, shipments of concentrate from the
Galena and Coeur mines were suspended, resulting in a build-up of inventories
pending negotiation of the placement of concentrates with three new suppliers of
smelting services. The shipment of concentrates resumed in July, 1998.
Concentrate inventories returned to normal levels prior to the end of 1998.
The Board of Directors of Silver Valley consists of six directors, three
of whom, including the Chairman of the Board, are appointed by Asarco and three
of whom, including the President, are appointed by Coeur. Pursuant to a
Shareholders' Agreement between the parties, certain specified corporate actions
requires a majority vote. If the voting results in a tie at any Board Meeting,
the Chairman of the Board of Silver Valley, who also is the Chairman of the
Board of Asarco, will decide the issue. Certain other specified corporation
actions require unanimous approval of the directors. The President of Coeur also
is the President of Silver Valley and serves on its Executive Committee. Certain
other officers of Silver Valley are officers of Coeur or Asarco, which companies
may provide management and other services to Silver Valley upon the request of
its Board of Directors. A summary of the properties owned by Silver Valley is
set forth below.
GALENA MINE
The Galena Mine property consists of approximately 1,100 acres lying
immediately west of the City of Wallace, Shoshone County, Idaho adjoining the
Coeur Mine's eastern boundary. The property consists of 52 patented mining
claims and 25 unpatented mining claims. The Galena Mine is primarily an
underground silver-copper mine ,and is served by two vertical shafts.
In July 1992 Asarco, which was the Galena Mine operator, suspended
operations at the Galena Mine due to then prevailing silver prices ($4.31 per
ounce average for the month of July 1992) and placed the property on a care and
maintenance basis to conserve ore reserves. Silver Valley resumed production at
the Galena Mine in May 1997.
Based on the ore-reserve estimate of Silver Valley, dated January 1999,
proven and probable ore reserves as of January 1, 1999 at the Galena Mine
totaled 1.757 million tons averaging 18.54 ounces of silver per ton. Included in
the previously quoted reserves are 348,000 tons of ore containing 12.34% lead
and 1.569 million tons of ore containing 0.56% copper. The Silver Valley reserve
estimate is based on a minimum mining width of 4 to 4.5 feet diluted to 5.0 feet
minimum width for most silver-copper and silver-lead veins. Cutoff grade is
based
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on the cost of breaking and producing ore from a stope, but does not include
development costs and administrative overhead. The cutoff grade varies from
area-to-area within the mine due to changing silver-copper ratios of the ore.
The reserve estimate has also identified an additional 782,000 tons of
mineralized material which averages 8.26 ounces of silver per ton. Included in
the mineralized material are 262,000 tons containing 0.43% copper and 541,000
tons containing 5.74% lead.
The following table sets forth information relating to total Galena Mine
production during the periods indicated.
<TABLE>
<CAPTION>
Eight Months Year Ended
Ended December 31, December 31,
1997 1998
--------------------------------- ---------------------------------
<S> <C> <C>
Ore milled (tons)....... 80,012 176,304
Silver (ounces)......... 1,456,201 3,260,363
Copper (pounds)......... 1,070,954 2,234,374
</TABLE>
The following table sets forth the costs of production per ounce of
silver (net of credit for copper byproduct) at the Galena Mine during the
periods indicated. Cash costs include mining, processing, direct administration
costs and smelter charges, but do not include exploration costs. Coeur has a 50%
interest in operating profits from Galena Mine operations by virtue of its 50%
ownership of Silver Valley. Silver Valley reduced its full costs per ounce in
1998 by $.53, an 8.9% reduction from 1997.
<TABLE>
<CAPTION>
Eight Months Year Ended
Ended December 31,
December 31, 1997 1998
--------------------------------- --------------------------------
<S> <C> <C>
Cash costs per ounce............. $4.74 $4.39
Depreciation, depletion and
amortization per ounce......... 1.24 1.06
---- ----
Total costs per ounce............ $5.98 $5.45
===== =====
</TABLE>
Total capital expenditures by Silver Valley at the Galena Mine in 1998
approximated $3.6 million. Such expenditures were used to provide additional
mine development and miscellaneous equipment. Silver Valley plans approximately
$2.7 million of mine development and equipment expenditures at the Galena Mine
during 1999.
Activities at the Galena Mine during 1998 were concentrated on shaft
deepening and development activities, including exploration/development drilling
that tested both internal vein targets and several exploration targets located
on
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leased properties contiguous to the Silver Valley holdings. Exploration results
are being assessed and will require further follow up.
COEUR MINE
The Coeur Mine is an underground silver mine located adjacent to the
Galena Mine in the Coeur d'Alene Mining District in Idaho, and consists of
approximately 868 acres comprised of 38 patented mining claims and four
unpatented mining claims. Effective December 31, 1991, Coeur increased its
non-operating joint venture interest in the mine to 50% as a result of Coeur's
acquisition of Callahan, which had acquired a 5% interest in the mine in March,
1968. Effective January 1, 1995, Coeur and Asarco transferred their interests in
the Coeur Mine to Silver Valley.
Asarco, the operator under the previous joint venture, suspended
operations at the Coeur Mine on April 3, 1991 due to then prevailing silver
prices ($3.90 per ounce average for April 1991) and placed the property on a
care and maintenance basis to conserve ore reserves. Silver Valley resumed
production activities at the Coeur Mine in June 1996 and, as planned, terminated
operations there on July 2, 1998.
The following table sets forth information, for the periods indicated,
relating to total Coeur Mine production.
<TABLE>
<CAPTION>
Six Months Year Ended Six Months
Ended December 31, Ended
December 31, 1996 1997 June 30, 1998
----------------- ------------ -------------
<S> <C> <C> <C>
Ore milled (tons). 78,067 110,579 21,968
Silver (ounces). . 1,666,534 1,978,513 261,266
Copper (pounds). . 1,407,771 1,621,345 174,414
</TABLE>
The following table sets forth the costs of production per ounce of
silver (net of credit for copper by-product) at the Coeur Mine during the
periods indicated. Cash costs include mining, processing, direct administration
costs and smelter charges but do not include exploration costs. The Company has
a 50% interest in operating profits from Coeur Mine operations by virtue of its
50% ownership of Silver Valley.
<TABLE>
<CAPTION>
Six Months Seven Months
Ended Year Ended Ended
December 31, December 31, July 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash costs per ounce............ $3.18 $3.00 $5.34
Depreciation, depletion
and amortization
per ounce...................... .79 .95 1.03
----- ----- ----
Total costs per ounce........... $3.97 $3.95 $6.37
===== ===== =====
</TABLE>
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The increase in cash cost per ounce in the 1998 period was primarily due to the
fact that, as planned, operations at the Coeur Mine were winding down and
terminated on July 2, 1998.
Based on a Silver Valley Resources ore reserve report dated January 1999,
Coeur estimates the mineralized material as of January 1, 1999 at the Coeur Mine
totaled 370,000 tons averaging 14.53 ounces of silver per ton and 0.69% copper.
Approximately 2,288 feet of exploration drilling was completed at the Coeur in
1998, the results are undergoing interpretation.
CALADAY PROPERTY
The Caladay property adjoins the Galena Mine. Prior to its acquisition by
the Company in 1991, approximately $32.5 million was expended on the property to
construct surface facilities, a 5,101 ft. deep shaft and associated underground
workings to explore the property. Based on Silver Valley's analysis of existing
Galena Mine underground workings and drilling results on the Galena Property,
the Company believes that similar geologic conditions which exist at the Galena
extend into the Caladay below the level of the current Caladay workings. In
addition, the Caladay facilities may be used to benefit the Galena Mine
operations.
FACHINAL MINE
In January 1990, the Company acquired through its wholly-owned
subsidiary, CDE Chilean Mining Corporation, ownership of the Fachinal gold and
silver property. As discussed below, the Company completed the construction of
the Fachinal Mine on schedule and under budget in October 1995 when initial
mining operations commenced.
The Fachinal property covers about 90 square miles and is located south
of Coihaique, the capital of Region XI in southern Chile, and approximately 10
miles west of the town of Chile Chico. The project lies on the east side of the
Andes at an elevation ranging from 600 to 4,500 feet and is serviced by a gravel
road from Chile Chico. The Fachinal property is known to include multiple
epithermal veins containing gold and silver. The Company has been granted
exploitation concessions (the Chilean equivalent to an unpatented claim except
that the owner does not have title to the surface which must be separately
acquired from the surface owner) covering the mineralized areas of the Fachinal
property as well as the necessary surface rights to permit mining there.
During the first two years of commercial production (i.e. 1997 and 1998),
the Fachinal Mine experienced operational ore reserve problems that resulted in
significantly higher than expected cash operating costs of production. The
Fachinal ore distribution is much more structurally controlled than originally
interpreted. An effort to transition from open pit mining to profitable
underground mining continued through 1997 and 1998. The remote and secluded
location of the Fachinal Mine made it difficult to attract experienced miners
and the Company decided to train local residents, supplemented with contract
13
<PAGE> 14
underground miners. After two years of mining and development, the Company now
has a group of experienced underground miners. Additionally, the Company has
implemented significant improvements in the open pit mining techniques
specifically designed to improve the results of mining the structurally
controlled Fachinal deposits. The efforts over the last two years are beginning
to provide positive results and will continue into 1999.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Asset and 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. Generally, SFAS 121 provides that an asset
impairment exists when the total amount of the estimated future undiscounted
cash flows generated by the asset are less than the carrying value of the asset.
If it is determined that impairment exists, the amount of the impairment loss
that should be recorded, if any, is the amount by which the carrying value of
the asset exceeds its fair value. An impairment loss is measured and recorded
based on discounted estimated future cash flows. Future cash flows include
estimates of recoverable ounces, gold prices (considering historical and current
prices) and operating, capital and reclamation costs.
At December 31,1998, due to the continuing low gold price environment,
the Company reviewed the carrying value of the Fachinal mine using a $350 per
ounce gold price assumption. Coeur's long-term price assumption of $350 an ounce
is based upon historical gold prices and the Company's reasonable projections,
as well as a survey of price assumptions used by other companies in the
industry. Based on estimated future undiscounted cash flows, the Company does
not expect to recover the full value of its remaining investment in the Mine.
Based on discounted estimated future cash flows from Fachinal, an
impairment write-down of $42.9 million was recorded at December 31, 1998 thereby
reducing the carrying value to $24.8 million.
The following table sets forth Fachinal Mine production data for the
period from October 19, 1995, on which date initial production activities
commenced, through December 31, 1995, and for the years ended December 31, 1996,
1997 and 1998.
<TABLE>
<CAPTION>
October 19, 1995
through
December 31, 1995 Year Ended December 31,
------------------------------ ---------------------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C> <C>
Ore milled (tons)....... 96,212 591,074 592,976 568,051
Gold (ounces)........... 3,586 25,064 30,601 28,358
Silver (ounces)......... 334,816 2,154,347 2,243,761 1,596,676
</TABLE>
14
<PAGE> 15
The gold production decline in 1998 was due to tons and grades being
lower than planned. The silver shortfall was due to lower than model predicted
grades at the Condor and Guanaco Mines. The Condor problem was one of model
prediction error. Guanaco was at the end of its mine life and was not totally
mined out because of the metal price decline of the last quarter. This resulted
in a tonnage and grade shortfall for Guanaco.
The following table sets forth the costs of production per ounce of gold
during 1997 and 1998 at the Fachinal Mine. Cash costs include mining, processing
and direct administration costs, royalties, smelting and refining. Because the
Fachinal Mine had not yet reached commercial production levels prior to January
1, 1997, results of the mine's operations were accounted for as a development
stage property (i.e., costs net of pre-production revenues were capitalized).
The property was classified as an operating property for financial reporting
purposes on January 1, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998
---- ----
<S> <C> <C>
Cash costs per ounce....................... $339.46 $313.84
Depreciation, depletion and
amortization per ounce.................... 172.86 205.96
------ -------
Total costs per ounce...................... $512.32 $519.80
======= =======
</TABLE>
The decrease in cash cost of production in 1998 was primarily
attributable to fourth quarter operating improvements. The mine plan emphasis
changed from 50%-50% underground-open pit mining to 80%-20% underground-open pit
mining. Personnel were reduced 40%. The cash costs for the fourth quarter were
$279 per gold equivalent ounce. During this period, significant productivity
enhancements were achieved; the mill operating schedule was reduced 30%; other
cost savings included lowered diesel consumption and renegotiated
transportation, explosives and diesel contracts. Other employee related costs
reductions included transportation, food and lodging savings.
Economic, precious metals ores at the Fachinal Mine occur in multiple
epithermal, quartz-sulfide veins system hosted in Jurassic volcanic rocks.
During the third quarter of 1998, the Company identified additional underground
reserves. Based on an ore reserve review report dated February 1999, by Micon
International Limited ("Micon"), the total remaining, mineable, open-pit and
underground proven and probable reserves as of January 1, 1999 at the Fachinal
Mine were approximately 1.475 million tons averaging 0.07 ounces of gold per ton
and 2.70 ounces of silver per ton. The Fachinal Mine's open-pit reserve base
totals 1.028 million tons averaging 0.06 ounces of gold per ton and 1.76 ounces
of silver per ton. The estimate is based on an internal cutoff grade of 0.04 to
0.06 gold equivalent ounces per ton. The underground reserve, which totals
448,000 tons at 0.10 ounces of gold per ton and 4.86 ounces of silver per ton,
is based on internal cutoff grades ranging from 0.12 to 0.18 ounces per ton
equivalent gold. Both reserve estimates are based on gold and silver prices
15
<PAGE> 16
ranging from $300 to $344 per ounce and $5.00 to $6.16 per ounce, respectively
from 1999 to 2003. Average grades reflect extractive dilution, but not losses
during the recovery process. The Company estimates, based upon metallurgical
testing and operating experience, recovery rates between 88.7% for gold and
87.8% for silver. The open-pit reserve estimate has also identified 2.754
million tons of mineralized material, averaging 0.06 ounces of gold per ton and
1.23 ounces of silver per ton. The underground resource estimate has identified
an additional 1.199 million tons of mineralized material averaging 0.11 ounces
of gold per ton and 4.28 ounces of silver per ton. Numerous other exploration
targets with known precious-metals mineralization remain to be evaluated. The
above ore reserve and mineralized material data does not include data relating
to the Furioso property near the Fachinal property, which the Company has an
option to purchase and which is discussed below.
Total capital expenditures by the Company at the Fachinal Mine in 1998
approximated $2.8 million. Such expenditures were used to expand mine
development and purchase miscellaneous equipment. The Company plans
approximately $.3 million of capital expenditures at the Fachinal Mine during
1999 on mine development and miscellaneous capital equipment.
Drilling is underway at the Fachinal Mine's underground and open pit
mines in an effort to increase the existing reserve base. In addition,
developmental activities are being conducted at the Furioso property, located
approximately 40 miles southwest of the Fachinal Mine, where the Company has
estimated additional high grade gold reserves. An internal feasibility study has
been conducted by the Company and determined that Furioso ore reserves can be
economically processed at existing Fachinal Mine facilities. The Company has an
option to purchase 100% of the Furioso property at a price of $500,000 on or
prior to April 30, 1999. No assurance can be given that the Company will
exercise that option. Emphasis is being directed at increasing underground
higher grade reserves. The ore reserve review report of Micon, dated February
1999 estimated that mineable proven and probable ore reserves as of January 1,
1999 at the Furioso property were approximately 51,000 tons averaging 0.54
ounces of gold per ton and 15.36 ounces of silver per ton. Those estimates are
based on an internal cutoff grade of 0.23 to 0.26 gold equivalent ounces per ton
and gold and silver prices of $300 per ounce and $5.00 per ounce, respectively.
Mineralized material at Furioso has been estimated at 54,000 tons with an
average gold grade of 0.31 ounces per ton and 6.06 ounces per ton silver.
Reference also is made to "Exploratory Mining Properties" below for additional
information relating to exploratory activities in the Fachinal Mine area.
Although the government and economy of Chile has been stable in recent
years, the ownership of property in a foreign country is always subject to the
risk of expropriation or nationalization with inadequate compensation. Any
foreign operation or investment may also be adversely affected by exchange
controls, currency fluctuations, taxation and laws or policies of particular
countries as well as laws and policies of the United States affecting foreign
trade, investment and taxation.
16
<PAGE> 17
CDE PETORCA (CDE EL BRONCE) MINE
The Petorca Mine (also previously referred to as the El Bronce Mine) is
an underground, gold-silver mine located on approximately 34,000 acres in the
Andean foothills approximately 90 miles north of Santiago, Chile. In July 1994,
the Company entered into an agreement with Compania Minera El Bronce de Petorca,
a Chilean corporation ("CMEB"), pursuant to which the Company acquired operating
control and a 51% interest in any operating profits and an option exercisable
through July 1997 to also purchase from CMEB a 51% equity interest in Compania
Minera CDE El Bronce, a Chilean corporation ("CDE El Bronce") that owns the
producing El Bronce Mine. On September 4, 1996, the Company exercised its option
to purchase 51% of the shares of CDE El Bronce and also purchased the remaining
49% of the shares of CDE El Bronce from CMEB, as a result of which Coeur
increased its ownership interest of CDE El Bronce to 100%. The property consists
of 64 exploitation concessions and 10 exploration concessions. Surface rights to
permit mining on the property have been granted by the private owners. Ore is
produced from a complex system of precious-metals bearing, epithermal,
quartz-veins hosted in Cretaceous volcanic rocks. Coeur expended a total of
$30.6 million in connection with its original acquisition of operating control
of the El Bronce Mine, exercise of the option to acquire 51% ownership of CDE El
Bronce and acquisition of the remaining 49% of the shares of CDE El Bronce. In
addition, Coeur's obligation to pay CMEB a 3% net smelter return royalty,
payable quarterly, commenced on January 1, 1997. However, from July 1998 to June
1999, CMEB has agreed to a 2.4% net smelter return royalty.
During the first quarter of 1998, the Petorca Mine continued to operate
at a loss in spite of on-going efforts to improve ore grades and reduce
operating costs. During April 1998, a SFAS 121 analysis of Petorca was completed
to determine whether mine plans could be modified to improve operations. As a
result of this evaluation, the Company determined that a write-down was required
to properly reflect the estimated realizable value of Petorca's mining
properties and assets in accordance with the standards set forth in SFAS 121.
Consequently, the Company recorded a write-down in the first quarter of 1998
totaling $54.5 million relating to its investment in the Petorca 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.
Subsequent to the write-down, sufficient exploration success was achieved
to allow the mine to continue operations. 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, and production in the fourth quarter totaling 9,045
and 17,018 gold and silver ounces, respectively, at a cash cost of $226 per gold
ounce. The Company expects that 1999 will continue to achieve similar operating
improvements. Based on proven and probable reserves, the Company estimates that
operations should continue for twelve more months.
17
<PAGE> 18
Based on an ore reserve report, dated February 1999, prepared by CDE
Petorca, proven and probable ore reserves as of January 1, 1999 at the Petorca
Mine totaled 424,000 tons averaging 0.22 ounces of gold per ton. The reserve
estimate is based on a gold price of $300.00 per ounce. An additional 858,000
tons of mineralized material, averaging 0.33 ounces of gold per ton, has been
identified. The reserve is based on an internal cutoff of 0.18 ounces of gold
per ton. The Company estimates, based on past experience and metallurgical
testing, mill recovery rates are 93% for gold and 84% for silver. Certain
mineralized veins remain geologically open both vertically and horizontally.
The following table sets forth Petorca Mine production data subsequent to
its acquisition by Coeur on October 3, 1994. As stated above, prior to September
4, 1996, the Company had a 51% interest in any operating profits from the mine.
The Company's 5l% interest in the mine's operating profits from October 3, 1994
through December 31, 1994 amounted to $1,023,537 and for the year ended December
31, 1995 amounted to $763,166. Subsequent to September 4, 1996, the Company has
had a 100% interest in any operating profits or losses from the mine. Giving
effect to the Company's 51% interest through September 4, 1996 and its 100%
interest thereafter, the Company received operating profits from the mine of
$522,151 in 1996 and recorded an operating loss of $5.6 million in 1997 and
$58.1 million in 1998. The following data sets forth 100% of the mine's
production during the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Year Ended December 31,
------------------------------------------
1994 1995 1996 1997 1998
------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
Ore milled (tons). 56,761 286,512 339,509 343,296 236,016
Gold (ounces). . . 9,712 43,204 52,917 48,181 37,746
Silver (ounces). . 39,605 142,229 112,633 100,626 70,755
</TABLE>
The following table sets forth the costs of production per ounce of gold
during the periods set forth below at the Petorca Mine. Cash costs include
mining, processing and direct administration costs, royalties, and smelting and
refining.
<TABLE>
<CAPTION>
Three Months
Ended
December 31, Year Ended December 31,
-----------------------
1994 1995 1996 1997 1998
------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash costs per
ounce.............. $205.65 $330.37 $296.05 $348.24 $336.26
Depreciation,
depletion and
amortization
per ounce........... 20.40 20.51 41.01 53.69 43.99
------- ------- ------- ------- -------
Total costs per
ounce............... $226.05 $350.88 $337.06 $401.93 $380.25
======= ======= ======= ======= =======
</TABLE>
18
<PAGE> 19
During the last five months of 1998, substantial operating improvements
were achieved resulting in reduced cash costs. The cash costs for this period
were $231 per gold equivalent ounce. These improvements are expected to continue
in 1999.
During the third quarter of 1998, the Company commenced a revised mining
program and Petorca achieved positive cash flow with production during the third
and fourth quarters totaling 16,105 ounces of gold and 27,105 ounces of silver
at a cash cost of $245 per equivalent ounce of gold. The Company expects that
the first quarter of 1999 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.
Ongoing exploration efforts are being conducted to identify, and, if
successful, develop wider veins in order to increase reserves as well as to
lower costs of production. The Company expended approximately $.9 million for
exploration and developmental activities in 1998 and plans to expend
approximately $.5 million for explorations and developmental activities in 1999.
KENSINGTON PROPERTY
On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur
Alaska, Inc. ("Coeur Alaska"), acquired the 50% ownership interest of Echo Bay
Exploration Inc. ("Echo Bay") in the Kensington property from Echo Bay and Echo
Bay Alaska, Inc. (collectively the "Sellers"), giving Coeur 100% ownership of
the Kensington property. The property is located on the east bank of Lynn Canal
between Juneau and Haines, Alaska. As a result of that transaction, Coeur
assumed full ownership and operating control of the project. Pursuant to the
Venture Termination and Asset Purchase Agreement among Coeur Alaska and the
Sellers, dated as of June 30, 1995, Coeur Alaska paid to the Sellers a total of
$32.5 million and, pursuant to the Royalty Deed set forth as an exhibit to the
Venture Termination and Asset Purchase Agreement, Coeur Alaska agreed to pay
Echo Bay a scaled net smelter return royalty on 1 million ounces of future gold
production after Coeur Alaska recoups the $32.5 million purchase price and its
construction expenditures incurred after July 7, 1995 in connection with placing
the property into commercial production. The royalty ranges from 1% at $400 gold
prices to a maximum of 2 1/2% at gold prices above $475, with the royalty to be
capped at 1 million ounces of production.
The Kensington ore deposit consists of multiple, precious metals bearing,
mesothermal, quartz, carbonate, pyrite vein swarms and discrete quartz-pyrite
veins hosted in the Cretaceous Jualin diorite. The gold-telluride-mineral
calaverite is associated with the pyrite mineralization. Based on an ore reserve
endorsement dated February 1997 by Steffen, Robertson & Kirsten, independent
mining consultants, Kensington's proven and probable ore reserves are estimated
at 13.893 million tons at a grade of 0.136 ounces of gold per ton, containing
1.896 million ounces of gold. This reserve estimate was based on an average
life-of-mine price of $410 per ounce of gold (see updated optimization study
below).
19
<PAGE> 20
The reserve estimate incorporates the effects of extractive dilution during the
mining process. During 1998, six in-mine exploration targets were drill tested
by 76 core holes totaling 57,033 feet. Company geologic evaluations of the drill
results added a new estimated mineralized material inventory of 1.644 million
tons with a gold grade of 0.143 ounce per ton. The tons and grades were
estimated using a cut-off grade of 0.07 ounce of gold per ton. An additional
10.51 million tons of mineralized material averaging 0.130 ounces of gold per
ton has been identified, including results from 1998 exploration. Not all
Kensington ore zones have been fully delineated at depth and several peripheral
zones and veins remain to be explored. The Company possesses the right to
develop the Jualin property, an exploratory property located adjacent to the
Kensington Property. The Jualin property consists of approximately 9,400 acres,
of which approximately 345 acres are patented claims.
Based upon metallurgical testing, gold recovery associated with producing
a flotation concentrate is 97%, with 2.3% additional losses incurred during
final treatment off-site. The Company intends during the second quarter of 1999
to complete an updated audit of its ore reserves and mineralized material that
reflects a mine plan based on the recently completed optimization study and the
Company's long-term view of the gold price.
During 1998, the Company's efforts at Kensington continued to be directed
toward the permitting process and project optimization study. The Company
announced in April 1998 that it had obtained all significant permits required to
proceed with development of the mine. However, in view of continuing low gold
prices, the Company initiated an optimization study, utilizing independent third
party consultants, which was intended to improve the economic viability of the
project. In December 1998, the Company announced the completion of the
independent optimization study which contains a new mine plan that requires
extensive permit modifications. Based on the results of the optimization study,
which utilizes a cutoff grade of $340 per ounce, the Company estimates that the
project's cash operating costs should be reduced to approximately $190 per ounce
and total capital costs to develop the mine should be reduced to approximately
$192 million.
The new plan calls for changes relating to the tailings management
system, on-site gold recovery, facility relocation and increased mill
throughput. The new tailings management system involves placing most of the
Kensington tailings on the floor of the Lynn Canal via an engineered system
called Underwater Tailings Placement ("UTP"). In the UTP process, only inert
(non-reactive) tailings will be piped directly to the sea floor at a depth of
approximately 750 feet. The new mine plan also calls for recovering gold on-site
with sodium cyanide gold processing in a separate, fully contained system. The
system will recycle and reuse process waters with no marine discharge and all
the tailings produced will be treated, mixed with cement and placed underground
in areas previously mined. Other changes in the new mine plan involve relocating
surface facilities such as the ore grinding facilities to an underground
location and increasing the mine production rate to an estimated 4,600 tons per
day.
20
<PAGE> 21
The proposed use of UTP will require the Company to obtain from the EPA a
site specific exemption from its rules regulating gold mining. In addition,
modification to the Environmental Protection Agency ("EPA") National Pollution
Discharge Elimination System ("NPDES") permit will be required, which in turn
will most likely require the EPA to prepare a Supplemental Environmental Impact
Statement. Modifications also will be required to the US Forest Service approval
of the Plan of Operations, the Army Corps of Engineers Section 404 permit for
tailings facility construction, and the City and Borough of Juneau Large Mine
Permit. Additional required authorizations of federal, state and local
jurisdictions will be required to reflect the new mine plan changes,
particularly the changes associated with UTP and on-site gold recovery. The
Company hopes to secure the required rulemaking, permit modifications and other
necessary regulatory approvals in the first quarter of 2000 so that a
construction decision can then be made.
The Company's capital expenditures at the Kensington Property totaled
approximately $11.4 million (excluding capitalized interest) in 1998. Such
expenditures were used to continue the permitting and optimization activities.
The Company plans approximately $7.2 million (excluding capitalized interest) in
project expenditures during 1999, which are planned for technical support and
engineering studies required to complete the modified permitting activities.
As of December 31, 1998, due to the continuing low gold price
environment, pursuant to SFAS 121, the Company reviewed the carrying value of
the Kensington property using a $350 per ounce gold price assumption. Based on
discounted estimated future cash flows from Kensington, a non-cash impairment
write-down of $121.5 million was recorded at December 31, 1998, thereby reducing
the carrying value to $20.4 million.
This write-down does not jeopardize Kensington's future operating plans.
Coeur remains committed to completing the permitting process in order to prepare
the property for a production decision should the gold price return to
historical levels. However, no assurance can be given as to whether or when the
required regulatory approvals will be obtained or as to whether the Company will
place the Kensington project into commercial production.
INTEREST IN GASGOYNE GOLD MINES NL
In May 1996, Coeur acquired approximately 35% of the outstanding shares
of capital stock of Gasgoyne, an Australian gold mining company, in exchange for
a total of 1,419,832 shares of Coeur common stock and cash totaling
approximately $15.4 million. Sons of Gwalia Limited, an Australian gold mining
company, ("Sons of Gwalia") conducted a competing offer for outstanding Gasgoyne
shares in connection with which it acquired approximately 61% of Gasgoyne's
outstanding shares. As a result of a selective reduction of capital effected by
Gasgoyne in February 1997 by purchasing its publicly held shares from the
shareholders other than Coeur and Sons of Gwalia, Coeur's ownership interest
increased to 36% of Gasgoyne's outstanding shares. In May 1997, Coeur acquired
an additional 7,820,907 shares of Gasgoyne, constituting approximately 14% of
the outstanding
21
<PAGE> 22
shares of Gasgoyne, from Sons of Gwalia for US$14.9 million, as a result of
which Coeur's ownership interest in Gasgoyne was increased to 50% of the
outstanding shares. Coeur's interest in Gasgoyne is being accounted for under
the equity method.
Gasgoyne is principally engaged in the exploration, development and
ownership of gold properties located in Western Australia. Headquartered in
Perth, Australia, Gasgoyne's principal asset is its 50% interest in the Yilgarn
Star Gold Mine in Marvel Loch, located approximately 220 miles east of Perth,
which started production in 1991. Gasgoyne also had a 45% interest in the Awak
Mas Gold Project ("Awak Mas") in Indonesia. Gasgoyne sold its interest in Awak
Mas in January 1998 for consideration of US$14.9 million cash, 10 million shares
of Lone Star Exploration NL and a royalty of $2 per ounce of gold after 2
million ounces have been produced.
The following table sets forth information relating to total Yilgarn Star
Gold Mine production during the period from May 1, 1996 to December 31, 1996,
and during the years ended December 31, 1997 and 1998. Coeur had a 17.5%
interest in such production (i.e., 35% of one-half) for the approximately seven
months subsequent to the acquisition of its interest in Gasgoyne in May 1996,
and a 25% interest (i.e., 50% of one-half) after May 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
Eight Months Ended -----------------------
December 31, 1996 1997 1998
------------------ ---- ----
<S> <C> <C> <C>
Ore milled (tons).... 587,582 1,502,111 1,345,841
Gold (ounces)........ 85,591 174,848 157,526
</TABLE>
The following table sets forth the costs of production per ounce of gold
during the years ended December 31, 1996, 1997 and 1998. Cash costs include
mining, processing and direct administration costs, and smelting and refining
costs.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash costs per ounce....... $ 217.91 $ 255.11 $ 215.24
Depreciation, depletion and
amortization per ounce.... 99.39 161.35 201.07
-------- -------- --------
Total costs per ounce...... $ 317.30 $ 416.46 $ 416.31
======== ======== ========
</TABLE>
The Yilgarn Star Gold Mine operated as an open pit surface mine from 1991
through September 1995 and an underground mine commenced operations there on a
limited basis in October 1995. The increase in per ounce costs in 1997 compared
to 1996 relate to the planned transition of mining at the Yilgarn Star Mine from
an open-pit operation to an underground operation and mining of the uppermost
portion of the underground mine which temporarily resulted in a lower grade of
ore being delivered to the mill. The increase in depreciation, depletion and
amortization per ounce in 1998 over 1997 is primarily due the fact that in May
1997, the Company increased its ownership of Gasgoyne to 50%.
22
<PAGE> 23
Yilgarn Star proven and probable reserves as of December 27, 1998
estimated by Gasgoyne Gold Mines totaled 4.074 million tons averaging 0.17
ounces of gold per ton, or a total of 684,000 ounces of gold. The reserve
estimate is based on a gold price of $300.00 per ounce. An additional 6.155
million tons of mineralized material has been identified at a grade of 0.14
ounces of gold per ton.
The Nevoria Mill, which processed ore from the Yilgarn Star Mine's 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. The Joint Venture is
presently carrying out planned localized and regional exploration programs
designed to increase reserves at the Yilgarn Star Mine.
GOLDEN CROSS MINE
Effective April 30, 1993, a wholly-owned subsidiary of the Company
acquired from a wholly-owned subsidiary of Cyprus Minerals Company all of the
outstanding capital stock of Cyprus Gold New Zealand Limited ("Cyprus NZ"), the
name of which was changed by the Company to Coeur Gold New Zealand Limited
("Coeur NZ"). The principal asset of Coeur NZ is its undivided 80% participating
joint venture interest in the Golden Cross Mine located near Waihi on the North
Island of New Zealand, approximately 100 miles southeast of Auckland, and
certain other exploration properties in New Zealand. The remaining undivided 20%
joint venture interest is owned by a subsidiary of The Todd Company Limited, a
New Zealand corporation.
The Golden Cross Mining License covers an area of approximately 961 acres
of which 274 acres are occupied by the current Golden Cross Mine operation. The
mine property includes open-pit and underground mine facilities, process plant,
tailings pond, water treatment plant and mine offices which are all accessible
by road from the town of Waihi. Construction of the Golden Cross Mine began in
April 1990, and commercial production commenced in December 1991. Open pit
mining operations were discontinued in December 1997 and limited mining of
underground ore continued until April 28, 1998, at which time all mining and
milling operations were discontinued.
Due to ground movement and instability which threatened the integrity of
the mine site (see Item 3, Golden Cross Lawsuit), the Company effected a $53
million write-down during the second quarter of 1996 of its interest in the
Golden Cross Mine and the nearby Waihi East property, which included accrual of
the then estimated future closure and remediation costs and a write-down of the
carrying value of the Company's 80% interest in the property. In the last
quarter of 1996, it appeared that the interim slide remedial measures were
successful in stabilizing the extent of the ground movement and the New Zealand
Regulatory Authorities approved the Company's application to permit the raising
of the Golden Cross Mine tailings impoundment crest. As a result of the
completion of the crest raising in early 1997, the Company was able to implement
a previously planned mill optimization and to continue to operate the mine
through the end of 1997. Although the deep-seated ground movement below the
Golden Cross Mine tailings impoundment that necessitated the Company's 1996
write-down appeared to
23
<PAGE> 24
stabilize in late 1996 and during 1997, limited tailings disposal capacity
required that open pit mining activities at the mine be discontinued in December
1997. As stated above, limited mining of underground ores continued until April
28, 1998, at which time all mining and milling operations were discontinued.
In the second quarter of 1997, the Company received its 80% share of a
$10 million insurance recovery relating to business interruption and property
damage at the mine. Since the recovery was not assured at the time of the
original write-down, it was not accrued as part of that write-down; therefore,
the $8 million of insurance proceeds were recorded as other income in 1997.
During 1998, the Company expended approximately $1.1 million in connection with
remediation activities at the mine and expects that additional remediation costs
at the mine during 1999 will approximate $.4 million. In addition, the Company
estimates that the costs to be incurred in 1999 in connection with the closure
of the mine will approximate $3.1 million.
In December, the Company performed an analysis of the closure accrual for
the Golden Cross Mine. As a result, the Company determined that there was a
shortfall in the closure accrual, and recorded an additional write-down of $4.2
million in the fourth quarter of 1998. The shortfall was due to changes in
estimates from the initial write-down related to the fair value of the remaining
assets of $9.5 million, offset in part by the $5.3 million reduction in
estimated closure and remediation costs.
The following table sets forth for the periods indicated Golden Cross
Mine production data attributable to Coeur's 80% interest in the mine:
<TABLE>
<CAPTION>
Four
Months
Ended
Year Ended December 31, April 30,
---------------------------------------------- ---------
1994 1995 1996 1997 1998
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Ore milled (tons)......... 727,427 731,453 827,642 833,836 86,663
Gold (ounces)............. 67,400 83,058 64,365 83,110 15,858
Silver (ounces)........... 222,246 286,216 205,070 271,776 49,536
</TABLE>
The following table sets forth the costs of production per ounce of gold
during the periods indicated at the Golden Cross Mine. Cash costs include
mining, processing and direct administration costs, royalties and exploration
expenses, but do not include financing costs associated with the term loan owed
by Coeur Gold NZ to the Company. The production costs per ounce of gold for any
period is computed net of by-product credits.
24
<PAGE> 25
<TABLE>
<CAPTION>
Four
Months
Ended
Year Ended December 31, April 30,
---------------------------------------------- ---------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash costs per
ounce.................... $276.96 $232.74 $369.56 $245.34 $210.51
Depreciation,
depletion and
amortization
per ounce................ 111.53 81.08 38.22 44.13
------- ------- ------- ------- -------
Total costs per
ounce.................... $388.49 $313.82 $407.78 $289.47 $210.51
======= ======= ======= ======= =======
</TABLE>
No depreciation, depletion and amortization costs were recorded in the
four months ended April 30, 1998, in view of the cessation of mining activities
on April 28, 1998.
As discussed below under Item 3 ("Legal Proceedings"), Coeur has asserted
legal claims against Cyprus Amax Minerals Company based on alleged
misrepresentations by that company as well as its failure to make certain
required disclosures relating to ground movement and instability when Coeur
purchased the property in 1993.
SILVER AND GOLD PRICES
The Company's operating results are substantially dependent upon the
world market prices of silver and gold. The Company has no control over silver
and gold prices, which can fluctuate widely. The volatility of such prices is
illustrated by the following table, which sets forth the high and low prices of
silver (as reported by Handy and Harman) and gold (London Metal Exchange final
quotation) per ounce during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1996 1997 1998
----------------- ------------------ ----------------- ----------------
High Low High Low High Low High Low
-------- ------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silver - $ 6.01 $ 4.36 $ 5.79 $ 4.67 $ 6.21 $ 4.21 $ 7.31 $ 4.72
Gold - $395.55 $372.40 $414.80 $367.40 $366.55 $283.00 $313.15 $273.40
</TABLE>
MARKETING
Coeur has historically sold the gold and silver from its mines both
pursuant to forward contracts and at spot prices prevailing at the time of sale.
Entering into forward sale contracts is a strategy which can be used to enhance
revenues and/or mitigate some of the risks associated with fluctuating precious
metals prices. The Company continually evaluates the potential benefits of
engaging in these strategies based on the then current market conditions. At
December 31, 1998, the Company had forward commitments of 135,000 ounces of gold
at an average
25
<PAGE> 26
price of A$606.27 (equivalent to US$371 per ounce). These commitments mature
evenly over the next five years.
EXPLORATORY AND DEVELOPMENTAL MINING PROPERTIES
Coeur, either directly or through its wholly-owned subsidiaries, owns,
leases and has interests in certain exploration-stage mining properties located
in the United States, Chile, Australia and New Zealand. Exploration expenses of
approximately $7.7 million, $8.0 million and $9.4 million were incurred by the
Company in connection with exploration activities in 1996, 1997 and 1998,
respectively.
Coeur is conducting extensive exploration programs for silver and gold at
or adjacent to its existing mining properties in the United States and Chile. In
particular, the Company significantly expanded its exploration efforts at the
Rochester mine and adjacent Nevada Packard property during 1998. Exploration
activities also continue at the Fachinal and Petorca (El Bronce) mines and
adjacent properties in Chile.
An extensive developmental drilling program was completed during 1998 at
the Company's Kensington gold project, located north of Juneau, Alaska.
Approximately 1.644 million tons averaging 0.14 ounce per ton gold have been
added to the mineralized-material inventory as a result of this program.
Silver Valley Resources is engaged in continuing exploration projects on
its extensive land holdings in the Coeur d'Alene Mining District in northern
Idaho, which historically has been one of the largest silver producing regions
in the world. On-going exploration for silver is being conducted at the Coeur
and Galena mines, Caladay project and adjacent land leased from the Sterling
Mining Company, Placer Creek Mining Company, Silver Buckle Mines, Inc. and
American Silver Mining Company.
Gasgoyne Gold Mines NL (50% owned by Coeur) is conducting exploration
programs at the Yilgarn Star Gold Mine and several exploration properties in the
Laverton region of Western Australia.
Both the KM66 project in Mexico and the Groete Creek project in Guyana
were terminated during 1998. Coeur has ceased all exploration activities in
Guyana, but will continue to actively seek advanced-staged, precious-metals
exploration properties elsewhere in South America and in North America.
GOVERNMENT REGULATION
General
The Company's activities are subject to extensive federal, state and
local laws governing the protection of the environment, prospecting,
development, production, taxes, labor standards, occupational health, mine
safety, toxic substances and other matters. Although such regulations have never
required the
26
<PAGE> 27
Company to close any mine and the Company is not presently subject to any
material regulatory proceedings related to such matters, the costs associated
with compliance with such regulatory requirements are substantial and possible
future legislation and regulations could cause additional expense, capital
expenditures, restrictions and delays in the development of the Company's
properties, the extent of which cannot be predicted. In the context of
environmental permitting, including the approval of reclamation plans, the
Company must comply with known standards and regulations which may entail
significant costs and delays. Although Coeur has been recognized for its
commitment to environmental responsibility and believes it is in substantial
compliance with applicable laws and regulations, amendments to current laws and
regulations, the more stringent implementation thereof through judicial review
or administrative action or the adoption of new laws, could have a materially
adverse effect upon the Company.
For the years ended December 31, 1997 and 1998, the Company expended $5.0
million and $8.0 million, respectively, in connection with routine environmental
compliance activities at its operating properties and expects to expend
approximately $5.3 million for that purpose in 1999. The Company expended
approximately $4.5 million and $1.1 million in connection with its ground
movement remediation activities at the Golden Cross Mine in 1997 and 1998,
respectively. In addition, since the inception of the project through December
31, 1998, the Company expended approximately $16.0 million on environmental and
permitting activities at the Kensington Property and expects to spend
approximately $3.0 million there for that purpose in 1999. The expenditures at
Kensington have been capitalized as part of its development cost. Future
environmental expenditures will be determined by governmental regulations and
the overall scope of the Company's operating and development activities.
Federal Environmental Laws
Mining wastes are currently exempt to a limited extent from the extensive
set of Environmental Protection Agency ("EPA") regulations governing hazardous
waste, although such wastes may be subject to regulation under state law as a
solid or hazardous waste. The EPA plans to develop a program to regulate mining
waste pursuant to its solid waste management authority under the Resource
Conservation and Recovery Act ("RCRA"). Certain processing and other wastes are
currently regulated as hazardous wastes by the EPA under RCRA. The EPA is
studying how mine wastes from extraction and benefication should be managed and
regulated. If the Company's mine wastes were treated as hazardous waste or such
wastes resulted in operations being designated as a "Superfund" site under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or "Superfund") for cleanup, material expenditures would be required for the
construction of additional waste disposal facilities or for other remediation
expenditures. Under CERCLA, any present owner or operator of a Superfund site or
an owner or operator at the time of its contamination generally may be held
liable and may be forced to undertake remedial cleanup action or to pay for the
government's cleanup efforts. Additional regulations or requirements may also be
imposed upon the Company's tailings and waste disposal in Idaho and Alaska under
27
<PAGE> 28
the Federal Clean Water Act ("CWA") and state law counterparts, and in Nevada
under the Nevada Water Pollution Control Law which implements the CWA. Air
emissions are subject to controls under Nevada's, Idaho's and Alaska's air
pollution statutes implementing the Clean Air Act.
The Company's commitment to environmental responsibility has been
recognized in 19 awards received since 1987, which included the Dupont/Conoco
Environmental Leadership Award, awarded to the Company on October 1, 1991 by a
judging panel that included representatives from environmental organizations and
the federal government and the "Star" award granted on June 23, 1993 by the
National Environmental Development Association, and the Environmental Waikato
Regional Council award for Golden Cross environmental initiative granted on May
15, 1995. In 1994, the Company's Chairman and Chief Executive Officer, and in
1997, the Company's Vice President of Environmental and Governmental Affairs,
were awarded the American Institute of Mining, Metallurgical and Petroleum
Engineers' Environmental Conservation Distinguished Service Award. The receipt
of such awards does not relieve the Company of its obligations to comply with
all applicable environmental laws.
Natural Resources Laws
The Company is subject to federal and state laws designed to protect
natural resources. In March 1996, as discussed under Item 3 below, the United
States government commenced a lawsuit against various defendants, including the
Company, asserting claims under CERCLA and the CWA for alleged damages to
federal natural resources in the Coeur d'Alene River Basin of northern Idaho as
a result of alleged releases of hazardous substances from mining activities
conducted in the area since the late 1800s.
Proposed Mining Legislation
Legislation is presently being considered in the U.S. Congress to change
the Mining Law of 1872 (the "Mining Act") under which the Company holds mining
claims on public lands. It is possible that the Mining Act will be amended or be
replaced by more onerous legislation in the future. The legislation under
consideration, as well as regulations under development by the Bureau of Land
Management, contain new environmental standards and conditions, additional
reclamation requirements and extensive new procedural steps which would be
likely to result in delays in permitting.
During the last several Congressional sessions, bills have been
introduced which would supplant or materially alter the Mining Act. If enacted,
such legislation may materially impair the ability of the Company to develop or
continue operations which derive ore from federal lands. No such bills have been
passed and the extent of the changes, if any, which may be enacted by Congress
is not presently known. A significant portion of Coeur's U.S. mining properties
are on public lands. Any reform of the Mining Act or regulations thereunder
based on these initiatives could increase the costs of mining activities on
unpatented mining claims, and as a result could have an adverse effect on the
Company and
28
<PAGE> 29
its results of operations. Until such time, if any, as new reform legislation or
regulations are enacted, the ultimate effects and costs of compliance on the
Company cannot be estimated.
Foreign Government Regulations
The mining properties of the Company that are located in New Zealand and
Chile are subject to various government laws and regulations pertaining to the
protection of the air, surface water, ground water and the environment in
general, as well as the health of the work force, labor standards and the
socioeconomic impacts of mining facilities upon the communities. The Company
believes it is in substantial compliance with all applicable laws and
regulations to which it is subject in both Chile and New Zealand.
MAINTENANCE OF CLAIMS
At mining properties in the United States, including the Rochester,
Kensington, Coeur, Galena and Caladay mines, operations are conducted in part
upon unpatented mining claims, as well as patented mining claims. Pursuant to
applicable federal law it is necessary, in order to maintain the unpatented
claims, to pay to the Secretary of the Interior, on or before August 31 of each
year, a claim maintenance fee of $100 per claim. This claim maintenance fee is
in lieu of the assessment work requirement contained in the Mining Law of 1872.
In addition, in Nevada, holders of unpatented mining claims are required to pay
the county recorder of the county in which the claim is situated an annual fee
of $3.50 per claim. No maintenance fees are payable for patented claims.
Patented claims are similar to land held by an owner who is entitled to the
entire interest in the property with unconditional power of disposition.
In Chile, operations are conducted upon mineral concessions granted by
the national government. For exploitation concessions (somewhat similar to a
U.S. patented claim), to maintain the concession, an annual tax is payable to
the government before March 31 of each year in the approximate amount of $1.14
per hectare. For exploration concessions, to maintain the right, the annual tax
is approximately $.30 per hectare. An exploration concession is valid for a
three year period. It may be renewed for new periods unless a third party claims
the right to explore upon the property, in which event the exploration
concession must be converted to an exploitation concession in order to maintain
the rights to the concession. The total tax paid in 1998 in Chile was
approximately $329,000.
In New Zealand, prospecting licenses and mining licenses are issued by a
national government agency. To maintain them the holder must comply with the
detailed provisions of the licenses, which include provisions for work programs,
health and safety, protection of the environment, reclamation, liability
insurance and performance bonds. An annual fee is required to be paid for the
prospecting and mining licenses associated with Golden Cross which, for the year
1998, amounted to $26,000.
29
<PAGE> 30
EMPLOYEES
At March 1, 1999, the Company employed a total of 831 full-time
employees, of which 45 are located at the Company's executive offices in Coeur
d'Alene, Idaho, 253 are employed at the Rochester Mine, 14 are employed at the
Golden Cross Mine in New Zealand, 508 are employed at the Fachinal and Petorca
Mines in Chile, and 11 are employed at the Kensington property in Alaska. The
Company maintains labor agreements under country statutes in Chile at the
Fachinal Mine. The Fachinal Mine labor agreement provides a base wage with
bi-annual cost of living adjustments but no annual escalator, and have
provisions for terms and conditions of work including vacations, holidays,
education, and in the case of the Fachinal Mine, housing. The agreements also
provide for health and pension benefits at the minimum country-mandated levels.
The Fachinal Mine agreement also provides for hours of work and shifts to
accommodate remote living conditions and provides a production bonus equal to
35% of base pay when production exceeds 1,500 tons per day. The agreement at the
Fachinal Mine expires in August 1999. In the opinion of the Company, its labor
relations have been satisfactory. The employees of Silver Valley Resources and
Gasgoyne are employees of those companies.
PART II
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data with respect to the Company and its subsidiaries and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this report.
30
<PAGE> 31
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1994 1995(4) 1996 1997(5) 1998
---------- --------- ---------- ----------- --------
(Thousands Except Per Share Information)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Income:
Sale of concentrates
and dore' $ 79,606 $ 89,239 $ 90,724 $131,161 $ 102,505
Less cost of mine
operations 67,802 72,210 81,464 134,565 97,878
--------- --------- --------- --------- ----------
Gross profits 11,804 17,029 9,260 (3,404) 4,627
Other income 12,587 9,504 13,347 20,739 9,156
--------- --------- --------- --------- ----------
Total income 24,391 26,533 22,607 17,335 13,783
Other expenses 29,392 27,591 23,946 31,660 36,104
Write-down of mining properties 54,415(3) 223,172(6)
--------- --------- --------- --------- ----------
Total expenses 29,392 27,591 78,361 31,660 259,276
--------- --------- --------- --------- ----------
Net loss from continuing
operations before income
taxes (5,001) (1,058) (55,754) (14,325) (245,493)
Provision (benefit) for
income taxes (265) 200 (1,184) (242) 919
--------- --------- --------- --------- ----------
Net loss from continuing
operations (4,736) (1,258) (54,570) (14,083) (246,412)
Income from discontinued
operations(net of taxes)(1) 793 2,412
--------- --------- --------- --------- ----------
Income(loss) before extraordinary
item - early retirement of debt
(net of tax) (3,943) 1,154 (54,570) (14,083) (246,412)
Extraordinary item - early
retirement of debt (net of tax) 12,158(7)
--------- --------- --------- --------- ----------
Net income (loss) $ (3,943) $ 1,154 $(54,570) $(14,083) $(234,254)
========= ========= ========= ========= ==========
Net income(loss) attributable
to Common Shareholders $ (3,943) $ 1,154 $(62,967) $(24,614) $(244,786)
========= ========= ========= ========= ==========
Basic and diluted earnings per share data(2):
Net loss from continuing operations $ (.31) $ (.08) $ (2.93) $ (1.12) $ (11.73)
Income from discontinued
operations (net of taxes) .05 .15
--------- --------- --------- --------- ----------
Income (loss) before extraordinary
item - early retirement of debt
(net of tax) (.26) .07 (2.93) (1.12) $ (11.73)
Extraordinary item - early
retirement of debt ( net of tax) .55
--------- --------- --------- --------- ----------
Net income (loss) attributable
to Common Shareholders $ (.26) $ .07 $ (2.93) $ (1.12) $ (11.18)
========= ========= ========= ========= ==========
Cash dividends paid per
Common Share $ .15 $ .15 $ .15
========= ========= ========
Weighted average
number of shares of
Common Stock 15,371 15,879 21,465 21,890 21,899
========= ========= ========= ========= ==========
BALANCE SHEET DATA:
Total Assets $412,361 $445,646 $580,330 $658,702 $365,980
Working capital 170,087 105,597 179,626 221,610 153,837
Long-term liabilities 234,009 184,789 202,566 298,152 258,340
Shareholders' equity 160,292 239,832 346,198 322,089 77,067
</TABLE>
(1) On May 2, 1995, the Company sold the assets of its flexible hose and
tubing division, The Flexaust Company, and shares of a related subsidiary
for approximately $10.0 million, of which approximately $4 million was
paid at the time of closing and the balance is payable over the next five
years. The results of operations and the gain on sale of Flexaust
manufacturing segment are presented as "Discontinued Operations." The
Company recorded a pre-tax gain on the sale of approximately $3.9 million
($2.2 million net of income taxes) during the second quarter of 1995.
31
<PAGE> 32
(2) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." For further discussion of earnings per share
and the impact of Statement No. 128, see Notes to the consolidated
financial statements.
(3) During the second quarter of 1996, the Company determined that certain
adjustments were required to properly reflect the estimated net
realizable values of certain mining properties in accordance with FASB
statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." The Golden Cross Mine and
the nearby Waihi East property were written down by approximately $53
million due to increased expenditure requirements related to remediation
of ground movement which impacts the tailings impoundment area and the
ultimate viability of the mine. The write-down includes amounts necessary
to increase the Company's recorded remediation and reclamation
liabilities at Golden Cross to approximately $7.02 million as of December
31, 1996.
In addition, the Faride property in Chile, was written down by $1.2
million due to management's decision not to exercise its final option
payment on the project.
(4) Included in the results of operations for the year ended December 31,
1995 are (I) a gain of $4.4 million (included in other income) from the
sale of gold and silver purchased in the open market which was in turn
delivered pursuant to fixed price forward contracts during the year; and
(ii) $2.4 million of income from discontinued operations (including the
$2.2 million after-tax gain from the related sale of certain non-mining
assets in May 1995) during the year.
(5) Included in the results of operations for 1997 are (I) the receipt of
$8.0 million of insurance proceeds for business interruption and property
damage at the Golden Cross Mine and (ii) a gain of $5.3 million arising
from the sale of gold purchased in the open market which was delivered
pursuant to fixed price forward contracts in the first quarter of 1997.
(6) 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. An evaluation of operations was completed and 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 non-cash
write-down for impairment in the first quarter of 1998 of $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. Subsequent to the write-down, sufficient exploration
success was achieved to allow the mine to continue operations.
During the fourth quarter of 1998, due to the continuing low gold price
environment, the Company evaluated the recoverability of investments in
both the Fachinal Mine and Kensington property. Using a $350 per ounce
gold price and based on estimated undiscounted future cash flows, in
accordance with the standards set forth in SFAS 121, the Company
determined that its investments in property, plant and equipment at the
Fachinal Mine in Southern Chile and at the Kensington property in Alaska
were impaired. The total amount of the impairment based on discounted
cash flows was $42.9 million and $121.5 million for the Fachinal Mine and
Kensington property, respectively, at December 31, 1998 and was recorded
in the fourth quarter.
In addition, in December the Company performed an analysis of the
closure accrual for the Golden Cross Mine. As a result, the Company
determined that there was a shortfall in the closure accrual, and
recorded an additional write-down of $4.3 million in the fourth quarter
of 1998. The shortfall was due to changes in estimates from the initial
write-down related to the fair value of the remaining assets of $9.5
million, offset in part by a $5.3 million reduction to estimated closure
and remediation costs.
(7) During July, August and December 1998, the Company repurchased
approximately $4.0 million principal amount of its outstanding 6%
Convertible Subordinated Debentures due 2002, approximately $36.5 million
principal amount of its 7 1/4% Convertible Subordinated Debentures due
2005, and approximately $1.6 million principal amount of its 6.375%
Convertible Subordinated Debentures due 2004 for a total purchase price
of approximately $28.5 million, excluding purchased interest of
approximately $616,000. Associated with this transaction, the Company
eliminated $1.4 million of capitalized bond issuance costs. The Company
anticipates that as a result of the cancellation of the repurchased
debentures, annual interest paid by the Company will be reduced by
approximately $3.0 million. As a result of the buyback of these
debentures, the Company has recorded an extraordinary gain of
approximately $12.2 million, net of taxes, during 1998 on the reduction
of its indebtedness.
32
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The results of the Company's operations are significantly affected by the
market prices of gold and silver which may fluctuate widely and are affected by
many factors beyond the Company's control, including interest rates,
expectations regarding inflation, currency values, governmental decisions
regarding the disposal of precious metals stockpiles, global and regional
political and economic conditions, and other factors.
Operating Mines
The currently operating mines directly owned and operated by the Company
are the Rochester Mine in Nevada, which it wholly owns and operates; the
"Petorca Mine" (previously called the El Bronce Mine); a Chilean gold mine of
which the Company acquired operating control in October 1994 and 100% ownership
in September 1996; and the Fachinal Mine, a Chilean gold-silver mine
wholly-owned by the Company at which initial production commenced in late
October 1995 and which was classified as an operating property for financial
reporting purposes on January 1, 1997. On April 28, 1998, the Company
substantially discontinued mining operations at the Golden Cross Mine in New
Zealand, in which the Company had 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 were terminated, as planned, on July 2,
1998) and the Galena Mine (where operations resumed in May 1997 and are
continuing) in the Coeur d'Alene Mining District of Idaho. In May 1997, the
Company increased to 50% its ownership of Gasgoyne Gold Mines NL, an Australian
gold mining company ("Gasgoyne"), which owns 50% of the Yilgarn Star Gold Mine
in Australia.
Total Production and Reserves
The Company's total production in 1998 was 10.7 million ounces of silver
and 210,000 ounces of gold. Coeur estimates that 1999 silver and gold production
will approximate 10.7 million ounces and 154,000 ounces, respectively. Total
estimated reserves at December 31, 1998 amounted to approximately 79.8 million
ounces of silver and 2.8 million ounces of gold, compared to estimated silver
and gold reserves at December 31, 1997 of approximately 99.1 million ounces and
3.1 million ounces, respectively.
SFAS 121 Impairment Reviews; Write-down of Mining Properties
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Asset and Long-Lived Assets to be
33
<PAGE> 34
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 fully recoverable. 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, the amount of the impairment loss that should
be recorded, if any, is the amount by which the carrying value of the asset
exceeds its fair value.
As of December 31, 1998, due to the continuing low-gold price
environment, the Company reviewed the carrying value of the Fachinal Mine in
Chile and the Kensington property in Alaska using a $350 per ounce gold price.
As a result of this review, which considered the impact of the Kensington
optimization study referred to below, the Company determined that the
undiscounted estimated future cash flows were insufficient to fully recover the
carrying value of Fachinal or Kensington and the assets were impaired.
Accordingly, the Company recorded write-downs of $42.9 million and $121.5
million for Fachinal and Kensington, respectively, thereby reducing the carrying
values to $24.8 million and $20.4 million.
In addition, a similar evaluation was completed for the Petorca Mine in
the first quarter of 1998 in view of continued operating loses. As a result, the
Company recorded a write-down of $54.5 million relating to its investment in the
Petorca Mine as of March 31, 1998, which reduced the carrying value of the mine
to zero.
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.
Kensington Optimization Study
In December 1998, the Company announced the completion of an optimization
study relating to the Kensington property, a wholly-owned developmental gold
property in Alaska, designed to improve the economic viability of the project. A
new mine plan was formulated as a result of the optimization study, which will
require extensive permit modifications. Based on the results of the study, the
Company estimates that the project's cash operating costs per ounce should be
reduced to approximately $190 and total capital costs to develop the mine should
be reduced to approximately $192 million. The Company is unable to control the
timing of the granting of the required permit modifications and regulatory
authorizations, which the Company estimates are to be issued by the end of the
first quarter of 2000. However, no assurance can be given as to whether or when
such permit modifications and regulatory authorizations will be received, or as
to whether the Company will decide to place the project into commercial
production.
34
<PAGE> 35
Acquisitions
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 and expand the Company's gold
and/or silver production.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales and Gross Profits
Sales of concentrates and dore' decreased by $28,656,000, or 22%, for the
year ended December 31, 1998 as compared to the same period of 1997 primarily
attributable to the closure of the Golden Cross Mine in New Zealand. During
1998, the Company produced a total of 10,703,178 ounces of silver and 209,959
ounces of gold compared to 11,024,225 ounces of silver and 290,962 ounces of
gold in 1997.
Spot silver and gold prices averaged $5.53 and $294.16 per ounce,
respectively, in 1998 compared to $4.89 and $331.10 per ounce, respectively, in
1997. During 1998, the Company realized average silver and gold prices of $5.37
and $312.36, respectively, compared with realized average market prices of $4.89
and $334.99, respectively, in 1997.
The cost of mine operations in 1998 decreased by $36,687,000, or 27%,
below 1997. The decrease is primarily attributable to the fact that the Company
discontinued operations at the Golden Cross Mine in early 1998.
In 1997, based upon operating experience and metallurgical testing at the
Rochester property, the Company determined that the amount of silver and gold
that will ultimately be extracted in the heap leach process was underestimated.
Prior to the fourth quarter, the Company estimated it would recover 55% of the
silver and 85% of the gold mined. Effective with the fourth quarter of 1997, the
Company increased its estimated recovery rates to 59% of the silver and 90% of
the gold. The Company has accounted for the effect of the change prospectively
as a change in accounting estimate.
The cash cost per ounce of silver on a silver equivalent basis at the
Rochester Mine decreased to $4.07 in 1998 compared to $4.36 per ounce in 1997.
The decrease is due to a lower mine strip ratio in 1997 which resulted in an
amortization of deferred stripping costs. Cash costs at Silver Valley amounted
to $4.46 per silver ounce in 1998 compared to $3.74 in 1997 and is the result of
the shutdown in 1998 of the Coeur Mine. Cash costs at the El Bronce Mine in 1998
averaged $336.26 per ounce of gold produced versus $348.24 in 1997. The decrease
was primarily the result of mine efficiencies recognized in the third and fourth
quarters of 1998.
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<PAGE> 36
The gross profit from mining operations in 1998 amounted to $4.6 million
compared to a gross loss from mining operations of $3.4 million in the same
period of 1997. The $8.0 million increase in gross profits is due to the above
mentioned decreases in the cost of mine operations coupled with substantially
lower silver prices in the year ended December 31, 1997.
Other Income
Interest and other income decreased by $11.6 million, or 56%, in 1998
compared to 1997. The decrease is primarily the 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. The decrease is partially offset by a gain of $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 and Write-down of Mining Properties
For the year ended December 31, 1998, total expenses increased by
$227,616 million. The increase is primarily attributable to the combined $218.9
million write-downs of the Petorca and Fachinal Mines and the Kensington
property, and an adjustment of $4.2 million to the closure accrual at Golden
Cross in the fourth quarter of 1998. Mining exploration expense for 1998
increased by $1.4 million, or 18%, over 1997.
Net Loss
As a result of the above, the Company's loss before income taxes and
extraordinary items amounted to $245,493,000 in 1998 compared to a loss of
$14,325,000 in 1997. The Company reported an income tax provision of $919,000
for 1998, compared to an income tax benefit of $242,000 in 1997. In 1998, the
Company recorded an extraordinary gain on early retirement of debt (net of
taxes) of $12,158,000. As a result, the Company reported a net loss of
$234,254,000 compared to a net loss of 14,083,000 in 1997. The net loss
attributable to common shareholders of $244,786,000, or $11.18 per share, in
1998, compared to $24,615,000, or $1.12 per share, in 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales and Gross Profits
Sales of concentrates and dore' increased by $40,437,000, or 45%, for the
year ended December 31, 1997 over the same period of 1996 and is primarily
attributable to increased sales of metals produced at the Fachinal and El Bronce
Mines. Those increases are primarily due to (i) the classification of the
Fachinal Mine as an operating property for accounting purposes as of January 1,
1997, and (ii) the Company's increased ownership of the El Bronce Mine from 50%
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<PAGE> 37
to 100% commencing in the third quarter of 1996. During 1997, the Company
produced a total of 11,024,225 ounces of silver and 290,962 ounces of gold
compared to 9,520,009 ounces of silver and 214,130 ounces of gold in 1996.
Silver and gold prices averaged $4.89 and $331.10 per ounce,
respectively, in 1997 compared to $5.18 and $387.70 per ounce, respectively, in
1996. During 1997, the Company realized average silver and gold prices of $4.89
and $334.99, respectively, compared with realized average market prices of $5.18
and $397.80, respectively, in 1996.
The cost of mine operations in 1997 increased by $53,101,000, or 65%,
over 1996. The increase is primarily attributable to the fact that i) the
Company increased its ownership in the El Bronce Mine from 50% to 100%
commencing late in the third quarter of 1996, which resulted in a proportionate
increase in the cost of mine operations during the year ended December 31, 1997;
and ii) the Company classified the Fachinal Mine as an operating property for
accounting purposes as of January 1, 1997, and began recording cost of mine
operations at the Fachinal Mine on that date. Of the approximately $53.1 million
increase in the cost of mine operations, $19.6 million were noncash expenses
attributable to the increase in depreciation, depletion and amortization expense
recorded in the year ended December 31, 1997 over the prior year. The increase
in these noncash expenses primarily resulted from the Company's increased El
Bronce ownership interest and the fact that no such expenses were being recorded
by Fachinal during 1996.
In 1997, based upon operating experience and metallurgical testing at the
Rochester property, the Company determined that the amount of silver and gold
that will ultimately be extracted in the heap leach process was underestimated.
Prior to the fourth quarter, the Company estimated it would recover 55% of the
silver and 85% of the gold mined. Effective with the fourth quarter of 1997, the
Company revised its estimated recovery rates to 59% of the silver and 90% of the
gold. The Company has accounted for the effect of the change prospectively as a
change in accounting estimate. The impact of the estimate change resulted in a
reduction of cost of goods sold in 1997 of $7.0 million.
The cash cost per ounce of silver on a silver equivalent basis at the
Rochester Mine amounted to $4.36 compared to $3.71 per ounce in 1996. The
increase is due to a lower mine strip ratio in 1997 which resulted in an
amortization of deferred stripping costs. Cash costs at Silver Valley amounted
to $3.74 per silver ounce in 1997 compared to $3.18 in 1996 and is the result of
the startup in 1997 of the Galena Mine. Cash costs at the Golden Cross Mine in
1997 averaged $245.34 per ounce of gold produced versus $369.56 in 1996. The
higher cost in 1996 was primarily attributable to the land slide issue which
delayed a planned expansion of the existing facilities. Cash costs at the El
Bronce Mine averaged $348.24 per ounce of gold produced versus $296.05 in 1996.
The increase was primarily caused by near drought conditions occurring in the
first quarter of 1997, heavy rainfall occurring in the second quarter of 1997
and a two-week closure of the mine in August 1997 resulting from heavy rain and
flooding.
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<PAGE> 38
The gross loss from mining operations in 1997 amounted to $3.4 million
compared to a gross profit from mining operations of $9.3 million in the same
period of 1996. The $12.7 million decrease in gross profits is due to the above
mentioned increase in the cost of mine operations coupled with substantially
lower gold and silver prices realized in the year ended December 31, 1997.
Other Income
Interest and other income increased by $7.4 million, or 55%, in 1997
compared to 1996. The increase is primarily the 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. The increase is partially offset by a loss of $1.5 million related to the
sale of the common shares of an Australian mining company in the fourth quarter
of 1997 and lower interest income related to lower average cash and short-term
investment balances in 1997 compared to 1996.
Expenses
For the year ended December 31, 1997, total expenses decreased by $46.7
million. The decrease is primarily attributable to the $54.4 million write-down
of mining properties recorded in the second quarter of 1996. In 1997, interest
expense increased by $6.7 million, primarily as a result of the reclassification
of the Fachinal Mine from a development-stage property to an operating property
and the issuance of $143.7 million principal amount of 7 1/4% Convertible
Subordinated Debentures due 2005 in the fourth quarter of 1997. Effective
January 1, 1997, interest expense on the Fachinal construction loan, which was
previously capitalized during the pre-production stage, was charged to operating
expense. Mining exploration expense for 1997 increased by $1,027,000, or 13%,
over 1996.
Net Loss
As a result of the above, the Company's loss before income taxes amounted
to $14,325,000 in 1997 compared to a loss of $55,754,000 in 1996. The Company
reported an income tax benefit of $242,000 for 1997, compared to an income tax
benefit of $1,184,000 in 1996. As a result, the Company reported a net loss of
$14,083,000, and a net loss attributable to common shareholders of $24,615,000,
or $1.12 per share, in 1997, compared to a net loss of $54,570,000, and a net
loss attributable to common shareholders of $62,967,000, or $2.93 per share, in
1996.
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<PAGE> 39
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at December 31, 1998 was approximately
$153.1 million compared to $220.4 million at December 31, 1997. The ratio of
current assets to current liabilities was 5.9 to one at December 31, 1998
compared to 6.8 to one at December 31, 1997.
Net cash used in operating activities in 1998 was $13,693,000 compared
with $15,370,000 provided by operating activities in 1997. The most important
non-cash items offsetting the net loss from continuing operations in 1998 was
$31,011,000 of depreciation, depletion and amortization of accrued reclamation
expense. A total of $ 70,300,000 of cash was provided by investing activities in
1998 compared to $21,939,000 used in 1997. The most significant factors
accounting for the cash provided by investing activities in 1998 were (i)
$114,276,000 proceeds from short-term investments, offset by $17,886,000 used to
purchase short-term investments, (ii) $17,558,000 of expenditures on
developmental properties, and (iii) $9,619,000 of expenditures on operational
mining properties. The Company's financing activities used $43,476,000 of cash
during 1998 compared to $77,318,000 provided in 1997. The most significant
factor accounting for the net cash used in financing activities in 1998 was the
payment of $28,477,000 used to retire long-term debt. As a result of the above,
the Company's net cash increase in 1998 was $13,131,000 compared with a net cash
increase of $70,749,000 in 1997.
For the years ended December 31, 1998 and 1997, the Company expended $8.0
million and $5.0 million, respectively, in connection with environmental
compliance activities at its operating properties. In addition, since the
inception of the Kensington project through December 31, 1998, the Company had
expended a total of $16.0 million on environmental and permitting activities at
that property.
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 Response, Compensation, and Liability Act of 1980
and the Clean Water Act for alleged damages to Federal natural resources in the
Coeur d'Alene River Basin of northern Idaho as a result of releases of hazardous
substances from mining activities conducted in the area since the late 1800s. No
specific monetary damages are identified in the complaint. However, in July
1996, the government indicated damages may approximate $982 million. The United
States asserts that the defendants are jointly and severally liable for costs
and expenses incurred by the United States in investigation, removal and
remedial action and the restoration or replacement of affected natural
resources. In 1986 and 1992 the Company had settled similar issues with the
State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes
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<PAGE> 40
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 utilize 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.
Golden Cross Lawsuit
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County, alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in connection
with Cyprus' sale in April 1993 to the Company of Cyprus Exploration and
Development Corporation, which owned all the shares of Cyprus Gold New Zealand
Limited, which, in turn, owned an 80 percent interest in the Golden Cross Mine
in New Zealand. The Company's lawsuit seeks recession and an unspecified amount
of damages arising from alleged misrepresentations and failure to disclose
material facts alleged to have been known by Cyprus officials regarding ground
movement and instability, threatening the integrity of the mine site at the time
of the Company's purchase of the property. In October 1997, Cyprus filed a
counterclaim alleging libel by the Company in its press release announcing the
write-off of the Golden Cross Mine and seeking an unspecified amount of damages.
Trial has been scheduled for October 18, 1999 in Coeur d'Alene, Idaho. On
February 3, 1999, the Company files a second amended complaint which specifies
damages in the amount of approximately $54 million together with pre-judgement
and post-judgement interest as well as the unspecified costs incurred resulting
from the
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<PAGE> 41
violations of law alleged. Cyprus filed, on February 17, 1999, a motion to
vacate the trial date and a motion to dismiss the second amended complaint. No
assurances can be given at this stage of the action as to 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 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.
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 on
whether a class should be certified and on December 14, 1998, the Court entered
an order certifying a class. In December 1998, the parties to the suit
determined that the further conduct of the case would be protracted and
expensive and commenced discussions with a view toward settlement of the action.
Although the Company continued to deny each of the plaintiffs' claims and
allegations, the Company determined it would be in the best interests of the
Company to settle the suit and agreed to enter into a Stipulation of Settlement
which was filed by the parties with the Court on March 1, 1999. The terms of the
proposed settlement provide that (i) the Company's directors and officers
liability insurance carrier will pay $7 million to a settlement fund for the
benefit of the plaintiffs; and (ii) the plaintiffs will be entitled to 50% of
the net proceeds, up to a maximum of $6 million, (after the Company has first
recouped its costs and expenses incurred in litigating its above-described
lawsuit against Cyprus relating to Golden Cross and after deducting an $8
million reserve against the asserted subrogation claim of the Company's flood
insurance carrier) actually received by the Company from its Golden Cross
lawsuit against Cyprus. The Stipulation of Settlement contains strong denials of
liability by the defendants as well as acknowledgments by the plaintiffs that
they were unable to identify significant evidence to support a large portion of
their claims. Final consummation of the settlement is subject to Court approval
and to dismissal with prejudice of the derivative action described below.
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<PAGE> 42
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 class action 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 appointed a Special
Committee of directors to respond to that demand. On March 9, 1999, the Special
Committee recommended that the demand be rejected. The Company anticipates,
based on communication with counsel for the derivative plaintiff, that the
action previously dismissed without prejudice will be dismissed with prejudice.
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. 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 converted 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
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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.
Year 2000 Compliance
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. 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. As of
December 31, 1998, the Company has incurred approximately $144,000 of costs
related to the Y2K issue. The Company presently estimates that the remaining
projected costs, primarily for professional consulting services, will be less
than $150,000.
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 and review of
non-compliant 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. The Company estimates that approximately 65% of its IT systems and
approximately 3% of its non-IT systems have completed Part (2). Parts (1) and
(2) of the process are scheduled to be completed in the Company's third quarter
ended September 31, 1999. Part (3), testing currently continues and is scheduled
to finish in October 1999.
The Company began contacting key suppliers and business partners about
the Year 2000 issue during the third quarter of 1998 and continues to survey
these parties during 1999. 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.
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.
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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.
Environmental Compliance Expenditures
For the years ended December 31, 1996, 1997 and 1998, the Company
expended $3.1 million, $5.0 million and $8.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties. Such activities at the Rochester, Golden Cross, Petorca and Fachinal
Mines include monitoring, bonding, earth moving, water treatment and
revegetation activities. In addition, since the inception of the project through
December 31, 1998, the Company had expended a total of $16.0 million on
environmental and permitting activities at the Kensington Property.
The Company also expended $4.5 million in 1997 and $1.1 million in 1998
in connection with its ground movement remediation activities at the Golden
Cross Mine in New Zealand, where mining activities were discontinued in April
1998. The Company estimates that costs, net of salvage revenues, to be incurred
in 1999 in connection with the closure of the mine will approximate $3.1
million.
The Company estimates that environmental compliance expenditures at its
Kensington developmental property during 1999 will approximate $3.5 million
related to activities associated with obtaining permit modifications and other
regulatory authorizations. Future environmental expenditures will be determined
by governmental regulations and the overall scope of the Company's operating and
development activities. The Company places a very high priority on its
compliance with environmental regulations.
Exploration and Development Expenditures
During 1998, the Company expended $10.6 million for engineering,
optimization and permitting costs at the Kensington property, $6.3 million at
the Rochester Mine, $3.3 million (excluding capitalized interest) for
developmental costs at the Fachinal Mine and $.3 million at the Petorca Mine.
During 1999, the Company presently plans to expend $7.1 million at the
Kensington property, and $3.8 million for developmental and exploration
activities at the Rochester Mine. If the Company were to decide to construct a
Kensington mining facility, the Company currently estimates that it would be
required to expend approximately $192 million over an eighteen-month period in
connection with the construction of the Kensington mining facilities.
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Realization of Net Operating Loss Carryforwards
The Company has reviewed its net deferred tax asset, together with net
operating loss carryforwards, and has not recognized potential tax benefits
arising therefrom on the view that it is more likely than not that the deferred
deductions and losses will not be realized in future years. In making this
determination, the Company has considered the Company's history of tax losses
incurred since 1989, the current level of gold and silver prices and the ability
of the Company to use accelerated depletion and amortization methods in the
determination of taxable income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required hereunder and contained
herein are listed under Item 14(a) below.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth information regarding the directors of the
Company:
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE AGE SINCE
------- --- -----
<S> <C> <C>
DENNIS E. WHEELER 56 1978
Chairman of the Board of the Company since May 1992; President since
December 1980; Chief Executive Officer since December 1986; Chief
Administrative Officer from December 1980 to December 1986; Secretary
from January 1980 to December 1980; Senior Vice President and General
Counsel from 1978 to 1980. Chairman of the Finance and Planning Committee
and a Director of Sierra Pacific Resources (a public utility holding
company).
JOSEPH C. BENNETT 66 1981
Mining Consultant. Director of Equity Oil Company.
JAMES J. CURRAN 59 1989
Former Chairman of the Board and Chief Executive Officer, First
Interstate Bank, Northwest Region (Alaska, Idaho, Montana, Oregon and
Washington) from October 1991 to April 30, 1996; Chairman of the Board
and Chief Executive Officer, First Interstate Bank of Oregon, N.A. from
February 1991 to October 1991; Chairman, President and Chief Executive
Officer of First Interstate Bank of Denver, N.A., from April 1990 to
January 1991; Chairman, President and Chief Executive Officer of First
Interstate Bank of Idaho, N.A., from July 1984 to March 1990. Director of
Fred Meyer, Inc. (regional general merchandise retailer)
JAMES A. MCCLURE 74 1991
Attorney with the Boise, Idaho law firm of Givens, Pursley & Huntley;
Consultant to the Washington, D.C. consulting firm of McClure, Gerard &
Neuenschwander, Inc.; United States Senator from Idaho from 1972 to 1990;
former Chairman of the Senate Energy and Natural Resources Committee.
Director of Boise Cascade Corporation (natural resources company) and The
Williams Companies (petroleum and telecommunications company).
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE AGE SINCE
------- --- -----
<S> <C> <C>
CECIL D. ANDRUS 67 1995
Governor of Idaho (1971-1977); Secretary of the Department of the
Interior (1977-1981); Governor of Idaho (1987-1995). Director of
Albertson's Inc. (a nation-wide grocery retail chain) and Key Corp.
(commercial banking). Chairman of the Andrus Center for Public Policy at
Boise State University; "of counsel" member of the Gallatin Group (a
policy consulting firm).
JOHN H. ROBINSON 48 1998
Vice Chairman of Black & Veatch, an international engineering and
construction firm, since January 1999; Chief Development Officer of that
company from 1997 - 1998 and Managing Partner from 1996-1998; and
Chairman of Black and Veatch U.K., Ltd and President of Black & Veatch
International since 1994; employed by Black & Veatch since 1972; director
of Commerce Bancshares Inc. (a bank holding company) and Lab Holdings
Inc. (insurance and health testing laboratories).
ROBERT E. MELLOR 55 1998
Director, President and Chief Executive Officer of Building Materials
Holding Corporation (distribution and sales of building materials) 1997
to present; Of Counsel, Gibson, Dunn & Crutcher, LLP, 1991-present; Held
the positions of Executive President/Director and Chief Administrative
Officer, Senior Vice President, General Counsel and Secretary of
DiGiorgio Corporation (food wholesaler and distributor) from 1976 to
1990.
TIMOTHY R. WINTERER 62 1998
President and Chief Executive Officer of BHP World Minerals Corporation
(international resources company) from 1997 to 1998; Group General
Manager and Executive Vice President, BHP World Minerals (1996-1997);
Senior Vice President and Group General Manager, BHP World Minerals
(1992-1996); Senior Vice President Operations International Minerals, BHP
Minerals (1985-1992); Executive Vice President, Utah Development Company
(1981-1985)
</TABLE>
EXECUTIVE OFFICERS
Information regarding the Company's executive officers is set forth under
Item 4A of the Form 10-K.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission. Initial Statements of Beneficial Ownership of Securities on
Form 3 are required to be filed within ten days after the date on which the
person became a reporting person. Statements of Changes of Beneficial Ownership
of Securities are required to be filed by the tenth day of the month following
the month during which the change in beneficial ownership of securities
occurred. A Form 4 reporting the granting of an option to John H. Robinson on
June 11, 1998, which should have been filed with the Commission by July 10,
1998, was actually filed on July 14, 1998. The Company believes that all other
reports of securities ownership and changes in such ownership required to be
filed during 1998 were timely filed.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the annual salary,
annual bonus (including cash and stock) and long-term compensation (including
stock awards, options granted and long-term incentive cash payments) earned by
the Company's Chief Executive Officer and the other four highest paid executive
officers of the Company employed at the end of the year for services rendered
during each of the last three years.
48
<PAGE> 49
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------------------------------------------- -------
COMMON SHARES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(s) OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL YEAR ($) ($)(1)(2) ($) $(3) (#)(4) ($)(5) ($)(6)
------------------ ---- --- --------- --- ---- ------ ------ ------
POSITION
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dennis E. Wheeler....... 1998 $ 407,638 204,645 -- -- 42,569 -- 48,004
Chairman, President & 1997 394,417 $330,472 -- 3,852 119,984 $22,952 38,005
Chief Executive Officer 1996 378,710 145,304 -- -- 32,068 64,391 39,739
Robert Martinez(7) 1998 208,243 81,555 -- -- 16,735 -- 19,472
Senior Vice- 1997 155,433 85,913 -- 474 15,485 2,825 14,024
President -
Chief Operating Officer 1996 132,823 23,730 -- -- 2,604 9,510 13,955
Robert T. Richins(8) 1998 143,179 40,996 -- -- 3,739 -- 13,123
Vice President - 1997 86,500 68,136 -- -- 1,755 -- 358
Environmental
& Governmental 1996 -- -- -- -- -- -- --
Affairs
James K. Duff(9) 1998 138,921 32,715 -- -- 3,268 -- 14,337
Vice President - 1997 130,000 53,243 -- -- 7,462 -- 11,893
Business 1996 111,600 19,491 -- -- 1,950 -- 10,674
Development
Paul B. Valenti (10) 1998 127,725 44,967 -- -- 5,139 -- 11,446
Vice President - 1997 36,692 17,297 -- -- 2,169 -- --
Operations
1996 -- -- -- -- -- -- --
</TABLE>
- --------------------------
(1) Annual incentive payments under the AIP are based upon target award levels
established by the Compensation Committee of the Company's Board of Directors
(the "Committee") at the beginning of each annual performance period and vary
depending upon each participant's responsibilities and base salary. Awards under
the AIP are paid after the annual performance period and vary from 0% to 200% of
the targets based on actual performance. Commencing in 1996, 75% of the award
value is based on overall Company financial performance and 25% is based on the
participant's individual performance. Company financial objectives underlying
the measurement of Company performance include both total asset growth and cash
flow return on total assets. The amounts reported above for 1996, 1997 and 1998
were paid in March 1997, March 1998 and March 1999, respectively.
(2) Does not report perquisites amounting to less than the lesser of $50,000 or
10% of total salary and bonus.
(3) Shares of Common Stock awarded under the LTPSP are issued upon completion of
a four-year performance period after the date of grant. Prior to 1993, the
Program provided for annual awards of restricted stock that vested over a
four-year period. Commencing in 1993, awards are paid in shares of Common Stock
and cash in amounts that are not determinable until completion of a four-year
award cycle. The aggregate number and market value (based on the $4.625 per
share closing price of the shares on the New York Stock Exchange on December 31,
1998) of the restricted shares of Common Stock granted pursuant to the LTPSP
49
<PAGE> 50
prior to 1993 and held by the above executive officers at December 31, 1998 were
as follows: Dennis E. Wheeler - 15,445 shares ($71,433) and Robert Martinez -
2,011 shares ($9,301). Dividends on restricted shares are remitted to each
executive as paid by the Company.
(4) Reports the number of shares underlying nonqualified options and incentive
stock options granted under the LTIP with respect to each of the respective
years. The options granted with respect to 1998 performance were granted in
March 1999. The options granted with respect to 1997 performance include (i) a
grant of options in July 1997 in recognition of the fact that historical cash
compensation had fallen below industry norms, (ii) the customary grant of
options in March 1998 and (iii) a grant of options in September 1998.
(5) Reports cash payouts (not awards) under the LTIP. Payments are made under
the LTIP after the end of the four-year performance period after award. The
above reported payments relate to awards made in 1995 and are based on the
performance period ending December 31, 1998. See note 2 to the Long-Term
Incentive Plan Awards Table below for additional information regarding the LTIP.
(6) Includes the Company's contributions to its Defined Contribution and 401K
Retirement Plan (the "Retirement Plan") and amounts credited to the Company's
Supplemental Retirement Plan (the "Supplemental Retirement Plan"). All full-time
employees participate in the Retirement Plan. The amount of the Company's annual
contribution is determined annually by the Board of Directors and may not exceed
15% of the participants' aggregate compensation; however for the years 1996,
1997 and 1998, the contribution was 5%. In addition, the Retirement Plan
provides for an Employee Savings Plan which allows each employee to contribute
up to 10% of compensation, subject to a maximum contribution of $10,000. The
Company contributes an amount equal to 50% of the first 6% of any such
contributed amount. Accrued benefits under the Retirement Plan begin vesting
after one year of employment and are fully vested after five years of
employment. Retirement benefits under the Retirement Plan are based on a
participant's investment fund account upon retirement, the participant's age and
the form of benefit payment elected by the participant. The Company maintains
the Supplemental Retirement Plan for its executive officers. Under the
Supplemental Retirement Plan, an amount is accrued that equals the portion of
the contribution to the Company's Retirement Plan that is restricted due to
restrictions under ERISA. In 1998, Messrs. Wheeler, Martinez, Richins, Duff and
Valenti were credited with Company contributions of $12,800, $12,800, $10,566,
$12,800, and $11,446, respectively, under the Retirement Plan. In 1998, Messrs.
Wheeler, Martinez, Richins and Duff were credited with $30,021, $6,562, $2,557
and $1,537, respectively, pursuant to the Supplemental Retirement Plan. The
amounts of all other compensation reported in the above table also include
"above-market" interest earnings on deferred compensation that is accrued under
the Company's Supplemental Retirement Plan. "Above-market" interest earnings on
deferred compensation is the excess of such interest over 120% of the applicable
federal long-term rate, with compounding, as prescribed under the Internal
Revenue Code. In 1998, the amounts of above-market interest earnings accrued for
the benefit of Messrs. Wheeler and Martinez amounted to $5,183 and $110,
respectively.
(7) Prior to his appointment as Senior Vice President - Chief Operating Officer
on May 15, 1998, Mr. Martinez served as Vice President - Operations from April 1
1997 to May 15, 1998, as Vice President - Engineering, Operational Services and
South American Operations of the Company from January 1, 1997 to March 30, 1997,
and as Vice President and General Manager of the Company's subsidiary, Rochester
Coeur, Inc., from August 13, 1988 to December 31, 1996.
50
<PAGE> 51
(8) Prior to rejoining Coeur d'Alene Mines Corporation as Vice President -
Environmental Services and Governmental Affairs in April 1995, Mr. Richins was a
consultant for the Company. He had previously held that position until 1994,
when he formed his own consulting firm. He initially joined Coeur d'Alene Mines
in 1986 and was the head of environmental services.
(9) Prior to his appointment as Vice President - Business Development in 1996,
Mr. Duff held the position of Director of New Business Development. He has been
with the Company since March 1990.
(10) Prior to his appointment as Vice President - Operations on May 29, 1998,
Mr. Valenti served as Vice President - Engineering Services since September
1997. Prior to September 1997, Mr. Valenti was Vice President of Operations and
Development for USMX, Inc.
The following Option Grants Table sets forth, for each of the named executive
officers, information regarding individual grants of options granted under the
LTIP in March 1999 for services rendered in 1998 and their potential realizable
values. Information regarding individual option grants includes the number of
options granted, the percentage of total grants to employees represented by each
grant, the per-share exercise price and the expiration date. The potential
realizable value of the options are based on assumed annual 0%, 5% and 10% rates
of stock price appreciation over the term of the option. Also set forth is the
amount of the increases in the value of all of the Company's outstanding shares
of Common Stock that would be realized in the event of such annual rates of
stock price appreciation.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
----------------------------------------------- -----------------------------------------------
NUMBER OF % OF TOTAL
SHARES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES
OPTIONS IN FISCAL EXERCISE EXPIRATION
GRANTED
NAME (#)(1) YEAR(2) PRICE ($/SH)(3) DATE 0% 5% ($) 10% ($)
---- ------ -------------- --------------- ---------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Dennis E. Wheeler........ 42,569 41.92 2.8683 03/09/09 $ 0 76,697 194,613
Robert Martinez.......... 16,735 16.48 2.8683 03/09/09 0 30,151 76,507
Robert T. Richins........ 3,739 3.68 2.8683 03/09/09 0 6,737 17,094
James K. Duff... 3,268 3.22 2.8683 03/09/09 0 5,888 14,940
Paul B. Valenti.......... 5,139 5.06 2.8683 03/09/09 0 2,259 23,494
All Shareholders (5) 0 39,454,751 100,113,939
Named Executive Officers'
Gains as a % of All
Shareholder Gains... 0 .33 .33
</TABLE>
51
<PAGE> 52
- ---------------
(1) The options include nonqualified and incentive stock options that become
exercisable cumulatively as to 25%, 50%, 75% and 100% after the first, second,
third and fourth anniversaries, respectively, after the date of grant.
(2) Based on options for a total of 101,554 shares granted to all employees.
(3) The exercise price is equal to the fair market value on the date of grant of
the option.
(4) The potential realizable values shown in the columns are net of the option
exercise price. These amounts assume annual compounded rates of stock price
appreciation of 0%, 5%, and 10% from the date of grant to the option expiration
date, a term of ten years. These rates have been set by the U.S. Securities and
Exchange Commission and are not intended to forecast future appreciation, if
any, of the Company's Common Stock. Actual gains, if any, on stock option
exercises are dependent on several factors including the future performance of
the Company's Common Stock, overall stock market conditions, and the optionee's
continued employment through the vesting period. The amounts reflected in this
table may not actually be realized.
(5) Total dollar gains based on assumed annual rates of appreciation shown and
the 21,898,624 shares of Common Stock outstanding on March 17, 1999.
The following aggregate Option Exercises and Year-End Option Value Table
sets forth, for each of the named executive officers, information regarding the
number and value of unexercised options at December 31,1998. No options were
exercised during 1998 by such persons.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END OPTIONS AT FY-END
ACQUIRED VALUE (#) ($)(1))
ON EXERCISE REALIZED EXERCISABLE/UNEXERCI EXERCISABLE/UNEXERCI
NAME (#) ($) SABLE SABLE
---- -------------- ------------ -------------------- -------------------------
<S> <C> <C> <C> <C>
Dennis E. Wheeler........ -- -- 142,980/135,594 $ 0/0
Robert Martinez.......... -- -- 15,025/17,169 0/0
Robert T. Richins........ -- -- 0/1,755 0/0
James K. Duff............ -- -- 2,009/7,403 0/0
Paul B. Valenti.......... -- -- 0/2,169 0/0
</TABLE>
- ---------------------
(1) Market value of underlying securities at exercise or year-end, minus the
exercise price.
52
<PAGE> 53
The following Long-Term Incentive Plan Awards Table sets forth, for each
of the named executive officers, long-term incentive plan awards (not payouts)
made in March 1999 for services rendered in 1998 under the LTPSP. (Payouts for
the completed four-year performance periods ending in 1996, 1997 and 1998 are
reported above under the Long-Term Compensation Payouts column of the Summary
Compensation Table.)
LONG-TERM INCENTIVE PLAN AWARDS TABLE
<TABLE>
<CAPTION> PERFORMANCE OR
NUMBER OF OTHER PERIOD ESTIMATED FUTURE-PAYOUTS UNDER
SHARES, UNITS UNTIL MATURATION NON-STOCK PRICE BASED PLANS (2)
OR OTHER OR PAYOUT -------------------------------
RIGHTS (#)(1) --------- THRESHOLD TARGET MAXIMUM
NAME -------------- (#) (#) (#)
---- --- --- ---
<S> <C> <C> <C> <C> <C>
Dennis E. Wheeler.................... 45,669 01/01/99-12/31/02 22,835 45,669 68,504
Robert Martinez...................... 17,953 01/01/99-12/31/02 8,977 17,953 26,930
Robert T. Richins.................... 4,011 01/01/99-12/31/02 2,006 4,011 6,017
James K. Duff........................ 3,506 01/01/99-12/31/02 1,753 3,506 5,259
Paul B. Valenti...................... 5,513 01/01/99-12/31/02 2,757 5,513 8,270
</TABLE>
- ----------
(1) Performance share awards under the LTPSP are based upon target award levels
established by the Committee at the beginning of each four-year performance
period and vary depending upon the participant's responsibilities and base
salary. Awards under the LTPSP are paid after the end of a four-year performance
period and may vary from 0% to 150% of the targets based on actual Company
financial performance. Commencing with LTPSP awards made in 1993, 60% is paid in
shares of Common Stock and 40% is paid in cash upon completion of the four-year
performance period.
(2) Company financial performance for LTPSP award determination purposes is
based on the Company's total shareholder return ("TSR") relative to a group of
other companies in the precious metals mining industry (the "Comparable Group").
TSR equals the market price of the Company's Common Stock at the end of the
four-year period plus dividends paid during the period, divided by the market
price of the Common Stock at the beginning of the period. Actual award levels
are based on the relative performance of the Company's TSR relative to the TSRs
of the Comparable Group companies. The threshold performance level (i.e., the
minimum amount payable) is reached if the Company's TSR is at the 30th
percentile, in which case the percent of the target award is 50%. The target
performance level is reached if the Company's TSR is at the 50th percentile, in
which case the percent of the target award is 100%. The maximum performance
level is achieved if the Company's TSR is at or above the 75th percentile, in
which case the percent of the target award is 150%.
SUPPLEMENTAL RETIREMENT DEFERRED COMPENSATION PLAN
Pursuant to the Company's Supplemental Retirement Deferred Compensation
Plan, officers may defer up to 50% of their salary as well as 100% of the cash
portion of awards under the AIP and LTPSP. Amounts deferred accrue interest at a
prime lending rate not to exceed 10% and payout may be effected by a lump sum or
an annuity.
53
<PAGE> 54
DIRECTORS' FEES
Pursuant to the Coeur d'Alene Mines Corporation Non-Employee Directors'
Stock Option Plan, outside directors of the Company must receive at least $5,000
of their director fees in the form of stock options in lieu of $5,000 of cash
compensation and are able to elect to receive stock options in lieu of cash fees
for up to the $45,000 balance of their annual director fees. The Company was the
first company in the precious metals mining industry that required the directors
to receive a portion of their directors' fees in stock options in lieu of cash
compensation. Information relating to options granted to outside directors on
January 2, 1998, was set forth in last year's proxy statement relating to the
1998 Annual Meeting of Shareholders. The following table sets forth information
regarding options that were granted under the Plan to non-employee directors on
January 4, 1999:
<TABLE>
<CAPTION>
NUMBER
AMOUNT OF OPTION
OF SHARES EXERCISE
FOREGONE SUBJECT PRICE
Director's TO PER
NAME OF OUTSIDE DIRECTOR FEES OPTION* SHARE**
- ------------------------ ---- ------- -------
<S> <C> <C> <C>
Cecil D. Andrus................... $5,000 1,424 $4.8125
Joseph C. Bennett................. 11,000 3,133 4.8125
James J. Curran................... 50,000 14,240 4.8125
James A. McClure.................. 5,000 1,424 4.8125
Robert E. Mellor.................. 5,000 1,424 4.8125
John H. Robinson.................. 5,000 1,424 4.8125
Timothy R. Winterer............... 10,000 2,848 4.8125
------- ------ ------
Total........................ $91,000 25,917
======= ======
</TABLE>
- ----------
* The number of shares is determined by dividing each outside director's
foregone directors' fees by the per-share value of an option using the
Black-Scholes option valuation method.
** The option exercise price is equal to the average of the high and low prices
of the Common Stock reported by the New York Stock Exchange on January 4, 1999,
which was the date of grant.
Committee members receive no compensation for their services.
DIRECTORS' RETIREMENT PLAN
Pursuant to the Company's Directors' Retirement Plan, outside directors
who have a minimum of five years of service are entitled to one year of
retirement benefit for each year of service up to a maximum of ten years of
retirement benefits. Each year's retirement benefit is equal to 40% of the
outside director's annual compensation as a director of the Company at the time
of retirement.
54
<PAGE> 55
CHANGE IN CONTROL PROVISIONS
In the event of a change in control of the Company, as defined below (a
"Change in Control"), all awards under the Program fully vest as follows: (i)
all unvested stock options become fully exercisable; (ii) any unvested shares of
restricted stock become fully vested so that the restrictions on the sale of
such stock lapse on the Change in Control date; and (iii) cash or Common Stock
payments of performance awards made under the Program must be fully paid within
30 days following the date of the Change in Control. A Change in Control of the
Company for purposes of the Program is deemed to occur in the event of (i) an
organization, group or person acquires beneficial ownership of securities of the
Company representing 35% or more of the combined voting power of the Company's
then outstanding securities; (ii) a majority of the members of the Company's
Board of Directors during any two-year period is replaced by directors who are
not nominated and approved by the Board; (iii) a majority of the Board members
is represented by, appointed by or affiliated with any organization, group or
person whom the Board has determined is seeking to affect a Change in Control of
the Company; or (iv) the Company is combined with or acquired by another company
and the Board determines, either before or after such event, that a Change in
Control will or has occurred.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Dennis E. Wheeler, Chairman
of the Board, President and Chief Executive Officer, which provides for a
three-year term of employment through June 1, 2001, and which is automatically
extended for one year on June 1 of each year unless terminated or modified by
the Company by written notice. Mr. Wheeler's employment agreement includes the
same Change in Control provisions as those included in the Executive Severance
Agreements described below, and in the event of his death, his employment
agreement provides for the lump sum payment to his estate of an amount equal to
his annual base salary at the time of such death.
During 1997, and continuing from year-to-year thereafter unless
terminated by the Company by written notice, the Executive Severance Agreements
with eight executive officers of the Company (the "Executives") provide that
certain benefits will be payable to the Executives in the event of a Change in
Control of the Company and the termination of the Executive's employment within
two years after such Change in Control for any reason other than for cause,
disability, death, normal retirement or early retirement. (The term "Change in
Control" for purposes of the Executive Severance Agreements has the same meaning
as that discussed above under "Change in Control Provisions.")
The benefits payable to an Executive in the event of a Change in Control
and such termination of employment are (i) the continued payment of the
Executive's full base salary at the rate in effect immediately prior to his or
her termination of employment, as well as the short-term and long-term bonuses
at 100% of the target levels provided under the AIP and LTPSP for the two years
following such termination of employment; (ii) the continued payment by the
Company during that period of all medical, dental and long-term disability
benefits under programs in
55
<PAGE> 56
which the Executive was entitled to participate immediately prior to termination
of employment; (iii) acceleration of the exercisability and vesting of all
outstanding stock options, restricted stock, performance plan awards and
performance shares granted by the Company to the Executive under the Program;
and (iv) the granting to the Executive of continued credit through the two-year
period following termination of employment for purposes of determining the
Executive's retirement benefits under the Company's Retirement Plan. Each
Executive Severance Agreement provides that if the severance payments provided
thereunder would constitute a "parachute payment," as defined in Section 280G of
the Internal Revenue Code, the payment will be reduced to the largest amount
that would result in no portion being subject to the excise tax imposed by, or
the disallowance of a deduction under, certain provisions of the Code.
Accordingly, the present value of such payment will generally be required to be
less than three times the Executive's average annual taxable compensation during
the five-year period preceding the Change in Control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 17, 1999,
concerning the beneficial ownership of the Company's Common Stock by
shareholders known by the Company to be the beneficial owner of more than 5% of
the Company's outstanding shares of Common Stock or MARCS, by each of the
nominees for election as directors, and by all directors/nominees and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
Common Stock MARCS Percent
------------------------------------ ------------------------------- Of
Shares Shares Total
Beneficially Percent of Beneficially Percent of Voting
Owned Outstanding Owned Outstanding Power
------------ ----------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Franklin Resources, Inc.(1).......... 1,622,108 7.41% 695,000 9.82 7.99%
MacKay-Shields Financial
Corporation (2) ..................... 1,155,970 5.28 1,203,716 17.00 8.14
Ryback Management Corp.(3) .......... 1,084,538 4.95 1,313,000 18.55 8.27
Mackenzie Financial
Corporation (4)...................... 911,500 4.16 -- -- 3.15
Brookhaven Capital Management Co. .71
Ltd.(5)....... 946,800 4.30 -- -- *
Dennis E. Wheeler.................... 205,460 (6)(7) .94 -- -- *
Joseph C. Bennett.................... 5,851 (6)(7) * -- -- *
James J. Curran...................... 20,350 (6)(7) .10 -- -- *
James A. McClure..................... 3,201 (6)(7) * -- -- *
Cecil D. Andrus...................... 2,954 (7) * -- -- *
John H. Robinson..................... 1,049 (7) * *
Robert E. Mellor..................... 100 *
Timothy R. Winterer.................. 1,000 (6) *
All executive officers and .91
nominees for director as a
group (15 persons)................. 263,730 (7) 1.20
</TABLE>
- ----------
56
<PAGE> 57
(*) Holding constitutes less than .10% of the outstanding shares.
(1) Franklin Resources, Inc. is an investment advisory firm that serves as
investment advisor to several investment companies that own the
above-reported shares. Its address is 777 Mariners Island Blvd., P.O. Box
7777, San Mateo, CA 94403-7777. Of the above shares of Common Stock,
574,070 shares may be acquired upon the conversion of MARCS, 39,108
shares may be acquired upon the conversion of the Company's 6%
Convertible Subordinated Debentures Due 2002 and 1,800,930 shares may be
acquired upon conversion of the Company's 6 3/8% Convertible Subordinated
Debentures Due 2004.
(2) MacKay-Shields Financial Corporation is an investment advisory firm. Its
address is 9 West 57th Street, New York, NY 10019. Of the above shares of
Common Stock, 994,270 shares may be acquired upon the conversion of
MARCS.
(3) Ryback Management Corporation is an investment advisory firm. Its address
is 7711 Carondelet Ave., Suite 700, St. Louis, MO 63105. All of the
shares of Common Stock reported above may be acquired upon conversion of
MARCS.
(4) Mackenzie Financial Corporation is an investment advisory firm. Its
address is 150 Bloor Street West, Suite M111, Toronto, Canada M55 385.
(5) Brookhaven Capital Management Co. Ltd. is an investment advisory firm.
Its address is 3000 Sandhill Road, Menlo Park, CA 94025.
(6) Individual shares investment and voting powers over certain of his shares
with his wife. The other directors have sole investment and voting power
over their shares.
(7) Holding includes the following shares which may be acquired upon the
exercise of exercisable options outstanding under the Company's 1989
Long-Term Incentive Plan or its 1995 Non-Employee Directors' Stock Option
Plan: Dennis E. Wheeler - 156,589 shares; Joseph C. Bennett - 2,851
shares; James J. Curran - 20,250 shares; James A. McClure - 2,851 shares;
Cecil D. Andrus - 2,854 shares; John H. Robinson - 949 shares; and all
executive officers and directors as a group - 205,462 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
57
<PAGE> 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules:
(1) The following consolidated financial statements of Coeur d'Alene
Mines Corporation and subsidiaries are included in Item 8.
Consolidated Balance Sheets-December 31, 1997 and 1998.
Consolidated Statements of Operations--Years Ended December 31,
1996, 1997 and 1998.
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998.
Consolidated Statements of Cash Flows for the Years Ended December
31, 1996, 1997 and 1998.
Notes to Consolidated Financial Statements.
(c) Exhibits
23 - Consent of Ernst &Young LLP
27 - Financial Data Schedule
(d) Independent auditors' reports are included herein as follows:
Coeur d'Alene Mines Corporation
Report of Ernst & Young LLP at December 31, 1997, and 1998, and for each
of the three years in the period ended December 31, 1998.
58
<PAGE> 59
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
F-1
<PAGE> 60
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Shareholders and Board of Directors
Coeur d'Alene Mines Corporation
We have audited the accompanying consolidated balance sheets of Coeur d'Alene
Mines Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Coeur d'Alene
Mines Corporation and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Seattle, Washington ERNST & YOUNG LLP
April 14, 1999
F-2
<PAGE> 61
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $127,335 $114,204
Funds held in escrow 400
Short-term investments 1,753 98,437
Receivables 11,647 11,103
Inventories 43,675 35,927
--------- --------
TOTAL CURRENT ASSETS 184,410 260,071
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 79,173 119,808
Less accumulated depreciation 37,304 58,097
--------- --------
41,869 61,711
MINING PROPERTIES
Operational mining properties 82,018 168,305
Less accumulated depletion 46,149 52,332
--------- --------
35,869 115,973
Developmental properties 25,898 129,752
--------- --------
61,767 245,725
OTHER ASSETS
Investments in unconsolidated affiliates 66,914 73,013
Notes receivable 1,627 8,498
Debt issuance costs, net of accumulated
amortization 6,625 8,809
Other 2,768 875
--------- --------
77,934 91,195
--------- --------
$365,980 $658,702
========= ========
</TABLE>
F-3
<PAGE> 62
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ----------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,512 $ 5,983
Accrued liabilities 12,700 6,345
Accrued interest payable 5,412 6,631
Accrued salaries and wages 5,642 7,553
Bank loans 4,406
Current portion of remediation costs 3,052 7,300
Current portion of obligations under
capital leases 255 243
---------- --------
TOTAL CURRENT LIABILITIES 30,573 38,461
LONG-TERM LIABILITIES
6% subordinated convertible debentures
due 2002 45,803 49,840
6 3/8% subordinated convertible debentures
due 2004 93,372 95,000
7 1/4% subordinated convertible debentures
due 2005 107,277 143,750
Long-term borrowings 1,159
Other long-term liabilities 11,888 8,403
---------- --------
TOTAL LONG-TERM LIABILITIES 258,340 298,152
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 379,180 389,648
Accumulated deficit (318,796) (84,542)
Repurchased and nonvested shares (13,190) (13,190)
Accumulated other comprehensive income (loss):
Unrealized gains (losses) on short-term
investments (163) 145
-------- --------
77,067 322,089
---------- --------
$386,980 $658,702
========== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 63
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------- --------- --------
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
INCOME
Sale of concentrates and dore' $102,505 $131,161 $ 90,724
Less cost of mine operations 97,878 134,565 81,464
--------- --------- --------
GROSS PROFIT (LOSS) 4,627 (3,404) 9,260
OTHER INCOME
Interest, dividends, and other 11,286 19,956 11,954
Earnings (loss) from unconsolidated
subsidiaries (2,130) 783 1,393
---------- -------- --------
TOTAL INCOME 13,783 17,335 22,607
EXPENSES
Administration 3,966 4,430 3,716
Accounting and legal 2,521 2,230 1,753
General corporate 6,564 6,792 7,147
Mining exploration 9,391 7,955 7,695
Interest 13,662 10,253 3,635
Writedown of mining properties 223,172 54,415
--------- --------- ---------
TOTAL EXPENSES 259,276 31,660 78,361
--------- --------- --------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (245,493) (14,325) (55,754)
Provision (benefit) for income taxes 919 (242) (1,184)
--------- --------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEM (246,412) (14,083) (54,570)
Gain on early retirement of debt
(net of tax effect of $0) 12,158
--------- --------- ---------
NET LOSS (234,254) (14,083) (54,570)
Unrealized holding gain (loss) on
securities (308) 497 (713)
--------- --------- ---------
COMPREHENSIVE LOSS (234,562) (13,586) (55,283)
========= ========= =========
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS
Net loss (234,254) (14,083) (54,570)
Preferred stock dividends (10,532) (10,532) (8,397)
--------- --------- ---------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(244,786) $(24,615) $(62,967)
========== ========= =========
BASIC AND DILUTED EARNINGS PER SHARE DATA
Weighted average number of shares
of Common Stock (in thousands) 21,899 21,890 21,465
========== ========= =========
Net loss attributable to Common Shareholders:
Net loss before extraordinary item $ (11.73) $ (1.12) $ (2.93)
Extraordinary item - Early retirement
of debt (net of taxes) .55
--------- ---------- ---------
Net loss per share attributable to
common shareholders $ (11.18) $ (1.12) $ (2.93)
========= ========== =========
CASH DIVIDENDS PER COMMON SHARE $ .15
========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 64
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For Years Ended December 31, 1998, 1997, and 1996
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock
(MARCS) Common Stock
--------- ------------
Par Par Capital
Shares Value Shares Value Surplus
------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 21,524 $21,524 $247,100
Comprehensive Loss:
Net Loss
Other Comprehensive Loss:
Unrealized Holding Loss on
Marketable Securities
Comprehensive Loss
Issuance of MARCS 7,078 $7,078 137,548
Cash Dividends (11,028)
Issuance of Shares Under
Stock Compensation Plan
(net)
Shares Issued on Acquisition
of Unconsolidated
Affiliate 1,420 1,420 26,467
Conversion of 6% Debentures 6 6 150
Other (50)
------- ------- ------- ------- -------
Balance at December 31, 1996 7,078 7,078 22,950 22,950 400,187
Comprehensive Loss:
Net Loss
Other Comprehensive Income:
Unrealized Gains on
Marketable Securities
Comprehensive Loss
Cash Dividends (10,532)
Issuance of Shares Under
Stock Compensation Plan
(net)
Other (7)
------- ------- ------- -------- -------
Balance at December 31, 1997 7,078 7,078 22,950 22,950 389,648
Comprehensive Loss:
Net Loss
</TABLE>
<TABLE>
<CAPTION>
Accumulated Repurchased and
Other Nonvested Shares
Accumulated Comprehensive ----------------
Deficit Income (Loss) Shares Amount Total
------------ ------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ (15,889) $ 361 (1,059) $ (13,264) $239,832
Comprehensive Loss:
Net Loss (54,570) (54,570)
Other Comprehensive Loss:
Unrealized Holding Loss on
Marketable Securities (713) (713)
---------
Comprehensive Loss (55,283)
---------
Issuance of MARCS 144,626
Cash Dividends (11,028)
Issuance of Shares Under
Stock Compensation Plan
(net) 58 58
Shares Issued on Acquisition
of Unconsolidated
Affiliate 27,887
Conversion of 6% Debentures 156
Other (50)
-------- ------ ------- ------- --------
Balance at December 31, 1996 (70,459) (352) (1,059) (13,206) 346,198
Comprehensive Loss:
Net Loss (14,083) (14,083)
Other Comprehensive Income:
Unrealized Gains on
Marketable Securities 497 497
--------
Comprehensive Loss (13,586)
--------
Cash Dividends (10,532)
Issuance of Shares Under
Stock Compensation Plan
(net) 16 16
Other (7)
--------- ------- ------ ------- -------
Balance at December 31, 1997 (84,542) 145 (1,059) (13,190) 322,089
Comprehensive Loss:
Net Loss (234,254) (234,254)
</TABLE>
F-6
<PAGE> 65
<TABLE>
<S> <C> <C> <C> <C> <C>
Other Comprehensive Loss:
Unrealized Holding Loss on
Marketable Securities
Comprehensive Loss
Cash Dividends (10,532)
Issuance of Shares Under Stock Compensation Plan (net) 8 8 64
------ ------- ------- ------- --------
Balance at December 31, 1998 7.078 $ 7,078 22,958 $22,958 $379,180
===== ======= ====== ======= ========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Other Comprehensive Loss:
Unrealized Holding Loss on
Marketable Securities (308) (308)
--------
Comprehensive Loss (234,562)
--------
Cash Dividends (10,532)
Issuance of Shares Under Stock Compensation Plan (net) 72
--------- -------- ------- --------- --------
Balance at December 31, 1998 $(318,796) $ (163) (1,059) $ (13,190) $ 77,067
========= ======== ======= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 66
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(234,254) $ (14,083) $(54,570)
Add (deduct) noncash items:
Depreciation, depletion, and amortization 31,011 34,775 12,159
Gain on early retirement of debt (12,158)
Deferred income taxes (594) (1,402)
(Gain) loss on disposition of property,
plant and equipment 461 (102) (985)
Loss on foreign currency transactions 482 985 155
(Gain) loss on disposition of
marketable securities (7) 947 (1,262)
Writedown of mining properties 223,172 54,415
Undistributed (earnings) loss of investment
in unconsolidated subsidiary 2,130 (783) (1,393)
Changes in Operating Assets and Liabilities:
Receivables (2,946) 1,907 3,493
Inventories (10,176) (3,256) 1,824
Accounts payable and accrued liabilities (11,408) (4,426) (5,360)
---------- ---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (13,693) 15,370 7,074
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Purchases of short-term investments (17,886) (180,511) (148,952)
Proceeds from sales of short-term investments
and marketable securities 114,276 204,981 92,167
Acquisition of Gasgoyne Gold Mines NL (14,643) (19,301)
Investment in unconsolidated subsidiaries (4,868) (3,570) (3,416)
Purchases of property, plant and equipment (3,209) (2,741) (4,799)
Proceeds from sale of assets 7,944 505 2,372
Proceeds from collection of notes receivable 1,821 1,363 2,566
Expenditures on operational mining properties (9,619) (9,436) (40,306)
Expenditures on developmental properties (17,558) (14,487) (13,066)
Other (601) (3,400) 2,148
---------- ---------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 70,300 (21,939) (130,587)
</TABLE>
F-8
<PAGE> 67
CONSOLIDATED STATEMENTS OF CASH FLOWS,
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of obligations under
capital leases 31 (501) (2,041)
Payment of cash dividends (10,532) (10,532) (11,028)
Proceeds from MARCS issuance 144,626
Proceeds from 7 1/4% debentures issuance 138,090
Proceeds from (payment of) bank borrowings (3,610) 19,186
Payment of debenture costs (644)
Retirement of long-term debt (28,477) (49,513)
Retirement of other long-term liabilities (244) (226) (260)
---------- ---------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (43,476) 77,318 150,483
---------- ---------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 13,131 70,749 26,970
Cash and cash equivalents at beginning
of year 114,204 43,455 16,485
--------- ---------- --------
Cash and cash equivalents at end
of year $ 127,335 $ 114,204 $ 43,455
========== ========== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise specified)
NOTE A--BUSINESS OF COEUR D'ALENE MINES CORPORATION
Coeur d'Alene Mines Corporation (Coeur or the Company) is principally
engaged through its subsidiaries in the exploration, development, operation
and/or ownership of silver and gold mining properties located in the United
States (Nevada, Idaho and Alaska), Australasia (New Zealand and Australia), and
South America (Chile).
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the wholly-owned subsidiaries of the Company, the most significant of
which are Coeur Rochester Inc., Callahan Mining Corporation and its subsidiary
Coeur New Zealand, Inc., Coeur Alaska, Inc., CDE Fachinal Ltd., Compania Minera
CDE El Bronce and Coeur Australia (50% owner of Gasgoyne Gold Mines NL). The
consolidated financial statements also include all entities in which voting
control of more than 50% is held by the Company. Intercompany balances and
transactions have been eliminated in consolidation. Investments in joint
ventures, where the Company has ownership of 50% or less and funds its
proportionate share of expenses, are accounted for under the equity method. The
investment in the Golden Cross Mine is an 80% interest in an unincorporated
joint venture and is accounted for on the proportionate consolidation basis.
Revenue Recognition: Revenue is recognized when title to gold and silver
passes at the shipment or delivery point. The effects of forward sales are
reflected in revenue at the date the related precious metals are delivered or
the contracts expire.
Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. As of December 31, 1998 and 1997, cash and cash equivalents
included $9.4 million and $15.6 million of cash, respectively. The balance of
the reported amounts consists principally of investment grade commercial paper.
Amounts reported represent cost which approximates fair value.
Inventories: Inventories of ore on leach pads and in the milling process
are valued based on actual costs incurred to place such ores into production,
less costs allocated to minerals recovered through the leaching and milling
processes. Inherent in this valuation is an estimate of the percentage of the
minerals on leach pads and in process that will ultimately be recovered.
Management evaluates this estimate on an ongoing basis. Adjustments to the
recovery rate are accounted for prospectively. All other inventories are stated
at the lower of cost or market, with cost being determined using the first-in,
first-out and weighted average cost
F-10
<PAGE> 69
methods. Concentrate and dore' inventory includes product at the mine site and
product held by refineries.
Property, Plant, and Equipment: Property, plant, and equipment are
recorded at cost. Depreciation, using the straight-line method, is provided over
the estimated useful lives of the assets, which are 7 to 31 years for buildings
and improvements, 3 to 13 years for machinery and equipment and 3 to 7 years for
furniture and fixtures. Certain mining equipment is depreciated using the
units-of-production method based upon estimated total reserves. Maintenance and
repairs are charged to operations as incurred.
Mining Properties: Values for mining properties represent acquisition
costs and/or the fair value of consideration paid plus developmental costs. Cost
depletion has been recorded based on the units-of-production method based on
proven and probable reserves. Management evaluates the net carrying value of all
operations, property by property, on a regular basis to reach a judgment
concerning possible permanent impairment of value and the need for a write-down
in asset value to net realizable value. The Company utilizes the methodology set
forth pursuant to Financial Standards Board Statement No. 121 - Accounting for
the Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of
("SFAS 121") to evaluate the recoverability of capitalized mineral property
costs. Since SFAS 121 requires the use of forward-looking projections, the
Company must use estimates to generate a life-of-mine undiscounted cash flow
forecast into the future. These estimates are based on projected mineable
resources and mine life and/or reports of the Company's engineers and
geologists, projected operating and capital costs necessary to process the
estimated resources, each project's mine plan including the type, quantity and
ore grade expected to be mined, estimated metallurgical recovery and other
factors which may have an impact upon a project's cash flow. In addition, the
Company is required to estimate the selling price of metal produced. The
Company's estimate is based upon historical gold prices and the Company's
reasonable projections, as well as a survey of price assumptions used by other
companies in the industry.
Reclamation Costs: Post-closure reclamation and site restoration costs
are estimated based upon environmental regulatory requirements and are accrued
ratably over the life of the mine using the units-of-production method. Current
expenditures relating to ongoing environmental and reclamation programs are
expensed as incurred. At December 31, 1998 and 1997, the Company has recorded
accrued reclamation costs of $19.4 million and $12.4 million, net of salvage
values, as of December 31, 1998 and 1997, respectively.
Exploration and Development: The carrying value of exploration properties
acquired is capitalized at the fair market value of the consideration paid.
After it is determined that proven and probable reserves exist on a particular
property, the property is classified as a development-stage property and all
costs related to the further development of the property are capitalized. Prior
to the establishment of proven and probable reserves, all costs relative to
exploration and
F-11
<PAGE> 70
evaluation of a property are expensed as incurred. In order to classify a
reserve as economic, the Company must complete an evaluation of an ore body to
determine that it may be mined profitably. The determination is made based upon
geologic and engineering studies which analyze the nature of the ore body, the
appropriate mining and metallurgical process, estimates of operating costs,
metallurgical recoveries and forecast metal prices over the estimated mine life.
Mine development costs incurred to access reserves on producing mines are also
capitalized. Interest costs are capitalized on development properties until the
properties are placed into operation. In the event the Company determines that
the value of any capitalized property cannot be recovered by either the mining
of commercial reserves or by sale pursuant to prevailing market prices, an
evaluation of whether an impairment of value under the provisions of SFAS 121
has occurred is undertaken. (See discussion under Mining Properties for SFAS
impairment review.)
Short-term Investments: The Company invests in debt and equity securities
which are classified as available-for-sale, according to provisions of Financial
Accounting Standard No. 115 "Accounting for Certain Investments in Debt and
Equity Securities". Accordingly, securities are carried at fair value,
determined by quoted prices. Unrealized holding gains and losses on such
securities are excluded from earnings and are reported as other comprehensive
income or loss.
Foreign Currencies: Monetary assets and liabilities of the Company's
foreign operations are translated into U.S. dollars at year-end exchange rates
and revenue and expenses are translated at average exchange rates. The Company's
foreign subsidiaries have the U.S. dollar as their functional currency, and
therefore, translation gains and losses are reflected in income. Non-monetary
assets and liabilities are converted at historical rates. Realized gains and
losses from foreign currency transactions are reflected in operations.
Foreign Currency Forward Exchange Contracts: As part of its program to
manage foreign currency risk, the Company has entered into foreign currency
forward exchange contracts. Contracts related to firm commitments are designated
and effective as hedges. Gains and losses are deferred and recognized in the
same period as the related transactions.
Forward Delivery Contracts: The Company sells refined gold and silver
from its mines to various precious metals refiners pursuant to forward contracts
or at spot prices prevailing at the time of sale. Revenue from forward sales
transactions is recognized as metal is delivered.
Comprehensive Income: As of January 1, 1998, the Company adopted
Statement 130, "Reporting Comprehensive Income." Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components,
however, the adoption of the Statement had no impact on the Company's net income
or shareholders' equity. Statement 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
F-12
<PAGE> 71
year financial statements have been reclassified to conform to the requirements
of Statement 130.
Recently Issued Accounting Standards: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
which establishes accounting and reporting standards for derivative instruments
and hedging activity. SFAS No. 133 is effective for all periods in fiscal years
beginning after June 15, 1999. SFAS No. 133 requires recognition of all
derivative instruments on the balance sheet as either assets or liabilities and
measurement at fair value. Changes in the derivatives fair value will be
recognized currently in earnings unless specific hedge accounting criteria are
met. Gains and losses on derivative hedging instruments must be recorded in
either other comprehensive income or current earnings, depending on the nature
of the instrument. The Company is currently assessing the effect of adopting
SFAS No. 133 on its financial statements and plans to adopt the statement on
January 1, 2000.
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 is effective for all
fiscal years beginning after December 15, 1998 with initial adoption reported as
the cumulative effect of a change in accounting principle. The Company is
currently assessing the effect of adopting SOP 98-5 on its financial statements.
Loss Per Share: Loss per share is computed be dividing the net loss
attributable to common stock by the weighted average number of common shares
outstanding during each period. The effect of potentially dilutive stock options
outstanding was antidilutive in 1998, 1997 and 1996.
Use of Estimates: The Company's management has made a number of estimates
and assumptions relating to the reporting of assets, liabilities, and expenses
to prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates. The
more significant estimates and assumptions used in the preparation of the
financial statements include those related to the collectibility of receivables,
recoverability of inventories, accruals for remediation and reclamation, loss
estimates for litigation, and recoverability of mining and developmental
properties. (See also Notes H and N.)
Reclassification: Certain reclassifications of prior year balances have
been made to conform to current year presentation.
F-13
<PAGE> 72
NOTE C--INVESTMENT IN MINING COMPANIES
Gasgoyne: In May 1996, Coeur acquired approximately 35% of the
outstanding shares of Gasgoyne Gold Mines NL ("Gasgoyne"), an Australian gold
mining company, by issuing a total of 1,419,832 shares of the Company's Common
Stock and paying cash totaling approximately $15.4 million to Gasgoyne
shareholders. As a result of a selective reduction of capital effected by
Gasgoyne in February 1997 by purchasing its publicly held shares from the
shareholders other than Coeur and Sons of Gwalia, Coeur's ownership interest
increased to 36% of Gasgoyne's outstanding shares. In May 1997, the Company
acquired, for approximately US$14.6 million in cash, an additional 14% interest
in Gasgoyne, increasing its total ownership to 50%. The acquisition has been
accounted for as a purchase. Concurrent with the increase in ownership in 1997,
the Company entered into several agreements with the other 50% owner which
entitled the Company to take a 50% share of Gasgoyne gold production in kind and
which requires the Company to pay 50% of Gasgoyne's liabilities. The Company
reports its share of earnings of Gasgoyne pursuant to the equity method.
The following pro forma information reflects the Company's results of
operations as if the acquisition of the additional 14% of Gasgoyne, increasing
its total ownership interest to 50%, that occurred in May 1997, had occurred at
the beginning of the periods presented.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31,1997 December 31, 1996
---------------- -----------------
<S> <C> <C>
Total income $ 17,994 $ 21,532
Net loss $(14,014) $(55,159)
Basic and diluted net loss
per share attributable to
common $ (1.12) $ (2.96)
</TABLE>
Silver Valley Resources: Silver Valley Resources Corporation ("Silver
Valley") owns the Coeur and Galena Mines and the Caladay property situated in
the Coeur d'Alene Mining District of Idaho. Effective January 1, 1995, Coeur,
Callahan Mining Corporation ("Callahan"), a wholly-owned subsidiary of Coeur,
and ASARCO Inc. ("ASARCO") transferred their interests in the Coeur and Galena
Mines and Caladay property to Silver Valley, an entity created for that sole
purpose, as a result of which Coeur and ASARCO each now own 50% of Silver
Valley. Silver Valley recommenced operations at the Coeur mine portion of its
property in June 1996 and continued mining existing reserves there through July
2, 1998, when operations were terminated as planned. Silver Valley resumed
production at the Galena Mine in May 1997. The Company reports its share of
earnings of Silver Valley Resources pursuant to the equity method.
F-14
<PAGE> 73
NOTE D--WRITE-DOWN OF MINING PROPERTIES
Fachinal Mine and Kensington Property
During the fourth quarter of 1998, due to the continuing low gold price
environment, the Company evaluated the recoverability of investments in both the
Fachinal Mine and Kensington property. Using a $350 per ounce gold price and
based on estimated undiscounted future cash flows, in accordance with the
standards set forth in SFAS 121, the Company determined that its investments in
property, plant and equipment at the Fachinal Mine in Southern Chile and at the
Kensington property in Alaska were impaired. The total amount of the impairment
based on discounted cash flows was $42.9 million and $121.5 million for the
Fachinal Mine and Kensington property, respectively, at December 31, 1998 and
was recorded in the fourth quarter.
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. As a result, a complete evaluation of operations at El Bronce
was undertaken. From this evaluation, the Company determined that the asset was
impaired and a write-down was required to properly reflect the estimated
realizable value of the Company's interest in El Bronce in accordance with the
standards set forth in SFAS 121. Consequently, the Company recorded an
impairment write-down in the first quarter of 1998 of $54.5 million relating to
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.
The Company has delayed its previously planned closure of the Petorca
Mine (El Bronce) based upon 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 objective 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 equivalent ounce, and production in the fourth
quarter totaling 9,045 and 17,018 gold and silver ounces, respectively, at a
cash cost of $226 per gold equivalent ounce.
Golden Cross Mine
On April 30, 1993, the Company acquired an 80% operating interest in the
Golden Cross Mine and at which mining activities were substantially discontinued
in April 1998. The mine is a gold and silver surface and underground mining
operation located near Waihi, New Zealand. During the second quarter of 1996,
the Company determined that certain adjustments were required to properly
reflect the estimated net realizable value of this mining property in accordance
with the standards set forth in SFAS 121. The impetus for this determination
began in late July 1995 when
F-15
<PAGE> 74
physical evidence indicated that the land adjacent to the tailings impoundment
appeared to have sustained some movement. An investigation to determine the
significance of this movement was undertaken promptly. By September, 1995,
consultants advised Coeur Gold New Zealand Ltd. that the adjacent land had moved
and that it may have affected the tailings dam. However, they advised that
certain data would have to be collected before they could confirm that
assessment. That investigation included the drilling of holes in the land with
measurement devices inserted in the holes (these devices are called
"inclinometers"). Further additional measurement devices called "piezometers"
were inserted in still different holes drilled in the land and the data
collected from those and other sources was sufficient to lead the consultants to
conclude by February, 1996 that significant remedial measures would have to be
taken. Based on those recommendations Coeur Gold estimated the cost of
implementation would be approximately $4 million. That estimate was made in
February 1996 and presented to the Company's Board of Directors at its regular
March 1996 meeting.
Continuing evaluation after March 1996 revealed that the geographical
extent of the land movement was larger, wider, longer and more complex than
identified in the February 1996 estimate. By May 1996, as the planned remedial
measures were implemented, the Company determined that the measures, upon which
its previous cost estimates had been based, were not wholly effective.
Additional data was needed, which required more hole drillings and more work on
the ground. It was not until late May 1996 that the Golden Cross managers and
the Company engineers concluded that the cost of remediation would exceed the
initial February 1996 estimate. The estimate was revised to approximately $11
million in July to account for the more extensive remediation efforts. In
addition, because of the significance of the ground movement, the Company
determined that (i) production could be expected to significantly decrease as a
result of the Company's inability to implement a previously planned mill
optimization because the tailings dam had not been stabilized, and,
consequently, it was believed the government would not likely consent to a
raising of the tailings dam crest to obtain necessary tailings storage capacity
to accommodate the increased mill throughput, and (ii) capital and operating
costs could be expected to significantly increase due to the production
shortfall and ground movement remediation program costs.
As a result of the foregoing factors, there was an indication of
potential impairment requiring assessment under SFAS 121. Consequently, the
Company recorded a charge in the second quarter of 1996 totaling $53 million
relating to its investment in the Golden Cross mine and in the nearby Waihi East
property. The charge included amounts necessary to increase the Company's
recorded remediation and reclamation liabilities at Golden Cross to
approximately $7 million as of December 31, 1996.
In December 1998, the Company performed an analysis of the closure
accrual for the Golden Cross Mine. As a result, the Company determined that
there was a shortfall in the closure accrual, and recorded an additional
write-down of $4.3 million in the fourth quarter of 1998. The shortfall was due
to a reduction in estimates from the initial write-down
F-16
<PAGE> 75
related to the fair value of the remaining assets of $9.5 million, offset in
part by the $5.3 million reduction in the estimated closure and remediation
costs.
In 1997, the Faride property in Chile, was written-down by $1.2 million
due to management's decision not to exercise its final option payment on the
project.
The Company's 80% interest in the Golden Cross Mine joint venture,
accounted for by the proportionate consolidation method, is summarized as
follows: Year Ended December 31,
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Sales of dore' $ 28,525 $ 26,293
Cost of mine operations (25,585) (28,069)
Insurance proceeds 8,000
Writedown of mining property $ (4,269) (52,036)
---------- --------- ----------
Net income (loss) before
income taxes $ (4,269) $ 10,940 $(53,812)
========== ========= ==========
</TABLE>
In 1997, $8 million of the reported income was related to the Golden
Cross insurance recovery not measurable or anticipated at the time of the
original writedown. The remaining $2.9 million is related to residual
mining activities which benefited from lower depletion. In 1998, sales of
dore' through residual mining activities were immaterial and were offset
against operating and remediation costs.
<TABLE>
<S> <C> <C> <C>
Assets $ 9,431 $ 6,152 $ 2,408
Liabilities (44,926) (37,933) (47,271)
---------- ---------- ----------
Shareholders' deficit $ (35,495) $ (31,781) $ (44,863)
========== ========== ==========
</TABLE>
F-17
<PAGE> 76
NOTE E--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost of available-for-sale securities is adjusted for
premium and discount amortization. Such amortization is included in Other
Income. The following is a summary of available-for-sale securities as of
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Available-For-Sale Securities
------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1998 Cost Losses Gains Value
- -------------------------
<S> <C> <C> <C> <C>
U.S. Corporate $ 1,753 $ 1,753
U.S. Government
-------------- ------------- ------------- --------------
Total Debt Securities 1,753 1,753
Equity Securities 195 $ 164 $ 1 32
-------------- ------------- ------------- --------------
$ 1,948 $ 164 $ 1 $ 1,785
============== ============= ============= ==============
1997
- -------------------------
U.S. Corporate $ 49,127 $ 3 $ 49,124
U.S. Government 47,570 $ 273 47,843
-------------- ------------- ------------- --------------
Total Debt Securities 96,697 3 273 96,967
Equity Securities 2,373 135 10 2,248
-------------- ------------- ------------- --------------
$ 99,070 $ 138 $ 283 $ 99,215
============== ============= ============= ==============
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $7,000 and $0 during 1998 and 1997, respectively. The gross realized
losses totaled $0 and $1.6 million during 1998 and 1997, respectively. The gross
realized gains and losses are based on a carrying value (cost net of discount or
premium) of $115.1 million and $206.5 million of short-term investments sold
during 1998 and 1997, respectively. Short-term investments mature at various
dates through December 1999.
On January 26, 1996, for a total consideration of approximately US$10.7
million, the Company acquired 5.5 million shares and options to acquire an
additional 5.0 million shares of Orion Resources NL, an Australian gold mining
company (Orion). Prior to 1996, Coeur had acquired a total of 3.3 million shares
of Orion for a total cost of US$3.8 million. On March 27, 1996, the Company
exercised its option to acquire the additional 5.0 million shares of Orion. As a
result of these transactions, Coeur then held approximately 19.2% of Orion's
outstanding shares. On September 28, 1996, the Company sold its holdings of
Orion of 13.8 million shares for A$1.80 per share or A$24,894,000, (US$ 19.6
million). As a result, the Company recorded a gain on the sale of approximately
US$1.3 million during 1996.
NOTE F--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
In process and on leach pads $ 36,166 $ 24,617
Concentrate and dore' inventory 3,968 5,839
Supplies 3,541 5,471
---------- ----------
$ 43,675 $ 35,927
========== ==========
</TABLE>
F-18
<PAGE> 77
During the fourth quarter of 1997, based on detailed metallurgical
evaluations, the Company changed its estimates of the percentage of minerals
recovered through the leaching process at its Rochester Mine. The change
resulted in increased recovery rates from 55% for silver and 85% for gold to 59%
for silver and 90% for gold. Management evaluates this estimate on an ongoing
basis. Adjustments to the recovery rates are accounted for prospectively. The
effects of the change during the fourth quarter of 1997 and for the year ended
December 31, 1998 decreased the cost of mine operations by approximately $7
million or $0.32 per basic and diluted share and $21.5 million or $0.98 per
basic and diluted share, respectively.
NOTE G--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
Land $ 1,769 $ 1,814
Buildings and improvements 43,732 53,740
Machinery and equipment 40,388 55,159
Capital leases of buildings
and equipment 558 9,095
--------- --------
$ 86,447 $119,808
========= ========
</TABLE>
F-19
<PAGE> 78
Assets subject to capital leases consist of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
---------- ----------
<S> <C> <C>
Buildings $ 5,105
Equipment $ 558 3,990
-------- -------
TOTAL BUILDINGS AND EQUIPMENT 558 9,095
Rochester operational mining
property 0 7,871
-------- -------
558 16,966
Less allowance for accumulated
amortization and depletion 52 10,648
-------- -------
NET ASSETS SUBJECT TO CAPITAL
LEASES $ 506 $ 6,318
======== =======
</TABLE>
Lease amortization is included in depreciation and depletion expense.
Upon expiration of the lease agreement for the Rochester mineral
processing facilities in October 1998, the Company exercised its option to
purchase the facilities for approximately $6.2 million.
The Company has entered into various operating lease agreements which
expire over a period of five to seven years. Total rent expense charged to
operations under these agreements was $4.5 million, $4.5 million and $4.6
million for 1998, 1997, and 1996, respectively.
Minimum lease payments under leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Capital Operating
----------- ------- ---------
<S> <C> <C> <C>
1999 $267 $ 3,509
2000 94 2,492
2001 2,207
2002 2,027
2003-thereafter 2,722
----- -------
TOTAL MINIMUM PAYMENTS DUE 361 $12,957
=======
Less amount representing interest 14
-----
PRESENT VALUE OF NET
MINIMUM LEASE PAYMENTS 347
Less current maturities 255
-----
$ 92
=====
</TABLE>
F-20
<PAGE> 79
NOTE H - MINING PROPERTIES
<TABLE>
<CAPTION>
Capitalized costs for mining properties December 31,
consist of the following: 1998 1997
---------- ----------
<S> <C> <C>
Operational mining properties:
Rochester Mine, less accumulated
depletion of $46,124
and $41,727 $ 35,565 $ 34,585
Fachinal Mine, less accumulated depletion
of $0 and $7,769 42,803
El Bronce Mine less accumulated
depletion of $25 and $2,836 304 38,585
--------- --------
TOTAL OPERATIONAL MINING PROPERTIES 35,869 115,973
Developmental mining properties:
Kensington 18,308 122,457
Other 7,590 7,295
--------- --------
TOTAL DEVELOPMENTAL MINING PROPERTIES 25,898 129,752
--------- --------
TOTAL MINING PROPERTIES $ 61,767 $245,725
========= ========
</TABLE>
OPERATIONAL MINING PROPERTIES
The Rochester Mine: The Company owns and operates this silver and gold
surface mining operation. The Company has conducted operations at the Rochester
Mine since September 1986. The mine utilizes the heap-leaching process to
extract both silver and gold from ore mined using open pit methods. Rochester is
one of the largest primary silver mines in the United States and is a
significant gold producer as well. A prior owner of the property has retained a
royalty interest that varies up to 5% of the net smelter revenues of the
Rochester property, provided the market price of silver is at least $18.26 per
ounce.
Fachinal Mine: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile which operated in pre-production from
October 1995 to December 31, 1996. During the fourth quarter of 1995 and for the
year ended December 31, 1996, operating costs were capitalized as start up
costs. Revenue generated during the pre-production period was credited against
deferred start up costs. The property was classified as an operating property
for financial reporting purposes on January 1, 1997. In early 1999, the Company
determined that the carrying amount was impaired and accordingly wrote down its
investment in Fachinal in accordance with SFAS 121. (See Note D).
El Bronce Mine: The El Bronce Mine is a gold and silver underground mine
located in central Chile approximately 90 miles north of Santiago. On September
4, 1996, the Company exercised its option to acquire 51%, and purchased the
remaining 49%, of the shares of Compania Minera CDE El Bronce, resulting in an
ownership interest of 100%. In April 1998, the Company determined that the mine
was uneconomic and accordingly wrote down its investment in El Bronce in
accordance with SFAS 121. (See Note D)
F-21
<PAGE> 80
DEVELOPMENTAL PROPERTIES
Kensington: On July 7, 1995, the Company became the 100% owner and
operator of the Kensington property near Juneau, Alaska, by acquiring the 50%
interest held by its former joint venture partner. The interest was acquired for
$32.5 million plus a scaled net returns royalty on future gold production after
Coeur recoups the $32.5 million purchase price and its construction expenditures
incurred after July 7, 1995 in connection with placing the property into
commercial production. The royalty ranges from 1% at $400 gold prices to a
maximum of 2 1/2% at gold prices above $475, with a royalty to be capped at 1
million ounces of production. In early 1999, the Company determined that the
asset was impaired and accordingly wrote down its investment in Kensington in
accordance with SFAS 121. (See Note D)
NOTE I-LONG-TERM DEBT
The $45.8 million principal amount of 6% Convertible Subordinated
Debentures Due 2002 are convertible into shares of Common Stock prior to
maturity, unless previously redeemed, at a conversion rate of approximately 38
shares of Common Stock for each one thousand dollars of principal (equivalent to
a conversion price of $25.57 per share of Common Stock). The Company is required
to make an annual interest payment. The debentures are redeemable at the option
of the Company and mature on June 10, 2002.
The $93.4 million principal amount of 6 3/8% Convertible Subordinated
Debentures Due 2004 are convertible into shares of Common Stock on or before
January 31, 2004, unless previously redeemed, at a conversion price of $25.77
per share. The Company is required to make semi-annual interest payments. The
debentures are redeemable at the option of the Company on or after January 31,
1997. The debentures have no other funding requirements until maturity on
January 31, 2004.
The $107.3 million principal amount of 7.25% Convertible Subordinated
Debentures due 2005 are convertible into shares of common stock on or before
October 31, 2005, unless previously redeemed, at a conversion price of $17.45
per share, subject to adjustment in certain events. The Company is required to
make semi-annual interest payments. The debentures are redeemable at the option
of the Company on or after October 31, 2000, have no other funding requirements
until maturity on October 31, 2005.
During July, August and December 1998, the Company repurchased
approximately $4.0 million principal amount of its outstanding 6% Convertible
Subordinated Debentures due 2002, approximately $36.5 million principal amount
of its 7 1/4% Convertible Subordinated Debentures due 2005, and approximately
$1.6 million principal amount of its 6.375% Convertible Subordinated Debentures
due 2004 for a total purchase price of approximately $28.5 million, excluding
purchased interest of approximately $616,000. Associated with this transaction,
the Company eliminated $1.4 million of capitalized bond issuance costs. The
Company anticipates that as a result of the cancellation of the repurchased
debentures, annual interest paid by the Company will be reduced by approximately
$3.0 million. As a result of
F-22
<PAGE> 81
the buyback of these debentures, the Company has recorded an extraordinary gain
of approximately $12.2 million, net of taxes, during 1998 on the reduction of
its indebtedness.
On October 31, 1997, the Company paid $24 million to retire the existing
loan balance with a bank syndicate lead by N.M. Rothschild & Sons Ltd., which
substituted a general corporate loan financing for the limited recourse project
financing. The agreement provided for a borrowing of up to $24.0 million. The
interest rate on the facility was equal to LIBOR plus 1.5%. The borrowing was
repayable in sixteen equal quarterly installments commencing in the third
quarter of 1997.
On June 30, 1996, the Company secured a $50.0 million revolving line of
credit with Rothschild Australia Ltd., in connection with the acquisition of the
Company's investment in Gasgoyne Gold Mines NL. As of December 31, 1996,
borrowings amounted to $18.9 million at an annual interest rate equal to LIBOR
plus 1.5%. In late 1997, all outstanding amounts under the operating line were
repaid in full and the line discontinued.
The carrying amounts and fair values of long-term borrowings, as of
December 31, 1998 and 1997, consisted of the following. The fair value of the
long-term borrowing is determined by market transactions on or near December 31,
1998 and 1997, respectively.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
6% Convertible
Subordinated
Debentures
Due 2002 $ 45,803 $ 26,841 $ 49,840 $ 36,750
6.375% Convertible
Subordinated
Debentures
Due 2004 $ 93,372 $ 54,156 $ 95,000 $ 74,338
7.25% Convertible
Subordinated
Debentures
Due 2005 $107,277 $ 63,293 $143,750 $108,902
</TABLE>
Total interest accrued in 1998, 1997, and 1996 was $20.4 million, $16.2
million, and $13.1 million, respectively, of which $6.8 million, $5.7 million,
and $9.5 million, respectively, was capitalized as a cost of the mines under
development.
Interest paid was $20.3 million, $13.7 million, and $12.1 million in
1998, 1997, and 1996, respectively.
F-23
<PAGE> 82
NOTE J--INCOME TAXES
The components of the provision (benefit) for income taxes in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current $ 919 $ (242) $ 203
Deferred - - (1,387)
-------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $ 919 $ (242) $(1,184)
======== ======== ========
</TABLE>
Deferred taxes arise due to temporary differences in deductions for tax
purposes and for financial statement accounting purposes. The tax effect and
sources of these differences are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Reserve for loss on
mine closure $ 2,205 $(1,175) $ (971)
Net mine exploration and
development costs (288) 1,671 (9,299)
Net lease payments - 60 591
Regular tax expense(benefit)
on utilization of net
operating losses (988) (6,142) (32,967)
Adjustments to net operating
loss and credit carryforwards - (8,660) 1,046
Environmental costs (478)
Provision for impairment (67,263)
Change in valuation
allowance 67,081 14,701 41,501
Other (747) (455) (810)
-------- ------- --------
Deferred income tax expense
(benefit) 0 0 (1,387)
======== ======= ========
</TABLE>
F-24
<PAGE> 83
As of December 31, 1998 the significant components of the Company's net
deferred tax liability were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997
--------- ----------
<S> <C> <C>
Deferred tax liabilities:
PP&E, net $ 10,027 $ 8,527
--------- ---------
Total deferred tax liabilities $ 10.027 $ 8,527
========= =========
Deferred tax assets:
Net operating loss carryforwards $ 91,307 $ 90,319
AMT credit carryforwards 1,734 1,404
Business credit carryforwards 542 542
--------- ---------
Total deferred tax assets 93,583 92,265
Mineral properties impairment 67,263
Valuation allowance for deferred
tax assets (150,819) (83,738)
--------- ---------
Net deferred tax assets $ 10,027 $ 8,527
========= =========
Net deferred tax liabilities $ -0- $ -0-
========= =========
</TABLE>
The valuation allowance represents the amount of deferred tax assets that
more likely than not will not be realized in future years. Changes in the
valuation allowance relate primarily to losses which are not currently
recognized. The Company has reviewed its net deferred tax assets, together with
net operating loss carryforwards, and has not recognized potential tax benefits
arising therefrom because management believes it is more likely than not that
the benefits will not be realized in future years. In making this determination,
the Company has considered the Company's history of tax losses incurred since
1989, the current level of gold and silver prices and the ability of the Company
to use accelerated depletion and amortization methods in the determination of
taxable income.
The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings during the
three-year period ended December 31, 1998. It is not practicable to estimate the
tax liabilities which would result upon such repatriation.
F-25
<PAGE> 84
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Tax effect of foreign affiliates'
statutory rates 7.6% 17.6%
Percentage depletion (1.4%) (12.3%) (3.3%)
Interest on foreign subsidiary debt 1.7%
Equity in earnings of unconsolidated
subsidiaries .6%
Change in valuation allowance 27.1% 27.4% 38.1%
Federal tax assessments and
withholding - .2%
Other (net) - (.2%) (1.9%)
-------- -------- --------
EFFECTIVE TAX RATE -0- (1.7%) (2.1%)
======== ======== ========
</TABLE>
For tax purposes, as of December 31, 1998, the Company has operating loss
carryforwards as follows:
<TABLE>
<CAPTION>
U.S. New Zealand Australia Chile Total
-------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Regular losses $113,823 $ 89,883 $ 3,810 $133,760 $341,276
AMT credits 1,734 1,734
General business credits 542 542
</TABLE>
The operating loss carryforwards by year of expiration are as follows:
<TABLE>
<CAPTION>
Year of
Expiration Regular Tax
- ---------- -----------
<S> <C>
2006 $ 6,125
2007 10,702
2008 10,417
2009 8,994
2010
2011 72,146
2012 5,439
----------
Total $ 113,823
==========
</TABLE>
New Zealand, Australian and Chilean laws provide for indefinite carryforwards of
net operating losses. Utilization of U.S. net operating losses may be subject to
limitations due to potential changes in ownership.
As of December 31, 1998, Callahan Mining Corporation, a subsidiary, has
net operating loss carryforwards of approximately $17.4 million which expire
through 2006. The utilization of Callahan Mining Corporation's net operating
losses are subject to limitations.
F-26
<PAGE> 85
NOTE K--SHAREHOLDERS' EQUITY AND STOCK PLANS
On March 8, 1996, the Company completed a public preferred stock offering
of $140.0 million of Mandatory Adjustable Redeemable Convertible Securities
(MARCS). The Company issued 6,588,235 shares of MARCS which were offered at a
public offering price of $21.25 per share. Each share of MARCS is mandatorily
convertible four years after issuance into 1.111 shares of Common Stock of the
Company, subject to adjustment in certain events, unless converted earlier by
the holder into Common Stock or redeemed for Common Stock by the Company. The
annual dividend payable on the MARCS is $1.488 per share, payable quarterly. The
dividends are deducted in computing net income attributable to Common
Shareholders. On April 8, 1996, the Company sold an additional 489,598 shares of
MARCS to the underwriters as a result of their exercise of an overallotment
option granted to them in connection with the public offering. With the exercise
of the overallotment option, the Company sold a total of 7,077,833 shares of
MARCS for a total offering price of $150.4 million which resulted in net
proceeds to the Company of $144.6 million.
In June 1989, the shareholders adopted a shareholder rights plan which
entitles each holder of the Company's Common Stock to one right. Each right
entitles the holder to purchase one one-hundredth of a share of newly authorized
junior preferred stock. The exercise price is $100, making the price per full
preferred share ten thousand dollars. The rights will not be distributed and
become exercisable unless and until ten days after a person acquires 20% of the
outstanding common shares or commences an offer that would result in the
ownership of 30% or more of the shares. Each right also carries the right to
receive upon exercise that number of Coeur common shares which has a market
value equal to two times the exercise price. Each preferred share issued is
entitled to receive 100 times the dividend declared per share of Common Stock
and 100 votes for each share of Common Stock and is entitled to 100 times the
liquidation payment made per common share. The Board may elect to redeem the
rights prior to their exercisability at a price of one cent ($.01) per right.
Any preferred shares issued are not redeemable. At December 31, 1998 and 1997,
there were a total of 21,898,624 and 21,890,568 outstanding rights which was
equal to the number of outstanding shares of common stock.
The Company has an Annual Incentive Plan (the "Annual Plan") and a
Long-Term Incentive Plan (the "Long-Term Plan"). Under the Annual Plan in 1998,
1997 and 1996, benefits were payable in cash.
Under the Long-Term Plan, benefits consist of (i) non-qualified and
incentive stock options that are exercisable at prices equal to the fair market
value of the shares on the date of grant and vest cumulatively at an annual rate
of 25% during the four-year period following the date of grant, and (ii)
performance units comprised of Common Stock and cash, the value of which is
determined four years after the award. The first award performance units were
granted in 1994. During 1998, options for 75,925 shares were issued under the
plan. As of December 31, 1998 and December 31, 1997, nonqualified and incentive
stock options to purchase
F-27
<PAGE> 86
441,842 shares and 612,447 shares, respectively, were outstanding under the
Long-Term and Directors' Plans. The options are exercisable at prices ranging
from $5.125 to $27.00 per share.
The Company has a Non-Employee Directors' Stock Option Plan under which
200,000 shares of Common Stock are authorized for issuance and which was
approved by the shareholders in May 1995. Under the Plan, options are granted
only in lieu of an optionee's foregone annual directors' fees. As of December
31, 1998, December 31, 1997 and December 31, 1996, a total of 21,005, 16,600 and
12,210 options, respectively, had been granted in lieu of $.1 million, $.1
million and $.1 million, respectively, of foregone directors' fees.
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" which establishes accounting
and reporting standards for stock-based employee compensation plans. This
statement defines a fair value based method of accounting for these equity
instruments. The method measures compensation expense based on the estimated
fair value of the award and recognizes that cost over the vesting period. The
Company has adopted the disclosure - only provision of Statement No. 123 and
therefore continues to account for stock options in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Accordingly, because options
are granted at fair market value, no compensation expense has been recognized
for options issued under the Company's stock option plans. Had compensation cost
been recognized based on the fair value at the date of the grant for the options
awarded under the plans, pro-forma amounts of the Company's net loss and net
loss per share would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net loss attributable to
common shareholders $(244,786) $ (24,615) $(62,967)
Net loss pro forma $(245,144) $(25,014) $(63,169)
Basic and diluted net loss
per share as reported $ (11.18) $ (1.12) $ (2.93)
Basic and diluted net loss
per share pro forma $ (11.20) $ (1.14) $ (2.94)
</TABLE>
The fair value of each option grant was estimated using the Black Scholes
option pricing model with the following weighted average assumptions: risk free
interest rates of 4.40% to 7.95%; expected option life of 4 years for officers
and directors; expected volatility of .385 to .472; and no expected dividends.
The weighted average value of options granted during the years ended December
31, 1998, 1997 and 1996 were $2.61, $5.67 and $8.19, respectively. The effect of
applying Statement No. 123 for providing pro forma disclosures for fiscal years
1998, 1997 and 1996 is not likely to be representative of the effects in future
years because options vest over a 4-year period and additional awards generally
are made each year.
F-28
<PAGE> 87
Total compensation expense charged to operations under the Plans was $1.4
million, $1.5 million, and $.9 million for 1998, 1997, and 1996, respectively. A
summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------------ --------------
<S> <C> <C>
Stock options outstanding
at January 1, 1997 314,727 $ 18.28
Issued 365,381 14.52
Canceled (67,661) 18.22
----------- --------
Stock options outstanding
at 12/31/97 612,447 $ 16.05
Issued 75,925 6.17
Canceled (246,530) 15.62
----------- --------
Stock options outstanding
at 12/31/98 441,842 $ 14.59
=========== ========
</TABLE>
Stock options exercisable at December 31, 1998 and 1997 were 222,299 and
236,761, respectively.
The following table summarizes information for options currently
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs.) Price Exercisable Price
- ------------------ ----------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
$5.125 to $9.000 65,491 9.3 $ 6.34 21,005 $ 8.90
$13.125 to $14.99 154,111 8.9 $13.17 47,533 $13.28
$15.000 to $17.99 132,888 7.3 $16.50 89,943 $16.21
$18.000 to $27.00 89,352 6.2 $20.23 63,818 $20.29
-------- --------
441,842 8.0 $14.59 222,299 $15.42
======== ========
</TABLE>
As of December 31, 1998 and 1997, 361,794 shares and 243,244 shares,
respectively, were available for future grants under the Plans and 11,562,241
shares of Common Stock were reserved for potential conversion of Convertible
Subordinated Debentures.
NOTE L--EMPLOYEE BENEFIT PLANS
The Company provides a noncontributory defined contribution retirement
plan for all eligible U.S. employees. Total plan expense charged to operations
was $.8 million, $.8 million, and $.6 million for 1998, 1997, and 1996,
respectively, which is based on a percentage of salary of qualified employees.
Effective January 1, 1995, the Company adopted a savings plan (which
qualifies under Section 401(k) of the U.S. Internal Revenue code) covering all
full-time U.S. employees. Under the plan, employees may elect to
F-29
<PAGE> 88
contribute up to 16% of their cash compensation, subject to ERISA limitations.
The Company is required to make matching cash contributions equal to 50% of the
employee's contribution or up to 3% of the employee's compensation. Employees
have the option of investing in five different types of investment funds. Total
plan expenses charged to operations were $.5 million, $.4 million and $.4
million in 1998, 1997 and 1996, respectively.
NOTE M--FINANCIAL INSTRUMENTS
Off-Balance Sheet Risks
The Company enters into forward foreign exchange contracts denominated in
foreign currencies to hedge certain firm commitments. The purpose of the
Company's foreign exchange hedging program is to protect the Company from risk
that the eventual dollar cash flows resulting from the firm commitments will be
adversely affected by changes in exchange rates. At December 31, 1998, 1997, and
1996, the Company had forward foreign exchange contracts of $4.6 million, $1.8
million, and $15.8 million, respectively.
The Company enters into forward metal sales contracts to manage a portion
of its cash flows against fluctuating gold and silver prices. As of December 31,
1998, the Company had sold 135,000 ounces of gold for delivery on various dates
through 2003 at an average price of $371.22. For metal delivery contracts, the
realized price pursuant to the contract is recognized when physical gold or
silver is delivered in satisfaction of the contract. The Company realized gains
of $1.2 million and $5.3 million arising from the sale of silver and gold
purchased on the open market which was then delivered pursuant to fixed-price
forward contracts during 1998 and 1997, respectively.
Further discussions of other financial instruments held by the Company
are included in Note E and Note I.
The table below summarizes, by contract, the contractual amounts of the
Company's forward exchange and forward metals contracts at December 31, 1998,
1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- ------------------------- --------------------------
Forward Unrealized Forward Unrealized Forward Unrealized
Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain (Loss)
------------- ------------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Currency:
New Zealand $ 4,595 $ 391 $ 1,766 $ (7) $ 15,845 $ (10)
Forward Metal
Sales $ 50,114 $ 11,261 $ 67,875 $ 7,404 $ 61,823 $ 3,702
</TABLE>
Gains and losses related to contracts associated with firm commitments
are deferred and will be recognized as the related commitments mature. For the
years ended December 31, 1998, 1997, and 1996, the Company realized
F-30
<PAGE> 89
gains (losses) from its foreign exchange programs of $(.5) million, $(.9)
million and $1.4 million, respectively.
The credit risk exposure related to all hedging activities is limited to
the unrealized gains on outstanding contracts based on current market prices. To
reduce counter-party credit exposure, the Company deals only with a group of
large credit-worthy financial institutions, and limits credit exposure to each.
In addition, to allow for situations where positions may need to be reversed,
the Company deals only in markets that it considers highly liquid. The Company
does not anticipate nonperformance by any of these counter parties.
NOTE N--LITIGATION
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District for
the District of Idaho by the United States against various defendants, including
the Company, asserting claims under CERCLA and the Clean Water Act for alleged
damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s. No specific
monetary damages were identified in the complaint. However, in July 1996, the
government indicated that damages may approximate $982 million. The United
States asserts that the defendants are jointly and severally liable for costs
and expenses incurred by the United States in connection with the investigation,
removal and remedial action and the restoration or replacement of affected
natural resources. In 1986 and 1992, the Company had settled similar issues with
the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and
believes that those prior settlements exonerate it of further involvement with
alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly,
the Company intends to vigorously defend this matter.
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 EPA from attempting to
utilize 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
EPA announced its intent to
F-31
<PAGE> 90
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.
Golden Cross Lawsuit
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in connection
with Cyprus' sale in April 1993 to the Company of Cyprus Exploration and
Development Corporation, which owned all the shares of Cyprus Gold New Zealand
Limited, which, in turn, owned an 80% 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
Coeur'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 Coeur d'Alene, Idaho. On February 3,
1999, the Company files a second amended complaint which specifies damages in
the amount of approximately $54 million together with pre-judgement and
post-judgement interest as well as the unspecified costs incurred resulting from
the violations of law alleged. Cyprus filed, on February 17, 1999, a motion to
vacate the trial date and a motion to dismiss the second amended complaint. No
assurances can be given at this stage of the action as to 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 auditor as defendants. Plaintiff
alleges that the Company violated the Securities Exchange Act of 1934 during the
period January 1, 1995 to July 11, 1996, and seeks certification of the law suit
as a class action. The class members are alleged to be those persons who
purchased publicly traded debt and equity securities of the Company during the
time period stated. On September 22, 1997, an amended complaint was filed in the
proceeding adding other 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 that the defendants intentionally
F-32
<PAGE> 91
and fraudulently disseminated false statements which were misleading and failed
to disclose material facts.
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 on
whether a class should be certified and on December 14, 1998, the Court entered
an order certifying a class. In December 1998, the parties to the suit
determined that the further conduct of the case would be protracted and
expensive and commenced discussions with a view toward settlement of the action.
Although the Company continued to deny each of the plaintiffs' claims and
allegations, the Company determined it would be in the best interests of the
Company to settle the suit and agreed to enter into a Stipulation of Settlement
which was filed by the parties with the Court on March 1, 1999. The terms of the
proposed settlement provide that (i) the Company's directors and officers
liability insurance carrier will pay $7 million to a settlement fund for the
benefit of the plaintiffs; and (ii) the plaintiffs will be entitled to 50% of
the net proceeds, up to a maximum of $6 million, (after the Company has first
recouped its costs and expenses incurred in litigating its above-described
lawsuit against Cyprus relating to Golden Cross and after deducting an $8
million reserve against the asserted subrogation claim of the Company's flood
insurance carrier) actually received by the Company from its Golden Cross
lawsuit against Cyprus. The Stipulation of Settlement contains strong denials of
liability by the defendants as well as acknowledgments by the plaintiffs that
they were unable to identify significant evidence to support a large portion of
their claims. Final consummation of the settlement is subject to Court approval
and to dismissal with prejudice of the derivative action described below.
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 class action 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
F-33
<PAGE> 92
Board appointed a Special Committee of directors to respond to that demand. On
March 9, 1999, the Special Committee recommended that the demand be rejected.
The Company anticipates, based on communication with counsel for the derivative
plaintiff, that the action previously dismissed without prejudice will be
dismissed with prejudice.
NOTE O--SEGMENT INFORMATION
In 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
effective for fiscal year beginning after December 15, 1997. This statement
replaces No. 14, "Financial Reporting for Segments of a Business Enterprise,"
and establishes new standards for defining and reporting the Company's operating
segments and requires selected information in interim financial reports.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-making group is comprised of the Chief Executive Officer, Chief
Financial Officer and the Chief Operating Officer.
The operating segments are managed separately because each segment
represents a distinct use of company resources and contribution to company cash
flows in its respective geographic area. The Company's reportable operating
segments include the Rochester, Golden Cross, Fachinal, and El Bronce mining
properties, Coeur Australia (50% owner of Gasgoyne Gold Mines NL), the
Kensington development property, and its exploration program. All operating
segments are engaged in the discovery and/or mining of gold and silver and
generate the majority of their revenues from the sale of these precious metals.
Intersegment revenues consist of precious metals sales to the Company's metals
marketing division and are transferred at the market value of the respective
metal on the date of transfer. The Other segment includes the corporate
headquarters, elimination of intersegment transactions and other items necessary
to reconcile to consolidated amounts. Revenues in the Other segment are
generated principally from interest received from the Company's cash and
investments that are not allocated to the operating segments. The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies above. The Company evaluates
performance and allocates resources based on profit or loss before interest,
income taxes, depreciation and amortization, unusual and infrequent items, and
extraordinary items.
Revenues from gold sales were $55,670,036, $89,770,221 and $57,291,751 in
1998, 1997 and 1996, respectively. Revenues from silver sales were $46,834,657,
$41,390,291 and $33,431,965 in 1998, 1997 and 1996, respectively.
F-34
<PAGE> 93
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting
Rochester Golden Cross Fachinal El Bronce
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998
Net sales and revenues to
external customers $ (82) - $ 16,324 $ 9,436
Intersegment net sales and
revenues 62,911 - - -
-----------------------------------------------------------------------
Total net sales and revenues $ 62,829 - $ 16,324 $ 9,436
=======================================================================
Depreciation and amortization $ 7,910 - $ 12,028 $ 1,807
Interest income 17 - 91 31
Interest expense - - 65 218
Gain on forward sale contracts - - - -
Writedown of Mine Property - (4,266) (42,900) (53,904)
Income tax (credit) expense - - - -
Earnings (losses) from non-
consolidated affiliates - - - -
Gain on early retirement of debt - - - -
Profit (loss) 33,080 - (6,976) (2,158)
Investments in non-consolidated
affiliates - - - -
Segment assets (A) 86,362 5,892 32,915 4,845
Expenditures for property 6,903 - 2,801 1,843
December 31, 1997
Net sales and revenues to external
customers 232 7,513 14,949 17,082
Intersegment net sales and
revenues 61,138 28,525 - -
-----------------------------------------------------------------------
Total net sales and revenues $ 61,370 $36,038 $ 14,949 $ 17,082
=======================================================================
Depreciation and amortization $ 10,495 $ 4,040 $ 11,021 $ 2,523
Interest income 22 46 84 17
Interest expense - - 284 795
Income from insurance settlement - 8,000 - -
Gain on forward sale contracts - - - -
Income tax (credit) expense - - - -
Earnings (losses) from non-
consolidated affiliates - - - -
Profit (loss) $ 22,953 $14,419 $ (3,827) $(2,255)
Investments in non-consolidated
affiliates - - - -
Segment assets (A) $ 73,526 $ 6,863 $ 83,918 $ 47,653
Expenditures for property $ 1,179 $ 2,030 $ 4,041 $ 3,524
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting
Coeur Australia Kensington Exploration Other
--------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998
Net sales and revenues to
external customers $ 13,547 - $ (449) $ 72,885
Intersegment net sales and
revenues - - - (62,911)
--------------------------------------------------------------
Total net sales and revenues $ 13,547 - $ (449) $ 9,974
==============================================================
Depreciation and amortization $ 7,060 $ 334 $ 149 $ 1,723
Interest income 54 - 43 9,263
Interest expense - - - 13,379
Gain on forward sale contracts - - - 1,167
Writedown of Mine Property - (121,500) (602) -
Income tax (credit) expense (53) - - 972
Earnings (losses) from non-
consolidated affiliates (1,175) - - (955)
Gain on early retirement of debt - - - 12,158
Profit (loss) 1,120 - (4,938) 1,890
Investments in non-consolidated
affiliates 50,627 - - 16,287
Segment assets (A) 193 22,178 892 5,681
Expenditures for property - 18,194 460 185
December 31, 1997
Net sales and revenues to external
customers 8,111 - (103) 104,116
Intersegment net sales and
revenues - - - (89,663)
--------------------------------------------------------------
Total net sales and revenues $ 8,111 - $ (103) $ 14,453
==============================================================
Depreciation and amortization $ 4,899 $ 171 $ 189 $ 1,437
Interest income 288 - 27 8,690
Interest expense 181 - - 8,993
Income from insurance settlement - - - -
Gain on forward sale contracts - - - 5,280
Income tax (credit) expense 69 - - (311)
Earnings (losses) from non-
consolidated affiliates (329) - - 1,112
Profit (loss) $ (418) - $(6,121) $ 5,781
Investments in non-consolidated
affiliates 56,393 - - 16,620
Segment assets (A) $ 487 $ 125,879 $ 1,809 $ 14,331
Expenditures for property - $ 14,940 $ 715 $ 14,876
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting
Total
----------
<S> <C>
December 31, 1998
Net sales and revenues to
external customers $ 111,661
Intersegment net sales and
revenues -
----------
Total net sales and revenues $ 111,661
==========
Depreciation and amortization $ 31,011
Interest income 9,499
Interest expense 13,662
Gain on forward sale contracts 1,167
Writedown of Mine Property (223,172)
Income tax (credit) expense 919
Earnings (losses) from non-
consolidated affiliates (2,130)
Gain on early retirement of debt 12,158
Profit (loss) 22,018
Investments in non-consolidated
affiliates 66,914
Segment assets (A) 158,958
Expenditures for property 30,386
December 31, 1997
Net sales and revenues to external
customers 151,900
Intersegment net sales and
revenues -
----------
Total net sales and revenues $ 151,900
==========
Depreciation and amortization $ 34,775
Interest income 9,174
Interest expense 10,253
Income from insurance settlement 8,000
Gain on forward sale contracts 5,280
Income tax (credit) expense (242)
Earnings (losses) from non-
consolidated affiliates 783
Profit (loss) $ 30,532
Investments in non-consolidated
affiliates 73,013
Segment assets (A) $ 354,466
Expenditures for property $ 41,305
</TABLE>
F-35
<PAGE> 94
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting (continued)
December 31, 1996
Rochester Golden Cross Fachinal El Bronce
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues to
external customers $ 135 $ (129) - $ 2,146
Intersegment net sales and
revenues 60,906 26,507 - -
========================================================
Total net sales and revenues $ 61,041 $ 26,378 - $ 2,146
========================================================
Depreciation and amortization $ 6,413 $ 2,487 - $ 733
Interest income 107 16 - 5
Interest expense 66 - - 297
Writedown of mine property - 53,245 - -
Income tax (credit) expense - 168 - -
Earnings (losses) from non-
consolidated affiliates - - - -
Profit (loss) $ 15,959 $ (665) - $ 835
Investments in non-consolidated
affiliates - - - -
Segment assets (A) $ 77,687 $ 3,596 $ 91,985 $ 48,206
Expenditures for property $ 7,864 $ 7,121 $ 9,131 $ 20,226
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting (continued)
December 31, 1996
Coeur Australia Kensington Exploration Other
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues to
external customers - - $ 1,101 $100,818
Intersegment net sales and
revenues - - - (87,413)
==============================================================
Total net sales and revenues - - $ 1,101 $ 13,405
==============================================================
Depreciation and amortization - $ 97 $ 604 $ 1,825
Interest income - - - 7,955
Interest expense - - - 3,272
Writedown of mine property - - 1,170 -
Income tax (credit) expense - - - (1,352)
Earnings (losses) from non-
consolidated affiliates - - - 1,393
Profit (loss) - - $ (4,894) $ 3,124
Investments in non-consolidated
affiliates - - - 61,439
Segment assets (A) - $ 111,126 $ 1,442 $ 8,803
Expenditures for property - $ 12,786 $ 497 $ 546
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting (continued)
December 31, 1996
Total
--------
<S> <C>
Net sales and revenues to
external customers $104,071
Intersegment net sales and
revenues -
========
Total net sales and revenues $104,071
========
Depreciation and amortization $ 12,159
Interest income 8,083
Interest expense 3,635
Writedown of mine property 54,415
Income tax (credit) expense (1,184)
Earnings (losses) from non-
consolidated affiliates 1,393
Profit (loss) $ 14,359
Investments in non-consolidated
affiliates 61,439
Segment assets (A) $342,845
Expenditures for property $ 58,171
</TABLE>
Notes:
(A) Segment assets consist of receivables, prepaids, inventories,
property, plant and equipment, and mining properties.
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation
Segment Reporting
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Profit (loss)
- ---------------
Total profit or loss for reportable segments $ 22,018 $ 30,532 $ 14,359
Depreciation expense (30,677) (34,604) (12,062)
Interest expense (13,662) (10,253) (3,635)
Writedown of mining properties (223,172) - (54,416)
==============================================
Loss before income taxes and
and extraordinary item $(245,493) $(14,325) $(55,754)
==============================================
Assets
- --------
Total assets for reportable segments $158,958 $354,466 $342,845
Cash and cash equivalents 127,335 114,604 43,455
Short-term investments 1,753 98,437 124,172
Other assets 77,934 91,195 69,858
==============================================
Total consolidated assets $365,980 $658,702 $580,330
==============================================
</TABLE>
F-36
<PAGE> 95
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation
Segment Reporting
(In Thousands)
Geographic Information
- -----------------------
Long-Lived
1998: Revenues Assets
------------------------------------------------
<S> <C> <C>
United States $ 72,326 $ 73,153
Chile 25,802 25,291
Australia 13,547 -
New Zealand - 5,178
Other Foreign Countries (14) 14
-------------------------------------------------
Consolidated Total $111,661 $103,636
=================================================
Long-Lived
1997: Revenues Assets
-------------------------------------------------
United States $ 75,892 $177,791
Chile 32,057 121,607
Australia 7,896 3,198
New Zealand 36,053 4,669
Other Foreign Countries 2 171
-------------------------------------------------
Consolidated Total $151,900 $307,436
=================================================
Long-Lived
1996: Revenues Assets
-------------------------------------------------
United States $ 73,088 $172,280
Chile 2,974 126,595
Australia 908 -
New Zealand 27,101 140
Other Foreign Countries 1 266
-------------------------------------------------
Consolidated Total $104,072 $299,281
=================================================
</TABLE>
Revenues are geographically separated based upon the country in which operations
and the underlying assets generating those revenues reside.
F-37
<PAGE> 96
NOTE P--SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(In Thousands - Except Per Share Data)
<S> <C> <C> <C> <C>
1998
----
Net sales $ 21,166 $ 32,256 $ 23,890 $ 25,193
Gross profit $ 1,442 $ 2,306 $ 486 $ 393
Net loss before
extraordinary gain $(57,961)(a) $ (5,166) $ (6,366) $(179,919)(a)
Net loss $(57,961)(a) $ (5,166) $ (21)(b) $(171,106)(a,b)
Net loss attributable
to common shareholders $(60,594)(a) $ (7,799) $ (2,654)(b) $(173,739)(a,b)
Basic and diluted net loss
per share before
extraordinary gain $ (2.77) $ (.36) $ (.41) $ (8.20)
Basic and diluted net loss
per share attributable to
common shareholders $ (2.77) $ (.36) $ (.12) $ (7.93)
1997
----
Net Sales(f) $ 22,762 $ 32,423 $ 36,035 $ 39,941
Gross profit (loss)(f) $ (2,933) $ (2,067) $ (2,240) $ 3,836(e)
Net loss $ (1,721) $ (275)(d) $ (6,268) $ (5,819)
Net loss attributable to
common shareholders $ (4,353) $ (2,908)(d) $ (8,903) $ (8,451)
Basic and diluted net loss
per share attributable
to common shareholders (c) $ (.20) $ (.13) $ (.41) $ (.39)
</TABLE>
(a)
Includes writedown of mining properties of approximately $54.5 million in
the first quarter and approximately $168.7 million in the fourth quarter.
(b)
Includes extraordinary gain on early retirement of debt of approximately
$6.3 million in the third quarter and approximately $5.8 million in the
fourth quarter.
(c)
The first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standard No. 128,
"Earnings Per Share."
(d)
Includes the receipt of $8 million of insurance proceeds for business
interruption and property damage at the Golden Cross Mine.
(e)
Includes the effects of the change in recovery rates at the Rochester Mine,
whereby costs of mine operations decreased by approximately $7 million.
(f)
Amounts have been restated to reflect the change in accounting to equity
method for certain investees that were previously consolidated.
F-38
<PAGE> 1
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Long-Term Incentive Plan of Coeur d'Alene Mines
Corporation of our report dated April 14, 1999 with respect to the
consolidated financial statements of Coeur d'Alene Mines Corporation included in
the Annual Report (Form 10-K) for the year ended December 31, 1998.
Seattle, Washington ERNST & YOUNG
April 15, 1999
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