SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
COEUR D'ALENE MINES CORPORATION
(Exact name of Registrant as specified in its charter)
Idaho 82-0109423
--------------------------- ----------------------------
(State or other jurisdiction (I.R.S. Employer Ident. No.)
of incorporation or organization)
P.O. Box I, Coeur d'Alene, Idaho 83816-0316
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
- ------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES _X_ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of Issuer's classes of common stock, as of the latest
practicable date: Common stock, par value $1.00, of which 21,900,579 shares
were issued and outstanding as of May 9, 1999.
<PAGE>
COEUR D'ALENE MINES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
March 31, 1999 and December 31, 1998
Consolidated Statements of Operations -- 5
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows -- 6
Three Months Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 21
PART II. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 117,804 $ 127,335
Short-term investments 3,207 1,753
Receivables 7,385 11,647
Inventories 47,376 43,675
---------- ----------
TOTAL CURRENT ASSETS 175,772 184,410
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 79,343 79,173
Less accumulated depreciation 38,718 37,304
---------- ----------
40,625 41,869
MINING PROPERTIES
Operational mining properties 81,836 82,018
Less accumulated depletion 47,630 46,149
---------- ----------
34,206 35,869
Developmental properties 27,518 25,898
---------- ----------
61,724 61,767
OTHER ASSETS
Investments in unconsolidated affiliates 65,461 66,914
Notes receivable 1,516 1,627
Debt issuance costs, net of accumulated
amortization 6,335 6,625
Other 3,033 2,768
---------- ----------
76,345 77,934
---------- ----------
$ 354,466 $ 365,980
========== ==========
</TABLE>
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 3,738 $ 3,512
Accrued liabilities 10,722 12,700
Accrued interest payable 6,556 5,412
Accrued salaries and wages 3,561 5,642
Current portion of remediation costs 2,116 3,052
Current portion of obligations under
capital leases 243 255
---------- ----------
TOTAL CURRENT LIABILITIES 26,936 30,573
LONG-TERM LIABILITIES
6% subordinated convertible debentures
due 2002 45,803 45,803
6 3/8% subordinated convertible debentures
due 2004 93,372 93,372
7 1/4% subordinated convertible debentures
due 2005 107,277 107,277
Other long-term liabilities 13,926 11,888
---------- ----------
TOTAL LONG-TERM LIABILITIES 260,378 258,340
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 22,958
Capital surplus 376,547 379,180
Accumulated deficit (326,070) (318,796)
Repurchased and nonvested shares (13,190) (13,190)
Accumulated other comprehensive loss:
Unrealized losses on short-term
investments (171) (163)
---------- ----------
67,152 77,067
---------- ----------
$ 354,466 $ 365,980
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In thousands except per share amounts)
<S> <C> <C>
INCOME
Sale of concentrates and dore' $ 18,259 $ 21,166
Less cost of mine operations 17,718 19,724
---------- ----------
GROSS PROFIT 541 1,442
OTHER INCOME
Interest, dividends, and other 1,556 2,743
Earnings (loss) from unconsolidated
subsidiaries (471) 846
---------- ----------
TOTAL INCOME 1,626 5,031
EXPENSES
General administration 2,773 2,864
Mining exploration 1,863 1,816
Interest 4,189 3,815
Writedown of mining properties 54,506
---------- ----------
TOTAL EXPENSES 8,825 63,001
---------- ----------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (7,199) (57,970)
Provision (benefit) for income taxes 74 (9)
---------- ----------
NET LOSS (7,273) (57,961)
Unrealized holding loss on securities (171) (163)
---------- ----------
COMPREHENSIVE LOSS (7,444) (58,124)
========== ==========
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS
Net loss (7,273) (57,961)
Preferred stock dividends 2,633 2,633
---------- ----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (9,906) $ (60,594)
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE DATA
Weighted average number of shares
of Common Stock (in thousands) 21,899 21,899
========== ==========
Net loss per share attributable to
common shareholders $ (.45) $ (2.77)
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,273) $ (57,961)
Add (deduct) noncash items:
Depreciation, depletion, and amortization 4,775 8,854
Other charges 295 87
Writedown of mining properties 54,506
Undistributed (earnings) loss of investment
in unconsolidated subsidiary 471 (846)
Changes in Operating Assets and Liabilities:
Receivables 4,262 559
Inventories (3,701) (11,109)
Accounts payable and accrued liabilities (1,742) (4,442)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (2,913) (10,352)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (2,024) (10,570)
Proceeds from sales of short-term investments 570 49,294
Investment in unconsolidated subsidiaries (25) (2,307)
Purchases of property, plant and equipment (187) (916)
Proceeds from sale of assets 7,599
Expenditures on operational mining properties (103) (1,053)
Expenditures on developmental properties (1,621) (3,378)
Other (458) (334)
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (3,848) 38,335
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of cash dividends (2,633) (2,633)
Other (137) (311)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (2,770) (2,944)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,531) 25,039
Cash and cash equivalents at beginning
of year 127,335 114,204
---------- ----------
Cash and cash equivalents at March 31, 1999 $ 117,804 $ 139,243
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Coeur
d'Alene Mines Corporation annual report or Form 10-K for the year ended
December 31, 1998.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
(In Thousands)
<S> <C> <C>
In process and on leach pads $ 38,177 $ 36,166
Concentrate and dore' inventory 5,514 3,968
Supplies 3,685 3,541
--------- ---------
$ 47,376 $ 43,675
========= =========
</TABLE>
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred, 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. All other inventories are stated at the
lower-of-cost or market, with cost being determined using first-in, first-out
and weighted-average-cost methods. Dore' inventory includes product at the
mine site and product held by refineries.
7
<PAGE>
NOTE C: Income Taxes
The Company has reviewed its net deferred tax asset for the three-month
period ended March 31, 1999, together with net operating loss carryforwards,
and has decided to forego recognition of potential tax benefits arising
therefrom. In making this determination, the Company has considered the
Company's history of tax losses incurred since 1989, the current level of gold
and silver prices and the ability of the Company to use accelerated depletion
and amortization methods in the determination of taxable income. As a result,
the Company's net deferred tax asset has been fully reserved.
NOTE D: Segment Reporting
In 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information."
This statement replaces Statement 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 Petorca
(previously named El Bronce) mining properties, Coeur Australia (50% owner of
Gasgoyne Gold Mines NL), the Kensington development property, and the
Company's 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 metal sales to the Company's metals marketing division and are
transferred at the market value of the respective metal an the date of the
transfer. The Other segment includes earnings (loss) from unconsolidated
subsidiaries accounted for by the equity method such as the Company's 50%
interest in Silver Valley Resources Corporation, 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
8
<PAGE>
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.
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation (In Thousands)
Segment Reporting
Rochester Golden Coeur
Cross Fachinal Petorca Australia Kensington Exploration Other Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999
Net sales and revenues
to external customers $ 1 - $ (341) $ 4,050 $ 1,976 - $ (291) $ 13,949 $ 19,344
Intersegment net sales
and revenues 13,427 - - - - - - (13,427) -
------------------------------------------------------------------------------------------------------
Total net sales and
revenues $ 13,428 $ (341) $ 4,050 $ 1,976 - $ (291) $ 522 $ 19,344
======================================================================================================
Profit (loss) $ 5,391 - $ (1,874) $ 511 $ (467) $ - $(1,735) $ (128)$ 1,698
Segment assets (A) $ 86,166 $ 6,014 $ 32,842 $ 1,208 $ 136 $ 23,751 $ 942 $ 6,051 $157,110
March 31, 1998
Net sales and revenues
to external customers $ 68 $ 2 $ 520 $ 3,416 $ 4,929 $ - $ (117) $ 15,936 $ 24,755
Intersegment net sales
and revenues 15,634 - - - - - - (15,634) -
------------------------------------------------------------------------------------------------------
Total net sales and
revenues $ 15,703 $ 2 $ 521 $ 3,416 $ 4,929 - $ (117) $ 301 $ 24,755
======================================================================================================
Profit (loss) $ 10,795 - $ (457) $(1,113) $(1,171) - $(1,332) $ 97 $ 9,161
Segment assets (A) $ 77,545 $ 9,048 $ 85,418 $ 2,534 $ 351 $129,487 $ 1,366 $ 8,432 $314,181
<FN>
(A) Segment assets consist of receivables, prepaids, inventories, property,
plant and equipment, and mining properties.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation
Segment Reporting Three Months Ended March 31, 1999
(In Thousands) 1999 1998
------------------------
<S> <C> <C>
PROFIT (LOSS)
Total profit or loss for reportable segments
$ 1,698 9,161
Depreciation expense (4,708) (8,810)
Interest expense (4,189) (3,815)
Writedown of mining properties - (54,506)
------------------------
Loss before income taxes $ (7,199) $ (57,970)
========================
March 31, December 31,
ASSETS 1999 1998
Total assets for reportable segments $157,110 $158,958
Cash and cash equivalents 117,804 127,335
Short-term investments 3,207 1,753
Other assets 76,345 77,934
------------------------
Total consolidated assets $354,466 365,980
========================
</TABLE>
9
<PAGE>
NOTE E: New Accounting Standard
In June 1998, the Financial Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) which establishes accounting and reporting
standards for derivative instruments and hedging activities. Effective for all
fiscal quarters in years beginning after June 15, 1999, SFAS 133 requires the
Company to recognize all derivative instruments as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value on an on-going basis. The Company 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 AICPA issued SOP 98-5, "Reporting the Costs of
Start-up Activities." The SOP is effective beginning on January 1, 1999, and
requires that start-up costs capitalized prior to January 1, 1999 be
written-off and any future start-up costs to be expensed as incurred. The
Company has adopted SOP 98-5 and has determined that this has no effect on the
Company's financial condition or results of operations.
NOTE F: Reclassification
Certain reclassifications of prior-year balances have been made to
conform to current year classifications.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The results of the Company's operations are significantly affected by
the market prices of gold and silver which may fluctuate widely and are
affected by many factors beyond the Company's control, including, without
limitation, interest rates, expectations regarding inflation, currency values,
governmental decisions regarding the disposal of precious metals stockpiles,
global and regional political and economic conditions, and other factors.
The Company's currently operating mines are the Rochester mine in Nevada
and the Fachinal and Petorca (or El Bronce) mines in Chile, all of which are
wholly-owned and operated by the Company.
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
10
<PAGE>
operations resumed in June 1996 and continued until April 1998) and the Galena
Mine (where operations resumed in May 1997) in the Coeur d'Alene Mining
District of Idaho. The Company also owns 50% of Gasgoyne Gold Mines NL, an
Australian gold mining company ("Gasgoyne") that owns 50% of the Yilgarn Star
gold mine in Australia.
The market price of gold has declined to levels that are the lowest
since 1985. The average price of gold in the first quarter of 1999 was $286.79
per ounce. The market price of silver (Handy & Harman) and gold (London Final)
on May 9, 1999 were $5.43 per ounce and $282 per ounce, respectively. If the
current gold price range in the low $300's continues, the Company will need to
reduce production costs and/or expand minable ore reserves at its Fachinal
Mine in Chile to operate the mine profitably. Alternatively, if such prices
continue, the Company may elect to place the mine on temporary standby to
conserve ore reserves until gold prices increase.
The Company is required by Financial Accounting Standards Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", to review the valuations of its mining properties.
Such a review was recently completed with respect to all of the Company's
properties. In 1998, the Company had writedowns totaling $219 million with
respect to its Petorca and Fachinal Mines and its Kensington development
property.
Should current gold prices continue for an extended period of time
and/or if the Company is unable to reduce production costs or expand
commercial ore reserves at the Company's mining properties, the Company may
need to effect additional asset writedowns.
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 does not intend to develop Kensington unless the
optimization study and development program demonstrate results required to
make Kensington an economically viable project. Based on current mine design
and market price of gold, there can be no assurances at this time that the
Company will proceed to place the Kensington project into commercial
production.
11
<PAGE>
The Company's business plan is to continue to acquire competitive,
low-cost mining properties and/or businesses that are operational or expected
to become operational in the near future so that they can reasonably be
expected to contribute to the Company's near-term cash flow from operations
and expand the Company's gold and/or silver production.
This document contains numerous forward-looking statements relating to
the Company's gold and silver mining business. The United States Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain
forward looking statements. Operating, exploration and financial data, and
other statements in this document are based on information the company
believes reasonable, but involve significant uncertainties as to future gold
and silver prices, costs, ore grades, estimation of gold and silver reserves,
mining and processing conditions, changes that could result from the Company's
future acquisition of new mining properties or businesses, the risks and
hazards inherent in the mining business (including environmental hazards,
industrial accidents, weather or geologically related conditions), regulatory
and permitting matters, and risks inherent in the ownership and operation of,
or investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
12
<PAGE>
The following table sets forth the amounts of gold and silver produced
by the mining properties owned by the Company or in which the Company has an
interest, based on the amounts attributable to the Company's ownership
interest, and the cash and full costs of such production during the
three-month periods ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
ROCHESTER MINE
Gold ozs. 16,306 25,194
Silver ozs. 1,664,063 1,582,960
Cash Costs per oz./silver $4.41 $4.71
Full Costs per oz./silver $5.24 $5.27
GALENA MINE
Silver ozs. 459,465 379,610
Cash Costs per oz./silver $4.52 $4.44
Full Costs per oz./silver $5.60 $5.53
COEUR MINE
Silver ozs. N/A 79,336
Cash Costs per oz./silver N/A $4.89
Full Costs per oz./silver N/A $5.81
YILGARN STAR MINE
Gold ozs. 6,177 12,569
Cash Costs per oz./gold $286.54 $204.21
Full Costs per oz./gold $443.54 $416.56
FACHINAL MINE
Gold ozs. 6,672 6,967
Silver ozs. 287,165 468,420
Cash Costs per oz./gold $335.09 $324.27
Full Costs per oz./gold $407.42 $509.59
PETORCA MINE
Gold ozs. 7,605 10,779
Silver ozs. 11,139 20,170
Cash Costs per oz./gold $266.07 $381.18
Full Costs per oz./gold $266.07 $480.45
GOLDEN CROSS MINE
Gold ozs. N/A 8,914
Silver ozs. N/A 27,412
Cash Costs per oz./gold N/A $221.20
Full Costs per oz./gold N/A $221.20
CONSOLIDATED TOTALS
Gold ozs. 36,760 64,423
Silver ozs. 2,421,832 2,557,908
</TABLE>
13
<PAGE>
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
ROCHESTER MINE
For the quarter ended March 31, 1999, the mine produced 1,664,063 ounces
of silver and 16,306 ounces of gold compared to 1,582,960 ounces of silver and
25,194 ounces of gold produced in the first quarter of 1998. The decrease in
the gold production was primarily a result of lower gold grade. In the first
quarter of 1999, cash costs were $4.41 per silver equivalent ounce compared to
$4.35 per silver equivalent ounce in the first quarter of 1998. Depreciation
and depletion was $.72 and the reclamation reserve was $.11 per ounce for a
total cost of $5.24 per ounce.
SILVER VALLEY RESOURCES
Silver Valley Resources is the operator of the Coeur unit and Galena
mines. Silver Valley Resources discontinued operations at the Coeur unit in
July 1998 and has concentrated its efforts on the Galena mine. Silver Valley
Resources produced 459,465 ounces of silver in the first quarter of 1999
compared to 458,976 ounces of silver produced in the first quarter of 1998.
The first quarter consolidated cash cost of production per ounce of silver
produced at Silver Valley Resources was $4.52 compared to $4.51 in the prior
year's first quarter. Depreciation and reclamation was $1.08 per ounce for a
full cost of $5.60 per ounce compared to $5.57 per ounce for the first quarter
of 1998.
YILGARN STAR MINE
Coeur's share of production for the first quarter of 1999 from the
Yilgarn Star Mine amounted to 6,177 ounces of gold compared to 12,569 ounces
of gold for the first quarter of 1998. Cash cost of production amounted to
$287 per ounce compared to $204 per ounce during the same period of 1998.
Noncash costs were $157 per ounce for a full cost of $444 per ounce in the
first quarter of 1999 compared to $417 per ounce reported in the same period
of 1998. The increase is primarily due to ground control problems and flooding
that occurred due to heavy rainfall, forcing the operation to mine ore that
had lower grade than anticipated.
FACHINAL MINE
Fachinal produced 287,165 ounces of silver and 6,672 ounces of gold in
the first quarter of 1999 compared with 468,420 ounces of silver and 6,967
ounces of gold in the first quarter of 1998. Cash costs, including smelting
and refining, were $335 per gold equivalent ounce compared to $324 in the
14
<PAGE>
first quarter of 1998. Depreciation was $64 per equivalent gold ounce and the
reserve for reclamation was $8 per equivalent gold ounce for a full cost of
$407 per equivalent gold ounce in the first quarter of 1999. This compares
with a full cost for the first quarter of 1998 of $480 per equivalent gold
ounce. The lower full cost was due to the reduction of the carrying amount
associated with the write-down taken in the fourth quarter of 1998.
PETORCA
In the first quarter of 1999, the mine produced 7,605 ounces of gold
compared to 10,779 ounces reported in the first quarter of 1998. Cash costs
were $226 per ounce compared to $381 per ounce in the first quarter of 1998.
The decreased costs were primarily due to operating efficiencies and
improvements gained in the mining process during 1998.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months ENDED MARCH
31, 1998.
SALES AND GROSS PROFITS
Sales of concentrates and dore' in the first quarter of 1999 decreased
by $2.9 million, or 13.7%, from the first quarter of 1998. The decrease in
sales is primarily attributable to lower gold and silver prices and decreased
metal sales. In the first quarter of 1999, the Company produced a total of
2,421,832 ounces of silver and 36,760 ounces of gold compared to 2,557,908
ounces of silver and 64,423 ounces of gold in the first quarter of 1998. In
the first quarter of 1999, the Company realized average silver and gold prices
of $5.16 and $313.08, respectively, compared with realized market prices of
$6.41 and $326.63, respectively, in the prior year's first quarter.
The cost of mine operations in the first quarter of 1999 decreased by
$2.0 million, or 10%, from the prior year's comparable quarter. The decrease
is primarily due to the decrease in depreciation and depletion at Fachinal and
Petorca.
Gross profit from mining operations in the first quarter of 1999
amounted to $.5 million compared to gross profit from mining operations of
$1.4 million in the first quarter of 1998. The $.9 million decrease in gross
profit is due to the above mentioned changes in sales and cost of mine
operations coupled with lower silver and gold prices realized in the first
quarter of 1999.
15
<PAGE>
OTHER INCOME
Interest and other income in the first quarter of 1999 decreased by $3.4
million, or 68%, compared with the first quarter of 1998. The decrease is due
primarily to (i) a $1.2 million decrease in interest and dividend income due
to a substantially lower short-term investment balance and (ii) a decrease of
$1.3 million in earnings (loss) from unconsolidated subsidiaries attributable
to increased productions costs and lower production ounces at the Silver
Valley Resources and Yilgarn Star properties
EXPENSES
Total expenses in the first quarter of 1999 decreased by $54.2 million
over the prior year's first quarter. The decrease is primarily due to a
write-down of the El Bronce Mine totaling approximately $54.5 million in the
first quarter of 1998.
NET LOSS
As a result of the above mentioned factors, the Company's net loss
amounted to $7.3 million in the first quarter of 1999 compared to a net loss
of $58 million in the first quarter of 1998. In the first quarter of 1999, the
Company paid dividends of $2.6 million on its Manditorily Adjustable
Redeemable Convertible Securities (MARCS). As a result, the loss attributable
to common shareholders was $9.9 million, or $.45 per share, for the first
quarter 1999, compared to a loss of $60.6 million, or $2.77 per share, for the
first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL; CASH AND CASH EQUIVALENTS
The Company's working capital at March 31, 1999 was approximately $148.8
million compared to $153.8 million at December 31, 1998. The ratio of current
assets to current liabilities was 6.5 to 1.0 at March 31, 1999 compared to 6.0
to 1.0 at December 31, 1998.
Net cash used in operating activities in the first quarter of 1999 was
$2.9 million compared to $10.4 million used in operating activities in the
first quarter of 1998, due to increased inventory at Rochester and Fachinal in
1998. Net cash used in investing activities in the first quarter of 1999 was
$3.8 million compared to net cash provided by investing activities of $38.3
million in the prior year's comparable period. The increase is primarily due
to proceeds received from sales of short-term investments and marketable
16
<PAGE>
securities in 1998. Net cash used in financing activities was $2.8 million in
the first quarter of 1999 and $2.9 million in 1998. As a result of the above,
cash and cash equivalents decreased by $9.5 million in the first quarter of
1999 compared to a $25.0 million increase for the comparable period in 1998.
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
17
<PAGE>
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% 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
18
<PAGE>
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 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. The court has given preliminary approval to the
settlement and authorized the submission of the settlement terms to the class
action shareholders.
DERIVATIVE ACTION
On or about August 17, 1998, a purported derivative action was filed on
19
<PAGE>
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.
YEAR 2000 ISSUE
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 March
31, 1999, the Company has incurred approximately $170,000 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
$125,000.
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
20
<PAGE>
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.
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.
21
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks as a part of its
operations. As an effort to mitigate losses associated with these risks, the
Company may , at times, enter into derivative financial instruments. These may
take the form of forward sales contracts, foreign currency exchange contracts
and interest rate swaps. The Company does not actively engage in the practice
of trading derivative securities for profit. This discussion of the Company's
market risk assessments contains "forward looking statements" that contain
risks and uncertainties. Actual results and actions could differ materially
from those discussed below.
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 and are affected by numerous
factors, such as supply and demand and investor sentiment. In order to
mitigate some of the risk associated with these fluctuations, the Company will
at times, enter into forward sale contracts. The Company continually evaluates
the potential benefits of engaging in these strategies based on the then
current market conditions. The Company may be exposed to nonperformance by
counterparties as a result of its hedging activities. This exposure would be
limited to the amount that the spot price of the metal falls short of the
contract price.
The Company operates in several foreign countries, specifically
Australia, New Zealand and Chile, which exposes it to risks associated with
fluctuations in the exchange rates of the currencies involved. As part of its
program to manage foreign currency risk, the Company will enter into foreign
currency forward exchange contracts. These contracts enable the Company to
purchase a fixed amount of foreign currencies. Gains and losses on foreign
exchange contracts that are related to firm commitments are designated and
effective as hedges and are deferred and recognized in the same period as the
related transaction. All other contracts that do not qualify as hedges are
marked to market and the resulting gains or losses are recorded in income. The
Company continually evaluates the potential benefits of entering into these
contracts to mitigate foreign currency risk and proceeds when it believes that
the exchange rates are most beneficial.
All of the Company's long term debt at March 31, 1999 is fixed rate
based. The Company's exposure to interest rate risk, therefore, is limited to
the amount it could pay at current market rates. The Company currently does
22
<PAGE>
not have any derivative financial instruments to offset the fluctuations in
the market interest rate. It may choose to use instruments, such as interest
rate swaps, in the future to manage the risk associated with interest rate
changes.
The following table summarizes the information at March 31, 1999
associated with the Company's financial and derivative financial instruments
that are sensitive to changes in interest rates, commodity prices and foreign
exchange rates. For long term debt obligations, the table presents principal
cash flows and related average interest rates. For gold put and call options
and amortizing forward sales, the table presents ounces expected to be
delivered and the related average price per ounce in Australian dollars. For
foreign currency exchange contracts, the table presents the notional amount in
New Zealand dollars to be purchased along with the average foreign exchange
rate.
<TABLE>
<CAPTION>
Fair
Value
(dollars in thousands) 1999 2000 2001 2002 2003 Thereafter Total 3/31/99
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long Term Debt $145,760
Fixed Rate $ - $ - $ - $45,803 $ - $200,649 $ 246,452
Average Interest Rate 6.686% 6.686% 6.686% 6.766% 6.843% 7.190%
DERIVATIVE FINANCIAL
INSTRUMENTS
Gold Put Options
Sold - AUD $14,401
Ounces 22,500 30,000 30,000 30,000 30,000 - 142,500
Price Per Ounce $ 604.85 $604.85 $597.00 $597.00 $597.00 $ -
Gold Call Options
Purchased - AUD $ 994
Ounces - 15,000 - - - - 15,000
Price Per Ounce $ - $545.00 $ - $ - $ - $ -
Amortizing Forward Gold
Sales $ 4,839
Ounces 30,000 40,000 - - - - 70,000
Price Per Ounce $ 348.58 $348.58 - - - -
Foreign Currency
Contracts $ 429
New Zealand Dollar $ 4.500 $3,600 $ - $ - $ - $ - $ 8,100
Exchange Rate
(NZ$ to US$) 2.084 2.124 - - - -
Chilean Pesos $7,102,591 - - - - - $7,102,591
Exchange Rate
(Peso to US$) 506.604 - - - - -
</TABLE>
23
<PAGE>
PART II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
No. 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On May 14, 1999, the Company filed a Form 8-K relating to its
acquisition of certain ASARCO Inc.'s silver mining assets.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
(Registrant)
Dated May 14, 1999 /s/DENNIS E. WHEELER
---------------------
Dennis E. Wheeler
Chairman, President and
Chief Executive Officer
Dated May 14, 1999 /s/GEOFFREY A. BURNS
--------------------
Geoffrey A. Burns
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215466
<NAME> COEUR D'ALENE MINES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 117,804
<SECURITIES> 3,207
<RECEIVABLES> 7,385
<ALLOWANCES> 0
<INVENTORY> 47,376
<CURRENT-ASSETS> 175,772
<PP&E> 265,042
<DEPRECIATION> 26,348
<TOTAL-ASSETS> 354,466
<CURRENT-LIABILITIES> 26,936
<BONDS> 246,452
7,078
0
<COMMON> 22,958
<OTHER-SE> 376,547
<TOTAL-LIABILITY-AND-EQUITY> 354,466
<SALES> 18,259
<TOTAL-REVENUES> 19,344
<CGS> 17,718
<TOTAL-COSTS> 17,718
<OTHER-EXPENSES> 6,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,189
<INCOME-PRETAX> (7,199)
<INCOME-TAX> 74
<INCOME-CONTINUING> (7,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,273)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
