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, 2000
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 38,109,279 shares
were issued and outstanding as of May 11, 2000.
<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, 2000 and December 31, 1999
Consolidated Statements of Operations -- 5
Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows -- 6
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 20
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 80,855 $ 86,935
Short-term investments 13,652 22,978
Receivables 8,105 15,376
Inventories 61,406 53,769
---------- ----------
TOTAL CURRENT ASSETS 164,018 179,058
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 96,672 96,592
Less accumulated depreciation (55,958) (54,265)
---------- ----------
40,714 42,327
MINING PROPERTIES
Operational mining properties 107,696 106,455
Less accumulated depletion (64,388) (62,431)
---------- ----------
43,308 44,024
Developmental properties 51,968 50,781
---------- ----------
95,276 94,805
OTHER ASSETS
Investments in unconsolidated affiliates 28,892 29,008
Debt issuance costs, net of accumulated
amortization 5,094 5,378
Other 3,434 3,471
---------- ----------
37,420 37,857
---------- ----------
$ 337,428 $ 354,047
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,584 $ 4,693
Accrued liabilities 6,307 6,411
Accrued interest payable 6,041 5,064
Accrued salaries and wages 4,104 5,005
---------- ----------
TOTAL CURRENT LIABILITIES 20,036 21,173
LONG-TERM LIABILITIES
6% subordinated convertible debentures
due 2002 35,334 35,582
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 27,158 28,478
---------- ----------
TOTAL LONG-TERM LIABILITIES 263,141 264,709
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 7,500,000 shares, issued zero and
7,077,833 shares in 2000 and 1999. 0 7,078
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares,
issued 38,109,279 and 30,240,428 shares
in 2000 and 1999 (including 1,059,211
shares held in treasury) 38,109 30,240
Capital surplus 387,625 391,031
Accumulated deficit (356,954) (347,119)
Repurchased and nonvested shares (13,190) (13,190)
Accumulated other comprehensive loss:
Unrealized gain (loss) on short-term
investments (1,339) 125
---------- ----------
54,251 68,165
---------- ----------
$ 337,428 $ 354,047
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
---------- ----------
(In thousands except per share amounts)
<S> <C> <C>
REVENUES
Product sales $ 14,841 $ 18,259
Interest and other 3,063 1,085
---------- ----------
Total Revenues 17,904 19,344
COSTS and Expenses
Production 13,467 13,637
Depreciation and depletion 4,907 4,205
Administrative and general 3,121 2,606
Exploration 2,140 1,832
Interest 3,956 4,189
Other 135 74
---------- ----------
Total Costs and Expenses 27,726 26,543
---------- ----------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES AND
EXTRAORDINARY ITEM (9,822) (7,199)
Income tax provision 100 74
---------- ----------
Net loss before extraordinary item (9,922) (7,273)
Extraordinary item - early
retirement of debt
(net of taxes) 87 0
---------- ----------
NET LOSS (9,835) (7,273)
Unrealized holding loss
on securities (1,339) (171)
---------- ----------
COMPREHENSIVE LOSS $ (11,174) $ (7,444)
========== ==========
NET LOSS $ (9,835) $ (7,273)
Preferred stock dividends 2,180 2,633
---------- ----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (12,015) $ (9,906)
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE:
Weighted average number
of shares of Common Stock 30,569 21,899
========== ==========
Loss before extraordinary item $ (.39) $ (.45)
Extraordinary item - early
retirement of debt (net of taxes) .00 .00
---------- ----------
Net loss per share attributable
to common shareholders $ (.39) $ (.45)
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,835) $ (7,273)
Add (deduct) noncash items:
Depreciation and depletion 4,907 4,205
Gain on early retirement of debt (net of tax) (87)
Other 1,589 865
Undistributed (earnings) loss of investment
in unconsolidated subsidiary (482) 471
Unrealized gain on written call options (1,554)
Changes in Operating Assets and Liabilities:
Receivables 7,271 4,262
Inventories (7,637) (3,701)
Accounts payable and accrued liabilities (1,965) (1,742)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (7,793) (2,913)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (4,276) (2,024)
Proceeds from sales of short-term investments 12,073 570
Purchases of property, plant and equipment (742) (187)
Proceeds from sale of assets 591
Expenditures on operational mining properties (1,917) (103)
Expenditures on developmental properties (1,288) (1,621)
Other 103 (483)
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,544 (3,848)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of cash dividends (2,633) (2,633)
Other (198) (137)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (2,831) (2,770)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (6,080) (9,531)
Cash and cash equivalents at beginning
of period 86,935 127,335
---------- ----------
Cash and cash equivalents at period ending
March 31, 2000 $ 80,855 $ 117,804
========== ==========
</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, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 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 on Form 10-K for the year ended
December 31, 1999.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
(In Thousands)
<S> <C> <C>
In process and on leach pads $ 43,770 43,494
Concentrate and dore' inventory 12,869 5,594
Supplies 4,767 4,681
--------- ---------
61,406 $ 53,769
========= =========
</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.
The Handy and Harmon refinery, to which Rochester Mine sends
approximately 50% of its dore, filed for Chapter 11 Bankruptcy during the
first quarter of 2000. The Company has in inventory, at the refinery,
7
<PAGE>
approximately 67,000 ounces of silver and approximately 5,000 ounces of gold,
being held pending resolution of the Bankruptcy proceeding. At this time, the
Company anticipates that litigation may be required and believes it has a
basis to recover all the inventory being held.
NOTE C: Income Taxes
The Company has reviewed its net deferred tax asset for the three-month
period ended March 31, 2000, 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: Conversion of MARCS to Common
On March 15, 2000, the Company mandatorily converted its 7,077,833
outstanding shares of Mandatory Adjustable Redeemable Convertible Securities
(MARCS) into 7,863,000 common shares. The final payment of dividends of
$2,633,000 on the MARCS was paid out as of that date.
NOTE E: Short-Term Investments
During the first quarter of 2000, the Company sold 245,000 shares of Pan
American Silver Corporation stock for approximately $1.2 million, and recorded
a realized loss of approximately $66,000. The Company continues to hold
approximately one million shares.
NOTE F: Long-Term Debt
During the first quarter 2000, the Company repurchased approximately
$248,000 principal amount of its outstanding 6% Subordinated Convertible
Debentures due 2002 for a total purchase price of approximately $159,000,
excluding purchased interest of approximately $12,000. Associated with this
transaction, the Company eliminated $2,000 of capitalized bond issuance costs.
As a result of the buyback of these debentures, the Company has recorded an
extraordinary gain of approximately $87,000, net of taxes of zero, during the
first quarter of 2000 on the reduction of its indebtedness.
NOTE G: Segment Reporting
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly
8
<PAGE>
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, Coeur Silver Valley, 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 on 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 Gasgoyne, 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 in
the Company's Annual Report on 10-K. 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.
9
<PAGE>
COEUR D'ALENE MINES CORPORATION
SEGMENT REPORTING
(In thousands)
<TABLE>
<CAPTION>
Golden Coeur Silver
Rochester Cross Fachinal Petorca Australia Valley Kensington Manquiri Exploration
-------------------------------------------------------------------------------------------
MARCH 31, 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and revenues
to external customers $ - - $ 188 $ 586 $ 2,176 $ 3,577 - - $ 73
Intersegment net sales
And revenues 12,036 - - - - - - - -
-------------------------------------------------------------------------------------------
Total net sales and
revenues $ 12,036 - $ 188 586 2,176 3,577 - - $ 73
===========================================================================================
Depreciation and
amortization $ 3,507 - $ 1,256 $ 52 $ 531 $ 572 $ - - $ 21
Interest income - - 5 2 19 - - - 8
Interest expense - - - - - - - - -
Income tax expense - - - - 8 1 - - -
Earnings (losses) from
Unconsolidated
affiliates - - - - 482 - - - -
Gain on early
retirement of debt - - - - - - - - -
Profit (loss) 3,169 - (242) (471) 401 (882) - - (1,551)
Investments in
Unconsolidated
affiliates - - - - 28,892 - - - -
Segment assets 87,369 1,154 30,165 2,656 603 23,591 31,094 19,554 20,087
Expenditures for
property 294 - 1,324 49 - 974 1,287 - -
MARCH 31, 1999
Net sales and revenues
to external customers $ 2 - $ (341) $ 4,050 $ 1,976 - - - $ (291)
Intersegment net sales
And revenues 13,426 - - - - - - - -
-------------------------------------------------------------------------------------------
Total net sales and
revenues $ 13,428 - $ (341) $ 4,050 $ 1,976 - - - $ (291)
===========================================================================================
Depreciation and
amortization $ 2,343 - $ 867 $ 76 $ 815 - $ 67 - $ 30
Interest income - 29 9 10 - - - 2
Interest expense - - 14 2 - - - - -
Income tax expense - - - - 4 - - - -
Earnings (losses) from
Unconsolidated
affiliates - - - - (625) - - - -
Gain on early
retirement of debt - - - - - - - - -
Profit (loss) 5,391 - (1,874) 511 (467) - - - (1,735)
Investments in
Non-consolidated
affiliates - - - - 49,061 - - - -
Segment assets 86,166 6,014 32,842 1,208 136 - 23,751 - 942
Expenditures for
property 132 - 137 - - - 1,618 - 14
<FN>
Notes:
(A) Segment assets consist of receivables, prepaids, inventories,
property, plant and equipment, and mining properties.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Other Total
--------------------
MARCH 31, 2000
<S> <C> <C>
Net sales and revenues
to external customers 11,304 $ 17,904
Intersegment net sales
And revenues (12,036) -
--------------------
Total net sales and
revenues $ 732 $ 17,904
====================
Depreciation and
amortization $ 368 $ 6,308
Interest income 1,340 1,374
Interest expense 3,956 3,956
Income tax expense 92 101
Earnings (losses) from
Unconsolidated
affiliates - 482
Gain on early
retirement of debt 87 87
Profit (loss) 19 422
Investments in
Unconsolidated
affiliates - 28,892
Segment assets 8,782 205,501
Expenditures for
property 20 3,948
MARCH 31, 1999
Net sales and revenues
to external customers $ 13,949 $ 19,344
Intersegment net sales
And revenues (13,427) -
--------------------
Total net sales and
revenues $ 522 $ 19,344
====================
Depreciation and
amortization $ 577 $ 4,775
Interest income 1,477 1,526
Interest expense 4,173 4,189
Income tax expense 71 75
Earnings (losses) from
Unconsolidated
affiliates 154 (471)
Gain on early
retirement of debt - -
Profit (loss) (128) 1,698
Investments in
Non-consolidated
affiliates 16,400 65,461
Segment assets 6,052 157,110
Expenditures for
property 9 1,910
<FN>
Notes:
(A) Segment assets consist of receivables, prepaids, inventories,
property, plant and equipment, and mining properties.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION
(In thousands) Long-Lived
2000: Revenues Assets
---------------------------------------------
<S> <C> <C>
United States $ 14,881 $ 93,165
Chile 845 22,570
Australia 2,176 -
New Zealand - 691
Bolivia - 19,564
Other Foreign Countries 1 -
---------------------------------------------
Consolidated Total $ 17,904 $135,990
=============================================
Long-Lived
1999: Revenues Assets
---------------------------------------------
United States $ 13,950 $ 72,592
Chile 3,418 24,568
Australia 1,976 -
New Zealand - 5,176
Bolivia - -
Other Foreign Countries - 14
---------------------------------------------
Consolidated Total $ 19,344 $102,349
=============================================
</TABLE>
Revenues are geographically separated based upon the country in which
operations and the underlying assets generating those revenues reside.
NOTE H: Hedging
For the first quarter of 2000 the Company recorded a $1.6 million gain
in connection with the hedge program. The Company also added 54,000 ounces in
forward sales to its gold protection program (2000-30,000 ounces, 2001-12,000
ounces, 2002-12,000 ounces), whereby over the next three years the Company
will receive an average price of $311.44.
The following table summarizes the information at March 31, 2000
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.
11
<PAGE>
<TABLE>
<CAPTION>
Fair
Value
(dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total 3/31/99
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long Term Debt $ 122,891
Fixed Rate $ - $ - $ 35,334 $ - $ 93,372 $107,277 $235,983
Average Interest Rate 6.717% 6.717% 6.782% 6.843% 7.190% 7.250%
DERIVATIVE FINANCIAL
INSTRUMENTS
Gold Forward $ 1,109
Sales - AUD
Ounces (1) 11,700 - - - - - 11,700
Price Per Ounce $ 612.10 $ - $ - $ - $ - $ -
Gold Put Options
Purchased - AUD $ 8,631
Ounces 10,800 30,000 30,000 30,000 - - 100,800
Price Per Ounce $ 597.00 $ 597.00 $ 597.00 $ 597.00 $ - $ -
Gold Forward
Sales - USD $ 1,841
Ounces 27,600 12,000 12,000 - - - 51,600
Price Per Ounce $ 302.21 $ 316.51 $ 331.84 $ - $ - $ -
Gold Call Options
Sold - USD $ -
Ounces (2) - - - - - 56,000 56,000
Price Per Ounce $ - - $ - $ - $ - $ 345.00
Amortizing Forward Sales
$ 927
Ounces (2) 15,000 22,560 22,560 22,560 22,560 78,960 184,200
Price Per Ounce $ 338.58 $ 348.50 $ 348.50 $ 348.50 $ 348.50 $ 348.50
Foreign Currency
Contracts $ 71
New Zealand Dollar $ 2,700 $ - $ - $ - $ - $ 2,700
Exchange Rate
(NZ$ to US$) 2.126 - - - - -
<FN>
(1) Of the put options purchased, 100,800 ounces have a knock-out provision
whereby the options will terminate if gold trades above $350 per ounce
prior to the exercise date.
(2) The majority of the call options sold have a knock-out provision whereby
calls for 56,000 ounces will terminate if gold trades below $300 per
ounce after March 31, 2001, and calls for 169,200 ounces will terminate
if gold trades below $310 per ounce at any time after March 31, 2001.
</FN>
</TABLE>
NOTE I: 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, 2000, SFAS 133 requires the
Company to recognize all derivative instruments as either assets or
12
<PAGE>
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, 2001.
NOTE J: 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, the Galena mine in the Coeur d'Alene Mining District of Idaho (in
which the Company has recently increased its ownership by 50% to 100%) and the
Fachinal and Petorca mines in Chile, all of which are wholly-owned and
operated by the Company. 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 average price of silver and gold in the first quarter of 2000 was
$5.21 and $290 per ounce, respectively. The market price of silver (Handy &
Harman) and gold (London Final) on May 10, 2000 were $5.09 per ounce and $278
per ounce, respectively.
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
13
<PAGE>
and permitting matters, and risks inherent in the ownership and operation of,
or investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
The 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, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
ROCHESTER MINE
Gold ozs. 15,457 16,306
Silver ozs. 1,538,260 1,664,063
Cash Costs per equiv. oz./silver $4.27 $4.41
Full Costs per equiv. oz./silver $5.45 $5.24
GALENA MINE
Silver ozs. 790,792 459,465
Cash Costs per oz./silver $5.82 $4.52
Full Costs per oz./silver $6.54 $5.60
PRIMARY SILVER MINES
Consolidated Cash Costs per
equivalent oz.of silver $4.65 $4.43
--------- ---------
YILGARN STAR MINE
Gold ozs. 6,120 6,177
Cash Costs per oz./gold $268 $287
Full Costs per oz./gold $379 $444
FACHINAL MINE
Gold ozs. 5,415 6,672
Silver ozs. 263,726 287,165
Cash Costs per equiv. oz./gold $338 $335
Full Costs per equiv. oz./gold $462 $407
PETORCA MINE
Gold ozs. 5,172 7,605
Silver ozs. 10,642 11,139
Cash Costs per oz./gold $384 $266
Full Costs per oz./gold $395 $266
PRIMARY GOLD MINES
Consolidated Cash Costs per
equivalent oz.of gold $365 $300
--------- ---------
CONSOLIDATED TOTAL METAL PRODUCTION
Gold ozs. 32,163 36,760
Silver ozs. 2,603,390 2,421,832
</TABLE>
14
<PAGE>
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
- ---------------------------------------------------------------------
ROCHESTER MINE
For the quarter ended March 31, 2000, the mine produced 1,538,260 ounces
of silver and 15,457 ounces of gold compared to 1,664,063 ounces of silver and
16,306 ounces of gold produced in the first quarter of 1999. The decrease in
the gold production was primarily a result of lower gold ore grades. In the
first quarter of 2000, cash costs were $4.27 per silver equivalent ounce
compared to $4.41 per silver equivalent ounce in the first quarter of 1999.
Depreciation, depletion and reclamation was $1.18 per ounce for a total cost
of $5.45 per ounce.
The decrease in production was due to the mining of lower-grade ore, as
part of the planned mining sequence. Modifications to the conveyor and
crushing circuits to increase throughput were implemented in the first
quarter. Additionally, solution processing capacity has been increased by 14
percent. As a result of these improvements, increased production and lower
costs are forecast for the remainder of 2000.
SILVER VALLEY RESOURCES - GALENA MINE
For the quarter ended March 31, 2000, the Galena Mine produced 790,792
ounces of silver, compared to 459,465 ounces of silver produced in the first
quarter of 1999. The increase was due to the 50% increase in the Company's
ownership of Silver Valley Resources in September 1999. The first quarter
consolidated cash cost of production per ounce of silver produced at the
Galena Mine was $5.82 compared to $4.52 in the prior year's first quarter.
Depreciation and reclamation in the first quarter of 2000 was $0.72 per ounce
for a full cost of $6.54 per ounce compared to $5.60 per ounce for the first
quarter of 1999.
Lower tons milled and lower grades resulted in a silver production
shortfall. These shortfalls were the result of delays in the development of
the high-grade 117 vein and ongoing repairs in the utility shaft, which
reduced backfill capacity. The second quarter's production is expected to be
higher due to increased mining of the higher grade material from the 117 vein.
Work on the 72 vein continues to yield encouraging results. An additional
development crew has been added and preparations to add a second diamond drill
have been completed.
15
<PAGE>
FACHINAL MINE
Fachinal produced 263,726 ounces of silver and 5,415 ounces of gold in
the first quarter of 2000 compared with 287,165 ounces of silver and 6,672
ounces of gold in the first quarter of 1999. Cash costs, including smelting
and refining, were $338 per gold equivalent ounce compared to $335 in the
first quarter of 1999. Depreciation, depletion and reclamation was $124 per
equivalent gold ounce for a full cost of $462 per equivalent gold ounce in the
first quarter of 2000. This compares with a full cost for the first quarter of
1999 of $407 per equivalent gold ounce. The higher full cost was due primarily
to the increase in estimated reclamation closure costs for the remaining life
of mine.
Ore grades were below plan from both underground and surface operations,
and the mill throughput was supplemented with ore from the medium grade
stockpile which contributed to the ore grade shortfall. The Company has been
working to evaluate several options to immediately convert resources to
reserves for mining. In addition, the mining plan is being reviewed to focus
on developing and mining the most economic production on an equivalent gold
ounce basis.
The work on the road connecting the high-grade Furioso deposit to
Fachinal is progressing as scheduled and is nearing completion. Fachinal is
expected to commence mining the high-grade Furioso deposit in late 2000.
PETORCA
In the first quarter of 2000, the mine produced 5,172 ounces of gold
compared to 7,605 ounces reported in the first quarter of 1999. Cash costs in
the first quarter of 2000 were $384 per ounce compared to $266 per ounce in
the first quarter of 1999.
Both throughput and grade were negatively affected by the investigation
following a scoop tram accident at the mine that resulted in a fatality in
January, which restricted access to higher grade production stopes. In
addition, a small mill fire near the end of February required the mill
operations to shift to the secondary circuit which further reduced throughput.
The primary circuit was repaired in late March and processing recommenced.
Also, a plan to convert resources to reserves will be implemented in May,
which should improve operating performance.
YILGARN STAR MINE
Coeur's share of production for the first quarter of 2000 from the
Yilgarn Star Mine amounted to 6,120 ounces of gold compared to 6,177 ounces of
gold for the first quarter of 1999. Cash cost of production for the latest
period declined by $19 per ounce to $268 compared to $287 per ounce during the
same period of 1999. After a difficult fourth quarter of 1999, production has
started to increase and the implemenation during 1999 of operating improvemens
16
<PAGE>
contributed to the lower cash costs realized. Further reductions in cash costs
are expected as the year progresses. Noncash costs were $111 per ounce for a
full cost of $379 per ounce in the first quarter of 2000 compared to $444 per
ounce reported in the same period of 1999.
Above plan recovery only partially offset a shortfall in both tons and
grade. Unusually heavy rainfall caused significant water inflows into the
underground mine, which temporarily cut-off access to the 10 and 11 levels,
adversely affecting tons mined and ore grades. An additional longhole drill
has been mobilized to the site to help alleviate the backlog of drilling that
built up while the mine was being de-watered.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS
ENDED MARCH 31, 1999.
REVENUES
Product sales in the first quarter of 2000 decreased by $3.4 million, or
19%, from the first quarter of 1999 to $14.8 million. The decrease in sales is
primarily attributable to decreased production of gold and inventory buildup
at the Fachinal and Petorca mines. In the first quarter of 2000, the Company
produced a total of 2,605,390 ounces of silver and 32,163 ounces of gold
compared to 2,421,832 ounces of silver and 36,760 ounces of gold in the first
quarter of 1999. In the first quarter of 2000, the Company realized average
silver and gold prices of $5.19 and $342, respectively, compared with realized
average prices of $5.16 and $313, respectively, in the prior year's first
quarter. The increase in the produced ounces of silver in the first quarter
ended March 31, 2000 over the same period last year was primarily due to the
increase in ownership of the Galena mine from 50% to 100% in September 1999.
The increase in silver production was partially offset by lower gold
production from the Company's Rochester and Fachinal mines. The decrease in
the ounces of gold produced during the first quarter of 2000 is primarily
attributable to reduced gold grades at the Rochester, Fachinal and Petorca
Mines.
Interest and other income in the first quarter of 2000 increased by $2.0
million, or 182.3%, compared with the first quarter of 1999. The increase is
due primarily to the $1.5 million gain on the mark to market adjustment on the
call option portion of the Company's hedge program.
17
<PAGE>
COSTS AND EXPENSES
Production costs in the first quarter of 2000 decreased by $0.5 million,
or 3.6%, from the first quarter of 1999 to $13.5 million. The decrease in
production costs is primarily a result of cost reduction programs initiated in
1999 at the Company's operations.
Depreciation and amortization increased in the first quarter of 2000 by
$0.7 million, or 17%, from the prior year's first quarter, primarily due to
decreased ore reserve estimates at the Fachinal Mine, as of January 1, 2000.
Administrative and general expenses increased $441,000 in the first
quarter of 2000 compared to 1999, due to increased annual incentive awards
paid relating to 1999, which were paid in 2000.
NET LOSS
As a result of the above mentioned factors, the Company's net loss
amounted to $9.8 million in the first quarter of 2000 compared to a net loss
of $7.3 million in the first quarter of 1999. In the first quarter of 2000,
the Company paid dividends of $2.6 million on its Mandatory Adjustable
Redeemable Convertible Securities (MARCS). As a result, the loss attributable
to common shareholders was $12.0 million, or $.39 per share, for the first
quarter 2000, compared to a loss of $9.9 million, or $.45 per share, for the
first quarter of 1999. The decrease in the net loss per share was attributed
to the higher weighted average number of shares in the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL; CASH AND CASH EQUIVALENTS
The Company's working capital at March 31, 2000 was approximately $144.0
million compared to $157.9 million at December 31, 1999. The ratio of current
assets to current liabilities was 8.2 to 1.0 at March 31, 2000 compared to 8.5
to 1.0 at December 31, 1999.
Net cash used in operating activities in the three months ended March
31, 2000 was $7.8 million compared to $2.9 million in the three months ended
March 31, 1999. Net cash provided from investing activities in the 2000 period
was $4.5 million compared to net cash used in investing activities of $3.8
million in the prior year's comparable period. The cash provided in the 2000
period was attributable to net proceeds received from sales and purchases of
short-term investments and marketable securities of $7.8 million in the first
three months of 2000, offset by capital expenditures primarily at Fachinal and
Galena Mines, and the Kensington Development property of $3.2 million. Net
cash used in financing activities was $2.8 million in the first three months
of 2000, as well as in the first three months of 1999. As a result of the
above, cash and cash equivalents decreased by $6.1 million in the first three
18
<PAGE>
months of 2000 compared to a $9.5 million decrease for the comparable period
in 1999.
CONVERSION OF MARCS TO COMMON SHARES
On March 15, 2000, the Company mandatorily converted its 7,078,000
outstanding shares of MARCS into $7,863,000 shares of common stock, and final
the dividend payment of $2.6 million on the MARCS was made as of that date.
FEDERAL NATURAL RESOURCES ACTION
On March 22, 1996, an action was filed in the United States District
Court 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 and as a result of pretrial discovery, it appears the United
States believes it can prove damages over $1 billion. 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.
The United States appealed this decision to the United States Court of Appeals
for the 9th Circuit. The Appeal has been argued but not decided. On March 31,
1998, the Court entered an order denying the plaintiffs' motion to allow the
19
<PAGE>
United States to prove a portion of its case pursuant to an administrative
record, and requiring the parties to submit further facts as to the issue of
trusteeship. Furthermore, in March 1998, the EPA 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. The court denied
this motion on the grounds that further facts must be developed at trial
before the issue can be decided.
CASH TENDER OFFER FOR 6% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
On May 9, 2000, the Company commenced a cash tender offer for up to
$27.8 million principal amount of its 6% Convertible Subordinated Debentures
due 2002 (the "Debentures") at a purchase price not greater than $720 or less
than $640 per $1000 principal amount of Debentures. The tender offer is being
conducted on a so-called "Dutch Auction" basis, in connection with which
holders will be able to specify the price at which they are willing to sell
their Debentures within the $640 to $720 price range and the Company will
select the lowest purchase price that will allow it to buy $27.8 million
principal amount of Debentures or such lesser principal amount as are properly
tendered and not withdrawn. The Company is not obligated to purchase any
Debentures if less than a minimum of $10 million principal amount are
tendered. It reserves the right, however, to purchase less than the $10
million principal amount if it chooses to do so. The tender offer will expire
on June 8, 2000, unless the offer is extended by the Company. All Debentures
acquired in the tender offer will be acquired at the same purchase price. The
Company has the right to purchase more than $27.8 principal amount of
Debentures pursuant to the tender offer.
The terms of the tender offer are fully set forth in the Offer to
Purchase, dated May 9, 2000, of the Company. Copies of the Offer to Purchase
and related documents may be obtained from D.F. King & Co., Inc., the
Information Agent related to the tender offer, or ABN AMRO Incorporated, the
Dealer Manager relating to the tender offer. If the Company purchases the
anticipated maximum $27.8 principal amount of Debentures pursuant to the Offer
at the maximum specified purchase price of $720 per $1000 principal amount of
Debentures, the Company expects the maximum aggregate cost, including fees and
expenses applicable to the offer, will be approximately $21 million. The
20
<PAGE>
Company's available cash and cash equivalents, which amounted to approximately
$80.9 million at March 31,2000, will be the source of funds for the purchase
price and related costs. The Company is conducting the tender offer in order
to reduce its interest expense and to take advantage of its current liquidity
and improve the capital structure of its balance sheet by reducing outstanding
indebtedness.
Coeur's Board of Directors has approved the offer. However, neither the
Board, nor ABN-AMRO Incorporated, the dealer manager, is making any
recommendations to the holders of the Debentures whether or not to tender
their Debentures or as to the purchase price at which they may choose to
tender.
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.
21
<PAGE>
The Company operates in several foreign countries, specifically
Australia, Bolivia, 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
mark-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, 2000 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
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.
See Note G - Hedging, to the consolidated financial statements for a
table which summarizes the Company's gold and foreign exchange hedging
activities at March 31, 2000.
PART II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith:
EXHIBIT NO. DOCUMENT
27 Financial Data Schedule
22
<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 12, 2000 /s/DENNIS E. WHEELER
---------------------
Dennis E. Wheeler
Chairman, President and
Chief Executive Officer
Dated May 12, 2000 /s/GEOFFREY A. BURNS
--------------------
Geoffrey A. Burns
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
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