<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 on its charter)
IDAHO 82-0109423
------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. Employer Ident. No.)
incorporation or organization)
P. O. Box I, Coeur d'Alene, Idaho 83816-0316
--------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
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 November 14, 2000.
<PAGE> 2
COEUR D'ALENE MINES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations -- 5
Three Months and Nine Months Ended September 30, 2000
and 1999
Consolidated Statements of Cash Flows -- 6
Three Months and Nine Months Ended September 30, 2000
and 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 25
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
</TABLE>
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 51,383 $ 86,935
Short-term investments 18,869 22,978
Receivables 13,317 15,376
Inventories 55,406 53,769
--------- ---------
TOTAL CURRENT ASSETS 138,975 179,058
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 97,169 96,592
Less accumulated depreciation (59,461) (54,265)
--------- ---------
37,708 42,327
MINING PROPERTIES
Operational mining properties 111,449 106,455
Less accumulated depletion (68,907) (62,431)
--------- ---------
42,542 44,024
Developmental properties 54,565 50,781
--------- ---------
97,107 94,805
OTHER ASSETS
Investments in unconsolidated affiliates 28,071 29,008
Debt issuance costs, net of accumulated
amortization of 4,487 5,378
Other 3,546 3,471
--------- ---------
36,104 37,857
--------- ---------
$ 309,894 $ 354,047
========= =========
</TABLE>
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,970 $ 4,693
Accrued liabilities 7,022 6,411
Accrued interest payable 4,847 5,064
Accrued salaries and wages 5,207 5,005
--------- ---------
TOTAL CURRENT LIABILITIES 21,046 21,173
LONG-TERM LIABILITIES
6% subordinated convertible debentures
due 2002 27,991 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 25,127 28,478
--------- ---------
TOTAL LONG-TERM LIABILITIES 253,767 264,709
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 -- 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 (375,872) (347,119)
Repurchased and nonvested shares (13,190) (13,190)
Accumulated other comprehensive loss:
Unrealized (loss) gain on investments (1,591) 125
--------- ---------
35,081 68,165
--------- ---------
$ 309,894 $ 354,047
========= =========
</TABLE>
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands, except for per share data)
<S> <C> <C> <C> <C>
REVENUES
Product sales $ 26,490 $ 21,986 $ 69,352 $ 60,693
Interest and other 3,234 16,453 7,764 18,765
--------- --------- --------- ---------
Total Revenues 29,724 38,439 77,116 79,458
COSTS AND EXPENSES
Production 24,440 17,720 63,516 45,469
Depreciation and amortization 4,810 2,719 15,619 12,166
Administrative and general 2,320 2,040 7,536 6,841
Exploration 1,846 1,408 6,427 5,355
Interest 3,761 4,079 11,598 12,406
Other 995 3,361 2,158 4,206
--------- --------- --------- ---------
Total Costs and Expenses 38,172 31,327 106,854 86,443
--------- --------- --------- ---------
NET (LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES AND
EXTRAORDINARY ITEM (8,448) 7,112 (29,738) (6,985)
Income tax provision (110) (92) (315) (247)
--------- --------- --------- ---------
NET (LOSS) INCOME BEFORE EXTRAORDIANARY
ITEM (8,558) 7,020 (30,053) (7,232)
Extraordinary item - early
Retirement of debt
(net of taxes) 102 2,590 1,300 2,590
--------- --------- --------- ---------
NET (LOSS) INCOME $ (8,456) $ 9,610 $ (28,753) $ (4,642)
Unrealized holding (loss) gain
on securities (68) 3,288 (1,717) 3,284
--------- --------- --------- ---------
COMPREHENSIVE (LOSS) INCOME $ (8,524) $ 12,898 $ (30,470) $ (1,358)
========= ========= ========= =========
NET (LOSS) INCOME $ (8,456) $ 9,610 $ (28,753) $ (4,642)
Preferred stock dividends -- (2,633) (2,180) (7,899)
--------- --------- --------- ---------
NET (LOSS) INCOME ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (8,456) $ 6,977 $ (30,933) $ (12,541)
========= ========= ========= =========
BASIC AND DILUTED (LOSS) INCOME PER SHARE DATA
Weighted average number
of shares of Common Stock 37,050 23,987 34,898 22,502
========= ========= ========= =========
Net (Loss) Income before
extraordinary item $ (0.23) $ 0.18 $ (0.92) $ (0.67)
Extraordinary item - early
Retirement of debt(net of taxes) 0.00 0.11 0.03 0.11
--------- --------- --------- ---------
Net (Loss) Income per share
Attributable to Common
Shareholders $ (0.23) $ 0.29 $ (0.89) $ (0.56)
========= ========= ========= =========
</TABLE>
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
-------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (8,456) $ 9,610 $ (28,753) $ (4,642)
Add (deduct) noncash items:
Depreciation, depletion, and amortization 4,810 2,719 15,619 12,166
Gain on early retirement of debt (net of taxes) (100) (2,590) (1,300) (2,590)
Other 2,038 1,122 4,583 2,928
Writedown of mining properties -- 2,492 -- 2,492
Undistributed (earnings) loss on investment
in unconsolidated subsidiary (319) 189 (879) 751
Unrealized (gain)loss on written calls (2,146) 5,826 (3,189) 5,826
Changes in Operating Assets and Liabilities:
Receivables (3,112) (6,026) 2,059 (3,098)
Inventories 1,317 (2,570) (1,637) (8,293)
Accounts payable and accrued liabilities (211) 4,244 (3,567) (670)
--------- --------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (6,179) 15,016 (17,064) 4,870
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (2,327) (9,359) (10,790) (13,094)
Proceeds from sales of short-term investments 1,700 1,866 13,773 3,044
Purchases of property, plant and equipment (425) (193) (1,411) (833)
Proceeds from sale of assets 110 86 800 955
Expenditures on operational mining properties (2,702) (1,800) (7,139) (3,318)
Expenditures on developmental properties (1,721) (3,639) (4,651) (7,498)
Other (11) 2,816 72 1,194
--------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,376) (10,223) (9,346) (19,550)
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt (241) (1,624) (6,240) (1,624)
Payment of cash dividends -- (2,633) (2,180) (7,899)
Other
(111) (173) (269) (472)
--------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (352) (4,430) (9,142) (9,995)
--------- --------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,907) 363 (35,552) (24,675)
Cash and cash equivalents at beginning
of period 63,290 102,297 86,935 127,335
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 51,383 $ 102,660 $ 51,383 $ 102,660
========= ========= ========= =========
</TABLE>
6
<PAGE> 7
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 only of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three-month and
nine-month periods ended September 30, 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. 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 should be reviewed in
connection with these condensed consolidated financial statements.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(In Thousands)
<S> <C> <C>
In process and on leach pads $ 44,649 $ 43,494
Concentrate and dore' inventory 5,681 5,594
Supplies 5,076 4,681
--------- ---------
$ 55,406 $ 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 has historically
sent approximately 50% of its dore, filed for Chapter 11 Bankruptcy during the
first quarter of 2000. The Company had in inventory, at the refinery,
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 to recover its dore and
believes it has a basis for recovery.
7
<PAGE> 8
NOTE C: Income Taxes
The Company has reviewed its net deferred tax asset for the nine-month
period ended September 30, 2000, together with net operating loss carryforwards,
and is not recognizing any 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 for all periods presented.
NOTE D: Conversion of MARCS to Common Stock
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: Investments
The Company, under the terms of its lease, self insurance, and bonding
agreements with certain banks, lending institutions and regulator agencies, is
required to collateralize certain portions of the Company's obligations. The
Company has collaterized these obligations by assigning certificates of deposit
that have maturity dates ranging from 3 months to a year, to the respective
institution or agency. At September 30, 2000 and December 31, 1999, the Company
had certificates of deposit under these agreements of $9.8 million and $6.6
million, respectively, restricted for this purpose.
In the second quarter of 2000, the Company sold its royalty interest in
the Quiruvilca mine in northeren Peru to Pan American Silver Corporation ("Pan
American") for 140,000 shares of Pan American capital stock, warrants to
purchase an additional 100,000 shares of Pan American capital stock at $5 per
share and $50,000 cash.
During the first quarter of 2000, the Company sold 245,000 shares of Pan
American capital stock for approximately $1.2 million, and recorded a realized
loss of approximately $66,000. The Company continues to hold approximately one
million shares of Pan American capital stock which is being marked-to-market
through other comprehensive income.
NOTE F: Long-Term Debt
During the third quarter 2000, the Company repurchased approximately
$342,000 principal amount of its outstanding 6% Subordinated Convertible
Debentures due 2002 (the "6% Debentures") for a total purchase price of
approximately $239,000, excluding
8
<PAGE> 9
purchased interest of approximately $6,000. 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 recorded an extraordinary gain of
approximately $102,000, net of taxes of zero, during the thrid quarter of 2000
on the reduction of its indebtedness.
On June 14, 2000, the Company repurchased $7,001,000 principal amount of
6% Debentures pursuant to a cash tender offer that commenced on May 9, 2000 and
expired as scheduled on June 8, 2000. The price paid by the Company for the
repurchased 6% Debentures was $5,040,720 (or $720 per $1,000 principal amount)
plus accrued and unpaid interest of $3,500 (or $.50 per $1,000 principal amount)
from June 10, 2000 to, but not including, the date of payment on June 14, 2000.
As a result of the cash tender offer, the Company reduced the outstanding
principal amount of 6% Debentures from $35,334,000 to $28,333,000, thereby
reducing the annual amount of its future interest expense by $420,060. The
Company recorded an extraordinary gain of $1,111,000, net of tender offer
expenses, in the quarter ended June 30, 2000.
During the first quarter 2000, the Company repurchased approximately
$248,000 principal amount of outstanding 6% Debentures 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 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 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
9
<PAGE> 10
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.
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corp.
Segment Reporting
-------------------------------
Nine Months Ended September Silver Coeur Exploration
30, 2000 Rochester Valley Fachinal Petorca Australia & Development Other Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total net sales and revenues $ 38,810 $ 12,293 $ 8,357 $ 4,851 $ 6,842 $ (270) $ 6,233 $ 77,116
Depreciation and
Amortization(B) $ 11,192 $ 2,013 $ 3,843 $ 171 $ 1,668 $ 64 $ 1,082 $ 20,033
Interest income - - $ 13 $ 5 $ 100 $ 10 $ 3,412 $ 3,540
Interest expense - - $ 14 $ 1 - - $ 11,583 $ 11,598
Gain on Metal Hedging - - - - - - $ 3,189 $ 3,189
Income tax expense - $ 1 - - $ 42 - $ 272 $ 315
Earnings(losses)from non-
Consolidated affiliates - - - - $ 1,237 - - $ 1,237
Gain on early retirement of
Debt - - - - - - $ 1,300 $ 1,300
Income(loss) $ 10,957 $ 209 $ (3,825) $(1,251) $ 1,083 $ (3,959) $(4,510) $ (1,296)
Investments in
Unconsolidated Affiliates - - - - $28,071 - - $ 28,071
Segment assets(A) $ 83,552 $ 26,770 $ 28,492 $ 3,740 $ 377 $ 53,767 $ 6,840 $ 203,538
Expenditures for property $ 1,669 $ 4,305 $ 2,281 $ 387 - $ 4,518 $ 42 $ 13,202
<CAPTION>
-------------------------------
Nine Months Ended September Silver Coeur Exploration
30, 2000 Rochester Valley Fachinal Petorca Australia & Development Other Total
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total net sales and revenues $ 37,071 $ 1,388 $ 5,094 $8,040 $ 7,450 $(1,167) $ 21,582 $ 79,458
Depreciation and
Amortization(B) $ 6,977 $ 167 $ 2,255 $ 268 $ 3,438 $ 84 $ 1,626 $ 14,815
Interest income - - $ 57 $ 15 $ 43 $ 10 $ 4,139 $4,264
Interest expense - - $ 24 $ 2 - - $ 12,380 $ 12,406
Gain on Cyprus Settlement - - - - - - $ 21,140 $ 21,140
Loss on Metal Hedging - - - - - - $(5,826) $(5,826)
Write down of Mine Property - - - - - - $(2,492) $(2,492)
Income tax expense - - - - $ 14 - $ 233 $ 247
Earnings(losses) from - - - - $ (835) - $ 84 $ (751)
Unconsolidated
Affiliates
Gain on early retirement of
Debt - - - - - - $ 2,590 $ 2,590
Income(loss) $ 13,962 $ 202 $(1,092) $1,169 $ 91 $(5,389) $(1,529) $ 7,414
Investments in non-
Consolidated Affiliates - - - - $46,006 - - $ 46,006
Segment assets(A) $ 89,942 $23,703 $ 30,686 $3,203 $ 432 $ 49,066 $ 16,735 $213,767
Expenditures for property $ 3,615 $ 255 $ 476 $ 169 - $ 6,603 $ 531 $ 11,649
</TABLE>
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property,
plant and equipment, and mining properties.
(B) Depreciation and Amortization includes accruals for Reclaimation.
10
<PAGE> 11
<TABLE>
<CAPTION>
Coeur d'Alene Mines Corporation
Segment Reporting Nine Months Ended
Reconciliation to Consolidated Totals September 30,
2000 1999
-------------------------------
<S> <C> <C>
Income(loss)
------------
Total income or loss for reportable segments $ (1,296) $ 7,414
Gain on Cyprus settlement - 21,140
Gain(Loss) on Metal Hedging 3,189 (5,826)
Depreciation and Amortization (20,033) (14,815)
Interest expense (11,598) (12,406)
Writedown of mine property - (2,492)
-------------------------------
Loss before income taxes $(29,738) $ (6,985)
===============================
</TABLE>
<TABLE>
<CAPTION>
September 30,
Assets 2000 1999
------
-------------------------------
<S> <C> <C>
Total assets for reportable segments $203,538 $213,767
Cash and cash equivalents 51,383 102,660
Short-term investments 18,869 22,847
Other assets 36,104 55,164
-------------------------------
Total consolidated assets $309,894 $394,438
===============================
</TABLE>
Coeur d'Alene Mines Corporation
Segment Reporting
<TABLE>
<CAPTION>
Geographic Information
----------------------
(In Thousands)
Nine Months Ended September 30,
Revenues 2000 1999
-------------------------------
<S> <C> <C>
United States $57,337 $ 60,042
Chile 12,937 11,966
Australia 6,842 7,450
-------------------------------
Consolidated Total $77,116 $134,815
===============================
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
Long-Lived Assets 2000 1999
-------------------------------
<S> <C> <C>
United States $ 93,948 $ 94,505
Chile 21,467 24,177
New Zealand 539 998
Bolivia 18,853 19,554
Other Foreign Countries 8 12
-------------------------------
Consolidated Total $134,815 $139,246
===============================
</TABLE>
Revenues are geographically seperated based upon the country in which operations
and the underlying assets generating those revenues reside.
11
<PAGE> 12
NOTE H: Hedging
For the nine months ending September 30, 2000, the Company recorded a
$2.9 million realized gain in connection with the hedge program.
In the third quarter of 2000 the Company placed Chilean peso hedges of
$10.8 million at an average exchange of $564.80 pesos per US$1, which represents
approximately 75% of the Company's Chilean peso requirements over the next 12
months.
The following table summarizes the information at September 30, 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. The fair values were derived from
dealer quotes. 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.
Qualitative and Quantitative Disclosures About Market Risk
<TABLE>
<CAPTION>
(dollars and peso's in thousands) 2000 2001 2002 2003 2004
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Long Term Debt
Fixed Rate $ - $ - $ 27,991 $ - $ 93,372
Average Interest Rate 6.740% 6.740% 6.794% 6.843% 7.190%
DERIVATIVE FINANCIAL INSTRUMENTS
Gold Forward Sales - AUD
Ounces 3,900 - - - -
Price Per Ounce $ 612.10 $ - $ - $ - $ -
Gold Put Options Purchased - AUD
Ounces 3,600(1) 30,000(1) 30,000(1) 30,000(1) -
Price Per Ounce $ 597.00 $ 597.00 $ 597.00 $ 597.00 $ -
Gold Forward Sales - USD
Ounces 7,500 12,000 12,000 - -
Price Per Ounce $ 306.82 $ 316.51 $ 331.84 $ - $ -
Gold Call Options Sold - USD
Ounces - - - - -
Price Per Ounce $ - $ - $ - $ - $ -
Amortizing Forward Sales - USD
Ounces 5,000 22,560(2) 22,560(2) 22,560(2) 22,560(2)
Price Per Ounce $ 338.58 $ 348.50 $ 348.50 $ 348.50 $ 348.50
Foreign Currency Contracts
New Zealand Dollar $ 900 $ - $ - $ - $ -
Exchange Rate (NZ$ to US$) 2.118 - - - -
Chilean Pesos $1,509,690 $ 4,590,150 $ - $ - $ -
Exchange Rate(Peso to US$) 559.14 566.69 - - -
<CAPTION>
Fair
Value
(dollars and peso's in thousands) Thereafter Total 09/30/00
----------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Long Term Debt $97,326
Fixed Rate $ 107,277 $228,640
Average Interest Rate 7.250%
DERIVATIVE FINANCIAL INSTRUMENTS
Gold Forward Sales - AUD $ 228
Ounces - 3,900
Price Per Ounce $ -
Gold Put Options Purchased - AUD $ 4,712
Ounces - 93,600
Price Per Ounce $ -
Gold Forward Sales - USD $ 1,461
Ounces - 31,500
Price Per Ounce $ -
Gold Call Options Sold - USD $ -
Ounces 56,000(2) 56,000
Price Per Ounce $ 345.00
Amortizing Forward Sales - USD $ 325
Ounces 78,960(2) 174,200
Price Per Ounce $ 348.50
Foreign Currency Contracts $ (56)
New Zealand Dollar $ - $ 900
Exchange Rate (NZ$ to US$) -
$ 20
Chilean Pesos $ - $6,099,840
Exchange Rate(Peso to US$) -
</TABLE>
12
<PAGE> 13
(1) Of the put options purchased, 93,600 ounces have a knock-out provision
whereby the options will terminate if gold trades above approximately
$289 per ounce prior to the exercise date, based on a US dollar to
Australian dollar exchange rate of 1.89.
(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 at any time after December 27, 2002, and calls for 169,200 ounces
will terminate if gold trades below $310 per ounce at any time after
December 29, 2000.
NOTE I: New Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which was amended by FASB
Statement 138 "Accounting for Hedging Activities" (SFAS 138), 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 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
will adopt the statement on January 1, 2001.
NOTE J: Litigation
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 settlements with the state and Tribe bars the federal claims. That motion
remains pending. 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, and requiring the parties to
13
<PAGE> 14
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.
With respect to the natural resource damage litigation referred to above,
in June 2000 Governor Kempthorne of the State of Idaho asked the defendants to
give him a proposal for settlement which he could take to the plaintiffs in the
suit. The defendants outlined such a proposal. The defendants would contribute a
total of $250 million over 30 years, of which $154 million would be in fixed
annual payments, without interest. The remaining $96 million would be paid from
royalties based on the price of silver, copper, gold and zinc as provided in an
index and schedule to be agreed upon. Coeur advised the Governor, defendants and
the U.S. that its share of this proposal would be, without admission of
liability and with appropriate release, the sum of $3,750,000, which would be
paid in annual installments over 25 years without interest and an additional
$1,250,000 in years 26-30 based on the royalty concept described above. It is
not known whether the proposal put forth by the Governor to the plaintiffs will
be accepted, although the Coeur d'Alene Tribe, one of the plaintiffs with whom
the Company has already settled (in 1992), indicated it viewed the proposal
"optimistically". Trial is set to commence on January 22, 2001.
NOTE K: 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.
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
14
<PAGE> 15
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.
The Company's currently operating mines are the Rochester mine in Nevada,
the Galena mine (also known as Silver Valley) in the Coeur d'Alene Mining
District of Idaho (in which the Company increased its ownership to 100% in
September of 1999) 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 ("Gasgoyne"), an Australian gold mining company, that owns 50% of
the Yilgarn Star gold mine in Australia.
The average price of silver and gold in the third quarter of 2000 was
$4.96 and $277 per ounce, respectively. The market price of silver (Handy &
Harman) and gold (London Final) on November 10, 2000 was $4.69 per ounce and
$264.75 per ounce, respectively.
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 and
nine-month periods ended September 30, 2000 and 1999:
15
<PAGE> 16
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
ROCHESTER MINE
Gold ozs 19,334 19,609 53,694 52,432
Silver ozs 1,649,567 1,520,043 4,948,039 4,540,061
Cash Costs per oz./silver $4.01 $3.27 $4.01 $3.94
Full Costs per oz./silver $5.12 $3.98 $5.15 $4.77
GALENA MINE (SEE NOTE)
Silver ozs 1,156,262 577,579 2,853,617 1,448,589
Cash Costs per oz./silver $3.93 $4.74 $4.73 $4.76
Full Costs per oz./silver $4.56 $5.74 $5.43 $5.82
PRIMARY SILVER MINES
Consolidated Cash Costs per oz $3.99 $3.67 $4.20 $4.08
YILGARN STAR MINE
Gold ozs 6,628 7,014 19,221 20,568
Cash Costs per oz./gold $232 $252 $233 $285
Full Costs per oz./gold $346 $458 $350 $482
FACHINAL MINE
Gold ozs 4,449 6,081 13,868 19,664
Silver ozs 240,226 276,402 799,655 878,185
Cash Costs per oz./gold $413 $277 $375 $293
Full Costs per oz./gold $561 $337 $511 $354
PETORCA MINE
Gold ozs 7,437 7,946 19,077 23,341
Silver ozs 14,251 18,308 42,190 44,926
Cash Costs per oz./gold $337 $287 $350 $272
Full Costs per oz./gold $345 $287 $359 $272
PRIMARY GOLD MINES
Consolidated Cash Costs per oz $336 $273 $327 $285
CONSOLIDATED TOTALS
Gold ozs 37,848 40,650 105,860 116,005
Silver ozs 3,060,306 2,392,332 8,643,501 6,911,791
</TABLE>
Note: The Company increased its ownership of the Galena Mine to 100% from 50% in
September 1999.
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
Rochester Mine
Coeur's Rochester mine produced 1.6 million ounces of silver and 19,300
ounces of gold during the third quarter of 2000 compared to 1.5 million ounces
of silver and 19,600 ounces of gold in the third quarter of the previous year.
Total cash costs for the latest three-month period were $4.01 per silver
equivalent ounce as opposed to $3.27 per silver equivalent ounce in 1999. The
increase in cash costs was due almost entirely to the planned treatment of
lower-grade ore in the current mining sequence. This was offset to a large
degree by operating improvements that included increasing the capacity of the
conveyor system and the crushing circuit as well as increasing the solution flow
on the leach pad by approximately 15 percent.
16
<PAGE> 17
After the completion of the first phase of a major reverse circulation
drilling program within and around the perimeter of the Rochester pit, drilling
commenced at the nearby Nevada Packard deposit on September 5. A total of 32
reverse circulation holes comprising approximately 10,000 feet have been
completed at Nevada Packard and analysis of this data along with that from the
main pit is nearing completion. Drilling has since recommenced at selected areas
around the Rochester pit. Results to date have been very encouraging and Coeur
is confident that it will be able to announce a significant increase to reserves
and resources at its flagship operation by the end of the year.
Silver Valley Resources - Galena Mine
In the third quarter, Coeur's share of silver production from the Galena
mine increased to 1.2 million ounces compared to 578,000 ounces of silver in the
third quarter of the prior year. The significant increase reflects the Company's
increased ownership of Coeur Silver Valley and record silver production from the
Galena mine. Record production was the result of improved ore grades from the
more productive vein structures at depth and an increase in mill throughput.
Consequently, total cash costs for the period were $3.93 per ounce compared to
$4.74 per ounce in the previous year, a decline of over 17 percent. Furthermore,
the rapid pace of underground development continues to provide greater access to
the wider, higher-grade vein systems, ensuring that the recent improvement in
performance will continue and that our goal to reach annual production of 5
million ounces of silver should be achieved. Additional cost-saving measures are
being studied including the possible implementation of trackless mining at the
lower levels of the mine.
The initial phase of the district-wide exploration program has also been
successful. A diamond drill hole intersected an 11-foot section of the 294 vein
in the West Argentine area of the property that graded 23.9 ounces of silver and
1.4 percent copper. This ore grade intercept was encountered 280 feet west of
any previously known mineralization. In addition, the same hole intercepted a
second mineralized zone contained within the Polaris fault of 20.6 feet grading
6.6 ounces of silver per ton and 1.1 percent copper including 5.9 feet at a
grade of 10.4 ounces of silver per ton and 2.2 percent copper. This second zone
is similar in many respects to the high-grade 72 vein that is currently one of
the mine's most productive sources of silver ore. Coeur has believed for some
time that there was considerable potential for further discoveries of economic
silver mineralization at Coeur Silver Valley and this was a key factor in the
Company's decision to purchase Asarco's silver assets in 1999.
Fachinal Mine
At Fachinal, gold and silver production in the third quarter of 2000
declined to 4,450 ounces and 240,200 ounces respectively from 6,100 ounces of
gold and 276,000 ounces of silver in the third
17
<PAGE> 18
quarter of the previous year. Total cash costs for the quarter increased to $413
per gold equivalent ounce compared to $277 per gold equivalent ounce in 1999.
The shortfall in production and the corresponding increase in cash costs were
partially due to lower ore grades and a reduction in tons milled but mainly to
the continuation of severe winter weather conditions that affected most of
southern Chile. This restricted development and access to the most productive
areas of the mine.
Once the weather improved, Coeur continued its exploration program
designed primarily to convert resources to reserves. This resulted in the
discovery of the new Cerro Bayo zone approximately 9 miles east of the
processing facilities. This zone includes a vein structure named Lucero that has
a greater strike length, width and grade than anything previously encountered in
the district. The Cerro Bayo zone, which consists of multiple veins and veinlets
show a surface expression of at least 8,200 feet along strike and is up to 3,300
feet in width. To date, the Lucero vein appears to be the primary ore shoot
within this zone and has been traced for more than 2,600 feet along strike and
to approximately 250 feet at depth. The Lucero vein is open in all directions
and contains sections that are characterized by high-grade gold and silver
mineralization. Some of the best drill intersections to date are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Hole # Drill Interval Gold Equivalent Grade
------------------------------------------------------------------------
<S> <C> <C>
BJH-199 22 feet 3.28 oz./ton
------------------------------------------------------------------------
BJH-204 17 feet 2.29 oz./ton
------------------------------------------------------------------------
BJH-147 20 feet 1.35 oz./ton
------------------------------------------------------------------------
BJH-145 30 feet 0.61 oz./ton
------------------------------------------------------------------------
</TABLE>
Based on a 30 percent allowance for dilution and a further 20 percent ore
loss, a preliminary resource of 210,000 gold equivalent ounces has been
calculated at an average grade of 0.22 gold equivalent ounces per ton. All high
grade assays were cut to 0.44 ounces per ton gold and 25 ounces per ton silver.
Coeur is temporarily suspending milling operations at Fachinal while it
continues its evaluation of this new zone and formulates detailed development
and mining plans.
Petorca
Petorca's production during the third quarter of 2000 was 7,400 ounces of
gold and 14,300 ounces of silver compared to 7,900 ounces of gold and 18,300
ounces of silver in the third quarter of the prior year. Total cash costs per
equivalent ounce of gold were $337 per ounce compared to $287 per ounce in 1999.
The rise in cash costs is attributable to the mining of lower-grade ore,
partially offset by increases in tons mined and in mill throughput. As at
Fachinal, operations were adversely affected by difficult winter weather
conditions but are expected to return to normal in the fourth quarter. In
addition, mill throughput is expected to increase as a result of the surface
mining of the San Lorenzo satellite deposit.
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<PAGE> 19
Yilgarn Star Mine
Coeur's 25 percent share of gold production from the Yilgarn Star mine
was 6,600 ounces in the third quarter of 2000 compared to 7,000 ounces in the
third quarter of 1999. Total cash costs for the period declined to $232 per
ounce as opposed to $252 per ounce in the prior year. The reduction in cash
costs was achieved in spite of the scheduled mining of lower-grade ore.
Operating improvements, especially to the crushing circuit, and a weaker
Australian dollar contributed to the $20 per ounce decline in cash costs. An
exploration drilling program to the south of the mine is now underway.
San Bartolome
Coeur acquired the San Bartolome silver property in September of last
year as part of the purchase of Asarco's silver assets. The property is located
adjacent to Cerro Rico mountain, one of the world's historic and most prolific
silver producing regions. Asarco calculated an initial resource estimate of 106
million ounces of silver contained principally in three main deposits,
Haucajchi, Santa Rosa and Diablo located along the flanks of the mountain. Since
Coeur obtained the property, the Company has completed an intensive field
program, which included detailed exploration, bulk sampling, definition
drilling, metallurgical studies and environmental baseline data collection.
Coeur retained a third party geological consulting firm to incorporate
the new data in an updated resource estimate. The Company is pleased to report
that as a result of its efforts, the resource has increased 15%, to 41.1 million
tons with an average grade of 2.98 ounces of silver per ton or 122 million
ounces of contained silver. Equally important is the fact that 93% of the new
resource is classified as measured and indicated.
The Company is continuing with the preparation of a pre-feasibility study. A
third party engineering firm has been engaged to assist with the design of the
progress flow sheet, site plan layout and estimation of operating and capital
costs. A formal pre-feasibility study is expected to be completed in early 2001.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999.
Revenues
Product sales in the third quarter of 2000 increased by $4.5 million, or
20%, from the third quarter of 1999 to $26.5 million. The increase in sales is
primarily attributable to the acquisition of 50% additional ownership of the
Galena Mine in the third quarter of 1999, and an increase in the sale of silver
at the Rochester Mine in the
19
<PAGE> 20
third quarter of 2000, offset in part by lower prices realized on both silver
and gold and a decrease in the amount of gold processed. In the third quarter of
2000, the Company produced a total of 3,060,306 ounces of silver and 37,848
ounces of gold compared to 2,392,332 ounces of silver and 40,650 ounces of gold
in the third quarter of 1999. In the third quarter of 2000, the Company realized
average silver and gold prices of $4.93 and $302, respectively, compared with
realized average prices of $5.22 and $329, respectively, in the prior year's
third quarter. The increase in the produced ounces of silver in the third
quarter ended September 30, 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 and increased production at the Rochester mine. The decrease in
the ounces of gold produced during the third quarter of 2000 is primarily
attributable to reduced gold grades at the Fachinal Mine.
Interest and other income in the third quarter of 2000 decreased by $13.2
million, or 80%, compared with the third quarter of 1999. The decrease was
primarily due to a $21 million gain recorded for the settlement of the Cyprus
suit, reduced by the unrealized loss recorded for the mark to market loss on the
Company's hedging program of $5.8 million in the third quarter of 1999, compared
to a hedging program gain of $2.1 million unrealized gain recorded in the third
quarter of 2000.
Costs and Expenses
Production costs in the third quarter of 2000 increased by $6.7 million,
or 38%, from the third quarter of 1999 to $24.4 million. The increase is
primarily a result of the increase in ownership of the Galena Mine and increased
production costs at the Fachinal and Petorca mines.
Depreciation and amortization increased in the third quarter of 2000 by
$2.1 million, or 77%, over the prior year's third quarter, primarily due to the
increased ownership of the Galena Mine from 50% to 100% in September of 1999 and
decreased ore reserve estimates at the Fachinal Mine, as of December 31, 1999,
thereby increasing the rate of depletion in 2000.
Administrative and general expenses increased $.3 million in the third
quarter of 2000 compared to 1999. Other expenses decreased $2.4 million in the
third quarter ended September 30, 2000 compared to the third quarter of 1999,
primarily due to the settlement of the Cyprus lawsuit in 1999.
Extraordinary Item
During the quarter ended September 30, 2000, the Company recorded an
extraordinary gain of $102,000, net of taxes, as a result of its repurchase of
$342,000 principal amount of 6% Convertible Subordinated Debentures due 2002 for
a purchase price of $239,000 plus accrued and unpaid interest of $6,000.
20
<PAGE> 21
Net Loss
As a result of the above mentioned factors, the Company's net loss
amounted to $8.5 million in the third quarter of 2000 compared to net income of
$7.0 million in the third quarter of 1999. In the third quarter of 2000, the
loss attributable to common shareholders was $8.5 million, or $.23 per share,
compared to net income attributable to common shareholders of $7.0 million, or $
.29 per share, for the third quarter of 1999. No perferred stock dividends were
paid in the quarter ended September 30, 2000 as a result of the mandatory
conversion on March 15, 2000 of the Company's outstanding MARCS. The increase in
the weighted average number of shares of Common Stock outstanding in the quarter
ended September 30, 2000 as compared to the comparable quarter of the prior year
is primarily attributable to the Company's issuance of 7,125,000 shares on
September 9, 1999 in connection with its acquisition of certain silver
properties and assets from Asarco, Inc.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999.
Revenues
Product sales in the nine months ended September 30, 2000, increased by
$8.7 million, or 14%, from the nine months ended September 30, 1999 to $69.4
million. The increase in sales is primarily attributable to the acquisition of
50% additional ownership of the Galena Mine in the third quarter of 1999 and
increases in the sale of gold and silver from all of the operations, offset in
part by decreases in silver and gold prices. In the nine months ended September
30, 2000, the Company produced a total of 8,643,501 ounces of silver and 105,860
ounces of gold compared to 6,911,791 ounces of silver and 116,005 ounces of gold
in the nine months ended September 30, 1999. In the nine months ended September
30, 2000, the Company realized average silver and gold prices of $5.05 and $310,
respectively, compared with realized average prices of $5.20 and $321,
respectively, in the prior year's comparable period. The increase in the
produced ounces of silver in the nine months ended September 30, 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 at the Rochester and Galena Mines was partially offset by lower
silver production from the Company's Fachinal mine. The decrease in the ounces
of gold produced during the nine months ended September 30, 2000 is primarily
attributable to reduced gold grades at the Yilgarn, Fachinal and Petorca Mines.
Interest and other income for the nine months ended September 30, 2000,
decreased by $10.6 million, or 58%, compared with the nine months ended
September 30, 1999. The decrease is primarily due to the $3.1 million gain on
the mark to market adjustment for the nine months ended September 30, 2000, on
the call option portion of the Company's hedge program, compared with a $21.1
million gain on the settlement of the Cyprus suit, offset in part by a $5.8
million mark
21
<PAGE> 22
to market loss on the Company's call option portion of the hedge program, in
the nine months ended September 30, 1999.
Costs and Expenses
Production costs in the nine months ended September 30, 2000 increased by
$18 million, or 40%, over the nine months ended September 30, 1999 to $63.5
million. The increase in production costs is primarily a result of the increase
in ownership of the Galena Mine to 100% from 50% in September 1999 and increased
production costs at the Fachinal and Petorca mines.
Depreciation and amortization increased in the nine month period ended
September 30, 2000 by $3.5 million, or 28%, over the prior year's comparable
period, primarily due to decreased ore reserve estimates at the Fachinal Mine as
of December 31, 1999, and increased depletion taken at the Galena Mine as a
result of the increase in ownership to 100% from 50% in September 1999.
Administrative and general expenses increased $.7 million in the nine
months ended September 30, 2000 compared to the comparable period in 1999, due
to increased annual incentive awards relating to 1999 that were paid in the
first quarter of 2000. Other expenses decreased $2 million in the nine month
period ended September 30, 2000, compared to the comparable period in 1999, due
to expenses incurred for the settlement of the Cyprus lawsuit in 1999 and
additional expenses recognized on the mine closure in New Zealand of $.9 million
in 2000.
Extraordinary Item
During the nine months ended September 30, 2000, the Company recorded an
extraordinary gain of $1.3 million as a result of its repurchase of 6%
Convertible Subordinated Debentures due 2000 that is discussed above.
Net Loss
As a result of the above mentioned factors, the Company's net loss
amounted to $28.8 million for the nine month period ended September 30, 2000
compared to a net loss of $4.6 million in the comparable period ended September
30, 1999. For the nine months ended September 30, 2000, the loss attributable to
common shareholders was $30.9 million, or $.89 per share, compared to a loss
attributable to common shareholders of $12.5 million, or $.56 per share, for the
nine months ended September 30, 1999. The decrease in perferred stock dividends
paid in the nine months ended September 30, 2000 as compared to the comparable
period of the prior year resulted from the Company's mandatory conversion on
March 15, 2000 of its outstanding MARCS. The increase in the weighted average
number of shares of Common Stock outstanding in the nine months ended September
30, 2000 as compared to the prior year's comparable period resulted from the
Company's issuance on September 9, 1999 of 7,125,000 shares
22
<PAGE> 23
in connection with its acquisition of certain silver properties and assets from
Asarco, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at September 30, 2000 was approximately
$117.9 million compared to $157.9 million at December 31, 1999. The ratio of
current assets to current liabilities was 6.6 to 1.0 at September 30, 2000
compared to 8.5 to 1.0 at December 31, 1999.
Net cash used in operating activities in the nine months ended September
30, 2000 was $17.1 million compared to net cash provided by operating activities
of $4.9 million in the nine months ended September 30, 1999. Net cash used in
investing activities in the 2000 period was $9.3 million compared to net cash
used in investing activities of $19.6 million in the prior year's comparable
period. Net cash used in financing activities was $9.1 million in the nine
months ending September 30, 2000, as compared to $10 million for the nine months
ending September 30, 1999. As a result of the above, cash and cash equivalents
decreased by $35.6 million in the nine months ending September 30, 2000 compared
to a $24.7 million decrease for the comparable period in 1999.
Conversion of MARCS to Common Shares
On March 15, 2000, the Company mandatorily converted its 7,077,833
outstanding shares of MARCS into 7,863,000 shares of common stock, and the final
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
23
<PAGE> 24
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 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.
With respect to the natural resource damage litigation referred to above,
in June 2000 Governor Kempthorne of the State of Idaho asked the defendants to
give him a proposal for settlement which he could take to the plaintiffs in the
suit. The defendants outlined such a proposal. The defendants would contribute a
total of $250 million over 30 years, of which $154 million would be in fixed
annual payments, without interest. The remaining $96 million would be paid from
royalties based on the price of silver, copper, gold and zinc as provided in an
index and schedule to be agreed upon. Coeur advised the Governor, defendants and
the U.S. that its share of this proposal would be, without admission of
liability and with appropriate release, the sum of $3,750,000 in annual
installments over 25 years without interest and an additional $1,250,000 in
years 26-30 based on the royalty concept described above. It is not known
whether the proposal put forth by the Governor to the plaintiffs will be
accepted, although the Coeur d'Alene Tribe, one of the plaintiffs with whom the
Company has already settled (in 1992), indicated it viewed the proposal
"optimistically".
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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, 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
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 September 30, 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 H - Hedging, to the consolidated financial statements for a
table which summarizes the Company's gold and foreign exchange hedging
activities at September 30, 2000.
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PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
27 Financial Data Schedule
</TABLE>
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
------------------------------------
(Registrant)
Dated November 14, 2000 /s/ Dennis E. Wheeler
-------------------------
DENNIS E. WHEELER
Chairman, President and
Chief Executive Officer
Dated November 14, 2000 /s/ Geoffrey A. Burns
-------------------------
GEOFFREY A. BURNS
Vice President and
Chief Financial Officer
27
