<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
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 1-10012
SUNSHINE MINING AND REFINING COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2618333
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 W. Main, Suite 600, Boise, Idaho 83702
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code (208) 345-0660
- --------------------------------------------------------------------------------
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
--- ---
<TABLE>
<CAPTION>
Number of Shares Outstanding
Title of Each Class of Common Stock at November 3, 1997
- ----------------------------------- ----------------------------
<S> <C>
Common Stock, $.01 par value 255,137,325
</TABLE>
Page 1 of 11
<PAGE> 2
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 3,009 $ 16,317
Silver bullion 7,801 7,989
Accounts receivable 2,922 2,624
Inventories (Note 2) 2,130 2,523
Other current assets 1,905 1,108
--------- ---------
Total current assets 17,767 30,561
Property, plant and equipment, at cost 142,669 141,409
Less accumulated depreciation,
depletion and amortization (75,988) (72,124)
--------- ---------
66,681 69,285
Investments and other assets 4,040 5,640
--------- ---------
Total assets $ 88,488 $ 105,486
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,366 $ 987
Accrued expenses 2,557 4,015
--------- ---------
Total current liabilities 3,923 5,002
Long-term debt 26,865 25,780
Accrued pension and other postretirement benefits 5,959 6,074
Other long-term liabilities and deferred credits 4,378 5,032
Stockholders' equity:
Common stock--$.01 par value;
600,000 shares authorized; shares issued:
September 30, 1997 - 259,803
December 31, 1996 - 259,652 2,598 2,597
Paid-in capital 711,092 711,093
Deficit (665,088) (648,847)
--------- ---------
48,602 64,843
Less treasury stock, at cost:
September 30, 1997 - 4,666 shares
December 31, 1996 - 4,671 shares 1,239 1,245
--------- ---------
47,363 63,598
--------- ---------
Total liabilities and stockholders' equity $ 88,488 $ 105,486
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended September 30 Nine Months Ended September 30
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues $ 7,814 $ 3,974 $ 19,126 $ 11,327
Mark to market gain (loss) 1,000 (296) 814 (900)
------------ ------------ ------------ ------------
8,814 3,678 19,940 10,427
------------ ------------ ------------ ------------
Costs and expenses:
Cost of revenues 6,778 5,183 18,742 13,389
Depreciation, depletion
and amortization 1,540 1,057 4,063 3,078
Exploration 1,290 2,628 5,700 7,102
Selling, general and
administrative expense 1,259 1,316 4,100 3,935
------------ ------------ ------------ ------------
10,867 10,184 32,605 27,504
------------ ------------ ------------ ------------
Operating loss (2,053) (6,506) (12,665) (17,077)
Other income (expense):
Interest income 66 319 475 930
Interest and debt expense (1,382) (1,332) (4,125) (2,971)
Other, net 41 210 73 293
------------ ------------ ------------ ------------
(1,275) (803) (3,577) (1,748)
------------ ------------ ------------ ------------
Net loss (3,328) (7,309) (16,242) (18,825)
Gain on retirement and exchange
of preferred stock -- -- -- 40,124
Preferred stock dividend requirements -- -- -- (2,622)
------------ ------------ ------------ ------------
Income (loss) applicable to common shares $ (3,328) $ (7,309) $ (16,242) $ 18,677
============ ============ ============ ============
Income (loss) per common share: $ (0.01) $ (0.03) $ (0.06) $ 0.09
============ ============ ============ ============
Weighted average common shares outstanding 255,112 238,086 255,112 214,366
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1997 1996
------------- --------------
<S> <C> <C>
Cash used by operating activities:
Net loss $(16,242) $(18,825)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation, depletion and amortization 4,063 3,078
Amortization of debt issuance costs and accretion of debt discount 1,611 1,069
Other 3 (60)
Net (increase) decrease in:
Silver bullion (695) 849
Accounts receivable (298) 23
Inventories 393 (423)
Other assets and deferred charges (4) (539)
Net increase (decrease) in:
Accounts payable and accrued expenses (839) 1,093
Accrued pension and other postretirement benefits (115) (235)
Other liabilities and deferred credits (649) (1,451)
-------- --------
Net cash used by operations (12,772) (15,421)
-------- --------
Cash provided (used) by investing activities:
Additions to property, plant and equipment (1,458) (2,279)
Proceeds from investments 1,162 1,493
-------- --------
Net cash used by investing activities (296) (786)
-------- --------
Cash provided (used) by financing activities:
Costs associated with conversion of preferred into common stock -- (865)
Proceeds from issuance of common stock upon exercise of stock
options and warrants -- 1
Proceeds from issuance of long term debt -- 30,000
Debt issuance costs (240) (2,463)
-------- --------
Net cash provided (used) by financing activities (240) 26,673
-------- --------
Increase (decrease) in cash and cash investments (13,308) 10,466
Cash and cash investments, January 1 16,317 12,837
-------- --------
Cash and cash investments, September 30 $ 3,009 $ 23,303
======== ========
Supplemental cash flow information -
Interest paid in cash $ 2,112 $ 1,583
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
of Sunshine Mining and Refining Company ("Sunshine" or the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of 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 accruals) considered necessary for a fair presentation have
been included. Certain previously reported amounts have been
reclassified to conform to the September 1997 presentation. (See Note
4. Long-term Debt and Interest Expense.) Operating results for the nine
month period ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997.
For further information, refer to the consolidated financial statements
and footnotes thereto included in Sunshine's report on Form 10-K for
the year ending December 31, 1996.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
<S> <C> <C>
Precious Metals Inventories:
Work in process $887 $1,144
Finished goods 152 405
Materials and supplies inventories 1,091 974
------- ------
$2,130 $2,523
====== ======
</TABLE>
3. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" which becomes effective for the Company's 1997 consolidated
financial statements beginning in the fourth quarter of 1997. SFAS No.
128 will eliminate the disclosure of primary earnings per share which
includes the dilutive effect of stock options, warrants and other
convertible securities ("Common Stock Equivalents") and instead
requires reporting of "basic" earnings per share, which will exclude
Common Stock Equivalents. Additionally, SFAS No. 128 changes the
methodology for fully diluted earnings per share. In the opinion of the
Company's
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management, it is not anticipated that the adoption of this new
accounting standard will have a material effect on the reported
earnings per share of the Company.
4. LONG-TERM DEBT AND INTEREST EXPENSE
Interest expense has been restated for 1996 and the first two quarters
of 1997. In a letter from the Securities and Exchange Commission (SEC)
to the Emerging Issues Task Force (EITF) in March, 1997, the SEC
announced its position on the accounting for the issuance of
convertible debt securities with a nondetachable conversion feature
that is "in the money" at the date of issue (a "beneficial conversion
feature"). In this letter the SEC stated that a beneficial conversion
feature should be recognized and measured, with any discount resulting
from an allocation of proceeds to the beneficial conversion feature
amortized as an increase in the effective interest rate of the
security. The SEC's position has now been included in EITF Topic No.
D-60. The company's Eurobonds issued in March, 1996 contain a provision
which states that if the company's stock does not trade at a price 33%
above the conversion price of the Eurobonds ($1.00) for 45 consecutive
trading days within three years of the date of issue, holders of the
Eurobonds would be entitled to an additional payment equal to 22.5% of
the principal amount of the bonds outstanding at that date, payable in
cash or common stock. The company views this as a contingent liability,
and as it is not probable the additional payment will be paid, the
company has not previously accrued any additional interest expense
representing the contingent liability. The SEC staff has recently
advised the company that it believes that EITF Topic No. D-60 applies
to this feature of the company's Eurobonds and has therefore instructed
the company to recognize the additional charge to interest expense, and
restate the 1996 and the first two quarters of 1997 financial
statements. As a result of this restatement, interest expense has been
increased by $714 thousand and $671 thousand in the first six months of
1997 and the first nine months of 1996, respectively, over amounts
previously reported.
6
<PAGE> 7
SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Nine Months Ended September 30, 1997 and 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal product at this time is silver produced from
its Sunshine Mine in Kellogg, Idaho. Due to low silver prices, the Company's
operations have not generated positive cash flow, and the costs of exploration,
general and administrative expense, and interest charges have been funded from
available cash balances.
In 1992, in response to low silver prices the Company implemented an
exploration program to find lower-cost silver reserves in the Sunshine Mine,
other parts of the western United States, and in Latin America. The first such
ore body found, the West Chance, is in the previously undeveloped western
section of the Sunshine Mine. The Company has completed initial development of
the West Chance and has begun full-scale mining operations in the ore body. A
significant reduction in the Company's cash production cost per ounce is
occurring in the second half of 1997 as a result of production increases. The
improvements have not restored the Company to profitability at current silver
prices, as the gross operating margin from the Sunshine Mine does not exceed
other expenses such as depreciation, depletion, exploration, general and
administrative and interest and debt expenses. However, the Company's
exploration program has identified other properties which have significant
potential to further improve results.
During the quarter, the Company completed a pre-feasibility study of
the Pirquitas Mine in Argentina. Based on the substantial drilling, sampling,
engineering studies and metallurgical testwork done to date in that study, 66.9
million ounces of silver and 39 thousand tons of tin have been classified as
proven and probable reserves. The Company plans to begin a new round of drilling
in early 1998 with a target of adding 30-50 million ounces to reserves.
Development of the property as a 5,500 ton per day open pit operation is
currently being studied, and would likely require a capital investment of
approximately $100 million, with resultant production of about 9.1 million
ounces of silver annually at a net cash cost of approximately $2.65 per ounce.
The Company has not yet begun to seek funding sources for this project.
The Company has leased the Revenue Virginius Mine near Ouray, Colorado.
The Company has done pre-feasibility work on the property which indicates that
with an $11 million capital investment, the property could produce approximately
three million ounces of silver at a net cash cost of approximately $3.50 per
ounce. The Company expects to do further feasibility work at the property before
seeking funding to restart operations.
In the second quarter of 1997, the Company acquired the rights to a
property in the Chubut province of Argentina, which it has named "La Joya del
Sol." Surface sampling has identified seven epithermal quartz veins on the
property containing significant amounts of high-grade gold mineralization. Based
on the veins' width, strike
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<PAGE> 8
length and the consistency of the mineralization, the Company believes La Joya
del Sol could be an important gold mine. Insufficient underground drilling has
been done to make any characterization of the vein's potential at depth. The
Company expects to begin a drilling program in November designed to better
delineate the potential of the veins below the surface. The Company has not yet
begun to estimate capital and operating costs. Should development of the
property be warranted, the Company will have to obtain capital from outside
sources, which it has not as yet identified.
The Company considers the addition of new producing properties through
its exploration program vital to its return to profitability, and has projected
approximately $6.3 million for exploration in 1997, compared to expenditures of
$10.2 million in 1996. Future spending on exploration projects is contingent on
the Company's ability to raise new funding. The Company believes its past
success in finding and developing new properties will assist it in raising the
funds required to continue its exploration program as well as in funding the
development of the properties it has already identified. However, no assurance
can be given that the necessary exploration and development funds can be
obtained.
At the end of the third quarter of 1997, the Company's working capital
was $13.8 million, which is considered adequate for the foreseeable future, as
ongoing improvements in operations at the Sunshine Mine will significantly
reduce the level of cash usage.
Certain matters discussed in this report are "forward-looking
statements" intended to qualify for the safe harbor from liability established
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are all statements other than statements of historical fact,
including without limitation those that are identified by the use of the words
"anticipates," "estimates," "expects," "intends," "plans," "predicts," and
similar expressions. Such statements address future plans, objectives,
expectations, and events or conditions concerning various matters such as mining
exploration, capital expenditures, earnings, litigation, liquidity and capital
resources, and accounting matters. Actual results in each case could differ
materially from those currently anticipated in such statements, by reason of
factors including without limitation, actual results of exploration, silver
prices, imprecision of reserve estimates, future economic conditions,
regulations, competition, and other circumstances affecting anticipated revenue
and costs. Any forward-looking statement speaks only as of the date on which
such statement is made, and the Company undertakes no obligation to update any
forward-looking statement.
Operating, Investing, and Financing Activities
Cash used in operating activities was approximately $12.8 and $15.4
million, respectively, in the first nine months of 1997 and 1996. The cash
operating loss decreased $4.2 million in the first nine months of 1997 primarily
due to a $2.2 million reduction in cash operating loss at the Sunshine mine
(from $3.3 million in 1996 to $1.1 million in 1997), a mark-to-market gain on
investment silver of $0.8 million in 1997 versus a $0.9 million loss in 1996, a
$1.4 million reduction in exploration expense compared to 1996
8
<PAGE> 9
partially offset by a $0.6 million increase in cash interest expense and a $0.5
million decrease in interest income.
Approximately $0.3 and $0.8 million of cash was used by investing
activities in the 1997 and 1996 nine-month periods, respectively.
Cash provided by financing activities was $26.7 million in the first
nine months of 1996 as a result of the Company's Notes Offering.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
Consolidated operating revenues increased approximately $3.8 million
(96.6%) for the third quarter of 1997 compared to the third quarter of 1996. The
increase in operating revenues resulted from an increase in silver sales volumes
(1,325,000 ounces of silver in the 1997 quarter compared to 623,000 ounces in
the 1996 quarter) and the associated $0.6 million increase in by-product revenue
partially offset by a $0.27 (5.4%) decrease in average silver price received per
ounce. The silver sales volume increase primarily resulted from a 649,000 ounce
(121%) increase in production in the 1997 quarter. Due to an increase in silver
price late in the quarter, to $5.19 per ounce, a mark to market gain of $1.0
million was recognized for silver in work-in-process inventories and investment
silver bullion compared to a $0.3 million mark to market loss in 1996.
Cost of revenues increased $1.6 million (31%) (from $5.2 million in the
1996 quarter to $6.8 million in the 1997 quarter) primarily due to the 121%
increase in production in 1997, partially offset by lower unit production costs.
Unit production costs decreased $3.35 per ounce (45%) to $4.07 per ounce of
silver primarily due to the increase in silver production from 1996 to 1997
(1,186,000 ounces produced from 47,418 tons at 25.92 ounces per ton in 1997
versus 537,000 ounces from 23,565 tons at 23.64 ounces per ton in 1996).
Depreciation, depletion and amortization increased by approximately
$483 thousand (46%) as a result of increased production in the 1997 period.
Exploration expenditures declined $1.3 million primarily due to the
completion of the required drilling for the pre-feasibility analysis at the
Pirquitas mine in the second quarter of this year.
Interest income decreased $253 thousand due to lower average invested
cash balances.
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Consolidated operating revenues increased approximately $7.8 million
(68.9%) for the first nine months of 1997 compared to the first nine months of
1996 primarily due to an increase in sales volume (3.1 million ounces of silver
in the first nine months of 1997 compared to 1.8 million ounces of silver in the
same period of 1996) and the associated $1.9 million increase in by-product
revenue. The increase in sales volumes primarily
9
<PAGE> 10
resulted from a 1.1 million ounce (65%) increase in production in 1997 compared
to 1996, and a 62 thousand ounce increase in sales volume of finished silver.
Mark to market gains on work-in-process silver inventories and silver bullion
held for investment amounted to $814 thousand in 1997 compared to a loss of
$900 thousand in 1996. The gains in 1997 were due to increases in the per ounce
silver price during the period, from $4.74 to $5.19 between December 31, 1996
and September 30, 1997
Cost of revenues increased $5.4 million (40%) (from $13.4 million in
the first nine months of 1996 to $18.8 million in the first nine months of 1997)
primarily due to the 65% increase in production in 1997, partially offset by
lower unit production costs. Unit production costs decreased $1.65 (25%) to
$4.85 primarily due to the 65% increase in silver production (2.9 million ounces
produced from 131,085 tons at 22.83 ounces per ton in 1997 versus 1.7 million
ounces from 81,882 tons at 22.09 ounces per ton in 1996).
Depreciation, depletion and amortization increased by approximately
$985 thousand (32%) as a result of increased production figures in the 1997
period.
Exploration expenditures declined $1.4 million primarily due to the
completion of the required drilling for the pre-feasibility analysis at the
Pirquitas mine in the second quarter of this year.
Interest income decreased by $455 thousand due to lower average
invested cash balances.
Interest and debt expense increased $1.2 million due to the Company's
Notes Offering completed in March, 1996.
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SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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 hereto duly authorized.
SUNSHINE MINING AND REFINING COMPANY
Dated: November 5, 1997 By: /s/ WILLIAM W. DAVIS
--------------------------------
William W. Davis
Executive Vice President
and Chief Financial Officer
11
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,009
<SECURITIES> 0
<RECEIVABLES> 2,922
<ALLOWANCES> 0
<INVENTORY> 2,130
<CURRENT-ASSETS> 17,767
<PP&E> 142,669
<DEPRECIATION> 75,988
<TOTAL-ASSETS> 88,488
<CURRENT-LIABILITIES> 3,923
<BONDS> 26,865
0
0
<COMMON> 2,598
<OTHER-SE> 44,765
<TOTAL-LIABILITY-AND-EQUITY> 88,488
<SALES> 19,126
<TOTAL-REVENUES> 19,940
<CGS> 18,742
<TOTAL-COSTS> 22,805
<OTHER-EXPENSES> 5,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,125
<INCOME-PRETAX> (16,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,242)
<EPS-PRIMARY> ($0.06)
<EPS-DILUTED> ($0.06)
</TABLE>
