<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 June 30, 1998
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
---- ----
Number of Shares Outstanding
Title of Each Class of Common Stock at July 31, 1998
- ----------------------------------- ----------------------------
Common Stock, $.01 par value 256,831,512
Page 1 of 8
<PAGE> 2
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 7,149 $ 15,985
Silver bullion 7,306 7,739
Accounts receivable 4,675 2,801
Inventories(Note 2) 3,583 3,627
Other current assets 1,531 1,739
----------- -----------
Total current assets 24,244 31,891
Property, plant and equipment, at cost 147,631 143,192
Less accumulated depreciation,
depletion and amortization (80,646) (77,727)
----------- -----------
66,985 65,465
Investments and other assets 4,774 4,245
----------- -----------
Total assets $ 96,003 $ 101,601
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,540 $ 1,351
Accrued expenses 3,880 3,581
----------- -----------
Total current liabilities 5,420 4,932
Long-term debt 41,745 42,265
Accrued pension and other postretirement benefits 5,600 5,672
Other long-term liabilities and deferred credits 3,886 4,236
Stockholders' equity:
Common stock$.01 par value;
600,000 shares authorized; shares issued:
June 30, 1998-261,394 shares
December 31, 1997-259,818 shares 2,614 2,598
Paidin capital 712,544 711,192
Deficit (674,696) (668,155)
----------- -----------
40,462 45,635
Less treasury stock, at cost:
June 30, 1998 4,563 shares
December 31, 1997 4,586 shares 1,110 1,139
----------- -----------
39,352 44,496
----------- -----------
Total liabilities and stockholders' equity $ 96,003 $ 101,601
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 3
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues $ 8,553 $ 4,320 $ 18,293 $ 10,052
Mark to market writedown (1,755) (372) (963) (186)
--------- --------- --------- ---------
6,798 3,948 17,330 9,866
--------- --------- --------- ---------
Costs and expenses:
Cost of revenues 7,455 5,018 14,405 10,706
Depreciation, depletion
and amortization 1,500 1,214 2,895 2,522
--------- --------- --------- ---------
8,955 6,232 17,300 13,228
--------- --------- --------- ---------
Operating margin (loss) (2,157) (2,284) 30 (3,362)
Other income (expense)
Exploration (1,536) (2,048) (2,581) (4,410)
Selling, general and
administrative expense (1,385) (1,461) (2,591) (2,841)
Interest income 167 200 386 410
Interest and debt expense (1,725) (1,384) (3,410) (2,744)
Other, net 24 (4) 1,626 33
--------- --------- --------- ---------
(4,455) (4,697) (6,570) (9,552)
--------- --------- --------- ---------
Net loss $ (6,612) $ (6,981) $ (6,540) $ (12,914)
========= ========= ========= =========
Basic and fully diluted loss
per common share: $ (0.03) $ (0.03) $ (0.03) $ (0.05)
Weighted average common shares outstanding 256,759 255,137 256,229 255,100
========= ========= ========= =========
</TABLE>
See accompanying notes.
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<PAGE> 4
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
-------- --------
<S> <C> <C>
Cash used by operating activities:
Net loss $ (6,540) $(12,914)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation, depletion and amortization 2,895 2,522
Amortization of debt issuance costs and accretion of debt discount 1,022 1,037
Net (increase) decrease in:
Silver bullion 433 224
Accounts receivable (1,874) 1,347
Inventories 44 (74)
Other assets and deferred charges (2,293) (328)
Net increase (decrease) in:
Accounts payable and accrued expenses 495 479
Accrued pension and other postretirement benefits (72) (114)
Other liabilities and deferred credits (322) (413)
-------- --------
Net cash used by operations (6,212) (8,233)
-------- --------
Cash provided (used) by investing activities:
Additions to property, plant and equipment (4,440) (1,050)
Proceeds from sale of investments 1,774 273
-------- --------
Net cash used by investing activities (2,666) (777)
-------- --------
Cash provided (used) by financing activities:
Proceeds from issuance of common stock upon exercise of stock
options and warrants 48 0
Debt issuance costs (6) (150)
-------- --------
Net cash provided (used) by financing activities 42 (150)
-------- --------
Decrease in cash and cash investments (8,836) (9,160)
Cash and cash investments, January 1 15,985 16,317
-------- --------
Cash and cash investments, June 30 $ 7,149 $ 7,157
======== ========
Supplemental cash flow information
Interest paid in cash $ 2,056 $ 1,411
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 5
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1998
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 June 30, 1998 presentation. Operating
results for the six-month period ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in
Sunshine's report on Form 10-K for the year ended December 31, 1997.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- --------
<S> <C> <C>
Precious Metals Inventories:
Work in process $ 2,199 $ 2,171
Finished goods 165 264
Materials and supplies inventories 1,219 1,192
-------- --------
$ 3,583 $ 3,627
======== ========
</TABLE>
SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Six Months Ended June 30, 1998 and 1997
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1998 totaled $18.8 million including $7.1
million in cash and cash investments and $7.3 million in silver bullion. The
Company anticipates capital expenditures in 1998 at the Sunshine Mine to be
approximately $2.4 million, including $1.2 million expended in the first half.
For 1998, the Company intends to spend approximately $4.4 million in
discretionary exploration activities, primarily at the La Joya del Sol Mine in
Argentina and the Sunshine Mine. Exploration expenditures for the first six
months of 1998 totaled approximately $2.6 million. Additionally, $7.0 million is
anticipated to be spent during 1998 preparing a bankable feasibility study and
for development work at the Pirquitas Mine in Argentina, of which $2.9 million
was spent in the first half.
Cash and working capital are considered adequate to fund ongoing
operations for the foreseeable future. However, development of the Pirquitas
Mine is expected to require approximately $100 million, which the Company
intends to raise from outside sources. The Company is currently reviewing
financing options, including debt and/or equity
5
<PAGE> 6
offerings, to determine the most appropriate financing for the development of
the property.
The Company has engaged outside independent consultants to prepare a
comprehensive evaluation of all aspects of the project's operations and
economics, known as a bankable feasibility study. The bankable feasibility
study, scheduled for completion in the fourth quarter of 1998, will be used to
support the financing effort. Although the Company believes it will be
successful in obtaining adequate financing for the development of Pirquitas, no
assurance can be given as to the availability of adequate financing.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first half of 1998 was $6.2
million compared to $8.2 million in the first half of 1997. The $2.0 million
decrease was primarily due to a reduction in cash operating loss to $2.6 million
in the first half of 1998 compared to $9.4 million in the first half of 1997,
partially offset by changes in working capital components. The improvement in
cash operating loss resulted primarily from increased silver production and an
increase in average per ounce silver price received for silver sold. Accounts
receivable increased primarily due to increased sales volumes. Investments
increased primarily due to the reduction in the valuation reserve previously
booked against certain investments.
Investing activities in the first half of 1998 used approximately $2.7
million of cash including $2.9 million for the development of Pirquitas, $1.2
million of capital expenditures at the Sunshine Mine and $341 thousand of other
capital expenditures, partially offset by $1.8 million of proceeds from sale of
investments.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
Consolidated operating revenues increased approximately $4.2 million
(98%) for the second quarter of 1998 compared to the second quarter of 1997. The
increase in operating revenues primarily resulted from an increase in silver
sales volumes and average price received per ounce of silver sold (1,367,000
ounces of silver at an average of $5.48 per ounce in the 1998 quarter compared
to 758,000 ounces at an average of $4.62 per ounce in the 1997 quarter). The
silver sales volume increase primarily resulted from a 616,000 ounce (76.7%)
increase in production in the 1998 quarter.
Mark to market writedowns of work-in-process silver inventories and
silver held for investment amounted to $1.8 million and $0.4 million in 1998 and
1997, respectively. Such writedowns, which were due to declines in the per ounce
silver price during the periods, are charged against revenues.
Cost of revenues increased $2.4 million (48.6%) (from $5.0 million in
the second quarter of 1997 to $7.45 million in the second quarter of 1998)
primarily due to the 76.7% increase in production in 1998, partially offset by
lower net unit operating costs. Net unit operating costs decreased $.91 per
ounce (16.2%) to $4.69 per ounce of silver primarily due to the increase in
silver production and a 2.33 ounce per ton (10.6%) increase in average grades
from 1997 to 1998 (1.4 million ounces produced from 60,184 tons at 24.31 ounces
per ton in 1998 versus 0.8 million ounces from 37,867 tons at 21.98 ounces per
ton in 1997) partially offset by a decrease in by-product credits of $0.30 per
ounce of silver. The decrease in by-products credit per ounce of silver resulted
primarily from a decrease in copper, antimony and lead prices in the 1998
quarter compared to the 1997 quarter.
Depreciation, depletion and amortization increased by approximately
$286 thousand as a result of increased production in the 1998 quarter.
Exploration expense decreased $512 thousand in 1998 compared to 1997
primarily due to the fact that work carried out at the Pirquitas Mine in
Argentina is largely being capitalized as the property is now considered to be
in the development stage. As a result,
6
<PAGE> 7
approximately $2.0 million of expenditures at Pirquitas during the 1998 quarter
were capitalized. This was partially offset by increased exploration
expenditures at the La Joya del Sol gold property in Argentina, at the Sunshine
Mine and other exploration projects.
Selling, general and administrative expense decreased $76 thousand
(5.2%) due to a variety of cost reductions.
Interest and debt expense increased $341 thousand primarily due to the
debt issued in November 1997.
THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1997
Consolidated operating revenues increased approximately $8.2 million
(82%) for the first six months of 1998 compared to the first six months of 1997
primarily due to an increase in sales volume and average price received per
ounce of silver sold (2.7 million ounces of silver at an average of $5.94 per
ounce in the first six months of 1998 compared to 1.7 million ounces of silver
at an average of $4.92 in the same period of 1997) and the associated $638
thousand increase in by-product revenue. The increase in sales volumes primarily
resulted from a 1.0 million ounce (59.6%) increase in production in 1998
compared to 1997.
Mark to market writedowns of work-in-process silver inventories and
silver bullion held for investment amounted to $963 thousand and $186 thousand
in 1998 and 1997, respectively. Such writedowns are charged against revenues.
The writedowns were due to declines in the per ounce silver price during the
periods, from $5.945 to $5.57 between December 31, 1997 and June 30, 1998; and
from $4.74 to $4.60 between December 31, 1996 and June 30, 1997.
Cost of revenues increased $3.7 million (35%) (from $10.7 million in
the first six months of 1997 to $14.4 million in the first six months of 1998)
primarily due to the 59.6% increase in production in 1998, partially offset by
lower net unit operating costs. Net unit operating costs decreased $.79 (14.7%)
to $4.56 primarily due to the 59.6% increase in silver production (2.7 million
ounces produced from 116,884 tons at 24.00 ounces per ton in 1998 versus 1.7
million ounces from 83,667 tons at 21.08 ounces per ton in 1997).
Depreciation, depletion and amortization increased by approximately
$373 thousand as a result of increased production in the 1998 period.
Exploration expense decreased $1.8 million in 1998 compared to 1997
primarily due to the fact that work carried out at the Pirquitas Mine in
Argentina is largely being capitalized as the property is now considered to be
in the development stage. As a result, approximately $2.9 million of
expenditures at Pirquitas during 1998 were capitalized. This was partially
offset by increased exploration expenditures at the La Joya del Sol gold
property in Argentina, at the Sunshine Mine and other exploration projects.
Selling, general and administrative decreased $250 thousand (8.8%) due
to a variety of cost reductions.
Interest expense increased $666 thousand due to the debt issued in
November 1997.
Other, net increased $1.6 million due to the $1.6 million reduction of
the valuation reserves previously recorded against certain investments as a
result of restructuring and performance of certain investments.
7
<PAGE> 8
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
On May 20, 1998, at Sunshine's Annual Meeting of Stockholders, for
which proxies were solicited pursuant to Regulation 14A, the following nominees
for director of Sunshine were elected by holders of common stock by the vote
indicate.
<TABLE>
<CAPTION>
Broker
Name For Withheld Non-votes
----- --- -------- ---------
<S> <C> <C> <C>
G. Chris Andersen 186,388,620 3,879,630 0
V. Dale Babbitt 186,663,940 3,604,310 0
George M. Elvin 186,689,158 3,579,092 0
Daniel D. Jackson 186,658,748 3,609,502 0
Oren G. Shaffer 186,665,490 3,602,760 0
John S. Simko 186,680,118 3,588,132 0
Robert B. Smith, Jr. 186,679,837 3,588,413 0
</TABLE>
ITEM 5. OTHER INFORMATION
At the Company's 1999 annual meeting of shareholders, management
proxies will have discretionary authority to vote on shareholder proposals that
are not submitted for inclusion in the Company's proxy statement, unless the
Company receives notice of those proposals on or before February 7, 1999. For
matters disclosed to the Company on or before that date, management proxies may
nonetheless, in certain circumstances, exercise discretionary voting pursuant to
Rule 14a-4(c) under the Exchange Act of 1934.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits None
(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: August 3, 1998 By: /s/ WILLIAM W. DAVIS
-------------------------
William W. Davis
Executive Vice President
and Chief Financial Officer
8
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND UNAUDITED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,149
<SECURITIES> 0
<RECEIVABLES> 4,675
<ALLOWANCES> 0
<INVENTORY> 3,583
<CURRENT-ASSETS> 24,244
<PP&E> 147,631
<DEPRECIATION> 4,744
<TOTAL-ASSETS> 96,003
<CURRENT-LIABILITIES> 5,420
<BONDS> 41,745
0
0
<COMMON> 2,614
<OTHER-SE> 36,738
<TOTAL-LIABILITY-AND-EQUITY> 96,003
<SALES> 18,293
<TOTAL-REVENUES> 17,330
<CGS> 14,405
<TOTAL-COSTS> 17,300
<OTHER-EXPENSES> 2,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,410
<INCOME-PRETAX> (6,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,540)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
