<PAGE> 1
FORM 10-Q/A
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 March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ______________________ to _____________________
Commission File Number 1-10012
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 May 6, 1999
- ----------------------------------- ----------------------------
Common Stock, $.01 par value 276,646,009
1 of 10
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 4,131 $ 1,412
Silver bullion 5,234 5,203
Accounts receivable 4,322 2,801
Inventories (Note 2) 3,031 4,236
Other current assets 1,042 1,845
--------- ---------
Total current assets 17,760 15,497
Property, plant and equipment, at cost 57,392 57,114
Less accumulated depreciation,
depletion and amortization (36,636) (36,700)
--------- ---------
20,756 20,414
Investments and other assets 3,850 3,986
--------- ---------
Total assets $ 42,366 $ 39,897
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 844 $ 1,413
Accrued expenses 3,529 4,368
Current portion, long term debt 27,774 0
--------- ---------
Total current liabilities 32,147 5,781
Long-term debt 20,623 42,597
Accrued pension and other postretirement benefits 5,320 5,498
Other long-term liabilities and deferred credits 3,526 3,487
Stockholders' equity (deficit):
Common stock--$.01 par value;
600,000 shares authorized; shares issued:
March 31, 1999 - 276,868
December 31, 1998 - 263,971 2,769 2,640
Paid-in capital 714,957 714,004
Deficit (735,866) (733,000)
--------- ---------
(18,140) (16,356)
Less treasury stock, at cost:
March 31, 1999 - 4,563 shares
December 31, 1998 - 4,563 shares (1,110) (1,110)
--------- ---------
(19,250) (17,466)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 42,366 $ 39,897
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Operating revenues $ 9,651 $ 9,740
Mark to market gain 83 792
--------- ---------
9,734 10,532
--------- ---------
Costs and expenses:
Cost of revenues (8,693) (6,950)
Depreciation, depletion
and amortization (348) (1,395)
Exploration (551) (1,045)
Selling, general and
administrative expense (1,215) (1,206)
--------- ---------
(10,807) (10,596)
--------- ---------
Other income (expense):
Interest income 57 219
Interest and debt expense (2,203) (1,685)
Other, net 353 1,601
--------- ---------
(1,793) 135
--------- ---------
Net Income (loss) $ (2,866) $ 71
========= =========
Basic and fully diluted income (loss)
per common share $ (0.01) $ 0.00
========= =========
Weighted average common shares outstanding 260,114 255,684
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1999 1998
-------- --------
<S> <C> <C>
Cash used by operating activities:
Net income (loss) $ (2,866) $ 71
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation, depletion and amortization 348 1,395
Amortization of debt issuance costs and accretion
of debt discount 1,079 587
Net (increase) decrease in:
Silver bullion (31) (622)
Accounts receivable (1,521) (2,031)
Inventories 1,205 (111)
Other assets and deferred charges 58 (1,762)
Net increase (decrease) in:
Accounts payable and accrued expenses (1,408) (557)
Accrued pension and other postretirement benefits (178) (43)
Other liabilities and deferred credits 39 (419)
-------- --------
Net cash used by operations (3,275) (3,492)
-------- --------
Cash provided (used) by investing activities:
Additions to property, plant and equipment (689) (1,375)
Proceeds from investments 803 --
-------- --------
Net cash provided (used) by investing activities 114 (1,375)
-------- --------
Cash provided (used) by financing activities:
Proceeds from issuance of long term debt, net
of issuance costs 5,875 (6)
Proceeds from issuance of common stock upon exercise of stock
options and warrants 5 46
-------- --------
Net cash provided by financing activities 5,880 40
-------- --------
Increase (decrease) in cash and cash investments 2,719 (4,827)
Cash and cash investments, January 1 1,412 15,985
-------- --------
Cash and cash investments, March 31 $ 4,131 $ 11,158
======== ========
Supplemental cash flow information -
Interest paid in cash $ 658 $ 1,274
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
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. Operating results for the three-month period ended
March 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999. 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, 1998.
The Company has restated its financial statements for the quarter ended
March 31, 1999 to recognize the beneficial conversion feature of the 5%
Convertible Notes (See Note 3.) of $962 thousand at January 28, 1999
(increasing paid in capital and decreasing long-term debt). As a
result, amortization of debt discount for the three months ended March
31, 1999 has been increased by $385 thousand. In addition, certain
other expenses were overstated for the three months ended March 31,
1999. Accordingly, depreciation and depletion expense has been reduced
by $114 thousand, interest expense has been reduced $37 thousand and
cost of revenues has been reduced by $41 thousand. As a result of the
above changes, net loss for the three months ended March 31, 1999
increased by $193 thousand ($0.00 per share).
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------ ------
<S> <C> <C>
Precious Metals Inventories:
Work in process $1,511 $2,831
Finished goods 94 49
Materials and supplies inventories 1,426 1,356
------ ------
$3,031 $4,236
====== ======
</TABLE>
3. LONG-TERM DEBT
In January, 1999, the Company completed a private placement of 5%
Convertible Notes due January 28, 2001 totaling $6 million. The notes
may generally be converted into common stock of the Company at a
per-share price based on the average of the lowest average high and low
trading prices for five of the twenty consecutive trading days prior to
conversion. The conversion price for one-half of the notes has been
fixed at a maximum of $0.6875. The beneficial conversion feature
resulted in a debt discount of $962 thousand which is being amortized
over five months.
In March, 1999, the Company issued 12.7 million shares to holders of
its 8% Senior Exchangeable Notes due March 21, 2000 ("the Eurobonds").
Such shares were issuable in settlement of the additional amount to be
paid if the Company's conversion stock did not trade at a price 33%
above the conversion price of the Eurobonds for a period of 45
consecutive trading days.
In April, 1999, the Company retired $1.5 million of the Eurobonds by
the issuance of 2.7 million shares of common stock.
On May 1, 1999, pursuant to the terms of the Company's 10% Senior
Exchangeable notes due November 24, 2002, the conversion price for
$7.5 million principal amount was reset to $.4313 per share from $.95
per share.
5
<PAGE> 6
4. OPERATIONS
The Company's operations have generated losses and a net use of cash
from operations in each of the last several years. The Company ended
the quarter with a working capital deficit of $14.4 million, including
$26.5 million for the Eurobonds which mature March 21, 2000. Cash and
silver bullion held for investment totaled $9.4 million at March 31,
1999. These financial results are primarily a result of continued
depressed silver prices and lower by-product prices resulting in
margins that are insufficient to cover the Company's other expenses.
The Company has taken specific actions in attempts to ensure its
ability to continue operations at least through the next 12 months.
Specifically, the Company has reduced exploration and development
expenditures at its Argentina subsidiary primarily to the level
required to complete the feasibility study for the Pirquitas Mine,
implemented cost reduction and cash conservation plans and initiatives
to reduce its work-in-process inventory. Furthermore, the Company is
currently exploring possible options of refinancing the Eurobonds
prior to maturity in conjunction with its efforts to finance the
development of the Pirquitas Mine. No assurance can be given as to the
availability of such financing.
The Company expects that the above-described steps should be
sufficient to fund operations at least through the next 12 months.
However, the Company's inability to successfully implement the above
described actions or a further decrease in the price of silver could
materially adversely impact the Company's ability to continue
operating through 2000.
5. CONTINGENCIES
The EPA has identified the Company and SPMI as Potentially Responsible
Parties (PRPs) at one site and SPMI as a PRP at another site under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (CERCLA), alleging that the Company and SPMI at one
site and SPMI at the other site arranged for the disposal of hazardous
substances. One of the sites is located in Kellogg, Idaho, and the
other site is located in Spokane, Washington.
At the first site, the EPA, the State of Idaho and several of the PRPs,
including the Company and SPMI, have agreed to a site-wide clean-up
plan, separating the site into two distinct areas for remediation: the
Bunker Hill Smelter Complex (the Smelter Area) and the residential and
certain commercial areas primarily in the cities of Kellogg,
Smelterville, and Pinehurst, Idaho, encompassed by the Site (the
Residential Areas). Without admitting liability, the Company and
several PRPs have agreed to do the remediation work in the Residential
Areas pursuant to an EPA and State of Idaho approved work plan. In
exchange therefor, EPA and the State of Idaho released the settling
PRPs from all liability for cleanup of the Smelter Area, reduced the
EPA's claim for reimbursement of past costs from $17 million to $1
million plus a percentage of proceeds received by the PRP from
insurance companies, if any, and agreed that the work orders from 1990
through 1993 were deemed satisfied and discharged. The remediation
undertaken by the Company and PRPs is expected to continue for another
three to four years, and the Company has accrued approximately $2.4
million for its (including SPMI's) share (12.4%) of the estimated
remaining remediation costs at March 31, 1999.
The second site where EPA has identified SPMI as a PRP under CERCLA is
the Spokane Junkyard Site near Spokane, Washington. No records of SPMI
have been discovered by it or the EPA showing SPMI ever sent any
material to the site. SPMI does not believe it will be required to pay
any clean-up costs at the Spokane Junkyard Site. The Company does not
believe that the designation of SPMI as a PRP at the Spokane Junkyard
Site will have a material impact on the Company's results of
operations, financial condition or on its liquidity or capital
resources.
The Company is subject to certain other legal proceedings and claims
that arise in the conduct of it business. Although it is not possible
to predict the outcome of such matters, in the opinion of management,
the ultimate outcomes of these matters will not have a material adverse
effect on the Company's consolidated financial position or consolidated
results of operations.
6
<PAGE> 7
SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Three Months Ended March 31, 1999 and 1998
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," "believes," "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. Readers are cautioned not
to place undue reliance on these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1999 was a deficit of $14.4 million. This
deficit includes $26.5 million for the 8% Senior Exchangeable Notes ("the
Eurobonds"), which mature March 21, 2000. Cash and silver bullion held for
investment totaled $9.4 million at the end of the quarter.
The Company is currently exploring possible options of refinancing
the Eurobonds prior to maturity in conjunction with its efforts to finance the
development of the Pirquitas Mine in northwest Argentina. No assurance can be
given as to the availability of such financing. The Company's inability to
successfully refinance the Eurobonds could materially adversely impact the
Company's ability to continue operating through 2000.
Work on Pirquitas in 1999 has focused on completion of the
independent feasibility study to be used in conjunction with financing the
project. The study, completed in April 1999, has estimated that pre-production
capital cost of mine development will total $124 million during a two-year
pre-production period. Initial annual production from the mine is estimated to
average 11 million ounces of silver over its first four years of production,
and it is expected to average approximately 9.2 million ounces of silver and
7.1 million pounds of tin over a ten year mine life.
The estimated net cash cost of production of an ounce of silver is
projected to be less than $1.50, net of tin and zinc by-product credits.
Assuming a $5.50 silver price and a tin price of $2.54 per pound, proven and
probable reserves are presently estimated to be 23.9 million tons of ore
containing 116 million ounces of silver, 156 million pounds of tin and 272
million pounds of zinc. The Company expects future development and exploration
work at the site to expand reserves.
The study reflects an unleveraged, after-tax, internal rate of return
of 20% on the $124 million development cost. Debt financing of the project will
increase the return on invested capital to well over 25%.
The Company is also planning a major exploration and development
project to provide access to reserves in the eastern area of the Sunshine Mine
and provide a major exploration platform for evaluating a number of undeveloped
areas in the eastern portion of the mine. If successful in developing major new
ore bodies, the project envisions rehabilitation of the ConSil shaft to increase
the mine's production capacity by 50% and is expected to further reduce net cash
production costs to less than $4.00 per ounce. The total cost of the project is
expected to be between $2 million and $4 million over two years. This project is
currently being funded from available cash balances.
7
<PAGE> 8
Operating, Investing, and Financing Activities
Cash used in operating activities in the first quarter of 1999 was $3.3
million compared to $3.5 million in the first quarter of 1998. The $200 thousand
decrease was primarily due to changes in working capital components mostly
offset by a $1.4 million cash operating loss in the first quarter of 1999
compared to a $2.1 million cash operating income in the first quarter of 1998.
The decline resulted primarily from a $709 thousand reduction in mark to market
gains and a reduction of $1.22 in average per ounce silver price received for
silver sold (which resulted in a $1.7 million decline in operating revenues for
the 1.4 million ounces produced and sold in the 1999 quarter) and the $1.2
million decline in other, net.
Investing activities in the first quarter of 1999 included $803
thousand proceeds from investment recoveries and $689 thousand of net additions
to property, plant and equipment primarily for the development of Pirquitas.
Investing activities in the first quarter of 1998 used approximately $1.4
million of cash including $900 thousand for the development of Pirquitas and
$419 thousand of capital expenditures at the Sunshine Mine.
Cash provided by financing activities in 1999 primarily consists of
$5.9 million net proceeds from the issuance of convertible notes.
IMPACT OF YEAR 2000
The Company has completed its review of all hardware and software
systems operated or licensed in The Company's business. The Company has
identified an interface between two programs which handle report writing
procedures which will not properly transfer dates after January 1, 2000,
although each program itself can properly interpret the date. The Company
expects to have this interface remedied timely, and at nominal cost.
The Company has contacted its significant vendors, supplier, customers
and other third parties as to their Year 2000 exposure and compliance. To date,
the Company is not aware of any third parties with Year 2000 issue that would
materially affect the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that external agents
will be Year 2000 ready. The inability of third parties to complete their Year
2000, resolution process in a timely fashion could materially impact the
Company. The effect of non-compliance by third parties is not determinable.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
Consolidated operating revenues decreased approximately $89 thousand
(1%) for the first quarter of 1999 compared to the first quarter of 1998, while
mark to market gains on work in process inventories and investment bullion
decreased $709 thousand. The decrease in operating revenues primarily resulted
from a decrease in the average price received per ounce of silver sold
(1,686,138 ounces of silver at an average of $5.21 per ounce in the 1999 quarter
compared to 1,311,180 ounces at an average of $6.43 per ounce in the 1998
quarter), a $285 thousand decrease in by-product revenue, and a $151 thousand
decrease in recognized premium income on the sale of covered calls on silver
bullion held as an investment. These decreases were partially offset by the 375
thousand ounce increase in silver sales volume. The silver sales volume increase
primarily resulted from a 125 thousand ounce (10%) increase in production in the
1999 quarter and a reduction of work in process inventories totaling 260
thousand ounces of silver. By-product revenue decreased because of lower average
prices received and decreased lead production and sales, partially offset by
increased pounds of copper sold.
Cost of revenues increased $1.7 million (25.1%) from $6.95 million in
the first quarter of 1998 to $8.7 million in the first quarter of 1999 primarily
due to the 10% increase in production in 1999 (approximately $550 thousand) and
the reduction of work in process inventories ($1.3 million in 1999 compared to
$90 thousand in 1998).
8
<PAGE> 9
Unit cash production costs (before by-product credits) decreased $.29
to $4.97 per ounce of silver. This reduction was primarily due to the increase
in silver production resulting from a 2.22 ounce per ton (9.4%) increase in
average grades from 1998 to 1999 (1.425 million ounces produced from 56,759 tons
at 25.89 ounces per ton in 1999 versus 1.3 million ounces from 56,700 tons at
23.67 ounces per ton in 1998). The decrease in by-product revenue resulted in a
$.23 reduction in by-product credits per ounce of silver.
Depreciation, depletion and amortization decreased by approximately
$1.0 million as a result of the writedown of the Sunshine Mine in the third
quarter of 1998.
Exploration expense decreased $494 thousand in 1999 compared to 1998
primarily due to a reduction of expenditures in Argentina. Additionally,
approximately $677 thousand of expenditures at Pirquitas during 1999 have been
capitalized compared to $900 thousand in the 1998 quarter.
Interest income decreased $162 thousand due to lower average invested
cash balances.
Interest and debt expense increased $518 thousand primarily due to the
$6 million of new convertible debt issued in January 1999, and higher
amortization of debt discount for the outstanding Eurobonds.
Other, net decreased $1.2 million primarily due to income of $1.6
million in 1998 recognized for a reduction of the valuation reserves previously
recorded against certain investments.
9
<PAGE> 10
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: May 21, 1999 By: /s/ WILLIAM W. DAVIS
-----------------------------------
William W. Davis
Executive Vice President
and Chief Financial Officer
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,131
<SECURITIES> 0
<RECEIVABLES> 4,322
<ALLOWANCES> 0
<INVENTORY> 3,031
<CURRENT-ASSETS> 17,760
<PP&E> 57,392
<DEPRECIATION> 36,636
<TOTAL-ASSETS> 42,366
<CURRENT-LIABILITIES> 32,147
<BONDS> 20,623
0
0
<COMMON> 2,769
<OTHER-SE> (22,019)
<TOTAL-LIABILITY-AND-EQUITY> 42,366
<SALES> 9,651
<TOTAL-REVENUES> 9,734
<CGS> 8,693
<TOTAL-COSTS> 10,256
<OTHER-EXPENSES> 551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,203
<INCOME-PRETAX> (2,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,865)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
