<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, 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 1-10012
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 Street, Suite 602, Boise, Idaho 83702
-------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code (208) 345-0660
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--------------------------------------------------------------------------------
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 November 8, 2000
----------------------------------- ----------------------------
Common Stock, $.01 par value 47,987,560
<PAGE> 2
SUNSHINE MINING AND REFINING COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 726 $ 628
Silver bullion 29 4,117
Accounts receivable 1,535 2,677
Inventories 1,582 2,826
Other current assets 770 787
--------- ---------
Total current assets 4,642 11,035
Property, plant and equipment, at cost 61,755 60,720
Less accumulated depreciation,
depletion and amortization (38,555) (37,623)
--------- ---------
23,200 23,097
Investments and other assets 2,673 2,888
--------- ---------
Total assets $ 30,515 $ 37,020
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 419 $ 1,634
Accrued expenses 1,812 3,562
Current portion, long term debt -- 31,518
--------- ---------
Total current liabilities 2,231 36,714
Long-term debt -- 11,720
Accrued pension and other postretirement benefits 4,264 4,445
Other long-term liabilities and deferred credits 254 2,861
Liabilities subject to compromise 48,942 --
Stockholders' equity (deficit):
Common stock--$.01 par value;
75,000 shares authorized; shares issued:
September 30, 2000 - 48,567
December 31, 1999 - 39,255 486 393
Paid-in capital 729,883 725,840
Deficit (754,435) (743,843)
--------- ---------
(24,066) (17,610)
Less treasury stock, at cost:
September 30, 2000 - 579 shares
December 31, 1999 - 579 shares (1,110) (1,110)
--------- ---------
(25,176) (18,720)
--------- ---------
Total liabilities and stockholders' deficit $ 30,515 $ 37,020
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
SUNSHINE MINING AND REFINING COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
QTR YTD
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues $ 5,139 $ 8,106 $ 18,912 $ 25,713
Mark to market gain (loss) (2) 264 (166) 570
-------- -------- -------- --------
5,137 8,370 18,746 26,283
-------- -------- -------- --------
Costs and expenses:
Cost of revenues (5,440) (6,650) (18,144) (21,906)
Depreciation, depletion
and amortization (286) (328) (921) (1,014)
Exploration (638) (491) (1,464) (1,550)
Selling, general and
administrative expense (712) (1,207) (2,887) (3,705)
-------- -------- -------- --------
(7,076) (8,676) (23,416) (28,175)
-------- -------- -------- --------
Operating loss (1,938) (306) (4,670) (1,892)
Other income (expense)
Interest income 23 43 69 177
Interest and debt expense (1,182) (1,807) (5,098) (6,441)
Other, net 668 48 455 1,145
-------- -------- -------- --------
(491) (1,716) (4,574) (5,119)
-------- -------- -------- --------
Loss before reorganization items (2,429) (2,022) (9,244) (7,011)
Reorganization items- professional fees (1,348) -- (1,348) --
-------- -------- -------- --------
Net loss $ (3,778) $ (2,022) $(10,592) $ (7,011)
======== ======== ======== ========
Basic and diluted loss
per common share: $ (0.08) $ (0.06) $ (0.25) $ (0.21)
======== ======== ======== ========
Weighted average common shares outstanding 44,952 35,473 41,981 34,194
======== ======== ======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
SUNSHINE MINING AND REFINING COMPANY
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
2000 1999
------- -------
<S> <C> <C>
Cash used by operating activities:
Net loss before reorganization items $(9,244) $(7,011)
Adjustments to reconcile net loss before reorganization
items to net cash used by operations:
Depreciation, depletion and amortization 921 1,014
Amortization of debt issuance costs, accretion of debt
discount and noncash interest 580 3,259
Investment gains -- (881)
Interest on 10% Notes & Senior Convertible Notes
paid or payable in common stock 3,029 750
Net (increase) decrease in:
Silver bullion 152 (638)
Accounts receivable 1,142 483
Inventories 1,244 1,451
Other assets 111 (516)
Net increase (decrease) in:
Accounts payable and accrued expenses 808 (1,681)
Accrued pension and other postretirement benefits (181) (178)
Other liabilities and deferred credits (321) (565)
------- -------
Net cash used by operations before reorganization items (1,759) (4,513)
------- -------
Cash used by reorganization items:
Reorganization items- professional fees (1,348) --
Professional fees accrued, not paid 327 --
------- -------
Net cash used by reorganization items (1,021) --
------- -------
Net cash used by operations (2,780) (4,513)
------- -------
Cash provided (used) by investing activities:
Additions to property, plant and equipment (1,062) (2,784)
Proceeds from sale of investments 3,936 1,503
------- -------
Net cash provided (used) by investing activities 2,874 (1,281)
------- -------
Cash provided (used) by financing activities:
Proceeds from issuance of long term debt, net
of issuance costs -- 5,824
Proceeds from issuance of common stock upon
exercise of options and warrants 4 0
Other -- (27)
------- -------
Net cash provided by financing activities 4 5,797
------- -------
Increase in cash and cash investments 98 3
Cash and cash investments, January 1 628 1,412
------- -------
Cash and cash investments, September 30 $ 726 $ 1,415
======= =======
Supplemental cash flow information -
Interest paid in cash $ 199 $ 1,882
======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNSHINE MINING AND REFINING COMPANY (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2000
1. VOLUNTARY FILING UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
On August 23, 2000 (the "Petition Date") Sunshine Mining and Refining
Company ("Sunshine" or the "Company") and three of its subsidiaries (the
"Debtor Subsidiaries" and together with the Company, the "Debtors") filed
voluntary petitions for relief under Chapter 11 of the federal bankruptcy
laws in the United States Bankruptcy Court for the District of Delaware
(Case No. 00-3409 (MFW)). Under Chapter 11, certain claims against the
Debtors in existence prior to the filing of the petitions for relief under
the federal bankruptcy laws are stayed while the Debtors continue business
operations as Debtors-in-possession. These claims are reflected in the
September 30, 2000 balance sheet as "liabilities subject to compromise."
Additional claims (liabilities subject to compromise) may arise subsequent
to the filing date resulting from rejection of executory contracts,
including leases, and from the determination by the court (or agreed to by
parties in interest) of allowed claims for contingencies and other disputed
amounts. Claims secured against the Debtors' assets ("secured claims") also
are stayed, although the holders of such claims have the right to move the
court for relief from the stay.
The Debtors received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including employee wages and
certain prepetition claims of certain critical suppliers of goods and
services.
Sunshine's business and profitability have been negatively affected by an
extremely lengthy period of low silver prices. Since 1988, the price of
silver has averaged less than $5.00 per ounce compared to an average price
of $9.50 per ounce over the prior 10 years. Given the depressed price of
silver compared to the Company's cash production costs, the Company's
operations have generated a negative cash flow for several years.
In addition, the Company has been negatively affected by low investor
sentiment in the precious metals mining environment generally. Sunshine has
pursued various efforts to refinance indebtedness and raise capital to
develop its major project, the Pirquitas Mine in Argentina. Despite success
in developing a feasibility study that demonstrates that Pirquitas is a
very economic deposit even in the currently depressed silver price
environment, the Company has been unable to access the capital it requires
for that project.
Further contributing to the Company's cash flow challenges is the decline
in production at the Sunshine Mine. Absent a new discovery at the mine,
production is expected to continue to decline in the coming months.
5
<PAGE> 6
To fund continuing operations, the Company has procured a $5 million
Debtor-in-possession credit facility (the "DIP Facility"). (See Note 4.)
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Sunshine have been prepared on a going concern basis, which contemplates
continuity of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. However, as a result of the
Chapter 11 filings, such realization of assets and liquidation of
liabilities are subject to uncertainty. Continuation of operations is
dependent upon the confirmation of a plan of reorganization by the
Bankruptcy Court, the success of future operations and the ability to
generate sufficient cash from operations and financing sources to meet the
Company's obligations as they become due. Except as otherwise disclosed,
the consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a
going concern. The financial statements for the period ended September 30,
2000 reflect accounting principles and practices set forth in AICPA
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under The Bankruptcy Code."
The consolidated financial statements 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 30, 2000 presentation. Operating
results for the nine-month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 2000. 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, 1999.
3. PROPOSED PLAN OF REORGANIZATION
The Company and the Debtor Subsidiaries have prepared a proposed plan of
reorganization (the "Plan") cosponsored by four of its major bondholders
holding more than 70% of the Company's outstanding indebtedness (the
"Cosponsoring Bondholders"). The Debtors' disclosure statement pursuant to
Section 1125 of the Bankruptcy Code for the Joint Plan of Reorganization
dated October 2, 2000 was approved by the Bankruptcy Court and has been
mailed to creditors entitled to vote on the Plan.
6
<PAGE> 7
Under the Plan as proposed all equity in the Company will be canceled;
however, the Cosponsoring Bondholders have agreed to gift up to 4% of the
new equity to existing shareholders of the Company. In addition, up to 6%
of the new equity is being reserved for other unsecured creditors, most of
which is ceded to the other creditors by the Cosponsoring Bondholders. The
Cosponsoring Bondholders will retain at least 90% of the new equity to be
issued under the Plan, and will name a majority of the directors of the
reorganized company. In addition, if the Plan is confirmed, the
Cosponsoring Bondholders will have an option to acquire the Company's
subsidiary, Sunshine Argentina, which owns the Pirquitas Mine in Argentina.
Such option may be exercised upon the occurrence of certain specified
events involving the Company or its subsidiaries.
Plan confirmation was originally set for November 7, 2000. On October 4,
2000, the Coeur d'Alene Indian Tribe (the "Tribe") filed a Motion for
Transfer of Venue in the case from Delaware to Idaho. The Debtors, along
with the Cosponsoring Bondholders and other interested parties have filed
responses opposing the Transfer of Venue. In order to allow time to
negotiate issues relating the claims of the Tribe and certain United States
agencies regarding alleged Natural Resource Damages in the South Fork of
the Coeur d'Alene River Basin, confirmation of the Plan has been delayed
until a later date as early as November 27, 2000 or December 5, 2000.
As the Plan has not been approved, the financial statements at September
30, 2000 do not include any adjustments that might reflect the potential
outcome of the bankruptcy, including cancellation of existing common stock
and issuance of new common stock pursuant to the Plan.
4. DIP FACILITY
The Debtors have obtained a $5 million post-petition debtor-in-possession
financing facility with affiliates of both Cosponsoring Bondholders.
Sunshine Argentina, Inc., a wholly-owned subsidiary, is the borrower under
the DIP Facility, with each of the other Debtors being guarantors. Also,
certain non-debtor affiliates are guarantors under the DIP Facility. The
base rate of interest under the DIP Facility is 15% per annum with a $150
thousand commitment fee due upon the initial borrowing. Borrowings under
the DIP Facility are secured by substantially all of the Debtors' assets.
Among the Events of Default in the DIP Credit Agreement is the failure to
have the Reorganization Plan confirmed by the Bankruptcy Court and
effective by its terms by December 15, 2000. Therefore, if the Plan is not
finalized by that date, the lenders will have no further obligation to make
advances, and the Company has no alternate sources of funding at this time.
Also, upon the occurrence and during the continuance of an Event of
Default, interest accrues at a rate of 25% on outstanding balances.
7
<PAGE> 8
As of November 8, 2000, the Debtors had borrowings of approximately $1
million under the DIP Facility.
5. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise on the accompanying September 30, 2000
balance sheet consist of the following (in thousands):
<TABLE>
<S> <C>
Principal balance of 8% Senior Exchangeable Notes (the "Eurobonds") $ 25,975
Interest due on Eurobonds 1,951
Principal balance of 10% Senior Convertible Notes (the 10% Notes) 12,313
Interest due on 10% Notes 2,583
Principal balance of 9% Convertible Subordinated Debentures
(the "Debentures") 1,515
Interest due on Debentures 82
Principal and interest due on 5% Convertible Notes (the "Notes") 345
Deferred financing costs of 10% Notes (92)
Liabilities for unsecured nonpriority claims 4,270
--------
Liabilities subject to compromise $ 48,942
========
</TABLE>
The amounts above may be subject to future adjustment depending on
Bankruptcy Court action, further developments with respect to potential
contingent and/or disputed claims or other events.
As a result of the Chapter 11 filing, the Debtors discontinued accruing
interest as of the Petition Date on the liabilities subject to compromise.
Contractual interest on these liabilities totaled approximately $4.7
million for the nine months ended September 30, 2000, which is
approximately $0.5 million in excess of amounts included in the
accompanying financial statements. The contractual interest on the 10%
Notes includes approximately $1.4 million of additional interest that
became due on March 21, 2000 and an 18% default interest rate from that
date.
6. RECOVERABILITY OF INVESTMENT IN THE SUNSHINE MINE
Statement of Financial Accounting Standards No. 121 ("FAS 121") requires
that recoverability of investments in long-lived assets be periodically
evaluated against projected future cash flows from the investment. At the
end of the third quarter of 1998, in response to a reduction in forecasted
production from the Sunshine Mine, as well as continued low silver and
by-product prices, it was determined that the investment in the Sunshine
Mine had been impaired. As a result, a writedown of $50.4 million was
taken, reducing the carrying value of the investment in the mine to
approximately $9 million.
8
<PAGE> 9
Since 1998, the mine's product prices have weakened further, and ability to
access economically productive areas is diminishing. The Company has been
engaged in exploration activities directed toward areas which are believed
to have good potential to add reserves. To date, those activities have not
resulted in discovery of ore grade mineralization. The Company is
continuing with the exploration in the fourth quarter of 2000. However, if
a discovery of additional ore is not made soon, it is likely that the
Sunshine Mine will face closure in 2001, pending a recovery in silver
prices. In such an event, it is likely that the remaining investment in the
Sunshine Mine would be considered impaired and would be written down in
accordance with FAS 121. At the present time, the carrying value of the
Sunshine Mine and associated facilities is approximately $8.9 million.
7. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ -----------
<S> <C> <C>
Precious metals inventories:
Work in process $ 205 $1,376
Finished goods 50 107
Materials and supplies inventories 1,327 1,343
------ ------
$1,582 $2,826
====== ======
</TABLE>
9
<PAGE> 10
SUNSHINE MINING AND REFINING COMPANY
(Debtor-in-Possession)
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Nine Months Ended September 30, 2000 and 1999
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
The Company, with three of its principal subsidiaries, filed voluntary
petitions under Chapter 11 of the Bankruptcy Code together with a proposed Plan
of Reorganization on August 23, 2000. Affiliates of its principal creditors,
Elliott Associates and Stonehill Investments, are the Cosponsoring Bondholders
of the Company's Plan. The proposed Plan is summarized in footnote 3.
Working capital at September 30, 2000 was $2.4 million after reclassifying
approximately $46.7 million of current liabilities as liabilities subject to
compromise (See Note 5).
Cash declined to $726 thousand at September 30, 2000 and the Company
expects to continue to incur cash losses during the immediately foreseeable
period. Funding of these cash losses will be made through borrowings under the
DIP Facility (See Note 4).
Sunshine's business and profitability have been adversely affected by an
extremely long period of low silver prices. Since 1988, the price of silver has
averaged approximately $5.00 per ounce compared to an average price of $9.50 per
ounce over the prior 10 years. Given the depressed price of silver compared to
the Company's cash production costs, the Company's operations have generated a
negative cash flow for several years.
10
<PAGE> 11
In addition, the Company has been negatively affected by low investor
sentiment in the precious metals mining environment generally. It has pursued
various efforts to refinance its indebtedness and raise capital to develop its
major project, the Pirquitas Mine in Argentina. Despite success in developing a
bankable feasibility study that demonstrates that Pirquitas is a very economic
deposit even in the currently depressed silver price environment, the Company
has been unable to access the capital it requires.
Further contributing to the Company's cash flow challenges is the decline
in production at the Sunshine Mine. Absent a new discovery at the mine,
production is expected to continue to decline in the coming months. At current
silver prices, and with no new reserve discoveries, the Sunshine Mine's cash
flow may become negative by the second quarter of 2001. In such event the Mine
would likely be closed pending a recovery in silver prices.
The Pirquitas Mine is currently being maintained on a care and maintenance
program to reduce costs. The Company does not expect to be able to access the
capital required to develop this mine until after the completion of the
bankruptcy proceeding. At that point, the Company will review its options with
regard to potential development of the mine. Among the options to be explored
will be bringing in a joint venture partner with greater financial resources
than the Company to develop the Mine, or the sale of equity and/or debt
securities to finance development of the mine. If market conditions do not
improve significantly, no assurance can be given as to the availability of
financing for the development of the mine.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first nine months of 2000 was $2.8
million compared to $4.5 million in the first nine months of 1999. The $1.7
million decrease was primarily due to changes in working capital components
partially offset by a $1.8 million increase in cash operating loss in the first
nine months of 2000 to $4.7 million.
The increase in cash operating loss resulted primarily from a $6.8 million
decline in operating revenue, a $166 thousand mark-to-market loss on investment
bullion in the 2000 period compared to a $570 thousand gain in the prior period,
$690 thousand decrease in other, net and a $108 thousand decrease in interest
income. These were partially offset by a $3.8 million decrease in cost of
revenues, an $818 thousand decrease in general and administrative expense, $881
thousand of investment gains in 1999, a $900 thousand decrease in interest
payable in cash, and an $86 thousand decrease in exploration expense.
Investing activities in the first nine months of 2000 include proceeds of
$3.9 million from the sale of investment silver bullion and $1.0 million of net
additions to property, plant and equipment. Investing activities in the first
half of 1999 included $1.5 million proceeds from investment recoveries, offset
by $2.8 million of net additions to property, plant and equipment primarily for
the development of Pirquitas.
11
<PAGE> 12
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Consolidated operating revenues decreased approximately $3.0 million
(36.6%) for the third quarter of 2000 compared to the third quarter of 1999. The
decrease in operating revenues primarily resulted from a decrease in average
price received per ounce of silver sold and fewer ounces being sold (906,025
ounces of silver at an average of $4.87 per ounce in the 2000 quarter compared
to 1,341,478 ounces at an average of $5.26 per ounce in the 1999 quarter), a
$238 thousand decrease in by-product revenue and a $80 thousand decrease in
recognized premium income on the sale of covered calls on silver bullion held as
an investment. Silver production totaled 850,236 ounces from 35,154 tons at
24.96 ounces per ton in 2000 versus 1,255,880 ounces from 52,290 tons at 24.79
ounces per ton in 1999. The decrease in production was primarily due to fewer
productive stopes being available as mining proceeds to the outskirts of the
West Chance area. The decrease in by-product revenue was primarily due to a 611
thousand-pound reduction in lead sales and a 99 thousand-pound reduction in
copper sales.
Mark-to-market gain on investment silver bullion was $264 thousand in the
1999 period compared to a $2 thousand loss in 2000.
Cost of revenues decreased $1.2 million (18.2%), from $6.65 million in the
third quarter of 1999 to $5.44 million in the third quarter of 2000. Total
production cost decreased by $1.5 million due to the reduction in tons and
ounces of silver produced during the 2000 quarter. These costs reductions were
offset by $242 thousand of costs associated with the reduction of WIP
inventories due to a change in the Company's concentrate processing requirements
coordinated with its smelting customer. The change eliminates the need by the
Company to remove antimony from its concentrates prior to shipment, reducing the
amount of time WIP inventories are carried by the company. The price of antimony
has declined significantly recently. Thus, it is more advantageous to ship the
concentrates directly to the smelter without recovering the contained antimony,
as long as the smelter agrees to accept the concentrates with the additional
antimony. This will increase the impurity penalty charged by the smelter; but
will be offset by the savings from discontinuing the treatment of the
concentrates through the antimony plant. The antimony plant is on a stand-by
mode in order to take advantage of potential improvements in the antimony price
or a change in the smelter requirements. All in-process material in the antimony
plant has been processed.
Net cash operating costs increased $0.69 per ounce to $4.88 per ounce of
silver primarily due to fixed costs being spread over fewer ounces.
Exploration costs increased $147 thousand primarily due to increased
exploration activity at the Sunshine Mine.
Selling, general and administrative expense declined $495 thousand due to a
variety of cost reductions.
12
<PAGE> 13
Interest and debt expense decreased $600 thousand primarily due to the
amortization of debt discount and issuance costs for the Eurobonds in the 1999
quarter, the cessation of interest accruals as discussed in Note 5 and lower
outstanding balances on the Company's debt.
Other, net for the 2000 quarter includes gains from the sale of certain
properties.
Reorganization items - professional fees represent the costs of legal
counsel and other professionals in the preparation and solicitation of approval
of the Company's Chapter 11 Plan of Reorganization and the associated financing
documents. These fees include pre-petition fees of counsel for the Cosponsoring
Bondholders.
THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Consolidated operating revenues decreased approximately $6.8 million
(26.4%) for the first nine months of 2000 compared to the first nine months of
1999, while mark-to-market losses on investment bullion totaled $166 thousand
in 2000 compared to a $570 thousand gain in 1999. The decrease in operating
revenues primarily resulted from a decrease in the average price received per
ounce of silver sold and a decrease in ounces sold (3,408,797 ounces of silver
at an average of $5.00 per ounce in the 2000 period compared to 4,381,420 ounces
at an average of $5.25 per ounce in the 1999 period), a $680 thousand decrease
in by-product revenue and a $169 thousand decrease in recognized premium income
on the sale of covered calls on silver bullion held as an investment. Silver
production totaled 3,115,808 ounces produced from 132,793 tons at 24.31 ounces
per ton in 2000 versus 4,047,902 ounces from 165,804 tons at 25.21 ounces per
ton in 1999. The decrease in production was primarily due to fewer productive
stopes being available as mining proceeds to the outskirts of the West Chance
area. By-product revenue decreased primarily because of lower lead prices
received and decreased lead production and sales.
Cost of revenues decreased $3.8 million (17.2%) from $21.9 million in the
first nine months of 1999 to $18.1 million in the first nine months of 2000
primarily due to lower smelter, mining, and metallurgical costs as a result of
the lower production and sales. Total production cost decreased by $3.6 million
due to the reduction in tons and ounces of silver produced during the 2000
period. In addition, costs associated with the reduction of WIP inventories in
the first half of 1999 were approximately $163 thousand dollars more than the
costs associated with the reduction of WIP inventories in the 2000 period.
Net operating cash production costs increased $0.43 to $4.75 per ounce of
silver. This increase was primarily due to fixed costs being spread over fewer
ounces and a $0.08 per ounce decrease in by-product credits. These costs were
partially offset by reduced per ounce smelter costs due to improved grades for
both silver and lead concentrates produced.
Exploration expense decreased $86 thousand in 2000 compared to 1999.
Interest income decreased $108 thousand due to lower average invested cash
balances.
13
<PAGE> 14
Selling, general and administrative expense declined $818 thousand due to a
variety of cost reductions.
Interest and debt expense decreased $1.3 million primarily due to the
amortization in 1999 of the discount feature associated with the 5% Convertible
Notes issued in January 1999, the amortization of debt discount and issuance
costs for the Eurobonds in the 1999 quarter, the cessation of interest accruals
as discussed in Note 5, and lower outstanding balances on the Company's debt.
These were partially offset by $1.4 million of additional interest on the 10%
Notes.
Other, net for the 2000 period includes gains from the sale of certain
properties, partially offset by fees and expenses related to attempted financing
transactions and asset sales. Other, net of $1.1 million in 1999 primarily
represented gains on certain investments sold.
Reorganization items - professional fees represent the costs of legal
counsel and other professionals in the preparation and solicitation of approval
of the Company's Chapter 11 Plan of Reorganization and the associated financing
documents. These fees include pre-petition fees of counsel for the Cosponsoring
Bondholders.
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SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 23, 2000, Sunshine Mining and Refining Company and three of its
subsidiaries filed voluntary petitions under Chapter 11 of Title 11 of the
United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware. Separate cases and their cause numbers are: In Re:
Sunshine Mining and Refining Company, Case No. 00-3409 (MWF); in Re: Sunshine
Argentina, Inc., Case No. 00-3410 (MWF); In Re: Sunshine Precious Metals, Inc.,
Case No. 00-3412 (MWF); and In Re: Sunshine Exploration, Inc., Case No. 00-3411
(MWF). The Company and its subsidiaries included in the filings a proposed
disclosure statement and pre-negotiated plan of reorganization and debt
restructuring (the "Plan") with the support of approximately 70% of the
Company's bondholders. No receiver, independent trustee or similar officer has
been appointed for the Registrant, and the existing directors and officers
continue in place for the respective debtors-in-possession, subject to the
supervision of the Bankruptcy Court. In connection with the submission of the
Plan, the Court approved Registrant's first-day motions, including joint
administration of the Debtors' cases, payment of certain pre-petition claims and
continuation of specific pre-petition practices essential to their continued
business operations during the pendency of the cases. The Registrant has also
negotiated a credit facility to assist in funding operations during the pendency
of the bankruptcy proceeding. See Notes 1, 3, 4 and 5 to the Consolidated
Financial Statements. Incorporation by reference is also made to Registrant's
Current Report on Form 8-K for event occurring August 23, 2000, as filed with
the Securities and Exchange Commission and described in Item 6 below.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 2000 the Company issued 8.3 million warrants to purchase common
stock of the Company to the holders of its 8% Senior Exchangeable Notes and its
10% Senior Convertible Notes for extensions of maturity and for agreements to
exchange debt for equity in the reorganization. The warrants represent the right
to acquire one new share of the Company's common stock at its par value, and
have a cashless exercise feature. Since their issuance, 6.1 million warrants
have been exercised primarily pursuant to the cashless exercise feature.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company and the debtor subsidiaries filed voluntary petitions under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware on August 23, 2000. The filing constitutes a default under
the terms of the Eurobonds, the 10% Notes, and the 9% Notes. Co-proponents of
the Plan include the Cosponsoring Bondholders, holding in excess of 66 2/3% of
the Eurobonds and all of the 10% Notes. Pursuant to the terms of the Plan, if
confirmed by the Bankruptcy Court, all of
15
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the claims of the Eurobonds, the 10% Notes, the 9% Notes, and certain other
unsecured creditors will be eliminated in exchange for at least 96% of the
Company's equity interest.
For a discussion of the Company's financial restructuring plans, see Notes
1 and 3 to the Financial Statements.
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:
Exhibit 27.0 Financial Data Schedule
(b) On August 28, 2000, the Company filed a report on Form 8-K reporting
that on August 23, 2000, the Debtors filed for protection under chapter 11 of
title 11 of the United States Code in the United States Bankruptcy Court for the
district of Delaware. Separate cases and their cause numbers are: In Re:
Sunshine Mining & Refining Company, Case No. 00-03409, In Re: Sunshine
Argentina, Inc., Case No. 00-03410, In Re: Sunshine Precious Metals, Inc., Case
No. 00-03412, and In Re: Sunshine Exploration, Inc., Case No. 00-03411.
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 10, 2000 By: /s/ WILLIAM W. DAVIS
---------------------------
William W. Davis
Executive Vice President
and Chief Financial Officer
16
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
