<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 March 31, 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, 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 10, 2000
- ----------------------------------- ----------------------------
Common Stock, $.01 par value 42,618,005
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 1,227 $ 628
Silver bullion 1,729 4,117
Accounts receivable 2,850 2,677
Inventories (Note 2) 2,811 2,826
Other current assets 622 787
--------- ---------
Total current assets 9,239 11,035
Property, plant and equipment, at cost 61,370 60,720
Less accumulated depreciation,
depletion and amortization (37,960) (37,623)
--------- ---------
23,410 23,097
Investments and other assets 3,054 2,888
--------- ---------
Total assets $ 35,703 $ 37,020
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,695 $ 1,634
Accrued expenses 5,295 3,562
Current portion, long term debt 39,934 31,518
--------- ---------
Total current liabilities 46,924 36,714
Long-term debt 1,515 11,720
Accrued pension and other postretirement benefits 4,394 4,445
Other long-term liabilities and deferred credits 2,839 2,861
Stockholders' equity (deficit):
Common stock -- $.01 par value;
75,000 shares authorized; shares issued:
March 31, 2000 -- 41,716
December 31, 1999 -- 39,255 417 393
Paid-in capital 728,639 725,840
Deficit (747,915) (743,843)
--------- ---------
(18,859) (17,610)
Less treasury stock, at cost:
March 31, 2000 -- 579 shares
December 31, 1999 -- 579 shares (1,110) (1,110)
--------- ---------
(19,969) (18,720)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 35,703 $ 37,020
========= =========
</TABLE>
See accompanying notes.
2
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Operating revenues $ 7,177 $ 9,651
Mark to market gain (loss) (166) 83
-------- --------
7,011 9,734
-------- --------
Costs and expenses:
Cost of revenues (6,369) (8,693)
Depreciation, depletion
and amortization (332) (348)
Exploration (376) (551)
Selling, general and
administrative expense (1,098) (1,215)
-------- --------
(8,175) (10,807)
-------- --------
Other income (expense)
Interest income 19 57
Interest and debt expense (2,935) (2,203)
Other, net 8 353
-------- --------
(2,908) (1,793)
-------- --------
Net loss $ (4,072) $ (2,866)
======== ========
Basic and diluted loss
per common share: $ (0.10) $ (0.09)
======== ========
Weighted average common shares outstanding 39,515 32,514
======== ========
</TABLE>
See accompanying notes.
3
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
2000 1999
------- -------
<S> <C> <C>
Cash used by operating activities:
Net loss $(4,072) $(2,866)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation, depletion and amortization 332 348
Amortization of debt issuance costs, accretion of debt
discount and noncash interest 358 1,079
Common stock issued for interest on
Senior Convertible Notes 573 --
Additional interest on 10% Notes payable 1,362 --
in common stock --
Gains on sales of investments and other -- (312)
Net (increase) decrease in:
Silver bullion 140 (31)
Accounts receivable (173) (1,521)
Inventories 15 1,205
Other assets and deferred charges 107 58
Net increase (decrease) in:
Accounts payable and accrued expenses 432 (1,408)
Accrued pension and other postretirement benefits (51) (178)
Other liabilities and deferred credits (22) 39
------- -------
Net cash used by operations (999) (3,587)
------- -------
Cash provided (used) by investing activities:
Additions to property, plant and equipment (650) (689)
Proceeds from investments 2,248 1,115
------- -------
Net cash provided by investing activities 1,598 426
------- -------
Cash provided (used) by financing activities:
Proceeds from issuance of long term debt, net
of issuance costs -- 5,875
Other -- 5
------- -------
Net cash provided by financing activities -- 5,880
------- -------
Increase in cash and cash investments 599 2,719
Cash and cash investments, January 1 628 1,412
------- -------
Cash and cash investments, March 31 $ 1,227 $ 4,131
======= =======
Supplemental cash flow information -
Interest paid in cash $ 80 $ 658
======= =======
</TABLE>
See accompanying notes.
4
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SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2000
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 quarter ended March 31, 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.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
Precious Metals Inventories:
Work in process $ 1,334 $ 1,376
Finished goods 105 107
Materials and supplies inventories 1,372 1,343
-------- --------
$ 2,811 $ 2,826
======== ========
</TABLE>
3. LONG-TERM DEBT
The maturity of the outstanding $26 million principal amount of 8%
Senior Exchangeable Notes, originally due March 21, 2000 (the
"Eurobonds"), has been extended to May 24, 2000. The Company was
unsuccessful in its efforts to refinance the Eurobonds, and
negotiations with the Company's significant
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noteholders have been taking place regarding a potential restructuring
of the Company's existing indebtedness. It is anticipated that a
restructuring, if successfully accomplished, will result in a very
substantial ownership of the Company's equity by the holders of the
Eurobonds and the holders of the 10% Senior Convertible Notes due
November 24, 2002 (the "10% Notes"). If the restructuring is not
successfully accomplished, the Company may file for bankruptcy under
the U. S. Bankruptcy Code.
In February 2000, the Company retired $1 million of the Eurobonds, plus
accrued interest, by the issuance of 756 thousand shares of common
stock.
In February 2000, the Company issued approximately 1 million shares of
common stock for the first required quarterly prepayment of $1.25
million of the 10% Notes. In March 2000, approximately 698 thousand
shares of common stock were issued as payment of approximately 73% of
the interest payment due by April 1, 2000. Settlement of the remaining
interest is being addressed in the negotiations of the potential
restructuring of the Company's indebtedness.
Because the Eurobonds were not retired or refinanced prior to March 21,
2000, approximately $1.4 million of additional interest became due
pursuant to the terms of the 10% Notes. The additional interest is
payable in either cash or shares of common stock to the holders of the
10% Notes. This additional interest has not been paid and is also being
addressed in the restructuring negotiations.
In April 2000, pursuant to the terms of the 10% Notes, the conversion
price for the $13.6 million outstanding principal amount was reset to
$0.675 per share. Subsequently, $1 million principal amount of the 10%
Notes was converted into 1.5 million shares of common stock.
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SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Three Months Ended March 31, 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
Working capital at March 31, 2000 was a deficit of $37.7 million. This
deficit includes $26 million for the Eurobonds, which were scheduled to mature
March 21, 2000, and $13.6 million for the 10% Notes required to be redeemed for
either stock or cash in the next twelve months. Cash and silver bullion held for
investment totaled $2.96 million at the end of the quarter.
The Eurobonds maturity has been extended to May 24, 2000, while the
Company works with the holders of the Eurobonds and the 10% Notes regarding a
restructuring of the indebtedness. While final terms have not yet been agreed,
it is anticipated that a restructuring will transfer a very substantial equity
ownership interest in the Company to
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the debt holders. If a restructuring is not successfully accomplished, the
Company may file for bankruptcy under the U. S. Bankruptcy Code.
Given current silver prices and cash production costs, the Company's
operations generate a negative cash flow. Therefore, without an infusion of
capital the Company's liquidity will continue to worsen. Current market
conditions in the mining industry are not conducive to raising new capital.
Therefore, the Company's prospects for continuing as a going concern are
dependent upon a restructuring of its indebtedness into equity and an infusion
of new capital from the current debt holders or other sources.
A contributing factor to the Company's cash flow problem is the decline
in production at the Sunshine Mine, as discussed under the heading Results of
Operations. Absent a new discovery at the mine, production is expected to
continue to decline in the coming months. The Company is working to gain access
to an area which management believes has the potential to contain significant
additional silver reserves. However, results from this work aren't expected to
be available until the end of the third quarter of this year.
The Company does not expect to be able to access the capital required
to develop the Pirquitas Mine in Argentina until after completion of its debt
restructuring as discussed above.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first quarter of 2000 was $1.0
million compared to $3.3 million in the first quarter of 1999. The $2.3 million
decrease was primarily due to changes in working capital components. Cash
operating loss decreased $300 thousand to $1.4 million for the 2000 period.
Investing activities in the first quarter of 2000 included $2.3 million
proceeds from sale of investment silver bullion and $650 thousand of net
additions to property, plant and equipment including $462 thousand for the
development of Pirquitas. Investing activities in the first quarter of 1999
included approximately $1.1 million proceeds from investment recoveries and $689
thousand of net additions to property, plant and equipment primarily for the
development of Pirquitas.
Cash provided by financing activities in 1999 primarily consists of
$5.9 million net proceeds from the issuance of convertible notes.
8
<PAGE> 9
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1999
Consolidated operating revenues decreased approximately $2.5 million
(25.6%) for the first quarter of 2000 compared to the first quarter of 1999. The
decrease in operating revenues primarily resulted from a 393,000 ounce decrease
in ounces of silver sold in the 2000 period, and a $0.15 decrease in average
price received per ounce of silver sold (1,293,626 ounces of silver at an
average of $5.06 per ounce in the 2000 quarter compared to 1,686,138 ounces at
an average of $5.21 per ounce in the 1999 quarter) along with a $240 thousand
decrease in by-product revenue. Sales in the 1999 quarter included a reduction
of work in process inventories totaling 260 thousand ounces of silver.
Mark to market loss on silver held for investment amounted to $166
thousand in the 2000 quarter compared to an $83 thousand mark to market gain in
the 1999 period.
Cost of revenues decreased $2.3 million (26.7%) (from $8.7 million in
the first quarter of 1999 to $6.4 million in the 2000 quarter) primarily due to
a decrease in ounces of silver produced. Net cash operating costs increased $.10
per ounce to $4.49 per ounce of silver primarily due to fixed costs being spread
over fewer ounces and a $0.14 decrease in per ounce by-product credits. These
were partially offset by reduced per ounce development and smelter costs.
Development costs are lower because the West Chance area of the mine is
almost fully developed. Smelter costs are lower due to improved contractual
terms with the outside smelter, improved grades for both silver and lead
concentrates produced and reduced tons of lead concentrate production in 2000.
Silver production totaled 1,268,877 ounces produced from 52,042 tons at
24.49 ounces per ton in 2000 versus 1,425,936 ounces from 56,759 tons at 25.89
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.
Exploration expense decreased $175 thousand in 2000 compared to 1999
primarily due to a reduction of expenditures for the Sunshine Mine and other
projects in Argentina and the U.S.
9
<PAGE> 10
General and administrative costs decreased $117 thousand due to various
cost reduction measures.
Interest income decreased $38 thousand due to lower average invested
cash balances.
Interest and debt expense increased $732 thousand primarily due to the
$1.4 million penalty interest on the 10% Notes partially offset by the
amortization of debt discount in 1999 for the 5% Convertible Notes issued in
January 1999.
In the 1999 period, other income included a $312 thousand gain from the
sale of certain investments.
10
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SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 24, 2000, the Company issued to the holders of the 10%
Notes on a pro rata basis 1,009,962 shares of common stock as the first
required quarterly prepayment of $1.25 million on the 10% Senior
Convertible Notes due November 24, 2002 (the "10% Notes"). The 10%
Notes were issued in November 1997 pursuant to the Company's reliance
on the exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act"), found in Section 4(2), and the shares
issued as the prepayment were issued pursuant to an exemption from
registration under the Securities Act found in Section 3(a)(9) of the
Securities Act or an exemption from registration under the Securities
Act found in Section 4(2).
On February 9, 2000, the Company issued to certain holders of the
Eurobonds 756,000 shares of common stock in exchange for $1,000,000 of
the 8% Senior Exchangeable Notes, originally due March 21, 2000 (the
"Eurobonds"). The Eurobonds were issued in March 1996 pursuant to the
Company's reliance on the exemption from registration under the
Securities Act found in Regulation S (Sections 901-905 of the
Securities Act), and the shares issued in exchange for the $1,000,000
of Eurobonds were issued pursuant to an exemption from registration
under the Securities Act found in Section 3(a)(9) of the Securities
Act.
On March 29, 2000, the Company issued to the holders of the 10% Notes
on a pro rata basis 698,179 shares of common stock as payment of
interest due by April 1, 2000 on the 10% Notes. The 10% Notes were
issued in November 1997 pursuant to the Company's reliance on the
exemption from registration under the Securities Act found in
Section 4(2), and the shares issued as interest were issued pursuant to
an exemption from registration under the Securities Act found in
Section 3(a)(9) of the Securities Act or an exemption from registration
under the Securities Act found in Section 4(2).
On April 11 and 17, 2000, certain holders of the 10% Notes converted
$1,000,000 of the 10% Notes for 1,481,480 shares of common stock
pursuant to the terms of the 10% Notes. The 10% Notes were issued in
November 1997 pursuant to the Company's reliance on the exemption from
registration under the Securities Act found in Section 4(2), and the
shares issued upon conversion of $1,000,000 of the 10% Notes were
issued pursuant to an exemption from registration under the Securities
Act found
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in Section 3(a)(9) of the Securities Act or an exemption from
registration under the Securities Act found in Section 4(2).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On March 21, 2000, the Company did not make its scheduled principal and
interest payments on the Eurobonds. There has not been a default
declared on the Eurobonds, and holders of at least 66 2/3% of the
Eurobonds have extended the maturity date of the principal and interest
that was due on March 21, 2000. Arguments could be made that the
Company is in default on the Eurobonds and that the 5% Notes and the
10% Notes are also in default due to cross-default provisions.
Since the Eurobonds were not retired or refinanced prior to March 21,
2000, the Company was to issue to the holders of the 10% Notes
$1,362,080 of additional interest to be paid in either cash or shares
of common stock. The Company did not pay the additional interest;
however, no default has been declared. Arguments could be made that the
Company is in default on the 10% Notes, and such default could cause
defaults under the Eurobonds and the 5% Notes due to cross-default
provisions.
By April 1, 2000, the Company did not issue shares to the holders of
the 10% Notes satisfying the entire amount of the scheduled interest
payment due on April 1, 2000. No default has been declared. Arguments
could be made that the Company is in default on the 10% Notes, and such
default could cause defaults under the Eurobonds and the 5% Notes due
to cross-default provisions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 27, 2000, a special meeting of the holders of the Eurobonds
was held. At the meeting, holders of $17,570,000 of Eurobonds voted to
extend the maturity of the principal of the Eurobonds to April 24, 2000
and adjourned the meeting until April 24, 2000. Holders of $345,000 of
Eurobonds voted against the extension of the maturity. Holders of
$8,060,000 of Eurobonds did not vote at all.
On April 24, 2000, the special meeting of the holders of the Eurobonds
was continued. At the meeting, holders of $17,570,000 of Eurobonds
voted to extend the maturity of both the principal and interest of the
Eurobonds to May 24, 2000. Holders of $345,000 of Eurobonds voted
against the extension of the maturity. Holders of $8,060,000 of
Eurobonds did not vote at all.
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ITEM 5. OTHER INFORMATION
By letter dated March 22, 2000, the New York Stock Exchange (the
"Exchange") notified the Company that it was below the Exchange's
continued listing standard of total market capitalization of not less
than $50 million. The letter also noted that the Company's stock price
had traded down recently and was in jeopardy of falling below the
continued listing criteria of a minimum share price of $1 over a 30 day
trading-day period.
The Exchange has also stated that the Company had to present a business
plan that demonstrates compliance with the continued listing standards
within 18 months, which the Company has submitted. The business plan is
subject to Exchange approval.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
13
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<PAGE> 15
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 12, 2000 By: /s/ WILLIAM W. DAVIS
-------------------------
William W. Davis
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED MARCH 31, 2000, 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,227
<SECURITIES> 0
<RECEIVABLES> 2,850
<ALLOWANCES> 0
<INVENTORY> 2,811
<CURRENT-ASSETS> 9,239
<PP&E> 61,370
<DEPRECIATION> 37,960
<TOTAL-ASSETS> 35,703
<CURRENT-LIABILITIES> 46,924
<BONDS> 1,515
0
0
<COMMON> 417
<OTHER-SE> (20,386)
<TOTAL-LIABILITY-AND-EQUITY> 35,703
<SALES> 7,177
<TOTAL-REVENUES> 7,011
<CGS> 6,369
<TOTAL-COSTS> 7,799
<OTHER-EXPENSES> 376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,935
<INCOME-PRETAX> (4,072)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,072)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,072)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
