Edgar Filing: COEUR D ALENE MINES CORP

CDE-03.31.2013-Q1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

___________________________________________

FORM 10-Q

___________________________________________



þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013



¨	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 001-08641

____________________________________________

COEUR D’ALENE MINES CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________________



Idaho		82-0109423
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PO Box I, 505 Front Ave. Coeur d’Alene, Idaho		83816
(Address of principal executive offices)		(Zip Code)

(208) 667-3511

(Registrant’s telephone number, including area code)

_________________________________________

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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The Company has 150,000,000 shares of common stock, par value of $0.01, authorized of which 101,476,722 shares were issued and outstanding as of May 8, 2013.

COEUR D’ALENE MINES CORPORATION

INDEX



		Page No.
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – March 31, 2013 and December 31, 2012	3

	Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2013 and 2012	4

	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2013 and 2012	5

	Condensed Consolidated Statement of Changes in Shareholders’ Equity - Three Months Ended March 31, 2013	5

	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2013 and 2012	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4.	Controls and Procedures	43

Part II.	Other Information	44

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 4.	Mine Safety Disclosures	45

Item 6.	Exhibits	46

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



		March 31, 2013			December 31, 2012
ASSETS	Notes	(In thousands, except share data)
CURRENT ASSETS
Cash and cash equivalents		$	331,311		$	125,440
Short term investments	5	1,498			999
Receivables	6	68,182			62,438
Ore on leach pad		26,748			22,991
Metal and other inventory	7	184,690			170,670
Deferred tax assets		2,627			2,458
Restricted assets		—			396
Prepaid expenses and other		22,324			20,790
		637,380			406,182
NON-CURRENT ASSETS
Property, plant and equipment, net	8	667,696			683,860
Mining properties, net	9	1,969,952			1,991,951
Ore on leach pad, non-current portion		24,073			21,356
Restricted assets		24,882			24,970
Marketable securities	5	23,498			27,065
Receivables, non-current portion	6	39,061			48,767
Debt issuance costs, net		12,429			3,713
Deferred tax assets		946			955
Other		23,765			12,582
TOTAL ASSETS		$	3,423,682		$	3,221,401
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	52,636		$	57,482
Accrued liabilities and other		9,964			10,002
Accrued income taxes		6,186			27,108
Accrued payroll and related benefits		13,816			21,306
Accrued interest payable		4,283			478
Current portion of debt and capital leases	10	6,130			55,983
Current portion of royalty obligation	10,15	61,541			65,104
Current portion of reclamation and mine closure	11	758			668
Deferred tax liabilities		53			121
		155,367			238,252
NON-CURRENT LIABILITIES
Long-term debt and capital leases	10	307,791			3,460
Non-current portion of royalty obligation	10,15	119,681			141,879
Reclamation and mine closure	11	35,252			34,670
Deferred tax liabilities		585,073			577,488
Other long-term liabilities		24,684			27,372
		1,072,481			784,869
COMMITMENTS AND CONTINGENCIES (Notes 10, 11, 12, 15, 16 and 19)
SHAREHOLDERS’ EQUITY
Common stock, par value $0.01 per share; authorized 150,000,000 shares, issued and outstanding 89,743,142 at March 31, 2013 and 90,342,338 at December 31, 2012		897			903
Additional paid-in capital		2,590,075			2,601,254
Accumulated deficit		(383,886		)	(396,156		)
Accumulated other comprehensive loss		(11,252		)	(7,721		)
		2,195,834			2,198,280
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	3,423,682		$	3,221,401

The accompanying notes are an integral part of these condensed consolidated financial statements.

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



		Three months ended March 31,
		2013			2012
	Notes	(In thousands, except share data)
Sales of metal		$	171,797		$	204,564
Production costs applicable to sales		(88,784		)	(92,554		)
Depreciation, depletion and amortization		(50,436		)	(52,592		)
Gross profit		32,577			59,418
COSTS AND EXPENSES
Administrative and general		10,227			7,596
Exploration		6,841			6,567
Loss on impairment and other		119			—
Pre-development, care, maintenance and other		4,485			1,068
Total cost and expenses		21,672			15,231
OPERATING INCOME		10,905			44,187
OTHER INCOME AND EXPENSE
Fair value adjustments, net	4,15	17,796			(23,113		)
Interest income and other, net		3,821			5,007
Interest expense, net of capitalized interest	10	(9,732		)	(6,670		)
Total other income and expense, net		11,885			(24,776		)
Income before income taxes		22,790			19,411
Income tax provision	12	(10,520		)	(15,436		)
NET INCOME		$	12,270		$	3,975
BASIC AND DILUTED INCOME PER SHARE
Basic income per share:
Net income	3	$	0.14		$	0.04
Diluted income per share:
Net income	3	$	0.14		$	0.04
Weighted average number of shares of common stock
Basic	3	89,948			89,591
Diluted	3	90,036			89,821

The accompanying notes are an integral part of these condensed consolidated financial statements.

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)



	Three months ended March 31,
	2013			2012
	(In thousands)
Net income (loss)	$	12,270		$	3,975
OTHER COMPREHENSIVE INCOME (LOSS) net of tax:
Unrealized gain (loss) on available for sale securities	(3,531		)	424
Other comprehensive income (loss)	(3,531		)	424
COMPREHENSIVE INCOME	$	8,739		$	4,399

The accompanying notes are an integral part of these condensed consolidated financial statements.

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Three months ended March 31, 2013

(Unaudited)



(In thousands)	Common Stock Shares		Common Stock Par Value			Additional Paid- In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balances at December 31, 2012	90,342		$	903		$	2,601,254		$	(396,156	)	$	(7,721	)	$	2,198,280
Net income	—		—			—			12,270			—			12,270
Other comprehensive loss	—		—			—			—			(3,531		)	(3,531		)
Common stock share buy back	(655	)	(7		)	(12,550		)	—			—			(12,557		)
Common stock issued/cancelled under long-term incentive plans and director fees and options, net	56		1			1,371			—						1,372
Balances at March 31, 2013	89,743		$	897		$	2,590,075		$	(383,886	)	$	(11,252	)	$	2,195,834

The accompanying notes are an integral part of these condensed consolidated financial statements.

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three months ended March 31,
	2013			2012
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,270		$	3,975
Add (deduct) non-cash items
Depreciation, depletion and amortization	50,436			52,592
Accretion of discount on debt and other assets, net	522			541
Accretion of royalty obligation	3,670			4,580
Deferred income taxes	7,425			7,677
Fair value adjustments, net	(16,042		)	21,778
Gain (loss) on foreign currency transactions	(465		)	299
Share-based compensation	1,096			2,137
Gain on sale of assets	(868		)	—
Loss on impairment	119			—
Other non-cash charges	561			256
Changes in operating assets and liabilities:
Receivables and other current assets	3,968			(2,956		)
Prepaid expenses and other	(2,240		)	4,774
Inventories	(20,493		)	(24,722		)
Accounts payable and accrued liabilities	(27,025		)	(53,929		)
CASH PROVIDED BY OPERATING ACTIVITIES	12,934			17,002
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short term investments and marketable securities	(4,649		)	(1,035		)
Proceeds from sales and maturities of short term investments	4,822			20,018
Capital expenditures	(12,827		)	(31,647		)
Investment in Other Assets	(11,565		)	—
Other	955			185
CASH USED IN INVESTING ACTIVITIES	(23,264		)	(12,479		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes and bank borrowings	300,000			—
Payments on long-term debt, capital leases, and associated costs	(55,340		)	(5,166		)
Payments on gold production royalty	(15,448		)	(21,374		)
Share repurchases	(12,557		)	—
Other	(454		)	(1,112		)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	216,201			(27,652		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	205,871			(23,129		)
Cash and cash equivalents at beginning of period	125,440			175,012
Cash and cash equivalents at end of period	$	331,311		$	151,883

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation: The Company’s unaudited interim condensed consolidated financial statements have been prepared under United States Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Coeur d’Alene Mines Corporation and its consolidated subsidiaries (“Coeur” or the “Company”). All significant intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2012. The condensed consolidated balance sheet as of December 31, 2012, included herein, was derived from the audited consolidated financial statements as of that date.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2013 and December 31, 2012 and the Company’s results of operations and cash flows for the three months ended March 31, 2013 and 2012. The results for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. All references to March 31, 2013 or to the three months ended March 31, 2013 and 2012 in the notes to the condensed consolidated financial statements are unaudited.

Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in its consolidated financial statements and accompanying notes. The areas requiring the use of management’s estimates and assumptions relate to recoverable ounces from proven and probable reserves that are the basis of future cash flow estimates and units-of-production depreciation and amortization calculations; useful lives utilized for depreciation, depletion and amortization; estimates of future cash flows for long lived assets; estimates of recoverable gold and silver ounces in ore on leach pads; the amount and timing of reclamation and remediation costs; valuation allowance for deferred tax assets; and other employee benefit liabilities.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements:

In December, 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 201): Disclosures about Offsetting Assets and Liabilities." This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning January 1, 2013, with retrospective application required. The adoption of ASU 2011-11 had no effect on the Company's financial position, results of operations or cash flows.

Effective January 1, 2013, the Company adopted ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU adds the following disclosure requirements:


•	For items reclassified out of accumulated other comprehensive income (AOCI) and into net income in their entirety, the effect of the reclassification on each affected net income line item; and


•	For AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures.

The adoption of ASU 2013-02 had no effect on the Company's consolidated financial position, results of operations or cash flows.

NOTE 3 – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three months ended March 31, 2013, 780,421 shares of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. For the three months ended March 31, 2012, 1,167 shares of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. The 3.25% Convertible Senior Notes were not included in the computation of diluted earnings per share for the three months ended March 31, 2013 and 2012 because there is no excess value upon conversion over the principal amount of the Notes.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The effect of potentially dilutive stock outstanding as of March 31, 2013 and 2012 are as follows (in thousands, except per share data):



	Three months ended March 31, 2013
	Income (Numerator)		Shares (Denominator)	Per-Share Amount
Basic EPS
Net income available to common shareholders	$	12,270	89,948	$	0.14
Effect of Dilutive Securities
Equity awards	—		88
Diluted EPS
Net income available to common shareholders	$	12,270	90,036	$	0.14

	Three months ended March 31, 2012
	Income (Numerator)		Shares (Denominator)	Per-Share Amount
Basic EPS
Net income available to common shareholders	$	3,975	89,591	$	0.04
Effect of Dilutive Securities
Equity awards	—		230
Diluted EPS
Net income available to common shareholders	$	3,975	89,821	$	0.04

NOTE 4 – FAIR VALUE MEASUREMENTS

Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:


Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;


Level 2	Quoted market prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and


Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):



	Fair Value at March 31, 2013
	Total		Level 1		Level 2		Level 3
Assets:
Short term investments	$	1,498	$	1,498	$	—	$	—
Marketable equity securities	23,498		23,498		—		—
	$	24,996	$	24,996	$	—	$	—
Liabilities:
Royalty obligation embedded derivative	$	121,564	$	—	$	121,564	$	—
Put and call options	4,532		—		4,532		—
Other derivative instruments, net	1,225		—		1,225		—
	$	127,321	$	—	$	127,321	$	—

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)



	Fair Value at December 31, 2012
	Total		Level 1		Level 2		Level 3
Assets:
Short term investments	$	999	$	999	$	—	$	—
Marketable securities	27,065		27,065		—		—
Other derivative instruments, net	943		—		943		—
	$	29,007	$	28,064	$	943	$	—
Liabilities:
Royalty obligation embedded derivative	$	145,098	$	—	$	145,098	$	—
Put and call options	9,299		—		9,299		—
	$	154,397	$	—	$	154,397	$	—

The Company’s short-term investments are readily convertible to cash and, therefore, these investments are classified within Level 1 of the fair value hierarchy.

The Company’s marketable equity securities are recorded at fair market value in the financial statements based on quoted market prices, which are accessible at the measurement date for identical assets. Such instruments are classified within Level 1 of the fair value hierarchy. Please see Note 5 - INVESTMENTS for additional details on marketable equity securities.

The Company’s derivative instruments related to the gold put and call options, royalty obligation embedded derivative, and other derivative instruments, net, which relate to the concentrate sales contracts and foreign exchange contracts, are valued using pricing models which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.

The Company had no Level 3 financial assets and liabilities as of March 31, 2013 or December 31, 2012.

There were no transfers between levels of fair value measurements of financial assets and liabilities during the first three months of 2013.

Financial assets and liabilities that are not measured at fair value at March 31, 2013 and December 31, 2012 are set forth below (in thousands):



	Fair Value at March 31, 2013
	Total		Level 1		Level 2		Level 3
Liabilities:
3.25% Convertible Senior Notes	$	5,394	$	5,394	$	—	$	—
7.875% Senior Notes due 2021	$	300,000	$	—	$	300,000	$	—
Palmarejo Gold Production Royalty Obligation	$	85,290	$	—	$	85,290	$	—



	Fair Value at December 31, 2012
	Total		Level 1		Level 2		Level 3
Liabilities:
3.25% Convertible Senior Notes	$	48,220	$	48,220	$	—	$	—
Palmarejo Gold Production Royalty Obligation	$	90,617	$	—	$	90,617	$	—

The fair value at March 31, 2013 and December 31, 2012 of the 3.25% Convertible Senior Notes outstanding were determined by active market transactions. As such, the notes are classified as Level 1 in the fair value hierarchy.

The fair value of the Palmarejo Gold Production Royalty Obligation is valued using a pricing model which requires inputs that are derived from observable market data, including contractual terms, yield curves, and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. As such, the obligation is classified within Level 2 of the fair value hierarchy.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The fair value of the Company's cash equivalents, receivables, restricted assets, accounts payable, accrued liabilities, and capital leases approximate book value due to the nature of these assets and liabilities and are classified as Level 1 in the fair value hierarchy, except for capital leases which are classified as Level 2.

The fair value of the Company's 7.875% Senior Notes due 2021 has been determined to be at par as there has been minimal variance in fair value due to their recent issuance.

The fair value of the Company's non-current portion of the refundable value added tax is not practicable to estimate due to the uncertainty of the timing of the expected future cash flows to be received.

NOTE 5 – INVESTMENTS

The Company classifies the marketable securities in which it invests as available-for-sale securities. Such securities are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income (loss). Please see Note 4 - FAIR VALUE MEASUREMENT for additional information on fair value classification of marketable securities. At the time securities are sold or otherwise disposed of, gains or losses are included in net income. Gross realized gains and losses are based on cost, net of discount or premium, of investments sold and there were no losses realized during the first three months of 2013 or 2012.

The equity securities reflected in the table below consist of equity securities of silver and gold exploration and development companies that the Company purchased. The following table summarizes the Company’s available-for-sale securities on hand as of March 31, 2013 and December 31, 2012 (in thousands):



	Investments in marketable securities
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Estimated Fair Value
Marketable securities at March 31, 2013	$	34,751	$	(13,072	)	$	1,819	$	23,498

Marketable securities at December 31, 2012	$	34,786	$	(10,443	)	$	2,722	$	27,065

The following table summarizes the gross unrealized losses on investment securities for which other-than-temporary impairments have not been recognized and the fair values of those securities, aggregated by the length of time the individual securities have been in a continuous unrealized loss position, at March 31, 2013 (in thousands):



	Less than twelve months					Twelve months or more					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
Marketable equity securities	$	(1,270	)	$	3,861	$	(11,802	)	$	10,874	$	(13,072	)	$	14,735

In the three months ended March 31, 2013 and 2012, the Company recognized an unrealized loss of $3.5 million and an unrealized gain of $0.4 million, respectively, in other comprehensive income (loss). The Company performs a quarterly assessment on each of its marketable securities with unrealized losses to determine if the security is other than temporarily impaired. The Company's management team uses industry knowledge and expertise to evaluate each investment and has determined that unrealized losses on seven investments it currently holds are not other than temporary based on a review of the potential for each issuer of securities held by the Company. The Company has the intent and ability to hold these investments until they recover or increase in value.

In addition, the Company had $1.5 million and $1.0 million of short-term investments at March 31, 2013 and December 31, 2012, respectively. These investments are held with various banks and all have maturity dates of less than one year.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 6 – RECEIVABLES

Receivables consist of the following (in thousands):



	March 31, 2013		December 31, 2012
Receivables - current portion
Accounts receivable - trade	$	9,487	$	8,701
Refundable income tax	4,131		9,331
Refundable value added tax	49,149		40,020
Accounts receivable - other	5,415		4,386
	$	68,182	$	62,438
Receivables - non-current portion
Refundable value added tax	$	39,061	$	48,767

Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management evaluates the collectability of receivable account balances to determine the allowance, if any. There were no allowances against receivable balances at March 31, 2013 or December 31, 2012.

Taxes paid to foreign governments that are refundable to the Company are classified as “Refundable value added tax” at the face value of the amount of the tax refund due. Refunds expected to be received in the next twelve months are classified as “current” and amounts that are expected to be received after twelve months are classified as “non-current”.

NOTE 7 – METAL AND OTHER INVENTORY

Metal and other inventory consist of the following (in thousands):



	March 31, 2013		December 31, 2012
Concentrate and doré inventory	$	107,960	$	91,130
Supplies	76,730		79,540
Metal and other inventory	$	184,690	$	170,670

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in thousands):



	March 31, 2013			December 31, 2012
Land	$	2,010		$	2,010
Buildings and improvements	582,681			581,286
Machinery and equipment	370,381			360,199
Capitalized leases for machinery, equipment, buildings, and land	28,270			35,129
	983,342			978,624
Accumulated depreciation and amortization	(333,470		)	(313,067		)
	649,872			665,557
Construction in progress	17,824			18,303
	$	667,696		$	683,860

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 9 – MINING PROPERTIES

Mining properties consist of the following (in thousands):



March 31, 2013	Palmarejo			San Bartolomé			Kensington			Rochester			Martha			Endeavor			Joaquin		Other		Total
Mining properties	$	158,718		$	70,351		$	335,424		$	115,963		$	11,416		$	—		$	—	$	—	$	691,872
Accumulated depletion	(87,359		)	(19,349		)	(53,519		)	(100,844		)	(11,416		)	—			—		—		(272,487		)
	71,359			51,002			281,905			15,119			—			—			—		—		419,385
Mineral interests	1,658,389			26,642			—			—			—			44,033			93,430		—		1,822,494
Accumulated depletion	(248,942		)	(7,678		)	—			—			—			(15,449		)	—		—		(272,069		)
	1,409,447			18,964			—			—			—			28,584			93,430		—		1,550,425
Non-producing and development properties	—			—			—			—			—			—			—		142		142
Total mining properties	$	1,480,806		$	69,966		$	281,905		$	15,119		$	—		$	28,584		$	93,430	$	142	$	1,969,952



December 31, 2012	Palmarejo			San Bartolomé			Kensington			Rochester			Martha			Endeavor			Joaquin		Other		Total
Mining properties	$	155,722		$	70,322		$	333,619		$	114,973		$	11,416		$	—		$	—	$	—	$	686,052
Accumulated depletion	(82,037		)	(18,439		)	(46,649		)	(100,437		)	(11,416		)	—			—		—		(258,978		)
	73,685			51,883			286,970			14,536			—			—			—		—		427,074
Mineral interests	1,658,389			26,642			—			—			—			44,033			93,429		—		1,822,493
Accumulated depletion	(235,795		)	(7,338		)	—			—			—			(14,625		)	—		—		(257,758		)
	1,422,594			19,304			—			—			—			29,408			93,429		—		1,564,735
Non-producing and development properties	—			—			—			—			—			—			—		142		142
Total mining properties	$	1,496,279		$	71,187		$	286,970		$	14,536		$	—		$	29,408		$	93,429	$	142	$	1,991,951

Operational Mining Properties

Palmarejo Mine: Palmarejo is located in the State of Chihuahua in northern Mexico, and its principal silver and gold properties are collectively referred to as the “Palmarejo mine.” The Palmarejo mine commenced production in April 2009.

San Bartolomé Mine: The San Bartolomé mine is a silver mine located near the city of Potosi, Bolivia. The mineral rights for the San Bartolomé project are held through long-term joint venture/lease agreements with several local independent mining co-operatives and the Bolivian state owned mining organization, (“COMIBOL”). The Company commenced commercial production at San Bartolomé in June 2008.

Kensington Mine: The Kensington mine is an underground gold mine and consists of the Kensington and adjacent Jualin properties located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Company commenced commercial production in July of 2010.

Rochester Mine: The Company has conducted operations at the Rochester mine, located in Western Nevada, since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods. Rochester’s primary product is silver with gold produced as a by-product.

Martha Mine: The Martha mine is an underground silver mine located in Argentina. Coeur acquired a 100% interest in the Martha mine in April 2002. The Martha mine ceased active mining operations in September 2012.

Mineral Interests

Endeavor Mine: In May 2005, CDE Australia Pty Ltd, (“CDE Australia”), a wholly-owned subsidiary of Coeur acquired the silver production and reserves, up to a maximum 17.7 million payable ounces, contained at the Endeavor mine in Australia, which is owned and operated by Cobar Operations Pty. Limited (“Cobar”), a wholly-owned subsidiary of CBH Resources Ltd. (“CBH”). In March 2006, CDE Australia entered into an amended agreement under which it owns all silver production and reserves up to a total of 20.0 million payable ounces.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

CDE Australia began realizing reductions in revenues in the fourth quarter of 2008 as a result of a silver price sharing provision that was part of the purchase agreement. CDE Australia has received approximately 4.3 million payable ounces to-date and the current ore reserve contains approximately 4.3 million payable ounces based on current metallurgical recovery and current smelter contract terms.

Joaquin Project: The Joaquin project is located in the Santa Cruz province of southern Argentina. The Company commenced exploration of this large property located north of the Company's Martha silver mine in November 2007. Since that time, the Company has defined silver and gold mineralization in two deposits at Joaquin, La Negra and La Morocha, collectively referred to as the "Joaquin Project," and has recently commenced work on detailed drilling and other technical, economic and environmental programs. Please see Note 8 - ACQUISITION OF JOAQUIN MINERAL INTERESTS in the Company’s Form 10-K for the year ended December 31, 2012.

NOTE 10 – DEBT AND CAPITAL LEASE OBLIGATIONS

The current and non-current portions of long-term debt and capital lease obligations as of March 31, 2013 and December 31, 2012 are as follows (in thousands):



	March 31, 2013				December 31, 2012
	Current		Non-Current		Current		Non-Current
3.25% Convertible Senior Notes due March 2028	$	—	$	5,334	$	48,081	$	—
7.875% Senior Notes due 2021	—		300,000		—		—
Capital lease obligations	6,130		2,457		7,902		3,460
	$	6,130	$	307,791	$	55,983	$	3,460

3.25% Convertible Senior Notes

Per the indenture governing the 3.25% Convertible Senior Notes due 2028 (the “Convertible Notes”), the Company announced on February 13, 2013 that it was offering to repurchase all of its outstanding 3.25% Convertible Senior Notes due 2028. As of February 12, 2013, there was $48.7 million aggregate principal amount of Convertible Notes outstanding. The Company repurchased $43.3 million in aggregate principal amount, leaving a balance of $5.3 million at March 31, 2013. The carrying value of the equity component was $10.9 million at March 31, 2013 and December 31, 2012.

For the three months ended March 31, 2013 and 2012 interest expense recognized was $0.3 million and $0.4 million, respectively. For the three months ended March 31, 2013 and 2012 accretion of the debt discount was $0.6 million. The effective interest rate on the Convertible Notes was 8.9%.

7.875% Senior Notes

On January 29, 2013, the Company completed an offering of $300 million in aggregate principal amount of 7.875% Senior Notes due 2021 (the “Notes”) in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). As of March 31, 2013, the outstanding balance of the 7.875% Senior Notes due 2021 was $300.0 million.

The Notes are governed by an Indenture, dated as of January 29, 2013 (the “Indenture”), among the Company, as issuer, certain of the Company's subsidiaries named therein, as guarantors thereto (the “Guarantors”), and the Bank of New York Mellon, as trustee (the “Trustee”).

The Notes bear interest at a rate of 7.875% per year from the date of original issuance or from the most recent payment date to which interest has been paid or provided for. Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 2013. The Company will make each interest payment to the holders of record of the Notes on the immediately preceding January 15 and July 15. In certain circumstances the Company may be required to pay additional interest. For the three months ended March 31, 2013 interest expense recognized was $4.1 million.

At any time prior to February 1, 2017, the Company may redeem all or part of the Notes upon not less than 30 nor more than 60 days prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem some or all of the Notes on or after February 1, 2017, at redemption prices set forth in the Indenture, together with accrued and unpaid interest. At any time prior to February 1, 2016, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the Notes, including any permitted additional Notes, at a redemption price equal to 107.875% of the principal amount.

The Indenture also contains certain “Events of Default” (as defined in the Indenture) customary for indentures of this type.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

If an Event of Default has occurred and is continuing, the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding may, and the Trustee at the request of the holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall, declare all unpaid principal of, premium, if any, and accrued interest on all the Notes to be due and payable.

The terms of the notes include affirmative and negative covenants that the Company believes are usual and customary, including covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales, pay dividends and distributions or repurchase or redeem capital stock, restrict the ability of subsidiaries to pay dividends to the Company, prepay, redeem or repurchase certain debt, or enter into transactions with affiliates.

Revolving Credit Facility

On August 1, 2012, Coeur Alaska, Inc. and Coeur Rochester, Inc. (the “Borrowers”), each a wholly-owned subsidiary of the Company, entered into a new Credit Agreement (the “Credit Agreement”) by and among the Company, the Borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $100.0 million, which principal amount may be increased, subject to receiving additional commitments therefor, by up to $50.0 million. There is a commitment fee of 0.10% on the unused portion of the line. The unused line fee for the three months ended March 31, 2013 was $0.1 million and was charged to interest expense.

The term of the Revolving Credit Facility is four years. Amounts may be borrowed under the Revolving Credit Facility to finance working capital and general corporate purposes of the Company and its subsidiaries, including the payment of fees and expenses incurred in connection with the Revolving Credit Facility. The obligations under the Revolving Credit Facility are secured by substantially all of the assets of the Company and its domestic subsidiaries, including the land, mineral rights and infrastructure at the Kensington and Rochester mines, as well as a pledge of the shares of certain of the Company's subsidiaries. In addition, in connection with the Revolving Credit Facility, Coeur Alaska, Inc. retained its existing hedge positions established under the Kensington Term Facility described below, with Wells Fargo Bank, N.A. as hedge provider.

Borrowings under the Revolving Credit Facility bear interest at a rate selected by the Borrowers equal to either LIBOR plus a margin of 2.25%-3.25% or an alternate base rate plus a margin of 1.25%-2.25%, with the margin determined by reference to the Company's ratio of consolidated debt to adjusted EBITDA.

Voluntary prepayments of the loans and voluntary reductions of the unutilized portion of the commitments under the Revolving Credit Facility are permitted without prepayment premium or penalty, subject to payment of customary LIBOR breakage costs. Amounts so repaid may be re-borrowed subject to customary requirements.

The Revolving Credit Facility contains representations and warranties, events of default and affirmative and negative covenants that the Company believes are usual and customary, including covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales and make dividends and distributions. The Revolving Credit Facility also contains financial covenants that require (i) ratio of consolidated debt to adjusted EBITDA to be not greater than 3.25 to 1.00 (subject to a step-down to 3.00 to 1.00 after two years), (ii) ratio of adjusted EBITDA to interest expense to be not less than 3.00 to 1.00 and (iii) tangible net worth to be not less than 90% of tangible net worth as of March 31, 2012 plus 25% of net income for each fiscal quarter ending after March 31, 2012 to the date of measurement.

As of March 31, 2013, no amounts were outstanding under the Revolving Credit Facility.

Kensington Term Facility

On August 16, 2012, Coeur Alaska prepaid all obligations and indebtedness outstanding under the Coeur Alaska, Inc. Term Facility Agreement, as amended and restated on December 20, 2010, with Credit Suisse AG (the "Kensington Term Facility"), which totaled approximately $68.6 million. Upon payment in full, the Kensington Term Facility was terminated and all of the liens granted under the Kensington Term Facility were released.

As a condition to the Kensington Term Facility with Credit Suisse, the Company agreed to enter into a gold hedging program which protects a minimum of 243,750 ounces of gold production over the life of the term facility against the risk associated with fluctuations in the market price of gold. This program consists of a series of zero cost collars which consist of a floor price and a ceiling price of gold. Coeur Alaska has transferred these hedge positions to Wells Fargo Bank, N.A., as hedge provider. Call options protecting 92,000 ounces of gold were outstanding at March 31, 2013. The weighted average strike price of the call options was $1,966.14. Put options protecting 109,500 ounces of gold were outstanding at March 31, 2013. The weighted average strike price of the put options was $973.14. Call options protecting 97,000 ounces of gold were outstanding at December 31, 2012. The weighted average strike price of the call options was $1,967.89. Put options protecting 122,000 ounces of gold were outstanding

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

at December 31, 2012. The weighted average strike price of the put options was $967.86.

Capital Lease Obligations

As of March 31, 2013 and December 31, 2012, the Company had outstanding balances on capital leases of $8.6 million and $11.4 million, respectively.

Palmarejo Gold Production Royalty Obligation

The Company recognized accretion expense on the Palmarejo gold production royalty obligation for the three months ended March 31, 2013 and 2012 of $4.1 million and $5.1 million, respectively. As of March 31, 2013 and December 31, 2012, the remaining minimum obligation under the royalty agreement was $59.7 million and $61.9 million, respectively. Please see Note 15 - DERIVATIVE FINANCIAL INSTRUMENTS for additional information on the gold production royalty obligation.

Interest Expense

The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the three months ended March 31, 2013 and 2012, the Company expensed interest of $9.7 million and $6.7 million, respectively.



	Three months ended March 31,
	2013			2012
	(in thousands)
3.25% Convertible Senior Notes due March 2028	$	337		$	395
7.875% Senior Notes due January 2021	4,134			—
Revolving Credit Facility	125			—
Kensington Term Facility (terminated in 2012)	—			974
Capital lease obligations	168			343
Other debt obligations	197			69
Accretion of Franco Nevada royalty obligation	4,062			5,104
Amortization of debt issuance costs	525			256
Accretion of debt discount	577			612
Capitalized interest	(393		)	(1,083		)
Total interest expense, net of capitalized interest	$	9,732		$	6,670

Capitalized Interest

The Company capitalizes interest incurred on its various debt instruments as a cost of properties under development. For the three months ended March 31, 2013 and 2012, the Company capitalized interest of $0.4 million and $1.1 million, respectively.

NOTE 11 – RECLAMATION AND MINE CLOSURE

Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, mineral prices, mineral processing recovery rates, production levels, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. The sum of the expected costs by year is discounted, using the Company's credit adjusted risk free interest rate. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.

Changes to the Company’s asset retirement obligations are as follows (in thousands):



	Three months ended March 31,
	2013			2012
Asset retirement obligation - Beginning	$	33,434		$	32,714
Accretion	743			724
Addition and changes in estimates	—			—
Settlements	(2		)	(4		)
Asset retirement obligation - March 31	$	34,175		$	33,434

In addition, the Company has accrued $0.8 million and $0.9 million as of March 31, 2013 and December 31, 2012, respectively, for reclamation liabilities related to former mining activities. These amounts are also included in reclamation and mine closure liabilities.

NOTE 12 – INCOME TAXES

For the three months ended March 31, 2013, the Company reported an income tax provision of approximately $10.5 million compared to an income tax provision of $15.4 million for the three months ended March 31, 2012.

The following table summarizes the components of the Company’s income tax provision from continuing operations for the three months ended March 31, 2013 and 2012 (in thousands):



	Three months ended March 31,
	2013			2012

United States	$	(2,487	)	$	(3,137	)
Argentina	73			(201		)
Australia	(105		)	(711		)
Mexico	(3,673		)	(3,698		)
Bolivia	(4,328		)	(7,689		)
Income tax provision from continuing operations	$	(10,520	)	$	(15,436	)

The income tax provision for the three months ended March 31, 2013 varies from the statutory rate primarily because of differences in tax rates for the Company's foreign operations and changes in valuation allowances for net deferred tax assets, permanent differences and foreign exchange rate differences. The variance is also attributable to an audit of San Bartolomé's 2009 Bolivian tax return, whereby San Bartolomé incurred an additional $1.5 million of tax expense, including interest and penalties related to uncertainty in similar tax positions.

The Company has U.S. net operating loss carryforwards which expire in 2017 through 2031. Net operating losses in foreign countries have an indefinite carryforward period, except in Mexico where net operating loss carryforwards are limited to ten years.

NOTE 13 – SHARE-BASED COMPENSATION PLANS

The Company has an annual incentive plan and a long-term incentive plan. The Company’s shareholders approved the Amended and Restated 2003 Long-Term Incentive Plan of Coeur d’Alene Mines Corporation at the 2010 annual shareholders meeting.

The compensation expense recognized in the Company’s consolidated financial statements for the three months ended March 31, 2013 and 2012 for share based compensation awards was $0.6 million and $1.7 million, respectively. The stock appreciation rights (SARs) outstanding under the plan are liability-based awards and are required to be re-measured at the end of each reporting period with corresponding adjustments to previously recognized and future stock-based compensation expense. As of March 31, 2013, there was $8.0 million of total unrecognized compensation cost (net of estimated forfeitures) related to unvested stock options, SARs, restricted stock, and performance shares which is expected to be recognized over a weighted-average remaining vesting period of 1.9 years.

The following table summarizes the new grants issued during the three months ended March 31, 2013:

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)



Grant date	Restricted stock	Grant date fair value of restricted stock		Stock options	Grant date fair value of stock options		Performance shares	Grant date fair value of performance shares
January 2, 2013	1,805	$	25.20	—	$	—	—	$	—
January 22, 2013	47,994	$	23.90	77,715	$	14.77	95,991	$	27.41
February 4, 2013	18,668	$	22.63	17,692	$	14.00	21,828	$	25.96

The following options and stock appreciation rights were exercised during the three months ended March 31, 2013:



Award Type	Number of Units	Weighted Average Exercise Price
Options	926	$	20.80
Stock Appreciation Rights	3,846	$	15.40

The following shows the weighted average fair value of SARs outstanding at March 31, 2013:



	SARs
Weighted average fair value	$	8.11

The following table shows the options and SARs exercisable at March 31, 2013:



Options Exercisable	Weighted Average Exercise Price		SARs Exercisable	Weighted Average Exercise Price
252,171	$	33.15	65,019	$	14.21

NOTE 14 – DEFINED CONTRIBUTION AND 401(k) PLANS

Defined Contribution Plan

The Company provides a noncontributory defined contribution retirement plan for all eligible U.S. employees. Total contributions, which are based on a percentage of the salary of eligible employees, were $0.6 million and $0.5 million, for the three months ended March 31, 2013 and 2012, respectively.

401(k) Plan

The Company maintains a retirement savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue Code) covering all eligible U.S. employees. Under the plan, employees may elect to contribute up to 100% of their cash compensation, subject to ERISA limitations. The Company adopted a Safe Harbor Tiered Match and is required to make matching contributions equal to 100% of the employee’s contribution up to 3% of the employee’s compensation plus matching contributions equal to 50% of the employee’s contribution up to an additional 2% of the employee’s compensation. Total plan expenses recognized in the Company’s consolidated financial statements for the three months ended March 31, 2013 and 2012 were $0.7 million and $0.6 million, respectively.

NOTE 15 – DERIVATIVE FINANCIAL INSTRUMENTS

Palmarejo Gold Production Royalty

On January 21, 2009, the Company entered into a gold production royalty transaction with Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties. The royalty transaction included a minimum obligation of 4,167 ounces per month that ends when payments have been made on a total of 400,000 ounces of gold. As of March 31, 2013, a total of 184,851 ounces of gold remain outstanding under the minimum royalty obligation.

The price volatility associated with the minimum royalty obligation is considered an embedded derivative financial instrument under U.S. GAAP. As such, the Company is required to recognize the change in fair value of the remaining minimum obligation due to the changing gold prices. Unrealized gains are recognized in periods when the forward gold price has decreased from the previous period and unrealized losses are recognized in periods when the forward gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 4.2% and 4.2% at March 31, 2013 and December 31, 2012, respectively. The fair value of the embedded derivative at March 31, 2013 and December 31, 2012, based on forward gold prices averaging approximately $1,609 and $1,694 per ounce, respectively, was a liability of $121.6 million and $145.1 million, respectively. During the three months ended March 31, 2013 and 2012, mark-to-market adjustments for this embedded derivative amounted to a gain of $23.5 million and a loss of $12.4 million, respectively.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Payments on the royalty obligation occur monthly resulting in a decrease to the carrying amount of the minimum obligation and the derivative liability and the recognition of realized gains or losses as a result of changing prices for gold. Each monthly payment is an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of the actual gold production per month multiplied by the excess of the monthly average market price of gold above $400 per ounce (which $400 floor is subject to a 1% annual inflation compounding adjustment beginning on January 21, 2013). For the three months ended March 31, 2013 and 2012, realized losses on settlement of the liabilities were $9.1 million and $13.2 million, respectively. The mark-to-market adjustments and realized losses are included in fair value adjustments, net in the consolidated statement of operations.

Forward Foreign Exchange Contracts

The Company periodically enters into forward foreign currency contracts to reduce the foreign exchange risk associated with forecasted Mexican peso (“MXN”) operating costs at its Palmarejo mine. At March 31, 2013, the Company had MXN foreign exchange contracts of $29.4 million in U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 12.91 MXN to each U.S. dollar and the Company had an asset with a fair value of $0.8 million at March 31, 2013. At December 31, 2012, the Company had MXP foreign exchange contracts of $26.1 million in U.S. dollars. These contracts required the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 13.11 MXN to each U.S. dollar and the Company had a liability with a fair value of $0.1 million at December 31, 2012. The Company recorded mark-to-market gains on these contracts of $0.7 million and $2.7 million for the three months ended March 31, 2013 and 2012, respectively. These mark-to-market adjustments are reflected in fair value adjustments, net. The Company recorded a realized gain of $0.6 million and a realized loss of $0.8 million in production costs applicable to sales during the three months ended March 31, 2013 and 2012, respectively.

In connection with an arrangement agreement entered into with Orko Silver Corp., the Company entered into a forward foreign currency contract in the first quarter of 2013 to reduce the foreign exchange risk associated with forecasted Canadian dollars ("CAD"). Please see Note 20 - SUBSEQUENT EVENTS for additional information. At March 31, 2013, the Company had a CAD foreign exchange contract of $100 million in U.S. dollars. This contract requires the Company to exchange U.S. dollars for CAD at an exchange rate of 1.0 CAD to each U.S. dollar and the contract had a fair value of $98.4 million at March 31, 2013. The Company recorded a mark-to-market loss on this contract of $1.6 million for the three months ended March 31, 2013. This mark-to-market adjustment is reflected in fair value adjustments, net.

Concentrate Sales Contracts

The Company enters into concentrate sales contracts with third-party smelters. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. The provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final settlement price based on a future price, does not qualify for hedge accounting. These embedded derivatives are recorded as derivative assets (in Prepaid expenses and other) or derivative liabilities (in Accrued liabilities and other) on the balance sheet and are adjusted to fair value through earnings each period until the date of final settlement. At March 31, 2013, the Company had outstanding provisionally priced sales of $30.1 million, consisting of 0.1 million ounces of silver and 15,685 ounces of gold, which had a fair value of $29.6 million including the embedded derivative. At December 31, 2012, the Company had outstanding provisionally priced sales of $33.2 million consisting of 0.4 million ounces of silver and 11,957 ounces of gold, which had a fair value of approximately $34.1 million including the embedded derivative.

Commodity Derivatives

As of March 31, 2013, the Company had outstanding call options requiring it to deliver 92,000 ounces of gold at a weighted average strike price of $1,966.14 per ounce if the market price of gold exceeds the strike price. At March 31, 2013, the Company had outstanding put options allowing it to sell 109,500 ounces of gold at a weighted average strike price of $973.14 per ounce if the market price of gold were to fall below the strike price. The contracts expire by their terms over the next three years. At December 31, 2012, the Company had written outstanding call options requiring it to deliver 97,000 ounces of gold at a weighted average strike price of $1,967.89 per ounce if the market price of gold exceeds the strike price. At December 31, 2012, the Company had outstanding put options allowing it to sell 122,000 ounces of gold at a weighted average strike price of $967.86 per ounce if the market price of gold were to fall below the strike price. As of March 31, 2013 and December 31, 2012, the fair market value of these contracts was a net liability of $4.5 million and $9.3 million, respectively. During the three months ended March 31, 2013, 12,500 ounces of gold put options expired at a weighted average strike price of $921.60 per ounce, resulting in a realized loss of $0.5 million. During the three months ended March 31, 2013, 5,000 ounces of gold call options at a weighted average strike price of $2,000.00 expired. During the three months ended March 31, 2013 and 2012, the Company recorded unrealized gains of $4.8 million and $0.2 million, respectively, related to the outstanding options which was included in fair value adjustments, net.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

As of March 31, 2013, the Company had the following derivative instruments that settle in each of the years indicated in the table (in thousands except average prices, ounces and notional data):



	2013		2014		2015		Thereafter
Palmarejo gold production royalty	$	21,297	$	24,895	$	24,691	$	20,766
Average gold price in excess of minimum contractual deduction	$	502	$	498	$	494	$	490
Notional ounces	42,433		50,004		50,004		42,409
Mexican peso forward purchase contracts	$	29,400	$	—	$	—	$	—
Average rate (MXP/$)	$	12.91	$	—	$	—	$	—
Mexican peso notional amount	379,422		—		—		—
Canadian dollar forward purchase contracts	$	100,000	$	—	$	—	$	—
Average rate (CAD/$)	$	1.00	$	—	$	—	$	—
Canadian dollar notional amount	100,000		—		—		—
Silver concentrate sales agreements	$	4,395	$	—	$	—	$	—
Average silver price	$	29.72	$	—	$	—	$	—
Notional ounces	147,898		—		—		—
Gold concentrates sales agreements	$	25,683	$	—	$	—	$	—
Average gold price	$	1,637	$	—	$	—	$	—
Notional ounces	15,685		—		—		—
Gold put options purchased	$	1,260	$	720	$	—	$	—
Average gold strike price	$	931	$	979	$	1,010	$	—
Notional ounces	32,500		47,000		30,000		—
Gold call options sold	$	—	$	720	$	—	$	—
Average gold strike price	$	2,000	$	1,934	$	2,000	$	—
Notional ounces	15,000		47,000		30,000		—

The following summarizes the classification of the fair value of the derivative instruments as of March 31, 2013 and December 31, 2012 (in thousands):



	March 31, 2013
	Prepaid expenses and other		Accrued liabilities and other		Other long- term liabilities		Current portion of royalty obligation		Non-current portion of royalty obligation
Forward foreign exchange contracts Peso	$	814	$	—	$	—	$	—	$	—
Forward foreign exchange contracts Canadian dollars	—		1,598		—		—		—
Palmarejo gold production royalty	—		—		—		37,279		84,285
Put and call options, net	—		1,551		2,981		—		—
Concentrate sales contracts	71		512		—		—		—
	$	885	$	3,661	$	2,981	$	37,279	$	84,285

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)



	December 31, 2012
	Prepaid expenses and other		Accrued liabilities and other		Other long- term Liabilities		Current portion of royalty obligation		Non-current portion of royalty obligation
Forward foreign exchange contracts Peso	$	376	$	300	$	—	$	—	$	—
Palmarejo gold production royalty	—		—		—		41,146		103,952
Put and call options, net	—		2,025		7,274		—		—
Concentrate sales contracts	1,030		163		—		—		—
	$	1,406	$	2,488	$	7,274	$	41,146	$	103,952

The following represent mark-to-market gains (losses) on derivative instruments for the three months ended March 31, 2013 and 2012 (in thousands):



		Three months ended March 31,
Financial statement line	Derivative	2013			2012
Sales of metal	Concentrate sales contracts	$	(1,755	)	$	1,336
Production costs applicable to sales	Forward foreign exchange contracts	627			(783		)
Fair value adjustments, net	Forward foreign exchange contracts MXN Peso	738			2,690
Fair value adjustments, net	Forward foreign exchange contracts Canadian dollar	(1,598		)	—
Fair value adjustments, net	Silver ounces receivable	—			359
Fair value adjustments, net	Palmarejo gold royalty	14,429			(25,611		)
Fair value adjustments, net	Put and call options	4,228			(551		)
		$	16,669		$	(22,560	)

Please see Note 4 - FAIR VALUE MEASUREMENTS for additional detail on the fair value amounts for derivatives.

Credit Risk

The credit risk exposure related to any potential derivative instruments is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company deals with financial institutions management deems credit worthy and limits credit exposure to each. The Company does not anticipate non-performance by any of its counterparties. In addition, to allow for situations where positions may need to be revised, the Company deals only in markets that management considers highly liquid.

NOTE 16 – COMMITMENTS AND CONTINGENCIES

Labor Union Contracts

The Company maintains one labor agreement with Sindicato de la Empresa Minera Manquiri at the San Bartolomé mine in Bolivia. The labor agreement, which became effective October 11, 2007, does not have a fixed term. As of March 31, 2013, approximately 10.6% of the Company’s worldwide labor force was covered by collective bargaining agreements.

Termination Benefits

The Company established a termination benefit program for its employees at the Rochester mine in 2005. The program provided a financial benefit in the form of severance pay to terminated employees if their employment was terminated due to curtailment of operations. The individual benefit was based on the employee’s service time and rate of pay at the time of termination. The Rochester mine resumed mining and crushing operations in late 2011. As of November 2012, the plan was terminated.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Changes to the Company's termination benefits are as follows (in thousands):



	Three months ended March 31,
	2013		2012
Beginning Balance	$	—	$	3,335
Accruals	—		87
Ending Balance	$	—	$	3,422

The Company does not have a written severance plan for any of its operations including those operations located in Chile, Argentina, Bolivia and Mexico. However, laws in these foreign jurisdictions require payment of certain minimum statutory termination benefits. Accordingly, in situations where minimum statutory termination benefits must be paid to the affected employees, the Company records employee severance costs in accordance with U.S. GAAP. The Company has accrued obligations for post-employment benefits in these locations of approximately $7.7 million and $7.6 million as of March 31, 2013 and December 31, 2012, respectively.

Kensington Production Royalty

On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur Alaska, Inc., acquired the 50% ownership interest of Echo Bay Exploration Inc., or Echo Bay, giving Coeur 100% ownership of the Kensington property. Coeur Alaska is obligated to pay Echo Bay, a subsidiary of Kinross Gold Corporation, a scaled net smelter return royalty on 1.0 million ounces of future gold production after Coeur Alaska recoups the $32.5 million purchase price and its construction and development expenditures incurred after July 7, 1995 in connection with placing the property into commercial production. The royalty ranges from 1% at gold prices of $400 per ounce to a maximum of 2.5% at gold prices above $475 per ounce, with the royalty to be capped at 1.0 million ounces of production. No royalty has been paid to date.

Rochester Production Royalty

The Company acquired the Rochester property from ASARCO, a subsidiary of Grupo Mexico SA de CV, in 1983. The Company is obligated to pay a net smelter royalty interest to ASARCO when the market price of silver equals or exceeds $23.60 per ounce up to a maximum rate of 5%. Royalty expense was $1.0 million and $0.6 million, respectively for the three months ended March 31, 2013 and 2012, respectively.

Palmarejo Gold Production Royalty

On January 21, 2009, Coeur Mexicana entered into a gold production royalty transaction with Franco-Nevada Corporation under which Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced from its Palmarejo silver and gold mine in Mexico. The royalty agreement provides for a minimum obligation to be paid monthly on a total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period. Please see Note 15 - DERIVATIVE FINANCIAL INSTRUMENTS for additional detail on the Palmarejo gold production royalty.

NOTE 17 – SIGNIFICANT CUSTOMERS

The Company markets its doré to credit worthy bullion trading houses, market makers and members of the London Bullion Market Association, industrial companies and sound financial institutions. The refined metals are sold to end users for use in electronic circuitry, jewelry, silverware, pharmaceutical products, and the technology industry. The Company currently has eight trading counterparties (International Commodities, Mitsui, Mitsubishi, Standard Bank, TD Securities, Valcambi, Johnson Matthey and Auramet) and the sales of metals to these companies amounted to approximately 70% and 90% of total metal sales for the three months ended March 31, 2013 and 2012, respectively. Generally, the loss of a single bullion trading counterparty would not adversely affect the Company due to the liquidity of the markets and the availability of alternative trading counterparties.

Sales of silver and gold concentrates to third parties (Nyrstar, Aurubis, Sumitomo, Trafigura, Auramet, and China National Gold) amounted to approximately 30% and 10% of total metal sales for the three months ended March 31, 2013, and 2012, respectively. The loss of any one smelting and refining client may have a material adverse effect if alternate smelters and refiners are not available. The Company believes there is sufficient global capacity available to address the loss of any one smelter.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The following table indicates customers that represent 10% or more of total sales of metal for the three months ended March 31, 2013 and 2012 (in millions):



Customer	Three months ended March 31,		Three months ended March 31,		Segments reporting sales of metal
	2013		2012
Valcambi	$	12.2	$	107.9	Palmarejo, San Bartolomé
Auramet	$	24.2	$	13.9	San Bartolomé, Kensington
Mitsui	$	22.4	$	16.7	Palmarejo, San Bartolomé, Rochester
Standard Bank	$	17.4	$	14.5	Palmarejo
Johnson Matthey	$	25.2	$	—	Palmarejo, San Bartolomé, Rochester

NOTE 18 – SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-making group is comprised of the Chief Executive Officer, Chief Financial Officer, and the Chief Operating Officer.

The operating segments are managed separately because each segment represents a distinct use of company resources and a separate contribution to the Company’s cash flows. The Company’s reportable operating segments include the Palmarejo, San Bartolomé, Martha, Rochester, Kensington and Endeavor mining properties and the Joaquin exploration property. All operating segments are engaged in the discovery and/or mining of gold and silver and generate the majority of their revenues from the sale of these precious metal concentrates and/or refined precious metals. Through September 2012, the Martha mine sold precious metal concentrates, typically under long-term contracts, to trading partners located in the United States and Switzerland. The Company ceased active mining operations at the Martha mine in September of 2012. The Kensington mine sells precious metals and concentrates, typically under long-term contracts to smelters in China and Germany. Refined gold and silver produced by the Rochester, Palmarejo, and San Bartolomé mines are principally sold on a spot basis to precious metals trading banks such as International Commodities, Mitsui, Mitsubishi, Standard Bank, TD Securities, Valcambi and Auramet. Concentrates produced at the Endeavor mine are sold to Nyrstar (formerly Zinifex), an Australian smelter. The Company’s exploration programs, other than the Joaquin project, are reported in its other segment. The other segment also includes the corporate headquarters, elimination of intersegment transactions and other items necessary to reconcile to consolidated amounts. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies above. The Company evaluates performance and allocates resources based on profit or loss before interest, income taxes, depreciation and amortization, unusual and infrequent items and extraordinary items.

Coeur d'Alene Mines Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Financial information relating to the Company’s segments is as follows (in thousands):



Three months ended March 31, 2013	Palmarejo Mine			San Bartolomé Mine			Kensington Mine			Rochester Mine			Martha Mine			Endeavor Mine			Joaquin			Other			Total
Sales of metals	$	57,426		$	33,141		$	39,274		$	39,474		$	(501	)	$	2,983		$	—		$	—		$	171,797
Productions costs applicable to sales	(26,718		)	(15,678		)	(23,565		)	(21,502		)	—			(1,321		)	—			—			(88,784		)
Depreciation and depletion	(28,950		)	(4,756		)	(13,386		)	(2,181		)	(117		)	(824		)	—			(222		)	(50,436		)
Gross profit (loss)	1,758			12,707			2,323			15,791			(618		)	838			—			(222		)	32,577
Exploration expense	1,980			53			672			484			2,995			—			—			657			6,841
Loss on impairment	—			—			—			—			119			—			—			—			119
Other operating expenses	—			3,721			76			144			1,045			—			11			9,714			14,711
OPERATING INCOME (LOSS)	(222		)	8,933			1,575			15,163			(4,777		)	838			(11		)	(10,593		)	10,906
Interest and other income, net	1,941			605			130			57			908			(13		)	(14		)	206			3,820
Interest expense, net	(3,738		)	(32		)	(259		)	(5		)	(15		)	—			15			(5,698		)	(9,732		)
Fair value adjustments, net	14,429			—			4,227			—			—			—			—			(860		)	17,796
Income tax expense	(3,534		)	(4,328		)	—			—			73			—			—			(2,731		)	(10,520		)
Net income (loss)	$	8,876		$	5,178		$	5,673		$	15,215		$	(3,811	)	$	825		$	(10	)	$	(19,676	)	$	12,270
Segment assets (A)	$	1,900,071		$	303,761		$	498,762		$	114,381		$	8,304		$	93,770		$	31,054		$	13,561