e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2010
OR
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o |
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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 DALENE MINES CORPORATION
(Exact name of registrant as specified in its charter)
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Idaho
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82-0109423 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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PO Box I, |
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505 Front Ave. |
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Coeur dAlene, Idaho
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83816 |
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(Address of principal executive offices)
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(Zip Code) |
(208) 667-3511
(Registrants 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 o
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 o
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 the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ | |
Accelerated filer o | |
Non-accelerated filer o | |
Smaller reporting company o |
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(Do not check if a smaller reporting company) |
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The Company has 150,000,000 shares of common stock, par value of $0.01, authorized of which
89,295,226 shares were issued and outstanding as of August 6, 2010.
COEUR DALENE MINES CORPORATION
INDEX
2
COEUR DALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30, |
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December 31, |
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2010 |
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2009 |
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Notes |
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(In thousands, except share data) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
41,187 |
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$ |
22,782 |
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Receivables |
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72,094 |
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53,436 |
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Ore on leach pad |
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2 |
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7,524 |
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9,641 |
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Metal and other inventory |
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5 |
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72,212 |
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64,359 |
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Prepaid expenses and other |
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23,890 |
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26,753 |
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Assets of discontinued operations held for sale |
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4 |
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30,042 |
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35,797 |
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246,949 |
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212,768 |
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NON-CURRENT ASSETS |
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Property, plant and equipment, net |
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6 |
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553,247 |
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531,500 |
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Mining properties, net |
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7 |
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2,260,675 |
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2,222,182 |
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Ore on leach pad, non-current portion |
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2 |
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13,585 |
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14,391 |
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Restricted assets |
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28,168 |
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26,546 |
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Receivables, non current |
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34,663 |
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37,534 |
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Debt issuance costs, net |
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5,607 |
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3,544 |
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Deferred tax assets |
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10 |
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907 |
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1,034 |
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Other |
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4,558 |
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4,536 |
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TOTAL ASSETS |
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$ |
3,148,359 |
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$ |
3,054,035 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
70,988 |
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$ |
76,603 |
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Accrued liabilities and other |
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24,709 |
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33,514 |
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Accrued income taxes |
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15,449 |
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11,783 |
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Accrued payroll and related benefits |
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12,291 |
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9,636 |
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Accrued interest payable |
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1,057 |
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1,744 |
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Current portion of capital leases and other debt obligations |
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8 |
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61,773 |
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15,403 |
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Current portion of royalty obligation |
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8 |
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42,228 |
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34,672 |
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Current portion of reclamation and mine closure |
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9 |
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2,282 |
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4,671 |
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Liabilities of discontinued operations held for sale |
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4 |
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13,150 |
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14,030 |
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243,927 |
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202,056 |
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NON-CURRENT LIABILITIES |
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Long-term debt |
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8 |
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156,989 |
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185,397 |
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Non-current portion of royalty obligation |
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8 |
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150,495 |
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128,107 |
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Reclamation and mine closure |
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9 |
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25,571 |
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22,160 |
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Deferred income taxes |
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10 |
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488,608 |
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516,678 |
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Other long-term liabilities |
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14,787 |
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6,432 |
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836,450 |
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858,774 |
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COMMITMENTS AND CONTINGENCIES |
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(Notes 8, 9,
11, 13, 14, 15 and 17) |
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SHAREHOLDERS EQUITY |
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Common Stock, par value $0.01 per
share; authorized 150,000,000
shares, 89,293,332 issued at
June 30, 2010 and 80,310,347
issued at December 31, 2009 |
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893 |
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803 |
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Additional paid-in capital |
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2,577,715 |
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2,444,262 |
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Accumulated deficit |
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(510,626 |
) |
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(451,865 |
) |
Accumulated other comprehensive income |
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5 |
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2,067,982 |
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1,993,205 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
3,148,359 |
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$ |
3,054,035 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
COEUR DALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(In thousands, except per share data) |
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Sales of metal |
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$ |
101,018 |
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$ |
67,857 |
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$ |
189,307 |
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$ |
111,226 |
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Production costs applicable to sales |
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(58,590 |
) |
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(48,850 |
) |
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(110,393 |
) |
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(73,569 |
) |
Depreciation, depletion and amortization |
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(29,983 |
) |
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(19,227 |
) |
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(57,702 |
) |
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(26,691 |
) |
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Gross profit
(loss) |
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12,445 |
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(220 |
) |
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21,212 |
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10,966 |
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COSTS AND EXPENSES |
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Administrative and general |
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6,859 |
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5,409 |
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13,794 |
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13,152 |
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Exploration |
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3,161 |
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3,182 |
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5,681 |
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6,271 |
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Pre-development |
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565 |
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732 |
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Total cost and expenses |
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10,585 |
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8,591 |
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20,207 |
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19,423 |
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OPERATING INCOME (LOSS) |
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1,860 |
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(8,811 |
) |
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1,005 |
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(8,457 |
) |
OTHER INCOME AND EXPENSE |
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Gain (loss) on debt extinguishments |
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(4,050 |
) |
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22,675 |
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(11,908 |
) |
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|
38,378 |
|
Fair value adjustments, net |
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(42,516 |
) |
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(4,149 |
) |
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(46,774 |
) |
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(13,551 |
) |
Interest and other income |
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(3,821 |
) |
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|
1,482 |
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(2,088 |
) |
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|
1,782 |
|
Interest expense, net of capitalized interest |
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|
(5,646 |
) |
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(5,193 |
) |
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(11,451 |
) |
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(5,958 |
) |
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Total other income and expense |
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(56,033 |
) |
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|
14,815 |
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(72,221 |
) |
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|
20,651 |
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Income (loss) from continuing operations before income taxes |
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(54,173 |
) |
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|
6,004 |
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(71,216 |
) |
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|
12,194 |
|
Income tax benefit |
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|
9,372 |
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|
3,893 |
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|
21,210 |
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|
3,639 |
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Income (loss) from continuing operations |
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|
(44,801 |
) |
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|
9,897 |
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(50,006 |
) |
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|
15,833 |
|
Income (loss) from discontinued operations, net of income taxes |
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|
(2,966 |
) |
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|
1,712 |
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|
(5,778 |
) |
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|
1,834 |
|
Loss on sale of assets of discontinued operations |
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(2,977 |
) |
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|
|
|
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|
(2,977 |
) |
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|
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NET INCOME (LOSS) |
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(50,744 |
) |
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|
11,609 |
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|
|
(58,761 |
) |
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|
17,667 |
|
Other comprehensive loss |
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(5 |
) |
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COMPREHENSIVE INCOME (LOSS) |
|
$ |
(50,744 |
) |
|
$ |
11,609 |
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|
$ |
(58,766 |
) |
|
$ |
17,667 |
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BASIC AND DILUTED INCOME PER SHARE |
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Basic income per share: |
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Income (loss) from continuing operations |
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$ |
(0.50 |
) |
|
$ |
0.14 |
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|
$ |
(0.59 |
) |
|
$ |
0.24 |
|
Income (loss) from discontinued operations |
|
|
(0.07 |
) |
|
|
0.03 |
|
|
|
(0.10 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income (loss) |
|
$ |
(0.57 |
) |
|
$ |
0.17 |
|
|
$ |
(0.69 |
) |
|
$ |
0.27 |
|
|
|
|
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|
|
|
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Diluted income per share: |
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|
|
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|
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|
|
|
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Income (loss) from continuing operations |
|
$ |
(0.50 |
) |
|
$ |
0.14 |
|
|
$ |
(0.59 |
) |
|
$ |
0.24 |
|
Income (loss) from discontinued operations |
|
|
(0.07 |
) |
|
|
0.03 |
|
|
|
(0.10 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.57 |
) |
|
$ |
0.17 |
|
|
$ |
(0.69 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Weighted average number of shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
88,501 |
|
|
|
70,045 |
|
|
|
85,145 |
|
|
|
65,620 |
|
Diluted |
|
|
88,501 |
|
|
|
70,227 |
|
|
|
85,145 |
|
|
|
65,718 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
COEUR DALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Six Months Ended June 30, 2010
(In thousands)
Unaudited
|
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|
|
|
|
|
|
|
|
|
|
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|
|
Accumulated |
|
|
|
|
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
(Deficit) |
|
|
Income (Loss) |
|
|
Total |
|
Balances at December 31, 2009 |
|
|
80,310 |
|
|
$ |
803 |
|
|
$ |
2,444,262 |
|
|
$ |
(451,865 |
) |
|
$ |
5 |
|
|
$ |
1,993,205 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,761 |
) |
|
|
|
|
|
|
(58,761 |
) |
Common stock issued for payment
of principal, interest and financing
fees on 6.5% Senior Secured Notes |
|
|
1,357 |
|
|
|
13 |
|
|
|
19,994 |
|
|
|
|
|
|
|
|
|
|
|
20,007 |
|
Common stock issued to extinguish
3.25% and 1.25% debt |
|
|
7,639 |
|
|
|
77 |
|
|
|
113,357 |
|
|
|
|
|
|
|
|
|
|
|
113,434 |
|
Common stock cancelled under long-
term incentive plans, net |
|
|
(13 |
) |
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
102 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2010 |
|
|
89,293 |
|
|
$ |
893 |
|
|
$ |
2,577,715 |
|
|
$ |
(510,626 |
) |
|
$ |
|
|
|
$ |
2,067,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
COEUR DALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(50,744 |
) |
|
$ |
11,609 |
|
|
$ |
(58,761 |
) |
|
$ |
17,667 |
|
Add (deduct) non-cash items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
31,010 |
|
|
|
21,160 |
|
|
|
59,784 |
|
|
|
30,439 |
|
Amortiztation of debt discount |
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
500 |
|
Accretion of royalty obligation |
|
|
4,637 |
|
|
|
3,859 |
|
|
|
9,629 |
|
|
|
3,859 |
|
Deferred income taxes |
|
|
(14,892 |
) |
|
|
(4,207 |
) |
|
|
(26,229 |
) |
|
|
(5,721 |
) |
Loss on sale of discontinued assets |
|
|
2,977 |
|
|
|
|
|
|
|
2,977 |
|
|
|
|
|
Loss (gain) on debt extinguishment |
|
|
4,050 |
|
|
|
(22,675 |
) |
|
|
11,908 |
|
|
|
(38,378 |
) |
Fair value adjustments, net |
|
|
43,052 |
|
|
|
5,608 |
|
|
|
46,723 |
|
|
|
12,566 |
|
Loss (gain) on foreign currency transactions |
|
|
1,471 |
|
|
|
(342 |
) |
|
|
1,821 |
|
|
|
(408 |
) |
Share-based compensation |
|
|
622 |
|
|
|
954 |
|
|
|
2,009 |
|
|
|
2,657 |
|
Other non-cash charges |
|
|
(136 |
) |
|
|
75 |
|
|
|
(99 |
) |
|
|
154 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receiveables and other current assets |
|
|
3,662 |
|
|
|
(11,653 |
) |
|
|
(7,625 |
) |
|
|
(9,000 |
) |
Inventories |
|
|
(2,251 |
) |
|
|
(8,024 |
) |
|
|
(4,908 |
) |
|
|
(13,186 |
) |
Accounts payable and accrued liabilities |
|
|
8,998 |
|
|
|
18,175 |
|
|
|
(14,003 |
) |
|
|
16,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
32,456 |
|
|
|
15,039 |
|
|
|
23,226 |
|
|
|
18,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments |
|
|
|
|
|
|
(1,221 |
) |
|
|
|
|
|
|
(8,579 |
) |
Proceeds from sales of investments |
|
|
|
|
|
|
4,758 |
|
|
|
|
|
|
|
20,010 |
|
Capital expenditures |
|
|
(45,467 |
) |
|
|
(42,349 |
) |
|
|
(92,656 |
) |
|
|
(120,479 |
) |
Other |
|
|
150 |
|
|
|
1,966 |
|
|
|
76 |
|
|
|
1,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN INVESTING ACTIVITIES |
|
|
(45,317 |
) |
|
|
(36,846 |
) |
|
|
(92,580 |
) |
|
|
(107,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of gold production royalty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
Payments on gold production royalty |
|
|
(9,582 |
) |
|
|
(1,106 |
) |
|
|
(18,533 |
) |
|
|
(1,106 |
) |
Proceeds from issuance of short-term and senior
convertible notes |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
20,368 |
|
Proceeds from gold lease facility |
|
|
|
|
|
|
2,874 |
|
|
|
4,517 |
|
|
|
2,874 |
|
Payments on gold lease facility |
|
|
(2,210 |
) |
|
|
|
|
|
|
(17,101 |
) |
|
|
(1,627 |
) |
Proceeds from bank borrowings |
|
|
22,041 |
|
|
|
|
|
|
|
34,810 |
|
|
|
|
|
Payments on senior secured notes |
|
|
(4,167 |
) |
|
|
|
|
|
|
(4,167 |
) |
|
|
|
|
Repayment of credit facility, long-term debt
and capital leases |
|
|
(7,186 |
) |
|
|
(5,919 |
) |
|
|
(12,896 |
) |
|
|
(14,869 |
) |
Payments of common stock and debt issuance costs |
|
|
(24 |
) |
|
|
(9 |
) |
|
|
(2,180 |
) |
|
|
(82 |
) |
Proceeds from sale-leaseback transactions |
|
|
|
|
|
|
12,511 |
|
|
|
4,853 |
|
|
|
12,511 |
|
Additions to restricted assets associated
with the Kensington
Term Facility |
|
|
(786 |
) |
|
|
|
|
|
|
(1,584 |
) |
|
|
|
|
Other |
|
|
|
|
|
|
(22 |
) |
|
|
40 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES: |
|
|
(1,914 |
) |
|
|
8,329 |
|
|
|
87,759 |
|
|
|
93,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(14,775 |
) |
|
|
(13,478 |
) |
|
|
18,405 |
|
|
|
3,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
55,962 |
|
|
|
38,146 |
|
|
|
22,782 |
|
|
|
20,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
41,187 |
|
|
$ |
24,668 |
|
|
$ |
41,187 |
|
|
$ |
24,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 BASIS OF PRESENTATION
These consolidated financial statements have been prepared under United States Generally
Accepted Accounting Principles (U.S. GAAP) for interim financial information, the instructions for
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three and six month periods
ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2010. The balance sheet at December 31, 2009 has been derived from the audited
financial statements at that date. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Coeur dAlene Mines Corporation (Coeur or the
Company) Annual Report on Form 10-K for the year ended December 31, 2009.
Effective July 1, 2009, the Company sold its interest in silver contained at the Broken Hill
mine. On June 30, 2010, the Company classified its 100% interest in Cerro Bayo as an asset held
for sale. Consequently, for all of the periods presented, income (loss) from Cerro Bayo and Broken
Hill have been presented within discontinued operations in the consolidated statements of
operations.
In May 2009, the Companys Board of Directors authorized the Company to proceed with a
1-for-10 reverse stock split. To ensure comparability of financial information, all common stock
information (including information related to options to purchase shares, restricted stock,
restricted units, performance shares and performance units under the Companys share-based
compensation plans as described in Note 11) and all per share information related to common stock
in the consolidated financial statements have been restated to reflect the 1-for-10 reverse stock
split. In addition, in May 2009 the Companys stockholders approved a change in the par value from
$1.00 per share to $0.01 per share. As a result, for all periods presented, the carrying value of
the common stock has been reduced and a corresponding adjustment has been recorded within
additional paid-in capital.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
wholly-owned subsidiaries of the Company, the most significant of which are Empressa Minera
Manquiri S.A., Coeur Mexicana S.A. de C.V., Coeur Rochester, Inc., Coeur Alaska, Inc., Compañía
Minera Cerro Bayo Ltda., Coeur Argentina S.R.L. and CDE Australia Pty. Ltd. Intercompany balances
and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements: In January 2010, ASC guidance for fair
value measurements and disclosure was updated to require additional disclosures related to
transfers in and out of level 1 and 2 fair value measurements and enhanced detail in the
reconciliation. The guidance was amended to clarify the level of disaggregation required for
assets and liabilities and the disclosures required for inputs and valuation techniques used to
measure the fair value of assets and liability that fall in either level 2 or level 3. The updated
guidance was effective for the Companys fiscal year beginning January 1, 2010, with the exception
of the level 3 disaggregation which is effective for the Companys fiscal year beginning January 1,
2011. The adoption had no impact on the Companys consolidated financial position, results of
operations or cash flows. Refer to Note 3 for further details regarding the Companys assets and
liabilities measured at fair value.
Revenue Recognition: Revenue is recognized when persuasive evidence of an arrangement
exists, delivery has occurred, the price is fixed or determinable, no obligations remain and
collection is probable. The passing of title to the customer is based on the terms of the sales
contract. Product pricing is determined when
7
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
revenue is recognized by reference to active and
freely traded commodity markets, for example the London Bullion Market for both gold and silver, in
an identical form to the product sold.
Under our concentrate sales contracts with certain third-party smelters, final gold and silver
prices are set on a specified future quotational period, typically one to three months, after the
shipment date based on market metal prices. Revenues and production costs applicable to sales are
recorded on a gross basis under these contracts at the time title passes to the buyer based on the
forward price for the expected settlement period. The contracts, in general, provide for
provisional payment based upon provisional assays and quoted metal prices. Final settlement is
based on the average applicable price for a specified future period and generally occurs from three
to six months after shipment. Final sales are settled using smelter weights, settlement assays
(average of assays exchanged and/or umpire assay results) and are priced as specified in the
smelter contract. The Companys 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 measured at the forward price at the time of sale. The
embedded derivative does not qualify for hedge accounting. The embedded derivative is recorded as
a derivative asset in Prepaid expenses and other assets or as a derivative liability in Accrued
liabilities and other on the balance sheet and is adjusted to fair value through revenue each
period until the date of final gold and silver settlement. The form of the material being sold,
after deduction for smelting and refining, is in an identical form to that sold on the London
Bullion Market. The form of the product is metal in flotation concentrate, which is the final
process for which the Company is responsible. Revenue includes the sales of by-product gold from
the Companys mining operations.
The effects of forward sales contracts are reflected in revenue at the date the related
precious metals are delivered or the contracts expire. Third party smelting and refining costs of
$1.5 million and $3.3 million, respectively, for the three and six months ended June 30, 2010, and
$1.8 million and $3.2 million, respectively, for the three and six months ended June 30, 2009 were
recorded as a reduction of revenue.
At June 30, 2010, the Company had outstanding provisionally priced sales of $14.4 million,
consisting of 0.7 million ounces of silver and 693 ounces of gold, which had a fair value of $14.4
million including the embedded derivative. For each one cent per ounce change in realized silver
price, revenue would vary (plus or minus) approximately $7,000; and for each one dollar per ounce
change in realized gold price, revenue would vary (plus or minus) approximately $700. At December
31, 2009, the Company had outstanding provisionally priced sales of $19.1 million consisting of 1.0
million ounces of silver and 1,227 ounces of gold, which had a fair value of approximately $19.1
million including the embedded derivative. For each one cent per ounce change in realized silver
price, revenue would vary (plus or minus) approximately $10,000 and for each one dollar per ounce
change in realized gold price, revenue would vary (plus or minus) approximately $1,200.
Ore on Leach Pad: The heap leach process is a process of extracting silver and gold
by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a
portion of the contained silver and gold, which are then recovered in metallurgical processes. In
August 2007, the Company terminated mining and crushing operations at the Rochester mine as ore
reserves were fully mined. Residual heap leach activities are expected to continue through 2014.
The Company used several integrated steps to scientifically measure the metal content of ore
placed on the leach pads. As the ore body was drilled in preparation for the blasting process,
samples were taken of the drill residue which is assayed to determine estimated quantities of
contained metal. The Company estimated the quantity of ore by utilizing global positioning
satellite survey techniques. The Company then processed the ore through crushing facilities where
the output was again weighed and sampled for assaying. A metallurgical reconciliation with the
data collected from the mining operation was completed with appropriate adjustments made to
previous estimates. The crushed ore was then transported to the leach pad for application of the
leaching solution. As the leach solution is collected from the leach pads, it is continuously
sampled for assaying. The quantity of leach solution is measured by flow meters throughout the
leaching and precipitation process. After precipitation, the product is converted to doré, which
is the final product produced by the mine.
8
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
The inventory is stated at lower of cost or market,
with cost being determined using a weighted average cost method.
The Company reported ore on leach pad of $21.1 million as of June 30, 2010. Of this amount,
$7.5 million was reported as a current asset and $13.6 million was reported as a non-current asset.
The distinction
between current and non-current assets is based upon the expected length of time necessary for the
leaching process to remove the metals from the broken ore. The historical cost of metals contained
within the broken ore that are expected to be extracted within twelve months is classified as a
current asset and the historical cost of metals contained within the broken ore that are expected
to be extracted beyond twelve months is classified as a non-current asset. Inventories of ore on
leach pad are valued based on actual production costs incurred to produce and place ore on the
leach pad, adjusted for effects on monthly production of costs of abnormal production levels, less
costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that
may be extracted relative to the time the leach process occurs requires the use of estimates which
are inherently inaccurate since they rely upon laboratory test work. Test work consists of 60-day
leach columns from which the Company projects metal recoveries up to five years in the future. The
quantities of metal contained in the ore are based upon actual weights and assay analysis. The
rate at which the leach process extracts gold and silver from the crushed ore is based upon
laboratory column tests and actual experience over approximately twenty years of leach pad
operations at the Rochester Mine. The assumptions used by the Company to measure metal content
during each stage of the inventory conversion process includes estimated recovery rates based on
laboratory testing and assaying. The Company periodically reviews its estimates compared to actual
experience and revises its estimates when appropriate. During the first quarter of 2010, the
Company increased its estimated silver ounces contained in the heap inventory by 1.2 million
ounces. The increase in estimated silver ounces contained in the heap inventory is due to changes
in estimated recoveries anticipated for the remainder of the residual leach phase. There were no
significant changes in estimates related to gold contained in the heap. Consequently, the Company
believes its current residual heap leach activities are expected to continue through 2014. The
ultimate recovery will not be known until leaching operations cease.
Metal and Other Inventory: Inventories include concentrate ore, doré, ore in
stockpiles and operating materials and supplies. The classification of inventory is determined by
the ores stage in the production process. To the extent there are work-in-process inventories at
the Endeavor mine, such amounts are carried as inventories. Inventories of ore in stockpiles are
sampled for gold and silver content and are valued based on the lower of actual costs incurred or
estimated net realizable value based upon the period ending prices of gold and silver. Material
that does not contain a minimum quantity of gold and silver to cover the estimated processing
expense of recovering the contained gold and silver is not classified as inventory and is assigned
no value. All inventories are stated at the lower of cost or market value, with cost being
determined using a weighted average cost method. Concentrate and doré inventories include product
at the mine site and product held by refineries and are also valued at lower of cost or market
value. Concentrate inventories associated with the Endeavor mine are held by third parties. Metal
inventory costs include direct labor, materials, depreciation, depletion and amortization, as well
as administrative overhead costs relating to mining activities.
Property, Plant, and Equipment: Expenditures for new facilities, assets acquired
pursuant to capital leases, new assets and expenditures that extend the useful lives of existing
facilities are capitalized and depreciated using the straight-line method at rates sufficient to
depreciate such costs over the shorter of estimated productive lives of such facilities or the
useful life of the individual assets. Productive lives range from 7 to 31 years for buildings and
improvements, 3 to 13 years for machinery and equipment and 3 to 7 years for furniture and
fixtures. Certain mining equipment is depreciated using the units-of-production method based upon
estimated total proven and probable reserves. Maintenance and repairs are expensed as incurred.
Operational Mining Properties and Mine Development: Capitalization of mine
development costs that meet the definition of an asset begins once all operating permits have been
secured, mineralization has been classified as proven and probable reserves and a final feasibility
study has been completed. Mine development
9
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
costs include engineering and metallurgical studies,
drilling and other related costs to delineate an ore body, the removal of overburden to initially
expose an ore body at open pit surface mines and the building of access ways, shafts, lateral
access, drifts, ramps and other infrastructure at underground mines. Costs incurred during the
start-up phase of a mine are expensed as incurred. Costs incurred before mineralization is
classified as proven and probable reserves are expensed and classified as Exploration or
Pre-development expenses. All capitalized costs are amortized using the units of production method
over the estimated life of the ore body based on recoverable ounces to be mined from proven and
probable reserves. Interest expense allocable to the
cost of developing mining properties and to construct new facilities is capitalized until
assets are ready for their intended use. Gains or losses from sales or retirements of assets are
included in other income or expense.
Drilling and related costs incurred at operating mines are expensed as incurred as Exploration
expenses, unless the Company can conclude with a high degree of confidence, prior to the
commencement of a drilling program, that the drilling costs will result in the conversion of a
mineral resource into proven and probable reserves. The Companys assessment is based on the
following factors: results from previous drill programs; results from geological models; results
from a mine scoping study confirming economic viability of the resource; and preliminary estimates
of mine inventory, ore grade, cash flow and mine life. In addition, the Company must satisfy all
permitting and/or contractual requirements necessary to have the right to, and control of, the
future benefit from the targeted ore body. The costs of a drilling program that meet these
criteria are capitalized as mine development costs. All other drilling and related costs,
including those beyond the boundaries of the development and production-stage properties, are
expensed as incurred.
Drilling and related costs of approximately $0.8 million and $2.1 million, for the three and
six months ending June 30, 2010, respectively, and $0.2 million and $0.4 million, for the three and
six months ended June 30, 2009, respectively, met the criteria for capitalization at properties
that are in the development and production stages.
The costs of removing overburden and waste materials to access the ore body at an open pit
mine prior to the production phase are referred to as pre-stripping costs. Pre-stripping costs
are capitalized during the development of an open pit mine. Stripping costs incurred during the
production phase of a mine are variable production costs that are included as a component of
inventory to be recognized in production costs applicable to sales in the same period as the
revenue from the sale of inventory.
Mineral Interests: Significant payments related to the acquisition of the land and
mineral rights are capitalized as incurred. Prior to acquiring such land or mineral rights, the
Company generally makes a preliminary evaluation to determine that the property has significant
potential to develop an economic ore body. The time between initial acquisition and full
evaluation of a propertys potential is variable and is determined by many factors, including
location relative to existing infrastructure, the propertys stage of development, geological
controls and metal prices. If a mineable ore body is discovered, such costs are amortized when
production begins using the units-of-production method based on ounces to be mined from proven and
probable reserves. If no mineable ore body is discovered, such costs are expensed in the period in
which it is determined the property has no future economic value. The Company amortizes its
mineral interest in the Endeavor mine using the units of production method.
Asset Impairment: Management reviews and evaluates long-lived assets for impairment
when events and changes in circumstances indicate that the related carrying amounts of its assets
may not be recoverable. Impairment is considered to exist if total estimated future cash flows or
probability-weighted cash flows on an undiscounted basis are less than the carrying amount of the
assets, including property, plant and equipment, mineral property, development property, and any
deferred costs. An impairment loss is measured and recorded based on the difference between book
value and discounted estimated future cash flows or the application of an expected present value
technique to estimate fair value in the absence of a market price. Future cash flows include
estimates of recoverable ounces, gold and silver prices (considering current and historical prices,
price trends and related factors), production levels and capital, all based on life-of-mine plans
and projections. Assumptions underlying future cash flow estimates are subject to risks and
uncertainties. If the assets are
10
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
impaired, a calculation of fair value is performed and if the
fair value is lower than the carrying value of the assets, the assets are reduced to their fair
market value. Any differences between these assumptions and actual market conditions or the
Companys actual operating performance could have a material effect on the Companys determination
of ore reserves or its ability to recover the carrying amounts of its long-lived assets resulting
in impairment charges. In estimating future cash flows, assets are grouped at the lowest level for
which there are identifiable cash flows that are largely independent of cash flows from other asset
groups. Generally, in estimating future cash flows, all assets are grouped at a particular mine
for which there is identifiable cash flow.
Restricted Assets: The Company, under the terms of its credit facility lease, self
insurance, and bonding agreements with certain banks, lending institutions and regulatory agencies,
is required to collateralize certain portions of its obligations. The Company has collateralized
these obligations by assigning certificates of deposit that have maturity dates ranging from three
months to a year, to the respective institutions or agencies. Under the terms of the Companys
Credit Suisse obligation, it is required to reserve cash for three months of debt service costs.
At June 30, 2010 and December 31, 2009, the Company held certificates of deposit and cash under
these agreements of $28.2 million and $26.5 million, respectively, restricted for these purposes.
The ultimate timing of the release of the collateralized amounts is dependent on the timing and
closure of each mine. In order to release the collateral, the Company must seek approval from
certain government agencies responsible for monitoring the mine closure status. Collateral could
also be released to the extent the Company is able to secure alternative financial assurance
satisfactory to the regulatory agencies. The Company believes there is a reasonable probability
that the collateral will remain in place beyond a twelve-month period and has therefore classified
these investments as long-term. In addition, at June 30, 2010 and December 31, 2009, the Company
held certificates of deposit totaling $2.3 million that were pledged to support letters of credit
to Mitsubishi International. These amounts are included in prepaids and other.
Reclamation and Mine Closure Costs: The Company recognizes obligations associated
with the retirement of tangible long-lived assets and the associated asset retirement costs. These
legal obligations are associated with the retirement of long-lived assets that result from the
acquisition, construction, development and normal use of the asset. The fair value of a liability
for an asset retirement obligation will be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability is added to the
carrying amount of the associated asset and this additional carrying amount is depreciated over the
life of the asset. An accretion cost, representing the increase over time in the present value of
the liability, is recorded each period in depreciation, depletion and amortization expense. As
reclamation work is performed or liabilities are otherwise settled, the recorded amount of the
liability is reduced.
Future remediation costs for inactive mines are accrued based on managements best estimate at
the end of each period of the undiscounted costs expected to be incurred at the site. Such cost
estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in
estimates are reflected in earnings in the period an estimate is revised.
Foreign Currency: The assets and liabilities of the Companys foreign subsidiaries are
measured using U.S. dollars. All monetary assets and liabilities are translated at current
exchange rates and resulting adjustments are included in other income and expenses. Revenues and
expenses in foreign currencies are translated at the average exchange rate for the period. Foreign
currency transaction gains and losses are included in the determination of net income (loss).
Derivative Financial Instruments: The Company recognizes all derivatives as either
assets or liabilities on the balance sheet and measures them at fair value. Appropriate accounting
for changes in the fair value of derivatives held depends on whether the derivative instrument is
designated and qualifies as an accounting hedge and on the classification of the hedge transaction.
11
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
Fair Value: The Company defines fair value, establishes a framework for measuring
fair value and provides disclosures about fair value measurement in accordance with U.S. GAAP.
Refer to Note 3 for further details regarding the Companys assets and liabilities measured at fair
value.
Stock-based Compensation Plans: The Company estimates the fair value of each stock
option and stock appreciation rights (SARs) award using the Black-Scholes option valuation model.
The Company estimates the fair value of performance share and performance unit grants using a
Monte Carlo simulation valuation model. The Company estimates forfeitures of stock-based awards on
historical data and periodically adjusts the forfeiture rate. The adjustment of the forfeiture
rate is recorded as a cumulative adjustment in the period the forfeiture estimate is changed. The
compensation costs are included in administrative and general expenses, production costs applicable
to sales and the cost of self-constructed property, plant and equipment as deemed appropriate.
Income Taxes: The Company uses an asset and liability approach which results in the
recognition of deferred tax liabilities and assets for the expected future tax consequences or
benefits of temporary differences between the financial reporting basis and the tax basis of assets
and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in
effect in the years in which the differences are expected to reverse.
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. A valuation allowance has been
provided for the portion of the Companys net deferred tax assets for which it is more likely than
not that such deferred tax assets will not be realized.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax
of multiple state and foreign jurisdictions. The Company has substantially concluded all U.S.
federal income tax matters for years through 1999. Federal income tax returns for 2000 through
2008 are subject to examination. The Companys continuing practice is to recognize interest and
penalties related to income tax matters in income tax expense. There were no significant interest
or penalties accrued at June 30, 2010.
Comprehensive Income (Loss): Comprehensive income (loss) includes net income (loss)
as well as changes in shareholders equity that result from transactions and events other than
those with shareholders. Items of comprehensive income (loss) include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) |
|
$ |
(50,744 |
) |
|
$ |
11,609 |
|
|
$ |
(58,761 |
) |
|
$ |
17,667 |
|
Other |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(50,744 |
) |
|
$ |
11,609 |
|
|
$ |
(58,766 |
) |
|
$ |
17,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share: Basic earnings per share is computed by dividing
net income (loss) 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. The effect of potentially dilutive stock options, the 1.25% Convertible Senior Notes
due 2024, the 3.25% Convertible Senior Notes due 2028 and the Senior Term Notes due December 31,
2012 outstanding in the three and six month period ended June 30, 2010 and 2009 are as follows (in
thousands, except per share data):
12
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
|
(Loss) |
|
|
Shares |
|
|
Per-Share |
|
|
(Loss) |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(44,801 |
) |
|
|
88,501 |
|
|
$ |
(0.50 |
) |
|
$ |
(50,006 |
) |
|
|
85,145 |
|
|
$ |
(0.59 |
) |
Loss from discontinued operations |
|
|
(5,943 |
) |
|
|
88,501 |
|
|
|
(0.07 |
) |
|
|
(8,755 |
) |
|
|
85,145 |
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(50,744 |
) |
|
|
88,501 |
|
|
$ |
(0.57 |
) |
|
$ |
(58,761 |
) |
|
|
85,145 |
|
|
$ |
(0.69 |
) |
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(44,801 |
) |
|
|
88,501 |
|
|
$ |
(0.50 |
) |
|
$ |
(50,006 |
) |
|
|
85,145 |
|
|
$ |
(0.59 |
) |
Loss from discontinued operations |
|
|
(5,943 |
) |
|
|
88,501 |
|
|
|
(0.07 |
) |
|
|
(8,755 |
) |
|
|
85,145 |
|
|
|
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(50,744 |
) |
|
|
88,501 |
|
|
$ |
(0.57 |
) |
|
$ |
(58,761 |
) |
|
|
85,145 |
|
|
$ |
(0.69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2009 |
|
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
Income |
|
|
Shares |
|
|
Per-Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numberator) |
|
|
(Denominator) |
|
|
Amount |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
9,897 |
|
|
|
70,045 |
|
|
$ |
0.14 |
|
|
$ |
15,833 |
|
|
|
65,620 |
|
|
$ |
0.24 |
|
Income from discontinued operations |
|
|
1,712 |
|
|
|
70,045 |
|
|
|
0.03 |
|
|
|
1,834 |
|
|
|
65,620 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,609 |
|
|
|
70,045 |
|
|
$ |
0.17 |
|
|
$ |
17,667 |
|
|
|
65,620 |
|
|
$ |
0.27 |
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards |
|
|
|
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
9,897 |
|
|
|
70,227 |
|
|
$ |
0.14 |
|
|
$ |
15,833 |
|
|
|
65,718 |
|
|
$ |
0.24 |
|
Income from discontinued operations |
|
|
1,712 |
|
|
|
70,227 |
|
|
|
0.03 |
|
|
|
1,834 |
|
|
|
65,718 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
11,609 |
|
|
|
70,227 |
|
|
$ |
0.17 |
|
|
$ |
17,667 |
|
|
|
65,718 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended June 30, 2010, 5,935,972 shares, respectively, of
common stock equivalents related to convertible debt and 510,242 options have not been included in
the diluted per share calculation, as the Company has recorded a net loss for the period. The
options which expire between 2010 and 2019 are outstanding at June 30, 2010. For the three and six
months ended June 30, 2009, 1,917,106 and 2,104,361 common stock equivalents, respectively, related
to convertible debt were not included in the computation of diluted EPS because their effect was
anti-dilutive and 181,905 and 188,442 options, at exercise prices between $16.30 and $70.90 and
$12.30 and $70.90 were not included in the computation of diluted EPS because their exercise prices
exceeded the average market price of the Companys common stock. Potentially dilutive shares
issuable upon conversion of the 3.25% Convertible Senior Notes were not included in the computation
of diluted EPS for the three and six months ended June 30, 2010 and 2009 because there is no excess
conversion value over the principal amount of the notes.
Debt Issuance Costs: Costs associated with the issuance of debt are included in other
noncurrent assets and are amortized over the expected term of the related debt using the effective
interest method.
Use of Estimates: The preparation of the Companys consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
amounts reported in
13
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
their consolidated financial statements and accompanying notes. The areas
requiring significant management 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 pad; the amount and timing of reclamation and remediation costs;
valuation allowance for deferred tax assets; and other employee benefit liabilities.
Reclassifications: Certain reclassifications of prior year balances have been made to
conform to the current year presentation. The most significant reclassifications were to
reclassify the Cerro Bayo consolidated balance sheet amounts and the Broken Hill and Cerro Bayo
consolidated statements of operations from historical presentation to assets and liabilities of
operations held for sale on the consolidated balance sheets and to income (loss) from discontinued
operations in the consolidated statements of operations for all periods presented. The
consolidated statements of cash flow have not been adjusted to reflect assets held for sale and
discontinued operations for all periods presented.
NOTE 3 FAIR VALUE MEASUREMENTS
The Company follows U.S. GAAP related to fair value measurements of financial assets and
financial liabilities. U.S. GAAP defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The accounting principles establish a fair value hierarchy that distinguishes
between (1) market participant assumptions developed based on market data obtained from independent
sources (observable inputs) and (2) an entitys own assumptions about market participant
assumptions developed based on the best information available in the circumstances (unobservable
inputs). The fair value hierarchy consists of three broad levels, and gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). 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 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. |
|
|
|
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 Companys financial assets and liabilities measured at fair
value by level within the fair value hierarchy. As required, 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):
14
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
9 |
|
|
$ |
|
|
|
$ |
9 |
|
|
$ |
|
|
Restricted certificates of deposits |
|
|
5,440 |
|
|
|
|
|
|
|
5,440 |
|
|
|
|
|
Other derivative instruments, net |
|
|
237 |
|
|
|
|
|
|
|
237 |
|
|
|
|
|
Franco-Nevada warrant |
|
|
8,673 |
|
|
|
|
|
|
|
8,673 |
|
|
|
|
|
Put and call options |
|
|
4,920 |
|
|
|
|
|
|
|
4,920 |
|
|
|
|
|
Assets of discontinued operations held for sale |
|
|
30,042 |
|
|
|
|
|
|
|
30,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,321 |
|
|
$ |
|
|
|
$ |
49,321 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold lease facility |
|
$ |
18,632 |
|
|
$ |
|
|
|
$ |
18,632 |
|
|
$ |
|
|
Royalty obligation embedded derivative |
|
|
109,686 |
|
|
|
|
|
|
|
109,686 |
|
|
|
|
|
Put and call options |
|
|
12,437 |
|
|
|
|
|
|
|
12,437 |
|
|
|
|
|
Liabilities
of discontinued operations held for sale |
|
|
13,150 |
|
|
|
|
|
|
|
13,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
153,905 |
|
|
$ |
|
|
|
$ |
153,905 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted certificates of deposits |
|
$ |
5,440 |
|
|
$ |
|
|
|
$ |
5,440 |
|
|
$ |
|
|
Other derivative instruments, net |
|
|
1,379 |
|
|
|
|
|
|
|
1,379 |
|
|
|
|
|
Franco-Nevada warrant |
|
|
6,339 |
|
|
|
|
|
|
|
6,339 |
|
|
|
|
|
Put and call options |
|
|
9,115 |
|
|
|
|
|
|
|
9,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,273 |
|
|
$ |
|
|
|
$ |
22,273 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold lease facility |
|
$ |
28,506 |
|
|
$ |
|
|
|
$ |
28,506 |
|
|
$ |
|
|
Royalty obligation embedded derivative |
|
|
78,013 |
|
|
|
|
|
|
|
78,013 |
|
|
|
|
|
Put and call options |
|
|
9,958 |
|
|
|
|
|
|
|
9,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
116,477 |
|
|
$ |
|
|
|
$ |
116,477 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys cash equivalents, restricted certificates of deposits, Franco-Nevada
warrant and other derivative instruments, are valued using pricing models which require inputs that
are derived from observable market data and as such are classified within Level 2 of the fair value
hierarchy.
The Companys derivative instruments related to the concentrate sales contracts, foreign
exchange contracts, royalty obligation embedded derivative, put and call options and gold lease
facility are valued using quoted market prices and other significant observable inputs, including
fair value modeling techniques. Such instruments are classified within Level 2 of the fair value
hierarchy.
In accordance with provisions of the Impairment or Disposal of Long-Lived Assets, Long-Lived
Assets Held For Sale were written down to their fair value, using other significant observable
inputs including fair value modeling techniques. These measurements
are non-recurring. This resulted in a loss of $3 million which was
included in earnings for the periods presented.
15
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
NOTE 4 DISCONTINUED OPERATIONS
On May 1, 2010, the Company signed a definitive Share and Asset Purchase Agreement (SPA)
with Mandalay Resources Corporation (Mandalay) (TSX-V: MND) to sell 100% of the Companys
wholly-owned subsidiary Compañía Minera Cerro Bayo (Minera Cerro Bayo). The chief asset of
Minera Cerro Bayo is the Cerro Bayo silver-gold mine in southern Chile, which the Company has had
on care and maintenance since October 2008. Under the terms of the SPA, Coeur will receive the
following from Mandalay in exchange for all of the outstanding shares of Minera Cerro Bayo; (i)
$6,029,000 in cash; (ii) common shares of Mandalay worth CAD$5,000,000 valued at the closing price
of the equity financing described below; (iii) 125,000 ounces of silver to be delivered in six
equal installments commencing in the third quarter of 2011; (iv) a 2.0% Net Smelter Royalty (NSR)
on production from Cerro Bayo in excess of a cumulative 50,000 ounces of gold and 5,000,000 ounces
of silver; and (v) existing value-added taxes collected from the Chilean government in excess of
$3.5 million. As part of the transaction, Mandalay also will pay the next $6,000,000 of
reclamation costs associated with Minera Cerro Bayos nearby Furioso property. Any reclamation
costs above that amount will be shared equally by Mandalay and Coeur. On June 30, 2010, the
Company classified Cerro Bayo as an asset held for sale. Consequently, for all of the periods
presented, income (loss) from Cerro Bayo has been presented within discontinued operations in the
consolidated statement of operations. The Company expects the
transaction to close on or about
August 9, 2010. The Company recorded an estimated loss on the
sale of $3.0 million in the second quarter of 2010.
Effective July 1, 2009, the Company sold to Perilya Broken Hill Ltd. its 100% interest in the
silver contained at the Broken Hill mine for $55.0 million in cash. As a result of this
transaction, the Company realized an after tax gain on the sale of approximately $25.5 million, net
of income taxes in 2009. Coeur originally purchased this interest from Perilya Broken Hill, Ltd.
in September 2005 for $36.9 million. This transaction closed on July 30, 2009.
The following table details selected financial information included in the income from
discontinued operations for the three and six months ended June 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Broken |
|
|
Cerro |
|
|
|
|
|
|
Broken |
|
|
Cerro |
|
|
|
|
|
|
Hill |
|
|
Bayo |
|
|
|
|
|
|
Hill |
|
|
Bayo |
|
|
|
|
|
|
Mine |
|
|
Mine |
|
|
Total |
|
|
Mine |
|
|
Mine |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,647 |
|
|
$ |
(84 |
) |
|
$ |
5,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913 |
|
|
|
|
|
|
|
913 |
|
Depreciation and depletion |
|
|
|
|
|
|
1,028 |
|
|
|
1,028 |
|
|
|
872 |
|
|
|
1,061 |
|
|
|
1,933 |
|
Care and maintenance expense |
|
|
|
|
|
|
809 |
|
|
|
809 |
|
|
|
|
|
|
|
609 |
|
|
|
609 |
|
Other operating expenses |
|
|
|
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
1,216 |
|
|
|
1,216 |
|
Interest and other income |
|
|
|
|
|
|
(143 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
1,010 |
|
|
|
1,010 |
|
Income tax benefit (expense) |
|
|
|
|
|
|
(978 |
) |
|
|
(978 |
) |
|
|
(487 |
) |
|
|
297 |
|
|
|
(190 |
) |
Loss on sale of discontinued assets |
|
|
|
|
|
|
(2,977 |
) |
|
|
(2,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
(5,943 |
) |
|
$ |
(5,943 |
) |
|
$ |
3,375 |
|
|
$ |
(1,663 |
) |
|
$ |
1,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Broken |
|
|
Cerro |
|
|
|
|
|
|
Broken |
|
|
Cerro |
|
|
|
|
|
|
Hill |
|
|
Bayo |
|
|
|
|
|
|
Hill |
|
|
Bayo |
|
|
|
|
|
|
Mine |
|
|
Mine |
|
|
Total |
|
|
Mine |
|
|
Mine |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,356 |
|
|
$ |
1,631 |
|
|
$ |
11,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,699 |
|
|
|
1,211 |
|
|
|
2,910 |
|
Depreciation and depletion |
|
|
|
|
|
|
2,082 |
|
|
|
2,082 |
|
|
|
1,619 |
|
|
|
2,129 |
|
|
|
3,748 |
|
Care and maintenance expense |
|
|
|
|
|
|
1,878 |
|
|
|
1,878 |
|
|
|
|
|
|
|
1,347 |
|
|
|
1,347 |
|
Other operating expenses |
|
|
|
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
2,547 |
|
|
|
2,547 |
|
Interest and other income |
|
|
|
|
|
|
(481 |
) |
|
|
(481 |
) |
|
|
|
|
|
|
1,753 |
|
|
|
1,753 |
|
Income tax benefit (expense) |
|
|
|
|
|
|
(1,321 |
) |
|
|
(1,321 |
) |
|
|
(1,990 |
) |
|
|
636 |
|
|
|
(1,354 |
) |
Loss on sale of discontinued assets |
|
|
|
|
|
|
(2,977 |
) |
|
|
(2,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
(8,755 |
) |
|
$ |
(8,755 |
) |
|
$ |
5,048 |
|
|
$ |
(3,214 |
) |
|
$ |
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The major classes of assets and liabilities of operations held for sale in the
consolidated balance sheet are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
Assets |
|
|
|
|
|
|
|
|
Receivables |
|
$ |
5,434 |
|
|
$ |
5,545 |
|
Metal and other inventory |
|
|
3,331 |
|
|
|
3,353 |
|
Prepaid expenses and other |
|
|
267 |
|
|
|
167 |
|
Property, plant and equipment, net |
|
|
6,111 |
|
|
|
7,537 |
|
Mining properties |
|
|
14,899 |
|
|
|
17,874 |
|
Deferred federal tax assets |
|
|
|
|
|
|
1,321 |
|
|
|
|
|
|
|
|
Total assets of discontinued
operations held for sale |
|
$ |
30,042 |
|
|
$ |
35,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
219 |
|
|
$ |
400 |
|
Accrued liabilities and other |
|
|
2 |
|
|
|
7 |
|
Accrued payroll and related benefits |
|
|
136 |
|
|
|
176 |
|
Reclamation and mine closure |
|
|
12,430 |
|
|
|
13,081 |
|
Othr long-term liabilities |
|
|
363 |
|
|
|
366 |
|
|
|
|
|
|
|
|
Total liabilities of discontinued
operations held for sale |
|
$ |
13,150 |
|
|
$ |
14,030 |
|
|
|
|
|
|
|
|
17
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
NOTE 5 METAL AND OTHER INVENTORIES
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Concentrate and doré inventory |
|
$ |
47,043 |
|
|
$ |
39,487 |
|
Supplies |
|
|
25,169 |
|
|
|
24,872 |
|
|
|
|
|
|
|
|
Metal and other inventories |
|
$ |
72,212 |
|
|
$ |
64,359 |
|
|
|
|
|
|
|
|
NOTE 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
713 |
|
|
$ |
713 |
|
Building improvements |
|
|
381,912 |
|
|
|
360,909 |
|
Machinery and equipment |
|
|
234,254 |
|
|
|
219,189 |
|
Capitalized leases for machinery and
equipment and buildings |
|
|
63,240 |
|
|
|
48,298 |
|
|
|
|
|
|
|
|
|
|
|
680,119 |
|
|
|
629,109 |
|
Accumulated depreciation |
|
|
(126,872 |
) |
|
|
(97,609 |
) |
|
|
|
|
|
|
|
|
|
$ |
553,247 |
|
|
$ |
531,500 |
|
|
|
|
|
|
|
|
18
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
NOTE 7 MINING PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
Other |
|
|
Total |
|
Operational mining properties: |
|
$ |
123,247 |
|
|
$ |
97,435 |
|
|
$ |
67,328 |
|
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
298,010 |
|
Accumulated depletion |
|
|
(13,637 |
) |
|
|
(97,435 |
) |
|
|
(7,722 |
) |
|
|
(9,812 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,610 |
|
|
|
|
|
|
|
59,606 |
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,404 |
|
Mineral
interest
(A) |
|
|
1,657,188 |
|
|
|
|
|
|
|
26,644 |
|
|
|
|
|
|
|
44,033 |
|
|
|
|
|
|
|
|
|
|
|
1,727,865 |
|
Accumulated depletion |
|
|
(42,900 |
) |
|
|
|
|
|
|
(3,050 |
) |
|
|
|
|
|
|
(6,007 |
) |
|
|
|
|
|
|
|
|
|
|
(51,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,614,288 |
|
|
|
|
|
|
|
23,594 |
|
|
|
|
|
|
|
38,026 |
|
|
|
|
|
|
|
|
|
|
|
1,675,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-producing and
developmental properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,221 |
|
|
|
142 |
|
|
|
415,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mining properties |
|
$ |
1,723,898 |
|
|
$ |
|
|
|
$ |
83,200 |
|
|
$ |
188 |
|
|
$ |
38,026 |
|
|
$ |
415,221 |
|
|
$ |
142 |
|
|
$ |
2,260,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
Other |
|
|
Total |
|
Operational mining properties: |
|
$ |
113,167 |
|
|
$ |
97,435 |
|
|
$ |
67,327 |
|
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
287,929 |
|
Accumulated depletion |
|
|
(7,232 |
) |
|
|
(97,435 |
) |
|
|
(5,793 |
) |
|
|
(8,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,935 |
|
|
|
|
|
|
|
61,534 |
|
|
|
1,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
interest (A) |
|
|
1,657,188 |
|
|
|
|
|
|
|
26,642 |
|
|
|
|
|
|
|
44,033 |
|
|
|
|
|
|
|
|
|
|
|
1,727,863 |
|
Accumulated depletion |
|
|
(24,171 |
) |
|
|
|
|
|
|
(2,284 |
) |
|
|
|
|
|
|
(4,897 |
) |
|
|
|
|
|
|
|
|
|
|
(31,352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,633,017 |
|
|
|
|
|
|
|
24,358 |
|
|
|
|
|
|
|
39,136 |
|
|
|
|
|
|
|
|
|
|
|
1,696,511 |
|
Non-producing and
developmental properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357,027 |
|
|
|
143 |
|
|
|
357,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mining properties |
|
$ |
1,738,952 |
|
|
$ |
|
|
|
$ |
85,892 |
|
|
$ |
1,032 |
|
|
$ |
39,136 |
|
|
$ |
357,027 |
|
|
$ |
143 |
|
|
$ |
2,222,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Balance represents acquisition cost of mineral interest |
Operational Mining Properties
Palmarejo: 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 commercial production in April 2009.
San Bartolomé Mine: The San Bartolomé Mine is a surface silver mine located near the
city of Potosi, Bolivia. The mineral rights for the San Bartolomé mine are held through long-term
joint venture/lease agreements with several local independent mining co-operatives and the Bolivian
State owned mining company, (COMIBOL). The Company commenced commercial production in June 2008.
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. Rochesters primary product is silver with
gold produced as a by-product.
Martha Mine: The Martha Mine is an underground silver and gold mine located in
Argentina. Coeur acquired a 100% interest in the Martha mine in April 2002. In July 2002, Coeur
commenced shipment of ore
19
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
from the Martha Mine to the Cerro Bayo facility for processing. In
December 2007, the Company completed a 240 tonne per day flotation mill, which produces a flotation
concentrate. The Company anticipates that operating activities will cease in late 2010 unless
additional mineralization is discovered during the year.
Mineral Interests
Endeavor Mine: The Endeavor mine is an underground silver and base metal operation
located in North Central New South Wales. On May 23, 2005, CDE Australia Pty. Ltd. (CDE
Australia), a wholly-owned subsidiary of Coeur, acquired all of 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), for $44.0 million, including transaction fees. Under the terms of
the original agreement, CDE Australia paid Cobar $15.4 million of cash at the closing. In
addition, CDE Australia agreed to pay Cobar approximately $26.5 million upon the receipt of a
report confirming that the reserves at the Endeavor mine are equal to or greater than the reported
ore reserves for 2004. In addition to these upfront payments, CDE Australia originally committed to
pay Cobar an operating cost contribution of $1.00 for each ounce of payable silver plus a further
increment when the silver price exceeds $5.23 per ounce. This further increment was to have begun
on the second anniversary of this agreement and is 50% of the amount by which the silver price
exceeds $5.23 per ounce. A cost contribution of $0.25 per ounce is also payable by CDE Australia
in respect of new ounces of proven and probable silver reserves as they are developed. During the
first quarter of 2007, $2.1 million was paid for additional ounces of proven and probable silver
reserves under the terms of the contract. This amount was capitalized as a cost of the mineral
interest acquired and is being amortized using the units of production method.
On March 28, 2006, CDE Australia reached an agreement with CBH to modify the terms of the
original silver purchase agreement. Under the modified terms, CDE Australia owns all silver
production and reserves up to a total of 20.0 million payable ounces, up from 17.7 million payable
ounces in the original agreement. The silver price-sharing provision was deferred until such time
as CDE Australia had received approximately 2 million cumulative ounces of silver from the mine or
June 2007, whichever is later. In addition, the silver price-sharing threshold increased to $7.00
per ounce, from the previous level of $5.23 per ounce. The conditions relating to the second
payment were also modified and tied to certain paste fill plant performance criteria and mill
throughput tests. In January 2008, the mine met the criteria for payment of the additional $26.2
million. This amount was paid on April 1, 2008, plus accrued interest at the rate of 7.5% per
annum from January 24, 2008. During late November 2008, the mine exceeded the 2.0 million
cumulative ounce thresholds and therefore, CDE Australia has since been subject to the silver price
sharing provision. CDE Australia has received approximately 2.8 million payable ounces to-date and
the current ore reserve contains approximately 9.8 million payable ounces based on current
metallurgical recovery and current smelter contract terms. Expansion of the ore reserve will be
required to achieve the maximum payable ounces of silver production as set forth in the modified
contract. It is expected that future expansion to the ore reserve will occur as a result of the
conversion of portions of the propertys existing inventory of mineralized material and future
exploration discoveries. CBH conducts regular exploration to discover new mineralization and to
define reserves from surface and underground drilling platforms.
Non-Producing and Development Properties
Kensington: Kensington is a gold property located near Juneau, Alaska where commercial
production commenced on July 3, 2010. The mine is constructed as an underground gold mine accessed
by a horizontal tunnel utilizing conventional and mechanized underground mining methods. The ore
is processed in a flotation mill that produces a concentrate which will be sold to third-party
smelters.
20
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
NOTE 8 LONG TERM DEBT AND ROYALTY OBLIGATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Current |
|
|
Non-Current |
|
|
Current |
|
|
Non-Current |
|
3.25% Convertible Senior Notes due March 2028 |
|
$ |
|
|
|
$ |
42,132 |
|
|
$ |
|
|
|
$ |
125,323 |
|
1.25% Convertible Senior Notes due January 2024 |
|
|
1,859 |
|
|
|
|
|
|
|
|
|
|
|
22,232 |
|
Senior Term Notes due December 31, 2012 |
|
|
33,333 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
Capital lease obligations |
|
|
12,961 |
|
|
|
24,835 |
|
|
|
11,102 |
|
|
|
19,204 |
|
Kensington term facility |
|
|
5,101 |
|
|
|
35,702 |
|
|
|
|
|
|
|
15,464 |
|
Bank loans |
|
|
8,519 |
|
|
|
4,320 |
|
|
|
4,301 |
|
|
|
3,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,773 |
|
|
$ |
156,989 |
|
|
$ |
15,403 |
|
|
$ |
185,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25% Convertible Senior Notes due 2028
As of June 30, 2010, the outstanding balance of the 3.25% Convertible Senior Notes was $48.7
million, or $42.1 million net of debt discount. The notes are unsecured and bear interest at a
rate of 3.25% per year, payable on March 15 and September 15 of each year. The notes mature on
March 15, 2028, unless earlier converted, redeemed or repurchased by the Company.
Each holder of the notes may require that the Company repurchase some or all of such holders
notes on March 15, 2013, March 15, 2015, March 15, 2018 and March 15, 2023 at a repurchase price
equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid
interest, in cash, shares of common stock or a combination of cash and shares of common stock, at
the Companys election. Holders will also have the right, following certain fundamental change
transactions, to require the Company to repurchase all or any part of the notes for cash at a
repurchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued
and unpaid interest. The Company may redeem the notes for cash in whole or in part at any time on
or after March 22, 2015 at 100% of the principal amount of the notes to be redeemed plus accrued
and unpaid interest.
The notes provide for net share settlement of any conversions. Pursuant to this feature,
upon conversion of the notes, the Company (1) will pay the note holder an amount in cash equal to
the lesser of the conversion obligation or the principal amount of the notes and (2) will settle
any excess of the conversion obligation above the notes principal amount in the Companys common
stock, cash or a combination thereof, at the Companys election.
The notes are convertible under certain circumstances, as defined in the indenture agreement,
at the holders option, at an initial conversion rate of 17.60254 shares of the Companys common
stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of
approximately $56.81 per share, subject to adjustment in certain circumstances.
During the second quarter of 2010, $44.4 million of the 3.25% Convertible Senior Notes due
2028 were repurchased in exchange for 2.9 million shares of the Companys common stock. The
Company recognized a loss on the repurchase of $3.5 million in gain (loss) on debt extinguishments.
During
the six months ended June 30, 2010, $99.7 million of the 3.25%
Convertible Senior Notes due 2028 were repurchased in exchange for
6.5 million shares of the companys Common Stock. The company
recognized a loss on the repurchase of $8.6 million in gain (loss) on
debt extinguishments.
The fair value of the notes outstanding, as determined by market transactions at June 30, 2010
and December 31, 2009, was $44.5 million and $131.3 million, respectively. The carrying value of
the equity component at June 30, 2010 and December 31, 2009 was $10.9 million and $33.4 million,
respectively.
21
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
For the three and six months ended June 30, 2010, interest expense was $0.4 million and $1.6
million, respectively and accretion of the debt
discount was $0.6 million and $1.9 million, respectively. The debt discount remaining was $6.5 million
which will be amortized through March 15, 2013. The effective interest rate on the notes
was 8.9%, as a result of adopting the new accounting standard.
During the three and six months ended June 30, 2009, interest expense was $1.6 million and
$3.4 million, respectively, and accretion of the debt discount was $1.9 million and $4.1 million,
respectively.
1.25% Convertible Senior Notes due 2024
As of June 30, 2010, the Company had outstanding $1.9 million of its 1.25% Convertible Senior
Notes due 2024. The remaining $1.9 million principal amount of the 1.25% Convertible Notes are
convertible into shares of common stock at the option of the holder
on each of January 15, 2011, January 15, 2014, and
January 15, 2019, unless previously redeemed, at an initial conversion price of $76.00 per share, subject to
adjustment in certain circumstances.
The Company is required to make semi-annual interest payments on January 15 and July 15 of
each year. The notes are redeemable at the option of the Company before January 18, 2011, if the
closing price of the Companys common stock over a specified number of trading days exceeds 150% of
the conversion price, and anytime after January 18, 2011. Before January 18, 2011, the redemption
price is equal to 100% of the principal amount of the notes, plus an amount equal to 8.75% of the
principal amount of the notes, less the amount of any interest actually paid on the notes on or
prior to the redemption date. The notes are due on January 15, 2024.
Each holder of the notes may require that the Company repurchase some or all of the holders
notes on January 15, 2011, January 15, 2014 and January 15, 2019 at a repurchase price equal to
100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, in
cash, shares of common stock or a combination of cash and shares of common stock, at the Companys
election. Holders will also have the right, following certain fundamental change transactions, to
require the Company to repurchase all or any part of their notes for cash at a repurchase price
equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid
interest.
During the six months ended June 30, 2010, $20.4 million of the 1.25% convertible senior notes
due 2024 were repurchased in exchange for 1.2 million shares of the Companys common stock which
reduced the principal amount of the notes to $1.9 million as of June 30, 2010. The company
recognized a loss on the repurchase of $1.7 million in gain (loss) on debt extinguishments. There
were no repurchases in the second quarter of 2010.
The fair value of the notes outstanding, as determined by market transactions on June 30, 2010
and December 31, 2009, was $1.9 million and $22.8 million, respectively.
Interest on the notes for the three and six months ended June 30, 2010 was $5,809 and $16,508,
respectively. Interest on the notes for the three and six months ended June 30, 2009 was $0.4
million and $1.0 million, respectively.
Senior Term Notes due December 31, 2012
On February 5, 2010 the Company completed the sale of $100 million of Senior Term Notes due in
quarterly payments through December 31, 2012. In conjunction with the sale of these notes, the
Company also issued shares of its common stock valued at $4.2 million as financing costs. The
principal of the notes is payable in twelve equal quarterly installments, with the first such
installment paid on March 31, 2010. The Company has the option of paying amounts due on the notes
in cash, shares of common stock or a combination of cash and shares of common stock. The stated
interest rate on the notes is 6.5%, but the payments for principal and interest due on any payment
date will be computed to give effect to recent share prices, valuing
22
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
the shares of common stock at
90% of a weighted average share price over a pricing period ending shortly before the payment date.
The company elected to pay the June 30, 2010 payment with a combination of 50% cash and 50% common
stock. The March 31, 2010 payment was paid entirely with common stock. For the three and six
months ended June 30, 2010, the Company paid $8.3 million and $16.6 million, respectively, in
principal and $1.5 million and $2.5 million, respectively, in interest. For the three and six
months ended June 30, 2010 the Company issued 348,410 shares and 1,060,413 shares, respectively, of
the Companys stock. The
effective interest rate was approximately 10.6%, which includes a loss of $0.5 million and $1.6
million, for the three and six months ended June 30, 2010 respectively, in connection with this
quarterly debt payment. The loss is recorded in gain (loss) on debt extinguishments.
Kensington Term Facility
On October 27, 2009 the Company entered into a term facility with Credit Suisse whereby Credit
Suisse agreed to provide Coeur Alaska, a wholly-owned subsidiary of Coeur, a $45 million, five-year
term facility to fund the remaining construction at the Companys Kensington Gold Mine in Alaska.
The Company began drawing down the facility during the fourth quarter of 2009. Beginning three
months after an approximate twelve- month grace period commencing November 2009, Coeur Alaska will repay the
loan in equal quarterly payments with interest based on a margin over the three-month LIBOR rate.
The facility is secured by the mineral rights and infrastructure at Kensington as well as a pledge
of the shares of Coeur Alaska owned by Coeur.
As of June 30, 2010, the Company has $40.8 million outstanding bearing interest at 5.5%
(three month Libor rate plus 5% margin). The Company is also subject to financial covenants
including (i) guarantor tangible net worth; (ii) borrower tangible net worth; (iii) debt to equity
ratio; (iv) debt service coverage ratio; and (v) maximum
production cost. Events of default under the
Kensington term facility include (i) a cross-default of other indebtedness; (ii) a material adverse
event; (iii) loss of or failure to obtain applicable permits; and (iv) failure to achieve final
completion date.
As a condition of the Kensington term facility with Credit Suisse noted above, the Company
agreed to enter into a gold hedging program which protects a minimum of 125,000 ounces of gold
production over the life of the facility against the risk associated with fluctuations in the
market price of gold. This program took the form of a series of zero cost collars which consist of
a floor price and a ceiling price of gold. The required collars of 125,000 ounces of gold were
entered into in November and December 2009. The collars mature quarterly beginning September 2010
and conclude in December 2014. The weighted average put feature of each collar is $862.50 per
ounce and the weighted average call feature of each collar is $1,688.50 per ounce.
Bank Loans
On March 3, 2010, the Companys wholly owned Mexican subsidiary, Coeur Mexicana, entered into
three short term bank loans in the amount of $5.0 million with FIFOMI secured by Coeur d Alene
Mines and certain machinery and equipment, to fund working capital requirements. The bank loans
bear interest at 13.45% and mature between 36 and 60 months. As of June 30, 2010, the company has
drawn $4.6 million on two of the loans.
On April 14, 2010, the Companys
wholly owned Bolivian subsidiary, Empresa Minera Manquiri, received proceeds from short-term
borrowings from Banco de Credito de Bolivia in the amount of $2.5 million bearing interest at
approximately 5.0% to fund working capital requirements. The short-term borrowings were repaid
on June 14, 2010.
On June 22, 2010,
Empresa Minera Manquiri received proceeds from short-term borrowings from Banco de Credito de Bolivia in the
amount of $2.5 million bearing interest at approximately 4.8% to fund working capital requirements.
The short-term borrowings mature on August 22, 2010.
On November 27, 2009, Empressa Minera
Manquiri, received proceeds from short-term borrowings from Banco Bisa in the
amount of $5.0 million bearing an interest rate of 6.5% to fund working capital
requirements. The short-term bank loan matures on November 17, 2011.
During 2008, Empressa Minera Manquiri received proceeds from short-term borrowings from Banco
Bisa and Banco de Credito de Bolivia in the amount of $3.0 million to fund working capital
requirements. The short-term bank loans matured and were repaid in April 2009.
23
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
During the fourth quarter of 2008, the Companys wholly-owned Argentine subsidiary, (Coeur
Argentina S.R.L.) entered into several temporary credit lines in the amount of $3.5 million with
the Standard Bank of Argentina secured by a standby letter of credit by Cerro Bayo, (a wholly owned
subsidiary of the Company), to fund working capital requirements. The credit lines matured and
were repaid on April 13, 2009, June 30, 2009 and July 24, 2009.
Palmarejo Gold Production Royalty Obligation
On January 21, 2009, the Company 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 by Coeur from its Palmarejo silver and gold mine in Mexico. Coeur
received total consideration of $78.0 million consisting of $75.0 million in cash, plus a warrant
to acquire Franco-Nevada Common Shares (the Franco-Nevada warrant), which was valued at $3.0
million at closing of the Franco-Nevada transaction and is yet to be exercised.
From July 1, 2009 until payments have been made on a total of
400,000 ounces of gold. the royalty
obligation is payable in an amount equal to the greater of the minimum of 4,167 ounces of gold or
50% of actual gold production per month multiplied by the market price of gold in excess of $400
(which $400 floor is subject to 1% per annual inflation compounding
adjustment beginning on the fourth anniversary of the transaction).
After payments have been made on a total of
400,000 ounces of gold, the royalty obligation is payable in the
amount equal to 50% of actual gold production per
month multiplied by the market price of gold in excess of $400, as
adjusted as described above. The Company used an implicit interest rate of 27.4% to discount the
original obligation. The royalty obligation is accreted to its expected value over the expected
minimum payment period based on the implicit interest rate. The price volatility associated with
this minimum royalty obligation is considered an embedded derivative under U.S. GAAP and is
described in Note 13, Derivative Financial Instruments and Fair Value of Financial Instruments,
Palmarejo Gold production royalty. During the three and six months ended June 30, 2010, the
Company paid $9.6 million and $18.5 million, respectively, in royalty payments to Franco-Nevada
Corporation. As of June 30, 2010 and December 31, 2009, the remaining obligation balance was $83.0
million and $84.8 million, respectively.
Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of
properties under development. For the three and six months ended June 30, 2010 the Company
capitalized interest of $4.2 million and $8.4 million, respectively. For the three and six months
ended June 30, 2009, the Company capitalized interest of $4.9 million and $15.9 million,
respectively.
NOTE 9 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 Companys current mining plan and the best available information for
making such estimates. On an ongoing basis, management evaluates its estimates and assumptions;
however, actual amounts could differ from those based on such estimates and assumptions.
24
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
Changes to the Companys asset retirement obligations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Asset retirement obligation
Beginning |
|
$ |
25,689 |
|
|
$ |
26,202 |
|
|
$ |
25,112 |
|
|
$ |
25,655 |
|
Accretion |
|
|
573 |
|
|
|
609 |
|
|
|
1,138 |
|
|
|
1,173 |
|
Addition and changes in estimates |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
Settlements |
|
|
(7 |
) |
|
|
(113 |
) |
|
|
(13 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation June 30 |
|
$ |
26,255 |
|
|
$ |
26,698 |
|
|
$ |
26,255 |
|
|
$ |
26,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the Company has accrued $1.6 million and $1.7 million as of June 30, 2010
and December 31, 2009, respectively, for reclamation liabilities related to former mining
activities. These amounts are also included in reclamation and mine closure liabilities.
NOTE 10 INCOME TAXES
For the three and six months ended June 30, 2010, the Company reported an income tax benefit
of approximately $9.4 million and $21.2 million, respectively, compared to an income tax benefit of
$3.9 million and $3.6 million for the three and six months ended June 30, 2009, respectively. The
following table summarizes the components of the Companys income tax provision for the three and
six months ended June 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Alternative
minimum tax |
|
$ |
|
|
|
$ |
30 |
|
|
$ |
|
|
|
$ |
(239 |
) |
United States Foreign withholding |
|
|
(624 |
) |
|
|
(578 |
) |
|
|
(1,115 |
) |
|
|
(838 |
) |
Argentina |
|
|
(2,128 |
) |
|
|
(867 |
) |
|
|
(2,141 |
) |
|
|
(1,332 |
) |
Australia |
|
|
(57 |
) |
|
|
976 |
|
|
|
(57 |
) |
|
|
818 |
|
Mexico |
|
|
(33 |
) |
|
|
(7 |
) |
|
|
(83 |
) |
|
|
(49 |
) |
Canada |
|
|
|
|
|
|
(53 |
) |
|
|
|
|
|
|
(53 |
) |
Bolivia |
|
|
(3,721 |
) |
|
|
(3,157 |
) |
|
|
(2,890 |
) |
|
|
(3,157 |
) |
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
20,422 |
|
|
|
817 |
|
|
|
21,993 |
|
|
|
2,366 |
|
Australia |
|
|
(292 |
) |
|
|
230 |
|
|
|
(582 |
) |
|
|
(97 |
) |
Mexico |
|
|
(4,007 |
) |
|
|
7,560 |
|
|
|
7,696 |
|
|
|
11,696 |
|
Bolivia |
|
|
(188 |
) |
|
|
(1,058 |
) |
|
|
(1,611 |
) |
|
|
(5,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
9,372 |
|
|
$ |
3,893 |
|
|
$ |
21,210 |
|
|
$ |
3,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax benefit for the three and six months ended June 30, 2010 and 2009 varies
from the statutory rate primarily because of differences in tax rates for the Companys foreign
operations and changes in valuation allowances for net deferred tax assets, permanent differences
and foreign exchange rate differences. In the second quarter of 2010, the Company has recorded a
tax provison adjustment of $2.1 million related to prior periods. The Company has U.S. net
operating loss carryforwards which expire in 2010 through 2025. Net operating losses in foreign
countries have an indefinite carryforward period, except in Mexico where net operating loss
carryforwards are limited to ten years.
25
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
NOTE 11 SHARE-BASED COMPENSATION PLANS
The Company has an Annual Incentive Plan and a Long-Term Incentive Plan. The Companys
shareholders approved the Amended and Restated 2003 Long-Term Incentive Plan of Coeur dAlene Mines
Corporation at the 2010 annual shareholders meeting. This Long-Term Incentive Plan as amended
replaces the 2005 Non-Employee Directors Equity Incentive Plan (2005 Non-Employee Directors
Plan). Total employee compensation charged to operations and capital projects under these Plans
was $1.4 million and $1.8 million for the three months ended June 30, 2010 and 2009, respectively,
and $3.6 million and $4.3 million for the six months ended June 30, 2010 and 2009, respectively.
Stock options and Stock Appreciation Rights (SARs) granted under the Companys incentive
plans vest over three years and are exercisable over a period not to exceed ten years from the
grant date. The exercise price of the stock options and SARs is equal to the greater of the par
value of the shares or the fair market value of the shares on the date of the grant. The value of
each stock option award and SAR is estimated on the date of grant using the Black-Scholes option
pricing model. Stock options granted are accounted for as equity-based awards and SARs are
accounted for as liability-based awards. The value of the SARs are remeasured at each reporting
date. SARs, when vested, provide the participant the right to receive cash equal to the excess of
the market price of the common shares over the exercise price when exercised.
Restricted stock and restricted stock units granted under the Companys incentive plans are
accounted for based on the market value of the underlying shares on the date of grant and vest in
equal installments annually over three years. Restricted stock awards are accounted for as
equity-based awards and restricted stock unit awards are accounted for as liability-based awards.
Restricted stock units are remeasured at each reporting date. Holders of the restricted stock are
entitled to vote the shares and to receive any dividends declared on the shares. Restricted stock
units are settled in cash based on the number of vested restricted stock units multiplied by the
current market price of the common shares when vested.
Performance shares and performance units granted under the Companys incentive plans are
accounted for at fair value. Performance share awards are accounted for as equity-based awards and
performance units are accounted for as liability-based awards. Performance shares and performance
units are valued using a Monte Carlo simulation valuation model on the date of grant. The value of
the performance units is remeasured each reporting date. Vesting is contingent on meeting certain
market conditions based on relative total shareholder return. The performance shares and units
vest at the end of the three-year service period if the market conditions are met and the employee
remains an employee of the Company. The existence of a market condition requires recognition of
compensation cost for the performance share awards over the requisite period regardless of whether
the market condition is ever satisfied. Performance units are cash-based awards and are settled in
cash based on the current market price of the common shares when vested.
The compensation expense recognized in the Companys consolidated financial statements for the
three months ended June 30, 2010 and 2009 for stock based compensation awards was $0.6 million and
$1.0 million, respectively, and $2.0 million and $2.7 million for the six months ended June 30,
2010 and 2009, respectively. The SARs, restricted stock units and performance units are
liability-based awards and are required to be remeasured at the end of each reporting period with
corresponding adjustments to previously recognized and future stock-based compensation expense. As
of June 30, 2010, there was $2.9 million of total unrecognized compensation cost (net of estimated
forfeitures) related to unvested stock options, SARs, restricted stock, restricted stock units,
performance shares and performance units which is expected to be recognized over a weighted-average
remaining vesting period of 1.8 years.
The following table sets forth the weighted average fair value of stock options on the date of
grant and the weighted average fair value of the SARs at June 30, 2010. There were no stock
options granted during the second quarter of 2010. The assumptions used to estimate the fair value
of the stock options and SARs using the Black-Scholes option valuation model are as follows:
26
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Grant |
|
As of June 30, |
|
|
|
|
|
|
SARs and |
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
|
|
|
|
SARs |
|
Options |
|
SARs |
|
SARs |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of stock options granted and
SARs outstanding |
|
$ |
10.19 |
|
|
$ |
3.90 |
|
|
$ |
10.21 |
|
|
$ |
11.03 |
|
Expected volatility |
|
|
73.7 |
% |
|
|
70.8 |
% |
|
|
73.9 |
% |
|
|
78.3 |
% |
Expected life |
|
6.0 years |
|
|
6.0 years |
|
|
5.7 years |
|
|
4.6 years |
|
Risk-free interest rate |
|
|
2.7 |
% |
|
|
2.1 |
% |
|
|
2.0 |
% |
|
|
1.6 |
% |
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected volatility is determined using historical volatilities based on historical
stock prices. The Company estimated the expected life of the options and SARs granted using the
midpoint between the vesting date and the original contractual term. The risk free rate was
determined using the yield available on U.S. Treasury zero-coupon issues with a remaining term
equal to the expected life of the option or SAR. The Company has not paid dividends on its common
stock since 1996.
The following table summarizes stock option and SARs activity for the six months ended June
30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
SARs |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at December 31, 2009 |
|
|
392,678 |
|
|
$ |
23.48 |
|
|
|
112,471 |
|
|
$ |
10.00 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
151,287 |
|
|
|
15.40 |
|
Exercised |
|
|
(8,433 |
) |
|
|
10.00 |
|
|
|
(6,486 |
) |
|
|
10.00 |
|
Cancelled/forfeited |
|
|
(36,266 |
) |
|
|
23.25 |
|
|
|
(16,556 |
) |
|
|
11.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
347,979 |
|
|
$ |
23.84 |
|
|
|
240,716 |
|
|
$ |
13.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 243,792 shares were exercisable at June 30, 2010 at a weighted
average exercise price of $28.10.
As of June 30, 2010, there was $0.8 million of unrecognized compensation cost related to
non-vested stock options and SARs to be recognized over a weighted average period of 1.5 years.
The following table summarizes restricted stock and restricted stock units activity for the
six months ended June 30, 2010:
27
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock |
|
|
Restricted Stock Units |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Numbers of |
|
|
Average Grant |
|
|
Number of |
|
|
Average |
|
|
|
Shares |
|
|
Date Fair Value |
|
|
Units |
|
|
Fair Value |
|
Outstanding at December 31, 2009 |
|
|
134,389 |
|
|
$ |
15.95 |
|
|
|
67,485 |
|
|
$ |
18.06 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
91,378 |
|
|
|
15.40 |
|
Vested |
|
|
(56,518 |
) |
|
|
21.85 |
|
|
|
(22,500 |
) |
|
|
15.24 |
|
Cancelled/forfeited |
|
|
(14,073 |
) |
|
|
12.19 |
|
|
|
(9,947 |
) |
|
|
15.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
63,798 |
|
|
$ |
11.56 |
|
|
|
126,416 |
|
|
$ |
15.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010, there was $0.8 million of total unrecognized compensation cost
related to restricted stock and restricted stock unit awards to be recognized over a
weighted-average period of 1.5 years.
The following table summarizes performance shares and performance units activity for the six
months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Shares |
|
|
Performance Units |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Numbers of |
|
|
Average Grant |
|
|
Number of |
|
|
Average |
|
|
|
Shares |
|
|
Date Fair Value |
|
|
Units |
|
|
Fair Value |
|
Outstanding at December 31, 2009 |
|
|
136,298 |
|
|
$ |
16.59 |
|
|
|
67,485 |
|
|
$ |
27.53 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
91,378 |
|
|
|
19.94 |
|
Cancelled/forfeited |
|
|
(37,833 |
) |
|
|
17.53 |
|
|
|
(13,840 |
) |
|
|
20.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2010 |
|
|
98,465 |
|
|
$ |
16.23 |
|
|
|
145,023 |
|
|
$ |
19.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010, there was $1.3 million of total unrecognized compensation cost
related to performance shares and performance units to be recognized over a weighted average period
of 2.1 years.
NOTE 12 DEFINED CONTRIBUTION AND 401(k)
Defined Contribution Plan
The Company provides a noncontributory defined contribution retirement plan for all eligible
U.S. employees. Total contributions were $0.2 million and $0.1 million for the three months ended
June 30, 2010 and 2009, respectively, and $0.4 million and $0.3 million for the six months ended
June 30, 2010 and 2009, respectively, which is based on a percentage of the salary of eligible
employees.
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 employees contribution up to 3% of the employees compensation plus matching
contributions equal to 50% of the employees contribution up to an additional 2% of the employees
compensation. Total plan expenses recognized in the Companys consolidated financial statements
for the three months ended June 30, 2010 and 2009 were $0.2 million and $0.1 million, respectively.
Total plan expenses for the six months ended June 30, 2010 and 2009 were $0.4 million and $0.3
million, respectively.
28
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
NOTE 13 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Palmarejo Gold Production Royalty
On January 21, 2009, the Company entered into the gold production royalty transaction with
Franco-Nevada Corporation that is described in Note 8, Long Term Debt, Franco-Nevada Royalty
Obligation. The minimum royalty obligation ends when payments have been made on a total of 400,000
ounces of gold. The price volatility associated with the minimum royalty obligation is considered
an embedded derivative financial instrument under U.S. GAAP. The fair value of the embedded
derivative at June 30, 2010 and December 31, 2009 was a liability of $109.7 million and $78.0
million, respectively. The Franco-Nevada warrant is a contingent option to acquire 316,436 common
shares of Franco-Nevada for no additional consideration, once
the mine satisfies certain completion tests stipulated in the agreement. The Franco-Nevada
warrant is considered a derivative instrument. The fair value of the warrant at June 30, 2010 and
December 31, 2009 was $8.7 million and $6.3 million, respectively. These derivative instruments
are recorded in prepaid expenses and other, current or non-current royalty obligation on the
balance sheet and adjusted to fair value through current earnings. During the three months ended
June 30, 2010, mark-to-market adjustments for the embedded derivative and warrant amounted to a
loss of $30.0 million and a gain of $1.0 million, respectively and for the same period in 2009, a
loss of $5.5 million and a gain of $0.5 million, respectively. During the six months ended June
30, 2010, mark-to-market adjustments for the embedded derivative and warrant amounted to a loss of
$31.7 million and a gain of $2.3 million, respectively, and for the same period in 2009, a loss of
$18.2 million and a gain of $1.9 million, respectively. For the three and six months ended June
30, 2010, realized losses on settlement of the liabilities were $3.7 million and $6.8 million
respectively. For the three and six months ended June 30, 2009, realized losses on settlements of
liabilities were $0.1 million and $0.1 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
During 2009, the Company entered into forward foreign currency contracts to reduce the foreign
exchange risk associated with forecasted Mexican peso (MXP) operating costs at its Palmarejo
mine. At June 30, 2010, the Company had MXP foreign exchange contracts of $21.6 million in U.S.
dollars. These contracts require the Company to exchange U.S. dollars for MXP at a weighted
average exchange rate of 13.22 MXP to each U.S. dollar and had a fair value of $0.1 million at June
30, 2010. The Company recorded mark-to-market gains (losses) of $(1.6) million and $0.5 million
for the three months ended June 30, 2010 and 2009, respectively, which is reflected in fair value
adjustments, net and $(1.2) million and $(3.3) million for the six months ended June 30, 2010 and
2009, respectively. The Company recorded realized gains of $0.5 million and $0.2 million in
production costs applicable to sales during the three months ended June 30, 2010 and 2009,
respectively, and $0.5 million and $0.5 million for the six months ended June 30, 2010 and 2009,
respectively.
Gold Lease Facility
On December 12, 2008, the Company entered into a gold lease facility with Mitsubishi
International Corporation (MIC). Under the facility, the Company received proceeds of $20
million for the sale of 23,529 ounces of gold leased from MIC to the Company. During 2009, the
Company repaid 2,000 ounces of gold and leased an additional 5,000 ounces of gold. As of June 30,
2010, the Company had 15,029 ounces of gold leased from MIC. The Company has committed to deliver
this number of ounces of gold to MIC over the next month on scheduled delivery dates. As of June
30, 2010 the Company is required to pledge certain collateral, including standby letters of credit
of $2.25 million and $9.3 million of metal inventory held
by a refiner. The Company accounts
for the gold lease facility as a derivative instrument, which is recorded in accrued liabilities
and other in the balance sheet.
29
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
As of June 30, 2010 and December 31, 2009, based on the current futures metals prices for each
of the delivery dates and using a 5.8% and 5.7% discount rate, respectively, the fair value of the
instrument was a liability of $18.6 million and $28.5 million, respectively. The pre-credit risk
adjusted fair value of the net derivative liability as of June 30, 2010 was $18.7 million. A
credit risk adjustment of $0.1 million to the fair value of the derivative reduced the reported
amount of the net derivative liability on the Companys consolidated balance sheet to $18.6
million. For the three months ended June 30, 2010 and 2009, mark-to market adjustments for the
gold lease facility amounted to a loss of $2.2 million and a loss of $1.5 million, respectively,
and $0.8 million and $1.6 million for the six months ended June 30, 2010 and 2009, respectively.
For the three months ended June 30, 2010 and 2009 the Company recorded realized losses of nil,
respectively, and $1.9 million and $0.2 million for the six months ended June 30, 2010 and 2009,
respectively. The mark-to-market adjustments and realized losses are included 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 June 30, 2010, the
Company had outstanding provisionally priced sales of $14.4 million, consisting of 0.7 million
ounces of silver and 693 ounces of gold, which had a fair value of $14.4 million including the
embedded derivative. At December 31, 2009, the Company had outstanding provisionally priced sales
of $19.1 million consisting of 1.0 million ounces of silver and 1,227 ounces of gold, which had a
fair value of approximately $19.1 million including the embedded derivative.
Commodity Derivatives
During 2009, the Company purchased silver put options to reduce the risk associated with
potential decreases in the market price of silver. The cost of these put options was largely
offset by proceeds received from the sale of gold call options. At June 30, 2010, the Company held
put options allowing it to deliver 1.8 million ounces of silver at a weighted average strike price
of $9.17 per ounce. The contracts will expire over the next three months.
In connection with the Credit Suisse credit facility described in Note 8, Kensington Term
Facility, at June 30, 2010, the Company had written outstanding call options requiring it to
deliver 125,000 ounces of gold at a weighted average strike price of $1,688.50 per ounce if the
market price of gold exceeds the strike price. In addition, the Company had purchased outstanding
put options allowing it to sell 125,000 ounces of gold at a weighted average strike price of
$862.50 per ounce if the market price of gold were to fall below the strike price. The contracts
will expire over the next five years. As of June 30, 2010 the fair market value of these contracts
was a net liability of $7.5 million.
During the six months ended June 30, 2010, outstanding put options allowing the Company to
deliver 3.6 million ounces of silver at an average strike price of $9.24 per ounce expired. The
Company recorded realized losses of $0.8 million and $1.6 million for the three and six months
ended June 30, 2010, respectively, included in fair value adjustments, net.
During the three and six months ended June 30, 2009, the Company recorded realized gains
of $0.2 million and $0.2 million, respectively, included in fair value adjustments, net.
30
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
As of June 30, 2010, the Company had the following derivative instruments that settle in each
of the years indicated in the table (in thousands except average rates, ounces and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
Palmarejo gold production royalty |
|
|
11,762 |
|
|
|
24,027 |
|
|
|
24,865 |
|
|
|
108,476 |
|
Average gold price in excess of minimum
contractual deduction |
|
$ |
470.46 |
|
|
$ |
480.51 |
|
|
$ |
497.27 |
|
|
$ |
494.90 |
|
Notional ounces |
|
|
25,002 |
|
|
|
50,004 |
|
|
|
50,004 |
|
|
|
219,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franco-Nevada Warrant |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share price |
|
$ |
15.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Shares |
|
|
316,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican peso forward purchase contracts |
|
|
21,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate (MXP/$) |
|
$ |
13.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican peso notional amount |
|
|
285,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold lease forward purchase contracts |
|
|
12,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average gold forward price |
|
$ |
850.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional ounces |
|
|
15,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver concentrate sales agreements |
|
|
13,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average silver price |
|
$ |
18.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional ounces |
|
|
731,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold concentrates sales agreements |
|
|
832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average gold price |
|
$ |
1,200.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional ounces |
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold put options purchased |
|
|
360 |
|
|
|
3,240 |
|
|
|
2,880 |
|
|
|
2,520 |
|
Average gold strike price |
|
$ |
862.50 |
|
|
$ |
862.50 |
|
|
$ |
862.50 |
|
|
$ |
862.50 |
|
Notional ounces |
|
|
5,000 |
|
|
|
45,000 |
|
|
|
40,000 |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold call options sold |
|
|
360 |
|
|
|
3,240 |
|
|
|
2,880 |
|
|
|
2,520 |
|
Average gold strike price |
|
$ |
1,688.50 |
|
|
$ |
1,688.50 |
|
|
$ |
1,688.50 |
|
|
$ |
1,688.50 |
|
Notional ounces |
|
|
5,000 |
|
|
|
45,000 |
|
|
|
40,000 |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver put options |
|
|
524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average silver strike price |
|
$ |
9.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional ounces |
|
|
1,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
The following summarizes the classification of the fair value of the derivative instruments as
of June 30, 2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Non-current |
|
|
|
Prepaid |
|
|
Accrued |
|
|
Other Long- |
|
|
portion of |
|
|
portion of |
|
|
|
expenses and |
|
|
liabilities and |
|
|
Term |
|
|
royalty |
|
|
royalty |
|
|
|
other |
|
|
other |
|
|
Liabilities |
|
|
obligation |
|
|
obligation |
|
Gold lease facility |
|
$ |
|
|
|
$ |
18,632 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Forward foreign exchange contracts |
|
|
664 |
|
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmarejo gold production royalty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,476 |
|
|
|
90,210 |
|
Franco-Nevada warrant |
|
|
8,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put and call
options, net |
|
|
|
|
|
|
521 |
|
|
|
6,996 |
|
|
|
|
|
|
|
|
|
Concentrate sales contracts |
|
|
200 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,537 |
|
|
$ |
19,780 |
|
|
$ |
6,996 |
|
|
$ |
19,476 |
|
|
$ |
90,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Non-current |
|
|
|
Prepaid |
|
|
Accrued |
|
|
portion of |
|
|
portion of |
|
|
|
expenses and |
|
|
liabilities and |
|
|
royalty |
|
|
royalty |
|
|
|
other |
|
|
other |
|
|
obligation |
|
|
obligation |
|
Gold lease facility |
|
$ |
|
|
|
$ |
28,506 |
|
|
$ |
|
|
|
$ |
|
|
Forward foreign exchange contracts |
|
|
1,490 |
|
|
|
155 |
|
|
|
|
|
|
|
|
|
Palmarejo gold production royalty |
|
|
|
|
|
|
|
|
|
|
12,174 |
|
|
|
65,839 |
|
Franco-Nevada warrant |
|
|
6,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Put and call
options, net |
|
|
121 |
|
|
|
964 |
|
|
|
|
|
|
|
|
|
Concentrate sales contracts |
|
|
624 |
|
|
|
580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,574 |
|
|
$ |
30,205 |
|
|
$ |
12,174 |
|
|
$ |
65,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following represent mark-to-market gains (losses) on derivative instruments as of
June 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Gold lease facility |
|
$ |
(2,161 |
) |
|
$ |
(1,484 |
) |
|
$ |
(760 |
) |
|
$ |
(1,584 |
) |
Forward foreign exchange contracts |
|
|
(1,648 |
) |
|
|
455 |
|
|
|
(1,192 |
) |
|
|
(3,299 |
) |
Palmarejo gold royalty |
|
|
(29,987 |
) |
|
|
(5,465 |
) |
|
|
(31,673 |
) |
|
|
(18,209 |
) |
Franco-Nevada warrant |
|
|
1,030 |
|
|
|
525 |
|
|
|
2,333 |
|
|
|
1,948 |
|
Put and call options |
|
|
(5,253 |
) |
|
|
1,224 |
|
|
|
(5,088 |
) |
|
|
1,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(38,019 |
) |
|
$ |
(4,745 |
) |
|
$ |
(36,380 |
) |
|
$ |
(20,092 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
In the three months ended June 30, 2010 and 2009, the Company recorded realized gains (losses)
of ($4.5) million, $0.1 million, respectively, in fair value adjustments, net and a gain of $0.5
million and $0.2 million, respectively, in production costs applicable to sales related to forward foreign
exchange contracts. In the six months ended June 30, 2010 and 2009, the Company recorded realized
gains (losses) of $(10.4) million and $6.5 million in fair value adjustments, net respectively, and
a gain of $0.5 million and $0.6 million in production costs applicable to sales related to forward
foreign exchange contracts. Included in realized gains of $6.5 million in 2009, is a $6.6 million
realized gain related to the senior secured floating note warrant and conversion option in the six
months ended June 30, 2009.
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 only with a group of large credit-worthy financial
institutions 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 it considers highly liquid.
NOTE 14 COMMITMENTS AND CONTINGENCIES
Labor Union Contracts
The Company maintains three labor agreements in South America, consisting of a labor agreement
with Sindicato de Trabajadores de Compañía Minera Cerro Bayo Ltd. at its Cerro Bayo mine in Chile
and with Associacion Obrera Minera Argentina at its Martha mine in Argentina and Sindicato de la
Empresa Minera Manquiri at its San Bartolomé mine in Bolivia. The agreement at Cerro Bayo is
effective from December 24, 2007 to December 21, 2010 and the agreement at Mina Martha is effective
from June 1, 2010 to October 31, 2010. The Bolivian labor agreement, which became effective
October 11, 2007, does not have a fixed term. In connection with the sale of Cerro Bayo which
is expected to close on or about August 9, 2010, our obligation
under the agreement at Cerro Bayo will terminate. As of June
30, 2010, approximately 19% of the Companys worldwide labor force was covered by collective
bargaining agreements.
Termination Benefits
In September 2005, the Company established a one-time termination benefit program at the
Rochester mine as the mine approaches the end of its mine life. The employees will be required to
render service until they are terminated in order to be eligible for benefits. Approximately 85%
of the workforce was severed by the end of 2008, while the remaining employees are expected to stay
on for residual leaching and reclamation activities. As of June 30, 2010, the total benefit
expected to be incurred under this plan is approximately $5.1 million. The liability is recognized
ratably over the minimum future service period. The amounts accrued for the three and six months
ended June 30, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
656 |
|
|
$ |
480 |
|
|
$ |
589 |
|
|
$ |
445 |
|
Accruals |
|
|
96 |
|
|
|
53 |
|
|
|
163 |
|
|
|
88 |
|
Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
752 |
|
|
$ |
533 |
|
|
$ |
752 |
|
|
$ |
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
The Company does not have a written severance plan for any of its foreign operations
including Chile, Argentina, Bolivia and Mexico. However, laws in these 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
statutory termination benefits in these locations of approximately $4.3 million as of June 30,
2010.
Kensington Production Royalty
On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur Alaska, Inc., acquired from
Echo Bay and Echo Bay Alaska, Inc. a 50% ownership interest of Echo Bay Exploration Inc. or Echo
Bay, which provides the Company with indirect 100% ownership of the Kensington property. The
property is located on the east side of Lynn Canal between Juneau and Haines, Alaska. Coeur Alaska
is obligated to pay Echo Bay 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 $400 per ounce gold prices to a maximum
of 2 1/2% at gold prices above $475 per ounce, with the royalty to be capped at 1.0 million ounces
of production.
NOTE 15 SIGNIFICANT CUSTOMERS
The Company markets its refined metal and 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, and the pharmaceutical and technology industries. The Company has six trading
counterparties (Mitsui, Mitsubishi, Standard Bank, Auramet, Valcambi and INTL Commodities) and the
sales of metals to these companies amounted to approximately 84% and 81% of total metal sales for
the six months ended June 30, 2010 and 2009, 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.
The Company refines and markets its precious metals, doré and concentrates using a
geographically diverse group of third party smelters and refiners, including clients located in
Mexico, Switzerland, Australia and the United States (Penoles, Valcambi, Nyrstar, Johnson Matthey).
Sales of silver concentrates to third-party smelters amounted to approximately 16% and 19% of
total metal sales for the six months ended June 30, 2010 and 2009, respectively. The loss of any
one smelting and refining client may have a material adverse effect if alternative smelters and
refineries are not available. The Company believes there is sufficient global capacity available to
address the loss of any smelter.
NOTE 16 SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which separate financial
information is available that are evaluated regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. The
Companys chief operating decision-making group is comprised of the Chief Executive Officer, Chief
Financial Officer, the Senior Vice President of Operations and the President of South American
Operations.
The operating segments are managed separately because each segment represents a distinct use
of Company resources and a separate contribution to the Companys cash flows. The Companys
reportable operating segments include the Palmarejo, San Bartolomé, Martha, Rochester and Endeavor
mining properties.
As of July 30, 2009, the Company completed the sale of its interest in the Broken Hill mine
(See Note 4). In
34
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
addition, the company has classified the Cerro Bayo Mine as an asset held for
sale (see Note 4). 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. The Martha mine sells precious metal concentrates,
typically under long-term contracts, to smelters located in Mexico. 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 Mitsui, Mitsubishi, Standard Bank, Auramet and INTL
Commodities. Concentrates produced at the Endeavor mine are sold to Nyrstar (formerly Zinifex), an
Australia smelter. The Companys exploration programs 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.
Revenues from silver sales were $73.3 million and $56.9 million in the three months ended June
30, 2010 and 2009, respectively, and $133.3 million and $96.6 million for the six months ended June
30, 2010 and 2009, respectively. Revenues from gold sales were $27.7 million and $11.0 million in
the three months ended June 30, 2010 and 2009, respectively, and $56.0 million and $14.6 million
for the six months ended June 30, 2010 and 2009, respectively.
Financial information relating to the Companys segments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
June 30, 2010 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Project |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
44,834 |
|
|
$ |
12,416 |
|
|
$ |
31,275 |
|
|
$ |
9,187 |
|
|
$ |
3,306 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
101,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
32,100 |
|
|
|
5,595 |
|
|
|
15,340 |
|
|
|
4,132 |
|
|
|
1,423 |
|
|
|
|
|
|
|
|
|
|
|
58,590 |
|
Depreciation and depletion |
|
|
20,291 |
|
|
|
458 |
|
|
|
6,032 |
|
|
|
2,619 |
|
|
|
450 |
|
|
|
|
|
|
|
133 |
|
|
|
29,983 |
|
Exploration expense |
|
|
1,307 |
|
|
|
20 |
|
|
|
|
|
|
|
1,205 |
|
|
|
|
|
|
|
229 |
|
|
|
400 |
|
|
|
3,161 |
|
Other operating expenses |
|
|
38 |
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,785 |
|
|
|
7,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
(1,903 |
) |
|
|
1 |
|
|
|
(105 |
) |
|
|
(2,180 |
) |
|
|
|
|
|
|
|
|
|
|
366 |
|
|
|
(3,821 |
) |
Interest expense |
|
|
(5,401 |
) |
|
|
|
|
|
|
(92 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
(136 |
) |
|
|
(5,646 |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,050 |
) |
|
|
(4,050 |
) |
Fair market adjustments, net |
|
|
(32,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,089 |
) |
|
|
(3,794 |
) |
|
|
(42,516 |
) |
Income tax benefit (expense) |
|
|
(4,006 |
) |
|
|
|
|
|
|
(3,909 |
) |
|
|
(2,160 |
) |
|
|
|
|
|
|
|
|
|
|
19,447 |
|
|
|
9,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
(52,845 |
) |
|
|
5,743 |
|
|
|
5,797 |
|
|
|
(3,126 |
) |
|
|
1,433 |
|
|
|
(6,318 |
) |
|
|
4,515 |
|
|
|
(44,801 |
) |
Net income (loss) from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,943 |
) |
|
|
(5,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(52,845 |
) |
|
$ |
5,743 |
|
|
$ |
5,797 |
|
|
$ |
(3,126 |
) |
|
$ |
1,433 |
|
|
$ |
(6,318 |
) |
|
$ |
(1,428 |
) |
|
$ |
(50,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (A) |
|
$ |
2,140,633 |
|
|
$ |
28,625 |
|
|
$ |
274,156 |
|
|
$ |
26,269 |
|
|
$ |
39,210 |
|
|
$ |
477,800 |
|
|
$ |
10,683 |
|
|
$ |
2,997,376 |
|
Capital expenditures (B) |
|
$ |
10,812 |
|
|
$ |
86 |
|
|
$ |
1,325 |
|
|
$ |
11 |
|
|
$ |
|
|
|
$ |
33,196 |
|
|
$ |
39 |
|
|
$ |
45,469 |
|
35
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
June 30, 2009 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Project |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
14,249 |
|
|
$ |
10,483 |
|
|
$ |
31,760 |
|
|
$ |
10,022 |
|
|
$ |
1,343 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
67,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
13,669 |
|
|
|
6,239 |
|
|
|
22,390 |
|
|
|
6,089 |
|
|
|
463 |
|
|
|
|
|
|
|
|
|
|
$ |
48,850 |
|
Depreciation and depletion |
|
|
12,380 |
|
|
|
457 |
|
|
|
4,774 |
|
|
|
1,167 |
|
|
|
316 |
|
|
|
|
|
|
|
133 |
|
|
$ |
19,227 |
|
Exploration expense |
|
|
1,484 |
|
|
|
24 |
|
|
|
16 |
|
|
|
781 |
|
|
|
|
|
|
|
42 |
|
|
|
835 |
|
|
$ |
3,182 |
|
Other operating expenses |
|
|
479 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
4,600 |
|
|
$ |
5,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
388 |
|
|
|
4 |
|
|
|
602 |
|
|
|
(427 |
) |
|
|
|
|
|
|
|
|
|
|
915 |
|
|
$ |
1,482 |
|
Interest expense |
|
|
(3,432 |
) |
|
|
|
|
|
|
(17 |
) |
|
|
(263 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
(1,474 |
) |
|
$ |
(5,193 |
) |
Gain on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,675 |
|
|
$ |
22,675 |
|
Fair market adjustments, net |
|
|
(5,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875 |
|
|
$ |
(4,149 |
) |
Income tax benefit (expense) |
|
|
28,950 |
|
|
|
|
|
|
|
(4,215 |
) |
|
|
(1,231 |
) |
|
|
|
|
|
|
|
|
|
|
(19,611 |
) |
|
$ |
3,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
7,119 |
|
|
|
3,478 |
|
|
|
950 |
|
|
|
64 |
|
|
|
564 |
|
|
|
(90 |
) |
|
|
(2,188 |
) |
|
$ |
9,897 |
|
Net income (loss) from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,712 |
|
|
$ |
1,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
7,119 |
|
|
$ |
3,478 |
|
|
$ |
950 |
|
|
$ |
64 |
|
|
$ |
564 |
|
|
$ |
(90 |
) |
|
$ |
(476 |
) |
|
$ |
11,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets(A) |
|
$ |
2,117,141 |
|
|
$ |
35,456 |
|
|
$ |
286,778 |
|
|
$ |
31,853 |
|
|
$ |
40,697 |
|
|
$ |
356,900 |
|
|
$ |
34,013 |
|
|
$ |
2,902,838 |
|
Capital expenditures (B) |
|
$ |
32,238 |
|
|
$ |
221 |
|
|
$ |
2,589 |
|
|
$ |
406 |
|
|
$ |
|
|
|
$ |
6,376 |
|
|
$ |
519 |
|
|
$ |
42,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
June 30, 2010 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Project |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
90,448 |
|
|
$ |
23,167 |
|
|
$ |
45,867 |
|
|
$ |
24,207 |
|
|
$ |
5,618 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
189,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
60,767 |
|
|
|
11,384 |
|
|
|
24,743 |
|
|
|
11,458 |
|
|
|
2,041 |
|
|
|
|
|
|
|
|
|
|
|
110,393 |
|
Depreciation and depletion |
|
|
41,084 |
|
|
|
923 |
|
|
|
9,209 |
|
|
|
5,104 |
|
|
|
1,110 |
|
|
|
|
|
|
|
272 |
|
|
|
57,702 |
|
Exploration expense |
|
|
1,787 |
|
|
|
41 |
|
|
|
|
|
|
|
2,415 |
|
|
|
|
|
|
|
242 |
|
|
|
1,196 |
|
|
|
5,681 |
|
Other operating expenses |
|
|
351 |
|
|
|
773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,402 |
|
|
|
14,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
261 |
|
|
|
1 |
|
|
|
(144 |
) |
|
|
(2,950 |
) |
|
|
|
|
|
|
|
|
|
|
744 |
|
|
|
(2,088 |
) |
Interest expense |
|
|
(10,868 |
) |
|
|
|
|
|
|
(163 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
(365 |
) |
|
|
(11,451 |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,908 |
) |
|
|
(11,908 |
) |
Fair market adjustments, net |
|
|
(36,179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,552 |
) |
|
|
(4,043 |
) |
|
|
(46,774 |
) |
Income tax benefit (expense) |
|
|
7,697 |
|
|
|
|
|
|
|
(4,501 |
) |
|
|
(2,173 |
) |
|
|
|
|
|
|
|
|
|
|
20,187 |
|
|
|
21,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
(52,630 |
) |
|
|
10,047 |
|
|
|
7,107 |
|
|
|
52 |
|
|
|
2,467 |
|
|
|
(6,794 |
) |
|
|
(10,255 |
) |
|
|
(50,006 |
) |
Net income (loss) from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,755 |
) |
|
|
(8,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(52,630 |
) |
|
$ |
10,047 |
|
|
$ |
7,107 |
|
|
$ |
52 |
|
|
$ |
2,467 |
|
|
$ |
(6,794 |
) |
|
$ |
(19,010 |
) |
|
$ |
(58,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets(A) |
|
$ |
2,140,633 |
|
|
$ |
28,625 |
|
|
$ |
274,156 |
|
|
$ |
26,269 |
|
|
$ |
39,210 |
|
|
$ |
477,800 |
|
|
$ |
10,683 |
|
|
$ |
2,997,376 |
|
Capital expenditures (B) |
|
$ |
27,319 |
|
|
$ |
87 |
|
|
$ |
1,871 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
63,097 |
|
|
$ |
279 |
|
|
$ |
92,656 |
|
36
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
June 30, 2009 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Project |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
14,249 |
|
|
$ |
19,863 |
|
|
$ |
55,575 |
|
|
$ |
18,895 |
|
|
$ |
2,644 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
111,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
13,669 |
|
|
|
10,946 |
|
|
|
37,578 |
|
|
|
10,559 |
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
$ |
73,569 |
|
Depreciation and depletion |
|
|
12,380 |
|
|
|
927 |
|
|
|
9,947 |
|
|
|
2,485 |
|
|
|
681 |
|
|
|
|
|
|
|
271 |
|
|
$ |
26,691 |
|
Exploration expense |
|
|
3,581 |
|
|
|
|
|
|
|
16 |
|
|
|
1,152 |
|
|
|
|
|
|
|
54 |
|
|
|
1,468 |
|
|
$ |
6,271 |
|
Other operating expenses |
|
|
679 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
11,976 |
|
|
$ |
13,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
473 |
|
|
|
103 |
|
|
|
1,463 |
|
|
|
(1,294 |
) |
|
|
|
|
|
|
|
|
|
|
1,037 |
|
|
$ |
1,782 |
|
Interest expense |
|
|
(2,266 |
) |
|
|
|
|
|
|
(61 |
) |
|
|
(370 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
(3,247 |
) |
|
$ |
(5,958 |
) |
Gain on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,378 |
|
|
$ |
38,378 |
|
Fair market adjustments, net |
|
|
(16,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,795 |
|
|
$ |
(13,551 |
) |
Income tax benefit (expense) |
|
|
33,086 |
|
|
|
|
|
|
|
(8,633 |
) |
|
|
(1,696 |
) |
|
|
|
|
|
|
|
|
|
|
(19,118 |
) |
|
$ |
3,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
(1,113 |
) |
|
|
7,636 |
|
|
|
803 |
|
|
|
1,339 |
|
|
|
1,146 |
|
|
|
(108 |
) |
|
|
6,130 |
|
|
|
15,833 |
|
Net income (loss) from discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,834 |
|
|
$ |
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,113 |
) |
|
$ |
7,636 |
|
|
$ |
803 |
|
|
$ |
1,339 |
|
|
$ |
1,146 |
|
|
$ |
(108 |
) |
|
$ |
7,964 |
|
|
$ |
17,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets(A) |
|
$ |
2,117,141 |
|
|
$ |
35,456 |
|
|
$ |
286,778 |
|
|
$ |
31,853 |
|
|
$ |
40,697 |
|
|
$ |
356,900 |
|
|
$ |
34,013 |
|
|
$ |
2,902,838 |
|
Capital expenditures (B) |
|
$ |
97,692 |
|
|
$ |
272 |
|
|
$ |
8,242 |
|
|
$ |
787 |
|
|
$ |
|
|
|
$ |
12,592 |
|
|
$ |
894 |
|
|
$ |
120,479 |
|
|
|
|
(A) |
|
Segment assets consist of receivables, prepaids, inventories, property, plant
and equipment, and mining properties |
|
(B) |
|
Balance represents cash flow amounts |
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Total assets for reportable segments |
|
|
2,997,376 |
|
|
$ |
2,902,838 |
|
Assets of discontinued operations held for sale |
|
|
30,042 |
|
|
|
41,143 |
|
Cash and cash equivalents |
|
|
41,187 |
|
|
|
24,668 |
|
Other assets |
|
|
79,754 |
|
|
|
83,686 |
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
3,148,359 |
|
|
$ |
3,052,335 |
|
|
|
|
|
|
|
|
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2010 |
|
|
2009 |
|
Long Lived Assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
480,864 |
|
|
$ |
361,891 |
|
Mexico |
|
|
2,047,440 |
|
|
|
2,063,985 |
|
Bolivia |
|
|
241,493 |
|
|
|
256,239 |
|
Australia |
|
|
38,026 |
|
|
|
62,500 |
|
Argentina |
|
|
5,914 |
|
|
|
16,702 |
|
Chile |
|
|
42 |
|
|
|
331 |
|
Other countries |
|
|
143 |
|
|
|
146 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,813,922 |
|
|
$ |
2,761,794 |
|
|
|
|
|
|
|
|
37
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
12,416 |
|
|
$ |
10,483 |
|
|
$ |
23,167 |
|
|
$ |
19,863 |
|
Mexico |
|
|
44,834 |
|
|
|
14,249 |
|
|
|
90,448 |
|
|
|
14,249 |
|
Bolivia |
|
|
31,275 |
|
|
|
31,760 |
|
|
|
45,867 |
|
|
|
55,575 |
|
Australia |
|
|
3,306 |
|
|
|
1,343 |
|
|
|
5,618 |
|
|
|
2,644 |
|
Argentina |
|
|
9,187 |
|
|
|
10,022 |
|
|
|
24,207 |
|
|
|
18,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
101,018 |
|
|
$ |
67,857 |
|
|
$ |
189,307 |
|
|
$ |
111,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17 LITIGATION AND OTHER EVENTS
States of Maine, Idaho and Colorado Superfund Sites Related to Callahan Mining Corporation
During 1991, the Company acquired all of the outstanding common stock of Callahan Mining
Corporation.
During 2001, the Forest Service made a formal request for information regarding the Deadwood
Mine Site located in central Idaho. Callahan Mining Corporation had operated at this site during
the 1940s. The Forest Service believes that some cleanup action is required at the location.
However, the Company did not acquire Callahan until 1991, more than 40 years after Callahan
disposed of its interest in the Deadwood property. The Company did not make any decisions with
respect to generation, transport or disposal of hazardous waste at the site. Therefore, the
Company believes that it is not liable for any cleanup, and if Callahan might be liable, it has no
substantial assets with which to satisfy any such liability. To date, no claim has been made by the
United States for any cleanup costs against either the Company or Callahan.
During 2002, the U.S. Environmental Protection Agency, or EPA, made a formal request for
information regarding a Callahan mine site in the State of Maine. Callahan operated there in the
late 1960s, shut the operations down in the early 1970s and disposed of the property. The EPA
contends that some cleanup action is warranted at the site, and listed it on the National
Priorities List in late 2002. In 2009, the
EPA and the State of Maine made additional formal requests for information relating to the
Maine Callahan mine site. The Company believes that because it made no decisions with respect to
generation, transport or disposal of hazardous waste at this location, it is not liable for any
cleanup costs. If Callahan might have liability, it has no substantial assets with which to
satisfy such liability. To date, no claim has been made for any cleanup costs against either the
Company or Callahan.
In January 2003, the Forest Service made a formal request for information regarding a Callahan
mine site in the State of Colorado known as the Akron Mine Site. Callahan operated there in
approximately the late 1930s through the 1940s, and, to the Companys knowledge, disposed of the
property. The Company is not aware of what, if any, cleanup action the Forest Service is
contemplating. However, the Company did not make decisions with respect to generation, transport
or disposal of hazardous waste at this location, and therefore believes it is not liable for any
cleanup costs. If Callahan might have liability, it has no substantial assets with which to
satisfy such liability. To date, no claim has been made for any cleanup costs against either the
Company or Callahan.
By letter dated February 25, 2010, the State of Washington Department of Ecology notified
Callahan Mining Corporation that it found credible evidence that supports the Departments
conclusion that Callahan is a potentially liable person for a release of a hazardous substance at
the Van Stone Mine located approximately
38
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
21 miles northeast of Colville, Washington. The rights
and liabilities of a potentially liable person are described under Washington law. The
Department of Ecology alleges that Callahan sold the property in 1990. This is prior to Coeurs
acquisition of Callahan, and therefore Coeur has no knowledge of the facts and circumstances
surrounding Washingtons allegations. If Callahan might have liability, it has no substantial
assets with which to satisfy it. To date no claim has been made for any cleanup costs against
Callahan.
NOTE 18 SUBSEQUENT EVENTS
Sale of Cerro Bayo
On
or about August 9, 2010 the Company expects to close the sale of its 100% interest in Compañía Minera Cerro
Bayo (Minera Cerro Bayo) to Mandalay Resources Corporation. Under the terms of the agreement,
Coeur will receive the following from Mandalay in exchange for all of the outstanding shares of Minera
Cerro Bayo; (i) $6,029,000 in cash (ii) common shares of Mandalay worth CAD$5,000,000 valued at
the closing price of an equity financing by Mandalay to fund the purchase price; (iii) 125,000
ounces of silver to be delivered in six equal installments commencing in the third quarter of 2011;
(iv) a 2.0% Net Smelter Royalty (NSR) on production from Minera Cerro Bayo in excess of a
cumulative 50,000 ounces of gold and 5,000,000 ounces of silver and (v) existing value added taxes
collected from the Chilean government in excess of $3.5 million. As part of the transaction,
Mandalay also will pay the next $6,000,000 of reclamation costs associated with Minera Cerro Bayos
nearby Furioso property. Any reclamation costs above that amount will be shared equally by
Mandalay and Coeur. The Company recorded an estimated loss on the sale of $3.0 million in the
second quarter of 2010.
Commercial Production at Kensington
On
July 3, 2010, the Kensington mine commenced commercial production. Production through July
31, 2010 was 3,650 ounces of gold. The Company anticipates the Kensington mine will continue to
ramp up its production rate throughout the third quarter of 2010 and will achieve full capacity
during the fourth quarter of 2010.
Mitsubishi International Corporation
On
December 12, 2008, Coeur dAlene Mines Corporation (the Company) entered into a Master
Lease Agreement establishing a gold lease facility with Mitsubishi International Corporation
(MIC). Pursuant to this facility, the Company may lease amounts of gold from MIC and is
obligated to deliver the same amounts back to MIC and to pay specified lease fees to MIC that are
equivalent to interest at current market rates on the value of
the gold leased. The facility was intended to increase the Companys liquidity. As of July 22,
2010, the Company was leasing approximately 15,000 ounces of gold under the facility. Pursuant to
a Second Amended and Restated Collateral Agreement, the Companys obligations under the facility
are secured by certain collateral. The collateral agreement specifies the maximum amount of gold
the Company may lease from MIC, as well as the amount and type of collateral.
On
July 16, 2010 the Company and MIC entered into an Amendment No. 4 to the Second Amended and
Restated Collateral Agreement to increase the availability under the facility. Under the amended
agreement, the maximum amount the Company may lease under the facility, aggregated with lease fees,
is $49.5 million. In addition, the amended agreement provides for a customary commitment fee. The
Company agreed to secure its obligations under the facility with up to $29.7 million of collateral.
The initial collateral consists of silver and gold inventory held at a specified refiner. The
amendment also required the Company to lease at least an additional 10,000 ounces of gold within 30
days, which occurred on July 21, 2010.
The collateral agreement contains usual and customary covenants and agreements, including
limitations on the Companys ability to sell or grant liens in the collateral, as well as covenants
as to cooperation, payment of charges and protection of security.
The collateral agreement and the master lease agreement governing the gold lease facility both
contain customary events of default.
39
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
is designed to provide a reader of our financial statements with a narrative from managements
perspective on our financial condition, results of operations, liquidity and other factors that may
affect our future results. We believe it is important to read our MD&A in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2009, as well as other publicly
available information.
This report contains numerous forward-looking statements relating to the Companys gold and
silver mining business, including estimated production data, expected operating schedules, expected
capital costs and other operating data and permit and other regulatory approvals. Such
forward-looking statements are identified by the use of words such as believes, intends,
expects, hopes, may, should, will, plan, projected, contemplates, anticipates or
similar words. Actual production, operating schedules, results of operations, ore reserve and
resource estimates and other projections and estimates could differ materially from those projected
in the forward-looking statements. The important factors that could cause actual results to differ
materially from those in the forward-looking statements include (i) the risk factors set forth
below under Part II, Item 1A, (ii) risks and hazards inherent in the mining business (including
environmental hazards, industrial accidents, weather or geologically related conditions), (iii)
changes in the market prices of gold and silver, (iv) uncertainties inherent in the Companys
production, exploratory and developmental activities, including risks relating to permitting and
regulatory delays, (v) any future labor disputes or work stoppages, (vi) uncertainties inherent in
the estimation of gold and silver ore reserves, (vii) changes resulting from the Companys future
acquisition of new mining properties or businesses, (viii) reliance on third parties to operate
certain mines where the Company owns silver production and reserves, (ix) the loss of any
third-party smelter to which the Company markets silver and gold, (x) effects of environmental and
other governmental regulations, (xi) risks inherent in the ownership or operation of or investment
in mining properties or businesses in foreign countries, (xii) the worldwide economic downturn and
difficult conditions in the global capital and credit markets, and (xiii) the Companys ability to
raise additional financing necessary to conduct its business, make payments or refinance its debt.
Readers are cautioned not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly these forward-looking statements, whether as
a result of new information, future events or otherwise.
MD&A includes references to total cash operating costs and cash costs per ounce of silver
produced both on an individual mine basis and on a consolidated basis. Total cash operating costs
per ounce and cash costs per ounce are measurements that management uses to monitor and evaluate
the performance of its mining operations and is not a measurement calculated under U.S. GAAP. A
reconciliation of total cash operating costs and cash costs per ounce to production expenses, which
is calculated under U.S. GAAP, is also provided in the section titled Operating Statistics herein
and should be referred to when reading the total cash costs per ounce measurement.
Introduction to the Company
The Company is a large primary silver producer with growing gold production and has assets
located in the United States, Mexico, Bolivia, Argentina and Australia. The Palmarejo mine, San
Bartolomé mine, Rochester mine and Martha mine, each of which is operated by the Company, and the
Endeavor mine, which is operated by a non-affiliated party, constituted the Companys principal
sources of mining revenues during the first half of 2010. The Kensington mine, the Companys
newest operating mine, began production in June 2010. Coeur is an Idaho corporation incorporated
in 1928.
The Companys business strategy is to discover, acquire, develop and operate low-cost silver
and gold operations that will produce long-term cashflow, provide opportunities for growth through
continued
40
exploration, and generate superior and sustainable returns for shareholders. The Companys
management focuses on maximizing cash flow from its existing operations, the main elements of which
are silver and gold prices, cash costs of production and capital expenditures. The Company also
focuses on reducing its non-operating costs in order to maximize cashflow.
The results of the Companys operations are significantly affected by fluctuation in prices of
silver and gold, which may fluctuate widely and are affected by numerous factors beyond our
control, including interest rates, expectations regarding inflation, currency values, governmental
decisions regarding the disposal of precious metals stockpiles, global and regional political and
economic conditions and other factors. In addition, we face challenges including raising capital,
increasing production and managing social, political and environmental issues. Operating costs at
our mines are subject to variation due to a number of factors such as changing commodity prices,
ore grades, metallurgy, revisions to mine plans and changes in accounting principles. At foreign
locations, operating costs are also influenced by currency fluctuations that may affect our U.S.
dollar costs.
Overview of Performance
Production
The Companys total gold and silver production in the second quarter of 2010 increased
compared to the first quarter of 2010 and the second quarter of 2009. In the second quarter of
2010, the Companys silver production increased 277,983 ounces, or 7.2%, to 4.2 million ounces, as
compared to 3.9 million ounces in the comparable period in 2009. The Companys gold production in
the second quarter of 2010 increased 9,329, or 67.6%, to 23,124 ounces, as compared to 13,795
ounces in the comparable period in 2009. The increase was driven by the Palmarejo mine which
operated at full capacity during the second quarter of 2010.
Metal Prices
Sales of metal increased $33.1 million, or 48.9%, to $101.0 million in the second quarter of
2010, compared to $67.9 million in the second quarter of 2009, primarily due to the significant
rise in gold production from the Palmarejo mine and from substantially higher average realized
silver and gold prices. Similarly, sales of metal increased $78.1 million for the first six months
of 2010 to $189.3 million, as compared to $111.2 million in the comparable period of 2009. The
Companys average realized silver and gold prices during the second quarter were $18.56 per ounce
and $1,176 per ounce, respectively, representing increases of 35.4% and 25.6% over last years
second quarter. Silver production contributed 72.6% of the Companys total metal sales during the
second quarter, compared to 83.8% during the second quarter of 2009.
Earnings
The Company reported operating income of $1.9 million and $1.0 million for the three months
and six months, respectively, ended June 30, 2010. However, the Company reported a net loss of
$50.7 million, or $(0.57) per share, for the three months ended June 30, 2010 and a net loss of
$58.8 million, or $(0.69) per share, for the six months ended June 30, 2010. The net losses
reflect $42.5 million and $46.8 million, respectively, of fair value adjustments, which were driven
primarily by higher gold prices related to the Franco-Nevada royalty obligation and warrant, the
Mitsubishi gold lease facility, put and call options and forward foreign exchange contracts.
In comparison, the Company had operating losses of $8.8 million and $8.5 million during the
three months and six months, respectively, ended June 30, 2009. However, the Company reported net
income of $11.6 million, or $0.17 per share, for the three months ended June 30, 2009 and $17.7
million, or $0.27 per share, for the six months ended June 30, 2009. The net income reflects $22.7
million and $38.4 million, respectively, of gains on debt extinguishments. The operating losses
reported in the
41
comparable periods of 2009 reflected lower realized silver and gold prices and higher operating
costs at the Palmarejo mine as the mine was transitioning into production.
Other Highlights
In addition to the matters discussed above regarding the key elements of the Companys
business strategy, the most important matters management considers in evaluating the Companys
financial condition and results of operations include:
|
|
The average price of silver (Handy & Harman) and gold (London Final)
for the six months ended June 30, 2010 was $17.66 and $1,152.22 per
ounce, respectively. The market price of silver and gold on August 6,
2010 was $18.51 per ounce and $1,207.75 per ounce, respectively. |
|
|
|
The Company owns 100% of Coeur Mexicana S.A. de C.V., a Mexican
company that operates the underground and surface Palmarejo silver and
gold mine in Mexico. The Palmarejo mine poured its first silver/gold
doré on March 30, 2009 and began shipping doré on April 16, 2009.
During the six months ended June 30, 2010 Palmarejo produced 2.4
million ounces of silver and 42,527 ounces of gold. |
|
|
|
The Company owns 100% of Empresa Minera Manquiri S.A., a Bolivian
company that controls the mining rights to the San Bartolomé mine, a
surface silver mine in Bolivia where commercial production commenced
in June 2008. San Bartolomé produced 1.9 million ounces of silver
during the second quarter of 2010, a 79.2% increase compared to the
first quarter. San Bartolomé began mining higher grade material
located in the Huacajchi deposit above the 4,400 meter level under its
agreement with the Cooperative Reserva Fiscal. The Huacajchi was
confirmed to be excluded from the October 2009 resolution restricting
mining above the 4,400 meter level of Cerro Rico Mountain. See
discussion under Operating Highlights and Statistics, South American
Operations, San Bartolomé for further details. |
|
|
|
The Company owns 100% of Coeur Alaska, Inc. (Coeur Alaska), which
owns the Kensington property, north of Juneau, Alaska, which began
processing ore on June 24, 2010 and commercial production
commenced effective July 3, 2010. |
|
|
|
The Company owns 100% of Coeur Rochester, Inc., which operated the
Rochester mine, a silver and gold surface mine located in northwestern
Nevada, since 1986. The active mining of ore at the Rochester mine
ceased in 2007; however, silver and gold production is expected to
continue through 2014 as a result of continuing heap leaching
operations. During 2009, the Company completed a technical and
economic evaluation of the continuation of mining operations at its
Rochester mine. This study envisions an average of 2.5 million ounces
of incremental annual silver production and 30,000 ounces of annual
gold production through 2017. The Company expects to complete the
permitting necessary for construction of facilities this year to
restart active mining in 2011. Rochester produced 1.1 million ounces
of silver and 5,306 ounces of gold in the first half of 2010. |
|
|
|
The Company owns 100% of Coeur Argentina S.R.L., an Argentine company
that owns and operates the underground high-grade silver and gold
Martha mine in Santa Cruz, Argentina. During the first half of 2010,
Martha produced 915,111 ounces of silver. Due to depletion of the ore
reserve at the Martha mine, the Company expects operating activities
will cease in late 2010 unless additional mineralization is discovered
during the year. In addition, the Company is pursuing strategic
alternatives at Martha. |
Coeur also has interests in other properties that are subject to silver or gold exploration
activities upon which no minable ore reserves have yet been delineated.
42
Operating Highlights and Statistics
South American Operations
San Bartolomé Mine:
Silver production for the second quarter of 2010 was 1.9 million ounces of silver or 79.2%
higher than the first quarter of 2010 and was comparable to production during the second quarter of
2009. Total cash operating costs per ounce during the second quarter of 2010 were $7.78 and total
cash costs per ounce, including royalties and taxes, were $8.32, compared to $9.98 and $10.84
respectively, in the first quarter of 2010 and $7.37 and $10.64, respectively, during the second
quarter of 2009. The significant increase in production and decline in costs compared to the first
quarter of 2010 was due to process handling improvements and the resumed mining of higher grade
material located in the Huacajchi deposit which was confirmed to be excluded from the October 2009
resolution restricting mining above the 4,400 meter level of the Cerro Rico Mountain.
Silver production for the first six months of 2010 was 2.9 million ounces of silver compared
to 4.0 million ounces in the six months ended June 30, 2009. Cash operating costs per ounce in the
first half of 2010 were $8.57 and total cash costs per ounce were $9.22, compared to $7.04 and
$9.35, respectively, in the six months ended June 30, 2009. Lower production and higher costs per
ounce in the first half of 2010 compared to the first half of 2009 were due to the temporary
suspension of mining above the 4,400 level of the Cerro Rico Mountain which was mandated in October
2009 as discussed below.
On October 14, 2009, the Bolivian state-owned mining organization, (COMIBOL), announced by
resolution its temporary suspension of mining activities above the elevation of 4,400 meters above
sea level while stability studies of Cerro Rico Mountain are undertaken. Cerro Rico Mountain is a
historic mining area that has been the subject of centuries of unregulated underground mining by
numerous groups and individuals. The Company holds rights to mine above this elevation under valid
contracts backed by Supreme Decree with COMIBOL as well as contracts with local mining cooperatives
that hold their rights through COMIBOL. The Company has told COMIBOL that it will temporarily
adjust its mine plan to confine its activities to the ore deposits below 4,400 meters above sea
level. San Bartolomé has begun mining operations in high grade material located in the Huacajchi
deposit above the 4,400 meter level under its agreement with the Cooperative Reserva Fiscal. The
Huacajchi deposit was confirmed to be excluded from the October 2009 resolution restricting mining
above the 4,400 meter level of Cerro Rico Mountain. Access to the Huacajchi deposit and its higher
grade material is having beneficial impact on production and cost at the mine. Other mining areas
above the 4,400 meter level continue to be temporarily suspended while stability studies of Cerro
Rico Mountain are under taken by COMIBOL, the state owned mining organization. The Company does
not use explosives in its surface-only mining activities and is sensitive to the preservation of
the mountain under its contracts with the state-owned mining entity and the local cooperatives. It
is uncertain at this time how long the temporary suspension will remain in place.
Martha Mine:
Silver production decreased 22.3% to 549,885 ounces in the second quarter of 2010 compared to
707,898 ounces in the second quarter of 2009. Total cash operating costs per ounce in the second
quarter of 2010 were $8.97 and total cash costs per ounce, including royalties and taxes, were
$9.57, as compared to $7.89 and $8.33, respectively, during the second quarter of 2009. The
decrease in silver production were primarily due to a 54.2% decrease in tons milled offset by a
77.5% increase in the average silver grade.
Silver production was 915,111 ounces in the six months ended June 30, 2010 compared to 1.5
million ounces in the six months ended June 30, 2009. Total cash operating costs per ounce in the
first half of 2010 was $11.57 and total cash costs, including royalties and taxes, were $12.12,
compared to $6.74 and $7.20, respectively, during the first half of 2009. The decrease in silver
production and
43
increase in total cash costs per ounce was primarily due to the 45.4% decrease in tons milled. The
Company expects active mining operations will cease in late 2010 unless additional mineralization
is discovered during the year. In addition, the Company is pursuing strategic alternatives at
Martha.
North American Operations
Palmarejo Mine:
The
Palmarejo Mine commenced commercial production on April 20,
2009. Palmarejo contributed 44% of the companys metal sales
during the second quarter of 2010. The Company completed a
substantial amount of test work during the first half of the year and is continuing to pursue
additional opportunities to improve silver recovery rates at Palmarejo. Many important milestones
were achieved during the second quarter, which are expected to result in higher production and
lower costs during the remainder of 2010. These milestones include:
|
|
Commissioning of Merrill Crowe refining plant during June to supplement existing
electrowinning plant |
|
|
|
June commencement of mining of higher-grade ore from underground production stopes versus
ore from development activities |
|
|
|
Improved ore sorting and blending procedures from the various distinct ore types at Palmarejo |
Silver recoveries remained flat during the second quarter of 2010 compared to the first
quarter of 2010. Production during the second quarter of 2010 was 1.1 million ounces of silver
and 19,950 ounces of gold an increase of 82.2% and 105.0%, respectively, compared to the second
quarter of 2009. Cash operating costs and total cash costs during the second quarter decreased by
44.5% to $10.78 per ounce compared to the second quarter of 2009. The increase in production
levels are primarily due to a 60.4% increase in tons milled, and increases of 35.3% in silver
recoveries and 13.4% in gold recoveries as compared to last years second quarter, which was the
mines initial, startup quarter. The Company is in early stages of implementing conclusions from
recent test work and expects to see continued improvement through the remainder of the year.
During the month of July, Palmarejo produced 488,600 ounces of silver
and 9,300 ounces of gold,
representing monthly increases of 60.9% and 50.9%, respectively. These improvements are a result of recently commenced mining
of higher-grade underground ore as well as improved ore blending procedures.
Silver production at the Palmarejo Mine in the six months ended June 30, 2010, was 2.4 million
ounces and gold production was 42,527, compared to 0.6 million ounces of silver and 9,730 ounces of
gold in the six months ended June 30, 2009. Cash operating cost and total cash costs per ounce
were $7.83 compared to $19.44 in the six months ended June 30, 2009. The increase in production
and decrease in cash costs per ounce were primarily attributed to a 221.0% increase in tons milled,
a 35.4% increase in silver recoveries and a 16.1% increase in gold recoveries as compared to the
same period last year which was a partial year of operating activities.
Rochester Mine:
Production was 533,093 ounces of silver and 2,616 ounces of gold during the second quarter of
2010 compared to 543,543 ounces of silver and 3,231 ounces of gold in the second quarter of 2009.
Production was lower due to continued leach down of the ore on leach pad along with the lack of
incremental ore production. Total cash operating costs per ounce in the second quarter of 2010
were $2.44 and total cash costs per ounce, including production taxes, were $2.93 in the second
quarter of 2010 as compared to total cash operating costs per ounce of $2.50 and total cash costs
per ounce of $2.96 in the
44
second quarter of 2009. The decrease in total cash cost per ounce was
primarily due to an increase in by-product credits related to increases in gold prices as compared
to the second quarter of 2009.
Production at the Rochester mine in the six months ended June 30, 2010, was 1.1 million ounces
of silver and 5,306 ounces of gold, compared to 1.0 million ounces of silver and 6,049 ounces of
gold in the six months ended June 30, 2009. Cash operating costs per ounce were $2.06 and total
cash cost which include production taxes were $2.64, compared to $2.64 and $3.14, respectively, in
the six months ending June 30, 2009. The decrease in cash costs per ounce was primarily due to an
increase in by-product credits related to increases in gold prices as compared to the six months
ended June 30, 2009.
The Company completed a study regarding continuation of active mining operations and is
working towards a resumption of active mining at the Rochester mine in 2011.
Australia Operations
Endeavor Mine:
Silver production at the Endeavor mine in the second quarter of 2010 was 139,447 ounces
compared to 122,705 ounces in the second quarter of 2009. The increase in silver production was
primarily due to a 9.6% increase in tons milled and a 4.7% increase in ore grades compared to the
second quarter of 2009. Total cash costs per ounce of silver produced were $8.98 in the second
quarter of 2010 compared to $6.19 in the second quarter of 2009. The increase in total cash cost
per ounce was primarily due to the price participation component terms of the transaction. Under
the terms of the price participation component, CDE Australia Pty. Ltd, a subsidiary of the
Company, pays an additional operating cost contribution of 50% of the amount by which the silver
price exceeds $7.00 per ounce.
Silver production in the six months ended June 30, 2010 was 343,700 ounces compared to 264,519
ounces in the six months ended June 30, 2009. The increase in silver production was due to a 72.8%
increase in ore grades partially offset by an 8.3% decrease in tons milled compared to the first
half of 2009. Total cash costs per ounce were $8.04 in the first half of 2010 compared to $5.52 in
the first half of 2009. The increase in total cash costs per ounce was primarily due to the price
participation component terms described above.
As of June 30, 2010, CDE Australia Pty Ltd had recovered approximately 57% of the transaction
consideration consisting of 2.8 million payable ounces, or 14% of the 20 million maximum payable
silver ounces to which CDE Australia Pty Ltd is entitled under the terms of the silver sale and
purchase agreement. No assurances can be made that the mine will achieve its 20.0 million payable
silver ounce maximum.
Operating Statistics from Continuing Operations
The following table presents information by mine and consolidated sales information for the
three and six month periods ended June 30, 2010 and 2009:
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Palmarejo (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
457,268 |
|
|
|
285,095 |
|
|
|
915,275 |
|
|
|
285,095 |
|
Ore grade/Ag oz |
|
|
3.23 |
|
|
|
3.84 |
|
|
|
3.57 |
|
|
|
3.84 |
|
Ore grade/Au oz |
|
|
0.05 |
|
|
|
0.04 |
|
|
|
0.05 |
|
|
|
0.04 |
|
Recovery/Ag oz |
|
|
72.5 |
% |
|
|
53.6 |
% |
|
|
72.6 |
% |
|
|
53.6 |
% |
Recovery/Au oz |
|
|
87.3 |
% |
|
|
77.0 |
% |
|
|
89.4 |
% |
|
|
77.0 |
% |
Silver production ounces |
|
|
1,070,638 |
|
|
|
587,716 |
|
|
|
2,371,231 |
|
|
|
587,716 |
|
Gold production ounces |
|
|
19,950 |
|
|
|
9,730 |
|
|
|
42,527 |
|
|
|
9,730 |
|
Cash operating costs/oz |
|
$ |
10.78 |
|
|
$ |
19.44 |
|
|
$ |
7.83 |
|
|
$ |
19.44 |
|
Cash cost/oz |
|
$ |
10.78 |
|
|
$ |
19.44 |
|
|
$ |
7.83 |
|
|
$ |
19.44 |
|
Total production cost/oz |
|
$ |
29.73 |
|
|
$ |
40.50 |
|
|
$ |
25.16 |
|
|
$ |
40.50 |
|
San Bartolomé |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
446,909 |
|
|
|
352,938 |
|
|
|
740,014 |
|
|
|
716,717 |
|
Ore grade/Ag oz |
|
|
5.00 |
|
|
|
6.10 |
|
|
|
4.50 |
|
|
|
6.46 |
|
Recovery/Ag oz |
|
|
83.4 |
% |
|
|
89.0 |
% |
|
|
87.2 |
% |
|
|
87.1 |
% |
Silver production ounces |
|
|
1,863,141 |
|
|
|
1,916,359 |
|
|
|
2,903,068 |
|
|
|
4,029,910 |
|
Cash operating costs/oz |
|
$ |
7.78 |
|
|
$ |
7.37 |
|
|
$ |
8.57 |
|
|
$ |
7.04 |
|
Cash cost/oz |
|
$ |
8.32 |
|
|
$ |
10.64 |
|
|
$ |
9.22 |
|
|
$ |
9.35 |
|
Total production cost/oz |
|
$ |
11.56 |
|
|
$ |
13.13 |
|
|
$ |
12.39 |
|
|
$ |
11.82 |
|
Martha Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
12,421 |
|
|
|
27,097 |
|
|
|
29,996 |
|
|
|
54,914 |
|
Ore grade/Ag oz |
|
|
50.24 |
|
|
|
28.31 |
|
|
|
35.21 |
|
|
|
30.02 |
|
Ore grade/Au oz |
|
|
0.06 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
0.04 |
|
Recovery/Ag oz |
|
|
88.1 |
% |
|
|
92.3 |
% |
|
|
86.6 |
% |
|
|
91.9 |
% |
Recovery/Au oz |
|
|
81.7 |
% |
|
|
83.4 |
% |
|
|
89.5 |
% |
|
|
83.9 |
% |
Silver production ounces |
|
|
549,885 |
|
|
|
707,898 |
|
|
|
915,111 |
|
|
|
1,515,905 |
|
Gold production ounces |
|
|
558 |
|
|
|
834 |
|
|
|
1,074 |
|
|
|
1,807 |
|
Cash operating costs/oz |
|
$ |
8.97 |
|
|
$ |
7.89 |
|
|
$ |
11.57 |
|
|
$ |
6.74 |
|
Cash cost/oz |
|
$ |
9.57 |
|
|
$ |
8.33 |
|
|
$ |
12.12 |
|
|
$ |
7.20 |
|
Total production cost/oz |
|
$ |
14.10 |
|
|
$ |
10.03 |
|
|
$ |
17.38 |
|
|
$ |
8.74 |
|
Rochester (B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver production ounces |
|
|
533,093 |
|
|
|
543,543 |
|
|
|
1,055,253 |
|
|
|
1,013,404 |
|
Gold production ounces |
|
|
2,616 |
|
|
|
3,231 |
|
|
|
5,306 |
|
|
|
6,049 |
|
Cash operating costs/oz |
|
$ |
2.44 |
|
|
$ |
2.50 |
|
|
$ |
2.06 |
|
|
$ |
2.64 |
|
Cash cost/oz |
|
$ |
2.93 |
|
|
$ |
2.96 |
|
|
$ |
2.64 |
|
|
$ |
3.14 |
|
Total production cost/oz |
|
$ |
3.97 |
|
|
$ |
3.90 |
|
|
$ |
3.67 |
|
|
$ |
4.14 |
|
Endeavor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
143,371 |
|
|
|
130,872 |
|
|
|
273,244 |
|
|
|
297,843 |
|
Ore grade/Ag oz |
|
|
2.01 |
|
|
|
1.92 |
|
|
|
2.61 |
|
|
|
1.51 |
|
Recovery/Ag oz |
|
|
48.4 |
% |
|
|
48.7 |
% |
|
|
48.2 |
% |
|
|
58.8 |
% |
Silver production ounces |
|
|
139,447 |
|
|
|
122,705 |
|
|
|
343,700 |
|
|
|
264,519 |
|
Cash operating costs/oz |
|
$ |
8.98 |
|
|
$ |
6.19 |
|
|
$ |
8.04 |
|
|
$ |
5.52 |
|
Cash cost/oz |
|
$ |
8.98 |
|
|
$ |
6.19 |
|
|
$ |
8.04 |
|
|
$ |
5.52 |
|
Total production cost/oz |
|
$ |
12.21 |
|
|
$ |
8.76 |
|
|
$ |
11.27 |
|
|
$ |
8.09 |
|
CONSOLIDATED PRODUCTION TOTALS (C) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces |
|
|
4,156,204 |
|
|
|
3,878,221 |
|
|
|
7,588,363 |
|
|
|
7,411,454 |
|
Gold ounces |
|
|
23,124 |
|
|
|
13,795 |
|
|
|
48,907 |
|
|
|
17,586 |
|
Cash operating costs/oz |
|
$ |
8.06 |
|
|
$ |
8.57 |
|
|
$ |
7.77 |
|
|
$ |
7.31 |
|
Cash cost per oz/silver |
|
$ |
8.44 |
|
|
$ |
10.33 |
|
|
$ |
8.17 |
|
|
$ |
8.72 |
|
Total production cost/oz |
|
$ |
15.62 |
|
|
$ |
15.28 |
|
|
$ |
15.72 |
|
|
$ |
12.28 |
|
CONSOLIDATED SALES TOTALS (D) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces sold |
|
|
4,051,838 |
|
|
|
4,318,092 |
|
|
|
7,685,594 |
|
|
|
7,489,069 |
|
Gold ounces sold |
|
|
23,645 |
|
|
|
11,816 |
|
|
|
49,379 |
|
|
|
15,941 |
|
Realized price per silver ounce |
|
$ |
18.56 |
|
|
$ |
13.71 |
|
|
$ |
17.74 |
|
|
$ |
13.22 |
|
Realized price per gold ounce |
|
$ |
1,176.09 |
|
|
$ |
936.53 |
|
|
$ |
1,138.51 |
|
|
$ |
933.72 |
|
|
|
|
(A) |
|
Palmarejo achieved commercial production on April 20, 2009. |
46
|
|
|
(B) |
|
The leach cycle at Rochester requires 5 to 10 years to recover gold and silver
contained in the ore. The Company estimates the ultimate recovery to be approximately 61.5%
for silver and 93% for gold. However, ultimate recoveries will not be known until leaching
operations cease, which is currently estimated for 2014. Current recovery may vary
significantly from ultimate recovery. See Critical Accounting Policies and Estimates Ore on
Leach Pad. |
|
(C) |
|
Current production ounces and recoveries reflect final metal settlements of
previously reported production ounces. |
|
(D) |
|
Units sold at realized metal prices will not match reported metal sales due
primarily to the effects on revenues of mark-to-market adjustments on embedded derivatives in
the Companys provisionally priced sales contracts. |
|
|
|
Operating Costs per Ounce and Cash Costs per Ounce are calculated by dividing the operating
cash costs and cash costs computed for each of the Companys mining properties for a specified
period by the amount of gold ounces or silver ounces produced by that property during that same
period. Management uses cash operating costs per ounce and cash costs per ounce as key indicators
of the profitability of each of its mining properties. Gold and silver are sold and priced in the
world financial markets on a U.S. dollar per ounce basis. |
|
|
|
Cash Operating Costs and Cash Costs are costs directly related to the physical activities of
producing silver and gold, and include mining, processing and other plant costs, third-party
refining and smelting costs, marketing expenses, on-site general and administrative costs,
royalties, in-mine drilling expenditures related to production and other direct costs. Sales of
by-product metals are deducted from the above in computing cash costs. Cash costs exclude
depreciation, depletion and amortization, accretion, corporate general and administrative expenses,
exploration, interest, and pre-feasibility costs. Cash operating costs include all cash costs
except production taxes and royalties, if applicable. Cash costs are calculated and presented
using the Gold Institute Production Cost Standard applied consistently for all periods presented. |
|
|
|
Total operating costs and cash costs per ounce are non-U.S. GAAP measures and investors are
cautioned not to place undue reliance on them and are urged to read all U.S. GAAP accounting
disclosures presented in the consolidated financial statements and accompanying footnotes. In
addition, see the reconciliation of cash costs to production costs under Reconciliation of
Non-U.S. GAAP Cash Costs to U.S. GAAP Production Costs set forth below. |
The following tables present a reconciliation between non-U.S. GAAP cash operating costs
per ounce and cash costs per ounce to production costs applicable to sales including depreciation,
depletion and amortization, which are calculated in accordance with U.S. GAAP:
Reconciliation of Non-U.S. GAAP Cash Costs to U.S. GAAP Production Costs
Three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Total |
|
Production of silver (ounces) |
|
|
1,070,638 |
|
|
|
1,863,142 |
|
|
|
549,885 |
|
|
|
533,094 |
|
|
|
139,447 |
|
|
|
4,156,206 |
|
Cash operating cost per ounce |
|
$ |
10.78 |
|
|
$ |
7.78 |
|
|
$ |
8.97 |
|
|
$ |
2.44 |
|
|
$ |
8.98 |
|
|
$ |
8.06 |
|
Cash costs per ounce |
|
$ |
10.78 |
|
|
$ |
8.32 |
|
|
$ |
9.57 |
|
|
$ |
2.93 |
|
|
$ |
8.98 |
|
|
$ |
8.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
11,542 |
|
|
$ |
14,490 |
|
|
$ |
4,937 |
|
|
$ |
1,298 |
|
|
$ |
1,252 |
|
|
$ |
33,519 |
|
Royalties |
|
|
|
|
|
|
999 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
1,328 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
11,542 |
|
|
|
15,489 |
|
|
|
5,266 |
|
|
|
1,558 |
|
|
|
1,252 |
|
|
|
35,107 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(1,133 |
) |
|
|
|
|
|
|
(346 |
) |
|
|
(1,479 |
) |
By-product credit |
|
|
23,846 |
|
|
|
|
|
|
|
666 |
|
|
|
3,131 |
|
|
|
|
|
|
|
27,643 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
95 |
|
|
|
|
|
|
|
348 |
|
Change in inventory |
|
|
(3,289 |
) |
|
|
(148 |
) |
|
|
(920 |
) |
|
|
811 |
|
|
|
517 |
|
|
|
(3,029 |
) |
Depreciation, depletion and amortization |
|
|
20,289 |
|
|
|
6,032 |
|
|
|
2,236 |
|
|
|
458 |
|
|
|
450 |
|
|
|
29,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
52,388 |
|
|
$ |
21,373 |
|
|
$ |
6,368 |
|
|
$ |
6,053 |
|
|
$ |
1,873 |
|
|
$ |
88,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Total |
|
Production of silver (ounces) |
|
|
2,371,231 |
|
|
|
2,903,068 |
|
|
|
915,111 |
|
|
|
1,055,253 |
|
|
|
343,700 |
|
|
|
7,588,363 |
|
Cash operating cost per ounce |
|
$ |
7.83 |
|
|
$ |
8.57 |
|
|
$ |
11.57 |
|
|
$ |
2.06 |
|
|
$ |
8.04 |
|
|
$ |
7.77 |
|
Cash costs per ounce |
|
$ |
7.83 |
|
|
$ |
9.22 |
|
|
$ |
12.12 |
|
|
$ |
2.64 |
|
|
$ |
8.04 |
|
|
$ |
8.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
18,572 |
|
|
$ |
24,869 |
|
|
$ |
10,585 |
|
|
$ |
2,175 |
|
|
$ |
2,764 |
|
|
$ |
58,965 |
|
Royalties |
|
|
|
|
|
|
1,891 |
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
2,397 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608 |
|
|
|
|
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
18,572 |
|
|
|
26,760 |
|
|
|
11,091 |
|
|
|
2,783 |
|
|
|
2,764 |
|
|
|
61,970 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(1,826 |
) |
|
|
|
|
|
|
(610 |
) |
|
|
(2,436 |
) |
By-product credit |
|
|
48,891 |
|
|
|
|
|
|
|
1,237 |
|
|
|
6,119 |
|
|
|
|
|
|
|
56,247 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
259 |
|
|
|
163 |
|
|
|
|
|
|
|
422 |
|
Change in inventory |
|
|
(6,697 |
) |
|
|
(2,016 |
) |
|
|
697 |
|
|
|
2,318 |
|
|
|
(112 |
) |
|
|
(5,810 |
) |
Depreciation, depletion and amortization |
|
|
41,083 |
|
|
|
9,209 |
|
|
|
4,553 |
|
|
|
923 |
|
|
|
1,110 |
|
|
|
56,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
101,849 |
|
|
$ |
33,953 |
|
|
$ |
16,011 |
|
|
$ |
12,306 |
|
|
$ |
3,152 |
|
|
$ |
167,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Total |
|
Production of silver (ounces) |
|
|
587,716 |
|
|
|
1,916,359 |
|
|
|
707,898 |
|
|
|
543,543 |
|
|
|
122,705 |
|
|
|
3,878,221 |
|
Cash operating cost per ounce |
|
$ |
19.44 |
|
|
$ |
7.37 |
|
|
$ |
7.89 |
|
|
$ |
2.50 |
|
|
$ |
6.19 |
|
|
$ |
8.57 |
|
Cash costs per ounce |
|
$ |
19.44 |
|
|
$ |
10.64 |
|
|
$ |
8.33 |
|
|
$ |
2.96 |
|
|
$ |
6.19 |
|
|
$ |
10.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
11,423 |
|
|
$ |
14,119 |
|
|
$ |
5,587 |
|
|
$ |
1,358 |
|
|
$ |
760 |
|
|
$ |
33,247 |
|
Royalties |
|
|
|
|
|
|
6,277 |
|
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
6,584 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
11,423 |
|
|
|
20,396 |
|
|
|
5,894 |
|
|
|
1,607 |
|
|
|
760 |
|
|
|
40,080 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(1,379 |
) |
|
|
|
|
|
|
(262 |
) |
|
|
(1,641 |
) |
By-product credit |
|
|
9,101 |
|
|
|
|
|
|
|
772 |
|
|
|
2,974 |
|
|
|
|
|
|
|
12,847 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
167 |
|
|
|
53 |
|
|
|
|
|
|
|
220 |
|
Change in inventory |
|
|
(6,854 |
) |
|
|
1,850 |
|
|
|
634 |
|
|
|
1,506 |
|
|
|
(25 |
) |
|
|
(2,889 |
) |
Depreciation, depletion and amortization |
|
|
12,380 |
|
|
|
4,774 |
|
|
|
1,034 |
|
|
|
457 |
|
|
|
316 |
|
|
|
18,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
26,050 |
|
|
$ |
27,020 |
|
|
$ |
7,122 |
|
|
$ |
6,597 |
|
|
$ |
789 |
|
|
$ |
67,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Total |
|
Production of silver (ounces) |
|
|
587,716 |
|
|
|
4,029,910 |
|
|
|
1,515,905 |
|
|
|
1,013,404 |
|
|
|
264,519 |
|
|
|
7,411,454 |
|
Cash operating cost per ounce |
|
$ |
19.44 |
|
|
$ |
7.04 |
|
|
$ |
6.74 |
|
|
$ |
2.64 |
|
|
$ |
5.52 |
|
|
$ |
7.31 |
|
Cash costs per ounce |
|
$ |
19.44 |
|
|
$ |
9.35 |
|
|
$ |
7.20 |
|
|
$ |
3.14 |
|
|
$ |
5.52 |
|
|
$ |
8.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
11,423 |
|
|
$ |
28,366 |
|
|
$ |
10,223 |
|
|
$ |
2,684 |
|
|
$ |
1,460 |
|
|
$ |
54,156 |
|
Royalties |
|
|
|
|
|
|
9,302 |
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
9,993 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
11,423 |
|
|
|
37,668 |
|
|
|
10,914 |
|
|
|
3,187 |
|
|
|
1,460 |
|
|
|
64,652 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(2,846 |
) |
|
|
|
|
|
|
(534 |
) |
|
|
(3,380 |
) |
By-product credit |
|
|
9,101 |
|
|
|
|
|
|
|
1,655 |
|
|
|
5,531 |
|
|
|
|
|
|
|
16,287 |
|
Other adjustments |
|
|
|
|
|
|
7 |
|
|
|
167 |
|
|
|
88 |
|
|
|
|
|
|
|
262 |
|
Change in inventory |
|
|
(6,853 |
) |
|
|
(241 |
) |
|
|
669 |
|
|
|
2,040 |
|
|
|
(97 |
) |
|
|
(4,482 |
) |
Depreciation, depletion and amortization |
|
|
12,380 |
|
|
|
9,947 |
|
|
|
2,174 |
|
|
|
927 |
|
|
|
681 |
|
|
|
26,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
26,051 |
|
|
$ |
47,381 |
|
|
$ |
12,733 |
|
|
$ |
11,773 |
|
|
$ |
1,510 |
|
|
$ |
99,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration Activity
In the three and six months ending June 30, 2010, the Company spent approximately $4.0 million
and $7.8 million respectively, on its global exploration program. The majority of this was devoted
to exploration at the Companys Palmarejo, Martha and Kensington properties.
Palmarejo (Mexico)
The Company spent a total of $2.1 million on exploration at the Palmarejo District during the
three months ending June 30, 2010 to discover new silver and gold mineralization and define new ore
reserves.
This exploration work concentrated primarily on drilling around the Palmarejo mine from both
surface and underground platforms. A total of 12,359 meters (40,458 feet) of core drill was
completed in the second quarter of 2010 in this program in an effort to discover new mineralization
at the mine and expand ore reserves. In addition drilling recommenced in the north end of the long
Guadalupe mineral system in the Palmarejo District where a total of 7,420 meters (24,344 feet) of
core drill was completed in the second quarter.
Kensington (USA)
Exploration at Kensington consisted of mapping, sampling, and commencing core drilling in an
effort to discover new mineralization and expand ore reserves. The main focus for this drilling
was on the Horrible structure, a prominent, gold-bearing quartz vein and vein swarm situated about
650 meters west of the current Kensington mining area. A total of 9,941 feet (3,030 meters) of
core drilling was completed at Horrible and a total of $0.2 million was spent on this program in
the second quarter. In addition, drilling activities continued in the second quarter on
close-spaced definition of areas slated for mining this year and 2011.
49
Cerro Bayo Mine (Chile)
No exploration was conducted at Cerro Bayo during the second quarter of 2010.
Martha Mine (Argentina)
Exploration work at the Martha mine in the second quarter of 2010 consisted of target
generation and drill site selection for future testing.
However, the Company conducts exploration in other parts of the Santa Cruz Province in
Argentina. In the second quarter of 2010, the Company focused this effort on the Joaquin property,
on which the Company has an option to acquire up to a 71% managing interest in a joint venture with
Mirasol Resources Ltd. At Joaquin a fourth phase of drilling and further reconnaissance to
identify new targets commenced in the second quarter of 2010. A total of 4,426 meters (14,521
feet) of core drilling were completed at the La Negra and La Morocha targets. The Company spent a
total of $1.1 million in Argentina in the second quarter of 2010 on this and other work in the
province. The Company holds a large area of surface and mineral concessions in Santa Cruz and is
actively exploring several parcels.
Rochester (USA)
Exploration work consisted of mapping, sampling and detailed modeling of ore zones slated for
future mining at Rochester. Late in the second quarter, drilling commenced on new targets between
the Rochester and Packard mines. A total of 15,000 feet (4,472 meters) is planned in a first phase
drilling program expected to be completed in the third quarter.
Development Projects:
Kensington (Alaska)
The Company invested $33.2 million at Kensington during the second quarter of 2010 and expects
to invest an additional $41.0 million for the remainder of the year. Production during the mines
initial, partial year is expected to be approximately 50,000 ounces of gold. Based on an initial
12.5 year mine life from current proven and probable mineral reserves, the Company expects gold
production to average approximately 125,000 ounces annually and total operating costs to average
$490 per ounce.
Critical Accounting Policies and Estimates
Management considers the following policies to be most critical in understanding the judgments
that are involved in preparing the Companys consolidated financial statements and the
uncertainties that could impact its results of operations, financial condition and cash flows. Our
consolidated financial statements are affected by the accounting policies used and the estimates
and assumptions made by management during their preparation. We have identified the policies below
as critical to our business operations and the understanding of our results of operations. The
information provided herein is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these statements requires that we make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. We base these estimates on historical
experience and on assumptions that we consider reasonable under the circumstances; however,
reported results could differ from those based on the current estimates under different assumptions
or conditions. The effects and associated risks of these policies on our business operations are
discussed throughout this discussion and analysis. The areas requiring the use of managements
estimates and assumptions relate to ounces recoverable 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 long lived assets; estimates
of gold and silver ounces recoverable from ore on leach pad; reclamation and remediation costs;
valuation allowance
50
for deferred tax assets; and post-employment and other employee benefit liabilities. For a
detailed discussion on the application of these and other accounting policies, see Note 2 to the
Notes to the Companys consolidated financial statements.
Revenue Recognition. Revenue includes sales value received for our principal product, silver,
and associated by-product revenues from the sale of by-product metals consisting primarily of gold.
Revenue is recognized when title to metal passes to the buyer and when collectability is
reasonably assured. Title passes to the customer based on terms of the sales contract. Product
pricing is determined at the point revenue is recognized by reference to prices for the product in
active and freely traded commodity markets, such as the London Bullion Market for both gold and
silver, in an identical form to the product sold.
Under our concentrate sales contracts with third-party smelters, final gold and silver prices
are set on a specified future quotational period, typically one to three months, after the shipment
date based on market metal prices. Revenues are recorded under these contracts at the time title
passes to the buyer based on the forward price for the expected settlement period. The contracts,
in general, provide for provisional payment based upon provisional assays and quoted metal prices.
Final settlement is based on the average applicable price for a specified future period and
generally occurs from three to six months after shipment. Final sales are settled using smelter
weights, settlement assays (average of assays exchanged or umpire assay results) and are priced as
specified in the smelter contract. The Companys 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 does not qualify for hedge accounting. The embedded derivative is
recorded on the balance sheet as a derivative asset in Prepaid expenses and other assets or as a
derivative liability in Accrued liabilities and other and is adjusted to fair value through
revenue each period until the date of final gold and silver settlement. The product sold, after
smelting and refining, is in an identical form to that sold on the London Bullion Market. The form
of the ultimate product is metal in flotation concentrate. Revenue includes sales of by-product
gold from the Companys mining operations.
The effects of forward sales contracts are reflected in revenue at the date the related
precious metals are delivered. Third-party smelting and refining costs are recorded as a reduction
of revenue.
At June 30, 2010, the Company had outstanding provisionally priced sales of $14.4 million,
consisting of 0.7 million ounces of silver and 693 ounces of gold, which had a fair value of $14.4
million including the embedded derivative. For each one cent per ounce change in realized silver
price, revenue would vary (plus or minus) approximately $7,000; and for each one dollar per ounce
change in realized gold price, revenue would vary (plus or minus) approximately $700. At December
31, 2009, the Company had outstanding provisionally priced sales of $19.1 million consisting of 1.0
million ounces of silver and 1,227 ounces of gold, which had a fair value of approximately $19.1
million including the embedded derivative. For each one cent per ounce change in realized silver
price, revenue would vary (plus or minus) approximately $10,000 and for each one dollar per ounce
change in realized gold price, revenue would vary (plus or minus) approximately $1,200.
Estimates. Preparing the Companys consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during the reporting period.
There can be no assurance that actual results will not differ from those estimates. The most
critical accounting principles upon which the Companys financial status depends are those
requiring estimates of ounces recoverable from proven and probable reserves or assumptions of
future commodity prices. There are a number of uncertainties inherent in estimating quantities of
reserves, including many factors beyond our control. Ore reserves estimates are based upon
engineering evaluations of samplings from drill holes and other openings. These estimates involve
assumptions regarding future silver and gold prices, the geology of our mines, the mining methods
we use and the related costs we incur to develop and mine our reserves. Changes in
51
these assumptions could result in material adjustments to our reserve estimates. We use ore
reserves estimates in determining the units-of-production depreciation and amortization expense, as
well as in evaluating mine asset impairments.
We review and evaluate our long-lived assets for impairment when events or changes in
circumstances indicate that the related carrying amounts may not be recoverable. An impairment is
considered to exist if total estimated future cash flows or probability-weighted cash flows on an
undiscounted basis are less than the carrying amount of the assets, including property, plant and
equipment, mineral property, development property, and any deferred costs. The accounting
estimates related to impairment are critical accounting estimates because the future cash flows
used to determine whether an impairment exists are dependent on reserve estimates and other
assumptions, including silver and gold prices, production levels, and capital and reclamation
costs, all of which are based on detailed engineering life-of-mine plans.
We depreciate our property, plant and equipment, mining properties and mine development using
the units-of-production method over the estimated life of the ore body based on our proven and
probable recoverable reserves or on a straight-line basis over the useful life, whichever is
shorter. The accounting estimates related to depreciation and amortization are critical accounting
estimates because 1) the determination of reserves involves uncertainties with respect to the
ultimate geology of our reserves and the assumptions used in assessing the economic feasibility of
mining those reserves and 2) changes in estimated proven and probable reserves and useful asset
lives can have a material impact on net income.
Ore on Leach Pad. The heap leach process is a process of extracting silver and gold by
placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion
of the contained silver and gold, which are then recovered in metallurgical processes. In August
2007, the Company terminated mining and crushing operations at the Rochester mine as ore reserves
were fully mined. Residual heap leach activities are expected to continue through 2014.
The Company used several integrated steps to scientifically measure the metal content of ore
placed on the leach pads. As the ore body was drilled in preparation for the blasting process,
samples were taken of the drill residue which was assayed to determine estimated quantities of
contained metal. The Company estimated the quantity of ore by utilizing global positioning
satellite survey techniques. The Company then processed the ore through crushing facilities where
the output was again weighed and sampled for assaying. A metallurgical reconciliation with the
data collected from the mining operation was completed with appropriate adjustments made to
previous estimates. The crushed ore was then transported to the leach pad for application of the
leaching solution. As the leach solution is collected from the leach pads, it is continuously
sampled for assaying. The quantity of leach solution is measured by flow meters throughout the
leaching and precipitation process. After precipitation, the product is converted to doré, which
is the final product produced by the mine. The inventory is stated at the lower of cost or market,
with cost determined using a weighted average cost method.
The Company reported a value of ore on leach pad of $21.1 million as of June 30, 2010. Of this
amount, $7.5 million is reported as a current asset and $13.6 million is reported as a non-current
asset. The distinction between current and non-current is based upon the expected length of time
necessary for the leaching process to remove the metals from the broken ore. The historical cost
of metals contained within the broken ore that are expected to be extracted within twelve months is
classified as current and the historical cost of metals contained within the broken ore that are
expected to be extracted beyond twelve months is classified as non-current. Inventories of ore on
leach pad are valued based on actual production costs incurred to produce and place ore on the
leach pad, adjusted for effects on monthly production of costs of abnormal production levels, less
costs allocated to minerals recovered through the leach process.
Estimates of both the ultimate recovery expected over time and the quantity of metal that may
be extracted relative to the time the leach process occurs are inherently inaccurate since they
rely upon laboratory testwork. Testwork evaluates 60 day leach columns from which the Company
projects metal
52
recoveries up to five years in the future. The quantities of metal contained in the ore are
estimated based upon actual weights and assay analysis. The rate at which the leach process
extracts gold and silver from the crushed ore is estimated based upon laboratory column tests and
experience occurring over more than twenty years of leach pad operations at the Rochester Mine.
The assumptions used by the Company to measure metal content during each stage of the inventory
conversion process includes estimated recovery rates based on laboratory testing and assaying. The
Company periodically reviews its estimates compared to actual experience and revises its estimates
when appropriate. During the first quarter of 2010, the Company increased its estimate of silver
ounces contained in the heap inventory by 1.2 million ounces. The increase in estimated silver
ounces contained in the heap inventory is due to changes in estimated recoveries anticipated for
the remainder of the residual leach phase. There were no significant changes in estimates related
to gold contained in the heap. Consequently, the Company expects to continue its residual heap
leach activities through 2014. The ultimate recovery will not be known until leaching operations
cease. If our estimate of the ultimate recovery requires adjustment, the impact upon our valuation
and upon our income statement would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Positive/Negative |
|
Positive/Negative |
|
|
Changes in Silver Recovery |
|
Change in Gold Recovery |
|
|
1% |
|
2% |
|
3% |
|
1% |
|
2% |
|
3% |
Quantity of
recoverable
ounces |
|
1.7 million |
|
3.5 million |
|
5.2 million |
|
|
13,240 |
|
|
|
26,480 |
|
|
|
39,720 |
|
Positive impact on
future of cost of
production per
silver equivalent
ounce for increases
in recovery
rates |
|
$ |
3.16 |
|
|
$ |
2.51 |
|
|
$ |
2.08 |
|
|
$ |
3.63 |
|
|
$ |
3.15 |
|
|
$ |
2.79 |
|
Negative impact on
future of cost of
production per
silver equivalent
ounce for decreases
in recovery
rates |
|
$ |
6.60 |
|
|
$ |
12.22 |
|
|
$ |
12.22 |
|
|
$ |
5.21 |
|
|
$ |
6.58 |
|
|
$ |
6.58 |
|
Inventories of ore on leach pads are valued based upon actual production costs incurred
to produce and place ore on the leach pad during the current period, adjusted for the effects on
monthly production of costs of abnormal production levels, less costs allocated to minerals
recovered through the leach process. The costs consist of those production activities occurring at
the mine site and include the costs, including depreciation, associated with mining, crushing and
precipitation circuits. In addition, a third party refines the metal extracted from the leach pad
to a saleable form. These additional costs are considered in the valuation of inventory.
Reclamation and remediation costs. The Company recognizes obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs. These legal
obligations are associated with the retirement of long-lived assets that result from the
acquisition, construction, development and normal use of the assets. The fair value of a liability
for an asset retirement obligation will be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability is added to the
carrying amount of the associated asset and this additional carrying amount is depreciated over the
life of the asset. An accretion cost, representing the increase over time in the present value of
the liability, is recorded each period in depreciation, depletion and amortization expense. As
reclamation work is performed or liabilities are otherwise settled, the recorded amount of the
liability is reduced.
Future remediation costs for inactive mines are accrued based on managements best estimate at
the end of each period of the undiscounted costs expected to be incurred at the site. Such cost
estimates
53
include, where applicable, ongoing care and maintenance and monitoring costs. A change in an
estimate is reflected in earnings in the period the estimate is revised.
Income taxes. The Company computes income taxes using an asset and liability approach which
results in the recognition of deferred tax liabilities and assets for the expected future tax
consequences or benefits of temporary differences between the financial reporting bases and the tax
bases of assets and liabilities, as well as operating loss and tax credit carryforwards, using
enacted tax rates in effect in the years in which the differences are expected to reverse.
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of its deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. A valuation allowance has been
provided for the portion of the Companys net deferred tax assets which, it is more likely than
not, will not be realized.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax
of multiple state and foreign jurisdictions. The Company has substantially concluded all U.S.
federal income tax matters for years through 1999. Federal income tax returns for 2000 through
2008 are subject to examination. The Companys practice is to recognize interest or penalties
related to income tax matters in income tax expense. There were no significant accrued interest or
penalties at June 30, 2010.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
Sales of metal from continuing operations in the second quarter of 2010 increased by 48.9% or
$33.2 million to $101.0 million. The increase in sales of metal was primarily due to an increase
in the quantity of gold ounces sold due to contributions from the Companys Palmarejo silver and
gold mine, which began commercial production on April 20, 2009. In the second quarter of 2010, the
Company sold 4.1 million ounces of silver and 23,645 ounces of gold compared to 4.3 million ounces
of silver and 11,816 ounces of gold for the same period in 2009. Realized silver and gold prices
were $18.56 and $1,176.09 per ounce, respectively, in the second quarter of 2010, compared to
$13.71 and $936.53 per ounce, respectively, in the comparable quarter of 2009.
Included
in sales of metal are the by-product sales derived from the sale of gold. During the
second quarter of 2010, by-product revenues totaled $27.7 million compared to $11.0 million in the
second quarter of 2009. The increase is due to additional ounces of gold sold in the second
quarter of 2010 primarily as a result of contribution from the Companys Palmarejo mine which
operated for the entire second quarter of 2010. The Company believes that presentation of these
metal sales as by-products from its current operations will continue to be appropriate in the
future.
In the second quarter of 2010, the Company produced a total of 4.2 million ounces of silver
and 23,124 ounces of gold, compared to 3.9 million ounces of silver and 13,795 ounces of gold in
the second quarter of 2009. The increase in silver production is primarily due to the increase of
482,922 ounces at the Palmarejo mine which operated at full capacity during the quarter, offset by
decreased silver production of 53,218 ounces at the San Bartolomé mine primarily due to mining
restrictions above the 4,400 meter level and 158,013 ounces of silver at the Martha Mine, which is
expected to cease operating activities later this year. The increase in gold production in the
second quarter of 2010 compared to the second quarter of 2009 is primarily due to the increase of
10,220 ounces of gold from the Palmarejo mine.
While quarterly sales of metal rose 48.9%, production costs applicable to sales of metal in
the second quarter of 2010 increased only 19.9% to $58.6 million from $48.9 million in the second
quarter of 2009.
54
Depreciation and depletion increased by $10.8 million, from $19.2 million to $30.0 million,
compared to the second quarter of 2009. The increase is due to depreciation and depletion expense
from the Palmarejo mine, which was not in full production during the second quarter of 2009.
Costs and Expenses
Administrative and general expenses increased by $1.5 million, from $5.4 million to $6.9
million, as compared to the second quarter of 2009. The increase is due to corporate
administrative, legal and other costs.
Exploration expenses were $3.2 million in the second quarter of 2010 compared to $3.2 million
in the same period of 2009.
Pre-development expenses were $0.6 million during the second quarter of 2010 due to
permitting activities at the Rochester mine related to potential
resumption of active mining in 2011. There were no pre-development costs in the second quarter of 2009.
Other Income and Expenses
The Company recognized $4.1 million of losses on debt extinguishments during the second
quarter of 2010 from the exchange of a portion of the 3.25% Convertible Senior Notes and the 1.25%
Convertible Senior Notes for shares of common stock, compared to a gain of $22.7 million during
the second quarter of 2009.
Fair value adjustments, net in the three months ended June 30, 2010 were $42.5 million
compared to $4.1 million in the second quarter of 2009. The increase was due to mark-to-market
adjustments driven by higher gold prices related to the Franco-Nevada royalty obligation, the
Mitsubishi gold lease facility, put and call options and forward foreign exchange contracts.
Interest and other income in the second quarter of 2010 decreased by $5.3 million to a loss
of $3.8 million compared with the second quarter of 2009. The decrease was due to losses on
foreign currency transactions.
Interest expense, net of capitalized interest, increased to $5.6 million in the second
quarter of 2010 compared to $5.2 million in the second quarter of 2009 due to an increase in
accretion expense related to the Franco-Nevada obligation, the gold lease facility, capital lease
obligations and other short-term borrowings and lower capitalized interest at the Palmarejo mine
which was placed into service in April 2009, thereby decreasing capitalized interest in the second
quarter of 2010.
Income Taxes
For the three months ended June 30, 2010, the Company reported an income tax benefit of
approximately $9.4 million compared to an income tax benefit of $3.9 million in the second quarter
of 2009. The following table summarizes the components of the Companys income tax benefits for the
three months ended June 30, 2010 and 2009.
55
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
United States Alternative minimum tax |
|
$ |
|
|
|
$ |
30 |
|
United States Foreign withholding |
|
|
(624 |
) |
|
|
(578 |
) |
Argentina |
|
|
(2,128 |
) |
|
|
(867 |
) |
Australia |
|
|
(57 |
) |
|
|
976 |
|
Mexico |
|
|
(33 |
) |
|
|
(7 |
) |
Canada |
|
|
|
|
|
|
(53 |
) |
Bolivia |
|
|
(3,721 |
) |
|
|
(3157 |
) |
Deferred: |
|
|
|
|
|
|
|
|
United States |
|
|
20,422 |
|
|
|
817 |
|
Australia |
|
|
(292 |
) |
|
|
230 |
|
Mexico |
|
|
(4,007 |
) |
|
|
7,560 |
|
Bolivia |
|
|
(188 |
) |
|
|
(1,058 |
) |
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
9,372 |
|
|
$ |
3,893 |
|
|
|
|
|
|
|
|
During the three months ended June 30, 2010, the Company recognized a current provision
in Argentina and Bolivia primarily related to higher metal prices and inflation adjustments on
non-monetary assets. Further, the Company accrued foreign withholding taxes of approximately
$0.6 million on inter-company transactions between the U.S. parent and subsidiaries operating in
Mexico, Argentina and Australia. Finally, the Company recognized a net $15.9 million deferred tax
benefit for the recognition of deferred taxes on deductible temporary differences, foreign exchange
rate adjustments and net operating loss carryforwards in various jurisdictions (principally in the
U.S. and Mexico). In addition, the Company recorded a tax provision
adjustment of $2.1 million
related to prior periods.
During the three months ended June 30, 2009, the Company recognized a current provision in
certain foreign jurisdictions primarily related to higher metal prices, inflationary adjustments on
non-monetary assets and unrealized foreign exchange gains on U.S. dollar-denominated liabilities in
Mexico and Bolivia. Further, the Company accrued foreign withholding taxes of approximately $0.6
million on inter-company transactions between the U.S. parent and subsidiaries operating in
Argentina and Australia. Finally, the Company recognized a net $8.6 million deferred tax benefit
for the recognition of deferred taxes on deductible temporary differences and net operating loss
carryforwards in various jurisdictions (principally Mexico). The Company recognized a $1.1 million
deferred tax provision in Bolivia for inflationary adjustments on non-monetary assets and
unrealized foreign exchange gains on U.S. dollar-denominated liabilities.
Results of Discontinued Operations
On
or about August 9, 2010, the Company expects to close the sale of its interest in the Cerro Bayo Mine.
Pursuant to U.S. GAAP, Cerro Bayo has been reported in discontinued operations for the three month
periods ended June 30, 2010 and 2009. Effective July 1, 2009, the Company completed the sale of
its mineral interest in the Broken Hill mine to Perilya Broken Hill Ltd. for $55.0 million in
cash. Pursuant to U.S. GAAP, Broken Hill has been reported in discontinued operations for the
three month period ended June 30, 2009. There was no income (loss) from discontinued operations
related to Broken Hill during the three months ended 2010. Loss from discontinued operations
(net of taxes) for the three month period ended June 30, 2010 was $5.9 million, as compared to a
gain from discontinued operation (net of taxes) for the three month period ended June 30, 2009 of
$1.7 million.
56
The following is a summary of the Companys discontinued operations included in the
consolidated statements of operations for the three months ended June 30, 2010 and June 30, 2009
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro |
|
|
|
|
|
|
Broken |
|
|
Cerro |
|
|
|
|
|
|
Broken |
|
|
Bayo |
|
|
|
|
|
|
Hill |
|
|
Bayo Mine |
|
|
Total |
|
|
Hill |
|
|
Mine |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,647 |
|
|
$ |
(84 |
) |
|
$ |
5,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913 |
|
|
|
|
|
|
|
913 |
|
Depreciation and depletion |
|
|
|
|
|
|
1,028 |
|
|
|
1,028 |
|
|
|
872 |
|
|
|
1,061 |
|
|
|
1,933 |
|
Care and maintenance expense |
|
|
|
|
|
|
809 |
|
|
|
809 |
|
|
|
|
|
|
|
609 |
|
|
|
609 |
|
Other operating expenses |
|
|
|
|
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
1,216 |
|
|
|
1,216 |
|
Interest and other income |
|
|
|
|
|
|
(143 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
1,010 |
|
|
|
1,010 |
|
Income tax benefit (expense) |
|
|
|
|
|
|
(978 |
) |
|
|
(978 |
) |
|
|
(487 |
) |
|
|
297 |
|
|
|
(190 |
) |
Loss on sale of discontinued assets |
|
|
|
|
|
|
(2,977 |
) |
|
|
(2,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
(5,943 |
) |
|
$ |
(5,943 |
) |
|
$ |
3,375 |
|
|
$ |
(1,663 |
) |
|
$ |
1,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
Sales of metal from continuing operations in the six months ended June 30, 2010 increased by
70.2% or $78.1 million to $189.3 million. The increase in sales of metal was primarily due to an
increase in the quantity of gold ounces sold due to contributions from the Companys Palmarejo
silver and gold mine, which began commercial production on April 20, 2009. During the six months
ended June 30, 2010, the Company sold 7.7 million ounces of silver and 49,379 ounces of gold
compared to 7.5 million ounces of silver and 15,941 ounces of gold during the same period in 2009.
Realized silver and gold prices were $17.74 and $1,138.51 per ounce, respectively, in the six
months ended June 30, 2010, compared to $13.22 and $933.72 per ounce, respectively, in the
comparable quarter of 2009.
Included
in sales of metal is the by-product sales derived from the sale of gold. During the six
months ended June 30, 2010, by-product metal sales totaled $56.0 million compared to $14.6 million in
the six months ended June 30, 2009. The increase is due to additional ounces of gold sold in the
first half of 2010 primarily as a result of production at the Companys Palmarejo mine which
operated for the entire first half of 2010. The Company believes that presentation of these
metal sales as by-products from its current operations will continue to be appropriate in the
future.
In the six months ended June 30, 2010, the Company produced a total of 7.6 million ounces of
silver and 48,907 ounces of gold, compared to 7.4 million ounces of silver and 17,586 ounces of
gold in the six months ended June 30, 2009. The increase in silver production is primarily due to
the increase of 1.8 million ounces at the Companys Palmarejo mine, which operated at full capacity
during the quarter offset by a decrease of 1.1 million at the San Bartolomé mine, due to mining
restrictions above the 4,400 meter level and a decrease of 600,794 ounces at the Martha mine. The
increase in gold production in the six months ended June 30, 2010 compared to the same period of
2009 is primarily due to the increase of 32,797 ounces of gold from the Palmarejo mine, which
commenced commercial production in April of 2009.
While sales of metal increased 70.2% during the first six months of 2010, production costs
applicable to sales of metal in the six months ended June 30, 2010 increased 50.1% to $110.4
million from $73.6 million in the six months ended June 30, 2009. The increase in production
costs is primarily due to
57
costs related to the commencement of operating activities at the Palmarejo mine, which was not in
production until April of 2009.
Depreciation and depletion increased by $31.0 million, from $26.7 million to $57.7 million,
as compared to the six months ended June 30, 2009. The increase is due to depreciation and
depletion expense from the Palmarejo mine, which was not in production until April of 2009.
Costs and Expenses
Administrative and general expenses increased by $0.6 million, from $13.2 million to $13.8
million, as compared to the six months ended June 30, 2009. The increase of $0.6 million is
primarily due to corporate administrative costs, legal and other expenses.
Exploration expenses decreased by $0.6 million to $5.7 million in the six months ended June
30, 2010 compared to $6.3 million in the same period of 2009 as a result of decreased exploration
activities.
Pre-development expenses were $0.7 million during the first half of 2010, due to permitting
activities, at the Rochester mine related to potential expansion of mining activities in early
2011. There were no pre-development costs in the first half of 2009.
Other Income and Expenses
The Company recognized $11.9 million of losses on debt extinguishments during the six months
ended June 30, 2010 from the exchange of a portion of the 3.25% Convertible Senior Notes due 2028
and the 1.25% Convertible Senior Notes due 2024 for shares of common stock compared to a gain of
$38.4 million during the six months ended June 30, 2009.
Fair value adjustments, net in the six months ended June 30, 2010 were $46.8 million compared
to $13.6 million recorded in the six months ended June 30, 2009. The increase was due to
mark-to-market adjustments driven by variations in gold prices related to the Franco-Nevada
royalty obligation, the gold lease facility, put and call options and forward foreign exchange
contracts.
Interest and other income in the six months ended June 30, 2010 decreased by $3.9 million to
a loss of $2.1 million compared with the six months ended June 30, 2009. The decrease was due to
losses on foreign currency transactions.
Interest expense, net of capitalized interest, increased to $11.5 million in the six months
ended June 30, 2010 compared to $6.0 million in the six months ended June 30, 2009 due to an
increase in interest expense related to senior secured notes, the Kensington credit facility,
accretion expense for the Franco-Nevada obligation, the Mitsubishi gold lease facility, capital
lease obligations and other short-term borrowings and lower capitalized interest at the Palmarejo
mine which was placed into service in April 2009.
Income Taxes
For the six months ended June 30, 2010, the Company reported an income tax benefit of
approximately $21.2 million compared to an income tax benefit of $3.6 million in the same period of
2009. The following table summarizes the components of the Companys income tax benefit for the six
months ended June 30, 2010 and 2009 (in thousands):
58
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
United States Alternative minimum tax |
|
$ |
|
|
|
$ |
(239 |
) |
United States Foreign withholding |
|
|
(1,115 |
) |
|
|
(838 |
) |
Argentina |
|
|
(2,141 |
) |
|
|
(1,332 |
) |
Australia |
|
|
(57 |
) |
|
|
818 |
|
Mexico |
|
|
(83 |
) |
|
|
(49 |
) |
Canada |
|
|
|
|
|
|
(53 |
) |
Bolivia |
|
|
(2,890 |
) |
|
|
(3,157 |
) |
Deferred: |
|
|
|
|
|
|
|
|
United States |
|
|
21,993 |
|
|
|
2,366 |
|
Australia |
|
|
(582 |
) |
|
|
(97 |
) |
Mexico |
|
|
7,696 |
|
|
|
11,696 |
|
Bolivia |
|
|
(1,611 |
) |
|
|
(5,476 |
) |
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
21,210 |
|
|
$ |
3,639 |
|
|
|
|
|
|
|
|
During the six months ended June 30, 2010, the Company recognized a current provision in
Argentina and Bolivia primarily related to higher metals prices and inflationary adjustments on
non-monetary assets. Further, the Company accrued foreign withholding taxes of approximately $1.1
million on inter-company transactions between the U.S. parent and subsidiaries operating in Mexico,
Argentina and Australia. Finally, the Company recognized a net $27.5 million deferred tax benefit
for the recognition of deferred taxes on deductible temporary differences, foreign exchange rate
adjustments and net operating loss carryforwards in various jurisdictions (principally in the U.S.
and Mexico).
During the six months ended June 30, 2009, the Company recognized a current provision in
certain foreign jurisdictions primarily related to higher metals prices, inflationary adjustments
on non-monetary assets and unrealized foreign exchange gains on U.S. dollar-denominated liabilities
in Mexico and Bolivia. Further, the Company accrued foreign withholding taxes of approximately
$0.8 million on inter-company transactions from the U.S. parent to the Argentina, Mexico, Chile and
Australia subsidiaries. Finally, the Company recognized a $14.1 million deferred tax benefit for
the recognition of deferred taxes on deductible temporary differences and net operating loss
carryforwards in various jurisdictions (principally Mexico). The Company recognized a deferred tax
provision of $5.6 million (principally in Bolivia) for inflation adjustments on non-monetary assets
and unrealized foreign exchange gains on U.S. dollar denominated liabilities.
Results of Discontinued Operations
On
or about August 9, 2010, the Company expects to close the sale of its interest in the Cerro
Bayo Mine. Pursuant to U.S. GAAP, Cerro Bayo has been reported in discontinued operations for the
six month periods ended June 30, 2010 and 2009. Effective July 1, 2009, the Company completed the
sale of its mineral interest in the Broken Hill mine to Perilya Broken Hill Ltd. for $55.0 million
in cash. Pursuant to U.S. GAAP, Broken Hill has been reported in discontinued operations for the
six month period ended June 30, 2009. There was no income (loss) from discontinued operations
related to Broken Hill during the six months ended June 30, 2010. Income (loss) from
discontinued operations (net of taxes) for the six month periods ended June 30, 2010 and 2009 was
($8.8) million and $1.8 million respectively.
59
The following is a summary of the Companys discontinued operations included in the
consolidated statements of operations for the six months ended and June 30, 2010 June 30, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
|
|
|
|
Cerro |
|
|
|
|
|
|
|
|
|
|
Cerro |
|
|
|
|
|
|
Broken |
|
|
Bayo |
|
|
|
|
|
|
Broken |
|
|
Bayo |
|
|
|
|
|
|
Hill |
|
|
Mine |
|
|
Total |
|
|
Hill |
|
|
Mine |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,356 |
|
|
$ |
1,631 |
|
|
$ |
11,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,699 |
|
|
|
1,211 |
|
|
|
2,910 |
|
Depreciation and depletion |
|
|
|
|
|
|
2,082 |
|
|
|
2,082 |
|
|
|
1,619 |
|
|
|
2,129 |
|
|
|
3,748 |
|
Care and maintenance expense |
|
|
|
|
|
|
1,878 |
|
|
|
1,878 |
|
|
|
|
|
|
|
1,347 |
|
|
|
1,347 |
|
Other operating expenses |
|
|
|
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
2,547 |
|
|
|
2,547 |
|
Interest and other income |
|
|
|
|
|
|
(481 |
) |
|
|
(481 |
) |
|
|
|
|
|
|
1,753 |
|
|
|
1,753 |
|
Income tax benefit (expense) |
|
|
|
|
|
|
(1,321 |
) |
|
|
(1,321 |
) |
|
|
(1,990 |
) |
|
|
636 |
|
|
|
(1,354 |
) |
Loss on sale of discontinued assets |
|
|
|
|
|
|
(2,977 |
) |
|
|
(2,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
(8,755 |
) |
|
$ |
(8,755 |
) |
|
$ |
5,048 |
|
|
$ |
(3,214 |
) |
|
$ |
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Companys working capital at June 30, 2010, decreased by $7.7 million to approximately
$3.0 million compared to working capital of $10.7 million at December 31, 2009. The ratio of
current assets to current liabilities was 1.0 to 1.0 at June 30, 2010 and was 1.1 to 1.0 at
December 31, 2009. The decrease in working capital is primarily due to net assets held for sale
relating to the Cerro Bayo sale partially offset by draw downs on the Kensington Credit Facility
related to capital investment activity at the Kensington mine.
Net cash provided by operating activities in the three and six months ended June 30, 2010 was
$32.5 million and $23.2 million respectively, compared with net cash provided by operating
activities of $15.0 million and $18.1 million in the three and six month periods ended June 30,
2009. Excluding changes in operating assets and liabilities, the Companys operating cash flow
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
32,456 |
|
|
$ |
15,039 |
|
|
$ |
23,226 |
|
|
$ |
18,085 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other current assets |
|
|
(3,662 |
) |
|
|
11,653 |
|
|
|
7,625 |
|
|
|
9,000 |
|
Inventories |
|
|
2,251 |
|
|
|
8,024 |
|
|
|
4,908 |
|
|
|
13,186 |
|
Accounts payable and accrued liabilities |
|
|
(8,998 |
) |
|
|
(18,175 |
) |
|
|
14,003 |
|
|
|
(16,936 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow |
|
$ |
22,047 |
|
|
$ |
16,541 |
|
|
$ |
49,762 |
|
|
$ |
23,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities in the second quarter of 2010 was $45.3 million
compared to $36.8 million used in the second quarter of 2009. The increase is primarily due to
higher capital
60
investment activity at the Kensington mine and lower proceeds from the sale of investments. The
Companys financing activities used $1.9 million of cash during the three months ended June 30,
2010 compared to net cash provided by financing activities of $8.3 million during the three months
ended June 30, 2009. The decrease in net cash provided by financing activities was primarily due
to payments on the gold production royalty and payments for the credit facility, long-term debt,
capital leases and bank borrowings, partially offset by the cash proceeds received in the second
quarter of 2010 from bank borrowings.
Net cash used in investing activities in the six months ended June 30, 2010 was $92.6 million
compared to $107.2 million used in the six months ended June 30, 2009. The decrease is primarily
due to lower capital investment activity at the Palmarejo mine which commenced commercial
production in April 2009. The Companys financing activities provided $87.8 million of cash during
the six months ended June 30, 2010 compared to $93.0 million during the six months ended June 30,
2009. The decrease in net cash provided by financing activities was primarily due to increased
payments on the gold production royalty, credit facility, long-term debt and capital leases,
partially offset by cash proceeds received from bank borrowings.
Liquidity
As of June 30, 2010, the Companys cash, equivalents and short-term investments totaled $41.2
million compared to $56.0 million in the first quarter of 2010. The decrease in cash and cash
equivalants of 26.4% compared to the first quarter of 2010, was due to capital investment activity
at Kensington and Palmarejo. The Company believes that its liquidity and projected operating
cashflows will be adequate to meet its obligations for at least the next twelve months.
The Company may elect to defer some capital investment activities or to secure additional
capital to provide additional liquidity. In addition, if the Company decides to pursue the
acquisition of additional mineral interests, new capital projects, or acquisitions of new
properties, mines or companies, additional financing activities may be necessary. There can be no
assurances that such financing will be available when or if needed upon acceptable terms, or at
all.
Capitalized Expenditures
During the first half of 2010, capital expenditures totaled $92.7 million. The Company
expended $27.3 million at the Palmarejo project, $63.1 million for construction and development
activities at the Kensington project, $1.9 million for the development of the San Bartolomé mine
and $0.4 million at the remaining sites.
Gold Lease Facility
On December 12, 2008, the Company entered into a gold lease facility with Mitsubishi
International Corporation (MIC). Under the facility, the Company received proceeds of $20
million for the sale of 23,529 ounces of gold leased from MIC to the Company. During 2009, the
Company repaid 2,000 ounces of gold and leased an additional 5,000 ounces of gold. As of June 30,
2010, the Company had 15,029 ounces of gold leased from MIC. The Company has committed to deliver
this number of ounces of gold to MIC over the next month on scheduled delivery dates. As of June 30, 2010 the Company
is required to pledge certain collateral, including standby letters of credit of $2.25 million and
$9.3 million of metal inventory held by a refiner. The Company accounts for the gold lease facility
as a derivative instrument, which is recorded in accrued liabilities
and other in the balance sheet.
61
Debt and Capital Resources
3.25% Convertible Senior Notes due 2028
As of June 30, 2010, the outstanding balance of the 3.25% convertible Senior Notes was $48.7
million, or $42.1 million net of debt discount. The notes are unsecured and bear interest at a
rate of 3.25% per year, payable on March 15 and September 15 of each year. The notes mature on
March 15, 2028, unless earlier converted, redeemed or repurchased by the Company.
Each holder of the notes may require that the Company repurchase some or all of such holders
notes on March 15, 2013, March 15, 2015, March 15, 2018 and March 15, 2023 at a repurchase price
equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid
interest, in cash, shares of common stock or a combination of cash and shares of common stock, at
the Companys election. Holders will also have the right, following certain fundamental change
transactions, to require the Company to repurchase all or any part of the notes for cash at a
repurchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued
and unpaid interest. The Company may redeem the notes for cash in whole or in part at any time on
or after March 22, 2015 at 100% of the principal amount of the notes to be redeemed plus accrued
and unpaid interest.
The notes provide for net share settlement of any conversions. Pursuant to this feature,
upon conversion of the notes, the Company (1) will pay the note holder an amount in cash equal to
the lesser of the conversion obligation or the principal amount of the notes and (2) will settle
any excess of the conversion obligation above the notes principal amount in the Companys common
stock, cash or a combination thereof, at the Companys election.
The
notes are convertible under certain circumstances, as described in
the indenture agreement, at the
holders option, at an initial conversion rate of 17.60254 shares of the Companys common stock per
$1,000 principal amount of notes, which is equivalent to an initial conversion price of
approximately $56.81 per share, subject to adjustment in certain circumstances.
During the second quarter of 2010, $44.4 million of the 3.25% Convertible Senior Notes due
2028 were repurchased in exchange for 2.9 million shares of the Companys common stock. The
Company recognized a loss on the repurchase of $3.5 million in gain (loss) and debt extingushments.
During the six months ended June 30, 2010, $99.7 million of the 3.25%
Convertible Senior Notes due 2025 were repurchased
in exchange for 6.5 million shares of the Companys
Common Stock. The
Company recognized a loss on the repurchase of $8.6 million in gain
(loss) on debt extinguishments.
The fair value of the notes outstanding, as determined by market transactions at June 30, 2010
and December 31, 2009, was $44.5 million and $131.3 million, respectively. The carrying value of
the equity component at June 30, 2010 and December 31, 2009 was $10.9 million and $33.4 million,
respectively.
For the three and six month periods ended June 30, 2010, interest expense was $0.4 million and
$1.6 million, respectively and accretion of the debt
discount was $0.6 million and $1.9 million, respectively. The debt discount remaining was $6.5 million,
which will be amortized through March 15, 2013. The effective interest rate on the
notes was 8.9%, as a result of adopting the new accounting standard.
During the three and six months ended June 30, 2009, interest expense was $1.6 million and
$3.4 million, respectively, and accretion of the debt discount was $1.9 million and $4.1 million,
respectively.
1.25% Convertible Senior Notes due 2024
As of June 30, 2010, the Company had outstanding $1.9 million of its 1.25% Convertible Senior
Notes due 2024. The remaining $1.9 million principal amount of the 1.25% Convertible Notes are
convertible into shares of common stock at the option of the holder on each of January 15, 2011,
January
62
14, 2014, and January 15, 2019, unless previously redeemed, at an initial conversion price of
$76.00 per share, subject to adjustment in certain circumstances.
The Company is required to make semi-annual interest payments on January 15 and July 15 of
each year. The notes are redeemable at the option of the Company before January 18, 2011, if the
closing price of the Companys common stock over a specified number of trading days exceeds 150% of
the conversion price, and anytime after January 18, 2011. Before January 18, 2011, the redemption
price is equal to 100% of the principal amount of the notes, plus an amount equal to 8.75% of the
principal amount of the notes, less the amount of any interest actually paid on the notes on or
prior to the redemption date. The notes are due on January 15, 2024.
Each holder of the notes may require that the Company repurchase some or all of the holders
notes on January 15, 2011, January 15, 2014 and January 15, 2019 at a repurchase price equal to
100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, in
cash, shares of common stock or a combination of cash and shares of common stock, at the Companys
election. Holders will also have the right, following certain fundamental change transactions, to
require the Company to repurchase all or any part of their notes for cash at a repurchase price
equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid
interest.
During the six months ended June 30, 2010, $20.4 million of the 1.25% convertible senior notes
due 2024 were repurchased in exchange for 1.2 million shares of the Companys common stock which
reduced the principal amount of the notes to $1.9 million as of June 30, 2010. The company
recognized a loss on the repurchase of $1.7 million in gain (loss) on debt extinguishments. There
were no repurchases in the second quarter of 2010.
The fair value of the notes outstanding, as determined by market transactions on June 30, 2010
and December 31, 2009, was $1.9 million and $22.8 million, respectively.
Interest on the notes for the three and six month periods ended June 30, 2010 was $5,809 and
$16,508, respectively. Interest on the notes for the three and six month periods ended June 30,
2009 was $0.4 million and $1.0 million, respectively.
Senior Term Notes due December 31, 2012
On February 5, 2010 the Company completed the sale of $100 million of Senior Term Notes due in
quarterly payments through December 31, 2012. In conjunction with the sale of these notes, the
Company also issued shares of its common stock valued at $4.2 million as financing costs. The
principal of the notes is payable in twelve equal quarterly installments, with the first such
installment paid on March 31, 2010. The Company has the option of paying amounts due on the notes
in cash, shares of common stock or a combination of cash and shares of common stock. The stated
interest rate on the notes is 6.5%, but the payments for principal and interest due on any payment
date will be computed to give effect to recent share prices, valuing the shares of common stock at
90% of a weighted average share price over a pricing period ending shortly before the payment date.
The company elected to pay the June 30, 2010 payment with a combination of 50% cash and 50% common
stock. The March 31, 2010 payment was paid entirely with common stock. For the three and six
months ended June 30, 2010, the Company paid $8.3 million and $16.6 million, respectively, in
principal and $1.5 million and $2.5 million, respectively, in interest. For the three and six
months ended June 30, 2010 the Company issued 348,410 shares and 1,060,413 shares, respectively, of
the Companys stock. The effective interest rate was
approximately 10.6%, which includes a loss of
$0.5 million and $1.6 million, for the three and six months ended June 30, 2010 respectively, in
connection with this quarterly debt payment. The loss is recorded in gain (loss) on debt
extinguishments.
63
Kensington Term Facility
On October 27, 2009 the Company entered into a term facility with Credit Suisse whereby Credit
Suisse agreed to provide Coeur Alaska, a wholly-owned subsidiary of the Company, a $45 million,
five-year term facility to fund the remaining construction at the Companys Kensington Gold Mine in
Alaska. The Company began drawing down the facility during the fourth quarter of 2009. Beginning
three months after an approximate twelve-month grace period commencing in November 2009, Coeur
Alaska will repay the loan in equal quarterly payments with interest based on a margin over the
three-month LIBOR rate. The facility is secured by the mineral rights and infrastructure at
Kensington as well as a pledge of the shares of Coeur Alaska owned by Coeur.
As of June 30, 2010, the Company has $40.8 million outstanding,
bearing interest at 5.5% (three month Libor rate plus 5% margin). The Company is also subject to
financial covenants including (i) guarantor tangible net worth; (ii) borrower tangible net worth;
(iii) debt to equity ratio; (iv) debt service coverage ratio; and (v) maximum production cost.
Events of default under the Kensington term facility include (i) a cross-default of other
indebtedness; (ii) a material adverse effect; (iii) loss of or failure to obtain applicable
permits; and (iv) failure to achieve final completion date.
As a
condition to the Kensington term facility, with Credit Suisse noted above, the Company agreed to enter into a gold
hedging program which protects a minimum of 125,000 ounces of gold production over the life of the
facility against the risk associated with fluctuations in the market price of gold. This program
took the form of a series of zero cost collars which consist of a floor price and a ceiling price
of gold. The required collars of 125,000 ounces of gold were entered into in November and December
2009. The collars mature quarterly beginning September 2010 and conclude in December 2014. The
weighted average put feature of each collar is $862.50 per ounce and the weighted average call
feature of each collar is $1,688.50 per ounce.
Bank Loans
On March 3, 2010, Coeur Mexicana, entered into
three short term bank loans in the amount of $5.0 million with FIFOMI secured by Coeur d Alene
Mines and certain machinery and equipment to fund working capital requirements. The bank loans
bear interest at 13.45% and mature between 36 and 60 months. As of June 30, 2010 the company has
drawn $4.6 million on two of the loans.
On April 14, 2010, the Companys wholly owned Bolivian subsidiary, Empresa
Minera Manquiri, received proceeds from short-term borrowings from Banco de
Credito de Bolivia in the amount of $2.5 million bearing interest at approximately
5.0% to fund working capital requirements. The short-term borrowings were repaid
on June 14, 2010.
On June 22, 2010, Empresa Minera Manquiri received proceeds from short-term
borrowings from Banco de Credito de Bolivia in the amount of $2.5 million
bearing interest at approximately 4.8% to fund working capital requirements.
The short-term borrowings mature on August 22, 2010.
On November 27, 2009, Empressa Minera
Manquiri, received proceeds from short-term borrowings from Banco Bisa in the
amount of $5.0 million bearing an interest rate of 6.5% to fund working capital
requirements. The short-term bank loan matures on November 17, 2011.
During 2008, Empressa Minera Manquiri received proceeds from short-term borrowings from Banco
Bisa and Banco de Credito de Bolivia in the amount of $3.0 million to fund working capital
requirements. The short-term bank loans matured and were repaid in April 2009.
During the fourth quarter of 2008, the Companys wholly-owned Argentine subsidiary, (Coeur
Argentina S.R.L.), entered into several temporary credit lines in the amount of $3.5 million with
the Standard Bank of Argentina secured by a standby letter of credit by Cerro Bayo, (a wholly owned
subsidiary of the Company), to fund working capital requirements. The credit lines matured and were
repaid on April 13, 2009, June 30, 2009 and July 24, 2009.
Palmarejo Gold Production Royalty Obligation
On January 21, 2009, the Company 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 by Coeur from its Palmarejo silver and gold mine in Mexico. Coeur received
64
total consideration of $78.0 million consisting of $75.0 million in cash, plus a warrant to acquire
Franco-Nevada Common Shares (the Franco-Nevada warrant), which was valued at $3.0 million at
closing of the Franco-Nevada transaction and is yet to be exercised. From July 1, 2009 until
payments have been made on a total of 400,000 ounces of gold, the royalty obligation is payable in
an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of actual gold
production per month multiplied by the market price of gold in excess of $400 (which $400 floor is
subject to a 1% annual inflation compounding adjustment beginning on the fourth anniversary of the
transaction). After payments have been made on a total of 400,000 ounces of gold, the royalty
obligation is payable in an amount equal to 50% of actual gold production per month multiplied by
the market price of gold in excess of $400, as adjusted as described above. The Company used an
implicit interest rate of 27.4% to discount the original obligation. The royalty obligation is accreted to
its expected value over the expected minimum payment period based on an implicit interest rate.
The price volatility associated with this minimum Royalty Obligation is considered an embedded
derivative under U.S. GAAP and is described in Note 13, Derivative Financial Instruments and Fair
Value of Financial Instruments, Palmarejo Gold production royalty. During the three and six months
ended June 30, 2010, the Company paid $9.6 million and $18.5 million, respectively, in royalty
payments to Franco-Nevada Corporation. As of June 30, 2010 and December 31, 2009, the remaining
obligation balance was $83.0 million and $84.8 million, respectively.
Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of
properties under development. For the three and six months ended June 30, 2010 the Company
capitalized interest of $4.2 million and $8.4 million, respectively. For the three and six months
ended June 30, 2009, the Company capitalized interest of $4.9 million and $15.9 million,
respectively.
Litigation and Other Events
For a discussion of litigation and other events, see Note 17 to the Companys Consolidated
Financial Statements, Litigation and Other Events.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to various market risks as a part of its operations. In an effort to
mitigate losses associated with these risks, the Company may, at times, enter into derivative
financial instruments. These may take the form of forward sales contracts, foreign currency
exchange contracts and interest rate swaps. The Company does not actively engage in the practice of
trading derivative instruments for profit. This discussion of the Companys market risk assessments
contains forward looking statements that are subject to risks and uncertainties. Actual results
and actions could differ materially from those discussed below.
The Companys operating results are substantially dependent upon the world market prices of
silver and gold. The Company has no control over silver and gold prices, which can fluctuate widely
and are affected by numerous factors, such as supply and demand and investor sentiment. From time
to time, in order to mitigate some of the risk associated with these fluctuations, the Company may
enter into forward sale contracts. The Company continually evaluates the potential benefits of
engaging in these strategies based on current market conditions. The Company may be exposed to
nonperformance risk by counterparties as a result of its hedging activities. This exposure would be
limited to the amount that the spot price of the metal falls short of the contract price. The
Company enters into contracts and other arrangements from time to time in an effort to reduce the
negative effect of price changes on its cashflows. These arrangements typically consist of managing
the Companys exposure to foreign currency exchange rates and market prices associated with changes
in gold and silver commodity prices. The Company may also manage price risk by purchasing put
options.
The Company enters into concentrate sales contracts with third-party smelters. The contracts,
generally, provide for a provisional payment based upon provisional assays and quoted metal
prices. The
65
provisionally priced sales contracts 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 on our balance sheet as derivative assets in Prepaid
expenses and other or as derivative liabilities in Accrued liabilities and other and are
adjusted to fair value through earnings each period until the date of final settlement.
At June 30, 2010, the Company had outstanding provisionally priced sales of $14.4 million,
consisting of 0.7 million ounces of silver and 693 ounces of gold, which had an aggregate fair
value of $14.4 million including the embedded derivative. For each one cent per ounce change in
realized silver price, revenue would vary (plus or minus) approximately $7,000; and for each one
dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately
$700. At December 31, 2009, the Company had outstanding provisionally priced sales of $19.1
million consisting of 1.0 million ounces of silver and 1,227 ounces of gold, which had an aggregate
fair value of approximately $19.1 million including the embedded derivative. For each one cent per
ounce change in realized silver price, revenue would vary (plus or minus) approximately $10,000 and
for each one dollar per ounce change in realized gold price, revenue would vary (plus or minus)
approximately $1,200.
The Company operates, or has mining interests, in several foreign countries, specifically
Australia, Bolivia, Chile, Mexico and Argentina, which exposes the Company to risks associated with
fluctuations in the exchange rates of the currencies involved. From time to time, as part of its
program to manage foreign currency risk, the Company may enter into foreign currency forward
exchange contracts. These contracts enable the Company to purchase a fixed amount of foreign
currencies at pre-established exchange rates. Gains and losses on foreign exchange contracts that
are related to firm commitments are designated and effective as hedges and are deferred and
recognized in the same period as the related transaction. All other contracts that do not qualify
as hedges are marked to market and the resulting gains or losses are recorded in income. The
Company continually evaluates the potential benefits of entering into these contracts to mitigate
foreign currency risk and proceeds when it believes that the exchange rates are most beneficial.
During 2009, the Company entered into forward foreign currency contracts to reduce the foreign
exchange risk associated with forecasted Mexican peso (MXP) operating costs at its Palmarejo
mine. At June 30, 2010, the Company had MXP foreign exchange contracts of $21.6 million in U.S.
dollars. These contracts require the Company to exchange U.S. dollars for MXP at a weighted
average exchange rate of 13.22 MXP to each U.S. dollar and had a fair value of $0.1 million at June
30, 2010. The Company recorded mark-to-market gains (losses) of $(1.6) million and $0.5 million
for the three months ended June 30, 2010 and 2009, respectively, and $(1.2) million and $(3.3)
million for the six months ended June 30, 2010 and 2009, respectively which is reflected in the
consolidated statement of operations in Fair value adjustments, net. The Company recorded
realized gains of $0.5 million and $0.2 million in production costs applicable to sales during the
three months ended June 30, 2010 and 2009, respectively and $0.5 million and $0.5 million for the
six months ended June 30, 2010 and 2009, respectively.
On December 12, 2008, the Company entered into a gold lease facility with Mitsubishi
International Corporation (MIC). Under the facility, the Company received proceeds of $20 million
for the sale of 23,529 ounces of gold leased from MIC to the Company. During 2009, the Company
repaid 2,000 ounces of gold and leased an additional 5,000 ounces of gold. As of June 30, 2010,
the Company had 15,029 ounces of gold leased from MIC. The Company has committed to deliver this
number of ounces of gold to MIC on scheduled delivery dates. As of June 30, 2010 the Company is
required to pledge certain collateral, including standby letters of credit of $2.25 million and
$9.3 million of metal inventory held by a refiner. The Company accounts for the gold lease facility
as a derivative instrument, which is recorded on the balance sheet in Accrued liabilities and
other.
66
As of June 30, 2010 and December 31, 2009, based on the current futures metals prices for each
of the delivery dates and using a 5.8% and 5.7% discount rate, respectively, the fair value of the
Gold Lease facility was a liability of $18.6 million and $28.5 million, respectively. The
pre-credit risk adjusted fair value of the net derivative liability as of June 30, 2010 was $18.7
million. A credit risk adjustment of $0.1 million to the fair value of the derivative reduced the
reported amount of the net derivative liability on the Companys consolidated balance sheet to
$18.6 million. Mark-to market adjustments for the gold lease facility amounted to a loss of a $2.2
million and a loss of $1.5 million for the three months ended June 30, 2010 and 2009, respectively
and $0.8 million and $1.6 million for the six months ended June 30, 2010 and 2009, respectively.
The Company recorded realized losses of nil for the three months ended June 30, 2010 and 2009,
respectively, and $1.9 million and $0.2 million for the six months ended June 30, 2010 and 2009,
respectively. The mark-to-market adjustments and realized losses are included on the consolidated
statement of operations in Fair value adjustments, net.
During 2009, the Company purchased silver put options to reduce the risk associated with
potential decreases in the market price of silver. The cost of these put options was largely offset
by proceeds received from the sale of gold call options. At June 30, 2010, the Company held put
options allowing it to deliver 1.8 million ounces of silver at a weighted average strike price of
$9.17 per ounce. The contracts will expire over the next three months.
In connection with the Credit Suisse credit facility described in Note 8, Kensington Term
Facility, at June 30, 2010, the Company had written outstanding call options requiring it to
deliver 125,000 ounces of gold at a weighted average strike price of $1,688.50 per ounce if the
market price of gold exceeds the strike price. In addition, the Company had purchased
outstanding put options allowing it to sell 125,000 ounces of gold at a weighted average strike
price of $862.50 per ounce if the market price of gold were to fall below the strike price. The
contracts will expire over the next five years. As of June 30, 2010 the fair market value of these
contracts was a net liability of $7.5 million.
During the six months ended June 30, 2010, outstanding put options allowing the Company to
deliver 3.6 million ounces of silver at an average strike price of $9.24 per ounce expired. The
Company recorded realized losses of $0.8 million and $1.6 million for the three and six months
ended June 30, 2010, respectively, included in fair value adjustments, net.
During the three and six months ended June 30, 2009, the Company recorded realized gains
of $0.2 million and $0.2 million, respectively, included in fair value adjustments, net.
On January 21, 2009, the Company entered into the gold production royalty transaction with
Franco-Nevada Corporation that is described in Note 8, Long Term Debt, Franco-Nevada Royalty
Obligation. The minimum royalty obligation ends when payments have been made on a total of 400,000
ounces of gold. The price volatility associated with minimum royalty obligation is considered an
embedded derivative financial instrument under U.S. GAAP. The fair value of the embedded derivative
at June 30, 2010 and December 31, 2009 was a liability of $109.7 million and $78.0 million,
respectively. The Franco-Nevada warrant is a contingent option to acquire 316,436 common shares of
Franco-Nevada for no additional consideration, once the mine satisfies certain completion tests
stipulated in the agreement. The Franco-Nevada warrant is considered a derivative instrument. The
fair value of the warrant at June 30, 2010 and December 31, 2009 was $8.7 million and $6.3 million,
respectively. These derivative instruments are recorded in prepaid expenses and other, current or
non-current royalty obligation on the balance sheet and adjusted to fair value through current
earnings. During the three months ended June 30, 2010, mark-to-market adjustments for the embedded
derivative and warrant amounted to a loss of $30.0 million and a gain of $1.0 million,
respectively, and for the same period in 2009, a loss of $5.5 million and a gain of $0.5 million,
respectively. During the six months ended June 30, 2010, mark-to-market adjustments for the
embedded derivative and warrant amounted to a loss of $31.7 million and a gain of $2.3 million,
respectively, and for the same period in 2009 a loss of $18.2 million and a gain of $1.9 million,
respectively. For the three and six months ended June 30, 2010, realized losses on settlement of
the liabilities were $3.7 million and $6.8 million respectively. For the three and six months
ended June 30, 2009, realized losses on settlement of liabilities were $0.1 million
67
and $0.1 million, respectively. The mark-to-market adjustments and realized losses are
included in fair value adjustments, net in the consolidated statement of operations.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys management, including
its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act), and management
necessarily applied its judgment in assessing the costs and benefits of such controls and
procedures, which by their nature, can provide only reasonable assurance regarding managements
control objectives. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events. Based upon the foregoing, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
were effective and operating to provide reasonable assurance that information required to be
disclosed by it in the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SECs rules and forms, and to
provide reasonable assurance that such information is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
Based on an evaluation by the Companys Chief Executive Officer and Chief Financial Officer,
such officers concluded that there was no change in the Companys internal control over financial
reporting during the quarter ending June 30, 2010 that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.
PART II. Other Information
Item 1. Legal Proceedings
The information contained under Note 17 to the consolidated financial statements in this Form
10-Q is incorporated herein by reference.
Item 1A. Risk Factors
Item 1A (Risk Factors) of the Companys Annual Report on Form 10-K for the year ended
December 31, 2009 sets forth information relating to important risks and uncertainties that could
materially adversely affect the Companys business, financial condition or operating results.
Those risk factors continue to be relevant to an understanding of the Companys business, financial
condition and operating results. Those risk factors have been supplemented and updated in this
Form 10-Q as set forth below. References to we, our and us in these risk factors refer to
the Company. Additional risks and uncertainties that we do not presently know or that we currently
deem immaterial may also impair our business operations.
68
The market prices of silver and gold are volatile. Low silver and gold prices could result in
decreased revenues, decreased net income or increased losses and decreased cash flows, and may
negatively affect our business.
Silver and gold are commodities. Their prices fluctuate, and are affected by many factors
beyond our control, including interest rates, expectations regarding inflation, speculation,
currency values, governmental decisions regarding the disposal of precious metals stockpiles,
global and regional demand and production, political and economic conditions and other factors.
Because we currently derive approximately 70% of our revenues from continuing operations from sales
of silver and 30% from gold, our earnings are primarily related to the price of these metals.
The
market prices of silver (Handy & Harman) and gold (London Final) on August 6, 2010 were
$18.51 per ounce and $1,207.75 per ounce, respectively. The prices of silver and gold may decline in
the future. Factors that are generally understood to contribute to a decline in the price of silver
include sales by private and government holders, and a general global economic slowdown.
If the prices of silver and gold are depressed for a sustained period and our net losses
continue, we may be forced to suspend mining at one or more of our properties until the prices
increase, and to record additional asset impairment write-downs. Any lost revenues, continued or
increased net losses or additional asset impairment write-downs would adversely affect our
financial condition and results of operations.
High levels of violence in Mexico could affect our operations at our Palmarejo gold and silver
mine.
Our Palmarejo mine is located in Chihuahua, an area of Mexico that currently is experiencing
high levels of violence. Security at our Palmarejo mine is an important consideration. High
levels of violence in the area could adversely affect our ability to staff the operations at
Palmarejo in an optimal fashion, to supply and operate the mine at design capacity and to deliver
gold and silver to refiners.
Our business depends on good relations with our employees.
The Company could experience labor disputes, work stoppages or other disruptions in production
that could adversely affect us. As of June 30, 2010, unions represented approximately 19% of our
worldwide workforce. On that date, the Company had 7 employees at its Cerro Bayo mine and 98
employees at its Martha mine who were working under collective bargaining agreement. The agreement
covering the Cerro Bayo mine expires on December 21, 2010 and a collective bargaining agreement
covering the Martha mine expires on October 31, 2010. In connection with the sale of Cerro Bayo
which is expected to close on August 9, 2010, our obligations
under the agreement at Cerro Bayo will terminate.
Additionally, the Company had 175 employees at its San Bartolomé mine working under a labor
agreement which became effective October 11, 2007, and does not have a fixed term.
69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Maximum |
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number (or |
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approximate |
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dollar value) |
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Total number of |
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of shares |
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shares (or units) |
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(or units) that |
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Total number |
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purchased as |
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may yet be |
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|
of shares |
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Average price |
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part of publicly |
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purchased |
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(or units) |
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paid per share |
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announced plans |
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under the plans |
Period |
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purchased
(1) |
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(or unit) |
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or programs |
|
or programs |
4/1/10 - 4/30/10 |
|
|
895 |
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|
$ |
17.44 |
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$ |
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5/1/10 - 5/31/10 |
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6/1/10 - 6/30/10 |
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Total |
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895 |
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|
$ |
17.44 |
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$ |
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(1) |
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Represents shares withheld from employees to pay taxes related to the vesting of
restricted shares. |
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Maximum |
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number (or |
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approximate |
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dollar value) |
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Total number of |
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of shares |
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shares (or units) |
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(or units) that |
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Total number |
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purchased as |
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may yet be |
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|
of shares |
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Average price |
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part of publicly |
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purchased |
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(or units) |
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paid per share |
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announced plans |
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under the plans |
Period |
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purchased |
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(or unit) |
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or programs |
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or programs |
4/1/10 - 4/30/10(2) |
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1,978,000 |
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$ |
15.27 |
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$ |
|
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5/1/10 - 5/31/10(2) |
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|
904,767 |
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$ |
15.72 |
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|
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6/1/10 - 6/30/10(2) |
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348,410 |
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$ |
15.66 |
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|
|
|
|
|
6/1/10 - 6/30/10(3) |
|
|
4,455 |
|
|
$ |
10.00 |
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|
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|
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|
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|
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Total |
|
|
3,235,632 |
|
|
$ |
15.43 |
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$ |
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(2) |
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Pursuant to privately negotiated agreements, the Company agreed to exchange $0
million and $44.4 million aggregate principal amount of its 1.25% Convertible Notes due 2024 and
3.25% due 2028, respectively, for shares of the Companys common stock. |
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(3) |
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Exercise of Employee Options |
Item 5. Mine Safety Disclosures
In July 2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act. The following mine safety information is provided pursuant to such legislation.
Two of our mines, the Kensington Mine and the Rochester Mine, are subject to the Federal Mine
Safety and Health Act of 1977, which we refer to as the FMSHA. The FMSHA is administered by the
Mine Safety and Health Administration, which we refer to as the MSHA. The MSHA proposed the
assessments during the second quarter of 2010 of $200 against the Kensington Mine and $200 against
the Rochester Mine. Neither the Kensingon Mine nor the Rochester Mine experienced mining-related
70
fatalities during the second quarter of 2010 or received written notice from the MSHA pursuant to
Section 104(e) of the FMSHA of a pattern of violations of mandatory health or safety standards that
are of such
nature as could significantly and substantially contributed to the cause and effect of health
or safety hazards or the potential for such a pattern. We have no legal actions pending before the
Federal Mine Safety and Health Review Commission involving the Kensington Mine or the Rochester
Mine.
During the second quarter of 2010, with respect to the Kensington Mine, MSHA issued no
citations pursuant to Section 104 of the FMSHA for violations of mandatory health or safety
standards that could significantly and substantially contribute to a mine safety or health hazard,
issued no orders pursuant to Section 104(d) of the FMSHA for unwarrantable failures to comply with
mandatory health or safety standards, did not deem any violations as flagrant pursuant to Section
110(b)(2) of the FMSHA and issued no imminent danger orders under Section 107(a) of the FMSHA.
During the second quarter of 2010, with respect to the Rochester Mine, MSHA issued one
citation pursuant to Section 104 of the FMSHA for violations of mandatory health or safety
standards that could significantly and substantially contribute to a mine safety or health hazard,
issued no orders pursuant to Section 104(b) of the FMSHA, issued no citation or orders pursuant to
Section 104(d) of the FMSHA for unwarrantable failures to comply with mandatory health or safety
standards, did not deem any violations as flagrant pursuant to Section 110(b)(2) of the MSHA and
issued no imminent danger orders under Section 107(a) of the FMSHA.
71
Item 6. Exhibits
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Exhibits |
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3.1 |
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Restated and Amended Articles of Incorporation of the Registrant,
as amended effective May 26, 2009. (Incorporated herein by
reference to Exhibit 3.1 o the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2010). |
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3.2 |
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Bylaws of the Registrant, as amended effective July 16, 2007.
(Incorporated herein by reference to Exhibit 3 to the
Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007). |
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3.3 |
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Certificate of Designation, Preferences and Rights of Series B
Junior Preferred Stock of the Registrant, as filed with Idaho
Secretary of State on May 13, 1999. (Incorporated herein by
reference to Exhibit 3(c) to the Registrants Annual Report on
Form 10-K for the year ended December 31, 2002). |
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3.4 |
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Certificate of Amendment to the Certificate of Designation,
Preferences and Rights of Series B Junior Preferred Stock of the
Registrant, dated December 7, 2007. (Incorporated herein by
reference to Exhibit 3(g) to the Registrants Annual Report on
Form 10-K for the year ended December 31, 2007). |
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10.1 |
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Amended and Restated 2003 Long-Term Incentive Plan of Coeur
dAlene Mines Corporation. (Incorporated herein by reference to
Exhibit 10.1 to the Companys Current Report on form 8-K filed on
May 14, 2010). |
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10.2 |
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Two-Way Metals Lease Agreement, dated December 12, 2008, between
the Registrant and Mitsubishi International Corporation.
(Incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on July 22, 2010). |
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10.3 |
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Second Amended and Restated Collateral agreement, dated as of
August 7, 2009, among the Registrant, CDE Australia Pty Ltd and
Mitsubishi International Corporation. (Incorporated herein by
reference to Exhibit 10.2 to the Companys Current Report on Form
8-K filed on July 22, 2010). |
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10.4 |
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Amendment No. 4 to Second Amended and Restated Collateral
Agreement, dated as of July 16, 2010, between the Registrant and
Mitsubishi International Corporation. (Incorporated herein by
reference to Exhibit 10.3 to the Companys Current Report on Form
8-K filed on July 22, 2010). |
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31.1 |
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Certification of the CEO |
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31.2 |
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Certification of the CFO |
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32.1 |
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Certification of the CEO (18 U.S.C. Section 1350) |
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32.2 |
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Certification of the CFO
(18 U.S.C. Section 1350) |
72
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 thereunto duly authorized.
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COEUR DALENE MINES CORPORATION
(Registrant)
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Dated August 9, 2010 |
/s/ Dennis E. Wheeler
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DENNIS E. WHEELER |
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Chairman, President and
Chief Executive Officer |
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Dated August 9, 2010 |
/s/ Mitchell J. Krebs
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MITCHELL J. KREBS |
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Senior Vice President and
Chief Financial Officer |
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73