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 September 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,
505 Front Ave.
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 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
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o |
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 $0.01, authorized of which
89,311,920 shares were issued and outstanding as of November 1, 2010.
COEUR DALENE MINES CORPORATION
INDEX
2
COEUR DALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, |
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December 31, |
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2010 |
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2009 |
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Notes |
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(In thousands, except share data) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
27,792 |
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$ |
22,782 |
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Short-term investments |
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5 |
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5,031 |
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Receivables |
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77,207 |
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58,981 |
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Ore on leach pad |
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2 |
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7,397 |
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9,641 |
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Metal and other inventory |
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6 |
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96,225 |
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67,712 |
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Prepaid expenses and other |
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19,026 |
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26,920 |
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232,678 |
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186,036 |
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NON-CURRENT ASSETS |
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Property, plant and equipment, net |
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7 |
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659,840 |
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539,037 |
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Mining properties, net |
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8 |
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2,140,586 |
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2,240,056 |
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Ore on leach pad, non-current portion |
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2 |
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12,683 |
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14,391 |
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Restricted assets |
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27,892 |
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26,546 |
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Receivables, non-current portion |
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31,910 |
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37,534 |
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Debt issuance costs, net |
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4,798 |
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3,544 |
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Deferred tax assets |
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11 |
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897 |
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2,355 |
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Other |
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13,729 |
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4,536 |
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TOTAL ASSETS |
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$ |
3,125,013 |
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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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$ |
57,395 |
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$ |
77,003 |
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Accrued liabilities and other |
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38,811 |
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33,517 |
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Accrued income taxes |
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21,818 |
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11,783 |
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Accrued payroll and related benefits |
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14,432 |
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9,815 |
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Accrued interest payable |
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521 |
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1,744 |
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Current portion of capital leases and other
debt obligations |
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9 |
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67,653 |
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15,403 |
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Current portion of royalty obligation |
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9 |
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46,417 |
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34,672 |
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Current portion of reclamation and mine closure |
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10 |
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2,708 |
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4,671 |
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249,755 |
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188,608 |
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NON-CURRENT LIABILITIES |
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Long-term debt and capital lease obligations |
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9 |
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146,821 |
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185,397 |
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Non-current portion of royalty obligation |
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9 |
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160,367 |
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128,107 |
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Reclamation and mine closure |
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10 |
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25,647 |
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35,241 |
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Deferred income taxes |
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11 |
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480,954 |
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516,678 |
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Other long-term liabilities |
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15,623 |
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6,799 |
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829,412 |
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872,222 |
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COMMITMENTS AND CONTINGENCIES
(Notes 9, 10, 12, 14, 15, 16 and 18) |
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SHAREHOLDERS EQUITY |
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Common Stock, par value $0.01 per share; authorized
150,000,000
shares, 89,311,920 issued at September 30, 2010 and
80,310,347 issued at
December 31, 2009 |
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893 |
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803 |
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Additional paid-in capital |
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2,578,043 |
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2,444,262 |
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Accumulated deficit |
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(533,254 |
) |
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(451,865 |
) |
Accumulated other comprehensive income |
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164 |
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5 |
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2,045,846 |
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1,993,205 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
3,125,013 |
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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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Nine Months Ended |
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September 30, |
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September 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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$ |
118,564 |
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$ |
90,305 |
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$ |
307,871 |
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$ |
201,531 |
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Production costs applicable to sales |
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(60,402 |
) |
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(59,693 |
) |
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(170,795 |
) |
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(133,263 |
) |
Depreciation, depletion and amortization |
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(37,801 |
) |
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(27,591 |
) |
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(95,503 |
) |
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(54,282 |
) |
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Gross profit |
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20,361 |
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3,021 |
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41,573 |
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13,986 |
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COSTS AND EXPENSES |
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Administrative and general |
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5,963 |
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4,780 |
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19,758 |
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17,933 |
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Exploration |
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3,840 |
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2,362 |
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9,521 |
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8,632 |
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Pre-development |
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82 |
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814 |
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Total cost and expenses |
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9,885 |
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7,142 |
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30,093 |
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26,565 |
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OPERATING INCOME (LOSS) |
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10,476 |
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(4,121 |
) |
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11,480 |
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(12,579 |
) |
OTHER INCOME AND EXPENSE |
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Gain (loss) on debt extinguishments |
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(806 |
) |
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(2,947 |
) |
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(12,714 |
) |
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|
35,430 |
|
Fair value adjustments, net |
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(19,107 |
) |
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(35,718 |
) |
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(65,881 |
) |
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(49,269 |
) |
Interest and other income |
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(638 |
) |
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|
(1,245 |
) |
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(2,725 |
) |
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|
822 |
|
Interest expense, net of capitalized interest |
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(9,951 |
) |
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(6,088 |
) |
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(21,402 |
) |
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(12,047 |
) |
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Total other income and expense |
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(30,502 |
) |
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(45,998 |
) |
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(102,722 |
) |
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(25,064 |
) |
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Loss from continuing operations before income taxes |
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(20,026 |
) |
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(50,119 |
) |
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(91,242 |
) |
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(37,643 |
) |
Income tax benefit (provision) |
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|
(3,233 |
) |
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|
13,428 |
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17,977 |
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17,067 |
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Loss from continuing operations |
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(23,259 |
) |
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|
(36,691 |
) |
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(73,265 |
) |
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|
(20,576 |
) |
Loss from discontinued operations, net of income taxes |
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|
(251 |
) |
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|
(3,003 |
) |
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|
(6,029 |
) |
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|
(1,451 |
) |
Gain (loss) on sale of discontinued operations,
net of income taxes |
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|
882 |
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|
22,411 |
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|
(2,095 |
) |
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|
22,411 |
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|
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NET INCOME (LOSS) |
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|
(22,628 |
) |
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|
(17,283 |
) |
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|
(81,389 |
) |
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|
384 |
|
Other comprehensive income, net of income taxes |
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|
164 |
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|
159 |
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COMPREHENSIVE INCOME (LOSS) |
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$ |
(22,464 |
) |
|
$ |
(17,283 |
) |
|
$ |
(81,230 |
) |
|
$ |
384 |
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BASIC AND DILUTED INCOME PER SHARE |
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Basic income per share: |
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Loss from continuing operations |
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$ |
(0.26 |
) |
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$ |
(0.48 |
) |
|
$ |
(0.85 |
) |
|
$ |
(0.29 |
) |
Income (loss) from discontinued operations |
|
|
0.01 |
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|
|
0.25 |
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|
(0.09 |
) |
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|
0.30 |
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Net income (loss) |
|
$ |
(0.25 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.94 |
) |
|
$ |
0.01 |
|
|
|
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Diluted income per share: |
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Loss from continuing operations |
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$ |
(0.26 |
) |
|
$ |
(0.48 |
) |
|
$ |
(0.85 |
) |
|
$ |
(0.29 |
) |
Income (loss) from discontinued operations |
|
|
0.01 |
|
|
|
0.25 |
|
|
|
(0.09 |
) |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.25 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.94 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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Weighted average number of shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic |
|
|
89,236 |
|
|
|
76,133 |
|
|
|
86,489 |
|
|
|
69,163 |
|
Diluted |
|
|
89,236 |
|
|
|
76,133 |
|
|
|
86,489 |
|
|
|
69,163 |
|
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
Nine Months Ended September 30, 2010
(In thousands)
Unaudited
|
|
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|
|
|
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|
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Accumulated |
|
|
|
|
|
|
Common |
|
|
Common |
|
|
Additional |
|
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|
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|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,389 |
) |
|
|
|
|
|
|
(81,389 |
) |
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 issued under long-
term incentive plans, net |
|
|
6 |
|
|
|
|
|
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
430 |
|
Unrealized gain on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159 |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010 |
|
|
89,312 |
|
|
$ |
893 |
|
|
$ |
2,578,043 |
|
|
$ |
(533,254 |
) |
|
$ |
164 |
|
|
$ |
2,045,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(22,628 |
) |
|
$ |
(17,283 |
) |
|
$ |
(81,389 |
) |
|
$ |
384 |
|
Add (deduct) non-cash items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
37,913 |
|
|
|
28,647 |
|
|
|
97,697 |
|
|
|
59,086 |
|
Amortiztation of debt discount |
|
|
537 |
|
|
|
4 |
|
|
|
537 |
|
|
|
504 |
|
Accretion of royalty obligation |
|
|
4,778 |
|
|
|
5,227 |
|
|
|
14,407 |
|
|
|
9,086 |
|
Deferred income taxes |
|
|
(7,879 |
) |
|
|
(24,175 |
) |
|
|
(34,109 |
) |
|
|
(29,896 |
) |
Loss (gain) on debt extinguishment |
|
|
806 |
|
|
|
2,947 |
|
|
|
12,714 |
|
|
|
(35,430 |
) |
Fair value adjustments, net |
|
|
17,436 |
|
|
|
33,255 |
|
|
|
64,159 |
|
|
|
45,820 |
|
Loss (gain) on foreign currency transactions |
|
|
2,144 |
|
|
|
223 |
|
|
|
3,966 |
|
|
|
(185 |
) |
Share-based compensation |
|
|
1,960 |
|
|
|
1,885 |
|
|
|
3,969 |
|
|
|
4,542 |
|
Loss (gain) from discontinued operations and other assets |
|
|
(970 |
) |
|
|
(32,212 |
) |
|
|
1,835 |
|
|
|
(32,291 |
) |
Other non-cash charges |
|
|
629 |
|
|
|
454 |
|
|
|
702 |
|
|
|
687 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other current assets |
|
|
(4,511 |
) |
|
|
1,855 |
|
|
|
(12,136 |
) |
|
|
(7,145 |
) |
Inventories |
|
|
(22,980 |
) |
|
|
(10,547 |
) |
|
|
(27,888 |
) |
|
|
(23,733 |
) |
Accounts payable and accrued liabilities |
|
|
5,704 |
|
|
|
38,658 |
|
|
|
(8,298 |
) |
|
|
55,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
12,939 |
|
|
|
28,938 |
|
|
|
36,166 |
|
|
|
47,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments |
|
|
(15 |
) |
|
|
(6,525 |
) |
|
|
(672 |
) |
|
|
(15,104 |
) |
Proceeds from sales of investments |
|
|
12,477 |
|
|
|
11,237 |
|
|
|
13,134 |
|
|
|
31,247 |
|
Capital expenditures |
|
|
(36,783 |
) |
|
|
(54,370 |
) |
|
|
(129,439 |
) |
|
|
(174,849 |
) |
Proceeds from sale of discontinued operations and other assets |
|
|
5,902 |
|
|
|
55,053 |
|
|
|
5,977 |
|
|
|
56,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
|
(18,419 |
) |
|
|
5,395 |
|
|
|
(111,000 |
) |
|
|
(101,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of gold production royalty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
Payments on gold production royalty |
|
|
(11,302 |
) |
|
|
(6,112 |
) |
|
|
(29,836 |
) |
|
|
(7,218 |
) |
Proceeds from issuance of floating rate and senior term notes |
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
20,368 |
|
Proceeds from gold lease facility |
|
|
11,915 |
|
|
|
|
|
|
|
16,432 |
|
|
|
2,874 |
|
Payments on gold lease facility |
|
|
|
|
|
|
|
|
|
|
(17,101 |
) |
|
|
(1,627 |
) |
Proceeds from bank borrowings |
|
|
10,755 |
|
|
|
|
|
|
|
45,565 |
|
|
|
|
|
Payments on senior secured notes |
|
|
(9,139 |
) |
|
|
|
|
|
|
(13,306 |
) |
|
|
|
|
Repayment of credit facility, long-term debt and capital leases |
|
|
(10,035 |
) |
|
|
(7,268 |
) |
|
|
(22,931 |
) |
|
|
(22,137 |
) |
Payments of common stock and debt issuance costs |
|
|
(22 |
) |
|
|
(18 |
) |
|
|
(2,202 |
) |
|
|
(122 |
) |
Proceeds from sale-leaseback transactions |
|
|
|
|
|
|
|
|
|
|
4,853 |
|
|
|
12,511 |
|
Additions to restricted assets associated with the Kensington
Term Facility |
|
|
(297 |
) |
|
|
|
|
|
|
(1,880 |
) |
|
|
|
|
Other |
|
|
210 |
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES: |
|
|
(7,915 |
) |
|
|
(13,398 |
) |
|
|
79,844 |
|
|
|
79,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(13,395 |
) |
|
|
20,935 |
|
|
|
5,010 |
|
|
|
24,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
41,187 |
|
|
|
24,668 |
|
|
|
22,782 |
|
|
|
20,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
27,792 |
|
|
$ |
45,603 |
|
|
$ |
27,792 |
|
|
$ |
45,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine month periods
ended September 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 Annual Report of Coeur dAlene Mines
Corporation (Coeur or the Company) 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 August 9, 2010, the Company closed the sale of its 100% interest in the Cerro Bayo mine.
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.
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 Empresa Minera Manquiri
S.A., Coeur Mexicana, S.A. de C.V., Coeur Rochester, Inc., Coeur Alaska, Inc., 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, Accounting Standards
Code (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 update had no effect 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 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 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
7
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 or as a derivative liability in Accrued liabilities
and other on the consolidated balance sheets 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 identical 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 silver 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
$2.1 million and $5.4 million, respectively, for the three and nine months ended September 30,
2010, and $1.9 million and $5.2 million, respectively, for the three and nine months ended
September 30, 2009, were recorded as a reduction of revenue.
At September 30, 2010, the Company had outstanding provisionally priced sales of $25.0
million, consisting of 0.8 million ounces of silver and 8,219 ounces of gold, which had a fair
value of $26.7 million including the embedded derivative. For each one cent per ounce change in
realized silver price, revenue would vary (plus or minus) approximately $8,000; and for each one
dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately
$8,200. 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 ceased mining and crushing operations at the Rochester mine as ore
reserves were determined to have been fully mined at then-current market prices. 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 lower of cost or market,
with cost being determined using a weighted average cost method.
The Company reported ore on leach pad of $20.1 million as of September 30, 2010. Of this
amount, $7.4 million was reported as a current asset and $12.7 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
8
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 uses 60-day leach
columns to project metal 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 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 expects its current
residual heap leach activities 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 the estimated productive lives of such facilities or the
useful lives 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 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
9
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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
mineralized material 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 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 $1.2 million and $3.3 million, for the three and
nine months ending September 30, 2010, respectively, and $0.2 million and $0.6 million, for the
three and nine months ended September 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 a profitable 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 expected 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 estimated fair value determined using appropriate valuation techniques.. 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. 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 are identifiable cash flows.
10
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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. The ultimate timing of the release of the collateralized amounts is
dependent on the timing and closure of each mine and repayment of the facility. 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. Under the terms
of the Companys Kensington Term Facility, the Company is required to reserve cash for three months
of debt service costs. At September 30, 2010 and December 31, 2009, the Company held certificates
of deposit and cash under these agreements of $27.9 million and $26.5 million, respectively,
restricted for these purposes. In addition, at
December 31, 2009, the Company held certificates of deposit totaling
$2.3 million, that were pledged to support letters of credit under the
Gold Lease facility. These amounts were included in prepaids and other.
Reclamation and Mine Closure Costs: The Company recognizes obligations associated
with the retirement of tangible long-lived assets. These obligations result from the acquisition,
construction, development and normal use of the asset. The fair value of a liability for an asset
retirement obligation is 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 remeasured at current
exchange rates and resulting adjustments are included in other income and expenses. Revenues and
expenses in foreign currencies are remeasured 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.
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 stock options
and stock appreciation rights (SARs) award using the Black-Scholes option pricing 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 based 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.
Compensation costs related to stock based payments are included in administrative and general
11
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 for 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
2009 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 September 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 Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2010 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) |
|
$ |
(22,628 |
) |
|
$ |
(17,283 |
) |
|
$ |
(81,389 |
) |
|
$ |
384 |
|
Unrealized gains on marketable securities |
|
|
164 |
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(22,464 |
) |
|
$ |
(17,283 |
) |
|
$ |
(81,230 |
) |
|
$ |
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
12
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
For the three and nine months ended September 30, 2010, 4,414,625 shares, of common stock
equivalents related to convertible debt and 500,138 equity based awards have not been included in the diluted
per share calculation as the Company has recorded a net loss from continuing operations for the
period. The options outstanding at September 30, 2010 expire between 2010 and 2019. For the three
and nine months ended September 30, 2009, 1,199,099 and 1,799,291 common stock equivalents,
respectively, related to convertible debt and 663,365 options were not included in the computation
of diluted per share calculations as the Company had recorded a net loss from continuing operations
for the period. 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 nine months
ended September 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 their consolidated financial statements and accompanying notes. The areas
requiring significant management
13
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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; 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 Broken Hill and Cerro Bayo statements of operations from historical presentation to
income (loss) from discontinued operations in the consolidated statements of operations for all
periods presented. In addition, certain immaterial reclassifications related to the payment of the
Franco-Nevada royalty obligation and the gold lease facility amounting to $6.0 million were
reclassified from operating activities to financing activities in the consolidated statement of
cash flows for the nine months ended September 30, 2009.
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 September 30, 2010 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
11 |
|
|
$ |
|
|
|
$ |
11 |
|
|
$ |
|
|
Marketable equity securities |
|
|
5,031 |
|
|
|
5,031 |
|
|
|
|
|
|
|
|
|
Short term certificates of deposit restricted |
|
|
2,965 |
|
|
|
|
|
|
|
2,965 |
|
|
|
|
|
Other derivative instruments, net |
|
|
2,188 |
|
|
|
|
|
|
|
2,188 |
|
|
|
|
|
Gold forward contract |
|
|
1,238 |
|
|
|
|
|
|
|
1,238 |
|
|
|
|
|
Put and call options |
|
|
3,029 |
|
|
|
|
|
|
|
3,029 |
|
|
|
|
|
Silver ounce receivable from Mandalay |
|
|
2,706 |
|
|
|
|
|
|
|
2,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,168 |
|
|
$ |
5,031 |
|
|
$ |
12,137 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold lease facility |
|
$ |
32,626 |
|
|
$ |
|
|
|
$ |
32,626 |
|
|
$ |
|
|
Royalty obligation embedded derivative |
|
|
124,855 |
|
|
|
|
|
|
|
124,855 |
|
|
|
|
|
Put and call options |
|
|
10,688 |
|
|
|
|
|
|
|
10,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
168,169 |
|
|
$ |
|
|
|
$ |
168,169 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 DISCONTINUED OPERATIONS
In August 2010, the Company closed the sale of its 100% interest in Compañía Minera Cerro Bayo
(Minera Cerro Bayo) to Mandalay Resources Corporation (Mandalay). Under the terms of the
agreement, Coeur received the following from Mandalay in exchange for all of the outstanding shares
of Minera Cerro Bayo; (i) $6,029,000 in cash; (ii) 17,857,143 common shares of Mandalay; (iii)
125,000 ounces of silver to be delivered in six equal quarterly installments commencing in the
third quarter of 2011 with a fair value of $2.3 million; (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 with a fair value of $5.4 million and (v) retained
value added taxes 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. As a result of
the sale, the Company realized a loss on the sale of approximately $2.1 million, net of income
taxes.
15
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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. Coeur originally purchased this interest from Perilya Broken Hill, Ltd. in
September 2005 for $36.9 million. As a result of this
transaction, the Company realized a gain on the sale of approximately $25.5 million, net of income
taxes in 2009.
The following table details selected financial information included in the income from
discontinued operations for the three and nine months ended September 30, 2010 and 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Three months ended |
|
|
September 30, 2010 |
|
September 30, 2009 |
|
|
Cerro |
|
|
Broken |
|
|
|
|
|
|
|
|
|
|
Broken |
|
|
|
|
|
|
Bayo |
|
|
Hill |
|
|
|
|
|
|
Cerro Bayo |
|
|
Hill |
|
|
|
|
|
|
Mine |
|
|
Mine |
|
|
Total |
|
|
Mine |
|
|
Mine |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
42 |
|
|
$ |
63 |
|
|
$ |
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
49 |
|
Depreciation and depletion |
|
|
(112 |
) |
|
|
|
|
|
|
(112 |
) |
|
|
(1,055 |
) |
|
|
51 |
|
|
|
(1,004 |
) |
Care and maintenance expense |
|
|
(472 |
) |
|
|
|
|
|
|
(472 |
) |
|
|
(2,092 |
) |
|
|
|
|
|
|
(2,092 |
) |
Other operating expenses |
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
(460 |
) |
Interest and other income |
|
|
336 |
|
|
|
|
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569 |
|
|
|
(170 |
) |
|
|
399 |
|
Gain on sale of discontinued operations,
net of taxes |
|
|
882 |
|
|
|
|
|
|
|
882 |
|
|
|
|
|
|
|
22,411 |
|
|
|
22,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
631 |
|
|
$ |
|
|
|
$ |
631 |
|
|
$ |
(2,996 |
) |
|
$ |
22,404 |
|
|
$ |
19,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Nine months ended |
|
|
Septmeber 30, 2010 |
|
September 30, 2009 |
|
|
Cerro |
|
Broken |
|
|
|
|
|
Cerro |
|
Broken |
|
|
|
|
Bayo |
|
Hill |
|
|
|
|
|
Bayo |
|
Hill |
|
|
|
|
Mine |
|
Mine |
|
Total |
|
Mine |
|
Mine |
|
Total |
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,673 |
|
|
$ |
10,420 |
|
|
$ |
12,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,211 |
) |
|
|
(1,650 |
) |
|
|
(2,861 |
) |
Depreciation and depletion |
|
|
(2,194 |
) |
|
|
|
|
|
|
(2,194 |
) |
|
|
(3,184 |
) |
|
|
(1,568 |
) |
|
|
(4,752 |
) |
Care and maintenance expense |
|
|
(2,350 |
) |
|
|
|
|
|
|
(2,350 |
) |
|
|
(5,986 |
) |
|
|
|
|
|
|
(5,986 |
) |
Other operating expenses |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
(145 |
) |
|
|
|
|
|
|
(145 |
) |
|
|
1,011 |
|
|
|
|
|
|
|
1,011 |
|
Income tax benefit (expense) |
|
|
(1,321 |
) |
|
|
|
|
|
|
(1,321 |
) |
|
|
1,205 |
|
|
|
(2,161 |
) |
|
|
(956 |
) |
Gain (loss) on sale of discontinued operations,
net of taxes |
|
|
(2,095 |
) |
|
|
|
|
|
|
(2,095 |
) |
|
|
|
|
|
|
22,411 |
|
|
|
22,411 |
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(8,124 |
) |
|
$ |
|
|
|
$ |
(8,124 |
) |
|
$ |
(6,492 |
) |
|
$ |
27,452 |
|
|
$ |
20,960 |
|
|
|
|
|
|
NOTE 5 INVESTMENTS AND OTHER MARKETABLE SECURITIES
The Company classifies its short-term investments as available-for-sale securities. The
securities are measured at fair market value in the financial statements with unrealized gains or
losses recorded in other comprehensive income. At the time securities are sold or otherwise
disposed of, gains or losses are included in net income. There were no short-term investments on
hand as of December 31, 2009. The following is a summary of available-for-sale securities as of
September 30, 2010 (in thousands):
16
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Cost |
|
|
Losses |
|
|
Gains |
|
|
Fair Value |
|
Equity securities |
|
$ |
4,867 |
|
|
$ |
|
|
|
$ |
164 |
|
|
$ |
5,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,867 |
|
|
$ |
|
|
|
$ |
164 |
|
|
$ |
5,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 METAL AND OTHER INVENTORIES
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Concentrate and doré inventory |
|
$ |
66,866 |
|
|
$ |
39,487 |
|
Supplies |
|
|
29,359 |
|
|
|
28,225 |
|
|
|
|
|
|
|
|
Metal and other inventory |
|
$ |
96,225 |
|
|
$ |
67,712 |
|
|
|
|
|
|
|
|
NOTE 7 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
713 |
|
|
$ |
1,133 |
|
Building improvements |
|
|
500,778 |
|
|
|
384,107 |
|
Machinery and equipment |
|
|
240,254 |
|
|
|
227,524 |
|
Capitalized leases for machinery,
equipment and buildings |
|
|
63,240 |
|
|
|
55,652 |
|
|
|
|
|
|
|
|
|
|
|
804,985 |
|
|
|
668,416 |
|
Accumulated depreciation and amortization |
|
|
(145,145 |
) |
|
|
(129,379 |
) |
|
|
|
|
|
|
|
|
|
$ |
659,840 |
|
|
$ |
539,037 |
|
|
|
|
|
|
|
|
NOTE 8 MINING PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
Other |
|
|
Total |
|
Operational mining properties: |
|
$ |
126,487 |
|
|
$ |
97,435 |
|
|
$ |
67,328 |
|
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
312,363 |
|
|
$ |
|
|
|
$ |
613,613 |
|
Accumulated depletion |
|
|
(17,694 |
) |
|
|
(97,435 |
) |
|
|
(8,911 |
) |
|
|
(9,983 |
) |
|
|
|
|
|
|
(3,186 |
) |
|
|
|
|
|
|
(137,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,793 |
|
|
|
|
|
|
|
58,417 |
|
|
|
17 |
|
|
|
|
|
|
|
309,177 |
|
|
|
|
|
|
|
476,404 |
|
Mineral interest (A) |
|
|
1,657,188 |
|
|
|
|
|
|
|
26,643 |
|
|
|
|
|
|
|
44,033 |
|
|
|
|
|
|
|
|
|
|
|
1,727,864 |
|
Accumulated depletion |
|
|
(53,970 |
) |
|
|
|
|
|
|
(3,518 |
) |
|
|
|
|
|
|
(6,337 |
) |
|
|
|
|
|
|
|
|
|
|
(63,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,603,218 |
|
|
|
|
|
|
|
23,125 |
|
|
|
|
|
|
|
37,696 |
|
|
|
|
|
|
|
|
|
|
|
1,664,039 |
|
Non-producing and developmental properties(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mining properties |
|
$ |
1,712,011 |
|
|
$ |
|
|
|
$ |
81,542 |
|
|
$ |
17 |
|
|
$ |
37,696 |
|
|
$ |
309,177 |
|
|
$ |
143 |
|
|
$ |
2,140,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro |
|
|
|
|
|
|
|
(In thousands) |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
Bayo |
|
|
Other |
|
|
Total |
|
Operational mining properties: |
|
$ |
113,167 |
|
|
$ |
97,435 |
|
|
$ |
67,327 |
|
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43,554 |
|
|
$ |
|
|
|
$ |
331,483 |
|
Accumulated depletion |
|
|
(7,232 |
) |
|
|
(97,435 |
) |
|
|
(5,793 |
) |
|
|
(8,968 |
) |
|
|
|
|
|
|
|
|
|
|
(25,679 |
) |
|
|
|
|
|
|
(145,107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,935 |
|
|
|
|
|
|
|
61,534 |
|
|
|
1,032 |
|
|
|
|
|
|
|
|
|
|
|
17,875 |
|
|
|
|
|
|
|
186,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357,027 |
|
|
|
|
|
|
|
142 |
|
|
|
357,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mining properties |
|
$ |
1,738,952 |
|
|
$ |
|
|
|
$ |
85,892 |
|
|
$ |
1,032 |
|
|
$ |
39,136 |
|
|
$ |
357,027 |
|
|
$ |
17,875 |
|
|
$ |
142 |
|
|
$ |
2,240,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Balance represents acquisition cost of mineral interest |
|
(B) |
|
Upon Kensington moving into production in July 2010, a portion of development properties has been reclassified to property, plant
and equipment |
Operational Mining Properties
Palmarejo Mine: Palmarejo is located in the State of Chihuahua in northern Mexico,
and its principal silver and gold properties are collectively referred to as the Palmarejo mine.
The Palmarejo mine commenced 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. The Company is working towards a
potential restart of active mining at the Rochester Mine. In furtherance
of that, the company has completed a feasibility study and in October
2010, received a key permitting decision record for the Bureau of
Land Management to support the resumption of active mining operations.
Kensington Mine: The Kensington mine is an underground gold mine located outside of
Juneau, Alaska. Commercial production commenced on July 3, 2010. The mine is accessed by a
horizontal tunnel and utilizes conventional and mechanized underground mining methods.
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 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.
Mineral Interests
Endeavor Mine: The Endeavor mine is an underground silver and base metal operation
located in North Central New South Wales, Australia. 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
18
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 the later
of such time as CDE Australia had received approximately 2 million cumulative ounces of silver from
the mine or June 2007. 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 2.9 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.
NOTE 9 LONG-TERM DEBT AND ROYALTY OBLIGATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Current |
|
|
Non-Current |
|
|
Current |
|
|
Non-Current |
|
3.25% Convertible Senior Notes due March 2028 |
|
$ |
|
|
|
$ |
42,669 |
|
|
$ |
|
|
|
$ |
125,323 |
|
1.25% Convertible Senior Notes due January 2024 |
|
|
1,859 |
|
|
|
|
|
|
|
|
|
|
|
22,232 |
|
Senior Term Notes due December 31, 2012 |
|
|
33,333 |
|
|
|
41,667 |
|
|
|
|
|
|
|
|
|
Capital lease obligations |
|
|
13,564 |
|
|
|
20,785 |
|
|
|
11,102 |
|
|
|
19,204 |
|
Kensington Term Facility |
|
|
8,645 |
|
|
|
37,459 |
|
|
|
|
|
|
|
15,464 |
|
Bank loans |
|
|
10,252 |
|
|
|
4,241 |
|
|
|
4,301 |
|
|
|
3,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,653 |
|
|
$ |
146,821 |
|
|
$ |
15,403 |
|
|
$ |
185,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25% Convertible Senior Notes due 2028
As of September 30, 2010, the outstanding balance of the 3.25% Convertible Senior Notes was
$48.7 million, or $42.7 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.
19
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 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 nine months ended September 30, 2010, $99.7 million of the 3.25% Convertible 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.
There were no repurchases or exchanges in the third quarter of 2010.
The fair value of the notes outstanding, as determined by market transactions at September 30,
2010 and December 31, 2009, was $46.2 million and $131.3 million, respectively. The carrying value
of the equity component at September 30, 2010 and December 31, 2009 was $10.9 million and $33.4
million, respectively.
For the three and nine months ended September 30, 2010, interest expense was $0.4 million and
$2.0 million, respectively, and accretion of the debt discount was $0.5 million and $2.5 million,
respectively. The debt discount remaining at September 30, 2010 was $6.0 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 nine months ended September 30, 2009, interest expense was $1.2 million
and $4.6 million, respectively, and accretion of the debt discount was $1.5 million and $5.6
million, respectively.
1.25% Convertible Senior Notes due 2024
As of September 30, 2010, the Company had outstanding $1.9 million of its 1.25% Convertible
Senior Notes due 2024. The remaining 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.
20
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 nine months ended September 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 September 30, 2010. The Company
recognized a loss on the repurchase of $1.7 million in Gain (loss) on debt extinguishments. There
were no repurchases or exchanges in the third quarter of 2010.
The fair value of the notes outstanding, as determined by market transactions on September 30,
2010 and December 31, 2009, was $1.8 million and $22.8 million, respectively.
Interest on the notes for the three and nine months ended September 30, 2010 was
insignificant. Interest on the notes for the three and nine months ended September 30, 2009 was
$0.3 million and $1.3 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 297,455 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 September 30, 2010 payment all in cash. For the three and nine
months ended September 30, 2010, the Company paid $8.3 million and $25.0 million, respectively, in
principal and $1.4 million and $3.9 million, respectively, in interest. For the nine months ended
September 30, 2010 the Company issued 1,060,413 shares of its common stock in connection with
the quarterly payments. The effective interest rate for the nine months ended September 30, 2010
was approximately 10.5%, which includes losses of $0.8 million and $2.4 million, for the three and
nine months ended September 30, 2010, respectively, in connection with the quarterly debt payments.
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 under which
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 Kensington gold mine in Alaska.
The Company began drawing down the facility during the fourth quarter of 2009. Beginning February 2012, Coeur Alaska will
repay the loan in 16 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. Coeur has guaranteed the payment of all
amounts owed by Coeur Alaska to Credit Suisse under the Kensington facility.
21
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
As of September 30, 2010, the Company had $46.1 million outstanding under the Kensington
facility bearing interest at 5.3% (three month LIBOR rate plus 5%
margin). The Company is subject to a tangible net worth covenant, and
Coeur Alaska is subject to the following covenants: (i) borrower tangible
net worth; (ii) debt to equity ratio; (iii) debt service
coverage ratio; and (iv) maximum production
cost. Events of default under the Kensington term facility include (i) cross-default of other
indebtedness; (ii) 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. Collars protecting 122,500 ounces of
gold were outstanding at September 30, 2010. 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, S.A. de C.V.
(Coeur Mexicana) entered into three bank loans in the aggregate amount of approximately $5.2
million with Fideicomiso de Fomento Minero (FIFOMI). These loans are to fund working capital
requirements guaranteed by the Company and are secured by certain machinery and equipment. The
bank loans bear interest at 13.45% and mature after 36 to 60 months. As of September 30, 2010,
Coeur Mexicana had drawn $5.2 million on the three loans.
On July 15, 2009, to fund equipment purchases, Coeur Mexicana entered into an equipment
financing agreement bearing interest at 8.26% with Atlas Copco. This agreement is secured by
certain machinery and equipment. Twenty-four monthly installments will be made on the loans with
the final payment being made on January 31, 2012. As of September 30, 2010, the outstanding
balance was $1.7 million.
Empresa Minera Manquiri borrowed $2.5 million pursuant to short-term bank
loans from Banco de Crédito de Bolivia bearing interest at rates ranging from 4.5% to 5.25% to fund working capital
requirements. The short-term borrowings are expected to mature and renew every 60 days.
On September 1, 2010, Empresa Minera Manquiri borrowed $0.5 million pursuant to a short-term
bank loan from Bisa bearing interest at 4% to fund working capital requirements. The short-term
loan matures on February 23, 2011.
On November 27, 2009, Empresa Minera Manquiri borrowed $5.0 million pursuant to a bank loan
from Banco Bisa bearing an interest rate of 6.5% to fund working capital requirements. As of
September 30, 2010, the outstanding balance was $2.9 million. The bank loan matures on November
17, 2011.
On July 6, 2010, the Company entered into a short-term financing agreement with AFCO Credit
Corporation for $2.4 million bearing interest at 2.9% to finance insurance premiums. Installments
of $0.2 million are paid monthly with the final payment to be made on June 1, 2011. As of
September 30, 2010 the outstanding balance was $1.8 million.
Palmarejo Gold Production Royalty Obligation
On January 21, 2009, the Companys wholly owned subsidiary, Coeur Mexicana SA de CV,
entered into a gold production royalty transaction with Franco-Nevada Corporation under which
22
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced from its
Palmarejo silver and gold mine in Mexico. Coeur Mexicana 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 million at closing of the Franco-Nevada
transaction. On September 19, 2010, the warrant was exercised and the related shares were sold for
$10.0 million.
The royalty agreement provides for a minimum obligation to be paid in monthly payments over a
total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period. Each
monthly payment is 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 excess of the monthly average market price of
gold above $400 per ounce (which $400 floor is subject to a 1% annual inflation compounding
adjustment beginning on January 21, 2013). As of September 30, 2010, payments had been made on a
total of 70,764 ounces of gold with further payments to be made on an additional 329,236 ounces of
gold. After payments have been made on a total of 400,000 ounces of gold, the royalty obligation
is payable in the amount of 50% of actual gold production per month multiplied by the excess of the
monthly average market price of gold above $400 per ounce, adjusted as described above. Payments
under the royalty agreement are to be made in cash or gold bullion. During the three and nine
months ended September 30, 2010, the Company paid $11.3 million and $29.8 million, respectively, in
royalty payments to Franco-Nevada Corporation. Payments made during the minimum obligation period
will result in a reduction to the remaining minimum obligation. Payments made beyond the minimum
obligation period will be recognized as other cash operating expenses and result in an increase to
Coeur Mexicanas reported cash cost per ounce of silver.
The Company used an implicit interest rate of 27.7% to discount the original obligation, based
on the fair value of the consideration received projected over the expected future cash flows at
inception of the obligation. The discounted obligation is accreted to its expected future value
over the expected minimum payment period based on the implicit interest rate. The Company
recognized accretion expense for the three and nine months ended September 30, 2010, of $5.4
million and $15.4 million, respectively, and $5.2 million and $13.9 million for the three and nine
months ended September 30, 2009, respectively. As of September 30, 2010 and December 31, 2009, the
remaining minimum obligation under the royalty agreement was $81.9 million and $84.8 million,
respectively.
The price volatility associated with the minimum royalty obligation is considered an embedded
derivative under U.S. GAAP. Fluctuations in the market price of gold since inception of the
agreement have resulted in the recognition of additional fair value adjustments and resulted in
higher payments to date. Please see Note 14, Derivative Financial Instruments and Fair Value of
Financial Instruments, Palmarejo Gold Production Royalty, for further discussion of the embedded
derivative feature of the royalty agreement.
Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of
properties under development. For the three and nine months ended September 30, 2010 the Company
capitalized interest of $0.7 million and $9.1 million, respectively. For the three and nine months
ended September 30, 2009, the Company capitalized interest of $3.2 million and $19.1 million,
respectively.
NOTE 10 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.
Changes to the Companys asset retirement obligations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Asset retirement obligation beginning |
|
$ |
26,255 |
|
|
$ |
35,792 |
|
|
$ |
25,112 |
|
|
$ |
34,662 |
|
Accretion |
|
|
590 |
|
|
|
809 |
|
|
|
1,729 |
|
|
|
2,399 |
|
Addition and changes in estimates |
|
|
|
|
|
|
2,972 |
|
|
|
18 |
|
|
|
2,972 |
|
Settlements |
|
|
(13 |
) |
|
|
(203 |
) |
|
|
(27 |
) |
|
|
(663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation September |
|
$ |
26,832 |
|
|
$ |
39,370 |
|
|
$ |
26,832 |
|
|
$ |
39,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
In addition, the Company has accrued $1.5 million and $1.7 million as of September 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 11 INCOME TAXES
For the three and nine months ended September 30, 2010, the Company reported an income tax
benefit (provision) of approximately $(3.2) million and $18.0 million, respectively, compared to an
income tax benefit of $13.4 million and $17.1 million for the three and nine months ended September
30, 2009, respectively. The following table summarizes the components of the Companys income tax
provision from continuing operations for the three and nine months ended September 30, 2010 and
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Alternative minimum tax |
|
$ |
(3 |
) |
|
$ |
(1,533 |
) |
|
$ |
(3 |
) |
|
$ |
(1,772 |
) |
United States Foreign withholding |
|
|
(490 |
) |
|
|
(479 |
) |
|
|
(1,605 |
) |
|
|
(1,317 |
) |
Argentina |
|
|
(3,505 |
) |
|
|
(2,912 |
) |
|
|
(5,646 |
) |
|
|
(4,244 |
) |
Australia |
|
|
(82 |
) |
|
|
427 |
|
|
|
(139 |
) |
|
|
1,245 |
|
Mexico |
|
|
(40 |
) |
|
|
(17 |
) |
|
|
(123 |
) |
|
|
(66 |
) |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53 |
) |
Bolivia |
|
|
(6,973 |
) |
|
|
(1,931 |
) |
|
|
(9,863 |
) |
|
|
(5,088 |
) |
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
1,918 |
|
|
|
7,708 |
|
|
|
23,911 |
|
|
|
10,074 |
|
Australia |
|
|
228 |
|
|
|
75 |
|
|
|
(354 |
) |
|
|
(22 |
) |
Mexico |
|
|
5,201 |
|
|
|
10,031 |
|
|
|
12,897 |
|
|
|
21,727 |
|
Bolivia |
|
|
513 |
|
|
|
2,059 |
|
|
|
(1,098 |
) |
|
|
(3,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision) from
continuing operations |
|
$ |
(3,233 |
) |
|
$ |
13,428 |
|
|
$ |
17,977 |
|
|
$ |
17,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax benefit (provision) for the three and nine months ended September 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. For the nine months ended September
30, 2010, the Company has recorded a tax provision 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.
NOTE 12 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. Total employee compensation charged to
operations and capital projects under these plans was $2.7 million and $2.6 million for the three
months ended September 30, 2010 and 2009, respectively, and $6.4 million and $6.9 million for the
nine months ended September 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 or SAR award is estimated
24
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 (RSUs) 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.
The values of the RSUs 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. RSUs are settled
in cash based on the number of vested RSUs 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 at 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 a 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 September 30, 2010 and 2009 for stock based compensation awards was $2.0 million
and $1.9 million, respectively, and $4.0 million and $4.5 million for the nine months ended
September 30, 2010 and 2009, respectively. The SARs, RSUs 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 September 30, 2010, there was $3.1 million of total unrecognized compensation cost (net of
estimated forfeitures) related to unvested stock options, SARs, restricted stock, RSUs, performance
shares and performance units which is expected to be recognized over a weighted-average remaining
vesting period of 1.7 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 September 30, 2010. Options to purchase
4,089 shares were granted during the three months ended September 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Grant |
|
As of September 30, |
|
|
|
|
|
|
|
|
|
|
SARs and |
|
|
|
|
|
|
Stock |
|
|
|
|
|
Stock |
|
|
|
|
|
|
Options |
|
SARs |
|
Options |
|
SARs |
|
SARs |
|
|
2010 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Weighted average fair value of stock options granted and
SARs outstanding |
|
$ |
9.96 |
|
|
$ |
10.19 |
|
|
$ |
3.90 |
|
|
$ |
13.91 |
|
|
$ |
15.58 |
|
Expected volatility |
|
|
73.0 |
% |
|
|
73.7 |
% |
|
|
70.8 |
% |
|
|
76.3 |
% |
|
|
74.9 |
% |
Expected life |
|
6.0 years |
|
6.0 years |
|
6.0 years |
|
5.0 years |
|
5.3 years |
Risk-free interest rate |
|
|
2.0 |
% |
|
|
2.7 |
% |
|
|
2.1 |
% |
|
|
1.3 |
% |
|
|
2.3 |
% |
Expected dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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 SAR activity for the nine months ended
September 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 |
|
|
4,089 |
|
|
|
15.30 |
|
|
|
151,287 |
|
|
|
15.40 |
|
Exercised |
|
|
(25,257 |
) |
|
|
9.88 |
|
|
|
(16,639 |
) |
|
|
10.00 |
|
Cancelled/forfeited |
|
|
(36,823 |
) |
|
|
23.31 |
|
|
|
(16,556 |
) |
|
|
11.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
334,687 |
|
|
$ |
24.43 |
|
|
|
230,563 |
|
|
$ |
13.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 229,157 shares were exercisable at September 30, 2010 at a weighted
average exercise price of $29.39. SARs for the purchase of 20,855 shares were exercisable at
September 30, 2010 at a weighted average exercise price of $10.00.
|
As of September 30, 2010, there was $0.9 million of unrecognized compensation cost related to
non-vested stock options and SARs to be recognized over a weighted average period of 1.4 years.
|
The following table summarizes restricted stock and RSU activity for the nine months ended
September 30, 2010:
|
|
|
|
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 |
|
|
2,363 |
|
|
|
15.30 |
|
|
|
91,378 |
|
|
|
15.40 |
|
Vested |
|
|
(57,926 |
) |
|
|
21.90 |
|
|
|
(22,500 |
) |
|
|
15.24 |
|
Cancelled/forfeited |
|
|
(14,203 |
) |
|
|
12.43 |
|
|
|
(9,947 |
) |
|
|
15.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
64,623 |
|
|
$ |
11.37 |
|
|
|
126,416 |
|
|
$ |
19.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 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.
26
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
The following table summarizes performance shares and performance unit activity for the nine
months ended September 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 |
|
|
2,363 |
|
|
|
18.65 |
|
|
|
91,378 |
|
|
|
19.94 |
|
Cancelled/forfeited |
|
|
(37,833 |
) |
|
|
17.53 |
|
|
|
(13,840 |
) |
|
|
20.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2010 |
|
|
100,828 |
|
|
$ |
16.29 |
|
|
|
145,023 |
|
|
$ |
25.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010, there was $1.4 million of total unrecognized compensation cost
related to performance shares and performance units to be recognized over a weighted average period
of 2.0 years.
NOTE 13 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, which are based on a percentage of the salary of eligible
employees, were $0.3 million and $0.1 million for the three months ended September 30, 2010 and
2009, respectively, and $0.7 million and $0.5 million for the nine months ended September 30, 2010
and 2009, respectively.
401(k) Plan
The Company maintains a retirement savings plan (which qualifies under Section 401(k) of the
U.S. Internal Revenue Code) covering all eligible U.S. employees. Under the plan, employees may
elect to contribute up to 100% of their cash compensation, subject to ERISA limitations. The
Company adopted a Safe Harbor Tiered Match and is required to make matching contributions equal to
100% of the 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 September 30, 2010 and 2009 were $0.2 million and $0.1 million,
respectively. Total plan expenses for the nine months ended September 30, 2010 and 2009 were $0.6
million and $0.4 million, respectively.
NOTE 14 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 described in Note 9, Long-Term Debt and Royalty Obligation, Palmarejo
Gold Production Royalty Obligation. The minimum royalty obligation ends when payments have been
made on a total of 400,000 ounces of gold. As of September 30, 2010, a total of 329,236 ounces of
gold remain outstanding under the minimum royalty obligation. The price volatility associated with
the minimum royalty obligation is considered an embedded derivative financial instrument under U.S.
GAAP. The fair value of the embedded derivative at September 30, 2010 and December 31, 2009 was a
liability of $124.9 million and $78.0 million, respectively. The Franco-Nevada warrant was a
contingent option to acquire 316,436 common shares of Franco-Nevada for no additional
consideration, once the mine satisfied certain completion tests stipulated in the agreement.
During the three months ended September 30, 2010, the Company exercised these warrants and received
the related shares, which were sold for net proceeds to the Company of $10.0 million. The
27
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
Franco-Nevada warrant was considered a derivative instrument. The fair value of the warrant at
December 31, 2009 was $6.3 million. These derivative instruments are recorded in prepaid expenses
and other and current or
non-current portion of royalty obligation on the balance sheet and are adjusted to fair value
through current earnings. During the three months ended September 30, 2010, mark-to-market
adjustments for the embedded derivative and warrant amounted to a loss of $15.2 million and a gain
of $1.1 million, respectively and for the same period in 2009, a loss of $31.0 million and a gain
of $1.3 million, respectively. During the nine months ended September 30, 2010, mark-to-market
adjustments for the embedded derivative amounted to a loss of $46.8 million and a gain of $3.5
million, respectively, and for the same period in 2009, a loss of $49.2 million and a gain of $3.3
million, respectively. For the three and nine months ended September 30, 2010, realized losses on
settlement of the liabilities were $4.8 million and $11.6 million respectively. For the three and
nine months ended September 30, 2009, realized losses on settlements of liabilities were $0.9
million and $1.0 million, respectively. The mark-to-market adjustments and realized losses are
included in Fair value adjustments, net in the consolidated statement of operations.
Forward Foreign Exchange Contracts
The Company periodically enters into forward foreign currency contracts to reduce the foreign
exchange risk associated with forecasted Mexican peso (MXP) operating costs at its Palmarejo
mine. At September 30, 2010, the Company had MXP foreign exchange contracts of $20.7 million in
U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXP at a weighted
average exchange rate of 13.07 MXP to each U.S. dollar and had a fair value of $0.4 million at
September 30, 2010. The Company recorded mark-to-market gains (losses) of $0.3 million and $(0.04)
million for the three months ended September 30, 2010 and 2009, respectively, which is reflected in
fair value adjustments, net and $(0.9) million and $(3.3) million for the nine months ended
September 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 $0.4 million and
$0.3 million in Production costs applicable to sales during the three months ended September 30,
2010 and 2009, respectively, and $0.9 million and $0.9 million for the nine months ended September
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 lease facility, the Company received proceeds of $20
million for the sale of 23,529 ounces of gold leased from MIC to the Company.
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
consisting 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 23, 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.
As of September 30, 2010, the Company had 25,029 ounces of gold leased from MIC. The Company
has committed to deliver this number of ounces of gold to MIC on scheduled delivery dates in the
fourth quarter of 2010. As of September 30, 2010, the Company is required to pledge certain metal
inventory held by a refiner as collateral under the facility. The Company accounts for the gold
lease facility as a derivative instrument, which is recorded in accrued liabilities and other in
the balance sheet.
28
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
As of September 30, 2010 and December 31, 2009, based on the current futures metals prices for
each of the delivery dates and using a 4.7% and 5.7% discount rate, respectively, the fair value of
the instrument was a liability of $32.6 million and $28.5 million, respectively. The pre-credit
risk adjusted fair value of the net derivative liability as of September 30, 2010 was $32.7
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
$32.6 million. Mark-to market adjustments for the gold lease facility amounted
to a loss of $2.1 million and a loss of $2.9 million, respectively, for the three months ended
September 30, 2010 and 2009 and $2.8 million and $4.5 million for the nine months ended September
30, 2010 and 2009, respectively. The Company recorded realized losses of nil for the three months
ended September 30, 2010 and 2009 and $2.0 million and $0.2 million for the nine months ended
September 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 September 30, 2010,
the Company had outstanding provisionally priced sales of $25.0 million, consisting of 0.8 million
ounces of silver and 8,219 ounces of gold, which had a fair value of $26.7 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 September 30, 2010, these
contracts have expired.
During the nine months ended September 30, 2010, outstanding put options allowing the Company
to deliver 5.4 million ounces of silver at an average strike price of $9.21 per ounce expired. The
Company recorded realized losses of $0.5 million and $2.1 million for the three and nine months
ended September 30, 2010, respectively, included in Fair value adjustments, net.
During the three and nine months ended September 30, 2009, the Company recorded realized gains
of $0.4 million and $0.6 million, respectively, included in Fair value adjustments, net.
In connection with the Kensington Term Facility described in Note 9, Long-Term Debt and
Royalty Obligation, Kensington Term Facility, at September 30, 2010, the Company had written
outstanding call options requiring it to deliver 122,500 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. At
September 30, 2010, the Company had outstanding put options allowing it to sell 122,500 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 September
30, 2010, the fair market value of these contracts was a net liability of $7.7 million. During the
three months ended September 30, 2010, 2,500 ounces of gold call options at a weighted average
strike price of $1,688.50 per ounce expired resulting in a realized gain of $0.2 million and 2,500
ounces of gold put options at a weighted average strike price of $862.50 per ounce expired
resulting in a realized loss of $0.2 million.
29
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
During the third quarter of 2010, the Company purchased a forward gold contract of 10,000
ounces at a fixed price of $1,183.97. The contract expired in October 2010. During the three and
nine months ended September 30, 2010, the company recorded an unrealized gain of $1.2 million. As
of September 30, 2010, the fair value of this contract was a net asset of $1.2 million.
As of September 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 |
|
$ |
5,899 |
|
|
$ |
24,027 |
|
|
$ |
24,865 |
|
|
$ |
107,281 |
|
Average gold price in excess of
minimum
contractual deduction |
|
$ |
471.90 |
|
|
$ |
480.51 |
|
|
$ |
497.27 |
|
|
$ |
495.01 |
|
Notional ounces |
|
|
12,501 |
|
|
|
50,004 |
|
|
|
50,004 |
|
|
|
216,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican peso forward purchase
contracts |
|
|
7,500 |
|
|
|
13,200 |
|
|
|
|
|
|
|
|
|
Average rate (MXP/$) |
|
$ |
13.54 |
|
|
$ |
12.80 |
|
|
$ |
|
|
|
$ |
|
|
Mexican peso notional amount |
|
|
101,520 |
|
|
|
168,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold lease forward purchase
contracts |
|
$ |
24,690 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Average gold forward price |
|
$ |
986.44 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Notional ounces |
|
|
25,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces received from
Mandalay |
|
$ |
|
|
|
$ |
764 |
|
|
$ |
1,535 |
|
|
$ |
|
|
Average silver forward price |
|
$ |
|
|
|
$ |
18.33 |
|
|
$ |
18.42 |
|
|
$ |
|
|
Notional ounces |
|
|
|
|
|
|
41,667 |
|
|
|
83,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold forward contracts |
|
$ |
11,840 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Average gold forward price |
|
$ |
1,183.97 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Notional ounces |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver concentrate sales
agreements |
|
$ |
14,727 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Average silver price |
|
$ |
19.31 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Notional ounces |
|
|
762,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold concentrates sales
agreements |
|
$ |
10,255 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Average gold price |
|
$ |
1,247.78 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Notional ounces |
|
|
8,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold put options purchased |
|
$ |
180 |
|
|
$ |
3,240 |
|
|
$ |
2,880 |
|
|
$ |
2,520 |
|
Average gold strike price |
|
$ |
862.50 |
|
|
$ |
862.50 |
|
|
$ |
862.50 |
|
|
$ |
862.50 |
|
Notional ounces |
|
|
2,500 |
|
|
|
45,000 |
|
|
|
40,000 |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold call options sold |
|
$ |
180 |
|
|
$ |
3,240 |
|
|
$ |
2,880 |
|
|
$ |
2,520 |
|
Average gold strike price |
|
$ |
1,688.50 |
|
|
$ |
1,688.50 |
|
|
$ |
1,688.50 |
|
|
$ |
1,688.50 |
|
Notional ounces |
|
|
2,500 |
|
|
|
45,000 |
|
|
|
40,000 |
|
|
|
35,000 |
|
30
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 September 30, 2010 and December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Non-current |
|
|
|
Prepaid |
|
|
Other non- |
|
|
Accrued |
|
|
Other long- |
|
|
portion of |
|
|
portion of |
|
|
|
expenses and |
|
|
current |
|
|
liabilities and |
|
|
term |
|
|
royalty |
|
|
royalty |
|
|
|
other |
|
|
assets |
|
|
other |
|
|
liabilities |
|
|
obligation |
|
|
obligation |
|
Gold lease facility |
|
$ |
|
|
|
$ |
|
|
|
$ |
32,626 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Gold forward contract |
|
|
1,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces receivable from
Mandalay Resources |
|
|
452 |
|
|
|
2,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts |
|
|
613 |
|
|
|
|
|
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmarejo gold production royalty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,021 |
|
|
|
101,834 |
|
Put and call options, net |
|
|
|
|
|
|
|
|
|
|
774 |
|
|
|
6,885 |
|
|
|
|
|
|
|
|
|
Concentrate sales contracts |
|
|
1,767 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,070 |
|
|
$ |
2,254 |
|
|
$ |
33,592 |
|
|
$ |
6,885 |
|
|
$ |
23,021 |
|
|
$ |
101,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for the
three and nine months ended September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Gold lease facility |
|
$ |
(2,079 |
) |
|
$ |
(2,921 |
) |
|
$ |
(2,839 |
) |
|
$ |
(4,504 |
) |
Forward foreign exchange contracts |
|
|
279 |
|
|
|
(39 |
) |
|
|
(913 |
) |
|
|
(3,338 |
) |
Forward gold contract |
|
|
1,238 |
|
|
|
|
|
|
|
1,238 |
|
|
|
|
|
Silver ounces receivable |
|
|
447 |
|
|
|
|
|
|
|
447 |
|
|
|
|
|
Palmarejo gold royalty |
|
|
(15,168 |
) |
|
|
(30,969 |
) |
|
|
(46,841 |
) |
|
|
(49,179 |
) |
Franco-Nevada warrant |
|
|
1,118 |
|
|
|
1,306 |
|
|
|
3,451 |
|
|
|
3,254 |
|
Put and call options |
|
|
381 |
|
|
|
(2,942 |
) |
|
|
(4,706 |
) |
|
|
(1,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(13,784 |
) |
|
$ |
(35,565 |
) |
|
$ |
(50,163 |
) |
|
$ |
(55,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three months ended September 30, 2010 and 2009, the Company recorded realized
gains (losses) of $(5.3) million, $(0.2) million, respectively, in Fair value adjustments, net and
a gain of $0.4 million and
31
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
$0.3 million, respectively, in production costs applicable to sales
related to forward foreign exchange contracts. During the nine months ended September 30, 2010 and
2009, the Company recorded realized gains (losses) of $(15.7) million and $6.5 million in Fair
value adjustments, net respectively, and gains of $0.9 million and $0.9 million in production costs
applicable to sales related to forward foreign exchange contracts. Included in realized gains of
$6.5 million in the nine months ended 2009, is a $6.6 million realized gain related to a senior
secured floating note warrant and conversion option.
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 15 COMMITMENTS AND CONTINGENCIES
Labor Union Contracts
The Company maintains two labor agreements in South America, consisting of a labor agreement
with Associacion Obrera Minera Argentina at its Martha mine in Argentina and with Sindicato de la
Empresa Minera Manquiri at its San Bartolomé mine in Bolivia. The agreement at the Martha mine is
effective from June 1, 2010 to October 31, 2010. The labor agreement at the San Bartolomé mine,
which became effective October 11, 2007, does not have a fixed term. The Company was a party to a
labor agreement with Sindicato de Trabajadores de Compañía Minera Cerro Bayo Ltd. At its Cerro Bayo
mine in Chile. In connection with the sale of Cerro Bayo which closed on August 9, 2010, our
obligation under the agreement at Cerro Bayo terminated. As of September 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 approached what at the time was believed to be the end of its anticipated mine life. Employees were
required to render service until they were terminated in order to be eligible for benefits. The
workforce had been reduced by approximately 85% by the end of 2008, while the remaining employees
were expected to stay on for residual leaching and reclamation activities. As of September 30,
2010, the total amount of employee benefits expected to be incurred under this plan is
approximately $5.2 million. The Company has paid $3.9 million to employees previously terminated
under the program and expects to pay $1.3 million to the remaining employees upon their termination
at the end of residual leaching and reclamation activities. The liability is recognized ratably
over the minimum future service period. The amounts accrued for the three and nine months ended
September 30, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Beginning balance |
|
$ |
752 |
|
|
$ |
533 |
|
|
$ |
589 |
|
|
$ |
445 |
|
Accruals |
|
|
53 |
|
|
|
16 |
|
|
|
216 |
|
|
|
104 |
|
Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
805 |
|
|
$ |
549 |
|
|
$ |
805 |
|
|
$ |
549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
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 those in 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 $4.2 million as of September
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 16 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 83% and 81% of total metal sales for
the nine months ended September 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, China and the United States (Peñoles, Valcambi, Nyrstar, China
National Gold and Johnson Matthey). Sales of silver concentrates to third-party smelters amounted
to approximately 17% and 19% of total metal sales for the nine months ended September 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 make up for the loss of any smelter.
NOTE 17 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, the
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 August 9, 2010, the Company completed the sale of its 100% interest in
Compañía Minera Cerro Bayo and as of July 30, 2009, the Company completed the sale of its interest
in the Broken Hill mine (See Note 4). All operating segments are engaged in the discovery or
mining of gold and silver and generate the majority of their revenues from the sale of these
precious metal concentrates or refined precious metals. The Martha mine
33
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
sells precious metal
concentrates, typically under long-term contracts, to smelters located in Mexico. The Kensington
mine sells precious metal concentrates, typically under long-term contracts, to smelters in China.
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, Valcambi 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 $68.1 million in the three months ended
September 30, 2010 and 2009, respectively, and $206.6 million and $164.7 million for the nine
months ended September 30, 2010 and 2009, respectively. Revenues from gold sales were $45.3
million and $22.2 million in the three
months ended September 30, 2010 and 2009, respectively, and $101.3 million and $36.8 million
for the nine months ended September 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 |
|
|
|
|
|
|
|
September 30, 2010 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
61,459 |
|
|
$ |
5,828 |
|
|
$ |
30,009 |
|
|
$ |
11,028 |
|
|
$ |
1,720 |
|
|
$ |
8,520 |
|
|
$ |
|
|
|
$ |
118,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
31,340 |
|
|
|
2,770 |
|
|
|
12,902 |
|
|
|
5,284 |
|
|
|
685 |
|
|
|
7,421 |
|
|
|
|
|
|
|
60,402 |
|
Depreciation and depletion |
|
|
22,490 |
|
|
|
445 |
|
|
|
4,943 |
|
|
|
2,244 |
|
|
|
330 |
|
|
|
7,220 |
|
|
|
129 |
|
|
|
37,801 |
|
Exploration expense |
|
|
1,282 |
|
|
|
123 |
|
|
|
1 |
|
|
|
1,437 |
|
|
|
|
|
|
|
438 |
|
|
|
559 |
|
|
|
3,840 |
|
Other operating expenses |
|
|
1 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
5,722 |
|
|
|
6,045 |
|
Interest and other income |
|
|
381 |
|
|
|
|
|
|
|
(244 |
) |
|
|
(747 |
) |
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(638 |
) |
Interest expense |
|
|
(5,558 |
) |
|
|
|
|
|
|
(92 |
) |
|
|
(247 |
) |
|
|
|
|
|
|
(899 |
) |
|
|
(3,155 |
) |
|
|
(9,951 |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(806 |
) |
|
|
(806 |
) |
Fair market adjustments, net |
|
|
(18,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142 |
) |
|
|
(115 |
) |
|
|
(19,107 |
) |
Income tax benefit (expense) |
|
|
5,200 |
|
|
|
|
|
|
|
(6,461 |
) |
|
|
(3,504 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
1,539 |
|
|
|
(3,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(12,481 |
) |
|
|
2,338 |
|
|
|
5,366 |
|
|
|
(2,435 |
) |
|
|
705 |
|
|
|
(7,805 |
) |
|
|
(8,947 |
) |
|
|
(23,259 |
) |
Loss from discontinued operations, net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251 |
) |
|
|
(251 |
) |
Gain on sale of discontinued
operations, net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
882 |
|
|
|
882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(12,481 |
) |
|
$ |
2,338 |
|
|
$ |
5,366 |
|
|
$ |
(2,435 |
) |
|
$ |
705 |
|
|
$ |
(7,805 |
) |
|
$ |
(8,316 |
) |
|
$ |
(22,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (A) |
|
$ |
2,126,953 |
|
|
$ |
30,786 |
|
|
$ |
276,150 |
|
|
$ |
22,130 |
|
|
$ |
39,316 |
|
|
$ |
499,958 |
|
|
$ |
17,646 |
|
|
$ |
3,012,939 |
|
Capital expenditures (B) |
|
$ |
15,809 |
|
|
$ |
139 |
|
|
$ |
806 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
20,022 |
|
|
$ |
7 |
|
|
$ |
36,783 |
|
34
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
September 30, 2009 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
32,757 |
|
|
$ |
9,283 |
|
|
$ |
31,533 |
|
|
$ |
15,165 |
|
|
$ |
1,567 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
90,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
23,417 |
|
|
|
5,366 |
|
|
|
25,214 |
|
|
|
5,123 |
|
|
|
573 |
|
|
|
|
|
|
|
|
|
|
$ |
59,693 |
|
Depreciation and depletion |
|
|
19,948 |
|
|
|
464 |
|
|
|
5,191 |
|
|
|
1,595 |
|
|
|
264 |
|
|
|
|
|
|
|
129 |
|
|
$ |
27,591 |
|
Exploration expense |
|
|
502 |
|
|
|
|
|
|
|
15 |
|
|
|
940 |
|
|
|
|
|
|
|
87 |
|
|
|
818 |
|
|
$ |
2,362 |
|
Other operating expenses |
|
|
157 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
4,512 |
|
|
$ |
4,780 |
|
Interest and other income |
|
|
(594 |
) |
|
|
|
|
|
|
(349 |
) |
|
|
(560 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
262 |
|
|
$ |
(1,245 |
) |
Interest expense |
|
|
(5,637 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(406 |
) |
|
$ |
(6,088 |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,947 |
) |
|
$ |
(2,947 |
) |
Fair market adjustments, net |
|
|
(30,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,181 |
) |
|
$ |
(35,718 |
) |
Income tax benefit (expense) |
|
|
(11,868 |
) |
|
|
|
|
|
|
128 |
|
|
|
(2,913 |
) |
|
|
|
|
|
|
12 |
|
|
|
28,069 |
|
|
$ |
13,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(59,903 |
) |
|
|
3,341 |
|
|
|
880 |
|
|
|
4,003 |
|
|
|
730 |
|
|
|
(80 |
) |
|
|
14,338 |
|
|
$ |
(36,691 |
) |
Loss from discontinued operations net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,003 |
) |
|
$ |
(3,003 |
) |
Gain on sale of discontinued operations,
net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,411 |
|
|
$ |
22,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(59,903 |
) |
|
$ |
3,341 |
|
|
$ |
880 |
|
|
$ |
4,003 |
|
|
$ |
730 |
|
|
$ |
(80 |
) |
|
$ |
33,746 |
|
|
$ |
(17,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (A) |
|
$ |
2,119,350 |
|
|
$ |
34,863 |
|
|
$ |
280,038 |
|
|
$ |
37,100 |
|
|
$ |
40,390 |
|
|
$ |
370,053 |
|
|
$ |
13,044 |
|
|
$ |
2,894,838 |
|
Capital expenditures (B) |
|
$ |
42,253 |
|
|
$ |
5 |
|
|
$ |
1,441 |
|
|
$ |
334 |
|
|
$ |
|
|
|
$ |
10,041 |
|
|
$ |
296 |
|
|
$ |
54,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
September 30, 2010 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
151,907 |
|
|
$ |
28,995 |
|
|
$ |
75,876 |
|
|
$ |
35,235 |
|
|
$ |
7,338 |
|
|
$ |
8,520 |
|
|
$ |
|
|
|
$ |
307,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
92,107 |
|
|
|
14,154 |
|
|
|
37,645 |
|
|
|
16,742 |
|
|
|
2,726 |
|
|
|
7,421 |
|
|
|
|
|
|
|
170,795 |
|
Depreciation and depletion |
|
|
63,574 |
|
|
|
1,368 |
|
|
|
14,152 |
|
|
|
7,348 |
|
|
|
1,440 |
|
|
|
7,220 |
|
|
|
401 |
|
|
|
95,503 |
|
Exploration expense |
|
|
3,069 |
|
|
|
164 |
|
|
|
1 |
|
|
|
3,852 |
|
|
|
|
|
|
|
680 |
|
|
|
1,755 |
|
|
|
9,521 |
|
Other operating expenses |
|
|
352 |
|
|
|
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
19,125 |
|
|
|
20,572 |
|
Interest and other income |
|
|
642 |
|
|
|
1 |
|
|
|
(388 |
) |
|
|
(3,697 |
) |
|
|
|
|
|
|
(28 |
) |
|
|
745 |
|
|
|
(2,725 |
) |
Interest expense |
|
|
(16,426 |
) |
|
|
|
|
|
|
(255 |
) |
|
|
(302 |
) |
|
|
|
|
|
|
(899 |
) |
|
|
(3,520 |
) |
|
|
(21,402 |
) |
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,714 |
) |
|
|
(12,714 |
) |
Fair market adjustments, net |
|
|
(55,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,694 |
) |
|
|
(4,158 |
) |
|
|
(65,881 |
) |
Income tax benefit (expense) |
|
|
12,897 |
|
|
|
|
|
|
|
(10,962 |
) |
|
|
(5,677 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
21,726 |
|
|
|
17,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(65,111 |
) |
|
|
12,385 |
|
|
|
12,473 |
|
|
|
(2,383 |
) |
|
|
3,172 |
|
|
|
(14,599 |
) |
|
|
(19,202 |
) |
|
|
(73,265 |
) |
Loss from discontinued operations net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,029 |
) |
|
|
(6,029 |
) |
Loss on sales of discontinued operations,
net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,095 |
) |
|
|
(2,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(65,111 |
) |
|
$ |
12,385 |
|
|
$ |
12,473 |
|
|
$ |
(2,383 |
) |
|
$ |
3,172 |
|
|
$ |
(14,599 |
) |
|
$ |
(27,326 |
) |
|
$ |
(81,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (A) |
|
$ |
2,126,953 |
|
|
$ |
30,786 |
|
|
$ |
276,150 |
|
|
$ |
22,130 |
|
|
$ |
39,316 |
|
|
$ |
499,958 |
|
|
$ |
17,646 |
|
|
$ |
3,012,939 |
|
Capital expenditures (B) |
|
$ |
43,128 |
|
|
$ |
226 |
|
|
$ |
2,677 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
83,119 |
|
|
$ |
286 |
|
|
$ |
129,439 |
|
35
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
Palmarejo |
|
|
Rochester |
|
|
Bartolomé |
|
|
Martha |
|
|
Endeavor |
|
|
Kensington |
|
|
|
|
|
|
|
September 30, 2009 |
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Mine |
|
|
Project |
|
|
Other |
|
|
Total |
|
Sales of metals |
|
$ |
47,006 |
|
|
$ |
29,146 |
|
|
$ |
87,108 |
|
|
$ |
34,060 |
|
|
$ |
4,211 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
201,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
37,087 |
|
|
|
16,312 |
|
|
|
62,792 |
|
|
|
15,682 |
|
|
|
1,390 |
|
|
|
|
|
|
|
|
|
|
$ |
133,263 |
|
Depreciation and depletion |
|
|
32,328 |
|
|
|
1,391 |
|
|
|
15,138 |
|
|
|
4,080 |
|
|
|
945 |
|
|
|
|
|
|
|
400 |
|
|
$ |
54,282 |
|
Exploration expense |
|
|
4,082 |
|
|
|
|
|
|
|
31 |
|
|
|
2,092 |
|
|
|
|
|
|
|
141 |
|
|
|
2,286 |
|
|
$ |
8,632 |
|
Other operating expenses |
|
|
837 |
|
|
|
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
16,488 |
|
|
$ |
17,933 |
|
Interest and other income |
|
|
(121 |
) |
|
|
103 |
|
|
|
1,114 |
|
|
|
(1,854 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
1,584 |
|
|
$ |
822 |
|
Interest expense |
|
|
(7,903 |
) |
|
|
|
|
|
|
(73 |
) |
|
|
(401 |
) |
|
|
|
|
|
|
(16 |
) |
|
|
(3,654 |
) |
|
$ |
(12,047 |
) |
Gain on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,430 |
|
|
$ |
35,430 |
|
Unrealized (losses) on derivatives and other |
|
|
(46,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,385 |
) |
|
$ |
(49,269 |
) |
Fair market adjustments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Income tax benefit (expense) |
|
|
21,219 |
|
|
|
|
|
|
|
(8,505 |
) |
|
|
(4,609 |
) |
|
|
|
|
|
|
12 |
|
|
|
8,950 |
|
|
$ |
17,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(61,017 |
) |
|
|
10,977 |
|
|
|
1,683 |
|
|
|
5,342 |
|
|
|
1,876 |
|
|
|
(188 |
) |
|
|
20,751 |
|
|
|
(20,576 |
) |
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,451 |
) |
|
$ |
(1,451 |
) |
Gain on sale of discontinued operations,
net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,411 |
|
|
$ |
22,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(61,017 |
) |
|
$ |
10,977 |
|
|
$ |
1,683 |
|
|
$ |
5,342 |
|
|
$ |
1,876 |
|
|
$ |
(188 |
) |
|
$ |
41,711 |
|
|
$ |
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets (A) |
|
$ |
2,119,350 |
|
|
$ |
34,863 |
|
|
$ |
280,038 |
|
|
$ |
37,100 |
|
|
$ |
40,390 |
|
|
$ |
370,053 |
|
|
$ |
13,044 |
|
|
$ |
2,894,838 |
|
Capital expenditures (B) |
|
$ |
139,945 |
|
|
$ |
277 |
|
|
$ |
9,683 |
|
|
$ |
1,121 |
|
|
$ |
|
|
|
$ |
22,633 |
|
|
$ |
1,190 |
|
|
$ |
174,849 |
|
|
|
|
(A) |
|
Segment assets consist of receivables, prepaids, inventories, property, plant
and equipment, and mining properties |
|
(B) |
|
Balance represents cash flow amounts |
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Total assets for reportable segments |
|
$ |
3,012,939 |
|
|
$ |
2,894,838 |
|
Assets of discontinued operations |
|
|
|
|
|
|
44,657 |
|
Cash and cash equivalents |
|
|
27,792 |
|
|
|
45,603 |
|
Short-term investments |
|
|
5,031 |
|
|
|
|
|
Other assets |
|
|
79,251 |
|
|
|
74,661 |
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
3,125,013 |
|
|
$ |
3,059,759 |
|
|
|
|
|
|
|
|
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2010 |
|
|
2009 |
|
Long Lived Assets: |
|
|
|
|
|
|
|
|
United States |
|
$ |
485,067 |
|
|
$ |
374,743 |
|
Mexico |
|
|
2,037,027 |
|
|
|
2,056,275 |
|
Bolivia |
|
|
237,251 |
|
|
|
252,036 |
|
Australia |
|
|
37,696 |
|
|
|
39,462 |
|
Argentina |
|
|
3,223 |
|
|
|
15,220 |
|
Chile |
|
|
19 |
|
|
|
30,487 |
|
Other countries |
|
|
143 |
|
|
|
144 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,800,426 |
|
|
$ |
2,768,367 |
|
|
|
|
|
|
|
|
36
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
14,348 |
|
|
$ |
9,283 |
|
|
$ |
37,515 |
|
|
$ |
29,146 |
|
Mexico |
|
|
61,459 |
|
|
|
32,757 |
|
|
|
151,907 |
|
|
|
47,006 |
|
Bolivia |
|
|
30,009 |
|
|
|
31,533 |
|
|
|
75,876 |
|
|
|
87,108 |
|
Australia |
|
|
1,720 |
|
|
|
1,567 |
|
|
|
7,338 |
|
|
|
4,211 |
|
Argentina |
|
|
11,028 |
|
|
|
15,165 |
|
|
|
35,235 |
|
|
|
34,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
118,564 |
|
|
$ |
90,305 |
|
|
$ |
307,871 |
|
|
$ |
201,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 18 LITIGATION AND OTHER EVENTS
Idaho, Colorado, Maine and Washington 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 supporting a conclusion that Callahan
is a potentially liable person for a release of a hazardous substance at the Van Stone mine located
approximately 21 miles northeast of Colville, Washington. The rights and liabilities of a
potentially liable person are described under
37
Coeur dAlene Mines Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited) (Continued)
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. The Company did not make decisions with respect to generation, transport or disposal
of hazardous waste at this location. 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.
38
|
|
|
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 the 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 reserves and
resources 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 and the risk factors set forth under Item 1A (Risk Factors) of the Companys Annual Report on Form 10-K for the year ended December 31, 2009;
(ii) risks and hazards inherent in the mining business (including environmental hazards, industrial
accidents, weather and 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 possible inability 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 and
gold 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 are not measurements 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 nine months of 2010. The Kensington mine, the
Companys newest operating mine, began processing ore on June 24, 2010 and began commercial production July 3, 2010. The Company sold its Cerro Bayo
mine in Chile in August 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 cash flow, provide opportunities for growth through
continued exploration, and generate superior and sustainable returns for shareholders. The
Companys
39
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
In the third quarter of 2010, the Companys total silver production decreased 0.9 million
ounces to 4.3 million ounces as compared to 5.2 million ounces in the comparable period in 2009.
The decrease is primarily due to lower production from San Bartolomé, due to continued mining
restrictions above the 4,400 meter level, and lower production from the Martha mine, offset in part by significantly increased production
from the Palmarejo mine. The Companys total gold production in the third quarter of 2010
increased 18,559, or 64.1%, to 47,514 ounces, as compared to 28,955 ounces in the comparable period
in 2009. The increase was driven by the Palmarejo mine which operated at full capacity during the
third quarter of 2010 and the Kensington mine which commenced commercial operations on July 3,
2010.
Metal Prices
Sales of metal increased $28.3 million, or 31.3%, to $118.6 million in the third quarter of
2010, compared to $90.3 million in the third 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 $106.3 million, or 52.8%, during the first
nine months of 2010 to $307.9 million, as compared to $201.5 million in the comparable period of
2009. The Companys average realized silver and gold prices during the third quarter were $18.87
per ounce and $1,228.51 per ounce, respectively, representing increases of 30.0% and 28.9%
respectively, over last years third quarter. Silver production contributed 73.3% of the Companys
total metal sales during the third quarter, compared to 68.1% during the third quarter of 2009.
Earnings
The Company reported operating income of $10.5 million and $11.5 million for the three months
and nine months, respectively, ended September 30, 2010. The Company reported a net loss of $22.6
million, or $0.25 per share, for the three months ended September 30, 2010 and a net loss of $81.4
million, or $0.94 per share, for the nine months ended September 30, 2010. The net losses reflect
$19.1 million and $65.9 million, respectively, of non-cash fair value adjustments, driven primarily
by higher gold prices which increased the estimated future liabilities related to the Franco-Nevada
royalty obligation, gold lease facility and put and call options.
In comparison, the Company had operating losses of $4.1 million and $12.6 million during the
three months and nine months, respectively, ended September 30, 2009. The Company reported a net
loss of $17.3 million, or $0.23 per share, for the three months ended September 30, 2009 and net
income of $0.4 million, or $0.01 per share, for the nine months ended September 30, 2009. The
operating losses
40
reported in the 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
full-scale production.
The Company recognized $12.7 million of losses on debt extinguishments during the nine months
ended September 30, 2010 for 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 $35.4 million during the nine months ended September 30, 2009. The increase in the loss is
primarily due to variations in the fair market value of the Companys bond prices. There were no
debt exchanges in the third quarter of 2010.
Increases in interest expense during the three and nine months ended September 30, 2010 as
compared to the same periods in 2009, are primarily due to a decrease in capitalized interest
related to placing the Kensington mine into service on July 3, 2010, thereby decreasing capitalized
interest in 2010 coupled with new borrowings related to the Kensington Term Facility and the Senior
Term Notes due December 31, 2012.
Other Highlights
In addition to the matters discussed above regarding the key elements of the Companys
business strategy, the matters management considers most important in evaluating the Companys
financial condition and results of operations include:
|
|
The average price of silver (Handy & Harman) and gold (London Final) for the nine months
ended September 30, 2010 was $18.12 and $1,177.85 per ounce, respectively compared to $13.73 and $930.60 per ounce, respectively, for the nine months ended September 30, 2009. The market price
of silver and gold on November 1, 2010 was $24.66 per ounce and $1,354.50 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 three months ended September 30, 2010 Palmarejo produced 1.5 million ounces of
silver and 29,823 ounces of gold, representing increases of 41% and 49%, respectively, over
the prior quarter. |
|
|
|
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 1.8 million ounces of silver during
the third quarter of 2010, consistent with the second quarter of 2010, while cash operating
costs decreased 9.4% to $7.05 per silver ounce. In March 2010, 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 an 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 Mine for further details. |
|
|
|
The Company owns 100% of Coeur Alaska, Inc., which owns the Kensington property, located
north of Juneau, Alaska, The Kensington mine began processing ore on June 24, 2010 and which
began commercial production July 3, 2010. Kensington produced 15,155 ounces of gold during
the third quarter of 2010, and the mine is expected to ramp up production for the remainder of
the year. |
41
|
|
The Company owns 100% of Coeur Rochester, Inc., which has 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. In addition, the
Company recently completed a feasibility study regarding the continuation of mining operations
at its Rochester mine. This expansion would increase average annual production to 2.4 million
ounces of silver and 35,000 ounces of gold. In October 2010 the Company received a key
permitting decision record from the Bureau of Land Management (BLM) to support the resumption
of active mining operations. Rochester produced 419,433 ounces of silver and 1,935 ounces of
gold in the third quarter 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
third quarter of 2010, Martha produced 510,685 ounces of silver and 601 ounces of gold. |
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 discovered.
Operating Highlights and Statistics
South American Operations
San Bartolomé Mine:
Silver production for the third quarter of 2010 was 1.8 million ounces of silver, which was
consistent with the second quarter of 2010 and approximately 15.0% lower compared to the third
quarter of 2009. Total cash operating costs per ounce during the third quarter of 2010 were $7.05
and total cash costs per ounce, including royalties and taxes, were $7.83, compared to $7.78 and
$8.32, respectively, in the second quarter of 2010 and $7.63 and $11.17, respectively, during the
third quarter of 2009. Despite a decrease in tons milled, silver ore grades rose 14% higher and
recovery rates increased 5% to offset this reduced throughput, as compared to the second quarter of
2010.
Silver production for the first nine months of 2010 was 4.7 million ounces of silver compared
to 6.1 million ounces in the nine months ended September 30, 2009. Cash operating costs per ounce
in the nine months ended September 30, 2010 were $7.99 and total cash costs per ounce were $8.69,
compared to $7.24 and $9.98, respectively, in the nine months ended September 30, 2009. Lower
production and higher cash operating costs per ounce in the nine months ended September 30, 2010
compared to the nine months ended September 30, 2009 were due to the temporary suspension of mining
above the 4,400 meter 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 a
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
42
confine its activities to the ore deposits below 4,400 meters above sea level. In
March 2010, San Bartolomé began 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,
although restrictions on mining above the 4,400 meter level continue. 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 effect on production and cost at the mine. Other mining areas above the 4,400
meter level continue to be suspended. 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
suspension will remain in place.
Martha Mine:
Silver production decreased 56.7% to 510,685 ounces in the third quarter of 2010 compared to
1.2 million ounces in the third quarter of 2009. Total cash operating costs per ounce in the third
quarter of 2010 were $9.86 and total cash costs per ounce, including royalties and taxes, were
$11.04, as compared to $5.54 and $6.02, respectively, during the third quarter of 2009. The
decrease in silver production was primarily due to a 55.0% decrease in tons milled.
Silver production was 1.4 million ounces in the nine months ended September 30, 2010 compared
to 2.7 million ounces in the nine months ended September 30, 2009. Total cash operating costs per
ounce in the nine months ending September 30, 2010 was $10.96 and total cash costs, including
royalties and taxes, were $11.74, compared to $6.22 and $6.68, respectively, during the nine months
ended September 30, 2009. The decrease in silver production and increase in total cash costs per
ounce was primarily due to the 48.7% decrease in tons milled.
North American Operations
Palmarejo Mine:
Production during the third quarter of 2010 was 1.5 million ounces of silver and 29,823 ounces
of gold representing increases of 18.1% and 22.8%, respectively, compared to the third quarter of
2009. Cash operating costs and total cash costs during the third quarter decreased by 98.3% to
$0.15 per ounce compared to the third quarter of 2009. The increase in production levels are
primarily due to a 25.7% increase in silver ore grades, and 33.3% increase in gold ore grades as
compared to last years third quarter.
Silver production at the Palmarejo mine during the nine months ended September 30, 2010 was
3.9 million ounces and gold production was 72,350, compared to 1.9 million ounces of silver and
34,019 ounces of gold in the nine months ended September 30, 2009. Cash operating costs and total
cash costs per ounce were $4.85 compared to $12.13 in the nine months ended September 30, 2009.
The increase in production and decrease in cash costs per ounce were primarily attributed to a
90.0% increase in tons milled, an 8.7% increase in silver recoveries and a 2.8% increase in gold
recoveries as compared to the same period last year which was a partial year of operating
activities.
Rochester Mine:
Production was 419,433 ounces of silver and 1,935 ounces of gold during the third quarter of
2010 compared to 528,637 ounces of silver and 3,097 ounces of gold in the third 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 third quarter of 2010 were
$5.10 and total cash costs per ounce, including production taxes, were $5.82 in the third quarter
of 2010 as compared to total cash operating costs per ounce of $2.77 and total cash costs per ounce
of $3.67 in the third quarter of 2009. The increase in total cash cost per ounce was primarily due
to a decrease in production as described above.
43
Production at the Rochester mine in the nine months ended September 30, 2010, was 1.5 million
ounces of silver and 7,241 ounces of gold, compared to 1.5 million ounces of silver and 9,146
ounces of gold in the nine months ended September 30, 2009. Cash operating costs per ounce were
$2.93 and total cash costs which include production taxes were $3.55, compared to $2.69 and $3.32,
respectively, in the nine months ending September 30, 2009. The increase in cash costs per ounce
was primarily due to a decrease in production due to continued leach down of ore on the leach pad
along with a lack of incremental ore production.
The Company is working towards a potential restart of active mining at the Rochester mine in 2011.
In furtherance of that, the Company has completed a feasibility study and in October 2010 received a key permitting decision record from the Bureau of Land Management (BLM) to
support the resumption of active mining operation.
Australia Operations
Endeavor Mine:
Silver production at the Endeavor mine in the third quarter of 2010 was 102,053 ounces
compared to 102,973 ounces in the third quarter of 2009. Total cash costs per ounce of silver
produced were $10.32 in the third quarter of 2010 compared to $7.09 in the third quarter of 2009.
The increase in total cash cost per ounce was primarily due to the price participation component
terms of the transaction, in accordance with the silver purchase agreement with CBH Resources Ltd.
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 nine months ended September 30, 2010 was 0.4 million ounces compared
to 0.4 million ounces in the nine months ended September 30, 2009. The increase in silver
production was due to an 8.5% increase in tons milled and an increase of 34.6% in ore grades
compared to the nine months ended September 30, 2009. Total cash costs per ounce were $8.56 in the
nine months ended September 30, 2010 compared to $5.96 in the nine months ended September 30, 2009.
The increase in total cash costs per ounce was primarily due to the price participation component
terms described above.
As of September 30, 2010, CDE Australia Pty Ltd had recovered approximately 58% of the
transaction consideration consisting of 2.9 million payable ounces, or 15% 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 nine month periods ended September 30, 2010 and 2009:
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Silver Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palmarejo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
405,742 |
|
|
|
410,137 |
|
|
|
1,321,017 |
|
|
|
695,232 |
|
Ore grade/Ag oz |
|
|
5.33 |
|
|
|
4.24 |
|
|
|
4.11 |
|
|
|
4.08 |
|
Ore grade/Au oz |
|
|
0.08 |
|
|
|
0.06 |
|
|
|
0.06 |
|
|
|
0.06 |
|
Recovery/Ag oz |
|
|
69.6 |
% |
|
|
73.4 |
% |
|
|
71.4 |
% |
|
|
65.7 |
% |
Recovery/Au oz |
|
|
94.4 |
% |
|
|
94.3 |
% |
|
|
91.4 |
% |
|
|
88.9 |
% |
Silver production ounces |
|
|
1,506,742 |
|
|
|
1,275,904 |
|
|
|
3,877,972 |
|
|
|
1,863,620 |
|
Gold production ounces |
|
|
29,823 |
|
|
|
24,289 |
|
|
|
72,350 |
|
|
|
34,019 |
|
Cash operating costs/oz |
|
$ |
0.15 |
|
|
$ |
8.76 |
|
|
$ |
4.85 |
|
|
$ |
12.13 |
|
Cash cost/oz |
|
$ |
0.15 |
|
|
$ |
8.76 |
|
|
$ |
4.85 |
|
|
$ |
12.13 |
|
Total production cost/oz |
|
$ |
15.08 |
|
|
$ |
24.41 |
|
|
$ |
21.24 |
|
|
$ |
29.48 |
|
San Bartolomé |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
360,605 |
|
|
|
431,218 |
|
|
|
1,100,619 |
|
|
|
1,147,935 |
|
Ore grade/Ag oz |
|
|
5.70 |
|
|
|
5.36 |
|
|
|
4.89 |
|
|
|
6.05 |
|
Recovery/Ag oz |
|
|
87.2 |
% |
|
|
91.3 |
% |
|
|
87.2 |
% |
|
|
88.5 |
% |
Silver production ounces |
|
|
1,794,617 |
|
|
|
2,111,313 |
|
|
|
4,697,685 |
|
|
|
6,141,223 |
|
Cash operating costs/oz |
|
$ |
7.05 |
|
|
$ |
7.63 |
|
|
$ |
7.99 |
|
|
$ |
7.24 |
|
Cash cost/oz |
|
$ |
7.83 |
|
|
$ |
11.17 |
|
|
$ |
8.69 |
|
|
$ |
9.98 |
|
Total production cost/oz |
|
$ |
10.58 |
|
|
$ |
13.63 |
|
|
$ |
11.70 |
|
|
$ |
12.45 |
|
Martha |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
12,790 |
|
|
|
28,431 |
|
|
|
42,786 |
|
|
|
83,344 |
|
Ore grade/Ag oz |
|
|
42.42 |
|
|
|
42.56 |
|
|
|
37.36 |
|
|
|
34.30 |
|
Ore grade/Au oz |
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.04 |
|
|
|
0.05 |
|
Recovery/Ag oz |
|
|
96.3 |
% |
|
|
97.4 |
% |
|
|
89.9 |
% |
|
|
94.2 |
% |
Recovery/Au oz |
|
|
93.6 |
% |
|
|
93.0 |
% |
|
|
88.0 |
% |
|
|
87.9 |
% |
Silver production ounces |
|
|
510,685 |
|
|
|
1,178,088 |
|
|
|
1,425,796 |
|
|
|
2,693,993 |
|
Gold production ounces |
|
|
601 |
|
|
|
1,569 |
|
|
|
1,675 |
|
|
|
3,376 |
|
Cash operating costs/oz |
|
$ |
9.86 |
|
|
$ |
5.54 |
|
|
$ |
10.96 |
|
|
$ |
6.22 |
|
Cash cost/oz |
|
$ |
11.04 |
|
|
$ |
6.02 |
|
|
$ |
11.74 |
|
|
$ |
6.68 |
|
Total production cost/oz |
|
$ |
16.98 |
|
|
$ |
7.48 |
|
|
$ |
17.24 |
|
|
$ |
8.19 |
|
Rochester (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver production ounces |
|
|
419,433 |
|
|
|
528,037 |
|
|
|
1,474,686 |
|
|
|
1,541,441 |
|
Gold production ounces |
|
|
1,935 |
|
|
|
3,097 |
|
|
|
7,241 |
|
|
|
9,146 |
|
Cash operating costs/oz |
|
$ |
5.10 |
|
|
$ |
2.77 |
|
|
$ |
2.93 |
|
|
$ |
2.69 |
|
Cash cost/oz |
|
$ |
5.82 |
|
|
$ |
3.67 |
|
|
$ |
3.55 |
|
|
$ |
3.32 |
|
Total production cost/oz |
|
$ |
7.01 |
|
|
$ |
4.58 |
|
|
$ |
4.62 |
|
|
$ |
4.29 |
|
Endeavor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
188,198 |
|
|
|
130,319 |
|
|
|
464,379 |
|
|
|
428,162 |
|
Ore grade/Ag oz |
|
|
1.45 |
|
|
|
1.76 |
|
|
|
2.14 |
|
|
|
1.59 |
|
Recovery/Ag oz |
|
|
37.3 |
% |
|
|
45.0 |
% |
|
|
44.9 |
% |
|
|
54.1 |
% |
Silver production ounces |
|
|
102,053 |
|
|
|
102,973 |
|
|
|
445,752 |
|
|
|
367,492 |
|
Cash operating costs/oz |
|
$ |
10.32 |
|
|
$ |
7.09 |
|
|
$ |
8.56 |
|
|
$ |
5.96 |
|
Cash cost/oz |
|
$ |
10.32 |
|
|
$ |
7.09 |
|
|
$ |
8.56 |
|
|
$ |
5.96 |
|
Total production cost/oz |
|
$ |
13.55 |
|
|
$ |
9.66 |
|
|
$ |
11.79 |
|
|
$ |
8.53 |
|
Gold Operation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kensington(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons milled |
|
|
90,254 |
|
|
|
|
|
|
|
90,254 |
|
|
|
|
|
Ore grade/AU oz |
|
|
0.19 |
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
Rocovery/AU oz |
|
|
87.7 |
% |
|
|
|
|
|
|
87.7 |
% |
|
|
|
|
Gold production ounces |
|
|
15,155 |
|
|
|
|
|
|
|
15,155 |
|
|
|
|
|
Cash operating costs/oz |
|
$ |
1,199.20 |
|
|
$ |
|
|
|
$ |
1,199.20 |
|
|
$ |
|
|
Cash cost/oz |
|
$ |
1,199.20 |
|
|
$ |
|
|
|
$ |
1,199.20 |
|
|
$ |
|
|
Total production cost/oz |
|
$ |
1,675.56 |
|
|
$ |
|
|
|
$ |
1,675.56 |
|
|
$ |
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
CONSOLIDATED PRODUCTION TOTALS(C) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Silver ounces |
|
|
4,333,530 |
|
|
|
5,196,315 |
|
|
|
11,921,891 |
|
|
|
12,607,769 |
|
Total Gold ounces |
|
|
47,514 |
|
|
|
28,955 |
|
|
|
96,421 |
|
|
|
46,541 |
|
Silver Operations:(D) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash operating costs per oz/silver |
|
$ |
4.87 |
|
|
$ |
6.93 |
|
|
$ |
6.72 |
|
|
$ |
7.15 |
|
Cash cost per oz/silver |
|
$ |
5.40 |
|
|
$ |
8.57 |
|
|
$ |
7.17 |
|
|
$ |
8.66 |
|
Total production cost/oz |
|
$ |
12.62 |
|
|
$ |
13.88 |
|
|
$ |
14.59 |
|
|
$ |
12.94 |
|
Gold Operation:(E) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash operating costs/oz |
|
$ |
1,199.20 |
|
|
$ |
|
|
|
$ |
1,199.20 |
|
|
$ |
|
|
Cash cost/oz |
|
$ |
1,199.20 |
|
|
$ |
|
|
|
$ |
1,199.20 |
|
|
$ |
|
|
Total production cost/oz |
|
$ |
1,675.56 |
|
|
$ |
|
|
|
$ |
1,675.56 |
|
|
$ |
|
|
CONSOLIDATED SALES TOTALS (F) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver ounces sold |
|
|
3,861,696 |
|
|
|
4,667,423 |
|
|
|
11,547,775 |
|
|
|
12,156,493 |
|
Gold ounces sold |
|
|
37,507 |
|
|
|
23,027 |
|
|
|
86,890 |
|
|
|
38,968 |
|
Realized price per silver ounce |
|
$ |
18.87 |
|
|
$ |
14.52 |
|
|
$ |
18.12 |
|
|
$ |
13.72 |
|
Realized price per gold ounce |
|
$ |
1,228.51 |
|
|
$ |
952.86 |
|
|
$ |
1,177.31 |
|
|
$ |
945.03 |
|
|
|
|
(A) |
|
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. |
|
(B) |
|
Kensington achieved commercial production on July 3, 2010. |
|
(C) |
|
Current production ounces and recoveries reflect final metal settlements of
previously reported production ounces. |
|
(D) |
|
Amount includes by-product gold credits deducted in computing cash costs per
ounce. |
|
(E) |
|
Amounts reflect Kensington per ounce statistics only. |
|
(F) |
|
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:
46
Reconciliation of Non-U.S. GAAP Cash Costs to U.S. GAAP Production Costs
Three months ended
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Kensington |
|
|
Total |
|
Production of silver (ounces) |
|
|
1,506,742 |
|
|
|
1,794,617 |
|
|
|
510,685 |
|
|
|
419,433 |
|
|
|
102,053 |
|
|
|
|
|
|
|
4,333,530 |
|
Production of gold (ounces) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,155 |
|
|
|
15,155 |
|
Cash operating cost per Ag ounce |
|
$ |
0.15 |
|
|
$ |
7.05 |
|
|
$ |
9.86 |
|
|
$ |
5.10 |
|
|
$ |
10.32 |
|
|
|
|
|
|
$ |
4.87 |
|
Cash costs per Ag ounce |
|
$ |
0.15 |
|
|
$ |
7.83 |
|
|
$ |
11.04 |
|
|
$ |
5.82 |
|
|
$ |
10.32 |
|
|
|
|
|
|
$ |
5.40 |
|
Cash operating cost per Au ounce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,199.20 |
|
|
$ |
1,199.20 |
|
Cash cost per Au ounce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,199.20 |
|
|
$ |
1,199.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
227 |
|
|
$ |
12,651 |
|
|
$ |
5,039 |
|
|
$ |
2,140 |
|
|
$ |
1,053 |
|
|
$ |
18,174 |
|
|
$ |
39,284 |
|
Royalties |
|
|
|
|
|
|
1,396 |
|
|
|
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,997 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
227 |
|
|
|
14,047 |
|
|
|
5,640 |
|
|
|
2,444 |
|
|
|
1,053 |
|
|
|
18,174 |
|
|
|
41,585 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(995 |
) |
|
|
|
|
|
|
(354 |
) |
|
|
(1,618 |
) |
|
|
(2,967 |
) |
By-product credit |
|
|
36,538 |
|
|
|
|
|
|
|
734 |
|
|
|
2,361 |
|
|
|
|
|
|
|
|
|
|
|
39,633 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
914 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
967 |
|
Change in inventory |
|
|
(5,423 |
) |
|
|
(1,146 |
) |
|
|
(1,009 |
) |
|
|
(2,088 |
) |
|
|
(15 |
) |
|
|
(9,135 |
) |
|
|
(18,816 |
) |
Depreciation, depletion and amortization |
|
|
22,491 |
|
|
|
4,943 |
|
|
|
2,119 |
|
|
|
446 |
|
|
|
330 |
|
|
|
7,219 |
|
|
|
37,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
53,833 |
|
|
$ |
17,844 |
|
|
$ |
7,403 |
|
|
$ |
3,216 |
|
|
$ |
1,014 |
|
|
$ |
14,640 |
|
|
$ |
97,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Kensington |
|
|
Total |
|
Production of silver (ounces) |
|
|
3,877,972 |
|
|
|
4,697,685 |
|
|
|
1,425,796 |
|
|
|
1,474,686 |
|
|
|
445,752 |
|
|
|
|
|
|
|
11,921,891 |
|
Production of gold (ounces) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,155 |
|
|
|
15,155 |
|
Cash operating cost per Ag ounce |
|
$ |
4.85 |
|
|
$ |
7.99 |
|
|
$ |
10.96 |
|
|
$ |
2.93 |
|
|
$ |
8.56 |
|
|
|
|
|
|
$ |
6.72 |
|
Cash costs per Ag ounce |
|
$ |
4.85 |
|
|
$ |
8.69 |
|
|
$ |
11.74 |
|
|
$ |
3.55 |
|
|
$ |
8.56 |
|
|
|
|
|
|
$ |
7.17 |
|
Cash operating cost per Au ounce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,199.20 |
|
|
$ |
1,199.20 |
|
Cash cost per Au ounce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,199.20 |
|
|
$ |
1,199.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
18,799 |
|
|
$ |
37,520 |
|
|
$ |
15,624 |
|
|
$ |
4,315 |
|
|
$ |
3,817 |
|
|
$ |
18,174 |
|
|
$ |
98,249 |
|
Royalties |
|
|
|
|
|
|
3,287 |
|
|
|
1,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,394 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
18,799 |
|
|
|
40,807 |
|
|
|
16,731 |
|
|
|
5,227 |
|
|
|
3,817 |
|
|
|
18,174 |
|
|
|
103,555 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(2,821 |
) |
|
|
|
|
|
|
(964 |
) |
|
|
(1,618 |
) |
|
|
(5,403 |
) |
By-product credit |
|
|
85,429 |
|
|
|
|
|
|
|
1,971 |
|
|
|
8,480 |
|
|
|
|
|
|
|
|
|
|
|
95,880 |
|
Other adjustments |
|
|
|
|
|
|
|
|
|
|
1,173 |
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
1,389 |
|
Change in inventory |
|
|
(12,120 |
) |
|
|
(3,162 |
) |
|
|
(312 |
) |
|
|
230 |
|
|
|
(127 |
) |
|
|
(9,135 |
) |
|
|
(24,626 |
) |
Depreciation, depletion and amortization |
|
|
63,574 |
|
|
|
14,152 |
|
|
|
6,673 |
|
|
|
1,368 |
|
|
|
1,440 |
|
|
|
7,219 |
|
|
|
94,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
155,682 |
|
|
$ |
51,797 |
|
|
$ |
23,415 |
|
|
$ |
15,521 |
|
|
$ |
4,166 |
|
|
$ |
14,640 |
|
|
$ |
265,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Three months ended
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Total |
|
Production of silver (ounces) |
|
|
1,275,904 |
|
|
|
2,111,313 |
|
|
|
1,178,088 |
|
|
|
528,037 |
|
|
|
102,973 |
|
|
|
5,196,315 |
|
Cash operating cost per ounce |
|
$ |
8.76 |
|
|
$ |
7.63 |
|
|
$ |
5.54 |
|
|
$ |
2.77 |
|
|
$ |
7.09 |
|
|
$ |
6.93 |
|
Cash costs per ounce |
|
$ |
8.76 |
|
|
$ |
11.17 |
|
|
$ |
6.02 |
|
|
$ |
3.67 |
|
|
$ |
7.09 |
|
|
$ |
8.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
11,174 |
|
|
$ |
16,118 |
|
|
$ |
6,525 |
|
|
$ |
1,461 |
|
|
$ |
730 |
|
|
$ |
36,008 |
|
Royalties |
|
|
|
|
|
|
7,474 |
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
|
8,036 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
475 |
|
|
|
|
|
|
|
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
11,174 |
|
|
|
23,592 |
|
|
|
7,087 |
|
|
|
1,936 |
|
|
|
730 |
|
|
|
44,519 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(2,221 |
) |
|
|
|
|
|
|
(225 |
) |
|
|
(2,446 |
) |
By-product credit |
|
|
23,301 |
|
|
|
|
|
|
|
1,502 |
|
|
|
2,956 |
|
|
|
|
|
|
|
27,759 |
|
Other adjustments |
|
|
20 |
|
|
|
|
|
|
|
469 |
|
|
|
16 |
|
|
|
|
|
|
|
505 |
|
Change in inventory |
|
|
(11,078 |
) |
|
|
1,765 |
|
|
|
(1,714 |
) |
|
|
558 |
|
|
|
55 |
|
|
|
(10,414 |
) |
Depreciation, depletion and amortization |
|
|
19,948 |
|
|
|
5,191 |
|
|
|
1,246 |
|
|
|
463 |
|
|
|
265 |
|
|
|
27,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
43,365 |
|
|
$ |
30,548 |
|
|
$ |
6,369 |
|
|
$ |
5,929 |
|
|
$ |
825 |
|
|
$ |
87,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except ounces and per ounce costs) |
|
Palmarejo |
|
|
Bartolomé |
|
|
Martha |
|
|
Rochester |
|
|
Endeavor |
|
|
Total |
|
Production of silver (ounces) |
|
|
1,863,620 |
|
|
|
6,141,223 |
|
|
|
2,693,993 |
|
|
|
1,541,441 |
|
|
|
367,492 |
|
|
|
12,607,769 |
|
Cash operating cost per ounce |
|
$ |
12.13 |
|
|
$ |
7.24 |
|
|
$ |
6.22 |
|
|
$ |
2.69 |
|
|
$ |
5.96 |
|
|
$ |
7.15 |
|
Cash costs per ounce |
|
$ |
12.13 |
|
|
$ |
9.98 |
|
|
$ |
6.68 |
|
|
$ |
3.32 |
|
|
$ |
5.96 |
|
|
$ |
8.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Cost (Non-U.S. GAAP) |
|
$ |
22,597 |
|
|
$ |
44,484 |
|
|
$ |
16,748 |
|
|
$ |
4,145 |
|
|
$ |
2,190 |
|
|
$ |
90,164 |
|
Royalties |
|
|
|
|
|
|
16,777 |
|
|
|
1,253 |
|
|
|
|
|
|
|
|
|
|
|
18,030 |
|
Production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
978 |
|
|
|
|
|
|
|
978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Costs (Non-U.S. GAAP) |
|
|
22,597 |
|
|
|
61,261 |
|
|
|
18,001 |
|
|
|
5,123 |
|
|
|
2,190 |
|
|
|
109,172 |
|
Add/Subtract: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party smelting costs |
|
|
|
|
|
|
|
|
|
|
(5,067 |
) |
|
|
|
|
|
|
(759 |
) |
|
|
(5,826 |
) |
By-product credit |
|
|
32,402 |
|
|
|
|
|
|
|
3,157 |
|
|
|
8,487 |
|
|
|
|
|
|
|
44,046 |
|
Other adjustments |
|
|
20 |
|
|
|
8 |
|
|
|
636 |
|
|
|
103 |
|
|
|
|
|
|
|
767 |
|
Change in inventory |
|
|
(17,932 |
) |
|
|
1,524 |
|
|
|
(1,046 |
) |
|
|
2,599 |
|
|
|
(42 |
) |
|
|
(14,897 |
) |
Depreciation, depletion and amortization |
|
|
32,328 |
|
|
|
15,137 |
|
|
|
3,420 |
|
|
|
1,391 |
|
|
|
946 |
|
|
|
53,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs applicable to sales,
including depreciation, depletion and
amortization (U.S. GAAP) |
|
$ |
69,415 |
|
|
$ |
77,930 |
|
|
$ |
19,101 |
|
|
$ |
17,703 |
|
|
$ |
2,335 |
|
|
$ |
186,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Exploration Activity
During the three and nine months ending September 30, 2010, the Company spent approximately
$3.8 million and $9.5 million respectively, on its global exploration program. The majority of
this was devoted to exploration at the Companys Palmarejo, Kensington and Martha properties.
Palmarejo (Mexico)
The Company spent a total of $2.5 million on exploration at Palmarejo during the three months
ended September 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 10,714 meters (35,151 feet) of core drill was
completed in the third 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 7,110 meters (23,327 feet) of
core drill was completed in the third quarter.
Kensington (USA)
Exploration at Kensington consisted of mapping, sampling, and 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 7,343 feet (2,238 meters) of core drill was
completed and a total of $0.4 million was spent on this program in the third quarter. In addition,
drilling activities continued in the third quarter on close-spaced definition of areas slated for
mining this year and in 2011.
Cerro Bayo (Chile)
The sale of Cerro Bayo was completed on August 9, 2010.
Martha (Argentina)
Exploration work at the Martha mine in the third quarter of 2010 consisted of target
generation and drill site selection for future testing.
The Company also conducts exploration in other parts of the Santa Cruz Province in Argentina.
In the third 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, and other properties, drilling and further reconnaissance to identify
new targets commenced in the second quarter of 2010. A total of 6,368 meters (20,892 feet) of core
drill were completed. The Company spent a total of $1.4 million in Argentina in the third quarter
of 2010 on this and other exploration work in the province.
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 $0.1 million was spent on this exploration program and
a total of 10,200 feet (3,109 meters) of drilling was completed in the third quarter.
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
49
could affect 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 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 silver 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 September 30, 2010, the Company had outstanding provisionally priced sales of $25.0
million, consisting of 0.8 million ounces of silver and 8,219 ounces of gold, which had a fair
value of $26.7 million including the embedded derivative. For each one cent per ounce change in
realized silver price, revenue would vary (plus or minus) approximately $8,000; and for each one
dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately
$8,200. At December 31, 2009, the Company had outstanding provisionally priced sales of $19.1
million consisting of 1.0 million ounces
50
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 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 effect 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 determined to have been fully mined at then-current market prices. Residual heap leach
activities for ore 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
51
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 $20.1 million as of September 30, 2010. Of
this amount, $7.4 million is reported as a current asset and $12.7 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
12 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 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
affect 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 |
|
$ |
3.34 |
|
|
$ |
2.59 |
|
|
$ |
2.12 |
|
|
$ |
3.95 |
|
|
$ |
3.40 |
|
|
$ |
2.99 |
|
Negative impact on
future of cost of
production per silver
equivalent ounce for
decreases in recovery
rates |
|
$ |
7.92 |
|
|
$ |
13.55 |
|
|
$ |
13.55 |
|
|
$ |
5.81 |
|
|
$ |
7.20 |
|
|
$ |
7.20 |
|
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.
52
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 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
2009 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 September 30, 2010.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
Sales of metal from continuing operations in the third quarter of 2010 increased by 31.3% or
$28.3 million to $118.6 million. The increase in sales of metal was due to a 62.9%
increase in the quantity of gold ounces sold, primarily from the Companys Palmarejo silver and gold mine and
the Kensington gold mine, which began commercial production on July 3, 2010 partially offset by a
17.3% decrease in the quantity of silver ounces sold due to fewer silver ounces sold from San
Bartolomé. In the third quarter of 2010, the Company sold 3.9 million ounces of silver and 37,507
ounces of gold compared to 4.7 million ounces of silver and 23,027 ounces of gold for the same
period in 2009. Realized silver and gold prices in the third quarter of 2010 increased 30.0% and
28.9%, respectively, over the third quarter 2009. Realized silver and gold prices were $18.87 and
$1,228.51 per ounce, respectively, in the third quarter of 2010, compared to $14.52 and $952.86 per
ounce, respectively, in the comparable quarter of 2009.
Included in sales of metals are the by-product sales derived from the sale of gold. During
the third quarter of 2010, by-product metal sales totaled $36.8 million compared to $21.9 million
in the third quarter of 2009. The increase is due to 7,089 additional ounces of gold sold in the
third quarter of 2010 primarily as a result of the sale of 28,471 ounces of gold during the third
quarter of 2010 from the Palmarejo mine, as
53
compared to 19,189 ounces during the third quarter of
2009. The Company believes that presentation of these metal sales as a by-product from its silver
operations will continue to be appropriate in the future.
In the third quarter of 2010, the Company produced a total of 4.3 million ounces of silver and
47,514 ounces of gold, compared to 5.2 million ounces of silver and 28,955 ounces of gold in the
third quarter of 2009. The decrease in silver production is primarily due to the decrease of 0.7
million ounces at the Martha mine due to a 55% reduction in tons milled, and decreased silver
production of 0.3 million ounces at the San Bartolomé mine primarily due to mining restrictions
above the 4,400 meter level. The increase in gold production in the third quarter of 2010 compared
to the third quarter of 2009 is primarily due to the increase of 5,534 ounces of gold from the
Palmarejo mine and 15,155 ounces of gold from the Kensington mine which began commercial production
on July 3, 2010.
While quarterly sales of metal rose 31.3%, production costs applicable to sales of metal in
the second quarter of 2010 increased only 1.2% from $59.7 million to $60.4 million in the third
quarter of 2009.
Depreciation and depletion increased by $10.2 million, from $27.6 million to $37.8 million,
compared to the third quarter of 2009. The increase is due to depreciation and depletion expense
from the Palmarejo mine, which was not in full production during the third quarter of 2009, and
the Kensington mine, which commenced commercial production in the third quarter of 2010.
Costs and Expenses
Administrative and general expenses increased by $1.2 million, from $4.8 million to $6.0
million, as compared to the third quarter of 2009. The increase is due to corporate
administrative, legal and other costs.
Exploration expenses increased to $3.8 million in the third quarter of 2010 compared to $2.4
million in the same period of 2009. The increase is due to increased exploration activity at
Kensington.
Pre-development expenses were $0.1 million during the third 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 third quarter of 2009.
Other Income and Expenses
The Company recognized $0.8 million of losses on debt extinguishments during the third
quarter of 2010 related to the payment on the Senior Term Notes due 2012 compared to a loss of
$2.9 million during the third quarter of 2009, due to 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.
Non-cash fair value adjustments, net in the three months ended September 30, 2010 were $19.1 million
compared to $35.7 million in the third quarter of 2009. The decrease was due to fewer required
mark-to-market adjustments in the third quarter and a larger adjustment in the estimated
Franco-Nevada royalty obligation in the third quarter ended September 30, 2009, due to the use of
a lower discount rate for purposes of calculating the mark-to-market adjustments.
Interest and other income in the third quarter of 2010 increased by $0.6 million to a loss of
$0.6 million compared with the third quarter of 2009. The increase was primarily due to a gain of
$0.2 million from the sale of the Franco-Nevada shares.
Interest expense, net of capitalized interest, increased to $10.0 million in the third
quarter of 2010 from $6.1 million in the third quarter of 2009. The increase in interest expense
was primarily due to a decrease in capitalized interest related to the Kensington mine, which was
placed into service on July 3, 2010, thereby decreasing capitalized interest.
54
Income Taxes
For the three months ended September 30, 2010, the Company reported an income tax provision of
approximately $3.2 million compared to an income tax benefit of $13.4 million in the third quarter
of 2009. The following table summarizes the components of the Companys income tax benefit
(provision) for the three months ended September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
United States Alternative minimum tax |
|
$ |
(3 |
) |
|
$ |
(1,533 |
) |
United States Foreign withholding |
|
|
(490 |
) |
|
|
(479 |
) |
Argentina |
|
|
(3,505 |
) |
|
|
(2,912 |
) |
Australia |
|
|
(82 |
) |
|
|
427 |
|
Mexico |
|
|
(40 |
) |
|
|
(17 |
) |
Bolivia |
|
|
(6,973 |
) |
|
|
(1,931 |
) |
Deferred: |
|
|
|
|
|
|
|
|
United States |
|
|
1,918 |
|
|
|
7,708 |
|
Australia |
|
|
228 |
|
|
|
75 |
|
Mexico |
|
|
5,201 |
|
|
|
10,031 |
|
Bolivia |
|
|
513 |
|
|
|
2,059 |
|
|
|
|
|
|
|
|
Income tax benefit (provision) |
|
$ |
(3,233 |
) |
|
$ |
13,428 |
|
|
|
|
|
|
|
|
During the three months ended September 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 $0.5
million on inter-company transactions between the U.S. parent and subsidiaries operating in Mexico,
Argentina and Australia. In addition, the Company recognized a net $7.9 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).
During the three months ended September 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
$0.5 million on inter-company transactions between the U.S. parent and subsidiaries operating in
Argentina and Australia. Finally, the Company recognized a net $17.8 million deferred tax benefit
for the recognition of deferred taxes on deductible temporary differences and net operating loss
carryforwards in various jurisdictions (principally Mexico and the U.S.). The Company recognized a
$2.1 million deferred tax benefit in Bolivia for inflationary adjustments on non-monetary assets
and unrealized foreign exchange gains on U.S. dollar-denominated liabilities.
Results of Discontinued Operations
In August 2010, the Company closed 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 September 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 September 30, 2009. There was no income (loss) from discontinued operations
related to Broken Hill during the three months ended September 30, 2010. Loss from discontinued
operations (net of taxes) for the three month period ended September 30, 2010 was $0.9 million, as
compared to a gain from discontinued operations (net of taxes) for
55
the three month period ended September 30, 2010 was $0.9 million, as compared to a gain from
discontinued operations (net of taxes) for the three month period ended September 30, 2009 of
$22.4 million.
The following is a summary of the Companys discontinued operations included in the
consolidated statements of operations for the three months ended September 30, 2010 and September
30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Cerro |
|
|
|
|
|
|
|
|
|
|
Cerro |
|
|
|
|
|
|
|
|
|
Bayo |
|
|
Broken |
|
|
|
|
|
|
Bayo |
|
|
Broken |
|
|
|
|
|
|
Mine |
|
|
Hill |
|
|
Total |
|
|
Mine |
|
|
Hill |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
42 |
|
|
$ |
63 |
|
|
$ |
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
49 |
|
Depreciation and depletion |
|
|
(112 |
) |
|
|
|
|
|
|
(112 |
) |
|
|
(1,055 |
) |
|
|
51 |
|
|
|
(1,004 |
) |
Care and maintenance expense |
|
|
(472 |
) |
|
|
|
|
|
|
(472 |
) |
|
|
(2,092 |
) |
|
|
|
|
|
|
(2,092 |
) |
Other operating expenses |
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
(460 |
) |
|
|
|
|
|
|
(460 |
) |
Interest and other income |
|
|
336 |
|
|
|
|
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
569 |
|
|
|
(170 |
) |
|
|
399 |
|
Gain on sale of discontinued operations,
net of taxes |
|
|
882 |
|
|
|
|
|
|
|
882 |
|
|
|
|
|
|
|
22,411 |
|
|
|
22,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations |
|
$ |
631 |
|
|
$ |
|
|
|
$ |
631 |
|
|
$ |
(2,996 |
) |
|
$ |
22,404 |
|
|
$ |
19,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
Sales of metal from continuing operations in the nine months ended September 30, 2010
increased by 52.8% or $106.3 million to $307.9 million. The increase in sales of metal was
primarily due to a 123.0% 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,
and the Kensington gold mine, which began commercial production on July 3, 2010. During the nine
months ended September 30, 2010, the Company sold 11.5 million ounces of silver and 86,890 ounces
of gold compared to 12.2 million ounces of silver and 38,968 ounces of gold during the same period
in 2009. Realized silver and gold prices were $18.12 and $1,177.31 per ounce, respectively, in the
nine months ended September 30, 2010, compared to $13.72 and $945.03 per ounce, respectively, in
the comparable quarter of 2009.
Included in sales of metals are the by-product sales derived from the sale of gold from
primarily silver operations. During the nine months ended September 30, 2010, by-product metal
sales totaled $92.8 million compared to $36.4 million in the nine months ended September 30, 2009.
The increase is due to 40,531 additional ounces of gold sold in the nine months ended September 30,
2010 primarily as a result of the sale of 70,927 ounces of gold during the nine months ended
September 30, 2010 from the Palmarejo mine which operated for the entire nine months ended
September 30, 2010, as compared to 26,932 ounces during the nine months ended September 30, 2009.
The Company believes that presentation of these metal sales as a by-product from its silver
operations will continue to be appropriate in the future.
In the nine months ended September 30, 2010, the Company produced a total of 11.9 million
ounces of silver and 96,421 ounces of gold, compared to 12.6 million ounces of silver and 46,541
ounces of gold in the nine months ended September 30, 2009. The increase in silver production is
primarily due to the increase of 2.0 million ounces at the Companys Palmarejo mine, which operated
at full capacity during the nine months ended September 30, 2010 offset by a decrease of 1.4
million ounces at the San Bartolomé mine, due to mining restrictions above the 4,400 meter level
and a decrease of 1.3 million ounces at the Martha mine due to a 48.7% decrease in tons milled.
The increase in gold production in the nine months ended September 30, 2010 compared to the same
period of 2009 is primarily due to the increase of 38,331 ounces of gold from
56
the Palmarejo mine,
which commenced commercial production in April of 2009 and an increase of 15,155 ounces of gold
from the Kensington mine, which commenced commercial production on July 3, 2010.
While sales of metal increased 52.8% during the first nine months of 2010, production costs
applicable to sales of metal in the nine months ended September 30, 2010 increased 28.2% to $170.8
million from $133.3 million in the nine months ended September 30, 2009. The increase in
production costs is primarily due to costs related to the commencement of operating activities at
the Kensington mine, which was not in production in 2009.
Depreciation and depletion increased by $41.2 million, from $54.3 million to $95.5 million,
as compared to the nine months ended September 30, 2009. The increase is due to depreciation and
depletion expense from the Kensington mine, which was not in production in 2009 and higher units
of production depletion expense from the Palmarejo mine.
Costs and Expenses
Administrative and general expenses increased by $1.8 million, from $17.9 million to $19.8
million, as compared to the nine months ended September 30, 2009. The increase is primarily due
to corporate administrative costs, legal and other expenses.
Exploration expenses increased by $0.9 million to $9.5 million in the nine months ended
September 30, 2010 compared to $8.6 million in the same period of 2009 as a result of increased
exploration activities.
Pre-development expenses were $0.8 million during the nine months ended September 30, 2010,
due to permitting activities, at the Rochester mine related to potential resumption of active
mining activities in early 2011. There were no pre-development costs in the nine months ended
September 30, 2009.
Other Income and Expenses
The Company recognized $12.7 million of losses on debt extinguishments during the nine months
ended September 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 $35.4 million during the nine months ended September 30, 2009.
Non-cash fair value adjustments, net in the nine months ended September 30, 2010 were $65.9 million,
compared to $49.3 million recorded in the nine months ended September 30, 2009. The increase was
due to mark-to-market adjustments driven by variations in gold prices related to the Franco-Nevada
royalty obligation as well as similar adjustments with respect to the gold lease facility, put and
call options and forward foreign exchange contracts.
Interest and other income in the nine months ended September 30, 2010 decreased by $3.5
million to a loss of $2.7 million compared with the nine months ended September 30, 2009. The
increase was primarily due to losses on foreign exchange transactions.
Interest expense, net of capitalized interest, increased to $21.4 million in the nine months
ended September 30, 2010 from $12.0 million in the nine months ended September 30, 2009. The
increase in interest expense was primarily due to a decrease in capitalized interest related to
the Kensington mine in addition to the payment of $3.9 million in interest on our Senior Term
Notes, which were not outstanding in the nine months ended September 30, 2009, as well as
increases in interest expense related to the Kensington Term Facility, accretion expense for the
Franco-Nevada obligation, the gold lease facility, capital lease obligations and other short-term
borrowings.
57
Income Taxes
For the nine months ended September 30, 2010, the Company reported an income tax benefit of
approximately $18.0 million compared to an income tax benefit of $17.1 million in the same period
of
2009. The following table summarizes the components of the Companys income tax benefit for
the nine months ended September 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
United States Alternative minimum tax |
|
$ |
(3 |
) |
|
$ |
(1,772 |
) |
United States Foreign withholding |
|
|
(1,605 |
) |
|
|
(1,317 |
) |
Argentina |
|
|
(5,646 |
) |
|
|
(4,244 |
) |
Australia |
|
|
(139 |
) |
|
|
1,245 |
|
Mexico |
|
|
(123 |
) |
|
|
(66 |
) |
Canada |
|
|
|
|
|
|
(53 |
) |
Bolivia |
|
|
(9,863 |
) |
|
|
(5,088 |
) |
Deferred: |
|
|
|
|
|
|
|
|
United States |
|
|
23,911 |
|
|
|
10,074 |
|
Australia |
|
|
(354 |
) |
|
|
(22 |
) |
Mexico |
|
|
12,897 |
|
|
|
21,727 |
|
Bolivia |
|
|
(1,098 |
) |
|
|
(3,417 |
) |
|
|
|
|
|
|
|
Income tax benefit |
|
$ |
17,977 |
|
|
$ |
17,067 |
|
|
|
|
|
|
|
|
During the nine months ended September 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 $1.6 million on inter-company transactions between the U.S. parent and subsidiaries
operating in Mexico, Argentina and Australia. Finally, the Company recognized a net $35.4 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 nine months ended September 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
$1.3 million on inter-company transactions from the U.S. parent to the Argentina, Mexico, Chile and
Australia subsidiaries. Finally, the Company recognized a $31.8 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 $3.4 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
In August 2010, the Company closed 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 nine month periods
ended September 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 nine month
period ended September 30, 2009. There was no income (loss) from discontinued operations related
to Broken Hill during the nine months ended September 30, 2010. Income (loss) from discontinued
operations (net of
58
taxes) for the nine month periods ended September 30, 2010 and 2009 was $8.1
million and $21.0 million respectively.
The following is a summary of the Companys discontinued operations included in the
consolidated statements of operations for the nine months ended and September 30, 2010 and 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Nine months ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Cerro |
|
|
|
|
|
|
|
|
|
|
Cerro |
|
|
|
|
|
|
|
|
|
Bayo |
|
|
Broken |
|
|
|
|
|
|
Bayo |
|
|
Broken |
|
|
|
|
|
|
Mine |
|
|
Hill |
|
|
Total |
|
|
Mine |
|
|
Hill |
|
|
Total |
|
Sales of metals |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,673 |
|
|
$ |
10,420 |
|
|
$ |
12,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productions costs applicable to sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,211 |
) |
|
|
(1,650 |
) |
|
|
(2,861 |
) |
Depreciation and depletion |
|
|
(2,194 |
) |
|
|
|
|
|
|
(2,194 |
) |
|
|
(3,184 |
) |
|
|
(1,568 |
) |
|
|
(4,752 |
) |
Care and maintenance expense |
|
|
(2,350 |
) |
|
|
|
|
|
|
(2,350 |
) |
|
|
(5,986 |
) |
|
|
|
|
|
|
(5,986 |
) |
Other operating expenses |
|
|
(19 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
(145 |
) |
|
|
|
|
|
|
(145 |
) |
|
|
1,011 |
|
|
|
|
|
|
|
1,011 |
|
Income tax benefit (expense) |
|
|
(1,321 |
) |
|
|
|
|
|
|
(1,321 |
) |
|
|
1,205 |
|
|
|
(2,161 |
) |
|
|
(956 |
) |
Gain (loss) on sale of discontinued
operations,
net of taxes |
|
|
(2,095 |
) |
|
|
|
|
|
|
(2,095 |
) |
|
|
|
|
|
|
22,411 |
|
|
|
22,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
(8,124 |
) |
|
$ |
|
|
|
$ |
(8,124 |
) |
|
$ |
(6,492 |
) |
|
$ |
27,452 |
|
|
$ |
20,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Companys working capital at September 30, 2010, decreased by $14.5 million to a deficit
of approximately $17.1 million compared to a deficit of $2.6 million at December 31, 2009. The
ratio of current assets to current liabilities was 0.9 to 1.0 at September 30, 2010 and was 1.0 to
1.0 at December 31, 2009. The decrease in working capital is primarily due to a increase in the
current portion of capital leases and other debt obligations from $15.4 million at December 31,
2009 to $67.7 million at September 30, 2010. Approximately one-half of the increase in the
current portion is attributable to the issuance of Senior Term Notes in February 2010. Other
factors contributing to the change in working capital included increases of $18.2 million of
accounts receivable and $26.3 million of metal and other inventory, offset by a reduction of $7.9
million of prepaid expenses.
Net cash provided by operating activities in the three and nine months ended September 30,
2010 was $12.9 million and $36.2 million respectively, compared with net cash provided by operating
activities of $28.9 million and $47.0 million in the three and nine month periods ended September
30, 2009. Excluding changes in operating assets and liabilities, the Companys operating cash flow
consisted of the following:
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
CASH PROVIDED BY OPERATING ACTIVITIES |
|
$ |
12,939 |
|
|
$ |
28,938 |
|
|
$ |
36,166 |
|
|
$ |
47,023 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other current assets |
|
|
4,511 |
|
|
|
(1,855 |
) |
|
|
12,136 |
|
|
|
7,145 |
|
Inventories |
|
|
22,980 |
|
|
|
10,547 |
|
|
|
27,888 |
|
|
|
23,733 |
|
Accounts payable and accrued liabilities |
|
|
(5,704 |
) |
|
|
(38,658 |
) |
|
|
8,298 |
|
|
|
(55,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow |
|
$ |
34,726 |
|
|
$ |
(1,028 |
) |
|
$ |
84,488 |
|
|
$ |
22,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities in the third quarter of 2010 was $18.4 million,
compared to $5.4 million provided by investing activities in the third quarter of 2009. The
increase is primarily due to higher capital investment activity at the Kensington mine and lower
proceeds from the sale of discontinued operations related to the sale of Broken Hill which occurred
in the same quarter of 2009. The Companys financing activities used $7.9 million of cash during
the three months ended September 30, 2010 compared to $13.4 million during the three months ended
September 30, 2009. The decrease is primarily due to proceeds from the gold lease facility and
short-term bank borrowings partially offset by payments on the gold production royalty, the Senior
Term Notes and gold lease facility.
Net cash used in investing activities in the nine months ended September 30, 2010 was $111.0
million compared to $101.8 million used in the nine months ended September 30, 2009. The increase
is primarily due to a decrease in proceeds for discontinued operations related to the sale of
Broken Hill in the nine months ended September 30, 2009 offset by lower capital investment activity
at the Kensington mine which commenced commercial production on July 3, 2010. The Companys
financing activities provided $79.8 million of cash during the nine months ended September 30, 2010
compared to $79.6 million during the nine months ended September 30, 2009. The $0.2 million
increase in net cash provided by financing activities was primarily due to new debt borrowings,
substantially but not entirely offset by repayments of outstanding debt.
Liquidity
As of September 30, 2010, the Companys cash, equivalents and short-term investments totaled
$32.8 million compared to $22.8 million as of December 31, 2009. The increase in cash and cash
equivalents of 44% at September 30, 2010 compared to December 31, 2009, was due to increased cash
provided by operating activities. 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 nine months ended September 30, 2010, capital expenditures totaled $129.4 million.
The Company expended $83.1 million at the Kensington mine for construction and development
activities, $43.1 million at the Palmarejo mine, related to the completion of the tailings
facility, $2.7 million at the San Bartolomé mine related to completion of the tailings facility
and $0.5 million at the remaining sites.
60
Gold Lease Facility
On December 12, 2008, the Company entered into a gold lease facility with Mitsubishi
International Corporation (MIC). Under the lease facility, the Company received proceeds of $20
million for the sale of 23,529 ounces of gold leased from MIC to the Company.
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
consisting 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 23, 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.
As of September 30, 2010, the Company had 25,029 ounces of gold leased from MIC. The Company
has committed to deliver this number of ounces of gold to MIC on scheduled delivery dates in the
fourth quarter of 2010. As of September 30, 2010, the Company is required to pledge certain metal
inventory held by a refiner as collateral under the facility. The Company accounts for the gold
lease facility as a derivative instrument, which is recorded in accrued liabilities and other in
the balance sheet.
As of September 30, 2010 and December 31, 2009, based on the current futures metals prices for
each of the delivery dates and using a 4.7% and 5.7% discount rate, respectively, the fair value of
the instrument was a liability of $32.6 million and $28.5 million, respectively. The pre-credit
risk adjusted fair value of the net derivative liability as of September 30, 2010 was $32.7
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
$32.6 million. Mark-to market adjustments for the gold lease facility amounted to a loss of $2.1
million and a loss of $2.9 million, respectively, for the three months ended September 30, 2010 and
2009 and $2.8 million and $4.5 million for the nine months ended September 30, 2010 and 2009,
respectively. The Company recorded realized losses of nil for the three months ended September 30,
2010 and 2009 and $2.0 million and $0.2 million for the nine months ended September 30, 2010 and
2009, respectively. The mark-to-market adjustments and realized losses are included in fair value
adjustments, net.
Debt and Capital Resources
3.25% Convertible Senior Notes due 2028
As of September 30, 2010, the outstanding balance of the 3.25% convertible Senior Notes was
$48.7 million, or $42.7 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.
61
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 nine months ended September 30, 2010, $99.7 million of the 3.25% Convertible 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.
There were no repurchases or exchanges in the third quarter of 2010.
The fair value of the notes outstanding, as determined by market transactions at September 30,
2010 and December 31, 2009, was $46.2 million and $131.3 million, respectively. The carrying value
of the equity component at September 30, 2010 and December 31, 2009 was $10.9 million and $33.4
million, respectively.
For the three and nine month periods ended September 30, 2010, interest expense was $0.4
million and $2.0 million, respectively, and accretion of the debt discount was $0.5 million and
$2.5 million, respectively. The debt discount remaining at September 30, 2010 was $6.0 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 nine months ended September 30, 2009, interest expense was $1.2 million
and $4.6 million, respectively, and accretion of the debt discount was $1.5 million and $5.6
million, respectively.
1.25% Convertible Senior Notes due 2024
As of September 30, 2010, the Company had outstanding $1.9 million of its 1.25% Convertible
Senior Notes due 2024. The remaining notes are convertible into shares of common stock at the
option of the holder on each of January 15, 2011, January 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.
62
During the nine months ended September 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 September 30, 2010. The
Company recognized a loss on the repurchase of $1.7 million in Gain (loss) on debt extinguishments.
There were no repurchases or exchanges in the third quarter of 2010.
The fair value of the notes outstanding, as determined by market transactions on September 30,
2010 and December 31, 2009, was $1.8 million and $22.8 million, respectively.
Interest on the notes for the three and nine month periods ended September 30, 2010 was
insignificant. Interest on the notes for the three and nine month periods ended September 30, 2009
was $0.3 million and $1.3 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 297,455 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 are 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 September 30, 2010 payment all in cash. For the three and nine
months ended September 30, 2010, the Company paid $8.3 million and $25.0 million, respectively, in
principal and $1.4 million and $3.9 million, respectively,
in interest. For the nine months ended September 30, 2010 the Company issued 1,060,413 shares of
the Companys common stock in connection with the quarterly payments. The effective interest rate
for the nine months ended September 30, 2010 was approximately 10.5%, which includes losses of $0.8
million and $2.4 million, for the three and nine months ended September 30, 2010, respectively, in
connection with the quarterly debt payments. 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 under which
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
February 2012, Coeur Alaska
will repay the loan in 16 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. Coeur has
guaranteed the payment of all amounts owed by Coeur Alaska to Credit Suisse under the Kensington
facility.
As of September 30, 2010, the Company has $46.1 million outstanding under the Kensington
facility, bearing interest at 5.3% (three month LIBOR rate plus 5% margin). The Company is
subject to a tangible net worth covenant, and Coeur Alaska is
subject to the following covenants; (i)
borrower tangible net worth; (ii) debt to equity ratio; (iii) debt service coverage ratio; and (iv)
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
63
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. Collars protecting 122,500 ounces of gold were outstanding at
September 30, 2010. 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, S.A. de C.V.
(Coeur Mexicana) entered into three bank loans in the aggregate amount of $5.2 million with
Fideicomiso de Fomento Minero (FIFOMI). These loans are to fund working capital requirements
guaranteed by the Company and are secured by certain machinery and equipment. The bank loans bear
interest at 13.45% and mature after 36 to 60 months.
On July 15, 2009, to fund equipment purchases, Coeur Mexicana entered into an equipment
financing agreement bearing interest at 8.26% with Atlas Copco. This agreement is secured by
certain machinery and equipment. Twenty-four monthly installments will be made on the loans with
the final payment being made on January 31, 2012. As of September 30, 2010, the outstanding
balance was $1.7 million.
Empresa Minera Manquiri borrowed $2.5 million pursuant to short-term bank
loans from Banco de Credito de Bolivia bearing interest at
rates ranging from 4.5% to 5.25% to fund working capital
requirements. The short-term borrowings are expected to mature and renew every 60 days.
On September 1, 2010, Empresa Minera Manquiri borrowed $0.5 million pursuant to a short-term
bank loan from Bisa bearing interest at 4% to fund working capital requirements. The short-term
loan matures on February 23, 2011.
On November 27, 2009, Empresa Minera Manquiri borrowed $5.0 million pursuant to a bank loan
from Banco Bisa bearing an interest rate of 6.5% to fund working capital requirements. As of
September 30, 2010, the outstanding balance was $2.9 million. The bank loan matures on November
17, 2011.
On July 6, 2010, the Company entered into a short-term financing agreement with AFCO Credit
Corporation of $2.4 million bearing interest at 2.9% to finance insurance premiums. Installments
of $0.2 million are paid monthly with the final payment to be made on June 1, 2011. As of
September 30, 2010 the outstanding balance was $1.8 million.
Palmarejo Gold Production Royalty Obligation
On January 21, 2009, the Companys wholly owned subsidiary, Coeur Mexicana SA de CV,
entered into a gold production royalty transaction with Franco-Nevada Corporation under which
Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced from its
Palmarejo silver and gold mine in Mexico. Coeur Mexicana 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 million at closing of the Franco-Nevada
transaction. On September 19, 2010, the warrant was exercised and the related shares were sold for
$10.0 million.
The royalty agreement provides for a minimum obligation to be paid in monthly payments over a
total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period. Each
monthly payment is 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 excess of the monthly average market price of
gold above $400 per ounce (which $400 floor is subject to a 1% annual inflation compounding
adjustment beginning on January 21, 2013). As of September 30, 2010, payments had been made on a
total of 70,764 ounces of gold with further payments to be made on an additional 329,236 ounces of
gold. After payments have been made on a total of 400,000 ounces of gold, the royalty obligation
is payable in the amount of 50% of actual gold production per month multiplied by the excess of the
monthly average market price of gold above $400 per ounce, adjusted as described above. Payments
under the royalty agreement are to be made in cash or gold bullion. During the three and nine
months ended September 30, 2010, the Company paid $11.3 million and $29.8 million, respectively, in
royalty payments to Franco-Nevada Corporation. Payments made during the minimum obligation period
will result in a reduction to the remaining minimum obligation. Payments made beyond the minimum
obligation period will be recognized as other cash operating expenses and result in an increase to
Coeur Mexicanas reported cash cost per ounce of silver.
64
The Company used an implicit interest rate of 27.7% to discount the original obligation, based
on the fair value of the consideration received projected over the expected future cash flows at
inception of the obligation. The discounted obligation is accreted to its expected future value
over the expected minimum payment period based on the implicit interest rate. The Company
recognized accretion expense for the three and nine months ended September 30, 2010, of $5.4
million and $15.4 million, respectively, and $5.2 million and $13.9 million for the three and nine
months ended September 30, 2009, respectively. As of September 30, 2010 and December 31, 2009, the
remaining minimum obligation under the royalty agreement was $81.9 million and $84.8 million,
respectively.
The price volatility associated with the minimum royalty obligation is considered an embedded
derivative under U.S. GAAP. Fluctuations in the market price of gold since inception of the
agreement have resulted in the recognition of additional fair value adjustments and resulted in
higher payments to date. Please see Note 14, Derivative Financial Instruments and Fair Value of
Financial Instruments, Palmarejo Gold Production Royalty, for further discussion of the embedded
derivative feature of the royalty agreement.
Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of
properties under development. For the three and nine months ended September 30, 2010 the Company
capitalized interest of $0.7 million and $9.1 million, respectively. For the three and nine months
ended September 30, 2009, the Company capitalized interest of $3.2 million and $19.1 million,
respectively.
Litigation and Other Events
For a discussion of litigation and other events, see Note 18 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 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
65
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 September 30, 2010, the Company had outstanding provisionally priced sales of $25.0
million, consisting of 0.8 million ounces of silver and 8,219 ounces of gold, which had a fair
value of $26.7 million including the embedded derivative. For each one cent per ounce change in
realized silver price, revenue would vary (plus or minus) approximately $8,000; and for each one
dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately
$8,200. 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.
The Company operates, or has mining interests, in several foreign countries, specifically
Australia, Bolivia, 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.
The Company periodically enters into forward foreign currency contracts to reduce the foreign
exchange risk associated with forecasted Mexican peso (MXP) operating costs at its Palmarejo
mine. At September 30, 2010, the Company had MXP foreign exchange contracts of $20.7 million in
U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXP at a weighted
average exchange rate of 13.07 MXP to each U.S. dollar and had a fair value of $0.4 million at
September 30, 2010. The Company recorded mark-to-market gains (losses) of $0.3 million and $(0.04)
million for the three months ended September 30, 2010 and 2009, respectively, which is reflected in
Fair value adjustments, net and $(0.9) million and $(3.3) million for the nine months ended
September 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 $0.4 million and
$0.3 million in Production costs applicable to sales during the three months ended September 30,
2010 and 2009, respectively and $0.9 million and $0.9 million for the nine months ended September
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. As of September 30, 2010, the
Company had 25,029 ounces of gold leased from MIC. The Company has committed to deliver this
number of ounces of gold to MIC on scheduled delivery dates in the fourth quarter of 2010. As of
September 30, 2010 the Company is required to pledge certain metal inventory held by a refiner as
collateral under the facility. The Company accounts for the gold lease facility as a derivative
instrument, which is recorded on the balance sheet in Accrued liabilities and other.
As of September 30, 2010 and December 31, 2009, based on the current futures metals prices for
each of the delivery dates and using a 4.7% and 5.7% discount rate, respectively, the fair value of
the Gold Lease facility was a liability of $32.6 million and $28.5 million, respectively. The
pre-credit risk adjusted fair value of the net derivative liability as of September 30, 2010 was
$32.7 million. A credit risk adjustment of $0.1 million to the fair value of the derivative reduced
the reported amount of the net
66
derivative liability on the Companys consolidated balance sheet to $32.6 million. Mark-to market
adjustments for the gold lease facility amounted to a loss of $2.1 million and a loss of $2.9
million for the three months ended September 30, 2010 and 2009, respectively and $2.8 million and
$4.5 million for the nine months ended September 30, 2010 and 2009, respectively. The Company
recorded realized losses of nil for the three months ended September 30, 2010 and 2009, and $2.0
million and $0.2 million for the nine months ended September 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 September 30, 2010, these contracts
have expired.
During the nine months ended September 30, 2010, outstanding put options allowing the Company
to deliver 5.4 million ounces of silver at an average strike price of $9.21 per ounce expired. The
Company recorded realized losses of $0.5 million and $2.1 million for the three and nine months
ended September 30, 2010, respectively, included in Fair value adjustments, net.
During the three and nine months ended September 30, 2009, the Company recorded realized gains
of $0.4 million and $0.6 million, respectively, included in Fair value adjustments, net.
In connection with the Kensington Term Facility described in Note 9, Long-term Debt and
Royalty Obligation, Kensington Term Facility, at September 30, 2010, the Company had written
outstanding call options requiring it to deliver 122,500 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, at September 30, 2010, the Company had outstanding put options allowing it to sell
122,500 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 September 30, 2010 the fair market value of these contracts was a net liability of $7.7
million. During the three months ended September 30, 2010, 2,500 ounces of gold call options at a
weighted average strike price of $1,688.50 per ounce expired resulting in a realized gain $0.2
million, and 2,500 gold put options at a weighted average strike price of $862.50 per ounce expired
resulting in a realized loss of $0.2 million.
During the third quarter of 2010, the Company purchased a gold forward contract of 10,000
ounces at a fixed price of $1,183.97. The contract expired in October 2010. During the three and
nine months ended September 30, 2010, the company recorded an unrealized gain of $1.2 million. As
of September 30, 2010, the fair value of this contract was a net asset of $1.2 million.
On January 21, 2009, the Company entered into the gold production royalty transaction with
Franco-Nevada Corporation that is described in Note 9, Long-Term Debt and Royalty Obligation,
Palmarejo Gold Production Royalty Obligation. The minimum royalty obligation ends when payments
have been made on a total of 400,000 ounces of gold. As of September 30, 2010, a total of 329,236
ounces of gold remain outstanding under the minimum royalty obligation. 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 September 30, 2010 and
December 31, 2009 was a liability of $124.9 million and $78.0 million, respectively. The
Franco-Nevada warrant was a contingent option to acquire 316,436 common shares of Franco-Nevada for
no additional consideration, once the mine satisfied certain completion tests stipulated in the
agreement. During the three months ended September 30, 2010, the Company exercised these warrants
and received the related shares, which were sold for net proceeds to the Company of $10.0 million.
The Franco-Nevada warrant was considered a derivative instrument. The fair value of the warrant at
December 31, 2009 was $6.3 million. These derivative instruments are recorded in prepaid expenses
and other and current or non-current portion of royalty obligation on the balance sheet and are
adjusted to fair value through current earnings. During the three months ended September 30, 2010,
mark-to-market adjustments for the embedded derivative and warrant amounted to a loss of $15.2
million and a gain of $1.1 million, respectively, and for the same period in 2009, a loss of $31.0
million and a gain of $1.3 million, respectively. During the nine months
67
ended September 30, 2010, mark-to-market adjustments for the embedded derivative and warrant
amounted to a loss of $46.8 million and a gain of $3.5 million, respectively, and for the same
period in 2009, a loss of $49.2 million and a gain of $3.3 million, respectively. For the three
and nine months ended September 30, 2010, realized losses on settlement of the liabilities were
$4.8 million and $11.6 million respectively. For the three and nine months ended September 30,
2009, realized losses on settlement of liabilities were $0.9 million and $1.0 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 September 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 18 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.
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.
68
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 67% of our revenues from continuing operations from sales
of silver and 33% 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 November 1, 2010 were
$24.66 per ounce and $1,354.50 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 September 30, 2010, unions represented approximately 19% of
our worldwide workforce. On that date, the Company had 90 employees at its Martha mine who were
working under a collective bargaining agreement. The collective bargaining agreement covering the
Martha mine expires October 31, 2010. Additionally, the Company had 174 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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|
|
|
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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 |
|
|
(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) |
|
(or unit) |
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or programs |
|
or programs |
7/1/10 - 7/31/10 |
|
|
469 |
|
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$ |
15.05 |
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8/1/10 - 8/31/10 |
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9/1/10 - 9/30/10 |
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Total |
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469 |
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$ |
15.05 |
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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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received per |
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announced plans |
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under the plans |
Period |
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sold(2) |
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share (or unit) |
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or programs |
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or programs |
7/1/10 - 7/31/10(2) |
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8/1/10 - 8/31/10(2) |
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11,674 |
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$ |
9.74 |
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9/1/10 - 9/30/10(2) |
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5,150 |
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$ |
10.00 |
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Total |
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16,824 |
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$ |
9.82 |
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$ |
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(2) |
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Exercise of Employee Options |
Item 5. Other Information
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 this legislation.
Two of our mines, the Kensington mine and the Rochester mine, are subject to the Federal Mine
Safety and Health Act of 1977 (FMSHA). The FMSHA is administered by the Mine Safety and Health
Administration (MSHA). MSHA proposed the assessments during the third quarter of 2010 of $1,925
against the Kensington mine and $727 against the Rochester mine. Neither the Kensington mine nor
the Rochester mine experienced mining-related fatalities during the third quarter of 2010 or
received written notice from MSHA pursuant to Section 104(e) of FMSHA of a pattern of violations of
mandatory health
70
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 one
legal action pending before the Federal Mine Safety and Health Review Commission involving the
Kensington mine or the Rochester mine.
During the third quarter of 2010, with respect to the Kensington mine, MSHA issued five
citations pursuant to Section 104 of 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 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 FMSHA and issued no imminent danger orders under Section 107(a) of the FMSHA.
During the third quarter of 2010, with respect to the Rochester mine, MSHA issued no citations
pursuant to Section 104 of 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 FMSHA, issued no citation or orders pursuant to Section 104(d) of
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 MSHA and issued no imminent danger
orders under Section 107(a) of 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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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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10.2
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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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10.3
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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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10.4
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First Amendment to Second Amended and Restated Employment
Agreement, effective August 6, 2010, between the Company and
Dennis E. Wheeler. (Incorporated herein by reference to Exhibit
10.1 to the Companys Current Report on form 8-K filed on August
9, 2010. |
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10.5
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Third Amendment to Restated Employment Agreement, effective August 6, 2010 between the Company and Mitchell J. Krebs. |
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10.6
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Second Amendment to Restated Employment Agreement, effective August 2, 2010 between the Company and Donald J. Birak. |
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10.7
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Second Amendment to Restated Employment Agreement, effective August 2, 2010 between the Company and Kelli C. Kast. |
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10.8
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Third Amendment to Restated Employment Agreement, effective August 2, 2010 between the Company and K. Leon Hardy |
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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 November 4, 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 November 4, 2010 |
/s/ Mitchell J. Krebs
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MITCHELL J. KREBS |
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Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Chief Financial Officer |
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73