SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ COEUR D'ALENE MINES CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Idaho 82-0109423 ------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 505 Front Ave., P. O. Box "I" Coeur d'Alene, Idaho 83816 ------------------------------- ----------------------------- (Address of principal (Zip Code) Executive Offices) Registrant's telephone number, including area code: (208) 667-3511 Securities Registered pursuant to Section 12(b) of the Act: COMMON STOCK, PAR VALUE $1.00 6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004 MANDATORY ADJUSTABLE REDEEMABLE CONVERTIBLE SECURITIES ------------------------------------------------------ (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of the registrant. (The aggregate market value is computed by reference to the last sale price of such stock, as of March 6, 1998.) $248,382,555 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 6, 1998. 21,898,624 shares of Common Stock, Par Value $1.00 DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III of the Form 10-K is incorporated by reference from the registrant's definitive proxy statement which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
PART I ITEM 1. BUSINESS Coeur d'Alene Mines Corporation is engaged through its subsidiaries in the exploration, development, operation and/or ownership of silver and gold mining properties and companies located primarily within the United States (Nevada, Idaho and Alaska), Australasia (New Zealand and Western Australia) and South America (Chile). Coeur d'Alene Mines Corporation and its subsidiaries are hereinafter referred to collectively as "Coeur" or the "Company". OVERVIEW OF MINING PROPERTIES AND INTERESTS The Company's most significant mining properties and interests are: o the ROCHESTER MINE, a silver and gold surface mining operation located in northwestern Nevada, which is 100% owned and operated by Coeur and which is believed to be one of the largest and lowest cost of production primary silver mines in the United States and is a significant gold producer as well; o ownership of 50% of the capital stock of SILVER VALLEY RESOURCES CORPORATION ("SILVER VALLEY"), which owns the COEUR and the GALENA underground silver mines that resumed production in June 1996 and May 1997, respectively, the CALADAY project and operating control of several contiguous properties in the Coeur d'Alene Mining District of Idaho; o the FACHINAL MINE, an open pit and underground gold and silver mining operation wholly-owned and operated by Coeur and located in southern Chile, South America, which Coeur acquired in 1990, at which initial production commenced in October 1995. Fachinal was classified as an operating property for financial reporting purposes on January 1, 1997; o the EL BRONCE MINE, an underground Chilean gold and silver mine in which the Company acquired a 51% operating interest in October 1994 and in which the Company acquired 100% ownership in September 1996; o ownership of 50% of the capital stock of GASGOYNE GOLD MINES NL, an Australian gold mining company ("Gasgoyne"), which owns 50% of THE YILGARN STAR MINE, a gold mine in Western Australia, and certain other exploration-stage properties; o ownership of 100% of the KENSINGTON PROPERTY, located north of Juneau, Alaska, which is being developed as an underground gold mine by Coeur and where the Company currently is conducting an optimization study and developmental program; and o the GOLDEN CROSS MINE, an underground and surface gold mining operation located near Waihi, New Zealand in which Coeur has an 3
80% operating interest acquired on May 3, 1993, and at which mining activities were substantially discontinued in December 1997. Coeur also has interests in other properties which are the subject of silver or gold exploration activities at which no minable ore reserves have yet been identified. BUSINESS STRATEGY The Company's business strategy is to capitalize on its strong ore reserve base and the expertise of its management to become a leading precious metals company via long-term, profitable growth. The principal elements of the Company's business strategy are as follows: (i) increase the Company's low-cost silver production and reserves in order to remain the nation's largest silver producer and one of the world's largest primary silver producers; (ii) improve operating cost and production profiles at Coeur's existing gold mining operations; (iii) continue increasing the Company's gold production and reserves in order to continue to provide its shareholders with an interest in both metals, while lowering its cost of gold production; (iv) opportunistically acquire operating mines and exploration and development properties with a view to reducing the Company's operating and production costs and expanding its production and reserves; (v) continue to explore for new silver and/or gold assets primarily in North and South America, Mexico, and Australia as well as at existing mine sites; (vi) focus on opportunities which provide strong future exploration potential and immediate or near-term prospects for low-cost silver and/or gold production; and (vii) preserve the Company's financial ability to weather the gold industry's lowest price level in eighteen years. SOURCES OF REVENUE The Rochester Mine, Fachinal Mine and El Bronce Mine, which are operated by the Company; the Golden Cross Mine, which was operated by the Company; and the Company's interests in Silver Valley and Gasgoyne, constituted the Company's principal sources of mining revenues in 1997. The following table sets forth information regarding the percentage contribution to the Company's total revenues (i.e., revenues from the sale of concentrates and dore plus other income) by the sources of those during the past four years: 4
<TABLE> <CAPTION> Percentage of Coeur Mine/Company Ownership Percentage of Total Revenues in Year Ended December 31, ------------ --------- ------------------------------------------------------- 1995 1996 1997 ---------- ---------- ---------- <S> <C> <C> <C> <C> Rochester Mine 100% 57.0% 58.2% 38.5% Golden Cross Mine 80 33.4 25.6 22.5 El Bronce Mine(1) 100 0.3 2.8 10.7 Fachinal Mine(2) 100 - - 9.3 Silver Valley 50 - 2.2 (3) 5.4 Gasgoyne(4) 50 - 0.9 5.4 Other - 9.3 10.3 8.2 ----- ----- ----- 100% 100% 100% ===== ===== ===== <FN> (1) The reported percentages of total revenues reflect the fact that Coeur's interest in the revenue of the mine was 51% until September 1996, when it acquired a 100% ownership interest. Therefore, prior to September 1996, the Company's share of net profits was reported as other income. (2) The Fachinal Mine commenced pre-production activities in late October 1995 and was accounted for as a development stage property until December 31, 1996 (i.e., operating costs were capitalized net of revenues from pre-commercial production). Commencing January 1, 1997, the mine was accounted for as an operating property for financial reporting purposes. (3) The Company's interest in Silver Valley accounted for approximately 3.0 % of total revenues for the approximately eight months subsequent to its start-up by the Silver Valley Resources in May 1996. (4) The Company's interest in Gasgoyne accounted for approximately 1.2% of total revenues for the approximately six months subsequent to its acquisition by the Company in May 1996. The reported percentages reflect the fact that Coeur's interest in Gasgoyne revenue was 35% from May 1996 to February 1997, 36% from March 1997 to May 1997 and 50% after May 1997. The Company's interest in Gasgoyne was reported in accordance with the equity method prior to May 1, 1997; therefore, revenues, net of expenses are reported as other income for that period. </FN> </TABLE> DEFINITIONS The following sets forth definitions of certain important mining terms used in this report. "Dore" - A bullion produced by smelting, containing gold, silver and minor amounts of impurities. "Gold" - An alloy with minimum fineness of 999 parts per 1000 parts pure gold. "Heap-Leaching Process" - Heap leaching is a process of extracting gold and silver by placing broken ore on an impermeable pad and applying a dilute cyanide solution that dissolves a portion of the contained gold, which is then recovered in metallurgical processes. "Mineralized Material" - A mineralized underground body which has been intersected by sufficient closely spaced drill holes and/or underground sampling to support sufficient tonnage and average grade of metal(s) to warrant further exploration-development work. Such material does not qualify as an "ore reserve" until a final 5
and comprehensive economic, technical and legal feasibility study based upon the test results is concluded. "Ore Reserve" - That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. "Probable Reserves" - Ore reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. "Proven Reserves" - Ore reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspections, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserve are well-established. "Ton" - References to a "ton" mean a short ton, which is 2,000 pounds. IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS This report contains numerous forward-looking statements relating to the Company's gold and silver mining business, including estimated production data, expected operating schedules and other operating data. Actual production, operating schedules and results of operations could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), (ii) changes in the market prices of gold and silver, (iii) the uncertainties inherent in the Company's production, exploratory and developmental activities, including risks relating to permitting and regulatory delays, (iv) the uncertainties inherent in the estimation of gold and silver ore reserves, (v) changes that could result from the Company's future acquisition of new mining properties or businesses, (vi) the effects of environmental and other governmental regulations, and (vii) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries. ROCHESTER MINE The Rochester Mine is a silver and gold surface mine located in Pershing County, Nevada, approximately 25 road miles northeast of Lovelock. The mine 6
utilizes the heap-leaching process to extract both silver and gold from ore mined using open-pit methods. The property consists of 16 patented and 541 unpatented contiguous mining claims and 54 mill-site claims totaling approximately 9,370 acres. The Company owns 100% of the Rochester Mine by virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc. ("Coeur Rochester"). Asarco, Inc., the prior lessee, has a net smelter royalty interest which varies up to 5% when the market price of silver equals or exceeds $18.07 per ounce. Based on the ore reserve-review report, dated February 1998, of Independent Mining Consultants, Inc. ("IMC"), and accounting for production through December 31, 1997, mineable, proven/probable ore reserves at the Rochester Mine, as of January 1, 1998, totalled approximately 66.264 million tons averaging 1.120 ounces per ton silver and 0.009 ounces per ton gold. The reserve estimate is based on a 0.75 ounce per ton silver-equivalent cutoff grade and silver and gold prices of $6.50 and $350.00, respectively. The average grades do not reflect losses in the recovery process. The amount of proven and probable reserves will vary depending on the price of silver and gold. In addition, 10.752 million tons of mineralized material averaging 0.007 ounces per ton gold and 1.10 ounces per ton silver have been identified. Based upon its experience and certain metallurgical testing, the Company estimates recovery rates of 59% for silver and 90% for gold. The leach cycle at the Rochester Mine requires approximately five years from the point ore is mined until all recoverable metal is recovered. As shown in the preceding table, the average strip ratio for the remaining life of the mine will vary based primarily on future gold and silver prices. Furthermore, the actual strip ratio may vary significantly from year-to-year during the remaining life of the mine. The realization of the Company's production estimates is subject to actual rates of recovery, continuity of ore grades, mining rates, projected operating costs, the levels of silver and gold prices, and other uncertainties inherent in any mining and processing operation. The following table sets forth information for the periods indicated relating to Rochester Mine production. Production may decrease during the winter due to slower solution flow from the heaps. Such conditions are not expected to affect annual production levels since mining, crushing and heap construction are expected to continue during those months at normal rates, resulting in increased dore' production during warmer weather. Also, production will vary from time to time depending upon the area being mined. <TABLE> <CAPTION> Year Ended December 31, ---------------------------------------------------------------------------- 1993 1994 1995 1996 1997 --------- --------- --------- --------- -------- <S> <C> <C> <C> <C> <C> Ore processed (tons) 7,247,553 7,759,637 8,243,609 8,127,691 8,738,471 Silver (ounces) 5,943,894 5,937,770 6,481,825 6,251,180 6,690,704 Gold (ounces) 66,412 56,886 59,307 74,293 90,019 </TABLE> The following table sets forth the costs of production per ounce of silver and gold on a silver equivalent basis during the periods indicated at the Rochester Mine. Cash costs include mining, processing and direct administration costs, financing costs, royalties and refining costs. To obtain the silver equivalent, each ounce of gold produced is multiplied by the same 7
ratio as the then current ratio of the price of gold to the price of silver. This silver equivalent gold production is then added to actual silver production to determine total silver equivalent production. <TABLE> <CAPTION> Year Ended December 31, --------------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- --------- --------- -------- <S> <C> <C> <C> <C> <C> Cash costs per ounce.... $ 3.62 $ 3.65 $ 3.79 $ 3.71 $ 4.36 Depreciation, depletion and amortization per ounce............ .54 .59 .61 .54 .67 -------- -------- -------- -------- -------- Total costs per ounce... $ 4.16 $ 4.24 $ 4.40 $ 4.25 $ 5.03 ======== ======== ======== ======== ======== </TABLE> In 1994, the Company completed construction of a new ore conveyor system. In addition, the waste-to-ore strip ratio declined in 1996 while the silver equivalent grade of the ore mined increased. Those three factors beneficially impacted 1996 operations. The increase in unit costs for 1997 is a result of a decrease in the mine's strip ratio in 1997 compared with 1996. As a result, a portion of 1996's mining costs were capitalized in that year and subsequently amortized in 1997. The Company's capital expenditures at the Rochester Mine totaled approximately $1.2 million in 1997. The Company plans approximately $6.2 million of capital expenditures at the mine during 1998 of which approximately $5.85 million will be used to reacquire the existing processing facility which is subject to a sale-leaseback agreement entered into in 1986. INTEREST IN SILVER VALLEY RESOURCES CORPORATION - THE COEUR D'ALENE MINING DISTRICT Silver Valley Resources Corporation ("Silver Valley") owns the Coeur and Galena Mines and the Caladay property situated in the Coeur d'Alene Mining District of Idaho. In July 1995, Coeur, Callahan Mining Corporation ("Callahan"), a wholly-owned subsidiary of Coeur, and ASARCO Inc. ("ASARCO") transferred their interests in the Coeur and Galena Mines and Caladay property to Silver Valley, an entity created for that sole purpose, as a result of which Coeur and ASARCO each now own 50% of Silver Valley. During 1995, Silver Valley conducted an underground development program that increased ore reserves at the Galena Mine. As a result of this program and increased silver prices, a decision was made on February 8, 1996 by Silver Valley to reopen the mines. Underground development and exploration activities continued during 1996 and 1997. Silver Valley recommenced operations at the Coeur mine in June 1996 and plans to continue mining existing reserves there through the second quarter of 1998. Exploration at the Coeur mine is ongoing in an effort to increase silver reserves and extend the mine's life beyond 1998. Silver Valley resumed production at the Galena Mine in May 1997. During 1996 and 1997, Silver Valley entered into agreements with Sterling Mining Company, Placer Creek Mining Company, Silver Buckle Mines, Inc. and American Silver Mining Company pursuant to which Silver Valley obtained operating control of contiguous properties near the Coeur and Galena Mines in the Coeur d'Alene Mining District in exchange for net profit royalty interests. Silver Valley silver reserves attributable to Coeur's 50% ownership 8
interest have been expanded, increasing 32% in 1995, 22% in 1996 and 13% in 1997. Rehabilitation of the mine shaft at the Caladay project is nearing completion and Silver Valley plans to continue exploratory and developmental activities at the Coeur, Galena and Caladay Mines as well as at contiguous properties in the Coeur d'Alene Mining District with a view toward the expansion of silver reserves there. The Board of Directors of Silver Valley consists of six directors, three of whom, including the Chairman of the Board, are appointed by Asarco and three of whom, including the President, are appointed by Coeur. Pursuant to a Shareholders' Agreement between the parties, certain specified corporate actions requires a majority vote. If the voting results in a tie at any Board Meeting, the Chairman of the Board of Silver Valley, who also is the Chairman of the Board of Asarco, will decide the issue. Certain other specified corporation actions require unanimous approval of the directors. The President of Coeur also is the President of Silver Valley and serves on its Executive Committee. Certain other officers of Silver Valley are officers of Coeur or Asarco, which companies may provide management and other services to Silver Valley upon the request of its Board of Directors. A summary of the properties owned by Silver Valley is set forth below. GALENA MINE The Galena Mine property consists of approximately 1,100 acres lying immediately west of the City of Wallace, Shoshone County, Idaho adjoining the Coeur Mine's eastern boundary. The property consists of 52 patented mining claims and 25 unpatented mining claims. The Galena Mine is primarily an underground silver-copper mine ,and is served by two vertical shafts. On July 26, 1992, Asarco, which was the Galena Mine operator, suspended operations at the Galena Mine due to then prevailing silver prices ($4.31 per ounce average for the month of July 1992) and placed the property on a care and maintenance basis to conserve ore reserves. Silver Valley resumed production at the Galena Mine in May 1997. Based on the ore-reserve estimate of Silver Valley, dated January 1998, proven and probable ore reserves as of January 1, 1998 at the Galena Mine totalled 1.705 million tons averaging 18.17 ounces per ton silver. Included in the previously quoted reserves are 327,000 tons of ore containing 11.34% lead and 1,517,200 tons of ore containing .57% copper. The Silver Valley reserve estimate is based on a minimum mining width of 4 to 4.5 feet diluted to 5.0 feet minimum width for most silver-copper and silver-lead veins. Cutoff grade is based on the cost of breaking and producing ore from a stope, but does not include development costs and administrative overhead. The cutoff grade varies from area-to-area within the mine due to changing silver-copper ratios of the ore. The reserve estimate has also identified an additional 784,000 tons of mineralized material which averages 8.33 ounces per ton silver. Included in the mineralized material are 264,000 tons containing 0.42% copper and 541,000 tons containing 5.74% lead. 9
The following table sets forth information relating to total Galena Mine production: <TABLE> <CAPTION> Year Ended Seven Months Eight Months December 31, Ended July 30, Ended December 31, 1991 1992 1997 ------------ -------------- ------------------ <S> <C> <C> <C> Ore milled (tons)..... 182,836 91,617 80,012 Silver (ounces)....... 3,278,650 1,572,501 1,456,201 Copper (pounds)....... 1,993,649 1,064,085 1,070,954 </TABLE> The Company's previous ownership interest in the above production, giving retroactive effect to Coeur's acquisition of Callahan on December 31, 1991, amounted to 50% through June 11, 1992, and 62.5% thereafter until such ownership was transferred to Silver Valley effective January 1, 1995. Coeur currently has a 50% interest in operating profits from Galena Mine operations by virtue of its 50% ownership of Silver Valley. The following table sets forth the costs of production per ounce of silver (net of credit for copper byproduct) at the Galena Mine. Cash costs include mining, processing, direct administration costs and smelter charges, but do not include financing costs, royalties and exploration costs. <TABLE> <CAPTION> Year Ended Seven Months Eight Months December 31, Ended July 30, Ended December 31, 1991 1992 1997 ------------ -------------- ------------------ <S> <C> <C> <C> Cash costs per ounce ................ $3.94 $4.23 $4.74 Depreciation, depletion and amortization per ounce................ $1.24 ----- ----- ----- $3.94 $4.23 $5.98 ===== ===== ===== </TABLE> Activities at the Galena Mine during 1997 revealed a previously undiscovered vein known as the 123 Vein. The vein has been intersected by both drilling and underground workings on three levels over a vertical depth of 900 feet and along a maximum horizontal length of up to 230 feet. Approximately 112,000 tons of proven and probable reserves containing 22.55 ounces per ton of silver and .83% copper were added to the 1998 reserve base. Total capital expenditures by Silver Valley at the Galena Mine in 1997 approximated $3.7 million. Such expenditures were used to provide additional mine development and miscellaneous equipment. Silver Valley plans approximately $3.6 million of mine development and equipment expenditures at the Galena Mine during 1998. COEUR MINE The Coeur Mine is an underground silver mine located adjacent to the Galena Mine in the Coeur d'Alene Mining District in Idaho, and consists of approximately 868 acres comprised of 38 patented mining claims and four unpatented mining claims. Effective December 31, 1991, Coeur increased its 10
non-operating joint venture interest in the mine to 50% as a result of Coeur's acquisition of Callahan, which had acquired a 5% interest in the mine in March, 1968. Effective January 1, 1995, Coeur and Asarco transferred their interests in the Coeur Mine to Silver Valley. Asarco suspended operations at the Coeur Mine on April 3, 1991 due to then prevailing silver prices ($3.90 per ounce average for April 1991) and placed the property on a care and maintenance basis to conserve ore reserves. Silver Valley resumed production activities at the Coeur Mine in June 1996. The following table sets forth information, for the periods indicated, relating to total Coeur Mine production: <TABLE> <CAPTION> Year Ended Three Months Six Months Year Ended December 31, Ended March 31, Ended December 31, 1990 1991 December 31, 1996 1997 --------- ------------ ----------------- -------------- <S> <C> <C> <C> <C> Ore milled (tons)... 147,883 37,165 78,067 110,579 Silver (ounces)..... 2,113,341 379,856 1,666,534 1,978,513 Copper (pounds)..... 1,843,638 336,865 1,407,771 1,621,345 </TABLE> The Company's ownership interest in the above production, giving retroactive effect to Coeur's acquisition of Callahan's 5% interest on December 31, 1991, amounted to 45% prior to November 30, 1990 and 50% thereafter. The following table sets forth the costs of production per ounce of silver (net of credit for copper by product) at the Coeur Mine. Cash costs include mining, processing, direct administration costs and smelter charges but do not include financing costs, royalties and exploration costs. <TABLE> <CAPTION> Year Ended Three Months Six Months Year Ended December 31, Ended March 31, Ended December 31, 1990 1991 December 31, 1996 1997 --------- ------------ ----------------- -------------- <S> <C> <C> <C> <C> Cash costs per ounce.. $4.68 $5.38 $3.18 $3.00 . Depreciation, depletion and amortization per ounce............ .79 .95 $4.68 $5.38 $3.97 $3.95 ===== ===== ===== ===== </TABLE> Based on a Silver Valley Resources ore reserve report dated January 1998, estimated proven and probable ore reserves as of January 1, 1998 at the Coeur Mine totaled 228,000 tons averaging 15.31 ounces per ton silver and 0.73% copper. The ore reserve estimate is based on a minimum mining width of 4.5 to 5.0 feet with a minimum dilution of 1.0 foot along each margin of the vein. An additional 161,000 tons of mineralized material which averages 14.46 ounces per ton silver and 0.66% copper has also been identified. 11
CALADAY PROPERTY The Caladay property adjoins the Galena Mine. Prior to its acquisition by the Company in 1991, approximately $32.5 million was expended on the property to construct surface facilities, a 5,101 ft. deep shaft and associated underground workings to explore the property. Based on Silver Valley's analysis of existing Galena Mine underground workings and drilling results on the Galena Property, the Company believes that similar geologic structures which exist at the Galena extend into the Caladay below the level of the current Caladay workings. In addition, the Caladay facilities may be used to benefit the Galena Mine operations. FACHINAL MINE In January 1990, the Company acquired through its wholly-owned subsidiary, CDE Chilean Mining Corporation, ownership of the Fachinal gold and silver property. As discussed below, the Company completed the construction of the Fachinal Mine on schedule and under budget in October 1995 when initial mining operations commenced. The Fachinal property covers about 90 square miles and is located south of Coihaique, the capital of Region XI in southern Chile, and approximately 10 miles west of the town of Chile Chico. The project lies on the east side of the Andes at an elevation ranging from 600 to 4,500 feet and is serviced by a gravel road from Chile Chico. The Fachinal property is known to include multiple epithermal veins containing gold and silver. The Company has been granted exploitation concessions (the Chilean equivalent to an unpatented claim except that the owner does not have title to the surface which must be separately acquired from the surface owner) covering the mineralized areas of the Fachinal property as well as the necessary surface rights to permit mining there. Construction of new mining facilities, which included both underground and open pit operations, was completed on schedule in October 1995 with an estimated 1,600 tons per day of throughput. The milling facility uses conventional crush/grind/flotation methods to produce a gold/silver concentrate, which is then shipped to off-site smelters for processing. The total project construction cost was approximately $41.4 million, which was less than the originally budgeted $41.8 million. Initial production began in October 1995 at the Fachinal Mine, which is one of the southernmost mining operations in the world, employing approximately 250 workers. As of December 31, 1996, the Company had expended a total of $83.5 million (including capitalized interest of $12.1 million) in connection with the development of the Fachinal Mine. Following its opening during 1996 and 1997, unexpected operational problems and lower than anticipated ore grade in the open pit resulted in decreased ore reserves and higher than expected cash costs of production that exceeded current market prices. Production from higher-grade underground mining at a second underground mining operation commenced in July 1996 and the property was classified as an operating property for financial reporting purposes on January 1, 1997. Production from the higher-grade underground operations has been increased to compensate for the lower open pit ore grades. Furthermore, with respect to the open pit, an improved ore reserve mine model, 12
an increase in the pit slope to decrease waste tons mined and a reduction in manpower have contributed to operational efficiencies. With respect to the underground mining, an improved mine plan, a manpower reduction, improved ventilation and drainage, improved safety program and improvements in contractor performance have favorably effected production and cost performance. The amount of tonnage processed at the mill has been increased without a decrease in metal recovery and equipment has been added in the floatation plant to further improve metal recovery. While these actions have favorably impacted the Fachinal Mine's operating performance, the cash costs of production continue to exceed the current spot market price of gold. The Company intends to continue its implementation of operating improvements and to identify and implement additional cost-reduction steps in 1998. Additional reserves must be found in order to achieve the economic criteria upon which the decision to construct the mine was based. Such economic criteria contemplated a mine plan that would provide (i) average silver and gold grades of 3.54 and .077 ounces per ton, respectively; (ii) silver and gold metallurgical recovery of 89% and 93%, respectively; and (iii) cash operating costs of $21.65 per metric tonne. For the year ended December 31, 1997, silver and gold ore grades averaged 4.183 ounces per ton and .057 ounces per ton, respectively; silver and gold metallurgical recoveries averaged 90% and 90%, respectively, and cash operating costs averaged $40.42 per ton. The following table sets forth Fachinal Mine production data for the period from October 19, 1995, on which date initial production activities commenced, through December 31, 1995, and the years ended December 31, 1996 and 1997. <TABLE> <CAPTION> October 19, 1995 through Year Ended December 31, December 31, 1995 1996 1997 ----------------- ---- ---- <S> <C> <C> <C> Ore milled (tons)....... 96,212 591,074 592,976 Gold (ounces)........... 3,586 25,064 30,601 Silver (ounces)......... 334,816 2,154,347 2,243,761 </TABLE> The following table sets forth the costs of production per ounce of gold during 1997 at the Fachinal Mine. Cash costs include mining, processing and direct administration costs, royalties, smelting and refining. Because the Fachinal Mine had not yet reached commercial production levels prior to January 1, 1997, results of the mine's operations were accounted for as a development stage property (i.e., costs net of pre-production revenues were capitalized). The property was classified as an operating property for financial reporting purposes on January 1, 1997. 13
<TABLE> <CAPTION> Year Ended December 31, 1997 ----------------- <S> <C> Total cash cost per ounce................... $339.46 Depreciation, depletion and amortization per ounce..................... $172.86 ------- Total cost per ounce $512.32 ======= </TABLE> Economic, precious metals bearing mineralization at the Fachinal Mine occur in an extensive epithermal, quartz-veins system hosted in Jurassic volcanic rocks. Based on ore reserve review reports dated January 1998, by Micon International Limited and NCL Ingenieria and Construccion, S.A., the total remaining, mineable, open-pit and underground proven and probable reserves as of January 1, 1998 at the Fachinal Mine were approximately 2.051 million tons averaging 0.093 ounces per ton gold and 3.51 ounces per ton silver. The Fachinal Mine's open-pit reserve base, which includes the NCL reserve estimate for the OO and NE pits, totals 1.208 million tons averaging 0.062 ounces per ton gold and 2.24 ounces per ton silver. The estimate is based on an internal cutoff grade of 0.041 to 0.088 ounces per ton equivalent gold. The underground reserve which totals 844,000 tons at 0.139 ounces per ton gold and 5.33 ounces per ton silver is based on internal cutoff grades ranging from 0.102 to 0.146 ounces per ton equivalent gold. Both reserve estimates are based on gold and silver prices of $373 per ounce and $5.59 per ounce, respectively. Average grades reflect extractive dilution, but not losses during the recovery process. The Company estimates, based upon thorough metallurgical testing and initial operating experience, recovery rates between 88% - 91% for gold and 85% - 91% for silver. The open-pit reserve estimate has also identified 1.642 million tons of mineralized material, averaging 0.06 ounces per ton gold and 1.64 ounces per ton silver. The underground resource estimate has identified an additional .887 million tons of mineralized material averaging 0.09 ounces per ton gold and 5.09 ounces per ton silver. Numerous other attractive exploration targets with known precious-metals mineralization remain to be evaluated. Total capital expenditures by the Company at the Fachinal Mine in 1997 approximated $3.7 million. Such expenditures were used to expand mine development and purchase miscellaneous equipment. The Company plans approximately $4.9 million of capital expenditures at the Fachinal Mine during 1998 on mine development and miscellaneous capital equipment. Drilling is underway at the Fachinal Mine's underground and open pit mines in an effort to increase the existing reserve base. In addition, developmental activities are being conducted at the Furioso property, located approximately 40 miles southwest of the Fachinal Mine, where the Company has estimated additional high grade gold reserves. An internal feasibility study is being conducted by the Company to determine if Furioso ore reserves may be processed at existing Fachinal Mine facilities. The Company has an option to purchase 100% of the Furioso property at a price of $2.0 million on or prior to June 30, 1999. No assurance can be given that the Company will exercise that option. Emphasis is being directed at increasing underground higher grade reserves to replace lower-grade open pit reserves in the production mix. 14
Reference also is made to "Exploratory Mining Properties" below for additional information relating to exploratory activities in the Fachinal Mine area. Although the government and economy of Chile has been stable in recent years, the ownership of property in a foreign country is always subject to the risk of expropriation or nationalization with inadequate compensation. Any foreign operation or investment may also be adversely affected by exchange controls, currency fluctuations, taxation and laws or policies of particular countries as well as laws and policies of the United States affecting foreign trade, investment and taxation. EL BRONCE MINE The El Bronce Mine is an underground, gold-silver mine located on approximately 34,000 acres in the Andean foothills approximately 90 miles north of Santiago, Chile. In July 1994, the Company entered into an agreement with Compania Minera El Bronce de Petorca, a Chilean corporation ("CMEB"), pursuant to which the Company acquired operating control and a 51% interest in any operating profits and an option exercisable through July 1997 to also purchase from CMEB a 51% equity interest in Compania Minera CDE El Bronce, a Chilean corporation ("CDE El Bronce") that owns the producing El Bronce Mine. On September 4, 1996, the Company exercised its option to purchase 51% of the shares of CDE El Bronce and also purchased the remaining 49% of the shares of CDE El Bronce from CMEB, as a result of which Coeur increased its ownership interest of CDE El Bronce to 100%. The property consists of 64 exploitation concessions and 10 exploration concessions. Surface rights to permit mining on the property have been granted by the private owners. Ore is produced from an extensive, precious-metals bearing, epithermal, quartz-vein system hosted in Cretaceous volcanic rocks. Coeur has expended a total of $30.6 million in connection with its original acquisition of operating control of the El Bronce Mine, exercise of the option to acquire 51% ownership of CDE El Bronce and acquisition of the remaining 49% of the shares of CDE El Bronce. In addition, Coeur's obligation to pay CMEB a 3% net smelter return royalty, payable quarterly, commenced on January 1, 1997. Based on a resource report for five major veins dated January 1998 by NCL Ingenieria and Construccion, S.A. and a reserve report prepared by CDE El Bronce, proven and probable ore reserves as of January 1, 1998 at the El Bronce Mine totalled .862 million tons averaging 0.220 ounces per ton gold. An additional 1.598 million tons of mineralized material, averaging 0.280 ounce per ton gold, has been identified. The reserve is based on an internal cutoff of 0.088 ounces per ton gold. The Company estimates, based on past experience and metallurgical testing, mill recovery rates are 92% for gold and 84% for silver. The mineralized system remains geologically open both vertically and horizontally. The following table sets forth El Bronce Mine production data subsequent to its acquisition by Coeur on October 3, 1994. As stated above, prior to September 4, 1996, the Company had a 51% interest in any operating profits from the mine. The Company's 5l% interest in the mine's operating profits from October 3, 1994 through December 31, 1994 amounted to $1,023,537 and for the year ended December 31, 1995 amounted to $763,166. Subsequent to September 4, 1996, the Company has had a 100% interest in any operating profits from the 15
mine. Giving effect to the Company's 51% interest through September 4, 1996 and its 100% interest thereafter, the Company received operating profits from the mine of $522,151 in 1996 and recorded an operating loss of $5.6 million in 1997. The following data sets forth 100% of the mine's production. <TABLE> <CAPTION> Three Months Year Ended December 31, Ended --------------------------------------------------------- December 31, 1994 1995 1996 1997 ----------------- ----------------- ----------------- ----------------- <S> <C> <C> <C> <C> Ore milled (tons)... 56,761 286,512 339,509 343,296 Gold (ounces)....... 9,712 43,204 52,917 48,181 Silver (ounces)..... 39,605 142,229 112,633 100,626 </TABLE> The following table sets forth the costs of production per ounce of gold during the periods set forth below at the El Bronce Mine. Cash costs include mining, processing and direct administration costs, royalties, and smelting and refining. <TABLE> <CAPTION> Three Months Year Ended December 31, Ended --------------------------------------------------------- December 31, 1994 1995 1996 1997 ----------------- ----------------- ----------------- ----------------- <S> <C> <C> <C> <C> Total cash costs per ounce... $205.65 $330.37 $296.05 $348.24 Depreciation, depletion and amortization per ounce......... 20.40 20.51 41.01 53.69 ------- ------- ------- ------- Total cost per ounce $226.05 $350.88 $337.06 $401.93 ======= ======= ======= ======= </TABLE> The increase in cash costs of production in 1997 was primarily caused by near drought conditions occurring in the first quarter of 1997, heavy rain fall occurring in the second quarter of 1997 and a two-week closure of the mine in August 1997 resulting from heavy rains and flooding. Those circumstances contributed to increases in cash costs of production to levels in excess of current market prices. Ongoing exploration efforts are being conducted to identify, and, if successful, develop wider veins in order to increase reserves as well as to lower costs of production. In addition, cash costs of production in 1997 increased primarily because of lower ore grades due to narrow veins in the area mined which were further complicated by ground support problems. The Company expended approximately $3.0 million for developmental activities in 1997 and plans to expend approximately $3.8 million for developmental activities in 1998. During 1998, the Company plans to spend $1.0 million to modify the metallurgical process at the mine to enable it to produce a dore' rather than a concentrate. This process is expected to reduce per ounce operating costs by $25 - $30 per ounce. In February 1997, Coeur acquired an option to purchase the Boton de Oro operating gold mine adjacent to the El Bronce Mine, from which ore is purchased and being processed through Coeur's mill. In addition, Coeur anticipates additional underground exploration of mineralization believed to be similar to El Bronce's vein systems. A feasibility study was prepared to evaluate the possible incorporation of Boton de Oro's mineralization into El Bronce operations. The option agreement, as amended in early February 1998, entitles Coeur to purchase 100% of Boton de Oro on or prior to June 1998 at a price of $2.5 million. In addition, the agreement required Coeur to spend $500,000 to conduct exploratory activities on the property. No decision has been made to exercise the option. KENSINGTON PROPERTY On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur Alaska, Inc. ("Coeur Alaska"), acquired the 50% ownership interest of Echo Bay Exploration Inc. ("Echo Bay") in the Kensington property from Echo Bay and Echo Bay Alaska, Inc. (collectively the "Sellers"), giving Coeur 100% ownership of the Kensington property. As a result of that transaction, Coeur assumed full ownership and operating control of the project. Pursuant to the Venture Termination and Asset Purchase Agreement among Coeur Alaska and the Sellers, dated as of June 30, 1995, Coeur Alaska paid to the Sellers a total of $32.5 million and, pursuant to the Royalty Deed set forth as an exhibit to the Venture Termination and Asset Purchase Agreement, Coeur Alaska agreed to pay Echo Bay a scaled net smelter return royalty on 1 million ounces of future gold production after Coeur Alaska recoups the $32.5 million purchase price and its construction expenditures incurred after July 7, 1995 in connection with placing the property into commercial production. The royalty ranges from 1% at $400 gold prices to a maximum of 2 1/2% at gold prices above $475, with the royalty to be capped at 1 million ounces of production. The Kensington ore deposit consists of multiple, precious metals bearing, mesothermal, quartz, carbonate, pyrite vein swarms and discrete quartz-pyrite veins hosted in the Cretaceous Jualin diorite. The gold-telluride-mineral calaverite is associated with the pyrite mineralization. Based on an ore reserve endorsement dated February 1997 by Steffen, Robertson & Kirsten, independent mining consultants, Kensington proven and probable ore reserves as of January 1, 1998 are estimated at 13.893 million tons at a grade of 0.136 ounces per ton gold, containing 1.896 million gold ounces. The reserve estimate is based on an average life-of-mine breakeven price of $410 per ounce of gold. The reserve estimate reflects the effects of extractive dilution during the mining process, but not losses during the recovery process. An additional 9.050 million tons of mineralized material averaging 0.120 ounces per ton gold has been identified. Not all Kensington ore zones have been fully delineated at depth and several peripheral zones and veins remain to be explored. Based upon metallurgical testing work, and with the conversion to off-site processing of flotation concentrates in lieu of on-site cyanidation, overall metallurgical recovery at Kensington improves to 95%, with 2.3% additional losses incurred during final treatment off-site. During 1997, activities at Kensington continued to be directed toward completing the permitting process, project optimization studies and feasibility study updates. The current mine optimization study is intended to reduce the project's capital and operating costs, and a proposed developmental drilling program is designed to increase the current 1.9 million ounce gold 17
reserve. As of December 31, 1997, the Company had invested a total of $122.5 million (including capitalized interest of $26.6 million) in the Kensington property. The Company's capital expenditures at the Kensington Property totaled approximately $9.1 million (excluding capitalized interest) in 1997. Such capital expenditures were used to continue the permitting and optimization activities. The Company plans approximately $9.7 million (excluding capitalized interest) of capital expenditures at the mine during 1998 which are planned to be used to complete the permitting, optimization activities, and mine development. Coeur does not intend to develop the Kensington Property unless the optimization study and developmental program demonstrate the results required to make Kensington an economically attractive project. Based on the current mine design, Kensington requires an average realized price of $400 per ounce of gold over the life of the project, whether achieved through spot sales or forward sales contracts, in order to generate the necessary return on investment. The Company expects to lower the required threshold price necessary to develop the project based upon the preliminary results of the optimization study. The major permits necessary for the construction and operation of the facility are U.S. Forest Service ("USFS") approval of the Plan of Operations, Army Corps of Engineers Section 404 permit for dry tailings facility construction, an EPA National Pollution Discharge Elimination System ("NPDES") permit for the discharge of waste water and the City and Borough of Juneau ("CBJ")Large Mine Permit. Final permitting of the Kensington gold project is nearing completion. The Final Supplemental Environmental Impact Statement has been issued by the USFS, which is in the process of reviewing the Plan of Operations for the mine. The CBJ has issued its Large Mine Permit. The State of Alaska adopted a regulation which provides a site specific water quality standard for the discharge of total dissolved solids, and has certified EPA's NPDES permit. It is expected that EPA will issue its final NPDES permit within the next few weeks. The Army Corps of Engineers has issued its section 404 permit, which is undergoing review by the State of Alaska for consistency with Alaska regulatory requirements, after which the Corps' permit will be issued in final form. In February 1996, Coeur and a consortium of three Alaska native groups announced that they reached an agreement which, if a decision is made to commence construction of the mine, should assist in facilitating construction and operation of the project, while meeting certain employment and training goals for the Native groups working on the project. Under the terms of the agreement between the Company and Goldbelt, Inc., Kake Tribal Corporation and Klukwan, Inc., the native corporations have agreed to assist the Kensington project by providing support during permitting and during mine construction and operation, assisting in communications with local organizations and agencies involved in mining development, as well as filling certain labor requirements for the project. Coeur also agreed to develop and participate in training programs for the jobs that will become available if and when mine construction begins. 18
In September 1996, the Company made an agreement with Goldbelt, Inc., a Juneau Native corporation, the effect of which is to facilitate the performance of the Company's obligation to provide 102 units of housing in Juneau. Pursuant to the agreement, Goldbelt will secure the necessary land, arrange for and supervise construction and arrange non-recourse financing for the development. In exchange, the Company is obligated to provide third-party financial assurances with regard to any project loans and is required to guarantee occupancy rates with regard to multi-family housing and to guarantee minimum realized sale prices with regard to single family houses developed for resale. The Company owns 100% of the Jualin property, an exploratory property located adjacent to the Kensington Property. The Jualin property consists of approximately 9,400 acres, of which approximately 345 acres are patented claims. INTERESTS IN GASGOYNE GOLD MINES NL In May 1996, Coeur acquired approximately 35% of the outstanding shares of capital stock of Gasgoyne, an Australian gold mining company, in exchange for a total of 1,419,832 shares of Coeur common stock and cash totaling approximately $15.4 million. Sons of Gwalia Limited, an Australian gold mining company, ("Sons of Gwalia") conducted a competing offer for outstanding Gasgoyne shares in connection with which it acquired approximately 61% of Gasgoyne's outstanding shares. As a result of a selective reduction of capital effected by Gasgoyne in February 1997 by purchasing its publicly held shares from the shareholders other than Coeur and Sons of Gwalia, Coeur's ownership interest increased to 36% of Gasgoyne's outstanding shares. In May 1997, Coeur acquired an additional 7,820,907 shares of Gasgoyne, constituting approximately 14% of the outstanding shares of Gasgoyne, from Sons of Gwalia for US$14.9 million, as a result of which Coeur's ownership interest in Gasgoyne was increased to 50% of the outstanding shares. Gasgoyne is principally engaged in the exploration, development and ownership of gold properties located in Western Australia. Headquartered in Perth, Australia, Gasgoyne's principal asset is its 50% interest in the Yilgarn Star Gold Mine in Marvel Loch, located approximately 220 miles east of Perth, which started production in 1991. Gasgoyne also has a 45% interest in the Awak Mas Gold Project ("Awak Mas") in Indonesia. Gasgoyne sold its interest in Awak Mas in January 1998 for consideration of US$14.9 million cash, 10 million shares of Lone Star Exploration NL and a royalty of $2 per ounce of gold after 2 million ounces have been produced. During the quarter ended June 30, 1996, Coeur began reporting its share of Gasgoyne's net results of operations pursuant to the equity method of accounting for investments. Such amounts are reflected as a component of other income and interest and amounted to approximately $907,000 for the eight months ended December 31, 1996. As a result of entering into various agreements in May 1997 with Sons of Gwalia and Gasgoyne in connection with the increase of Coeur's ownership interest in Gasgoyne to 50%, Coeur began accounting for its interest in Gasgoyne utilizing the proportionate consolidation method. 19
The following table sets forth information relating to total Yilgarn Star Gold Mine production during the period from May 1, 1996 to December 31, 1996, and during the year ended December 31, 1997. Coeur had a 17.5% interest in such production (i.e., 35% of one-half) for the approximately seven months subsequent to the acquisition of its interest in Gasgoyne in May 1996, and a 25% interest (i.e., 50% of one-half) after May 1997: <TABLE> <CAPTION> Eight Months Ended Year Ended December 31, 1996 December 31, 1997 ------------------ ----------------- <S> <C> <C> Ore milled (tons)..... 587,582 1,502,111 Gold (ounces)......... 85,591 174,848 </TABLE> The following table sets forth the costs of production per ounce of gold during the years ended December 31, 1996 and 1997. Cash costs include mining, processing and direct administration costs, royalties and exploration expenses. <TABLE> <CAPTION> Year Ended December 31, ----------------------- 1996 1997 ---- ---- <S> <C> <C> Cash costs per ounce................ $ 217.91 $ 255.11 Depreciation, depletion and amortization per ounce............. 99.39 161.35 -------- -------- $ 317.30 $ 416.46 ======== ======== </TABLE> The Yilgarn Star Gold Mine operated as an open pit surface mine from 1991 through September 1995 and an underground mine commenced operations there on a limited basis in October 1995. The increase in per ounce costs in 1997 compared to 1996 relate to the planned transition of mining at the Yilgarn Star Mine from an open-pit operation to an underground operation and mining of the uppermost portion of the underground mine which temporarily resulted in a lower grade of ore being delivered to the mill. Yilgarn Star proven and probable reserves as of January 1, 1998 estimated by Gasgoyne Gold Mines totalled 5.858 million tons averaging 0.136 ounces per ton gold, or a total of 796,000 ounces of gold. An additional 2.302 million tons of mineralized material has been identified at a grade of 0.21 ounces gold per ton. GOLDEN CROSS MINE Effective April 30, 1993, a wholly-owned subsidiary of the Company acquired from a wholly-owned subsidiary of Cyprus Minerals Company all of the outstanding capital stock of Cyprus Gold New Zealand Limited ("Cyprus NZ"), the name of which was changed by the Company to Coeur Gold New Zealand Limited ("Coeur NZ"). The principal asset of Coeur NZ is its undivided 80% participating joint venture interest in the Golden Cross Mine located near Waihi on the North Island of New Zealand, approximately 100 miles southeast of Auckland, and certain other exploration properties in New Zealand. The remaining undivided 20% joint venture interest is owned by a subsidiary of The Todd Company Limited, a New Zealand corporation. The Golden Cross Mining License covers an area of approximately 961 acres of which 274 acres are occupied by the current Golden Cross Mine 20
operation. The mine property includes open-pit and underground mine facilities, process plant, tailings pond, water treatment plant and mine offices which are all accessible by road from the town of Waihi. Construction of the Golden Cross Mine began in April 1990, and commercial production commenced in December 1991. Open pit mining operations were discontinued in December 1997 and limited mining of underground ores will continue until April 1998, at which time all mining operations will cease. As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, the Company announced on July 10, 1996 a $53 million write-down of its interest in the Golden Cross Mine and the nearby Waihi East property, which included accrual of the then estimated future closure and remediation costs and a writedown of the carrying value of the Company's 80% interest in the property. In the last quarter of 1996, it appeared that the interim slide remedial measures were successful in stabilizing the extent of the ground movement and the New Zealand Regulatory Authorities approved the Company's application to permit the raising of the Golden Cross Mine tailings impoundment crest. As a result of the completion of the crest raising in early 1997, the Company was able to implement a previously planned mill optimization and to continue to operate the mine through the end of 1997. Although the deep-seated ground movement below the Golden Cross Mine tailings impoundment that necessitated the Company's 1996 write-down appeared to stabilize in late 1996 and during 1997, limited tailings disposal capacity required that open pit mining activities at the mine be discontinued in December 1997. Limited mining of underground ores will continue until April 1998, at which time all mining operations will cease. In the second quarter of 1997, the Company received its 80% share of a $10 million insurance recovery relating to business interruption and property damage at the mine. Since the recovery was not assured at the time of the original writedown, it was not accrued as part of that writedown; therefore, the $8 million of insurance proceeds were recorded as other income in 1997. During 1997, the Company expended approximately $4.5 million in connection with additional remediation activities at the mine and expects that additional remediation costs at the mine during 1998 will approximate $1.4 million. In addition, the Company estimates that the costs, net of salvage revenues, to be incurred in 1998 in connection with the closure of the mine will approximate $4.0 million. The following table sets forth Golden Cross Mine production data attributable to Coeur's 80% interest in the mine: <TABLE> <CAPTION> Eight Months Year Ended December 31, Ended ------------------------------------------------------ December 31, 1993 1994 1995 1996 1997 ----------------- ---------- ----------- --------- --------- <S> <C> <C> <C> <C> <C> Ore milled (tons)... 492,617 727,427 731,453 827,642 833,836 Gold (ounces)....... 56,898 67,400 83,058 64,365 83,110 Silver (ounces)..... 175,325 222,246 286,216 205,070 271,776 </TABLE> The following table sets forth the costs of production per ounce of gold during the periods indicated at the Golden Cross Mine. Cash costs include 21
mining, processing and direct administration costs, royalties and exploration expenses, but do not include financing costs associated with the term loan owed by Coeur Gold NZ to the Company. The production costs per ounce of gold for any period is computed net of by-product credits. <TABLE> <CAPTION> Eight Months Year Ended December 31, Ended ------------------------------------------------------ December 31, 1993 1994 1995 1996 1997 ----------------- ---------- ----------- --------- --------- <S> <C> <C> <C> <C> <C> Total cash costs per ounce... $220.26 $276.96 $232.74 $369.56 $245.34 Depreciation, depletion and amortization per ounce ........ 116.40 111.53 81.08 38.22 44.13 ------- ------- ------- ------- ------- Total cost per ounce $336.66 $388.49 $313.82 $407.78 $289.47 ======= ======= ======= ======= ======= </TABLE> As discussed below under Item 3 ("Legal Proceedings"), Coeur has asserted legal claims against Cyprus Amax Minerals Company based on alleged misrepresentations by that company as well as its failure to make certain required disclosures relating to ground movement and instability when Coeur purchased the property in 1993. SILVER AND GOLD PRICES The Company's 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. The volatility of such prices is illustrated by the following table, which sets forth the high and low prices of silver (as reported by Handy and Harman) and gold (London final) per ounce during the periods indicated: <TABLE> <CAPTION> Year Ended December 31, --------------------------------------------------------------------------------------------- 1994 1995 1996 1997 ------------------- ------------------- ------------------- -------------------- High Low High Low High Low High Low ------- ------- ------- ------- -------- ------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Silver $ 5.76 $ 4.63 $ 6.01 $ 4.36 $ 5.79 $ 4.67 $ 6.21 $ 4.21 Gold $396.25 $369.65 $395.55 $372.40 $414.80 $367.40 $366.55 $283.00 </TABLE> MARKETING Coeur has historically sold the gold and silver from its mines both pursuant to forward contracts and at spot prices prevailing at the time of sale. Entering into forward sale contracts is a strategy used to mitigate some of the risks associated with fluctuating precious metals prices. The Company continually evaluates the potential benefits of engaging in these strategies based on the then current market conditions. At December 31, 1997, the Company was not a party to any forward sale or purchase contracts other than through Silver Valley Resources and Gasgoyne. At December 31, 1997, Silver Valley Resources had purchased contracts in the open market requiring it to purchase 500,000 ounces of silver attributable to Coeur's interest in Silver Valley Resources at an average cost of $5.70 per ounce. The Company marks these contracts to market and, accordingly, records any gain or loss on these contracts on a monthly basis. As of December 31, 1997, Gasgoyne had sold forward 175,000 ounces of gold attributable to Coeur's interest in the Yilgarn 22
Star Mine at an average minimum price of approximately A$601 per ounce (or approximately US$388 per ounce based on currency exchange rates on December 31, 1997). As of December 31, 1996, the Company had entered into forward contracts to deliver a total of 146,670 ounces of gold over a three-year period at an average price of $421.51 per ounce. In January 1997, those forward contract positions were closed, resulting in a net gain of approximately $5.3 million that was recorded in first quarter of 1997. EXPLORATORY MINING PROPERTIES Coeur, either directly or through its wholly-owned subsidiaries, owns, leases and has interests in certain exploration-stage mining properties located in the United States, Chile, Guyana, Mexico and New Zealand. Exploration expenses of approximately $4.9 million, $7.7 million and $8.7 million were incurred by the Company in connection with exploration activities in 1995, 1996 and 1997, respectively. Coeur is conducting extensive silver and gold exploratory activities at or adjacent to its existing mining properties. In particular, exploratory drilling is being conducted at the Rochester, Fachinal and El Bronce Mines and nearby properties. Silver Valley Resources is engaged in exploration projects at the Coeur and Galena Mines and adjacent Caladay project, including the leased Sterling Mining Company, Placer Creek Mining Company, Silver Buckle Mines, Inc. and American Silver Mining Company properties in the Coeur d'Alene Mining District in northern Idaho, which historically has been one of the largest silver producing regions in the world; and Gasgoyne is conducting exploratory activities in Western Australia. Coeur's most significant other exploration activities are being conducted in Guyana, Mexico and Chile. At the Groete Creek property, a low-grade gold, potential bulk volume mining property located near Georgetown, Guyana, Coeur has completed an internally generated resource calculation that estimates 76.9 million tons of mineralized material averaging 0.02 ounces of gold per ton based on a preliminary pit design using a 0.01 ounce per ton gold cutoff grade. Coeur has an option to purchase 75% of the mineral rights at Groete Creek on or prior to December 20, 1998 for $700,000. At the KM66 property in the state of Durango, Mexico, which has low-grade silver, bulk tonnage open pit mining potential, Coeur's continuing drilling program has indicated silver-zinc-lead mineralization. Coeur has internally estimated 5.3 million tons at 1.65 ounces per ton silver, 0.71% lead and 1.34% zinc at the KM 66 property. Coeur has an option to purchase 100% of the mineral rights at the KM 66 property on or before January 2000 for $4.0 million. Finally, Coeur has several other exploration projects located throughout Chile. The Company may elect to sell any of its exploration properties during 1998. 23
GOVERNMENT REGULATION GENERAL The Company's activities are subject to extensive federal, state and local laws governing the protection of the environment, prospecting, development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. Although such regulations have never required the Company to close any mine and the Company is not presently subject to any material regulatory proceedings related to such matters, the costs associated with compliance with such regulatory requirements are substantial and possible future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, the extent of which cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards and regulations which may entail significant costs and delays. Although Coeur has been recognized for its commitment to environmental responsibility and believes it is in substantial compliance with applicable laws and regulations, amendments to current laws and regulations, the more stringent implementation thereof through judicial review or administrative action or the adoption of new laws, could have a materially adverse effect upon the Company. For the years ended December 31, 1996 and 1997, the Company expended $3.1 million and $5.0 million, respectively, in connection with routine environmental compliance activities at its operating properties and expects to expend approximately $7.5 million for that purpose in 1998. The Company expended approximately $12.1 million and $4.5 million in connection with its ground movement remediation activities at the Golden Cross Mine in 1996 and 1997, respectively. In addition, since the inception of the project through December 31, 1997, the Company expended approximately $13.5 million on environmental and permitting activities at the Kensington Property and expects to spend approximately $1.7 million there for that purpose in 1998. The expenditures at Kensington have been capitalized as part of its development cost. Future environmental expenditures will be determined by governmental regulations and the overall scope of the Company's operating and development activities. FEDERAL ENVIRONMENTAL LAWS Mining wastes are currently exempt to a limited extent from the extensive set of Environmental Protection Agency ("EPA") regulations governing hazardous waste. The EPA plans to develop a program to regulate mining waste pursuant to its solid waste management authority under the Resource Conservation and Recovery Act ("RCRA"). Certain processing and other wastes are currently regulated as hazardous wastes by the EPA under RCRA. The EPA is studying how mine wastes from extraction and benefication should be managed and regulated. If the Company's mine wastes were treated as hazardous waste or such wastes resulted in operations being designated as a "Superfund" site under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") for cleanup, material expenditures would be required for the construction of additional waste disposal facilities or for other remediation expenditures. Under CERCLA, any owner or operator of a Superfund site since the time of its contamination generally may be held liable and may 24
be forced to undertake remedial cleanup action or to pay for the government's cleanup efforts. Additional regulations or requirements may also be imposed upon the Company's tailings and waste disposal in Idaho and Alaska under the Federal Clean Water Act ("CWA") and in Nevada under the Nevada Water Pollution Control Law which implements the CWA. Air emissions are subject to controls under Nevada's, Idaho's and Alaska's air pollution statutes implementing the Clean Air Act. The Company's commitment to environmental responsibility has been recognized in 14 awards received since 1987, which included the Dupont/Conoco Environmental Leadership Award, awarded to the Company on October 1, 1991 by a judging panel that included representatives from environmental organizations and the federal government and the "Star" award granted on June 23, 1993 by the National Environmental Development Association, and the Environmental Waikato Regional Council award for Golden Cross environmental initiative granted on May 15, 1995. In 1994, the Company's Chairman and Chief Executive Officer, and in 1996, the Company's Vice President of Environmental and Governmental Affairs, were awarded the American Institute of Mining, Metallurgical and Petroleum Engineers' Environmental Conservation Distinguished Service Award. The receipt of such awards does not relieve the Company of its obligations to comply with all applicable environmental laws. NATURAL RESOURCES LAWS The Company is subject to federal and state laws designed to protect natural resources. In March 1996, as discussed under Item 3 below, the United States government commenced a lawsuit against various defendants, including the Company, asserting claims under CERCLA and the CWA for alleged damages to federal natural resources in the Coeur d'Alene River Basin of northern Idaho as a result of alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s. PENDING MINING LEGISLATION Legislation is presently being considered in the U.S. Congress to change the Mining Law of 1872 (the "Mining Act") under which the Company holds mining claims on public lands. It is possible that the Mining Act will be amended or be replaced by more onerous legislation in the future. The legislation under consideration, as well as regulations under development by the Bureau of Land Management, contain new environmental standards and conditions, additional reclamation requirements and extensive new procedural steps which would be likely to result in delays in permitting. Among the bills under consideration are bills calling for an 8% gross royalty, a 2.5% or 5% net smelter return royalty or a 3.5% net proceeds royalty on the value of minerals mined on public lands, payable to the U.S. government. The Company believes that if and when any royalty is imposed, it will not be a gross royalty. A significant portion of Coeur's U.S. mining properties are on public lands. Any reform of the Mining Act or regulations thereunder based on these initiatives could increase the costs of mining activities on unpatented mining claims, and as a result could have an adverse effect on the Company and its results of operations. Until such time, if any, as new reform legislation or regulations 25
are enacted, the ultimate effects and costs of compliance on the Company cannot be estimated. FOREIGN GOVERNMENT REGULATIONS The mining properties of the Company that are located in New Zealand and Chile are subject to various government laws and regulations pertaining to the protection of the air, surface water, ground water and the environment in general, as well as the health of the work force, labor standards and the socioeconomic impacts of mining facilities upon the communities. The Company believes it is in substantial compliance with all applicable laws and regulations to which it is subject in both Chile and New Zealand. MAINTENANCE OF CLAIMS At mining properties in the United States, including the Rochester, Kensington, Coeur, Galena and Caladay mines, operations are conducted in part upon unpatented mining claims, as well as patented mining claims. Pursuant to applicable federal law it is necessary, in order to maintain the unpatented claims, to pay to the Secretary of the Interior, on or before August 31 of each year, a claim maintenance fee of $100 per claim. This claim maintenance fee is in lieu of the assessment work requirement contained in the Mining Law of 1872. In addition, in Nevada, holders of unpatented mining claims are required to pay the county recorder of the county in which the claim is situated an annual fee of $3.50 per claim. No maintenance fees are payable for patented claims. Patented claims are similar to land held by an owner who is entitled to the entire interest in the property with unconditional power of disposition. In Chile, operations are conducted upon mineral concessions granted by the national government. For exploitation concessions (somewhat similar to a U.S. patented claim), to maintain the concession, an annual tax is payable to the government before March 31 of each year in the approximate amount of $1.14 per hectare. For exploration concessions, to maintain the right, the annual tax is approximately $.30 per hectare. An exploration concession is valid for a three year period. It may be renewed for new periods unless a third party claims the right to explore upon the property, in which event the exploration concession must be converted to an exploitation concession in order to maintain the rights to the concession. It is anticipated that the total tax to be paid before March 31, 1998 for El Bronce is $61,000, for Fachinal $140,000; and for all other property in Chile $128,000. In New Zealand, prospecting licenses and mining licenses are issued by a national government agency. To maintain them the holder must comply with the detailed provisions of the licenses, which include provisions for work programs, health and safety, protection of the environment, reclamation, liability insurance and performance bonds. An annual fee is required to be paid for the prospecting and mining licenses associated with Golden Cross which, for the year 1998, is anticipated to be approximately $26,000. 26
EMPLOYEES At March 1, 1998, the Company employed a total of 949 full-time employees, of which 42 are located at the Company's executive offices in Coeur d'Alene, Idaho, 266 are employed at the Rochester Mine, 32 are employed at the Golden Cross Mine in New Zealand, 588 are employed at the Fachinal and El Bronce Mines in Chile, and 21 are employed at the Kensington property in Alaska. The Company maintains labor agreements under country statutes in New Zealand at the Golden Cross Mine and in Chile at the Fachinal and El Bronce Mines. The Fachinal and El Bronce Mine labor agreements provide a base wage with bi-annual cost of living adjustments but no annual escalator, and have provisions for terms and conditions of work including vacations, holidays, education, and in the case of the Fachinal Mine, housing. The agreements also provide for health and pension benefits at the minimum country-mandated levels. The Fachinal Mine agreement also provides for hours of work and shifts to accommodate remote living conditions and provides a production bonus equal to 35% of base pay when production exceeds 1,500 tons per day. The agreements at the El Bronce and Fachinal Mines expire in 1998 and 1999, respectively. In the opinion of the Company, its labor relations have been satisfactory. The employees of Silver Valley Resources and Gasgoyne are employees of those companies. ITEM 2. PROPERTIES. Information regarding the Company's properties is set forth under Item 1 above. ITEM 3. LEGAL PROCEEDINGS. On March 22, 1996, an action was filed in the United States District for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against various defendants, including Coeur, asserting claims under CERCLA and the Clean Water Act for alleged damages to federal natural resources in the Coeur d'Alene River Basin of Northern Idaho as a result of alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s. No specific monetary damages were identified in the complaint. However, in July 1996, the government indicated that damages may approximate $982 million. The United States asserts that the defendants are jointly and severally liable for costs and expenses incurred by the United States in connection with the investigation, removal and remedial action and the restoration or replacement of affected natural resources. In 1986 and 1992, the Company had settled similar issues with the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes that those prior settlements exonerate it of further involvement with alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously defend this matter and on March 27, 1997, filed a motion for summary judgment seeking dismissal of the Company from the action. In September 1997, the Company filed a motion for summary judgement raising the statute of limitations. Both motions are pending decision. In March 1998, the EPA announced its intent to perform a remedial investigation/feasibility study (RI/FS) at all or parts of the Basin, and thereby, apparently focus upon response costs rather than natural resource damages. At this stage of the proceeding, it is not possible to predict the ultimate outcome thereof. 27
On July 15, 1996, Coeur filed a complaint against Cyprus Amax Minerals Company ("Cyprus") in the District Court of the State of Idaho, Kootenai County alleging violations by Cyprus of the anti-fraud provisions of the Idaho and Colorado Securities Acts as well as common law fraud in connection with Cyprus' sale in April 1993 to Coeur of Cyprus Exploration and Development Corporation, which owned all the shares of Cyprus Gold New Zealand Limited, which, in turn, owned an 80% interest in the Golden Cross Mine in New Zealand. Coeur's lawsuit seeks recession and an unspecified amount of damages arising from alleged misrepresentations and failure to disclose material facts alleged to have been known by Cyprus officials regarding ground movement and instability, threatening the integrity of the mine site at the time of Coeur's purchase of the property. In October 1997, Cyprus filed a counterclaim alleging libel by Coeur in its press release announcing the write-off of the Golden Cross Mine and seeking an unspecified amount of damages. Coeur also filed an action in federal court for the District of Idaho on July 15, 1996 against Cyprus which makes the same allegations as the Idaho State complaint, but including violations of federal securities laws. The Company voluntarily dismissed that action in January 1998. On July 2, 1997 a suit was filed by a purchaser of the Company's Common Stock in Federal District Court for the District of Colorado naming the Company and certain of its officers and its independent auditor as defendants. Plaintiff alleges that the Company violated the Securities Exchange Act of 1934 during the period January 1, 1995 to July 11, 1996, and seeks certification of the law suit as a class action. The class members are alleged to be those persons who purchased publicly traded debt and equity securities of the Company during the time period stated. On September 22, 1997, an amended complaint was filed in the proceeding adding other security holders as additional plaintiffs. The action seeks unspecified compensatory damages, pre-judgment and post-judgment interest, attorney's fees and costs of litigation. The complaint asserts that the defendants knew material adverse non-public information about the Company's financial results which was not disclosed, and which related to the Golden Cross and Fachinal Mines; and that the defendants intentionally and fraudulently disseminated false statements which were misleading and failed to disclose material facts. The Company believes the allegations are without merit and intends to vigorously defend against them. On October 27, 1997, the Company, its auditors and the individual defendants filed with the Court motions to dismiss the amended complaint on the ground that it fails to state a valid claim. The motions were argued on January 8, 1998 and are pending decision by the court. No assurances can be given at this early stage of the action as to its ultimate outcome. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 28
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information regarding the Company's current executive officers: <TABLE> <CAPTION> Office with Appointed Name Age the Company to Office ----- --- --------------- --------- <S> <C> <C> <C> Dennis E. Wheeler 55 Chairman of the Board 1992 President 1980 Chief Executive Officer 1986 James A. Sabala 43 Senior Vice President 1987 Chief Financial Officer Robert Martinez 51 Vice President - Operations 1997 William F. Boyd 59 Vice President - 1990 Corporate Counsel & Secretary Paul B. Valenti 49 Vice President - Engineering 1997 Thomas T. Angelos 42 Vice President - Controller 1987 James K. Duff 53 Vice President - Business 1996 Development Robert T. Richins 50 Vice President 1989 Environmental Services and Governmental Affairs Kevin L. Packard 37 Treasurer 1996 Gary W. Banbury 45 Vice President - Human Resources 1998 </TABLE> Messrs. Wheeler, Sabala, Boyd, Martinez, Angelos, Richins, Duff and Packard have been principally employed by the Company for more than the past five years. Prior to his appointment as Vice President - Operations, Mr. Martinez was Vice President-Engineering, Operational Services and South American Operations of the Company. Prior to his appointment to his current position in September 1997, Mr. Valenti was Vice President of Operations and Development for USMX, Inc. Prior to his appointment as Vice President - Business Development, Mr. Duff held the position of Director of New Business Development. From June 1993 until his appointment to Vice President - Human Resources, Mr. Banbury held the position of Manager of Human Resources with the Company. Prior to June 1993, he held the position of Director of Human Resources with Northshore Mining Corporation, a division of Cyprus Minerals, Inc. 29
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange ("NYSE") and the Pacific Coast Exchange. The following table sets forth, for the periods indicated, the high and low closing sales prices of the Common Stock as reported by the NYSE: <TABLE> <CAPTION> High Low ---- --- <S> <C> <C> 1996: First Quarter $25.1250 $18.3750 Second Quarter 22.2500 18.3750 Third Quarter 19.3750 13.7500 Fourth Quarter 16.3750 13.8750 1997: First Quarter $18.2500 $13.8750 Second Quarter 16.0000 12.5000 Third Quarter 16.3125 12.6875 Fourth Quarter 16.2500 7.6250 </TABLE> The Company paid per share cash distributions or dividends on its Common Stock of $.15 on each of April 19, 1996, April 21, 1995, April 15, 1994, and April 16, 1993. In March 1997, the Company announced the Board's decision not to pay a dividend on its Common Stock in April 1997. Future distributions or dividends on the Common Stock, if any, will be determined by the Company's Board of Directors and will depend upon the Company's results of operations, financial conditions, capital requirements and other factors. At March 6, 1998, there were 7,378 record holders of the Company's outstanding Common Stock. ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain selected consolidated financial data with respect to the Company and its subsidiaries and should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report. 30
<TABLE> <CAPTION> Year Ended December 31, ------------------------------------------------------------------------ 1993 1994 1995 1996 1997 (7) ---------- --------- --------- ---------- --------- (Thousands Except Per Share Information) <S> <C> <C> <C> <C> <C> INCOME STATEMENT DATA: Income: Sale of concentrates and dore' $ 67,990 $ 79,606 $ 89,239 $ 92,731 $139,037 Less cost of mine operations 59,804 67,802 72,210 $ 83,283 141,873 --------- --------- --------- --------- --------- Gross profits 8,186 11,804 17,029 9,448 (2,836) (7) Other income 5,388 12,587 9,504 $ 13,159 $ 20,945 --------- --------- --------- --------- --------- Total income 13,574 24,391 26,533 22,607 18,109 Other expenses 31,548 29,392 27,591 23,946 32,434 Writedown of mining properties (4) 54,415 --------- --------- --------- --------- --------- Total expenses 31,548 29,392 27,591 78,361 32,434 --------- --------- --------- --------- --------- Net loss from continuing operations before income taxes (17,974) (5,001) (1,058) (55,754) (14,325) Provision (benefit) for income taxes (3,932) (265) 200 (1,184) (242) --------- --------- --------- --------- --------- Net loss from continuing operations (14,042) (4,736) (1,258) (54,570) (14,083) Income from discontinued operations(net of taxes)(1) 752 793 2,412 --------- --------- --------- --------- --------- Income(loss) before cumulative effect of change in accounting method (13,290) (3,943) 1,154 (54,570) (14,083) Cumulative effect of change in accounting method(2) 5,181 --------- --------- --------- --------- Net income (loss) $ (8,109) $ (3,943) $ 1,154 $(54,570) $(14,083) ========= ========= ========= ========= ========= Net income(loss) attributable to Common Shareholders $ (8,109) $ (3,943) $ 1,154 $(62,967) $(24,614) ========= ========= ========= ========= ========= Basic and diluted earnings per share data(3): Net loss from continuing operations $ (.92) $ (.31) $ (.08) $ (2.54) $ (.64) Income from discontinued operations(net of taxes) .05 .05 .15 .00 .00 --------- --------- --------- --------- --------- Net income (loss) before cumulative change in accounting method (.87) (.26) .07 (2.54) (.64) Cumulative effect of change in accounting method .34 --------- --------- --------- --------- --------- Net income (loss) $ (.53) $ (.26) $ .07 $ (2.54) $ (.64) ========= ========= ========= ========= ========= Net loss from continuing operations $ (.92) $ (.31) $ (.08) $ (2.93) $ (1.12) Income from discontinued operations (net of taxes) .05 .05 .15 --------- --------- --------- --------- Income (loss) before cumulative change in accounting method (.87) (.26) .07 (2.93) (1.12) Cumulative effect of change in accounting method .34 --------- --------- --------- --------- Net income (loss) attributable to Common Shareholders $ (.53) $ (.26) $ .07 $ (2.93) $ (1.12) ========= ========= ========= ========= ========= Cash dividends paid per Common Share $ .15 $ .15 $ .15 $ .15 ========= ========= ========= ========= Weighted average number of shares of Common Stock 15,308 15,371 15,879 21,465 21,890 ========= ========= ========= ========= ========= BALANCE SHEET DATA: Total Assets $325,249 $412,361 $445,646 $580,330 $661,422 Working capital 104,883 170,087 105,597 179,626 221,610 Long-term liabilities 133,241 234,009 184,789 202,566 300,872 Shareholders' equity 170,849 160,292 239,832 346,198 332,089 <FN> (1) On May 2, 1995, the Company sold the assets of its flexible hose and tubing division, The Flexaust Company, and shares of a related subsidiary for approximately $10.0 million, of which approximately $4 million was paid at the time of closing and the balance is payable over the next five years. The results of operations and the gain on sale of Flexaust manufacturing segment are presented as "Discontinued Operations." The Company recorded a pre-tax gain on the sale of approximately $3.9 million ($2.2 million net of income taxes) during the second quarter of 1995. (2) Effective January 1, 1993, the Company changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards (FAS) 109, "Accounting for Income Taxes." FAS 109 requires an asset and liability approach to accounting for income taxes and establishes criteria for recognizing deferred tax assets. Accordingly, the Company 31
adjusted its existing deferred income tax assets and liabilities to reflect current statutory income tax rates and previously unrecognized tax benefits related to federal and certain state net operating loss carryforwards. FAS 109 also contains new requirements regarding balance sheet classification and prior business combinations. Hence, the Company adjusted the carrying values of an incremental interest in the Rochester Property acquired in 1988 and CDE Chilean Mining Corp. acquired in 1990 to reflect the gross purchase value previously reported net-of-tax. The cumulative effect of the accounting change on prior years at January 1, 1993 is a nonrecurring gain of $5,181,188, or $.34 per share, and is included in the Consolidated Statement of Operations for the year ended December 31, 1993. Other than the cumulative effect, the accounting change had no material effect on the results of operations for the year ended December 31, 1993. (3) The earnings per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." For further discussion of earnings per share and the impact of Statement No. 128, see notes to the consolidated financial statements. (4) During the second quarter of 1996, the Company determined that certain adjustments were required to properly reflect the estimated net realizable values of certain mining properties in accordance with FASB statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Golden Cross Mine and the nearby Waihi East property were written down by approximately $53 million due to increased expenditure requirements related to remediation of ground movement which impacts the tailings impoundment area and the ultimate viability of the mine. The write-down includes amounts necessary to increase the Company's recorded remediation and reclamation liabilities at Golden Cross to approximately $7.02 million as of December 31, 1996. In addition, the Faride property in Chile, was written down by $1.2 million due to management's decision not to exercise its final option payment on the project. (5) Included in the results of operations for the year ended December 31, 1995 are (i) a gain of $4.4 million (included in other income) from the sale of gold and silver purchased in the open market which was in turn delivered pursuant to fixed price forward contracts during the year; and (ii) $2.4 million of income from discontinued operations (including the $2.2 million after-tax gain from the related sale of certain non-mining assets in May 1995) during the year. (6) Included in the results of operations for 1997 are (i) the receipt of $8.0 million of insurance proceeds for business interruption and property damage at the Golden Cross Mine and (ii) a gain of $5.3 million arising from the sale of gold purchased in the open market which was delivered pursuant to fixed price forward contracts in the first quarter of 1997. (7) The gross loss from mining operations for 1997 amounted to approximately $2.8 million compared to a gross profit from mining operations for the prior year's comparable period of $9.4 million. The decrease primarily is attributable to (i) substantially lower silver and gold prices in 1997, during which period the average silver and gold prices were $4.89 and $331.10 pr ounce, respectively, compared to $5.18 and $387.70 per ounce, respectively, in 1996; (ii) the unprofitable operations of the El Bronce Mine and the fact that the Company increased its ownership of that mine from 50% to 100% in the third quarter of 1996, which resulted in a proportionate increase in the cost of mine operations during 1997; and (iii) the unprofitable operation at the Fachinal Mine and the fact that the Company classified that mine as an operating property for accounting purposes as of January 1, 1997, and therefore began recording cost of mine operation at that mine on that date. Of the approximately $58.6 million increase in the cost of mine operations in 1997 over the prior year's comparable period, approximately $19.6 million, or 33.4%, were non-cash expenses attributable to the 86.4% increase in depreciation, depletion and amortization expense recorded in the year ended December 31, 1997. Such increase in non-cash expenses primarily resulted from the Company's increased El Bronce interest and the fact that no such expenses were being recorded by Fachinal during 1996. </FN> </TABLE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The results of the Company's operations are significantly affected by the market prices of gold and silver which may fluctuate widely and are affected by many factors beyond the Company's 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. The Company's currently operating mines are the Rochester Mine in Nevada, which it wholly owns and operates; the El Bronce Mine, a Chilean gold mine of which the Company acquired operating control in October 1994 and 100% ownership in September 1996; and the Fachinal Mine, a Chilean gold-silver mine wholly-owned by the Company at which initial production commenced in late October 1995 and which was classified as an operating property for financial reporting purposes on January 1, 1997. In April 1998, the Company will substantially discontinue mining operations at the Golden Cross Mine in New Zealand, in which the Company has an 80% operating interest. The Company also has significant interests in other companies that operate gold and silver mines. The Company owns 50% of Silver Valley, which owns and operates the Coeur Mine (where operations resumed in June 1996 and are expected to continue early 1998) and the Galena Mine (where operations resumed in May 1997) in the Coeur d'Alene Mining District of Idaho. In May 1997, the Company increased to 50% its ownership of Gasgoyne, which owns 50% of the Yilgarn Star Gold Mine in Australia. The Company's total production in 1997 was approximately 291,000 ounces of gold and 11.0 million ounces of silver, which was the highest in the Company's history. Coeur estimates that 1998 gold and silver production will approximate 219,000 ounces and 10.7 million ounces, respectively. Total estimated reserves at December 31, 1997 amounted to approximately 3.079 million ounces of gold and 99.140 million ounces of silver, compared to estimated gold and silver reserves at December 31, 1996 of approximately 3.396 million ounces and 109.045 million ounces, respectively. A production decision at the Kensington property, a wholly-owned developmental gold property in Alaska, is subject to the receipt of certain required permits and the completion of the optimization study and development programs under way demonstrating the economic viability of the project. Based on the current mine design, the project requires a realized price of gold through spot or forward sales of at least $400 per ounce. The market price of gold (London final) on March 6, 1998 was $294.90 per ounce. The Company is unable to control the timing of the issuance of the remaining required permits, which are expected to be issued in the first quarter of 1998. There can be no assurances that the Company will proceed to place the Kensington project into commercial production. The Company's business plan is to continue to acquire competitive, low-cost mining properties and/or businesses that are operational or expected to become operational in the near future so that they can reasonably be expected to contribute to the Company's near-term cash flow from operations and expand the Company's gold and/or silver production. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996. SALES AND GROSS PROFITS Sales of concentrates and dore' increased by $46,306,000, or 50%, for the year ended December 31, 1997 over the same period of 1996 and is primarily attributable to increased sales of metals produced at the Fachinal and El Bronce Mines. Those increases are primarily due to (i) the classification of the Fachinal Mine as an operating property for accounting purposes as of January 1, 1997, and (ii) the Company's increased ownership of the El Bronce Mine from 50% to 100% commencing in the third quarter of 1996. During 1997, the Company produced a total of 11,024,225 ounces of silver and 290,962 ounces of gold compared to 9,520,009 ounces of silver and 214,130 ounces of gold in 1996. Silver and gold prices averaged $4.89 and $331.10 per ounce, respectively, in 1997 compared to $5.18 and $387.70 per ounce, respectively, in 1996. During 1997, the Company realized average silver and gold prices of $4.89 and $334.99, respectively, compared with realized average market prices of $5.18 and $397.80, respectively, in 1996. The cost of mine operations in 1997 increased by $58,590,000, or 70%, over 1996. The increase is primarily attributable to the fact that i) the Company increased its ownership in the El Bronce Mine from 50% to 100% commencing late in the third quarter of 1996, which resulted in a proportionate increase in the cost of mine operations during the year ended December 31, 1997; and ii) the Company classified the Fachinal Mine as an operating property for accounting purposes as of January 1, 1997, and began recording cost of mine operations at the Fachinal Mine on that date. Of the approximately $58.6 million increase in the cost of mine operations, $19.6 million, or 33.4%, were noncash expenses attributable to the 86.4% increase in depreciation, depletion and amortization expense recorded in the year ended December 31, 1997 over the prior year. The increase in these noncash expenses primarily resulted from the Company's increased El Bronce ownership interest and the fact that no such expenses were being recorded by Fachinal during 1996. In 1997, based upon operating experience and metallurgical testing at the Rochester property, the Company determined that the metallurgical recovery rates were underestimating the amount of silver and gold that will ultimately be extracted in the heap leach process. Prior to the fourth quarter, the Company estimated it would recover 55% of the silver and 85% of the gold mined. Effective with the fourth quarter of 1997, the Company revised its estimated recovery rates to 59% of the silver and 90% of the gold. The Company has accounted for the effect of the change prospectively as a change in 33
accounting estimate. The impact of the estimate change resulted in a reduction of cost of goods sold in 1997 of $7.0 million. The cash cost per ounce of silver on a silver equivalent basis at the Rochester Mine amounted to $4.36 compared to $3.71 per ounce in 1996. The increase is due to a lower mine strip ratio in 1997 which resulted in an amortization of deferred stripping costs. Cash costs at Silver Valley amounted to $3.74 per silver ounce in 1997 compared to $3.18 in 1996 and is the result of the startup in 1997 of the Galena Mine. Cash costs at the Golden Cross Mine in 1997 averaged $245.34 per ounce of gold produced versus $369.56 in 1996. The higher cost in 1996 was primarily attributable to the land slide issue which delayed a planned expansion of the existing facilities. Cash costs at the El Bronce Mine averaged $348.24 per ounce of gold produced versus $296.05 in 1996. The increase was primarily caused by near drought conditions occurring in the first quarter of 1997, heavy rainfall occurring in the second quarter of 1997 and a two-week closure of the mine in August 1997 resulting from heavy rain and flooding. The gross loss from mining operations in 1997 amounted to $2.8 million compared to a gross profit from mining operations of $9.4 million in the same period of 1996. The $12.3 million decrease in gross profits is due to the above mentioned increase in the cost of mine operations coupled with substantially lower gold and silver prices realized in the year ended December 31, 1997. OTHER INCOME Interest and other income increased by $7.8 million, or 59%, in 1997 compared to 1996. The increase is primarily the result of (i) the receipt of $8 million of insurance proceeds for business interruption and property damage at the Golden Cross Mine in the second quarter of 1997, and (ii) a gain of $5.3 million arising from the sale of gold purchased on the open market which was delivered pursuant to fixed-price forward contracts in the first quarter of 1997. The increase is partially offset by a loss of $1.5 million related to the sale of the common shares of an Australian mining company in the fourth quarter of 1997 and lower interest income related to lower average cash and short-term investment balances in 1997 compared to 1996. EXPENSES For the year ended December 31, 1997, total expenses decreased by $45.9 million. The decrease is primarily attributable to the $54.4 million writedown of mining properties recorded in the second quarter of 1996. In 1997, interest expense increased by $6.7 million, primarily as a result of the reclassification of the Fachinal Mine from a development-stage property to an operating property and the issuance of $143.7 million principal amount of 7 1/4% Convertible Subordinated Debentures due 2005 in the fourth quarter of 1997. Effective January 1, 1997, interest expense on the Fachinal construction loan, which was previously capitalized during the pre-production stage, was charged to operating expense. Mining exploration expense for 1997 increased by $1,027,000, or 13%, over 1996. 34
NET LOSS As a result of the above, the Company's loss before income taxes amounted to $14,325,000 in 1997 compared to a loss of $55,754,000 in 1996. The Company reported an income tax benefit of $242,000 for 1997, compared to an income tax benefit of $1,184,000 in 1996. As a result, the Company reported a net loss of $14,083,000, or $.64 per share, and a net loss attributable to common shareholders of $24,614,000, or $1.12 per share, in 1997, compared to a net loss of $54,570,000, or $2.54 per share, and a net loss attributable to common shareholders of $62,967,000, or $2.93 per share, in 1996. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 SALES AND GROSS PROFITS Sales of concentrates and dore' in 1996 increased by $3,492,000, or 4%, over 1995. The increase is primarily attributable to increased gold production at the Company's Rochester Mine and increased silver production attributable to Silver Valley Resources. Silver and gold prices averaged $5.18 and $387.70 per ounce, respectively, in 1996 compared to $5.19 and $384.16 per ounce, respectively, in 1995. During 1996, the Company produced 9,520,009 ounces of silver and 214,130 ounces of gold compared to 7,175,394 ounces of silver and 167,985 ounces of gold in 1995. The cost of mine operations in 1996 increased by $11,073,000, or 15%, over 1995. The increase is primarily due to the startup, in the second quarter of 1996, of operations at Silver Valley's Coeur Mine and higher operating costs at the Golden Cross Mine resulting from deep-seated ground movement under the tailings dam. Gross profit from mine operations decreased by $7,581,000, or 45%, compared with 1995. Mine operations gross profit as a percent of sales decreased to 10% in 1996 compared to 19% in 1995. The gross profit decrease was primarily attributable to a decrease in gold production and higher operating costs from the Company's Golden Cross Mine and start-up costs at Silver Valley's Coeur Mine. The total cash costs per ounce of gold at the Golden Cross Mine amounted to $369.56 per ounce in 1996, compared to $232.74 per ounce during 1995. The increase was primarily attributable to the land slide issue first identified by the Company in late 1995. As a result, the Company was unable to complete a planned expansion of the existing facilities which would have resulted in lower unit operating costs. The total cash costs per ounce of silver on a silver equivalent basis at the Rochester Mine amounted to $3.71 per ounce in 1996, compared to $3.79 per ounce in 1995. Total cash costs at the El Bronce Mine averaged $296.05 per ounce of gold in 1996 compared with $330.37 during its first full year of operation in 1995. Cash costs at Silver Valley amounted to $3.18 per silver ounce produced subsequent to its startup in June 1996. OTHER INCOME Interest and other income in 1996 increased by $3,655,000, or 38%, compared with 1995. The increase is primarily due to (i) an increase in the 35
average balance of the Company's cash and securities portfolio in 1996 primarily resulting from the public sale of $150.4 million of Mandatory Adjustable Redeemable Convertible Securities ("MARCS") in March and April 1996, and a gain of $1,300,000 arising from the sale by the Company of common shares of Orion Resources, NL in the third quarter of 1996, (ii) a gain of $1,400,000 from the sale of other fixed assets in the fourth quarter of 1996, and (iii) the Company's $907,487 share of income resulting from its interest in the operations of Gasgoyne Gold Mines in 1996. EXPENSES AND WRITEDOWN OF MINING PROPERTIES Total expenses, including writedown of mining properties, in 1996 increased by $50,770,000 over 1995. The increase is primarily due to writedowns of mineral properties of $54,415,000 related to a $53,245,000 writedown of the Company's interest in the Golden Cross Mine and nearby Waihi East property in New Zealand and a $1,170,000 writedown of the Company's interest in the Faride Mine in Chile. The impact of the increase in expenses due to the writedowns is partially offset by decreases in idle facilities of $1,481,000 and interest expense of $6,111,000. The $53,245,000 charge related to the Company's investment in the Golden Cross Mine and the nearby Waihi East property, which included accrual of the estimated future closure and remediation costs and a write-down of the carrying value of the Company's 80% interest in the property, was announced in July 1996 following the determination by the Company, following consultation with its independent accountants, that generally accepted accounting principles called for an asset writedown. The writedown was necessitated by the Company's discovery in late 1995 of deep-seated ground movement, actuated by heavy rainfall events not caused by the mine's operations, under the mine's tailings impoundment. Following investigative activities and the formulation of remedial measures, the Company's determination as of June 1996 was the amount required to implement the planned remedial measures could approximate $11 million. In addition, it had become evident by that time that (i) production could be expected to significantly decrease as a result of the Company's inability to implement a previously planned mill optimization because the dam had not been stabilized, and, consequently, it was believed the government would not likely consent to a raising of the tailings dam crest to obtain necessary tailings storage capacity to accommodate the increased mill throughput, and (ii) capital and operating costs could be expected to significantly increase due to the production shortfall and ground movement remediation program costs. NET LOSS FROM CONTINUING OPERATIONS As a result of the above, the Company's loss from continuing operations before income taxes increased to $55,754,000 in 1996 compared to a loss from continuing operations of $1,058,000 in 1995. The benefit from income taxes amounted to $1,184,000 in 1996, compared to a provision of $200,000 in 1995. As a result, the Company reported a net loss from continuing operations of $54,570,000, or $2.54 per share, in 1996, compared to a net loss from continuing operations of $1,258,000, or $.08 per share, in 1995. 36
INCOME FROM DISCONTINUED OPERATIONS On May 2, 1995, the Company sold the assets of its flexible hose and tubing division, The Flexaust Company, and shares of a related subsidiary for $10,000,000, of which approximately $4,000,000 was paid at the time of closing and the balance was payable through five years. The results of operations and the gain on sale of the Flexaust manufacturing segment are presented as "Discontinued Operations." The Company reports income from discontinued operations of $2,412,000, or $.15 per share. NET INCOME (LOSS) As a result of the above, the Company reported a net loss of $54,570,000 ($62,967,000 attributable to Common Shareholders), or $2.54 per share ($2.93 per share attributable to Common Shareholders), in 1996, compared to a net income of $1,154,000, or $.07 per share, in 1995. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL; CASH AND CASH EQUIVALENTS The Company's working capital at December 31, 1997 was approximately $221.6 million compared to $179.6 million at December 31, 1996. The ratio of current assets to current liabilities was 6.8 to one at December 31, 1997 compared to 6.7 to one at December 31, 1996. Net cash provided by operating activities in 1997 was $17,223,000 compared with $7,784,000 provided by operating activities in 1996. The most important non-cash items offsetting the net loss from continuing operations in 1997 were (i) $32,898,000 of depreciation, depletion and amortization, and (ii) $2,732,000 of accrued reclamation expense. A total of $ 23,792,000 of cash was used in investing activities in 1997 compared to $131,297,000 in 1996. The most important factors accounting for the cash used in investing activities in 1997 were (i) $180,511,000 used to purchase short-term investments, offset by $204,981,000 received in connection with sales of short-term investments, (ii) $14,643,000 used for the purchase of an additional 14% interest in Gasgoyne Gold Mines NL, (iii) $14,351,000 of expenditures on developmental properties, and (iv) $14,838,000 of expenditures on operational mining properties. The Company's financing activities provided $77,318,000 of cash during 1997 compared to $150,483,000 in 1996. The most important factor accounting for the net cash provided by financing activities in 1997 was the receipt of $138,090,000 of long-term debt which was offset in part by $49,513,000 used to retire long-term debt. As a result of the above, the Company's net cash increase in 1997 was $70,749,000 compared with a net cash increase of $26,970,000 in 1996. For the years ended December 31, 1997 and 1996, the Company expended $5.0 million and $3.1 million, respectively, in connection with environmental compliance activities at its operating properties. In addition, since the inception of the project through December 31, 1997, the Company had expended a total of $13.5 million on environmental and permitting activities at the Kensington Property, which expenditures have been capitalized as part of its development cost. 37
SALE OF 7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005 In October 1997, the Company sold $143,750,000 aggregate principal amount of 7 1/4% Convertible Subordinated Debentures due 2005 (the "Debentures") to Lazard Freres & Co. LLC (the "Purchaser") pursuant to exemptions from registration under the Securities Act of 1933 (the "Act"). The Debentures are convertible into shares of the Company's Common Stock on or before October 31, 2005, unless previously redeemed, at a conversion price of $17.45 per share, subject to adjustment in certain events. The Debentures are redeemable, in whole or in part, at any time on or after October 31, 2000. Pursuant to a Registration Rights Agreement, dated as of October 15, 1997, between the Company and Purchaser, the Company is obligated to file with the Securities and Exchange Commission and use its best efforts to cause to become effective a shelf registration statement to cover resales of the Debentures and shares of Common Stock issuable upon conversion thereof and to maintain the effectiveness of such registration statement until October 31, 1999, subject to adjustment in certain circumstances. The Company received approximately $138 million of net proceeds from the sale of the Debentures. Of that amount, approximately $42.9 million was used to repay bank debt (as discussed below) and the balance will be used for other corporate purposes, including the possible acquisition of or investment in additional silver and gold mining properties or businesses. REPAYMENT OF BANK INDEBTEDNESS On October 31, 1997, the Company used approximately $42.9 million of the net proceeds of the sale of Debentures to repay (i) approximately $24 million borrowed under a project loan facility agreement with a bank syndicate lead by N.M. Rothschild & Sons Ltd. relating to the Company's construction of the Fachinal Mine and (ii) approximately $18.9 million borrowed under the Company's $20.0 million line of credit agreement with Rothschild Australia Ltd. in connection with the Company's investment in Gasgoyne. FEDERAL NATURAL RESOURCES ACTION On March 22, 1996, an action was filed in the United States District Court for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against various defendants, including the Company, asserting claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and the Clean Water Act for alleged damages to Federal natural resources in the Coeur d'Alene River Basin of northern Idaho as a result of releases of hazardous substances from mining activities conducted in the area since the late 1800s. No specific monetary damages are identified in the complaint. However, in July 1996, the government indicated damages may approximate $982 million. The United States asserts that the defendants are jointly and severally liable for costs and expenses incurred by the United States in investigation, removal and remedial action and the restoration or replacement of affected natural resources. In 1986 and 1992 the Company had settled similar issues with the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes that those prior settlements exonerate it of further involvement with alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously defend this matter 38
and, in March 1997 and September 1997, filed motions for summary judgment which are pending decision by the court. At this initial stage of the action, it is not possible to predict its ultimate outcome. YEAR 2000 CONSEQUENCES During 1997, the Company reviewed all significant computer systems for compatibility with the change to the year 2000. As a result of that review, a program is now underway to ensure that all of the Company's significant computer systems are year 2000 compliant by the end of 1998 by installing commercially available software packages without significant modification. The Company's management has carefully evaluated its year 2000 compliance program, as well as the extent to which it will be affected by non-year 2000 compliant computer systems of suppliers and other third parties, and anticipates no material impact on the Company's ability to continue normal business operations. The Company estimates that the costs associated with implementation of its year 2000 program will amount to less than $130,000. ENVIRONMENTAL COMPLIANCE EXPENDITURES For the years ended December 31, 1995, 1996 and 1997, the Company expended $2.9 million, $3.1 million and $5.0 million, respectively, in connection with routine environmental compliance activities at its operating properties. Such activities at the Rochester, Golden Cross, El Bronce and Fachinal Mines include monitoring, bonding, earth moving, water treatment and revegetation activities. In addition, since the inception of the project through December 31, 1997, the Company had expended a total of $13.5 million on environmental and permitting activities at the Kensington Property, which expenditures have been capitalized as part of its development cost. The Company also expended $12.1 million in 1996 and $4.5 million in 1997 in connection with its ground movement remediation activities at the Golden Cross Mine in New Zealand, where mining activities were discontinued in December 1997. The Company estimates that costs, net of salvage revenues, to be incurred in 1998 in connection with the closure of the mine will approximate $4.0 million. The Company estimates that environmental compliance expenditures at its Kensington developmental property during 1998 will approximate $1.7 million related to activities associated with obtaining permits required for construction. Future environmental expenditures will be determined by governmental regulations and the overall scope of the Company's operating and development activities. The Company places a very high priority on its compliance with environmental regulations. EXPLORATION AND DEVELOPMENT EXPENDITURES During 1997, the Company expended $8.5 million (excluding capitalized interest) for developmental costs at the Kensington property, $.2 million at the Rochester Mine, $3.8 million (excluding capitalized interest) for the development of the Fachinal Mine and $3.0 million at the El Bronce Mine. 39
During 1998, the Company presently plans to expend $9.5 million (excluding capitalized interest) at the Kensington property, $4.3 million for the Fachinal Mine, and $4.5 million for developmental and exploration activities at the El Bronce Mine. If the Company were to decide to construct a Kensington mining facility, the Company currently estimates that it would be required to expend approximately $182 million over an eighteen-month period in connection with the construction of the Kensington mining facilities. The cost of such construction would be financed by the Company's existing capital resources as well as project financing, working capital and/or operating cash flow sources. REALIZATION OF NET OPERATING LOSS CARRYFORWARDS The Company has reviewed its net deferred tax asset, together with net operating loss carryforwards, and has elected to forego recognition of potential tax benefits arising therefrom on the view that it is more likely than not that the deferred deductions and losses will not be realized in future years. In making this determination, the Company has considered the Company's history of tax losses incurred since 1989, the current level of gold and silver prices and the ability of the Company to use accelerated depletion and amortization methods in the determination of taxable income. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. Information regarding the Company's executive officers is set forth above under Item 4A of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: (1) The following consolidated financial statements of Coeur d'Alene Mines Corporation and subsidiaries are included in Item 8. Consolidated Balance Sheets-December 31, 1996 and 1997. Consolidated Statements of Operations--Years Ended December 31, 1995, 1996 and 1997. Consolidated Statements of Changes in Shareholders' Equity--Years Ended December 31, 1995, 1996 and 1997. Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1996 and 1997. Notes to Consolidated Financial Statements. (b) REPORTS ON FORM 8-K: The Company filed a report on Form 8-K on October 16, 1997. (c) EXHIBITS: The following listed documents are filed as Exhibits to this report: <TABLE> <S> <C> 3(a) - Articles of Incorporation of the Registrant and amendments thereto. (Incorporated herein by reference to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 3(b) - Bylaws of the Registrant and amendments thereto. (Incorporated herein by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 3(c) - Certificate of Designations, Powers and Preferences of the Series A Junior Preferred Stock of the Registrant, as filed with Idaho Secretary of State on May 25, 1989 (Incorporated by reference to Exhibit 4(a) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989.) 41
4(a) - Specimen certificate of the Registrant's stock. (Incorporated herein by reference to Exhibit 4 to the Registrant's Registration Statement on Form S-2 (File No. 2-84174).) 4(b) Form of Indenture, dated as of October 15, 1997, between the Registrant and Bankers Trust Company, as Trustee. (Incorporated herein by reference to Exhibit No. 4 to the Registrant's Current Report on Form 8-K filed on October 16, 1997.) 10(a) - Executive Compensation Program. (Incorporated herein by reference to Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.) * 10(b) - Lease agreement, dated as of October 10, 1986, between Manufacturers Hanover Commercial Corporation and Coeur-Rochester, Inc. (Incorporated herein by reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K, dated October 10, 1986.) 10(c) - Indenture, dated as of June 10, 1987, between the Registrant and Citibank, N.A., as Trustee, relating to the Registrant's 6% Convertible Subordinated Debentures Due 2002. (Incorporated herein by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated June 10, 1987.) 10(d) - Agreement, dated January 1, 1994, between Coeur-Rochester, Inc. and Johnson Matthey Inc. (Incorporated herein by reference to Exhibit 10(m) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(e) - Refining Agreement, dated January 24, 1994, between the Registrant and Handy & Harman. (Incorporated herein by reference to Exhibit 10(n) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(f) - Master Equipment Lease No. 099-03566-01, dated as of December 28, 1988, between Idaho First National Bank and the Registrant. (Incorporated herein by reference to Exhibit 10(w) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) - ------------- * Management contract or compensatory plan 42
10(g) - Master Equipment Lease No. 01893, dated as of December 28, 1988, between Cargill Leasing Corporation and the Registrant. (Incorporated herein by reference to Exhibit 10(x) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 10(h) - Rights Agreement, dated as of May 24, 1989, between the Registrant and First Interstate Bank of Oregon, N.A., as Rights Agent. (Incorporated herein by reference to Exhibit 2 to the Registrant's Form 8-A relating to the registration of the Rights on the American and Spokane Stock Exchanges.) 10(i) - Agreement and Plan of Merger, dated as of September 16, 1991, by and among the Registrant, CMC Acquisition Corporation and Callahan Mining Corporation. (Incorporated herein by reference to Exhibit A to the Prospectus, dated November 22, 1991, contained in the Registrant's Registration Statement on Form S-4 (File No. 33-44096). 10(j) - Agreement, dated June 11, 1992, between Callahan Mining Corporation and Hecla Mining Company (Incorporated herein by reference to Exhibit 10(z) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992.) 10(k) - Stock Purchase Agreement, dated as of April 30, 1993, among Coeur New Zealand, Inc., the Registrant, Cyprus gold New Zealand Limited, Cyprus Exploration and Development Corporation and Cyprus Minerals Company. (Incorporated herein by reference to Exhibit 2 to the Registrant's Current Report on Form 8K dated April 30, 1993.) 10(l) - Amended and Restated Profit Sharing Retirement Plan of the Registrant. (Incorporated herein by reference to Exhibit 10(ff) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) * 10(m) - Indenture, dated as of January 26, 1994, between the Registrant and Bankers Trust Company relating to the Registrant's 6 3/8% Convertible Subordinated Debentures Due 2004. (Incorporated herein by reference to Exhibit 10(gg) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) - ------------- * Management contract or compensatory plan 43
10(n) - Purchase Agreement, dated January 18, 1994, between the Registrant and Kidder, Peabody & Co. Incorporated relating to the 6 3/8% Convertible Subordinated Debentures Due 2004. (Incorporated herein by reference to Exhibit 10(hh) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(o) - Registration Rights Agreement, dated January 26, 1994, between the Registrant and Kidder, Peabody & Co., Incorporated relating to the 6 3/8% Convertible Subordinated Debentures Due 2004. (Incorporated herein by reference to Exhibit 10(ii) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(p) - 1993 Annual Incentive Plan and Long-Term Performance Share Plan of the Registrant. (Incorporated herein by reference to Exhibit 10(jj) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) * 10(q) - Supplemental Retirement and Deferred Compensation Plan, dated January 1, 1993, of the Registrant. (Incorporated herein by reference to Exhibit 10(kk) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) * 10(r) - Lease Agreement, dated January 12, 1994, between First Security Bank of Idaho and Coeur Rochester, Inc. (Incorporated herein by reference to Exhibit 10(mm) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(s) - Agreement, dated January 1, 1994, between Coeur Gold New Zealand Limited and Johnson Matthey (Aust.) Ltd. (Incorporated herein by reference to Exhibit 10(mm) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(t) - Non-employee Directors' Retirement Plan effective as of March 19, 1993, of the Registrant. (Incorporated herein by reference to Exhibit 10(oo) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) * - ------------- * Management contract or compensatory plan 44
10(u) - Extension of Employment and Severance Agreement between the Registrant and Dennis E. Wheeler, dated June 28, 1994. (Incorporated by reference to Exhibit 10 (nn) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.)* 10(v) - Form of letter extending the terms of the Severance Agreements between the Registrant and James Sabala, Tom Angelos, Michael Clark, Al Wilder, William Boyd, Robert Martinez, Kevin Packard, James Duff and Michael Tippett. (Incorporated by reference to Exhibit 10(oo) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.)* 10(w) - 401k Plan of the Registrant. (Incorporated by reference to Exhibit 10 (pp) to the Registrants Annual Report on Form 10-K for the year ended December 31, 1994.)* 10(x) - Option Agreement of October 24, 1994 between Compania Minera El Bronce and CDE Chilean Mining Corporation. (Incorporated by reference to Exhibit 10(qq) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.) 10(y) - Asset Contribution Agreement, effective as of January 1, 1995, among the Registrant, ASARCO Incorporated, Callahan Mining Company and Silver Valley Resource Corporation. (Incorporated herein by reference to Exhibit 10(ff) to the Company's Annual Report of Form 10-K for the year ended December 31, 1995.) 10(z) - Asset and Stock Purchase Agreement, dates as of April 28, 1995, among Schauemburg International, Inc., The Flexaust Company, Inc. and Callahan Mining Corporation. (Incorporated herein by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K dated May 2, 1995.) 10(aa) - Limited Recourse Project Financing Agreement, dated April 19, 1995, between the Registrant and N.M. Rothschild & Sons, Ltd. (Incorporated herein by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) - ------------- * Management contract or compensatory plan 45
10(bb) - Venture Termination and Asset Purchase Agreement, dated as of June 30, 1995, among Coeur Alaska, Inc., Echo Bay Alaska, Inc. and Echo Bay Exploration, Inc. (Incorporated herein by reference to Exhibit 10 to the Company's Current Report on Form 8-K dated July 7, 1995.) 10(cc) - Form of Standby Agreement, dated November 15, 1995, between the Registrant and UBS Securities Inc. (Incorporated herein by reference to Exhibit 1 to the Registrant's Registration Statement on Form S-3 (File No. 33-64255).) 10(dd) - Form of Offer, dated January 29, 1996, by the Registrant to acquire all the ordinary shares of Gasgoyne Gold Mines NL. (Incorporated herein by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K filed January 31, 1996 (date of earliest event reported - December 21, 1995).) 10(ee) - Part A Statement of the Registrant relating to its offer to acquire all the ordinary shares of Gasgoyne Gold Mines NL. (Incorporated herein by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K filed January 31, 1996 (date of earliest event reported - December 21, 1995).) 10(ff) - Call Option Agreement Over Shares, dated December 20, 1995, between the Registrant and Ioma Pty Ltd. (Incorporated herein by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K filed January 31, 1996 (date of earliest event reported - December 21, 1995).) 10(gg) - Agreement for the Purchase and Sale of Shares, dated August 30, 1996, by Compania Minera El Bronce to CDE Chilean Mining Corporation and Coeur d'Alene Mines Corporation. (Incorporated herein by reference to Exhibit 10(a) of the Registrant's Current Report on Form 8-K filed November 5, 1996 (date of earliest event reported - September 4, 1996).) 10(hh) - Amendment, dated August 30, 1996, to Purchase and Sale, Cancellation and Receipt of Payment of Purchase Sale Installments and Release of Mortgage, Chattel Mortgages and Prohibitions between Compania Minera El Bronce and Compania Minera CDE El Bronce. (Incorporated herein by reference to Exhibit 10(b) of the Registrant's Current Report on Form 8-K filed November 5, 1996 (date of earliest event reported - September 4, 1996).) 46
10(ii) - Loan Agreement, dated as of December 23, 1996, among the Registrant (as the Borrower), NM Rothschild & Sons Limited and Bayerische Vereinsbank AG (as the Banks) and NM Rothschild & Sons Limited (as the Agent for the Banks). (Incorporated herein by reference to Exhibit 10(kk) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996.) 10(jj) - Purchase Agreement, dated as of October 7, 1997, between the Registrant and Lazard Freres & Co. LLC. (Incorporated herein by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K filed on October 16, 1997.) 10(kk) - Registration Rights Agreement, dated as of October 15, 1997, between the Registrant and Lazard Freres & Co. LLC. (Incorporated herein by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K filed on October 16, 1997.) 10(ll) - Mining Lease, effective as of June 1, 1997, between Silver Valley Resources and American Silver Mining Company. (Incorporated herein by reference to Exhibit 10(a) to the Registrant's Registration Statement on Form S-3 (File No. 333-40513).) 10(mm) - Mining Lease, effective as of April 23, 1996, between Silver Valley Resources Corporation and Sterling Mining Company. (Incorporated herein by reference to Exhibit 10(b) to the Registrant's Registration Statement on Form S-3 (File No. 333-40513).) 10(nn) - Mining Lease, effective as of March 21, 1997, between Silver Valley Resources Corporation and Silver Buckle Mines, Inc. (Incorporated herein by reference to Exhibit 10(c) to the Registrant's Registration Statement on Form S-3 (File No. 333-40513).) 10(00) - Mining Lease, effective as of March 21, 1997, between Silver Valley Resources Corporation and Placer Creek Mining Company. Incorporated herein by reference to Exhibit 10(d) to the Registrant's Registration Statement on Form S-3 (File No. 333-40513).) 10(pp) - Agreement for Sale and Issuance of Shares, dated May 7, 1997, among Sons of Gwalia Ltd, Burmine Investments Pty Limited, Orion Resources NL and Coeur Australia Pty Ltd. (Filed herewith.) 10(qq) - Letter agreement, dated May 7, 1997, between the Registrant and Sons of Gwalia Ltd. (Filed herewith.) 47
10(rr) - Shareholders Agreement, dated May 7, 1997, among Sons of Gwalia Ltd., Burmine Investments Pty Ltd., Orion Resources NL, Coeur Australia Pty Ltd. And Gasgoyne Gold Mines NL. (Filed herewith.) 10(ss) - Management Services Agreement, dated May 7, 1997, among Sons of Gwalia Ltd., Coeur Australia Pty Ltd. And Gasgoyne Gold Mines NL. (Filed herewith.) 21 - List of subsidiaries of the Registrant. (Filed herewith.) 23 - Consent of Ernst & Young LLP. (Filed herewith.) 27 - Financial Data Schedule. (Filed herewith.) </TABLE> (d) Independent auditors' reports are included herein as follows: Coeur d'Alene Mines Corporation Report of Ernst & Young LLP at December 31, 1996, and 1997, and for each of the three years in the period ended December 31, 1997. 48
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Coeur d'Alene Mines Corporation (Registrant) Date: March 16, 1998 By:/s/DENNIS E. WHEELER --------------------- Dennis E. Wheeler (Chairman, President and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature --------- /s/DENNIS E. WHEELER Chairman, President, March 16, 1998 -------------------- Chief Executive Officer Dennis E. Wheeler and Director /s/JAMES A. SABALA Senior Vice President, March 12, 1998 ------------------ Chief Financial Officer James A. Sabala and Director /s/CECIL D. ANDRUS Director March 12, 1998 ------------------- Cecil D. Andrus /s/JOSEPH C. BENNETT Director March 13, 1998 -------------------- Joseph C. Bennett /s/JAMES J. CURRAN Director March 16, 1998 ------------------ James J. Curran /s/DUANE B. HAGADONE Director March 12, 1998 -------------------- Duane B. Hagadone /s/JAMES A. MCCLURE Director March 13, 1998 ------------------- James A. McClure /s/JEFFREY T. GRADE Director March 12, 1998 ------------------- Jeffery T. Grade 49
ANNUAL REPORT ON FORM 10-K Item 8, Item 14(a), and Item 14(d) CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1997 COEUR D'ALENE MINES CORPORATION COEUR D'ALENE, IDAHO
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS Shareholders and Board of Directors Coeur d'Alene Mines Corporation We have audited the accompanying consolidated balance sheets of Coeur d'Alene Mines Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coeur d'Alene Mines Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Seattle, Washington /s/ERNST & YOUNG LLP February 20, 1998 F-1
CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> December 31, 1997 1996 --------- --------- ASSETS (In Thousands) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $114,204 $ 43,455 Funds held in escrow 400 Short-term investments 98,437 124,172 Receivables 11,103 11,573 Inventories 35,927 31,992 --------- --------- TOTAL CURRENT ASSETS 260,071 211,192 PROPERTY, PLANT, AND EQUIPMENT Property, plant and equipment 119,808 118,993 Less accumulated depreciation 58,097 50,743 --------- --------- 61,711 68,250 MINING PROPERTIES Operational mining properties 245,979 171,517 Less accumulated depletion 61,477 38,264 --------- --------- 184,502 133,253 Developmental properties 134,236 110,985 --------- --------- 318,738 244,238 OTHER ASSETS Investment in unconsolidated affiliate 48,231 Notes receivable 8,498 4,000 Debt issuance costs, net of accumulated amortization 8,809 4,081 Other 3,595 338 --------- --------- 20,902 56,650 --------- --------- $661,422 $580,330 ========= ========= </TABLE> F-2
CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> December 31, 1997 1996 ---------- --------- (In Thousands) <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 5,983 $ 4,327 Accrued liabilities 6,345 4,976 Accrued interest payable 6,631 4,968 Accrued salaries and wages 7,553 5,242 Bank loans 4,406 8,021 Current portion of remediation costs 7,300 3,500 Current portion of obligations under capital leases 243 532 --------- --------- TOTAL CURRENT LIABILITIES 38,461 31,566 LONG-TERM LIABILITIES 6% subordinated convertible debentures due 2002 49,840 49,840 6 3/8% subordinated convertible debentures due 2004 95,000 100,000 7 1/4% subordinated convertible debentures due 2005 143,750 Long-term borrowings 1,159 39,900 Other long-term liabilities 8,403 12,826 Deferred income taxes 2,720 --------- --------- TOTAL LONG-TERM LIABILITIES 300,872 202,566 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Mandatory Adjustable Redeemable Convertible Securities (MARCS), par value $1.00 per share,(a class of preferred stock) - authorized 7,500,000 shares, 7,077,833 issued and outstanding 7,078 7,078 Common Stock, par value $1.00 per share- authorized 60,000,000 shares, issued 22,949,779 and 22,950,182 shares in 1997 and 1996 (including 1,059,211 shares held in treasury) 22,950 22,950 Capital surplus 389,648 400,187 Accumulated deficit (84,542) (70,459) Unrealized gains (losses) on short-term investments 145 (352) Repurchased and nonvested shares (13,190) (13,206) --------- --------- 322,089 346,198 --------- --------- $661,422 $580,330 ========= ========= </TABLE> See notes to consolidated financial statements. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> Year Ended December 31, 1997 1996 1995 ---- ---- ---- (In Thousands Except Per Share Data) <S> <C> <C> <C> INCOME Sale of concentrates and dore' $139,037 $ 92,731 $ 89,239 Less cost of mine operations 141,873 83,283 72,210 --------- --------- --------- GROSS PROFITS (LOSS) (2,836) 9,448 17,029 OTHER INCOME--interest, dividends, and other 20,945 13,159 9,504 TOTAL INCOME 18,109 22,607 26,533 EXPENSES Administration 4,430 3,716 3,677 Accounting and legal 2,230 1,753 1,626 General corporate 6,732 7,147 6,207 Mining exploration 8,722 7,695 4,854 Interest 10,320 3,635 9,746 Writedown of mining properties 54,415 Idle facilities 1,481 --------- --------- --------- TOTAL EXPENSES 32,434 78,361 27,591 --------- --------- --------- NET LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (14,325) (55,754) (1,058) Provision (benefit) for income taxes (242) (1,184) 200 NET LOSS FROM CONTINUING OPERATIONS (14,083) (54,570) (1,258) Income from discontinued operations (net of taxes) 2,412 --------- --------- --------- NET INCOME (LOSS) $(14,083) $(54,570) $ 1,154 ========= ========= ========= NET INCOME(LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $(24,614) $(62,967) $ 1,154 ========= ========= ========= BASIC AND DILUTED EARNINGS PER SHARE DATA Weighted average number of shares of Common Stock (in thousands) 21,890 21,465 15,879 ========= ========= ========= Net loss from continuing operations $ (.64) $ (2.54) $ (.08) Income from discontinued operations .15 --------- --------- --------- Net income (loss) per share $ (.64) $ (2.54) $ .07 ========= ========= ========= Net loss attributable to Common Shareholders: Net loss from continuing operations $ (1.12) $ (2.93) $ (.08) Income from discontinued operations .15 --------- --------- --------- Net income (loss) per share $ (1.12) $ (2.93) $ .07 ========= ========= ========= CASH DIVIDENDS PER COMMON SHARE $ .15 $ .15 ========= ========= </TABLE> See notes to consolidated financial statements. F-4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For Years Ended December 31, 1997, 1996, and 1995 (In Thousands) <TABLE> <CAPTION> Preferred Stock Unrealized (MARCS) Common Stock Gains Repurchased and ------------------- ------------------ (Losses) on Non-Vested Shares Par Par Capital Accumulated Short-Term ------------------ Shares Value Shares Value Surplus Deficit Investments Shares Amount Total -------- -------- -------- --------- --------- --------- ------------ ------- ----- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Balance at January 16,633 $16,633 $182,881 $(17,043) $(8,820) (1,059) $(13,358) $160,293 1, 1995 Net Income 1,154 1,154 Cash Dividends (2,339) (2,339) Issuance of Shares Under Stock Compensation Plan (net) 24 24 384 94 502 Unrealized Gains on 9,181 9,181 Marketable Securities Conversion of 7% Debentures 4,867 4,867 66,174 71,041 ------ ------- --------- --------- Balance at December 31, 1995 21,524 21,524 247,100 (15,889) 361 (1,059) (13,264) 239,832 Net Loss (54,570) (54,570) Issuance of MARCS 7,078 $7,078 137,548 144,626 Cash Dividends (11,028) (11,028) Issuance of Shares Under Stock Compensation Plan (net) 58 58 Shares Issued on Acquisition of 1,420 1,420 26,467 27,887 Unconsolidated Affiliate Unrealized Loss on Marketable Securities (713) (713) Conversion of 6% 6 6 150 156 Debentures Other (50) (50) --------- --------- Balance at December 7,078 7,078 22,950 22,950 400,187 (70,459) (352) (1,059) (13,206) 346,198 31, 1996 Net Loss (14,083) (14,083) Cash Dividends (10,532) (10,532) Issuance of Shares Under Stock Compensation Plan (net) 16 16 Unrealized Gains on Marketable Securities 497 497 Other (7) (7) --------- --------- Balance at December 31, 1997 7,078 $7,078 22,950 $22,950 $389,648 $(84,542) $ 145 (1,059) $(13,190) $322,089 ===== ====== ====== ======= ========= ========= ======= ======= ========= ========= </TABLE> See notes to consolidated financial statements. F-5 / F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES <TABLE> <CAPTION> Year Ended December 31, 1997 1996 1995 ---- ---- ---- (In Thousands) <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net loss from continuing operations $ (14,083) $ (54,570) $ (1,258) Add (deduct) noncash items: Depreciation, depletion, and amortization 35,631 13,381 16,893 Deferred income taxes (594) (1,402) (1,786) (Gain) loss on disposition of property, plant and equipment (102) (985) 458 Loss on foreign currency transactions 985 155 597 (Gain) loss on disposition of marketable securities 947 (1,262) 885 Writedown of mining property 54,415 Undistributed (earnings) loss of investment in unconsolidated subsidiary 214 (1,905) Changes in Operating Assets and Liabilities: Receivables 1,907 3,493 (1,239) Inventories (3,256) 1,824 3,234 Accounts payable and accrued liabilities (4,426) (5,360) 2,528 ----------- ----------- ----------- Net cash provided by continuing operations 17,223 7,784 20,312 Income from discontinued operations 2,412 Add (deduct) noncash items: Depreciation, depletion and amortization 85 Gain on disposition of discontinued operations (3,964) Deferred income taxes 1,608 Change in operating assets and liabilities Receivables 601 Inventories (30) Accounts payable and accrued liabilities (109) ----------- ----------- ----------- Net cash provided by discontinued operations 603 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 17,223 7,784 20,915 CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of short-term investments (180,511) (148,952) (2,424) Proceeds from sales of short-term investments and marketable securities 204,981 92,167 70,112 Acquisition of Gasgoyne Gold Mines NL (14,643) (19,301) Purchases of property, plant and equipment (2,898) (4,799) (44,895) Proceeds from sale of assets 505 2,372 1,177 Proceeds from collection of notes receivable 1,363 2,566 Proceeds from sale of discontinued operations 3,133 Expenditures on operational mining properties (14,838) (44,432) (21,027) Expenditures on developmental properties (14,351) (13,066) (42,510) Other (3,400) 2,148 (1,418) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (23,792) (131,297) (37,852) </TABLE> F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS, COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (continued) <TABLE> <CAPTION> Year Ended December 31, 1997 1996 1995 ---- ---- ---- (In Thousands) <S> <C> <C> <C> CASH FLOWS FROM FINANCING ACTIVITIES Retirement of obligations under capital leases (501) (2,041) (2,041) Payment of cash dividends (10,532) (11,028) (2,339) Proceeds from MARCS issuance 144,626 Proceeds from 71/4% debentures issuance 138,090 Proceeds from bank borrowings 19,186 24,000 Payment of debenture costs (1,346) Retirement of long-term debt (49,513) Retirement of other long-term liabilities (226) (260) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 77,318 150,483 18,274 ----------- ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 70,749 26,970 1,337 Cash and cash equivalents at beginning of year: Related to continuing operations 43,455 16,485 14,707 Related to discontinued operations 441 ----------- ----------- ----------- 43,455 16,485 15,148 ----------- ----------- ----------- Cash and cash equivalents at end of year related to continuing operations $ 114,204 $ 43,455 $ 16,485 =========== =========== =========== </TABLE> See notes to consolidated financial statements. F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands, unless otherwise specified) NOTE A--BUSINESS OF COEUR D'ALENE MINES CORPORATION Coeur d'Alene Mines Corporation (Coeur or the Company) is principally engaged through its subsidiaries in the exploration, development, operation and/or ownership of silver and gold mining properties located in the United States (Nevada, Idaho and Alaska), Australasia (New Zealand and Australia), and South America (Chile). NOTE B--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 Coeur Rochester Inc., Callahan Mining Corporation and its subsidiary Coeur New Zealand, Inc., Coeur Alaska, Inc., CDE Fachinal Ltd. and Compania Minera CDE El Bronce. The consolidated financial statements also include all entities in which voting control of more than 50% is held by the Company. Related minority interests are not material and are included in other assets and/or liabilities. Intercompany balances and transactions have been eliminated in consolidation. Investments in joint ventures, and/or companies where the company can take its share of production in physical product and fund its proportionate share of expenses, are accounted for on a proportionate consolidation basis, the most significant of which are the Golden Cross Mine (80%), Silver Valley Resources Corporation(50%) and Gasgoyne Gold Mines NL (50%). REVENUE RECOGNITION: Revenue is recognized when title to gold and silver passes at the shipment or delivery point. The effects of forward sales are reflected in revenue at the date the related precious metals are delivered or the contracts expire. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of December 31, 1997 and 1996, cash and cash equivalents included $15.6 million and $15.9 million of cash, respectively. The balance of the reported amounts consists principally of investment grade commercial paper. Amounts reported represent cost which approximates fair value. INVENTORIES: Inventories of ore on leach pads and in the milling process are valued based on actual costs incurred to place such ores into production, less costs allocated to minerals recovered through the leaching and milling processes. Inherent in this valuation is an estimate of the percentage of the minerals on leach pads and in process that will ultimately be recovered. Management evaluates this estimate on an ongoing basis. Adjustments to the recovery rate are accounted for prospectively. All other inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out and weighted average cost methods. Dore' inventory includes product at the mine site and product held by refineries. PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are recorded at cost. Depreciation, using the straight-line method, is provided over the estimated useful lives of the assets, which are 7 to 31 years for buildings and improvements, 3 to 13 years for machinery and equipment and 3 to F-9
7 years for furniture and fixtures. Certain mining equipment is depreciated using the units-of-production method based upon estimated total reserves. Maintenance and repairs are charged to operations as incurred. MINING PROPERTIES: Values for mining properties represent acquisition costs and/or the fair value of consideration paid plus developmental costs. Cost depletion has been recorded based on the units-of-production method based on proven and probable reserves. Management evaluates the net carrying value of all operations, property by property, on a regular basis to reach a judgment concerning possible permanent impairment of value and the need for a write-down in asset value to net realizable value. The Company utilizes the methodology set forth pursuant to Financial Standards Board Statement No. 121 - - Accounting for the Impairment of Long Lived Assets to be Disposed Of ("FAS 121") to evaluate the recoverability of capitalized mineral property costs. Since FAS 121 requires the use of forward-looking projections, the Company must use estimates to generate a life-of-mine cash flow statement which may forecast several years into the future. These estimates may be based on projected mineable resources and mine life and/or reports of the Company's engineers and geologists, projected operating and capital costs necessary to process the estimated resources, each project's mine plan including the type, quantity and ore grade expected to be mined, estimated metallurgical recovery and all other factors which may have an impact upon a project's cash flow. In addition, the Company is required to estimate the selling price of metal produced which is based upon historical averages which are updated annually to give effect to changing markets over time. RECLAMATION COSTS: Post-closure reclamation and site restoration costs are estimated based upon environmental regulatory requirements and are accrued ratably over the life of the mine using the units-of-production method. Current expenditures relating to ongoing environmental and reclamation programs are expensed as incurred. Although the ultimate amount of the obligations to be incurred is uncertain at December 31, 1997 and 1996, the Company has recorded accrued reclamation costs of $7.8 million and $6.0 million, net of salvage values, as of December 31, 1997 and 1996, respectively. These amounts are included as other long-term liabilities. EXPLORATION AND DEVELOPMENT: The carrying value of exploration properties acquired is capitalized at the fair market value of the consideration paid. After it is determined that proven and probable reserves exist on a particular property, the property is classified as a development-stage property and all costs incident to the further development of the property are capitalized. Prior to the establishment of proven and probable reserves, all costs relative to exploration and evaluation of a property are expensed as incurred. In order to classify a reserve as economic, the Company must complete an evaluation of an ore body to determine that it may be mined profitably. The determination is made based upon geologic and engineering studies which analyze the nature of the ore body, the appropriate mining and metallurgical process, estimates of operating costs, metallurgical recoveries and forecast metal prices over the estimated mine life. Mine development costs incurred to access reserves on producing mines are also capitalized. Interest costs are capitalized on development properties until the properties are placed into operation. In the event the Company determines that the value of any capitalized property cannot be recovered by either the mining of commercial reserves or by sale pursuant to prevailing market prices, an evaluation of whether an impairment of value under the provisions of FAS 121 has occurred is undertaken. If such an impairment is determined to exist, a writedown would be effected. F-10
SHORT-TERM INVESTMENTS: The Company invests in debt and equity securities which are classified as available-for-sale, according to provisions of Financial Accounting Standard No. 115 "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, securities are carried at fair value, determined by quoted prices. Unrealized holding gains and losses on such securities are excluded from earnings and are reported as a separate component of shareholders' equity until realized. FOREIGN CURRENCIES: Monetary assets and liabilities of the Company's foreign operations are translated into U.S. dollars at year-end exchange rates and revenue and expenses are translated at average exchange rates. The Company's foreign subsidiaries have the U.S. dollar as their functional currency, and therefore, translation gains and losses are reflected in income. Non-monetary assets and liabilities are converted at historical rates. Realized gains and losses from foreign currency transactions are reflected in operations. FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS: As part of its program to manage foreign currency risk, the Company has entered into foreign currency forward exchange contracts. Contracts related to firm commitments are designated and effective as hedges. Gains and losses are deferred and recognized in the same period as the related transactions. FORWARD DELIVERY CONTRACTS: The Company sells refined gold and silver from its mines to various precious metals refiners pursuant to forward contracts or at spot prices prevailing at the time of sale. Revenue from forward sales transactions is recognized as metal is delivered. EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share." Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. USE OF ESTIMATES: The Company's management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATION: Certain reclassifications of prior year balances have been made to conform to current year presentation. NOTE C--INVESTMENT IN MINING COMPANIES EL BRONCE: In July 1994, the Company had an agreement pursuant to which the Company acquired operating control, a 51% interest in operating profits, and an option to acquire a 51% equity interest in the producing El Bronce Mine. On September 4, 1996, the Company exercised its option to acquire that 51% equity interest and also purchased the remaining 49% of the shares of El Bronce, bringing its total ownership interest to 100%. The terms of the purchase included the payment of $10.5 million in cash, prepayment of the F-11
remainder of the option price in the approximate amount of $3.8 million and a net smelter return royalty of 3% to be paid to the seller quarterly, commencing on January 1, 1997. The acquisition has been accounted for as a purchase with the excess of the purchase price over the net book value of the mine ($4.9 million) being allocated to mining properties. GASGOYNE: In May 1996, Coeur acquired approximately 35% of the outstanding shares of Gasgoyne Gold Mines NL ("Gasgoyne"), an Australian gold mining company, by issuing a total of 1,419,832 shares of the Company's Common Stock and paying cash totaling approximately $15.4 million to Gasgoyne shareholders. As a result of a selective reduction of capital effected by Gasgoyne in February 1997 by purchasing its publicly held shares from the shareholders other than Coeur and Sons of Gwalia, Coeur's ownership interest increased to 36% of Gasgoyne's outstanding shares. In May 1997, the Company acquired, for approximately US$14.6 million in cash, an additional 14% interest in Gasgoyne, increasing its total ownership to 50%. The acquisition has been accounted for as a purchase. Concurrent with the increase in ownership in 1997, the Company entered into several agreements with the other 50% owner which entitled the Company to take a 50% share of Gasgoyne gold production in kind and which requires the Company to pay 50% of Gasgoyne's liabilities. The Company reports its share of Gasgoyne earnings pursuant to the equity method. The following table sets forth a condensed summary of the results of operations of Gasgoyne for the twelve-month period ended December 31, 1997 and 1996. <TABLE> <CAPTION> For the Twelve Months Ended December 31, 1997 December 31, 1996 ----------------- ----------------- <S> <C> <C> Total Revenues $30,385 $35,098 Operating Profit $ 3,021 $13,191 Net Income $ 1,129 $12,087 </TABLE> F-12
The following pro forma information reflects the Company's results of operations as if the acquisition of the additional 14% of Gasgoyne, increasing its total ownership interest to 50%, that occurred in May 1997, had occurred at the beginning of the periods presented. <TABLE> <CAPTION> For the Twelve Months Ended December 31, 1997 December 31, 1996 ----------------- ----------------- <S> <C> <C> Total income $ 17,994 $ 21,532 Net loss $(14,014) $(55,159) Basic and diluted net loss per share $ (.64) $ (2.57) </TABLE> NOTE D--WRITE-DOWN OF MINING PROPERTIES On April 30, 1993, the Company acquired an 80% operating interest in the Golden Cross Mine and at which mining activities were substantially discontinued in December 1997. The mine is a gold and silver surface and underground mining operation located near Waihi, New Zealand. During the second quarter of 1996, the Company determined that certain adjustments were required to properly reflect the estimated net realizable value of certain mining properties in accordance with the standards set forth in FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS No. 121"). The impetus for this determination began in late July 1995 when physical evidence indicated that the land adjacent to the tailings impoundment appeared to have sustained some movement. An investigation to determine the significance of this movement was undertaken promptly. By September, 1995, consultants advised Coeur Gold New Zealand Ltd. that the adjacent land had moved and that it may have affected the tailings dam. However, they advised that certain data would have to be collected before they could confirm that assessment. That investigation included the drilling of holes in the land with measurement devices inserted in the holes (these devices are called "inclinometers"). Further additional measurement devices called "piezometers" were inserted in still different holes drilled in the land and the data collected from those and other sources was sufficient to lead the consultants to conclude by February, 1996 that significant remedial measures would have to be taken. Based on those recommendations Coeur Gold estimated the cost of implementation would be approximately $4 million. That estimate was made in February 1996 and presented to the Company's Board of Directors at its regular March 1996 meeting. Continuing evaluation after March 1996 revealed that the geographical extent of the land movement was larger, wider, longer and more complex than identified in the February 1996 estimate. By May 1996, as the planned remedial measures were implemented, the Company determined that the measures, upon which its previous cost estimates had been based, were not wholly effective. Additional data was needed, which required more hole drillings and more work on the ground. It was not until late May 1996 that the Golden Cross managers and the Company engineers concluded that the cost of remediation would exceed the initial February 1996 estimate. The estimate was revised to approximately $11 million in July to account for the more extensive remediation efforts. In addition, because of the significance of the ground movement, the Company determined that (i) production could be expected to significantly decrease as a result of the Company's inability to implement a previously planned mill optimization because the tailings dam had not been stabilized, and, consequently, it was believed the government would not likely consent to a F-13
raising of the tailings dam crest to obtain necessary tailings storage capacity to accommodate the increased mill throughput, and (ii) capital and operating costs could be expected to significantly increase due to the production shortfall and ground movement remediation program costs. As a result of the foregoing factors, there was an indication of potential impairment requiring assessment under FAS No. 121. Consequently, the Company recorded a charge in the second quarter of 1996 totaling $53 million relating to its investment in the Golden Cross mine and in the nearby Waihi East property. The charge included amounts necessary to increase the Company's recorded remediation and reclamation liabilities at Golden Cross to approximately $7 million, net of salvage values, as of December 31, 1996. In addition, the Faride property in Chile, was written-down by $1.2 million due to management's decision not to exercise its final option payment on the project. The Company's 80% interest in the Golden Cross Mine joint venture, accounted for by the proportionate consolidation method, is summarized as follows: <TABLE> <CAPTION> Year Ended December 31, ----------------------- 1997 1996 ---- ---- <S> <C> <C> Sales of dore' $ 28,525 $ 26,293 Cost of mine operations (25,585) (28,069) Insurance proceeds 8,000 Writedown of mining property (52,036) Net income (loss) before income taxes $ 10,940 $ (53,812) ========== ========== </TABLE> In 1997, $8 million of the reported income was related to the Golden Cross insurance recovery not measurable or anticipated at the time of the original writedown. The remaining $2.9 million is related to residual mining activities which benefited from lower depletion. <TABLE> <S> <C> <C> Assets $ 6,152 $ 2,408 Liabilities (37,933) (47,271) ---------- ---------- Shareholders' deficit $ (31,781) $ (44,863) ========== ========== </TABLE> NOTE E--DISCONTINUED OPERATIONS FLEXAUST COMPANY: On May 2, 1995, the Company sold the assets of its flexible hose and tubing division, The Flexaust Company, and shares of a related subsidiary for approximately $10.0 million, of which approximately $4.0 million was paid at the time of closing and the balance was payable over the next five years. The results of operations and the gain on sale of the Flexaust manufacturing segment are presented as "Discontinued Operations." The Company recorded a pre-tax gain on the sale of approximately $4.0 million ($2.4 million net of income taxes) during 1995. Flexaust generated revenues of $3.9 million and net income from operations of $.056 million in the period from January 1, 1995 to May 5, 1995 the latter of which is reflected as a component of income from discontinued operations. F-14
NOTE F--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES The amortized cost of available-for-sale securities is adjusted for premium and discount amortization. Such amortization is included in Other Income. The following is a summary of available-for-sale securities as of December 31, 1997 and 1996. <TABLE> <CAPTION> Available-For-Sale Securities ---------------------------------------------------------------------------------- (in thousands) Gross Gross Estimated Unrealized Unrealized Fair 1997 Cost Losses Gains Value ----------------- ------------- ---------------- ------------------ ---------------- <S> <C> <C> <C> <C> U.S. Corporate $ 49,127 $ 3 $ $ 49,124 U.S. Government 47,570 273 47,843 --------- --------- --------- --------- Total Debt Securities 96,697 3 273 96,967 Equity Securities 2,373 135 10 2,248 --------- --------- --------- --------- $ 99,070 $ 138 $ 283 $ 99,215 ========= ========= ========= ========= 1996 ----------------- U.S. Corporate $ 83,236 $ 40 $ 2 $ 83,198 U.S. Government 39,658 25 97 39,730 --------- --------- --------- --------- Total Debt 122,894 65 99 122,928 Securities Equity Securities 1,672 389 3 1,286 --------- --------- --------- --------- $ 124,566 $ 454 $ 102 $ 124,214 ========= ========= ========= ========= </TABLE> The gross realized gains on sales of available-for-sale securities totaled $0 and $1.3 million during 1997 and 1996, respectively. The gross realized losses totaled $1.6 million and $.05 million during 1997 and 1996, respectively. The gross realized gains and losses are based on a carrying value (cost net of discount or premium) of $206.5 million and $90.9 million of short-term investments sold during 1997 and 1996, respectively. Short-term investments mature at various dates through November 1998. On January 26, 1996, for a total consideration of approximately US$10.7 million, the Company acquired 5.5 million shares and options to acquire an additional 5.0 million shares of Orion Resources NL, an Australian gold mining company (Orion). Prior to 1996, Coeur had acquired a total of 3.3 million shares of Orion for a total cost of US$3.8 million. On March 27, 1996, the Company exercised its option to acquire the additional 5.0 million shares of Orion. As a result of these transactions, Coeur then held approximately 19.2% of Orion's outstanding shares. On September 28, 1996, the Company sold its holdings of Orion of 13.8 million shares for A$1.80 per share or A$24,894,000, (US$ 19.6 million). As a result, the Company recorded a gain on the sale of approximately US$1.3 million during 1996. NOTE G--INVENTORIES Inventories consist of the following: <TABLE> <CAPTION> December 31, ----------------------- 1997 1996 ---- ---- <S> <C> <C> In process and on leach pads $ 24,617 $ 19,948 Concentrate and dore' inventory 5,839 5,735 Supplies 5,471 6,309 -------- -------- $ 35,927 $ 31,992 ======== ======== </TABLE> F-15
During the fourth quarter of 1997, based on detailed metallurgical evaluations, the Company changed its estimates of the percentage of minerals recovered through the leaching process at its Rochester Mine. The change resulted in increased recovery rates from 55% for silver and 85% for gold to 59% for silver and 90% for gold. Management evaluates this estimate on an ongoing basis. Adjustments to the recovery rates are accounted for prospectively. The effects of the change during the fourth quarter decreased the cost of mine operations by approximately $7 million. NOTE H--PROPERTY, PLANT, AND EQUIPMENT <TABLE> Property, plant, and equipment consists of the following: <CAPTION> December 31, ----------------------- 1997 1996 ---- ---- <S> <C> <C> Land $ 1,814 $ 1,350 Buildings and improvements 53,740 60,851 Machinery and equipment 55,159 47,697 Capital leases of buildings and equipment 9,095 9,095 -------- -------- $119,808 $118,993 ======== ======== </TABLE> <TABLE> Assets subject to capital leases consist of the following: <CAPTION> December 31, ----------------------- 1997 1996 ---- ---- <S> <C> <C> Buildings $ 5,105 $ 5,105 Equipment 3,990 3,990 -------- -------- TOTAL BUILDINGS AND EQUIPMENT 9,095 9,095 Rochester operational mining property 7,871 7,871 -------- -------- 16,966 16,966 Less allowance for accumulated amortization and depletion 10,648 9,863 -------- -------- NET ASSETS SUBJECT TO CAPITAL LEASES $ 6,318 $ 7,103 ======== ======== </TABLE> Lease amortization is included in depreciation and depletion expense. The Company has a lease agreement for the Rochester mineral processing facilities through October 1998. Upon expiration of the lease, the Company is entitled to purchase the facilities for the lesser of $5.9 million or fair market value. The Company has entered into various operating lease agreements which expire over a period of five to seven years. Total rent expense charged to operations under these agreements was $4.5 million, $4.6 million and $4.4 million for 1997, 1996, and 1995, respectively. F-16
Minimum lease payments under leases are as follows: <TABLE> <CAPTION> Year Ending December 31 Capital Operating ----------- --------- --------- <S> <C> <C> 1998 $ 361 $ 4,648 1999 92 2,436 2000 1,212 2001 1,075 2002-2003 2,647 ------- ------- TOTAL MINIMUM PAYMENTS DUE 453 $12,018 ======= Less amount representing interest 31 ------- PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS 422 Less current maturities 243 ------- $ 179 ======= </TABLE> NOTE I - MINING PROPERTIES <TABLE> <CAPTION> Capitalized costs for mining properties December 31, consist of the following: 1997 1996 ---- ---- <S> <C> <C> Operational mining properties: Rochester Mine, less accumulated depletion of $41,727 and $36,904 $ 34,585 $ 42,372 Silver Valley Resources, less accumulated depletion of $1,080 and $224 16,620 13,207 El Bronce Mine less accumulated depletion of $2,844 and $350 38,577 36,222 Fachinal Mine, less accumulated depletion of $7,760 in 1997 42,811 41,452 Gasgoyne Gold Mines NL, less accumulated depletion of $6,401 51,909 -------- -------- TOTAL OPERATIONAL MINING PROPERTIES 184,502 133,253 Developmental mining properties: Kensington 122,457 108,100 Other 11,779 2,885 -------- -------- TOTAL DEVELOPMENTAL MINING PROPERTIES 134,236 110,985 -------- -------- TOTAL MINING PROPERTIES $318,738 $244,238 ======== ======== </TABLE> OPERATIONAL MINING PROPERTIES THE ROCHESTER MINE: The Company owns and operates this silver and gold surface mining operation. The Company has conducted operations at the Rochester Mine since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods. Rochester is one of the largest primary silver mines in the United States and is a significant gold producer as well. A prior owner of the property has retained a royalty interest that varies up to 5% of the net smelter revenues of the Rochester property, provided the market price of silver is at least $18.07 per ounce. SILVER VALLEY RESOURCES, INC.: On January 1, 1995, the Company entered into an agreement with Asarco Incorporated and formed a new company named Silver Valley Resources Corporation (Silver Valley). Both Coeur and Asarco F-17
contributed to Silver Valley their respective interests in the Galena and Coeur Mines as well as other assets and waived certain cash flow entitlements at the Galena Mine in return for shares of capital stock of Silver Valley. The transaction resulted in no gain or loss to the Company. Coeur's 50% investment is included on the balance sheet as operational mining properties. In June 1996, Silver Valley reopened the Coeur Mine and plans to continue mining existing reserves through the second quarter of 1998. Exploration at the Coeur Mine is ongoing in an effort to increase silver reserves and extend the mine's life beyond 1998. Silver Valley also resumed production at the Galena Mine in 1997, which has ore reserves sufficient to sustain approximately 10 years of operation. The two mines had previously been on standby basis. FACHINAL MINE: The Fachinal Mine is a gold and silver open pit and underground mine located in southern Chile which operated in pre-production from October 1995 to December 31, 1996. During the fourth quarter of 1995 and for the year ended December 31, 1996, operating costs were capitalized as start up costs. Revenue generated during the pre-production period was credited against deferred start up costs. During 1996, the Company incurred costs and expenses of $6.0 million in excess of revenues. This amount has been added to the operational mining property and will be amortized using the units of production method based on total reserves. The property was classified as an operating property for financial reporting purposes on January 1, 1997. EL BRONCE MINE: The El Bronce Mine is a gold and silver underground mine located in central Chile approximately 90 miles north of Santiago. On September 4, 1996, the Company exercised its option to acquire 51%, and purchased the remaining 49%, of the shares of Compania Minera CDE El Bronce, resulting in an ownership interest of 100%. DEVELOPMENTAL PROPERTIES KENSINGTON: On July 7, 1995, the Company became the 100% owner and operator of the Kensington property near Juneau, Alaska, by acquiring the 50% interest held by its former joint venture partner. The interest was acquired for $32.5 million plus a scaled net returns royalty on future gold production after Coeur recoups the $32.5 million purchase price and its construction expenditures incurred after July 7, 1995 in connection with placing the property into commercial production. The royalty ranges from 1% at $400 gold prices to a maximum of 2 1/2% at gold prices above $475, with a royalty to be capped at 1 million ounces of production. NOTE J--LONG-TERM DEBT In October 1997, the Company completed an offering of $143,750,000 principal amount of 7.25% Convertible Subordinated Debentures due 2005 which are convertible into shares of common stock on or before October 31, 2005, unless previously redeemed, at a conversion price of $17.45 per share, subject to adjustment in certain events. The Company is required to make semi-annual interest payments. The debentures are redeemable at the option of the Company on or after October 31, 2000, have no other funding requirements until maturity, and mature October 31, 2005. The $49.8 million principal amount of 6% Convertible Subordinated Debentures Due 2002 are convertible into shares of Common Stock prior to maturity, unless previously redeemed, at a conversion rate of approximately 38 shares of Common Stock for each one thousand dollars of principal (equivalent F-18
to a conversion price of $25.57 per share of Common Stock). The Company is required to make an annual interest payment. The debentures are redeemable at the option of the Company and mature June 10, 2002. The $95 million principal amount of 6 3/8% Convertible Subordinated Debentures Due 2004 are convertible into shares of Common Stock on or before January 31, 2004, unless previously redeemed, at a conversion price of $25.77 per share. The Company is required to make semi-annual interest payments. The debentures are redeemable at the option of the Company on or after January 31, 1997. The debentures, which have no other funding requirements until maturity, mature January 31, 2004. On October 31, 1997, the Company paid $24 million to retire the existing loan balance with a bank syndicate lead by N.M. Rothschild & Sons Ltd., which substituted a general corporate loan financing for the limited recourse project financing. The agreement provides for a borrowing of up to $24.0 million. The interest rate on the facility is equal to LIBOR plus 1.5%. The borrowing was repayable in sixteen equal quarterly installments commencing in the third quarter of 1997. On June 30, 1996, the Company secured a $50.0 million revolving line of credit with Rothschild Australia Ltd., in connection with the acquisition of the Company's investment in Gasgoyne Gold Mines NL. As of December 31, 1996, borrowings amounted to $18.9 million at an annual interest rate equal to LIBOR plus 1.5%. In late 1997, all outstanding amounts under the operating line were repaid in full and the line discontinued. The carrying amounts and fair values of long-term borrowings, as of December 31, 1997 and 1996, consisted of the following: <TABLE> <CAPTION> December 31, 1997 December 31, 1996 -------------------------- --------------------------- Carrying Fair Carrying Fair Amount Value Value Value --------- --------- -------- ------- <S> <C> <C> <C> <C> <C> 6% Convertible Subordinated Debentures Due 2002 $ 49,840 $ 36,750 $ 49,840 $ 45,105 6.375% Convertible Subordinated Debentures Due 2004 $ 95,000 $ 74,338 $100,000 $ 93,500 7.25% Convertible Subordinated Debentures Due 2005 $143,750 $108,902 </TABLE> Total interest accrued in 1997, 1996, and 1995 was $16.2 million, $13.1 million, and $17.1 million, respectively, of which $5.7 million, $9.5 million, and $7.4 million, respectively, was capitalized as a cost of the mines under development. Interest paid was $13.7 million, $12.1 million, and $16.3 million in 1997, 1996, and 1995, respectively. NOTE K--INCOME TAXES The components of the provision (benefit) for income taxes in the consolidated statements of operations are as follows: F-19
<TABLE> <CAPTION> Year Ended December 31, -------------------------------------- 1997 1996 1995 --------- -------- -------- <S> <C> <C> <C> From Continuing Operations: Current $ (242) $ 203 $ 1,986 Deferred (1,387) (1,786) -------- -------- -------- PROVISION (BENEFIT) FOR INCOME TAX $ (242) $(1,184) $ 200 ======== ======== ======== From Discontinued Operations: Current Deferred $ 1,608 -------- PROVISION FOR INCOME TAX $ 1,608 ======== Total: Current $ (242) $ 203 $ 1,986 Deferred (1,387) (1,786) -------- -------- -------- PROVISION (BENEFIT) FOR INCOME TAX $ (242) $(1,184) $ 1,808 ======== ======== ======== </TABLE> Deferred taxes arise due to temporary differences in deductions for tax purposes and for financial statement accounting purposes. The tax effect and sources of these differences are as follows: <TABLE> <CAPTION> Year Ended December 31, -------------------------------------- 1997 1996 1995 --------- -------- -------- <S> <C> <C> <C> Reserve for loss on mine closure $ (1,175) $ (971) $ 100 Net mine exploration and development costs 1,671 (9,299) (2,715) Net lease payments 60 591 498 Regular tax expense (benefit) on utilization of net operating losses (6,142) (32,967) 3,673 Adjustments to net operating loss and credit carryforwards (8,660) 1,046 (2,083) Environmental costs (478) 87 Amortization of bond premium 689 Unrealized investment losses 3,087 Change in valuation allowance 14,701 1,501 (2,420) Change in deferred state taxes (412) Other (455) (810) (682) --------- --------- --------- Deferred income tax expense (benefit) 0 (1,387) (178) Less differences attributable to discontinued operations 1,608 --------- --------- --------- Deferred income tax expense (benefit) from continuing operations $ 0 $ (1,387) $ (1,786) ========= ========= ========= </TABLE> F-20
As of December 31, 1997 the significant components of the Company's net deferred tax liability were as follows: <TABLE> <CAPTION> Year Ended December 31, ----------------------- 1997 1996 ---- ---- <S> <C> <C> Deferred tax liabilities: PP&E, net $ 8,527 $ 14,132 --------- --------- Total deferred tax liabilities 8,527 14,132 Deferred tax assets: Net operating loss carryforwards 90,319 80,977 AMT credit carryforwards 1,404 1,650 Business credit carryforwards 542 542 --------- --------- Total deferred tax assets 92,265 83,169 Valuation allowance for deferred tax assets (83,738) (69,037) --------- --------- Net deferred tax assets 8,527 14,132 --------- --------- Net deferred tax liabilities $ -0- $ -0- ========= ========= </TABLE> Changes in the valuation allowance relate primarily to losses which are not currently recognized. The Company has reviewed its net deferred tax assets, together with net operating loss carryforwards, and has decided to forego recognition of potential tax benefits arising therefrom. In making this determination, the Company has considered the Company's history of tax losses incurred since 1989, the current level of gold and silver prices and the ability of the Company to use accelerated depletion and amortization methods in the determination of taxable income. The Company intends to reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes was required on such earnings during the three-year period ended December 31, 1997. It is not practicable to estimate the tax liabilities which would result upon such repatriation. A reconciliation of the Company's effective income tax rate with the federal statutory tax rate for the periods indicated is as follows: <TABLE> <CAPTION> Year Ended December 31, -------------------------------------- 1997 1996 1995 --------- -------- -------- <S> <C> <C> <C> Tax benefit on continuing operations computed at statutory rates (35.0%) (35.0%) (35.0%) Tax effect of foreign affiliates' statutory rates 17.6% Percentage depletion (12.3%) (3.3%) (190.0%) Dividend received deduction (15.4%) Interest on foreign subsidiary debt 177.7% Equity in earnings of unconsolidated subsidiaries .6% 49.0% State income tax provision (25.0%) Change in valuation allowance 27.4% 38.1% 2.7% Utilization of net operating losses (73.4%) Federal tax assessments and withholding .2% 116.7% Other (net) (.2%) (1.9%) 11.6% -------- -------- -------- EFFECTIVE TAX RATE ON CONTINUING OPERATIONS (1.7%) (2.1%) 18.9% ======== ======== ======== </TABLE> For tax purposes, as of December 31, 1997, the Company has operating loss carryforwards as follows: <TABLE> <CAPTION> U.S. New Zealand Australia Chile Total -------- ----------- --------- -------- -------- <S> <C> <C> <C> <C> <C> Regular losses $133,350 $ 85,582 $ 716 $100,838 $320,486 AMT losses 91,366 91,366 AMT credits 1,404 1,404 General business credits 542 542 </TABLE> The operating loss carryforwards by year of expiration are as follows: <TABLE> <CAPTION> Year of Expiration Regular Tax Amt Tax ---------- ----------- --------- <S> <C> <C> 2004 $ 8,262 2005 6,349 $ 4,888 2006 11,041 4,352 2007 10,702 2008 10,417 1,084 2009 8,994 9,632 2010 2011 72,146 70,549 2012 5,439 861 ---------- --------- Total $ 133,350 $ 91,366 ========== ========= </TABLE> New Zealand, Australian and Chilean laws provide for indefinite carryforwards of net operating losses. Utilization of U.S. net operating losses may be subject to limitations due to potential changes in ownership. As of December 31, 1997, Callahan Mining Corporation, a subsidiary, has net operating loss carryforwards of approximately $17.4 million and alternative minimum tax loss carryforwards of approximately $9.2 million which expire through 2006. The utilization of Callahan Mining Corporation's net operating losses are subject to limitations. NOTE L--SHAREHOLDERS' EQUITY AND STOCK PLANS On March 8, 1996, the Company completed a public preferred stock offering of $140.0 million of Mandatory Adjustable Redeemable Convertible Securities (MARCS). The Company issued 6,588,235 shares of MARCS which were offered at a public offering price of $21.25 per share. Each share of MARCS is mandatorily convertible four years after issuance into 1.111 shares of Common Stock of the Company, subject to adjustment in certain events, unless converted earlier by the holder into Common Stock or redeemed for Common Stock by the Company. The annual dividend payable on the MARCS is $1.488 per share, payable quarterly. The dividends are deducted in computing net income attributable to Common Shareholders. On April 8, 1996, the Company sold an additional 489,598 shares of MARCS to the underwriters as a result of their exercise of an overallotment option granted to them in connection with the public offering. With the exercise of the overallotment option, the Company sold a total of 7,077,833 shares of MARCS for a total offering price of $150.4 F-22
million which resulted in net proceeds to the Company of $144.6 million. In June 1989, the shareholders adopted a shareholder rights plan which entitles each holder of the Company's Common Stock to one right. Each right entitles the holder to purchase one one-hundredth of a share of newly authorized junior preferred stock. The exercise price is $100, making the price per full preferred share ten thousand dollars. The rights will not be distributed and become exercisable unless and until ten days after a person acquires 20% of the outstanding common shares or commences an offer that would result in the ownership of 30% or more of the shares. Each right also carries the right to receive upon exercise that number of Coeur common shares which has a market value equal to two times the exercise price. Each preferred share issued is entitled to receive 100 times the dividend declared per share of Common Stock and 100 votes for each share of Common Stock and is entitled to 100 times the liquidation payment made per common share. The Board may elect to redeem the rights prior to their exercisability at a price of one cent ($.01) per right. Any preferred shares issued are not redeemable. At December 31, 1997 and 1996, there were a total of 21,890,971 outstanding rights which was equal to the number of outstanding shares of common stock. The Company has an Annual Incentive Plan (the "Annual Plan") and a Long-Term Incentive Plan (the "Long-Term Plan"). Under the Annual Plan in 1995, benefits were payable in cash and in shares of Common Stock. Under the Annual Plan in 1997 and 1996, benefits are payable in cash only. For the year ended December 31, 1995, the Company awarded 21,656 shares of Common Stock under the Annual Plan, representing additional compensation of $.4 million based on the fair market value of the shares at the date of the award. Under the Long-Term Plan, benefits consist of (i) non-qualified and incentive stock options that are exercisable at prices equal to the fair market value of the shares on the date of grant and vest cumulatively at an annual rate of 25% during the four-year period following the date of grant, and (ii) performance units comprised of Common Stock and cash, the value of which is determined four years after the award. The first award performance units were granted in 1994. During 1997, options for 365,381 shares were issued under the plan. As of December 31, 1997 and December 31, 1996, nonqualified and incentive stock options to purchase 612,447 shares and 314,727 shares, respectively, were outstanding under the Long-Term and Directors' Plans. The options are exercisable at prices ranging from $13.125 to $27.00 per share. The Company has a Non-Employee Directors' Stock Option Plan under which 200,000 shares of Common Stock are authorized for issuance and which was approved by the shareholders in May 1995. Under the Plan, options are granted only in lieu of an optionee's foregone annual directors' fees. As of December 31, 1997, December 31, 1996 and December 31, 1995, a total of 16,600, 12,210 and 11,287 options, respectively, had been granted in lieu of $.1 million, $.1 million and $.1 million, respectively, of foregone directors' fees. In 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" which establishes accounting and reporting standards for stock-based employee compensation plans. This statement defines a fair value based method of accounting for these equity instruments. The method measures compensation expense based on the estimated fair value of the award and recognizes that cost over the vesting period. The Company has adopted the disclosure-only provision of F-23
Statement No. 123 and therefore continues to account for stock options in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, because options are granted at fair market value, no compensation expense has been recognized for options issued under the Company's stock option plans. Had compensation cost been recognized based on the fair value at the date of the grant for the options awarded under the plans, pro-forma amounts of the Company's net income (loss) and net income (loss) per share would have been as follows: <TABLE> <CAPTION> Year Ended December 31, -------------------------------------- 1997 1996 1995 --------- -------- -------- <S> <C> <C> <C> Net income (loss) as reported $(14,083) $(54,570) $ 1,154 Net income (loss) pro forma $(14,482) $(54,772) $ 1,067 Basic and diluted net income (loss) per share as reported $ (.64) $ (2.54) $ .07 Basic and diluted net income (loss) per share pro forma $ (.66) $ (2.55) $ .07 </TABLE> The fair value of each option grant was estimated using the Black Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 5.75% to 7.95%; expected option life of 4 years for officers and directors; expected volatility of .385 to .399; and no expected dividends. The weighted average value of options granted during the years ended December 31, 1997, 1996 and 1995 were $5.67, $8.19 and $6.65, respectively. The effect of applying Statement No. 123 for providing pro forma disclosures for fiscal years 1997, 1996 and 1995 is not likely to be representative of the effects in future years because options vest over a 4-year period and additional awards generally are made each year. Total compensation expense charged to operations under the Plans was $1.5 million, $.9 million, and $1.1 million for 1997, 1996, and 1995, respectively. A summary of the Company's stock option activity and related information for the years ended December 31 follows: <TABLE> <CAPTION> Weighted Average Shares Exercise Price ----------- -------------- <S> <C> <C> Stock options outstanding at 1/1/96 252,401 $ 17.64 Issued 62,326 20.88 -------- -------- Stock options outstanding at 12/31/96 314,727 18.28 Issued 365,381 14.52 Canceled (67,661) 18.22 -------- -------- Stock options outstanding at 12/31/97 612,447 $ 16.05 ======== ======== </TABLE> Stock options exercisable at December 31, 1997 and 1996 were 236,761 and 257,493, respectively. F-24
The following table summarizes information for options currently outstanding at December 31, 1997: <TABLE> Options Outstanding Options Exercisable ---------------------------------------------- ----------------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price ----------------- ----------- ----------------- ---------- ----------- ------------ <S> <C> <C> <C> <C> <C> $13.125 to $14.99 254,627 9.1 $13.16 13,500 $ 13.75 $15.000 to $17.99 200,159 7.3 $16.53 114,064 $ 15.95 $18.000 to $27.00 157,661 6.2 $20.09 109,197 $ 20.35 ------- --------- 612,447 7.8 $16.05 236,761 $ 17.86 ======= ========= </TABLE> As of December 31, 1997 and 1996, 243,244 shares and 447,696 shares, respectively, were available for future grants under the Plans and 13,873,438 shares of Common Stock were reserved for potential conversion of Convertible Subordinated Debentures. NOTE M--EMPLOYEE BENEFIT PLANS The Company provides a noncontributory defined contribution retirement plan for all eligible U.S. employees. Total plan expense charged to operations was $.8 million, $.6 million, and $.5 million for 1997, 1996, and 1995, respectively, which is based on a percentage of salary of qualified employees. Effective January 1, 1995, the Company adopted a savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue code) covering all full-time U.S. employees. Under the plan, employees may elect to contribute up to 10% of their cash compensation, subject to ERISA limitations. The Company is required to make matching cash contributions equal to 50% of the employee's contribution or up to 3% of the employee's compensation. Employees have the option of investing in five different types of investment funds. Total plan expenses charged to operations were $.4 million, $.4 million and $.3 million in 1997, 1996 and 1995, respectively. NOTE N--FINANCIAL INSTRUMENTS OFF-BALANCE SHEET RISKS The Company enters into forward foreign exchange contracts denominated in foreign currencies to hedge certain firm commitments. The purpose of the Company's foreign exchange hedging program is to protect the Company from risk that the eventual dollar cash flows resulting from the firm commitments will be adversely affected by changes in exchange rates. At December 31, 1997, 1996, and 1995, the Company had forward foreign exchange contracts of $3.0 million, $15.8 million, and $41.0 million, respectively. The Company enters into forward metal sales contracts to manage a portion of its cash flows against fluctuating gold and silver prices. As of December 31, 1997, the Company had sold 175,000 ounces of gold for delivery on various dates through 2003 at an average price of $387.86. For metal delivery contracts, the realized price pursuant to the contract is recognized when physical gold or silver is delivered in satisfaction of the contract. The Company realized gains of $5.3 million and $4.4 million arising from the sale F-25
of silver and gold purchased on the open market which was then delivered pursuant to fixed-price forward contracts during 1997 and 1995, respectively. Further discussions of other financial instruments held by the Company are included in Note F and Note J. The table below summarizes, by contract, the contractual amounts of the Company's forward exchange and forward metals contracts at December 31, 1997, 1996 and 1995. <TABLE> <CAPTION> 1997 1996 1995 -------------------------- ------------------------- ------------------------- Forward Unrealized Forward Unrealized Forward Unrealized Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain (Loss) ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Currency: New Zealand $ 3,024 $ (7) $ 15,845 $ (10) $ 23,269 $ (27) Chilean $ 17,699 $ (1,993) Forward Metal Sales $ 67,875 $ 7,404 $ 61,823 $ 3,702 $ 29,535 $ 1,528 </TABLE> Gains and losses related to contracts associated with firm commitments are deferred and will be recognized as the related commitments mature. For the years ended December 31, 1997, 1996, and 1995, the Company realized gains (losses) from its foreign exchange hedging programs of $(.9) million, $1.4 million and $1.9 million, respectively. The credit risk exposure related to all hedging activities is limited to the unrealized gains 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. In addition, to allow for situations where positions may need to be reversed, the Company deals only in markets that it considers highly liquid. The Company does not anticipate nonperformance by any of these counter parties. NOTE O--LITIGATION On March 22, 1996, an action was filed in the United States District for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against various defendants, including Coeur, asserting claims under CERCLA and the Clean Water Act for alleged damages to federal natural resources in the Coeur d'Alene River Basin of Northern Idaho as a result of alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s. No specific monetary damages were identified in the complaint. However, in July 1996, the government indicated that damages may approximate $982 million. The United States asserts that the defendants are jointly and severally liable for costs and expenses incurred by the United States in connection with the investigation, removal and remedial action and the restoration or replacement of affected natural resources. In 1986 and 1992, the Company had settled similar issues with the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes that those prior settlements exonerate it of further involvement with alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously defend this matter and on March 27, 1997, filed a motion for summary judgment seeking dismissal of the Company from the action. In September 1997, the Company filed a motion for summary judgement raising the statute of limitations. Both motions are pending decision. In March 1998, the EPA F-26
announced its intent to perform a remedial investigation/feasibility study (RI/FS) at all or parts of the Basin, and thereby, apparently focus upon response costs rather than natural resource damages. At this stage of the proceeding, it is not possible to predict the ultimate outcome thereof. On July 15, 1996, Coeur filed a complaint against Cyprus Amax Minerals Company ("Cyprus") in the District Court of the State of Idaho, Kootenai County, alleging violations by Cyprus of the anti-fraud provisions of the Idaho and Colorado Securities Acts as well as common law fraud in connection with Cyprus' sale in April 1993 to Coeur of Cyprus Exploration and Development Corporation, which owned all the shares of Cyprus Gold New Zealand Limited, which, in turn, owned an 80% interest in the Golden Cross Mine in New Zealand. Coeur's lawsuit seeks recession and an unspecified amount of damages arising from alleged misrepresentations and failure to disclose material facts alleged to have been known by Cyprus officials regarding ground movement and instability, threatening the integrity of the mine site at the time of Coeur's purchase of the property. In October 1997, Cyprus filed a counterclaim alleging libel by Coeur in its press release announcing the write-off of the Golden Cross Mine and seeking an unspecified amount of damages. Coeur also filed an action in federal court for the District of Idaho on July 15, 1996 against Cyprus which makes the same allegations as the Idaho State complaint, but including violations of federal securities laws. The Company voluntarily dismissed that action in January 1998. On July 2, 1997, a suit was filed by a shareholder of the Company's Common Stock in Federal District Court for the District of Colorado naming the Company and certain of its officers and its independent auditor as defendants. Plaintiff alleges that the Company violated the Securities Exchange Act of 1934 during the period January 1, 1995 to July 11, 1996, and seeks certification of the law suit as a class action. The class members are alleged to be those persons who purchased publicly traded debt and equity securities of the Company during the time period stated. On September 22, 1997, an amended complaint was filed in the proceeding adding other purchasers as additional plaintiffs. The action seeks unspecified compensatory damages, pre-judgment and post-judgment interest, attorney's fees and costs of litigation. The complaint asserts that the defendants knew material adverse non-public information about the Company's financial results which was not disclosed, and which related to the Golden Cross and Fachinal Mines; and that the defendants intentionally and fraudulently disseminated false statements which were misleading and failed to disclose material facts. The Company believes the allegations are without merit and intends to vigorously defend against them. On October 27, 1997, the Company, its auditors and the individual defendants filed with the Court motions to dismiss the amended complaint on the ground that it fails to state a valid claim. The motions were argued on January 8, 1998 and are pending decision by the court. No assurances can be given at this early stage of the action as to its ultimate outcome. The Company is also subject to other pending or threatened legal actions that arise in the normal course of business. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on the financial position of the Company. Depending on the timing of any future liabilities relating to these matters, the amount of which cannot now be reasonably estimated, such amounts could possibly have a material impact on the results of operations for a given period. F-27
NOTE P--GEOGRAPHIC SEGMENT INFORMATION The following table sets forth certain financial information relating to international and domestic operations. <TABLE> <CAPTION> Year Ended December 31, -------------------------------------- 1997 1996 1995 --------- -------- -------- <S> <C> <C> <C> REVENUES AND OTHER INCOME: United States $ 83,125 $ 75,815 $ 65,903 Australasia 44,923 27,285 32,967 South America 31,934 2,790 (127) ---------- ---------- ---------- Consolidated revenues $ 159,982 $ 105,890 $ 98,743 ========== ========== ========== NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES: United States $ 6,684 $ 6,167 $ (3,558) Australasia 4,882 (55,491) 5,773 South American Operations (20,705) 531 311 South American Exploration (5,186) (6,961) (3,584) ---------- ---------- ---------- Consolidated net loss from continuing operations before income taxes $ (14,325) $ (55,754) $ (1,058) ========== ========== ========== IDENTIFIABLE ASSETS: United States $ 437,582 $ 379,635 $ 286,318 Australasia 85,223 51,848 47,114 South America 138,617 148,847 112,214 ---------- ---------- ---------- Consolidated assets $ 661,422 $ 580,330 $ 445,646 ========== ========== ========== </TABLE> F-28
NOTE Q--SUMMARY OF QUARTERLY FINANCIAL DATA The following table sets forth a summary of the quarterly results of operations for the years ended December 31, 1997 and 1996: <TABLE> <CAPTION> First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (000's-Except Per Share Data) <S> <C> <C> <C> <C> 1997 Net Sales $ 24,670 $ 33,659 $ 38,628 $ 42,280 Gross profit (loss) $ (2,492) $ (1,849) $ (2,056) $ 3,561(d) Net loss $ (1,721) $ (275)(c) $ (6,268) $ (5,819) Net loss attributable to common shareholders $ (4,353) $ (2,908)(c) $ (8,903) $ (8,450) Basic and diluted net loss per share (b) $ (.08) $ (.01) $ (.29) $ (.27) Basic and diluted net loss per share attributable to common shareholders (b) $ (.20) $ (.13) $ (.41) $ (.39) 1996 Net Sales $ 22,609 $ 18,752 $ 21,559 $ 29,811 Gross Margin $ 3,013 $ 206 $ 3,079 $ 3,150 Net income (loss) $ 133 $(56,881)(a) $ 1,878 $ 300 Net loss attributable to common shareholders $ (365) $(59,514) $ (755) $ (2,333) Basic and diluted net income (loss) per share (b) $ .01 $ (2.63) $ .09 $ .01 Basic and diluted net loss per share attributable to common shareholders (b) $ (.02) $ (2.75) $ (.03) $ (.11) <FN> (a) Includes writedown of mining properties of approximately $54.0 million. (b) The 1996 and first three quarters of 1997 earnings per share amounts have been restated to comply with Statement of Financial Accounting Standard No. 128, "Earnings Per Share." (c) Includes the receipt of $8 million of insurance proceeds for business interruption and property damage at the Golden Cross Mine. (d) Includes the effects of the change in recovery rates at the Rochester Mine, whereby costs of mine operations decreased by approximately $7 million. </FN> </TABLE>