Deine Quelle bezieht sich auf den SEC-Report, der aber schon über zwei Wochen alt ist. Die Zahlen mit der dargelegten Konkursgefahr sind also bekannt. Ich habe den entsprechenden Teil hervorgehoben.
Grüße
R.
P.S.:Der Wirtschaftsprüfer von Coeur ist übrigens Anderson....
March 29, 2002
COEUR D ALENE MINES CORP (CDE)
Annual Report (SEC form 10-K)
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 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.
Critical Accounting Policies and Estimates
Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note B in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. Note that our preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. The most critical accounting principles upon which the Company's financial status depends are those requiring estimates of recoverable ounces from proven and probable reserves and/or assumptions of future commodity prices. Such estimates and assumptions affect the value of inventories (which are stated at the lower of average cost or net realizable value) and the potential impairment of long-lived assets. These estimates and assumptions also affect the rate at which depreciation and amortization are charged to earnings.
Property, Plant, and Equipment balances are stated at cost, reduced by provisions to recognize economic impairment in value when management determines that such impairment has occurred. Mineral property, buildings and improvements, and machinery and equipment are depreciated using either the straight-line method or the units-of-production method over the estimated useful lives as of the in-service date or date of major improvements. We evaluate the realizability of our long-lived assets, property, plant and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset's carrying value as compared to its estimated fair value.
Reclamation and Remediation costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation cost for inactive properties. Such costs related to active mines are accrued and charged over the expected operating lives of the mines using the units-of-production method.
The estimated undiscounted cash flows generated by our assets and the estimated liabilities for reclamation and remediation are determined using the Company's assumptions about future costs, mineral prices, mineral processing recovery rates, production levels and capital and reclamation costs. Such assumptions are based on the Company's current mining plan and the best available information for making such estimates. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amount could differ from those based on such estimates and assumptions.
Significant Mining Properties
The Company's currently operating mines consist of the Rochester Mine, a heap leach silver and gold mine in northern Nevada of which the Company owns 100%, and the Galena Mine, an underground silver mine in Idaho that is 100% owned by Coeur's wholly-owned subsidiary, Coeur Silver Valley, Inc. The Company suspended operations at its wholly-owned Fachinal Mine in Chile in December 2000 in order to focus its efforts on the adjacent Cerro Bayo Project where Coeur plans to commence gold and silver production at an open pit and underground mine in May 2002. The Company also owns 100% of the San Bartolome silver project in Bolivia where it is conducting final feasibility studies and expects to commence silver production in 2004, and the Kensington property in Alaska where Coeur is considering the possible development of an underground gold mine.
Risk Factors; Forward-Looking Statements
For information relating to important risks and uncertainties that could materially adversely affect the Company's business, financial condition or operating results, reference is made to the disclosure set forth under Item 1 above under the caption"Risk Factors." In addition, because the following discussion includes numerous forward-looking statements relating to the Company, its results of operations and financial condition and business, reference is made to the information set forth above in Item 1 under the caption"Important Factors Relating to Forward-Looking Statements."
Total Production and Reserves
The Company's total production in 2001 was 10.9 million ounces of silver and 96,000 ounces of gold, compared to 11.7 million ounces of silver and 145,000 ounces of gold in 2000. Coeur estimates that production in 2002 will be approximately 12.8 million ounces of silver and 93,000 ounces of gold. Total estimated proven and probable reserves at December 31, 2001 were approximately 83.4 million ounces of silver and 2.3 million ounces of gold, compared to silver and gold reserves at December 31, 2000 of approximately 88.1 million ounces and 2.4 million ounces, respectively.
SFAS 121 Impairment Reviews; Write-down of Mining Properties
In accordance with Statement of Financial Accounting Standards No. 121,"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews the carrying value of its assets whenever events or changes in circumstances indicate that the carrying amount of its assets may not be fully recoverable. As of December 31, 2001, due to the continuing low prices of silver and gold, the Company reviewed the carrying value of all its properties based on an assumed long-term gold prices starting at $275 and increasing to $300 per ounce and silver prices starting at $4.50 and increasing to $5.50 per ounce. As a result of that review, the Company recorded a $6.1 million write-down in the carrying value of its Kensington property during the year ended December 31, 2001.
Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues
Sales of concentrates and dore in the year ended December 31, 2001 decreased by $24.0 million, or 26%, from the year ended December 31, 2000 to $69.2 million. The decrease in sales was primarily attributable to lower realized gold and silver prices and decreased production of silver from most of its mines, offset in part by increased gold production at the Rochester
mine and increased Silver production at the Galena mine compared to 2000. In the year ended December 31, 2001, the Company produced a total of 10.9 million ounces of silver and 96,000 ounces of gold compared to 11.7 million ounces of silver and 145,000 ounces of gold in 2000. In the year ended December 31, 2001, Company realized average silver and gold prices of $4.34 and $275, respectively, compared with realized average prices of $4.94 and $307, respectively, in the prior year. The decline in gold production was primarily due to the sale of the Company's interest in Gasgoyne, as well as the lack of production from Fachinal. This was partially offset by higher gold production at Rochester, and higher silver production at Galena.
Interest and other income in the year ended December 31, 2001 decreased by $5.3 million compared with year ended December 31, 2000. The decrease is primarily due to less interest income received as a result of lower interest rates and lower cash balances and a $4.1 million gain recorded in 2000 on the mark to market adjustment of the call option portion of the Company's hedge program.
Costs, Expenses and Write-downs
The following table sets forth year 2001 versus year 2000 costs, expenses and write-downs:
Production Costs ____________________________________69.1
_______________________________________________86.7
Depreciation/Depletion _______________11.3
______________________20.8
Administration and General _____8.7
_________9.7
Exploration ____6.4
_____6.7
Pre-feasibility Expense ___3.7
__2.7
Interest Expense _______________14.6
__________________17
Write-down and Other ______9.4
_______________________21.2
($ in millions)
Production costs in the year ended December 31, 2001 decreased by $17.5 million, or 20%, from the year ended December 31, 2000 to $69.1 million. The decrease in production costs is primarily a result of decreased production at Fachinal in 2001 and the sale of the Yilgarn Star mine in the first quarter of 2001.
Depreciation and amortization decreased in the year ended December 31, 2001 by $9.4 million, or 45%, from the prior year, primarily due to there
being no depletion or amortization taken at the Fachinal mine due to its temporary suspension of operations and no depletion associated with the Yilgarn Star mine due to sale of the Company's interest in early February 2001.
Administrative and general expenses decreased $1.0 million in the year ended December 31, 2001 compared to 2000, due to continuing efforts to conserve cash.
Exploration expenses decreased $0.3 million in the year ended December 31, 2001 compared to 2000, due to reduced spending.
Pre-feasability expense recorded in the year ended 2001 increased $1.0 million compared to the same period of 2000 due to increased expenses at San Bartolome.
Interest expenses decreased $2.4 million in the year ended December 31, 2001 compared to 2000, due to the Company's debt reduction program discussed below.
Write-downs of mining properties and other expenses amounted to $9.4 million in 2001, primarily as a result of (i) a write-down of $6.1 million in the carrying value of the Kensington property, (ii) the $1.4 million write-down of inventory resulting from the Handy & Harmon bankruptcy and (iii) $1.4 million of holding costs at Fachinal and Kensington. Write-downs of mining properties and other expenses in 2000 amounted to a total of $21.2 million, primarily as a result of (i) a write-down of $12.2 million reflecting the excess book value of the Company's shares in Gasgoyne above the $15.6 million price for which the Company sold such shares on February 7, 2001; and (ii) recognition of $4.2 million in connection with the settlement of the federal natural resources lawsuit, of which $3.9 million represented payments made by the Company to the U.S. Government and the balance consisted of estimated land transfer expenses and legal fees.
Income Taxes and Extraordinary Items
As a result of the above, the Company's net loss from continuing operations before taxes and extraordinary items amounted to approximately $51.3 million in 2001 compared to $63.6 million in 2000. An income tax benefit of $6,000 was recorded in 2001, compared to a provision for income taxes of approximately $348,000 in 2000. The Company's loss before extraordinary items therefore amounted to $51.3 million in 2001 compared to $63.9 million in 2000. As more fully discussed below under"Debt Reduction Program," the Company recorded an extraordinary gain of approximately $48.2 million in 2001, compared to an extraordinary gain of $16.1 million in 2000, in connection with the Company's early retirement of debt.
Net Loss
As a result of the above, the Company's net loss amounted to approximately $3.1 million in the year ended December 31, 2001 compared to a net loss of $47.8 million in the year ended December 31, 2000. The net loss attributable to common shareholders was $0.07 per share for the year ended
December 31, 2001, compared to a net loss $1.41 per share for the year ended December 31, 2000. During 2000, the Company paid approximately $2.2 million of dividends to the holders of its outstanding MARCs, which were mandatorily converted into common stock on March 15, 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues
Sales of concentrates and dore increased by $6.9 million, or 7.9%, for the year ended December 31, 2000 as compared to the same period of 1999, primarily as a result of higher silver production levels at the Rochester and Silver Valley mines, offset in part by decreases in the realized silver price and the amount of gold produced. During 2000, the Company produced a total of 11.7 million ounces of silver and 145,000 ounces of gold compared to 9.6 million ounces of silver and 152,000 ounces of gold in 1999.
Spot silver and gold prices averaged $5.00 and $279 per ounce, respectively, in 2000 compared to $5.25 and $279 per ounce, respectively, in 1999. During 2000, the Company realized average silver and gold prices of $4.94 and $307 per ounce, respectively, compared with realized prices of $5.23 and $319, respectively, in 1999.
Interest and other income decreased by $14.6 million, or 65%, in 2000 compared to 1999. The decrease was primarily due to a $21.1 million net gain from the favorable settlement in the third quarter of 1999 of a lawsuit with Cyprus Minerals Company relating to the Golden Cross mine, reduced by a loss of $4.3 million arising from the non-cash mark to market adjustment on gold call options sold by the Company.
Costs, Expenses and Write-downs
The following table sets forth year 2000 versus year 1999 costs, expenses and write downs:
Production Costs _______________________________________________86.7
____________________________________66.9
Depreciation/Depletion ______________________20.8
_____________________19.6
Administration and General _________9.7
________9.3
Exploration _____6.7
_______7.1
Pre-feasibility Expense __2.7
_1.3
Interest Expense __________________17
_________________16.4
Write-down and Other _______________________21.2
______________________20.2
($ in millions)
For the year ended December 31, 2000, total expenses increased by $23.9 million. The increase is primarily attributable to the increased production costs as a result of the increase in ownership of the Galena mine and increased production costs at the Fachinal and Petorca mines.
Production costs increased by $19.8 million in 2000. The increase was primarily due to increased ownership of the Galena mine from 50% to 100% in September 1999 and increased cash costs per ounce at the Fachinal and Petorca mines. Depreciation and depletion expense increased $1.2 million in 2000 compared to 1999, primarily due to higher production at the Rochester and Galena mines. Administration and general expenses increased $0.4 million in 2000, 5% above 1999. Exploration expense for 2000 decreased by $0.4 million, or 10%, compared to 1999. Pre-feasibility expenditures increased due to increased level of expenditures at the San Bartolome silver project in Bolivia.
Cash costs per ounce of silver equivalent at the Rochester mine decreased to $3.90 in 2000 compared to $3.97 per ounce in 1999. The decrease was due to operating improvements that included increasing the capacity of the conveyor system and the crushing circuit as well as increasing solution flow on the leach pad by approximately 15%. Cash costs at the Galena Mine were $4.59 per silver ounce in 2000 compared to $5.09 in 1999. The decrease was primarily a result of improved ore grades from more productive vein structures at depth and an increase in mill throughput. Cash costs at the Petorca mine in 2000 averaged $345 per ounce of gold versus $271 in 1999. The increase was the result of the mining of lower grade ore, partially offset by increases in tons mined and in mill throughput. Cash costs at Fachinal were $447 per ounce for the year ended December 31, 2000 compared to $304 per ounce in the previous year. The increase was primarily due to a shortfall in production partially due to lower ore grades and a reduction in tons milled, but mainly due to severe winter weather conditions that affected most of southern Chile. The cash costs at the Yilgarn Star mine for the year ended December 31, 2000 were $227 per gold ounce compared to $287 per gold ounce for 1999. The reduction in cash costs was achieved in spite of the scheduled mining of lower grade ore, by implementing operating improvements to the crushing circuit, and a weaker Australian dollar.
Write-downs of mining properties and other expenses amounted to $21.2 million in 2000, primarily as a result of:
o a write-down of $12.2 million reflecting the excess book value of the Company's shares in Gasgoyne above the $15.6 million price for which the Company sold such shares on February 7, 2001, and
o recognition of $4.2 million in connection with the settlement of the federal natural resources lawsuit, of which $3.9 million represented payments to be made by the Company to the U.S. Government and the balance consisted of estimated land transfer expenses, minor clean-up costs and legal fees. Write-downs of mining properties and other expenses in 1999 amounted to $20.2 million primarily as a result of the $16.2 million SFAS 121 impairment write-down of the Yilgarn Star mine.
Income Taxes and Extraordinary Items
As a result of the above, the Company's loss before income taxes and extraordinary items was $63.6 million in 2000 compared to a loss before income taxes and extraordinary items of $32.0 million in 1999. The Company reported an income tax provision of $300,000 for 2000 and 1999. In 2000, the Company recorded an extraordinary gain on the early retirement of debt (net of taxes) of $16.1 million and paid $2.2 million in preferred stock dividends.
Net Loss
As a result of the above, the Company reported a net loss attributable to common shareholders of $50.0 million, or $1.41 per share in 2000, compared to $38.9 million, or $1.61 per share, in 1999. The reduced per share amount of the net loss attributable to common shareholders in 2000, notwithstanding the increased total dollar amount of such net loss, was due to the increase in the weighted average number of shares of common stock outstanding during 2000.
Liquidity and Capital Resources
Working Capital; Cash and Cash Equivalents
The Company's working capital at December 31, 2001 was approximately $39.8 million compared to $93.0 million at December 31, 2000. The ratio of current assets to current liabilities was two to one at December 31, 2001 compared to 4.7 to one at December 31, 2000. The reduction in working capital is primarily the result of the 6% Convertible Subordinated Debentures due 2002 being reclassified as a current liability and cash used in operations.
Net cash used in operating activities in 2001 was $29.9 million compared with $23.8 million used in operating activities in 2000. The most significant non-cash items included in the net loss in 2001 were (1) $48.2 million extraordinary gain on the early retirement of debt, (2) $6.1 million write-down on the carrying amount of Kensington development property, and (3) $2.9 million interest expenses on the 13-3/8% Convertible Senior Subordinated Notes due 2003 paid with common stock.
A total of $12.6 million was provided by investing activities in 2001 compared to $10.0 million used in 2000. The most significant investing activity in 2001 was the sale of the Company's interest in Gasgoyne for cash proceeds of approximately $14.9 million.
The Company's financing activities used $3.2 million during 2001 compared to $17.9 million used in 2000. The most significant financing activities in 2001 were $2.2 million cash costs on the exchange offer described later in MD&A and $0.7 million used to repurchase debentures. As a result, the Company's net cash decreased in 2001 by $20.5 million compared with a net cash decrease of $51.7 million in 2000.
At December 31, 2001, the Company had outstanding $23.2 million principal amount of its 6% Convertible Subordinated Debentures due 2002 (the"6% Debentures") which mature on June 10, 2002. The Company's cash and cash equivalents and short-term investments at December 31, 2001 totaled approximately $18.2 million. As a result of private exchange transactions completed between January 1, 2002 and March 22, 2002, the total amount of outstanding 6% Debentures had been reduced to $ 19.8 million.
The Company is endeavoring to increase its liquidity and/or further reduce the principal amount of its outstanding 6% Debentures in order to be able to fund the payment upon maturity of outstanding 6% Debentures on June 10, 2002 by:
o Effecting additional private exchange transactions under which either common stock or 13-3/8% Convertible Senior Subordinated Notes due December 31, 2003 (the"13-3/8% Notes") will be exchanged for outstanding 6% Debentures;
o The placement of bank debt to fund the start up of, or the sale of an equity interest in, the Company's Cerro Bayo Mine in southern Chile; and/or
o The private sale of other debt or equity securities.
o The potential sale of certain assets of the Company.
The Company presently plans to complete one or more of the above transactions prior to June 10, 2002. The Company believes in that regard, cash flows from mining operations, the proceeds from financings and/or reduced indebtedness resulting from additional exchange transactions will enable the Company to fund the retirement of maturing 6% Debentures on June 10, 2002 and other anticipated capital expenditures during the balance of 2002. In that regard, the Company estimates that it will expend approximately $6.8 million of capital expenditures during 2002, which includes approximately $2.5 million for development at Cerro Bayo, and $2.2 million at Rochester Mine, including $1.0 million for pad expansion and $2.1 million at Galena mine for resource development
No assurance can be given that the Company will be able to increase its liquidity and/or further reduce the principal amount of its outstanding 6% Debentures. The Company's liquidity will be adversely affected if such transactions are not effected on satisfactory terms. If the Company fails to pay the principal amount of the 6% Debentures on their maturity when due, such failure will be deemed to be an event of default under the Indenture relating to the 6% Debentures and entitle the trustee to declare the 6% Debentures to be immediately due and payable. Furthermore, such a default also would constitute an event of default under the Indentures relating to the 13-3/8% Notes, 6-3/8% Debentures and 7-1/4% Debentures, which could cause these Notes or Debentures, the total outstanding principal amount of which amounted to $122.3 million at December 31, 2001, to be immediately due and payable. Such events could cause the Company to seek relief under the Chapter 11 of the Bankruptcy Code.
Debt Reduction Program
During the past four years, the Company has pursued a program of restructuring and reducing its outstanding indebtedness.
1998-2000 Repurchases
In 1998, the Company repurchased approximately $4.0 million principal amount of its outstanding 6% Debentures, approximately $36.5 million principal amount of its outstanding 7-1/4% Debentures and $1.6 million principal amount of its outstanding 6-3/8% Debentures for a total purchase price of approximately $28.5 million. During 1999, the Company repurchased approximately $10.2 million principal amount of its outstanding 6% Debentures for a total purchase price of approximately $6.2 million. During 2000, the Company repurchased approximately $9.1 million principal amount of its outstanding 6% Debentures and $22.0 million principal amount of its outstanding 7 1/4% Debentures for a total purchase price of approximately $13.9 million.
2001 Transactions
Public Exchange Offer
On June 29, 2001, the Company commenced an offer to exchange its new 13-3/8% Notes in exchange for its outstanding 6%, 6-3/8% and 7-1/4% Debentures. The Company offered $1,000 principal amount of 13-3/8% Notes for each $2,000 principal amount of 6-3/8% and 7-1/4% Debentures, and $1,000 principal amount of 13-3/8% Notes in exchange for each $1,000 principal amount of 6% Debentures. The exchange offer was completed on July 30, 2001 and on August 1, 2001, the Company issued a total of approximately $42.6 million principal amount of 13-3/8% Notes in exchange for the approximately $2.0 million principal amount of 6% Debentures, $26.6 million principal amount of 6-3/8% Debentures and $54.5 million principal amount of 7-1/4% Debentures that were tendered and accepted in the exchange offer. In addition, the Company sold $25,000 principal amount of 13-3/8% Notes for cash in connection with the offer. The exchange offer reduced the Company's outstanding long-term debt by approximately $39.9 million and increased shareholders' equity by approximately $38.6 million. As a result of the exchange offer, the Company recorded an extraordinary gain of approximately $39.2 million, net of offer costs.
The 13-3/8% Notes are senior in right of payment to the 6%, 6-3/8% and 7-1/4% Debentures. The 13-3/8% Notes are convertible into Coeur common stock, at any time prior to maturity at a conversion price of $1.35 per share, subject to adjustment. Interest is payable semi-annually on June 30 and December 31 of each year. The Company is entitled to elect to pay interest in cash or stock, in its sole discretion. The Company elected to pay the $2.9 million of interest payable on December 31, 2001 in common stock, issuing a total of 3.4 million shares of common stock in payment thereof. At any time prior to December 31, 2003, the holders of 13-3/8% Notes may elect to convert their notes into common stock. The Company may elect to automatically convert the 13-3/8% Notes during the first two years after issuance if the closing price of the common stock exceeds 200% of the conversion price for at least 20 trading days during a 30-day trading period ending within five trading days prior to the notice of automatic conversion. If an automatic conversion occurs within the first two years after issuance, or if holders elect to convert their 13-3/8% Notes within the first two years after issuance and prior to notice of any automatic conversion, the Company will make a payment to holders in cash, or at the Company's option, in common stock, equal to two full years of interest, less interest actually paid. The 13-3/8% Notes are redeemable at the option of the Company two years after issuance, subject to certain conditions, and at the option of the holders in the event of a change in control.
By December 31, 2001, the holders of a total of approximately $1.8 million principal amount of 13-3/8% Notes had converted their notes into a total of 1.7 million shares of common stock. Subsequent to December 31, 2001 and prior to March 15, 2002, the holders of an additional $5.7 million principal amount of 13-3/8% Notes converted their notes into a total of 5.1 million shares of common stock.
Private Exchange Transactions
In the first quarter of 2001, the Company repurchased $5.0 million principal amount of outstanding 7-1/4% Debentures in exchange for 1,787,500 shares of common stock. As a result, the Company
recorded an extraordinary gain of approximately $3.0 million, net of taxes of zero, in connection with the reduction of indebtedness. In the second quarter of 2001, the Company repurchased a total of $11.0 million principal amount of 7-1/4% Debentures in exchange for 4,257,618 shares of common stock. As a result, the Company recorded an extraordinary gain of approximately $5.8 million, net of deferred offering costs and taxes.
2002 Exchanges and Conversions
During the period from January 1, 2002 to March 22, 2002, the Company repurchased a total of $3.4 million principal amount of 6% Debentures in exchange for a total of 3.4 million shares of common stock. In addition, during this period, $5.7 million principal amount of the 13-3/8% Notes voluntarily converted to 5.1 million shares of common stock, including shares for interest in accordance with the make whole provision.
As stated above, the Company is endeavoring to effect additional repurchases of its outstanding 6% Debentures in privately negotiated exchange transactions prior to the maturity of the 6% Debentures on June 10, 2002.
Building Loan
Under the terms of the Company's building loan agreement with Wells Fargo bank the company agreed to have the terms of the building loan reviewed after a five year interval ending on December 4, 2001, at which time the terms could be renegotiated. Wells Fargo has chosen at this time not to renegotiate the loan making the entire amount of $1.3 million due on December 4, 2001. The bank has extended the Company some time to seek alternative financing and the company is in the process of doing so. During this time the company has continued to make payments to the bank under the original terms of the agreement and will continue to do so until alternative financing can be attained. As a result, the amount of $1.3 million has been included in current liabilities at December 31, 2001. The Company intends to have alternative financing in place shortly after the end of the first quarter. If the company is unable to find alternative financing the remaining amount of the loan will be paid to the bank.
Agreement to Acquire the Martha Mine
In February 2002, the Company reached agreements in principle to fully acquire the Martha high-grade underground silver mine and other silver exploration properties located in Argentina, approximately 270 miles east of the Company's Cerro Bayo mine, and to make a strategic investment in Yamana Resources Inc. ("Yamana"), a mining company with holdings in Argentina.
Upon completion of final documentation, Coeur intends to immediately commence shipment of the Martha Mine's stockpiled high-grade ore to its 100 percent-owned Cerro Bayo Mine in Southern Chile for processing. Production at Cerro Bayo is scheduled to begin in May of this year and is expected to produce over 82,000 gold equivalent ounces in 2002 at a total cash cost of under $150 per ounce. On a gold equivalent basis, the acquisition of the Martha Mine is expected to increase Cerro Bayo's 2002 production 50 percent to 123,000 gold equivalent ounces and even further decrease cash operating costs.
Under the terms of the agreements, Coeur will acquire 100 percent of Yamana-owned Compania Minera Polimet S.A. ("Polimet"), an Argentinean corporation, which owns the Martha Mine and other silver exploration properties for total cash consideration of $2.5 million. The payment will be made to Northgate Exploration Ltd. ("Northgate") in order to satisfy Yamana's total outstanding indebtedness to Northgate. Additionally, Coeur will acquire ten million common shares of Yamana, equivalent to approximately 10% of Yamana on a fully diluted basis, for $600,000.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District Court for the District of Idaho by the United States against various defendants, including the Company, 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.
On March 16, 2001, the Company and representatives of the U.S. Government, including the Environmental Protection Agency, the Department of Interior and the Department of Agriculture, reached an agreement in principle to settle the lawsuit, which represents the only suit in which the Company has been named as a party. Pursuant to the terms of the Consent Decree, dated May 14, 2001, the Company has paid the U.S. Government a total of approximately $3.9 million, of which $3.3 million was paid in May 2001 and the remaining $.6 million was paid in June 2001. In addition, the Company will (i) pay the United States 50% of any future recoveries from insurance companies for claims for defense and indemnification coverage under general liability insurance policies in excess of $0.6 million, (ii) accomplish certain cleanup work on the Mineral Point property (i.e., the former Coeur Mine site) and Calladay property, and (iii) make available certain real property to be used as a waste repository. Finally, commencing five years after effectiveness of the settlement, the Company will be obligated to pay net smelter royalties on its operating properties, up to a maximum of $3 million, amounting to a 2% net smelter royalty on silver production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce net smelter royalty on gold production if the price of gold exceeds $325 per ounce. The royalty would run for 15 years commencing five years after effectiveness of the settlement. The Company recorded $4.2 million of expenses, which included $3.9 million of settlement payments, in the fourth quarter of 2000 in connection with the settlement.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group, Inc., ("Handy & Harman") to which the Rochester Mine had historically sent approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had inventory at the refinery of approximately 67,000 ounces of silver and 5,000 ounces of gold that has been delivered to certain creditors of Handy & Harman. The fair market value of the inventory has been estimated to be $1.2 million. On February 27, 2001, the Company commenced a lawsuit against Handy & Harman and certain others in the U.S. Bankruptcy Court for the
District of Connecticut seeking recovery of the metals and/or damages. Handy & Harman's Chapter 11 liquidation plan was confirmed by the Bankruptcy Court in August 2001 and on November 3, 2001, the Company received approximately $294,000 from Handy & Harman as a partial payment under the plan. The liquidating custodian of Handy & Harman under the liquidation plan recently advised the Company that Handy & Harman intends to file suit against the Company prior to March 28, 2002 for the value of 100,000 ounces of silver (i.e., approximately $500,000) as a preference based on the Company's draw-down of its account at Handy & Harman in mid-March 2000. Based on this more recent legal action, the Company has determined that the recovery of any additional amounts would be remote. As a result, the Company has recorded a $1.4 million write-down of the carrying amount in the fourth quarter of 2001. Management of the Company and legal counsel believe that the threatened claims are without merit, and will vigorously any such suit.
Bunker Hill Action
On January 7, 2002, a private class action suit captioned Baugh v. Asarco, et al., was filed in the Idaho District Court for the First District (Lawsuit No. 2002131) in Kootenai County, Idaho against the companies that have been defendants in the prior Bunker Hill and natural resources litigation in the Coeur d'Alene Basin, including the Company, by eight northern Idaho residents seeking medical benefits and property compensation from the mining companies involved in the Bunker Hill Superfund site. At this early stage of the litigation, the Company cannot predict the outcome of this suit.
Proposed Mining Legislation
Recent legislative developments may affect the cost of and ability of mining claimants to use the Mining Law of 1872, as amended, (the"Mining Act") to acquire or use federal lands for mining operations. Since October 1994, a moratorium has been imposed on processing new patent applications for mining claims. Management believes that this moratorium will not affect the status of patent applications outstanding prior to the moratorium.
Legislation is presently being considered in the U.S. Congress to change 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.
During the last several congressional sessions, bills have been introduced which would supplant or materially alter the Mining Act. If enacted, such legislation may materially impair the ability of the Company to develop or continue operations which derive ore from federal lands. No such bills have been passed and the extent of the changes, if any, which may be enacted by Congress is not presently known. 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 are enacted, the ultimate effects and costs of compliance on the Company cannot be estimated.
Environmental Compliance Expenditures
For the years ended December 31, 1999, 2000 and 2001, the Company expended $7.0 million, $7.8 million and $5.5 million, respectively, in connection with routine environmental compliance activities at its operating properties. Such activities at the Rochester and Golden Cross mines include monitoring, bonding, earth moving, water treatment and revegetation activities.
The Company estimates that environmental compliance expenditures at its Kensington developmental property during 2002 will be approximately $600,000 to obtain permit modifications and other regulatory authorizations. 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.
Development Expenditures
During 2001, the Company expended $0.6 million for engineering, optimization studies and permitting costs at the Kensington development property, $8 million at the Rochester mine, $2.3 million for continuing mine development at the Cerro Bayo property, $3.9 million at the Galena Mine. During 2002, the Company plans to expend $2.0 million at Kensington, $2.2 million for developmental activities at the Rochester mine, $2.0 million at the Galena mine and $2.5 million at Cerro Bayo
Realization of Net Operating Loss Carryforwards
The Company has reviewed its net deferred tax asset, together with net operating loss carryforwards, and has not recognized 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, current gold and silver prices and the ability of the Company to use accelerated depletion and amortization methods in the determination of taxable income.
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