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UNITED STATES
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
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8641
COEUR D'ALENE MINES CORPORATION
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(Exact name of registrant as specified in its charter)
Idaho 82-0109423
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(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
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(Address of principal Executive Offices) (Zip Code)
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
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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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 .
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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. [ ]
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 17, 2000, which was
$3.38 per share.)
$125,229,000
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 17, 2000.
37,050,068 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.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Coeur d'Alene Mines Corporation is engaged through its subsidiaries
in the operation and/or ownership, development and exploration of silver and
gold mining properties and companies located primarily within the United States
(Nevada, Idaho and Alaska), Western Australia and South America (Bolivia and
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:
- The ROCHESTER MINE is a silver and gold surface mining
operation located in northwestern Nevada and is 100% owned
and operated by Coeur. It is one of the largest and lowest
cost of production primary silver mines in the United
States. During 1999, the Company acquired the mineral
rights to the NEVADA PACKARD property which is located two
miles south of the Rochester mine;
- Coeur owns 100% of the capital stock of COEUR SILVER VALLEY
("SILVER VALLEY"), which owns and operates the GALENA
underground silver mine that resumed production in May 1997,
and also owns the COEUR underground silver mine that
discontinued operations on July 2, 1998. In addition, Silver
Valley owns the CALADAY property that adjoins the Galena Mine,
and has operating control of several contiguous exploration
properties in the Coeur d'Alene Silver Mining District of
Idaho;
- The FACHINAL MINE is an open pit and underground gold and
silver mine which is wholly-owned and operated by Coeur and
located in southern Chile, South America;
- The PETORCA MINE is an underground gold and silver mine which
is wholly-owned and operated by Coeur and is located in
central Chile, South America;
- Coeur owns 50% of the capital stock of GASGOYNE GOLD MINES NL,
an Australian gold mining company ("Gasgoyne"), which owns
50% of THE YILGARN STAR MINE, and certain other
exploration-stage properties. The Yilgarn Star mine is an
underground gold mine located in Western Australia;
- The KENSINGTON PROPERTY, located north of Juneau, Alaska is
100% owned and operated by Coeur and is being developed as
an underground gold mine. An independently prepared
optimization study completed in late 1998 estimated cash
operating costs of US$190 per ounce of
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gold and estimated capital costs to develop the mine of
$192 million;
- Empressa Minera Manquiri S.A., a Bolivian company, is a
wholly-owned subsidiary of Coeur that controls the mining
rights for the SAN BARTOLOME silver project. San Bartolome is
an early stage silver development property in Bolivia; and
- Coeur owns approximately 3.5% of the outstanding shares of
PAN AMERICAN SILVER CORPORATION, a publicly traded, British
Columbia corporation that is engaged in silver mining and
exploration, and Coeur owns 100% of NPMC, INC., a Delaware
corporation that owns a 20% net profit royalty interest in
the Quiruvilca Silver mine in Peru.
Coeur also has interests in other properties which are the subject of silver or
gold exploration activities at which no mineable ore reserves have yet been
delineated.
SIGNIFICANT DEVELOPMENTS IN 1999
On August 13, 1999, the Company purchased the mineral rights of the
Nevada Packard property which is adjacent to the Rochester Mine in Nevada.
Coeur paid $2.1 million for the property, consisting of $1.4 million in cash
and 155,638 shares of the Company's common stock valued at $0.7 million. The
Nevada Packard property hosts a proven and probable reserve of 9.5 million
ounces of silver equivalent. Nevada Packard is expected to begin production in
2002, supplementing ore mined from the Rochester open pit.
On September 9, 1999, the Company acquired certain silver
properties and assets from ASARCO Inc. ("Asarco") in exchange for 7.125 million
shares of Coeur Common Stock, valued at $28.9 million. The properties and
assets acquired include (i) the 50% interest in Silver Valley not already owned
by Coeur, (ii) 100% of the mining rights for the San Bartolome silver project
in Bolivia, (iii) 1,500,000 common shares of Pan American Silver Corporation
and (iv) a 20% net profit royalty interest in the Quiruvilca Silver Mine in
Peru.
During the third quarter the Company settled an outstanding lawsuit
with Cyprus Minerals Company ("Cyprus") for $31.5 million. Coeur was seeking
damages from Cyprus arising from ground movement and instability which
threatened the integrity of the Golden Cross Mine in New Zealand. As a result
of the settlement, Coeur recorded other income of $21.1 million during the
third quarter of 1999, which was the net amount of the settlement proceeds
after the deduction of $4.4 million payable to the Company's flood insurance
carrier and $6.0 million payable to the plaintiffs in a class action lawsuit.
During the third and fourth quarters of 1999 Coeur repurchased
$10.2 million in face value of the Company's 6% Subordinated Convertible
Debentures which mature in 2002 for $6.1 million. The Company recorded an
extraordinary gain of $4.0 million during 1999 and reduced the outstanding
principal balance of the issue to $35.6 million.
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During the fourth quarter of 1999, due to the continuing low gold
price environment, the Company evaluated the recoverability of its investment
in Yilgarn Star Mine. Using a $325 per ounce gold price and based on
undiscounted future cash flows, in accordance with the standards set fourth in
SFAS 121, the Company determined that its investment in property, plant and
equipment at the Yilgarn Star Mine in Australia was impaired. The total amount
of the impairment, based on discounted cash flows was $16.2 million at December
31, 1999, and was recorded in the fourth quarter.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on the ore
reserve/mineralized material bases located at its operating mines and the
expertise of its management to become the leading primary silver production
company via long-term, profitable growth. The principal elements of the
Company's business strategy are as follows: (i) increase the Company's silver
production and reserves in order to remain the nation's largest primary silver
producer and one of the world's larger primary silver producers; (ii) improve
cash costs and production profiles at Coeur's existing silver and gold mining
operations; (iii) increase and improve the quality of the Company's silver
production and reserves; (iv) acquire operating mines, exploration and/or
development properties with a view to reducing the Company's cash and total
costs, provide short-term positive cash flow return and expand its production
base and reserves; and (v) continue to explore for new silver discoveries
primarily near its existing mine sites.
SOURCES OF REVENUE
The Rochester Mine, Silver Valley, Fachinal Mine, and Petorca Mine
which are operated by the Company, and the Company's interests in the Yilgarn
Star Mine, constituted the Company's principal sources of mining revenues in
1999. 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 revenues
during the past five years:
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Coeur Percentage
Ownership at Percentage of Total Revenues
Mine/Company December 31, 1999 in Year Ended December 31,
- ------------ ----------------- --------------------------------------------------
1995 1996 1997 1998 1999
----- ----- ---- ---- ----
Rochester Mine........................... 100% 57.0% 59.3% 40.5% 56.2% 49.2%
Petorca Mine(1).......................... 100 0.3 2.8 11.3 8.5 8.0
Fachinal Mine(2)......................... 100 - - 9.8 14.6 8.0
Silver Valley(3)......................... 100 - .5 .9 (.9) 4.6
Gasgoyne(4).............................. 50 - 0.9 5.2 12.1 9.2
Golden Cross Mine(5)..................... 80 33.4 26.0 23.7 .2 19.4
Other.................................... - 9.3 10.5 8.6 9.3 1.6
----- ----- ----- ---- ----
100% 100% 100% 100% 100%
==== ==== ===== ==== ====
(1) Increased ownership to 100% from 51% in September 1996.
(2) Commenced commercial production on January 1, 1997 for financial reporting
purposes.
(3) The Company increased its ownership interest in Silver Valley from 50% to
100% on September 9, 1999. 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 in May 1996.
The Company changed its method of accounting for Silver Valley from the
proportionate consolidation method to the equity method of accounting at
the time of the acquisition and as such included cost of production and
working capital costs, and on September 9, 1999, the Company commenced
accounting for Silver Valley on a fully consolidated basis.
(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's 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 is reported in accordance with the
equity method.
(5) The Company discontinued mining and milling operations at the Golden Cross
Mine, an underground and surface gold mining operation in New Zealand, in
April 1998. The revenue received in 1999 represents the net proceeds
received from the settlement of the outstanding litigation with Cyprus
relating to the Golden Cross mine.
DEFINITIONS
The following sets forth definitions of certain important mining terms used in
this report.
"CASH COSTS" are costs directly related to the physical activities of producing
silver and gold, and include mining, processing and other plant costs, deferred
mining adjustments, third-party refining and smelting costs, marketing expense,
on-site general and administrative costs, royalties, in-mine drilling
expenditures that are related to production and other direct costs, but
exclude depreciation, depletion and amortization, corporate general and
administrative expense, mineral exploration, financing costs and accruals for
final mine reclamation.
"DORE" is bullion produced by smelting which contains gold, silver and minor
amounts of impurities.
"GOLD" is a metallic element with minimum fineness of 999 parts per 1000 parts
pure gold.
"HEAP LEACHING PROCESS" is a process of extracting gold and silver by placing
broken ore on an impermeable pad and applying a dilute cyanide
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solution that dissolves a portion of the contained gold and silver, which are
then recovered in metallurgical processes.
"NONCASH COSTS" are costs that are typically accounted for ratably over the
life of an operation and include depreciation, depletion and amortization of
capital assets, accruals for the costs of final reclamation and long-term
monitoring and care that are usually incurred at the end of mine life, and the
amortization of the economic cost of property acquisitions, but exclude
amortization of deferred tax purchase adjustments relating to property
acquisitions established in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" as these deferred tax purchase
adjustments did not involve any economic resources of the Company.
"TOTAL PRODUCTION COSTS" are the sum of cash costs and noncash costs.
"MINERALIZED MATERIAL" is gold and silver bearing material that has been
physically delineated by one or more of a number of methods including drilling,
underground work, surface trenching and other types of sampling. This material
has been found to contain a sufficient amount of mineralization of an average
grade of metal or metals to have economic potential that warrants further
exploration evaluation. While this material is not currently or may never be
classified as reserves, it is reported as mineralized material only if the
potential exists for reclassification into the reserves category. This material
cannot be classified in the reserves category until final technical, economic
and legal factors have been determined and the project containing the material
has been approved for development. Under United States Securities and Exchange
Commissions standards, a mineral deposit does not qualify as a reserve unless
the recoveries from the deposit are expected to be sufficient to recover total
cash and non-cash costs for the mine and related facilities.
"ORE RESERVE" is the part of a mineral deposit which can be economically and
legally extracted or produced at the time of the reserve determination.
"PROBABLE RESERVES" are a part of a mineralized deposit which can be extracted
or produced economically and legally at the time of the reserve determination.
The quantity and grade and/or quality of a probable reserve is computed from
information similar to that used for a proven reserve, 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.
Mining dilution has been factored into the estimation of probable reserves. The
Company used long-term price estimates of $5.50 per ounce of silver and $325
per ounce of gold in estimating probable reserves at December 31, 1999.
"PROVEN RESERVES" are a portion of a mineral deposit which can be extracted or
produced economically and legally at the time of the reserve determination. The
quantity of a proven reserve 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 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
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a proven reserve is well-established. Mining dilution has been factored into
the estimation of proven reserves. The Company used long-term price estimates
of $5.50 per ounce of silver and $325 per ounce of gold in estimating proven
reserves at December 31, 1999.
"RUN-OF-MINE ORE" is mined ore which has not been subjected to any pretreatment,
such as washing, sorting or crushing prior to processing.
"SILVER" is a metallic element with minimum fineness of 995 parts per 1000
parts pure silver.
"STRIPPING RATIO" is the ratio of the number of tons of waste to the number of
tons of ore extracted at an open-pit mine.
"TON" means a short ton which is equivalent to 2,000 pounds, unless otherwise
specified.
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 and
permit and other regulatory approvals. Such forward-looking statements are
identified by the use of words such as "believes," "intends," "expects,"
"hopes," "may," "should," "plan," "projected," "contemplates," "anticipates" or
similar words. 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.
SILVER AND GOLD OPERATIONS
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 commenced operations in 1986. The Company owns 100% of the Rochester Mine
by virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc.
("Coeur Rochester").
The property consists of 16 patented and 541 unpatented contiguous
mining claims and 54 mill-site claims totaling approximately 11,000 acres.
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The mine utilizes the heap leaching process to extract both silver
and gold from ore mined using conventional open pit methods. Approximately
45,100 tons of ore and waste per day were mined from the open pit in 1999
compared to 47,600 tons per day in 1998. The average strip ratio for the
remaining life of the mine will vary based primarily on future gold and silver
prices. However, the average strip ratio is anticipated to be less than 1:1.
Ore is crushed to approximately 3/8 inch and is then transported by
conveyor and 85 and 150 ton trucks to leaching pads where solution is applied
via drip irrigation to dissolve the silver and gold contained in the ore.
Certain low-grade ores are hauled directly, as run-of-mine, by 85 ton haul
trucks to leaching pads where solution is applied to dissolve the silver and
gold contained in the ore. The solutions containing the dissolved silver and
gold are collected in a processing plant where the zinc precipitation method is
used to recover the silver and gold from solution.
Based upon actual operating 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 to
seven years from the point ore is placed on the leach pad until all recoverable
metal is recovered. However, a significant proportion of metal recovery occurs
in the early years.
During 1999 the Stage IV leach pad was expanded. The expansion,
which is expected to provide leach capacity at current mining rates for an
additional four years, was completed during the third quarter at a cost of
$2.0 million. The loading of crushed ore on the pad commenced at that time.
During 1999, the Company continued its district exploration program
designed to define new targets in the Rochester area. Drilling of several of
these targets encountered significant alteration but failed to identify any
economic mineralization. Exploration activity will continue in 2000 and will be
primarily focused on the Nevada Packard property.
On August 13, 1999, the Company purchased the mineral
rights of the Nevada Packard property two miles south of the Rochester mine for
$2.1 million. Assuming successful permitting, acquisition of the Nevada Packard
property added 9.5 million ounces of silver equivalent to Rochester's proven
and probable reserves. Nevada Packard is expected to begin production in 2002,
supplementing ore mined from the Rochester open pit. Permitting of the Nevada
Packard property is underway. It is expected that any ore mined at Nevada
Packard will be processed at the Rochester facility.
Production at Rochester in 1999 was 6.2 million ounces of silver
and 70,400 ounces of gold, compared to 7.2 million ounces of silver and 88,600
ounces of gold in the prior year. The decrease in production was attributed to
the planned mining sequence, which necessitated the mining of lower-grade ore
in 1999. Despite the production decrease, cash costs per equivalent ounce of
silver were reduced to $3.97 per ounce in 1999 from $4.07 per ounce in 1998.
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The Company's capital expenditures at the Rochester Mine totaled
approximately $4.3 million in 1999, of which approximately $2.1 million was
used to purchase the Nevada Packard property and $2.0 million was used to
construct the stage IV leach pad expansion. The Company plans approximately
$1.9 million of capital expenditures at the mine during 2000, most of which is
for stage II leach pad expansion.
Asarco, the prior lessee, has a net smelter royalty interest which
is payable only when the market price of silver equals or exceeds $18.58 per
ounce up to maximum rate of 5%.
YEAR-END PROVEN AND PROBABLE ORE RESERVES - ROCHESTER MINE
1999 1998
---- ----
Tons (000's) 48,272 54,856
Ounces of silver per ton 1.09 1.08
Contained ounces of silver (000's) 52,508 59,244
Ounces of gold per ton 0.01 0.01
Contained ounces of gold 381,000 494,000
YEAR-END MINERALIZED MATERIAL
1999 1998
---- ----
Tons (000's) 46,393 26,789
Ounces of silver per ton 0.82 0.91
Ounces of gold per ton 0.01 0.01
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OPERATING DATA
1999 1998
---- ----
PRODUCTION
Tons ore mined (000's) 9,569 8,495
Tons crushed/leached (000's) 9,537 8,529
Ore grade silver (oz./ton) 1.25 1.36
Ore grade gold (oz./ton) 0.009 0.009
Silver produced (oz.) 6,195,169 7,225,396
Gold produced (oz.) 70,396 88,615
COST PER OUNCE OF SILVER EQUIVALENT(1)
Cash costs $3.97 $4.07
Noncash costs 0.81 0.60
---------------------------------------------
Total production costs $4.78 $4.67
(1) Silver equivalent gold production is calculated by
multiplying actual gold ounces produced by the ratio of the
yearly average gold price to silver price. This total is
then added to actual silver production for the year to
determine total silver equivalent production for purposes of
calculation cash and noncash costs per ounce.
SILVER VALLEY RESOURCES CORPORATION ("SILVER VALLEY")
As previously noted, Coeur acquired 50% of Silver Valley from
Asarco on September 9, 1999, thereby increasing its ownership interest to 100%.
The benefits identified by Coeur when it consummated that acquisition included
(i) an increase of 1.8 million ounces in Coeur's estimated annual silver
production, (ii) the addition of 16.2 million ounces of silver to Coeur's
proven and probable reserves and 6.0 million ounces to Coeur's silver resources,
(iii) the potential to further increase reserves and resources through
systematic exploration, (iv) the potential to increase production at the
Galena Mine and thereby reduce cash costs and (v) the consolidation of Coeur's
ownership position and control of Idaho's Silver Valley.
Silver Valley owns the Coeur and Galena Mines and the Caladay
property situated in the Coeur d'Alene Mining District of Idaho. Effective
January 1, 1995, Coeur, Callahan Mining Corporation ("Callahan"), a
wholly-owned subsidiary of Coeur, and 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 owned 50% of
Silver Valley. During 1995, Silver Valley conducted a planned 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.
Silver Valley recommenced operations at the Coeur mine portion of
its property in June 1996 and continued mining existing reserves there through
July 2, 1998, when operations were terminated after known reserves were
depleted. Silver Valley resumed production at the Galena Mine in May 1997 and
operations continue.
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Silver Valley plans to continue exploratory and developmental
activities at the Coeur, Galena and Caladay Mines as well as at several
contiguous properties in the Coeur d'Alene Mining District with a view toward
the development of new silver reserves and resources.
GALENA MINE
The Galena Mine property is located immediately west of the City of
Wallace, Shoshone County, northern Idaho.
The property consists of 52 patented mining claims and 25 unpatented
mining claims totalling approximately 1,100 acres.
The Galena Mine is an underground silver-copper mine, and is served
by two vertical shafts. The No. 3 shaft is the primary production shaft and is
5,800 feet deep. The Galena shaft primarily provides utility access for water,
electrical power and sand backfill for underground operations.
The mine utilizes the drift and fill mining method with sand backfill
to extract ore from the high grade silver-copper vein deposits that constitute
the majority of the ore reserves. Silver and copper are recovered by a
flotation mill that produces a silver rich concentrate which is sold to
third-party smelters in the United States and Canada. Silver recovery through
the mill averaged 97% is 1999, consistent with 1998.
Waste material from the milling process is deposited in a tailings
pond located approximately two miles from the minesite. The tailings
containment pond has capacity for approximately nine additional years at
current production rates.
Coeur's share of production in 1999 was 2.2 million ounces of silver
as compared to 1.6 million ounces in 1998. The Company's increased ownership in
the current year accounts for the majority of the increase in production. Cash
costs in 1999 were $5.09 per ounce of silver as compared to $4.39 per ounce in
the preceding year. Lower lead by-product credits, ground control problems and
a utility shaft failure contributed to the increased costs and the mining of
lower grade ores.
The Company is carrying out an aggressive in-mine exploration program
and an extensive regional exploration program at the Galena mine. Initial
indications suggest that there is potential to expand reserves both in the
lower levels of the mine and in the upper levels where previous mining left
significant silver mineralization potential untested.
Work to develop and extend the high grade 117 vein, one of the most
important discoveries in recent years, continued in 1999. The grade of the 117
vein varies between 20 to 60 ounces per ton silver, and has been traced from
the 3,700 foot level to the 5,000 foot level.
Total capital expenditures by Silver Valley at the Galena Mine in
1999 approximated $0.9 million of which $0.6 million was for mine development.
Silver Valley has planned for capital expenditures of approximately $4.3
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million for the Galena Mine during 2000. Mine development will again account
for the majority of this expenditure.
YEAR-END PROVEN AND PROBABLE ORE RESERVES - GALENA MINE (1)
1999(2) 1998 (2)
---- -----
Tons (000's) 1,858 879
Ounces of silver per ton 18.51 18.54
Contained ounces of silver (000's) 34,386 16,286
YEAR-END MINERALIZED MATERIAL
1999(2) 1998(2)
---- ----
Tons (000's) 830 391
Ounces of silver per ton 8.44 8.26
OPERATING DATA (COEUR'S INTEREST)
1999(3) 1998(3)
---- ----
PRODUCTION
Tons ore milled 131,646 88,152
Ore grade silver (oz./ton) 17.61 19.07
Recovery (%) 97 97
Silver produced (oz.) 2,238,370 1,630,182
COST PER OUNCE OF SILVER
Cash costs $5.09 $4.39
Noncash costs 0.93 1.06
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Total production costs $6.02 $5.45
(1) The Galena Mine 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.
(2) Proven and probable ore reserves and mineralized material at
December 31, 1998 represent the Company's 50% interest as
compared to 100% at December 31, 1999.
(3) Operating data in 1999 reflects the Company's 50% interest in
the Galena mine from January 1 to August 31 and 100%
interest from September 1 to December 31, 1999. Operating
data in 1998 reflects the Company's 50% interest.
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.
Operations at the Coeur Mine were suspended on April 3, 1991 due to
then prevailing silver prices ($3.90 per ounce average for April 1991) and
placed on a care and maintenance basis to conserve ore reserves. Silver Valley
resumed production activities at the Coeur Mine in June 1996 and terminated
operations there on July 2, 1998 after known reserves were depleted.
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There was no mining activity at the Coeur Mine in 1999 and the
property remained on care and maintenance. However, the Company believes that
significant potential exists to discover additional high grade silver veins
beneath the current limit of the underground workings.
YEAR-END MINERALIZED MATERIAL - COEUR MINE
1999(1) 1998(1)
---- ----
Tons (000's) 370 185
Ounces of silver per ton 14.53 14.53
OPERATING DATA (COEUR'S INTEREST)
1999 1998(2)
---- ----
PRODUCTION
Tons ore milled - 10,984
Ore grade silver (oz./ton) - 12.28
Recovery (%) - 97
Silver produced (oz.) - 130,633
COST PER OUNCE OF SILVER
Cash costs - $5.34
Noncash costs - 1.03
-----------------------------------------
Total production costs - $6.37
1. Mineralized material at December 31, 1998 represent the
Company's 50% interest as compared to the Company's 100%
interest at December 31, 1999.
2. Operating data for 1998 represents the Company's 50% share
for the period from January 1 to July 2, 1998 when mining
activities were suspended.
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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 there may be similar
geologic conditions which exist at the Galena extend into the Caladay below the
level of the current Caladay workings. In addition, the Caladay facilities are
used to benefit the Galena Mine operations, by exhausting ventilation.
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. The Company completed the construction of the Fachinal Mine in
October 1995 when initial mining operations started. Commercial production for
financial accounting purposes commenced on January 1, 1997.
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 mountain range 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.
During the first two years of commercial production (i.e. 1997 and
1998), the Fachinal Mine experienced ore reserve complications and operations
problems that resulted in significantly higher than expected cash costs. An
effort to transition from open pit mining to underground mining continued
through 1997 and 1998. As a result, mining at Fachinal occurs both on the
surface and underground. Surface mining is by the open pit and slot cut methods
while underground mining is done by the raise mining and shrinkage methods.
During 1999, approximately 25% of Fachinal's ore was derived from underground
mining and 62% from open pit areas, and 13% from the slot-cut areas.
Ore is processed on site by a mill which uses the standard
flotation process to produce a high grade gold and silver concentrate. The
concentrate is sold to third-party smelters, primarily in Japan. The mill has
a design capacity of 1,650 tons per day. The Company estimates, based on
operating experience, recovery rates of 89% for gold and 88% for silver.
Electrical power is generated on-site by diesel generators and
process water is obtained from a combination of the adjacent General Carrera
lake and from tailings re-circulation.
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During the first quarter of 1999, the Company implemented a revised
operating plan designed to reduce costs. The plan included a 40% reduction in
mine personnel, a 30% decrease in the mill operating schedule, a decrease in
diesel consumption and the renegotiation of key contracts.
Production at Fachinal during 1999 was 1.1 million ounces of silver
and 25,500 ounces of gold compared to 1.6 million ounces of silver and 28,400
ounces of gold in 1998. The decline in production was due, in part, to lower
than planned ore grades encountered in the open pit in the fourth quarter and as
a result of the modified operating plan introduced in 1999.
Cash costs per gold equivalent ounce in 1999 decreased to $304 from
$314 in 1998. Cash costs were reduced to $277 per gold equivalent ounce in the
third quarter of 1999; however, the production decline in the fourth quarter
reversed the declining cost trend established earlier in the year.
Mining efforts have now been redirected to higher grade slot-cut
reserves and the Company expects production in 2000 to improve and cash costs
should decline accordingly.
Adjusting for the disappointments encountered in the open pit
significantly decreased Fachinal's proven and probable reserves. However,
exploration in 1999 was successful in adding significantly higher grade tons to
the mine's mineralized material inventory. At the end of 1999 the Fachinal
property contained a significant mineralized material inventory and the Company
has planned a minimum $1.1 million exploration program for 2000, which will
concentrate on upgrading this inventory to reserve status for mining.
During 1999, the Company exercised its option to purchase 100% of
the Furioso property for $500,000. The high grade Furioso deposit (proven and
probable reserve of 47,000 tons grading 0.76 gold equivalent ounces per ton) is
located approximately 50 miles southwest of the Fachinal mine and is scheduled
to commence production in the fourth quarter of 2000. Furioso ores will be
processed at the Fachinal mill. Estimated cash costs at Furioso are $120 per
gold equivalent ounce. Estimated capital costs to bring Furioso into production,
including both the construction of an access road and the property purchase
cost, are $2.7 million.
Total capital expenditures at the Fachinal Mine in 1999,
excluding the purchase of the Furioso property, were $0.9 million, primarily
for underground mine development and miscellaneous mining and processing
equipment. The Company plans approximately $0.6 million of capital expenditures
at Fachinal in 2000, excluding Furioso development.
At December 31, 1998, the Company reviewed the carrying value of
the Fachinal Mine and recorded an impairment write-down of $42.9 million,
reflecting its expectation that it would not recover the full value of its
remaining investment.
YEAR-END PROVEN AND PROBABLE ORE RESERVES (1) - FACHINAL MINE
1999 1998
---- ----
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Tons (000's) 510 1,475
Ounces of silver per ton 4.27 2.70
Contained ounces of silver (000's) 2,181 3,986
Ounces of gold per ton 0.11 0.07
Contained ounces of gold 56,000 110,000
YEAR-END MINERALIZED MATERIAL (1)
1999 1998
---- ----
Tons (000's) 1,961 3,953
Ounces of silver per ton 5.18 2.16
Ounces of gold per ton 0.11 0.08
OPERATING DATA
1999 1998
---- ----
PRODUCTION
Tons ore milled 444,691 568,051
Ore grade gold (oz./ton) 0.064 0.057
Ore grade silver (oz./ton) 2.84 3.20
Recovery gold (%) 87 88
Recovery silver (%) 89 88
Gold produced (oz.) 25,480 28,358
Silver produced (oz.) 1,099,342 1,596,676
COST PER OUNCE OF GOLD EQUIVALENT(2)
Cash costs $304 $314
Noncash costs 64 206
--------------------------------
Total production costs $368 $520
(1) Proven and probable ore reserves and mineralized material
includes the Furioso property near the Fachinal Mine, which
the Company purchased in 1999.
(2) Gold equivalent gold production is calculated by dividing
actual silver ounces produced by the ratio of the yearly
average silver price to gold price. This total is then
added to actual gold production for the year to determine
total gold equivalent production for purposes of
calculating cash and noncash costs per ounce.
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.
PETORCA MINE
Coeur owns 100% of the Petorca Mine located on approximately 34,000
acres in the western Andean foothills approximately 90 miles north of Santiago,
Chile. In July 1994, the Company acquired an interest in Compania Minera CDE El
Bronce, a Chilean corporation ("CDE El Bronce") that owned the producing El
Bronce Mine, now known as the Petorca Mine. In September 1996, the Company
increased its ownership interest of CDE El Bronce to 100%.
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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 a complex system of
precious metals bearing, epithermal, quartz-veins hosted in Cretaceous volcanic
rocks.
Petorca is an underground gold mine which is serviced by adits at
different levels and underground ramps. The mine uses trackless cut and fill
sublevel caving with uncemented backfill and shrinkage mining methods. Ore is
hauled to the mill in 20-ton trucks.
The processing plant has two grinding circuits with a total
capacity of 900 tons per day. Approximately 35% of the total gold produced is
recovered by gravity methods to produce a gold dore. The remaining gold and
silver are recovered by traditional flotation methods which produce a
high-grade concentrate which is sold to third-party smelters, primarily in
Japan. The Company estimates, based on operating experience, recovery rates of
92% for gold and 85% for silver.
Electrical power is purchased from a local distributor that is
connected to the main Chilean power grid. Process water is pumped from the
Petorca river and in part recovered from a re-circulating system from the
tailings impoundment area.
Due to operating losses incurred at the mine, the Company recorded
a $54.5 million impairment write-down in the first quarter of 1998.
Subsequent to the write-down, sufficient exploration success was
achieved to allow the mine to continue operations and during the third quarter
of 1998, the Company implemented a modified mining program focused on reducing
cash costs and generating positive operating cash flows. Mine personnel were
reduced by 40%, the mill was put on a reduced operating schedule, mining was
focused on higher-grade veins, and key supply and service contracts were
re-negotiated.
As a result of the modified mining program, production in 1999
declined to 29,400 ounces of gold as compared to 37,700 ounces in 1998.
However, cash costs declined 19% from $336 per ounce in 1998 to $271 per ounce
in 1999.
In addition, exploration success in 1999 added to Petorca's
mineralized material inventory and has provided solid evidence that future
exploration programs may be successful. At the end of 1999, the Company had
defined proven and probable reserves sufficient for two years of operations and
Coeur anticipates having an additional two years of proven and probable
reserves by the end of 2000.
Capital expenditures at Petorca in 1999 were $0.3 million,
primarily for mine development. Similar levels of capital spending are
anticipated for 2000.
Coeur has an obligation to pay the prior owner of CDE El Bronce a 3%
net smelter return royalty, payable quarterly, which commenced on January 1,
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1997. From July 1998 to June 1999, the prior owner agreed to a 2.4% net smelter
return royalty. The agreement for the 2.4% NSR has been extended through the
year 2000.
YEAR-END PROVEN AND PROBABLE ORE RESERVES - PETORCA MINE
1999 1998
---- ----
Tons (000's) 377 424
Ounces of silver per ton 0.59 0.60
Contained ounces of silver (000's) 222 255
Ounces of gold per ton 0.23 0.22
Contained ounces of gold 85,000 95,000
YEAR-END MINERALIZED MATERIAL (1)
1999 1998
---- ----
Tons (000's) 933 858
Ounces of silver per ton 0.55 0.51
Ounces of gold per ton 0.29 0.33
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OPERATING DATA
1999 1998
---- ----
PRODUCTION
Tons ore milled (000's) 191,929 236,016
Ore grade gold (oz./ton) 0.166 0.172
Ore grade silver (oz./ton) 0.391 0.355
Recovery gold (%) 92 93
Recovery silver (%) 85 84
Gold produced (oz.) 29,392 37,746
Silver produced (oz.) 69,952 70,755
COST PER OUNCE OF GOLD (2)
Cash costs $271 $336
Noncash costs 14 44
------------------------------
Total production costs $285 $380
(1) Certain mineralized veins remain geologically open both
vertically and horizontally.
(2) Revenue from silver production at Petorca is treated as a
by-product credit for purposes of calculating cash and
noncash unit costs.
GASGOYNE GOLD MINES NL - YILGARN STAR MINE
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. In May 1997, Coeur acquired an additional
14% of the outstanding shares of Gasgoyne for US$14.9 million, as a result of
which Coeur's ownership interest in Gasgoyne increased to 50%. Coeur's interest
in Gasgoyne is being accounted for using the equity method. The remaining 50%
interest in Gasgoyne is held by Sons of Gwalia Ltd., an Australian corporation
headquartered in Perth, Western Australia.
Gasgoyne is engaged in the exploration, development and ownership
of gold properties located in Western Australia. Gasgoyne's principal asset is
its interest in the Yilgarn Star Mine in the Marvel Loch region, located
approximately 220 miles east of Perth. The Yilgarn Star Mine is operated as a
Joint Venture with Sons of Gwalia Ltd. Sons of Gwalia has a 45% interest in the
Yilgarn Star mine and Gasgoyne has a 50% interest; the remaining interest is
held by a private party. As a result of its holding in Gasgoyne, the Company
has a 25% indirect interest in the Yilgarn Star Mine with Sons of Gwalia having
the remaining 75% interest and operatorship.
The Yilgarn Star Mine commenced production in 1991 as an open pit
gold mine. With most of the surface reserves nearing depletion, the operation
began to develop the higher-grade underground reserves in late 1995. By mid
1998 mining activity was focused underground with supplemental mill feed being
provided by limited surface operations and ore that had been stockpiled during
previous open pit mining operations.
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The Nevoria Mill, which processed ore from the Southern Star mine
open pit, ceased operations in July 1998 and was placed on a care and
maintenance basis following the depletion of reserves at the Southern Star mine.
All ore is now processed by the Star mill, which ran at an average of 2,500
tons per day (100% basis) during 1999 and recovered 95% of the gold from the ore
processed.
The Yilgarn Star Mine is a remote operation. Electrical power is
generated on site by diesel generators and process and potable water is pumped
from a nearby well field. While at the mine, workers are housed in a camp
provided by the Joint Venture, located at the site. Underground mining is
carried out by a contractor while ore processing, support and maintenance
services and administration are provided by Yilgarn Star employees.
Coeur's 25% share of production from the Yilgarn Star Mine was
26,400 ounce of gold in 1999, compared to 39,400 ounces in 1998. Cash costs
increased from $215 per ounce in 1998 to $287 per ounce in 1999. Several factors
contributed to the decrease in production and significant increase in costs: 1)
The Mine completed the transition from open pit plus underground mining to
underground only mining, 2) Ore grades and throughput, particularly in the
fourth quarter of 1999, were below expectations and 3) Flooding of portions of
the underground mine by unusually heavy rains delayed development and
extraction of higher grade ore.
Conversion to footwall mine development, hiring of a new
underground mining contractor and the replacement of the primary crusher should
result in reduced costs in 2000.
In-mine and near-mine exploration did not produce new underground
reserves in 1999. However, the significant regional exploration program
conducted by Gasgoyne in the Marvel Loch and Laverton Regions, two of the most
active gold mining regions in all of Australia, yielded positive results.
Approximately 20 miles to the south of the Yilgarn Star Mine in the Marvel Lock
region, the Company and Sons of Gwalia have discovered a potentially new
open-pit deposit on the Cheritons Find tenement. Drilling to date has
encountered gold values over a strike length of 1,300 feet. Some of the best
intersections, all of which are near surface, are as follows: 1) 10 feet at 1.4
ounces per ton gold, 2) 10 feet at 0.94 ounces per ton gold and 3) 16 feet at
0.37 ounces per ton gold.
The joint venture will continue to explore this new discovery in
2000 and the Company is currently working with Sons of Gwalia to redirect other
previously planned reverse circulation drilling to this new prospect.
During the fourth quarter of 1999, due to the continuing low gold
price environment, the Company evaluated the recoverability of its investment
in Yilgarn Star Mine. Using a $325 per ounce gold price and based on
undiscounted future cash flows, in accordance with the standards set fourth in
SFAS 121, the Company determined that its investment in property, plant and
equipment at the Yilgarn Star Mine in Australia was impaired. The total amount
of the impairment, based on discounted cash flows was $16.2 million at December
31, 1999, and was recorded in the fourth quarter.
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The following tables present Coeur's 25% interest in the reserves,
mineralized material and operating results from the Yilgarn Star Mine:
YEAR-END PROVEN AND PROBABLE ORE RESERVES - YILGARN STAR MINE
1999 1998
---- ----
Tons (000's) 816 1,019
Ounces of gold per ton 0.17 0.17
Contained ounces of gold 138,000 171,000
YEAR-END MINERALIZED MATERIAL
1999 1998
---- ----
Tons (000's) 1,942 1,539
Ounces of gold per ton 0.12 0.14
OPERATING DATA (COEUR'S 25% INTEREST)
1999 1998
---- ----
PRODUCTION
Tons ore milled 226,181 336,460
Ore grade gold (oz./ton) 0.125 0.125
Recovery (%) 94 93
Gold produced (oz.) 26,398 39,381
COST PER OUNCE OF GOLD
Cash costs $287 $215
Noncash costs 200 201
----------------------------
Total production costs $487 $416
KENSINGTON GOLD DEVELOPMENT 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. The property is located on the east side of Lynn Canal
between Juneau and Haines, Alaska. 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 project
consists of approximately 6,000 acres, of which approximately 750 acres are
patented claims.
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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 age Jualin diorite. The
gold-telluride-mineral calaverite is associated with the pyrite mineralization.
The following proven and probable ore reserve table (see updated optimization
study below).
YEAR-END PROVEN AND PROBABLE ORE RESERVES (1)
1999 1998
---- ----
Tons (000's) 13,893 13,893
Ounces of gold per ton 0.14 0.14
Contained ounces of gold 1,896,000 1,896,000
YEAR-END MINERALIZED MATERIAL
1999 1998
---- ----
Tons (000's) 10,510 10,510
Ounces of gold per ton 0.13 0.13
(1) The proven and probable reserves estimate is based on an ore
reserve endorsement dated February 1997 by Steffen,
Robertson & Kirsten, independent mining consultants. The
reserve estimate was based on a long average life of mine
gold price of $410 per ounce.
Not all Kensington ore zones have been fully delineated at depth
and several peripheral zones and veins remain to be explored. The Company
possesses the right to develop 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.
During 1998 and 1999, the Company's efforts at Kensington continued
to be directed toward the permitting process and further project optimization
studies. The Company announced in April 1998 that it had obtained all
significant permits required to proceed with development of the mine. However,
in view of continuing low gold prices, the Company initiated an optimization
study, utilizing independent third party consultants, which was intended to
improve the economic viability of the project.
In December 1998, the Company announced the completion of the
independent optimization study which contained a new mine plan that requires
extensive permit modifications. Based on the results of the optimization study
the Company estimated that the project's cash operating costs should be reduced
to approximately $190 per ounce of gold and total capital costs to develop the
mine should be reduced to approximately $192 million.
The 1998 optimization study called for changes relating to the
tailings management system, on-site gold recovery, facility relocation and
increased mill throughput. The tailings management system involved placing most
of the Kensington tailings on the floor of the Lynn Canal via an engineered
system called Underwater Tailings Placement ("UTP"). In the UTP process, only
inert (non-reactive) tailings would be piped directly to the
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sea floor at a depth of approximately 750 feet. The plan also called for
recovering gold on-site with sodium cyanide gold processing in a separate,
fully contained system. Other changes in the mine plan involved relocating
surface facilities such as the ore grinding facilities to an underground
location and increasing the mine production rate.
The proposed use of UTP would require the Company to obtain from
the EPA a site-specific exemption from its rules regulating gold mining. In
addition, modification to the Environmental Protection Agency ("EPA") National
Pollution Discharge Elimination System ("NPDES") permit would be required,
which in turn would most likely require the EPA to prepare a Supplemental
Environmental Impact Statement. Modifications also would be required to the US
Forest Service approval of the Plan of Operations, the Army Corps of Engineers
Section 404 permit for tailings facility construction, and the City and Borough
of Juneau Large Mine Permit. Additional required authorizations of federal,
state and local jurisdictions would be required to reflect the mine plan
changes.
While not yet fully complete, continued project optimization during
1999 has indicated that the capital cost to develop the property could be
further reduced. The 1999 optimization efforts included: 1) A proposed
reduction in process throughput combined with a corresponding increase to the
grade of ore to be mined, 2) A relocation of the plant site, 3) A change to the
method and routing of personnel and supplies transportation, and 4) A possible
alternative tailings management system. The Company will continue to examine
these new alternatives given the potential capital cost savings.
The Company's capital expenditures at the Kensington Property
totaled approximately $6.7 million (excluding capitalized interest) in 1999.
Such expenditures were used to continue the permitting and optimization
activities. The Company plans approximately $5.9 million (excluding capitalized
interest) in project expenditures during 2000, which are planned for technical
support, engineering studies required to complete the modified permitting
activities and site maintenance.
On December 31, 1998, due to the continuing low gold price
environment, the Company reviewed the carrying value of the Kensington property
using a $350 per ounce gold price assumption and recorded a non-cash impairment
write-down of $121.5 million. The write-down does not jeopardize Kensington's
future operating plans. Coeur remains committed to completing the permitting
process in order to prepare the property for a production decision should the
gold price return to historical levels. However, no assurance can be given as
to whether or when the required regulatory approvals will be obtained or as to
whether the Company will place the Kensington project into commercial
production.
THE SAN BARTOLOME PROJECT
Coeur acquired 100% of the equity interest in Empressa Minera
Manquiri S.A. ("Manquiri") from Asarco on September 9, 1999. Manquiri's
principal asset is the mining rights in the San Bartolome project, an early
stage silver development property located near the city of Potosi, Bolivia, on
the flanks of Cerro Rico which has been a world class silver producing district
for many centuries, having produced in excess of 1.0 billion ounces of
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silver. The San Bartolome project consists of six distinct silver-bearing gravel
deposits, which are locally referred to as pallaco or sucu deposits. These
deposits lend themselves to simple, free digging surface mining techniques
which can be extracted without drilling and blasting. The deposits were formed
as a result of erosion of the silicified silver-rich upper part of Cerro Rico.
The mineral rights for the San Bartolome project are held through
long-term lease agreements with several independent mining cooperatives and the
Bolivian State Mining Company, COMIBOL. At present, 67 square kilometers of
concessions (16,600 acres) are controlled by Manquiri. The JV/lease agreements
are subject to a 4% production royalty payable partially to the Cooperatives
and COMIBOL. During the current exploration stage, the properties are subject
to monthly payments totaling approximately US $25,500.
Of the six pallacos deposits which are controlled by Coeur and
surround Cerro Rico, three are of primary importance and are known as:
Huachajchi, Diablo (consisting of Diablo Norte, Diablo Sur and Diablo Este),
and Santa Rita. Since acquiring the property, Coeur has commenced evaluation of
all facets of the project. Coeur's initial detailed drilling and bulk sampling
programs are well underway and are expected to be completed in 2000.
Interpretation of the results is ongoing. Currently underway are resource and
reserve evaluations, metallurgical testing to determine the optimum process
flow sheet, order of magnitude capital cost estimate, and collection of
baseline environmental data for mine permitting.
Resource estimates prepared in March 1999 and a revised Santa Rita
estimate provided in September 1999 by The Winters Company, Coeur's independent
mining consultants, indicate that the San Bartolome property has an estimated
total mineralized material inventory of 104.8 million ounces of silver in the
three main sucu deposits tested, contained in 34.3 million tons of material,
with an average silver grade of 3.1 ounces per ton at a 1.75 ounce per ton
silver cutoff grade.
Coeur plans approximately $4.4 million of exploration and project
development expenditures at San Bartolome during 2000.
The San Bartolome project involves risks that are inherent in any
mining venture, as well as particular risks associated with the location of the
project. The resource estimates indicated by the geologic studies performed to
date are preliminary in nature and may differ materially after further
development and metallurgical testing is completed. Also, managing mining
projects in the altiplano area of Bolivia, where Cerro Rico is located, presents
logistical challenges. The political and cultural differences of a foreign
country may also present challenges.
In addition to the San Bartolome project, Manquiri holds two gold
exploration properties in the Potosi department. Geological mapping, trenching
and sampling have been complete on the Khory Huasi property, which is located
150 kilometers southwest of Potosi and drill targets have been defined. The
Poconota property is located near Kory Huasi, but is at an early stage of
exploration. Coeur has no present plans for the exploration of these properties.
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PAN AMERICAN SILVER CORPORATION INTERESTS
Coeur acquired 1,500,000 shares of common stock of Pan American
Silver Corporation ("Pan American") from Asarco on September 9, 1999, which
shares constituted approximately 5.2% of Pan American's then outstanding shares.
Coeur also recieved warrants to acquire additional Pan American shares which
expired unexercised on December 31, 1999. In addition, Coeur acquired a 20% net
earnings life-of-mine royalty interest in the Quiruvilca Mine in northern Peru.
Pan American is a Vancouver, Canada, based silver mining,
development and exploration company. Its assets include the Quiruvilca Mine in
northern Peru which produced 3.1 million ounces of silver in 1998, and the
Dukat silver development property in Russia. Pan American also has silver
development properties in Mexico and has silver exploration programs in Peru,
Bolivia, Russia and Canada.
Pan American's common stock is traded on the Toronto Stock Exchange
and the NASDAQ National Market. In the fourth quarter of 1999 Coeur sold
320,000 or 21% of the Pan American shares it held, realizing an average price
of $6.82 per share. There are no restrictions on the transfer or sale of the
remaining 1,180,000 shares held by Coeur.
In 1999, Pan American's common stock traded on the NASDAQ National
Market at a high of US $7 9/16, and a low of US $4 3/4. The last sale on
December 31, 1999 was at US $5 1/4. The average daily trading volume in 1999 on
the NASDAQ National Market was 137,000 shares.
As stated above, Coeur also owns a 20% net earnings life-of-mine
royalty payable by Pan American with respect to the Quiruvilca Mine. However,
the royalty is calculated in such a manner that Pan American has historically
been able to allocate sufficient costs to the mine so that the royalty payments
have been deminimus.
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 Metal Exchange final
quotation) per ounce during the periods indicated:
Year Ended December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999
------------------ ------------------- ------------------ ----------------
High Low High Low High Low High Low
-------- --------- -------- ------- ------- ------- ------- -------
Silver - $ 5.79 $ 4.67 $ 6.21 $ 4.21 $ 7.31 $ 4.72 $ 5.77 $ 4.91
Gold - $414.80 $367.40 $366.55 $283.00 $313.15 $273.40 $325.50 $252.80
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
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sale. Entering into forward sale contracts is a strategy which can be used to
enhance revenues and/or 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. Coeur had no future silver production hedged at December 31, 1999.
In order to ensure certain minimum cash flows and reduce the impact of any
declines in gold prices, however, the Company has established the prices to be
received in the future for a portion of its gold production by entering into a
combination of forward sales agreements and put and call options. At December
31, 1999, approximately 30% of the Company's estimated annual production of
gold over the next five years was committed under the Company's gold hedging
program.
EXPLORATORY AND DEVELOPMENTAL 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, Australia and Bolivia. Exploration and
development expenses of approximately $8.5 million, and $9.2 million were
incurred by the Company in connection with exploration and development
activities in 1999 and 1998, respectively.
In keeping with the Company's overall efforts to focus its
resources, Coeur conducted more than 70% of the 1999 exploration program on or
near existing properties where infrastructure and production facilities are
already in place. The Company will continue this exploration focus in 2000.
In addition to its exploration program around existing mines, the
Company also controls a number of early-stage prospects, the most promising of
which is its Carrizalillo silver-gold prospect in north central Chile located
approximately 45 miles southeast of the city of Copiapo. Geochemical surveys,
sampling programs and limited reverse circulation drilling have identified a
number of promising areas of silver-gold mineralization. An initial 3,300 foot
drilling program has been planned.
Recent exploration at Coeur Silver Valley has enabled the Company
to establish a much clearer understanding of the in-mine potential. This
insight was instrumental in the discovery and extension of the 117 vein and the
addition of a potential 1,000 feet of strike length to the high-grade 72 vein
at the 5,500 level. The exploration program has also indicated that there is
potential to develop new reserves and resources not only at depth, but also in
the upper levels of the Galena mine that had been passed over in prior years.
In addition, limited exploration for silver is being conducted adjacent to the
main Galena and Coeur property on land leased from the Sterling Mining
Company, Placer Creek Mining Company, Silver Buckle Mines, Inc. and American
Silver Mining Company.
Gasgoyne Gold Mines NL (50% owned by Coeur) is conducting
exploration programs at the Yilgarn Star Gold Mine and several exploration
properties in the Laverton and Marvel Loch regions of Western Australia.
PROVISIONS OF THE TRANSACTION AGREEMENT AND SHAREHOLDER AGREEMENT WITH ASARCO
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As discussed above, Coeur consummated its acquisition of certain
silver assets and properties from Asarco on September 9, 1999 in exchange for
7.125 million shares of Coeur Common Stock. Pursuant to the Transaction
Agreement between Coeur and Asarco, dated May 13, 1999 and amended and restated
as of June 22, 1999, and which was approved by the Company's stockholders at
the Annual Meeting on September 8, 1999, Asarco must, during the five years
following the acquisition, obtain the consent of Coeur to any sale of such
shares, and Asarco may not sell any of such shares to anyone other than an
affiliate of Asarco or in a widely distributed public offering.
Pursuant to the Shareholder Agreement, dated as of September 9,
1999, between Coeur and Asarco (the "Shareholder Agreement"), Asarco has the
right to nominate two directors for election to the Coeur Board of Directors.
If Asarco voluntarily sells or transfers its shares of Coeur Common Stock to
any person other than an affiliate and, as a result, its ownership is reduced
to less than 10% of Coeur's Outstanding Common Stock, Asarco will have the
right to nominate only one director, which right will continue so long as
Asarco owns at least 1% of Coeur's outstanding Common Stock. Under the
Shareholder Agreement, Asarco further agreed that without the consent of
Coeur's Board of Directors, Asarco will not acquire Common Stock or other
voting securities of Coeur, or any rights or options to buy any of such
securities, if after any such acquisition, Asarco would own more than 20% of
the total voting power of all outstanding voting equities securities of Coeur.
Asarco has certain rights to request Coeur to register Asarco's shares of Coeur
Common Stock under the Securities Act of 1933.
The Shareholder Agreement further provides that until Asarco holds
less than 10% of Coeur's outstanding Common Stock, the following actions by
Coeur will require the prior written consent of Asarco: (i) approval of capital
expenditure budgets and any single project requiring a capital expenditure in
excess of $100 million; (ii) approval of any financial institution, terms and
conditions and amounts with respect to any standard lines of credit or
borrowings to be utilized or secured by Coeur exceeding $100 million; (iii) the
creation of any lien in excess of $100 million on the assets of Coeur or any of
its subsidiaries; (iv) the discharge of auditors when a material dispute exists
in connection with the auditing of Coeur's books, records or financial
statements; (v) the liquidation, dissolution or general winding-up of Coeur or
any material subsidiary or the filing on behalf of Coeur or any material
subsidiary of any voluntary petition seeking relief under the bankruptcy laws
of the relevant jurisdiction; (vi) any material change in the nature of Coeur's
business from its current business of precious metals mining and other
businesses directly related thereto; (vii) the issuance by Coeur of any Common
Stock or other class of its capital stock for consideration other than cash for
a value in excess of $100 million; (viii) any material amendment of the By-Laws
or Articles of Incorporation of Coeur which would conflict with, or in any way
be inconsistent with, the terms of the Shareholder Agreement; and (ix) any
increase in the number of directors of Coeur above eleven. Asarco will be
deemed to have consented to any of the above actions if (i) the action shall
have been included as a specific agenda item for a meeting of Coeur's Board of
Directors, (ii) the written agenda together with all relevant information
relating to the proposed action shall have been delivered to directors in
advance of such meeting and (iii) at such meeting
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directors nominated by Asarco vote in favor of such action. Also, no consent of
Asarco will be required for any Coeur debt restructuring, including any
exchange, subject to certain conditions.
Asarco was acquired by Grupo Mexico S.A. on November 17, 1999,
subsequent to this shareholder Agreement. It is not known at this time, what
impact, if any, the new ownership of Asarco will have on the relationship
between Asarco and the Company. However, the Company expects the terms of the
agreement to remain the same.
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, 1997, 1998 and 1999, the Company
expended $5.0 million, $8.0 million and $7.0 million, respectively, in
connection with routine environmental compliance activities at its operating
properties and expects to expend approximately $6.0 million for that purpose in
2000. In addition, since the inception of the project through December 31, 1999,
the Company expended approximately $18.6 million on environmental and permitting
activities at the Kensington Property and expects to spend approximately $2.2
million there for that purpose in 2000. 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, although such wastes may be subject to regulation under state
law as a solid or hazardous waste. The EPA plans to develop a program to
regulate mining waste pursuant to its solid waste management
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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
present owner or operator of a Superfund site or an owner or operator at the
time of its contamination generally may be held liable and may 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 state law counterparts, 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 19 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
1997, 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.
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.
Proposed 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.
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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.
Foreign Government Regulations
The mining properties of the Company that are located in New Zealand,
where the Company's Golden Cross Mine is the subject of post-closing
reclamation, 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.
The Republic of Bolivia, where the San Bartolome project is located,
has adopted laws and guidelines for environmental permitting that are similar
to those in effect in the United States and other South American countries. A
recently established State Council for the Environment (CODEMA) has
responsibility to define policy, approve plans and programs, control regulatory
activities and enforce compliance. The permitting process requires a thorough
study to determine the baseline condition of the mining site and surrounding
area, an environmental impact analysis, and proposed mitigation measures to
minimize and offset the environmental impact of mining operations.
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.
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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.
EMPLOYEES
The number of full-time employees at March 1, 2000 of Coeur d'Alene Mines
Corporation and its subsidiaries was:
United States Corporate Staff & Office 37
Coeur Silver Valley Mine (1) 209
Coeur Rochester Mine 239
Kensington Property 8
Chilean Corporate Staff & Office 13
Chilean Exploration Staff 23
Petorca Mine (1) 318
Fachinal Mine (1) 228
---
Total 1,075
The number of full-time employees (excluding contractors' employees) at March
1, 2000 in jointly-owned operations in which Coeur participates was:
Yilgarn Star (1) 72
Golden Cross Mine 6
----
Total 78
(1) Oerations where a portion of the employees are represented by
a labor union.
The current collective agreement with Cia Minera CDE Petorca
started June 1, 1999 and will expire May 31, 2002. The agreement with Cia
Minera CDE Fachinal Ltda. started September 1, 1999 and will expire August 31,
2001. The Company also maintains a labor agreement at its Coeur Silver Valley
mine. The agreement is effective from October 1, 1999 through December 13, 2002
and is with the United Steelworkers of America. Labor relations at all
represented mines are believed to be good.
ITEM 2. PROPERTIES.
Information regarding the Company's properties is set forth under
Item 1 above.
ITEM 3. LEGAL PROCEEDINGS.
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
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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.
No specific monetary damages were identified in the complaint. However, in July
1996, the government indicated that damages may approximate $982 million and as
a result of pretrial discovery, it appears the United States believes it can
prove damages over $1 billion. 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.
In March 1997, the Company filed a motion for partial summary
judgement relating to the issue of trusteeship, essentially arguing that the
United States does not have authority to sue for damages to state natural
resources and that the 1986 settlement with the state bars the federal claims.
That motion remains pending. In September 1997, the Company filed an additional
motion for partial summary judgement raising the statute of limitations as to
natural resource damages. That motion was granted by the Court on September 30,
1998. The Court's granting of that motion limits the United States' natural
resource damage claims to the 21 square mile Bunker Hill Superfund site area
rather than the entire Coeur d'Alene Basin. Although that ruling limits the
geographic coverage of the United States' action, the ruling does not prohibit
the EPA from attempting to utilize its hazard ranking system which could
potentially broaden the scope of the United States' allegations. The United
States appealed this decision to the United States Court of Appeals for the 9th
Circuit. The Appeal has been argued but not decided. On March 31, 1998, the
Court entered an order denying the plaintiffs' motion to allow the United
States to prove a portion of its case pursuant to an administrative record, and
requiring the parties to submit further facts as to the issue of trusteeship.
Furthermore, in March 1998, the EPA announced its intent to perform a remedial
investigation/feasibility study upon all or parts of the Coeur d'Alene Basin
and, thereby, to apparently focus upon response costs rather than natural
resource damages. In September 1998, the Company filed an additional motion for
partial summary judgment asserting that CERCLA as applied to the Company in the
action is not constitutional under the takings and due process provisions of
the United States Constitution. The court denied this motion on the grounds
that further facts must be developed at trial before the issue can be decided.
Settlement of Golden Cross Lawsuit
On July 15, 1996, the Company 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 the Company of Cyprus
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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. The Company's lawsuit sought rescission 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 the Company in its press
release announcing the write-off of the Golden Cross Mine and seeking an
unspecified amount of damages. On February 17, 1999, Cyprus filed a motion to
vacate the trial date and a motion to dismiss the second amended complaint. On
July 12, 1999, the Court entered an order denying the motion to dismiss and the
motion to vacate the trial date. During the third quarter of 1999, the Company
received $31.5 million from Cyprus in connection with the settlement of the
action. The Company recorded other income of approximately $21.1 million during
the third quarter of 1999, which was the net amount of settlement proceeds
after the deduction of a $4.4 million subrogation payment to Coeur's flood
insurance carrier and a $6 million payment to the plaintiffs in the class
action discussed below.
Settlement of Class Action Securities Lawsuit
On July 2, 1997 a suit was filed by purchasers 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 lawsuit 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.
On April 16, 1998, the Court entered an order dismissing the
auditors from the suit and denying the Company's and the individual defendants'
motions to dismiss. On October 9, 1998, the Court heard arguments on the
question on whether a class should be certified and on December 14, 1998, the
Court entered an order certifying a class. In December 1998, the parties to the
suit determined that the further conduct of the case would be protracted and
expensive and commenced discussions with a view toward settlement of the action.
Although the Company continued to deny each of the plaintiffs' claims and
allegations, the Company determined it would be in the best interests of the
Company to settle the suit and agreed to enter into a Stipulation of Settlement
which was filed by the parties with the Court on March 1, 1999. The terms of
the proposed settlement provide that (i) the Company's directors and officers
liability insurance carrier will pay $7 million to a settlement fund for the
benefit of the plaintiffs; and
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(ii) the plaintiffs will be entitled to 50% of the net proceeds, up to a maximum
of $6 million, (after the Company has first recouped its costs and expenses
incurred in litigating its above-described lawsuit against Cyprus relating to
Golden Cross and after deducting an $8 million reserve against the asserted
subrogation claim of the Company's flood insurance carrier) actually received
by the Company from its Golden Cross lawsuit against Cyprus. The Stipulation of
Settlement contains strong denials of liability by the defendants as well as
acknowledgments by the plaintiffs that they were unable to identify significant
evidence to support a large portion of their claims. On July 15, 1999, the
Court gave final approval to the settlement and authorized the submission of
the settlement terms to the class action shareholders.
Dismissal of Derivative Action
On or about August 17, 1998, a purported derivative action was filed
on behalf of the Company against Dennis E. Wheeler, James A. Sabala, James J.
Curran, Joseph C. Bennett, James A. McClure, Cecil D. Andrus and Duane B.
Hagadone in Federal District Court for the District of Idaho. The complaint
alleged that the defendant officers and directors breached their fiduciary
duties by authorizing the Company to purchase the Golden Cross Mine in New
Zealand in 1993 and by allegedly causing or permitting the Company to make
statements that the plaintiffs in the class action securities lawsuit described
above claim were false or misleading during the period from January 1, 1995
through July 11, 1996. The plaintiff sought unspecified damages on behalf of
the Company. On September 9, 1998, the plaintiff voluntarily dismissed the
lawsuit without prejudice in light of Idaho Code Sec. 30-1-742, which requires
a demand to be served on a company at least 90 days prior to the filing of a
derivative action. On September 25, 1998, the plaintiff sent a letter to the
Company's Board of Directors demanding that the Company, among other things,
commence all reasonable steps to settle the class action securities lawsuit
described above, and pursue claims against any officers, directors or
third-party professionals who may have known about the potential problems with
the Golden Cross Mine before the Company purchased an interest in it. The Board
appointed a Special Committee of directors to respond to that demand. On March
9, 1999, the Special Committee recommended that the demand be rejected. The
action previously dismissed without prejudice has been dismissed with prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the
Company's current executive officers:
Office with Appointed
Name Age the Company to Office
- ---- --- --------------------- ---------
Dennis E. Wheeler 57 Chairman of the Board 1992
President 1980
Chief Executive Officer 1986
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Robert Martinez 53 Senior Vice President, 1998
Chief Operating Officer
Geoffrey A. Burns 40 Vice President
Chief Financial Officer 1999
Gary W. Banbury 47 Vice President - Human 1998
Resources
Steven L. Busby 40 Vice President - Engineering 2000
James K. Duff 55 Vice President 1996
Business Development
Dieter A. Krewedl 56 Vice President - Exploration 1998
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Robert T. Richins 52 Vice President 1989
Environmental Services and
Governmental Affairs
Wayne L. Vincent 38 Controller 1998
Chief Accounting Officer 1999
James N. Meek 48 Treasurer 1999
Messrs. Wheeler, Martinez, Richins, Duff, Banbury, Vincent and Meek
have been principally employed by the Company for more than the past five years.
Prior to his appointment as Senior Vice President and Chief Operating Officer
on May 15, 1998, Mr. Martinez had served as Vice President - Operations since
April, 1997 and previously was Vice President - Engineering, Operational
Services and South American Operations of the Company. Prior to his appointment
as Vice President and Chief Financial Officer in March 1999, Mr. Burns was Chief
Financial Officer and Controller for Prime Resources Group, Inc and Homestake
Canada Inc., respectively, from June 1992. Prior to his appointment as Vice
President Human Resources, Mr. Banbury held the position of Manager of Human
Resources with the Company. Prior to his appointment as Vice President Business
Development, Mr. Duff held the position of Director of New Business Development.
Prior to his appointment as Vice President-Exploration on October 8, 1998, Mr.
Krewedl was Vice President of Exploration for Echo Bay Mines, LTD. Prior to his
appointment to his current position in May 1998, Prior to his appointment as
Controller and Chief Accounting Officer, Mr. Vincent held the position of
Manager of Financial Accounting with the Company for the past eight years.
Prior to his appointment as Treasurer, Mr. Meek held the position of Assistant
Treasurer and Manager of Budget and Forecasting. Prior to his appointment as
Vice President - Engineering on January 1, 2000, Mr. Busby held the position of
Director - Technical Services.
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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
(the "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:
High Low
-------- --------
1998: First Quarter $13.0000 $ 8.0000
Second Quarter 13.5000 6.3750
Third Quarter 7.8750 4.0625
Fourth Quarter 7.4375 4.1250
1999: First Quarter $ 6.0000 $ 3.8750
Second Quarter 5.0000 3.7500
Third Quarter 5.0625 4.0000
Fourth Quarter 5.2500 3.1250
The Company paid per share cash distributions or dividends on its
Common Stock of $.15 on each of April 19, 1996 and April 21, 1995. 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 17, 2000, there were 6,689 record holders of the Company's
outstanding Common Stock.
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PART II
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.
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
INCOME STATEMENT DATA: 1995 1996 1997 1998 1999
------------------- ----------------- ------------------ ------------- ---------------
(In thousands except per share data)
Revenues:
Sales of metal 89,239 90,724 131,161 102,505 86,318
Other income(1) 9,504 (4) 13,348 20,739 9,469 22,628
------ ------- ------- ------- -------
Total revenues 98,743 104,072 151,900 11