CDE

Business Context and Reporting Period

Company: Coeur d'Alene Mines Corporation (Coeur)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: Coeur is a large primary silver producer operating in North America, South America, Australia, and Africa. Its strategy focuses on increasing silver production and reserves, decreasing cash costs, and transforming development-stage properties into producing mines. Principal revenue sources in 2007 included the Rochester (Nevada), Cerro Bayo (Chile), and Martha (Argentina) mines, along with interests in the Endeavor and Broken Hill mines (Australia).

Key Financial Metrics

Note: The significant increase in Total Assets and Shareholders' Equity in 2007 is primarily due to the acquisition of Bolnisi Gold NL and Palmarejo Silver and Gold Corporation on December 21, 2007, accounted for as a purchase of assets.

Material Changes vs. Prior Period

• Revenue: Decreased slightly by 1% ($1.3 million) compared to 2006. This was driven by a decrease in the quantity of silver and gold ounces sold, partially offset by higher realized metal prices (Silver: $13.59/oz vs $12.03/oz; Gold: $700/oz vs $623/oz).
• Production Costs: Increased by 26.7% to $117.0 million. The increase was primarily due to higher costs per ounce allocated with the drawdown of heap leach inventory at the Rochester mine and higher labor, fuel, and power costs at other operations.
• Net Income: Decreased by 50% to $43.9 million. The decline was attributed to higher production costs, increased administrative expenses related to the Bolnisi/Palmarejo acquisitions, and a higher income tax provision ($14.9 million vs $8.2 million).
• Acquisition: Completed the acquisition of Bolnisi and Palmarejo for approximately $1.1 billion in consideration (272 million shares of Coeur stock plus cash), adding significant mineral interests in Mexico to the balance sheet.
• Capital Expenditures: Total capital expenditures were approximately $226 million in 2007, with significant spending on the San Bartolomé ($100.2 million) and Kensington ($92.3 million) development projects.

Guidance, Outlook, Risks, and Unusual Items

• Outlook & Guidance:
  • San Bartolomé (Bolivia): Expected to commence commercial production in Q1 2008. Estimated initial full-year production is 9 million ounces of silver.
  • Palmarejo (Mexico): Expected to commence commercial production in H1 2009. Estimated production is 10 million ounces of silver and 110,000 ounces of gold annually.
  • Kensington (Alaska): Commercial production expected in 2009, subject to litigation resolution.
  • Capital Needs: The Company anticipates capital investment of approximately $398.5 million in 2008. Management believes current cash and operating cash flow may be insufficient, potentially requiring additional financing or equity issuance.
• Key Risks:
  • Commodity Prices: Earnings are highly sensitive to silver and gold prices. The Company has no hedging activities for silver or gold.
  • Kensington Litigation: A Ninth Circuit Court decision vacated the permit for the tailings facility. The Company has petitioned the Supreme Court. An impairment write-down of the $298.2 million asset base could be necessary if long-term gold prices fall below approximately $606/oz or if the permit is not resolved favorably.
  • Palmarejo Development: Ground settlement and subsidence issues discovered in 2007 may increase development costs by up to $15 million and delay production.
  • Foreign Operations: Risks include political instability, currency fluctuations, and regulatory changes in Chile, Argentina, Bolivia, and Mexico.
• Unusual Items:
  • Discontinued Operations: The Galena mine (Coeur Silver Valley) was sold in June 2006. No discontinued operations were reported in 2007.
  • Endeavor Mine Payment: A subsequent event noted that the Company expects to pay an additional $26.3 million to Cobar Operations in April 2008 upon confirmation of reserves.

Investor Verification Checklist

• Acquisition Integration: Verify the progress of integrating Bolnisi and Palmarejo operations and the accuracy of the $1.1 billion valuation.
• Kensington Permit Status: Monitor the Supreme Court petition regarding the tailings facility permit and the potential for a $298 million asset impairment.
• San Bartolomé Start-up: Confirm the Q1 2008 production start date and initial cost estimates ($4.10/oz cash cost).
• Liquidity Position: Assess the Company's ability to fund the projected $398.5 million in 2008 capital expenditures given the drop in operating cash flow from $91.2 million (2006) to $40.1 million (2007).
• Commodity Price Sensitivity: Evaluate the impact of potential declines in silver and gold prices on the Company's un-hedged revenue stream.