Coeur d’Alene Mines Corporation — FY2010 Form 10-K
Period and context: This is an annual report for the fiscal year ended December 31, 2010, filed March 1, 2011—not a standalone 2010 Q4 filing. The filing identifies the registrant as Coeur d’Alene Mines Corporation; “Coeur Mining, Inc.” is the company name in the request metadata. The company produced silver and gold across operations in the U.S., Mexico, Bolivia, Argentina and Australia.
Key financial and operating metrics
| Metric | FY2010 | FY2009 |
|---|---|---|
| Metal sales | $515.5 million | $300.4 million |
| Gross profit | $116.2 million | $27.7 million |
| Operating income (loss) | $74.9 million | $(8.9) million |
| Net income (loss) | $(91.3) million | $(27.1) million |
| Net cash from operating activities | $165.6 million | $60.1 million |
| Capital expenditures | $156.0 million | $218.2 million |
| Cash and cash equivalents at year-end | $66.1 million | $22.8 million |
- Revenue rose 71.6%, reflecting higher realized metal prices and increased sales volumes. Average realized prices were $20.99/oz for silver and $1,237/oz for gold, versus $14.83 and $1,003, respectively, in 2009.
- Production was 16.8 million ounces of silver, down 0.6%, and 157,062 ounces of gold, up 117.8%. Gold growth included Kensington’s first partial year of commercial production.
- Gross margin was approximately 22.5% of sales, compared with 9.2% in 2009. Despite positive operating income, the company reported a net loss, largely reflecting $117.1 million of net fair-value losses and a $20.3 million loss on debt extinguishments, as well as higher interest expense.
- Working capital was negative $4.5 million; the current ratio was 0.98. The filing reports approximately $435.7 million of total indebtedness, including the Palmarejo gold royalty obligation. Long-term liabilities were $846.0 million.
- Quarterly FY2010 results: Q4 metal sales were $207.6 million and net loss was $5.1 million. Q4 operating cash flow was $129.4 million; quarterly cash flow may be affected by timing and working-capital movements.
Material changes versus the prior comparable period
- Palmarejo operated for a full year, increasing silver and gold production and sales. Kensington began commercial production in July 2010, producing 43,143 ounces of gold.
- Silver output was lower at San Bartolomé and Martha; Martha’s silver production declined 57.5% and its total cash cost rose to $14.14/oz from $6.68/oz. Rochester’s silver production fell to 2.0 million ounces from 2.2 million and total cash cost increased to $3.78/oz from $2.58/oz.
- Capital spending declined 28.5% year over year, although $92.7 million was invested at Kensington and $54.2 million at Palmarejo.
- The company sold Cerro Bayo in Chile in August 2010, recording a $2.1 million after-tax loss. Consideration included cash, Mandalay shares, silver deliveries, a royalty and value-added tax receivables. Broken Hill had been sold in 2009.
- Proven and probable reserves declined year over year to approximately 227.1 million ounces of silver and 2.5 million ounces of gold, from 269.2 million and 2.9 million, respectively.
Outlook, risks and unusual items
- Management expected liquidity and projected operating cash flow to cover obligations for at least the following 12 months. It planned approximately $20.7 million for 2011 exploration and reserve development, and estimated Rochester leach-pad and related construction spending at $26.8 million in 2011. The filing does not provide a clear consolidated 2011 production or earnings forecast.
- Rochester’s planned restart of active mining was targeted for 2011, subject to permitting and an administrative appeal of the BLM decision. Management projected higher multiyear output if the expansion proceeds.
- Mining above 4,400 meters at San Bartolomé remained restricted by COMIBOL pending Cerro Rico stability studies. The duration was uncertain; continued restrictions could reduce production and potentially prompt an asset write-down. Huacajchi was excluded from the restriction and contributed higher-grade material.
- The Franco-Nevada agreement covers 50% of Palmarejo life-of-mine gold and entails minimum payments tied to 400,000 ounces. The remaining minimum obligation was $80.3 million at year-end; the related embedded derivative had a $162.0 million liability fair value. Gold-price changes can materially affect reported earnings and payments.
- Other principal risks include volatile silver and gold prices, foreign-exchange and country risks, mine operating and reserve-estimation uncertainty, permitting and environmental obligations, labor relations, and ability to service or refinance debt. The company accrued $27.3 million for reclamation at producing and development properties and $1.8 million for former-site remediation.
- Management disclosed an immaterial correction to 2009 income tax benefit. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile the $91.3 million net loss with operating cash flow, including the impact and assumptions behind derivative fair-value adjustments.
- Review the full debt and contractual-obligations disclosures, particularly near-term maturities, Kensington facility covenants, and the Franco-Nevada royalty payment schedule.
- Check progress on Rochester’s restart and appeal, and the status and production effects of the San Bartolomé mining restrictions.
- Assess the reserve decline and the assumptions for metal prices, recoveries, costs and mine lives used in reserve and impairment estimates.
- Confirm whether subsequent events—including the 2011 Kensington facility drawdowns and repayment of the remaining 1.25% convertible notes—changed liquidity or leverage after year-end.