Business Context and Reporting Period
Company: Coeur d'Alene Mines Corporation (Coeur Mining, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2007
Operations: The Company operates silver and gold mines in the United States (Rochester, Nevada), Chile (Cerro Bayo), Argentina (Martha), and holds production rights in Australia (Endeavor and Broken Hill). It is also developing the San Bartolome mine in Bolivia and the Kensington mine in Alaska.
Key Financial Metrics
| Metric (in thousands, except per share) | Three Months Ended June 30, 2007 |
Six Months Ended June 30, 2007 |
|---|---|---|
| Revenues (Sales of Metal) | $51,664 | $102,524 |
| Net Income | $11,918 | $25,937 |
| Diluted EPS | $0.04 | $0.09 |
| Cash Provided by Operating Activities | $11,544 | $34,211 |
| Cash and Cash Equivalents (Ending) | $236,232 | $236,232 |
| Total Assets | $883,912 | $883,912 |
| Long-Term Debt (Convertible Notes) | $180,000 | $180,000 |
| Working Capital | $311,379 | $311,379 |
Note: Working Capital calculated as Current Assets ($374,284) minus Current Liabilities ($62,905).
Material Changes vs. Prior Period
- Revenue: Sales of metal decreased 4.4% in Q2 2007 compared to Q2 2006 ($51.7M vs. $54.0M) due to a 13.7% decrease in ounces sold, partially offset by higher realized metal prices. For the six-month period, revenue increased 3.7% ($102.5M vs. $98.9M) driven by higher prices.
- Production Costs: Production costs applicable to sales increased 23.9% in Q2 2007 ($26.7M vs. $21.6M) and 14.6% for the six months ($47.8M vs. $41.7M), primarily due to higher labor, fuel, and power costs.
- Net Income: Net income for Q2 2007 was $11.9M, a significant decrease from $32.6M in Q2 2006. The prior year period included an $11.2M gain on the sale of discontinued operations (Coeur Silver Valley), which did not recur in 2007.
- Cash Flow: Operating cash flow decreased $20.5M in Q2 2007 compared to the prior year. Investing cash outflows increased significantly due to capital expenditures at the Kensington and San Bartolome development projects.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
- Production Trends: Silver production at Cerro Bayo (Chile) declined due to lower ore grades during a transition to wider mineralized zones; grades are expected to improve in the second half of 2007. Martha (Argentina) and Rochester (Nevada) saw production increases.
- Capital Expenditures: The Company estimates spending approximately $185.1 million on capital expenditures for the remainder of 2007, focused on operating mines and development projects.
- Proposed Acquisition: On May 3, 2007, Coeur entered into agreements to acquire Bolnisi Gold NL and Palmarejo Silver and Gold Corporation. The transaction involves issuing approximately 271.3 million new shares and is expected to close in Q4 2007, subject to regulatory and shareholder approvals.
Risks and Contingencies
- Kensington Permit Litigation: The Ninth Circuit Court of Appeals vacated the Company's Section 404 permit for the Kensington mine tailings facility in May 2007. The Company is seeking a rehearing. Failure to prevail could render the project uneconomic and necessitate an asset impairment. The project has a carrying value of $264 million.
- Commodity Prices: Results are highly dependent on silver and gold prices. An impairment writedown for Kensington could be necessary if long-term gold prices fall below approximately $540 per ounce.
- Reclamation Obligations: Total asset retirement obligations were $30.6 million as of June 30, 2007.
Investor Verification Checklist
- Kensington Litigation Status: Verify the outcome of the Petition for Rehearing with the Ninth Circuit Court of Appeals, as a loss could trigger a material impairment charge on $264M in assets.
- Bolnisi/Palmarejo Merger: Confirm the completion of the proposed acquisition and the final share issuance count, which will significantly dilute existing shareholders.
- Cerro Bayo Recovery: Monitor Q3 and Q4 production reports to confirm the anticipated recovery of ore grades and production volumes at the Cerro Bayo mine.
- Capital Spending: Track actual capital expenditures against the estimated $185.1M remaining for 2007 to assess liquidity impact.
- Provisionally Priced Sales: Note the $73.1 million in outstanding provisionally priced sales (3.8M oz silver, 34k oz gold) which exposes future revenue to metal price fluctuations.