CDE

Business Context and Reporting Period

Company: Coeur d'Alene Mines Corporation (Coeur)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Coeur is a primary silver producer with a growing gold production profile. Operations are located in North America (USA, Mexico), South America (Bolivia, Argentina, Chile), and Australia. Key operating assets include the Palmarejo (Mexico), San Bartolomé (Bolivia), Martha (Argentina), Rochester (USA), and Endeavor (Australia) mines. The Cerro Bayo mine (Chile) was suspended in 2008 for care and maintenance. The Broken Hill mine (Australia) was sold in July 2009 and reported as a discontinued operation.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Sales of metal increased 75.9% to $300.6 million, driven by the full-year operation of the San Bartolomé mine and the commencement of commercial production at the Palmarejo mine in April 2009.
• Net Loss: The company reported a net loss of $31.9 million compared to a net loss of $0.6 million in 2008. This was primarily due to an $82.7 million loss on derivative instruments (mark-to-market adjustments on the Franco-Nevada royalty obligation and gold lease facility) and increased depreciation/depletion expenses.
• Discontinued Operations: The sale of the Broken Hill mine interest in July 2009 generated a net gain of $25.5 million, which partially offset the loss from continuing operations.
• Debt Reduction: Long-term debt decreased significantly as the company converted $75 million of Senior Secured Floating Rate Convertible Notes into common stock and repurchased portions of its 1.25% and 3.25% Convertible Senior Notes.
• Production Costs: Cash costs per ounce of silver increased to $8.40 from $5.92, largely due to the inclusion of the new Palmarejo mine and higher production taxes/royalties at San Bartolomé.

Guidance, Outlook, and Risks

• Outlook: Management expects to invest approximately $150 million in capital activities in 2010 to complete construction at Palmarejo and Kensington. Production at Palmarejo is expected to reach approximately 7.9 million ounces of silver and 109,000 ounces of gold in 2010.
• Kensington Project: Following a favorable U.S. Supreme Court decision in June 2009 regarding the tailings facility permit, construction recommenced with production expected in the second half of 2010.
• Mine Closures/Suspensions:
  • Martha Mine (Argentina): Operations expected to cease in late 2010 due to ore reserve depletion unless new mineralization is discovered.
  • Cerro Bayo (Chile): Remains on care and maintenance; management is pursuing strategic alternatives.
  • San Bartolomé (Bolivia): Mining activities above 4,400 meters were temporarily suspended by the Bolivian state (COMIBOL) for stability studies, potentially reducing 2010 production by up to 500,000 ounces per quarter.
• Risks: Significant exposure to silver and gold price volatility. Political risks in Bolivia and Argentina. Liquidity constraints requiring potential additional financing. Environmental compliance costs and reclamation liabilities ($38.2 million accrued).

Key Facts for Investor Verification

• Derivative Losses: Verify the impact of the $82.7 million loss on derivatives, specifically the mark-to-market valuation of the Franco-Nevada royalty obligation and the gold lease facility, as these are non-cash items that significantly impacted net income.
• San Bartolomé Suspension: Monitor the duration of the mining suspension above 4,400 meters in Bolivia and its impact on 2010 production guidance.
• Kensington Permitting: Confirm the timeline for Kensington production start-up (expected H2 2010) and any remaining regulatory hurdles.
• Liquidity Position: Review the company's ability to fund the $150 million capital plan for 2010, noting the recent issuance of $100 million in senior unsecured notes in February 2010 (subsequent event).
• Martha Mine Life: Assess the likelihood of extending the Martha mine's life beyond late 2010 through exploration success.