CDE

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, 2005
Operations: The Company operates silver and gold mines in the United States (Rochester, Galena), Chile (Cerro Bayo), Argentina (Martha), and Australia (Endeavor). It also holds development projects in Bolivia (San Bartolome) and Alaska (Kensington).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 42% for the quarter and 37% for the six-month period compared to 2004. This was driven by higher realized silver ($7.22/oz vs $6.36/oz) and gold ($430/oz vs $398/oz) prices, as well as increased sales volumes.
• Production Variance: Consolidated silver production decreased 6% for the quarter and 11% for the six-month period year-over-year. The decline was primarily due to lower ore grades and production delays at the Galena mine in Idaho. Gold production increased 8% for the quarter and 19% for the six-month period.
• Cost Increases: Production costs rose 39% for the quarter and 32% for the six-month period, attributed to higher diesel, utility, and operating material costs. Consolidated cash costs per ounce of silver increased to $5.44 (Q2 2005) from $4.41 (Q2 2004).
• Improved Loss Position: Net loss narrowed significantly to $1.7 million for the quarter (from $5.4 million in Q2 2004) and $3.5 million for the six-month period (from $7.1 million in 2004), despite higher operating costs, due to revenue growth and lower interest expenses.
• Acquisition: On May 23, 2005, the Company acquired silver production rights at the Endeavor Mine in Australia for $38.5 million.

Guidance, Outlook, and Risks

• Development Projects:
  • San Bartolome (Bolivia): Construction is ongoing but the timeline has been extended due to political unrest and an upcoming election in Bolivia. Commercial production is still targeted for late 2006.
  • Kensington (Alaska): Final permits were received in June 2005. Construction commenced in Q3 2005 with commercial production expected in early 2007. Environmental groups have appealed certain permits, creating uncertainty.
• Controls and Procedures: Management identified a material weakness in internal controls regarding income tax accounting and financial reporting for Chilean operations. Remediation measures, including hiring external tax consultants, were implemented in Q1 2005, though an adjustment to financial statements was identified during the Q2 review.
• Litigation and Contingencies:
  • Settled a lawsuit with Credit Suisse First Boston for $1.6 million in Q1 2005.
  • Subject to an investigation by Argentine authorities regarding the Martha Mine's predecessor owner; no formal charges have been filed.
  • Exposed to potential royalties on future production in Idaho under a 2001 settlement with the U.S. Government.
• Market Risk: The Company is highly sensitive to fluctuations in silver and gold prices. Approximately 65% of revenues are derived from silver sales. A decline in prices could render certain reserves uneconomic and trigger asset impairment charges.

Investor Verification Checklist

• Internal Control Remediation: Verify the effectiveness of the new tax accounting controls and whether further financial statement adjustments are anticipated.
• Galena Mine Recovery: Monitor production volumes and ore grades at the Galena mine to confirm if the decline is temporary or structural.
• Project Timelines: Track the impact of Bolivian political instability on the San Bartolome project schedule and the status of environmental appeals regarding the Kensington project.
• Endeavor Mine Integration: Assess the actual cash costs and production volumes from the newly acquired Endeavor Mine against the projected $1.89/oz cash cost.
• Commodity Price Sensitivity: Evaluate the Company's break-even points given the current cash cost per ounce of $5.44 for silver and the volatility of precious metal markets.