CDE

Business Context and Reporting Period

Company: Coeur d'Alene Mines Corporation (Coeur Mining, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2007
Business Overview: Coeur is a precious metals mining company operating mines in the United States (Rochester, Kensington), Chile (Cerro Bayo), Argentina (Martha), and Australia (Endeavor, Broken Hill). The company primarily produces silver and gold. The Kensington project in Alaska is currently under development but faces significant litigation regarding its tailings facility permit.

Key Financial Metrics

Note: Q1 2006 figures for cash and short-term investments were restated due to reclassification of auction rate securities.

Material Changes vs. Prior Period

• Revenue Growth: Sales of metal increased 13.4% to $50.9 million, driven primarily by higher realized metal prices (Silver: $13.74/oz vs. $10.36/oz; Gold: $645/oz vs. $588/oz), partially offset by a decrease in ounces sold.
• Production Costs: Production costs applicable to sales rose 4.6% to $21.0 million due to higher labor, fuel, and power costs. Depreciation and depletion increased 11.1% due to higher asset retirement obligations.
• Interest Income: Interest and other income surged 80.5% to $4.6 million, reflecting higher levels of invested cash and short-term investments compared to the prior year.
• Capital Expenditures: Capital expenditures increased to $42.0 million from $27.8 million, driven by construction at the Kensington and San Bartolome development projects.
• Discontinued Operations: Q1 2006 included income from discontinued operations ($612k) related to the Galena mine, which was sold in June 2006. Q1 2007 had no discontinued operations.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary and Outlook

• Capital Needs: Management estimates approximately $242.2 million will be spent on capital expenditures for the remainder of 2007. The company believes existing cash and operating cash flow are sufficient to meet obligations for the next 12 months.
• Acquisitions: On May 3, 2007, Coeur entered into definitive agreements to acquire Bolnisi Gold NL and Palmarejo Silver and Gold Corporation. The transaction is expected to close in Q3 2007, resulting in the issuance of approximately 271.3 million new shares.
• Production Trends: Silver production decreased slightly year-over-year (2.62M oz vs 2.85M oz) due to declines at Cerro Bayo and Broken Hill, offset by increases at Rochester, Martha, and Endeavor.

Risks and Contingencies

• Kensington Permit Litigation (Critical): The Ninth Circuit Court of Appeals issued an order on March 16, 2007, indicating an intent to reverse the District Court's upholding of the Section 404 permit for the Kensington mine's tailings facility. The court directed a cessation of tailings pond construction. An adverse decision could render the project uneconomic, potentially requiring an asset impairment write-down. The project has a carrying value of $231 million.
• Commodity Price Volatility: Results are highly dependent on silver and gold prices. A decline in gold prices below approximately $535/oz could trigger an impairment write-down at Kensington even if the permit is upheld.
• Reclamation Obligations: Total asset retirement obligations were $30.2 million as of March 31, 2007.

Unusual Items

• Litigation Settlement: The company accrued a $0.5 million royalty payment to the U.S. Government in Q1 2007 related to a 2001 natural resources settlement. This was the final payment under the agreement.
• Tax Provision: The company recorded a $0.5 million additional income tax provision in Q1 2007 resulting from an assessment of prior period tax contingencies.

Investor Verification Checklist

• Kensington Litigation Status: Verify the final published opinion of the Ninth Circuit Court regarding the Kensington tailings permit and the potential for asset impairment.
• Acquisition Dilution: Assess the impact of the pending Bolnisi/Palmarejo merger, which will issue ~271 million new shares, on future earnings per share.
• Recovery Estimates: Review the assumptions regarding ultimate metal recovery rates at the Rochester heap leach pad, as changes in these estimates significantly impact inventory valuation and future costs.
• Capital Expenditure Schedule: Monitor the $242 million planned capital spend for the remainder of 2007 to ensure liquidity remains sufficient without additional financing.
• Commodity Hedging: Confirm the company's exposure to metal price fluctuations, noting they currently have no outstanding forward sales contracts for gold or silver but have $51.4 million in provisionally priced sales subject to mark-to-market adjustments.