Business Context and Reporting Period
Company: Coeur d'Alene Mines Corporation (Coeur)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: Coeur is a large primary silver producer with significant gold assets. Operations are located in North America (Nevada, Alaska), South America (Chile, Argentina, Bolivia), Mexico, and Australia. The Company's results are substantially dependent on world market prices for silver and gold.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Revenues (Sales of Metal) | $189.5 million | $215.3 million |
| Net Income (Loss) | $(0.01) million (Loss) | $43.9 million |
| Operating Income (Loss) | $(13.7) million | $41.0 million |
| Production Costs Applicable to Sales | $109.3 million | $117.0 million |
| Depreciation and Depletion | $27.3 million | $21.0 million |
| Capital Expenditures | $380.3 million | $226.2 million |
| Working Capital | $(8.5) million (Deficit) | $152.4 million |
| Total Debt (Outstanding Indebtedness) | ~$462 million | Not explicitly stated as total aggregate in text, but long-term liabilities were $812.7 million in 2007 vs $1.026 billion in 2008. |
| Cash and Cash Equivalents | $20.8 million | $98.7 million |
Production Statistics (2008): 12.0 million ounces of silver and 46,115 ounces of gold.
Realized Prices (2008): Silver averaged $14.31/oz; Gold averaged $915/oz.
Material Changes vs. Prior Period
- Revenue Decline: Sales of metal decreased by $25.9 million (12.0%) compared to 2007. This was primarily due to a decrease in the quantity of gold ounces sold, partially offset by higher realized metal prices.
- Operating Loss: The Company reported an operating loss of $13.7 million in 2008, a significant reversal from the $41.0 million operating income in 2007. This was driven by increased costs and lower production volumes at key sites.
- Production Volume: Silver production increased slightly to 12.0 million ounces (from 11.5 million in 2007) due to the commencement of the San Bartolomé mine, offset by declines at Rochester, Cerro Bayo, and Broken Hill. Gold production dropped significantly to 46,115 ounces (from 92,014 in 2007).
- Cost Increases: Exploration expenses rose 71.9% to $20.5 million. Pre-development expenses of $17.0 million were recorded for the Palmarejo project. Depreciation and depletion increased 30.2% due to the new San Bartolomé operations.
- Liquidity Shift: Working capital turned negative, moving from a surplus of $152.4 million in 2007 to a deficit of $8.5 million in 2008, largely due to heavy capital spending on development projects.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
- Capital Plan: The Company plans to invest approximately $136 million in capital activities in 2009 to complete the Palmarejo project and sustain existing operations. This excludes Kensington costs pending a Supreme Court decision.
- Production Targets: San Bartolomé production is expected to reach 9.0 million ounces in 2009. Palmarejo is anticipated to produce 5.4 million ounces of silver and 72,000 ounces of gold in its initial year.
- Cerro Bayo Suspension: Operations at the Cerro Bayo mine in Chile were temporarily suspended in October 2008 to conserve reserves and focus on exploration. The objective is to recommence production in 2010 at lower costs.
Risks and Contingencies
- Kensington Litigation: A lawsuit challenging the tailings facility permit for the Kensington gold project in Alaska is pending before the U.S. Supreme Court. A decision is expected in Q2 2009. An impairment write-down could be necessary if long-term gold prices fall below approximately $750/oz. Construction activities were curtailed pending the decision.
- Commodity Price Volatility: The Company has no hedging activities for silver or gold. Sustained weakness in silver prices could materially impact earnings and cash flows.
- Asset Impairment: The Company assessed Cerro Bayo for impairment due to the suspension of operations. No impairment was recorded at year-end, but future declines in silver prices or increases in costs could trigger a write-down.
- Debt Obligations: The Company issued $230 million in 3 1/4% Convertible Senior Notes and $50 million in Senior Secured Floating Rate Convertible Notes in 2008. Future cash flows must be sufficient to meet debt service obligations.
Important Facts for Investor Verification
- Kensington Permit Status: Verify the outcome of the U.S. Supreme Court decision regarding the Kensington tailings permit, as this determines the viability of a major gold asset and potential impairment charges.
- Cerro Bayo Restart Plan: Monitor the timeline and cost estimates for restarting the Cerro Bayo mine in Chile, which was suspended in late 2008.
- Palmarejo Ramp-up: Confirm that the Palmarejo project in Mexico achieves its targeted production levels (5.4M oz silver) and that capital expenditures remain within the projected $136 million budget for 2009.
- Liquidity Position: Given the negative working capital and high debt load, verify the Company's ability to service debt and fund operations without further equity dilution or asset sales.
- San Bartolomé Performance: Validate that the San Bartolomé mine in Bolivia achieves the projected 9.0 million ounce production target for 2009 to offset declines at other sites.