CDE

Business Context and Reporting Period

Company: Coeur d'Alene Mines Corporation (Coeur)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2005
Business Overview: Coeur is the largest primary silver producer in North America, operating mines in the United States (Nevada, Idaho, Alaska), South America (Chile, Argentina, Bolivia), and Australia. The company's strategy focuses on increasing silver production and reserves, decreasing cash costs, and transforming development-stage properties into producing mines.

Key Financial Metrics

Production Statistics (2005):
- Silver Produced: 13.7 million ounces (vs. 14.1 million in 2004)
- Gold Produced: 134,227 ounces (vs. 129,686 in 2004)
- Realized Silver Price: $7.44/oz (vs. $6.82 in 2004)
- Realized Gold Price: $452/oz (vs. $409 in 2004)
- Consolidated Cash Costs per Silver Ounce: $4.26 (vs. $3.66 in 2004)

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 30% to $172.3 million, driven by higher realized metal prices and increased sales volume, despite a slight decrease in total silver production.
• Profitability Turnaround: The company returned to profitability with a net income of $10.6 million, reversing a net loss of $16.9 million in 2004. This was primarily due to higher metal prices and improved operating results at key mines.
• Cost Increases: Production costs applicable to sales rose 27% to $104.9 million due to higher diesel, utility, and operating material costs, as well as costs associated with newly acquired interests in Australia.
• Acquisitions: In 2005, Coeur acquired silver production and reserves at the Endeavor Mine (Australia) in May and the Broken Hill Mine (Australia) in September, adding significant reserves and production capacity.
• Capital Expenditures: Investing activities used $99.9 million in 2005, a significant increase from $43.8 million in 2004, driven by construction at the Kensington and San Bartolome projects and the Australian acquisitions.

Guidance, Outlook, Risks, and Unusual Items

• Outlook & Guidance: Management expects to spend approximately $181.9 million on capital expenditures in 2006. Commercial production at the San Bartolome project (Bolivia) is targeted for as early as 2007, subject to political stability. Production at the Kensington project (Alaska) is expected to commence as early as late 2007, pending permit resolution.
• Key Risks:
  • Commodity Prices: Results are highly dependent on volatile silver and gold prices. A decline could render operations uneconomical and trigger asset impairments.
  • Permitting & Litigation: The Kensington project faces a suspended Section 404 permit due to litigation by environmental groups, creating uncertainty regarding the start of commercial production.
  • Foreign Operations: Political instability in Bolivia and Argentina, as well as currency fluctuations, pose risks to operations and project timelines.
  • Internal Controls: The company previously identified a material weakness regarding the calculation of ore on leach pad inventory at the Rochester mine, which was remediated by year-end 2005.
• Unusual Items:
  • Litigation Settlement: A $1.6 million charge was recorded in Q1 2005 to settle a breach of contract suit with Credit Suisse First Boston.
  • Restatement: Financial statements for Q1 2005 were restated to correct an error in the calculation of ore on leach pad inventory, resulting in a $0.6 million decrease in net loss for that quarter.

Important Facts for Investor Verification

• Kensington Permit Status: Verify the current status of the Section 404 permit suspension and the timeline for the Army Corps of Engineers' review, as this directly impacts the $190 million investment and expected 2007 production start.
• San Bartolome Political Risk: Monitor the political situation in Bolivia and the company's ability to resume full-scale construction, which was delayed due to recent elections and unrest.
• Galena Mine Strategy: Confirm the outcome of the company's evaluation of the Galena Mine (Idaho), which is considering strategic alternatives including a possible sale due to lower ore grades and higher costs.
• Reclamation Liabilities: Review the $30.4 million accrued reclamation liability, which increased by $6.4 million in 2005 due to mine expansions and cost adjustments.
• Debt Structure: Note the $180 million in 1.25% Convertible Senior Notes due 2024, which are convertible at $7.60 per share, potentially diluting shareholders if stock prices rise significantly.