-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CsPRmpO3bqgXU+wPBhxv3N6D5eBcnFlJdyCLNxRmj/YpxUV4MQRU8vM2d8VqICaV SQYoNIUWpQmERa7ECK+MLw== 0000950133-96-000164.txt : 19960301 0000950133-96-000164.hdr.sgml : 19960301 ACCESSION NUMBER: 0000950133-96-000164 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960229 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COEUR D ALENE MINES CORP CENTRAL INDEX KEY: 0000215466 STANDARD INDUSTRIAL CLASSIFICATION: SILVER ORES [1044] IRS NUMBER: 820109423 STATE OF INCORPORATION: ID FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08641 FILM NUMBER: 96528221 BUSINESS ADDRESS: STREET 1: 400 COEUR D ALENE MINES BLDG STREET 2: 505 FRONT AVE CITY: COEUR D ALENE STATE: ID ZIP: 83814 BUSINESS PHONE: 2086673511 MAIL ADDRESS: STREET 1: 400 COEUR D ALENE MINES BLDG STREET 2: 505 FRONT AVE CITY: COEUR D'ALENE STATE: ID ZIP: 83814 10-K405 1 COEUR D'ALENE MINES FORM 10-K FOR 12/31/95. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-8641 COEUR D'ALENE MINES CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) IDAHO (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 505 FRONT AVE., P.O. BOX "I" COEUR D'ALENE, IDAHO (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 82-0109423 (I.R.S. EMPLOYER IDENTIFICATION NO.) 83816 (ZIP CODE) (208) 667-3511 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR VALUE $1.00 6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004 (TITLE OF CLASS) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ State the aggregate market value of the voting stock held by non-affiliates of the registrant. (The aggregate market value is computed by reference to the last sale price of such stock, as of February 28, 1996.) $484,287,030 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 1996. 20,464,882 shares of Common Stock, Par Value $1.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III of the Form 10-K is incorporated by reference from the registrant's definitive proxy statement which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. 1 3 PART I ITEM 1. BUSINESS Coeur d'Alene Mines Corporation ("Coeur" or the "Company") is engaged in the exploration, development, operation and/or ownership of gold and silver mining properties located in the western United States and in New Zealand and Chile. In addition, during 1995 and early 1996, the Company took steps to acquire interests in certain Australian mining companies. OVERVIEW OF MINING PROPERTIES The Company's most significant properties are: (i) the ROCHESTER MINE, a silver and gold surface mining operation located in northwestern Nevada, which is 100% owned and operated by Coeur and which is believed to be one of the largest and lowest cost of production primary silver mines in the United States and is a significant gold producer as well; (ii) the GOLDEN CROSS MINE, an underground and surface gold mining operation located near Waihi, New Zealand, which is operated by Coeur and in which it has an 80% operating interest acquired on April 30, 1993; (iii) the FACHINAL MINE, located in southern Chile, South America which Coeur acquired in 1990, at which construction of an open pit and underground gold and silver mine and processing plant was completed and initial production commenced in late October 1995; (iv) the EL BRONCE MINE, a Chilean gold mine in which the Company acquired operating control and 51% of the operating profits in October 1994 and in which the Company has an option to acquire a 51% equity interest; (v) ownership of 50% of the capital stock of SILVER VALLEY RESOURCES CORPORATION ("SILVER VALLEY"), which owns the COEUR and the GALENA underground silver mines in the Coeur d'Alene Mining District of Idaho which are scheduled to resume production in June 1996; and (vi) 100% of the KENSINGTON PROPERTY, located north of Juneau, Alaska, which is being developed as an underground gold mine by Coeur and where it is anticipated that a decision will be made during the third quarter of 1996 whether construction will commence for the mine facilities. In addition, Coeur has an option to acquire a 51% operating interest through January 15, 1998 in the fully-developed Faride Mine, a gold and silver mine located in northern Chile which has not been operational since 1988 and where the Company currently is conducting exploratory activities and feasibility studies. Coeur also has interests in other properties which are the subject of silver or gold exploration activities at which no commercially minable ore bodies have yet been identified. RECENT AUSTRALIAN INITIATIVES In December 1995, the Company announced that it (i) had entered into an agreement with the principal shareholder of Gasgoyne Gold Mines NL, an Australian gold mining company ("Gasgoyne"), pursuant to which Coeur acquired an option to acquire 19.9% of Gasgoyne's outstanding shares, and (ii) intended to extend an offer to Gasgoyne shareholders to acquire all the remaining shares of Gasgoyne. A competing bid for the shares has been announced by another Australian mining company which has instigated a lawsuit to enjoin the Company's offer. The suit has delayed the delivery of the Company's offer to Gasgoyne shareholders. There can be no assurance that the Company's proposed offer will be successful. In January 1996, the Company acquired shares and options to acquire shares of Orion Resources NL, an Australian gold mining company ("Orion"), as a result of which Coeur presently holds approximately 13.1% of Orion's outstanding shares and, upon exercise of its options, would own approximately 19.2% of Orion's outstanding shares. Gasgoyne and Orion own 50% and 45%, respectively, of the Yilgarn Star Mine located in western Australia which produced approximately 110,600 ounces of gold in Gasgoyne's fiscal year ended June 30, 1995 and approximately 50,000 ounces of gold in the six months ended December 31, 1995. SALE OF NON-MINING BUSINESS In December 1991, the Company acquired Callahan Mining Corporation which owned the Galena Mine and the Flexaust Company (a non-mining business involved in the manufacturing of flexible hose and duct and metal tubing) ("Flexaust"). On May 2, 1995, the Company sold the assets of Flexaust for approximately 2 4 $10 million, of which approximately $4 million was paid at the closing and the balance is payable over the five years thereafter. During 1995, Coeur recognized a pre-tax gain of approximately $4.0 million ($2.2 million after tax) as a result of the sale. SOURCES OF REVENUE The Rochester Mine, Golden Cross Mine and El Bronce Mine, which are operated by the Company, constituted the Company's sources of mining revenues in 1995. The Rochester Mine accounted for approximately 64.1%, 56.8% and 57.0% of the Company's total revenues in 1993, 1994 and 1995, respectively. The Golden Cross Mine accounted for 28.8%, 29.8% and 33.4% of the Company's total revenues for 1993, 1994 and 1995, respectively. The El Bronce Mine accounted for approximately 1% of the Company's total revenues in 1994 (4% of total revenues for the three-month period subsequent to its acquisition on October 3, 1994) and .3% of total revenues in 1995. The Fachinal Mine commenced operations in late October 1995 and will report revenues commencing in 1996. The balance of the Company's revenues was attributable to interest, dividends and other income. DEFINITIONS The following sets forth definitions of certain important mining terms used in this report. "Ore reserve" means that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. "Proven reserves" means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspections, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. "Probable reserves" means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. "Mineralized material" is a mineralized underground body which has been intersected by sufficient closely spaced drill holes and/or underground sampling to support sufficient tonnage and average grade of metal(s) to warrant further exploration development work. Such material does not qualify as an "ore reserve" until a final and comprehensive economic, technical and legal feasibility study based upon the test results is concluded. References to "silver" mean an alloy with a minimum fineness of 999 parts per 1000 pure silver; references to "gold" mean an alloy with a minimum fineness of 995 parts per 1000 pure gold; and references to an "ounce" mean a troy ounce, which is 31.10348 grams. References to "dore" mean a bullion produced by smelting, containing gold, silver and minor amounts of impurities. References to a "ton" mean a short ton, which is 2,000 pounds. IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS This report contains numerous forward-looking statements relating to the Company's gold and silver mining business, including estimated production data, expected operating schedules and other operating data. Actual production, operating schedules and results of operations could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) changes in the market prices of gold and silver, (ii) the uncertainties inherent in the Company's exploratory and developmental activities, (iii) the uncertainties inherent in the estimation of gold and silver ore reserves, (iv) changes that could result from the Company's future acquisition of new mining properties or businesses, (v) the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), (vi) the effects of environmental and other governmental regulations, and (vii) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries. ROCHESTER MINE The Rochester Mine is a silver-gold surface mine located in Pershing County, Nevada, approximately 25 road miles northeast of Lovelock. The mine utilizes the heap-leaching process to extract both silver and 3 5 gold from ore mined using open-pit methods. The property consists of 16 patented and 544 unpatented contiguous mining claims and 74 mill-site claims totaling approximately 9,370 acres. The Company owns 100% of the Rochester Mine by virtue of its 100% ownership of its subsidiary, Coeur Rochester, Inc. Asarco, Inc., the prior lessee, has a net smelter royalty interest which varies from 0 to 5% when the market price of silver equals or exceeds $17.35 per ounce. Based on the reserve-review report dated February 1996, of Independent Mining Consultants, Inc., and accounting for production through December 31, 1995, in-place, proven and probable ore reserves at the Rochester Mine, as of January 1, 1996, total approximately 75.9 million tons averaging 1.20 ounces per ton silver and 0.0102 ounces per ton gold. The reserve estimate is based on a 1.10 ounce per ton silver-equivalent, breakeven-design cutoff grade and silver and gold prices of $5.50 and $385.00, respectively. The average grades do not reflect losses in the recovery process nor any allowance for extractive dilution during the mining process. The amount of proven and probable reserves will vary depending on the relative price of silver and gold. A reserve estimate calculated at various silver and gold prices, is set forth below:
$ PER TROY OUNCE ORE SILVER GOLD STRIP GOLD/SILVER TONS GRADE GRADE RATIO ----------------------------- ----------- ------------ ------------ ----- (THOUSANDS) (OUNCES/TON) (OUNCES/TON) $455.00/$6.50................ 81,500 1.193 .0100 1.52 $400.00/$6.00................ 78,100 1.198 .0101 1.33 $385.00/$5.50................ 75,900 1.203 .0102 1.23 $375.00/$5.00................ 63,500 1.281 .0111 1.46
Based upon its experience and certain metallurgical testing, the Company estimates recovery rates of 55% for silver and 85% for gold. Although, as shown in the preceding table, the average strip ratio for the remaining life of the mine will vary based primarily on future gold and silver prices, the actual strip ratio may vary significantly from year-to-year during the remaining life of the mine. The realization of the Company's production estimates is subject to actual rates of recovery, continuity of ore grades, mining rates, the levels of silver and gold prices and other uncertainties inherent in any mining and processing operation. The leach cycle at the Rochester Mine requires approximately five years from the point ore is mined until all recoverable metal is recovered. The above costs are based upon actual operating experience at the mine. There can be no assurance that these costs will remain at the same level for future operations. The following table sets forth information for the periods indicated relating to Rochester Mine production. Production may decrease during the winter due to slower solution flow from the heaps resulting in increased dore' production during warmer weather. Such conditions are not expected to affect annual production levels since mining, crushing and heap construction are expected to continue during winter months at normal rates. Also, production will vary from time to time depending upon the area being mined.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- Ore processed (tons).................... 6,982,366 7,356,336 7,247,553 7,759,637 8,243,609 Silver (ounces)......................... 5,707,700 5,431,369 5,943,894 5,937,770 6,481,825 Gold (ounces)........................... 60,565 56,562 66,412 56,886 59,307
The following table sets forth the costs of production per ounce of silver and gold on a silver equivalent basis during the periods indicated at the Rochester Mine. Such costs include mining, processing and direct administration costs, financing costs, royalties and exploration expenses. To obtain the silver equivalent, each ounce of gold produced is multiplied by the same ratio as the then current ratio of the price of gold to the price 4 6 of silver. This silver equivalent gold production is then added to actual silver production to determine total silver equivalent production.
YEAR ENDED DECEMBER 31, ------------------------------------------ 1991 1992 1993 1994 1995 ------ ------ ------ ------ ------ Cash costs per ounce..................................... $3.28 $2.82 $3.55 $3.57 $3.71 Depreciation, depletion and amortization per ounce....... .48 .40 .54 .59 .61 ------ ------ ------ ------ ------ Total costs per ounce.................................... $3.76 $3.22 $4.09 $4.16 $4.32 ===== ===== ===== ===== =====
In 1994, the Company completed construction of a new ore conveyor system. In addition, the waste to ore strip ratio is expected to decline commencing in 1996 while the silver equivalent grade of the ore mined is expected to increase. These three factors are expected to beneficially impact future operations. GOLDEN CROSS MINE Effective April 30, 1993, a wholly-owned subsidiary of the Company acquired from a wholly-owned subsidiary of Cyprus Minerals Company all of the outstanding capital stock of Cyprus Gold New Zealand Limited ("Cyprus NZ"), the name of which was changed by the Company to Coeur Gold New Zealand Limited ("Coeur NZ"). The principal asset of Coeur NZ is its undivided 80% participating joint venture interest in the Golden Cross Mine located near Waihi on the North Island of New Zealand, approximately 100 miles southeast of Auckland, and certain other exploration properties in New Zealand. The remaining undivided 20% joint venture interest is owned by a subsidiary of The Todd Company Limited, a New Zealand corporation. In addition to all the capital stock of Cyprus NZ, the Company also acquired from the former parent of Cyprus NZ a term loan receivable from Cyprus NZ in the principal amount of approximately $53.2 million which was owed by Cyprus NZ to its former parent and is now owed by Coeur NZ to the Company. A cash purchase price of approximately $54 million was paid by the Company for the Cyprus NZ capital stock and term loan. The Company accounted for the acquisition as a purchase transaction. The Golden Cross Mining License covers an area of approximately 961 acres of which 274 acres are occupied by the current Golden Cross Mine operation. The mine property includes the open-pit and underground mine facilities, process plant, tailings pond, water treatment plant and mine offices which are all accessible by road from the town of Waihi. Construction of the Golden Cross Mine began in April 1990, and commercial production commenced in December 1991. Ore is mined from an extensive precious-metals bearing, epithermal vein system hosted in Tertiary volcanic rocks. Based upon a resource and reserve report review dated January 6, 1996 for open-pit underground reserves by Snowden Associates Pty Ltd, an independent consulting firm, in-place, open-pit and underground, proven and probable ore reserves at July 1, 1995, less actual production through December 31, 1995, total 4.830 million tons averaging 0.084 ounces per ton gold. The open-pit reserve estimate, totaling 4.216 million tons averaging 0.071 ounces per ton gold, is based on a 0.029 ounce per ton gold cutoff, a gold price of $409 per ounce (after credit for byproduct revenues) and a currency exchange rate of US$ = 0.65 NZ$. The underground-reserve estimate, totaling 614,000 tons averaging 0.171 ounces per ton gold, is based on a 0.117 ounce per ton cutoff, a gold price of $409.00 (after credit for byproduct revenues) and a currency exchange rate of US$ = 0.65 NZ$. The reserve estimate reflects an allowance for extractive dilution during the mining process, but does not reflect losses during the recovery process. In addition, the reserve estimate has identified 5.286 million tons of mineralized material averaging 0.05 ounce per ton gold which is insufficiently defined to be included in the reserve, but may be mineable given additional definition or changes in economic parameters. Silver reserves are empirically estimated using past production/recovery ratios for silver and gold. Open pit and underground silver and gold ratios have historically averaged 4:1 and 5:1, respectively. Total contained silver ounces are estimated at 1.729 million ounces, with an average grade of 0.36 ounces of silver per ton, for 5 7 open pit and underground proven and probable reserves. No mineralized material grades for silver were estimated. The following table sets forth Golden Cross Mine production data. Information relating to production prior to April 30, 1993 was obtained from the former owner of Cyprus NZ. Because the Company's acquisition of Cyprus NZ was accounted for as a purchase, results of its operations prior to April 30, 1993 are not included in the Company's reported results of operations. The following data reflects the amount of production attributable to Coeur's 80% interest in the mine:
YEAR ENDED FOUR MONTHS EIGHT MONTHS DECEMBER 31, YEAR ENDED ENDED ENDED ------------------ DECEMBER 31, 1992 APRIL 30, 1993 DECEMBER 31, 1993 1994 1995 ----------------- -------------- ----------------- ------- ------- Ore milled (tons).............. 566,935 243,725 492,617 727,427 731,453 Gold (ounces).................. 69,899 26,360 56,898 67,400 83,058 Silver (ounces)................ 274,905 103,690 175,325 222,246 286,216
The following table sets forth the costs of production per ounce of gold during the periods indicated at the Golden Cross Mine. Such costs include mining, processing and direct administration costs, royalties and exploration expenses, but do not include financing costs associated with the term loan formerly owed by Coeur Gold NZ to its parent. The production costs per ounce of gold for any period is computed net of by-product credits.
YEAR ENDED FOUR MONTHS EIGHT MONTHS DECEMBER 31, YEAR ENDED ENDED ENDED ------------------ DECEMBER 31, 1992 APRIL 30, 1993 DECEMBER 31, 1993 1994 1995 ----------------- -------------- ----------------- ------- ------- Cash costs per ounce........... $261.00 $ 245.00 $220.26 $276.96 $231.70 Depreciation, depletion and amortization per ounce....... 130.00 174.00 116.40 111.53 82.12 ------------ ----------- ------------ ------- ------- $391.00 $ 419.00 $336.66 $388.49 $313.82 ============ ========== ============ ======= =======
The above-reported Golden Cross Mine production and cost data relating to operations subsequent to the commencement of commercial production in December 1991 reflect an initial under-utilization of the mine's productive capacity associated with commencement of operations as well as other start-up costs expected to be nonrecurring in nature. The 1994 increase in the cash costs of production per ounce of gold was primarily attributable to the presence of a harder grinding ore in the open pit requiring more milling and chemicals in the processing and a lower grade of ore being provided from the underground portion of the mine. The 1995 decrease in cash costs was primarily attributable to the availability of additional higher grade underground production, a better blending of open-pit and underground ores, and the mining of less waste in the open-pit. The increases in ore reserves during 1994 and 1995 enabled the Company to lower the depletion at the mine, which had the effect of reducing non-cash costs per ounce. The Company estimates the current waste-to-ore strip ratio of the open pit to be approximately 3.69 to 1. Approximately 2,000 tons per day of ore is currently being mined at the open pit operation. The underground mine is a trackless operation with a declining access from the surface, currently mining approximately 680 to 850 tons per day of ore and utilizing mechanized cut and fill and long hole benching methods. A 2,750 ton per day mill processes ore from both the open pit and underground operations. Coeur NZ estimates that approximately 89% of the gold and 55% of the silver contained in the ore mined is recovered. The production of gold and silver is subject to the risks of actual rates of recovery, continuity of ore grades, mining rates, the levels of gold and silver prices and other uncertainties inherent in any mining and processing operation. Tailings are treated by a proprietary process that removes and recycles cyanide used in the milling process. The Company obtained favorable variances to the Golden Cross Mine's effluent discharge permit by a decision from the Waikato Regional Council issued in August 1993. This decision was appealed to the Planning Tribunal by environmental organizations. The appeal was resolved by a decision of the Planning Tribunal in favor of the Company. 6 8 On May 15, 1995, the Golden Cross Mine received an environmental award from the Environment Waikato Regional Counsel, citing the environmental compliance enhancement program implemented by the Company at that mine. The enhancement program included the collection of seeds of native tree species and increasing their growth through replanting on Golden Cross land to provide native wildlife habitat. In addition, the program included three water treatment systems, biological monitoring systems, a "fish friendly" fish passage, pest control programs and a public bush access track. During the Fall of 1995, the Company became aware of some evidence that the tailings impoundment at the Gold Cross Mine may have sustained movement. Subsequent investigation revealed that the impoundment is situated on a block of land that is apparently moving down slope at the rate of approximately 3.5cm (1 1/2") per annum. The movement is the result of a naturally occurring deep-seated geologic phenomenon not caused by the mine's operations. The Company is implementing remedial measures, including the construction of a 600 meter drain tunnel designed to ensure the stability of the tailings dam, and presently estimates that the costs associated with those remedial measures during 1996 will approximate U.S. $4 million. The Company believes the work will solve the stability issue, but whether further work will be required and additional costs will be incurred cannot be known with absolute certainty until the planned work is completed and tested. Coeur NZ expended approximately $579,313 and $598,793 during 1994 and 1995, respectively, to explore properties adjacent to the Golden Cross Mine and various other properties in the eastern portion of the North Island of New Zealand. Such exploratory activities included drilling, sampling and assaying. Coeur NZ plans during 1996 to expend approximately $.4 million to explore Waihi East, Waitekauri and three other New Zealand licenses on the North Island. FACHINAL MINE In January 1990, the Company acquired, through its wholly-owned subsidiary, CDE Chilean Mining Corporation, ownership of the Fachinal gold and silver property. As discussed below, the Company completed the construction of the Fachinal Mine on schedule and under budget in October 1995 when initial mining operations commenced. The Fachinal property covers about 90 square miles and is located south of Coihaique, the capital of Region XI in southern Chile, and approximately 10 miles west of the town of Chile Chico. The project lies on the east side of the Andes at an elevation ranging from 600 to 4,500 feet and is serviced by a gravel road from Chile Chico. The Fachinal property is known to contain 67 veins containing gold and silver located in five mineralized zones. The Company has been granted exploitation concessions (the Chilean equivalent to an unpatented claim except that the owner does not have title to the surface which must be separately acquired from the surface owner) covering the mineralized areas of Fachinal property as well as the necessary surface rights to permit mining there. During 1994 and the first half of 1995, the work program at the Fachinal property included diamond drilling, underground drifting and cross-cutting at Laguna Verde, Temer and Guanaco, initiation of metallurgical testing, mine modeling, mine planning and cost estimating. Following the completion by an independent engineering firm of a final feasibility study, the Company commenced in July 1994 with the construction of mining facilities on the Fachinal property. Construction of new mining facilities was completed on schedule in October 1995 and include both underground and open pit mining operations, with an estimated 1,650 tons per day of throughput. The milling facility uses conventional crush/grind/floatation methods to produce a gold/silver concentrate, which is then shipped to off-site smelters for processing. As of December 31, 1995, the total project construction cost was approximately $40.8 million, which was less than the originally budgeted $41.8 million. Initial production began in October 1995 at the Fachinal Mine, which is one of the southern most mining operations in the world, employing approximately 225 workers near the town of Chile Chico, located 800 miles south of Santiago at an elevation of approximately 1,200 feet. The Company estimates that the Fachinal Mine will produce approximately 44,000 ounces of gold and 2.8 million ounces of silver during its first full year of 7 9 production. As of December 31, 1995, the Company had expended a total of $79.0 million (including capitalized interest of $7.4 million) in connection with the development of the Fachinal Mine. Subsequent to the commencement of initial production activities at the Fachinal Mine on October 19, 1995, a total of 96,212 tons of ore was milled during the balance of 1995, and a total of 3,586 ounces of gold and 334,816 ounces of silver were produced during that period. Open pit and underground ores are being processed in a mill that processes 540,000 tons per year. Coeur estimates that cash operating costs at the Fachinal mining facilities will approximate $225 per gold equivalent ounce in the future. Furthermore, Coeur estimates that Fachinal's underground and open pit mining operations will process approximately 1,650 tons per day. Prior to January 1, 1996, initial production costs were capitalized as project startup costs. During the startup phase, a variance between mine and mill head grades from those anticipated in the feasibility study occurred. This was caused by excessive dilution and inadequate grade control procedures at the open pit mine. The Company has addressed these matters by implementing stricter geologic controls and additional equipment operator training. Economic, precious metals bearing mineralization at Fachinal occurs in an extensive epithermal, quartz-veins system hosted in Jurassic volcanic rocks. Based on a reserve-review report dated April 1994, by Micon International Limited, less 1995 production of 127,201 tons, the total remaining, in-place, open-pit and underground proven and probable reserves at the Fachinal property are approximately 4.431 million tons averaging 0.072 ounces per ton gold and 3.22 ounces per ton silver. The Fachinal open-pit reserve estimate, totaling 3.472 million tons averaging 0.058 ounces per ton gold and 2.53 ounces per ton silver, is based on an internal cutoff grade of 0.041 ounces per ton equivalent gold. The underground reserve which totals 959,000 tons at 0.122 ounces per ton gold and 5.73 ounces per ton silver is based on internal cutoff grades ranging from 0.088 to 0.102 ounces per ton equivalent gold. Both reserve estimates are based on gold and silver prices of $375.00 per ounce and $5.00 per ounce, respectively. Average grades reflect extractive dilution, but not losses during the recovery process. The Company estimates, based upon thorough metallurgical testing, recovery rates between 89% -- 94% for gold and 85% -- 93% for silver. The open-pit reserve estimate has also identified 872,000 tons of mineralized material, averaging 0.05 ounces per ton gold and 1.14 ounces per ton silver. Likewise, the underground resource estimate has identified an additional 990,000 tons of mineralized material averaging 0.09 ounces per ton gold and 8.55 ounces per ton silver. Confidence in these additional tonnages is insufficient for them to be included in the Fachinal reserve. Numerous other attractive exploration targets with known precious-metals mineralization remain to be evaluated. Although the government and economy of Chile have been relatively stable in recent years, the ownership of property in a foreign country is always subject to the risk of expropriation or nationalization with inadequate compensation. Any foreign operation or investment may also be adversely affected by exchange controls, currency fluctuations, taxation and laws or policies of particular countries as well as laws and policies of the United States affecting foreign trade, investment and taxation. EL BRONCE MINE In July 1994, the Company entered into an agreement with Compania Minera El Bronce de Petorca, a Chilean corporation ("CMEB"), pursuant to which the Company acquired operating control and a 51% interest in any operating profits and an option exercisable through July 1997 to also purchase from CMEB a 51% equity interest in the producing El Bronce Mine. The El Bronce Mine is an underground, gold-silver mine located on approximately 34,000 acres in the Andean foothills about 90 miles north of Santiago, Chile and is accessible by road. The property consists of 64 exploitation concessions and 10 exploration concessions. Surface rights to permit mining on the property are leased from private owners. Ore is produced from an extensive, precious-metals bearing, epithermal, quartz-vein system hosted in Cretaceous volcanic rocks. Pursuant to the agreement, the Company has made option payments totaling $12.7 million to CMEB and has expended $4.3 million through 1995 for exploration and mine development activities. In addition, in January 1996, the Company made the option payment of $3.9 million due in July 1996. In order to exercise its option to acquire a 51% equity interest in the mine, the Company will be required to invest an additional $5.0 million 8 10 by July 1997. Current exploratory and developmental activities are designed to increase ore reserves and increase annual gold production to 65,000 ounces from the present level of 40,000 ounces of gold. The Company expended $1.2 million and $3.1 million during 1994 and 1995, respectively, for exploratory and developmental activities. In October 1994, the Company assumed operating control of the El Bronce Mine, in which the Company has a 51% interest in any operating profits. The Company plans to maintain the 500 to 600 tons per day milling rate at the mine, improve the mining method to increase ore reserves and to restructure the work force. The mill currently has a 1,200 ton per day capacity. In addition, the Company is conducting exploratory activities at three main exploration sites within the exploration exploitation area surrounding the mine. Based on a reserve-report review dated January 1996 by Compania Minera CDE El Bronce, in-place, proven and probable ore reserves on the El Bronce property total 777,000 tons averaging 0.205 ounces per ton gold. An additional 608,000 tons of mineralized material, averaging 0.20 ounce per ton gold, has been identified, but is currently insufficiently defined to be included in the reserve. The reserve is based on an internal cutoff of 0.088 ounces per ton gold. The Company estimates, based on past experience and metallurgical testing, mill recovery rates are 92% for gold and 90% for silver. The mineralized system remains geologically open both along strike and down-dip. The following table sets forth El Bronce Mine production data subsequent to its acquisition by Coeur on October 3, 1994. As stated above, the Company has a 51% interest in any operating profits from the mine. The Company's 5l% interest in the mine's operating profits from October 3, 1994 through December 31, 1994 amounted to $1,023,537 and for the year ended December 31, 1995 amounted to $763,166. The following data represents 100% of the mine s production.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- Ore milled (tons)......................... 56,760 286,512 Gold (ounces)............................. 9,712 43,204 Silver (ounces)........................... 39,605 142,229
The following sets forth the costs of production per ounce of gold during the periods set forth below at the El Bronce Mine. Such costs include mining, processing and direct administration costs, royalties and exploration expenses.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- Cash costs per ounce...................... $ 174.67 $ 305.68 Depreciation, depletion and amortization per ounce.................. 20.40 20.51 ------------- ------------- $ 195.07 $ 326.19 ============= =============
Prior to Coeur's assuming ownership, the mine was not investing sufficient amounts to expand production and cash costs were in excess of $400 per ounce. During 1995, a significant effort was commenced to develop additional working areas which are expected to lead to higher mine output. As a result, operating costs initially increased; however, it is management's expectation that costs will decline to approximately $250 per ounce of gold as production increases over a three-year development program. COEUR D'ALENE MINING DISTRICT -- SILVER VALLEY RESOURCES CORPORATION Silver Valley Resources Corporation ("Silver Valley") owns the Coeur, Galena and Caladay mines situated in the Coeur d'Alene Mining District of Idaho. Silver Valley decided on February 9, 1996 to resume mining operations at the Coeur and Galena mines with full production planned in June 1996. 9 11 In late 1994, the Company, Callahan (a wholly-owned subsidiary of the Company) and Asarco formed Silver Valley, a Delaware corporation, and effective January 1, 1995, the Company, Callahan and Asarco transferred certain assets, including their interests in the Coeur, Galena and Caladay mines to Silver Valley. Specifically, Asarco contributed to Silver Valley Asarco's (i) ownership interest in the Joint Venture Agreement, dated August 31, 1964, related to the Coeur Mine property; (ii) interest in the lease, dated January 15, 1947, relating to the Galena Mine property; (iii) ownership interest in the Osburn tailings pond; (iv) 75% interest in the royalty deficit related to the Galena Mine property; and (v) ownership interest in certain other assets located in the Coeur d'Alene Mining District. Coeur and Callahan contributed to Silver Valley Coeur's or Callahan's (i) ownership and lease interest in the Coeur Mine property; (ii) ownership and lease interest in the Galena Mine property; (iii) ownership interest in the Caladay operating agreement; (iv) ownership interest in certain properties surrounding the above properties; and (v) 25% interest in the royalty deficit related to the Galena Mine property. The Board of Directors of Silver Valley consists of six directors, three of whom, including the Chairman of the Board, are appointed by Asarco and three of whom, including the President, are appointed by Coeur. Pursuant to a Shareholders' Agreement between the parties, certain specified corporate action requires a majority vote. If the voting results in a tie at any Board Meeting, the Chairman of the Board of Silver Valley, who also is the Chairman of the Board of Asarco, will decide the issue. The President of Coeur also is the President of Silver Valley and serves on its Executive Committee. Certain other officers of Silver Valley are officers of Coeur or Asarco, which companies may provide management and other services to Silver Valley upon the request of its Board of Directors. During 1995, Silver Valley commenced an underground development program designed to increase ore reserves at the Galena Mine. During the year, 1,496 feet of drifting and 8,499 feet of diamond drilling and recalculations resulted in the addition of 300,000 tons of ore containing 6.633 million ounces of silver to the ore reserves. As a result of this program and increased silver prices, a decision was made on February 8, 1996 by Silver Valley to reopen the mines. It is anticipated that shipments of concentrate will commence in June 1996. Furthermore, the Company estimates that the mines will produce approximately 3 million ounces of silver during the first full year of operations. A summary of the properties owned by Silver Valley follows. GALENA MINE The Galena Mine property consists of approximately 1,100 acres lying immediately west of the City of Wallace, Shoshone County, Idaho adjoining the Coeur Mine's eastern boundary. The property consists of 52 patented mining claims and 25 unpatented mining claims. The Galena Mine is primarily an underground silver-copper mine, with lead credits, which is served by two vertical shafts. On July 26, 1992, Asarco, which was the Galena Mine operator, suspended operations at the Galena Mine due to then prevailing silver prices ($4.31 per ounce average for the month of July 1992) and placed the property on a care and maintenance basis to conserve ore reserves. Based on the ore-reserve estimate dated January 1996, of Silver Valley, proven and probable ore reserves at the Galena Mine total 1,251,000 tons averaging 16.76 ounces per ton silver, 8.80% lead and 0.55% copper. The Asarco reserve estimate is based on a minimum diluted mining width of 5.0 feet for most silver-copper and silver-lead veins and 5.5 feet for lead-zone veins. Cutoff grade is based on the cost of breaking and producing ore from a stope, but do not include development costs and administrative overhead. The cutoff grade varies from area-to-area within the mine due to changing silver-copper ratios of the ore. The reserve estimate has also identified an additional 290,000 tons of mineralized material which has not been included in the reserve, but given additional definition drilling or more favorable silver prices, may become mineable. This material averages 17.00 ounces per ton silver and 0.47% copper. 10 12 The following table sets forth information, for the periods indicated, relating to total Galena Mine production:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1988 1989 1990 1991 1992 --------- --------- --------- --------- --------- (THROUGH JULY) Ore milled (tons)....................... 202,097 201,494 173,687 182,836 91,617 Silver (ounces)......................... 3,048,633 3,080,539 3,066,246 3,278,650 1,572,501 Copper (pounds)......................... 1,996,045 2,058,393 1,808,408 1,993,649 1,064,085 Gold (ounces)........................... 459 323 337 332 143
The Company's previous ownership interest in the above production, giving retroactive effect to Coeur's acquisition of Callahan on December 31, 1991, amounted to 50% through June 11, 1992, and 62.5% thereafter until such ownership was transferred to Silver Valley effective January 1, 1995. The total cost of production per ounce of silver (net of credit for copper byproduct), including mining, processing, direct administrative costs and exploration expenses, but not including financing costs, royalties and smelter charges, amounted to $4.50 in 1988, $4.35 in 1989, $4.19 in 1990, $3.94 in 1991 and $4.23 in 1992 prior to the temporary discontinuation of operations at the Galena Mine on July 26, 1992. Such costs are not necessarily indicative of actual costs that will be incurred for current mining operations. COEUR MINE The Coeur Mine is an underground silver mine located adjacent to the Galena Mine in the Coeur d'Alene Mining District in Idaho, and consists of approximately 868 acres comprised of 38 patented mining claims and four unpatented mining claims. Commercial production began in 1976, and total pre-production expenditures of approximately $20 million were recovered by April 1979, at which time the Company commenced receiving revenues from its non-operating joint venture interest in the mine. Asarco was the operator of the Coeur Mine pursuant to a joint venture agreement with the Company, Callahan and, prior to November 30, 1990, Hecla. Until November 30, 1990, the Company owned 40% of the ores produced from the Coeur Mine and was obligated to pay 40% of the costs. On November 30, 1990, the Company purchased Hecla's 5% interest thereby increasing the Company's interest to 45%. Effective December 31, 1991, Coeur increased its non-operating joint venture interest in the mine to 50% as a result of Coeur's acquisition of Callahan, which had acquired a 5% interest in the mine in March, 1968. Effective January 1, 1995, Coeur and Asarco transferred their interests in the Coeur Mine to Silver Valley. Asarco suspended operations at the Coeur mine on April 3, 1991 due to then prevailing silver prices ($3.90 per ounce average for April 1991) and placed the property on a care and maintenance basis to conserve ore reserves. The following table sets forth information, for the periods indicated, relating to total Coeur Mine production:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1988 1989 1990 1991 --------- --------- --------- ------- (THROUGH APRIL 3) Ore milled (tons)................................... 144,386 159,045 147,883 37,165 Silver (ounces)..................................... 2,115,623 2,198,465 2,113,341 379,856 Copper (pounds)..................................... 1,893,318 2,002,864 1,843,638 335,865 Gold (ounces)....................................... 313 433 480 80
The Company's ownership interest in the above production, giving retroactive effect to Coeur's acquisition of Callahan's 5% interest on December 31, 1991, amounted to 45% prior to November 30, 1990 and 50% thereafter until such ownership was transferred to Silver Valley Resources effective January 1, 1995. 11 13 The total cost of production per ounce of silver (net of credit for copper byproduct), including mining, processing, direct administration costs and exploration expenses, but not including financing costs, royalties and smelter charges, amounted to $4.71 in 1988, $4.36 in 1989, $4.68 in 1990 and $5.38 in 1991 prior to the suspension of operations at the Coeur Mine on April 3, 1991. Such costs are not necessarily indicative of actual costs that will be incurred during current mining operations. The ore reserves at the Coeur Mine are projected to total 377,000 tons averaging 17.33 ounces per ton silver and 0.80% copper. The Coeur unit ore reserve estimate, dated January 1, 1991, is based on a minimum mining width of 4.5 to 5.0 feet with a minimum dilution of 1.0 foot from each margin of the vein. Cutoff grades used in the reserve are estimated from costs based on the unit superintendent's forecast for 1991. The reserve estimate has also identified an additional 172,000 tons of mineralized material which has not been included in the reserve, but given additional definition drilling or more favorable precious silver prices, may become mineable. This material averages 14.21 ounces of silver per ton and 0.64% copper. CALADAY MINE The Caladay property adjoins the Galena Mine. Historically, Callahan expensed approximately $32.5 million on the property to construct surface facilities, a 5,101 ft. deep shaft and associated underground workings to explore the property. The Company believes the same geologic structures which exist at the Galena extend into the Caladay below the level of the current Caladay workings. In addition, the Caladay facilities may be used to benefit the Galena Mine operations. KENSINGTON PROPERTY On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur Alaska, Inc. ("Coeur Alaska"), acquired the 50% ownership interest of Echo Bay Exploration Inc. ("Echo Bay") in the Kensington venture from Echo Bay and Echo Bay Alaska, Inc. (collectively the "Sellers"), giving Coeur 100% ownership of the Kensington property. As a result of that transaction, Coeur assumed full ownership and operating control of the project. Pursuant to the Venture Termination and Asset Purchase Agreement among Coeur Alaska and the Sellers, dated as of June 30, 1995, Coeur Alaska paid to the Sellers a total of $32.5 million and, pursuant to the Royalty Deed set forth as an exhibit to the Venture Termination and Asset Purchase Agreement, Coeur Alaska agreed to pay Echo Bay a scaled net returns royalty on 1 million ounces of future gold production after Coeur Alaska recoups the $32.5 million purchase price and its construction expenditures incurred after July 7, 1995 in connection with placing the property into commercial production. The royalty ranges from 1% at $400 gold prices to a maximum of 2 1/2% at gold prices above $475, with the royalty to be capped at 1 million ounces of production. Performance by Coeur Alaska of its obligations under the agreement is guaranteed by Coeur and performance of the obligations of the Sellers under the agreement is guaranteed by Echo Bay. The Kensington ore body consists of multiple, precious-metals bearing, mesothermal, quartz-pyrite-carbonate-stockwork and massive quartz purite veins hosted in Cretaceous intrusive rocks. Based on a previous Kensington Venture ore-reserve study, as audited during December 1994, by Woollett Consulting Ltd., independent consulting geologists, Kensington proven and probable ore reserves, as of December 31, 1995, are estimated to be 13.641 million tons averaging 0.143 ounces of gold per ton totaling 1.946 million ounces of gold. An additional 3.188 million tons of mineralized material averaging 0.147 ounces per ton gold has been identified, but is insufficiently defined to be included in the reserve. The Kensington ore zone has not been fully delineated at depth and several peripheral veins remain to be explored. The reserve estimate reflects the effects of extractive dilution during the mining process, but not losses during the recovery process. A gold price of $375.00 per ounce was used in calculating the reserve estimate. Based upon metallurgical testing work, the Company expects that 92% of the gold contained in ores milled will be recovered. Coeur has completed metallurgical testing primarily consisting of bench-scale grinding, flotation, cyanide leaching, carbon recovery and other tests, and a subsequent pilot scale test conducted on a bulk ore sample to simulate full-scale plant operations and to confirm selected operating parameters. 12 14 During 1995, activities at Kensington continued to be directed toward completing the permitting process, project optimization studies and feasibility study updates. As of December 31, 1995, the Company had invested a total of $95.4 million (including capitalized interest of $15.6 million) in the Kensington property. Based on a feasibility study prepared by an independent engineering firm engaged to perform detailed design and engineering at the Kensington property, Coeur estimates that in the event it is decided to proceed with the construction of the Kensington facility, approximately $195 million (in addition to monies previously expended), will be required in order to place the property into commercial production. That estimate is based upon the engineering firm's completion of 30% of the engineering upon the project. An updated feasibility study is now being conducted and is expected to be completed during the second quarter of 1996. The feasibility study contemplates that after a two-year construction phase, the mine is expected to produce an average of approximately 200,000 ounces of gold per year. Further development of Kensington is contingent upon several factors, including completion of the updated feasibility study, gold prices and the ability of the Company to obtain valid permits. The initial Kensington feasibility study contemplates a gold price of $400 per ounce. As of February 16, 1996, the market price of gold (London final) was $404.85 per ounce. The major permits necessary for the construction and operation of the facility are U.S. Forest Service ("USFS") approval of the Plan of Operations, Army Corps of Engineers Section 404 permit for tailing impoundment construction, an EPA NPDES permit for the discharge of waste water and the City and Borough of Juneau ("CBJ") Large Mine Permit. In 1992, the CBJ Large Mine Permit was approved for issuance and the USFS approved the Plan of Operations. However, to respond to concerns expressed by the environmental community, the Company decided in July 1995 to make limited changes to the project. This triggered the need for a supplemental environmental impact statement process and amendment of the key permits. The changes were made primarily to gain the support of several environmental groups in Alaska. The key changes involve relocating the effluent discharge point from Lynn Canal to Sherman Creek, at a point adjacent to the tailings impoundment, and construction of a water treatment plant. While these changes are not required by law, they are proposed in response to comments raised by the environmental organization that they prefer fresh water discharge instead of a marine discharge. In addition, the Company proposed to switch to diesel fuel rather than liquid petroleum gas for power generation. As a result, a supplemental environmental impact statement is being prepared and associated changes will be required to be made to the National Pollution Discharge Elimination System, the CBJ, USFS operating plan and state air quality permits. Numerous more minor permits are required by government agencies which authorize construction and operations. The USFS approved the original environmental impact statement ("EIS") in February 1992. Thereafter, administrative appeals were filed by parties opposed to the project. The appeals alleged that the EIS did not satisfy the requirements of the National Environmental Policy Act due to, among other alleged reasons, inadequacy of baseline data used to analyze environmental impacts and failure to adequately consider alternative methods of mining and waste disposal. The appellants sought to prevent USFS approval of an operating plan for the project pending completion of an EIS meeting all legal requirements. On July 7, 1992, the USFS approved the Company's proposed Plan of Operations for the project. On July 28, 1992, the USFS ruled against the appellants upon their appeal. While Coeur believes a court would uphold the USFS determination in the event it were to be further appealed, no assurance can be given as to the outcome of any such appeal if filed. On September 16, 1992, parties opposed to the project requested that the USFS withdraw its decision to approve the operating plan on the grounds that the plan was not complete at the time it was approved. The USFS decided not to withdraw the July 7, 1992 approval of the Plan of Operations on November 10, 1992. In November 1992, the project's Large Mine Permit was approved by the CBJ. On April 30, 1993, a group opposed to the project filed an appeal in state court to that approval, which has been denied. The appeal is now pending before the Alaska Supreme Court. 13 15 On February 1, 1996, Coeur entered into an agreement with a coalition of environmental groups, the Kensington Coalition, represented in part by the Sierra Club Legal Defense Fund, which eliminates potential legal challenge by the groups to the Kensington project, and dismissal of the Supreme Court appeal. Under the terms of the agreement, Coeur will provide for additional environmental input at the project while maintaining its schedule for permitting the property, which permitting process is currently in its final phase. Pursuant to the agreement, the environmental groups will not appeal or litigate the permits required for the project. The coalition of environmental groups are now in the process of considering ratification of the agreement, which agreement is not effective until ratified. In September 1995, Coeur entered into an agreement with the EPA and the Alaska Department of Environmental Conservation which provides for time lines to be met by the parties for the permitting process and is expected to facilitate issuance of draft major permits for the property by approximately May 1, 1996 and final permits by approximately July 1, 1996. In February 1996, Coeur and a consortium of three Alaska native groups announced that they reached an agreement which, if a decision is made to commence construction of the mine, should assist in facilitating construction and operation of the project, while meeting certain employment and training goals for the Native groups working on the project. Under the terms of the agreement between the Company and Goldbelt, Inc., Kake Tribal Corporation and Klukwan, Inc., the native corporations have agreed to assist the Kensington project by providing support during permitting and during mine construction and operation, assisting in communications with local organizations and agencies involved in mining development, as well as filling certain labor requirements for the project. Coeur also agreed to develop and participate in training programs for the jobs that will become available if and when mine construction begins. The Company owns 100% of the Jualin property, an exploratory property located adjacent to the Kensington Property. The Jualin property consists of approximately 9,400 acres, of which approximately 345 acres is patented claims. FARIDE MINE The Faride Mine is 170 meters above sea level and located in the central plain of Region II, 10 km north of Sierra Gorda and 140 km northeast of Antofagasta, in Chile. Access is via a well-kept 12 km long dirt road that joins the area with paved road between Antofagasta and Calama and with the Antofagasta/Bolivia railroad. Infrastructure in the area is very good. In September 1994, Coeur d'Alene acquired an option exerciseable through January 15, 1998 to acquire a 51% operating interest in the fully-developed mine. A mine was opened in 1977 and operated through 1988, producing a total of 70,500 tons of concentration ores averaging 4.4 grams per ton gold, 224 grams per ton silver and some direct smelting ores averaging 8.96 grams per ton gold, 1.190 grams per ton silver and 0.98% copper. Under the option, Coeur d'Alene can acquire its 51% operating interest by paying US$4 million over a four-year period and investing US$3.5 million in exploration. The Faride property consists of 36 exploitation concessions covering approximately 2,830 hectares. Mineralization at the Faride Mine consists of at least 15 precious metal epithermal veins that contain structurally controlled shoots, hosted in competent granitoids. Stockworks and hydrothermal breccias of unknown extent have been detected at depth. Several vein systems have been defined in the area, the largest known is 1,800 meters long. The major veins being explored are 2.5 - 3.0 meters wide. Mineralization is known to extend to at least 200 meter depths. The Company estimates that as of January 1, 1996, ore reserves at the Faride Mine amounted to 1,785,000 tons averaging .051 ounces of gold and 3.81 ounces of silver per ton. Coeur is performing feasibility studies, including a mill test, which, when complete, will allow a decision to be made as to the potential of this mining property. 14 16 INTERESTS IN AUSTRALIAN MINING COMPANIES In December 1995, the Company announced it (i) had acquired an option to acquire 19.9% of Gasgoyne's outstanding shares and (ii) intended to extend an offer to Gasgoyne shareholders to acquire all of Gasgoyne's outstanding shares. In addition, in January 1996, Coeur acquired additional shares, and options to acquire additional shares, of Orion, as a result of which Coeur presently holds approximately 13.1% of Orion's outstanding shares, and upon exercise of such options, would own approximately 19.2% of Orion's outstanding shares. Additional information relating to Coeur's acquisitions of interests in Gasgoyne and Orion are set forth below. Those transactions represent Coeur's proposed entry into the Australian gold sector and are intended to position Coeur for further expansion in the Australasian Region. GASGOYNE Gasgoyne is principally engaged in the exploration, development and ownership of gold properties located in western Australia and Indonesia. Headquartered in Perth, Australia, Gasgoyne's principal asset is its 50% non-operating interest in the Yilgarn Star Gold Mine in Marvel Loch, located approximately 70km east of Perth, which started production in 1991. Gasgoyne's other major asset is its 45% interest in the Awak Mas Gold Project, located in the Province of South Sulawesi of Indonesia. On December 21, 1995, the Company announced that it (i) had entered into an agreement with the principal shareholder of Gasgoyne pursuant to which Coeur acquired an option (the "Option") to acquire a portion of the Gasgoyne ordinary shares owned by such shareholder (constituting 19.9% of Gasgoyne's outstanding shares), and (ii) intended to extend an offer (the "Offer") to Gasgoyne shareholders to acquire all of the outstanding shares of Gasgoyne. In late January 1996, Coeur made the filings required under the Australian securities laws with the Australian Securities Commission ("ASC") and the Australian Securities Exchange ("ASX"), upon which Gasgoyne's shares are listed. Coeur s offer has been delayed by court action in Australia instituted by another company which announced its intention to conduct a competing bid for all of Gasgoyne's shares. There can be no assurance that the Company's proposed Offer will be successful. The Option The Company entered into the above-referred Option agreement with Ioma Pty Ltd. ("Ioma"), which is the principal shareholder of Gasgoyne and is a private investment company controlled by Mr. Phil Crabb, Chief Executive Officer of Gasgoyne, Mr. Rick Crabb, a director of Gasgoyne, and other members of the Crabb family. Pursuant to that agreement, Coeur has the Option to purchase from Ioma approximately 10.6 million Gasgoyne shares, representing approximately 19.9% of Gasgoyne's outstanding shares, on the basis of 7 shares of Coeur common stock plus A$60 cash (or US$45.30 based on the currency exchange rate in effect on February 16, 1996) in exchange for each 100 Gasgoyne shares. Exercise of the Option would require Coeur to issue 742,791 Coeur shares and pay approximately A$6.4 million (or approximately US$4.8 million based on the currency exchange rate in effect on February 16, 1996) to Ioma. The right of Coeur to exercise the Option is subject to Coeur's conducting the Offer on terms no less favorable to Gasgoyne shareholders than the terms contained in the Option. The Option automatically will terminate if Ioma accepts the Offer prior to receipt by Ioma of Coeur's notice to exercise the Option (which notice cannot be given until five business days after dispatch of the Offer to Gasgoyne shareholders). Therefore, Ioma has the ability, following the delivery of Coeur s Offer to Gasgoyne shareholders, to accept the Offer and thereby terminate the Option. The Offer On January 29, 1996, Coeur delivered the Offer and the related Part A Statement (which are the disclosure documents required under Australian law) to the ASC. Those documents were then registered by the ASC on January 30, 1996, and on January 31, 1996, Coeur delivered them to the Board of Directors of Gasgoyne and the ASX in accordance with Australian law. 15 17 The Offer is subject to Coeur's becoming entitled to at least 50.1% of Gasgoyne's outstanding Shares. In addition, the Offer also is subject to (i) there being no takeover offer by another party for Gasgoyne shares which becomes or is declared unconditional before the end of the Offer, (ii) there being no material adverse change in Gasgoyne's business, financial or trading position or condition, and (iii) there being no prescribed occurrence (as defined under the Australian law) occurring or being threatened with respect to Gasgoyne. Non-Australian shareholders of Gasgoyne accepting the Offer and Gasgoyne's shareholders accepting the Offer that are entitled to less than 50 Coeur shares will be entitled to receive only cash from Coeur in exchange for their Gasgoyne shares by means of a nominee sale. Holders of Gasgoyne options granted prior to December 21, 1995, may participate in the Offer by exercising their options. The Coeur shares planned to be offered in the Offer have not been registered under the Securities Act of 1933 (the "Act") in reliance upon Regulation S thereunder and, consequently, the shares may not be offered or sold by former Gasgoyne shareholders to "U.S. persons" (as defined in Rule 902(o) of Regulation S under the Act) unless the shares are registered thereunder or an exemption from such registration requirement is available. Pursuant to Rule 903(c)(2) of Regulation S, any Coeur shares issued to Gasgoyne shareholders may not be offered or sold to any U.S. person prior to the expiration of a 40-day restricted period commencing on the date of the closing of the Offer. Coeur may decide to borrow the funds required for the cash portion of the Offer from Rothschild Australia Limited ("Rothschild") pursuant to a loan facility providing for a maximum of US$50 million of borrowings at an annual interest rate equal to LIBOR plus 1.5%. Based on there being 53,891,993 Gasgoyne shares outstanding on January 25, 1996, and assuming the exercise of outstanding options to purchase an additional 3,689,000 Gasgoyne shares, the maximum number of Coeur shares Coeur could be required to issue in connection with the Offer, assuming that all Gasgoyne shareholders (including Ioma) accept the Offer, would be 4,030,669 shares, which constitutes approximately 19.7% of Coeur's presently outstanding shares. Furthermore, the maximum amount of cash that Coeur would be required to pay to all Gasgoyne shareholders (including Ioma) in the Offer would be approximately A$34.5 million (or approximately US$26.0 million based on the currency exchange rate in effect on February 16, 1996). Coeur has applied to list its shares on the ASX in connection with the Offer. On January 17, 1996, Sons of Gwalia Limited ("Sons of Gwalia") and Burmine Limited ("Burmine"), both of which are Australian mining companies, jointly announced that they intend to merge and that Sons of Gwalia, as the survivor of the merger, will make a takeover offer for Gasgoyne's outstanding shares on the basis of offering one Sons of Gwalia share for every three Gasgoyne shares. On February 14, 1996, Sons of Gwalia commenced a lawsuit in Australia to enjoin the delivery by Coeur of its Offer to Gasgoyne shareholders. As a result of that lawsuit, the extension by Coeur of the Offer to Gasgoyne shareholders has been delayed. Coeur cannot predict whether or the extent to which its plan to acquire Gasgoyne shares will be successful. Gasgoyne Business Gasgoyne's partners in the Yilgarn Star Gold Mine are Orion (the operator) with a 45% interest, and Gemini Mining Pty Ltd., a private Australian company owned by the Crabb family with a 5% interest. The Yilgarn Star Gold Mine operated as an open pit surface mine from 1991 until September 1995 and an underground mine commenced operations on a limited basis there in October 1995. Gasgoyne also has interests in exploration projects surrounding the Yilgarn Star Mine. Gasgoyne's joint venture partners in the Awak Mas Gold Project in Indonesia are Lone Star Exploration NL, an Australian gold company which is the project manager and holds a 45% interest in the project, and a private Indonesian company that has a 10% interest. The Part A Statement, which is the disclosure document required under Australian law to be sent to Gasgoyne shareholders, was filed by Coeur as an exhibit to its Current Report on Form 8-K filed on January 31, 1996, and includes pro forma financial information and financial forecasts that assume the 16 18 acquisition by Coeur of 100% of Gasgoyne's outstanding shares. Australian law required the inclusion of that information in the Part A Statement. ORION On January 24, 1996, Coeur announced that it acquired from Homestake Mining Company ("Homestake") the shares of and options to acquire shares of Orion held by Homestake. As a result of that purchase, Coeur presently holds approximately 13.1% of Orion's outstanding shares and, upon exercise of such options, would own approximately 19.2% of Orion's outstanding shares. Coeur acquired from Homestake, for a total consideration of approximately US$10.7 million, 5.5 million Orion shares and options to purchase an additional 5.0 million shares of Orion for an exercise price of A$1.00 per share (or U.S.$.755 based on the currency exchange rate in effect on February 16, 1996). Coeur utilized its own cash resources to fund the acquisition. Earlier in January 1995 and during the last quarter of 1994, Coeur had acquired a total of 3.33 million shares of Orion primarily in transactions on the ASX for a total cost of approximately US$3.8 million. Orion is the operator of and has a 45% interest in the Yilgarn Star Gold Mine. Coeur will be required to obtain the approval of Australia's Foreign Investment Review Board prior to exercising options that would result in Coeur's owning more than 15% of Orion's outstanding shares. Orion's shares are listed on the Australian Stock Exchange. It is headquartered in Mt. Pleasant Western Australia and, in addition to owning its 45% operating interest in the Yilgarn Star Mine, also has a 49% non-operating interest in the Salsigne Mine in France as well as exploration interests in Australia and New Zealand. SILVER AND GOLD PRICES The Company's operating results are substantially dependent upon the world market prices of silver and gold. The Company has no control over silver and gold prices, which can fluctuate widely. The volatility of such prices is illustrated by the following table, which sets forth the high and low prices of silver (as reported by Handy and Harman) and gold (London final) per ounce during the periods indicated:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------ 1992 1993 1994 1995 ------------------ ------------------ ------------------ ------------------ HIGH LOW HIGH LOW HIGH LOW HIGH LOW ------- ------- ------- ------- ------- ------- ------- ------- Silver....................... $ 4.32 $ 3.63 $ 5.37 $ 3.55 $ 5.76 $ 4.63 $ 6.01 $ 4.36 Gold......................... $359.60 $330.35 $405.60 $326.10 $396.25 $369.65 $395.55 $372.40
MARKETING Coeur has historically sold its gold and silver from its mines both pursuant to forward contracts and at spot prices prevailing at the time of sale to various precious metals firms. Generally, its hedging policy is to sell forward not more than 50% of its estimated annual gold production; however, actual hedging activities have not approached the 50% threshold. As of December 31, 1995, the Company has entered into forward contracts to deliver a total of 68,444 ounces of gold at an average price of $431.52 per ounce, which represents 8% of its scheduled production through 1998 and less than 2% of its total gold reserves. EXPLORATORY MINING PROPERTIES Coeur, either directly or through its wholly-owned subsidiaries, owns, leases and has interests in certain exploration-stage mining properties located in the United States, Guyana, Chile, and New Zealand. Exploration expenses of approximately $2.5 million, $3.9 million and $4.9 million were incurred by the Company in connection with exploration activities in 1993, 1994 and 1995, respectively. 17 19 GOVERNMENT REGULATION General The Company's mining and mineral processing operations and property exploration and development activities are subject to extensive federal, state and local laws governing the protection of the environment, prospecting, development, production, taxes, labor standards, occupational health, mine safety, toxic substances and other matters. Although such regulations have never required the Company to close any mine and the Company is not presently subject to any material regulatory proceedings related to such matters, the costs associated with compliance with such regulatory requirements are substantial and possible future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, the extent of which cannot be predicted. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards and regulations which may entail significant costs and delays. Although Coeur has been recognized for its commitment to environmental responsibility and believes it is in substantial compliance with applicable laws and regulations, amendments to current laws and regulations, the more stringent implementation thereof through judicial review or administrative action or the adoption of new laws, could have a materially adverse effect upon the Company. For the years ended December 31, 1994 and 1995, the Company expended approximately $3.0 million and $2.9 million, respectively, in connection with routine environmental compliance activities at its operating properties and expects to expend approximately $3.0 million for that purpose in 1996. In addition, as of December 31, 1995, the Company had expended approximately $6.6 million on environmental and permitting activities at the Kensington property and expects to spend approximately $2.1 million for that purpose in 1996. The expenditures at Kensington have been capitalized as part of its development cost. Future environmental expenditures will be determined by governmental regulations and the overall scope of the Company's operating and development activities. Federal Environmental Laws EPA Regulations. Mining wastes are currently exempt to a limited extent from the extensive set of Environmental Protection Agency ("EPA") regulations governing hazardous waste. While extraction and bonification wastes are generally exempt from the Resource Conservation and Recovery Act ("RCRA"), certain processing and other wastes are now regulated as hazardous wastes. The EPA continues to evaluate the development of a program to regulate mining waste pursuant to its solid waste management authority under RCRA. In this connection, legislative re-authorization of RCRA is being discussed in Congress and the EPA is studying regulations concerning how mine wastes should be managed and regulated. If the Company's mine wastes were treated as hazardous waste or such wastes resulted in operations being designated as a "Superfund" site under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") for cleanup, material expenditures would likely be required for the construction of additional waste disposal facilities or for other remediation expenditures. Under CERCLA, the current owner or operator of the land and the owner or operator at the time of its contamination may be held liable and may be forced to undertake remedial cleanup action or to pay for the government's cleanup efforts. Additional regulations or requirements may also be imposed upon the Company's tailings and waste disposal operations at the Rochester Mine under the Nevada Water Pollution Control Law. The Company's commitment to environmental responsibility has been recognized in 14 awards received since 1987, which included the Dupont/Conoco Environmental Leadership Award, awarded to the Company on October 1, 1991 by a judging panel that included representatives from environmental organizations and the federal government, the "Star" award granted on June 23, 1993 by the National Environmental Development Association, and the Environmental Waikato Regional Council award for Golden Cross environmental initiative granted on May 15, 1995. The receipt of such awards does not relieve the Company of its obligations to comply with all applicable environmental laws. 18 20 Natural Resources Laws The Company is subject to federal and state laws designed to protect natural resources. The Company and Callahan were advised by the U.S. Department of Interior in July 1995 that they were identified as potentially responsible parties for damages resulting from alleged injury to federal natural resources with respect to the Bunker Hill Superfund Site. The Company presently cannot state whether or estimate the extent to which, if any, it will be liable for any such damages. However, the Company does not believe its liability, if any, relating to the matter will be material in amount. Pending Mining Legislation Legislation is presently being considered in the U.S. Congress to change the Mining Law of 1872 (the "Mining Act") under which the Company holds mining claims on public lands. It is considered possible that the Mining Act will be amended or be replaced by stricter legislation in the future. The legislation under consideration contains strict new environmental standards and conditions, additional reclamation requirements and extensive new procedural steps which would be likely to result in delays in permitting. Among the bills under consideration are bills calling for an 8% gross royalty; a 2.5% net smelter return royalty; and a 3.5% or 5% net proceeds royalty on the value of minerals mined on public lands, payable to the U.S. government. Coeur believes that if and when any royalty is imposed, it will not be a gross royalty. A significant portion of Coeur's U.S. mining properties are on public lands. Whether changes will be enacted or the extent of any changes is not presently known and the potential impact on the Company's United States activities is difficult to predict. Foreign Government Regulations The mining properties of the Company that are located in New Zealand and Chile are subject to various government laws and regulations pertaining to the protection of the air, surface water, ground water and the environment in general, as well as the health of the work force, labor standards and the socioeconomic impacts of mining facilities upon the adjacent communities. The Company believes it is in substantial compliance with all applicable laws and regulations to which it is subject in both Chile and New Zealand. EMPLOYEES At January 31, 1996, the Company employed a total of 1,183 full-time employees, of which 47 are located at the Company's executive offices in Coeur d'Alene, Idaho, 290 are employed at the Rochester Mine, 167 are employed at the Golden Cross Mine in New Zealand, 663 are employed at the Fachinal and El Bronce Mines in Chile, and 16 are employed at the Kensington property in Alaska. The Company maintains labor agreements under country statutes in New Zealand at the Golden Cross Mine and in Chile at the Fachinal and El Bronce Mines. Both agreements are for three years and currently are being proactively administered. In the opinion of the Company, its labor relations have been satisfactory. The employees of Silver Valley Resources are employees of that company. ITEM 2. PROPERTIES. Information regarding the Company's properties is set forth under Item 1 above. ITEM 3. LEGAL PROCEEDINGS. On February 7, 1995, the Internal Revenue Service ("IRS") issued a 30-day letter assessing tax deficiencies of $738,806, which, if resolved in favor of the IRS, would have (i) subjected the Company to the deficiency, decreased net operating loss carry forwards by $28.2 million and resulted in the forfeiture of approximately $2 million appending tax refunds. Coeur filed a petition in the U.S. Tax Court to contest the assessment and on August 7, 1995, the Company settled the issues. Pursuant to the settlement, no deficiency was imposed and income tax refunds totaling $2,939,903, including accrued interest, were released by the IRS to the Company. The Company is still disputing one issue involving the deductibility of certain costs which, if resolved in favor of the IRS, would require the payment of approximately $130,000 by the Company. The 19 21 Company believes the remaining matter in dispute has been treated by it in a manner that is consistent with applicable law. Reference is made to Item 1 (Business) -- "Interests in Australian Mining Companies -- Gasgoyne -- The Offer" -- above for information relating to a lawsuit commenced in Australia in February 1996 against the Company to enjoin its proposed Offer to acquire Gasgoyne shares. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information regarding the Company's current executive officers:
OFFICE WITH APPOINTED NAME AGE THE COMPANY TO OFFICE - ------------------- --- ------------------------------ ---------- Dennis E. Wheeler 53 Chairman of the Board 1992 President 1980 Chief Executive Officer 1986 Michael L. Clark 51 Senior Vice President 1992 Chief Operating Officer James A. Sabala 41 Senior Vice President 1987 Chief Financial Officer 1982 Treasurer Michael C. Tippett 57 Senior Vice President -- 1995 Exploration and New Business Development William F. Boyd 57 Vice President, 1990 Corporate Counsel & Secretary Alan L. Wilder 47 Vice President -- 1992 Engineering and Operations Management Thomas T. Angelos 40 Controller 1987
Messrs. Wheeler, Sabala, Boyd and Angelos have been principally employed by the Company for more than the past five years. Prior to his employment with the Company in October 1992, Mr. Clark had served as the Executive Vice President and Chief Operating Officer of Pegasus Gold, Inc. since 1990. Mr. Wilder was a consultant in 1990 and 1991, and was the Manager of Engineering and Construction for the Company in 1991 until his appointment as an executive officer effective January 1, 1992. Prior to his appointment to his current position on May 9, 1995, Mr. Tippett was Executive Vice President -- CDE Chilean Mining Corporation from May 13, 1991 to May 9, 1995. 20 22 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange ("NYSE") Composite Tape and the Pacific Stock Exchange. The following table sets forth, for the periods indicated, the high and low closing sales prices of the Common Stock as reported on the NYSE Composite Tape:
HIGH LOW ------- ------- 1994: First Quarter......................................... $23.000 $18.375 Second Quarter........................................ 21.750 16.625 Third Quarter......................................... 22.125 17.500 Fourth Quarter........................................ 21.375 14.750 1995: First Quarter......................................... 18.500 14.750 Second Quarter........................................ 21.500 17.500 Third Quarter......................................... 20.875 17.250 Fourth Quarter........................................ 20.875 16.625
The Company paid per share cash distributions or dividends on its Common Stock of $.15 on each of April 21, 1995, April 15, 1994, April 16, 1993 and April 15, 1992; $.12 on April 12, 1991; and $.11 on each of April 20, 1990 and April 21, 1989. Future distributions or dividends on the Common Stock, if any, will be determined by the Company's Board of Directors and will depend upon the Company's results of operations, financial conditions, capital requirements and other factors. At February 16, 1996, there were 8,246 record holders of the Company's outstanding Common Stock. 21 23 ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain selected consolidated financial data with respect to the Company and its subsidiaries and should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1991 1992 1993 1994 1995 -------- -------- -------- -------- -------- (THOUSANDS EXCEPT PER SHARE INFORMATION) INCOME STATEMENT DATA: Income: Sale of concentrates and dore........... $ 49,035 $ 41,414 $ 67,990 $ 79,606 $ 89,239 Less cost of mine operations............ 44,072 37,829 59,804 67,802 72,210 -------- -------- -------- -------- -------- Gross profits........................... 4,963 3,585 8,186 11,804 17,029 Other income............................ 7,714 4,812 5,388 12,587 9,504 -------- -------- -------- -------- -------- Total income............................ 12,677 8,397 13,574 24,591 26,533 Expenses.................................. 29,178 14,118 31,548 29,392 27,591 -------- -------- -------- -------- -------- Net loss from continuing operations before income taxes............................ (16,501) (5,721) (17,974) (5,001) (1,058) Provision (benefit) for income taxes...... (1,198) (4,233) (3,932) (265) 200 -------- -------- -------- -------- -------- Loss from continuing operations........... (15,303) (1,488) (14,042) (4,736) (1,258) Income from discontinued operations (net of taxes)(1)....................... 904 729 752 793 2,412 -------- -------- -------- -------- -------- Income (loss) before cumulative effect of change in accounting method............. (14,399) (759) (13,290) (3,943) 1,154 Cumulative effect of change in accounting method(2)............................... 5,181 -------- -------- -------- -------- -------- Net income (loss)......................... $(14,399) $ (759) $ (8,109) $ (3,943) $ 1,154 ======== ======== ======== ======== ======== Per Share Data:(3) Earnings per share data: Loss from continuing operations......... $(1.00) $(0.10) $(0.92) $(0.31) $(.08) Income from discontinued operations (net of taxes)............................ 0.06 0.05 0.05 0.05 0.15 ------ ------ ------ ------ ----- Income (loss) before cumulative change in accounting method................. (0.94) (0.05) (0.87) (0.26) 0.07 Cumulative effect of change in accounting method.................... -- -- 0.34 -- -- ------ ------ ------ ------ ----- Net income (loss)....................... $(0.94) $(0.05) $(0.53) $(0.26) $0.07 ======== ======== ======== ======== ======== Cash dividends per share................ $ 0.12 $ 0.15 $ 0.15 $ 0.15 $0.15 ======== ======== ======== ======== ======== Weighted average number of shares of Common Stock and equivalents used in calculation..................... 15,308 15,317 15,328 15,388 15,888 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets.............................. $261,034 $324,878 $325,249 $412,361 $445,646 Working capital........................... 129,883 179,370 104,883 170,087 105,597 Long-term debt............................ 57,902 131,134 129,234 227,193 174,000 Shareholders' equity...................... 183,938 180,991 170,849 160,292 239,832
- --------------- (1) On May 2, 1995, the Company sold the assets of its flexible hose and tubing division, The Flexaust Company, and shares of a related subsidiary for approximately $10.0 million, of which approximately $4.0 million was paid at the time of closing and the balance is payable over the next five years. The results 22 24 of operations and the gain on sale of Flexaust manufacturing segment are presented as "Discontinued Operations." The Company recorded a pre-tax gain on the sale of approximately $3.9 million ($2.2 million net of income taxes) during the second quarter of 1995. (2) Effective January 1, 1993, the Company changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards (FAS) 109, "Accounting for Income Taxes." FAS 109 requires an asset and liability approach to accounting for income taxes and establishes criteria for recognizing deferred tax assets. Accordingly, the Company adjusted its existing deferred income tax assets and liabilities to reflect current statutory income tax rates and previously unrecognized tax benefits related to federal and certain state net operating loss carryforwards. FAS 109 also contains new requirements regarding balance sheet classification and prior business combinations. Hence, the Company adjusted the carrying values of an incremental interest in the Rochester Mine acquired in 1988 and CDE Chilean Mining Corp. acquired in 1990 to reflect the gross purchase value previously reported net-of-tax. The cumulative effect of the accounting change on prior years at January 1, 1993 is a nonrecurring gain of $5,181,188, or $.34 per share, and is included in the Consolidated Statement of Operations for the year ended December 31, 1993. Other than the cumulative effect, the accounting change had no material effect on the results of operations for the year ended December 31, 1993. As of January 1, 1993, after giving effect to the implementation of FAS 109, the significant components of the Company's net deferred tax liability were as follows:
DEFERRED INCOME TAXES --------------------------- ASSETS LIABILITIES ----------- ----------- Property, plant and equipment.................. $16,756,918 AMT credit carryforwards....................... $ 938,672 Business credit carryforwards.................. 628,933 Net operating loss carryforwards............... 17,721,115 ----------- ----------- Total..................................... 19,288,720 16,756,918 Less -- valuation allowance.................... (7,927,904) ----------- ----------- Net....................................... $11,360,816 $16,756,918 =========== ==========
As permitted by FAS 109, prior year financial statements have not been restated to reflect the change in accounting method. (3) Earnings per share are calculated based on the weighted average number of common shares outstanding and those Common Stock equivalents that are deemed to be dilutive. The 6% Convertible Subordinated Debentures Due 2002 are considered to be Common Stock equivalents. Accordingly, such debentures are assumed to be converted, and interest expense on such debentures, net of tax expense, has been considered in the computation of earnings per share, except in those instances where the effects of conversion would be antidilutive. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The results of the Company's operations are significantly affected by the market prices of gold and silver which may fluctuate widely and are affected by many factors beyond the Company's control, including interest rates, expectations regarding inflation, currency values, governmental decisions regarding the disposal of precious metals stockpiles, global and regional political and economic conditions, and other factors. The Company's currently operating mines are the Rochester Mine in Nevada, which it wholly owns and operates; the Golden Cross Mine in New Zealand, in which the Company has an 80% operating interest; the El Bronce Mine, a Chilean gold mine of which the Company acquired operating control in October 1994; and the Fachinal Mine, a Chilean gold mine wholly-owned by the Company at which initial production commenced in late October 1995. 23 25 Effective January 1, 1995, the Company, Callahan (a wholly-owned subsidiary of the Company) and Asarco contributed to Silver Valley their interests in and relating to the Galena and Coeur Mines in Idaho, at which mining activities were suspended in July 1992 and April 1991, respectively, due to then prevailing silver prices and a desire to conserve ore reserves, and the adjoining Caladay property, a silver exploration property. On February 9, 1996, Silver Valley announced a program to resume operations at the Coeur and Galena Mines in June 1996. Silver Valley estimates that during the mine's first full year of operations, they will produce a total of approximately 3,000,000 ounces of silver per annum. Silver Valley, of which Asarco owns 50% and the Company and Callahan own 50%, is in the second year of a two-year program pursuant to which it is investing approximately $25 million over the initial mine life in development and exploration at the properties in connection with which it is expanding the existing workings, improving infrastructure and diamond drilling to increase reserves and mine life. The Company has an option until July 1997 to purchase a 51% ownership interest in the El Bronce Mine if it invests the remaining $3.9 million option payment and also invests a minimum of an additional $1.1 million for exploration and mine development designed to expand ore reserves and increase annual gold production above the current level of 40,000 ounces per year. Construction of the new Fachinal mine was completed at a total cost of approximately $40.8 million and initial production commenced in October 1995. The mine presently is expected to produce approximately 44,000 ounces of gold and 2.8 million ounces of silver in its first full year. A production decision at the Kensington property is subject to completion of an updated feasibility study, a market price of gold of at least $400 per ounce and the receipt of certain required permits. The market price of gold (London final) on February 16, 1996 was $404.85 per ounce. The Company is unable to control the timing of the issuance of the remaining required permits. During 1995 and early 1996, the Company acquired shares and options to acquire shares of two Australian gold mining companies, Orion and Gasgoyne, and commenced an effort to acquire all of Gasgoyne's outstanding shares, thereby positioning itself for expansion in the Australasian Region. If the offer for all of Gasgoyne's outstanding shares is fully accepted and completed, Coeur estimates that it would issue approximately 4.0 million additional shares of Common Stock and pay approximately US$26 million (based on the currency exchange rate in effect on February 16, 1996). If Coeur exercises its option to acquire additional Orion shares, Coeur would be required to pay approximately US$3.8 million (based on the currency exchange rate in effect on February 16, 1996) to fund such exercise. The Company's business plan is to continue to acquire mining properties and/or businesses that are operational or expected to become operational in the near future so that they can reasonably be expected to contribute to the Company's near-term cash flow from operations and expand the Company's gold and/or silver production. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Sales and Gross Profits Sales of concentrates and dore in 1995 increased by $9,633,113, or 12%, over 1994. The increase is primarily attributable to an increase in gold and silver production. Silver and gold prices averaged $5.19 and $384.16 per ounce, respectively, in 1995 compared to $5.28 and $384.01 per ounce, respectively, in 1994. During 1995, the Company produced 7,175,394 ounces of silver and 167,985 ounces of gold compared to 6,180,215 ounces of silver and 129,239 ounces of gold in 1994. The cost of mine operations in 1995 increased by $4,408,045, or 7%, over 1994. Gross profit from mine operations increased by $5,225,060, or 44%, over 1994. Mine operations gross profit as a percent of sales increased to 19% in 1995 compared to 15% in 1994. The gross profit increase was primarily attributable to the decreases in silver and gold production costs in 1995 and increased silver and gold production. 24 26 The cash costs of production per ounce of gold at the Golden Cross Mine amounted to $232 per ounce in 1995, compared to $277 per ounce during 1994. The decrease was primarily attributable to (i) the presence in 1994 of a harder grinding ore in the open pit requiring more milling and chemicals in the processing and lower grade of ore being provided from the underground portion of the mine; and (ii) the availability of additional underground production, a better blending of open-pit and underground ore, and the mining of less waste in the open pit in 1995. The cash costs of production per ounce of silver on a silver equivalent basis at the Rochester Mine amounted to $3.71 per ounce in 1995, compared to $3.57 per ounce in 1994. Cash operating costs at the El Bronce Mine averaged $306 per ounce of gold during its first full year of operation. Other Income Interest and other income in 1995 decreased by $3,083,291, or 24%, compared with 1994. The decrease is primarily due to a decrease in the level of the Company's cash and securities portfolio in 1995, notwithstanding a gain of $2.7 million arising from the sale by the Company of common shares of International Curator in the third quarter of 1994 and a gain of approximately $4.4 million from the sale of gold and silver purchased in the open market which was then delivered pursuant to fixed price forward contracts during 1995. Expenses Total expenses in 1995 decreased by $1,801,138, or 6%, from 1994. The decrease is primarily due to a significant decrease in interest expense of $1,653,115 in 1995 compared to 1994. In addition, a non-recurring write-off of $800,000 was recorded in 1994 as a result of an adverse judgment in a lawsuit described below relating to four promissory notes issued by a predecessor of the Company. Loss From Continuing Operations As a result of the above, the Company's loss from continuing operations before income taxes decreased to $1,057,887 in 1995 compared to a loss from continuing operations of $5,000,802 in 1994. The provision for income taxes amounted to $199,703 in 1995, compared to a benefit of $265,312 in 1994. As a result, the Company reported a net loss from continuing operations of $1,257,590, or $.08 per share, in 1995, compared to a net loss from continuing operations of $4,735,490, or $.31 per share, in 1994. Income From Discontinued Operations On May 2, 1995, the Company sold the assets of its flexible hose and tubing division, The Flexaust Company, and shares of a related subsidiary for approximately $10.0 million, of which approximately $4 million was paid at the time of closing and the balance is payable over the next five years. The results of operations and the gain on sale of Flexaust manufacturing segment are presented as "Discontinued Operations." The Company reported income from discontinued operations of $2.4 million, or $.15 per share, compared with $792,926, or $.05 per share in 1994. Net Income (Loss) As a result of the above, the Company reported net income of $1,154,352, or $.07 per share, in 1995, compared to a net loss of $3,942,564, or $.26 per share, in 1994. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 Sales and Gross Profits Sales of concentrates and dore in 1994 increased by $11,616,272, or 17%, over 1993. The increase is primarily attributable to an increase in gold production and increases in metal prices. Silver and gold prices averaged $5.28 and $384.01 per ounce, respectively, in 1994 compared to $4.30 and $359.77 per ounce, respectively, in 1993. During 1994, the Company produced 6,180,215 ounces of silver and 129,239 ounces of gold compared to 6,119,219 ounces of silver and 123,310 ounces of gold in 1993. The increase in gold production is due to the Company's acquisition of an 80% interest in the Golden Cross Mine effective 25 27 April 30, 1993. The Company's 80% interest in Golden Cross production in 1994 amounted to 67,400 ounces of gold and 222,246 ounces of silver compared to 56,898 ounces of gold and 175,325 ounces of silver in 1993. The cost of mine operations in 1994 increased by $7,998,962, or 13%, over 1993. Gross profit from mine operations increased by $3,617,310, or 44%, over 1993. Mine operations gross profit as a percent of sales increased to 15% in 1994 compared to 12% in 1993. The increase was primarily attributable to the increases in silver and gold prices in 1994 over the prior year. The cash costs of production per ounce of gold at the Golden Cross Mine amounted to $277 per ounce in 1994, compared to $245 per ounce during the four months ended April 30, 1993 and $220 per ounce during the eight months ended December 31, 1993. The increase was primarily attributable to the presence of a harder grinding ore in the open pit requiring more milling and chemicals in the processing and lower grade of ore being provided from the underground portion of the mine. The cash costs of production per ounce of silver on a silver equivalent basis at the Rochester Mine amounted to $3.57 per ounce in 1994, compared to $3.55 per ounce in 1993. Other Income Interest and other income in 1994 increased by $7,199,593, or 134%, over 1993. The increase is primarily due to an increase in the level of the Company's cash and securities portfolio and a gain of $2.7 million arising from the sale by the Company of common shares of International Curator Ltd. in the third quarter of 1994. Expenses Total expenses in 1994 decreased by $2,155,812, or 7%, from 1993. The decrease is primarily due to the non-recurring write-offs of $9,374,000, or $.61 per share, effected in the third quarter of 1993. Those write-offs are discussed below and included one-time provisions for litigation settlement of $5,875,000, environmental settlement of $1,230,000 and the write-off of uncollectible notes receivable of $2,268,564. A non-recurring write-off of $800,000 was recorded in 1994 as a result of an adverse judgment in a lawsuit described below relating to four promissory notes issued by a predecessor of the Company. On September 22, 1994, a judgment was entered against the Company in the United States District Court for the District of Idaho in a case entitled Goldberg v. Coeur d'Alene Mines Corporation in the amount of $725,688 plus attorney fees. The action involves an alleged claim by the plaintiff to recover on four promissory notes made by a predecessor of the Company. The notes are claimed to be the obligation of the Company by virtue of successive mergers which occurred in 1974 and in 1988. Plaintiff filed with the court a cost bill in the approximate amount of $225,000. The claim was settled on January 11, 1995 by a payment of $800,000. On November 12, 1993, the Company's Board of Directors approved the proposed settlement of Kassover v. Coeur d'Alene Mines Corporation, a class action originally filed in November 1990 and amended in March 1991 alleging violations of the federal securities laws and common law primarily in connection with the Company's public offering of Common Stock in September 1990. The proposed settlement called for the Company to (i) issue to the class members Common Stock of the Company having a fair market value of $4 million based on the average closing sale price of the Common Stock on the New York Stock Exchange during the five trading days immediately preceding the court hearing to be held in connection with the settlement and (ii) pay $1,875,000 in cash. On June 24, 1994, the U.S. District Court for the District of Idaho approved the settlement and prior to the end of 1994, a total of 220,083 shares of Common Stock were issued in connection with the settlement. The Board's decision reflected its desire to avoid the continuing substantial costs and expenses associated with the lawsuit and the inherent uncertainties of litigation. The Company recorded a litigation settlement expense of $5,875,000 in the third quarter of 1993. During October 1993, the Company and Callahan negotiated a tentative settlement agreement with the U.S. Environmental Protection Agency (the "EPA") and a group of other companies that are potentially responsible parties ("PRPs") in connection with the Bunker Hill Superfund site. The Company and Callahan had been notified in February 1990 by the EPA that they were PRPs in connection with that site, where the 26 28 EPA claimed there was a need for cleanup action under the Comprehensive Environmental Response Compensation and Liability Act of 1980. The negotiated settlement agreement called for the Company and Callahan to pay a total of $1,230,000 to a group of other PRPs in order to remove the Company and Callahan from any additional cleanup liability relating to the site. Accordingly, the Company recorded a non-recurring environmental settlement expense of $1,230,000 during the third quarter of 1993. An order approving the settlement was issued by the United States District Court for the District of Idaho on November 17, 1994, and the settlement amount was paid on December 16, 1994. During September 1993, the Company commenced foreclosure proceedings upon the collateral underlying two delinquent collateralized promissory notes, the recorded principal and accrued interest on which amounted to $2,268,564. The notes originally were acquired by a corporation that merged with the Company in 1988. Demand for payment had been made without satisfaction and the Company discontinued accruing interest on the notes in October 1991. As a result of the institution of the foreclosure proceedings and the Company's inability to ascertain what amounts, if any, could be realized therefrom, the Company effected a non-recurring write-off of uncollectible notes receivable of $2,268,564 in the third quarter of 1993. The above-described decrease in non-recurring expenses in 1994 from 1993 was partially offset by an increase in interest expense of approximately $6.0 million in 1994, which was related to the issuance of $100 million principal amount of 6 3/8% Convertible Subordinated Debentures Due 2004 in the first quarter of 1994, and increases in administrative expenses of approximately $.2 million and mining exploration of approximately $1.3 million. Loss From Continuing Operations Before Accounting Change As a result of the above, the Company's loss from continuing operations before income taxes amounted to $5,000,802 in 1994 compared to $17,973,517 in 1993. The benefit for income taxes amounted to $265,312 in 1994, compared to a benefit of $3,931,839 in 1993. As a result, the Company reported a net loss from continuing operations of $4,735,490, or $.31 per share, in 1994, compared to a net loss from continuing operations of $14,041,678, or $.92 per share, in 1993. Income From Discontinued Operations The Company reported income from discontinued operations of $792,926, or $.05 per share, compared with $751,618, or $.05 per share, in 1993. Loss Before Accounting Change As a result of the above, the Company's loss before the cumulative effect of a change in accounting amounted to $3,942,564, or $.26 per share, in 1994, compared to $13,290,060, or $.87 per share, in 1993. Change in Accounting Effective January 1, 1993, the Company changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards (FAS) 109, "Accounting for Income Taxes." FAS 109 requires an asset and liability approach to accounting for income taxes and establishes criteria for recognizing deferred tax assets. Accordingly, the Company adjusted its existing deferred income tax assets and liabilities to reflect current statutory income tax rates and previously unrecognized tax benefits related to federal and certain state net operating loss carry forwards. The cumulative effect of the accounting change on prior years at January 1, 1993, resulted in a non-recurring gain of $5,181,188, or $.34 per share, and is included in the results of operations for 1993. Net Income (Loss) As a result of the above, the Company reported a net loss of $3,942,564, or $.26 per share, in 1994, compared to a net loss of $8,108,872, or $.53 per share, in 1993. 27 29 LIQUIDITY AND CAPITAL RESOURCES Working Capital; Cash and Cash Equivalents The Company's working capital at December 31, 1995 was approximately $105.6 million compared to $170.1 million at December 31, 1994. The ratio of current assets to current liabilities was 6.0 to one at December 31, 1995 compared to 10.4 to one at December 31, 1994. Net cash provided by operating activities in 1995 increased substantially to $20,915,707 compared to $7,897,723 in 1994. Net cash used in investing activities in 1995 was $37,852,262 compared to $98,738,789 in 1994. Net cash provided by financing activities in 1995 was $18,273,414 compared to $91,310,877 net cash used in financing activities in 1994. As a result of the above, cash and cash equivalents increased by $1,336,859 in 1995 compared to a $469,811 increase in 1994. Conversion of Debenture Indebtedness Into Equity On December 19, 1995, the Company completed the underwritten call for redemption of the approximately $75 million principal amount of its 7% Convertible Subordinated Debentures Due 2002. The transaction was effected pursuant to a Standby Agreement, dated as of November 15, 1995, between the Company and UBS Securities Inc., as the standby purchaser. As a result of the transaction, the outstanding principal amount of the Debentures was converted into a total of 4,866,929 shares of Common Stock. A Registration Statement on Form S-3 relating to the underwritten call for redemption was declared effective by the Securities and Exchange Commission on November 15, 1995. Proposed Public Offering of Mandatory Adjustable Redeemable Convertible Securities The Company plans, immediately following the filing of this Form 10-K, to file a Registration Statement on Form S-3 relating to a proposed underwritten public offering of shares of a new series of preferred stock, the Mandatory Adjustable Redeemable Convertible Securities, with the total expected aggregate offering price expected to range between approximately $125 million to $150 million. The proposed securities are a class of convertible preferred stock that will be mandatorily convertible four years after issuance into Common Stock, unless earlier converted by the holder into Common Stock or redeemed for Common Stock by the Company. If that public offering is consummated, the Company presently plans to use the proceeds therefrom, together with internally generated funds, (i) to fund the Company's developmental expenditures on existing or new gold and silver mining properties, including a portion of the expenditures to be incurred by the Company in the event it decides to place its Kensington property into commercial production; and (ii) for general corporate purposes, including the possible acquisition of, or investment in, additional gold and silver mining properties businesses. Construction of Fachinal Mine In July 1994, the Company's Board of Directors approved, and in late October 1995 the Company completed construction of the Fachinal mining facilities. The total cost of project construction at December 31, 1995 was approximately $40.8 million. On April 19, 1995, the Company completed a limited recourse project financing agreement with a bank syndicate lead by N.M. Rothschild & Sons, Ltd. The agreement provided for the borrowing of up to $24 million for use in the construction of the Fachinal Mine, contains various covenants and is dependent upon attainment of certain completion tests. Furthermore, the agreement restricts the recourse of the banks in the event of default to the assets of the Company's Chilean subsidiary, Compania Minera CDE Fachinal Limitada. The Company is required to guarantee repayment of the borrowing until construction of the project reaches defined completion, which is expected to occur in the first half of 1996, after which the project alone is liable for repayment. (The agreement requires the project to demonstrate compliance with certain ore throughput and financial covenants in order for construction to be deemed complete in which event the Company's loan guarantee is removed.) The interest rate prior to completion of construction of the project was equal to LIBOR plus 1.5% and increases to LIBOR plus 2.75% after completion. The borrowing is repayable in eight equal remaining semiannual installments after completion of project construction. 28 30 Environmental Compliance Expenditures For the years ended December 31, 1995, 1994 and 1993, the Company expended approximately $2.9 million, $3.0 million and $2.4 million, respectively, in connection with environmental compliance activities at its operating properties. Such activities at the Rochester, Golden Cross, El Bronce and Fachinal Mines include monitoring, bonding, earth moving, water treatment and revegetation activities. In addition, at December 31, 1995, the Company had expended a total of approximately $6.6 million on environmental and permitting activities at the Kensington Property, which expenditures have been capitalized as part of its development cost. The Company estimates that environmental compliance expenditures at its Kensington developmental property during 1996 will approximate $2.1 million related to activities associated with obtaining permits required for construction. Future environmental expenditures will be determined by governmental regulations and the overall scope of the Company's operating and development activities. The Company places a very high priority on its compliance with environmental regulations. Exploration and Development Expenditures During 1995, the Company expended approximately $39.5 million (excluding capitalized interest) for its share of the developmental costs at the Kensington property including the acquisition of the remaining 50% of the property at a cost of $32.5 million, approximately $0.4 million at the Rochester Mine, $39.5 million (excluding capitalized interest) for the development of the Fachinal Mine, $7.9 million for investment at the El Bronce Mine and $3.1 million to continue its planned exploration and development programs. During 1996, the Company presently plans to expend approximately $4.8 million (excluding capitalized interest) to bring the Kensington property to a construction decision, approximately $0.2 million for the Fachinal Mine, and $5.0 million for developmental and exploration activities at the El Bronce Mine. It is expected that a decision will be made during the third quarter of 1996 as to whether to place the Kensington property into commercial production. The Company estimates that it will be required to expend approximately $195 million over a two-year period in connection with the construction of the Kensington mining facilities. If the Company decides to construct mining facilities at the Kensington property, the Company plans to finance the cost of construction out of the proposed public offering of Mandatory Adjustable Redeemable Convertible Securities as well as project financing, working capital and/or cash flow sources. Internal Revenue Service Audit On February 7, 1995, the Internal Revenue Service ("IRS") issued a 30-day letter assessing tax deficiencies of $738,806, which, if resolved in favor of the IRS, would have (i) subjected the Company to the deficiency, decreased net operating loss carry forwards by $28.2 million and resulted in the forfeiture of approximately $2.0 million appending tax refunds. Coeur filed a petition in the U.S. Tax Court to contest the assessment and on August 7, 1995, the Company settled the issues. Pursuant to the settlement, no deficiency was imposed, and income tax refunds totaling $2,939,903, including accrued interest, were released by the IRS to Coeur. The Company is still disputing one issue involving the deductibility of certain costs which, if resolved in favor of the IRS, would require the payment of approximately $130,000 by the Company. The Company believes the remaining matter in dispute has been treated by it in a manner that is consistent with applicable law. Federal Natural Resources Matter The Company and its wholly-owned subsidiary, Callahan, were advised by the Fish and Wildlife Service (the "Service") of the U.S. Department of the Interior on July 18, 1995 that they were identified as potentially responsible parties for damages resulting from injury to federal natural resources with respect to the Bunker Hill Superfund Site. By letter dated July 24, 1995, the Company and Callahan requested the Service to identify the federal natural resources allegedly injured, set forth the basis for the assertion that they are potentially responsible parties and quantify the dollar amount of the alleged damages. There has been no response. The Company presently cannot state whether or estimate the extent to which, if any, it may be liable 29 31 for damages in connection with the matter. However, the Company does not believe its liability, if any, will be material in amount. Possible Source of Financing for Proposed Acquisition of Gasgoyne Coeur may decide to borrow the funds required for the cash portion of its Offer for Gasgoyne shares in Australia from Rothschild Australia Limited pursuant to a loan facility providing for a maximum of US$50 million of borrowings at an annual interest rate equal to LIBOR plus 1.5%. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 14 below. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. Information regarding the Company's executive officers is set forth above under Item 4A of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules: (1) The following consolidated financial statements of Coeur d'Alene Mines Corporation and subsidiaries are included in Item 8. Consolidated Balance Sheets -- December 31, 1994 and 1995. 30 32 Consolidated Statements of Operations -- Years Ended December 31, 1993, 1994 and 1995. Consolidated Statements of Changes in Shareholders' Equity -- Years Ended December 31, 1993, 1994 and 1995. Consolidated Statements of Cash Flows -- Years Ended December 31, 1993, 1994 and 1995. Notes to Consolidated Financial Statements. (b) Reports on Form 8-K: No Form 8-K was filed by the Company during the fourth quarter of 1995. On January 31, 1996, the Company filed a Form 8-K reporting its acquisition of interests in Orion and Gasgoyne and on February 15, 1996, that Form 8-K was amended. (c) Exhibits: The following listed documents are filed as Exhibits to this report: 3(a) -- Articles of Incorporation of the Registrant and amendments thereto. (Incorporated herein by reference to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 3(b) -- Bylaws of the Registrant and amendments thereto. (Incorporated herein by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 3(c) -- Certificate of Designations, Powers and Preferences of the Series A Junior Preferred Stock of the Registrant, as filed with Idaho Secretary of State on May 25, 1989 (Incorporated by reference to Exhibit 4(a) of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989.) 4 -- Specimen certificate of the Registrant's stock. (Incorporated herein by reference to Exhibit 4 to the Registrant's Registration Statement on Form S-2 (File No. 2-84174).) 10(a) -- Agreement, dated August 31, 1964, between the Registrant, Rainbow Mining and Milling Company Ltd. and American Smelting and Refining Company, and amendments thereto. (Incorporated herein by reference to Exhibit H to the Registrant's Registration Statement on Form 10 dated April 25, 1977.) 10(b) -- Agreement, dated August 1, 1979, between the Registrant, Callahan Mining Corporation, Day Mines Incorporated and ASARCO Incorporated. (Incorporated herein by reference to Exhibit (a) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1979.) 10(c) -- Executive Compensation Program. (Incorporated herein by reference to Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.)* 10(d) -- Lease agreement, dated as of October 10, 1986, between Manufacturers Hanover Commercial Corporation and Coeur-Rochester, Inc. (Incorporated herein by reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K, dated October 10, 1986.) 10(e) -- Indenture, dated as of June 10, 1987, between the Registrant and Citibank, N.A., as Trustee, relating to the Registrant's 6% Convertible Subordinated Debentures Due 2002. (Incorporated herein by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated June 10, 1987.) 10(f) -- Agreement, dated January 1, 1994, between Coeur-Rochester, Inc. and Johnson Matthey Inc. (Incorporated herein by reference to Exhibit 10(m) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(g) -- Refining Agreement, dated January 24, 1994, between the Registrant and Handy & Harman. (Incorporated herein by reference to Exhibit 10(n) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.)
31 33 10(h) -- Master Equipment Lease No. 099-03566-01, dated as of December 28, 1988, between Idaho First National Bank and the Registrant. (Incorporated herein by reference to Exhibit 10(w) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 10(i) -- Master Equipment Lease No. 0 1893, dated as of December 28, 1988, between Cargill Leasing Corporation and the Registrant. (Incorporated herein by reference to Exhibit 10(x) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 10(j) -- Rights Agreement, dated as of May 24, 1989, between the Registrant and First Interstate Bank of Oregon, N.A., as Rights Agent. (Incorporated herein by reference to Exhibit 2 to the Registrant's Form 8-A relating to the registration of the Rights on the American and Spokane Stock Exchanges.) 10(k) -- Participation Agreement, dated as of November 1, 1988, between the Registrant and ASARCO, Incorporated. (Incorporated herein by reference to Exhibit 10(y) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989.) 10(l) -- Lease dated January 15, 1947 between Vulcan Silver-Lead Corporation and American Smelting and Refining Company. (Incorporated herein by reference to Exhibit 10(v) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.) 10(m) -- Supplemental Agreement dated June 4, 1959 between Callahan Mining Corporation, American Smelting and Refining Company and Day Mines, Inc., amending lease dated January 15, 1947. (Incorporated herein by reference to Exhibit 10(w) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.) 10(n) -- Operating Agreement dated as of March 18, 1970 between Callahan Mining Corporation, American Smelting and Refining Company and Day Mines, Inc. with respect to the Caladay Project. (Incorporated herein by reference to Exhibit 10(x) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.) 10(o) -- Lease dated September 20, 1982 between Callahan Mining Corporation and Hecla Mining Company for the Hornsilver-Peerless properties (Incorporated herein by reference to Exhibit 10(y) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.) 10(p) -- Agreement and Plan of Merger, dated as of September 16, 1991, by and among the Registrant, CMC Acquisition Corporation and Callahan Mining Corporation. (Incorporated herein by reference to Exhibit A to the Prospectus, dated November 22, 1991, contained in the Registrant's Registration Statement on Form S-4 (File No. 33-44096). 10(q) -- Agreement, dated June 11, 1992, between Callahan Mining Corporation and Hecla Mining Company (Incorporated herein by reference to Exhibit 10(z) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992.) 10(r) -- Stock Purchase Agreement, dated as of April 30, 1993, among Coeur New Zealand, Inc., the Registrant, Cyprus gold New Zealand Limited, Cyprus Exploration and Development Corporation and Cyprus Minerals Company. (Incorporated herein by reference to Exhibit 2 to the Registrant's Current Report on Form 8K dated April 30, 1993.) 10(s) -- Amended and Restated Profit Sharing Retirement Plan of the Registrant. (Incorporated herein by reference to Exhibit 10(ff) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.)* 10(t) -- Indenture, dated as of January 26, 1994, between the Registrant and Bankers Trust Company relating to the Registrant's 6 3/8% Convertible Subordinated Debentures Due 2004. (Incorporated herein by reference to Exhibit 10(gg) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.)
32 34 10(u) -- Purchase Agreement, dated January 18, 1994, between the Registrant and Kidder, Peabody & Co. Incorporated relating to the 6 3/8% Convertible Subordinated Debentures Due 2004. (Incorporated herein by reference to Exhibit 10(hh) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(v) -- Registration Rights Agreement, dated January 26, 1994, between the Registrant and Kidder, Peabody & Co., Incorporated relating to the 6 3/8% Convertible Subordinated Debentures Due 2004. (Incorporated herein by reference to Exhibit 10(ii) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(w) -- 1993 Annual Incentive Plan and Long-Term Performance Share Plan of the Registrant. (Incorporated herein by reference to Exhibit 10(jj) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.)* 10(x) -- Supplemental Retirement and Deferred Compensation Plan, dated January 1, 1993, of the Registrant. (Incorporated herein by reference to Exhibit 10(kk) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.)* 10(y) -- Lease Agreement, dated January 12, 1994, between First Security Bank of Idaho and Coeur Rochester, Inc. (Incorporated herein by reference to Exhibit 10(mm) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(z) -- Agreement, dated January 1, 1994, between Coeur Gold New Zealand Limited and Johnson Matthey (Aust.) Ltd. (Incorporated herein by reference to Exhibit 10(mm) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.) 10(aa) -- Nonemployee Directors' Retirement Plan effective as of March 19, 1993, of the Registrant. (Incorporated herein by reference to Exhibit 10(oo) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.)* 10(bb) -- Extension of Employment and Severance Agreement between the Registrant and Dennis E. Wheeler which extension is dated June 28, 1994. (Incorporated by reference to Exhibit 10 (nn) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.)* 10(cc) -- Form of letter, dated June 28, 1994, extending the terms of the Severance Agreements dated march 30, 1989 between the Registrant and James Sabala, Tom Angelos, Michael Clark, Al Wilder and William Boyd. (Incorporated by reference to Exhibit 10(oo) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.)* 10(dd) -- 401k Plan of the Registrant. (Incorporated by reference to Exhibit 10 (pp) to the Registrants Annual Report on Form 10-K for the year ended December 31, 1994.)* 10(ee) -- Option Agreement of October 24, 1994 between Compania Minera El Bronce and CDE Chilean Mining Corporation. (Incorporated by reference to Exhibit 10(qq) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.) 10(ff) -- Asset Contribution Agreement, effective as of January 1, 1995, among the Registrant, ASARCO Incorporated, Callahan Mining Company and Silver Valley Resource Corporation. (Filed herewith.) 10(gg) -- Asset and Stock Purchase Agreement, dates as of April 28, 1995, among Schauemburg International, Inc., The Flexaust Company, Inc. and Callahan Mining Corporation. (Incorporated herein by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K dated May 2, 1995.) 10(ii) -- Limited Recourse Project Financing Agreement, dated April 19, 1995, between the Registrant and N.M. Rothschild & Sons, Ltd. (Incorporated herein by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.)
33 35 10(jj) -- Venture Termination and Asset Purchase Agreement, dated as of June 30, 1995, among Coeur Alaska, Inc., Echo Bay Alaska, Inc. and Echo Bay Exploration, Inc. (Incorporated herein by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K dated July 7, 1995.) 10(kk) -- Form of Standby Agreement, dated November 15, 1995, between the Registrant and UBS Securities Inc. (Incorporated herein by reference to Exhibit 1 to the Registrant's Registration Statement on Form S-3 (File No. 33-64255).) 10(ll) -- Form of Offer, dated January 29, 1996, by the Registrant to acquire all the ordinary shares of Gasgoyne Gold Mines NL. (Incorporated herein by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K filed January 31, 1996 (date of earliest event reported--December 21, 1995).) 10(mm) -- Part A Statement of the Registrant relating to its offer to acquire all the ordinary shares of Gasgoyne Gold Mines NL. (Incorporated herein by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K filed January 31, 1996 (date of earliest event reported--December 21, 1995).) 10(nn) -- Call Option Agreement Over Shares, dated December 20, 1995, between the Registrant and Ioma Pty Ltd. (Incorporated herein by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K filed January 31, 1996 (date of earliest event reported--December 21, 1995).) 21 -- List of subsidiaries of the Registrant. (Filed herewith.) 23 -- Consent of Ernst & Young. (Filed herewith.)
- --------------- * Management contract or compensatory plan (d) Independent auditors' reports are included herein as follows: Coeur d'Alene Mines Corporation Report of Ernst & Young at December 31, 1994, and 1995, and for each of the three years in the period ended December 31, 1995. 34 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Coeur d'Alene Mines Corporation By: DENNIS E. WHEELER ----------------------------------- Dennis E. Wheeler Chairman of the Board, President and Chief Executive Officer Date: February 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE DENNIS E. WHEELER Chairman of the Board of February 28, 1996 --------------------------------- Directors, President, Dennis E. Wheeler Chief Executive Officer and Director (Principal Executive Officer) JAMES A. SABALA Senior Vice President, February 28, 1996 --------------------------------- Chief Financial Officer, James A. Sabala Treasurer and Director (Principal Financial and Accounting Officer) CECIL D. ANDRUS Director February 28, 1996 --------------------------------- Cecil D. Andrus JOSEPH C. BENNETT Director February 28, 1996 --------------------------------- Joseph C. Bennett JAMES J. CURRAN Director February 28, 1996 --------------------------------- James J. Curran DUANE B. HAGADONE Director February 28, 1996 --------------------------------- Duane B. Hagadone JAMES A. MCCLURE Director February 28, 1996 --------------------------------- James A. McClure JEFFREY T. GRADE Director February 28, 1996 --------------------------------- Jeffrey T. Grade
35 37 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a), AND ITEM 14(d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1995 COEUR D'ALENE MINES CORPORATION COEUR D'ALENE, IDAHO 38 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Coeur d'Alene Mines Corporation We have audited the accompanying consolidated balance sheets of Coeur d'Alene Mines Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coeur d'Alene Mines Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note I to the financial statements, in 1993, the Company changed its method of accounting for income taxes. ERNST & YOUNG LLP Seattle, Washington February 2, 1996 F-1 39 COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------ 1995 1994 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents..................................................................... $ 16,484,767 $ 14,707,278 Funds held in escrow.......................................................................... 2,270,695 Short-term investments........................................................................ 63,077,064 128,112,407 Receivables................................................................................... 13,809,248 11,112,918 Inventories................................................................................... 30,980,765 34,215,127 ------------ ------------ TOTAL CURRENT ASSETS...................................................................... 126,622,539 188,147,730 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment................................................................. 118,083,535 83,872,789 Less accumulated depreciation................................................................. 34,152,342 37,394,296 ------------ ------------ 83,931,193 46,478,493 MINING PROPERTIES Operational mining properties................................................................. 150,655,767 102,571,977 Less accumulated depletion.................................................................... 38,528,902 38,162,432 ------------ ------------ 112,126,865 64,409,545 Developmental properties...................................................................... 108,819,693 95,896,774 ------------ ------------ 220,946,558 160,306,319 NET ASSETS OF DISCONTINUED OPERATIONS........................................................... 6,000,741 OTHER ASSETS Funds held in escrow.......................................................................... 2,270,695 Notes receivable.............................................................................. 5,000,000 Debt issuance costs, net of accumulated amortization of $3,374,762 and $2,416,963............. 4,702,535 8,240,209 Marketable equity securities.................................................................. 4,390,362 418,052 Other......................................................................................... 52,886 499,154 ------------ ------------ 14,145,783 11,428,110 ------------ ------------ $445,646,073 $412,361,393 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.............................................................................. $ 5,743,125 $ 2,289,808 Accrued liabilities........................................................................... 3,525,305 5,226,925 Accrued interest payable...................................................................... 4,525,925 4,634,961 Accrued salaries and wages.................................................................... 5,038,506 3,867,801 Current portion of obligations under capital leases........................................... 2,192,856 2,041,057 ------------ ------------ TOTAL CURRENT LIABILITIES................................................................. 21,025,717 18,060,552 LONG-TERM LIABILITIES 6% convertible subordinated debentures........................................................ 50,000,000 50,000,000 6 3/8% convertible subordinated debentures.................................................... 100,000,000 100,000,000 7% convertible subordinated debentures........................................................ 75,000,000 Limited recourse project financing............................................................ 23,999,997 Obligations under capital leases.............................................................. 2,192,856 Other long-term liabilities................................................................... 9,386,347 5,234,899 Deferred income taxes......................................................................... 1,402,330 1,580,804 ------------ ------------ TOTAL LONG-TERM LIABILITIES............................................................... 184,788,674 234,008,559 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Stock, par value $1.00 per share -- authorized 10,000,000 shares, none outstanding Common Stock, par value $1.00 per share -- authorized 60,000,000 shares, issued 21,524,093 and 16,633,163 shares (including 1,059,211 shares held in treasury)............................. 21,524,093 16,633,163 Capital surplus............................................................................... 247,099,977 182,881,071 Accumulated deficit........................................................................... (15,889,154) (17,043,506) Unrealized gains (losses) on short-term investments........................................... 361,173 (8,820,137) Repurchased and nonvested shares.............................................................. (13,264,407) (13,358,309) ------------ ------------ 239,831,682 160,292,282 ------------ ------------ $445,646,073 $412,361,393 ============ ============
See notes to consolidated financial statements. F-2 40 COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------ 1995 1994 1993 ----------- ----------- ------------ INCOME Sale of concentrates and dore...................... $89,239,051 $79,605,938 $ 67,989,666 Less cost of mine operations....................... 72,210,413 67,802,368 59,803,406 ----------- ----------- ------------ GROSS PROFITS................................. 17,028,638 11,803,570 8,186,260 OTHER INCOME -- interest, dividends, and other....... 9,504,065 12,587,356 5,387,763 ----------- ----------- ------------ TOTAL INCOME.................................. 26,532,703 24,390,926 13,574,023 EXPENSES Administration..................................... 3,677,354 3,824,946 3,618,772 Accounting and legal............................... 1,625,609 1,673,223 3,108,705 General corporate.................................. 6,206,628 6,258,111 5,089,224 Mining exploration................................. 4,853,789 3,877,614 2,533,542 Idle facilities.................................... 1,481,243 1,558,752 2,459,159 Interest........................................... 9,745,967 11,399,082 5,364,574 Nonrecurring charges............................... 800,000 9,373,564 ----------- ----------- ------------ TOTAL EXPENSES................................ 27,590,590 29,391,728 31,547,540 ----------- ----------- ------------ NET LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.............................................. (1,057,887) (5,000,802) (17,973,517) Income tax provision (benefit)....................... 199,703 (265,312) (3,931,839) ----------- ----------- ------------ NET LOSS FROM CONTINUING OPERATIONS.................. (1,257,590) (4,735,490) (14,041,678) Income from discontinued operations (net of taxes)... 2,411,942 792,926 751,618 ----------- ----------- ------------ NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING...................................... 1,154,352 (3,942,564) (13,290,060) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD..... 5,181,188 ----------- ----------- ------------ NET INCOME (LOSS)............................... $ 1,154,352 $(3,942,564) $ (8,108,872) ========== ========== =========== EARNINGS PER SHARE DATA Weighted average number of shares of Common Stock outstanding........................................ 15,888,357 15,387,889 15,327,862 ========== ========== =========== Net loss from continuing operations.................. $ (.08) $ (.31) $ (.92) Income from discontinued operations.................. .15 .05 .05 ----------- ----------- ------------ Net income (loss) before cumulative effect of change in accounting...................................... .07 (.26) (.87) Cumulative effect of change in accounting method..... .34 ----------- ----------- ------------ NET INCOME (LOSS) PER SHARE.......................... $ .07 $ (.26) $ (.53) ========== ========== =========== CASH DIVIDENDS PER SHARE............................. $ .15 $ .15 $ .15 ========== ========== ===========
See notes to consolidated financial statements. F-3 41 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
COMMON STOCK UNREALIZED GAINS REPURCHASED AND ------------------------ (LOSSES) ON NONVESTED SHARES PAR CAPITAL ACCUMULATED SHORT-TERM ---------------- SHARES VALUE SURPLUS DEFICIT INVESTMENTS SHARES ---------- ----------- ------------ ------------ ---------------- ---------------- Balance at December 31, 1992...... 16,377,228 $16,377,228 $183,050,612 $ (4,992,070) (1,058,453) Net Loss.......................... (8,108,872) Sale of Common Stock for cash..... 8,675 8,675 139,535 Cash Dividends.................... (2,297,520) Issuance of shares under Stock Compensation Plan (net)......... 10,374 10,374 181,545 Other............................. (1,975) (1,975) (35,541) ---------- ----------- ------------ ------------ ---------------- ---------------- Balance at December 31, 1993...... 16,394,302 16,394,302 181,038,631 (13,100,942) (1,058,453) Net Loss.......................... (3,942,564) Cash Dividends.................... (2,303,194) Issuance of shares under Stock Compensation Plan (net)......... 18,778 18,778 365,717 Unrealized losses................. $ (8,820,137) Other............................. 220,083 220,083 3,779,917 (758) ---------- ----------- ------------ ------------ ---------------- ---------------- Balance at December 31, 1994...... 16,633,163 16,633,163 182,881,071 (17,043,506) (8,820,137) (1,059,211) Net Income........................ 1,154,352 Cash Dividends.................... (2,339,376) Issuance of shares under Stock Compensation Plan (net)......... 24,001 24,001 384,263 Unrealized Gains.................. 9,181,310 Conversion of 7% debentures....... 4,866,929 4,866,929 66,174,019 ---------- ----------- ------------ ------------ ---------------- ---------------- Balance at December 31, 1995...... 21,524,093 $21,524,093 $247,099,977 $(15,889,154) $ 361,173 (1,059,211) ========= ========== =========== =========== =============== ========= REPURCHASED AND NONVESTED SHARES ---------------- AMOUNT TOTAL ---------------- ---------------- Balance at December 31, 1992...... $ (13,444,270) $ 180,991,500 Net Loss.......................... (8,108,872) Sale of Common Stock for cash..... 148,210 Cash Dividends.................... (2,297,520) Issuance of shares under Stock Compensation Plan (net)......... (39,016) 152,903 Other............................. (37,516) ---------------- ---------------- Balance at December 31, 1993...... (13,483,286) 170,848,705 Net Loss.......................... (3,942,564) Cash Dividends.................... (2,303,194) Issuance of shares under Stock Compensation Plan (net)......... 124,977 509,472 Unrealized losses................. (8,820,137) Other............................. 4,000,000 ---------------- ---------------- Balance at December 31, 1994...... (13,358,309) 160,292,282 Net Income........................ 1,154,352 Cash Dividends.................... (2,339,376) Issuance of shares under Stock Compensation Plan (net)......... 93,902 502,166 Unrealized Gains.................. 9,181,310 Conversion of 7% debentures....... 71,040,948 ---------------- ---------------- Balance at December 31, 1995...... $ (13,264,407) $ 239,831,682 =========== ===========
See notes to consolidated financial statements. F-4 42 COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1995 1994 1993 ----------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) from continuing operations........................... $(1,257,590) $ (4,735,490) $ (8,860,490) Add (less) noncash items: Depreciation, depletion, and amortization............................ 16,893,392 17,537,499 13,661,502 Cumulative effect of change in accounting method..................... (5,181,188) Deferred income taxes................................................ (1,786,435) (629,356) (4,217,259) Loss on disposition of assets........................................ 457,895 132,099 444,950 (Gain) loss on foreign currency transactions......................... 597,009 (783,894) (302,287) Gain (loss) on disposition of securities............................. 885,160 (1,541,735) Nonrecurring charges................................................. 9,373,564 Changes in Operating Assets and Liabilities: Accounts receivable.................................................. (1,238,697) (2,932,231) (2,883,201) Inventories.......................................................... 3,234,362 (953,103) (2,132,683) Accounts payable and accrued liabilities............................. 2,527,843 759,065 3,183,344 ----------- ------------- ------------- Net cash provided by continuing operations............................. 20,312,939 6,852,854 3,086,252 Income from discontinued operations.................................... 2,411,942 792,926 751,618 Add (less) noncash items: Depreciation, depletion & amortization............................... 85,381 288,522 191,260 Gain (loss) on disposition of discontinued operations................ (3,963,879) 1,528 Deferred income taxes................................................ 1,607,961 528,618 501,079 Change in operating assets and liabilities Accounts receivable.................................................. 601,242 (267,250) (242,100) Inventories.......................................................... (30,661) (322,553) (165,368) Accounts payable and accrued liabilities............................. (109,218) 23,078 79,636 ----------- ------------- ------------- Net cash provided by discontinued operations........................... 602,768 1,044,869 1,116,125 ----------- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 20,915,707 7,897,723 4,202,377 CASH FLOWS USED IN INVESTING ACTIVITIES Purchase of Cyprus Gold New Zealand, Ltd. (net of cash received)....... (52,818,247) Purchases of short-term investments.................................... (2,424,374) (107,900,947) (85,387,368) Proceeds from sales of short-term investments.......................... 70,111,964 43,349,371 34,548,248 Purchases of property, plant and equipment............................. (44,895,523) (9,248,331) (4,563,607) Proceeds from sale of assets........................................... 1,177,328 488,353 680,873 Proceeds from sale of discontinued operations.......................... 3,133,133 Expenditures on operational mining properties.......................... (21,027,029) (12,736,653) (2,524,454) Expenditures on developmental properties............................... (42,509,841) (12,760,036) (8,926,809) Other.................................................................. (1,417,920) 69,454 (567,011) ----------- ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES.............................. (37,852,262) (98,738,789) (119,558,375) CASH FLOWS FROM FINANCING ACTIVITIES Retirement of obligations under capital leases......................... (2,041,056) (1,899,771) (1,775,333) Payment of cash dividends.............................................. (2,339,376) (2,303,194) (2,297,520) Proceeds from bond issuance............................................ 95,513,842 Proceeds from project financing........................................ 23,999,997 Payment of bond conversion costs....................................... (1,346,151) ----------- ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................ 18,273,414 91,310,877 (4,072,853) ----------- ------------- ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 1,336,859 469,811 (119,428,851) Cash and cash equivalents at beginning of year: Related to continuing operations....................................... 14,707,278 14,388,998 133,838,430 Related to discontinued operations..................................... 440,630 289,099 268,518 ----------- ------------- ------------- 15,147,908 14,678,097 134,106,948 ----------- ------------- ------------- Cash and cash equivalents at end of year: Related to continuing operations....................................... 16,484,767 14,707,278 14,388,998 Related to discontinued operations..................................... 440,630 289,099 ----------- ------------- ------------- $16,484,767 $ 15,147,908 $ 14,678,097 ============ ============== ==============
See notes to consolidated financial statements. F-5 43 NOTE A -- BUSINESS OF COEUR D'ALENE MINES CORPORATION Coeur d'Alene Mines Corporation (Coeur or the Company) is principally engaged in the exploration, development and operation of silver and gold mining properties located in the United States (Nevada, Idaho and Alaska), New Zealand and South America, primarily Chile. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the wholly-owned subsidiaries of the Company, the most significant of which are Coeur Rochester, Callahan Mining Corporation including Coeur New Zealand, Inc., Coeur-Alaska, Inc. and CDE Fachinal Ltd. The consolidated financial statements also include all non-wholly owned entities in which voting control of more than 50% is held by the Company. Related minority interests are not material and are included in other assets. Intercompany balances and transactions have been eliminated in consolidation. Investments in unincorporated joint ventures are accounted for on a proportionate consolidation basis, the most significant of which is the Golden Cross Mine. Revenue Recognition: Revenue is recognized when title to gold and silver passes to the buyer. The effects of forward sales are reflected in revenue at the date the related precious metals are delivered or the contracts expire. Inventories: Inventories of ores on leach pads and in the milling process are valued based on actual costs incurred to place such ores into production, less costs allocated to minerals recovered through the leaching and milling processes. Inherent in this valuation is an estimate of the amount of the minerals on leach pads and in process that will ultimately be recovered. Management evaluates this estimate on an ongoing basis. Adjustments to the recovery rate are accounted for prospectively. Dore inventory includes product at the mine site and product held by refineries. All other inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out and weighted average cost methods. Property, Plant, and Equipment: Property, plant, and equipment are recorded at cost. Depreciation, using the straight-line method, is provided over the estimated useful lives of the assets. Certain mining equipment is depreciated using the units of production method based upon estimated total reserves. Maintenance and repairs are charged to operations as incurred. Mining Properties: Values for mining properties represent acquisition costs or fair market value of Common Stock issued for properties plus developmental costs. Cost depletion has been recorded based on the units-of-production method over the estimated total reserves. Management evaluates the net carrying value of all operations, property by property, on a regular basis to reach a judgment concerning possible permanent impairment of value and the need for a write-down in asset value to net realizable value. These reviews require significant judgment and the use of estimates, and are affected by the risks and uncertainties inherent in normal operations. Considerations include the level of maintenance and standby costs, current projections of metal prices and other nonoperating alternatives. Reclamation Costs: Post-closure reclamation and site restoration costs are estimated based upon environmental regulatory requirements and are accrued over the life of the mine using the units of production method. Current expenditures relating to ongoing environmental and reclamation programs are expensed as incurred. As of December 31, 1995 and 1994 the Company provided approximately $4.3 million and $2.8 million for post-closure reclamation and restoration, and anticipates the total of such costs will be approximately $12.7 million. Amounts provided are included as Other long-term liabilities. Exploration and Development: Costs incurred in the search for new mineral properties are charged directly to expense. Development expenditures incurred prior to reaching the production stage, related to mining and drilling properties with identified economic reserves, are capitalized. Interest costs are capitalized on development properties until the properties are placed into operation. Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of December 31, 1995 and 1994, cash and cash equivalents included $15,256,078 and $13,741,430 of cash, respectively. The balance of the reported F-6 44 amounts consists principally of investment grade commercial paper. Amounts reported represent cost which approximates fair value. Short-term Investments: The Company invests in debt and equity securities which are classified as available for sale, according to provisions of FAS 115 "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, securities are carried at fair value, determined by quoted prices. Unrealized holding gains and losses on such securities are excluded from earnings and reported as a separate component of shareholders' equity until realized. Foreign Currencies: Monetary assets and liabilities of the Company's New Zealand and Chilean operations are translated into U.S. dollars at year-end exchange rates and revenue and expenses are translated at average exchange rates. Translation gains and losses are reflected in income. Non-monetary assets and liabilities are converted at historical rates. Realized gains and losses from foreign currency transactions are reflected in income. Foreign Currency Forward Exchange Contracts: As part of its program to manage foreign currency risk, the Company has entered into foreign currency forward exchange contracts. Contracts related to firm commitments are designated and effective as hedges. Gains and losses are deferred and recognized in the same period as the related transactions. Forward Delivery Contracts: The Company sells refined gold and silver from its mines to various precious metals refiners pursuant to forward contracts or at spot prices prevailing at the time of sale. Revenue from forward sales transactions is recognized as metal is delivered. Earnings Per Share: Earnings per share are calculated based on the weighted average number of common stock and common stock equivalents outstanding, unless the addition of common stock equivalents would be anti-dilutive. The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares on the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for the stock option grants. New Accounting Standard: In March 1995, The Financial Accounting Standards Board (FASB) issued Statement No. 121 Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. The Company adopted the statement in 1995 and there was no material impact as a result of the adoption. Reclassification: Certain reclassifications of prior year balances have been made to conform to current year classifications. NOTE C -- DISCONTINUED OPERATIONS Flexaust Company On May 2, 1995, the Company sold the assets of its flexible hose and tubing division, The Flexaust Company, and shares of a related subsidiary for approximately $10.0 million, of which approximately $4.0 million was paid at the time of closing and the balance is payable over the next five years. The results of operations and the gain on sale of Flexaust manufacturing segment are presented as "Discontinued Operations." The Company recorded a pre-tax gain on the sale of approximately $4.0 million ($2.4 million net of income taxes) during 1995. Flexaust generated revenues of $3,949,715 and net income from operations of $56,023 in the period January 1, 1995 to May 5, 1995 which is reflected as a component of income from discontinued operations. F-7 45 NOTE D -- SHORT TERM INVESTMENTS AND MARKETABLE SECURITIES The amortized cost of available-for-sale securities is adjusted for premium and discount amortization. Such amortization is included in Other Income. The following is a summary of Available-for-Sale Securities as of December 31, 1995 and 1994.
AVAILABLE-FOR-SALE SECURITIES ------------------------------------------------- GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST LOSSES GAINS VALUE -------- ---------- ---------- --------- (IN THOUSANDS) 1995 U.S. Corporate...................................... $ 27,369 $ 6 $109 $ 27,472 U.S. Government..................................... 30,239 87 30,152 -------- -------- ------- --------- Total Debt Securities............................... 57,608 93 109 57,624 Equity Securities................................... 9,498 239 584 9,843 -------- -------- ------- --------- $ 67,106 $ 332 $693 $ 67,467 ======== ======== ======= ======== 1994 U.S. Corporate...................................... $ 67,856 $3,438 $ 64,418 U.S. Government..................................... 48,314 2,461 45,853 -------- -------- ------- --------- Total Debt Securities............................... 116,170 5,899 110,271 Equity Securities................................... 21,180 3,184 263 18,259 -------- -------- ------- --------- $137,350 $9,083 $263 $ 128,530 ======== ======== ======= ========
The gross realized gains on sales of Available-For-Sale Securities totaled $348,052 and $2,731,499 during 1995 and 1994, respectively. The gross realized losses totaled $1,233,213 and $1,189,764 during 1995 and 1994, respectively. Short-term investments mature at various dates through December 1996. NOTE E -- INVENTORIES Inventories are composed of the following:
DECEMBER 31, ---------------------------- 1995 1994 ------------ ------------ In process inventory............................. $ 25,727,357 $ 28,895,419 Dore inventory................................... 2,052,043 1,748,207 Supplies......................................... 3,201,365 3,571,501 ------------ ------------ $ 30,980,765 $ 34,215,127 =========== ===========
NOTE F -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, ---------------------------- 1995 1994 ------------ ------------ Land............................................. $ 2,509,016 $ 2,072,573 Buildings and improvements....................... 63,444,150 22,311,170 Machinery and equipment.......................... 43,780,014 51,138,691 Capital leases, buildings and equipment.......... 8,350,355 8,350,355 ------------ ------------ $118,083,535 $ 83,872,789 =========== ===========
F-8 46 Assets subject to capital leases consist of the following:
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- Buildings.......................................................... $ 5,104,730 $ 5,104,730 Equipment.......................................................... 3,245,625 3,245,625 ----------- ----------- TOTAL BUILDINGS AND EQUIPMENT................................. 8,350,355 8,350,355 Operational mining property........................................ 7,871,007 7,871,007 ----------- ----------- 16,221,362 16,221,362 Less allowance for accumulated amortization and depletion.......... 9,255,298 8,633,847 ----------- ----------- NET ASSETS SUBJECT TO CAPITAL LEASES............................... $ 6,966,064 $ 7,587,515 ========== ==========
Lease amortization is included in depreciation and depletion expense. The Company has a capital lease agreement for the Rochester mineral processing facilities which expires in 1996. The Company has renewed the lease for two additional years. The lease will be accounted for as an operating lease during the renewal period. Upon expiration of the lease, the Company is entitled to purchase the facilities for the lesser of $5,850,000 or fair market value. The Company is required to maintain a security deposit of approximately $2.3 million in an interest-bearing escrow account with the interest payable to the Company until the initial term of the lease expires. The Company has entered into various operating lease agreements, which expire over a period of five years. The total rent expense charged to operations under these agreements was $4,432,470, $3,697,791 and $3,636,876 for 1995, 1994 and 1993, respectively. Minimum lease payments under capital and operating leases are as follows:
YEAR ENDING CAPITAL OPERATING DECEMBER 31 LEASES LEASES ------------------------------------------------------------ ---------- ----------- 1996...................................................... $2,292,947 $ 3,943,297 1997...................................................... 4,750,363 1998...................................................... 3,461,156 1999...................................................... 944,356 2000...................................................... 137,682 ---------- ----------- TOTAL MINIMUM PAYMENTS DUE.................................. 2,292,947 $13,236,854 ========== Less amount representing interest......................... 100,091 ---------- PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS................. 2,192,856 Less current maturities................................... 2,192,856 ---------- $ 0 =========
F-9 47 NOTE G -- MINING PROPERTIES Capitalized costs for mining properties consist of the following:
DECEMBER 31, ----------------------------- 1995 1994 ------------ ------------ Operational mining properties: Rochester Mine, less accumulated depletion of $32,712,208 and $28,399,912................................................ $ 40,071,933 $ 38,315,940 Golden Cross Mine, less accumulated depletion of $5,263,131 and $3,631,051............................................. 12,680,097 12,894,206 Silver Valley Resources, less accumulated depletion of $5,715,913................................................. 8,705,942 7,176,695 Fachinal Mine................................................. 34,200,181 El Bronce Mine less accumulated depletion of $553,564 and $101,598................................................... 16,468,712 5,936,518 Other......................................................... 86,186 ------------ ------------ TOTAL OPERATIONAL MINING PROPERTIES...................... 112,126,865 64,409,545 Developmental mining properties: Kensington................................................. 95,402,895 52,139,488 Fachinal................................................... 32,444,979 Waihi East................................................. 8,454,000 8,454,000 Other...................................................... 4,962,798 2,858,307 ------------ ------------ TOTAL DEVELOPMENTAL MINING PROPERTIES.................... 108,819,693 95,896,774 ------------ ------------ TOTAL MINING PROPERTIES.................................. $220,946,558 $160,306,319 =========== ===========
OPERATIONAL MINING PROPERTIES The Rochester Mine: The Company owns and operates this silver and gold surface mining operation. The Company has conducted operations at the Rochester Mine since September 1986. It is one of the largest primary silver mines in the United States and a significant gold producer as well. A prior owner of the property has retained a royalty interest that varies between 0% and 5% of the net smelter revenues of the Rochester Mine, provided the market price of silver is at least $17.35. Golden Cross Mine: On April 30, 1993, the Company acquired an 80% operating interest in the Golden Cross Mine. The mine is a gold and silver surface and underground mining operation located near Waihi, New Zealand. The Company's 80% interest in the Golden Cross Mine, accounted for by the proportionate consolidation method, is summarized as follows:
YEAR ENDED DECEMBER 31, -------------------- 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Sales of dore.......................................... $ 32,341 $ 27,582 Cost of mine operation................................. (26,598) (27,819) -------- -------- Net income (loss) before income taxes.................. $ 5,743 $ (237) ======== ======== Assets................................................. $ 41,926 $ 44,931 Liabilities............................................ (32,809) (41,188) -------- -------- Shareholders' equity................................... $ 9,117 $ 3,743 ======== ========
Silver Valley Resources Corporation: On January 1, 1995, the Company entered into an agreement with Asarco Incorporated and formed a new company named Silver Valley Resources Corporation ("Silver Valley"). Both Coeur and Asarco contributed to Silver Valley their respective interests in the Galena and Coeur Mines as well as other assets and waived certain cash flow entitlements at the Galena Mine in return for F-10 48 shares of capital stock of Silver Valley. Coeur's 50% investment is included on the balance sheet as operational mining properties. The transaction resulted in no gain or loss to the Company. On February 9, 1996, Silver Valley announced that it will reopen the Coeur and Galena Mines with full production beginning in June 1996. The two mines had previously been on standby status due to then prevailing silver prices and the desire to conserve reserves. A development program during 1995 has increased ore reserves by 20% to 1,628,000 tons and increased the ore reserve grade. When the mines are at full capacity, which is expected by June 1996, they will produce approximately 3 million ounces of silver per year. The Company capitalized $665,470 of development expenditures during the fourth quarter of 1995. Fachinal: The Fachinal Mine is a gold and silver open pit and underground mine located in southern Chile which commenced preproduction in October 1995. The mine is in a pre-production phase until designated production levels are achieved and can be maintained. Until that time, operating costs are capitalized as start up costs. Revenue generated during the pre-production period will be credited against deferred start up costs. The mine is expected to produce 44,000 ounces of gold and 2.8 million ounces of silver in its first full year of operation. El Bronce Mine: On October 3, 1994, the Company assumed operating control of the El Bronce gold mine under terms of a management agreement. The mine is an underground gold and silver mine located in central Chile, approximately 90 miles north of Santiago. According to the terms of the management agreement, the Company is entitled to 51% of the net profits, and has an option to acquire a 51% equity interest in CDE El Bronce by July 1997 for a total price of $25.5 million (of which $17 million had been expended as of December 31, 1995). Coeur has commenced a four year program designed to increase gold production and improve the reserve base and profitability levels. Management fees earned in 1995 and 1994, reflected as a component of "Other Income," totaled $.8 million and $1.0 million, respectively. Total capital investment as of December 31, 1995 is $17.0 million. In January 1996, an additional $3.9 million was invested in El Bronce under the option agreement. DEVELOPMENTAL PROPERTIES Kensington: On July 7, 1995, the Company became the 100% owner and operator of the Kensington property near Juneau, Alaska, by acquiring the 50% interest held by its former joint venture partner, Echo Bay Mines, Ltd., for $32.5 million plus a scaled net returns royalty on 1 million ounces of future gold production after Coeur recoups the $32.5 million purchase price and its construction expenditures incurred after July 7, 1995 in connection with placing the property into commercial production. The royalty ranges from 1% at $400 gold prices to a maximum of 2 1/2% at gold prices above $475, with a royalty to be capped at 1 million ounces of production. The Company plans to continue its development activities at the Kensington property. NOTE H -- LONG-TERM DEBT On December 19, 1995, the Company completed the underwritten call for redemption of its approximately $75 million principal amount of 7% Convertible Subordinated Debentures due 2002 with the entire debenture indebtedness converted into equity. Debenture holders received approximately 64.6 shares of common stock for each $1,000 principal amount with cash paid in lieu of any fractional shares. Coeur issued a total of approximately 4.9 million shares of common stock in connection with the debenture conversions, increasing its total shares of outstanding common stock to approximately 21.5 million shares. On April 19, 1995, the Company completed a limited recourse project financing agreement with a bank syndicate led by N.M. Rothschild & Sons, Ltd. The agreement provided for the borrowing of $24 million for use in the construction of the Fachinal project, contains various covenants and is dependent upon attainment of certain completion tests. Furthermore, the agreement restricts the recourse of the banks in the event of default to the assets of the Company's Chilean subsidiary, Compania Minera CDE Fachinal Limitada, if certain completion tests are attained. The Company is required to guarantee repayment of the borrowing until construction of the project reaches defined completion, after which the project alone is liable for repayment. Construction of the project was completed in October 1995; however, the agreement requires the project to demonstrate compliance with certain ore throughput and financial covenants in order for construction to be F-11 49 deemed complete in which event the Company's loan guarantee is removed. The Company expects this to occur during early 1996. The interest rate prior to completion of construction of the project is equal to LIBOR plus 1.5% and increases to LIBOR plus 2.75% after completion. The borrowing is repayable in eight equal remaining semiannual installments commencing nine months after completion of project construction as defined. The $50 million principal amount of 6% Convertible Subordinated Debentures Due 2002 are convertible into shares of Common Stock prior to maturity, unless previously redeemed, at a conversion rate of approximately 38 shares of Common Stock for each $1,000 of principal (equivalent to a conversion price of $25.57 per share of Common Stock). The Company is required to make an annual interest payment. The debentures are redeemable at the option of the Company. The debentures mature June 10, 2002. The $100 million principal amount of 6 3/8% Convertible Subordinated Debentures Due 2004 are convertible into shares of Common Stock on or before January 31, 2004, unless previously redeemed, at a conversion price of $25.77 per share. The Company is required to make semi-annual interest payments. The debentures are redeemable at the option of the Company on or after January 31, 1997. The debentures, which have no other funding requirements until maturity, mature January 31, 2004. The carrying amounts and fair values of long-term borrowings, which are based on published values on December 31, 1995 and 1994, consisted of the following:
DECEMBER 31, 1995 DECEMBER 31, 1994 --------------------------- --------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE VALUE VALUE ------------ ----------- ------------ ----------- 6% Convertible Subordinated Debentures Due 2002........... $ 50,000,000 $44,375,000 $ 50,000,000 $40,000,000 6 3/8% Convertible Subordinated Debentures Due 2004........... $100,000,000 $93,375,000 $100,000,000 $83,500,000 7% Convertible Subordinated Debentures Due 2002........... $ 75,000,000 $85,125,000
Total interest accrued in 1995, 1994 and 1993 was $17,100,759, $15,641,771 and $9,293,420 respectively, of which $7,354,793, $4,242,689 and $3,928,846, was capitalized as a cost of the mines under development. Interest paid was $16,251,997, $12,061,341 and $8,834,559 in 1995, 1994 and 1993, respectively. NOTE I -- INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards (FAS) 109, "Accounting for Income Taxes." FAS 109 requires an asset and liability approach to accounting for income taxes and establishes criteria for recognizing deferred tax assets. Accordingly, the Company adjusted its existing deferred income tax assets and liabilities to reflect current statutory income tax rates and previously unrecognized tax benefits related to federal and certain state net operating loss carryforwards. The cumulative effect of the accounting change on prior years at January 1, 1993 is a non-recurring gain of $5,181,188, or $.34 per share, and is included in the accompanying Consolidated Statement of Operations for the year ended December 31, 1993. F-12 50 The components of the provision (benefit) for income taxes in the consolidated statements of operations are as follows:
YEAR ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- --------- ----------- From Continuing Operations: Current............................................... $ 1,986,138 $ 364,044 $ 285,420 Deferred.............................................. (1,786,435) (629,356) (4,217,259) ----------- --------- ----------- PROVISION (BENEFIT) FOR INCOME TAX............... $ 199,703 $(265,312) $(3,931,839) ========== ========= ========== From Discontinued Operations: Current............................................... $ -0- $ -0- $ -0- Deferred.............................................. 1,607,961 528,618 501,079 ----------- --------- ----------- PROVISION FOR INCOME TAX......................... $ 1,607,961 $ 528,618 $ 501,079 ========== ========= ========== Total: Current............................................... $ 1,986,138 $ 364,044 $ 285,420 Deferred.............................................. (178,474) (100,738) (3,716,180) ----------- --------- ----------- PROVISION (BENEFIT) FOR INCOME TAX............... $ 1,807,664 $ 263,306 $(3,430,760) ========== ========= ==========
Deferred taxes arise due to temporary differences in deductions for tax purposes and for financial statement accounting purposes. The tax effect and sources of these differences are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------- 1995 1994 1993 ----------- ---------- ----------- Reserve for loss on mine closure....................... $ 99,528 $ 122,881 $ (84,541) Net mine exploration and development costs............. (2,714,890) 1,248,575 1,329,435 Net lease payments..................................... 498,401 469,745 547,783 Regular tax expense (benefit) on utilization of net operating losses..................................... 3,673,116 (1,196,892) (7,341,935) Adjustments to net operating loss and credit carryforwards........................................ (2,083,448) (159,421) Environmental costs.................................... 87,100 430,500 (426,273) Amortization of bond premium........................... 689,447 (689,447) Unrealized investment losses........................... 3,087,048 (3,087,048) Change in valuation allowance.......................... (2,419,687) 2,691,752 334,689 Change in deferred state taxes......................... (411,746) (40,077) 617,119 Other.................................................. (683,343) 108,694 1,307,543 ----------- ---------- ----------- Deferred income tax benefit............................ (178,474) (100,738) (3,716,180) ----------- ---------- ----------- Less differences attributable to discontinued operations........................................... 1,607,961 528,618 501,079 ----------- ---------- ----------- Deferred income tax benefit from continuing operations........................................... $(1,786,435) $ (629,356) $(4,217,259) ========== ========= ===========
F-13 51 As of December 31, 1995 the significant components of the Company's net deferred tax liability were as follows:
YEAR ENDED DECEMBER 31, --------------------------- 1995 1994 ----------- ------------ Deferred tax liabilities: PP&E, net............................................... $15,598,685 $ 20,624,892 State taxes............................................. 15,358 427,104 ----------- ------------ Total deferred tax liabilities....................... 15,614,043 21,051,996 Deferred tax assets: Net operating loss carryforwards........................ 20,690,050 26,549,914 AMT credit carryforwards................................ 2,097,221 938,670 Business credit carryforward............................ 541,995 432,800 Unrealized losses on short-term investments............. 3,087,048 ----------- ------------ Total deferred tax assets............................ 23,329,266 31,008,432 Valuation allowance for deferred tax assets............... (9,117,553) (11,537,240) ----------- ------------ Net deferred tax assets.............................. 14,211,713 19,471,192 ----------- ------------ Net deferred tax liabilities......................... $ 1,402,330 $ 1,580,804 ========== ===========
Changes in the valuation allowance in 1995 relate primarily to changes in unrealized losses on short-term investments. Coeur d'Alene Mines Corporation intends to reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes was required on such earnings during the three-year period ended December 31, 1995. It is not practicable to estimate the tax liabilities which would result upon such repatriation. A reconciliation of the Company's effective income tax rate with the federal statutory tax rate for the periods indicated is as follows:
YEAR ENDED DECEMBER 31, -------------------------- 1995 1994 1993 ------ ----- ----- Tax benefit on continuing operations computed at statutory rates..................................................... (35.0%) (35.0%) (35.0%) Percentage depletion........................................ (190.0%) (46.1%) (7.4%) Dividend received deduction................................. (15.4%) (5.2%) (.7%) Interest on foreign subsidiary debt......................... 177.7% 37.8% 7.0% Equity in earnings of unconsolidated subsidiaries........... 49.0% State income tax provision.................................. (25.0%) 0.9% 3.4% Change in valuation allowance............................... 2.7% 43.4% 10.0% Utilization of net operating losses......................... (73.4%) (4.4%) (0.2%) Federal tax assessments and withholding..................... 116.7% 9.3% 1.6% Other (net)................................................. 11.6% (6.0%) (0.6%) ------ ----- ----- EFFECTIVE TAX RATE ON CONTINUING OPERATIONS.......... 18.9% (5.3%) (21.9%) ====== ===== =====
For tax purposes, as of December 31, 1995, the Company has an operating loss carryforward of approximately $59.1 million and an alternative minimum tax loss carryforward of approximately $28.1 million which expire through 2010. The Company also has alternative minimum tax credit carryforwards of approximately $2,097,000 and regular tax credit carryforwards of $542,000. As of December 31, 1994, Callahan Mining Corporation, a subsidiary, has a net operating loss carryforward of approximately $14.0 million and an alternative minimum tax loss carryforward of approxi- F-14 52 mately $7.5 million which expire through 2006. The utilization of Callahan Mining Corporation's net operating losses is subject to limitations. NOTE J -- SHAREHOLDERS' EQUITY AND STOCK PLANS In June 1989, the shareholders adopted a shareholder rights plan which entitles each holder of the Company's Common Stock to one right. Each right entitles the holder to purchase one one-hundredth of a share of newly authorized junior preferred stock. The exercise price is $100, making the price per full preferred share $10,000. The rights will not be distributed and become exercisable unless and until ten days after a person acquires 20% of the outstanding common shares or commences an offer that would result in the ownership of 30% or more of the shares. Each right also carries the right to receive upon exercise that number of Coeur common shares which has a market value equal to two times the exercise price. Each preferred share issued is entitled to receive 100 times the dividend declared per share of Common Stock and 100 votes for each share of Common Stock and is entitled to 100 times the liquidation payment made per common share. The Board may elect to redeem the rights prior to their exercisability at a price of one cent ($.01) per right. Any preferred shares issued are not redeemable. The Company has an Annual Incentive Plan (the "Annual Plan") and a Long-Term Incentive Plan ("Long-Term Plan"). Under the Annual Plan in 1995, benefits were payable 50% in cash and 50% in shares of Common Stock. Under the Long-Term Plan, benefits consist of (i) nonqualified stock options that are exercisable at prices equal to the fair market value of the shares on the date of grant and vest cumulatively at an annual rate of 25% during the four-year period following the date of grant, and (ii) performance units comprised of Common Stock and cash, the value of which is determined four years after the award. The first award performance units were granted in 1994. As of December 31, 1995 and December 31, 1994, nonqualified stock options to purchase 281,518 shares and 153,600 shares, respectively, were outstanding under the Long-Term Plan. The options are exercisable at prices ranging from $13.75 to $27.00 per share. The Company continues to account for stock options in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." For the years ended December 31, 1995 and December 31, 1994, the Company awarded 21,656 shares and 18,778 shares, respectively, of Common Stock under the Annual Plan, representing additional compensation of $384,394 and $382,602, respectively, based on the fair market value of the shares at the date of the award. The Company has a Non-Employee Directors' Stock Option Plan under which 200,000 shares of Common Stock are authorized for issuance and which was approved by the shareholders in May 1995. Under the Plan, options are granted only in lieu of an optionee's foregone annual directors' fees. As of December 31, 1995, 11,287 options were granted in lieu of $90,000 of foregone directors' fees. F-15 53 Total compensation expense charged to operations under the Plans was $1,105,798, $1,359,692 and $396,212 for 1995, 1994 and 1993, respectively.
EXERCISE SHARES PRICE ------- -------- Stock options outstanding at 1/1/93...................... 104,500 $17.28 Issued................................................... 39,963 18.50 Exercised................................................ (8,675) 13.86 Canceled................................................. (9,900) 17.86 ------- -------- Stock options outstanding at 12/31/93.................... 125,888 17.85 Issued................................................... 27,712 20.38 ------- -------- Stock options outstanding at 12/31/94.................... 153,600 18.31 Issued................................................... 141,096 17.26 Exercised................................................ (3,425) 15.13 Canceled................................................. (9,753) 19.45 ------- -------- Stock options outstanding at 12/31/95.................... 281,518 $17.78 ======= ======
As of December 31, 1995 and 1994, 427,443 shares and 101,530 shares, respectively, were available for grant under the Plans and 5,835,898 shares of Common Stock were reserved for potential conversion of Convertible Subordinated Debentures. NOTE K -- EMPLOYEE BENEFIT PLANS The Company provides a noncontributory defined contribution profit-sharing plan for all eligible employees. Total plan expense charged to operations was $495,123, $531,227, and $585,477 for 1995, 1994 and 1993, respectively, which is based on a percentage of salary of qualified employees. Effective January 1, 1995, the Company has adopted a savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue Code) covering all full-time U.S. employees. Under the plan, employees may elect to contribute up to 10% of their cash compensation, subject to ERISA limitations. The Company is required to make matching cash contributions equal to 50% of the employee's contribution or up to 3% of the employee's compensation. Employees have the option of investing in four different types of investment funds. Total plan expenses charged to operations were $319,101 in 1995. NOTE L -- FINANCIAL INSTRUMENTS Off Balance Sheet Risks The Company enters into forward foreign exchange contracts denominated in foreign currencies to hedge certain firm commitments. The purpose of the Company's foreign exchange hedging program is to protect the Company from risk that the eventual dollar cash flows resulting from the firm commitments will be adversely affected by changes in exchange rates. At December 31, 1995, 1994 and 1993, the Company had forward foreign exchange contracts of $41.0 million, $31.8 million and $19.6 million, respectively. In addition, the Company enters into forward metal sales contracts to hedge a portion of its cash flows against fluctuating gold and silver prices. As of December 31, 1995, the Company had sold 68,444 ounces of gold for delivery on various dates through 1998 at an average price of $431.52 The table below summarizes, by contract, the contractual amounts of the Company's forward exchange contracts at December 31, 1995, 1994 and 1993.
1995 1994 1993 --------------------------- --------------------------- --------------------------- FORWARD UNREALIZED FORWARD UNREALIZED FORWARD UNREALIZED CONTRACTS GAIN (LOSS) CONTRACTS GAIN (LOSS) CONTRACTS GAIN (LOSS) ----------- ------------ ----------- ------------ ----------- ------------ Currency: New Zealand............... $23,268,595 $ (27,406) $ 6,218,551 $730,898 $19,645,606 $302,287 Chilean................... 17,699,099 (1,993,279) 22,136,461 569,035 Australian................ 3,417,782 181,002 Forward Metal Sales......... 29,534,791 1,528,237 31,287,729 358,484
F-16 54 Gains and losses related to contracts associated with firm commitments are deferred and will be recognized during 1996 as the related commitments mature. For the years ended December 31, 1995, 1994, and 1993, the Company realized gains from its foreign exchange hedging programs of $1,947,472, $1,503,022 and $-0-, respectively, of which $328,172 in 1995 was capitalized in connection with development projects. For metal delivery contracts, the realized price pursuant to the contract is recognized when physical gold or silver is delivered in satisfaction of the contract. During 1995, the Company realized a gain of $4.4 million arising from the sale of silver and gold purchased on the open market which was delivered pursuant to forward contracts. The credit risk exposure related to all hedging activities is limited to the unrealized gains on outstanding contracts based on current market prices. To reduce counter party credit exposure, the Company deals only with a group of large creditworthy financial institutions, and limits credit exposure to each. In addition, to allow for situations where positions may need to be reversed, the Company deals only in markets that it considers highly liquid. The Company does not anticipate non-performance by any of these counter parties. NOTE M -- LITIGATION The Company and its wholly-owned subsidiary, Callahan Mining Corporation ("Callahan"), were advised by the Fish and Wildlife Service (the "Service") of the U.S. Department of the Interior on July 18, 1995 that they were identified as potentially responsible parties for damages resulting from injury to federal natural resources with respect to the Bunker Hill Superfund Site. By letter dated July 24, 1995, the Company and Callahan requested the Service to identify the federal natural resources allegedly injured, set forth the basis for the assertion that they are potentially responsible parties and quantify the dollar amount of the alleged damages. The Service has not responded. The Company presently cannot state whether or estimate the extent to which, if any, it will be liable for damages in connection with the matter. However, the Company does not believe its liability, if any, will be material in amount. On September 29, 1994, following a jury trial, a judgment was entered in favor of Callahan in a lawsuit commenced in March 1992 by FN Enterprises, Inc. ("FN"), a business consulting firm for Callahan, which seeks to recover a "success fee" in the approximate amount of $673,000 in connection with the merger that resulted in Callahan becoming a wholly-owned subsidiary of the Company. Post trial motions were decided in favor of Callahan after which FN appealed the judgement against it to the Ninth Circuit Court of Appeals. While the appeal was pending, Callahan settled the litigation for the sum of $13,500. On September 22, 1994, a judgment was entered against the Company in the United States District Court for the District of Idaho in a case entitled Goldberg v. Coeur d'Alene Mines Corporation in the amount of $725,688, plus costs and attorney fees in the approximate amount of $225,000. The action involved an alleged claim by the plaintiff to recover on four promissory notes made by a predecessor of the Company. The notes were claimed to be the obligation of the Company by virtue of successive mergers which occurred in 1974 and in 1988. On January 19, 1995 the case was resolved by virtue of a settlement in the amount of $800,000. The amount was fully accrued as of December 31, 1994. The Company is also subject to other pending or threatened legal actions that arise in the normal course of business. In the opinion of management, liabilities arising from these claims, if any, will not have a material effect on the financial position of the Company. Depending on the timing of any future liabilities, the amount of which cannot now be reasonably estimated, relating to these matters, such amounts could possibly have a material impact on the results of operations for a given period. F-17 55 NOTE N -- GEOGRAPHIC SEGMENT INFORMATION The following table sets forth certain financial information relating to international and domestic operations.
YEAR ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Revenues: United States............................................... $ 65,903 $ 63,048 $ 52,288 New Zealand................................................. 32,967 27,450 21,089 South America............................................... (127) 1,695 -------- -------- -------- Consolidated revenues.................................. $ 98,743 $ 92,193 $ 73,377 ======== ======== ======== Loss From Continuing Operations Before Income Taxes: United States............................................... $ (3,558) $ (5,068) $(13,937) New Zealand................................................. 5,773 (803) 1,556 South American Operations................................... 311 921 South American Exploration.................................. (3,584) (51) (411) -------- -------- -------- Consolidated loss from continuing operations before taxes and cumulative effect of accounting change.... $ (1,058) $ (5,001) $(12,792) ======== ======== ======== Depreciation, Depletion and Amortization: United States............................................... $ 9,657 $ 10,707 $ 7,291 New Zealand................................................. 6,699 6,632 6,230 South America............................................... 537 198 141 -------- -------- -------- Total.................................................. $ 16,893 $ 17,537 $ 13,662 ======== ======== ======== Property, Plant and Equipment Additions (Including Noncash Expenditures): United States............................................... $ 1,512 $ 5,253 $ 3,818 New Zealand................................................. 1,975 303 29,310 South America............................................... 41,408 3,692 160 -------- -------- -------- Total.................................................. $ 44,895 $ 9,248 $ 33,288 ======== ======== ======== Identifiable Assets: United States............................................... $286,318 $318,590 $242,929 New Zealand................................................. 42,765 46,613 54,452 South America............................................... 112,214 47,158 27,869 Australia................................................... 4,349 -------- -------- -------- Consolidated assets.................................... $445,646 $412,361 $325,250 ======== ======== ========
F-18 56 NOTE O -- SUMMARY OF QUARTERLY FINANCIAL DATA The following table sets forth a summary of the quarterly results of operations for the years ended December 31, 1995 and 1994:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (THOUSANDS OF DOLLARS-EXCEPT PER SHARE DATA) 1995 - ---------------------------------------------- Net Sales..................................... $17,891 $23,621 $24,803 $22,925 Gross Margin.................................. $ 1,851 $ 5,689 $ 5,651 $ 3,838 Net income (loss) from continuing operations.................................. $(3,367) $ 1,239 $ 2,039 $(1,169) Net income (loss)............................. $(3,175) $ 3,408(a) $ 2,039 $(1,118) Net Income (loss) per share................... $ (.20) $ .22(a) $ .13 $ (.07) Fully diluted income (loss) per share......... (c) $ .19 $ .12 (c) 1994 Net Sales(b).................................. $20,210 $19,463 $20,667 $19,266 Gross Margin(b)............................... $ 2,870 $ 2,978 $ 4,258 $ 1,698 Net income (loss) from continuing operations.................................. $(2,720) $(1,560) $ 1,424 $(1,880) Net income (loss)(b).......................... $(2,597) $(1,335) $ 1,643 $(1,653) Net income (loss) per share................... $ (.17) $ (.09) $ .11 $ (.11)
- --------------- (a) Includes income from discontinued operations(net of tax), of approximately $2.4 million ($.15 per share) related to the sale of the Flexaust Company in May 1995. (b) Amounts have been reclassified giving effect to the sale of the Flexaust Company in May 1995. Includes net income from discontinued operations (net of taxes). (c) Effect of fully diluted earnings per share is antidilutive and is therefore not presented. NOTE P -- SUBSEQUENT EVENTS On December 21, 1995, the Company announced it had entered into an option agreement to acquire a 19.9% interest in a publicly listed Australian gold producer, Gasgoyne Gold Mines NL, and intended to extend an offer to Gasgoyne's shareholders to acquire all of the outstanding shares of Gasgoyne. On January 31, 1996, Coeur made the filings required under the Australian securities laws with the Australian Securities Commission ("ASC") to initiate proceedings for the public offer. The offer proceedings have been delayed by court action in Australia brought by another company which has announced it intends to conduct a competing bid for the shares. If accepted as originally presented, the Offer would result in Coeur paying US$23,114,991 and issuing 3,644,255 shares of Common Stock for 100% ownership of Gasgoyne. On January 26, 1996, the Company acquired 5.5 million shares and options to acquire an additional 5.0 million shares of Orion Resources NL, an Australian gold mining company for a total consideration of approximately US$10.7 million. Earlier in 1995 and 1994, Coeur had acquired a total of 3.33 million shares of Orion for a total cost of US$3.8 million. As a result, as of January 26, 1996, Coeur holds approximately 13.1% of Orion's outstanding shares and upon exercise of the options, would own approximately 19.2% of Orion's then outstanding shares. F-19 EX-10.FF 2 ASSET CONTRIBUTION AGREEMENT. 1 (EXHIBIT 10(ff) - -------------------------------------------------------------------------------- ASSET CONTRIBUTION AGREEMENT EFFECTIVE AS OF JANUARY 1, 1995 AMONG ASARCO INCORPORATED, COEUR D'ALENE MINES CORPORATION, CALLAHAN MINING CORPORATION AND SILVER VALLEY RESOURCES CORPORATION - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1 Contribution of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.4 No Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE II REPRESENTATIONS AND WARRANTIES OF ASARCO CONCERNING THE ASARCO ASSET CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2. ASARCO Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.1 Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.2 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.3 Certain Rights of ASARCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.4 ASARCO Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.5 ASARCO Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.6 Other ASARCO Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF COEUR D'ALENE CONCERNING THE COEUR D'ALENE ASSET CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3. Coeur d'Alene Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.1 Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.2 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.3 Certain Rights of Coeur d'Alene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.4 Coeur d'Alene Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.5 Coeur d'Alene Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 3.6 Other Coeur d'Alene Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COEUR D'ALENE AND CALLAHAN CONCERNING THE CALLAHAN ASSET CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4. Callahan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4.1 Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4.2 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4.3 Certain Rights of Callahan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 4.4 Callahan Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(i) 3
Page ---- Section 4.5 Callahan Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 4.6 Other Callahan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE V FURTHER REPRESENTATIONS AND WARRANTIES OF ASARCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5. Representations and Warranties of ASARCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5.1 Organization, Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5.2 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 5.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 5.4 Ownership and Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 5.5 Leases; Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 5.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.7 Governmental Approval; Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 5.8 Compliance with Laws; Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 5.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 5.10 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 5.11 Brokers' or Finders' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE VI FURTHER REPRESENTATIONS AND WARRANTIES OF COEUR D'ALENE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6. Representations and Warranties of Coeur d'Alene and Callahan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.1 Organization, Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.2 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 6.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6.4 Ownership and Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6.5 Leases; Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 6.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.7 Governmental Approval; Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.8 Compliance with Laws; Coeur D'Alene Permits or Callahan Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.9 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 6.10 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 6.11 Brokers' or Finders' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE VII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 7.1 Conditions Precedent to Obligations of ASARCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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Page ---- Section 7.2 Conditions Precedent to Obligations of Coeur d'Alene and Callahan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VIII ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 8.1 Expenses of Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 8.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 8.3 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IX INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.1 Indemnification by Silver Valley Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 9.2 Indemnification by ASARCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.3 Indemnification by Coeur d'Alene and Callahan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.4 Notice and Opportunity to Defend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 9.5 Recovery for Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.1 Survival of Representations, Warranties and Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.4 Waivers and Amendments; Non- Contractual Remedies; Preservation of Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.5 Assignability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.7 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.9 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 10.11 Coeur Agreement and Galena Lease Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 10.12 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 10.13 Exhibits, Schedules and Annexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.14 Table of Contents; Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.15 Bulk Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 10.16 Best Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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EXHIBITS Exhibit A Undertaking and Assumption Agreement Exhibit B Letter Agreement Exhibit C Management Services Agreement SCHEDULES Schedule 2.1 ASARCO Assets Schedule 2.5 ASARCO Permits Schedule 3.1 Coeur d'Alene Assets Schedule 3.5 Coeur d'Alene Permits Schedule 4.1 Callahan Assets Schedule 4.5 Callahan Permits Schedule 5.2 No Conflict Schedule 5.4(a) Title to and Condition of ASARCO Assets (Personalty) Schedule 5.4(b) Title to ASARCO Assets (Realty) Schedule 5.5 ASARCO Leases; ASARCO Contracts Schedule 5.6 Litigation Schedule 5.7(b) Third Party Consents Schedule 5.9(a) Material Returns and Reports Schedule 5.9(b) Material Taxes Arising Out of ASARCO Assets Schedule 5.9(c) Tax Inspections, Etc. Schedule 5.9(e) Extensions and Waivers Schedule 5.9(f) Tax Allocation Agreement Schedule 6.2 No Conflict Schedule 6.4(a) Title to and Condition of Coeur d'Alene and Callahan Assets (Personalty) Schedule 6.4(b) Title to Coeur d'Alene and Callahan Assets (Realty) Schedule 6.5 Coeur d'Alene and Callahan Leases; Coeur d'Alene and Callahan Contracts Schedule 6.6 Litigation Schedule 6.7(b) Third Party Consents Schedule 6.9(a) Material Returns and Reports Schedule 6.9(b) Material Taxes Arising Out of Coeur d'Alene and Callahan Assets Schedule 6.9(c) Tax Inspections, Etc. Schedule 6.9(e) Extensions and Waivers Schedule 6.9(f) Tax Allocation Agreement
(iv) 6 ASSET CONTRIBUTION AGREEMENT ASSET CONTRIBUTION AGREEMENT ("THIS AGREEMENT"), effective January 1, 1995 (the "EFFECTIVE DATE"), among ASARCO Incorporated ("ASARCO"), a New Jersey corporation, Coeur d'Alene Mines Corporation ("COEUR D'ALENE"), an Idaho corporation, Callahan Mining Corporation ("CALLAHAN"), an Arizona corporation, and Silver Valley Resources Corporation ("SILVER VALLEY RESOURCES"), a Delaware corporation. W I T N E S S E T H : WHEREAS, ASARCO and Callahan (as successor to Vulcan Silver Lead Corporation) are parties to a Lease dated January 15, 1947, as amended and supplemented, relating to the development and mining of property known as the Galena property (the "GALENA LEASE"), and ASARCO and Coeur d'Alene (as successor to Rainbow Mining and Milling Company, Ltd.) are parties to an Agreement dated August 31, 1964, as amended and supplemented, relating to the development and mining of property known as the Coeur property (the "COEUR AGREEMENT"); and WHEREAS, ASARCO and Coeur d'Alene desire to terminate as of the Effective Date, the Galena Lease and the Coeur Agreement; and WHEREAS, ASARCO and Coeur d'Alene have organized Silver Valley Resources to develop and mine certain properties in Shoshone County, Idaho; and WHEREAS, as of the Effective Date, each of ASARCO, Coeur d'Alene and Callahan (the "CONTRIBUTORS") wish to contribute, and Silver Valley Resources wishes to accept, certain of their respective leasehold and ownership interests in silver mining properties located in Shoshone County, Idaho and in and to certain other assets, all as more fully described herein and as set forth respectively on Schedule 2.1, Schedule 3.1 and Schedule 4.1 attached hereto (such contributed interests, properties and other assets of ASARCO, Coeur d'Alene and Callahan are hereinafter referred to respectively as the "ASARCO ASSETS," the "COEUR D'ALENE ASSETS," and the "CALLAHAN ASSETS" and collectively as the "ASSETS"); and -1- 7 WHEREAS, this Agreement sets forth the terms and conditions upon which ASARCO, Coeur d'Alene and Callahan will contribute assets to Silver Valley Resources. NOW, THEREFORE, for the mutual covenants and other consideration described below, the parties hereto hereby covenant and agree as follows: ARTICLE I CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES Section 1.1 Contribution of Assets. Upon the terms and subject to the conditions of this Agreement, each of the Contributors shall contribute, transfer, convey, assign and deliver to Silver Valley Resources, and Silver Valley Resources shall accept from the Contributors, all the Contributors' respective rights and interests, whether tangible or intangible, real, personal or mixed, accrued, contingent or otherwise in and to the Assets in exchange for the consideration to be provided by Silver Valley Resources pursuant to Section 1.2 and Section 1.3 (the "CONSIDERATION"). Section 1.2 Consideration. The Consideration for the contribution, transfer, conveyance, assignment and delivery of the Assets by the Contributors to Silver Valley Resources shall consist of the following: (a) to ASARCO, shares, par value $.01 per share, of Silver Valley Resources (the "COMMON STOCK"), which constitute 50% of the issued and outstanding voting securities of Silver Valley Resources as of the Effective Date; (b) to Coeur d'Alene, shares of Common Stock, which constitute 31.5% of the issued and outstanding voting securities of Silver Valley Resources as of the Effective Date; and (c) to Callahan, shares of Common Stock, which constitute 18.5% of the issued and outstanding voting securities of Silver Valley Resources as of the Effective Date. Section 1.3 Assumption of Liabilities. As of the Effective Date, Silver Valley Resources will assume obligations and liabilities of ASARCO, Coeur d'Alene and Callahan -2- 8 with respect to the Assets described in the Undertaking and Assumption Agreement in the form of Exhibit A attached hereto (the "UNDERTAKING AND ASSUMPTION") and listed in Annex A thereto. Section 1.4 No Encumbrances. The Contributors shall contribute, transfer, convey, assign and deliver their respective Assets to Silver Valley Resources free and clear of all liens, claims, charges, encumbrances and security interests, except as expressly set forth in this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES OF ASARCO CONCERNING THE ASARCO ASSET CONTRIBUTIONS Section 2. ASARCO Assets. ASARCO hereby represents and warrants to Coeur d'Alene, Callahan and Silver Valley Resources on the date hereof and as of Effective Date, that ASARCO shall have contributed, conveyed, assigned, transferred and delivered all ASARCO's right, title and interest in and to the following: Section 2.1 Property, Plant and Equipment. All property, plant and equipment of ASARCO that are used in or on the ASARCO Assets, including those listed in Schedule 2.1 attached hereto. Section 2.2 Books and Records. All of ASARCO's books and records wherever located to the extent relating to the ASARCO Assets. Section 2.3 Certain Rights of ASARCO. All of ASARCO's claims against third parties with respect to unliquidated rights under manufacturers' and vendors' warranties, guarantees or similar obligations relating to other items included in the ASARCO Assets. Section 2.4 ASARCO Contracts. Subject to Section 7.2(b) hereof, all of ASARCO's contracts, agreements, understandings, commitments, and leases (other than those referred to in Section 2.1 above), whether written or oral, express or implied, relating to the ASARCO Assets and in effect on the date hereof and as of the Effective Date (the "ASARCO CONTRACTS"). Section 2.5 ASARCO Permits. All certificates of occupancy and all licenses, permits and authorizations, including those listed in Schedule 2.5 attached hereto, of -3- 9 governmental or quasi-governmental agencies and authorities or private parties relating to the construction, use, operation or enjoyment of items included in the ASARCO Assets, to the full extent the same are transferable. Section 2.6 Other ASARCO Assets. All other assets of ASARCO used exclusively in and necessary to the operation of the business consisting of the ASARCO Assets at the date hereof and as of the Effective Date in a manner consistent with the conduct of such business prior to April 1991 (the "SUSPENSION DATE"). ARTICLE III REPRESENTATIONS AND WARRANTIES OF COEUR D'ALENE CONCERNING THE COEUR D'ALENE ASSET CONTRIBUTIONS Section 3. Coeur d'Alene Assets. Coeur d'Alene hereby represents and warrants to ASARCO and Silver Valley Resources on the date hereof and as of the Effective Date, that Coeur d'Alene shall have contributed, conveyed, assigned, transferred and delivered all Coeur d'Alene's right, title and interest in and to the following: Section 3.1 Property, Plant and Equipment. All property, plant and equipment of Coeur d'Alene which are used in or on the Coeur d'Alene Assets, including those listed in Schedule 3.1 attached hereto. Section 3.2 Books and Records. All of Coeur d'Alene's books and records wherever located to the extent relating to the Coeur d'Alene Assets. Section 3.3 Certain Rights of Coeur d'Alene. All of Coeur d'Alene's claims against third parties with respect to unliquidated rights under manufacturers' and vendors' warranties, guarantees or similar obligations relating to other items included in the Coeur d'Alene Assets. Section 3.4 Coeur d'Alene Contracts. Subject to Section 7.1(b) hereof, all of Coeur d'Alene's contracts, agreements, understandings, commitments, and leases (other than those referred to in Section 3.1), whether written or oral, express or implied, relating to the Coeur d'Alene Assets and in effect on the date hereof and as of the Effective Date (the "COEUR D'ALENE CONTRACTS"). Section 3.5 Coeur d'Alene Permits. All certificates of occupancy and all licenses, permits and authoriza- -4- 10 tions, including those listed in Schedule 3.5 attached hereto, of governmental or quasi-governmental agencies and authorities or private parties relating to the construction, use, operation or enjoyment of items included in the Coeur d'Alene Assets, to the full extent the same are transferable. Section 3.6 Other Coeur d'Alene Assets. All other assets of Coeur d'Alene used exclusively in and necessary to the operation of the business consisting of the Coeur d'Alene Assets and the Callahan Assets at the date hereof and as of the Effective Date in a manner consistent with the conduct of such business prior to the Suspension Date. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COEUR D'ALENE AND CALLAHAN CONCERNING THE CALLAHAN ASSET CONTRIBUTIONS Section 4. Callahan Assets. Coeur d'Alene and Callahan hereby represent and warrant to ASARCO and Silver Valley Resources on the date hereof and as of the Effective Date, that Callahan shall have contributed, conveyed, assigned, transferred and delivered all of Callahan's right, title and interest in and to the following: Section 4.1 Property, Plant and Equipment. All property, plant and equipment of Callahan which are used in or on the Callahan Assets, including those listed in Schedule 4.1 attached hereto. Section 4.2 Books and Records. All of Callahan's books and records wherever located to the extent relating to the Callahan Assets. Section 4.3 Certain Rights of Callahan. All of Callahan's claims against third parties with respect to unliquidated rights under manufacturers' and vendors' warranties, guarantees or similar obligations relating to other items included in the Callahan Assets. Section 4.4 Callahan Contracts. Subject to Section 7.1(b) hereof, all of Callahan's contracts, agreements, understandings, commitments, and leases (other than those referred to in Section 4.1), whether written or oral, express or implied, relating to the Callahan Assets and in effect on the date hereof and as of the Effective Date (the "CALLAHAN CONTRACTS"). -5- 11 Section 4.5 Callahan Permits. All certificates of occupancy and all licenses, permits and authorizations, including those listed in Schedule 4.5 attached hereto, of governmental or quasi-governmental agencies and authorities or private parties relating to the construction, use, operation or enjoyment of items included in the Callahan Assets, to the full extent the same are transferable. Section 4.6 Other Callahan Assets. All other assets of Callahan used exclusively in and necessary to the operation of the business consisting of the Callahan Assets and the Coeur d'Alene Assets at the date hereof and as of the Effective Date in a manner consistent with the conduct of such business prior to the Suspension Date. ARTICLE V FURTHER REPRESENTATIONS AND WARRANTIES OF ASARCO Section 5. Representations and Warranties of ASARCO. ASARCO hereby represents and warrants to Coeur d'Alene, Callahan and to Silver Valley Resources that on the date hereof and as of the Effective Date: Section 5.1 Organization, Power and Authority. (a) ASARCO is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. ASARCO has all necessary corporate power and authority to own, lease and operate the ASARCO Assets as heretofore conducted by ASARCO. ASARCO has all necessary corporate power and authority to enter into and be bound by the terms and conditions of this Agreement. (b) The execution, delivery and performance by ASARCO of this Agreement and any agreement or instrument contemplated hereby, and the performance by ASARCO of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action. When duly executed and delivered by the parties hereto and thereto, this Agreement and each such other agreement and instrument will be legal, valid and binding obligations of ASARCO, in each case enforceable against ASARCO, except as such enforceability may be limited by bankruptcy, insolvency or other similar laws from time to time in effect. Section 5.2 No Conflict. Except as disclosed in Schedule 5.2 hereto, neither the execution and delivery of this Agreement nor the consummation of the transactions -6- 12 contemplated hereby will (i) result in the creation of any Lien or Other Encumbrance (as defined in Section 5.4) upon any of the ASARCO Assets pursuant to the terms of any mortgage, bond, indenture, agreement, franchise or other instrument or obligation; (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency, arbitrator or governmental body against or affecting or binding upon, ASARCO or upon the securities, property or business of ASARCO; or (iii) constitute a violation by ASARCO of any law or regulation of any jurisdiction or of any agreement or instrument as such law, regulation, agreement or instrument relates to ASARCO or to the securities, property or business of ASARCO. Section 5.3 Liabilities. To the best of its knowledge, ASARCO has no material liabilities, debts or obligations, whether accrued, absolute, contingent or otherwise, known or unknown, relating to or arising out of the ASARCO Assets or the ownership of the ASARCO Assets, other than as specifically disclosed in the Schedules attached hereto; provided that ASARCO makes no representation or warranty herein relating to the absence or non-disclosure of any such liabilities, debts or obligations relating to or arising out of the environmental condition of the ASARCO Assets or non-compliance with any statute, law, rule, regulation, ordinance, code or directive relating to the environment. Section 5.4 Ownership and Condition of Assets. (a) Except as disclosed in Schedule 5.4(a) attached hereto, ASARCO has good and marketable title to all of the ASARCO Assets that do not constitute real property, including mine equipment and fixtures, free and clear of any Lien or Other Encumbrance, except for those which do not materially detract from the value of, or impair the use of such property by ASARCO or Silver Valley Resources in the operations of the ASARCO Assets. For purposes of this Agreement, "LIEN OR OTHER ENCUMBRANCE" shall mean any mortgage, lien, pledge, security interest, claim, lease, charge, option, right of first refusal, easement, restrictive covenant or other encumbrance, restriction or limitation other than (i) levies not due and payable, due and payable but not yet delinquent or which are currently being contested in good faith by appropriate proceedings and which are specifically listed in Schedule 5.4(a) attached hereto, (ii) mechanics', workmen's, repairmen's, materialmen's, warehousemen's, vendors' and carriers' liens, and other similar liens arising in the ordinary course of business for charges which are not delinquent, or which are being contested in good faith by -7- 13 appropriate proceedings and have not proceeded to judgment and which are specifically listed in a Schedule attached hereto, and (iii) liens in respect of judgments or awards with respect to which there shall be a good faith current prosecution of an appeal or proceedings for review and with respect to which there shall be secured an appropriate bond or a stay of execution pending such appeal or proceedings for review and which are specifically listed in a Schedule attached hereto. (b) Except as set forth in Schedule 5.4(b), to the best of its knowledge, ASARCO has good and marketable title in fee simple to all real property (surface estates, mineral estates and combined surface and mineral estates, including patented mining claims but excluding unpatented mining claims) constituting ASARCO Assets and holds sufficient rights in and to all easements or other rights necessary for access thereto and the substantial realization of benefits from such easements, and owns all buildings and other structures, improvements and fixtures on such real property. Title to such real property is, in each case, free and clear of any Lien or Other Encumbrance created or incurred by ASARCO, except for those which do not materially detract from the value of, impair the use of, or have a material adverse impact on the title to the ASARCO Assets subject thereto or on the operations of the ASARCO Assets as conducted prior to the Suspension Date. (c) The representations and warranties contained in the deeds and bills of sale delivered by ASARCO pursuant to Section 7.2(d)(i) are specifically incorporated by reference herein and, to the extent of any conflict between the representations and warranties contained herein and contained in such deeds or such bills of sale, the representations and warranties contained in such deeds or such bills of sale, as applicable, shall govern. Section 5.5 Leases; Contracts. Set forth in Schedule 5.5 attached hereto is a list of all leased real property (surface estates, mineral estates and combined surface and mineral estates, including patented and unpatented mining claims) constituting ASARCO Assets and all leases under which ASARCO or any of its affiliates is lessee or occupant of any of the ASARCO Assets ("ASARCO LEASES"), which ASARCO Leases constitute all of the leases and occupancy agreements entered into in connection with the operations of the ASARCO Assets and in effect on the date hereof and as of the Effective Date. Set forth in Schedule 5.5 attached hereto is a complete and correct list of any -8- 14 ASARCO Contracts which are material to the operation of the ASARCO Assets, individually or as a whole. Each ASARCO Lease and each such ASARCO Contract is valid, binding and in full force and effect and there exists no default or event of default or event or condition which, after the giving of notice, the lapse of time or the happening of any other event or condition would constitute a material default or material event of default thereunder. Each of the ASARCO Leases and each of such ASARCO Contracts is enforceable against ASARCO in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other similar laws. Section 5.6 Litigation. Except as set forth in Schedule 5.6 attached hereto, there is no pending or, to the best knowledge of ASARCO, threatened judicial, administrative or arbitral action, claim, suit or proceeding against ASARCO or any of its affiliates or any of its or its affiliates' properties or rights which, individually or in the aggregate, could materially adversely affect the right or ability of ASARCO or Silver Valley Resources to carry on the operations of the ASARCO Assets as conducted prior to the Suspension Date or which could materially and adversely affect the condition, whether financial or otherwise, of Silver Valley Resources or the ASARCO Assets, or which questions the validity of this Agreement or any action taken or to be taken in connection herewith, and to the best knowledge of ASARCO, there is no basis for any of the foregoing. Section 5.7 Governmental Approval; Third Party Consents. (a) Except as to any filing required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HART-SCOTT") and state and local filings required for the transfer of properties, no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with the execution and delivery of this Agreement by ASARCO or the consummation by ASARCO of the transactions contemplated hereby other than any consent required with respect to the assignment of ASARCO Contracts, ASARCO Leases and permits of ASARCO described in Section 5.8. (b) Except as listed on Schedules 5.7(b) attached hereto, no third party consents are required for the consummation of the transfer, conveyance and assignment of the ASARCO Assets to Silver Valley Resources in accordance with the terms of this Agreement. -9- 15 Section 5.8 Compliance with Laws; Permits. ASARCO is in compliance in all material respects with all applicable permits, licenses, orders or approvals of any federal, state, local or foreign governmental or regulatory body, laws, rules, regulations, ordinances, judgments, orders, injunctions, awards or decrees relating to the ASARCO Assets. Section 5.9 Tax Matters. (a) Except as disclosed in Schedule 5.9(a) attached hereto, all material returns and reports for Taxes for taxable years or periods that end on or before the date hereof and with respect to any taxable year or period beginning before and ending after the date hereof, the portion of such taxable year or period ending on and including the date hereof ("PRE-CLOSING PERIODS") which are required to be filed by ASARCO with respect to the ASARCO Assets (collectively the "ASARCO RETURNS") have been filed or, if not due to be filed, will be filed when due in a timely fashion and such ASARCO Returns as filed are or will be complete and accurate in all material respects. For purposes of this Agreement, "TAX" shall mean all taxes, assessments, charges, duties, fees, levies or other governmental charges, including, without limitation, all Federal, state, local, foreign and other income, franchise, profits, capital gains, capital stock, transfer, sales, use, ad valorem, occupation, property, excise, severance, gross receipts, license, payroll, withholding, employment occupation, corporation, alternative or add-on minimum tax and other taxes, assessments, charges, duties, fees, levies or other governmental charges of any kind whatsoever (whether payable directly or by withholding and whether or not requiring the filing of a return), and all estimated taxes, deficiency assessments, additions to tax, penalties, interest and additional amounts attributable thereto imposed by any Federal, state, local or foreign taxing authority, including any liabilities for such amounts as a result of being a member of either a combined, consolidated, unitary or affiliated group. (b) Except as disclosed in Schedule 5.9(b) attached hereto, all material Taxes relating to or arising out of the ASARCO Assets (whether or not shown on any ASARCO Return) which are due on or before the date hereof have been fully paid. All Taxes relating to or arising out of the ASARCO Assets that are due with respect to all Pre-Closing Periods are disclosed in Schedule 5.9(b). ASARCO hereby agrees to pay and discharge all such Taxes so disclosed or required to be disclosed other than those listed in Annex A to the Undertaking and Assumption. -10- 16 (c) Except as disclosed in Schedule 5.9(c) attached hereto, there is no action, suit, proceeding, investigation, audit or claim now pending or, to the best knowledge of ASARCO, threatened by any authority regarding any Taxes relating to ASARCO for any Pre-Closing Period which could materially and adversely affect the ASARCO Assets or the business or operations of Silver Valley Resources. (d) There are no liens or security interests on any of the ASARCO Assets that arose in connection with any failure (or alleged failure) to pay any Taxes. (e) Except as disclosed in Schedule 5.9(e) attached hereto, there are no agreements for the extension or waiver of the time of assessment of any Taxes relating to the ASARCO Assets for any Pre-Closing Period and ASARCO has not been requested to enter into any such agreement or waiver. (f) Except as disclosed in Schedule 5.9(f) attached hereto, ASARCO is not now nor has been a party to any Tax allocation or sharing agreement that could result in any liability to Silver Valley Resources. (g) Immediately prior to, and immediately subsequent to, the consummation of the contribution of ASARCO Assets pursuant to this Agreement, ASARCO will be a solvent corporation. For purposes of this Agreement, "solvent" shall mean, with respect to a Contributor, that the present fair saleable value of the assets of such Contributor is greater than the amount that will be required to pay its liability on its existing debts as they become absolute and matured. ASARCO represents to Silver Valley Resources that its contribution of the ASARCO Assets pursuant to this Agreement is not being made with the intent to hinder, delay or defraud any of their respective creditors. Section 5.10 Disclosure. ASARCO has made full, true and complete responses to Coeur d'Alene's and Callahan's requests for information, documents, contracts and records relating to the ASARCO Assets. To the best knowledge of ASARCO neither this Agreement nor any statement, certificate, writing or document furnished by ASARCO to Coeur d'Alene, Callahan or to Silver Valley Resources, in connection with the performance of this Agreement contains, as of the dates of such documents, any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. -11- 17 Section 5.11 Brokers' or Finders' Fees. No broker, finder or similar agent has been employed by or on behalf of ASARCO and no person or entity with which ASARCO has had any dealings or communications of any kind is entitled to any brokerage commission, finder's fee or any similar compensation, in connection with this Agreement or the transactions contemplated hereby. ARTICLE VI FURTHER REPRESENTATIONS AND WARRANTIES OF COEUR D'ALENE AND CALLAHAN Section 6. Representations and Warranties of Coeur d'Alene and Callahan. Coeur d'Alene and Callahan hereby represent and warrant to ASARCO and to Silver Valley Resources that on the date hereof and as of the Effective Date: Section 6.1 Organization, Power and Authority. (a) Coeur d'Alene is a corporation duly organized, validly existing and in good standing under the laws of the State of Idaho and Callahan is a corporation duly organized, validly existing and in good standing under the laws of the State of Arizona. Each of Coeur d'Alene and Callahan has all necessary corporate power and authority to own, lease and operate the Coeur d'Alene Assets and the Callahan Assets, as applicable, as heretofore conducted by Coeur d'Alene or Callahan. Each of Coeur d'Alene and Callahan has all necessary corporate power and authority to enter into and be bound by the terms and conditions of this Agreement. (b) The execution, delivery and performance by Coeur d'Alene and Callahan of this Agreement and any agreement or instrument contemplated hereby and thereby, and the performance by Coeur d'Alene and Callahan of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action. When duly executed and delivered by the parties hereto and thereto, this Agreement and each such other agreement and instrument will be legal, valid and binding obligations of each of Coeur d'Alene and Callahan, as applicable, in each case enforceable against Coeur d'Alene and Callahan, except as such enforceability may be limited by bankruptcy, insolvency or other similar laws from time to time in effect. Section 6.2 No Conflict. Except as disclosed in Schedule 6.2 hereto, neither the execution and delivery of this Agreement nor the consummation of the transactions -12- 18 contemplated hereby will (i) result in the creation of any Lien or Other Encumbrance upon any of the Coeur D'Alene Assets or the Callahan Assets pursuant to the terms of any mortgage, bond, indenture, agreement, franchise or other instrument or obligation; (ii) violate any judgment, order, injunction, decree or award of any court, administrative agency, arbitrator or governmental body against or affecting or binding upon Coeur d'Alene or Callahan or upon the securities, property or business of Coeur d'Alene or Callahan; or (iii) constitute a violation by Coeur d'Alene or Callahan of any law or regulation of any jurisdiction or of any agreement or instrument as such law, regulation, agreement or instrument relates to Coeur d'Alene or Callahan or to the securities, property or business of either entity. Section 6.3 Liabilities. To the best knowledge of Coeur d'Alene and Callahan, neither Coeur d'Alene nor Callahan has any material liabilities, debts or obligations, whether accrued, absolute, contingent or otherwise, known or unknown, relating to or arising out of the Coeur d'Alene Assets or the Callahan Assets or the ownership of the Coeur d'Alene Assets or the Callahan Assets, other than as specifically disclosed in the Schedules attached hereto; provided that neither Coeur d'Alene nor Callahan makes any representation or warranty herein relating to the absence or non-disclosure of any such liabilities, debts or obligations relating to or arising out of the environmental condition of the Coeur d'Alene Assets or the Callahan Assets or non-compliance with any statute, law, rule, regulation, ordinance, code or directive relating to the environment. Section 6.4 Ownership and Condition of Assets. (a) Except as disclosed in Schedule 6.4(a) attached hereto, each of Coeur d'Alene and Callahan has good and marketable title to all of the Coeur d'Alene or Callahan Assets that do not constitute real property, including mine equipment and fixtures, free and clear of any Lien or Other Encumbrance, except for those which do not materially detract from the value of, or impair the use of such property by Coeur d'Alene, Callahan or Silver Valley Resources in the operations of the Coeur d'Alene Assets or Callahan Assets. (b) Except as set forth in Schedule 6.4(b), to the best knowledge of Coeur d'Alene and Callahan, Coeur d'Alene or Callahan has good and marketable title in fee simple to all real property (surface estates, mineral estates and combined surface and mineral estates, including patented mining claims but excluding unpatented mining claims) -13- 19 constituting Coeur d'Alene Assets or Callahan Assets and holds sufficient rights in and to all easements or other rights necessary for access thereto and the substantial realization of benefits from such easements, and owns outright all buildings and other structures, improvements and fixtures on such real property. Title to such real property is, in each case, free and clear of any Lien or Other Encumbrance created or incurred by Coeur d'Alene or Callahan, except for those which do not materially detract from the value of, impair the use of, or have a material adverse impact on the title to the Coeur d'Alene Assets or Callahan Assets subject thereto or on the operations of the Coeur d'Alene Assets or Callahan Assets as conducted prior to the Suspension Date. (c) The representations and warranties contained in the deeds and bills of sale delivered by Coeur d'Alene and Callahan pursuant to Section 7.1(d)(i) are specifically incorporated by reference herein and, to the extent of any conflict between the representations and warranties contained herein and contained in such deeds or such bills of sale, the representations and warranties contained in such deeds or such bills of sale, as applicable, shall govern. Section 6.5 Leases; Contracts. Set forth in Schedule 6.5 attached hereto is a list of all leased real property (surface estates, mineral estates and combined surface and mineral estates, including patented and unpatented mining claims) constituting Coeur d'Alene Assets or Callahan Assets and all leases under which Coeur d'Alene, Callahan or any of their affiliates is lessee or occupant of any of the Assets (respectively, the "COEUR D'ALENE LEASES" or the "CALLAHAN LEASES"), which Coeur d'Alene Leases and Callahan Leases constitute all of the leases and occupancy agreements entered into in connection with the Coeur d'Alene Assets or Callahan Assets and in effect on the date hereof and as of the Effective Date. Set forth in Schedule 6.5 attached hereto is a complete and correct list of any Coeur d'Alene Contracts and Callahan Contracts which are material to the operation of the Coeur d'Alene Assets or Callahan Assets, individually or as a whole. Each Coeur d'Alene Lease and Callahan Lease and each such Coeur d'Alene Contract and Callahan Contract is valid, binding and in full force and effect and there exists no default or event of default or event or condition which, after the giving of notice, the lapse of time or the happening of any other event or condition would constitute a material default or material event of default thereunder. Each of the Coeur d'Alene Leases and Callahan Leases and each of such Coeur d'Alene -14- 20 Contracts and Callahan Contracts is enforceable in each case against Coeur d'Alene or Callahan in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other similar laws. Section 6.6 Litigation. Except as set forth in Schedule 6.6 attached hereto, there is no pending or, to the best knowledge of Coeur d'Alene and Callahan, threatened judicial, administrative or arbitral action, claim, suit or proceeding against Coeur d'Alene or Callahan or any of their affiliates or any of their or their affiliate's properties or rights which, individually or in the aggregate, could materially adversely affect the right or ability of Coeur d'Alene, Callahan or Silver Valley Resources to carry on the operations of the Coeur d'Alene Assets or Callahan Assets as conducted prior to the Suspension Date, or which could materially and adversely affect the condition, whether financial or otherwise, of Silver Valley Resources or the Coeur d'Alene Assets or Callahan Assets, or which questions the validity of this Agreement or any action taken or to be taken in connection herewith, and to the best knowledge of Coeur d'Alene and Callahan, there is no basis for any of the foregoing. Section 6.7 Governmental Approval; Third Party Consents. (a) Except as to any filing required under Hart-Scott and state and local filings required for the transfer of properties, no consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any governmental authority is required in connection with the execution and delivery of this Agreement by Coeur d'Alene or Callahan or the consummation by Coeur d'Alene or Callahan of the transactions contemplated hereby other than any consent required with respect to the assignment of Coeur d'Alene Contracts or Callahan Contracts, Leases and permits of Coeur d'Alene and Callahan described in Section 6.8. (b) Except as listed on Schedule 6.7(b) attached hereto, no third party consents are required for the consummation of the transfer, conveyance and assignment of the Coeur d'Alene Assets and the Callahan Assets in accordance with this Agreement. Section 6.8 Compliance with Laws; Coeur D'Alene Permits or Callahan Permits. Coeur d'Alene and Callahan are in compliance in all material respects with all applicable permits, licenses, orders or approvals of any federal, state, local or foreign governmental or regulatory body, laws, rules, regulations, ordinances, judgments, orders, -15- 21 injunctions, awards or decrees relating to the Coeur d'Alene Assets or Callahan Assets. Section 6.9 Tax Matters. (a) Except as disclosed in Schedule 6.9(a) attached hereto, all material returns and reports for Taxes for all Pre-Closing Periods which are required to be filed by or with respect to Coeur d'Alene and Callahan with respect to the Coeur d'Alene Assets and the Callahan Assets (collectively the "COEUR D'ALENE RETURNS") have been filed or, if not due to be filed, will be filed when due in a timely fashion and such Coeur d'Alene Returns as filed are or will be complete and accurate in all material respects. (b) Except as disclosed in Schedule 6.9(b) attached hereto, all material Taxes relating to or arising out of the Coeur d'Alene Assets or the Callahan Assets (whether or not shown on any Coeur d'Alene Return) which are due on or before the date hereof have been fully paid. All Taxes relating to or arising out of the Coeur d'Alene Assets or the Callahan Assets that are due with respect to all Pre-Closing Periods are disclosed in Schedule 6.9(b). Coeur d'Alene and Callahan agree to pay and discharge all such Taxes so disclosed or required to be disclosed, other than those listed in Annex A to the Undertaking and Assumption. (c) Except as disclosed in Schedule 6.9(c) attached hereto, there is no action, suit, proceeding, investigation, audit or claim now pending or, to the best knowledge of Coeur d'Alene and Callahan, threatened by any authority regarding any Taxes relating to Coeur d'Alene or Callahan for any Pre-Closing Period which could materially and adversely affect the Coeur d'Alene Assets or the Callahan Assets or the operations or business of Silver Valley Resources. (d) There are no liens or security interests on any of the Coeur d'Alene Assets or the Callahan Assets that arose in connection with any failure (or alleged failure) to pay any Taxes. (e) Except as disclosed in Schedule 6.9(e) attached hereto, there are no agreements for the extension or waiver of the time of assessment of any Taxes relating to the Coeur d'Alene Assets or the Callahan Assets for any Pre-Closing Period and neither Coeur d'Alene nor Callahan has been requested to enter into any such agreement or waiver. -16- 22 (f) Except as disclosed in Schedule 6.9(f) neither Coeur d'Alene nor Callahan is now nor has either been a party to any Tax allocation or sharing agreement that could result in any liability to Silver Valley Resources. (g) Immediately prior to, and immediately subsequent to, the consummation of the contribution of Coeur d'Alene Assets and the Callahan Assets pursuant to this Agreement, Coeur d'Alene and Callahan will be solvent corporations. Coeur d'Alene and Callahan represent to Silver Valley Resources that their respective contributions of the Coeur d'Alene Assets and the Callahan Assets pursuant to this Agreement are not being made with the intent to hinder, delay or defraud any of their respective creditors. Section 6.10 Disclosure. Coeur d'Alene and Callahan have made full, true and complete responses to ASARCO requests for information, documents, contracts and records relating to the Coeur d'Alene Assets or the Callahan Assets. To the best knowledge of Coeur d'Alene and Callahan neither this Agreement nor any statement, certificate, writing or document furnished by either of Coeur d'Alene or Callahan to ASARCO or Silver Valley Resources, in connection with the performance of this Agreement contains, as of the dates of such documents, any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. Section 6.11 Brokers' or Finders' Fees. No broker, finder or similar agent has been employed by or on behalf of Coeur d'Alene or Callahan, and no person or entity with which Coeur d'Alene or Callahan has had any dealings or communications of any kind is entitled to any brokerage commission, finder's fee or any similar compensation, in connection with this Agreement or the transactions contemplated hereby. ARTICLE VII CONDITIONS TO CLOSING Section 7.1 Conditions Precedent to Obligations of ASARCO. The obligation of ASARCO to contribute the ASARCO Assets under this Agreement is subject to the fulfillment, prior to or at the date hereof, of each of the following conditions (any or all of which may be waived by ASARCO): -17- 23 (a) Silver Valley Resources shall have delivered to ASARCO the Consideration in exchange for the contribution and transfer of the ASARCO Assets. (b) Coeur d'Alene and Callahan shall have obtained the consent to the assignment of any Coeur d'Alene Contract, Callahan Contract, Coeur d'Alene Lease and Callahan Lease, as applicable, or any claim, right or benefit arising thereunder or resulting therefrom, if consent is required for effective assignment thereof to Silver Valley Resources or to avoid a breach. In addition, Coeur d'Alene and Callahan shall have obtained the consents to the transfer, conveyance and assignment to Silver Valley Resources of all other Coeur d'Alene Assets or Callahan Assets, as applicable, if consent is required for effective transfer, conveyance and assignment thereof or to avoid a breach. (c) The parties shall have executed and delivered a letter agreement in the form attached hereto as Exhibit B (the "LETTER AGREEMENT"). (d) Coeur d'Alene and Callahan shall each have delivered, or caused to be delivered, to Silver Valley Resources (i) executed deeds in proper form for recording, bills of sale or certificates of title containing covenants or warranties of title, each dated the date hereof and effective as of the Effective Date, transferring to Silver Valley Resources the Coeur d'Alene Assets and the Callahan Assets, as applicable, in accordance with this Agreement and (ii) all such further instruments of conveyance, assignment and further assurance as may reasonably be required in order to vest in and confirm to Silver Valley Resources all right, title and interest in and to the Coeur d'Alene Assets and the Callahan Assets. (e) Silver Valley Resources and Coeur d'Alene shall have executed and delivered a Management Services Agreement substantially in the form attached hereto as Exhibit C (the "MANAGEMENT SERVICES AGREEMENT") and Silver Valley Resources shall have executed and delivered the Undertaking and Assumption with respect to the ASARCO Assets. (f) Each of Coeur d'Alene and Callahan shall have furnished to Silver Valley Resources a non-foreign person affidavit as required by Section 1445 of the Internal Revenue Code of 1986, as amended (the "CODE"). -18- 24 (g) Coeur d'Alene and Callahan shall each have delivered to Silver Valley Resources or ASARCO, as applicable, all other documents and certificates required to be delivered hereunder by Coeur d'Alene and Callahan at or prior to Closing. Section 7.2 Conditions Precedent to Obligations of Coeur d'Alene and Callahan. The obligations of Coeur d'Alene and Callahan to contribute the Coeur d'Alene Assets and the Callahan Assets under this Agreement are subject to the fulfillment, prior to or at the date hereof, of each of the following conditions (any or all of which may be waived by Coeur d'Alene or Callahan): (a) Silver Valley Resources shall have delivered the Consideration to each of Coeur d'Alene and Callahan in exchange for the contribution and transfer of the Coeur d'Alene Assets and Callahan Assets. (b) ASARCO shall have obtained the consent to the assignment of any ASARCO Contract and ASARCO Lease, as applicable, or any claim, right or benefit arising thereunder or resulting therefrom, if consent is required for effective assignment thereof to Silver Valley Resources or to avoid a breach. In addition, ASARCO shall have obtained the consents to the transfer, conveyance and assignment to Silver Valley Resources of all other ASARCO Assets if consent is required for effective transfer, conveyance and assignment thereof or to avoid a breach. (c) The parties shall have executed and delivered the Letter Agreement. (d) ASARCO shall have delivered, or caused to be delivered, to Silver Valley Resources the following (i) executed deeds in proper form for recording, bills of sale or certificates of title containing covenants or warranties of title, each dated the date hereof and effective as of the Effective Date, transferring to Silver Valley Resources the ASARCO Assets in accordance with this Agreement and (ii) all such further instruments of conveyance, assignment and further assurance as may reasonably be required in order to vest in and confirm to Silver Valley Resources all right, title and interest in and to the ASARCO Assets. (e) ASARCO and Silver Valley Resources shall have executed and delivered the Management Services Agreement -19- 25 and Silver Valley Resources shall have executed and delivered the Undertaking and Assumption with respect to the Coeur d'Alene Assets and the Callahan Assets. (f) ASARCO shall have furnished to Silver Valley Resources a non-foreign person affidavit as required by Section 1445 of the Code. (g) ASARCO shall have delivered to Silver Valley Resources, Coeur d'Alene or Callahan, as applicable, all other documents and certificates required to be delivered by Coeur d'Alene and Callahan hereunder at or prior to Closing. ARTICLE VIII ADDITIONAL COVENANTS OF THE PARTIES Section 8.1 Expenses of Transfer. Except as otherwise provided elsewhere in this Agreement, ASARCO, Coeur d'Alene and Callahan shall each bear their own direct and indirect expenses incurred in connection with the negotiation and preparation of this Agreement and all related documents, and the consummation and performance of the transactions contemplated hereby. All stamp, transfer, documentary, sales, use, recordation, registration, and other such taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the transactions contemplated hereby (collectively the "TRANSFER TAXES") shall be paid by ASARCO with respect to the ASARCO Assets and by Coeur d'Alene with respect to the Coeur d'Alene Assets and the Callahan Assets. Each of ASARCO, Coeur d'Alene and Callahan shall properly file, on a timely basis, all necessary tax returns, reports, forms and other documentation with respect to any Transfer Taxes and ASARCO and Coeur d'Alene shall provide to each other, and Callahan shall provide to ASARCO, evidence of payment of all Transfer Taxes. ASARCO, Coeur d'Alene and Callahan each agree to cooperate to obtain all available exemptions from the payment of any such expenses of transfer. Section 8.2 Confidentiality. Each party hereto will hold and will cause its consultants and advisors to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all documents and information concerning the other parties to this Agreement furnished it by such other parties or their representatives in connection with the transactions contemplated by this -20- 26 Agreement (except to the extent that such information can be shown to have been (i) previously known by the party to which it was furnished, (ii) in the public domain through no fault of such party, or (iii) later lawfully acquired from other sources by the party to which it was furnished), and each party will not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors in connection with this Agreement. If the transactions contemplated by this Agreement are not consummated, such confidence shall be maintained except to the extent such information comes into the public domain through no fault of the party required to hold it in confidence, and such information shall not be used to the detriment of, or in relation to any investment in, the other parties and all such documents (including copies thereof) shall be returned to the other parties immediately upon their written request. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other parties if it exercises the same care as it takes to preserve confidentiality for its own similar information. Section 8.3 Publicity. Neither ASARCO nor Coeur d'Alene nor Callahan shall make or issue, or cause to be made or issued, any announcement or written statement concerning this Agreement or the transactions contemplated hereby for dissemination to the general public without the prior consent of the others, and Silver Valley Resources shall not make or issue, or cause to be made or issued, any announcement or written statement concerning this Agreement or the transactions contemplated hereby for dissemination to the general public without the prior consent of ASARCO, Coeur d'Alene and Callahan. This provision shall not apply, however, to any announcement or written statement required to be made by law or the regulations of any federal or state governmental agency or any stock exchange, except that the party required to make such announcement shall, whenever practicable, consult with the other parties concerning the timing and content of such announcement before such announcement is made. ARTICLE IX INDEMNIFICATION Section 9.1 Indemnification by Silver Valley Resources. Silver Valley Resources agrees to defend, indemnify and hold harmless ASARCO, Coeur d'Alene, Callahan, their directors, officers, employees, agents and affiliates -21- 27 from and against all costs, damages, losses, Taxes, penalties or expenses (including, without limitation, attorneys' fees and expenses) ("DAMAGES") suffered or paid directly or indirectly, as a result of, relating to or arising out of: (a) any claim (including environmental claims) based on any act or omission of Silver Valley Resources, or (b) any claim (including environmental claims) to the extent related to the condition or operation of the Assets or other assets of Silver Valley Resources (subject to Section 9.2 and Section 9.3); provided, however, that the foregoing indemnity of Silver Valley Resources shall not apply to any claims of the Coeur d'Alene Tribe of Idaho (the "TRIBE") for "Covered Matters" as defined in the Settlement Agreement by and among the Tribe, Callahan and Coeur d'Alene, dated December 31, 1991. As between the parties hereto any claims of the Tribe arising from the Assets prior to the date such Assets are transferred to Silver Valley Resources shall be governed by the Coeur Agreement, the Galena Lease, any other applicable existing agreement, or applicable law. Section 9.2 Indemnification by ASARCO. ASARCO agrees, subject to the other terms and conditions of this Article IX and Section 10.1, to indemnify, defend and hold Silver Valley Resources, Coeur d'Alene and Callahan and their respective directors, officers, shareholders, employees, affiliates and agents harmless from and against any and all Damages based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation, warranty, covenant or agreement of ASARCO contained in this Agreement or in any certificate, agreement, document or instrument delivered pursuant to this Agreement. Section 9.3 Indemnification by Coeur d'Alene and Callahan. Coeur d'Alene and Callahan agree, subject to the other terms and conditions of this Article IX and Section 10.1, to indemnify, defend, and hold Silver Valley Resources and ASARCO and their respective directors, officers, shareholders, employees, affiliates and agents harmless from and against any and all Damages based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation, warranty, covenant or agreement of Coeur d'Alene or Callahan contained in this Agreement or in any certificate, agreement, document or instrument delivered pursuant to this Agreement. Section 9.4 Notice and Opportunity to Defend. Promptly after receipt by any party hereto of the assertion of any claim in respect of Damages or discovery of any fact upon which such party expects to make a claim for indemnifi- -22- 28 cation hereunder, such party shall give the party who may become obligated to provide indemnification hereunder (the "INDEMNIFYING PARTY") written notice describing such claim or fact in reasonable detail (the "NOTICE OF CLAIM"). The Indemnifying Party shall have the right, at its option, to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the party seeking such indemnification as to which the Indemnifying Party shall have promptly acknowledged its obligation to provide indemnification hereunder. Such Notice of Claim, and the opportunity to compromise or defend, shall be a condition precedent to any liability of the Indemnifying Party hereunder with respect to the claim or fact described in such Notice of Claim. If the Indemnifying Party shall undertake to compromise or defend any such asserted liability, it shall promptly notify the party seeking indemnification of its intention to do so, and the party seeking indemnification agrees to cooperate with the Indemnifying Party and its counsel in the compromise of, or defense against, any such asserted liability. All costs and expenses incurred in connection with such cooperation shall be borne by the Indemnifying Party. In any event, the indemnified party shall have the right at its own expense to participate in the defense of such asserted liability. Section 9.5 Recovery for Damages. Where Silver Valley Resources, ASARCO, Coeur d'Alene or Callahan recover on a claim for Damages from an unrelated third party, including, without limitation, an insurance company, payments for indemnification pursuant to this Article IX in respect of any such claim shall be net (after payment of costs of recovery and allocable costs of obtaining and maintaining the insurance which provided same) of any such recoveries on such claim received prior to such payment pursuant to this Article IX, by the party to be indemnified (the "INDEMNITEE"), and where such recoveries are received by the Indemnitee after payment pursuant to this Article IX is made to the Indemnitee, the Indemnitee will remit to the Indemnifying Party such portion of such recoveries (after payment of costs of recovery and allocable costs of obtaining and maintaining the insurance which provided same) as is necessary to prevent double recovery up to the amount paid to the Indemnitee on such claim by the Indemnifying Party. -23- 29 ARTICLE X MISCELLANEOUS Section 10.1 Survival of Representations, Warranties and Indemnities. All representations, warranties, and indemnities of Silver Valley Resources, ASARCO, Coeur d'Alene and Callahan in this Agreement shall survive the execution and delivery of this Agreement and the Closing, and shall not be merged into the deeds or other instruments of conveyance delivered pursuant to this Agreement, but shall extend as to any claim for which a Notice of Claim has been submitted therefore for the applicable period of the relevant statute of limitations. Section 10.2 Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be sufficiently given if delivered in person or sent by telex or telecopier or by certified or registered mail, postage prepaid, addressed as follows: (i) if to Silver Valley Resources, at: Silver Valley Resources Corporation Attention: Chairman c/o ASARCO Incorporated 180 Maiden Lane New York, New York 10038 with a copy to: President c/o Coeur d'Alene Mines Corporation 505 Front Avenue Coeur d'Alene, Idaho 83814 (ii) if to Coeur d'Alene, at: Coeur d'Alene Mines Corporation 505 Front Avenue Coeur d'Alene, Idaho 83814 Attention: Dennis E. Wheeler with a copy to: Attention: William F. Boyd -24- 30 (iii) if to Callahan, at: Callahan Mining Corporation 505 Front Avenue Coeur d'Alene, Idaho 83814 Attention: Dennis E. Wheeler with a copy to: Attention: William F. Boyd (iv) if to ASARCO, at: ASARCO Incorporated 180 Maiden Lane New York, New York 10038-4991 Attention: General Counsel with a copy to: White & Case 1155 Avenue of the Americas New York, New York 10036 Attention: Kevin Keogh, Esq. Any party may, by notice given in accordance with this Section 10.2 to the other parties, designate another address or person for receipt of notices hereunder. Such notice or other communication shall be deemed to have been given as of the date so delivered (in the case of deliveries in person), or as of the date so sent (in the case of deliveries by telecopier), or as of the fifth calendar day after the date so mailed (in the case of deliveries made by registered or certified mail). Section 10.3 Entire Agreement. This Agreement (including the Exhibits and Schedules attached hereto) contains the entire agreement of the parties with respect to the contribution and transfer of the Assets by ASARCO, Coeur d'Alene and Callahan and the issuance and delivery of stock by Silver Valley Resources and supersedes all prior agreements, representations and warranties, written or oral, with respect thereto. -25- 31 Section 10.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, cancelled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of Silver Valley Resources, ASARCO, Coeur d'Alene or Callahan in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of Silver Valley Resources, ASARCO, Coeur d'Alene or Callahan of any such right, power or privilege, or any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. Section 10.5 Assignability. This Agreement and the rights and obligations of the parties hereunder shall not be assignable by any of the parties hereto without the prior written consent of the other parties. Section 10.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without reference to the conflict of laws provisions thereof; except that all issues arising under this Agreement to the extent pertaining to the real or personAL property or property rights shall be governed and construed in accordance with the laws of the State of Idaho. Section 10.7 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Section 10.8 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Section 10.9 Further Assurances. (a) ASARCO, Coeur d'Alene and Callahan shall, at the request of Silver Valley Resources, at any time and from time to time following the Closing promptly execute and deliver, or cause to be executed and delivered, to Silver Valley Resources all such further instruments and take all such further action as Silver Valley Resources may reasonably request to more effectively transfer to Silver Valley Resources, or to perfect or record Silver Valley Resources' title to or interest in, or to enable Silver Valley Resources to use, the Assets or otherwise to confirm or carry out the provisions -26- 32 and intent of this Agreement, including, without limitation, assistance in the collection or reduction to possession of any such Assets. (b) Without limiting the generality of the foregoing, if a required consent to the assignment of any ASARCO Contract, ASARCO Lease, Coeur d'Alene Contract, Coeur d'Alene Lease, Callahan Contract or Callahan Lease pursuant to this Agreement has not been obtained by the date hereof effective as of the Effective Date, or if an attempted assignment of any such contract or lease would be ineffective, ASARCO, Coeur d'Alene or Callahan, as applicable, shall continue to use all commercially reasonable efforts to obtain such consent after the date hereof, and Silver Valley Resources shall use all commercially reasonable efforts to perform the obligations under such contract or lease in the name of ASARCO, Coeur d'Alene, or Callahan, as applicable. ASARCO, Coeur d'Alene and Callahan, as applicable, shall cooperate with Silver Valley Resources in any commercially reasonable arrangement designed to provide for Silver Valley Resources all of the benefits, and for Silver Valley Resources to assume the burdens, liabilities, obligations and expenses under any such contract or lease. Section 10.10 Severability. If any term or other provision in this Agreement is invalid, illegal or unenforceable by any rule or law or public policy, all other conditions and provisions in this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. Section 10.11 Coeur Agreement and Galena Lease Termination. Effective as of the Effective Date, the Coeur Agreement and the Galena Lease are hereby terminated, except for the purposes specifically referred to in this Agreement and the Undertaking and Assumption or in any other agreement or document contemplated hereby. Section 10.12 Third Parties. Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to -27- 33 confer upon or give to any person or corporation other than the parties hereto and their successors or assigns and the beneficiaries of contractual indemnification expressly set forth herein, any rights or remedies under or by reason of this Agreement. Section 10.13 Exhibits, Schedules and Annexes. All Exhibits and Schedules attached hereto and Annexes attached thereto are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any matter disclosed in any Schedule or Annex referred to herein shall be deemed also to have been disclosed in any other applicable Schedule or Annex referred to herein. Section 10.14 Table of Contents; Captions. The table of contents and article and section titles or captions contained in this Agreement or in any Exhibit or Schedule attached hereto or referred to herein are for convenience only, shall not be deemed a part of this Agreement and shall not affect the meaning or interpretation of this Agreement. Section 10.15 Bulk Sales. Silver Valley Resources, ASARCO, Coeur d'Alene and Callahan hereby waive compliance with applicable provisions, if any, of Idaho bulk sales law. Section 10.16 Best Knowledge. Where any representation or warranty contained in this Agreement is expressly qualified by reference to "the best knowledge" of a party hereto or by words of similar import, such phrase shall mean the actual knowledge of such party after due inquiry. -28- 34 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers hereunto duly authorized as of the 6th day of January, 1995. SILVER VALLEY RESOURCES CORPORATION By --------------------------------- Name: Richard de J. Osborne Title: Chairman ASARCO INCORPORATED By --------------------------------- Name: Richard de J. Osborne Title: Chairman and Chief Executive Officer COEUR D'ALENE MINES CORPORATION By --------------------------------- Name: Dennis E. Wheeler Title: Chairman, President, and Chief Executive Officer CALLAHAN MINING CORPORATION By --------------------------------- Name: Dennis E. Wheeler Title: President -29- EX-21 3 LIST OF SUBSIDIARIES. 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF COEUR D'ALENE MINES CORPORATION The following subsidiaries of Coeur d'Alene Mines Corporation, are wholly owned unless otherwise stated.
NAME OF SUBSIDIARY STATE OF INCORPORATION - --------------------------------------- -------------------------- Coeur Rochester, Inc. Delaware Coeur Bullion Idaho Coeur Explorations, Inc. Idaho Coeur Alaska, Inc. Delaware CDE Chilean Mining Corporation Delaware Callahan Mining Corporation Arizona Silver Valley Resources Corporation Delaware (50% owned) Compania Minera CDE Fachinal Limitada Chile
The following is a list of the subsidiaries of Callahan Mining Corporation:
STATE OF PERCENTAGE NAME OF SUBSIDIARY INCORPORATION OF OWNERSHIP - ---------------------------------- -------------- ------------ Coeur New Zealand, Inc. Delaware 100% Pinnacle Exploration, Inc. Colorado 87.2%
EX-23 4 CONSENT OF ERNST & YOUNG. 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the Long-Term Incentive Plan of Coeur d'Alene Mines Corporation, of our report dated February 2, 1996 with respect to the consolidated financial statements and schedules of Coeur d'Alene Mines Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1995. /S/ ERNST & YOUNG Seattle, Washington February 28, 1996 EX-27 5 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COEUR D'ALENE MINES CORPORATION FORM 10-K FOR YEAR ENDED 12/31/95. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 16,484,767 63,077,064 13,809,248 0 30,980,765 126,622,539 118,083,535 34,152,342 445,646,073 21,025,717 184,788,674 0 0 21,524,093 218,307,589 445,646,073 89,239,051 98,743,116 72,210,413 72,210,413 27,590,590 0 9,745,967 (1,057,887) 199,703 (1,257,590) 2,411,942 0 0 1,154,352 .07 .07
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