DEBT AND CAPITAL LEASE OBLIGATIONS

The current and non-current portions of long-term debt and capital lease obligations as of June 30, 2012 and December 31, 2011 are as follows (in thousands):



	June 30, 2012				December 31, 2011
	Current		Non-Current		Current		Non-Current
3.25% Convertible Senior Notes due March 2028	$	46,786	$	—	$	—	$	45,545
Kensington Term Facility	24,248		47,726		15,398		60,425
Capital lease obligations	11,674		6,248		17,119		9,891
Other	—		—		85		—
	$	82,708	$	53,974	$	32,602	$	115,861

3.25% Convertible Senior Notes

As of June 30, 2012, the outstanding balance of the 3.25% Convertible Senior Notes due 2028 was $48.7 million, or $46.8 million net of debt discount. The notes are classified as current liabilities as of June 30, 2012 as a result of the holders' option to require the Company to repurchase the notes on March 15, 2013.

The fair value of the notes outstanding, as determined by market transactions at June 30, 2012 and December 31, 2011 was $46.8 million and $49.2 million, respectively. The carrying value of the equity component at June 30, 2012 and December 31, 2011 was $10.9 million.

For the three months ended June 30, 2012 and 2011 interest expense recognized was $0.4 million and $0.4 million, respectively. For the six months ended June 30, 2012 and 2011 interest expense recognized was $0.8 million, and $0.8 million, respectively. For the three months ended June 30, 2012 and 2011 accretion of the debt discount was $0.6 million and $0.6, respectively. For the six months ended June 30, 2012 and 2011 accretion of the debt discount was $1.2 million and $1.1 million, respectively. The debt discount remaining at June 30, 2012 was $1.9 million, which will be amortized through March 15, 2013. The effective interest rate on the notes was 8.9%.

Kensington Term Facility

As of June 30, 2012, the outstanding balance of the Kensington Term Facility was $72.0 million.

As a condition to the Kensington term facility with Credit Suisse, the Company agreed to enter into a gold hedging program which protects a minimum of 243,750 ounces of gold production over the life of the term facility against the risk associated with fluctuations in the market price of gold. This program consists of a series of zero cost collars which consist of a floor price and a ceiling price of gold. Call options protecting 111,000 ounces of gold were outstanding at June 30, 2012. The weighted average strike price of the call options was $1,971.94. Put options protecting 156,000 ounces of gold were outstanding at June 30, 2012. The weighted average strike price of the put options was $958.16.

The Amended Credit Facility contains affirmative and negative covenants that the Company believes are usual and customary, including financial covenants that Coeur Alaska’s debt to equity ratio shall not exceed 40%, the ratio of projected cash flow to debt service shall be at least 125%, the tangible net worth of the Borrower is not less than $325 million and the tangible net worth of the Guarantor is no less than $1.0 billion. Project covenants include covenants as to performance of sales contracts, maintenance and management. As of June 30, 2012, the Company was not in compliance with the debt service ratio covenant. The bank has waived that requirement of the agreement for the year ending December 31, 2012.

Capital Lease Obligations

As of June 30, 2012 and December 31, 2011, the Company had outstanding balances on capital leases of $17.9 million and $27.0 million, respectively.

Palmarejo Gold Production Royalty Obligation

The Company recognized accretion expense on the Palmarejo gold production royalty obligation for the three and six months ended June 30, 2012 and 2011of $5.6 million and $5.8 million and $10.7 million and $11.0 million, respectively. As of June 30, 2012 and December 31, 2011, the remaining minimum obligation under the royalty agreement was $67.1 million and $72.1 million, respectively.

Interest Expense

The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the three and six months ended June 30, 2012 and 2011, the Company expensed interest of $7.6 million and $9.3 million, and $14.2 million and $18.6 million, respectively.



	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
	(in thousands)						(in thousands)
3.25% Convertible Senior Notes due March 2028	$	395		$	395		$	791		$	791
1.25% Convertible Senior Notes paid in 2011	—			—			—			1
Senior Term Notes paid in 2011	—			427			—			914
Kensington Term Facility	906			1,162			1,880			2,267
Capital lease obligations	265			472			608			938
Other debt obligations	162			145			230			613
Gold Lease Facility terminated in 2011	—			—			—			107
Accretion of Franco Nevada royalty obligation	5,559			5,770			10,663			11,037
Amortization of debt issuance costs	251			559			508			1,183
Accretion of debt discount	629			576			1,241			1,137
Capitalized interest	(610		)	(238		)	(1,694		)	(415		)
Total interest expense, net of capitalized interest	$	7,557		$	9,268		$	14,227		$	18,573

Capitalized Interest

The Company capitalizes interest incurred on its various debt instruments as a cost of properties under development. For the three and six months ended June 30, 2012 and 2011, the Company capitalized interest of $0.6 million and $0.2 million, and $1.7 million and $0.4 million respectively.