10-K 1 cde-12311710k.htm 10-K Document
UNITED STATES 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
 
For the fiscal year ended December 31, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to          
Commission File Number 1-8641
coeurlogob19.jpg
COEUR MINING, INC.
(Exact name of registrant as specified in its charter)
Delaware
82-0109423
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
104 S. Michigan Ave. Suite 900
 Chicago, IL
(Address of principal executive offices)
60603
 (Zip Code)
Registrant’s telephone number, including area code: (312) 489-5800
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.  Yes  x No ¨  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨  No x
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) 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 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
þ
Accelerated filer
 
o
   
 
 
 
 
Non-accelerated filer
(Do not check if a smaller reporting company)
 
o
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨     No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
$1,538,261,285
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
As of February 5, 2018, 185,442,526 shares of Common Stock, par value $0.01 per share




DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Part III of the Form 10-K is incorporated by reference from the registrant’s definitive proxy statement for the 2018 Annual Meeting of Stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.



COEUR MINING, INC.

FORM 10-K
INDEX
PART I
PART II
PART III
Directors, Executive Officers and Corporate Governance
PART IV
Item 16.
Form 10-K Summary



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PART I

Item 1.
Business
INTRODUCTION
Coeur Mining, Inc. (“Coeur”, “the Company”, or “we”) is a gold and silver producer, as well as a zinc and lead producer after the acquisition of Silvertip (as defined below), with mines located in the United States, Canada, Mexico, and Bolivia and exploration projects in the United States and Mexico. The Company operates the Palmarejo complex, and the Rochester, Kensington, Wharf, Silvertip (acquired in October 2017; expected to commence production in the first quarter of 2018) and San Bartolomé mines. The Company’s principal sources of revenue are its operating mines. As described below, in December 2017, the Company entered into an agreement to sell 100% of the shares of Empresa Minera Manquiri S.A. (“Manquiri”), the operator of the San Bartolomé mine. As a result, the Company presents San Bartolomé as a discontinued operation for all periods presented. In this Annual Report on Form 10-K (this “Report” or “Form 10-K”), the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations unless otherwise indicated. For additional information regarding our discontinued operations, see Note 22 to the Consolidated Financial Statements and the discussion in our Results of Consolidated Operations below.
Coeur was incorporated as an Idaho corporation in 1928 under the name Coeur d’Alene Mines Corporation. On May 16, 2013, Coeur changed its state of incorporation from the State of Idaho to the State of Delaware and changed its name to Coeur Mining, Inc.
OVERVIEW OF MINING PROPERTIES AND INTERESTS
The Company’s operating properties and interests are described below:

Coeur owns 100% of Coeur Mexicana S.A. de C.V. (“Coeur Mexicana”), which operates (1) the Palmarejo processing facility (since 2009); (2) the Guadalupe underground mine (since 2015), located about eight kilometers southeast of the Palmarejo mine; (3) the Independencia underground mine (since 2016), located approximately 800 meters northeast of the Guadalupe underground mine, and (4) other nearby deposits and exploration targets (together, the “Palmarejo complex”). The Palmarejo complex produced 7.2 million ounces of silver and 121,569 ounces of gold in 2017.
Coeur owns 100% of Coeur Rochester, Inc. (“Coeur Rochester”), which has operated the Rochester mine, a silver and gold surface mining operation located in northwestern Nevada, since 1986. The Rochester mine produced 4.7 million ounces of silver and 51,051 ounces of gold in 2017.
Coeur owns 100% of Coeur Alaska, Inc. (“Coeur Alaska”), which has operated the Kensington mine, an underground gold mine located north of Juneau, Alaska since 2010. Kensington produced 115,094 ounces of gold in 2017.
Coeur owns 100% of Wharf Resources (U.S.A.), Inc. (“Wharf”), which operates the Wharf mine, an open-pit gold mine located near Lead, South Dakota. The Wharf mine is located in the Black Hills mining district of South Dakota and has been in production for over 30 years, during which it has produced over 2.2 million ounces of gold. Coeur acquired Wharf in February 2015. The Wharf mine produced 95,372 ounces of gold in 2017.
Coeur owns 100% of Coeur Silvertip Holdings Ltd. (“Silvertip”), which operates the underground Silvertip silver-zinc-lead mine located in northern British Columbia, Canada. Coeur acquired Silvertip in October 2017. The Silvertip mine is expected to commence production in the first quarter of 2018.
Coeur owns 100% of Manquiri, a Bolivian company that controls the mining rights for the San Bartolomé mine, which is a surface silver mine in Bolivia where Coeur commenced commercial production in 2008. The San Bartolomé mine produced 4.3 million ounces of silver in 2017. In December 2017, Coeur and certain of its subsidiaries entered into a Share Purchase Agreement (the “Manquiri Agreement”) for the sale by Coeur and its subsidiaries of 100% of the issued and outstanding shares of Manquiri (the “Manquiri Divestiture”). Coeur expects to close the sale of Manquiri during the first quarter of 2018.
Coeur owns 100% of the La Preciosa silver-gold exploration project in the State of Durango, Mexico.
Coeur has made strategic equity investments in other early-stage precious metals companies.
Coeur has an interest in exploration-stage properties throughout North America.
For financial and geographic information regarding our operating segments, see Note 3 to the consolidated financial statements.

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SILVER, GOLD, ZINC, AND LEAD PRICES
The Company’s operating results are substantially dependent upon the market prices of silver and gold, and to a lesser extent zinc and lead following the Silvertip acquisition, which fluctuate widely. The volatility of such prices is illustrated in the following table, which sets forth the high and low prices of each metal published by the London Bullion Market Association (“LBMA”) for silver and gold and the London Metal Exchange (“LME”) for zinc and lead:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
High
 
Low
 
High
 
Low
 
High
 
Low
Silver (per oz.)
$
18.56

 
$
15.22

 
$
20.71

 
$
13.58

 
$
18.23

 
$
13.71

Gold (per oz.)
$
1,346

 
$
1,151

 
$
1,366

 
$
1,077

 
$
1,296

 
$
1,049

Zinc (per lb.)
$
1.53

 
$
1.10

 
$
1.31

 
$
0.66

 
$
1.10

 
$
0.67

Lead (per lb.)
$
1.17

 
$
0.91

 
$
1.14

 
$
0.73

 
$
0.98

 
$
0.71

MARKETING
The Company’s mining operations produce silver and/or gold doré and gold concentrate. The Company uses a geographically diverse group of third-party refiners and smelters in the United States and China. The Company will produce zinc, lead, and silver concentrate when Silvertip commences production.
The Company's doré, as well as the concentrate product produced by the Wharf mine, is refined into gold and silver bullion according to benchmark standards set by the LBMA, which regulates the acceptable requirements for bullion traded in the London precious metals markets. The Company then sells its silver and gold bullion to multi-national banks, bullion trading houses, and refiners across the globe. The Company has eight trading counterparties at December 31, 2017. The Company's sales of doré or concentrate product produced by the Palmarejo, Rochester, and Wharf mines amounted to approximately 78%, 74%, and 72% of total metal sales for the years ended December 31, 2017, 2016, and 2015, respectively. Generally, the loss of a single bullion trading counterparty would not adversely affect the Company due to the liquidity of the markets and availability of alternative trading counterparties.
The Company's gold concentrate products from the Kensington mine are primarily sold to one smelter under a purchase and sale agreement, and the smelter pays the Company for the metals recovered from the concentrates. The Company’s sales of concentrate produced by the Kensington mine amounted to approximately 22%, 26%, and 27% of total metal sales for the years ended December 31, 2017, 2016, and 2015, respectively. While the loss of a smelter may have a material adverse effect if alternate smelters are not available or if the failure to engage a new smelter results in a delay in the sale or purchase of Kensington concentrate, the Company believes that there is sufficient global capacity available to address the loss of a smelter.
HEDGING ACTIVITIES
The Company’s strategy is to provide stockholders with exposure to silver and gold prices by selling silver and gold production at market prices. The Company also plans to sell zinc and lead concentrate when the Silvertip mine commences production in the first quarter of 2018. The Company may enter into short-term derivative contracts to protect the selling price for certain anticipated silver, gold, zinc and lead production and to manage risks associated with foreign currencies. For additional information see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and Note 12 -- Derivative Financial Instruments in the notes to the consolidated financial statements.
GOVERNMENT REGULATION
General
The Company’s 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, protection of endangered, protected or other specified species and other matters. The costs to comply with such regulatory requirements are substantial and possible future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development and continued operation 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 the Company 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, more stringent application or interpretation of these laws and regulations through judicial review, or administrative action or the adoption of new laws could have a material adverse effect upon the Company and its results of operations.

5


Estimated future reclamation costs are based primarily on legal and regulatory requirements. At December 31, 2017, $118.8 million was accrued for reclamation costs relating to currently developed and producing properties. The Company is also involved in several matters concerning environmental obligations associated with former mining activities. Based upon the Company’s best estimate of its liabilities for these items, $2.0 million was accrued at December 31, 2017. These amounts are included in Reclamation on the Consolidated Balance Sheet.
U.S. Environmental Laws

Certain mining wastes from extraction and beneficiation of ores would be considered hazardous waste under the Resource Conservation and Recovery Act (“RCRA”) and state law equivalents, but are currently exempt from the extensive set of Environmental Protection Agency (“EPA”) regulations governing hazardous waste. If the Company’s mine wastes were treated as hazardous waste under RCRA or such wastes resulted in operations being designated as “Superfund” sites under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) or state law equivalents for cleanup, material expenditures could be required for the construction of additional waste disposal facilities, for other remediation expenditures, or for natural resource damages. Under CERCLA, any present or past owners or operators of a Superfund site generally may be held liable and may be forced to undertake remedial cleanup action or to pay for the government’s cleanup efforts. Such owners or operators may also be liable to governmental entities for the cost of damages to natural resources, which may be substantial. Additional regulations or requirements may also be imposed upon the Company’s operations, tailings, and waste disposal areas, as well as upon mine closure, in Alaska, Nevada, and South Dakota under federal and state environmental laws and regulations, including, without limitation, CERCLA, the Clean Water Act, Clean Air Act and state law equivalents. The Company has reviewed and considered current federal legislation relating to climate change and does not believe it to have a material effect on its operations. Future changes in U.S. federal or state laws or regulations could have a material adverse effect upon the Company and its results of operations.
U.S. Mining Legislation
A portion of the Company’s U.S. mining properties are on unpatented mining claims on federal lands. Legislation has been introduced regularly in the U.S. Congress over the last decade to change the Mining Law of 1872 as amended (the “Mining Law”), under which the Company holds these unpatented mining claims. It is possible that the Mining Law may be amended or replaced by less favorable legislation in the future. Previously proposed legislation contained a production royalty obligation, new environmental standards and conditions, additional reclamation requirements and extensive new procedural steps which would likely result in delays in permitting. The ultimate content of future proposed legislation, if enacted, is uncertain. If a royalty on unpatented mining claims were imposed, the profitability of the Company’s U.S. operations could be materially adversely affected. In addition, the U.S. Forest Service and the U.S. Bureau of Land Management (“BLM”) have considered revising regulations governing operations under the Mining Law on federal lands they administer, which, if implemented, may result in additional procedures and environmental conditions and standards on those lands. The majority of the Company’s operations are either outside of the United States or on private patented lands and would be unaffected by potential legislation.
Any such reform of the Mining Law or BLM and U.S. Forest Service regulations thereunder could increase the costs of mining activities on unpatented mining claims, or could materially impair the ability of the Company to develop or continue operations which derive ore from federal lands, and as a result, could have an adverse effect on the Company and its results of operations. Until such time, if any, as new reform legislation or regulations are enacted, the ultimate effects and costs of compliance on the Company cannot be estimated.
Foreign Government Regulations
Mexico, where the Palmarejo complex and the La Preciosa exploration project are located, and Canada, where the Silvertip mine is located and Bolivia, where the San Bartolomé mine is located, have all adopted laws and guidelines for environmental permitting that are similar to those in effect in the United States. The permitting process requires a thorough study to determine the baseline condition of the mining site and surrounding area, an environmental impact analysis, and proposed mitigation measures to minimize and offset the environmental impact of mining operations. The Company has received all permits required to operate the Palmarejo complex and the San Bartolomé mine and to carry out the current scope of activities at the Silvertip Mine, and has received all permits necessary for the exploration activities being conducted at its other non-U.S. properties.
Maintenance of Claims
United States
At mining properties in the United States, including the Rochester, Kensington, and Wharf mines, operations are conducted upon both patented and unpatented mining claims. Pursuant to applicable federal law, it is necessary to pay to the Secretary of the Interior, on or before September 1st of each year, a claim maintenance fee of $155 per unpatented federal claim. This claim maintenance fee is in lieu of the assessment work requirement contained in applicable mining laws. In addition, Nevada holders

6


of unpatented federal mining claims are required to pay the county recorder of the county in which the claim is situated an annual fee of $12.00 per claim. In South Dakota, holders of unpatented federal mining claims are required to pay the county recorder of the county in which the claim is situated an annual fee of $0.25 per claim. In Alaska, the Company is required to pay a variable, annual rental fee for State claims and a State upland mining lease based on the age of the claim or claims converted to the upland mining lease. Annual labor must also be performed or an annual payment in lieu of annual labor must be paid to the State of Alaska for State claims and upland mining leases. No maintenance fees are payable for federal patented claims. Patented claims are similar to land held by an owner who is entitled to the entire interest in the property with unconditional power of disposition and are subject to local ad valorem property taxes.
Mexico
In order to carry out mining activities in Mexico, the Company is required to obtain a mining concession from the General Bureau of Mining, which belongs to the Ministry of Economy of the Federal Government, or be assigned previously granted concession rights, and both must be recorded with the Public Registry of Mining. In addition, mining works may have to be authorized by other authorities when performed in certain areas, including ejidos (communal owners of land recognized by the federal laws in Mexico), villages, dams, channels, general communications ways, submarine shelves of islands, islets and reefs, marine beds and subsoil and federal maritime-terrestrial zones. Reports have to be filed with the General Bureau of Mining in May of each year, evidencing previous calendar year mining investment and works. Annual reports, detailing technical and statistical information and production results, must be submitted during the first 30 business days of the following year for each concession or group of concessions bearing production and all concessions over six years of age. Bi-annual mining duties are payable in January and July of each year and, based on amount of surface of each mining concession, holders of mining concessions must also pay annually and no later than the last business day of March a special mining fee based on 7.5% of the income before interest and certain other permitted deductions derived from the transfer or sale of minerals, plus 0.5% of gross revenues from sales of gold, silver and platinum. Failure to pay any of these duties and submit the required reports could lead to cancellation of the concessions. Upon expiration or cancellation of the concession, certain obligations remain, such as filing technical reports and ground support.
Canada (British Columbia)
Mineral claims and mining leases in British Columbia are regulated by the provincial government under the Mineral Tenure Act. Mineral claims are initially valid for one year after recording. To maintain a claim, the recorded holder must, on or before the expiry date of the claim, either perform exploration and development work on that claim (or contiguous block of claims) and register such work, or register a payment instead of exploration and development work. Only work prescribed by regulation is acceptable for registration. The value of exploration and development work required to maintain a mineral claim for one year is CAD5/hectare (“ha”) for each of the first and second years, CAD10/ha for each of the third and fourth years, CAD15/ha for each of the fifth and sixth years, and CAD20/ha for each subsequent year. If a payment is made instead of performing exploration and development work, the payment must be double the value of the required work. The recorded holder of a mineral claim is allowed to produce a very limited amount of mineralized material. For production in excess of these limits, a mining lease is required. Mining leases in British Columbia are generally issued for a term of 30 years, and renewal terms are available. An annual rental payment of CAD20/ha is required to maintain a mining lease. There are no annual work requirements for mining leases. Before any mechanical disturbance of the surface of the ground is performed by, or on behalf of, the recorded holder, the necessary approvals and permits under the Mineral Tenure Act must be obtained. Mines in production are subject to taxation by the provincial government.
Bolivia
The Bolivian state owns the mining rights at San Bartolomé. The Bolivian state-owned mining organization, Corporación Minera de Bolivia (“COMIBOL”), is the underlying manager of all of the mining rights relating to the San Bartolomé mine. Bolivia’s ownership derives from the Supreme Decree 3196 issued in October 1952, when the government nationalized most of the mines in Potosí. COMIBOL has leased the mining rights for the surface silver and tin bearing sediment to several Potosí cooperatives. The cooperatives have subleased their mining rights to Coeur’s subsidiary, Manquiri, through a series of “joint venture” contracts (“JV Agreements”). In addition to those agreements with the cooperatives, Manquiri holds additional mining rights under lease agreements directly with COMIBOL. All of Manquiri’s mining and surface rights collectively constitute the San Bartolomé mine. In response to conflicts between local mining cooperatives and the Bolivian government, on September 1, 2016, the Bolivian government issued Supreme Decree No. 2891, and on October 24, 2016, Law 845, which impose tighter restrictions on mining cooperatives, including reversion of mining areas leased to the mining cooperatives by COMIBOL that are subject to JV Agreements, leases or subleases with third parties to the Bolivian state. Although Bolivian government officials have made public statements that the decree will not impact Manquiri’s ability to continue operations in the areas subject to the JV Agreements and the JV Agreements continue to be formally in existence, any cancellation of leases between COMIBOL and the applicable mining cooperatives and/or the JV Agreements will require negotiation of and entry into contracts directly with

7


COMIBOL to continue mining operations at the affected areas. In January 2017, an interim permit was granted to Manquiri allowing for continuation of mining operations in the areas subject to the JV Agreements pending negotiation of contracts directly with COMIBOL. For additional information regarding the maintenance of its claims to the San Bartolomé mine, see “Item 2. Properties - Silver and Gold Mining Properties, Bolivia-San Bartolomé.”

EMPLOYEES
The number of full-time employees of the Company at December 31, 2017 was:
U.S. Corporate and Other
74

Wharf Mine
207

Rochester Mine
286

Silvertip Mine
167

Kensington Mine
367

Palmarejo Complex
878

San Bartolomé Mine(1)
278

Total
2,257

(1)
Manquiri maintained a labor agreement in South America with Sindicato de Trabajadorés Mineras de la Empresa Manquiri S.A. at the San Bartolomé mine in Bolivia in 2017, which remains in effect for 2018. At December 31, 2017, approximately 7% of the Company’s global labor force was covered by collective bargaining agreements, consisting entirely of employees at San Bartolomé.


8


BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
    
Management believes the following strengths provide the Company with significant competitive advantages:
Strong track record of developing and operating mines
The Company has successfully acquired, developed, and operated a portfolio of operating mines since its founding in 1928. In 2017, we had production from continuing operations of 12.1 million ounces of silver and 383,086 ounces of gold at costs applicable to sales of $10.70 per silver equivalent ounce1 ($9.66 per average spot silver equivalent ounce) at primary silver mines and $822 per gold equivalent ounce1 at primary gold mines.

Silver Production                     Gold Production    
(Continuing Operations) (Continuing Operations)
silverproductiona02.jpggoldproductiona03.jpg
    
Costs Applicable to Sales per Silver Equivalent Oz1      Costs Applicable to Sales per Gold Equivalent Oz1
casageqoza01.jpg casaueqoza03.jpg
      
All-in Sustaining Costs per Silver Equivalent Oz 60:11      All-in Sustaining Costs per Silver Equivalent Oz Spot1     aiscageqoz63.jpgaiscageqozspota03.jpg
(1) See Non-GAAP Financial Performance Measures.
    
    

9


Operating and commodity diversity
The Company’s silver and gold production comes from five operating mines and an additional mine, which is expected to commence production of silver, zinc and lead in the first quarter of 2018. The Company operates the Palmarejo silver and gold complex in Mexico, the Silvertip silver-zinc-lead mine in Canada, the Kensington gold mine in Alaska, the Wharf gold mine in South Dakota, the Rochester silver and gold mine in Nevada, and the San Bartolomé silver mine in Bolivia (the Company expects to complete the Manquiri Divestiture during the first quarter of 2018).

The Company’s metal sales breakdown by operating mine in continuing operations and metal is set out below:
2017 Silver Sales by Mine (millions of ounces)          2017 Gold Sales by Mine (ounces)
silversalesbyminea02.jpg goldsalesbyminea02.jpg
Experienced management team
The Company has built a high-caliber management team of devoted professionals with extensive mining industry expertise. President and Chief Executive Officer, Mitchell Krebs, Senior Vice President and Chief Financial Officer, Peter Mitchell, and Senior Vice President and Chief Operating Officer, Frank Hanagarne, each has significant experience in the mining industry. The board of directors also brings diverse industry backgrounds and a depth of professional experience to the Company.
Capitalizing on prior development program
The Company has spent significant capital in developing or expanding its four 100%-owned operating mines that remain as continuing operations. The following table provides the percentage contribution to the Company’s total revenues:
 
Percentage of Total Revenues
For The Year Ended December 31,
Mine/Location
2017
 
2016
 
2015
 
2014
 
2013
Palmarejo Complex, Mexico
38
%
 
24
%
 
30
%
 
47
%
 
54
%
Kensington Mine, United States
22

 
26

 
26

 
26

 
25

Rochester Mine, United States
22

 
24

 
26

 
24

 
20

Wharf Mine, United States(1)
18

 
24

 
15

 

 

Coeur Capital(2)

 
2

 
3

 
3

 
1

 
100
%
 
100
%

100
%

100
%

100
%
(1)
Acquired February 2015.
(2)
Primarily the Endeavor Silver Stream (Australia).
 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This report contains numerous forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to the Company’s gold, silver, zinc and lead mining business, including statements regarding the Manquiri Divestiture, and timing for commencement of production at Silvertip, mineral reserve and mineralized material estimates, exploration efforts, drilling, development at Kensington and Palmarejo, estimated production, costs, capital expenditures, expenses, metals prices, sufficiency of assets, ability to discharge liabilities, liquidity management, financing needs, environmental compliance expenditures, risk management strategies, operational excellence, cost reduction initiatives, capital discipline, and initiatives to maximize net cash flow, enhance revenues, reduce operating and non-operating costs, and manage working capital efficiently. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ

10


materially from those projected in the forward-looking statements include (i) the risk factors set forth below under Item 1A and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7, (ii) the risk that the Manquiri Divestiture is not completed on a timely basis or at all, (iii) the risk that commencement of commercial production at Silvertip will be delayed, (iv) the risks and hazards inherent in the mining business (including risks inherent in developing large-scale mining projects, environmental hazards, industrial accidents, weather or geologically related conditions), (v) changes in the market prices of gold, silver, zinc and lead and a sustained lower price environment, (vi) the uncertainties inherent in the Company’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays, ground conditions and grade variability, (vii) any future labor disputes or work stoppages (involving the Company and its subsidiaries or third parties), (viii) the uncertainties inherent in the estimation of gold, silver, zinc and lead reserves and mineralized material, (ix) changes that could result from the Company’s future acquisition of new mining properties or businesses, (x)  the loss of access to any third-party smelter to whom the Company markets silver and gold, (xi) the effects of environmental and other governmental regulations, (xii) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, and (xiii) the Company’s ability to raise additional financing necessary to conduct its business, make payments or refinance its debt. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

CAUTIONARY NOTE REGARDING DISCLOSURE OF MINERAL PROPERTIES
 
Reserves, Resources and Mineralized Material
 
Coeur Mining, Inc. is subject to the reporting requirements of the Exchange Act and applicable Canadian securities laws, and as a result we report our mineral reserves according to two different standards.  Canadian reporting requirements for disclosure of mineral properties are governed by National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”). The definitions of NI 43-101 are adopted from those given by the Canadian Institute of Mining, Metallurgy and Petroleum.  U.S. reporting requirements, however, are governed by Securities and Exchange Commission (“SEC”) Industry Guide 7 (“Guide 7”). Both sets of reporting standards have similar goals in terms of conveying an appropriate level of confidence in the disclosures being reported, but embody different approaches and definitions.  Under Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
 
In our public filings in Canada and in certain other announcements not filed with the SEC, we disclose measured, indicated and inferred resources, each as defined in NI 43-101, in addition to our mineral reserves.  U.S. investors are cautioned that, while the terms “measured mineral resources,” “indicated mineral resources” and “inferred mineral resources” are recognized and required by Canadian securities laws, Guide 7 does not recognize them.  The estimation of measured resources and indicated resources involve greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves, and therefore U.S. investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into Guide 7 compliant reserves.  The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources, and therefore it cannot be assumed that all or any part of inferred resources will ever be upgraded to a higher category.  Therefore, investors are cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically.
 
In this Annual Report on Form 10-K (“Form 10-K”) and in our other filings with the SEC, we modify our estimates made in compliance with NI 43-101 to conform to Guide 7 for reporting in the United States.  In this Form 10-K, we use the term “mineralized material” to describe mineralization in mineral deposits that do not constitute “reserves” under U.S. standards.  “Mineralized material” is substantially equivalent to measured and indicated mineral resources (exclusive of reserves) as disclosed for reporting purposes in Canada, except that the SEC only permits issuers to report “mineralized material” in tonnage and average grade without reference to contained ounces.  We provide disclosure of mineralized material to allow a means of comparing our projects to those of other companies in the mining industry, many of which are Canadian and report pursuant to NI 43-101, and to comply with applicable disclosure requirements.  We caution you not to assume that all or any part of mineralized material will ever be converted into Guide 7 compliant reserves.
 
Technical Reports and Qualified Persons
 
As required by Canadian securities laws, we hereby notify Canadian investors that the scientific and technical information concerning our mineral projects in this Form 10-K have been reviewed and approved by a “qualified person” under NI 43-101, namely our Director, Technical Services, Christopher Pascoe.  For a description of the key assumptions, parameters and methods used to estimate mineral reserves included in this Form 10-K, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant factors, Canadian investors may view technical reports prepared for each of our properties as filed on

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SEDAR at http://www.sedar.comNeither the technical reports nor the statements of any qualified person filed with the Canadian securities regulatory authorities are included in, or incorporated by reference in, this Form 10-K.  Because the definitions and standards of NI 43-101 differ from those of Guide 7, investors are cautioned that information contained in reports prepared pursuant to NI 43-101, like the technical reports, may not be comparable to similar information that we can disclose in this Form 10-K or the other reports we file with the SEC.

AVAILABLE INFORMATION

Coeur makes available, on its website (http://www.coeur.com), its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements, as well as Forms 3, 4 and 5 with respect to its common stock, including any amendments to any of the foregoing, as soon as reasonably practicable after such reports are electronically filed with the SEC. Copies of Coeur’s Corporate Governance Guidelines, charters of the key committees of the Board of Directors (Audit, Compensation, Nominating and Corporate Governance, and Environmental, Health, Safety, and Social Responsibility Committees) and its Code of Business Conduct and Ethics, applicable to the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, among others, are also available on the Company’s website. Information contained on the Company’s website is not a part of this report.


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Item 1A.
Risk Factors

The Company’s results of operations, cash flows and operating costs are highly dependent upon the market prices of silver and gold, and, following the Silvertip acquisition, other commodities including zinc and lead, which are volatile and beyond the Company’s control.

Silver, gold, zinc and lead are actively traded commodities, and their prices are volatile. During the twelve months ended December 31, 2017, the price of silver ranged from a low of $15.22 per ounce to a high of $18.56 per ounce, the price of gold ranged from a low of $1,151 per ounce to a high of $1,346 per ounce, the price of zinc ranged from a low of $1.10 per pound to a high of $1.53 per pound, and the price of lead ranged from a low of $0.91 per pound to a high of $1.17 per pound. The closing market prices of silver, gold, zinc and lead on February 5, 2018 were $16.88 per ounce, $1,334 per ounce, $1.63 per pound, and $1.21 per pound, respectively.

Silver, gold, zinc and lead prices are affected by many factors beyond the Company’s control, including U.S. dollar strength or weakness, speculation, global currency values, the price of products that incorporate silver, gold, zinc or lead, global and regional demand and production, political and economic conditions and other factors. In addition, Exchange Traded Funds (“ETFs”), which have substantially facilitated the ability of large and small investors to buy and sell precious metals and base metals, have become significant holders of gold, silver, zinc and lead. Silver and gold prices are also affected by prevailing interest rates and returns on other asset classes, expectations regarding inflation and governmental decisions regarding precious metals stockpiles.

Because the Company derives a significant portion of its revenues from sales of silver and gold and, to a lesser extent, zinc and lead as a result of the Silvertip acquisition during the fourth quarter of 2017, its results of operations and cash flows will fluctuate as the prices of these metals change. A period of significant and sustained lower gold and silver prices and, to a lesser extent, zinc and lead prices, would materially and adversely affect the Company’s results of operations and cash flows. Additionally, if market prices for silver, gold, zinc and lead decline and remain at lower levels for a sustained period of time, the Company may have to revise its operating plans, including reducing operating costs and capital expenditures, terminating or suspending mining operations at one or more of its properties and discontinuing certain exploration and development plans. The Company may be unable to decrease its costs in an amount sufficient to offset reductions in revenues, and may continue to incur losses.

Operating costs at the Company’s mines are also affected by the price of input commodities, such as fuel, electricity, labor, chemical reagents, explosives, steel and concrete. Prices for these input commodities are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, consumer or industrial demand and other factors. Continued volatility in the prices of commodities and other supplies the Company purchases could lead to higher costs, which would adversely affect results of operations and cash flows.

The Company’s future growth will depend upon its ability to develop new mines, either through exploration at existing properties or by acquisition of other mining companies.

Because mines have limited lives based on proven and probable ore reserves, the Company’s ability to achieve significant additional growth in revenues and cash flows will depend upon success in further developing existing properties and the opportunistic acquisition or development of new mining properties, such as the Company’s recent Silvertip acquisition.

While initial development of the Palmarejo, Rochester, and Kensington mines has been substantially completed, development work continues to expand these mines while leveraging existing infrastructure. In addition, the Company has acquired several mining properties in recent years, namely, the Silvertip silver-zinc-lead mine, the Wharf gold mine and the properties held by Paramount Gold & Silver Corp. which are now part of the Palmarejo complex, and has significantly expanded its near-mine exploration program. The Company cannot assure that it will be able to successfully expand and develop existing or new mining properties or acquire additional mining properties on favorable economic terms or at all.

The Company regularly evaluates and engages in discussions or negotiations regarding acquisition opportunities. Any transactions that the Company contemplates or pursues would involve risks and uncertainties. There can be no assurance with respect to the timing, likelihood or business effect of any possible transaction.


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The Company may be unable to successfully integrate the recently acquired Silvertip mine or other acquisitions.

There can be no assurance that the anticipated benefits of the recently completed acquisition of the Silvertip mine in British Columbia, Canada, or any future acquisition, will be realized. The success of this and any other acquisition will depend upon the Company’s ability to effectively manage the integration and operations of entities or properties it acquires and to realize other anticipated benefits. The process of managing acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of management resources, which may divert management’s focus and resources from other strategic opportunities and from operational matters during this process.

In addition to the above, any acquisition would be accompanied by risks, including:

a significant change in commodity or stock prices after the Company has committed to complete the transaction and established the purchase price or exchange ratio;
a material ore body may prove to be below expectations;
difficulties integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization; and
the acquired business or assets may have unknown liabilities which may be significant.

In addition, the Silvertip acquisition was funded, in part, with funds drawn under the Company’s revolving credit facility, resulting in increased interest expense. In connection with any future acquisition, the Company may incur indebtedness or issue equity securities or securities convertible into equity securities, resulting in increased interest expense, or dilution of the percentage ownership of existing stockholders. The Company cannot predict the impact of future acquisitions on the price of its common stock, or assure that it would be able to obtain any necessary financing on acceptable terms. Unprofitable acquisitions, or additional indebtedness or issuances of securities in connection with such acquisitions or any mine development, may negatively affect results of operations.

Finally, the Company’s systems, procedures and controls may be inadequate to support the expansion of our operations resulting from an acquisition or development of a new mine. The Company’s future operating results could be affected by the ability of its officers and key employees to manage the changing business conditions and to integrate an acquired business or new operation into Coeur. There may also be liabilities, such as environmental liabilities, or significant capital expenditures that the Company failed to discover or have underestimated in connection with any acquisition or development. Any such liabilities or capital expenditure requirements could have a material adverse effect on the Company’s business, financial condition or future prospects.

The Company is an international company and is exposed to political and social risks associated with its foreign operations.

A significant portion of the Company’s revenues are generated by operations outside the United States. Exploration, development, production and closure activities in many countries are potentially subject to heightened political and social risks that are beyond the Company’s control and could result in increased costs, capacity constraints and potential disruptions to the Company’s business. These risks include the possible unilateral cancellation or forced renegotiation of contracts in which the Company, directly or indirectly, may have an interest, unfavorable changes in foreign laws and regulations, royalty and tax increases (including taxes associated with the import or export of goods), risks associated with the value-added tax (“VAT”) and income tax refund recovery and collection process, claims by governmental entities or indigenous communities, expropriation or nationalization of property and other risks arising out of foreign sovereignty over areas in which our operations are conducted. The right to import and export silver and gold may depend on obtaining certain licenses and quotas, which could be delayed or denied at the discretion of the relevant regulatory authorities, or could become subject to new taxes or duties imposed by U.S. or foreign jurisdictions, which could have a material adverse effect on the Company’s business, financial condition, or future prospects. In addition, the Company’s rights under local law may be less secure in countries where judicial systems are susceptible to manipulation and intimidation by government agencies, non-governmental organizations or civic groups.

Any of these developments could require the Company to curtail or terminate operations at its mines, incur significant costs to renegotiate contracts, meet newly-imposed environmental or other standards, pay greater royalties or higher prices for labor or services and recognize higher taxes, or experience significant delays or obstacles in the recovery of VAT or income tax refunds owed, which could materially and adversely affect financial condition, results of operations and cash flows.

These risks may be higher in developing countries in which the Company may expand its exploration for and development of mineral deposits. Potential operations in these areas increase the Company’s exposure to risks of war, local economic conditions, political disruption, civil disturbance and governmental policies that may disrupt its operations.

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The Company’s ongoing and future success depends on developing and maintaining productive relationships with the communities, including indigenous peoples who may have rights or may assert rights to certain of the Company’s properties, and other stakeholders in its operating locations. The Company believes its operations can provide valuable benefits to surrounding communities, in terms of direct employment, training and skills development and other benefits associated with ongoing payment of taxes. In addition, the Company seeks to maintain its partnerships and relationships with local communities, including indigenous peoples, and stakeholders in a variety of ways, including in-kind contributions, volunteer time, sponsorships and donations. Notwithstanding the Company’s ongoing efforts, local communities and stakeholders can become dissatisfied with its activities or the level of benefits provided, which may result in legal or administrative proceedings, civil unrest, protests, direct action or campaigns against it. Any such occurrences could materially and adversely affect the Company’s financial condition, results of operations and cash flows.

The Company’s operations outside the United States also expose it to economic and operational risks.

The Company’s operations outside the United States also expose it to economic and operational risks. Local economic conditions can cause shortages of skilled workers and supplies, increase costs and adversely affect the security of operations. In addition, higher incidences of criminal activity and violence in the area of some of the Company’s foreign operations, including drug-cartel related violence in Mexico, could adversely affect the Company’s ability to operate in an optimal fashion and may impose greater risks of theft and greater risks as to personnel and property security. These conditions could lead to lower productivity and higher costs, which would adversely affect results of operations and cash flows.

In addition, acts of civil disobedience are common in certain of the countries where the Company’s operations are located. In recent years, many mining companies have been the targets of actions to restrict their legally-entitled access to mining concessions or property. Such acts of civil disobedience often occur with no warning and can result in significant direct and indirect costs. The Company cannot provide assurance that there will be no disruptions to site access in the future, which could adversely affect the Company’s business.

The Company sells silver and gold doré, gold concentrate, and expects to sell its silver, zinc and lead concentrates in U.S. dollars, but it conducts operations outside the United States in local currency. Currency exchange movements could also adversely affect the Company’s results of operations.

The estimation of ore reserves is imprecise and depends upon subjective factors. Estimated ore reserves may not be realized in actual production. The Company’s results of operations and financial position may be adversely affected by inaccurate estimates.

The ore reserve figures presented in the Company’s public filings are estimates made by the Company’s technical personnel and independent mining consultants with whom the Company contracts. Reserve estimates are a function of geological and engineering analyses that require the Company to make assumptions about production costs, recoveries and silver, gold, zinc and lead market prices. Reserve estimation is an imprecise and subjective process. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation, judgment and experience. Assumptions about silver, gold, zinc and lead market prices are subject to great uncertainty as those prices fluctuate widely and have fallen significantly at times over the past several years. Declines in the market prices of silver, gold, zinc or lead may render reserves containing relatively lower grades of ore uneconomic to exploit, and the Company may be required to reduce reserve estimates, discontinue development or mining at one or more of its properties or write down assets as impaired. Should the Company encounter mineralization or geologic formations at any of its mines or projects different from those predicted, it may adjust its reserve estimates and alter its mining plans. Either of these alternatives may adversely affect actual production and financial condition, results of operations and cash flows.

The Company’s estimates of future production, costs, and financial results are imprecise, depend upon subjective factors, may not be realized in actual production and such estimates speak only as of their respective dates.

The Company has in the past, and may in the future, provide estimates and projections of its future production, costs and financial results. Any such information is forward-looking. Neither the Company’s independent registered public accounting firm nor any other independent expert or outside party compiles or examines these forward-looking statements and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto. Such estimates are made by the Company’s management and technical personnel and are qualified by, and subject to the assumptions, contained or referred in the filing, release or presentation in which they are made, including assumptions about the availability, accessibility, sufficiency and quality of mineralized material, the Company’s costs of production, the market prices of silver, gold, zinc and lead, the Company’s ability to sustain and increase production levels, the sufficiency of its infrastructure, the performance of its personnel and equipment, its ability to maintain and obtain mining interests and permits, the state of government and community relations, and its compliance with existing and future laws and regulations. The Company sometimes states possible outcomes as high and low ranges which

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are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. Actual results and experience may differ materially from these assumptions. Any such production, cost, or financial results estimates speak only as of the date on which they are made, and the Company disclaims any intent or obligation to update such estimates, whether as a result of new information, future events or otherwise. Accordingly, these forward-looking statements should be considered in the context in which they are made and undue reliance should not be placed on them.

The Company’s future operating performance may not generate cash flows sufficient to meet debt payment obligations.

As of February 5, 2018, the Company had approximately $411.3 million of outstanding indebtedness. The Company’s ability to make scheduled debt payments on outstanding indebtedness will depend on future results of operations and cash flows. The Company’s results of operations and cash flows, in part, are subject to economic factors beyond its control, including the market prices of silver, gold, zinc and lead. The Company may not be able to generate enough cash flow to meet obligations and commitments under outstanding debt instruments. If the Company cannot generate sufficient cash flow from operations to service debt, it may need to further refinance debt, dispose of assets or issue equity to obtain the necessary funds.

If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, the Company could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company cannot predict whether it would be able to refinance debt, issue equity or dispose of assets to raise funds on a timely basis or on satisfactory terms. In a rising interest rate environment, the costs of borrowing additional funds or refinancing outstanding indebtedness would also be expected to increase. The agreements governing the Company’s outstanding indebtedness restrict the Company’s ability to dispose of assets and use the proceeds from those dispositions and may also restrict its ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. The Company may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. If the Company raises additional funds by issuing equity securities or securities convertible into equity securities, holders of its common stock could experience significant dilution of their ownership interest, and these securities could have rights senior to those of the holders of common stock.

The terms of the Company’s debt impose restrictions on its operations.

The agreements governing the Company’s outstanding indebtedness include a number of significant negative covenants. These covenants, among other things:

limit the Company’s ability to obtain additional financing, repurchase outstanding equity or issue debt securities;
require the Company to meet certain financial covenants consisting of a consolidated net leverage ratio and a consolidated interest coverage ratio;
require a portion of the Company’s cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
limit the Company’s ability to sell, transfer or otherwise dispose of assets, enter into transactions with and invest capital in affiliates, enter into agreements restricting our subsidiaries’ ability to pay dividends, consolidate, amalgamate, merge or sell all or substantially all of the Company’s assets;
increase our vulnerability to general adverse economic and industry conditions;
limit the Company’s flexibility in planning for and reacting to changes in the industry in which we compete; and
place the Company at a disadvantage compared to other, less leveraged competitors.

A breach of any of these covenants could result in an event of default under the applicable agreement governing the Company’s outstanding indebtedness that, if not cured or waived, could cause all amounts outstanding with respect to the debt to be due and payable immediately. Acceleration of any debt could result in cross-defaults under the Company’s other debt instruments. The Company’s assets and cash flow may be insufficient to repay borrowings fully under all of its outstanding debt instruments if any of its debt instruments are accelerated upon an event of default, which could force the Company into bankruptcy or liquidation.

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Any downgrade in the credit ratings assigned to the Company or its debt securities could increase future borrowing costs, adversely affect the availability of new financing and may result in increased collateral requirements under the Company’s existing surety bond portfolio.

There can be no assurance that any rating currently assigned by Standard & Poor’s Rating Services or Moody’s Investors Service to the Company or its debt securities will remain unchanged for any given period of time or that a rating will not be lowered if, in that rating agency’s judgment, future circumstances relating to the basis of the rating so warrant. If the Company is unable to maintain its outstanding debt and financial ratios at levels acceptable to the credit rating agencies, or should the Company’s business prospects or financial results deteriorate, including as a result of declines in silver and gold prices or other factors beyond our control, our ratings could be downgraded by the rating agencies. A downgrade by the rating agencies could adversely affect the value of the Company’s outstanding debt securities, its existing debt, and its ability to obtain new financing on favorable terms, if at all, increase borrowing costs, and may result in increased collateral requirements under the Company’s existing surety bond portfolio, which in turn may adversely affect the Company’s results of operations and financial position.

The Company’s business is subject to U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, a breach or violation of which could lead to civil and criminal fines and penalties, loss of licenses or permits and reputational harm.

The Company operates in certain jurisdictions that have experienced governmental and private sector corruption to some degree. The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. Violations of these laws, or allegations of such violations, could lead to civil and criminal fines and penalties, litigation, and loss of operating licenses or permits, and may damage the Company’s reputation, which could have a material adverse effect on the Company’s business, financial position and results of operations. The Company’s Code of Business Conduct and Ethics and other corporate policies mandate compliance with these anti-bribery laws; however, there can be no assurance that the Company’s internal control policies and procedures always will protect it from recklessness, fraudulent behavior, dishonesty or other inappropriate acts committed by the Company’s affiliates, employees or agents. As such, the Company’s corporate policies and processes may not prevent all potential breaches of law or other governance practices.

A significant delay or disruption in sales of concentrates as a result of the unexpected discontinuation of purchases by smelters could have a material adverse effect on results of operations.

The Company currently sells its gold concentrates from the Kensington mine to one third-party smelter in China. The loss of this smelter could have a material adverse effect on the Company if alternative smelters are unavailable. The Company cannot ensure that alternative smelters would be available or offer comparable terms if the need for them were to arise or that it would not experience delays or disruptions in sales that would materially and adversely affect results of operations.

There are significant hazards associated with mining activities, some of which may not be fully covered by insurance.

The mining business is subject to risks and hazards, including environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, cave-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability.

Insurance fully covering many environmental risks, including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production, is not generally available. Any liabilities that the Company incurs for these risks and hazards could be significant and could adversely affect results of operations, cash flows and financial condition.

The Company is subject to significant governmental regulations, including the Federal Mine Safety and Health Act, and related costs and delays may negatively affect its business.

Mining activities are subject to extensive federal, state, local and foreign laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. Changes in existing laws (including recent changes to U.S. tax laws), possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.

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U.S. surface and underground mines like the Kensington, Rochester and Wharf mines are continuously inspected by the U.S. Mine Safety and Health Administration (“MSHA”), which inspections often lead to notices of violation. Recently, MSHA has been conducting more frequent and more comprehensive inspections of mining operations in general.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. In addition, any of the Company’s U.S. mines could be subject to a temporary or extended shutdown as a result of a violation alleged by MSHA. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Any such penalties, fines, sanctions or shutdowns could have a material adverse effect on the Company’s business and results of operations.

Compliance with environmental regulations and litigation based on environmental regulations could require significant expenditures.

Environmental regulations mandate, among other things, the maintenance of air and water quality standards, land development and land reclamation, and set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner that may require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for mining companies and their officers, directors and employees. The Company may incur environmental costs that could have a material adverse effect on financial condition and results of operations. Any failure to remedy an environmental problem could require it to suspend operations or enter into interim compliance measures pending completion of the required remedy. The environmental standards that ultimately may be imposed at a mine site affect the cost of remediation and could exceed the financial accruals that the Company has made for such remediation. The potential exposure may be significant and could have a material adverse effect on the Company’s financial condition and results of operations.

Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of prior and current operations, including operations conducted by other mining companies many years ago at sites located on properties that the Company currently or formerly owned. These lawsuits could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions. Substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in the Company’s operations. The Company cannot assure that any such law, regulation, enforcement or private claim would not have a material adverse effect on its financial condition, results of operations or cash flows.

Some of the mining wastes from the Company’s U.S. mines currently are exempt to a limited extent from the extensive set of EPA regulations governing hazardous waste under the Resource Conservation and Recovery Act (“RCRA”). If the EPA were to repeal this exemption, and designate these mining wastes as hazardous under RCRA, the Company would be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste storage or disposal facilities. In addition, if any of these wastes causes contamination in or damage to the environment at a U.S. mining facility, that facility could be designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). Under CERCLA, any present owner or operator of a Superfund site or the owner or operator at the time of contamination may be held jointly and severally liable regardless of fault, and may be forced to undertake extensive remedial cleanup action or to pay for the cleanup efforts. The owner or operator also may be liable to federal, state and tribal governmental entities for the cost of damages to natural resources, which could be substantial. Additional regulations or requirements also are imposed on the Company’s tailings and waste disposal areas in Alaska under the federal Clean Water Act (“CWA”), in Nevada under the Nevada Water Pollution Control Law which implements the CWA, and in South Dakota under the South Dakota Water Pollution Control Act and the Administrative Rules of the State of South Dakota. In addition, proposed CERCLA regulations requiring mining companies to obtain supplemental financial assurance could, if adopted, have a material adverse effect on results of operations and cash flows.

Airborne emissions are subject to controls under air pollution statutes implementing the Clean Air Act in Nevada, Alaska and South Dakota. In addition, there are numerous legislative and regulatory initiatives related to climate change, reductions in greenhouse gas emissions, or energy policy and adoption of these initiatives through legislative actions or administrative policy could have a material adverse effect on results of operations and cash flows.


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In addition, U.S. environmental conservation efforts could result in the withdrawal of certain federal lands from mineral entry under the Mining Law, which could have the effect of restricting the Company’s current or future planned activities involving its unpatented mining claims on the affected public lands.

The Company is required to obtain and renew governmental permits in order to conduct operations, a process which is often costly and time-consuming. The Company’s ability to obtain necessary government permits to expand operations or begin new operations can be materially affected by third party activists.

In the normal course of its business, the Company is required to obtain and renew governmental permits for exploration, operations and expansion of existing operations and for the development of new projects. Obtaining and renewing governmental permits is a complex and time-consuming process. The timeliness and success of permitting efforts are contingent upon many variables not within the Company’s control, including the interpretation of permit approval requirements administered by the applicable permitting authority. The Company may not be able to obtain or renew permits that are necessary to its operations or the cost and time required to obtain or renew permits may exceed the Company’s expectations. Any unexpected delays or costs associated with the permitting process could delay the development or impede the operation of a mine, which in turn could materially adversely affect the Company’s revenues and future growth. In addition, key permits and approvals may be revoked or suspended or may be changed in a manner that adversely affects the Company’s operations.

Private parties such as environmental activists frequently attempt to intervene in the permitting process and to persuade regulators to deny necessary permits or seek to overturn permits that have been issued. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. These third party actions can materially increase the costs and cause delays in the permitting process and could cause the Company to not proceed with the development or expansion of a mine. In addition, the Company’s ability to successfully obtain key permits and approvals to explore for, develop, operate and expand mines and to conduct its operations will likely depend on the Company’s ability to develop, operate, expand and close mines in a manner that is consistent with the creation of social and economic benefits in the surrounding communities, which may or may not be required by law. The Company’s ability to obtain permits and approvals and to successfully operate in particular communities may be adversely impacted by real or perceived detrimental events associated with its activities or those of other mining companies affecting the environment, human health and safety of communities in which it operates.

If future permitting applications or amendments are not approved on a timely basis or at all, or if the permitting process is delayed for any reason, including to address public comments, the Company’s plans for continued operations and future growth could be materially adversely affected, which could have a material adverse effect on the Company’s financial condition and results of operations.

Significant investment risks and operational costs are associated with exploration and development activities. These risks and costs may result in lower economic returns and may adversely affect the Company’s business.

The Company’s ability to sustain or increase its present production levels depends in part on successful exploration and development of new ore bodies and expansion of existing mining operations. Substantial expenditures are required to establish ore reserves, to extract metals from ores and, in the case of new properties, to construct mining and processing facilities.

Mineral exploration, particularly for silver and gold, involves many risks and is frequently unproductive. Even if mineral deposits are found, those deposits may be insufficient in quantity and quality to return a profit from production, or it may take a number of years until production is possible, during which time the economic viability of the project may change. Few properties that are explored are ultimately developed into producing mines. The commercial viability of a mineral deposit, once developed, depends on a number of factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; government regulations including taxes, royalties and land tenure; land use; importing and exporting of minerals; environmental protection; mineral prices; and issuance and maintenance of necessary permits. Factors that affect adequacy of infrastructure include: reliability of roads, bridges, power sources and water supply; unusual or infrequent weather phenomena; sabotage; and government or other interference in the maintenance or provision of such infrastructure. All of these factors are highly cyclical. The exact effect of these factors cannot be accurately predicted, but the combination may result in not receiving an adequate return on invested capital.

In addition, exploration projects, such as the Company’s La Preciosa project, may have no operating history upon which to base estimates of future operating costs and capital requirements. Exploration project items such as estimates of reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data, obtained from a limited number of drill holes and other sampling techniques, and feasibility studies. Estimates of cash operating costs are then derived based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery

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rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. As a result, actual operating costs and economic returns of any and all exploration projects may materially differ from the costs and returns estimated, and accordingly, the Company’s financial condition, results of operations and cash flows may be negatively affected.

The significant and sustained decline in gold and silver prices in recent years caused the Company to write down certain of its long-lived assets and, in the future, declines in relevant metal prices could cause one or more of the Company’s mining properties to become less profitable, which could require the Company to record additional write-downs of long-lived assets. Such write-downs may adversely affect the Company’s results of operations and financial condition.

The Company reviews its long-lived assets for recoverability pursuant to the Financial Accounting Standard Board’s Accounting Standards Codification Section 360. Under that standard, the Company reviews the recoverability of its long-lived assets, such as its mining properties, upon a triggering event. Such review involves the Company estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment, measured by comparing an asset’s carrying value to its fair value, must be recognized when the carrying value of the asset exceeds these cash flows. The Company conducts a review of the financial performance of its mines in connection with the preparation of its financial statements for each reported period and determines whether any triggering events are indicated.

In prior years, the Company’s assessment of the recoverability of its long-lived assets resulted in write-downs in the Company's Statement of Comprehensive Income (Loss) and reduced the carrying value of Mining properties and Property, plant, and equipment on the Company’s balance sheet. See Note 4 -- Write-Downs in the notes to the Consolidated Financial Statements for further detail.
    
If there are further significant and sustained declines in relevant metal prices, or if the Company fails to control production and operating costs or realize the mineable ore reserves at its mining properties, the Company may terminate or suspend mining operations at one or more of its properties. These events could require a further write-down of the carrying value of the Company’s assets. Any such actions would adversely affect the Company’s results of operations and financial condition.

The Company may record other types of charges in the future if it sells a property for a price less than its carrying value or has to increase reclamation liabilities in connection with the closure and reclamation of a property. Any additional write-downs of mining properties could adversely affect the Company’s results of operations and financial condition.

The Company’s use of derivative contracts to protect against market price volatility exposes it to risk of opportunity loss, mark-to-market fair value adjustments and exposure to counterparty credit risk.

From time to time, the Company may enter into price risk management contracts to protect against fluctuations in the price of silver, gold, zinc and lead, foreign currency rates and changes in the prices of fuel and other input costs. These contracts could include forward sales or purchase contracts, futures contracts, purchased or sold put and call options and other derivative instruments.

The use of derivative instruments can expose the Company to risk of an opportunity loss and may also result in significant mark-to-market fair value adjustments, which may have a material adverse impact on reported financial results. The Company is exposed to credit risk with contract counterparties, including, but not limited to, sales contracts and derivative contracts. In the event of nonperformance in connection with a contract, the Company could be exposed to a loss of value for that contract.

Forward sales, royalty arrangements, and certain derivative instruments can result in limiting the Company’s ability to take advantage of increased metal prices while increasing its exposure to lower metal prices.

The Company has in the past entered into, and may in the future enter into, arrangements under which it (or a mine acquired by the Company) has agreed to make royalty or similar payments to lenders or other third parties in amounts that are based on expected production and price levels for silver or gold. The Company enters into such arrangements when it concludes that they provide it with necessary capital to develop a specific mining property or to achieve other business objectives. Royalty or similar payment obligations, however, can limit the Company’s ability to realize the full effects of rising gold or silver prices and may require the Company to make potentially significant cash payments if the mine fails to achieve specified minimum production levels.


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The Company is dependent upon information technology systems, which are subject to disruption, damage, failure and risks associated with implementation and integration.

The Company’s information technology systems used in its operations are subject to disruption, damage or failure from a variety of sources, including, without limitation, computer viruses, security breaches, cyber-attacks, natural disasters and defects in design. Cybersecurity incidents, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and the corruption of data. Various measures have been implemented to manage the Company’s risks related to information technology systems and network disruptions. However, given the unpredictability of the timing, nature and scope of information technology disruptions, the Company could potentially be subject to production downtimes, operational delays, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, other manipulation or improper use of our systems and networks or financial losses from remedial actions, any of which could have a material adverse effect on cash flows, financial condition or results of operations.

The Company could also be adversely affected by system or network disruptions if new or upgraded information technology systems are defective, not installed properly or not properly integrated into operations. Various measures have been implemented to manage the risks related to the system implementation and modification, but system modification failures could have a material adverse effect on the Company’s business, financial position and results of operations.

The Company’s business depends on good relations with, and the retention and hiring of, employees.

The Company may experience labor disputes, work stoppages or other disruptions in production that could adversely affect its business and results of operations. Labor disruptions may be used to advocate labor, political or social goals, particularly at non-U.S. mines. For example, labor disruptions may occur in sympathy with strikes or labor unrest in other sectors of local economies. During the past several years, two of the Company’s mines have experienced work stoppages, each of which was resolved within a short period of time and had no material effect on results of operations or financial condition. The Company cannot assure that work stoppages or other disruptions will not occur in the future. Any such work stoppage or disruption could expose the Company to significant costs and have a material adverse effect on its business, results of operations or financial condition.

At December 31, 2017, unions represented approximately 7% of the Company’s global workforce, all of which were comprised of workers at the San Bartolomé mine in Bolivia. Manquiri has a labor agreement at the San Bartolomé mine which is in effect for 2018. The Company cannot predict whether this agreement will be renewed on similar terms or at all, whether future labor disruptions will occur or, if disruptions do occur, how long they will last.

We compete with other mining companies to attract and retain key executives, skilled labor, contractors and other employees. We may be unable to continue to attract and retain skilled and experienced employees, which could have an adverse effect on our competitive position or adversely impact our results of operations or financial condition.

Disputes regarding the Company’s mining claims, concessions or surface rights to land in the vicinity of the Company’s mining projects could adversely impact operations.

The validity of mining or exploration claims, concessions or rights, which constitute most of the Company’s property holdings, is often uncertain and may be contested. The Company has used commercially reasonable efforts, in accordance with industry standard, to investigate its title or claims to its various properties, however, no assurance can be given that applicable governments will not revoke or significantly alter the conditions of the applicable exploration and mining claims, concessions or rights or that such exploration and mining claims, concessions or rights will not be challenged by third parties. Although the Company has attempted to acquire satisfactory title to undeveloped properties, in accordance with mining industry practice it does not generally obtain title opinions until a decision is made to develop a property. As a result, some titles, particularly titles to undeveloped properties may be defective. Defective title to any of the Company’s exploration and mining claims, concessions or rights could result in litigation, insurance claims and potential losses affecting its business as a whole. There may be challenges to the title of any of the claims comprising the Company’s projects that, if successful, could impair development and operations. A defect could result in the Company losing all or a portion of its right, title, estate and interest in and to the properties to which the title defect relates.

In Mexico, while mineral rights are administered by the federal government through federally issued mining concessions, federally recognized agrarian communities called ejidos control surface or surface access rights to the land. An ejido may sell or lease lands directly to a private entity. While the Company has agreements or is in the process of negotiating agreements with the ejidos that impact all of its projects in Mexico, some of these agreements may be subject to renegotiation.

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Continuation of the Company’s mining operations is dependent on the availability of sufficient and affordable water supplies.

The Company’s mining operations require significant quantities of water for mining, ore processing and related support facilities. In particular, the Company’s properties in Mexico are in areas where water is scarce and competition among users for continuing access to water is significant. Continuous production and mine development is dependent on the Company’s ability to acquire and maintain water rights and claims and to defeat claims adverse to current water uses in legal proceedings. Although each of the Company’s operating mines currently has sufficient water rights and claims to cover its operational demands, the Company cannot predict the potential outcome of pending or future legal proceedings relating to water rights, claims and uses. Water shortages may also result from weather or environmental and climate impacts out of the Company’s control, such as the drought conditions in Bolivia that have significantly negatively impacted 2017 operations at the San Bartolomé mine. Shortages in water supply could result in production and processing interruptions. In addition, the scarcity of water in certain regions could result in increased costs to obtain sufficient quantities of water to conduct the Company’s operations. The loss of some or all water rights, in whole or in part, or ongoing shortages of water to which we have rights or significantly higher costs to obtain sufficient quantities of water (or the failure to procure sufficient quantities of water) could result in the Company’s inability to maintain production at current or expected levels, require the Company to curtail or shut down mining production and could prevent the Company from pursuing expansion or development opportunities, which could adversely affect the Company’s results of operations and financial condition. Laws and regulations may be introduced in some jurisdictions in which the Company operates which could also limit access to sufficient water resources, thus adversely affecting the Company’s operations.

The Company is subject to litigation and may be subject to additional litigation in the future.

The Company is currently, and may in the future become, subject to other litigation, arbitration or proceedings with other parties. If decided adversely to the Company, these legal proceedings, or others that could be brought against the Company in the future, could have a material adverse effect on our financial position or prospects. For a more detailed discussion of pending litigation, see Note 21 to the Consolidated Financial Statements. In the event of a dispute arising at the Company’s foreign operations, the Company may be subject to the exclusive jurisdiction of foreign courts or arbitral panels, or may not be successful in subjecting foreign persons to the jurisdiction of courts or arbitral panels in the United States. The Company’s inability to enforce its rights and the enforcement of rights on a prejudicial basis by foreign courts or arbitral panels could have an adverse effect on the Company’s results of operations and financial position.

The Company has the ability to issue additional equity securities, including in connection with an acquisition of other companies, which would lead to dilution of its issued and outstanding common stock and may materially and adversely affect the price of its common stock.

The issuance of additional equity securities or securities convertible into equity securities, whether to acquire new companies or businesses or for other strategic benefits, would result in dilution of the Company’s existing stockholders’ equity ownership. The Company is authorized to issue, without stockholder approval, 10.0 million shares of preferred stock in one or more series, to establish the number of shares to be included in each series and to fix the designation, powers, preferences and relative participating, optional, conversion and other special rights of the shares of each series as well as the qualification, limitations or restrictions on each series. Any series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of its common stock. If the Company issues additional equity securities, the price of its common stock may be materially and adversely affected.

Holders of our common stock may not receive dividends.

We have not historically declared cash dividends on our common stock. Holders of our common stock are entitled to receive only such dividends as our Board of Directors may declare out of funds legally available for such payments. We are incorporated in Delaware and governed by the Delaware General Corporation Law. Delaware law allows a corporation to pay dividends only out of surplus, as determined under Delaware law or, if there is no surplus, out of net profits for the fiscal year in which the dividend was declared and for the preceding fiscal year. Under Delaware law, however, we cannot pay dividends out of net profits if, after we pay the dividend, our capital would be less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. Our ability to pay dividends will be subject to our future earnings, capital requirements and financial condition, as well as our compliance with covenants related to existing or future indebtedness and would only be declared in the discretion of our Board of Directors.

The Company’s operations in Bolivia are subject to political risks.

Until the Manquiri Divestiture closes, the Company remains subject to political risks associated with operating in Bolivia. In response to conflicts between local mining cooperatives and the Bolivian government, on September 1, 2016, the Bolivian

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government issued Supreme Decree No. 2891, and on October 24, 2016, Law 845, which impose tighter restrictions on mining cooperatives, including reversion of mining areas leased to the mining cooperatives by COMIBOL that are subject to joint venture agreements, leases or subleases with third parties to the Bolivian state. The Company’s wholly-owned subsidiary, Manquiri is currently party to various JV Agreements with local cooperatives and has also entered in to mining contracts directly with COMIBOL (which are not impacted by the decree). Although Bolivian government officials have made public statements that the decree will not impact Manquiri’s ability to continue operations in the areas subject to the JV Agreements and the JV Agreements continue to be formally in existence, any cancellation of leases between COMIBOL and the applicable mining cooperatives and/or the JV Agreements will require negotiation of and entry into contracts directly with COMIBOL to continue mining operations at the affected areas, which could have an adverse impact on financial condition, results of operations and cash flows. In January 2017, an interim permit was granted to Manquiri allowing for continuation of mining operations in the areas subject to the JV Agreements pending negotiation of contracts directly with COMIBOL.

In addition, the potential effects of the Bolivian mining law enacted in 2014 remain uncertain until the regulations implementing the law are accompanied by a new contractual structure. The law regulates royalties and provides for mining contracts with the government rather than concession holding. The regulations promulgated under the new mining law may mandate a renegotiation of the terms of Manquiri’s existing contracts with COMIBOL, this could materially adversely affect the profitability and cash flow of Manquiri’s operations in Bolivia.

In addition, companies in Bolivia are also operating under Law No. 403 of September 18, 2013, and its regulatory Supreme Decree, which provides for the reversion of mining rights if the Ministry of Mines verifies that a person with mining rights has not initiated mining activities or developed the mining rights. The contracts with COMIBOL and the cooperatives are excluded from the application of Law No. 403. In April 2014, Manquiri was served by the Bolivian government with a reversion decision affecting nine mining rights wholly-owned by Manquiri. The affected area is not in an area of active mining by Manquiri and the Manquiri’s San Bartolomé operations were not targeted as an area of interest in the decision since all of our past and current mining activity is performed through our contracts with COMIBOL and the mining cooperatives.

It is also uncertain if any new mining or investment policies or shifts in political attitude may affect mining in Bolivia.


Item 1B.        Unresolved Staff Comments
None.


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Item 2.        Properties
a2017form10kproperties.jpg

MINING PROPERTIES
Coeur Mining’s significant production and development properties are described below. Operating statistics are presented in the section entitled “Operating Statistics” below.
Mexico — Palmarejo
    
The Palmarejo complex consists of (1) the Palmarejo processing facility; (2) the Guadalupe underground mine, located about eight kilometers southeast of the Palmarejo mine; (3) the Independencia underground mine, located approximately 800

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meters northeast of the Guadalupe underground mine; and (4) other nearby deposits and exploration targets. The Palmarejo complex is located in the state of Chihuahua, Mexico. Access to the property is provided by air, rail, and all-weather paved and gravel roads from the state capitol of Chihuahua. Silver and gold production from the Palmarejo complex was approximately 7.2 million ounces and 121,569 ounces in 2017, respectively. At December 31, 2017, we reported 47.0 million ounces of silver reserves and 706,000 ounces of gold reserves at the Palmarejo complex.
The Palmarejo complex consists of 79 wholly-owned mining concessions, covering approximately 112,520 acres (45,535.18 hectares) of land. In total, the Palmarejo complex covers over 175 square miles. All mining concessions owned by Coeur Mexicana are valid until at least 2029.
The Palmarejo complex is located on the western flank of the Sierra Madre Occidental, a mountain range that comprises the central spine of northern Mexico. The north-northwest trending Sierra Madre Occidental is composed of a relatively flat-lying sequence of Tertiary volcanic rocks that forms a volcanic plateau, cut by numerous igneous intrusive rocks. This volcanic plateau is deeply incised in the Palmarejo mine area, forming steep-walled canyons. The Sierra Madre Occidental gives way to the west to an extensional terrain that represents the southward continuation of the Basin and Range Province of the western United States, and then to the coastal plain of western Mexico.
The gold and silver deposits at the Palmarejo complex, typical of many of the other silver and gold deposits in the Sierra Madre, are classified as epithermal deposits and are hosted in multiple veins, breccias, and fractures. These geologic structures trend generally northwest to southeast and dip either southwest or northeast. The dip on the structures ranges from about 45 degrees to 70 degrees. In the mineralized portions of the structures, gold and silver are zoned from top to bottom with higher silver values occurring in the upper parts of the deposit and higher gold values in the lower parts, sometimes accompanied by base metal mineralization, though local variations are common. The Palmarejo complex contains a number of mineralized zones or areas of interest. The most important of these to date is the Palmarejo zone in the north of the mining concessions, which covers the old Palmarejo gold-silver mine formed at the intersection of the northwest-southeast trending La Prieta and La Blanca gold-and-silver bearing structures. In addition to the Palmarejo zone, other mineralized vein and alteration systems in the district area have been identified all roughly sub-parallel to the Palmarejo zone. The most significant of these additional targets are the Guadalupe (including Animas), Independencia, and La Patria vein systems in the southern part of the property, which are currently under development (Guadalupe and Independencia) and exploration (La Patria) by the Company.
A portion of the Palmarejo complex (which excludes the properties acquired in the 2015 Paramount Gold & Silver Corp. acquisition) is subject to a gold stream agreement with a subsidiary of Franco-Nevada Corporation pursuant to which Coeur Mexicana sells 50% of applicable gold production for the lesser of $800 or spot price per ounce.
USA (Nevada)  — Rochester
The Rochester mine, and associated heap leach facilities, is an open pit silver and gold mine located in Pershing County, Nevada, approximately thirteen miles northeast of the city of Lovelock. The Company owns 100% of the Rochester mine through Coeur Rochester. The mine consists of the main Rochester deposit and the adjacent Nevada Packard deposit, southwest of the Rochester mine. The Rochester mine is fully supported with electricity, supplied by a local power company on their public grid, telephone and radio communications, production water wells, and processing, maintenance, warehouse, and office facilities. Ore is mined using conventional open pit methods, with gold and silver recovered by heap leaching of crushed open-pit ore placed on pads located within the Rochester mining area. Based upon actual operating experience and metallurgical testing, the Company estimates ultimate recovery rates from the crushed ore of 61.5% for silver, depending on the ore being leached, and 92.5% for gold. Silver and gold production from Rochester was approximately 4.7 million ounces and 51,051 ounces in 2017, respectively. At December 31, 2017, we reported 117.6 million ounces of silver reserves and 757,000 ounces of gold reserves at the Rochester mine.
Coeur Rochester lands consist of approximately 16,494 net acres, which encompasses 733 Federal unpatented lode claims, appropriating approximately 11,075 net acres of Public Land, 21 patented lode claims, consisting of approximately 357 acres, interests owned in approximately 4,794 gross acres of additional real property and certain rights in and to approximately 269 acres, held either through lease, letter agreement or license.
The Company acquired the Rochester property from ASARCO in 1983 and commenced mining in 1986. No mining or processing was conducted at Rochester by the prior owner. The Company acquired its initial interest in the adjacent Nevada Packard property in 1996, completed the full purchase in 1999 and commenced mining in 2003. However, mining of the Nevada Packard property has since ceased. The prior owner conducted very limited mining and processing at Nevada Packard. Collectively, the Rochester and Nevada Packard properties, together with other adjacent and contiguous lands subsequently acquired, comprise the Rochester silver and gold processing operation. The Federal unpatented lode claims are maintained via annual filings and timely payment of claim maintenance fees to the BLM, which acts as administrator of the claims.

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At Rochester, silver and gold mineralization is hosted in folded and faulted volcanic rocks of the Rochester Formation and overlying Weaver Formation. Silver and gold, consisting of silver sulfosalt minerals, argentite, silver-bearing tetrahedrite and minor native gold, are contained in zones of multiple quartz veins and veinlets (vein, vein swarms and stockworks) with variable amounts of pyrite.
The Company is obligated to pay a NSR royalty to ASARCO, the prior owner, when the average quarterly market price of silver equals or exceeds $23.60 per ounce indexed for inflation up to a maximum rate of 5% with the condition that the Rochester mine achieves positive cash flow for the applicable year. If cash flow is negative in any calendar year, the maximum royalty payable is $250,000.
Coeur Rochester was obligated to pay a 3.4% NSR royalty on up to 39.4 million silver equivalent ounces produced and sold from a portion of the Rochester mine (including stockpile ore, mineral processing facilities and mining claims located in the Sections set forth in the NSR royalty agreement) commencing January 1, 2014. In May 2017, the Company repurchased the Rochester royalty obligation.
USA (Alaska) — Kensington
The Kensington underground gold mine and associated milling facilities are located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Company controls 100% of the mine through Coeur Alaska. The mine is accessed by a horizontal tunnel and utilizes conventional and mechanized underground mining methods. Ore is processed in a flotation mill that produces a concentrate that is sold to third party smelters. Waste material is deposited in an impoundment facility on the property. Power is supplied by on-site diesel generators. Access to the mine is by either a combination of road vehicles, boat, helicopter, floatplane, or by boat direct from Juneau. Gold production from the Kensington mine was 115,094 ounces in 2017. At December 31, 2017, we reported 520,000 ounces of gold reserves at the Kensington mine.
Coeur Alaska controls two contiguous property groups: the Kensington Group and Jualin Group. The Kensington Group, totaling approximately 3,969 net acres, consists of 51 patented lode and patented mill site claims comprising approximately 766 net acres, 284 Federal unpatented lode claims covering approximately 3,108 net acres, and 13 State of Alaska mining claims covering approximately 95 net acres. The Jualin Group, totaling approximately 8,366 net acres, is comprised of 23 patented lode and patented mill site claims covering approximately 388 net acres, 471 Federal unpatented lode claims and 1 Federal unpatented mill site claim appropriating approximately 7,916 net acres, a State of Alaska upland mining lease comprising approximately 682 acres, one State of Alaska mining claim comprising approximately three acres and four State-selected mining claims covering approximately 70 acres. 14 of the 23 patented lode claims cover private surface estate only. The mineral estate to these 14 patented lode claims is owned by the State of Alaska, the mineral rights to which are secured by a State of Alaska upland mining lease. The Company controls properties comprising the Jualin Group, under a lease agreement with Hyak Mining Company, which is valid until August 5, 2035 and thereafter, provided mining and production are actively occurring within and from the leased premises.
The Federal unpatented lode and Federal unpatented mill site claims are maintained via annual filings and timely payment of claim maintenance fees to the BLM, which acts as administrator of the claims. State of Alaska mining claims and upland mining leases are maintained via fees and filings to the Alaska Department of Natural Resources, Division of Mining, Land and Water and the Juneau Recorder’s Office. Real property taxes are paid annually to the City and Borough of Juneau for the patented lode claims. Private lease payments are paid annually and all leases are in good standing.
The Kensington ore deposit consists of multiple gold bearing mesothermal, quartz, carbonate and pyrite vein swarms and discrete quartz-pyrite veins hosted in Cretaceous-aged Jualin diorite. Most of the gold is contained in calaverite (AuTe2) that occurs in association with native gold as inclusions in and interstitial to pyrite grains and in microfractures in pyrite.

USA (South Dakota) — Wharf
The Wharf mine is located in the northern Black Hills of western South Dakota, approximately four miles south and west of the city of Lead, South Dakota. Access is established by paved road with power supplied by a local power company. Coeur acquired the Wharf mine in 2015 and owns all of the issued and outstanding equity interests in Wharf and its wholly-owned subsidiary, Golden Reward Mining Limited Partnership (“Golden Reward”), the owners of the Wharf mine. Gold production from the Wharf mine was 95,372 ounces in 2017. At December 31, 2017, we reported 869,000 ounces of gold reserves at Wharf.
There are two contiguous property groups located at the Wharf mine; the Wharf Group and the Golden Reward Group, owned or controlled by wholly-owned subsidiaries of Coeur and Wharf Resources. The Wharf Group is generally described as the northern and western portions of the project, while the Golden Reward Group is generally described as the southern and eastern portion of the project.
The Wharf Group comprises 362 patented lode claims, 35 government lots, 123 subdivided lots, and 59 federal unpatented lode claims. The Wharf Group is comprised of approximately 3,599 net acres of surface, 652 net mineral acres where both the Precambrian and younger formations are owned or controlled, 3,243 net mineral acres of non-Precambrian mineral estate, and

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1,603 net mineral acres of Precambrian mineral estate and 287 net acres of federal unpatented lode claims. The Golden Reward Group encompasses 218 patented lode claims, 14 government lots, 19 subdivided lots and 34 federal unpatented lode claims. The Golden Reward Group is comprised of approximately 1,563 net acres of surface estate, 2,987 net mineral acres of mineral estate where both the Precambrian and younger formations are owned or controlled, 357 net mineral acres of Non-Precambrian mineral estate, 153 net mineral acres of Precambrian mineral estate and 25 net acres of federal unpatented lode claims.
The federal unpatented lode claims are maintained by the timely annual payment of claim maintenance fees, payable to the BLM. The patented lands are private land and therefore not subject to federal claim maintenance requirements. However, as private land, they are subject to ad valorem property taxes assessed by Lawrence County, South Dakota, which may be paid semi-annually.
Wharf and Golden Reward are obligated to pay a sliding scale production royalty to Royal Gold, Inc. The royalty encumbers the majority of the land comprising the Wharf Group, together with a small portion of the lands encompassing the Golden Reward Group, and wholly excludes the Precambrian Mineral Estate. The sliding scale provides for a 2.0% royalty on the gross value less state severance taxes with a monthly average PM LBMA Gold Price of $500 or more per ounce.
Wharf and Golden Reward are also obligated to pay a 3.0% non-participating royalty to Donald D. Valentine, et al, on gold that is produced from ores mined and delivered to heap leach pads or recovered from tailings. This royalty encumbers the mineral estate, including the Precambrian Mineral Estate, of much of the lands comprising the Wharf Group, together with a small portion of the lands encompassing the Golden Reward Group. Wharf holds a right of first refusal to purchase this royalty upon any proposed transfer by the royalty holder.

Canada (British Columbia) — Silvertip
The Silvertip Mine is located in British Columbia, Canada and consists of sixty-four (64) contiguous mineral claims containing 36,485 hectares (90,155.58 acres) and one mining lease containing 1,464 hectares (3,617.62 acres). In total, the Silvertip mine covers an area of approximately 37,949 hectares (93,773 acres). All mineral claims are valid for one year after recording. To maintain a claim, the recorded holder must, on or before the expiry date of the claim, either perform exploration and development work on that claim (or contiguous block of claims) and register such work online, or register a payment instead of exploration and development work.
Coeur Silvertip maintains one mining lease which is also subject to the Mineral Tenure Act regulations. Coeur Silvertip’s mining lease covers 1,464 hectares (3,617.62 acres). Mining leases are held by making an annual rental payment of CAD20 per hectare. The mining lease expires 30 years after the grant date which, in this case, is September 1, 2045.
The Company is obligated to pay a 2.5% net smelter returns royalty payable to Maverix Metals, Inc. on all mineral products produced from the Silvertip Mine. The Company is also obligated to pay to Silvertip Resources Investment Cayman Ltd. a net smelter returns royalty of 1.429% on the first 1,434,000 tons of mineralized material mined, and 1.00% thereafter, on all mineral leases that underlie the Silvertip Mine and that were in existence at April 11, 2016. The Company is party to a formal agreement with the Kaska Nation dated December 12, 2013, under which the Company is obligated to make an annual payment to the Kaska Nation that is calculated based on financial performance of the Silvertip mine and can increase or decrease based on the average price of silver for the relevant calendar year.

Bolivia — San Bartolomé
In December 2017, Coeur and certain of its subsidiaries entered into the Manquiri Agreement for the sale by Coeur and its subsidiaries of 100% of the issued and outstanding shares of Manquiri, which operates the San Bartolomé mine. Coeur expects to close the sale of Manquiri during the first quarter of 2018, subject to customary closing conditions.
The San Bartolomé silver mine, and associated milling operation, operated by Manquiri, is located on the flanks of the Cerro Rico mountain bordering the town of Potosí, in the department of Potosí, Bolivia. Access to the property and Manquiri’s processing facilities is by paved and all-weather gravel roads leading south-southwest from Potosí. Silver was first discovered in the area around 1545. Mining of silver and lesser amounts of tin and base metals has been conducted nearly continuously since that time from multiple underground mines driven into Cerro Rico. Silver production from the San Bartolomé mine was approximately 4.3 million ounces in 2017. At December 31, 2017, we reported 4.9 million ounces of silver reserves at the San Bartolomé mine.
The silver mineralization at the San Bartolomé mine is hosted in unconsolidated sediments (pallacos), reworked sediments (sucus and troceras), and oxide stockpiles and dumps (desmontes) from past mining that occurred on Cerro Rico. Cerro Rico is a prominent mountain in the region that reaches an elevation of over 15,400 feet (over 4,700 meters). It is composed of Tertiary-aged volcanic and intrusive rocks that were emplaced into and over older sedimentary, and volcanic, basement rocks. Silver, along with tin and base metals, is located in multiple veins and vein swarms and stockworks that occur in a northeast trending belt, which

27


transects Cerro Rico. The upper parts of the Cerro Rico mineralized system were subsequently eroded and re-deposited into the flanking gravel deposits. Silver is hosted in all portions of the pallacos, sucus, and troceras with the best grades segregated to the coarser-grained silicified fragments. These deposits lend themselves to simple, free digging surface mining techniques and can be extracted without drilling and blasting. Of the several pallaco deposits that are controlled by Manquiri and surround Cerro Rico, three are of primary importance and are known as Huacajchi, Diablo, and Santa Rita.

The mineral and mining rights for the San Bartolomé mine are held through a mixture of JV Agreements, long-term lease agreements, and Autorizaciones Transitorias Especiales (similar to mining concessions) with seven independent mining cooperatives and the Bolivian state-owned mining organization COMIBOL. See “Item 1. Business - Government Regulation, Maintenance of Claims, Bolivia” for additional information. Manquiri controls three acres (one hectare) of land at San Bartolomé, around Cerro Rico, through these agreements and Autorizaciones Transitorias Especiales. The San Bartolomé agreements expire between 2021 and 2028 and are generally subject to a production royalty payable partially to the cooperatives and partially to COMIBOL. The royalty rate is 3% at silver prices below $4 per ounce and 6% at prices above $8 per ounce. Manquiri has additional mining rights, known as the Plahipo project, which include the mining rights to oxide dumps adjacent to the original property package. The oxide dumps included in the Plahipo project are subject to a sliding scale royalty payable to COMIBOL that is a function of silver price. Manquiri incurred royalty payment obligations to COMIBOL and the Cooperatives for these mining rights totaling $1.7 million and $2.8 million for the years ended 2017 and 2016, respectively.

NEAR-MINE EXPLORATION
Exploration expense from continuing operations was $30.3 million, $12.9 million, and $11.5 million in 2017, 2016 and 2015, respectively. Capitalized drilling from continuing operations was $11.6 million in 2017 and $12.4 million in 2016. Coeur’s exploration program completed over 654,750 feet (199,750 meters) of combined core and reverse circulation drilling in 2017.
Mexico - Palmarejo
Exploration focused primarily on the expansion of the Guadalupe and Independencia underground mines, and several new discoveries including the Zapata and Nación-Dana vein deposits. Additionally, several new veins were discovered and are expected to be drilled with a focus on conversion to mineralized material in 2018. Exploration expense of $11.9 million related to mapping, sampling, drill target generation, and drilling new silver and gold mineralization (216,662 feet or 66,039 meters). Capitalized drilling of $3.7 million related to infill resource conversion drilling in the Guadalupe and Independencia ore bodies (72,061 feet or 21,694 meters).
The Company expects $10.0 million of exploration expense in 2018 to discover and expand mineralization near Guadalupe and Independencia mines, mainly focused on expansion of northern portions of Independencia, expansion of southern portions of Nación-Dana, expansion of southern portions La Bavisa vein, and resource growth of new veins located west and east of the Guadalupe mine. Additionally, the Company is planning to spend $4.7 million of conversion drilling in the Guadalupe and Independencia ore bodies.
USA (Alaska) - Kensington
Exploration expense of $8.6 million consisted of 77,730 feet (23,692 meters) while $5.7 million of conversion drilling completed 61,939 feet (18,879 meters) to expand and define mineralization in the main Kensington and Raven deposits. Exploration focused on testing new veins in the district as well as expansion of the high-grade Jualin deposit, which became the focus of a revised preliminary economic assessment in April 2015. Capitalized drilling was directed at infill drilling in the southern and deeper portions of the main Kensington deposit as well as the Raven vein. In 2018, the Company expects $3.5 million in exploration expense for additional discovery or expansion of mineralized material at Thomas-Comet-Seward, Jualin, upper Raven and lower Kensington, and $5.7 million of resource conversion drilling at Jualin, middle and upper Kensington.
USA (South Dakota) - Wharf
Conversion drilling of $1.0 million completed 30,490 feet (9,293 meters) of drilling primarily within the Portland Main deposit with only a limited amount of exploration discovery drilling (1,290 feet or 393 meters) at Bald Mountain. In 2018, the Company expects exploration expense of $0.2 million to continue drilling at Bald Mountain target, and $0.9 million to complete conversion drilling in the Portland Main and Portland Ridge layback areas.

28


USA (Nevada) - Rochester
Exploration expense was $1.4 million and capitalized drilling was $1.3 million. Exploration expense consisted of 25,620 feet (7,809 meters) testing areas near Packard Pit, in the South Charlie target area and the new East Rochester deposit, while conversion drilling consisted of 23,238 feet (7,083 meters) mainly within the main Rochester Pit deposit. In 2018, the Company expects $0.5 million of exploration expense to drill testing several targets around Rochester, including condemnation drilling in support of the next planned leach pads. Additionally, $1.9 million in conversion drilling is planned to infill South, North and East Rochester mineralized material.
Canada (British Columbia) - Silvertip
At Silvertip, underground development drilling began early during the fourth quarter and targeted conversion of mineralized material, while underground access was undergoing preparation for multiple drill rigs in 2018. The Company expects to spend $10.0 million on conversion of mineralized material and expansion drilling south and southeast of the Silver Creek mineralized material.
EARLY-STAGE EXPLORATION PROPERTIES
The Company invested $5.5 million completing target analysis and regional exploration with a focus on projects in Nevada, USA and La Morita, Mexico. A total of 29,185 feet (8,895 meters) of drilling was completed on two projects in the USA; Arabia, Nevada and Astoria, South Dakota, near Wharf. A total of 26,462 feet (8,066 meters) were drilled in Mexico at two projects; Todos Los Santos and La Morita, both in the state of Chihuahua. The Company began applying for drill permits on its lease/option agreement at the Mineral Hill Project, Wyoming, which it expects to receive late 2018. Additionally, four new option agreements were signed in 2017 near Tonopah, Nevada. The Company expects to invest $6.0 million in 2018 focused on new project reviews, drill target generation on existing projects and drilling at least four early-stage projects in USA and one in Mexico.
STREAMING AND ROYALTY INTERESTS
Australia - Endeavor
In July 2017, the Company sold its interest in a silver stream on the Endeavor mine. The Endeavor mine and associated mill facility is an underground silver and base metal operation in production since 1983 located in north-central New South Wales, Australia, about 30 miles (48 kilometers) northwest of the community of Cobar, accessible by paved road. The ore reserves at Endeavor are covered by five consolidated mining leases issued by the state of New South Wales to Cobar Operations Pty. Limited (“Cobar”), a wholly-owned subsidiary of CBH Resources Ltd., which in turn is a wholly-owned subsidiary of Toho Zinc Co. Ltd. The leases form a contiguous block of 10,121 acres in size and expire between 2019 and 2027. The mine employs bulk mining methods and utilizes a conventional flotation mill to produce a concentrate that is sold to a third-party smelter. Power to the mine and processing facilities is provided by the grid servicing the local communities. Silver production from Endeavor was approximately 0.1 million ounces in 2017. At July 1, 2016, we reported 2.6 million ounces of silver reserves at Endeavor.
ADVANCED-STAGE EXPLORATION PROPERTIES
Mexico - La Preciosa Project
The La Preciosa project is located approximately 52 miles (84 kilometers) northeast of the city of Durango in Durango State, Mexico. The veins at the La Preciosa project have been classified as low- to intermediate-sulfidation type. Two major vein and vein breccia systems are exposed on hills and ridges on either side of an approximately 800 meter wide valley, including the Martha, Abundancia, Gloria, Pica, Luz Elena, Sur, and Nueva veins.
In 2017, the Company produced a new geologic model and subsequently completed 77,648 feet (23,667 meters) of conversion drilling. A revised economic analysis is currently under review.


29


OPERATING STATISTICS
 
Palmarejo
 
Rochester
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Ore tons milled/placed
1,498,421

 
1,078,888

 
1,616,668

 
16,440,270

 
19,555,998

 
16,414,302

Ore grade silver (oz./ton)
5.62

 
4.66

 
3.78

 
0.53

 
0.57

 
0.63

Ore grade gold (oz./ton)
0.09

 
0.08

 
0.05

 
0.003

 
0.003

 
0.003

Recovery/Ag oz. (%)
86.0

 
88.4

 
84.3

 
54.0

 
41.0

 
44.7

Recovery/Au oz. (%)
90.0

 
86.5

 
80.6

 
105.0

 
85.9

 
100.2

Silver produced (oz.)
7,242,082

 
4,442,164

 
5,148,612

 
4,713,574

 
4,564,138

 
4,630,738

Gold produced (oz.)
121,569

 
73,913

 
70,922

 
51,051

 
50,751

 
52,588

Costs applicable to sales per silver equivalent oz.(1)
$
9.44

 
$
10.72

 
$
14.07

 
$
13.15

 
$
11.90

 
$
12.41

Costs applicable to sales per average spot silver equivalent oz.(1)
$
8.45

 
$
9.73

 
$
12.75

 
$
12.04

 
$
10.97

 
$
11.32


 
Kensington
 
Wharf
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Ore tons milled
668,727

 
620,209

 
660,464

 
4,560,441

 
4,268,105

 
3,600,279

Ore grade gold (oz./ton)
0.18

 
0.21

 
0.20

 
0.03

 
0.03

 
0.03

Recovery/Au oz. (%)
93.5

 
94.8

 
94.9

 

 

 

Gold produced (oz.)
115,094

 
124,331

 
126,266

 
95,372

 
109,175

 
78,132

Costs applicable to sales per gold equivalent oz.(1)
$
922

 
$
795

 
$
803

 
$
697

 
$
606

 
$
706


 
San Bartolomé
 
Endeavor
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Ore tons milled
1,509,708

 
1,666,787

 
1,713,079

 
133,904

 
219,430

 
767,314

Ore grade silver (oz./ton)
3.17

 
3.69

 
3.75

 
1.58

 
2.48

 
1.87

Recovery/Ag oz. (%)
89.3

 
88.8

 
84.6

 
50.6

 
45.6

 
43.8

Silver produced (oz.)
4,269,649

 
5,468,898

 
5,436,353

 
107,026

 
247,998

 
629,167

Costs applicable to sales per silver equivalent oz.(1)
$
17.44

 
$
13.71

 
$
13.80

 
$
6.96

 
$
6.56

 
$
5.72

(1) See Non-GAAP Financial Performance Measures
PROVEN AND PROBABLE RESERVES
 
Silver Reserves at December 31, 2017(1)(2)(3)
 
Proven Reserves
 
Probable Reserves
 
Proven and Probable Reserves
 
 
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces (000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces (000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces (000s)
 
Metallurgical Recovery
Palmarejo(4)
1,571

 
3.81

 
5,978

 
9,414

 
4.36

 
41,033

 
10,985

 
4.28

 
47,011

 
88
%
Rochester(5)
195,724

 
0.45

 
87,518

 
77,703

 
0.39

 
30,105

 
273,427

 
0.43

 
117,623

 
61
%
San Bartolomé(6)
1,640

 
2.52

 
4,429

 
162

 
2.98

 
482

 
1,802

 
2.55

 
4,911

 
88
%
Total Silver
198,935

 
 
 
97,925

 
87,279

 
 
 
71,620

 
286,214

 
 
 
169,545

 
 

30


 
Gold Reserves at December 31, 2017(1)(2)(3)
 
Proven Reserves
 
Probable Reserves
 
Proven and Probable Reserves
 
 
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces
(000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces
(000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces
(000s)
 
Metallurgical Recovery
Kensington(8)
1,284

 
0.202

 
254

 
1,389

 
0.197

 
266

 
2,673

 
0.199

 
520

 
95
%
Palmarejo(4)
1,571

 
0.073

 
115

 
9,414

 
0.063

 
591

 
10,985

 
0.064

 
706

 
89
%
Rochester(5)
195,724

 
0.003

 
598

 
77,703

 
0.002

 
159

 
273,427

 
0.003

 
757

 
92
%
Wharf(9)
18,125

 
0.027

 
483

 
16,560

 
0.023

 
386

 
34,685

 
0.025

 
869

 
79
%
Total Gold
216,704

 
 
 
1,450

 
105,066

 
 
 
1,402

 
321,770

 
 
 
2,852

 
 
 
Silver Reserves at December 31, 2016(1)(2)(3)
 
Proven Reserves
 
Probable Reserves
 
Proven and Probable Reserves
 
 
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces (000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces (000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces (000s)
 
Metallurgical Recovery
Palmarejo(4)
1,569

 
4.44

 
6,971

 
7,174

 
4.72

 
33,847

 
8,743

 
4.67

 
40,818

 
88%
Rochester(5)
143,686

 
0.48

 
68,369

 
101,118

 
0.43

 
43,676

 
244,804

 
0.46

 
112,045

 
61%
San Bartolomé(6)
5,563

 
3.32

 
18,485

 
765

 
3.48

 
2,659

 
6,328

 
3.34

 
21,144

 
88%
Endeavor(7)
476

 
2.48

 
1,181

 
753

 
1.92

 
1,449

 
1,229

 
2.14

 
2,630

 
50%
Total Silver
151,294

 
 
 
95,006

 
109,810

 
 
 
81,631

 
261,104

 
 
 
176,637

 
 
 
Gold Reserves at December 31, 2016(1)(2)(3)
 
Proven Reserves
 
Probable Reserves
 
Proven and Probable Reserves
 
 
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces
(000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces
(000s)
 
Tons (000s)
 
Grade (oz./ton)
 
Ounces
(000s)
 
Metallurgical Recovery
Kensington(8)
1,133

 
0.194

 
220

 
1,483

 
0.187

 
277

 
2,616

 
0.190

 
497

 
95%
Palmarejo(4)
1,569

 
0.080

 
126

 
7,174

 
0.065

 
466

 
8,743

 
0.068

 
592

 
89%
Rochester(5)
143,686

 
0.004

 
503

 
101,118

 
0.003

 
300

 
244,804

 
0.003

 
803

 
92%
Wharf(9)
9,453

 
0.031

 
294

 
15,581

 
0.022

 
345

 
25,034

 
0.026

 
639

 
95%
Total Gold
155,841

 
 
 
1,143

 
125,356

 
 
 
1,388

 
281,197

 
 
 
2,531

 
 
(1)
Certain definitions:
The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination.
The term “proven (measured) 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 inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that size, shape, depth and mineral content of reserves are well established.
The term “probable (indicated) reserves” means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) 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 (measured) reserves, is high enough to assume continuity between points of observation. Proven and probable reserves include silver attributable to Coeur’s ownership or economic interest in the Endeavor project.
The term “cutoff grade” means the lowest grade of mineralized material considered economic to process. Cutoff grades vary between deposits depending upon prevailing economic conditions, mineability of the deposit, by-products, amenability of the mineralized material to silver or gold extraction and type of milling or leaching facilities available.
(2)
Assumed metal prices for proven and probable reserves were $17.50 per ounce of silver and $1,250 per ounce of gold. Assumed metal prices for estimated 2016 proven and probable reserves were $17.50 per ounce of silver and $1,250 per ounce of gold, except Endeavor at $1,800 per metric ton of lead, $2,200 per metric ton of zinc, and $20.00 per ounce of silver.
(3)
Mineral reserve estimates were prepared by the Company’s technical staff.
(4)
The cutoff grade for mineral reserves is 2.5 to 2.8 g/tonne AuEq.
(5)
The cutoff grade for mineral reserves is 0.53 oz/ton AgEq.
(6)
The cutoff grades for mineral reserves range from 81 to 107 g/tonne Ag based on material.
(7)
Effective at July 1, 2016, thus excluding additions or depletions through December 31, 2016. Mineral reserves were estimated with a cutoff grade of 7.0% combined lead and zinc.
(8)
The cutoff grade for mineral reserves is 0.14 oz/ton Au.
(9)
The cutoff grade for mineral reserves is 0.012 oz/ton Au.


31


MINERALIZED MATERIAL
 
Mineralized Material at December 31, 2017(1)(2)(3)(4)
 
Tons (000s)
 
Silver Grade (oz./ton)
 
Gold Grade (oz./ton)
 
Lead Grade (percent)
 
Zinc Grade (percent)
Palmarejo Mine, Mexico(5)
15,410

 
3.77

 
0.048

 

 

San Bartolomé Mine, Bolivia(6)
4,106

 
3.41

 

 

 

Kensington Mine, USA(7)
4,349

 

 
0.271

 

 

Wharf Mine, USA(8)
8,760

 

 
0.023

 

 

Rochester Mine, USA(9)
311,455

 
0.39

 
0.002

 

 

Silvertip Mine, Canada(14)
3,096

 
10.20

 

 
6.64

 
9.48

La Preciosa Project, Mexico(11)
30,438

 
3.65

 
0.006

 

 

Total Mineralized Material
377,614

 
 
 
 
 
 
 
 
 
Mineralized Material at December 31, 2016(1)(2)(3)(4)
 
Tons (000s)
 
Silver Grade (oz./ton)
 
Gold Grade (oz./ton)
Palmarejo Mine, Mexico(5)
4,900


3.52


0.048

San Bartolomé Mine, Bolivia(6)
1,861


2.17



Kensington Mine, USA(7)
3,125




0.279

Wharf Mine, USA(8)
4,914




0.026

Rochester Mine, USA(9)
69,461


0.56


0.003

Endeavor Mine, Australia(10)
13,542


2.08



La Preciosa Project, Mexico(11)
38,974


2.96


0.005

Joaquin Project, Argentina(12)
10,252


5.02


0.004

Lejano Project, Argentina(13)
631


3.09


0.011

Total Mineralized Material
147,660

 
 
 
 
(1)
Assumed metal prices for estimated 2017 mineralized material were $20.00 per ounce of silver, $1,400 per ounce of gold, $1.15 per pound zinc, and $1.00 per pound lead. 2017 mineralized material effective December 31, 2017. Assumed metal prices for estimated 2016 mineralized material were $19.00 per ounce of silver and $1,275 per ounce of gold, except (a) Endeavor at $2,200 per tonne zinc, $1,800 per tonne lead and $20.00 per ounce of silver.
(2)
Estimated with mining cost parameters and initial metallurgical test results.
(3)
Resource estimates were completed by company technical staff, except for La Preciosa which was completed by an external consultant supervised by technical company staff.
(4)
Estimated using 3-dimensional geologic modeling and geostatistical evaluation of the exploration drill data. Mineralized material is reported exclusive of reserves. “Mineralized material” as used in this Annual Report on Form 10-K, although permissible under Guide 7, does not indicate “reserves” by SEC standards. There is no certainty that any part of the reported mineralized material will ever be confirmed or converted into Guide 7 compliant “reserves”.
(5)
Cutoff grades for mineralized material is 2.49 g/tonne AuEq.
(6)
Cutoff grades for mineralized material is 95 g/tonne.
(7)
The cutoff grade for mineralized material is 0.13 oz/ton Au.
(8)
The cutoff grade for mineralized material is 0.009 oz/ton Au.
(9)
The cutoff grade for mineralized material is 0.46 oz/ton AgEq.
(10)
Effective July 1, 2016. Prepared by CBH Resources Ltd. staff and reviewed by the Company’s technical staff.
(11)
The cutoff grade for mineralized material is 121.71 g/ton AgEq for underground, and 71.86 g/t for surface mining.
(12)
No changes were made to cutoff grades in 2016 for the Joaquin project.
(13)
No changes were made to cutoff grades in 2016 for the Lejano project.
(14)
The cutoff grade for mineralized material is 200 g/tonne AgEq.



32


Item 3.         Legal Proceedings
For a discussion of legal proceedings, see Note 21 -- Commitments and Contingencies in the notes to the Consolidated Financial Statements included herein.

Item 4.         Mine Safety Disclosures

Information pertaining to mine safety matters is reported in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act in Exhibit 95.1 attached to this Form 10-K.

PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The following table sets forth, for the periods indicated, the high and low closing sales prices of the common stock as reported by the New York Stock Exchange:
 
2017
 
2016
 
High
 
Low
 
High
 
Low
First Quarter
$
12.02

 
$
7.33

 
$
5.80

 
$
1.73

Second Quarter
$
9.87

 
$
7.86

 
$
10.66

 
$
5.55

Third Quarter
$
9.38

 
$
7.61

 
$
15.98

 
$
11.26

Fourth Quarter
$
9.72

 
$
6.78

 
$
11.81

 
$
8.72

2018
 
 
 
 
 
 
 
First Quarter through February 5, 2018
$
8.61

 
$
7.42

 
 
 
 
The Company has not paid cash dividends on its common stock since 1996. Future dividends, if any, will be determined by the Company’s Board of Directors and will depend upon the Company’s results of operations, financial condition, capital requirements and other factors.
On February 5, 2018, there were 185,442,526 outstanding shares of the Company’s common stock which were held by approximately 1,455 stockholders of record.

33


STOCK PERFORMANCE CHART
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG COEUR MINING, S&P 500 INDEX AND PEER GROUP INDEX
    
The following performance graph compares the performance of the Company’s common stock during the period beginning December 31, 2012 and ending December 31, 2017 to the S&P 500 and a Peer Group Index consisting of the following companies: Agnico-Eagle Mines Limited, Alamos Gold Inc., B2Gold Corp., Centerra Gold Inc., Detour Gold Corporation, Eldorado Gold Corporation, First Majestic Silver Corp., Hecla Mining Company, Hochschild Mining plc, IAMGOLD Corporation, New Gold, Inc., OceanaGold Corporation, Pan American Silver Corporation, Royal Gold, Inc., SSR Mining, Inc., Tahoe Resources Inc., and Yamana Gold Inc. (“New Peer Group”). The Company formerly used a Peer Group Index consisting of the following companies: Agnico-Eagle Mines Limited, Alamos Gold Inc., B2Gold Corp., Centerra Gold Inc., First Majestic Silver Corp., Hecla Mining Company, Hochschild Mining plc, IAMGOLD Corporation, New Gold Inc., OceanaGold Corporation, Pan American Silver Corporation, Primero Mining Corp., Royal Gold, Inc., SSR Mining, Inc. (formerly known as Silver Standard Resources, Inc.), Stillwater Mining Company, and Tahoe Resources Inc. (“Old Peer Group”). The Company has determined that the New Peer Group is a more relevant group of companies for purposes of the comparison of cumulative total return contained in the performance graph.
The graph assumes a $100 investment in the Company's common stock and in each of the indexes at the beginning of the period, and a reinvestment of dividends paid on such investments throughout the five-year period.
cde-123115_chartx56824a10.jpg
 
Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2016
Dec.
2017
    Coeur Mining
44.11

20.77

10.08

36.95

30.49

S&P 500 Index
132.39

150.51

152.59

170.84

208.14

New Peer Group
52.60

49.70

43.53

66.21

71.63

Old Peer Group
57.68

58.90

47.57

74.38

77.71

    


34



The following performance graph compares the performance of the Company's common stock during the period beginning December 31, 2016 and ending December 31, 2017 to the S&P 500 and the New Peer Group. The graph assumes a $100 investment in the Company's common stock and in each of the indexes at the beginning of the period, and a reinvestment of dividends paid on such investments throughout the period.
cde-123116_chartx46850a06.jpg
 
Jan-17
Feb-17
Mar-17
Apr-17
May-17
June-17
July-17
Aug-17
Sept-17
Oct-17
Nov-17
Dec-17
Coeur Mining
128.16

94.50

88.89

99.67

102.09

94.39

91.09

96.26

101.10

83.50

83.83

82.51

S&P 500 Index
101.90

105.94

106.07

107.16

108.66

109.34

111.59

111.93

114.24

116.91

120.49

121.83

New Peer Group
113.77

105.23

105.81

107.59

110.81

107.66

110.48

119.68

110.17

105.49

102.20

108.39

This stock performance information is “furnished” and shall not be deemed to be “soliciting material” or subject to Rule 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by reference.

35


Item 6.
Selected Financial Data
The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and accompanying Notes.
 
 
Year ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Revenue
 
$
709,598

 
$
571,897

 
$
561,407

 
$
517,993

 
$
604,273

Costs applicable to sales
 
440,260

 
335,375

 
403,827

 
388,286

 
376,836

Income (loss) from continuing operations
 
10,925

 
22,435

 
(287,811
)
 
(1,097,650
)
 
(671,741
)
Income (loss) from discontinued operations
 
(12,244
)
 
32,917

 
(79,372
)
 
(89,224
)
 
21,178

Net income (loss)
 
$
(1,319
)

$
55,352

 
$
(367,183
)
 
$
(1,186,874
)
 
$
(650,563
)
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.06

 
$
0.14

 
$
(2.22
)
 
$
(10.72
)
 
$
(6.87
)
Income (loss) from discontinued operations
 
$
(0.07
)
 
$
0.21

 
$
(0.61
)
 
$
(0.87
)
 
$
0.22

Basic
(0.05259987282)
$
(0.01
)
 
$
0.35

 
$
(2.83
)
 
$
(11.59
)
 
$
(6.65
)
 
 
 
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.06

 
$
0.14

 
$
(2.22
)
 
$
(10.72
)
 
$
(6.87
)
Income (loss) from discontinued operations
 
$
(0.07
)
 
$
0.20

 
$
(0.61
)
 
$
(0.87
)
 
$
0.22

Diluted
(0.05259987282)
$
(0.01
)
 
$
0.34

 
$
(2.83
)
 
$
(11.59
)
 
$
(6.65
)


 
 
At December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Total assets
 
$
1,701,175

 
$
1,318,909

 
$
1,332,489

 
$
1,436,569

 
$
2,885,978

Reclamation and mine closure liabilities
 
$
120,832

 
$
88,701

 
$
74,958

 
$
63,042

 
$
52,609

Debt, including current portion
 
$
411,322

 
$
210,637

 
$
485,505

 
$
453,358

 
$
308,166

Stockholders’ equity
 
$
814,977

 
$
768,487

 
$
421,476

 
$
554,328

 
$
1,730,567



36


Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Coeur Mining, Inc. and its subsidiaries (collectively the “Company”,“our”, or “we”). We use certain non-GAAP financial performance measures in our MD&A. For a detailed description of these measures, please see “Non-GAAP Financial Performance Measures” at the end of this item. We provide certain operational and financial data on a silver equivalent basis, converting gold to silver at a historical 60:1 ratio of silver ounces to gold ounces, unless otherwise noted. We also provide realized silver equivalent data determined by average spot silver and gold prices during the relevant period.
Overview
We are a gold and silver producer with mines located in the United States, Mexico, Canada, Bolivia and exploration projects in the United States and Mexico. The Palmarejo complex, Rochester, Kensington, Wharf and San Bartolomé mines constitute our principal sources of revenue.
In July 2017, the Company sold the Endeavor Silver Stream and our remaining portfolio of royalties. In October 2017, the Company added a mine to Coeur’s North America-focused platform with the acquisition of the high-grade silver-zinc-lead Silvertip mine located in northern British Columbia, Canada. The Silvertip mine is expected to commence production in the first quarter of 2018. In December 2017, Coeur and certain of its subsidiaries entered into the Manquiri Agreement relating to the divestiture of the San Bartolomé mine, which is expected to close during the first quarter of 2018. At December 31, 2017, we determined that the Manquiri Divestiture represents a strategic shift to a North America-focused mining portfolio that is expected to have a major effect on the entity's results and operations; therefore, the assets and liabilities for the San Bartolomé mine for all periods presented are included in the Consolidated Balance Sheets as held for sale and San Bartolomé’s results of operations as discontinued operations for all periods. In the following discussion and analysis, the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations unless otherwise indicated.
The Company's strategy is to discover, acquire, develop and operate low-cost silver and gold mines, which may include base metals such as zinc and lead, that produce long-term cash flow, provide opportunities for growth through continued exploration, and generate superior and sustainable returns for stockholders. Management focuses on maximizing net cash flow through identifying and implementing revenue enhancement opportunities, reducing operating and non-operating costs, exercising consistent capital discipline, and efficient working capital management.
2017 Highlights
Production from continuing operations of 35.1 million silver equivalent ounces (excluding 4.3 million silver equivalent ounces produced at San Bartolomé), consisting of 12.1 million silver ounces and 383,086 gold ounces
Sales from continuing operations of 37.3 million silver equivalent ounces, consisting of 12.7 million silver ounces and 410,604 gold ounces
Net income from continuing operations of $10.9 million ($0.06 per share) and adjusted net income of $4.2 million ($0.02 per share) (see “Non-GAAP Financial Performance Measures”)
Costs applicable to sales from continuing operations were $10.70 per silver equivalent ounce ($9.66 per average spot silver equivalent ounce) and $822 per gold equivalent ounce (see “Non-GAAP Financial Performance Measures”)
All-in sustaining costs from continuing operations were $15.95 per silver equivalent ounce ($13.86 per average spot silver equivalent ounce) (see “Non-GAAP Financial Performance Measures”)
Operating cash flow from continuing operations of $197.2 million and adjusted EBITDA from continuing operations of $203.3 million (see “Non-GAAP Financial Performance Measures”)
Cash and cash equivalents of $192.0 million at December 31, 2017
Acquired the Silvertip mine for initial consideration of $192.2 million, net of liabilities assumed. Additional consideration up to $50.0 million is payable contingent upon achieving specific future permitting and exploration milestones.
Established a $200.0 million secured revolving credit facility, which may be increased by up to $50.0 million in incremental loans and commitments subject to the terms of the Credit Agreement (as defined below)
Refinanced the remaining $178.0 million outstanding of the 7.875% Senior Notes due 2021 with $250.0 million of 5.875% Senior Notes due 2024, extending the maturity by over three years and providing additional cash to the balance sheet for approximately the same annual interest expense
Entered into the Manquiri Agreement to sell Manquiri, which operates the San Bartolomé mine. The transaction is expected to close in the first quarter of 2018, subject to customary closing conditions

37


Sold the Joaquin silver-gold exploration project for consideration of $27.4 million and retained a 2.0% NSR royalty
Sold Endeavor Silver Stream and our remaining portfolio of royalties for total consideration of $13.0 million
Selected Financial and Operating Results
 
Year ended December 31,
 
2017
 
2016
 
2015
Financial Results from Continuing Operations:
 
 
 
 
 
Metal sales
$
709,598

 
$
568,617

 
554,557

Net income (loss)
$
10,925

 
$
22,435

 
(287,811
)
Net income (loss) per share, diluted
$
0.06

 
$
0.14

 
(2.22
)
Adjusted net income (loss)(1)
$
4,223

 
$
15,601

 
(90,730
)
Adjusted net income (loss) per share, diluted(1)
$
0.02

 
$
0.10

 
(0.70
)
EBITDA(1)
$
202,912

 
$
142,612

 
(145,955
)
Adjusted EBITDA(1)
$
203,340

 
$
194,880

 
117,680

Operating Results from Continuing Operations:
 
 
 
 
 
Silver ounces produced
12,126,217

 
9,359,444

 
10,464,261

Gold ounces produced
383,086

 
358,170

 
327,908

Silver equivalent ounces produced
35,111,377


30,849,644

 
30,138,741

Silver ounces sold
12,698,635

 
8,933,749

 
11,011,450

Gold ounces sold
410,604

 
338,131

 
335,882

Silver equivalent ounces sold
37,334,889

 
29,221,609

 
31,164,390

Average realized price per silver ounce
$
16.96

 
$
17.08

 
$
15.49

Average realized price per gold ounce
$
1,204

 
$
1,230

 
$
1,143

Costs applicable to sales per silver equivalent ounce(1)
$
10.70

 
$
11.23

 
$
13.06

Costs applicable to sales per average spot silver equivalent ounce(1)
$
9.66

 
$
10.29

 
$
11.90

Costs applicable to sales per gold equivalent ounce(1)
$
822

 
$
705

 
$
768

All-in sustaining costs per silver equivalent ounce(1)
$
15.95

 
$
16.16

 
$
16.68

All-in sustaining costs per average spot silver equivalent ounce(1)
$
13.86

 
$
14.05

 
$
14.50

Financial and Operating Results from Discontinued Operations:
 
 
 
 
 
Income (loss) from discontinued operations
$
(12,244
)
 
$
32,917

 
$
(79,372
)
Silver ounces produced
4,269,649

 
5,468,898

 
5,436,353

Gold ounces produced
358

 

 

Silver equivalent ounces produced
4,291,129

 
5,468,898

 
5,436,353

Silver ounces sold
4,240,901

 
5,411,057

 
5,495,369

Gold ounces sold
111

 

 

Silver equivalent ounces sold
4,247,561

 
5,411,057

 
5,495,369

(1)
See Non-GAAP Financial Performance Measures.


38


Consolidated Financial Results
2017 compared to 2016
Net Income (Loss) from Continuing Operations
Net income from continuing operations was $10.9 million ($0.06 per share) compared to Net income of $22.4 million ($0.14 per share).  The decrease in Net income from continuing operations is primarily due to a significant tax benefit realized in 2016 and lower realized silver and gold prices, partially offset by a $21.1 million gain on the sale of the Joaquin project, lower interest expense, lower all-in sustaining costs per silver equivalent ounce and higher silver and gold production.
Revenue
Metal sales were higher due to higher silver and gold production, partially offset by a decrease in average realized silver and gold prices of 2% and 1%, respectively. The Company sold 12.7 million silver ounces and 410,604 gold ounces, compared to sales of 8.9 million silver ounces and 338,131 gold ounces. Gold contributed 70% of sales and silver contributed 30%, compared to 73% of sales from gold and 27% from silver. Metal sales were sourced primarily from North American operations.
Costs Applicable to Sales
Costs applicable to sales increased due to higher silver and gold ounces sold and higher costs applicable to sales per gold ounce. For a complete discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization increased $30.0 million or 26%, primarily due to higher silver and gold ounces produced at Palmarejo.
Expenses
General and administrative expenses increased 15% due to higher compensation, severance and professional service costs.
Exploration expense increased $17.4 million, due to the Company’s expansion of near-mine drilling at Palmarejo, Kensington and Rochester, and regional exploration focused on projects in Nevada and Mexico.
Pre-development, reclamation, and other expenses increased 31% due to additional work at La Preciosa and Silvertip acquisition costs.
Other Income and Expenses
In 2017, the Company incurred a $9.3 million loss in connection with the repurchase of the 7.875% Senior Notes due 2021 (the “2021 Senior Notes”) concurrent with the completed offering of the 5.875% Senior Notes due 2024 (the “2024 Senior Notes”) compared to losses of $21.4 million on extinguishment of debt in 2016.
Non-cash fair value adjustments, net, were a loss of $0.9 million compared to a loss of $11.6 million due to diminishing effects related to the Palmarejo gold production royalty which was terminated in the third quarter of 2016 and the Rochester royalty obligation which was terminated in the second quarter of 2017.
Interest expense (net of capitalized interest of $1.9 million) decreased to $16.4 million from $36.9 million, primarily due to lower average debt levels and the lower 2024 Senior Notes interest rate.
Other, net increased to $26.6 million, primarily due to a $21.1 million gain on the sale of the Joaquin project in Argentina and a $2.3 million gain on the repurchase of the Rochester royalty obligation.









39


Income and Mining Taxes
The Company’s Income and mining tax (expense) benefit consisted of:
 
Year ended December 31,
In thousands
2017
 
2016
Income and mining tax (expense) benefit at statutory rate
$
(14,037
)
 
$
3,718

State tax provision from continuing operations
26

 
336

Change in valuation allowance
86,712

 
40,517

Effect of tax legislation
(88,174
)
 

Percentage depletion
703

 
983

Uncertain tax positions
2,596

 
(8,829
)
U.S. and foreign permanent differences
2,348

 
(2,652
)
Foreign exchange rates
(14,180
)
 
19,701

Foreign inflation and indexing
(2,346
)
 
(670
)
Foreign tax rate differences
2,929

 
120

Mining, foreign withholding, and other taxes
(11,274
)
 
(11,052
)
Other, net
5,699

 

Legal entity reorganization

 
(8,925
)
Income and mining tax (expense) benefit
$
(28,998
)
 
$
33,247

Income and mining tax expense of approximately $29.0 million results in an effective tax rate of 73% for 2017. This compares to income tax benefit of $33.2 million or effective tax rate of 308% for 2016. The Company’s effective tax rate is impacted by multiple factors as illustrated above. The 2017 effective tax rate differs from 2016 primarily due to favorable operating results at Palmarejo contributing to higher income and mining tax expense and the 2016 completion of a legal entity reorganization to integrate recent acquisitions resulting in a valuation allowance release of $40.8 million.
The Company’s effective tax rate is impacted by recurring items, such as foreign exchange rates on deferred tax balances, mining tax expense, full valuation allowance on the deferred tax assets relating to losses in the United States and certain foreign jurisdictions, and uncertain tax positions. In addition, the Company's consolidated effective income tax rate is a function of the combined effective tax rates and foreign exchange rates in the jurisdictions in which it operates. Variations in the jurisdictional mix of income and loss and foreign exchange rates result in significant fluctuations in its consolidated effective tax rate. The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
 
Year ended December 31,
 
2017
 
2016
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
10,099

$
(5,635
)
 
$
(13,299
)
$
(10,525
)
Canada
(3,176
)
979

 
(1,355
)
(503
)
Mexico
28,631

(25,958
)
 
(5,268
)
45,801

Other jurisdictions
4,369

1,616

 
9,110

(1,526
)
 
$
39,923

$
(28,998
)
 
$
(10,812
)
$
33,247

A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related benefits will not be realized. The Company analyzes its deferred tax assets and if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of risk factors that could impact the Company’s ability to realize its deferred tax assets.
On December 22, 2017, the United States (“U.S.”) enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” which makes widespread changes to the Internal Revenue Code, including, among other items, a reduction in the federal corporate tax rate to 21%, effective January 1, 2018.

40


The Company is subject to the provisions of the Financial Accounting Standards Board (“FASB”) ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. The carrying value of our U.S. deferred taxes is determined by the enacted U.S. corporate income tax rate. Consequently, the reduction in the U.S. corporate income tax rate impacts the carrying value of our deferred tax assets. Under the new corporate income tax rate of 21%, the U.S. net deferred tax asset position will decrease as will the related valuation allowance. The net effect of the tax reform enactment on the financial statements is minimal.
While there are certain aspects of the new tax law that will not impact the Company based on its tax structure, such as the one-time transition tax on unremitted foreign earnings; there are other aspects of the law, which could have a positive impact on the Company’s future U.S. income tax expense, including the elimination of the U.S. corporate alternative minimum tax. However, uncertainty regarding the impact of tax reform remains, as a result of factors including future regulatory and rulemaking processes, the prospects of additional corrective or supplemental legislation, potential trade or other litigation, and other factors.
Income (loss) from Discontinued Operations
In respect of San Bartolomé’s operating results, income decreased $45.2 million, primarily due to lower production, higher unit costs and a tax benefit realized in 2016 with regard to San Bartolomé.
2016 compared to 2015
Net Income (Loss) from Continuing Operations
Net income from continuing operations was $22.4 million ($0.14 per share) compared to Net loss of $287.8 million ($2.22 per share). The increase in Net income from continuing operations is primarily due to asset write-downs in 2015 and higher gold production, a reduction in deferred tax valuation allowances and other deferred tax benefits, higher average realized silver and gold prices, lower all-in sustaining costs per silver equivalent ounce, and lower interest expense, partially offset by lower silver production and unfavorable fair value adjustments.
Revenue
Metal sales increased due to a 10% and 8% increase in average realized silver and gold prices, respectively. The Company sold 8.9 million silver ounces and 338,131 gold ounces, compared to sales of 11.0 million silver ounces and 335,882 gold ounces. Gold contributed 73% of sales and silver contributed 27% compared to 69% of sales from gold and 31% from silver. Royalty revenue was lower due to the Company’s divestiture of non-core royalty assets throughout 2016 and the first half of 2017. Metal sales from North American operations provided 99% of revenue, compared to 98%.
Costs Applicable to Sales
Costs applicable to sales decreased due to lower silver and gold unit costs and lower silver ounces sold. For a complete
discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization decreased $9.4 million, or 7%, primarily due to lower silver equivalent ounces sold and lower amortizable
mineral interest and mining equipment that resulted from the 2015 write-down.
Expenses
General and administrative expenses decreased 10% due to lower professional services and compensation costs.
Exploration expense increased $1.4 million due to the Company's expansion of drilling activities at Palmarejo, Kensington
and Rochester as well as regional exploration with a focus on projects in Nevada and Chihuahua, Mexico.
Write-downs were $4.4 million ($3.9 million net of tax) compared to $246.6 million ($209.8 million net of tax). The $4.4 million ($3.9 million net of tax) write-downs in 2016 were primarily related to the Company's silver stream on the Endeavor mine in Australia as a result of the decision by the mine operator to significantly curtail production due to low lead and zinc prices.
Pre-development, reclamation, and other expenses decreased 11% to $14.4 million as a result of lower transaction related
costs.
Other Income and Expenses
In 2016, the Company incurred a loss of $21.4 million on the extinguishment of debt in connection with the repayment
of the Term Loan (as defined below) and a portion of its outstanding 2021 Senior Notes compared to a $15.9 million gain on the exchange of 2021 Senior Notes for common stock in 2015.
Non-cash fair value adjustments, net, were a loss of $11.6 million compared to a gain of $5.2 million, primarily due to

41


the impact of changes in future metal prices on the Palmarejo gold production royalty (termination effective in the third quarter
of 2016) and the Rochester NSR royalty obligation.
Interest expense (net of capitalized interest of $1.2 million) decreased to $36.9 million from $45.0 million, primarily due
to the repayment of the Term Loan, the redemption of $200.8 million of 2021 Senior Notes and lower accretion of the terminated
Palmarejo gold production royalty obligation.
Other, net increased by $17.8 million, primarily due to a $5.3 million pre-tax gain on the sale of Martha assets in Argentina,
a $7.8 million pre-tax gain on the sale of non-core royalty assets, and gains from the sale of investments.
Income and Mining Taxes
The Company’s Income and mining tax (expense) benefit consisted of:
 
Year ended December 31,
In thousands
2016
 
2015
Income and mining tax (expense) benefit at statutory rate
$
3,718

 
$
110,848

State tax provision from continuing operations
336

 
(2,075
)
Change in valuation allowance
40,517

 
(70,457
)
Percentage depletion
983

 

Uncertain tax positions
(8,829
)
 
170

U.S. and foreign permanent differences
(2,652
)
 
(3,376
)
Mineral interest related

 
(18,318
)
Foreign exchange rates
19,701

 
21,461

Foreign inflation and indexing
(670
)
 
1,117

Foreign tax rate differences
120

 
(14,062
)
Mining, foreign withholding, and other taxes
(11,052
)
 
8,141

Other, net

 
(4,374
)
Legal entity reorganization
(8,925
)
 

Income and mining tax (expense) benefit
$
33,247

 
$
29,075

Income and mining tax benefit of approximately $33.2 million results in an effective tax rate of 308% for 2016. This compares to income tax benefit of $29.1 million or effective tax rate of 9% for 2015. The Company’s effective tax rate is impacted by multiple factors as illustrated above. The 2016 effective tax rate differs from 2015 primarily due to the completion of a legal entity reorganization to integrate recent acquisitions resulting in a valuation allowance release of $40.8 million, changes in valuation allowances on deferred tax assets, including the impacts of mineral interest impairments, and lower foreign withholding taxes.
The Company’s effective tax rate is impacted by recurring items, such as foreign exchange rates on deferred tax balances, impacts of mineral interest impairments, full valuation allowance on the deferred tax assets relating to losses in the United States and certain foreign jurisdictions, mining tax expense and uncertain tax positions. In addition, the Company's consolidated effective income tax rate is a function of the combined effective tax rates and foreign exchange rates in the jurisdictions in which it operates. Variations in the jurisdictional mix of income and loss and foreign exchange rates result in significant fluctuations in its consolidated effective tax rate. The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
 
Year ended December 31,
 
2016
 
2015
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
(13,299
)
$
(10,525
)
 
$
(44,101
)
$
(2,868
)
Canada
(1,355
)
(503
)
 
(10,714
)
2,359

Mexico
(5,268
)
45,801

 
(250,054
)
26,713

Other jurisdictions
9,110

(1,526
)
 
(12,017
)
2,871

 
$
(10,812
)
$
33,247

 
$
(316,886
)
$
29,075

A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related benefits will not be realized. The Company analyzes its deferred tax assets and if it is determined that the Company will not realize all or a

42


portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of risk factors that could impact the Company’s ability to realize its deferred tax assets.
Income (loss) from Discontinued Operations
In respect of San Bartolomé’s operating results, net income increased $112.3 million, primarily due to higher realized silver prices, lower unit costs and a tax benefit realized in 2016 with regard to San Bartolomé. Also, write-downs of $66.7 million were included in 2015.

2018 Outlook
Production Guidance
The Company's full-year 2018 production guidance reflects the anticipated sale of San Bartolomé and the commencement of production at Silvertip, both of which are expected to occur during the first quarter.
 
Silver
Gold
Zinc
Lead
Silver Equivalent1
 
(K oz)
(oz)
(K lbs)
(K lbs)
(K oz)
Palmarejo
6,500 - 7,100
110,000 - 115,000
13,100 - 14,000
Rochester
4,200 - 4,700
45,000 - 50,000
6,900 - 7,700
Kensington
115,000 - 120,000
6,900 - 7,200
Wharf
85,000 - 90,000
5,100 - 5,400
Silvertip
1,500 - 2,000
23,000 - 28,000
23,000 - 28,000
4,030 - 5,080
Total
12,200 - 13,800
355,000 - 375,000
23,000 - 28,000
23,000 - 28,000
36,030 - 39,380
Total (including discontinued operations)
12,800 - 14,400
355,000 - 375,000
23,000 - 28,000
23,000 - 28,000
36,630 - 39,980
Cost Outlook
 
2018 Guidance
(dollars in millions, except per ounce amounts)
60:1
CAS per AgEqOz1  Palmarejo
$10.50 - $11.00
CAS per AgEqOz1  Rochester
$13.25 - $13.75
CAS per AuOz1  Kensington
$900 - $950
CAS per AuEqOz1  Wharf
$850 - $900
CAS per AgEqOz1  Silvertip
$15.00 - $15.50
Capital Expenditures
$120 - $140
General and Administrative Expenses
$32 - $34
Exploration Expense
$20 - $25
AISC per AgEqOz1 from continuing operations
$17.50 - $18.00
(1) See Non-GAAP Financial Performance Measures.

Results of Continuing Operations
The Company produced 12.1 million ounces of silver and 383,086 ounces of gold in the year ended December 31, 2017, compared to 9.4 million ounces of silver and 358,170 ounces of gold in the year ended December 31, 2016. Silver production increased 30% due to higher grade and mill throughput at Palmarejo. Gold production increased 7% due to higher grade and mill throughput at Palmarejo, partially offset by lower grades at Kensington and Wharf.

43


The Company produced 9.4 million ounces of silver and 358,170 ounces of gold in the year ended December 31, 2016, compared to 10.5 million ounces of silver and 327,908 ounces of gold in the year ended December 31, 2015. Silver production decreased 11% due to lower mill throughput at Palmarejo as the mine transitioned to a lower-tonnage, higher-grade, higher-margin underground operation, timing of leach pad recoveries at Rochester, and lower mining rates at Endeavor. Gold production increased 9% due to higher grade and recovery at Palmarejo, higher grade and tons placed at Wharf as well as a full-year of production at Wharf.
Costs applicable to sales were $10.70 per silver equivalent ounce ($9.66 per average spot silver equivalent ounce) and $822 per gold equivalent ounce in the year ended December 31, 2017 compared to $11.23 per silver equivalent ounce ($10.29 per average spot silver equivalent ounce) and $705 per gold equivalent ounce in the year ended December 31, 2016. Costs applicable to sales per silver equivalent ounce decreased 5% due to lower unit costs at Palmarejo while costs applicable to sales per gold equivalent ounce increased 17% in the year ended December 31, 2017 due to higher unit costs at Kensington and Wharf.
Costs applicable to sales were $11.23 per silver equivalent ounce ($10.29 per average spot silver equivalent ounce) and $705 per gold equivalent ounce in the year ended December 31, 2016 compared to $13.06 per silver equivalent ounce ($11.90 per average spot silver equivalent ounce) and $768 per gold equivalent ounce in the year ended December 31, 2015. Costs applicable to sales per silver equivalent ounce decreased 14% in the year ended December 31, 2016 due to lower unit costs at Palmarejo and Rochester, partially offset by higher unit costs at Endeavor. Costs applicable to sales per gold equivalent ounce decreased 8% in the year ended December 31, 2016 due to lower unit costs at Wharf and Kensington.
All-in sustaining costs were $15.95 per silver equivalent ounce ($13.86 per average spot silver equivalent ounce) in the year ended December 31, 2017, compared to $16.16 per silver equivalent ounce ($14.05 per average spot silver equivalent ounce) in the year ended December 31, 2016. The 1% decrease was primarily due to lower sustaining capital, partially offset by higher costs applicable to sales per consolidated silver equivalent ounce, higher general and administrative costs and higher exploration expense.
All-in sustaining costs were $16.16 per silver equivalent ounce ($14.05 per average spot silver equivalent ounce) in the year ended December 31, 2016, compared to $16.68 per silver equivalent ounce ($14.50 per average spot silver equivalent ounce) in the year ended December 31, 2015. The 3% decrease in all-in sustaining costs per silver equivalent ounce in 2016 was primarily due to lower costs applicable to sales per consolidated silver equivalent ounce and lower general and administrative costs, partially offset by higher sustaining capital expenditures and exploration expense.
Palmarejo
 
Year ended December 31,
 
2017
 
2016
 
2015
Tons milled
1,498,421

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