XTSE:CDM Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________________________ 
FORM 10-Q
___________________________________________
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2012
OR
¨
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 001-08641
____________________________________________ 
COEUR D’ALENE MINES CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________
Idaho
 
82-0109423
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
PO Box I,
505 Front Ave.
Coeur d’Alene, Idaho
 
83816
(Address of principal executive offices)
 
(Zip Code)
(208) 667-3511
(Registrant’s telephone number, including area code)
_________________________________________
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  þ    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  þ    No  ¨
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The Company has 150,000,000 shares of common stock, par value of $0.01, authorized of which 89,886,250 shares were issued and outstanding as of May 4, 2012.

1


COEUR D’ALENE MINES CORPORATION
INDEX
 
 
Page No.
Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
Item 6.

2




COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
March 31,
2012
 
December 31,
2011
ASSETS
Notes

 
(In thousands, except share data)
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
$
151,883

 
$
175,012

Short term investments
5

 
1,316

 
20,254

Receivables
6

 
84,782

 
83,497

Ore on leach pad
 
 
29,773

 
27,252

Metal and other inventory
7

 
151,049

 
132,781

Deferred tax assets
12

 
2,090

 
1,869

Restricted assets
 
 
456

 
60

Prepaid expenses and other
 
 
19,943

 
24,218

 
 
 
441,292

 
464,943

NON-CURRENT ASSETS
 
 
 
 
 
Property, plant and equipment, net
8

 
693,569

 
687,676

Mining properties, net
9

 
1,975,364

 
2,001,027

Ore on leach pad, non-current portion
 
 
10,613

 
6,679

Restricted assets
 
 
29,247

 
28,911

Marketable securities
5

 
20,268

 
19,844

Receivables, non-current portion
6

 
41,641

 
40,314

Debt issuance costs, net
 
 
1,633

 
1,889

Deferred tax assets
12

 
202

 
263

Other
 
 
12,664

 
12,895

TOTAL ASSETS
 
 
$
3,226,493

 
$
3,264,441

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Accounts payable
 
 
$
64,307

 
$
78,590

Accrued liabilities and other
 
 
8,875

 
13,126

Accrued income taxes
 
 
13,577

 
47,803

Accrued payroll and related benefits
 
 
13,244

 
16,240

Accrued interest payable
 
 
1,122

 
559

Current portion of capital leases and other debt obligations
10

 
80,857

 
32,602

Current portion of royalty obligation
10,15
 
64,739

 
61,721

Current portion of reclamation and mine closure
11

 
1,978

 
1,387

Deferred tax liabilities
12

 
284

 
53

 
 
 
248,983

 
252,081

NON-CURRENT LIABILITIES
 
 
 
 
 
Long-term debt and capital leases
10

 
63,934

 
115,861

Non-current portion of royalty obligation
10,15
 
176,119

 
169,788

Reclamation and mine closure
11

 
32,488

 
32,371

Deferred tax liabilities
12

 
535,180

 
527,573

Other long-term liabilities
 
 
28,236

 
30,046

 
 
 
835,957

 
875,639

COMMITMENTS AND CONTINGENCIES (Notes 10, 11, 12, 13, 14, 15 and 16)
 
 

 

SHAREHOLDERS’ EQUITY
 
 
 
 
 
Common stock, par value $0.01 per share; authorized 150,000,000 shares, 89,882,510 issued at March 31, 2012 and 89,655,124 issued at December 31, 2011
 
 
899

 
897

Additional paid-in capital
 
 
2,586,063

 
2,585,632

Accumulated deficit
 
 
(440,858
)
 
(444,833
)
Accumulated other comprehensive loss
 
 
(4,551
)
 
(4,975
)
 
 
 
2,141,553

 
2,136,721

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
$
3,226,493

 
$
3,264,441


The accompanying notes are an integral part of these consolidated financial statements.

3


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended
March 31,
 
2012
 
2011
 
(In thousands, except share data)
Sales of metal
$
204,564

 
$
199,624

Production costs applicable to sales
(92,554
)
 
(92,474
)
Depreciation, depletion and amortization
(52,592
)
 
(50,041
)
Gross profit
59,418

 
57,109

COSTS AND EXPENSES
 
 
 
Administrative and general
7,596

 
12,231

Exploration
6,567

 
2,762

Pre-development, care, maintenance and other
1,068

 
3,574

Total cost and expenses
15,231

 
18,567

OPERATING INCOME
44,187

 
38,542

OTHER INCOME AND EXPENSE
 
 
 
Loss on debt extinguishments

 
(467
)
Fair value adjustments, net
(23,113
)
 
(5,302
)
Interest income and other
5,007

 
1,934

Interest expense, net of capitalized interest
(6,670
)
 
(9,304
)
Total other income and expense
(24,776
)
 
(13,139
)
Income before income taxes
19,411

 
25,403

Income tax provision
(15,436
)
 
(12,939
)
NET INCOME
$
3,975

 
$
12,464

BASIC AND DILUTED INCOME PER SHARE
 
 
 
Basic income per share:
 
 
 
Net income
$
0.04

 
$
0.14

Diluted income per share:
 
 
 
Net income
$
0.04

 
$
0.14

Weighted average number of shares of common stock
 
 
 
Basic
89,591

 
89,288

Diluted
89,821

 
89,653

The accompanying notes are an integral part of these consolidated financial statements.

4


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three months ended
March 31,
 
2012
 
2011
 
(In thousands)
Net income
$
3,975

 
$
12,464

OTHER COMPREHENSIVE INCOME:
 
 
 
Unrealized gain on available for sale securities
424

 

Other comprehensive income
424

 

COMPREHENSIVE INCOME
$
4,399

 
$
12,464

The accompanying notes are an integral part of these consolidated financial statements.

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended March 31, 2012
(Unaudited)
(In thousands)
Common
Stock
Shares
 
Common
Stock Par
Value
 
Additional Paid-
In Capital
 
Accumulated
(Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balances at December 31, 2011
89,655

 
$
897

 
$
2,585,632

 
$
(444,833
)
 
$
(4,975
)
 
$
2,136,721

Net income

 

 

 
3,975

 

 
3,975

Other comprehensive income

 

 

 

 
424

 
424

Common stock issued/cancelled under long-term incentive plans and director fees and options, net
228

 
2

 
431

 

 

 
433

Balances at March 31, 2012
89,883

 
$
899

 
$
2,586,063

 
$
(440,858
)
 
$
(4,551
)
 
$
2,141,553

The accompanying notes are an integral part of these consolidated financial statements.

5


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months ended
March 31,
 
2012
 
2011
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
3,975

 
$
12,464

Add (deduct) non-cash items
 
 
 
Depreciation, depletion and amortization
52,592

 
50,041

Accretion of discount on debt and other assets, net
541

 
450

Accretion of royalty obligation
4,580

 
5,267

Deferred income taxes
7,677

 
5,870

Loss on debt extinguishment

 
467

Fair value adjustments, net
21,778

 
6,661

Loss on foreign currency transactions
299

 
109

Share-based compensation
2,137

 
8,155

Other non-cash charges
256

 
632

Changes in operating assets and liabilities:
 
 
 
Receivables and other current assets
(2,956
)
 
(4,841
)
Prepaid expenses and other
4,774

 
(19
)
Inventories
(24,722
)
 
(12,493
)
Accounts payable and accrued liabilities
(53,929
)
 
(36,977
)
CASH PROVIDED BY OPERATING ACTIVITIES
17,002

 
35,786

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchase of short term investments
(1,035
)
 
(1,229
)
Proceeds from sales and maturities of short term investments
20,018

 
586

Capital expenditures
(31,647
)
 
(15,918
)
Other
185

 
(51
)
CASH USED IN INVESTING ACTIVITIES
(12,479
)
 
(16,612
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of notes and bank borrowings

 
27,500

Payments on long-term debt, capital leases, and associated costs
(5,166
)
 
(18,531
)
Payments on gold production royalty
(21,374
)
 
(14,618
)
Payments on gold lease facility

 
(13,800
)
Additions to restricted assets associated with the Kensington Term Facility

 
(1,325
)
Other
(1,112
)
 
(91
)
CASH USED IN FINANCING ACTIVITIES
(27,652
)
 
(20,865
)
DECREASE IN CASH AND CASH EQUIVALENTS
(23,129
)
 
(1,691
)
Cash and cash equivalents at beginning of period
175,012

 
66,118

Cash and cash equivalents at end of period
$
151,883

 
$
64,427

The accompanying notes are an integral part of these consolidated financial statements.

6

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation — The Company’s unaudited interim condensed consolidated financial statements have been prepared under United States Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Coeur d’Alene Mines Corporation and its consolidated subsidiaries (“Coeur” or the “Company”). All significant intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2011. The condensed consolidated balance sheet as of December 31, 2011, included herein, was derived from the audited consolidated financial statements as of that date.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2012 and December 31, 2011 and the Company’s results of operations and cash flows for the three months ended March 31, 2012 and 2011. The results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. All references to March 31, 2012 or to the three months ended March 31, 2012 and 2011 in the notes to the condensed consolidated financial statements are unaudited.
Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Areas requiring significant management estimates and assumptions include: recoverable ounces from proven and probable reserves that are the basis of future cash flow estimates and units-of-production depreciation, depletion and amortization calculations; useful lives utilized for depreciation and amortization; estimates of future cash flows for long-lived assets; estimates of recoverable gold and silver ounces in ore on leach pad; amount and timing of reclamation and remediation costs; valuation allowance for deferred tax assets; assessment of valuation allowance for value added tax receivables; and employee benefit liabilities.
Reclassifications: Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no effect on the reported financial position or results of operation.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements: Effective January 1, 2012, the Company adopted ASU 2011-04 which included new guidance on fair value measurement and disclosure requirements. This standard provides guidance on the application of fair value accounting where it is already required or permitted by other standards. This standard also requires additional disclosures related to transfers of financial instruments within the fair value hierarchy and quantitative and qualitative disclosures related to significant unobservable inputs. In addition, the standard includes specifications for the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position, but for which the fair value of such items is required to be disclosed. The adoption of this standard has no effect on the Company's financial position, results of operations or cash flows. Refer to Note 4 — Fair Value Measurements, for further details regarding the Company’s assets and liabilities measured at fair value.
Effective January 1, 2012, the Company adopted ASU 2011-05 which includes guidance for presentation of comprehensive income and requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance was effective for the Company's fiscal year beginning January 1, 2012. The Company chose to use the two-statement approach and the update has no effect on the Company's financial position, results of operations or cash flows.
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three months ended March 31, 2012, 1,167 shares of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. For the three months ended March 31, 2011, 1,394,136 shares of common stock equivalents related to convertible debt and equity based awards have not been included in the diluted per share calculation, as the shares would be antidilutive. The 3.25% Convertible Senior Notes were not included in the computation of diluted earning per share because there is no excess value upon conversion over the principle amount of the Notes. The effect

7

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

of potentially dilutive stock outstanding as of March 31, 2012, and 2011 are as follows (in thousands, except per share data):

 
Three months ended March 31, 2012
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
Net income available to common stockholders
$
3,975

 
89,591

 
$
0.04

Effect of Dilutive Securities
 
 
 
 
 
Equity awards

 
230

 
 
Diluted EPS
 
 
 
 
 
Net income available to common stockholders
$
3,975

 
89,821

 
$
0.04

 
 
 
 
 
 
 
Three months ended March 31, 2011
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
Net income available to common stockholders
$
12,464

 
89,288

 
$
0.14

Effect of Dilutive Securities
 
 
 
 
 
Equity awards

 
365

 
 
Diluted EPS
 
 
 
 
 
Net income available to common stockholders
$
12,464

 
89,653

 
$
0.14

NOTE 4 – FAIR VALUE MEASUREMENTS
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2
Quoted market prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
 
Fair Value at March 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
25,679

 
$
25,679

 
$

 
$

Short-term investments
1,316

 
1,316

 

 

Marketable equity securities
20,268

 
20,268

 

 

Restricted certificates of deposit
897

 
897

 

 

Put and call options
98

 

 
98

 

Silver ounces receivable from Mandalay
899

 

 
899

 

 
$
49,157

 
$
48,160

 
$
997

 
$

Liabilities:
 
 
 
 
 
 
 
Royalty obligation embedded derivative
$
171,797

 
$

 
$
171,797

 
$

Put and call options
17,782

 

 
17,782

 

Other derivative instruments, net
13

 

 
13

 

 
$
189,592

 
$

 
$
189,592

 
$


8

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
 
Fair Value at December 31, 2011
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
44,708

 
$
44,708

 
$

 
$

Short term investments
20,254

 
20,254

 

 

Marketable securities
19,844

 
19,844

 

 

Restricted certificates of deposit
548

 
548

 

 

Put and call options
3,040

 

 
3,040

 

Silver ounces receivable from Mandalay
814

 

 
814

 

 
$
89,208

 
$
85,354

 
$
3,854

 
$

Liabilities:
 
 
 
 
 
 
 
Royalty obligation embedded derivative
$
159,400

 
$

 
$
159,400

 
$

Put and call options
20,892

 

 
20,892

 

Other derivative instruments, net
4,012

 

 
4,012

 

 
$
184,304

 
$

 
$
184,304

 
$

The Company’s cash equivalents and short-term investments are readily convertible to cash and, therefore these investments are classified within Level 1 of the fair value hierarchy.
The Company’s marketable equity securities are recorded at fair market value in the financial statements based on quoted market prices, which are accessible at the measurement date for identical assets. Such instruments are classified within Level 1 of the fair value hierarchy.
The Company’s derivative instruments related to the put and call options, silver ounces receivable from Mandalay, royalty obligation embedded derivative, and other derivative instruments, net, which relate to the concentrate sales contracts and foreign exchange contracts, are valued using pricing models which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
The Company had no Level 3 financial assets and liabilities as of March 31, 2012 or December 31, 2011.
There were no transfers between levels of fair value measurements of financial assets and liabilities during the first quarter of 2012.
Financial assets and liabilities that are not measured at fair value at March 31, 2012 and December 31, 2011 are set forth in the following table (in thousands):
 
Fair Value at March 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:

 
 
 
 
 
 
3.25% Convertible Senior Notes
$
48,658

 
$
48,658

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
105,613

 
$

 
$
105,613

 
$

 
Fair Value at December 31, 2011
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 
 
 
 
 
 
3.25% Convertible Senior Notes
$
49,205

 
$
49,205

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
111,257

 
$

 
$
111,257

 
$

The fair value at March 31, 2012 and December 31, 2011 of the 3.25% Convertible Senior Notes outstanding were determined by market transactions. As such, the notes are classified as Level 1 in the fair value hierarchy.
The fair value of the Palmarejo Gold Production Royalty Obligation is valued using a pricing model which requires inputs

9

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

that are derived from observable market data, including contractual terms, yield curves, and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. As such, the obligation is classified within Level 2 of the fair value hierarchy.
The fair value of the Kensington Term Facility is valued at the outstanding principal amount plus accrued but unpaid interest which approximates book value. The interest rate is periodically adjusted per contractual terms to give effect to current rates that market participants would consider when pricing the obligation.
The fair value of the Company's receivables, restricted assets, payables, accrued liabilities, and capital leases approximate book value due to the nature of these assets and liabilities and are classified as Level 1 in the fair value hierarchy, except for capital leases which are classified as Level 2.
The fair value of the Company's non-current portion of the refundable value added tax is not practicable to estimate due to the uncertainty of the timing of the expected future cash flows to be received.
NOTE 5 – INVESTMENTS IN MARKETABLE SECURITIES
The Company classifies the marketable securities in which it invests as available-for-sale securities. Such securities are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income (loss). At the time securities are sold or otherwise disposed of, gains or losses are included in net income. The equity securities reflected in the table below consist of equity securities of silver exploration and development companies that the Company purchased. The following table summarizes the Company’s available-for-sale securities on hand as of March 31, 2012 and December 31, 2011 (in thousands):
 
 
Investments in marketable securities
 
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Marketable securities at March 31, 2012
$
24,819

 
$
(4,551
)
 
$

 
$
20,268

 
 
 
 
 
 
 
 
Marketable securities at December 31, 2011
$
24,819

 
$
(4,975
)
 
$

 
$
19,844

In the three months ended March 31, 2012 and 2011, the Company recognized an unrealized gain of $0.4 million and nil, respectively, in other comprehensive income (loss). The Company performs a quarterly assessment on each of their marketable securities with unrealized losses to determine if the security is other than temporarily impaired. The Company has the intent and ability to hold these investments until they recover or increase in value. The Company’s management team uses industry knowledge and expertise and has determined that these unrealized losses are not other than temporary based on a review of the potential for each company in which it currently holds investments.
Gross realized gains and losses are based on cost, net of discount or premium of investments sold. There were no realized gains or losses in any of the periods presented.
In addition, the Company had $1.3 million and $20.3 million of short-term investments at March 31, 2012 and December 31, 2011, respectively. These investments are primarily in certificates of deposit with various banks and all have maturity dates of less that one year.
NOTE 6 – RECEIVABLES
Receivables consist of the following (in thousands):
 
March 31, 2012
 
December 31,
2011
Receivables - current portion
 
 
 
Accounts receivable - trade
$
8,278

 
$
14,366

Refundable income tax
11,449

 
11,480

Refundable value added tax
60,153

 
52,968

Accounts receivable - other
4,902

 
4,683

 
$
84,782

 
$
83,497

Receivables - non-current portion
 
 
 
Refundable value added tax
$
41,641

 
$
40,314

 

10

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Trade receivables and other receivable balances recorded in other current assets are reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management evaluates the collectability of receivable account balances to determine the allowance, if any. The Company determined that no allowance against its receivable balances at March 31, 2012, or December 31, 2011 was necessary.
Taxes paid to foreign governments that are refundable to the Company are classified as “Refundable value added tax” at the face value of the amount of the tax refund due. Refunds expected to be received in the next twelve months are classified as “current” and amounts that are expected to be received after twelve months are classified as “non-current”.
NOTE 7 – METAL AND OTHER INVENTORY
Metal and other inventory consist of the following (in thousands): 
 
March 31, 2012
 
December 31,
2011
Concentrate and doré inventory
$
86,613

 
$
73,590

Supplies
64,436

 
59,191

Metal and other inventory
$
151,049

 
$
132,781

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands): 
 
March 31, 2012
 
December 31,
2011
Land
$
1,432

 
$
1,432

Building improvements
535,911

 
520,137

Machinery and equipment
260,620

 
246,584

Capitalized leases for machinery, equipment and buildings
77,435

 
76,244

 
875,398

 
844,397

Accumulated depreciation and amortization
(253,551
)
 
(235,528
)
 
621,847

 
608,869

Construction in progress
71,722

 
78,807

 
$
693,569

 
$
687,676

NOTE 9 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
March 31, 2012
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Martha
 
Endeavor
 
Other
 
Total
Operational mining properties
$
138,333

 
$
69,019

 
$
325,102

 
$
113,094

 
$
13,226

 
$

 
$

 
$
658,774

Accumulated depletion
(61,065
)
 
(15,871
)
 
(29,441
)
 
(98,391
)
 
(10,807
)
 

 

 
(215,575
)
 
77,268

 
53,148

 
295,661

 
14,703

 
2,419

 

 

 
443,199

Mineral interests (A)
1,658,389

 
26,642

 

 

 

 
44,033

 

 
1,729,064

Accumulated depletion
(179,015
)
 
(6,348
)
 

 

 

 
(11,678
)
 

 
(197,041
)
 
1,479,374

 
20,294

 

 

 

 
32,355

 

 
1,532,023

Non-producing and development properties

 

 

 

 

 

 
142

 
142

Total mining properties
$
1,556,642

 
$
73,442

 
$
295,661

 
$
14,703

 
$
2,419

 
$
32,355

 
$
142

 
$
1,975,364

 

11

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

December 31, 2011
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Martha
 
Endeavor
 
Other
 
Total
Operational mining properties
$
134,296

 
$
68,684

 
$
321,456

 
$
112,826

 
$
12,643

 
$

 
$

 
$
649,905

Accumulated depletion
(53,060
)
 
(14,989
)
 
(27,160
)
 
(97,834
)
 
(10,373
)
 

 

 
(203,416
)
 
81,236

 
53,695

 
294,296

 
14,992

 
2,270

 

 

 
446,489

Mineral interests (A)
1,658,389

 
26,642

 

 

 

 
44,033

 

 
1,729,064

Accumulated depletion
(158,627
)
 
(6,007
)
 

 

 

 
(10,034
)
 

 
(174,668
)
 
1,499,762

 
20,635

 

 

 

 
33,999

 

 
1,554,396

Non-producing and development properties

 

 

 

 

 

 
142

 
142

Total mining properties
$
1,580,998

 
$
74,330

 
$
294,296

 
$
14,992

 
$
2,270

 
$
33,999

 
$
142

 
$
2,001,027

A.
See mineral interest explanations under operational mining properties for Palmarejo and San Bartolomé.
Operational Mining Properties
Palmarejo Mine: The Palmarejo silver and gold mine is an underground and surface mine located in the State of Chihuahua in northern Mexico, and its principal silver and gold properties are collectively referred to as the “Palmarejo mine.” On December 31, 2007, the Company completed its acquisition of all of the shares of Bolnisi and Palmarejo in exchange for a total of approximately 272 million shares of Coeur common stock and a total cash payment of approximately $1.1 million. The total consideration paid was $1.1 billion and assumed liabilities were $0.7 billion. This amount is presented in mineral interests in the above table. The Palmarejo mine commenced commercial production in April 2009.

San Bartolomé Mine: The San Bartolomé mine is a silver mine located near the city of Potosi, Bolivia. The mineral rights for the San Bartolomé project are held through long-term joint venture/lease agreements with several local independent mining co-operatives and the Bolivian state owned mining organization, ("COMIBOL"). These are presented in mineral interests in the table above. The Company commenced commercial production at San Bartolomé in June 2008.
Kensington Mine: The Kensington mine is an underground gold mine and consists of the Kensington and adjacent Jualin properties located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Kensington mine commenced commercial production in July 2010.
Rochester Mine: The Company has conducted operations at the Rochester mine, located in Western Nevada, since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods. Rochester’s primary product is silver with gold produced as a by-product.
Martha Mine: The Martha mine is an underground silver mine located in Argentina. Coeur acquired a 100% interest in the Martha mine in April 2002.
Mineral Interests
Endeavor Mine: In May 2005, CDE Australia Pty Ltd, (“CDE Australia”), a wholly-owned subsidiary of Coeur acquired the silver production and reserves, up to a maximum 17.7 million  payable ounces, contained at the Endeavor mine in Australia, which is owned and operated by Cobar Operations Pty. Limited (“Cobar”), a wholly-owned subsidiary of CBH Resources Ltd. (“CBH”). In March 2006, CDE Australia entered into an amended agreement under which it owns all silver production and reserves up to a total of 20.0 million payable ounces.
CDE Australia began realizing reductions in revenues in the fourth quarter of 2008 as a result of a silver price sharing provision that was part of the purchase agreement. CDE Australia has received approximately 3.8 million payable ounces to-date and the current ore reserve contains approximately 3.7 million payable ounces based on current metallurgical recovery and current smelter contract terms.
Non-Producing and Development Properties
Joaquin Project – Argentina: The Joaquin project is located in the Santa Cruz province of southern Argentina. The Company commenced exploration of this large property, consisting of over 28,450 hectares (70,300 acres) north of the Company's Martha silver and gold mine, in November 2007. Since that time the Company has defined silver and gold mineralization in two deposits at Joaquin, La Negra and La Morocha, and has recently commenced work on detailed drilling and other technical, economic and environmental programs which it expects will lead to completion of pre-feasibility and feasibility studies. The Company has not

12

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

capitalized any expenditures associated with the Joaquin Project as of March 31, 2012.
NOTE 10 – DEBT AND CAPITAL LEASE OBLIGATIONS
The current and non-current portions of long-term debt and capital lease obligations as of March 31, 2012 and December 31, 2011 are as follows (in thousands):
 
March 31,
2012
 
December 31,
2011
 
Current
 
Non-Current
 
Current
 
Non-Current
3.25% Convertible Senior Notes due March 2028
$
46,157

 
$

 
$

 
$
45,545

Kensington Term Facility
21,747

 
54,075

 
15,398

 
60,425

Capital lease obligations
12,953

 
9,859

 
17,119

 
9,891

Other

 

 
85

 

 
$
80,857

 
$
63,934

 
$
32,602

 
$
115,861


3.25% Convertible Senior Notes
As of March 31, 2012, the outstanding balance of the 3.25% Convertible Senior Notes due 2028 was $48.7 million, or $46.2 million net of debt discount. The notes were reclassified from non-current to current liabilities as a result of the holders' option to require the Company to repurchase the notes on March 15, 2013.
The notes are unsecured and bear interest at a rate of 3.25% per year, payable on March 15 and September 15 of each year, beginning on September 15, 2008. The notes mature on March 15, 2028, unless earlier converted, redeemed or repurchased by the Company.
Each holder of the notes may require that the Company repurchase some or all of the holder’s notes on March 15, 2013, March 15, 2015, March 15, 2018 and March 15, 2023 at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. Holders have the right, following certain fundamental change transactions, to require the Company to repurchase all or any part of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest. The Company may redeem the notes for cash in whole or in part at any time on or after March 22, 2015 at 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest.
The notes provide for “net share settlement” of any conversions. Pursuant to this feature, upon conversion of the notes, the Company (1) will pay the note holder an amount in cash equal to the lesser of the conversion obligation or the principal amount of the notes and (2) will settle any excess of the conversion obligation above the notes’ principal amount in the Company’s common stock, cash or a combination thereof, at the Company’s election.
The notes are convertible under certain circumstances, at the holder’s option, at a conversion rate of 17.60254 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $56.81 per share, subject to adjustment in certain circumstances.
The fair value of the notes outstanding, as determined by market transactions at March 31, 2012 and December 31, 2011 was $48.7 million and $49.2 million, respectively. The carrying value of the equity component at March 31, 2012 and December 31, 2011 was $10.9 million and $10.9 million, respectively.
For the three months ended March 31, 2012 and 2011 interest expense recognized was $0.4 million and $0.4 million, respectively, and accretion of the debt discount was $0.6 million and $0.6 million, respectively. The debt discount remaining at March 31, 2012 was $2.5 million, which will be amortized through March 15, 2013. The effective interest rate on the notes was 8.9%.
Kensington Term Facility
As of March 31, 2012 the outstanding balance of the Kensington Term Facility was $75.8 million.
As a condition to the Kensington term facility with Credit Suisse, the Company agreed to enter into a gold hedging program which protects a minimum of 243,750 ounces of gold production over the life of the term facility against the risk associated with fluctuations in the market price of gold. This program consists of a series of zero cost collars which consist of a floor price and a ceiling price of gold. Call options protecting 136,000 ounces of gold were outstanding at March 31, 2012. The weighted average strike price of the call options was $1,919.83. Put options protecting 173,000 ounces of gold were outstanding at March 31, 2012. The weighted average strike price of the options was $954.74.

13

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The Amended Credit Facility contains affirmative and negative covenants that the Company believes are usual and customary, including financial covenants that Coeur Alaska’s debt to equity ratio shall not exceed 40%, the ratio of project cash flow to debt service shall be at least 125%, the tangible net worth of the Borrower is not less than $325 million and the tangible net worth of the Guarantor is no less than $1.0 billion. Project covenants include covenants as to performance of sales contracts, maintenance and management. As of March 31, 2012, the Company was not in compliance with the debt service ratio covenant. The bank has waived that requirement of the agreement for the year ending December 31, 2012.
Capital Lease Obligations
As of March 31, 2012 and December 31, 2011, the Company had outstanding balances on capital leases of $22.8 million and $27.0 million, respectively.
Palmarejo Gold Production Royalty Obligation
The Company recognized accretion expense on the Palmarejo gold production royalty obligation for the three months ended March 31, 2012 and 2011 of $5.1 million and $5.3 million, respectively. As of March 31, 2012 and December 31, 2011, the remaining minimum obligation under the royalty agreement was $69.1 million and $72.1 million, respectively.
Interest Expense
The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the three months ended March 31, 2012 and 2011, the Company expensed interest of $6.7 million and $9.3 million, respectively.
 
Three month ended March 31,
 
2012
2011
 
(in thousands)
3.25% Convertible Senior Notes due March 2028
$
395

$
395

1.25% Convertible Senior Notes due January 2024

1

Senior Term Notes due December 2012

488

Kensington Term Facility
974

1,105

Capital lease obligations
343

466

Other debt obligations
69

469

Gold Lease Facility

107

Accretion of Franco Nevada royalty obligation
5,104

5,267

Amortization of debt issuance costs
256

624

Accretion of debt discount
612

560

Capitalized interest
(1,083
)
(178
)
Total interest expense, net of capitalized interest
$
6,670

$
9,304

Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of properties under development. For the three months ended March 31, 2012 and 2011, the Company capitalized interest of $1.1 million and $0.2 million, respectively.
NOTE 11 – RECLAMATION AND MINE CLOSURE
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, mineral prices, mineral processing recovery rates, production levels, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.




14


Changes to the Company’s asset retirement obligations are as follows (in thousands): 
 
Three months ended
March 31,
 
2012
 
2011
Asset retirement obligation - Beginning
$
32,714

 
$
27,302

Accretion
724

 
637

Addition and changes in estimates

 

Settlements
(4
)
 
(31
)
Asset retirement obligation - March 31
$
33,434

 
$
27,908

In addition, the Company has accrued $1.0 million and $1.0 million as of March 31, 2012 and December 31, 2011, respectively, for reclamation liabilities related to former mining activities. These amounts are also included in reclamation and mine closure liabilities.
NOTE 12 – INCOME TAXES
For the three months ended March 31, 2012 and 2011, the Company reported an income tax provision of approximately $15.4 million and $12.9 million, respectively. The following table summarizes the components of the Company’s income tax provision from continuing operations for the three months ended March 31, 2012 and 2011 (in thousands): 
 
Three months ended
March 31,
 
2012
 
2011
Current:
 
 
 
United States - Alternative minimum tax
$

 
$
1,938

United States - Foreign withholding
(17
)
 
(78
)
Argentina
(201
)
 
98

Australia
(371
)
 
101

Mexico
(154
)
 
(50
)
Bolivia
(7,015
)
 
(9,079
)
Deferred:
 
 
 
United States
(3,120
)
 
(616
)
Australia
(340
)
 
(519
)
Mexico
(3,544
)
 
(3,776
)
Bolivia
(674
)
 
(958
)
Income tax provision from continuing operations
$
(15,436
)
 
$
(12,939
)
The income tax provision for the three months ended March 31, 2012 varies from the statutory rate primarily because of differences in tax rates for the Company’s foreign operations and changes in valuation allowances for net deferred tax assets, permanent differences and foreign exchange rate differences. The Company has U.S. net operating loss carryforwards which expire in 2017 through 2031. Net operating losses in foreign countries have an indefinite carryforward period, except in Mexico where net operating loss carryforwards are limited to ten years.
NOTE 13 – SHARE-BASED COMPENSATION PLANS
The Company has an annual incentive plan and a long-term incentive plan. The Company’s shareholders approved the Amended and Restated 2003 Long-Term Incentive Plan of Coeur d’Alene Mines Corporation at the 2010 annual shareholders meeting.
The compensation expense (benefit) recognized in the Company’s consolidated financial statements for the three months ended March 31, 2012 and 2011 for stock based compensation awards was $1.7 million and $8.2 million, respectively. The stock appreciation rights (SARs), restricted stock units (RSUs) and performance units outstanding under the plan are liability-based awards and are required to be re-measured at the end of each reporting period with corresponding adjustments to previously recognized and future stock-based compensation expense. As of March 31, 2012, there was $9.1 million of total unrecognized compensation cost (net of estimated forfeitures) related to unvested stock options, SARs, restricted stock, RSUs, performance shares and performance units which is expected to be recognized over a weighted-average remaining vesting period of 1.9 years.


15

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The following table summarizes the new grants issued during the three months ended March 31, 2012:
Grant date
Restricted
stock
 
Grant date fair
value of
restricted stock
 
Stock options
 
Grant date
fair value of
stock
options
 
Performance
shares
 
Grant date fair
value of
performance
shares
January 31, 2012
165,169

 
$
27.66

 
120,720

 
$
17.67

 
77,137

 
$
41.53

March 1, 2012
4,844

 
$
28.72

 

 
$

 

 
$

The following options and stock appreciation rights were exercised during the three months ended March 31, 2012:
Award Type
Number of Units
 
Weighted Average
Exercise Price
Options
16,403

 
$
9.29

Stock Appreciation Rights
17,832

 
$
11.16

The following shows the weighted average fair value of SARs, performance units and RSUs outstanding at March 31, 2012: 
  
March 31, 2012
  
SARs
 
Performance
units
 
Restricted
stock units
Weighted average fair value
$
16.84

 
$
33.80

 
$
23.74


The following table shows the options and SARs exercisable at March 31, 2012:
Options
Exercisable
 
Weighted
Average Exercise
Price
 
SARs
Exercisable
 
Weighted
Average Exercise
Price
231,591
 
$32.86
 
61,090
 
$13.87
NOTE 14 – DEFINED CONTRIBUTION AND 401(k) PLANS
Defined Contribution Plan
The Company provides a noncontributory defined contribution retirement plan for all eligible U.S. employees. Total contributions, which are based on a percentage of the salary of eligible employees, were $0.5 million and $0.4 million for the three months ended March 31, 2012 and 2011, respectively.
401(k) Plan
The Company maintains a retirement savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue Code) covering all eligible U.S. employees. Under the plan, employees may elect to contribute up to 100% of their cash compensation, subject to ERISA limitations. The Company adopted a Safe Harbor Tiered Match and is required to make matching contributions equal to 100% of the employee’s contribution up to 3% of the employee’s compensation plus matching contributions equal to 50% of the employee’s contribution up to an additional 2% of the employee’s compensation. Total plan expenses recognized in the Company’s consolidated financial statements for the three months ended March 31, 2012 and 2011 were $0.6 million and $0.3 million, respectively.
NOTE 15 – DERIVATIVE FINANCIAL INSTRUMENTS
Palmarejo Gold Production Royalty
On January 21, 2009, the Company entered into a gold production royalty transaction with Franco-Nevada Corporation. The minimum royalty obligation ends when payments have been made on a total of 400,000 ounces of gold. As of March 31, 2012, a total of 239,974 ounces of gold remain outstanding under the minimum royalty obligation. The price volatility associated with the minimum royalty obligation is considered an embedded derivative financial instrument under U.S. GAAP. The fair value of the embedded derivative at March 31, 2012 and December 31, 2011 was a liability of $171.8 million and $159.4 million, respectively. During the three months ended March 31, 2012 and 2011, mark-to-market adjustments for this embedded derivative amounted to a loss of $12.4 million and a gain of $1.1 million, respectively. For the three months ended March 31, 2012 and 2011, realized losses on settlement of the liabilities were $13.2 million and $7.5 million, respectively. The mark-to-market adjustments and realized losses are included in fair value adjustments, net in the consolidated statement of operations.


16

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Forward Foreign Exchange Contracts
The Company periodically enters into forward foreign currency contracts to reduce the foreign exchange risk associated with forecasted Mexican peso (“MXP”) operating costs at its Palmarejo mine. At March 31, 2012, the Company had MXP foreign exchange contracts of $25.8 million in U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXP at a weighted average exchange rate of 12.78 MXP to each U.S. dollar and had a fair value of $(0.5) million at March 31, 2012. At December 31, 2011, the Company had MXP foreign exchange contracts of $25.5 million in U.S. dollars. These contracts required the Company to exchange U.S. dollars for MXP at a weighted average exchange rate of 12.40 MXP to each U.S. dollar and had a fair value of $(3.2) million at December 31, 2011. The Company recorded mark-to-market gains on these contracts of $2.7 million for the three months ended March 31, 2012, and mark-to-market gains of $1.0 million for the three months ended March 31, 2011. These mark-to-market adjustments are reflected in fair value adjustments, net. The Company recorded realized gains (losses) of $(0.8) million and $0.3 million in production costs applicable to sales during the three months ended March 31, 2012 and 2011, respectively.
Concentrate Sales Contracts
The Company enters into concentrate sales contracts with third-party smelters. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. The provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final settlement price based on a future price, does not qualify for hedge accounting. These embedded derivatives are recorded as derivative assets (in Prepaid expenses and other) or derivative liabilities (in Accrued liabilities and other) on the balance sheet and are adjusted to fair value through earnings each period until the date of final settlement. At March 31, 2012, the Company had outstanding provisionally priced sales of $16.2 million, consisting of 0.3 million ounces of silver and 3,181 ounces of gold, which had a fair value of $16.7 million including the embedded derivative. At December 31, 2011, the Company had outstanding provisionally priced sales of $22.5 million consisting of 0.2 million ounces of silver and 9,701 ounces of gold, which had a fair value of approximately $21.7 million including the embedded derivative.

Commodity Derivatives
As of March 31, 2012, in connection with the Kensington term facility, the Company had outstanding call options requiring it to deliver 136,000 ounces of gold at a weighted average strike price of $1,919.83 per ounce if the market price of gold exceeds the strike price. At March 31, 2012, the Company had outstanding put options allowing it to sell 173,000 ounces of gold at a weighted average strike price of $954.74 per ounce if the market price of gold were to fall below the strike price. The contracts will expire over the next four years. As of March 31, 2012 and December 31, 2011, the fair market value of these contracts was a net liability of $17.7 million and $17.9 million, respectively. During the three months ended March 31, 2012 no gold call options expired. During the three months ended March 31, 2012, 17,000 ounces of gold put options expired resulting in a realized loss of $0.7 million. During the three months ended March 31, 2011, 11,250 ounces of gold call options at a weighted average strike price of $1,723.11 expired resulting in a realized gain of $0.7 million and 11,250 ounces of gold put options at a weighted average strike price of $878.56 per ounce expired resulting in a realized loss of $0.7 million. During the three months ended March 31, 2012 and 2011, the Company recorded unrealized gains (losses) of $0.2 million and $(0.7) million, respectively, related to the outstanding options which was included in fair value adjustments, net.
In connection with the sale of the Cerro Bayo mine to Mandalay Resources Corporation, the Company received the right to 125,000 ounces of silver to be delivered in six equal quarterly installments commencing in the third quarter of 2011. The third installment of 20,833 ounces was received on March 31, 2012 and the Company realized a $0.3 million gain on the settlement. The Company recognized mark to market gains of $0.1 million and $0.8 million associated with this silver in the three months ended March 31, 2012 and 2011, respectively. The silver had a fair value of $2.0 million at March 31, 2012, and a fair value of $2.3 million at December 31, 2011.








17

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

As of March 31, 2012, the Company had the following derivative instruments that settle in each of the years indicated in the table (in thousands except average rates, ounces and per share data):
 
 
2012
 
2013
 
2014
 
Thereafter
Palmarejo gold production royalty
$
20,784

 
$
25,097

 
$
24,895

 
$
48,337

Average gold price in excess of minimum contractual deduction
$
499

 
$
502

 
$
498

 
$
492

Notional ounces
41,670

 
50,004

 
50,004

 
98,296

Mexican peso forward purchase contracts
$
25,800

 
$

 
$

 
$

Average rate (MXP/$)
$
12.78

 
$

 
$

 
$

Mexican peso notional amount
329,603

 

 

 

Silver ounces receivable from Mandalay
$
1,152

 
$

 
$

 
$

Average silver forward price
$
18.43

 
$

 
$

 
$

Notional ounces
62,500

 

 

 

Silver concentrate sales agreements
$
10,689

 
$

 
$

 
$

Average silver price
$
31.71

 
$

 
$

 
$

Notional ounces
337,058

 

 

 

Gold concentrates sales agreements
$
5,500

 
$

 
$

 
$

Average gold price
$
1,729

 
$

 
$

 
$

Notional ounces
3,181

 

 

 

Gold put options purchased
$
2,160

 
$
1,800

 
$
720

 
$

Average gold strike price
$
923

 
$
928

 
$
979

 
$
1,010

Notional ounces
51,000

 
45,000

 
47,000

 
30,000

Gold call options sold
$

 
$
1,800

 
$
720

 
$

Average gold strike price
2,000

 
1,827

 
1,934

 
2,000

Notional ounces
14,000

 
45,000

 
47,000

 
30,000


The following summarizes the classification of the fair value of the derivative instruments as of March 31, 2012 and December 31, 2011 (in thousands):
 
March 31, 2012
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
Other long-
term
liabilities
 
Current
portion of
royalty
obligation
 
Non-current
portion of
royalty
obligation
Silver ounces receivable from Mandalay
$
899

 
$

 
$

 
$

 
$

Forward foreign exchange contracts
480

 
978

 

 

 

Palmarejo gold production royalty

 

 

 
40,909

 
130,888

Put and call options, net

 
3,501

 
14,183

 

 

Concentrate sales contracts
634

 
122

 

 

 

 
$
2,013

 
$
4,601

 
$
14,183

 
$
40,909

 
$
130,888


18

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
December 31, 2011
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
Other long-
term
Liabilities
 
Current
portion of
royalty
obligation
 
Non-current
portion of
royalty
obligation
Silver ounces receivable from Mandalay
$
814

 
$

 
$

 
$

 
$

Forward foreign exchange contracts

 
3,188

 

 

 

Palmarejo gold production royalty

 

 

 
37,206

 
122,194

Put and call options, net

 
3,183

 
14,669

 

 

Concentrate sales contracts

 
825

 

 

 

 
$
814

 
$
7,196

 
$
14,669

 
$
37,206

 
$
122,194

The following represent mark-to-market gains (losses) on derivative instruments for the three months ended March 31, 2012 and 2011 (in thousands):
 
 
 
Three months ended
March 31,
Financial statement line
Derivative
 
2012
 
2011
Sales of metal
Concentrate sales contracts
 
$
1,336

 
$
(1,349
)
Production costs applicable to sales
Forward foreign exchange contracts
 
(783
)
 
252

Fair value adjustments, net
Gold lease facility
 

 
(132
)
Fair value adjustments, net
Forward foreign exchange contracts
 
2,690

 
1,005

Fair value adjustments, net
Forward gold contract
 

 
35

Fair value adjustments, net
Silver ounces receivable
 
359

 
831

Fair value adjustments, net
Palmarejo gold royalty
 
(25,611
)
 
(6,343
)
Fair value adjustments, net
Put and call options
 
(551
)
 
(698
)
 
 
 
$
(22,560
)
 
$
(6,399
)

Credit Risk
The credit risk exposure related to any potential derivative instruments is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company deals with financial institutions management deems credit worthy and limits credit exposure to each. The Company does not anticipate non-performance by any of its counterparties. In addition, to allow for situations where positions may need to be revised, the Company deals only in markets that management considers highly liquid.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Labor Union Contracts
The Company maintains two labor agreements in South America, consisting of a labor agreement with Associacion Obrera Minera Argentina at the Martha mine in Argentina and with Sindicato de la Empresa Minera Manquiri at the San Bartolomé mine in Bolivia. The agreement at the Martha mine is effective from June 12, 2006 to June 30, 2012. The labor agreement at the San Bartolomé mine, which became effective October 11, 2007, does not have a fixed term. As of March 31, 2012, approximately 14.0% of the Company’s worldwide labor force was covered by collective bargaining agreements.
Termination Benefits
The Company established a termination benefit program for its employees at the Rochester mine in 2005. The program provides a financial benefit in the form of severance pay to terminated employees if their employment is terminated due to curtailment of operations. The individual benefit is based on the employee’s service time and rate of pay at the time of termination. The Rochester mine resumed mining and crushing operations in late 2011, and currently employs more than 200 employees. This termination benefit program has been extended to include newly hired employees. As of March 31, 2012, the total benefit expected to be incurred under this plan is approximately $4.6 million. The liability is recognized at the discounted amount and accreted over the service period.


19

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Changes to the Company's termination benefits are as follows (in thousands):
 
Three months ended March 31,
 
2012
 
2011
Beginning Balance
$
3,335

 
$
1,105

Accruals
87

 
786

Payments

 

Ending Balance
$
3,422

 
$
1,891

The Company does not have a written severance plan for any of its foreign operations including Chile, Argentina, Bolivia and Mexico. However, laws in these foreign jurisdictions require payment of certain minimum statutory termination benefits. Accordingly, in situations where minimum statutory termination benefits must be paid to the affected employees, the Company records employee severance costs in accordance with U.S. GAAP. The Company has accrued obligations for post-employment benefits in these locations of approximately $7.2 million and $7.4 million as of March 31, 2012 and December 31, 2011, respectively.
Kensington Production Royalty
On July 7, 1995, Coeur, through its wholly-owned subsidiary, Coeur Alaska, Inc., acquired the 50% ownership interest of Echo Bay Exploration Inc., or Echo Bay, giving Coeur 100% ownership of the Kensington property. Coeur Alaska is obligated to pay Echo Bay, a subsidiary of Kinross Gold Corporation, a scaled net smelter return royalty on 1.0 million ounces of future gold production after Coeur Alaska recoups the $32.5 million purchase price and its construction and development expenditures incurred after July 7, 1995 in connection with placing the property into commercial production. The royalty ranges from 1% at gold prices of $400 per ounce to a maximum of 2.5% at gold prices above $475 per ounce, with the royalty to be capped at 1.0 million ounces of production. No royalty has been paid to date.
Rochester Production Royalty
The Company acquired the Rochester property from ASARCO, a subsidiary of Grupo Mexico SA de CV, in 1983. The Company is obligated to pay a net smelter royalty interest to ASARCO when the market price of silver equals or exceeds $23.60 per ounce up to a maximum rate of 5%. Royalty expense was $0.6 million and $0.3 million for the three months ended March 31, 2012 and 2011, respectively.
Palmarejo Gold Production Royalty
On January 21, 2009, Coeur Mexicana entered into a gold production royalty transaction with Franco-Nevada Corporation under which Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced from its Palmarejo silver and gold mine in Mexico. The royalty agreement provides for a minimum obligation to be paid monthly on a total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period.
NOTE 17 – SIGNIFICANT CUSTOMERS
The Company markets its doré to credit worthy bullion trading houses, market makers and members of the London Bullion Market Association, industrial companies and sound financial institutions. The refined metals are sold to end users for use in electronic circuitry, jewelry, silverware, pharmaceutical products, and the technology industry. The Company currently has seven trading counterparties (International Commodities, Mitsui, Mitsubishi, Standard Bank, TD Securities, Valcambi and Auramet) and the sales of metals to these companies amounted to approximately 90%, and 75% of total metal sales for the three months ended March 31, 2012 and 2011, respectively. Generally, the loss of a single bullion trading counterparty would not adversely affect the Company due to the liquidity of the markets and the availability of alternative trading counterparties.
Sales of silver and gold concentrates to third parties (Nyrstar, Aurubis, Sumitomo, Trafigura, and China National Gold) amounted to approximately 10% and 25% of total metal sales for the three months ended March 31, 2012, and 2011, respectively. The loss of any one smelting and refining client may have a material adverse effect if alternate smelters and refiners are not available. The Company believes there is sufficient global capacity available to address the loss of any one smelter.




20

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The following table indicates customers that represent 10% or more of total revenue (in millions):
Customer
 
March 31, 2012
 
March 31, 2011
 
Segments reporting revenue
Valcambi
 
$
107.9

 
$
52.6

 
Palmarejo, San Bartolomé
Auramet
 
13.9

 
29.9

 
San Bartolomé, Kensington
China National Gold
 
4.6

 
48.1

 
Kensington
International Commodities
 
16.8

 
46.2

 
Palmarejo, San Bartolomé, Rochester
Mitsui
 

 

 
Palmarejo, San Bartolomé, Rochester
NOTE 18 – SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-making group is comprised of the Chief Executive Officer, Chief Financial Officer, and the Chief Operating Officer.
The operating segments are managed separately because each segment represents a distinct use of company resources and a separate contribution to the Company’s cash flows. The Company’s reportable operating segments include the Palmarejo, San Bartolomé, Martha, Rochester, Kensington and Endeavor mining properties. All operating segments are engaged in the discovery and/or mining of gold and silver and generate the majority of their revenues from the sale of these precious metal concentrates and/or refined precious metals. The Martha mine sells precious metal concentrates, typically under long-term contracts, to trading partners located in the United States and Switzerland. The Kensington mine sells precious metals and concentrates, typically under long-term contracts to smelters in China and Germany. Refined gold and silver produced by the Rochester, Palmarejo, and San Bartolomé mines are principally sold on a spot basis to precious metals trading banks such as International Commodities, Mitsui, Mitsubishi, Standard Bank, TD Securities, Valcambi and Auramet. Concentrates produced at the Endeavor mine are sold to Nyrstar (formerly Zinifex), an Australian smelter. The Company’s exploration programs are reported in its other segment. The other segment also includes the corporate headquarters, elimination of intersegment transactions and other items necessary to reconcile to consolidated amounts. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies above. The Company evaluates performance and allocates resources based on profit or loss before interest, income taxes, depreciation and amortization, unusual and infrequent items and extraordinary items.
Revenues from silver sales were $139.3 million and $112.5 million in the three months ended March 31, 2012 and 2011, respectively. Revenues from gold sales were $65.3 million and $87.1 million in the three months ended March 31, 2012 and 2011, respectively.

























21

Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Financial information relating to the Company’s segments is as follows (in thousands):
Three months ended March 31, 2012
Palmarejo
Mine
 
San Bartolomé
Mine
 
Kensington
Mine
 
Rochester
Mine
 
Martha
Mine
 
Endeavor
Mine
 
Other
 
Total
Sales of metals
$
123,722

 
$
41,376

 
$
10,377

 
$
18,758

 
$
3,618

 
$
6,713

 
$

 
$
204,564

Productions costs applicable to sales
(45,860
)
 
(13,608
)
 
(17,090
)
 
(9,565
)
 
(3,694
)
 
(2,737
)
 

 
(92,554
)
Depreciation and depletion
(37,769
)
 
(4,219
)
 
(6,605
)
 
(1,642
)
 
(596
)
 
(1,644
)
 
(117
)
 
(52,592
)
Gross profit (loss)
40,093

 
23,549

 
(13,318
)
 
7,551

 
(672
)
 
2,332

 
(117
)
 
59,418

Exploration expense
1,320

 
70

 
222

 
709

 
3,412

 

 
834

 
6,567

Other operating expenses

 
5

 
19

 
1,341

 
197

 

 
7,102

 
8,664

OPERATING INCOME (LOSS)
38,773

 
23,474

 
(13,559
)
 
5,501

 
(4,281
)
 
2,332

 
(8,053
)
 
44,187

Interest and other income
4,581

 
95

 

 
49

 
(75
)
 

 
357

 
5,007

Interest expense
(4,810
)
 

 
(892
)
 
(8
)
 

 

 
(960
)
 
(6,670
)
Fair value adjustments, net
(25,611
)
 

 
(551
)
 

 

 

 
3,049

 
(23,113
)
Income tax benefit (expense)
(3,544
)
 
(7,689
)
 

 

 
(201
)
 

 
(4,002
)
 
(15,436
)
Net income (loss)
$
9,389

 
$
15,880

 
$
(15,002
)
 
$
5,542

 
$
(4,557
)
 
$
2,332

 
$
(9,609
)
 
$
3,975

Segment assets (A)
$
2,008,004

 
$
285,276

 
$
504,082

 
$
90,072

 
$
24,183

 
$
36,372

 
$
17,104

 
$
2,965,093

Capital expenditures (B)
$
7,170

 
$
10,207

 
$
10,878

 
$
2,639

 
$
659

 
$

 
$
94