XNYS:CDE Coeur Mining Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 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 89,906,332 shares were issued and outstanding as of August 6, 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)
 
 
 
June 30,
2012
 
December 31,
2011
ASSETS
Notes

 
(In thousands, except share data)
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
$
199,397

 
$
175,012

Short term investments
5

 
907

 
20,254

Receivables
6

 
70,443

 
83,497

Ore on leach pad
 
 
30,562

 
27,252

Metal and other inventory
7

 
145,144

 
132,781

Deferred tax assets


 
2,090

 
1,869

Restricted assets
 
 
456

 
60

Prepaid expenses and other
 
 
22,184

 
24,218

 
 
 
471,183

 
464,943

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

 
693,026

 
687,676

Mining properties, net
9

 
1,945,763

 
2,001,027

Ore on leach pad, non-current portion
 
 
12,631

 
6,679

Restricted assets
 
 
29,134

 
28,911

Marketable securities
5

 
21,150

 
19,844

Receivables, non-current portion
6

 
45,352

 
40,314

Debt issuance costs, net
 
 
2,738

 
1,889

Deferred tax assets


 
132

 
263

Other
 
 
12,401

 
12,895

TOTAL ASSETS
 
 
$
3,233,510

 
$
3,264,441

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Accounts payable
 
 
$
66,991

 
$
78,590

Accrued liabilities and other
 
 
8,321

 
13,126

Accrued income taxes
 
 
23,929

 
47,803

Accrued payroll and related benefits
 
 
18,119

 
16,240

Accrued interest payable
 
 
1,437

 
559

Current portion of debt and capital leases
10

 
82,708

 
32,602

Current portion of royalty obligation
10,15
 
63,269

 
61,721

Current portion of reclamation and mine closure
11

 
4,812

 
1,387

Deferred tax liabilities


 
53

 
53

 
 
 
269,639

 
252,081

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

 
53,974

 
115,861

Non-current portion of royalty obligation
10,15
 
150,534

 
169,788

Reclamation and mine closure
11

 
30,531

 
32,371

Deferred tax liabilities


 
545,031

 
527,573

Other long-term liabilities
 
 
23,091

 
30,046

 
 
 
803,161

 
875,639

COMMITMENTS AND CONTINGENCIES (Notes 10, 11, 12, 13, 14, 15, 16 and 19)
 
 

 

SHAREHOLDERS’ EQUITY
 
 
 
 
 
Common stock, par value $0.01 per share; authorized 150,000,000 shares, 89,901,675 issued at June 30, 2012 and 89,655,124 issued at December 31, 2011
 
 
899

 
897

Additional paid-in capital
 
 
2,587,923

 
2,585,632

Accumulated deficit
 
 
(417,885
)
 
(444,833
)
Accumulated other comprehensive loss
 
 
(10,227
)
 
(4,975
)
 
 
 
2,160,710

 
2,136,721

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
$
3,233,510

 
$
3,264,441


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

3


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except share data)
Sales of metal
$
254,406

 
$
231,090

 
$
458,970

 
$
430,714

Production costs applicable to sales
(131,823
)
 
(77,102
)
 
(224,377
)
 
(169,576
)
Depreciation, depletion and amortization
(61,024
)
 
(57,641
)
 
(113,616
)
 
(107,682
)
Gross profit
61,559

 
96,347

 
120,977

 
153,456

COSTS AND EXPENSES
 
 
 
 
 
 
 
Administrative and general
8,594

 
1,827

 
16,190

 
14,058

Exploration
6,305

 
4,077

 
12,872

 
6,839

Loss on impairment and other
4,813

 

 
4,813

 

Pre-development, care, maintenance and other
273

 
11,104

 
1,341

 
14,678

Total cost and expenses
19,985

 
17,008

 
35,216

 
35,575

OPERATING INCOME
41,574

 
79,339

 
85,761

 
117,881

OTHER INCOME AND EXPENSE
 
 
 
 
 
 
 
Loss on debt extinguishments

 
(389
)
 

 
(856
)
Fair value adjustments, net
16,039

 
(12,432
)
 
(7,074
)
 
(17,700
)
Interest income and other, net
(3,221
)
 
2,763

 
1,786

 
4,664

Interest expense, net of capitalized interest
(7,557
)
 
(9,268
)
 
(14,227
)
 
(18,573
)
Total other income and expense, net
5,261

 
(19,326
)
 
(19,515
)
 
(32,465
)
Income before income taxes
46,835

 
60,013

 
66,246

 
85,416

Income tax provision
(23,862
)
 
(21,402
)
 
(39,298
)
 
(34,341
)
NET INCOME
$
22,973

 
$
38,611

 
$
26,948

 
$
51,075

BASIC AND DILUTED INCOME PER SHARE
 
 
 
 
 
 
 
Basic income per share:
 
 
 
 
 
 
 
Net income
$
0.26

 
$
0.43

 
$
0.30

 
$
0.57

Diluted income per share:
 
 
 
 
 
 
 
Net income
$
0.26

 
$
0.43

 
$
0.30

 
$
0.57

Weighted average number of shares of common stock
 
 
 
 
 
 
 
Basic
89,631

 
89,310

 
89,611

 
89,299

Diluted
89,733

 
89,712

 
89,777

 
89,683

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

4


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three months ended
June 30,
Six months ended
June 30,
 
2012
 
2011
2012
 
2011
 
(In thousands)
 
 
 
Net income
$
22,973

 
$
38,611

$
26,948

 
$
51,075

OTHER COMPREHENSIVE LOSS:
 
 
 
 
 
 
Unrealized loss on available for sale securities
(5,676
)
 
(1,387
)
(5,252
)
 
(1,387
)
Other comprehensive loss
(5,676
)
 
(1,387
)
(5,252
)
 
(1,387
)
COMPREHENSIVE INCOME
$
17,297

 
$
37,224

$
21,696

 
$
49,688

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

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Six Months Ended June 30, 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

 

 

 
26,948

 

 
26,948

Other comprehensive loss

 

 

 

 
(5,252
)
 
(5,252
)
Common stock issued/cancelled under long-term incentive plans and director fees and options, net
247

 
2

 
2,291

 

 


 
2,293

Balances at June 30, 2012
89,902

 
$
899

 
$
2,587,923

 
$
(417,885
)
 
$
(10,227
)
 
$
2,160,710

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

5


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net income
$
22,973

 
$
38,611

 
$
26,948

 
$
51,075

Add (deduct) non-cash items
 
 
 
 
 
 
 
Depreciation, depletion and amortization
61,024

 
57,641

 
113,616

 
107,682

Accretion of discount on debt and other assets, net
808

 
494

 
1,605

 
944

Accretion of royalty obligation
5,492

 
5,770

 
10,072

 
11,037

Deferred income taxes
9,690

 
4,223

 
17,368

 
10,093

Loss on debt extinguishment

 
389

 

 
856

Fair value adjustments, net
(17,759
)
 
13,933

 
4,018

 
20,593

Gain (loss) on foreign currency transactions
70

 
(848
)
 
369

 
(737
)
Share-based compensation
1,033

 
(3,351
)
 
3,170

 
4,804

(Gain) loss on sale of assets
264

 
(1,223
)
 
264

 
(1,224
)
Loss on impairment
4,813

 

 
4,813

 

Other non-cash charges
(40
)
 
200

 
(40
)
 
831

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Receivables and other current assets
10,319

 
(8,138
)
 
7,365

 
(12,979
)
Prepaid expenses and other
(2,857
)
 
1,354

 
1,916

 
1,335

Inventories
3,097

 
(23,575
)
 
(21,625
)
 
(36,068
)
Accounts payable and accrued liabilities
14,276

 
25,585

 
(39,655
)
 
(11,392
)
CASH PROVIDED BY OPERATING ACTIVITIES
113,203

 
111,065

 
130,204

 
146,850

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Purchase of short term investments and marketable securities
(6,831
)
 
(11,881
)
 
(7,866
)
 
(13,110
)
Proceeds from sales and maturities of short term investments
683

 
2,773

 
20,701

 
3,360

Capital expenditures
(32,238
)
 
(25,764
)
 
(63,885
)
 
(41,681
)
Other
995

 
325

 
1,180

 
273

CASH USED IN INVESTING ACTIVITIES
(37,391
)
 
(34,547
)
 
(49,870
)
 
(51,158
)
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
(8,794
)
 
(16,704
)
 
(14,244
)
 
(34,099
)
Payments on gold production royalty
(19,287
)
 
(17,441
)
 
(40,660
)
 
(32,059
)
Payments on gold lease facility

 

 

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

 

 

 
(1,325
)
Other
(217
)
 
30

 
(1,045
)
 
(1,197
)
CASH USED IN FINANCING ACTIVITIES
(28,298
)
 
(34,115
)
 
(55,949
)
 
(54,980
)
INCREASE IN CASH AND CASH EQUIVALENTS
47,514

 
42,403

 
24,385

 
40,712

Cash and cash equivalents at beginning of period
151,883

 
64,427

 
175,012

 
66,118

Cash and cash equivalents at end of period
$
199,397

 
$
106,830

 
$
199,397

 
$
106,830

The accompanying notes are an integral part of these condensed 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 June 30, 2012 and December 31, 2011 and the Company’s results of operations and cash flows for the three and six months ended June 30, 2012 and 2011. The results for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. All references to June 30, 2012 or to the three and six months ended June 30, 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.
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 material 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 had no effect on the Company's financial position, results of operations or cash flows.
In December, 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 201): Disclosures about Offsetting Assets and Liabilities." This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, with retrospective application required. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.
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 and six months ended June 30, 2012, 632,213 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 and six months ended June 30, 2011, 1,056,901 and 1,419,282, respectively, shares of common stock equivalents related to convertible debt and equity based awards

7

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

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 for the three and six months ended June 30, 2012 and 2011 because there is no excess value upon conversion over the principle amount of the Notes.
The effect of potentially dilutive stock outstanding as of June 30, 2012, and 2011 are as follows (in thousands, except per share data):
 
Three months ended June 30, 2012
 
Six months ended June 30, 2012
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
$
22,973

 
89,631

 
$
0.26

 
$
26,948

 
89,611

 
$
0.30

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
Equity awards

 
102

 
 
 

 
166

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
$
22,973

 
89,733

 
$
0.26

 
$
26,948

 
89,777

 
$
0.30

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2011
 
Six months ended June 30, 2011
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
$
38,611

 
89,310

 
$
0.43

 
$
51,075

 
89,299

 
$
0.57

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
Equity awards

 
402

 
 
 

 
384

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
$
38,611

 
89,712

 
$
0.43

 
$
51,075

 
89,683

 
$
0.57

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).

8

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

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 June 30, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Short term investments
907

 
907

 

 

Marketable equity securities
21,150

 
21,150

 

 

Silver ounces receivable from Mandalay
562

 

 
562

 

 
$
22,619

 
$
22,057

 
$
562

 
$

Liabilities:
 
 
 
 
 
 
 
Royalty obligation embedded derivative
$
146,715

 
$

 
$
146,715

 
$

Put and call options
13,193

 

 
13,193

 

Other derivative instruments, net
791

 

 
791

 

 
$
160,699

 
$

 
$
160,699

 
$

 
 
Fair Value at December 31, 2011
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Short term investments
20,254

 
20,254

 

 

Marketable securities
19,844

 
19,844

 

 

Put and call options
3,040

 

 
3,040

 

Silver ounces receivable from Mandalay
814

 

 
814

 

 
$
43,952

 
$
40,098

 
$
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 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 June 30, 2012 or December 31, 2011.
There were no transfers between levels of fair value measurements of financial assets and liabilities during the first six months of 2012.

9

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

Financial assets and liabilities that are not measured at fair value at June 30, 2012 and December 31, 2011 are set forth in the following table (in thousands):
 
Fair Value at June 30, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:

 
 
 
 
 
 
3.25% Convertible Senior Notes
$
46,833

 
$
46,833

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
100,054

 
$

 
$
100,054

 
$

 
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 June 30, 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 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 cash equivalents, receivables, restricted assets, accounts payable, 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
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 and gold exploration and development companies that the Company purchased. The following table summarizes the Company’s available-for-sale securities on hand as of June 30, 2012 and December 31, 2011 (in thousands): 
 
Investments in marketable securities
 
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Marketable securities at June 30, 2012
$
31,377

 
$
(11,544
)
 
$
1,317

 
$
21,150

 
 
 
 
 
 
 
 
Marketable securities at December 31, 2011
$
24,819

 
$
(4,975
)
 
$

 
$
19,844

In the three months ended June 30, 2012 and 2011, the Company recognized an unrealized loss of $5.7 million and $1.4 million, respectively, in other comprehensive income (loss). In the six months ended June 30, 2012, and 2011, the Company recognized an unrealized loss of $5.3 million and $1.4 million, 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.

10

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

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 $0.9 million and $20.3 million of short-term investments at June 30, 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):
 
June 30, 2012
 
December 31,
2011
Receivables - current portion
 
 
 
Accounts receivable - trade
$
9,486

 
$
14,366

Refundable income tax
11,964

 
11,480

Refundable value added tax
43,593

 
52,968

Accounts receivable - other
5,400

 
4,683

 
$
70,443

 
$
83,497

Receivables - non-current portion
 
 
 
Refundable value added tax
$
45,352

 
$
40,314

 
Trade receivables and other receivable balances 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 estimated that an allowance of $0.3 million was needed against its value added tax receivable balances in Argentina at June 30, 2012. There were no allowances against receivable balances at December 31, 2011.
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): 
 
June 30, 2012
 
December 31,
2011
Concentrate and doré inventory
$
76,549

 
$
73,590

Supplies
68,595

 
59,191

Metal and other inventory
$
145,144

 
$
132,781

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands): 
 
June 30, 2012
 
December 31,
2011
Land
$
1,415

 
$
1,432

Buildings and improvements
559,732

 
520,137

Machinery and equipment
270,659

 
246,584

Capitalized leases for machinery, equipment and buildings
76,195

 
76,244

 
908,001

 
844,397

Accumulated depreciation and amortization
(272,590
)
 
(235,528
)
 
635,411

 
608,869

Construction in progress
57,615

 
78,807

 
$
693,026

 
$
687,676



11

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

NOTE 9 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
June 30, 2012
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Martha
 
Endeavor
 
Other
 
Total
Mining properties
$
147,873

 
$
69,671

 
$
328,786

 
$
113,429

 
$
11,416

 
$

 
$

 
$
671,175

Accumulated depletion
(68,750
)
 
(16,716
)
 
(33,878
)
 
(99,131
)
 
(11,416
)
 

 

 
(229,891
)
 
79,123

 
52,955

 
294,908

 
14,298

 

 

 

 
441,284

Mineral interests
1,658,389

 
26,642

 

 

 

 
44,033

 

 
1,729,064

Accumulated depletion
(204,781
)
 
(6,676
)
 

 

 

 
(13,270
)
 

 
(224,727
)
 
1,453,608

 
19,966

 

 

 

 
30,763

 

 
1,504,337

Non-producing and development properties

 

 

 

 

 

 
142

 
142

Total mining properties
$
1,532,731

 
$
72,921

 
$
294,908

 
$
14,298

 
$

 
$
30,763

 
$
142

 
$
1,945,763

December 31, 2011
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Martha
 
Endeavor
 
Other
 
Total
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
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

Operational Mining Properties
Palmarejo Mine: Palmarejo is located in the State of Chihuahua in northern Mexico, and its principal silver and gold properties are collectively referred to as the “Palmarejo mine.” The Palmarejo mine commenced 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”). 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 Company commenced commercial production in July of 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. Due to high operating costs and a short remaining expected mine life, the Company evaluated strategic and operational alternatives for the Martha mine and recorded an impairment charge of $4.8 million in the second quarter of 2012.
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.

12

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

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 4.0 million payable ounces to-date and the current ore reserve contains approximately 3.5 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 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, collectively referred to as the "Joaquin Project," 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 capitalized any expenditures associated with the Joaquin Project as of June 30, 2012.
NOTE 10 – DEBT AND CAPITAL LEASE OBLIGATIONS
The current and non-current portions of long-term debt and capital lease obligations as of June 30, 2012 and December 31, 2011 are as follows (in thousands):
 
June 30,
2012
 
December 31,
2011
 
Current
 
Non-Current
 
Current
 
Non-Current
3.25% Convertible Senior Notes due March 2028
$
46,786

 
$

 
$

 
$
45,545

Kensington Term Facility
24,248

 
47,726

 
15,398

 
60,425

Capital lease obligations
11,674

 
6,248

 
17,119

 
9,891

Other

 

 
85

 

 
$
82,708

 
$
53,974

 
$
32,602

 
$
115,861


3.25% Convertible Senior Notes
As of June 30, 2012, the outstanding balance of the 3.25% Convertible Senior Notes due 2028 was $48.7 million, or $46.8 million net of debt discount. The notes are classified as current liabilities as of June 30, 2012 as a result of the holders' option to require the Company to repurchase the notes on March 15, 2013.
The fair value of the notes outstanding, as determined by market transactions at June 30, 2012 and December 31, 2011 was $46.8 million and $49.2 million, respectively. The carrying value of the equity component at June 30, 2012 and December 31, 2011 was $10.9 million.
For the three months ended June 30, 2012 and 2011 interest expense recognized was $0.4 million and $0.4 million, respectively. For the six months ended June 30, 2012 and 2011 interest expense recognized was $0.8 million, and $0.8 million, respectively. For the three months ended June 30, 2012 and 2011 accretion of the debt discount was $0.6 million and $0.6, respectively. For the six months ended June 30, 2012 and 2011 accretion of the debt discount was $1.2 million and $1.1 million, respectively. The debt discount remaining at June 30, 2012 was $1.9 million, which will be amortized through March 15, 2013. The effective interest rate on the notes was 8.9%.
Kensington Term Facility
As of June 30, 2012, the outstanding balance of the Kensington Term Facility was $72.0 million.
As a condition to the Kensington term facility with Credit Suisse, the Company agreed to enter into a gold hedging program which protects a minimum of 243,750 ounces of gold production over the life of the term facility against the risk associated with fluctuations in the market price of gold. This program consists of a series of zero cost collars which consist of a floor price and a ceiling price of gold. Call options protecting 111,000 ounces of gold were outstanding at June 30, 2012. The weighted average strike price of the call options was $1,971.94. Put options protecting 156,000 ounces of gold were outstanding at June 30, 2012. The weighted average strike price of the put options was $958.16.
The Amended Credit Facility contains affirmative and negative covenants that the Company believes are usual and customary, including financial covenants that Coeur Alaska’s debt to equity ratio shall not exceed 40%, the ratio of projected cash flow to debt service shall be at least 125%, the tangible net worth of the Borrower is not less than $325 million and the tangible net worth of the Guarantor is no less than $1.0 billion. Project covenants include covenants as to performance of sales contracts, maintenance and management. As of June 30, 2012, the Company was not in compliance with the debt service ratio covenant. The bank has waived that requirement of the agreement for the year ending December 31, 2012.

13

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

Capital Lease Obligations
As of June 30, 2012 and December 31, 2011, the Company had outstanding balances on capital leases of $17.9 million and $27.0 million, respectively.
Palmarejo Gold Production Royalty Obligation
The Company recognized accretion expense on the Palmarejo gold production royalty obligation for the three and six months ended June 30, 2012 and 2011of $5.6 million and $5.8 million and $10.7 million and $11.0 million, respectively. As of June 30, 2012 and December 31, 2011, the remaining minimum obligation under the royalty agreement was $67.1 million and $72.1 million, respectively.
Interest Expense
The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the three and six months ended June 30, 2012 and 2011, the Company expensed interest of $7.6 million and $9.3 million, and $14.2 million and $18.6 million, respectively.
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2012
2011
 
2012
2011
 
(in thousands)
 
(in thousands)
3.25% Convertible Senior Notes due March 2028
$
395

$
395

 
$
791

$
791

1.25% Convertible Senior Notes paid in 2011


 

1

Senior Term Notes paid in 2011

427

 

914

Kensington Term Facility
906

1,162

 
1,880

2,267

Capital lease obligations
265

472

 
608

938

Other debt obligations
162

145

 
230

613

Gold Lease Facility terminated in 2011


 

107

Accretion of Franco Nevada royalty obligation
5,559

5,770

 
10,663

11,037

Amortization of debt issuance costs
251

559

 
508

1,183

Accretion of debt discount
629

576

 
1,241

1,137

Capitalized interest
(610
)
(238
)
 
(1,694
)
(415
)
Total interest expense, net of capitalized interest
$
7,557

$
9,268

 
$
14,227

$
18,573

Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of properties under development. For the three and six months ended June 30, 2012 and 2011, the Company capitalized interest of $0.6 million and $0.2 million, and $1.7 million and $0.4 million respectively.
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. The sum of the expected costs by year is discounted, using the Company's credit adjusted risk free interest rate. 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
June 30,
 
Six months ended
June 30,
 
2012
 
2011
 
2012
 
2011
Asset retirement obligation - Beginning
$
33,434

 
$
27,908

 
$
32,714

 
$
27,302

Accretion
742

 
654

 
1,466

 
1,290

Addition and changes in estimates
335

 

 
335

 

Settlements
(1
)
 
(5
)
 
(5
)
 
(35
)
Asset retirement obligation - June 30
$
34,510

 
$
28,557

 
$
34,510

 
$
28,557

In addition, the Company has accrued $0.8 million and $1.0 million as of June 30, 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 and six months ended June 30, 2012, the Company reported an income tax provision of approximately $23.9 million and $39.3 million, respectively, compared to an income tax provision of $21.4 million and $34.3 million for the three and six months ended June 30, 2011, respectively.
The following table summarizes the components of the Company’s income tax provision from continuing operations for the three and six months ended June 30, 2012 and 2011 (in thousands): 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2012
 
2011
 
2012
 
2011
United States
$
(388
)
 
$
(2,202
)
 
$
(3,525
)
 
$
(958
)
Argentina
(38
)
 
(15
)
 
(239
)
 
83

Australia
(495
)
 
(700
)
 
(1,206
)
 
(1,118
)
Mexico
(12,052
)
 
(6,376
)
 
(15,750
)
 
(10,202
)
Bolivia
(10,889
)
 
(12,109
)
 
(18,578
)
 
(22,146
)
Income tax provision from continuing operations
$
(23,862
)
 
$
(21,402
)
 
$
(39,298
)
 
$
(34,341
)
The income tax provision for the three and six months ended June 30, 2012 and 2011 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 and six months ended June 30, 2012 and 2011 for share based compensation awards was $1.0 million and $(3.4) million, and $2.7 million and $4.8 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 June 30, 2012, there was $7.8 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 1.8 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 six months ended June 30, 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

 

 
$

 

 
$

April 2, 2012
2,009

 
$
24.32

 

 
$

 

 
$

May 1, 2012
3,185

 
$
21.65

 

 
$

 

 
$

May 7, 2012
7,511

 
$
19.01

 
11,803

 
$
12.10

 
7,211

 
$
28.54

June 1, 2012
1,361

 
$
18.35

 

 
$

 

 
$

The following options and stock appreciation rights were exercised during the six months ended June 30, 2012:
Award Type
Number of Units
 
Weighted Average
Exercise Price
Options
27,720

 
$
9.58

Stock Appreciation Rights
26,610

 
$
12.56

The following shows the weighted average fair value of SARs, performance units and RSUs outstanding at June 30, 2012: 
  
June 30, 2012
  
SARs
 
Performance
units
 
Restricted
stock units
Weighted average fair value
$
12.19

 
$
18.40

 
$
17.56


The following table shows the options and SARs exercisable at June 30, 2012:
Options
Exercisable
 
Weighted
Average Exercise
Price
 
SARs
Exercisable
 
Weighted
Average Exercise
Price
216,921
 
$33.51
 
53,900
 
$13.66
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, and $1.0 million and $0.8 million for the three and six months ended June 30, 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 and six months ended June 30, 2012 and 2011 were $0.5 million and $0.3 million, and $1.1 million and $0.6 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 royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties. The royalty transaction included a minimum obligation of 4,167 ounces per month that ends when payments have been made on a total of 400,000 ounces of gold. As of June 30, 2012, a total of 224,710 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. As such, the Company is required to recognize the change in fair value of the remaining minimum obligation due to the changing gold prices. Unrealized gains are recognized in periods when the gold price has decreased from the previous

16

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

period and unrealized losses are recognized in periods when the gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 5.3% and 5.7% at June 30, 2012 and December 31, 2011, respectively. The fair value of the embedded derivative at June 30, 2012 and December 31, 2011, based on forward gold prices averaging approximately $1,630 and $1,610 per ounce, respectively, was a liability of $146.7 million and $159.4 million, respectively. During the three and six months ended June 30, 2012 and 2011, mark-to-market adjustments for this embedded derivative amounted to a gain of $25.1 million and a loss of $4.0 million, and a gain of $12.7 million and a loss of $2.9 million respectively.
Payments on the royalty obligation occur monthly resulting in a decrease to the carrying amount of the minimum obligation and the derivative liability and the recognition of realized gains or losses as a result of changing prices for gold. Each monthly payment is an amount equal or greater of the minimum of 4,167 ounces of gold or 50% of the actual gold production per month multiplied by the excess of the monthly average market price of gold above $400 per ounce (which $400 floor is subject to a 1% annual inflation compounding adjustment beginning on January 21, 2013). For the three and six months ended June 30, 2012 and 2011, realized losses on settlement of the liabilities were $11.0 million, and $9.7 million and $24.2 million and $17.2 million, respectively. The mark-to-market adjustments and realized losses are included in fair value adjustments, net in the consolidated statement of operations.
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 June 30, 2012, the Company had MXP foreign exchange contracts of $26.1 million in U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXP at a weighted average exchange rate of 13.37 MXP to each U.S. dollar and the Company had a liability with a fair value of $0.4 million at June 30, 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 the Company had a liability with a fair value of $3.2 million at December 31, 2011. The Company recorded mark-to-market gains on these contracts of $0.1 million and $2.8 million for the three and six months ended June 30, 2012, respectively. The Company recorded mark-to-market gains (losses) of $(0.7) million and $0.3 million for the three and six months ended June 30, 2011, respectively. These mark-to-market adjustments are reflected in fair value adjustments, net. The Company recorded realized losses of $1.2 million and $1.9 million in production costs applicable to sales during the three and six months ended June 30, 2012 , respectively. The Company recorded realized gains of $0.9 million and $1.1 million in production costs applicable to sales during the three and six months ended June 30, 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 June 30, 2012, the Company had outstanding provisionally priced sales of $20.2 million, consisting of 0.4 million ounces of silver and 5,698 ounces of gold, which had a fair value of $19.9 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 June 30, 2012, in connection with the Kensington term facility, the Company had outstanding call options requiring it to deliver 111,000 ounces of gold at a weighted average strike price of $1,971.94 per ounce if the market price of gold exceeds the strike price. At June 30, 2012, the Company had outstanding put options allowing it to sell 156,000 ounces of gold at a weighted average strike price of $958.16 per ounce if the market price of gold were to fall below the strike price. The contracts will expire over the next four years. At December 31, 2011, the Company had written 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 December 31, 2011, the Company had outstanding put options allowing it to sell 190,000 ounces of gold at a weighted average strike price of $951.93 per ounce if the market price of gold were to fall below the strike price. As of June 30, 2012 and December 31, 2011, the fair market value of these contracts was a net liability of $13.2 million and $17.9 million, respectively. During the six months ended June 30, 2012 no gold call options expired. During the six months ended June 30, 2012, 34,000 ounces of gold put options expired at a weighted average strike price of $923.34 per ounce, resulting in a realized loss of $1.4 million. During the six months ended June 30, 2011, 23,750 ounces of gold call options at a weighted average strike price of $1,737.68 expired.

17

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

During the three months ended June 30, 2012, 25,000 units of gold call options were settled resulting in a realized loss of $1.6 million. During the three and six months ended June 30, 2012 and 2011, the Company recorded unrealized gains of $4.5 million and $2.4 million, and $4.7 million and $1.7 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 Company recognized mark to market losses of $0.3 million and $0.3 million associated with this silver in the three and six months ended June 30, 2012, respectively. The Company recognized mark to market gains (losses) of $(0.4) million and $0.5 million associated with this silver in the three and six months ended June 30, 2011, respectively. The silver ounces receivable from Mandalay Resources Corporation had a fair value of $1.7 million at June 30, 2012, and a fair value of $2.3 million at December 31, 2011.
As of June 30, 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
$
15,514

 
$
25,097

 
$
24,895

 
$
46,099

Average gold price in excess of minimum contractual deduction
$
501

 
$
502

 
$
498

 
$
492

Notional ounces
30,977

 
50,004

 
50,004

 
93,725

Mexican peso forward purchase contracts
$
17,400

 
$
8,700

 
$

 
$

Average rate (MXP/$)
$
13.29

 
$
13.52

 
$

 
$

Mexican peso notional amount
231,319

 
117,628

 

 

Silver ounces receivable from Mandalay
$
1,152

 
$

 
$

 
$

Average silver forward price
$
18.43

 
$

 
$

 
$

Notional ounces
62,500

 

 

 

Silver concentrate sales agreements
$
11,184

 
$

 
$

 
$

Average silver price
$
28.85

 
$

 
$

 
$

Notional ounces
387,614

 

 

 

Gold concentrates sales agreements
$
9,058

 
$

 
$

 
$

Average gold price
$
1,590

 
$

 
$

 
$

Notional ounces
5,698

 

 

 

Gold put options purchased
$
1,440

 
$
1,800

 
$
720

 
$

Average gold strike price
$
923

 
$
928

 
$
979

 
$
1,010

Notional ounces
34,000

 
45,000

 
47,000

 
30,000

Gold call options sold
$

 
$

 
$
720

 
$

Average gold strike price
$
2,000

 
$
2,000

 
$
1,934

 
$
2,000

Notional ounces
14,000

 
20,000

 
47,000

 
30,000


The following summarizes the classification of the fair value of the derivative instruments as of June 30, 2012 and December 31, 2011 (in thousands):
 
June 30, 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
$
562

 
$

 
$

 
$

 
$

Forward foreign exchange contracts
167

 
581

 

 

 

Palmarejo gold production royalty

 

 

 
38,476

 
108,238

Put and call options, net

 
2,858

 
10,335

 

 

Concentrate sales contracts
40

 
417

 

 

 

 
$
769

 
$
3,856

 
$
10,335

 
$
38,476

 
$
108,238


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