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Coeur Mining, Inc. - Quarter Report: 2018 September (Form 10-Q)

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 September 30, 2018
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
____________________________________________ 
a021914coeurminingrpmshsmb26.jpg
COEUR MINING, INC.
(Exact name of registrant as specified in its charter)
____________________________________________
Delaware
 
82-0109423
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
104 S. Michigan Ave., Suite 900 Chicago, Illinois
 
60603
(Address of principal executive offices)
 
(Zip Code)
(312) 489-5800
(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 every Interactive Data File required to be submitted 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 such files.)    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
Accelerated filer
 
¨   
 
 
 
 
Non-accelerated filer
 
¨   
Smaller reporting company
 
¨   
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The Company has 300,000,000 shares of common stock, par value of $0.01, authorized of which 199,125,817 shares were issued and outstanding as of October 29, 2018.



COEUR MINING, INC.
INDEX
 
 
Page
Part I.
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
Condensed Consolidated Statement of Changes in Stockholders’ Equity
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
Consolidated Financial Results
 
 
 
 
Results of Operations
 
 
 
 
Liquidity and Capital Resources
 
 
 
 
Non-GAAP Financial Performance Measures
 
 
 
 
 
 
 
 
 
 
 
Part II.
 
 
 
 
 
 
 
 
Item 1A. Risk Factors
 
 
 
 
 
 
 
 
Item 5. Other Information
 
 
 
 
Item 6. Exhibits
 
 
 
Signatures



2


PART I
Item 1.        Financial Statements

COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
Notes
In thousands, except share data
Revenue
3
$
148,795

 
$
159,920

 
$
482,049

 
$
495,014

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
Costs applicable to sales(1)
3
116,857

 
101,559

 
324,443

 
318,278

Amortization
 
31,184

 
32,400

 
91,420

 
101,827

General and administrative
 
7,729

 
7,345

 
24,183

 
24,495

Exploration
 
8,157

 
9,791

 
21,269

 
22,856

Pre-development, reclamation, and other
 
8,121

 
5,030

 
15,966

 
12,952

Total costs and expenses
 
172,048

 
156,125


477,281

 
480,408

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
Loss on debt extinguishment


 

 

 
(9,342
)
Fair value adjustments, net
10
715

 

 
2,907

 
(864
)
Interest expense, net of capitalized interest
18
(5,818
)
 
(3,595
)
 
(17,801
)
 
(10,918
)
Other, net
7
(20,903
)
 
2,361

 
(19,846
)
 
27,134

Total other income (expense), net
 
(26,006
)
 
(1,234
)

(34,740
)
 
6,010

Income (loss) before income and mining taxes
 
(49,259
)
 
2,561


(29,972
)
 
20,616

Income and mining tax (expense) benefit
8
(3,785
)
 
(14,289
)
 
(19,451
)
 
(24,040
)
Income (loss) from continuing operations
 
$
(53,044
)
 
$
(11,728
)

$
(49,423
)
 
$
(3,424
)
Income (loss) from discontinued operations
21

 
(4,924
)
 
550

 
(5,520
)
NET INCOME (LOSS)
 
$
(53,044
)
 
$
(16,652
)

$
(48,873
)
 
$
(8,944
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt and equity securities
 
192

 
1,066

 
(173
)
 
(1,134
)
Reclassification adjustments for impairment of equity securities
 

 

 

 
426

Reclassification adjustments for realized (gain) loss on sale of equity securities
 

 
32

 

 
1,300

Other comprehensive income (loss)
 
192

 
1,098


(173
)
 
592

COMPREHENSIVE INCOME (LOSS)
 
$
(52,852
)
 
$
(15,554
)

$
(49,046
)
 
$
(8,352
)
 
 
 
 
 
 
 
 
 
NET INCOME (LOSS) PER SHARE
9
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
(0.29
)
 
$
(0.07
)
 
$
(0.27
)
 
$
(0.02
)
Net income (loss) from discontinued operations
 
0.00

 
(0.03
)
 
0.00

 
(0.03
)
Basic(2)
 
$
(0.29
)
 
$
(0.09
)
 
$
(0.26
)
 
$
(0.05
)
Diluted income (loss) per share:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
 
$
(0.29
)
 
$
(0.07
)
 
$
(0.27
)
 
$
(0.02
)
Net income (loss) from discontinued operations
 
0.00

 
(0.03
)
 
0.00

 
(0.03
)
Diluted(2)
 
$
(0.29
)
 
$
(0.09
)
 
$
(0.26
)
 
$
(0.05
)
(1) Excludes amortization.
(2) Due to rounding, the sum of net income per share from continuing operations and discontinued operations may not equal net income per share.
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
Notes
In thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(53,044
)
 
$
(16,652
)
 
$
(48,873
)
 
$
(8,944
)
(Income) loss from discontinued operations
 

 
4,924

 
(550
)
 
5,520

Adjustments:
 
 
 
 
 
 
 
 
Amortization
 
31,184

 
32,400

 
91,420

 
101,827

Accretion
 
3,117

 
2,402

 
10,321

 
6,954

Deferred taxes
 
(3,276
)
 
2,504

 
(4,087
)
 
1,452

Loss on debt extinguishment
 

 

 

 
9,342

Fair value adjustments, net
10
(715
)
 

 
(2,907
)
 
864

Stock-based compensation
5
1,942

 
2,585

 
6,578

 
8,127

Gain on sale of the Joaquin project
 

 

 

 
(21,138
)
Write-downs
 
30,787

 

 
30,787

 

Other
 
2,938

 
(3,013
)
 
5,180

 
(8,330
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Receivables
 
(5,930
)
 
6,289

 
(16,509
)
 
9,754

Prepaid expenses and other current assets
 
1,377

 
(1,332
)
 
3,868

 
(2,177
)
Inventory and ore on leach pads
 
(8,156
)
 
(2,282
)
 
(19,630
)
 
8,080

Accounts payable and accrued liabilities
 
5,565

 
9,484

 
(35,562
)
 
(5,982
)
CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS
 
5,789


37,309


20,036

 
105,349

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
 

 
(7,877
)
 
(2,690
)
 
8,633

CASH PROVIDED BY OPERATING ACTIVITIES
 
5,789

 
29,432

 
17,346

 
113,982

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
Capital expenditures
 
(39,472
)
 
(28,982
)
 
(122,982
)
 
(89,680
)
Proceeds from the sale of assets
 
393

 
1,016

 
549

 
16,471

Purchase of investments
 
(15
)
 
(3,595
)
 
(415
)
 
(13,559
)
Sale of investments
 
(78
)
 
403

 
12,682

 
11,321

Proceeds from notes receivable
 
15,000

 

 
15,000

 

Other
 
64

 
(4,319
)
 
(34
)
 
(4,385
)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS
 
(24,108
)

(35,477
)
 
(95,200
)
 
(79,832
)
CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS
 

 
(412
)
 
(28,470
)
 
(1,175
)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(24,108
)
 
(35,889
)
 
(123,670
)
 
(81,007
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings, net of issuance costs
18
25,000

 
(2,257
)
 
40,000

 
242,701

Payments on debt, capital leases, and associated costs
18
(25,533
)
 
(3,323
)
 
(48,355
)
 
(195,439
)
Other
 
(77
)
 
(6
)
 
(4,916
)
 
(3,726
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS
 
(610
)

(5,586
)

(13,271
)
 
43,536

CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS
 

 
(21
)
 
(22
)
 
(62
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(610
)
 
(5,607
)
 
(13,293
)
 
43,474

Effect of exchange rate changes on cash and cash equivalents
 
183

 
(222
)
 
565

 
662

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
(18,746
)
 
(12,286
)

(119,052
)
 
77,111

Less net cash provided by (used in) discontinued operations(1)
 

 
(8,491
)
 
(32,930
)
 
(3,302
)
 
 
(18,746
)
 
(3,795
)
 
(86,122
)
 
80,413

Cash, cash equivalents and restricted cash at beginning of period
 
136,026

 
210,809

 
203,402

 
126,601

Cash, cash equivalents and restricted cash at end of period
 
$
117,280

 
$
207,014


$
117,280

 
$
207,014

(1) Less net cash provided by (used in) discontinued operations includes the following cash transactions: net subsidiary payments to parent company of $181 for the three months ended September 30, 2017 and $1,748 and $10,698 during the nine months ended September 30, 2018 and 2017, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
September 30, 2018 (unaudited)
 
December 31, 2017
ASSETS
Notes
In thousands, except share data
CURRENT ASSETS
 
 
 
 
Cash and cash equivalents
 
$
104,746

 
$
192,032

Receivables
14
30,480

 
19,069

Inventory
15
62,569

 
58,230

Ore on leach pads
15
77,515

 
73,752

Prepaid expenses and other
 
12,167

 
15,053

Assets held for sale
21

 
91,421

 
 
287,477

 
449,557

NON-CURRENT ASSETS
 
 
 
 
Property, plant and equipment, net
16
285,871

 
254,737

Mining properties, net
17
865,043

 
829,569

Ore on leach pads
15
67,420

 
65,393

Restricted assets
13
21,361

 
20,847

Equity and debt securities
13
24,232

 
34,837

Receivables
14
28,035

 
28,750

Other
 
18,938

 
17,485

TOTAL ASSETS
 
$
1,598,377

 
$
1,701,175

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Accounts payable
 
$
55,132

 
$
48,592

Accrued liabilities and other
22
65,400

 
94,930

Debt
18
22,696

 
30,753

Reclamation
4
3,777

 
3,777

Liabilities held for sale
21

 
50,677

 
 
147,005

 
228,729

NON-CURRENT LIABILITIES
 
 
 
 
Debt
18
406,494

 
380,569

Reclamation
4
122,977

 
117,055

Deferred tax liabilities
 
98,891

 
105,148

Other long-term liabilities
 
55,227

 
54,697

 
 
683,589

 
657,469

STOCKHOLDERS’ EQUITY
 
 
 
 
Common stock, par value $0.01 per share; authorized 300,000,000 shares, 187,026,334 issued and outstanding at September 30, 2018 and 185,637,724 at December 31, 2017
 
1,870

 
1,856

Additional paid-in capital
 
3,359,183

 
3,357,345

Accumulated other comprehensive income (loss)
 
(258
)
 
2,519

Accumulated deficit
 
(2,593,012
)
 
(2,546,743
)
 
 
767,783

 
814,977

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
1,598,377

 
$
1,701,175


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


5


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
In thousands
Common
Stock
Shares
 
Common
Stock Par
Value
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Balances at December 31, 2017
185,638

 
$
1,856

 
$
3,357,345

 
$
(2,546,743
)
 
$
2,519

 
$
814,977

Net income (loss)

 

 

 
(48,873
)
 

 
(48,873
)
Reclassification of unrealized gain (loss) on equity securities for ASU 2016-01

 

 

 
2,604

 
(2,604
)
 

Other comprehensive income (loss)

 

 

 

 
(173
)
 
(173
)
Common stock issued under stock-based compensation plans, net
1,389

 
14

 
1,838

 

 

 
1,852

Balances at September 30, 2018 (Unaudited)
187,027

 
$
1,870

 
$
3,359,183

 
$
(2,593,012
)
 
$
(258
)
 
$
767,783

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

6

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements


NOTE 1 - BASIS OF PRESENTATION
The interim condensed consolidated financial statements of Coeur Mining, Inc. and its subsidiaries (collectively, “Coeur” or the “Company”) are unaudited. In the opinion of management, all adjustments and disclosures necessary for the fair presentation of these interim statements have been included. The results reported in these interim statements may not be indicative of the results which will be reported for the year ending December 31, 2018. The condensed consolidated December 31, 2017 balance sheet data was derived from audited consolidated financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 10-K”).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
On January 1, 2018, the Company adopted the updated revenue guidance applicable under ASC 606, - “Revenue from Contracts with Customers”. The new guidance creates a five-step framework to determine revenue recognition:

1.
Identify the contract with the customer
2.
Identify the performance obligations
3.
Determine the transaction price
4.
Allocate the transaction price to the performance obligations
5.
Recognize revenue when (or as) the entity satisfies a performance obligation
    
The Company produces doré and concentrate that is shipped to third-party refiners and smelters, respectively, for processing. The Company enters into contracts to sell its metal to various third-party customers which may include the refiners and smelters that process the doré and concentrate. The Company’s performance obligation in these transactions is generally the transfer of metal to the customer.

In the case of doré shipments, the Company generally sells refined metal at market prices agreed upon by both parties. The Company also has the right, but not the obligation, to sell a portion of the anticipated refined metal in advance of being fully refined. When the Company sells refined metal or advanced metal, the performance obligation is satisfied when the metal is delivered to the customer. Revenue and Costs Applicable to Sales are recorded on a gross basis under these contracts at the time the performance obligation is satisfied.

Under the Company’s concentrate sales contracts with third-party smelters, metal prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. When the Company sells gold concentrate to the third-party smelters, the performance obligation is satisfied when the concentrate is loaded onto the third-party shipping vessel. The contracts, in general, provide for provisional payment based upon provisional assays and historical metal prices. Final settlement is based on the applicable price for the specified future quotational period and generally occurs three to six months after shipment. The Company’s 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 measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final metal settlement.

The Company also sells concentrate under off-take agreements to third-party customers that are responsible for arranging the smelting of the concentrate. Prices can be either be fixed or based on a quotational period. The quotational period varies by contract, but is generally a one-month period following the shipment of the concentrate. The performance obligation is satisfied when the concentrate is loaded onto the third-party shipping vessel. The off-take agreement allows for the Company to sell concentrate in advance of shipment and results in the customer taking ownership of the concentrate prior to shipment.

The Company recognizes revenue from concentrate sales, net of treatment and refining charges, when it satisfies the performance obligation of transferring control of the concentrate to the customer.

For doré and off-take sales, the Company may incur a finance charge related to advance sales that is not considered significant and, as such, is not considered a separate performance obligation. In addition, the Company has elected to treat freight costs as a fulfillment cost under ASC 606 and not as a separate performance obligation.

The Company’s gold stream agreement with a subsidiary of Franco-Nevada Corporation (“Franco-Nevada”) provided for a $20.0 million deposit paid by Franco-Nevada in exchange for the right and obligation, commencing in 2016, to purchase

7

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

50% of a portion of Palmarejo gold production at the lesser of $800 or market price per ounce. Because there is no minimum obligation associated with the deposit, it is not considered financing, and each shipment is considered to be a separate performance obligation. The streaming agreement represents a contract liability under ASC 606, which requires the Company to ratably recognize a portion of the deposit as revenue for each gold ounce delivered to Franco-Nevada.

The following table presents a rollforward of the Franco-Nevada contract liability balance:
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Opening Balance
$
13,799

 
$
16,835

 
$
14,883

 
$
19,281

Revenue Recognized
(582
)
 
$
(793
)
 
$
(1,666
)
 
$
(3,239
)
Closing Balance
$
13,217

 
$
16,042

 
$
13,217

 
$
16,042


Recent Accounting Standards
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business,” which clarifies the definition of a business to assist entities in the evaluation of acquisitions and disposals of assets or businesses. These changes became effective for the Company’s fiscal year beginning January 1, 2018 and did not materially impact the Company’s consolidated net income, financial position or cash flows.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) - Restricted Cash,” which will require entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. These changes became effective for the Company’s fiscal year beginning January 1, 2018 and resulted in the inclusion of restricted cash equivalents on the Consolidated Statements of Cash Flows of $12.5 million and $11.4 million at September 30, 2018 and 2017, respectively.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on presentation and classification of certain cash receipts and payments in the statement of cash flows. These changes became effective for the Company’s fiscal year beginning January 1, 2018 and did not materially impact the Company’s consolidated net income, financial position or cash flows.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. These changes become effective for the Company’s fiscal year beginning January 1, 2019 and the Company plans to adopt it using the cumulative-effect adjustment transition method approved by the FASB in July 2018. The Company is currently evaluating the potential impact of implementing these changes on the Company’s consolidated financial position, results of operations, and cash flows.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. This new guidance also updates certain disclosure requirements for these investments. These changes became effective for the Company’s fiscal year beginning January 1, 2018, and resulted in a reclassification of $2.6 million of unrealized holding gains and losses and deferred income taxes related to investments in equity securities from Accumulated other comprehensive income (loss) to Accumulated deficit in the Consolidated Balance Sheets on that date. Unrealized holding gains and losses related to investments in equity securities are now recognized in Fair value adjustments, net in the Consolidated Statements of Comprehensive Income (Loss).
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory, which provides a revised, simpler measurement for inventory to be measured at the lower of cost and net realizable value. These changes became effective for the Company’s fiscal year beginning January 1, 2018 and did not materially impact the Company’s consolidated net income, financial position or cash flows.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers, which has subsequently been amended several times, to update revenue guidance under the newly-created ASC 606. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. These changes became effective under the modified retrospective method of adoption for the Company’s fiscal year beginning January 1, 2018 and did not materially impact the Company’s consolidated net income, financial position or cash flows.
    

8

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

NOTE 3 – SEGMENT REPORTING
The Company’s operating segments include the Palmarejo complex, and the Rochester, Kensington, Wharf and Silvertip mines. Except for the Silvertip mine, which was acquired in the fourth quarter of 2017, all operating segments are engaged in the discovery, mining, and production of gold and/or silver. Silvertip is engaged in the discovery, mining, and production of silver, zinc and lead. Silvertip commenced commercial production on September 1, 2018. Other includes the La Preciosa project, other mineral interests, strategic equity investments, corporate office, elimination of intersegment transactions, and other items necessary to reconcile to consolidated amounts.
The Company determined that the disposition in the first quarter of 2018 of Empresa Minera Manquiri S.A., a Bolivian Sociedad anonima (“Manquiri”), which operates the San Bartolomé mine, represented a strategic shift to a North America-focused mining portfolio and had significant effect on the entity's results and operations; therefore, the results of operations are presented as discontinued operations in Other for all periods presented.
Financial information relating to the Company’s segments is as follows (in thousands):
Three months ended September 30, 2018
Palmarejo
 
Rochester
 
Silvertip
 
Kensington
 
Wharf
 
Other
 
Total
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
Metal sales
$
55,456

 
$
35,524

 
$
4,051

 
$
29,771

 
$
23,993

 
$

 
$
148,795

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)
31,554

 
27,548

 
11,535

 
28,241

 
17,979

 

 
116,857

Amortization
14,794

 
5,294

 
1,073

 
6,912

 
2,878

 
233

 
31,184

Exploration
3,195

 
51

 
2,333

 
1,640

 
63

 
875

 
8,157

Other operating expenses
771

 
4,362

 
148

 
333

 
699

 
9,537

 
15,850

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value adjustments, net

 

 

 

 

 
715

 
715

Interest expense, net
(842
)
 
(115
)
 
166

 
(248
)
 
(9
)
 
(4,770
)
 
(5,818
)
Other, net
(1,010
)
 
278

 
(447
)
 
(34
)
 
(422
)
 
(19,268
)
 
(20,903
)
Income and mining tax (expense) benefit
(6,461
)
 
(83
)
 
4,320

 

 
(334
)
 
(1,227
)
 
(3,785
)
Income (loss) from continuing operations
$
(3,171
)
 
$
(1,651
)
 
$
(6,999
)
 
$
(7,637
)
 
$
1,609

 
$
(35,195
)
 
$
(53,044
)
Income (loss) from discontinued operations
$

 
$

 
$

 
$

 
$

 
$

 
$

Segment assets(2)
$
368,257

 
$
252,291

 
$
405,334

 
$
225,161

 
$
98,978

 
$
79,079

 
$
1,429,100

Capital expenditures
$
4,686

 
$
3,582

 
$
17,949

 
$
11,960

 
$
1,176

 
$
119

 
$
39,472

(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests
Three months ended September 30, 2017
Palmarejo
 
Rochester
 
Kensington
 
Wharf
 
Other
 
Total
Revenue
 
 
 
 
 
 
 
 
 
 
 
Metal sales
$
60,677

 
$
31,156

 
$
36,603

 
$
31,334

 
$
150

 
$
159,920

Costs and Expenses
 
 
 
 
 
 
 
 


 
 
Costs applicable to sales(1)
33,255


23,275


27,658


17,330

 
41

 
101,559

Amortization
16,414


4,591


7,864


3,223

 
308

 
32,400

Exploration
4,517


531


2,966


207

 
1,570

 
9,791

Other operating expenses
319


846


356


648

 
10,206

 
12,375

Other income (expense)
 
 
 
 
 
 
 
 


 
 
Interest expense, net
(112
)
 
(136
)
 
(113
)
 
(16
)
 
(3,218
)
 
(3,595
)
Other, net
(218
)
 
(73
)
 
(28
)
 
4

 
2,676

 
2,361

Income and mining tax (expense) benefit
(7,898
)
 
41

 

 
(963
)
 
(5,469
)
 
(14,289
)
Income (loss) from continuing operations
$
(2,056
)
 
$
1,745

 
$
(2,382
)
 
$
8,951

 
$
(17,986
)
 
$
(11,728
)
Income (loss) from discontinued operations
$

 
$

 
$

 
$

 
$
(4,924
)
 
$
(4,924
)
Segment assets(2)
$
388,044

 
$
253,477

 
$
211,052

 
$
103,843

 
$
71,551

 
$
1,027,967

Capital expenditures
$
5,540

 
$
9,737

 
$
10,144

 
$
3,135

 
$
426

 
$
28,982

(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests

9

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

Nine months ended September 30, 2018
Palmarejo
 
Rochester
 
Silvertip
 
Kensington
 
Wharf
 
Other
 
Total
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
Metal sales
$
196,237

 
$
102,689

 
$
4,051

 
$
101,806

 
$
77,266

 
$

 
$
482,049

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 


Costs applicable to sales(1)
92,960

 
76,304

 
11,535

 
91,098

 
52,546

 

 
324,443

Amortization
45,752

 
14,918

 
1,073

 
20,070

 
8,888

 
719

 
91,420

Exploration
10,363

 
296

 
2,439

 
4,625

 
73

 
3,473

 
21,269

Other operating expenses
2,252

 
6,149

 
173

 
981

 
2,052

 
28,542

 
40,149

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value adjustments, net

 

 

 

 

 
2,907

 
2,907

Interest expense, net
(1,108
)
 
(338
)
 
(490
)
 
(722
)
 
(32
)
 
(15,111
)
 
(17,801
)
Other, net
(2,399
)
 
704

 
(25
)
 
(104
)
 
(379
)
 
(17,643
)
 
(19,846
)
Income and mining tax (expense) benefit
(22,550
)
 
(917
)
 
6,098

 

 
(2,009
)
 
(73
)
 
(19,451
)
Income (loss) from continuing operations
$
18,853


$
4,471

 
$
(5,586
)

$
(15,794
)

$
11,287


$
(62,654
)

$
(49,423
)
Income (loss) from discontinued operations
$

 
$

 
$

 
$

 
$

 
$
550

 
$
550

Segment assets(2)
$
368,257

 
$
252,291

 
$
405,334

 
$
225,161

 
$
98,978

 
$
79,079

 
$
1,429,100

Capital expenditures
$
23,458

 
$
6,884

 
$
55,623

 
$
34,032

 
$
2,682

 
$
303

 
$
122,982

(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests


Nine months ended September 30, 2017
Palmarejo
 
Rochester
 
Kensington
 
Wharf
 
Other
 
Total
Revenue
 
 
 
 
 
 
 
 
 
 
 
Metal sales
$
191,616

 
$
102,926

 
$
110,134

 
$
88,598

 
$
1,740

 
$
495,014

Costs and Expenses
 
 
 
 
 
 
 
 

 
 
Costs applicable to sales(1)
110,150

 
73,875

 
84,089

 
49,418

 
746

 
318,278

Amortization
50,995

 
15,345

 
25,389

 
8,883

 
1,215

 
101,827

Exploration
9,272

 
990

 
5,785

 
210

 
6,599

 
22,856

Other operating expenses
930

 
2,487

 
1,051

 
1,899

 
31,080

 
37,447

Other income (expense)
 
 
 
 
 
 
 
 


 
 
Loss on debt extinguishment

 

 

 

 
(9,342
)
 
(9,342
)
Fair value adjustments, net

 
(864
)




 

 
(864
)
Interest expense, net
(339
)

(386
)

(266
)

(52
)
 
(9,875
)
 
(10,918
)
Other, net
(345
)

2,239


(893
)

429

 
25,704

 
27,134

Income and mining tax (expense) benefit
(22,313
)

(413
)



(2,980
)
 
1,666

 
(24,040
)
Income (loss) from continuing operations
$
(2,728
)

$
10,805


$
(7,339
)

$
25,585


$
(29,747
)
 
$
(3,424
)
Income (loss) from discontinued operations
$

 
$

 
$

 
$

 
$
(5,520
)
 
$
(5,520
)
Segment assets(2)
$
388,044

 
$
253,477

 
$
211,052

 
$
103,843

 
$
71,551

 
$
1,027,967

Capital expenditures
$
22,972

 
$
34,121

 
$
24,314

 
$
5,493

 
$
2,780

 
$
89,680

(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests

Assets
September 30, 2018

December 31, 2017
Total assets for reportable segments
$
1,429,100

 
$
1,344,553

Cash and cash equivalents
104,746

 
192,032

Other assets
64,531


164,590

Total consolidated assets
$
1,598,377


$
1,701,175








10

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

Geographic Information
Long-Lived Assets
September 30, 2018

December 31, 2017
Mexico
$
351,509

 
$
370,188

United States
398,614

 
377,768

Canada
392,470

 
331,440

Other
8,321

 
4,910

Total
$
1,150,914


$
1,084,306

 
Revenue
Three months ended September 30,
 
Nine months ended September 30,
2018
 
2017
 
2018
 
2017
United States
$
89,289

 
$
99,093

 
$
281,762

 
$
301,658

Mexico
55,455

 
60,677

 
196,236

 
191,616

Canada
4,051

 

 
4,051

 

Australia

 
150

 

 
1,740

Total
$
148,795

 
$
159,920

 
$
482,049


$
495,014

    

11

Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

NOTE 4 – RECLAMATION
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties. On an ongoing basis, management evaluates its estimates and assumptions, and future expenditures could differ from current estimates.
Changes to the Company’s asset retirement obligations for its operating sites are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Asset retirement obligation - Beginning

$122,907

 

$90,002

 
$
118,799

 
$
86,754

Accretion
2,830

 
2,167

 
8,141

 
6,347

Additions and changes in estimates

 
3,116

 

 
3,116

Settlements
(1,171
)
 
(656
)
 
(2,374
)
 
(1,588
)
Asset retirement obligation - Ending

$124,566

 

$94,629

 
$
124,566

 
$
94,629

The Company accrued $2.2 million and $2.0 million at September 30, 2018 and December 31, 2017, respectively, for reclamation liabilities related to former mining activities, which are included in Reclamation.

NOTE 5 – STOCK-BASED COMPENSATION
The Company has stock incentive plans for executives and eligible employees. Stock awards include performance shares, restricted stock and stock options. Stock-based compensation expense for the three and nine months ended September 30, 2018 was $2.0 million and $6.6 million, respectively, compared to $2.6 million and $8.1 million for the three and nine months ended September 30, 2017, respectively. At September 30, 2018, there was $8.6 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 1.5 years.
The performance shares issued in 2018 vest at the end of a three-year service period if internal performance metrics are met. The number of shares that vest is also impacted by the inclusion of a modifier that is based upon a relative stockholder return metric. The relative stockholder return metric is included in the determination of the grant date fair value of the performance shares however the recognition of compensation cost for performance share awards is based on the results of the internal performance metrics. The performance shares issued prior to 2018 vest at the end of a three-year service period if relative stockholder return and internal performance metrics are met and the existence of a market condition requires recognition of compensation cost for the relative stockholder return portion of the performance share awards over the requisite period regardless of whether the relative stockholder return metric is met. All other stock-based compensation awards are consistent with prior years.
The following table summarizes the grants awarded during the nine months ended September 30, 2018:
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
March 5, 2018
 
31,887

 
$
7.84

 

 
$

 

 
$

May 9, 2018
 
868,134

 
$
7.90

 
14,310

 
$
4.09

 
408,179

 
$
7.39


The following options and stock appreciation rights were exercisable during the nine months ended September 30, 2018:
Award Type
 
Number of 
Exercised Units
 
Weighted Average
Exercised Price
 
Number of Exercisable Units
 
Weighted Average
Exercisable Price
Stock options
 
159,069

 
$
3.35

 
315,032

 
$
15.06

Stock appreciation rights
 

 
$

 
42,152

 
$
14.14


NOTE 6 – RETIREMENT SAVINGS PLAN
The Company has a 401(k) retirement savings plan that covers all eligible U.S. employees. Eligible employees may elect to contribute up to 75% of base salary, subject to ERISA limitations. The Company generally makes matching contributions equal to the employee’s contribution up to 4% of the employee’s salary. The Company may also provide an additional contribution based on an eligible employee’s salary. Total plan expenses recognized for the three and nine months ended September 30, 2018 were $0.8 million and $2.5 million, respectively, compared to $1.8 million and $5.7 million for the three and nine months ended September 30, 2017, respectively. In addition, the Company has a deferred compensation plan for employees whose benefits under the 401(k) plan are limited by federal regulations.

12

Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


NOTE 7 - OTHER, NET
Other, net consists of the following:
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Foreign exchange gain (loss)
$
(3,104
)
 
$
(39
)
 
$
(7,083
)
 
$
1,953

Gain (loss) on sale of assets and investments
(28
)
 
878

 
316

 
(674
)
Write-down of Manquiri consideration
(18,599
)
 

 
(18,599
)
 

Gain on sale of the Joaquin project

 

 

 
21,138

Gain on repurchase of the Rochester royalty obligation

 

 

 
2,332

Gain on sale of Endeavor stream and other royalties

 
1,172

 

 
1,172

Mexico inflation adjustment

 

 
1,939

 

Other
828

 
350

 
3,581

 
1,213

Other, net
$
(20,903
)
 
$
2,361

 
$
(19,846
)
 
$
27,134


In September 2018, the Company entered into a Letter Agreement with Ag-Mining Investments, AB, a privately-held Swedish company, the purchaser of Manquiri (the “Buyer”), pursuant to which the total aggregate principal amount of the Manquiri Notes Receivable received as partial consideration in the Manquiri Divestiture (as defined below) was reduced from $28.5 million to $25.0 million (as defined below) and the Buyer made a concurrent cash payment of $15.0 million to the Company in respect of the Manquiri Notes Receivable (as defined below). In addition, the Company also agreed to suspend the quarterly payments in respect of the 2.0% net smelter returns royalty on all metals processed through the San Bartolomé mine’s processing facility (the “NSR”) received as partial consideration in the Manquiri Divestiture until October 15, 2019 and to forgo any rights the Company retained in the transaction to any value added tax (“VAT”) refunds collected or received by Manquiri. Based on the Company’s evaluation of the terms of the Letter Agreement, the Company recorded an $18.6 million write-down that is made up of $13.1 million on the VAT refunds, $3.6 million on the Manquiri Notes Receivable and $1.9 million on the NSR, See Note 10 -- Fair Value Measurements and 21 -- Discontinued Operations for additional detail.

NOTE 8 - INCOME AND MINING TAXES
The following table summarizes the components of Income and mining tax (expense) benefit for the three and nine months ended September 30, 2018 and 2017 by significant jurisdiction:

 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
(35,250
)
$
(908
)
 
$
(6,055
)
$
(2,892
)
 
$
(45,397
)
$
(2,700
)
 
$
8,036

$
(4,072
)
Argentina
(2,058
)
(75
)
 
738

(366
)
 
(1,985
)
(172
)
 
281

1,704

Canada
(13,194
)
4,432

 


 
(17,103
)
6,476

 


Mexico
1,419

(7,234
)
 
3,210

(9,057
)
 
35,088

(23,055
)
 
9,665

(23,745
)
Other jurisdictions
(176
)


4,668

(1,974
)

(575
)


2,634

2,073

 
$
(49,259
)
$
(3,785
)
 
$
2,561

$
(14,289
)
 
$
(29,972
)
$
(19,451
)
 
$
20,616

$
(24,040
)
The Company’s effective income and mining tax rate is a function of the combined effective tax rates and foreign exchange rates in the jurisdictions in which it operates. Variations in the jurisdictional mix of income and loss and foreign exchange rates result in significant fluctuations in the consolidated effective tax rate, along with mining taxes, uncertain tax positions, and a full valuation allowance on deferred tax assets related to losses in the United States and certain foreign jurisdictions. Fluctuations in foreign exchange rates on deferred tax balances increased income and mining tax expense by $3.0 million and decreased income and mining tax expense by $1.4 million for the three months ended September 30, 2018 and 2017, respectively. Fluctuations in foreign exchange rates on deferred tax balances increased income and mining tax expense by $2.1 million and $7.2 million for the nine months ended September 30, 2018 and 2017, respectively. The impact of foreign exchange rates on deferred tax balances is predominately due to the Mexican Peso and Canadian Dollar.

13

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company ultimately will be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. For additional information, please see the section titled “Risk Factors” in the 2017 10-K.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The statute of limitations remains open from 2015 forward for the U.S. federal jurisdiction and from 2011 forward for certain other foreign jurisdictions. As a result of statutes of limitation that will begin to expire within the next twelve months in various jurisdictions and possible settlements of audit-related issues with taxing authorities in various jurisdictions with respect to which none of the issues are individually significant, the Company believes that it is reasonably possible that the total amount of its net unrecognized income tax benefits will decrease between $1.5 million and $2.5 million in the next twelve months.
At September 30, 2018 and December 31, 2017, the Company had $3.7 million and $4.3 million of total gross unrecognized tax benefits, respectively that, if recognized, would positively impact the Company’s effective income tax rate. The Company’s continuing practice is to recognize potential interest and/or penalties related to unrecognized tax benefits as part of its income tax expense. At September 30, 2018 and December 31, 2017, the amount of accrued income-tax-related interest and penalties was $3.5 million and $4.8 million, respectively.


14

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

NOTE 9 – NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the three and nine months ended September 30, 2018, 672,399 and 1,526,109 common stock equivalents, respectively, related to equity-based awards were not included in the diluted earnings per share calculation as the shares would be antidilutive. Similarly, 633,391 and 851,254 common stock equivalents were excluded from the diluted earnings per share calculation for the three and nine months ended September 30, 2017, respectively.
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands except per share amounts
2018
 
2017
 
2018
 
2017
Net income (loss) available to common stockholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(53,044
)
 
$
(11,728
)
 
$
(49,423
)
 
$
(3,424
)
Income (loss) from discontinued operations

 
(4,924
)
 
550

 
(5,520
)
 
$
(53,044
)
 
$
(16,652
)
 
$
(48,873
)
 
$
(8,944
)
 
 
 
 
 
 
 
 
Weighted average shares:
 
 
 
 
 
 
 
Basic
185,246

 
179,278

 
184,935

 
179,141

Effect of stock-based compensation plans

 

 

 

Diluted
185,246


179,278


184,935


179,141

 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.29
)
 
$
(0.07
)
 
$
(0.27
)
 
$
(0.02
)
Income (loss) from discontinued operations
0.00

 
(0.03
)
 
0.00

 
(0.03
)
Basic(1)
$
(0.29
)
 
$
(0.09
)
 
$
(0.26
)

$
(0.05
)
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.29
)
 
$
(0.07
)
 
$
(0.27
)
 
$
(0.02
)
Income (loss) from discontinued operations
0.00

 
(0.03
)
 
0.00

 
(0.03
)
Diluted(1)
$
(0.29
)
 
$
(0.09
)
 
$
(0.26
)

$
(0.05
)
(1) Due to rounding, the sum of net income per share from continuing operations and discontinued operations may not equal net income per share.


NOTE 10 – FAIR VALUE MEASUREMENTS
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Rochester royalty obligation
$

 
$

 
$

 
$
(864
)
Interest rate swap
206

 

 
18

 

Unrealized gain (loss) on equity securities
286

 

 
(2,898
)
 

Realized gain (loss) on equity securities
(3
)
 

 
5,199

 

Zinc options
226

 

 
588

 

Fair value adjustments, net
$
715

 
$

 
$
2,907

 
$
(864
)
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), secondary priority to quoted prices in inactive markets or observable inputs (Level 2), and the lowest priority to unobservable inputs (Level 3).

15

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

The following table presents 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. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
 
Fair Value at September 30, 2018
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Equity and debt securities
$
24,232

 
$
19,665

 
$

 
$
4,567

Other derivative instruments, net
507

 

 
507

 

 
$
24,739

 
$
19,665

 
$
507

 
$
4,567

Liabilities:
 
 
 
 
 
 
 
Silvertip contingent consideration
$
48,945

 
$

 
$

 
$
48,945

Other derivative instruments, net
267

 

 
267

 

 
$
49,212

 
$

 
$
267

 
$
48,945

 
 
Fair Value at December 31, 2017
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Equity and debt securities
$
34,837

 
$
27,946

 
$

 
$
6,891

Other derivative instruments, net
251

 

 
251

 

 
$
35,088

 
$
27,946

 
$
251

 
$
6,891

Liabilities:
 
 
 
 
 
 
 
Silvertip contingent consideration
$
47,965

 
$

 
$

 
$
47,965

Other derivative instruments, net
222

 

 
222

 

 
$
48,187

 
$

 
$
222

 
$
47,965

The Company’s investments in equity securities are recorded at fair market value in the financial statements based primarily on quoted market prices. Such instruments are classified within Level 1 of the fair value hierarchy. Quoted market prices are not available for certain debt securities; these securities are valued using pricing models, which require the use of observable and unobservable inputs, and are classified within Level 3 of the fair value hierarchy.
The Company’s other derivative instruments, net, include concentrate and certain doré sales contracts, zinc hedges, and an interest rate swap which are valued using pricing models with inputs derived from observable market data, including contractual terms, forward market prices, yield curves, credit spreads, and other unobservable inputs. 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.
In July 2017, the Company sold the Endeavor Silver Stream and remaining non-core royalties to Metalla Royalty & Streaming Ltd. (“Metalla”) for total consideration of $13.0 million, including a $6.7 million convertible debenture. The convertible debenture matures June 30, 2027, bears interest at a rate of 5% payable semi-annually, and is convertible into Metalla shares in connection with future equity financings or asset acquisitions by Metalla at the then-current price to maintain the Company’s approximate 19.9% ownership of Metalla. In July 2018, Metalla completed an asset acquisition through the issuance of additional common stock, triggering the top-up clause in the convertible debenture, resulting in the conversion of $1.9 million of debt into Metalla common stock. The fair value of the convertible debenture is estimated based on observable and unobservable data including yield curves and credit spreads. Therefore, the Company classifies the convertible debenture in Level 3 of the fair value hierarchy.
In October 2017, the Company acquired the Silvertip mine from shareholders of JDS Silver Holdings Ltd. The consideration for the Silvertip mine includes two $25.0 million contingent payments, which are payable in cash and common stock upon reaching a future permitting milestone and resource declaration milestone, respectively. The fair value of the Silvertip contingent consideration is estimated based on an estimated discount rate of 2.5% for the contingent permitting payment and 2.9% for the contingent resource declaration payment and is classified within Level 3 of the fair value hierarchy.

16

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

No assets or liabilities were transferred between fair value levels in the nine months ended September 30, 2018.
The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities for the three and nine months ended September 30, 2018:
 
Three Months Ended September 30, 2018
In thousands
Balance at the beginning of the period
 
Revaluation
 
Settlements
 
Accretion
 
Balance at the
end of the
period
Assets:
 
 
 
 
 
 
 
 
 
Equity and debt securities
$
6,227

 
$
193

 
$
(1,853
)
 
$

 
$
4,567

Liabilities:
 
 
 
 
 
 
 
 
 
Silvertip contingent consideration
$
48,616

 
$

 
$

 
$
329

 
$
48,945

 
Nine Months Ended September 30, 2018
In thousands
Balance at the beginning of the period
 
Revaluation
 
Settlements
 
Accretion
 
Balance at the
end of the
period
Assets:
 
 
 
 
 
 
 
 
 
Equity and debt securities
$
6,891

 
$
(172
)
 
$
(2,152
)
 
$

 
$
4,567

Liabilities:
 
 
 
 
 
 
 
 
 
Silvertip contingent consideration
$
47,965

 
$

 
$

 
$
980

 
$
48,945

The fair value of financial assets and liabilities carried at book value in the financial statements at September 30, 2018 and December 31, 2017 is presented in the following table:
 
September 30, 2018
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
 
 
Manquiri Notes Receivable
$
9,207

 
$
9,207

 
$

 
$

 
$
9,207

Liabilities:
 
 

 
 
 
 
 
 
5.875% Senior Notes due 2024(1)
$
245,662

 
$
235,725

 
$

 
$
235,725

 
$

Revolving Credit Facility(2)
$
120,000

 
$
120,000

 
$

 
$
120,000

 
$

(1) Net of unamortized debt issuance costs of $4.3 million.
(2) Unamortized debt issuance costs of $1.5 million included in Other Non-Current Assets.
 
December 31, 2017
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 
 
 
 
 
 
 
 
5.875% Senior Notes due 2024(1)
$
245,088

 
$
243,913

 
$

 
$
243,913

 
$

Revolving Credit Facility(2)
$
100,000

 
$
100,000

 
$

 
$
100,000

 
$

(1) Net of unamortized debt issuance costs of $4.9 million.
(2) Unamortized debt issuance costs of $1.9 million included in Other Non-Current Assets.
In September 2018, the Company entered into a Letter Agreement with the Buyer, pursuant to which the total aggregate principal amount of the Manquiri Notes Receivable received as partial consideration in the Manquiri Divestiture was reduced from $28.5 million to $25.0 million, and the Buyer made a concurrent cash payment of $15.0 million to the Company in respect of the Manquiri Notes Receivable. In addition, the Company also agreed to suspend the quarterly payments in respect of the NSR on all metals processed through the San Bartolomé mine’s processing facility received as partial consideration in the Manquiri Divestiture until October 15, 2019 and to forgo any rights the Company retained in the transaction to any VAT refunds collected or received by Manquiri. Based on the Company’s evaluation of the terms of the Letter Agreement, the Company recorded an $18.6 million write-down that is made up of $13.1 million on the VAT refunds, $3.6 million on the Manquiri Notes Receivable and $1.9 million on the NSR, which is included in Other, net.. The fair value of the Manquiri Notes Receivable was determined using a discounted cash flow model using a 12% discount rate which takes into consideration the increased credit risk and short duration of the Manquiri Notes Receivable.

17

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

The fair value is estimated based on observable and unobservable data including yield curves and credit spreads, therefore, the Company classifies the Manquiri Notes Receivable in Level 3 of the fair value hierarchy; see Note 21 -- Discontinued Operations for additional detail.
The fair value of the 5.875% Senior Notes due 2024 (the “2024 Senior Notes”) was estimated using quoted market prices. The fair value of the Revolving Credit Facility approximates book value as the liability is secured, has a variable interest rate, and lacks significant credit concerns.

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS
Provisional Metal Sales
The Company enters into sales contracts with third-party smelters and refiners which, in some cases, provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable recorded at the forward price at the time of sale. The embedded derivatives do not qualify for hedge accounting and are marked to market through earnings each period until final settlement.
Zinc Options
At September 30, 2018, the Company has outstanding Asian (or average value) put and call option contracts in net-zero-cost collar arrangements on a volume of 300 metric tons of zinc per month commencing in April 2018 and ending in December 2018. The weighted average strike prices on the put and call contracts are $3,000 and $4,050 per metric ton, respectively. The contracts are generally net cash settled and, if the price of zinc at the time of the expiration is between the put and call prices, would expire at no cost to the Company.
Interest Rate Swap
The Company is a party to an interest rate swap contract in which it will receive variable-rate interest and pay fixed-rate interest. The Company uses this instrument to manage its exposure to changes in interest rates related to its Revolving Credit Facility (see Note 18 -- Debt). The interest rate swap derivative instrument is not designated as a hedge from an accounting standpoint and hedge accounting is not applied. The notional amount is used to measure interest to be paid or received. The interest rate swap derivative instrument became effective June 2018 with a contractual term of twelve months and net settles monthly.

18

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

At September 30, 2018, the Company had the following derivative instruments that settle as follows:
In thousands except average prices and notional ounces
2018
 
Thereafter
Provisional silver sales contracts
$
1,444

 
$

Average silver price per ounce
$
14.61

 
$

Notional ounces
98,832

 

 
 
 
 
Provisional gold sales contracts
$
14,802

 
$

Average gold price per ounce
$
1,224

 
$

Notional ounces
12,089

 

 
 
 
 
Provisional zinc sales contracts
$
2,123

 
$

Average zinc price per pound
$
1.20

 
$

Notional pounds
1,772,075

 

 
 
 
 
Provisional lead sales contracts
$
1,130

 
$

Average lead price per pound
$
0.92

 
$

Notional pound
1,230,193

 

 
 
 
 
Zinc put options purchased
$
2,700


$

Average zinc strike price per metric ton
$
3,000

 
$

Notional metric tons
900

 

 
 
 
 
Zinc call options sold
$
(3,645
)
 
$

Average zinc strike price per metric ton
$
4,050

 
$

Notional metric tons
900

 

 
 
 
 
Fixed interest rate swap payable
$
960

 
$

Fixed Interest rate
2.46
%
 

Notional dollars
$
50,000

 
$

 
 
 
 
Variable interest rate swap receivable
$
979

 
$

Average variable interest rate
2.51
%
 
$

Notional dollars
$
50,000

 
$

The following summarizes the classification of the fair value of the derivative instruments:
 
September 30, 2018
In thousands
Prepaid expenses and other
 
Accrued liabilities and other
Provisional metal sales contracts
$
310

 
$
267

Zinc options
339

 

Interest rate swaps
68

 

 
$
717

 
$
267

 
December 31, 2017
In thousands
Prepaid expenses and other
 
Accrued liabilities and other
Provisional metal sales contracts
$
251

 
$
222


19

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

The following represent mark-to-market gains (losses) on derivative instruments for the three and nine months ended September 30, 2018 and 2017, respectively (in thousands):
 
 
Three months ended September 30,
 
Nine months ended September 30,
Financial statement line
Derivative
2018
 
2017
 
2018
 
2017
Revenue
Provisional metal sales contracts
$
34

 
$
147

 
$
15

 
$
596

Fair value adjustments, net
Zinc options
225

 

 
588

 

Fair value adjustments, net
Interest rate swaps
206

 

 
18

 

 
 
$
465

 
$
147

 
$
621

 
$
596

Credit Risk
The credit risk exposure related to any derivative instrument is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company enters into contracts with institutions management deems credit-worthy and limits credit exposure to each institution. The Company does not anticipate non-performance by any of its counterparties.

NOTE 12 – ACQUISITIONS

In October 2017, the Company completed the acquisition of JDS Silver Holdings Ltd. and its wholly-owned subsidiary JDS Silver Inc. (together, “JDS Silver”) which, following the closing of the acquisition, were amalgamated with a subsidiary of Coeur to form Coeur Silvertip Holdings Ltd., which owns the underground Silvertip silver-zinc-lead mine in northern British Columbia, Canada. JDS Silver was purchased for approximately $153.2 million in cash and $36.0 million in Coeur common stock. In addition, the Company recorded $47.7 million of contingent consideration payable in cash and common stock upon reaching future permitting and resource declaration milestones. The cash consideration was funded with $100.0 million of borrowing under the Facility (as defined in Note 18 -- Debt) and cash on hand. Upon closing, the Company issued approximately 4.2 million Coeur shares to former shareholders of JDS Silver Holdings Ltd. The acquisition aligns with the Company’s strategic shift to a North America-focused mining portfolio.
The transaction was accounted for as a business combination, which requires that assets acquired and liabilities assumed be recognized at their respective fair values at the acquisition date. The acquisition was not significant to the Company’s results of operations, individually or in the aggregate, because the Silvertip mine was in in pre-production. As there were no significant differences from the Company’s historical results of operations, no pro forma financial information was provided.
The allocation of purchase price to the acquired assets and liabilities assumed is preliminary as of September 30, 2018 and subsequent adjustments may result in changes to mineral interest and other carrying amounts initially assigned based on the preliminary fair value analysis. The principal remaining items to be valued are property, plant and equipment and mining properties, which will be finalized within one year of the acquisition date and recorded in the fourth quarter of 2018, as management completes the review of the valuation methodologies used to estimate the fair value of these assets. The preliminary purchase price allocation is as follows (in thousands):

20

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

Common shares issued (4,191,679 at $8.59)
$
36,007

Cash
153,194

Contingent consideration
47,705

Total purchase price(1)
$
236,906

Assets:
 
Receivables and other assets
$
6,828

Property, plant, and equipment
29,943

Mining properties, net
288,464

 
325,235

Liabilities:
 
Accounts payable and accrued liabilities
13,077

Asset retirement obligation
6,982

Debt and capital lease
20,149

Deferred income taxes
48,121

 
88,329

Net assets acquired
$
236,906

(1) Purchase price has been adjusted for restricted cash acquired due to the adoption of ASU 2016-01.
            
NOTE 13 – INVESTMENTS
Equity and Debt Securities
The Company makes strategic investments in equity and debt securities of silver and gold exploration and development companies.
 
At September 30, 2018
In thousands
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Equity Securities
 
 
 
 
 
 
 
Metalla Royalty & Streaming Ltd.
8,147

 

 
2,113

 
10,260

Northern Empire Resources Corp. (1)
4,489

 

 
2,716

 
7,205

Rockhaven Resources, Ltd.
2,064

 
(538
)
 

 
1,526

Other
1,390

 
(716
)
 

 
674

Equity securities
$
16,090

 
$
(1,254
)
 
$
4,829

 
$
19,665

 
 
 
 
 
 
 
 
Debt Securities
 
 
 
 
 
 
 
Metalla Royalty & Streaming Ltd.
$
4,825

 
$
(258
)
 
$

 
$
4,567

 
 
 
 
 
 
 
 
Equity and debt securities
$
20,915

 
$
(1,512
)
 
$
4,829

 
$
24,232

(1) In October 2018, the Company acquired the remaining outstanding shares of Norther Empire Resources Corp. not already owned by the Company. See Note 23 -- Subsequent Events for additional detail.


21

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

 
At December 31, 2017
In thousands
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Equity Securities
 
 
 
 
 
 
 
Metalla Royalty & Streaming Ltd.
$
6,294

 
$

 
$
1,354

 
$
7,648

Corvus Gold Inc.
3,582

 

 
4,518

 
8,100

Almaden Minerals, Ltd.
3,125

 
(235
)
 

 
2,890

Northern Empire Resources Corp.
4,489

 

 
1,077

 
5,566

Rockhaven Resources, Ltd.
2,064

 
(193
)
 

 
1,871

Kootenay Silver, Inc.
738

 

 
1

 
739

Other
1,479

 
(453
)
 
405

 
1,431

Equity securities
$
21,771

 
$
(881
)
 
$
7,355

 
$
28,245

 
 
 
 
 
 
 
 
Debt Securities
 
 
 
 
 
 
 
Metalla Royalty & Streaming Ltd.
$
6,677

 
$
(85
)
 
$

 
$
6,592

 
 
 
 
 
 
 
 
Equity and debt securities
$
28,448

 
$
(966
)
 
$
7,355

 
$
34,837


The following table presents the disaggregated gain (loss) on equity securities recognized in Income (loss) from continuing operations on the Condensed Consolidated Statements of Comprehensive Income:
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Net gain (loss)
$
283

 
$
(32
)
 
$
2,301

 
$
(1,300
)
Less: Realized (gain) loss
3

 
32

 
(5,199
)
 
1,300

Unrealized gain (loss)
$
286

 
$

 
$
(2,898
)
 
$


The Company performs a quarterly assessment on its debt securities with unrealized losses to determine if the securities are other than temporarily impaired. The following table summarizes unrealized losses on debt securities for which other-than-temporary impairments have not been recognized and the fair values of those securities, aggregated by the length of time the individual securities have been in a continuous unrealized loss position, at September 30, 2018:

 
Less than twelve months
 
Twelve months or more
 
Total
In thousands
Unrealized Losses
Fair Value
 
Unrealized Losses
Fair Value
 
Unrealized Losses
Fair Value
Debt securities


 
257

4,568

 
257

4,568

Restricted Assets
The Company, under the terms of its self-insurance and bonding agreements with certain banks, lending institutions and regulatory agencies, is required to collateralize certain portions of its asset retirement obligations. The Company has collateralized these obligations by assigning certificates of deposit that have maturity dates ranging from three months to a year to the applicable institutions or agencies. At September 30, 2018 and December 31, 2017, the Company held certificates of deposit and cash equivalents under these agreements of $21.4 million and $20.8 million, respectively. The ultimate timing of the release of the collateralized amounts is dependent on the timing and closure of each mine and repayment of the obligation. In order to release the collateral, the Company must seek approval from certain government agencies responsible for monitoring the mine closure status. Collateral could also be released to the extent the Company is able to secure alternative financial assurance satisfactory to the regulatory agencies. The Company believes the collateral will remain in place beyond a twelve-month period and has therefore classified these investments as long-term.


22

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

NOTE 14 – RECEIVABLES
Receivables consist of the following:
In thousands
September 30, 2018
 
December 31, 2017
Current receivables:
 
 
 
Trade receivables
$
5,965

 
$
5,883

Value added tax receivable
13,406

 
10,982

Manquiri Notes Receivable
9,207

 

Other
1,902

 
2,204

 
$
30,480

 
$
19,069

Non-current receivables:
 
 
 
Value added tax receivable
$
28,035

 
$
28,750

 
28,035

 
28,750

Total receivables
$
58,515

 
$
47,819


The increase in receivables is due to the recognition of the Manquiri Notes Receivable as consideration for the sale of San Bartolomé. See Note 10 -- Fair Value Measurements and 21 -- Discontinued Operations for additional detail.

NOTE 15 – INVENTORY AND ORE ON LEACH PADS
Inventory consists of the following:
In thousands
September 30, 2018
 
December 31, 2017
Inventory:
 
 
 
Concentrate
$
8,778

 
$
6,831

Precious metals
20,116

 
18,803

Supplies
33,675

 
32,596

 
62,569

 
58,230

Ore on leach pads:
 
 
 
Current
77,515

 
73,752

Non-current
67,420

 
65,393

 
144,935

 
139,145

Total inventory and ore on leach pads
$
207,504

 
$
197,375

Upon commencement of commercial production, Silvertip recognized a $8.7 million write-down of metal inventory as a result of lower than expected production levels, grades and recovery rates as well as reduced process plant availability and unfavorable changes in metal prices. It is possible that additional write-downs will be required as the Company works to optimize operations at Silvertip.

NOTE 16 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
In thousands
September 30, 2018
 
December 31, 2017
Land
$
9,082

 
$
9,408

Facilities and equipment
583,459

 
554,160

Assets under capital leases
109,042

 
82,753

 
701,583

 
646,321

Accumulated amortization (1)
(474,431
)
 
(448,001
)
 
227,152

 
198,320

Construction in progress
58,719

 
56,417

Property, plant and equipment, net
$
285,871

 
$
254,737

(1) Includes $44.9 million and $28.2 million of accumulated amortization related to assets under capital leases at September 30, 2018 and December 31, 2017, respectively.

23

Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


NOTE 17 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
September 30, 2018
Palmarejo
 
Rochester
 
Silvertip
 
Kensington
 
Wharf
 
La Preciosa
 
Other
 
Total
Mine development
$
233,562

 
$
196,143

 
$
105,320

 
$
322,901

 
$
41,498

 
$

 
$

 
$
899,424

Accumulated amortization
(159,120
)
 
(149,729
)
 
(389
)
 
(191,026
)
 
(17,811
)
 

 

 
(518,075
)
 
74,442

 
46,414

 
104,931

 
131,875

 
23,687

 

 

 
381,349

Mineral interests
629,303

 

 
245,116

 

 
45,837

 
49,085

 
5,171

 
974,512

Accumulated amortization
(463,565
)
 

 
(988
)
 

 
(25,843
)


 
(422
)
 
(490,818
)
 
165,738

 

 
244,128

 

 
19,994

 
49,085

 
4,749

 
483,694

Mining properties, net
$
240,180

 
$
46,414

 
$
349,059

 
$
131,875

 
$
43,681

 
$
49,085

 
$
4,749

 
$
865,043

December 31, 2017
Palmarejo
 
Rochester
 
Silvertip
 
Kensington
 
Wharf
 
La Preciosa
 
Total
Mine development
$
214,383

 
$
193,881

 
$
57,214

 
$
298,749

 
$
40,618

 
$

 
$
804,845

Accumulated amortization
(146,598
)
 
(144,390
)
 

 
(178,632
)
 
(15,748
)
 

 
(485,368
)
 
67,785

 
49,491

 
57,214

 
120,117

 
24,870

 

 
319,477

Mineral interests
629,303

 

 
245,116

 

 
45,837

 
49,085

 
969,341

Accumulated amortization
(435,215
)
 

 

 

 
(24,034
)
 

 
(459,249
)
 
194,088

 

 
245,116

 

 
21,803

 
49,085

 
510,092

Mining properties, net
$
261,873

 
$
49,491

 
$
302,330

 
$
120,117

 
$
46,673

 
$
49,085

 
$
829,569

In February 2018, the Company completed the sale of the Manquiri Divestiture. Pursuant to the terms of the agreement, the Company received, among other consideration, the NSR. Coeur estimates the value of this net smelter returns royalty to be approximately $7.1 million, which is included in Other. In September 2018, the Company entered into the Letter Agreement, pursuant to which the Company agreed to suspend the quarterly payments in respect of the NSR until October 15, 2019. Based on the Company’s evaluation of the terms of the Letter Agreement, the Company recorded a write-down of $1.9 million on the NSR. See Note 10 -- Fair Value Measurements and 21 -- Discontinued Operations for additional detail.
The Silvertip mine reached commercial production on September 1, 2018. The determination of commercial production (or ready for intended use) was based on many factors requiring the exercise of judgment.  Factors that were considered when determining if intended use had been achieved included achievement of continuous production or other output, mineral recoveries at or near expected levels, the absence of routine take-downs of the plant to address commissioning issues and fix problems, and the release of the commissioning team.
Prior to commercial production, costs related to mine development, construction of long-lived assets, and inventory were capitalized; all other costs were expensed in the period incurred. Amortization of mining properties commenced when the mine reached commercial production.

NOTE 18 – DEBT
 
September 30, 2018
 
December 31, 2017
In thousands
Current
 
Non-Current
 
Current
 
Non-Current
2024 Senior Notes, net(1)
$

 
$
245,662

 
$

 
$
245,088

Revolving Credit Facility(2)

 
120,000

 

 
100,000

Capital lease obligations
22,696

 
40,832

 
16,559

 
35,481

Silvertip debt obligation

 

 
14,194

 

 
$
22,696

 
$
406,494

 
$
30,753

 
$
380,569

(1) Net of unamortized debt issuance costs of $4.3 million and $4.9 million at September 30, 2018 and December 31, 2017, respectively.
(2) Unamortized debt issuance costs of $1.5 million and $1.9 million at September 30, 2018 and December 31, 2017, respectively, included in Other Non-Current Assets.

24

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

5.875% Senior Notes due 2024
In May 2017, the Company completed an offering of $250.0 million in aggregate principal amount of 2024 Senior Notes in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, for net proceeds of approximately $245.0 million. The 2024 Senior Notes bear interest at a rate of 5.875% per year from the date of issuance.  Interest on the 2024 Senior Notes is payable semi-annually in arrears on June 1 and December 1 of each year. The 2024 Senior Notes will mature on June 1, 2024 and are fully and unconditionally guaranteed by the Guarantors.
Revolving Credit Facility
In September 2017, the Company, as borrower, and certain subsidiaries of the Company, as guarantors, entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A, Royal Bank of Canada, Bank of Montreal, and the Bank of Nova Scotia. The Credit Agreement provides for a $200.0 million senior secured revolving credit facility (the “Facility”), which may be increased by up to $50.0 million in incremental loans and commitments subject to the terms of the Credit Agreement. The Facility has a term of four years. Loans under the Facility will bear interest at a rate equal to either a base rate plus a margin ranging from 1.00% to 1.75% or an adjusted LIBOR rate plus a margin ranging from 2.00% to 2.75%, as selected by the Company, in each case, with such margin determined in accordance with a pricing grid based upon the Company’s consolidated net leverage ratio as of the end of the applicable period.
    At September 30, 2018, the Company had $68.0 million available under the Facility; $25.0 million was drawn in the third quarter of 2018 to finance working capital and general corporate purposes, $15.0 million was drawn to repay the third-party debt obligation at Silvertip as described below, $100.0 million was drawn to partially fund the Silvertip acquisition in 2017, and $12.0 million was drawn to support outstanding letters of credit. In September 2018, the company repaid $20.0 million of the outstanding balance. At September 30, 2018, the interest rate of the Facility was 4.415%. The Company has swapped $50,000,000 of variable rate debt on the Facility to fixed rate debt through an interest rate swap.
Silvertip Debt Obligation
The Company assumed an existing third-party debt obligation as part of the Silvertip acquisition. In February 2018, the Company voluntarily terminated and repaid the remaining debt obligation of $12.6 million.
Capital Lease Obligations
From time to time, the Company acquires mining equipment under capital lease agreements. In the nine months ended September 30, 2018, the Company entered into new lease financing arrangements primarily for mining equipment at Rochester, Palmarejo, Silvertip and Kensington. All capital lease obligations are recorded, upon lease inception, at the present value of future minimum lease payments.
Interest Expense
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
2024 Senior Notes
$
3,672

 
$
3,672

 
$
11,016

 
$
4,937

2021 Senior Notes

 

 

 
6,221

Revolving Credit Facility
1,515

 

 
4,035

 

Capital lease obligations
512

 
402

 
1,551

 
1,092

Amortization of debt issuance costs
323

 
180

 
972

 
518

Accretion of debt premium

 

 

 
(71
)
Accretion of Silvertip contingent consideration
329

 

 
980

 

Other debt obligations
196

 
13

 
312


30

Capitalized interest
(729
)
 
(672
)
 
(1,065
)
 
(1,809
)
Total interest expense, net of capitalized interest
$
5,818

 
$
3,595

 
$
17,801

 
$
10,918



25

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

NOTE 19 - SUPPLEMENTAL GUARANTOR INFORMATION
The following Consolidating Financial Statements are presented to satisfy disclosure requirements of Rule 3-10 of Regulation S-X resulting from the guarantees by Coeur Alaska, Inc., Coeur Explorations, Inc., Coeur Rochester, Inc., Coeur South America Corp., Wharf Resources (U.S.A.), Inc. and its subsidiaries, and Coeur Capital, Inc. (collectively, the “Subsidiary Guarantors”) of the 2024 Senior Notes. The following schedules present Consolidating Financial Statements of (a) Coeur, the parent company; (b) the Subsidiary Guarantors; and (c) certain wholly-owned domestic and foreign subsidiaries of the Company (collectively, the “Non-Guarantor Subsidiaries”). Each of the Subsidiary Guarantors is 100% owned by Coeur and the guarantees are full and unconditional and joint and several obligations. There are no restrictions on the ability of Coeur to obtain funds from the Subsidiary Guarantors by dividend or loan.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2018
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
89,289

 
$
59,506

 
$

 
$
148,795

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
73,768

 
43,089

 

 
116,857

Amortization
232

 
15,084

 
15,868

 

 
31,184

General and administrative
7,682

 
3

 
44

 

 
7,729

Exploration
383

 
2,245

 
5,529

 

 
8,157

Pre-development, reclamation, and other
1,302

 
5,456

 
1,363

 

 
8,121

Total costs and expenses
9,599

 
96,556

 
65,893

 

 
172,048

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
 
Fair value adjustments, net
745

 
(30
)
 

 

 
715

Other, net
(14,194
)
 
(189
)
 
(2,599
)
 
(3,921
)
 
(20,903
)
Interest expense, net of capitalized interest
(5,445
)
 
(372
)
 
(3,922
)
 
3,921

 
(5,818
)
Total other income (expense), net
(18,894
)
 
(591
)
 
(6,521
)
 

 
(26,006
)
Income (loss) from continuing operations before income and mining taxes
(28,493
)
 
(7,858
)
 
(12,908
)
 

 
(49,259
)
Income and mining tax (expense) benefit
(430
)
 
(489
)
 
(2,866
)
 

 
(3,785
)
Income (loss) from continuing operations
(28,923
)
 
(8,347
)
 
(15,774
)
 

 
(53,044
)
Equity income (loss) in consolidated subsidiaries
(24,122
)
 
(47
)
 
(174
)
 
24,343

 

Income (loss) from discontinued operations

 

 

 

 

NET INCOME (LOSS)
$
(53,045
)
 
$
(8,394
)
 
$
(15,948
)
 
$
24,343

 
$
(53,044
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities, net of tax
192

 

 

 

 
192

COMPREHENSIVE INCOME (LOSS)
$
(52,853
)
 
$
(8,394
)
 
$
(15,948
)
 
$
24,343

 
$
(52,852
)
(1) Excludes amortization.
















26

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SEPTEMBER 30, 2017
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
99,093

 
$
60,827

 
$

 
$
159,920

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
68,267

 
33,292

 

 
101,559

Amortization
286

 
15,678

 
16,436

 

 
32,400

General and administrative
7,250

 
6

 
89

 

 
7,345

Exploration
466

 
4,582

 
4,743

 

 
9,791

Pre-development, reclamation, and other
1,030

 
1,922

 
2,078

 

 
5,030

Total costs and expenses
9,032

 
90,455

 
56,638

 

 
156,125

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
 
Other, net
2,868

 
(4,603
)
 
5,509

 
(1,413
)
 
2,361

Interest expense, net of capitalized interest
(3,220
)
 
(264
)
 
(1,524
)
 
1,413

 
(3,595
)
Total other income (expense), net
(352
)
 
(4,867
)
 
3,985

 

 
(1,234
)
Income (loss) from continuing operations before income and mining taxes
(9,384
)
 
3,771

 
8,174

 

 
2,561

Income and mining tax (expense) benefit
(8,091
)
 
(574
)
 
(5,624
)
 

 
(14,289
)
Income (loss) from continuing operations
(17,475
)
 
3,197

 
2,550

 

 
(11,728
)
Equity income (loss) in consolidated subsidiaries
823

 
(1,755
)
 
(304
)
 
1,236

 

Income (loss) from discontinued operations

 

 
(4,924
)
 

 
(4,924
)
NET INCOME (LOSS)
$
(16,652
)
 
$
1,442

 
$
(2,678
)
 
$
1,236

 
$
(16,652
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities, net of tax
1,066

 
1,504

 

 
(1,504
)
 
1,066

Reclassification adjustments for impairment of equity securities, net of tax

 
(852
)
 

 
852

 

Reclassification adjustments for realized gain (loss) on sale of equity securities, net of tax
32

 
1,112

 

 
(1,112
)
 
32

Other comprehensive income (loss)
1,098

 
1,764

 

 
(1,764
)
 
1,098

COMPREHENSIVE INCOME (LOSS)
$
(15,554
)
 
$
3,206

 
$
(2,678
)
 
$
(528
)
 
$
(15,554
)
(1) Excludes amortization.


27

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2018
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Cash provided by (used in) activities of continuing operations
$
(37,112
)
 
$
7,058

 
$
11,500

 
$
24,343

 
5,789

Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(37,112
)
 
7,058

 
11,500

 
24,343

 
5,789

 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(119
)
 
(16,720
)
 
(22,633
)
 

 
(39,472
)
Proceeds from the sale of assets

 
304

 
89

 

 
393

Purchase of investments
(15
)
 

 

 

 
(15
)
Sales of investments
(126
)
 
48

 

 

 
(78
)
Proceeds from notes receivable
15,000

 

 

 

 
15,000

Other
124

 

 
(60
)
 

 
64

Investments in consolidated subsidiaries
24,121

 
56

 
166

 
(24,343
)
 

Cash provided by (used in) activities of continuing operations
38,985

 
(16,312
)
 
(22,438
)
 
(24,343
)
 
(24,108
)
Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
38,985

 
(16,312
)
 
(22,438
)
 
(24,343
)
 
(24,108
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings, net of issuance costs
25,000

 

 

 

 
25,000

Payments on debt, capital leases, and associated costs
(20,000
)
 
(3,535
)
 
(1,998
)
 

 
(25,533
)
Net intercompany financing activity
(7,130
)
 
(4,844
)
 
11,974

 

 

Other
(77
)
 

 

 

 
(77
)
Cash provided by (used in) activities of continuing operations
(2,207
)
 
(8,379
)
 
9,976

 

 
(610
)
Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
(2,207
)
 
(8,379
)
 
9,976

 

 
(610
)
Effect of exchange rate changes on cash and cash equivalents

 
(2
)
 
185

 

 
183

Less net cash provided by (used in) discontinued operations

 

 

 

 

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(334
)
 
(17,635
)
 
(777
)
 

 
(18,746
)
Cash, cash equivalents and restricted cash at beginning of period
24,232

 
40,200

 
71,594

 

 
136,026

Cash, cash equivalents and restricted cash at end of period
$
23,898

 
$
22,565

 
$
70,817

 
$

 
$
117,280





















28

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2017
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Cash provided by (used in) activities of continuing operations
$
(8,682
)
 
$
27,407

 
$
17,348

 
$
1,236

 
37,309

Cash provided by (used in) activities of discontinued operations

 

 
(7,877
)
 

 
(7,877
)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(8,682
)
 
27,407

 
9,471

 
1,236

 
29,432

 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(318
)
 
(23,016
)
 
(5,648
)
 

 
(28,982
)
Proceeds from the sale of assets

 
76

 
940

 

 
1,016

Purchase of investments
(3,594
)
 
(1
)
 

 

 
(3,595
)
Sales of investments

 
403

 

 

 
403

Other
(4,252
)
 

 
(67
)
 

 
(4,319
)
Investments in consolidated subsidiaries
3,432

 
7,144

 
(9,340
)
 
(1,236
)
 

Cash provided by (used in) activities of continuing operations
(4,732
)
 
(15,394
)
 
(14,115
)
 
(1,236
)
 
(35,477
)
Cash provided by (used in) activities of discontinued operations




(412
)
 

 
(412
)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(4,732
)
 
(15,394
)
 
(14,527
)
 
(1,236
)
 
(35,889
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings
(2,257
)
 

 

 

 
(2,257
)
Payments on debt, capital leases, and associated costs

 
(1,894
)
 
(1,429
)
 

 
(3,323
)
Net intercompany financing activity
9,266

 
(12,370
)

3,104

 

 

Other
(6
)
 

 

 

 
(6
)
Cash provided by (used in) activities of continuing operations
7,003

 
(14,264
)
 
1,675

 

 
(5,586
)
Cash provided by (used in) activities of discontinued operations

 


(21
)
 

 
(21
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
7,003

 
(14,264
)
 
1,654

 

 
(5,607
)
Effect of exchange rate changes on cash and cash equivalents

 
3

 
(225
)
 

 
(222
)
Less net cash provided by (used in) discontinued operations

 

 
(8,491
)
 

 
(8,491
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(6,411
)
 
(2,248
)
 
4,864

 

 
(3,795
)
Cash, cash equivalents and restricted cash at beginning of period
113,708

 
47,912

 
49,189

 

 
210,809

Cash, cash equivalents and restricted cash at end of period
$
107,297

 
$
45,664

 
$
54,053

 
$

 
$
207,014






















29

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2018
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
281,762

 
$
200,287

 
$

 
$
482,049

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
219,948

 
104,495

 

 
324,443

Amortization
714

 
43,876

 
46,830

 

 
91,420

General and administrative
24,113

 
15

 
55

 

 
24,183

Exploration
1,168

 
7,289

 
12,812

 

 
21,269

Pre-development, reclamation, and other
1,912

 
9,391

 
4,663

 

 
15,966

Total costs and expenses
27,907

 
280,519

 
168,855

 

 
477,281

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
 
Fair value adjustments, net
3,335

 
(428
)
 


 

 
2,907

Other, net
(4,890
)
 
187

 
(3,607
)
 
(11,536
)
 
(19,846
)
Interest expense, net of capitalized interest
(15,786
)
 
(1,092
)
 
(12,459
)
 
11,536

 
(17,801
)
Total other income (expense), net
(17,341
)
 
(1,333
)
 
(16,066
)
 

 
(34,740
)
Income (loss) from continuing operations before income and mining taxes
(45,248
)
 
(90
)
 
15,366

 

 
(29,972
)
Income and mining tax (expense) benefit
286

 
(2,997
)
 
(16,740
)
 

 
(19,451
)
Income (loss) from continuing operations
(44,962
)
 
(3,087
)
 
(1,374
)
 

 
(49,423
)
Equity income (loss) in consolidated subsidiaries
(4,922
)
 
(113
)
 
(590
)
 
5,625

 

Income (loss) from discontinued operations
1,010

 
(284
)
 
(176
)
 

 
550

NET INCOME (LOSS)
$
(48,874
)
 
$
(3,484
)
 
$
(2,140
)
 
$
5,625

 
$
(48,873
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities, net of tax
(173
)
 

 

 

 
(173
)
COMPREHENSIVE INCOME (LOSS)
$
(49,047
)
 
$
(3,484
)
 
$
(2,140
)
 
$
5,625

 
$
(49,046
)
(1) Excludes amortization.




































30

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2017
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
301,658

 
$
193,356

 
$

 
$
495,014

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
207,385

 
110,893

 

 
318,278

Amortization
908

 
49,617

 
51,302

 

 
101,827

General and administrative
24,316

 
26

 
153

 

 
24,495

Exploration
1,197

 
9,526

 
12,133

 

 
22,856

Pre-development, reclamation, and other
1,803

 
5,593

 
5,556

 

 
12,952

Total costs and expenses
28,224

 
272,147

 
180,037

 

 
480,408

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
 
Loss on debt extinguishments
(9,342
)
 

 

 

 
(9,342
)
Fair value adjustments, net

 
(864
)
 

 

 
(864
)
Other, net
20,090

 
3,332

 
7,951

 
(4,239
)
 
27,134

Interest expense, net of capitalized interest
(9,876
)
 
(703
)
 
(4,578
)
 
4,239

 
(10,918
)
Total other income (expense), net
872

 
1,765

 
3,373

 

 
6,010

Income (loss) from continuing operations before income and mining taxes
(27,352
)
 
31,276

 
16,692

 

 
20,616

Income and mining tax (expense) benefit
(3,108
)
 
(3,946
)
 
(16,986
)
 

 
(24,040
)
Income (loss) from continuing operations
(30,460
)
 
27,330

 
(294
)
 

 
(3,424
)
Equity income (loss) in consolidated subsidiaries
21,516

 
(546
)
 
(609
)
 
(20,361
)
 

Income (loss) from discontinued operations

 

 
(5,520
)
 

 
(5,520
)
NET INCOME (LOSS)
$
(8,944
)
 
$
26,784

 
$
(6,423
)
 
$
(20,361
)
 
$
(8,944
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt and equity securities, net of tax
(1,134
)
 
756

 

 
(756
)
 
(1,134
)
Reclassification adjustments for impairment of equity securities, net of tax
426

 
(426
)
 

 
426

 
426

Reclassification adjustments for realized loss on sale of equity securities, net of tax
1,300

 
540

 

 
(540
)
 
1,300

Other comprehensive income (loss)
592

 
870

 

 
(870
)
 
592

COMPREHENSIVE INCOME (LOSS)
$
(8,352
)
 
$
27,654

 
$
(6,423
)
 
$
(21,231
)
 
$
(8,352
)
(1) Excludes amortization.


31

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2018
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Cash provided by (used in) activities of continuing operations
$
(36,687
)
 
$
33,173

 
$
17,925

 
$
5,625

 
20,036

Cash provided by (used in) activities of discontinued operations

 

 
(2,690
)
 

 
(2,690
)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(36,687
)
 
33,173

 
15,235

 
5,625

 
17,346

 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(303
)
 
(43,598
)
 
(79,081
)
 

 
(122,982
)
Proceeds from the sale of assets
23

 
437

 
89

 

 
549

Purchase of investments
(415
)
 

 

 

 
(415
)
Sales of investments
11,694

 
988

 

 

 
12,682

Proceeds from notes receivable
15,000

 

 

 

 
15,000

Other
45

 
109

 
(188
)
 

 
(34
)
Investments in consolidated subsidiaries
4,922

 
121

 
582

 
(5,625
)
 

Cash provided by (used in) activities of continuing operations
30,966

 
(41,943
)
 
(78,598
)
 
(5,625
)
 
(95,200
)
Cash provided by (used in) activities of discontinued operations

 

 
(28,470
)
 

 
(28,470
)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
30,966


(41,943
)

(107,068
)
 
(5,625
)
 
(123,670
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings, net of issuance costs
40,000

 



 

 
40,000

Payments on debt, capital leases, and associated costs
(20,000
)
 
(8,462
)
 
(19,893
)
 

 
(48,355
)
Net intercompany financing activity
(41,498
)
 
(12,436
)
 
53,934

 

 

Other
(4,916
)
 

 

 

 
(4,916
)
Cash provided by (used in) activities of continuing operations
(26,414
)
 
(20,898
)
 
34,041

 

 
(13,271
)
Cash provided by (used in) activities of discontinued operations

 

 
(22
)
 

 
(22
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
(26,414
)

(20,898
)

34,019




(13,293
)
Effect of exchange rate changes on cash and cash equivalents

 
(6
)
 
571

 

 
565

Less net cash provided by (used in) discontinued operations

 

 
(32,930
)
 

 
(32,930
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(32,135
)

(29,674
)

(24,313
)
 

 
(86,122
)
Cash, cash equivalents and restricted cash at beginning of period
56,033

 
52,239

 
95,130

 

 
203,402

Cash, cash equivalents and restricted cash at end of period
$
23,898


$
22,565


$
70,817


$


$
117,280



32

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2017
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Cash provided by (used in) activities of continuing operations
$
(18,502
)
 
$
59,434

 
$
84,778

 
$
(20,361
)
 
105,349

Cash provided by (used in) activities of discontinued operations

 

 
8,633

 

 
8,633

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(18,502
)
 
59,434

 
93,411

 
(20,361
)
 
113,982

 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(1,626
)
 
(63,928
)
 
(24,126
)
 

 
(89,680
)
Proceeds from the sale of assets
8,917

 
6,670

 
884

 

 
16,471

Purchase of investments
(13,558
)
 
(1
)
 

 

 
(13,559
)
Sales of investments
9,157

 
2,164

 

 

 
11,321

Other
(4,197
)
 

 
(188
)
 

 
(4,385
)
Investments in consolidated subsidiaries
(9,572
)
 
7,897

 
(18,686
)
 
20,361

 

Cash provided by (used in) activities of continuing operations
(10,879
)
 
(47,198
)
 
(42,116
)
 
20,361

 
(79,832
)
Cash provided by (used in) activities of discontinued operations

 

 
(1,175
)
 

 
(1,175
)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(10,879
)
 
(47,198
)
 
(43,291
)
 
20,361

 
(81,007
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings
242,701

 

 

 

 
242,701

Payments on debt, capital leases, and associated costs
(185,538
)
 
(5,789
)
 
(4,112
)
 

 
(195,439
)
Net intercompany financing activity
16,904

 
(10,809
)
 
(6,095
)
 

 

Other
(3,726
)
 

 

 

 
(3,726
)
Cash provided by (used in) activities of continuing operations
70,341

 
(16,598
)
 
(10,207
)
 

 
43,536

Cash provided by (used in) activities of discontinued operations

 

 
(62
)
 

 
(62
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
70,341

 
(16,598
)
 
(10,269
)
 

 
43,474

Effect of exchange rate changes on cash and cash equivalents

 
3

 
659

 

 
662

Less net cash provided by (used in) discontinued operations

 

 
(3,302
)
 

 
(3,302
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
40,960

 
(4,359
)
 
43,812

 

 
80,413

Cash, cash equivalents and restricted cash at beginning of period
66,337

 
50,023

 
10,241

 

 
126,601

Cash, cash equivalents and restricted cash at end of period
$
107,297

 
$
45,664

 
$
54,053

 
$

 
$
207,014





33

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2018
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
11,432

 
$
22,496

 
$
70,818

 
$

 
$
104,746

Receivables
9,697

 
3,355

 
17,428

 

 
30,480

Ore on leach pads

 
77,515

 

 

 
77,515

Inventory

 
28,751

 
33,818

 

 
62,569

Prepaid expenses and other
4,938

 
1,430

 
5,799

 

 
12,167

 
26,067

 
133,547

 
127,863

 

 
287,477

NON-CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
2,893

 
176,645

 
106,333

 

 
285,871

Mining properties, net
4,753

 
221,969

 
638,321

 

 
865,043

Ore on leach pads

 
67,420

 

 

 
67,420

Restricted assets
14,359

 
227

 
6,775

 

 
21,361

Equity and debt securities
24,218

 
14

 

 

 
24,232

Receivables

 

 
28,035

 

 
28,035

Net investment in subsidiaries
459,064

 
258

 
294

 
(459,616
)
 

Other
297,919

 
11,846

 
3,897

 
(294,724
)
 
18,938

TOTAL ASSETS
$
829,273

 
$
611,926

 
$
911,518

 
$
(754,340
)
 
$
1,598,377

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$
2,244

 
$
21,697

 
$
31,191

 
$

 
$
55,132

Other accrued liabilities
11,701

 
11,148

 
42,551

 

 
65,400

Debt

 
16,913

 
5,783

 

 
22,696

Reclamation

 
2,313

 
1,464

 

 
3,777

 
13,945

 
52,071

 
80,989

 

 
147,005

NON-CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Debt
365,662

 
33,022

 
302,534

 
(294,724
)
 
406,494

Reclamation

 
85,376

 
37,601

 

 
122,977

Deferred tax liabilities
5,179

 
4,928

 
88,784

 

 
98,891

Other long-term liabilities
2,627

 
3,178

 
49,422

 

 
55,227

Intercompany payable (receivable)
(325,923
)
 
305,823

 
20,100

 

 

 
47,545

 
432,327

 
498,441

 
(294,724
)
 
683,589

STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Common stock
1,870

 
39,010

 
195,020

 
(234,030
)
 
1,870

Additional paid-in capital
3,359,183

 
143,542

 
1,927,630

 
(2,071,172
)
 
3,359,183

Accumulated deficit
(2,593,012
)
 
(55,024
)
 
(1,790,562
)
 
1,845,586

 
(2,593,012
)
Accumulated other comprehensive income (loss)
(258
)
 

 

 

 
(258
)
 
767,783

 
127,528

 
332,088

 
(459,616
)
 
767,783

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
829,273

 
$
611,926

 
$
911,518

 
$
(754,340
)
 
$
1,598,377



34

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2017
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
44,662

 
$
52,239

 
$
95,131

 
$

 
$
192,032

Receivables
137

 
7,922

 
11,010

 

 
19,069

Ore on leach pads

 
73,752

 

 

 
73,752

Inventory

 
29,769

 
28,461

 

 
58,230

Prepaid expenses and other
7,824

 
2,816

 
4,413

 

 
15,053

Assets held for sale

 

 
91,421

 

 
91,421

 
52,623

 
166,498

 
230,436

 

 
449,557

NON-CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
4,007

 
161,487

 
89,243

 

 
254,737

Mining properties, net

 
216,281

 
613,288

 

 
829,569

Ore on leach pads

 
65,393

 

 

 
65,393

Restricted assets
13,251

 
227

 
7,369

 

 
20,847

Equity and debt securities
33,569

 
1,268

 

 

 
34,837

Receivables

 

 
28,750

 

 
28,750

Net investment in subsidiaries
422,074

 
223

 
(18
)
 
(422,279
)
 

Other
320,335

 
11,040

 
2,854

 
(316,744
)
 
17,485

TOTAL ASSETS
$
845,859

 
$
622,417

 
$
971,922

 
$
(739,023
)
 
$
1,701,175

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$
3,607

 
$
24,534

 
$
20,451

 
$

 
$
48,592

Other accrued liabilities
13,205

 
19,262

 
62,463

 

 
94,930

Debt

 
9,215

 
21,538

 

 
30,753

Reclamation

 
2,313

 
1,464

 

 
3,777

Liabilities held for sale

 

 
50,677

 

 
50,677

 
16,812

 
55,324

 
156,593

 

 
228,729

NON-CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Debt
345,088

 
28,313

 
323,912

 
(316,744
)
 
380,569

Reclamation

 
82,021

 
35,034

 

 
117,055

Deferred tax liabilities
4,110

 
5,127

 
95,911

 

 
105,148

Other long-term liabilities
2,311

 
3,063

 
49,323

 

 
54,697

Intercompany payable (receivable)
(337,439
)
 
317,759

 
19,680

 

 

 
14,070

 
436,283

 
523,860

 
(316,744
)
 
657,469

STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Common stock
1,856

 
19,630

 
195,020

 
(214,650
)
 
1,856

Additional paid-in capital
3,357,345

 
149,194

 
1,885,046

 
(2,034,240
)
 
3,357,345

Accumulated deficit
(2,546,743
)
 
(34,551
)
 
(1,788,597
)
 
1,823,148

 
(2,546,743
)
Accumulated other comprehensive income (loss)
2,519

 
(3,463
)
 

 
3,463

 
2,519

 
814,977

 
130,810

 
291,469

 
(422,279
)
 
814,977

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
845,859

 
$
622,417

 
$
971,922

 
$
(739,023
)
 
$
1,701,175



35

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

NOTE 20 – COMMITMENTS AND CONTINGENCIES
Palmarejo Gold Stream
Coeur Mexicana, S.A. de C.V. (“Coeur Mexicana”), a subsidiary of Coeur, sells 50% of Palmarejo gold production (excluding production from the Paramount properties acquired in 2015) to Franco-Nevada under a gold stream agreement for the lesser of $800 or spot price per ounce. In 2015, Coeur Mexicana received a $22.0 million deposit toward future deliveries under the gold stream agreement. In accordance with generally accepted accounting principles, although Coeur has satisfied its contractual obligation to repay the deposit to Franco-Nevada, the deposit is accounted for as deferred revenue and is recognized as revenue on a units of production basis as ounces are sold to Franco-Nevada. As of September 30, 2018, the remaining unamortized balance was $13.2 million.
Silvertip Contingent Consideration
A total of up to $50.0 million of contingent consideration, payable in cash and common stock, is payable in conjunction with the October 2017 Silvertip acquisition. The contingent consideration is based on the achievement of two milestones, which the Company has determined to be probable at September 30, 2018. The first milestone payment of $25.0 million is contingent upon receipt of a permit expansion for a sustained mining and milling rate of 1,000 tonnes per day. The permit application was required to be submitted to the British Columbia Ministry of Energy and Mining no later than June 2018 and was submitted on April 30, 2018. The second milestone payment of up to $25.0 million is contingent upon the amount of resource tonnes added as of December 31, 2019. The former JDS Silver Holdings Ltd. shareholders will receive $5.0 million for a total resource of at least 2.5 million tonnes and $5.0 million for every 0.3 million tonnes over 2.5 million tonnes, up to 3.7 million tonnes. The maximum payment of $25.0 million can be earned if the total resource reaches 3.7 million tonnes. The Silvertip mine had total mineralized material of approximately 2.6 million tonnes at December 31, 2017.

NOTE 21 – DISCONTINUED OPERATIONS
In December 2017, the Company and certain of its subsidiaries entered into a definitive agreement (as amended, the “Manquiri Agreement”) to sell all of the outstanding capital stock of Manquiri, which is the operator of the San Bartolomé mine and processing facility (the “Manquiri Divestiture”). On February 28, 2018, the Manquiri Divestiture was completed, and, in accordance with the Agreement, Manquiri was sold to Ag-Mining Investments, AB, a privately-held Swedish company. See below for a discussion of the Letter Agreement, which amended certain terms of the Manquiri Agreement.
Coeur and its subsidiaries received the following consideration:
The NSR commencing immediately upon the closing of the Transaction, valued at $7.1 million.
Pre-closing VAT refunds valued at $12.7 million that will be collected or received by Manquiri in the future will be paid to Coeur (net of collection costs).
The Manquiri Notes Receivable valued at $26.9 million payable to Coeur and certain of its subsidiaries representing Manquiri’s cash and cash equivalents on the date of closing of the Manquiri Divestiture, and providing for repayment beginning in October 2018.
The Company recognized a liability of approximately $5.7 million for certain post-closing covenants, guaranties and indemnification obligations on the part of the Company pursuant to the Agreement

The sale of Manquiri resulted in a gain of $1.5 million, which is included in Income (loss) from discontinued operations.     

36

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

The sale of Manquiri and San Bartolomé had a significant effect on the Company's results and operations. Accordingly, San Bartolomé’s operations for the three and nine months ended September 30, 2018 and 2017 are classified on the consolidated statements of operations and comprehensive income (loss) as Income (loss) from discontinued operations. The major classes of line items constituting the pretax profit or loss for the three and nine months ended September 30, 2018 and 2017 are as follows (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$

 
$
16,043

 
$
12,346

 
$
60,441

COSTS AND EXPENSES
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
17,365

 
12,269

 
58,979

Amortization

 
1,430

 

 
5,053

General and administrative

 
67

 
41

 
92

Exploration

 
23

 

 
23

Pre-development, reclamation, and other

 
2,931

 
265

 
3,956

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
Interest expense, net of capitalized interest

 
(11
)
 
(3
)
 
(23
)
Other, net

 
804

 
(260
)
 
1,305

Pretax profit (loss) on discontinued operations related to major classes of pretax profit (loss)

 
(4,980
)
 
(492
)
 
(6,380
)
Pretax gain on the disposal of the discontinued operation

 

 
1,525

 

Total pretax gain or loss on discontinued operations

 
(4,980
)
 
1,033

 
(6,380
)
Income and mining tax (expense) benefit

 
56

 
(483
)
 
860

Income (loss) from discontinued operations
$

 
$
(4,924
)
 
$
550

 
$
(5,520
)
(1) Excludes amortization.
Net cash used by operating activities was $7.9 million for the three months ended September 30, 2017. Net cash used in operating activities from San Bartolomé was $2.7 million for the nine months ended September 30, 2018 compared to net cash provided by operating activities of $8.6 million for the nine months ended September 30, 2017, respectively. Net cash used in investing activities from San Bartolomé was $0.4 million for the three months ended September 30, 2017. Net cash used in investing activities from San Bartolomé were $28.5 million and $1.2 million for the nine months ended September 30, 2018 and 2017, respectively.

In September 2018, the Company entered into a Letter Agreement with the Buyer pursuant to which the total aggregate principal amount of the Manquiri Notes Receivable was reduced to $25.0 million and the Buyer made a concurrent cash payment of $15.0 million to the Sellers in respect of the Manquiri Notes Receivable. In addition, the Company also agreed to suspend the quarterly payments in respect of the NSR on all metals processed through the San Bartolomé mine’s processing facility until October 15, 2019 and to forgo any rights to any value added tax refunds collected or received by Manquiri. Based on the Company’s evaluation of the terms of the Letter Agreement, the Company recorded an $18.6 million write-down that is made up of $13.1 million on the value added tax refunds, $3.6 million on the Manquiri Notes Receivable and $1.9 million on the NSR, which is included in Other, net. See Note 10 -- Fair Value Measurements for additional detail.


37

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements

NOTE 22 – ADDITIONAL BALANCE SHEET DETAIL AND SUPPLEMENTAL CASH FLOW INFORMATION
Accrued liabilities and other consist of the following:
In thousands
September 30, 2018
 
December 31, 2017
Accrued salaries and wages
$
18,677

 
$
26,559

Income and mining taxes
1,252

 
25,788

Silvertip contingent consideration
24,847

 
24,393

Accrued operating costs
11,883

 
12,323

Taxes other than income and mining
3,378

 
4,354

Accrued interest payable
5,363

 
1,513

Accrued liabilities and other
$
65,400

 
$
94,930


The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows for the three and nine months ended September 30, 2018 and 2017:
In thousands
September 30, 2018
 
September 30, 2017
Cash and cash equivalents
$
104,746

 
$
195,654

Restricted cash equivalents
12,534

 
11,360

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
117,280

 
207,014


NOTE 23 – SUBSEQUENT EVENTS
On October 1, 2018 the Company completed its acquisition of Northern Empire Resources Corp. (“Northern Empire”). Upon completion of the acquisition, each share of Northern Empire common stock issued and outstanding immediately prior to the effective time of the Plan of Arrangement, excluding shares owned by the Company, was exchanged for shares of the Company’s common stock at a ratio of 0.1850 shares of Company common stock for each Northern Empire common share. Approximately 12.1 million Coeur shares were issued to Northern Empire shareholders (other than the Company) upon closing of the acquisition, representing aggregate value of approximately $63.9 million as of the closing date. Prior to the acquisition, the Company had an existing investment valued at $4.5 million in Northern Empire. See Note 13 -- Investments for additional detail.
On October 15, 2018 the Company entered into an Asset Purchase Agreement among the Company, Coeur Rochester, Inc. (“CRI”), Rye Patch Gold US Inc., a Nevada corporation (“RPG”), and Alio Gold Inc., a British Columbia corporation, pursuant to which CRI will acquire all of RPG’s rights, titles, and interests in and to certain real property assets and patented and unpatented mining claims located in Pershing County, Nevada (collectively, the “RPG Assets”). In consideration for the RPG Assets, the Company will pay RPG consideration of $19.0 million in shares of Company common stock calculated using a five-day volume-weighted average price of Company common stock for a five-trading day period ending on the third trading day immediately preceding the closing (the “Shares”). Closing of the acquisition is anticipated in the fourth quarter of 2018, subject to customary regulatory approvals and other conditions.
On October 29, 2018, the Company and Bank of America, N.A., as administrative agent for the Facility lenders, entered into the First Amendment to Credit Agreement (the “Amendment”). Pursuant to the Amendment, the Facility was increased by $50.0 million to $250.0 million, and the term was extended by approximately one year and now has a maturity date of October 29, 2022.

 

38


Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Coeur Mining, Inc. and its subsidiaries (collectively the “Company”, “our”, or “we”). We use certain non-GAAP financial performance measures in our MD&A. For a detailed description of these measures, please see “Non-GAAP Financial Performance Measures” at the end of this item. We provide certain operational and financial data on a silver equivalent basis, converting gold to silver at a historical 60:1 ratio of silver ounces to gold ounces, zinc is converted at a historical 0.06:1 ratio of silver ounces to zinc pounds and lead is converted at a historical 0.05:1 ratio of silver ounces to lead pounds, unless otherwise noted. We also provide realized silver equivalent data determined by average spot silver, gold, zinc and lead prices during the relevant period.
Overview
We are a gold, silver, zinc and lead producer with mines located in the United States, Mexico and Canada and exploration projects in the United States and Mexico. The Palmarejo complex, Rochester, Silvertip, Kensington and Wharf mines constitute our principal sources of revenue.
In October 2017, the Company added a new mine to Coeur’s North America-focused platform with the acquisition of the high-grade silver-zinc-lead Silvertip mine located in northern British Columbia, Canada. The Silvertip mine commenced milling in the first quarter of 2018 and commenced commercial production on September 1, 2018. Upon commencement of commercial production, Silvertip recognized a $8.7 million write-down of metal inventory as a result of lower than expected production levels, grades and recovery rates as well as reduced process plant availability and unfavorable changes in metal prices.
In February 2018, the Company completed the Manquiri Divestiture, which we determined to represent a strategic shift to a North America-focused mining portfolio with a significant effect on the Company’s results and operations; therefore, San Bartolomé’s results of operations are reported as discontinued operations for all periods presented. In the following discussion and analysis, the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations unless otherwise indicated. In September 2018, the Company entered into a letter agreement (“Letter Agreement”) with Ag-Mining Investments, AB, a privately-held Swedish company, (the “Buyer”) pursuant to which the total aggregate principal amount of the Manquiri Notes Receivable was reduced to $25.0 million and the Buyer made a concurrent cash payment of $15.0 million to the Company in respect of the Manquiri Notes Receivable. In addition, the Company also agreed to suspend the quarterly payments in respect of NSR on all metals processed through the San Bartolomé mine’s processing facility until October 15, 2019 and to forgo any rights to any value added tax refunds collected or received by Manquiri. Based on the Company’s evaluation of the terms of the Letter Agreement, the Company recorded an $18.6 million write-down comprised of a $13.1 million write-down on the value added tax refunds, a $3.6 million write-down on the Manquiri Notes Receivable and a $1.9 million write-down on the NSR.
In August 2018, the Company entered into a definitive agreement to acquire all of the issued and outstanding securities of Northern Empire Resources Corp. (“Northern Empire”) not owned by the Company. Northern Empire’s principal asset is the Sterling Gold Project located in Nevada. The transaction closed on October 1, 2018 for total consideration valued at approximately $63.9 million based on the issuance of approximately 12.1 million shares of Coeur common stock at $5.27 per share.
In October 2018, the Company and its wholly-owned subsidiary, Coeur Rochester, Inc. entered into a definitive agreement to acquire a property package adjacent to the Rochester mine consisting of the Lincoln Hill Project, Wilco Project, Gold Ridge Property and other nearby claims from a subsidiary of Alio Gold Inc. (“Alio Gold”) for total consideration of $19.0 million, payable in the form of Company common stock. The transaction is expected to close in the fourth quarter of 2018.
On October 29, 2018, the Company and Bank of America, N.A., as administrative agent for the Facility lenders, entered into the First Amendment to Credit Agreement (the “Amendment”). Pursuant to the Amendment, the Facility was increased by $50.0 million to $250.0 million, and the term was extended by approximately one year and now has a maturity date of October 29, 2022.
The Company's strategy is to discover, acquire, develop and operate low-cost silver and gold mines, which may include base metals such as zinc and lead, that produce long-term cash flow, provide opportunities for growth through continued exploration, and generate superior and sustainable returns for stockholders. Management focuses on maximizing net cash flow through identifying and implementing revenue enhancement opportunities, reducing operating and non-operating costs, exercising consistent capital discipline, and managing working capital efficiently.
    

39


Third Quarter Highlights
Average realized prices of $14.68 per silver ounce, $1,150 per gold ounce, $0.94 per zinc pound and $0.85 per lead pound
Production from continuing operations of 8.2 million silver equivalent ounces (10.1 million silver equivalent ounces produced (average spot)), consisting of 2.9 million silver ounces, 87,539 gold ounces, 1.1 million zinc pounds and 0.4 million lead pounds
Sales from continuing operations of 8.5 million silver equivalent ounces (10.4 million silver equivalent ounces sold (average spot)), consisting of 2.9 million silver ounces, 89,609 gold ounces, 1.8 million zinc pounds and 1.2 million lead pounds
Net loss from continuing operations of $53.0 million, or $0.29 per share, and adjusted net loss of $19.7 million, or $0.11 per share, (see “Non-GAAP Financial Performance Measures”)
Costs applicable to sales from continuing operations were $10.55 per average spot silver equivalent ounce ($12.32 per silver equivalent ounce) and $1,011 per gold equivalent ounce (see “Non-GAAP Financial Performance Measures”)
All-in sustaining costs from continuing operations were $15.33 per average spot silver equivalent ounce ($18.78 per silver equivalent ounce) (see “Non-GAAP Financial Performance Measures”)
Operating cash flow used in continuing operations of $5.8 million and adjusted EBITDA from continuing operations of $24.7 million (see “Non-GAAP Financial Performance Measures”)
Cash and cash equivalents of $104.7 million at September 30, 2018
Silvertip commenced commercial production on September 1, 2018
Acquired Northern Empire for total consideration valued at approximately $63.9 million (closed October 1, 2018) as more fully discussed above.
Announced agreement to acquire assets from Alio Gold located adjacent to Rochester including the Lincoln Hill Project as more fully discussed above.
Expanded the Facility capacity to provide additional balance sheet flexibility as more fully discussed above.


40


Selected Financial and Operating Results
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Financial Results from Continuing Operations:
 
 
 
 
 
 
 
Revenue
$
148,795

 
$
159,920

 
$
482,049

 
$
495,014

Net income (loss)
$
(53,044
)
 
$
(11,728
)
 
$
(49,423
)
 
$
(3,424
)
Net income (loss) per share, diluted
$
(0.29
)
 
$
(0.07
)
 
$
(0.27
)
 
$
(0.02
)
Adjusted net income (loss)(1)
$
(19,653
)
 
$
(15,342
)
 
$
(18,251
)
 
$
(9,920
)
Adjusted net income (loss) per share, diluted(1)
$
(0.11
)
 
$
(0.09
)
 
$
(0.10
)
 
$
(0.06
)
EBITDA(1)
$
(12,257
)
 
$
38,556

 
$
79,249

 
$
133,361

Adjusted EBITDA(1)
$
24,671

 
$
40,245

 
$
121,397

 
$
126,679

Operating Results from Continuing Operations:
 
 
 
 
 
 
 
Silver ounces produced(3)
2,886,117

 
2,994,723

 
9,272,126

 
8,403,013

Gold ounces produced
87,539

 
93,293

 
266,974

 
264,330

Zinc pounds produced(3)
1,099,408

 

 
1,099,408

 

Lead pounds produced(3)
413,285

 

 
413,285

 

Silver equivalent ounces produced
8,225,086


8,592,303


25,377,195


24,262,813

Silver equivalent ounces produced (average spot price)
10,068,517

 
10,074,729

 
30,644,015

 
27,672,670

Silver ounces sold
2,931,513

 
2,865,844

 
9,295,230

 
8,880,340

Gold ounces sold
89,609

 
89,972

 
271,217

 
287,040

Zinc pounds sold
1,772,023

 

 
1,772,023

 

Lead pounds sold
1,230,266

 

 
1,230,266

 

Silver equivalent ounces sold
8,475,883

 
8,264,174

 
25,736,073

 
26,102,711

Silver equivalent ounces sold (average spot price)
10,383,913

 
9,693,819

 
31,137,842

 
29,805,556

Average realized price per silver ounce
$
14.68

 
$
16.86

 
$
15.99

 
$
17.12

Average realized price per gold ounce
$
1,150

 
$
1,240

 
$
1,219

 
$
1,195

Average realized price per zinc pound
$
0.94

 
$

 
$
0.94

 
$

Average realized price per lead pound
$
0.85

 
$

 
$
0.85

 
$

Costs applicable to sales per silver equivalent ounce(1)
$
12.32

 
$
11.16

 
$
10.52

 
$
11.22

Costs applicable to sales per average spot silver equivalent ounce(1)
$
10.55

 
$
10.00

 
$
9.13

 
$
10.20

Costs applicable to sales per gold equivalent ounce(1)
$
1,011

 
$
845

 
$
1,008

 
$
831

All-in sustaining costs per silver equivalent ounce(1)
$
18.78

 
$
17.43

 
$
17.94

 
$
16.55

All-in sustaining costs per average spot silver equivalent ounce(1)
$
15.33

 
$
14.86

 
$
14.83

 
$
14.51

Financial and Operating Results from Discontinued Operations:(2)
 
 
 
 
 
 
 
Income (loss) from discontinued operations
$

 
$
(4,924
)
 
$
550

 
$
(5,520
)
Silver ounces produced

 
956,893

 
643,078

 
3,455,961

Gold ounces produced

 

 
78

 

Silver equivalent ounces produced

 
956,893

 
647,758

 
3,455,961

Silver ounces sold

 
951,219

 
704,479

 
3,497,263

Gold ounces sold

 

 
292

 

Silver equivalent ounces sold

 
951,219

 
721,999

 
3,497,263

(1)
See “Non-GAAP Financial Performance Measures.”
(2)
Reported production and financial results include operations through February 28, 2018.
(3)
Prior to September 1, 2018 commercial production date the Silvertip mine produced 0.2 million ounces of silver, 2.6 million pounds of zinc, and 1.8 million pounds of lead which are excluded from production numbers presented, unless otherwise noted.


41


Consolidated Financial Results
Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017
Net Loss from Continuing Operations
Net loss from continuing operations was $53.0 million, or $0.29 per share, compared to net loss of $11.7 million, or $0.07 per share. The decrease in net income from continuing operations is due to a lower operating margin per consolidated silver equivalent ounce, a write-down of $18.6 million on the consideration received from the Manquiri Divestiture, a write-down of $3.4 million of property, plant and equipment at Rochester and higher interest expense.
Revenue
Revenue was lower due to a decrease in average realized silver and gold prices of 13% and 7%, respectively, partially offset by sales from Silvertip, which commenced commercial production in September 2018. The Company sold 2.9 million silver ounces, 89,609 gold ounces, 1.8 million zinc pounds and 1.2 million lead pounds compared to 2.9 million silver ounces and 89,972 gold ounces in the prior year. Gold contributed 69% of sales, silver contributed 29%, zinc and lead each contributed 1% , compared to 70% of sales from gold and 30% from silver.
Costs Applicable to Sales
Costs applicable to sales increased as a result of higher costs applicable to sales per silver equivalent ounce and a write-down of inventory at Silvertip. For a complete discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization decreased $1.2 million, or 4%, due to fewer ounces sold by Palmarejo, Kensington and Wharf.
Expenses
General and administrative expenses increased $0.4 million, or 5%, primarily due to higher compensation costs.
Exploration expense decreased $1.6 million, or 17%, as a result of lower exploration costs at Palmarejo, Rochester, Kensington and La Preciosa.
Pre-development, reclamation, and other expenses increased $3.1 million, or 61%, of which $3.4 million is attributable to the write-down of property, plant and equipment at Rochester.
Other Income and Expenses
Fair value adjustments, net, were a gain of $0.7 million due to favorable fair value adjustments of $0.3 million, $0.2 million and $0.2 million on equity securities, interest rate swap and zinc options, respectively. Effective January 1, 2018, as a result of ASU 2016-01, changes in the fair value of equity investments are recognized as fair value adjustments instead of other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Interest expense (net of capitalized interest of $0.7 million) increased to $5.8 million from $3.6 million, due to higher average debt levels related to the 2024 Senior Notes and the Facility..
Other, net was an expense of $20.9 million, as a result of the $18.6 million write-down of the consideration received from the Manquiri Divestiture, unfavorable foreign exchange rate movements and gains on the sale of non-core assets and investments in 2017.
Income and Mining Taxes
During the third quarter of 2018, the Company reported estimated income and mining tax expense of approximately $3.8 million resulting in an effective tax rate of 7.7%. This compares to estimated income tax expense of $14.3 million for an effective tax rate of 557.9% during the third quarter of 2017.

42


The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
 
Three months ended September 30,
 
2018
 
2017
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
(35,250
)
$
(908
)
 
$
(6,055
)
$
(2,892
)
Argentina
(2,058
)
(75
)
 
738

(366
)
Canada
(13,194
)
4,432

 


Mexico
1,419

(7,234
)
 
3,210

(9,057
)
Other jurisdictions
(176
)

 
4,668

(1,974
)
 
$
(49,259
)
$
(3,785
)
 
$
2,561

$
(14,289
)
The Company’s effective income and mining tax rate is a function of the combined effective tax rates and foreign exchange rates in the jurisdictions in which it operates. Variations in the jurisdictional mix of income and loss and foreign exchange rates result in significant fluctuations in the consolidated effective tax rate, along with mining taxes, uncertain tax positions, and a full valuation allowance on deferred tax assets related to losses in the United States and certain foreign jurisdictions. Fluctuations in foreign exchange rates on deferred tax balances increased income and mining tax expense by $3.0 million and decreased income and mining tax expense by $1.4 million for the three months ended September 30, 2018 and 2017, respectively. The impact of foreign exchange rates on deferred tax balances is predominately due to the Mexican Peso and Canadian Dollar.
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. For additional information, please see the section titled “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2017 (the "2017 10-K")
Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Net Loss from Continuing Operations
Net loss from continuing operations was $49.4 million, or $0.27 per share, compared to net loss of $3.4 million, or $0.02 per share. The decrease in net income from continuing operations is due to a lower operating margin per consolidated silver equivalent ounce, a write-down of $18.6 million on the consideration received from the Manquiri Divestiture, a write-down of $3.4 million of property, plant and equipment at Rochester and higher interest expense as well as a $21.1 million gain on the sale of the Joaquin project in 2017.
Revenue
Revenue was lower resulting from a reduction of gold inventories carried over from 2016 that were sold in the first quarter of 2017 and a decrease in average realized silver prices of 7%, partially offset by an increase in average realized gold prices of 2%. The Company sold 9.3 million silver ounces, 271,217 gold ounces, 1.8 million zinc pounds and 1.2 million lead pounds, compared to sales of 8.9 million silver ounces and 287,040 gold ounces. Gold contributed 68% of sales and silver contributed 31% compared to 69% of sales from gold and 31% from silver.
Costs Applicable to Sales
Costs applicable to sales increased as a result of higher costs applicable to sales per silver equivalent ounce and a write-down of inventory at Silvertip. For a complete discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization decreased $10.4 million or 10%, due to lower ounces sold at Kensington and Wharf.
Expenses
General and administrative expenses remained comparable at $24.2 million.
Exploration decreased $1.6 million or 7%, as a result of lower exploration costs at Palmarejo, Rochester, Kensington and La Preciosa.

43


Pre-development, reclamation, and other expenses increased $3.0 million or 23%, of which $3.4 million is attributable to the write-down of property, plant and equipment at Rochester.
Other Income and Expenses
In 2017, the Company incurred a $9.3 million loss in connection with the repurchase of the 7.875% Senior Notes due 2021 (the “2021 Senior Notes”) concurrent with the completed offering of the 5.875% Senior Notes due 2024 (the “2024 Senior Notes”).
Fair value adjustments, net, were a gain of $2.9 million compared to a loss of $0.9 million due to unrealized losses of $2.9 million and realized gains of $5.2 million on equity securities and a favorable fair value adjustment on zinc hedges. Effective January 1, 2018, as a result of ASU 2016-01, changes in the fair value of equity investments are recognized as fair value adjustments instead of other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income (Loss).
Interest expense (net of capitalized interest of $1.1 million) increased to $17.8 million from $10.9 million, due to higher average debt levels related to the 2024 Senior Notes and the Facility (as defined below).
Other, net was an expense of $19.8 million, primarily due to the write-down of $18.6 million on the consideration received from the Manquiri Divestiture in 2018 compared to $21.1 million gain on the sale of the Joaquin project and a $2.3 million gain on the repurchase of the Rochester royalty obligation in 2017.
Income and Mining Taxes
During the first three quarters of 2018, the Company reported estimated income and mining tax expense of approximately $19.5 million resulting in an effective tax rate of 64.9%. This compares to estimated income tax expense of $24.0 million for an effective tax rate of 116.6% during the first three quarters of 2017.
The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
 
Nine months ended September 30,
 
2018
 
2017
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
(45,397
)
$
(2,700
)
 
$
8,036

$
(4,072
)
Argentina
(1,985
)
(172
)
 
281

1,704

Canada
(17,103
)
6,476

 


Mexico
35,088

(23,055
)
 
9,665

(23,745
)
Other jurisdictions
(575
)

 
2,634

2,073

 
$
(29,972
)
$
(19,451
)
 
$
20,616

$
(24,040
)
The Company’s effective income and mining tax rate is a function of the combined effective tax rates and foreign exchange rates in the jurisdictions in which it operates. Variations in the jurisdictional mix of income and loss and foreign exchange rates result in significant fluctuations in the consolidated effective tax rate, along with income and mining taxes, uncertain tax positions, and a full valuation allowance on deferred tax assets related to losses in the United States and certain foreign jurisdictions. Fluctuations in foreign exchange rates on deferred tax balances increased income and mining tax expense by $2.1 million and $7.2 million for the three months ended September 30, 2018 and 2017, respectively. The impact of foreign exchange rates on deferred tax balances is predominately due to the Mexican Peso and Canadian Dollar.
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets.
Income (loss) from Discontinued Operations
In respect of San Bartolomé’s operating results, income increased $6.1 million, due to a $1.5 million gain on the sale of San Bartolomé in 2018, partially offset by lower production and higher unit costs.

44


2018 Outlook
Coeur's 2018 production guidance was revised on September 4, 2018 to reflect improved visibility of Silvertip's production following the commencement of commercial production as well as stronger than expected performance at Rochester during the first half of the year. The Company’s cost guidance remains unchanged from the revised guidance published in the second quarter .
2018 Production Outlook
 
Silver
Gold
Zinc
Lead
Silver Equivalent1
 
(K oz)
(oz)
(K lbs)
(K lbs)
(K oz)
Palmarejo
7,500 - 7,900
115,000 - 120,000
14,400 - 15,100
Rochester
4,800 - 5,200
48,000 - 52,000
7,680 - 8,320
Kensington
115,000 - 120,000
6,900 - 7,200
Wharf
85,000 - 90,000
5,100 - 5,400
Silvertip
700 - 1,200
13,000 - 23,000
11,000 - 18,000
2,030 - 3,480
Total
13,000 - 14,300
363,000 - 382,000
13,000 - 23,000
11,000 - 18,000
36,110 - 39,500

Results of Continuing Operations
The Company produced 2.9 million ounces of silver, 87,539 ounces of gold, 1.1 million pounds of zinc and 0.4 million pounds of lead in the three months ended September 30, 2018, compared to 3.0 million ounces of silver and 93,293 ounces of gold in the three months ended September 30, 2017. Silver production decreased 4%, due to a temporary suspension of mining activities after an underground mining accident at the Guadalupe mine and supply chain disruptions due to a local road blockade at Palmarejo, partially offset by leaching activities on the periphery of the pad at Rochester and the commencement of commercial production at Silvertip. Gold production decreased 6% due to the aforementioned events at Palmarejo and unplanned weather-related downtime and timing of leach pad recoveries at Wharf. The Silvertip mine reached commercial production on September 1, 2018 and produced 1.1 million pounds of zinc and 0.4 million pounds of lead.
The Company produced 9.3 million ounces of silver, 266,974 ounces of gold, 1.1 million pounds of zinc and 0.4 million pounds of lead in the nine months ended September 30, 2018, compared to 8.4 million ounces of silver and 264,330 ounces of gold in the nine months ended September 30, 2017. Silver production increased 10% due to higher grade at Palmarejo and Rochester and higher placed tons at Rochester. Gold production increased 1% due to higher grades at Palmarejo and Rochester, partially offset by lower mill throughput at Kensington and unplanned weather-related downtime, lower grade and timing of leach pad recoveries at Wharf. The Silvertip mine reached commercial production on September 1, 2018 and produced 1.1 million pounds of zinc and 0.4 million pounds of lead.
Costs applicable to sales were $10.55 per average spot silver equivalent ounce ($12.32 per silver equivalent ounce) and $1,011 per gold equivalent ounce in the three months ended September 30, 2018 compared to $10.00 per average spot silver equivalent ounce ($11.16 per silver equivalent ounce) and $845 per gold equivalent ounce in the three months ended September 30, 2017. Costs applicable to sales per silver equivalent ounce increased 10% as a result of a higher initial unit costs at Silvertip. Costs applicable to sales per gold equivalent ounce increased 20% in the three months ended September 30, 2018 due to higher unit costs at Kensington and Wharf.
Costs applicable to sales were $9.13 per average spot silver equivalent ounce ($10.52 per silver equivalent ounce) and $1,008 per gold equivalent ounce in the nine months ended September 30, 2018 compared to $10.20 per average spot silver equivalent ounce ($11.22 per silver equivalent ounce) and $831 per gold equivalent ounce in the nine months ended September 30, 2017. Costs applicable to sales per silver equivalent ounce decreased 6% due to lower unit costs at Palmarejo while costs applicable to sales per gold equivalent ounce increased 21% in the nine months ended September 30, 2018 due to higher unit costs at Kensington and Wharf.
All-in sustaining costs were $15.33 per average spot silver equivalent ounce ($18.78 per silver equivalent ounce) in the three months ended September 30, 2018, compared to $14.86 per average spot silver equivalent ounce ($17.43 per silver equivalent ounce) in the three months ended September 30, 2017. The 8% increase was primarily due to higher costs applicable to sales per consolidated silver equivalent ounce and higher general administrative costs and higher sustaining capital related to underground development at Palmarejo and Kensington, partially offset by lower exploration costs.

45


All-in sustaining costs were $14.83 per average spot silver equivalent ounce ($17.94 per silver equivalent ounce) in the nine months ended September 30, 2018, compared to $14.51 per average spot silver equivalent ounce ($16.55 per silver equivalent ounce) in the nine months ended September 30, 2017. The 8% increase was primarily due to higher costs applicable to sales per consolidated silver equivalent ounce and higher sustaining capital related to underground development at Palmarejo and Kensington.
Palmarejo
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
2018
 
2017
Tons milled
300,116

 
413,086

1,004,082

 
1,108,897

Silver ounces produced
1,543,948

 
1,907,548

5,622,710

 
4,894,910

Gold ounces produced
27,885

 
28,948

91,483

 
84,032

Silver equivalent ounces produced
3,217,048

 
3,644,428

11,111,690

 
9,936,830

Silver equivalent ounces produced (average spot price)
3,795,941

 
4,104,412

12,907,501

 
11,020,843

Costs applicable to sales per silver equivalent oz(1)
$
9.39

 
$
9.82

$
8.29

 
$
10.19

Costs applicable to sales per average spot silver equivalent oz(1)
$
7.93

 
$
8.73

$
7.14

 
$
9.17

(1)
See Non-GAAP Financial Performance Measures.
Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017
Silver equivalent production decreased 12% due to the temporary suspension of mining activities relating to fatalities that occurred during the quarter in addition to supply chain disruptions stemming from local road blockades that temporarily interrupted the delivery of certain mining consumables, and a weather-related interruption that impacted the process plant. Normal operating activities have resumed. Metal sales were $55.5 million, or 37% of Coeur’s metal sales, compared with $60.7 million, or 38% of Coeur’s metal sales. Costs applicable to sales per ounce decreased 4% as a result of higher silver and gold grades coupled with lower mining and processing costs. Amortization decreased to $14.8 million primarily due to lower ounces sold. Capital expenditures decreased to $4.7 million due to the timing of capital expenditures. Capital expenditures focused on underground development and conversion drilling.
Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Silver equivalent production increased 12% due to higher silver and gold grade, partially offset by the temporary suspension of mining activities relating to fatalities that occurred during the quarter in addition to supply chain disruptions stemming from local road blockades that temporarily interrupted the delivery of certain mining consumables, and a weather-related interruption that impacted the process plant. Metal sales were $196.2 million, or 41% of Coeur’s metal sales, compared with $191.6 million, or 39% of Coeur’s metal sales. Costs applicable to sales per ounce decreased 19% as a result of higher production. Amortization decreased to $45.8 million compared to $51.0 million, primarily due to higher life of mine reserves, partially offset by higher ounces sold. Capital expenditures remained comparable at $23.5 million. Capital expenditures focused on underground development, conversion drilling and the implementation of the new on-site absorption, desorption, and recovery plant.
Rochester
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
2018
 
2017
Tons placed
4,061,082

 
4,262,011

12,495,241

 
12,268,819

Silver ounces produced
1,289,640

 
1,069,945

3,571,740

 
3,353,608

Gold ounces produced
14,702

 
10,955

38,462

 
32,056

Silver equivalent ounces produced
2,171,760

 
1,727,245

5,879,460

 
5,276,968

Silver equivalent ounces produced (average spot price)
2,476,974

 
1,901,320

6,634,469

 
5,690,490

Costs applicable to sales per silver equivalent oz(1)
$
13.10

 
$
13.91

$
13.36

 
$
13.31

Costs applicable to sales per average spot silver equivalent oz(1)
$
11.48

 
$
12.66

$
11.84

 
$
12.32

(1)
See Non-GAAP Financial Performance Measures.

46


Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017
Silver equivalent production increased 26% driven by the leaching of placed ounces from the periphery of the pad that had not been leached previously, partially offset by lower tons placed. Metal sales were $35.5 million, or 24% of Coeur’s metal sales, compared with $31.2 million, or 19% of Coeur’s metal sales. Costs applicable to sales per ounce decreased 6% due to higher production. Amortization increased to $5.3 million due to higher ounces sold. Capital expenditures decreased to $3.6 million from $9.7 million due to the completion of the Stage IV leach pad expansion in 2017.
Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Silver equivalent production increased 11% due to higher tons placed and the leaching of placed ounces from the periphery of the pad that had not been leached previously, partially offset by lower silver grade. Metal sales were $102.7 million, or 21% of Coeur’s metal sales, compared with $102.9 million, or 21% of Coeur’s metal sales. Costs applicable to sales per silver equivalent ounce remained comparable at $13.36. Amortization remained comparable at $14.9 million. Capital expenditures decreased to $6.9 million compared to $34.1 million due to the completion of the Stage IV leach pad expansion in 2017.
Silvertip
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
2018
 
2017
Tons milled
10,652

 

10,652

 

Silver ounces produced(2)
39,976

 

39,976

 

Zinc pounds produced(2)
1,099,408

 

1,099,408

 

Lead pounds produced(2)
413,285

 

413,285

 

Silver equivalent ounces produced
126,605

 

126,605

 

Silver equivalent ounces produced (average spot price)
152,726

 

152,726

 

Costs applicable to sales per silver equivalent oz(1)
$
43.26

 
$

$
43.26

 
$

Costs applicable to sales per average spot silver equivalent oz(1)
$
36.69

 
$

$
33.49

 
$

(1)
See Non-GAAP Financial Performance Measures.
(2)
Prior to September 1, 2018 commercial production date the Silvertip mine produced 0.2 million ounces of silver, 2.6 million pounds of zinc, and 1.8 million pounds of lead which are excluded from production numbers presented, unless otherwise noted.
Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017
The Company acquired Silvertip in the October 2017 and on September 1, 2018, Silvertip commenced commercial production. Metal sales were $4.1 million, or 3% of Coeur’s metal sales compared to none in the prior year. Costs applicable to sales per ounce was higher than anticipated due to a $8.7 million write-down of metal inventory as a result of lower than expected production levels, grades and recovery rates as well as reduced process plant availability and unfavorable changes in metal prices. Amortization was $1.1 million. Capital expenditures were $17.9 million primarily related to pre-production capital, underground mine development and capitalized exploration spending.
Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Metal sales, costs applicable to sales per ounce and amortization were the same for both periods in 2018 as Silvertip commenced commercial production on September 1, 2018. Capital expenditures were $55.6 million primarily related to pre-production capital, underground mine development and capitalized exploration spending.
Wharf
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
2018
 
2017
Tons placed
1,127,391

 
1,150,308

3,279,606

 
3,435,656

Gold ounces produced
19,437

 
25,849

59,880

 
68,080

Silver ounces produced
12,553

 
14,817

37,700

 
47,469

Gold equivalent ounces produced(1)
19,646

 
26,096

60,508

 
68,871

Costs applicable to sales per gold equivalent oz(1)
$
895

 
$
720

$
863

 
$
704

(1)
See Non-GAAP Financial Performance Measures.

47


Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017
Gold equivalent production decreased 25% due to unplanned weather-related events and timing of leach pad recoveries. In the fourth quarter 2018, Wharf plans to increase mining and crushing rates to offset the shortfall in production. Metal sales were $24.0 million, or 16% of Coeur’s metal sales, compared to $31.3 million, or 20% of Coeur’s metal sales. Costs applicable to sales per gold equivalent ounce increased 24% due to lower production resulting from the completion of mining at the higher-grade Golden Reward deposit in 2017 and higher equipment rental and diesel costs. Amortization decreased to $2.9 million due to lower ounces sold. Capital expenditures decreased to $1.2 million due to lower process plant capital expenditures.
Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Gold equivalent production decreased 12% due to unplanned weather-related events and timing of leach pad recoveries. In the fourth quarter 2018, Wharf plans to increase crushing rates to offset this shortfall in production. Metal sales were $77.3 million, or 16% of Coeur’s metal sales, compared to $88.6 million, or 18% of Coeur’s metal sales. Costs applicable to sales per gold equivalent ounce increased 23% due to lower production resulting from the completion of mining at the higher-grade Golden Reward deposit in 2017, higher pad unloading costs, and higher equipment rental and diesel costs. Amortization remained comparable at $8.9 million. Capital expenditures decreased to $2.7 million due to lower process plant capital expenditures.
Kensington
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
2018
 
2017
Tons milled
163,603

 
172,038

491,060

 
501,096

Gold ounces produced
25,515

 
27,541

77,149

 
80,162

Costs applicable to sales/oz(1)
$
1,101

 
$
948

$
1,117

 
$
931

(1)
See Non-GAAP Financial Performance Measures.
Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017
Gold production decreased 7% due to lower mill throughput resulting from lower mine ore production, partially offset by higher gold grade. Metal sales were $29.8 million, or 20% of Coeur’s metal sales, compared to $36.6 million, or 23% of Coeur’s metal sales. Costs applicable to sales per ounce were 16% higher, primarily due to lower production and higher diesel costs. Amortization decreased to $6.9 million from $7.9 million due to higher life of mine reserves and lower ounces sold. Capital expenditures increased to $12.0 million resulting from higher underground development at Raven.
Nine Months Ended September 30, 2018 compared to Nine Months Ended September 30, 2017
Gold production decreased 4% due to lower mill throughput resulting from lower mine ore production, partially offset by higher gold grade. Metal sales were $101.8 million, or 21% of Coeur’s metal sales, compared to $110.1 million, or 22% of Coeur’s metal sales. Costs applicable to sales per ounce were 20% higher, primarily due to lower production, higher diesel costs, and higher contract mining costs. Amortization decreased to $20.1 million from $25.4 million due to higher life of mine reserves and lower ounces sold. Capital expenditures increased to $34.0 million due to the expansion of the site power plant and higher underground development at Raven.
Endeavor Silver Stream
 
Three months ended September 30,
Nine months ended September 30,
 
2018
 
2017
2018
 
2017
Tons milled

 


 
133,905

Silver ounces produced

 
2,413


 
107,026

Costs applicable to sales/oz(1)
$

 
$
4.86

$

 
6.95

(1)
See Non-GAAP Financial Performance Measures.
In July 2017, the Company sold the Endeavor Silver Stream and its remaining portfolio of royalties for total consideration of $13.0 million to Metalla Royalty & Streaming Ltd. Reported production and financial results include operations through May 2017 in accordance with the terms of the sale agreement.


48


Liquidity and Capital Resources
Cash and cash equivalents decreased $87.3 million in the nine months ended September 30, 2018. This was the result of lower silver prices, pre-production capital expenditures to advance Silvertip toward commercial production, income and mining tax payments at Palmarejo and an increase in inventories, partially offset by a higher operating margin per consolidated silver equivalent ounce at Palmarejo and Rochester.
Cash Provided by Operating Activities from Continuing Operations
Net cash provided by operating activities for the three months ended September 30, 2018 was $5.8 million compared to net cash provided by operating activities of $37.3 million for the three months ended September 30, 2017. Net cash provided by operating activities for the nine months ended September 30, 2018 was $20.0 million compared to $105.3 million for the nine months ended September 30, 2017. Net cash provided by operating activities was impacted by the following key factors for the applicable periods:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2018
 
2017
 
2018
 
2017
Consolidated silver equivalent ounces sold
8,475,883

 
8,264,174

 
25,736,073

 
26,102,711

Average realized price per consolidated silver equivalent ounce (1)
$
17.56

 
$
19.35

 
$
18.73

 
$
18.96

Costs applicable to sales per consolidated silver equivalent ounce (2)
(13.79
)
 
(12.29
)
 
(12.61
)
 
(12.19
)
Operating margin per consolidated silver equivalent ounce
$
3.77

 
$
7.06

 
$
6.12

 
$
6.77

(1)
Calculated by dividing the Company’s total metal sales by total silver equivalent ounces (based on a historical 60:1 ratio of silver ounces to gold ounces, 0.06:1 ratio of silver ounces to zinc pounds and 0.05:1 ratio of silver ounces to lead pounds).
(2)
See Non-GAAP Financial Performance Measures.
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands
2018
 
2017
 
2018
 
2017
Cash flow before changes in operating assets and liabilities
$
12,933

 
$
25,150

 
$
87,869

 
$
95,674

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Receivables
(5,930
)
 
6,289

 
(16,509
)
 
9,754

Prepaid expenses and other
1,377

 
(1,332
)
 
3,868

 
(2,177
)
Inventories
(8,156
)
 
(2,282
)
 
(19,630
)
 
8,080

Accounts payable and accrued liabilities
5,565

 
9,484

 
(35,562
)
 
(5,982
)
Cash provided by continuing operating activities
$
5,789

 
$
37,309

 
$
20,036

 
$
105,349

Cash provided by operating activities decreased $31.5 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017, primarily due to a decrease in silver and gold prices, an increase in inventories and a lower operating margin per consolidated silver equivalent ounce, partially offset by higher silver equivalent ounces sold. Revenue for the three months ended September 30, 2018 decreased $11.1 million, $14.4 million of which was due to lower average realized prices, partially offset by an increase of $3.3 million due to higher silver equivalent ounces sold. The $7.1 million working capital increase in the three months ended September 30, 2018 was primarily due to an increase in accrued interest, timing of accounts receivable and VAT collections and an inventory buildup at Silvertip, compared to the $12.2 million working capital decrease in the three months ended September 30, 2017, was primarily due to an increase in accounts payable partially offset by an increase in inventories and prepaid assets.
Cash provided by operating activities decreased $85.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, primarily due to lower silver prices, income and mining tax payments at Palmarejo, lower silver equivalent ounces sold, a lower operating margin per consolidated silver equivalent ounce and an increase in inventories. Revenue for the nine months ended September 30, 2018 decreased $13.0 million, $10.0 million of which was due to lower silver equivalent ounces sold and $3.0 million due to lower average realized prices. The $67.8 million working capital increase in the nine months ended September 30, 2018 was primarily due to the timing of income and mining tax payments at Palmarejo, an increase in inventories and the timing on accounts receivable and VAT collections, compared to the $9.7 million working capital decrease in the nine months ended September 30, 2017, which was primarily due to a reduction of inventories carried over from the fourth quarter of 2016 and the collection of accounts receivable, partially offset by the timing of payments.

49


Cash Used in Investing Activities from Continuing Operations
Net cash used in investing activities in the three months ended September 30, 2018 was $24.1 million compared to net cash used in investing activities of $35.5 million in the three months ended September 30, 2017, primarily due to the $15.0 million payment received as part of the Manquiri Letter Agreement, and the acquisition of strategic equity investments in 2017. The Company had capital expenditures of $39.5 million in the three months ended September 30, 2018 compared with $29.0 million in the three months ended September 30, 2017. Capital expenditures in the three months ended September 30, 2018 were primarily related to pre-production capital spending at Silvertip and underground development at Silvertip, Palmarejo, and Kensington. Capital expenditures in the three months ended September 30, 2017 were primarily related to underground development at Palmarejo and Kensington, capitalized conversion drilling, and the Stage IV leach pad expansion and commissioning at Rochester.
Net cash used in investing activities in the nine months ended September 30, 2018 was $95.2 million compared to net cash used in investing activities of $79.8 million in the nine months ended September 30, 2017, primarily due to pre-production capital expenditures at Silvertip and the proceeds from the sale of the Joaquin project in the first quarter of 2017, partially offset by the $15.0 million payment received as part of the Manquiri Letter Agreement. The Company had capital expenditures of $123.0 million in the nine months ended September 30, 2018 compared with $89.7 million in the nine months ended September 30, 2017. Capital expenditures in the nine months ended September 30, 2018 were primarily related to pre-production capital spending at Silvertip and underground development at Silvertip, Palmarejo, and Kensington. Capital expenditures in the nine months ended September 30, 2017 were primarily related to underground development at Palmarejo and Kensington, capitalized conversion drilling, and the Stage IV leach pad expansion and commissioning at Rochester
Cash Provided by (Used in) Financing Activities from Continuing Operations
Net cash used in financing activities in the three months ended September 30, 2018 was $0.6 million compared to net cash used in financing activities of $5.6 million in the three months ended September 30, 2017. During the three months ended September 30, 2018, the Company drew $5.0 million, net from the Facility.
Net cash used in financing activities in the nine months ended September 30, 2018 was $13.3 million compared to net cash provided by financing activities of $43.5 million in the nine months ended September 30, 2017. During the nine months ended September 30, 2018, the Company drew $20.0 million, net from the Facility to repay Silvertip’s debt obligation and to finance working capital and general corporate purposes. The Company also had higher cash remittances to tax authorities in respect of tax withholdings on vested stock-based compensation awards. During the nine months ended September 30, 2017, the Company received net proceeds of approximately $245.0 million from the issuance of the 2024 Senior Notes, partially offset by the repurchase of the 2021 Senior Notes for $185.5 million, including premiums.

Critical Accounting Policies and Accounting Developments
Please see Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES contained in the 2017 10-K and in Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES contain in this Report for the Company’s critical accounting policies and estimates.

Revenue Recognition
On January 1, 2018, the Company adopted the updated revenue guidance applicable under ASC 606 - “Revenue from Contracts with Customers”. The new guidance creates a five-step framework to determine revenue recognition:

1.
Identify the contract with the customer
2.
Identify the performance obligations
3.
Determine the transaction price
4.
Allocate the transaction price to the performance obligations
5.
Recognize revenue when (or as) the entity satisfies a performance obligation
    
The Company produces doré and concentrate that is shipped to third-party refiners and smelters, respectively, for processing. The Company enters into contracts to sell its metal to various third-party customers which may include the refiners and smelters that process the doré and concentrate. The Company’s performance obligation in these transactions is generally the transfer of metal to the customer.

In the case of doré shipments, the Company generally sells refined metal at market prices agreed upon by both parties. The Company also has the right, but not the obligation, to sell a portion of the anticipated refined metal in advance of being fully refined. When the Company sells refined metal or advanced metal, the performance obligation is satisfied when the metal is

50


delivered to the customer. Revenue and Costs Applicable to Sales are recorded on a gross basis under these contracts at the time the performance obligation is satisfied.

Under the Company’s concentrate sales contracts with third-party smelters, metal prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. When the Company sells gold concentrate to the third-party smelters, the performance obligation is satisfied when the concentrate is loaded onto the third-party shipping vessel. The contracts, in general, provide for provisional payment based upon provisional assays and historical metal prices. Final settlement is based on the applicable price for the specified future quotational period and generally occurs three to six months after shipment. The Company’s 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 measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final metal settlement.

The Company also sells concentrate under off-take agreements to third-party customers that are responsible for arranging the smelting of the concentrate. Prices can be either be fixed or based on a quotational period. The quotational period varies by contract, but is generally a one-month period following the shipment of the concentrate. The performance obligation is satisfied when the concentrate is loaded onto the third-party shipping vessel. The off-take agreement allows for the Company to sell concentrate in advance of shipment and results in the customer taking ownership of the concentrate prior to shipment.

The Company recognizes revenue from concentrate sales, net of treatment and refining charges, when it satisfies the performance obligation of transferring control of the concentrate to the customer.

For doré and off-take sales, the Company may incur a finance charge related to advance sales that is not considered significant and, as such, is not considered a separate performance obligation. In addition, the Company has elected to treat freight costs as a fulfillment cost under ASC 606 and not as a separate performance obligation.

The Company’s gold stream agreement with a subsidiary of Franco-Nevada commenced in 2016 with a $20.0 million deposit paid by Franco-Nevada in exchange for the right and obligation to purchase 50% of a portion of Palmarejo gold production at the lesser of $800 or market price per ounce. Because there is no minimum obligation associated with this deposit, it is not considered financing, and each shipment is considered to be a separate performance obligation. The streaming agreement represents a contract liability under ASC 606, which requires the Company to ratably recognize a portion of the deposit as revenue for each gold ounce delivered to Franco-Nevada.

51


Other Liquidity Matters
We believe that our liquidity and capital resources from U.S. operations are adequate to fund our U.S. operations and corporate activities. The Company has asserted indefinite reinvestment of earnings from its Mexican operations as determined by management’s judgment about and intentions concerning the future operations of the Company. The Company does not believe that the amounts reinvested will have a material impact on liquidity.

In order to reduce future cash interest payments and/or amounts due at maturity or upon redemption, from time to time we may repurchase certain of our debt securities for cash or in exchange for other securities, which may include secured or unsecured notes or equity, in each case in open market or privately negotiated transactions. We regularly engage in conversations with our bondholders and evaluate any such transactions in light of prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be significant and any such transactions may occur at a substantial discount to the debt securities’ face amount.

Non-GAAP Financial Performance Measures
Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles (“GAAP”). Unless otherwise noted, we present the Non-GAAP financial measures of our continuing operations in the tables below. For additional information regarding our discontinued operations, see Note 21 -- to the Condensed Consolidated Financial Statements. These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.

52


Adjusted Net Income (Loss)
Management uses Adjusted net income (loss) to evaluate the Company’s operating performance, and to plan and forecast its operations. The Company believes the use of Adjusted net income (loss) reflects the underlying operating performance of our core mining business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Management’s determination of the components of Adjusted net income (loss) are evaluated periodically and is based, in part, on a review of non-GAAP financial measures used by mining industry analysts. The tax effect of adjustments are based on statutory tax rates and the Company’s tax attributes, including the impact through the Company’s valuation allowance. The combined effective rate of tax adjustments may not be consistent with the statutory tax rates or the Company’s effective tax rate due to jurisdictional tax attributes and related valuation allowance impacts which may minimize the tax effect of certain adjustments and may not apply to gains and losses equally. Adjusted net income (loss) is reconciled to Net income (loss) in the table below:
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands except per share amounts
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(53,044
)
 
$
(16,652
)
 
$
(48,873
)
 
$
(8,944
)
(Income) loss from discontinued operations, net of tax

 
4,924

 
(550
)
 
5,520

Fair value adjustments, net
(715
)
 

 
(2,907
)
 
864

Impairment of equity and debt securities

 

 

 
426

Gain on sale of Joaquin project

 

 

 
(21,138
)
(Gain) loss on sale of assets and securities
28

 
(2,051
)
 
(317
)
 
(498
)
Gain on repurchase of Rochester royalty

 

 

 
(2,332
)
(Gain) loss on debt extinguishment

 

 

 
9,342

Mexico inflation adjustment

 

 
(1,939
)
 

Transaction costs
1,049

 
819

 
1,049

 
819

Interest income on notes receivables
(628
)
 

 
(1,450
)
 

Manquiri sale consideration write-down
18,599

 

 
18,599

 

Silvertip start-up write-down
8,746

 

 
8,746

 

Rochester In-Pit crusher write-down
3,441

 

 
3,441

 

Foreign exchange loss (gain)
6,062

 
(1,392
)
 
9,141

 
5,205

Tax effect of adjustments(1)
(3,191
)
 
(990
)
 
(3,191
)
 
816

Adjusted net income (loss)
$
(19,653
)

$
(15,342
)

$
(18,251
)
 
$
(9,920
)
 
 
 
 
 
 
 
 
Adjusted net income (loss) per share - Basic
$
(0.11
)
 
$
(0.09
)
 
$
(0.10
)
 
$
(0.06
)
Adjusted net income (loss) per share - Diluted
$
(0.11
)
 
$
(0.09
)
 
$
(0.10
)
 
$
(0.06
)
(1)
For the three months ended September 30, 2018, tax effect of adjustments of $3.2 million (10%) is primarily related to the write-down of Silvertip start-up costs.

For the three months ended September 30, 2017, tax effect of adjustments of $1.0 million (80%) is primarily related to deferred taxes on the Metalla transaction.

(2)
For the nine months ended September 30, 2018, tax effect of adjustments of $3.2 million (13%) is primarily related to the write-down of Silvertip start-up costs.

For the nine months ended September 30, 2017, tax effect of adjustments of $0.8 million (-7%) is primarily related to a taxable gain on the sale of the Joaquin project and deferred taxes on the Metalla transaction. 






53


EBITDA and Adjusted EBITDA
Management uses EBITDA to evaluate the Company’s operating performance, to plan and forecast its operations, and assess leverage levels and liquidity measures. The Company believes the use of EBITDA reflects the underlying operating performance of our core mining business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Adjusted EBITDA is a measure used in the 2024 Senior Notes Indenture and the Facility to determine our ability to make certain payments and incur additional indebtedness. EBITDA and Adjusted EBITDA do not represent, and should not be considered an alternative to, Net income (Loss) or Cash Flow from Operations as determined under GAAP. Other companies may calculate Adjusted EBITDA differently and those calculations may not be comparable to our presentation. Adjusted EBITDA is reconciled to Net income (loss) in the table below:
 
Three months ended September 30,
 
Nine months ended September 30,
In thousands except per share amounts
2018
 
2017
 
2018
 
2017
Net income (loss)
$
(53,044
)
 
$
(16,652
)
 
$
(48,873
)
 
$
(8,944
)
(Income) loss from discontinued operations, net of tax

 
4,924

 
(550
)
 
5,520

Interest expense, net of capitalized interest
5,818

 
3,595

 
17,801

 
10,918

Income tax provision (benefit)
3,785

 
14,289

 
19,451

 
24,040

Amortization
31,184

 
32,400

 
91,420

 
101,827

EBITDA
(12,257
)

38,556


79,249


133,361

Fair value adjustments, net
(715
)
 

 
(2,907
)
 
864

Impairment of equity and debt securities

 

 

 
426

Foreign exchange (gain) loss
3,104

 
39

 
7,083

 
(1,953
)
Gain on sale of Joaquin project

 

 

 
(21,138
)
(Gain) loss on sale of assets and securities
28

 
(2,051
)
 
(317
)
 
(498
)
Gain on repurchase of Rochester royalty

 

 

 
(2,332
)
Loss on debt extinguishment

 

 

 
9,342

Mexico inflation adjustment

 

 
(1,939
)
 

Transaction costs
1,049

 
819

 
1,049

 
819

Interest income on notes receivables
(628
)
 

 
(1,450
)
 

Manquiri sale consideration write-down
18,599

 

 
18,599

 

Silvertip start-up write-down
8,746

 

 
8,746

 

Rochester In-Pit crusher write-down
3,441

 

 
3,441

 

Asset retirement obligation accretion
2,883

 
2,223

 
8,369

 
6,508

Inventory adjustments and write-downs
421

 
659

 
1,474

 
1,280

Adjusted EBITDA
$
24,671


$
40,245


$
121,397


$
126,679

Costs Applicable to Sales and All-in Sustaining Costs
Management uses Costs applicable to sales (“CAS”) and All-in sustaining costs (“AISC”) to evaluate the Company’s current operating performance and life of mine performance from discovery through reclamation. We believe these measures assist analysts, investors and other stakeholders in understanding the costs associated with producing silver and gold, assessing our operating performance and ability to generate free cash flow from operations and sustaining production. These measures may not be indicative of operating profit or cash flow from operations as determined under GAAP. Management believes converting the benefit from selling gold into silver equivalent ounces best allows management, analysts, investors and other stakeholders to evaluate the operating performance of the Company. Other companies may calculate CAS and AISC differently as a result of reflecting the benefit from selling non-silver metals as a by-product credit rather than converting to silver equivalent ounces, differences in the determination of sustaining capital expenditures, and differences in underlying accounting principles and accounting frameworks such as in International Financial Reporting Standards.







54


Three Months Ended September 30, 2018
 
 
Silver
 
Gold
 
Total
In thousands except per ounce amounts
 
Palmarejo
 
Rochester
 
Silvertip
 
Total
 
Kensington
 
Wharf
 
Total
 
Costs applicable to sales, including amortization (U.S. GAAP)
 
$
46,348

 
$
32,842

 
$
12,608

 
$
91,798

 
$
35,153

 
$
20,857

 
$
56,010

 
$
147,808

Amortization
 
14,794

 
5,294

 
1,073

 
21,161

 
6,912

 
2,878

 
9,790

 
30,951

Costs applicable to sales
 
$
31,554

 
$
27,548

 
$
11,535

 
$
70,637

 
$
28,241

 
$
17,979

 
$
46,220

 
$
116,857

Silver equivalent ounces sold
 
3,361,893

 
2,103,584

 
266,666

 
5,732,143

 
 
 
 
 
 
 
8,475,883

Gold equivalent ounces sold
 
 
 
 
 
 
 
 
 
25,648

 
20,081

 
45,729

 
 
Costs applicable to sales per ounce
 
$
9.39

 
$
13.10

 
$
43.26

 
$
12.32

 
$
1,101

 
$
895

 
$
1,011

 
$
13.79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales per average spot ounce
 
$
7.93

 
$
11.48

 
$
36.69

 
$
10.55

 
 
 
 
 
 
 
$
11.25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
116,857

Treatment and refining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,551

Sustaining capital(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19,236

General and administrative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,729

Exploration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8,157

Reclamation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,545

Project/pre-development costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,137

All-in sustaining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
159,212

Silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,732,143

Kensington and Wharf silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
2,743,740

Consolidated silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
8,475,883

All-in sustaining costs per silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
18.78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated silver equivalent ounces sold (average spot)
 
 
 
 
 
 
 
 
 
 
 
10,385,649

All-in sustaining costs per average spot silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
15.33

(1)
Excludes development capital for Jualin and Silvertip.

Three Months Ended September 30, 2017
 
 
Silver
 
Gold
 
 
In thousands except per ounce amounts
 
Palmarejo
 
Rochester
 
Endeavor
 
Total
 
Kensington
 
Wharf
 
Total
 
Total
Costs applicable to sales, including amortization (U.S. GAAP)
 
$
49,669

 
$
27,866

 
$
59

 
$
77,594

 
$
35,522

 
$
20,553

 
$
56,075

 
$
133,669

Amortization
 
16,414

 
4,591

 
20

 
21,025

 
7,864

 
3,223

 
11,087

 
32,112

Costs applicable to sales
 
$
33,255

 
$
23,275

 
$
39

 
$
56,569

 
$
27,658

 
$
17,330

 
$
44,988

 
$
101,557

Silver equivalent ounces sold
 
3,386,963

 
1,673,704

 
8,027

 
5,068,694

 
 
 
 
 
 
 
8,264,174

Gold equivalent ounces sold
 
 
 
 
 
 
 
 
 
29,173

 
24,085

 
53,258

 
 
Costs applicable to sales per ounce
 
$
9.82

 
$
13.91

 
$
4.86

 
$
11.16

 
$
948

 
$
720

 
$
845

 
$
12.29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales per average spot ounce
 
$
8.73

 
$
12.66

 
 
 
$
10.00

 
 
 
 
 
 
 
$
10.47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
101,557

Treatment and refining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,408

Sustaining capital(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18,126

General and administrative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,345

Exploration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,791

Reclamation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,915

Project/pre-development costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,979

All-in sustaining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
144,121

Silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,068,694

Kensington and Wharf silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
3,195,480

Consolidated silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
8,264,174

All-in sustaining costs per silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
17.43

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated silver equivalent ounces sold (average spot)
 
 
 
 
 
 
 
 
 
 
 
9,698,587

All-in sustaining costs per average spot silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
14.86

(1)
Excludes development capital for Jualin, Guadalupe South Portal and Rochester expansion permitting.


55


Nine Months Ended September 30, 2018
 
 
Silver
 
Gold
 
Total
In thousands except per ounce amounts
 
Palmarejo
 
Rochester
 
Silvertip
 
Total
 
Kensington
 
Wharf
 
Total
 
Costs applicable to sales, including amortization (U.S. GAAP)
 
$
138,712


$
91,222

 
$
12,608

 
$
242,542

 
$
111,168

 
$
61,434

 
$
172,602

 
$
415,144

Amortization
 
45,752

 
14,918

 
1,073

 
61,743

 
20,070

 
8,888

 
28,958

 
90,701

Costs applicable to sales
 
$
92,960

 
$
76,304

 
$
11,535

 
$
180,799

 
$
91,098

 
$
52,546

 
$
143,644

 
$
324,443

Silver equivalent ounces sold
 
11,210,084

 
5,711,663

 
266,666

 
17,188,413

 
 
 
 
 
 
 
25,736,073

Gold equivalent ounces sold
 
 
 
 
 
 
 
 
 
81,576

 
60,885

 
142,461

 
 
Costs applicable to sales per ounce
 
$
8.29


$
13.36

 
$
43.26

 
$
10.52

 
$
1,117

 
$
863

 
$
1,008

 
$
12.61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales per average spot ounce
 
$
7.14

 
$
11.84

 
$
33.49

 
$
9.13

 

 

 

 
$
10.42

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
324,443

Treatment and refining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,792

Sustaining capital(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71,196

General and administrative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24,183

Exploration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21,269

Reclamation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13,744

Project/pre-development costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,075

All-in sustaining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
461,702

Silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17,188,413

Kensington and Wharf silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
8,547,660

Consolidated silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
25,736,073

All-in sustaining costs per silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
17.94

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated silver equivalent ounces sold (average spot)
 
 
 
 
 
 
 
 
 
 
 
31,132,974

All-in sustaining costs per average spot silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
14.83

(1)
Excludes development capital for Jualin and Silvertip.

Nine Months Ended September 30, 2017
 
 
Silver
 
Gold
 
 
In thousands except per ounce amounts
 
Palmarejo
 
Rochester
 
Endeavor
 
Total
 
Kensington
 
Wharf
 
Total
 
Total
Costs applicable to sales, including amortization (U.S. GAAP)
 
$
161,145

 
$
89,220

 
$
1,045

 
$
251,410

 
$
109,478

 
$
58,301

 
$
167,779

 
$
419,189

Amortization
 
50,995

 
15,345

 
301

 
66,641

 
25,389

 
8,883

 
34,272

 
100,913

Costs applicable to sales
 
$
110,150

 
$
73,875

 
$
744

 
$
184,769

 
$
84,089

 
$
49,418

 
$
133,507

 
$
318,276

Silver equivalent ounces sold
 
10,809,932

 
5,551,913

 
107,026

 
16,468,871

 
 
 
 
 
 
 
26,102,711

Gold equivalent ounces sold
 
 
 
 
 
 
 
 
 
90,348

 
70,216

 
160,564

 
 
Costs applicable to sales per ounce
 
$
10.19


$
13.31


$
6.95


$
11.22

 
$
931


$
704


$
831

 
$
12.19

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales per average spot ounce
 
$
9.17

 
$
12.32

 

 
$
10.20

 
 
 
 
 
 
 
$
10.68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
318,276

Treatment and refining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,312

Sustaining capital(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46,491

General and administrative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24,495

Exploration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22,856

Reclamation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10,835

Project/pre-development costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,075

All-in sustaining costs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
432,340

Silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16,468,871

Kensington and Wharf silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
9,633,840

Consolidated silver equivalent ounces sold
 
 
 
 
 
 
 
 
 
 
 
 
 
26,102,711

All-in sustaining costs per silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
16.55

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated silver equivalent ounces sold (average spot)
 
 
 
 
 
 
 
 
 
 
 
29,796,003

All-in sustaining costs per average spot silver equivalent ounce
 
 
 
 
 
 
 
 
 
 
 
$
14.51

(1)
Excludes development capital for Jualin, Guadalupe South Portal and Rochester expansion permitting.


56


Cautionary Statement Concerning Forward-Looking Statements
This report contains numerous forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to the Company’s gold, silver, zinc and lead mining business, including statements regarding, estimated production, costs, capital expenditures, mining and crushing rates at Wharf, contingent payments for the Silvertip acquisition, expenses, metals prices, sufficiency of assets, ability to discharge liabilities, liquidity management, financing needs, environmental compliance expenditures, risk management strategies, cost reduction initiatives, capital discipline, and initiatives to maximize net cash flow, enhance revenues, reduce operating and non-operating costs, and manage working capital efficiently. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risk factors set forth in the “Risk Factors” section of the 2017 10-K, the Company’s Form 10-Q for the quarterly period ended March 31, 2018 and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, (ii)  the risks and hazards inherent in the mining business (including risks inherent in developing large-scale mining projects, environmental hazards, industrial accidents, weather or geologically related conditions), (iii) changes in the market prices of gold, silver, zinc and lead and a sustained lower price environment, (iv) the uncertainties inherent in the Company’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays, ground conditions and grade variability, (v) any future labor disputes or work stoppages (involving the Company and its subsidiaries or third parties), (vi) the uncertainties inherent in the estimation of gold, silver, zinc and lead reserves and mineralized material, (vii) changes that could result from the Company’s future acquisition of new mining properties or businesses, (viii)  the loss of access to any third-party smelter to whom the Company markets silver and gold, (ix) the effects of environmental and other governmental regulations, (x) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, and (xi) the Company’s ability to raise additional financing necessary to conduct its business, make payments or refinance its debt. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.        Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks as a part of its operations and engages in risk management strategies to mitigate these risks. The Company continually evaluates the potential benefits of engaging in these strategies based on current market conditions. The Company does not actively engage in the practice of trading derivative instruments for profit. Additional information about the Company’s derivative financial instruments may be found in Note 11 -- Derivative Financial Instruments in the notes to the condensed consolidated financial statements. This discussion of the Company’s market risk assessments contains “forward looking statements”. For additional information regarding forward-looking statements and risks and uncertainties that could impact the Company, please refer to Item 2 of this Report - Cautionary Statement Concerning Forward-Looking Statements. Actual results and actions could differ materially from those discussed below.
Gold, Silver, Zinc and Lead Prices
Gold, silver, zinc, and lead prices may fluctuate widely due to numerous factors, such as U.S. dollar strength or weakness, demand, investor sentiment, inflation or deflation, and global mine production. The Company’s profitability and cash flow may be significantly impacted by changes in the market price of gold, silver, zinc, and lead.
Gold, Silver, Zinc and Lead Hedging
To mitigate the risks associated with gold, silver, zinc and lead price fluctuations, the Company may enter into option contracts to hedge future production. The Company had outstanding Asian put and call option contracts in net-zero-cost collar contracts on zinc at September 30, 2018. The weighted average strike prices on the put and call contracts are $3,000 and $4,050 per metric ton, respectively. The contracts are generally net cash settled and, if the price of zinc at the time of the expiration is between the put and call prices, would expire at no cost to the Company. At September 30, 2018, the fair market value of the put and call zero cost collar contracts was a net asset of $0.3 million. During the nine months ended September 30, 2018, the Company recorded unrealized gains of $0.6 million related to outstanding options which were included in Fair value adjustments, net. A 10% increase or decrease in the price of zinc at September 30, 2018 would result in gains of $0.1 million and $0.5 million, respectively, on settlement.
Provisional Silver and Gold Sales
The Company enters into sales contracts with third-party smelters and refiners which, in some cases, provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract. Depending on the difference between the price at the

57


time of sale and the final settlement price, embedded derivatives are recorded as either a derivative asset or liability. The embedded derivatives do not qualify for hedge accounting and, as a result, are marked to the market gold and silver price at the end of each period from the provisional sale date to the date of final settlement. The mark-to-market gains and losses are recorded in earnings. Changes in silver, gold, zinc and lead prices resulted in provisional pricing mark-to-market gains of $34 thousand and $15 thousand in the three and nine months ended September 30, 2018, respectively.
At September 30, 2018, the Company had outstanding provisionally priced sales of 12,089 ounces of gold at an average price of $1,224, 98,832 ounces of silver at an average price of $14.61, 1.8 million pounds of zinc at an average price of $1.20 and 1.2 million pounds of lead at an average price of $0.92. A 10% change in realized silver, gold, zinc and lead prices would cause revenue to vary by $2.0 million.
Foreign Currency
The Company operates, or has mineral interests, in several foreign countries including Canada, Mexico, and New Zealand, which exposes it to foreign currency exchange rate risks. Foreign currency exchange rates are influenced by world market factors beyond the Company’s control such as supply and demand for U.S. and foreign currencies and related monetary and fiscal policies. Fluctuations in local currency exchange rates in relation to the U.S. dollar may significantly impact profitability and cash flow.
Foreign Exchange Hedging
To manage foreign currency risk, the Company may enter into foreign exchange forward and/or option contracts when the Company believes such contracts would be beneficial. The Company had no outstanding foreign exchange contracts at September 30, 2018.
Interest Rates
Interest Rate Hedging
We may use financial instruments to manage exposures to changes in interest rates on loans, which exposes us to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not pose credit risk. We seek to minimize the credit risk in derivative instruments by entering into transactions with what we believe are high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The Company had an outstanding interest rate swap whereby the Company receives a variable rate in exchange for a floating rate at September 30, 2018. A 10% change in the 1-month LIBOR would cause Fair value adjustments, net to vary by $0.1 million.


58


Item 4.
Controls and Procedures
(a)
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding management’s control objectives. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. Based upon the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective and operating to provide reasonable assurance that information required to be disclosed by it in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)
Management’s Report on Internal Control Over Financial Reporting
Based on an evaluation by the Company’s Chief Executive Officer and Chief Financial Officer, such officers concluded
that there was no change in the Company’s internal control over financial reporting during the three months ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II
Item 1.         Legal Proceedings
See Note 20 -- Commitments and Contingencies in the notes to the Consolidated Financial Statements included herein.

Item 1A.     Risk Factors

Item 1A -- Risk Factors of the 2017 10-K and the Company’s Quarterly Report on Form 10-Q filed on April 25, 2018 set forth information relating to important risks and uncertainties that could materially adversely affect the Company’s business, financial condition or operating results. Additional risks and uncertainties that the Company does not presently know or that it currently deems immaterial also may impair our business operations.

Item 4.         Mine Safety Disclosures

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

Item 5.         Other Information
On October 29, 2018, the Company entered into the Amendment to, among other things, increase the maximum principal amount of the Facility by $50.0 million in incremental loans and commitments to an aggregate of $250.0 million and to extend the maturity date of the Facility to be four years after the effective date of the Amendment.
A copy of the Amendment is attached hereto as Exhibit 10.3 and is incorporated herein by reference. The description of the Amendment is a summary only and is qualified in its entirety by the terms of the Credit Agreement as amended by the Amendment.

59


Item 6.        Exhibits
2.1
10.1
10.2
10.3
31.1
31.2
32.1
32.2
95.1
101.INS
XBRL Instance Document**
101.SCH
XBRL Taxonomy Extension Schema**
101.CAL
XBRL Taxonomy Extension Calculation Linkbase**
101.DEF
XBRL Taxonomy Extension Definition Linkbase**
101.LAB
XBRL Taxonomy Extension Label Linkbase**
101.PRE
XBRL Taxonomy Extension Presentation Linkbase**
*    Management contract or compensatory plan or arrangement.
**    The following financial information from Coeur Mining, Inc.'s Annual Report on Form 10-Q for the three and nine months ended September 30, 2018, formatted in XBRL (Extensible Business Reporting Language): Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Cash Flows, Consolidated Balance Sheets, and Consolidated Statement of Changes in Stockholders' Equity

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
COEUR MINING, INC.
 
 
 
(Registrant)
 
 
 
 
 
Dated
October 31, 2018
/s/ Mitchell J. Krebs
 
 
 
MITCHELL J. KREBS
 
 
 
President and Chief Executive Officer (Principal Executive Officer)
 
 
 
 
Dated
October 31, 2018
/s/ Peter C. Mitchell
 
 
 
PETER C. MITCHELL
 
 
 
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
 
 
 
 
Dated
October 31, 2018
/s/ Ken Watkinson
 
 
 
KEN WATKINSON
 
 
 
Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)


60