CDE-09.30.2012-Q3

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, 2012
OR
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission file number 001-08641
____________________________________________ 
COEUR D’ALENE MINES CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________
Idaho
 
82-0109423
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
PO Box I,
505 Front Ave.
Coeur d’Alene, Idaho
 
83816
(Address of principal executive offices)
 
(Zip Code)
(208) 667-3511
(Registrant’s telephone number, including area code)
_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The Company has 150,000,000 shares of common stock, par value of $0.01, authorized of which 89,477,019 shares were issued and outstanding as of November 5, 2012.

1

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

2



COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
September 30,
2012
 
December 31,
2011
ASSETS
Notes

 
(In thousands, except share data)
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
$
142,915

 
$
175,012

Short term investments
5

 
657

 
20,254

Receivables
6

 
70,963

 
83,497

Ore on leach pad
 
 
30,394

 
27,252

Metal and other inventory
7

 
156,130

 
132,781

Deferred tax assets


 
2,090

 
1,869

Restricted assets
 
 
396

 
60

Prepaid expenses and other
 
 
25,460

 
24,218

 
 
 
429,005

 
464,943

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

 
691,219

 
687,676

Mining properties, net
9

 
1,923,251

 
2,001,027

Ore on leach pad, non-current portion
 
 
15,575

 
6,679

Restricted assets
 
 
24,790

 
28,911

Marketable securities
5

 
31,243

 
19,844

Receivables, non-current portion
6

 
48,614

 
40,314

Debt issuance costs, net
 
 
4,056

 
1,889

Deferred tax assets


 
68

 
263

Other
 
 
12,619

 
12,895

TOTAL ASSETS
 
 
$
3,180,440

 
$
3,264,441

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Accounts payable
 
 
$
68,709

 
$
78,590

Accrued liabilities and other
 
 
7,160

 
13,126

Accrued income taxes
 
 
28,659

 
47,803

Accrued payroll and related benefits
 
 
22,892

 
16,240

Accrued interest payable
 
 
125

 
559

Current portion of debt and capital leases
10

 
56,340

 
32,602

Current portion of royalty obligation
10,15
 
69,959

 
61,721

Current portion of reclamation and mine closure
11

 
3,372

 
1,387

Deferred tax liabilities


 
53

 
53

 
 
 
257,269

 
252,081

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

 
5,053

 
115,861

Non-current portion of royalty obligation
10,15
 
164,272

 
169,788

Reclamation and mine closure
11

 
32,636

 
32,371

Deferred tax liabilities


 
540,023

 
527,573

Other long-term liabilities
 
 
37,888

 
30,046

 
 
 
779,872

 
875,639

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

 

SHAREHOLDERS’ EQUITY
 
 
 
 
 
Common stock, par value $0.01 per share; authorized 150,000,000 shares, issued and outstanding 89,446,482 at September 30, 2012 and 89,655,124 at December 31, 2011
 
 
894

 
897

Additional paid-in capital
 
 
2,579,707

 
2,585,632

Accumulated deficit
 
 
(433,706
)
 
(444,833
)
Accumulated other comprehensive loss
 
 
(3,596
)
 
(4,975
)
 
 
 
2,143,299

 
2,136,721

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
$
3,180,440

 
$
3,264,441


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

3

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except share data)
Sales of metal
$
230,593

 
$
343,575

 
$
689,563

 
$
774,289

Production costs applicable to sales
(124,967
)
 
(141,253
)
 
(349,344
)
 
(310,829
)
Depreciation, depletion and amortization
(52,844
)
 
(58,652
)
 
(166,460
)
 
(166,334
)
Gross profit
52,782

 
143,670

 
173,759

 
297,126

COSTS AND EXPENSES
 
 
 
 
 
 
 
Administrative and general
10,266

 
8,236

 
26,456

 
22,294

Exploration
6,957

 
4,772

 
19,829

 
11,611

Loss on impairment and other
1,293

 
—

 
6,106

 
—

Pre-development, care, maintenance and other
277

 
3,271

 
1,618

 
17,949

Total cost and expenses
18,793

 
16,279

 
54,009

 
51,854

OPERATING INCOME
33,989

 
127,391

 
119,750

 
245,272

OTHER INCOME AND EXPENSE
 
 
 
 
 
 
 
Loss on debt extinguishments
—

 
(784
)
 
—

 
(1,640
)
Fair value adjustments, net
(37,648
)
 
(53,351
)
 
(44,722
)
 
(71,051
)
Interest income and other, net
12,664

 
(6,610
)
 
14,450

 
(1,946
)
Interest expense, net of capitalized interest
(7,351
)
 
(7,980
)
 
(21,578
)
 
(26,553
)
Total other income and expense, net
(32,335
)
 
(68,725
)
 
(51,850
)
 
(101,190
)
Income before income taxes
1,654

 
58,666

 
67,900

 
144,082

Income tax provision
(17,475
)
 
(27,606
)
 
(56,773
)
 
(61,947
)
NET INCOME (LOSS)
$
(15,821
)
 
$
31,060

 
$
11,127

 
$
82,135

BASIC AND DILUTED INCOME (LOSS) PER SHARE
 
 
 
 
 
 
 
Basic income per share:
 
 
 
 
 
 
 
Net income (loss)
$
(0.18
)
 
$
0.35

 
$
0.12

 
$
0.92

Diluted income per share:
 
 
 
 
 
 
 
Net income (loss)
$
(0.18
)
 
$
0.35

 
$
0.12

 
$
0.92

Weighted average number of shares of common stock
 
 
 
 
 
 
 
Basic
89,429

 
89,449

 
89,550

 
89,350

Diluted
89,429

 
89,739

 
89,690

 
89,702

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

4

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
Three months ended
September 30,
Nine months ended
September 30,
 
2012
 
2011
2012
 
2011
 
(In thousands)
 
 
 
Net income (loss)
$
(15,821
)
 
$
31,060

$
11,127

 
$
82,135

OTHER COMPREHENSIVE INCOME (LOSS) net of tax:
 
 
 
 
 
 
Unrealized gain (loss) on available for sale securities
6,026

 
(2,789
)
774

 
(4,176
)
Reclassification adjustments for losses included in net income (loss)
605

 
—

605

 
—

Other comprehensive income (loss)
6,631

 
(2,789
)
1,379

 
(4,176
)
COMPREHENSIVE INCOME (LOSS)
$
(9,190
)
 
$
28,271

$
12,506

 
$
77,959

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

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Nine months ended September 30, 2012
(Unaudited)
(In thousands)
Common
Stock
Shares
 
Common
Stock Par
Value
 
Additional Paid-
In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balances at December 31, 2011
89,655

 
$
897

 
$
2,585,632

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

Net income
—

 
—

 
—

 
11,127

 
—

 
11,127

Other comprehensive income
—

 
—

 
—

 
—

 
1,379

 
1,379

Common stock share buy back
(476
)
 
(5
)
 
(9,966
)
 
—

 
—

 
(9,971
)
Common stock issued/cancelled under long-term incentive plans and director fees and options, net
267

 
2

 
4,041

 
—

 


 
4,043

Balances at September 30, 2012
89,446

 
$
894

 
$
2,579,707

 
$
(433,706
)
 
$
(3,596
)
 
$
2,143,299

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

5

COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net income (loss)
$
(15,821
)
 
$
31,060

 
$
11,127

 
$
82,135

Add (deduct) non-cash items
 
 
 
 
 
 
 
Depreciation, depletion and amortization
52,844

 
58,652

 
166,460

 
166,334

Accretion of discount on debt and other assets, net
585

 
516

 
1,683

 
1,460

Accretion of royalty obligation
4,276

 
4,990

 
14,348

 
16,027

Deferred income taxes
(4,944
)
 
3,084

 
12,425

 
13,177

Loss on debt extinguishment
—

 
784

 
—

 
1,640

Fair value adjustments, net
35,270

 
50,767

 
39,288

 
71,360

Gain (loss) on foreign currency transactions
(1,577
)
 
137

 
(1,208
)
 
(600
)
Share-based compensation
3,364

 
457

 
6,534

 
5,261

(Gain) loss on sale of assets
108

 
4

 
372

 
(1,220
)
Loss on impairment
1,848

 
—

 
6,621

 
—

Other non-cash charges
1,331

 
506

 
1,838

 
1,337

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Receivables and other current assets
(5,648
)
 
(10,513
)
 
1,717

 
(23,492
)
Prepaid expenses and other
(2,481
)
 
(8,697
)
 
(564
)
 
(7,362
)
Inventories
(13,762
)
 
23,234

 
(35,387
)
 
(12,834
)
Accounts payable and accrued liabilities
24,342

 
26,930

 
(15,313
)
 
15,538

CASH PROVIDED BY OPERATING ACTIVITIES
79,735

 
181,911

 
209,941

 
328,761

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Purchase of short term investments and marketable securities
(4,093
)
 
(8,804
)
 
(11,959
)
 
(21,914
)
Proceeds from sales and maturities of short term investments
337

 
495

 
21,038

 
3,855

Capital expenditures
(29,972
)
 
(38,099
)
 
(93,857
)
 
(79,780
)
Other
479

 
1,397

 
1,659

 
1,670

CASH USED IN INVESTING ACTIVITIES
(33,249
)
 
(45,011
)
 
(83,119
)
 
(96,169
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Proceeds from issuance of notes and bank borrowings
—

 
—

 
—

 
27,500

Payments on long-term debt, capital leases, and associated costs
(80,318
)
 
(16,405
)
 
(94,562
)
 
(51,640
)
Payments on gold production royalty
(17,458
)
 
(19,510
)
 
(58,119
)
 
(51,569
)
Payments on gold lease facility
—

 
—

 
—

 
(13,800
)
Reductions of (additions to) restricted assets associated with the Kensington Term Facility
4,645

 
—

 
4,645

 
(1,325
)
Share repurchases
(9,971
)
 
—

 
(9,971
)
 
—

Other
134

 
67

 
(912
)
 
6

CASH USED IN FINANCING ACTIVITIES
(102,968
)
 
(35,848
)
 
(158,919
)
 
(90,828
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(56,482
)
 
101,052

 
(32,097
)
 
141,764

Cash and cash equivalents at beginning of period
199,397

 
106,830

 
175,012

 
66,118

Cash and cash equivalents at end of period
$
142,915

 
$
207,882

 
$
142,915

 
$
207,882

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

6
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)



NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation — The Company’s unaudited interim condensed consolidated financial statements have been prepared under United States Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Coeur d’Alene Mines Corporation and its consolidated subsidiaries (“Coeur” or the “Company”). All significant intercompany transactions and balances have been eliminated during consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2011. The condensed consolidated balance sheet as of December 31, 2011, included herein, was derived from the audited consolidated financial statements as of that date.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2012 and December 31, 2011 and the Company’s results of operations and cash flows for the three and nine months ended September 30, 2012 and 2011. The results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. All references to September 30, 2012 or to the three and nine months ended September 30, 2012 and 2011 in the notes to the condensed consolidated financial statements are unaudited.
Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Areas requiring significant management estimates and assumptions include: recoverable ounces from proven and probable reserves that are the basis of future cash flow estimates and units-of-production depreciation, depletion and amortization calculations; useful lives utilized for depreciation and amortization; estimates of future cash flows for long-lived assets; estimates of recoverable gold and silver ounces in ore on leach pad; amount and timing of reclamation and remediation costs; valuation allowance for deferred tax assets; assessment of valuation allowance for value added tax receivables; and employee benefit liabilities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements: Effective January 1, 2012, the Company adopted ASU 2011-04 which included new guidance on fair value measurement and disclosure requirements. This standard provides guidance on the application of fair value accounting where it is already required or permitted by other standards. This standard also requires additional disclosures related to transfers of financial instruments within the fair value hierarchy and quantitative and qualitative disclosures related to significant unobservable inputs. In addition, the standard includes specifications for the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position, but for which the fair value of such items is required to be disclosed. The adoption of this standard has no material effect on the Company's financial position, results of operations or cash flows. Refer to Note 4 — Fair Value Measurements, for further details regarding the Company’s assets and liabilities measured at fair value.
Effective January 1, 2012, the Company adopted ASU 2011-05 which includes guidance for presentation of comprehensive income and requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance was effective for the Company's fiscal year beginning January 1, 2012. The Company chose to use the two-statement approach and the update had no effect on the Company's financial position, results of operations or cash flows.
In December, 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 201): Disclosures about Offsetting Assets and Liabilities." This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, with retrospective application required. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and nine months ended September 30, 2012, 772,368 and 640,660 shares, respectively of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. In the three months ended September 30, 2012 the Company had a net loss, therefore all equity-based awards were excluded. For the three

7
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

and nine months ended September 30, 2011, 1,129,562 and 1,326,763 shares, respectively, of common stock equivalents related to convertible debt and equity based awards have not been included in the diluted per share calculation as the shares would be antidilutive. The 3.25% Convertible Senior Notes were not included in the computation of diluted earning per share for the three and nine months ended September 30, 2012 and 2011 because there is no excess value upon conversion over the principal amount of the Notes.
The effect of potentially dilutive stock outstanding as of September 30, 2012, and 2011 are as follows (in thousands, except per share data):
 
Three months ended September 30, 2012
 
Nine months ended September 30, 2012
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common shareholders
$
(15,821
)
 
89,429

 
$
(0.18
)
 
$
11,127

 
89,550

 
$
0.12

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
Equity awards
—

 
—

 
 
 
—

 
140

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common shareholders
$
(15,821
)
 
89,429

 
$
(0.18
)
 
$
11,127

 
89,690

 
$
0.12

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2011
 
Nine months ended September 30, 2011
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
31,060

 
89,449

 
$
0.35

 
$
82,135

 
89,350

 
$
0.92

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
Equity awards
—

 
290

 
 
 
—

 
352

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
31,060

 
89,739

 
$
0.35

 
$
82,135

 
89,702

 
$
0.92

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

8
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
Fair Value at September 30, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Short term investments
657

 
657

 
—

 
—

Marketable equity securities
31,243

 
29,694

 
1,549

 
—

Other derivative instruments, net
1,440

 
—

 
1,440

 
—

Silver ounces receivable from Mandalay
676

 
—

 
676

 
—

 
$
34,016

 
$
30,351

 
$
3,665

 
$
—

Liabilities:
 
 
 
 
 
 
 
Royalty obligation embedded derivative
$
170,153

 
$
—

 
$
170,153

 
$
—

Put and call options
16,755

 
—

 
16,755

 
—

 
$
186,908

 
$
—

 
$
186,908

 
$
—

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

 
20,254

 
—

 
—

Marketable securities
19,844

 
19,844

 
—

 
—

Put and call options
3,040

 
—

 
3,040

 
—

Silver ounces receivable from Mandalay
814

 
—

 
814

 
—

 
$
43,952

 
$
40,098

 
$
3,854

 
$
—

Liabilities:
 
 
 
 
 
 
 
Royalty obligation embedded derivative
$
159,400

 
$
—

 
$
159,400

 
$
—

Put and call options
20,892

 
—

 
20,892

 
—

Other derivative instruments, net
4,012

 
—

 
4,012

 
—

 
$
184,304

 
$
—

 
$
184,304

 
$
—

The Company’s short-term investments are readily convertible to cash and, therefore, these investments are classified within Level 1 of the fair value hierarchy.
The Company’s marketable equity securities, with the exception of its investment in Commonwealth Silver and Gold Mining, a private entity, are recorded at fair market value in the financial statements based on quoted market prices, which are accessible at the measurement date for identical assets. Such instruments are classified within Level 1 of the fair value hierarchy. Commonwealth Silver and Gold Mining was valued by applying an index of enterprise and market capitalization per reserve ounce, as published by Canaccord Financial, to its reserves and resources. The model inputs can generally be verified and do not involve significant management judgment, thus resulting in its classification in Level 2 of the fair value hierarchy. Please see Note 5 - INVESTMENTS for additional details on marketable equity securities.
The Company’s derivative instruments related to the put and call options, silver ounces receivable from Mandalay, royalty obligation embedded derivative, and other derivative instruments, net, which relate to the concentrate sales contracts and foreign exchange contracts, are valued using pricing models which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
The Company had no Level 3 financial assets and liabilities as of September 30, 2012 or December 31, 2011.
There were no transfers between levels of fair value measurements of financial assets and liabilities during the first nine months of 2012.

9
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

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

 
 
 
 
 
 
3.25% Convertible Senior Notes
$
49,607

 
$
49,607

 
$
—

 
$
—

Palmarejo Gold Production Royalty Obligation
$
94,701

 
$
—

 
$
94,701

 
$
—

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

 
$
49,205

 
$
—

 
$
—

Palmarejo Gold Production Royalty Obligation
$
111,257

 
$
—

 
$
111,257

 
$
—

The fair value at September 30, 2012 and December 31, 2011 of the 3.25% Convertible Senior Notes outstanding were determined by active market transactions. As such, the notes are classified as Level 1 in the fair value hierarchy.
The fair value of the Palmarejo Gold Production Royalty Obligation is valued using a pricing model which requires inputs that are derived from observable market data, including contractual terms, yield curves, and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. As such, the obligation is classified within Level 2 of the fair value hierarchy.
The fair value of the Company's cash equivalents, receivables, restricted assets, accounts payable, accrued liabilities, and capital leases approximate book value due to the nature of these assets and liabilities and are classified as Level 1 in the fair value hierarchy, except for capital leases which are classified as Level 2.
The fair value of the Company's non-current portion of the refundable value added tax is not practicable to estimate due to the uncertainty of the timing of the expected future cash flows to be received.
NOTE 5 – INVESTMENTS
The Company classifies the marketable securities in which it invests as available-for-sale securities. Such securities are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income (loss). Please see Note 4 - FAIR VALUE MEASUREMENT for additional information on fair value classification of marketable securities. At the time securities are sold or otherwise disposed of, gains or losses are included in net income. The equity securities reflected in the table below consist of equity securities of silver and gold exploration and development companies that the Company purchased. The following table summarizes the Company’s available-for-sale securities on hand as of September 30, 2012 and December 31, 2011 (in thousands): 
 
Investments in marketable securities
 
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Marketable securities at September 30, 2012
$
34,839

 
$
(7,982
)
 
$
4,386

 
$
31,243

 
 
 
 
 
 
 
 
Marketable securities at December 31, 2011
$
24,819

 
$
(4,975
)
 
$
—

 
$
19,844

In the three months ended September 30, 2012 and 2011, the Company recognized an unrealized gain of $6.0 million and an unrealized loss of $2.8 million, respectively, in other comprehensive income (loss). In the nine months ended September 30, 2012, and 2011, the Company recognized an unrealized gain of $0.8 million and an unrealized loss of $4.2 million, respectively, in other comprehensive income (loss). The Company performs a quarterly assessment on each of its marketable securities with unrealized losses to determine if the security is other than temporarily impaired. The Company has the intent and ability to hold these investments until they recover or increase in value. The Company's management team uses industry knowledge and expertise and has determined that unrealized losses on seven of the eight investments it currently holds are not other than temporary based on a review of the potential for each company. The Company determined that one of its available-for-sale investments was other than temporarily impaired at September 30, 2012 and recorded an impairment loss of $0.6 million during the third quarter of 2012. There were no impairment losses recorded during the third quarter of 2011. Gross realized gains and losses are based on cost, net

10
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

of discount or premium of investments sold.
In addition, the Company had $0.7 million and $20.3 million of short-term investments at September 30, 2012 and December 31, 2011, respectively. These investments are primarily in certificates of deposit with various banks and all have maturity dates of less than one year.
NOTE 6 – RECEIVABLES
Receivables consist of the following (in thousands):
 
September 30, 2012
 
December 31,
2011
Receivables - current portion
 
 
 
Accounts receivable - trade
$
12,276

 
$
14,366

Refundable income tax
11,399

 
11,480

Refundable value added tax
42,133

 
52,968

Accounts receivable - other
5,155

 
4,683

 
$
70,963

 
$
83,497

Receivables - non-current portion
 
 
 
Refundable value added tax
$
48,614

 
$
40,314

 
Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management evaluates the collectability of receivable account balances to determine the allowance, if any. There were no allowances against receivable balances at December 31, 2011.
Taxes paid to foreign governments that are refundable to the Company are classified as “Refundable value added tax” at the face value of the amount of the tax refund due. Refunds expected to be received in the next twelve months are classified as “current” and amounts that are expected to be received after twelve months are classified as “non-current”.
NOTE 7 – METAL AND OTHER INVENTORY
Metal and other inventory consist of the following (in thousands): 
 
September 30, 2012
 
December 31,
2011
Concentrate and doré inventory
$
78,818

 
$
73,590

Supplies
77,312

 
59,191

Metal and other inventory
$
156,130

 
$
132,781

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands): 
 
September 30, 2012
 
December 31,
2011
Land
$
2,010

 
$
1,432

Buildings and improvements
564,465

 
520,137

Machinery and equipment
314,031

 
246,584

Capitalized leases for machinery, equipment, buildings, and land
40,621

 
76,244

 
921,127

 
844,397

Accumulated depreciation and amortization
(292,685
)
 
(235,528
)
 
628,442

 
608,869

Construction in progress
62,777

 
78,807

 
$
691,219

 
$
687,676



11
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 9 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
September 30, 2012
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Martha
 
Endeavor
 
Other
 
Total
Mining properties
$
151,373

 
$
70,099

 
$
331,697

 
$
114,639

 
$
11,416

 
$
—

 
$
—

 
$
679,224

Accumulated depletion
(74,974
)
 
(17,602
)
 
(39,204
)
 
(99,773
)
 
(11,416
)
 
—

 
—

 
(242,969
)
 
76,399

 
52,497

 
292,493

 
14,866

 
—

 
—

 
—

 
436,255

Mineral interests
1,658,389

 
26,642

 
—

 
—

 
—

 
44,033

 
—

 
1,729,064

Accumulated depletion
(221,027
)
 
(7,015
)
 
—

 
—

 
—

 
(14,168
)
 
—

 
(242,210
)
 
1,437,362

 
19,627

 
—

 
—

 
—

 
29,865

 
—

 
1,486,854

Non-producing and development properties
—

 
—

 
—

 
—

 
—

 
—

 
142

 
142

Total mining properties
$
1,513,761

 
$
72,124

 
$
292,493

 
$
14,866

 
$
—

 
$
29,865

 
$
142

 
$
1,923,251

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

 
$
68,684

 
$
321,456

 
$
112,826

 
$
12,643

 
$
—

 
$
—

 
$
649,905

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

 
—

 
(203,416
)
 
81,236

 
53,695

 
294,296

 
14,992

 
2,270

 
—

 
—

 
446,489

Mineral interests
1,658,389

 
26,642

 
—

 
—

 
—

 
44,033

 
—

 
1,729,064

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

 
—

 
—

 
(10,034
)
 
—

 
(174,668
)
 
1,499,762

 
20,635

 
—

 
—

 
—

 
33,999

 
—

 
1,554,396

Non-producing and development properties
—

 
—

 
—

 
—

 
—

 
—

 
142

 
142

Total mining properties
$
1,580,998

 
$
74,330

 
$
294,296

 
$
14,992

 
$
2,270

 
$
33,999

 
$
142

 
$
2,001,027

Operational Mining Properties
Palmarejo Mine: Palmarejo is located in the State of Chihuahua in northern Mexico, and its principal silver and gold properties are collectively referred to as the “Palmarejo mine.” The Palmarejo mine commenced production in April 2009.

San Bartolomé Mine: The San Bartolomé mine is a silver mine located near the city of Potosi, Bolivia. The mineral rights for the San Bartolomé project are held through long-term joint venture/lease agreements with several local independent mining co-operatives and the Bolivian state owned mining organization, (“COMIBOL”). The Company commenced commercial production at San Bartolomé in June 2008.
Kensington Mine: The Kensington mine is an underground gold mine and consists of the Kensington and adjacent Jualin properties located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Company commenced commercial production in July of 2010.
Rochester Mine: The Company has conducted operations at the Rochester mine, located in Western Nevada, since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods. Rochester’s primary product is silver with gold produced as a by-product.
Martha Mine: The Martha mine is an underground silver mine located in Argentina. Coeur acquired a 100% interest in the Martha mine in April 2002. Due to high operating costs and a short remaining expected mine life, the Company evaluated strategic and operational alternatives for the Martha mine and recorded an impairment charge of $6.0 million in the nine months ended September 30, 2012. The Martha mine ceased active mining operations in September 2012.
Mineral Interests
Endeavor Mine: In May 2005, CDE Australia Pty Ltd, (“CDE Australia”), a wholly-owned subsidiary of Coeur acquired the silver production and reserves, up to a maximum 17.7 million  payable ounces, contained at the Endeavor mine in Australia, which is owned and operated by Cobar Operations Pty. Limited (“Cobar”), a wholly-owned subsidiary of CBH Resources Ltd. (“CBH”). In March 2006, CDE Australia entered into an amended agreement under which it owns all silver production and reserves up to a total of 20.0 million payable ounces.

12
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

CDE Australia began realizing reductions in revenues in the fourth quarter of 2008 as a result of a silver price sharing provision that was part of the purchase agreement. CDE Australia has received approximately 4.1 million payable ounces to-date and the current ore reserve contains approximately 4.6 million payable ounces based on current metallurgical recovery and current smelter contract terms.
Non-Producing and Development Properties
Joaquin Project – Argentina: The Joaquin project is located in the Santa Cruz province of southern Argentina. The Company commenced exploration of this large property, consisting of over 28,450 hectares (70,300 acres), north of the Company's Martha silver mine, in November 2007. Since that time the Company has defined silver and gold mineralization in two deposits at Joaquin, La Negra and La Morocha, collectively referred to as the "Joaquin Project," and has recently commenced work on detailed drilling and other technical, economic and environmental programs which it expects will lead to completion of pre-feasibility and feasibility studies. The Company has not capitalized any expenditures associated with the Joaquin Project as of September 30, 2012. The Company has a 51% participating and managing equity interest in the Joaquin Project, and upon completion of a feasibility study, will have earned an additional 10% interest. The Company has further rights to increase its participating interest in the property to 71% subject to other conditions in the joint venture agreement.
NOTE 10 – DEBT AND CAPITAL LEASE OBLIGATIONS
The current and non-current portions of long-term debt and capital lease obligations as of September 30, 2012 and December 31, 2011 are as follows (in thousands):
 
September 30,
2012
 
December 31,
2011
 
Current
 
Non-Current
 
Current
 
Non-Current
3.25% Convertible Senior Notes due March 2028
$
47,424

 
$
—

 
$
—

 
$
45,545

Kensington Term Facility
—

 
—

 
15,398

 
60,425

Capital lease obligations
8,916

 
5,053

 
17,119

 
9,891

Other
—

 
—

 
85

 
—

 
$
56,340

 
$
5,053

 
$
32,602

 
$
115,861


3.25% Convertible Senior Notes
As of September 30, 2012, the outstanding balance of the 3.25% Convertible Senior Notes due 2028 was $48.7 million, or $47.4 million net of debt discount. The notes are classified as current liabilities as of September 30, 2012 as a result of the holders' option to require the Company to repurchase the notes on March 15, 2013.
The fair value of the notes outstanding, as determined by market transactions at September 30, 2012 and December 31, 2011 was $49.6 million and $49.2 million, respectively. The carrying value of the equity component at September 30, 2012 and December 31, 2011 was $10.9 million.
For the three months ended September 30, 2012 and 2011 interest expense recognized was $0.4 million and $0.4 million, respectively. For the nine months ended September 30, 2012 and 2011 interest expense recognized was $1.2 million, and $1.2 million, respectively. For the three months ended September 30, 2012 and 2011 accretion of the debt discount was $0.6 million and $0.6, respectively. For the nine months ended September 30, 2012 and 2011 accretion of the debt discount was $1.9 million and $1.7 million, respectively. The debt discount remaining at September 30, 2012 was $1.2 million, which will be amortized through March 15, 2013. The effective interest rate on the notes was 8.9%.
Revolving Credit Facility
On August 1, 2012, Coeur Alaska, Inc. and Coeur Rochester, Inc. (the “Borrowers”), each a wholly-owned subsidiary of the Company, entered into a new Credit Agreement (the “Credit Agreement”) by and among the Company, the Borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $100.0 million, which principal amount may be increased, subject to receiving additional commitments therefor, by up to $50.0 million. The unused line fee for the three months ended September 30, 2012 was $0.1 million and was charged to interest expense.
The term of the Revolving Credit Facility is four years. Amounts may be borrowed under the Revolving Credit Facility to finance working capital and general corporate purposes of the Company and its subsidiaries, including the payment of fees and expenses incurred in connection with the Revolving Credit Facility. The obligations under the Revolving Credit Facility are secured by substantially all of the assets of the Company and its domestic subsidiaries, including the land, mineral rights and infrastructure at the Kensington and Rochester mines, as well as a pledge of the shares of certain of the Company's subsidiaries.

13
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

In addition, in connection with the Revolving Credit Facility, Coeur Alaska, Inc. retained its existing hedge positions established under the Kensington Term Facility described below, with Wells Fargo Bank, N.A. as hedge provider.
Borrowings under the Revolving Credit Facility bear interest at a rate selected by the Borrowers equal to either LIBOR plus a margin of 2.25%-3.25% or an alternate base rate plus a margin of 1.25%-2.25%, with the margin determined by reference to the Company's ratio of consolidated debt to adjusted EBITDA.
Voluntary prepayments of the loans and voluntary reductions of the unutilized portion of the commitments under the Revolving Credit Facility are permitted without prepayment premium or penalty, subject to payment of customary LIBOR breakage costs. Amounts so repaid may be re-borrowed subject to customary requirements.
The Revolving Credit Facility contains representations and warranties, events of default and affirmative and negative covenants that are usual and customary, including covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales and make dividends and distributions. The Revolving Credit Facility also contains financial covenants that require (i) our ratio of consolidated debt to adjusted EBITDA to be not greater than 3.25 to 1.00 (subject to a step-down to 3.00 to 1.00 after two years), (ii) our ratio of adjusted EBITDA to interest expense to be not less than 3.00 to 1.00 and (iii) our tangible net worth to be not less than 90% of our tangible net worth as of March 31, 2012 plus 25% of our net income for each fiscal quarter ending after March 31, 2012 to the date of measurement.
As of September 30, 2012, no amounts were outstanding under the Revolving Credit Facility.
Kensington Term Facility
On August 16, 2012, Coeur Alaska prepaid all obligations and indebtedness outstanding under the Coeur Alaska, Inc. Term Facility Agreement, as amended and restated on December 20, 2010, with Credit Suisse AG (the "Kensington Term Facility"), which totaled approximately $68.6 million. Upon payment in full, the Kensington Term Facility was terminated and all of the liens granted under the Kensington Term Facility were released.
As a condition to the Kensington Term Facility with Credit Suisse, the Company agreed to enter into a gold hedging program which protects a minimum of 243,750 ounces of gold production over the life of the term facility against the risk associated with fluctuations in the market price of gold. This program consists of a series of zero cost collars which consist of a floor price and a ceiling price of gold. Coeur Alaska has transferred these hedge positions to Wells Fargo Bank, N.A., as hedge provider. Call options protecting 104,000 ounces of gold were outstanding at September 30, 2012. The weighted average strike price of the call options was $1,970.05. Put options protecting 139,000 ounces of gold were outstanding at September 30, 2012. The weighted average strike price of the put options was $962.42.
Capital Lease Obligations
As of September 30, 2012 and December 31, 2011, the Company had outstanding balances on capital leases of $14.0 million and $27.0 million, respectively.
Palmarejo Gold Production Royalty Obligation
The Company recognized accretion expense on the Palmarejo gold production royalty obligation for the three and nine months ended September 30, 2012 and 2011 of $4.4 million and $5.4 million and $15.0 million and $16.4 million, respectively. As of September 30, 2012 and December 31, 2011, the remaining minimum obligation under the royalty agreement was $64.1 million and $72.1 million, respectively.

14
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Interest Expense
The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the three and nine months ended September 30, 2012 and 2011, the Company expensed interest of $7.4 million and $8.0 million, and $21.6 million and $26.6 million, respectively.
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2012
2011
 
2012
2011
 
(in thousands)
 
(in thousands)
3.25% Convertible Senior Notes due March 2028
$
395

$
395

 
$
1,186

$
1,186

Senior Term Notes (terminated in 2011)
—

366

 
—

1,280

Kensington Term Facility (terminated in 2012)
459

1,086

 
2,339

3,353

Capital lease obligations
219

416

 
827

1,353

Other debt obligations
436

144

 
668

801

Gold Lease Facility (terminated in 2011)
—

—

 
—

107

Accretion of Franco Nevada royalty obligation
4,384

5,370

 
15,047

16,407

Amortization of debt issuance costs
1,331

504

 
1,838

1,646

Accretion of debt discount
639

585

 
1,879

1,722

Capitalized interest
(512
)
(886
)
 
(2,206
)
(1,302
)
Total interest expense, net of capitalized interest
$
7,351

$
7,980

 
$
21,578

$
26,553

Capitalized Interest
The Company capitalizes interest incurred on its various debt instruments as a cost of properties under development. For the three and nine months ended September 30, 2012 and 2011, the Company capitalized interest of $0.5 million and $0.9 million, and $2.2 million and $1.3 million, respectively.
NOTE 11 – RECLAMATION AND MINE CLOSURE
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, mineral prices, mineral processing recovery rates, production levels, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. The sum of the expected costs by year is discounted, using the Company's credit adjusted risk free interest rate. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.
Changes to the Company’s asset retirement obligations are as follows (in thousands): 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2012
 
2011
 
2012
 
2011
Asset retirement obligation - Beginning
$
34,510

 
$
28,557

 
$
32,714

 
$
27,302

Accretion
714

 
670

 
2,180

 
1,961

Addition and changes in estimates
—

 
—

 
335

 
—

Settlements
(13
)
 
(15
)
 
(18
)
 
(51
)
Asset retirement obligation - September 30
$
35,211

 
$
29,212

 
$
35,211

 
$
29,212

In addition, the Company has accrued $0.8 million and $1.0 million as of September 30, 2012 and December 31, 2011, respectively, for reclamation liabilities related to former mining activities. These amounts are also included in reclamation and mine closure liabilities.
NOTE 12 – INCOME TAXES
For the three and nine months ended September 30, 2012, the Company reported an income tax provision of approximately $17.5 million and $56.8 million, respectively, compared to an income tax provision of $27.6 million and $61.9 million for the three and nine months ended September 30, 2011, respectively.

15
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The following table summarizes the components of the Company’s income tax provision from continuing operations for the three and nine months ended September 30, 2012 and 2011 (in thousands): 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2012
 
2011
 
2012
 
2011
United States
$
(465
)
 
$
1,300

 
$
(3,990
)
 
$
342

Argentina
1,232

 
(23
)
 
993

 
60

Australia
(545
)
 
(858
)
 
(1,751
)
 
(1,976
)
Mexico
5,409

 
(2,963
)
 
(10,341
)
 
(13,165
)
Bolivia
(23,106
)
 
(25,062
)
 
(41,684
)
 
(47,208
)
Income tax provision from continuing operations
$
(17,475
)
 
$
(27,606
)
 
$
(56,773
)
 
$
(61,947
)
The income tax provision for the three and nine months ended September 30, 2012 and 2011 varies from the statutory rate primarily because of differences in tax rates for the Company's foreign operations and changes in valuation allowances for net deferred tax assets, permanent differences and foreign exchange rate differences. The variance is also attributable to an audit of San Bartolomé's 2009 Bolivian tax return, whereby San Bartolomé incurred an additional $1.4 million of tax expense, including interest and penalties, related to the 2009 tax year and recognized a further $10.3 million of tax expense, including interest and penalties, related to uncertainty in similar tax positions for the years 2010 and 2011. In addition, the Company has recognized approximately $2.1 million of additional tax expense for 2012 related to these uncertain tax positions.
The Company has U.S. net operating loss carryforwards which expire in 2017 through 2031. Net operating losses in foreign countries have an indefinite carryforward period, except in Mexico where net operating loss carryforwards are limited to ten years.
NOTE 13 – SHARE-BASED COMPENSATION PLANS
The Company has an annual incentive plan and a long-term incentive plan. The Company’s shareholders approved the Amended and Restated 2003 Long-Term Incentive Plan of Coeur d’Alene Mines Corporation at the 2010 annual shareholders meeting.
The compensation expense recognized in the Company’s consolidated financial statements for the three months ended September 30, 2012 and 2011 for share based compensation awards was $3.4 million and $0.5 million, respectively. The compensation expense recognized in the Company’s consolidated financial statements for the nine months ended September 30, 2012 and 2011 for share based compensation awards was $6.1 million and $5.3 million, respectively. The stock appreciation rights (SARs), restricted stock units (RSUs) and performance units outstanding under the plan are liability-based awards and are required to be re-measured at the end of each reporting period with corresponding adjustments to previously recognized and future stock-based compensation expense. As of September 30, 2012, there was $6.9 million of total unrecognized compensation cost (net of estimated forfeitures) related to unvested stock options, SARs, restricted stock, RSUs, performance shares and performance units which is expected to be recognized over a weighted-average remaining vesting period of 1.6 years.

The following table summarizes the new grants issued during the nine months ended September 30, 2012:
Grant date
Restricted
stock
 
Grant date fair
value of
restricted stock
 
Stock options
 
Grant date
fair value of
stock
options
 
Performance
shares
 
Grant date fair
value of
performance
shares
January 31, 2012
165,169

 
$
27.66

 
120,720

 
$
17.67

 
77,137

 
$
41.53

March 1, 2012
4,844

 
$
28.72

 
—

 
$
—

 
—

 
$
—

April 2, 2012
2,009

 
$
24.32

 
—

 
$
—

 
—

 
$
—

May 1, 2012
3,185

 
$
21.65

 
—

 
$
—

 
—

 
$
—

May 7, 2012
7,511

 
$
19.01

 
11,803

 
$
12.10

 
7,511

 
$
28.54

June 1, 2012
1,361

 
$
18.35

 
—

 
$
—

 
—

 
$
—

July 2, 2012
6,166

 
$
17.35

 
—

 
$
—

 
—

 
$
—

August 1, 2012
2,209

 
$
15.84

 
—

 
$
—

 
—

 
$
—

September 4, 2012
8,590

 
$
23.55

 
—

 
$
—

 
—

 
$
—


16
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The following options and stock appreciation rights were exercised during the nine months ended September 30, 2012:
Award Type
Number of Units
 
Weighted Average
Exercise Price
Options
37,395

 
$
11.18

Stock Appreciation Rights
34,385

 
$
12.73

The following shows the weighted average fair value of SARs, performance units and RSUs outstanding at September 30, 2012: 
  
September 30, 2012
  
SARs
 
Performance
units
 
Restricted
stock units
Weighted average fair value
$
17.38

 
$
54.26

 
$
28.83


The following table shows the options and SARs exercisable at September 30, 2012:
Options
Exercisable
 
Weighted
Average Exercise
Price
 
SARs
Exercisable
 
Weighted
Average Exercise
Price
209,619

 
$
34.18

 
46,125

 
$
13.72

NOTE 14 – DEFINED CONTRIBUTION AND 401(k) PLANS
Defined Contribution Plan
The Company provides a noncontributory defined contribution retirement plan for all eligible U.S. employees. Total contributions, which are based on a percentage of the salary of eligible employees, were $0.6 million and $0.4 million, for the three months ended September 30, 2012 and 2011, respectively. Total contributions were $1.6 million and $1.1 million for the nine months ended September 30, 2012 and 2011, respectively.
401(k) Plan
The Company maintains a retirement savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue Code) covering all eligible U.S. employees. Under the plan, employees may elect to contribute up to 100% of their cash compensation, subject to ERISA limitations. The Company adopted a Safe Harbor Tiered Match and is required to make matching contributions equal to 100% of the employee’s contribution up to 3% of the employee’s compensation plus matching contributions equal to 50% of the employee’s contribution up to an additional 2% of the employee’s compensation. Total plan expenses recognized in the Company’s consolidated financial statements for the three months ended September 30, 2012 and 2011 were $0.4 million and $0.4 million, respectively. Total plan expenses recognized for the nine months ended September 30, 2012 and 2011 were $1.5 million and $1.0 million, respectively.
NOTE 15 – DERIVATIVE FINANCIAL INSTRUMENTS
Palmarejo Gold Production Royalty
On January 21, 2009, the Company entered into a gold production royalty transaction with Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties. The royalty transaction included a minimum obligation of 4,167 ounces per month that ends when payments have been made on a total of 400,000 ounces of gold. As of September 30, 2012, a total of 209,853 ounces of gold remain outstanding under the minimum royalty obligation.
The price volatility associated with the minimum royalty obligation is considered an embedded derivative financial instrument under U.S. GAAP. As such, the Company is required to recognize the change in fair value of the remaining minimum obligation due to the changing gold prices. Unrealized gains are recognized in periods when the gold price has decreased from the previous period and unrealized losses are recognized in periods when the gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 4.9% and 5.7% at September 30, 2012 and December 31, 2011, respectively. The fair value of the embedded derivative at September 30, 2012 and December 31, 2011, based on forward gold prices averaging approximately $1,793 and $1,611 per ounce, respectively, was a liability of $170.2 million and $159.4 million, respectively. During the three and nine months ended September 30, 2012 and 2011, mark-to-market adjustments for this embedded derivative amounted to a loss of $23.4 million and $14.5 million, and a loss of $10.8 million and $17.4 million, respectively.
Payments on the royalty obligation occur monthly resulting in a decrease to the carrying amount of the minimum obligation and the derivative liability and the recognition of realized gains or losses as a result of changing prices for gold. Each monthly

17
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

payment is an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of the actual gold production per month multiplied by the excess of the monthly average market price of gold above $400 per ounce (which $400 floor is subject to a 1% annual inflation compounding adjustment beginning on January 21, 2013). For the three and nine months ended September 30, 2012 and 2011, realized losses on settlement of the liabilities were $10.9 million and $11.9 million, and $35.0 million and $29.1 million, respectively. The mark-to-market adjustments and realized losses are included in fair value adjustments, net in the consolidated statement of operations.
Forward Foreign Exchange Contracts
The Company periodically enters into forward foreign currency contracts to reduce the foreign exchange risk associated with forecasted Mexican peso (“MXN”) operating costs at its Palmarejo mine. At September 30, 2012, the Company had MXN foreign exchange contracts of $17.4 million in U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 13.19 MXN to each U.S. dollar and the Company had an asset with a fair value of $0.2 million at September 30, 2012. At December 31, 2011, the Company had MXP foreign exchange contracts of $25.5 million in U.S. dollars. These contracts required the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 12.40 MXN to each U.S. dollar and the Company had a liability with a fair value of $3.2 million at December 31, 2011. The Company recorded mark-to-market gains on these contracts of $0.6 million and $3.4 million for the three and nine months ended September 30, 2012, respectively. The Company recorded mark-to-market losses of $4.1 million and $3.8 million for the three and nine months ended September 30, 2011, respectively. These mark-to-market adjustments are reflected in fair value adjustments, net. The Company recorded a realized gain of $0.4 million and a realized loss of $1.5 million in production costs applicable to sales during the three and nine months ended September 30, 2012, respectively. The Company recorded a realized loss of $0.1 million and a realized gain of $1.0 million in production costs applicable to sales during the three and nine months ended September 30, 2011, respectively.
Concentrate Sales Contracts
The Company enters into concentrate sales contracts with third-party smelters. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. The provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final settlement price based on a future price, does not qualify for hedge accounting. These embedded derivatives are recorded as derivative assets (in Prepaid expenses and other) or derivative liabilities (in Accrued liabilities and other) on the balance sheet and are adjusted to fair value through earnings each period until the date of final settlement. At September 30, 2012, the Company had outstanding provisionally priced sales of $20.9 million, consisting of 0.5 million ounces of silver and 3,734 ounces of gold, which had a fair value of $22.1 million including the embedded derivative. At December 31, 2011, the Company had outstanding provisionally priced sales of $22.5 million consisting of 0.2 million ounces of silver and 9,701 ounces of gold, which had a fair value of approximately $21.7 million including the embedded derivative.
Commodity Derivatives
As of September 30, 2012, the Company had outstanding call options requiring it to deliver 104,000 ounces of gold at a weighted average strike price of $1,970.05 per ounce if the market price of gold exceeds the strike price. At September 30, 2012, the Company had outstanding put options allowing it to sell 139,000 ounces of gold at a weighted average strike price of $962.42 per ounce if the market price of gold were to fall below the strike price. The contracts will expire over the next four years. At December 31, 2011, the Company had written outstanding call options requiring it to deliver 136,000 ounces of gold at a weighted average strike price of $1,919.83 per ounce if the market price of gold exceeds the strike price. At December 31, 2011, the Company had outstanding put options allowing it to sell 190,000 ounces of gold at a weighted average strike price of $951.93 per ounce if the market price of gold were to fall below the strike price. As of September 30, 2012 and December 31, 2011, the fair market value of these contracts was a net liability of $16.8 million and $17.9 million, respectively. During the three months ended September 30, 2012, 17,000 ounces of gold put options expired at a weighted average strike price of $923.34 per ounce, resulting in a realized loss of $0.7 million. During the nine months ended September 30, 2012, 51,000 ounces of gold put options expired at a weighted average strike price of $923.34 per ounce, resulting in a realized loss of $2.2 million. During the three and nine months ended September 30, 2012, 7,000 ounces of gold call options at a weighted average strike price of $2,000.00 expired. During the three and nine months ended September 30, 2012 and 2011, the Company recorded unrealized losses of $3.6 million and unrealized gains of $1.1 million, and unrealized losses of $19.9 million and $18.2 million, respectively, related to the outstanding options which was included in fair value adjustments, net.
In connection with the sale of the Cerro Bayo mine to Mandalay Resources Corporation, the Company received the right to 125,000 ounces of silver to be delivered in six equal quarterly installments commencing in the third quarter of 2011. The Company recognized mark-to-market gains of $0.1 million and mark-to-market losses of $0.1 million associated with this silver in the three and nine months ended September 30, 2012, respectively. The Company recognized mark-to-market gains of $0.8 million and $0.4 million associated with this silver in the three and nine months ended September 30, 2011, respectively. The silver ounces

18
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

receivable from Mandalay Resources Corporation had a fair value of $1.4 million at September 30, 2012, and a fair value of $2.3 million at December 31, 2011.
As of September 30, 2012, the Company had the following derivative instruments that settle in each of the years indicated in the table (in thousands except average prices, ounces and notional data):
 
 
2012
 
2013
 
2014
 
Thereafter
Palmarejo gold production royalty
$
8,392

 
$
25,097

 
$
24,895

 
$
45,831

Average gold price in excess of minimum contractual deduction
$
504

 
$
502

 
$
498

 
$
492

Notional ounces
16,668

 
50,004

 
50,004

 
93,177

Mexican peso forward purchase contracts
$
8,700

 
$
8,700

 
$
—

 
$
—

Average rate (MXP/$)
$
12.85

 
$
13.52

 
$
—

 
$
—

Mexican peso notional amount
111,798

 
117,628

 
—

 
—

Silver ounces receivable from Mandalay
$
769

 
$
—

 
$
—

 
$
—

Average silver forward price
$
18.45

 
$
—

 
$
—

 
$
—

Notional ounces
41,667

 
—

 
—

 
—

Silver concentrate sales agreements
$
14,343

 
$
—

 
$
—

 
$
—

Average silver price
$
30.74

 
$
—

 
$
—

 
$
—

Notional ounces
466,588

 
—

 
—

 
—

Gold concentrates sales agreements
$
6,508

 
$
—

 
$
—

 
$
—

Average gold price
$
1,743

 
$
—

 
$
—

 
$
—

Notional ounces
3,734

 
—

 
—

 
—

Gold put options purchased
$
720

 
$
1,800

 
$
720

 
$
—

Average gold strike price
$
923

 
$
928

 
$
979

 
$
1,010

Notional ounces
17,000

 
45,000

 
47,000

 
30,000

Gold call options sold
$
—

 
$
—

 
$
720

 
$
—

Average gold strike price
$
2,000

 
$
2,000

 
$
1,934

 
$
2,000

Notional ounces
7,000

 
20,000

 
47,000

 
30,000


The following summarizes the classification of the fair value of the derivative instruments as of September 30, 2012 and December 31, 2011 (in thousands):
 
September 30, 2012
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
Other long-
term
liabilities
 
Current
portion of
royalty
obligation
 
Non-current
portion of
royalty
obligation
Silver ounces receivable from Mandalay
$
676

 
$
—

 
$
—

 
$
—

 
$
—

Forward foreign exchange contracts
286

 
80

 
—

 
—

 
—

Palmarejo gold production royalty
—

 
—

 
—

 
46,005

 
124,148

Put and call options, net
—

 
2,840

 
13,915

 
—

 
—

Concentrate sales contracts
1,239

 
5

 
—

 
—

 
—

 
$
2,201

 
$
2,925

 
$
13,915

 
$
46,005

 
$
124,148


19
Coeur d'Alene Mines Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
December 31, 2011
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
Other long-
term
Liabilities
 
Current
portion of