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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________________________ 
FORM 10-Q
___________________________________________
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
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
____________________________________________
  A021914COEURMININGRPMSHSMB33.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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock (par value $.01 per share)
CDE
New York Stock Exchange
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      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      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
 
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  
The Company has 300,000,000 shares of common stock, par value of $0.01, authorized of which 243,537,380 shares were issued and outstanding as of April 20, 2020.



COEUR MINING, INC.
INDEX
 
 
Page
Part I.
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
4
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
5
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
6
 
 
 
 
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
7
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
8
 
 
 
 
32
 
 
 
 
Consolidated Financial Results
35
 
 
 
 
Results of Operations
37
 
 
 
 
Liquidity and Capital Resources
39
 
 
 
 
Non-GAAP Financial Performance Measures
40
 
 
 
 
45
 
 
 
 
47
 
 
 
Part II.
48
 
 
 
 
48
 
 
 
 
Item 1A. Risk Factors
48
 
 
 
 
49
 
 
 
 
Item 5. Other Information
49
 
 
 
 
Item 6. Exhibits
50
 
 
 
Signatures
50



3


PART I
Item 1.        Financial Statements and Supplementary Data

COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


March 31, 2020

December 31, 2019
ASSETS
Notes
In thousands, except share data
CURRENT ASSETS




Cash and cash equivalents

$
52,895


$
55,645

Receivables
4
19,722


18,666

Inventory
5
51,857


55,886

Ore on leach pads
5
83,035


66,192

Prepaid expenses and other

14,150


14,047



221,659


210,436

NON-CURRENT ASSETS




Property, plant and equipment, net

242,018


248,789

Mining properties, net

702,960


711,955

Ore on leach pads
5
66,703


71,539

Restricted assets

8,123


8,752

Equity and debt securities
6
26,826


35,646

Receivables
4
23,149


28,709

Other

57,659


62,810

TOTAL ASSETS

$
1,349,097


$
1,378,636

LIABILITIES AND STOCKHOLDERS’ EQUITY




CURRENT LIABILITIES




Accounts payable

$
61,519


$
69,176

Accrued liabilities and other
19
49,935


95,616

Debt
8
23,588


22,746

Reclamation
9
3,094


3,114



138,136


190,652

NON-CURRENT LIABILITIES




Debt
8
319,521


272,751

Reclamation
9
135,436


133,417

Deferred tax liabilities

36,472


41,976

Other long-term liabilities

58,888


72,836



550,317


520,980

COMMITMENTS AND CONTINGENCIES
17



STOCKHOLDERS’ EQUITY




Common stock, par value $0.01 per share; authorized 300,000,000 shares, 243,586,226 issued and outstanding at March 31, 2020 and 241,529,021 at December 31, 2019

2,436


2,415

Additional paid-in capital

3,603,785


3,598,472

Accumulated other comprehensive income (loss)

70


(136
)
Accumulated deficit

(2,945,647
)

(2,933,747
)


660,644


667,004

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
1,349,097


$
1,378,636


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


4


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Notes
In thousands, except share data
Revenue
3
$
173,167

 
$
154,870

COSTS AND EXPENSES
 
 
 
 
Costs applicable to sales(1)
3
118,917

 
131,650

Amortization
 
36,162

 
41,876

General and administrative
 
8,920

 
9,474

Exploration
 
6,386

 
3,714

Pre-development, reclamation, and other
 
6,555

 
4,434

Total costs and expenses
 
176,940

 
191,148

OTHER INCOME (EXPENSE), NET
 
 
 
 
Fair value adjustments, net
12
(8,819
)
 
9,120

Interest expense, net of capitalized interest
8
(5,128
)
 
(6,454
)
Other, net
14
1,881

 
60

Total other income (expense), net
 
(12,066
)
 
2,726

Income (loss) before income and mining taxes
 
(15,839
)
 
(33,552
)
Income and mining tax (expense) benefit
10
3,939

 
8,658

Income (loss) from continuing operations
 
$
(11,900
)
 
$
(24,894
)
Income (loss) from discontinued operations
18

 
5,693

NET INCOME (LOSS)
 
$
(11,900
)
 
$
(19,201
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
Unrealized gain (loss) on cash flow hedges, net of tax of $22 for the three months ended March 31, 2020
 
206

 

Unrealized gain (loss) on debt and equity securities
 

 
59

Other comprehensive income (loss)
 
206

 
59

COMPREHENSIVE INCOME (LOSS)
 
$
(11,694
)
 
$
(19,142
)
 
 
 
 
 
NET INCOME (LOSS) PER SHARE
15
 
 
 
Basic income (loss) per share:
 
 
 
 
Net income (loss) from continuing operations
 
$
(0.05
)
 
$
(0.12
)
Net income (loss) from discontinued operations
 
0.00

 
0.03

Basic(2)
 
$
(0.05
)
 
$
(0.09
)
Diluted income (loss) per share:
 
 
 
 
Net income (loss) from continuing operations
 
$
(0.05
)
 
$
(0.12
)
Net income (loss) from discontinued operations
 
0.00

 
0.03

Diluted(2)
 
$
(0.05
)
 
$
(0.09
)
(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.

5


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
Notes
In thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
(11,900
)
 
$
(19,201
)
(Income) loss from discontinued operations
 

 
(5,693
)
Adjustments:
 
 
 
 
Amortization
 
36,162

 
41,876

Accretion
 
2,847

 
2,943

Deferred taxes
 
(5,487
)
 
(8,259
)
Fair value adjustments, net
12
8,819

 
(9,120
)
Stock-based compensation
11
2,013

 
2,223

Gain on modification of right of use lease
7
(4,051
)
 

Write-downs
 
10,381

 
15,447

Deferred revenue recognition
17
(7,548
)
 
(445
)
Other
 
(1,092
)
 
1,695

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
(813
)
 
(9,735
)
Prepaid expenses and other current assets
 
(346
)
 
(2,684
)
Inventory and ore on leach pads
 
(21,925
)
 
(18,821
)
Accounts payable and accrued liabilities
 
(15,051
)
 
(6,072
)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES OF CONTINUING OPERATIONS
 
(7,991
)
 
(15,846
)
CASH PROVIDED BY (USED IN )OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
(7,991
)
 
(15,846
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(22,208
)
 
(27,438
)
Proceeds from the sale of assets
18
4,506

 
847

Proceeds from notes receivable
 

 
5,168

Other
 
(17
)
 
1,741

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS
 
(17,719
)
 
(19,682
)
CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS
 

 

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(17,719
)
 
(19,682
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Issuance of notes and bank borrowings, net of issuance costs
8
50,000

 
15,000

Payments on debt, finance leases, and associated costs
8
(5,901
)
 
(22,356
)
Silvertip contingent consideration
17
(18,750
)
 

Other
 
(1,973
)
 
(3,364
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS
 
23,376

 
(10,720
)
CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS
 

 

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
23,376

 
(10,720
)
Effect of exchange rate changes on cash and cash equivalents
 
(626
)
 
201

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
(2,960
)
 
(46,047
)
Less net cash used in discontinued operations(1)
 

 

 
 
(2,960
)
 
(46,047
)
Cash, cash equivalents and restricted cash at beginning of period
 
57,018

 
118,069

Cash, cash equivalents and restricted cash at end of period
 
$
54,058

 
$
72,022



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

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, 2019
241,529

 
$
2,415

 
$
3,598,472

 
$
(2,933,747
)
 
$
(136
)
 
$
667,004

Net income (loss)

 

 

 
(11,900
)
 

 
(11,900
)
Other comprehensive income (loss)

 

 

 

 
206

 
206

Common stock issued for Silvertip contingent consideration payment
878

 
9

 
5,286

 

 

 
5,295

Common stock issued/canceled under long-term incentive plans and director fees and options, net
1,179

 
12

 
27

 

 

 
39

Balances at March 31, 2020
243,586

 
$
2,436

 
$
3,603,785

 
$
(2,945,647
)
 
$
70

 
$
660,644


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, 2018
203,310

 
$
2,033

 
$
3,443,082

 
$
(2,592,544
)
 
$
(59
)
 
852,512

Net income (loss)

 

 

 
(19,201
)
 

 
(19,201
)
Other comprehensive income (loss)

 

 

 

 
59

 
59

Common stock issued under stock-based compensation plans, net
1,801

 
18

 
(1,053
)
 

 

 
(1,035
)
Balances at March 31, 2019
205,111

 
$
2,051

 
$
3,442,029

 
$
(2,611,745
)
 
$

 
$
832,335

The accompanying notes are an integral part of these Consolidated Financial Statements.

7

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, 2020. The condensed consolidated December 31, 2019 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, 2019 (the “2019 10-K”).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
Please see Note 2 -- Summary of Significant Accounting Policies contained in the 2019 10-K.
Revenue Recognition
The Company’s gold stream agreement with a subsidiary of Franco-Nevada Corporation (“Franco-Nevada”) provided for a $20.0 million, net, deposit paid by Franco-Nevada in exchange for the right and obligation, commencing in 2016, 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 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. See Note 17 -- Commitments and Contingencies for additional detail.
The following table presents a rollforward of the Franco-Nevada contract liability balance:
 
Three months ended March 31,
In thousands
2020
 
2019
Opening Balance
$
11,061

 
$
12,918

Revenue Recognized
(556
)
 
$
(445
)
Closing Balance
$
10,505

 
$
12,473


In December 2019, the Company received a $15.0 million prepayment for deliveries of gold concentrate from the Kensington mine pursuant to the Amended Sales Contract (as defined below). The Amended Sales Contract 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 the customer. See Note 17 -- Commitments and Contingencies for additional detail.
The following table presents a rollforward of the Amended Sales Contract liability balance:
 
Three months ended March 31,
In thousands
2020
 
2019
Opening Balance
$
15,010

 
$

Revenue Recognized
(6,992
)
 
$

Closing Balance
$
8,018

 
$


Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)”. The new standard is effective for reporting periods beginning after December 15, 2019. The standard replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We adopted the new credit loss standard effective January 1, 2020. The adoption of the new standard did not have a material impact on the Company’s consolidated net income, financial position or cash flows.

8

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

Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.


9

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

NOTE 3 – SEGMENT REPORTING
The Company’s operating segments include the Palmarejo, Rochester, Kensington, Wharf and Silvertip mines. Except for the Silvertip mine, all operating segments are engaged in the discovery, mining, and production of gold and/or silver. The Silvertip mine, which temporarily suspended mining and processing activities in February 2020, is engaged in the discovery, mining, and production of silver, zinc and lead. Other includes the Sterling/Crown and La Preciosa projects, other mineral interests, strategic equity investments, corporate office, elimination of intersegment transactions, and other items necessary to reconcile to consolidated amounts.
Financial information relating to the Company’s segments is as follows (in thousands):
Three months ended March 31, 2020
Palmarejo
 
Rochester
 
Kensington
 
Wharf
 
Silvertip
 
Other
 
Total
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
Gold sales
$
41,647

 
$
8,666

 
$
51,666

 
$
25,626

 
$

 
$

 
$
127,605

Silver sales
32,692

 
10,739

 

 
248

 
1,230

 

 
44,909

Zinc sales

 

 

 

 
(662
)
 

 
(662
)
Lead sales

 

 

 

 
1,315

 

 
1,315

Metal sales
74,339

 
19,405

 
51,666

 
25,874

 
1,883

 

 
173,167

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)
35,974

 
16,956

 
30,507

 
17,823

 
17,657

 

 
118,917

Amortization
13,175

 
2,904

 
11,922

 
2,444

 
5,345

 
372

 
36,162

Exploration
1,492

 
220

 
1,772

 
4

 
251

 
2,647

 
6,386

Other operating expenses
722

 
1,246

 
331

 
442

 
2,374

 
10,360

 
15,475

Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value adjustments, net

 

 

 

 

 
(8,819
)
 
(8,819
)
Interest expense, net
(155
)
 
(268
)
 
(309
)
 
(51
)
 
(259
)
 
(4,086
)
 
(5,128
)
Other, net
(47
)
 
(53
)
 
71

 
(13
)
 
1,130

 
793

 
1,881

Income and mining tax (expense) benefit
2,287

 
(43
)
 

 
(475
)
 

 
2,170

 
3,939

Income (loss) from continuing operations
$
25,061


$
(2,285
)
 
$
6,896


$
4,622


$
(22,873
)
 
$
(23,321
)

$
(11,900
)
Income (loss) from discontinued operations
$

 
$

 
$

 
$

 
$

 
$

 
$

Segment assets(2)
$
307,662

 
$
295,972

 
$
188,470

 
$
85,531

 
$
161,214

 
$
164,745

 
$
1,203,594

Capital expenditures
$
7,080

 
$
5,058

 
$
4,808

 
$
409

 
$
4,616

 
$
237

 
$
22,208


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

 

10

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

Three months ended March 31, 2019
Palmarejo
 
Rochester
 
Kensington
 
Wharf
 
Silvertip
 
Other
 
Total
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
Gold sales
$
31,600

 
$
11,053

 
$
40,286

 
$
23,825

 

 
$

 
$
106,764

Silver sales
21,625

 
15,317

 

 
217

 
2,955

 

 
40,114

Zinc sales

 

 

 

 
5,634

 

 
5,634

Lead sales

 

 

 

 
2,358

 

 
2,358

Metal sales
53,225

 
26,370

 
40,286

 
24,042

 
10,947

 

 
154,870

Costs and Expenses
 
 
 
 
 
 
 
 
 
 


 
 
Costs applicable to sales(1)
33,244

 
22,454

 
32,175

 
17,392

 
26,385

 

 
131,650

Amortization
14,528

 
4,037

 
11,727

 
2,681

 
8,426

 
477

 
41,876

Exploration
1,010

 
90

 
481

 

 
61

 
2,072

 
3,714

Other operating expenses
702

 
962

 
271

 
664

 
241

 
11,068

 
13,908

Other income (expense)
 
 
 
 
 
 
 
 
 
 


 
 
Fair value adjustments, net

 

 



 

 
9,120

 
9,120

Interest expense, net
(136
)

(142
)
 
(229
)

(21
)
 
(197
)
 
(5,729
)
 
(6,454
)
Other, net
(1,040
)

(27
)
 
13


86

 
(188
)
 
1,216

 
60

Income and mining tax (expense) benefit
1,291


144

 


(173
)
 
9,751

 
(2,355
)
 
8,658

Income (loss) from continuing operations
$
3,856


$
(1,198
)

$
(4,584
)

$
3,197


$
(14,800
)
 
$
(11,365
)
 
$
(24,894
)
Income (loss) from discontinued operations
$

 
$

 
$

 
$

 

 
$
5,693

 
$
5,693

Segment assets(2)
$
360,734

 
$
271,403

 
$
221,164

 
$
103,579

 
417,089

 
$
174,430

 
$
1,548,399

Capital expenditures
$
8,676

 
$
4,645

 
$
9,356

 
$
431

 
4,077

 
$
253

 
$
27,438

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

Assets
March 31, 2020

December 31, 2019
Total assets for reportable segments
$
1,203,594

 
$
1,215,783

Cash and cash equivalents
52,895

 
55,645

Other assets
92,608


107,208

Total consolidated assets
$
1,349,097


$
1,378,636



Geographic Information
Long-Lived Assets
March 31, 2020

December 31, 2019
United States
$
486,989

 
$
494,286

Mexico
306,651

 
312,168

Canada
147,828

 
146,804

Other
3,510

 
7,486

Total
$
944,978


$
960,744


Revenue
Three months ended March 31,
2020
 
2019
United States
$
96,945

 
$
90,699

Mexico
74,339

 
53,225

Canada
1,883

 
10,946

Total
$
173,167

 
$
154,870




11

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

NOTE 4 – RECEIVABLES
Receivables consist of the following:
In thousands
March 31, 2020
 
December 31, 2019
Current receivables:
 
 
 
Trade receivables
$
6,607

 
$
6,028

Value added tax (“VAT”) receivable
11,354

 
10,729

Income tax receivable
116

 
105

Other
1,645

 
1,804

 
$
19,722

 
$
18,666

Non-current receivables:
 
 
 
VAT receivable(1)
$
22,449

 
$
28,009

RMC receivable(2)
700

 
700

 
23,149

 
28,709

Total receivables
$
42,871

 
$
47,375


(1) Represents VAT that was paid to the Mexican government associated with Coeur Mexicana’s prior royalty agreement with a subsidiary of Franco-Nevada Corporation. The Company continues to pursue recovery from the Mexican government (including through ongoing litigation). See Note 17 -- Commitments and Contingencies for additional detail. The $5.6 million decrease in the three months ended March 31, 2020 is attributable to a weaker Mexican Peso.
(2) Represents receivable due from the successor to Republic Metals Corporation, whose filed bankruptcy filing in November 2018 impacted approximately 0.4 million ounces of Coeur’s silver and 6,500 ounces of Coeur’s gold. In September 2019, the Company received a partial settlement payment of $2.6 million in respect of its claims in the bankruptcy proceedings and as a result, the Company recorded a $1.0 million charge in Other, net, against the receivable balance to reflect the new carrying value of the Company’s remaining claims.

NOTE 5 – INVENTORY AND ORE ON LEACH PADS
Inventory consists of the following:
In thousands
March 31, 2020
 
December 31, 2019
Inventory:
 
 
 
Concentrate
2,227

 
$
10,772

Precious metals
13,330

 
20,761

Supplies
36,300

 
24,353

 
51,857

 
55,886

Ore on leach pads:
 
 
 
Current
83,035

 
66,192

Non-current
66,703

 
71,539

 
149,738

 
137,731

Total inventory and ore on leach pads
$
201,595

 
$
193,617


Prior to the temporary suspension of mining activities at Silvertip, Silvertip recognized inventory write-downs of $10.4 million in the three months ended March 31, 2020, which is recognized in Costs applicable to sales, as a result of lower than expected production levels, grades and recovery rates as well as reduced process plant availability.


12

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

NOTE 6 – INVESTMENTS
Equity and Debt Securities
The Company makes strategic investments in equity and debt securities of silver and gold exploration, development and royalty and streaming companies.
 
At March 31, 2020
In thousands
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Equity Securities
 
 
 
 
 
 
 
Metalla Royalty & Streaming Ltd.
$
10,463

 
$

 
$
11,546

 
$
22,009

Integra Resources Corp.
5,000

 
(1,463
)
 

 
3,537

Rockhaven Resources Ltd.
2,064

 
(1,101
)
 

 
963

Other
1,304

 
(987
)
 

 
317

Equity securities
$
18,831

 
$
(3,551
)
 
$
11,546

 
$
26,826



 
At December 31, 2019
In thousands
Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Equity Securities
 
 
 
 
 
 
 
Metalla Royalty & Streaming Ltd.
$
10,463

 
$

 
$
17,725

 
$
28,188

Integra Resources Corp.
5,000

 

 
355

 
$
5,355

Rockhaven Resources, Ltd.
2,064

 
(376
)
 

 
1,688

Other
1,304

 
(889
)
 

 
415

Equity securities
$
18,831

 
$
(1,265
)
 
$
18,080

 
$
35,646



NOTE 7 – LEASES
Right of Use Assets and Liabilities
The following table summarizes quantitative information pertaining to the Company’s finance and operating leases.
 
Three Months Ended March 31,
In thousands
2020
 
2019
Lease Cost
 
 
 
Operating lease cost
$
2,897

 
$
3,449

 
 
 
 
Short-term operating lease cost
$
1,667

 
$
2,751

 
 
 
 
Finance Lease Cost:
 
 
 
Amortization of leased assets
$
5,973

 
$
2,968

Interest on lease liabilities
1,005

 
1,107

Total finance lease cost
$
6,978

 
$
4,075

Supplemental cash flow information related to leases was as follows:
 
Three Months Ended March 31,
In thousands
2020
 
2019
Other Information
 
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
4,871

 
$
6,200

Operating cash flows from finance leases
$
1,005

 
$
1,107

Financing cash flows from finance leases
$
5,901

 
$
7,356



13

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

Supplemental balance sheet information related to leases was as follows:
In thousands
March 31, 2020
 
December 31, 2019
Operating Leases
 
 
 
Other assets, non-current
$
44,436

 
$
49,169

 
 
 
 
Accrued liabilities and other
$
12,198

 
$
13,104

Other long-term liabilities
32,448

 
40,634

Total operating lease liabilities
$
44,646

 
$
53,738

 
 
 
 
Finance Leases
 
 
 
Property and equipment, gross
$
102,768

 
$
103,903

Accumulated depreciation
(43,734
)
 
(42,209
)
Property and equipment, net
$
59,034

 
$
61,694

 
 
 
 
Debt, current
$
23,588

 
$
22,746

Debt, non-current
42,459

 
45,866

Total finance lease liabilities
$
66,047

 
$
68,612

 
 
 
 
Weighted Average Remaining Lease Term
 
 
 
Weighted-average remaining lease term - finance leases
1.63

 
1.73

Weighted-average remaining lease term - operating leases
4.47

 
4.70

 
 
 
 
Weighted Average Discount Rate
 
 
 
Weighted-average discount rate - finance leases
5.35
%
 
5.40
%
Weighted-average discount rate - operating leases
5.19
%
 
5.20
%

In the three months ended March 31, 2020, the Company entered into an agreement to modify one of its operating leases, significantly reducing the lease amount and lease term, thereby decreasing the operating lease liability at remeasurement. The Company recognized a gain of $4.1 million, which is recognized in Pre-development, reclamation, and other, together with the adjustment to the right of use asset and operating lease liability.
Minimum future lease payments under finance and operating leases with terms longer than one year are as follows:
At March 31, (In thousands)
 
 
 
Operating leases
Finance leases
2020
$
9,524

$
19,938

2021
11,119

25,412

2022
10,684

18,779

2023
10,205

6,817

2024
8,605

1,690

Thereafter

145

Total
$
50,137

$
72,781

Less: imputed interest
(5,491
)
(6,734
)
Net lease obligation
$
44,646

$
66,047



NOTE 8 – DEBT
 
March 31, 2020
 
December 31, 2019
In thousands
Current
 
Non-Current
 
Current
 
Non-Current
2024 Senior Notes, net(1)
$

 
$
227,062

 
$

 
$
226,885

Revolving Credit Facility(2)

 
50,000

 

 

Finance lease obligations
23,588

 
42,459

 
22,746

 
45,866

 
$
23,588

 
$
319,521

 
$
22,746

 
$
272,751


(1) Net of unamortized debt issuance costs of $2.9 million and $3.1 million at March 31, 2020 and December 31, 2019, respectively.

14

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

(2) Unamortized debt issuance costs of $2.1 million and $2.3 million at March 31, 2020 and December 31, 2019, respectively, included in Other Non-Current Assets.
2024 Senior Notes
In May 2017, the Company completed an offering of $250.0 million in aggregate principal amount of 5.875% Senior Notes due 2024 (“2024 Senior Notes”) in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act, for net proceeds of approximately $245.0 million, followed by an exchange offer for publicly-traded 2024 Senior Notes. For more details, please see Note 12 -- Debt contained in the 2019 10-K.    
Revolving Credit Facility
At March 31, 2020, the Company had $200.0 million available under its $250.0 million revolving credit facility (the “RCF”) provided pursuant to the credit agreement entered into in September 2017 (as amended, the “Credit Agreement”) among the Company, as borrower, and certain subsidiaries of the Company, as guarantors, and Bank of America, N.A, as administrative agent (the “Agent”), and Bank of America, N.A., Royal Bank of Canada, Bank of Montreal, Chicago Branch, and the Bank of Nova Scotia (the “RCF Lenders”). At March 31, 2020, the interest rate on the principal of the RCF was 3.4%.
Finance Lease Obligations
From time-to-time, the Company acquires mining equipment and facilities under finance lease agreements. In the three months ended March 31, 2020, the Company entered into new lease financing arrangements primarily for mining equipment at Kensington and Palmarejo. All capital lease obligations are recorded, upon lease inception, at the present value of future minimum lease payments. See Note 7 -- Leases for additional qualitative and quantitative disclosures related to finance leasing arrangements.
Interest Expense
 
Three Months Ended March 31,
In thousands
2020
 
2019
2024 Senior Notes
$
3,378

 
$
3,673

Revolving Credit Facility
549

 
1,853

Finance lease obligations
1,005

 
1,107

Amortization of debt issuance costs
381

 
342

Accretion of Silvertip contingent consideration

 
179

Other debt obligations
35



Capitalized interest
(220
)
 
(700
)
Total interest expense, net of capitalized interest
$
5,128

 
$
6,454



NOTE 9 – 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 March 31,
In thousands
2020
 
2019
Asset retirement obligation - Beginning
$
134,543

 
$
133,508

Accretion
2,804

 
2,895

Settlements
(719
)
 
(662
)
Asset retirement obligation - Ending
$
136,628

 
$
135,741


The Company accrued $1.9 million at each of March 31, 2020 and December 31, 2019, respectively, for reclamation liabilities related to former mining activities, which are included in Reclamation.


15

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

NOTE 10 - INCOME AND MINING TAXES
The following table summarizes the components of Income and mining tax (expense) benefit for the three months ended March 31, 2020 and 2019 by significant jurisdiction:

 
Three months ended March 31,
 
2020
 
2019
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
(11,005
)
$
(736
)
 
$
(6,047
)
$
(2,162
)
Canada
(26,029
)
15

 
(26,525
)
9,792

Mexico
21,359

4,631

 
(772
)
1,024

Other jurisdictions
(164
)
29


(208
)
4

 
$
(15,839
)
$
3,939

 
$
(33,552
)
$
8,658


During the first quarter of 2020, the Company reported estimated income and mining tax benefit of approximately $3.9 million, resulting in an effective tax rate of 24.9%. This compares to income tax benefit of $8.7 million for an effective tax rate of 25.8% during the first quarter of 2019. The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) the non-recognition of tax assets; (ii) foreign exchange rates; (iii) the impact of uncertain tax positions; (iv) variations in our income before income taxes; (v) geographic distribution of that income and (vi) mining taxes. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period.
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 2019 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 2016 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 $0.5 million and $1.5 million in the next twelve months.
At March 31, 2020 and December 31, 2019, the Company had $0.7 million and $2.7 million of total gross unrecognized tax benefits from continuing operations, 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 March 31, 2020 and December 31, 2019, the amount of accrued income-tax-related interest and penalties was $0.9 million and $2.3 million, respectively.

NOTE 11 – STOCK-BASED COMPENSATION
The Company has stock incentive plans for executives, directors and eligible employees. Stock awards include performance shares, restricted stock and stock options. Stock-based compensation expense in the three months ended March 31, 2020 and 2019 was $2.0 million and $2.2 million, respectively. At March 31, 2020, there was $9.9 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 1.7 years.
The following table summarizes the grants awarded during the three months ended March 31, 2020:
Grant date
 
Restricted
stock
 
Grant date fair
value of
restricted stock
 
Performance
shares
 
Grant date fair
value of
performance
shares
February 24, 2020
 
1,322,341

 
$
5.12

 

 
$

February 25, 2020
 
120,491

 
$
4.94

 

 
$



16

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


NOTE 12 – FAIR VALUE MEASUREMENTS
 
Three Months Ended March 31,
In thousands
2020
 
2019
Unrealized gain (loss) on equity securities
$
(8,819
)
 
$
9,185

Realized gain (loss) on equity securities

 
(8
)
Interest rate swap, net

 
(57
)
Fair value adjustments, net
$
(8,819
)
 
$
9,120


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).
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 March 31, 2020
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Equity securities
$
26,826

 
$
26,826

 
$

 
$

Other derivative instruments, net
1,023

 

 
1,023

 

 
$
27,849

 
$
26,826

 
$
1,023

 
$

Liabilities:
 
 
 
 
 
 
 
Other derivative instruments, net
$
46

 
$

 
$
46

 
$


 
 
Fair Value at December 31, 2019
In thousands
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Equity and debt securities
$
35,646

 
$
35,646

 
$

 
$

Other derivative instruments, net
753

 

 
753

 

 
$
36,399

 
$
35,646

 
$
753

 
$

Liabilities:
 
 
 
 
 
 
 
Silvertip contingent consideration
$
25,000

 
$

 
$

 
$
25,000

Other derivative instruments, net
275

 

 
275

 

 
$
25,275

 
$

 
$
275

 
$
25,000


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, gold and foreign exchange 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 October 2017, the Company acquired the Silvertip mine from shareholders of JDS Silver Holdings Ltd (the “Silvertip Acquisition”). The consideration for the Silvertip Acquisition included two $25.0 million contingent payments, which were 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 was 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. During 2019, the Company paid the $25.0 million due for the permitting milestone in the form of cash and common

17

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

stock and in the first quarter of 2020, the Company paid the remaining $25.0 million due for the resource declaration milestone in the form of cash and common stock.
    No assets or liabilities were transferred between fair value levels in the three months ended March 31, 2020.
The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities in the three months ended March 31, 2020:
 
Three Months Ended March 31,
In thousands
Balance at the beginning of the period
 
Revaluation
 
Settlements
 
Accretion
 
Balance at the
end of the
period
Liabilities:
 
 
 
 
 
 
 
 
 
Silvertip contingent consideration
$
25,000

 
$

 
$
(25,000
)
 
$

 
$

The fair value of financial assets and liabilities carried at book value in the financial statements at March 31, 2020 and December 31, 2019 is presented in the following table:
 
March 31, 2020
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 

 
 
 
 
 
 
2024 Senior Notes(1)
$
227,062

 
$
202,433

 
$

 
$
202,433

 
$

Revolving Credit Facility(2)
$
50,000

 
$
50,000

 
$

 
$
50,000

 
$


(1) Net of unamortized debt issuance costs of $2.9 million.
(2) Unamortized debt issuance costs of $2.1 million included in Other Non-Current Assets.
 
December 31, 2019
In thousands
Book Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 
 
 
 
 
 
 
 
2024 Senior Notes(1)
$
226,885

 
$
228,585

 
$

 
$
228,585

 
$

Revolving Credit Facility(2)
$

 
$

 
$

 
$

 
$


(1) Net of unamortized debt issuance costs of $3.1 million.
(2) Unamortized debt issuance costs of $2.3 million included in Other Non-Current Assets.
The fair value of the 2024 Senior Notes was estimated using quoted market prices. The fair value of the RCF approximates book value as the liability is secured, has a variable interest rate, and lacks significant credit concerns.

NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS & HEDGING ACTIVITIES

The Company is exposed to various market risks, including the effect of changes in metal prices, foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes.
    
The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships.
Derivatives Not Designated as Hedging Instruments
Provisional Metal Sales
The Company enters into sales contracts with third-party smelters, refiners and off-take customers 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.

18

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

At March 31, 2020, the Company had the following derivative instruments that settle as follows:
In thousands except average prices and notional ounces
2020
 
Thereafter
Provisional silver sales contracts
$
4,500

 
$

Average silver price per ounce
$
14.86

 
$

Notional ounces
302,871

 

 
 
 
 
Provisional gold sales contracts
$
8,346

 
$

Average gold price per ounce
$
1,596

 
$

Notional ounces
5,230

 

 
 
 
 
Provisional zinc sales contracts
$
11,769

 
$

Average zinc price per pound
$
0.86

 
$

Notional pounds
13,615,188

 

 
 
 
 
Provisional lead sales contracts
$
3,028

 
$

Average lead price per pound
$
0.79

 
$

Notional pounds
3,830,017

 


The following summarizes the classification of the fair value of the derivative instruments:
 
March 31, 2020
In thousands
Prepaid expenses and other
 
Accrued liabilities and other
Provisional metal sales contracts
$
1,023

 
$
46

 
December 31, 2019
In thousands
Prepaid expenses and other
 
Accrued liabilities and other
Provisional metal sales contracts
$
753

 
$
275


The following represent mark-to-market gains (losses) on derivative instruments in the three months ended March 31, 2020 and 2019, respectively (in thousands):
 
 
Three Months Ended March 31,
Financial statement line
Derivative
2020
 
2019
Revenue
Provisional metal sales contracts
$
500

 
$
250

Fair value adjustments, net
Interest rate swaps

 
(46
)
 
 
$
500

 
$
204


Derivatives Designated as Cash Flow Hedging Strategies
To protect the Company’s exposure to fluctuations in metal prices the Company entered into Asian (or average value) put and call option contracts in net-zero-cost collar arrangements. The contracts are net cash settled monthly and, if the price of gold at the time of expiration is between the put and call prices, would expire at no cost to the Company. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception.
To protect the Company’s exposure to fluctuations in foreign currency exchange rates for subsidiaries whose functional currency is U.S dollar and are exposed to forecasted transaction denominated in the Mexican Peso and the Canadian Dollar, in March 2020, the Company entered into foreign currency forward exchange contracts to manage this risk and designated these instruments as cash flow hedges of forecasted foreign denominated transactions.
At March 31, 2020, the Company had the following derivative cash flow hedge instruments that settle as follows:

19

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

In thousands except average prices and notional ounces
2020
2021
Gold put options
 
 
Average gold strike price per ounce
$
1,447

$
1,600

Notional ounces
153,000

12,000

 
 
 
Gold call options
 
 
Average gold strike price per ounce
$
1,826

$
1,800

Notional ounces
153,000

12,000

 
 
 
Foreign currency forward exchange contracts - Mexican Peso
 
 
Average Mexican Peso exchange rate
24.09

25.00

Notional US dollar
$
45,000

$
60,000

 
 
 
Foreign exchange forward exchange contracts - Canadian Dollar
 
 
Average Canadian Dollar exchange rate
1.44


Notional US dollar
$
25,000

$


The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of metal sales revenue are recognized as a component of net sales in the same period as the related revenue is recognized. Deferred gains and losses associated with cash flow hedges of foreign currency transactions are recognized as a component of costs applicable to sales in the same period the related expenses are incurred.
As of March 31, 2020, the Company had $0.1 million of after-tax gains in AOCI related to gains from cash flow hedge transactions. The Company does not expect to recognize any of these after-tax gains in its consolidated statement of comprehensive income during the next 12 months. Actual amounts ultimately reclassified to net income are dependent on the price of gold in effect when derivative contracts currently outstanding mature.
The following summarizes the classification of the fair value of the derivative instruments designated as cash flow hedges:
 
March 31, 2020
In thousands
Prepaid expenses and other
 
Accrued liabilities and other
Gold zero cost collars
$
27

 
$

Foreign currency forward exchange contracts
65

 

 
$
92

 
$


 
December 31, 2019
In thousands
Prepaid expenses and other
 
Accrued liabilities and other
Gold zero cost collars
$

 
$
136

        

20

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

The following table sets forth the pre-tax gains (losses) on derivatives designated as cash flow hedges that have been included in AOCI and the consolidated statement of comprehensive income for the three months ended March 31, 2020.
In thousands
December 31, 2019
 
Amount of Gain (Loss) Recognized in Other Comprehensive Income
 
Less: Amount of Gain (Loss) Reclassified From AOCI to Earnings
 
March 31, 2020
Gold zero cost collars
$
(136
)
 
163

 

 
$
27

Foreign currency forward exchange contracts
$

 
65

 

 
$
65

Derivative contracts designated as cash flow hedges
$
(136
)
 
228

 

 
$
92



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 14 - OTHER, NET
Other, net consists of the following:
 
Three Months Ended March 31,
In thousands
2020
 
2019
Foreign exchange gain (loss)
$
(76
)
 
$
(665
)
Gain (loss) on sale of assets and investments
9

 
52

Gain (loss) on sale of Manquiri NSR consideration(1)
365

 

Gain (loss) on Silvertip contingent consideration
955

 

Interest income on notes receivable

 
180

Other
628

 
493

Other, net
$
1,881

 
$
60


(1) As defined in Note 18 -- Discontinued Operations.
NOTE 15 – 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 months ended March 31, 2020 and 2019, there were 1,712,033 and 2,593,294 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.

21

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

 
Three months ended March 31,
In thousands except per share amounts
2020
 
2019
Net income (loss) available to common stockholders:
 
 
 
Income (loss) from continuing operations
$
(11,900
)
 
$
(24,894
)
Income (loss) from discontinued operations

 
5,693

 
$
(11,900
)
 
$
(19,201
)
 
 
 
 
Weighted average shares:
 
 
 
Basic
240,255

 
202,422

Effect of stock-based compensation plans

 

Diluted
240,255


202,422

 
 
 
 
Basic income (loss) per share:
 
 
 
Income (loss) from continuing operations
$
(0.05
)
 
$
(0.12
)
Income (loss) from discontinued operations
0.00

 
0.03

Basic(1)
$
(0.05
)

$
(0.09
)
 
 
 
 
Diluted income (loss) per share:
 
 
 
Income (loss) from continuing operations
$
(0.05
)
 
$
(0.12
)
Income (loss) from discontinued operations
0.00

 
0.03

Diluted(1)
$
(0.05
)

$
(0.09
)

(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 16 - 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, Coeur Capital, Inc., Coeur Sterling, Inc., Sterling Intermediate Holdco, Inc., and Coeur Sterling Holdings LLC (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.

22

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

CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2020
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
7,594

 
$
16,832

 
$
28,469

 
$

 
$
52,895

Receivables

 
7,014

 
12,708

 

 
19,722

Ore on leach pads

 
83,035

 

 

 
83,035

Inventory

 
24,729

 
27,128

 

 
51,857

Prepaid expenses and other
6,649

 
1,080

 
6,421

 

 
14,150

 
14,243

 
132,690

 
74,726

 

 
221,659

NON-CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
2,176

 
160,632

 
79,210

 

 
242,018

Mining properties, net

 
327,587

 
375,373

 

 
702,960

Ore on leach pads

 
66,703

 

 

 
66,703

Restricted assets
1,468

 
206

 
6,449

 

 
8,123

Equity and debt securities
26,826

 

 

 

 
26,826

Receivables

 

 
23,149

 

 
23,149

Net investment in subsidiaries
403,171

 
82,558

 
(82,713
)
 
(403,016
)
 

Other
243,008

 
50,552

 
2,622

 
(238,523
)
 
57,659

TOTAL ASSETS
$
690,892

 
$
820,928

 
$
478,816

 
$
(641,539
)
 
$
1,349,097

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$
2,070

 
$
26,138

 
$
33,311

 
$

 
$
61,519

Other accrued liabilities
9,327

 
27,031

 
13,577

 

 
49,935

Debt

 
15,469

 
8,119

 

 
23,588

Reclamation

 
1,628

 
1,466

 

 
3,094

 
11,397

 
70,266

 
56,473

 

 
138,136

NON-CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Debt
277,062

 
32,596

 
248,386

 
(238,523
)
 
319,521

Reclamation

 
92,665

 
42,771

 

 
135,436

Deferred tax liabilities
366

 
8,190

 
27,916

 

 
36,472

Other long-term liabilities
3,826

 
37,117

 
17,945

 

 
58,888

Intercompany payable (receivable)
(262,403
)
 
244,608

 
17,795

 

 

 
18,851

 
415,176

 
354,813

 
(238,523
)
 
550,317

STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Common stock
2,436

 
20,401

 
214,816

 
(235,217
)
 
2,436

Additional paid-in capital
3,603,785

 
338,479

 
2,018,080

 
(2,356,559
)
 
3,603,785

Accumulated deficit
(2,945,647
)
 
(23,394
)
 
(2,165,366
)
 
2,188,760

 
(2,945,647
)
Accumulated other comprehensive income (loss)
70

 

 

 

 
70

 
660,644

 
335,486

 
67,530

 
(403,016
)
 
660,644

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
690,892

 
$
820,928

 
$
478,816

 
$
(641,539
)
 
$
1,349,097



23

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

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2019
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,985

 
$
27,217

 
$
25,443

 
$

 
$
55,645

Receivables
(65
)
 
5,978

 
12,753

 

 
18,666

Ore on leach pads

 
66,192

 

 

 
66,192

Inventory

 
24,763

 
31,123

 

 
55,886

Prepaid expenses and other
6,202

 
1,192

 
6,653

 

 
14,047

 
9,122

 
125,342

 
75,972

 

 
210,436

NON-CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
2,370

 
167,159

 
79,260

 

 
248,789

Mining properties, net
4,452

 
327,685

 
379,818

 

 
711,955

Ore on leach pads

 
71,539

 

 

 
71,539

Restricted assets
1,470

 
206

 
7,076

 

 
8,752

Equity and debt securities
35,646

 

 

 

 
35,646

Receivables

 

 
28,709

 

 
28,709

Net investment in subsidiaries
325,723

 
85,755

 
(85,740
)
 
(325,738
)
 

Other
267,281

 
52,040

 
20,937

 
(277,448
)
 
62,810

TOTAL ASSETS
$
646,064

 
$
829,726

 
$
506,032

 
$
(603,186
)
 
$
1,378,636

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,277

 
$
26,211

 
$
41,688

 
$

 
$
69,176

Other accrued liabilities
9,036

 
35,547

 
51,033

 

 
95,616

Debt

 
15,347

 
7,399

 

 
22,746

Reclamation

 
1,628

 
1,486

 

 
3,114

 
10,313

 
78,733

 
101,606

 

 
190,652

NON-CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Debt
226,885

 
32,989

 
290,325

 
(277,448
)
 
272,751

Reclamation

 
91,524

 
41,893

 

 
133,417

Deferred tax liabilities
50

 
8,104

 
33,822

 

 
41,976

Other long-term liabilities
4,225

 
40,012

 
28,599

 

 
72,836

Intercompany payable (receivable)
(262,413
)
 
246,186

 
16,227

 

 

 
(31,253
)
 
418,815

 
410,866

 
(277,448
)
 
520,980

STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Common stock
2,415

 
20,309

 
215,792

 
(236,101
)
 
2,415

Additional paid-in capital
3,598,472

 
337,975

 
1,960,187

 
(2,298,162
)
 
3,598,472

Accumulated deficit
(2,933,747
)
 
(26,106
)
 
(2,182,419
)
 
2,208,525

 
(2,933,747
)
Accumulated other comprehensive income (loss)
(136
)
 

 

 

 
(136
)
 
667,004

 
332,178

 
(6,440
)
 
(325,738
)
 
667,004

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
646,064

 
$
829,726

 
$
506,032

 
$
(603,186
)
 
$
1,378,636


















24

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

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2020
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
96,944

 
$
76,223

 
$

 
$
173,167

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
65,286

 
53,631

 

 
118,917

Amortization
215

 
17,415

 
18,532

 

 
36,162

General and administrative
8,910

 
2

 
8

 

 
8,920

Exploration
280

 
4,363

 
1,743

 

 
6,386

Pre-development, reclamation, and other
18

 
2,616

 
3,921

 

 
6,555

Total costs and expenses
9,423

 
89,682

 
77,835

 

 
176,940

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
 
Fair value adjustments, net
(8,819
)
 

 

 

 
(8,819
)
Other, net
4,615

 
(9
)
 
1,002

 
(3,727
)
 
1,881

Interest expense, net of capitalized interest
(4,105
)
 
(736
)
 
(4,014
)
 
3,727

 
(5,128
)
Total other income (expense), net
(8,309
)
 
(745
)
 
(3,012
)
 

 
(12,066
)
Income (loss) from continuing operations before income and mining taxes
(17,732
)
 
6,517

 
(4,624
)
 

 
(15,839
)
Income and mining tax (expense) benefit
(218
)
 
(518
)
 
4,675

 

 
3,939

Income (loss) from continuing operations
(17,950
)
 
5,999

 
51

 

 
(11,900
)
Equity income (loss) in consolidated subsidiaries
6,050

 
(3,157
)
 
3,027

 
(5,920
)
 

Income (loss) from discontinued operations

 

 

 

 

NET INCOME (LOSS)
$
(11,900
)
 
$
2,842

 
$
3,078

 
$
(5,920
)
 
$
(11,900
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt and equity securities

 

 

 

 

Unrealized gain (loss) on cash flow hedges, net of tax of $22 for the three months ended March 31, 2020
206

 

 

 

 
206

COMPREHENSIVE INCOME (LOSS)
$
(11,694
)
 
$
2,842

 
$
3,078

 
$
(5,920
)
 
$
(11,694
)
 





























25

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


CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2019
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Revenue
$

 
$
90,699

 
$
64,171

 
$

 
$
154,870

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
 
Costs applicable to sales(1)

 
72,022

 
59,628

 

 
131,650

Amortization
221

 
18,445

 
23,210

 

 
41,876

General and administrative
9,474

 

 

 

 
9,474

Exploration
336

 
1,124

 
2,254

 

 
3,714

Pre-development, reclamation, and other
160

 
1,943

 
2,331

 

 
4,434

Total costs and expenses
10,191

 
93,534

 
87,423

 

 
191,148

OTHER INCOME (EXPENSE), NET
 
 
 
 
 
 
 
 
 
Fair value adjustments, net
9,120

 

 

 

 
9,120

Other, net
4,998

 
165

 
(800
)
 
(4,303
)
 
60

Interest expense, net of capitalized interest
(5,729
)
 
(392
)
 
(4,636
)
 
4,303

 
(6,454
)
Total other income (expense), net
8,389

 
(227
)
 
(5,436
)
 

 
2,726

Income (loss) from continuing operations before income and mining taxes
(1,802
)
 
(3,062
)
 
(28,688
)
 

 
(33,552
)
Income and mining tax (expense) benefit
(2,077
)
 
(32
)
 
10,767

 

 
8,658

Income (loss) from continuing operations
(3,879
)
 
(3,094
)
 
(17,921
)
 

 
(24,894
)
Equity income (loss) in consolidated subsidiaries
(21,015
)
 
(418
)
 
283

 
21,150

 

Income (loss) from discontinued operations
5,693

 

 

 

 
5,693

NET INCOME (LOSS)
$
(19,201
)
 
$
(3,512
)
 
$
(17,638
)
 
$
21,150

 
$
(19,201
)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on debt securities, net of tax
59

 

 

 

 
59

COMPREHENSIVE INCOME (LOSS)
$
(19,142
)
 
$
(3,512
)
 
$
(17,638
)
 
$
21,150

 
$
(19,142
)




































26

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

CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2020
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
$
(3,457
)
 
$
2,231

 
$
(845
)
 
$
(5,920
)
 
$
(7,991
)
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(21
)
 
(10,491
)
 
(11,696
)
 

 
(22,208
)
Proceeds from the sale of assets
4,500

 
6

 

 

 
4,506

Other

 

 
(17
)
 

 
(17
)
Investments in consolidated subsidiaries
(6,050
)
 
(39
)
 
169

 
5,920

 

Cash provided by (used in) activities of continuing operations
(1,571
)
 
(10,524
)
 
(11,544
)
 
5,920

 
(17,719
)
Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(1,571
)
 
(10,524
)
 
(11,544
)
 
5,920

 
(17,719
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings, net of issuance costs
50,000

 

 

 

 
50,000

Payments on debt, capital leases, and associated costs

 
(3,975
)
 
(1,926
)
 

 
(5,901
)
Silvertip contingent consideration

 

 
(18,750
)
 

 
(18,750
)
Net intercompany financing activity
(38,600
)
 
1,857

 
36,743

 

 

Other
(1,973
)
 

 

 

 
(1,973
)
Cash provided by (used in) activities of continuing operations
9,427

 
(2,118
)
 
16,067

 

 
23,376

Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
9,427

 
(2,118
)
 
16,067

 

 
23,376

Effect of exchange rate changes on cash and cash equivalents

 
(27
)
 
(599
)
 

 
(626
)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
4,399

 
(10,438
)
 
3,079

 

 
(2,960
)
Cash, cash equivalents and restricted cash at beginning of period
6,675

 
27,238

 
23,105

 

 
57,018

Cash, cash equivalents and restricted cash at end of period
$
11,074

 
$
16,800

 
$
26,184

 
$

 
$
54,058

































27

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

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2019
In thousands
Coeur Mining, Inc.
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(34,395
)
 
8,468

 
(11,069
)
 
21,150

 
(15,846
)
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
(38
)
 
(14,431
)
 
(12,969
)
 

 
(27,438
)
Proceeds from the sale of assets

 
753

 
94

 

 
847

Sales of investments
5,168

 

 

 

 
5,168

Other
1,803

 

 
(62
)
 

 
1,741

Investments in consolidated subsidiaries
21,015

 

 
135

 
(21,150
)
 

Cash provided by (used in) activities of continuing operations
23,948

 
(13,678
)
 
(12,802
)
 
(21,150
)
 
(19,682
)
Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
23,948

 
(13,678
)
 
(12,802
)
 
(21,150
)
 
(19,682
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Issuance of notes and bank borrowings, net of issuance costs
15,000

 

 

 

 
15,000

Payments on debt, capital leases, and associated costs
(15,000
)
 
(4,387
)
 
(2,969
)
 

 
(22,356
)
Net intercompany financing activity
10,226

 
(5,357
)
 
(4,869
)
 

 

Other
(3,364
)
 

 

 

 
(3,364
)
Cash provided by (used in) activities of continuing operations
6,862

 
(9,744
)
 
(7,838
)
 

 
(10,720
)
Cash provided by (used in) activities of discontinued operations

 

 

 

 

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
6,862

 
(9,744
)
 
(7,838
)
 

 
(10,720
)
Effect of exchange rate changes on cash and cash equivalents

 
3

 
198

 

 
201

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
415

 
(14,951
)
 
(31,511
)
 

 
(46,047
)
Cash, cash equivalents and restricted cash at beginning of period
12,747

 
25,532

 
79,790

 

 
118,069

Cash, cash equivalents and restricted cash at end of period
$
13,162

 
$
10,581

 
$
48,279

 
$

 
$
72,022



























28

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

NOTE 17 – 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 certain properties acquired in 2015) to a subsidiary of Franco-Nevada Corporation (“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 Mexicana 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. At March 31, 2020 the remaining unamortized balance was $10.5 million, which is included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Balance Sheet.
Kensington Prepayment
In June 2019, Coeur entered into a transaction with an existing metal sales counterparty whereby it amended its existing sales and purchase contract for gold concentrate from its Kensington mine (the “Amended Sales Contract”) to allow for a $25.0 million prepayment for deliveries of gold concentrate from the Kensington mine, which was repaid in 2019. The Amended Sales Contract also includes an option to allow for an additional $15.0 million prepayment for deliveries of gold concentrate, which Coeur exercised in December 2019. In the first quarter of 2020, the Kensington mine delivered approximately $7.0 million of gold concentrate to the counterparty. The remaining deliveries of $8.0 million are recognized as a deferred revenue liability and are presented in Accrued liabilities and other on the Consolidated Balance Sheet. Under the relevant terms of the Amended Sales Contract, Coeur maintains its exposure to the price of gold and expects to recognize the remaining value of the accrued liability by June 30, 2020.
Silvertip Contingent Consideration
A total of up to $50.0 million of contingent consideration, payable in cash and common stock, was payable in conjunction with the Silvertip Acquisition based upon the achievement of two milestones, one of which was achieved and paid during 2019 and the other of which was achieved and paid during the first quarter of 2020. The first milestone payment of $25.0 million was contingent upon receipt of a permit expansion for a sustained mining and milling rate of 1,000 tonnes per day (the “Permit contingent consideration”). The permit application was submitted to the British Columbia Ministry of Energy and Mining on April 30, 2018 and following its approval in November 2019, the Company made a payment of $25.0 million in the form of $18.7 million in cash and 1.0 million shares of common stock to satisfy the Permit contingent consideration obligation. At December 31, 2019, based on the Silvertip mine’s total mineralized material (including reserves) (the “Resource contingent consideration”), the former JDS Silver Holdings Ltd. shareholders were entitled to the full second contingent payment of $25.0 million. In the first quarter of 2020, the Company made a payment of $25.0 million in the form of $18.8 million in cash and 0.9 million shares of common stock to satisfy the Resource contingent consideration obligation.
Mexico VAT Litigation
Included in non-current receivables as of March 31, 2020 are $22.4 million due from the Mexican government associated with VAT that was paid under Coeur Mexicana’s prior royalty agreement with a subsidiary of Franco-Nevada Corporation, which was terminated in 2016. Under the royalty agreement, Coeur applied for and initially received VAT refunds associated with the royalty payments in the normal course; however, in 2011 the Mexican tax authorities began denying the Company’s VAT refunds based on the argument that VAT was not legally due on the royalty payments. Accordingly, Coeur began to request refunds of the VAT as undue payments, which the Mexican tax authorities also denied. The Company has since been engaged in ongoing efforts to recover the VAT from the Mexican government (including through litigation). Despite a favorable ruling from Mexican tax courts in this matter in 2018, litigation continues, some of which was determined unfavorably to the Company in 2019 based on interpretations of applicable law and prior court decisions which the Company and its counsel believe are erroneous and which are now under appeal. While the Company believes that it remains legally entitled to be refunded the full amount of the VAT receivable, the Company may continue to experience delays or obstacles in the recovery of VAT and it is possible that some or all of the VAT receivable may not ultimately be recovered as outcomes in Mexican tax courts and the process for recovering funds even if there is a successful outcome in litigation can be unpredictable.
Other Commitments and Contingencies
As part of its ongoing business and operations, the Company and its affiliates are required to provide surety bonds, bank letters of credit, bank guarantees and, in some cases, cash as financial support for various purposes, including environmental remediation, reclamation, and other general corporate purposes. As of March 31, 2020 and December 31, 2019, the Company had surety bonds totaling $215.6 million in place as financial support for future reclamation and closure costs. The obligations associated with these instruments are generally related to performance requirements that the Company addresses through its ongoing operations and from time-to-time, the Company may be required to post collateral, including cash, to support these instruments. As the specific

29

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

requirements are met, the beneficiary of the associated instrument cancels and/or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure. The Company believes it is in compliance with all applicable bonding obligations and will be able to satisfy future bonding requirements through existing or alternative means, as they arise.

NOTE 18 – 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 Empresa Minera Manquiri S.A. (“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 Manquiri Agreement, the capital stock in Manquiri was sold to Ag-Mining Investments, AB, a privately-held Swedish company (the “Buyer”), in exchange for, among other items, (A) 2.0% net smelter returns royalty on all metals processed through the San Bartolomé mine’s processing facility (the “NSR”) and (B) promissory notes payable by the Buyer with an aggregate principal amount equal to $27.6 million (the “Manquiri Notes Receivable”). In September 2018, the Company entered into the 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 forgo any rights to any value added tax refunds collected or received by Manquiri. 
On February 28, 2019, the parties executed a letter agreement (the “February Letter Agreement”), which amended certain terms of the Manquiri Agreement. Pursuant to the February Letter Agreement, the Buyer agreed to accelerate repayment of the remaining aggregate $6.0 million owed under the Manquiri Notes Receivable, which was received. As of the date of the entry into the February Letter Agreement, the remaining obligations under the Manquiri Agreement (including post-closing indemnification obligations) terminated. The Company recorded a $5.7 million gain on the sale Manquiri following the release of the indemnification liability (associated with termination of post-closing indemnification obligations) pursuant to the February Letter Agreement.
In January 2020, the Buyer purchased the NSR from Coeur by making a payment to Coeur of $4.5 million. Coeur recorded a gain of $0.4 million following the payment.

NOTE 19 – ADDITIONAL BALANCE SHEET DETAIL AND SUPPLEMENTAL CASH FLOW INFORMATION
Accrued liabilities and other consist of the following:
In thousands
March 31, 2020
 
December 31, 2019
Accrued salaries and wages
$
14,567

 
$
20,047

Silvertip contingent consideration

 
25,000

Deferred revenue (1)
9,909

 
16,672

Income and mining taxes
1,908

 
11,243

Accrued operating costs
3,395

 
4,163

Taxes other than income and mining
2,692

 
3,554

Accrued interest payable
5,266

 
1,833

Operating lease liabilities
12,198

 
13,104

Accrued liabilities and other
$
49,935

 
$
95,616


(1) See Note 17 -- Commitments and Contingencies for additional details on deferred revenue liabilities
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that total the same such amounts shown in the statement of cash flows in the three months ended March 31, 2020 and 2019:
In thousands
March 31, 2020
 
March 31, 2019
Cash and cash equivalents
$
52,895

 
$
69,033

Restricted cash equivalents
1,163

 
2,989

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
54,058

 
$
72,022




30

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

NOTE 20 – SUBSEQUENT EVENTS

The 2019 novel strain of coronavirus (“COVID-19”) was characterized as a global pandemic by the World Health Organization on March 11, 2020. In early April 2020, in accordance with a decree from the Federal government of Mexico issued in response to COVID-19, that restricted all non-essential business activities (including mining) in the country, Coeur began taking steps toward temporarily suspending active mining and processing activities at Palmarejo. The Company is taking all appropriate actions to be able to safely and expeditiously ramp production back up once the suspension has been lifted.

All of the Company’s other active mines continue to operate at full capacity and there have been no confirmed cases of COVID-19 across Coeur’s portfolio. Precious metals mining is considered essential to support critical infrastructure under guidelines of the U.S. Department of Homeland Security and every state where Coeur operates in the U.S. (Nevada, Alaska and South Dakota). In addition, Coeur Alaska, Inc. is requiring that all employees who travel to the Kensington mine are required to submit to a 14-day quarantine in Juneau, Alaska before traveling to the mine.
    
The Company has completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). To provide additional flexibility to respond to potential downside scenarios, Coeur drew an additional $100.0 million from its RCF shortly after the end of the first quarter as a precautionary measure. As of April 22, 2020, the Company had approximately $150.0 million drawn under its RCF. Additionally, as Coeur seeks to proactively maximize its financial flexibility during these unprecedented levels of volatility and uncertainty, the Company intends to take the prudent step of re-establishing an at-the-market equity facility.




31


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 Costs applicable to sales (“CAS”) split, referred to as the co-product method, based on revenue contribution for Palmarejo, Rochester and Silvertip and based on the primary metal, referred to as the by-product method, for Wharf. Revenue from secondary metal, such as silver at Wharf, is treated as a cost credit.
Overview
We are primarily a gold and silver producer with five mines located in the United States, Canada and Mexico and several exploration projects in North America.     
First Quarter Highlights
For the quarter, Coeur reported revenue of $173.2 million and cash flow from operating activities of $(8.0) million. The Company reported GAAP net loss from continuing operations of $11.9 million, or $0.05 per share. On an adjusted basis1, the Company reported EBITDA of $46.6 million and net loss from continuing operations of $0.8 million, or $0.00 per share.
Proactive response to managing impacts of global COVID-19 pandemic - As part of Coeur’s corporate crisis management process, a special advisory committee was established in early March to evaluate and address ongoing concerns, risks and challenges associated with the 2019 novel coronavirus (“COVID-19”). Primary objectives of the committee remain (i) protecting the health of Coeur’s workforce and communities, and (ii) ensuring continuity of the Company’s operations to the extent possible
Financial results reflective of key elements of Company strategy - Gold sales represented a record high 74% of quarterly revenue, while Coeur’s three U.S. operations – all of which continue to operate – comprised 56% of quarterly revenue
Strong operational and financial performance at Palmarejo - Palmarejo was the Company’s top performing operation, driven by a 10% quarter over quarter increase in gold production. The operation generated $28.9 million in operating cash flow. Strong operational performance helped to generate $21.8 million of free cash flow1 during the first quarter
Improved crusher performance and major permitting milestone achieved at Rochester - Coeur processed 37,677 tons per day (“tpd”) through the upgraded crusher configuration at Rochester during the first quarter, exceeding its target by 11% and was 33% higher than the prior quarter. The Company also received the Record of Decision from the Bureau of Land Management for Plan of Operations Amendment 11 (“POA 11”), marking a significant achievement toward the planned expansion at Rochester
Advancing exploration efforts across portfolio - Coeur began its largest exploration program in Company history, drilling roughly 20% more footage than the prior period and nearly 60% more than the first quarter of 2019. The increased exploration activity was primarily related to the expanded drilling program underway at Palmarejo and the ramp up in drilling at the Sterling and Crown deposits in southern Nevada. Expanded drilling programs at Kensington and Silvertip also commenced during the quarter
Safe transition and advancing work on pre-feasibility study at Silvertip - The Company safely ramped down Silvertip, completing the transition to a temporary suspension of mining and processing activities announced in February. Zinc and lead markets continued to face significant headwinds during the first quarter, further validating Coeur’s decision to temporarily suspend active mining and processing activities. Work on the pre-feasibility study to evaluate a mill expansion is advancing
Additional execution of opportunistic hedging - The Company continued to add to its zero-cost collar (“ZCC”) gold hedging program during the quarter, with a total of 153,000 and 99,000 ounces now hedged through the remainder of 2020 and in 2021, respectively. Coeur also capitalized on multi-year low exchange rates for the Mexican Peso and Canadian Dollar by securing rate protection on a portion of its foreign currency-denominated expenses over the next two years. The increased hedging activity is being implemented to provide downside protection in preparation for the POA 11 expansion at Rochester, which is expected to be funded with a combination of internally generated cash flow and its senior secured revolving credit facility (the “RCF”)
Bolstered cash balance to enhance financial flexibility - As of March 31, 2020, Coeur had $52.9 million of cash and cash equivalents. As a precautionary measure, the Company further bolstered its cash position by drawing down an additional $100.0 million from its RCF shortly after the end of the quarter in response to potential impacts of COVID-19, bringing the total amount drawn to $150.0 million

32


Selected Financial and Operating Results
 
Three Months Ended March 31,
In thousands
2020
 
2019
Financial Results from Continuing Operations:
 
 
 
Gold sales
$
127,605

 
$
106,764

Silver sales
$
44,909

 
$
40,114

Zinc sales
$
(662
)
 
$
5,634

Lead sales
$
1,315

 
$
2,358

Consolidated Revenue
$
173,167

 
$
154,870

Net income (loss)
$
(11,900
)
 
$
(24,894
)
Net income (loss) per share, diluted
$
(0.05
)
 
$
(0.12
)
Adjusted net income (loss)(1)
$
(769
)
 
$
(22,958
)
Adjusted net income (loss) per share, diluted(1)
$
0.00

 
$
(0.11
)
EBITDA(1)
$
25,451

 
$
14,778

Adjusted EBITDA(1)
$
46,601

 
$
26,104

Total debt(2)
$
343,109

 
$
456,789

Operating Results from Continuing Operations:
 
 
 
Gold ounces produced
85,077

 
78,336

Silver ounces produced
2,676,418

 
2,490,434

Zinc pounds produced
2,459,756

 
3,719,013

Lead pounds produced
2,176,847

 
3,076,845

Gold ounces sold
85,635

 
85,326

Silver ounces sold
2,700,778

 
2,635,015

Zinc pounds sold
3,203,446

 
4,723,069

Lead pounds sold
2,453,485

 
2,747,847

Average realized price per gold ounce
$
1,490

 
$
1,251

Average realized price per silver ounce
$
16.63

 
$
15.22

Average realized price per zinc pound, gross
$
(0.21
)
 
$
1.50

Average realized price per lead pound, gross
$
0.54

 
$
0.92

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

 
$
5,693

(1)See “Non-GAAP Financial Performance Measures.”
(2)Includes capital leases. Net of debt issuance costs and premium received.



33


COVID-19 Update

Coeur established a special advisory committee to evaluate ongoing concerns, risks and challenges with respect to COVID-19 across its operations and corporate headquarters in early March 2020. The primary goals of the committee include (i) protecting the health, safety and well-being of Coeur’s workforce and communities and (ii) ensuring the continuity of business operations. The committee meets regularly via video conference and has elevated its level of communications by proactively engaging with various stakeholders, including regulators, government officials, community partners and healthcare providers, among others.
The current status of each of the Company’s operations is highlighted below:
Operation
Location
Status
Commentary
Palmarejo
Chihuahua, Mexico
Temporarily suspended
Precious metals mining not considered essential as part of decree issued by the Federal Government of Mexico on March 31, 2020
Rochester
Nevada, United States
Operating
Mining considered essential as part of State of Nevada regulations issued on March 20, 2020
Kensington
Alaska, United States
Operating
Mining considered essential as part of State of Alaska declaration on March 27, 2020
Wharf
South Dakota, United States
Operating
State of South Dakota issued a public order mandating the closure of all public-facing businesses, which does not include Wharf, on March 23, 2020
Silvertip
British Columbia, Canada
Temporarily suspended
Previously announced temporary suspension of mining and processing activities (unrelated to COVID-19). No actions required at this time to comply with restrictions issued by the Government of British Columbia

Each of the Company’s operations has developed site-specific screening, education and modifications to work procedures to limit and identify COVID-19 exposure and transmission. Operational readiness is routinely being assessed as the situation continues to evolve and each site has scenario plans in place, should the need arise. Coeur is following guidance from the U.S. Centers for Disease Control and Prevention, Mexican and Canadian public health officials, World Health Organization as well as federal, state and local authorities to safeguard the health, safety and well-being of its employees, contractors and communities, and minimize business interruption.
Key initiatives that the Company has undertaken include:
Travel and site access restricted to business-critical needs; discretionary travel strongly discouraged and must be reported
Health and travel questionnaires as well as temperature checks required prior to entering sites
Increased cleaning and disinfecting of common areas
Social distancing, including limiting meetings to ten people (or less)
Extended rotational schedules at certain operations to reduce travel to and from site
All site-level employees who can and all corporate headquarter employees working remotely
Providing ongoing support to local communities, including donations of critical supplies
Partnering with local communities in communication and response efforts
Coeur has also evaluated its supply chain and metal sales risks at each operation and remains in close contact with critical vendors, customers and transportation providers, establishing back-up arrangements to mitigate the impact of any disruptions related to COVID-19. The Company has not experienced any material disruptions and has incurred minimal additional operating costs to date.

34


Consolidated Financial Results
Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019
Revenue
Revenue increased by $18.3 million as a result of a 19% and 9% increase in average realized gold and silver prices, partially offset by the temporary suspension of operations at Silvertip in February. The Company sold 85,635 gold ounces, 2.7 million silver ounces, 3.2 million zinc pounds and 2.5 million lead pounds compared to 85,326 gold ounces, 2.6 million silver ounces, 4.7 million zinc lead pounds and 2.7 million lead pounds in the prior year. Gold contributed 74% of sales, silver contributed 26%, compared to 68% of sales from gold, 26% from silver, 4% from zinc and less than 2% from lead.

The following table summarizes consolidated metal sales:
 
Three months ended March 31,
 
Increase
 
Percent
In thousands
2020
 
2019
 
(Decrease)
 
Change
Gold sales
$
127,605

 
$
106,764

 
$
20,841

 
20
 %
Silver sales
44,909

 
40,114

 
4,795

 
12
 %
Zinc sales
(662
)
 
5,634

 
(6,296
)
 
(112
)%
Lead sales
1,315

 
2,358

 
(1,043
)
 
(44
)%
Metal sales
$
173,167

 
$
154,870

 
$
18,297

 
12
 %
Costs Applicable to Sales
Costs applicable to sales decreased primarily due to the temporary suspension of mining and processing activities at Silvertip and lower costs at Rochester and Kensington. For a complete discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization decreased $5.7 million, or 14%, resulting from to the temporary suspension at Silvertip and longer assumed mine life at Palmarejo based on year-end 2019 reserve growth.
Expenses
General and administrative expenses decreased $0.6 million, or 6%, primarily due to lower outside service and travel costs.
Exploration expense increased $2.7 million, or 72%, as a result of exploration expense at the Sterling/Crown project located in southern Nevada and higher exploration expense at Palmarejo and Kensington. The Company completed 119,471 feet (36,415 meters) of expansion drilling and 50,209 feet (15,304 meters) of infill drilling in the first quarter of 2020 compared to 27,724 feet (8,450 meters) of expansion drilling and 62,402 feet (19,020 meters) of infill drilling in the first quarter of 2019.
Pre-development, reclamation, and other expenses increased $2.1 million, or 48%, stemming from ongoing carrying and one-time severance costs at Silvertip, partially offset by a gain on the modification of a right of use lease.

The following table summarizes pre-development, reclamation, and other expenses:
 
Three months ended March 31,
 
Increase
 
Percent
In thousands
2020
 
2019
 
(Decrease)
 
Change
Silvertip ongoing carrying costs
$
2,608

 
$

 
$
2,608

 
 %
Silvertip one-time temporary suspension costs
3,659

 

 
3,659

 
 %
Gain on modification of right of use lease
(4,051
)
 

 
(4,051
)
 
 %
Asset retirement accretion
2,847

 
2,942

 
(95
)
 
(3
)%
Other
1,492

 
1,492

 

 
 %
Pre-development, reclamation and other expense
$
6,555

 
$
4,434

 
$
2,121

 
48
 %

35


Other Income and Expenses
Fair value adjustments, net, decreased to a loss of $8.8 million compared to a gain of $9.1 million as a result of unfavorable fair value adjustments and realized gains primarily related to the Company’s equity investment in Integra and Metalla, which had an estimated fair value of $3.5 million and $22.0 million, respectively, at March 31, 2020.
Interest expense (net of capitalized interest of $0.2 million) decreased to $5.1 million from $6.5 million due to lower average debt levels related to the RCF and 2024 Senior Notes.
Income and Mining Taxes
During the first quarter of 2020, income and mining tax benefit of approximately $3.9 million results in an effective tax rate of 24.9% for 2020. This compares to income tax benefit of $8.7 million or effective tax rate of 25.8% for 2019. The Company’s effective tax rate is impacted by multiple factors as illustrated above. The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) the non-recognition of tax assets; (ii) foreign exchange rates; (iii) the impact of uncertain tax positions; (iv) variations in our income before income taxes; (v) geographic distribution of that income and (vi) mining taxes. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period.
The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
 
Three months ended March 31,
 
2020
 
2019
In thousands
Income (loss) before tax
Tax (expense) benefit
 
Income (loss) before tax
Tax (expense) benefit
United States
$
(11,005
)
$
(736
)
 
$
(6,047
)
$
(2,162
)
Canada
(26,029
)
15

 
(26,525
)
9,792

Mexico
21,359

4,631

 
(772
)
1,024

Other jurisdictions
(164
)
29

 
(208
)
4

 
$
(15,839
)
$
3,939

 
$
(33,552
)
$
8,658

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 “Item 1A - Risk Factors” in the 2019 10-K.
Net Income (Loss) from Continuing Operations
Net loss from continuing operations was $11.9 million, or $0.05 per share, compared to net loss of $24.9 million, or $0.12 per share. The decrease in net loss from continuing operations was driven by strong operating results at Palmarejo and Kensington and lower operating costs at Silvertip. This was partially offset by lower production at Rochester and unfavorable fair value adjustments and realized gains primarily related to the Company’s equity investment in Metalla. Adjusted net loss was $0.8 million, or $0.00 per share, compared to adjusted net loss of $23.0 million, or $0.11 per share (see “Non-GAAP Financial Performance Measures”).
Net Income (loss) from Discontinued Operations
In respect of the San Bartolomé mine and processing facility’s operating results, income decreased $5.7 million. In February 2019, the Company recorded an adjustment to the gain from the Manquiri Divestiture following the release of a liability associated with the Company’s post-closing indemnification obligations which were extinguished at that time.
2020 Guidance Framework
In light of the temporary suspension of mining and processing activities at Palmarejo and ongoing uncertainty regarding COVID-19, Coeur has decided to withdraw its full-year 2020 guidance. The Company will continue targeting safe execution of its operating plans and reevaluate instituting full-year 2020 guidance as the year progresses.


36


Results of Continuing Operations
Palmarejo
 
Three Months Ended March 31,
 
2020
 
2019
Tons milled
479,562

 
378,987

Average gold grade (oz/t)
0.07

 
0.07

Average silver grade (oz/t)
4.69

 
4.64

Average recovery rate – Au
91.6
%
 
83.4
%
Average recovery rate – Ag
81.5
%
 
72.8
%
Gold ounces produced
31,578

 
23,205

Silver ounces produced
1,834,891

 
1,278,283

Gold ounces sold
31,287

 
27,394

Silver ounces sold
1,894,789

 
1,405,409

Costs applicable to sales per gold ounce(1)
$
644

 
$
716

Costs applicable to sales per silver ounce(1)
$
8.35

 
$
9.70

(1)See Non-GAAP Financial Performance Measures.
Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019
Gold and silver production increased 36% and 44%, respectively, resulting from improved recoveries and higher mined tons from Guadalupe, Independencia and the La Nación underground mine, which began production in the third quarter of 2019. Metal sales were $74.3 million, or 43% of Coeur’s metal sales, compared with $53.2 million, or 34% of Coeur’s metal sales. Higher production and lower unit diesel costs led to a 10% and 14% decrease in costs applicable to sales per gold and silver ounce, respectively. Amortization decreased to $13.2 million due to longer assumed mine life based on year-end 2019 reserve growth, partially offset by higher ounces sold. Capital expenditures decreased to $7.1 million from $8.7 million due to lower infrastructure expenditures at La Nacion and lower mining equipment purchases.
As previously disclosed, in early April 2020 Coeur began taking steps toward temporarily suspending active mining and processing activities at Palmarejo in accordance with a government-mandated decree. The Company is taking all appropriate actions to be able to safely and expeditiously ramp production back up once the suspension has been lifted.
Rochester
 
Three Months Ended March 31,
 
2020
 
2019
Tons placed
3,428,578

 
2,667,559

Average gold grade (oz/t)
0.002

 
0.003

Average silver grade (oz/t)
0.57

 
0.46

Gold ounces produced
5,936

 
8,256

Silver ounces produced
687,379

 
959,905

Gold ounces sold
5,473

 
8,511

Silver ounces sold
632,237

 
1,000,453

Costs applicable to sales per gold ounce(1)
$
1,394

 
$
1,108

Costs applicable to sales per silver ounce(1)
$
14.75

 
$
13.02

(1)See Non-GAAP Financial Performance Measures.
Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019
Gold and silver production decreased 28% due to the timing of recoveries and the restocking of metal inventory on the Stage III and Stage IV leach pads. Metal sales were $19.4 million, or 11% of Coeur’s metal sales, compared with $26.4 million, or 17% of Coeur’s metal sales. Costs applicable to sales per gold and silver ounce increased 26% and 13%, respectively, driven by lower production combined with higher maintenance costs and higher processing and refining costs. Amortization decreased to $2.9 million due to lower ounces sold. Capital expenditures increased to $5.1 million from $4.6 million due to higher Plan of

37


Operations Amendment 11 (“POA 11”) capital expenditures.
In March 2020, mining was classified as an essential business in Nevada, Coeur continues to implement its Companywide safety protocols at Rochester to limit COVID-19 exposure and transmission.
Kensington
 
Three Months Ended March 31,
 
2020
 
2019
Tons milled
162,341

 
164,332

Average gold grade (oz/t)
0.21

 
0.20

Average recovery rate
93.5
%
 
90.2
%
Gold ounces produced
32,022

 
29,973

Gold ounces sold
32,781

 
31,335

Costs applicable to sales per gold ounce(1)
$
931

 
$
1,027

(1)
See Non-GAAP Financial Performance Measures.
Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019
Gold production increased 7% due to higher gold grades coupled with higher recoveries. Metal sales were $51.7 million, or 30% of Coeur’s metal sales, compared to $40.3 million, or 26% of Coeur’s metal sales. Costs applicable to sales per gold ounce decreased 9% due to higher production and lower consumable and employee-related costs. Amortization increased slightly to $11.9 million due to higher ounces sold. Capital expenditures decreased to $4.8 million from $9.4 million due to lower underground development at Kensington, Jualin and Raven, infill drilling and mining equipment expenditures.
In March 2020, mining was classified as an essential business in Alaska. Coeur continues to implement its Companywide safety protocols at Kensington to limit COVID-19 exposure and transmission. Rotational schedules at site have been temporarily extended from 14 days to 28 days in response to concerns related to COVID-19. All employees are required by the Company to quarantine in a Juneau-based facility for 14-days prior to starting their 28-day rotation.
Wharf
 
Three Months Ended March 31,
 
2020
 
2019
Tons placed
946,449

 
1,090,510

Average gold grade (oz/t)
0.025

 
0.020

Gold ounces produced
15,541

 
16,902

Silver ounces produced
14,861

 
13,484

Gold ounces sold
16,094

 
18,086

Silver ounces sold
14,768

 
14,052

Costs applicable to sales per gold ounce(1)
$
1,092

 
$
950

(1)
See Non-GAAP Financial Performance Measures.
Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019
Gold production decreased 8% largely driven by the impact of inclement weather on tons moved and crushing rates, which led to lower tons placed. Metal sales were $25.9 million, or 15% of Coeur’s metal sales, compared to $24.0 million, or 16% of Coeur’s metal sales. Costs applicable to sales per gold ounce increased 15% due to lower production and higher maintenance and outside service costs. Amortization decreased to $2.4 million due to lower ounces sold. Capital expenditures were $0.4 million.
In March 2020, South Dakota issued a public order mandating the closure of all public-facing businesses, which does not include Wharf. Coeur continues to implement its Companywide safety protocols at Wharf to limit COVID-19 exposure and transmission.


38


Silvertip
 
Three Months Ended March 31,
 
2020 (1)
 
2019
Tons milled
29,240

 
62,051

Average silver grade (oz/t)
7.03

 
5.50

Average zinc grade (%)
7.1
%
 
5.9
%
Average lead grade (%)
5.2
%
 
3.7
%
Average recovery rate – Ag
67.7
%
 
69.9
%
Average recovery rate – Zn
59.3
%
 
50.5
%
Average recovery rate – Pb
71.2
%
 
66.8
%
Silver ounces produced
139,287

 
238,762

Zinc pounds produced
2,459,756

 
3,719,013

Lead pounds produced
2,176,847

 
3,076,845

Silver ounces sold
158,984

 
215,101

Zinc pounds sold
3,203,446

 
4,723,069

Lead pounds sold
2,453,485

 
2,747,847

Costs applicable to sales per silver ounce(2)
NM (3)

 
$
33.12

Costs applicable to sales per zinc pound(2)
NM (3)

 
$
2.85

Costs applicable to sales per lead ounce(2)
NM (3)

 
$
2.11

(1)
Operational results in the table above reflect performance prior to the temporary suspension of mining and processing activities in February 2020.
(2)
See Non-GAAP Financial Performance Measures.
(3)
Due to the temporary suspension of mining and processing activities these amounts are not meaningful.
Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019
Silvertip temporarily suspended mining and processing activities (unrelated to COVID-19) in February 2020. Operational results in the table above reflect performance prior to the temporary suspension of mining and processing activities. Ongoing carrying and one-time costs are included in Pre-development, reclamation, and other.
Rotational schedules have been temporarily extended from 14 days to 21 days in response to concerns related to COVID-19. Due to the temporary of mining and processing activities since mid-February, no further actions are required at this time to comply with restrictions currently issued by the Government of British Columbia.

Liquidity and Capital Resources
At March 31, 2020, the Company had $54.1 million of cash, cash equivalents and restricted cash and $200.0 million available under its RCF. Cash and cash equivalents decreased $2.8 million in the three months ended March 31, 2020, primarily due to Silvertip operating costs, timing of recoveries at Rochester, income and mining tax payments at Palmarejo and the payment of contingent consideration of $18.8 million associated with the Silvertip acquisition, partially offset by strong operational results from Palmarejo and Kensington, lower capital expenditures and an increase in the outstanding amounts under the RCF. The Company has completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). To provide additional flexibility to respond to potential downside scenarios, Coeur drew an additional $100.0 million from its RCF shortly after the end of the first quarter as a precautionary measure. As of April 22, 2020, the Company had approximately $150.0 million drawn under its RCF. Additionally, as Coeur seeks to proactively maximize its financial flexibility during these unprecedented levels of volatility and uncertainty, the Company intends to take the prudent step of re-establishing an at-the-market equity facility.
Cash Provided by Operating Activities from Continuing Operations
Net cash used in operating activities for the three months ended March 31, 2020 was $8.0 million, compared to $15.8 million for the three months ended March 31, 2019. Adjusted EBITDA from continuing operations for the three months ended March 31, 2020 was $46.6 million, compared to $26.1 million for the three months ended March 31, 2019 (see “Non-GAAP Financial Performance Measures”). Net cash used in operating activities was impacted by the following key factors for the applicable periods:

39


 
Three Months Ended March 31,
In thousands
2020
 
2019
Cash flow before changes in operating assets and liabilities
$
30,144

 
$
21,466

Changes in operating assets and liabilities:
 
 
 
Receivables
(813
)
 
(9,735
)
Prepaid expenses and other
(346
)
 
(2,684
)
Inventories
(21,925
)
 
(18,821
)
Accounts payable and accrued liabilities
(15,051
)
 
(6,072
)
Cash provided by (used in) continuing operating activities
$
(7,991
)
 
$
(15,846
)
Net cash provided by operating activities increased $7.9 million in the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to a 19% and 9% increase in average realized gold and silver prices, respectively, and the timing of VAT collection at Palmarejo, partially offset by the payments for accounts payable at Silvertip. Revenue for the three months ended March 31, 2020 increased by $18.3 million, of which $16.6 million was due primarily to higher average realized gold and silver prices and $1.7 million was due primarily to higher volume of gold and silver sales.
Cash Used in Investing Activities from Continuing Operations
Net cash used in investing activities in the three months ended March 31, 2020 was $17.7 million compared to $19.7 million in the three months ended March 31, 2019. Cash used in investing activities decreased primarily due lower capital expenditures. The Company had capital expenditures of $22.2 million in the three months ended March 31, 2020 compared with $27.4 million in the three months ended March 31, 2019. Capital expenditures in the three months ended March 31, 2020 were primarily related to underground development at Silvertip, Palmarejo, and Kensington and POA 11 capital expenditures at Rochester. Capital expenditures in the three months ended March 31, 2019 were primarily related to underground development at Silvertip, Palmarejo, and Kensington, a new 220-person camp at Silvertip and the high-pressure grinding roll unit at Rochester.
Cash Provided by (Used in) Financing Activities from Continuing Operations
Net cash provided by financing activities in the three months ended March 31, 2020 increased to $23.4 million compared to net cash used in financing activities of $10.7 million in the three months ended March 31, 2019. During the three months ended March 31, 2020, the Company drew $50.0 million from the RCF, partially offset by the payment of cash contingent consideration of $18.8 million associated with the Silvertip acquisition. During the three months ended March 31, 2019, the Company borrowed and repaid $15.0 million, from the RCF. 

Critical Accounting Policies and Accounting Developments
Please see Note 2 -- Summary of Significant Accounting Policies contained in the 2019 10-K and in Note 2 - Summary of Significant Accounting Policies contained in this Report for the Company’s critical accounting policies and estimates.

Other Liquidity Matters
We believe that our liquidity and capital resources in the U.S. 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 indebtedness, future cash interest payments and/or amounts due at maturity or upon redemption and for general working capital purposes, from time-to-time we may (1) issue equity securities for cash in public or private offerings or (2) 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 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 debt repurchase 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 18 -- to the Consolidated Financial Statements. These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.

40


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 following table:
 
Three Months Ended March 31,
In thousands except per share amounts
2020
 
2019
Net income (loss)
$
(11,900
)
 
$
(19,201
)
(Income) loss from discontinued operations, net of tax

 
(5,693
)
Fair value adjustments, net
8,819

 
(9,120
)
Foreign exchange loss (gain)
(6,620
)
 
1,256

(Gain) loss on sale of assets and securities
(374
)
 
(52
)
Silvertip inventory write-down
10,381

 
15,447

Silvertip one-time costs
3,659

 

Silvertip lease modification
(4,051
)
 

Silvertip gain on contingent consideration
(955
)
 

COVID-19 one-time costs
272

 

Interest income on notes receivables

 
(180
)
Tax effect of adjustments(1)

 
(5,415
)
Adjusted net income (loss)
$
(769
)
 
$
(22,958
)
 
 
 
 
Adjusted net income (loss) per share - Basic
$
0.00

 
$
(0.11
)
Adjusted net income (loss) per share - Diluted
$
0.00

 
$
(0.11
)
(1) For the three months ended March 31, 2019, tax effect of adjustments of $5.4 million (-89%) is primarily related to the write-down of Silvertip start-up costs.

    

41


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 (as such term is defined in Note 8 -- Debt) and the RCF 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 following table:
 
Three Months Ended March 31,
In thousands except per share amounts
2020
 
2019
Net income (loss)
$
(11,900
)
 
$
(19,201
)
(Income) loss from discontinued operations, net of tax

 
(5,693
)
Interest expense, net of capitalized interest
5,128

 
6,454

Income tax provision (benefit)
(3,939
)
 
(8,658
)
Amortization
36,162

 
41,876

EBITDA
25,451


14,778

Fair value adjustments, net
8,819

 
(9,120
)
Foreign exchange (gain) loss
76

 
665

Asset retirement obligation accretion
2,847

 
2,943

Inventory adjustments and write-downs
476

 
1,623

(Gain) loss on sale of assets and securities
(374
)
 
(52
)
Silvertip inventory write-down
10,381

 
15,447

Silvertip one-time costs
3,659

 

Silvertip lease modification
(4,051
)
 

Silvertip gain on contingent consideration
(955
)
 

COVID-19 one-time costs
272

 

Interest income on notes receivables

 
(180
)
Adjusted EBITDA
$
46,601


$
26,104


42


Free Cash Flow
Management uses Free Cash Flow as a non-GAAP measure to analyze cash flows generated from operations. Free Cash Flow is Cash Provided By (used in) Operating Activities of Continuing Operations less Capital expenditures from continuing operations as presented on the Consolidated Statements of Cash Flows. The Company believes Free Cash Flow is also useful as one of the bases for comparing the Company’s performance with its competitors. Although Free Cash Flow and similar measures are frequently used as measures of cash flows generated from operations by other companies, the Company’s calculation of Free Cash Flow is not necessarily comparable to such other similarly titled captions of other companies.
The following table sets forth a reconciliation of Free Cash Flow, a non-GAAP financial measure, to Cash Provided By (used in) Operating Activities of Continuing Operations, which the Company believes to be the GAAP financial measure most directly comparable to Free Cash Flow.
 
Three Months Ended March 31,
(Dollars in thousands)
2020
 
2019
Cash flow from continuing operations
$
(7,991
)
 
$
(15,846
)
Capital expenditures from continuing operations
22,208

 
27,438

Free cash flow
$
(30,199
)
 
(43,284
)
Costs Applicable to Sales
Management uses CAS 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 gold, silver, zinc and lead, 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 that allocating CAS to gold, silver, zinc and lead based on gold, silver, zinc and lead metal sales relative to total metal sales best allows management, analysts, investors and other stakeholders to evaluate the operating performance of the Company. Other companies may calculate CAS differently as a result of reflecting the benefit from selling non-silver metals as a by-product credit, converting to silver equivalent ounces, and differences in underlying accounting principles and accounting frameworks such as in International Financial Reporting Standards.

Three Months Ended March 31, 2020
In thousands except per ounce or per pound amounts
Palmarejo
 
Rochester
 
Kensington
 
Wharf
 
Silvertip
 
Total
Costs applicable to sales, including amortization (U.S. GAAP)
$
49,149

 
$
19,860

 
$
42,429

 
$
20,267

 
$
23,002

 
$
154,707

Amortization
(13,175
)
 
(2,904
)
 
(11,922
)
 
(2,444
)
 
(5,345
)
 
(35,790
)
Costs applicable to sales
$
35,974

 
$
16,956

 
$
30,507

 
$
17,823

 
$
17,657

 
$
118,917

 
 
 
 
 
 
 
 
 
 
 
 
Metal Sales
 
 
 
 
 
 
 
 
 
 
 
Gold ounces
31,287

 
5,473

 
32,781

 
16,094

 
 
 
85,635

Silver ounces
1,894,789

 
632,237

 
 
 
14,768

 
158,984

 
2,700,778

Zinc pounds
 
 
 
 
 
 
 
 
3,203,446

 
3,203,446

Lead pounds
 
 
 
 
 
 
 
 
2,453,485

 
2,453,485

 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales
 
 
 
 
 
 
 
 
 
 
 
Gold ($/oz)
$
644

 
$
1,394

 
$
931

 
$
1,092

 
 
 
 
Silver ($/oz)
$
8.35

 
$
14.75

 
 
 
 
 
NM (1)

 
 
Zinc ($/lb)
 
 
 
 
 
 
 
 
NM (1)

 
 
Lead ($/lb)
 
 
 
 
 
 
 
 
NM (1)

 
 
(1) Due to the temporary suspension of mining and processing activities these amounts are not meaningful.

43


Three Months Ended March 31, 2019
In thousands except per ounce or per pound amounts
Palmarejo
 
Rochester
 
Kensington
 
Wharf
 
Silvertip
 
Total
Costs applicable to sales, including amortization (U.S. GAAP)
$
47,772

 
$
26,491

 
$
43,902

 
$
20,073

 
$
34,811

 
$
173,049

Amortization
(14,528
)
 
(4,037
)
 
(11,727
)
 
(2,681
)
 
(8,426
)
 
(41,399
)
Costs applicable to sales
$
33,244

 
$
22,454

 
$
32,175

 
$
17,392

 
$
26,385

 
$
131,650

 
 
 
 
 
 
 
 
 
 
 
 
Metal Sales
 
 
 
 
 
 
 
 
 
 
 
Gold ounces
27,394

 
8,511

 
31,335

 
18,086

 
 
 
85,326

Silver ounces
1,405,409

 
1,000,453

 
 
 
14,052

 
215,101

 
2,635,015

Zinc pounds
 
 
 
 
 
 
 
 
4,723,069

 
4,723,069

Lead pounds
 
 
 
 
 
 
 
 
2,747,847

 
2,747,847

 
 
 
 
 
 
 
 
 
 
 
 
Costs applicable to sales
 
 
 
 
 
 
 
 
 
 
 
Gold ($/oz)
$
716

 
$
1,108

 
$
1,027

 
$
950

 
 
 
 
Silver ($/oz)
$
9.70

 
$
13.02

 
 
 
 
 
$
33.12

 
 
Zinc ($/lb)
 
 
 
 
 
 
 
 
$
2.85

 
 
Lead ($/lb)
 
 
 
 
 
 
 
 
$
2.11

 
 


44


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 operations at the Company’s mines, exploration and development efforts, COVID-19 planning and response efforts, expectations regarding the Company's mines, hedging strategies, mine life, realization of deferred tax assets, sufficiency of assets, ability to discharge liabilities, liquidity management, financing plans, and risk management strategies. 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 Part II, Item 1A of this report and in “Risk Factors” section of the 2019 10-K and the risks set forth in this MD&A and Item 3 of this report, (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 or higher treatment and refining charge environment, (iv) the uncertainties inherent in the Company’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays (including the impact of government shutdowns), 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 mineral 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 its production, (ix) the potential effects of the COVID-19 pandemic, including impacts to the availability of our workforce, continued access to financing sources, government orders that may require temporary suspension of operations at one or more of our sites and effects on our suppliers or the refiners and smelters to whom the Company markets its production, (x)  the effects of environmental and other governmental regulations, (xi) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, and (xii) 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 13 -- Derivative Financial Instruments in the notes to the 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 165,000 ounces of gold at March 31, 2020 that settle monthly through December 2021. The weighted average strike prices on the put and call contracts are $1,459 and $1,824 per ounce of gold, respectively. The contracts are generally net cash settled and, if the price of gold at the time of the expiration is between the put and call prices, would expire at no cost to the Company. At March 31, 2020, the value of the put and call zero cost collars contracts was zero. For the quarter ended March 31, 2020 the Company had not recognized any amount of gain or loss related to outstanding options in Revenue and the entire amount was included in accumulated other comprehensive income (loss). A 10% decrease in the price of gold at March 31, 2020 would result in a gain of $1.0 million.
Provisional Gold, Silver, Zinc and Lead 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

45


embedded derivative that is required to be separated from the host contract. Depending on the difference between the price at the 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 gold, silver, zinc and lead prices resulted in provisional pricing mark-to-market gain of $0.5 million as of March 31, 2020.
At March 31, 2020, the Company had outstanding provisionally priced sales of 5,230 ounces of gold at an average price of $1,596, 0.3 million ounces of silver at an average price of $14.86, 13.6 million pounds of zinc at an average price of $0.86 and 3.8 million pounds of lead at an average price of $0.79. A 10% change in realized gold, silver, zinc and lead prices would cause revenue to vary by $2.8 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 currency forward exchange contracts. At March 31, 2020, the Company entered into foreign currency forward contracts to manage this risk and designated these instruments as cash flow hedges of forecasted foreign denominated transactions. The Company had outstanding foreign currency forward exchange contracts to receive $2.6 billion Mexican Pesos at March 31, 2020 with an average exchange rate of 24.60 that settle monthly through December 2021. The Company had outstanding foreign currency forward exchange contracts to receive $36 million Canadian Dollars at March 31, 2020 with an average exchange rate of 1.44 that settle monthly through December 2020. At March 31, 2020, the value of the foreign currency forward exchange contracts was a net asset of $0.1 million. For the quarter ended March 31, 2020 the Company had not recognized any amount of gain or loss related to outstanding options in Cost Applicable to Sales and the entire amount was included in accumulated other comprehensive income (loss). A 10% increase or decrease in the exchange rates at March 31, 2020 would result in a loss of $7.4 million or a gain of $17.6 million, respectively.
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 no outstanding interest rate swaps at March 31, 2020.


46


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 March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



47


PART II

Item 1.         Legal Proceedings
See Note 17 -- Commitments and Contingencies in the notes to the Consolidated Financial Statements included herein.

Item 1A.     Risk Factors

Item 1A -- Risk Factors of the 2019 10-K sets forth information relating to important risks and uncertainties that could materially adversely affect the Company’s business, financial condition or operating results. Those risk factors have been supplemented and updated in this Form 10-Q. Except as supplemented and updated below, the risk factors set forth in the 2019 10-K remain current. Additional risks and uncertainties that the Company does not presently know or that it currently deems immaterial also may impair our business operations.

Our operations may be further disrupted, and our financial results may be adversely affected by the novel coronavirus pandemic.
The 2019 novel strain of coronavirus causing a contagious respiratory disease known as COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, poses a material risk to our business and operations. If a significant portion of our workforce becomes unable to work or travel to our operations due to illness or state or federal government restrictions (including travel restrictions and “shelter-in-place” and similar orders restricting certain activities that may be issued or extended by authorities), we may be forced to reduce or suspend operations at one or more of our mines, which could reduce production and limit exploration activities and development projects and impact liquidity and financial results. We continue to monitor legislative initiatives in the U.S., Mexico and Canada to provide relief to businesses impacted by COVID-19, such as the U.S. Coronavirus Aid Relief and Economic Security (CARES) Act, to determine their potential impacts or benefits (if any) to our business.
On April 7, 2020, we announced that we had begun taking steps towards temporarily suspending active mining and processing activities at the Palmarejo complex in the State of Chihuahua, Mexico, in accordance with a government-mandated decree in response to COVID-19. In addition, we are requiring all employees who travel to the Kensington mine to submit to a 14-day quarantine in Juneau, Alaska before traveling to the mine. We believe this is an important step to protect the health and safety of all workers who stay at the Kensington camp, although it has required changes to worker scheduling and is expected to result in higher labor costs due to additional overtime pay and pay during the quarantine period. Illnesses or government restrictions, including the closure of national borders, related to COVID-19 also may disrupt the supply of raw goods, equipment, supplies and services upon which our operations rely.
The refiners and smelters upon which the Company relies to refine and process and, in some cases, purchase the gold and silver doré and gold, silver, zinc and lead concentrate produced by the Company’s mines, are also subject to these risks and may be required to reduce or suspend operations, which could impact the Company’s ability to sell its products to buyers and generate revenues. For example, on March 23, 2020, Argor-Heraeus, a Swiss refiner which provides refining services to several of our mines, announced that it was temporarily suspending operations in response to a government order and has since recommenced operations.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and those set forth under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our operation and indebtedness and financing. Because of the highly uncertain and dynamic nature of events relating to the COVID-19 pandemic, it is not currently possible to estimate the impact of the pandemic on our business. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.

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

48


business prospects or financial results, or a lower risk tolerance by the Company’s sureties, may result in increased collateral requirements under the Company’s existing surety bond portfolio, which in turn may adversely affect the Company’s results of operations and financial position.

The Company’s use of derivative contracts to protect against market price volatility exposes it to risk of opportunity loss, mark- to-market fair value adjustments and exposure to counterparty credit risk.
From time-to-time, the Company may enter into price risk management contracts to protect against fluctuations in the price of gold, silver, zinc and lead, foreign currency rates and changes in the prices of fuel and other input costs. These contracts could include forward sales or purchase contracts, futures contracts, purchased or sold put and call options and other derivative instruments. In 2019 and through April 17, 2020, the Company entered into price risk management contracts on a total of 292,000 ounces of its gold production for 2020 and 2021 after a significant increase in gold prices during 2019 and into the first half of 2020. The Company determined to implement these contracts to provide for a minimum level of revenue from the sales of the covered gold ounces in order to mitigate the risk of not being able to fund all or a portion of the costs of several projects at existing operations.
The use of derivative instruments can expose the Company to risk of an opportunity loss and may also result in significant mark-to-market fair value adjustments, which may have a material adverse impact on reported financial results.  The ceiling on the gold ounces covered by the price risk management contracts described above, representing the highest price the Company could realize for those ounces, averages $1,825 per ounce. The Company is exposed to credit risk with contract counterparties, including, but not limited to, sales contracts and derivative contracts. In the event of nonperformance in connection with a contract, the Company could be exposed to a loss of value for that contract.

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
In accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and the Company’s insider trading policy, Mitchell J. Krebs, the Company’s President and Chief Executive Officer, entered into a selling plan effective March 4, 2020. Under the selling plan, between May 2020 and May 2022, Mr. Krebs will sell a total of 200,000 shares of the Company’s common stock so long as the market price of the common stock is higher than the minimum threshold price specified in the plan.
Rule 10b5-1 permits an insider to implement a written prearranged trading plan entered into at a time when the insider is not aware of any material nonpublic information about the Company and allows the insider to trade on a one-time or regularly scheduled basis regardless of any material nonpublic information about the Company thereafter received by the insider.



49


Item 6.        Exhibits
31.1
31.2
32.1
32.2
95.1
101.INS
XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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*
104
Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101).
*    The following financial information from Coeur Mining, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 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
April 22, 2020
/s/ Mitchell J. Krebs
 
 
 
MITCHELL J. KREBS
 
 
 
President and Chief Executive Officer (Principal Executive Officer)
 
 
 
 
Dated
April 22, 2020
/s/ Thomas S. Whelan
 
 
 
THOMAS S. WHELAN
 
 
 
Senior Vice President and Chief Financial Officer (Principal Financial Officer)

 
 
 
 
Dated
April 22, 2020
/s/ Ken Watkinson
 
 
 
KEN WATKINSON
 
 
 
Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)


50
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