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10-Q
COEUR MINING, INC. filed this Form 10-Q on 11/06/2013
Entire Document
 
CDE-09.30.2013-Q3

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________________________ 
FORM 10-Q
___________________________________________
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2013
OR
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from              to             
Commission file number 001-08641
____________________________________________ 
COEUR MINING, INC.
(Exact name of registrant as specified in its charter)
____________________________________________
Delaware
 
82-0109423
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
104 S. Michigan Ave., Suite 900 Chicago, Illinois
 
60603
(Address of principal executive offices)
 
(Zip Code)
(312) 489-5800
(Registrant’s telephone number, including area code)
_________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The Company has 150,000,000 shares of common stock, par value of $0.01, authorized of which 100,530,862 shares were issued and outstanding as of November 5, 2013.

1


COEUR MINING, INC.
INDEX
 
 
Page No.
Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 4.
 
 
 
Item 6.

2




COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
September 30,
2013
 
December 31,
2012
ASSETS
Notes
 
(In thousands, except share data)
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
$
211,434

 
$
125,440

Investments
5
 

 
999

Receivables
6
 
74,417

 
62,438

Ore on leach pad
 
 
39,880

 
22,991

Metal and other inventory
7
 
123,537

 
170,670

Deferred tax assets
13
 
2,713

 
2,458

Restricted assets
 
 
2,015

 
396

Prepaid expenses and other
 
 
26,778

 
20,790


 
 
480,774

 
406,182

NON-CURRENT ASSETS
 
 
 
 
 
Property, plant and equipment, net
9
 
649,591

 
684,002

Mining properties, net
10
 
2,365,999

 
1,991,809

Ore on leach pad
 
 
31,966

 
21,356

Restricted assets
 
 
24,914

 
24,970

Marketable securities
5
 
17,616

 
27,065

Receivables
6
 
37,191


48,767

Debt issuance costs, net
 
 
11,351

 
3,713

Deferred tax assets
13
 
1,104

 
955

Other
 
 
16,411

 
12,582

TOTAL ASSETS
 
 
$
3,636,917

 
$
3,221,401

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Accounts payable
 
 
$
63,610

 
$
57,482

Accrued liabilities and other
 
 
9,589

 
10,002

Accrued income taxes
13
 
8,529

 
27,108

Accrued payroll and related benefits
 
 
19,295

 
21,306

Accrued interest payable
 
 
4,028

 
478

Debt and capital leases
11
 
3,868

 
55,983

Royalty obligations
4,16
 
49,069

 
65,104

Reclamation and mine closure
12
 
443

 
668

Deferred tax liabilities
13
 
121

 
121

 
 
 
158,552

 
238,252

NON-CURRENT LIABILITIES
 
 
 
 
 
Debt and capital leases
11
 
306,372

 
3,460

Royalty obligations
4,16
 
90,892

 
141,879

Reclamation and mine closure
12
 
55,872

 
34,670

Deferred tax liabilities
13
 
709,910

 
577,488

Other long-term liabilities
 
 
23,371

 
27,372

 
 
 
1,186,417

 
784,869

COMMITMENTS AND CONTINGENCIES (Note 17)
 
 

 

STOCKHOLDERS’ EQUITY
 
 
 
 
 
Common stock, par value $0.01 per share; authorized 150,000,000 shares, issued and outstanding 100,548,811 at September 30, 2013 and 90,342,338 at December 31, 2012
 
 
1,006

 
903

Additional paid-in capital
 
 
2,756,377

 
2,601,254

Accumulated deficit
 
 
(465,191
)
 
(396,156
)
Accumulated other comprehensive loss
 
 
(244
)
 
(7,721
)
 
 
 
2,291,948

 
2,198,280

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
$
3,636,917

 
$
3,221,401


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

3


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
Notes
(In thousands, except share data)
Sales of metal
 
$
200,825

 
$
230,593

 
$
577,147

 
$
689,563

Production costs applicable to sales
 
(131,728
)
 
(124,967
)
 
(363,437
)
 
(349,344
)
Depreciation, depletion and amortization
 
(60,874
)
 
(52,844
)
 
(168,963
)
 
(166,460
)
Gross profit
 
8,223

 
52,782

 
44,747

 
173,759

COSTS AND EXPENSES
 

 

 

 
 
General and administrative
 
16,240

 
10,266

 
41,492

 
26,456

Exploration
 
3,305

 
6,957

 
16,920

 
19,829

Litigation settlement
17

 

 
32,046

 

Loss on impairment and other
 

 
1,293

 
205

 
6,106

Pre-development, care, maintenance and other
 
3,955

 
277

 
9,414

 
1,618

Total costs and expenses
 
23,500

 
18,793

 
100,077

 
54,009

OPERATING INCOME (LOSS)
 
(15,277
)
 
33,989

 
(55,330
)
 
119,750

OTHER INCOME AND EXPENSE
 

 

 

 
 
Fair value adjustments, net
4,16
(20,646
)
 
(37,648
)
 
63,905

 
(44,722
)
Other than temporary impairment of marketable securities
5
(870
)
 
(605
)
 
(18,097
)
 
(605
)
Interest income and other, net
 
(1,791
)
 
13,269

 
2,484

 
15,055

Interest expense, net of capitalized interest
11
(9,662
)
 
(7,351
)
 
(30,324
)
 
(21,578
)
Total other income and expense, net
 
(32,969
)
 
(32,335
)
 
17,968

 
(51,850
)
Income (loss) before income taxes
 
(48,246
)
 
1,654

 
(37,362
)
 
67,900

Income tax provision
13
1,981

 
(17,475
)
 
(31,673
)
 
(56,773
)
NET INCOME (LOSS)
 
$
(46,265
)
 
$
(15,821
)
 
$
(69,035
)
 
$
11,127

INCOME (LOSS) PER SHARE
3
 
 
 
 
 
 
 
Basic

$
(0.46
)
 
$
(0.18
)
 
$
(0.71
)
 
$
0.12

Diluted

$
(0.46
)
 
$
(0.18
)
 
$
(0.71
)
 
$
0.12

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 September 30,
Nine months ended September 30,
 
 
2013
 
2012
2013
 
2012
 
Notes
(In thousands)
Net income (loss)
 
$
(46,265
)
 
$
(15,821
)
$
(69,035
)
 
$
11,127

OTHER COMPREHENSIVE INCOME (LOSS) net of tax:
 

 


 

Unrealized gain (loss) on available for sale securities
4,5
301

 
6,026

(10,756
)
 
774

Reclassification adjustments for losses included in net income(A)
4,5
1,006

 
605

18,233

 
605

Other comprehensive income
 
1,307

 
6,631

7,477

 
1,379

COMPREHENSIVE INCOME (LOSS)
 
$
(44,958
)
 
$
(9,190
)
$
(61,558
)
 
$
12,506

A. Reclassification adjustments for the three and nine months ended September 30, 2013 includes $0.9 million and $18.1 million, respectively, and for the three and nine months ended September 30, 2012 includes $0.6 million that have been reflected in other than temporary impairment of marketable securities in the condensed consolidated statements of operations.
The accompanying notes are an integral part of these condensed consolidated financial statements.

COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine months ended September 30, 2013
(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, 2012
Notes
90,342

 
$
903

 
$
2,601,254

 
$
(396,156
)
 
$
(7,721
)
 
$
2,198,280

Net income (loss)
 

 

 

 
(69,035
)
 

 
(69,035
)
Other comprehensive income (loss)
 

 

 

 

 
7,477

 
7,477

Common stock issued for the acquisition of Orko Silver Corp.
8
11,573

 
116

 
173,247

 

 

 
173,363

Warrants issued for the acquisition of Orko Silver Corp.
8

 

 
5,777

 

 

 
5,777

Common stock share buy back
 
(1,691
)
 
(17
)
 
(27,535
)
 

 

 
(27,552
)
Common stock issued/cancelled under long-term incentive plans and director fees and options, net
14
325

 
4

 
3,634

 

 


 
3,638

Balances at September 30, 2013
 
100,549

 
$
1,006

 
$
2,756,377

 
$
(465,191
)
 
$
(244
)
 
$
2,291,948

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
September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
Notes
(In thousands)
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(46,265
)
 
$
(15,821
)
 
$
(69,035
)
 
$
11,127

Add (deduct) non-cash items
 
 
 
 
 
 
 
 
Depreciation, depletion and amortization
 
60,874

 
52,844

 
168,963

 
166,460

Accretion of discount on debt and other assets, net
 
509

 
585

 
2,040

 
1,683

Accretion of royalty obligation
12
2,889

 
4,276

 
10,698

 
14,348

Deferred income taxes
13
(1,869
)
 
(4,944
)
 
17,680

 
12,425

Fair value adjustments, net
4,16
20,308

 
35,270

 
(61,487
)
 
39,288

Gain on foreign currency transactions
 
(511
)
 
(1,577
)
 
(828
)
 
(1,208
)
Litigation settlement
17

 

 
22,046

 

Share-based compensation
14
373

 
3,364

 
3,085

 
6,534

(Gain) Loss on sale of assets
 
(7
)
 
108

 
(1,139
)
 
372

Other than temporary impairment of marketable securities
5
870

 
605

 
18,097

 
605

Loss on impairment
 

 
1,243

 
205

 
6,016

Other non-cash charges
 
136

 
1,331

 
136

 
1,838

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Receivables and other current assets
6
(2,132
)
 
(5,648
)
 
6,515

 
1,717

Prepaid expenses and other
 
(14,306
)
 
(2,481
)
 
(13,894
)
 
(564
)
Inventories
7
11,592

 
(13,762
)
 
22,582

 
(35,387
)
Accounts payable and accrued liabilities
 
(5,657
)
 
24,342

 
(22,588
)
 
(15,313
)
CASH PROVIDED BY OPERATING ACTIVITIES
 
26,804

 
79,735

 
103,076

 
209,941

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
Purchase of short term investments and marketable securities
 
(2,689
)
 
(4,093
)
 
(8,022
)
 
(11,959
)
Proceeds from sales and maturities of short term investments
 
27

 
337

 
6,371

 
21,038

Capital expenditures
19
(32,726
)
 
(29,972
)
 
(72,754
)
 
(93,857
)
Acquisition of Orko Silver Corporation
8

 

 
(113,214
)
 

Other
 
(48
)
 
479

 
1,163

 
1,659

CASH USED IN INVESTING ACTIVITIES
 
(35,436
)
 
(33,249
)
 
(186,456
)
 
(83,119
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
Proceeds from issuance of notes and bank borrowings
11

 

 
300,000

 

Payments on long-term debt, capital leases, and associated costs

(1,824
)
 
(80,318
)
 
(59,021
)
 
(94,562
)
Payments on gold production royalty

(12,619
)
 
(17,458
)
 
(43,548
)
 
(58,119
)
Reductions of restricted assets associated with the Kensington Term Facility
 

 
4,645

 

 
4,645

Share repurchases
 
(14,995
)
 
(9,971
)
 
(27,552
)
 
(9,971
)
Other
 
(27
)
 
134

 
(505
)
 
(912
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(29,465
)
 
(102,968
)
 
169,374

 
(158,919
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
 
(38,097
)
 
(56,482
)
 
85,994

 
(32,097
)
Cash and cash equivalents at beginning of period
 
249,531

 
199,397

 
125,440

 
175,012

Cash and cash equivalents at end of period
 
$
211,434

 
$
142,915

 
$
211,434

 
$
142,915

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

6

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


NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation: The Company’s unaudited interim condensed consolidated financial statements have been prepared under United States Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Coeur Mining, Inc. and its consolidated subsidiaries (“Coeur” or the “Company”). 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 reported for the year ending December 31, 2013. The condensed consolidated December 31, 2012 balance sheet data was derived from the audited consolidated financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2012.
Use of Estimates: The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. The most significant areas requiring the use of management’s estimates and assumptions relate to recoverable ounces from proven and probable reserves that are the basis of future cash flow estimates and units-of-production depreciation and amortization calculations; useful lives utilized for depreciation, depletion and amortization; estimates of future cash flows for long lived assets; estimates of recoverable gold and silver ounces in ore on leach pads; the amount and timing of reclamation and remediation costs; and valuation allowance for deferred tax assets.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements:
On January 1, 2013, the Company adopted ASU 2011-11, "Balance Sheet (Topic 201): Disclosures about Offsetting Assets and Liabilities." This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. The adoption of ASU 2011-11 had no effect on the Company's financial position, results of operations or cash flows.
On January 1, 2013, the Company adopted ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The new standard requires either in a single note or parenthetically on the face of the financial statements: (i) the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and (ii) the income statement line items affected by the reclassification. The adoption of ASU 2013-02 had no effect on the Company's financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements:

In July 2013, the FASB issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carryforwards, a similar tax loss, or tax credit carryforwards. A gross presentation will be required only if such carryforwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax provision. The update is effective prospectively for the Company's fiscal year beginning January 1, 2014.
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and nine months ended September 30, 2013, 1,142,530 shares of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. For the three and nine months ended September 30, 2012, 772,368 and 640,660 shares, respectively, of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. The 3.25% Convertible Senior Notes were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2013 and 2012 because there is no excess value upon conversion over the principal amount of the Notes.


7

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
Three months ended
September 30,
 
Nine months ended September 30,
In thousands except per share amounts
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
(46,265
)
 
$
(15,821
)
 
$
(69,035
)
 
$
11,127

Weighted average shares
 
 
 
 
 
 
 
Basic
100,778

 
89,429

 
96,893

 
89,550

Effect of share based compensation plans

 

 

 
140

Diluted
100,778

 
89,429

 
96,893

 
89,690

Income (loss) per share
 
 
 
 
 
 
 
Basic
$
(0.46
)
 
$
(0.18
)
 
$
(0.71
)
 
$
0.12

Diluted
$
(0.46
)
 
$
(0.18
)
 
$
(0.71
)
 
$
0.12

 
 
 
 
 
 
 
 
 
 
 
 
NOTE 4 – FAIR VALUE MEASUREMENTS
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2
Quoted market prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
 
Fair Value at September 30, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Marketable equity securities
$
17,616

 
$
17,616

 
$

 
$

Gold and silver put options
160

 

 
160

 

 
$
17,776

 
$
17,616

 
$
160

 
$

Liabilities:
 
 
 
 
 
 
 
Palmarejo royalty obligation embedded derivative
$
61,996

 
$

 
$
61,996

 
$

Rochester NSR royalty obligation
24,409

 

 

 
24,409

Other derivative instruments, net
2,069

 

 
2,069

 

 
$
88,474

 
$

 
$
64,065

 
$
24,409

 

8

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

    
 
Fair Value at December 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Short term investments
$
999

 
$
999

 
$

 
$

Marketable equity securities
27,065

 
27,065

 

 

Other derivative instruments, net
943

 

 
943

 

 
$
29,007

 
$
28,064

 
$
943

 
$

Liabilities:
 
 
 
 
 
 
 
Palmarejo royalty obligation embedded derivative
$
145,098

 
$

 
$
145,098

 
$

Put and call options
9,299

 

 
9,299

 

 
$
154,397

 
$

 
$
154,397

 
$

The Company’s short-term investments are readily convertible to cash and, therefore, these investments are classified within Level 1 of the fair value hierarchy.
The Company’s marketable equity securities are recorded at fair market value in the financial statements based on quoted market prices, which are accessible at the measurement date for identical assets. Such instruments are classified within Level 1 of the fair value hierarchy.
The Company’s gold put and call options, Palmarejo royalty obligation embedded derivative, and other derivative instruments, net, which relate to the concentrate sales contracts and foreign exchange contracts, are valued using pricing models, which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
The estimated fair value of the Rochester NSR royalty obligation was estimated based on observable market data including contractual terms, forward silver and gold prices, yield curves and credit spreads.  The Company’s current mine plan is a significant input used in the estimated fair value of the Rochester NSR royalty obligation and is considered company specific and unobservable.  Therefore, the Company has classified the Rochester NSR royalty obligation as a Level 3 financial liability. Based on the current mine plan, an expected royalty duration of 4.68 years was used to estimate the fair value of the Rochester NSR royalty obligation as of September 30, 2013. The Company had no Level 3 financial assets and liabilities as of December 31, 2012.
Financial assets and liabilities that are not measured at fair value at September 30, 2013 and December 31, 2012 are set forth below (in thousands):
 
Fair Value at September 30, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:

 
 
 
 
 
 
3.25% Convertible Senior Notes due 2028
$
5,131

 
$
5,131

 
$

 
$

7.875% Senior Notes due 2021
$
304,314

 
$
304,314

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
70,795

 
$

 
$
70,795

 
$

 
Fair Value at December 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 
 
 
 
 
 
3.25% Convertible Senior Notes due 2028
$
48,220

 
$
48,220

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
90,617

 
$

 
$
90,617

 
$



9

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 5 – INVESTMENTS
The Company invests in marketable equity securities of silver and gold exploration and development companies. These investments are classified as available-for-sale and are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income.
The Company’s investments in marketable securities as of September 30, 2013 and December 31, 2012 (in thousands): 
 
Investments in marketable securities
 
Adjusted
 Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Marketable securities at September 30, 2013
$
17,860

 
$
(987
)
 
$
743

 
$
17,616

 
 
 
 
 
 
 
 
Marketable securities at December 31, 2012
$
34,786

 
$
(10,443
)
 
$
2,722

 
$
27,065


In the three months ended September 30, 2013 and 2012, the Company recognized an unrealized gain of $0.3 million and $6.0 million, respectively, in other comprehensive income (loss). In the nine months ended September 30, 2013, and 2012, the Company recognized an unrealized loss of $10.8 million and an unrealized gain of $0.8 million, respectively. The Company performs a quarterly assessment on each of its marketable securities with unrealized losses to determine if the security is other than temporarily impaired. The Company's management team uses industry knowledge and expertise to evaluate each investment and determined that unrealized losses on certain investments are not other than temporary. In the three and nine months ended September 30, 2013 other than temporary impairment charges of $0.9 million and $18.1 million, respectively, were recorded.
The Company had $1.0 million of short-term investments at December 31, 2012. These investments were held with various banks and had maturity dates of less than one year. There were no short term investments at September 30, 2013.
NOTE 6 – RECEIVABLES
Receivables consist of the following (in thousands):
 
September 30, 2013
 
December 31, 2012
Receivables - current
 
 
 
Accounts receivable - trade
$
16,295

 
$
8,701

Refundable income tax
8,330

 
9,331

Refundable value added tax
46,242

 
40,020

Accounts receivable - other
3,550

 
4,386

 
$
74,417

 
$
62,438

Receivables - non-current
 
 
 
Refundable value added tax
$
37,191

 
$
48,767

 
Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management evaluates the collectability of receivable account balances to determine the allowance, if any. There were no allowances against receivable balances at September 30, 2013 or December 31, 2012.
NOTE 7 – METAL AND OTHER INVENTORY
Metal and other inventory consist of the following (in thousands): 
 
September 30, 2013
 
December 31, 2012
Concentrate and doré inventory
$
57,519

 
$
91,130

Supplies
66,018

 
79,540

Metal and other inventory
$
123,537

 
$
170,670


10

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)


NOTE 8 – ACQUISITION OF ORKO SILVER CORPORATION/LA PRECIOSA MINERAL INTERESTS
On April 16, 2013, the Company completed its acquisition of Orko Silver Corporation (“Orko”). Upon completion of the acquisition, the Company holds the La Preciosa silver-gold project in the state of Durango, Mexico. The transaction was accounted for as a purchase of mineral interests since La Preciosa is a development stage project.
Total consideration paid for the asset acquisition (in thousands):
Common shares issued (11,572,918 at $14.98)
$
173,363

Cash
99,059

Warrants (1,588,768 valued at $3.64 per warrant)
5,777

Transaction advisory fees and other acquisition costs
17,642

Total purchase price
295,841

Current liabilities
2,616

Deferred income taxes
114,339

Total liabilities assumed
116,955

Total consideration
$
412,796

Estimated fair value of the assets acquired (in thousands):
Cash
$
3,487

Other current assets
635

Mineral interests
408,352

Other assets
322

Total assets acquired
$
412,796


NOTE 9 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands): 
 
September 30, 2013
 
December 31, 2012
Land
$
1,764

 
$
2,152

Buildings and improvements
596,655

 
581,286

Machinery and equipment
390,069

 
360,199

Capitalized leases for machinery, equipment, buildings, and land
22,444

 
35,129

 
1,010,932

 
978,766

Accumulated depreciation and amortization
(373,931
)
 
(313,067
)
 
637,001

 
665,699

Construction in progress
12,590

 
18,303

 
$
649,591

 
$
684,002


11

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 10 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
September 30, 2013
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Endeavor
 
La Preciosa
 
Joaquin
 
Total
Mining properties
$
170,789

 
$
70,371

 
$
345,447

 
$
148,626

 
$

 
$

 
$

 
$
735,233

Accumulated depletion
(101,687
)
 
(21,270
)
 
(68,909
)
 
(102,105
)
 

 

 

 
(293,971
)
 
69,102

 
49,101

 
276,538

 
46,521

 

 

 

 
441,262

Mineral interests
1,660,580

 
26,643

 

 

 
44,033

 
408,352

 
93,429

 
2,233,037

Accumulated depletion
(282,339
)
 
(8,398
)
 

 

 
(17,563
)
 

 

 
(308,300
)
 
1,378,241

 
18,245

 

 

 
26,470

 
408,352

 
93,429

 
1,924,737

Total mining properties
$
1,447,343

 
$
67,346

 
$
276,538

 
$
46,521

 
$
26,470

 
$
408,352

 
$
93,429

 
$
2,365,999

December 31, 2012
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Endeavor
 
Joaquin
 
Total
Mining properties
$
155,722

 
$
70,322

 
$
333,619

 
$
114,973

 
$

 
$

 
$
674,636

Accumulated depletion
(82,037
)
 
(18,439
)
 
(46,649
)
 
(100,437
)
 

 

 
(247,562
)
 
73,685

 
51,883

 
286,970

 
14,536

 

 

 
427,074

Mineral interests
1,658,389

 
26,642

 

 

 
44,033

 
93,429

 
1,822,493

Accumulated depletion
(235,795
)
 
(7,338
)
 

 

 
(14,625
)
 

 
(257,758
)
 
1,422,594

 
19,304

 

 

 
29,408

 
93,429

 
1,564,735

Total mining properties
$
1,496,279

 
$
71,187

 
$
286,970

 
$
14,536

 
$
29,408

 
$
93,429

 
$
1,991,809

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

San Bartolomé Mine: The San Bartolomé mine is a silver mine located near the city of Potosi, Bolivia. The mineral rights for the San Bartolomé project are held through long-term joint venture/lease agreements with several local independent mining co-operatives and the Bolivian state owned mining organization, (“COMIBOL”). The Company commenced commercial production at San Bartolomé in June 2008.
Kensington Mine: The Kensington mine is an underground gold mine and consists of the Kensington and adjacent Jualin properties located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Company commenced commercial production in July of 2010.
Rochester Mine: The Company has conducted operations at the Rochester mine, located in Western Nevada, since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods. Rochester’s primary product is silver with gold produced as a by-product.
Mineral Interests
Endeavor Mine: In May 2005, CDE Australia Pty Ltd ("CDE Australia"), a wholly-owned subsidiary of the Company, acquired the silver production and reserves, up to a maximum 17.7 million  payable ounces, contained at the Endeavor mine in Australia, which is owned and operated by Cobar Operations Pty. Limited, a wholly-owned subsidiary of CBH Resources Ltd. In March 2006, CDE Australia entered into an amended agreement under which it owns all silver production and reserves up to a total of 20.0 million payable ounces.
CDE Australia began realizing reductions in revenues in the fourth quarter of 2008 as a result of a silver price sharing provision that was part of the purchase agreement. CDE Australia has received approximately 4.7 million payable ounces to date and the current ore reserve contains approximately 4.0 million payable ounces based on current metallurgical recovery and current smelter contract terms.
La Preciosa Project: On April 16, 2013, the Company completed its acquisition of Orko Silver Corporation (“Orko”), which holds the La Preciosa silver-gold project in Durango, Mexico.

12

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Joaquin Project: The Joaquin project is located in the Santa Cruz province of southern Argentina. The Company commenced exploration of this large property located north of the Company's Martha silver mine in November 2007 and acquired 100% in December 2012. Since that time, the Company has defined silver and gold mineralization in two deposits at Joaquin, La Negra and La Morocha, collectively referred to as the "Joaquin Project." The company continues to explore and develop the project.
NOTE 11 – DEBT AND CAPITAL LEASE OBLIGATIONS
The current and non-current portions of long-term debt and capital lease obligations as of September 30, 2013 and December 31, 2012 are as follows (in thousands):
 
September 30,
2013
 
December 31,
2012
 
Current
 
Non-Current
 
Current
 
Non-Current
3.25% Convertible Senior Notes due 2028
$

 
$
5,334

 
$
48,081

 
$

7.875% Senior Notes due 2021

 
300,000

 

 

Capital lease obligations
3,868

 
1,038

 
7,902

 
3,460

 
$
3,868

 
$
306,372

 
$
55,983

 
$
3,460


3.25% Convertible Senior Notes due 2028
Per the indenture governing the 3.25% Convertible Senior Notes due 2028 (the “Convertible Notes”), the Company announced on February 13, 2013 that it was offering to repurchase all of its outstanding 3.25% Convertible Senior Notes due 2028. As of February 12, 2013, there was $48.7 million aggregate principal amount of Convertible Notes outstanding. The Company repurchased $43.3 million in aggregate principal amount, leaving a balance of $5.3 million at September 30, 2013.     
7.875% Senior Notes due 2021
On January 29, 2013, the Company completed an offering of $300 million in aggregate principal amount of 7.875% Senior Notes due 2021 (the “Notes”) in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The Company commenced an exchange offer for the Notes on September 30, 2013 to exchange the Notes for freely transferable notes containing substantially similar terms, in accordance with the registration rights granted to the holders of the Notes when they were issued. The exchange offer was consummated on November 5, 2013. As of September 30, 2013, the outstanding balance of the Notes was $300 million.
Revolving Credit Facility
On August 1, 2012, Coeur Alaska, Inc. and Coeur Rochester, Inc. (the “Borrowers”), each a wholly-owned subsidiary of the Company, entered into a new Credit Agreement (the “Credit Agreement”) by and among the Company, the Borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $100.0 million, which principal amount may be increased, subject to receiving additional commitments therefor among other items, by up to $50.0 million. There is a commitment fee on the unused portion of the line which varies between 0.5% and 0.75% depending on the prior quarter's consolidated total leverage ratio, as defined in the Credit Agreement. The unused line fee for the three and nine months ended September 30, 2013 was $0.2 million and $0.4 million, respectively and was charged to interest expense.
As of September 30, 2013, no amounts were outstanding under the Revolving Credit Facility.


13

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Interest Expense
Interest expense is made up of the following (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
2012
 
2013
2012
3.25% Convertible Senior Notes due 2028
$
43

$
395

 
$
423

$
1,186

7.875% Senior Notes due 2021
5,906


 
15,947


Revolving Credit Facility
176

85

 
434

85

Kensington Term Facility (terminated in 2012)

459

 

2,339

Capital lease obligations
89

219

 
355

827

Other debt obligations
18

351

 
287

583

Accretion of Palmarejo gold production royalty obligation
4,023

4,384

 
12,192

15,047

Amortization of debt issuance costs
540

1,331

 
1,604

1,838

Accretion of debt discount

639

 
576

1,879

Capitalized interest
(1,133
)
(512
)
 
(1,494
)
(2,206
)
Total interest expense, net of capitalized interest
$
9,662

$
7,351

 
$
30,324

$
21,578


NOTE 12 – RECLAMATION AND MINE CLOSURE
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, mineral prices, mineral processing recovery rates, production levels, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. The sum of the expected costs by year is discounted, using the Company's credit adjusted risk free interest rate. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.
Changes to the Company’s asset retirement obligations for active mining sites are as follows (in thousands): 
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
Asset retirement obligation - beginning
$
35,578

 
$
34,510

 
$
34,456

 
$
32,714

Accretion
777

 
714

 
2,277

 
2,180

Addition and changes in estimates
19,542

 

 
19,542

 
335

Settlements
(124
)
 
(13
)
 
(502
)
 
(18
)
Asset retirement obligation - ending
$
55,773

 
$
35,211

 
$
55,773

 
$
35,211

In addition, the Company has accrued $0.6 million and $0.9 million as of September 30, 2013 and December 31, 2012, respectively, for reclamation liabilities related to former mining activities. These amounts are also included in reclamation and mine closure liabilities. In the three months ended September 30, 2013, the Company increased its estimate of the reclamation obligations by $16.8 million at Rochester and $2.7 million at Kensington.

14

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 13 – INCOME TAXES
The following table summarizes the components of the Company’s income tax provision for the three and nine months ended September 30, 2013 and 2012 (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
United States
$
5,182

 
$
(465
)
 
$
1,905

 
$
(3,990
)
Mexico
1,886

 
5,409

 
(17,585
)
 
(10,341
)
Bolivia
(4,598
)
 
(23,106
)
 
(13,482
)
 
(41,684
)
Other jurisdictions
(489
)
 
687

 
(2,511
)
 
(758
)
Income tax provision from continuing operations
$
1,981

 
$
(17,475
)
 
$
(31,673
)
 
$
(56,773
)
The income tax provision for the three and nine months ended September 30, 2013 varies from the statutory rate primarily because of differences in tax rates for the Company's foreign operations and changes in valuation allowances for net deferred tax assets, permanent differences and foreign exchange rate differences.
The Company has U.S. net operating loss carryforwards which expire in 2017 through 2031. Net operating losses in foreign countries have an indefinite carryforward period, except in Mexico where net operating loss carryforwards are limited to ten years.
NOTE 14 – SHARE-BASED COMPENSATION PLANS
Compensation expense recognized in the Company’s consolidated financial statements for the three months ended September 30, 2013 and 2012 for share based compensation awards was $0.2 million and $3.4 million, respectively. Compensation expense recognized for the nine months ended September 30, 2013 and 2012 for share based compensation awards was $2.3 million and $6.1 million, respectively. Stock appreciation rights (SARs) outstanding under the plan are liability-based awards and are required to be re-measured at the end of each reporting period with corresponding adjustments to previously recognized and future stock-based compensation expense. At September 30, 2013, there was $7.4 million of total unrecognized compensation cost (net of estimated forfeitures) to be recognized over a weighted-average period of 1.7 years.

The following table summarizes the new grants issued during the nine months ended September 30, 2013:
Grant date
 
Restricted
stock
 
Grant date fair
value of
restricted stock
 
Stock options
 
Grant date
fair value of
stock
options
 
Performance
shares
 
Grant date fair
value of
performance
shares
January 2, 2013
 
1,805

 
$
25.20

 

 
$

 

 
$

January 22, 2013
 
47,994

 
$
23.90

 
77,715

 
$
14.77

 
95,991

 
$
27.41

February 4, 2013
 
18,668

 
$
22.63

 
17,692

 
$
14.00

 
21,828

 
$
25.96

April 1, 2013
 
157,142

 
$
18.51

 
73,290

 
$
11.39

 
28,662

 
$
21.23

May 21, 2013
 
111,193

 
$
13.66

 

 
$

 

 
$

July 1, 2013
 
69,774

 
$
12.72

 
16,157

 
$
7.93

 
20,451

 
$
14.59

The following options and stock appreciation rights were exercised during the nine months ended September 30, 2013:
Award Type
 
Number of 
Exercised Units
 
Weighted Average
Exercised Price
 
Number of Exercisable Units
 
Weighted Average
Exercisable Price
Options
 
926

 
$
20.80

 
252,713

 
$
33.07

Stock Appreciation Rights
 
3,846

 
$
15.40

 
65,019

 
$
14.21


The following shows the weighted average fair value of SARs outstanding at September 30, 2013: 
  
SARs
Weighted average fair value
$
3.09



15

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 15 – DEFINED CONTRIBUTION AND 401(k) PLAN
Defined Contribution and 401(k) Plan
The Company maintains a retirement savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue Code) covering all eligible U.S. employees. Under the plan, employees may elect to contribute up to 75% of base salary, subject to ERISA limitations. The Company adopted a Safe Harbor Tiered Match and is required to make matching contributions equal to 100% of the employee’s contribution up to 3% of the employee’s compensation plus matching contributions equal to 50% of the employee’s contribution up to an additional 2% of the employee’s compensation. In addition, the Company provides a noncontributory defined contribution based on a percentage of eligible employee's salary. Total plan expenses recognized in the Company’s consolidated financial statements for the three months ended September 30, 2013 and 2012 were $1.1 million and $1.0 million, respectively. Total plan expenses recognized in the Company’s consolidated financial statements for the nine months ended September 30, 2013 and 2012 were $3.2 million and $3.1 million, respectively.
NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS
Palmarejo Gold Production Royalty
On January 21, 2009, the Company entered into a gold production royalty transaction with Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties. The royalty transaction included a minimum obligation of 4,167 ounces per month that ends when payments have been made on a total of 400,000 ounces of gold. As of September 30, 2013, a total of 156,493 ounces of gold remain outstanding under the minimum royalty obligation.
The price volatility associated with the minimum royalty obligation is considered an embedded derivative financial instrument under U.S. GAAP. As such, the Company is required to recognize the change in fair value of the remaining minimum obligation due to the changing gold prices. Unrealized gains are recognized in periods when the forward gold price has decreased from the previous period and unrealized losses are recognized in periods when the forward gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 6.3% and 4.2% at September 30, 2013 and December 31, 2012, respectively. The fair value of the embedded derivative at September 30, 2013 and December 31, 2012, based on forward gold prices averaging approximately $1,337 and $1,694 per ounce, respectively, was a liability of $62.0 million and $145.1 million, respectively. During the three months ended September 30, 2013 and 2012, mark-to-market adjustments for this embedded derivative amounted to a loss of $9.6 million and $23.4 million, respectively. During the nine months ended September 30, 2013 and 2012, mark-to-market adjustments for this embedded derivative amounted to a gain of $83.1 million and a loss of $10.9 million, respectively.
Payments on the royalty obligation occur monthly resulting in a decrease to the carrying amount of the minimum obligation and the derivative liability and the recognition of realized gains or losses as a result of changing prices for gold. Each monthly payment is an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of the actual gold production per month multiplied by the excess of the monthly average market price of gold above $400 per ounce (which $400 floor is subject to a 1% annual inflation compounding adjustment beginning on January 21, 2013). For the three months ended September 30, 2013 and 2012, realized losses on settlement of the liabilities were $5.6 million and $10.9 million, respectively. For the nine months ended September 30, 2013 and 2012, realized losses on settlement of the liabilities were $22.9 million and $35.0 million, respectively. The mark-to-market adjustments and realized losses are included in fair value adjustments, net in the consolidated statement of operations.
Foreign Exchange Contracts and Hedges
The Company periodically enters into foreign exchange contracts and hedges to reduce the foreign exchange risk associated with forecasted Mexican peso (“MXN”) operating costs at its Palmarejo mine. At September 30, 2013, the Company had MXN foreign exchange contracts of $24.0 million in U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 12.55 MXN to each U.S. dollar over the next six months. At December 31, 2012, the Company had MXP foreign exchange contracts of $26.1 million in U.S. dollars. These contracts required the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 13.11 MXN to each U.S. dollar and the Company had a liability with a fair value of $0.1 million at December 31, 2012. In addition, at September 30, 2013, the Company had outstanding call options requiring it to sell $24.0 million in U.S. dollars in exchange for MXP at a weighted average strike price of 15.06 MXP to each U.S. dollar if the foreign exchange rate exceeds the strike price. Further, at September 30, 2013, the Company had outstanding put options allowing it to buy $24.0 million in U.S. dollars in exchange for MXP at a weighted average strike price of 12.50 MXP to each U.S. dollar if the foreign exchange rate exceeds the strike price. The Company had a liability with a fair value of $1.3 million at September 30, 2013. The Company recorded a mark-to-market gain on these contracts of $0.1 million and a mark-to-market loss of $1.4 million for the three and nine months ended September 30, 2013, respectively. The Company recorded mark-to-market gains on these contracts of $0.6 million and $3.4 million for the three and nine months ended September 30, 2012, respectively. These mark-to-market adjustments are reflected in fair value adjustments, net in the consolidated statement of operations. The Company recorded a realized loss of $0.1 million and a realized gain of $0.7 million in production costs

16

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

applicable to sales during the three and nine months ended September 30, 2013, respectively. The Company recorded realized gains of $0.4 million and realized losses of $1.5 million in the three and nine months ended September 30, 2012, respectively, which have been recognized in production costs applicable to sales.
Concentrate Sales Contracts
The Company enters into concentrate sales contracts with third-party smelters. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. The provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final settlement price based on a future price, does not qualify for hedge accounting. These embedded derivatives are recorded as derivative assets (in Prepaid expenses and other) or derivative liabilities (in Accrued liabilities and other) on the balance sheet and are adjusted to fair value through earnings each period until the date of final settlement. At September 30, 2013, the Company had outstanding provisionally priced sales of $32.4 million, consisting of 0.1 million ounces of silver and 26,265 ounces of gold, which had a fair value of $31.7 million including the embedded derivative. At December 31, 2012, the Company had outstanding provisionally priced sales of $33.2 million consisting of 0.4 million ounces of silver and 11,957 ounces of gold, which had a fair value of approximately $34.1 million including the embedded derivative.
Commodity Derivatives
At September 30, 2013, the Company had outstanding put options that expire December 31, 2013, allowing it to sell 1.3 million ounces of silver and 25,000 ounces of gold at a strike price of $17.00 per ounce and $1,200 per ounce, respectively, if the market price of silver and gold were to fall below the strike price. The fair market value of these contracts was a net asset of $0.2 million. During the three months ended September 30, 2013, the Company recorded unrealized losses on the contracts of $0.4 million.
At December 31, 2012, the Company had outstanding call options requiring it to deliver 97,000 ounces of gold at a weighted average strike price of $1,967.89 per ounce if the market price of gold exceeds the strike price. At December 31, 2012, the Company had outstanding put options allowing it to sell 122,000 ounces of gold at a weighted average strike price of $967.86 per ounce if the market price of gold were to fall below the strike price. The fair market value of these contracts at December 31, 2012 was a net liability of $9.3 million. During the nine months ended September 30, 2013, 25,000 ounces of gold put options expired at a weighted average strike price of $921.60 per ounce and 12,500 ounces of gold call options expired at a weighted average strike price of $2,000, resulting in a realized loss of $1.1 million. During the three months ended September 30, 2013 and 2012, the Company settled the remaining 97,000 ounces of gold put options and 84,500 ounces of gold call options for a net realized gain of $0.4 million. During the three months ended September 30, 2013 and 2012, the Company recorded unrealized losses of $2.4 million and $3.6 million, respectively, related to the outstanding options. During the nine months ended September 30, 2013 and 2012, the Company recorded unrealized gains of $9.3 million and $1.4 million, respectively, related to the outstanding options. The realized and unrealized gains and losses are included in fair value adjustments, net in the consolidated statement of operations.


17

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

As of September 30, 2013, the Company had the following derivative instruments that settle in each of the years indicated in the table (in thousands except average prices, ounces and notional data):
 
2013
 
2014
 
2015
 
Thereafter
Palmarejo gold production royalty
$
8,633

 
$
24,895

 
$
24,691

 
$
19,236

Average gold price in excess of minimum contractual deduction
$
502

 
$
498

 
$
494

 
$
490

Notional ounces
17,201

 
50,004

 
50,004

 
39,285

Mexican peso forward purchase contracts
$
12,000

 
$
12,000

 
$

 
$

Average rate (MXP/$)
$
12.90

 
$
12.20

 
$

 
$

Mexican peso notional amount
154,816

 
146,460

 

 

Mexican peso put options purchased
$

 
$
24,000

 
$

 
$

Average strike price (MXP/$)
$

 
$
12.50

 
$

 
$

Mexico peso notional amount

 
300,000

 

 

Mexican peso call options sold
$

 
$
24,000

 
$

 
$

Average strike price (MXP/$)
$

 
$
15.06

 
$

 
$

Mexico peso notional amount

 
361,500

 

 

Silver concentrate sales agreements
$
2,326

 
$

 
$

 
$

Average silver price
$
22.82

 
$

 
$

 
$

Notional ounces
101,908

 

 

 

Gold concentrate sales agreements
$
30,123

 
$

 
$

 
$

Average gold price
$
1,147

 
$

 
$

 
$

Notional ounces
26,265

 

 

 

Gold put options purchased
$
382

 
$

 
$

 
$

Average gold strike price
$
1,200

 
$

 
$

 
$

Notional ounces
25,000

 

 

 

Silver put options purchased
$
186

 
$

 
$

 
$

Average silver strike price
$
17.00

 
$

 
$

 
$

Notional ounces
1,250,000

 

 

 


The following summarizes the classification of the fair value of the derivative instruments as of September 30, 2013 and December 31, 2012 (in thousands):
 
September 30, 2013
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
Current
portion of
royalty
obligation
 
Non-current
portion of
royalty
obligation
Foreign exchange contracts Peso
$
9

 
$
1,355

 
$

 
$

Palmarejo gold production royalty

 

 
22,590

 
39,406

Gold and silver put options
160

 

 

 

Concentrate sales contracts
42

 
766

 

 

 
$
211

 
$
2,121

 
$
22,590

 
$
39,406


18

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
December 31, 2012
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
Other long-
term
Liabilities
 
Current
portion of
royalty
obligation
 
Non-current
portion of
royalty
obligation
Foreign exchange contracts Peso
$
376

 
$
300

 
$

 
$

 
$

Palmarejo gold production royalty

 

 

 
41,146

 
103,952

Put and call options, net

 
2,025

 
7,274

 

 

Concentrate sales contracts
1,030

 
163

 

 

 

 
$
1,406

 
$
2,488

 
$
7,274

 
$
41,146

 
$
103,952

The following represent mark-to-market gains (losses) on derivative instruments for the three and nine months ended September 30, 2013 and 2012 (in thousands):
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
Financial statement line
Derivative
 
2013
 
2012
 
2013
 
2012
Sales of metal
Concentrate sales contracts
 
$
718

 
$
1,591

 
$
(2,037
)
 
$
2,050

Production costs applicable to sales
Forward foreign exchange contracts
 
(99
)
 
394

 
732

 
(1,540
)
Fair value adjustments, net
Foreign exchange contracts MXN Peso
 
100

 
621

 
(1,422
)
 
3,394

Fair value adjustments, net
Silver ounces receivable
 

 
280

 

 
302

Fair value adjustments, net
Palmarejo gold royalty
 
(15,279
)
 
(34,266
)
 
60,216

 
(45,771
)
Fair value adjustments, net
Put and call options
 
(3,104
)
 
(4,283
)
 
7,474

 
(2,647
)
 
 
 
$
(17,664
)