505 Front Avenue, P.O. Box 1
As we look ahead, our strategy for growth remains as straightforward as that which brought us to our current record levels. We continue to target opportunities in politically stable countries with historic mining traditions and ample opportunity for developing production and reserves. Through the efforts of our exceptional group of employees, this past year  we secured a number of important stakes on the separate continents to guarantee continued development this year and beyond.
Coeur d'Alene Mines Corporation (Coeur) is a global precious metals producer, specializing in the exploration, extraction, and development of both gold and silver resources in its seven active gold and/or silver mines. Directly and through its subsidiaries, the company operates primarily within North and South America, Australia, and New Zealand. Coeur silver is used in film, jewelry, medicine, batteries, electrical appliances, in high technology defense and scientific applications (where instant bursts of electric power are required), and as a bacteria killer in water--reusable laundry discs using silver can eliminate the need for detergents. Due to its ability to bind specialized superconductive materials together, silver is expected to play a significant role in a new era of high temperature superconductors--materials that conduct electricity with little or no electrical resistance. Silver and gold are being used to remove frost from automobile and airplane windows, by conducting heat through a nearly invisible layer of silver embedded in the glass. Due to its high reflectivity, gold is used in spacecraft to resist radiation and heat. It is used in all parts of the Internet to ensure static-free, reliable, and seamless connections; and gold circuitry within microchips is standard in all brand name microcircuitry. The brilliance and intrinsic value of gold and silver continues to recommend them for use in jewelry fabrication and ornamentation.
Coeur announced a gold production record of 214,130 ounces for 1996, and having established itself as North America's leading producer of silver, figures for that year show Coeur d'Alene's silver production at 9.5 million ounces. The world consumed 162 million more ounces of silver than was produced in 1995, and according to Erick Schonfeld, writing for Fortune, "Each 25-cent rise in the price of silver contributes about a dime to the bottom line of Coeur d'Alene Mines."
Coeur d'Alene Mining District Developed in the 1890s
The Coeur d'Alene district of Idaho has been an important producer of lead, silver, and zinc since the 19th century. Idaho and Utah were the great silver-lead producing states, accounting for over 40 percent of the country's total output during the period 1907-30, with most of Idaho's output coming from the Coeur d'Alene district of Shoshone County. The district extended over an area of only 200 square miles and was first developed for large scale mining in the 1890s, becoming one of the world's premier fields. According to a Business History article by Roger Burt, "Two developments were essential for the beginnings of large-scale mining in the district: the provision of reasonably inexpensive transport facilities to connect the mines with outside processing and consuming districts; and sufficient capital to meet the heavy investment necessary to exploit the rich hidden lodes." Railroad connections branched into the district from the Northern Pacific and Union Pacific Railroad lines, providing access to smelting areas and consumers on both coasts. Capital was supplied due to the promise of rich rewards--a high silver content in Coeur ores was attractive to investors--and because the Coeur d'Alene was one of the last American mining fields to be developed. The production of zinc, a supplement to the relatively low grade of lead ores, was also rapidly developed in the area. The new technologies of electric power and the combustion engine were large consumers of non-ferrous metals, establishing the strong links between technical progress, national economic growth, and the non-ferrous metals industry.
World War I Era: Rapid Change
Following expanded production in the area during World War I conditions rapidly began to deteriorate. Prices fell dramatically and production costs were elevated until concentration and separation techniques--which enabled more metal to be extracted from the same grade ores--were improved. By the late 1920s record levels of production again encouraged expansion. Inspired by this climate of optimism the Coeur d'Alene Mines Corporation was formed. Unfortunately, by the early 1930s, the overall economic depression began to be felt within the industry, forcing several mines to close. In Idaho, however, the silver production levels were sustained better than in most other states, and the company's share of production grew from 16 percent of the country's output to 30 percent in 1933. Coeur's flagship, the Coeur d'Alene Silver Mine, provided income until the 1950s when the mine was shut down due to poor metal prices.
In the following decade, the Silver Standard Mining Company and Rainbow Mining and Milling, Inc. merged into Coeur d'Alene Mines in a stock-swap basis, and negotiations between Asarco and Coeur resulted in an agreement between the two companies which would allow Asarco exploration rights in the Silver Belt of the Coeur d'Alene mining district. According to Equity Research, an Everen Securities bulletin, "If exploration results had warranted, Asarco proposed construction of a mine in exchange for a proceeds-and-cost-sharing arrangement with Coeur d'Alene Mines. Construction of the Coeur mine--the newest mine in the 100-year-old-plus mining district--began in the 1970s, costing $20 million for the mine and mill, with commercial production beginning in 1976. The company began stockpiling ore in that year when silver sustained a yearly average of $4.63 per ounce, before rising to a high of $5.34 per ounce in 1980. The Coeur mine maintained steady and consistent production. In 1979 four Idaho silver mining companies had formed a joint venture agreeing to rehabilitate and reopen Consolidated Silver Corporation's Silver Summit mine and to begin an extensive exploration program on that company's mining properties. The four joint venture partners included Hecla Mining Company (operating in the area since before the turn of the century), Silver Dollar Mining Company, Sunshine Mining Company, and the Coeur d'Alene Mines Corporation. The four companies were major shareholders in Consolidated Silver, a company formed in 1967 to consolidate several mining properties near the Silver Summit mine.
The 1980s: Turning Dollars into Gold
In 1983 $18 million was raised in Coeur's first stock offering through a major national firm. The capital was used to develop its Thunder Mountain gold property in central Idaho where completion of their drilling operation revealed ore reserves at 2.4 million tons, containing 0.09 ounces of gold per ton. Diamond drilling, mapping, geochemical analysis, and other technical work was carried out by the staff of Coeur's subsidiary, Coeur Explorations, Inc. Coeur had used funds accumulated when silver prices climbed to finance the purchase of Thunder Mountain, in addition to purchasing Asarco's operating lease on the Rochester mine, a silver and gold surface mine--the largest primary silver mine in the United States--located in Pershing County, Nevada. Both Thunder Mountain and the Rochester mines entered production phases in 1986. The Rochester site consisted of 16 patented and 544 unpatented contiguous mining claims and 74 mill-site claims, totaling approximately 9,370 acres. After completing their first full year of operations in 1987, both mines exceeded production goals. The Rochester mine became the company's largest revenue source, with overall revenues growing from a low $5.5 million in 1985 to $56.4 million in 1987. Representing an environmental success, Thunder Mountain received the Pacific Northwest Pollution Control Association's first place award for the protection of Idaho's natural resources.
One of the company's primary objectives was to increase Coeur's income from gold. In an effort toward accomplishing this goal the company added the purchase of the Alaskan Kensington mine from Placid Oil Company. Echo Bay Mines, Ltd. of Canada bought into the operation, making it a 50/50 joint venture partner and mine operator. An estimated $197 million would be required before placing the property into commercial production, with the expectation of producing up to 200,000 ounces of gold per year. Coeur's primary task was to drive a tunnel, intersect, and crosscut the major target--the Kensington vein. According to company reports, a "5,200-foot tunnel, driven into a mountain 800 feet above sea level, was completed in December 1988, substantially ahead of schedule." In 1995, Echo Bay Mines Ltd. won a temporary restraining order blocking Coeur d'Alene Mines from taking operating control of their Kensington joint venture. The Alaskan Superior Court ruled in favor of the Echo Bay injunction. Coeur charged "that Echo Bay's resources were stretched in Alaska and that it had dragged its feet obtaining permits for Kensington," according to Frank Haflich writing in American Metal Market. Coeur offered to buy out Echo Bay's 50 percent, which was agreed upon in mid-1995.
The Alaskan acquisition was followed by the merging of Royal Apex Silver, giving Coeur sole ownership of the Rochester mine. Reserves are an important measure of a mining company's value which prompted Coeur's maintenance of new silver and gold ore reserves at Rochester and Thunder Mountain as a strategy for future growth. In order to reduce the effects of metals' price fluctuations, the company continued to maximize the value of the gold and silver it sold by selling forward a portion of its products in times of higher prices. The policy limited sales forward to not more than 50 percent of production. In 1987, for example, the company sold forward 1.7 million ounces of silver at an average price of $9.03 per ounce and 22,500 ounces of gold at an average price of $505.09 per ounce. In the same year, Coeur redeemed its $25 million principal amount of convertible subordinated debentures. The company then issued $50 million principal amount of convertible subordinated debentures in the Eurodollar market, giving the company the largest supplement to its capital base in its 59-year history at highly favorable rates.
Headed by president and CEO Dennis E. Wheeler, the company proceeded with its aggressive expansion efforts. Two million common shares of stock were sold in 1990, raising approximately $50 million, which the company used to buy seven Chilean precious metals exploration properties from Freeport Minerals (costing $5 million). Shareholders approved the merger of Callahan Mining Corporation on a stock exchange basis into Coeur d'Alene Mines as a wholly owned subsidiary of the company, giving Coeur $22 million in cash and legal ownership of the Galena mine, the Caladay project, and the Flexaust Company, a manufacturer of flexible hose, ducting, and metal tubing (which the company sold in 1995). Silver prices declined to $3.93 per ounce in 1992, forcing the company to place the Coeur and Galena mines on standby. In late 1994, Coeur, Callahan, and Asarco formed Silver Valley, a Delaware corporation, and transferred certain assets, including their interests in the Coeur, Galena, and Caladay mines, to Silver Valley. Six directors sit on the Silver Valley Board, consisting of three appointed by Asarco, and three appointed by Coeur.
1993: Doubling Gold Production
The company acquired the New Zealand assets of Golden Cross mine for $54 million, giving Coeur its first operating mine overseas. New Zealand underwent major economic reform in an effort to encourage development, including deregulation, lowering of compliance costs, and removal of impediments to business. In the area of exploration, New Zealand companies are not favored over international investors. One hundred percent foreign ownership of mineral resources is possible provided the investment makes a significant contribution to New Zealand's growth and development. All expenditure on mineral exploration can be written off against tax commitment in the year of expenditure. The subsidiary of a New Zealand corporation, The Todd Company, Ltd., owns a 20 percent joint venture interest in the 961-acre Golden Cross property. The mine property includes open-pit and underground mine facilities, process plant, tailings pond, water treatment plant, and mine offices. An independent consulting firm estimates open-pit and underground proven and probable ore reserves totaling 2.989 million tons, averaging 0.086 ounces per ton gold. Total contained silver ounces are estimated at 1.112 million ounces, with an average grade of 0.37 ounces of silver per ton.
A 1995 investigation by the company revealed that the Golden Cross tailings impoundment was situated on a block of geologically unstable land that was moving down slope, actuated by heavy rainfall. Coeur was forced to construct a drain tunnel, horizontal and vertical drain holes, and buttressing with waste rock in an attempt to stabilize the tailings dam. Additional rainfall complicated the project and engineers determined that remedial measures would cost the company at least $11 million. Coeur announced a $53 million write-down of its interest in the Golden Cross Mine and nearby property when production was decreased and operating costs were increasing due to its inability to stabilize the dam. The company asserted legal claims against Cyprus Amax Minerals Company for an unspecified amount, alleging that the seller failed to make certain required disclosures relating to ground movement when Coeur had purchased the property. In August 1996, Cyprus filed a counterclaim for an unspecified amount of damages, alleging libel by Coeur in its press release announcing the write-off of the Golden Cross Mine. Coeur eventually raised the tailings dam crest, after fighting and winning a legal injunction filed by environmentalists to stop such action. Following the hearing the court determined that the crest raising posed no danger to the environment, and the company hopes to implement the previously planned mill optimization and to continue operating the mine at least through 1997.
By October 1995, construction of the Fachinal Mine facilities (located south of Coihaique, Chile) were completed, costing the company approximately $41 million. The property is known to contain multiple epithermal veins containing gold and silver. The milling process uses conventional crush/grind/flotation methods to produce a gold/silver concentrate, which is then sent to off-site smelters for further processing. For the year ending December 31, 1996, the mine's operations produced more than 25,000 ounces of gold and over 2 million ounces of silver. Coeur estimates that cash operating costs at the Fachinal Mine will approximate $272 per gold equivalent ounce in 1997, at a production level of 1,600 tons of ore per day. Precious metals bearing mineralization at the Fachinal Mine occur in an extensive epithermal, quartz-veins system hosted in Jurassic volcanic rocks. The total remaining, mineable reserves at the mine amount to approximately 3.653 million tons averaging 0.069 ounces per ton gold and 2.78 ounces per ton silver. Other developments in that country were announced in 1994 when Coeur's Chilean subsidiary signed an agreement to assume operating control of the El Bronce, a producing Chilean gold-silver mine, located on approximately 34,000 acres in the Andean foothills north of Santiago, Chile. Coeur is investing in exploratory and developmental activities designed to increase ore reserves to 65,000 ounces by the end of 1997.
In early 1997 Coeur acquired 36 percent of the Australian company Gasgoyne Gold Mines, Ltd., in partnership with one of the country's major gold producers, Sons of Gwalia Ltd. The company recognized the low costs and excellent growth potential of the Yilgarn Star Mine, a young mine which sits in the Marvel Loch region of Western Australia, one of the most active gold mining regions in the country. Southern Star and Navoria gold mines of Australia, and a 45 percent interest in the Awak Mas Gold Project in Indonesia were included in the deal. Probable reserves at Yilgarn Star approximate 721,000 ounces of gold.
Coeur began 1997 operations holding high reserve levels of 3.4 million ounces of gold and 109 million ounces of silver, making it an industry leader in terms of the level of reserves underlying its common stock. It holds cash and equivalents of $168 million. The company plans to continue targeting opportunities in "politically stable countries with historic mining traditions and ample opportunity for developing production and reserves."
Principal Subsidiaries: Coeur Australia, Inc.; Coeur Rochester, Inc.; Coeur Bullion Corporation; Coeur Explorations, Inc.; Coeur Alaska, Inc.; CDE Chilean Mining Corporation; Gasgoyne Gold Mines NL (Australia; 50%); Silver Valley Resources Corporation; Compania Minera CDE Fachinal Limitada (Chile); Compania Minera CDE El Bronce (Chile).