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THE WORLD'S LARGEST PRIMARY SILVER PRODUCER
Business Summary
Coeur d' Alene Mines Corporation is the world's largest primary silver producer and a growing, low-cost gold producer. In 2004, the company expects to produce 14.4 million ounces of silver and 142,000 ounces of gold at a cash operating cost of approximately $ 3.00 per ounce of silver. Coeur has two of the largest silver mines in the U.S.; two expanding low-cost mines in southern Chile and Argentina; and two advanced development projects, in Bolivia and Alaska. Coeur also owns large land positions around its two South American mines, where major exploration is ongoing in 2004.
The company has no silver or gold production hedged.
Internal growth projects already in place have the potential of increasing silver production by over 40% over 2004 levels, and increasing gold production by 75%, by as soon as 2006.
At the beginning of 2004, silver reserves totaled 175 million ounces and gold reserves 1.4 million ounces.
CHAIRMAN'S MESSAGE
At the halfway mark in 2004, Coeur remained on track for significant growth in metals production, cash flow, earnings, and their major growth projects continue to advance with production start-ups expected by 2006.
The second half of this year is expected to be even better than the first half, due in part to a gold production rate which has more than doubled over the first six months of this year, as recovery of high-grade gold ores, already on the pad at Rochester, accelerate, while high-grade ores at Cerro Bayo and Martha are mined, causing a positive impact on the bottom line. In the most recently completed quarter:
Meanwhile, the company remains very strong financially. The balance sheet has a healthy $ 227 million in cash and short-term investments.
The company's silver and gold production remains unhedged, allowing shareholders maximum leverage to metals price movements.
Earlier this year, the company set their expectations and objectives for the year:
As of the end of the second quarter, the company reported that they:
Management is also excited about the improving performance that lies ahead for the remainder of the year. As the second quarter ended, both gold and silver production levels were increasing, and this trend is expected to continue through the remainder of 2004, with gold production twice the amount in the first half of the year.
The full-year targets are 14.4 million ounces of silver and 142,000 ounces of gold.
This expected gold production is an increase of 7% over our earlier guidance issued in the first quarter of this year and is due to the higher gold production at Rochester.
Also, their operating costs are expected to improve through the remainder of the year, with average full-year cash costs coming in at approximately $ 3 per ounce of silver, which should add significantly to their cash flow and profitability going forward. In the second quarter, the organization completed updated feasibility work at Kensington and secured the final environmental permits at San Bartolomé.
In the second half of 2004, they look to advance these major projects. These new mines are fully expected to be in production by 2006, significantly increasing their production levels and adding low-cost ounces for many years to come.
Meanwhile, the company is expected to maintain its strong balance sheet while executing the second half of their accelerated 2004 exploration program, anticipating reserve increases to extend the mine lives at their operations in southern South America and in Idaho.
The company has initiated a tender offer for the acquisition of Wheaton River Minerals, a combination that would create the 4th largest North American precious metals company and add significantly to their gold and silver production, reserves, as it creates one of the fastest growing precious metals companies with four internally generated development projects.
They have added experienced professionals to their management team. Their development projects are on track for production start-up in 2006. And as is their hallmark, Coeur will continue to pursue its new growth at the highest levels of environmental protection and stewardship.
Coeur d'Alene fully intends to remain the world's largest primary silver producer and continue building value for our shareholders.
Recent News: Coeur Fully Committed to Acquisition of Wheaton River
Coeur d'Alene Mines Corporation is committed to the acquisition of Wheaton River Minerals Ltd. and will continue to pursue its offer to purchase all of the outstanding common shares of Wheaton River directly from Wheaton River shareholders.
In response to the Wheaton River Board's latest recommendation to the company's shareholders, Dennis E. Wheeler, Chairman and Chief Executive Officer of Coeur, stated, "We continue to receive support for Coeur's offer from Wheaton River shareholders because of its significant premium, substantial cash component and enhanced growth platform. Accordingly, we have taken our offer directly to Wheaton River shareholders. We remain committed to completing the transaction so that we can begin to deliver the benefits of the combination to shareholders of both Wheaton River and Coeur."
Coeur's offer provides Wheaton River shareholders with significant value, including:
The combination of Coeur and Wheaton River will provide significant strategic and financial benefits. The combined company will be the world's leading primary silver producer, a significant gold producer and the fourth largest precious metals company in North America. The combined Coeur-Wheaton River will have a solid growth platform with significant development projects in both North and South America. In addition, Coeur has one of the most experienced management teams in the industry with over 400 years of collective experience in the exploration, development and operation of mines around the world. The combined company is expected to generate significant free cash flow and will have a strong balance sheet and access to capital markets to finance growth. The combined company will also be one of the most liquid precious metals stocks in North America.
On September 3, 2004, Wheaton River agreed with Coeur to postpone the closing of the Silver Wheaton transaction. Mr. Wheeler noted, "We are pleased that the negotiations between the parties resulted in the postponement of the closing of the Silver Wheaton transaction until October 15. We have consistently said that it is in the best interest of Wheaton River shareholders for Wheaton River to postpone the closing of the Silver Wheaton transaction until after the expiration of Coeur's offer. We are pleased that Wheaton River's Board has now listened to its shareholders, and to Coeur, and agreed to a postponement."
Coeur has established September 30, 2004 as the deadline for receipt of shares to be deposited by Wheaton River shareholders under the terms of the offer. A vote to approve the transaction by Coeur shareholders will be held on September 30, 2004 in Coeur d'Alene, Idaho. The transaction is expected to close as soon as practicable after the acceptance of the offer by Wheaton River shareholders and pproval of the transaction by Coeur shareholders.
Fundamental Considerations
The Value of Silver
Demand for silver is built on three main pillars; industrial and decorative uses, photography and jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption.
More and more, silver has become the world's most vital and indispensable metal. It is a basic component for the operation and growth of global economies, and plays a vital role in the development of new technologies that advance the modern world. Every year, new products utilizing silver's unique properties are evolving which advance and improve people's lives.
Silver is leading a revolution in technology and medicine. The white metal's unique bacteria-fighting qualities are becoming more and more critical in healing conditions ranging from severe burns to Legionnaires' Disease. In fact, the most powerful treatment for burns is silver sulfadiazine, which is used in every hospital in North America to promote healing and reduce infection.
Everything from surgical threads to bandages and dressings to doctors' coats and catheters are utilizing silver. In hospitals and homes, silver in ductwork provides maximum sterile atmosphere.
Silver is the best electrical conductor of all metals. Because it does not corrode, its use in electrical and motor control switches is universal. A fully-equipped automobile may have over 40 silver-tipped switches to start the engine, activate power steering, brakes, windows, mirrors, locks and other electrical accessories.
Silver is also one of the few elements to improve the efficiency of chemical reactions. It is the only catalyst that will oxidize ethylene gas into ethylene oxide, the building block for polyester textiles used for clothing and specialty fabrics, and molded items like computer keyboards, electrical control knobs, domestic appliance components and Mylar tape used for all audio, VCR and recording tapes. Nanotechnology applications using silver are growing - in computers, communications, miniature motors and switches.
Silvered windshields in homes, cars and office buildings reflect some 70% of the solar energy that would otherwise pass through, thus reducing the load on air conditioners. The U.S. Department of Energy's Energy Star Program has spurred a 50% increase in silver-coated glass in the past six years, equivalent to 350 million square feet of glass, or five million ounces of silver per year.
Every time a homeowner turns on a microwave oven, dishwasher, clothes washer or television set, silver completes the required electrical circuit. The U.S. electric switch market is on the order of $ 2.7 billion per year. Nearly half of the 20 million troy ounces of silver consumed in the U.S. yearly for contacts and conductors is used for motor controls.
A new generation of silver-based consumer clothing is on the way. Used by such high-profile athletes as five-time Tour de France-winner Lance Armstrong and his cycling team, silver-coated fabrics have proven their ability to help control inflammation and promote healing during high-level athletic competition. Now hundreds of clothing manufacturers are weaving silver into their products for the general consumer.
Silver is the ideal industrial material. No other metal has silver's combined strength, malleability and ductility, or facilitates electrical and thermal conductivity as well, or can reflect light and endure such extreme temperature changes.
Jet engines of today and tomorrow can depend on silver-coated bearings for their performance and safety. All major jet engine manufacturers utilize these high-performance silver bearings, which provide critical fail-safe lubrication required by the Federal Aviation Administration.
Printed circuit boards (PCBs) use silver for connecting paths of electronic circuitry. PCBs are essential to the electronics that control the operation of aircraft, automobile engines, electrical appliances, security systems, telecommunication networks, mobile telephones, television receivers. Most computer keyboards use silver membrane switches.
These low-current switches are also found in control panels of cable television, telephones, and devices using digital electronics.
Superconductivity is the power transmission of the future and silver makes it faster and more effective. Silver-jacketed superconducting oxide wires can carry more than 140 times the electric load of copper wire with less than 1 percent of the weight. This wire utilizes about 1,000 ounces of silver per mile. Silver already improves performance at lighter weights and size in cables, motors, generators and transformers. Silver oxide-zinc batteries provide higher voltages and longer life for such consumer goods as quartz watches, cameras, and electronic tools.
There is no substitute for silver.
Technical Considerations
Both gold and silver are in the process of surging above multi-year resistance level. While it may take time to leave these levels behind, we remain confident about the eventual outcome.
The take-over battle for Wheaton River has pushed investors to the side-lines and the correction of the share price has been hurt for this reason. We nevertheless believe that at this level, all the possible negatives are well-known and any positive evelopment could easily put a spark under the share price.
Our recommendation: Buy!
Peter Zihlmann
www.pzim.com
investment@pzim.com
forex@pzim.com
September 17, 2004
Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.