Debt and Royalty Obligation

12 Months Ended

Dec. 31, 2011

Debt and Royalty Obligation [Abstract]

DEBT AND ROYALTY OBLIGATIONS

NOTE 12 — DEBT AND ROYALTY OBLIGATION

	December 31, 2011				December 31, 2010
	Current		Non-Current		Current		Non-Current
3.25% Convertible Senior Notes due March 2028	$	—	$	45,545	$	—	$	43,220
1.25% Convertible Senior Notes paid in 2011		—		—		1,859		—
Senior Term Notes paid in 2011		—		—		15,000		15,000
Kensington Term Facility		15,398		60,425		25,908		48,322
Capital lease obligations		17,119		9,891		15,759		23,483
Bank loans		85		—		4,791		42
	$	32,602	$	115,861	$	63,317	$	130,067

3.25% Convertible Senior Notes

As of December 31, 2011, the outstanding balance of the 3.25% Convertible Senior Notes due 2028 was $48.7 million, or $45.5 million net of debt discount.

The notes are unsecured and bear interest at a rate of 3.25% per year, payable on March 15 and September 15 of each year, beginning on September 15, 2008. The notes mature on March 15, 2028, unless earlier converted, redeemed or repurchased by the Company.

Each holder of the notes may require that the Company repurchase some or all of the holder’s notes on March 15, 2013, March 15, 2015, March 15, 2018 and March 15, 2023 at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, in cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election. Holders have the right, following certain fundamental change transactions, to require the Company to repurchase all or any part of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest. The Company may redeem the notes for cash in whole or in part at any time on or after March 22, 2015 at 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest.

The notes provide for “net share settlement” of any conversions. Pursuant to this feature, upon conversion of the notes, the Company (1) will pay the note holder an amount in cash equal to the lesser of the conversion obligation or the principal amount of the notes and (2) will settle any excess of the conversion obligation above the notes’ principal amount in the Company’s common stock, cash or a combination thereof, at the Company’s election.

The notes are convertible under certain circumstances, at the holder’s option, at an conversion rate of 17.60254 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to conversion price of approximately $56.81 per share, subject to adjustment in certain circumstances.

During the year ended December 31, 2010, $99.7 million of the notes were repurchased in exchange for 6.5 million shares of the Company’s common stock which reduced the principal amount of the notes outstanding to $48.7 million ($43.2 million net of debt discount).

The fair value of the notes outstanding, as determined by market transactions at December 31, 2011 and 2010 was $49.2 million and $48.2 million, respectively. The carrying value of the equity component at December 31, 2011 and 2010 was $10.9 million and $10.9 million, respectively.

For the years ended December 31, 2011 and 2010 interest expense recognized was $1.6 million and $2.4 million, respectively, and accretion of the debt discount was $2.3 million and $3.0 million, respectively. The debt discount remaining at December 31, 2011 was $3.1 million, which will be amortized through March 15, 2013. The effective interest rate on the notes was 8.9%.

1.25% Convertible Senior Notes

On January 18, 2011, the Company repurchased $945,000 in aggregate principal amount of the notes pursuant to a Tender Offer Statement filed on December 10, 2010. The Company repurchased the remaining $914,000 in aggregate principal amount of the notes outstanding on January 21, 2011. As of December 31, 2011 the Company had no outstanding 1.25% Convertible Senior Notes.

Senior Term Notes due December 31, 2012

On February 5, 2010 the Company completed the sale of $100 million of Senior Term Notes due in quarterly payments through December 31, 2012. In conjunction with the sale of these notes, the Company also issued 297,455 shares of its common stock valued at $4.2 million as financing costs. The principal on the notes was payable in twelve equal quarterly installments, with the first such installment paid on March 31, 2010. The Company had the option of paying amounts due on the notes in cash, shares of common stock or a combination of cash and shares of common stock. The stated interest rate on the notes was 6.5%, but the payments for principal and interest due on any payment date were computed to give effect to recent share prices, valuing the shares of common stock at 90% of a weighted average share price over a pricing period ending shortly before the payment date.

In December 2010, pursuant to privately-negotiated purchase agreements, the Company re-purchased $36.7 million aggregate principal amount of the Notes for approximately $43.4 million. In October 2011, pursuant to privately-negotiated purchase agreements, the Company repurchased the remaining $18.75 million aggregate principal amount of the Notes for approximately $22.2 million. As of December 31, 2011, the Company had no outstanding Senior Term Notes.

During the twelve months ended December 31, 2011, the Company paid in cash, $11.3 million in principal and $1.3 million in interest. A loss of $5.5 million for the twelve months ended December 31, 2011 was realized in connection with the debt payments and repurchases. The loss is recorded in Gain (loss) on debt extinguishments.

For the twelve months ended December 31, 2010, the Company paid in cash $57.5 million in principal and $3.3 million in interest and issued 1,060,413 shares of its common stock, valued at $15.8 million, in connection with the quarterly payments. In addition, a loss of $10.0 million for the twelve months ended December 31, 2010 was realized in connection with quarterly debt payments and early payoff premiums. The loss is recorded in Gain (loss) on debt extinguishments.

Kensington Term Facility

As of December 31, 2011 the outstanding balance of the Kensington Term Facility was $75.8 million.

On October 27, 2009, Coeur Alaska, a wholly-owned subsidiary of the Company, entered into a $45.0 million secured term facility to finance construction at the Company’s Kensington mine located north of Juneau, Alaska. On December 20, 2010, the agreement was amended and restated to allow borrowings up to $100 million and to define a payment schedule through December 31, 2015. Coeur Alaska’s obligations under the Kensington term facility are secured by all of Coeur Alaska’s assets and the land mineral rights and infrastructure at the Kensington mine, as well as a pledge of the shares of Coeur Alaska owned by the Company, and are guaranteed by the Company. In connection with the amendment of the credit facility, the guarantee was amended to provide that the Company will limit borrowings or asset dispositions by its Bolivian subsidiary Empresa Minera Manquiri S.A.

Borrowings under the amended Credit Facility bear interest at a rate equal to LIBOR plus 4.5% per year. The fair value of the term facility was $75.8 million as of December 31, 2011. Interest of nil and $1.7 million was capitalized into the loan balance for the years ended December 31, 2011 and 2010, respectively.

As a condition to the Kensington term facility with Credit Suisse noted above, the Company agreed to enter into a gold hedging program which protects a minimum of 243,750 ounces of gold production over the life of the facility against the risk associated with fluctuations in the market price of gold. This program consists of a series of zero cost collars which consist of a floor price and a ceiling price of gold. Call options protecting 136,000 ounces of gold were outstanding at December 31, 2011. The weighted average strike price of the call options was $1,919.83. Put options protecting 190,000 ounces of gold were outstanding at December 31, 2011. The weighted average strike price of the put options was $951.93. Collars protecting 182,500 ounces of gold were outstanding at December 31, 2010. The weighted average put feature of the collar was $911.99 and the weighted average call feature of the collars was $1,795.18.

Voluntary prepayments of the loans and voluntary reductions of the unutilized portion of the commitments under the Kensington term facility are permissible, subject to certain conditions pertaining to minimum notice and minimum reduction amounts. In addition, voluntary prepayments and reductions are subject to payment of customary break costs. The Kensington term facility requires Coeur Alaska to maintain accounts for a debt service reserve and project proceeds. Coeur Alaska has pledged each of these accounts to Credit Suisse under account pledge agreements.

The Amended Credit Facility contains affirmative and negative covenants that the Company believes are usual and customary, including financial covenants that Coeur Alaska’s debt to equity ratio shall not exceed 40%, the ratio of project cash flow to debt service shall be at least 125%, and the tangible net worth of the Borrower is not less than $325 million and the tangible net worth of the Guarantor is no less than $1.0 billion. Project covenants include covenants as to performance of sales contracts, maintenance and management. As of December 31, 2011, we satisfied such covenants, but we believe it is possible that, absent a waiver, such covenants will not be satisfied as of March 31, 2012. Accordingly, we are working diligently with Credit Suisse to obtain a waiver.

Other

As of December 31, 2011 and 2010, Coeur Mexicana S.A. de C.V. (“Coeur Mexicana”), a wholly owned subsidiary of the Company, had outstanding balances on capital leases of $18.3 million and $28.4 million, respectively.

Other capital leases for equipment and facilities totaling $8.7 million and $10.8 million were outstanding as of December 31, 2011 and 2010, respectively.

On July 6, 2010, the Company entered into a short-term financing agreement with AFCO Credit Corporation of $2.4 million bearing interest at 2.9% to finance insurance premiums. Installments of $0.2 million were paid monthly with the final payment made on June 1, 2011. As of December 31, 2011 and 2010 the outstanding balance was nil and $1.1 million, respectively.

On November 27, 2009, Empresa Minera Manquiri borrowed $5.0 million pursuant to a bank loan from Banco Bisa bearing an interest rate of 6.5% to fund working capital requirements. As of December 31, 2011 and 2010, the outstanding balance was nil and $2.5 million, respectively.

On July 15, 2009, to fund equipment purchases, Coeur Mexicana entered into an equipment financing agreement bearing interest at 8.26% with Atlas Copco. This agreement is secured by certain machinery and equipment. Twenty-four monthly installments will be made on the agreement with the final payment being made on January 31, 2012. As of December 31, 2011, and 2010, the outstanding balance was $0.1 million and $1.2 million, respectively.

Palmarejo Gold Production Royalty Obligation

On January 21, 2009, Coeur Mexicana entered into a gold production royalty transaction with Franco-Nevada Corporation under which Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced from its Palmarejo silver and gold mine in Mexico. Coeur Mexicana received total $75.0 million in cash plus a warrant to acquire Franco-Nevada Common Shares (the “Franco-Nevada warrant”), which was valued at $3 million at closing of the Franco-Nevada transaction. In September, 2010, the warrant was exercised and the related shares were sold for $10.0 million.

The royalty agreement provides for a minimum obligation to be paid monthly on a total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period. Each monthly payment is an amount equal to the greater of 4,167 ounces of gold or 50% of actual gold production 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). As of December 31, 2011, payments had been made on a total of 143,354 ounces of gold with further payments to be made on an additional 256,646 ounces of gold. After payments have been made on a total of 400,000 ounces of gold, the royalty obligation is payable in the amount of 50% of actual gold production per month multiplied by the excess of the monthly average market price of gold above $400 per ounce, adjusted as described above. Payments under the royalty agreement are to be made in cash or gold bullion. During the twelve months ended December 31, 2011 and 2010, the Company paid $73.2 million and $43.1 million, respectively, in royalty payments to Franco-Nevada Corporation. Payments made during the minimum obligation period will result in a reduction to the remaining minimum obligation. Payments made beyond the minimum obligation period will be recognized as other cash operating expenses and result in an increase to Coeur Mexicana’s reported cash cost per ounce.

The Company used an implicit interest rate of 29.3% to discount the original obligation, based on the fair value of the consideration received projected over the expected future cash flows at inception of the obligation. The discounted obligation is accreted to its expected future value over the expected minimum payment period based on the implicit interest rate. The Company recognized accretion expense for the twelve months ended December 31, 2011, 2010, and 2009 of $22.2 million and $20.5 million, and $19.1 million respectively. As of December 31, 2011 and 2010, the remaining minimum obligation under the royalty agreement was $72.1 million and $80.3 million, respectively.

The price volatility associated with the minimum royalty obligation is considered an embedded derivative under U.S. GAAP. Fluctuations in the market price of gold since inception of the agreement have resulted in the recognition of additional fair value adjustments and resulted in higher payments to date. Please see Note 17 — Derivative Financial Instruments and Fair Value of Financial Instruments, Palmarejo Gold Production Royalty, for further discussion of the embedded derivative feature of the royalty agreement.

Interest Expense

The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the twelve months ended December 31, 2011, 2010 and 2009, the Company expensed interest of $34.8 million, $30.9 million and $18.1 million, respectively.

	Years Ended December 31,
	2011			2010			2009
3.25% Convertible Senior Notes due March 2028	$	1,581		$	2,394		$	5,875
1.25% Convertible Senior Notes due January 2024		1			28			1,454
Senior Term Notes due December 2012		1,381			5,074			—
Senior Secured Floating Rate Convertible Notes due 2012		—			—			887
Kensington Term Facility		4,383			2,017			85
Capital lease obligations		1,620			2,122			1,149
Other debt obligations		1,379			1,423			818
Gold Lease Facility		—			677			1,522
Accretion of Franco Nevada royalty obligation		22,230			20,502			19,054
Amortization of debt issuance costs		2,050			4,047			989
Accretion of debt discount		2,324			2,543			9,094
Capitalized interest		(2,175	)		(9,885	)		(22,825	)
Total interest expense	$	34,774		$	30,942		$	18,102

Capitalized Interest

The Company capitalizes interest incurred on its various debt instruments as a cost of properties under development. For the twelve months ended December 31, 2011, 2010 and 2009, the Company capitalized interest of $2.2 million, $9.9 million and $22.8 million, respectively.

Minimum Debt Repayments

The following is the Company’s scheduled minimum debt repayments at December 31, 2011:

December 31,	Minimum Debt Repayments (1)
2012	$	74,089
2013		84,571
2014		76,944
2015		79,412
2016		62,877
Thereafter		49,674
		427,567
Debt discount		(74,607	)
Present value of net scheduled capital lease payments (See Note 10)		27,011
	$	379,971

(1) Includes minimum gold production royalty obligation payments due to Franco-Nevada Corporation for royalty covering 50% of the life of mine gold to be produced from the Palmarejo silver and gold mine in Mexico.