-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gx5FtajzbHp/C+yUSEqjztYl7pk5h9aPVmjdGXO2ZiDR2mkYF1oAgj9zOwwswJHe o+7cWPWxttkBfKclrjVHIw== 0000950134-97-007990.txt : 19971106 0000950134-97-007990.hdr.sgml : 19971106 ACCESSION NUMBER: 0000950134-97-007990 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNSHINE MINING & REFINING CO CENTRAL INDEX KEY: 0000833376 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 752231378 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10012 FILM NUMBER: 97708363 BUSINESS ADDRESS: STREET 1: 877 WEST MAIN STREET STREET 2: SUITE 600 CITY: BOISES STATE: ID ZIP: 83702 BUSINESS PHONE: 2083450660 MAIL ADDRESS: STREET 1: 877 W MAIN STREET SUITE 600 CITY: BOISE STATE: ID ZIP: 83702 FORMER COMPANY: FORMER CONFORMED NAME: SUNSHINE MINING CO /DE DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SUNSHINE HOLDINGS INC DATE OF NAME CHANGE: 19880915 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1997 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1997 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 1-10012 SUNSHINE MINING AND REFINING COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 75-2618333 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 877 W. Main, Suite 600, Boise, Idaho 83702 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number including area code (208) 345-0660 - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report 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 X No --- ---
Number of Shares Outstanding Title of Each Class of Common Stock at November 3, 1997 - ----------------------------------- ---------------------------- Common Stock, $.01 par value 255,137,325
Page 1 of 11 2 SUNSHINE MINING AND REFINING COMPANY CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited)
September 30 December 31 1997 1996 ------------ ----------- ASSETS Current assets: Cash and cash investments $ 3,009 $ 16,317 Silver bullion 7,801 7,989 Accounts receivable 2,922 2,624 Inventories (Note 2) 2,130 2,523 Other current assets 1,905 1,108 --------- --------- Total current assets 17,767 30,561 Property, plant and equipment, at cost 142,669 141,409 Less accumulated depreciation, depletion and amortization (75,988) (72,124) --------- --------- 66,681 69,285 Investments and other assets 4,040 5,640 --------- --------- Total assets $ 88,488 $ 105,486 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,366 $ 987 Accrued expenses 2,557 4,015 --------- --------- Total current liabilities 3,923 5,002 Long-term debt 26,865 25,780 Accrued pension and other postretirement benefits 5,959 6,074 Other long-term liabilities and deferred credits 4,378 5,032 Stockholders' equity: Common stock--$.01 par value; 600,000 shares authorized; shares issued: September 30, 1997 - 259,803 December 31, 1996 - 259,652 2,598 2,597 Paid-in capital 711,092 711,093 Deficit (665,088) (648,847) --------- --------- 48,602 64,843 Less treasury stock, at cost: September 30, 1997 - 4,666 shares December 31, 1996 - 4,671 shares 1,239 1,245 --------- --------- 47,363 63,598 --------- --------- Total liabilities and stockholders' equity $ 88,488 $ 105,486 ========= =========
See accompanying notes. 2 3 SUNSHINE MINING AND REFINING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Amounts) (Unaudited)
Quarter Ended September 30 Nine Months Ended September 30 1997 1996 1997 1996 ------------ ------------ ------------ ------------ Operating revenues $ 7,814 $ 3,974 $ 19,126 $ 11,327 Mark to market gain (loss) 1,000 (296) 814 (900) ------------ ------------ ------------ ------------ 8,814 3,678 19,940 10,427 ------------ ------------ ------------ ------------ Costs and expenses: Cost of revenues 6,778 5,183 18,742 13,389 Depreciation, depletion and amortization 1,540 1,057 4,063 3,078 Exploration 1,290 2,628 5,700 7,102 Selling, general and administrative expense 1,259 1,316 4,100 3,935 ------------ ------------ ------------ ------------ 10,867 10,184 32,605 27,504 ------------ ------------ ------------ ------------ Operating loss (2,053) (6,506) (12,665) (17,077) Other income (expense): Interest income 66 319 475 930 Interest and debt expense (1,382) (1,332) (4,125) (2,971) Other, net 41 210 73 293 ------------ ------------ ------------ ------------ (1,275) (803) (3,577) (1,748) ------------ ------------ ------------ ------------ Net loss (3,328) (7,309) (16,242) (18,825) Gain on retirement and exchange of preferred stock -- -- -- 40,124 Preferred stock dividend requirements -- -- -- (2,622) ------------ ------------ ------------ ------------ Income (loss) applicable to common shares $ (3,328) $ (7,309) $ (16,242) $ 18,677 ============ ============ ============ ============ Income (loss) per common share: $ (0.01) $ (0.03) $ (0.06) $ 0.09 ============ ============ ============ ============ Weighted average common shares outstanding 255,112 238,086 255,112 214,366 ============ ============ ============ ============
See accompanying notes. 3 4 SUNSHINE MINING AND REFINING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Nine Months Ended September 30 1997 1996 ------------- -------------- Cash used by operating activities: Net loss $(16,242) $(18,825) Adjustments to reconcile net loss to net cash used by operations: Depreciation, depletion and amortization 4,063 3,078 Amortization of debt issuance costs and accretion of debt discount 1,611 1,069 Other 3 (60) Net (increase) decrease in: Silver bullion (695) 849 Accounts receivable (298) 23 Inventories 393 (423) Other assets and deferred charges (4) (539) Net increase (decrease) in: Accounts payable and accrued expenses (839) 1,093 Accrued pension and other postretirement benefits (115) (235) Other liabilities and deferred credits (649) (1,451) -------- -------- Net cash used by operations (12,772) (15,421) -------- -------- Cash provided (used) by investing activities: Additions to property, plant and equipment (1,458) (2,279) Proceeds from investments 1,162 1,493 -------- -------- Net cash used by investing activities (296) (786) -------- -------- Cash provided (used) by financing activities: Costs associated with conversion of preferred into common stock -- (865) Proceeds from issuance of common stock upon exercise of stock options and warrants -- 1 Proceeds from issuance of long term debt -- 30,000 Debt issuance costs (240) (2,463) -------- -------- Net cash provided (used) by financing activities (240) 26,673 -------- -------- Increase (decrease) in cash and cash investments (13,308) 10,466 Cash and cash investments, January 1 16,317 12,837 -------- -------- Cash and cash investments, September 30 $ 3,009 $ 23,303 ======== ======== Supplemental cash flow information - Interest paid in cash $ 2,112 $ 1,583 ======== ========
See accompanying notes. 4 5 SUNSHINE MINING AND REFINING COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 30, 1997 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements of Sunshine Mining and Refining Company ("Sunshine" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain previously reported amounts have been reclassified to conform to the September 1997 presentation. (See Note 4. Long-term Debt and Interest Expense.) Operating results for the nine month period ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in Sunshine's report on Form 10-K for the year ending December 31, 1996. 2. INVENTORIES The components of inventory consist of the following:
September 30 December 31 1997 1996 ------------ ----------- Precious Metals Inventories: Work in process $887 $1,144 Finished goods 152 405 Materials and supplies inventories 1,091 974 ------- ------ $2,130 $2,523 ====== ======
3. RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which becomes effective for the Company's 1997 consolidated financial statements beginning in the fourth quarter of 1997. SFAS No. 128 will eliminate the disclosure of primary earnings per share which includes the dilutive effect of stock options, warrants and other convertible securities ("Common Stock Equivalents") and instead requires reporting of "basic" earnings per share, which will exclude Common Stock Equivalents. Additionally, SFAS No. 128 changes the methodology for fully diluted earnings per share. In the opinion of the Company's 5 6 management, it is not anticipated that the adoption of this new accounting standard will have a material effect on the reported earnings per share of the Company. 4. LONG-TERM DEBT AND INTEREST EXPENSE Interest expense has been restated for 1996 and the first two quarters of 1997. In a letter from the Securities and Exchange Commission (SEC) to the Emerging Issues Task Force (EITF) in March, 1997, the SEC announced its position on the accounting for the issuance of convertible debt securities with a nondetachable conversion feature that is "in the money" at the date of issue (a "beneficial conversion feature"). In this letter the SEC stated that a beneficial conversion feature should be recognized and measured, with any discount resulting from an allocation of proceeds to the beneficial conversion feature amortized as an increase in the effective interest rate of the security. The SEC's position has now been included in EITF Topic No. D-60. The company's Eurobonds issued in March, 1996 contain a provision which states that if the company's stock does not trade at a price 33% above the conversion price of the Eurobonds ($1.00) for 45 consecutive trading days within three years of the date of issue, holders of the Eurobonds would be entitled to an additional payment equal to 22.5% of the principal amount of the bonds outstanding at that date, payable in cash or common stock. The company views this as a contingent liability, and as it is not probable the additional payment will be paid, the company has not previously accrued any additional interest expense representing the contingent liability. The SEC staff has recently advised the company that it believes that EITF Topic No. D-60 applies to this feature of the company's Eurobonds and has therefore instructed the company to recognize the additional charge to interest expense, and restate the 1996 and the first two quarters of 1997 financial statements. As a result of this restatement, interest expense has been increased by $714 thousand and $671 thousand in the first six months of 1997 and the first nine months of 1996, respectively, over amounts previously reported. 6 7 SUNSHINE MINING AND REFINING COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 1997 and 1996 LIQUIDITY AND CAPITAL RESOURCES The Company's principal product at this time is silver produced from its Sunshine Mine in Kellogg, Idaho. Due to low silver prices, the Company's operations have not generated positive cash flow, and the costs of exploration, general and administrative expense, and interest charges have been funded from available cash balances. In 1992, in response to low silver prices the Company implemented an exploration program to find lower-cost silver reserves in the Sunshine Mine, other parts of the western United States, and in Latin America. The first such ore body found, the West Chance, is in the previously undeveloped western section of the Sunshine Mine. The Company has completed initial development of the West Chance and has begun full-scale mining operations in the ore body. A significant reduction in the Company's cash production cost per ounce is occurring in the second half of 1997 as a result of production increases. The improvements have not restored the Company to profitability at current silver prices, as the gross operating margin from the Sunshine Mine does not exceed other expenses such as depreciation, depletion, exploration, general and administrative and interest and debt expenses. However, the Company's exploration program has identified other properties which have significant potential to further improve results. During the quarter, the Company completed a pre-feasibility study of the Pirquitas Mine in Argentina. Based on the substantial drilling, sampling, engineering studies and metallurgical testwork done to date in that study, 66.9 million ounces of silver and 39 thousand tons of tin have been classified as proven and probable reserves. The Company plans to begin a new round of drilling in early 1998 with a target of adding 30-50 million ounces to reserves. Development of the property as a 5,500 ton per day open pit operation is currently being studied, and would likely require a capital investment of approximately $100 million, with resultant production of about 9.1 million ounces of silver annually at a net cash cost of approximately $2.65 per ounce. The Company has not yet begun to seek funding sources for this project. The Company has leased the Revenue Virginius Mine near Ouray, Colorado. The Company has done pre-feasibility work on the property which indicates that with an $11 million capital investment, the property could produce approximately three million ounces of silver at a net cash cost of approximately $3.50 per ounce. The Company expects to do further feasibility work at the property before seeking funding to restart operations. In the second quarter of 1997, the Company acquired the rights to a property in the Chubut province of Argentina, which it has named "La Joya del Sol." Surface sampling has identified seven epithermal quartz veins on the property containing significant amounts of high-grade gold mineralization. Based on the veins' width, strike 7 8 length and the consistency of the mineralization, the Company believes La Joya del Sol could be an important gold mine. Insufficient underground drilling has been done to make any characterization of the vein's potential at depth. The Company expects to begin a drilling program in November designed to better delineate the potential of the veins below the surface. The Company has not yet begun to estimate capital and operating costs. Should development of the property be warranted, the Company will have to obtain capital from outside sources, which it has not as yet identified. The Company considers the addition of new producing properties through its exploration program vital to its return to profitability, and has projected approximately $6.3 million for exploration in 1997, compared to expenditures of $10.2 million in 1996. Future spending on exploration projects is contingent on the Company's ability to raise new funding. The Company believes its past success in finding and developing new properties will assist it in raising the funds required to continue its exploration program as well as in funding the development of the properties it has already identified. However, no assurance can be given that the necessary exploration and development funds can be obtained. At the end of the third quarter of 1997, the Company's working capital was $13.8 million, which is considered adequate for the foreseeable future, as ongoing improvements in operations at the Sunshine Mine will significantly reduce the level of cash usage. Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are all statements other than statements of historical fact, including without limitation those that are identified by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," and similar expressions. Such statements address future plans, objectives, expectations, and events or conditions concerning various matters such as mining exploration, capital expenditures, earnings, litigation, liquidity and capital resources, and accounting matters. Actual results in each case could differ materially from those currently anticipated in such statements, by reason of factors including without limitation, actual results of exploration, silver prices, imprecision of reserve estimates, future economic conditions, regulations, competition, and other circumstances affecting anticipated revenue and costs. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement. Operating, Investing, and Financing Activities Cash used in operating activities was approximately $12.8 and $15.4 million, respectively, in the first nine months of 1997 and 1996. The cash operating loss decreased $4.2 million in the first nine months of 1997 primarily due to a $2.2 million reduction in cash operating loss at the Sunshine mine (from $3.3 million in 1996 to $1.1 million in 1997), a mark-to-market gain on investment silver of $0.8 million in 1997 versus a $0.9 million loss in 1996, a $1.4 million reduction in exploration expense compared to 1996 8 9 partially offset by a $0.6 million increase in cash interest expense and a $0.5 million decrease in interest income. Approximately $0.3 and $0.8 million of cash was used by investing activities in the 1997 and 1996 nine-month periods, respectively. Cash provided by financing activities was $26.7 million in the first nine months of 1996 as a result of the Company's Notes Offering. RESULTS OF OPERATIONS THE THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996 Consolidated operating revenues increased approximately $3.8 million (96.6%) for the third quarter of 1997 compared to the third quarter of 1996. The increase in operating revenues resulted from an increase in silver sales volumes (1,325,000 ounces of silver in the 1997 quarter compared to 623,000 ounces in the 1996 quarter) and the associated $0.6 million increase in by-product revenue partially offset by a $0.27 (5.4%) decrease in average silver price received per ounce. The silver sales volume increase primarily resulted from a 649,000 ounce (121%) increase in production in the 1997 quarter. Due to an increase in silver price late in the quarter, to $5.19 per ounce, a mark to market gain of $1.0 million was recognized for silver in work-in-process inventories and investment silver bullion compared to a $0.3 million mark to market loss in 1996. Cost of revenues increased $1.6 million (31%) (from $5.2 million in the 1996 quarter to $6.8 million in the 1997 quarter) primarily due to the 121% increase in production in 1997, partially offset by lower unit production costs. Unit production costs decreased $3.35 per ounce (45%) to $4.07 per ounce of silver primarily due to the increase in silver production from 1996 to 1997 (1,186,000 ounces produced from 47,418 tons at 25.92 ounces per ton in 1997 versus 537,000 ounces from 23,565 tons at 23.64 ounces per ton in 1996). Depreciation, depletion and amortization increased by approximately $483 thousand (46%) as a result of increased production in the 1997 period. Exploration expenditures declined $1.3 million primarily due to the completion of the required drilling for the pre-feasibility analysis at the Pirquitas mine in the second quarter of this year. Interest income decreased $253 thousand due to lower average invested cash balances. THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Consolidated operating revenues increased approximately $7.8 million (68.9%) for the first nine months of 1997 compared to the first nine months of 1996 primarily due to an increase in sales volume (3.1 million ounces of silver in the first nine months of 1997 compared to 1.8 million ounces of silver in the same period of 1996) and the associated $1.9 million increase in by-product revenue. The increase in sales volumes primarily 9 10 resulted from a 1.1 million ounce (65%) increase in production in 1997 compared to 1996, and a 62 thousand ounce increase in sales volume of finished silver. Mark to market gains on work-in-process silver inventories and silver bullion held for investment amounted to $814 thousand in 1997 compared to a loss of $900 thousand in 1996. The gains in 1997 were due to increases in the per ounce silver price during the period, from $4.74 to $5.19 between December 31, 1996 and September 30, 1997 Cost of revenues increased $5.4 million (40%) (from $13.4 million in the first nine months of 1996 to $18.8 million in the first nine months of 1997) primarily due to the 65% increase in production in 1997, partially offset by lower unit production costs. Unit production costs decreased $1.65 (25%) to $4.85 primarily due to the 65% increase in silver production (2.9 million ounces produced from 131,085 tons at 22.83 ounces per ton in 1997 versus 1.7 million ounces from 81,882 tons at 22.09 ounces per ton in 1996). Depreciation, depletion and amortization increased by approximately $985 thousand (32%) as a result of increased production figures in the 1997 period. Exploration expenditures declined $1.4 million primarily due to the completion of the required drilling for the pre-feasibility analysis at the Pirquitas mine in the second quarter of this year. Interest income decreased by $455 thousand due to lower average invested cash balances. Interest and debt expense increased $1.2 million due to the Company's Notes Offering completed in March, 1996. 10 11 SUNSHINE MINING AND REFINING COMPANY PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. SUNSHINE MINING AND REFINING COMPANY Dated: November 5, 1997 By: /s/ WILLIAM W. DAVIS -------------------------------- William W. Davis Executive Vice President and Chief Financial Officer 11 12 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 1997 (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,009 0 2,922 0 2,130 17,767 142,669 75,988 88,488 3,923 26,865 0 0 2,598 44,765 88,488 19,126 19,940 18,742 22,805 5,700 0 4,125 (16,242) 0 (16,242) 0 0 0 (16,242) ($0.06) ($0.06)
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