-----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, E6HxGVaLF4P7NL/WcOUdVxWVgMCp27HWqkonuVkHSHOCwpblGzk4dzanlTWcUG3h rZEtnVwRcyFsn3EZmgWLrA== 0000950134-99-004157.txt : 19990517 0000950134-99-004157.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950134-99-004157 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNSHINE MINING & REFINING CO CENTRAL INDEX KEY: 0000833376 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] 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: 99622125 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 MARCH 31, 1999 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 March 31, 1999 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 May 6, 1999 - ----------------------------------- ---------------------------- Common Stock, $.01 par value 276,646,009 1 of 10 2 SUNSHINE MINING AND REFINING COMPANY CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited)
March 31 December 31 1999 1998 --------- --------- ASSETS Current assets: Cash and cash investments $ 4,131 $ 1,412 Silver bullion 5,234 5,203 Accounts receivable 4,322 2,801 Inventories (Note 2) 3,031 4,236 Other current assets 1,042 1,845 --------- --------- Total current assets 17,760 15,497 Property, plant and equipment, at cost 57,392 57,114 Less accumulated depreciation, depletion and amortization (36,750) (36,700) --------- --------- 20,642 20,414 Investments and other assets 3,850 3,986 --------- --------- Total assets $ 42,252 $ 39,897 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 844 $ 1,413 Accrued expenses 3,570 4,368 Current portion, long term debt 27,774 0 --------- --------- Total current liabilities 32,188 5,781 Long-term debt 21,200 42,597 Accrued pension and other postretirement benefits 5,357 5,498 Other long-term liabilities and deferred credits 3,526 3,487 Stockholders' equity: Common stock--$.01 par value; 600,000 shares authorized; shares issued: March 31, 1999 - 276,868 December 31, 1998 - 263,971 2,769 2,640 Paid-in capital 713,995 714,004 Deficit (735,673) (733,000) --------- --------- (18,909) (16,356) Less treasury stock, at cost: March 31, 1999 - 4,563 shares December 31, 1998 - 4,563 shares (1,110) (1,110) --------- --------- (20,019) (17,466) --------- --------- Total liabilities and stockholders' equity $ 42,252 $ 39,897 ========= =========
See accompanying notes. 2 3 SUNSHINE MINING AND REFINING COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (In Thousands, Except Per Share Amounts) (Unaudited)
1999 1998 --------- --------- Operating revenues $ 9,651 $ 9,740 Mark to market gain 83 792 --------- --------- 9,734 10,532 --------- --------- Costs and expenses: Cost of revenues (8,734) (6,950) Depreciation, depletion and amortization (462) (1,395) Exploration (551) (1,045) Selling, general and administrative expense (1,215) (1,206) --------- --------- (10,962) (10,596) --------- --------- Other income (expense) Interest income 57 219 Interest and debt expense (1,855) (1,685) Other, net 353 1,601 --------- --------- (1,445) 135 --------- --------- Net Income (loss) $ (2,673) $ 71 ========= ========= Basic and fully diluted income (loss) per common share: $ (0.01) $ 0.00 ========= ========= Weighted average common shares outstanding 260,114 255,684 ========= =========
See accompanying notes. 3 4 SUNSHINE MINING AND REFINING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Three Months Ended March 31 1999 1998 -------- -------- Cash used by operating activities: Net income (loss) $ (2,673) $ 71 Adjustments to reconcile net income (loss) to net cash used by operations: Depreciation, depletion and amortization 462 1,395 Amortization of debt issuance costs and accretion of debt discount 695 587 Net (increase) decrease in: Silver bullion (31) (622) Accounts receivable (1,521) (2,031) Inventories 1,205 (111) Other assets and deferred charges 58 (1,762) Net increase (decrease) in: Accounts payable and accrued expenses (1,367) (557) Accrued pension and other postretirement benefits (141) (43) Other liabilities and deferred credits 38 (419) -------- -------- Net cash used by operations (3,275) (3,492) -------- -------- Cash provided (used) by investing activities: Additions to property, plant and equipment (689) (1,375) Proceeds from investments 803 -- -------- -------- Net cash provided (used) by investing activities 114 (1,375) -------- -------- Cash provided (used) by financing activities: Proceeds from issuance of long term debt, net of issuance costs 5,875 (6) Proceeds from issuance of common stock upon exercise of stock options and warrants 5 46 -------- -------- Net cash provided by financing activities 5,880 40 -------- -------- Increase (decrease) in cash and cash investments 2,719 (4,827) Cash and cash investments, January 1 1,412 15,985 -------- -------- Cash and cash investments, March 31 $ 4,131 $ 11,158 ======== ======== Supplemental cash flow information - Interest paid in cash $ 658 $ 1,274 ======== ========
See accompanying notes. 4 5 SUNSHINE MINING AND REFINING COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 1999 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. Operating results for the three-month period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in Sunshine's report on Form 10-K for the year ended December 31, 1998. 2. INVENTORIES The components of inventory consist of the following:
March 31 December 31 1999 1998 ------ ------ Precious Metals Inventories: Work in process $1,511 $2,831 Finished goods 94 49 Materials and supplies inventories 1,426 1,356 ------ ------ $3,031 $4,236 ====== ======
3. LONG-TERM DEBT In January, 1999, the Company completed a private placement of 5% Convertible Notes due January 28, 2001 totaling $6 million. The notes may generally be converted into common stock of the Company at a per-share price based on the average of the lowest average high and low trading prices for five of the twenty consecutive trading days prior to conversion. The conversion price for one-half of the notes has been fixed at a maximum of $0.6875. In March, 1999, the Company issued 12.7 million shares to holders of its 8% Senior Exchangeable Notes due March 21, 2000 ("the Eurobonds"). Such shares were issuable in settlement of the additional amount to be paid if the Company's conversion stock did not trade at a price 33% above the conversion price of the Eurobonds for a period of 45 consecutive trading days. In April, 1999, the Company retired $1.5 million of the Eurobonds by the issuance of 2.7 million shares of common stock. On May 1, 1999, pursuant to the terms of the Company's 10% Senior Exchangeable notes due November 24, 2002, the conversion price for $7.5 million principal amount was reset to $.4313 per share from $.95 per share. 5 6 4. OPERATIONS The Company's operations have generated losses and a net use of cash from operations in each of the last several years. The Company ended the quarter with a working capital deficit of $14.4 million, including $26.5 million for the Eurobonds which mature March 21, 2000. Cash and silver bullion held for investment totaled $9.4 million at March 31, 1999. These financial results are primarily a result of continued depressed silver prices and lower by-product prices resulting in margins that are insufficient to cover the Company's other expenses. The Company has taken specific actions in attempts to ensure its ability to continue operations at least through the next 12 months. Specifically, the Company has reduced exploration and development expenditures at its Argentina subsidiary primarily to the level required to complete the feasibility study for the Pirquitas Mine, implemented cost reduction and cash conservation plans and initiatives to reduce its work-in-process inventory. Furthermore, the Company is currently exploring possible options of refinancing the Eurobonds prior to maturity in conjunction with its efforts to finance the development of the Pirquitas Mine. No assurance can be given as to the availability of such financing. The Company expects that the above-described steps should be sufficient to fund operations at least through the next 12 months. However, the Company's inability to successfully implement the above described actions or a further decrease in the price of silver could materially adversely impact the Company's ability to continue operating through 2000. 6 7 SUNSHINE MINING AND REFINING COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 1999 and 1998 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," "believes," "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. Readers are cautioned not to place undue reliance on these forward-looking statements. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 1999 was a deficit of $14.4 million. This deficit includes $26.5 million for the 8% Senior Exchangeable Notes ("the Eurobonds"), which mature March 21, 2000. Cash and silver bullion held for investment totaled $9.4 million at the end of the quarter. The Company is currently exploring possible options of refinancing the Eurobonds prior to maturity in conjunction with its efforts to finance the development of the Pirquitas Mine in northwest Argentina. No assurance can be given as to the availability of such financing. The Company's inability to successfully refinance the Eurobonds could materially adversely impact the Company's ability to continue operating through 2000. Work on Pirquitas in 1999 has focussed on completion of the independent feasibility study to be used in conjunction with financing the project. The study, completed in April 1999, has estimated that pre-production capital cost of mine development will total $124 million during a two-year pre-production period. Initial annual production from the mine is estimated to average 11 million ounces of silver over its first four years of production, and it is expected to average approximately 9.2 million ounces of silver and 7.1 million pounds of tin over a ten year mine life. The estimated net cash cost of production of an ounce of silver is projected to be less than $1.50, net of tin and zinc by-product credits. Assuming a $5.50 silver price and a tin price of $2.54 per pound, proven and probable reserves are presently estimated to be 23.9 million tons of ore containing 116 million ounces of silver, 156 million pounds of tin and 272 million pounds of zinc. The Company expects future development and exploration work at the site to expand reserves. The study reflects an unleveraged, after-tax, internal rate of return of 20% on the $124 million development cost. Debt financing of the project will increase the return on invested capital to well over 25%. The Company is also planning a major exploration and development project to provide access to reserves in the eastern area of the Sunshine Mine and provide a major exploration platform for evaluating a number of undeveloped areas in the eastern portion of the mine. If successful in developing major new ore bodies, the project envisions rehabilitation of the ConSil shaft to increase the mine's production capacity by 50% and is expected to further reduce net cash production costs to less than $4.00 per ounce. The total cost of the project is expected to be between $2 million and $4 million over two years. This project is currently being funded from available cash balances. 7 8 Operating, Investing, and Financing Activities Cash used in operating activities in the first quarter of 1999 was $3.3 million compared to $3.5 million in the first quarter of 1998. The $200 thousand decrease was primarily due to changes in working capital components mostly offset by a $1.5 million cash operating loss in the first quarter of 1999 compared to a $2.0 million cash operating income in the first quarter of 1998. The decline resulted primarily from a $700 thousand reduction in mark to market gains and a reduction of $1.22 in average per ounce silver price received for silver sold (which resulted in a $1.7 million decline in operating revenues for the 1.4 million ounces sold in the 1999 quarter) and the $1.2 million decline in other, net. Investing activities in the first quarter of 1999 included $803 thousand proceeds from investment recoveries and $689 thousand of additions to property, plant and equipment primarily for the development of Pirquitas. Investing activities in the first quarter of 1998 used approximately $1.4 million of cash including $900 thousand for the development of Pirquitas and $419 thousand of capital expenditures at the Sunshine Mine. Cash provided by financing activities in 1999 primarily consists of $5.9 million net proceeds from the issuance of convertible notes. IMPACT OF YEAR 2000 The Company has completed its review of all hardware and software systems operated or licensed in The Company's business. The Company has identified an interface between two programs which handle report writing procedures which will not properly transfer dates after January 1, 2000, although each program itself can properly interpret the date. The Company expects to have this interface remedied timely, and at nominal cost. The Company has contacted its significant vendors, supplier, customers and other third parties as to their Year 2000 exposure and compliance. To date, the Company is not aware of any third parties with Year 2000 issue that would materially affect the Company's results of operations, liquidity, or capital resources. However, the Company has no means of ensuring that external agents will be Year 2000 ready. The inability of third parties to complete their Year 2000, resolution process in a timely fashion could materially impact the Company. The effect of non-compliance by third parties is not determinable. RESULTS OF OPERATIONS THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998 Consolidated operating revenues decreased approximately $90 thousand (1%) for the first quarter of 1999 compared to the first quarter of 1998, while mark to market gains on work in process inventories and investment bullion decreased $710 thousand. The decrease in operating revenues primarily resulted from a decrease in the average price received per ounce of silver sold (1,686,138 ounces of silver at an average of $5.21 per ounce in the 1999 quarter compared to 1,311,180 ounces at an average of $6.43 per ounce in the 1998 quarter), a $285 thousand decrease in by-product revenue, and a $151 thousand decrease in recognized premium income on the sale of covered calls on silver bullion held as an investment. These decreases were partially offset by the 375 thousand ounce increase in silver sales volume. The silver sales volume increase primarily resulted from a 125 thousand ounce (10%) increase in production in the 1999 quarter and a reduction of work in process inventories totaling 260 thousand ounces of silver. By-product revenue decreased because of lower average prices received and decreased lead production and sales, partially offset by increased pounds of copper sold. Cost of revenues increased $1.8 million (25.7%) from $6.95 million in the first quarter of 1998 to $8.7 million in the first quarter of 1999 primarily due to the 10% increase in production in 1999 ($600 thousand) and the reduction of work in process inventories ($1.3 million in 1999 compared to $90 thousand in 1998). 8 9 Unit cash production costs (before by-product credits) decreased $.26 to $5.00 per ounce of silver. This reduction was primarily due to the increase in silver production resulting from a 2.22 ounce per ton (9.4%) increase in average grades from 1998 to 1999 (1.425 million ounces produced from 56,759 tons at 25.89 ounces per ton in 1999 versus 1.3 million ounces from 56,700 tons at 23.67 ounces per ton in 1998). The decrease in by-product revenue resulted in a $.23 reduction in by-product credits per ounce of silver. Depreciation, depletion and amortization decreased by approximately $933 thousand as a result of the writedown of the Sunshine Mine in the third quarter of 1998. Exploration expense decreased $500 thousand in 1999 compared to 1998 primarily due to a reduction of expenditures in Argentina. Additionally, approximately $677 thousand of expenditures at Pirquitas during 1999 have been capitalized compared to $900 thousand in the 1998 quarter. Interest income decreased $160 thousand due to lower average invested cash balances. Interest and debt expense increased $170 thousand primarily due to the $6 million of new convertible debt issued in January 1999, and higher amortization of debt discount for the outstanding Eurobonds. Other, net decreased $1.2 million primarily due to income of $1.6 million in 1998 recognized for a reduction of the valuation reserves previously recorded against certain investments. 9 10 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: May 14, 1999 By: /s/ WILLIAM W. DAVIS ----------------------------------- William W. Davis Executive Vice President and Chief Financial Officer 10 11 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 MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1998 MAR-31-1999 4,131 0 4,322 0 3,031 17,760 57,392 36,750 42,252 32,188 21,200 0 0 2,769 (17,250) 42,252 9,651 9,734 8,734 10,411 551 0 1,855 (2,673) 0 (2,673) 0 0 0 (2,673) (.01) (.01)
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