CDE-06.30.2013-Q2

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________________________ 
FORM 10-Q
___________________________________________
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2013
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 001-08641
____________________________________________ 
COEUR MINING, INC.
(Exact name of registrant as specified in its charter)
____________________________________________
Delaware
 
82-0109423
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
PO Box I,
505 Front Ave.
Coeur d’Alene, Idaho
 
83816
(Address of principal executive offices)
 
(Zip Code)
(208) 667-3511
(Registrant’s telephone number, including area code)
_________________________________________
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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The Company has 150,000,000 shares of common stock, par value of $0.01, authorized of which 101,572,474 shares were issued and outstanding as of August 7, 2013.

1


COEUR MINING, INC.
INDEX
 
 
Page No.
Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 4.
 
 
 
Item 6.

2




COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
June 30,
2013
 
December 31,
2012
ASSETS
Notes

 
(In thousands, except share data)
CURRENT ASSETS
 
 
 
 
 
Cash and cash equivalents
 
 
$
249,531

 
$
125,440

Investments
5

 

 
999

Receivables
6

 
64,607

 
62,438

Ore on leach pad
 
 
28,880

 
22,991

Metal and other inventory
7

 
148,286

 
170,670

Deferred tax assets
13

 
2,620

 
2,458

Restricted assets
 
 
660

 
396

Prepaid expenses and other
 
 
17,945

 
20,790

 
 
 
512,529

 
406,182

NON-CURRENT ASSETS
 
 
 
 
 
Property, plant and equipment, net
9

 
660,333

 
683,860

Mining properties, net
10

 
2,357,689

 
1,991,951

Ore on leach pad
 
 
26,861

 
21,356

Restricted assets
 
 
24,468

 
24,970

Marketable securities
5

 
16,008

 
27,065

Receivables
6

 
38,539

 
48,767

Debt issuance costs, net
 
 
11,890

 
3,713

Deferred tax assets
13

 
969

 
955

Other
 
 
17,430

 
12,582

TOTAL ASSETS
 
 
$
3,666,716

 
$
3,221,401

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
Accounts payable
 
 
$
57,446

 
$
57,482

Accrued liabilities and other
 
 
9,369

 
10,002

Accrued income taxes
 
 
8,662

 
27,108

Accrued payroll and related benefits
 
 
15,576

 
21,306

Accrued interest payable
 
 
10,237

 
478

Debt and capital leases
11

 
5,485

 
55,983

Royalty obligations
11,16
 
44,605

 
65,104

Reclamation and mine closure
12

 
473

 
668

Deferred tax liabilities
13

 
121

 
121

 
 
 
151,974

 
238,252

NON-CURRENT LIABILITIES
 
 
 
 
 
Debt and capital leases
11

 
306,578

 
3,460

Royalty obligations
11,16
 
86,304

 
141,879

Reclamation and mine closure
12

 
35,708

 
34,670

Deferred tax liabilities
13

 
711,550

 
577,488

Other long-term liabilities
 
 
23,110

 
27,372

 
 
 
1,163,250

 
784,869

COMMITMENTS AND CONTINGENCIES (Notes 11, 12, 13, 16, 17 and 20)
 
 

 

STOCKHOLDERS’ EQUITY
 
 
 
 
 
Common stock, par value $0.01 per share; authorized 150,000,000 shares, issued and outstanding 101,567,355 at June 30, 2013 and 90,342,338 at December 31, 2012
 
 
1,016

 
903

Additional paid-in capital
 
 
2,770,953

 
2,601,254

Accumulated deficit
 
 
(418,926
)
 
(396,156
)
Accumulated other comprehensive loss
 
 
(1,551
)
 
(7,721
)
 
 
 
2,351,492

 
2,198,280

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
$
3,666,716

 
$
3,221,401


The accompanying notes are an integral part of these condensed consolidated financial statements.

3


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
 
Notes
(In thousands, except share data)
Sales of metal
 
$
204,525

 
$
254,406

 
$
376,322

 
$
458,970

Production costs applicable to sales
 
(142,924
)
 
(131,823
)
 
(231,708
)
 
(224,377
)
Depreciation, depletion and amortization
 
(57,653
)
 
(61,024
)
 
(108,089
)
 
(113,616
)
Gross profit
 
3,948

 
61,559

 
36,525

 
120,977

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
General and administrative
 
15,026

 
8,594

 
25,253

 
16,190

Exploration
 
6,774

 
6,305

 
13,615

 
12,872

Litigation settlement
20

32,046

 

 
32,046

 

Loss on impairment and other
 
86

 
4,813

 
205

 
4,813

Pre-development, care, maintenance and other
 
973

 
273

 
5,458

 
1,341

Total cost and expenses
 
54,905

 
19,985

 
76,577

 
35,216

OPERATING INCOME (LOSS)
 
(50,957
)
 
41,574

 
(40,052
)
 
85,761

OTHER INCOME AND EXPENSE
 
 
 
 
 
 
 
 
Fair value adjustments, net
4,16

66,754

 
16,039

 
84,550

 
(7,074
)
Other than temporary impairment of marketable securities
5

(17,192
)
 

 
(17,227
)
 

Interest income and other, net
 
419

 
(3,221
)
 
4,275

 
1,786

Interest expense, net of capitalized interest
11

(10,930
)
 
(7,557
)
 
(20,662
)
 
(14,227
)
Total other income and expense, net
 
39,051

 
5,261

 
50,936

 
(19,515
)
Income (loss) before income taxes
 
(11,906
)
 
46,835

 
10,884

 
66,246

Income tax provision
13

(23,134
)
 
(23,862
)
 
(33,654
)
 
(39,298
)
NET INCOME (LOSS)
 
$
(35,040
)
 
$
22,973

 
$
(22,770
)
 
$
26,948

INCOME (LOSS) PER SHARE
 
 
 
 
 
 
 
 
Basic
3

$
(0.35
)
 
$
0.26

 
$
(0.24
)
 
$
0.30

Diluted
3

$
(0.35
)
 
$
0.26

 
$
(0.24
)
 
$
0.30

Weighted average number of shares
 
 
 
 
 
 
 
 
Basic
3

99,833

 
89,631

 
94,918

 
89,611

Diluted
3

99,833

 
89,733

 
94,918

 
89,777

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 
Three months ended June 30,
Six months ended
June 30,
 
Notes
2013
 
2012
2013
 
2012
 
 
(In thousands)
Net income (loss)
 
$
(35,040
)
 
$
22,973

$
(22,770
)
 
$
26,948

OTHER COMPREHENSIVE INCOME (LOSS) net of tax:
 
 
 
 
 
 
 
Unrealized loss on available for sale securities
4,5
(7,491
)
 
(5,676
)
(11,057
)
 
(5,252
)
Reclassification adjustments for losses included in net income(A)
4,5
17,192

 

17,227

 

Other comprehensive income (loss)
 
9,701

 
(5,676
)
6,170

 
(5,252
)
COMPREHENSIVE INCOME (LOSS)
 
$
(25,339
)
 
$
17,297

$
(16,600
)
 
$
21,696

A. The reclassification adjustments have been reflected in other than temporary impairment of marketable securities in the condensed consolidated statements of operations.
The accompanying notes are an integral part of these condensed consolidated financial statements.

COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Six months ended June 30, 2013
(Unaudited)
(In thousands, except per share data)
Notes
Common
Stock
Shares
 
Common
Stock Par
Value
 
Additional Paid-
In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Balances at December 31, 2012
 
90,342

 
$
903

 
$
2,601,254

 
$
(396,156
)
 
$
(7,721
)
 
$
2,198,280

Net income (loss)
 

 

 

 
(22,770
)
 

 
(22,770
)
Other comprehensive income (loss)
 

 

 

 

 
6,170

 
6,170

Common stock issued for the acquisition of Orko Silver Corp.
8
11,573

 
116

 
173,247

 

 

 
173,363

Warrants issued for the acquisition of Orko Silver Corp.
8

 

 
5,777

 

 

 
5,777

Common stock share buy back
 
(655
)
 
(7
)
 
(12,550
)
 

 

 
(12,557
)
Common stock issued/cancelled under long-term incentive plans and director fees and options, net
14
307

 
4

 
3,225

 

 


 
3,229

Balances at June 30, 2013
 
$
101,567

 
$
1,016

 
$
2,770,953

 
$
(418,926
)
 
$
(1,551
)
 
$
2,351,492

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


COEUR MINING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
 
Notes
(In thousands)
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(35,040
)
 
$
22,973

 
$
(22,770
)
 
$
26,948

Add (deduct) non-cash items
 
 
 
 
 
 
 
 
Depreciation, depletion and amortization
 
57,653

 
61,024

 
108,089

 
113,616

Accretion of discount on debt and other assets, net
 
484

 
808

 
1,531

 
1,605

Accretion of royalty obligation
16
4,139

 
5,492

 
7,809

 
10,072

Deferred income taxes
13
12,123

 
9,690

 
19,548

 
17,368

Fair value adjustments, net
4
(65,754
)
 
(17,759
)
 
(81,795
)
 
4,018

Loss on foreign currency transactions
 
148

 
70

 
(317
)
 
369

Litigation settlement
20
22,046

 

 
22,046

 

Share-based compensation
14
1,617

 
1,033

 
2,713

 
3,170

Loss on sale of assets
 
(264
)
 
264

 
(1,132
)
 
264

Other than temporary impairment of marketable securities
5
17,192

 

 
17,227

 

Loss on impairment
 
86

 
4,813

 
205

 
4,813

Other non-cash charges
 

 
(40
)
 

 
(40
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Receivables and other current assets
6
4,401

 
10,319

 
8,647

 
7,365

Prepaid expenses and other
 
2,930

 
(2,857
)
 
411

 
1,916

Inventories
7
31,483

 
3,097

 
10,990

 
(21,625
)
Accounts payable and accrued liabilities
 
10,094

 
14,276

 
(16,930
)
 
(39,655
)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
63,338

 
113,203

 
76,272

 
130,204

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
Purchase of short term investments and marketable securities
 
(683
)
 
(6,831
)
 
(5,332
)
 
(7,866
)
Proceeds from sales and maturities of short term investments
 
1,522

 
683

 
6,344

 
20,701

Capital expenditures
19
(27,201
)
 
(32,238
)
 
(40,028
)
 
(63,885
)
Acquisition of Orko Silver Corporation
8
(101,648
)
 

 
(113,214
)
 

Other
 
254

 
995

 
1,209

 
1,180

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(127,756
)
 
(37,391
)
 
(151,021
)
 
(49,870
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
Proceeds from issuance of notes and bank borrowings
11

 

 
300,000

 

Payments on long-term debt, capital leases, and associated costs
11
(1,857
)
 
(8,794
)
 
(57,197
)
 
(14,244
)
Payments on gold production royalty
11
(15,480
)
 
(19,287
)
 
(30,929
)
 
(40,660
)
Share repurchases
 

 

 
(12,557
)
 

Other
 
(25
)
 
(217
)
 
(477
)
 
(1,045
)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(17,362
)
 
(28,298
)
 
198,840

 
(55,949
)
INCREASE IN CASH AND CASH EQUIVALENTS
 
(81,780
)
 
47,514

 
124,091

 
24,385

Cash and cash equivalents at beginning of period
 
331,311

 
151,883

 
125,440

 
175,012

Cash and cash equivalents at end of period
 
$
249,531

 
$
199,397

 
$
249,531

 
$
199,397

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)


NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation: The Company’s unaudited interim condensed consolidated financial statements have been prepared under United States Generally Accepted Accounting Principles (“U.S. GAAP”) and applicable rules of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and include the accounts of Coeur Mining, Inc. and its consolidated subsidiaries (“Coeur” or the “Company”). All significant intercompany transactions and balances have been eliminated during consolidation. The Company has evaluated all activity that took place after June 30, 2013 and determined there are no subsequent events that need to be disclosed. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2012. The condensed consolidated balance sheet as of December 31, 2012, included herein, was derived from the audited consolidated financial statements as of that date.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position as of June 30, 2013 and December 31, 2012 and the Company’s consolidated results of operations and cash flows for the three and six months ended June 30, 2013 and 2012. The results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. All references to June 30, 2013 or to the three and six months ended June 30, 2013 and 2012 in the notes to the condensed consolidated financial statements are unaudited.
Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. The most significant areas requiring the use of management’s estimates and assumptions relate to recoverable ounces from proven and probable reserves that are the basis of future cash flow estimates and units-of-production depreciation and amortization calculations; useful lives utilized for depreciation, depletion and amortization; estimates of future cash flows for long lived assets; estimates of recoverable gold and silver ounces in ore on leach pads; the amount and timing of reclamation and remediation costs; valuation allowance for deferred tax assets; and other employee benefit liabilities.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently Adopted Accounting Pronouncements:
In December, 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 201): Disclosures about Offsetting Assets and Liabilities." This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning January 1, 2013, with retrospective application required. The adoption of ASU 2011-11 had no effect on the Company's financial position, results of operations or cash flows.  
Effective January 1, 2013, the Company adopted ASU 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU adds the following disclosure requirements:
For items reclassified out of accumulated other comprehensive income (AOCI) and into net income in their entirety, the effect of the reclassification on each affected net income line item; and
For AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures.     
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and six months ended June 30, 2013, 1,202,100 shares of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. For the three and six months ended June 30, 2012, 632,213 shares of common stock equivalents related to equity-based awards have not been included in the diluted per share calculation as the shares would be antidilutive. The 3.25% Convertible Senior Notes were not included in the computation of diluted earnings per share for the three and six months ended June 30, 2013 and 2012 because there is no excess value upon conversion over the principal amount of the Notes.
The effect of potentially dilutive stock outstanding as of June 30, 2013 and 2012 are as follows (in thousands, except per share data):

7

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
Three months ended June 30, 2013
 
Six months ended June 30, 2013
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
(35,040
)
 
99,833

 
$
(0.35
)
 
$
(22,770
)
 
94,918

 
$
(0.24
)
Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
Equity awards

 

 
 
 

 

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
(35,040
)
 
99,833

 
$
(0.35
)
 
$
(22,770
)
 
94,918

 
$
(0.24
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013
 
Six months ended June 30, 2012
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
 
Income
(Numerator)
 
Shares
(Denominator)
 
Per-Share
Amount
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
22,973

 
89,631

 
$
0.26

 
$
26,948

 
89,611

 
$
0.30

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
Equity awards

 
102

 
 
 

 
166

 
 
Diluted EPS
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
$
22,973

 
89,733

 
$
0.26

 
$
26,948

 
89,777

 
$
0.30

NOTE 4 – FAIR VALUE MEASUREMENTS
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2
Quoted market prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
 
Fair Value at June 30, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Marketable equity securities
$
16,008

 
$
16,008

 
$

 
$

Gold put and call options
2,358

 

 
2,358

 

 
$
18,366

 
$
16,008

 
$
2,358

 
$

Liabilities:
 
 
 
 
 
 
 
Palmarejo royalty obligation embedded derivative
$
52,359

 
$

 
$
52,359

 
$

Rochester NSR royalty obligation
22,046

 

 
22,046

 

Other derivative instruments, net
2,554

 

 
2,554

 

 
$
76,959

 
$

 
$
76,959

 
$

 

8

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

    
 
Fair Value at December 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Assets:
 
 
 
 
 
 
 
Short term investments
$
999

 
$
999

 
$

 
$

Marketable securities
27,065

 
27,065

 

 

Other derivative instruments, net
943

 

 
943

 

 
$
29,007

 
$
28,064

 
$
943

 
$

Liabilities:
 
 
 
 
 
 
 
Royalty obligation embedded derivative
$
145,098

 
$

 
$
145,098

 
$

Put and call options
9,299

 

 
9,299

 

 
$
154,397

 
$

 
$
154,397

 
$

The Company’s short-term investments are readily convertible to cash and, therefore, these investments are classified within Level 1 of the fair value hierarchy.
The Company’s marketable equity securities are recorded at fair market value in the financial statements based on quoted market prices, which are accessible at the measurement date for identical assets. Such instruments are classified within Level 1 of the fair value hierarchy.
The Company’s gold put and call options, Palmarejo royalty obligation embedded derivative, Rochester NSR royalty obligation, and other derivative instruments, net, which relate to the concentrate sales contracts and foreign exchange contracts, are valued using pricing models, which require inputs that are derived from observable market data, including contractual terms, forward market prices, yield curves and credit spreads. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
The Company had no Level 3 financial assets and liabilities as of June 30, 2013 or December 31, 2012.
Financial assets and liabilities that are not measured at fair value at June 30, 2013 and December 31, 2012 are set forth below (in thousands):
 
Fair Value at June 30, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:

 
 
 
 
 
 
3.25% Convertible Senior Notes due 2028
$
5,153

 
$
5,153

 
$

 
$

7.875% Senior Notes due 2021
$
295,689

 
$
295,689

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
75,645

 
$

 
$
75,645

 
$

 
Fair Value at December 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3  
Liabilities:
 
 
 
 
 
 
 
3.25% Convertible Senior Notes due 2028
$
48,220

 
$
48,220

 
$

 
$

Palmarejo Gold Production Royalty Obligation
$
90,617

 
$

 
$
90,617

 
$

The fair value of the Company's 7.875% Senior Notes due 2021 was moved to Level 1 as a result of the availability of active market transactions to establish fair value.
NOTE 5 – INVESTMENTS
The Company classifies the marketable securities in which it invests as available-for-sale securities. Such securities are measured at fair market value in the financial statements with unrealized gains or losses recorded in other comprehensive income.
The equity securities reflected in the table below consist of equity securities of silver and gold exploration and development companies that the Company purchased. The following table summarizes the Company’s available-for-sale securities on hand as of June 30, 2013 and December 31, 2012 (in thousands): 

9

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
Investments in marketable securities
 
Adjusted
 Cost
 
Gross
Unrealized
Losses
 
Gross
Unrealized
Gains
 
Estimated
Fair Value
Marketable securities at June 30, 2013
$
17,608

 
$
(1,799
)
 
$
199

 
$
16,008

 
 
 
 
 
 
 
 
Marketable securities at December 31, 2012
$
34,786

 
$
(10,443
)
 
$
2,722

 
$
27,065


In the three months ended June 30, 2013 and 2012, the Company recognized an unrealized loss of $7.5 million and $5.7 million, respectively, in other comprehensive income (loss). In the six months ended June 30, 2013, and 2012, the Company recognized an unrealized loss of $11.1 million and $5.3 million, respectively. The Company performs a quarterly assessment on each of its marketable securities with unrealized losses to determine if the security is other than temporarily impaired. The Company's management team uses industry knowledge and expertise to evaluate each investment and determined that unrealized losses on certain investments are not other than temporary. As a result, an other than temporary impairment charge of $17.2 million was recorded during the three months ended June 30, 2013.
The Company had $1.0 million of short-term investments at December 31, 2012. These investments were held with various banks and had maturity dates of less than one year. There were no short term investments at June 30, 2013.
NOTE 6 – RECEIVABLES
Receivables consist of the following (in thousands):
 
June 30,
2013
 
December 31, 2012
Receivables - current
 
 
 
Accounts receivable - trade
$
9,664

 
$
8,701

Refundable income tax
1,807

 
9,331

Refundable value added tax
48,186

 
40,020

Accounts receivable - other
4,950

 
4,386

 
$
64,607

 
$
62,438

Receivables - non-current
 
 
 
Refundable value added tax
$
38,539

 
$
48,767

 
Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management evaluates the collectability of receivable account balances to determine the allowance, if any. There were no allowances against receivable balances at June 30, 2013 or December 31, 2012.
NOTE 7 – METAL AND OTHER INVENTORY
Metal and other inventory consist of the following (in thousands): 
 
June 30, 2013
 
December 31, 2012
Concentrate and doré inventory
$
80,306

 
$
91,130

Supplies
67,980

 
79,540

Metal and other inventory
$
148,286

 
$
170,670

NOTE 8 – ACQUISITION OF ORKO SILVER CORPORATION/LA PRECIOSA MINERAL INTERESTS
On April 16, 2013, the Company completed its acquisition of Orko Silver Corporation (“Orko”). Upon completion of the acquisition, the Company holds the La Preciosa silver-gold project in the state of Durango, Mexico. The transaction was accounted for as a purchase of mineral interests since La Preciosa is a development stage project.

10

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Total consideration paid for the asset acquisition (in thousands):
Common shares issued (11,572,918 at $14.98)
$
173,363

Cash
99,059

Warrants (1,588,768 valued at $3.64 per warrant)
5,777

Transaction advisory fees and other acquisition costs
17,642

Total purchase price
295,841

Current liabilities
2,616

Deferred income taxes
114,339

Total liabilities assumed
116,955

Total Consideration
$
412,796

Estimated fair value of the assets acquired (in thousands):
Cash
$
3,487

Other current assets
635

Mineral interests
408,352

Other assets
322

Total assets acquired
$
412,796


NOTE 9 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands): 
 
June 30, 2013
 
December 31, 2012
Land
$
1,888

 
$
2,010

Buildings and improvements
593,989

 
581,286

Machinery and equipment
379,912

 
360,199

Capitalized leases for machinery, equipment, buildings, and land
22,445

 
35,129

 
998,234

 
978,624

Accumulated depreciation and amortization
(353,533
)
 
(313,067
)
 
644,701

 
665,557

Construction in progress
15,632

 
18,303

 
$
660,333

 
$
683,860


11

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 10 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
June 30, 2013
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Endeavor
 
La Preciosa
 
Joaquin
 
Total
Mining properties
$
162,855

 
$
70,360

 
$
338,907

 
$
120,350

 
$

 
$

 
$

 
$
692,472

Accumulated depletion
(94,647
)
 
(20,305
)
 
(60,310
)
 
(101,353
)
 

 

 

 
(276,615
)
 
68,208

 
50,055

 
278,597

 
18,997

 

 

 

 
415,857

Mineral interests
1,660,580

 
26,643

 

 

 
44,033

 
408,352

 
93,429

 
2,233,037

Accumulated depletion
(266,499
)
 
(8,037
)
 

 

 
(16,669
)
 

 

 
(291,205
)
 
1,394,081

 
18,606

 

 

 
27,364

 
408,352

 
93,429

 
1,941,832

Non-producing and development properties

 

 

 

 

 

 

 

Total mining properties
$
1,462,289

 
$
68,661

 
$
278,597

 
$
18,997

 
$
27,364

 
$
408,352

 
$
93,429

 
$
2,357,689

December 31, 2012
Palmarejo
 
San
Bartolomé
 
Kensington
 
Rochester
 
Endeavor
 
Joaquin
 
Other
 
Total
Mining properties
$
155,722

 
$
70,322

 
$
333,619

 
$
114,973

 
$

 
$

 
$
11,416

 
$
686,052

Accumulated depletion
(82,037
)
 
(18,439
)
 
(46,649
)
 
(100,437
)
 

 

 
(11,416
)
 
(258,978
)
 
73,685

 
51,883

 
286,970

 
14,536

 

 

 

 
427,074

Mineral interests
1,658,389

 
26,642

 

 

 
44,033

 
93,429

 

 
1,822,493

Accumulated depletion
(235,795
)
 
(7,338
)
 

 

 
(14,625
)
 

 

 
(257,758
)
 
1,422,594

 
19,304

 

 

 
29,408

 
93,429

 

 
1,564,735

Non-producing and development properties

 

 

 

 

 

 
142

 
142

Total mining properties
$
1,496,279

 
$
71,187

 
$
286,970

 
$
14,536

 
$
29,408

 
$
93,429

 
$
142

 
$
1,991,951

Operational Mining Properties
Palmarejo Mine: Palmarejo is located in the State of Chihuahua in northern Mexico, and its principal silver and gold properties are collectively referred to as the “Palmarejo mine.” The Palmarejo mine commenced production in April 2009.

San Bartolomé Mine: The San Bartolomé mine is a silver mine located near the city of Potosi, Bolivia. The mineral rights for the San Bartolomé project are held through long-term joint venture/lease agreements with several local independent mining co-operatives and the Bolivian state owned mining organization, (“COMIBOL”). The Company commenced commercial production at San Bartolomé in June 2008.
Kensington Mine: The Kensington mine is an underground gold mine and consists of the Kensington and adjacent Jualin properties located on the east side of the Lynn Canal about 45 miles north-northwest of Juneau, Alaska. The Company commenced commercial production in July of 2010.
Rochester Mine: The Company has conducted operations at the Rochester mine, located in Western Nevada, since September 1986. The mine utilizes the heap-leaching process to extract both silver and gold from ore mined using open pit methods. Rochester’s primary product is silver with gold produced as a by-product.
Martha Mine: The Martha mine is an underground silver mine located in Argentina. The Martha mine ceased active mining operations in September 2012 and is included in "other" in the tables above.
Mineral Interests
Endeavor Mine: In May 2005, CDE Australia Pty Ltd ("CDE Australia"), a wholly-owned subsidiary of Coeur acquired the silver production and reserves, up to a maximum 17.7 million  payable ounces, contained at the Endeavor mine in Australia, which is owned and operated by Cobar Operations Pty. Limited, a wholly-owned subsidiary of CBH Resources Ltd. In March 2006, CDE Australia entered into an amended agreement under which it owns all silver production and reserves up to a total of 20.0 million payable ounces.

12

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

CDE Australia began realizing reductions in revenues in the fourth quarter of 2008 as a result of a silver price sharing provision that was part of the purchase agreement. CDE Australia has received approximately 4.5 million payable ounces to date and the current ore reserve contains approximately 4.1 million payable ounces based on current metallurgical recovery and current smelter contract terms.
Joaquin Project: The Joaquin project is located in the Santa Cruz province of southern Argentina. The Company commenced exploration of this large property located north of the Company's Martha silver mine in November 2007 and acquired 100% in December 2012. Since that time, the Company has defined silver and gold mineralization in two deposits at Joaquin, La Negra and La Morocha, collectively referred to as the "Joaquin Project," and has recently commenced work on detailed drilling and other technical, economic and environmental programs.
La Preciosa Project: On April 16, 2013, the Company completed its acquisition of Orko Silver Corporation (“Orko”), which holds the La Preciosa silver-gold project in Durango, Mexico.
NOTE 11 – DEBT AND CAPITAL LEASE OBLIGATIONS
The current and non-current portions of long-term debt and capital lease obligations as of June 30, 2013 and December 31, 2012 are as follows (in thousands):
 
June 30,
2013
 
December 31,
2012
 
Current
 
Non-Current
 
Current
 
Non-Current
3.25% Convertible Senior Notes due 2028
$

 
$
5,334

 
$
48,081

 
$

7.875% Senior Notes due 2021

 
300,000

 

 

Capital lease obligations
5,485

 
1,244

 
7,902

 
3,460

 
$
5,485

 
$
306,578

 
$
55,983

 
$
3,460


3.25% Convertible Senior Notes due 2028
Per the indenture governing the 3.25% Convertible Senior Notes due 2028 (the “Convertible Notes”), the Company announced on February 13, 2013 that it was offering to repurchase all of its outstanding 3.25% Convertible Senior Notes due 2028. As of February 12, 2013, there was $48.7 million aggregate principal amount of Convertible Notes outstanding. The Company repurchased $43.3 million in aggregate principal amount, leaving a balance of $5.3 million at June 30, 2013.     
7.875% Senior Notes due 2021
On January 29, 2013, the Company completed an offering of $300 million in aggregate principal amount of 7.875% Senior Notes due 2021 (the “Notes”) in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). As of June 30, 2013, the outstanding balance of Notes was $300 million.
Revolving Credit Facility
On August 1, 2012, Coeur Alaska, Inc. and Coeur Rochester, Inc. (the “Borrowers”), each a wholly-owned subsidiary of the Company, entered into a new Credit Agreement (the “Credit Agreement”) by and among the Company, the Borrowers, the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The Credit Agreement provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $100.0 million, which principal amount may be increased, subject to receiving additional commitments therefor, by up to $50.0 million. There is a commitment fee of 0.10% on the unused portion of the line. The unused line fee for the three and six months ended June 30, 2013 was $0.1 and $0.3 million, respectively and was charged to interest expense.
As of June 30, 2013, no amounts were outstanding under the Revolving Credit Facility.
Palmarejo Gold Production Royalty Obligation
The Company recognized accretion expense on the Palmarejo gold production royalty obligation for the three months ended June 30, 2013 and 2012 of $4.1 million and $5.6 million, respectively. As of June 30, 2013 and December 31, 2012, the remaining minimum obligation under the royalty agreement was $56.5 million and $61.9 million, of which $23.9 million and $24.0 million were current, respectively.

13

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

Interest Expense
The Company expenses interest incurred on its various debt instruments as a cost of operating its properties. For the three and six months ended June 30, 2013, the Company expensed interest of $10.9 million and $20.7 million, respectively. For the three and six months ended June 30, 2012, the Company expensed interest of $7.6 and $14.2 million, respectively.
Interest expense is made up of the following (in thousands):
 
Three months ended June 30,
 
Six months ended
June 30,
 
2013
2012
 
2013
2012
3.25% Convertible Senior Notes due 2028
$
43

$
395

 
$
380

$
791

7.875% Senior Notes due 2021
5,906


 
10,041


Revolving Credit Facility
133


 
258


Kensington Term Facility (terminated in 2012)

906

 

1,880

Capital lease obligations
98

265

 
266

608

Other debt obligations
72

162

 
268

230

Accretion of Palmarejo gold production royalty obligation
4,107

5,559

 
8,170

10,663

Amortization of debt issuance costs
539

251

 
1,064

508

Accretion of debt discount

629

 
576

1,241

Capitalized interest
32

(610
)
 
(361
)
(1,694
)
Total interest expense, net of capitalized interest
$
10,930

$
7,557

 
$
20,662

$
14,227


NOTE 12 – RECLAMATION AND MINE CLOSURE
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, mineral prices, mineral processing recovery rates, production levels, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. The sum of the expected costs by year is discounted, using the Company's credit adjusted risk free interest rate. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.
Changes to the Company’s asset retirement obligations for active mining sites are as follows (in thousands): 
 
Three months ended June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Asset retirement obligation - Beginning
$
35,197

 
$
33,434

 
$
34,457

 
$
32,714

Accretion
758

 
742

 
1,500

 
1,466

Addition and changes in estimates

 
335

 

 
335

Settlements
(377
)
 
(1
)
 
(379
)
 
(5
)
Asset retirement obligation
$
35,578

 
$
34,510

 
$
35,578

 
$
34,510

In addition, the Company has accrued $0.6 million and $0.9 million as of June 30, 2013 and December 31, 2012, respectively, for reclamation liabilities related to former mining activities. These amounts are also included in reclamation and mine closure liabilities.

14

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 13 – INCOME TAXES
The following table summarizes the components of the Company’s income tax provision for the three and six months ended June 30, 2013 and 2012 (in thousands): 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
United States
$
(790
)
 
$
(388
)
 
$
(3,277
)
 
$
(3,525
)
Mexico
(15,798
)
 
(12,052
)
 
(19,471
)
 
(15,750
)
Bolivia
(4,556
)
 
(10,889
)
 
(8,884
)
 
(18,578
)
Other jurisdictions
(1,990
)
 
(533
)
 
(2,022
)
 
(1,445
)
Income tax provision from continuing operations
$
(23,134
)
 
$
(23,862
)
 
$
(33,654
)
 
$
(39,298
)
The income tax provision for the three and six months ended June 30, 2013 varies from the statutory rate primarily because of differences in tax rates for the Company's foreign operations and changes in valuation allowances for net deferred tax assets, permanent differences and foreign exchange rate differences.
The Company has U.S. net operating loss carryforwards which expire in 2017 through 2031. Net operating losses in foreign countries have an indefinite carryforward period, except in Mexico where net operating loss carryforwards are limited to ten years.
NOTE 14 – SHARE-BASED COMPENSATION PLANS
Compensation expense recognized in the Company’s consolidated financial statements for the three months ended June 30, 2013 and 2012 for share based compensation awards was $1.5 million and $1.0 million, respectively. Compensation expense recognized for the six months ended June 30, 2013 and 2012 for share based compensation awards was $2.1 million and $2.7 million, respectively. Stock appreciation rights (SARs) outstanding under the plan are liability-based awards and are required to be re-measured at the end of each reporting period with corresponding adjustments to previously recognized and future stock-based compensation expense. At June 30, 2013, there was $10.3 million of total unrecognized compensation cost (net of estimated forfeitures) to be recognized over a weighted-average period of 1.8 years.

The following table summarizes the new grants issued during the six months ended June 30, 2013:
Grant date
Restricted
stock
 
Grant date fair
value of
restricted stock
 
Stock options
 
Grant date
fair value of
stock
options
 
Performance
shares
 
Grant date fair
value of
performance
shares
January 2, 2013
1,805

 
$
25.20

 

 
$

 

 
$

January 22, 2013
47,994

 
$
23.90

 
77,715

 
$
14.77

 
95,991

 
$
27.41

February 4, 2013
18,668

 
$
22.63

 
17,692

 
$
14.00

 
21,828

 
$
25.96

April 1, 2013
157,142

 
$
18.51

 
73,290

 
$
11.39

 
28,662

 
$
21.23

May 21, 2013
111,193

 
$
13.66

 

 
$

 

 
$

The following options and stock appreciation rights were exercised during the six months ended June 30, 2013:
Award Type
Number of Units
 
Weighted Average
Exercise Price
Options
926

 
$
20.80

Stock Appreciation Rights
3,846

 
$
15.40

The following shows the weighted average fair value of SARs outstanding at June 30, 2013: 
  
SARs
Weighted average fair value
$
4.05



15

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

The following table shows the options and SARs exercisable at June 30, 2013:
Options
Exercisable
 
Weighted
Average Exercise
Price
 
SARs
Exercisable
 
Weighted
Average Exercise
Price
256,336

 
$
32.92

 
65,019

 
$
14.21


16

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

NOTE 15 – DEFINED CONTRIBUTION AND 401(k) PLANS
Defined Contribution Plan
The Company provides a noncontributory defined contribution retirement plan for all eligible U.S. employees. Total contributions, which are based on a percentage of the salary of eligible employees, were $0.4 million and $0.5 million, for the three months ended June 30, 2013 and 2012, respectively. Total contributions for the six months ended June 30, 2013 and 2012 were $0.8 million and $1.0 million, respectively.
401(k) Plan
The Company maintains a retirement savings plan (which qualifies under Section 401(k) of the U.S. Internal Revenue Code) covering all eligible U.S. employees. Under the plan, employees may elect to contribute up to 100% of their cash compensation, subject to ERISA limitations. The Company adopted a Safe Harbor Tiered Match and is required to make matching contributions equal to 100% of the employee’s contribution up to 3% of the employee’s compensation plus matching contributions equal to 50% of the employee’s contribution up to an additional 2% of the employee’s compensation. Total plan expenses recognized in the Company’s consolidated financial statements for the three months ended June 30, 2013 and 2012 were $0.5 million and $0.5 million, respectively. Total plan expenses recognized in the Company’s consolidated financial statements for the six months ended June 30, 2013 and 2012 were $1.3 million and $1.1 million, respectively.
NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS
Palmarejo Gold Production Royalty
On January 21, 2009, the Company entered into a gold production royalty transaction with Franco-Nevada Corporation. The royalty covers 50% of the life of mine production from the Palmarejo mine and adjacent properties. The royalty transaction included a minimum obligation of 4,167 ounces per month that ends when payments have been made on a total of 400,000 ounces of gold. As of June 30, 2013, a total of 170,382 ounces of gold remain outstanding under the minimum royalty obligation.
The price volatility associated with the minimum royalty obligation is considered an embedded derivative financial instrument under U.S. GAAP. As such, the Company is required to recognize the change in fair value of the remaining minimum obligation due to the changing gold prices. Unrealized gains are recognized in periods when the forward gold price has decreased from the previous period and unrealized losses are recognized in periods when the forward gold price increases. The fair value of the embedded derivative is reflected net of the Company's current credit adjusted risk free rate, which was 7.0% and 4.2% at June 30, 2013 and December 31, 2012, respectively. The fair value of the embedded derivative at June 30, 2013 and December 31, 2012, based on forward gold prices averaging approximately $1,243 and $1,694 per ounce, respectively, was a liability of $52.3 million and $145.1 million, respectively. During the three months ended June 30, 2013 and 2012, mark-to-market adjustments for this embedded derivative amounted to a gain of $69.2 million and $25.1 million, respectively. During the six months ended June 30, 2013 and 2012, mark-to-market adjustments for this embedded derivative amounted to a gain of $92.7 million and $12.7 million, respectively.
Payments on the royalty obligation occur monthly resulting in a decrease to the carrying amount of the minimum obligation and the derivative liability and the recognition of realized gains or losses as a result of changing prices for gold. Each monthly payment is an amount equal to the greater of the minimum of 4,167 ounces of gold or 50% of the actual gold production per month 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). For the three months ended June 30, 2013 and 2012, realized losses on settlement of the liabilities were $8.1 million and $11.0 million, respectively. For the six months ended June 30, 2013 and 2012, realized losses on settlement of the liabilities were $17.2 million and $24.2 million, respectively. The mark-to-market adjustments and realized losses are included in fair value adjustments, net in the consolidated statement of operations.
Forward Foreign Exchange Contracts
The Company periodically enters into forward foreign currency contracts to reduce the foreign exchange risk associated with forecasted Mexican peso (“MXN”) operating costs at its Palmarejo mine. At June 30, 2013, the Company had MXN foreign exchange contracts of $32.7 million in U.S. dollars. These contracts require the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 12.65 MXN to each U.S. dollar over the next nine months. At December 31, 2012, the Company had MXP foreign exchange contracts of $26.1 million in U.S. dollars. These contracts required the Company to exchange U.S. dollars for MXN at a weighted average exchange rate of 13.11 MXN to each U.S. dollar and the Company had a liability with a fair value of $0.1 million at December 31, 2012. In addition, at June 30, 2013, the Company had outstanding call options requiring it to sell $6.0 million in U.S. dollars in exchange for MXP at a weighted average strike price of 15.50 MXP to each U.S. dollar if the foreign exchange rate exceeds the strike price. Further, at June 30, 2013, the Company had outstanding put options allowing it to buy $6.0 million in U.S. dollars in exchange for MXP at a weighted average strike price of 12.50 MXP to each U.S. dollar if the foreign exchange rate exceeds the strike price. The Company had a liability with a fair value of $1.4 million at June 30,

17

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

2013. The Company recorded mark-to-market losses on these contracts of $2.3 million and $1.5 million for the three and six months ended June 30, 2013, respectively. The Company recorded mark-to-market gains on these contracts of $0.1 million and $2.8 million for the three and six months ended June 30, 2012, respectively. These mark-to-market adjustments are reflected in fair value adjustments, net in the consolidated statement of operations. The Company recorded realized gains of $0.2 million and $0.8 million in production costs applicable to sales during the three and six months ended June 30, 2013, respectively. The Company recorded realized losses of $1.2 million and $1.9 million in the three and six months ended June 30, 2012, respectively, which have been recognized in production costs applicable to sales.
In connection with an arrangement agreement entered into with Orko Silver Corp., the Company entered into a foreign currency contract in the first quarter of 2013 to reduce the foreign exchange risk associated with forecasted Canadian dollars ("CAD"). Please see Note 8 - ACQUISITION OF ORKO SILVER CORPORATION/LA PRECIOSA MINERAL INTERESTS for additional information. This contract allowed the Company to exchange U.S. dollars for CAD at an exchange rate of 1.0 CAD to each U.S. dollar if the CAD exchange rate exceeded par. The contract expired unexercised in the second quarter. The Company recorded a mark-to-market gain on this contract of $1.6 million for the three months ended June 30, 2013, reversing the loss recognized in the first quarter. This mark-to-market adjustment is reflected in fair value adjustments, net in the consolidated statement of operations.
Concentrate Sales Contracts
The Company enters into concentrate sales contracts with third-party smelters. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. The provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates at the forward price at the time of sale. The embedded derivative, which is the final settlement price based on a future price, does not qualify for hedge accounting. These embedded derivatives are recorded as derivative assets (in Prepaid expenses and other) or derivative liabilities (in Accrued liabilities and other) on the balance sheet and are adjusted to fair value through earnings each period until the date of final settlement. At June 30, 2013, the Company had outstanding provisionally priced sales of $29.5 million, consisting of 0.3 million ounces of silver and 15,589 ounces of gold, which had a fair value of $28.4 million including the embedded derivative. At December 31, 2012, the Company had outstanding provisionally priced sales of $33.2 million consisting of 0.4 million ounces of silver and 11,957 ounces of gold, which had a fair value of approximately $34.1 million including the embedded derivative.
Commodity Derivatives
As of June 30, 2013, the Company had outstanding call options requiring it to deliver 87,000 ounces of gold at a weighted average strike price of $1,964.20 per ounce if the market price of gold exceeds the strike price. At June 30, 2013, the Company had outstanding put options allowing it to sell 97,000 ounces of gold at a weighted average strike price of $979.79 per ounce if the market price of gold were to fall below the strike price. The contracts expire over the next three years. At December 31, 2012, the Company had outstanding call options requiring it to deliver 97,000 ounces of gold at a weighted average strike price of $1,967.89 per ounce if the market price of gold exceeds the strike price. At December 31, 2012, the Company had outstanding put options allowing it to sell 122,000 ounces of gold at a weighted average strike price of $967.86 per ounce if the market price of gold were to fall below the strike price. As of June 30, 2013 and December 31, 2012, the fair market value of these contracts was a net asset of $2.4 million and a net liability of $9.3 million, respectively. During the three and six months ended June 30, 2013, 12,500 and 25,000 ounces of gold put options, respectively, expired at a weighted average strike price of $921.60 per ounce, resulting in a realized loss of $0.5 million and $1.1 million, respectively. During the three and six months ended June 30, 2013, 5,000 and 10,000 ounces of gold call options, respectively, at a weighted average strike price of $2,000.00 expired. During the three months ended June 30, 2013 and 2012, the Company recorded unrealized gains of $6.9 million and $4.5 million, respectively, related to the outstanding options which was included in fair value adjustments, net in the consolidated statement of operations. During the six months ended June 30, 2013 and 2012, the Company recorded unrealized gains of $11.7 million and $4.7 million, respectively, related to the outstanding options which was included in fair value adjustments, net in the consolidated statement of operations.

18

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

As of June 30, 2013, the Company had the following derivative instruments that settle in each of the years indicated in the table (in thousands except average prices, ounces and notional data):
 
 
2013
 
2014
 
2015
 
Thereafter
Palmarejo gold production royalty
$
14,750

 
$
24,895

 
$
24,691

 
$
20,069

Average gold price in excess of minimum contractual deduction
$
502

 
$
498

 
$
492

 
$
490

Notional ounces
29,389

 
50,004

 
50,004

 
40,985

Mexican peso forward purchase contracts
$
20,700

 
$
12,000

 
$

 
$

Average rate (MXP/$)
$
12.90

 
$
12.21

 
$

 
$

Mexican peso notional amount
267,119

 
146,460

 

 

Mexican peso put options purchased
$

 
$
6,000

 
$

 
$

Average strike price (MXP/$)
$

 
$
12.50

 
$

 
$

Mexico peso notional amount

 
75,000

 

 

Mexican peso call options sold
$

 
$
6,000

 
$

 
$

Average strike price (MXP/$)
$

 
$
15.50

 
$

 
$

Mexico peso notional amount

 
93,000

 

 

Silver concentrate sales agreements
$
7,249

 
$

 
$

 
$

Average silver price
$
23.92

 
$

 
$

 
$

Notional ounces
302,990

 

 

 

Gold concentrates sales agreements
$
22,252

 
$

 
$

 
$

Average gold price
$
1,427

 
$

 
$

 
$

Notional ounces
15,589

 

 

 

Gold put options purchased
$
720

 
$
720

 
$

 
$

Average gold strike price
$
936

 
$
979

 
$
1,010

 
$

Notional ounces
20,000

 
47,000

 
30,000

 

Gold call options sold
$

 
$
720

 
$

 
$

Average gold strike price
$
2,000

 
$
1,934

 
$
2,000

 
$

Notional ounces
10,000

 
47,000

 
30,000

 


The following summarizes the classification of the fair value of the derivative instruments as of June 30, 2013 and December 31, 2012 (in thousands):
 
June 30, 2013
 
Prepaid
expenses and
other
 
Other long-term assets
 
Accrued
liabilities and
other
 
Current
portion of
royalty
obligation
 
Non-current
portion of
royalty
obligation
Foreign exchange contracts Peso
$
12

 
$

 
$
1,457

 
$

 
$

Palmarejo gold production royalty

 

 

 
17,759

 
34,600

Put and call options, net
50

 
2,308

 

 

 

Concentrate sales contracts
20

 

 
1,128

 

 

 
$
82

 
$
2,308

 
$
2,585

 
$
17,759

 
$
34,600


19

Coeur Mining, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited) - (Continued)

 
December 31, 2012
 
Prepaid
expenses and
other
 
Accrued
liabilities and
other
 
O