UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  For the quarterly period ended June 30, 2004.

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   1-8641


COEUR D'ALENE MINES CORPORATION

(Exact name of registrant as specified in its charter)


Idaho


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


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     X         No          

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 under the Exchange Act).
     Yes     X         No          

Applicable only to corporate issuers: Indicate the number of shares outstanding of each of Issuer's classes of common stock, as of the latest practicable date: Common stock, par value $1.00, of which 213,260,559 shares were issued and outstanding as of August 13, 2004.


COEUR D’ALENE MINES CORPORATION

INDEX

Page
PART I Financial Information  
 
Item 1. Financial Statements  
 
Consolidated Balance Sheets –
June 30, 2004 and December 31, 2003
 
Consolidated Statements of Operations and Comprehensive Loss –
Three and Six Months Ended June 30, 2004 and 2003
 
Consolidated Statements of Cash Flows –
Three and Six Months ended June 30, 2004 and 2003
 
Notes to Consolidated Financial Statements
 
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk 39 
 
Item 4. Controls and Procedures 40 
 


PART II


Other Information
 
Item 2. Changes in Securities, Use of Proceeds and Issuers Purchases of
Equity Securities 42 
 
Item 4. Submission of Matters to a Vote of Security Holders  
 
Item 6. Exhibits and Reports on Form 8-K 42 
 

Signatures

44 
 
Certifications of CEO and CFO 45 






2



COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)


June 30,
2004

December 31,
2003

(In Thousands)
ASSETS        

CURRENT ASSETS
  
    Cash and cash equivalents   $ 164,859   $ 62,417  
    Short-term investments    62,000    19,265  
    Receivables    10,169    8,103  
    Ore on leach pad    17,104    17,388  
    Metal and other inventory    15,419    12,535  
    Prepaid expenses and other    2,102    3,067  


     271,653    122,775  
PROPERTY, PLANT AND EQUIPMENT  
    Property, plant and equipment    83,171    87,546  
    Less accumulated depreciation    (50,604 )  (52,868 )


     32,567    34,678  
MINING PROPERTIES  
    Operational mining properties    115,580    114,018  
    Less accumulated depletion    (95,555 )  (90,245 )


     20,025    23,773  
    Mineral interests    20,125    20,125  
    Non-producing and development properties    25,121    25,121  


     65,271    69,019  
OTHER ASSETS  
    Non-current ore on leach pad    22,673    14,705  
    Restricted investments    10,860    8,710  
    Debt issuance costs, net    5,916    87  
    Marketable securities    24    19  
    Other    10,144    9,474  


     49,617    32,995  


         Total assets   $ 419,108   $ 259,467  




See notes to consolidated financial statements.



3



COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)


June 30,
2004

December 31,
2003

(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY            

CURRENT LIABILITIES
  
    Accounts payable   $ 7,922   $ 7,772  
    Accrued liabilities    6,550    5,218  
    Accrued interest payable    1,048    120  
    Accrued salaries and wages    4,538    5,705  
    Current portion of remediation costs    715    1,278  
    Current portion of bank financing    --    2,367  


     20,773    22,460  
LONG-TERM LIABILITIES  
    1 1/4% Convertible Senior Notes due January 2024    180,000    --  
    7 1/4% Convertible Subordinated Debentures due October 2005    --    9,563  
    Reclamation and mine closure    21,680    20,934  
    Other long-term liabilities    6,937    9,032  


     208,617    39,529  
SHAREHOLDERS' EQUITY  
    Common Stock, par value $1.00 per share-authorized 250,000,000 shares, issued  
        214,319,770 and 214,195,186 at June 30, 2004 and December 31, 2003  
        (1,059,211 shares held in treasury at both dates, respectively)    214,320    214,195  
    Additional paid-in capital    542,942    542,900  
    Accumulated deficit    (552,117 )  (545,050 )
    Shares held in treasury    (13,190 )  (13,190 )
    Accumulated other comprehensive loss    (2,237 )  (1,377 )


     189,718    197,478  


TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 419,108   $ 259,467  




See notes to consolidated financial statements.



4



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES


Three Months ended June 30,
Six Months ended June 30,
2004
2003
2004
2003
(In Thousands, except per share data)
REVENUES                    
Sales of metal   $ 26,381   $ 26,071   $ 56,031   $ 54,609  
Interest and other    733    483    86    745  




         Total revenues    27,114    26,554    56,117    55,354  

COSTS AND EXPENSES
  
Production    16,366    19,013    33,316    36,891  
Depreciation and depletion    4,773    4,679    9,619    9,698  
Administrative and general    3,066    2,409    6,674    5,465  
Exploration    3,041    1,127    4,985    2,214  
Pre-development    4,037    390    5,651    766  
Interest    657    2,015    1,595    4,023  
Other holding costs    588    945    1,344    1,568  
Loss on exchange and early retirement of debt    --    81    --    28,188  




         Total cost and expenses    32,528    30,659    63,184    88,813  




LOSS FROM CONTINUING OPERATIONS BEFORE TAXES AND  
  BEFORE TAXES AND CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING PRINCIPLE
    (5,414 )  (4,105 )  (7,067 )  (33,459 )
Income tax benefit    --    --    --    7




NET LOSS BEFORE CUMULATIVE EFFECT IN   
  CHANGE IN ACCOUNTING PRINCIPLE    (5,414 )  (4,105 )  (7,067 )  (33,452 )
Cumulative effect of change in accounting
  principle
    --    --    --    (2,306 )




Net loss    (5,414 )  (4,105 )  (7,067 )  (36,155 )
Other comprehensive loss    (652 )  (100 )  (860 )  (397 )




COMPREHENSIVE LOSS   $ (6,066 ) $ (4,205 ) $ (7,927 ) $ (36,155 )




BASIC AND DILUTED LOSS PER SHARE:  
Weighted average number of shares of common   
  stock outstanding    213,249    143,888    213,195    138,724  




Net loss per common share before cumulative   
  effect of change in accounting principle   $ (0.03 ) $ (0.03 ) $ (0.03 ) $ (0.24 )
Cumulative effect of change in accounting
  principle
    --    --    --    (0.02 )




Net loss per common share   $ (0.03 ) $ (0.03 ) $ (0.03 ) $ (0.26 )






See notes to consolidated financial statements.



5


COEUR D’ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)

Three Months ended June 30,
Six Months ended June 30,
2004
2003
2004
2003
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:                    
Net loss   $ (5,414 ) $ (4,105 ) $ (7,067 ) $ (35,758 )
Add (deduct) non-cash items:  
    Depreciation and depletion    4,773    4,679    9,619    9,698  
    Loss on early retirement of debt    --    81    --    28,188  
    (Gain) loss on embedded derivative    2,884    (285 )  1,756    669  
    Non-cash interest expense    --    2    --    1,103  
    Cumulative effect of change in accounting principle    --    --    --    2,306  
    Compensation expense on restricted stock    106    --    673    --  
    Other charges    401    491    1,196    732  
Changes in Operating Assets and Liabilities:  
    Receivables    1,369    (1,680 )  (2,065 )  (3,364 )
    Prepaid expenses and other    383    661    819    695  
    Inventories    (4,898 )  (2,543 )  (9,548 )  (5,237 )
    Accounts payable and accrued liabilities    1,359    (292 )  (2,495 )  (3,369 )
    CASH PROVIDED BY (USED IN) OPERATING
      ACTIVITIES
    963    (2,991 )  (7,112 )  (4,337 )




CASH FLOWS FROM INVESTING ACTIVITIES:  
    Purchases of short-term investments    (6,735 )  (32,203 )  (58,842 )  (72,953 )
    Proceeds from sales of short-term investments    3,120    51,790    12,710    71,510  
    Expenditures on mining assets    (1,646 )  (4,447 )  (3,126 )  (7,711 )
    Other    22    (37 )  237    (87 )




    CASH (USED IN) PROVIDED BY INVESTING
      ACTIVITIES
    (5,239 )  15,103    (49,021 )  (9,241 )

CASH FLOWS FROM FINANCING ACTIVITIES:
  
    Retirement of long-term debt    --    (22,392 )  (9,561 )  (22,392 )
    Retirement of building loan    --    --    (1,200 )  --  
    Proceeds from issuance of subordinated notes    --    --    180,000  
    Debt issuance costs    --    (270 )  (6,097 )  33,268  
    Proceeds from issuance of common stock    --    11,500    --    11,500  
    Bank Borrowings on working capital facility    --    4,447    6,056    16,603  
    Payments to Bank on working capital facility    (2,727 )  (5,126 )  (8,423 )  (14,904 )
    Common stock repurchase    --    --    (793 )  --  
    Other    (1,452 )  (32 )  (1,407 )  (63 )




    CASH (USED IN) PROVIDED BY  
         FINANCING ACTIVITIES:    (4,179 )  (11,873 )  158,575    24,012  




INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS
    (8,455 )  239    102,442    10,434  
    Cash and cash equivalents at beginning of period    173,314    19,288    62,417    9,093  




    Cash and cash equivalents at end of period   $ 164,859   $ 19,527   $ 164,859   $ 19,527  





See notes to consolidated financial statements.


6



Coeur d’Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)


NOTE A – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Coeur d'Alene Mines Corporation (“Coeur” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2003.











7



NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Principles of Consolidation: The consolidated financial statements include the wholly-owned subsidiaries of the Company, the most significant of which are Coeur Rochester, Inc., Coeur Silver Valley, Inc., Coeur Alaska, Inc., CM Cerro Bayo Ltd., Compania Minera Polimet S.A. and Empressa Minera Manquiri S.R.L. The consolidated financial statements also include all entities in which voting control of more than 50% is held by the Company. The Company has no investments in entities in which it has greater than 50% ownership interest accounted for using the equity method. Intercompany balances and transactions have been eliminated in consolidation. Investments in corporate joint ventures where the Company has ownership of 50% or less and funds its proportionate share of expenses are accounted for under the equity method. The Company has no investments in entities in which it has greater than 20% ownership interest accounted for using the cost method.

        Revenue Recognition: Revenue is recognized when title to silver and gold passes to the buyer and when collectibility is reasonably assured. The passing of title and to the customer is based on the terms of the sales contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets for example, the London Bullion Market, an active and freely traded commodity market, for both gold and silver, in an identical form to the product sold.

        Under our concentrate sales contracts with third-party smelters, final gold and silver prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market metal prices. Revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on the average applicable price for a specified future period, and generally occurs from three to six months after shipment. Final sales are settled using smelter weights, settlement assays (average of assays exchanged and/or umpire assay results) and are priced as specified in the smelter contract. The Company’s provisionally priced sales contain an embedded derivative that is required to be seperated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative, does not qualify for hedge accounting. The embedded derivative is recorded as a derivative asset in Prepaid expenses and other, or a derivative liability on the balance sheet and is adjusted to fair value through revenue each period until the date of final gold and silver settlement. The form of the material being sold, after deduction for smelting and refining is in an identical form to that sold on the London Bullion Market. The form of the product is metal in flotation concentrate, which is the final process for which the company is responsible.

        The effects of forward sales contracts are reflected in revenue at the date the related precious metals are delivered or the contracts expire. Third party smelting and refining costs are recorded as a reduction of revenue.











8



At June 30, 2004 the Company had outstanding provisionally priced sales of $30.5 million consisting of 3.3 million ounces of silver, 20,320 ounces of gold and 994,285 pounds of copper. For each one cent per ounce change in realized silver price, revenue would vary (plus or minus) approximately $33,00; for each one dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately $20,000; and for each one cent per pound change in realized copper price, revenue would vary (plus or minus) approximately $10,000. At December 31, 2003, the Company had outstanding provisionally priced sales of $32.8 million consisting of 3.7 million ounces of silver, 37,487 ounces of gold and 681,196 pounds of copper. For each one cent per ounce change in realized silver price, revenue would vary (plus or minus) approximately $37,000; for each one dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately $37,000; and for each one cent per pound change in realized copper price, revenue would vary (plus or minus) approximately $7,000.

        Cash and Cash Equivalents: Cash and cash equivalents include all highly-liquid investments with a maturity of three months or less at the date of purchase. The Company minimizes its credit risk by investing its cash and cash equivalents with major international banks and financial institutions located principally in the United States and Chile with a minimum credit rating of A1 as defined by Standard & Poor’s. The Company’s management believes that no concentration of credit risk exists with respect to investment of its cash and cash equivalents.

        Short-term Investments: Short-term investments principally consist of highly-liquid United States, foreign government and corporate securities with original maturities in excess of three months and less than one year. The Company classifies all short-term investments as available-for-sale securities. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of shareholders’ equity. Any decline in market value considered to be other than temporary is recognized in determining net income. Realized gains and losses from the sale of these investments are included in determining net income/(loss).

        Ore on Leach Pad: The heap leach process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes.

        The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which is assayed to determine estimated quantities of contained metal. The Company estimates the quantity of ore by utilizing global positioning satellite survey techniques. The Company then processes the ore through a crushing facility where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to dorè, which is the final product produced by the mine. The inventory is stated at lower of cost or market, with cost being determined using the first-in, first-out and weighted average cost methods.






9



        The Company reported ore on leach pads of $39.8 million as of June 30, 2004. Of this amount, $17.1 million is reported as a current asset and $22.7 million is reported as a non-current asset. The distinction between current and non-current is based upon the expected length of time necessary for the leaching process to remove the metals from the broken ore. The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that will be extracted beyond twelve months is classified as non-current.

        The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates which are inherently inaccurate since they rely upon laboratory testwork. Testwork consists of 60 day leach columns from which the Company projects metal recoveries up to five years in the future. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over approximately fifteen years of leach pad operations at the Rochester Mine. The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The length of time necessary to achieve ultimate recoveries for silver and gold is currently estimated between 5 and 10 years. The estimated recoveries for silver and gold used are 61.5% and 93%, respectively. However, the ultimate recovery will not be known until leaching operations cease which is currently estimated for 2011.

        Metal and Other Inventory: Inventories include concentrate ore, dorè, ore in stockpiles and operating materials and supplies. The classification of inventory is determined by the stage at which the ore is in the production process. Inventories of ore in stock piles are sampled for gold and silver content and are valued based on the lower of actual costs incurred or estimated net realizable value based upon the period ending prices of gold and silver. Material that does not contain a minimum quantity of gold and silver to cover estimated processing expense to recover the contained gold and silver is not classified as inventory and is assigned no value. All inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out and weighted average cost methods. Concentrate and doré inventory includes product at the mine site and product held by refineries and are also valued at lower of cost or market.

        Property, Plant, and Equipment: Expenditures for new facilities, new assets or expenditures that extend the useful lives of existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such facilities or the useful life of the individual assets. Productive lives range from 7 to 31 years for buildings and improvements, 3 to 13 years for machinery and equipment and 3 to 7 years for furniture and fixtures. Certain mining equipment is depreciated using the units-of-production method based upon estimated total proven and probable reserves. Maintenance and repairs are expensed as incurred.

        Operational Mining Properties and Mine Development: Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically and legally extracted as a result of establishing proven and probable reserves, the costs incurred to develop such property including costs to further delineate the ore body and remove over burden to initially expose the ore body, are capitalized. Such costs are amortized using the units-of-production method over the estimated life of the ore body based on proven and probable reserves. Significant payments related to the acquisition of the land and mineral rights are capitalized as incurred. Prior to acquiring such land or mineral rights the Company generally makes a preliminary evaluation to determine that the property has significant potential to develop an economic ore body. The time between initial acquisition and full evaluation of a property’s potential is variable and is determined by many factors including: location relative to existing infrastructure, the property’s stage of development, geological controls and metal prices. If a mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on proven and probable reserves. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value. Interest expense allocable to the cost of developing mining properties and to construct new facilities is capitalized until assets are ready for their intended use. Gains or losses from sales or retirements of assets are included in other income or expense.


10



        Mineral Interests: Significant payments related to the acquisition of mineral rights are capitalized as incurred. The Company classifies mineral interests as tangible assets based on the consensus in EITF Issue No. 04-2, “Whether Mineral Rights Are Tangible or Intangible Assets”. Accordingly, use rights are accounted for based on their substance. The time between initial acquisition and full evaluation of a property’s potential is variable and is determined by many factors including: location relative to existing infrastructure, the property’s stage of development, geological controls and metal prices. If a mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on proven and probable reserves. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value.

        Asset Impairment: Management reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company utilizes the methodology set forth in Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to evaluate the recoverability of capitalized mineral property costs. An impairment is considered to exist if total estimated future cash flows or probability-weighted cash flows on an undiscounted basis, is less than the carrying amount of the assets, including property plant and equipment, mineral property, development property, and any deferred costs such as deferred stripping. An impairment loss is measured and recorded based on discounted estimated future cash flows or the application of an expected present value technique to estimate fair value in the absence of a market price. Future cash flows include estimates of proven and probable recoverable ounces, gold and silver prices (considering current and historical prices, price trends and related factors), production levels, capital and reclamation costs, all based on detailed engineering life-of-mine plans. Assumptions underlying future cash flow estimates are subject to risks and uncertainties. Any differences between significant assumptions and market conditions and/or the Company’s performance could have a material effect on the Company’s financial position and results of operations. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of cash flows from other groups. Generally, in estimating future cash flows, all assets are grouped at a particular mine for which there is identifiable cash flow.

        Restricted Investments: The Company, under the terms of its lease, self insurance, and bonding agreements with certain banks, lending institutions, insurance companies and regulatory agencies, is required to collateralize certain portions of the Company’s obligations. The Company has collateralized these obligations by assigning certificates of deposit that have maturity dates ranging from three months to a year, to the respective institutions or agency. At June 30, 2004 and December 31, 2003, the Company had certificates of deposit under these agreements of $10.9 million and $8.7 million, respectively, restricted for this purpose. The ultimate timing for the release of the collateralized amounts is dependent on the timing and closure of each mine. In order to release the collateral, the Company must seek approval from certain government agencies responsible for monitoring the mine closure status. Collateral could also be released to the extent the Company was able to secure alternative financial assurance satisfactory to the regulatory agencies. The Company believes there is a reasonable probability that the collateral will remain in place beyond a twelve-month period and has therefore classified these investments as long-term.





11



        Deferred Stripping Costs: Deferred stripping costs are unique to the mining industry and are determined based on the Company’s estimates for the life of mine strip ratio for each mine. These costs are capitalized in periods when the life of mine ratio is below the current mining strip ratio, and amortized during periods where the life of mine strip ratio is above the current strip ratio. The Rochester mine is the only mine that has previously capitalized deferred stripping costs. The life of mine strip ratio that was used to accumulate the deferred stripping amounts was 1.8 to 1 (waste to ore) and was based on the estimated average stripping ratio for the life of the mine, compared to the then current ratio of 2.2 to 1 (waste to ore). The deferred stripping costs have been amortized as waste and ore have been removed from the Rochester mine pit. At present the remaining life of mine plan estimates the future stripping ratio as 1.1 to 1 (waste to ore), and the remaining costs will be amortized over the remaining life of the mine. At June 30, 2004 and December 31, 2003, the carrying amount of the deferred stripping costs were $1.0 million and $1.2 million, respectively, and are included in other assets in the accompanying balance sheet. No additional deferred stripping costs were capitalized during the periods presented. Based on current reserves and current production levels, complete amortization should occur in less than four years. The amounts that were amortized for the three and six months ended June 30, 2004 were $0.1 million and $0.2 million, respectively, and the amounts that were amortized for the three and six months ended June 30, 2003 were $0.1 million and $0.2 million, respectively.

        Reclamation and Remediation Costs: Estimated future reclamation and remediation costs are based principally on legal and regulatory requirements. The Company measured the cumulative accretion and accumulated depreciation for the period from the date the liability would have been recognized if SFAS No. 143, “Accounting for Asset Retirement Obligations”, was in effect when the Company incurred the liability to the date of the adoption of SFAS No. 143 and has reported these as a cumulative effect of a change in accounting principle. For the initial measurement of these existing obligations we have used current information, assumptions, and interest rates.

        The asset retirement obligation is measured using assumptions for cash outflows such as expected labor costs, allocated overhead and equipment charges, contractor markup and inflation adjustments to determine the total obligation.

        The sum of all these costs was discounted, using the credit adjusted risk-free interest rate (at the time of the estimate the assumption of 7.5% was used), from the time we expect to pay the retirement obligation to the time we incur the obligation. The measurement objective is to determine the amount a third party would demand to assume the asset retirement obligation.

        Upon initial recognition of a liability for an asset retirement obligation, the Company capitalizes the asset retirement cost with a corresponding debit to the carrying amount of the related long-lived asset. The Company will deplete this amount to operating expense using the units-of-production method. The Company evaluates the cash flow estimates at the end of each reporting period to determine whether the estimates continue to be appropriate. Upward revisions in the amount of undiscounted cash flows will be discounted using the current credit-adjusted risk-free rate. Downward revisions will be discounted using the credit-adjusted risk-free rate that existed when the original liability was recorded.

        Foreign Currency: Substantially all assets and liabilities of foreign subsidiaries are translated at exchange rates in effect at the date of the transaction or at end of each period. Revenues and expenses are translated at the average exchange rate for the period. Foreign currency transaction gains and losses are included in the determination of net income/(loss).

        Derivative Financial Instruments: On January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (as amended by SFAS No. 137) and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” These Statements require recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings (loss) or other comprehensive income (loss) (OCI). Appropriate accounting for changes in the fair value of derivatives held is dependent on whether the derivative transaction qualifies as an accounting hedge and on the classification of the hedge transaction.



12



        For derivative instruments that are designated and qualify as cash flow hedges, the effective portions of changes in fair value of the derivative are recorded in other comprehensive income (loss), and are recognized in the Statement of Consolidated Operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized currently in earnings. Refer to Note J – Derivative Financial Instruments and Fair Value of Financial Instruments.

Stock-based Compensation Plans: The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations, to account for its stock-based compensation plans. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation” established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans.

        Had compensation costs for the Company’s options been determined based on the fair value at the grant dates consistent with SFAS No. 123, the Company would have recorded the pro forma amounts presented below:

Three Months ended June 30,
Six Months ended June 30,
2004
2003
2004
2003
Net loss attributable to common shareholders                    
  as reported   $ (5,414 ) $ (4,105 ) $ (7,067 ) $ (35,758 )
Pro forma net loss   $ (5,866 ) $ (4,107 ) $ (7,441 ) $ (35,766 )
Basic and diluted net loss per share as reported   $ (0.03 ) $ (0.03 ) $ (0.03 ) $ (0.26 )
Basic and diluted pro forma net loss per share   $ (0.03 ) $ (0.03 ) $ (0.03 ) $ (0.26 )

        The provisions of SFAS 148 will not have a material impact on the Company, as it does not plan to adopt the fair-value method of accounting for stock options at the current time.

        Income Taxes: The Company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse.

        Comprehensive Income/(Loss): In addition to net income/(loss), comprehensive income includes all changes in equity during a period, except those resulting from investments by and distributions to owners. Items of comprehensive loss include the following:

Three Months Ended
Six Months Ended
June 30, 2004
June 30, 2003
June 30, 2004
June 30, 2003
Unrealized gain (loss) on marketable                    
  securities   $ (489 ) $ (234 ) $ (415 ) $ (452 )
Change in fair value of derivative  
   hedging, net of settlement    (163 )  134    (445 )  55  




Other comprehensive loss   $ (652 ) $ (100 ) $ (860 ) $ (397 )





        Net Income/(Loss) Per Share: Net loss per share is computed by dividing the net income/(loss) attributable to common stock by the weighted average number of common shares outstanding during each period. All stock options outstanding at each period end have been excluded from the weighted average share calculation. The effect of potentially dilutive stock options outstanding was antidilutive in the three months ended March 31, 2004 and 2003.



13



Detail of potentially dilutive shares excluded from earnings per share calculation due to antidilution:

June 30, 2003
June 30, 2004
Options      1,722,106    1,801,953  
1.25% Debentures  
   Convertible at $7.60    --    23,684,211  
7.25% Debentures  
   Convertible at $17.45    569,270    --  
9% Notes  
    Convertible at $1.60    23,220,307    --  
Total potentially  
   dilutive shares    25,511,983    25,486,164  

        Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Reclassifications: Certain reclassifications of prior year balances have been made to conform to current year presentation.

        Recent Accounting Pronouncements: On April 30, 2004, the FASB issued FAS 141-1 and 142-1, Interaction of FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets and EITF Issue No. 04-2, Whether Mineral Rights Are Tangible of Intangible Assets.

        The Board directed the FASB staff to issue this FASB Staff Position (FSP), which amends FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets.

        At the March 17–18, 2004 FASB Emerging Issues Task Force (EITF) meeting, the Task Force reached a consensus on EITF Issue No. 04-2, “Whether Mineral Rights Are Tangible or Intangible Assets,” that mineral rights, as defined in the Issue, are tangible assets. There is an inconsistency between this consensus that mineral rights are tangible assets and the characterization of mineral rights as intangible assets in Statements 141 and 142. This FSP amends Statement 141 and Statement 142 to address that inconsistency.

Effective Date and Transition

        The guidance in this FSP shall be applied to the first reporting period beginning after April 29, 2004. If the guidance in this FSP results in the recharacterization of an asset, prior-period amounts on the statements of financial position shall be reclassified. Any effects on amortization or depreciation of the asset shall be accounted for prospectively. Early application of this guidance is permitted in periods for which financial statements have not yet been issued.

        The Company adopted the provisions of FSP 141-1 and 142-1 as of March 31, 2004, which did not have an effect on the Company’s financial position or results of operations.



14



NOTE C - ORE ON LEACH PAD

        Ore on leach pad consists of the following:

June 30, 2004
December 31, 2003
           
Ore on leach pad - Current     $ 17,104   $ 17,388  
Ore on leach pad - Non-current    22,673    14,705  


       Total ore on leach pads   $ 39,777   $ 32,093  




NOTE D - METAL AND OTHER INVENTORY

        Inventories consist of the following:

June 30, 2004
December 31, 2003
           
Concentrate and dore inventory     $ 10,574   $ 7,980  
Supplies    4,845    4,555  


     Metal and other inventory   $ 15,419   $ 12,535  




NOTE E - INCOME TAXES

        The Company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has operating loss carryforwards which expire in 2008 through 2023 for U.S. carryforwards and indefinitely for foreign carryforwards. The Company has reviewed its net deferred tax assets and has not recognized potential tax benefits arising therefrom because at this time management believes it is more likely than not that the benefits will not be realized in future years. The amount recognized in the first quarter of 2003 relates to a cash refund received during that quarter.

NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION

        During the first quarter of 2003, holders of $2.8 million of the Series I 13 3/8% Convertible Senior Subordinated Notes due December 31, 2003 (the “Series I 13 3/8% Notes”) voluntarily converted such notes, in accordance with original terms, into approximately 2.1 million shares of common stock. In addition, 0.1 million shares of common stock were issued as payment for $0.2 million of interest expense on the Series I 13 3/8% Notes.

        During the first quarter of 2003, the Company purchased $26.9 million and $1.7 million principal amount of its outstanding 6 3/8% and 7 ¼% Convertible Subordinated Debentures, respectively, in exchange for 16.9 million shares of common stock and recorded a loss on exchange and early retirement of debt of approximately $28.1 million. In addition, 0.6 million shares of common stock were issued as payment for $0.9 million of interest expense as part of the transaction. In conjunction with the issuance of the 9% Convertible Senior Subordinated Notes, the Company also issued 0.6 million shares of common stock for partial payment of offering costs of $1.0 million.

        During the first quarter of 2003, the Company issued 1.2 million shares of common stock in conjunction with its long-term incentive program.



15



NOTE G - LONG-TERM DEBT

        On January 13, 2004 the Company completed its offering of $180 million aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (the “1.25% Notes”). The 1.25% Notes are convertible into shares of Coeur common stock at a conversion rate of approximately 131.5789 shares of Coeur common stock per $1,000 principal amount of Notes, representing a conversion price of $7.60 per share. Interest on the notes is payable in cash at the rate of 1.25% per annum beginning July 15, 2004. The Company intends to use the proceeds of the 1.25% Notes for general corporate purposes, which may include the development of its Kensington gold project and its San Bartolome silver project, which are pending the completion of updated feasibility studies and final construction decisions. The 1.25% Notes are general unsecured obligations, senior in right of payment to Coeur’s other indebtedness. The offering of the 1.25% Notes was made only by means of a prospectus under Coeur’s existing shelf registration statement.

        On March 11, 2004, the Company redeemed the remaining outstanding $9.6 million principal amount of the Company’s 7 ¼% Convertible Subordinated Debentures due October 15, 2005.

        In 2002, the Company secured a 10-year loan at an interest rate of 10% for the corporate office building, located at our headquarters in Coeur d’Alene, Idaho, utilizing the building as collateral for the loan. The amount of this loan outstanding at December 31, 2003 was $1.2 million and is included in other long-term liabilities in the accompanying consolidated financial statements. This loan was paid in full in February 2004.

NOTE H - SEGMENT REPORTING

        Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision making group is comprised of the Chief Executive Officer, the Chief Financial Officer and the Chief Operating Officer.

        The operating segments are managed separately because each segment represents a distinct use of Company resources and contribution to the Company’s cash flows in its respective geographic area. The Company’s reportable operating segments are the Rochester, Coeur Silver Valley and Cerro Bayo mining properties, the Kensington development property, and the Company’s exploration programs, which includes the San Bartolomé silver development property. All operating segments are engaged in the discovery and/or mining of gold and silver and generate the majority of their revenues from the sale of precious metal concentrates and/or refined precious metals. The Coeur Silver Valley and Cerro Bayo mines sell precious metal concentrates, typically under long term contracts to smelters located in Canada (Noranda Inc. and Teck Cominco Metals Ltd.) and Japan (Sumitomo Ltd. and DOWA Mining Company). Refined gold and silver produced by the Rochester mine is primarily sold on a spot basis to precious metal trading banks such as Standard Bank, Morgan Stanley, Mitsui and N.M. Rothschild.

        Intersegment revenues consist of precious metal sales to the Company’s metals marketing division and are transferred at the market value of the respective metal on the date of the transfer. The other segment includes earnings from unconsolidated subsidiaries accounted for by the equity method, the corporate headquarters, elimination of intersegment transactions and other items necessary to reconcile to consolidated amounts. Revenues in the other segment are generated principally from interest received from the Company’s cash and investments that are not allocated to the operating segments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K. The Company evaluates performance and allocates resources based on each segment’s profit or loss before interest, income taxes, depreciation and amortization, unusual and infrequent items, and extraordinary items.



16




SIX MONTHS ENDED JUNE 30, 2004 AND 2003

Segment Reporting
(In Thousands)


Three Months Ended June 30, 2004

Rochester
Mine

Galena
Mine

Cerro
Bayo
Mine

Exploration
Other
Total
                           
Total net sales and revenues   $ 26,618   $ 12,540   $ 16,499   $ 8   $ 452   $ 56,117  
Depreciation and depletion   $ 4,731   $ 954   $ 3,778   $ 25   $ 131   $ 9,619  
Interest income    --    --    --    --   $ 1,382   $ 1,382  
Interest expense   $ 1    --   $ 73    --   $ 1,521   $ 1,595  
Loss on forward sales contracts    --    --    --    --   $ 936   $ 936  
Profit (loss)   $ 11,389   $ 1,989   $ 3,827   $ (3,040 ) $ (9,081 ) $ 5,084  

Segment assets (A)
   $ 71,695   $ 10,339   $ 31,480   $ 20,940   $ 30,850   $ 165,304  
Capital expenditures for property   $ 578   $ 825   $ 1,248   $ 320   $ 155   $ 3,126  



Six Months Ended June 30, 2003

Rochester
Mine

Galena
Mine

Cerro
Bayo
Mine

Exploration
Other
Total
                           
Total net sales and revenues   $ 20,787   $ 9,344   $ 25,284   $ 52   $ (113 ) $ 55,354  
Depreciation and depletion   $ 2,705   $ 751   $ 6,102   $ 16   $ 124   $ 9,698  
Interest income    --    --    1    --   $ 157   $ 158  
Interest expense    --    --   $ 218    --   $ 3,805   $ 4,023  
Income tax (credit) expense    --    --    --    --   $ (7 ) $ (7 )
Gain on early retirement of debt    --    --    --    --   $ (28,188 ) $ (28,188 )
Profit (loss)   $ 3,187   $ (97 ) $ 13,158   $ (114 ) $ (7,684 ) $ 8,450  

Segment assets (A)
   $ 59,814   $ 10,927   $ 33,451   $ 515   $ 48,382   $ 153,089  
Capital expenditures for property   $ 4,294   $ 1,634   $ 1,587   $ 55   $ 141   $ 7,711  


Notes:
(A)   Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties















17



Segment Reporting Cont.
(In Thousands)

Six Months Ended June 30,
2004
2003
Income (Loss)            
Total loss from reportable segments   $ 5,084   $ 8,450  
Depreciation, depletion and amortization expense    (9,619 )  (9,698 )
Interest expense    (1,595 )  (4,023 )
Other    (937 )  (28,188 )


   Loss before income taxes and cumulative  
     effect of change in accounting principle   $ (7,067 ) $ (33,459 )



June 30,
2004
2003
Assets            
Total assets for reportable segments     $ 165,304   $ 153,089  
Cash and cash equivalents    164,859    19,527  
Short-term investments    62,000    301  
Other assets    26,945    23,381  


      Total consolidated assets   $ 419,108   $ 196,298  



Six Months Ended
Geographic Information
June 30, 2004
June 30, 2004
(In thousands)

Revenues (a)
Long-Lived
Assets

           
United States     $ 40,217   $ 62,069  
Chile    15,900    15,469  
Other Foreign Countries    --    20,300  


Consolidated Total   $ 56,117   $ 97,838  



Six Months Ended
June 30, 2003
June 30, 2003
Revenues
Long-Lived
Assets

United States     $ 30,379   $ 59,858  
Chile    24,708    16,939  
Other Foreign Countries    267    19,859  


Consolidated Total   $ 55,354   $ 96,656  



(a) Revenues are geographically separated based upon the country in which operations and the underlying assets generating those revenues reside.

The segment date for the Galena mine and the Cerro Bayo mine has been restated to correct an error in revenue recognition which resulted in an adjustment to revenues in the amount of $(303), and $180, respectively, and to segment assets in the amount of $272 and $213, respectively for the six months ended June 30, 2003.

18


THREE MONTHS ENDED JUNE 30, 2004 AND 2003

Three Months Ended June 30, 2004

Rochester
Mine

Galena
Mine

Cerro
Bayo
Mine

Exploration
Other
Total
Total net sales and revenues     $ 14,364   $ 3,248   $ 8,745   $ 17   $ 740   $ 27,114  
Depreciation and depletion    2,498    491    1,702    15    67    4,773  
Interest income    --    --    --    --    743    743  
Interest expense    --    --    35    --    709    744  
Income tax (credit) expense    --    --    --    --    --    --  
Loss on early retirement of debt    --    --    --    --    --    --  
Profit (loss)    6,913    (1,267 )  1,055    (1,492 )  (5,106 )  103  
Segment assets (A)    71,695    10,339    31,480    20,940    30,850    165,304  
Capital expenditures for property    578    825    1,248    320    155    3,126  

Three Months Ended June 30, 2003

Rochester
Mine

Galena
Mine

Cerro
Bayo
Mine

Exploration
Other
Total
Total net sales and revenues     $ 11,743   $ 4,873   $ 10,092   $ 72   $ (226 ) $ 26,554  
Depreciation and depletion    1,601    388    2,617    6    67    4,679  
Interest income    --    --    1    --    88    89  
Interest expense    --    --    117    --    1,899    2,016  
Loss on early retirement of debt    --    --    --    --    (81 )  (81 )
Profit (loss)    2,936    75    2,862    977    (4,179 )  2,671  
Segment assets (A)    59,814    10,927    33,451    515    48,382    153,089  
Capital expenditures for property    4,294    1,634    1,587    55    141    7,711  
  Notes: (A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties

Segment Reporting Cont.(In Thousands)

Three Months Ended June 30,
2004
2003
           
Income (Loss)            
Total loss from reportable segments   $ 103   $ 2,671  
Depreciation, depletion and amortization expense    (4,773 )  (4,679 )
Interest expense    (744 )  (2,016 )
Other    -    (81 )


     Loss before income taxes   $ (5,414 ) $ (4,105 )



June 30,
2004
2003
           
Assets            
Total assets for reportable segments   $ 165,304   $ 153,089  
Cash and cash equivalents    164,859    19,527  
Short-term investments    62,000    301  
Other assets    26,945    23,381  


      Total consolidated assets   $ 419,108   $ 196,298  



Geographic Information
(In thousands)
June 30, 2004 Revenues(a)
Long-Lived Assets
           
United States     $ 18,960   $ 62,069  
Chile    8,111    15,469  
Other Foreign Countries    43    20,300


Consolidated Total   $ 27,114   $ 97,838  



June 30, 2003 Revenues
Long-Lived Assets
United States     $ 16,751   $ 59,858  
Chile    9,723    16,939  
Other Foreign Countries    80    19,859  


Consolidated Total   $ 26,554   $ 96,656  



(a) Revenues are geographically separated based upon the country in which operations and the underlying assets generating those revenues reside.

19


NOTE I - RECLAMATION AND REMEDIATION

        Reclamation and remediation costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation cost for inactive properties. The estimated undiscounted cash flows generated by our assets and the estimated liabilities for reclamation and remediation are determined using the Company’s assumptions about future costs, mineral prices, mineral processing recovery rates, production levels and capital and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.

        The following is a description of the changes to the Company’s asset retirement obligations from January 1 to June 30, of 2004:

(in thousands)
Asset Retirement Obligation - January 1, 2004     $ 20,657  
Accretion    774  
Additions    --  
Settlements    (27 )

Asset Retirement Obligation - June 30, 2004   $ 21,404  



NOTE J - FINANCIAL DERIVATIVES AND FORWARD SALES CONTRACTS

        For the first six months of 2004, the Company recorded a realized loss of approximately $51,000 in connection with its foreign currency hedging program.

        The Company no longer has forward sales in its gold price protection program. In the first quarter of 2004, the Company closed out all of its forward sales positions and recorded a loss of $0.9 million in the first quarter of 2004.

        The following table summarizes the information at June 30, 2004 associated with the Company’s financial and derivative financial instruments that are sensitive to changes in interest rates, commodity prices and foreign exchange rates except as to provisionally priced sales of concentrates which are discussed below in the table. For long-term debt obligations, the table presents principal cash flows and related average interest rates. For foreign currency exchange contracts, the table presents the notional amount in Chilean Peso’s to be purchased along with the average foreign exchange rate.

(dollars in thousands)
 2004

 2005

 2006

 2007

 2008

 Total

 Fair
 Value
 6/30/04



Liabilities
                               
   Long Term Debt (A)   
      Fixed Rate   --   --   --   --   --   $ 180,000   $ 180,000  
      Average Interest Rate    1.25 %  1.25 %  1.25 %  1.25 %  1.25 %      

     (A) Debt due 2024
  


Foreign Currency
  
   Contracts    
      Chilean Peso - USD     $ 3,830    --    --    --    --   $ 3,830   $ (315 )
      Exchange Rate    612    --    --    --    --    --      
      (CLP to USD)  




20



        At June 30, 2004, the Company had outstanding provisionally priced sales of $30.5 million, consisting of 3.3 million ounces of silver, 20,320 ounces of gold and 994,285 pounds of copper, which had a fair value of approx $29.7 million.

        Fair value is determined by trading information on or near the balance sheet date. Long term debt represents the face amount of the outstanding convertible debentures and timing of when these become due. Interest rates presented in the table are calculated using the weighted average of the outstanding face amount of each debenture for the period remaining in each period presented. All long term debt is denominated in US dollars.

NOTE K- LITIGATION AND OTHER EVENTS

Federal Natural Resources Action

        On March 22, 1996, an action was filed in the United States District Court for the District of Idaho by the United States against various defendants, including the Company, asserting claims under CERCLA and the Clean Water Act for alleged damages to federal natural resources in the Coeur d’Alene River Basin of Northern Idaho. The damages are claimed to result from alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s.

        The Company and representatives of the U.S. Government, including the Environmental Protection Agency, the Department of Interior and the Department of Agriculture, reached an agreement to settle the lawsuit. The terms of settlement are set forth in a Consent Decree issued by the court. Pursuant to the terms of the Consent Decree, dated May 14, 2001, the Company has paid the U.S. Government a total of approximately $3.9 million, of which $3.3 million was paid in May 2001 and the remaining $.6 million was paid in June 2001. In addition, the Company will (i) pay the United States 50% of any future recoveries from insurance companies for claims for defense and indemnification under general liability insurance policies in excess of $0.6 million, and (ii) make a conveyance to the U.S. or the State of Idaho of certain real property to possibly be used as a waste repository. Commencing in 2006, the Company will be obligated to pay net smelter return royalties on its operating properties, up to a maximum of $3 million, amounting to a 2% net smelter royalty on silver production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce net smelter royalty on gold production if the price of gold exceeds $325 per ounce. The royalty payment obligation expires after 15 years commencing five years after May 14, 2001.

Private Property Damage Action

        On January 7, 2002, a private class action suit captioned Baugh v. Asarco, et al., was filed in Idaho State District Court for the First District (Docket No. 2002-131) in Kootenai County, Idaho. Defendants include mining companies and the Union Pacific Railroad Company which were defendants in the Bunker Hill natural resource damage litigation in the Coeur d’Alene Basin, including the Company. Plaintiffs are eight northern Idaho residents seeking medical monitoring and real property damages from the mining companies and the railroad who operated in the Bunker Hill Superfund site. In October 2002, the court conducted a hearing on motions resulting in an order striking certain of the alleged causes of action from the complaint, and dismissing the complaint with leave to amend it. In January 2003, the plaintiffs filed an amended complaint. The court dismissed the amended complaint with leave to amend. In May 2003 a second amended complaint was filed. The Company filed a motion for summary judgment, which was heard on July 14, 2004. The court has the matter under advisement. While the Company believes the suit is without merit, at this stage of the proceedings, the Company cannot predict the outcome of this suit.

States of Maine, Idaho And Colorado Superfund Sites Related to Callahan Mining Corporation

        During 2001, the United States Forest Service made a formal request for information regarding the Deadwood Mine Site located in central Idaho. Callahan Mining Corporation had operated at this site during the 1940‘s. The Forest Service believes that some cleanup action is required at the location. However, Coeur d’Alene Mines Corporation did not acquire Callahan until 1991, more than 40 years after Callahan disposed of its interest in the Deadwood property. The Company did not make any decisions with respect to generation, transport or disposal of hazardous waste at the site. Therefore, it is believed that the Company is not liable for any cleanup, and if Callahan might be liable, it has no substantial assets with which to satisfy any such liability. To date no claim has been made by the United States for any dollar amount of cleanup costs against either the Company or Callahan.



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        During 2002, the EPA made a formal request for information regarding a Callahan mine site in the State of Maine. Callahan operated there in the late 1960‘s, shut the operations down in the early 1970‘s and disposed of the property. The EPA contends that some cleanup action is warranted at the site, and listed it on the National Priorities List in late 2002. The Company believes that because it made no decisions with respect to generation, transport or disposal of hazardous waste at this location, it is not liable for any cleanup costs. If Callahan might have liability, it has no substantial assets with which to satisfy such liability. To date, no claim has been made for any dollar amount of cleanup costs against either the Company or Callahan.

        In January 2003, the U.S. Forest Service made a formal request for information regarding a Callahan mine site in the State of Colorado known as the Akron Mine Site. Callahan operated there in approximately the late 1930s through the 1940s, and to the Company’s knowledge, disposed of the property. The Company is not aware of what, if any, cleanup action the Forest Service is contemplating. However, the Company did not make decisions with respect to generation, transport or disposal of hazardous waste at this location, and therefore believes it is not liable for any cleanup costs. If Callahan might have liability, it has no substantial assets with which to satisfy such liability. To date, no claim has been made for any dollar amount of cleanup costs against either the Company or Callahan.

Suit By Credit Suisse First Boston

        On December 2, 2003, suit was filed by Credit Suisse First Boston against the Company in the United States District Court for the Southern District of New York (Docket No. 03 Civ 9547). The plaintiff alleges that the Company breached a contract between the parties providing for services to be furnished by the plaintiff to the defendant. Plaintiff alleges that it is entitled to damages in the amount of $2,400,000 attributed to the breach. The Company believes it did not breach the contract and that it is not liable. However, at this early stage of the proceedings the outcome of the suit cannot be predicted.

NOTE L - SUBSEQUENT EVENT

        On July 13, 2004 the Company announced that it has commenced mailing its tender offer documents to the shareholders of Wheaton River Minerals Ltd. (TSX:WRM, AMEX:WHT). In connection with its offer, Coeur filed a Registration Statement on Form S-4 with the U.S. Securities and Exchange Commission on July 13, 2004. Under Coeur’s offer, the terms of which are available in the Form S-4 Registration Statement, Wheaton River shareholders may elect to receive for each share of Wheaton River common stock tendered:

  Up to Cdn$5.47 in cash, subject to proration if Wheaton River shareholders request in the aggregate more than Cdn$570 million; or

  0.796 shares of the Coeur common stock; or

  0.796 exchangeable shares of a Canadian subsidiary of Coeur, which are exchangeable, upon the terms described in the offer documents, for common stock of Coeur on a one-for-one basis.

        The offer is subject to customary conditions, including: (i) the tendering of at least 66 2/3% of the issued and outstanding Wheaton River common shares; (ii) the approval by Coeur shareholders of certain terms of the transaction, including an amendment to Coeur’s certificate of incorporation to increase Coeur’s authorized capital and the issuance of shares of Coeur common stock in the transactions; (iii) receipt of all necessary regulatory approvals; and (iv) the absence of any material adverse change relating to Wheaton River. Coeur intends to solicit the requisite approval from its shareholders as soon as practicable.

        Coeur intends to pay the cash consideration in the offer to purchase and any subsequent acquisition transaction through a combination of available cash and the proceeds of a financing transaction with a major international investment bank. The financing transaction, which is conditioned on at least 66 2/3% of the outstanding Wheaton common shares being taken up under the offer to purchase, as well as other customary conditions, would entail the issuance of up to $225.0 million of 2% convertible debt securities due 2024 with an option to purchase an additional $50.0 million. The conversion price will be determined after Wheaton common shares are taken up under the offer to purchase and will be equal to the then trading price of Coeur common stock, subject to a per share minimum, following effectiveness of a planned holding company reorganization subject to Coeur shareholder approval effective immediately prior to consummation of the offer to purchase. The terms of the 2% debt securities will be similar to those of Coeur’s existing 1.25% senior convertible notes and will include a provision stating that the notes will be convertible during a particular quarter if Coeur’s common stock price for at least 20 trading days in the last 30 consecutive trading days in the preceding quarter is more than 120% of then effective conversion price. Coeur has executed a commitment letter and paid a customary fee in connection with this financing.


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        Consummation of Coeur’s proposed acquisition of Wheaton River Minerals, which would become a wholly-owned subsidiary of Coeur, would have a very material impact on the combined companies’ operations and consolidated financial statements. Coeur’s above-referenced Form S-4 Registration Statement, which is accessible on the SEC’s Edgar website at www.sec.gov, contains extensive additional information regarding Coeur’s offer to purchase the outstanding shares of Wheaton River Minerals, including Coeur’s reasons for the proposed acquisition and source and amount of funds expected to finance such acquisition, as well as information regarding the operations and published financial statements of Wheaton River Minerals and the terms and consequences of the proposed acquisition.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Management’s Discussion and Analysis includes references to total cash costs per ounce of silver produced both on an individual mine basis and on a consolidated basis. Total cash costs per ounce represent a non- U.S. generally accepted accounting principles (“GAAP”) measurement that management uses to monitor and evaluate the performance of its mining operations. A reconciliation of total cash costs per ounce to U.S. GAAP “Production Expenses” is also provided herein and should be referred to when reading the total cash cost per ounce measurement.

General

        The results of the Company’s operations are significantly affected by the market prices of silver and gold which may fluctuate widely and are affected by many factors beyond the Company’s control, including, without limitation, interest rates, expectations regarding inflation, currency values, governmental decisions regarding the disposal of precious metals stockpiles, global and regional political and economic conditions, and other factors.

        The average prices of silver (Handy & Harman) and gold (London Final) for the first six months of 2004 were $6.49 and $401 per ounce, respectively. The market prices of silver and gold on August 13, 2004 were $6.64 per ounce and $396.75 per ounce, respectively.

        The Company’s operating mines are the Rochester mine in Nevada, the Galena mine in the Coeur d’Alene Mining District of Idaho, the Cerro Bayo mine in Chile, and the Martha mine in Argentina.

        This document contains numerous forward-looking statements relating to the Company’s gold and silver mining business. The United States Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Operating, exploration and financial data, and other statements in this document are based on information the Company believes reasonable, but involve significant uncertainties as to future gold and silver prices, costs, ore grades, estimation of gold and silver reserves, mining and processing conditions, changes that could result from the Company’s future acquisition of new mining properties or businesses, the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), regulatory and permitting matters, and risks inherent in the ownership and operation of, or investment in, mining properties or businesses in foreign countries. Actual results and timetables could vary significantly from the estimates presented. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.


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Operating Highlights

South America

        Cerro Bayo (Chile). At Coeur’s Cerro Bayo property in Southern Chile, the mine produced 1.1 million ounces of silver and 11,900 ounces of gold during the second quarter of 2004 compared to 1.3 million ounces of silver and 14,500 ounces of gold in the second quarter of 2003. Total cash costs for the latest three-month period were $3.74 per ounce compared to $1.33 per ounce in 2003. Lower gold production and higher cash costs were due to anticipated lower grade material mined in the current quarter and the absence of Furioso high-grade gold reserves that were mined out in 2003.

North America

        Rochester Mine (Nevada). Coeur’s Rochester mine produced 1.3 million ounces of silver and 16,000 ounces of gold, during the second quarter of 2004 compared to 1.4 million ounces of silver and 15,100 ounces of gold in the second quarter of the prior year. Total cash costs for the latest three-month period were $4.54 per ounce as compared to $4.33 in the second quarter of 2003. Significant winter weather delayed access to high-grade gold reserves located under the old crusher, which resulted in lower grade gold ores being placed on the pad in January. However, by the end of the first quarter, higher grade ores were being placed on the leach pad and the Company expects gold production to increase approximately 50 percent over last quarter’s levels, and silver production is expected to be 5.5 million ounces for 2004 and cash costs are expected to be $2.75 per silver ounce during 2004.

        Coeur Silver Valley — Galena Mine (Idaho). In the latest quarter, silver production from Coeur Silver Valley was 1.0 million ounces, down 10% from the 1.1 million ounces produced in the second quarter of 2003. Total cash costs for the current quarter rose to $4.95 per ounce compared to $4.73 per ounce in the second quarter of the prior year. Lower production and higher costs per ounce are due to the implementation of an optimization plan in the third quarter of 2003 designed to add significant reserves, increase production and reduce operating costs over the next three years. The optimization plan is expected to increase silver production to seven million ounces per year at a cash cost of approximately $4.00 per ounce by 2007. We remain on track to produce an estimated 3.7 million ounces of silver at cash costs of under $4.65 per ounce in 2004.

Exploration and Development Projects

San Bartolome (Bolivia)

        The final updated feasibility study at the San Bartolome silver project near Potosi, Bolivia is scheduled for completion during 2004 with production expected to commence during 2006.

        Based on the Company’s assessment of the ongoing feasibility study, the initial expected mine life is fifteen years, with proven and probable reserves of 123 million ounces of silver. It is estimated that annual mine production will be between six million and eight million ounces of silver annually. It is estimated that 95 million ounces of silver will be produced over the life of the project from established ore reserves and mineralized material.

        Initial capital costs are estimated at $105 million and per ounce operating costs are estimated at approximately $3.55 per ounce of silver. The updated feasibility study is addressing various optimization opportunities.



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        In June the Vice Ministries of Mining, Environment and Sustainable Development in Bolivia issued the final environmental permits for San Bartolome. Pending the review of the final updated feasibility study, construction of the project could commence during 2004 with production commencing in 2006.

Kensington (Alaska)

        At the Kensington gold project, located 45 miles north of Juneau in southeast Alaska, the final feasibility results indicate a project with an initial capital cost of $91.5 million to be spent during 2004-2005 with annual production of approximately 100,000 ounces of gold when the proposed mine reaches full production. In addition to confirming previously stated reserves, 3.1 million tons of mineralized material averaging .274 ounces of gold per ton exist on the property. The cash cost of production is expected to be approximately $220 per ounce. The initial mine life is approximately ten years with the opportunity to extend the life to fifteen years as mineralized material is converted to reserves.

        During the first quarter of 2004, the draft supplemental environmental impact statement was released for public comment. In the second quarter the remaining draft permits were released for public comment by the EPA, the US Army Corps of Engineers and the State of Alaska. All major permits required for construction are now in the final phases of review and comment. With receipt of final permits construction of the project could commence during 2004 with production beginning in 2006.

Critical Accounting Policies and Estimates

        Management considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company’s consolidated financial statements and the uncertainties that could impact its results of operations, financial condition and cash flows. Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. We have identified the policies below as critical to our business operations and the understanding of our results of operations. Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with U.S. GAAP. The preparation of these statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. We base these estimates on historical experience and on assumptions that we consider reasonable under the circumstances; however, reported results could differ from those based on the current estimates under different assumptions or conditions. The impact and any associated risks related to these policies on our business operations are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations. The 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; estimates of recoverable gold and silver ounces in ore on leach pad; reclamation and remediation costs; and post-employment and other employee benefit liabilities. The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

        Reserve Estimates. The most critical accounting principles upon which the Company’s financial status depends are those requiring estimates of recoverable ounces from proven and probable reserves and/or assumptions of future commodity prices. There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. Ore reserves estimates are based upon engineering evaluations of samplings of drill holes and other openings. These estimates involve assumptions regarding future silver and gold prices, the geology of our mines, the mining methods we use and the related costs we incur to develop and mine our reserves. Changes in these assumptions could result in material adjustments to our reserve estimates. We use reserve estimates in determining the units-of-production depreciation and amortization expense, as well as in evaluating mine asset impairments.



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        We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. We utilize the methodology set forth in Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Asset,” to evaluate the recoverability of capitalized mineral property costs. An impairment is considered to exist if total estimated future cash flows or probability-weighted cash flows on an undiscounted basis is less than the carrying amount of the assets, including property, plant and equipment, mineral property, development property, and any deferred costs such as deferred stripping. The accounting estimates related to impairment are critical accounting estimates because the future cash flows used to determine whether an impairment exists is dependent on reserve estimates and other assumptions including, silver and gold prices, production levels, and capital and reclamation costs, all of which are based on detailed engineering life-of-mine plans. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset’s carrying value as compared to its estimated fair value. The Company reviews the carrying value of its assets whenever events or changes in circumstances indicate that the carrying amount of its assets may not be fully recoverable.

        We depreciate our property, plant and equipment, mining properties and mine development using the units-of-production method over the estimated life of the ore body based on our proven and probable recoverable reserves or on a straight-line basis over the useful life, whichever is shorter. The accounting estimates related to depreciation and amortization are critical accounting estimates because the 1) determination of reserves involves uncertainties with respect to the ultimate geology of our reserves and the assumptions used in determining the economic feasibility of mining those reserves and 2) changes in estimated proven and probable reserves and useful asset lives can have a material impact on net income.

Revenue Recognition: Revenue is recognized when title to silver and gold passes to the buyer and when collectibility is reasonably assured. The passing of title and to the customer is based on the terms of the sales contract. Product pricing is determined at the point revenue is recognized by reference to active and freely traded commodity markets for example, the London Bullion Market, an active and freely traded commodity market, for both gold and silver, in an identical form to the product sold.

        Under our concentrate sales contracts with third-party smelters, final gold and silver prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market metal prices. Revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. The contracts, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on the average applicable price for a specified future period, and generally occurs from three to six months after shipment. Final sales are settled using smelter weights, settlement assays (average of assays exchanged and/or umpire assay results) and are priced as specified in the smelter contract. The Company’s provisionally priced sales contain an embedded derivative that is required to be seperated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured 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. The embedded derivative is recorded as a derivative asset in Prepaid expenses and other, or a derivative liability, on the balance sheet and is adjusted to fair value through revenue each period until the date of final gold and silver settlement. The form of the material being sold, after deduction for smelting and refining is in an identical form to that sold on the London Bullion Market. The form of the product is metal in flotation concentrate, which is the final process for which the company is responsible.

        The effects of forward sales contracts are reflected in revenue at the date the related precious metals are delivered or the contracts expire. Third party smelting and refining costs are recorded as a reduction of revenue



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        At June 30, 2004 the Company had outstanding provisionally priced sales of $30.5 million, consisting of 3.3 million ounces of silver, 20,320 ounces of gold and 994,285 pounds of copper. For each one cent per ounce change in realized silver price, revenue would vary (plus or minus) approximately $33,000; for each one dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately $20,000; and for each one cent per pound change in realized copper price, revenue would vary (plus or minus) approximately $10,000. At December 31, 2003, the Company had outstanding provisionally priced sales of $32.8 million, consisting of of 3.7 million ounces of silver, 37,487 ounces of gold and 681,196 pounds of copper. For each one cent per ounce change in realized silver price, revenue would vary (plus or minus) approximately $37,000; for each one dollar per ounce change in realized gold price, revenue would vary (plus or minus) approximately $37,000; and for each one cent per pound change in realized copper price, revenue would vary (plus or minus) approximately $7,000.

        Ore on leach pad. The Rochester Mine utilizes the heap leach process to extract silver and gold from ore. The heap leach process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes.

        The key stages in the conversion of ore into silver and gold are (i) the blasting process in which the ore is broken into large pieces; (ii) the processing of the ore through a crushing facility that breaks it into smaller pieces; (iii) the transportation of the crushed ore to the leach pad where the leaching solution is applied; (iv) the collection of the leach solution; (v) subjecting the leach solution to the precipitation process, in which gold and silver is converted back to a fine solid; (vi) the conversion of the precipitate into dorè; and (vii) the conversion by a third party refinery of the dorè into refined silver and gold bullion.

        We use several integrated steps to scientifically measure the metal content of ore placed on the leach pads during the key stages. As the ore body is drilled in preparation for the blasting process, samples of the drill residue are assayed to determine estimated quantities of contained metal. We estimate the quantity of ore by utilizing global positioning satellite survey techniques. We then process the ore through a crushing facility where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. We then transport the crushed ore to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, we continuously sample for assaying. We measure the quantity of leach solution by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to dorè, which is the final product produced by the mine. We again sample and assay the dorè,. Finally, a third party smelter converts the dorè into refined silver and gold bullion. At this point are we able to determine final ounces of silver and gold available for sale. We then review this end result and reconcile it to the estimates we had used and developed throughout the production process. Based on this review, we adjust our estimation procedures when appropriate.

        Our reported inventories include metals estimated to be contained in the ore on the leach pads of $39.8 million as of June 30, 2004. Of this amount, $17.1 million is reported as a current asset and $22.7 million is reported as a noncurrent asset. The distinction between current and noncurrent is based upon the expected length of time necessary for the leaching process to remove the metals from the broken ore. The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that will be extracted beyond twelve months is classified as noncurrent.

        The estimate of both the ultimate recovery expected over time, and the quantity of metal that may be extracted relative to such twelve month period, requires the use of estimates which are inherently inaccurate since they rely upon laboratory testwork. Testwork consists of 60 day leach columns from which we project metal recoveries up to five years in the future. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over approximately fifteen years of leach pad operation at the Rochester Mine. The assumptions we use to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. We periodically review our estimates compared to actual experience and revise our estimates when appropriate. The length of time necessary to achieve our currently estimated ultimate recoveries of 61.5% for silver and 93% for gold is estimated to be between 5 and 10 years. However, the ultimate recovery will not be known until leaching operations cease, which is currently estimated for 2011.



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        If our estimate of ultimate recovery requires adjustment, the impact upon our inventory valuation and upon our income statement would be as follows:

Positive/Negative
Change in Silver Recovery

Positive/Negative
Change in Gold Recovery

1%
2%
3%
1%
2%
3%
Quantity of recoverable            
  ounces 1.4 million 2.7 million 4.0 million 9,100 18,200 27,300
Positive impact on
  future cost of
  production per silver
  equivalent ounce for
  increases in recovery
  rates $  0.46 $  0.81 $  1.09 $  0.24 $  0.44 $  0.63
Negative impact on
  future cost of
  production per silver
  equivalent ounce for
  decreases in recovery
  rates $  0.62 $  1.50 $  2.85 $  0.27 $  0.59 $  0.97

        Inventories of ore on leach pads are valued based upon actual costs incurred to place such ore on the leach pad, less costs allocated to minerals recovered through the leach process. The costs consist of those production activities occurring at the mine site and include the costs, including depreciation, associated with mining, crushing and precipitation circuits. In addition, refining is provided by a third party refiner to place the metal extracted from the leach pad in a saleable form. These additional costs are considered in the valuation of inventory.

        Reclamation and remediation costs. Reclamation and remediation costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation cost for inactive properties. Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the undiscounted costs expected to be incurred at the site. Such cost estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised. In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of asset retirement obligations using the present value of projected future cash flows, with an equivalent amount recorded as basis in the related long-lived asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period and the capitalized cost is depreciated over the useful life of the related asset. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced.

        The estimated undiscounted cash flows generated by our assets and the estimated liabilities for reclamation and remediation are determined using the Company’s assumptions about future costs, mineral prices, mineral processing recovery rates, production levels and capital and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.






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Pension and Post-Retirement Obligations

Six Months Ended June 30
Components of Net Period Benefit Cost:

Defined Benefit Plan
Post-Retirement Medical Plan
(In thousands)

2004
2003
2004
2003
Service cost     $ 346   $ 269   $ 17   $ 18  
Interest cost      376    335    116    117  
Expected return on plan assets    (213 )  (180 )  --    --  
Amortization of prior service cost    56    56    --    --  
Amortization of the net (gain) loss    269    232    --    --  




Net periodic benefit cost   $ 834   $ 712   $ 133   $ 135  






Contributions:
The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $1.0 million to its pension plans in 2004 and it is now estimated that $0.6 million will be expected to be contributed in 2004. As of June 30, 2004, $0.4 million of contributions have been made.
















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Operating Statistics

        The following table sets forth the amounts of silver and gold produced by the following mining properties, each of which is wholly owned by the Company, and the cash and full costs of such production during the three- and six-month periods ended June 30, 2004 and 2003:

Three Months ended June 30,
Six Months ended June 30,
2004
2003
2004
2003
ROCHESTER MINE                    
   Silver ozs    1,317,006    1,353,346    2,627,301    2,443,046  
   Gold ozs    16,005    15,144    27,480    25,891  
   Cash costs per oz./silver   $ 4.54   $ 4.33   $ 5.06   $ 5.28  
   Full costs per oz./silver   $ 6.36   $ 5.45   $ 6.79   $ 6.32  

GALENA MINE
  
   Silver ozs    954,964    1,060,696    1,861,944    2,296,467  
   Cash costs per oz./silver   $ 4.95   $ 4.73   $ 4.94   $ 4.46  
   Full costs per oz./silver   $ 5.47   $ 5.10   $ 5.45   $ 4.78  

CERRO BAYO/MARTHA MINE
  
   Silver ozs    1,053,276    1,347,745    2,271,092    2,625,202  
   Gold ozs    11,944    14,538    22,480    36,954  
   Cash costs per oz./silver   $ 3.74   $ 1.33   $ 2.85   $ 0.54  
   Full costs per oz./silver   $ 5.35   $ 2.98   $ 4.51   $ 2.51  

CONSOLIDATED PRODUCTION TOTALS
  
   Silver ozs    3,325,246    3,761,787    6,760,337    7,364,715  
   Gold ozs    27,949    29,682    49,960    62,845  
   Cash costs per oz./silver   $ 4.41   $ 3.37   $ 4.29   $ 3.33  
   Full costs per oz./silver   $ 5.79   $ 4.47   $ 5.65   $ 4.48  

CONSOLIDATED SALES TOTALS
  
   Silver ozs. sold    3,279,000    3,624,000    6,587,000    7,774,000  
   Gold ozs. sold    27,000    33,000    47,000    68,000  
   Realized price per silver oz   $ 6.35   $ 4.56   $ 6.72   $ 4.66  
   Realized price per gold oz   $ 398   $ 335   $ 395   $ 341  


        Note: “Cash Costs per Ounce” are calculated by dividing the cash costs computed for each of the Company’s mining properties for a specified period by the amount of gold ounces or silver ounces produced by that property during that same period. Management uses cash costs per ounce produced as a key indicator of the profitability of each of its mining properties. Gold and silver are sold and priced in the world financial markets on a US dollar per ounce basis. By calculating the cash costs from each of the Company’s mines on the same unit basis, management can easily determine the gross margin that each ounce of gold and silver produced is generating.

        “Cash Costs” are costs directly related to the physical activities of producing silver and gold and include mining, processing and other plant costs, deferred mining adjustments, third-party refining and smelting costs, marketing expense, on-site general and administrative costs, royalties, in-mine drilling expenditures that are related to production and other direct costs. Sales of by-product metals (primarily gold and copper) are deducted from the above in computing cash costs. Cash costs exclude depreciation, depletion and amortization, corporate general and administrative expense, exploration, interest, and pre-feasibility costs and accruals for mine reclamation. Cash costs are calculated and presented using the “Gold Institute Production Cost Standard” applied consistently for all periods presented.

        Total cash costs per ounce is a non-GAAP measurement and investors are cautioned not to place undue reliance on it and are urged to read all GAAP accounting disclosures presented in the consolidated financial statements and accompanying footnotes. In addition, see the reconciliation of “cash costs” to production costs under “Costs and Expenses” set forth below.



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RESULTS OF OPERATIONS

        Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Revenues

        Sales of metal in the second quarter of 2004 increased by $0.3 million, or 1%, over the second quarter of 2003 to $26.4 million. The increase in product sales of metal is attributable to increased realized prices of silver and gold, offset in part by lower production and a reduction in revenues of $3.2 million related to the previously recorded value of shipments pending settlement at the end of the quarter based upon current metal prices.

        In the second quarter of 2004, the Company produced approximately 3.3 million ounces of silver and approximately 28,000 ounces of gold, compared to 3.8 million ounces of silver and 30,000 ounces of gold in the second quarter of 2003. In the second quarter of 2004, the Company sold 3.3 million ounces of silver and 27,000 ounces of gold compared to 3.6 million ounces of silver and 33,000 ounces of gold for the same period in 2003. Realized silver and gold prices were $6.35 and $398 per ounce, respectively, in the second quarter of 2004 compared to $4.56 and $335 in the comparable quarter of 2003.

        Interest and other income in the second quarter of 2004 increased by $0.3 million compared with the second quarter of 2003. The increase was primarily due to increased interest income from short-term investments.

Costs and Expenses

        Production costs in the second quarter of 2004 decreased by $2.6 million, or 14%, from the second quarter of 2003 to $16.4 million. The decrease is the result of lower production at each of the mines in the second quarter.

        The following tables present a reconciliation between cash costs per ounce and GAAP production costs reported in the Statement of Operations:

Three months ended June 30, 2004

Rochester
Silver Valley
Cerro Bayo
Total
Production of Silver (ounces)      1,317,006    954,964    1,053,276    3,325,246  
Cash Costs per ounce   $ 4.54   $ 4.95   $ 3.74   $ 4.41  




Total Cash Costs (thousands)   $ 5,981   $ 4,730   $ 3,941   $ 14,652  
Add/(Subtract):  
   Third Party Smelting Costs    (190 )  (1,401 )  (2,019 )  (3,610 )
   By-Product Credit    6,274    920    4,699    11,893  
   Deferred Stripping Adjustment    (101 )  --    --    (101 )
   Change in Inventory    (3,903 )  (361 )  (2,204 )  (6,468 )




Production Costs   $ 8,061   $ 3,888   $ 4,417   $ 16,366  





Three months ended June 30, 2003

Rochester
Silver Valley
Cerro Bayo
Total
Production of Silver (ounces)      1,353,346    1,060,696    1,347,745    3,761,787  
Cash Costs per ounce   $ 4.33   $ 4.73   $ 1.33   $ 3.37  




Total Cash Costs (thousands)   $ 5,861   $ 5,021   $ 1,786   $ 12,668  
Add/(Subtract):  
   Third Party Smelting Costs    (193 )  (1,287 )  (1,027 )  (2,507 )
   By-Product Credit    5,281    585    5,019    10,885  
   Deferred Stripping Adjustment    (80 )  --    --    (80 )
   Change in Inventory    (2,025 )  330    (258 )  (1,953 )




Production Costs   $ 8,844   $ 4,649   $ 5,520   $ 19,013  





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Other Expenses

        Depreciation and amortization increased in the second quarter of 2004 by $0.1 million, from the prior year’s second quarter, primarily due to increased amortization of capitalized costs at the Silver Valley and Martha mines.

        Administrative and general expenses increased in the second quarter of 2004 compared to the same period in 2003 by $0.7 million due to additional work related to financing activities and increased workforce in 2004 over 2003.

        Exploration expenses increased by $1.9 million in the second quarter of 2004 compared to the same period in 2003 as a result of expanded exploration efforts at the Cerro Bayo and Martha mines and increased business development activities.

        Pre-development expenses increased by $3.6 million in the second quarter of 2004 as compared to the same quarter of 2003 due to efforts to complete the feasibility studies for San Bartolome and Kensington.

        Interest expense decreased in the second quarter of 2004 compared with the second quarter of 2003 to $0.7 million from $2.0 million as a result of a substantial reduction in the interest rates on the Company’s outstanding debt as a result of the completion, in the first quarter of 2004, of the Company’s debt restructuring program.

Net Loss

        As a result of the aforementioned factors, the Company’s net loss amounted to $5.4 million, or $0.03 per share, in the second quarter of 2004 compared to a net loss of $4.1 million, or $0.03 per share, in the second quarter of 2003.

        Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Revenues

        Sales of metal in the six months ended June 30, 2004 increased by $1.4 million, or 3%, over the same period of 2003 to $56.0 million. The increase in product sales of metal is attributable to increased prices realized from gold and silver offset in part by a decrease in production sold and a reduction in revenues of $1.8 million related to a reduction in the recorded value of shipments pending settlement at the end of the period based upon current metal prices.

        In the six months ended June 30, 2004, the Company produced a total of 6.8 million ounces of silver and 50,000 ounces of gold, compared to 7.4 million ounces of silver and 62,800 ounces of gold in the six months ended June 30, 2003. In the six months ended June 30, 2004, the Company sold 6.6 million ounces of silver and 47,000 ounces of gold compared to 7.8 million ounces of silver and 68,000 ounces of gold for the same period in 2003. Realized silver and gold prices were $6.72 and $395 per ounce, respectively, in the six months ended June 30, 2004 compared to $4.66 and $341 in the comparable period of 2003.

        Interest and other income in the six months ended June 30, 2004 decreased by $0.7 million compared with the same period of 2003. The decrease was primarily due to, the closing of the Company’s gold forward sales position in the first quarter of 2004 which resulted in a charge to earnings of $0.9 million, offset in part by increased interest income from short-term investments.



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Costs and Expenses

        Production costs in the six months ended June 30, 2004 decreased by $3.6 million, or 10%, from the six months ended June 30, 2003 to $33.3 million. The decrease is the result of lower tonnage processed in the six months ended June 30, 2004 compared to the same period in 2003.

        The following tables present a reconciliation between cash costs per ounce and GAAP production costs reported in the Statement of Operations:

Six months ended June 30, 2004

Rochester
Silver Valley
Cerro Bayo
Total
Production of Silver (ounces)      2,627,301    1,861,944    2,271,092    6,760,337  
Cash Costs per ounce   $ 5.06   $ 4.94   $ 2.85   $ 4.29  




Total Cash Costs (thousands)   $ 13,298   $ 9,199   $ 6,471   $ 28,968  
Add/(Subtract):  
   Third Party Smelting Costs    (421 )  (2,680 )  (2,944 )  (6,045 )
   By-Product Credit    10,962    1,713    9,006    21,681  
   Deferred Stripping Adjustment    (65 )  --    --    (65 )
   Change in Inventory    (7,935 )  898    (4,186 )  (11,223 )




Production Costs   $ 15,839   $ 9,130   $ 8,347   $ 33,316  





Six months ended June 30, 2003

Rochester
Silver Valley
Cerro Bayo
Total
Production of Silver (ounces)      2,443,046    2,296,467    2,625,202    7,364,715  
Cash Costs per ounce   $ 5.28   $ 4.46   $ 0.54   $ 3.33  




Total Cash Costs (thousands)   $ 12,900   $ 10,237   $ 1,412   $ 24,549  
Add/(Subtract):  
   Third Party Smelting Costs    (366 )  (2,882 )  (3,021 )  (6,269 )
   By-Product Credit    9,058    1,324    12,943    23,325  
   Deferred Stripping Adjustment    (161 )  --    --    (161 )
   Change in Inventory    (3,832 )  454    (1,175 )  (4,553 )




Production Costs   $ 17,599   $ 9,133   $ 10,159   $ 36,891  





Other Expenses

        Depreciation and amortization was $9.6 million in the six months ended June 30, 2004 compared with $9.7 million in the first six months of 2003.

        Administrative and general expenses increased in the six months ended June 30, 2004 compared to the same period in 2003 by $1.2 million due to an increase in financing activities.

        Exploration expenses increased by $2.8 million in the six months ended June 30, 2004 compared to the same period in 2003 as a result of the Company’s efforts to expand ore reserves at or near the existing mines and an increase in business development activities.

        Pre-development expenses increased by $4.9 million in the first six months of 2004 compared to the same period of 2003 due to the Company’s efforts to complete updated feasibility studies for San Bartolome and Kensington development projects.


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        Interest expense decreased in the six months ended June 30, 2004 compared with the six months ended June 30, 2003 to $1.6 million from $4.0 million as a result of a substantial reduction in the interest rate on outstanding debt as a result of the completion, in the first quarter of 2004, of the Company’s debt restructuring program.

        During the six months ended June 30, 2003, the Company recorded a loss on the early retirement of debt of $28.2 million.

Cumulative Effect of Accounting Change

        Effective with the first quarter of 2003, the Company changed the methodology used to recognize reclamation expense pursuant to Statement of Financial Accounting Standards No. 143,Accounting for Asset Retirement Obligations. Prior to 2003, the Company recognized a pro rata share of the future estimated reclamation liability on a units-of-production basis. After January 1, 2003, companies are required to recognize the full discounted estimated future reclamation liability and set up a corresponding asset to be amortized over the life of the mine on a units-of-production basis. The impact of this change was accounted for as a change in accounting principle in the first year of implementation and resulted in a charge of $2.3 million in the first quarter of 2003. (See “Critical Accounting Policies and Estimates – Reclamation and Remediation Costs” above.)

Net Loss

        As a result of the aforementioned factors, the Company’s net loss amounted to $7.1 million, or $0.03 per share, in the six months ended June 30, 2004 compared to a net loss of $35.8 million, or $0.26 per share, in the same period of 2003.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital; Cash and Cash Equivalents

        The Company’s working capital at June 30, 2004, increased by $150.6 million to approximately $250.9 million compared to $100.3 million at December 31, 2003. The increase was primarily attributed to the increase in cash and cash equivalents and short-term investments proceeds occurring as a result of the issuance of $180 million of 1 ¼% Convertible Senior Notes due January 15, 2024. See “Management’s Discussion and Analysis – Issuance of 1 ¼% Convertible Senior Notes” below. The ratio of current assets to current liabilities was 13.1 to 1.0 at June 30, 2004 compared to 5.5 to 1.0 at December 31, 2003.

        Net cash used in operating activities in the six months ended June 30, 2004 was $7.1 million compared to net cash used in operating activities of $4.3 million in the six months ended June 30, 2003. The decrease in cash flow from operations is primarily due to increased inventory associated with the timing of concentrate shipments, an increase in heap leach inventory and increased expenditures on exploration and pre-development costs. Net cash used in investing activities in the first six months of 2004 was $49.0 million compared to net cash used in investing activities of $9.2 million in the prior year’s comparable period. The increase in cash used in investing activities primarily resulted from an increase in short-term investments purchased with the proceeds from the issuance of the 1 ¼% Notes issued in the first quarter of 2004. Net cash provided by financing activities was $158.6 million in the first six months of 2004, compared to $24.0 million used in the first six months of 2003. The increase was primarily a result of $180 million of proceeds from the issuance of the 1 ¼% Convertible Senior Notes, offset in part by $9.6 million of retirement of long-term debt payment of $2.4 million on borrowings received under the Company’s working capital facility and $7.6 million of debt issuance costs associated with the issuance of 1 ¼% Convertible Senior Notes due 2024. As a result of the above, cash and cash equivalents increased by $102.4 million in the first six months of 2004 compared to an increase of $10.4 million for the comparable period in 2003.



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Debt and Capital Resources

        The Company has improved its working capital position since December 31, 2003 by completing the issuance of the 1 ¼% Convertible Senior Notes. At June 30, 2004, the Company had $164.9 million of cash and approximately $12.0 million available under its working capital facility. Management therefore believes that its existing and available cash and cash flow from operations will allow it to meet its obligations for the next twelve months.

2004 Final Redemption of Remaining 7 ¼% Debentures

        On March 11, 2004 the Company redeemed the remaining outstanding $9.6 million principal amount of the Company’s 7 1/4% Convertible Subordinated Debentures due October 15, 2005.

Issuance of 1 ¼% Convertible Senior Notes

        On January 13, 2004 the Company completed its offering of $180 million aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (the “1.25% Notes”). The 1.25% Notes are convertible into shares of Coeur common stock at a conversion rate of approximately 131.5789 shares of Coeur common stock per $1,000 principal amount of Notes, representing a conversion price of $7.60 per share. Interest on the notes is payable in cash at the rate of 1.25% per annum beginning July 15, 2004. The Company intends to use the proceeds of the offering for general corporate purposes, which may include the development of its Kensington gold project and its San Bartolome silver project, which are pending the completion of updated feasibility studies and final construction decisions. The Notes are general unsecured obligations, senior in right of payment to Coeur’s other indebtedness.

Subsequent Events

On July 13, 2004 the Company announced that it has commenced mailing its tender offer documents to the shareholders of Wheaton River Minerals Ltd. (TSX:WRM, AMEX:WHT). In connection with its offer, Coeur has filed a Registration Statement on Form S-4 with the U.S. Securities and Exchange Commission. Under Coeur’s offer, the terms of which are available in the S-4 Registration Statement, Wheaton River shareholders may elect to receive for each share of Wheaton River common stock tendered:

  Up to Cdn$5.47 in cash, subject to proration if Wheaton River shareholders request in the aggregate more than Cdn$570 million; or

  0.796 shares of the Coeur common stock; or

  0.796 exchangeable shares of a Canadian subsidiary of Coeur, which are exchangeable, upon the terms described in the offer documents, for common stock of Coeur on a one-for-one basis.

The offer is subject to customary conditions, including: (i) the tendering of at least 66 2/3% of the issued and outstanding Wheaton River common shares; (ii) the approval by Coeur shareholders of certain terms of the transaction, including an amendment to Coeur’s certificate of incorporation to increase Coeur’s authorized capital and the issuance of shares of Coeur common stock in the transactions; (iii) receipt of all necessary regulatory approvals; and (iv) the absence of any material adverse change relating to Wheaton River. Coeur intends to solicit the requisite approval from its shareholders as soon as practicable.

        Coeur intends to pay the cash consideration in the offer to purchase and any subsequent acquisition transaction through a combination of available cash and the proceeds of a financing transaction with a major international investment bank. The financing transaction, which is conditioned on at least 66 2/3% of the outstanding Wheaton common shares being taken up under the offer to purchase, as well as other customary conditions, would entail the issuance of up to $225.0 million of 2% convertible debt securities due 2024 with an option to purchase an additional $50.0 million. The conversion price will be determined after Wheaton common shares are taken up under the offer to purchase and will be equal to the then trading price of Coeur common stock, subject to a per share minimum, following effectiveness of a planned holding company reorganization subject to Coeur shareholder approval effective immediately prior to consummation of the offer to purchase .. The terms of the 2% debt securities will be similar to those of Coeur’s existing 1.25% senior convertible notes and will include a provision stating that the notes will be convertible during a particular quarter if Coeur’s common stock price for at least 20 trading days in the last 30 consecutive trading days in the preceding quarter is more than 120% of then effective conversion price. Coeur has executed a commitment letter and paid a customary fee in connection with this financing.


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        Consummation of Coeur’s proposed acquisition of Wheaton River Minerals, which would become a wholly-owned subsidiary of Coeur, would have a very material impact on the combined companies’ operations and consolidated financial statements. Coeur’s above-referenced Form S-4 Registration Statement, which is accessible on the SEC’s Edgar website at www.sec.gov, contains extensive additional information regarding Coeur’s offer to purchase the outstanding shares of Wheaton River Minerals, including Coeur’s reasons for the proposed acquisition and source and amount of funds expected to finance such acquisition, as well as information regarding the operations and published financial statements of Wheaton River Minerals and the terms and consequences of the proposed acquisition.

Litigation and Other Events

Federal Natural Resources Action

        On March 22, 1996, an action was filed in the United States District Court for the District of Idaho by the United States against various defendants, including the Company, asserting claims under CERCLA and the Clean Water Act for alleged damages to federal natural resources in the Coeur d’Alene River Basin of Northern Idaho. The damages are claimed to result from alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s.

        The Company and representatives of the U.S. Government, including the Environmental Protection Agency, the Department of Interior and the Department of Agriculture, reached an agreement to settle the lawsuit. The terms of settlement are set forth in a Consent Decree issued by the court. Pursuant to the terms of the Consent Decree, dated May 14, 2001, the Company has paid the U.S. Government a total of approximately $3.9 million, of which $3.3 million was paid in May 2001 and the remaining $.6 million was paid in June 2001. In addition, the Company will (i) pay the United States 50% of any future recoveries from insurance companies for claims for defense and indemnification under general liability insurance policies in excess of $0.6 million, and (ii) make a conveyance to the U.S. or the State of Idaho of certain real property to possibly be used as a waste repository. Commencing in 2006, the Company will be obligated to pay net smelter return royalties on its operating properties, up to a maximum of $3 million, amounting to a 2% net smelter royalty on silver production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce net smelter royalty on gold production if the price of gold exceeds $325 per ounce. The royalty payment obligation expires after 15 years commencing five years after May 14, 2001.

Private Property Damage Action

        On January 7, 2002, a private class action suit captioned Baugh v. Asarco, et al., was filed in Idaho State District Court for the First District (Docket No. 2002-131) in Kootenai County, Idaho. Defendants include mining companies and the Union Pacific Railroad Company which were defendants in the Bunker Hill natural resource damage litigation in the Coeur d’Alene Basin, including the Company. Plaintiffs are eight northern Idaho residents seeking medical monitoring and real property damages from the mining companies and the railroad who operated in the Bunker Hill Superfund site. In October 2002, the court conducted a hearing on motions resulting in an order striking certain of the alleged causes of action from the complaint, and dismissing the complaint with leave to amend it. In January 2003, the plaintiffs filed an amended complaint. The court dismissed the amended complaint with leave to amend. In May 2003 a second amended complaint was filed. The Company filed a motion for summary judgment, which was heard on July 14, 2004. The court has the matter under advisement. While the Company believes the suit is without merit, at this stage of the proceedings, the Company cannot predict the outcome of this suit.



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States of Maine, Idaho And Colorado Superfund Sites Related to Callahan Mining Corporation

        During 2001, the United States Forest Service made a formal request for information regarding the Deadwood Mine Site located in central Idaho. Callahan Mining Corporation had operated at this site during the 1940‘s. The Forest Service believes that some cleanup action is required at the location. However, Coeur d’Alene Mines Corporation did not acquire Callahan until 1991, more than 40 years after Callahan disposed of its interest in the Deadwood property. The Company did not make any decisions with respect to generation, transport or disposal of hazardous waste at the site. Therefore, it is believed that the Company is not liable for any cleanup, and if Callahan might be liable, it has no substantial assets with which to satisfy any such liability. To date no claim has been made by the United States for any dollar amount of cleanup costs against either the Company or Callahan.

        During 2002, the EPA made a formal request for information regarding a Callahan mine site in the State of Maine. Callahan operated there in the late 1960‘s, shut the operations down in the early 1970‘s and disposed of the property. The EPA contends that some cleanup action is warranted at the site, and listed it on the National Priorities List in late 2002. The Company believes that because it made no decisions with respect to generation, transport or disposal of hazardous waste at this location, it is not liable for any cleanup costs. If Callahan might have liability, it has no substantial assets with which to satisfy such liability. To date, no claim has been made for any dollar amount of cleanup costs against either the Company or Callahan.

        In January 2003, the U.S. Forest Service made a formal request for information regarding a Callahan mine site in the State of Colorado known as the Akron Mine Site. Callahan operated there in approximately the late 1930s through the 1940s, and to the Company’s knowledge, disposed of the property. The Company is not aware of what, if any, cleanup action the Forest Service is contemplating. However, the Company did not make decisions with respect to generation, transport or disposal of hazardous waste at this location, and therefore believes it is not liable for any cleanup costs. If Callahan might have liability, it has no substantial assets with which to satisfy such liability. To date, no claim has been made for any dollar amount of cleanup costs against either the Company or Callahan.

Suit By Credit Suisse First Boston

        On December 2, 2003, suit was filed by Credit Suisse First Boston against the Company in the United States District Court for the Southern District of New York (Docket No. 03 Civ 9547). The plaintiff alleges that the Company breached a contract between the parties providing for services to be furnished by the plaintiff to the defendant. Plaintiff alleges that it is entitled to damages in the amount of $2,400,000 attributed to the breach. The Company believes it did not breach the contract and that it is not liable. However, at this early stage of the proceedings the outcome of the suit cannot be predicted.

RISK FACTORS

        The following information sets forth information relating to important risks and uncertainties that could materially adversely affect the Company’s business, financial condition or operating results. References to “we,” “our” and “us” in these risk factors refer to the Company. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial may also impair our business operations.

Risks Relating to our Business

We have incurred losses in the last five years due to several factors, including historically low gold and silver market prices, and may continue to incur losses in the future.



37



        We have incurred net losses in the last five years, and have had losses from continuing operations in each of those periods. Factors significantly contributing to our losses are:

  until recently, historically low gold and silver market prices;

  our deliberate pursuit of a growth policy calling for the acquisition of mining properties and companies and financing such growth principally by incurring convertible indebtedness, thereby increasing our interest expense;

  write-offs for impaired assets in 1999 ($16.2 million), 2000 ($12.2 million), 2001 ($6.1 million), 2002 ($19.0 million) and 2003 ($0.0 million); and

  losses on the early retirement of debt of $19.1 million in 2002, and $41.6 million in 2003.

        If silver and gold prices decline and we are unable to reduce our production costs, our losses may continue. If lower silver and gold prices make mining at our properties uneconomical, we may be required to recognize additional impairment write-downs, which would increase our operating losses and negatively impact our results of operations.

We may be required to incur additional indebtedness to fund our capital expenditures.

        We have historically financed our operations through the issuance of convertible debt and may be required to incur additional indebtedness in the future. In particular, we anticipate that we could reach a final decision to develop the San Bartolome and Kensington projects in 2004, which would require a capital investment of approximately $215 million. While we believe that our cash on hand will be sufficient for us to make this level of capital investment, no assurance can be given that additional capital investment will not be required to be made at these or other projects. If we are unable to generate enough cash to finance such additional capital expenditures through operating cash flow and the issuance of common stock, we may be required to issue additional indebtedness. Any additional indebtedness would increase our debt payment obligations, and may negatively affect our results of operations.

We have not had sufficient earnings to cover fixed charges in recent years and presently expect that situation to continue.

        As a result of our net losses, our earnings have not been adequate to satisfy fixed charges (i.e., interest, preferred stock dividends and that portion of rent deemed representative of interest) in each of the last five years. The amounts by which earnings were inadequate to cover fixed charges were approximately $29.3 million in 1999, $47.5 million in 2000, $3.1 million in 2001, $81.2 million in 2002 and $67.0 million in 2003, respectively. As of June 30, 2004, we are required to make fixed payments on $180 million principal amount of our 1 1/4% Senior Convertible Notes due 2024, requiring annual interest payments of approximately $2.25 million until their maturity.

        We expect to satisfy our fixed charges and other expense obligations in the future from cash flow from operations and, if cash flow from operations is insufficient, from working capital, which amounted to approximately $250.9 million at June 30, 2004. In the last five years, we have been experiencing negative cash flow from operating activities. The amount of net cash used in our operating activities amounted to approximately $5.1 million for the year ended December 31, 2003, $8.5 million in 2002 and $29.9 million in 2001. The availability of future cash flow from operations or working capital to fund the payment of interest on the notes, our debentures and other fixed charges will be dependent upon numerous factors, including our results of operations, silver and gold prices, levels and costs of production at our mining properties, the amount of our capital expenditures and expenditures for acquisitions, developmental and exploratory activities, and the extent to which we are able to reduce the amount of our indebtedness through additional exchanges.



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The market prices of silver and gold are volatile. Low silver and gold prices may result in decreased revenues and increased losses, and may negatively affect our business.

        Silver and gold are commodities. Their prices fluctuate, and are affected by many factors beyond our control, including interest rates, expectations regarding inflation, speculation, currency values, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. For the year ended December 31, 2003, we derived approximately 65% of our revenues from sales of silver. As such, our earnings are directly related to the price of this metal.

        The market prices of silver (Handy & Harman) and gold (London Final) on August 13, 2004 were $6.64 and $396.75 per ounce, respectively. The price of silver and gold may decline in the future. Factors that are generally understood to contribute to a decline in the price of silver include sales by private and government holders, and a general global economic slowdown.

        If the prices of silver and gold are depressed for a sustained period, our net losses will continue, we may be forced to suspend mining at one or more of our properties until the price increases, and record additional asset impairment write-downs. Any lost revenues, continued or increased net losses or additional asset impairment write-downs would affect our results of operations.

We have recorded significant write-downs of mining properties in recent years and may have to record additional write-downs, which could negatively impact our results of operations.

        Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets,” established accounting standards for impairment of the value of long-lived assets such as mining properties. SFAS 144 requires a company to review the recoverability of the cost of its assets by estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment must be recognized when the carrying value of the asset exceeds these cash flows, and recognizing impairment write-downs has negatively impacted our results of operations in recent years.

        While we do not believe that any of our properties presently requires a write-down pursuant to SFAS 144, if silver or gold prices decline or we fail to control production costs or realize the mineable ore reserves at our mining properties, we may recognize further asset write-downs. We also may record other types of additional mining property write-downs in the future to the extent a property is sold by us for a price less than the carrying value of the property, or if liability reserves have to be created in connection with the closure and reclamation of a property. Additional write-downs of mining properties could negatively impact our results of operations.

The estimation of ore reserves is imprecise and depends upon subjective factors. Estimated ore reserves may not be realized in actual production. Our operating results may be negatively affected by inaccurate estimates.

        The ore reserve figures presented in our public filings are estimates made by our technical personnel. Reserve estimates are a function of geological and engineering analyses that require us to make assumptions about production costs and silver and gold market prices. Reserve estimation is an imprecise and subjective process and the accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation, judgment and experience. Assumptions about silver and gold market prices are subject to great uncertainty as those prices have fluctuated widely in the past. Declines in the market prices of silver or gold may render reserves containing relatively lower grades of ore uneconomic to exploit, and we may be required to reduce reserve estimates, discontinue development or mining at one or more of our properties, or write down assets as impaired. Should we encounter mineralization or geologic formations at any of our mines or projects different from those we predicted, we may adjust our reserve estimates and alter our mining plans. Either of these alternatives may have a negative effect on our actual production and operating results.



39



        We based our ore reserve determinations as of December 31, 2003 on a long-term silver price average of $5.25 per ounce and a long-term gold price average of $375 per ounce.

The estimation of the ultimate recovery of metals contained within the heap leach pad inventory is inherently inaccurate and subjective and requires the use of estimation techniques. Actual recoveries can be expected to vary from estimations.

        The Rochester mine utilizes the heap leach process to extract silver and gold from ore. The heap leach process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes.

        The key stages in the conversion of ore into silver and gold are (i) the blasting process in which the ore is broken into large pieces; (ii) the processing of the ore through a crushing facility that breaks it into smaller pieces; (iii) the transportation of the crushed ore to the leach pad where the leaching solution is applied; (iv) the collection of the leach solution; (v) subjecting the leach solution to the precipitation process, in which gold and silver is converted back to a fine solid; (vi) the conversion of the precipitate into doré; and (vii) the conversion by a third party refinery of the doré into refined silver and gold bullion.

        We use several integrated steps to scientifically measure the metal content of ore placed on the leach pads during the key stages. As the ore body is drilled in preparation for the blasting process, samples of the drill residue are assayed to determine estimated quantities of contained metal. We estimate the quantity of ore by utilizing global positioning satellite survey techniques. We then process the ore through a crushing facility where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. We then transport the crushed ore to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, we continuously sample for assaying. We measure the quantity of leach solution with flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. We again weigh, sample and assay the doré. Finally, a third party smelter converts the doré into refined silver and gold bullion. At this point we are able to determine final ounces of silver and gold available for sale. We then review this end result and reconcile it to the estimates we developed and used throughout the production process. Based on this review, we adjust our estimation procedures when appropriate.

        Our reported inventories include metals estimated to be contained in the ore on the leach pads of $39.8 million as of June 30, 2004. Of this amount, $17.1 million is reported as a current asset and $22.7 million is reported as a noncurrent asset. The distinction between current and noncurrent is based upon the expected length of time necessary for the leaching process to remove the metals from the broken ore. The historical cost of the metal that is expected to be extracted within twelve months is classified as current and the historical cost of metals contained within the broken ore that will be extracted beyond twelve months is classified as noncurrent.

        The estimate of both the ultimate recovery expected over time, and the quantity of metal that may be extracted relative to such twelve month period, requires the use of estimates which are inherently inaccurate since they rely upon laboratory test work. Test work consists of 60 day leach columns from which we project metal recoveries up to five years in the future. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over approximately fifteen years of leach pad operation at the Rochester mine. The assumptions we use to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. We periodically review our estimates compared to actual experience and revise our estimates when appropriate. The length of time necessary to achieve our currently estimated ultimate recoveries of 61.5% for silver and 93% for gold is estimated to be between five and 10 years. However, the ultimate recovery will not be known until leaching operations cease, which is currently estimated for 2011.



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        Inventories of ore on leach pads are valued based upon actual costs incurred to place such ore on the leach pad, less costs allocated to minerals recovered through the leach process. The costs consist of those production activities occurring at the mine site and include the costs, including depreciation, associated with mining, crushing and precipitation circuits. In addition, refining is provided by a third party refiner to place the metal extracted from the leach pad in a saleable form. These additional costs are considered in the valuation of inventory. Negative changes in our inventory valuations and correspondingly on our income statement would have an adverse impact on our results of operations.

Our estimates of current and non-current inventories may not be realized in actual production and operating results, which may negatively affect our business.

        We use estimates, based on prior production results and experiences, to determine whether heap leach inventory will be recovered more than one year in the future, and is non-current inventory, or will be recovered within one year, and is current inventory. The estimates involve assumptions that may not prove to be consistent with our actual production and operating results. We cannot determine the amount ultimately recoverable until leaching is completed. If our estimates prove inaccurate, our operating results may be less than anticipated.

Significant investment risks and operational costs are associated with our exploration, development and mining activities, such as San Bartolome and Kensington. These risks and costs may result in lower economic returns and may adversely affect our business.

        Our ability to sustain or increase our present production levels depends in part on successful exploration and development of new ore bodies and/or expansion of existing mining operations. Mineral exploration, particularly for silver and gold, involves many risks and is frequently unproductive. If mineralization is discovered, it may take a number of years until production is possible, during which time the economic viability of the project may change. Substantial expenditures are required to establish ore reserves, extract metals from ores and, in the case of new properties, to construct mining and processing facilities. The economic feasibility of any development project is based upon, among other things, estimates of the size and grade of ore reserves, proximity to infrastructures and other resources (such as water and power), metallurgical recoveries, production rates and capital and operating costs of such development projects, and metals prices. Development projects are also subject to the completion of favorable feasibility studies, issuance of necessary permits and receipt of adequate financing.

        Development projects, such as San Bartolome and Kensington, have no operating history upon which to base estimates of future operating costs and capital requirements. Particularly for development projects, estimates of reserves, metal recoveries and cash operating costs are to a large extent based upon the interpretation of geologic data obtained from a limited number of drill holes and other sampling techniques and feasibility studies. Estimates of cash operating costs are then derived based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. As a result, actual cash operating costs and economic returns of any and all development projects, including San Bartolome and Kensington, may materially differ from the costs and returns estimated, and accordingly, our results of operations may be adversely affected.

Our silver and gold production may decline, reducing our revenues and negatively impacting our business.

        Our future silver and gold production may decline as a result of an exhaustion of reserves and possible closure of mines. It is our business strategy to conduct silver and gold exploratory activities at our existing mining and exploratory properties as well as at new exploratory projects, and to acquire silver and gold mining properties and businesses that possess mineable ore reserves and are expected to become operational in the near future. We can provide no assurance that our silver and gold production in the future will not decline. Accordingly, our revenues from the sale of silver and gold may decline, negatively affecting our results of operations.



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There are significant hazards associated with our mining activities, not all of which are fully covered by insurance. To the extent we must pay the costs associated with such risks, our business may be negatively affected.

        The mining business is subject to risks and hazards, including environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, cave-ins, flooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset write-downs, monetary losses and possible legal liability. Although we maintain insurance in an amount that we consider to be adequate, liabilities might exceed policy limits, in which event we could incur significant costs that could adversely affect our results of operations. Insurance fully covering many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to us or to other companies in the industry. The realization of any significant liabilities in connection with our mining activities as described above could negatively affect our results of operations.

We are subject to significant governmental regulations, and their related costs and delays may negatively affect our business.

        Our mining activities are subject to extensive federal, state, local and foreign laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations including mine safety, toxic substances and other matters related to our business. Although these laws and regulations have never required us to close any mine, the costs associated with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities could cause additional expense, capital expenditures, restrictions on or suspensions of our operations and delays in the development of our properties. Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of our past and current operations, which could lead to the imposition of substantial fines, penalties and other civil and criminal sanctions. Substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in our operations. Although we believe we are in substantial compliance with applicable laws and regulations, we cannot assure you that any such law, regulation, enforcement or private claim will not have a negative effect on our business, financial condition or results of operations.

        Some of our mining wastes are currently exempt to a limited extent from the extensive set of federal Environmental Protection Agency (EPA) regulations governing hazardous waste under the Resource Conservation and Recovery Act (RCRA). If the EPA designates these wastes as hazardous under RCRA, we would be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste disposal facilities. In addition, if any of these wastes causes contamination in or damage to the environment at a mining facility, such facility may be designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Under CERCLA, any owner or operator of a Superfund site since the time of its contamination may be held liable and may be forced to undertake extensive remedial cleanup action or to pay for the government’s cleanup efforts. Additional regulations or requirements are also imposed upon our tailings and waste disposal areas in Idaho and Alaska under the federal Clean Water Act (CWA) and in Nevada under the Nevada Water Pollution Control Law which implements the CWA. Airborne emissions are subject to controls under air pollution statutes implementing the Clean Air Act in Nevada, Idaho and Alaska. Compliance with CERCLA, the CWA and state environmental laws could entail significant costs, which could negatively affect our operations.

        In the context of environmental permits, including the approval of reclamation plans, we must comply with standards and regulations which entail significant costs and can entail significant delays. Such costs and delays could have a dramatic impact on our operations.



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We are required to obtain government permits to expand operations or begin new operations. The costs and delays associated with such approvals could affect our operations, reduce our revenues, and negatively affect business as a whole.

        Mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations. Obtaining the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often involving public hearings and costly undertakings. The duration and success of permitting efforts are contingent on many factors that are out of our control. The governmental approval process may increase costs and cause delays depending on the nature of the activity to be permitted, and could cause us to not proceed with the development of a mine. Accordingly, this approval process could harm our results of operations.

We are an international company and are exposed to risks in the countries in which we have significant operations or interests. Foreign instability or variances in foreign currencies may cause unforeseen losses, which may negatively affect our business.

        Chile, Argentina and Bolivia are the most significant foreign countries in which we directly or indirectly own or operate mining properties or developmental projects. We also conduct exploratory projects in these countries. Argentina, while currently economically and politically stable, has experienced political instability, currency value fluctuations and changes in banking regulations in recent years. Although the governments and economies of Chile and Bolivia have been relatively stable in recent years, property ownership in a foreign country is generally subject to the risk of expropriation or nationalization with inadequate compensation. Any foreign operations or investment may also be adversely affected by exchange controls, currency fluctuations, taxation and laws or policies of particular countries as well as laws and policies of the United States affecting foreign trade investment and taxation. We may enter into agreements which require us to purchase currencies of foreign countries in which we do business in order to ensure fixed exchange rates. In the event that actual exchange rates vary from those set forth in the hedge contracts, we will experience U.S. dollar-denominated currency gains or losses. Future economic or political instabilities or changes in the laws of foreign countries in which we have significant operations or interests and unfavorable fluctuations in foreign currency exchange rates could negatively impact our foreign operations and our business as whole.

Any of our future acquisitions may result in significant risks, which may adversely affect our business.

        An important element of our business strategy is the opportunistic acquisition of silver and gold mines, properties and businesses. While it is our practice to engage independent mining consultants to assist in evaluating and making acquisitions, any mining properties we may acquire may not be developed profitably or, if profitable when acquired, that profitability might not be sustained. In connection with any future acquisitions, we may incur indebtedness or issue equity securities, resulting in dilution of the percentage ownership of existing shareholders. We intend to seek shareholder approval for any such acquisitions to the extent required by applicable law, regulations or stock exchange rules. We cannot predict the impact of future acquisitions on the price of our business or our common stock. Unprofitable acquisitions, or additional indebtedness or issuances of securities in connection with such acquisitions, may adversely affect our results of operations.

Our ability to find and acquire new mineral properties is uncertain. Accordingly, our prospects are uncertain for the future growth of our business.

        Because mines have limited lives based on proven and probable ore reserves, we are continually seeking to replace and expand our ore reserves. Identifying promising mining properties is difficult and speculative. Furthermore, we encounter strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing silver and gold. Many of these companies have greater financial resources than we do. Consequently, we may be unable to replace and expand current ore reserves through the acquisition of new mining properties on terms we consider acceptable. As a result, our revenues from the sale of silver and gold may decline, resulting in lower income and reduced growth.



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Third parties may dispute our unpatented mining claims, which could result in losses affecting our business.

        The validity of unpatented mining claims, which constitute a significant portion of our property holdings in the United States, is often uncertain and may be contested. Although we have attempted to acquire satisfactory title to undeveloped properties, we, in accordance with mining industry practice, do not generally obtain title opinions until a decision is made to develop a property. As a result, some titles, particularly titles to undeveloped properties, may be defective. Defective title to any of our mining claims could result in litigation, insurance claims, and potential losses adversely affecting our business as a whole.


























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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

        The Company is exposed to various market risks as a part of its operations. As an effort to mitigate losses associated with these risks, the Company may, at times, enter into derivative financial instruments. These may take the form of forward sales contracts, foreign currency exchange contracts and interest rate swaps. The Company does not actively engage in the practice of trading derivative securities for profit. This discussion of the Company’s market risk assessments contains “forward looking statements” that contain risks and uncertainties. Actual results and actions could differ materially from those discussed below.

        The Company’s operating results are substantially dependent upon the world market prices of silver and gold. The Company has no control over silver and gold prices, which can fluctuate widely and are affected by numerous factors, such as supply and demand and investor sentiment. In order to mitigate some of the risk associated with these fluctuations, the Company will at times, enter into forward sale contracts. The Company continually evaluates the potential benefits of engaging in these strategies based on the then current market conditions. The Company may be exposed to nonperformance by counterparties as a result of its hedging activities. This exposure would be limited to the amount that the spot price of the metal falls short of the contract price.

        The Company operates in several foreign countries, specifically Bolivia, Argentina and Chile, which exposes it to risks associated with fluctuations in the exchange rates of the currencies involved. As part of its program to manage foreign currency risk, the Company will enter into foreign currency forward exchange contracts. These contracts enable the Company to purchase a fixed amount of foreign currencies in the future for United States dollars at a pre-determined exchange rate. Gains and losses on foreign exchange contracts that are related to firm commitments are designated and effective as hedges and are deferred and recognized in the same period as the related transaction. All other contracts that do not qualify as hedges are marked-to-market and the resulting gains or losses are recorded in income. The Company continually evaluates the potential benefits of entering into these contracts to mitigate foreign currency risk and proceeds when it believes that the exchange rates are most beneficial.

        All of the Company’s long-term debt at June 30, 2004 is fixed-rate based. The Company’s exposure to interest rate risk, therefore, is limited to the amount it could pay at current market rates. The Company currently does not have any derivative financial instruments to offset the fluctuations in the market interest rate. It may choose to use instruments, such as interest rate swaps, in the future to manage the risk associated with interest rate changes.

        The following table summarizes the information at June 30, 2004 associated with the Company’s financial and derivative financial instruments that are sensitive to changes in interest rates, commodity prices and foreign exchange rates except as to provisionally priced sales of concentrates which are discussed below the table. For long-term debt obligations, the table presents principal cash flows and related average interest rates. For foreign currency exchange contracts, the table presents the notional amount in Chilean Peso's to be purchased along with the average foreign exchange rate.

(dollars in thousands)
 2004

 2005

 2006

 2007

 2008

 Total

 Fair
 Value
 6/30/04



Liabilities
                               
   Long Term Debt (A)   
      Fixed Rate   --   --   --   --   --   $ 180,000   $ 180,000  
      Average Interest Rate    1.25 %  1.25 %  1.25 %  1.25 %  1.25 %      

     (A) Debt due 2024
  


Foreign Currency
  
   Contracts    
      Chilean Peso - USD     $ 3,830    --    --    --    --   $ 3,830   $ (315 )
      Exchange Rate    612    --    --    --    --    --      
      (CLP to USD)  

        At June 30, 2004, the Company had outstanding provisionally priced sales of $30.5 million, consisting of 3.3 million ounces of silver, 20,320 ounces of gold and 994,285 pounds of copper, which had a fair value of approx $29.7 million.

        Fair value is determined by trading information on or near the balance sheet date. Long term debt represents the face amount of the outstanding convertible debentures and timing of when these become due. Interest rates presented in the table are calculated using the weighted average of the outstanding face amount of each debenture for the period remaining in each period presented. All long term debt is denominated in US dollars.



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Item 4.  Controls and Procedures

        Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. An evaluation was performed by the Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the Company's disclosure controls and procedures as of the end of the period covered by this amended quarterly report.

        Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the presence of the matters described below constitute a material weaknesses as defined under standards established by the Public Company Accounting Oversight Board. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected To specifically respond to this matter, and in general to meet our obligations under Section 404 of the Sarbanes-Oxley Act of 2002, the Company has taken the actions described below.

        As of the date of this Form 10Q, the Company believes it has a plan that, when fully implemented, will reduce the likelihood that similar errors could occur in the future. There were no other changes during the second quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's disclosure controls and procedures, subsequent to the date of their evaluation, except as described below.

        In the third quarter of 2004, it was determined that the Company's consolidated financial statements for fiscal 2003 and 2002, and the first quarter of fiscal 2004, would need to be restated as a result of an error discovered in the method of recording revenue from the sales of concentrates. The Company has determined that deficiencies in its internal review processes resulted in this error not being detected on a timely basis.

        In the third quarter of 2004 it was discovered there was an error resulting from the incorrect application of of revenue recognition accounting in accordance with accounting principles generally accepted in the United States of America. Historically, the Company has recorded revenue from concentrate sales agreements based on the gold and silver prices prevailing at the time risk of loss and title to the concentrate passes to third-party smelters (at the lower of month-end spot price or the average monthly price for that month). The final settlement price is not fixed until a later date (typically one to three months after shipment) based upon quoted metal prices by an established metal exchange as set forth in each contract, at such date. The Company’s 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 receiveable from the sale of concentrates measured at the forward price at the time of sale. The embedded does not qualify for hedge accounting. The embedded derivative is recorded as a derivative asset in prepaid expenses and other, or, a derivative liability on the balance sheet and is adjusted to fair value through revenue each period unit the date of final gold and silver settlement. The Company has corrected the error in valuing these embedded derivatives on the financial statements for each of the three, six and nine month periods ending March 31, June 30, and September 30 for 2003 and 2002, respectively, the years ending December 31, 2003 and 2002, respectively and the three month period ending, March 31, 2004. In addition, the Company has changed its significant accounting policy for revenue recognition, including embedded derivatives, to comply with accounting principles generally accepted in the United States of America. The Company has also taken steps to implement new procedures to strengthen its review process to remediate the material weakness surrounding the preparation of the financial statements.

        Even an effective internal control system, no matter how well designed, has inherent limitations—including the possibility of the circumvention or overriding of controls. Therefore, the Company’s internal control over financial reporting can provide only reasonable assurance with respect to the reliability of the Company’s financial reporting and financial statement preparation.

        The Company has disclosed to the auditors and to the audit committee of the board of directors this issue as prescribed by Sarbanes Oxley Sec. 404(a).

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PART II.  Other Information

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

        The following table sets forth information regarding purchases by the Company of its common stock during the periods indicated:

Period
(a) Total Number
of Shares (or
Units) Purchased

(b) Average
Price Paid per
Share (or
Unit)

(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs

(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs.

4/01/04 - 4/30/04 -- -- -- --
5/1/04 - 5/31/04 -- -- -- --
6/1/04 - 6/31/04 -- -- -- --
Total -- -- -- --


Item 4.  Submission of Matters to a Vote of Security Holders

        The Company’s Annual Meeting of Shareholders was held on May 20, 2004. Of the Company’s total 213,174,080 shares of common stock outstanding on April 1, 2004, (the record date), 179,286,528 shares (or 84.1% of the outstanding) were represented in person or by proxy at the Annual Meeting.

The first proposal was the election of directors. The following persons were nominated and elected to serve as members of the Board of Directors for one year or until their successors are elected and qualified by the votes indicated: Cecil D Andrus – 175,490,202 for and 3,796,326 withheld; James J. Curran – 172,807,111 for and 6,479,417 withheld; James A. McClure – 173,657,984 for and 5,628,544 withheld; Robert E. Mellor – 174,678,134 for and 4,608,394 withheld; John H. Robinson – 175,649,221 for and 3,637,307 withheld; J. Kenneth Thompson – 173,789,387 for and 5,497,141 withheld; Timothy R. Winterer –175,632,665 for and 3,653,863 withheld; and Dennis E. Wheeler – 174,836,968 for and 4,449,560 withheld.



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        The second proposal was the approval of an amendment to Article II of the Restated and Amended Articles of Incorporation increasing the total number of shares of authorized common stock from 250 million shares to 500 million shares. The proposal was approved by the holders of more than the required majority of the shares of common stock voting at the meeting. The proposal was approved by a vote of 165,261,986 shares for (representing 77.5% of the shares voting), 13,244,482 shares against with 780,060 shares abstaining.


























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Item 6.  Exhibits and Reports on Form 8-K

  a) Exhibits.

  31.1 Certification of the CEO

  31.2 Certification of the CFO

  32.1 Certification of the CEO (18 U.S.C. Section 1350)

  32.2 Certification of the CFO (18 U.S.C. Section 1350)

  (b) Reports on Form 8-K.

  On May 7, 2004, the Company filed a Current Report on Form 8-K reporting information pursuant to Items 7 and 12 thereto. On May 28, June 3 and June 23, 3004, the Company filed Current Reports on Form 8-K, each reporting information pursuant to Items 5 and 7 thereto.





















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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 thereunto duly authorized.


COEUR D'ALENE MINES CORPORATION
(Registrant)


Date:  August 16, 2004 By:    /s/  Dennis E. Wheeler
DENNIS E. WHEELER
Chairman and Chief Executive Officer


Date:  August 16, 2004 By:    /s/  Robert Martinez
ROBERT MARTINEZ
President and Chief Operating Officer


Date:  August 16, 2004 By:    /s/  James A. Sabala
JAMES A. SABALA
Executive Vice President and Chief Financial Officer












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