-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R3vWAW9bel8rVNT5jsAbR3j3nrSf+rXOqFOA80+XhnB4sRk0Arw87DOlMfi/DmOY rPlyaSUBXBVt7FHxtnqNhw== 0000927356-00-000940.txt : 20000508 0000927356-00-000940.hdr.sgml : 20000508 ACCESSION NUMBER: 0000927356-00-000940 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECHO BAY MINES LTD CENTRAL INDEX KEY: 0000722080 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 000000000 STATE OF INCORPORATION: A0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08542 FILM NUMBER: 620785 BUSINESS ADDRESS: STREET 1: 6400 S FIDDLERS GREEN CIRCLE STREET 2: STE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111-4957 BUSINESS PHONE: 3037148600 MAIL ADDRESS: STREET 1: 6400 S FIDDLERS GREEN CIRCLE STREET 2: STE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111-4957 10-Q 1 FORM 10-Q FOR PERIOD ENDING 3/31/2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------- [ ] 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 1-8542 ---------- ECHO BAY MINES LTD. - ------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Incorporated under the laws of Canada None - ---------------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Suite 540, 6400 S. Fiddlers Green Circle Englewood, CO 80111-4957 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 714-8600 ----- --------- 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 ------- _______ Title of Class Shares Outstanding as of ----------------- May 3, 2000 Common Shares ------------------ without nominal or par value 140,607,145 ECHO BAY MINES LTD. INDEX
Page ----- PART I - FINANCIAL INFORMATION ITEM 1. Condensed Financial Statements (Unaudited)..............................................1 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..11 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings......................................................................23 ITEM 6. Exhibits and Reports on Form 8-K.......................................................23 SIGNATURE........................................................................................ 24
i ECHO BAY MINES LTD. PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEET March 31 December 31 thousands of U.S. dollars 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 2,397 $ 3,401 Short-term investments 2,027 2,042 Interest and accounts receivable 3,020 2,942 Inventories (note 2) 51,940 37,204 Prepaid expenses and other assets 16,194 15,621 - ---------------------------------------------------------------------------------------------------------------------------- 75,578 61,210 Plant and equipment (note 3) 159,380 167,438 Mining properties (note 3) 80,040 81,959 Long-term investments and other assets 25,037 29,255 - ---------------------------------------------------------------------------------------------------------------------------- $ 340,035 $ 339,862 ============================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 32,783 $ 29,961 Income and mining taxes payable 3,496 3,004 Gold and other financings (note 4) 14,375 13,750 Deferred income (note 5) 11,282 10,525 - ---------------------------------------------------------------------------------------------------------------------------- 61,936 57,240 Gold and other financings (note 4) 49,156 42,919 Deferred income (note 5) 75,177 83,374 Other long-term obligations 49,634 47,847 Deferred income taxes 5,825 7,381 Commitments and contingencies (notes 10 and 11) Common shareholders' equity: Common shares, no par value, unlimited number authorized; 140,607,145 shares issued and outstanding 713,343 713,343 Capital securities (note 6) 128,416 124,616 Deficit (721,142) (714,844) Foreign currency translation (22,310) (22,014) - ---------------------------------------------------------------------------------------------------------------------------- 98,307 101,101 - ---------------------------------------------------------------------------------------------------------------------------- $ 340,035 $ 339,862 ============================================================================================================================
See accompanying notes to interim consolidated financial statements. 1
CONSOLIDATED STATEMENT OF OPERATIONS Three months ended thousands of U.S. dollars, March 31 except for per share data 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Revenue $ 51,797 $ 48,782 - ----------------------------------------------------------------------------------------------------------------------------- Expenses: Operating costs 30,209 32,413 Royalties 1,562 1,748 Production taxes 525 86 Depreciation and amortization 11,698 12,801 Reclamation and mine closure 2,269 1,816 General and administrative 1,586 1,873 Exploration and development 6,023 2,117 Interest and other (note 7) 2,023 954 - ----------------------------------------------------------------------------------------------------------------------------- 55,895 53,808 - ----------------------------------------------------------------------------------------------------------------------------- Loss before income taxes (4,098) (5,026) - ----------------------------------------------------------------------------------------------------------------------------- Income tax expense (recovery): Current 75 75 Deferred (1,500) -- - ----------------------------------------------------------------------------------------------------------------------------- (1,425) 75 - ----------------------------------------------------------------------------------------------------------------------------- Net loss $ (2,673) $ (5,101) ============================================================================================================================= Net loss attributable to common shareholders (note 6) $ (6,298) $ (8,326) ============================================================================================================================= Loss per share $ (0.04) $ (0.06) ============================================================================================================================= Weighted average number of shares outstanding (thousands) 140,607 140,607 =============================================================================================================================
CONSOLIDATED STATEMENT Three months ended OF DEFICIT March 31 thousands of U.S. dollars 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Balance, beginning of period $ (714,844) $ (663,875) Net loss (2,673) (5,101) Interest on capital securities, net of nil tax effect (note 6) (3,625) (3,225) - ----------------------------------------------------------------------------------------------------------------------------- Balance, end of period $ (721,142) $ (672,201) =============================================================================================================================
See accompanying notes to interim consolidated financial statements. 2 ECHO BAY MINES LTD.
CONSOLIDATED STATEMENT Three months ended OF CASH FLOW March 31 thousands of U.S. dollars 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM (USED IN): OPERATING ACTIVITIES Net cash flows provided from (used in) operating activities $ (4,133) $ 5,487 - ------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Mining properties, plant and equipment (4,662) (8,089) Long-term investments and other assets (395) (4,999) Proceeds on repurchase of gold forward sales -- 1,500 Short-term investments -- 485 Proceeds on the sale of plant and equipment 44 68 Other 1,267 (622) - -------------------------------------------------------------------------------------------------------------------------------- (3,746) (11,657) - -------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Currency borrowings 10,000 8,000 Debt repayments (3,125) (4,998) Other -- (1,389) - ------------------------------------------------------------------------------------------------------------------------------- 6,875 1,613 - ------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (1,004) (4,557) Cash and cash equivalents, beginning of period 3,401 7,987 - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 2,397 $ 3,430 ===============================================================================================================================
See accompanying notes to interim consolidated financial statements. 3 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted 1. GENERAL In the opinion of management, the accompanying unaudited consolidated balance sheet, consolidated statement of operations, consolidated statement of deficit, and consolidated statement of cash flow contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly in all material respects the consolidated financial position of Echo Bay Mines Ltd. (the Company) as of March 31, 2000 and December 31, 1999 and the consolidated results of operations and cash flow for the three months ended March 31, 2000 and 1999. For further information, refer to the financial statements and related footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 1999. New Canadian accounting standards for income taxes were implemented by the Company on a prospective basis as of January 1, 2000. The adoption of these new standards had no effect on the Company's financial statements. 2. INVENTORIES
March 31 December 31 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Precious metals -- bullion $ 22,500 $ 16,033 -- in-process 9,941 7,538 Materials and supplies 19,499 13,633 - -------------------------------------------------------------------------------------------------------------------------- $51,940 $ 37,204 ==========================================================================================================================
3. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment March 31 December 31 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Cost $ 659,152 $ 661,048 Less accumulated depreciation 499,772 493,610 - -------------------------------------------------------------------------------------------------------------------------- $ 159,380 $ 167,438 ==========================================================================================================================
Mining properties March 31 December 31 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Producing mines' acquisition and development costs $ 273,445 $ 272,362 Less accumulated amortization 235,127 230,470 - -------------------------------------------------------------------------------------------------------------------------- 38,318 41,892 Development properties' acquisition and development costs 13,967 14,065 Deferred mining costs 27,755 26,002 - -------------------------------------------------------------------------------------------------------------------------- $ 80,040 $ 81,959 ==========================================================================================================================
4. GOLD AND OTHER FINANCINGS
March 31 December 31 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Currency loans $ 58,125 $ 51,250 Capital securities (note 6) 5,406 5,419 - -------------------------------------------------------------------------------------------------------------------------- 63,531 56,669 Less current portion 14,375 13,750 - -------------------------------------------------------------------------------------------------------------------------- $ 49,156 $ 42,919 ==========================================================================================================================
4 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted 5. DEFERRED INCOME
March 31 December 31 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Modification of hedging contracts $ 58,966 $ 61,382 Premiums received on gold and silver option contracts 27,052 30,835 Other 441 1,682 - -------------------------------------------------------------------------------------------------------------------------- 86,459 93,899 Less current portion 11,282 10,525 - -------------------------------------------------------------------------------------------------------------------------- $ 75,177 $ 83,374 ==========================================================================================================================
6. CAPITAL SECURITIES In 1997, the Company issued $100.0 million of 11% capital securities due in April 2027. The Company has the right to defer interest payments on the capital securities for a period not to exceed 10 consecutive semi-annual periods. During a period of interest deferral, interest accrues at a rate of 12% per annum, compounded semi-annually, on the full principal amount and deferred interest. The Company, at its option, may satisfy its deferred interest obligation by delivering common shares to the indenture trustee for the capital securities. The trustee would sell the Company's shares and remit the proceeds to the holders of the securities in payment of the deferred interest obligation. Since April 1998, the Company has exercised its right to defer its semi-annual interest payments to holders of the capital securities. The deferred interest accrued at March 31, 2000, totaling $33.8 million, has been classified within the equity component of the capital securities obligation on the balance sheet as the Company has the option to satisfy the deferred interest by delivering common shares. 7. INTEREST AND OTHER
Three months ended March 31 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Interest income $ (232) $ (68) Interest expense 1,408 1,100 Unrealized loss on share investments -- 23 (Gain) loss on sale of share investments -- (485) Other 847 384 - --------------------------------------------------------------------------------------------------------------------------- $ 2,023 $ 954 ===========================================================================================================================
8. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) U.S. GAAP financial statements The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada. These differ in some respects from those in the United States, as described below and in the footnotes to the financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 5 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted The effects of the GAAP differences on the consolidated statement of operations would have been as follows.
Three months ended March 31 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Net loss under Canadian GAAP $ (2,673) $ (5,101) Change in market value of foreign exchange contracts 286 2,343 Additional interest expense on capital securities (3,625) (3,225) Amortization of deferred financing on capital securities (158) (158) Unrealized loss on gold call options sold (3) -- - --------------------------------------------------------------------------------------------------------------------------- Net loss under U.S. GAAP $ (6,173) $ (6,141) =========================================================================================================================== Loss per share under U.S. GAAP $ (0.04) $ (0.04) ===========================================================================================================================
The effects of the GAAP differences on the consolidated balance sheet would have been as follows.
Unrealized Loss on Call Foreign Santa Elina Canadian Options Exchange Acquisition/ Capital U.S. March 31, 2000 GAAP Sold Contracts Write-off Securities GAAP - ------------------------------------------------------------------------------------------------------------------ Long-term investments and other assets $ 25,037 $ -- $ -- $ -- $ 1,267 $ 26,304 Gold and other financings 63,531 -- -- -- 94,593 158,124 Deferred income 86,459 -- (5,995) -- -- 80,464 Other long-term obligations 49,634 2,149 947 -- 33,823 86,553 Common shares 713,343 -- -- 36,428 -- 749,771 Capital securities 128,416 -- -- -- (128,416) -- Deficit 721,142 2,149 (5,048) 36,428 (1,267) 753,404 Common shareholders' equity 98,307 (2,149) 5,048 -- (127,149) (25,943) - ------------------------------------------------------------------------------------------------------------------
The following statement of comprehensive loss would be disclosed in accordance with U.S. GAAP.
Three months ended March 31 1997 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Net loss under U.S. GAAP $ (6,173) $ (6,141) Other comprehensive income (loss), after a nil income tax effect: Foreign currency translation adjustments (296) 1,473 - --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (296) 1,473 - --------------------------------------------------------------------------------------------------------------------------- Comprehensive loss $ (6,469) $ (4,668) ===========================================================================================================================
Additionally, under U.S. GAAP, the equity section of the balance sheet would present a subtotal for accumulated other comprehensive loss, as follows. March 31 December 31 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Foreign currency translation $ (22,310) $ (22,014) - --------------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive loss $ (22,310) $ (22,014) ===========================================================================================================================
6 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal quarters of fiscal years beginning after June 15, 2000. The impact of the new standard on the Company's financial information prepared under U.S. GAAP has not yet been determined. 9. SEGMENT INFORMATION The Company's management regularly evaluates the performance of the Company by reviewing operating results on a minesite by minesite basis. As such, the Company considers each producing minesite to be an operating segment. In the first quarter of 2000, the Company had three operating mines: Round Mountain in Nevada, USA; McCoy/Cove in Nevada, USA; and Kettle River in Washington, USA. In January 1998, the Company temporarily suspended operations at its Lupin mine in the Nunavut Territory of Canada. Production recommenced in April 2000. All of the Company's mines are 100% owned except for Round Mountain, which is 50% owned. In making operating decisions and allocating resources, the Company's management specifically focuses on the production levels and cash operating costs generated by each operating segment, as summarized in the following tables.
Three months ended March 31 Gold Production (ounces) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Round Mountain (50%) 71,954 59,685 McCoy/Cove 43,146 32,114 Kettle River 25,070 26,965 - ---------------------------------------------------------------------------------------------------------------------------- Total gold 140,170 118,764 ============================================================================================================================ Silver Production (ounces) - all from McCoy/Cove 3,842,946 2,664,838 ============================================================================================================================
Three months ended March 31 Cash Operating Costs per Ounce of Gold Produced 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Round Mountain $ 185 $ 221 McCoy/Cove 149 209 Kettle River 227 228 - ---------------------------------------------------------------------------------------------------------------------------- Company consolidated weighted average $ 171 $ 216 ============================================================================================================================
7 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted
Three months ended Reconciliation of Cash Operating March 31 Costs per Ounce to Financial Statements 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Operating costs by minesite: Round Mountain $ 11,486 $ 12,434 McCoy/Cove 13,961 14,490 Kettle River 4,762 5,489 - ----------------------------------------------------------------------------------------------------------------------------- Total operating costs per financial statements 30,209 32,413 Change in finished goods inventories and other 4,021 3,500 Co-product cost of silver produced (10,261) (10,260) - ----------------------------------------------------------------------------------------------------------------------------- Cash operating costs $ 23,969 $ 25,653 ============================================================================================================================= Gold ounces produced 140,170 118,764 ============================================================================================================================= Cash operating costs per ounce $ 171 $ 216 =============================================================================================================================
The Company's management generally monitors revenue on a consolidated basis. Information regarding the Company's consolidated revenue is provided below.
Three months ended March 31 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Total gold and silver revenue $ 51,797 $ 48,782 Average gold price realized per ounce $ 320 $ 324 Average silver price realized per ounce $ 5.80 $ 5.52 - ----------------------------------------------------------------------------------------------------------------------------
10. HEDGING ACTIVITIES AND COMMITMENTS Gold and silver commitments The Company's gold and silver commitments at March 31, 2000 were as follows.
Gold Silver -------------------------------------- ------------------------------------- Forward Price of Forward Price of Sales Forward Sale Sales Forward Sales (ounces) (per ounce) (ounces)(1) (per ounce) - ------------------------------------------------------------------------------------------------------------------ Remainder of 2000 174,584 $ 314 2,660,000 $ 5.50 2001 105,000 315 1,800,000 5.79 2002 60,000 315 -- -- 2003 60,000 315 -- -- 2004 60,000 315 -- -- 2005 15,000 315 -- -- - ------------------------------------------------------------------------------------------------------------------ 474,584 $ 315 4,460,000 $ 5.62 ==================================================================================================================
(1) 2.7 million ounces of forward sales at $5.46 per ounce are contingent on the London silver fixing being above $4.85 per ounce. The monthly actual number of ounces delivered will be based on the ratio of days the London silver fixings is at, or above, $4.85 per ounce, compared to the total number of London silver fixings. 8 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted The Company's option positions at March 31, 2000 were as follows.
Put Options Purchased Put Options Sold Call Options Purchased Call Options Sold ------------------------- ------------------------ ---------------------------- ----------------------- Strike Price Strike Price Strike Price Strike Price Ounces per Ounce Ounces per Ounce Ounces per Ounce Ounces per Ounce - -------------------------------------------------------------------------------------------------------------------------------- Gold - ---- Remainder of 2000 187,500 $ 270 16,667 $ 290 117,917 $ 345 187,500 $ 360 2001 -- -- -- -- 105,000 351 -- -- 2002 -- -- -- -- 60,000 360 -- -- 2003 -- -- -- -- 60,000 360 -- -- 2004 -- -- -- -- 60,000 360 -- -- 2005 -- -- -- -- 120,000 395 105,000 340 - -------------------------------------------------------------------------------------------------------------------------------- 187,500 $ 270 16,667 $ 290 522,917 $ 363 292,500 $ 353 ================================================================================================================================ Silver - ------ Remainder of 2000 1,000,000 $ 6.00 750,000 $ 4.75 -- $ -- -- $ -- 2001 1,000,000 6.00 2,500,000 4.75 1,500,000 6.60 -- -- - -------------------------------------------------------------------------------------------------------------------------------- 2,000,000 $ 6.00 3,250,000 $ 4.75 1,500,000 $ 6.60 -- $ -- ================================================================================================================================
Currency position At March 31, 2000, the Company had an obligation under foreign currency exchange contracts to purchase C$33.0 million in the remainder of 2000 at an exchange rate of C$1.39 to U.S.$1.00. Shown below are the carrying amounts and estimated fair values of the Company's hedging instruments at March 31, 2000 and December 31, 1999.
March 31, 2000 December 31, 1999 --------------------------------- --------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------------------------------------------------------ Gold forward sales $ -- $ 3,000 $ -- $ (900) Silver forward sales -- 2,000 -- 1,000 Gold options - puts purchased 800 900 1,400 1,700 - calls sold (4,100) (5,300) (4,100) (5,600) - puts sold (300) (200) (1,300) (600) - calls purchased 8,100 6,200 9,100 8,000 Silver options - puts purchased 2,400 1,700 2,500 1,400 - puts sold (1,600) (500) (2,200) (500) - calls purchased 700 100 1,000 300 Foreign currency contracts -- (900) -- (1,200) - ------------------------------------------------------------------------------------------------------------------------------ $ 7,000 $ 3,600 ==============================================================================================================================
Fair values are estimated based upon market quotations of various input variables. These variables were used in valuation models that estimate the fair market value. 9 ECHO BAY MINES LTD. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 Tabular dollar amounts in thousands of U.S. dollars, except amounts per share and per ounce or unless otherwise noted 11. OTHER COMMITMENTS AND CONTINGENCIES Summa Echo Bay Exploration Inc. and Echo Bay Management Corporation, indirect subsidiaries of Echo Bay Mines Ltd., have received the decision of the Nevada Supreme Court in the case involving the companies' obligations to pay certain royalties to Summa Corporation. In an unpublished order filed April 26, 2000, the Supreme Court of Nevada reversed the decision of the trial court and remanded the case back to the trial court for "a calculation of the appropriate [royalties] in a manner not inconsistent with this order". The companies believe that the Court's decision is incorrect and intend to pursue all available remedies to seek the Court's redetermination of its decision. In September 1992, the Summa Corporation commenced a lawsuit against the Echo Bay companies, and the predecessor owner of the McCoy/Cove and Manhattan mines, alleging improper deductions in the calculation of royalties payable over several years of production at those mines. The matter was tried in the Nevada State court in April 1997, with Summa claiming more than $13 million, and, in September 1997, judgement was rendered for the Echo Bay companies. The decision was appealed by Summa to the Nevada Supreme Court which heard the matter on November 9, 1999. If the decision is upheld, the royalty calculation at McCoy/Cove would change and additional royalties would be payable from April 1997. The case was decided by a panel comprised of three of the seven Justices of the Supreme Court of Nevada and the Echo Bay defendants will petition that panel for a rehearing. If the petition is unsuccessful, the Echo Bay defendants will petition the Supreme Court for a hearing before the full Court. Both the Echo Bay defendants and their counsel believe that grounds exist to modify or reverse the decision. Handy and Harman On March 29, 2000 Handy & Harman Refining Group, Inc., which operated a facility used by the Company for the refinement of dore bars, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The outcome of these proceedings is uncertain at this time. The Company has gold and silver accounts at this refining facility with an estimated market value of approximately $2.4 million. 10 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION March 31, 2000 (U.S. dollars) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's profitability is determined in large part by gold and silver prices. Market prices of gold and silver are determined by factors beyond the Company's control. The Company's operations continue to be materially affected by the depressed price of gold, which averaged $279 per ounce in 1999 and $290 per ounce during the first quarter of 2000. The Company reduces the risk of future gold and silver price declines by hedging a portion of its production. The principal hedging tools used are gold and silver loans, fixed and floating forward sales contracts, spot-deferred contracts, swaps and options. The Company's hedge position as of March 31, 2000 partially protects the Company against gold price declines in the years 2000 through 2005. For the remainder of 2000, this position includes forward sales of approximately 175,000 ounces at a forward price of $314 per ounce. Additionally, the Company has purchased put options on approximately 188,000 ounces of gold at an average strike price of $270 per ounce to provide downside protection in the remainder of 2000. For the years 2001 through 2005, the Company has forward sales totaling 300,000 ounces of gold at a forward price of $315 per ounce. In addition, the Company has hedged 3.7 million silver ounces at a minimum average cash price of $5.64 per ounce for the remainder of 2000 and 2.8 million silver ounces at a minimum average cash price of $5.86 per ounce for 2001. See note 10 to the interim consolidated financial statements. The Company has reopened the Lupin mine, located in the Nunavut Territory of Canada. The Lupin mine was placed on care and maintenance in early 1998 due to depressed gold prices and a high cost structure. A reengineering study, completed in late 1998, identified savings that helped lower costs. Gold production from Lupin recommenced in April 2000. The Company continues to defer a final construction decision on Aquarius, a planned gold mine in Ontario, Canada. The Company's exploration efforts are focused on projects principally located in North America where the Company already has extensive gold mining infrastructure. In March 1997, the Company issued $100.0 million of 11% capital securities due 2027 (see note 6 to the interim consolidated financial statements). The Company has the right to defer interest payments on the capital securities for up to 10 consecutive semi-annual periods. During a period of interest deferral, interest accrues at a rate of 12% per annum, compounded semi-annually on the full principal amount and deferred interest. The Company, at its option, may satisfy its deferred interest obligation by delivering common shares to the indenture trustee for sale, the proceeds of which would be remitted to the holders of the securities in payment of the deferred interest. The Company has exercised its right to defer interest payments since April 1998. The Company has deferred a total of $33.8 million in interest to date. 11 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION March 31, 2000 (U.S. dollars) LIQUIDITY AND CAPITAL RESOURCES Net cash flow used in operating activities was $4.1 million for the first quarter of 2000 compared to net cash provided from operating activities of $5.5 million for the first quarter of 1999. The 2000 results compared to 1999 reflect increases in inventories ($12.1 million) and increased exploration and development spending ($3.9 million) primarily related to the recent recommencement of Lupin operations, and decreased cash gold prices realized ($5.9 million). These factors were partially offset by increases in accounts payable associated with timing differences and the recommencement of Lupin operations ($8.2 million), increased gold and silver sales volume ($3.0 million), and decreased operating costs ($2.2 million). Net cash used in investing activities was $4.6 million in the first quarter of 2000, primarily related to mining properties, plant and equipment. Net cash provided by financing activities was $6.9 million in the first quarter of 2000, comprised of currency borrowings of $10.0 million offset by currency loan repayments of $3.1 million. The Company had $2.4 million in cash and cash equivalents and $2.0 million in short-term investments at March 31, 2000. At March 31, 2000, the Company's total debt was $63.5 million, of which $14.4 million was current. At March 31, 2000, the Company had $40.0 million outstanding, and up to an additional $10.0 million or gold equivalent, subject to covenant limitations, available until August 2001, under its revolving credit facility. The Company has no restrictions on the borrowing capacity of this line, based on the current trailing 90-day average spot price of gold. At March 31, 2000, the fair value of the Company's hedge portfolio was $7.0 million, which is within the predetermined margin limits. Margin deposits could be required by certain counterparties if the fair value of the hedge portfolio were less than the predetermined margin threshold. For the full year 2000, the Company expects to incur $12 million in capital expenditures, of which $2.5 million has been incurred in the first quarter of 2000. The Company will rely on its operating cash flow and borrowing capacity under its revolving loan facility to fund the remainder of its planned 2000 capital expenditures. The Company continues to monitor its discretionary spending in view of the depressed gold price and the cost structure at the Company's operating mines. During the first quarter of 2000, the Company was advised by The American Stock Exchange that the Company's listing eligibility is under review. The review has been undertaken because the Company has fallen below two of the Exchange's continued listing guidelines: the Company has sustained net losses in its five most recent fiscal years and, in the Exchange's view, the Company's shareholders' equity is inadequate. The Company is addressing the Exchange's concerns but the outcome of the review is uncertain. See note 11 to the interim consolidated financial statements, "Other Commitments and Contingencies". 12 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) FINANCIAL REVIEW The Company reported a net loss of $2.7 million ($0.04 per share) in the first quarter of 2000, compared to a net loss of $5.1 million ($0.06 per share) in the first quarter of 1999. The 2000 results compared to 1999 reflect increased gold and silver sales volume ($2.8 million), and decreased operating costs ($2.2 million) and a deferred income tax recovery in the first quarter of 2000 related to the completion of certain prior year tax audits ($1.5 million). These factors were partially offset by increased exploration and development spending ($3.9 million). Gold production increased 18% to 140,170 ounces in the first quarter of 2000 compared to 118,764 ounces in the first quarter of 1999. Increased production reflects higher mill and leach pad tons at Round Mountain and increased mill grades and recoveries at McCoy/Cove, partially offset by lower reusable pad and mill grades and recoveries at Round Mountain. Cash operating costs were $171 per ounce of gold in the first quarter of 2000, versus $216 in the first quarter of 1999. The decrease was primarily a result of higher production at Round Mountain and McCoy. Total production costs were $252 per ounce in the first quarter of 2000, versus $316 per ounce in the first quarter of 1999. The term ounce as used in this Form 10-Q means "troy ounce". Revenue Statistics for gold and silver ounces sold and other revenue data are set out below.
Three months ended March 31 Revenue Data 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Gold - ---- Ounces sold 116,794 109,711 Average price realized/ounce - revenue basis $ 320 $ 324 Average price realized/ounce - cash basis (1) $ 301 $ 351 Average market price/ounce $ 290 $ 287 Revenue (millions of U.S. $) $ 37.4 $ 35.6 Percentage of total revenue 72% 73% Silver - ------ Ounces sold 2,488,007 2,393,095 Average price realized/ounce - revenue basis $ 5.80 $ 5.52 Average price realized/ounce - cash basis (1) $ 5.67 $ 5.34 Average market price/ounce $ 5.20 $ 5.30 Revenue (millions of U.S. $) $ 14.4 $ 13.2 Percentage of total revenue 28% 27% - --------------------------------------------------------------------------------------------------------------------------- Total revenue (millions of U.S. dollars) $ 51.8 $ 48.8 ===========================================================================================================================
(1) Excludes non-cash items affecting gold and silver revenues, such as the recognition of deferred income or deferral of revenue to future periods for hedge accounting purposes. 13 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) The effects of changes in sales prices and volume were as follows.
Revenue Variance Analysis 2000 vs. 1999 Three months ended (millions of U.S. dollars) March 31 - ----------------------------------------------------------------------------------------------------------- Lower gold prices $(0.5) Higher silver prices 0.7 Change in volume 2.8 - ----------------------------------------------------------------------------------------------------------- Increase in revenue $ 3.0 ===========================================================================================================
Production Costs Production cost data per ounce of gold is set out below.
Three months ended Production Costs per March 31 Ounce of Gold Produced 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Direct mining expense $ 192 $ 213 Deferred stripping and mine development costs (13) (11) Inventory movements and other (8) 14 - ----------------------------------------------------------------------------------------------------------------------------- Cash operating costs 171 216 Royalties 7 10 Production taxes 3 1 - ----------------------------------------------------------------------------------------------------------------------------- Total cash costs 181 227 Depreciation 38 59 Amortization 22 21 Reclamation and mine closure 11 9 - ----------------------------------------------------------------------------------------------------------------------------- Total production costs $ 252 $ 316 =============================================================================================================================
Expenses Operating costs per ounce vary with the quantity of gold and silver sold and with the cost of operations. Cash operating costs were $171 per ounce of gold in the first quarter of 2000 and $216 in the first quarter of 1999. See "Operations Review."
Reconciliation of Cash Operating Costs per Ounce to Financial Statements Three months ended thousands of U.S. dollars, March 31 except per ounce amounts 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Operating costs per financial statements $ 30,209 $ 32,413 Change in finished goods inventory and other 4,021 3,500 Co-product cost of silver produced (10,261) (10,260) - ----------------------------------------------------------------------------------------------------------------------------- Cash operating costs $ 23,969 $ 25,653 ============================================================================================================================= Gold ounces produced 140,170 118,764 ============================================================================================================================= Cash operating costs per ounce $ 171 $ 216 =============================================================================================================================
Reserve estimates The prices used in estimating the Company's ore reserves at December 31, 1999 were $325 per ounce of gold and $5.50 per ounce of silver. The market price for gold is currently below this level. If the Company determines that its reserves should be estimated at a significantly lower price than that used at December 31, 1999, there 14 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) could be a material reduction in the amount of gold reserves. For example, the Company estimates that based on extrapolation of information developed in reserve estimation, but without the same degree of analysis as required for reserve estimation, if the Company's reserves at December 31, 1999 were based on a price of $300 per ounce of gold, while reserves at the operating properties would not decrease, reserves at the Aquarius development property would decrease approximately 11%. Should any significant reductions in reserves occur, material write-downs of the Company's investment in mining properties and/or increased amortization charges may be required. OPERATIONS REVIEW Operating data by mine is set out below.
Three months ended March 31 Operating Data by Mine 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Gold production (ounces) - ------------------------ (a) Round Mountain (50%) 71,954 59,685 (b) McCoy/Cove 43,146 32,114 (c) Kettle River 25,070 26,965 - ---------------------------------------------------------------------------------------------------------------------------- Total gold 140,170 118,764 ============================================================================================================================ Silver production (ounces) - -------------------------- (b) McCoy/Cove 3,842,946 2,664,838 - ---------------------------------------------------------------------------------------------------------------------------- Total silver 3,842,946 2,664,838 ============================================================================================================================
Gold production increased 18% to 140,170 ounces in the first quarter of 2000 compared to 118,764 ounces in the first quarter of 1999. Increased production was primarily due to higher mill and leach pad tons at Round Mountain and increased mill grades and recoveries at McCoy/Cove, partially offset by lower reusable pad and mill grades and recoveries at Round Mountain. Silver production increased to 3.8 million ounces in the first quarter of 2000 from 2.7 million ounces in the first quarter of 1999, reflecting increased grades and recoveries. For the full year 2000, the Company's gold production target is between 660,000 and 700,000 ounces and the silver production target is between 9 and 10 million ounces.
Three months ended March 31 Operating Data by Mine 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Cash operating costs (per ounce of gold) - ---------------------------------------- (a) Round Mountain $ 185 $ 221 (b) McCoy/Cove 149 209 (c) Kettle River 227 228 - ---------------------------------------------------------------------------------------------------------------------------- Company average $ 171 $ 216 ============================================================================================================================
Cash operating costs were $171 per ounce of gold in the first quarter of 2000, compared to $216 in the first quarter of 1999. The Company has targeted consolidated cash operating costs of $200 to $210 per ounce of gold produced for the full year 2000. 15 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) (a) Round Mountain, Nevada (50% owned)
Three months ended March 31 OPERATING DATA 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Gold produced (ounces): Heap leached - reusable pad (50%) 17,768 19,338 Heap leached - dedicated pad (50%) 32,373 25,235 Milled (50%) 19,878 15,112 Other (50%) 1,935 -- -------- ------- Total (50%) 71,954 59,685 Mining cost/ton of ore and waste $ 0.83 $ 0.74 Heap leaching cost/ton of ore $ 0.57 $ 0.73 Milling cost/ton of ore $ 2.90 $ 3.32 Production cost per ounce of gold produced: Direct mining expense $ 215 $ 236 Deferred stripping costs (19) (30) Inventory movements and other (11) 15 -------- ------- Cash operating cost 185 221 Royalties 11 20 Production taxes 1 1 -------- ------- Total cash cost 197 242 Depreciation 46 49 Amortization 18 18 Reclamation and mine closure 9 9 -------- ------- Total production costs $ 270 $ 318 -------- ------- Heap leached - reusable pad: Ore processed (tons/day) (100%) 27,938 18,803 Total ore processed (000 tons) (100%) 2,542 1,711 Grade (ounce/ton) 0.026 0.036 Recovery rate (%) 58.5 77.6 Heap leached - dedicated pad: Ore processed (tons/day) (100%) 145,275 91,648 Total ore processed (000 tons) (100%) 13,220 8,340 Grade (ounce/ton) 0.011 0.010 Recovery rate (1) Milled: Ore processed (tons/day) (100%) 8,063 7,275 Total ore processed (000 tons) (100%) 734 662 Grade (ounce/ton) 0.046 0.086 Recovery rate (%) 84.4 86.0 - -----------------------------------------------------------------------------------------------------------------------------
(1) Recovery rates on dedicated pads can only be estimated, as actual recoveries will not be known until leaching is complete. At the Round Mountain mine, the gold recovery rate on the dedicated heap leach pad is estimated at 50%. The Company has a 50% ownership interest in, and is the operator of, the Round Mountain mine in Nevada. The Company's share of mine production was 71,954 ounces for the first quarter of 2000 compared with 59,685 ounces in the first quarter of 1999. The increase in production is attributable to the mining of more ore rather than waste tons in the first quarter of 2000 when compared to the same period in 1999. This resulted in 57% 16 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) more tons being placed on leach pads in the first quarter of 2000, compared with the same period last year. Round Mountain completed an area of high stripping at the end of the third quarter of 1999 and has now returned to the life-of-mine average ratio. With the higher production, cash cost per ounce decreased to $185 for the first quarter of 2000, compared to $221 in the first quarter of 1999. During the first quarter of 2000, a $1 million exploration program began which includes further drilling, target identification and other activity in the large area of mutual interest surrounding Round Mountain. This program will allow a better understanding of the underlying geological structures of these targets and their ability to support gold mineralization. 17 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) (b) McCoy/Cove, Nevada (100% owned)
Three months ended March 31 OPERATING DATA 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- Gold produced (ounces): Milled 28,698 20,657 Heap leached 14,448 11,457 ---------- ---------- Total gold 43,146 32,114 Silver produced (ounces): Milled 3,615,276 2,584,340 Heap leached 227,670 80,498 ---------- ---------- Total silver 3,842,946 2,664,838 Mining cost/ton of ore and waste $ 0.73 $ 0.72 Milling cost/ton of ore $ 6.79 $ 6.74 Heap leaching cost/ton of ore $ 1.72 $ 1.71 Production cost per ounce of gold produced: Direct mining expense $ 166 $ 190 Deferred stripping costs (11) 2 Inventory movements and other (6) 17 ---------- ---------- Cash operating cost 149 209 Royalties 4 3 Production taxes 3 -- ---------- ---------- Total cash cost 156 212 Depreciation 24 47 Amortization 28 27 Reclamation and mine closure 11 11 ---------- ---------- Total production costs $ 219 $ 297 ---------- ---------- Average gold-to-silver price ratio (1) 55.8:1 54.3:1 Milled: Ore processed (tons/day) 11,200 11,516 Total ore processed (000 tons) 1,019 1,048 Gold grade (ounce/ton) 0.061 0.035 Silver grade (ounce/ton) 5.10 3.15 Gold recovery rate (%) 55.7 44.8 Silver recovery rate (%) 72.3 66.3 Heap leached: Ore processed (tons/day) 10,874 11,589 Total ore processed (000 tons) 990 1,055 Gold grade (ounce/ton) 0.027 0.026 Silver grade (ounce/ton) 1.07 0.23 Recovery rates (2) - -------------------------------------------------------------------------------------------------------------------------------
(1) To convert costs per ounce of gold into comparable costs per ounce of co- product silver, divide the production cost per ounce of gold by the period's average gold-to-silver price ratio. (2) Recovery rates on dedicated pads can only be estimated, as actual recoveries will not be known until leaching is complete. At the McCoy/Cove mine, the gold recovery rate is estimated at 68% for crushed ore and 48% for uncrushed, run-of-mine ore, while the silver recovery rate is estimated at 35% for crushed ore and 10% for uncrushed, run-of-mine ore. 18 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) At McCoy/Cove in Nevada, gold production was 43,146 ounces in the first quarter of 2000 compared with 32,114 ounces in the first quarter of 1999. Silver production totaled 3.8 million ounces in the first quarter of 2000 compared with 2.7 million ounces in the same period in 1999. In 1999, McCoy/Cove completed removal of the waste rock associated with the portion of the Cove pit wall that collapsed in 1996, allowing access to higher grades. Gold grades were 74% higher and silver grades 62% higher in the first quarter of 2000 than during the same quarter in 1999. With the higher production, cash operating costs were $149 per ounce in the first quarter of 2000, down $60 from the first quarter of 1999. Underground development of the northern portion of Cove South Deep upper zone was completed in the first quarter of 2000. This target was identified in 1999 when underground development of the Cove East material began. Extraction of the northern portion of the Cove South Deep upper zone was underway at the end of the first quarter of 2000. Development continues to the southern extension of this zone in the second quarter of 2000 with mining to be completed by the end of 2000 as planned. The underground workings now encircle a large section of the Cove Pit providing a good exploration platform. Exploration drilling from underground commenced during the first quarter of 2000. Drilling from development drifts and drill stations will test targets down fault of Cove South Deep. 19 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) (c) Kettle River, Washington (100% owned)
Three months ended March 31 OPERATING DATA 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- Gold produced (ounces) 25,070 26,965 Mining cost/ton of ore $ 22.01 $ 24.19 Milling cost/ton of ore $ 11.84 $ 11.11 Production cost per ounce of gold produced: Direct mining expense $ 239 $ 231 Deferred mine development costs -- -- Inventory movements and other (12) (3) ------- ------- Cash operating cost 227 228 Royalties 14 13 Production taxes 1 1 ------- ------- Total cash cost 242 242 Depreciation 10 67 Amortization 8 8 Reclamation and mine closure 15 15 ------- ------- Total production costs $ 275 $ 332 ------- ------- Milled: Ore processed (tons/day) 1,508 1,658 Total ore processed (000 tons) 137 151 Grade (ounce/ton) 0.219 0.207 Recovery rate (%) 83.3 86.3 - -----------------------------------------------------------------------------------------------------------------------------
Production for the first quarter of 2000 was 25,070 ounces, down from 26,965 ounces in the first quarter of 1999, reflecting a reduction in tonnage brought to the mill. At Kettle River, a series of deposits are mined with the ore feeding a central mill. As mining continues deeper within these deposits the haulage distance gets longer, contributing to lower gold production. Despite the decrease in production, cash operating costs per ounce were $227 in the first quarter of 2000, similar to the same period in 1999. Exploration continued to test zones to the northeast of the K-2 deposit. Initial drilling is being done from the decline driven off the K-2 access drift to determine the extent of the mineralization. 20 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) RECENT DEVELOPMENTS Lupin In November 1999, the Company announced its decision to reopen the Lupin mine, located in Nunavut, Canada. The Lupin mine was placed on care and maintenance in early 1998 due to falling gold prices and a high cost structure. A reengineering study, completed late in 1998, identified savings that helped lower costs. During the first quarter of 2000, necessary fuel, supplies and other bulk inventory were delivered over the winter ice road. Re-commissioning activities are now complete and have been accomplished on time and on budget. During the first quarter of 2000, an investment of $7.2 million in inventory and other capital was made and initial startup costs of $4.8 million were expensed as development costs. The first gold pour occurred in April 2000 and total gold production is on target for 100,000 to 110,000 ounces for 2000. Based on current reserves of 518,000 ounces and other mineralization, the initial mine plan estimates production through 2004 at an average annual rate of 150,000 ounces of gold. Drilling indicates additional mineralization at depth, and confirmation drilling will begin during the latter part of 2000. The Ulu satellite deposit, located approximately 160 kilometers north of Lupin, represents the potential for additional mill feed for the site. Exploration and development programs With the ongoing low gold price environment, the Company continues to focus its exploration and development activities primarily in the Western United States and in the Timmins area of Ontario, where the Company already has, or plans to have, extensive gold mining infrastructure. For the first quarter of 2000, the Company spent $1.0 million on exploration activities. Exploration costs are expensed as incurred. The results of a feasibility study on the Youga/Bitou exploration property in Burkina Faso, a West Africa joint venture with Ashanti Goldfields Company Ltd (50% owned by the Company) is being evaluated and the next steps in the program will be determined by the end of the second quarter of 2000. In 1997, the Company deferred final construction decisions on its planned gold mine, the 100% owned Aquarius in Ontario, Canada. The Company expects that a revised feasibility report on Aquarius will be available by the end of the second quarter of 2000. This independent study will incorporate the use of certain mill equipment acquired by the Company at the end of 1999 as well as the potential represented by the Company's land holdings in the region. Development holding costs are expensed as incurred. During the first quarter of 2000, the Company expensed a total of $0.1 million in holding costs related to Aquarius. U.S. Mining Law Revision In recent years, several proposals to change the general mining laws applicable to operations on U.S. federal lands have been introduced into Congress. In addition, the Bureau of Land Management of the U.S. Department of the Interior has commenced a program to revise the federal regulations applicable to activities on unpatented mining claims and to impose more stringent reclamation and environmental protection requirements on those activities. Until such time, if any, as new reform legislation is enacted or administrative action is taken, the ultimate effects and costs of compliance on the Company cannot be estimated. 21 ECHO BAY MINES LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 (U.S. dollars) CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from targeted or projected results. Such forward-looking statements include statements regarding targets for gold and silver production, cash operating costs and certain significant expenses, percentage increases and decreases in production from the Company's principal mines, schedules for completion of detailed feasibility studies and initial feasibility studies, potential increases in reserves and production, the timing and scope of future drilling and other exploration activities, expectations regarding receipt of permits and commencement of mining or production, anticipated grades and recovery rates, the ability to secure financing, and potential acquisitions or increases, divestitures or decreases in property interests. Factors that could cause actual results to differ materially include, among others, changes in gold and silver prices, unanticipated grade, geological, metallurgical, processing, access, transportation of supplies or other problems, results of current exploration activities, results of pending and future feasibility studies, changes in project parameters as plans continue to be refined, political, economic and operational risks of foreign operations, availability of materials and equipment, the timing of receipt of governmental permits, force majeure events, the failure of plant, equipment or processes to operate in accordance with specifications or expectations, accidents, labor relations, delays in start-up dates, environmental costs and risks, the outcome of acquisition negotiations and general domestic and international economic and political conditions, as well as other factors described herein or in the Company's filings with the U.S. Securities and Exchange Commission. Many of these factors are beyond the Company's ability to predict or control. Readers are cautioned not to put undue reliance on forward-looking statements. 22 ECHO BAY MINES LTD. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Summa See note 11 to the interim consolidated financial statements. Colorado School of Mines On January 24, 2000, a subsidiary of the Company was served with a complaint in the case of Colorado School of Mines vs. AK Steel, et al., Civil Action 99-N- 1863 (USDC Colorado). This lawsuit seeks contribution from numerous parties for environmental cleanup costs at a federal Comprehensive Environmental Response, Compensation and Liability Act site. Discovery has commenced and the Company will vigorously pursue the defense of this claim. The Company does not have sufficient information at this time to reasonably estimate an amount, if any, for which the Company's subsidiary may be liable in this matter. Other The Company is also engaged in routine litigation incidental to its business. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K Filed on March 28, 2000, related to the deferral of the April 2000 interest payment on the capital securities. 23 ECHO BAY MINES LTD. SIGNATURE 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. ECHO BAY MINES LTD. ------------------- (Registrant) May 5, 2000 - ----------- Date /s/ David A. Ottewell --------------------- DAVID A. OTTEWELL Controller and Principal Accounting Officer 24 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE ECHO BAY MINES LTD. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,397 2,027 3,020 0 51,940 75,578 974,319 734,899 340,035 61,936 0 0 0 713,343 (615,036) 340,035 51,797 51,797 30,209 46,263 9,632 0 1,176 (4,098) (1,425) (2,673) 0 0 0 (2,673) (0.04) (0.04) THE TAGS IN THE FDS WILL NOT BE CHANGED BY THE SEC TO CORRESPOND TO THE NEW CAPTIONS UNDER SFAS 128. THE SEC EXPECTS REGISTRANTS TO REPORT "EARNINGS PER SHARE - BASIC" DATA AS THE VALUE FOR THE EPS-PRIMARY TAG AND "EARNINGS PER SHARE - DILUTED" DATA (AS OPPOSED TO "EPS - FULLY DILUTED") AS THE VALUE FOR THE EPS-DILUTED TAG. QUERIES REGARDING THESE REQUIREMENTS MAY BE DIRECTED TO THE OFFICE OF CHIEF ACCOUNTANTS (202-942-2960) OR MEG BLACK IN THE DIVISION OF CORPORATION FINANCE (202-942-2940).
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