-----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, ORxuruOWZPBbpxqfc3ollSb9GUPC/5an2oC8C15FfnYQYUpN6Z1i7RA6mj+U6u4m AscwfJlDwoCP1/UphLxySg== 0000743872-97-000009.txt : 19970526 0000743872-97-000009.hdr.sgml : 19970526 ACCESSION NUMBER: 0000743872-97-000009 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970523 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMESTAKE MINING CO /DE/ CENTRAL INDEX KEY: 0000743872 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 942934609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08736 FILM NUMBER: 97613546 BUSINESS ADDRESS: STREET 1: 650 CALIFORNIA ST-9TH FL STREET 2: 9TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 BUSINESS PHONE: 4159818150 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (AMENDMENT NO. 3) (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 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 1-8736 HOMESTAKE MINING COMPANY (Exact name of registrant as specified in its charter) Delaware 94-2934609 (State of Incorporation) (I.R.S. Employer Identification No.) 650 California Street San Francisco, California 94108-2788 (Address of principal executive office) (Zip Code) (415) 981-8150 http://www.homestake.com (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1.00 par value New York Stock Exchange, Inc. Rights to Purchase Series A Participating Cumulative Preferred Stock New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: 5 1/2% Convertible Subordinated Notes Due June 23, 2000 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,273,000,000 as of March 11, 1997. The number of shares of common stock outstanding as of March 11, 1997 was 146,672,425. In Form 10-K for the fiscal year ended December 31, 1996, certain footnotes to the table on page 81 entitled "Geographic Information," were incorrectly stated. This table is part of Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The complete text of Item 8, as amended, is included in this Form 10-K/A (Amendment No. 3). In Form 10-K/A (Amendment No. 2), which was submitted in order to correctly state the term of office for certain directors in Item 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT, the complete text of Item 10 was not submitted. The complete text of Item 10, as amended, is included in this Form 10-K/A (Amendment No. 3). ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page * Statements of Consolidated Income.....................................................57 Consolidated Balance Sheets...........................................................58 Statements of Consolidated Shareholders' Equity.......................................59 Statements of Consolidated Cash Flows.................................................60 Notes to Consolidated Financial Statements.........................................61-83 Report of Independent Auditors........................................................84 Management's Responsibility for Financial Reporting...................................85 Quarterly Selected Data...............................................................86 Common Stock Price Range..............................................................86 * Page numbers correspond to page numbers included in the original Form 10-K filed on March 28, 1997.
Homestake Mining Company and Subsidiaries Statements of Consolidated Income (In thousands, except per share amounts)
For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- Revenues Gold and ore sales $ 712,186 $ 675,222 $ 629,174 Sulfur and oil sales 30,749 40,620 26,882 Interest income 15,054 16,737 9,762 Equity earnings 1,588 2,155 2,857 Gain on issuance of stock by subsidiary (note 4) 11,224 Other income (note 15) 7,359 11,631 25,588 - ----------------------------------------------------------------------------------------------------------------------------- 766,936 746,365 705,487 - ----------------------------------------------------------------------------------------------------------------------------- Costs and Expenses Production costs 475,333 481,886 447,129 Depreciation, depletion and amortization 112,353 99,602 76,171 Administrative and general expense 36,965 37,283 38,159 Exploration expense 45,382 27,541 21,347 Interest expense 10,644 11,297 10,124 Other expense (note 16) 14,575 3,290 6,744 - ----------------------------------------------------------------------------------------------------------------------------- 695,252 660,899 599,674 - ----------------------------------------------------------------------------------------------------------------------------- Income Before Taxes and Minority Interests 71,684 85,466 105,813 Income and Mining Taxes (note 6) (26,333) (39,141) (18,880) Minority Interests (15,070) (15,998) (8,917) - ----------------------------------------------------------------------------------------------------------------------------- Net Income $ 30,281 $ 30,327 $ 78,016 ============================================================================================================================= Net Income Per Share $ 0.21 $ 0.22 $ 0.57 ============================================================================================================================= Average Shares Used in the Computation 146,311 138,117 137,733 =============================================================================================================================
See notes to consolidated financial statements. 57 Homestake Mining Company and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amount)
December 31, 1996 and 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and equivalents $ 89,599 $ 145,957 Short-term investments 130,158 66,416 Receivables (note 7) 47,650 58,046 Inventories (note 8) 91,127 69,979 Deferred income and mining taxes (note 6) 12,263 20,521 Other 8,551 7,798 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 379,348 368,717 Property, Plant and Equipment - net (notes 3 and 9) 1,007,030 846,776 Investments and Other Assets Noncurrent investments (note 10) 39,606 46,188 Other assets (note 11) 56,124 59,952 - -------------------------------------------------------------------------------------------------------------------------------- Total investments and other assets 95,730 106,140 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,482,108 $ 1,321,633 ================================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 36,171 $ 35,170 Accrued liabilities (note 12) 42,174 53,937 Income and other taxes payable 38,386 9,314 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 116,731 98,421 Long-term Liabilities Long-term debt (note 13) 185,000 185,000 Other long-term obligations (note 14) 114,168 120,418 - -------------------------------------------------------------------------------------------------------------------------------- Total long-term liabilities 299,168 305,418 Deferred Income and Mining Taxes (note 6) 201,454 189,925 Minority Interests in Consolidated Subsidiaries 96,203 92,012 Shareholders' Equity (note 19) Capital stock, $1 par value per share: Preferred - 10,000 shares authorized; no shares outstanding Common - 250,000 shares authorized; shares outstanding: 1996 - 146,672; 1995 - 140,541 146,672 140,541 Additional paid-in capital 477,880 382,314 Retained earnings 110,085 109,145 Accumulated currency translation adjustments 37,753 7,828 Other (3,838) (3,971) - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 768,552 635,857 - -------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 1,482,108 $ 1,321,633 ================================================================================================================================ Commitments and Contingencies - see notes 21 and 22.
See notes to consolidated financial statements. 58 Homestake Mining Company and Subsidiaries Statements of Consolidated Shareholders' Equity (In thousands)
Accumulated Additional Currency For the years ended Common Paid-in Retained Translation December 31, 1996, 1995 and 1994 Stock Capital Earnings Adjustments Other Total - ------------------------------------------------------------------------------------------------------------------------------ BALANCES, DECEMBER 31, 1993 $ 137,494 $334,737 $ 52,495 $ (5,620) $ (3,862) $ 515,244 Net income 78,016 78,016 Dividends paid (24,106) (24,106) Exercise of stock options 291 5,048 5,339 Currency translation adjustments 14,489 14,489 Unrealized loss on investments (382) (382) Other 170 170 - ------------------------------------------------------------------------------------------------------------------------------ BALANCES, DECEMBER 31, 1994 137,785 339,785 106,405 8,869 (4,074) 588,770 Net income 30,327 30,327 Dividends paid (27,587) (27,587) Exercise of stock options 206 2,680 2,886 Stock issued for purchase of HGAL minority interests (note 3) 2,550 39,849 42,399 Currency translation adjustments (1,041) (1,041) Change in unrealized loss on investments 162 162 Other (59) (59) - ------------------------------------------------------------------------------------------------------------------------------ BALANCES, DECEMBER 31, 1995 140,541 382,314 109,145 7,828 (3,971) 635,857 Net income 30,281 30,281 Dividends paid (29,341) (29,341) Exercise of stock options 167 2,431 2,598 Stock issued for purchase of HGAL minority interests (note 3) 5,976 93,370 99,346 Currency translation adjustments 29,925 29,925 Change in unrealized loss on investments 10 10 Other (12) (235) 123 (124) - ------------------------------------------------------------------------------------------------------------------------------ BALANCES, DECEMBER 31, 1996 $ 146,672 $477,880 $110,085 $ 37,753 $ (3,838) $768,552 ==============================================================================================================================
See notes to consolidated financial statements. 59 Homestake Mining Company and Subsidiaries Statements of Consolidated Cash Flows (In thousands)
For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operations Net income $ 30,281 $ 30,327 $ 78,016 Reconciliation to net cash provided by operations: Depreciation, depletion and amortization 112,353 99,602 76,171 Write-downs of investments in mining securities (note 16) 8,983 Foreign currency exchange losses on intercompany debt (note 15) 8,943 883 5,959 Gains on asset disposals (3,836) (1,969) (19,521) Gain on issuance of stock by subsidiary (note 4) (11,224) Deferred income and mining taxes (note 6) (15,615) 19,475 (3,665) Minority interests 15,070 15,998 8,917 Reclamation - net (1,472) (6,044) 3,986 Other noncash items - net 6,984 2,579 21,263 Effect of changes in operating working capital items: Receivables 13,754 821 (8,824) Inventories (15,851) 1,324 (14,045) Accounts payable (450) (852) 2,484 Accrued liabilities and taxes payable 21,451 (7,456) (6,938) Other (217) (1,231) 1,138 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 180,378 153,457 133,717 - ---------------------------------------------------------------------------------------------------------------------------------- Investment Activities Decrease (increase) in short-term investments (63,742) 33,063 (99,479) Proceeds from asset sales 16,141 13,295 24,542 Additions to property, plant and equipment (105,923) (80,979) (88,654) Investments in mining companies (12,224) (37,314) Purchase of HGAL minority interests (note 3) (6,435) (16,714) Purchase of interest in Snip mine (note 3) (39,279) Other 3,264 3,296 (8,033) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used in investment activities (208,198) (85,353) (171,624) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities Debt repayments (8,352) Dividends paid on common shares - Homestake (29,341) (27,587) (24,106) - Prime minority interests (2,205) Common shares issued 2,599 2,886 5,339 Stock issued by subsidiary (note 4) 31,870 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (28,947) (24,701) 4,751 - ---------------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Equivalents 409 (3,147) 4,138 - ---------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Equivalents (56,358) 40,256 (29,018) Cash and Equivalents, January 1 145,957 105,701 134,719 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents, December 31 $ 89,599 $ 145,957 $ 105,701 ================================================================================================================================== See notes to consolidated financial statements.
60 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Note 1: Nature of Operations Homestake Mining Company ("Homestake" or the "Company") is engaged in gold mining and related activities including exploration, extraction, processing, refining and reclamation. Gold bullion, the Company's principal product, is produced and sold in the United States, Canada, Australia and Chile. Ore and concentrates, containing gold and silver, from the Eskay Creek and Snip mines in Canada are sold directly to smelters. Through its investment in Main Pass 299, the Company also produces and sells sulfur and oil. Note 2: Significant Accounting Policies The consolidated financial statements include Homestake and its majority-owned subsidiaries and their undivided interests in joint ventures after elimination of intercompany amounts. At December 31, 1996 the Company owned 50.6% of Prime Resources Group Inc. ("Prime") and 51% of Agua de la Falda S.A. with the remaining interests reflected as minority interests in the consolidated financial statements. Undivided interests in gold mining operations (the Round Mountain mine in the United States; Homestake Gold of Australia Limited's ("HGAL") interest in the gold mining operations in Kalgoorlie, Western Australia; and Homestake Canada Inc.'s ("HCI") interests in the Williams and David Bell mines in Canada) and in the sulfur and oil recovery operations at Main Pass 299 in the Gulf of Mexico are reported using pro rata consolidation whereby the Company reports its proportionate share of assets, liabilities, income and expenses. Use of estimates: The preparation of financial statements in conformity with United States generally accepted accounting principles 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. Cash and 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 equivalents with major international banks and financial institutions located principally in the United States, Canada and Australia. The Company believes that no concentration of credit risk exists with respect to investment of its cash and equivalents. Short-term investments principally consist of highly-liquid United States and foreign government and corporate securities with original maturities in excess of three months. The Company classifies all short-term investments as available-for-sale securities. Unrealized gains and losses on these investments are recorded as a separate component of shareholders' equity, except that declines in market value judged to be other than temporary are recognized in determining net income. Inventories, which include finished products, ore in process, stockpiled ore, ore in transit, and supplies, are stated at the lower of cost or net realizable value. The cost of gold produced by certain United States operations is determined principally by the last-in, first-out method ("LIFO"). The cost of other inventories is determined primarily by averaging methods. Exploration costs are expensed as incurred. All costs related to property acquisitions are capitalized. 61 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Development costs: Following completion of a favorable feasibility study, development costs incurred to place new mines into production and to complete major development projects at operating mines are capitalized. Ongoing costs to maintain production are expensed as incurred. Depreciation, depletion and amortization of mining properties, mine development costs and major plant facilities is computed principally by the units-of-production method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of ore which can be recovered economically in the future from known mineral deposits. Such estimates are based on current and projected costs and prices. Other equipment and plant facilities are depreciated using straight-line or accelerated methods principally over estimated useful lives of three to ten years. Property evaluations: Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and, if deemed impaired, measurement and recording of an impairment loss be based on the fair value of the asset, which generally will be computed using discounted cash flows. Based on the carrying values and estimated future undiscounted cash flows of the Company's long-lived assets at January 1, 1996, the Company did not record a cumulative effect upon adopting SFAS 121. Estimated future net cash flows from each mine and nonoperating property are calculated using estimates of proven and probable ore reserves for operating properties and estimated contained mineralization expected to be classified as proven and probable reserves based on geological delineation to date for nonoperating properties, estimated future sales prices (considering historical and current prices, price trends and related factors), production costs, capital and reclamation costs. Homestake used gold and silver market prices of $375 and $5 per ounce, respectively, and a sulfur price of $70 per long ton in preparing its estimates of future cash flows at December 31, 1996 (see note 9). The Company's estimates of future cash flows are subject to risks and uncertainties. Therefore, it is possible that changes could occur which may affect the recoverability of the Company's investments in mineral properties and other assets. Undeveloped properties upon which the Company has not performed sufficient exploration work to determine whether significant mineralization exists are carried at original acquisition cost. Reclamation and remediation: Reclamation costs and related accrued liabilities, which are based on the Company's interpretation of current environmental and regulatory requirements, are accrued and expensed, principally by the units-of-production method based on estimated proven and probable ore reserves. Remediation liabilities, including estimated governmental oversight costs, are expensed upon determination that a liability has been incurred and where a minimum cost or reasonable estimate of the cost can be determined. The Company provides for all costs of reclamation, including long-term care and monitoring and maintenance costs. The Company uses undiscounted current costs in preparing its estimates of future reclamation costs. The Company regularly updates its estimates of reclamation costs. Amounts to be 62 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) received from the United States Federal Government for its 51.2% share of the cost of future reclamation activities at the Grants, New Mexico uranium facility are offset against the remaining estimated Grants reclamation liabilities. Receivables are recorded for the United States Federal Government's share of reclamation expenditures at the Grants uranium facility in the period that such expenditures are made. Based on current environmental regulations and known reclamation requirements, the Company has included its best estimates of these obligations in its reclamation accruals. However, the Company's estimates of its ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates. Noncurrent investments include equity investments, mining securities and assets held in trust to fund employee benefits. Investments in gold mining partnerships over which the Company exercises significant influence are reported using the equity method. Equity investments are carried at the lower of cost or market. Investments in mining securities and assets held in trust to fund employee benefits are classified as available-for-sale investments. Unrealized gains and losses on these investments are recorded as a separate component of shareholders' equity, except that declines in market value judged to be other than temporary are recognized in determining net income. Realized gains and losses on these investments are included in determining net income. Product sales are recognized when title passes at the shipment or delivery point. Income taxes: The Company follows the liability method of accounting for income taxes whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year. Mining taxes represent Canadian provincial taxes levied on mining operations. Foreign currency: Substantially all assets and liabilities of foreign subsidiaries are translated at exchange rates in effect at the end of each period. Revenues and expenses are translated at the average exchange rate for the period. Accumulated currency translation adjustments are included as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in the determination of net income. Pension plans and other postretirement benefits: Pension costs related to United States employees are determined using the projected unit credit actuarial method. Pension plans are funded through annual contributions. In addition, the Company provides medical and life insurance benefits for certain retired employees and accrues the cost of such benefits over the period in which active employees become eligible for the benefits. The costs of the postretirement medical and life insurance benefits are paid at the time such benefits are provided. 63 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Net income per share is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the year. Fully diluted net income per share is not presented since the exercise of stock options would not result in a material dilution of earnings per share and the conversion of the 5.5% convertible subordinated notes would produce anti-dilutive results. Preparation of financial statements: Certain amounts for 1995 and 1994 have been reclassified to conform to the current year's presentation. All dollar amounts are expressed in United States dollars unless otherwise indicated. Note 3: Acquisitions Homestake Gold of Australia Limited In 1995, the Company made an unconditional offer to acquire the 18.5% of HGAL it did not already own. Homestake offered .089 of a Homestake share or A$1.90 in cash for each of the 109.6 million HGAL shares owned by the public. Through December 31, 1995 a total of 38.9 million HGAL shares were acquired at a cost of $59.1 million, including $42.4 million for 2.6 million newly issued shares of the Company, $14.5 million in cash and $2.2 million of transaction expenses. At December 31, 1995 Homestake owned 88.1% of the shares of HGAL. The acquisition was completed in the first quarter of 1996 when the remaining 70.7 million publicly held HGAL shares were acquired at a cost of $105.8 million, including $99.3 million for 6 million newly issued shares of the Company, $5 million in cash and $1.5 million of transaction expenses. The total purchase price to acquire all of the 18.5% of HGAL held by the minority shareholders was $164.9 million, including $141.7 million for 8.5 million newly issued shares of the Company, $19.5 million in cash and $3.7 million of transaction expenses. The acquisition of the HGAL minority interests was accounted for as a purchase. For accounting purposes, the HGAL shares acquired in the fourth quarter of 1995 and in the first quarter of 1996 are assumed to have been acquired effective as of December 31, 1995 and January 1, 1996, respectively. Based upon the total purchase price of $164.9 million, the excess of the purchase price paid over the net book value of the minority interests acquired was $140.7 million. Substantially all of the excess purchase price is attributable to mineral property interests at Kalgoorlie. The Company used discounted cash flow analysis to determine the allocation of the purchase price between reserves and other mineralized material. This analysis indicated that approximately 62% of the purchase price allocated to mineral properties was attributable to reserves and the remainder was attributable to other mineralized material and mineral properties. On a pro forma basis, assuming that the acquisition of the HGAL minority interests occurred on January 1, 1995, revenues, net income and net income per share for the year ended December 31, 1995 have been estimated at $745 million, $25.6 million and $.17 per share, respectively. This pro forma information includes adjustments which are based on available information and certain assumptions that the Company believes are reasonable in the circumstances. The pro forma information is unaudited and does not purport to represent what the results of operations actually would have been had the acquisition of the HGAL minority interests occurred on January 1, 1995 or to project the results of operations for any future date or period. 64 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Snip Mine On April 30, 1996 Prime purchased Cominco Ltd.'s ("Cominco") 60% interest in the Snip mine in British Columbia, Canada for $39.3 million in cash. The purchase price included Cominco's share of the mine's working capital. Prime now owns 100% of the Snip mine. Agua de la Falda S.A. In July 1996, Homestake and Corporacion Nacional del Cobre Chile ("Codelco"), a state-owned mining company in Chile, formed a new company, Agua de la Falda S.A. ("La Falda") to conduct exploration and mining activities near Homestake's former El Hueso mine in northern Chile. Homestake owns 51% of the corporation and Codelco owns 49%. Codelco and Homestake have contributed property interests in the area to the new company. In addition, Codelco contributed the existing El Hueso plant, which had been under lease to Homestake. Homestake also contributed $5.1 million for exploration and development, including $3.7 million of exploration and development expenditures incurred prior to the formation of La Falda. La Falda is developing the Agua de la Falda mine, which contains 187,000 ounces of oxide reserves, and will continue drilling and metallurgical testing of the much larger Jeronimo deposit where 6.1 million tons of mineralized material at a grade of .158 ounces of gold per ton have been outlined to date. Pinson Mining Company In December 1996, Homestake increased its interest in the Pinson Mining Company partnership ("Pinson Partnership") from 26.25% to 50% and became the operator of the Pinson mine. Barrick Gold Corporation ("Barrick") owns the remaining 50% interest. The purchase price for the additional 23.75% partnership interest consisted of $4.4 million in cash, a net smelter royalty on certain future Pinson Partnership production and assumption of a proportionate increase of the Pinson Partnership's liabilities, including reclamation. Note 4: Prime Resources Group Inc. In 1994, Prime sold 5 million common shares at approximately $6.70 per share to the public. Net proceeds of approximately $31.9 million from this issue were used to fund a portion of the construction and development costs of the Eskay Creek mine. This transaction resulted in a reduction of the Company's interest in Prime from 54.2% to 50.6%. It is the Company's policy to include any gains or losses on the issuances of stock of the Company's subsidiaries in the determination of net income. The Company recorded a gain of $11.2 million on the transaction in recognition of the net increase in the book value of the Company's investment in Prime. Deferred income taxes were not provided on this gain since the Company's tax basis in Prime substantially exceeds its carrying value. Note 5: Sales of Mining Operations Torres mining complex: In 1995, the Company sold its 28% equity interest in the Torres silver mining complex in Mexico for $6 million. This sale resulted in a pretax gain of $2.7 million, which was included in other income. 65 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Dee mine: In 1994, the Company sold its 44% interest in the Dee gold mine in Nevada to Rayrock Mines, Inc. ("Rayrock") for $16.5 million. Rayrock assumed responsibility for and indemnified Homestake against all related environmental and reclamation matters. This sale resulted in a pretax gain of $15.7 million, which was included in other income. Note 6: Income Taxes The provision for income and mining taxes consists of the following:
1996 1995 1994 --------------------------------------------- Current Income taxes Federal $ (1,999) $ 7,375 $ 7,560 State 211 (61) 1,258 Canadian 28,367 1,928 2,258 Other foreign 405 176 206 --------------------------------------------- 26,984 9,418 11,282 Canadian mining taxes 14,964 10,248 9,741 --------------------------------------------- Total current taxes 41,948 19,666 21,023 --------------------------------------------- Deferred Income taxes Federal (3,879) (3,743) 6,867 State (1,300) 436 (1,086) Canadian (14,588) 25,347 (13,796) Other foreign 1,981 (2,041) 4,438 --------------------------------------------- (17,786) 19,999 (3,577) Canadian mining taxes 2,171 (524) 1,434 --------------------------------------------- Total deferred taxes (15,615) 19,475 (2,143) --------------------------------------------- Total income and mining taxes $26,333 $39,141 $18,880 =============================================
The provision for income taxes is based on pretax income before minority interests as follows:
1996 1995 1994 -------------------------------------------- United States $(14,003) $ 17,607 $ 28,415 Canada 95,548 71,333 49,690 Other foreign (9,861) (3,474) 27,708 -------------------------------------------- $ 71,684 $ 85,466 $105,813 ============================================
66 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Deferred tax liabilities and assets as of December 31, 1996 and 1995 relate to the following:
December 31, 1996 1995 -------------------------------------- Deferred tax liabilities Depreciation and other resource property differences United States $ 64,855 $ 65,763 Canada - Federal 32,395 52,068 Canada - Provincial 69,069 76,792 Australia 74,869 29,921 -------------------------------------- 241,188 224,544 Inventory - Australia 3,590 859 Other 11,752 11,738 -------------------------------------- Gross deferred tax liabilities 256,530 237,141 -------------------------------------- Deferred tax assets Tax loss carry-forwards United States 162 2,533 Canada - Federal 2,001 8,073 Australia 16,680 7,681 Chile 19,929 18,344 -------------------------------------- 38,772 36,631 Reclamation costs United States 6,783 8,502 Other 6,226 5,314 -------------------------------------- 13,009 13,816 Employee benefit costs 26,959 28,573 Alternative minimum tax credit carry-forwards 14,215 13,922 Land and other resource property 15,225 12,759 Deductible mining taxes 1,059 3,257 Foreign tax credit carry-forwards 12,725 4,600 Reorganization costs 286 1,038 Other 17,241 12,752 -------------------------------------- Gross deferred tax assets 139,491 127,348 Deferred tax asset valuation allowances (72,152) (59,611) -------------------------------------- Net deferred tax assets 67,339 67,737 -------------------------------------- Net deferred tax liability $ 189,191 $ 169,404 ====================================== Net deferred tax liability consists of Current deferred tax assets $ (12,263) $ (20,521) Long-term deferred tax liability 201,454 189,925 -------------------------------------- Net deferred tax liability $ 189,191 $ 169,404 ======================================
The classification of deferred tax assets and liabilities is based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. The change in the valuation allowance for deferred tax assets has increased by $12.5 million in 1996, of which $8.1 million relates to an increase in the Company's foreign tax credit carryover. For income tax purposes, the Company has United States foreign tax credit carry-forwards of approximately $12.7 million which are due to expire at various times through 67 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) the year 2002. The $72.2 million deferred tax valuation allowance at December 31, 1996 represents the portion of the Company's consolidated deferred tax assets which, based on projections at December 31, 1996, the Company does not believe that realization is "more likely than not." Such $72.2 million of deferred tax valuation allowance consists of United States, Chile and Australia unrealized deferred tax assets of $45.5 million, $20.8 million and $5.9 million, respectively. The largest portion of the $72.2 million of unrealized deferred tax assets is comprised of $38.6 million of future United States ($32.7 million) and Australia ($5.9 million) tax benefits relating to expenses that the Company projects will not be deductible for tax return purposes until after the year 2010. In projecting United States source income beyond this period, the Company currently does not meet the SFAS 109 "more likely than not" criteria required to recognize the United States tax benefits. In addition, there currently is not a tax strategy which would result in the realization of the Australian tax benefit. The remaining $33.6 million principally is comprised of future Chilean tax benefits and United States foreign tax credit carry-forwards that the Company projects it will be unable to realize. Major items causing the Company's income tax provision to differ from the federal statutory rate of 35% were as follows:
1996 1995 1994 --------------------------------------------------------- Income tax based on statutory rate $ 25,089 $ 29,913 $ 37,035 Percentage depletion (7,611) (9,879) (11,106) Earnings in foreign jurisdictions at different rates (1,899) (1,019) (6,175) State income taxes, net of federal benefit 333 340 1,614 Australian investment allowance (2,097) Tax relating to reorganizations 7,682 Unrealized minimum tax credits 5,645 4,790 1,753 Nontaxable income (287) (777) (4,784) Reduction of prior year accruals (24,048) Other nondeductible losses 13,340 6,231 9,401 Deferred tax assets not recognized in prior years (2,504) (1,262) (27,697) Foreign taxes withheld 1,430 1,965 2,089 Litigation recovery (2,629) Other - net 2,339 1,212 (2,107) --------------------------------------------------------- Total income taxes 9,198 29,417 7,705 Canadian mining taxes 17,135 9,724 11,175 --------------------------------------------------------- Total income and mining taxes $ 26,333 $ 39,141 $ 18,880 =========================================================
The Company's 1996 income tax expense includes a $24 million benefit relating to a reduction of prior years' income tax accruals for certain contingencies which have now been resolved and a $2.6 million benefit relating to the tax portion of litigation recovery proceeds. 68 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Deferred tax assets not recognized in prior years include (i) reversals of prior year valuation allowances of $2.5 million in 1996, $1.3 million in 1995 and $12.4 million in 1994, and (ii) realization of additional deferred tax assets that could not be recognized in prior years of $15.3 million in 1994. Note 7: Receivables
December 31, 1996 1995 ------------------------------------- Trade accounts $ 24,485 $ 37,907 U.S. Government receivable (see note 21) 5,500 5,500 Interest and other 17,665 14,639 ------------------------------------- $ 47,650 $ 58,046 =====================================
Note 8: Inventories
December 31, 1996 1995 ------------------------------------- Finished products $ 21,132 $ 13,498 Ore and in-process 39,980 26,027 Supplies 30,015 30,454 ------------------------------------- $ 91,127 $ 69,979 =====================================
At December 31, 1996 and 1995, the cost of certain finished gold inventories in the United States stated on the LIFO cost basis totaled $2.1 million and $2 million, respectively. Such inventories would have approximated $3.7 million and $3.6 million, respectively, if stated at the lower of market or current year average production costs. At December 31, 1996 and 1995, ore stockpiles in the amounts of $10.9 million and $11.1 million, respectively, not expected to be processed within the 12 months following the end of each year are included in other noncurrent assets (see note 11). Note 9: Property, Plant and Equipment
December 31, 1996 1995 ---------------------------------------- Mining properties and development costs $1,013,309 $ 790,335 Plant and equipment 932,826 891,277 Land and royalty interests 3,905 3,843 Construction and mine development in progress 20,260 12,282 ---------------------------------------- 1,970,300 1,697,737 Accumulated depreciation, depletion and amortization (963,270) (850,961) ---------------------------------------- $1,007,030 $ 846,776 ========================================
69 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Included in property, plant and equipment above is the Company's $110 million investment in its 16.7% undivided interest in the Main Pass 299 sulfur mine which contained proven recoverable reserves of approximately 66 million long tons of sulfur at December 31, 1996. In accordance with the Company's accounting policy for reviewing the recoverability of its investment in operating mines, the Company has estimated future Main Pass undiscounted net cash flows based on its share of proven reserves, estimated future sales prices (considering historical and current prices, price trends and related factors), production costs, capital and reclamation costs. In estimating its future undiscounted net cash flows, the Company has assumed an average future sales price for sulfur of approximately $70 per ton over the expected remaining 30 year life of the mine. The current market for sulfur is depressed. However, during the past 10 years the market for sulfur has been cyclical with prices ranging between $50 and $142 per ton and averaging over $99 per ton. During the years ended December 31, 1996 and 1995, the Company realized prices of $60 and $68 per ton, respectively. Although the Company does not expect significant improvement in sulfur prices during 1997, the Company believes that future prices over the life of this mine will be sufficient to recover its investment. This view is based on the historical volatility of sulfur prices and on the low operating cost structure of the Main Pass mine. Estimates of future cash flows are subject to risks and uncertainties and it is possible that changes could occur in the near term which may affect the recoverability of the Company's investment in the Main Pass operations. If the sulfur market remains depressed for a period of time, the Company may not be able to recover all of its investment in the Main Pass mine and future write-downs of up to $110 million may be required. Note 10: Noncurrent Investments
December 31, 1996 1995 ------------------------------------- Equity investments Pinson (50%) and Marigold (33%) mines (see note 3) $ 8,640 $ 4,121 Other equity investments 1,956 1,963 Navan Resources plc 16,800 24,000 Other investments 12,210 16,104 ------------------------------------- $ 39,606 $ 46,188 =====================================
In 1995, Homestake acquired for $24 million a 10% interest in Navan Resources plc ("Navan"), an Irish public company with diverse mineral interests in Europe. The purchase price included an option which will permit Homestake to acquire from Navan up to a 50% interest in Navan Bulgarian Mining BV ("Navan BV"), which in turn owns 68% of Bimak AD, the owner of the Chelopech gold/copper operations in Bulgaria, by investing an additional $48 million. Homestake's initial $12 million investment in Navan BV is conditioned upon receipt of all necessary permits for construction of a roaster and an increase in mining rate at Chelopech from 500,000 to 750,000 metric tons per year, approval of the project by the Boards of Directors of both companies and agreement on a suitable project management team. Investment of the remaining $36 million in Navan BV is conditioned on subsequent approval by the Bulgarian government, Navan and Homestake of a 70 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) further mine and mill expansion and the securing of expansion financing. In March 1996, Homestake exercised its option to acquire up to a 50% interest in Navan BV. However, pending satisfaction of certain conditions, to date no amunts have been advanced in respect to this option. In December 1996, Homestake in consultation with Navan, determined that due to the deteriorating political and economic situation in Bulgaria, it was likely that further development of the Chelopech project would be delayed substantially. In light of the uncertainty surrounding the project, Homestake considered it had an other than temporary impairment of its investment and reduced the carrying value of the investment in Navan, including its option to acquire up to a 50% interest in Navan BV, to the quoted market value of the Navan securities. The resulting charge of $7.2 million was recorded in the fourth quarter of 1996. Other investments at December 31, 1995 included $10 million related to a 1995 investment in Orion Resources NL ("Orion"). In January 1996, after further evaluation of the investment opportunity, the Company sold its investment in Orion and recorded a gain of $.2 million. Note 11: Other Assets
December 31, 1996 1995 ------------------------------------- Assets held in trust (see note 17) $ 25,252 $ 23,741 Ore stockpiles 10,946 11,118 U.S. Government receivable (see note 21) 10,663 13,166 Other 9,263 11,927 ------------------------------------- $ 56,124 $ 59,952 =====================================
Note 12: Accrued Liabilities
December 31, 1996 1995 ------------------------------------- Accrued payroll and other compensation $ 23,085 $ 26,925 Accrued reclamation and closure costs 10,055 12,383 Other 9,034 14,629 ------------------------------------- $ 42,174 $ 53,937 =====================================
Note 13: Long-term Debt
December 31, 1996 1995 -------------------------------------- Convertible subordinated notes (due 2000) $ 150,000 $ 150,000 Pollution control bonds Lawrence County, South Dakota (due 2003) 18,000 18,000 State of California (due 2004) 17,000 17,000 -------------------------------------- $ 185,000 $ 185,000 ======================================
71 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Convertible subordinated notes: The Company's 5.5% convertible subordinated notes, which mature on June 23, 2000, are convertible into common shares at a price of $23.06 per common share and are redeemable by the Company in whole at any time. Interest on the notes is payable semi-annually in June and December. Issuance costs of $3.9 million were capitalized and are being amortized over the life of the notes. Pollution control bonds: The Company pays interest monthly on the pollution control bonds based on variable short-term, tax-exempt obligation rates. Interest rates at December 31, 1996 and 1995 were 4.3% and 5%, respectively. No principal payments are required until cancellation, redemption or maturity. Bondholders have the right to tender the bonds for payment at any time on seven days notice. The Company has arrangements with underwriters to remarket any tendered bonds and also with a bank to provide liquidity and credit support to the Company and to purchase and hold for up to 15 months any tendered bonds that the underwriters are unable to remarket. Lines of credit: In September 1996, the Company replaced its credit agreement with a new United States/Canadian/Australian cross-border credit facility providing a total availability of $275 million. The Company pays a commitment fee of .15% per annum on the unused portion of this facility. The credit facility is available through September 20, 2001 and provides for borrowings in United States, Canadian or Australian dollars, or gold or a combination of these. The credit agreement requires a minimum consolidated net worth of $500 million. In addition, Prime has a $11 million credit facility. At December 31 1996 and 1995, no amounts had been borrowed under these credit agreements. Note 14: Other Long-term Obligations
December 31, 1996 1995 ------------------------------------- Accrued reclamation and closure costs $ 45,388 $ 44,051 Accrued pension and other postretirement benefit obligations (see note 17) 59,273 63,092 Other 9,507 13,275 ------------------------------------- $ 114,168 $ 120,418 =====================================
While the ultimate amount of reclamation and site restoration costs to be incurred in the future is uncertain, the Company has estimated that the aggregate amount of these costs for operating properties, plus previously accrued reclamation and remediation liabilities for nonoperating properties, will be approximately $110 million. This figure includes approximately $10.6 million of reclamation costs at the Grants uranium facility which will be funded by the United States Federal Government. At December 31, 1996 the Company had accrued $55.4 million for estimated ultimate reclamation and site restoration costs and remediation liabilities (see notes 12 and 21). 72 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Note 15: Other Income
1996 1995 1994 ------------------------------------------------------------ Gain on asset disposals $ 3,836 $ 5,024 $ 19,521 Royalty income 2,888 2,252 3,061 Foreign currency contract gains (losses) 1,632 (151) 4,569 Foreign currency exchange losses on intercompany advances (8,943) (883) (5,959) Other foreign currency gains (losses) 595 249 (658) Pension curtailment gain 1,868 Other 5,483 5,140 5,054 ------------------------------------------------------------ $ 7,359 $ 11,631 $ 25,588 ============================================================
Note 16: Other Expense
1996 1995 1994 ----------------------------------------------------------- Write-downs of investments in mining securities (see note 10) $ 8,983 Expenses related to proposed merger (see note 24) 3,424 Other 2,168 $ 3,290 $ 6,744 ----------------------------------------------------------- $ 14,575 $ 3,290 $ 6,744 ===========================================================
Note 17: Employee Benefit Plans Pension plans: The Company has pension plans covering substantially all United States employees. Plans covering salaried and other nonunion employees provide pension benefits based on years of service and the employee's highest compensation during any 60 consecutive months prior to retirement. Plans covering union employees provide defined benefits for each year of service. Pension costs for 1996, 1995 and 1994 for Company-sponsored United States employee plans included the following components:
1996 1995 1994 ------------------------------------------------------------ Service cost - benefits earned during the year $ 4,519 $ 3,573 $ 3,928 Interest cost on projected benefit obligations 15,319 14,476 13,497 Actual net return on assets (34,693) (44,788) (1,828) Net amortization (deferral) 20,696 32,405 (11,202) Pension curtailment gain (1,868) ------------------------------------------------------------ $ 3,973 $ 5,666 $ 4,395 ============================================================
73 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Assumptions used in determining net periodic pension cost for 1996, 1995 and 1994 include discount rates of 7%, 8%, and 7%, respectively, an assumed rate of increase in compensation of 5% for each year and an assumed long-term rate of return on assets of 8.5% for each year. Assumptions used in determining the projected benefit obligations at December 31, 1996 and 1995 include discount rates of 7% and an assumed rate of increase in compensation of 5%. The funded status and amounts recognized for pension plans in the consolidated balance sheets are as follows:
December 31, 1996 December 31, 1995 Plans Where Plans Where ---------------------------------------------------------------------------------- Accumulated Accumulated Assets Exceed Benefits Assets Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ---------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested benefits $ (162,100) $ (17,700) $ (159,400) $ (16,300) ================================================================================== Accumulated benefits $ (180,800) $ (18,900) $ (175,400) $ (17,500) ================================================================================== Projected benefits $ (202,200) $ (21,000) $ (195,300) $ (19,800) Plan assets at fair value (1) 224,064 192,565 ---------------------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligation 21,864 (21,000) (2,735) (19,800) Unrecognized net loss (gain) (22,467) 51 (7,285) 114 Unrecognized net transition obligation (asset) amortized over 15 years (3,364) 547 (3,916) 792 Unrecognized prior service cost (benefit) 141 2,459 680 3,081 Additional minimum liability (957) (1,687) ---------------------------------------------------------------------------------- Pension liability recognized in the consolidated balance sheets $ (3,826) $ (18,900) $ (13,256) $ (17,500) ================================================================================== (1) Approximately 98% and 93% of the plan assets were invested in listed stocks and bonds and the balance was invested in fixed-rate insurance contracts at December 31, 1996 and 1995, respectively.
Amounts shown under "plans where accumulated benefits exceed assets" at December 31, 1996 and 1995 consist of liabilities for a nonqualified supplemental pension plan covering certain employees and a nonqualified pension plan covering directors of the Company. These plans are unfunded. In 1995, the Company established a grantor trust, consisting of a money market fund, mutual funds and corporate-owned life insurance policies, to provide funding for the benefits payable under these nonqualified plans and certain other deferred compensation plans. The grantor trust, which is included in other assets, amounted to $25.3 million at December 31, 1996 and $23.7 million at December 31, 1995. 74 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Certain of the Company's foreign operations participate in pension plans. The Company's share of contributions to these plans was $1.4 million in 1996, $1.1 million in 1995, and $0.8 million in 1994. Postretirement benefits other than pensions: The Company provides medical and life insurance benefits for certain retired employees, primarily retirees of the Homestake mine. Retirees generally are eligible for benefits upon retirement if they are at least age 55 and have completed five years of service. Net periodic postretirement benefit costs were $3.1 million in 1996 and $3.5 million in 1995 and 1994. The actuarial assumptions used in determining net periodic postretirement benefit costs include discount rates of 7% for 1996, 8% for 1995, and 7% for 1994, an initial health care trend rate of 10% grading down to an ultimate health care cost trend rate of 5% for 1996, and an initial health care cost trend rate of 9.5% grading down to an ultimate health care cost trend rate of 5% for 1997. The ultimate trend rate is expected to be achieved by 2006. The actuarial assumptions used in determining the Company's accumulated postretirement benefit obligation at December 31, 1996 and 1995 include a discount rate of 7%. A one percentage-point increase in the assumed health care cost trend rate would result in an increase of approximately $5 million in the accumulated postretirement benefit obligation at December 31, 1996 and an increase of approximately $.5 million in net periodic postretirement benefit costs for 1996. The following table sets forth amounts recorded in the Company's consolidated balance sheets at December 31, 1996 and 1995. The Company has not funded any of its estimated future obligation.
December 31, 1996 1995 -------------------------------------- Accumulated postretirement benefit obligation Retirees $(29,000) $(27,000) Fully-eligible active plan participants (1,000) (1,000) Other active plan participants (7,000) (7,000) -------------------------------------- (37,000) (35,000) Unrecognized net gain (4,364) (5,412) Unrecognized prior service cost 617 677 -------------------------------------- Accumulated postretirement benefit obligation liability recognized in the consolidated balance sheets $(40,747) $(39,735) ======================================
Stock option plans: The Company may grant stock options for up to 6 million common shares under its 1996 stock option plan. The exercise price of each option granted under the 1996 and prior plans is equal to the market price of the Company's stock on the date of grant and an option's maximum term is ten years. Options usually vest over a four-year period. 75 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) A summary of the status of the Company's stock option plans as of December 31, 1996, 1995 and 1994 and changes during the years ending on those dates is presented below:
1996 1995 1994 ----------------------------------------------------------------------------- Number Average Number Average Number Average of Price Per of Price Per of Price Per Shares Share Shares Share Shares Share ----------------------------------------------------------------------------- Balance at January 1 2,309 2,301 2,600 Granted 466 $19.19 361 $15.58 268 $20.50 Exercised (168) 19.71 (206) 13.90 (293) 15.98 Expired (4) 19.38 (147) 16.92 (274) 15.86 ---------- ---------- ---------- Balance at December 31 2,603 2,309 2,301 ========== ========== ========== Options exercisable at December 31 1,854 1,500 1,481 Fair value of options granted during the year $5.84 $5.06
The fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions: an expected life of 1.8 years from the vest date (with incremental vesting over four years) for 1996 and 1995, expected volatility of 31.7% and 33.3% for 1996 and 1995, a dividend yield of 1% and 1.3% for 1996 and 1995, respectively, and a risk-free interest rate of 5.4% and 6.9% in 1996 and 1995, respectively. The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ---------------------------------------------------------- -------------------------------------- Range of Weighted-Average Weighted-Average Weighted-Average Exercise Prices Number Remaining Exercise Price Number Exercise Price Per Share Outstanding Contractual Life Per Share Exercisable Per Share --------------------- --------------- ------------------ ------------------ -------------- --------------------- $12.18 to $15.38 881 5.9 years $13.76 637 $13.51 15.43 to 19.13 1,111 6.6 years 17.65 691 16.84 19.70 to 42.77 611 4.0 years 27.98 526 29.18 --------------- -------------- 2,603 1,854 =============== ==============
An additional 6 million and .6 million shares were available for future grants at December 31, 1996 and 1995, respectively. The Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation," which is effective for periods beginning after December 15, 1995, requires that companies either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value, or provide pro forma disclosure of the effect of the grants on net income and earnings per share in the notes to the financial statements as if such compensation expense had been recognized. The Company has elected to use the pro forma disclosure provisions of SFAS 123 in 1996 and has applied Accounting Principles Board Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the Company's stock option plans. Had compensation expense for the Company's stock-based compensation plans 76 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) been determined based on the fair value of options at the grant dates as calculated in accordance with SFAS 123, the Company's net income and earnings per share for the years ended December 31, 1996 and 1995 would have been as follows:
1996 1995 ---------------------------- ------------------------------- Earnings Earnings Net income per share Net income per share ----------- ---------- -------------- ----------- As reported $ 30,281 $ 0.21 $ 30,327 $ 0.22 Pro forma 28,913 0.20 29,773 0.22
During the initial phase-in period of SFAS 123, disclosures are not likely to be representative of the pro forma effects on reported net income for future years, as the disclosures only include the pro forma effects of options granted on or after January 1, 1995. Other plans: Substantially all full-time United States employees of the Company are eligible to participate in the Company's defined contribution savings plans. The Company's matching contribution was approximately $2.2 million in 1996, $1.6 million in 1995 and $1.1 million in 1994. Note 18: Fair Value of Financial Instruments At December 31, 1996 and 1995 the carrying values of the Company's cash and equivalents and short-term investments, noncurrent investments, long-term debt and foreign currency options approximated their estimated fair values. Note 19: Shareholders' Equity Other equity includes deductions of $3.5 million and $3.7 million at December 31, 1996 and 1995, respectively, for loans made to certain former HCI employees and directors for the purchase of HCI common shares. The loans are non-interest bearing, are secured by a pledge of shares, and are not required to be paid until the securities purchased are equal to or greater than the value of the respective loans. Each share of common stock includes and trades with a right. Rights are not exercisable currently but become exercisable on the 10th business day after any person, entity or group ("the Acquiring Person") acquires 20% or more of the Company's common stock or announces a tender or exchange offer which would result in such entity acquiring 20% or more of the Company's common stock. When exercisable, each right entitles its holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock, par value $1 per share, at a share price of $75. If the Acquiring Person acquires 30% or more of the Company's common stock other than pursuant to a cash tender offer for all of the Company's stock or engages in certain self-dealing transactions, each right will entitle its holder to purchase Company common stock at one-half the market price therefor. If the Company is subsequently involved in a merger or other business combination involving the Acquiring Person, each right will entitle its holder to purchase certain securities of the surviving company at one-half the market price therefor. The rights expire on November 2, 1997. 77 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Note 20: Additional Cash Flow Information Cash paid for interest and for income and mining taxes is as follows:
1996 1995 1994 --------------------------------------------------------- Interest, net of amounts capitalized $ 10,643 $ 11,292 $ 10,110 Income and mining taxes 17,163 22,650 10,670
Certain investing and financing activities of the Company affected its financial position but did not affect its cash flows. See note 3 for a discussion of the noncash acquisitions of the additional interests in HGAL. Note 21: Contingencies Environmental Contingencies The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") imposes heavy liabilities on persons who discharge hazardous substances. The Environmental Protection Agency ("EPA") publishes a National Priorities List ("NPL") of known or threatened releases of such substances. Whitewood Creek: An 18-mile stretch of Whitewood Creek in the Black Hills of South Dakota formerly was a site on the NPL. The EPA asserted that discharges of tailings by mining companies, including the Company, contaminated soil and water for more than 100 years. In 1990, the Company signed a consent decree with the EPA requiring that the Company perform remedial work on the site and continue long-term monitoring. The on-site remedial work has been completed and the consent decree was terminated on January 10, 1996. At December 31, 1996 the Company had accrued approximately $1 million as its estimate of the total remaining cost of long-term monitoring at the Whitewood Creek site. The EPA deleted the site from the NPL on August 13, 1996. Grants: The Company's former uranium millsite near Grants, New Mexico is listed on the NPL. The EPA asserted that leachate from the tailings contaminated a shallow aquifer used by adjacent residential subdivisions. The Company paid the costs of extending the municipal water supply to the affected homes and continues to operate a water injection and collection system that has significantly improved the quality of the aquifer. The Company has decommissioned and disposed of the mills and has covered the tailings impoundments at the site. The total future cost for reclamation, remediation, monitoring and maintaining compliance at the Grants site is estimated to be $20.4 million. Title X of the Energy Policy Act of 1992 (the "Act") and subsequent amendments to the Act authorized appropriations of $335 million to cover the Federal Government's share of certain costs of reclamation, decommissioning and remedial action for by-product material (primarily tailings) generated by certain licensees as an incident of uranium sales to the Federal Government. Reimbursement is subject to compliance with regulations of the Department of Energy ("DOE"), which were issued in 1994. Pursuant to the Act, the DOE is responsible for 51.2% of past and future costs of reclaiming the Grants site in accordance with Nuclear Regulatory Commission license requirements. Through December 31, 1996, the Company had received $14.2 million from the DOE and the accompanying balance sheet at December 31, 1996 includes an additional receivable of $16.2 million 78 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) (see notes 7 and 11) for the DOE's share of reclamation expenditures made by the Company through 1996. The Company believes that its share of the estimated remaining cost of reclaiming the Grants facility, net of estimated proceeds from the ultimate disposals of related assets, is fully provided in the financial statements at December 31, 1996. In 1983, the state of New Mexico made a claim against the Company for unspecified natural resource damages resulting from the Grants tailings. The state of South Dakota made a similar claim in 1983 as to the Whitewood Creek tailings. The Company denies all liability for damages at the two CERCLA sites. The two states have taken no action to enforce the 1983 claims. The Company believes that the ultimate resolution of the above matters will not have a material adverse impact on its financial condition or results of operations. Other Contingencies In addition to the above, the Company is party to legal actions and administrative proceedings and is subject to claims arising in the ordinary course of business. The Company believes the disposition of these matters will not have a material adverse effect on its financial position or results of operations. Note 22: Foreign Currency and Other Commitments Under the Company's foreign currency protection program, the Company has entered into a series of foreign currency option contracts which established trading ranges within which the United States dollar may be exchanged for foreign currencies by setting minimum and maximum exchange rates. The Company does not require or place collateral for these contracts. However, the Company minimizes its credit risk by dealing with only major international banks and financial institutions. The contracts are marked to market at each balance sheet date. Net unrealized gains on contracts outstanding at December 31, 1996 and 1995 totaled $.3 million. Other income for the years ended December 31, 1996, 1995 and 1994 included income (loss) of $1.6 million, $(.2) million, and $4.6 million, respectively, related to the foreign currency protection program. At December 31, 1996 the Company had outstanding foreign currency contracts as follows:
Weighted-Average Exchange Amount Covered Rates to U.S. Dollars Expiration Currency (U.S. Dollars) Put Options Call Options Dates - ------------------------------------------------------------------------------------------------------- Canadian $149,120 0.71 0.77 1997 Canadian 29,000 0.73 0.77 1998 Australian 94,400 0.77 0.80 1997 Australian 6,000 0.77 0.80 1998 -------------- $278,520
In addition to amounts related to the foreign currency option contracts, the Company realized foreign currency transaction losses of $8.3 million in 1996, $.6 million in 1995, and $6.6 million in 1994 which were included in other income. The 1996 net foreign currency transaction loss includes the recognition of an $8.9 million foreign exchange loss primarily related to the Company's Canadian-dollar denominated advances to HCI. 79 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) In the fourth quarter of 1996, the Company entered into forward sales commitments for 680,100 ounces expected to be produced from the McLaughlin mine stockpiles from 1997 through 2003. The Company does not require or place collateral for these contracts. At December 31, 1996 the Company's forward sales commitments were as follows:
Average Price of Forward Sales Forward Sales Year (ounces) (per ounce) - ----------------------------------------------------------------------------------------- 1997 120,100 $385 1998 120,000 399 1999 109,900 415 2000 85,100 430 2001 85,000 446 2002 85,000 463 2003 75,000 481 -------------- 680,100
During 1994, the Company entered into forward sales for 183,200 ounces of gold it expected to produce at the Nickel Plate mine during 1995 and 1996. In October 1995, the Company closed out forward sales covering 24,400 ounces at an average price of $435 per ounce for delivery in 1996, realizing a gain of $.8 million. Gold sales for 1996 and 1995 included 70,000 ounces and 88,800 ounces sold under this program at an average price of $421 per ounce and $398 per ounce, respectively. At December 31, 1996 all sales and obligations under this forward sales program had been completed. The purpose of both of the above forward sales programs was to help assure recovery of the Company's remaining investment in the mines and provide for remaining unaccrued reclamation costs. The Company has entered into various commitments during the ordinary course of its business, which include commitments to perform assessment work and other obligations necessary to maintain or protect its interests in mining properties, financing and other obligations to joint ventures and partners under venture and partnership agreements, and commitments under federal and state environmental health and safety permits. Note 23: Geographic and Segment Information The Company primarily is engaged in gold mining and related activities. Interests in joint ventures are included in segment operations and identifiable assets. Operating earnings, which are defined as operating revenues less operating costs and exploration expenses, exclude corporate income and expenses, and income and mining taxes. Identifiable assets represent those assets used in a segment's operations. Corporate assets are principally cash and equivalents, short-term investments and assets related to operations not significant enough to require classification as a business segment. 80 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) GEOGRAPHIC INFORMATION
1996 1995 1994 ------------------------------------------------------- Revenues United States (1,2) $ 310,881 $ 349,461 $ 346,629 Canada (3) 304,530 264,548 192,363 Australia 147,241 120,898 143,944 Latin America (4) 4,284 11,458 22,551 ------------------------------------------------------- $ 766,936 $ 746,365 $ 705,487 ======================================================= Exploration Expense United States $ 11,861 $ 12,750 $ 11,841 Canada 9,751 2,797 2,445 Australia 7,863 4,745 4,008 Latin America and other 15,907 7,249 3,053 ------------------------------------------------------- $ 45,382 $ 27,541 $ 21,347 ======================================================= Operating Earnings United States (2) $ 23,124 $ 32,623 $ 60,538 Canada 103,640 86,662 53,359 Australia 1,914 4,516 25,018 Latin America and other (4) (14,606) (6,544) (4,412) ------------------------------------------------------- $ 114,072 $ 117,257 $ 134,503 ======================================================= Identifiable Assets as of December 31 United States $ 522,565 $ 618,267 $ 598,059 Canada 494,083 432,087 382,575 Australia 451,973 264,238 207,837 Latin America and other 13,487 7,041 13,497 ------------------------------------------------------- $ 1,482,108 $ 1,321,633 $ 1,201,968 ======================================================= (1) Includes a foreign currency exchange loss of $8.9 million in 1996 primarily related to the Company's Canadian-dollar denominated advances to HCI. (2) Includes a gain of $15.7 million in 1994 on the sale of the Company's interest in the Dee mine. (3) Includes a gain of $11.2 million in 1994 on the dilution of the Company's interest in Prime. (4) Includes a gain of $2.7 million in 1995 on the sale of the Company's interest in the Torres mining complex.
81 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) SEGMENT INFORMATION
1996 1995 1994 ------------------------------------------------------- Revenues Gold $ 713,774 $ 677,377 $ 632,031 Sulfur and oil 30,749 40,620 26,882 Interest and other (1,2) 22,413 28,368 46,574 ------------------------------------------------------- $ 766,936 $ 746,365 $ 705,487 ====================================================== Operating Earnings Gold (1) $ 112,800 $ 111,564 $ 134,695 Sulfur and oil 1,272 5,693 (192) ------------------------------------------------------ Operating earnings 114,072 117,257 134,503 Net corporate expense (2,3) (42,388) (31,791) (28,690) ------------------------------------------------------ Income Before Taxes and Minority Interests $ 71,684 $ 85,466 $ 105,813 ====================================================== Depreciation, Depletion and Amortization Gold $ 105,020 $ 90,237 $ 66,857 Sulfur and oil 6,302 8,055 7,861 Corporate 1,031 1,310 1,453 ------------------------------------------------------ $ 112,353 $ 99,602 $ 76,171 ====================================================== Exploration Expense Gold $ 45,382 $ 27,541 $ 21,318 Sulfur and oil - - 29 ------------------------------------------------------ $ 45,382 $ 27,541 $ 21,347 ====================================================== Additions to Property, Plant and Equipment Gold (4) $ 262,235 $ 147,549 $ 83,597 Sulfur and oil 1,541 1,604 3,039 Corporate 440 483 2,018 ------------------------------------------------------ $ 264,216 $ 149,636 $ 88,654 ====================================================== Identifiable Assets as of December 31 Gold $ 1,038,156 $ 870,512 $ 796,016 Sulfur and oil 126,499 134,990 143,742 Corporate: Cash and equivalents and short-term investments 219,757 212,373 205,180 Other 97,696 103,758 57,030 ------------------------------------------------------ $ 1,482,108 $ 1,321,633 $ 1,201,968 ====================================================== (1) Includes a gain of $2.7 million in 1995 on the sale of the Company's interest in the Torres mining complex and a gain of $15.7 million in 1994 on the sale of the Company's interest in the Dee mine. (2) Includes a foreign currency exchange loss of $8.9 million in 1996 primarily related to the Company's Canadian-dollar denominated advances to HCI and a gain of $11.2 million in 1994 on the dilution of the Company's interest in Prime. 82 Homestake Mining Company and Subsidiaries Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) (3) Includes, in 1996, write-downs of $9 million in the carrying value of investments in mining company securities and costs of $3.4 million related to Homestake's now terminated proposed merger with Santa Fe. (4) Includes additions to property, plant and equipment of $35.6 million in 1996 related to the purchase of Cominco's 60% interest in the Snip mine and additions of $122.6 million and $68.7 million in 1996 and 1995, respectively, related to the acquisition of the 18.5% of HGAL the Company did not already own (including deferred tax purchase adjustments of $32.5 million and $18.2 million, respectively).
Sales to individual customers exceeding 10% of the Company's consolidated revenues were as follows:
1996 1995 1994 ------------------------------------------------------- Customer A $ 129,000 $ 92,000 $ 129,000 B 117,000 102,000 C 77,000 D 77,000 E 101,000 118,000 F 91,000 100,000
Because of the active worldwide market for gold, Homestake believes that the loss of any of these customers would not have a material adverse impact on the Company. Note 24: Subsequent Events On March 10, 1997, the Company announced that Santa Fe Pacific Gold Corporation had terminated its previously announced merger agreement with Homestake and, in accordance with the terms of the merger agreement, had paid Homestake a $65 million termination fee. As a result, in the first quarter of 1997 the Company will record a pretax gain of approximately $63 million ($49 million after tax), net of merger related expenses of approximately $2 million incurred in 1997. In February 1997, Homestake completed the previously announced sale of its interests in the George Lake and Back River ventures in Canada to Arauco Resources Corporation ("Arauco") for $10 million in cash and 3.6 million shares of Arauco common stock. As a result of this transaction, the Company will record a pretax gain of approximately $14 million ($8 million after tax) in the first quarter of 1997. 83 REPORT OF INDEPENDENT AUDITORS The Shareholders and Board of Directors of Homestake Mining Company: We have audited the consolidated balance sheets of Homestake Mining Company and Subsidiaries as of December 31, 1996 and 1995, and the related statements of consolidated income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Homestake Mining Company and Subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. - --------------------------- San Francisco, California February 7, 1997, except for Note 24 as to which the date is March 10, 1997. 84 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Homestake Mining Company and Subsidiaries are prepared by the Company's management in conformity with generally accepted accounting principles. Management is responsible for the fairness of the financial statements, which include estimates based on judgments. The Company maintains accounting and other control systems which management believes provide reasonable assurance that financial records are reliable for the purposes of preparing financial statements and that assets are properly safeguarded and accounted for. Underlying the concept of reasonable assurance is the premise that the cost of controls should not be disproportionate to the benefits expected to be derived from such controls. The Company's internal control structure is reviewed by its internal auditors and to the extent necessary by the external auditors in connection with their independent audit of the Company's consolidated financial statements. The external auditors conduct an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards in order to express their opinion on these financial statements. These standards require that the external auditors plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. The Audit Committee of the Board of Directors, composed entirely of outside directors, meets periodically with management, internal auditors and the external auditors to discuss the annual audit, internal control, internal auditing and financial reporting matters. The external auditors and the internal auditors have direct access to the Audit Committee. /s/ Jack E. Thompson - -------------------- Jack E. Thompson President and Chief Executive Officer /s/ Gene G. Elam - ---------------- Gene G. Elam Vice President, Finance and Chief Financial Officer March 10, 1997 85 Quarterly Selected Data (In thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Year ---------------------------------------------------------------------------------------------------- 1996: Revenues $ 202,808 $ 201,492 $ 183,683 $ 178,953 $ 766,936 Net income 13,653 (1) 6,776 7,427 (2) 2,425 (2,3,4) 30,281 (1,2,3,4) Per common share: Net income $ 0.09 (1) $ 0.05 $ 0.05 (2) $ 0.02 (2,3,4) $ 0.21 (1,2,3,4) Dividends paid 0.05 0.05 0.05 0.05 0.20 1995: Revenues $ 179,932 $ 195,590 $ 181,428 $ 189,415 $ 746,365 Net income 6,560 11,179 4,945 7,643 30,327 Per common share: Net income $ 0.05 $ 0.08 $ 0.04 $ 0.05 $ 0.22 Dividends paid 0.05 0.05 0.05 0.05 0.20 (1) Includes income of $4.9 million ($5.5 million pretax) or $0.03 per share from a litigation recovery. (2) Includes $2.7 million or $0.02 per share and $21.3 million or $0.14 per share in the third and fourth quarters, respectively, for reductions in the Company's accrual for prior year income taxes. (3) Includes foreign currency exchange losses on intercompany advances of $7.2 million ($8.7 million pretax) or $0.05 per share and $7.4 million ($8.9 million pretax) or $0.05 per share in the 1996 fourth quarter and year-to-date periods, respectively, primarily related to the Company's Canadian-dollar denominated advances to HCI. (4) Includes write-downs of $8.3 million ($9 million pretax) or $0.06 per share in the carrying value of investments in mining company securities, and costs of $2.8 million ($3.4 million pretax) or $0.02 per share related to Homestake's now terminated proposed merger with Santa Fe.
Common Stock Price Range (Prices as quoted on the New York Stock Exchange)
First Second Third Fourth Quarter Quarter Quarter Quarter Year --------------------------------------------------------------------------------------------- 1996: High $20.63 $20.88 $18.00 $16.63 $20.88 Low 15.75 16.88 14.25 13.63 13.63 1995: High $19.13 $19.13 $18.13 $17.38 $19.13 Low 14.75 15.63 16.13 15.13 14.75
86 ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Information with Respect to Directors. Certain information as to the Directors of the Registrant is set forth below. The information appearing below, and certain information regarding beneficial ownership of securities by the Directors has been furnished by the Directors.
Age at April 15, Director 1997 Since Biographical Information --------- --------- ------------------------ CLASS I DIRECTORS TO SERVE UNTIL 1997 ANNUAL MEETING: M. Norman Andersen 66 1992 Mr. Anderson is President of Norman Anderson & Associates Ltd. (mining consultants). Mr. Anderson was a director of Homestake Canada Inc. from 1987 to 1993, and was the Chairman of the Board of Directors of Homestake Canada Inc. from February 1991 to July 1992, when the Company acquired the outstanding voting shares of Homestake Canada Inc. He is a director of Prime Resources Group Inc. (gold mining), Solv-ex Corporation (tar sands processing), Finning Ltd. (construction equipment sales and service), and Toronto Dominion Bank. Robert H. Clark, Jr. 56 1984 Mr. Clark has been Chief Executive Officer since 1993, President since 1983, and a director since 1968 of Case, Pomeroy & Company, Inc. (mining, oil and gas, real estate). Douglas W. Fuerstenau 68 1977 Mr. Fuerstenau has been a Professor of Metallurgy, Department of Materials Science and Mineral Engineering, University of California, Berkeley since 1959. He was P. Malozemoff Professor of Mineral Engineering from 1987 to 1993, professor emeritus from 1993 to July 1994, and has been a professor in the Graduate School since July 1994. Berne A. Schepman 70 1973 Mr. Schepman has been President of Adair Company (management consulting) since 1982 and President of Russian Technology Group (technology marketing) since July 1992. CLASS II DIRECTORS TO SERVE UNTIL 1998 ANNUAL MEETING: Henry G. Grundstedt 68 1992 Mr. Grundstedt is a mining consultant. He was Senior Vice President of Capital Guardian Trust Company (money manager of pension and mutual funds) from 1973 to 1991 and held other executive positions with that firm beginning in 1972, specializing in the mining and metals industry. Age at April 15, Director 1997 Since Biographical Information --------- -------- ------------------------ William A. Humphrey 70 1982 Mr. Humphrey has been a mining consultant since March 1993. He has been Vice Chairman of Homestake since July 1992, was President and Chief Operating Officer of Homestake from April 1991 to July 1992, and was an Executive Vice President of Homestake from 1981 to April 1991. John Neerhout, Jr. 66 1989 Mr. Neerhout has been the Managing Director of Union Railways Limited (rail transportation) since April 1997, and a director of London and Continental Railways Ltd. since March 1997. He has been a director of the Energy Group (UK) since February 1997. Mr. Neerhout retired as Executive Vice President of Bechtel Group Inc. (engineering and construction) in October, 1996, a position he held since 1986. Mr. Neerhout was also a director and held executive positions with Bechtel Group Inc. and other of its affiliated companies prior to his retirement. Stuart T. Peeler 67 1981 Mr. Peeler has been a petroleum industry consultant since 1989. From 1982 until 1988 he was Chairman of the Board and Chief Executive Officer of Statex Petroleum, Inc. He is a director of CalMat Company (aggregates, asphalt, and property development), Chieftain International, Inc. (oil and gas exploration and production) and Chieftain International Funding Corp. (financial services). Jack E. Thompson 47 1994 Mr. Thompson has been the Chief Executive Officer of Homestake since May 1996, and President and a director of Homestake since August 1994. He was Executive Vice President-Canada of Homestake and President and Chief Executive Officer of Prime Resources Group Inc. and Homestake Canada Inc. from July 1992 until August 1994. He was President of Homestake Mineral Development Company and of North American Metals Corp. (gold mining) from 1988 until 1992. CLASS III DIRECTORS TO SERVE UNTIL 1999 ANNUAL MEETING: Harry M. Conger 66 1977 Mr. Conger has been Chairman of the Board of Homestake since 1982. In May 1996, he retired as Chief Executive Officer of Homestake, a position he had held since 1978. He was also President of Homestake from 1977 to 1986. He is a director of ASA Limited (investment company), CalMat Company (aggregates, asphalt, and property development), and Pacific Gas and Electric Company. Age at April 15, Director 1997 Since Biographical Information --------- -------- ------------------------ G. Robert Durham 68 1990 In May, 1996, Mr. Durham retired as Chairman of the Board, Chief Executive Officer and a director of Walter Industries, Inc. (building materials, home building, mortgage financing and natural resources development). He was Chief Executive Officer and a director of Walter Industries, Inc. from June 1991, and Chairman from October 1995, until his retirement. He was also President from June 1991 until October 1995. He was Chairman of the Board, President and Chief Executive Officer of Phelps Dodge Corporation (mining) from 1987 to 1989, President and Chief Operating Officer from 1984 to 1987, and held other executive offices with Phelps Dodge Corporation or affiliated companies beginning in 1977. He is a director of FINOVA Group Inc. (financial services), and a trustee of Mutual Life Insurance Company of New York. Robert K. Jaedicke 68 1983 Mr. Jaedicke is a Professor (emeritus) of Accounting at Stanford University Graduate School of Business. He has been a member of the Stanford faculty since 1961 and was Dean of the Graduate School of Business from 1983 to 1990. He is a director of Boise Cascade Corporation (forest products and paper), California Water Service Company, Enron Corp. (natural gas and liquid fuels), GenCorp (aerospace, auto, polymer products), State Farm Insurance Companies, and Wells Fargo & Company and Wells Fargo Bank, N.A. Carol A. Rae 51 1995 Ms. Rae has been the President and Chief Executive Officer of Integrated Media and Marketing, LLC (producer of educational video and multimedia products) since 1995, and the President of MedVal Technologies International, Inc. (manufacturer of orthopedic splints) since 1984. She has been a member of the Board of Directors of the U.S. Chamber of Commerce since 1994. She was Senior Vice President and General Manager of the Refractive Division of Chiron Vision Corporation (manufacturer of ophthalmic intraocular lenses) from 1993 until 1995 and since 1995 she has been Senior Vice President of Government Affairs of the Refractive Division of Chiron Vision Corporation. She was President and Chief Executive Officer of Magnum Diamond Corporation (manufacturer of surgical instruments) from 1989 to 1995.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD: Homestake's Board of Directors held 15 meetings during the calendar year 1996. The Board of Directors has six standing committees: Executive, Finance, Audit, Compensation, Nominating, and Environment, Health and Safety. The Executive Committee has authority to exercise most of the powers of the Board of Directors. It is intended to function on a standby basis. The members of the Committee are Messrs. Thompson (Chairman), Conger, Clark, Humphrey, Peeler and Schepman. The Executive Committee held two meetings during 1996. The Finance Committee reviews and makes recommendations to the Board of Directors about proposed dividends, investments and financial matters, and oversees pension and savings plan investments. The members of the Committee are Messrs. Peeler (Chairman), Conger, Grundstedt, Humphrey, and Thompson, and Ms. Rae. The Finance Committee held four meetings during 1996. The Audit Committee recommends to the Board of Directors appointment of the firm of independent auditors to examine and report to shareholders on the consolidated financial statements of Homestake, and receives and considers the reports of the auditors. The Committee also oversees Homestake's internal auditing. The members of the Committee are Messrs. Jaedicke (Chairman), Anderson, Clark, and Neerhout, and Ms. Rae, all non-employee directors. The Committee held three meetings during 1996. The Compensation Committee evaluates and recommends to the full Board of Directors the levels of compensation and benefits for officers and key employees. The Compensation Committee also administers the Company's stock option plans and its Deferred Compensation Plan and Executive Supplemental Retirement Plan. The members of the Committee are Messrs. Schepman (Chairman), Durham, Fuerstenau, Grudnstedt, Jaedicke and Neerhout, all non-employee directors. The Committee held four meetings during 1996. The Nominating Committee reviews and evaluates candidates for director, including nominees recommended by shareholders, and makes recommendations on candidates to the Board of Directors. Applications and communications relating to candidates for director may be sent to the Secretary of Homestake at the corporate offices in San Francisco. The members of the Committee are Messrs. Fuerstenau (Chairman), Anderson, Durham and Schepman, all non-employee directors. The Nominating Committee did not meet during 1996. The Environment, Health and Safety Committee oversees Homestake's compliance with environmental, health and safety laws and policies. The members are Messrs. Anderson (Chairman), Durham, Fuerstenau, Humphrey and Neerhout, and Ms. Rae, all non-employee directors. The Environment, Health and Safety Committee held three meetings during 1996. Each incumbent director attended at least 75 percent of the total number of meetings of the Board of Directors and the respective committees on which he or she served. The aggregate average attendance at meetings of the Board of Directors and its committees was 96.9 percent. (b) Information with Respect to Executive Officers. The required information is contained in Part I of the 10-K Report, at pages 39-41. (c) Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 and related rules require the Company's directors and executive officers to file reports of beneficial ownership and changes of beneficial ownership with the Securities and Exchange Commission and with the Company. Based on its review of reports of beneficial ownership and changes in beneficial ownership required under Section 16(a), the Company believes that during 1996 all of its directors and executive officers timely filed all reports of beneficial ownership and changes in beneficial ownership required under Section 16(a), except that: the Form 3 Initial Report of Ownership of Stephen A. Orr, a Vice President elected in 1996, was filed late; one Form 4 Statement of Changes in Beneficial Ownership for Carol A. Rae, a Director of the Company, reporting a purchase of Company shares, was filed late; and one Form 4 Statement of Changes in Beneficial Ownership for Ronald D. Parker, a Vice President of the Company, reporting an exercise of Company stock options and the sale of the shares so acquired, was filed late (in 1997). No directors or executive officers reported in 1996 a transaction that should have been reported in an earlier year. SIGNATURE Pursuant to the requirements of Section 13 or 15(d) 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. HOMESTAKE MINING COMPANY Date May 21, 1997 By:/s/ David W. Peat -------------------------- ----------------- David W. Peat Vice President and Controller (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----