-----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, OkQjhzNbwC3iVA1/W9QPOCC3vJ3xrxwclAhz6uyiJWp6Me9NDRvn02ZIBvHUjkPP xAaymHIi2Juu8AR5P/3fpA== 0000743872-98-000009.txt : 19980430 0000743872-98-000009.hdr.sgml : 19980430 ACCESSION NUMBER: 0000743872-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980428 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-Q SEC ACT: SEC FILE NUMBER: 001-08736 FILM NUMBER: 98602665 BUSINESS ADDRESS: STREET 1: 650 CALIFORNIA ST STREET 2: 9TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 BUSINESS PHONE: 4159818150 MAIL ADDRESS: STREET 1: 650 CALIFORNIA ST CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 10-Q 1 FOR THE QUARTER ENDED 3/31/98 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly Period Ended March 31, 1998 ( ) 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 A Delaware Corporation IRS Employer Identification No. 94-2934609 650 California Street San Francisco, California 94108-2788 Telephone: (415) 981-8150 http://www.homestake.com 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 ______ ----------- The number of shares of common stock outstanding as of April 23, 1998 was 146,780,900. Page 1 HOMESTAKE MINING COMPANY AND SUBSIDIARIES PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements A. Condensed Consolidated Balance Sheets (unaudited) (In thousands, except per share amount)
March 31, December 31, 1998 1997 ---------------- ---------------- ASSETS Current assets Cash and equivalents $ 130,232 $ 94,725 Short-term investments 120,288 141,221 Receivables 45,127 40,366 Inventories: Finished products 15,886 15,546 Ore and in process 23,799 25,881 Supplies 27,120 27,831 Deferred income and mining taxes 20,894 20,894 Other 8,420 9,506 ---------------- ---------------- Total current assets 391,766 375,970 ---------------- ---------------- Property, plant and equipment - at cost 1,978,030 1,959,222 Accumulated depreciation, depletion and amortization (1,179,475) (1,147,176) ---------------- ---------------- Property, plant and equipment - net 798,555 812,046 ---------------- ---------------- Investments and other assets Noncurrent investments 32,360 32,321 Other assets 84,689 84,392 ---------------- ---------------- Total investments and other assets 117,049 116,713 ---------------- ---------------- Total Assets $ 1,307,370 $ 1,304,729 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 33,038 $ 43,843 Accrued liabilities: Payroll and other compensation 33,465 21,848 Reclamation 12,919 11,818 Unrealized loss on foreign currency exchange contracts 11,441 20,416 Other 22,729 10,704 Income and other taxes payable 8,157 277 ---------------- ---------------- Total current liabilities 121,749 108,906 ---------------- ---------------- Long-term liabilities Long-term debt 264,673 263,855 Other long-term obligations 134,243 142,382 ---------------- ---------------- Total long-term liabilities 398,916 406,237 ---------------- ---------------- Deferred income and mining taxes 153,151 155,449 Minority interests in consolidated subsidiaries 110,629 102,387 Shareholders' equity Capital stock, $1 par value per share: Preferred - 10,000 shares authorized; no shares outstanding Common - 250,000 shares authorized; shares outstanding: 1998 - 146,770; 1997 - 146,735 146,770 146,735 Other shareholders' equity 376,155 385,015 ---------------- ---------------- Total shareholders' equity 522,925 531,750 ---------------- ---------------- Total Liabilities and Shareholders' Equity $ 1,307,370 $ 1,304,729 ================ ================
See notes to condensed consolidated financial statements. 2 HOMESTAKE MINING COMPANY AND SUBSIDIARIES B. Condensed Statements of Consolidated Operations (unaudited) (In thousands, except per share amounts)
Three Months Ended March 31, 1998 1997 ----------------- ---------------- Revenues Gold and ore sales $ 153,227 $ 164,213 Sulfur and oil sales 6,133 6,952 Interest income 3,998 3,329 Gain on termination of Santa Fe merger 62,925 Other income 10,985 12,768 ----------------- ---------------- 174,343 250,187 ----------------- ---------------- Costs and Expenses Production costs 104,150 118,114 Depreciation, depletion and amortization 29,544 28,155 Administrative and general expense 10,180 9,561 Exploration expense 7,218 8,335 Interest expense 3,528 2,582 Other expense 11,687 642 ----------------- ---------------- 166,307 167,389 ----------------- ---------------- Income Before Taxes and Minority Interests 8,036 82,798 Income and Mining Taxes (8,097) (29,779) Minority Interests (4,550) (3,159) ----------------- ---------------- Net Income (Loss) $ (4,611) $ 49,860 ================= ================ Net Income (Loss) Per Share (Basic and Diluted) $ (0.03) $ 0.34 ================= ================ Average Shares Used in the Computation 146,749 146,682 ================= ================ Dividends Paid Per Common Share $ - $ 0.05 ================= ================
See notes to condensed consolidated financial statements. 3 HOMESTAKE MINING COMPANY AND SUBSIDIARIES C. Condensed Statements of Consolidated Cash Flows (unaudited) (In thousands)
Three Months Ended March 31, 1998 1997 --------------- --------------- Cash Flows from Operations Net income (loss) $ (4,611) $ 49,860 Reconciliation to net cash provided by operations: Depreciation, depletion and amortization 29,544 28,155 Gains on asset disposals (101) (13,575) Deferred taxes, minority interests and other (10,725) 18,273 Effect of changes in operating working capital items 5,240 (16,267) --------------- --------------- Net cash provided by operations 19,347 66,446 --------------- --------------- Investment Activities Decrease in short-term investments 21,637 14,956 Additions to property, plant and equipment (7,796) (22,806) Proceeds from asset sales 191 9,425 Other (1,194) 881 --------------- --------------- Net cash provided by investment activities 12,838 2,456 --------------- --------------- Financing Activities Common shares issued 510 781 Dividends paid - (7,334) Other 2,812 2,659 --------------- --------------- Net cash provided by (used in) financing activities 3,322 (3,894) --------------- --------------- Net increase in cash and equivalents 35,507 65,008 Cash and equivalents, January 1 94,725 89,599 --------------- --------------- Cash and equivalents, March 31 $ 130,232 $ 154,607 =============== ===============
See notes to condensed consolidated financial statements. 4 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) 1. The condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto, which include information as to significant accounting policies, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The information furnished in this report reflects all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the interim periods. Except as described in notes 2 through 5, such adjustments consist of items of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of results for the full year. All dollar amounts are in United States dollars unless otherwise indicated. 2. On December 21, 1997, Homestake announced it had entered into an agreement to acquire Plutonic Resources Limited ("Plutonic"), an Australian gold producer, by an exchange of common stock for common stock. Homestake expects to issue approximately 64.4 million shares to acquire Plutonic (0.34 of a Homestake common share for each Plutonic fully-paid ordinary share). The transaction, which has been approved unanimously by the Boards of both companies, is expected to close on April 30, 1998. The transaction is subject to approval by shareholders of both companies, qualification as a pooling of interests for accounting purposes, and certain other conditions. Transaction costs of $2.4 million ($2.4 million after tax) related to this acquisition are included in other expense for the three months ended March 31, 1998. 3. In January 1998, the Company announced that it would implement a major restructuring of operations at the Homestake mine in order to reduce operating costs. The Company suspended underground mining for approximately 60 days while it completed the final details of the new operating plan and readied the underground mine to begin operating on the restructured basis. Open Cut ore stockpiles continued to be processed through the mill at an accelerated rate while the underground operations were suspended. The new mine plan is specifically designed to improve the grade of ore recovered through the increased use of mechanized cut-and-fill mining methods. When fully implemented, the plan will reflect a complete reorganization of underground activities, a significant reduction in the mine's work force and a reduction in future gold production. Other expense during the three months March 31, 1998 includes $8.9 million ($5.9 million after tax) of costs associated with the temporary suspension of operations and the reduction in work force of 450 employees. These costs primarily represent wage payments to the work force during the temporary shutdown and severance payments and benefit costs for the severed employees, and are net of approximately $9.3 million of pension and benefit plan curtailment gains. 4. In March 1997, Santa Fe Pacific Gold Corporation terminated its previously announced merger agreement with Homestake and paid Homestake a $65 million termination fee. As a result, the Company recorded a pretax gain of $62.9 million ($47.2 million after tax), net of merger-related expenses of $2.1 million incurred in 1997. 5. In February 1997, Homestake sold its interests in the George Lake and Back River joint ventures in Canada to Kit Resources Corporation ("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. As a result of this transaction, the Company recorded a pretax gain of $13.5 million ($8.1 million after tax) in the first quarter of 1997, which is included in other income. 5 HOMESTAKE MINING COMPANY AND SUBSIDIARIES 6. 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. At March 31, 1998 the Company had forward currency contracts outstanding as follows (dollar amounts in thousands):
Weighted-Average Exchange Amount Covered Rates to U.S. Dollars Expiration Currency (U.S. Dollars) Put Options Call Options Dates - ---------------------------------------------------------------------------------------------------- Canadian $ 146,410 0.72 0.75 1998 Canadian 104,280 0.70 0.73 1999 Canadian 77,340 0.69 0.72 2000 Canadian 2,000 0.70 0.73 2001 Australian 76,650 0.74 0.77 1998 Australian 72,500 0.68 0.71 1999 Australian 42,800 0.66 0.69 2000 ---------------- $ 521,980
7. In 1996, the Company entered into forward sales commitments for 680,100 ounces of gold during the period 1997 through 2003. Gold sales for the first quarter of 1998 include 30,000 ounces at an average price of $394 per ounce compared to 30,000 ounces at an average price of $380 per ounce in the 1997 first quarter under the forward sales program. At March 31, 1998 the Company's gold forward sales commitments were as follows:
Average Price of Forward Sales Forward Sales Year (ounces) (per ounce) - ----------------------------------------------------------------------------------- 1998 90,000 $401 1999 109,900 415 2000 85,100 430 2001 95,000 441 2002 95,000 457 2003 75,000 481 ------------- 550,000 =============
To provide protection against a decrease in gold prices, during the third quarter of 1997 the Company entered into a series of put and call option contracts to provide a floor price of $325 per ounce for 900,000 ounces of Homestake's expected 1998 gold production. Gold sales during the first quarter of 1998 include 225,000 ounces at an average price $325 per ounce under this program. At March 31, 1998 the Company owned put options for 675,000 ounces of gold exercisable during 1998 at a price of $325 per ounce. The Company also had written call options outstanding for 675,000 ounces of gold exercisable during 1998 at a price of $325 per ounce and owned call options for 675,000 ounces of gold exercisable during 1998 at a price of $336 per ounce. At March 31, 1998 the Company also owned put options for 30,000 ounces of gold exercisable during 2000 at a price of $350 per ounce and had written call options 6 HOMESTAKE MINING COMPANY AND SUBSIDIARIES outstanding for 15,000 ounces of gold exercisable during 2000 at an average price of $395 per ounce. In February 1998, Prime Resources Group Inc. ("Prime"), a 50.6%-owned subsidiary of the Company, adopted a gold and silver hedging policy which provides for the use of forward sales contracts for up to 40% of each of the following five year's expected annual gold and silver production at prices in excess of certain targeted prices. At March 31, 1998 Prime had forward sales outstanding for approximately 7 million ounces of silver during the period 1999 through 2001 at an average price of $6.27 per ounce. 8. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards for the reporting and display of comprehensive income. The purpose of reporting comprehensive income is to present a measure of all changes in shareholders' equity that result from recognized transactions and other economic events of the period, other than transactions with shareholders in their capacity as shareholders. SFAS 130 requires that the components of comprehensive income be displayed in annual financial statements with the same prominence as other financial statements and that the total amount of comprehensive income be reported in interim periods. Homestake's comprehensive income (loss) for the three months ended March 31, 1998 and 1997 was as follows (in thousands):
Three Months Ended March 31, 1998 1997 --------------- --------------- Net Income (Loss) $ (4,611) $ 49,860 Other Comprehensive Income (Loss) Currency translation adjustments 4,572 (6,372) Unrealized losses on securities (2,035) (2,057) --------------- --------------- Total Other Comprehensive Income (Loss) 2,537 (8,429) --------------- --------------- Comprehensive Income (Loss) $ (2,074) $ 41,431 =============== ===============
In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. SFAS 132 will be effective for the Company's financial statements for the year ended December 31, 1998. 9. 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. Grants: Homestake'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. Homestake 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 7 HOMESTAKE MINING COMPANY AND SUBSIDIARIES 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 $17.5 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 March 31, 1998, Homestake had received $21 million from the DOE and the accompanying balance sheet at March 31, 1998 includes an additional receivable of $11 million for the DOE's share of reclamation expenditures made by Homestake through that date. Homestake believes that its share of the estimated remaining cost of reclaiming the Grants facility is fully provided in the financial statements at March 31, 1998. In 1983, the state of New Mexico made a claim against Homestake for unspecified natural resource damages resulting from the Grants tailings. New Mexico has taken no action to enforce its claim. Whitewood Creek: Whitewood Creek was a site where mining companies operating in the Black Hills of South Dakota, including Homestake, placed mine tailings (ground rock) beginning in the nineteenth century. Some tailings placed in Whitewood Creek eventually flowed into the Belle Fourche River, the Cheyenne River and Lake Oahe. Placement of mine tailings into Whitewood Creek was authorized by the laws of the United States, the Dakota territory and the State of South Dakota, and Whitewood Creek was later specifically designated by the State of South Dakota as a disposal stream for mine tailings and for the disposal of raw sewage and other municipal waste. In response to changes in legal requirements, Homestake ceased the placement of mine tailings into Whitewood Creek and for many years the Homestake mine has impounded all mine tailings that are not redeposited in the mine. Deposits of tailings along an 18-mile stretch of Whitewood Creek formerly constituted a site on the NPL. The EPA asserted that discharges of tailings by mining companies, including Homestake, contaminated the soil and streambed. Homestake signed a Consent Decree with the EPA and carried out remedial work. The site was deleted from the NPL on August 13, 1996. In the deletion notice, the EPA stated that "EPA, in consultation with the State of South Dakota, have determined that the Site poses no significant threat to public health or the environment." In September, 1997 the State of South Dakota filed an action against Homestake, alleging that Homestake's disposal of mine tailings in Whitewood Creek resulted in injuries to natural resources in Whitewood Creek, the Belle Fourche River, the Cheyenne River and Lake Oahe (collectively the "NRD Site"). The complaint also alleges that the tailings constitute a continuing public nuisance. The complaint asks for abatement of the nuisance, response costs, damages in an unspecified amounts, litigation costs and interest. In November 1997, the United States government and the Cheyenne River Sioux Tribe (the "federal trustees") filed a similar action alleging injuries to natural resource and seeking response costs, damages in unspecified amounts, litigation costs and attorneys fees. 8 HOMESTAKE MINING COMPANY AND SUBSIDIARIES In its answers, Homestake denies that there has been any continuing damage to natural resources or nuisance as a result of the placement of tailings in Whitewood Creek. Among other defenses, it is also the position of Homestake that as a result of the State of South Dakota's ownership of Whitewood Creek and state and federal designation of Whitewood Creek as an authorized disposal site, the State of South Dakota and the federal government are responsible for all past and future damages. Homestake has also counterclaimed against the State of South Dakota and the federal trustees seeking cost recoupment, contribution and indemnity. Homestake intends to vigorously defend this action and to seek recovery, contribution and indemnity from the State of South Dakota and the federal trustees for past and future expenditures. Homestake also expects to seek recovery, contribution and indemnity from other government entities and other persons who participated in ownership and/or operation of Whitewood Creek as a waste disposal site or who disposed of waste in the NRD Site. In the opinion of Homestake, there is no basis for the claims by the State of South Dakota or by the federal trustees. Homestake is also of the opinion that Homestake has valid defenses and counterclaims against the State of South Dakota and the federal trustees, and cross-claims for recovery, contribution and indemnity against other government entities and other persons who participated in ownership and/or operation of Whitewood Creek as a waste disposal site or who disposed of waste in the NRD Site. Homestake does not believe that resolution of these matters will have a material effect on the business or financial condition or results of operations of Homestake. 9 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Unless specifically stated otherwise, the following information relates to amounts included in the consolidated financial statements without reduction for minority interests.) RESULTS OF OPERATIONS Homestake recorded a net loss of $4.6 million or $.03 per share during the first quarter of 1998 compared to net income of $49.9 million or $.34 per share during the first quarter of 1997. The 1998 first quarter includes $5.9 million ($8.9 million pretax) or $.04 per share of costs associated with a temporary suspension of underground mining operations at the Homestake mine and a reduction in that mine's work force, gains on the sale of investments of $3.1 million ($4 million pretax) or $.02 per share, and $2.4 million ($2.4 million pretax) or $.02 per share of transaction costs with respect to the pending acquisition of Plutonic Resources Limited ("Plutonic"). The 1997 first quarter included after-tax gains of $47.2 million ($62.9 million pretax) or $.32 per share from the termination fee received from Santa Fe Pacific Gold Corporation ("Santa Fe") upon termination of Homestake's merger agreement with Santa Fe, and $8.1 million ($13.5 million pretax) or $.06 per share from the sale of the George Lake and Back River joint venture interests in the Northwest Territories of Canada. Excluding the effect of nonrecurring items, the Company had net earnings of $.6 million or $.01 per share during the 1998 first quarter compared to a net loss of $5.4 million or $.04 per share during the 1997 first quarter. The improved 1998 results reflect higher gold production and lower unit operating costs, offset by a $39 per ounce decrease in the average realized gold price received. Gold production for the 1998 first quarter of 517,900 ounces was 29,400 ounces higher than 1997 first quarter production of 488,500 ounces. However, gold and ore sales for the first quarter of 1998 decreased to $153.2 million from $164.2 million during the first quarter of 1997 reflecting significantly lower gold prices. During the first three months of 1998, 513,700 equivalent ounces of gold were sold at an average realized price of $314 per ounce compared to 484,700 equivalent ounces of gold sold at an average realized price of $353 per ounce during the first three months of 1997. In January 1998, the Company announced that it would implement a major restructuring of operations at the Homestake mine in order to reduce operating costs. The Company suspended underground mining for approximately 60 days while it completed the final details of the new operating plan and readied the underground mine to begin operating on the restructured basis. Open Cut ore stockpiles continued to be processed through the mill at an accelerated rate while the underground operations were suspended. The new mine plan specifically is designed to improve the grade of ore recovered through the increased use of mechanized cut-and-fill mining methods. When fully implemented, the plan will reflect a reorganization of underground activities and a significant reduction in work force that will generate considerable cost savings and will increase the mine's future total earnings and cash flow. Homestake expects to invest $30 million by the end of 1999 in the restructuring process to purchase equipment, and upgrade facilities and infrastructure. Once the new operating plan is fully implemented by the end of 1999, annual gold production is expected to be between 150,000 and 180,000 ounces. Total cash costs for the underground operations are projected to decline to $280 per ounce from the 1997 levels of approximately $335 per ounce. Domestic production increased slightly to 182,300 ounces during the first quarter of 1998 from 179,700 ounces during the first quarter of 1997. The increase primarily is due to the commencement of production at the new Ruby Hill mine in Nevada, offset by the temporary suspension of mining in the underground operations at the Homestake mine. The Ruby Hill 10 HOMESTAKE MINING COMPANY AND SUBSIDIARIES mine, which commenced commercial production effective January 1, 1998, produced 30,600 ounces of gold at a total cash cost $129 per ounce during the first quarter of 1998. At the Homestake mine, gold production during the first quarter of 1998 of 76,000 ounces was 30,400 ounces lower than production during the first quarter of 1997. During the temporary shut down, the mill processed an increased volume of lower-grade, lower-cost ore from the Open Cut operations. The increased volume of Open Cut ore reduced the mine's average total cash costs to $244 per ounce during the 1998 first quarter from $316 per ounce in the 1997 first quarter. At the McLaughlin mine, production of 30,100 ounces during the first quarter of 1998 compares to 31,600 ounces produced during the prior year's first quarter. Total cash costs decreased to $233 per ounce during the 1998 first quarter from $244 per ounce during the 1997 first quarter, reflecting the operation's continued emphasis on cost controls. Homestake's share of production at the Round Mountain mine increased by 4,900 ounces to 33,000 ounces during the first quarter of 1998 from 28,100 ounces produced during the first quarter of 1997. The higher production is due to the start up of the new 8,000 tons-per-day gravity mill in late 1997. The new mill, which was constructed to process higher-grade ores, produced 6,100 ounces (Homestake share) during the quarter. Total cash costs declined to $207 per ounce during the 1998 first quarter from $236 per ounce during the 1997 first quarter due to cost savings associated with the new mining plan instituted in 1997. The new plan, which optimized the design of the open pit and requires less stripping, is expected to achieve higher earnings and cash flow over the life of the operation. Total foreign gold production during the first three months of 1998 increased by 26,800 ounces to 335,600 equivalent ounces over the comparable period for the prior year. This increase in production primarily is due to a significant increase in production at the Eskay Creek mine in British Columbia and production from the La Falda mine in Chile, which commenced operations in the second quarter of 1997, partially offset by production decreases at Williams, David Bell and Snip mines in Canada and at the Kalgoorlie operations in Western Australia. Production at the Eskay Creek mine increased to 141,100 gold equivalent ounces during the first quarter of 1998 from 94,600 gold equivalent ounces during the first quarter of 1997. This increase is due to 20% higher gold grades in the ore shipped directly to third-party smelters, concentrate sales from the recently commissioned on-site gravity/flotation mill, and a decrease in the gold/silver equivalency ratio. During the first quarter, 1,800 tons of concentrate containing 21,600 equivalent ounces of gold produced by the new mill were shipped to third-party smelters. Total cash costs, including transportation and third-party smelter costs, were $121 per equivalent ounce during the 1998 first quarter compared to $165 per equivalent ounce during the 1997 first quarter. The Williams mine produced 44,700 ounces of gold at a total cash cost of $244 per ounce during the first quarter of 1998 compared to 51,400 ounces produced at a total cash cost of $234 per ounce during the first quarter of 1997, and the David Bell mine produced 18,200 ounces at a total cash cost of $238 per ounce during the first quarter of 1998 compared to 23,000 ounces produced at a total cash cost of $194 per ounce during the first quarter of 1997. The lower production and corresponding increase in cash costs per ounce at both of these operations is due to lower ore grades partially offset by an increase in mill throughput. The grade of ore mined during the 1997 first quarter at both of these operations was higher than the average remaining respective reserve grades. In addition, temporary hoisting difficulties at the David Bell mine limited planned production from higher-grade stopes late in the 1998 quarter, while changes in the mining sequence at the Williams mine delayed production of higher-grade stopes until later in 1998. Homestake's share of production at the Snip mine decreased to 23,700 ounces during the 1998 first quarter from 28,200 ounces during the 1997 first quarter. The decrease production at the Snip mine is due to lower ore grades and mill throughput. The remaining Snip mine ore blocks are becoming smaller and narrower which is requiring an ever-increasing proportion of more labor-intensive conventional mining versus lower-cost mechanized mining. As a result, total cash costs increased from $204 per ounce during the first quarter of 1997 to $224 per ounce during the first quarter of 1998. 11 HOMESTAKE MINING COMPANY AND SUBSIDIARIES HGAL's share of production at the Kalgoorlie operations in Western Australia totaled 94,100 ounces during the first three months of 1998 compared to 108,300 ounces during the first three months of 1997. The decrease in production reflects a 15% decrease in ore grades resulting from an increase during the current quarter in the volume of lower-grade stockpiled ore processed. Total cash costs decreased to $262 per ounce during the 1998 first quarter from $273 per ounce during the 1997 first quarter, primarily reflecting improved operating efficiencies at the Fimiston mill and a significantly weaker Australian dollar in relation to the US dollar, partially offset by the decrease in production. The Company's consolidated total cash cost per equivalent ounce decreased to $203 during the 1998 first quarter from $245 during the 1997 first quarter. The Company's share of revenues at the Main Pass 299 operations in the Gulf of Mexico totaled $6.1 million during the first quarter of 1998 compared to $7 million during the first quarter of 1997, and operating losses of $.7 million were recorded during the 1998 first quarter compared to operating losses of $.6 million during the first quarter of 1997. The 1998 results reflect lower oil prices and sales volumes, offset by lower depreciation charges following the write down of the sulfur assets at September 30, 1997. Homestake's gold hedging policy provides for the use of forward sales contracts for up to 30% of each of the following ten year's expected annual gold production at prices in excess of certain targeted prices, and the use of combinations of put and call option contracts to establish minimum floor prices while allowing participation in future increases in the price of gold. In 1997, Homestake entered into a series of put and call options which provide a floor price of $325 per ounce for 900,000 ounces of 1998 production while allowing for full participation in any increase in the price of gold above $336 per ounce. In 1996, Homestake sold 680,100 ounces of gold for future delivery through 2003, at an average price of $426 per ounce. Gold sales during the first quarter of 1998 include 225,000 ounces at an average price of $325 per ounce under the Company's price protection program. In addition, 1998 first quarter gold sales include 30,000 ounces at an average price of $394 per ounce compared to 30,000 ounces at an average price of $380 per ounce in the 1997 first quarter under the forward sales program. These hedging activities increased gold revenues by approximately $9.5 million or $19 per ounce. At March 31, 1998 the Company had committed 550,000 ounces of its future gold production at an average price of $436 per ounce under forward sales contracts. In addition, the Company owned put options for 675,000 ounces of gold exercisable during 1998 at a price of $325 per ounce. The Company also had written call options outstanding for 675,000 ounces of gold exercisable during 1998 at a price of $325 per ounce and owned call options for 675,000 ounces of gold exercisable during 1998 at a price of $336 per ounce. The Company also owned put options for 30,000 ounces of gold exercisable during 2000 at a price of $350 per ounce and had written call options outstanding for 15,000 ounces of gold exercisable during 2000 at an average price of $395 per ounce. In February 1998, Prime adopted a gold and silver hedging policy which provides for the use of forward sales contracts for up to 40% of each of the following five year's expected annual gold and silver production at prices in excess of certain targeted prices. At March 31, 1998 Prime had forward sales outstanding for approximately 7 million ounces of silver during the period 1999 through 2001 at an average price of $6.27 per ounce. A significant portion of the Company's operating expenses is incurred in Australian and Canadian currencies. The Company's profitability is impacted by fluctuations in these currencies' exchange rates relative to the United States dollar. Under the Company's foreign currency protection 12 HOMESTAKE MINING COMPANY AND SUBSIDIARIES program, the Company has entered into a series of foreign currency option contracts which establish trading ranges within which the United States dollar may be exchanged for Australian and Canadian dollars. At March 31, 1998 the Company had a recorded net unrealized loss of $11.4 million on open contracts under this program. Other income for the first three months of 1998 includes foreign currency exchange gains of $5 million and gains on sales of investments of $4 million. Other income in 1997 includes a $13.5 million gain on sale of the George Lake/Back River joint venture interests and a net foreign currency exchange losses of $1.7 million. Depreciation, depletion and amortization expense increased to $29.5 million during the 1998 first quarter from $28.2 million during the first quarter of 1997 reflecting the higher gold production, offset by reduced depreciation charges following the write downs of property, plant and equipment at certain short-lived mining operations recorded in the third and fourth quarters of 1997. Exploration expense for the first three months of 1998 decreased to $7.2 million during the first quarter of 1998 from $8.3 million during the first quarter of 1997. The Company continues to pursue numerous prospective exploration targets and prospects and currently expects to spend approximately $35 million on existing Homestake exploration projects during 1998. Other expense for the first three months of 1998 includes $8.9 million of costs associated with a temporary suspension of underground mining operations at the Homestake mine and a reduction in that mine's work force, and $2.4 million of transaction costs with respect to the pending acquisition of Plutonic. Income and mining tax expense for the quarter ended March 31, 1998 was $8.1 million compared to $29.8 million for the quarter ended March 31, 1997. The decrease in tax expense primarily reflects taxes of $15.7 million provided during 1997 on the break-up fee received from Santa Fe upon termination of Homestake's merger agreement with Santa Fe. The Company's income and mining tax rate was 101% in the 1998 first quarter compared to 36% in the 1997 first quarter reflecting the geographical mix of pretax income. During the 1998 first quarter, the Company had pretax earnings in Canada where the Company is subject to high statutory tax rates and pretax losses in the United States where the Company is subject to the Alternative Minimum Tax. The Company's consolidated effective income and mining tax rate will fluctuate depending on the geographical mix of pretax income, and is expected to remain high throughout the remainder of 1998. Minority interests in the income of consolidated subsidiaries increased to $4.5 million during the first quarter of 1998 from $3.2 million during the first quarter of 1997. The increase in minority interests primarily is attributable to higher earnings at the Eskay Creek mine which is owned by Prime Resources Group Inc., a 50.6%-owned subsidiary of the Company. The following chart details Homestake's gold production and total cash costs per ounce by location, and consolidated revenue and production costs per ounce. 13 HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Production Total Cash Costs (Ounces in thousands) (Dollars per ounce) Three Months Ended Three Months Ended March 31, March 31, Mine (Percentage interest) 1998 1997 1998 1997 - -------------------------- --------------------------- -------------------------- Homestake (100) 76.0 106.4 $244 $316 Ruby Hill (100) (1) 30.6 - 129 - McLaughlin (100) 30.1 31.6 233 244 Round Mountain (25) 33.0 28.1 207 236 Pinson (50) 6.4 6.4 321 312 Marigold (33) 6.2 7.2 246 229 ------------ ----------- Total United States 182.3 179.7 Eskay Creek (100) (2,3) 141.1 94.6 121 165 Williams (50) 44.7 51.4 244 234 David Bell (50) 18.2 23.0 238 194 Quarter Claim (25) 2.8 2.8 171 175 Snip (100) (3,4) 23.7 28.2 224 204 ------------ ----------- Total Canada 230.5 200.0 Kalgoorlie, Australia (50) 94.1 108.3 262 273 La Falda, Chile (100) (5) 11.0 - 215 - El Hueso, Chile (100) - 0.5 - 310 ------------ ----------- Total Production 517.9 488.5 $203 $245 Less Minority Interests (86.8) (60.6) ------------ ----------- Homestake's Share 431.1 427.9 ============ ===========
Three Months Ended March 31, Per Ounce of Gold 1998 1997 - ----------------- ---------------------------- Revenue $314 $353 ============================ Per Ounce Costs Cash Operating Costs (6) $199 $239 Other Cash Costs (7) 4 6 ---------------------------- Total Cash Costs 203 245 Noncash Costs (8) 57 54 ---------------------------- Total Production Costs $260 $299 ============================ (1) The Ruby Hill mine commenced commercial production effective January 1, 1998. (2) Gold and silver are accounted for as co-products at Eskay Creek. Silver is converted to gold equivalent using the ratio of the silver market price to the gold market price. These ratios were 47 ounces and 70 ounces of silver equals one ounce of gold in the first quarters of 1998 and 1997, respectively. Eskay Creek production includes 73,400 (54,300 in 1997) payable ounces of gold and 3.2 million (2.8 million in 1997) payable ounces of silver contained in ore and concentrates sold to smelters. 14 HOMESTAKE MINING COMPANY AND SUBSIDIARIES (3) For comparison purposes, total cash costs per ounce include estimated third-party costs incurred by smelter owners and others to produce marketable gold and silver. (4) Includes ounces of gold contained in dore and concentrates. (5) The La Falda mine commenced production in April 1997. (6) Cash operating costs are costs directly related to the physical activities of producing gold; includes mining, milling, third-party smelting and in-mine drilling expenditures that are related to production. (7) Other cash costs are costs that are not directly related to, but may result from, gold production; includes production taxes and royalties. (8) Noncash costs are costs that typically are accounted for ratably over the life of an operation; includes depreciation, depletion, accruals for final reclamation. Noncash costs do not include amortization of additions to property resulting from SFAS 109 deferred tax purchase accounting adjustments, as these additions did not involve any economic resources of the Company.
LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $19.3 million during the first quarter of 1998 compared to $66.4 million during the first quarter of 1997. Cash provided by operations during the 1997 quarter includes the termination fee received from Santa Fe upon termination of Homestake's merger agreement with Santa Fe partially offset by $36 million in payments for income and mining taxes, primarily payments made in the first quarter of 1997 related to Prime's 1996 taxable income. Payments for income and mining taxes of $5.5 million (net) were made during the 1998 first quarter. Working capital at March 31, 1998 amounted to $270 million, including $251 million in cash and equivalents and short-term investments. Capital additions of $7.8 million for the first quarter of 1998 compare to additions of $22.8 million for the first quarter of 1997. Capital additions during 1998 primarily relate to productivity improvement projects and sustaining capital at the Company's operating mines. Capital additions in 1997 include $6.7 million for construction and development work at the Ruby Hill mine, $4.6 million at the Round Mountain mine primarily for a new mill to process the higher-grade sulfide ore, $3.7 million primarily for a tailings dam lift and improvements in the underground operations at the Homestake mine, and $3.2 million at the Kalgoorlie operations primarily for a decline from surface and a ventilation raise at the Mt. Charlotte mine. On March 10, 1997 Santa Fe terminated its previously announced merger agreement with Homestake and paid Homestake a $65 million termination fee. As a result, the Company recorded a pretax gain of $62.9 million ($47.2 million after tax), net of merger-related expenses of $2.1 million incurred in 1997. In February 1997, Homestake completed the sale of its interests in the George Lake and Back River joint ventures in Canada to Kit Resources Corporation ("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. As a result of this transaction, the Company recorded a pretax gain of $13.5 million ($8.1 million after tax), which is included in other income. The Company has a United States/Canadian/Australian cross-border credit facility providing a total availability of $275 million. The Company pays a commitment fee of 0.15% per annum on the unused portion of this facility. The credit facility is available through September 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. At March 31, 1998 HGAL had borrowings of $49.7 million outstanding under this 15 HOMESTAKE MINING COMPANY AND SUBSIDIARIES agreement. The interest rate on these borrowings is based on the Australian Bank Bill Swap Rate plus 0.4%. At March 31, 1998 this rate was 5.25%. In February 1997, the Company paid a cash dividend of 5 cents per share. In March 1997, the Company reduced its annual dividend rate to 10 cents per share from 20 cents per share. On March 27, 1998 the Company declared a semi-annual dividend of 5 cents per share, payable May 21, 1998 to shareholders of record at the close of business on April 28, 1998. In April 1997, the Company filed with the Securities and Exchange Commission a shelf registration statement for the potential sale of up to 20 million shares of common stock. The proceeds from any such offering would be available for general corporate purposes, which could include capital expenditures, repayment of debt and future acquisitions, which have the potential to add to the Company's gold reserves and future gold production,. Future results will be impacted by such factors as the market price of gold, silver and sulfur, the Company's ability to expand its ore reserves and the fluctuations of foreign currency exchange rates. The Company believes that the combination of cash, short-term investments, available lines of credit and future cash flows from operations will be sufficient to meet normal operating requirements, planned capital expenditures, and anticipated dividends. Plutonic Resources Limited: On December 21, 1997, Homestake announced it had entered into an agreement to acquire Plutonic Resources Limited ("Plutonic"), an Australian gold producer, by an exchange of common stock for common stock. Homestake expects to issue approximately 64.4 million shares to acquire Plutonic (0.34 of a Homestake common share for each fully-paid Plutonic ordinary share). Following completion of this transaction, Homestake's Australian operations will be the second largest in that country with substantial potential for reserve growth. Homestake will have 17 mines in four countries. Homestake's 1998 Australian gold production is expected to be 850,000 ounces, or approximately 35 percent of the Company's total production, increasing to 1 million ounces and 40 percent, respectively, in 1999. The transaction, which has been approved unanimously by the Boards of both companies, is expected to close on April 30, 1998. The transaction is subject to approval by shareholders of both companies, qualification as a pooling of interests for accounting purposes, and certain other conditions. 16 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Part II - OTHER INFORMATION Item 5. CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements contained in this Form 10-Q that are not statements of historical facts are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on beliefs of management, as well as assumptions made by and information currently available to management. Forward looking statements include those preceded by the words "believe," "estimate," "expect," "intend," "will," and similar expressions, and include estimates of future production, costs per ounce, dates of construction completion, costs of capital projects and commencement of operations. Forward looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results. Some important factors and assumptions that could cause actual results to differ materially from expected results are discussed below. Those listed are not exclusive. Estimates of future production for particular properties and for the Company as a whole are derived from annual mine plans that have been developed based on mining experience, reserve estimates, assumptions regarding ground conditions and physical characteristics of ore (such as hardness and metallurgical characteristics), expected rates and costs of production, and estimated future sales prices. Actual production may vary for a variety of reasons, such as the factors described above, ore mined varying from estimates of grade and metallurgical and other characteristics, mining dilution, actions by labor, and government imposed restrictions. Estimates of production from properties and facilities not yet in production are based on similar factors but there is a greater likelihood that actual results will vary from estimates due to a lack of actual experience. Cash cost estimates are based on such things as past experience, reserve and production estimates, anticipated mining conditions, estimated costs of materials, supplies and utilities, and estimated exchange rates. Noncash cost estimates are based on total capital costs and reserve estimates, change based on actual amounts of unamortized capital, changes in reserve estimates, and changes in estimates of final reclamation. Estimates of future capital costs are based on a variety of factors and include past operating experience, estimated levels of future production, estimates by and contract terms with third party suppliers, expectations as to government and legal requirements, feasibility reports by Company personnel and outside consultants, and other factors. Capital cost estimates for new projects are subject to greater uncertainties than additional capital costs for existing operations. Estimated time for completion of capital projects is based on such factors as the Company's experience in completing capital projects, and estimates provided by and contract terms with contractors, engineers, suppliers and others involved in design and construction of projects. Estimates reflect assumptions about factors beyond the Company's control, such as the time government agencies take in processing applications, issuing permits and otherwise completing processes required under applicable laws and regulations. Actual time to completion can vary significantly from estimates. See the Company's Form 10-K Report for the year ended December 31, 1997, Part IV, "RISK FACTORS" and "CAUTIONARY STATEMENTS," for a more detailed discussion of factors that may impact on expected future results. Item 6. (a) Exhibits Method of Filing ---------------- 11 - Computation of Earnings Per Share Filed herewith electronically 27 - Financial Data Schedule Filed herewith electronically 17 HOMESTAKE MINING COMPANY AND SUBSIDIARIES (b) Reports on Form 8-K Three reports on Form 8-K were filed during the quarter ended March 31, 1998. The report on Form 8-K dated January 27, 1998 was submitted in order to file the following: (a) a press release announcing the restructuring of operations at the Homestake Mine in Lead, South Dakota (b) announcement of a special meeting of stockholders to approve issuance of Homestake Mining Company Common Stock to acquire Plutonic Resources Limited and (c) announcement of the annual meeting of stockholders. The report on Form 8-K dated February 9, 1998 was submitted in order to file the following: (a) the amended Bylaws of the Registrant increasing the number of directors to 13 and (b) announcement of the election of Peter J. Neff as member of the Registrant's board of directors. The reports on Form 8-K dated February 24, 1998 was submitted in order to file notification of Inmet's litigation against HCI and Prime in the Supreme Court of British Columbia with respect to the Troilus mine. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOMESTAKE MINING COMPANY Date: April 27, 1998 By: /s/ Gene G. Elam -------------- ---------------- Gene G. Elam Vice President, Finance and Chief Financial Officer Date: April 27, 1998 By: /s/ David W. Peat -------------- ----------------- David W. Peat Vice President and Controller (Chief Accounting Officer) 19 EX-11 2 EARNINGS PER SHARE EXHIBIT 11 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Computation of Earnings Per Share (unaudited) (In thousands, except per share amounts)
Three Months Ended March 31, BASIC 1998 1997 -------------- -------------- Earnings: Net income (loss) applicable to basic earnings per share calculation $ (4,611) $ 49,860 ============== ============== Weighted average number of shares outstanding 146,749 146,682 ============== ============== Net income (loss) per share - basic $ (0.03) $ 0.34 ============== ============== DILUTED Earnings: Net income (loss) $ (4,611) $ 49,860 Add: Interest relating to 5.5% convertible subordinated notes, net of tax 1,630 1,630 Amortization of issuance costs relating to 5.5% convertible subordinated notes, net of tax 111 111 -------------- -------------- Net income (loss) applicable to fully diluted earnings per share calculation $ (2,870) $ 51,601 ============== ============== Weighted average number of shares outstanding: Common shares 146,749 146,682 Additional average shares outstanding assuming: Exercise of stock options (treasury method) 62 81 Conversion of 5.5% convertible subordinated notes 6,505 6,505 -------------- -------------- 153,316 153,268 ============== ============== Net income (loss) per share - diluted (a) $ (0.02) $ 0.34 ============== ============== (a) This calculation is submitted in accordance with Regulation S-K item 601 (b)(11) although it is contrary to paragraph 13 of SFAS 128 because it produces an anti-dilutive result. Diluted net income (loss) per share computed in accordance with SFAS 128 was the same as basic earnings per share.
EX-27 3
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at March 31, 1998 and the related Statement of Consolidated Operations for the three months ended March 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000743872 Homestake Mining Company 1,000 3-MOS DEC-31-1998 MAR-31-1998 130,232 120,288 45,127 0 66,805 391,766 1,978,030 1,179,475 1,307,370 121,749 264,673 0 0 146,770 376,155 1,307,370 159,360 174,343 133,694 143,874 18,905 0 3,528 8,036 8,097 (4,611) 0 0 0 (4,611) (0.03) (0.03) Includes Production costs and Depreciation, depletion and amortization from the Statement of Consolidated Operations. Includes Production costs, Depreciation, depletion and amortization and Administrative and general expense from the Statement of Consolidated Operations. Includes Exploration expense and Other expense from the Statement of Consolidated Income.
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