-----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, CdFizhM4tZ6j967Km2dtVwZaxi132mxKsMm67IIPQIDmINpalTmbeqofRcfFSnOW B8zN7zi7bUy45tVrrcyAEg== 0000743872-98-000023.txt : 19981116 0000743872-98-000023.hdr.sgml : 19981116 ACCESSION NUMBER: 0000743872-98-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98748553 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 NINE MONTHS 9/30/98 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 September 30, 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 November 6, 1998 was 211,220,538. 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)
September 30, December 31, 1998 1997 ----------------- ----------------- ASSETS Current assets Cash and equivalents $ 151,311 $ 124,083 Short-term investments 157,952 141,221 Receivables 36,900 43,529 Inventories: Finished products 18,556 33,019 Ore and in process 33,207 37,811 Supplies 26,961 33,095 Deferred income and mining taxes 11,201 19,372 Other 5,353 13,154 ----------------- ----------------- Total current assets 441,441 445,284 ----------------- ----------------- Property, plant and equipment - at cost 2,193,753 2,222,465 Accumulated depreciation, depletion and amortization (1,430,163) (1,201,318) ----------------- ----------------- Property, plant and equipment - net 763,590 1,021,147 ----------------- ----------------- Investments and other assets Noncurrent investments 23,260 41,094 Other assets 87,637 102,009 ----------------- ----------------- Total investments and other assets 110,897 143,103 ----------------- ----------------- Total Assets $ 1,315,928 $ 1,609,534 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 43,819 $ 59,930 Accrued liabilities: Payroll and other compensation 28,717 23,898 Unrealized loss on foreign currency exchange contracts 36,032 20,416 Reclamation and closure costs 12,045 11,818 Other 33,936 12,509 Income and other taxes payable 2,639 277 ----------------- ----------------- Total current liabilities 157,188 128,848 ----------------- ----------------- Long-term liabilities Long-term debt 354,451 374,593 Other long-term obligations 180,852 152,610 ----------------- ----------------- Total long-term liabilities 535,303 527,203 ----------------- ----------------- Deferred income and mining taxes 113,012 161,862 Minority interests in consolidated subsidiaries 103,830 108,116 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 - 211,204; 1997 - 210,696 211,204 210,696 Other shareholders' equity 195,391 472,809 ----------------- ----------------- Total shareholders' equity 406,595 683,505 ----------------- ----------------- Total Liabilities and Shareholders' Equity $ 1,315,928 $ 1,609,534 ================= =================
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 Nine Months Ended September 30, September 30, 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Revenues Gold and ore sales $ 187,361 $ 203,996 $ 592,387 $ 646,214 Sulfur and oil sales 5,123 6,332 16,921 20,126 Interest income 4,891 4,067 14,368 13,173 Gain on termination of Santa Fe merger - - - 62,925 Other income (13,946) 3,342 (28,745) 18,697 -------------- -------------- -------------- -------------- 183,429 217,737 594,931 761,135 -------------- -------------- -------------- -------------- Costs and Expenses Production costs 127,909 142,949 406,215 462,670 Depreciation, depletion and amortization 33,617 41,141 107,109 114,731 Administrative and general expense 12,328 12,516 36,165 34,337 Exploration expense 16,387 20,182 38,193 50,255 Interest expense 5,485 4,497 15,813 14,778 Write-downs and other unusual charges 187,884 183,646 199,668 248,761 Business combination and integration costs - - 20,710 - Other expense 2,078 1,453 2,876 4,880 -------------- -------------- -------------- -------------- 385,688 406,384 826,749 930,412 -------------- -------------- -------------- -------------- Loss Before Taxes and Minority Interests (202,259) (188,647) (231,818) (169,277) Income and Mining Taxes 15,340 34,390 12,998 3,343 Minority Interests 4,693 (1,304) (923) (6,228) -------------- -------------- -------------- -------------- Net Loss $ (182,226) $ (155,561) $ (219,743) $ (172,162) ============== ============== ============== ============== Net Loss Per Share $ (0.86) $ (0.74) $ (1.04) $ (0.82) ============== ============== ============== ============== Average Shares Used in the Computation 211,184 210,549 210,968 210,532 ============== ============== ============== ============== Dividends Paid Per Common Share $ - $ - $ 0.05 $ 0.10 ============== ============== ============== ============== See notes to condensed consolidated financial statements.
3 HOMESTAKE MINING COMPANY AND SUBSIDIARIES C. Condensed Statements of Consolidated Cash Flows (unaudited) (In thousands)
Nine Months Ended September 30, 1998 1997 ----------------- ------------------ Cash Flows from Operations Net loss $ (219,743) $ (172,162) Reconciliation to net cash provided by operations: Depreciation, depletion and amortization 107,109 114,731 Write-downs 190,789 248,761 Deferred taxes, minority interests and other (32,684) (25,800) Gains on asset disposals (3,264) (25,752) Effect of changes in working capital items 62,928 (27,036) ----------------- ------------------ Net cash provided by operations 105,135 112,742 ----------------- ------------------ Investment Activities Capital additions (54,313) (166,637) Proceeds from asset sales 15,877 25,215 Increase in short-term investments (23,169) (38,724) Other (539) 14,900 ----------------- ------------------ Net cash used in investment activities (62,144) (165,246) ----------------- ------------------ Financing Activities Borrowings 97,676 79,617 Debt repayments (105,236) (31,396) Dividends paid - Homestake (7,339) (14,670) - Plutonic (3,554) (9,768) - Prime minority interests (1,040) (1,085) Common shares issued 1,956 862 Other 1,774 2,653 ----------------- ------------------ Net cash provided by (used in) financing activities (15,763) 26,213 ----------------- ------------------ Net Increase (Decrease) in Cash and Equivalents 27,228 (26,291) Cash and Equivalents, January 1 124,083 104,657 ----------------- ------------------ Cash and Equivalents, September 30 $ 151,311 $ 78,366 ================= ==================
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, for the year ended December 31, 1997. Year end financial statements for the Company, restated to include Plutonic on a pooling-of-interests basis (see note 2 below), were filed with the Securities and Exchange Commission on Form 8-K dated June 22, 1998. 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 6, 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 April 30, 1998 Homestake acquired Plutonic Resources Limited ("Plutonic"), a publicly-traded Australian gold producer, by an exchange of common stock for common stock. Homestake issued 64.4 million common shares to acquire Plutonic, including 63.9 million shares in exchange for all of the Plutonic fully paid ordinary shares outstanding based on an exchange ratio of 0.34 Homestake common shares for each Plutonic fully paid ordinary share, and 0.5 million Homestake common shares for the Plutonic partly-paid shares and options outstanding. The business combination with Plutonic was accounted for as a pooling of interests and, accordingly, Homestake's consolidated financial statements have been restated to include Plutonic for all periods prior to May 1, 1998. Combined and separate preacquisition results for Homestake and Plutonic for the three months ended March 31, 1998 and for the three and nine months ended September 30, 1997 are as follows (in thousands):
Homestake Plutonic Historical Historical(a) Adjustments (b) Combined --------------------------------------------------------------------- Three months ended March 31, 1998 Revenues $ 174,343 $ 43,624 $ (1,750) $ 216,217 Net loss (4,611) (76) (1,899) (6,586) Three months ended September 30, 1997 Revenues $ 158,224 $ 70,433 $ (10,920) $ 217,737 Net income (loss) (163,682) 16,543 (8,422) (155,561) Nine months ended September 30, 1997 Revenues $ 577,070 $191,468 $ (7,403) $ 761,135 Net loss (130,044) (17,998) (24,120) (172,162) a) The Plutonic historical results of operations have been adjusted to reflect i) presentation of Plutonic's results of operations in accordance with United States generally accepted accounting principles and the format and classifications utilized by Homestake, and ii) translation into U.S. dollars using the average exchange rate for each period. 5 Homestake Mining Company and Subsidiaries b) In combining the historical results of Homestake and Plutonic, certain adjustments were made to conform Plutonic's accounting policies to Homestake's accounting policies. The effect of these adjustments on combined net income (loss) is as follows (in thousands):
Three months ended Three months ended Nine months ended March 31, September 30, September 30, Increase (Decrease) 1998 1997 1997 ---------------------------------------------------------------------- Revenue recognition $ (1,293) $ (2,067) $ (3,915) Reclamation expense 474 469 1,179 Depreciation, depletion and amortization 1,141 1,741 5,945 Income taxes (1,009) 4,145 13,081 ---------------------------------------------------------------------- $ (1,899) $ (8,422) $(24,120) ======================================================================
3. Other income for the three and nine month periods ended September 30 is as follows (in millions):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ------------- ------------ -------------- ------------ Gains on asset disposals $1.5 $7.9 $3.3 $25.8 Gain on sales of Rabbi Trust investments 0.4 - 4.7 - Royalty income 0.6 0.6 1.8 1.8 Foreign currency contract losses (16.8) (4.2) (39.2) (8.0) Foreign currency exchange losses on intercompany advances (2.5) (1.7) (6.0) (4.5) Other foreign currency gains (losses) 1.1 - 1.6 (0.3) Other 1.8 0.7 5.1 3.9 ------------- ------------ -------------- ------------ ($13.9) $3.3 ($28.7) $18.7 ============= ============ ============== ============
6 Homestake Mining Company and Subsidiaries 4. During the three and nine month periods ended September 30, 1998, the Company recorded write-downs and other unusual charges as follows (in millions):
Three Months Ended Nine Months Ended September 30, 1998 September 30, 1998 ------------------------- ------------------------ Pretax After-tax Pretax After-tax ----------- ----------- ---------- ----------- Homestake mine fixed asset write-down and remediaton (a) $111.1 $111.1 $111.1 $111.1 Mt Charlotte mine write-down and closure cost (b) 38.4 26.4 38.4 26.4 Lachlan mineral property and securities write-down (c) 19.9 12.3 19.9 12.3 Writedown of marketable securities (d) 7.4 6.9 7.4 6.9 Homestake mine restructuring (e) - - 8.9 5.9 Plutonic write-down (f) - - 2.9 2.6 Other miscellaneous charges and adjustments (g) 11.1 9.2 11.1 9.2 ----------- ---------- ----------- ----------- $187.9 $165.9 $199.7 $174.4 =========== =========== ========== =========== a) Charge for carrying value adjustments and additional remediation and related reclamation costs at the Homestake mine in South Dakota. This operation is continuing to implement a revised operating plan with the objective of reducing cash costs to $280 per ounce by the end of 1999. Due to continuing low gold prices, the Company will use a gold price of $325 per ounce for determining its gold reserves at the end of 1998. Based on estimated future cash flows, the Company does not expect to recover its remaining investment in property, plant and equipment at this mine. The total amount of the write-down was $76.1 million ($76.1 million pretax), thereby reducing the carrying value of the mine to zero. In addition, the Company has recorded a provision for estimated additional remediation and related reclamation costs of $35 million ($35 million pretax). b) Based on estimated future cash flows, the Company recorded a write-down of property, severance and other charges at the Mt Charlotte mine in Western Australia. Homestake and its joint venture partner Normandy Mining Limited are implementing a revised operating plan at the Mt Charlotte mine due to the downturn in economic performance and an accelerated level of ground movement. Mining will be restricted to low-risk areas of the mine until approximately the fourth quarter of 1999. Performance of the mine will be monitored during this time to determine whether the operation will continue beyond that point. c) Write-down of mineral properties and marketable securities of Homestake's 81%-owned Lachlan Resources NL, which was acquired as part of the Plutonic Resources transaction in April 1998. d) Write-down of marketable securities. e) Charge associated with the temporary suspension of operations and the reduction of 450 employees at the Homestake mine. f) Write-down of Plutonic exploration properties. g) Other miscellaneous charges.
7 Homestake Mining Company and Subsidiaries During the three and nine month periods ended September 30, 1997, the Company recorded write-downs and other unusual charges as follows (in millions):
Three Months Ended Nine Months Ended September 30, 1997 September 30, 1997 Pretax After-tax Pretax After-tax ----------- ----------- ----------- ----------- Main Pass 299 sulfur mine $107.8 $ 84.9 $107.8 $ 84.9 Reduction in carrying values of resource assets 24.3 18.2 69.3 50.1 Increase in estimated accrual for future reclamation expenditures 29.1 21.5 29.1 21.5 Write-down of noncurrent investments 16.5 14.7 31.0 29.2 Other charges 5.9 5.8 11.5 9.4 ----------- ----------- ----------- ----------- $183.6 $145.1 $248.7 $195.1 =========== =========== =========== ===========
5. 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. 6. 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. 7. In July 1998, the Company entered into a new United States/Canadian/Australian cross-border credit facility providing a total availability of $430 million. The new facility replaced the Company's $275 million cross-border credit facility and Plutonic's A$400 million syndicated credit facility, both of which were cancelled. Borrowings by Plutonic and Homestake Gold of Australia ("HGAL") under the prior credit facilities were repaid using the new facility. Amounts outstanding at September 30, 1998 include borrowings of $94.6 million by Plutonic and $44.9 million by HGAL under this credit facility. The new facility is available through July 14, 2003 and provides for borrowings in United States, Canadian, or Australian dollars, or gold, or a combination of these. Under the new facility, the Company pays a commitment fee ranging from 0.15% to 0.35% per annum, depending upon rating agencies' ratings for the Company's senior debt, on the unused portion of this facility. The new credit agreement requires a minimum consolidated net worth, as defined in the agreement (primarily shareholders' equity plus the amount of all noncash write-downs made after December 31, 1997), of $500 million. Interest on the HGAL and Plutonic Australian dollar borrowings under the new facility is payable quarterly and is based on the Australian Bank Bill Swap Rate plus a margin of up to 1.125%. At September 30, 1998 the interest rate was 6.22%. 8. Under the Company's foreign currency protection 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 foreign currencies by setting minimum and maximum exchange rates. 8 Homestake Mining Company and Subsidiaries At September 30, 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 $ 49,380 0.72 0.75 1998 Canadian 135,200 0.70 0.73 1999 Canadian 89,420 0.69 0.72 2000 Canadian 43,010 0.67 0.70 2001 Australian 24,950 0.72 0.75 1998 Australian 92,000 0.66 0.69 1999 Australian 68,620 0.64 0.67 2000 Australian 23,000 0.60 0.63 2001 ----------------- $ 525,580 =================
9. Homestake's gold hedging policy provides for the use of forward sales contracts for up to 30% of expected annual gold production for each of the following ten year's 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 U.S. dollar denominated 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. Gold sales for the three and nine months ended September 30, 1998 include 225,000 and 675,000 ounces, respectively, at an average price of $325 per ounce under this program. At September 30, 1998 the Company owned put options for 225,000 ounces of gold exercisable during the fourth quarter of 1998 at a price of $325 per ounce. The Company also had written call options outstanding for 225,000 ounces of gold exercisable during the fourth quarter of 1998 at a price of $325 per ounce and owned call options for 225,000 ounces of gold exercisable during 1998 at a price of $336 per ounce. At September 30, 1998 the Company also owned U.S. dollar denominated put options for 30,000 ounces of gold exercisable during 2000 at a price of $350 per ounce and had written U.S. dollar denominated call options outstanding for 15,000 ounces of gold exercisable during 2000 at an average price of $395 per ounce. At September 30, 1998 the Company also owned Australian dollar denominated put options for 240,000 ounces of gold exercisable in 1999 and 2000 (120,000 ounces each year) at an average price of $313 (A$523) per ounce and had written Australian dollar denominated call options for 240,000 ounces of gold exercisable in 1999 and 2000 (120,000 ounces each year) at an average price of $322 (A$528) per ounce. During the three and nine month periods ended September 30, 1998, the Company delivered or financially settled 30,000 and 90,000 ounces of its North American gold production at average prices of $401 and $399 per ounce, respectively, under U.S. dollar denominated forward sales contracts. During the three and nine month periods ended September 30, 1997 the Company delivered or financially settled 30,000 and 90,000 ounces of its North American gold production at average prices of $387 and $383 per ounce, respectively, under U.S. dollar denominated forward sales contracts. During the three and nine month periods ended September 30, 1998 the Company delivered or financially settled 30,000 and 208,000 ounces of its Australian gold production into Australian dollar denominated forward gold contracts at average prices of 9 Homestake Mining Company and Subsidiaries $315 and $336 per ounce, respectively. During the three and nine month periods ended September 30, 1997 the Company delivered 119,800 and 384,950 ounces of its Australian gold production into Australian dollar denominated forward gold contracts at average prices of $415 and $425 per ounce, respectively. During June 1998, the Company closed out and financially settled one million ounces of its Australian dollar-denominated forward gold contracts. The gain of $5 million realized on this arrangement was deferred and is being recorded in income as the originally designated production is sold. At September 30, 1998 the Company's gold forward sales commitments were as follows:
US $ Denominated Australian $ Denominated -------------------------------------- -------------------------------------- Average Price of Average Price of Forward Sales Forward Sales Forward Sales Forward Sales Year (ounces) (per ounce) (ounces) (US$ per ounce)* - ------------- -------------------------------------- -------------------------------------- 1998 30,000 $405 30,000 $315 1999 109,900 415 - - 2000 85,100 430 24,800 315 2001 95,000 441 144,800 332 2002 95,000 457 24,800 315 Thereafter 75,000 481 75,600 315 --------------- --------------- 490,000 300,000 =============== =============== * Exchange rate of A$1 = US$0.5985.
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 September 30, 1998 Prime had sold forward approximately 7.2 million ounces of silver for delivery during 1999 through 2001 at an average price of $6.28 per ounce. 10. 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. 10 Homestake Mining Company and Subsidiaries Homestake's comprehensive income (loss) for the three and nine months ended September 30, 1998 and 1997 was as follows (in thousands):
Three months ended Nine months ended September 30, September 30, 1998 1997 1998 1997 ---------------------------------------------------------------- Net Loss $(182,226) $(155,561) $(219,743) $(172,162) Other Comprehensive Income (Loss) Currency translation adjustments (9,483) (13,918) (36,169) (52,301) Unrealized losses on securities 3,633 28,519 185 12,950 ---------------------------------------------------------------- Comprehensive Loss $(188,076) $(140,960) $(255,727) $(211,513) ================================================================
In February 1998, the Financial Accounting Standards Board ("FASB") 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. In June 1998, FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting as either a fair value hedge or a cash flow hedge. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows of the hedging instruments and the hedged items. SFAS 133 is effective for fiscal years beginning after June 15, 1999 but earlier adoption is permitted. The Company believes that under SFAS 133, changes in unrealized gains and losses on Homestake's foreign currency contracts will qualify for deferral accounting and be recorded in Other Comprehensive Income. However, there are many complexities to this new standard and the Company currently is evaluating the impact that SFAS 133 will have on reported operating results and financial position and has not yet determined that impact or when it will adopt SFAS 133. 11. On September 11, 1998 Prime and Homestake announced that, subject to requisite shareholder approvals, they had reached an agreement (the "Arrangement") for Homestake's acquisition of the 49.4% of Prime held by the public. Under the terms of the Arrangement, Prime shareholders will have the choice of receiving 0.74 Homestake common shares or 0.74 Homestake Canada Inc. ("HCI") exchangeable shares for each Prime share held by them. Each HCI exchangeable share would be exchangeable for one Homestake common share at any time at the option of the holder, and will have dividend and voting rights essentially equivalent to those of one Homestake common share. The transaction is to be structured as an arrangement under the British Columbia Companies Act. Completion of the Arrangement is subject to approval by the British Columbia Supreme Court and by Prime shareholders, and the Homestake shareholders must vote to adopt a Restated Certificate of Incorporation that, among other things, authorizes the Homestake capital stock necessary to effect the Arrangement. A total of 75% of all Prime shares represented at its shareholders' meeting, including the Prime shares owned by HCI, must approve the transaction. In addition, the Arrangement must be approved by two-thirds of the Prime 11 Homestake Mining Company and Subsidiaries shares present and voting on the Arrangement, excluding shares voted by HCI and certain affiliates. Both Prime and Homestake have scheduled Special Meetings of Stockholders for December 1, 1998. The Arrangement would result in the issuance of a total of 27.8 million Homestake common and HCI exchangeable shares in exchange for the 37.6 million Prime shares held by the minority shareholders of Prime. 12. 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 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 September 30, 1998, Homestake had received $26 million from the DOE and the accompanying balance sheet at September 30, 1998 includes an additional receivable of $6.3 million for the DOE's share of reclamation expenditures made by Homestake through 1997. Homestake believes that its share of the estimated remaining cost of reclaiming the Grants facility is fully provided in the financial statements at September 30, 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 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 in 1977 and for more than 20 years the Homestake mine has impounded all mine tailings that are not redeposited in the mine. 12 Homestake Mining Company and Subsidiaries 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 at Homestake's expense and also reimbursed the EPA for its oversight cost. 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 contained a pendent state law claim, alleging that the tailings constitute a continuing public nuisance. The complaint asks for abatement of the nuisance, damages in an unascertained amount, 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 resources and seeking response costs, damages in unspecified amounts, litigation costs and attorneys fees. 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 designation of Whitewood Creek as an authorized disposal site under state and federal authority, the State of South Dakota and the federal government are responsible for all past and future damages and any continuing nuisance resulting therefrom. Homestake has also counterclaimed against the State of South Dakota and the federal trustees seeking cost recoupment, contribution and indemnity. 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, the State of South Dakota and the Federal Trustees are engaged in settlement discussions with respect to these actions. If settlement is not achieved, Homestake intends to vigorously defend these actions and to seek cost recoupment, 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. 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. 13 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. Information for prior periods has been restated to include Plutonic which was acquired on April 30, 1998. Homestake reports per ounce production costs in accordance with the "Gold Institute Production Cost Standard.") On April 30, 1998 Homestake acquired Plutonic Resources Limited ("Plutonic"), an Australian gold producer, by issuing 64.4 million shares with a market value of approximately $770 million. Homestake issued 63.9 million shares in exchange for all Plutonic fully paid ordinary shares outstanding based on an exchange ratio of 0.34 Homestake common shares for each Plutonic fully paid ordinary share, and 0.5 million Homestake common shares for the Plutonic partly paid shares and options outstanding. The business combination was accounted for as a pooling of interests, and accordingly, the Company's consolidated financial statements have been restated to include Plutonic for all periods prior to May 1, 1998. RESULTS OF OPERATIONS Homestake recorded a net loss of $182.2 million or 86 cents per share in the third quarter of 1998, compared to a net loss of $155.6 million or 74 cents per share in the third quarter of 1997. The 1998 third quarter results include nonrecurring charges of $165.9 million ($187.9 million pretax) or 78 cents per share resulting from the review of carrying values of certain assets in the persistent low gold price environment and the impact of specific operational issues during the third quarter. The comparable 1997 quarter included after-tax nonrecurring charges of $145.1 million ($183.6 million pretax) or 69 cents per share. Excluding the effects of nonrecurring items, Homestake recorded a net loss of $16.3 million or 8 cents per share in the third quarter of 1998, compared to a net loss of $10.5 million or 5 cents per share in 1997. Details of the $165.9 million ($187.9 million before taxes and minority interests) 1998 third quarter write-downs and other unusual charges are as follows: o $111.1 million ($111.1 million pretax) charge for carrying value adjustments and additional remediation and related reclamation costs at the Homestake mine in South Dakota. This operation is continuing to implement a revised operating plan with the objective of reducing cash costs to $280 per ounce by the end of 1999. Due to continuing low gold prices, the Company will use a gold price of $325 per ounce for determining its gold reserves at the end of 1998. Based on estimated future cash flows, the Company does not expect to recover its remaining investment in property, plant and equipment at this mine. The total amount of the write-down was $76.1 million ($76.1 million pretax), thereby reducing the carrying value of the Homestake mine to zero. In addition, the Company has recorded a provision for estimated additional remediation and related reclamation costs of $35 million ($35 million pretax). o $26.4 million ($38.4 million pretax) charge based on estimated future cash flows for property write-down, severance and other charges at the Mt Charlotte mine in Western Australia. Homestake and its joint venture partner Normandy Mining Limited are implementing a revised operating plan at the Mt Charlotte mine due to the downturn in economic performance and an accelerated level of ground movement. Mining will be restricted to low-risk areas of the mine until approximately the fourth quarter of 1999. Performance of the mine will be monitored during this time to determine whether the operation will continue beyond that point. o $12.3 million ($19.9 million before taxes and minority interests) write-down of mineral properties and marketable securities related to Homestake's 81%-owned Lachlan Resources NL, which was acquired as part of the Plutonic Resources transaction in April 1998. 14 Homestake Mining Company and Subsidiaries o $16.1 million ($18.5 million before taxes and minority interests) write-down of marketable securities and other miscellaneous charges and adjustments. During the three months ended September 30, 1997, the Company recorded write-downs and unusual charges of $145.1 million ($183.6 million pretax) as follows: o $84.9 million ($107.8 million pretax) write-down of Homestake's investment in the Main Pass 299 sulfur mine. o $18.2 million ($24.3 million pretax) reduction in the carrying values of resource assets. o $21.5 million ($29.1 million pretax) increase in the estimated accrual for future reclamation expenditures. o $14.7 million ($16.5 million pretax) write-down of certain mining investments. o $5.8 million ($5.9 million pretax) in other charges, primarily foreign exchange losses on intercompany redeemable preferred stock. During the third quarter of 1998 the Company also recognized a net loss on its foreign currency protection program of $7.2 million ($16.8 million before taxes and minority interests) or 4 cents per share, primarily noncash mark-to-market adjustments, due to the continued decline of the Australian and Canadian dollars in relation to the United States dollar. During the 1997 third quarter, Homestake recorded a loss of $2.6 million ($4.2 million before taxes and minority interests) or 1 cent per share on its foreign currency protection program. Excluding the effects of nonrecurring items and the losses on the foreign currency protection program, Homestake recorded a net loss of $9.1 million, or 4 cents per share in the third quarter of 1998 compared to a net loss of $7.9 million or 4 cents per share in the third quarter of 1997, reflecting significantly lower gold prices, mostly offset by reduced operating costs. Gold production in the third quarter of 1998 was 630,700 ounces compared to 642,000 ounces produced during the corresponding period in 1997. This reduction primarily is due to lower production from the Homestake and the Mt Charlotte mines, partially offset by production from the new Ruby Hill mine and by an increase in production at the Eskay Creek mine. During the third quarter of 1998, sales of equivalent ounces of gold increased to 636,600 ounces from 623,200 ounces in the third quarter of 1997. However, gold and ore sales revenue decreased 8% to $187.4 million in the three months ended September 30, 1998 from $204 million in the corresponding prior year period due to a decline in the average realized price of gold. The Company's average realized price declined to $307 per equivalent ounce of gold in the third quarter of 1998 from $341 per equivalent ounce realized in the comparative 1997 period. Third quarter 1998 gold production in the United States decreased slightly to 168,200 ounces from 170,300 ounces during the corresponding 1997 period. The decrease primarily is due to reduced operations at the Homestake mine, partially offset by production from the new Ruby Hill mine. The Ruby Hill mine, which commenced commercial production effective January 1, 1998, produced 27,800 ounces in the third quarter of 1998 at a cash cost of $120 per ounce. The mine continues to exceed plan due to higher ore grades and higher recovery rates. At the Homestake mine, gold production during the third quarter of 1998 declined by 34% to 64,500 ounces compared to 97,000 ounces during the third quarter of 1997. The mine is still implementing a new underground mine plan with the objective of producing between 150,000 to 180,000 ounces of gold per year at a cash cost of $280 per ounce. The new mine plan will require an additional $30 million capital investment. The decision to proceed with the capital expenditure program will be made during the first half of 1999 based on the mine's performance during the remainder of 1998 and the first part of 1999. Mining at the Open Cut was completed in September and residual stockpiled material is now being processed. Cash costs decreased to $256 per ounce during the three months ended September 30, 1998 from $307 per ounce during the 1997 prior-year period, primarily due to lower production from the higher cost underground operation and an increase in the rate of processing the lower-cost Open Cut ore. 15 Homestake Mining Company and Subsidiaries The McLaughlin mine continues to process residual ore stockpiles. Gold production increased to 32,900 ounces in the 1998 third quarter from 31,200 ounces in the third quarter of the prior year due to increased mill throughput. A new ore stacking system commissioned in late 1997 has improved ore handling efficiencies, resulting in lower unit operating and maintenance costs. Cash costs have been reduced by 10% to $220 per ounce in the third quarter of 1998 from $243 per ounce in the third quarter of 1997. Homestake's share of production at the Round Mountain mine increased by 3,200 ounces during the third quarter of 1998 to 34,600 ounces from 31,400 ounces in the third quarter of 1997. The higher production primarily is due to production from the 8,000 tons-per-day mill which was commissioned in late 1997. The new mill, which was constructed to process higher-grade ores, produced 6,500 ounces (Homestake's share) during the quarter. Cash costs declined to $200 per ounce in the 1998 third quarter from $237 per ounce in the corresponding quarter of 1997 due to cost savings associated with the revised pit design implemented in late 1997. The new pit design incorporates a lower stripping ratio that has reduced unit costs and capital requirements and is expected to substantially improve earnings and cash flows over the life of the operation. Total foreign gold production during the third quarter of 1998 decreased slightly to 462,500 ounces from 471,700 ounces in the 1997 prior year period. The decrease in production primarily is due to a significant decrease in production from the Mt Charlotte mine at the Kalgoorlie operations in Australia, partially offset by an increase in production at the Eskay Creek mine in Canada. Production at the Eskay Creek mine increased to 121,900 gold equivalent ounces during the third quarter of 1998 from 105,400 gold equivalent ounces in the corresponding period of 1997. The increase in production is due to higher output from the mine, a lower silver-to-gold equivalency ratio, and the operation of the new gravity/flotation mill which was commissioned in December 1997. Cash costs (including third-party smelter costs) decreased to $138 per ounce in the third quarter of 1998 from $163 per ounce in last year's quarter. The substantial reduction in unit costs is attributable to the lower silver-to-gold equivalency ratio, improved economics with the new mill, and a decline in the Canadian/U.S. dollar exchange rate. Homestake's share of production at the Williams mine was 48,600 ounces of gold in the third quarter of 1998 compared to 51,200 ounces in the prior year's quarter. The reduced production was due to an expected decline in ore grade, partially offset by increased throughput. Cash costs were $211 per ounce during the third quarter of 1998 compared to $218 per ounce in the third quarter of 1997, primarily reflecting the lower Canadian/U.S. dollar exchange rate and reduced development expenditures, partially offset by the impact of the lower production. Homestake's share of production at the David Bell mine increased to 21,900 ounces at a cash cost of $176 per ounce compared to 17,700 ounces at a cash cost of $241 per ounce in the third quarter of 1997, primarily due to a 22% increase in ore grade. During the third quarter, Homestake and its joint venture partner, Teck Corporation, decided to suspend operation of the David Bell mill and process ore from both the Williams and David Bell mines at the Williams milling facility. Homestake expects to achieve significant cost savings by increasing the capacity and utilization of the lower cost Williams mill. Engineering for the Williams mill upgrade is underway and decommissioning of the David Bell mill is expected in the third quarter of 1999. Production from the Snip mine was 28,300 ounces at a cash cost of $173 per ounce for the three months ended September 30, 1998 compared to 31,200 ounces at a cash cost of $210 per ounce in the third quarter of 1997. The decline in production was expected and is attributable to lower throughput and grade as the operation approaches the end of its economic life. The operation is expected to complete mining and begin decommissioning of the facility by about April 30, 1999. Homestake's share of production from the combined operations at Kalgoorlie in Western Australia declined to 92,500 ounces in the third quarter of 1998 from 102,500 ounces during the similar period in 1997. In June 1998, structural cracks were detected in the SAG mill ring gear of the Fimiston mill. Rotation speed for the SAG mill has been reduced to minimize stress. A temporary replacement gear is being fabricated which will be available in January 1999. As a result, Homestake expects to maintain current rates of production through the end of 1998. 16 Homestake Mining Company and Subsidiaries Under applicable insurance policies, KCGM is in the process of preparing property damage and business interruption insurance claims. On September 15, 1998 Homestake and its joint venture partner, Normandy Mining Limited, announced a revised operating plan at their jointly owned Mt Charlotte mine. The mine has experienced a downturn in economic performance and an increased level of ground movement. The Company's primary concern is that appropriate safety levels be maintained. The new plan provides for a restricted level of mining activity in low-risk areas of the mine until approximately the fourth quarter of 1999. Performance of the mine will be monitored to determine whether the operation will continue beyond that period. Cash costs for the combined Kalgoorlie operation decreased to $215 per ounce in the third quarter of 1998 from $242 per ounce during the comparable period in 1997 reflecting the weaker Australian dollar in relation to the U.S. dollar, partially offset by the lower production at the Mt Charlotte mine. Gold production at the Plutonic mine decreased to 67,100 ounces at a cash cost of $201 per ounce in the third quarter of 1998 compared to 72,400 ounces at a cash cost of $220 per ounce in the prior year's third quarter. Mill feed was 5% below levels achieved during the corresponding period in 1997 due to downtime associated with commissioning a new gas-fired plant that generates power for the operation. The ore grade was slightly below the corresponding period in 1997 due to processing additional low-grade stockpile material to compensate for lower than expected underground production. The reduction in cash costs per ounce is attributable to the decline in the Australian/U.S. dollar exchange rate. An intensive in-fill drilling and access development program is being conducted to provide adequate information for development of higher-grade ore lodes in the new Zone 124 area of the mine. The program is expected to continue through 1999, at which time the operation is expected to stabilize at an average production rate of about 260,000 ounces per year. Development drilling also continued from surface at Area 4, and preliminary design work is underway for the proposed Area 4 open pit. The Darlot/Centenary mine also has been conducting an intensive drilling and development program during the third quarter of 1998. Gold production increased to 22,700 ounces from 18,200 ounces during the third quarter of 1997. The improved performance is attributable to increased throughput and grade from underground orebodies within extensions of the original Darlot ore zones and initial mining in the new Centenary orebody. Cash costs decreased to $200 per ounce in the third quarter of 1998 from $292 per ounce in the third quarter of 1997 due to a 12% increase in ore grade and the decline in the Australian/U.S. dollar exchange rate. Production from the higher-grade Centenary ore body is expected to increase through 1999 while in-fill drilling and ore block development continues. During the third quarter of 1998, development was initiated on a second decline to the Centenary orebody to be used for haulage and additional ventilation. In the third quarter of 1998, the Lawlers mine produced 28,300 ounces at $162 per ounce of gold compared to 32,400 ounces at $219 per ounce during the third quarter of 1997. The decrease in production is due to a return to expected ore grades compared to unusually high grades mined in the Genesis pit during the third quarter of 1997, partially offset by an increase in tonnage processed during the third quarter of 1998. A second decline from the New Holland pit recently was commenced to access lower ore zones and a third decline is planned from the Genesis pit in early 1999. At the 80%-owned Mt Morgans mine, stockpiled ore was processed throughout the third quarter of 1998. Homestake's share of gold production totaled 11,900 ounces during the quarter compared to 19,100 in 1997. Cash costs during the third quarter decreased to $253 per ounce from $326 per ounce during the corresponding period in 1997. The cost reduction is attributable to a smaller workforce and reduced mining and maintenance expenses. Production is now expected to continue through November 1998. 17 Homestake Mining Company and Subsidiaries Homestake's share of gold production at the 66.7% owned Peak Hill operation was 5,700 ounces compared to 8,000 ounces during the corresponding period in 1997. Mining activity has ceased and the operation is processing remaining low-grade stockpiled material. Cash costs increased to $261 per ounce from $244 per ounce during the third quarter of 1997 due to the lower grades of ore processed. Recent treatment trials on stockpiles previously classified as sub-economic value have demonstrated the grades are economic at current gold prices. Consequently, production from Peak Hill is now expected to continue until September 1999. During the third quarter of 1998, the La Falda mine in Chile produced 10,700 gold ounces, equal to production levels during the corresponding period in 1997. Cash costs, however, declined to $203 per ounce from $231 per ounce in the third quarter of 1997. The reduced costs are attributable to higher ore grades. The Company's consolidated total cash costs per ounce decreased by 17% in the third quarter of 1998 to $195 per ounce from $236 per ounce during the third quarter of 1997. Approximately half of this decline is attributable to the lower Australian and Canadian dollar exchange rates. For the nine months ended September 30, 1998, the Company recorded a net loss of $219.7 million or $1.04 per share compared to a net loss of $172.2 million or 82 cents per share in 1997. The 1998 year-to-date net loss includes nonrecurring charges totaling $192.1 million or 91 cents per share including; $17.7 million ($20.7 million pretax) or 8 cents per share for business combination and integration costs related to the acquisition of Plutonic, $5.9 million ($8.9 million pretax) or 3 cents per share in restructuring costs at the Homestake mine, $2.6 million ($2.9 million pretax) or 2 cents per share for write-downs of exploration properties, and $165.9 million ($187.9 million pretax) or 78 cents per share for the third-quarter write-downs and unusual charges detailed above. The net loss for the nine months ended September 30, 1997 included net nonrecurring expenses amounting to $139.8 million ($172.3 million pretax) or 67 cents per share including; a gain of $47.2 million ($62.9 million pretax) or 22 cents per share from the breakup fee upon termination of Homestake's merger agreement with Santa Fe Pacific Gold Corporation, a gain of $8.1 million ($13.5 million pretax) or 4 cents per share from the sale of joint venture interests in two Canadian mining properties, a loss of $50 million ($65.1 million pretax) or 24 cents per share primarily related to the write-downs at the Mt Morgans mine and the Meekatharra exploration property, and the third quarter 1997 write-downs and unusual chares of $145.1 million ($183.6 million) or 69 cents per share as detailed above. Year-to-date revenues from gold and ore sales totaled $592.4 million during the first nine months of 1998 compared to $646.2 million in the comparable period of 1997, reflecting significantly lower average realized prices, partially offset by an increase in sales volumes. During the first nine months of 1998, 1,969,100 equivalent ounces of gold were sold at an average realized price of $313 per ounce compared to sales of 1,855,100 equivalent ounces of gold sold at an average realized price of $357 per ounce in the same period of 1997. The increased sales volumes are due to increases in production volumes and a reduction in finished goods inventories. The Company's share of revenues from the Main Pass 299 operations in the Gulf of Mexico declined to $5.1 million in the third quarter of 1998 from $6.3 million in the third quarter of 1997, and operating losses were $1.2 million during the third quarter of 1998 compared to losses of $0.4 million in the prior year third quarter. Sulfur sales in the third quarter of 1998 of 73,500 long tons approximated sales of 73,800 long tons for the same period of the prior year as lower production in the current year was supplemented with sales from inventories. However, the average realized sulfur price declined to $58 per ton during the 1998 third quarter compared to $60 per ton during the third quarter of the previous year. Oil sales also declined due to a 30% decline in production and a 37% decline in the average oil price per barrel. Year-to-date 1998 revenues from the Main Pass 299 operations decreased to $16.9 million compared to year-to-date 1997 revenues of $20.1 million, and year-to-date 1998 operating losses were $2.9 million compared to losses of $1.5 million for the year-to-date 1997 period. The 1998 results primarily 18 Homestake Mining Company and Subsidiaries reflect lower oil prices and sales volumes, partially offset by lower sulfur depreciation charges following the September 30, 1997 write-down of the sulfur assets. In late September 1998, all Main Pass 299 drilling and production operations were shut down in response to significant adverse weather conditions caused by hurricane Georges. After three days of shutdown, the operator restarted production, which involved re-heating the portion of the sulfur deposit being produced prior to the shutdown. Nine previously producing sulfur wells will require re-drilling. As a result, production levels will decrease and unit production costs will increase for the fourth quarter of 1998 and possibly the first half of 1999 compared with the first nine months of 1998. Homestake's gold hedging policy provides for the use of forward sales contracts for up to 30% of expected annual gold production for each of the following ten year's 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 U.S. dollar denominated 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. Gold sales for the three and nine months ended September 30, 1998 include 225,000 and 675,000 ounces, respectively, at an average price of $325 per ounce under this program. At September 30, 1998 the Company owned put options for 225,000 ounces of gold exercisable during the fourth quarter of 1998 at a price of $325 per ounce. The Company also had written call options outstanding for 225,000 ounces of gold exercisable during the fourth quarter of 1998 at a price of $325 per ounce and owned call options for 225,000 ounces of gold exercisable during 1998 at a price of $336 per ounce. At September 30, 1998 the Company also owned U.S. dollar denominated put options for 30,000 ounces of gold exercisable during 2000 at a price of $350 per ounce and had written U.S. dollar denominated call options outstanding for 15,000 ounces of gold exercisable during 2000 at an average price of $395 per ounce. At September 30, 1998 the Company also owned Australian dollar denominated put options for 240,000 ounces of gold exercisable in 1999 and 2000 (120,000 ounces each year) at an average price of $313 (A$523) per ounce and had written Australian dollar denominated call options for 240,000 ounces of gold exercisable in 1999 and 2000 (120,000 ounces each year) at an average price of $322 (A$528) per ounce. During the three and nine month periods ended September 30, 1998, the Company delivered or financially settled 30,000 and 90,000 ounces of its North American gold production at average prices of $401 and $399 per ounce, respectively, under U.S. dollar denominated forward sales contracts. During the three and nine month periods ended September 30, 1997 the Company delivered or financially settled 30,000 and 90,000 ounces of its North American gold production at average prices of $387 and $383 per ounce, respectively, under U.S. dollar denominated forward sales contracts. At September 30, 1998 the Company had committed 490,000 ounces of its future North American gold production for sale through the year 2003 at an average price of $440 per ounce under forward sales contracts. During the three and nine month periods ended September 30, 1998 the Company delivered or financially settled 30,000 and 208,000 ounces of its Australian gold production into Australian dollar denominated forward gold contracts at average prices of $315 and $336 per ounce, respectively. During the three and nine month periods ended September 30, 1997 the Company delivered 119,800 and 384,950 ounces of its Australian gold production into Australian dollar denominated forward gold contracts at average prices of $415 and $425 per ounce, respectively. During June 1998, the Company closed out and financially settled one million ounces of its Australian dollar-denominated forward gold contracts. The gain of $5 million realized on this arrangement was deferred and is being recorded in income as the originally designated production is sold. At September 30, 1998 the Company had remaining commitments 19 Homestake Mining Company and Subsidiaries for 300,000 ounces of its future Australian dollar denominated forward gold contracts at an average price of $323 (A$540) per ounce. The Company's hedging activities increased revenues by approximately $12 million and $39 million in the three and nine month periods ended September 30, 1998, respectively, and by approximately $13 million and $42 million in the three and nine month periods ended September 30, 1997, respectively. The estimated liquidation value of the Company's gold hedging position at September 30, 1998 was approximately $57.4 million. 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 September 30, 1998 Prime had sold forward approximately 7.2 million ounces of silver during the period 1999 through 2001 at an average price of $6.28 per ounce. The estimated liquidation value of the Company's silver hedging position at September 30, 1998 was approximately $5.3 million. 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 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 September 30, 1998 the Company had a recorded net unrealized loss of $36 million on open contracts under this program. Other income for the nine months ended September 30, 1998 includes foreign currency exchange losses of $43.6 million and gains on sales of Rabbi Trust investments of $4.7 million. Other income in 1997 includes a $13.5 million gain on sale of the George Lake/Back River joint venture interests, a $10.4 million gain on cancellation of an option to acquire 19.9% of Great Central Mines Limited, and net foreign currency exchange losses of $12.8 million. Depreciation, depletion and amortization expense decreased to $33.6 million in the third quarter of 1998 compared to $41.1 million during the 1997 third quarter reflecting lower gold production along with reduced depreciation charges following the asset write-downs recorded during 1997. Exploration expense for the three and nine month periods ended September 30, 1998 was $16.4 million and $38.2 million, respectively, compared to $20.2 million and $50.3 million of the respective three and nine month periods ended September 30, 1997. The Company expects to spend approximately $58 million during 1998 on exploration projects, of which 50% is expected to be spent in Australia and 30% in North America. Homestake plans to continue to focus on its best prospects, particularly the Australian properties recently acquired by Homestake through its acquisition of Plutonic and the immediate vicinity of the Eskay Creek mine. Income and mining tax expense: During the nine month period ended September 30, 1998 the Company recorded a $13 million benefit compared to a $3.3 million benefit recorded during the nine month period ended September 30, 1997. Included in the 1998 benefit was $14.6 million relating to a reduction in prior years' income tax accruals for certain contingencies that now have been resolved. During the first nine months of 1998, the consolidated effective tax rate was 5.6%, reflecting the geographic mix of pretax income and losses. Excluding the above noted tax benefit, benefits related to losses incurred in the United States and Australia were more than offset by tax expense recorded with respect to the Canadian earnings, no tax benefit being recorded on acquisition costs and other nondeductible expenses, and an increase in valuation allowances on United States deferred tax assets. Based on current projections of United States source income, Homestake does not expect to realize a benefit from these future tax deductions. The Company's consolidated effective income and mining tax rate will fluctuate depending on the geographical mix of pretax income. 20 Homestake Mining Company and Subsidiaries Minority interests in the income of consolidated subsidiaries decreased during the first nine months of 1998 to $0.9 million from $6.2 million during the first nine months of 1997. The decrease in minority interests primarily is attributable to the write-down of mineral properties and marketable securities of Lachlan Resources NL. The following chart details Homestake's gold production and total cash costs per ounce by location, and consolidated revenue and production costs per ounce.
Production (Ounces in thousands) Three Months Ended Nine Months Ended September 30, September 30, Mine (Percentage interest) 1998 1997 1998 1997 ------------------------------- -------------------------------- Homestake (100) 64.5 97.0 210.9 301.3 Ruby Hill (100) 27.8 - 88.8 - McLaughlin (100) 32.9 31.2 97.8 93.7 Round Mountain (25) 34.6 31.4 104.1 92.0 Pinson (50) 3.2 6.3 14.1 18.9 Marigold (33) 5.2 4.4 17.4 18.7 ------------- ------------- -------------- ------------- Total United States 168.2 170.3 533.1 524.6 Eskay Creek (100) (1) 121.9 105.4 393.0 300.9 Williams (50) 48.6 51.2 144.2 145.4 David Bell (50) 21.9 17.7 63.0 61.5 Quarter Claim (25) 2.9 2.9 8.5 8.5 Snip (100) (2) 28.3 31.2 78.8 90.7 ------------- ------------- -------------- ------------- Total Canada 223.6 208.4 687.5 607.0 Kalgoorlie (50) 92.5 102.5 291.4 317.8 Plutonic (100) 67.1 72.4 179.1 207.4 Darlot/Centenary (100) 22.7 18.2 53.0 47.7 Lawlers (100) 28.3 32.4 90.7 60.6 Mt Morgans (80) 11.9 19.1 46.5 55.7 Peak Hill (67) 5.7 8.0 18.3 26.4 ------------- ------------- -------------- ------------- Total Australia 228.2 252.6 679.0 715.6 Agua de la Falda, Chile (100) 10.7 10.7 34.4 19.0 ------------- ------------- -------------------------------- Total Production (3) 630.7 642.0 1,934.0 1,879.2 Less Minority Interests (79.5) (72.6) (250.0) (202.7) ------------- ------------- -------------- ------------- Homestake's Share 551.2 569.4 1,684.0 1,676.5 ============= ============= ============== =============
21 Homestake Mining Company and Subsidiaries
Total Cash Costs (Dollars per ounce) Three Months Ended Nine Months Ended September 30, September 30, Mine (Percentage interest) 1998 1997 1998 1997 ------------------------------- -------------------------------- United States Homestake (100) $256 $307 $252 $318 Ruby Hill (100) 120 - 125 - McLaughlin (100) 220 243 217 247 Round Mountain (25) 200 237 200 225 Pinson (50) 607 344 425 343 Marigold (33) 282 316 262 260 Canada Eskay Creek (100) (4) 138 163 130 162 Williams (50) 211 218 221 240 David Bell (50) 176 241 195 214 Quarter Claim (25) 162 172 167 173 Snip (100) (4) 173 210 199 210 Australia Kalgoorlie (50) 215 242 232 265 Plutonic (100) 201 220 235 235 Darlot/Centenary (100) 200 292 264 310 Lawlers (100) 162 219 185 228 Mt Morgans (80) 253 326 234 366 Peak Hill (67) 261 244 273 245 Chile Agua de la Falda (100) 203 231 202 219 ------------- ------------- -------------- ------------- Weighted Average $195 $236 $203 $249 ============= ============= ============== ============= Three Months Ended Nine Months Ended September 30, September 30, Per Ounce of Gold 1998 1997 1998 1997 ------------------------------- -------------------------------- Revenue $307 $341 $313 $357 =============================== ================================ Per Ounce Costs Cash Operating Costs (5) $191 $233 $199 $246 Other Cash Costs (6) 4 3 4 3 ------------------------------- -------------------------------- Total Cash Costs 195 236 203 249 Noncash Costs (7) 53 61 55 60 =============================== ================================ Total Production Costs $248 $297 $258 $309 =============================== ================================ 22 Homestake Mining Company and Subsidiaries (1) Ounces produced are expressed on a gold equivalent basis and include 70,900 (63,100 in 1997) ounces of gold and 2.8 million (3.1 million in 1997) ounces of silver contained in ore and concentrates sold to smelters in the third quarter, and 214,300 (174,000 in 1997) ounces of gold and 9.1 million (9.1 million in 1997) ounces of silver contained in ore and concentrates sold to smelters in the year-to-date period. (2) Includes ounces of gold contained in dore and concentrates. (3) Includes 12,500 ounces of gold produced at the Bellevue project in Western Australia and 500 ounces produced at the El Hueso mine in Chile during the 1997 year-to-date period. (4) 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. (5) 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. (6) Other cash costs are costs that are not directly related to, but may result from, gold production; includes production taxes and royalties. (7) 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.
23 Homestake Mining Companies and Subsidiaries LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations totaled $105.1 million during the first nine months of 1998 compared to $112.7 million during the first nine months of 1997. Cash provided by operations during the 1997 nine-month period includes the termination fee received from Santa Fe upon termination of Homestake's merger agreement with Santa Fe, partially offset by $62 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 $18.8 million (net) were made during the first nine months of 1998. Working capital at September 30, 1998 amounted to $284 million, including $309 million in cash and equivalents and short-term investments. Capital additions of $54.3 million for the first nine months of 1998 compare to additions of $166.6 million for the first nine months of 1997. Capital additions during 1998 include $11.2 million and $8.3 million primarily for underground development work at the Plutonic and Darlot/Centenary mines, respectively, $7 million primarily for development at the Kalgoorlie operations, and $6.5 million primarily for new shops and other facilities at the Round Mountain mine. The balance of 1998 capital expenditures primarily relate to productivity improvement projects and sustaining capital at the Company's other operating mines. Capital additions in 1997 include $50.7 million for construction and development work at the Ruby Hill mine, $37.5 million primarily for underground development and a new gas-fired power station at the Plutonic mine, $12.5 million at the Round Mountain mine primarily for a new mill to process the higher-grade sulfide ore, $12.5 million for development work at the Darlot/Centenary mine, $10.2 million primarily for a tailings dam lift and improvements in the underground operations at the Homestake mine, and $11.7 million at the Kalgoorlie operations primarily for a decline from surface and a ventilation raise at the Mt Charlotte mine. In July 1998, the Company entered into a new United States/Canadian/Australian cross-border credit facility providing a total availability of $430 million. The new facility replaced the Company's $275 million cross-border credit facility and Plutonic's A$400 million syndicated credit facility, both of which were cancelled. Borrowings by Plutonic and HGAL under the prior credit facilities were repaid using the new facility. Borrowings outstanding at September 30, 1998 include borrowings of $94.6 million by Plutonic and $44.9 million by HGAL under this credit facility. The new facility is available through July 14, 2003 and provides for borrowings in United States, Canadian, or Australian dollars, or gold, or a combination of these. Under the new facility, the Company pays a commitment fee ranging from 0.15% to 0.35% per annum, depending upon rating agencies' ratings for the Company's senior debt, on the unused portion of this facility. The new credit agreement requires a minimum consolidated net worth, as defined in the agreement (primarily shareholders' equity plus the amount of all noncash write-downs made after December 31, 1997), of $500 million. Interest on the HGAL and Plutonic Australian dollar borrowings under the new facility is payable quarterly and is based on the Australian Bank Bill Swap Rate plus a margin of up to 1.125%. At September 30, 1998 the interest rate was 6.22%. In March 1997, the Company reduced its annual dividend rate to 10 cents per share from 20 cents per share. In May 1998, the Company paid a semi-annual dividend of 5 cents per share and in September 1998, the Company declared a semi-annual dividend of 5 cents per share payable November 18, 1998 to shareholders of record at the close of business on October 30, 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. 24 Homestake Mining Company and Subsidiaries In February 1998, the Financial Accounting Standards Board ("FASB") 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. In June 1998, FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting as either a fair value hedge or a cash flow hedge. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows of the hedging instruments and the hedged items. SFAS 133 is effective for fiscal years beginning after June 15, 1999 but earlier adoption is permitted. The Company believes that under SFAS 133, changes in unrealized gains and losses on Homestake's foreign currency contracts will qualify for deferral accounting and be recorded in Other Comprehensive Income. However, there are many complexities to this new standard and the Company currently is evaluating the impact that SFAS 133 will have on reported operating results and financial position and has not yet determined that impact or when it will adopt SFAS 133. Future results will be impacted by such factors as the market price of gold and silver, the Company's ability to expand its ore reserves, and 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. Year 2000 Compliance The Company has completed a review of its computer-based information systems and has developed a plan to ensure all of these systems will be Year 2000 compliant. With the exception of the financial systems the Company acquired as part of the recent acquisition of Plutonic, Year 2000 compliant upgrades for the Company's core financial systems will be installed and tested by the end of 1998. The Plutonic financial systems, and all other Company information systems hardware and software will be brought into compliance by mid-1999. The Company currently is in the process of identifying all microprocessor-controlled devices, including process-monitoring systems, in use at its operating locations to determine whether they are Year 2000 compliant. The identification phase is due to be completed by April 1999. The Company will upgrade systems and/or develop contingency plans based on this review. In addition, the Company is monitoring similar Year 2000 related activities at its joint venture operations where it is not the operator. A Year 2000 related microprocessor problem that is not identified or remedied at an operating location potentially could result in a short-term production disruption at that location. The Company's total expenditures for the above Year 2000 activities are expected to be approximately $1.5 million and should not adversely impact other information system initiatives. Year 2000 expenditures to date total approximately $750,000. The Company currently is surveying all major suppliers and customers to assess their Year 2000 compliance and, where practical, will make specific contingency plans based on the results of this survey. The first phase of this survey is scheduled to be completed by December 25 Homestake Mining Company and Subsidiaries 31, 1998. The greatest risk to the Company in this regard would be in the supply of power and/or water to certain of its operating locations. A disruption in the supply of either of these utilities could significantly hamper or curtail production at an operating location until the service was restored. A disruption in the supply of other services or supplies at an operating location potentially could result in a short-term production disruption at that location. The Company's principal customers are major financial institutions. Because of government mandated Year 2000 compliance programs in this industry, the Company expects that their core financial operating systems will be Year 2000 compliant, and that there will be no significant disruption in the Company's ability to sell its gold production. Homestake will develop contingency plans if and when determined necessary based on its compliance efforts. The foregoing Year 2000 disclosures are based on Homestake's current expectations, estimates and projections. Because of uncertainties, the actual effects of the Year 2000 issues on Homestake may be different from the Company's current assessment. Factors, many of which are outside the control of the Company, that could affect Homestake's ability to be Year 2000 compliant by the end of 1999 include the failure of customers, suppliers, governmental entities and others to achieve compliance, and Homestake's inability or failure to identify all critical Year 2000 issues or to develop appropriate contingency plans for all Year 2000 issues that ultimately may arise. Prime Resources Group Inc. On September 11, 1998 Prime and Homestake announced that, subject to requisite shareholder approvals, they had reached an agreement (the "Arrangement") for Homestake's acquisition of the 49.4% of Prime held by the public. Under the terms of the Arrangement, Prime shareholders will have the choice of receiving 0.74 Homestake common shares or 0.74 Homestake Canada Inc. ("HCI") exchangeable shares for each Prime share held by them. Each HCI exchangeable share would be exchangeable for one Homestake common share at any time at the option of the holder, and will have dividend and voting rights essentially equivalent to those of one Homestake common share. The transaction is to be structured as an arrangement under the British Columbia Companies Act. Completion of the Arrangement is subject to approval by the British Columbia Supreme Court and by Prime shareholders, and the Homestake shareholders must vote to adopt a Restated Certificate of Incorporation that, among other things, authorizes the Homestake capital stock necessary to effect the Arrangement. A total of 75% of all Prime shares represented at its shareholders' meeting, including the Prime shares owned by HCI, must approve the transaction. In addition, the Arrangement must be approved by two-thirds of the Prime shares present and voting on the Arrangement, excluding shares voted by HCI and certain affiliates. Both Prime and Homestake have scheduled Special Meetings of Stockholders for December 1, 1998. The Arrangement would result in the issuance of a total of 27.8 million Homestake common and HCI exchangeable shares in exchange for the 37.6 million Prime shares held by the minority shareholders of Prime. 26 Homestake Mining Company and Subsidiaries Part II - OTHER INFORMATION Item 5. - Other Information (b) 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. 27 Homestake Mining Company and Subsidiaries Item 6.
(a) Exhibits Method of Filing 10.2 First Amendment to the Credit Agreement Filed herewith electronically 10.3 Second Amendment to the Credit Agreement Filed herewith electronically 11 Computation of Earnings Per Share Filed herewith electronically 27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K The report on Form 8-K dated October 2, 1998 was submitted in order to file press releases announcing the following: (a) revised exchange ratio for the Homestake acquisition of the minority interests in Prime Resources Inc. (b) reduction of operations at Mt Charlotte mine and (c) Homestake's estimated nonrecurring charges against 1998 third quarter operating results. Also included in the October 2, 1998 filing was the Bylaws, as amended through September 25, 1998 and the announcement of Gerhard Ammann becoming a new member of the Registrant's Board of Directors. 28 Homestake Mining Company and Subsidiaries 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: November 13, 1998 By /s/ David W. Peat ------------------ ----------------- David W. Peat Vice President and Controller (Chief Accounting Officer) 29 EX-10.2 2 1ST AMEND CRED AGMNT EXHIBIT 10.2 HOMESTAKE MINING COMPANY FIRST AMENDMENT TO CREDIT AGREEMENT This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of September 15, 1998 and entered into by and among HOMESTAKE MINING COMPANY, a Delaware corporation ("Company"), HOMESTAKE MINING COMPANY OF CALIFORNIA, a California corporation ("U.S. Borrower"), HOMESTAKE CANADA INC., an Ontario corporation ("Canadian Borrower"), HOMESTAKE GOLD OF AUSTRALIA LIMITED, a South Australian corporation , and PLUTONIC RESOURCES LIMITED, a New South Wales corporation ("Australian Borrowers"), the financial institutions listed on the signature pages hereof ("Lenders"), THE CHASE MANHATTAN BANK OF CANADA ("Canadian Administrative Agent"), CHASE SECURITIES AUSTRALIA LIMITED ("Australian Administrative Agent"), CHASE SECURITIES INC. ("Arranger"), THE CHASE MANHATTAN BANK ("Administrative Agent"), and DEUTSCHE BANK A.G., as Documentation Agent ("Documentation Agent") and is made with reference to that certain Amended and Restated Credit Agreement dated as of July 14, 1998 (the "Credit Agreement"), by and among Company, U.S. Borrower, Canadian Borrower, Australian Borrowers, Lenders, Canadian Administrative Agent, Australian Administrative Agent, Arranger, Administrative Agent and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, in connection with the potential acquisition by Canadian Borrower of the shares of Prime not currently owned by Canadian Borrower, U.S. Borrower desires to establish a Canadian holding company and contribute to such holding company all of the outstanding shares of capital stock of Canadian Borrower. WHEREAS, Company and U.S. Borrower wish to make provisions for the possible establishment of an Australian holding company to hold all of the outstanding shares of capital stock of Australian Borrowers. WHEREAS, Company and Borrowers have requested that Lenders amend subsections 6.4, 6.9 and 7.11 of the Credit Agreement as set forth below. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. AMENDMENT TO THE CREDIT AGREEMENT 1.1 Amendment to Subsection 6.4(i): Contingent Obligations. Subsection 6.4(i) of the Credit Agreement is hereby amended by adding the following text after the word "Agreement" "or as permitted by subsection 6.9 of this Agreement": 1.2 Amendment to Subsection 6.9: Disposition of Material Subsidiary Stock. Subsection 6.9 of the Credit Agreement is hereby amended by adding the following text to the end of such subsection: "Notwithstanding the foregoing: (i) U.S. Borrower may sell or otherwise transfer all of the issued and outstanding capital stock of Canadian Borrower owned by it to a Canadian holding company ("Canadian Holding Company") which is wholly-owned by Company and/or U.S. Borrower, provided that Canadian Holding Company shall own at least 90% of the issued and outstanding capital stock of Canadian Borrower (other than HCI Exchangeable Stock) and provided that prior to such sale or transfer Canadian Holding Company shall have first delivered to Administrative Agent a guaranty of the Obligations of Canadian Borrower satisfactory to Administrative Agent in substantially the form of the provisions of Subsection 8.2 of the Credit Agreement ("Canadian Holding Company Guaranty"), an opinion of counsel in form and substance satisfactory to Administrative Agent as to the validity and enforceability of the Canadian Holding Company Guaranty, and such corporate authorizations and other documents in form and substance satisfactory to Administrative Agent as Administrative Agent shall reasonably require, and (ii) Company and U.S. Borrower may sell or otherwise transfer all of the issued and outstanding capital stock of Australian Borrowers owned by each of them to an Australian holding company ("Australian Holding Company") which is wholly-owned by Company and/or U.S. Borrower, provided that Australian Holding Company shall own all of the issued and outstanding capital stock of Australian Borrowers and provided that prior to such sale or other transfer Australian Holding Company shall have first delivered to Administrative Agent a guaranty of the Obligations of Australian Borrowers satisfactory to Administrative Agent in substantially the form of the provisions of Subsection 8.2 of the Credit Agreement ("Australian Holding Company Guaranty"), an opinion of counsel in form and substance satisfactory to Administrative Agent as to the validity and enforceability of the Australian Holding Company Guaranty, and such corporate authorizations and other documents in form and substance satisfactory to Administrative Agent as Administrative Agent shall reasonably require." 2 1.3 Amendment to Subsection 7.11. Change in Control of Borrowers. Subsection 7.11 of the Credit Agreement is hereby amended to read in its entirety as follows: "7.11 Change in Control of Borrowers. Company shall fail to own all of the issued and outstanding capital stock of U.S. Borrower, or U.S. Borrower or Canadian Holding Company shall fail to own at least 90% of the issued and outstanding capital stock of Canadian Borrower (other than HCI Exchangeable Stock), or Company and U.S. Borrower (collectively) or Australian Holding Company shall fail to own all of the issued and outstanding capital stock of Australian Borrowers; or" Section 2. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "Effective Date"): A. On or before the Effective Date, Company shall deliver to Administrative Agent (with sufficient originally executed copies for each) Lender copies of this Amendment, executed by Company and each Borrower. B. On or before the Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. Section 3. REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company and each Borrower represents and warrants to each Lender that the following statements are true, correct and complete: A. Corporate Power and Authority. Company and each Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company and each Borrower. 3 C. No Conflict. The execution and delivery by Company and each Borrower of this Amendment and by Canadian Holding Company and Australian Holding Company of Canadian Holding Company Guaranty and Australian Holding Company Guaranty, respectively, and the performance by Company and each Borrower of the Amended Agreement and by Canadian Holding Company and Australian Holding Company of Canadian Holding Company Guaranty and Australian Holding Company Guaranty, respectively, do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws or other charter documents of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a material default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. Binding Obligation. This Amendment and the Amended Agreement have been duly executed and delivered by Company and each of the Borrowers and are the legally valid and binding obligations of Company and each of the Borrowers, enforceable against Company and each of the Borrowers in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Canadian Holding Company Guaranty, when executed and delivered by Canadian Holding Company and the Australian Holding Company Guaranty, when executed and delivered by Australian Holding Company, will constitute the legally valid and binding obligation of such guarantors, enforceable against such guarantors in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. F. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 4 Section 4. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Documents. (i) On and after the Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. Fees and Expenses. Company acknowledges that all costs, fees and expenses as described in Section 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective upon the execution of a counterpart hereof by Company, each Borrower and Requisite Lenders and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof and compliance with the provisions of Section 2 to this Amendment. [Remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. Company: HOMESTAKE MINING COMPANY By: Title: U.S. Borrower: HOMESTAKE MINING COMPANY OF CALIFORNIA By: Title: Canadian Borrower: HOMESTAKE CANADA INC. By: Title: Australian Borrowers: HOMESTAKE GOLD OF AUSTRALIA LIMITED By: Title: S-1 PLUTONIC RESOURCES LIMITED: By: Title: LENDERS: THE CHASE MANHATTAN BANK, individually, as a U.S. Lender, as an Issuing Lender, and as Administrative Agent By: Title: THE CHASE MANHATTAN BANK, as an Australian Lender By: Title: CHASE SECURITIES AUSTRALIA LIMITED, as Australian Administrative Agent By: Title: S-2 THE CHASE MANHATTAN BANK OF CANADA, individually, as a Canadian Lender, as an Issuing Lender, and as Canadian Administrative Agent. By: Title: AUSTRALIAN AND NEW ZEALAND BANKING GROUP, as a U.S. Lender and an Australian Lender By: Title: THE BANK OF NOVA SCOTIA, as a U.S. Lender By: Title: THE BANK OF NOVA SCOTIA, as a Canadian Lender By: Title: BANKERS TRUST COMPANY, as a U.S. Lender By: Title: S-3 BT BANK OF CANADA, as a Canadian Lender By: Title: BANKERS TRUST AUSTRALIA LIMITED, as an Australian Lender By: Title: CIBC, INC. as a U.S. Lender By: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Canadian Lender By: Title: CITICORP USA, INC., as a U.S. Lender By: Title: S-4 CITIBANK CANADA, as a Canadian Lender By: Title: CITIBANK LIMITED, as an Australian Lender By: Title: CITIBANK N.A., as an Australian Lender By: Title: CREDIT SUISSE FIRST BOSTON, as a U.S. Lender By: Title: CREDIT SUISSE FIRST BOSTON CANADA, as a Canadian Lender By: Title: S-5 CREDIT SUISSE FIRST BOSTON, as an Australian Lender By: Title: DEUTSCHE BANK, AG, New York Branch and/or Cayman Islands Branch, as a U.S. Lender By: Title: DEUTSCHE BANK CANADA, as a Canadian Lender By: Title: DEUTSCHE BANK, AG, ARBN 064 165 162, as an Australian Lender By: Title: DRESDNER BANK, AG NEW YORK AND GRAND CAYMAN BRANCHES, as a U.S. Lender By: Title: S-6 DRESDNER BANK, AG Australian Branch, as an Australian Lender By: Title: MELLON BANK, N.A., as a U.S. Lender By: Title: MELLON BANK CANADA, as a Canadian Lender By: Title: NM ROTHSCHILD & SONS LIMITED, as a U.S. Lender By: Title: NM ROTHSCHILD & SONS LIMITED, as a Canadian Lender By: Title: S-7 REPUBLIC NATIONAL BANK OF NEW YORK, as a U.S. Lender By: Title: REPUBLIC NATIONAL BANK OF NEW YORK (CANADA) By: Title: REPUBLIC MASE AUSTRALIA LIMITED, as an Australian Lender By: Title: S-8 SOCIETE GENERALE, as a U.S. Lender By: Title: SOCIETE GENERALE, as a Canadian Lender By: Title: SOCIETE GENERALE AUSTRALIA LIMITED, as an Australian Lender By: Title: UBS AG, STAMFORD BRANCH, as a U.S. Lender By: Title: S-9 UBS AG, STAMFORD BRANCH, as a Canadian Lender By: Title: UBS AG, STAMFORD BRANCH, as an Australian Lender By: Title: S-10 EX-10.3 3 2ND AMEND CRED AGMNT EXHIBIT 10.3 HOMESTAKE MINING COMPANY SECOND AMENDMENT TO CREDIT AGREEMENT This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of October 16, 1998 and entered into by and among HOMESTAKE MINING COMPANY, a Delaware corporation ("Company"), HOMESTAKE MINING COMPANY OF CALIFORNIA, a California corporation ("U.S. Borrower"), HOMESTAKE CANADA INC., an Ontario corporation ("Canadian Borrower"), HOMESTAKE GOLD OF AUSTRALIA LIMITED, a South Australian corporation , and PLUTONIC RESOURCES LIMITED, a New South Wales corporation ("Australian Borrowers"), the financial institutions listed on the signature pages hereof ("Lenders"), THE CHASE MANHATTAN BANK OF CANADA ("Canadian Administrative Agent"), CHASE SECURITIES AUSTRALIA LIMITED ("Australian Administrative Agent"), CHASE SECURITIES INC. ("Arranger"), THE CHASE MANHATTAN BANK ("Administrative Agent"), and DEUTSCHE BANK A.G., as Documentation Agent ("Documentation Agent") and is made with reference to that certain Amended and Restated Credit Agreement dated as of July 14, 1998 (the "Credit Agreement"), by and among Company, U.S. Borrower, Canadian Borrower, Australian Borrowers, Lenders, Canadian Administrative Agent, Australian Administrative Agent, Arranger, Administrative Agent and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company has requested that Lenders agree to amend the Credit Agreement (i) to modify the formula for calculating Consolidated EBITDA, (ii) to modify the negative covenant relating to minimum Consolidated Net Worth, and (iii) to make a technical correction, Lenders have agreed to do so on the following terms and conditions; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Amendments to Definitions. Section 1 of the Credit Agreement is hereby amended as follows: A. The definition of "Consolidated EBITDA" is amended and restated to read in its entirety as follows: "'Consolidated EBITDA' means, for any applicable testing period, without duplication, Consolidated Net Income, plus the sum of (i) Consolidated Interest Expense, (ii) total depreciation, depletion and amortization expense, (iii) all noncash write-downs (other than write-downs that constitute advance recognition of future cash expenditures), (iv) all unrealized mark-to-market foreign currency losses with respect to Company's foreign currency protection program, and (v) Future Cash Expenditure Accruals, as reported in Company's consolidated statement of earnings in conformity with GAAP; and reduced by the sum of (x) all unrealized mark-to-market foreign currency gains with respect to Company's foreign currency protection program, as reported in Company's consolidated statements of earnings in conformity with GAAP and (y) any cash payments made with respect to Future Cash Expenditure Accruals during the period. For any applicable testing period, the sum of (iv) and (v) above cannot exceed the sum of (x) and (y) above by more than $60 million. For purposes of clarity, subject to the qualification of the immediately preceding sentence, it is intended that `Consolidated EBITDA' for any applicable testing period will only reflect foreign currency gains and losses with respect to the Company's foreign currency protection program that are actually realized during such testing period, and the foregoing definition shall be interpreted and applied accordingly." B. The last sentence of the definition of "Consolidated Total Debt" is hereby amended by replacing the phrase "...shall not be included in the calculation of Consolidate Net Worth..." with the phrase "...shall not be included in the calculation of Consolidated Total Debt". C. Subsection 1.1 is hereby amended by adding in the proper alphabetical order the following definition: "'Future Cash Expenditure Accruals' means, for any applicable testing period, without duplication, the accounting expense accrual for (i) all future cash expenditure obligations with respect to reclamation, remediation and other mine site closure costs and (ii) any individual nonrecurring future cash expenditure obligation (including the costs of severance, office closures and settlements) that exceeds $2,000,000 in amount in any applicable testing period." 1.2 Amendment to Subsection 6.6A: Subsection 6.6A of the Credit Agreement is hereby amended to read in its entirety as follows: "A. Minimum Consolidated Net Worth. Company shall not permit Consolidated Net Worth (i) at the end of any fiscal quarter ending on or prior to the quarter ending March 31, 1999 to be less than $500,000,000 or (ii) at any time after March 31, 1999, to be less than $500,000,000." Section 2. CONDITIONS TO EFFECTIVENESS This Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "Effective Date"): A. On or before the Effective Date, Company shall deliver to Administrative Agent (with sufficient originally executed copies for each Lender) copies of this Amendment, executed by Company and each Borrower. 2 B. On or before the Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. Section 3. REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company and each Borrower represents and warrants to each Lender that the following statements are true, correct and complete: A. Corporate Power and Authority. Company and each Borrower has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company and each Borrower. C. No Conflict. The execution and delivery by Company and each Borrower of this Amendment does not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws or other charter documents of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a material default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. Binding Obligation. This Amendment and the Amended Agreement have been duly executed and delivered by Company and each of the Borrowers and are the legally valid and binding obligations of Company and each of the Borrowers, enforceable against Company and each of the Borrowers in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 3 E. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 4 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. F. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. Section 4. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Documents. (i) On and after the Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. Fees and Expenses. Company acknowledges that all costs, fees and expenses as described in Section 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. 4 E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective upon the execution of a counterpart hereof by Company, each Borrower and Requisite Lenders and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof and compliance with the provisions of Section 2 to this Amendment. [Remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. Company: HOMESTAKE MINING COMPANY By: Title: U.S. Borrower: HOMESTAKE MINING COMPANY OF CALIFORNIA By: Title: Canadian Borrower: HOMESTAKE CANADA INC. By: Title: Australian Borrowers: HOMESTAKE GOLD OF AUSTRALIA LIMITED By: Title: S-1 PLUTONIC RESOURCES LIMITED: By: Title: LENDERS: THE CHASE MANHATTAN BANK, individually, as a U.S. Lender, as an Issuing Lender, and as Administrative Agent By: Title: THE CHASE MANHATTAN BANK, as an Australian Lender By: Title: CHASE SECURITIES AUSTRALIA LIMITED, as Australian Administrative Agent By: Title: S-2 THE CHASE MANHATTAN BANK OF CANADA, individually, as a Canadian Lender, as an Issuing Lender, and as Canadian Administrative Agent By: Title: AUSTRALIAN AND NEW ZEALAND BANKING GROUP, as a U.S. Lender and an Australian Lender By: Title: THE BANK OF NOVA SCOTIA, as a U.S. Lender By: Title: THE BANK OF NOVA SCOTIA, as a Canadian Lender By: Title: BANKERS TRUST COMPANY, as a U.S. Lender By: Title: S-3 BT BANK OF CANADA, as a Canadian Lender By: Title: BANKERS TRUST AUSTRALIA LIMITED, as an Australian Lender By: Title: CIBC, INC. as a U.S. Lender By: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Canadian Lender By: Title: CITICORP USA, INC., as a U.S. Lender By: Title: S-4 CITIBANK CANADA, as a Canadian Lender By: Title: CITIBANK LIMITED, as an Australian Lender By: Title: CITIBANK N.A., as an Australian Lender By: Title: CREDIT SUISSE FIRST BOSTON, as a U.S. Lender By: Title: CREDIT SUISSE FIRST BOSTON CANADA, as a Canadian Lender By: Title: S-5 CREDIT SUISSE FIRST BOSTON, as an Australian Lender By: Title: DEUTSCHE BANK, AG, New York Branch and/or Cayman Islands Branch, as a U.S. Lender By: Title: DEUTSCHE BANK CANADA, as a Canadian Lender By: Title: DEUTSCHE BANK, AG, ARBN 064 165 162, as an Australian Lender By: Title: DRESDNER BANK, AG NEW YORK AND GRAND CAYMAN BRANCHES, as a U.S. Lender By: Title: S-6 DRESDNER BANK, AG Australian Branch, as an Australian Lender By: Title: MELLON BANK, N.A., as a U.S. Lender By: Title: MELLON BANK CANADA, as a Canadian Lender By: Title: NM ROTHSCHILD & SONS LIMITED, as a U.S. Lender By: Title: NM ROTHSCHILD & SONS LIMITED, as a Canadian Lender By: Title: S-7 REPUBLIC NATIONAL BANK OF NEW YORK, as a U.S. Lender By: Title: REPUBLIC NATIONAL BANK OF NEW YORK (CANADA) By: Title: REPUBLIC MASE AUSTRALIA LIMITED, as an Australian Lender By: Title: S-8 SOCIETE GENERALE, as a U.S. Lender By: Title: SOCIETE GENERALE, as a Canadian Lender By: Title: SOCIETE GENERALE AUSTRALIA LIMITED, as an Australian Lender By: Title: UBS AG, STAMFORD BRANCH, as a U.S. Lender By: Title: S-9 UBS AG, STAMFORD BRANCH, as a Canadian Lender By: Title: UBS AG, STAMFORD BRANCH, as an Australian Lender By: Title: S-10 EX-11 4 EPS NINE MONTHS ENDED 9/30/98 EXHIBIT 11 HOMESTAKE MINING COMPANY AND SUBSIDIARIES Computation of Earnings Per Share (unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, BASIC 1998 1997 1998 1997 ------------- -------------- ------------- ------------- Earnings: Net loss applicable to basic earnings per share calculation $ (182,226) $ (155,561) $ (219,743) $ (172,162) ============= ============== ============= ============= Weighted average number of shares outstanding 211,184 210,549 210,968 210,532 ============= ============== ============= ============= Net loss per share - basic $ (0.86) $ (0.74) $ (1.04) $ (0.82) ============= ============== ============= ============= DILUTED Earnings: Net loss $ (182,226) $ (155,561) $ (219,743) $ (172,162) Add: Interest relating to 5.5% convertible subordinated notes, net of tax 1,629 1,629 4,888 4,888 Amortization of issuance costs relating to 5.5% convertible subordinated notes, net of tax 111 111 332 332 ------------- -------------- ------------- ------------- Net loss applicable to diluted earnings per share calculation $ (180,486) $ (153,821) $ (214,523) $ (166,942) ============= ============== ============= ============= Weighted average number of shares outstanding: Common shares 211,184 210,549 210,968 210,532 Additional shares relating to conversion of 5.5% convertible subordinated notes 6,505 6,505 6,505 6,505 ------------- -------------- ------------- ------------- 217,689 217,054 217,473 217,037 ============= ============== ============= ============= Net loss per share - diluted (a) $ (0.83) $ (0.71) $ (0.99) $ (0.77) ============= ============== ============= ============= (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 loss per share computed in accordance with SFAS 128 was the same as basic earnings per share.
EX-27 5 FDS FOR SEPTEMBER 30, 1998
5 This schedule contains summary financial information extracted from the Condensed Consolidated Balance Sheet at September 30, 1998 and the related Condensed Statement of Consolidated Operations for the nine months ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1998 SEP-30-1998 151,311 157,952 36,900 0 78,724 441,441 2,193,753 1,430,163 1,315,928 157,188 354,451 0 0 211,204 195,391 1,315,928 609,308 594,931 513,324 549,489 261,447 0 15,813 (231,818) (12,998) (219,743) 0 0 0 (219,743) (1.04) (1.04) Includes Production costs and Depreciation, depletion and amortization from Condensed Statement of Consolidated Operations. Includes Production costs and Depreciation, depletion and amortization and Administrative and general expense from Condensed Statement of Consolidated Operations. Includes Exploration expense, Write-downs and other unusual charges, Business combination and integration cost and Other expense from Condensed Statement of Consolidated Operations.
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