-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JRGgEEH+WMcqAwvkTlSAkANGpSlCZgfGaxb0VJlJVvKXOZitnCEXr92WyxqbTZQV Re6kQa7y6KlhlrGFvN73eg== 0000743872-94-000003.txt : 19940331 0000743872-94-000003.hdr.sgml : 19940331 ACCESSION NUMBER: 0000743872-94-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMESTAKE MINING CO /DE/ CENTRAL INDEX KEY: 0000743872 STANDARD INDUSTRIAL CLASSIFICATION: 1040 IRS NUMBER: 942934609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08736 FILM NUMBER: 94519138 BUSINESS ADDRESS: STREET 1: 650 CALIFORNIA ST-9TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 BUSINESS PHONE: 4159818150 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______ to ______ Commission file number 1-8736 HOMESTAKE MINING COMPANY (Exact name of registrant as specified in its charter) Delaware 94-2934609 (State of Incorporation) (I.R.S. Employer Identification No.) 650 California Street San Francisco, California 94108-2788 (Address of principal executive office) (Zip Code) (415) 981-8150 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $1.00 par value New York Stock Exchange, Inc. Rights to Purchase Series A New York Stock Exchange, Inc. Participating Cumulative Preferred Stock Securities registered pursuant to Section 12(g) of the Act: Not Applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,653,866,000 as of March 14, 1994. The number of shares of common stock outstanding as of March 14, 1994 was 137,703,149. Documents Incorporated by Reference: Specified sections of Homestake Mining Company's 1993 Annual Report to Shareholders, as described herein, are incorporated by reference in Parts I and II of this Form 10-K. The definitive Proxy Statement for the 1994 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1993, is incorporated by reference in Part III of this Form 10-K. HOMESTAKE MINING COMPANY AND SUBSIDIARIES PART I ITEM - 1 BUSINESS INTRODUCTION Homestake is a Delaware corporation organized in 1983 as the parent holding company to a California corporation organized in 1877. In this report, the terms "Homestake" and "Company" refer to Homestake Mining Company and its Subsidiaries. Homestake is engaged in gold mining and related activities, including exploration, extraction, processing and refining. Gold bullion, the Company's principal product, is produced in the United States, Canada, Australia, Mexico and Chile. The results of the Company's operations are affected significantly by the market price of gold. Gold prices fluctuate and are influenced by numerous factors beyond the Company's control, including expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and certain other currencies, interest rates, global or regional political or economic crises and sales by holders and producers of gold in response to such factors. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions and individuals. The Company's current policy is to sell its production at current prices and not enter into arrangements which would establish a price for the sale of its future gold production. Homestake also owns a 16.7% co-tenancy interest in the Main Pass 299 offshore sulphur and oil deposit in the Gulf of Mexico. Dollar amounts in this report are in U.S. dollars unless otherwise indicated. See pages 20 and 21 in the Company's 1993 Annual Report to Shareholders for detailed listing of gold reserves and operating statistics and see Note 22 to the consolidated statements on pages 46 and 47 of the 1993 Annual Report to Shareholders for geographic and segment information. Such information is hereby incorporated by reference. SIGNIFICANT 1993 DEVELOPMENTS In the second half of 1993, gold prices began to increase. Homestake's average realized price was $359 per ounce in 1993 compared with $348 per ounce in 1992 and $376 per ounce in 1991. In August, the Company completed the feasibility study for the Eskay Creek project which resulted in the addition of 1.2 million ounces of gold and 55.1 million ounces of silver to the Company's proven and probable ore reserves. This represents the Company's 54.2% interest in the property's total reserves. In February 1994, the Company selected a development plan for Eskay Creek which includes a 330 to 400 ton-per-day (TPD) underground mine. Under this development plan, ore will be sold directly to smelters, eliminating the necessity of constructing a processing plant. Capital costs to complete the project, including working capital requirements, are estimated to be $60 million. A mine development certificate could be granted early in 1994 allowing commercial production to begin by early 1995. 2 In December, Prime Resources Group Inc. (Prime) acquired all of the stock of Stikine Resources Ltd. (Stikine) through a share exchange. Prime and Stikine each have a 50% interest in the Eskay Creek project. Prior to this transaction, Homestake's effective ownership in Prime and Stikine was 54.3% and 54.1%, respectively. The combination of these two companies simplifies the ownership and operation of the Eskay Creek project. Following the business combination the Company owned approximately 54.2% of Prime. In December, sulphur production at the Main Pass 299 sulphur mine reached full production levels of 5,500 TPD (100% basis). At December 31, 1993, due to a decline in oil prices the Company recorded a $16 million write-down in the carrying value of the oil and gas property associated with the sulphur mine. In July, the Company sold its 83% interest in North American Metals Corp., which owns and operates the Golden Bear mine in northwestern British Columbia, for approximately $1 million and a retained royalty interest. The Company recorded a $0.5 million pretax gain and a $12.9 million income tax benefit on this sale. In the fourth quarter, the Company sold its 50% interest in the Mineral Hill gold mine in Montana to TVX Gold Inc. (TVX) for $4 million in cash and 140,000 common shares of TVX. The Company recorded a gain of $3.6 million on this sale. In June 1993, the Company issued $150 million of 5.5% convertible subordinated notes maturing June 23, 2000. Interest on the notes is payable semi-annually beginning December 23, 1993. The notes are convertible into the Company's common shares at a rate of $23.06 per common share and are redeemable at par by the Company in whole at any time on or after June 23, 1996. Proceeds from the notes were used to retire existing gold loans and other long-term debt. Repayment of the gold loans resulted in $6.8 million of net deferred gains, which are being recognized in revenue over the original repayment periods of the gold loans. During the third quarter, $5.8 million was expensed in connection with an early retirement and work force reduction program at the Homestake mine in South Dakota. The program will reduce the mine's personnel level by approximately 120 people. In the second quarter, Homestake Gold of Australia Limited completed a restructuring of its operations, including relocation of its principal office to Perth, Australia. The Company recorded expenses of $1.9 million related to this restructuring. A significant portion of the Company's gold operations are transacted in Canadian and Australian currencies. Fluctuations in these currencies' exchange rates relative to the U.S. dollar affect the Company's results. In order to minimize the effects of these fluctuations, the Company has implemented a foreign currency protection program. Under the program the Company enters into foreign currency option contracts which establish minimum and maximum exchange rates ranges within which the United States dollar may be exchanged for these foreign currencies. 3 1994 DEVELOPMENTS On February 23, 1994, Prime issued five million fully-paid warrants which are convertible into five million common shares of Prime on completion of regulatory requirements. Net proceeds of this offering of approximately $33 million will be used to fund a portion of the Eskay Creek project construction and development costs. When completed, this transaction will reduce the Company's interest in Prime from 54.2% to 50.6%. On March 15, 1994, the Company signed a letter of intent to sell its interest in the Dee mine to Rayrock Mines, Inc. for $16.5 million. Completion of this sale will result in a pretax gain of approximately $15.8 million. GLOSSARY OF TERMS See pages 28-30 GLOSSARY and INFORMATION ON RESERVES, for definitions of terms used in the following discussion. GOLD OPERATIONS UNITED STATES Homestake conducts operations at the Homestake mine in the Black Hills of South Dakota and at the McLaughlin mine in northern California. Homestake also owns a 25% interest in the Round Mountain mine in central Nevada and owns or has an interest in four smaller mines in Nevada: Santa Fe mine (100%), Marigold mine (33.3%), Pinson mine (26.3%) and Dee mine (44%). The Company has exploration offices in Reno, Nevada and Lead, South Dakota. Homestake Mine The 118-year old Homestake mine is located in Lawrence County in and near Lead, South Dakota. Homestake owns 100% of the operation. The Homestake mine properties cover approximately 11,700 acres of which approximately 8,200 acres are owned in fee and the remainder are held as unpatented mining claims. Paved public roads provide access to the operation. The Homestake mine is comprised of underground and open-pit (the Open Cut) mining operations, an ore processing plant, a wastewater treatment plant and tailings disposal facilities. The underground mine is serviced by two 5,000-foot vertical shafts from surface connecting with internal shafts which provide hoisting and services to the 8,000-foot level. Ore from underground is hoisted to surface, crushed and transported to the nearby processing plant. Open Cut ore is crushed and transported more than a mile to the processing plant by an enclosed conveyor. The 7,400 TPD processing plant recovers gold through a combination of gravity, carbon-in-pulp (CIP) and vat leaching processes. Recycled process water is pumped through a carbon-in- leach (CIL) circuit, also contributing to production. The refinery produces fine gold bullion. Process tails are used for underground fill or are deposited in a tailings impoundment facility three miles from the plant. The capacity of the tailing impoundment will be adequate through the year 2000, at which time a new lift will be required. The facilities and equipment at this operation have been upgraded over the years for technological advances and are generally in good operating condition. 4 Untreated water for use in the mine's facilities is obtained from local watersheds under Homestake mine water rights and potable water is purchased from the Lead/Deadwood sanitation district. Electric power is purchased by contract from Black Hills Corporation and is supplemented by Homestake mine hydroelectric facilities. Expansion of the Open Cut is nearing completion and waste stripping currently is taking place. A comprehensive evaluation of the Homestake mine is nearing completion also. Thus far, this evaluation has resulted in a reevaluation of ore reserves, a new underground mining plan, improvements in maintenance and reductions in the work force. As a result of the reevaluation of ore reserves, approximately 25% of the Homestake mine's underground ounces previously categorized as mineable reserves were reclassified to a geological resource category. During 1994, all administrative functions will be relocated to the mine office as part of a surface facilities consolidation. Hourly employees at the Homestake mine are represented by the United Steel Workers of America. The current three year contract expires on June 3, 1995. The Homestake mine has received no notices of violation and is under no regulatory orders of any kind mandating specific environmental expenditures. Reclamation projects and the upgrading of environmental practices and facilities are ongoing. No royalties are payable on production from the Homestake mine. The State of South Dakota currently imposes a severance tax of 2% of gross receipts and 8% of net profits from the sale of gold produced in the state. Effective July 1, 1994, the South Dakota severance tax will change to 10% of net profits plus $4 per ounce of gold sold when the price of gold is $499 per ounce or less, increasing by $1 per ounce for each $100 increment or part thereof, in excess of $499 per ounce. Year-end Proven and Probable Ore Reserves
1993 1992 Underground Tons of ore (000s) 15,014 20,802 Ounces of gold per ton .230 .240 Contained ounces of gold (000s) 3,447 4,985 Open Cut Tons of ore (000s) 5,388 6,185 Ounces of gold per ton .130 .126 Contained ounces of gold (000s) 700 781 5 Operating Data 1993 1992 Production Statistics: Tons of ore mined (000s): Underground 1,471 1,551 Open Cut 1,048 1,049 Ore grade (oz. gold/ton): Underground .235 .177 Open Cut .111 .136 Open Cut stripping ratio (waste:ore) 8.4:1 8.7:1 Tons of ore milled (000s) 2,695 2,638 Mill feed ore grade (oz. gold/ton) .174 .158 Mill recovery (%) 96 95 Gold recovered (000 ozs.) 448 397 Cost per Ounce of Gold: Cash operating cost $ 268 $ 316 Non-cash cost 20 21 ----- ----- Full production cost $ 288 $ 337
McLaughlin Mine The McLaughlin gold mine is located at the junction of Lake, Napa and Yolo Counties in northern California. The McLaughlin mine has been in operation since 1985 and is 100% owned by Homestake. The McLaughlin mine properties cover approximately 20,200 acres. Approximately 17,100 acres, which encompass all of the mineable reserves, are owned and approximately 500 acres are leased. The Company holds 133 unpatented mining claims and six millsite claims covering the remaining 2,600 acres. Access to the property is by paved road. Ore is mined by open-pit methods using a fleet of 85-ton haul trucks and two hydraulic shovels. Ore is crushed and transported by slurry pipelines five miles to the processing site. The processing plant consists of two parallel circuits. The primary circuit utilizes pressure oxidation (autoclaves) to treat higher grade sulfide ores, followed by neutralization and cyanide leaching. The second circuit uses conventional crushing and grinding, and sulfide flotation. Concentrates produced from flotation are added to the sulfide ores prior to treatment through the autoclaves. Flotation tailings go directly to cyanide leach. Cyanidation and the CIP process with pressure stripping and electrowinning are used to recover gold. Total mill capacity through both circuits is approximately 5,800 TPD. Tailings are deposited in a 28 million ton capacity tailings impoundment that will be adequate through 1999, at which time a new lift is scheduled to be added to the existing dam. The new lift will increase the impoundment's capacity to allow for the treatment of all known remaining reserves. Facilities are modern and in good operating condition. Water for the mine is obtained from the Company's fresh water reservoir in Yolo County and from reclaimed tailings water. The reservoir has approximately four years of storage capacity. Electric power is purchased under interruptible tariff from Pacific Gas and Electric Company. 6 During 1993, McLaughlin mine ore reserves were adjusted to include 379,000 ounces of gold contained in previously excluded low-grade stockpiles following favorable processing results. In addition, plant tests indicated higher grades in an existing ore reserve stockpile, which resulted in the addition of 74,000 ounces of gold to ore reserves. Cash costs per ounce decreased in 1993 due to increased recoveries in both circuits, higher usage of flotation concentrates and continuing efforts on cost reduction. The average grade to be milled over the remaining life of the mine is expected to be approximately 0.083 ounce per ton. Mining is currently expected to continue for approximately three years and processing of stockpiles is expected to continue for an additional seven years, unless substantial new reserves are discovered. McLaughlin mine royalties are equivalent to approximately 2% of revenues. Year-end Proven and Probable Reserves
1993 1992 Open Pit Tons of ore (000s) 7,176 5,739 Ounces of gold per ton .101 .150 Contained ounces of gold (000s) 727 861 Stockpiled* Tons of ore (000s) 14,866 8,557 Ounces of gold per ton .075 .075 Contained ounces of gold (000s) 1,112 643 Total Tons of ore (000s) 22,042 14,296 Ounces of gold per ton .083 .105 Contained ounces of gold (000s) 1,839 1,504 Operating Data 1993 1992 Production Statistics: Tons of ore mined (000s) 2,043 2,608 Stripping ratio (waste:ore) 6.5:1 4.6:1 Tons of ore milled (000s) 2,164 2,051 Mill feed ore grade (oz. gold/ton) .154 .164 Mill recovery (%) 92 87 Gold recovered (000 ozs.) 305 291 Cost per Ounce of Gold: Cash operating cost $ 196 $ 204 Non-cash cost 107 122 ----- ----- Full production cost $ 303 $ 326 * The cost of mining substantially all the low-grade ore in the stockpiles has been expensed.
7 Round Mountain Mine The Round Mountain mine is an open-pit gold mine located in Nye County, Nevada, about 60 miles north of Tonopah. Homestake owns a 25% undivided interest in the mine. Echo Bay Mines Ltd. owns a 50% undivided interest and is the operator. The remaining 25% interest is owned by Case Pomeroy & Company, Inc. The mine has been in operation since 1977. The Round Mountain properties cover a total of 28,362 acres of private property and public domain land some of which is under patent application. Of the total reserves, 83% are located on the privately-owned land. Access to the property is by one mile of gravel road. Ores from the mine are leached using two methods. The higher grade ore is processed on reusable heap-leach pads and the lower grade ore is leached on a dedicated pad. During 1993, total ore processed averaged 68,000 TPD. The reusable heap-leach pads processed 28,000 TPD and the balance was processed on a dedicated pad. The average ore and waste mining rate was 157,000 TPD. The reusable pad processing facilities consist of a gyratory crusher, an intermediate ore storage and reclaim system, secondary and tertiary cone crushers and screens, and a conveyor system used to transport ore to two asphalt leach pads. The reusable pads have a total capacity of approximately 4 million tons. A separate dedicated heap-leach pad to process uncrushed run-of-mine ore was commissioned during 1993. Facilities are in good condition. Water comes from wells on the property and power is purchased under contract from Sierra Pacific Power Company. Homestake's share of total 1993 gold production from the Round Mountain mine was 93,674 ounces, compared with 92,646 ounces in 1992. Gold recoveries on the reusable pads are improving as a result of placing fewer tons and higher grade ores on the pads, which has allowed longer leaching times. Larger quantities of lower grade ores are being processed on the dedicated pad. Gold production in 1993 and 1992 benefited from a very high-grade vein ore occurrence from which over 53,000 ounces (1992: 52,000) of gold (100% basis) were recovered through gravity separation. Additional high-grade vein material will be processed in 1994. The lower overall 1993 ore grade of 0.022 ounce per ton in comparison to 0.036 ounce per ton in 1992 was due to the lowering of the cut-off grade for ore placed on the dedicated pad. Ore reserves increased by 336,000 ounces in 1993. Exploration drilling resulted in extension of the economic pit limits, mainly to the northwest. In addition, revisions to the ore reserve, primarily for changes in density of the various ore bearing rock types, increased the reserve base. Consideration presently is being given to the construction of a mill at the property to process higher grade sulphide ores. A revised mine plan incorporating a gravity milling process has been submitted to the U.S. Bureau of Land Management (BLM) for approval. During 1993, a study which satisfied the zero discharge groundwater provisions of the mine's permits was presented to the Nevada Department of Environmental Protection. Further monitoring will be completed in 1994. During 1993, the mine operated in compliance with its permits. All Round Mountain mine production is subject to royalties determined by a complex royalty formula based on the price of gold. 8 The royalties range from approximately 3.5% of gold revenues at prices of $320 per ounce of gold or less to approximately 6.4% at prices of $440 per ounce of gold or more. During 1993, the royalty averaged 3.7% of revenues. Homestake has a 25% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 302,426 276,552 Ounces of gold per ton .024 .025 Contained ounces of gold (000s) 7,123 6,787 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore mined (000s) 25,929 17,147 Stripping ratio (waste:ore) 1.2:1 2.0:1 Tons of ore crushed (000s) 10,130 15,602 Tons of ore processed (000s) 24,443 16,530 Weighted average ore grade placed on pads (oz. gold/ton) .022 .036 Leach recovery - reusable pads (%) 69 58 Gold recovered (000 ozs.) 375 371 Cost per Ounce of Gold Cash operating cost $ 230 $ 233 Non-cash cost 63 50 ----- ----- Full production cost $ 293 $ 283
Santa Fe Mine The Santa Fe mine is located in Mineral County, Nevada, approximately 40 miles east of Hawthorne. Homestake owns 100% of this operation. The mine has operated since 1988. Access to the property is by paved road. Mining operations at the Santa Fe mine's main pit were completed in June 1992 and mining in the Calvada area adjacent to the Santa Fe mine ceased in late 1993 as ore reserves were depleted. In 1994, the operation will enter a reclamation phase which is estimated to continue until 1997. During this period some gold production will be derived from rinsing the heaps, a process in which any residual cyanide is destroyed. Revenues received from gold production during the reclamation period will be applied toward remaining reclamation expenditures. Based on current estimates, full provision for reclamation, after considering the additional revenues to be received from gold produced during reclamation phase, is included in the December 31, 1993 financial statements. The mine and its facilities are fully depreciated. Water for the property is obtained from three deep alluvial wells located two miles from the minesite. Power is purchased from Sierra Pacific Power Company. 9 During 1993, the mine operated in compliance with its environmental permits. The Calvada area is subject to three separate net smelter royalties aggregating 3.5% to 15% depending upon the grade of ore and the price of gold. Year-end Proven and Probable Ore Reserves
1992 Tons of ore (000s) 1,721 Ounces of gold per ton .032 Contained ounces of gold (000s) 55 Operating Data 1993 1992 Production Statistics: Tons of ore mined (000s) 2,043 2,164 Stripping ratio (waste:ore) 1.5:1 1.6:1 Tons of ore crushed (000s) 2,288 1,996 Ore grade put on pads (oz. gold/ton) .034 .037 Leach recovery (%) 61 71 Gold recovered (000 ozs.) 54 61 Cost per Ounce of Gold: Cash operating cost $ 269 $ 255 Non-cash cost 89 93 ----- ----- Full production cost $ 358 $ 348
Dee Mine The Dee gold mine is located in Elko County, Nevada. Homestake owns an undivided 44% interest in the property. Rayrock Mines, Inc. (Rayrock), a wholly-owned subsidiary of Rayrock Yellowknife Resources, Inc., owns a 44% interest and is the operator. The mine has operated since 1984. The Dee property consists primarily of leasehold lands covering approximately 4,000 acres. The leasehold land is comprised of 299 unpatented lode claims and 102 unpatented mill site claims. The leases remain in effect as long as the mine continues production. Access to the property is by gravel road. Mining is conducted by conventional open-pit methods. Ore is processed by both heap leaching and conventional milling methods. Total material movement is approximately 25,000 TPD. In April 1993, continuous milling operations were suspended due to a lack of ore of sufficient grade to feed the 1,250 TPD capacity mill. However, mill grade ore above 0.10 ounce per ton is stockpiled and periodically processed through the mill to maximize gold recovery. Mine facilities are in good condition. Water is supplied by wells on site and power is purchased from Sierra Pacific Power Company. Gold production (100% basis) in 1993 of 25,800 ounces was 33% below 1992 production of 38,800 ounces. Operating cost reductions resulting from suspension of milling were not sufficient to offset the production shortfall, and cash costs per ounce increased from $362 in 1992 to $393 in 1993. In addition, much of the ore placed 10 on the pads originated from a highly silicified section of the orebody which adversely affected metallurgical recoveries. During 1993, the mine operated in compliance with its environmental permits and was the recipient of the Dupont Environmental Leadership Award and the Governor's Excellence in Reclamation Award. Lease payments are made in the form of production royalties ranging from 4% to 9% of gross receipts, depending on ore grade, tonnage and gold price. Homestake's share of production from the Dee mine was 11,340 ounces of gold in 1993 compared to 17,080 ounces in 1992. Homestake has a 44% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 3,844 5,225 Ounces of gold per ton .044 .049 Contained ounces of gold (000s) 169 258 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore mined (000s) 1,148 930 Stripping ratio (waste:ore) 4:1 7:1 Tons of ore milled (000s) 86 389 Ore grade milled (oz. gold/ton) .073 .087 Mill recovery (%) 80 81 Tons of ore leached (000s) 1,003 540 Ore grade leached (oz. gold/ton) .031 .020 Gold recovered (000 ozs.) 26 39 Cost per Ounce of Gold: Cash operating cost $ 393 $ 362 Non-cash cost 142 42 ----- ----- Full production cost $ 535 $ 404
On March 15, 1994, the Company signed a letter of intent to sell its interest in the Dee mine to Rayrock for $16.5 million. Completion of this sale will result in a pretax gain of approximately $15.8 million. 11 Marigold Mine The Marigold gold mine is located approximately 40 miles southeast of Winnemucca, Nevada. Homestake owns an undivided 33.3% interest in the Marigold property. Rayrock owns the remaining interest and is the operator. The mine has operated since 1989. The property consists of approximately 3,920 acres of owned land and 14,920 acres of leasehold lands held under leases which remain in effect as long as the mine continues production. Access to the property is by two miles of gravel road. Mining is conducted by conventional open-pit methods. Ore is currently produced from three open-pit mines. The 8-South open pit provides most of the milling grade ore; the other two pits produce mostly lower grade ore which is processed by heap leaching. Total material movement is approximately 40,000 TPD. Stripping will begin on a fourth pit in 1994. The mill is scheduled to process approximately 1,900 TPD in 1994. Based on current ore reserves, the milling operations will cease in early 1995 due to lack of mill grade ore, as the high-grade reserves in the 8-South pit will have been depleted. Heap leaching will continue until 1999. Mine facilities are in good condition. Water is supplied from on site wells and power is purchased from Sierra Pacific Power Company. The 1993 exploration program concentrated on detailed ore delineation in the four known pit areas for reserve modeling, pit design and long range production scheduling purposes. During 1993, the mine operated in compliance with its permits and was the recipient of the Dupont Environmental Leadership Award. Production royalties are paid to two underlying ownerships of the leasehold lands in amounts of 3% and 5% of gross receipts, respectively. Homestake's share of production from the Marigold mine was 30,165 ounces of gold in 1993 compared to 28,257 ounces in 1992. Homestake has a 33.3% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 15,749 16,483 Ounces of gold per ton .034 .036 Contained ounces of gold (000s) 536 593 12 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore mined 2,243 2,647 Stripping ratio (waste:ore) 2:1 1:1 Tons of ore milled (000s) 689 650 Ore grade milled (oz. gold/ton) .108 .111 Mill recovery (%) 91 91 Tons of ore leached (000s) 1,505 1,945 Ore grade leached (oz. gold/ton) .021 .024 Gold recovered (000 ozs.) 90 91 Cost per Ounce of Gold: Cash operating cost $ 207 $ 231 Non-cash cost 95 119 ----- ----- Full production cost $ 302 $ 350
Pinson Mine The Pinson gold mine is located approximately 30 miles northeast of Winnemucca, Nevada. Homestake owns an undivided 26.3% interest in the Pinson property. Rayrock owns a 26.5% interest and is the operator. The mine has operated since 1981. The Pinson property consists of approximately 22,826 acres of which 11,583 acres are held under leases which remain in effect as long as the mine continues production. The remaining land is comprised of 7,780 acres of unpatented mining claims and 3,463 acres of primarily fee lands. Access to the property is by paved road. Several open pits are mined simultaneously using conventional open-pit mining methods. Ore is processed by both heap leaching and conventional milling methods. Total material movement is between 25,000 to 30,000 TPD. The mill has a capacity of 1,500 TPD. The process uses both CIP and CIL circuits due to the mildly refractory nature of a portion of the ore. Low-grade ore is treated by heap leaching. In 1993, 86% of total gold production was from ore milled. Mine facilities are in good condition. Water is obtained from wells on the property and power is purchased from Sierra Pacific Power Company. The 1993 exploration program failed to identify significant new reserves on the property but delineated some ore extensions in current mining areas. Production royalties of 2.2% of net smelter returns (NSR) are payable on the principal producing areas of the mine. Overall, the underlying property ownership is complex, requiring special arrangements with respect to the commingling of ore from various locations. During 1993, the mine operated in compliance with its environmental permits and was the recipient of the Dupont Environmental Leadership Award. 13 Homestake's share of production from the Pinson mine was 13,353 ounces of gold in 1993 compared to 13,214 ounces in 1992. Homestake has a 26.3% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 4,771 4,980 Ounces of gold per ton .068 .064 Contained ounces of gold (000s) 323 319 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore mined (000s) 882 1,013 Stripping ratio (waste:ore) 7:1 6:1 Tons of ore milled (000s) 552 544 Ore grade milled (oz. gold/ton) .093 .093 Mill recovery (%) 85 79 Tons of ore leached (000s) 415 383 Ore grade leached (oz. gold/ton) .031 .035 Gold recovered (000 ozs.) 51 50 Cost per Ounce of Gold: Cash operating cost $ 267 $ 285 Non-cash cost 41 48 ----- ----- Full production cost $ 308 $ 333
Mineral Hill Mine In November 1993, the Company sold its 50% interest in the Mineral Hill mine to TVX, which also held a 50% interest, for $4 million in cash and 140,000 shares of TVX. In addition, the Company retained a royalty interest on certain exploration lands and received an indemnification from TVX for all past, present and future reclamation requirements. The Company recorded a gain of $3.6 million on the sale. Homestake's share of 1993 gold production from Mineral Hill was 18,335 ounces compared with 21,087 ounces in 1992. CANADA Homestake has a 50% interest in the Williams and David Bell mines in the Hemlo mining district in Ontario and a 25% net profits interest in the Quarter Claim (adjacent to the David Bell mine). Homestake also owns and operates the Nickel Plate mine in south central British Columbia and has a 54.2% interest in Prime. Prime has a 40% interest in the Snip mine and owns the Eskay Creek development property, both of which are located in northwestern British Columbia. 14 The Company conducts exploration and investigates mineral acquisition and development opportunities throughout Canada. Canadian activities are managed from an office in Vancouver, British Columbia. Williams Mine The Williams gold mine is located in the Hemlo Gold Camp 217 miles east of Thunder Bay, Ontario adjacent to the Trans Canada Highway. The mine is operated by Williams Operating Corporation (WOC). Homestake and Teck Corporation each own a 50% interest in WOC. The mine commenced operations in 1985. The property consists of 11 patented mining claims covering approximately 400 acres and one Crown mining lease. WOC operates the Williams mine with its own personnel. Homestake and Teck are required to provide funds equally to WOC for all costs incurred to operate the mine. Homestake and Teck have mutual rights of first refusal over the other's direct interest in the Williams mine and shares of WOC. The Williams mine is an underground operation which is accessible by a 4,300 foot shaft. Mining is carried out by the longhole, open-stope method with cemented rock fill. In addition, 300-400 TPD of low-grade ore is recovered from an open pit which is operated mainly to produce waste rock for backfill. Cyanidation and the CIP process are used to recover gold. The mill's capacity was expanded to 7,000 TPD in 1992. The facilities and equipment are modern and in good condition. Water for the property is supplied from Cedar Creek and power is purchased from Ontario Hydro via long-term contracts. Propane for heating mine air and surface facilities is also purchased on long-term contracts. During 1993, the underground infrastructure was expanded to facilitate mining operations to the west of the shaft. These installations include a new crusher and conveyor system and a new ore pass and vent raise. Exploration drifting and drilling on 9,450 foot level replaced over 90% of the 2.6 million tons milled in 1993. During 1992, the Williams and David Bell mines combined their separate tailings facilities into one tailings basin located approximately two miles from the mill. Water from the tailings basin is treated during the summer months in an effluent treatment plant prior to discharge. The mines continue to reclaim mill process water separately. During 1993, all environmental discharges were in compliance with permit levels. The mine has completed a reclamation plan which has been submitted to the regulatory agencies for review. The 11 patented mining claims are subject to three NSR royalties totaling a net effective rate of 2.08% and the crown mining lease is subject to a NSR royalty of 0.75%. Homestake's share of production was 246,126 ounces in 1993 compared with 248,460 ounces in 1992. 15 Homestake has a 50% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 34,905 35,150 Ounces of gold per ton .170 .174 Contained ounces of gold (000s) 5,934 6,117 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore milled (000s) 2,557 2,535 Mill feed ore grade (oz. gold/ton) .202 .205 Mill recovery (%) 95 95 Gold recovered (000s oz..) 492 497 Cost per Ounce of Gold: Cash operating cost $ 199 $ 186 Non-cash cost 48 52 ----- ----- Full production cost $ 247 $ 238
David Bell Mine The David Bell gold mine is located in the Hemlo Gold Camp. The mine is operated by the Teck-Corona Operating Corporation (TCOC). Homestake and Teck Corporation each own a 50% interest in TCOC. The mine commenced operation in 1986. The mine is located on the same orebody as the Williams mine. The property consists of approximately 650 acres held under two freehold patents. TCOC operates the David Bell mine with its own personnel. Homestake and Teck are required to provide funds equally to TCOC for all costs incurred to operate the mine. Homestake and Teck have mutual rights of first refusal over the other's interest in the David Bell mine and shares of TCOC. The David Bell mine is an underground operation which is accessible by a 3,819 foot shaft. Production is from stopes using longhole mining methods with a mixture of cement, tailings and sand as backfill. The mill operated at 1,470 TPD in 1993. Cyanidation and the CIP process are used to recover gold. The facilities and equipment are modern and in good condition. Water and power supplies are the same as those at the Williams mine. Mine development in 1993 included improvements to the mine ventilation network and the underground roadway system. The average width of ore at the David Bell mine is decreasing. In an effort to minimize the costs associated with this decrease, experimental stoping of narrow width ore by longitudinal longhole retreat continued during the year. Ore grades decreased in 1993 as expected. However, gold production was consistent with 1992 due to increased productivity and improvements in waste dilution. 16 The current collective bargaining agreement with the United Steel Workers of America is in effect until October 31, 1995. Exploration drilling in 1993 replaced approximately 4% of the 542,000 tons milled. Further in-mine exploration potential is limited due to tight property boundaries. Homestake and Teck each have a 50% interest in efforts to explore and develop mineral properties within approximately two miles of the David Bell property. During 1993 all environmental discharges were in compliance with permit levels. The mine has completed a reclamation plan which has been submitted to the regulatory agencies for review. The property is subject to a 3% NSR royalty. Homestake's share of production at the David Bell mine was 107,594 ounces in 1993 compared with 105,256 ounces in 1992. Homestake has a 50% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 6,450 6,965 Ounces of gold per ton .316 .321 Contained ounces of gold (000s) 2,041 2,236 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore milled (000s) 542 517 Mill feed ore grade (oz. gold/ton) .416 .426 Mill recovery (%) 95 95 Gold recovered (000 ozs.) 215 211 Cost per Ounce of Gold: Cash operating cost $ 154 $ 156 Non-cash cost 52 47 ----- ----- Full production cost $ 206 $ 203
Quarter Claim A property (the Quarter Claim) constituting approximately one-fourth of a mining claim, which was originally part of the David Bell property, was optioned to, and subsequently acquired by, Hemlo Gold Mines Inc. (Hemlo Gold) in 1982. Hemlo Gold developed a shaft and reserved hoisting and milling capacity of 500 TPD at its mill to process any ore found on the Quarter Claim. Homestake has a 25% net profits interest in all ore recovered from the Quarter Claim. In calculating the net profits interest, no allowance is made for capital costs unless specifically required for the Quarter Claim. 17 Homestake's share of production at the Quarter Claim was 11,094 ounces in 1993 compared with 16,204 ounces in 1992. Homestake has a 25% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 1,380 1,569 Ounces of gold per ton .256 .254 Contained ounces of gold (000s) 354 399 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore milled (000s) 181 189 Mill feed ore grade (oz. gold/ton) .255 .356 Mill recovery (%) 96 97 Gold recovered (000 ozs.) 44 65 Cost per Ounce of Gold: Cash operating cost $ 144 $ 140
Nickel Plate Mine The Nickel Plate gold mine is located near Hedley, British Columbia and is owned 100% by Homestake. The mine was an underground gold mine prior to 1930 and from 1934 to 1955. Current operations began in 1987. The property is comprised of 111 Crown-granted claims, six reverted Crown-granted claims, two mining leases, 13 mineral claims and certain surface rights, covering approximately 7,275 acres. A paved road from Penticton, approximately 30 miles from the mine, provides access to the site. Mining is carried out by conventional open-pit methods. Ore is processed in a 4,000 TPD mill. Mill processing comprises crushing, grinding, cyanidation and Merrill Crowe gold recovery. Tailings effluent is treated to destroy residual cyanide. The facilities and equipment are modern and in good condition. Water is supplied from a local creek during spring run-off and stored in a process water pond. Power is supplied by West Kootenay Power under an annually renewable contract. A $17 million waste stripping program, which will extend current operations to 1997, was completed in September 1993. During the period of waste stripping, stockpiled ore was processed through the mill. The potential for additional ore reserves from exploration drilling is very limited. The mine operates under a zero effluent discharge permit. The mine had been placed on a Pollution Concern List by the Ministry of Environment, Lands and Parks due to tailings dam seepage and elevated levels of sulphates and nitrates in runoff water from the 18 waste dumps. During 1993, significant work was undertaken to modify and further improve the tailings dam seepage handing system to limit effluent bypassing the system. Additional reclamation undertaken in 1993 included the rehabilitation of waste dumps and a small pit that was mined out in 1992. On February 22, 1994 the mine was removed from the Pollution Concern List. The mine has submitted a revised reclamation and closure plan to the regulatory agencies for review. Year-end Proven and Probable Ore Reserves
1993 1992 Tons of ore (000s) 4,823 5,906 Ounces of gold per ton .077 .076 Contained ounces of gold (000s) 370 448 Operating Data 1993 1992 Production Statistics: Tons of ore milled (000s) 1,412 1,360 Mill feed ore grade (oz. gold/ton) .061 .073 Mill recovery (%) 85 85 Gold recovered (000 ozs.) 74 85 Cost per Ounce of Gold: Cash operating cost $ 312 $ 295 Non-cash cost 24 70 ----- ----- Full production cost $ 336 $ 365
Snip Mine The Snip gold mine is located at the junction of Bronson Creek and the Iskut River, 56 air miles north of Stewart, in northwestern British Columbia. The Eskay Creek project is located nearby. The mine is 40% owned by Prime and 60% by Cominco Ltd., the operator of the mine. Cominco receives a management fee equivalent to 5% of property cash expenses for its services as operator. The mine commenced operations in January 1991. The property consists of a mining lease issued to Cominco for a term of 30 years, together with three mineral claims also recorded in the name of Cominco, covering approximately 3,637 acres. The mine is serviced by both a hovercraft and aircraft which utilize the mine's 4,500-foot long landing strip. The hovercraft primarily transports mine concentrates, fuel and other supplies along the Iskut and Stikine rivers between the mine and Wrangell, Alaska from late March to early November each year. During the winter months due to ice accumulations on the rivers, the only access is by aircraft or helicopter. The Snip mine is an underground operation serviced by three adits and a haulageway at the 400-foot level. Mining is carried out through a combination of shrinkage, conventional and mechanized cut 19 and fill. Backfill is either underground waste rock or mill tailings which are pumped to the mine and mixed with cement. The mill can treat 500 TPD. Approximately 92% of the gold contained in the ore is recovered. A gravity circuit recovers about 36% of the gold and the remaining gold is recovered in flotation concentrates containing approximately 10 ounces of gold per ton. The concentrates are sold directly to smelters in Japan. Mill tailings are deposited in a pond close to the mine and reclaimed water is pumped back to the mill for reuse. The facilities and equipment are modern and in good condition. Workers are on a four-week work schedule followed by two weeks off. Water is supplied from Bronson Creek and power is generated on-site by diesel generators. Exploration drilling in 1993 replaced all of the 188,000 tons milled. During 1993 all environmental discharges were within permit levels. The mine's reclamation plan was submitted to the regulatory authorities in November 1990 and a revision to this plan will be completed in 1994. Homestake's share of gold production in 1993 was 59,790 ounces compared with 30,558 ounces in 1992. The increase in production is due to the consolidation of Prime in the Company's financial statements effective December 31, 1992. Prime has a 40% interest of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 722 707 Ounces of gold per ton .788 .831 Contained ounces of gold (000s) 569 587 Operating Data (100% Basis) 1993 1992 Production Statistics: Tons of ore milled (000s) 188 182 Mill feed ore grade (oz. gold/ton) .865 .923 Mill recovery (%) 92 91 Gold recovered (000 ozs.)* 149 153 Cost per Ounce of Gold:* Cash operating cost $ 152 $ 145 Non-cash cost 83 55 ----- ----- Full production cost $ 235 $ 200 * Includes recoverable gold contained in dore bars and contained gold in concentrates.
Eskay Creek Project Prime owns 100% of the Eskay Creek project. Through its interest in Prime, the Company has a 54.2% interest in the project. The property is subject to an effective 1% NSR royalty. 20 The Eskay Creek project consists of four mining leases comprising approximately 1,266 acres located 50 miles north of Stewart, British Columbia. Prime retained Homestake to evaluate the project and prepare a feasibility study. The feasibility study, which was completed in August 1993, confirmed the economic viability of the Eskay Creek project utilizing conventional underground mining methods and a pressure oxidation (autoclave) circuit to recover precious metals. Preproduction capital costs were estimated to be approximately $234 million including allowances for working capital. As a result, the Eskay Creek resource was upgraded to a proven and probable reserve of 1.2 million tons of ore containing 2.3 million ounces of gold and 102 million ounces of silver (Homestake's share: 1.2 million ounces of gold and 55.1 million ounces of silver). Shortly before release of the feasibility study, several companies inquired about purchasing the Eskay Creek ore as direct feed material for their smelters. A second feasibility study was prepared to determine the economic viability of this approach. In February 1994, the Company selected the smelter option as the preferred processing method. Capital expenditures to complete the project are reduced to approximately $60 million under the smelter option. Underground mining will utilize a drift-and-fill method. The mine is expected to produce at an average rate of 120,000 tons of ore per annum containing approximately 210,000 ounces of gold and 9.4 million ounces of silver. Based on existing reserves, the mine has a projected life of eight to ten years. An access road connecting the project to the nearest main highway was pioneered to the site in the fall of 1993. The project expects to receive its mine development certificate early in 1994 and mine-site construction is scheduled to begin shortly thereafter. Shipments to smelters could begin early in 1995. Prime has contracted with Homestake to provide all necessary professional, managerial and administrative services in connection with further exploration, development and operation of the Eskay Creek project. During 1993, the Eskay Creek project was placed on a Pollution Concern List by the Ministry of Environment, Lands and Parks due to acid drainage from rock storage areas. In early 1993, a lime treatment plant was installed to treat the acidic water and the project was removed from the Pollution Concern List on February 22, 1994. On February 23, 1994, Prime issued five million fully-paid warrants which are convertible into five million common shares of Prime on completion of regulatory requirements. Net proceeds of approximately $33 million will be used to fund a portion of the Eskay Creek project construction and development costs. When completed, this transaction will reduce the Company's interest in Prime from 54.2% to 50.6%. Golden Bear Mine In July 1993, the Company sold its interest in North American Metals Corp., the owner and operator of the Golden Bear gold mine in British Columbia, for approximately $1 million plus a retained royalty interest. The Company recorded a $0.5 million pretax gain and a $12.9 million income tax benefit on this sale. 21 Homestake's share of 1993 gold production from the Golden Bear mine totaled 28,440 ounces compared to 58,224 ounces during 1992. AUSTRALIA Homestake owns 81.5% of the shares of Homestake Gold of Australia Limited (HGAL). HGAL is a gold mining and exploration company whose principal asset is a 50% ownership of Australia's largest gold mining operation, the consolidated surface and underground gold operations at Kalgoorlie, Western Australia. HGAL explores for gold in Australia and has offices in Perth and Kalgoorlie, Western Australia. Kalgoorlie Operations The Kalgoorlie operations are located 340 miles northeast of Perth, Western Australia on 164 state leases and licenses covering a total of 47 square miles. The mineral leases are renewable on an annual basis for a fee to the state. Homestake acquired its interest in the original Kalgoorlie Mining Associates joint venture in 1976. Mining operations in the Kalgoorlie region date back to 1893. Access to the operations is by paved road. HGAL owns a 50% interest in three joint ventures in the Kalgoorlie district: the Fimiston/Paringa Venture (FPV), the Mt Percy Venture and the Kalgoorlie Mining Associates Venture. Gold Mines of Kalgoorlie Limited and its affiliates (GMK) own the other 50% interest. HGAL and GMK formed Kalgoorlie Consolidated Gold Mines Pty Ltd (KCGM), a jointly-owned and controlled company, to manage all the operations on a consolidated basis under the direction of a Management Committee. Mines operated by KCGM include the Super Pit open-pit gold mine and the Mt. Charlotte underground gold mine. Ore treatment is carried out at the Croesus, Fimiston, Mt Percy and Oroya mills and the Gidji roaster. HGAL pays 50% of the costs and is entitled to receive 50% of the production from all operations, except for the FPV area of the Super Pit where HGAL pays 50% of venture costs but does not receive 50% of the production. GMK is entitled to receive more than 50% of gold production from the FPV area until 35.75 million tons of ore have been mined by open-pit methods from the FPV area of the Super Pit. The disproportionate quantity of gold to be received by GMK depends upon capital and production costs, gold prices and volumes mined from the FPV area. In 1993, GMK was not entitled to receive any extra gold. Through the end of 1993, approximately 11.4 million tons of ore have been mined from the FPV area of the Super Pit. Contractors are employed to conduct surface mining operations, ore and concentrate haulage and some specialized services. Fresh water is supplied under allocation from the state water system and is piped 350 miles from Perth. Salt water is taken from bores and underground mines. Power is purchased under a number of agreements with the state. Revision of the Super Pit ore resource using computer-aided modelling techniques in addition to a review of Mt. Charlotte reserves, expanded proven and probable reserves by 70% during 1993. The Company's share of this increase is approximately two million ounces. 22 No royalties are payable on production. Super Pit This large open pit is located along the "Golden Mile" ore bodies previously mined from underground. In 1993, 59 million tons of material were mined containing 10 million tons of ore, compared to 54 million tons containing 9.2 million tons in 1992. HGAL's share of Super Pit gold production was 256,094 ounces in 1993 and 261,104 ounces in 1992. Mt. Charlotte This underground mine uses bulk mining methods and large conventional diesel powered loaders and trucks to produce ore at the rate of 1.6 million tons per year. The main production level is 2,800 feet below surface. Long-hole stoping mining techniques are employed. The ore is loaded out from draw points and crushed underground with primary crushers before being hoisted to secondary crushers at the surface. In both 1993 and 1992, 1.7 million tons of ore were mined from Mt. Charlotte. HGAL's share of gold production was 70,981 ounces in 1993 and 70,059 ounces in 1992. Mt Percy The Mt Percy open cuts were mined to their planned economic depth in July 1992, at which time production ceased. The mill continues to process previously stockpiled low-grade material blended with non-refractory ore from the Super Pit. HGAL's share of gold production was 5,457 ounces in 1993 and 11,708 ounces in 1992. Fimiston Underground This was an underground operation which used small scale mining methods to produce high-grade ore. The last operating shaft stopped production as planned in July 1992. The shaft will be used in the future to access pumping equipment and exploration work. HGAL's share of gold production was 104 ounces in 1993 and 6,902 ounces in 1992. Mills Fimiston - a 14,550 TPD mill with CIP leaching and refractory sulfide flotation circuits that processes ore from the Super Pit. Oroya - a 7,700 TPD mill with CIP, refractory and non- refractory sulfide flotation circuits that processes ore from Mt. Charlotte and the Super Pit. Croesus - a 3,000 TPD mill with CIP and refractory sulfide flotation circuits that processes ore from the Super Pit. 23 Mt Percy - a 2,500 TPD mill with a CIP circuit that processes ore from Mt Percy and from the Super Pit. Gidji - a roaster complex situated 12 miles north of Kalgoorlie which comprises two converters and a CIP circuit to process all the concentrates. The combined mills processed 10.7 million tons of ore in 1993 compared with 10.2 million tons in 1992. This increase was made possible by efficiency improvements in the Fimiston, Oroya and Croesus mills, and the effect of softer ore being processed through the Mt Percy mill. Approximately $70 million (100% basis) of capital expenditures, primarily for mill expansions and modifications, are planned at the Kalgoorlie operations during 1994 and 1995. The mill expansions are required to replace the capacity of the Oroya mill which will be dismantled in 1995 to allow for an expansion of the Super Pit. Cash operating costs were lower in 1993 primarily as a result of favorable foreign exchange rates. A moderate decline was achieved on an Australian currency basis. HGAL's share of 1993 gold production from the consolidated Kalgoorlie operations was 332,636 ounces compared with 349,773 ounces in 1992. In 1993, the Gidji roaster performed well within SO2 emission limits established by the Western Australian government. Intercept drainage channels were constructed to isolate the Oroya tailings dam from the nearby salt water drainage channel. A safety exclusion zone (SEZ) surrounding the Super Pit has been established and progressive acquisition of properties within this area is taking place. The SEZ, combined with measures to reduce noise and dust, have resulted in a significant improvement in the environment of those residents living close to the mining operations. HGAL has a 50% interest (subject to the disproportionate allocation discussed above) of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1993 1992 Tons of ore (000s) 146,895 77,441 Ounces of gold per ton .074 .081 Contained ounces of gold (000s) 10,813 6,288 Operating Data (100% Basis) 1993 1992 Production Statistics: Super Pit Tons of ore mined (000s) 9,976 9,177 Stripping ratio 4.93:1 4.83:1 Tons of ore milled (000s) 8,502 7,693 Mill feed ore grade (oz. gold/ton) .072 .079 Mill recovery (%) 86 86 Gold recovered (000s) 512 522 24 Mt Percy Tons of ore mined (000s) - 297 Stripping ratio - 4.42:1 Tons of ore milled (000s) 465 734 Mill feed ore grade (oz. gold/ton) .027 .036 Mill recovery (%) 88 87 Gold recovered (000s) 11 23 Mt. Charlotte Tons of ore mined (000s) 1,697 1,664 Tons of ore milled (000s) 1,706 1,700 Mill feed ore grade (oz. gold/ton) .096 .096 Mill recovery (%) 86 87 Gold recovered (000s) 142 140 Fimiston Tons of ore mined (000s) - 88 Tons of ore milled (000s) 3 91 Mill feed ore grade (oz. gold/ton) .112 .163 Mill recovery (%) 88 90 Gold recovered (000s) 0.2 14 Combined Production Statistics: Tons of ore mined (000s) 11,673 11,226 Tons of ore milled (000s) 10,677 10,218 Mill feed ore grade (oz. gold/ton) .074 .079 Mill recovery (%) 86 86 Gold recovered (000 ozs.) 665 700 Consolidated Cost Per Ounce of Gold: Cash operating cost $ 230 $ 255 Non-cash cost 40 43 ----- ----- Full production cost $ 270 $ 298
Fortnum Fortnum is an open-pit gold mine located 485 miles northeast of Perth, Western Australia on care and maintenance at December 31, 1993. On February 17, 1994, HGAL sold its interest in Fortnum to Perilya Mines NL. A gain of approximately $1.3 million will be recorded in 1994 with respect to this sale. CHILE Homestake leases and operates the El Hueso gold mine and also conducts exploration in Chile. Homestake's office is in Santiago, Chile. El Hueso is an open-pit gold mine in the Maricunga District of Chile on property leased through June 1998 from Codelco, a government agency. The mine is located about 600 miles north of 25 Santiago at an elevation of approximately 12,500 feet. The lease includes the right to use the existing plant. The land included in the original lease term has no applicable royalties. Operations commenced in 1987 and Homestake assumed control of the operation in 1988. Access to the mine is by a 14-mile dirt road. In 1991, additional land was contracted from Codelco and incorporated into the existing lease. This new land was subject to a net profits royalty of 50% on the first 50,000 ounces of production, which was achieved during 1993, and is now subject to a 30% net profits royalty. Exploration on this land increased proven and probable reserves by 112,000 ounces during 1993. Ores from the mine are leached in two different ways. The higher grade ore is mined at an average rate of 6,500 TPD. It is crushed in three stages and then heap leached. Low-grade run-of- mine ore is heap leached without crushing. Gold-bearing solutions from both ores are treated by zinc precipitation to produce dore bars. The facilities are in good condition. Water and power are purchased from Codelco. At current and planned production rates and current reserves, operations at the El Hueso mine and the neighboring leases will cease in 1995. During 1993, additional new lands were contracted with Codelco. Current exploration on these new lands may prove additional reserves which could extend the operation beyond 1995. These new lands are subject to net profit sharing of 30%. Year-end Proven and Probable Ore Reserves
1993 1992 Tons of ore (000s) 3,151 3,112 Ounces of gold per ton .039 .039 Contained ounces of gold (000s) 122 120 Operating Data 1993 1992 Production Statistics: Tons of ore mined (000s) 3,132 2,527 Stripping ratio (waste:ore) 4:1 4:1 Tons high grade ore leached (000s) 1,964 1,964 Leach feed ore grade (oz. gold/ton) .040 .039 Recovery (%) 82 82 Tons low grade ore leached (000s) 1,031 741 Leach feed ore grade (oz. gold/ton) .015 .015 Recovery (%) 47 48 Gold recovered-all ores (000 ozs.) 72 70 Cost per Ounce of Gold: Cash operating cost $ 299 $ 285 Non-cash cost 30 33 ----- ----- Full production cost $ 329 $ 318
26 MEXICO Homestake owns an approximate 30% indirect interest in the Torres Mining Group, which is managed and operated by Industrias Penoles, S.A. de C.V. The Torres Mining Group covers approximately 18,000 acres and consists of several small separate silver-gold mines and a centrally located 2,500 TPD concentrator. The mining group is located near Guanajuato, about 250 miles northwest of Mexico City except for the Encantada mine which is located in the state of Coahuila, 50 miles south of Big Bend, Texas. Homestake's share of gold production from the Torres Mining Group totaled 12,844 ounces in 1993 compared to 16,209 ounces in 1992. During 1993, Homestake received dividends of $0.8 million from its interest in the Torres Mining Group. SULPHUR Homestake owns an undivided 16.7% interest in the Main Pass 299 sulphur deposit which at December 31, 1993 contained proven recoverable reserves of 66 million long tons of sulphur. Freeport McMoRan Resource Partners, Limited Partnership (FRP) owns a 58.3% interest in the deposit and is the operator under a joint operating agreement. IMC Fertilizer Inc. owns the remaining 25%. The sulphur deposit is located in the Gulf of Mexico in waters approximately 210 feet deep, 36 miles east of Venice, Louisiana. The deposit is approximately 1,500 feet below the sea floor. The federal sulphur lease under which the deposit is held requires a royalty of 12.5% of the wellhead value. The operating agreement provides that each participant pays its share of capital and operating costs, and has the right to take its share of production in kind in proportion to its undivided interest. The sulphur deposit is being mined using the Frasch process, a method of extraction which injects hot water steam to liquify the sulphur, which is then pumped to surface. Based on current reserve estimates, projected costs and prices, annual production is expected to average two million long tons over a 33-year reserve life. Fabrication and installation of production facilities began in 1990. Initial sulphur production commenced in 1992. Initial production was lower than anticipated because oil and gas production hampered heating the sulphur dome to required production temperatures. Full sulphur production levels of 5,500 TPD were reached in December 1993. Homestake's share of development expenditures totaled $123 million through 1993. FRP filters, blends, markets and delivers Homestake's share of sulphur production under an agreement having an initial term of ten years from commencement of production in 1992. Homestake can terminate the agreement by giving FRP two years notice. During sulphur exploration, oil and gas was discovered overlying the sulphur deposit. In 1990, the participants acquired the oil and gas rights from Chevron USA, Inc., for a total of $150 million, including reimbursement of certain costs incurred in partial development of the reserves. Homestake's 16.7% share of the oil and gas purchase and development costs through 1993 was approximately $52 million. 27 The federal oil and gas lease requires a 16.7% royalty payment based on wellhead value. In addition, Chevron retained the right to share in the proceeds of future production should the price or volume realized exceed those which were used by the parties as the basis for determining the purchase price. As expected, oil and gas production peaked during mid-1992 and is expected to continue to decline over the remaining approximate six-year life. Oil production (100% basis) totaled 7.1 million barrels in 1993 compared to 9.9 million barrels in 1992. In the fourth quarter of 1993, Homestake recorded a pretax $16 million write down of its investment in the oil and gas property due to a decline in oil prices. This write down was based on Main Pass 299's realized price of $10.32 per barrel at December 31, 1993. The remaining carrying value of Homestake's investment in the Main Pass 299 oil and gas property was $12.7 million at December 31, 1993. Homestake's share of remaining recoverable oil reserves at December 31, 1993 is estimated to be 2.8 million barrels after adjusting for the federal royalty. During 1993, the sulphur market continued to weaken, which has lowered average realized prices. Without an increase in prices, Homestake expects its sulphur operations to incur a small loss in 1994. MINERAL EXPLORATION As a part of the corporate restructuring in 1992, Homestake reorganized its exploration activities. The Company's primary focus has moved away from a grassroots approach organized around district offices towards a more consolidated and centralized system. United States exploration expenses totaled $11.1 million in 1993 and $14.7 million in 1992. These amounts include expenditures for the North Homestake Project of $3.1 million and $4.8 million, respectively. The North Homestake drift reached the target zone in late 1993. Results of drilling were discouraging and in March 1994 the project was abandoned. Discovery of a new mineralized zone near Eureka, Nevada, was announced in November 1993. A $4 million definition drilling program will begin early in 1994 when exploration permits are received. Upon completion of the drilling program, Homestake expects to be able to estimate the size of the resource. Through subsidiaries, Homestake also explores for gold and evaluates gold acquisition opportunities primarily in Australia, Canada and Chile. International exploration expenses totaled $6.4 million in 1993 and $13.1 million in 1992. In addition, negotiations were completed recently for exploration rights on a significant land position in Venezuela. Exploration expenses in 1994 are expected to be approximately $18 million. GLOSSARY AND INFORMATION ON RESERVES GLOSSARY The following terms used in the preceding tables of proven and probable ore reserves and operating data mean: 28 "Cash operating cost" includes all mining, in-mine exploration, processing and other plant costs, all royalties, state and local taxes (other than income), refining and marketing expenses, on-site general and administrative costs, and other direct costs, but excludes depreciation, depletion, and amortization, corporate general and administrative expenses, mineral exploration expense, Canadian provincial mining taxes, financing costs and long-term reclamation accruals. "Non-cash cost" includes depreciation, depletion and amortization of capital assets as well as accruals for the costs of reclamation, long-term monitoring and care that are usually incurred at the end of mine life. "Full production cost" includes all cash operating costs and non-cash costs. "In-situ tons" refers to reserves still in the ground. This differs from previously mined stockpiled reserves that are being stored for future processing. "Mineral deposit" is a mineralized body which has been delineated by appropriate drilling and/or underground sampling. Under SEC standards, a mineral deposit does not qualify as a reserve unless the recoveries from the deposit are expected to be sufficient to recover total cash and non-cash costs for the mine and related facilities. "Run-of-mine ore" is mined ore which has not been subjected to any pretreatment, such as washing, sorting or crushing, prior to processing. "Stripping ratio" is the ratio of the number of tons of waste to the number of tons of ore extracted at an open-pit mine. "Tonnage" and "grade" refer, respectively, to the quantity of reserves and the amount of gold (or other product) contained in such reserves and include estimates for mining dilution but not for other processing losses. "Tons" means short tons (2,000 lbs.) unless otherwise specified. INFORMATION ON RESERVES Gold The proven and probable gold ore reserves stated in this report reflect estimated quantities and grades of gold in in-situ deposits and in stockpiles of mined material that Homestake believes can be recovered and sold at prices sufficient to recover the estimated future cash cost of production and remaining investment. The estimates of cash costs of production are based on current and projected costs. Prices are based on estimated future gold prices. The Company used a price of $360 per ounce of gold in its mine-by-mine evaluation of mining properties and investments at December 31, 1993. Silver The proven and probable silver ore reserves have been calculated on the same basis as gold ore reserves. 29 Sulphur Homestake's proved sulphur reserves represent the quantity of sulphur in the Main Pass 299 deposit for which geological, engineering and marketing data give reasonable assurance of recovery and sale under projected economic and operating conditions at prices sufficient to cover the estimated future cash cost of production and remaining investment. Oil Homestake's proved oil reserves at Main Pass 299 are the estimated quantity of crude oil and condensate which geological and engineering data give reasonable assurance of recovery and sale under projected operating conditions at prices sufficient to cover the estimated future cash cost of production and remaining investment. The estimate is based on limited reservoir and engineering data. Calculation of Reserves Gold reserves are calculated for each of Homestake's properties by Homestake based upon factors relevant to each deposit. Gold ore reserves for those properties not operated by Homestake are based on reserve information provided to Homestake by the operator. Homestake has reviewed but has not independently confirmed the information provided by the operators. The sulphur and oil reserves at Main Pass 299 are based on information provided by the operator. Homestake has reviewed the reserve data with independent consultants. Other Information Ore reserves are reported as general indicators of the life of mineral deposits. Changes in reserves generally reflect (i) efforts to develop additional reserves; (ii) depletion of existing reserves through production; (iii) actual mining experience; and (iv) price forecasts. Grades of ore actually fed to process from time to time may be different from stated reserve grades because of geologic variation in different areas mined, mining dilution, losses in processing and other factors. Recovery rates vary with the metallurgical characteristics and grade of ore fed to process. Neither reserves nor projections of future operations should be interpreted as assurances of the economic life of mineral deposits or of the profitability of future operations. ENVIRONMENTAL MATTERS General Homestake has made significant capital expenditures to minimize the effects of its operations on the environment. Capital expenditures primarily are for the purchase or development of environmental monitoring equipment and containment of waste. In both 1993 and 1992, these expenditures totaled approximately $2 million. Homestake estimates that during 1994, capital expenditures for such purposes will be approximately $3 million and that during the five years ending December 31, 1998, such capital expenditures will be approximately $10 million. 30 Homestake also incurs significant operating costs in order to comply with regulatory requirements. Operating costs include current reclamation costs, accruals for future reclamation expenditures and air, water and other environmental monitoring costs. Such additional costs totaled approximately $11 million in 1993, compared with approximately $20 million in 1992, not including related depreciation expense of $7 million and $8 million, respectively. Homestake estimates that environmental and related operating and depreciation costs in 1994 will approximate the 1993 amounts. The above amounts exclude expenditures made related to discontinued uranium operations. Under applicable law and the terms of permits under which Homestake operates, Homestake is required to reclaim land disturbed by its operations. Homestake charges reclamation costs incurred in connection with its exploration activities as expenses in the year in which incurred. For mining operations, Homestake makes periodic accruals for costs of reclamation. Most reclamation work takes place after mining and related operations terminate, but Homestake has adopted a policy of conducting reclamation during operations where practical and therefore, an increasing amount of reclamation is being conducted simultaneously with mining. At December 31, 1993 and 1992, Homestake had accrued a total of $36.2 million and $43.9 million, respectively, for future reclamation and related costs. Homestake believes that the cost of compliance with environmental requirements will continue to increase. Such costs have not and will not increase productive capacity, efficiency or revenues. Increased costs cannot be passed on to Homestake's customers. Homestake's operations are conducted under permits issued by regulatory agencies. Many permits require periodic renewal or review of their conditions. Homestake cannot predict whether it will be able to renew such permits or whether material changes in permit conditions will be imposed. RCRA The United State Environmental Protection Agency (EPA), has not yet issued final regulations for management of mining wastes under the Resource Conservation and Recovery Act (RCRA). The ultimate effects and costs of compliance with RCRA cannot be estimated at this time. CERCLA The United States Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), requires EPA to list known or threatened releases of hazardous substances, pollutants or contaminants. In 1983, EPA began publishing the National Priorities List (NPL). The listing of a site does not constitute a determination that any remedial action is required, nor that any person is liable for any remedial action or environmental damage. CERCLA imposes heavy liabilities on any person who is responsible for an actual or threatened release of any hazardous substance, including liability for so-called "oversight costs" incurred by EPA. CERCLA is scheduled for a congressional hearing this year and reauthorization is required by 1995. Whitewood Creek Deposits of gold tailings on lands along an 18-mile stretch of Whitewood Creek in western South Dakota constitute a site on the NPL. EPA asserts that discharges of tailings by mining companies, including Homestake, beginning in the nineteenth century have contaminated the soil and stream bed. 31 In August 1990, Homestake signed a Consent Decree with EPA in United States of America v. Homestake Mining Company of California, (U.S. District Court, W.D., S.D., Civil Action 90- 5101). The consent decree required Homestake to carry out remedial work at Homestake's expense and to reimburse EPA for oversight costs. The decree also provided for the three counties in which the property is located to enact institutional controls which would limit the future use of the properties included within the area of the site. Remedial field work was completed in 1993. Institutional control ordinances prepared with the assistance of the Company have been adopted in all three of the affected counties. The Record of Decision also requires the Company to continue to perform long-term monitoring of the site. Homestake estimates that EPA oversight and monitoring costs through 1995 will be $2 million. Homestake expects to demonstrate by 1995 that the site has been remediated and does not present a risk to the environment or to public health or safety. In connection with the program to implement institutional controls, the Company decided to offer to purchase all properties along Whitewood Creek that were affected by the institutional controls. The Company estimates that the total cost for purchasing all of the affected property would be approximately $3 million. These costs will be expensed if and when incurred. In 1983, the State of South Dakota filed claims against Homestake for natural resources damages resulting from the Whitewood Creek Site. The State has taken no action to pursue the claims. Grants Tailings The tailings at Homestake's closed uranium mill near Grants, New Mexico constitutes a site on the National Priorities List (NPL). EPA asserted that leachate from the tailings contaminated a shallow aquifer used by adjacent residential subdivisions. Homestake paid the cost of extending the municipal water supply to the affected homes. Homestake has operated an injection and collection system that has significantly improved the quality of the aquifer to levels that comply with state ground water standards. The estimated costs of continued compliance are included in the accrued reclamation liability. Homestake has petitioned EPA to remove the Grants Site from the NPL. The petition has been denied by EPA. Homestake has settled with the EPA concerning their oversight cost for this site and no additional oversight costs are accruing. Under a 1987 EPA Administrative Order on Consent, Homestake studied radon levels in houses in the subdivisions near the Grants mill. Based on the study, EPA concluded that the Homestake mill and tailings facilities are not contributing significantly to radon concentrations in the subdivisions. The Nuclear Regulatory Commission and the State of New Mexico have concurred with EPA's decision to take no further action in this regard. Effective March 1990, EPA promulgated National Emissions Standards for radionuclides emissions under Section 112 of the Clean Air Act. The regulations generally require closure and compliance by uranium mill tailings facilities on or before December 1991, or two years after cessation of operations, whichever is later. Homestake closed its Grants uranium processing facility in 1990. The EPA, several environmental groups and a number of mining companies, including the Company, entered into an agreement which provided that the EPA's regulations governing radionuclide emissions from uranium mill tailings disposal sites that are licensed by the Nuclear Regulatory Commission (NRC) would be rescinded and the NRC would regulate radionuclide emissions in connection with its regulation 32 of the decommissioning of the uranium mill tailings facilities. Under NRC regulations, the decommissioning would be effected in accordance with the provisions of the facility's license. An EPA-NRC Memorandum of Understanding sets 1996 and 2001 as target dates for closure of the Company's two tailings impoundments. The Company has proposed to the NRC a closure schedule for inclusion in the facility license which contemplates closure in 1996 and 2001, subject to extension under certain circumstances. The NRC and EPA signed a Memorandum of Understanding in 1993 which has established NRC as the enforcement agency. Reclamation of the Grants large tailings site is scheduled for completion in 1996 and the mill decommissioning will be completed in 1994. Title X of the Energy Policy Act of 1992 provides for reimbursement by the United States Department of Energy for certain costs of reclamation, decommissioning and remedial action for byproduct material (primarily tailings) generated as an incident of uranium sales to the United States. Reimbursement is subject to compliance with regulations now being drafted by the Department of Energy and appropriation by Congress from a fund established under the Energy Policy Act. Congress appropriated $41 million for fiscal year 1994. The Company and the Department of Energy have agreed that approximately 51% of the tailings at Grants were generated as an incident of uranium sales to the United States. Homestake believes that its reclamation reserves for uranium operations and amounts expected to be received under the Energy Policy Act are sufficient to provide for all reclamation costs for the Grants site. In 1983, the State of New Mexico filed claims against Homestake for natural resource damages resulting from the Grants site. The State has taken no action to pursue the claims. Other Uranium The Company (along with a number of other companies and government agencies) has received notice from EPA that it may be a potentially responsible party with respect to the cleanup of the Colorado School of Mines Research Institute (CSMRI) site near Denver, Colorado. The Company sent ore samples, principally uranium ore, to the CSMRI site for testing at various times over a period in excess of 25 years. EPA has conducted certain remedial actions at the CSMRI site at a cost of in excess of $1 million and proposes to conduct additional remediation and disposal activities, the cost of which is not yet determinable. The Company believes that substantially all of the ore material sent to the site was returned to the company and that the Company does not have responsibility for cleanup of the site. To the extent that Company ore samples remained at the site, the Company believes that it is a de minimis contributor and that cleanup of the site is primarily the responsibility of CSMRI and instrumentalities of the State of Colorado. Lead Prior to May 1986, Homestake Lead Company of Missouri (HLCM), a wholly-owned subsidiary of the Company, was a joint venturer and partner with subsidiaries of AMAX, Inc. (AMAX) in the production of lead and lead concentrates in Missouri. In May 1986, HLCM acquired AMAX's interest in the Missouri facilities and operations and agreed to assume certain limited liabilities of AMAX in connection with the Missouri facilities. In November 1986, HLCM entered into a partnership, The Doe Run Company (Doe Run), with subsidiaries of Fluor Corporation (Fluor), under which HLCM and the Fluor subsidiaries combined their existing United States lead businesses. Under the Doe Run partnership agreement, HLCM contributed to Doe Run certain liabilities of HLCM arising out of the lead business, including most obligations HLCM had to AMAX arising in connection with HLCM's acquisition of AMAX's interest in the Missouri facilities. 33 In May 1990, HLCM sold its interest in Doe Run to Fluor under an agreement which provided that Fluor would indemnify HLCM against all liabilities assumed by Doe Run to the extent that Doe Run was unable to discharge those liabilities. In June 1991, HLCM and AMAX were notified of a potential claim by the Jackson County, Mississippi Port Authority for contamination of soil and water alleged to have resulted from storage of lead dross at the Port of Pascagoula prior to the formation of Doe Run; since that time, a number of other lead producers and former lead producers have also been so notified. In July 1991, HLCM tendered the claim to Fluor and Doe Run. They rejected the tender and HLCM filed suit in the Superior Court of Orange County, California for breach of contract and declaratory relief (Superior Court, Dept. 20, No. 673777). Subsequent to the filing of that action, HLCM tendered two additional potential claims arising out of the pre-1986 lead business to Fluor and Doe Run. Doe Run and Fluor rejected both tenders. During the pendency of the action, Fluor and Doe Run joined AMAX in the litigation. AMAX took the position that HLCM was obligated to indemnify AMAX for off-site environmental liability associated with lead dross and smelter byproducts, but not for off-site environmental liability associated with lead metal or lead concentrates. AMAX also took the position that the transfer to Doe Run of obligations owed by HLCM to AMAX arising in connection with HLCM's acquisition of AMAX's interest in the Missouri facilities was not binding on AMAX and did not relieve HLCM of its obligations to AMAX. In settlement of the matter in respect of AMAX, HLCM agreed to indemnify AMAX in respect of future off-site environmental liability arising in respect of lead dross and other smelter byproducts. AMAX has acknowledged that it is responsible for off-site environmental liability associated with lead metal and lead concentrate, and AMAX has acknowledged the effectiveness of HLCM's transfer to Doe Run of obligations HLCM had to AMAX arising in connection with HLCM's acquisition of AMAX's interest in the Missouri facilities. HLCM and Fluor also agreed to dismiss Fluor out of the litigation on the basis of a stipulation by Fluor acknowledging its responsibility with respect to obligations of Doe Run to HLCM should Doe Run be unable to satisfy its obligations. In December 1993, trial was held with respect to HLCM's claims against Doe Run and in January 1994, the court ruled against HLCM and in favor of Doe Run. The State of Mississippi Department of Environmental Quality, under the Mississippi version of CERCLA, is reviewing the Port of Pascagoula site. The Port of Pascagoula is considered the prime PRP (Potentially Responsible Party) at this site. Homestake and other companies are working with the Port of Pascagoula and the State of Mississippi to address the potential lead contamination. The State currently is reviewing analytical data from the site. As a result of subsequent investigations conducted by the Company and others, the Company believes that most of the material at the Pascagoula site, and the material primarily responsible for the contamination, is lead concentrate. Based on review of shipping records to date, less than half of the lead concentrate shipped through the Port of Pascagoula was produced and sold for the account of the Company. During 1992, the Company received a notice from Pintlar Corporation with respect to the Bunker Hill Superfund site, the location of the former Bunker Hill lead smelter in northern Idaho. In that notice, Pintlar identified the Company as a seller of lead concentrate that was processed at the Bunker Hill site and requested that the Company enter into negotiations with Pintlar with respect to a contribution by the Company toward 34 cleanup of the site. The Company sold lead concentrate to the owner/operator of the Bunker Hill smelter, and the Company believes that none of the material processed at the Bunker Hill smelter was processed for the Company. The Company believes that, as a seller of a product that was not a waste material, it has no liability with respect to the Bunker Hill site. Foreign Operations The Nickel Plate mine had been placed on a Pollution Concern List by the Ministry of Environment Lands and Parks due to tailings dam seepage and elevated levels of sulfates and nitrates in run-off water from the waste dumps. During 1993, significant work was undertaken to modify and further improve the tailings dam seepage handling system to limit effluent bypassing the system. Additional reclamation undertaken in 1993 includes the rehabilitation of waste dumps and a small pit that was mined out in 1992. On February 22, 1994 mine was removed from the Pollution Concern List. During 1993, the Eskay Creek project was placed on a Pollution Concern List by the Ministry of Environment, Lands and Parks due to acid drainage from rock storage areas. In early 1993, a lime treatment plant was installed to treat the acidic water and the project was removed from the Pollution Concern List on February 22, 1994. Homestake believes that its foreign operations comply with applicable laws, regulations and permit conditions and has no knowledge of any significant environmental liability or contingent liability resulting from foreign operations. Homestake expects that environmental constraints in foreign countries will become increasingly strict. CUSTOMERS Sales of $175 million, $145 million and $105 million to three customers in 1993 were in excess of 10% of Homestake's consolidated revenues. Homestake believes that the loss of any of these customers would not have a material adverse impact on Homestake because of the active worldwide market for gold. CREDIT FACILITIES See Note 13 to the consolidated financial statements on pages 39 and 40 of the 1993 Annual Report to Shareholders for details of the Company's credit facilities. Such information is hereby incorporated by reference. 35 EMPLOYEES The number of full-time employees at December 31, 1993 of Homestake and its subsidiaries was:
Homestake mine* 1,107 McLaughlin mine 343 El Hueso mine* 202 Eskay Creek project 14 Santa Fe mine 21 Nickel Plate mine 186 Uranium 14 United States exploration 20 Chile exploration and corporate staff 11 Canada exploration and corporate staff 36 HGAL exploration and other 26 United States corporate staff and other 76 ----- Total 2,056
The number of full-time employees at December 31, 1993 in jointly-owned operations in which Homestake participates was:
Williams mine 616 David Bell mine* 236 Kalgoorlie Consolidated Gold Mines Pty Ltd* 1,088 Rayrock managed operations (Marigold, Dee and Pinson mines) 267 Round Mountain mine 535 Snip mine 128 Main Pass 299 146 ------ Total 3,016 * Operations where some of the employees are represented by a labor union.
EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, their ages at December 31, 1993, their business experience and principal occupations during the past five years and their business backgrounds are: Harry M. Conger - Chairman of the Board and Chief Executive Officer since December 1982, age 63. He has been Chief Executive Officer since December 1978 and was President from 1977 to 1986. He is a mining engineer with over 38 years of professional experience. Peter Steen - President and Chief Operating Officer since July 1992, age 63. He was President and Chief Executive Officer of Corona from 1985 to July 1992. He is a mining engineer with 38 years of professional experience. 36 Jack E. Thompson - Executive Vice President, Canada since July 1992, age 43. He has been President of Prime Resources Group Inc. since August 1992. He also was President of North American Metals Corp. from 1988 until 1993. He is a mining engineer with over 23 years of experience in mining and mine management. Gene G. Elam - Vice President, Finance and Chief Financial Officer since September 1990, age 54. Before joining Homestake, he was Senior Vice President, Administrative Services of Pacific Gas and Electric Company from April 1989 through August 1990 and was Vice President and Controller from January 1987 through March 1989. He was President and Chief Executive Officer of The Pacific Lumber Company from 1982 to 1986, President in 1980 and 1981, and Chief Financial Officer from 1972 until 1980. He is a certified public accountant with over 32 years of experience in accounting and finance. Lee A. Graber - Vice President, Corporate Development since 1983, age 45. From 1980 to 1983, he was Manager, Corporate Development and Planning. He has over 22 years of experience in finance and corporate development. Wayne Kirk - Vice President, General Counsel and Secretary since September 1992, age 50. He was a partner in Thelen, Marrin, Johnson & Bridges from 1976 to 1992. He has practiced law for more than 24 years. Gillyeard J. Leathley - Vice President, Canadian Operations since July 1992, age 56. He was Senior Vice President, Operations for Corona for 6 years. He is a mining engineer with over 36 years of experience in mining and mine management. Anthony H. Ransom - Vice President, Exploration since July 1992, age 47. Before joining Homestake, he was Vice President, Exploration for Corona in 1991. Prior to April 1991 he was Director, Western Exploration for Corona and prior to that was President of Pamorex Minerals Inc., a gold mining company. He is a geologist with more than 26 years of professional experience. Allen S. Winters - Vice President, Mine Operations since 1987, age 53. From 1978 to 1987, and since July 1992 he has been Resident General Manager of the Homestake Mine. He is a mining engineer with more than 34 years of experience. Jan P. Berger - Treasurer since August 1992, age 38. He has been with Homestake since 1989, first as senior analyst in the finance group and from 1991 to 1992 was Manager, Internal Audit. Prior to joining Homestake, he was an analyst for Bechtel Financing Services Inc. He is a geologist with over 11 years of experience in exploration and finance. David W. Peat - Controller since September 1992, age 41. Prior to joining Homestake, he was Vice President, Controller for Corona. Prior to 1987 he served as Assistant Corporate Controller for Sherritt Gordon Mines Limited. He is a chartered accountant with over 17 years of accounting and finance experience. No officer is related to any other officer by blood, marriage or adoption. Officers are elected to serve until the next annual meeting of the Board of Directors at which officers are elected or until their successors are chosen. 37 No arrangement or understanding exists between any officer and any other person under which any officer was elected. ITEM 2 - PROPERTIES See Item 1 - Business. ITEM 3 - LEGAL PROCEEDINGS Certain environmental proceedings in which the Company is or may become a party are discussed on pages 30 through 35 under the caption "Environmental Matters". On October 13, 1993, Goldstake Explorations (S.D.) Inc. filed an action in the Federal District Court of Colorado against Homestake Mining Company of California ("Homestake") and its wholly owned subsidiary, Whitewood Development Corporation ("Whitewood"). Goldstake Explorations (S.D.) Inc. v. Homestake Mining Company of California et al., No. 93-M-2149. The complaint alleges that Homestake and Whitewood fraudulently induced Goldstake to enter into a joint venture agreement in 1988 between Goldstake and Whitewood with respect to the mining of mine tailings in Whitewood Creek, near the Company's mine in South Dakota. The complaint alleges that Homestake and Whitewood misrepresented their intent to mine the tailings in order to prevent Goldstake from mining the tailings. The complaint also alleges that Whitewood breached the joint venture agreement and duties owed to Goldstake under the joint venture agreement in various respects, that Homestake induced those breaches, and that Homestake and Whitewood engaged in acts of misrepresentation during the conduct of the joint venture's activities. Goldstake claims unspecified compensatory and punitive damages. In the opinion of the Company, the action is without merit and the Company intends to vigorously defend. This litigation has been stayed and the issues will be arbitrated in South Dakota. The Company and its subsidiaries are defendants in various other legal actions in the ordinary course of business. In the opinion of management, such matters will be resolved without material affect on the Company's financial condition. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS a. The common stock of Homestake Mining Company is registered and traded principally on the New York Stock Exchange under the symbol "HM". It is also listed and traded in Switzerland on the Basel, Geneva and Zurich stock exchanges under the same symbol. b. The number of holders of common stock of record as of March 14, 1994 was 21,830. 38 c. Information about the range of sales prices for the common stock and the frequency and amount of dividends declared during the past two years appears in the tables on page 50 in the Registrant's 1993 Annual Report to Shareholders. The tables setting forth sales prices and dividends are hereby incorporated by reference. Information about certain restrictive covenants under the Company's line of credit appears on page 40 in Note 13 entitled "Long-Term Debt and Gold Loans" in the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders. Such information is hereby incorporated by reference. d. Reference is hereby made to the Note 18 entitled "Shareholders' Equity" on page 44 in the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders. Such information is hereby incorporated by reference. ITEM 6 - SELECTED FINANCIAL DATA A summary of selected consolidated financial data of the Company and subsidiaries for the five-year period ended December 31, 1993 appears on page 49 in the 1993 Annual Report to Shareholders. The summary of selected consolidated financial data is hereby incorporated by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations covering the three-year period ended December 31, 1993 appears on pages 22 through 27 in the 1993 Annual Report to Shareholders and is hereby incorporated by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The 1993 Annual Report to Shareholders includes the Company's consolidated balance sheets as of December 31, 1993 and 1992 and related statements of consolidated operations, consolidated shareholders' equity and consolidated cash flows for each of the three years in the period ended December 31, 1993 and the independent auditors' report thereon, and certain supplementary financial information. The following are hereby incorporated by reference from the 1993 Annual Report to Shareholders at the pages indicated: Consolidated Balance Sheets (pages 28-29) Statements of Consolidated Operations (page 30) Statements of Consolidated Shareholders' Equity (page 31) Statements of Consolidated Cash Flows (page 32) Notes to Consolidated Financial Statements (pages 33-47) Report of Independent Auditors (page 48) Quarterly Selected Data (page 50) 39 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On March 3, 1993, pursuant to the recommendation of the Audit Committee, the Company terminated Deloitte & Touche as independent auditors for the Company and its subsidiaries upon completion of their 1992 audit engagement. Deloitte & Touche's reports on the consolidated financial statements of the Company for 1991 and 1992 did not contain an adverse opinion or a disclaimer of opinion and the reports were not qualified or modified as to uncertainty, audit scope, or accounting principles. During 1991 and 1992 and the interim period through the date of termination there were no disagreements with Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Deloitte & Touche would have caused Deloitte & Touche to make a reference to the subject matter of the disagreement in connection with its report. During 1991 and 1992 and the interim period through the date of termination, there did not occur any kind of event listed in paragraphs (a)(1)(v)(A) through (D) of Regulation S-K, Item 304. Effective March 3, 1993, pursuant to the recommendation of the Audit Committee, the Company engaged Coopers & Lybrand as independent auditors to audit the Company's financial statements for 1993. During 1991 and 1992 and the interim period through the date of termination, neither the Company nor any person acting on behalf of the Company consulted Coopers & Lybrand regarding (i) either: the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Regulation S- K, Item 304 and the related instructions) or a reportable event (as described in paragraph (a)(1)(v) of Regulation S-K, Item 304). PART III ITEMS 10, 11, 12 AND 13 In accordance with General Instruction G(3), Items 10, 11, 12 and 13 (with the exception of certain information pertaining to executive officers, which is included in Part I hereof) have been omitted from this report since a definitive proxy statements is being filed with the Securities and Exchange Commission and furnished to shareholders pursuant to Regulation 14A. The information contained in the proxy statement relating to directors, executive compensation, security ownership and certain relationships is hereby incorporated by reference. 40 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMS 8-K (a) 1. Financial Statements: Refer to Part II, Item 8. 2. Financial Statement Schedules: Schedules for the years ended December 31, 1993, 1992, and 1991 - II Amounts Receivable from Related Parties and Underwriters, Promoters and Employees (other than related parties) V Property, Plant and Equipment VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment IX Short-term Borrowings X Supplementary Income Statement Information Report of Independent Auditors Schedules not listed above are omitted because they are not required or because the required information is included elsewhere in this report. 3. Exhibits 3.1 Restated Certificate of Incorporation of Homestake Mining Company (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-4 filed on June 10, 1992 (the "S-4 Registration Statement")). 3.2 Amendment to Restated Certificate of Incorporation of Homestake Mining Company dated June 3, 1991 (incorporated by reference to Exhibit 3.2 to the S-4 Registration Statement). 3.3 Certificate of Correction of the Restated Certificate of Incorporation of Homestake Mining Company dated February 10, 1992 (incorporated by reference to Exhibit 3.3 to the S-4 Registration Statement). 3.4 Bylaws (as amended) of Homestake Mining Company (incorporated by reference to Exhibit 3.5 to the S-4 Registration Statement). 3.5 Rights Agreement dated October 16, 1987 (incorporated by reference to Exhibit 10 to the Registrant's Report on Form 8-A dated October 16, 1987). 4.1 Indenture dated as of January 23, 1993 between Homestake Mining Company, Issuer and The Chase Manhattan Bank, N.A., Trustee, with respect to US $150,000,000 principal amount of 5 1/2% Convertible Subordinated Notes due January 23, 2000 (incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-K Report dated as of June 23, 1993). 41 4.2 Registrant hereby agrees to furnish to the Commission, upon request, a copy of the instruments which define the rights of the holders of long-term debt of the Company. None of such instruments not included as exhibits herein collectively represents long-term debt in excess of 10% of the consolidated total assets of the Registrant. 10.1 Lease agreement dated June 17, 1988 between the Registrant's wholly-owned subsidiary, Minera Homestake Chile, S.A. and CODELCO-Chile (incorporated by reference to Exhibit 10(f) to the Registrant's Form 10-K for the year ended December 31, 1989). 10.2 Amendment dated September 4, 1991 to the lease agreement dated June 17, 1988 between the Registrant's wholly-owned subsidiary, Minera Homestake Chile, S.A. and CODELCO-Chile (incorporated by reference to Exhibit 10(a) to the Registrant's Form 10-K for the year ended December 31, 1989). 10.3 Agreement dated October 9, 1991 between the Registrant and Chevron Minerals Ltd. (incorporated by reference to Exhibit 10(b) to the Registrant's Form 10-K for the year ended December 31, 1991). 10.4 Guarantee dated December 18, 1991 between the Registrant and Chevron Minerals Ltd. (incorporated by reference to Exhibit 10(c) to the Registrant's Form 10-K for the year ended December 31, 1991). 10.5 Agreement dated May 4, 1990 for the sale of the Registrant's 42.5% partnership interest in The Doe Run Company (incorporated by reference to Exhibit 28(a) to the Registrant's Form 8-K dated May 18, 1990). 10.6 Purchase and sale agreement dated January 15, 1989 between the Registrant's subsidiary Homestake Gold of Australia Limited and North Kalgoorlie Mines Limited (and Group Companies) and Kalgoorlie Lake View Pty. Ltd. (incorporated by reference to Exhibit 10(g) to the Registrant's Form 10-K for the year ended December 31, 1989). 10.7 Joint Operating Agreement dated May 1, 1988 between Freeport-McMoRan Resources Partners, IMC Fertilizer, Inc. and Felmont Oil Corporation (a subsidiary of Registrant) relating to the Main Pass Block 299 sulphur project (incorporated by reference to Exhibit 10.16 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.8 Amendment No. 1 dated July 1, 1993 to Joint Operating Agreement between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc. and Homestake Sulphur Company. 10.9 Amendment No. 2 dated November 30, 1993 to Joint Operating Agreement between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc. and Homestake Sulphur Company. 10.10 Amended and Restated Project Agreement (David Bell Mine) dated as of April 1, 1986 among Teck Corporation, International Corona Resources Ltd. (a subsidiary of International Corona Corporation, now Homestake Canada Inc. and a subsidiary of Registrant), Teck-Hemlo Inc., Corona-Hemlo Inc. (a subsidiary of International Corona Corporation, now Homestake Canada Inc. and a subsidiary of Registrant)(incorporated by reference to Exhibit 10.17 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.11 Amended and Restated Operating Agreement (David Bell Mine) among Teck Corporation, International Corona Resources Ltd. (a subsidiary of International Corona Corporation, now Homestake Canada Inc. and a subsidiary of Registrant), Teck Mining Group Limited, Teck-Corona Operating Corporation, Teck-Hemlo Inc. and Corona-Hemlo Inc. (a subsidiary of International Corona Corporation, now renamed Homestake Canada Inc. and a subsidiary of Registrant)(incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-K for the year ended December 31, 1992). 42 10.12 Project Agreement (Williams Mine) dated August 11, 1989 among Teck Corporation, Corona Corporation (now Homestake Canada Inc. and a subsidiary of Registrant) and Williams Operating Corporation (incorporated by reference to Exhibit 10.19 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.13 Operating Agreement (Williams Mine) dated August 11, 1989 among Teck Corporation, Corona Corporation (now Homestake Canada Inc. and a subsidiary of Registrant), Teck Mining Group Limited and Williams Operating Corporation (incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.14 Shareholders' Agreement dated August 11, 1989 among Corona Corporation (now Homestake Canada Inc. and a subsidiary of Registrant), Teck Corporation and Williams Operating Corporation (incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.15 Agreement dated January 25, 1983 between Noranda Exploration Company Limited, Teck Corporation and International Corona Resources Limited (a subsidiary of International Corona Corporation, now Homestake Canada Inc. and a subsidiary of Registrant), relating to development of the Quarter Claim mine (incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-K for the year ended December 31, 1992). * 10.16 1986 Deferred Income Plan of Homestake Mining Company (incorporated by reference to Exhibit 10(a) to the Registrant's Form 10-K for the year ended December 31, 1990). * 10.17 First Amendment to the 1986 Deferred Income Plan of Homestake Mining Company (incorporated by reference to Exhibit 10(b) to the Registrant's Form 10-K for the year ended December 31, 1990). * 10.18 Agreement dated July 16, 1982, as amended November 3, 1987 and February 23, 1990, between the Registrant and H. M. Conger (incorporated by reference to Exhibit 10(a) to the Registrant's Form 10-K for the year ended December 31, 1989). * 10.19 Description of Change of Control Severance Plan applicable to certain officers of Registrant (incorporated by reference to Exhibit 10.27 to the Registrant's Form 10-K for the year ended December 31, 1992). * 10.20 Executive Supplemental Retirement Plan of Homestake Mining Company, amended and restated effective January 1, 1990 (incorporated by reference to Exhibit 10(d) to the Registrant's Form 10-K for the year ended December 31,989). * 10.21 Supplemental Retirement Plan of Homestake Mining Company, amended and restated effective as of January 1, 1990 (incorporated by reference to Exhibit 10(e) to the Registrant's Form 10-K for the year ended December 31, 1989). * 10.22 Share Incentive Plan effective July 1, 1988 of International Corona Corporation (now Homestake Canada Inc. and subsidiary of Registrant), as amended October 22, 1991 (incorporated by reference to Exhibit 10.32 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.23 Shareholder Agreement dated January 1, 1989 among Homestake Mining Company, Case, Pomeroy & Company, Inc. and Hadley Case (incorporated by reference to Exhibit 10(a) to the Registrant's Form 10-K for the year ended December 31, 1988). 10.24 Amendment dated March 27, 1992 to Shareholder Agreement dated January 1, 1989 among Homestake Mining Company, Case, Pomeroy & Company, Inc., and Hadley Case (incorporated by reference to Exhibit 10.14 to the S-4 Registration Statement). * 10.25 Consulting agreement dated September 1, 1984 between Hadley Case and Homestake Sulphur Company, a wholly-owned subsidiary of Registrant (incorporated by reference to Exhibit 10.35 to the Registrant's Form 10-K for the year ended December 31, 1992). 43 * 10.26 Consulting Agreement dated July 24, 1992, between Stuart T. Peeler and the Registrant (incorporated by reference to Exhibit 10.36 to the Registrant's Form 10-K for the year ended December 31, 1992). * 10.27 Consulting agreement dated March 1, 1993 between William A. Humphrey and the Registrant. * 10.28 Employees Non-Qualified Stock Option Plan--1978 (incorporated by reference to Exhibit 10(a) to the Registrant's Form 10-K for the year ended December 31, 1984, Commission File Number 1-1235 and to Post Effective Amendment No. 3 to the Registrant's Registration Statement on Form S-8 dated March 11, 1988). * 10.29 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 10(b) to the Registrant's Form 10-K for the year ended December 31, 1984, Commission File Number 1-1235 and to Post Effective Amendment No. 3 to the Registrant's Registration Statement on Form S-8 dated March 11, 1988). * 10.30 Long Term Incentive Plan of 1983 of Homestake Mining Company (incorporated by reference to Exhibit 10(g) to the Registrant's Registration Statement on Form S- 14 dated May 16, 1984). * 10.31 Employees' Stock Option and Share Rights Plan--1988 (incorporated by reference to Exhibit 10(n) to the Registrant's Form 10-K for the year ended December 31, 1987). 10.32 Credit Agreement dated as of August 24, 1993 among the Registrant, Homestake Mining Company of California and Homestake Canada Inc., the Bank of Nova Scotia and Canadian Imperial Bank of Commerce as Managing Agents, and Canadian Imperial Bank of Commerce, as Administrative Agent (incorporated by reference to Exhibit 10.41 to the Registrant's Form 10-Q for the quarter ended September 30, 1993). 11 Computation of Earnings Per Share. 13 1993 Annual Report to Shareholders. 22 Subsidiaries of the Registrant. 24 Consent of Coopers & Lybrand, Independent Auditors. * Compensatory plan or management contract. (b) Reports Filed on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1993. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOMESTAKE MINING COMPANY Date March 24, 1994 By /s/ H. M. Conger -------------------- H. M. Conger Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity Date /s/G. G. Elam Vice President, Finance March 24, 1994 -------------- and Chief Financial Officer G. G. Elam (Principal Financial Officer) /s/D. W. Peat Controller (Principal March 24, 1994 ------------ Accounting Officer D. W. Peat
(Signatures continued on following page.) 45
Signature Capacity Date /s/ Harry M. Conger Chairman of the Board, ------------------------ Chief Executive Officer Harry M. Conger and Director March 24, 1994 /s/ M. Norman Anderson Director March 24, 1994 ------------------------ M. Norman Anderson /s/ Hadley Case Director March 24, 1994 ------------------------ Hadley Case /s/ Robert H. Clark, Jr. Director March 24, 1994 ------------------------ Robert H. Clark, Jr. /s/ G. Robert Durham Director March 24, 1994 ------------------------ G. Robert Durham /s/ Douglas W. Fuerstenau Director March 24, 1994 ------------------------ Douglas W. Fuerstenau /s/ Henry G. Grundstedt Director March 24, 1994 ------------------------ Henry G. Grundstedt /s/ William A. Humphrey Director March 24, 1994 ------------------------ William A. Humphrey /s/ Robert K. Jaedicke Director March 24, 1994 ------------------------ Robert K. Jaedicke /s/ John Neerhout, Jr. Director March 24, 1994 ------------------------ John Neerhout, Jr. /s/ Stuart T. Peeler Director March 24, 1994 ------------------------ Stuart T. Peeler /s/ Glen L. Ryland Director March 24, 1994 ------------------------ Glen L. Ryland /s/ Berne A. Schepman Director March 24, 1994 ------------------------ Berne A. Schepman /s/ Peter Steen President, Chief Operating ------------------------ Officer and Director March 24, 1994 Peter Steen
46 HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES (OTHER THAN RELATED PARTIES) FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
------------------------------------------------------------------ COLUMN A COLUMN B COLUMN C COLUMN D BALANCE AT ADDITIONS DEDUCTIONS BEGINNING (INCLUDING AMOUNTS NAME OF DEBTOR OF PERIOD<7> INTEREST) COLLECTED ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1993 P. Steen<1> $1,507 $(1,506) G. Leathley<2> 110 (106) D. Peat<2> 6 (6) YEAR ENDED DECEMBER 31, 1992 P. Steen<1> $1,919 $(251) G. Leathley<2> 138 (17) D. Peat<2> 82 $221 (294) YEAR ENDED DECEMBER 31, 1991 P. Steen<1> $1,882 $36 $(6) G. Leathley<2> 226 (89) D. Peat<2> 86 (4) A. Winters<3> 112 1 (113) R. Hinkel<3> 107 7 (21) D. Fagin<4> 382 (259) P. Carroll<5> 1,610 55 N. Goodman<5> 1,918 T. Hoare<5> 735 38 A. Walsh<5,6> 120 (39) ------------------------------------------------------------------ COLUMN E FOREIGN BALANCE AT END CURRENCY OF PERIOD TRANSLATION --------------------- ADJUSTMENTS CURRENT NOT CURRENT ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1993 P. Steen<1> $ (1) - - G. Leathley<2> (4) - - D. Peat<2> - - YEAR ENDED DECEMBER 31, 1992 P. Steen<1> $(161) $11 $1,496 G. Leathley<2> (11) 16 94 D. Peat<2> (3) 6 - YEAR ENDED DECEMBER 31, 1991 P. Steen<1> $7 $11 $1,908 G. Leathley<2> 1 17 121 D. Peat<2> 4 78 A. Winters<3> - - R. Hinkel<3> 17 76 D. Fagin<4> - 123 P. Carroll<5> 6 - 1,671 N. Goodman<5> 8 - 1,926 T. Hoare<5> 3 - 776 A. Walsh<5,6> 1 3 79 HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES (OTHER THAN RELATED PARTIES) FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 <1> Prior to the Company's acquisition of control of Corona, Corona loaned C$330 thousand (US$284 thousand) to Peter Steen for the purpose of purchasing a house in connection with his relocation. The loan was non-interest bearing and was secured by a mortgage on his residence. The maximum principal amount outstanding during 1993 was C$41 thousand (US$32 thousand), and the loan was repaid in full in 1993. Also prior to the Company's acquisition of control of Corona, Corona loaned Mr. Steen C$1,865 thousand (US$1,604 thousand) for use in purchasing Corona common shares, which amount accrued interest in the total amount of C$29 thousand (US$25 thousand) until January 1, 1991, after which it was non-interest bearing. The loan was secured by a pledge of shares of Corona. (Following the Company's acquisition of Corona, the Homestake shares replaced the Corona shares pledged as security.) The loan was repaid in full in 1993. <2> Prior to the Company's acquisition of control of Corona, Corona made employee relocation loans to Gillyeard J. Leathley (now a Vice President of the Company) and David W. Peat (now Controller of the Company) in the amounts of C$200 thousand (US$172 thousand) and C$100 thousand (US$86 thousand), respectively, for the purpose of purchasing a home. The loans were non-interest bearing and were secured by mortgages on their homes. The loan to Mr. Peat was repaid in full in 1992 and the loan to Mr. Leathley was repaid in full in 1993. Also, in 1992 the Company made an employee relocation loan to Mr. Peat for the purpose of purchasing a house. The loan was secured by a mortgage on his residence. The majority of the loan was repaid in 1992 and the balance was repaid in early 1993. <3> Represents notes receivable, including accrued interest, in connection with the exercise of options to purchase Homestake common stock. Such notes are secured by a pledge of the shares of common stock purchased and bear interest at the rate from time to time specified by the IRS as necessary to avoid imputation of interest income. Interest and 10% of original principal balance are due annually on each of the first four anniversary dates of the notes with a final payment of the balance on the fifth anniversary date. <4> Represents promissory note dated 5/2/91 from former officer of the Company (officer through June 30, 1991). Interest at 7.69% is payable quarterly and certain principal payments are due ten business days following the exercise of stock options and as otherwise described in the note. <5> Represents primarily notes receivable from former directors and officers of Corona for loans made for the purchase of shares of Corona. The loans are secured by a pledge of shares of Corona. (Following the Company's acquisition of Corona, the Homestake shares have replaced the Corona shares pledged as security.) The loans have been non-interest bearing since January 1, 1991 and are required to be repaid the later of 1995 or when the pledged securities are equal in value to the loans. <6> Includes employee relocation loan made by Corona in 1990 to former officer of Corona. The loan is secured by a mortgage on the borrower's residences, is non-interest bearing and is repayable semi-monthly over 25 years. <7> Balance at the beginning of each year excludes amounts receivable from those persons who no longer are related parties.
HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
-------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D RETIRE- BEGINNING ADDITIONS MENTS OR DESCRIPTION OF YEAR AT COST SALES -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993 Mining properties and mine development costs $ 670,899 $27,317 $ (9,886) Plant and equipment 842,858 14,521 (15,034) Land and royalty interests 4,028 (73) Construction and mine development in progress 14,055 15,987 ---------- -------- -------- $1,531,840 $57,825 $(24,993) ========== ======== ======== YEAR ENDED DECEMBER 31, 1992 Mining properties and mine development costs $ 537,387 $ 19,602 $(28,606) Plant and equipment 765,993 21,183 (21,066) Land and royalty interests 3,934 249 Construction and mine development in progress 105,702 22,419 ---------- -------- --------- $1,413,016 $ 63,453 $(49,672) ========== ======== ========= YEAR ENDED DECEMBER 31, 1991 Mining properties and mine development costs $ 566,941 $ 24,210 $(27,073) Plant and equipment 710,180 24,668 (12,777) Land and royalty interests 7,885 46 (178) Construction and mine development in progress 53,845 117,534 ---------- -------- -------- $1,338,851 $166,458 $(40,028) ========== ======== ======== -------------------------------------------------------- COLUMN A COLUMN E COLUMN F OTHER CHANGES ADD END OF DESCRIPTION (DEDUCT)<1> YEAR -------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993 Mining properties and mine development costs $ 6,555 $ 694,885 Plant and equipment (5,398) 836,947 Land and royalty interests 3,955 Construction and mine development in progress (25,611) 4,431 --------- ---------- $(24,454) $1,540,218 ========= ========== YEAR ENDED DECEMBER 31, 1992 Mining properties and mine development costs $142,516<2>$ 670,899 Plant and equipment 76,748<2> 842,858 Land and royalty interests (155) 4,028 Construction and mine development in progress (114,066) 14,055 -------- ---------- $105,043 $1,531,840 ======== ========== YEAR ENDED DECEMBER 31, 1991 Mining properties and mine development costs $(26,691)<3>$ 537,387 Plant and equipment 43,922 <3> 765,993 Land and royalty interests (3,819) 3,934 Construction and mine development in progress (65,677) 105,702 -------- ---------- $(52,265) $1,413,016 ======== ========== (1) Primarily reclassifications to other accounts, and the effect of exchange rate changes on property held by foreign subsidiaries, except as noted. (2) Includes additions totaling $194.8 million for the consolidation of Prime and Stikine and deductions totaling $43.8 million for write-downs of mining property, plant and equipment. (3) Includes deductions totaling $56.9 million for write-downs of mining and exploration property, plant and equipment.
HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
-------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D ADDITIONS CHARGED TO RETIRE- BEGINNING COSTS AND MENTS OR DESCRIPTION OF YEAR EXPENSES SALES -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993 Mining properties and mine development costs $255,383 $ 40,022 $(10,300) Plant and equipment 364,869 63,355 (12,653) --------- -------- ---------- $620,252 $103,377 $(22,953) ========= ======== ========== YEAR ENDED DECEMBER 31, 1992 Mining properties and mine development costs $239,302 $ 49,738 $(27,732) Plant and equipment 328,805 67,745 (20,389) --------- -------- ---------- $568,107 $117,483 $(48,121) ========= ======== ========== YEAR ENDED DECEMBER 31, 1991 Mining properties and mine development costs $205,966 $ 54,718 $(21,395) Plant and equipment 275,657 62,275 (10,130) --------- -------- ---------- $481,623 $116,993 $(31,525) ========= ======== ========== --------------------------------------------------------- COLUMN A COLUMN E COLUMN F OTHER CHANGES ADD END OF DESCRIPTION (DEDUCT)<1> YEAR --------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993 Mining properties and mine development costs $ 10,207 <2>$295,312 Plant and equipment (893) 414,678 -------- -------- $ 9,314 $709,990 ======== ======== YEAR ENDED DECEMBER 31, 1992 Mining properties and mine development costs $ (5,925) $255,383 Plant and equipment (11,292) 364,869 -------- -------- $(17,217) $620,252 ======== ======== YEAR ENDED DECEMBER 31, 1991 Mining properties and mine development costs $ 13 $239,302 Plant and equipment 1,003 328,805 -------- -------- $ 1,016 $568,107 ======== ======== <1> Primarily reclassifications and the effect of exchange rate changes on property held by foreign subsidiaries, except as noted. <2> Includes additional costs of $16.0 million for the write-down of the oil and gas property at Main Pass 299. See significant accounting policies (page 33) in the 1993 Annual Report to Shareholders for methods used in computing depreciation, depletion and amortization.
HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (In Thousands)
-------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D MAXIMUM AMOUNT WEIGHTED AVG OUTSTANDING BALANCE AT INTEREST RATE DURING THE DESCRIPTION END OF YEAR END OF YEAR PERIOD -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Not applicable YEAR ENDED DECEMBER 31, 1992: Bank borrowings: - non-revolving term loan None Not applicable $50,000 YEAR ENDED DECEMBER 31, 1991: Not applicable -------------------------------------------------------------------- COLUMN A COLUMN E COLUMN F AVG AMOUNT WEIGHTED AVG OUTSTANDING INTEREST RATE DURING THE DURING THE DESCRIPTION PERIOD<1> PERIOD<2> -------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Not applicable YEAR ENDED DECEMBER 31, 1992: Bank borrowings: - non-revolving term loan $29,167 4.3% YEAR ENDED DECEMBER 31, 1991: Not applicable The Company has two lines of credit providing a total availability of $155.7 million. No funds have been borrowed under these agreements. <1> Computed based on month-end balances divided by twelve. <2> Computed based on average interest rate in effect during the period that borrowings were outstanding.
HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (In Thousands)
--------------------------------------------------------------------- COLUMN A COLUMN B CHARGED TO COSTS AND EXPENSES _____________________________________________________________________ ITEM 1993 1992 1991 _____________________________________________________________________ MAINTENANCE AND REPAIRS <1> $ 71,229 $81,258 $78,136 ======== ======= ======= TAXES, OTHER THAN PAYROLL AND INCOME TAXES: Property $ 5,752 $ 7,214 $ 9,856 Severance/Production 4,486 3,310 2,489 Other 4,357 6,196 5,653 -------- ------- ------- $14,595 $16,720 $17,998 ======== ======= ======= ROYALTY EXPENSE $7,236 $8,747 $9,850 ======== ======= ======= <1> Maintenance and repairs include labor, materials, and other expenses incurred for those purposes, as well as minor renewals and betterments; major renewals and betterments are added to property, plant and equipment.
REPORT OF INDEPENDENT ACCOUNTANTS The Shareholders and Board of Directors Homestake Mining Company We have audited the consolidated financial statements of Homestake Mining Company and subsidiaries as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, which financial statements are included on pages 28 through 47 of the 1993 Annual Report to Shareholders of Homestake Mining Company and incorporated by reference herein. We have also audited the financial statements schedules listed in Item 14(a)(2) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Homestake Mining Company and subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 16 to such consolidated financial statements, in 1991, the Company changed its method of accounting for post-retirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand San Francisco, California February 14, 1994 EXHIBIT INDEX
METHOD OF EXHIBIT FILING - ------- ------------ 10.8 Amendment No. 1 dated July 1, 1993 to Joint Operating Agreement between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc. and Homestake Sulphur Company.......................... Filed herewith electronically 10.9 Amendment No. 2 dated November 30, 1993 to Joint Operating Agreement between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc. and Homestake Sulphur Company................. Filed herewith electronically 10.27 Consulting Agreement dated March 1, 1993 between William A. Humphrey and the Registrant........................................ Filed herewith electronically 11 Computation of Earnings Per Share................. Filed herewith electronically 13 1993 Annual Report to Shareholders................ Filed herewith electronically 22 Subsidiaries of Registrant........................ Filed herewith electronically 24 Consent of Coopers & Lybrand, Independent Auditors.......................................... Filed herewith electronically
EX-10.8 2 EXHIBIT 10.8 Exhibit 10.8 AMENDMENT NO. 1 TO JOINT OPERATING AGREEMENT THIS AMENDMENT NO. 1 TO JOINT OPERATING AGREEMENT ("Amendment"), dated as of July 1, 1993, is entered into between FREEPORT McMORAN RESOURCE PARTNERS, Limited Partnership, a Delaware limited partnership ("Freeport"), IMC FERTILIZER, INC., a Delaware corporation ("IMC") and HOMESTAKE SULPHUR COMPANY, a Delaware corporation ("Homestake"). Capitalized terms used herein without definition shall have the meanings given them in the Joint Operating Agreement (as defined below). W I T N E S S E T H: WHEREAS: A. Freeport, IMC and Homestake (by assignment from Felmont Oil Corporation) are parties to that certain Joint Operating Agreement dated as of May 1, 1988, as amended ("Joint Operating Agreement"). B. Freeport, IMC and Homestake desire to amend certain provisions of Attachment 3 to the Joint Operating Agreement as set forth herein. NOW, THEREFORE, Freeport, IMC and Homestake hereby agree as follows: 1. Amendment of Joint Operating Agreement. 1.1 Definitions. Article I of Attachment 3 to the Joint Operating Agreement is hereby amended by adding thereto the following defined terms: "CTI" shall mean Crescent Technology, Inc. "FSCO" shall mean the Freeport Sulphur Company Division of Freeport. "FM" shall mean Freeport McMoRan, Inc. "Production Ratio" shall mean for any accounting period the ratio of total sulphur production from Joint Operations for that period to the sum of total sulphur production from Joint Operations plus total sulphur production from all other mines operated by FSCO for that period. "Sulphur Local G&A" shall mean personnel and related costs of the President's Staff of FSCO, the Commercial Marketing, Mine Planning and Purchasing Departments of FSCO, and any other departments that FSCO may maintain from time to time that provide local G&A services consistent with those provided as of June 30, 1993, including cash compensation, benefits, payroll overhead, office rent, office supplies, communications and other department costs, but excluding costs associated with the Commercial Marketing Department and Recovered Sulphur Purchasing activities of FSCO, costs associated with the FSCO Purchasing Department's activities related to P.T. Freeport Indonesia's copper and gold operations, and costs relating to any other non-sulphur activities of FSCO departments. "Adjustment Period" shall mean the period from July 1, 1996 to June 30, 1999, and each consecutive three-year period thereafter. "GNP Deflator Index" shall mean the GNP Deflator Index (final) as published by the U.S. Department of Commerce. "Corporate G & A Charge" shall mean (i) for 1993 and 1994 $12,736,000 and (ii) for each calendar year after 1994 the sum of (x) the Corporate G&A Charge for the immediately preceding calendar year plus (y) the product of the Corporate G & A Charge for the immediately preceding calendar year multiplied by the percentage change in the GNP Deflator Index from the immediately preceding calendar year (in every case subject to adjustment as necessary to reasonably reflect any increase in FTX Corporate Personnel and FTX Service Costs that result from increases in government mandated taxes and charges imposed on employers to cover employee and retiree health care costs and subject to Section 5(B) of this Attachment 3). 1.2 Amendment to Article IV of Attachment 3. Article IV of Attachment 3 to the Joint Operating Agreement is amended to read in its entirety as follows: IV. INDIRECT CHARGES 1. Sulphur Local G&A. Sulphur Local G&A will be charged to the Joint Operations at actual cost allocated to the Joint Operations on the basis of the Production Ratio. -2- 2. Other Costs. The following will be charged to Joint Operations at actual cost allocated to the Joint Operations on the basis of the Production Ratio: (i) CTI charges to FSCO for contract engineering, environmental, safety and analytical services and FSCO's allocation of costs incurred by FM on CTI's behalf under the Services Agreement dated February 1, 1993 between FM and CTI, including facilities costs, MIS contract costs and other costs as provided therein; and (ii) FM Hydrocarbon costs allocated to FSCO for securing and administering supplies of natural gas to the Joint Operations. 3. Aircraft. Fully loaded costs of aircraft (except "Mallard") owned by or chartered to FM will be charged to the Joint Operations on the basis of actual usage by FSCO allocated to the Joint Operations on the basis of the Production Ratio. Fully loaded costs of the "Mallard" (or other aircraft dedicated exclusively to mine operations) will be allocated to the Joint Operations on the basis of the Production Ratio (excluding, however, from the calculation of the Production Ratio in determining such allocation any sulphur production from mines not serviced by the Mallard or such other aircraft). "Fully loaded costs" include all costs of ownership and operation of aircraft including hangering, maintenance and depreciation. 4. Outside Legal. Outside legal costs directly related to FSCO sulphur business will be allocated to the Joint Operations on the basis of the Production Ratio, excluding any such costs that are directly related to another mine operated by FSCO. Outside legal costs directly related to the Joint Operations will be charged 100% to the Joint Operations. 5. Corporate G&A. (A) FM corporate general and administrative services included in the categories FTX Corporate Personnel Costs, Facilities' Management/Internal Security Costs, FTX Service Costs and FTX General Corporate Costs as set out in Annex 1 hereto for each year during the term of this Agreement will be covered by an annual fee calculated by multiplying the Corporate G & A Charge for that year by the Production Ratio for that year. (B) If the Operator or any Non-Operator believes that the Corporate G&A Charge then in effect no longer reasonably reflects the actual costs experienced by FM in the categories set out in paragraph 5(A) above and Annex 1 hereto that comprise the Corporate G&A Charge, that Party may so notify the other Parties (which notice shall be in writing) not earlier than 90 days or later than 30 days prior to the commencement of an Adjustment Period and -3- request an adjustment to the Corporate G&A Charge for the ensuing Adjustment Period. In the event such notice is given the Parties shall have until the commencement of the ensuing Adjustment Period to agree upon the amount of Corporate G & A Charge for such Adjustment Period. If the Parties are unable to agree upon the amount of the Corporate G&A Charge for the ensuing Adjustment Period before the commencement of such Adjustment Period the Corporate G & A Charge shall be determined through a proceeding for resolution of dispute submitted to Endispute Incorporated ("Endispute") in San Francisco, California. The Non-Operators participating in such proceeding, whether one or more, shall act as a single party. Not later than 60 days after commencement of the applicable Adjustment Period, Operator, on the one hand, and Non-Operator(s), on the other, each shall submit to Endispute the amount it proposes as the Corporate G&A Charge for the Adjustment Period. Endispute, after conducting such investigation and review as it deems appropriate shall adopt the amount proposed by Operator or the amount proposed by Non-Operator(s), but not any other amount. The decision of Endispute shall be final and binding on the Parties and shall establish the Corporate G&A Charge for the entire Adjustment Period, including retroactively for any portion of the Adjustment Period that precedes the decision. The prevailing side in such proceeding shall be entitled to recover its reasonable attorney's fees and expenses from the other side. If at the time such proceeding is to commence, Endispute is not in the business of resolving disputes in San Francisco, California any Party may ask the Chief Judge of the United States Court of Appeals for the Ninth Circuit to select a similar firm located in San Francisco, California. (C) Section 5(B) above notwithstanding, the Parties agree that no adjustment will be made pursuant to Section 5(B) with respect to any increase in the following Corporate G&A Charge categories at any time: Shareholder Reports and Meetings - $234,000; Transfer Fees - $97,000; Advertising - $308,000; Golf Tournament - $385,000; and External Facilities - $138,000. 6. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall become effective as of the date first above written when each of the Parties has delivered to the others duly executed counterparts hereof. 7. Absence of Waiver. The Parties agree that the amendments set forth in Section 1 hereof shall be limited precisely as written and shall not be deemed to: (a) be a consent to any waiver or modification of any other term or condition of the Joint Operating Agreement; -4- (b) be a consent to, or waiver of, any default under the Joint Operating Agreement; (c) impose upon any Party any obligation, express or implied, to consent to any further amendment or modification of the Joint Operating Agreement; or (d) prejudice any right or remedy which any Party may now have under the Joint Operating Agreement or may have in the future under or in connection with the Joint Operating Agreement including, without limitation, any right or remedy resulting from any default. 8. Representations. Each Party hereby represents and warrants to the other Parties that: (a) It is a corporation (or in the case of Freeport a limited partnership) duly organized and validly existing under the laws of the State of Delaware; (b) The execution, delivery and performance of this Amendment by it are within its corporate (or in the case of Freeport partnership) powers, have been duly authorized by all necessary corporate (or in the case of Freeport partnership) action, have received all necessary consents and approvals (if any shall be required), and do not and will not contravene or conflict with any provision of law or of its charter or bylaws, or of any agreement binding upon it or its property; and (c) This Amendment is its legal, valid and binding obligation, enforceable against it in accordance with this Amendment's terms. 9. Miscellaneous (a) Section headings used in this Amendment are for convenience of reference only and shall not affect the construction of this Agreement. (b) This Amendment may be executed in any number of counterparts and by the different Parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constituted but one and the same agreement. (c) This Amendment is a contract made under and governed by the laws of the State of Louisiana, without giving effect to principles of conflicts of laws. (d) All obligations and rights of the Parties that are expressed herein, shall be in addition to and not in limitation of those provided by applicable law. -5- (e) Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law; but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. (f) This Amendment shall be binding upon each of the Parties and their respective successors and assigns, and shall inure to the benefit of their respective successors and assigns. IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be executed as of the date first above written. FREEPORT-McMORAN RESOURCE PARTNERS, Limited Partnership By: Title: IMC FERTILIZER, INC. By: Title: HOMESTAKE SULPHUR COMPANY By: Title: -6- EX-10.9 3 EXHIBIT 10.9 Exhibit 10.9 AMENDMENT NO. 2 TO JOINT OPERATING AGREEMENT THIS AMENDMENT NO. 2 TO JOINT OPERATING AGREEMENT ("Amendment"), dated as of November 30, 1993, is entered into between FREEPORT McMORAN RESOURCE PARTNERS, Limited Partnership, a Delaware limited partnership ("Freeport"), IMC FERTILIZER, INC., a Delaware corporation ("IMC") and HOMESTAKE SULPHUR COMPANY, a Delaware corporation ("Homestake"). Capitalized terms used herein without definition shall have the meanings given them in the Joint Operating Agreement (as defined below). W I T N E S S E T H: WHEREAS: A. Freeport, IMC and Homestake (by assignment from Felmont Oil Corporation) are parties to that certain Joint Operating Agreement dated as of May 1, 1988 ("Joint Operating Agreement"). B. Freeport, IMC and Homestake desire to amend certain provisions of the Joint Operating Agreement as set forth herein. NOW, THEREFORE, Freeport, IMC and Homestake hereby agree as follows: 1. Amendment of Joint Operating Agreement. 1.1 Definitions. Article I of the Joint Operating Agreement is hereby amended by adding thereto the following defined terms: 1.38 "Closure Cost" shall mean the total cost of abandonment and reclamation of the Property and the Joint Assets, including costs required by government or other legal authority. 1.39 "Closure Cost Estimate" shall mean the estimate of the Closure Cost as updated from time to time pursuant to Section 20.03 hereof. 1.40 "Closure Cost Share" shall mean, with respect to any Party at any time, an amount of money equal to the product obtained by multiplying (i) the Closure Cost Estimate at such time, by (ii) a percentage equal to the percentage constituting such Party's Participating Interest at such time. 1.41 "Net Cash Flow" shall mean net cash flow from continuing operations determined in accordance with generally accepted accounting principles except that net cash flow to a Party, or its Affiliate, as applicable, which is from any entity partially owned by such Party or Affiliate and accounted for under the equity method, shall be included only to the extent of net cash distributions received. 1.42 "Financial Assurance" shall mean, with respect to any Party, any one of the following: (a) A representation by such Party to the other Parties certified by such Party's chief financial officer, that such Party's Net Cash Flow, during the period comprising the four fiscal quarters immediately preceding the quarter in which the notice was given, was an amount in excess of the amount obtained by multiplying by 2 such Party's Closure Cost Share as of the end of such period; or (b) A written commitment by an Affiliate of such Party, made to the other Parties, to guarantee such Party's payment of its Closure Cost Share, provided such Affiliate's chief financial officer can certify that the Affiliate's Net Cash Flow, during the period comprising the four fiscal quarters immediately preceding the quarter in which the notice was given, was an amount in excess of the amount obtained by multiplying by 2 such Party's Closure Cost Share as of the end of such period; or (c) A performance bond or letter of credit issued by a Non- Party in an amount equal to such Party's Closure Cost Share as of the time of issuance of such bond or letter, provided the issuing Non-Party and the terms of draw-down are acceptable to each of the other Parties; or (d) Such other form of assurance as shall be agreed to by all Parties. 1.43 "Funding Party" shall have the meaning prescribed for such term in Section 20.03 hereof. 1.44 "Previously Non-Funding Party" shall have the meaning prescribed for such term in Section 20.03 hereof. 1.45 "Interim Closure Fund" shall mean, with respect to any Funding Party, an account funded by that Funding Party and maintained by Operator prior to January 1, 2006 to fund that Funding Party's Closure Cost Share. -2- 1.46 "Closure Fund" shall mean, with respect to any Party, an account funded by that Party and maintained by Operator on and after January 1, 2006 to fund that Party's Closure Cost Share. 1.47 "Initial Funding Date" shall have the meaning prescribed for such term in Section 20.03 hereof. 1.48 "Remaining Tonnage" shall mean, with respect to any Funding Party, the number of tons obtained by multiplying (i) Operator's estimate of the commercially producible tonnage of sulphur reserves remaining to be produced from the Mine on the Property as of the Initial Funding Date, by (ii) the percentage equal to the percentage constituting the Participating Interest of the Funding Party as of such time. 1.2 Amendment to Section 20.03 of the Joint Operating Agreement. Section 20.03 of the Joint Operating Agreement is amended to read in its entirety as follows: 20.03 Reclamation and Abandonment Security. On or before February 1, 1994, Operator shall submit to Non-Operators a Closure Cost Estimate dated as of such date. On or before each subsequent February 1 during the term o f this Agreement: (i) Operator shall deliver to Non- Operators written notice stating whether Operator has become aware of any changed circumstance that would significantly effect the then current Closure Cost Estimate and describing any such circumstance, and (ii) if on or before the immediately preceding December 1 Operator has become aware of any changed circumstance that would significantly effect the then current Closure Cost Estimate or any one or more of the Non-Operators requests in writing an updated Closure Cost Estimate, Operator shall submit to Non-Operators an updated Closure Cost Estimate dated as of that February 1. As described in more detail hereinafter in this Section 20.03, the Closure Cost Estimate shall serve as the basis upon which the Parties shall provide funds to be applied against each Party's Closure Cost Share. If at any time prior to January 1, 2006 a Party should require assurance as to the ability of each Party to pay its Closure Cost Share, the Party requiring such assurance shall so notify the other Parties. Within 30 days after the date upon which such notice was transmitted to the Parties, each Party (including the Party giving the notice) shall provide Financial Assurance to the other Parties. If prior to January 1, 2006 a Party fails to provide requested Financial Assurance as required above,then Operator shall promptly establish for such Party (a "Funding Party") an Interim Closure Fund. Such Interim Closure Fund shall be funded by a per ton charge collected by Operator -3- from the Funding Party (through Operator's monthly statement or billing to the Funding Party) on each ton of sulphur produced hereunder for the account of the Funding Party during the period beginning on the first day of the month following the month in which the Funding Party failed to provide requested Financial Assurance as required above (the "Initial Funding Date") and ending on the earlier of January 1, 2006 or the date of release of the Interim Closure Fund to the Funding Party in accordance with the further provisions of this Section 20.03. Such per ton charge shall be equal to the dollar amount obtained by dividing the Funding Party's Closure Cost Share as of the Initial Funding Date by the Funding Party's Remaining Tonnage as of such time. The per ton charge shall be revised from time to time (but not more than twice per year) by the Operator to take into account changes in the Closure Cost Estimate, changes in the Remaining Tonnage, changes in the Funding Party's Participating Interest, and earnings accrued on amounts previously collected from the Funding Party and maintained in the Interim Closure Fund. Each Interim Closure Fund shall be invested in U.S. government securities or certificates of deposit of banks mutually agreed to among the Parties. Each Interim Closure Fund shall be released to the applicable Funding Party only upon the occurrence of one of the following events: (i) the Funding Party provides Financial Assurance to each of the other Parties; or (ii) such release is expressly agreed to by all of the Parties. In the case of each Party for which no Interim Closure Fund is maintained as of January 1, 2006 (a "Previously Non-Funding Party") Operator shall establish a Closure Fund. Each such Previously Non- Funding Party's Closure Fund shall be funded by a monthly charge to be collected by Operator from the Previously Non-Funding Party (through Operator's monthly statement or billing to the Previously Non-Funding Party) for the month of January, 2006 and for each month during the term of this Agreement thereafter until the Closure Cost has been paid in full. The amount of such monthly charge shall be equal to the dollar amount obtained by dividing the Previously Non-Funding Party's Closure Cost Share as of January 1, 2006 by Operator's estimate of the number of months of the remaining productive life of the Mine on the Property as of such date. In the case of each Funding Party for which an Interim Closure Fund is maintained as of January 1, 2006, such Interim Closure Fund shall on such date automatically convert to, and thereafter be, such Funding Party's Closure Fund. Each such Funding Party's Closure Fund shall be funded by a monthly charge to be collected by Operator from the Funding Party (through Operator's monthly statement or billing to the Funding Party) for the month of January, -4- 2006, and for each month during the term of this Agreement thereafter until the Closure Cost has been paid in full. The amount of such monthly charge shall be equal to the dollar amount obtained by (i) subtracting the number of dollars in such Funding Party's Interim Closure Fund immediately prior to such Fund's conversion to a Closure Fund on January 1, 2006, from such funding Party's Closure Cost Share as of January 1, 2006, and (ii) dividing the difference by Operator's estimate of the number of months of the remaining productive life of the Mine on the Property as of such date. The monthly charge to be collected from each Funding Party, if any, and the monthly charge to be collected from each Previously Non- Funding Party, if any, to fund the Closure Funds shall each be revised from time to time (but not more than twice per year) by Operator to take into account changes in the Closure Cost Estimate, changes in the estimate of the remaining productive life of the Mine on the Property, changes in the Participating Interest of the Funding Party or the Previously Non-Funding Party (as the case may be), and earnings accrued on amounts previously collected and maintained in the applicable Closure Fund. The Closure Fund of each Party (irrespective of such Party's status as a Funding Party or Previously Non-Funding Party) shall be: (i) invested in U.S. government securities or certificates of deposit of banks mutually agreed to among the Parties; and (ii) unavailable for refund to such Party except as hereinafter provided in this Section 20.03. At such time as the Closure Cost is finally determined, Operator shall compare the dollar amount of each Party's Closure Cost Share as of such time against the dollar amount balance of such Party's Closure Fund at such time (inclusive of earnings on deposits therein). If the comparison indicates that such Party's Closure Cost Share exceeds such Party's Closure Fund balance, Operator shall cause the entire Closure Fund balance to be applied against the Closure Cost and shall invoice such Party for the amount by which the Party's Closure Cost Share exceeds such balance. The invoiced Party shall pay such invoice in full promptly following such Party's receipt thereof. If the comparison indicates that such Party's Closure Fund balance exceeds such Party's Closure Cost Share, Operator shall cause to be promptly refunded to such Party from such Party's Closure Fund the amount by which such Closure Fund balance exceeds such Closure Cost Share, and shall cause the entire Closure Fund balance remaining after such refund to be applied against the Closure Cost. -5- Operator also shall cause to be paid to each Party all interest or other amounts earned following such time as the Closure Cost is finally determined and the comparisons provided for in the immediately preceding paragraph are completed on that Party's Closure Fund balance to the extent the Closure Fund balance is not disbursed at such time to pay the Closure Cost; provided that Operator in its sole discretion may from time to time set-off such interest and other amounts payable to a Party against any amount by which that Party's Closure Cost Share exceeds that Party's Closure Fund balance. Subject to Operator's right to set-off as just described, payment of any such interest and other amounts earned shall be made not less than quarterly by the 15th day of each calendar quarter following the quarter in which such interest or other amounts were earned. 2. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall become effective as of the date first above written when each of the Parties has delivered to the others duly executed counterparts hereof. 3. Absence of Waiver. The Parties agree that the amendments set forth in Section 1 hereof shall be limited precisely as written and shall not be deemed to: (a) be a consent to any waiver or modification of any other term or condition of the Joint Operating Agreement; (b) be a consent to, or waiver of, any default under the Joint Operating Agreement; (c) impose upon any Party any obligation, express or implied, to consent to any further amendment or modification of the Joint Operating Agreement; or (d) prejudice any right or remedy which any Party may now have under the Joint Operating Agreement or may have in the future under or in connection with the Joint Operating Agreement including, without limitation, any right or remedy resulting from any default. 4. Representations. Each Party hereby represents and warrants to the other Parties that: (a) It is a corporation (or in the case of Freeport a limited partnership) duly organized and validly existing under the laws of the State of Delaware; (b) The execution, delivery and performance of this Amendment by it are within its corporate (or in the case of Freeport partnership) powers, have been duly authorized by all necessary corporate (or in the case of Freeport partnership) action, have received all necessary consents and approvals (if any shall be required), and do not and will not contravene or conflict with any provision of law or of its charter or bylaws, or of any agreement binding upon it or its property; and -6- (c) This Amendment is its legal, valid and binding obligation, enforceable against it in accordance with this Amendment's terms. 5. Miscellaneous (a) Section headings used in this Amendment are for convenience of reference only and shall not affect the construction of this Agreement. (b) This Amendment may be executed in any number of counterparts and by the different Parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constituted but one and the same agreement. (c) This Amendment is a contract made under and governed by the laws of the State of Louisiana, without giving effect to principles of conflicts of laws. (d) All obligations and rights of the Parties that are expressed herein, shall be in addition to and not in limitation of those provided by applicable law. (e) Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable law; but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. (f) This Amendment shall be binding upon each of the Parties and their respective successors and assigns, and shall inure to the benefit of their respective successors and assigns. -7- IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be executed as of the date first above written. FREEPORT-McMORAN RESOURCE PARTNERS, Limited Partnership By: Title: IMC FERTILIZER, INC. By: Title: HOMESTAKE SULPHUR COMPANY By: Title: -8- EX-10.27 4 EXHIBIT 10.27 Exhibit 10.27 CONSULTING AGREEMENT This CONSULTING AGREEMENT, dated as of March 1, 1993 ("Effective Date"), is between William A. Humphrey ("Consultant") and Homestake Mining Company of California ("Homestake"). 1. Homestake agrees to engage Consultant, and Consultant agrees to accept the engagement, to provide consulting services with respect to such matters as Consultant and Homestake agree ("Services"). Services under this agreement shall not include testifying as a witness in legal proceedings, and compensation shall not be payable under this agreement with respect to testifying in any proceeding. 2. The engagement shall begin on the Effective Date and continue until terminated by either party by written notice of termination. 3. (a) Consultant shall perform Services for Homestake as, when and where reasonably requested to do so by Homestake. (b) Homestake shall pay Consultant $125 per hour for Services performed at Homestake's request, services to be billed in minimum one-hour increments or parts thereof. Travel time, including travel to a location at which services are to be performed, shall be considered time in which services are performed. If, in connection with providing Services under this agreement, Consultant is required to be away from home on weekends or on any other day during which Services are not to be performed, Consultant may charge for up to eight hours at a rate of $125 per hour. Homestake shall not be obligated to employ Consultant for any minimum number of hours or days during the term of this agreement. (c) Homestake shall make reasonable advances to Consultant for travel related to Services, and after presentation of customary receipts shall reimburse Consultant for approved expenses related to Services in accordance with the travel advance and expense reimbursement policies for Homestake employees. (d) Homestake shall pay Consultant for Services, and reimburse Consultant for related expenses, within ten days of its receipt and approval of Consultant's invoice. Consultant's invoices shall contain a summary of all Services performed and time spent, identify the countries in which Services were performed and expenses incurred, allocate the charges for Services and the expenses by project and country, identify the Homestake Representative(s) authorizing such Services, and contain such additional information in such detail as Homestake may reasonably require. 4. (a) Consultant shall keep and make available to Homestake records showing all Services performed and time spent in such performance. Consultant shall make such written reports of Consultant's activities to Homestake as Homestake may from time to time reasonably request. (b) All such records and reports shall be the sole and exclusive property of Homestake, to be delivered to Homestake by Consultant upon Homestake's request. Consultant expressly agrees to deliver to Homestake all papers, drawings, models, maps, or any other thing related to Services in Consultant's possession or under its control upon termination of this agreement. 5. Consultant shall not, within three years after the termination of this agreement, divulge to any person any proprietary or confidential information relating to Homestake or its Subsidiaries or Affiliates ("Homestake Companies"), or relating to any business or property in which any of the Homestake Companies has an interest, acquired by Consultant while in the prior employment of any of the Homestake Companies or in the course of performance of duties under this agreement without express written authorization by an officer of Homestake. For purposes of this agreement, "Subsidiary" shall mean any corporation, partnership, joint venture or other entity or person in which Homestake has a total direct and/or indirect equity or voting interest of at least 20%, and "Affiliate" shall mean any corporation, partnership, joint venture or other entity or person which is directly or indirectly controlling, controlled by or under common control with Homestake. 6. Consultant represents and warrants to Homestake that his performance of Services will not breach any obligation Consultant may have to any third party. 7. Consultant agrees that until termination of this agreement, Consultant shall not engage in any employment or consulting services with anyone other than one of the Homestake Companies relating to the Services performed or relating to any business or property in which any of the Homestake Companies has an interest without Homestake's prior written consent. 8. Consultant shall not delegate, subcontract, assign, or employ any person to perform any work directly or indirectly related to Services without Homestake's prior written consent. 9. (a) In the performance of Services Consultant shall be an independent contractor. Nothing in this agreement shall be deemed to make Consultant an agent, employee or partner of Homestake. Consultant shall not, by reason of this agreement, participate in any employee benefits available to employees of Homestake Companies, nor shall this agreement diminish any benefits or rights Consultants may otherwise be entitled to receive as a former employee or officer of the Homestake Companies. (b) Consultant assumes full responsibility and liability for the payment of any taxes due on any amount received hereunder. (c) Except to the extent required by law, Homestake shall not make any deduction from any amount paid by it to Consultant for taxes or for insurance or benefits. 10. The Homestake Representatives authorized to assign work to Consultant and coordinate Consultant's performance of Services is Harry M. Conger. Homestake may assign such responsibility to any other Representative or Representatives. 2 11. (a) All notices provided for in this agreement shall be delivered personally or by facsimile or by first class mail, postage prepaid, and shall be deemed received when personally delivered or, if by facsimile, on the next business day after receipt or, if mailed, five business days after date of mailing. (b) Any notice of default shall only be effective if delivered personally, or sent by registered or certified mail. (c) Any notice from Consultant to Homestake shall be delivered or addressed to the Homestake Representative. (d) All notices to be delivered by mail or facsimile shall be sent to the addresses and facsimile numbers shown below (or as changed by notice given as provided herein). 12. The interpretation and performance of this agreement shall be governed by the domestic law of the State of California, without regard to conflict of laws principles. 13. This agreement constitutes the entire agreement between the parties related to its subject matter. It supersedes all prior proposals, agreements, understandings, representations and conditions. It may not be changed or amended except in writing. CONSULTANT Name: William A. Humphrey Address: 500 Ygnacio Valley Road, Suite 250 Walnut Creek, CA 94596 Tel No.: (510) 942-3125 Fax No.: (510) 942-3035 Signature:________________________ HOMESTAKE MINING COMPANY OF CALIFORNIA 11th Floor 650 California Street San Francisco, CA 94108-2788 Tel. No.: (415) 981-8150 Fax No.: (415) 397-0952 By:______________________________ Harry M. Conger, Chairman Agremnts\Consult.Hum 3 EX-11 5 EXHIBIT 11 EXHIBIT 11 (Page 1 of 2) HOMESTAKE MINING COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts)
- -------------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------------- Primary: Earnings: Income (loss) from continuing operations $52,494 $(175,836) $(207,756) Less dividends on: HCI first preferred series X (118) (306) HCI series 1 second preference shares (885) (971) -------- --------- --------- Income (loss) from continuing operations applicable to earnings per share calculations 51,609 (176,925) (208,062) Loss from discontinued operations (25,359) -------- --------- --------- Income (loss) before cumulative effect applicable to earnings per share calculations 51,609 (176,925) (233,421) Cumulative effect of change in accounting for post-retirement benefits (28,800) -------- --------- --------- Net income (loss) applicable to earnings per share calculations $51,609 $(176,925) $(262,221) ======== ========= ========= Weighted average number of shares outstanding 137,046 135,221 132,110 ======== ========= ========= Per share amounts: Income (loss) from continuing operations $0.38 $(1.31) $(1.57) Loss from discontinued operations (0.19) ------- ------- ------- Income (loss) before cumulative effect 0.38 (1.31) (1.76) Cumulative effect of change in accounting for post-retirement benefits (0.22) ------- ------- ------- Net income (loss) per share $0.38 $(1.31) $(1.98) ======= ======= ======= EXHIBIT 11 (Page 2 of 2) - -------------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------------- Fully Diluted: Earnings: Income (loss) from continuing operations $52,494 $(175,836) $(207,756) Less dividends on: HCI first preferred series X (118) (306) HCI series 1 second preference shares (885) (971) Add: Interest relating to 5.5% convertible subordinated notes, net of tax 3,447 Amortization of issuance costs relating to 5.5% convertible subordinated notes, net of tax 234 --------- --------- --------- Income (loss) from continuing operations applicable to earnings per share calculations 55,290 (176,925) (208,062) Income (loss) from discontinued operations (25,359) --------- --------- --------- Income (loss) before cumulative effect applicable to earnings per share calculations 55,290 (176,925) (233,421) Cumulative effect of change in accounting for post-retirement benefits (28,800) -------- ---------- ---------- Net income (loss) applicable to earnings per share calculations $55,290 $(176,925) $(262,221) ======== ========== ========== Weighted average number of shares outstanding: Common shares 137,046 135,221 132,110 Additional average shares outstanding assuming conversion of 5.5% convertible subordinated notes 3,397 --------- --------- --------- 140,443 135,221 132,110 ========= ========= ========= Per share amounts: Income (loss) from continuing operations $0.39 $(1.31) $(1.57) Loss from discontinued operations (0.19) --------- --------- --------- Income (loss) before cumulative effect 0.39 (1.31) (1.76) Cumulative effect of change in accounting for post-retirement benefits (0.22) --------- --------- --------- Net income (loss) per share $0.39(a) $(1.31) $(1.98) ========= ========= ========= (a) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produced an anti-dilutive result.
EX-13 6 EXHIBIT 13 EXHIBIT 13 Index to Exhibit 13: Selected information from the 1993 Annual Report to Shareholders is incorporated by reference in the Form 10-K and such information is herewith transmitted electronically as Exhibit 13. Such selected information is listed below. Noted page references correspond to pagination in the Annual Report to Shareholders.
Annual Report Page Statistical Summary 20-21 Management's Discussion and Analysis 22-27 Consolidated Financial Statements 28-32 Notes to Consolidated Financial Statements 33-47 Report of Independent Auditors 48 Management's Responsibility for Financial Reporting 48 Five-Year Selected Financial Data 49 Quarterly Selected Data 50 Common Stock Price Range 50 Appendix 1: Description of Bar Charts in Management's Discussion and Analysis
STATISTICAL SUMMARY
MINE PRODUCTION =========================== =========================================== Tons Owner- Milled ship Production (mil- Grade Recovery (%)<1> Year (ozs.)<1> lions)<1> (ozs./ton) (%) - --------------------------- ------------------------------------------- UNITED STATES Homestake 100 1993 447,593 2.7 0.174 96 1992 396,626 2.6 0.158 95 1991 319,080 2.5 0.140 93 McLaughlin 100 1993 305,312 2.2 0.154 92 1992 291,094 2.1 0.164 87 1991 262,719 2.3 0.125 91 Round 25 1993 93,674 6.1 0.033 69 Mountain<6> 1992 92,646 4.4 0.036 58 1991 84,755 3.9 0.031 66 Santa Fe 100 1993 53,966 2.3 0.034 61 1992 60,905 2.0 0.037 71 1991 67,102 2.7 0.034 64 Marigold<7> 33 1993 30,165 0.7 0.108 91 33 1992 28,257 0.8 0.111 91 23 1991 15,274 0.4 0.092 92 Mineral Hill 50 1993 18,335 0.1 0.243 93 1992 21,087 0.2 0.264 93 1991 21,344 0.1 0.279 91 Pinson<7> 26 1993 13,353 0.3 0.093 85 1992 13,214 0.2 0.093 79 1991 15,695 0.3 0.098 84 Dee<7> 44 1993 11,340 0.5 0.073 80 1992 17,080 0.4 0.087 81 1991 18,499 0.3 0.092 83 Corporate Non-Cash Admin- OTHER COSTS Costs istration Exploration ($/oz.) --------------------------------------------------- 1993 $51 $21 $ 9 1992 $55 $25 $15 1991 $64 $26 $26 Realized -------------------- GOLD PRICES 1993 $359 ($/oz.) 1992 $348 1991 $376 RESERVES<4> COSTS (Homestake Share) ================== ============================ Ore Cash Total Tons Grade Ounces Year ($/oz.)<2> ($/oz.)<3> (mil- (ozs./ (mil- lions) ton) lions) ----- ------------------ ---------------------------- UNITED STATES Homestake 1993 $268 $288 20.4 0.203 4.1 1992 $316 $337 27.0 0.214 5.8 1991 $377 $400 29.3 0.202 5.9 McLaughlin 1993 $196 $303 22.0 0.083 1.8 1992 $204 $326 14.3 0.105 1.5 1991 $223 $343 15.6 0.113 1.8 Round 1993 $230 $293 75.6 0.024 1.8 Mountain<6> 1992 $233 $283 69.1 0.025 1.7 1991 $258 $314 72.6 0.026 1.9 Santa Fe 1993 $269 $358 - - - 1992 $255 $348 1.7 0.032 0.1 1991 $316 $381 3.8 0.034 0.1 Marigold<7> 1993 $207 $302 5.3 0.034 0.2 1992 $231 $350 5.5 0.036 0.2 1991 $292 $387 3.2 0.056 0.2 Mineral Hill 1993 $285 $294 - - - 1992 $280 $369 0.4 0.260 0.1 1991 $261 $381 0.4 0.268 0.1 Pinson<7> 1993 $267 $308 1.3 0.068 0.1 1992 $285 $333 1.3 0.064 0.1 1991 $253 $287 1.6 0.063 0.1 Dee<7> 1993 $393 $535 1.7 0.044 0.1 1992 $362 $404 2.3 0.049 0.1 1991 $332 $389 2.9 0.040 0.1 20 MINE PRODUCTION ========================= ============================================= Tons Owner- Milled ship Production (mil- Grade Recovery (%)<1> Year (ozs.)<1> lions)<1> (ozs./ton) (%) ------------------------- ---------------------------------------------- CANADA Williams 50 1993 246,126 1.3 0.202 95 1992 248,460 1.3 0.205 95 1991 259,352 1.2 0.227 95 David Bell 50 1993 107,594 0.3 0.416 95 1992 105,256 0.3 0.426 95 1991 141,564 0.3 0.570 96 Quarter Claim 25 1993 11,094 0.1 0.255 96 1992 16,204 0.1 0.356 97 1991 18,585 0.1 0.447 97 Nickel Plate 100 1993 73,908 1.4 0.061 85 1992 84,673 1.4 0.073 85 1991 91,396 1.3 0.085 85 Snip<8> 40 1993 59,790 0.1 0.865 92 22 1992 30,558 0.1 0.923 91 20 1991 21,335 0.1 0.887 91 Golden Bear 100 1993 28,440 0.1 0.430 90 1992 58,224 0.1 0.450 89 50 1991 28,350 0.1 0.499 89 Eskay Creek 100 1993 Gold Silver AUSTRALIA Kalgoorlie 50 1993 332,636 5.3 0.074 86 1992 349,773 5.1 0.079 86 1991 285,560 4.1 0.082 88 CHILE El Hueso<6>100 1993 71,683 3.0 0.040 82 1992 70,406 2.7 0.039 82 1991 65,356 3.5 0.036 74 TOTAL PRODUCTION<5> 1993 1,917,853 - - - 1992 1,911,593 - - - 1991 1,801,295 - - - MINORITY INTEREST SHARE<5> 1993 88,663 - - - 1992 66,196 - - - 1991 59,241 - - - HOMESTAKE SHARE OF GOLD<5> 1993 1,829,190 - - - 1992 1,845,397 - - - 1991 1,742,054 - - - RESERVES<4> COSTS (Homestake Share) ================== =========================== Ore Cash Total Tons Grade Ounces Year ($/oz.)<2> ($/oz.)<3> (mil- (ozs./ (mil- lions) tons) lions) ----- ------------------ --------------------------- CANADA Williams 1993 $199 $247 17.5 0.170 3.0 1992 $186 $238 17.6 0.174 3.1 1991 $182 $224 17.6 0.174 3.1 David Bell 1993 $154 $206 3.2 0.316 1.0 1992 $156 $203 3.5 0.321 1.1 1991 $113 $166 3.8 0.328 1.2 Quarter Claim 1993 $144 $144 0.3 0.256 0.1 1992 $140 $140 0.4 0.254 0.1 1991 $105 $105 0.5 0.308 0.2 Nickel Plate 1993 $312 $336 4.8 0.077 0.4 1992 $295 $365 5.9 0.076 0.4 1991 $332 $351 2.1 0.090 0.2 Snip<8> 1993 $152 $235 0.2 0.788 0.1 1992 $145 $200 0.2 0.831 0.1 1991 $178 $243 0.2 0.830 0.1 Golden Bear 1993 $229 $229 - - - 1992 $293 $302 0.2 0.515 0.1 1991 $313 $369 0.5 0.618 0.3 Eskay Creek 1993 Gold 0.6 1.910 1.2 Silver 85.500 55.1 AUSTRALIA Kalgoorlie 1993 $230 $270 59.9 0.074 4.4 1992 $255 $298 31.6 0.081 2.6 1991 $306 $350 34.9 0.085 3.0 CHILE El Hueso<6> 1993 $299 $329 3.2 0.039 0.1 1992 $285 $318 3.1 0.039 0.1 1991 $322 $422 4.2 0.036 0.1 TOTAL PRODUCTION<5> 1993 $231 $282 1992 $248 $303 1991 $269 $333 MINORITY INTEREST SHARE<5> 1993 - - 1992 - - 1991 - - HOMESTAKE SHARE OF GOLD<5> 1993 $231 $282 216.0 N/M 18.4 1992 $248 $303 185.3 N/M 17.3 1991 $269 $333 195.0 N/M 18.5 N/M = Not meaningful. <1> Homestake proportionate interest including minority interest. <2> Cash operating costs exclude depreciation, amortization and reclamation accruals. <3> Total production costs exclude corporate, administrative, exploration and general expenses. <4> Proven and probable. <5> Includes production from closed operations not listed. <6> Tons milled equates to tons processed; recovery and grade relate to reusable pad data at Round Mountain and to high grade at El Hueso. <7> Tons milled includes tons leached; grade and recovery relate to mill data. <8> Production and cash costs relate to gold contained in concentrates and recovered from dore.
21 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (Unless specifically stated otherwise, all comments, production statistics, etc. relate to amounts in the consolidated financial statements, including the Company's interest in mining partnerships accounted for using the equity method, without reduction for minority interest.) Operating results of the Company improved significantly during 1993 primarily as a result of an increase in gold prices and sales volumes and decreases in both operating and non-operating expenses. The Company had net income of $52.5 million or $0.38 per share in 1993 compared to net losses of $175.8 million or $1.31 per share in 1992 and $261.9 million or $1.98 per share in 1991. The 1993 results include a pretax write-down of oil and gas assets of $16 million compared with pretax write-downs of mining properties and investments of $130.3 million and $172.4 million in 1992 and 1991, respectively. The principal components of these write-downs are described below. The current year results also include restructuring and business combination expenses of $8.2 million compared to restructuring and business combination expenses of $48.4 million in 1992. See note 5 to the consolidated financial statements for details of restructuring and business combination expenses. The 1991 results include restructuring expenses of $13.6 million, a charge of $28.8 million for the cumulative effect of (see Appendix 1: Description of Bar Chart A "Gold Production") a change in accounting for post-retirement benefits and a $25.4 million loss from the discontinued non-gold operations of Homestake Canada Inc. (HCI, formerly International Corona Corporation). Following a sharp drop in oil prices at the end of 1993, the Company recorded a write-down of $16 million in the carrying value of the oil and gas reserves associated with the sulphur deposit at Main Pass 299. The Company also conducted its annual mine-by-mine evaluation of the carrying values of its other mining properties and investments during 1993 using an assumed gold price of $360 per ounce and determined that no write-downs were required. In conjunction with the 1992 business combination with HCI, the Company reviewed HCI's interest in the Eskay Creek gold project and, based on the Company's assessment of the recoverability of its investment in the Eskay Creek project, recorded write-downs in 1992 and 1991 totaling $176 million. A write-down of $106 million was recorded in 1991 to reflect the effect of discounting the project's estimated future cash flows and estimated gold mineralization that the Company believed would qualify as proven and probable reserves, based on then available geological information. An additional write-down of $70 million was recorded in 1992 primarily to reflect Homestake's estimates at that time of capital costs and future gold prices. The Company's annual evaluations of its mining properties and investments also resulted in additional write-downs in 1992 and 1991 of $60.3 million and $66.4 million, respectively. See note 4 to the consolidated financial statements for a summary of these write-downs. In December 1993, Prime acquired effectively all of the stock of Stikine in a share exchange and Homestake now owns 54.2% of Prime. Prior to this acquisition Homestake owned 54.3% of Prime and 54.1% of Stikine, each of which had a 50% ownership in the Eskay Creek project. The combination of Prime and Stikine simplifies the ownership and operation of the Eskay Creek project. During 1991, HCI completed a corporate restructuring whereby $231.1 million of non-gold assets were transferred to a new public company, Dundee 22 Bancorp Inc.(Dundee). In exchange, HCI received $87.3 million which was applied to reduce debt, 5.2 million Dundee preference shares valued at $4.5 million and $153.8 million in notes receivable. The notes subsequently were cancelled along with an equivalent dollar value of HCI common shares as part of HCI's restructuring. Costs of $13.6 million associated with this restructuring were expensed in 1991. GOLD OPERATIONS: The results of the Company's operations are affected significantly by the market price of gold. Gold prices fluctuate and are influenced by numerous factors beyond the Company's control, including expectations with respect to the rate of inflation, the relative strength of the U.S. dollar and of certain other currencies, interest rates, global or regional political or economic crises and sales by holders and producers of gold in response to such factors. The supply of gold consists of a combination of new mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions and individuals. The Company's current policy is to sell its production at current prices and not enter into arrangements which would establish a price for the sale of its future gold production. A significant portion of the Company's gold operations are transacted in Australian and Canadian currencies. Fluctuations in these currencies' exchange rates relative to the U.S. dollar affect the Company's results. In order to minimize the effects of these fluctuations, in 1992 the Company instituted a foreign currency protection program. Under the program the Company enters into foreign currency option contracts which establish minimum and maximum exchange rate ranges within which the U.S. dollar may be exchanged for these currencies. See note 21 to the consolidated financial statements for additional information regarding this program. Gold revenues of $688.1 million in 1993 compare with gold revenues of $639.3 million and $628.3 million in 1992 and 1991, respectively. The current year's revenues reflect the sale of more ounces of gold and higher gold prices compared with 1992. Revenues in 1991 reflect the sale of fewer ounces of gold and higher realized prices. Total gold sales volumes in 1993 of 1,983,300 ounces at an average realized price of $359 per ounce compare with 1,945,500 ounces at an average price of $348 in 1992 and 1,759,200 ounces at an average price of $376 in 1991. (See Appendix 1: Description of Bar Chart B "Gold Revenues".) Total gold production of 1,917,900 ounces in 1993 compares to 1,911,600 ounces in 1992 and 1,801,300 ounces in 1991. The slight increase in total ounces produced in 1993 compared to 1992 primarily reflects a 51,000 ounce increase in production at the Homestake mine and the inclusion of 40% (1992 - -22%) of the Snip mine's 1993 production following the consolidation of Prime effective December 31, 1992. These increases were offset partially by a decrease in production from the Golden Bear mine in Canada as a result of the sale of the Company's interest in North American Metals Corp. (NAM) in July 1993. The excess of ounces sold over ounces produced in 1993 resulted in a decline in finished goods gold inventory, primarily in the United States. The Company recorded a pretax profit of approximately $7 million on the sale of these ounces due to their low carrying value, which was $5.2 million less than their replacement cost based on 1993 average production costs. See note 9 to the consolidated financial statements for details of finished goods gold inventory. 23 The Homestake mine benefited from higher ore grades and a slight increase in tons milled, resulting in production of 447,600 ounces in 1993 compared to 396,600 ounces in 1992. Effective December 31, 1993 following completion of a revised mining plan and reevaluation of ore reserves, approximately 25% of the Homestake mine's underground ounces previously categorized as mineable reserves were reclassified to a geological resource. No reduction to the Homestake mine's carrying value resulted from this reclassification. During 1993, production at the McLaughlin mine in California increased to 305,300 ounces from 291,100 ounces in 1992 due to improved recoveries and an increase in tons milled, partially offset by a lower grade of ore milled. Effective December 31, 1993 McLaughlin mine ore reserves were adjusted to include 379,000 ounces of gold contained in previously excluded low-grade stockpiles following favorable processing results. As the McLaughlin mine approaches the end of its economic life, future production levels are expected to decline. Combined production of 364,800 ounces at the Williams, David Bell and Quarter Claim mines located in the Hemlo mining camp in Canada in 1993 compares to 369,900 ounces in 1992. Ore grades at these operations have been declining slightly as production from the mines more closely approximates the average remaining life-of-mine ore reserve grades. To date this decline has not resulted in any significant increase in cash cost per ounce. However, as grades are expected to decline further, cash cost per ounce can be expected to increase. At the Williams mine, approximately 90% of the reserve tons milled during 1993 were replaced through exploration and definition drilling. Production of 332,600 ounces at the Kalgoorlie operations in Australia in 1993 compares to 349,800 ounces in 1992, and reflects slightly higher tons milled offset by slightly lower ore grades. Revision of the Super Pit ore resource and a review of Mt Charlotte reserves expanded proven and probable reserves by 70% during 1993. The Company's share of this increase is approximately two million ounces. Production of 93,700 ounces at the Round Mountain mine in Nevada during 1993 is relatively unchanged from 1992 production of 92,600 ounces and reflects higher tonnage at a lower grade. The increase in tonnage and lower grade are due to the completion in late 1992 of the dedicated leach pad which processes the lower grade uncrushed run-of-mine ore. As a result of the completion of the dedicated pad, fewer tons were placed on the reusable leach pad during 1993. The longer leach times on both the reusable and dedicated pads are resulting in higher recoveries. The Nickel Plate mine in Canada produced 73,900 ounces in 1993 compared to 84,700 ounces in 1992 as a result of milling lower grade ore stockpiles. During 1993 open-pit mining activities concentrated on accessing more ore through a prestripping campaign which was completed in September 1993. Active mining at the Santa Fe mine in Nevada ceased in November 1993 as ore reserves were depleted. The largest contributors to the increase in ounces produced in 1992 over 1991 were the Homestake, Kalgoorlie and McLaughlin mines with increases of 77,500 ounces, 64,200 ounces and 28,400 ounces, respectively. The Homestake mine's 1992 increase resulted from the temporary closing of sections of the mine in 1991 to conduct and implement the results of a production and safety review program. The 1992 increase in ounces produced at the Kalgoorlie operations was due to an increase in tons milled while the increase at the McLaughlin mine resulted from higher ore grades and the addition of a flotation circuit. Partially offsetting these increases were declines in production at the Williams, David Bell and Quarter Claim mines due to lower ore grades as production from these operations more closely approximates the average remaining life-of-mine ore reserve grades. In 1993, the Company's cash operating costs decreased to $231 per ounce compared to $248 in 1992 and $269 in 1991 as a result of continued emphasis in cost-reduction programs. At the Homestake mine, improved ore grades and cost-cutting programs contributed to a 15% reduction or $48 in cash costs 24 per ounce. Higher autoclave availability and improved recoveries decreased cash costs per ounce by $8 at the McLaughlin mine. At the Kalgoorlie operations cash costs per ounce decreased by $25, primarily as a result of favorable foreign exchange rates. A moderate decline was achieved on an Australian currency basis. (See Appendix 1: Description of Bar Chart C "Cash Cost per Ounce".) The Company's non-cash costs per ounce were $51, $55 and $64 in 1993, 1992 and 1991, respectively. The decline in non-cash costs per ounce primarily reflects lower depreciation charges as a result of the write- downs of mining properties in 1992 and 1991. In early 1994 following completion of a feasibility study, the Company announced it was proceeding with the development of the Eskay Creek project. Preproduction costs of approximately $60 million, including working capital requirements, will be incurred in building a 330 ton-per- day underground mine. A Mine Development Certificate could be granted early in 1994, allowing commercial production to begin by early 1995. The ore from this mine will be sold directly to third-party smelters. Total proven and probable ore reserves at Eskay Creek contain 2.3 million ounces of gold and 102 million ounces of silver. The Company has a 54.2% economic interest in these reserves. SULPHUR PROJECT: Homestake has a 16.7% interest in the Main Pass 299 sulphur project in the Gulf of Mexico. At December 31, 1993 the Company's share of proved reserves at Main Pass 299 was 11 million long tons of sulphur underlying remaining oil reserves of 3.5 million barrels. In 1993, Homestake invested $1.8 million in the project compared to $21 million and $82.7 million in 1992 and 1991, respectively. Oil and gas operations commenced in late 1991 and sulphur start-up operations began in the second quarter of 1992. Full sulphur production levels of 5,500 tons per day were reached in December of 1993. All gas production is consumed internally in heating water for extraction of sulphur. Oil revenues from Main Pass 299 were $14.2 million in 1993 compared to $22.1 million in 1992 and $1.4 million in 1991. Sulphur sales added $2 million to 1993 project revenues. Oil production peaked in mid-1992 and is expected to continue to decline over the remaining approximate six-year reserve life. As a result of lower oil production and lower prices for both oil and sulphur, the Company recorded an operating loss of $9.9 million during 1993 compared to operating income of $4 million in 1992. In addition, at December 31, 1993 the Company recorded a write-down of $16 million based on a decline in the market price of oil. OTHER REVENUES: In July 1993, the Company sold its 83% interest in NAM, which owns and operates the Golden Bear mine in northwestern British Columbia. As a result of this sale, the Company recognized a $0.5 million pretax gain and a $12.9 million income tax benefit. In the fourth quarter of 1993, the Company sold its 50% interest in the Mineral Hill mine in Montana and recorded a gain of approximately $3.6 million. Interest and dividend income declined to $4.8 million in 1993 compared to $9.9 million in 1992 and $25.3 million in 1991 primarily due to lower cash and short- term investment balances and a decline in interest rates over the three- year period. DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation, depletion and amortization declined to $103.4 million in 1993 compared to $117.5 million in 1992 and $117 million in 1991 primarily due to write-downs of mining properties recorded in prior years. 25 ADMINISTRATIVE AND GENERAL: Administrative and general expenses were $40.6 million in 1993 compared to $48.5 million and $47.4 million in 1992 and 1991, respectively. The decline in administrative and general expenses primarily is due to the 1992 (see Appendix 1: Description of Bar Chart D "Administrative and General Costs") restructuring following the business combination with HCI, partially offset by one-time charges associated with restructuring the Company's banking arrangements, litigation expenses and other non-recurring items. EXPLORATION: Exploration expense in 1993 decreased to $17.5 million from $27.8 million and $47.4 million in 1992 and 1991, respectively, reflecting the Company's approach of concentrating on fewer, higher quality projects. Exploration expense is expected to increase slightly in 1994. The Company anticipates spending $4 million in 1994 for delineation drilling on the Ruby Hill property near Eureka, Nevada. INTEREST EXPENSE: Interest expense was $9.1 million in 1993 compared to $13.4 million in 1992 and $11.9 million in 1991. Capitalization of interest costs related to the development of certain assets amounted to $3.5 million and $14.9 million in 1992 and 1991, respectively. The decline in interest expense in 1993 from 1992 primarily results from the repayment of $37 million and $50 million of debt in August and December 1992, respectively. The average rate of interest on the Company's long-term debt was 5.1% at December 31, 1993 compared with 4.5% and 7.6% at December 31, 1992 and 1991, respectively. INCOME TAXES: In 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". In adopting SFAS 109, the Company provided a full valuation reserve on a significant portion of its deferred tax assets. The effect on net income of adoption of SFAS 109 was not material and did not result in the recording of a cumulative effect for adopting this accounting principle. LIQUIDITY AND CAPITAL RESOURCES Homestake's cash and equivalents and short-term investments increased by $63.6 million to $134.7 million in 1993. Homestake's working capital at the end of 1993 was $133.9 million compared to $23.5 million at the end of 1992. The increases in cash and equivalents and working capital during 1993 reflect the strong cash flows generated from operations and the repayment of debt. Cash provided by operations in 1993 amounted to $169.8 million compared to $77.4 million in 1992. During 1992, the Company sold $115.3 million of short-term investments compared to $102.4 million in 1991. Funds raised from the sale of the short-term investments in these years were used for the repayment of debt and for additions to property, plant and equipment. Additions to property, plant and equipment were $57.8 million in 1993 compared to $63.5 million and $166.5 million in 1992 and 1991, respectively. Additions in 1993 included $18.8 million primarily for deferred stripping at the Nickel Plate mine and $11.8 million for the open- pit expansion at the Homestake mine. Additions in 1992 included $13.7 million at the Kalgoorlie operations and additions in 1991 included $25.8 million at the Kalgoorlie operations and $12.5 million at the Homestake mine. The remaining expenditures during these years primarily were for replacement capital to maintain existing production capacity and for the Main Pass sulphur project expenditures discussed above. 26 In addition to replacement capital at existing operations, during 1994 capital expenditures of $12.5 million are planned at the Kalgoorlie operations for mill expansions and approximately $37 million of capital expenditures are planned for development at the Eskay Creek project. During 1993, primarily as a result of the exercise of stock options, the Company issued 722,000 shares for proceeds of $11.6 million. Prime sold the 395,000 shares of Homestake stock it owned for net proceeds of $6.4 million. In July 1993, the Company redeemed at par the 419,000 HCI Series 1 second preference shares then outstanding. Through a series of transactions from 1989 to 1992, the Company acquired 54.3% of Prime's and 54.1% of Stikine's common shares. See notes 2 and 19 to the consolidated financial statements. In 1991, HGAL sold additional common stock. The total proceeds of $63.5 million ($56.3 million of which was invested by Homestake) were used to repay HGAL's bank debt and provide funds for capital projects. On June 23, 1993 the Company sold $150 million of 5.5% convertible subordinated notes maturing June 23, 2000. Interest on the notes is payable semi-annually beginning December 23, 1993. The notes are convertible into the Company's common shares at a rate of $23.06 per common share and are redeemable by the Company in whole at any time on or after June 23, 1996. Proceeds from the notes were used to retire existing gold loans and other long-term debt. Current liabilities of $104.4 million at December 31, 1993 are $51.5 million lower than at December 31, 1992 primarily reflecting repayment of gold loans and other long-term debt during the year. The Company has no significant required debt repayments until the convertible notes mature in the year 2000. The Company has planned $16.1 million of reclamation-related expenditures during 1994 at its discontinued uranium facility at Grants, New Mexico. In accordance with the Energy Policy Act of 1992, the United States Department of Energy is responsible for funding 51% of all past and future reclamation expenditures at this facility. The total cost for reclamation at Grants is estimated to be $59.2 million of which $25.9 million had been incurred to December 31, 1993. The estimated cost of $33.3 million to complete reclamation activities at the Grants facility, after considering government funding, is fully provided in the financial statements at December 31, 1993. See note 20 to the consolidated financial statements for details of the Grants reclamation program and related government funding. In 1993, the Company entered into a new $150 million revolving credit facility. This facility provides for borrowings denominated in U.S. dollars, Canadian dollars, gold loans or combination of these. Among other things, the agreement includes a minimum consolidated net worth requirement and a minimum fixed charge coverage ratio. No amounts have been borrowed under this facility. In January 1993, the Company reduced its regular quarterly dividends from $0.05 to $0.025 per share. Total common share dividends paid by Homestake were $13.7 million in 1993 compared to $23.6 million in 1992 and $19.9 million in 1991. On February 23, 1994 Prime entered into an underwriting agreement to issue five million special warrants which are exchangeable for five million common shares of Prime. Net proceeds from this issue of approximately $33 million will be used to fund a portion of the Eskay Creek project development costs. When completed this issue will reduce the Company's interest in Prime from 54.2% to 50.6%. The Company believes that the combination of cash, investments, available lines of credit and future cash flows from operations will be sufficient to meet normal operating requirements, debt repayments and anticipated dividends. For discussion of certain environmental matters, see notes 6 and 20 to the consolidated financial statements. 27 CONSOLIDATED BALANCE SHEETS Homestake Mining Company and Subsidiaries December 31, 1993 and 1992 (In thousands, except per share amount)
1993 1992 -------------------------------------------------------------------------- ASSETS Current Assets: Cash and equivalents $134,719 $54,208 Short-term investments 16,856 Receivables 28,649 22,157 Inventories 66,539 78,046 Other 8,303 8,085 ---------- ---------- Total current assets 238,210 179,352 Property, Plant and Equipment: Cost 1,540,218 1,531,840 Accumulated depreciation, depletion and amortization (709,990) (620,252) ---------- ---------- Net property, plant and equipment 830,228 911,588 Investments and Other Assets: Non-current investments 20,632 25,112 Other assets 32,180 29,117 ---------- ---------- Total investments and other assets 52,812 54,229 ---------- ---------- Total Assets $1,121,250 $1,145,169 ========== ========== 28 1993 1992 -------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 33,002 $ 38,434 Accrued liabilities 57,747 65,603 Income and other taxes payable 9,816 10,274 Current portion of long-term debt and gold loans 3,785 41,583 --------- ---------- Total current liabilities 104,350 155,894 Long-Term Liabilities: Long-term debt 189,191 65,209 Gold loans 139,965 Other long-term obligations 93,674 88,002 --------- ---------- Total long-term liabilities 282,865 293,176 Deferred Income Taxes 164,030 162,587 Minority Interest in Consolidated Subsidiaries: Redeemable preferred stock 15,941 Other 54,761 52,133 --------- ---------- Total minority interest 54,761 68,074 Shareholders' Equity: Capital stock, $1 par value per share: Preferred - 10,000 shares authorized; no shares outstanding Common - 250,000 shares authorized; shares outstanding: 1993 - 137,494; 1992 - 136,772 137,494 136,772 Additional paid-in capital 334,737 322,688 Retained earnings 52,495 14,592 Accumulated currency translation adjustments (5,620) 1,133 Other (3,862) (9,747) ---------- ---------- Total shareholders' equity 515,244 465,438 ---------- ---------- Total Liabilities and Shareholders' Equity $1,121,250 $1,145,169 ========== ==========
Commitments and Contingencies - see notes 20 and 21. See notes to consolidated financial statements. 29 STATEMENTS OF CONSOLIDATED OPERATIONS Homestake Mining Company and Subsidiaries For the years ended December 31, 1993, 1992 and 1991 (In thousands, except per share amounts)
1993 1992 1991 -------------------------------------------------------------------------- Revenues: Product sales $703,505 $659,646 $625,458 Interest and dividends 4,832 9,892 25,262 Equity earnings 795 2,474 4,242 Other income 13,096 11,508 16,638 -------- -------- -------- 722,228 683,520 671,600 Costs and Expenses: Production costs 454,623 470,374 468,107 Depreciation, depletion and amortization 103,377 117,483 116,993 Administrative and general expenses 40,553 48,514 47,405 Exploration expense 17,457 27,798 47,440 Interest expense 9,147 13,420 11,923 Other expenses 4,492 5,694 413 Write-downs of mining properties and investments 16,032 130,290 172,357 Restructuring and business combination expenses 8,151 48,442 13,630 -------- --------- --------- 653,832 862,015 878,268 Income (Loss) from Continuing Operations Before Taxes and Minority Interest 68,396 (178,495) (206,668) Income and Mining Taxes (12,775) 2,889 (5,582) Minority Interest (3,127) (230) 4,494 -------- --------- --------- Income (Loss) from Continuing Operations 52,494 (175,836) (207,756) Loss from Discontinued Operations (25,359) -------- --------- --------- Income (Loss) Before Cumulative Effect 52,494 (175,836) (233,115) Cumulative Effect of Change in Accounting for Post-retirement Benefits (28,800) -------- --------- --------- Net Income (Loss) $52,494 $(175,836) $(261,915) ======== ========= ========= Per Share Amounts: Income (loss) from continuing operations $ 0.38 $ (1.31) $ (1.57) Loss from discontinued operations (0.19) Cumulative effect of change in accounting for post-retirement benefits (0.22) -------- -------- -------- Net Income (Loss) Per Share $ 0.38 $ (1.31) $ (1.98) ======== ======== ======== Average Shares Used in the Computation 137,046 135,221 132,110 ======== ======== ========
See notes to consolidated financial statements. 30 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY Homestake Mining Company and Subsidiaries For the years ended December 31, 1993, 1992 and 1991 (In thousands)
Additional Common Paid-in Retained Stock Capital Earnings --------- ---------- --------- Balances, December 31, 1990 $131,951 $422,618 $516,419 Net loss (261,915) Preference share dividends (4,188) Common share dividends paid by: Homestake (19,857) Homestake Canada Inc. (HCI) (14,573) Exercise of stock options 276 3,902 Stock issued: Employee savings plan 75 1,197 Other 23 801 Restructuring of HCI (143,223) Conversion of HCI preference shares 40,334 Currency translation adjustments Change in unrealized loss on mining securities Other -------- -------- --------- Balances, December 31, 1991 132,325 325,629 215,886 Net loss (175,836) Preference share dividends (1,834) Common share dividends paid by Homestake (23,624) Redemption of HCI preference shares for common stock 4,271 (4,271) Exercise of stock options 16 86 Stock issued to employee savings plan 45 560 Currency translation adjustments Other 115 684 ------- ------- -------- Balances, December 31, 1992 136,772 322,688 14,592 Net income 52,494 Preference share dividends (885) Common share dividends (13,706) Sale of Homestake stock held by Prime 1,155 Exercise of stock options 686 10,397 Stock issued to employee savings plan 36 492 Currency translation adjustments Other 5 -------- -------- -------- Balances, December 31, 1993 $137,494 $334,737 $52,495 ======== ======== ======== Accumulated Currency Translation Treasury Adjustments Stock ----------- ---------- Balances, December 31, 1990 $5,405 $(551) Net loss Preference share dividends Common share dividends paid by: Homestake Homestake Canada Inc. (HCI) Exercise of stock options Stock issued: Employee savings plan 156 Other 395 Restructuring of HCI Conversion of HCI preference shares Currency translation adjustments 2,565 Change in unrealized loss on mining securities Other -------- -------- Balances, December 31, 1991 7,970 - Net loss Preference share dividends Common share dividends paid by Homestake Redemption of HCI preference shares for common stock Exercise of stock options Stock issued to employee savings plan Currency translation adjustments (6,837) Other ------- ------- Balances, December 31, 1992 1,133 - Net income Preference share dividends Common share dividends Sale of Homestake stock held by Prime Exercise of stock options Stock issued to employee savings plan Currency translation adjustments (6,753) Other -------- --------- Balances, December 31, 1993 $ (5,620) - ======== ========= Other Total -------- --------- Balances, December 31, 1990 $(17,148) $1,058,694 Net loss (261,915) Preference share dividends (4,188) Common share dividends paid by: Homestake (19,857) Homestake Canada Inc. (HCI) (14,573) Exercise of stock options 4,178 Stock issued: Employee savings plan 1,428 Other 1,219 Restructuring of HCI (143,223) Conversion of HCI preference shares 40,334 Currency translation adjustments 2,565 Change in unrealized loss on mining securities 10,654 10,654 Other 326 326 -------- -------- Balances, December 31, 1991 (6,168) 675,642 Net loss (175,836) Preference share dividends (1,834) Common share dividends paid by Homestake (23,624) Redemption of HCI preference shares for common stock - Exercise of stock options 102 Stock issued to employee savings plan 605 Currency translation adjustments (6,837) Other (3,579) (2,780) -------- -------- Balances, December 31, 1992 (9,747) 465,438 Net income 52,494 Preference share dividends (885) Common share dividends (13,706) Sale of Homestake stock held by Prime 4,258 5,413 Exercise of stock options 11,083 Stock issued to employee savings plan 528 Currency translation adjustments (6,753) Other 1,627 1,632 -------- --------- Balances, December 31, 1993 $(3,862) $515,244 ======== =========
See notes to consolidated financial statements. 31 STATEMENTS OF CONSOLIDATED CASH FLOWS Homestake Mining Company and Subsidiaries For the years ended December 31, 1993, 1992 and 1991 (In thousands)
1993 1992 1991 ------- -------- --------- Cash Flows From Operations: Income (loss) from continuing operations $52,494 $(175,836) $(207,756) Reconciliation to net cash provided by continuing operations: Depreciation, depletion and amortization 103,377 117,483 116,993 Write-downs of mining properties and investments 16,032 130,290 172,357 Loss (gain) on disposal of assets (7,974) (12,456) 179 Deferred income taxes 2,583 (11,121) (2,914) Other non-cash items - net 11,849 9,525 11,665 Effect of changes in operating working capital items: Receivables (18,993) 12,096 15,670 Inventories 10,357 12,933 (17,574) Accounts payable (4,009) (10,424) 9,028 Accrued liabilities and taxes payable 4,877 8,408 (8,298) Other (765) (3,521) 3,162 -------- -------- -------- Net cash provided by continuing operations 169,828 77,377 92,512 Net cash used by discontinued operations (1,903) -------- -------- -------- Net cash provided by operations 169,828 77,377 90,609 -------- -------- -------- Investment Activities: Decrease in short-term investments 16,739 115,334 102,385 Decrease (increase) in other investments 1,060 849 (29,274) Additions to property, plant and equipment (57,825) (63,453) (166,458) Proceeds from sale of assets 9,649 11,858 610 Cash from consolidation of Prime and Stikine 6,411 Investing activities of discontinued operations and other 5,831 ------- -------- -------- Net cash provided (used) by investment activities (30,377) 70,999 (86,906) ------- -------- -------- Financing Activities: Borrowings 146,074 115,239 55,880 Debt repayments (194,037) (215,251) (110,678) Dividends paid by Homestake (13,706) (23,624) (19,857) Dividends paid by Homestake Canada Inc.(HCI) (885) (1,834) (18,761) Redemption of HCI preferred shares (15,810) (4,727) (4,462) Common shares issued 11,611 321 1,164 Sale of Homestake stock held by Prime 6,361 Treasury stock issued 200 5,150 Stock issued by subsidiary 7,187 Net cash provided by HCI's 1991 restructuring 2,222 Other 1,452 126 356 -------- ------- ------- Net cash used by financing activities (58,940) (129,550) (81,799) -------- ------- ------- Net Increase (Decrease) in Cash and Equivalents 80,511 18,826 (78,096) Cash and Equivalents, January 1 54,208 35,382 113,478 -------- ------- ------- Cash and Equivalents, December 31 $134,719 $54,208 $35,382 ======== ======= =======
See notes to consolidated financial statements. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Homestake Mining Company and Subsidiaries (All tabular amounts in thousands) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include Homestake Mining Company (the Company or Homestake) and its majority-owned subsidiaries and their undivided interests in joint ventures after elimination of intercompany amounts. At December 31, 1993 the Company owned 81.5% of Homestake Gold of Australia Limited (HGAL) and 54.2% of Prime Resources Group Inc. (Prime) with the remaining interests reflected as minority interest in the consolidated financial statements. Undivided interests in gold mining operations (the Round Mountain and Mineral Hill mines in the United States; HGAL's interests in the gold mining operations in Kalgoorlie, Western Australia; Homestake Canada Inc.'s interest in the Williams and David Bell mines in Canada; and Prime's interest in the Snip mine in Canada) and in the sulphur and oil recovery operations in the Gulf of Mexico are reported using pro rata consolidation whereby the Company reports its proportionate share of assets, liabilities, income and expenses. Investments in gold mining venture partnerships over which the Company exercises significant influence, principally the Dee, Pinson and Marigold mines in Nevada, are reported using the equity method. CASH AND EQUIVALENTS include all highly-liquid investments with a maturity of three months or less at the date of purchase. The Company places its cash and cash equivalents with various financial institutions located principally in North America and Australia. The Company believes that no concentration of credit risk exists with respect to cash and cash equivalents. INVENTORIES, including gold, ore stockpiles and supplies, are stated at the lower of cost or net realizable value. The cost of gold produced by United States operations is determined principally by the last-in, first-out method (LIFO). The cost of other inventories is determined primarily by averaging methods. EXPLORATION COSTS, including those incurred through joint ventures, are expensed as incurred. PREOPERATING AND DEVELOPMENT COSTS relating to new mines and major programs at existing mines are capitalized. Ordinary mine development costs to maintain production are expensed as incurred. DEPRECIATION, DEPLETION AND AMORTIZATION of mining properties, mine development costs and major plant facilities is computed principally by the units-of-production method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of economically recoverable reserves which can be recovered in the future from known mineral deposits. Such estimates are based on current and projected costs and prices. Other equipment and plant facilities are depreciated by straight-line or accelerated methods principally over estimated useful lives of three to ten years. PROPERTY EVALUATION: Recoverability of investments in operating mines is evaluated annually. Estimated future net cash flows from each mine are calculated using estimates of proven and probable reserves, estimated future prices (considering historical and current prices, price trends and related factors) and operating capital and reclamation costs on an undiscounted basis. Reductions in the carrying value of each mine are recorded to the extent the remaining investment exceeds the estimate of future net cash flows. Recoverability of the carrying values of non-operating properties is evaluated annually based upon estimated future net cash flows from each property determined as described above using estimates of contained mineralization, which represent estimated mineralization expected to be classified as proven and probable reserves, based upon geological delineation to date, upon completion of a feasibility study. In addition, estimated future net cash flows may be reduced by a discount factor after considering the uncertainties inherent in developing non- operating properties for which a feasibility study has not been completed, the length of time before mining operations may begin, and the expected complexity of each individual mining plan. The discount factor is based principally upon the Company's composite United States borrowing rate as well as other factors affecting the risk of developing such properties. Reductions in the carrying value of each property are recorded to the extent that the Company's carrying value in each property exceeds its estimate of future net cash flows. 33 Undeveloped properties upon which the Company has not performed sufficient exploration work to determine whether significant mineralization exists are carried at original acquisition cost. RECLAMATION COSTS and related accrued liabilities, which are based on the Company's interpretation of current environmental and regulatory requirements, are accrued and expensed over the operating life of the mine, principally by the units-of-production method. NON-CURRENT INVESTMENTS, which include mining securities, are carried at the lower of cost or market. Realized gains and losses are included in determining net income or loss. Unrealized losses are reported as a reduction in shareholders' equity, except that declines in market value judged to be other than temporary are recognized in determining net income or loss. PRODUCT SALES are recognized when products are delivered. INCOME TAXES: The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," effective as of January 1, 1993. SFAS 109 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year. Mining taxes represent Canadian taxes levied on mining operations. FOREIGN CURRENCY: Substantially all assets and liabilities of foreign subsidiaries are translated at exchange rates in effect at the end of each period. Income and expenses are translated at the average exchange rate for the year. Accumulated currency translation adjustments are included as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in the determination of net income (loss). GOLD LOANS are recorded at the currency amount borrowed. Gains or losses on gold loans that provide an effective hedge of revenues from future production are recognized in revenue when the related production is delivered. Gains or losses on conversion of gold loans to currency loans and on early repayment of gold loans are recognized in revenue over the original repayment periods of the gold loans. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS: Pension costs related to United States employees are determined using the projected unit credit actuarial method. Pension plans are funded through annual contributions. In addition, the Company provides medical and life insurance benefits for certain retired employees and accrues the cost of such benefits over the period in which active employees become eligible for the benefits. The cost of the post-retirement medical and life insurance benefits are paid at the time the services are provided. NET INCOME (LOSS) PER SHARE is computed by dividing net income less preferred stock dividends by the weighted average number of common shares and common share equivalents outstanding during the year. The exercise of stock options would not result in a material dilution of earnings per share. NOTE 2: ACQUISITIONS HCI: On July 22, 1992 Homestake acquired all of the common shares and first preference shares of International Corona Corporation (Corona), a publicly traded Canadian gold producer. In December 1992, Corona's name was changed to Homestake Canada Inc. (HCI). Homestake issued 0.35 of a Homestake common share for each HCI common share, 0.54 of a Homestake common share and $0.42 cash for each HCI Series A first preference share and 1.08 Homestake common shares for each HCI Series C first preference share. Homestake issued a total of 37.2 million Homestake common shares and paid approximately $0.5 million in cash in acquiring 100% of the common and first preference shares. This business combination has been accounted for as a pooling of interests. PRIME AND STIKINE: In December 1993, Prime acquired effectively all of the stock of Stikine Resources Ltd. (Stikine) through a share exchange. This transaction was accounted for as a corporate reorganization of companies under common control. Prime and Stikine each have a 50% interest in the Eskay Creek project. The Company now owns 54.2% of the 34 common stock of Prime. Prior to this transaction, Homestake's effective ownership in Prime and Stikine was 54.3% and 54.1%, respectively. On June 30, 1992 HCI purchased 419,475 Stikine common shares from the minority shareholders of Stikine in exchange for 419,475 HCI Series 1 second preference shares (Series 1 shares). As a result, HCI increased its investment in the Eskay Creek project by approximately $24.9 million. Based on Homestake's assessment of the recoverable value of the indirect investment in the Eskay Creek project, Homestake recorded a second quarter 1992 write-down of $16 million of this additional investment (see note 4). As a result of HCI's June 1992 acquisition of the Stikine common shares, the Company's ownership of Stikine increased above 50% and therefore, the Company consolidated Stikine in its financial statements as of that date. Each Series 1 share was entitled to a quarterly dividend of approximately $1.10. At December 31, 1992, 419,475 Series 1 shares were outstanding, including 130,000 shares which were acquired by Prime during the third quarter of 1992. Minority interest in consolidated subsidiaries at December 31, 1992 includes $15.9 million representing the Series 1 shares outstanding, net of shares held by Prime. In July 1993, all of the Series 1 shares were redeemed at par for cash of $54.61 per share, plus unpaid dividends. In December 1992, HCI acquired two million common shares of Prime for $3.2 million cash, representing 4.4% of Prime's shares then outstanding. As a result of this transaction, Homestake owned in excess of 50% of Prime's common shares and consolidated Prime in its financial statements effective December 31, 1992. NOTE 3: SALES OF MINING OPERATIONS NAM: In July 1993, the Company sold its 83% interest in North American Metals Corp. (NAM), the company which owns and operates the Golden Bear mine, for approximately $1 million plus a retained royalty interest. The Company recorded a $0.5 million pretax gain and a $12.9 million tax benefit on the disposal. MINERAL HILL: In November 1993, the Company sold its 50% interest in the Mineral Hill gold mine in Montana for $4 million in cash and 140,000 common shares of TVX Gold Inc. (TVX). The Company retained a royalty interest on the exploration lands and received an indemnification from TVX for all past, present and future reclamation requirements. A gain of $3.6 million, which is included in other income, was recorded on the disposal. NOTE 4: WRITE-DOWNS OF MINING PROPERTIES AND INVESTMENTS As discussed in note 1, the Company performs annual property evaluations to assess the recoverability of its mining properties and investments. In 1993, 1992 and 1991, the Company determined that based upon estimates of proven and probable reserves, low sales prices and operating costs at certain locations, it would not fully recover its investment in certain properties. The following is a summary of the write-downs recorded as a result of these evaluations:
1993 1992 1991 ------------------------------------------------------------------------ Canada: Eskay Creek project $70,000 $106,000 Golden Bear mine 7,088 19,936 Other mining securities and properties 5,374 18,877 United States: McLaughlin mine 15,422 Mineral Hill mine 10,545 Whitewood Creek project 9,173 Main Pass 299 oil and gas property $16,032 Other properties 9,145 Latin America: El Hueso mine 16,000 Other mining securities 3,543 Australia: Kalgoorlie operations 7,402 Fortnum mine 4,142 -------------------------------- $16,032 $130,290 $172,357 ================================
35 The Company owns a 16.7% undivided interest in the Main Pass 299 sulphur project located in the Gulf of Mexico. Oil and gas production associated with the Main Pass 299 sulphur project commenced in late 1991 and sulphur start-up operations began in the second quarter of 1992. Full production levels for sulphur were reached in December of 1993. In the fourth quarter of 1993, the Company recorded a $16 million write- down of its investment in the oil and gas property at the Main Pass 299 sulphur project due to a decline in oil prices. Based on Homestake's assessment of the recoverable value of its investment in the Eskay Creek project, in 1992 and 1991 the Company recorded a total of $176 million of write-downs of its investments in Prime and Stikine, the holders of the Eskay Creek project. A write-down of $106 million was recorded as of December 31, 1991 to reflect the effect of discounting the project's estimated future cash flows and gold mineralization that the Company believed would qualify as proven and probable reserves. An additional write-down of $54 million was recorded in 1992 at the time of the acquisition of HCI to reflect Homestake's capital cost estimates and estimates of future gold prices. Also, as discussed in note 2, on June 30, 1992 HCI increased its investment in Stikine by approximately $24.9 million and Homestake recorded a second quarter 1992 write-down of $16 million on this additional investment. In 1991, the Company also concluded that it would not recover any of its investment in certain Canadian mining company securities and recorded a write-down of $18.9 million of such investments. NOTE 5: RESTRUCTURING AND BUSINESS COMBINATION EXPENSES In 1993, the Company offered a second early retirement and work force reduction program at the Homestake mine and recorded a charge primarily for additional pension and post-retirement medical costs. Also in 1993, the Company recorded restructuring charges for the reorganization of HGAL, including the relocation of HGAL's principal office, and for business combination expenses related to the merger of Prime and Stikine (see note 2). Concurrent with the business combination with HCI in 1992, the Company announced a major corporate restructuring of its North American operations. The restructuring included the consolidation of many administrative and exploration activities, the closure of several existing offices and initiation of an early retirement and work force reduction program at the Homestake mine. During 1991, HCI completed a corporate restructuring whereby $231.1 million of non-gold assets were transferred to a new public company, Dundee Bancorp Inc. (Dundee), in exchange for $87.3 million which was applied to reduce debt, 5.2 million Dundee preference shares valued at $4.5 million and $153.8 million in notes receivable, which were subsequently cancelled along with an equivalent dollar value of HCI common shares as part of the restructuring. The non-gold assets transferred, which included oil and gas, base metals and industrial mineral interests, have been reflected as discontinued operations in the consolidated statement of operations for 1991. Net cash provided by the restructuring amounted to $2.2 million. Costs of $13.6 million associated with the restructuring were expensed during 1991. A summary of the amounts recorded for restructuring and business combination expenses is as follows:
1993 1992 1991 --------------------------------------------------------------------- Homestake mine work force reduction costs $5,770 $ 7,000 Business combination transaction costs 528 9,666 Severance, lease terminations and other restructuring costs 1,853 29,456 $13,630 Financing costs 2,320 ---------------------------- $8,151 $48,442 $13,630 ============================
36 NOTE 6: DISCONTINUED OPERATIONS HCI NON-GOLD OPERATIONS: HCI's non-gold assets and related operations, which were transferred to Dundee as part of HCI's 1991 restructuring, have been accounted for as discontinued operations in the consolidated financial statements (see note 5). Summarized results of HCI's discontinued non-gold operations for 1991 include revenues of $6.5 million, a pretax operating loss of $26.3 million and a net loss of $25.4 million. URANIUM: During 1990, the Company closed its New Mexico uranium production facilities and discontinued its uranium business. Other assets (non-current) at December 31, 1993 and 1992 include $13.6 million and $14.1 million, respectively, of long-term receivables and other assets related to uranium operations. Accrued reclamation costs include amounts related to uranium (see notes 15 and 20). NOTE 7: INCOME TAXES Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes." The adoption of this standard changes the criteria for recognition and measurement of deferred tax assets and certain other requirements of SFAS 96. The standard was adopted on a prospective basis and amounts presented for prior years have not been restated. The effect on net income of adoption of SFAS 109 was not material and did not result in the recording of a cumulative effect for adopting this principle. The provision (credit) for income and mining taxes consists of the following:
1993 1992 1991 ---------------------------------------------------------------------- Current: Income taxes: Federal $(2,465) $ (513) $ (4,296) State 105 305 (485) Canadian 1,177 1,936 9,165 Other foreign 1,013 185 156 ------------------------------- (170) 1,913 4,540 Canadian mining taxes 10,287 6,319 12,332 ------------------------------- Total current taxes 10,117 8,232 16,872 ------------------------------- Deferred: Income taxes: Federal 3,639 (11,040) (21,592) State 95 (601) 125 Canadian 2,203 (3,364) 12,827 Other foreign (262) ------------------------------- 5,937 (15,267) (8,640) Canadian mining taxes (3,279) 4,146 (2,650) ------------------------------- Total deferred taxes 2,658 (11,121) (11,290) ------------------------------- Total income and mining taxes (benefit) $12,775 $ (2,889) $ 5,582 ===============================
The provision for income taxes is based on pretax income (loss) from continuing operations before minority interest as follows:
1993 1992 1991 ------------------------------------------------------------------- United States $ 6,222 $ (86,278) $ (60,943) Canada 41,434 (91,989) (97,517) Other foreign 20,740 (228) (48,208) ------------------------------- $68,396 $(178,495) $(206,668) ===============================
37 Deferred tax liabilities and assets on the balance sheet as of December 31, 1993 relate to the following:
1993 --------------------------------------------------------------------- Deferred tax liabilities Depreciation and other resource property differences: United States $ 65,194 Canada - Federal 56,289 Canada - Provincial 84,032 Australia 5,373 --------- 210,888 Other 22,397 --------- Gross deferred tax liabilities 233,285 --------- Deferred tax assets Tax loss carry-forwards: Canada - Federal 17,387 Canada - Provincial 5,655 Australia 5,682 Chile 15,564 --------- 44,288 --------- Reclamation costs: United States 13,630 Other 1,949 --------- 15,579 Employee benefit costs 23,699 Lease obligations not currently deductible 2,683 Foreign tax credit carry-forwards 2,442 Alternative minimum tax credit carry-forwards 12,423 Reorganization costs 2,103 Other 18,104 --------- Gross deferred tax assets 121,321 Deferred tax asset valuation allowances (52,066) --------- Net deferred tax assets 69,255 --------- Net deferred tax liability $164,030 =========
Deferred tax assets and liabilities in the current period balance sheet are classified in accordance with SFAS 109, which generally requires the classification be based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. A valuation allowance of $52.1 million has been recognized to offset certain related deferred tax assets due to management's uncertainty of realizing the benefits of these items. Major items causing the Company's income tax provision (credit) to differ from the federal statutory rate of 35% in 1993 and 34% in 1992 and 1991 were:
1993 1992 1991 ------------------------------------------------------------------- Income tax at statutory rate $ 23,938 $(60,689) $(70,267) Nondeductible write-downs 32,122 52,183 Percentage depletion (14,401) (6,216) (5,511) Earnings in foreign jurisdictions taxed at different rates (1,440) (2,433) (731) State income taxes, net of federal benefit 130 (245) (238) Tax relating to reorganizations 4,387 6,596 7,332 Unrealized minimum tax credits 23,844 10,617 Other nondeductible losses 3,757 3,539 16,091 Deferred tax assets not recognized in prior years (36,706) Foreign taxes withheld 2,669 Other, net (411) 3,355 (2,959) -------------------------------- Total income taxes 5,767 (13,354) (4,100) Canadian mining taxes 7,008 10,465 9,682 -------------------------------- Total income and mining taxes (benefit) $ 12,775 $ (2,889) $ 5,582 ================================
For income tax purposes, the Company has foreign tax loss and U.S. foreign tax credit carry-forwards of approximately $60.3 million and $2.4 million, respectively, which are due to expire at various times through the year 2000. NOTE 8: RECEIVABLES
December 31, 1993 1992 ------------------------------------------------------------------- Trade $ 4,059 $13,497 Income taxes 14,966 Interest and other 9,624 8,660 --------------------- $28,649 $22,157 =====================
38 NOTE 9: INVENTORIES
December 31, 1993 1992 ------------------------------------------------------------------- Finished products $ 9,548 $15,837 Ore and in process 22,465 30,598 Supplies 34,526 31,611 --------------------- $66,539 $78,046 =====================
At December 31, 1993 and 1992, the cost of certain finished gold inventories in the United States stated on the LIFO cost basis aggregated $0.4 million and $8.2 million, respectively. Such inventories would have approximated $1.4 million and $16.4 million, respectively, if stated at the lower of market or current year average production costs. In 1993, 44,750 ounces of gold at an average cost of $175 per ounce were sold from the LIFO inventory, the effect of which increased pretax income by $5.2 million compared to the cost of such inventories based on 1993 average production cost. NOTE 10: PROPERTY, PLANT AND EQUIPMENT
December 31, 1993 1992 ------------------------------------------------------------------ Mining properties and development costs $ 694,885 $ 670,899 Plant and equipment 836,947 842,858 Land and royalty interests 3,955 4,028 Construction and mine development in progress 4,431 14,055 ----------------------- $1,540,218 $1,531,840 =======================
NOTE 11: NON-CURRENT INVESTMENTS
December 31, 1993 1992 ------------------------------------------------------------------- Equity investments: Dee, Pinson and Marigold mining partnerships $ 8,966 $11,328 Other equity investments 7,023 8,108 Other investments 4,643 5,676 -------------------- $20,632 $25,112 ====================
NOTE 12: ACCRUED LIABILITIES
December 31, 1993 1992 ------------------------------------------------------------------- Payroll and other compensation $19,053 $28,704 Reclamation 14,041 11,514 Other 24,653 25,385 -------------------- $57,747 $65,603 ====================
NOTE 13: LONG-TERM DEBT AND GOLD LOANS
December 31, 1993 1992 ------------------------------------------------------------------- Long-term debt: Convertible subordinated notes (due 2000) $150,000 Pollution control bonds: Lawrence County, South Dakota (due 2003) 18,000 $18,000 State of California (due 2004) 17,000 17,000 Australian: Finance lease debt (due 1994-1995) 7,976 11,968 Canadian: Unsecured revolving term loan 23,999 Prime 12,287 Other 277 --------------------- 192,976 83,531 Less current portion 3,785 18,322 --------------------- $189,191 $65,209 ===================== Gold loans $163,226 Less current portion 23,261 -------- $139,965 ========
CONVERTIBLE SUBORDINATED NOTES: In June 1993, the Company sold $150 million principal amount of 5.5% convertible subordinated notes which mature on June 23, 2000. Interest on the notes, payable semi-annually, began on December 23, 1993. The notes are convertible into common shares of the Company at a rate of $23.06 per common share and are redeemable by the Company in whole at any time on or after June 23, 1996. Proceeds from the notes were used to retire existing gold loans and other long-term debt. Issuance costs of $3.9 million were capitalized and are being amortized over the life of the notes. 39 POLLUTION CONTROL BONDS: The Company pays interest monthly on the pollution control bonds based on variable short-term tax-exempt obligation rates. The rates at December 31, 1993 and 1992 were 3.1% and 4.1%, respectively. No principal payments are required until cancellation, redemption or maturity. Bondholders have the right to tender the bonds for payment at any time on seven days' notice. The Company has arrangements with underwriters to remarket any tendered bonds, and with a bank to provide liquidity and credit support to the Company and to purchase and hold for up to 15 months any tendered bonds that the underwriters are unable to remarket. The Company has certain rights with respect to bond redemption and changes in the interest rate terms. AUSTRALIAN FINANCE LEASE DEBT: During 1990, HGAL sold to a bank and leased back a portion of its Fortnum gold mining property in Western Australia. This transaction has been accounted for in the Company's consolidated financial statements as a financing transaction. Capitalized financing cost of $1.5 million are being amortized over the life of the lease. The lease requires quarterly payments of approximately $1 million plus interest through September 30, 1995. Interest is based on the average yield for Australian three-month commercial bills plus 0.9%. A final principal payment of approximately $1.4 million is due upon termination of the lease. The interest rate was 5.8% and 6.9% at December 31, 1993 and 1992, respectively. CANADIAN DEBT: In June 1993, the Company repaid the currency loan balance outstanding under its Canadian unsecured revolving term loan facility. In December 1993, Prime repaid the borrowings outstanding on its term loan. GOLD LOANS: At December 31, 1992 the Company had gold loans outstanding of $163.2 million representing 417,588 ounces of gold. In June 1993, the Company repaid all amounts due under these gold loans using proceeds from the convertible subordinated notes. A deferred net gain of $6.8 million on the repayment of the gold loans is being recognized in revenue over the original payment periods of the gold loans. LINES OF CREDIT: In 1993, the Company terminated its separate United States and Canadian credit facilities and entered into a new U.S./Canadian cross border credit facility providing a total availability of $150 million. The Company pays a commitment fee of 0.375% per annum on the unused portion of this facility. The credit facility is available through August 24, 1998 and provides for borrowings in U.S. dollars, Canadian dollars, gold loans or a combination of these. The agreement includes, among other things, a minimum consolidated net worth requirement and a minimum fixed charge coverage ratio. In December 1993, Prime entered into a credit facility which provides a total availability of $5.7 million. No amounts have been borrowed under these agreements. Required principal payments of the Company's long-term debt during the years subsequent to 1993 are as follows:
---------------------------------------------------------------- 1994 $ 3,785 1995 4,191 1996 1997 1998 Thereafter 185,000 -------- $192,976 ========
NOTE 14: INTEREST EXPENSE Interest costs of $9.1 million, $13.4 million and $11.9 million were expensed in 1993, 1992 and 1991, respectively. During 1992 and 1991 interest costs of $3.5 million and $14.9 million, respectively, related to the development of certain assets were capitalized. 40 NOTE 15: OTHER LONG-TERM OBLIGATIONS
December 31, 1993 1992 ------------------------------------------------------------------- Accrued reclamation costs (see notes 1, 6, 12 and 20) $22,138 $32,344 Accrued pension and other post-retirement benefit obligations (see note 16) 59,626 49,900 Other 11,910 5,758 ------------------ $93,674 $88,002 ==================
NOTE 16: EMPLOYEE BENEFIT PLANS PENSION PLANS: The Company has pension plans covering substantially all United States employees. Plans covering salaried and other non-union employees provide pension benefits based on years of service and the employee's highest compensation during any 60 consecutive months prior to retirement. Plans covering union employees provide defined benefits for each year of service. Pension cost for 1993, 1992 and 1991, for the Company sponsored United States employee plans included the following components:
1993 1992 1991 ---------------------------------------------------------------------- Service cost - benefits earned during the year $ 3,513 $ 3,854 $ 3,714 Interest cost on projected benefit obligations 12,957 11,993 11,492 Actual net return on assets (17,198) (13,390) (23,697) Net amortization and deferral 4,821 1,555 13,735 ------------------------------- Net periodic pension cost 4,093 4,012 5,244 Early retirement program cost 4,062 5,000 ------------------------------- $ 8,155 $ 9,012 $ 5,244 ===============================
Assumptions used in determining net periodic pension cost for 1993, 1992 and 1991, include a discount rate of 8% and an assumed rate of increase in compensation of 6%. The assumed long-term rate of return on assets was 8.5% for each year. Assumptions used in determining the projected benefit obligations as of December 31, 1993 and 1992 include a discount rate of 7% and 8%, respectively, and an assumed rate of increase in compensation of 5% and 6%, respectively. The funded status and amounts recognized for pension plans in the consolidated balance sheets are as follows:
December 31, 1993 December 31, 1992 Plans Where Plans Where ---------------------- ------------------------- Accumulated Accumulated Assets Exceed Benefits Assets Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets --------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits $(101,000) $(50,529) $(119,000) $ (9,000) ============================================== Accumulated benefits $(111,454) $(56,815) $(131,981) $(10,000) ============================================== Projected benefits $(131,078) $(60,100) $(150,858) $(14,000) Plan assets at fair value<1> 124,095 41,049 155,792 ---------------------------------------------- Plan assets in excess of (less than) projected benefit obligation (6,983) (19,051) 4,934 (14,000) Unrecognized net loss (gain) 11 3,760 (8,363) 871 Unrecognized net transi- tion obligation (asset) amortized over 15 years 93 (4,020) (5,391) 1,274 Unrecognized prior service cost 267 2,133 1,545 1,557 Additional minimum liability (1,520) ---------------------------------------------- Pension liability recognized in the consolidated balance sheets $ (6,612) $(18,698) $ (7,275) $(10,298) ============================================== <1> Approximately 20% and 28% of the plan assets were invested in fixed-rate insurance contracts and the balance was invested in listed stocks and bonds in 1993 and 1992, respectively.
41 HGAL participates in several pension plans, primarily defined contribution plans, covering its employees and, through its ownership of a 50% interest in the consolidated Kalgoorlie operations, the employees of Kalgoorlie Consolidated Gold Mines. HGAL's share of contributions to these plans for 1993, 1992, and 1991 was $0.8 million, $1 million and $1.1 million, respectively. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides medical and life insurance benefits for certain retired employees, primarily retirees of the Homestake mine. Retirees are generally eligible for benefits upon retirement if they are at least age 55 and have completed five years of service. Spouses and dependent children are also covered until remarriage or upon being covered by another group plan. In 1991, the Company adopted SFAS No. 106 which requires that these post-retirement benefits be accrued over the period in which active employees become eligible for such benefits. Previously these costs were expensed when paid. The accumulated post-retirement benefit obligation as of January 1, 1991 has been expensed as the cumulative effect of an accounting change. Such cumulative effect increased the Company's net loss in 1991 by $28.8 million or $0.22 per share. No income tax benefit was recorded related to this expense. Net periodic post-retirement benefit costs for 1993, 1992 and 1991 included the following components:
1993 1992 1991 ---------------------------------------------------------------------- Service cost - benefits earned during the year $ 717 $ 625 $ 577 Interest cost on accumulated post-retirement benefit obligations 3,575 2,475 2,290 Net amortization and deferral 369 ----------------------------- $4,661 $3,100 $2,867 =============================
In 1993 and 1992, the Company also recorded expenses of $0.9 million and $2 million, respectively, related to early retirement programs at the Homestake mine. The following table sets forth amounts recorded in the Company's consolidated balance sheets at December 31, 1993 and 1992. The Company has not funded any of its estimated future obligation.
1993 1992 ------------------------------------------------------------------------ Accumulated post-retirement benefit obligations: Retirees $(36,000) $(20,000) Fully eligible active plan participants (1,000) (4,000) Other active plan participants (11,261) (9,600) -------------------- (48,261) (33,600) Unrecognized net loss 10,549 Unrecognized prior service cost 797 -------------------- Accumulated post-retirement benefit obligation liability recognized in the consolidated balance sheets $(36,915) $(33,600) ====================
The actuarial assumptions used in determining the Company's accumulated post-retirement benefit obligations include a discount rate of 8% and increases in medical costs of 8% as of December 31, 1992. The discount rate was lowered to 7% as of December 31, 1993. The health care trend assumption was also changed so that costs are assumed to initially increase at 12% and grade down to an ultimate health care cost trend of 5%. A one-percentage-point increase in the assumed health care cost trend rate would result in an increase of approximately $0.8 million in the net periodic post-retirement benefit costs. OTHER PLANS: All full-time United States employees of the Company are eligible to participate in the Company's defined contribution savings plans. The Company's matching contribution was approximately $1.1 million in 1993, $1.7 million in 1992 and $1.6 million in 1991. 42 Under the Company's stock option plans, options to buy two million common shares at an average price of $17.69 per share were outstanding at December 31, 1993, of which two million shares were exercisable. An additional one million and 1.4 million shares were available for future grants at December 31, 1993 and 1992, respectively. During 1991, all unexercised stock appreciation rights outstanding at that time were cancelled. During 1993, the Company offered to convert all HCI options outstanding to Homestake options on the basis of 0.35 of a Homestake common share option for each HCI common share option and at an exercise price equal to the exercise price of the HCI option divided by 0.35 and converted from Canadian dollars to U.S. dollars based on the July 22, 1992 exchange rate. All other terms and conditions of the HCI options remained unchanged. As a result, options covering 787,345 Homestake shares were substituted for HCI shares under the HCI options at prices ranging from $17.70 to $42.77 per share. Certain of these converted options had share appreciation rights and at December 31, 1993 the Company recorded a charge of $0.2 million with respect to these rights. Stock option activity was as follows: (In thousands , except per share amounts)
1993 1992 1991 ---------------- ---------------- --------------- Average Average Average Price Per Price Per Price Per Number Share Number Share Number Share ------------------------------------------------------------------------ Balance at January 1, 2,035 1,569 1,543 HCI converted 787 $29.04 Granted 516 12.18 688 $14.20 318 $13.67 Exercised (695) 15.88 (24) 5.75 (222) 12.05 Expired (201) 29.20 (198) 16.10 (70) 17.03 -------------------------------------------------- Balance at December 31, 2,442 2,035 1,569 =================================================
NOTE 17: FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and estimated fair values of the Company's financial instruments are as follows:
December 31, 1993 December 31, 1992 --------------------- ------------------- Carrying Estimated Carrying Estimated Asset/(Liability) Amount Fair Value Amount Fair Value -------------------------------------------------------------------- Cash and equivalents and short-term investments $134,719 $134,719 $71,064 $73,215 Non-current marketable equity investments 4,643 5,319 2,876 4,080 Long-term debt (192,976) (224,471) (83,531) (83,531) Gold loans (163,226) (139,011) Off-balance sheet financial instruments - Foreign currency options (156) (156) (469) (469)
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND EQUIVALENTS AND SHORT-TERM INVESTMENTS: The carrying value of cash and equivalents approximates their fair value due to the short-term maturities of these instruments. The fair value of short-term investments was estimated based on the quoted market prices for the investments. If a quoted market price was not available, the fair value was estimated using quoted market prices for similar securities. NON-CURRENT MARKETABLE EQUITY INVESTMENTS: The fair value of non-current marketable equity investments was estimated based on quoted market prices. LONG-TERM DEBT: With the exception of the convertible subordinated notes, the carrying amounts of the long-term debt items are a reasonable estimate of their fair value. Interest rates on these debt instruments fluctuate at prevailing market rates. The fair value of the Company's convertible subordinated notes was estimated based on the quoted market prices. GOLD LOANS: The fair value of gold loans was determined based on the outstanding ounces of gold valued at the market price. 43 FOREIGN CURRENCY OPTIONS: The fair value of foreign currency options was estimated based upon the quoted market price for the options. If a quoted market price was not available, the fair value was estimated using quoted market prices for similar options. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1993 and 1992. Although management is not aware of any factors which would affect the estimated fair value amounts significantly, such amounts have not been comprehensively revalued for purposes of these financial statements since the balance sheet dates, and estimates of fair value at dates subsequent to December 31, 1993 and 1992 may differ significantly from the amounts presented herein. NOTE 18: SHAREHOLDERS' EQUITY At December 31, 1993 and 1992 other capital includes $3.9 million and $5.5 million, respectively, of loans made to certain former HCI employees and directors for the purchase of common shares. The loans, which were used for the purchase of shares of HCI, are non-interest bearing, are secured by a pledge of the shares and are not required to be paid until the later of 1995 or until the pledged securities are equal to or greater than the value of the loan. Other capital at December 31, 1992 also includes $4.2 million for common shares of Homestake owned by Prime. These Homestake shares were sold by Prime in 1993. In 1991, HCI obtained the right to redeem its Series B first preference shares for common stock. As a result, in 1991 the HCI preference shares of $40.3 million were reclassified from minority interest to stockholders' equity. Effective April 30, 1992, 2.7 million HCI Series B first preference shares were redeemed for 4.3 million common shares of the Company. At December 31, 1992, there were no Series B first preference shares outstanding (1991 - 2.7 million). Each share of common stock includes and trades with a right. Rights are not exercisable currently but become exercisable on the 10th business day after any person, entity or group ("the Acquiring Person") acquires 20% or more of the Company's common stock or announces a tender or exchange offer which would result in such entity acquiring 20% or more of the Company's common stock. When exercisable, each right entitles its holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock, par value $1 per share, at a share price of $75. If the Company is subsequently involved in a merger or other business combination involving the Acquiring Person, each right will entitle its holder to purchase certain securities of the surviving company. Rights also provide for protection against self-dealing transactions by the Acquiring Person. The rights expire on November 2, 1997. NOTE 19: ADDITIONAL CASH FLOW INFORMATION Cash paid for interest and for income and mining taxes, including amounts related to discontinued operations in 1991, is as follows:
1993 1992 1991 --------------------------------------------------------------------- Interest, net of amounts capitalized $ 8,600 $13,203 $15,949 Income and mining taxes 18,170 7,328 16,133
In 1991, HGAL sold additional stock to its shareholders. The Company subscribed to its 80% share of the offering and also acquired part of the shares not purchased by HGAL's public shareholders. The offering resulted in an increase in cash on a consolidated basis of $7.2 million. Certain investing and financing activities of the Company affect financial position but do not affect cash flows. Significant non-cash investing and financing activities were as follows: In 1992, HCI increased its equity interest in the Marigold mine venture to 33.3% following a land exchange. 44 See notes 2, 5 and 18 for discussions of the non-cash acquisitions of the interests in HCI, Prime and Stikine and the 1991 HCI restructuring. In 1992, HCI redeemed its Series B first preference shares for common stock (See note 18). The impact on the balance sheet during 1992 as a result of the change in the accounting for the Company's investments in Prime and Stikine from the equity method to consolidation (see note 2) was as follows:
Increase/(Decrease) --------------------------------------------------------------------- Cash and equivalents $ 6,411 Working capital and other assets (2,624) Property, plant and equipment 194,807 Non-current investments (79,476) Long-term debt 12,287 Deferred income taxes 78,619 Minority interests 32,470 Shareholders' equity (4,258)
NOTE 20: ENVIRONMENTAL CONTINGENCIES The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) imposes heavy liabilities on persons who discharge hazardous substances. The Environmental Protection Agency (EPA) publishes a National Priorities List (NPL) of known or threatened releases of such substances. WHITEWOOD CREEK: An 18-mile stretch of Whitewood Creek in the Black Hills of South Dakota is a site on the NPL. EPA asserts that discharges of tailings by mining companies, including the Company, for more than 100 years, have contaminated soil and water. In 1990, the Company signed a consent decree with the EPA requiring that the Company perform remedial work on the site and continue long-term monitoring. The onsite remedial work has been completed. The Company estimates that the remaining cost of actions required by the decree, including EPA oversight costs, will be approximately $2 million. GRANTS: The tailings facility at the Company's discontinued uranium mill near Grants, New Mexico, is a site on the NPL. The EPA asserted that leakage from the tailings has contaminated a shallow aquifer that serves nearby residential subdivisions. The Company paid the costs for installing a municipal water supply and continues to operate an injection and collection system that has significantly improved the quality of the aquifer to levels that comply with state ground water standards. The Company has commenced to dismantle the mill facilities and close the tailings impoundments. Title X of the Energy Policy Act of 1992 (the Act) authorized appropriations of $310 million to cover the Federal Government's share of certain costs of reclamation, decommissioning and remedial action for byproduct material (primarily tailings) generated by certain licensees as an incident of uranium sales to the Federal Government. Reimbursement is subject to compliance with regulations now being finalized by the Department of Energy (DOE) for issuance in 1994. The DOE has acknowledged that the Company is an eligible participant pursuant to the Act and that the Company may submit requests for reimbursement under the Act for 51% of the past and future costs of reclaiming the Grants site in accordance with EPA requirements. The Company estimates that the total cost to reclaim the Grants facility, including costs incurred to date by the Company of $25.9 million, will be $59.2 million. The DOE's share of these estimated costs will amount to $30.2 million. Accordingly, a provision of $3.1 million is included in the consolidated financial statements at December 31, 1993 for the Company's estimate of its remaining share of Grants future expenditures. Congress has appropriated $41 million dollars for disbursement in 1994 to eligible licensees. As the first installment, the Company intends to submit an initial claim in 1994 of approximately $13.2 million for past costs incurred through December 31, 1993. 45 In 1983, the state of New Mexico made a claim against the Company for unspecified natural resource damages resulting from the Grants tailings. The state of South Dakota made a similar claim in 1983 as to the Whitewood Creek tailings. The Company denies all liability for damages at the two CERCLA sites. The two states have taken no action to enforce the 1983 claims. The Company believes that the ultimate resolution of these matters will not have a material adverse impact on its financial condition or results of operations. NOTE 21: FOREIGN CURRENCY AND OTHER COMMITMENTS During 1992, the Company established a foreign currency protection program and entered into a series of foreign currency option contracts which established trading ranges within which the United States dollar will be exchanged for foreign currencies by setting minimum and maximum exchange rates. The Company does not require or place collateral for these contracts. However, the Company minimizes its credit risk by dealing with only major international banks and financial institutions. Unrealized losses on the contracts outstanding at December 31, 1993 in the amount of $0.2 million have been included in the 1993 results. At December 31, 1993 the Company had outstanding forward currency contracts as follows: (In thousands, except exchange rates)
Exchange Rates to U.S.$ Currency Amount Minimum Maximum Expiration Date -------------------------------------------------------------------- Canadian $ 97,300 $0.69 $0.79 1994 - 1997 Australian 79,300 0.61 0.70 1994 - 1995 -------- $176,600 ========
The Company realized foreign currency transaction losses (see note 1) of $1.4 million in 1993 and $5.5 million in 1992, which were recorded as a reduction to other income. The Company has entered into various commitments in the ordinary course of its business, which includes commitments to perform assessment work and other obligations necessary to maintain or protect its interests in mining properties, financing and other obligations to joint venturers and partners under venture and partnership agreements, and commitments under federal and state environmental health and safety permits. NOTE 22: GEOGRAPHIC AND SEGMENT INFORMATION The Company primarily is engaged in gold mining and related activities. Interests in joint ventures are included in segment operations and identifiable assets. In determining operating earnings, which are defined as operating revenues less operating costs and expenses, the following items have been excluded: mineral exploration costs, corporate income and expense, and income and mining taxes. Identifiable assets represent those assets used in a segment's operations. Corporate assets are principally cash and equivalents, short-term investments and assets related to operations not significant enough to require classification as a business segment. Sales to individual customers exceeding 10% of the Company's consolidated revenues were as follows: in 1993 gold sales of $175 million, $145 million and $105 million to three customers; in 1992 gold sales of $92 million to one customer; and in 1991 gold sales of $110 million and $94 million to two customers. The Company believes that the loss of any of these customers would not have a material adverse impact on the Company because of the active worldwide market for gold. 46 GEOGRAPHIC INFORMATION
1993 1992 1991 -------------------------------------------------------------------- REVENUES: U.S. $ 380,458 $ 354,018 $ 291,246 Canada 194,755 178,401 243,233 Australia 121,025 124,799 111,854 Latin America 25,990 26,302 25,267 ------------------------------------- $ 722,228 $ 683,520 $ 671,600 ===================================== OPERATING EARNINGS (LOSS):<1> U.S. $ 33,295 $ (11,666) $ (4,482) Canada 70,788 40,603 39,449 Australia 29,660 10,284 (12,574) Latin America 2,272 (869) (18,908) -------------------------------------- $ 136,015 $ 38,352 $ 3,485 ====================================== EXPLORATION EXPENSE:<2> U.S. $ 11,128 $ 14,735 $ 21,960 Canada 1,907 6,328 15,762 Australia 2,888 4,097 7,232 Latin America and other 1,534 2,638 2,486 -------------------------------------- $ 17,457 $ 27,798 $ 47,440 ====================================== IDENTIFIABLE ASSETS AS OF DECEMBER 31: U.S. $ 550,645 $ 559,558 $ 751,064 Canada 385,324 406,883 385,086 Australia 165,683 159,993 192,787 Latin America 19,598 18,735 23,894 -------------------------------------- $1,121,250 $1,145,169 $1,352,831 ====================================== <1> Includes write-downs of: $16 million and $28.5 million in 1993 and 1992, respectively, for U.S.; $11.6 million in 1991 for Australia; $7.1 million and $19.9 million in 1992 and 1991, respectively, for Canada and $3.5 million in 1992 and $16 million in 1991 for Latin America. <2> Includes write-downs in 1991 of: $5.8 million for U.S.; $3.8 million for Australia; and $2.1 million for Canada.
SEGMENT INFORMATION
1993 1992 1991 - --------------------------------------------------------------------------- REVENUES: Gold $ 688,080 $ 639,253 $ 628,294 Sulphur project 16,220 22,867 1,406 Interest, dividends and other 17,928 21,400 41,900 --------------------------------------- $ 722,228 $ 683,520 $ 671,600 ======================================= OPERATING EARNINGS (LOSS): Gold<1> $ 161,947 $ 34,318 $ 3,525 Sulphur project<2> (25,932) 4,034 (40) --------------------------------------- Operating earnings 136,015 38,352 3,485 Exploration expense<3> (17,457) (27,798) (47,440) Net corporate expense<4> (50,162) (189,049) (162,713) --------------------------------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND MINORITY INTEREST $ 68,396 $ (178,495) $ (206,668) ======================================= DEPRECIATION, DEPLETION AND AMORTIZATION: Gold $ 90,842 $ 103,569 $ 114,969 Sulphur project 10,629 13,133 1,118 Corporate 1,906 781 906 --------------------------------------- $ 103,377 $ 117,483 $ 116,993 ======================================= EXPLORATION EXPENSE: Gold $ 17,017 $ 27,726 $ 47,253 Sulphur project 440 72 187 --------------------------------------- $ 17,457 $ 27,798 $ 47,440 ======================================= ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT: Gold $ 54,219 $ 40,614 $ 83,172 Sulphur project 1,828 21,044 82,670 Corporate 1,778 1,795 616 --------------------------------------- $ 57,825 $ 63,453 $ 166,458 ======================================= IDENTIFIABLE ASSETS AS OF DECEMBER 31: Gold $ 788,122 $ 863,017 $1,004,403 Sulphur project 142,220 160,616 151,040 Corporate: Cash and short-term investments 134,719 71,064 164,353 Other 56,189 50,472 33,035 ---------------------------------------- $1,121,250 $1,145,169 $1,352,831 ======================================== <1> Includes write-downs of mining properties and equity investments of $39.1 million in 1992 and $47.5 million in 1991. <2> Includes a write-down of oil and gas property of $16 million in 1993. <3> Includes write-downs of previously capitalized costs of exploration properties of $11.7 million in 1991. <4> Includes write-downs of non-operating mining properties and investments of $91.2 million in 1992 and $124.9 million in 1991 and restructuring and business combination expenses of $8.2 million in 1993, $48.4 million in 1992 and $13.6 million in 1991.
47 REPORT OF INDEPENDENT AUDITORS The Shareholders and Board of Directors of Homestake Mining Company: We have audited the consolidated balance sheets of Homestake Mining Company and Subsidiaries as of December 31, 1993 and 1992, and the related statements of consolidated operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Homestake Mining Company and Subsidiaries at December 31,1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in note 16 to such consolidated financial statements, in 1991 the Company changed its method of accounting for post-retirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. /s/Coopers & Lybrand San Francisco, California February 14, 1994 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING Homestake Mining Company and Subsidiaries The accompanying consolidated financial statements of Homestake Mining Company and Subsidiaries are prepared by the Company's management in conformity with generally accepted accounting principles. Management is responsible for the fairness of the financial statements, which include estimates based on judgments. The Company maintains accounting and other control systems which management believes provide reasonable assurance that financial records are reliable for the purposes of preparing financial statements and that assets are properly safeguarded and accounted for. Underlying the concept of reasonable assurance is the premise that the cost of controls should not be disproportionate to the benefits expected to be derived from such controls. The Company's internal control structure is reviewed by its internal auditors. The external auditors conduct an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards in order to express their opinion on these financial statements. These standards require that the external auditors plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. The Audit Committee of the Board of Directors, composed entirely of outside directors, meets periodically with management, internal auditors and the external auditors to discuss the annual audit, internal control, internal auditing and financial reporting matters. The external auditors and the internal auditors have direct access to the Audit Committee. /s/ Harry M. Conger - ------------------- Harry M. Conger Chairman of the Board and Chief Executive Officer /s/ Gene G. Elam - ---------------- Gene G. Elam Vice President, Finance and Chief Financial Officer 48 FIVE-YEAR SELECTED FINANCIAL DATA<1> Homestake Mining Company and Subsidiaries (In thousands, except per share amounts)
1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------ Revenues $722,228 $683,520 $671,600 $793,660 $771,126 Income (loss) from continuing operations 52,494<2> (175,836)<3,4>(207,756)<6> 4,211<8> 34,770 Income (loss) from discontinued operations (25,359) 7,979 31,667 Net income (loss)52,494<2> (175,836)<3,4>(261,915)<6,7> 12,190<8> 70,115<9> Per share: Income (loss) from continuing operations 0.38<2> (1.31)<3,4> (1.57)<6> 0.02<8> 0.28 Income (loss) from discontinued operations (0.19) 0.06 0.25 Net income (loss) 0.38<2> (1.31)<3,4> (1.98)<6,7> 0.08<8> 0.56<9> Total assets 1,121,250 1,145,169 1,352,831 1,911,815 1,748,497 Long-term debt and gold loans 189,191 205,174 279,190 408,902 440,888 Other long-term obligations 93,674 88,002 86,193 51,253 47,000 Minority interest in consolidated subsidiaries 54,761 68,074 <5> 19,864 <5> 78,422<5> 98,972<5> Dividends paid per share<10> 0.10 0.20 0.20 0.20 0.20 <1> Five-year selected financial data reflects the 1992 combination of Homestake and HCI on a pooling of interests basis. Information presented also reflects the 1989 adoption of pro rata consolidation for HGAL's interest in Kalgoorlie Mining Associates and treats base metals, oil and gas, uranium and HCI's non-gold operations transferred to Dundee as discontinued operations. <2> Includes expense of $12.8 million ($16 million pretax) or $0.09 per share for a write-down of the Company's investment in the oil and gas property at the Main Pass 299 sulphur project and expense of $6.8 million ( $8.2 million pretax) or $0.05 per share for restructuring and business combination costs. <3> Includes expense of $117.7 million ($130.3 million pretax) or $0.87 per share from write-downs of certain mining properties and investments. <4> Includes expense of $32.3 million ($48.4 million pretax) or $0.24 per share for restructuring and business combination costs. <5> Includes redeemable preference shares of wholly-owned subsidiaries of $15.9 million, $4.9 million, $46.1 million and $50.4 million at December 31, 1992, 1991, 1990, and 1989, respectively. <6> Includes expense of $165.5 million ($172.4 million pretax) or $1.25 per share from write-downs of certain mining properties and investments and expense of $7.8 million ($13.6 million pretax) or $0.06 per share from HCI's 1991 restructuring. <7> Includes expense of $28.8 million (no tax benefit) or $0.22 per share from the cumulative effect of the change in accounting for post-retirement benefits other than pensions. <8> Includes expense of $32.6 million (no tax benefit) or $0.25 per share from the write-down of the Company's investment in NAM. <9> Includes extraordinary gain of $3.8 million or $0.03 per share on the monetization of gold loans. <10> Homestake common shares only.
49 QUARTERLY SELECTED DATA<1> Homestake Mining Company and Subsidiaries (In thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Year ------------------------------------------------------------------------------ 1993: Revenues $169,993 $187,091 $180,440 $184,704 $722,228 Net Income 5,561 11,294 <2> 22,739 <2> 12,900 <2,3> 52,494 <2,3> Per share: Net income 0.04 0.08 <2> 0.16 <2> 0.09 <2,3> 0.38 <2,3> Dividends paid<6> 0.025 0.025 0.025 0.025 0.10 1992: Revenues $179,503 $168,120 $179,929 $155,968 $683,520 Net loss (1,677) (26,064)<4,5>(120,714)<4,5>(27,381)<4> (175,836)<4,5> Per share: Net loss (0.01) (0.20)<4,5> (0.89)<4,5> (0.20)<4> (1.31)<4,5> Dividends paid<6> 0.05 0.05 0.05 0.05 0.20 <1> Quarterly selected data reflects the 1992 combination of Homestake and HCI on a pooling of interests basis. <2> Includes expenses of $6.8 million ($8.2 million pretax) or $0.05 per share for restructuring and business combination costs, including expenses of $1.9 million or $0.01 per share, $4.8 million or $0.04 per share and $0.1 million in the second, third and fourth quarters, respectively. <3> Includes expense of $12.8 million ($16 million pretax) or $0.09 per share for a write-down of the Company's investment in oil and gas property at the Main Pass 299 sulphur project. <4> Includes expenses of $117.7 million ($130.3 million pretax) or $0.87 per share from the write-downs of certain mining properties and investments, including expenses of $16 million or $0.12 per share, $90.3 million or $0.67 per share and $11.4 million or $0.08 per share in the second, third and fourth quarters, respectively. <5> Includes expenses of $32.3 million ($48.4 million pretax) or $0.24 per share for restructuring and business combination costs, including expenses of $3.5 million or $0.03 per share and $28.8 million or $0.21 per share in the second and third quarters, respectively. <6> Homestake common shares only.
COMMON STOCK PRICE RANGE (Prices as quoted on the New York Stock Exchange)
First Second Third Fourth Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------- 1993: High $14.63 $19.63 $21.63 $22.88 $22.88 Low 9.63 13.38 15.25 16.25 9.63 1992: High $16.50 $13.75 $14.50 $13.75 $16.50 Low 12.50 11.13 12.63 10.25 10.25
50 APPENDIX 1: Description of Bar Charts in Management's Discussion and Analysis Bar Chart A: Chart depicting gold production (ounces in millions) as follows: Year: 1991 1992 1993 Ounces: 1.80 1.91 1.92 Bar Chart B: Chart depicting gold revenues (dollars in millions) as follows: Year: 1991 1992 1993 Dollars: $628.3 $639.3 $688.1 Bar Chart C: Chart depicting cash cost per ounce (dollars per ounce) as follows: Year: 1991 1992 1993 Dollars: $269 $248 $231 Bar Chart D: Chart depicting administrative and general costs (dollars in millions) as follows: Year: 1991 1992 1993 Dollars: $47.4 $48.5 $40.6 EX-22 7 EXHIBIT 22 EXHIBIT NO. 22 Page 1 of 2 LIST OF SUBSIDIARIES -------------------------------------------------------------- Homestake Mining Company, a Delaware Corporation and its Subsidiaries Interest of Homestake Mining Company is 100% unless otherwise noted ( ) Denotes state, province or country of incorporation -------------------------------------------------------------- Homestake Mining Company (Delaware) Homestake Mining Company of California (California) Denay Creek Gold Mining Company (California) Homestake Canada Inc. (Ontario) 588982 Ontario Inc. (Ontario) 759290 Ontario Inc. (Ontario) 759291 Ontario Inc. (Ontario) 759292 Ontario Inc. (Ontario) Corona Gold Inc. (Nevada) Santa Fe Gold Inc. (Nevada) E & B Explorations Inc. (Delaware) Galveston Resources (Nevada), Inc. (Nevada) International Corona Resources (Bermuda) Ltd. (Bermuda) Mexico Exploration (Canada) Limited (Ontario) PRG Project Development Corp. (British Columbia) Pezamerica Resource Corporation (Arizona) Prime Resources Group Inc. (British Columbia) - 54.2% Stikine Resources Ltd. (British Columbia) - 54.2% Teck-Corona Operating Company (Ontario) - 50% The Ventora Corporation (Arizona) Westcan Holdings Inc. (Nevada) Williams Operating Company (Ontario) - 50% Homestake de Argentina S.A. (Buenos Aires) Homestake Forest Products Company (California) Homestake Gold of Australia Limited (Western Australia) - 81.5% Homestake Australia Limited (Western Australia) - 81.5% Homestake Gold (Queensland) Pty. Ltd. (Australia) - 81.5% Homestake International Minerals Limited (California) Homestake Lead Company of Missouri (California) Homestake Mineral Development Company (California) Homestake Nevada Corporation (California) Homestake Sulphur Company (Delaware) Black Hills Oil and Gas Company (California) Felmont Natural Gas Storage Company, Inc. (Delaware) Homestake Venezuela, S.A. (Venezuela) Minera Rio Carichapo, S.A. (Venezuela) La Jara Mesa Mining Company (New Mexico) Minera Homestake Chile S.A. (Chile) Whitewood Development Corporation (California) EX-24 8 EXHIBIT 24 Exhibit 24 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the following Registration Statements of Homestake Mining Company: Post-Effective Amendment No. 5 to No. 2-90903 on Form S-8 (originally filed on Form S-3); Post Effective Amendment No. 3 to No. 2-90905 on Form S-8 (originally filed on Form S-3); No. 33-26049 on Form S-8; No. 33-32174 on Form S-8; No. 266538 on Form S-8; Post-Effective Amendment No. 1 to No. 33-48526 on Form S-8 (originally filed on Form S-4) of our report dated February 14, 1994, appearing in and incorporated by reference in the Annual Report on Form 10-K of Homestake Mining Company for the year ended December 31, 1993. /s/ Coopers & Lybrand March 28, 1994 Oakland, California -----END PRIVACY-ENHANCED MESSAGE-----