-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OIlZ6zx43UdvtnI6hChSXhNGkdPNldcZ3j2ASLUKVPhZrZx7EXpZ44/VNtbxiDka SjMjRnSYN5N8ckuocLMyRw== 0000743872-96-000008.txt : 19960329 0000743872-96-000008.hdr.sgml : 19960329 ACCESSION NUMBER: 0000743872-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMESTAKE MINING CO /DE/ CENTRAL INDEX KEY: 0000743872 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 942934609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08736 FILM NUMBER: 96539455 BUSINESS ADDRESS: STREET 1: 650 CALIFORNIA ST-9TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 BUSINESS PHONE: 4159818150 10-K 1 10-K UNITED STATES 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, 1995 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 Participating Cumulative Preferred Stock New York Stock Exchange, Inc. 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 $2,549,000,000 as of March 18, 1996. The number of shares of common stock outstanding as of March 18, 1996 was 146,489,575. Documents Incorporated by Reference: Specified sections of Homestake Mining Company's 1995 Annual Report to Shareholders, as described herein, are incorporated by reference in Parts I and II of this Form 10-K. Specified sections of the definitive Proxy Statement for the 1996 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1995, are 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, refining and reclamation. Gold bullion, the Company's principal product, is produced in the United States, Canada, Australia, and Chile. Ore and concentrates containing gold and silver from the Eskay Creek and Snip mines in Canada are sold directly to smelters. The results of the Company's operations are affected significantly by the market price of gold. Gold prices are influenced by numerous factors over which the Company has no 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, demand for gold for jewelry and industrial products, and sales by holders and producers of gold in response to these factors. The supply of gold consists of a combination of new mine production and sales from existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, and individuals. The Company's general policy is to sell its production at current prices and not enter into forward sales, derivatives or other hedging arrangements which establish a price for the sale of its future gold production. As a result, the Company's profitability is exposed to fluctuations in the current price of gold in world markets. However, in certain limited circumstances, the Company will enter into forward sales commitments for small portions of its gold production. In 1994, the Company sold for future delivery 183,200 ounces of gold it expected to produce at the Nickel Plate mine during 1995 and 1996. These forward sales represented less than 5% of the gold that Homestake expected to produce during 1995 and 1996. The purpose of this forward sales program was to allow for recovery of the Company's remaining investment in the mine and provide for estimated reclamation costs. During 1995, 113,200 ounces of gold were delivered or financially settled under this program. At December 31, 1995 forward sales contracts covering 70,000 ounces for delivery in 1996 remained outstanding. Homestake also owns a 16.7% co-tenancy interest in the Main Pass 299 offshore sulphur mine and oil deposit in the Gulf of Mexico. Dollar amounts in this report are in U.S. dollars unless otherwise indicated. Effective December 31, 1995 Homestake adopted the "Gold Institute Production Cost Standard" for reporting of per ounce production costs. All cost per ounce information included in this Form 10-K has been presented on this basis (See "GLOSSARY" on page 33). See note 22 to the consolidated financial statements on pages 42 and 43 of the Company's 1995 Annual Report to Shareholders for geographic and segment information. Such information is hereby incorporated by reference. 2 SIGNIFICANT 1995 AND 1996 DEVELOPMENTS In late 1995 and early 1996, the Company acquired the 18.5% of Homestake Gold of Australia Limited ("HGAL") it did not already own. Homestake offered 0.089 of a Homestake share or A$1.90 in cash for each of the 109,605,000 HGAL shares. Homestake expects to issue a total of 8.5 million common shares and expend $22.3 million in cash in acquiring the 18.5% of HGAL held by minority shareholders. See note 3 to the Consolidated Financial Statements on page 34 of the Annual Report to Shareholders for further details of this transaction. A positive feasibility study for the Ruby Hill project was completed during the fourth quarter of 1995. This study indicates that the project will produce an average of 105,000 ounces of gold per year over its six-year life at a total cash cost of $140 per ounce. Capital requirements, including the pre-stripping of the overlying alluvium, are estimated to be $65 million. Construction of the facilities is anticipated to begin in early 1997 with initial gold production possible in late 1997. In December 1995, the Company acquired for $10.4 million, 5.5 million shares of Orion Resources NL ("Orion"), an Australian public mining company, and options to acquire an additional 5 million shares of Orion. After further evaluation of the investment opportunity, Homestake sold these shares and options in January 1996 for $10.7 million. In August 1995, an addition to the Fimiston mill at Kalgoorlie, Western Australia was commissioned. The addition has replaced the capacity of the Oroya mill, which was dismantled to allow for a planned expansion of the Super Pit, and increased the milling capacity at the Kalgoorlie operations to 33,500 tons-per-day ("TPD"). The expected lower unit milling costs resulting from the expansion will allow for further expansion of the of the Super Pit. In July 1995, the Company acquired for $24.0 million a 10% interest (fully-diluted) in Navan Resources plc ("Navan"), an Irish public company, and an option to acquire up to 50% of Navan's wholly-owned subsidiary, Navan Bulgarian Mining N.V., which owns a 68% interest in Bimak AD ("Bimak"), the owner of the Chelopech gold/copper processing operations located 45 miles east of Sofia, Bulgaria. Bimak provides mining supervision and has an exclusive contract to purchase all of the ore mined from the Chelopech mine. In March 1996, the Company exercised the option and agreed to advance up to $12.0 million, subject to the satisfaction of certain conditions, principally approval by the Bulgarian government to increase the rate of mining at Chelopech from 500,000 to 750,000 tonnes annually and approval of the roaster project for arsenic removal. The Company can acquire 50% of Navan's interest in Bimak by investing an additional $36.0 million, which would be used to fund a portion of the cost of a proposed expansion to accommodate processing of 1,750,000 tonnes annually. In June 1995, Homestake exercised an option to acquire 5% of Zoloto Mining Ltd. ("Zoloto") for $1.0 million. Zoloto has an exclusive option to acquire a 75% interest in the two million ounce Pokrovskoye gold deposit located in the Amur region of eastern Russia by bringing the deposit into production. A feasibility study completed in March 1996 indicated that the projected economic returns do not support the cost of the large-scale mining and milling operations originally contemplated for the Prokrovskoye deposit. Homestake has agreed to forego its option and to pay for a revised feasibility study focused on a smaller scale operation. In exchange, Homestake will receive an additional 10% of Zoloto. In February 1995, the Company sold its 28% equity interest in the Torres silver mining complex for $6.0 million. This sale resulted in a pretax gain of $2.7 million. 3 In January 1995, commercial production began at the new Eskay Creek mine in British Columbia. During 1995, Eskay Creek sold 104,100 tons of ore containing 196,500 ounces of gold and 9,945,000 ounces of silver for a total of approximately 331,300 gold equivalent ounces. Total cash costs, including the costs of third-party smelters, were $185 per gold equivalent ounce during 1995. Proven and probable ore reserves totaled 2.1 million contained ounces of gold and 93.8 million contained ounces of silver at December 31, 1995. A recent exploration drilling program at Eskay Creek intersected high-grade gold and silver mineralization which has the potential to add to the known reserves. Additional exploration drilling is planned in 1996 for this zone. Through its majority ownership of Prime Resources Group Inc. ("Prime"), the Company has a 50.6% interest in the Eskay Creek mine. The Company increased its proven and probable gold reserves by 3.5 million contained ounces to 21.5 million contained ounces at December 31, 1995 compared to 18.0 million contained ounces at December 31, 1994. This increase is net of 1.9 million ounces produced during 1995. Principal increases, net of production, were 1.9 million ounces at the Kalgoorlie operations (including 1.2 million ounces as a result of acquiring the minority interests in HGAL), 1.0 million ounces at the Homestake mine, 0.6 million ounces at the Round Mountain mine and 0.7 million ounces at the Ruby Hill project following completion of a feasibility study covering the West Archimedes orebody. GLOSSARY OF TERMS See "GLOSSARY" and "INFORMATION ON RESERVES" on pages 33-34 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 three smaller mines in Nevada: the Santa Fe mine (100%), the Pinson mine (26.3%) and the Marigold mine (33.3%). During 1995, with the completion of mining, the Santa Fe mine entered the reclamation phase. Homestake also has a 100% interest in the Ruby Hill project in Nevada. The Company has an exploration office in Reno, Nevada. Homestake Mine The 119-year old Homestake gold 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. All mining is conducted on owned property. 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 waste-water treatment plant, and tailings disposal facilities. The underground mine is serviced by two 5,000-foot vertical shafts from the surface connecting with internal shafts which provide hoisting and services to the 8,000-foot level. Ore from underground is hoisted to the 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 capacity processing 4 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 0.997 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 tailings impoundment will be adequate through the end of 1996, at which time a new lift will be required. The first phase of a major tailing lift expansion will commence in the fourth quarter of 1996. Facilities and equipment at this operation continue to be upgraded for technological advances and generally are in good operating condition. 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 under contract from Black Hills Corporation and is supplemented by Homestake-owned hydroelectric facilities. The main ventilation raise for the deeper levels of the underground mine, which collapsed in 1994, was replaced in the first quarter of 1995 with a 14-foot diameter borehole between the 5,900- and 6,800-foot levels of the mine. This new exhaust raise has increased ventilation and cooling capacity for the deep mine levels. Expansion of the Open Cut was completed in 1995. As mining has progressed into the lower levels of the Homestake mine, the remaining higher-grade ore deposits have become narrower and less continuous and more difficult to mine. The operation continues to develop new mining methods, including narrow vein mining, uphole mining and bench mining which have allowed profitable recovery of some previously subeconomic material. The new mining methods have increased productivity. Despite increasingly difficult orebodies, the operation has maintained its current cost structure and increased reserves. During 1995, the operation suffered from reduced mill throughput due to processing harder than normal ore from the Open Cut. Evaluations were conducted on the crushing and grinding circuit to improve milling rates. During the last quarter of 1995, increased underground throughput and modifications to the Open Cut and underground crushing plants had returned mill throughput to near normal levels. During 1995, the operation added nearly one million ounces to its reserve base, net of 1995 production. This 24% increase primarily is the result of new mining methods, in-mine exploration, ore reserve definition drilling and reserve revisions resulting from computer-aided modeling techniques. Hourly employees at the Homestake mine are represented by the United Steelworkers of America. In March 1995, a new labor contract was ratified covering the period through May 1998. The Homestake mine has received no notices of violation and is under no regulatory orders of any kind mandating specific environmental expenditures. During 1995, the mine operated in compliance with environmental permits. No royalties are payable on production from the Homestake mine. The State of South Dakota currently imposes a severance tax of 10% of net profits from the sale of gold produced in the state, 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. 5 Geology The Homestake mine is the largest known iron formation hosted gold deposit. In its 119-year life, the mine has produced in excess of 38 million ounces of gold. The Homestake gold deposit is Proterozoic in age (approximately 1.9 billion years). Mineralization is generally stratabound within the Homestake Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has been complexly deformed by tight folding, faulting and shearing. Ten southeast-plunging fold structures, locally called ledges, have produced gold ore over a vertical extent of more than 8,000 feet. Year-end Proven and Probable Ore Reserves
1995 1994 ------------- ------------- Underground: Tons of ore (000's) 20,886 15,595 Ounces of gold per ton 0.218 0.228 Contained ounces of gold (000's) 4,551 3,559 Open Cut: Tons of ore (000's) 5,117 4,787 Ounces of gold per ton 0.111 0.121 Contained ounces of gold (000's) 568 579 Total: Tons of ore (000's) 26,003 20,382 Ounces of gold per ton 0.197 0.203 Contained ounces of gold (000's) 5,119 4,138 Operating Data 1995 1994 ------------- ------------- Production Statistics: Tons of ore mined (000's): Underground 1,461 1,331 Open Cut 1,217 1,092 Ore grade mined (oz. gold/ton): Underground 0.219 0.224 Open Cut 0.093 0.100 Open Cut stripping ratio (waste:ore) 7.3:1 10.1:1 Tons of ore milled (000's) 2,460 2,590 Mill feed ore grade (oz. gold/ton) 0.171 0.160 Mill recovery (%) 96 95 Gold recovered (000 ozs.) 403 394 6 Cost per Ounce of Gold: Cash operating costs $292 $284 Other cash costs 11 7 Noncash costs 32 31 ------------- ------------- Total production costs $335 $322
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 16,200 acres. Approximately 15,100 acres are owned and approximately 950 acres are leased. The Company holds seven unpatented mining claims and six millsite claims covering the remaining 160 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, ground 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 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. Conventional CIP cyanidation with pressure stripping and electrowinning is used to recover gold and silver. Total mill capacity through both circuits is approximately 6,300 TPD. Tailings are deposited in a tailings impoundment that will be adequate through 1996, at which time a new lift is scheduled to be added to the existing dam at an estimated cost of $2.6 million. The new lift will increase the impoundment's capacity to allow for the treatment of all but the lowest-grade material in the remaining reserves. A final lift, currently scheduled to be added in 1999 at an estimated cost of $2.4 million, will be required to allow for the processing of all remaining reserves. Facilities are modern and in good operating condition. The majority of process water is recycled from the tailings pond. Additional water is obtained from the Company's reservoir in Yolo County, which has approximately four years of storage capacity. Electric power is purchased under interruptible tariff from Pacific Gas and Electric Company. In mid-1996, mining will cease and the pressure oxidation circuit will be shut down. Gold production levels are expected to decline significantly, with future production to be derived from the processing of lower-grade stockpiles. During 1996, modifications will be made to the mill circuits to convert the sulfide circuit to conventional direct cyanide leach and increase plant capacity to 6,500 TPD for the processing of stockpiled ore. Processing of the stockpiled ore is expected to continue for approximately eight years. During 1995, the mine operated in compliance with its environmental permits. McLaughlin mine royalties are equivalent to approximately 2% of revenues. 7 Geology The McLaughlin ore body is a structurally-controlled siliceous vein network, overlain by hot-spring terraces (sinter). The mineralization is the product of 0.5 to 1.0 million year old geothermal activity, induced by regional volcanism. Precious metals were transported in hot-spring fluids and coprecipitated with quartz, chalcedony and opal in open fractures along and adjacent to a northeast-dipping structure, known as the Stony Creek fault. The ore body is wedge shaped and extends to depths of over 1,000 feet along a strike-length of more than a mile. Year-end Proven and Probable Reserves
1995 1994 -------------- -------------- Open Pit: Tons of ore (000's) 1,411 5,040 Ounces of gold per ton 0.103 0.101 Contained ounces of gold (000's) 145 508 Stockpiled: (1) Tons of ore (000's) 17,931 17,024 Ounces of gold per ton 0.065 0.068 Contained ounces of gold (000's) 1,170 1,157 Total: Tons of ore (000's) 19,342 22,064 Ounces of gold per ton 0.068 0.075 Contained ounces of gold (000's) 1,315 1,665 (1) The cost of mining substantially all of the lower-grade ore in the stockpiles has been expensed. Operating Data 1995 1994 -------------- -------------- Production Statistics: Tons of ore mined (000's) 2,056 2,667 Stripping ratio (waste:ore) 5.9:1 5.6:1 Tons of ore milled (000's) 2,296 2,244 Mill feed ore grade (oz. gold/ton) 0.120 0.126 Mill recovery (%) 88 87 Gold recovered (000 ozs.) 242 250 Cost per Ounce of Gold: Cash operating costs $234 $241 Other cash costs 8 8 Noncash costs 111 79 -------------- -------------- Total production costs $353 $328
8 Round Mountain Mine The Round Mountain gold mine is an open-pit 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 approximately 28,362 acres of private property and public domain land, some of which are under patent application and the remainder of which are subject to unpatented mining claims. Of the total reserves, 76% are located on the privately-owned land. Paved public roads provide access to the operations. Ore from the mine is 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 1995, total ore processed averaged 88,687 TPD. The reusable heap-leach pads processed 22,490 TPD and the balance was processed on the dedicated pad. The average ore and waste mining rate was 169,236 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 four million tons. A separate 16.4 million square foot dedicated heap-leach pad to process uncrushed run-of-mine ore and to reprocess previously leached material has a total capacity of 131 million tons. Facilities are in good condition. Water is supplied from wells on the property and power is purchased under contract from Sierra Pacific Power Company. Homestake's share of total 1995 gold production from the Round Mountain mine was 86,109 ounces compared to 105,877 ounces in 1994. The lower production is a result of lower ore grades and lower recoveries, partially offset by higher tonnage placed on both the reusable and dedicated pads during 1995. Additional solution capacity has been designed and should be operational in early 1996. Gold production from gravity treatment of high-grade ores amounted to 3,061 ounces (Homestake's share) in 1995 compared to 8,263 in 1994. The operation expects to recover approximately 2,000 ounces of gold (Homestake's share) from gravity treatment of high-grade ore in 1996. Round Mountain ore reserves increased by 2.2 million ounces (100% basis) in 1995 primarily due to exploration drilling which extended the pit limits, and the inclusion in reserves of stockpiled material which has previously been leached, following favorable re-processing tests. Permitting for the construction of an 8,000-TPD gravity mill to process higher-grade sulfide ores is proceeding and regulatory approvals are anticipated by the second quarter of 1996. Final design engineering on the $65 million (100% basis) project is expected to be completed in time to allow construction to begin in the summer of 1996. Completion of the mill, which is expected in late 1997, will result in an additional 50,000 - 75,000 ounces (100% basis) of incremental annual production. During 1995, 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. The royalties range from approximately 3.5% of gold revenues at prices of $320 per ounce of gold or less to approximately 6.4% of gold revenues at prices of $440 per ounce of gold or more. During 1995, the royalties averaged 4.9% of revenues. 9 Geology The Round Mountain ore body straddles the margin of a volcanic caldera complex. Gold-bearing hydrothermal fluids were transported along major structural conduits created by the volcano's collapse and associated faulting. These ascending fluids deposited gold in permeable zones along a broad northwest trend. Primary gold mineralization at Round Mountain occurs as electrum, a natural gold/silver alloy, in association with quartz, adularia and pyrite. Narrow fractures in shear zones host higher-grade mineralization while porous sites within the volcanic rocks host the disseminated mineralization. Economic gold mineralization is found in both the volcanic and surrounding sedimentary rocks as well as overlying alluvial placers. The oblong open-pit mine is well over a mile at its longest dimension and currently more than 1,000 feet from the highest working level to the bottom of the pit. Homestake has a 25% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 -------------- -------------- Tons of ore (000's) 508,820 348,910 Ounces of gold per ton 0.020 0.022 Contained ounces of gold (000's) 10,000 7,799 Operating Data (100% Basis) 1995 1994 -------------- -------------- Production Statistics: Tons of ore mined (000's) 32,723 26,242 Stripping ratio (waste:ore) 0.8:1 1.2:1 Tons of ore crushed (000's) 7,711 6,629 Tons of ore processed (000's) 31,395 25,965 Weighted average ore grade placed on pads (oz. gold/ton) 0.018 0.021 Leach recovery - reusable pads (%) 71 79 Gold recovered (000 ozs.) 344 424 Homestake's Cost per Ounce of Gold: Cash operating costs $231 $153 Other cash costs 23 29 Noncash costs 74 61 -------------- -------------- Total production costs $328 $243
Santa Fe Mine The Santa Fe gold mine is located in Mineral County, Nevada, approximately 40 miles east of Hawthorne. Homestake owns 100% of this operation. The mine commenced operations in 1988. 10 Mining operations at the Santa Fe mine ceased in late 1993 as ore reserves were depleted. During 1994, production continued with the leaching of all four crushed and run-of-mine ore heaps. In 1995, the operations entered a reclamation phase with some gold production derived from rinsing of the heaps, a process which allows for natural reduction of cyanide levels in the heaps. The rinsing activities were completed during 1995. Based on current estimates, full provision for reclamation is included in the December 31, 1995 financial statements. The mine and its facilities are fully depreciated. During 1995, the mine operated in compliance with its environmental permits. Operating Data
1995 1994 ------------- ------------- Production Statistics: Gold recovered (000 ozs.) 17 22 Cost per Ounce of Gold: Cash operating costs $118 $163 Other cash costs 21 6 Noncash costs - 170 ------------- ------------- Total production costs $139 $339
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 Mines, Inc. ("Rayrock") owns the remaining interest and is the operator. The mine has operated since 1989. The property consists of approximately 3,920 acres of unpatented mining claims and 14,920 acres held under leases which remain in effect as long as the mine continues production. Access to the property is via a five-mile long gravel road. Mining is conducted by conventional open-pit methods. During 1995, the mine was converted to a primarily heap-leach operation with intermittent milling operations. Mill-grade ore will be stockpiled and periodically processed through the mill to maximize gold recovery. Mine facilities are in good condition. Water is supplied from on-site wells and power is purchased from Sierra Pacific Power Company. The 1995 exploration program increased the reserves in the area of the known deposits. During 1995, the mine operated in compliance with all its environmental permits. Production royalties of 5% of net smelter returns and 3.5% of net profits were paid to two lease holders. Homestake's share of production from the Marigold mine was 23,288 ounces of gold in 1995 compared to 28,328 ounces in 1994. 11 Geology Gold resources at the Marigold mine are hosted largely in the Permian Antler formation and the underlying Ordovician Valmy formation, and are associated with broad bands of silicification and local decalcification. Both stratigraphy and structure control the geometry of the zones. The ore bodies are sediment-hosted, disseminated deposits of micron-size gold, and are entirely oxidized. Homestake has a 33.3% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 14,585 14,070 Ounces of gold per ton 0.036 0.033 Contained ounces of gold (000's) 527 459 Operating Data (100% Basis) 1995 1994 ------------- ------------- Production Statistics: Tons of ore mined 3,412 2,247 Stripping ratio (waste:ore) 2.2:1 3.3:1 Tons of ore milled (000's) 440 678 Ore grade milled (oz. gold/ton) 0.071 0.097 Mill recovery (%) 92 92 Tons of ore leached (000's) 2,969 1,616 Ore grade leached (oz. gold/ton) 0.022 0.018 Gold recovered (000 ozs.) 70 85 Homestake's Cost per Ounce of Gold: Cash operating costs $225 $198 Other cash costs 29 28 Noncash costs 59 62 ------------- ------------- Total production costs $313 $288
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. 12 Mining is conducted by conventional open-pit methods in several different areas. Ore is processed by both heap leaching and conventional milling methods. Total material mined is approximately 30,000 TPD. The 1,500-TPD mill utilizes both CIP and CIL methods. In 1995, 83% of total gold production was from ore milled. Low-grade ore is treated by heap leaching. The facilities are in good condition. Water is supplied from on-site wells and power is purchased from Sierra Pacific Power Company. The 1995 exploration program delineated minor ore extensions but did not identify significant new reserves. During 1995, the mine operated in compliance with all its environmental permits. Production royalties of 2.2% of net smelter returns 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. Homestake's share of production from the Pinson mine was 12,587 ounces of gold in 1995 compared to 11,817 ounces in 1994. Geology The Pinson deposit includes more than six zones of gold mineralization largely hosted in carbonate rocks and calcareous siltstones of the Ordovician Conus formation. Ore bodies consist of disseminations of micron-size gold peripheral to faults in favorable stratigraphy. High-grade stringer zones have been identified and are the subject of continuing investigation. Homestake has a 26.3% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 4,074 4,743 Ounces of gold per ton 0.073 0.072 Contained ounces of gold (000's) 297 343 Operating Data (100% Basis) 1995 1994 ------------- ------------- Production Statistics: Tons of ore mined (000's) 1,164 968 Stripping ratio (waste:ore) 6.0:1 6.6:1 Tons of ore milled (000's) 559 562 Ore grade milled (oz. gold/ton) 0.088 0.078 Mill recovery (%) 79 83 Tons of ore leached (000's) 574 379 Ore grade leached (oz. gold/ton) 0.027 0.029 Gold recovered (000 ozs.) 48 45 13 Homestake's Cost per Ounce of Gold: Cash operating costs $307 $319 Other cash costs 15 13 Noncash costs 51 44 ------------- ------------- Total production costs $373 $376
Ruby Hill Project The Ruby Hill project is located one mile northwest of Eureka, Nevada. Homestake acquired a 100% interest in the property in 1992. The Ruby Hill property consists of approximately 24,831 acres, of which 23,386 acres are unpatented mining claims and 1,445 acres are patented mining claims and fee lands. Exploration activities have resulted in the discovery of several mineralized zones. A positive feasibility study on the West Archimedes deposit was completed during the fourth quarter of 1995. This study indicates that the mine will produce an average of 105,000 ounces of gold per year over its six-year life at a total cash cost of $140 per ounce. Capital requirements, including the pre-stripping of the overlying alluvium, are estimated to be $65 million. The proposed operation will utilize conventional open-pit mining methods. Low-grade ore will be crushed and heap leached. High-grade ore will be ground in a ball mill and combined with the crushed low-grade ore in a rotating agglomeration drum prior to being placed on the leach pad. Preparation of the Environmental Impact Study by a third-party contractor, selected by the Bureau of Land Management and Homestake, is well under way. Construction of the facilities, which is dependent on the receipt of permits, is scheduled to begin in early 1997 with initial gold production possible in late 1997. Water is available from on-site wells and power is available from Mount Wheeler Power Company. A production royalty of 3% of net smelter returns is payable on production over 500,000 ounces of gold. Geology The West Archimedes gold mineralization is hosted primarily within brecciated jasperiod and decalcified limestones of the uppermost Goodwin and Antelope Valley units of the Ordivician Pogonip Group. The micron-size gold is finely disseminated and the ore body is entirely oxidized. Exploration and delineation drilling are continuing in the nearby East Archimedes and Achilles zones. Year-end Proven and Probable Ore Reserves
1995 ------------- Tons of ore (000's) 7,616 Ounces of gold per ton 0.099 Contained ounces of gold (000's) 755
14 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 50.6% interest in Prime. Prime owns the Eskay Creek mine and has a 40% interest in the Snip mine, both of which are located in northwestern British Columbia. The Company conducts exploration and investigates mineral acquisition and development opportunities throughout Canada. Canadian activities are managed from an office in Vancouver, British Columbia. Eskay Creek Mine Prime owns 100% of the Eskay Creek gold/silver mine. Through its interest in Prime, the Company has a 50.6% interest in the mine. Prime has contracted with Homestake to provide all necessary professional, managerial, and administrative services in connection with exploration, development and operation of the Eskay Creek mine. The Eskay Creek property consists of five mining leases and various other mineral and surface rights comprising approximately 3,477 acres located 51 air miles north of Stewart, British Columbia. The leases have remaining terms of approximately 25 to 29 years, subject to renewal rights. Access from the main highway to the mine is by 38 miles of single-lane gravel road. Road maintenance and snow removal are provided under contract by a local company. The Eskay Creek mine commenced commercial production in January 1995. The mine is an underground operation accessible through three surface portals. The mine utilizes a drift-and-fill method with cemented rock backfill. Mining is conducted by a mining contractor. Ore is crushed and blended in a facility located at the minesite prior to shipment and sale to third-party smelters for final processing. There are no tailings produced at the minesite. Mine waste-rock, which is potentially acid-generating, is disposed of underwater in a nearby barren lake. Workers are on a two-week work schedule followed by two weeks off. Two long-term ore sale contracts with smelters in Japan and Quebec provide for combined annual sales of 100,000 tons, with options to increase sales to 130,000 tons, subject to smelter approvals. In addition, a trial shipment of 2,500 tons was made to a third smelter in late 1995. Ore is trucked by a contractor 164 miles to Stewart for shipment to Japan and 224 miles to Kitwanga, British Columbia for shipment to Quebec. A dedicated loading facility for ships at Stewart handles ore shipments destined for Japan and a loading facility is utilized at the railhead in Kitwanga for shipments to Quebec. Prime has a five-year contract with Canadian National Railway to transport ore to Quebec. Water is supplied from the Eskay and Argillite creeks and power is produced by on-site diesel generators. In 1995, the mine shipped 104,100 tons of ore containing 196,500 ounces of gold and 9,945,000 ounces of silver for a total of approximately 331,300 gold equivalent ounces. During the year, mine development work was accelerated to provide more production stoping areas. With more mining areas 15 available, the mine is better able to optimize ore blending to maximize smelter returns. The mine produced approximately 300 TPD in 1995. Based on existing reserves and current production rates, the mine has a projected life of nine years. During 1995, exploration drilling at Eskay Creek intersected high-grade gold and silver mineralization which appears to be a stratigraphic extension to the northeast end of the main 21B ore zone (See "MINERAL EXPLORATION AND DEVELOPMENT" on page 31 and 32). Additional exploration drilling for this zone and in the area surrounding the Eskay Creek mine is planned in 1996. During 1995, the mine operated in compliance with all its environmental permits. The mine is subject to an effective 1% net smelter royalty, with the exception of a small portion of the ore body, which is subject to a 2% net smelter royalty. Geology The Eskay Creek ore body is a precious metal-enriched volcanogenic massive sulfide deposit that occurs in association with volcanics of the Jurassic-aged (141 to 195 million years) Hazelton Group. Eskay Creek mineralization is generally stratabound and occurs in a contact mudstone and breccia bounded below a rhyolite flow-dome complex and overlain by volcanic rocks in the west limb of a north-plunging fold. Sphalerite, pyrite, galena and tetrahedrite are the most abundant ore minerals. Native gold occurs as mostly microscopic particles located between sulfide grains or in fractures within sulfide grains, some of which are locked in pyrite. Gold also occurs in volcanic rocks beneath the contact mudstone with visible gold, coarse grained sphalerite, pyrite and galena disseminated in quartz veins or stockwork. Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 1,124 1,190 Ore grade (ounces of gold per ton) 1.875 1.190 Contained ounces of gold (000's) 2,108 2,274 Ore grade (ounces of silver per ton) 83.4 85.5 Contained ounces of silver (000's) 93,752 101,800 Contained ounces of gold equivalents (1)(000's) 3,345 3,568 Operating Data 1995 ------------- Production Statistics: Tons of ore shipped (000's) 104 Ore grade (ounces of gold per ton) 1.989 Ore grade (ounces of silver per ton) 100.9 Ounces of payable gold (000's) 197 Ounces of payable silver (000's) 9,945 Total ounces of gold equivalent (1)(000's) 331 16 Homestake's Cost per Ounce of Gold Equivalent: Cash operating costs $182 Other cash costs 3 Noncash costs 45 ------------- Total production costs $230 (1) Gold and silver are accounted for as co-products at Eskay Creek. Silver production is converted into gold equivalent, using the ratio of the gold market price to the silver market price. The ratio was 73.8 ounces of silver equals one ounce of gold equivalent for production in the year ended December 31, 1995 and 75.8 ounces and 78.7 ounces of silver equals one ounce of gold equivalent at December 31, 1995 and 1994, respectively.
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") with its own personnel. Homestake and Teck Corporation ("Teck") 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. 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 each other's 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. The mine utilizes the longhole, open-stope mining method with cemented rock backfill. In addition, 500-600 TPD of lower-grade ore is recovered from a nearby open pit. Waste rock from the open pit is used for backfill in the underground operations. The mine has a 7,000-TPD capacity mill which operated at 7,145 TPD during 1995. The Williams and David Bell mines share one tailings basin facility located approximately two miles from the mill. Cyanidation and the CIP process are used to recover gold. Water from the tailings basin is treated during the summer months in an effluent treatment plant prior to discharge. Both mines recycle mill make-up water from the tailings pond. The facilities and equipment are modern and in good condition. Fresh water for the property is supplied from Cedar Creek and power is purchased from Ontario Hydro via a long-term contract. Propane for heating mine air and surface facilities is also purchased under long-term contracts. Following the installation of new crushing and ventilation systems in 1994, mining between the 9,065 and 9,240 levels commenced. The 9,175 and 9,450 levels provided access for exploration drifting and diamond drilling during the year. Approximately 60% of the ounces mined in 1995 were replaced by additions to ore reserves, at a lower grade than the ore mined. The mine will continue to operate at the average ore reserve grade for the remaining life of the operation. During 1995, the mine operated in compliance with all its environmental permits. Progressive reclamation projects are ongoing. 17 The 11 patented mining claims are subject to three net smelter royalties totaling a net effective rate of 2.08% and the Crown mining lease is subject to a net smelter royalty of 0.75%. Homestake's share of production was 202,561 ounces in 1995 compared to 222,660 ounces in 1994. Geology The Hemlo Gold Camp occurs within the east-west striking Heron Bay belt of metamorphosed Archean aged rocks (3.5 billion years). The steeply dipping ore bodies lie along the contact between overlying metasedimentary rocks and underlying volcanic rocks. Gold mineralization is hosted primarily by a fine grained feldspar porphyry unit associated with pyrite, barite and molybdenum. Homestake has a 50% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 36,765 34,050 Ounces of gold per ton 0.150 0.166 Contained ounces of gold (000's) 5,497 5,669 Operating Data (100% Basis) 1995 1994 ------------- ------------- Production Statistics: Tons of ore milled (000's) 2,608 2,538 Mill feed ore grade (oz. gold/ton) 0.163 0.184 Mill recovery (%) 95 95 Gold recovered (000's ozs.) 405 445 Homestake's Cost per Ounce of Gold: Cash operating costs $214 $191 Other cash costs 8 12 Noncash costs 38 42 ------------- ------------- Total production costs $260 $245
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") with its own personnel. Homestake and Teck each own a 50% interest in TCOC. The mine commenced operations in 1985. The mine is located on the same ore trend as the Williams mine. The property consists of approximately 650 acres held under two freehold patents. 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 each other's interest in the David Bell mine and shares of TCOC. 18 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 cement, tailings, sand and waste rock utilized as backfill. Mill throughput was approximately 1,333 TPD in 1995. 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. Treated reclaimed process water is used to service the underground operations. C-zone development and the construction of the related infrastructure was completed during 1995 and production commenced in August. The average width of ore at the David Bell mine is decreasing as mining progresses away from the central core of the ore body. In an effort to optimize ore extraction and to minimize development costs, stoping of narrow-width ore by longitudinal longhole retreat continued during the year. Gold production decreased in 1995 as a result of lower ore grades and recoveries and reduced mill throughput. Approximately 66% of the ounces mined in 1995 were replaced through reserve additions. 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. The collective bargaining agreement with the United Steel Workers of America expired in October 1995 and negotiations on a new contract are ongoing. During 1995, the mine operated in compliance with all its environmental permits. The property is subject to a 3% net smelter return royalty. Homestake's share of production at the David Bell mine was 79,383 ounces in 1995 compared with 96,109 ounces in 1994. Geology See "Williams Mine - Geology." Homestake has a 50% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 5,424 5,463 Ounces of gold per ton 0.309 0.317 Contained ounces of gold (000's) 1,677 1,731 19 Operating Data (100% Basis) 1995 1994 ------------- ------------- Production Statistics: Tons of ore milled (000's) 487 512 Mill feed ore grade (oz. gold/ton) 0.347 0.399 Mill recovery (%) 94 94 Gold recovered (000 ozs.) 159 192 Homestake's Cost per Ounce of Gold: Cash operating costs $192 $156 Other cash costs 11 11 Noncash costs 48 44 ------------- ------------- Total production costs $251 $211
Quarter Claim The Quarter Claim constitutes approximately one-fourth of a mining claim, which was originally part of the David Bell property, and was optioned to and subsequently acquired by Hemlo Gold Mines Inc. ("Hemlo Gold") in 1982. Hemlo Gold developed a shaft on the Quarter Claim 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 1995, the net profits interest agreement was amended. The amended net profits interest is based on a deemed production rate, deemed production costs and the market price of gold. The deemed production rate is based upon a minimum committed throughput of 500 TPD multiplied by: (a) the average ore grade of the remaining Quarter Claim reserves; (b) a recovery factor and; (c) 95%. Homestake's share of production at the Quarter Claim was 7,140 ounces in 1995 compared with 7,745 ounces in 1994. Geology See "Williams Mine - Geology." Homestake has a 25% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 1,113 1,185 Ounces of gold per ton 0.258 0.254 Contained ounces of gold (000's) 287 300 20 Operating Data (100% Basis) 1995 1994 ------------- ------------- Production Statistics: Tons of ore milled (000's) 115 114 Mill feed ore grade (oz. gold/ton) 0.257 0.281 Mill recovery (%) 96 97 Gold recovered (000 ozs.) 29 31 Homestake's Cost per Ounce of Gold: Cash operating costs $155 $165 Other cash costs 12 12 Noncash costs 1 - ------------- ------------- Total production costs $168 $177
Nickel Plate Mine The Nickel Plate gold mine, located near Hedley, British Columbia, 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, 26 mineral claims and certain surface rights, covering approximately 8,077 acres. A 30-mile paved road from Penticton, British Columbia, 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. The Inco sulphur dioxide process is used to reduce cyanide concentrations in the tailings pond. The facilities and equipment are modern and in good condition. The majority of the mine's process water is obtained from the tailings impoundment basin. Fresh water make-up is supplied from Cahill Creek during spring run-off and stored in a process water pond. Power is supplied by West Kootenay Power under an annually renewable contract. The ore reserve at the Nickel Plate mine will be depleted by the end of the third quarter of 1996. Reclamation of the property, in accordance with a plan filed with British Columbia's regulatory agencies, is in process. During 1995, the mine operated in compliance with all its environmental permits. Geology The Nickel Plate ore body is situated within the rocks of the Jurassic-aged Hedley Formation consisting of thinly bedded calcareous siltstones and layered to massive limestone units dipping northwest at 20 to 30 degrees. The formation is intruded by Early Jurassic, coarse-grained porphyritic diorite. A large hydrothermal system was associated with the diorite intrusions. Gold-bearing sulfides (pyrrhotite, 21 pyrite and chalcopyrite) were emplaced during the last phase of this hydrothermal process. Higher grades are associated with the contacts of the diorite dikes and sills and the Hedley formation and are confined to the skarn zone. Year-end Proven and Probable Ore Reserves
1995 1994 ------------- ------------- Tons of ore (000's) 940 2,889 Ounces of gold per ton 0.079 0.077 Contained ounces of gold (000's) 74 223 Operating Data 1995 1994 ------------- ------------- Production Statistics: Tons of ore milled (000's) 1,464 1,438 Mill feed ore grade (oz. gold/ton) 0.077 0.070 Mill recovery (%) 81 81 Gold recovered (000 ozs.) 91 82 Cost per Ounce of Gold: Cash operating costs $379 $349 Other cash costs - - Noncash costs 56 54 ------------- ------------- Total production costs $435 $403
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 mine is 40% owned by Prime. Cominco Ltd. ("Cominco") owns the remaining interest and is the operator. Cominco receives a management fee for its services as operator equivalent to 5% of cash expenditures made at the property. The mine commenced operations in 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 aircraft which utilize the mine's 4,500-foot long landing strip. In addition, a hovercraft 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, access is by aircraft due to ice accumulations on the rivers. 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 and fill. Backfill is either underground waste rock or mill tailings which are pumped to the mine and mixed with cement. The mill has a capacity of 500 TPD. Approximately 91% of the gold contained in the ore is recovered. A gravity circuit recovers about 33% of the gold and the remaining gold is recovered in 22 flotation concentrates containing approximately ten ounces of gold per ton. The concentrates are sold to a third-party facility located near Stewart for final gold recovery. 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 produced on-site by diesel generators. Exploration diamond drilling on the Twin West zone completed in 1995 provided sufficient encouragement to proceed with an underground development program to allow for further exploration drilling in 1996. During 1995, the mine operated in compliance with all its environmental permits. There has been controversy regarding the environmental impact of the mine's hovercraft operations on fish in the Iskut river. Cominco and the Company have agreed to further studies despite prior investigations indicating little environmental impact. Homestake's share of gold production in 1995 was 51,310 ounces compared to 51,592 ounces in 1994. Geology The main ore body at the Snip mine is called the Twin Zone, a 1.5 to 50 feet thick quartz-carbonate-sulfide-filled shear structure within a Triassic sedimentary unit. Gold primarily occurs as finely disseminated grains along pyrite grain boundaries. Other sulfides within the Twin Zone include pyrrhotite, chalcopyrite and sphalerite, with trace arsenopyrite. The vein structure has been traced over a strike length of 3,300 feet and has a known vertical extent to 1,650 feet. Prime has a 40% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------- ------------- Tons of ore (000's) 383 553 Ounces of gold per ton 0.776 0.797 Contained ounces of gold (000's) 297 441 Operating Data (100% Basis) 1995 1994 ------------- ------------- Production Statistics: Tons of ore milled (000's) 187 190 Mill feed ore grade (oz. gold/ton) 0.751 0.743 Mill recovery (%) 91 92 Gold recovered (1) (000 ozs.) 128 129 23 Homestake's Cost per Ounce of Gold: Cash operating costs $175 $173 Other cash costs - - Noncash costs 56 59 ------------- ------------- Total production costs $231 $232 (1) Includes recoverable gold contained in dore and in concentrates.
AUSTRALIA In late 1995 and early 1996, Homestake acquired the 18.5% of HGAL that it did not already own (See "SIGNIFICANT 1995 AND 1996 DEVELOPMENTS" on page 3). HGAL is a gold mining and exploration company whose principal asset is a 50% ownership in 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 approximately 30,000 acres adjacent to the town of Kalgoorlie. 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 from both of these operations is treated at the Fimiston mill, the primary milling facility at Kalgoorlie. In addition, ore also is processed at two smaller facilities, the Mt Percy and Croesus mills. Sulfide concentrates produced at the Fimiston and Croesus mills are roasted at the Gidji roaster, located 12 miles north of the main Kalgoorlie operations, prior to final processing at the Fimiston mill. The facilities and equipment at the Kalgoorlie operations generally are in good condition. 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 may not receive 50% of the production. Under certain circumstances, GMK is entitled to receive more than 50% of gold production out of the first 35.8 million tons of ore 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 levels of production from the FPV area. In 1995, HGAL paid to GMK 12,966 ounces under the Disproportionate Sharing Arrangement ("DSA") compared to 15,781 ounces in 1994. Through the end of 1995, approximately 18.7 million tons of ore have been mined from the FPV 24 area of the Super Pit. See "LEGAL PROCEEDINGS" on page 42 for a description of a legal action commenced by GMK against Homestake in respect of the calculation of ounces payable to GMK under the DSA. 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 currently is purchased under a number of agreements with the state power authority. KCGM is negotiating a new power agreement with Normandy Power, a company associated with GMK. In 1995, the Gidji roaster performed well within sulphur dioxide emission limits established by the Western Australian government. Intercept drainage channels were constructed in 1994 to isolate the Oroya tailings dam from the nearby salt water drainage channel. The installation of a conveyor to transport the Mt. Charlotte ore from the mine to the Fimiston mill during 1995 has substantially reduced noise levels and improved air quality. Previously, this material had been moved to the Fimiston mill by a fleet of trucks. A safety exclusion zone surrounding the Super Pit was established in 1993. Measures to reduce noise and dust have resulted in a significant improvement in the environment of residents living close to the mining operations. Super Pit mining during 1990-1994 produced approximately 20% more ore than predicted by the ore reserve model. In June 1995, Super Pit and Mt. Charlotte ore reserves were revised using computer-aided modeling techniques which more closely approximate actual mining experience. As a result, year-end proven and probable ore reserves at Kalgoorlie were expanded by 18%. HGAL's share of this increase was 830,000 ounces. No royalties are payable on production. Super Pit This large open-pit mine is located along the "Golden Mile" ore bodies previously mined from underground. In 1995, 70.4 million tons of material were mined containing 8.7 million tons of ore, compared to 59.7 million tons mined containing 12.4 million tons in 1994. HGAL's share of Super Pit gold production, net of ounces paid to GMK under the DSA, was 262,570 ounces in 1995 and 289,625 ounces in 1994. The 1995 results reflect a temporary decline in production while the new Fimiston mill additions were integrated with the existing complex and several weather-related power outages during the year which halted operations. Mt.Charlotte This underground mine uses bulk mining methods and large conventional diesel powered loaders and trucks. The main production level is 3,200 feet below surface. Longhole stoping mining techniques are employed. Ore is crushed underground with primary crushers before being hoisted to secondary crushers at the surface. 25 Mill throughput was reduced at Mt Charlotte during 1995 due to production difficulties following a mass-blast in late 1994 of a stope pillar which contained 700,000 tons of ore in the lower levels of the mine. Production problems have now been rectified and the mine has returned to more normal levels of operation. In 1995, 1.4 million tons of ore were mined from Mt. Charlotte compared to 1.7 million tons of ore mined in 1994. HGAL's share of gold production was 47,496 ounces in 1995 and 61,021 ounces in 1994. Mt Percy The Mt Percy open cuts were mined to their planned economic depth in July 1992, at which time mining ceased. Previously stockpiled low-grade Mt Percy ore is blended with non-refractory ore from the Super Pit and Mt. Charlotte. HGAL's share of gold production was 1,350 ounces in 1995 and 1,353 ounces in 1994. Mills Fimiston - a 28,000-TPD mill with CIP leaching and refractory sulfide flotation circuits that processes Super Pit and Mt. Charlotte ore. Approximately $90 million (100% basis) was spent during 1995 and 1994 on an expansion program at the Fimiston mill, including a 5,000-TPD free-milling sulfide circuit to treat Mt. Charlotte ore. The increase in capacity has improved the mill's efficiency and replaced the capacity of the Oroya mill which was dismantled in 1995 to allow for further planned expansion of the Super Pit. Croesus - a 3,000-TPD mill with CIP and refractory sulfide flotation circuits that processes ore from the Super Pit. Mt Percy - a 2,500-TPD mill with a CIP circuit that processes ore from Mt Percy, the Super Pit and Mt. Charlotte. Gidji - a roaster complex which comprises two converters and a CIP circuit to process all sulfide concentrates. The combined mills processed 10.7 million tons of ore in both 1995 and 1994. Cash operating costs were higher in 1995 primarily as a result of temporary declines in production while the new Fimiston mill additions were integrated with the existing complex and while production was halted due to power interruptions. The mining rate at the Super Pit is currently increasing as the expansion of the pit continues at an increased rate. The recent Fimiston expansion has increased milling capacity and efficiencies and, as a result, unit operating costs at Kalgoorlie are expected to decline during 1996. HGAL's share of 1995 gold production from the consolidated Kalgoorlie operations, net of the ounces paid to GMK under the DSA, was 311,416 ounces compared to 352,081 ounces in 1994. 26 Geology The ore deposits mined in the Kalgoorlie Goldfields occur within an intensely mineralized shear zone system in dolerite host rocks, within the Norseman-Wiluna Greenstone Belt which is part of the Yilgarn Block of Western Australia. The rocks are of Archaen age. The favorable structural metamorphic and lithologic setting in conjunction with hydrothermal activity controlled gold mineralization. During its history of operations since 1893, in excess of 40 million ounces of gold have been produced from the Kalgoorlie properties at depths of up to 4,000 feet from high-grade lodes and adjacent disseminated mineralization in the Golden Mile Dolerite, and from the large stockwork mineralization which characterizes the Mt. Charlotte and Reward (underground) ore bodies. HGAL has a 50% share (subject to the DSA discussed above) of the following amounts (Homestake's ownership interest in HGAL at December 31, 1995 and 1994 was 88.1% and 81.5%, respectively. See "SIGNIFICANT 1995 AND 1996 DEVELOPMENTS" on page 3.): Year-end Proven and Probable Ore Reserves (100% Basis)
1995 1994 ------------ ------------- Tons of ore (000's) 184,136 158,790 Ounces of gold per ton 0.072 0.073 Contained ounces of gold (000's) 13,180 11,519 Operating Data (100% Basis) 1995 1994 ------------ ------------- Production Statistics: Super Pit: Tons of ore mined (000's) 8,670 12,372 Stripping ratio 7.1:1 3.8:1 Tons of ore milled (000's) 9,186 8,964 Mill feed ore grade (oz. gold/ton) 0.067 0.077 Mill recovery (%) 88 88 Gold recovered (000s) 551 611 Mt Percy: Tons of stockpiled ore milled (000's) 125 94 Mill feed ore grade (oz. gold/ton) 0.026 0.029 Mill recovery (%) 85 86 Gold recovered (000's) 3 3 27 Mt. Charlotte: Tons of ore mined (000's) 1,440 1,680 Tons of ore milled (000's) 1,429 1,682 Mill feed ore grade (oz. gold/ton) 0.076 0.085 Mill recovery (%) 88 87 Gold recovered (000's) 95 122 Combined Production Statistics: Tons of ore mined (000's) 10,110 14,052 Tons of ore milled (000's) 10,740 10,740 Mill feed ore grade (oz. gold/ton) 0.068 0.078 Mill recovery (%) 88 88 Gold recovered (000 ozs.) 649 736 Homestake's Consolidated Cost Per Ounce of Gold: Cash operating costs $296 $257 Other cash costs - - Noncash costs 46 41 ------------ ------------- Total production costs $342 $298
CHILE Homestake leases and operates the El Hueso gold mine and also conducts exploration throughout Chile. Homestake's office is in Santiago, Chile. The El Hueso mine is located in the Maricunga District of Chile about 600 miles north of Santiago at an elevation of approximately 12,500 feet. The property is leased through June 1998 from Codelco, a government agency. The lease includes rights to use the existing plant. The facilities are in good condition. Access to the mine is by 14 miles of dirt road. In February 1995, the El Hueso mine closed as reserves were depleted and the 6,000-TPD crushing plant was shut down. Leaching of stockpiles will continue until mid-1996. Water and power are purchased from Codelco. Reclamation activities at the El Hueso mine have commenced. Environmental monitoring carried out during 1995 indicated that all discharges were in compliance with permit levels. Additional land has been leased from Codelco through the year 2004. This additional land is subject to 30% to 50% profit sharing with Codelco on possible future production. During 1995 and 1994, an exploration program identified a new gold-bearing deposit, Manto Agua de la Falda, which contains an ore reserve of 1.0 million tons at a grade of 0.18 ounces of gold per ton. A preliminary agreement in principle has been reached with Codelco to form a new company to permit the processing of the Manto Agua de la Falda reserves at the existing El Hueso plant and to explore for and exploit resources on additional lands controlled by Codelco. An engineering study is in progress to determine the most efficient method of processing the ore at the existing El Hueso plant. 28 Geology The El Hueso property is located within the Potrerillos porphyry copper district and comprises Mesozoic marine sediments that have been overlain by Tertiary volcanics and intruded by Tertiary porphyries. Gold mineralization is thought to be related to the porphyry intrusions and has been previously mined in both sedimentary and volcanic units which have been complexly folded and faulted both before and after mineralization. The new deposit, Manto Agua de la Falda, is hosted in calcareous sediments. MEXICO In February 1995, the Company sold its 28% equity interest in Torres silver mining complex for $6.0 million. SULPHUR Homestake owns an undivided 16.7% interest in the Main Pass 299 sulphur deposit, which at December 31, 1995 contained proven recoverable reserves of approximately 68 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 approximately 36 miles east of Venice, Louisiana in waters approximately 210 feet deep. 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 steam to liquefy 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 remaining reserve life in excess of 30 years. Fabrication and installation of production facilities began in 1990. Initial sulphur production commenced in 1992. Initial production was lower than anticipated because the production of overlying oil and gas reserves slowed the heating of the sulphur dome to required production temperatures. Full sulphur production levels of 5,500 TPD were reached in December 1993. Sulphur production averaged 6,000 TPD during 1995. Homestake's 16.7% share of development expenditures through 1995 was approximately $123 million. 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 1995, the sulphur market continued to strengthen and sulphur prices averaged $68 per ton during 1995 compared to $53 per ton in 1994, a significant improvement from a 20-year low which had lowered average realized prices to approximately $45 per ton at the end of 1993. At current sulphur price levels of approximately $70 per ton, Homestake expects its sulphur operations to break even during 1996. 29 During sulphur exploration, oil and gas were 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 1995 was approximately $56 million. 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. Oil and gas production, which peaked during 1992, is expected to continue to decline over the next few years. Oil production (100% basis) totaled 4.5 million barrels in 1995 compared to 5.2 million barrels in 1994. Homestake's share of remaining recoverable oil reserves at December 31, 1995 is estimated to be 1.9 million barrels after adjusting for the federal royalty. The remaining carrying value of Homestake's investment in the Main Pass 299 oil and gas property is $8.5 million at December 31, 1995. Homestake has a 16.7% share of the following amounts: Year-end Proven and Recoverable Reserves (100% Basis)
1995 1994 --------- ------------- Tons of sulphur (000's) 68,130 70,321 Barrels of oil (000's) 15,873 15,521 Production Statistics (100% Basis) 1995 1994 --------- ------------- Tons of sulphur (000's) 2,190 2,259 Barrels of oil (000's) 4,535 5,240 Homestake's Per Unit Data 1995 1994 --------- ------------- Average Sales Realizations: Per ton of Sulphur $68 $53 Per barrel of oil 16 14 Costs Sulphur cash operating costs per ton $55 $49 Sulphur noncash costs per ton 11 11 --------- ------------- Total production costs $66 $60 Oil cash operating costs per ton $5 $4 Oil noncash costs per barrel 8 6 --------- ------------- Total production costs $13 $10
30 MINERAL EXPLORATION AND DEVELOPMENT Total exploration expenses, excluding in-mine exploration at Homestake's operating mines and capitalized costs associated with development stage projects, amounted to $27.5 million in 1995 and $21.3 million in 1994. Expenses related to the in-mine exploration at Homestake's operating mines totaled $7.2 million in 1995 and $8.4 million in 1994. These expenses are included in the individual mine property operating expenses and cost per ounce calculations. In addition, $2.2 million of costs associated with development stage projects were capitalized in 1995. United States corporate exploration expenses totaled $12.8 million in 1995 and $11.8 million in 1994. Domestic exploration expenses in 1996 are expected to be approximately $14.5 million. Exploration at the Ruby Hill Project expanded into several areas surrounding the West Archimedes deposit during 1995. In the East Archimedes zone, additional gold mineralization was encountered in association with siliceous breccias, skarns, and carbonate replacement bodies developed in Cambrian and Ordovician carbonate lithologies. Gold mineralization was also encountered in association with silicification and decalcification of Cambrian carbonate lithologies in the Achilles zone, located several thousand feet west of the Archimedes zones, and in the Jewel Ridge zone, located several thousand feet south of the Archimedes zones. Some of this mineralization has been oxidized. Exploration expenditures totaled approximately $4.2 million during the year and $3 million of exploration expenditures are planned for 1996. At the White Pine Project, located approximately 60 miles south of Elko, Nevada, Homestake has entered into a joint venture agreement with Western States Minerals Corporation in which Homestake has the right to earn a 60% interest in the property by spending $4 million prior to June 21, 2000. Several small deposits of gold mineralization have been previously identified on the property and are associated with silicification and decalcification of calcareous shales of Devonian to Mississippian age. In 1995, Homestake began the exploration of these strata in alluvium covered areas along certain favorable structures. Expenditures totaled approximately $0.6 million during the year and $1.2 million of expenditures are planned for 1996. At the Mountain View Project, located approximately 90 miles north of Reno, Nevada, Homestake has entered into a joint venture agreement with Canyon Resources Corporation in which Homestake has the right to earn a 51% interest in the property by spending $4 million prior to December 31, 1999. Small deposits of partially oxidized, but locally high-grade, gold mineralization have been previously identified on the property, where they are hosted by both Miocene rhyolitic volcanics and pre-Cretaceous metasediments. Mineralization is associated with brecciation and quartz veining and is accompanied by pyrite and marcasite. In 1995, Homestake began exploration of the principal trend of brecciation and veining in alluvium covered areas of the property. Expenditures totaled approximately $0.7 million during the year and $1.0 million of expenditures are planned for 1996. During 1995, an exploration program was conducted at the Homestake mine's Open Cut. The program consisted of core and reverse circulation drilling to quantify the remaining reserves in the immediate proximity of the Open Cut. Exploration expenditures totaled $1.3 million in 1995 and similar expenditures are planned for 1996. Through its subsidiaries, Homestake also explores for gold and evaluates gold acquisition opportunities internationally. International exploration expenses totaled $14.7 million in 1995 and $9.5 million in 1994. During 1995, Homestake and Prime entered into a three-year agreement (51% Homestake and 49% Prime) to jointly fund and participate in a Canadian exploration program. All of Homestake's Canadian 31 exploration activities, with the exception of the areas surrounding current operating mines and certain previously active exploration properties, will be conducted in accordance with this agreement. In July 1995, Homestake entered into an agreement with Navan, whereby Homestake can acquire 50% of Navan's interest in the Chelopech gold/copper operations, located 45 miles east of Sofia, Bulgaria (See "SIGNIFICANT 1995 AND 1996 DEVELOPMENTS" on page 3). Gold mineralization at Chelopech is accompanied by abundant pyrite and copper sulfides and is currently being mined underground from pipe-like bodies of silicification and argillization in Cretaceous volcanics. In 1995, an underground diamond drilling program commenced to explore for additional mineralization. Expenditures totaled approximately $0.3 million during the year. At the El Hueso property in Chile, Homestake has continued its exploration of the Manto Agua de la Falda zone and has encountered additional gold mineralization in the nearby Jeronimo zone. Mineralization in the Manto Agua de la Falda is partially oxidized, while mineralization in the Jeronimo zone is accompanied by pyrite and other sulfides. Expenditures totaled $1.6 million during the year and $2.5 million of expenditures are planned for 1996. During 1995, through its acquisition of a 5% interest in Zoloto, Homestake participated in the funding of a feasibility study at the Pokrovskoye project in eastern Russia (See "SIGNIFICANT 1995 AND 1996 DEVELOPMENTS" on page 3). Gold mineralization at Pokrovskoye is associated with quartz veining and silicification in Cretaceous granites and dacitic tuffs and is accompanied by pyrite, marcasite, and arsenopyrite. In October 1995, Homestake and Prime entered into agreements to collectively purchase (51% Homestake and 49% Prime) an approximate 6% interest in Teuton Resources Corp. ("Teuton") and an approximate 7% interest in Minvita Enterprises Ltd. ("Minvita") for a total of $2 million. Teuton and Minvita will spend a minimum of 90% of the $2 million on exploration and development of their jointly owned property in northwestern British Columbia, Canada. As part of these agreements, Homestake and Prime also have been granted rights of first refusal on the property and any financings related to the exploration and development of the property. To date, several zones of structurally-controlled gold mineralization have been identified on the property by trenching and limited diamond drilling. At Eskay Creek, computer-aided modeling of the deposit led to the identification and drill testing of the NEX zone, an apparent stratigraphic extension to the northeast end of the main 21B Eskay Creek ore zone. High-grade mineralization comparable to the 21B zone was encountered in both the NEX zone and the overlying Hangingwall zone. The two zones, which are well located for access from current underground workings, contain an estimated geological resource of 227,000 tons at a grade of 0.88 ounces of gold and 56 ounces of silver per ton. The 1996 surface exploration budget for Eskay Creek and the surrounding area has been increased to $1.3 million from $0.4 million spent in 1995. During 1995, Homestake continued work on the El Foco project, a 119,628 acre property situated south of the confluence of the Chicanan and Cuyuni rivers in Bolivar State, Venezuela. Homestake has entered into three contracts with Corporacian Venezolana de Guayana, a Venezuelan government agency, under which the Company can earn a 90% interest in the property by completing exploration over a four-year period. During 1995, Homestake completed 500 miles of line cutting, collected 10,000 soil samples, conducted surface geologic mapping and a ground magnetic survey, and drilled 1,500 auger holes. Seven gold-in-soil anomalies were identified over a 7 mile by 4 mile area. These anomalies will be tested by diamond drilling in 1996 when the required permits are received. Exploration expenditures on this property totaled $2 million in 1995 and expenditures of $1.3 million are planned for 1996. 32 GLOSSARY AND INFORMATION ON RESERVES GLOSSARY The following terms used in the preceding discussion mean: "Cash operating costs" are costs directly related to the physical activities of producing gold (includes mining, processing and other plant costs, deferred mining adjustments, third-party refining and smelting costs, marketing expenses, on-site general and administrative costs, in-mine exploration expenditures that are related to production and other direct costs, but excludes depreciation, depletion and amortization, corporate general and administrative expense, mineral exploration expense, royalties, federal and state income and production taxes, Canadian mining taxes, financing costs and accruals for final reclamation). "Other cash costs" are costs that are not related to, but may result from, gold production activities (includes royalties and federal and state production taxes, but excludes Canadian mining taxes). "Total cash costs" are the sum of cash operating costs and other cash costs. "Noncash costs" are costs that are typically accounted for ratably over the life of an operation (includes depreciation, depletion and amortization of capital assets, accruals for the costs of final reclamation and long-term monitoring and care that are usually incurred at the end of mine life, and the amortization of the economic cost of property acquisitions, but excludes amortization of deferred tax purchase adjustments relating to property acquisitions established in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes.") "Total production costs" is the sum of cash operating costs, other cash costs and noncash costs. "In-situ deposit" refers to reserves still in the ground. This does not include previously mined stockpiled reserves that are being stored for future processing. "Mineral deposit" and/or "Mineralized Material" is a mineralized body which has been delineated by appropriate drilling and/or underground sampling. Under United States Securities and Exchange Commission 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 noncash 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 products) contained in such reserves and include estimates for mining dilution but not for other processing losses. 33 "Tons" means short tons (2,000 pounds) unless otherwise specified. "Adit" or "Portal" is a tunnel driven into a mountainside providing access to an ore deposit. 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. Estimated mining dilution has been factored into the reserve calculation. The Company used a spot price of $375 per ounce of gold in its mine-by-mine evaluation of mining properties and investments at December 31, 1995. Silver The proven and probable silver ore reserves have been calculated on the same basis as gold ore reserves. 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 costs of production and the 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 costs of production and the remaining investment. The estimate is based on limited reservoir and engineering data. Estimation of Reserves Gold reserves are estimated for each of the properties operated 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 these operators. The sulphur and oil reserves at Main Pass 299 are based on information provided by the operator. Homestake reviewed the initial reserve data with independent consultants. Homestake has reviewed subsequent adjustments to these reserves but has not independently confirmed the reserve adjustments provided by the operator. 34 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 processed 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 processed. 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 1995, these expenditures totaled approximately $4 million compared to $6 million in 1994. Homestake estimates that during 1996, capital expenditures for such purposes will be approximately $3 million and that during the five years ending December 31, 2000, such capital expenditures will be approximately $35 million. Homestake also incurs significant operating costs in order to protect the environment. Operating costs include current reclamation costs, accruals for future reclamation expenditures, and air, water and other environmental monitoring costs. Such additional costs totaled approximately $15 million in 1995, compared with approximately $16 million in 1994, not including related depreciation expense of $5 million and $6 million, respectively. Homestake estimates that environmental and related operating and depreciation costs in 1996 will approximate the 1995 amounts. The above amounts exclude expenditures related to the Company's 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. In the mining industry, most reclamation work takes place generally after mining and related operations terminate. However, Homestake has adopted a policy of conducting reclamation during operations where practical. As a result, an increasing amount of reclamation is being conducted simultaneously with mining. At December 31, 1995 and 1994, Homestake had accrued a total of $56.4 million and $49.2 million, respectively, for future reclamation and related costs. 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. 35 RCRA The United States 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 the EPA to list known or threatened releases of hazardous substances, pollutants or contaminants. In 1983, the 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 oversight costs incurred by the EPA. Congressional hearings for CERCLA reauthorization occurred in 1994 and 1995. CERCLA reauthorization was not enacted in 1995, but is expected to occur in 1996. Whitewood Creek Deposits of mine rock tailings on lands along an 18-mile stretch of Whitewood Creek in western South Dakota constitute a site on the NPL. The EPA asserts that discharges of tailings by mining companies, including Homestake, beginning in the nineteenth century, have contaminated the soil and stream bed. In August 1990, Homestake signed a consent decree with the 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 the 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. The consent decree was terminated by the Court on January 10, 1996. Homestake has requested deletion of the site from the NPL and the EPA published a notice in the Federal Register on November 30, 1995 stating its intent to delete this site from the NPL. The Company expects the site to be deleted in 1996. The Company has paid all oversight costs billed to date. 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. Approximately $1.3 million has been spent to acquire property at the site from 9 landowners. Negotiations are continuing to acquire more of the site. The Company estimates that the total cost for purchasing all of the affected property would be approximately $3 million. These costs are expensed as and when incurred. In 1983, the State of South Dakota filed claims against Homestake for natural resources damages resulting from the release of tailings into the Whitewood Creek site. The State has taken no action to pursue the claims. 36 Grants Tailings Homestake's closed uranium mill site near Grants, New Mexico is listed on the NPL. The EPA asserted that leachate from the tailings contaminated a shallow aquifer used by adjacent residential subdivisions. Homestake paid the cost of extending the municipal water supply to the affected homes. Homestake also has operated a water injection and collection system that has significantly improved the quality of the aquifer. The estimated costs of continued remediation are included in the accrued reclamation liability. Homestake has settled with the EPA concerning its oversight costs for this site and no additional oversight costs are accruing. The consent decree has been terminated. Under Nuclear Regulatory Commission ("NRC") regulations, the decommissioning of the uranium mill tailings facilities is in accordance with the provisions of the facility's license. The facility license sets the closure of the two tailings impoundments as 1996 and 2001, subject to extension under certain circumstances. No difficulties are anticipated in obtaining an extension. The NRC and EPA signed a Memorandum of Understanding in 1993 which has established the NRC as the oversight and enforcement agency for decommissioning and reclamation of the site. Mill decommissioning was completed in 1994 and reclamation of the Grants large tailings site is scheduled for completion in 1997. During 1995, the Company incurred approximately $14.5 million of reclamation expenditures at the Grant's facility and an additional $3.5 million is planned to be expended during 1996. Title X of the Energy Policy Act of 1992 (the "Act") authorized appropriations of $270.0 million to cover the Federal Government's share of certain costs of reclamation, decommissioning and remedial action for by-product material (primarily tailings) generated by certain licensees as an incident of uranium sales to the Federal Government. Reimbursement is subject to compliance with regulations of the Department of Energy ("DOE"), which were issued in 1994. Pursuant to the Act, the DOE is responsible for 51.2% of the past and future costs of reclaiming the Grants site in accordance with Nuclear Regulatory Commission license requirements. The Company's balance sheet at December 31, 1995 includes a receivable of $18.7 million for the DOE's share of reclamation expenditures made by the Company through 1995. The Company believes that its share of the estimated remaining cost of reclaiming the Grants facility, net of estimated proceeds from the ultimate disposals of related assets, is fully provided in the financial statements at December 31, 1995. 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. 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 metal 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. 37 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 and shipment 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 by-products, 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 by-products. AMAX has acknowledged that it is responsible for its proportionate share of off-site environmental liability associated with lead metal and lead concentrates, 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. That ruling is being appealed. Homestake and other companies are working with the Port of Pascagoula to address the potential lead contamination situated on certain property held by the Port Authority. The Port of Pascagoula is taking primary responsibility for conducting an investigation of the site, but the Port also has made claims for reimbursement against customers whose material was stored at and shipped through 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 any contamination, is lead concentrate. Based on a 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. The State of Mississippi Department of Environmental Quality is, through regulatory oversight, reviewing the investigation efforts and remediation plans that are being developed by the Port Authority. 38 Foreign Operations 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 its foreign operations. Homestake expects that environmental constraints in foreign countries will become increasingly strict. CUSTOMERS Sales of $102 million, $101 million, $92 million and $91 million to four customers in 1995 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 14 to the consolidated financial statements on page 38 of the 1995 Annual Report to Shareholders for details of the Company's credit facilities. Such information is hereby incorporated by reference. EMPLOYEES The number of full-time employees at December 31, 1995 of Homestake and its subsidiaries was:
Homestake mine (1) 967 McLaughlin mine 346 Nickel Plate mine 131 Eskay Creek mine 72 El Hueso mine (1) 23 United States corporate staff and other 76 Canada exploration and corporate staff 27 HGAL exploration and corporate staff 20 United States exploration 26 Santa Fe mine 7 Uranium 8 Chile exploration and corporate staff 31 ----------- Total 1,734 39 The number of full-time employees at December 31, 1995 in jointly-owned operations in which Homestake participates was: Kalgoorlie Consolidated Gold Mines Pty Ltd (1) 992 Williams Operating Corporation 604 Round Mountain mine 550 Teck-Corona Operating Corporation (1) 232 Rayrock managed operations (Marigold and Pinson mines) 198 Snip mine 142 Main Pass 299 187 ----------- Total 2,905 (1) Operations where a portion 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, 1995, 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 1982, age 65. He has been Chief Executive Officer since December 1978 and was President from 1977 to 1986. He is a mining engineer with over 40 years of professional experience. Jack E. Thompson - President and Chief Operating Officer since August 1994, age 45. From August 1994 to June 1995, he was also Chairman of Prime. He was Executive Vice President, Canada of the Company and President of Prime from 1992 through August 1994. He also was President of North American Metals Corp. from 1988 until 1993. He is a mining engineer with over 25 years of experience in mining and mine management. Gene G. Elam - Vice President, Finance and Chief Financial Officer since September 1990, age 56. 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 34 years of experience in accounting and finance. Lee A. Graber - Vice President, Corporate Development since 1983, age 47. From 1980 to 1983, he was Manager, Corporate Development and Planning. He has over 25 years of experience in finance and corporate development. Wayne Kirk - Vice President, General Counsel and Secretary since September 1992, age 52. He was a partner in Thelen, Marrin, Johnson & Bridges from 1976 to 1992. He has practiced law for more than 26 years. 40 Gillyeard J. Leathley - Vice President, Operations since May 1995, age 58. He joined Homestake in 1992 as Vice President, Canadian Operations. Prior to joining Homestake, he was Senior Vice President, Operations for International Corona Corporation from 1986 to September 1992. He has over 38 years of experience in mining and mine management. William F. Lindqvist - Vice President, Exploration since August 1995, age 53. He rejoined Homestake from Newcrest Mining Company, where he was Executive General Manager, Exploration. He was Vice President, Exploration at Homestake from 1990 through 1992. He is a geologist with more than 25 years of professional experience. Ronald D. Parker - Vice President Canada and President, Homestake Canada Inc. since August 1994, age 45. He also has been President and Chief Executive Officer of Prime since August 1994. He was the Resident General Manager of the McLaughlin mine from 1988 until August 1994. He is an engineer with over 24 years of experience in mining and mine management. Richard A. Tastula - Vice President, Australia since August 1995, age 52. He has been Managing Director of Homestake Gold of Australia Limited since 1993, and was Director of Operations from 1991 to 1993. For 18 years prior to that time, he held various positions with Western Mining Corporation, Limited. He has over 30 years of experience in mining and mine management. David W. Peat - Vice President and Controller since December 1995, age 43. He was Controller of the Company from 1992 through November 1995. Prior to joining Homestake in 1992, he was Vice President, Controller for International Corona Corporation. He is a chartered accountant with over 19 years of accounting and finance experience. Jan P. Berger - Treasurer since August 1992, age 40. 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. Before Bechtel, he worked as an engineering and exploration geologist in the consulting and petroleum industries. He has over 14 years of experience in exploration and finance. 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. 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. 41 ITEM 3 - LEGAL PROCEEDINGS Certain environmental proceedings in which the Company is or may become a party are discussed on pages 35 through 39 under the caption "ENVIRONMENTAL MATTERS." HGAL and Gold Mines of Kalgoorlie Limited and its affiliates ("GMK") each own a 50% interest in the Kalgoorlie operations in Western Australia. Under certain circumstances, GMK is entitled to more than 50% of the gold production sourced from a specific area of the Kalgoorlie operations. The entitlement in excess of 50%, which is called the "disproportionate share," is calculated by a formula linked to gold prices, production costs and capital costs. HGAL and GMK disagree in respect to the interpretation and application of the formula for calculating the disproportionate share, principally relating to the treatment of certain capital costs. On October 20, 1995 HGAL was served a writ of summons and a statement of claim by GMK, North Kalgurli Mines Pty Ltd, et al v. Homestake Gold of Australia Limited, et al, Supreme Court of Western Australia, Civ. No 2037 of 1995. GMK claims a number of declarations relating to the correct interpretation and application of the formula which calculates the disproportionate share. The statement of claim also alleges that HGAL has received to date a greater quantity of gold production than it is entitled to pursuant to the Disproportionate Sharing Arrangement and that HGAL should account to GMK in respect of the same. The quantity claimed is 8,313 ounces of gold having a value of approximately $3.2 million. GMK also seeks damages from HGAL in respect of damage it claims to have suffered because of the application of the formula which calculates the disproportionate share. Kalgoorlie Consolidated Gold Mines Pty Ltd, the manager of the Joint Venture, has been joined as the second defendant to the action. HGAL is of the view that it will successfully defend these proceedings. 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 on the Australian Stock Exchange and 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 18, 1996 was 23,530. 42 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 45 in the Registrant's 1995 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 38 in Note 14 entitled "Long-term Debt" in the Notes to Consolidated Financial Statements in the Company's 1995 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 40 in the Notes to Consolidated Financial Statements in the Company's 1995 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 its subsidiaries for the eight-year period ended December 31, 1995 appears on pages 46 and 47 in the 1995 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, 1995 appears on pages 22 through 27 in the 1995 Annual Report to Shareholders and is hereby incorporated by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The 1995 Annual Report to Shareholders includes the Company's consolidated balance sheets as of December 31, 1995 and 1994 and related statements of consolidated income, consolidated shareholders' equity and consolidated cash flows for each of the three years in the period ended December 31, 1995 and the independent auditors' report thereon, and certain supplementary financial information. The following are hereby incorporated by reference from the 1995 Annual Report to Shareholders at the pages indicated: Statements of Consolidated Income (page 28) Consolidated Balance Sheets (page 29) Statements of Consolidated Shareholders' Equity (page 30) Statements of Consolidated Cash Flows (page 31) Notes to Consolidated Financial Statements (pages 32-43) Report of Independent Auditors (page 44) Quarterly Selected Data (page 45) ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 43 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 statement 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 (other than the performance graph and Compensation Committee report contained therein) is hereby incorporated by reference. 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, 1995, 1994, and 1993 - II Valuation and Qualifying Accounts Report of Independent Auditors Schedules not listed are omitted because they are not required or because the required information is included elsewhere in this report. 3. Exhibits 2.1 Plan of acquisition and offer to purchase the 18.5% of Homestake Gold of Australia Limited held by minority shareholders (incorporated by reference to the Registrant's Registration Statement No. 33-62667 on Form S-4, as amended by Post-Effective Amendment No. 1 filed on October 19, 1995 ("Offer Document") and Supplements to Offer Document dated December 1, 1995, December 13, 1995, January 12, 1996, and January 25, 1996). 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 "1992 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 1992 S-4 Registration Statement). 44 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 1992 S-4 Registration Statement). 3.4 Bylaws (as amended through May 9, 1993) of Homestake Mining Company (incorporated by reference to Exhibit 3.4 to the Registrant's Form 10-Q for the quarter ended March 31, 1995). 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 U.S. $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). 10.1 Agreement dated July 4, 1995 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. * 10.2 Form of Change of Control Severance Plan of Registrant. * 10.3 Deferred Compensation Plan of Homestake Mining Company effective October 1, 1995. * 10.4 Amended and Restated Executive Supplemental Retirement Plan of Homestake Mining Company effective August 1, 1995. * 10.5 Supplemental Retirement Plan of Homestake Mining Company, amended and restated effective as of January 1, 1990 (including November 29, 1990 modification). * 10.6 Master Trust under the Homestake Mining Company Deferred Compensation Plans as of December 5, 1995. 10.7 Amended and restated credit agreement dated as of September 30, 1994 between the Registrant, the Lenders, 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 10.1 to the Registrant's Form 8-K dated March 20, 1995). * 10.8 Retirement plan for outside directors of the Registrant dated as of July 21, 1994 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K dated March 20, 1995). 10.9 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). 10.10 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). 10.11 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). 10.12 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). 10.13 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). 45 10.14 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). 10.15 Joint Operating Agreement dated May 1, 1988 between Freeport-McMoRan Resources Partners, IMC Fertilizer, Inc. and Felmont Oil Corporation (a subsidiary of Registrant, now named Homestake Sulphur Company) 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). 10.16 Amendment No. 1 dated July 1, 1993 to Joint Operating Agreement between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc. and Homestake Sulphur Company (incorporated by reference to Exhibit 10.8 to the Registrant's Form 10-K for the year ended December 31, 1993). 10.17 Amendment No. 2 dated November 30, 1993 to Joint Operating Agreement between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc. and Homestake Sulphur Company (incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1993). 10.18 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). 10.19 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 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). 10.20 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). 10.21 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). 10.22 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). * 10.23 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). 46 * 10.24 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). 10.25 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). 10.26 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 1992 S-4 Registration Statement). * 10.27 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). * 10.28 Consulting agreement dated March 1, 1993 between William A. Humphrey and the Registrant (incorporated by reference to Exhibit 10.27 to the Registrant's Form 10-K for the year ended December 31, 1993). * 10.29 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). * 10.30 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). * 10.31 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). * 10.32 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). 11 Computation of Earnings Per Share. 13 Specified sections of the 1995 Annual Report to Shareholders. 21 Subsidiaries of the Registrant. 23 Consent of Coopers & Lybrand L.L.P., Independent Auditors. 27 Financial Data Schedule. * Compensatory plan or management contract. (b) Reports Filed on Form 8-K Six reports on Form 8-K were filed during the fourth quarter of 1995 and in the 1996 period through March 21, 1996. 1) The report on Form 8-K dated November 29, 1995 announced that the Company extended until December 22, 1995 its offer to acquire the shares of HGAL that Homestake did not own already. 47 2) The report on Form 8-K dated December 13, 1995 was submitted in order to file two documents as follows: (i) Supplement #2 to Offer Document related to the Company's offer to acquire the 18.5% of HGAL that it did not own already and (ii) consent of opinion of independent accountants related to report on financial forecast included in Supplement #2 to Offer Document. Supplement #2 to Offer Document includes updated and revised Pro Forma Condensed Consolidated Financial Statements. 3) The report on Form 8-K dated December 21, 1995 announced that the Company extended until January 12, 1996 its offer to acquire the shares of HGAL that Homestake did not own already. 4) The report on Form 8-K dated January 12, 1996 announced that the Company extended until January 25, 1996 its offer to acquire the shares of HGAL that Homestake did not own already. 5) The report on Form 8-K dated January 25, 1996 announced that the Company extended until February 9, 1996 its offer to acquire the shares of HGAL that Homestake did not own already. 6) The report on Form 8-K dated January 31, 1996 announced that the Company's offer to acquire the shares of HGAL that Homestake did not own already would close on February 9, 1996, and that the Company then owned 98.3% of the shares of HGAL and would proceed with compulsory acquisition of any remaining shares after the closing date. 48 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 21, 1996 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 21, 1996 - -------------- and Chief Financial Officer G. G. Elam (Principal Financial Officer) /s/ D. W. Peat Vice President and Controller March 21, 1996 - -------------- (Principal Accounting Officer) D. W. Peat (Signatures continued on following page.) 49
Signature Capacity Date - --------- -------- ---- /s/ Harry M. Conger Chairman of the Board, March 21, 1996 - ------------------- Chief Executive Officer and Director Harry M. Conger /s/ Jack E. Thompson President, Chief Operating March 21, 1996 - -------------------- Officer and Director Jack E. Thompson /s/ M. Norman Anderson Director March 21, 1996 - ---------------------- M. Norman Anderson /s/ Robert H. Clark, Jr. Director March 21, 1996 - ------------------------ Robert H. Clark, Jr. /s/ G. Robert Durham Director March 21, 1996 - -------------------- G. Robert Durham /s/ Douglas W. Fuerstenau Director March 21, 1996 - ------------------------- Douglas W. Fuerstenau /s/ Henry G. Grundstedt Director March 21, 1996 - ----------------------- Henry G. Grundstedt /s/ William A. Humphrey Director March 21, 1996 - ----------------------- William A. Humphrey /s/ Robert K. Jaedicke Director March 21, 1996 - ---------------------- Robert K. Jaedicke /s/ John Neerhout, Jr. Director March 21, 1996 - ---------------------- John Neerhout, Jr. /s/ Stuart T. Peeler Director March 21, 1996 - -------------------- Stuart T. Peeler /s/ Carol A. Rae Director March 21, 1996 - ---------------- Carol A. Rae /s/ Berne A. Schepman Director March 21, 1996 - --------------------- Berne A. Schepman
50 HOMESTAKE MINING COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (In thousands)
- --------------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E BALANCE AT BALANCE BEGINNING AT END OF DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD - --------------------------------------------------------------------------------------------------------------------------------- DEFERRED TAX ASSET VALUATION ALLOWANCES (1) Year ended December 31, 1995 $ 49,839 $ 11,034 $ 1,262 (2) $ 59,611 Year ended December 31, 1994 $ 52,066 $ 10,210 $ 12,437 (3) $ 49,839 Year ended December 31, 1993 $ 0 $ 52,066 (4) $ 0 $ 52,066 (1) For further information see Note 7, Income Taxes, in the Notes to the Consolidated Financial Statements included in the 1995 Annual Report to Shareholders. (2) Deductions in 1995 relate to the realization of certain United States deferred tax assets. (3) Deductions in 1994 relate to the reversals of Canadian and Australian tax loss carry-forwards. (4) Additions in 1993 relate to the implementation of SFAS 109, "Accounting for Income Taxes."
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, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, which financial statements are included on pages 28 through 43 of the 1995 Annual Report to Shareholders of Homestake Mining Company and incorporated by reference herein. We have also audited the financial statement 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. 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 L.L.P. San Francisco, California February 9, 1996 EXHIBIT INDEX
Exhibit Method of Filing - ------- ---------------- 10.1 Agreement dated July 4, 1995 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. Filed herewith electronically 10.2 Change of Control Severance Plan of Registrant. Filed herewith electronically 10.3 Deferred Compensation Plan of Homestake Mining Company effective October 1, 1995. Filed herewith electronically 10.4 Amended and Restated Executive Supplemental Retirement Plan of Homestake Mining Company effective August 1, 1995. Filed herewith electronically 10.5 Supplemental Retirement Plan of Homestake Mining Company, amended and restated effective as of January 1, 1990 (including November 29, 1990 modification). Filed herewith electronically 10.6 Master Trust under the Homestake Mining Company Deferred Compensation Plans as of December 5, 1995. Filed herewith electronically 11 Computation of Earnings Per Share Filed herewith electronically 13 1995 Annual Report to Shareholders Filed herewith electronically 21 List of Subsidiaries Filed herewith electronicallY 23 Consent of Coopers & Lybrand L.L.P., Independent Auditors Filed herewith electronically 27 Financial Data Schedule Filed herewith electronically
EX-10.1 2 QUARTER CLAIM DEEMED PRODUCTION AGREEMENT EXHIBIT 10.1 QUARTER CLAIM DEEMED PRODUCTION AGREEMENT HOMESTAKE MINING COMPANY AMENDMENT made this 4th day of July, 1995 ("Effective Date") between Homestake Canada Inc., successor in interest to International Corona Resources Ltd. ("Homestake"), Teck Corporation ("Teck") (Homestake and Teck are collectively referred to herein as "T/H") and Hemlo Gold Mines Inc., successor in interest to Noranda Exploration Company Limited (N.P.L.) ("Hemlo") to that certain Agreement between Teck Corporation , International Corona Resources Ltd., and Noranda Exploration Company Limited (N.P.L.) made as of January 25, 1983 and amended December 1, 1983 (the "Agreement"). WHEREAS, the Agreement contained an option in favor of Hemlo to acquire certain mineral property defined therein as the Optioned Property and Hemlo, pursuant to exercise of the option, became the owner of the Optioned Property (hereinafter referred to as the "Quarter Claim") on terms and conditions set out in the Agreement, including but not limited to the obligation to pay to T/H a 50% Net Profits Royalty and the obligation to provide hoisting and milling capacity to T/H through facilities of Hemlo; and, WHEREAS, for the term hereof T/H and Hemlo desire to (i) modify the manner in which the 50% Net Profits Royalty is calculated and paid such that Hemlo will pay and T/H will receive monthly payments based on estimates of reserves, grades, production rates and costs provided by Hemlo on the Effective Date without respect to Hemlo's actual rate of production and sale of gold from the Quarter Claim and (ii) make other amendments contained herein; THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, the parties do agree as follows: 1. Definitions. For the purposes of this Amendment, including the Schedules attached hereto, the following words and expressions shall have the following meanings with respect to the Quarter Claim. All capitalized words and terms not defined herein shall have the same meanings as are ascribed to them in the Agreement. (a) "Deemed Gold Production" shall mean the number of troy ounces of gold for which the Royalty shall be calculated and paid pursuant to this Amendment. For each month while this Amendment is in effect, such number shall be the product of (i) the Deemed Production Rate, (ii) the number of calendar days in the same month and (iii) the Production Factor. (b) "Deemed Production Rate" shall mean 453.59 metric tonnes of ore per day. (c) "Deemed Production Costs" shall mean the product of Deemed Unit Production Costs and the Deemed Production Rate. (d) "Deemed Unit Production Costs" shall mean C$57.40 per metric tonne as shown in the last line of the Column on Schedule B entitled "Total Cost per Tonne to Recover Gold ($C/T)" as that amount may be adjusted for Escalation. Hemlo acknowledges that such Costs include a component for all costs, charges, and fees included in the Agreement as Operating Costs. (e) "Deemed Revenue" shall mean that sum of money equal to Deemed Gold Production for the month for which the Royalty is being calculated multiplied by the average of the London final daily quotation per ounce of gold for each trading day in the same month and converted from U. S. dollars into Canadian dollars at a rate of exchange equal to the average of the daily Bank of Canada noon rates of exchange between U. S. and Canadian dollars for each business day in such month. No adjustment shall be made to Deemed Revenue on account of silver. (f) "Deemed Third Party Royalty" means for the period for which it is being calculated the amount that would be payable for the same period pursuant to the Third Party Royalty if such Third Party Royalty were calculated on the basis of Deemed Gold Production, Deemed Revenue, and Deemed Production Costs for the same period. (g) "Escalation" shall mean the amount by which Deemed Unit Production Costs may be increased or decreased annually in accordance with Schedule A and commencing as of January 1, 1996. (h) "Estimated Production" shall mean the 304,976 troy ounces of gold estimated by Hemlo to be recovered from the Quarter Claim after January 1, 1995 as shown in the last line of the column on Schedule B entitled "Estimated Ounces Recovered". (i) "Production Factor" shall mean 0.27377 and was derived by dividing the total number of ounces shown in the last line of the Column on Schedule B entitled "Estimated Ounces Recovered" by the total number of tonnes shown in the last line of the Column on Schedule B entitled "Estimated Mined Tonnes". (j) "Royalty" means the 50% Net Profits Royalty payable to T/H as provided in the Agreement and modified in this Amendment. The Royalty is calculated and paid as provided in Section 3 of this Amendment. (k) "Third Party Royalty" shall mean that 3% net smelter royalty referred to in the Agreement determined in accordance with that agreement made the 30th day of September, 1980 between 435198 Ontario Corp. and International Corona Resources Ltd., as amended. (l) "Third Party Royalty Agreement" shall mean that agreement referred to in Section 1(k). 2. Representations. -2- (a) Hemlo represents to T/H that Schedule B contains Hemlo's good faith estimates as of January 1, 1995 of reserves, grade, contained ounces, minable tonnes, ounces to be recovered, and costs with respect to the remaining mine life of the Quarter Claim at the time of Hemlo's execution of this Amendment. T/H acknowledges that T/H has reviewed those estimates and entered into this Amendment after making independent analysis based on such estimates. Hemlo acknowledges that T/H relies upon the underlying factual information contained in such estimates in entering into this Amendment. (b) Hemlo represents to T/H that T/H, and T/H represents to Hemlo that Hemlo, is not in breach of the Agreement and that the Agreement is valid and enforceable pursuant to its terms. 3. Net Profits Royalty Calculation and Payment. (a) Commencing as of January 1, 1995, Hemlo shall pay the Royalty to T/H until Hemlo has paid the Royalty with respect to cumulative Deemed Gold Production equal to 95% of Estimated Production (which number, for greater clarity, is equal to 289,727 troy ounces of gold). (b) The Royalty shall be calculated for any month by subtracting from Deemed Revenue the sum of (i) Deemed Production Costs for such month, (ii) Hemlo's estimate of Ontario Mining Taxes payable with respect to such month, (iii) Deemed Third Party Royalty, and (iv) an amount equivalent to deductions that would have been appropriate under the Agreement for Post Production Capital Expenditures, Interest Charges, and Reserve Charges, if any, and multiplying the remainder by .50. With respect to the calendar month in which cumulative Deemed Gold Production equals 95% of Estimated Production, the Royalty shall be adjusted as is appropriate to reflect the number of ounces of Deemed Gold Production in that month required to reach such 95%. (c) Payment of the Royalty for each month shall be made not later than the 20th day of the following month. (d) Hemlo shall provide T/H with each Royalty payment details of its calculation showing monthly and cumulative Deemed Gold Production, the applicable gold price and exchange rates, the monthly and cumulative Deemed Third Party Royalty, and any estimated Ontario Mining Taxes deducted. (e) T/H shall have no obligation or liability of any kind to Hemlo, including but not limited to the refund or payment of any Royalty, in the event that the actual number of troy ounces of gold actually produced from the Quarter Claim on and after January 1, 1995 is for any reason less than 95% of Estimated Production. 4. Actual Rates of Production; Suspension of Certain Obligations. Hemlo's obligations -3- to (i) provide hoisting and milling capacity for the benefit of the Quarter Claim and (ii) mine and process ore from the Quarter Claim, as provided in the Agreement, shall be suspended from January 1, 1995 until this Amendment terminates. Until this Amendment terminates Hemlo shall have the right to mine and mill ore from the Quarter Claim, and recover and sell gold therefrom, at rates determined by Hemlo in its sole discretion; provided, however, that Hemlo shall at all times carry out all mining, milling, and other operations in a good and minerlike fashion and in accordance with applicable laws and regulations and shall make all Third Party Royalty payments when due and shall defend, indemnify and hold T/H harmless against any cost, loss, damage or liability arising from Hemlo's failure to comply with the terms and provisions of the Third Party Royalty Agreement. 5. Termination of Amendment; Subsequent Reduction of Net Profits Royalty. This Amendment shall terminate on the day that the cumulative number of troy ounces of gold actually recovered from the Quarter Claim after January 1, 1995 is equal to 95% of Estimated Production (which number, for greater clarity, is equal to 289,727 troy ounces of gold). Upon termination of this Amendment the rights and duties of the parties shall continue to be governed by the Agreement, including but not limited to its provisions regarding payment of the Royalty and the obligations to provide T/H with hoisting and milling capacities, without regard to the provisions of this Amendment except that the Royalty payable to T/H shall be reduced in perpetuity from 50% to 40%. For greater clarity, in the event that the actual production of precious metals (including gold and silver) from the Quarter Claim continues after termination of this Amendment, the rights and duties of T/H and Hemlo to each other with respect to the royalty payable to T/H on such production shall be governed by the Agreement and not by this Amendment except that the Royalty on all such production shall be 40%. 6. Escalation. (a) Not later than March 31st of each year Deemed Unit Production costs shall be increased or decreased annually in accordance with Schedule A. Each such increase or decrease shall be retroactively effective as of January 1 of the same year. (b) If either party believes that extraordinary events affecting costs or material changes in accounting practices at the Golden Giant Mine or the Williams Mine render the annual Escalation calculated pursuant to Schedule A materially inappropriate for the purpose intended, such party shall notify the other in writing. Within fifteen (15) days of the receipt of such notice by the other party, both parties shall meet to try to agree on appropriate Escalation for the relevant time period. If the parties do not so agree within thirty (30) days following such meeting, the parties shall arbitrate such Escalation before a single arbitrator experienced in the matter of mining and milling costs, appointed by the President of the Canadian Institute of Mining and Metallurgy, whose decision shall be final and binding upon the parties. Each party shall submit a written proposal for such Escalation to the arbitrator within twenty (20) days of the arbitrator's appointment along with a justification therefor, including within such submittal all relevant costs -4- for from the Golden Giant or Williams Mine as the case may be. The arbitrator shall select either the Hemlo or the T/H proposal, whichever he deems to more reasonably reflect changes in costs that do or should apply to production from the Quarter Claim. 7. Records. Hemlo shall keep and maintain (i) records of actual production from the Quarter Claim, including records of the quantities of tonnes mined and milled and the number of ounces of gold recovered therefrom and (ii) such accounting and financial records as are necessary to calculate Escalation. Hemlo shall report such records of production to T/H on a regular basis not less frequently than annually and make all such production, accounting and financial records available for inspection and copying by T/H from time to time as T/H may request. 8. Governing Law. This Amendment shall be governed in accordance with the laws of the Province of Ontario. 9. Effect. This Amendment shall not be construed by implication to deprive any party of any right to which it is expressly entitled under the Agreement. The parties acknowledge that the Agreement is a valid and subsisting agreement and, agree that, except as expressly amended herein, the Agreement shall remain in full force and effect. 10. Successors. This Amendment shall extend to and bind the parties hereto and their respective successors and permitted assigns. 11. Notices. Notices given and payments made pursuant to this Amendment shall be given and made by personal delivery, mail, or (except for payment) facsimile transmission as follows: Notices: Teck Corporation: Hemlo Gold Mines Inc.: 200 Burrard Street Suite 2902 Vancouver, B.C. VC6 1G8 1 Adelaide Street East Toronto, Ontario M5C 2Z9 Attn: Senior Vice-President Attn: John Keyes Mining FAX: 604-687-6100 FAX: 807-238-1013 Homestake Canada Inc. 1000-700 West Pender Street Vancouver, B.C V6C 1G8 Attn: President FAX: 604-684-9831 -5- Royalty payments shall be made in accordance with reasonable instructions to Hemlo from Teck and Homestake. Until further notice Royalty payments shall be make to Teck for the benefit of Homestake and Teck. IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first written above. For Homestake Canada Inc. For Hemlo Gold Mines Inc. By: _______________________ By: _______________________ Its: Its: For Teck Corporation By: _______________________ Its: -6- EX-10.2 3 CHANGE OF CONTROL SEVERANCE PLAN EXHIBIT 10.2 HOMESTAKE MINING COMPANY (Basic Plan Document) - ------------------------------------------------------------------------------- Date TO: SUBJECT: Change of Control Severance Plan Homestake Mining Company ("Homestake") considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of Homestake and its shareholders. In this connection, Homestake recognizes that the possibility of a change in control and the uncertainty and questions which it may raise among management may result in the departure or distraction of management personnel to the detriment of Homestake and its shareholders. Accordingly, the Board of Directors of Homestake ("Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of Homestake management, including yourself, to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of a change in control of the Company. As a result, the Board has adopted a Change of Control Severance Plan ("Plan") which will provide you with financial support in the event Homestake undergoes a significant change of ownership or other change in control. The terms of the Plan are set forth in this letter. If you accept the terms of the Plan, you should acknowledge such by signing the Verification and Acceptance at the end of the letter. Your participation in the Plan will begin effective as of the date your acceptance is received by Homestake and will terminate effective as of the date of your 65th birthday. 1. Events Entitling You to Benefits No benefits will be payable under the Plan unless there is a Change of Control (as defined below). You will become entitled to benefits under the Plan if, within the three-year period following a Change of Control and prior to the date of your becoming age 65, (i) Your employment is terminated involuntarily for reasons other than death, disability or discharge for Good and Sufficient Cause (as defined below); or (ii) You voluntarily choose to terminate your employment for Good Reason (as defined below). As used herein, "Change of Control" means any of the following events: (i) The Company is a party to a merger or combination under the terms of which less than 75% of the shares in the resulting company are owned by the shareholders of the Company immediately preceding such event; (ii) At least 75% in fair market value of the Company's assets are sold; or (iii)At least 25% in voting power in election of directors of the Company's capital stock is acquired by any one person or group as that term is used in Rule 13d-5 under the Securities Exchange Act of 1934. As used herein, voluntary termination by you of your employment for "Good Reason" means termination subsequent to a Change of Control of Homestake resulting from the occurrence of one of the following events without your express written consent: (i) The assignment by Homestake to you of any duties inconsistent with your positions, duties, responsibilities, and status with Homestake immediately prior to the Change of Control, or a reduction in your responsibilities, titles, or offices as in effect immediately prior to a Change of Control, or any removal of you from or any failure to re-elect you to any such positions, except in connection with the involuntary termination of your employment for Good and Sufficient Cause, or as a result of your death, disability or retirement, or voluntary termination by you for other than Good Reason; (ii) A reduction by Homestake in your base salary as in effect immediately prior to the Change of Control; (iii)The requirement by Homestake that you be based anywhere other than within a 50-mile radius of your location immediately prior to a Change of Control, except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (iv) The failure by Homestake to continue in effect, or a change of your participation or benefits under, any bonus or incentive compensation plan, any employee benefit plan qualified under Section 401 (a) of the Internal Revenue Code of 1954, as amended from time to time (the "Code"), any stock ownership, stock purchase, stock option or other equity incentive plan, any life, health, accident, disability or similar plan providing welfare benefits or any plan or program of fringe benefits in which you are participating immediately prior to a Change of Control, the effect of which would be to materially reduce your benefits under such plans as such existed immediately prior to the Change of Control, or the failure by Homestake to provide you with the number of paid vacation days to which you are entitled in accordance with Homestake's general vacation policy in effect immediately prior to the Change of Control; or (v) The failure of Homestake to obtain the express assumption by any successor of Homestake's obligations under the Plan, as contemplated in Section 3. As used herein, "Good and Sufficient Cause" means any act of fraud or dishonesty, or conviction of a felony involving moral turpitude or your knowingly engaging in acts seriously detrimental to any of the operations of Homestake. 2. Compensation (as defined below) and Benefits Payable To You Compensation - A lump sum cash payment equal to two times your highest annual Compensation which is or would be reported on your Form W-2 for any calendar year during the three-year period immediately preceding the date of your termination. The lump sum cash payment shall be payable in full within 10 calendar days of the occurrence of the first event entitling you to benefits under the Plan. Benefits (i) Continuation of participation and coverage for a period of two years from the date of your termination under all Homestake life, health, accident, disability or similar plans providing welfare benefits, and all fringe benefit plans and programs which you are participating in immediately prior to your termination of employment, under the same coverages and on the same terms as in effect immediately prior to the date of your termination (or in the case of your voluntary termination for Good Reason following a Change of Control as a result of a reduction in benefits, such coverages and terms as were in effect immediately prior to a Change of Control); provided that if your continued participation is not possible under the general terms and provisions of such plans and programs, Homestake shall arrange to provide you with substantially similar benefits; (ii) Relocation assistance, to the extent not provided by another employer. Benefit accruals under Homestake employee benefit plans qualified under Section 401 (a) of the Code which you are participating in immediately prior to your termination shall cease as of the date of your termination. You will become entitled to payment of benefits under such plans in accordance with their terms. Benefits payable under the Plan will be in lieu of any severance pay benefits provided under Homestake's general severance pay policy. In the event you have an outstanding employment agreement with Homestake in effect as of your date of termination and such agreement provides you with compensation and benefits which will continue during the period of time coincident with that covered by this Plan, your benefits under the Plan will be provided only to the extent they exceed the benefits under such agreement. As used herein, "Compensation" means all regular base salary; performance bonuses paid under the Homestake Mining Company Bonus Plan paid by the Company to the Member; plus any pre-tax reductions of such compensation made at the election of the Member under a Section 401(k), Cafeteria, Deferred Income or similar plans. All other payments to a Member, such as relocation bonuses, tax equalization payments, fees, commissions, directors fees and payments resulting from or relating to the exercise of stock option or appreciation rights are excluded. If the payment of any compensation or other benefit pursuant to the Plan would constitute "applicable employee remuneration" with respect to a "covered employee" in excess of the annual limitation on deductibility by Homestake pursuant to Section 162(m) of the Code (or any successor provision), then payment of such excess amount shall be paid on March 16 of the next taxable year of Homestake (or such earlier date as, in the opinion of counsel for Homestake, would not result in such excess amount being "applicable employee remuneration" in excess of the annual limitation on deductibility), together with interest from the time such excess amount would otherwise be payable under the Plan until the date of payment at the rate of 12% per annum. 3. Successors As used herein, Homestake means Homestake (as defined above) and any successor to its business and/or assets. Homestake will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Homestake by agreement to expressly assume Homestake's obligations under the Plan in the same manner and to the same extent that Homestake would be required to perform if no such succession had taken place. 4. Arbitration Any controversy between you and Homestake involving the construction or application of any of the terms, provisions, or conditions of this Agreement shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, then in effect, and judgment on the award may be entered by any court having jurisdiction thereof. The exclusive location of the arbitration shall be San Francisco, California. The expenses reasonably incurred by both parties in connection with arbitration, including attorney fees, shall be borne by Homestake. 5. General Provisions No provision in this Plan shall be construed to guarantee continued employment by Homestake for any specified period of time, or to impair or interfere with Homestake's right to dismiss its employees. You will be entitled to reimbursement by Homestake of all reasonable expenses, including attorney's fees, incurred by you in enforcing the provisions of this Plan. All payments are subject to applicable withholding taxes and income taxes. Sections 280G and 4999 of the Code imposes penalties on the payor and payee of certain "excess parachute payments." Very generally, parachute payments are amounts which are paid as a result of the change of control of a corporation and the present value of which equals or exceeds a threshold of three times the employee's average annual taxable compensation (excluding deferred compensation) for the five years preceding the year in which a change of control occurs. If the employee has been with the Company, including predecessor or related entities, for less than five years, the employee's average annual compensation is that earned during the period of employment. If the threshold is exceeded, any parachute payments (excluding amounts which constitute reasonable compensation) which exceed one times your average annual taxable compensation for the five-year period preceding the Change of Control will be deemed "excess parachute payments" which are (i) not deductible by the payor corporation, and (ii) subject the payee to a non-deductible excise tax equal to 20% of the payment. The IRS has proposed regulations which define a "change of control." Some or all of the events which constitute a Change of Control for purposes of the Plan also constitute a change of control under the regulations. In the event a Change of Control occurs which also constitutes a change of control under the IRS regulations, you will be subject to the non-deductible excise tax if your benefits under the Plan, together with any other amounts that are deemed to be conditioned on a change of control, equal or exceed the threshold amount. If the amount of benefits you would receive from the Plan on an after-tax basis (considering your expected federal and state income tax brackets and the effect of any non-deductible excise tax) would be greater if benefits under the Plan were limited so that no excess parachute payments existed, benefits under the Plan will be so limited. This Plan is intended to be an "employee welfare benefit plan" as defined in the Employee retirement Income Security Act of 1974 ("ERISA"). Homestake shall be the "Plan Administrator" and the "named fiduciary" of the Plan, as such terms are defined in ERISA ss.ss.3(16)(a) and 402(a)(1), respectively. The Plan Administrator shall have the sole discretionary authority for interpreting the Plan, for making determinations on questions of fact relating to the operation of the Plan, and for establishing procedures for administration of the Plan. Please indicate your acceptance of the terms of the Plan by signing one copy of this letter and returning it to me in the enclosed envelope. The second copy is for your own records. Sincerely, VERIFICATION AND ACCEPTANCE I have read the foregoing letter and understand that the Change of Control Severance Plan defines the entire obligation of Homestake with respect to the benefits identified above and is limited to those benefits. I further understand that the Plan modifies Homestake's obligations under Homestake's general severance pay policy in the manner described above and that the opportunity to receive the special benefits provided under the Plan represents valuable consideration for this modification. I accept the terms of the Plan. Date:_____________ ______________________________ EX-10.3 4 DEFERRED COMPENSATION PLAN EXHIBIT 10.3 DEFERRED COMPENSATION PLAN Homestake Mining Company Effective October 1, 1995 TABLE OF CONTENTS
Page Purpose .................................................................................................... 1 ARTICLE 1 Definitions...................................................................................... 1 ARTICLE 2 Selection, Enrollment, Eligibility............................................................... 6 2.1 Selection by Committee................................................................. 6 2.2 Enrollment Requirements................................................................. 6 2.3 Eligibility; Commencement of Participation............................................. 6 ARTICLE 3 Deferral Commitments/Interest Crediting............................................................6 3.1 Minimum Deferral.........................................................................6 3.2 Maximum Deferral....................................................................... 7 3.3 Election to Defer; Effect of Election Form............................................. 7 3.4 Withholding of Deferral Amounts..........................................................7 3.5 Interest Crediting Prior to Distribution............................................... 8 3.6 Installment Distributions................................................................8 3.7 FICA and Other Taxes................................................................... 9 ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election.........................9 4.1 Short-Term Payout........................................................................9 4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies....................9 4.3 Withdrawal Election.................................................................... 10 ARTICLE 5 Retirement Benefit................................................................................10 5.1 Retirement Benefit......................................................................10 5.2 Payment of Retirement Benefits..........................................................10 5.3 Death Prior to Completion of Retirement Benefits....................................... 10 ARTICLE 6 Pre-Retirement Survivor Benefit.................................................................. 11 6.1 Pre-Retirement Survivor Benefit........................................................ 11 6.2 Payment of Pre-Retirement Survivor Benefits............................................ 11 6.3 Restriction in the Event of Suicide or Falsely Provided Information.................... 11 -i- Page ARTICLE 7 Termination Benefit.............................................................................. 12 7.1 Termination Benefits................................................................... 12 7.2 Payment of Termination Benefit......................................................... 12 ARTICLE 8 Disability Waiver and Benefit.................................................................... 12 8.1 Disability Waiver...................................................................... 12 8.2 Disability Benefit..................................................................... 13 ARTICLE 9 Beneficiary Designation.......................................................................... 13 9.1 Beneficiary............................................................................ 13 9.2 Beneficiary Designation; Change; Spousal Consent....................................... 13 9.3 Acknowledgment......................................................................... 13 9.4 No Beneficiary Designation............................................................. 13 9.5 Doubt as to Beneficiary................................................................ 14 ARTICLE 10 Leave of Absence................................................................................ 14 10.1 Paid Leave of Absence.................................................................. 14 10.2 Unpaid Leave of Absence................................................................ 14 ARTICLE 11 Termination, Amendment or Modification.......................................................... 15 11.1 Termination............................................................................ 15 11.2 Amendment.............................................................................. 15 11.3 Interest Rate in the Event of a Change in Control and Interest......................... 16 ARTICLE 12 Administration.................................................................................. 16 12.1 Committee Duties....................................................................... 16 12.2 Agents................................................................................. 16 12.3 Binding Effect of Decisions............................................................ 16 12.4 Indemnity of Committee................................................................. 16 12.5 Employer Information................................................................... 16 ARTICLE 13 Other Benefits and Agreements................................................................... 17 13.1 Coordination with Other Benefits....................................................... 17 -ii- ARTICLE 14 Pension Benefit Credit and Savings Plan Augmentation Contribution............................... 17 14.1 Pension Benefit Credit................................................................. 17 14.2 Savings Plan Augmentation Contribution................................................. 18 ARTICLE 15 Claims Procedures............................................................................... 18 15.1 Claims Procedure....................................................................... 18 15.2 Arbitration............................................................................ 19 15.3 Legal Action........................................................................... 19 ARTICLE 16 Trust........................................................................................... 19 16.1 Establishment of the Trust............................................................. 19 16.2 Interrelationship of the Plan and the Trust............................................ 19 ARTICLE 17 Miscellaneous................................................................................... 19 17.1 Unsecured General Creditor..............................................................19 17.2 Employer's Liability................................................................... 20 17.3 Nonassignability....................................................................... 20 17.4 Not a Contract of Employment........................................................... 20 17.5 Furnishing Information................................................................. 20 17.6 Terms.................................................................................. 20 17.7 Captions............................................................................... 21 17.8 Governing Law.......................................................................... 21 17.9 Notice................................................................................. 21 17.10 Successors............................................................................. 21 17.11 Spouse's Interest...................................................................... 21 17.12 Validity............................................................................... 21 17.13 Incompetent............................................................................ 21 17.14 Court Order............................................................................ 22 17.15 Distribution in the Event of Taxation.................................................. 22 17.16 Taxes and Withholding.................................................................. 22 17.17 Legal Fees To Enforce Rights After Change in Control................................... 22
-iii- HOMESTAKE MINING COMPANY DEFERRED COMPENSATION PLAN Effective October 1, 1995 Purpose The purpose of this Plan is to provide specified benefits to a select group of management, highly compensated Employees and Directors who contribute materially to the continued growth, development and future business success of Homestake Mining Company, a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA. ARTICLE 1 Definitions For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean the sum of (i) the Deferral Amount, plus (ii) interest credited in accordance with all the applicable interest crediting provisions of this Plan, less (iii) all distributions. 1.2 "Affiliate" shall mean a corporation or other form of enterprise in which the Company has directly or indirectly, an ownership interest of 50% or more and is designated by the Compensation Committee to participate in the Plan. 1.3 "Annual Bonus" shall mean any compensation, in addition to Base Annual Salary, paid annually to a Participant as an Employee under any Employer's annual bonus and incentive plans. 1.4 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary, Annual Bonus and/or Directors Fees that a Participant elects to have and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.5 "Base Annual Salary" shall mean the annual compensation, excluding bonuses, disability payments, commissions, overtime, relocation expenses, tax equalization payments, loan forgiveness, incentive payments, non-monetary awards, directors fees -1- and payments resulting from or relating to the exercise of stock options or appreciation rights, paid to a Participant for employment services rendered to an Employer, before reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of any Employer. 1.6 "Beneficiary" shall mean a Participant and one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.7 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.8 "Board" shall mean the Board of Directors of the Company. 1.9 "Bonus Rate" shall mean, for a Plan Year, an interest rate, if any, determined by the Committee, in its sole discretion, which rate shall be determined and announced before the commencement of the Plan Year for the which the rate applies. This rate may be zero for any Plan Year. 1.10 "Change in Control" shall mean: (a) The Company is a party to a merger or combination under the terms of which less than 75% of the shares in the resulting company are owned by the shareholders of the Company immediately preceding such event; or (b) At least 75% in fair market value of the Company's assets are sold; or (c) At least 25% in voting power in election of directors of the Company's capital stock is acquired by any one person or group as that term is used in Rule 13d-5 under the Securities Exchange Act of 1934. 1.11 "Claimant" shall have the meaning set forth in Section 15.1. 1.12 "Code" shall mean the Internal Revenue Code of 1986, as may be amended from time to time. 1.13 "Committee" shall mean the Compensation Committee of the Board, as constituted from time to time, or, in the event there is no such Committee of the Board, means the Board. 1.14 "Company" shall mean Homestake Mining Company. -2- 1.15 "Crediting Rate" shall mean, for each Plan Year, an interest rate determined and announced by the Committee before the Plan Year for which it is to be used that is equal to the Moody's Rate. The Moody's Rate for a Plan Year shall be an interest rate that (i) is published in Moody's Bond Record under the heading of "Moody's Corporate Bond Yield Averages", (or its successor if it is changed or eliminated) (ii) is equal to the average corporate bond yield most recently published prior to the Plan Year for which the rate is to be used. 1.16 "Deferral Amount" shall mean the sum of all of a Participant's Annual Deferral Amounts. 1.17 "Deduction Limitation" shall mean the following described limitation on the annual benefit that may be distributed pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions under this Plan. If an Employer determines in good faith at any time prior to the occurrence of a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited with interest in accordance with Section 3.5 below. The amounts so deferred and interest thereon shall be distributed to the Participant or his or her Beneficiary at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. 1.18 "Director" shall mean any member of the board of directors of any Employer. 1.19 "Directors Fees" shall mean the annual fees paid by any Employer, including retainer fees and meetings fees, as compensation for serving on the board of directors. 1.20 "Disability" shall mean a period of disability during which a Participant qualifies for benefits under the Participant's Employer's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant's Employer does not sponsor such a plan or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion. 1.21 "Disability Benefit" shall mean the benefit set forth in Article 8. -3- 1.22 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.23 "Employee" shall mean a person who is an employee of any Employer. 1.24 "Employer(s)" shall mean the Company and/or any of its Affiliates that have been selected by the Board to participate in the Plan. 1.25 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as may be amended from time to time. 1.26 "Participant" shall mean any Employee or Director (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv) whose signed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated. 1.27 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as may be amended from time to time. 1.28 "Plan Agreement" shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant shall provide for the entire benefit to which such Participant is entitled to under the Plan, and the Plan Agreement bearing the latest date of acceptance by the Committee shall govern such entitlement. 1.29 "Plan Year" shall, for the first Plan Year, begin on October 1, 1995, and end on December 31, 1995. For each Plan Year thereafter, the Plan Year shall begin on January 1 of each year and continue through December 31. 1.30 "Preferred Rate" shall mean, for each Plan Year, an interest rate that is 120% of the total of the Crediting Rate and the Bonus Rate. 1.31 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6. 1.32 "Retirement", "Retires" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or disability on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five with five (5) years of service; and shall mean, with respect to a Director who is not an Employee, severance of his or her directorships with all Employers on or after the latter of (y) the attainment of age seventy (70), or (z) in the -4- sole discretion of the Committee, an age later than age seventy (70). If a Participant is both an Employee and a Director, Retirement shall not occur until he or she Retires as both an Employee and a Director; provided, however, that such a Participant may elect, prior to Retirement and in accordance with the policies and procedures established by the Committee, to Retire for purposes of this Plan at the time he or she Retires as an Employee, which Retirement shall be deemed to be a retirement as an Employee. 1.33 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.34 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.35 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.36 "Termination of Employment" shall mean the ceasing of employment and service as a Director with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. If a Participant is both an Employee and a Director, a Termination of Employment shall occur only upon the termination of the last position held; provided, however, that such a Participant may elect, in accordance with the policies and procedures established by the Committee, to be treated for purposes of this Plan as having experienced a Termination of Employment at the time he or she ceases employment with an Employer as an Employee. 1.37 "Trust" shall mean the trust established pursuant to that certain Master Trust Agreement, dated as of December 5, 1995, between the Company and the trustee named therein, as amended from time to time. 1.38 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant or Beneficiary that would result in severe financial hardship to the Participant or Beneficiary resulting from (i) a sudden and unexpected illness or accident of the Participant or Beneficiary or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.39 "Years of Plan Participation" shall mean the total number of full Plan Years a Participant has been a Participant in the Plan prior to his or her Termination of Employment (determined without regard to whether deferral elections are made under this Plan). For purposes of a Participant's first Plan Year of Participation only, any partial Plan Year of participation shall be treated as a full Plan Year. -5- 1.40 "Years of Service" shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee's date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. Any partial year of employment shall not be counted. ARTICLE 2 Selection, Enrollment, Eligibility 2.1 Selection by Committee. Participation in the Plan shall be limited to a select group of management, highly compensated Employees and Directors of the Employers. From that group, the Committee shall select, in its sole discretion, Employees and Directors to participate in the Plan. 2.2 Enrollment Requirements. As a condition to participation, each selected Employee or Director shall complete, execute and return to the Committee within 30 days of selection a Plan Agreement, an Election Form and a Beneficiary Designation Form. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 Eligibility; Commencement of Participation. Provided an Employee or Director selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within 30 days of selection, that Employee or Director shall commence participation in the Plan on the first day of the month following the month in which the employee or Director completes all enrollment requirements. If an Employee or a Director fails to meet all such requirements within the required 30 day period, that Employee or the Director shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. ARTICLE 3 Deferral Commitments/Interest Crediting 3.1 Minimum Deferral. (a) Minimum. For each Plan Year, a Participant may elect to defer Base Annual Salary, Annual Bonus and/or Directors Fees in the following minimum amounts for each deferral elected: -6- Minimum Deferral Amount Base Annual Salary $2,000 Annual Bonus $2,000 Directors Fees $ 0 If no election is made, the amount deferred shall be zero. (b) Short Plan Year. If a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, the minimum Base Annual Salary deferral shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12. 3.2 Maximum Deferral. For each Plan Year, a Participant may elect to defer Base Annual Salary, Annual Bonus and/or Directors Fees up to the following maximum percentages for each deferral elected: Maximum Deferral Amount Base Annual Salary 100% Annual Bonus 100% Directors Fees 100% 3.3 Election to Defer; Effect of Election Form. In connection with a Participant's commencement of participation in the Plan, the Participant shall make a deferral election by timely delivering to the Committee (in accordance with Section 2.3 above) a completed and signed Election Form, which election and form must be accepted by the Committee for a valid election to exist. For each succeeding Plan Year, a new Election Form must be delivered to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made. If no Election Form is timely delivered for a Plan Year, no Annual Deferral Amount shall be withheld for that Plan Year. 3.4 Withholding of Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld each payroll period in equal amounts from the Participant's Base Annual Salary. The Annual Bonus and/or Directors Fees portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus or Directors Fees are or otherwise would be paid to the Participant. -7- 3.5 Interest Crediting Prior to Distribution. Prior to any distribution of benefits under Articles 4, 5, 6, 7 or 8, interest shall be credited and compounded annually on a Participant's Account Balance as though the Annual Deferral Amount for that Plan Year was withheld at the beginning of the Plan Year or, in the case of the first year of Plan participation, was withheld on the date that the Participant commenced participation in the Plan. The rate of interest for crediting shall be the Preferred Rate, except as otherwise provided in this Plan. In the event of Retirement, Disability, death or Termination of Employment prior to the end of a Plan Year, the basis for that year's interest crediting will be a fraction of the full year's interest, based on the number of full months that the Participant was employed with the Employer during the Plan Year prior to the occurrence of such event. If a distribution is made under this Plan, for purposes of crediting interest, the Account Balance shall be reduced as of the first day of the month in which the distribution is made. 3.6 Installment Distributions. In the event a benefit is paid in installments under Articles 5, 6 or 8, installment payment amounts shall be determined in the following manner: (a) Interest Rate. The interest rate to be used to calculate installment payment amounts shall be a fixed interest rate that is determined by averaging the Preferred Rates for the Plan Year in which installment payments commence and the four (4) preceding Plan Years. If a Participant has completed fewer than five (5) Plan Years, this average shall be determined using the Preferred Rates for the Plan Years during which the Participant participated in the Plan. b) "Deemed" Installment Payments. For purposes of calculating installment payment amounts only (and notwithstanding the fact that installment payments shall actually be paid monthly), installment payments for each 12 month period, starting with the date that the Participant became eligible to receive a benefit under this Plan (the "Eligibility Date") and continuing thereafter for each additional 12 month period until the Participant's Account Balance is paid in full, shall be deemed to have been paid in one sum as of the first day of each such 12 month period. (The result of this is that interest crediting shall be made on an annual basis after taking into account the "deemed" annual installment payment for the 12 month period.) (c) Amortization. Based on the interest rate determined in accordance with Section 3.6(a) above and the "deemed" form of installment payments determined in accordance with Section 3.6(b) above, the Participant's Account Balance shall be amortized in equal annual installment payments over the term of the specified payment period (starting as of the Eligibility Date and stated in years rather than months). -8- (d) Monthly Payments. The annual installment payment determined in Section 3.6(c) above shall be divided by 12, and the resulting number shall be the monthly installment payment that is to be paid each month during the specified monthly installment payment period in accordance with the other terms and conditions of this Plan. 3.7 FICA and Other Taxes. For each Plan Year in which an Annual Deferral Amount is being withheld, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary, Annual Bonus or Directors Fees that is not being deferred, the Participant's share of FICA and other employment taxes. If necessary, the Committee shall reduce the Annual Deferral Amount in order to comply with this Section 3.7. ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election The following provisions govern payment of benefits prior to Termination of Employment, Retirement, death or Disability. 4.1 Short-Term Payout. Subject to the Deduction Limitation, in connection with each election to defer an Annual Deferral Amount, a Participant may elect to receive a future "Short-Term Payout" from the Plan with respect to that Annual Deferral Amount. The Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus interest credited in the manner provided in Section 3.5 above on that amount, but using the applicable interest rate set forth in Section 7.1 below. Subject to the other terms and conditions of this Plan, each Short-Term payout elected shall be paid within 60 days of the first day of the Plan Year that is 5 years after the first day of the Plan Year in which the Annual Deferral Amount is actually deferred. 4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.2 shall be subject to the Deduction Limitation. -9- 4.3 Withdrawal Election. A Participant may elect, at any time, to withdraw all of his or her Account Balance less a 10% withdrawal penalty (the net amount shall be referred to as the "Withdrawal Amount"). No partial withdrawals of that balance shall be allowed. The Participant shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The penalty shall be equal to 10% of the Participant's Account Balance determined immediately prior to the withdrawal. The Participant shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan in the future. The payment of this Withdrawal Amount shall be subject to the Deduction Limitation. ARTICLE 5 Retirement Benefit The following provisions govern payment of benefits after Termination of Employment, Retirement, death or Disability. 5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 Payment of Retirement Benefits. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or in equal monthly payments (the latter determined in accordance with Section 3.6 above) over a period of 60, 120 or 180 months. The Participant may change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least 3 years prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Participant Retires. 5.3 Death Prior to Completion of Retirement Benefits. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of months and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. -10- ARTICLE 6 Pre-Retirement Survivor Benefit 6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, and except as provided in Section 6.3 below, if a Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance. 6.2 Payment of Pre-Retirement Survivor Benefits. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form whether the Pre-Retirement Survivor Benefit shall be received by his or her Beneficiary in a lump sum or in equal monthly payments (the latter determined in accordance with Section 3.6 above) over a period of 60, 120 or 180 months. The Participant may change this election to an allowable alternative payout period by submitting a new Election Form to the Committee, which form must be accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee prior to the Participant's death shall govern the payout of the Participant's Pre-Retirement Survivor Benefit. Despite the foregoing, if the Participant's Account Balance at the time of his or her death is less than $25,000, payment of the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the Committee, in a lump sum or in installment payments that do not exceed five years in duration. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the date the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. 6.3 Restriction in the Event of Suicide or Falsely Provided Information. In the event of a Participant's suicide within 2 years after the Participant first becomes a Participant, or in the event the Participant's death is determined to be from a bodily or mental cause or causes, the information about which was withheld, knowingly concealed, or falsely provided by the Participant if requested to furnish evidence of good health, the Pre-Retirement Survivor Benefit shall be equal to the sum of the Participant's Annual Deferral Amounts, without interest, all determined as of his or her date of death. -11- ARTICLE 7 Termination Benefit 7.1 Termination Benefits. Subject to the Deduction Limitation, if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's Account Balance, with interest credited in the manner provided in Section 3.5 above, but using the applicable interest rate set forth in the following schedule: Completion of Years of Plan Participation Applicable Rate Less than five years Crediting Rate Five or more years Preferred Rate 7.2 Payment of Termination Benefit. The Termination Benefit shall be paid in a lump sum within 60 days of the Termination of Employment. ARTICLE 8 Disability Waiver and Benefit 8.1 Disability Waiver. (a) Eligibility. By participating in the Plan, all Participants are eligible for this waiver. (b) Waiver of Deferral; Credit for Plan Year of Disability. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary, Annual Bonus and/or Directors Fees for the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections. (c) Return to Work. If a Participant returns to employment or service as a Director with an Employer after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an -12- Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above. 8.2 Disability Benefit. A Participant suffering a Disability shall, for benefit purposes under this Plan (but not for purposes of annual deferrals), continue to be considered to be employed or in the service of an Employer as a Director and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right, in its sole and absolute discretion and for purposes of this Plan only, to terminate a Participant's employment or service as a Director at any time after such Participant is determined to be permanently disabled (i) under the Participant Employer's long-term disability plan (or would have been determined to be permanently disabled had he or she participated in that plan), or (ii) if such a plan does not exist, by the Committee in its sole discretion. ARTICLE 9 Beneficiary Designation 9.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the Committee, must be signed by that Participant's spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 9.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Committee or its designated agent. 9.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's -13- benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. ARTICLE 10 Leave of Absence 10.1 Paid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3. 10.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. -14- ARTICLE 11 Termination, Amendment or Modification 11.1 Termination. Any Employer reserves the right to terminate the Plan at any time with respect to its participating Employees and Directors by the actions of its board of directors. Upon the termination of the Plan, all Plan Agreements of a Participant shall terminate and his or her Account Balance, determined as if he or she had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired on the date of Plan termination, shall be paid to the Participant as follows. Prior to a Change in Control, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or in monthly installments for up to 15 years, with interest credited during the installment period as provided in Section 3.6. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments by paying the present value equivalent of such payments, using the Crediting Rate for the Plan Year in which the termination occurs as the discount rate, in a lump sum or pursuant to a different payment schedule. 11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the actions of its board of directors; provided, however, that no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification, or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the present value equivalent of such payments, using the Crediting Rate for the Plan Year of the amendment or modification as the discount rate, in a lump sum or pursuant to a different payment schedule. -15- 11.3 Interest Rate in the Event of a Change in Control and Interest. If a Change in Control occurs, the applicable interest rate to be used in determining a Participant's benefit in connection with a Termination of Employment after the Change in Control, or a Plan termination, amendment or modification under Sections 11.1 and 11.2, shall be the Preferred Rate. However, the Crediting Rate for the applicable Plan Year, and not the Preferred Rate, shall be used as the discount rate for determining present value. ARTICLE 12 Administration 12.1 Committee Duties. This Plan shall be administered by the Compensation Committee of the Board. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. 12.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.3 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4 Indemnity of Committee. The Company and Affiliates shall indemnify and hold harmless each member of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by that member. 12.5 Employer Information. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require. -16- ARTICLE 13 Other Benefits and Agreements 13.1 Coordination with Other Benefits. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 Pension Benefit Credit and Savings Plan Augmentation Contribution 14.1 Pension Benefit Credit. Amounts deferred under this Plan are not included in the compensation base for calculating pension benefits under the Homestake Retirement Plan or the Supplemental Retirement Plan. As a result, a pension benefit credit will be calculated at the time of retirement and subsequently paid as follows: a. At termination, the actual pension benefit under the Homestake Retirement Plan and the Supplemental Retirement Plan will be calculated in the payment option form chosen under the provisions of those plans. b. A hypothetical pension benefit under such plans will then be calculated in the same payment option form, including in the pension base the amount of the deferred compensation that would have been included in the pension base but for the Executive's elections hereunder. c. The resulting difference will be paid monthly as a pension plan supplement in conjunction with the pension benefit payment. d. As an alternative, the Committee may, in its sole and absolute discretion, accelerate the payment of this supplement, using a present value calculation, so that full payment is made in equal payments coinciding with the deferred compensation payment. e. In the event of the Participant's death, the Committee shall determine the portion of the pension benefit credit, if any, which shall continue to be payable. Such amount shall be payable to the person or persons who are entitled to receive payments under the Homestake Retirement Plan and/or the Supplemental Retirement Plan. -17- 14.2 Savings Plan Augmentation Contribution. (a) Participation in this Plan does not preclude participation in the Homestake Mining Company Savings Plan ("Savings Plan"). The Company will make a Savings Plan augmentation contribution on behalf of any Participant in this Plan who defers the maximum election deferred under Section 402 (g) or the maximum elective contribution permitted under the terms of the Code of Savings Plan. For any such Plan Year, the aggregate Company contribution to both the Savings Plan and this Plan (in respect of the Savings Plan) on behalf of such a Participant will be an amount equal to 25% (or such higher percentage of matching contributions as the Company may make under the Savings Plan for the Plan Year) of the first six percent (6%) of the Participant's Base Salary for that year which is contributed or deferred during that year in accordance with each Plan, respectively. Any amount of Company contribution not allocated to the Savings Plan will be credited to the Participant's Savings Plan Augmentation Account. The Savings Plan augmentation contribution shall be credited to the Participant's Savings Plan Augmentation Account once a year following the end of each Plan Year. No Savings Plan augmentation contribution will be made on behalf of any Participant who does not defer the maximum elective deferral under Section 402 (g) or the maximum elective contribution permitted under the Savings Plan for the applicable Plan Year. (b) A Participant's interest in any credit to his or her Savings Plan Augmentation Account and earnings thereon shall vest at the same rate and at the same time as would have been the case had such contribution been made to the Savings Plan. Interest will be credited on a Savings Plan Augmentation Account at the same rate and in the same manner as discussed in Section 3.5. Upon death, Disability, Retirement or other Termination of Employment, the Company shall pay to the Participant the value of the Participant's Savings Plan Augmentation Account at the same rate and in the same manner as if it were the Participant's Account Balance. ARTICLE 15 Claims Procedures 15.1 Claims Procedure. If a Participant or Beneficiary ("Claimant") believes that he or she is entitled to a benefit, or to a greater benefit as the case may be, under the Plan, the Claimant may submit a signed, written application to the Committee within 90 days of having been denied such benefit. The Claimant will generally be notified of the approval or denial of this application within 90 days of the date that the Committee receives the application. If the claim is denied, the denial will state specific reasons for the denial and the Claimant will have 60 days to file a signed, written request for a review of the denial with the Committee. This request should include the reasons for requesting review, facts supporting the request and any other relevant comments. The Committee, operating pursuant to its discretionary authority to administer and interpret the Plan and to determine eligibility for benefits under the terms of the Plan, will generally make a final, written determination of the Claimant's eligibility for benefits within 60 days of receipt of the request for review. -18- 15.2 Arbitration. Any controversy between a Participant or Beneficiary and the Company involving the construction or application of any of the terms, provisions, or conditions of this Plan shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, then in effect, and judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. The exclusive place of arbitration shall be San Francisco, California. The expenses reasonably incurred by both parties in connection with arbitration, including attorney fees, shall be borne by the Company. 15.3 Legal Action. A Claimant's compliance with the foregoing provisions of this Article 15 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 16 Trust 16.1 Establishment of a Trust. The Company shall establish the Trust, and the Employers shall at least annually transfer over to the Trust such assets as the Employers determine, in their sole discretion, are necessary to provide for their respective future liabilities created with respect to the Annual Deferral Amounts, Augmentation Accounts and interest credits for that year. 16.2 Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant or a Beneficiary to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants, Beneficiaries and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan. Each Employer's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer's obligations under this Agreement. ARTICLE 17 Miscellaneous 17.1 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. Any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. -19- 17.2 Employer's Liability. An Employer's liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant or his or her Beneficiary under the Plan except as expressly provided in the Plan and his or her Plan Agreement. 17.3 Nonassignability. No employer shall be liable under the Plan to any Participant or his or her Beneficiaries except to the extent of (i) the Deferral Amount attributable to the Participant's employment by that Employer, plus (ii) interest credited on (i) in accordance with the Plan. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable, except that the foregoing shall not apply to any family support obligations set forth in a court order. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 17.4 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, either as an Employee or a Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 17.5 Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 17.6 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. -20- 17.7 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 17.8 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of California without regard to its conflicts of laws principles. 17.9 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Homestake Mining Company Attn: Compensation Committee 650 California Street San Francisco, CA 94108 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 17.10 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 17.11 Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 17.12 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidly shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 17.13 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require -21- proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 17.14 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. 17.15 Distribution in the Event of Taxation. (a) General. If, for any reason, all or any portion of a Participant's or Beneficiary's benefit under this Plan becomes taxable to the Participant or Beneficiary prior to receipt, a Participant or Beneficiary may petition the Committee for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld, a Participant's Employer shall distribute to the Participant or Beneficiary immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's or Beneficiary's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's or Beneficiary's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) Trust. Plan benefits payable to a Participant or Beneficiary shall be reduced to the extent that benefits are distributed from the Trust, in accordance with its provisions, to that Participant or Beneficiary because the Trust is determined not to be a "grantor trust". 17.16 Taxes and Withholding. The Participant's Employer(s), or the trustee of the Trust in accordance with the terms of the Trust, may withhold from any distribution under this Plan any and all employment and income taxes that are required to be withheld under applicable law. 17.17 Legal Fees To Enforce Rights After Change in Control. The Company is aware that upon the occurrence of a Change in Control, the Board (which might then be composed of new members) or a shareholder of the Company, or of any successor corporation might then cause or attempt to cause the Company or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company to institute, or may institute, litigation seeking to deny Participants and Beneficiaries the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant and Beneficiary that the Company or the Company has failed to comply with any of its obligations under the Plan or any -22- agreement thereunder or, if the Company or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant and Beneficiary the benefits intended to be provided, then the Company irrevocably authorize such Participant and Beneficiary to retain counsel of his or her choice at the expense of the Company to represent such Participant and Beneficiary in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company or any successor thereto in any jurisdiction. IN WITNESS WHEREOF, the Company has signed this Plan document as of __________, 199_. "Company" -------------------------- a Delaware corporation By: __________________________________ Title: ________________________________ -23- EX-10.4 5 AMENDED/RESTATED EXEC SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10.4 AMENDED AND RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN Homestake Mining Company Effective August 1, 1995 HOMESTAKE MINING COMPANY AMENDED AND RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN 1. The Amended and Restated Executive Supplemental Retirement Plan (the "Plan") for designated key executives of Homestake Mining Company is effective as of August 1, 1995. 2. General Purpose of Plan This Plan is established to provide supplementary Retirement Benefits for key executives designated by the Compensation Committee of the Board of Directors. 3. Definitions (a) "Affiliate" means any affiliated organizations designated by the Compensation Committee to participate in the Plan. (b) "Board" means the Board of Directors of Homestake Mining Company. (c) "Company" means Homestake Mining Company. (d) "Committee" means the Compensation Committee of the Board, as constituted from time to time, or, in the event there is no such Committee of the Board, means the Board. (e) "Compensation" means all regular base salary; performance bonuses paid under the Homestake Mining Company Bonus Plan; plus any pre-tax reductions of such compensation made at the election of the Member under a Section 401 (k), cafeteria, deferred income or similar plans paid by the Company and Affiliates. All other payments to a Member, such as relocation bonuses, tax equalization payments, fees, commissions, directors fees and payments resulting from or relating to the exercise of stock option or appreciation rights are excluded. (f) "Participant" means a key executive of the Company or Affiliate who receives written notification from the Company that he or she has been designated as a participant of the Plan by the Compensation Committee. (g) "Normal Retirement Date" means with respect to a Member the first day of the calendar month coincident with or next following the first date on which the Member has both attained age sixty-two and completed ten or more continuous years of Service. 2 (h) "Reorganization" means any of the following events: (i) the Company is a party to a merger or consolidation under the terms of which less than 75% of the shares in the resulting company are owned by the shareholders of the Company immediately preceding such events; (ii) at least 75% in fair market value of the Company's assets are sold in a single transaction or series of related transactions; or (iii) at least 25% in voting power of the Company's shares for electing directors are acquired by any one person or group as that term is used in Rule 13d-5 under the Securities Exchange Act of 1934. (i) "Retirement Benefit" means the benefits payable under this Plan, calculated in accordance with Section 4. (j) "Homestake Retirement Plan" means the Homestake Retirement Plan, restated as of January 1, 1989, as it has been and may be amended and restated from time to time. (k) "Service" means all periods of employment with the Company and any Affiliate and any other entity designated by the Company. 4. Retirement Benefit (a) Normal Retirement Benefit--At the Normal Retirement Date a Member who retires at such date shall be entitled to receive a monthly Retirement Benefit equal to the amount determined by multiplying: (i) 4-1/3% by (ii) the complete or fractional years of Service (up to a maximum of fifteen years) by (iii)the average monthly Compensation paid to the Member during the period of his thirty-six consecutive months of highest Compensation (or, if employed for less than thirty-six consecutive months, the period of such Member's actual employment); The monthly Retirement Benefit thus calculated shall be reduced by: (iv) commencing on the Member's attainment of age 65, (x) 50% of the primary insurance amount of United States Social Security which the Member would be entitled to receive if he retired and commenced receipt of benefits at that time, and (y) an amount equal to any reduction for Canada Pension Plan, Quebec Pension Plan and any similar foreign employment related social security plan ("foreign plans") 3 benefits which the Member would be entitled to receive if he retired and commenced receipt of benefits at that time, but only to the extent the Homestake Retirement Plan has been amended prior to the Member's attainment or age 65 to provide for such a reduction in respect of foreign plans from benefits payable under the Homestake Retirement Plan, and (v) benefits from time to time received or receivable before giving effect to any spousal or contingent annuitant benefit election under the Homestake Retirement Plan, the Supplemental Retirement Plan or any other of the Company's pension or retirement plans (not including the Savings Plan), and any disability plan or worker's compensation plan. (b) Early Retirement Benefit--A Member who has attained age fifty-five and has completed ten or more continuous years of Service may elect to retire on the first day of any month prior to the Member's Normal Retirement Date, upon written election filed with, and subject to the approval of, the Compensation Committee. The Compensation Committee, at its discretion, may withhold such approval, but in no event beyond age sixty-two. Upon such retirement, the Member shall be entitled to receive a monthly Retirement Benefit determined as provided in clauses (i), (ii) and (iii) of paragraph (a) above, reduced as follows: (i) by four percent of such amount for each year (prorated on a monthly basis for parts of a year) by which such commencement of benefits precedes the Member's Normal Retirement Date; and (ii) there shall then be made the reductions provided in clauses (iv) and (v) of paragraph (a) above. (c) Postponed Retirement Benefit--A Member who retires after the Normal Retirement Date will receive monthly the same dollar amount of Retirement Benefit that would have been payable had the Member's retirement not been postponed, except that such Member's years of Service shall include all years of Service (up to a maximum of fifteen years) prior to such Member's actual retirement. (d) Surviving Spouse Benefit--If a Member with ten or more continuous years of Service dies after age fifty-five, either before or after retirement, the Member's qualifying spouse will receive a Surviving Spouse Benefit for life if the Member did not, at the time of death, have in effect a valid election to receive an optional form of joint and survivor annuity pursuant to Section 5. A "qualifying spouse" is the spouse of a Member at the Member's death who has been lawfully married to the Member throughout the one-year period ending on the earlier of the Member's death or Normal Retirement Date. The Surviving Spouse Benefit shall commence on the first day of the month following the Member's death and terminate with the payment for the month in 4 which the spouse's death occurs. Such benefit amount shall equal one-half of the Retirement Benefit which would have been payable if the Member had been living and had commenced receipt of benefits on the date of death, reduced by one percent of such benefit for each full year in excess of ten that the date of birth of such surviving spouse occurred after that of the deceased Member. (e) For the purposes of paragraphs (a), (b) and (c) of Section 4, the payment of any benefit provided under this Plan will commence on the first day of the month following the month in which retirement occurs. The final payment will be the payment made on the first day of the month in which death occurs. 5. Optional Forms of Benefits Instead of the Retirement Benefit with Surviving Spouse Benefit provided in Section 4, a Member may elect, effective upon the attainment of age fifty-five with ten or more continuous years of Service, to receive an actuarially determined Retirement Benefit to provide an optional surviving spouse or contingent annuitant benefit, which benefits to a spouse or contingent annuitant shall be paid upon the Member's death, whether before or after retirement. The optional surviving spouse or contingent annuitant benefit shall be actuarially adjusted to take into account the amount to be continued as well as the ages of the spouse or contingent annuitant and the Member. The optional forms of benefits are as follows: (a) Surviving Spouse: The Retirement Benefit may be actuarially reduced to provide a benefit to a qualifying surviving spouse equal to: (i) the benefit the Member would have been entitled to receive, or (ii) two-thirds of the benefit the Member would have been entitled to receive. (b) Contingent Annuitant: With the written consent of a spouse, if any, a member may designate a person other than a qualifying spouse to be a contingent annuitant, in which case the Retirement Benefit will be actuarially reduced to provide a benefit to the contingent annuitant equal to: (i) the benefit the Member would have been entitled to receive, or (ii) two-thirds of the benefit the Member would have been entitled to receive, or (iii)one-half of the benefit the Member would have been entitled to receive. 5 Any actuarial reduction in benefits made pursuant to this Section 5 shall be made in accordance with the actuarial assumptions used in computing alternative forms of benefits under the Homestake Retirement Plan at the time that such reduction is made. 6. Benefit Increases It is anticipated that the retirement benefits payable to Member hereunder will exceed those to which Member is entitled pursuant to the Homestake Retirement Plan, the Supplemental Retirement Plan or any other retirement plans from time to time in effect and its employment policies generally and, in the event that Member becomes entitled to retirement benefits under said plans and policies which benefits at any time or from time to time are greater than those herein provided, no additional benefits shall be payable under this Plan. If at any time the Company increases the benefits paid to persons then retired under the Company's retirement plans generally or to then retired senior executives generally, such increases shall be applied pro rata to all of the Retirement Benefits payable to Members hereunder. For purposes of this section 6, any annual adjustment to the Member's retirement benefits under the Homestake Retirement Plan will also apply to Retirement Benefits payable hereunder. 7. Termination of Service A Member who ceases to be employed by the Company for any reason (other than retirement or early retirement under the provisions of Section 4 of this Plan), after attaining age fifty-five and having completed ten or more continuous years of Service shall be entitled, with the approval of the Compensation Committee as provided in Section 4(b), to receive early Retirement Benefits as provided in Section 4(b). With the approval of the Compensation Committee the terminated Member may elect to begin receiving benefits on the Normal Retirement Date, such benefit will be calculated based on the Member's actual years of continuous service and earnings, up to the date of termination. Any Member who ceases to be employed by the Company or Affiliates for any reason before completion of ten continuous years of Service and age fifty-five shall cease to be a Member and shall not be entitled to received any benefits under this Plan except for any benefits to which such Member may become entitled through re-employment. 8. Withdrawal Election A Member or his or her Beneficiary, as the case may be, may elect, at any time after he or she commences to receive benefits payments under this Plan, to receive those payments in a lump sum, based on the actuarial equivalent of his or her remaining vested benefits less a 10% penalty (as described below). No election to partially accelerate benefits shall be allowed. The Member shall make this election by giving the Plan Administrator written notice of the election 6 in a form determined from time to time by the Plan Administrator. The penalty shall be equal to 10% of the lump sum actuarial equivalent of the Member's remaining vested benefit. Any actuarial reduction in benefits made pursuant to this Section 8 shall be made in accordance with the actuarial assumptions used in computing lump sum payments under the Homestake Retirement Plan at the time such lump sum payment is made. The Member shall be paid the reduced Benefit Amount within 60 days of his or her election. Once such is paid, the Member's participation in the Plan shall terminate and the Member shall not be eligible to participate in the Plan in the future. 9. Suspension or Termination of Benefits If the Compensation Committee determines that a Member otherwise entitled to benefits under the Plan is engaged actively or proposes to engage actively, directly or indirectly in activities which may be detrimental to the interests of the Company, it shall give such person written notice of the grounds for its determination. The Compensation Committee shall afford such person an opportunity to submit to it within 60 days thereafter a written statement of reasons why such person considered such determination to be incorrect. After considering such written statement and any other information which it determines to be relevant, the Compensation Committee shall have the right to terminate benefits otherwise payable under the Plan or to suspend them for such period as it determines to be appropriate. The Compensation Committee shall advise such person of its action. Any determination by the Compensation Committee to suspend or terminate benefits shall be final and binding upon the Member. 10. Trust The Company may establish one or more grantor Trusts and the Company and Affiliates shall at least annually transfer over to the Trust such assets as the Company and Affiliates determine, in their sole discretion, are necessary to provide for the Company's and Affiliates future liabilities created under the Plan, provided the assets of the Trust shall be considered part of the general assets of the Company and Affiliates subject to the claims of its general creditors. The provisions of the Plan shall govern rights of a Member to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Members and the creditors of the Company and Affiliates to the assets transferred to the Trust. The Company and Affiliates shall at all times remain liable to carry out its obligations under the Plan. The Company's and Affiliate's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust. 11. Administration and Interpretation 7 This Plan is intended to qualify for exemption from Parts II, III and IV of the Employee Retirement Income Security Act of 1974, as amended, as a plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of such Act, and shall be so interpreted. This plan shall be administered by the Compensation Committee. The Committee shall have the discretion and authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit and may, from time to time, consult with counsel who may be counsel to the Company. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. The Company and Affiliates shall indemnify and hold harmless each member of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by that member. To enable the Committee to perform its functions, the Company and Affiliates shall supply full and timely information to the Committee on all matters relating to the compensation of its Members, the date and circumstances of the retirement, disability, death or termination of employment of its Members, and such other pertinent information as the Committee may reasonably require. 12. Termination of Plan The Company and Affiliates reserves the right to change or terminate the Plan, or both, at any time. The Company and Affiliates shall promptly notify Members of any change or termination. Any change or termination will not affect benefits vested on the effective date of change or termination, but any benefits or expected benefits not then vested shall be modified or extinguished as the case may be. For this purpose, the Normal Retirement Benefit shall be deemed vested when a Member reaches age sixty-five or both completes ten continuous years of Service and reaches age sixty-two, and the Early Retirement Benefit shall be deemed vested when a Member completes ten continuous years of Service and reaches age fifty-five. 13. Effects of Dissolution, Liquidation or Reorganization 8 Notwithstanding any other provision of the Plan, if the Company is dissolved or liquidated or is a party to a Reorganization and if (i) the Company's successor does not, by operation of law or prior agreement, assume the Company's obligations with respect to this Plan or (ii) the Member's employment is terminated for any reason or for no reason by the Member or by such successor within two years following the occurrence of such dissolution, liquidation or Reorganization, the benefits of each member affected thereby under this Plan shall vest fully as if each member's Service had continued until the Normal Retirement Date (but in no event for more than a total of 15 years of Service) but shall be calculated based on each Member's highest average monthly Compensation over any thirty-six consecutive month period of actual employment prior to the vesting date, or, if employed for less than thirty-six consecutive months at such time, the period of such Member's actual employment. No termination or modification of this Plan shall affect the rights of a Member to then-vested benefits pursuant to the preceding sentence. Benefits so vested pursuant to this Section 13 shall be payable commencing on the later of attainment of age fifty-five or the first day of the month following the vesting event, or at such later time as a Member alone may elect; provided, however, that in computing such benefits the amount computed pursuant to clauses (i), (ii) and (iii) of Section 4(a) hereof, as modified in this Section 14, shall be reduced by 4% for each year (prorated on a monthly basis for parts of a year) by which such commencement of benefits precedes such Member's Normal Retirement Date, and then reduced as provided in clauses (iv) and (v) of Section 4(a). Any Member who is employed by a successor organization shall be entitled to the retirement benefits of such organization without offset of benefits provided under this Plan and to the extent benefits otherwise receivable from such organization are reduced, benefits under this Plan shall be correspondingly increased. 14. General Provisions Members and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of the Company or Affiliate's. With respect to the Plan, any Plan Agreement and the Trust, any and all of the Company's or Affiliate's assets shall be, and shall remain, the general, unpledged unrestricted assets of the Company or Affiliate's, except as provided by the Trust. The Company's or Affiliate's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. The Company's or Affiliate's liability for the payment of benefits shall be defined only by the Plan. The Company or Affiliate's shall have no obligation to a Member under the Plan except as expressly provided in the Plan. Neither a Member nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable, 9 except that the foregoing shall not apply to any family support obligations set forth in a court order. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Member or any other person, nor be transferable by operation of law in the event of a Member's or any other person's bankruptcy or insolvency. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or any Affiliate and the Member. Such employment is an "at will" employment relationship that can be terminated at any time for any reason, with or without cause, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Member the right to be retained in the service of any Company or Affiliate or to interfere with the right of any Company or Affiliate to discipline or discharge the Member at any time. A Member will cooperate with the Company or Affiliate by furnishing any and all information requested by the Company or Affiliate and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as any Company or Affiliate may deem necessary. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. The captions of the articles, sections and paragraphs of this plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. The provisions of this Plan shall be construed and interpreted according to the laws of the State of California. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Homestake Mining Company Attn: Compensation Committee 650 California Street San Francisco, CA 94108 10 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Member under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Member. The provisions of this Plan shall bind and inure to the benefit of the Company and Affiliates and their successors and assigns and the Member, the Member's Beneficiaries, and their permitted successors and assigns. The interest in the benefits hereunder of a spouse of a Member who has predeceased the Member shall automatically pass to the Member and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. If a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Member and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 15. Distribution in the Event of Taxation If, for any reason, all or any portion of a Member's benefit under this Plan becomes taxable to the Member prior to receipt, a Member may petition the Committee for a distribution of assets sufficient to meet the Participant's tax liability (including additions to tax, penalties and interest). Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Company and Affiliate shall distribute to the Member immediately available funds in an amount equal to the Member's federal, state and local tax liability associated with such taxation (which amount shall not exceed a Participant's accrued benefit under the Plan), which liability shall be measured by using that Member's then current highest federal, state and local marginal tax rate, plus the rates or amounts for the applicable additions to tax, penalties and interest. If the petition is granted, the tax liability distribution shall be made within 90 days of the date when Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under Article 3. 16. Claims Procedure 11 If a Member or Beneficiary ("Claimant") believes that he or she is entitled to a benefit or greater benefit as the case may be, under the Plan, the Claimant may submit a signed, written application to the Committee within 90 days of having been denied such benefit. The Claimant will generally be notified of the approval or denial of this application within 90 days of the date that the Committee receives the application. If the claim is denied, the denial will state specific reasons for the denial and the Claimant will have 60 days to file a signed, written request for a review of the denial with the Committee. This request should include the reasons for requesting a review, facts supporting the request and any other relevant comments. The Committee, operating pursuant to its discretionary authority to administer and interpret the Plan and to determine eligibility for benefits under the terms of the Plan, will generally make a final, written determination of the Claimant's eligibility for benefits within 60 days of receipt of the request for review. 17. Arbitration Any controversy between a participant and the Company or Affiliates involving the construction or application of any of the terms, provisions, or conditions of this Plan shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, then in effect, and judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. The exclusive place of arbitration shall be San Francisco, California. The expenses reasonably incurred by both parties in connection with arbitration, including attorney fees, shall be borne by the Company or Affiliates. IN WITNESS WHEREOF, Homestake Mining Company has adopted this Amended and Restated Executive Supplemental Retirement Plan, effective August 1, 1995. HOMESTAKE MINING COMPANY ___________________________ By: __________________________ Date of Execution Chairman and Chief Executive Officer ___________________________ By: __________________________ Date of Execution Vice President 12 EX-10.5 6 SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10.5 AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN HOMESTAKE MINING COMPANY Effective January 1, 1990 (Including November 29, 1990 Modification) HOMESTAKE MINING COMPANY AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN This Amended and Restated Supplemental Retirement Plan for designated employees of Homestake Mining Company is adopted by the Company to be effective as of January 1, 1990. SECTION I DEFINITIONS 1.01 "Affiliate" means any corporation, partnership or other entity which is controlled by the Company. 1.02 "Basic Plan" means the Retirement Plan for Salaried Employees of Homestake Mining Company, as amended and restated from time to time. 1.03 "Beneficiary" means any person designated in writing by the Participant to receive benefits under the terms of the Basic Plan. 1.04 "Board of Directors" means the Board of Directors of Homestake Mining Company. 1.05 "Committee" means the Compensation Committee appointed by the Board of Directors of the Company, and given authority by the Board of Directors to administer this Plan. 1.06 "Company" means Homestake Mining Company. 1.07 "Participant" means any employee of the Company or its Subsidiaries and Affiliates whose benefits under the Basic Plan are reduced on account of the restrictions of Sections 401(a)(17) and 415 of the Internal Revenue Code of 1954 or the Internal Revenue Code of 1986, as amended: provided that no employee shall become or remain a Participant if the Committee determines that such employee is not a member of "a select group of management or highly compensated employees" within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. 1.08 "Plan" means this Supplemental Retirement Plan of Homestake Mining Company. 1.09 "Subsidiary" means any corporation in which the Company holds, directly or indirectly, more than 50% of the voting power. -1- 1.10 The masculine gender, where appearing in the Plan will be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates the contrary. SECTION II ELIGIBILITY FOR AND AMOUNT OF BENEFITS 2.01 Eligibility Each Participant is eligible to receive a benefit under this Plan if he is eligible to receive a benefit under the terms of the Basic Plan. 2.02 Amount of Benefit The retirement or death benefit payable under the Plan to a Participant or Beneficiary will equal the amounts, if any, that would have been payable to the Participant or Beneficiary under the terms of the Basic Plan except for the restrictions of Sections 401(a)(17) and 415 of the Internal Revenue Code of 1954 or the Internal Revenue Code of 1986, as amended, minus the amounts payable to the Participant or Beneficiary under the terms of the Basic Plan. 2.03 Forms and Times of Benefit Payments Any benefit to which a Participant or Beneficiary is determined to be entitled under this Plan will be payable in the same form, at the same time and subject to the same actuarial reductions, if any, as benefits payable under the terms of the Basic Plan. If periodic payments are nominal, the Committee may convert benefit values to a lump sum payment on a present value basis, as determined by the Committee in its sole discretion. SECTION III MISCELLANEOUS 3.01 Amendment and Plan Termination The Company may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part. In that event, Participants will vest in their benefits, if any, hereunder calculated in accordance with Section 2.02 to the date of termination, suspension or amendment of the Plan. Plan suspension or termination will not affect benefits being paid or benefits which have vested. In the event of a Plan termination, the Board of Directors may, at its sole discretion, elect any one or more of the following alternatives to satisfy the -2- Company's obligations to Participants or Beneficiaries receiving or entitled to benefits: (a) Provide benefit payments in accordance with Section 2.03. (b) Make lump sum payments equal to the present value of the benefits payable under the Plan. 3.02 Not An Employment Agreement Nothing contained herein will confer upon any Participant the right to be retained in the service of the Company, nor will it interfere with the right of the Company to discharge or otherwise deal with Participants without regard to the existence of this Plan. 3.03 No Advance Funding This Plan is unfunded, and the Company will make Plan benefit payments solely on a current disbursement basis. Nothing in the establishment of this Plan is to be construed as requiring or authorizing the Company to create or maintain any separate fund, account or reserve to provide for the payment of the Company's liability to a Participant under the Plan. All payments hereunder shall be made from the general assets of the Company and no Participant shall have any right hereunder to any specific asset of the Company. 3.04 Assignment of Benefits A Participant may not, either voluntarily or involuntarily, assign, anticipate, alienate, commute, pledge, discount, borrow against or encumber any benefits to which he is or may become entitled to under the Plan, nor may the same be subject to attachment or garnishment by any creditor of a Participant. 3.05 Interpretation This Plan is intended to qualify for exemption from Parts II, III and IV of the Employee Retirement Income Security Act of 1974, as amended, as a plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of such Act, and shall be so interpreted. Subject to that restriction, the Committee shall have the sole discretion to interpret this Plan and to adopt rules and interpretation for the application and implementation of this Plan. The decisions and interpretations by the Committee shall be final and binding on all Participants. -3- IN WITNESS WHEREOF, Homestake Mining Company has adopted this Plan, effective January 1, 1990. HOMESTAKE MINING COMPANY ______________________ By: _________________________________ Date of Execution Chairman and Chief Executive Officer ______________________ By: _________________________________ Date of Execution Vice President Human Resources -4- EX-10.6 7 MASTER TRUST UNDER HMC DEFERRED COMPENSATION PLAN EXHIBIT 10.6 MASTER TRUST UNDER THE HOMESTAKE MINING COMPANY DEFERRED COMPENSATION PLANS TABLE OF CONTENTS
Page ARTICLE I - ESTABLISHMENT OF TRUST................................................................ 1 ARTICLE II - PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES......................................................................... 2 ARTICLE III - TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN THE COMPANY IS INSOLVENT............................................................................. 3 ARTICLE IV - PAYMENTS TO THE COMPANY............................................................... 5 ARTICLE V - INVESTMENT AUTHORITY.................................................................. 5 ARTICLE VI - DISPOSITION OF INCOME................................................................. 8 ARTICLE VII - ACCOUNTING BY TRUSTEE................................................................. 8 ARTICLE VIII - RESPONSIBILITY OF TRUSTEE............................................................. 9 ARTICLE IX - COMPENSATION AND EXPENSES OF TRUSTEE.................................................. 10 ARTICLE X - RESIGNATION AND REMOVAL OF TRUSTEE.................................................... 10 ARTICLE XI - APPOINTMENT OF SUCCESSOR.............................................................. 11 ARTICLE XII - AMENDMENT OR TERMINATION.............................................................. 11 ARTICLE XIII - MISCELLANEOUS......................................................................... 12 ARTICLE XIV - EFFECTIVE DATE........................................................................ 14
-i- MASTER TRUST UNDER THE HOMESTAKE MINING COMPANY DEFERRED COMPENSATION PLANS This Agreement made this 5th day of December, 1995, by and between Homestake Mining Company (the "Company") and Wells Fargo Bank, N.A. (the "Trustee"); WHEREAS, the Company has adopted the nonqualified deferred compensation plans listed in Appendix A (collectively, the "Plans"). WHEREAS, the Company and those subsidiaries (as defined in Section 424(f) of the Internal Revenue Code), if any, that participate in the Plans, (the "Subsidiaries") have incurred or expect to incur liability under the terms of the Plans with respect to the individuals participating in the Plans; WHEREAS, the Company wishes to establish a trust (the "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of the Company's or Subsidiaries' creditors in the event the Company or a Subsidiary becomes Insolvent, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974; WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: ARTICLE I ESTABLISHMENT OF TRUST 1.01 The Company hereby deposits with Trustee in trust One Hundred Dollars ($100), which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. 1.02 The Trust hereby established shall be irrevocable; provided, however, the Company may revoke the Trust if, prior to a Change in Control, either the Internal Revenue Code, or the interpretation of the Internal Revenue Code by the Internal Revenue Service, as -1- publicly announced in the Internal Revenue Bulletin, is changed to permit, without current taxation to participants, the creation of a trust fund (the "Trust Fund") to pay benefits under the Plans with assets that are no longer subject to the claims of the Company's creditors. 1.03 The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. 1.04 The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of the Company and the Subsidiaries and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company or a Subsidiary. Any assets held by the Trust will be subject to the claims of the Company's or a Subsidiary's general creditors under federal and state law in the event the Company or a Subsidiary becomes Insolvent. 1.05 The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. ARTICLE II PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES 2.01 Concurrent with the establishment of this Trust, the Company shall deliver to the Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each participant (and his or her beneficiaries) on a Plan by Plan basis, provides a formula or formulas or other instructions acceptable to the Trustee for determining the amounts so payable, specifies the form in which such amount is to be paid (as provided for or available under the applicable Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Payment Schedule shall be updated from time to time as is necessary. 2.02 Prior to a Change in Control, the entitlement of a participant or his or her beneficiaries to benefits under the Plans shall be determined by the Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. After a Change in Control, the entitlement of a participant or his or her beneficiaries to benefits under the Plans shall be determined by the -2- Trustee, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. 2.03 The Company or a Subsidiary may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plans. The Company shall notify the Trustee of the decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. If the principal of the Trust, and any earnings thereon, are not sufficient, determined on a Plan by Plan basis, to make payments of benefits in accordance with the terms of the Plans, the Company and the Subsidiaries shall make the balance of each such payment as it falls due. The Trustee shall notify the Company and the Subsidiaries when principal and earnings are not sufficient. 2.04 Notwithstanding anything contained in this Trust Agreement to the contrary, if at any time prior to the occurrence of an event described in Section 1.02, the Trust is finally determined by the IRS not to be a "grantor trust" with the result that the income of the Trust Fund is not treated as income of the Company or the Subsidiaries pursuant to Sections 671 through 679 of the Internal Revenue Code of 1986, as amended, or if a tax is finally determined by the IRS to be payable by one or more participants or beneficiaries with respect to any interest in the Plans or the Trust Fund prior to payment of such interest to such participant or beneficiary, then the Trust shall immediately terminate, the Trustee shall immediately determine each participant's share of the Trust Fund in accordance with the Plans, and the Trustee shall immediately distribute such share in a lump sum to each participant or beneficiary entitled thereto, regardless of whether such participant's employment has terminated and regardless of form and time of payments specified in or pursuant to the Plans. Any remaining assets (less any expenses or costs due under Article IX) shall then be paid by the Trustee to the Company and the Subsidiaries in such amounts, and in the manner instructed by the Company. Prior to a Change in Control, the Trustee shall rely solely on the directions of the Company with respect to the occurrence of the foregoing events and the resulting distributions to be made, and the Trustee shall not be responsible for any failure to act in the absence of such direction. 2.05 The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company and the Subsidiaries. 2.06 Prior to a Change in Control, payments by the Trustee shall be delivered or mailed to addresses supplied by the Company and the Trustee's obligation to make such payments shall be satisfied upon such delivery or mailing. Prior to a Change in Control, the Trustee shall have no obligation to determine the identity of persons entitled to benefits or their mailing addresses. After a Change in Control, the Trustee shall have such obligations. -3- ARTICLE III TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN THE COMPANY IS INSOLVENT 3.01 If the Company or any Subsidiary is Insolvent (the "Insolvent Entity"), the Trustee shall cease payment of benefits to any Plan participant or a participant's beneficiaries to the extent that the benefits are attributable, under the Plans, to the participant's employment by the Insolvent Entity. The Insolvent Entity shall be considered "Insolvent" for purposes of this Trust Agreement if (i) the entity is unable to pay its debts as they become due, or (ii) the entity is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. For purposes of this Section, if an entity is determined to be Insolvent, each Subsidiary in which such entity has an equity interest shall also be deemed to be an Insolvent Entity. However, the insolvency of a Subsidiary will not cause a parent corporation to be deemed Insolvent. 3.02 At all times during the continuance of this Trust, as provided in Section 1(d), the principal and income of the Trust shall be subject to claims of general creditors of the Company and its Subsidiaries under federal and state law only as set forth below. (a) The Board of Directors (the "Board") and the president of the Company shall have the duty to inform the Trustee in writing of the Company's or any Subsidiary's Insolvency. If a person claiming to be a creditor of the Company or any Subsidiary alleges in writing to the Trustee that the Company or any Subsidiary has become Insolvent, the Trustee shall determine whether the Company or any Subsidiary is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Insolvent Entity's participants or their beneficiaries. (b) Unless the Trustee has actual knowledge of the Company's or a Subsidiary's Insolvency, or has received notice from the Company, a Subsidiary, or a person claiming to be a creditor alleging that the Company or a Subsidiary is Insolvent, the Trustee shall have no duty to inquire whether the Company or any Subsidiary is Insolvent. The Trustee may in all events rely on such evidence concerning the Company's or any Subsidiary's solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making a determination concerning the Company's or any Subsidiary's solvency. In this regard, the Trustee may rely upon a letter from the Company's or a Subsidiary's auditors as to the Company's or any Subsidiary's financial status. (c) If, in accordance with Section 3.01, the Trustee has discontinued payment of any benefits because of the Insolvency of the Company or a Subsidiary, the Trustee shall hold the portion of the assets of the Trust allocable to the Insolvent Entity for the benefit of the Insolvent Entity's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of participants or their beneficiaries to pursue their rights as general creditors of the Insolvent Entity with respect to benefits due under the Plans or otherwise. -4- (d) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Article II only after Trustee has determined that the Company or Subsidiary, as the case may be, is not Insolvent (or is no longer Insolvent). 3.03 Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.01 and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to participants or their beneficiaries by the Company or any Subsidiary in lieu of the payments provided for hereunder during any such period of discontinuance. Prior to a Change in Control, the Company shall instruct the Trustee as to such amounts, and after a Change in Control, the Trustee shall determine such amounts in accordance with the terms and provisions of the Plans. ARTICLE IV PAYMENTS TO THE COMPANY Except as specifically provided in this Trust, prior to the occurrence of one or more of the events described in Section 1.02, the Company shall have no right or power to direct Trustee to return to the Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plans. ARTICLE V INVESTMENT AUTHORITY 5.01 Except as provided in Section 5.02, the Company or its authorized agent shall provide the Trustee with all investment instructions. The Trustee shall neither affect nor change investments of the Trust Fund, except as directed in writing by the Company, and shall have no right, duty or responsibility to recommend investments or investment changes; provided, that the Trustee may (i) deposit cash on hand from time to time in any bank savings account, certificate of deposit, or other instrument creating a deposit liability for a bank, including the Trustee's own banking department if the Trustee is a bank, without such prior direction, or (ii) invest in government securities, bonds with specific ratings, or stock of "Fortune 500" companies, all within broad investment guidelines established by the Company from time to time. 5.02 In the event of a Change in Control, the authority of the Company to direct investments of the Trust Fund shall cease and the Trustee shall have complete authority to direct investments of the Trust Fund. The president of the Company shall notify the Trustee in writing when a Change in Control has occurred. The Trustee has no duty to inquire whether a Change in Control has occurred and may rely on notification by the president of the Company of a Change in Control; provided, however, that if any officer, former officer, director or former director of the Company or any Subsidiary (other than the president of the Company), or any Participant notifies the Trustee that there has been or there may be a Change in Control, the Trustee shall have the -5- duty to satisfy itself as to whether a Change in Control has in fact occurred. The Company and the Subsidiaries shall indemnify and hold harmless the Trustee for any damages or costs (including attorneys' fees) that may be incurred because of reliance on the president's notice or lack thereof. 5.03 Subject to Section 5.01, the Trustee shall have, without exclusion, all powers conferred on the Trustee by applicable law, unless expressly provided otherwise herein, and all rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Participants. The Trustee shall have full power and authority to invest and reinvest the Trust Fund in any investment permitted by law, exercising the judgment and care that persons of prudence, discretion and intelligence would exercise under the circumstances then prevailing, considering the probable income and safety of their capital, including, without limiting the generality of the foregoing, the power: (a) To invest and reinvest the Trust Fund, together with the income therefrom, in common stock, preferred stock, convertible preferred stock, mutual funds (including mutual funds affiliated with the Trustee), bonds, debentures, convertible debentures and bonds, mortgages, notes, time certificates of deposit, commercial paper and other evidences of indebtedness (including those issued by the Trustee or any of its affiliates), other securities, policies of life insurance, annuity contracts, options to buy or sell securities or other assets, and other property of any kind (personal, real, or mixed, and tangible or intangible); provided, however, that in no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company or the Subsidiaries, other than a de minimis amount held in common investment vehicles in which the Trustee invests; (b) To deposit or invest all or any part of the assets of the Trust Fund in savings accounts or certificates of deposit or other deposits which bear a reasonable interest rate in a bank, including the commercial department of the Trustee, if such bank is supervised by the United States or any State; (c) To hold, manage, improve, repair and control all property, real or personal, forming part of the Trust Fund and to sell, convey, transfer, exchange, partition, lease for any term, even extending beyond the duration of this Trust, and otherwise dispose of the same from time to time in such manner, for such consideration, and upon such terms and conditions as the Trustee shall determine; (d) To have, respecting securities, all the rights, powers and privileges of an owner, including the power to give proxies, pay assessments and other sums deemed by the Trustee to be necessary for the protection of the Trust Fund, to vote any corporate stock either in person or by proxy, with or without power of substitution, for any purpose; to participate in voting trusts, pooling agreements, foreclosures, reorganizations, consolidations, mergers and liquidations, and in connection therewith to deposit securities with and transfer title to any protective or other committee under such terms as the Trustee may deem advisable; to exercise or sell stock subscriptions or conversion rights; and, regardless of any limitation elsewhere in this -6- instrument relative to investment by the Trustee, to accept and retain as an investment any securities or other property received through the exercise of any of the foregoing powers; (e) To hold in cash, without liability for interest, such portion of the Trust Fund which, in its discretion, shall be reasonable under the circumstances, pending investments, or payment of expenses, or the distribution of benefits; (f) To take such actions as may be necessary or desirable to protect the Trust Fund from loss due to the default on mortgages held in the Trust including the appointment of agents or trustees in such other jurisdictions as may seem desirable, to transfer property to such agents or trustees, to grant such powers as are necessary or desirable to protect the Trust or its assets, to direct such agents or trustees, or to delegate such power to direct, and to remove such agents or trustees; (g) To employ such agents including custodians and counsel as may be reasonably necessary and to pay them reasonable compensation; to settle, compromise or abandon all claims and demands in favor of or against the Trust assets; (h) To cause title to property of the Trust to be issued, held or registered in the individual name of the Trustee, or in the name of its nominee(s) or agents, or in such form that title will pass by delivery; (i) To exercise all of the further rights, powers, options and privileges granted, provided for, or vested in trustees generally under the laws of the State of California, so that the powers conferred upon the Trustee herein shall not be in limitation of any authority conferred by law, but shall be in addition thereto; (j) To borrow money from any source (including the Trustee) and to execute promissory notes, mortgages or other obligations and to pledge or mortgage any Trust assets as security; (k) To lend certificates representing stocks, bonds, or other securities to any brokerage or other firm selected by the Trustee; (l) To institute, compromise and defend actions and proceedings; to pay or contest any claim; to settle a claim by or against the Trustee by compromise, arbitration, or otherwise; to release, in whole or in part, any claim belonging to the Trust to the extent that the claim is uncollectible; (m) To use securities depositories or custodians and to allow such securities as may be held by a depository or custodian to be registered in the name of such depository or its nominee or in the name of such custodian or its nominee; (n) To invest the Trust Fund from time to time in one or more investment funds, which funds shall be registered under the Investment Company Act of 1940; and -7- (o) To do all other acts necessary or desirable for the proper administration of the Trust Fund, as if the Trustee were the absolute owner thereof. However, nothing in this section shall be construed to mean the Trustee assumes any responsibility for the performance of any investment made by the Trustee in its capacity as trustee under the operations of this Trust Agreement. 5.04 Voting or other rights in securities shall be exercised by the person or entity responsible for directing such investments, and the Trustee shall have no duty to exercise voting or proxy or other rights relating to any investment managed or directed by the Company. If any foreign securities are purchased pursuant to the direction of the Company, it shall be the responsibility of the person or entity responsible for directing such investments to advise the Trustee in writing of any laws or regulations, either foreign or domestic, that apply to such foreign securities or to the receipt of dividends or interest on such securities. 5.05 The Company shall have the right at anytime, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. This right is exercisable by the Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity. ARTICLE VI DISPOSITION OF INCOME During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested; provided that, if the Company requests, a portion of the income equal to the taxes payable by the Company with respect to the income of the Trust shall be returned to the Company. ARTICLE VII ACCOUNTING BY TRUSTEE 7.01 The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within 90 days following the close of each calendar year and within 90 days after the removal or resignation of Trustee, Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased or sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. The account shall be deemed correct upon receipt by the Trustee of the Company's written approval of the account or upon the passage of ninety (90) days from the date the account was mailed by the -8- Trustee to the Company, except for objections raised by the Company within such ninety (90) day period. 7.02 The assets of the Trust Fund shall be valued at their respective fair market values on the date of valuation, as determined by the Trustee based upon such sources of information as it may deem reliable, including, but not limited to, stock market quotations, statistical valuation services, newspapers of general circulation, financial publications, advice from investment counselors, brokerage firms or insurance companies, or any combination of sources. Prior to a Change in Control, the Company shall instruct the Trustee as to the value of assets for which market values are not readily obtainable by the Trustee. If the Company fails to provide such values, the Trustee may take whatever action it deems reasonable, including employment of attorneys, appraisers, life insurance companies or other professionals, the expense of which shall be an expense of administration of the Trust Fund and payable by the Company and the Subsidiaries. The Trustee may rely upon information from the Company and the Subsidiaries, appraisers or other sources and shall not incur any liability for an inaccurate valuation based in good faith upon such information. ARTICLE VIII RESPONSIBILITY OF TRUSTEE 8.01 Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by the Company. When giving directions or requests to the Trustee, the Company shall represent that the directions or requests are consistent with the Company's interpretation of the Plans. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute. 8.02 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust. 8.03 The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder. 8.04 The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. No less often than quarterly, the Company shall reimburse the Trustee for -9- the reasonable actual costs incurred in hiring such agents, accountants, actuaries, investment advisors, financial consultants or other professionals in connection with the Trustee's management of any life insurance contracts owned by the Trust. 8.05 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. 8.06 However, notwithstanding the provisions of Section 8.05, the Trustee may loan to the Company the proceeds of any borrowing against an insurance policy held as an asset of the Trust. 8.07 Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. ARTICLE IX COMPENSATION AND EXPENSES OF TRUSTEE 9.01 The Company shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. 9.02 The Company shall indemnify and hold harmless the Trustee, its officers, employees, and agents from and against all liabilities, losses, and claims (including reasonable attorney's fees and costs of defense) to the extent that (i) such liabilities, losses and claims are asserted by anyone other than the Company or the Trustee, and (ii) do not result, directly or indirectly, from the Trustee's breach of this Trust agreement, breach of fiduciary duty, negligence, gross negligence or willful misconduct. ARTICLE X RESIGNATION AND REMOVAL OF TRUSTEE 10.01 The Trustee may resign at any time by written notice to the Company, which shall be effective 60 days after receipt of such notice unless the Company and the Trustee agree otherwise. 10.02 Trustee may be removed by Company on 60 days notice or upon shorter notice accepted by Trustee. -10- 10.03 Upon a Change of Control, as defined herein, Trustee may not be removed by Company for 3 years, except for gross negligence or willful misconduct. 10.04 If Trustee resigns within 3 years of a Change of Control, as defined herein, Trustee shall select a successor Trustee in accordance with the provisions of Section 11.02 prior to the effective date of Trustee's resignation or removal. 10.05 Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 90 days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. 10.06 If Trustee resigns or is removed, a successor shall be appointed, in accordance with Article XI, by the effective date of resignation or removal under Sections 10.01 or 10.02. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. ARTICLE XI APPOINTMENT OF SUCCESSOR 11.01 If Trustee resigns or is removed in accordance with Sections 10.01 or 10.02, Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. 11.02 If Trustee resigns pursuant to the provisions of Section 10.04 and selects a successor Trustee, Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all the rights and powers of the former Trustee, including ownership rights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer. 11.03 The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8. The successor Trustee shall not be responsible for and Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. -11- ARTICLE XII AMENDMENT OR TERMINATION 12.01 This Trust Agreement may be amended by a written instrument executed by Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable except in accordance with Section 1.02. When the Company proposes any amendment to the Trust, the Company shall also represent that the proposed amendment is consistent with the Company's interpretation of the Plans. 12.02 The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans unless sooner revoked in accordance with Section 1.02. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company. 12.03 Notwithstanding Section 1.02, at any time, upon written approval of participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plans, the Company may terminate this Trust prior to the time all benefit payments under the Plans have been made. All assets in the Trust at termination shall be returned to the Company. ARTICLE XIII MISCELLANEOUS 13.01 Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.02 Except to the extent, if any, preempted by ERISA, this Trust Agreement shall be governed by and construed in accordance with the internal laws of the State of California. Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. 13.03 For purposes of this Trust, Change of Control shall mean: (a) the Company is a party to a merger or combination under the terms of which less than 75% of the shares in the resulting company are owned by the shareholders of the Company immediately preceding such event; or (b) at least 75% in fair market value of the Company's assets are sold; or (c) at least 25% in voting power in election of directors of the Company's capital stock is acquired by any one person or group as that term is used in Rule 13d-5 under the Securities Exchange Act of 1934. 13.04 Despite any other provision of this Trust Agreement that may be construed to the contrary, following a Change in Control, all powers of the Committee, the Company and the Board to direct the Trustee under this Trust Agreement shall terminate, and the Trustee shall -12- act on its own discretion to carry out the terms of this Trust Agreement in accordance with the Plans and this Trust Agreement. 13.05 The Company and the Subsidiaries shall from time to time pay taxes of any and all kinds whatsoever that at any time are lawfully levied or assessed upon or become payable in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. To the extent that any taxes lawfully levied or assessed upon the Trust Fund are not paid by the Company and the Subsidiaries, the Trustee shall have the power to pay such taxes out of the Trust Fund and shall seek reimbursement from the Company and the Subsidiaries. Prior to making any payment, the Trustee may require such releases or other documents from any lawful taxing authority as it shall deem necessary. The Trustee shall contest the validity of taxes in any manner deemed appropriate by the Company or its counsel, but at the Company's and the Subsidiaries' expense, and only if it has received an indemnity bond or other security satisfactory to it to pay any such expenses. Prior to a Change in Control, the Trustee (i) shall not be liable for any nonpayment of tax when it distributes an interest hereunder on directions from the Company, and (ii) shall have no obligation to prepare or file any tax return on behalf of the Trust Fund, any such return being the sole responsibility of the Company. The Trustee shall cooperate with the Company in connection with the preparation and filing of any such return. 13.06 Benefits payable to participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. 13.07 The Trust and the Plans are parts of a single, integrated employee benefit plan system and shall be construed together. In the event of any conflict between the terms of this Trust Agreement and the agreements that constitute the Plans, such conflict shall be resolved in favor of this Trust Agreement. 13.08 Actions by the Company shall be by its Board, an authorized committee of the Board, or a duly authorized officer, with such actions certified to the Trustee by an appropriately certified copy of the action taken. The Trustee shall be protected in acting upon any such notice, resolution, order, certificate or other communication believed by it to be genuine and to have been signed by the proper party or parties. 13.09 This Trust Agreement shall be binding upon and inure to the benefit of the Company, the Subsidiaries and the Trustee and their respective successors and assigns. 13.10 This Trust Agreement may be executed in an original and any number of counterparts, each of which shall be deemed to be an original of one and the same instrument. 13.11 The Company and the Subsidiaries are the true beneficiaries hereunder in that the payment of benefits, directly or indirectly to or for a participant or beneficiary by the Trustee, is in satisfaction of the Company's and the Subsidiaries' liability therefor under the Plans. -13- Nothing in this Trust Agreement shall establish any beneficial interest in any person other than the Company and the Subsidiaries. ARTICLE XIV EFFECTIVE DATE The effective date of this Trust Agreement shall be December 5, 1995. IN WITNESS WHEREOF the Company and the Trustee have signed this Trust Agreement as of the date first written above. TRUSTEE: THE COMPANY: WELLS FARGO BANK, N.A. HOMESTAKE MINING COMPANY By:___________________ By:_____________________ Title:________________ Title:__________________ -14- APPENDIX A Deferred Compensation Plan Supplemental Retirement Plan Executive Supplemental Retirement Plan Special Retirement Plan Supplemental Retirement Agreements for Felmont Oil Employees Employment Agreement with Harry M. Conger dated July 16, 1982, as amended. Split Dollar Insurance Plan -l- EX-11 8 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 HOMESTAKE MINING COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- PRIMARY: Earnings: Net income $30,327 $78,016 $52,494 Less dividends on HCI series 1 second preference shares (885) ------------- ------------- ------------- Net income applicable to primary earnings per share calculation $30,327 $78,016 $51,609 ============= ============= ============= Weighted average number of shares outstanding 138,117 137,733 137,046 ============= ============= ============= Net income per share - primary $0.22 $0.57 $0.38 ============= ============= ============= FULLY DILUTED: Earnings: Net income $30,327 $78,016 $52,494 Less dividends on HCI series 1 second preference shares (885) Add: Interest relating to 5.5% convertible subordinated notes, net of tax 6,517 6,517 3,447 Amortization of issuance costs relating to 5.5% convertible subordinated notes, net of tax 443 443 234 ------------- ------------- ------------- Net income applicable to fully diluted earnings per share calculation $37,287 $84,976 $55,290 ============= ============= ============= Weighted average number of shares outstanding: Common shares 138,117 137,733 137,046 Additional average shares outstanding assuming conversion of 5.5% convertible subordinated notes 6,505 6,505 3,397 ------------- ------------- ------------- 144,622 144,238 140,443 ============= ============= ============= Net income per share - fully diluted (a) $0.26 $0.59 $0.39 ============= ============= ============= (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 9 1995 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 Index to Exhibit 13: Selected information from the 1995 Annual Report to Shareholders is incorporated by reference in the Form 10-K and such information is herewith filed electronically as Exhibit 13. Such selected information is listed below. Noted page references correspond to pagination in the 1995 Annual Report to Shareholders. Annual Report Page Management's Discussion and Analysis 22-27 Consolidated Financial Statements 28-31 Notes to Consolidated Financial Statements 32-43 Report of Independent Auditors 44 Management's Responsibility for Financial Reporting 44 Quarterly Selected Data 45 Common Stock Price Range 45 Eight-Year Selected Data 46-47 Appendix 1: Description of Bar Charts in Management's Discussion and Analysis MANAGEMENT'S DISCUSSION AND ANALYSIS (Unless specifically stated otherwise, the following information relates to amounts included in the consolidated financial statements, including the Company's interests in mining partnerships accounted for using the equity method, without reduction for minority interests. Effective January 1, 1996 Homestake adopted the "Gold Institute Production Cost Standard" for reporting of per ounce production costs. All per ounce production costs in this annual report are presented on this basis.) Results of Operations Homestake Mining Company ("Homestake" or the "Company") recorded net income of $30.3 million or $0.22 per share in 1995 compared to net income of $78.0 million or $0.57 per share in 1994 and $52.5 million or $0.38 per share in 1993. The higher 1994 earnings reflect $23.8 million or $0.17 per share of nonrecurring gains and a lower effective income and mining tax rate. Nonrecurring gains in 1994 included $15.7 million ($12.6 million after tax) on the sale of the Company's interest in the Dee mine and $11.2 million ($11.2 million after tax) on the dilution of the Company's interest in Prime Resources Group Inc. ("Prime") following Prime's sale of additional shares to the public. The 1994 results also included a $7.8 million tax benefit resulting from a reorganization of Canadian exploration assets. The 1993 results included a $16.0 million pretax write-down of oil assets, and restructuring and business combination expenses of $8.2 million. (See Appendix 1: Description of Bar Chart A "Net Income.") Gold Operations: The results of the Company's operations are affected significantly by the market price of gold. Gold prices are influenced by numerous factors over which the Company has no control, including expectations with respect to the rate of inflation, the relative strength of the United States dollar and certain other currencies, interest rates, global or regional political or economic crises, demand for gold for jewelry and industrial products, and sales by holders and producers of gold in response to these factors. The Company's general policy is to sell its production at current prices. However, in certain limited circumstances, the Company will enter into forward sales commitments for small portions of its gold production. In 1994, the Company entered into forward sales for 183,200 ounces of gold it expected to produce at the Nickel Plate mine during 1995 and 1996. The purpose of the forward sales program was to allow for recovery of the Company's remaining investment in the mine and provide for estimated reclamation and closure costs. During 1995, 113,200 ounces of gold were delivered or financially settled under this program. At December 31, 1995 forward sales for 70,000 ounces at an average price of $421 per ounce remain outstanding. A significant portion of the Company's operating expenses are incurred in Australian and Canadian currencies. The Company's profitability is impacted by fluctuations in these currencies' exchange rates relative to the United States dollar. Under the Company's foreign currency protection program, the Company has entered into a series of foreign currency option contracts which established trading ranges within which the United States dollar may be exchanged for Australian and Canadian dollars. See note 21 to the consolidated financial statements for additional information regarding this program. (See Appendix 1: Description of Bar Chart B "Gold and Ore Sales.") Revenues from gold and ore sales totaled $675.2 million in 1995 compared to revenues of $629.2 million in 1994 and $687.3 million in 1993. The increase in 1995 revenues from 1994 primarily is due to higher sales volumes and a slightly higher gold price. The decline in 1994 revenues from 1993 reflects lower gold sales volumes, partially offset by higher gold prices. During 1995, the Company sold 1,873,500 equivalent ounces of gold at an average price of $386 per equivalent ounce compared to 1,692,800 ounces sold at an average price of $384 per ounce during 1994 and 1,983,300 ounces sold at an average price of $359 per ounce during 1993. Total gold production of 1,877,300 equivalent ounces during 1995 compares to 1,696,400 ounces during 1994 and 1,917,900 ounces during 1993. The increase in 1995 production from 1994 primarily is due to the commencement of production at the new Eskay Creek mine, partially offset by production declines at certain other locations. The 1994 decrease in production from 1993 reflects the absence of production following the sale of the Dee mine in March 1994, the 1993 sales of the Mineral Hill and Golden Bear mines, the completion of mining operations in 1993 at the Santa Fe mine, as well as lower production at the Homestake and McLaughlin mines. In January 1995, commercial production began at the Eskay Creek mine in British Columbia, Canada. Eskay Creek sold 104,100 tons of ore containing 196,500 ounces of gold and 9.9 million ounces of silver, equivalent to approximately 331,300 ounces of gold during 1995. Total cash costs, including the costs of third-party smelters, were $185 per equivalent ounce during 1995. Through its majority ownership of Prime, the Company has a 50.6% interest in the Eskay Creek mine. 22 At the Homestake mine in South Dakota, production of 402,900 ounces during 1995 compares to 393,900 ounces during 1994 and 447,600 ounces during 1993. The increase in production during 1995 is due to higher ore grades, partially offset by lower mill throughput. The lower throughput primarily results from the processing of harder than normal ore, principally from the Open Cut. Additional screening of ore prior to processing through the mill has increased throughput during the fourth quarter of 1995. Production during 1994 decreased from 1993 primarily due to lower grades resulting from an extended pre-stripping and development program in the Open Cut, the collapse of a ventilation raise which had limited access to the deeper, higher-grade areas in the underground operations, and flooding following a severe storm late in the year. Increased Open Cut costs in 1995 and lower production in 1995 and 1994 compared to 1993 resulted in increases in total cash costs to $303 and $291 per ounce during 1995 and 1994, respectively, from $265 per ounce during 1993. (See Appendix 1: Description of Bar Chart C "Gold Production.") Production at the McLaughlin mine in northern California decreased to 241,800 ounces during 1995 compared to 250,500 ounces and 305,300 ounces during 1994 and 1993, respectively. Production during 1995 was hampered by the effects of severe rain and flooding early in the year. Insurance proceeds of $3.8 million received by the Company as reimbursement for costs associated with the flooding were credited to operating costs. Total cash costs decreased to $242 per ounce during 1995 from $249 per ounce during 1994. The decline in production during 1994 compared to 1993 primarily was due to the mining of lower-grade ore in the South Pit. Lower grades, combined with costs associated with an underground exploration program, increased total cash costs to $249 per ounce during 1994 from $193 per ounce during 1993. Gold production levels at the McLaughlin mine are expected to decline significantly in 1996 as mining operations will cease mid-year, and production will then be derived from processing lower-grade stockpiles. The Company's share of production from the Round Mountain mine in Nevada was 86,100 ounces during 1995 compared to 105,900 ounces during 1994 and 93,700 ounces during 1993. The lower production in 1995 is due in part to lower grades and volumes of ore placed on both the reusable and dedicated pads early in the year. In the latter part of 1995, the rate of placement of ore on the dedicated pad was increased. However, due to the length of time between the initial loading of ore on to the dedicated pad and the commencement of leaching, a significant portion of the gold contained in the dedicated pad ore will not be recovered until 1996. The lower production resulted in an increase in total cash costs to $254 per ounce during 1995 compared to $182 per ounce during 1994 and $226 per ounce during 1993. The increase in production and corresponding decrease in cash costs per ounce during 1994 reflects higher grades and recoveries on the reusable pad and larger quantities of lower-grade ore placed on the dedicated pad. The permitting process is proceeding for the construction of an 8,000 tons-per-day ("TPD") gravity mill to process higher-grade sulfide ores and regulatory approvals are anticipated by the second quarter of 1996. Final design engineering on the $65 million (Homestake's share - $16 million) project is expected to be completed in time to allow construction to begin in the summer of 1996 and mill start-up in late 1997. The Company's share of production at the Williams mine in the Hemlo mining camp in Canada amounted to 202,600 ounces during 1995 at a total cash cost of $222 per ounce compared to 222,700 ounces produced at a cost of $203 per ounce during 1994 and 246,100 ounces produced at a cost of $198 per ounce during 1993. The decreases in production and increases in cash costs per ounce during 1995 and 1994 primarily are due to the processing of lower-grade ore. The 1994 increase in cash costs per ounce was partially offset by a weakening Canadian dollar in relation to the United States dollar. Production at the Williams mine is expected to remain at current levels for the next few years. The Company's share of production at the David Bell mine, also in the Hemlo mining camp, amounted to 79,400 ounces during 1995 at a total cash cost of $203 per ounce compared to 96,100 ounces produced at a cost of $167 per ounce during 1994 and 107,600 ounces produced at a cost of $154 per ounce during 1993. The increase in cash costs per ounce during 1995 primarily is due to lower production. During 1995, production was limited because only two areas were available for mining for most of the year which reduced mining flexibility and resulted in lower mill throughput and a lower-grade of ore processed. In addition, mining activity was delayed during the fourth quarter of 1995 in stopes close to the neighboring Golden Giant mine's property line while maintenance was completed on that company's mine shaft. A third mining block was developed late in the year which has increased min- 23 ing flexibility. The decrease in production and increase in cash costs per ounce during 1994 was due to the processing of lower-grade ore, partially offset by a weakening Canadian dollar in relation to the United States dollar. Production from the mine is expected to increase during 1996. Production at the Nickel Plate mine in Canada of 91,400 ounces during 1995 increased from 82,100 ounces produced during 1994 and 73,900 ounces produced during 1993. The increase in production during 1995 from 1994 primarily is due to the processing of higher-grade ore. The increase in production during 1994 from 1993 is also due to the processing of higher-grade ore following completion of the Stage IV pit expansion program. The estimate of the remaining ore reserves at the Nickel Plate mine was reduced during the fourth quarter of 1994 and again in the fourth quarter of 1995. The decreases in the ore reserves accelerated the recovery of the deferred stripping costs and resulted in corresponding increases in per unit cash costs. Total cash costs increased to $379 per ounce in 1995 from $349 per ounce in 1994 and $310 per ounce during 1993. Gold production at the Nickel Plate mine is expected to cease by the end of the third quarter of 1996 as the ore reserves will be depleted. Homestake Gold of Australia Limited's ("HGAL") share of production from the Kalgoorlie operations in Western Australia totaled 311,400 ounces during 1995 compared to 352,100 ounces during 1994 and 332,600 ounces during 1993. The 1995 results primarily reflect a temporary decline in production while the new Fimiston mill additions were integrated with the existing complex, and lower production at Mt. Charlotte due to operational difficulties which hampered production early in the year. The new mill, which was commissioned in August 1995, has increased total milling capacity at the Kalgoorlie operations to 33,500 TPD and allowed for further expansion of the Super Pit. The increase in production during 1994 was due to an increase in tons mined, higher grades, and improved recoveries from the Super Pit, partially offset by a decrease in production at Mt. Charlotte and an increase in the payment of gold to HGAL's joint venture partner under the disproportionate sharing arrangement. Total cash costs at the Kalgoorlie operations increased to $296 per ounce during 1995 from $257 and $229 per ounce during 1994 and 1993, respectively. The increase in cash costs per ounce during 1995 from 1994 is primarily due to the temporary decline in production, while the increase in costs in 1994 from 1993 is primarily due to a strengthening in the Australian dollar in relation to the United States dollar. In February 1995, the El Hueso mine ceased operations as reserves were depleted. Leaching of existing stockpiles will continue until mid-1996. The El Hueso property is leased from Codelco, a Chilean government agency, through the year 1998. Additional land, which is subject to 30% to 50% profit sharing with Codelco, has been leased through 2004. A 1995 exploration program on the additional land identified a new gold-bearing deposit, Manto Agua de la Falda, which contains an ore reserve of 1.0 million tons at a grade of 0.18 ounces of gold per ton. An engineering study is in progress to evaluate the most efficient method of processing this ore at the existing El Hueso plant. A preliminary agreement in principle has been reached with Codelco to form a new company to explore for and exploit additional resources. Consolidated Production Costs per Ounce:
(per ounce of gold) 1995 1994 1993 - -------------------------------------------------------------------------------------------- Direct mining costs $233 $250 $235 Deferred stripping adjustments 2 (1) (11) Costs of third-party smelters 16 - - Other (1) (4) (2) - -------------------------------------------------------------------------------------------- Cash Operating Costs 250 245 222 Royalties 4 5 5 Production taxes 3 2 2 - -------------------------------------------------------------------------------------------- Total Cash Costs 257 252 229 Depreciation and amortizaton 46 41 49 Reclamation 5 7 2 - -------------------------------------------------------------------------------------------- Total Production Costs $308 $300 $280 ============================================================================================
During 1995, Homestake's overall total cash cost per equivalent ounce increased to $257 from $252 per ounce during 1994 and $229 per ounce during 1993. The higher 1995 per ounce costs primarily reflect the temporary production declines at the Round Mountain, David Bell and Kalgoorlie operations and higher costs at the Homestake mine, partially offset by production from the new low-cost Eskay Creek mine. The increase in cash costs per ounce during 1994 compared to 1993 primarily was due to lower production at the Homestake and McLaughlin mines. The Company's overall noncash cost per equivalent ounce during 1995 was $51 compared to $48 per ounce and $51 per ounce during 1994 and 1993, respectively. The increase in noncash costs per ounce during 1995 is a result of production from the new Eskay Creek mine which has higher per unit depreciation and amortization charges. The 1994 decline in noncash costs per ounce reflects lower per unit depreciation charges as a result of ore reserve expansions at several operations. 24 Reconciliation of Total Cash Costs per Ounce to Financial Statements:
(thousands of dollars, except per ounce amounts) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------- Production Costs per Financial Statements $ 481,886 $ 447,129 $ 454,623 Costs not included in Homestake's production costs: Costs of third-party smelters 29,214 464 553 Production costs of equity-accounted investments 11,752 15,683 19,968 Sulphur and oil production costs (26,917) (19,210) (15,494) Reclamation accruals (8,754) (12,112) (3,498) By-product silver revenues (2,334) (2,326) (2,919) Inventory movements and other (2,659) (1,298) (13,746) - ---------------------------------------------------------------------------------------------------- Production Costs for per Ounce Calculation Purposes $ 482,188 $ 428,330 $ 439,487 ==================================================================================================== Ounces Produced During the Year 1,877,329 1,696,389 1,917,853 Total Cash Costs per Ounce $ 257 $ 252 $ 229 ==================================================================================================== Main Pass 299: The Company's share of sulphur revenues from the Main Pass 299 mine in the Gulf of Mexico increased to $30.5 million in 1995 from $16.9 million in 1994 and $2.0 million in 1993, reflecting increased sales volumes, including sales from inventories, and rising sulphur prices. The Company sold 445,600 tons of sulphur at an average price of $68 per ton during 1995 compared to 317,700 tons of sulphur sold at an average price of $53 per ton during 1994 and 33,600 tons of sulphur sold at an average price of $59 per ton during 1993. The Company's share of sulphur production was 365,100 tons in 1995 compared to 376,600 tons in 1994 and 116,000 tons in 1993. Operating earnings from the sulphur operations of $3.7 million in 1995 compare to operating losses of $2.9 million in 1994 and $11.2 million in 1993. Main Pass 299 oil production, which peaked in 1992, is expected to continue to decline over the next few years. The Company's share of oil revenues amounted to $10.1 million in 1995 compared to $10.0 million and $14.2 million in 1994 and 1993, respectively. Operating earnings from oil operations totaled $2.1 million in 1995 compared to operating earnings of $2.7 million in 1994 and $0.9 million in 1993. The lower operating earnings during 1995 reflect lower sales volumes and increased costs, partially offset by rising oil prices. The improved results in 1994 from 1993 reflect increased operating efficiencies. In addition, at December 31, 1993 the Company recorded a pretax write-down of oil assets of $16.0 million based on a decline in the market price of oil at that time. Interest and other income: Interest income of $16.7 million in 1995 compares to $9.8 million in 1994 and $4.8 million in 1993. The increases in interest income are due to higher cash and equivalents and short-term investments balances and increases in average interest rates. Other income of $11.6 million in 1995 compares to $25.6 million and $13.1 million in 1994 and 1993, respectively. Other income in 1995 includes a gain of $5.4 million from the sale of the Company's remaining uranium inventory. The decrease in other income in 1995 from 1994 as well as the increase in 1994 from 1993 primarily are due to a pretax gain in 1994 of $15.7 million on the sale of the Company's interest in the Dee mine in Nevada. Depreciation, depletion and amortization: Depreciation, depletion and amortization increased to $99.6 million in 1995 compared to $76.2 million in 1994 and $103.4 million in 1993. The 1995 increase is a result of additional depreciation charges related to the Eskay Creek mine, partially offset by reserve expansions at certain locations and lower production at other locations. The decrease in 1994 primarily is due to lower production and the write-down of oil assets in 1993. (See Appendix 1: Description of Bar Chart D "Exploration Expense.") Exploration expense: Exploration expense, excluding $7.2 million of in-mine exploration expenditures which are included in production costs and $2.2 million of capitalized costs associated with development stage projects, increased to $27.5 million in 1995 from $21.3 million in 1994 and $17.5 million in 1993. The increase in exploration expense in 1995 primarily is due to increased activity at the Ruby Hill project in Nevada and continued work near the El Hueso mine and on the El Foco concession in Venezuela. The increase in exploration expense in 1994 from 1993 reflects increased activity at the Ruby Hill project, partially offset by the cessation of the Homestake mine north drift project in early 1994. Exploration spending in 1996 is expected to continue to rise as the Company pursues numerous attractive exploration targets and prospects. Interest expense: Interest expense of $11.3 million in 1995 compares to $10.1 million in 1994 and $9.1 million in 1993. Interest expense increased in 1995 primarily due to $0.7 million of interest which was capitalized in 1994. The increase in 25 interest expense in 1994 from 1993 primarily is due to a full year's interest on the Company's convertible subordinated notes which were issued in June 1993, partially offset by the repayment of $8.3 million of Australian finance lease debt in February 1994. The Company's average rate of interest on its long-term debt was 5.5% in 1995 and 1994 compared to 5.1% in 1993. Income taxes: The Company's income and mining tax rate was 46% in 1995 compared to 18% and 19% in 1994 and 1993, respectively. The 1994 and 1993 rates were low due to the availability of certain tax benefits. The higher effective tax rates experienced in 1995 will continue as the tax benefits available in 1994 and 1993 have been utilized and the major portion of the Company's current earnings are in jurisdictions with higher income and mining tax rates. At December 31, 1995 and 1994 the Company had tax valuation allowances of $59.6 million and $49.8 million, respectively. While circumstances could occur which would permit the Company to reduce its deferred tax valuation allowances in future years, based on the Company's current projections it does not expect future reductions to be material. Events that would allow the Company to materially reduce such allowances in the future would include (i) generating substantial taxable income in Chile, (ii) an acceleration of the payment of the Company's postretirement benefit obligation accrual and (iii) an acceleration of the disposal of certain non-amortizable United States and Australia land and mineral properties which are located either on, or in proximity to, the Company's existing operating minesites. Minority interests: Income allocable to minority interests in consolidated subsidiaries increased to $16.0 million in 1995 from $8.9 million in 1994 and $3.1 million in 1993. The increase in 1995 primarily is due to the income from the Eskay Creek mine. LIQUIDITY AND CAPITAL RESOURCES Homestake's cash and equivalents and short-term investments balances increased by $7.2 million to $212.4 million at December 31, 1995 as a result of strong cash flows from the Company's operations, partially offset by capital expenditures of $81.0 million, investments in mining companies of $37.3 million and $16.7 million related to the acquisition of HGAL. Net cash provided by operations was $153.5 million in 1995 compared to $133.7 million in 1994 and $170.1 million in 1993. In addition, $13.3 million was realized on the sale of assets in 1995 compared to $24.5 million and $9.6 million in 1994 and 1993, respectively. On August 14, 1995 Homestake announced its unconditional offer to acquire the 18.5% of HGAL it did not already own by offering 0.089 of a Homestake share or A$1.90 in cash for each of the 109,605,000 HGAL shares owned by the public. At December 31, 1995 acceptances for a total of 38.9 million HGAL shares had been received, and Homestake owned 88.1% of the shares of HGAL outstanding at that date. The offer closed on February 9, 1996. Homestake was successful in acquiring 107,186,000 shares of HGAL resulting in ownership of 99.6% of HGAL and is currently proceeding with the compulsory acquisition of the remaining HGAL shares. Upon completion of this transaction, Homestake expects it will have issued a total of 8.5 million of its common shares and paid $22.3 million for the HGAL minority interests. See note 3 to the consolidated financial statements for further information. (See Appendix 1: Description of Bar Chart E: "Cash and Equivalents and Short-term Investments.") In October 1995, Homestake and its 50.6%-owned subsidiary, Prime, entered into agreements to collectively purchase (51% Homestake and 49% Prime) an approximate 6% interest in Teuton Resources Corp. ("Teuton") and an approximate 7% interest in Minvita Enterprises Ltd. ("Minvita") for a total of $2 million. Teuton and Minvita will spend a minimum of 90% of the $2 million of proceeds on exploration and development of their jointly-owned Clone property in northwestern British Columbia, Canada. In July 1995, the Company acquired for $24 million a 10% interest (fully-diluted) in Navan Resources plc ("Navan") and an option to acquire 50% of Navan's interest in Bimak AD ("Bimak"), the owner of the Chelopech gold/copper processing operations located 45 miles east of Sofia, Bulgaria. Bimak has an exclusive contract to purchase all of the ore mined from the Chelopech mine. The Company can acquire 50% of Navan's 68% interest in Bimak by investing an additional $48 million, which would be used to fund a portion of the cost of a proposed expansion. Additions to property, plant and equipment in 1995 totaled $81.0 million compared to $88.7 million and $57.8 million in 1994 and 1993, respectively. Capital additions in 1995 include $50.9 million at the Kalgoorlie operations primarily for the Fimiston mill expansion and $10.6 million at 26 the Homestake mine primarily for the Open Cut expansion. Additions in 1994 included $42 million at the Eskay Creek mine, $20 million at the Homestake mine for Open Cut expansion and $13 million at Kalgoorlie for mill expansions and modifications. Additions in 1993 included $19 million at the Nickel Plate mine for a pit expansion and $12 million at the Homestake mine for the Open Cut expansion. The remaining expenditures during these years primarily were for replacement capital to maintain existing production capacity. In addition to sustaining capital at existing operations, planned capital expenditures during 1996 include $14.9 million and $10.6 million at the Kalgoorlie operations and the Homestake mine, respectively, primarily on numerous projects related to improving the efficiency of these operations, $13.2 million at the Round Mountain mine primarily for the new mill project, and $8.7 million at the advanced-stage Ruby Hill project in Nevada. (See Appendix 1: Description of Bar Chart F: "Cash Provided by Operations.") Exploration activities at Ruby Hill have resulted in the discovery of several mineralized zones. A positive feasibility study on the West Archimedes deposit was completed in the fourth quarter of 1995. This study indicates that an open-pit, heap-leach operation on this deposit will produce an average of 105,000 ounces of gold per year over a six-year life at a total cash cost of $140 per ounce. Capital requirements, including pre-stripping of the overlying alluvium, are estimated to be $65 million. The construction of facilities, which is dependent on the receipt of permits, is scheduled to begin in early 1997 with initial gold production possible in late 1997. Total common share dividends paid by the Company were $27.6 million in 1995 compared to $24.1 million in 1994 and $13.7 million in 1993. In May 1994, the Company increased its regular quarterly dividend from $0.025 to $0.05 per share. In 1994, Prime sold five million common shares at approximately $6.70 per share to the public. The Company recorded a gain of $11.2 million on this transaction, which resulted in a reduction of the Company's interest in Prime from 54.2% to 50.6%. It is the Company's policy to recognize in the income statement any gains or losses on the issuance of stock of the Company's subsidiaries. In 1993, the Company sold $150 million of 5.5% convertible subordinated notes maturing in the year 2000. The notes are convertible into the Company's shares at a price of $23.06 per common share and are redeemable by the Company on or at any time after June 23, 1996. Proceeds from the notes were used to retire existing gold loans and other long-term debt. The Company has a $150 million revolving credit facility which is available through September 30, 2000. This facility provides for borrowings denominated in United States dollars, Canadian dollars, ounces of gold or any combination of these. The credit agreement includes a minimum consolidated net worth requirement of $500 million. No amounts have been borrowed under this facility. The Company incurred $14.3 million of reclamation-related expenditures during 1995 at its discontinued uranium facility at Grants, New Mexico. In accordance with the Energy Policy Act of 1992, the United States Department of Energy ("DOE") is responsible for 51.2% of all past and future reclamation expenditures at this facility. The Company has received $9.8 million to date from the DOE and the accompanying balance sheet at December 31, 1995 includes a receivable of $18.7 million for the DOE's share of reclamation expenditures made by the Company through 1995. The total future cost for reclamation, remediation, monitoring and maintaining compliance at the Grants site is estimated to be $24 million. The Company believes that its share of the estimated remaining cost of reclaiming the Grants facility, net of estimated proceeds on the ultimate disposals of related assets, is fully provided in the financial statements at December 31, 1995. The Company evaluates its accruals for remediation, reclamation and site restoration regularly. With respect to non-operating properties, the Company believes it has fully provided for all remediation liabilities and for estimated reclamation and site restoration costs. With respect to operating properties, the Company is providing for estimated ultimate reclamation relating to ongoing and end-of-mine life restoration and closure costs over the lives of its individual operations using the units-of-production method. See note 20 to the consolidated financial statements for discussion of certain environmental matters. Future results will be impacted by such factors as the market price of gold, the Company's ability to expand its ore reserves and the fluctuations of foreign currency exchange rates. The Company believes that the combination of cash, short-term investments, available lines of credit and future cash flows from operations will be sufficient to meet normal operating requirements and anticipated dividends. 27 Homestake Mining Company STATEMENTS OF CONSOLIDATED INCOME (In thousands, except per share amounts)
For the years ended December 31, 1995, 1994 and 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Revenues Gold and ore sales $ 675,222 $ 629,174 $ 687,285 Sulphur and oil sales 40,620 26,882 16,220 Interest income 16,737 9,762 4,832 Equity earnings 2,155 2,857 795 Gain on issuance of stock by subsidiary 11,224 Other income 11,631 25,588 13,096 - ------------------------------------------------------------------------------------------------------------------- 746,365 705,487 722,228 - ------------------------------------------------------------------------------------------------------------------- Costs and Expenses Production costs 481,886 447,129 454,623 Depreciation, depletion and amortization 99,602 76,171 103,377 Administrative and general expense 37,283 38,159 40,553 Exploration expense 27,541 21,347 17,457 Interest expense 11,297 10,124 9,147 Other expense 3,290 6,744 4,492 Write-downs of mining properties and restructuring and business combination expenses 24,183 - ------------------------------------------------------------------------------------------------------------------- 660,899 599,674 653,832 - ------------------------------------------------------------------------------------------------------------------- Income Before Taxes and Minority Interests 85,466 105,813 68,396 Income and Mining Taxes (39,141) (18,880) (12,775) Minority Interests (15,998) (8,917) (3,127) - ------------------------------------------------------------------------------------------------------------------- Net Income $ 30,327 $ 78,016 $ 52,494 =================================================================================================================== Net Income Per Share $ 0.22 $ 0.57 $ 0.38 =================================================================================================================== Average Shares Used in the Computation 138,117 137,733 137,046 =================================================================================================================== See notes to consolidated financial statements. 28 Homestake Mining Company CONSOLIDATED BALANCE SHEETS (In thousands, except per share amount)
December 31, 1995 and 1994 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and equivalents $ 145,957 $ 105,701 Short-term investments 66,416 99,479 Receivables 58,046 58,994 Inventories 69,979 71,715 Deferred income and mining taxes 20,521 Other 7,798 6,910 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 368,717 342,799 - -------------------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment - net 846,776 808,221 - -------------------------------------------------------------------------------------------------------------------------------- Investments and Other Assets Noncurrent investments 46,188 15,774 Other assets 59,952 35,174 - -------------------------------------------------------------------------------------------------------------------------------- Total investments and other assets 106,140 50,948 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,321,633 $ 1,201,968 ================================================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 35,170 $ 35,674 Accrued liabilities 53,937 54,138 Income and other taxes payable 9,314 7,083 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 98,421 96,895 - -------------------------------------------------------------------------------------------------------------------------------- Long-term Liabilities Long-term debt 185,000 185,000 Other long-term obligations 120,418 110,719 - -------------------------------------------------------------------------------------------------------------------------------- Total long-term liabilities 305,418 295,719 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Income and Mining Taxes 189,925 136,274 - -------------------------------------------------------------------------------------------------------------------------------- Minority Interests in Consolidated Subsidiaries 92,012 84,310 - -------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity Capital stock, $1 par value per share: Preferred - 10,000 shares authorized; no shares outstanding Common - 250,000 shares authorized; shares outstanding: 1995 - 140,541; 1994 - 137,785 140,541 137,785 Additional paid-in capital 382,314 339,785 Retained earnings 109,145 106,405 Accumulated currency translation adjustments 7,828 8,869 Other (3,971) (4,074) - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 635,857 588,770 - -------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 1,321,633 $ 1,201,968 =================================================================================================================================
Commitments and Contingencies - see notes 20 and 21. See notes to consolidated financial statements. 29 Homestake Mining Company STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands)
Accumulated Additional Currency For the years ended Common Paid-in Retained Translation December 31, 1995, 1994 and 1993 Stock Capital Earnings Adjustments Other Total - ---------------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1992 $ 136,772 $ 322,688 $ 14,592 $ 1,133 $ (9,747) $ 465,438 Net income 52,494 52,494 Dividends paid (14,591) (14,591) Sale of Homestake stock held by Prime 1,155 4,258 5,413 Exercise of stock options 686 10,397 11,083 Stock issued to employee savings plan 36 492 528 Currency translation adjustments (6,753) (6,753) Other 5 1,627 1,632 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1993 137,494 334,737 52,495 (5,620) (3,862) 515,244 Net income 78,016 78,016 Dividends paid (24,106) (24,106) Exercise of stock options 291 5,048 5,339 Currency translation adjustments 14,489 14,489 Unrealized loss on investments (382) (382) Other 170 170 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1994 137,785 339,785 106,405 8,869 (4,074) 588,770 Net income 30,327 30,327 Dividends paid (27,587) (27,587) Exercise of stock options 206 2,680 2,886 Stock issued for purchase of HGAL minority interests 2,550 39,849 42,399 Currency translation adjustments (1,041) (1,041) Change in unrealized loss on investments 162 162 Other (59) (59) - ---------------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1995 $ 140,541 $ 382,314 $ 109,145 $ 7,828 $ (3,971) $ 635,857 ==================================================================================================================================
See notes to consolidated financial statements. 30 Homestake Mining Company STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands)
For the years ended December 31, 1995, 1994 and 1993 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operations Net income $ 30,327 $ 78,016 $ 52,494 Reconciliation to net cash provided by operations: Depreciation, depletion and amortization 99,602 76,171 103,377 Write-downs of mining properties 16,032 Gain on issuance of stock by subsidiary (11,224) Gain on disposals of assets (1,969) (19,521) (7,974) Deferred income and mining taxes 19,475 (3,665) 2,583 Minority interests 15,998 8,917 3,127 Reclamation - net (6,044) 3,986 (8,459) Other noncash items - net 3,462 27,222 17,435 Effect of changes in operating working capital items: Receivables 821 (8,824) (18,993) Inventories 1,324 (14,045) 10,357 Accounts payable (852) 2,484 (4,009) Accrued liabilities and taxes payable (7,456) (6,938) 4,877 Other (1,231) 1,138 (765) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 153,457 133,717 170,082 - --------------------------------------------------------------------------------------------------------------------------------- Investment Activities Decrease (increase) in short-term investments 33,063 (99,479) 16,739 Proceeds from sales of assets 13,295 24,542 9,649 Additions to property, plant and equipment (80,979) (88,654) (57,825) Investments in mining companies (37,314) Purchase of HGAL minority interests (16,714) Other 3,296 (8,033) 1,060 - -------------------------------------------------------------------------------------------------------------------------------- Net cash used in investment activities (85,353) (171,624) (30,377) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities Borrowings 146,074 Debt repayments (8,352) (194,037) Dividends paid on common shares (27,587) (24,106) (13,706) Common shares issued 2,886 5,339 11,611 Stock issued by subsidiary 31,870 Redemption of HCI preferred shares (15,810) Sale of Homestake stock held by Prime 6,361 Other 567 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (24,701) 4,751 (58,940) - --------------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Equivalents (3,147) 4,138 (254) - --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Equivalents 40,256 (29,018) 80,511 Cash and Equivalents, January 1 105,701 134,719 54,208 - --------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents, December 31 $ 145,957 $ 105,701 $ 134,719 =================================================================================================================================
See notes to consolidated financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All tabular amounts in thousands, except per share amounts) Note 1: Nature of Operations Homestake Mining Company ("Homestake" or the "Company") is engaged in gold mining and related activities, including exploration, extraction, processing, refining and reclamation. Gold bullion, the Company's principal product, is produced and sold in the United States, Canada, Australia and Chile. Ore and concentrates, containing gold and silver, from the Eskay Creek and Snip mines in Canada are sold directly to smelters. The Company also produces and sells sulphur and oil. Note 2: Significant Accounting Policies The consolidated financial statements include Homestake and its majority-owned subsidiaries and their undivided interests in joint ventures after elimination of intercompany amounts. At December 31, 1995 the Company owned 88.1% of Homestake Gold of Australia Limited ("HGAL") and 50.6% of Prime Resources Group Inc. ("Prime") with the remaining interests reflected as minority interests in the consolidated financial statements. Undivided interests in gold mining operations (the Round Mountain mine in the United States; HGAL's interest in the gold mining operations at Kalgoorlie, Western Australia; Homestake Canada Inc.'s ("HCI") interests 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 at Main Pass 299 in the Gulf of Mexico are reported using pro rata consolidation whereby the Company reports its proportionate share of assets, liabilities, income and expenses. Use of estimates: The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and equivalents include all highly-liquid investments with a maturity of three months or less at the date of purchase. The Company minimizes its credit risk by placing its cash and equivalents with major international banks and financial institutions located principally in the United States, Canada and Australia. The Company believes that no concentration of credit risk exists with respect to cash and equivalents. Short-term investments principally consist of highly-liquid United States and foreign government and corporate securities with original maturities in excess of three months. The Company classifies all short-term investments as available-for-sale securities. Unrealized gains and losses on these investments are recorded as a separate component of shareholders' equity, except that declines in market value judged to be other than temporary are recognized in determining net income. Inventories, which include finished products, ore in-process, stockpiled ore, ore in transit, and supplies, are stated at the lower of cost or net realizable value. The cost of gold produced by United States operations is determined principally by the last-in, first-out method ("LIFO"). The cost of other inventories is determined primarily by averaging methods. Exploration costs are expensed as incurred. All costs related to property acquisitions are capitalized. Preoperating and development costs relating to new mines and major programs at operating mines are capitalized. Ongoing development costs to maintain production are expensed as incurred. Depreciation, depletion and amortization of mining properties, mine development costs and major plant facilities are computed principally by the units-of-production method based on estimated proven and probable ore reserves. Proven and probable ore reserves reflect estimated quantities of ore which can be economically 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 using straight-line or accelerated methods principally over estimated useful lives of three to ten years. Property evaluations: Recoverability of investments in operating mines and non-operating properties is evaluated periodically. Estimated future net cash flows from each mine and non-operating property are calculated using estimates of proven and probable ore reserves for operating properties and estimated contained mineralization expected to be classified as proven and probable reserves based on geological delineation to date for non-operating properties, estimated future sales prices (considering historical and current prices, price trends and related fac- 32 tors) and operating capital and reclamation costs. Reductions in the carrying value of each mine or non-operating property are recorded to the extent the remaining investment exceeds the estimate of future undiscounted net cash flows. Management's estimates of future cash flows are subject to risks and uncertainties. Therefore, it is reasonably possible that changes could occur which may affect the recoverability of the Company's investments in mineral properties. Undeveloped properties upon which the Company has not performed sufficient exploration work to determine whether significant mineralization exists are carried at original acquisition cost. In 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and, if deemed impaired, measurement and recording of an impairment loss be based on the fair value of the asset which generally will be computed using discounted cash flows. The Company will adopt SFAS 121 prospectively for the year beginning January 1, 1996. Based on current carrying values and estimated future undiscounted cash flows of the Company's long-lived assets, the Company will not record a cumulative effect upon adopting SFAS 121. Reclamation costs and related accrued liabilities, which are based on the Company's interpretation of current environmental and regulatory requirements, are accrued and expensed, principally by the units-of-production method based on estimated proven and probable ore reserves. Remediation liabilities are expensed upon determination. Based on current environmental regulations and known reclamation requirements, management has included its best estimates of these obligations in its reclamation accruals. However, it is reasonably possible that the Company's estimates of its ultimate reclamation liabilities could change as a result of changes in regulations or cost estimates. Noncurrent investments, which include mining securities, are carried at the lower of cost or market. Realized gains and losses are included in determining net income. The Company classifies noncurrent investments as available-for-sale investments. Unrealized gains and losses on these investments are recorded as a separate component of shareholders' equity, except that declines in market value judged to be other than temporary are recognized in determining net income. Product sales are recognized when title passes at the shipment or delivery point. Income taxes: The Company follows the liability method of accounting for income taxes whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying current statutory tax rates applicable to future years to differences between the financial statement amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year. Mining taxes represent Canadian taxes levied on mining operations. Foreign currency: Substantially all assets and liabilities of foreign subsidiaries are translated at exchange rates in effect at the end of each period. Revenues and expenses are translated at the average exchange rate for the period. Accumulated currency translation adjustments are included as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in the determination of net income. Pension plans and other postretirement benefits: Pension costs related to United States employees are determined using the projected unit credit actuarial method. Pension plans are funded through annual contributions. In addition, the Company provides medical and life insurance benefits for certain retired employees and accrues the cost of such benefits over the period in which active employees become eligible for the benefits. The costs of the postretirement medical and life insurance benefits are paid at the time the services are provided. Net income per share is computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the year. Fully diluted net income per share is not presented since the exercise of stock options would not result in a material dilution of earnings per share and the conversion of the 5.5% convertible subordinated notes would produce anti-dilutive results. 33 Preparation of financial statements: Certain amounts for 1994 and 1993 have been reclassified to conform to the current year's presentation. All dollar amounts are expressed in United States dollars unless otherwise indicated. Note 3: Homestake Gold of Australia Limited On August 14, 1995 the Company announced its unconditional offer to acquire the 18.5% of HGAL it did not already own by offering 0.089 of a Homestake share or A$1.90 in cash for each of the 109,605,000 HGAL shares owned by the public. Through December 31, 1995 a total of 38.9 million additional HGAL shares were acquired at a cost of $59.1 million, including $42.4 million for 2.6 million newly issued shares of the Company, $14.5 million paid in cash and $2.2 million of transaction expenses. At December 31, 1995 Homestake owned 88.1% of the shares of HGAL. The offer closed on February 9, 1996. The Company acquired a total of 107.2 million shares of HGAL from the public and currently is proceeding with compulsory acquisition of the remaining shares. The total purchase price to acquire all of the 18.5% of HGAL held by minority shareholders is expected to be $164.4 million, including $142.1 million for 8.5 million newly issued shares of the Company, $18.8 million paid in cash and $3.5 million of transaction expenses. The acquisition of the HGAL minority interests is being accounted for as a purchase. Based upon the total expected purchase price of $164.4 million, the excess of the purchase price paid over the net book value of the minority interests acquired will be approximately $140.4 million. Substantially all of the excess purchase price is attributable to mineral property interests and will be amortized in accordance with the Company's accounting policies for mineral properties. The following unaudited pro forma information includes pro forma balance sheet information, assuming that the acquisition of all of the HGAL shares the Company did not already own had occurred as of December, 31 1995, and pro forma results of operations, assuming that the acquisition had occurred at the beginning of each period presented. The pro forma information includes adjustments which are based on available information and certain assumptions that management of the Company believes are reasonable in the circumstances. The pro forma information does not purport to represent what the results of operations actually would have been had the acquisition of the HGAL minority interests occurred at the beginning of the periods or to project the results of operations for any future date or period.
Pro Forma (Unaudited) December 31, 1995 ---------------- Current assets $ 363,131 Property, plant and equipment - net 968,742 Investments and other assets 106,140 ---------------- Total assets $1,438,013 ================ Current liabilities $ 98,421 Long-term liabilities 305,418 Deferred income and mining taxes 222,210 Minority interests in consolidated subsidiaries 76,451 Shareholders' equity 735,513 ---------------- Total liabilities and shareholders' equity $1,438,013 ================
Pro Forma (Unaudited) 1995 1994 ------------------------------------------ Revenues $ 745,027 $ 704,187 Costs and expenses 666,455 605,955 ------------------------------------------ Income before taxes and minority interests 78,572 98,232 Income and mining taxes (37,403) (16,958) Minority interests (15,430) (4,285) ------------------------------------------ Net income $ 25,739 $ 76,989 ========================================== Net income per share $ 0.18 $ 0.53 ==========================================
Note 4: Prime Resources Group Inc. In 1994, Prime sold five million common shares at approximately $6.70 per share to the public. Net proceeds of approximately $31.9 million from this issue were used to fund a portion of the construction and development costs of the Eskay Creek mine. This transaction resulted in a reduction of the Company's interest in Prime from 54.2% to 50.6%. It is the Company's policy to recognize in the income statement any gains or losses on the issuances of stock of the Company's subsidiaries. The Company recorded a gain of $11.2 million on the transaction in recognition of the net increase in the book value of the Company's investment in Prime. Deferred income taxes were not provided on this gain since the Company's tax basis in Prime substantially exceeds its carrying value. 34 Note 5: Sales of Mining Operations Torres mining complex: In February 1995, the Company sold its 28% equity interest in the Torres silver mining complex in Mexico for $6.0 million. This sale resulted in a pretax gain of $2.7 million, which is included in other income. Dee mine: In 1994, the Company sold its 44% interest in the Dee gold mine in Nevada to Rayrock Mines, Inc. ("Rayrock") for $16.5 million. Rayrock assumed responsibility for and indemnified Homestake against all related environmental and reclamation matters. This sale resulted in a pretax gain of $15.7 million, which was included in other income. NAM: In 1993, the Company sold its 83% interest in North American Metals Corp. ("NAM"), the owner and operator of the Golden Bear mine in Canada, for approximately $1.0 million plus a retained royalty interest. The Company recorded a $0.5 million pretax gain and a $12.9 million tax benefit on this transaction. Mineral Hill mine: In 1993, the Company sold its 50% interest in the Mineral Hill gold mine in Montana for $4.0 million in cash and 140,000 common shares of TVX Gold Inc. ("TVX"). The Company retained a royalty interest on certain exploration lands and received an indemnification from TVX for all past, present and future reclamation requirements. This sale resulted in a pretax gain of $3.6 million, which was included in other income. Note 6: Write-downs of Mining Properties and Restructuring and Business Combination Expenses As discussed in note 2, the Company performs periodic property evaluations to assess the recoverability of its mining properties and investments. In 1993, the Company determined that, based upon a decline in oil prices, it would not fully recover its investment in the oil assets at the Main Pass 299 sulphur mine and, accordingly, recorded a $16.0 million write-down. In 1993, the Company recorded restructuring expenses of $7.7 million related to an early retirement and work force reduction program at the Homestake mine in South Dakota and the reorganization of HGAL, including the relocation of HGAL's principal office, and business combination expenses of $0.5 million related to the merger of Prime and Stikine Resources Ltd. Note 7: Income Taxes The provision (credit) for income and mining taxes consists of the following:
1995 1994 1993 ------------------------------------------------------------ Current Income taxes Federal $ 7,375 $ 7,560 $ (2,465) State (61) 1,258 105 Canadian 1,928 2,258 1,177 Other foreign 176 206 1,013 ----------------------------------------------------------- 9,418 11,282 (170) Canadian mining taxes 10,248 9,741 10,287 ----------------------------------------------------------- Total current taxes 19,666 21,023 10,117 ----------------------------------------------------------- Deferred Income taxes Federal (3,743) 6,867 3,639 State 436 (1,086) 95 Canadian 25,347 (13,796) 2,203 Other foreign (2,041) 4,438 ----------------------------------------------------------- 19,999 (3,577) 5,937 Canadian mining taxes (524) 1,434 (3,279) ----------------------------------------------------------- Total deferred taxes 19,475 (2,143) 2,658 ----------------------------------------------------------- Total income and mining taxes $ 39,141 $ 18,880 $ 12,775 ===========================================================
The provision for income taxes is based on pretax income before minority interests as follows:
1995 1994 1993 ----------------------------------------------------------- United States $ 17,607 $ 28,415 $ 6,222 Canada 71,333 49,690 41,434 Other foreign (3,474) 27,708 20,740 ----------------------------------------------------------- $ 85,466 $ 105,813 $ 68,396 ===========================================================
35 Deferred tax liabilities and assets as of December 31, 1995 and 1994 relate to the following:
1995 1994 -------------------------------------- Deferred tax liabilities Depreciation and other resource property differences United States $ 65,763 $ 73,826 Canada - Federal 52,068 46,671 Canada - Provincial 76,792 74,653 Australia 29,921 5,214 -------------------------------------- 224,544 200,364 Other 12,597 14,800 -------------------------------------- Gross deferred tax liabilities 237,141 215,164 -------------------------------------- Deferred tax assets Tax loss carry-forwards United States 2,533 3,958 Canada - Federal 8,073 17,793 Canada - Provincial 4,836 Australia 7,681 2,972 Chile 18,344 16,363 -------------------------------------- 36,631 45,922 Reclamation costs United States 8,502 9,957 Other 5,314 4,071 -------------------------------------- 13,816 14,028 Employee benefit costs 28,573 28,120 Alternative minimum tax credit carry-forwards 13,922 16,476 Land and other resource property 12,759 4,193 Deductible mining taxes 3,257 3,080 Foreign tax credit carry-forwards 4,600 2,831 Other 13,790 14,079 -------------------------------------- Gross deferred tax assets 127,348 128,729 Deferred tax asset valuation allowances (59,611) (49,839) -------------------------------------- Net deferred tax assets 67,737 78,890 -------------------------------------- Net deferred tax liability $ 169,404 $ 136,274 ====================================== Net deferred tax liability consists of Current deferred tax assets (20,521) Long-term deferred tax liability 189,925 136,274 -------------------------------------- Net deferred tax liability $ 169,404 $ 136,274 ======================================
The classification of deferred tax assets and liabilities is based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. The change in the valuation allowance did not have a significant impact on the 1995 provision for income taxes. The $59.6 million deferred tax valuation allowance at December 31, 1995 represents the portion of the Company's consolidated deferred tax assets which, based on projections at December 31, 1995, the Company does not believe that realization is "more likely than not." Such $59.6 million of deferred tax valuation allowance consists of United States, Chile and Australia unrealized deferred tax assets of $37.1 million, $18.3 million and $4.2 million, respectively. The largest portion of the $59.6 million of unrealized deferred tax assets is comprised of $34.1 million of future United States ($29.9 million) and Australia ($4.2 million) tax benefits relating to expenses that the Company projects will not be deductible for tax return purposes until after the year 2010. In projecting United States source income beyond this period, the Company currently does not meet the SFAS 109 "more likely than not" criteria required to recognize the United States tax benefits. In addition, there currently is not a tax strategy which would result in the realization of the Australian tax benefit. The remaining $25.5 million is comprised of future tax benefits relating to loss and credit carry-forwards in Chile and the United States that the Company projects it will be unable to realize. Net deferred tax assets at December 31, 1994 include $9.3 million of Canadian deferred tax assets, the realization of which is based on the Company's judgment regarding future income. Major items causing the Company's income tax provision to differ from the federal statutory rate of 35% were as follows:
1995 1994 1993 --------------------------------------------------------- Income tax based on statutory rate $ 29,913 $ 37,035 $ 23,938 Percentage depletion (9,879) (11,106) (14,401) Earnings in foreign jurisdictions taxed at different rates (1,019) (6,175) (1,440) State income taxes, net of federal benefit 340 1,614 130 Australian investment allowances (2,097) Tax relating to reorganizations 7,682 4,387 Unrealized minimum tax credits 4,790 1,753 23,844 Nontaxable income (777) (4,784) Nondeductible losses 6,231 9,401 3,757 Deferred tax assets not recognized in prior years (1) (1,262) (27,697) (36,706) Foreign taxes withheld 1,965 2,089 2,669 Other - net 1,212 (2,107) (411) --------------------------------------------------------- Total income taxes 29,417 7,705 5,767 Canadian mining taxes 9,724 11,175 7,008 --------------------------------------------------------- Total income and mining taxes $ 39,141 $ 18,880 $ 12,775 ========================================================= (1) Amounts include (i) reversals of prior year valuation allowances of $1.3 million in 1995 and $12.4 million in 1994, and (ii) realization of additional deferred tax assets that could not be recognized in prior years of $15.3 million in 1994 and $36.7 million in 1993.
36 The Company's 1994 income tax expense includes a $3.6 million tax benefit relating to tax law changes enacted in 1994 and a $9.6 million tax benefit relating to a change in the Company's judgment concerning the realizability of deferred tax assets in future years. For income tax purposes, the Company has foreign tax losses and United States foreign tax credit carry-forwards of approximately $29.5 million and $4.6 million, respectively, which are due to expire at various times through the year 2000. Note 8: Receivables
December 31, 1995 1994 - ------------ ------------------------------------- Trade accounts $ 37,907 $ 23,318 Deferred uranium sale 10,320 U.S. Government receivable (see note 20) 5,500 7,271 Income taxes 3,049 Interest and other 14,639 15,036 ------------------------------------- $ 58,046 $ 58,994 =====================================
Note 9: Inventories
December 31, 1995 1994 - ------------ -------------------------------------- Finished products $ 13,498 $ 15,004 Ore and in-process 26,027 26,889 Supplies 30,454 29,822 ------------------------------------- $ 69,979 $ 71,715 =====================================
At December 31, 1995 and 1994, the cost of certain finished gold inventories in the United States stated on the LIFO cost basis totaled $2.0 million and $2.5 million, respectively. Such inventories would have approximated $3.6 million and $4.0 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. At December 31, 1995 and 1994, ore stockpiles in the amounts of $11.1 million and $10.7 million, respectively, not expected to be processed within the 12 months following the end of each year are included in other assets (see note 12). Note 10: Property, Plant and Equipment
December 31, 1995 1994 - ------------ ---------------------------------------- Mining properties and development costs $ 790,335 $ 714,479 Plant and equipment 891,277 846,547 Land and royalty interests 3,843 3,843 Construction and mine development in progress 12,282 14,633 ---------------------------------------- 1,697,737 1,579,502 Accumulated depreciation, depletion and amortization (850,961) (771,281) ---------------------------------------- $ 846,776 $ 808,221 ========================================
Note 11: Noncurrent Investments
December 31, 1995 1994 - ------------ ------------------------------------- Equity Investments Pinson (26%) and Marigold (33%) mines $ 4,121 $ 6,298 Other equity investments 1,963 5,041 Navan Resources plc 24,000 Other investments 16,104 4,435 ------------------------------------- $ 46,188 $ 15,774 =====================================
In July 1995, the Company acquired for $24 million a 10% interest (fully-diluted) in Navan Resources plc ("Navan"), an Irish public company, and an option to acquire 50% of Navan's interest in Bimak AD ("Bimak"), the owner of the Chelopech gold/copper processing operations located 45 miles east of Sofia, Bulgaria. Bimak has an exclusive contract to purchase all of the ore mined from the Chelopech mine. The Company can acquire 50% of Navan's 68% interest in Bimak by investing an additional $48 million, which would be used to fund a portion of the cost of a proposed expansion. Other investments at December 31, 1995 includes $10 million related to a 1995 investment in Orion Resources NL ("Orion"). In January 1996, after further evaluation of the investment opportunity, the Company sold its investment in Orion and recorded a gain of $0.2 million. Note 12: Other Assets
December 31, 1995 1994 - ------------ -------------------------------------- Assets held in trust (see note 16) $ 23,741 Ore stockpiles 11,118 $ 10,684 U.S. Government receivable (see note 20) 13,166 2,520 Other 11,927 21,970 ------------------------------------- $ 59,952 $ 35,174 =====================================
37 Note 13: Accrued Liabilities
December 31, 1995 1994 - ------------ -------------------------------------- Accrued payroll and other compensation $ 26,925 $22,178 Accrued reclamation costs 12,383 15,266 Other 14,629 16,694 ------------------------------------- $ 53,937 $54,138 =====================================
Note 14: Long-term Debt
December 31, 1995 1994 - ------------ ------------------------------------- Convertible subordinated notes (due 2000) $ 150,000 $ 150,000 Pollution control bonds Lawrence County, South Dakota (due 2003) 18,000 18,000 State of California (due 2004) 17,000 17,000 ------------------------------------- $ 185,000 $ 185,000 =====================================
Convertible subordinated notes: The Company's 5.5% convertible subordinated notes, which mature on June 23, 2000, are convertible into common shares at a price of $23.06 per common share and are redeemable by the Company in whole at any time on or after June 23, 1996. Interest on the notes is payable semi-annually in June and December. 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. Pollution control bonds: The Company pays interest monthly on the pollution control bonds based on variable short-term, tax-exempt obligation rates. Interest rates at December 31, 1995 and 1994 were 5.0% and 5.7%, respectively. No principal payments are required until cancellation, redemption or maturity. Bondholders have the right to tender the bonds for payment at any time on seven-days notice. The Company has arrangements with underwriters to remarket any tendered bonds and also with a bank to provide liquidity and credit support to the Company and to purchase and hold for up to 15 months any tendered bonds that the underwriters are unable to remarket. Lines of credit: The Company has a United States/Canadian cross-border credit facility providing a total availability of $150 million. The Company pays a commitment fee of 0.25% per annum on the unused portion of this facility. The credit facility is available through September 30, 2000 and provides for borrowings in United States dollars, Canadian dollars, gold loans or any combination of these. The credit agreement requires a minimum consolidated net worth of $500 million. In addition, Prime has a $11.0 million credit facility. At December 31, 1995 and 1994 no amounts had been borrowed under these agreements. Note 15: Other Long-term Obligations
December 31, 1995 1994 - ------------ ------------------------------------- Accrued reclamation costs (see notes 2, 13 and 20) $ 44,051 $ 33,892 Accrued pension and other postretirement benefit obligations (see note 16) 63,092 64,066 Other 13,275 12,761 ------------------------------------- $ 120,418 $ 110,719 =====================================
Note 16: Employee Benefit Plans Pension plans: The Company has pension plans covering substantially all United States employees. Plans covering salaried and other nonunion employees provide pension benefits based on years of service and the employee's highest compensation during any 60 consecutive months prior to retirement. Plans covering union employees provide defined benefits for each year of service. Pension costs for 1995, 1994 and 1993 for Company-sponsored United States employee plans included the following components:
1995 1994 1993 ------------------------------------------------------------ Service cost - benefits earned during the year $ 3,573 $ 3,928 $ 3,513 Interest costs on projected benefit obligations 14,476 13,497 12,957 Actual net return on assets (44,788) (1,828) (17,198) Net amortization (deferral) 32,405 (11,202) 4,821 ------------------------------------------------------------ Net periodic pension cost 5,666 4,395 4,093 Early retirement program cost 4,062 ------------------------------------------------------------ $ 5,666 $ 4,395 $ 8,155 ============================================================
38 Assumptions used in determining net periodic pension cost for 1995, 1994 and 1993 include discount rates of 8%, 7%, and 8%, respectively, and assumed rates of increase in compensation of 5%, 5%, and 6%, respectively. The assumed long-term rate of return on assets was 8.5% for each year. Assumptions used in determining the projected benefit obligations at December 31, 1995 and 1994 include discount rates of 7% and 8%, respectively, and an assumed rate of increase in compensation of 5%. The funded status and amounts recognized for pension plans in the consolidated balance sheets are as follows:
December 31, 1995 December 31, 1994 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 $(159,400) $ (16,300) $ (99,615) $ (51,749) =============================================================================== Accumulated benefits $(175,400) $ (17,500) $ (108,838) $ (57,761) =============================================================================== Projected benefits $(195,300) $ (19,800) $ (127,006) $ (61,261) Plan assets at fair value (1) 192,565 117,966 37,687 ------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets (2,735) (19,800) (9,040) (23,574) Unrecognized net loss (gain) (7,285) 114 1,318 5,353 Unrecognized net transition obligation (asset) amortized over 15 years (3,916) 792 77 (3,635) Unrecognized prior service cost (benefit) 680 3,081 (608) 2,322 Additional minimum liability (1,687) (612) ------------------------------------------------------------------------------- Pension liability recognized in the consolidated balance sheets $ (13,256) $ (17,500) $ (8,253) $ (20,146) =============================================================================== (1) Approximately 7% and 15% of the plan assets were invested in fixed-rate insurance contracts and the balance was invested in listed stocks and bonds in 1995 and 1994, respectively.
Amounts shown under "plans where accumulated benefits exceed assets" at December 31, 1995 consist of liabilities for a nonqualified supplemental pension plan covering certain employees and a nonqualified pension plan covering directors of the Company. These plans are unfunded. In 1995, the Company established a grantor trust, consisting of a money market fund and corporate-owned life insurance policies, to provide funding for the benefits payable under these nonqualified plans and certain other deferred compensation plans. The grantor trust, which is included in other assets, amounted to $23.7 million at December 31, 1995. Certain of the Company's foreign operations participate in pension plans. The Company's share of contributions to these plans was $1.1 million in 1995 and $0.8 million in 1994 and 1993. Postretirement 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. Net periodic postretirement benefit costs were $3.5 million in 1995 and 1994 and $5.5 million in 1993. The actuarial assumptions used in determining net periodic postretirement benefit costs include discount rates of 8% for 1995, 7% for 1994 and 8% for 1993, an initial health care cost trend rate of 11.5% grading down to an ultimate health care cost trend rate of 6% for 1995, an initial health care cost trend rate of 12% grading down to an ultimate health care cost trend rate of 5% for 1994, and an initial health care cost trend rate of 12.5% grading down to an ultimate health care cost trend rate of 6% for 1993. The actuarial assumptions used in determining the Company's accumulated postretirement benefit obligation at December 31, 1995 and 1994 include discount rates of 7% and 8%, respectively. A one percentage-point increase in the assumed health care cost trend rate would result in an increase of approximately $4.7 million in the accumulated postretirement benefit obligation at December 31, 1995 and an increase of approximately $0.5 million in net periodic postretirement benefit costs. 39 The following table sets forth amounts recorded in the Company's consolidated balance sheets at December 31, 1995 and 1994. The Company has not funded any of its estimated future obligation.
1995 1994 -------------------------------------- Accumulated postretirement benefit obligation Retirees $(27,000) $(30,000) Fully-eligible active plan participants (1,000) (1,000) Other active plan participants (7,000) (9,000) -------------------------------------- (35,000) (40,000) Unrecognized net loss (gain) (5,412) 996 Unrecognized prior service cost 677 737 -------------------------------------- Accumulated postretirement benefit obligation liability recognized in the consolidated balance sheets $(39,735) $(38,267) ======================================
Other plans: Substantially all full-time United States employees of the Company are eligible to participate in the Company's defined contribution savings plans. The Company's matching contribution was approximately $1.6 million in 1995 and $1.1 million in 1994 and 1993. Under the Company's stock option plans, options to buy 2.3 million common shares at an average price of $18.82 per share were outstanding at December 31, 1995, of which 1.5 million shares were exercisable. An additional 0.6 million and 0.8 million shares were available for future grants at December 31, 1995 and 1994, respectively. Stock option activity was as follows:
1995 1994 1993 ----------------------- ------------------------- ----------------------- Average Average Average Price Per Price Per Price Per Number Share Number Share Number Share ----------------------- ------------------------- ---------------------- Balance at January 1 2,301 2,600 2,193 HCI converted 787 $29.04 Granted 361 $15.58 268 $20.50 516 12.18 Exercised (206) 13.90 (293) 15.98 (695) 15.88 Expired (147) 16.92 (274) 15.86 (201) 29.20 ---------- ---------- ---------- Balance at December 31 2,309 2,301 2,600 ========== ========== ==========
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 is effective for periods beginning after December 15, 1995. SFAS 123 requires that companies either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value, or provide pro forma disclosure of net income and earnings per share in the notes to the financial statements. The Company will adopt the disclosure provisions of SFAS 123 in 1996. Note 17: Fair Value of Financial Instruments The carrying values of the Company's cash and equivalents and short-term investments, noncurrent investments, long-term debt and foreign currency options approximate their estimated fair values. Note 18: Shareholders' Equity Other equity includes deductions of $3.7 million at December 31, 1995 and 1994 for 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 pledged securities are equal to or greater than the value of the respective loans. Each share of common stock includes and trades with a right. Rights are not exercisable currently but become exercisable on the 10th business day after any person, entity or group ("the Acquiring Person") acquires 20% or more of the Company's common stock or announces a tender or exchange offer which would result in such entity acquiring 20% or more of the Company's common stock. When exercisable, each right entitles its holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock, par value $1 per share, at a share price of $75. If the 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. 40 Note 19: Additional Cash Flow Information Cash paid for interest and for income and mining taxes is as follows:
1995 1994 1993 --------------------------------------------------------- Interest, net of amounts capitalized $ 11,292 $ 10,110 $ 8,600 Income and mining taxes 22,650 10,670 18,170
Certain investing and financing activities of the Company affected its financial position but did not affect its cash flows. See note 3 for a discussion of the noncash acquisitions of the additional interests in HGAL. Note 20: Contingencies Environmental Contingencies The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") imposes heavy liabilities on persons who discharge hazardous substances. The Environmental Protection Agency ("EPA") publishes a National Priorities List ("NPL") of known or threatened releases of such substances. Whitewood Creek: An 18-mile stretch of Whitewood Creek in the Black Hills of South Dakota is a site on the NPL. The EPA asserted that discharges of tailings by mining companies, including the Company, contaminated soil and water for more than 100 years. In 1990, the Company signed a consent decree with the EPA requiring that the Company perform remedial work on the site and continue long-term monitoring. The on-site remedial work has been completed and the consent decree was terminated on January 10, 1996. The EPA published a notice on November 30, 1995 of their intent to delete the site from the NPL. The Company estimates that the remaining cost of monitoring, including EPA oversight costs, will be approximately $1 million. Grants: The Company's former uranium millsite near Grants, New Mexico is listed on the NPL. The EPA asserted that leachate from the tailings contaminated a shallow aquifer used by adjacent residential subdivisions. The Company paid the costs of extending the municipal water supply to the affected homes and continues to operate a water injection and collection system that has significantly improved the quality of the aquifer. The Company has decommissioned and disposed of the mills and has covered the tailings impoundments at the site. The total future cost for reclamation, remediation, monitoring and maintaining compliance at the Grants site is estimated to be $24 million. Title X of the Energy Policy Act of 1992 (the "Act") authorized appropriations of $270.0 million to cover the Federal Government's share of certain costs of reclamation, decommissioning and remedial action for by-product material (primarily tailings) generated by certain licensees as an incident of uranium sales to the Federal Government. Reimbursement is subject to compliance with regulations of the Department of Energy ("DOE"), which were issued in 1994. Pursuant to the Act, the DOE is responsible for 51.2% of the past and future costs of reclaiming the Grants site in accordance with Nuclear Regulatory Commission license requirements. The accompanying balance sheet at December 31, 1995 includes a receivable of $18.7 million (see notes 8 and 12) for the DOE's share of reclamation expenditures made by the Company through 1995. The Company believes that its share of the estimated remaining cost of reclaiming the Grants facility, net of estimated proceeds from the ultimate disposals of related assets, is fully provided in the financial statements at December 31, 1995. 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. Final regulations for performing natural resource damage assessments were issued by the United States Department of Interior on March 25, 1994. CERCLA provides for a three-year statute of limitations for natural resource damage assessments after the issuance of final regulations. 41 The Company believes that the ultimate resolution of the above matters will not have a material adverse impact on its financial condition or results of operations. While the ultimate amount of reclamation and site restoration costs to be incurred in the future is uncertain, the Company has estimated that the aggregate amount of these costs for operating properties, plus previously accrued remediation liabilities for non-operating properties, will be $99 million. This figure does not include approximately $12.2 million of reclamation costs at the Grants uranium facility, which will be funded by the United States Federal Government. At December 31, 1995 the Company had accrued $56.4 million for estimated ultimate reclamation and site restoration costs and remediation liabilities. Other Contingencies In addition to the above, the Company is party to legal actions and administrative proceedings and is subject to claims arising in the ordinary course of business. The Company believes the disposition of these matters will not have a material adverse effect on its financial position or results of operations. Note 21: Foreign Currency and Other Commitments Under the Company's foreign currency protection program, the Company has entered into a series of foreign currency option contracts which established trading ranges within which the United States dollar may be exchanged for foreign currencies by setting minimum and maximum exchange rates. The Company does not require or place collateral for these contracts. However, the Company minimizes its credit risk by dealing with only major international banks and financial institutions. The contracts are marked to market at each balance sheet date. Net unrealized gains on contracts outstanding at December 31, 1995 and 1994 totaled $0.3 million and $0.7 million, respectively. Other income for the years ended December 31, 1995, 1994 and 1993 included income (loss) of $(0.2) million, $4.6 million and $(1.4) million, respectively, related to the foreign currency protection program. At December 31, 1995 the Company had outstanding forward currency contracts as follows:
Amount Covered Exchange Rates to U.S. Dollars Expiration Currency (U.S. Dollars) Minimum Maximum Dates - -------------------------------------------------------------------------------------------------------- Canadian $111,400 0.67 0.77 1996 - 1997 Australian 33,300 0.68 0.76 1996 -------------- $144,700 ==============
In addition to amounts related to the foreign currency option contracts, the Company realized foreign currency transaction losses of $0.6 million in 1995, $6.6 million in 1994, and $1.5 million in 1993, which were included in other income. During 1994, the Company entered into forward sales for 183,200 ounces of gold it expected to produce at the Nickel Plate mine during 1995 and 1996. The purpose of the forward sales program was to allow for recovery of the Company's remaining investment in the mine and provide for estimated reclamation costs. Gold sales for the year ended December 31, 1995 included 88,800 ounces sold under this program at an average price of $398 per ounce. In October 1995, the Company closed out forward sales covering 24,400 ounces at an average price of $435 per ounce for delivery in 1996, realizing a gain of $0.8 million. At December 31, 1995 forward sales for 70,000 ounces at an average price of $421 per ounce remain outstanding. The Company has entered into various commitments during the ordinary course of its business, which include commitments to perform assessment work and other obligations necessary to maintain or protect its interests in mining properties, financing and other obligations to joint ventures and partners under venture and partnership agreements, and commitments under federal and state environmental health and safety permits. Note 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 42 expenses, and income and mining taxes. Identifiable assets represent those assets used in a segment's operations. Corporate assets are principally cash and equivalents, short-term investments and assets related to operations not significant enough to require classification as a business segment. Sales to individual customers exceeding 10% of the Company's consolidated revenues were as follows: in 1995, gold sales of $102 million, $101 million, $92 million and $91 million to four customers; in 1994, gold sales of $129 million, $118 million and $100 million to three customers; and in 1993, gold sales of $175 million, $145 million and $105 million to three customers. Because of the active worldwide market for gold, Homestake believes that the loss of any of these customers would not have a material adverse impact on the Company. GEOGRAPHIC INFORMATION
1995 1994 1993 ------------------------------------------------------- Revenues United States (1) $ 349,461 $ 346,629 $ 380,458 Canada(2) 264,548 192,363 194,755 Australia 120,898 143,944 121,025 Latin America (3) 11,458 22,551 25,990 ------------------------------------------------------- $ 746,365 $ 705,487 $ 722,228 ======================================================= Operating Earnings United States (1,4) $ 45,373 $ 72,379 $ 33,295 Canada 89,459 55,804 70,788 Australia 9,261 29,026 29,660 Latin America (3) 705 (1,359) 2,272 ------------------------------------------------------- $ 144,798 $ 155,850 $ 136,015 ======================================================= Exploration Expense United States $ 12,750 $ 11,841 $ 11,128 Canada 2,797 2,445 1,907 Australia 4,745 4,008 2,888 Latin America and other 7,249 3,053 1,534 ------------------------------------------------------- $ 27,541 $ 21,347 $ 17,457 ======================================================= Identifiable Assets as of December 31 United States $ 618,267 $ 598,059 $ 550,645 Canada 432,087 382,575 385,324 Australia 264,238 207,837 165,683 Latin America and other 7,041 13,497 19,598 ------------------------------------------------------- $1,321,633 $1,201,968 $1,121,250 ======================================================= (1) Includes a gain of $15.7 million in 1994 on the sale of the Company's interest in the Dee mine. (2) Includes a gain of $11.2 million in 1994 on the dilution of the Company's interest in Prime. (3) Includes a gain of $2.7 million in 1995 on the sale of the Company's interest in the Torres mining complex. (4) Includes a write-down of $16.0 million in 1993 of oil assets at Main Pass 299.
SEGMENT INFORMATION
1995 1994 1993 ------------------------------------------------------- Revenues Gold $ 677,377 $ 632,031 $ 688,080 Sulphur and oil 40,620 26,882 16,220 Interest and other (1,2) 28,368 46,574 17,928 ------------------------------------------------------- $ 746,365 $ 705,487 $ 722,228 ======================================================= Operating Earnings Gold (1) $ 139,105 $ 156,013 $ 161,947 Sulphur and oil (3) 5,693 (163) (25,932) ------------------------------------------------------- Operating earnings 144,798 155,850 136,015 Exploration expense (27,541) (21,347) (17,457) Net corporate expense (2,4) (31,791) (28,690) (50,162) ------------------------------------------------------- Income Before Taxes and Minority Interest $ 85,466 $ 105,813 $ 68,396 ======================================================= Depreciation, Depletion and Amortization Gold $ 90,237 $ 66,857 $ 90,842 Sulphur and oil 8,055 7,861 10,629 Corporate 1,310 1,453 1,906 ------------------------------------------------------- $ 99,602 $ 76,171 $ 103,377 ======================================================= Exploration Expense Gold $ 27,541 $ 21,318 $ 17,017 Sulphur and oil - 29 440 ------------------------------------------------------- $ 27,541 $ 21,347 $ 17,457 ======================================================= Additions to Property, Plant and Equipment Gold $ 78,892 $ 83,597 $ 54,219 Sulphur and oil 1,604 3,039 1,828 Corporate 483 2,018 1,778 ------------------------------------------------------- $ 80,979 $ 88,654 $ 57,825 ======================================================= Identifiable Assets as of December 31 Gold $ 870,512 $ 796,016 $ 788,122 Sulphur and oil 134,990 143,742 142,220 Corporate: Cash and equivalents and short-term investments 212,373 205,180 134,719 Other 103,758 57,030 56,189 ------------------------------------------------------- $1,321,633 $1,201,968 $1,121,250 ======================================================= (1) Includes a gain of $2.7 million in 1995 on the sale of the Company's interest in the Torres mining complex and a gain of $15.7 million in 1994 on the sale of the Company's interest in the Dee mine. (2) Includes a gain of $11.2 million in 1994 on the dilution of the Company's interest in Prime. (3) Includes a write-down of $16.0 million of oil assets at Main Pass 299 in 1993. (4) Includes restructuring and business combination expenses of $8.2 million in 1993.
43 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, 1995 and 1994, and the related statements of consolidated income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Homestake Mining Company and Subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. - ---------------------------- San Francisco, California February 9, 1996 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 and by the independent auditors in connection with their audit of the Company's consolidated financial statements. The external auditors conduct an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards in order to express their opinion on these financial statements. These standards require that the external auditors plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. The Audit Committee of the Board of Directors, composed entirely of outside directors, meets periodically with management, internal auditors and the external auditors to discuss the annual audit, internal control, internal auditing and financial reporting matters. The external auditors and the internal auditors have direct access to the Audit Committee. /s/ 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 February 9, 1996 44 QUARTERLY SELECTED DATA (In thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Year ------------------------------------------------------------------------------------------------ 1995: Revenues $ 179,932 $ 195,590 $ 181,428 $ 189,415 $ 746,365 Net income 6,560 (1) 11,179 4,945 7,643 30,327 (1) Per common share: Net income 0.05 (1) 0.08 0.04 0.05 0.22 (1) Dividends paid 0.05 0.05 0.05 0.05 0.20 1994: Revenues $ 172,402 $ 202,079 $ 166,991 $ 164,015 $ 705,487 Net income 24,214 32,955 (2) 10,849 9,998 78,016 (2) Per common share: Net income 0.18 0.24 (2) 0.08 0.07 0.57 (2) Dividends paid 0.025 0.05 0.05 0.05 0.18 (1) Includes a gain of $1.4 million ($2.7 million pretax) or $0.01 per share on the sale of the Company's interest in the Torres mining complex. (2) Includes a gain of $12.6 million ($15.7 million pretax) or $0.09 per share on the sale of the Company's interest in the Dee mine and a gain of $11.2 million (no tax expense) or $0.08 per share on the dilution of the Company's interest in Prime.
COMMON STOCK PRICE RANGE (Prices as quoted on the New York Stock Exchange)
First Second Third Fourth Quarter Quarter Quarter Quarter Year --------------------------------------------------------------------------------------------- 1995: High $19.13 $19.13 $18.13 $17.38 $19.13 Low 14.75 15.63 16.13 15.13 14.75 1994: High $24.88 $22.63 $22.00 $20.75 $24.88 Low 18.88 17.38 17.50 16.13 16.13
45 EIGHT-YEAR SELECTED DATA (1) (Dollar amounts in thousands, except per share and per ounce amounts)
1995 1994 1993 1992 --------------- --------------- -------------- --------------- OPERATIONS Revenues $746,365 $705,487 $722,228 $683,520 -------------- --------------- -------------- --------------- Production costs 481,886 447,129 454,623 470,374 Depreciation, depletion and amortization 99,602 76,171 103,377 117,483 Administrative and general expense 37,283 38,159 40,553 48,514 Exploration expense 27,541 21,347 17,457 27,798 Interest and other expense 14,587 16,868 13,639 19,114 Write-downs and restructuring costs 24,183 178,732 Income and mining tax expense (credit) 39,141 18,880 12,775 (2,889) Minority interests 15,998 8,917 3,127 230 -------------- --------------- -------------- --------------- 716,038 627,471 669,734 859,356 -------------- --------------- -------------- --------------- Income (loss) from continuing operations 30,327 (2) 78,016 (3) 52,494 (4) (175,836)(5) Income (loss) from discontinued operations Extraordinary gain Cumulative effect -------------- --------------- -------------- --------------- Net income (loss) $ 30,327 (2) $ 78,016 (3) $ 52,494 (4) $(175,836)(5) ============== =============== ============== =============== PER SHARE Income (loss) from continuing operations $ 0.22 (2) $ 0.57 (3) $ 0.38 (4) $ (1.31)(5) Income (loss) from discontinued operations Extraordinary gain Cumulative effect -------------- --------------- -------------- --------------- Net income (loss) $ 0.22 (2) $ 0.57 (3) $ 0.38 (4) $ (1.31)(5) ============== =============== ============== =============== Dividends paid (Homestake only) $ 0.20 $ 0.175 $ 0.10 $ 0.20 ============== =============== ============== =============== 1991 1990 1989 1988 -------------- --------------- -------------- --------------- OPERATIONS Revenues $671,600 $793,660 $771,126 $520,708 -------------- --------------- -------------- --------------- Production costs 468,107 473,688 405,246 276,082 Depreciation, depletion and amortization 116,993 113,443 103,110 59,472 Administrative and general expense 47,405 50,631 44,641 38,674 Exploration expense 47,440 50,695 49,394 47,952 Interest and other expense 12,336 28,475 33,073 26,315 Write-downs and restructuring costs 185,987 32,600 44,963 28,163 Income and mining tax expense (credit) 5,582 40,267 56,195 25,702 Minority interests (4,494) (350) (266) 1,036 -------------- --------------- -------------- --------------- 879,356 789,449 736,356 503,396 -------------- --------------- -------------- --------------- Income (loss) from continuing operations (207,756)(6) 4,211 (8) 34,770 (9) 17,312 (11) Income (loss) from discontinued operations (25,359) 7,979 31,667 15,558 Extraordinary gain 3,678 (10) Cumulative effect (28,800)(7) 3,125 (12) -------------- --------------- -------------- --------------- Net income (loss) $(261,915)(6,7) $ 12,190 (8) $ 70,115 (9,10) $ 35,995 (11,12) ============== =============== ============== =============== PER SHARE Income (loss) from continuing operations $ (1.57)(6) $ 0.02 (8) $ 0.28 (9) $ 0.14 (11) Income (loss) from discontinued operations (0.19) 0.06 0.25 0.13 Extraordinary gain 0.03 (10) Cumulative effect (0.22)(7) 0.02 (12) -------------- --------------- -------------- --------------- Net income (loss) $ (1.98)(6,7) $ 0.08 (8) $ 0.56 (9,10) $ 0.29 (11,12) ============== =============== ============== =============== Dividends paid (Homestake only) $ 0.20 $ 0.20 $ 0.20 $ 0.20 ============== =============== ============== =============== (1) Eight-year selected data reflects the 1992 combination of Homestake and HCI accounted for as a pooling of interests, and accounts for Homestake's former interests in base metals, oil and gas, uranium and HCI's non-gold operations as discontinued operations. (2) Includes a gain of $1.4 million ($2.7 million pretax) or $0.01 per share on the sale of the Company's interest in the Torres silver mining complex. (3) Includes a gain of $12.6 million ($15.7 million pretax) or $0.09 per share on the sale of the Company's interest in the Dee mine and a gain of $11.2 million (no tax expense) or $0.08 per share on dilution of the Company's interest in Prime. (4) Includes expense of $12.8 million ($16.0 million pretax) or $0.09 per share for the write-down of oil assets at Main Pass 299 and expense of $6.8 million ($8.2 million pretax) or $0.05 per share for restructuring and business combination costs. (5) Includes expense of $117.7 million ($130.3 million pretax) or $0.87 per share for write-downs of certain mining properties and investments and expense of $32.3 million ($48.4 million pretax) or $0.24 per share for restructuring and business combination costs. (6) Includes expense of $165.5 million ($172.4 million pretax) or $1.25 per share for write-downs of certain mining properties and investments and expense of $7.8 million ($13.6 million pretax) or $0.06 per share for HCI's 1991 restructuring.
46 EIGHT-YEAR SELECTED DATA (1) (Dollar amounts in thousands, except per share and per ounce amounts)
1995 1994 1993 1992 ---------------- ---------------- ----------------- ---------------- FINANCIAL POSITION Cash and short-term investments $ 212,373 $ 205,180 $ 134,719 $ 71,064 Other current assets 156,344 137,619 103,491 108,288 Property, plant and equipment - net 846,776 808,221 830,228 911,588 Other long-term assets 106,140 50,948 52,812 54,229 ---------------- ---------------- ---------------- ---------------- Total assets $1,321,633 $ 1,201,968 $ 1,121,250 $1,145,169 ================ ================ ================ ================ Current liabilities $ 98,421 $ 96,895 $ 104,350 $ 155,894 Long-term debt 185,000 185,000 189,191 205,174 Other long-term obligations 120,418 110,719 93,674 88,002 Deferred income and mining taxes 189,925 136,274 164,030 162,587 Minority interests (13) 92,012 84,310 54,761 68,074 Shareholders' equity 635,857 588,770 515,244 465,438 ---------------- ---------------- ---------------- ---------------- Total liabilities and shareholdlers' equity $1,321,633 $ 1,201,968 $ 1,121,250 $1,145,169 ================ ================ ================ ================ RATIOS Debt to equity 29% 31% 37% 53% Return on shareholders' equity 5% 14% 11% (31)% CAPITAL EXPENDITURES $ 80,979 $ 88,654 $ 57,825 $ 63,453 OPERATING STATISTICS Gold production (thousands of ounces) 1,877 1,696 1,918 1,912 Average gold price realized per ounce $386 $384 $359 $348 Total cash costs per ounce $257 $252 $229 $246 RESERVES Gold (millions of ounces) 21.5 17.9 18.4 17.3 Eskay Creek silver (millions of ounces) 47.4 51.5 55.1 Sulphur (millions of long tons) 11.4 11.7 11.0 11.2 1991 1990 1989 1988 ---------------- ---------------- ---------------- ---------------- FINANCIAL POSITION Cash and short-term investments $ 164,353 $ 332,690 $ 323,501 $ 295,538 Other current assets 137,217 295,843 209,998 172,936 Property, plant and equipment - net 844,909 902,161 947,494 692,020 Other long-term assets 206,352 381,121 267,504 213,321 ---------------- ---------------- ---------------- ---------------- Total assets $ 1,352,831 $ 1,911,815 $ 1,748,497 $ 1,373,815 ================ ================ ================ ================ Current liabilities $ 191,145 $ 205,863 $ 145,325 $ 95,926 Long-term debt 279,190 408,902 440,888 283,600 Other long-term obligations 86,193 51,253 47,000 41,425 Deferred income and mining taxes 100,797 108,681 114,828 61,663 Minority interests (13) 19,864 78,422 98,972 58,976 Shareholders' equity 675,642 1,058,694 901,484 832,225 ---------------- ---------------- ---------------- ---------------- Total liabilities and shareholders' equity $ 1,352,831 $ 1,911,815 $ 1,748,497 $ 1,373,815 ================ ================ ================ ================ RATIOS Debt to equity 52% 48% 51% 37% Return on shareholders' equity (30)% 1% 8% 4% CAPITAL EXPENDITURES $ 166,458 $ 139,352 $ 266,279 $ 281,040 OPERATING STATISTICS Gold production (thousands of ounces) 1,801 1,979 1,738 1,312 Average gold price realized per ounce $376 $392 $394 $434 Total cash costs per ounce $269 $247 $246 $262 RESERVES Gold (millions of ounces) 18.5 19.6 20.6 14.3 Eskay Creek silver (millions of ounces) Sulphur (millions of long tons) 11.2 11.2 (7) Includes expense of $28.8 million (no tax benefit) or $0.22 per share for the cumulative effect of the change in accounting for postretirement benefits other than pensions. (8) Includes expense of $32.6 million (no tax benefit) or $0.25 per share for the write-down of the Company's investment in NAM. (9) Includes expense of $30.7 million ($45 million pretax) or $0.24 per share for write-downs of certain mining properties of HCI. (10) Includes an extraordinary gain of $3.7 million or $0.03 per share on the monetization of gold loans. (11) Includes expense of $28.2 million (no tax benefit) or $0.23 per share for write-downs of certain mining properties of HCI. (12) Includes income of $3.1 million or $0.02 per share from the cumulative effect of the change in accounting for income taxes. (13) Includes redeemable preference shares of wholly-owned subsidiaries of $15.9 million, $4.9 million, $46.1 million, $50.4 million and $48.9 million at December 31, 1992, 1991, 1990, 1989 and 1988, respectively.
47 APPENDIX 1: Description of Bar Charts in Management's Discussion and Analysis Bar Chart A: Chart depicting net income (dollars in millions) as follows: Year: 1995 1994 1993 ------------------------------------- Dollars: $30.3 $78.0 $52.5 Bar Chart B: Chart depicting gold and ore sales (dollars in millions) as follows: Year: 1995 1994 1993 ------------------------------------- Dollars: $675.2 $629.2 $687.3 Bar Chart C: Chart depicting gold production (ounces in millions) as follows: Year: 1995 1994 1993 ------------------------------------- Ounces: Homestake's Economic Interest: 1.63 1.59 1.76 Minority Interest: 0.25 0.09 0.09 Operations Sold: - 0.02 0.07 ------------------------------------- Total 1.88 1.70 1.92 Bar Chart D: Chart depicting exploration expense (dollars in millions) as follows: Year: 1995 1994 1993 ------------------------------------- Dollars: United States: $12.8 $11.8 $11.1 Canada: 2.8 2.4 1.9 Australia: 4.7 4.0 2.9 Latin America and Other: 7.2 3.1 1.6 ------------------------------------- Total $27.5 $21.3 $17.5 Bar Chart E: Chart depicting cash and equivalents and short-term investments (dollars in millions) as follows: Year: 1995 1994 1993 ------------------------------------- Dollars: $212.4 $205.2 $134.7 Bar Chart F: Chart depicting cash provided by operations (dollars in millions) as follows: Year: 1995 1994 1993 ------------------------------------- Dollars: $153.5 $133.7 $170.1 EX-21 10 LIST OF SUBSIDIARIES EXHIBIT 21 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) Corona Gold Inc. (Nevada) Santa Fe Gold Inc. (Nevada) E & B Explorations Inc. (Delaware) Galveston Resources (Nevada), Inc. (Nevada) PRG Project Development Corp. (British Columbia) Prime Resources Group Inc. (British Columbia) - 50.6% Teck-Corona Operating Company (Ontario) - 50% 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 (South Australia) - 88.1% Homestake Australia Limited (South Australia) - 88.1% Homestake Gold (Queensland) Pty. Ltd. (Queensland) - 88.1% Homestake International Minerals Limited (California) Homestake Lead Company of Missouri (California) Homestake Nevada Corporation (California) Homestake Sulphur Company (Delaware) Homestake Venezuela, S.A. (Venezuela) Minera Rio Carichapo, S.A. (Venezuela) Minera Rio Marwani, S.A. (Venezuela) La Jara Mesa Mining Company (New Mexico) Minera Homestake Chile S.A. (Chile) Whitewood Development Corporation (California) EX-23 11 CONSENT OF COOPERS & LYBRAND L.L.P. EXHIBIT 23 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. 2-66538 on Form S-8; Post-Effective Amendment No. 1 to No. 33-48526 on Form S-8 (originally filed on Form S-4); Post-Effective Amendment No. 1 to No. 33-62667 on Form S-4 of our report dated February 9, 1996, appearing in and incorporated by reference in the Annual Report on Form 10-K of Homestake Mining Company for the year ended December 31, 1995. /s/ Coopers & Lybrand L.L.P. San Francisco, California March 21, 1996 EX-27 12 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1995 and the related Statement of Consolidated Income for the year ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1995 DEC-31-1995 145,957 66,416 58,046 0 69,979 368,717 1,697,737 850,961 1,321,633 98,421 185,000 0 0 140,541 495,316 1,321,633 715,842 746,365 581,488 618,771 30,831 0 11,297 85,466 39,141 30,327 0 0 0 30,327 0.22 0.00 Includes Production costs and Depreciation, depletion and amortization from Condensed Statement of Consolidated Operations. Includes Production costs and Depreciation, depletion and amortization and Administrative and general expense from Condensed Statement of Consolidated Operations. Includes Exploration expense and Other expense from Condensed Statement of Consolidated Operations.
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