-----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, MaYIuVWTYj1Ev/+GQYwhEW05sbpwp0t9WgA0O6czEkSBzE7lpO8ONtw80ZFeaRbe LFBxFbfvCrOnaY8FwSK2MQ== 0000929624-00-000427.txt : 20000328 0000929624-00-000427.hdr.sgml : 20000328 ACCESSION NUMBER: 0000929624-00-000427 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 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: SEC FILE NUMBER: 001-08736 FILM NUMBER: 579297 BUSINESS ADDRESS: STREET 1: 650 CALIFORNIA ST STREET 2: 9TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 BUSINESS PHONE: 4159818150 MAIL ADDRESS: STREET 1: 650 CALIFORNIA ST CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2788 10-K 1 HOMESTAKE MINING COMPANY 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 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 1-8736 HOMESTAKE MINING COMPANY (Exact name of registrant as specified in its charter) Delaware 94-2934609 (State of Incorporation) (I.R.S. Employer Identification No.) 650 California Street San Francisco, California 94108-2788 (Address of principal executive office) (Zip Code) (415) 981-8150 http://www.homestake.com (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $1.00 par value New York Stock Exchange, Inc. Rights to Purchase Series A Participating Cumulative Preferred Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: 5 1/2% Convertible Subordinated Notes Due June 23, 2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock* held by non-affiliates of the registrant was approximately $1,412,000,000 as of March 6, 2000. The number of shares of common stock outstanding as of March 6, 2000 was 260,475,201.* * Includes 6,646,998 Homestake Canada Inc. exchangeable shares that may be exchanged at any time for Homestake common stock on a one-to-one basis. Documents Incorporated by Reference: Specified sections of Homestake Mining Company's 1999 Annual Report to Shareholders, as described herein, are incorporated by reference in Parts I and II of this Form 10-K. The definitive Proxy Statement for the 2000 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1999, is incorporated by reference in Part III of this Form 10-K. HOMESTAKE MINING COMPANY AND SUBSIDIARIES PART I ITEM - 1 BUSINESS INTRODUCTION Homestake Mining Company ("Homestake" or "the Company") is a Delaware corporation incorporated in 1983 as the parent holding company of Homestake Mining Company of California ("Homestake California"), which has been engaged in the gold mining business since 1877. Homestake California was founded to develop the Homestake mine discovered in the Black Hills of the Dakota Territory in 1876. Homestake is one of the largest North American-based gold mining companies with current annual production of approximately 2.4 million gold equivalent ounces and reserves of approximately 18.8 million gold ounces and 110 million silver ounces at December 31, 1999. Homestake's operations include mineral exploration, extraction, processing, refining and reclamation. Gold bullion is Homestake's principal product. Ore and concentrates containing gold and silver from the Eskay Creek mine are sold directly to smelters. Homestake has significant operations in the United States, Canada and Australia. Homestake also has operations in Chile. Homestake is engaged in active exploration projects in the United States, Canada, Australia, Argentina, Chile and the Andean region of South America. In 1975, Homestake made its initial investment in the Kalgoorlie gold district of Western Australia (known as the Golden Mile) when Homestake Gold of Australia Limited ("HGAL") acquired a 48% interest in the Kalgoorlie Mining Associates ("KMA") partnership. In 1987, Homestake sold 20% of its shares of HGAL to the public. In 1989, HGAL increased its interest in KMA to 50% and acquired a 50% interest in adjacent joint ventures and properties. In late 1995 and early 1996, Homestake acquired the HGAL shares held by the public. In 1992, Homestake acquired International Corona Corporation, a large Canadian gold producer, subsequently renamed Homestake Canada Inc. ("HCI"). As a result of that transaction, Homestake acquired its 50% interests in the Williams and David Bell mines and also acquired interests in Prime Resources Group Inc. ("Prime") and Stikine Resources Limited ("Stikine"), the then owners of the Eskay Creek property. Prime and Stikine were subsequently combined and, through HCI, Homestake owned 50.6% of Prime. In 1998, Homestake acquired the 49.4% of the Prime shares held by the public and Prime was amalgamated with HCI. In 1998, Homestake acquired Plutonic Resources Limited ("Plutonic"), subsequently renamed Homestake Mining Company (Australia) Limited, the third largest Australian gold mining company. As a result of that transaction, Homestake acquired five operating mines in Western Australia and a large number of exploration tenement holdings, principally in Western Australia. In April 1999, Homestake acquired Argentina Gold Corporation ("Argentina Gold") (see "Significant 1999 and 2000 Developments" below). 2 SIGNIFICANT 1999 AND 2000 DEVELOPMENTS In January 1999, Homestake announced that due to continuing low gold prices and ongoing production shortfalls, the Pinson mine would be shut down. Homestake and its joint-venture partner Barrick Gold Corporation ("Barrick") are continuing exploration activities within the Pinson minesite and adjoining area. On April 29, 1999, Homestake completed the acquisition of Argentina Gold Corp., a publicly-traded Canadian gold exploration company. Homestake issued 20.9 million common shares to acquire all of the shares of Argentina Gold not owned by Homestake. The transaction has been accounted for as a pooling of interests and accordingly, Homestake's consolidated financial statements include Argentina Gold for all periods presented. Argentina Gold's principal asset is its 60% interest in the Veladero property located in northwest Argentina along the El Indio gold belt. In July 1999, the Company closed out US dollar denominated forward sales contracts covering 245,000 ounces of gold maturing in the years 2001, 2002 and 2003. The pretax gain of $35 million realized as a result of this transaction has been deferred and will be recorded in income as the originally designated production is sold. In September 1999, Homestake settled natural resource damage claims relating to tailings material discharged into Whitewood Creek in South Dakota prior to 1997. Under the terms of the settlement, Homestake agreed to pay $5 million in cash, purchase for $300,000 up to 3,300 acres of land owned by the United States Bureau of Land Management, donate 400 acres of Black Hills land and relinquish certain water rights upon closure of the Homestake mine. The cost of this settlement was recorded in 1998. During the third quarter of 1999, Homestake and Normandy Mining Limited began transitioning from contractor mining to owner mining at the Super Pit operations at Kalgoorlie. Homestake's share of equipment purchases (financed under capital leases) for the mining fleet totaled $23 million in 1999 and an additional $5.1 million is expected to be expended in 2000. Homestake expects Super Pit cash operating costs to be significantly reduced after the transition is complete in early 2000. In the fall of 1999, Homestake exercised its right under the sulfur joint operating agreement to not take and not pay for its share of the sulfur production in the year 2000. In December 1999, the operator, Freeport-McMoRan Sulphur LLC ("FMS") denied that Homestake had the right to make the election and that Homestake had made the election on a timely basis. Homestake filed suit in Delaware seeking a declaratory judgement affirming that it had the right to make the election and that it had made the election on a timely basis. Subsequently, FMS has refused to pay to Homestake amounts due to it, including amounts due under the oil and gas operating agreement, contending that it has a right to offset those amounts against amounts it claims to be due under the sulfur operating agreement. Homestake has amended its complaint in Delaware seeking damages against FMS for failing to pay the amounts due. FMS has filed its answer disputing Homestake's contention and also seeking declaratory relief and damages. In January 2000, FMS announced that it had reduced its proved sulfur reserves at year end 1999 to 13.7 million long tons, compared to 52.4 million long tons at December 31, 1998. In its announcement, FMS stated that "Although our estimate of physically producible sulfur has not changed, we have reduced our estimates of commercially recoverable reserves primarily based on our expectations of decreased production rates at the mine, partially offset by anticipated decreases in costs. These factors have also caused us to reduce the expected useful life of the 3 mine from 30 years to 10 years, which will result in an increase in abandonment and reclamation accruals by approximately $3.0 million per year. The price of sulfur is a critical factor in the determination of commercially recoverable reserves. A future increase in sulfur prices could result in a restoration of the reserves being reduced at year-end 1999." Based on the foregoing announcement, Homestake has reduced its share of reserves at the mine to 2.3 million tons as of December 31, 1999. In December 1999, the Australian Government enacted certain significant changes to the structure of taxation in Australia. These changes, which include reduced corporate tax rates and alterations to the rules that govern the determination of taxable income, resulted in a tax benefit of $1.8 million in the 1999 fourth quarter. This benefit reflects a reduction in the Company's net Australian deferred tax liabilities. During 1999, the Company recorded write-downs and unusual charges amounting to $20.4 million, including $10 million to write-off an exploration property, $1.7 million to write-down the carrying value of certain redundant equipment at the Kalgoorlie operations, $5.2 million to increase the estimated reclamation liability for certain non-operating properties in Western Australia, and $3.5 million to write-down an investment in an exploration joint venture in Eastern Europe. On March 7, 2000, the Company announced that the mineralized material at its 60%-owned Veladero project in northwestern Argentina had increased to 220.6 million tons at an average grade of 0.035 ounces of gold and 0.668 ounces of silver per ton. The increase is based on information compiled from 87 additional holes drilled from June 1999 in the Amable and Filo Federico deposits, as well as step-out holes drilled north and east of Amable and southeast of Filo Federico. GLOSSARY OF TERMS See "GLOSSARY AND INFORMATION ON RESERVES" beginning on page 40 for definitions of terms used in the following discussion. GOLD OPERATIONS The following tables present a statistical summary of the Company's gold operations for 1999 and 1998. 4
PRODUCTION ---------------------------------------------------------------------------- Homestake's 100 % Basis Homestake's Cash Share % Tons Grade Share/2/ of Cost Processed (Ounces Production Production per Ton Mine Year (000's) per ton) Recovery % (Ounces) (Ounces) (Dollars) - --------------------------------------------------------------------------------------------------------------------------- United States Homestake 100% 1999 1,249 0.171 100% 212,700 212,700 44.48 1998 2,075 0.141 95% 277,401 277,401 33.42 - ------------------------------------------------------------------------------------------------------------------------- Ruby Hill 100% 1999 1,222 0.115 88% 123,791 123,791 12.26 1998 1,324 0.098 90% 116,500 116,500 11.42 - ------------------------------------------------------------------------------------------------------------------------- McLaughlin 100% 1999 2,834 0.070 61% 121,487 121,487 11.76 1998 2,839 0.077 58% 128,680 128,680 10.32 - ------------------------------------------------------------------------------------------------------------------------- Round Mountain 25% 1999 52,908 0.017 541,808 135,452 2.11 1998 46,510 0.016 510,502 127,625 2.53 - ------------------------------------------------------------------------------------------------------------------------- Marigold 33% 1999 3,549 0.026 74,220 24,740 4.47 1998 3,215 0.027 71,936 23,979 5.26 - ------------------------------------------------------------------------------------------------------------------------- Total United States/6/ 1999 624,158 1998 691,472 - ------------------------------------------------------------------------------------------------------------------------- Canada Eskay Creek/3,4/ 100% 1999 193 3.138 95% 558,413 558,413 199.83 1998 162 3.195 95% 504,780 277,724 218.45 - ------------------------------------------------------------------------------------------------------------------------- Hemlo District Williams 50% 1999 2,681 0.166 95% 423,645 211,823 31.80 1998 2,720 0.152 95% 390,440 195,220 31.25 - ------------------------------------------------------------------------------------------------------------------------- David Bell/5/ 50% 1999 489 0.346 95% 210,423 93,380 63.74 1998 469 0.355 96% 204,996 91,167 67.97 - ------------------------------------------------------------------------------------------------------------------------- Hemlo District Total 1999 3,170 0.194 634,068 305,203 1998 3,189 0.182 595,436 286.387 - ------------------------------------------------------------------------------------------------------------------------- Total Canada/7/ 1999 905,899 1998 616,998 - ------------------------------------------------------------------------------------------------------------------------- Australia Kalgoorlie 50% 1999 11,670 0.070 88% 720,121 360,061 14.54 1998 12,472 0.071 89% 780,372 390,186 14.46 - ------------------------------------------------------------------------------------------------------------------------- Yilgarn District Plutonic 100% 1999 3,344 0.082 86% 236,453 236,453 10.94 1998 3,249 0.089 89% 255,456 255,456 17.37 - ------------------------------------------------------------------------------------------------------------------------- Darlot 100% 1999 760 0.156 96% 113,140 113,140 29.95 1998 738 0.111 95% 77,502 77,502 26.23 - ------------------------------------------------------------------------------------------------------------------------- Lawlers 100% 1999 669 0.166 95% 104,317 104,317 29.93 1998 630 0.208 96% 126,403 126,403 36.27 - ------------------------------------------------------------------------------------------------------------------------- Yilgarn District Total 100% 1999 4,773 0.106 453,910 453,910 1998 4,617 0.109 459,361 459,361 - ------------------------------------------------------------------------------------------------------------------------- Total Australia/8/ 1999 835,494 1998 925,700 - ------------------------------------------------------------------------------------------------------------------------- Chile Agua de la Falda 51% 1999 318 0.239 63% 47,860 24,409 28.80 1998 309 0.216 72% 47,292 24,119 30.76 - ------------------------------------------------------------------------------------------------------------------------- Jeronimo 51% 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Argentina Veladero 60% 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Totals 1999 2,389,960 1998 2,258,289 - ------------------------------------------------------------------------------------------------------------------------- Eskay Creek - Silver 100% 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Veladero - Silver 60% 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- ------------------------------ Total Total Cash Production Cost Costs per Ounce/1/ per Ounce/1/ (Dollars) (Dollars) - ----------------------------------------------------------------------------- United States Homestake 100% 1999 $261 $278 1998 249 295 - ----------------------------------------------------------------------------- Ruby Hill 100% 1999 104 240 1998 122 241 - ----------------------------------------------------------------------------- McLaughlin 100% 1999 223 337 1998 219 346 - ----------------------------------------------------------------------------- Round Mountain 25% 1999 198 268 1998 220 276 - ----------------------------------------------------------------------------- Marigold 33% 1999 207 248 1998 235 265 - ----------------------------------------------------------------------------- Total United States/6/ 1999 207 278 1998 221 295 - ----------------------------------------------------------------------------- Canada Eskay Creek/3,4/ 100% 1999 131 202 1998 133 169 - ----------------------------------------------------------------------------- Hemlo District Williams 50% 1999 201 235 1998 217 254 - ----------------------------------------------------------------------------- David Bell5 50% 1999 187 222 1998 195 231 - ----------------------------------------------------------------------------- Hemlo District Total 1999 197 231 1998 210 247 - ----------------------------------------------------------------------------- Total Canada/7/ 1999 157 212 1998 166 214 - ----------------------------------------------------------------------------- Australia Kalgoorlie 50% 1999 235 276 1998 229 278 - ----------------------------------------------------------------------------- Yilgarn District Plutonic 100% 1999 221 262 1998 226 292 - ----------------------------------------------------------------------------- Darlot 100% 1999 198 236 1998 250 282 - ----------------------------------------------------------------------------- Lawlers 100% 1999 189 214 1998 181 206 - ----------------------------------------------------------------------------- Yilgarn District Total 100% 1999 208 244 1998 218 266 - ----------------------------------------------------------------------------- Total Australia/8/ 1999 219 257 1998 224 271 - ----------------------------------------------------------------------------- Chile Agua de la Falda 51% 1999 189 278 1998 198 287 - ----------------------------------------------------------------------------- Jeronimo 51% 1999 1998 - ----------------------------------------------------------------------------- Argentina Veladero 60% 1999 1998 - ----------------------------------------------------------------------------- Totals 1999 192 246 1998 209 265 - ----------------------------------------------------------------------------- Eskay Creek - Silver 100% 1999 1998 - ----------------------------------------------------------------------------- Veladero - Silver 60% 1999 1998 - -----------------------------------------------------------------------------
5
RESERVES/(a)/ MINERALIZED/(b)/ MATERIAL - ------------------------------------------------------------------------------------------------------------------------------------ Homestake's 100 % Basis Share of 100 % Basis Grade Contained Contained Grade Tons (Ounces Ounces Ounces Tons (Ounces (000's) per ton) (000's) (000's) (000's) per ton) - ------------------------------------------------------------------------------------------------------------------------------------ United States Homestake 100% 1999 7,911 0.228 1,802 1,802 14,229 0.250 1998 11,118 0.216 2,401 2,401 12,113 0.259 - ------------------------------------------------------------------------------------------------------------------------------------ Ruby Hill 100% 1999 3,773 0.110 417 417 7,325 0.072 1998 5,082 0.109 553 553 7,325 0.072 - ------------------------------------------------------------------------------------------------------------------------------------ McLaughlin 100% 1999 7,825 0.056 438 438 -- -- 1998 10,934 0.057 626 626 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Round Mountain 25% 1999 320,062 0.018 5,875 1,469 126,244 0.016 1998 358,597 0.018 6,375 1,594 108,285 0.018 - ------------------------------------------------------------------------------------------------------------------------------------ Marigold 33% 1999 19,090 0.032 613 204 -- -- 1998 19,120 0.033 639 213 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total United States/6/ 1999 4,330 1998 5,387 - ------------------------------------------------------------------------------------------------------------------------------------ Canada Eskay Creek 3,4 100% 1999 1,610 1.496 2,409 2,409 499 0.435 1998 1,552 1.683 2,611 2,611 467 0.448 - ------------------------------------------------------------------------------------------------------------------------------------ Hemlo District Williams 50% 1999 27,992 0.144 4,028 2,014 8,171 0.118 1998 29,952 0.148 4,431 2,216 8,154 0.118 - ------------------------------------------------------------------------------------------------------------------------------------ David Bell/5/ 50% 1999 4,657 0.316 1,472 711 645 0.109 1998 5,013 0.298 1,495 711 645 0.109 - ------------------------------------------------------------------------------------------------------------------------------------ Hemlo District Total 1999 32,649 5,500 2,725 8,816 0.117 1998 34,965 5,926 2,927 8,799 0.117 - ------------------------------------------------------------------------------------------------------------------------------------ Total Canada/7/ 1999 5,134 1998 5,582 - ------------------------------------------------------------------------------------------------------------------------------------ Australia Kalgoorlie 50% 1999 203,046 0.067 13,530 6,765 208,250 0.076 1998 170,600 0.067 11,440 5,720 240,210 0.075 - ------------------------------------------------------------------------------------------------------------------------------------ Yilgarn District Plutonic 100% 1999 7,985 0.107 854 854 18,720 0.177 1998 9,281 0.073 677 677 23,188 0.181 - ------------------------------------------------------------------------------------------------------------------------------------ Darlot 100% 1999 8,660 0.148 1,280 1,280 3,424 0.112 1998 9,022 0.154 1,393 1,393 4,090 0.130 - ------------------------------------------------------------------------------------------------------------------------------------ Lawlers 100% 1999 2,331 0.152 355 355 3,530 0.124 1998 1,020 0.117 119 119 3,705 0.145 - ------------------------------------------------------------------------------------------------------------------------------------ Yilgarn District Total 100% 1999 18,976 0.131 2,489 2,489 25,674 0.161 1998 19,323 0.113 2,189 2,189 30,983 0.170 - ------------------------------------------------------------------------------------------------------------------------------------ Total Australia/8/ 1999 9,254 1998 7,928 - ------------------------------------------------------------------------------------------------------------------------------------ Chile Agua de la Falda 51% 1999 525 0.180 95 48 145 0.151 1998 670 0.185 124 63 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Jeronimo 51% 1999 16,595 0.169 1998 16,595 0.169 - ------------------------------------------------------------------------------------------------------------------------------------ Argentina Veladero 60% 1999 147,500 0.038 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Totals 1999 18,765 1998 18,960 - ------------------------------------------------------------------------------------------------------------------------------------ Eskay Creek - Silver 100% 1999 1,610 68.300 110,000 110,000 499 12.100 1998 1,552 72.700 112,816 112,816 467 11.700 - ------------------------------------------------------------------------------------------------------------------------------------ Veladero - Silver 60% 1999 147,500 0.680 1998 - ------------------------------------------------------------------------------------------------------------------------------------
Notes: /1/ Homestake reports per ounce production costs in accordance with the "Gold Institute Production Cost Standard." /2/ Homestake's share of production is shown net of minority interests. /3/ The Eskay Creek mine was owned 100% by Prime Resources Group Inc. ("Prime"). On December 3, 1998 Homestake acquired the 49.4% of Prime which it did not already own and subsequently, Prime was amalgamated with Homestake Canada Inc. The production amounts shown are Homestake's share excluding the minority interests' share of production. Production amounts include ounces payable in ore and concentrates sold to smelters. /4/ 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. For the years ended December 31, 1999 and 1998, the ratio was 52.7 and 52.6 ounces of silver equals one ounce of gold, respectively. Reserves and mineralized material relate to gold only. Silver reserves and mineralized material are shown at the bottom of the chart. /5/ The 100% production and Homestake's share of gold production amounts include 45,325 ounces and 11,331 ounces, respectively, from the Quarter Claim in both 1999 and 1998. Reserves include a 25% net profits interest in the Quarter Claim. /6/ Includes 5,988 ounces and 17,287 ounces of gold produced at the Pinson mine in Nevada during 1999 and 1998, respectively. /7/ Includes 42,283 ounces and 52,887 ounces of gold produced at the Snip mine in British Columbia, Canada during 1999 and 1998, respectively, and 44,000 ounces of gold contained in reserves at the Snip mine for the year ended December 31, 1998. /8/ Includes 21,523 ounces and 23,803 ounces of gold produced at the Peak Hill mine in Western Australia during 1999 and 1998, respectively, 52,350 ounces of gold produced at the Mt. Morgans mine in Western Australia during 1998, 19,000 ounces of gold contained in reserves at the Peak Hill mine for the year ended December 31, 1998. Definitions: /a/ A proven and probable reserve is that part of a mineral deposit which could be extracted or produced economically and legally at the time of the reserve determination. /b/ Mineralized material is gold-bearing material that has been physically delineated by one or more of a number of methods including drilling, underground work, surface trenching and other types of sampling. This material has been found to contain a sufficient amount of mineralization of an average grade of metal or metals to have economic potential that warrants further exploration evaluation. While this material is not currently or may never be classified as reserves, it is reported as mineralized material only if the potential exists for reclassification into the reserves category. This material has established geologic continuity, but cannot be classified in the reserves category until final technical, economic and legal factors have been determined and the project containing the material has been approved for development. 6 UNITED STATES Homestake conducts operations at the Homestake mine in the Black Hills of South Dakota, at the Ruby Hill mine in north central Nevada, and at the McLaughlin mine in northern California. In addition, Homestake owns a 25% interest in the Round Mountain mine and a 33.3% interest in the Marigold mine, each of which is located in central Nevada. The Company's principal exploration office is in Reno, Nevada. Homestake Mine - -------------- The Homestake gold mine is located in Lawrence County in and near Lead, South Dakota. The mine has been in operation since 1876. Homestake owns 100% of the operation. Paved public roads provide access to 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. The Homestake mine is comprised of underground mining operations, an ore processing plant, a wastewater treatment plant, and tailings disposal facilities. Open-pit (the "Open Cut") mining was completed in September 1998 and the processing of Open Cut stockpiles was completed during the fourth quarter of 1999. 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. The 7,400 tons-per-day ("TPD") capacity processing plant recovers gold through a combination of gravity, carbon-in-pulp ("CIP") and vat leaching processes. Recycled process water is pumped through a series of carbon columns to recover residual gold in solution. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. Process tails are used for underground fill or are deposited in a tailings impoundment facility three miles from the plant. As underground mining has progressed into the lower levels of the Homestake mine, the remaining higher-grade ore deposits have become narrower, less continuous and more difficult to mine, resulting in higher costs. To reduce operating costs, in 1998 the Company completed a restructuring of the underground operations that included a workforce reduction of 450 employees, closing parts of the mine and concentrating on substantially fewer production levels. In 1999, the Company completed additional optimization studies focused on reducing continuing infrastructure and other operating costs. As a result, an updated mine plan reflecting a gradual retreat of underground mining to levels above the 4,850-foot level was developed. The current long-term mine plan contemplates annual gold production of 170,000 to 200,000 ounces of gold. Capital expenditures during 2000 are expected to total $7.6 million. Capital expenditures during 1999 totaled $11.2 million, including $4.5 million for the purchase of new mobile equipment for the underground mining operations. The remaining capital primarily was for completion of a tailings dam lift and electrical upgrades. The final phase of a major tailings dam lift expansion, completed in the fourth quarter of 1999, will provide tailings storage capacity sufficient to hold projected mining activity for approximately 5 years. Facilities and equipment at this operation generally are in good operating condition, but the basic mine and major facilities have been in service for many years and are less efficient than mines and facilities developed more recently. 7 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. Approximately 70% of electric power consumption is purchased under contract from Black Hills Corporation and the remainder is provided by Homestake-owned hydroelectric facilities. Hourly employees at the Homestake mine are represented by the United Steel Workers of America. The current five-year contract expires in May 2003. During 1999, a Homestake employee responsible for certain environmental monitoring and reporting failed to conduct required sampling and failed to file reports, or filed reports with incorrect information. The employee was suspended and later terminated after the Company discovered the matter. The Company believes that the failure involved only sampling and reporting and that there were no resulting permit exceedences. The Company is cooperating with Federal and State environmental authorities in investigation of the matter. With this exception, the Company believes that during 1999, it operated in compliance with its environmental permits. No royalties are payable on production from the Homestake mine. The state of South Dakota 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. Geology The Homestake mine is the largest known iron formation hosted gold deposit. In its 124-year life, the mine has produced in excess of 40 million ounces of gold. The Homestake gold deposit is Proterozoic in age (approximately 1.9 billion years). Mineralization generally is stratabound within the Homestake Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has been intensely 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
1999 1998 ----- ------ Underground: Tons of ore (000) 7,911 10,528 Ounces of gold per ton 0.228 0.224 Contained ounces of gold (000) 1,802 2,360 Open Cut: Tons of ore (000) - 590 Ounces of gold per ton - 0.070 Contained ounces of gold (000) - 41 Total: Tons of ore (000) 7,911 11,118 Ounces of gold per ton 0.228 0.216 Contained ounces of gold (000) 1,802 2,401
8 Operating Data
1999 1998 ---- ---- Production Statistics: Tons of ore mined (000): Underground 821 495 Open Cut - 691 Ore grade mined (oz. gold/ton): Underground 0.226 0.221 Open Cut - 0.124 Open Cut stripping ratio (waste:ore) - 1.5:1 Tons of ore milled (000) 1,249 2,075 Mill feed ore grade (oz. gold/ton) 0.171 0.141 Mill recovery (%) 93 95 Gold recovered (000 ozs.) 213 277 Cost per Ounce of Gold Produced: Cash operating costs $256 $244 Other cash costs 5 5 Noncash costs 17 46 ------ ----- Total production costs $278 $295
In addition to depletion from mining during 1999, proven and probable ore reserves at the Homestake mine were reduced by 1.9 million tons containing an estimated 386,000 ounces of gold. The reduction reflects the removal of certain remote ore blocks and is consistent with the updated mining plan. Ruby Hill Mine - -------------- The Ruby Hill mine is located one mile northwest of Eureka, Nevada. The Ruby Hill mine commenced operations on January 1, 1998 and is 100% owned by Homestake. Access to the property is by a 1.2-mile gravel road from U.S. Highway 50. The Ruby Hill properties consist of approximately 24,831 acres, of which 23,386 acres are unpatented mining claims and 1,445 acres are privately owned. The operation utilizes conventional open-pit mining methods and heap leaching. High-grade ore is ground in a 900 TPD ball mill, leached and filtered, and then combined with crushed low-grade ore in a rotating agglomeration drum prior to being placed on an impermeable leach pad. Leaching occurs year round by applying a dilute cyanide solution to the ore to dissolve gold. The gold laden solution is collected and pumped to recovery plants where gold is recovered from solution through a carbon circuit. The recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. Water is obtained from on-site wells and power is purchased from Mount Wheeler Power Company. During 1999, the mine operated in compliance with all of its environmental permits. A production royalty of 3% of net smelter returns is payable on cumulative life-of-mine production over 500,000 ounces of gold. 9 Geology The West Archimedes gold mineralization is hosted primarily within brecciated jasperoid and decalcified limestones of the uppermost Goodwin and Antelope Valley units of the Ordovician Pogonip Group. The micron-size gold is finely disseminated and the orebody is entirely oxidized. Exploration and delineation drilling are continuing on several surface targets within the Ruby Hill claim block. Year-end Proven and Probable Ore Reserves
1999 1998 ----- ----- Tons of ore (000) 3,773 5,082 Ounces of gold per ton 0.110 0.109 Contained ounces of gold (000) 417 553
Operating Data 1999 1998 ----- ----- Production Statistics: Tons of ore mined (000) 1,078 1,153 Stripping ratio (waste:ore) 7.1:1 7.5:1 Tons of ore leached (000) 1,222 1,324 Ore grade leached (oz. gold/ton) 0.115 0.098 Recovery (%) 88 90 Gold recovered (000 ozs.) 124 117 Cost per Ounce of Gold Produced: Cash operating costs $ 97 $115 Other cash costs 7 7 Noncash costs 136 119 ---- ---- Total production costs $240 $241
McLaughlin Mine - --------------- The McLaughlin gold mine is located at the junction of Lake, Napa and Yolo Counties in northern California. The McLaughlin mine commenced operation in 1985 and is 100% owned by Homestake. Access to the property is by paved road. 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 property. Mining was completed in June 1996 and ore now is sourced exclusively from lower-grade stockpiles, which were built up over the life of the mine. The autoclave and flotation circuits were decommissioned following the completion of processing of high-grade ores. Ore currently is processed through an 8,000 TPD ball mill, and pumped through a five mile slurry pipeline to the process plant consisting of a direct-cyanidation circuit utilizing cyanide leaching followed by CIP circuits, pressure stripping and electrowinning. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. Process tails are deposited in a tailings impoundment facility adjacent to the process plant. The remaining capacity of the tailings impoundment is adequate to allow for the treatment of all stockpiled ore. Facilities are modern and in good operating condition. 10 Gold production is expected to continue through approximately 2002 although at lower production levels and higher cash costs per ounce as the known higher- grade portions of the remaining stockpiles were depleted in late 1999. 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-Energy Services. During 1999, there was one tailings spill and one temporary lapse in routine air quality monitoring resulting from fire damage to a monitoring station. Both incidents were reported and no environmental impact resulted. No enforcement or regulatory actions are expected for either incident. Other than these issues, the mine operated in compliance with all permits in 1999. McLaughlin mine royalties are equivalent to approximately 2% of revenues. Year-end Proven and Probable Ore Reserves
1999 1998 ----- ------ Stockpiled: Tons of ore (000) 7,825 10,934 Ounces of gold per ton 0.056 0.057 Contained ounces of gold (000) 438 626
Operating Data
1999 1998 ----- ----- Production Statistics: Tons of ore milled (000) 2,834 2,839 Mill feed ore grade (oz. gold/ton) 0.070 0.077 Mill recovery (%) 61 58 Gold recovered (000 ozs.) 121 129 Cost per Ounce of Gold Produced: Cash operating costs $217 $213 Other cash costs 6 6 Noncash costs 114 127 ---- ---- Total production costs $337 $346
Round Mountain Mine - ------------------- The Round Mountain gold mine is an open-pit mining operation located 60 miles north of Tonopah in Nye County, Nevada. Homestake owns a 25% interest in the mine. Echo Bay Mines Ltd. owns a 50% 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 property position consists of contiguous patented and unpatented mining claims covering approximately 27,500 acres. Patents have been filed for additional lode claims to cover all the current reserves in the ultimate pit. The issuance of the remaining patents is pending government review. 11 The operation uses conventional open-pit mining methods and recovers gold using four independent processing operations. These include crushed ore leaching (reusable pad), run-of-mine ore leaching (dedicated pad), milling of higher-grade nonoxidized ore, and the gravity concentration circuit. Oxide ore above a cut-off grade of 0.018 ounce per ton is crushed to less than 3/4 inches at a rate of up to 30,000 tons per day and conveyed to two parallel 1.5 million square foot asphalt reusable leach pads. This ore is leached with a weak cyanide solution for approximately 100 days, rinsed, removed and placed on the dedicated leach pad and releached. In 1999, 16,000 TPD (18,950 TPD in 1998) were processed on the reusable heap leach pad. Reusable pad volumes vary with ore release, which is determined by the phases of the pit being mined. Lower grade oxide ore (above a cut-off grade of 0.006 ounce per ton) and ore removed from the reusable leach pad are transported directly to a dedicated run-of-mine leach pad at a rate which averaged 120,000 TPD in 1999 (101,900 TPD in 1998). Ore is placed in 50-foot thick layers for leaching. After completion of an initial leaching cycle of approximately 100 days, additional layers of ore are placed until the heap reaches an ultimate height of 300 feet. The dedicated leach pad is constructed in phases, as capacity is needed. The existing dedicated leach pad covers approximately 16.4 million square feet and has a capacity of approximately 131 million tons of ore. Current mining rates consume nearly three to four million square feet of dedicated leach pad per year. Construction of an 8,000 TPD mill to treat higher-grade nonoxide ore was completed in 1997. The mill recovers more than 87% of the gold contained in nonoxidized ores above a cut-off grade of 0.018 ounces per ton using gravity concentration and cyanide leaching. The 500 TPD gravity concentration recovery circuit is used to process very high-grade ore containing coarse gold from several small, high-grade veins within the Round Mountain orebody. Gravity circuit tails are sent to the mill for further processing and disposal. Recovered gold is smelted onsite into dore and shipped to outside refineries for processing into bullion. Water is supplied from joint venture-owned wells on the property and from water reclaimed from tailings dams. Power is purchased under contract from Sierra Pacific Power Company. During 1999, there were five minor spills, two of hydrocarbons, two of process solution, and one minor sodium cyanide spill. All were reported and properly cleaned up and no enforcement or regulatory actions are expected. Other than this, the mine was in compliance with its permits in 1999. All Round Mountain mine production is subject to a royalty determined by a complex 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 to approximately 6.4% of gold revenues at prices of $440 per ounce of gold or more. During 1999, the royalties averaged 3.5 % of revenues. Geology The Round Mountain orebody 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. Primarily gold mineralization at Round Mountain occurs as 12 electrum, a natural gold/silver alloy, in association with quartz, adularia and pyrite. Narrow fractures in shear zones host a 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 overlaying alluvial placers. The oblong open-pit mine is over a mile at its longest dimension and currently more than 1,200 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)
1999 1998 ------- ------- Tons of ore (000) 320,062 358,597 Ounces of gold per ton 0.018 0.018 Contained ounces of gold (000) 5,875 6,375
Operating Data (100% Basis)
1999 1998 ------- ------- Production Statistics: Tons of ore mined (000) 32,925 22,920 Stripping ratio (waste:ore) 1.4:1 2.1:1 Tons of ore leached: Reusable pads (000) 5,741 6,842 Dedicated pad (000) 44,167 36,783 Weighted average ore grade placed on the pads (oz. gold/ton) 0.017 0.016 Leach recovery - reusable pads (%) 73 71 Tons of ore milled (000) 2,999 2,885 Ore grade milled (oz. gold/ton) 0.067 0.045 Mill recovery (%) 87 78 Gold recovered (000 ozs.) 542 511 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $188 $207 Other cash costs 10 13 Noncash costs 70 56 ------ ------ Total production costs $268 $276
13 Marigold Mine - ------------- The Marigold gold mine is located in Humboldt County approximately 40 miles southeast of Winnemucca, Nevada. Homestake owns a 33.3% interest in the Marigold partnership. Glamis Gold Ltd. owns the remaining interest and is the operator. The mine has operated since 1989. Access to the property is via a five-mile long gravel road. 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. Ore is mined using conventional open-pit methods and, through April 1999, was processed by either heap leaching or milling. Higher-grade ore was stockpiled and batch processed through a 1,250 TPD mill to maximize gold recovery. During 1999 the operation completed a study and determined the amount and quality of the available mill feed ore, in conjunction with low current market prices, would not justify further batch milling. Consequently, all production is now from heap leaching. The mill facilities have been placed on care and maintenance. Leaching occurs throughout the year by applying a weak cyanide solution to the ore to dissolve gold. Gold laden solution is collected and pumped to a recovery plant where gold is recovered from solution through a carbon circuit. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. Mine facilities are in good condition. During 1998, a pipeline was installed to supply water to the Marigold mine at no cost from a nearby pit-dewatering operation. Backup water is supplied from on-site wells. Power is purchased from Sierra Pacific Power Company. During 1999 the mine operated in compliance with all its environmental permits. Production royalties are paid to two leaseholders in amounts of 7% of net smelter returns and 3.5% of net profits, respectively. Geology Gold mineralization at the Marigold mine is hosted largely in the Permian Antler Formation and the Ordovician Valmy Formation and is associated with broad bands of silicification and local decalcification. Both stratigraphy and structure control the geometry of the mineralized zones. The orebodies 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)
1999 1998 ------ ------ Tons of ore (000) 19,090 19,120 Ounces of gold per ton 0.032 0.033 Contained ounces of gold (000) 613 639
14 Operating Data (100% Basis)
1999 1998 ------ ------ Production Statistics: Tons of ore mined (000) 3,491 3,191 Stripping ratio (waste:ore) 2.4:1 2.4:1 Tons of ore milled (000) 147 368 Ore grade milled (oz. gold/ton) 0.081 0.086 Mill recovery (%) 94 96 Tons of ore leached (000) 3,402 2,834 Ore grade leached (oz. gold/ton) 0.024 0.019 Gold recovered (000 ozs.) 74 72 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $188 $214 Other cash costs 19 21 Noncash costs 41 30 ----- ----- Total production costs $248 $265
Pinson Mine - ----------- The Pinson property is located in Humboldt County approximately 30 miles northeast of Winnemucca, Nevada. Homestake has a 50% interest in the Pinson Partnership and is the operator. Barrick Gold Corporation ("Barrick") owns the remaining interest. The mine began operation in 1981. The Pinson properties consist of approximately 36,615 acres of which 11,511 acres are held under leases. The remaining land is comprised of 21,800 acres of unpatented mining claims and 3,303 acres of primarily fee lands. Access to the property is by paved and gravel roads. In January 1999, due to continuing low gold prices and ongoing production shortfalls, the mine was shut down. In October 1999 the operation ceased adding additional cyanide to heap leach pads. Reclamation activities commenced and are still in process. In 1999, there were six spills, five of process fluid and one hydrocarbon spill. All spills were properly reported and cleaned up. No enforcement or regulatory actions are expected. Other than this, the mine operated in compliance with its permits for 1999. Production royalties averaging 3.5% of net smelter returns currently are payable on the principal producing areas of the property. Overall, the underlying property ownership is complex, requiring special arrangements with respect to the commingling of ore from various locations. During 1999, Homestake and Barrick spent a total of $3.1 million to explore for high-grade mineralized zones at depth at Pinson. This exploration program is expected to continue during 2000 at a similar expenditure level. 15 Geology The Pinson deposit includes more than six zones of mineralization largely hosted in carbonate rocks and calcareous siltstones of the Ordovician Comus Formation. Orebodies 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 investigations. Homestake has a 50% share of the following amounts: Operating Data (100% Basis)
1999 1998 ----- ----- Production Statistics: Tons of ore mined (000) 132 1,705 Stripping ratio (waste:ore) 3.0:1 5.3:1 Tons of ore milled (000) - 76 Ore grade milled (oz. gold/ton) - 0.072 Mill recovery (%) - 83 Tons of ore leached (000) 132 1,628 Ore grade leached (oz. gold/ton) 0.031 0.037 Gold recovered (000 ozs.) 12 35 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $234 $436 Other cash costs 8 10 Noncash costs - 39 ----- ----- Total production costs $242 $485
CANADA Homestake conducts operations at the Eskay Creek mine in northwestern British Columbia and has a 50% interest in the Hemlo operations in the Hemlo Gold Camp in Ontario and a 25% net profits interest in the adjacent Quarter Claim. Homestake also operated the recently-closed Snip mine in northwestern British Columbia. Homestake 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 - ---------------- Homestake owns 100% of the Eskay Creek gold/silver mine, located in northwestern British Columbia approximately 50 air miles north of Stewart, British Columbia. Access is by 38 miles of privately owned single-lane gravel road. A local company provides road maintenance and snow removal services under contract. The Eskay Creek mine commenced operations in 1995. The Eskay Creek property consists of five mining leases, 12 mineral claims and various other mineral and surface rights comprising approximately 4,630 acres. The leases have remaining terms of approximately 21 to 25 years, subject to renewal rights. 16 The mine is an underground operation accessible through three surface portals. Mining is conducted by a mining contractor using equipment owned by Homestake. The mine utilizes a drift-and-fill mining method with cemented rock backfill. Higher-grade ore is crushed and blended in a facility, located at the minesite, prior to shipment and sale to third party smelters. Some high-grade and lower-grade ore is sent to the 250 TPD onsite gravity and flotation mill for further processing and concentration. Concentrates produced by the mill are shipped and sold to third-party smelters and refineries. Mine waste rock and tailings from the mill are disposed of underwater in a nearby barren lake. The mine facilities and equipment are modern and in good condition. Eskay Creek personnel work rotations of two-weeks-on and two-weeks-off. Two long-term ore sale contracts with smelters in Japan and Quebec provide for combined ore sales of 99,200 tons annually, with options to increase sales to 132,300 tons, subject to mutual agreement with the smelters. Ore and concentrates are trucked by a contractor 164 miles to Stewart for shipment to Japan or 224 miles to Kitwanga, British Columbia for shipment to Quebec. A contract loading facility for ships at Stewart handles ore shipments destined for Japan and a company-owned loading facility is utilized at the railhead in Kitwanga for shipments of ore and concentrates to Quebec. Water is supplied from the Eskay and Argillite Creeks and power is produced onsite by diesel generators. During 1999, there were four occasions when water permit levels were exceeded. In all cases the cause was identified and the problem corrected. All incidents were reported to appropriate authorities. No enforcement or regulatory actions are expected. Otherwise the mine operated in compliance with its permit requirements in 1999. The mine is subject to a 1% net smelter royalty, with the exception of a small portion of the orebody, which is subject to a 2% net smelter royalty. There are aboriginal claims relating to areas of British Columbia and other parts of Canada, including a claim by the Tahltan Nation to the area which includes the Eskay Creek mine. The nature and extent and validity of such claims have not been determined. The mine has entered into several service contracts with the Tahltan Nation Development Corporation, and approximately 35% of the employees at the mine are members of the Tahltan Nation. Homestake believes that its relations with aboriginal groups, including the Tahltan Nation, are excellent. Homestake does not believe that aboriginal claims at Eskay Creek will have any material adverse effect. However, future exploration for and development of new mines in Canada could be slowed and could be adversely affected, depending on future legal developments in this area. The extent of any such effect, if any, is not known. (See "RISK FACTORS" beginning on page 48.) Geology The Eskay Creek orebody 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 generally is stratabound and occurs in a contact mudstone and breccia bounded below by 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. Gold occurs as mostly microscopic particles located between sulfide grains, in fractures within sulfide grains, or locked in pyrite. Gold also occurs in volcanic rocks beneath the contact mudstone, along with coarse-grained sphalerite, pyrite and galena in quartz veins or stockworks. 17 Year-end Proven and Probable Ore Reserves
1999 1998 -------- ------- Tons of ore (000) 1,610 1,552 Ore grade (ozs. gold/ton) 1.496 1.683 Contained ounces of gold (000) 2,409 2,611 Ore grade (ozs. silver/ton) 68.3 72.7 Contained ounces of silver (000) 110,000 112,816
Operating Data
1999 1998 -------- ------- Production Statistics: Tons of ore shipped (000) 114 101 Direct ore sales grade (ozs. gold/ton) 2.24 2.24 Direct ore sales grade (ozs. silver/ton) 95.4 90.7 Tons milled (000) 79 61 Mill grade (ozs. gold/ton) 1.10 1.24 Mill grade (ozs. silver/ton) 38.6 36.4 Mill recovery - gold % 94 92 Mill recovery - silver % 95 95 Gold production (000 ozs.) 309 282 Silver production (000 ozs.) 13,145 11,723 Total gold equivalent ounces /1/ (000 ozs.) 558 505 Cost per Ounce of Gold Equivalent Produced: Cash operating costs/2/ $129 $130 Other cash costs 2 3 Noncash costs/3/ 71 36 ----- ----- Total production costs $202 $169
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 average gold market price to the average silver market price. The ratio was 52.7 ounces and 52.6 ounces of silver equals one ounce of gold equivalent for production calculations for the years ended December 31, 1999 and 1998, respectively. 2. For comparison purposes, cash operating costs per ounce include estimated third-party costs incurred by smelter owners and others to produce marketable gold and silver. 3. In 1999, higher noncash costs per ounce reflect amortization of the purchase price allocation following the December 1998 acquisition of the Prime minority interests. Hemlo Operations - ---------------- The Hemlo operations, comprised of the Williams and David Bell mines, are located in the Hemlo Gold Camp 217 miles east of Thunder Bay, Ontario, adjacent to the TransCanada Highway. Williams Operating Corporation ("WOC") operates the Williams mine and the Teck-Corona Operating Corporation ("TCOC") operates the David Bell mine, each with its own personnel. Homestake and Teck Corporation ("Teck") each own a 50% interest in the mines and in WOC and TCOC. Operations commenced in 1985. 18 The Hemlo properties consist of 13 freehold patents and one Crown mining lease covering approximately 1,020 acres. Homestake and Teck provide funds equally for all costs incurred to operate the mines and have mutual rights of first refusal over each other's interests in the mines and operating companies. The Williams mine is an underground operation accessible by a 4,300-foot shaft. The mine utilizes the longhole, open-stope mining method with cemented and uncemented rock backfill. In addition, up to 1,400 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 David Bell mine also is an underground operation, which is accessible by a 3,819-foot shaft. Production is from stopes using longhole and Alimak mining methods. Cement, tailings, sand and waste rock are utilized as backfill. The average width of ore at the David Bell mine is decreasing as mining progresses away from the central core of the orebody. Ore from the David Bell mine is hauled by truck to the Williams mill. Since June 1999, ore from both of these operations is treated at the Williams mill. Although the rated capacity of the mill is 7,000 TPD, the mill has been operating at over 8,000 TPD during the fourth quarter of 1999. In addition, permit modifications to allow processing of up to 10,000 TPD are in process. Tailings are deposited in a basin facility located approximately two miles from the mill. Cyanidation and the CIP process are used to recover gold. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. Water from the tailings basin is treated in an effluent treatment plant prior to discharge. Mill make-up water is recycled from the tailings pond. The facilities and equipment are modern and in good condition. Through May 1999, ore from the David Bell mine was processed in the 1,100 TPD David Bell mill. The decision to close the David Bell mill resulted from a detailed engineering study indicating that closure of the mill would result in significant cost savings without reducing Hemlo operations production levels. A rock burst of magnitude 2.9 on the Richter scale occurred at the Williams mine in March 1999. In response, additional precautions, including implementation of an extensive seismic monitoring system, have been undertaken. Ground conditions will require monitoring over the remaining mine life. Fresh water for the property is supplied from Cedar Creek and power is purchased under long-term contract from Ontario Hydro. Propane for heating mine air and surface facilities also is purchased under contract. The hourly work force at David Bell is represented by the United Steel Workers of America. A new three-year contract was signed in April 1999. During 1999, there were 11 spills, five hydrocarbons, one lime and five of mine/process water, all of which were reported. There was no environmental impact from the spills and no enforcement or regulatory actions are expected. Otherwise the mine operated in compliance with its permits in 1999. The mining claims at the Williams mine 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%. The mining claims at the David Bell mine are subject to 3% net smelter royalty. 19 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 orebodies lie along the contact between overlying metasedimentary rocks and underlying volcanic rocks. Gold mineralization is hosted primarily by a fine- grained feldspar porphyry unit and is associated with pyrite, barite and molybdenite. Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves (100% Basis) 1999 1998 --------- -------- Tons of ore (000) 32,267 34,400 Ounces of gold per ton 0.1674 0.1680 Contained ounces of gold (000) 5,401 5,780
Operating Data (100% Basis) 1999 1998 --------- -------- Production Statistics: Williams: Tons of ore milled (000) 2,681 2,720 Mill feed ore grade (oz. gold/ton) 0.166 0.152 Mill recovery (%) 95 95 Gold recovered (000 ozs.) 424 390 David Bell: Tons of ore milled (000) 489 469 Mill feed ore grade (oz. gold/ton) 0.346 0.355 Mill recovery (%) 94 96 Gold recovered (000 ozs.) 164 160 Combined Production Statistics: Tons of ore milled (000) 3,170 3,189 Mill feed ore grade (oz. gold/ton) 0.194 0.182 Mill recovery (%) 95 95 Gold recovered (000 ozs.) 588 550 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $192 $205 Other cash costs 6 7 Noncash costs 35 38 ------ ----- Total production costs $233 $250
20 Quarter Claim - ------------- The Quarter Claim constitutes approximately one-fourth of a mining claim, originally part of the David Bell property, which was optioned to and subsequently acquired by Battle Mountain Gold Company ("Battle Mountain") in 1982. Battle Mountain 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. The net profits interest is based on a deemed production rate, deemed production costs and the market price of gold. Until deemed cumulative production from January 1, 1995 is equal to 95% of the estimated reserves as of January 1, 1995, the deemed production rate is based upon committed throughput of 500 TPD multiplied by (a) the average ore grade of the January 1, 1995 reserves, and (b) a recovery factor. Thereafter, Homestake's interest is reduced to a 20% net profits interest calculated on actual production. Geology See "Hemlo Operations- Geology." Homestake has a 25% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1999 1998 ------- ------- Tons of ore (000) 382 565 Ounces of gold per ton 0.259 0.258 Contained ounces of gold (000) 99 146
Operating Data (100% Basis)
1999 1998 ------- ------- Production Statistics: Tons of ore milled (000) 183 183 Mill feed ore grade (oz. gold/ton) 0.257 0.257 Mill recovery (%) 96 96 Gold recovered (000 ozs.) 45 45 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $156 $157 Other cash costs 8 8 Noncash costs 2 2 ------- ------- Total production costs $166 $167
Snip Mine - --------- The 100%-owned Snip gold mine was located at the junction of Bronson Creek and the Iskut River, 56 air miles north of Stewart in northwestern British Columbia. The mine commenced operations in 1991. All mining and milling activities were completed during the second quarter of 1999 with the depletion of minable reserves. Reclamation commenced immediately and was completed early in the fourth quarter of 1999. Follow up inspections of the site are planned for the spring of 2000. 21 There was one hydrocarbon spill during 1999, which was properly reported and cleaned up. In addition, a number of total suspended solids permit exceedences occurred during the reclamation of the tailings pond as a result of high rainfall during reclamation operations. These were reported to the regulatory authorities and no enforcement or regulatory actions are expected. Other than this, the mine operated in compliance with its permits in 1999. Year-end Proven and Probable Ore Reserves
1999 1998 -------- -------- Tons of ore (000) - 66 Ounces of gold per ton - 0.662 Contained ounces of gold (000) - 44
Operating Data
1999 1998 ------- -------- Production Statistics: Tons of ore milled (000) 71 160 Mill feed ore grade (oz. gold/ton) 0.665 0.693 Mill recovery (%) 92 92 Gold recovered (000 ozs.) 42 99 Cost per Ounce of Gold Produced: Cash operating costs $208 $205 Noncash costs - 142 ------- -------- Total production costs $208 $347
AUSTRALIA Homestake owns 50% of the surface and underground operations at Kalgoorlie, Australia's largest gold mining operation, and conducts gold mining operations at the Plutonic, Darlot and Lawlers mines. Homestake has five closed properties currently undergoing reclamation. These properties are the Bellevue, the Paddy's Flat, the Marymia, the Mt Morgans and the Peak Hill mines (a 66 2/3% Homestake-owned property that completed operations in November 1999). All of these mines are located in Western Australia. Homestake explores for gold throughout Australia, principally in Western Australia. Australian activities are managed from an office in Perth, Western Australia. On July 1, 1998, a gold royalty became payable to the State of Western Australia at a rate of 1.25% on the realized value of gold produced, increasing to 2.5% on July 1, 2000. The realized value is based on the spot price of gold. During the period July 1, 2000 through June 30, 2005 the royalty rate will be reduced to 1.25% during calendar quarters when the spot gold price is less than A$450 per ounce. Kalgoorlie Operations - --------------------- The Kalgoorlie operations are located adjacent to the town of Kalgoorlie approximately 340 miles northeast of Perth, Western Australia. Homestake owns a 50% interest in the Kalgoorlie operations. Subsidiaries of Normandy Mining Limited ("Normandy") own the other 50% interest. Homestake and Normandy jointly own and control Kalgoorlie Consolidated Gold Mines Pty Ltd ("KCGM"), which manages the operations under the direction of a joint management committee. 22 Homestake acquired its interest in the original KMA joint venture in 1975. Mining operations in the Kalgoorlie region date back to 1893. Access to the operations is by paved road. The Kalgoorlie properties consist of 164 state leases and licenses covering approximately 30,000 acres. The mineral leases were granted for a term of 21 years on conditions covering rental, royalties, expenditure conditions and reporting. They are renewable in the final year. The Kalgoorlie operations are comprised of two mines, the Super Pit open- pit mine and the Mt Charlotte underground mine. Ore from both of these operations is treated at the Fimiston mill. Sulfide concentrates produced at the Fimiston mill are roasted and leached at the Gidji roaster, located 12 miles north of the main Kalgoorlie operations. Gold-laden carbon from the Gidji roaster is sent to the Fimiston mill for processing. Dore produced onsite is shipped to offsite refiners for refinement into gold bullion. The facilities and equipment at the Kalgoorlie operations are in good condition. The Super Pit mine is located along the "Golden Mile" orebodies previously mined from underground. Until recently, contractors had been employed to conduct the open-pit mining operations, ore and concentrate haulage and some specialized services. In the 1999 third quarter, Homestake and Normandy began progressively transferring mining operations from the open-pit mining contractor to owner mining. Owner mining is by conventional open-pit mining methods with an equipment fleet comprised of three 44-cubic yard hydraulic shovels and twenty 240-ton haul trucks. Homestake's share of the total cost of the conversion project, including the mining fleet acquisition is estimated to be approximately $28 million. Homestake's portion of the fleet cost is financed by capital leases. Once the conversion to owner mining is completed in the first quarter of 2000, Homestake expects Super Pit cash operating costs to be significantly reduced. The Mt Charlotte mine uses bulk mining methods and large conventional diesel powered loaders and trucks. Ore is hauled to surface using a 1.6-mile decline at the northern end of the Super Pit and is trucked to the Fimiston mill. The current mine plan extends to August 2000, but performance of the mine will be monitored to determine whether the operation will continue until that date. The Fimiston mill is a 35,000-TPD mill with CIP leaching and refractory sulfide flotation circuits. The mill processed 11.7 million tons of ore in 1999 and 12.5 million tons in 1998. In June 1998, cracks were discovered in the girth gear of the Fimiston SAG mill. Temporary repairs were made and the SAG mill was limited to 90% of rated power from July 1998 until May 1999 when a permanent replacement gear was installed. Underwriters of KCGM's property and business interruption insurance policies have acknowledged liability and the extent of recovery is being determined. During 1999, the Company received insurance proceeds of $4.8 million. The Gidji roaster complex, which comprises two roasters and a CIP circuit, processes all sulfide concentrates produced at the Fimiston mill. The Gidji roaster processed 0.2 million tons of concentrate in 1999 compared to 0.3 million tons in 1998. Fresh water is supplied under allocation from the state water system and is piped 340 miles from Perth. Remaining process water requirements are satisfied using salt water taken from wells and the underground mine. Power is provided under a power supply agreement with Normandy Power Pty Ltd, a company associated with Normandy. During 1999, the Kalgoorlie operations operated in compliance with all environmental permits and regulations. 23 With the exception of the royalty payable to the State of Western Australia there are no royalties currently payable on production from the Kalgoorlie mines. There are a number of native title claims relating to the area of the Kalgoorlie operations, but the validity of those claims has not been determined. See "Risk Factors." Geology The ore deposits mined in the Kalgoorlie gold fields 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 48 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 zones, which characterize the Mt Charlotte and Reward (underground) orebodies. Homestake has a 50% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1999 1998 ------- -------- Tons of ore (000) 203,046 170,600 Ounces of gold per ton 0.067 0.067 Contained ounces of gold (000) 13,530 11,440
Operating Data (100% Basis)
1999 1998 ------- -------- Production Statistics: Super Pit: Tons of ore mined (000) 10,391 10,791 Stripping ratio (waste:ore) 5.7:1 5.6:1 Tons of ore milled (000) 9,958 10,697 Mill feed ore grade (oz. gold/ton) 0.068 0.069 Mill recovery (%) 88 88 Gold recovered (000 ozs.) 590 651 Mt Charlotte: Tons of ore mined (000) 1,686 1,916 Tons of ore milled (000) 1,711 1,775 Mill feed ore grade (oz. gold/ton) 0.081 0.081 Mill recovery (%) 91 91 Gold recovered (000 ozs.) 130 130 Combined Production Statistics: Tons of ore mined (000) 12,077 12,707 Tons of ore milled (000) 11,669 12,472 Mill feed ore grade (oz. gold/ton) 0.070 0.071 Mill recovery (%) 88 89 Gold recovered (000 ozs.) 720 780
24 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $231 * $228 Other cash costs 4 1 Noncash costs 41 49 ---- ---- Total production costs $276 $278
* Reflects credit for insurance proceeds of $4.8 million. Plutonic Mine - ------------- The Plutonic mine is located 110 miles northeast of Meekatharra, Western Australia, approximately 8 miles from the Great Northern Highway. Homestake owns 100% of the Plutonic mine. The mine commenced production in August 1990. The Plutonic properties, including the adjoining Marymia property, encompass an area of approximately 322,000 acres, consisting of 109 mining leases, three prospecting licenses, eight exploration licenses and three miscellaneous licenses. Homestake also holds the pastoral lease on which the mine is located. The Plutonic mine consists of both open-pit and underground operations. Underground operations are the primary source of ore although open-pit mining of several smaller pits continues. Ore mined from the underground and the open-pits is being supplemented with ore from stockpiles. Approximately 126 staff employees and 229 contractor personnel work on two-weeks-on and one-week-off rotations on a fly-in fly-out basis. The Plutonic mine mineralization consists of multiple discrete lodes. Extensive mineralized material has been defined by wide-spaced surface drilling but detailed drilling from underground development openings is required for conversion of the mineralized material to reserves. Definition drilling continues in several areas of the mine to define reserves and facilitate mine planning. Initial underground development commenced early in 1995. Capital expenditures of approximately $10 million and $13 million were incurred during 1999 and 1998, respectively, primarily for underground mine development. The underground mine consists of three main working areas accessed by three separate declines, extending to a depth of 1,400 feet below surface. Mining methods vary depending on the particular working area and include development, uphole retreat, open stoping and flat dip room and pillar mining. Mining is performed by contractors using mechanized trackless systems with technical supervision and control provided by Homestake employees. Ore is hauled to the surface by 45-ton trucks. Underground ore production during 1999 and 1998 was 826,000 tons and 668,000 tons, respectively. Open-pit mining using selective mining techniques is performed by a mining contractor. The contractor uses a 110-ton excavator and a fleet of 95-ton trucks. The mill has the capacity to treat approximately 2 million tons of sulfide ore and 1.3 million tons of oxide ore per year in separate oxide and sulfide circuits. Both circuits utilize crushing, grinding and cyanidation in carbon- in-leach tanks. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. The sulfide circuit's gold recovery ranges from 83% to 96% depending on the ore source and mineralogy, and the oxide circuit's gold recovery is approximately 96%. All plant and equipment is modern and in good condition. 25 Potable quality process water is sourced from two well fields with most coming from wells located approximately 7.5 miles from the mine. An onsite gas- fired power station with a rated station capacity of 19MW was commissioned in 1997. Purchased gas is provided via a 12.5-mile line from the Gold Fields Gas Transmission pipeline. During 1999 the mine operated in compliance with all of its environmental permits and all regulations. With the exception of the royalty payable to the State of Western Australia, the underground operations are not subject to any royalties. However, 16 mining leases which contain a relatively small proportion of the mine's overall reserves and mineralized material, are subject to a royalty based on tonnage and grade. Geology Gold lodes predominantly occur within mafic volcanics in an Archean sequence of ultramafic volcanics, mafic volcanics and sediments. The sequence in the immediate mine area consists of upper and lower ultramafic volcanic units separated by a dominantly mafic volcanic unit. Gold mineralization occurs within multiple, sub-parallel, northwest striking lodes, which generally dip in a northeast direction. The lodes are hosted mainly by the mafic volcanic unit. Lodes range from three to thirty-five feet thick and display good continuity often for several hundred feet. Gold is associated with sulphides, particularly arsenopyrite and pyrrhotite. Year-end Proven and Probable Ore Reserves
1999 1998 -------- --------- Tons of ore (000) 7,985 9,281 Ounces of gold per ton 0.107 0.073 Contained ounces of gold (000) 854 677
Operating Data
1999 1998 ----- ----- Production Statistics: Tons of ore mined (000) 1,278 1,887 Ore grade mined (oz. gold/ton) 0.159 0.113 Tons of ore milled (000) 3,344 3,249 Mill feed ore grade (oz. gold/ton) 0.082 0.089 Mill recovery (%) 86 89 Gold recovered (000 ozs.) 236 255 Cost per Ounce of Gold Produced: Cash operating costs $216 $224 Other cash costs 5 2 Noncash costs 41 66 ----- ----- Total production costs $262 $292
26 Darlot Mine - ----------- The Darlot mine is located 70 miles north of Leonora, Western Australia. Homestake's property covers an extensive gold field discovered more than 100 years ago. Modern mining commenced in 1988. The mine is now an entirely underground operation. Homestake owns 100% of the Darlot mine. The Darlot properties encompass an area of approximately 34,200 acres, consisting of 16 mining leases, 32 prospecting licenses and one exploration license. The Darlot and Centenary orebodies are contained on a mining lease located on a pastoral lease. The mining lease was granted in 1988 for 21 years and is renewable. The Darlot mine consists of two separate orebodies, the Darlot orebody, where mining was completed in 1999, and the Centenary orebody discovered in 1996 approximately three-quarters of a mile from the Darlot deposit. The Darlot mine is a fly-in fly-out operation with approximately 62 staff employees and 115 contractor personnel working two-weeks-on and one-week-off rotations. Access to the Centenary orebody is through an extension of the Darlot decline, which intersects the Centenary orebody approximately 1,100 feet below surface. A raise bored shaft provides ventilation and emergency egress for the mine. Work on a second decline for access to and ventilation of the deeper lode structures was completed in January 2000. Sub-level stoping of the thick central section of the Centenary orebody began in 1998. This central section of the orebody contributed most of the mill feed for the operation in 1999. Backfilling will be required to achieve full extraction of the central section of the orebody. Construction of a cemented aggregate backfill plant was completed in December 1999 at a cost of $2.2 million. The thinner extremities of the orebody currently are being developed and will be suitable for sub-level open stoping or room and pillar stoping. The treatment plant consists of a three-stage crushing circuit, primary and secondary ball mills, CIP leaching, adsorption and gold recovery circuits. The crushing plant is owned and operated by a contractor. Coarse gold, which represents approximately 25% of total production, is recovered in a gravity circuit. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. The mill was upgraded during 1999 to improve the efficiency of processing the higher-grade Centenary ore. Ore capacity is approximately 700,000 tons per annum. The treatment plant is in good condition. Two new generators were commissioned in early 1998, which together with other Homestake-owned facilities provide power to the site. Water is obtained from wells five miles from the treatment plant. During 1999, the mine operated in compliance with all of its environmental permits and regulations. With the exception of the royalty payable to the State of Western Australia, the Darlot mine is not subject to any royalties. 27 Geology Darlot is situated within an Archean sequence of mostly intrusive and extrusive mafic rocks, and occurs within a corridor of north-northwest trending structures. The Centenary orebody is a large, structurally controlled, quartz vein hosted gold deposit. The lode, which extends for more than three-quarters of a mile, varies from 15 feet to more than 160 feet in thickness. The full extent of the lode is not yet known. Year-end Proven and Probable Ore Reserves
1999 1998 ------- ------- Tons of ore (000) 8,660 9,022 Ounces of gold per ton 0.148 0.154 Contained ounces of gold (000) 1,280 1,393
Operating Data
1999 1998 ------- ------- Production Statistics: Tons of ore mined (000) 733 795 Ore grade mined (oz. gold/ton) 0.161 0.100 Tons of ore milled (000) 760 738 Mill feed ore grade (oz. gold/ton) 0.156 0.111 Mill recovery (%) 96 95 Gold recovered (000 ozs.) 113 78 Cost per Ounce of Gold Produced: Cash operating costs $195 $248 Other cash costs 3 2 Noncash costs 38 32 ------ ------ Total production costs $236 $282
Lawlers Mine - ------------ The Lawlers mine is located 75 miles northwest of Leonora, Western Australia. Homestake owns 100% of the 100-year-old mine, which was reopened in 1986. The Lawlers mine properties consist of two groups of contiguous tenements consisting of three exploration licenses, 89 prospecting licenses and 13 mining leases totaling approximately 68,800 acres. Mining leases vary in date of grant and expiry. One mining lease, from which production currently is derived, was granted by the Western Australian Government after January 1, 1994. See "Risk Factors - Risk of Native Title Claims." The Lawlers mine consists of both open-pit and underground mining operations. The mine is a fly-in fly-out operation with approximately 49 staff employees and 111 contractor personnel working on two-weeks-on and one-week-off rotations. During 1999, production principally was derived from the New Holland and Genesis underground operations. Mining is conducted by a contractor using room-and-pillar underground mining methods. 28 The Lawlers treatment plant is capable of treating between 550,000 and 770,000 tons per annum of oxide, transition and primary ore, depending on the blend. Three-stage crushing is followed by single-stage milling through two parallel ball mills. The grinding circuit includes a gravity circuit to recover coarse gold. Approximately 50% to 60% of the operation's total gold production is recovered in the gravity circuit. The grinding circuit slurry is transferred to a conventional CIP circuit. Recovered gold is smelted onsite into dore and shipped to an outside refinery for processing into bullion. The treatment plant was upgraded during 1999 to improve the efficiency of processing the higher- grade underground ore. Power is supplied by contract diesel generators. Good quality process water is obtained from wells 10 miles northeast of the plant. In October 1998, Homestake announced the results of a continuing exploration program along the Glasgow Lass Trend, which includes the New Holland, Genesis and Hidden Secret pits. The drilling results verify continuity of mineralization along the Glasgow Lass Trend and indicate the potential for an expansion of reserves and mineralized material in the vicinity of the Lawlers mine. During 1999, the mine submitted an annual environmental report late to a government agency. Other than this, the mine operated in compliance with its permits in 1999. With the exception of the royalty payable to the State of Western Australia, the Lawlers mine is not subject to any royalties. Geology Gold ore is derived from two distinct geological domains, a western sedimentary domain (New Holland) and an eastern mafic/ultramafic volcanic domain (Fairyland). The western area deposits are high-grade ladder quartz veins within sandstone units enclosed in finer grained sediments. Exploration involves deep, close-spaced drilling to locate high-grade, shallow plunging ore shoots within the favorable rock unit. The eastern domain is part of the nickeliferous Agnew-Mt Keith-Yakabindie-Honeymoon Well sequence, which hosts major nickel deposits north of Lawlers. Year-end Proven and Probable Ore Reserves
1999 1998 ---------------- --------------- Tons of ore (000) 2,331 1,020 Ounces of gold per ton 0.152 0.117 Contained ounces of gold (000) 355 119 Operating Data 1999 1998 ---------------- --------------- Production Statistics: Tons of ore mined (000) 354 788 Ore grade mined (oz. gold/ton) 0.169 0.131 Open pit stripping ratio (waste:ore) - 7.5:1 Tons of ore milled (000) 669 630 Mill feed ore grade (oz. gold/ton) 0.166 0.208 Mill recovery (%) 95 96 Gold recovered (000 ozs.) 104 126
29 Cost per Ounce of Gold Produced: Cash operating costs $186 $179 Other cash costs 3 2 Noncash costs 25 25 ------- ------- Total production costs $214 $206
Mt Morgans - ---------- The Mt Morgans property is located 30 miles west of Laverton, Western Australia and is now owned 100% by Homestake. The Mt Morgans gold field has been operated intermittently since 1896. The Mt Morgans properties consist of six exploration licenses, 117 prospecting licenses and 27 mining leases totaling approximately 113,700 acres. The principal mining leases were all granted prior to January 1, 1994. The Mt Morgans mine completed mining and processing operations in 1998. The treatment plant has been decommissioned and selected elements have been sold. A comprehensive clean-up of the plant and camp area was initiated in May 1999 and is scheduled to be completed by April 2000. Reclamation earthworks commenced in November 1999 and are scheduled to be completed by April 2000. A contaminated groundwater plume from the tailing storage facility exists. Monitoring bores contain the plume and are returning the water to compliance levels by pumping the contaminated water back into the tailings facility. Except for the foregoing, the property operated in compliance with all of its permits and all regulations during 1999. In 1998, mineralized material totaling 510,000 ounces was identified at the Just-In-Case project near the southern boundary of the Mt Morgans mine property. This resource is an extension of the adjacent Wallaby deposit controlled by the Granny Smith joint venture. Active exploration continues on the property, and recent exploration results in the Just-In-Case target area continue to be very promising. Peak Hill Mine - -------------- The recently closed Peak Hill mine is located 80 miles north of Meekatharra, Western Australia. Homestake owns a 66.67% interest in the Peak Hill joint venture. North Limited owns the remaining interest and will continue to be the operator of the Peak Hill mine during the decomissioning and rehabilitation period. The Peak Hill properties consist of two exploration licenses, 41 prospecting licenses and 18 mining leases totaling approximately 44,200 acres. Homestake has extensive non-joint venture exploration interests in the region surrounding the Peak Hill mine. In total, Homestake has thirteen projects in the Peak Hill District, including eight joint ventures, totaling approximately 101 tenements on 137,000 acres. Processing of stockpiled ore was completed in November 1999. Final reclamation has commenced and is expected to continue through the end of 2000. The plant, which is being offered for sale as a complete package, has a capacity of 660,000 tons of soft oxide ore per year. It consists of a SAG/ball mill grinding circuit with a conventional CIP and pressure Zadra elution circuit. 30 A contaminated groundwater plume from the tailing storage facility exists. Contaminated water is collected and pumped back to the tailings facility to improve water quality. With the exception of the foregoing, the mine operated in compliance with all of its environmental permits and all regulations. Geology Gold mineralization occurs as multiple lodes within altered Proterozoic mafic volcanics. Weathering extends to 100 meters beneath a well-developed laterite profile. Homestake has a 66.67% share of the following amounts: Year-end Proven and Probable Ore Reserves
1999 1998 -------- --------- Tons of ore (000) - 605 Ounces of gold per ton - 0.046 Contained ounces of gold (000) - 28
Operating Data
1999 1998 ------- -------- Production Statistics: Tons of ore milled (000) 649 702 Mill feed ore grade (oz. gold/ton) 0.050 0.052 Mill recovery (%) 98 97 Gold recovered (000 ozs.) 32 36 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $ 180 $ 279 Other cash costs 3 1 Noncash costs 9 27 ------ ------ Total production costs $ 192 $ 307
Bellevue - --------- The Bellevue property is located 110 miles north of Leonora and 75 miles south of Wiluna, Western Australia. The property is 100% owned by Homestake. The area has been mined since 1896. Operations at Bellevue ceased in April 1997. The Bellevue tenements comprise nine mining leases, eight prospecting licenses and two exploration licenses. Four mining leases were granted prior to January 1, 1994. The treatment plant, mine camp and all other infrastructure was disposed of in 1999. All open-pit dumps have been contoured and the No. 1 tailings storage facility has been capped. The treatment plant, mine camp and all other infrastructure was disposed of in 1999. Final reclamation earthworks, including capping of the partially filled No. 3 tailings storage facility is scheduled to be completed by April 2000. The Bellevue property is prospective for both gold and nickel mineralization. Lachlan has acquired the rights to nongold mineralization on 23 of the Bellevue tenements subject to a 25% net profits interest to Homestake. 31 Meekatharra - ------------- Operations at Meekatharra's Paddys Flat mining camp ceased in October 1995 after 100 years of intermittent gold production. Historic and recent production totaled nearly two million ounces of gold with a further one million ounces remaining in mineralized material. Although the tenements have been extensively explored, the potential exists for further discoveries of small to medium size shallower deposits and larger deeper deposits amenable to underground mining. Drilling of deeper targets will commence shortly. All access to open pits has been blocked and all rock waste dumps have been reclaimed. Capping of the tailings storage facility was completed in May 1999 and the treatment plant, mine camp and all other infrastructure have been disposed. Final reclamation earthworks are scheduled to be complete by March 2000. Lachlan Resources NL - -------------------- Homestake holds an 81.2% interest in Lachlan, a publicly traded Australian company. Lachlan has interests in and is exploring a number of base metal properties in Australia. Homestake manages Lachlan's business. CHILE Homestake has a 51% interest in the Agua de la Falda mine in northern Chile. Homestake also conducts exploration programs throughout Chile. Chilean activities are managed from an office in Santiago. Agua de la Falda - ---------------- In July 1996, Homestake and Corporacion Nacional del Cobre Chile ("Codelco"), a state-owned mining company in Chile, formed a new company, Agua de la Falda S.A. ("ADLF"), to explore near Homestake's former El Hueso mine in northern Chile. Homestake and Codelco contributed property interests in the area to the new company. In addition, Codelco contributed the existing El Hueso plant, which had been under lease to Homestake. ADLF now holds mining properties covering approximately 25,780 hectares in the Maricunga District of Chile about 600 miles north of Santiago at an elevation of approximately 12,500 feet. Access to the property is by 14 miles of dirt road. Included within those properties is the Agua de la Falda mine, which was developed in late 1996 to mine the oxide reserves discovered by Homestake on the property, and the Jeronimo deposit also discovered by Homestake. Homestake owns 51% of ADLF and Codelco owns the remaining 49% interest. In October of 1999, Homestake and Codelco agreed to consolidate their interests in the region around the Agua de la Falda and Jeronimo deposits. Homestake committed to contribute $7 million, as well as the Buitre and Gaucho exploration claims. Codelco contributed the San Antonio Oro, Cerro Coya and Pedernales mining claims. Through this transaction the ADLF consolidated land position increased approximately eight-fold to 25,780 hectares of highly prospective ground. Both Homestake's and Codelco's respective ADLF percentage ownership remained unchanged. The ADLF mine utilizes room-and-pillar underground mining and is accessed from surface by two portals. The El Hueso plant facility is used to heap leach the Agua de la Falda ore using the 32 Merrill Crowe process to recover the gold from solution. Water and power are purchased from Codelco. Drilling and metallurgical testing continues on the much larger Jeronimo deposit, where to date approximately 16.6 million tons of unoxidized mineralized material (100% basis), at an average grade of 0.169 ounces per ton, have been outlined. A decline has been completed to access the deeper, sulfide material. Metallurgical testwork is underway to develop an economic treatment method. No royalties are payable on the production from the current Agua de la Falda reserves. However, any ores extracted from the northern area of the property are subject to a royalty payment to Codelco of 1.5% of net smelter returns on production of over one million ounces. Additionally, ADLF will pay to Codelco a net smelter royalty on production from Cerro Coya amounting to 1.5% on the first million ounces of gold and gold equivalent and 2.2% thereafter. ADLF has made a $1 million advance royalty payment to Codelco and an additional $1 million advance royalty payment is due in 2000 with respect to the Cerro Coya claims. Geology The Agua de La Falda 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 has been mined historically in sediments and volcanics but the Agua de la Falda and Jeronimo deposits are hosted largely by a single, permeable, gently dipping carbonate unit. Homestake has a 51% share of the following amounts: Year-end Proven and Probable Ore Reserves (100% Basis)
1999 1998 ---------- --------- Tons of ore (000) 525 670 Ounces of gold per ton 0.180 0.185 Contained ounces of gold (000) 94 124
Operating Data (100% Basis)
1999 1998 ------ -------- Production Statistics: Tons of ore leached (000) 318 309 Ore grade (oz. gold/ton) 0.239 0.216 Recovery (%) 63 72 Gold recovered (000 ozs.) 48 47 Homestake's Cost per Ounce of Gold Produced: Cash operating costs $ 189 $ 198 Noncash costs 89 89 ------ ----- Total production costs $ 278 $ 287
33 ARGENTINA On April 29, 1999, Homestake acquired Argentina Gold Corp. ("Argentina Gold"), a publicly-traded Canadian gold exploration company. Homestake issued 20.9 million common shares to acquire all of Argentina Gold. The transaction has been accounted for as a pooling of interests and accordingly, Homestake's consolidated financial statements include Argentina Gold for all periods presented. Argentina Gold's principal asset is its 60% interest in the Veladero property located in northwest Argentina along the El Indio gold belt. Barrick Gold Corporation owns the remaining 40% interest in the project. In October 1999, Homestake commenced an extensive exploration program on the Veladero property. This program, scheduled to run through April 2000, will include 140,000 feet of drilling, a broad range of metallurgical testing and preliminary engineering and infrastructure assessment. The initial phase of the program, which included 36,000 feet of drilling completed by December 31, 1999, is focused on increasing the confidence level in the previously identified resources at both the Amable and Filo Federico deposits. Mineralized material at December 31, 1999 includes 147.5 million tons of material at an average grade of 0.038 ounces of gold and 0.680 ounces of silver per ton related to the Veladero property. In addition to the Veladero property, Argentina Gold holds the prospective Del Carmen project and the Rio Frio, Santa Rosa and Vicuna Pampa prospects. Argentina Gold's land package covers more than 80% of the El Indio gold belt in Argentina. On March 7, 2000, the Company announced that the mineralized material at its 60%-owned Veladero project in northwestern Argentina had increased to 220.6 million tons at an average grade of 0.035 ounces of gold and 0.668 ounces of silver per ton. The increase is based on information compiled from 87 additional holes drilled from June 1999 in the Amable and Filo Federico deposits, as well as step-out holes drilled north and east of Amable and southeast of Filo Federico. BULGARIA In 1999, Homestake terminated its 32% interest in the Bulgarian exploration project of Navan Resources Plc ("Navan") and transferred its interest to Navan. SULFUR Homestake owns an undivided 16.7% interest in the Main Pass 299 sulfur deposit. Freeport-McMoRan Sulphur LLC ("FMS") owns the remaining 83.3% and is the operator under a joint operating agreement. The sulfur deposit is located in the Gulf of Mexico approximately 32 miles east of Venice, Louisiana, in water approximately 210 feet deep. The deposit is approximately 1,500 feet below the sea floor. A royalty of 12.5% of the wellhead value is payable under the terms of the federal sulfur leases. The sulfur deposit is being mined using the Frasch process, a method of extraction which injects high-temperature sea water to liquefy the sulfur, which is then pumped to surface. Initial sulfur production commenced in 1992 and full sulfur production levels of 5,500 TPD were reached in December 1993. Sulfur production averaged 4,400 TPD during 1999, compared to 3,800 TPD in 34 1998 and 5,200 TPD in 1997. In 1999 and 1998, sulfur production was reduced in response to a weakening sulfur market. Production was further hindered in 1998 following a weather-related shutdown that resulted in the need to redrill nine wells after operations resumed. 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. FMS filters, blends, markets and delivers Homestake's share of sulfur production under a marketing agreement having an initial term of ten years from commencement of production in 1992. Homestake can terminate the agreement by giving a minimum of one calendar year notice and Homestake and FMS can terminate the agreement with three years minimum notice on the 10th, 15th and 20th anniversaries of the "Commencement Date" as defined in the agreement. Homestake's realized sales price for sulfur under this agreement is a blend of various market prices, including the Tampa market, and is net of a 2.625% marketing fee and certain other charges principally relating to the use of FMS facilities. In 1997, due to the prolonged period of low sulfur prices, Homestake wrote- off its entire carrying-value of the sulfur assets. During sulfur exploration, oil and gas reserves were discovered overlying the sulfur deposit. In 1990, the participants acquired the oil and gas rights from Chevron USA Inc. The federal oil and gas lease requires a 16.7% royalty payment based on wellhead value. In addition, Chevron retained the right to share in the proceeds of future production should the price or volume realized exceed those which were used by the parties as the basis for determining the purchase price. As part of a Production Handling Agreement entered into in 1998 by the operator with Chevron, Chevron will take over the oil platforms when Main Pass 299 oil production ceases. Oil and gas production, which peaked during 1992, is expected to continue to decline over the next few years. The carrying value of Homestake's investment in the Main Pass 299 oil and gas property was fully depreciated at December 31, 1999. In the fall of 1999, Homestake exercised its right under the sulfur joint operating agreement to not take and not pay for its share of the sulfur production in the year 2000. In December 1999, FMS denied that Homestake had the right to make the election and that Homestake had made the election on a timely basis. Homestake filled suit in Delaware seeking a declaratory judgement affirming that it had the right to make the election and that it had made the election on a timely basis. Subsequently, FMS has refused to pay to Homestake amounts due to it, including amounts due under the oil and gas operating agreement, contending that it has a right to offset those amounts against amounts it claims to be due under the sulfur operating agreement. Homestake has amended its complaint in Delaware seeking damages against FMS for failing to pay the amounts due. FMS has filed its answer disputing Homestake's contention and also seeking declaratory relief and damages. In January 2000, FMS announced that it had reduced its proven sulfur reserves at year end 1999 to 13.7 million long tons, compared to 52.4 million long tons at December 31, 1998. In its announcement, FMS stated that "Although our estimate of physically producible sulfur has not changed, we have reduced our estimates of commercially recoverable reserves primarily based on our expectations of decreased production rates at the mine, partially offset by anticipated decreases in costs. These factors have also caused us to reduce the remaining expected useful life of the mine from 30 years to 10 years, which will result in an increase in abandonment and reclamation accruals by approximately $3.0 million per year. The price of sulfur is a critical factor in the determination 35 of commercially recoverable reserves. A future increase in sulfur prices could result in a restoration of the reserves being reduced at year-end 1999." Based on the foregoing announcement, Homestake has reduced its share of reserves at the mine to 2.3 million tons (net of federal royalty) as of December 31, 1999. Homestake's total estimated reclamation liability with the respect to its 16.7% of the sulfur interest is $9.5 million, of which $1.7 million was accrued at December 31, 1999. Homestake has a 16.7% share of the following amounts: Year-end Proven and Recoverable Reserves (100% Basis)
1999 1998 -------- -------- Tons of sulfur (000) 16,400 62,908 Barrels of oil (000) 7,682 5,421
Production Statistics (100% Basis)
1999 1998 -------- -------- Tons of sulfur (000) 1,601 1,378 Barrels of oil (000) 2,017 2,428
Homestake's Per Unit Data
1999 1998 ------- -------- Average Sales Realization: Per ton of sulfur $61 $59 Per barrel of oil 16 11 Production Costs: Sulfur cash operating costs per ton $77 $78 Sulfur noncash costs per ton 1 1 ------- -------- Total production costs $78 $79 Oil cash operating costs per barrel $12 $8 Oil noncash costs per barrel - 7 ------- -------- Total production costs $12 $15
MINERAL EXPLORATION AND DEVELOPMENT Total exploration expenses, including exploration activities in and around Homestake's mines, were $39.5 million in 1999 and $59.9 million in 1998. The 1999 expenditures include $2.6 million of exploration expenses incurred on the Veladero joint venture property in Argentina prior to Homestake's acquisition of Argentina Gold and $1.1 million for metallurgical studies on the Jeronimo deposit at the Agua de la Falda property in northern Chile. Expenses related to in-mine definition drilling at Homestake's operating mines are included in the individual mine operating expenses and cost per ounce calculations. 36 Of the $39.5 million spent on exploration in 1999, approximately 24% was spent in North America, 40% in Australia, 34% in the Andes of South America and 2% in other international areas. In 2000, the projected exploration budget is $27.2 million, of which 29% is expected to be spent in North America, 50% in Australia and 21% in the Andes. Reduced exploration spending reflects general gold industry trends and an increased exploration focus attributable to the acquisitions of Plutonic and the Prime minority interests in 1998, and Argentina Gold in 1999. Homestake has withdrawn from northern Latin America and Eastern Europe to concentrate its exploration resources on existing major projects and on the extensive land packages in prime gold belts that came with these acquisitions. North America - ------------- Homestake's North American exploration expenditures include $3.1 million and $5.0 million in Canada and $16.6 million and $11.8 million in the United States during 1999 and 1998, respectively. Exploration in Canada primarily was around the Eskay Creek mine while exploration spending in the United States was focused around Homestake's existing operations, in northern Nevada and, to a lesser extent, in the emerging Tintina gold belt in Alaska. Exploration spending at the Eskay Creek mine totaled $2.3 million and $3.5 million in 1999 and 1998, respectively. The 1999 program outlined additional reserves and resources, primarily in the 21C zone. Drilling north of the mine encountered a new basin of thick, gold-bearing mudstone located in the same stratigraphic position as the sediments hosting the main 21B deposit. Further exploration of this basin will be the first priority in 2000. The 2000 exploration budget for Eskay Creek is $2.0 million. At the Ruby Hill property, exploration spending was $1.6 million and $2 million in 1999 and 1998, respectively. The 1999 program included drill testing of seven oxide targets, which unfortunately contained only sub-economic gold grades, and two deep step-out holes, which extended the known Ruby Deeps sulfide gold mineralization north for an additional 2000 feet. Planned expenditures of $1.0 million in 2000 will provide drill testing for oxide ore beneath shallow gravels north of the Archimedes pit, further step-out drilling of the Ruby Deeps and evaluation of possible new targets on other properties. In 1999 and 1998 expenditures at the 50% owned Pinson project, managed by Homestake, were $1.5 million and $1.6 million respectively (Homestake's share). Exploration spending of $1.0 million (Homestake's share) has been planned for 2000. Drilling in 1999 extended the deep, structurally controlled gold mineralization associated with the CX Pit to the north and south. The mineralized system now exhibits a strike length in excess of 5000 feet and remains open to the south. In addition, 10 holes were drilled in the pediment beneath gravels east of the mine to explore for large gold systems similar to the Twin Creeks and Turquoise Ridge orebodies located to the north. To date, only weak mineralization has been encountered but the bedrock geology is favorable. Several large remaining areas will be drilled in 2000 with the help of geophysics for targeting altered areas. Exploration within the Homestake mine totaled $0.7 million in 1999 and $1.8 million in 1998. Drilling continued to be concentrated above the 4850 level with two targets yielding ore grade intercepts that justify follow-up development work. In 2000, drilling above the 4850 level will intensify as part of the Company's long-term strategy to increase production from the upper levels of the mine. 37 Exploration expenditures at the 25% owned Round Mountain mine were $0.2 million and $0.3 million in 1999 and 1998 (Homestake's share), respectively. In 1999, pediment targets to the north of the existing operation were drilled with no success. In 2000, the budget is $0.3 million (Homestake's share). At the 33% owned Marigold mine, exploration costs were $0.5 million and $0.4 million in 1999 and 1998, respectively (Homestake's share). A similar spending level is planned for 2000. Drilling in 1999 discovered further leach grade mineralization that resulted in small additions to the Terry Zone reserve and should result in additions in 2000 as well. A deep hole west of the mine area entered weakly mineralized but favorable Antler Formation sediments at a depth of 1640 feet and broad stratigraphic drilling of this rock unit elsewhere on the mine property will be a major focus of drilling in 2000. The Mud Springs, Layton Springs and Bonita Canyon projects were abandoned in 1999 after unfavorable drilling results. Australia - --------- Exploration expenditures in Australia of $15.9 million in 1999 and $23.3 million in 1998 represent 40% and 39% of Homestake's total exploration spending for these years. Exploration spending during 1999 was focused around existing operations and on prospective targets in different regions. The Company expects to allocate 50%, or $13.7 million, of its 2000 exploration budget to Australian properties. On the Mt Morgans tenements, exploration spending was $1.5 million in 1999 and $2.6 million in 1998. Planned spending in 2000 is $1.1 million. New mineralization of similar style to, but weaker than the Just-In-Case deposit was discovered in the Lake Well trend to the northeast and additional drilling is planned in 2000. Geochemical drilling elsewhere on the tenement block has defined at least three additional targets for bedrock testing. At the Lawlers mine property, exploration spending in 1999 and 1998 amounted to $2.1 million and $1.9 million, respectively, and $1.7 million is budgeted in 2000. Ore grade gold intercepts were found in a multitude of exploration holes along the Glasgow Lass Trend, including a deep hole drilled to a depth of one kilometer beneath the New Holland South mine workings. Systematic follow-up drilling is planned north and south of the old Glasgow Lass pit in 2000 in an attempt to identify an additional development site. Several other targets are being prepared for early stage tests on the western and eastern sides of the Lawlers property. Further north at the large Plutonic/Marymia tenement package, exploration spending was $3.3 million and $1.9 million in 1999 and 1998, respectively. Spending in 2000 is budgeted at levels similar to 1999. Exploration activities in 1999 included detailed compilation and analysis of the voluminous amount of data from previous years, out of which several long-term target areas were defined. Drilling during 1999 in the Plutonic mine region extended the area of accessible rock sequences similar to those which host the Plutonic mine, and in some places identified gold mineralization of sufficient interest to warrant follow-up drilling. A drill intensive year is planned for 2000. Exploration at the Darlot mine property was $2.0 million in 1999 and $2.2 million in 1998 and, $1.6 million is planned for 2000. The 1999 program discovered additional ore grade gold mineralization down dip from the Centenary deposit, but hosted in a lower unit of magnetic dolerite. Follow-up surface and underground drilling is in progress and it appears that sufficient 38 material may exist to justify access from the existing Centenary underground entryways. Several other targets near the mine and elsewhere on the Darlot tenements will be tested in 2000. Homestake allocated $0.9 million and $1 million, in 1999 and 1998, respectively, for its 50% share of exploration at the Kalgoorlie operations, and $0.7 million is budgeted for 2000. Although several ore grade intersections were generated during the year on the fringes of the main productive area, follow-up drilling to date has not defined any areas of economic interest. A tenement rationalization program is underway in an effort to highlight the best prospects for drilling in 2000. In eastern Australia, Homestake controls three significant projects, two in Queensland and one in New South Wales. Two drilling programs at Agate Creek along with intensive field investigations cost $0.5 million in 1999 ($1.4 million in 1998) and at least as much spending is anticipated for 2000. At the Sherwood prospect, several holes returned thick intersections of potentially open pitable gold grades starting at or near surface, and preliminary holes at two other targets contained sufficient gold mineralization to warrant offset drilling. Drilling sufficient to establish whether mineralization is of economic interest is scheduled for 2000. At the Twin Hills project, the Company spent $1.2 million in 1999 ($0.8 million in 1998) and has budgeted up to $0.7 million for 2000. Although several drilling programs were completed in 1999 the existing sub-economic resource has not changed. The future direction of the project is under review. Near the end of 1999, the partners at the Junction Reefs property (Homestake 54.5%, Climax 45.5%) decided to seek a third partner to fund an intensive drilling program designed to continue to search for a Ridgeway style orebody along a belt of anomalous gold copper mineralization that can be correlated with the prolific Cadia mineral trend to the northwest. Homestake spent $0.3 million on the project in 1999 ($0.8 million in 1998). Homestake's share of expenditures are expected to be minimal in 2000. During 1999, drilling was conducted on all three of the major projects owned by Lachlan. The most significant result was the extension of the disseminated sulfide nickel mineralization at the northern end of the Mount Goode property in Western Australia. A new induced polarization geophysical survey has generated additional anomalies in the vicinity that are expected to be drill tested during 2000. During 1999, Lachlan spent $0.5 million net of joint venture contributions, and a similar level of expenditure is planned in 2000. Andes Region - ------------ During 1999 and for the next several years, exploration programs in the region will be focused on Homestake's holdings in Chile and Argentina, and on the search for new opportunities in Peru. The Company currently has three major exploration projects in the Andes: the Agua de La Falda project in northern Chile owned jointly with Codelco (Homestake 51%, Codelco 49%), and the 100% owned Rio Frio and Del Carmen projects in northwestern Argentina. In addition, Homestake has two resource development projects, Veladero (Homestake 60%, Barrick 40%) in northwestern Argentina and Jeronimo (Homestake 51%, Codelco 49%) in northern Chile. Combined exploration expenditures in 1999, which include Homestake's share of the drilling at Veladero prior to the acquisition of Argentina Gold and metallurgical testwork at Jeronimo, were 39 $10 million. The exploration budget for 2000, excluding resource development, is $5.8 million. In addition, approximately $12.5 million of resource development expenditures on Veladero and Jeronimo are planned in 2000. Exploration expenditures at the 51% owned Agua de la Falda property in Chile were $2.4 million in 1999 ($2.1 million in 1998) and $1.9 million is planned in 2000 (100% basis). Metallurgical investigations on the Jeronimo deposit in 1999 expended a further $1.1 million. During 1999, the joint venture land position was expanded nearly eightfold. This provides access to an entire mineral district that only has been intermittently explored for gold in recent times. Although the Jeronimo deposit is still open, future extension drilling has been deferred pending the outcome of metallurgical work and recent drilling has been concentrated on outlying targets. New unoxidized gold mineralization was discovered at Jeronimo Norte and in a previously untested horizon at depth below the existing underground mine workings. The significance of this mineralization is not yet known. Two oxide gold targets tested with preliminary drilling are planned for follow-up drilling early in 2000. In Argentina, Homestake spent $0.8, $0.7, and $0.8 million in 1999 on its 100% owned Rio Frio, Del Carmen and Patagonia projects, respectively, and $1.6, $0.5, and $0.1 million respectively, is budgeted for the same projects in 2000. At Rio Frio, which comprises claims covering multiple centers of hydrothermal alteration along the East Indio Belt, field evaluation programs were initiated along with the drill testing of two targets. Preliminary holes at the Guanaco Zonzo target contain silver mineralization of considerable interest. It is anticipated that several more targets will be generated and drill tested during 2000. Further south at the Del Carmen project, one target was drilled near year end and field crews are evaluating several other areas containing surface mineralization. Additional drilling is budgeted for 2000. A first pass evaluation was completed on all of the priority areas on the Patagonia holdings in southern Argentina and trenching was conducted at the Breccia Ridge prospect that exhibited elevated gold values on surface. A geophysical survey currently is being conducted at the Breccia Ridge prospect and at adjacent areas showing anomalous gold values in an attempt to define large areas of silicification for possible drilling in 2000. Other International - ------------------- During 1999, Homestake withdrew from exploration in Eastern Europe and Brazil. For the next few years Homestake plans to mount vigorous exploration programs on its holdings in the regions discussed above. 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, and include 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 drilling expenditures that are related to production, and other direct costs, but exclude depreciation, 40 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, and include 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 typically accounted for ratably over the life of an operation and include 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. It 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" as these deferred tax purchase adjustments do not involve any economic resources of the Company. "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 gold-bearing material that has been physically delineated by one or more of a number of methods including drilling, underground work, surface trenching and other types of sampling. This material has been found to contain a sufficient amount of mineralization to have economic potential warranting further exploration evaluation. While this material is not currently or may never be classified as reserves, it is reported as mineralized material only if the potential exists for reclassification into the reserves category. This material has established geologic continuity, but cannot be classified in the reserves category until final technical, economic and legal factors have been determined and the project containing the material has been approved for development. 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 that 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 mineralized material and the amount of gold (or other products) contained therein and include, in the case of reserves, estimates for mining dilution but not for other processing losses. "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. 41 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 costs 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 calculations. Homestake used gold prices of $325 per ounce in calculating reserves at December 31, 1999 and 1998. Silver - ------ The proven and probable silver ore reserves have been calculated on the same basis as gold ore reserves, except that silver reserves at December 31, 1999 and 1998 are based on an assumed price of $5.25 and $5.00 per ounce, respectively. Sulfur - ------ Homestake's proven sulfur reserves represent the quantity of sulfur 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. 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 and silver 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 sulfur and oil reserves at Main Pass 299 are based on information provided by the operator. Homestake reviewed the initial reserve data with independent consultants. Other Information ----------------- Ore reserves are reported as general indicators of the life of mineral deposits. Changes in reserves generally reflect (i) efforts to develop additional reserves; (ii) depletion of existing reserves through production; (iii) actual mining experience; (iv) continued testing and development of additional information; and (v) price and operating cost 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 and other characteristics and grade of ore processed. Actual quality and other 42 characteristics of ore deposits, gold and silver prices, and costs of production will vary from the assumptions used to develop reserve estimates. Such differences may be material. OVERVIEW OF AUSTRALIAN, CANADIAN AND UNITED STATES REGULATION OF MINING RIGHTS Australia - --------- The mining of hard rock minerals in Australia is regulated by State or Territory legislation and regulation which is administered by a responsible government department within each jurisdiction. Each State and Territory has its own separate mining regime and there is little uniformity of legislation and regulations on an Australia-wide basis. As a general rule, the Crown is vested with ownership of minerals. Private ownership can, however, occur occasionally. Rights to explore, mine and produce minerals can be obtained from the State or Territory government. In general, exploration is authorized by statutory title with specific rights and fees varying between jurisdictions. Such titles are usually granted for relatively short periods and, in some cases, only upon approval by the relevant government department of a program of work and expenditure or subject to minimum expenditure commitments. Titles which allow mining may be granted, usually with priority given to the holder of the underlying exploration title for that land, upon application to the government department in the jurisdiction where the deposit is located. In respect of most minerals, royalties are payable to the government of the jurisdiction where production occurs. A special regime applies in most jurisdictions in respect of mining on private land. This usually obliges the title holder to pay compensation to the landowner for losses arising from the exercise of rights to enter, explore or mine the land. See "Risks of Native Title Claims - Australia" included in the Risk Factors section included elsewhere in Part I of this Report. Canada - ------ Mining rights in Canada are within the authority of the individual provinces. Although there are some variations among the provinces with regard to specific features, the general requirements are similar. The ownership of and the granting of rights to exploit minerals generally remains with the provincial government. Persons seeking to exploit most minerals (including gold and silver) may stake claims on government property open to exploitation. An initial fee is payable on staking of a mining claim. There are annual minimum work requirements although cash may be paid in lieu of minimum work requirements in most provinces. The development of a mine requires that mining claims be converted to mining leases. Mining leases are granted for a specific term of years (up to 21 years in Ontario and up to 30 years in British Columbia), with the right of renewal. There are generally limited annual rental or royalty payments. There may be overlapping use rights on the same property, such as mining and forestry, in which case the terms on which multiple uses take place will generally be negotiated between the parties and will be specified in the mining lease. In some areas there are mineral rights that are privately owned, the rights having been previously alienated by governmental action. In the case of privately held mineral rights, the owner is free to negotiate terms on which mining may take place. If the surface and minerals are held by different persons, negotiations between the surface and mineral rights holder will be required if the 43 matter is not governed by preexisting agreements. In some jurisdictions disagreements over rights of surface use may be resolved by a government agency having authority to determine use and compensation. See "Risks of Native Title Claims - Canada" included in the Risk Factors section included elsewhere in Part I of this Report. United States - ------------- Title to and right to mine hard rock minerals in the United States is governed by the law of each state, except as to public lands of the United States federal government that are open to exploration, which are governed by the Mining Law of 1872, as amended. In general, real property law in the United States is based on the English common law of real property. In general, under the law of each state in the United States, title to minerals and the right to mine is vested in the surface owner, unless separately alienated. The surface owner can transfer all or part of the mineral rights separate from the surface, or can transfer the surface and retain ownership of mineral rights. Mineral rights may be further alienated, may be leased and subleased, and also may be subdivided among more than one owner, including alienation with the disposing party retaining the right to receive royalties or other payments. If the surface and the mineral rights are held by different persons, state laws vary as to priority and other rights as between the parties. Transfer documents by which the surface and mineral rights were separated may govern. In the absence of agreement or provision in title documentation, in some states, mineral right holders have priority of use and occupancy but must compensate the surface holder for injury to the surface estate. In some states, the mineral right holders have priority of use and no compensation obligation. A few states have private condemnation statutes, which permit holders of mineral rights to exercise the power of eminent domain to secure access to minerals and to provide a portion of the surface for use in the conduct of mining. Mineral rights holders have no royalty or payment obligation in respect of minerals to a government entity unless the government entity happens to hold title to or a royalty or payment interest in the mineral rights in the same way as a private owner. However, some states have enacted severance taxes applicable to production of minerals from property within the jurisdiction. Under the United States Mining Law of 1872, United States citizens (including corporations incorporated in the United States) may stake mining claims upon United States federal government property open to exploration ("unpatented mining claims"). An initial fee is payable on staking and annual maintenance fees are also payable. Under current law, persons staking such unpatented mining claims, upon the making and documenting of a discovery of most minerals (including gold and silver) in commercial quantities, are entitled to mine for the mineral without payment of royalties or other fees (other than the annual claim maintenance fee). In addition, the holder of an unpatented mining claim who has made a commercial discovery is entitled to secure title to the mineral and surface estates of the property subject to the mining claim ("patented mining claim") at nominal cost. Only certain federal public lands, principally in the Western United States, are open to exploration. A patented mining claim gives the holder the full fee interest in the property. Holders of unpatented and patented mining claims may sell or lease claims in the same way as fee property. 44 ENVIRONMENTAL MATTERS General - ------- Homestake has a policy of conducting extensive environmental audits of its operations in order to minimize the impact of its operations on the environment and to monitor compliance with applicable environmental laws and regulations. A committee of the Homestake Board oversees the establishment and implementation of environmental policy. Environmental audits are conducted on a regular basis with the objective of auditing each operation at least once every three years. Homestake makes 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 tailings and waste rock. In 1999, these expenditures totaled approximately $3.5 million compared to $3 million in 1998. Homestake estimates that during 2000 capital expenditures for such purposes will be approximately $2 million and that during the five years ending December 31, 2004, such capital expenditures will be approximately $10 million. Homestake also incurs operating costs to minimize the effects of its operations on the environment, including current reclamation costs, costs for environmental monitoring and studies to identify and quantify environmental impacts, if any, and accruals for remediation and future reclamation expenditures. Such expenses totaled approximately $28 million in 1999, compared with approximately $55 million in 1998. Homestake estimates that environmental and related operating costs in 2000 will be approximately $20 million. 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. In the mining industry, most reclamation work takes place after mining and related operations terminate. Homestake has adopted a policy of conducting reclamation concurrently with mining operations where practical. As a result, an increasing amount of reclamation is being conducted simultaneously with mining. At December 31, 1999 and 1998, Homestake had accrued $137 million and $131 million, respectively, for future reclamation and related costs. With respect to nonoperating properties, Homestake believes that it has fully provided for all remediation liabilities and for estimated reclamation and site restoration costs. Homestake's provisions are evaluated regularly and adjusted when necessary. At September 30, 1999, Homestake recorded an additional provision for estimated environmental and reclamation costs for historical operations at properties acquired in the 1998 acquisition of Plutonic in the amount of $5.2 million. Homestake charges reclamation costs incurred in connection with its exploration activities as expenses in the year in which incurred. For mining operations, Homestake provides for final reclamation on a units-of-production basis over the individual operating mine lives. 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. 45 RCRA - ---- The United States Environmental Protection Agency ("EPA") has not yet issued final regulations for management of mining wastes under the United States 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") imposes heavy liabilities on any person who is responsible for an actual or threatened release of any substance classified as hazardous, including liability for oversight costs incurred by the EPA. Whitewood Creek - --------------- Deposits of tailings along an 18-mile stretch of Whitewood Creek formerly constituted a site on the National Priorities List ("NPL"). The site was deleted from the NPL in 1996. Mining companies operating in the Black Hills of South Dakota, including Homestake, placed mine tailings in Whitewood Creek beginning in the nineteenth century. Some tailings placed in Whitewood Creek eventually flowed into the downstream receiving waters. Homestake ceased the placement of mine tailings onto Whitewood Creek in 1977 and for more than 21 years the Homestake mine has impounded all mine tailings that are not redeposited in the mine. In 1977, the State of South Dakota, the United States government and the Cheyenne River Sioux Tribe (the "Federal Trustees") filed an action against Homestake, alleging that Homestake's disposal of mine tailings in Whitewood Creek resulted in injuries to natural resources in Whitewood Creek and downstream receiving waters. In its answers, Homestake denied that there has been any continuing damage to natural resources or nuisance as a result of the placement of tailings in Whitewood Creek. Homestake also counterclaimed against the State of South Dakota and the Federal Trustees seeking cost recoupment, contribution and indemnity. In September 1999, Homestake, the State of South Dakota and the Federal Trustees reached full and complete settlement of the natural resource damage claims and counterclaims. Homestake will pay a total of $4 million to be used for natural resource restoration in four equal annual installments, the first of which was made in October 1999. In addition, Homestake will purchase for $300,000 up to 3,300 acres of land owned by the U.S. Bureau of Land Management and pay the United States Government $500,000 as reimbursement of costs incurred by the Government for natural resource damage assessment. The Cheyenne River Sioux Tribe will receive $500,000 in cash compensation for future environmental monitoring uses, and 400 acres of Black Hills land owned by Homestake. Homestake will modify its diversion of water on Spearfish Creek for three months each year, to permit instream flow to increase by up to 20 cubic feet per second ("cfs"). Upon closure of the Homestake mine, Homestake will relinquish the year-round right to diversion of that same 20 cfs of flow. The cost of this settlement was recorded in 1998. 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 some of the residents in adjacent residential subdivisions. Homestake paid the cost of extending the municipal water supply to the subdivisions. Homestake also has operated a water injection and collection system since 1976 that has significantly improved the quality of the aquifer. The estimated costs of 46 continued remediation are included in the accrued reclamation liability. Homestake has settled with the EPA concerning its oversight costs for this site. 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 2004 and 2013, subject to extension under certain circumstances. 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 final closure of the Grants large tailings site is scheduled for completion in 2003. During 1999, Homestake incurred approximately $4 million of reclamation expenditures at the Grants facility and approximately $3 million is planned to be expended during 2000. Title X of the Energy Policy Act of 1992 (the "Energy Policy Act") and subsequent amendments to the Energy Policy Act authorized appropriations of $335 million to cover the Federal Government's share of certain costs of reclamation, decommissioning and remedial action for by-product material (primarily tailings) generated by certain licensees as an incident of uranium sales to the federal government. Reimbursement is subject to compliance with regulations of the Department of Energy ("DOE"), which were issued in 1994. Pursuant to the Energy Policy Act, the DOE is responsible for 51.2% of the past and future costs of reclaiming the Grants site in accordance with NRC license requirements. Through December 31, 1999 Homestake had received $27.2 million from the DOE and the balance sheet at December 31, 1999 includes an additional receivable of $8.1 million for the DOE's share of reclamation expenditures made by Homestake through 1999. 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 Homestake, 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 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 May 1986. Since that time, a number of other lead producers and former lead producers have also been so notified. The Port of Pascagoula is taking primary responsibility for conducting an investigation of the site, but the Port of Pascagoula 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 Homestake and others, Homestake believes that most of the material at the Pascagoula site, as well as 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 Homestake. The State of Mississippi Department of Environmental Quality is reviewing the investigation efforts and remediation plans that are being developed by the Port Authority. Based on information currently available, Homestake believes the remediation costs should not exceed $1 million. Homestake's position is that the Port Authority is primarily responsible for the cost of remediation as owner of the property and as lessor with the ability to control the activities of the stevedoring company, and also because the Port Authority contributed to the contamination by moving stored material from a storage building and depositing it on the 47 ground. Homestake believes that any future costs it may incur in connection with this matter will not be material. Foreign Operations - ------------------ Except for the instances described above in respect of the individual properties, 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. RISK FACTORS The following risk factors should be considered in conjunction with the other information included in "Cautionary Statements." Risks Inherent in Gold Exploration, Development and Production The business of gold exploration, development and production by its nature involves significant risks. Among other things, the business depends on successful location of reserves and skillful management. Gold exploration is highly speculative in nature, involves many risks and frequently is non- productive. Once mineralization is discovered and determined to be economically recoverable, it usually takes a number of years from the initial phase of exploration until production commences, during which time the economic feasibility of production may change. Substantial expenditures are required to establish reserves through drilling, to determine means of production and metallurgical processes to extract the metal from ore and, in the case of new properties, to construct mining and processing facilities. Mining is subject to a variety of risks and hazards, including rock falls and slides, cave-ins, flooding and other weather conditions, and other acts of God. Homestake maintains and intends to continue to maintain, property and liability insurance consistent with industry practice, but such insurance contains exclusions and limitations on coverage. For example, coverage for environmental liability generally is limited and may be totally unavailable. There can be no assurance that insurance will continue to be available at economically acceptable premiums. Production costs also can be affected by unforeseen changes in ore grades and recoveries, permitting requirements, environmental factors, work interruptions, operating circumstances, unexpected changes in the quantity or quality of reserves, unstable or unexpected ground conditions, and technical issues. Most of Homestake's gold production and significant exploration activities take place in the United States, Australia and Canada, all of which historically have experienced relatively low levels of political and economic risk. Homestake also produces gold in Chile and conducts exploration activities in Argentina, Chile and the Andean region of South America. These regions generally have higher levels of political and economic risk than the United States, Australia and Canada, including greater potential for government instability, uncertainty of laws and legal enforcement and compliance, defects in or uncertainty as to title to mining property, expropriation of property, restrictions on production, export controls, currency non-convertibility, fluctuations in currency exchange rates, inflation and other general economic and political uncertainties. 48 Risks of Gold and Silver Price Fluctuations and Hedging Activities The results of Homestake's operations are significantly affected by the market price of gold and, to a lesser extent, the market price of silver. The markets for gold and silver are worldwide markets. Gold and silver prices are subject to volatile price movements over short periods of time and are influenced by numerous factors over which Homestake 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 jewelry and industrial products containing gold and silver, speculation, and sales by central banks and other holders and producers of gold and silver in response to these factors. The following table shows the reported annual high, low, average and end of the period afternoon fixing prices of gold per ounce and silver per ounce in US dollars on the London Bullion Market. Years Ended December 31, ------------------------
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Gold High.......................... $ 326 $ 313 $ 367 $ 416 $ 397 Low........................... 253 273 283 367 372 Average....................... 279 294 331 388 384 Period End.................... 290 287 290 369 387 Silver High.......................... $5.71 $7.81 $6.27 $5.83 $6.04 Low........................... 4.88 4.69 4.22 4.71 4.41 Average....................... 5.22 5.54 5.17 5.19 5.19 Period End.................... 5.33 5.01 5.95 4.73 5.11
The supply of gold and silver includes a combination of new mine production, recycling of industrial products containing gold and silver, and sales from existing stocks of bullion and fabricated gold and silver held by governments, public and private financial institutions, and individuals. In general, hedging enables a gold and silver producer to fix a future price for hedged gold and silver that generally is higher than the then current spot price. However, to the extent that sales of future production are hedged, the ability to realize future increases in prices may be reduced subject to the producer's ability to extend the expiry dates of the hedge contracts. Homestake has adopted a precious metals hedging policy under which Homestake, in appropriate circumstances, may enter into forward-sales transactions for up to 30% of its gold and silver production in each of the subsequent ten years (five years for silver) at prices in excess of certain targeted prices. Homestake may also use, in appropriate circumstances, combinations of put and call option contracts, which provide an effective price floor for sales. To the extent Homestake has not hedged its production in forward-sales transactions or established price floors, its profitability is fully exposed to fluctuations in the current price of gold and silver in world markets. Homestake's results also are affected to a lesser degree by the market prices for sulfur and for crude oil. Sulfur prices are affected principally by the demand for fertilizer and the availability of by-product sulfur recovered during the refining and processing of oil and natural gas. Crude oil 49 prices are affected principally by supply and demand for gasoline and fuel oil as well as global or regional political or economic crises. Risks Associated with Reserve Realization Gold and silver reserves reported by Homestake reflect estimated quantities and grades of gold and silver in deposits and in stockpiles of mined material that Homestake believes can be mined, processed and sold at prices sufficient to recover the estimated future cash costs of production, remaining investment and anticipated additional capital expenditures. Reserves are estimates based upon drilling results, past experience with mining properties, experience of the person making the reserve estimates and many other factors. Reserve estimation is an interpretive process based upon available data. Further, reserves are valued based on estimates of future costs and future prices. Homestake's gold reserves at December 31, 1999 and 1998 are based on an assumed price of $325 per ounce. Silver reserves at December 31, 1999 and 1998 at the Eskay Creek mine are based on assumed silver prices of $5.25 per ounce and $5 per ounce, respectively. Actual quality and other characteristics of ore deposits and gold and silver prices will differ from the assumptions used to develop reserves. Such differences may be significant. Sulfur and oil reserve realization is subject to similar risks. In the third quarter of 1997, Homestake wrote off its entire sulfur mine investment in light of the continued depressed world market for sulfur. Risks of Government Regulation of Mining Homestake's mining operations are subject to extensive regulation governing development, production, labor standards, occupational health, waste disposal, use of toxic substances, environmental regulations, mine safety and other matters. Some jurisdictions also require or may in the future require the payment of royalties. Changes in regulations can have material impacts on anticipated levels of production, costs and profitability. It is possible that exploration, development or operation of a mine may be delayed or terminated as a result of the inability to obtain all required permits and government approvals on an economic basis, or the imposition of royalty payments or other government regulations. The United States Mining Law of 1872 (the "Mining Law") has been the subject of substantial debate and proposals for change for several years. While changes in the Mining Law may occur, Homestake cannot predict when or if changes will occur, or the extent to which any new legislation will exempt or otherwise "grandfather" existing mining operations, unpatented mining claims on which commercial discoveries have been made or unpatented mining claims for which the patenting process is partially complete. Under current law, persons staking unpatented mining claims on United States federal government property open to exploration (unpatented mining claims), upon the making and documenting of a discovery of most minerals (including gold and silver) in commercial quantities, are entitled to mine the property without payment of royalties and to secure title to the property (patented mining claims) at nominal cost. Under proposals made in recent years to amend the Mining Law, the United States government would be entitled to receive royalties based on either the gross or net value of production from government-owned property. This would have only minimal impact on Homestake's current operations, as substantially all of Homestake's current operations in the United States, other than its operations at Ruby Hill, are conducted on privately held land. It is possible that Homestake may be required to pay royalties on production from the Ruby Hill operation, which would increase the production cost over current estimates, but the amount of the increase, if any, is not predictable. Expansion at Homestake's Round Mountain mine also may occur on government-owned property, as to which royalties 50 similarly might be payable. Should the Mining Law be so amended, it could reduce the amount of future exploration and development activity conducted by Homestake on federal government-owned property in the United States. Risks of Currency Fluctuations Gold and silver are sold throughout the world principally based on the US dollar price, but operating expenses of gold and silver mining companies generally are incurred in local currencies. Homestake's operations principally are based in the United States, Canada and Australia. Homestake engages in currency hedging in Canadian and Australian dollars to protect against significant currency fluctuations relative to the US dollar. Risks of Native Title Claims Australia The decision of the High Court of Australia in 1992 in Mabo and Others v Queensland (No. 2) recognized traditional native title rights to land. That decision and the Racial Discrimination Act raised the possibility that mining and exploration tenements granted by the Crown after October 31, 1975, over areas where there were existing native title rights might be invalid to the extent of any inconsistency with those native title rights. State governments and industry demanded, and were soon given, validation of all existing interests. This was achieved by virtue of the Native Title Act 1993 (Cth) and complementary State and Territory legislation. In 1996, the High Court held in The Wik Peoples v Queensland that the grant of pastoral leases will not necessarily extinguish native title rights. (Many mining leases have been granted over areas of pastoral leasehold.) The Native Title Act also establishes a mechanism for determination of claims to native title. The legislation provides for a right to negotiate before the grant or renewal of certain tenements (other than renewals of tenements as of right, in accordance with the terms of their original grant) after January 1, 1994. Negotiations must take place between the native title holders or claimants, the grantee party and the government party. A grantee party may pay compensation to the native title holders and claimants for the future grant of a mining tenement. If agreement cannot be reached after negotiations in good faith for six months, court approval of the proposed tenement(s) can be applied for. Such court approval may include conditions with respect to compensation, but to-date, has not. The grant of a mining tenement ordinarily has the effect of suspending native title. Any compensation for the suspension is payable by the government that granted the tenement. In July 1998, the Native Title Amendment Act was passed by both houses of the Australian Parliament. The legislation came into operation on September 30, 1998, although in some respects it operates retroactively. The Act makes significant changes in the regime governing native title in Australia. Among other things, the new law (i) transfers the determination of native title claims to the Australian Federal Courts; (ii) requires that native title claims be registered in compliance with specified requirements in order to qualify for the right to negotiate; (iii) permits registration of claims to be delegated to State bodies; and (iv) permits States to validate all titles issued between January 1, 1994 and December 23, 1996 on land which was the subject of freehold or leasehold title. Homestake cannot predict the extent to which the new law will impact its operations, but it is generally expected that the new law will facilitate and accelerate resolution of many native title issues and eliminate some uncertainties. There are a number of native title claims relating to the area of Homestake's 50% owned Kalgoorlie operations, but the validity of those claims has not been determined. In any event, all of 51 the mining leases with respect to active mining operations at Kalgoorlie are pre-1994 leases and therefore native title claims will not affect their validity. There also are native title claims relating to areas in which Homestake's other Australian mining operations are conducted, but the validity of these claims also has not been determined. In any event, with the one exception described below, all of the other production mining leases are pre- 1994 leases and their validity is not affected by native title claims. One production mining lease was granted between January 1 and March 15, 1995, when Western Australia did not comply with the requirement of negotiation in granting these titles. Legislation has now been passed to validate titles granted in Western Australia during this period. Some of Homestake's exploration tenements in Australia are subject to multiple native title claims. Should Homestake be successful in its exploration activities in these areas and seek to convert its interests to mining leases, it will be necessary to comply with the right to negotiate provisions of the Native Title Act. The requirements for negotiation and the possibility of a requirement to pay compensation may result in delay and increased costs for mining in the affected mining areas. Canada In the Delgamuukw decision in December 1997, the Supreme Court of Canada (the "Supreme Court") affirmed that aboriginal tribal groups continue to have aboriginal rights in lands in British Columbia used or occupied by their ancestors in 1846. Those rights may vary from rights of limited use up to aboriginal title. The decision has created uncertainty regarding property rights in Canada (including mineral and other resource rights), particularly in British Columbia and other areas where treaties were not concluded with aboriginal groups. The Supreme Court stated these principles in broad terms, and did not apply them to any particular lands. The decision also did not address how aboriginal rights or title are to be reconciled with property and tenure rights previously sold or granted by the government. The Supreme Court did confirm that the extent of the aboriginal rights (including whether the rights rise to the level of aboriginal title) will depend on, among other things, the extent of prior aboriginal use and occupation. The Supreme Court also stated that, depending on the nature of the aboriginal rights, consultation with and compensation to (and possibly consent of) aboriginal groups may be required in connection with sales of government-owned land or granting of mining, forestry and other rights to use government-owned land. The Supreme Court indicated that rights of compensation derive from the government's fiduciary obligations to the aboriginal groups. The application of the principles enunciated in the decision will not be possible until subsequent decisions provide clarification, and the application of these principles to any particular land will not be possible until the exact nature of historical aboriginal use and occupancy and the resulting rights in the particular property have been determined. The British Columbia government has initiated a process for the negotiation of treaties to resolve outstanding issues of aboriginal rights and title in British Columbia, under the authority of the B.C. Treaty Commission. To date, 51 aboriginal groups have commenced negotiations under the B.C Treaty Commission process. Some aboriginal groups have withdrawn from negotiations and commenced litigation since Delgamuukw. The position of the provincial government is that it will not negotiate treaties if the claims are being litigated in the courts. No treaties have yet been ratified under this process. On August 4, 1998, the government of British Columbia and the government of Canada initialled a treaty with the Nisga'a Nation negotiated under a separate process. Before it comes into effect the Nisga'a treaty requires ratification by the Nisga'a Nation and legislation by both the 52 federal and the provincial governments. The Nisga'a treaty includes provisions granting fee simple title to an area of Crown land (Treaty title lands), confirmation of non-exclusive aboriginal rights over an extended area, provisions for payment of compensation, and provisions for the establishment of a Nisga'a government. The ratification process has not yet been completed and is the subject of public debate and challenges as to constitutional validity. None of Homestake's operations or exploration properties are located in the area subject to the Nisga'a treaty. It is the stated policy of the British Columbia government that lands held in fee simple by third parties will not be affected by treaty negotiation and that the province will respect the terms of all existing legal interests in Crown lands and resources including leases and licenses. However, where there are legal interests in Crown lands which, under a treaty, become Treaty title lands, and where those legal interests have termination dates, subject to extensions or renewals, the province will likely decline to grant further extensions or renewals. The Nisga'a treaty contemplates that future rights and interests within the Treaty title lands will be subject to negotiation with the Nisga'a government and to potential payment of fees, royalties or other charges to the Nisga'a government. Any confirmation by treaty of non-exclusive aboriginal rights on Crown land will mean the continuation of certain limitations and procedural requirements (such as consultation and possibly consent) on the disposition of Crown land and resources. There are aboriginal claims that extend to the area of British Columbia in which the Eskay Creek mine is located. This mining operation is conducted under government mining leases which grant the exclusive right to mine. There has not been any determination of the existence of any valid claim of aboriginal rights or title in the area. Homestake does not expect any interruption of its existing mining operations in British Columbia, and Homestake does not believe that its other Canadian operations will be materially adversely affected by aboriginal claims. However, Homestake expects that future Canadian activities, including exploration and development of new mines, could be slowed and could be adversely affected, depending on future legal developments in this area and the extent of aboriginal rights in any particular property. United States There are no native title issues for Homestake's properties in the United States. CAUTIONARY STATEMENTS This Report contains certain information relating to Homestake that is based on the beliefs of management, as well as assumptions made by and information currently available to management. Any statements made in this Report that are not historical in nature, including statements preceded by the words "anticipate," "believe," "estimate," "expect," "intend," "will" and similar expressions, as they relate to Homestake, are forward-looking statements (as such term is defined in the United States Private Securities Litigation Reform Act of 1995). Estimates of reserves, future production and future cash costs per ounce of gold-equivalent production are also forward-looking statements. The purpose of these cautionary statements is to identify certain important factors and assumptions on which forward-looking statements may be based or which could cause actual results to differ materially from those expressed in forward-looking statements. The important factors and assumptions set forth below should be read in conjunction with "Risk Factors" above. 53 Reserves Gold and silver reserves reported by Homestake reflect estimated quantities and grades of gold and silver in deposits and in stockpiles of mined material that Homestake believes can be mined, processed and sold at prices sufficient to recover the estimated future cash costs of production, remaining investment, and anticipated additional capital expenditures. Estimates of costs of production are based on current and projected costs taking into account past experience and expectations as to the future. Estimated mining dilution is factored into reserve calculations. Reserves are reported as general indicators of the life of mineral deposits. Reserves should not be interpreted as assurances of mine lives or of the profitability of current or future operations. Reserves are estimated for each property based upon factors relevant to each deposit including drilling results, past experience with the property, experience of the persons making the reserve estimates and many other factors. Reserve estimation is an interpretive process based upon available data, and the actual quality and other characteristics of ore deposits cannot be known until mining has taken place. Changes in reserves over time generally reflect (i) efforts to develop additional reserves, (ii) depletion of existing reserves through production, (iii) actual mining experience, (iv) continued testing and development of additional information and (v) price and cost forecasts. Grades of ore actually processed may be different from the stated reserve grades because of geologic variations in different areas mined, mining dilution, losses in processing and other factors. Recovery rates vary with the metallurgical and other characteristics and grade of ore processed. Actual quality and other characteristics of ore deposits, gold and silver prices, and costs of production will vary from the assumptions used to develop reserve estimates. Such differences may be material. Gold and silver reserve calculations for properties operated by Homestake are prepared by Homestake. Gold and silver reserve calculations for properties not operated by Homestake are based on information provided to Homestake by the operator. Homestake periodically reviews such information but does not independently confirm the information provided by these operators. Homestake's sulfur reserves represent the quantity of sulfur 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 estimated future capital expenditures. Homestake's proven 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, the remaining investment, and estimated future capital expenditures. The estimates are based on limited reservoir and engineering data. The reserve estimates are based on information provided by the operator. The operator principally relies on oil reserve estimations performed by third-party petroleum engineers. In the third quarter of 1997, Homestake wrote off its entire investment in the sulfur mine in light of the continued depressed market for sulfur. Estimates of Production Estimates of future production and mine life for particular properties are derived from annual mining plans that have been developed based on, among other things, mining experience, reserve estimates, assumptions regarding ground conditions and physical characteristics of ores (such as hardness and presence or absence of certain metallurgical characteristics), and estimated rates and costs of production. Actual production may vary from estimates for a variety of reasons, including risks and hazards of the types discussed above, actual ore mined varying from estimates 54 of grade and metallurgical and other characteristics, mining dilution, strikes and other actions by labor at unionized locations, restrictions imposed by government agencies and other factors. Estimates of production from properties not yet in production or from operations that are to be expanded are based on similar factors (including, in some instances, feasibility reports prepared by company personnel and/or outside consultants) but, as such estimates do not have the benefit of actual experience, there is a greater likelihood that actual results will vary from the estimates. Mineralized Material Mineralized material is gold-bearing material that has been physically delineated by one or more of a number of methods including drilling, underground work, surface trenching and other types of sampling. This material has been found to contain a sufficient amount of mineralization of an average grade of metal or metals to have economic potential that warrants further exploration evaluation. While this material is not currently or may never be classified as reserves, it is reported as mineralized material only if the potential exists for reclassification into the reserves category. This material has established geologic continuity, but cannot be classified in the reserves category until final technical, economic and legal factors have been determined and the project containing the material has been approved for development. Estimates of Operating Costs and Capital Costs; Capital Projects Estimates of cash costs for mining operations are developed based on past experience, reserve and production estimates, anticipated mining and ground conditions, metallurgical recoveries, estimated costs of materials, supplies and utilities, exchange rates and other items. Estimates of amortization of noncash costs are based on total capital costs and reserve estimates and may change at least annually based on actual amounts of unamortized capital and changes in reserve estimates. If the net book value of mining operations exceeds the fair value, usually determined based on the estimated future undiscounted cash flows from that mine, then an impairment loss based on the discounted cash flows would be recognized as an expense in the period in which such evaluation is made. Estimates for reclamation and environmental remediation costs are developed based on existing and expected legal requirements, past reclamation experience, cost estimates provided by company employees and third parties and other factors. Estimates also reflect assumptions with respect to actions of government agencies, including exercise of discretion and the amount of time government agencies may take in completing processes required under applicable laws and regulations. As a result, final costs may vary significantly from estimates. Homestake periodically reevaluates reclamation cost estimates and reclamation reserves to take account of such factors. Estimates of future capital costs are based on a variety of factors and may include past operating experience, estimated levels of future production, estimates by and contract terms with third-party suppliers, expectations as to government and legal requirements, feasibility reports (which may be prepared by company personnel and/or outside consultants) and other factors. Capital cost estimates for new projects under development generally are subject to greater uncertainties than additional capital costs for existing operations. Estimated periods for completion of capital projects are based on many factors, including experience in completing capital projects, and estimates provided by and contract terms with contractors, engineers, suppliers and others involved in design and construction of projects. Estimates also reflect assumptions with respect to factors beyond the control of Homestake, including, but not limited to, the time government agencies may take in processing applications, 55 issuing permits and otherwise completing processes required under applicable laws and regulations. Actual time to completion may vary significantly from estimates. Estimates of exploration costs are based upon many factors such as past exploration costs, estimates of the level and cost of future activities, and assumptions regarding anticipated results on each property. Actual costs may vary during the year as a result of such factors as actual exploration results (which could result in increasing or decreasing expenditures for particular properties), changed conditions, and acquisitions and dispositions of property. Taxes Homestake's operations are conducted in a number of jurisdictions, with differing rates of taxation, but substantially all of Homestake's revenues come from the United States, Canada and Australia. The Canadian statutory tax rate, including federal and provincial income tax and mining tax is approximately 49%. The applicable United States tax rate is 21% (20% alternative minimum tax plus 1% state tax). The Australian statutory rate was 36% in 1999. In December 1999, the Australian government enacted certain significant changes to the structure of taxation in Australia. These changes included a reduction of the statutory rate to 34% for the fiscal year beginning July 1, 2000 and a further reduction to 30% for years thereafter. Further changes to the structure of taxation in Australia, the impacts of which currently are unknown, are expected to be enacted during 2000. Homestake's reported tax rate varies from the statutory rate because of certain differences between the tax laws and the accounting treatment of income and expenditures. For example, as a result of the acquisition of the minority interests in Prime, there was an increase in the basis of mining assets for financial reporting purposes that is not deductible for Canadian tax purposes. The problem is partially mitigated by the FASB 109 deferred tax purchase accounting adjustments established at the time of purchase. In addition, some of Homestake's foreign exploration costs are expensed for accounting purposes but are not yet deductible for tax purposes. Therefore, the tax benefit related to those expenditures cannot be recognized until there is sufficient taxable income generated in the jurisdictions where such expenditures are incurred. Certain Canadian accounting expenses cannot be deducted in calculating the mining tax. Homestake also has limited ability to utilize foreign tax credits in calculating its United States income tax. Homestake's overall effective tax rate is dramatically impacted by the geographic mix of its pretax income and losses. A greater proportion of income in a high tax jurisdiction, like Canada, can cause the consolidated effective tax rate to rise. Homestake's overall effective tax rate also can fluctuate significantly during a period of low gold prices, because the tax rate is affected by the ratio of tax expense to pretax income. Low pretax income or pretax losses can produce unusually high or unusually low effective tax rates (including the possibility of negative rates). This can occur if mining and income tax expenses continue to accrue on profitable mines in high tax jurisdictions while losses are incurred in low tax jurisdictions. The tax expense in the high tax jurisdiction is not fully offset by the tax benefit from losses generated in the low tax jurisdictions. As a result, as the income and tax expenses from all jurisdictions are blended into a consolidated total, the overall effective rate is disproportionately impacted. 56 CUSTOMERS Sales to individual customers exceeding 10% of Homestake's 1999 and 1998 consolidated revenues are stated below. 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.
1999 1998 ($ in thousands) Customer A $142,000 B 99,000 $ 75,600 C 96,000 - D 77,800 - E 76,000 108,000 F - 120,100 G - 99,200
CREDIT FACILITIES See note 12 "Long-term Debt" to the consolidated financial statements on beginning on page 45 of the 1999 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, 1999 of Homestake and its subsidiaries was: Homestake mine /1/ 360 McLaughlin mine 94 Ruby Hill mine 91 Nickel Plate mine 12 Eskay Creek mine 110 Plutonic mine 126 Darlot mine 62 Lawlers mine 49 Agua de la Falda mine /1/ 47 United States corporate staff and other 68 Canada exploration and corporate staff 19 Australian exploration and corporate staff 73 Argentina exploration and corporate staff 82 United States exploration 18 Uranium 8 Chile exploration and corporate staff 31 ----- Total 1,250
1. Operations where a portion of the employees are represented by a labor union. 57 The number of full-time employees (excluding contractors' employees) at December 31, 1999 in jointly-owned operations in which Homestake participates was: Kalgoorlie Consolidated Gold Mines Pty Ltd /1/ 389 Williams Operating Corporation 605 Round Mountain mine 694 Teck-Corona Operating Corporation /1/ 212 Pinson Mining Company 13 Marigold Mining Company 91 Main Pass 299 177 ------ Total 2,181
1. Operations where a portion of the employees are represented by a labor union. Labor relations at all locations are believed to be good. At the Homestake mine, a five-year labor contract was signed in May 1998. A new three- year union contract at the David Bell mine was signed in April 1999. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, their ages at December 31, 1999, their business experience and principal occupations during the past five years and their business backgrounds are: Jack E. Thompson - Chairman since July 1998 and Chief Executive Officer since May 1996, age 49. He was President from August 1994 to April 1999. He was Chief Operating Officer from August 1994 until May 1996, and 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 29 years of experience in mining and mine management. Walter T. Segsworth - President and Chief Operating Officer since April 1999, age 50. He was President and Chief Executive Officer of HCI and Vice President, Canada from April 1998 to March 1999 and was President and Chief Executive Officer of Prime from April 1998 through December 1998. Prior to joining Homestake, he was President, Chief Executive Officer and Director of Westmin Resources Limited in Vancouver until it was acquired in early 1998. Before joining Westmin in 1990 he was employed by Noranda Limited in a number of positions of increasing responsibility. He is a mining engineer with more than 28 years of professional experience. David W. Peat - Vice President, Finance and Chief Financial Officer since April 1999, age 47. He was Vice President and Controller from December 1995 to April 1999. 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 23 years of accounting and finance experience. 58 Michael L. Carroll - Vice President and Treasurer since July 1999, age 46. He was Treasurer from April 1997 to July 1999 and Director or Taxes from October 1991 to April 1997. Prior to joining Homestake in 1991, he was Assistant Vice President of Bond International Gold Inc. Before joining Bond, he was Director of Taxes for St. Joe Minerals Corporation. He has over 22 years of accounting, finance and tax experience. Lee A. Graber - Vice President, Corporate Development since 1983, age 51. From 1980 to 1983, he was Manager, Corporate Development and Planning. He has over 28 years of experience in finance and corporate development. James B. Hannan - Vice President and Controller since July 1999, age 33. Prior to joining Homestake, he was the Chief Financial Officer from March 1999 to June 1999 and Director, Commercial Development from February 1998 to March 1999 at Koch Mineral Services, a division of Koch Industries, Inc. Before joining Koch, he was controller at Pegasus Gold Corporation from November 1996 to February 1998 and Assistant Controller from April 1995 to November 1996. He is a certified public accountant with over ten years of experience in accounting and finance. Wayne Kirk - Vice President, General Counsel and Secretary since September 1992, age 56. He was a partner in Thelen, Marrin, Johnson & Bridges from 1976 to 1992. He has practiced law for 31 years. Gregory A. Lang - Vice President, Australian Operations since January 1999, age 44. He was Vice President, U.S. and International Operations from August 1998 to December 1998, Vice President, Development from March 1997 to August 1998, Vice President of Homestake International Minerals Limited from June 1996 until March 1997, General Manager, Project Development from January 1996 until June 1996 as well as General Manager of the Ruby Hill project from October 1994 through June 1996, and General Manager of the Nickel Plate mine from 1993 until October 1994. He joined Homestake in 1992 as Resident Manager of the Santa Fe mine, a position he had held with International Corona Corporation since 1988. He is a mining engineer with over 22 years of experience in mining and mine management. Igor Levental - Vice President, Investor Relations since August 1999, age 44. He was the Manager, Corporate Development since 1994. Prior to joining Homestake in 1994, he was Vice President, Investments and Investor Relations for International Corona Corporation. He has over 23 years experience in engineering and investor relations. Donald W. T. Lewis - Vice President, Evaluations since March 1997, age 42. He was Director, North American Exploration/Evaluations from January 1996 until March 1997. He joined Homestake in 1992 as Director, Project Generation. Prior to joining Homestake he was Exploration Manager - Western Canada for International Corona Corporation from 1989 until 1992. He is a geologist with more than 20 years of professional experience. William F. Lindqvist - Vice President, Exploration since August 1995, age 57. 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 29 years of professional experience. 59 Stephen A. Orr - Vice President, North American Operations since August 1999, age 44. He also is President and Chief Executive Officer of HCI. He was the Vice President, Investor Relations from August 1998 to July 1999, Vice President, U.S. Operations from December 1996 to August 1998, General Manager of the Homestake mine from January 1995 until December 1996, Operations Manager from 1993 to 1995 and Manager, Mine Engineering from 1992 to 1993. He was a Financial Analyst in the Corporate Finance Department from 1990 to 1992. He has been with Homestake since 1981 and has over 22 years of experience in mining and mine management. Mary T. Schuba - Vice President, Human Resources since April 1999, age 52. She was the Director, Human Resources from August 1995 to April 1999. She has been with Homestake since 1985 and has over 25 years of experience in personnel and employee relations. 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. ITEM 3 - LEGAL PROCEEDINGS Certain environmental proceedings in which Homestake or its subsidiaries are or may become parties are discussed under the caption "Environmental Matters." In October 1997, HCI and Prime entered into an agreement with Inmet Mining Corporation ("Inmet") to purchase the Troilus mine in Quebec for $110 million plus working capital. In December 1997, HCI and Prime terminated the agreement after determining that, on the basis of due diligence studies, conditions to closing the arrangement would not be satisfied. On February 23, 1998, Inmet filed suit against Prime and HCI in the British Columbia Supreme Court, disputing the termination of the agreement, and alleging that Prime and HCI had breached the agreement. Inmet seeks specific performance or, in the alternative, equitable damages. Homestake believes that the agreement with Inmet was terminated properly and that the action by Inmet is without merit. Homestake intends to defend this action vigorously. Discovery is continuing and trial is scheduled for January 2001. Homestake and its subsidiaries are defendants in various legal actions in the ordinary course of business. In the opinion of management, such matters will be resolved without material adverse effect on the Homestake's financial condition, results of operations or cash flow. 60 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS a. The common stock of Homestake Mining Company is registered and traded principally on the New York Stock Exchange under the symbol "HM." It is also listed and traded in Switzerland on the Basel, Geneva and Zurich stock exchanges under the same symbol and on the Australian Stock Exchange under the symbol HSM. HCI Exchangeable Shares are listed and traded in Canada on the Toronto stock exchange under the symbol "HCX". b. The number of holders of common stock of record as of March 6, 2000 was 19,949. The number of holders of HCI Exchangeable Shares of record as of March 6, 2000 was 1,488. 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 57 in the Company's 1999 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 in note 12 entitled "Long-term Debt" beginning on page 45 in the Notes to Consolidated Financial Statements in the Company's 1999 Annual Report to Shareholders. Such information is hereby incorporated by reference. d. Reference is hereby made to the note 16 entitled "Shareholders' Equity" on page 50 in the Notes to Consolidated Financial Statements in the Company's 1999 Annual Report to Shareholders. Such information is hereby incorporated by reference. e. The Registrant did not sell any securities during 1999 that were not registered under the Securities Act of 1933 except as follows: (i) Argentina Gold Corp. Acquisition. Homestake issued 20.9 -------------------------------- million shares of its Common Stock to acquire Argentina Gold Corp. The shares were issued effective as of April 29, 1999. These shares were issued without registration in reliance upon an exemption under Section 3(a)(10) of the Securities Act after a fairness hearing by the Supreme Court of British Columbia. ITEM 6 - SELECTED FINANCIAL DATA A summary of selected consolidated financial data of the Company and its subsidiaries for the five-year periods ended December 31, 1999 appears on page 58 in the Company's 1999 Annual Report to Shareholders. The summary of selected consolidated financial data is hereby incorporated by reference. 61 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 periods ended December 31, 1999 appears on pages 24 through 33 in the Company's 1999 Annual Report to Shareholders and is hereby incorporated by reference. ITEM - 7 (a) MARKET RISK DISCLOSURES See notes 2 and 18 to the consolidated financial statements at December 31, 1999 for additional information regarding the Company's precious metals and foreign currency hedging programs and the adoption of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities". Such information is hereby incorporated by reference. Gold And Silver Risk Disclosures 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. Homestake's precious metals hedging policy provides for the use of forward sales contracts to hedge up to 30% of each of the following ten year's expected annual gold production, and up to 30% of each of the following five year's expected annual silver production, at prices in excess of certain targeted prices. The policy also provides for the use of combinations of put and call option contracts to establish minimum floor prices. 62 At December 31, 1999 the Company had gold forward sales and option contracts outstanding as follows:
Expected Maturity or Transaction Date ----------------------------------------------------------------------- Fair There- Total or Value (US $ 2000 2001 2002 2003 2004 after Average millions) (2) ------------ ----------- ----------- ---------- ---------- ------------ ----------- ------------- US $ denominated contracts: Forward sales contracts: $ 14.8 Ounces 85,080 10,000 10,000 - - 409,200 514,280 Average price ($ per oz.) $ 430 $ 400 $ 403 - - $ 408 $411 Put options owned: 4.2 Ounces 110,000 80,000 - - - - 190,000 Average price ($ per oz.) $ 279 $ 253 - - - - $268 Call options written: (7.8) Ounces 95,000 80,000 - - - - 175,000 Average price ($ per oz.) $ 275 $ 253 - - - - $265 Call options purchased: 5.8 Ounces 80,000 80,000 - - - - 160,000 Average price ($ per oz.) $ 268 $ 268 - - - - $268 Australian $ denominated contracts: (1) Forward sales contracts: - Ounces - - 24,800 24,800 24,800 26,000 100,400 Average price (US$ per oz.) - - $ 344 $ 344 $ 344 $ 344 $344 Put options owned: 10.4 Ounces 120,000 120,000 - - - - 240,000 Average price (US$ per oz.) $ 340 $ 350 - - - - $345
(1) Expressed in US dollars at an exchange rate of A$ = US$0.6539 (2) Fair values are based on market quotations for similar financial instruments At December 31, 1999 the Company had forward sales contracts outstanding for approximately 4.2 million ounces of silver for delivery during 2000 and 2001 at an average price of $6.24 per ounce. The fair value of these silver contracts at December 31, 1999, based on market quotations for similar financial instruments, was $3 million. Foreign Currency Risk Disclosures Significant portions of the Company's operations are located in Australia and Canada. The Company's profitability is impacted by fluctuations in those countries' currency 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 to minimize the effects of a strengthening of either the Canadian or Australian currencies in relation to the United States dollar. 63 At December 31, 1999 the Company had Canadian and Australian foreign currency option contracts outstanding as follows:
Expected Maturity or Transaction Date ------------------------------------- Fair Total or Value (US $ 2000 2001 2002 Average millions) (4) ----------- ---------- ---------- ----------- ------------- (US$ in millions) Canadian $ / US $ option contracts: $ 1.4 US $ covered $105.4 $ 62.1 - $ 167.5 Written puts, average exchange rate (1) 0.69 0.66 - 0.68 US $ covered $105.4 $66.1 - $171.5 Purchased calls, average exchange rate (2) 0.72 0.69 - 0.71 US $ covered $105.4 $38.3 - $143.7 Purchased puts, average exchange rate (3) 0.65 0.65 - 0.65 Australian $ / US $ option contracts: 2.0 US $ covered $129.5 $63.3 $26.0 $218.8 Written puts, average exchange rate (1) 0.66 0.65 0.69 0.66 US $ covered $129.5 $63.3 $26.0 $218.8 Purchased calls, average exchange rate (2) 0.68 0.66 0.69 0.67 US $ covered $118.6 $52.3 $26.0 $196.9 Purchased puts, average exchange rate (3) 0.63 0.64 0.66 0.64
(1) Assuming exercise by the counter-party at the expiration date, the Company would exchange US dollars for Canadian or Australian dollars at the put exchange rate if the spot exchange was below the put exchange rate. (2) Assuming exercise by the Company of the expiration date, the Company would exchange US dollars for Canadian dollars or Australian dollars at the call exchange rate if the spot exchange rate was above the call exchange rate. (3) Assuming exercise by the Company of the expiration date, the Company would exchange Canadian or Australian dollars for US dollars at the put exchange rate if the spot exchange rate was below the put exchange rate. (4) Fair values are based on market quotations for similar financial instruments. The Company does not require or place collateral for its foreign currency and precious metals hedging derivatives. However, the Company minimizes its credit risk by dealing with only major international banks and financial institutions. Other Financial Instrument Risk Disclosures The carrying values of the Company's long-term debt and other financial instruments approximated their estimated fair values at December 31, 1999 (see notes 12 and 15 to the consolidated financial statements at December 31, 1999). The Company's 5.5% convertible subordinated notes (with a principal balance of $135 million at December 31, 1999) mature in June 2000 and the fair value of this debt has been estimated to approximate its carrying value due to the relatively short time until maturity and the provision that the Company can redeem this debt at any time at par value. The fair value of borrowings under the pollution control bonds and the Company's cross-border credit facility have been estimated to approximate their carrying 64 values as these instruments bear interest at prevailing market rates. The Canadian dollar-denominated borrowings under the cross-border credit facility are held by the Company's Canadian subsidiaries whose functional currency is the Canadian dollar. Therefore the reported liability balance, as expressed in the US dollar reporting currency of Homestake, will fluctuate as the Canadian to US dollar exchange rate changes. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's 1999 Annual Report to Shareholders includes the Company's consolidated balance sheets as of December 31, 1999 and 1998 and related statements of consolidated operations, consolidated shareholders' equity, consolidated cash flows and consolidated comprehensive income (loss) for each of the three years in the period ended December 31, 1999 and the independent accountants' report thereon, and certain supplementary financial information. The following are hereby incorporated by reference from the Company's 1999 Annual Report to Shareholders at the pages indicated: Statements of Consolidated Operations (page 34) Consolidated Balance Sheets (page 35) Statements of Consolidated Shareholders' Equity (page 36) Statements of Consolidated Cash Flows (page 37) Statements of Consolidated Comprehensive Income (Loss) (page 38) Notes to Consolidated Financial Statements (pages 39 - 55) Report of Independent Accountants (page 56) Quarterly Selected Data (page 57) ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 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. 65 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: All schedules have been omitted since they either are not required or because the required information is included in the financial statements or related notes. 3. Exhibits 3.1 Restated Certificate of Incorporation of Homestake Mining Company (incorporated by reference to Exhibit 3.6 to the Registrant's Form 8-K dated December 10, 1998.) 3.2 Bylaws (as amended through May 11, 1999) of Homestake Mining Company. (Incorporated by reference to Exhibit 3.1 to the Registrant's Form 8-K dated June 18, 1999.) 3.3 Homestake Canada Inc. Exchangeable Share Provisions (incorporated by reference to Appendix D to the Registrant's Proxy Statement dated as of October 20, 1998). 3.4 Voting, Support and Exchange Trust Agreement in respect of Homestake Canada Inc. Exchangeable Shares (incorporated by reference to Appendix E to the Registrant's Proxy Statement dated as of October 20, 1998). 3.5 Rights Agreement dated October 16, 1987 (incorporated by reference to Exhibit 1 to the Registrant's Registration Statement on Form 8- A dated October 16, 1987). 3.6 Amendment No. 1 dated as of October 15, 1997 to the Rights Agreement dated as of October 16, 1987 (incorporated by reference to Exhibit 4 to the Registrant's Form 8-A/A filed on October 16, 1997). 3.7 Amendment No. 2 dated as of December 3, 1998 to the Rights Agreement dated as of October 16, 1987 (incorporated by reference to Exhibit 6 to the Registrant's Form 8-A/A filed on December 4, 1998). 3.8 Rights Agreement dated as of December 3, 1998, between Homestake Canada Inc., Homestake Mining Company and Montreal Trust Company of Canada as Rights Agent (incorporated by reference to Exhibit 5 to the Registrant's Form 8-A/A filed on December 4, 1998). 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 Credit Agreement dated as of July 24, 1998 between the Registrant, the Lenders, The Chase Manhattan Bank of Canada as Canadian Administrative Agent for Lenders, Chase Securities Australia Limited, as Australian Administrative Agent for Lenders, Chase Securities Inc., as Arranger, The Chase Manhattan Bank, as Administrative Agent for Lenders, and Deutsche Bank A.G., as Documentation 66 Agent for Lenders (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q dated as of August 13, 1998). 10.2 First Amendment and Waiver to Credit Agreement dated as of September 14, 1998 among the Registrant, the Lenders, Deutsche Bank A.G. as Documentation Agent, The Chase Manhattan Bank of Canada as Canadian Administrative Agent, Chase Securities Australia Limited, as Australian Administrative Agent, Chase Securities Inc., as Arranger, and The Chase Manhattan Bank, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q dated November 13, 1998). 10.3 Second Amendment, dated as of October 16, 1998, to Credit Agreement among the Registrant, the Lenders, Deutsche Bank A.G., as Documentation Agent, The Chase Manhattan Bank of Canada as Canadian Administrative Agent, Chase Securities Australia Limited, as Australian Administrative Agent, Chase Securities Inc., as Arranger, and The Chase Manhattan Bank, as Administrative Agent (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q dated November 13, 1998). 10.4 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 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-K Report for the year ended December 31, 1995). * 10.5 Form of Change of Control Severance Plan of Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-K Report for the year ended December 31, 1995). * 10.6 Deferred Compensation Plan of Homestake Mining Company effective October 1, 1995 (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-K Report for the year ended December 31, 1995). * 10.7 Amended and Restated Executive Supplemental Retirement Plan of Homestake Mining Company effective August 1, 1995 (and as modified January 23, 1998). * 10.8 Supplemental Retirement Plan of Homestake Mining Company, amended and restated effective as of January 1, 1990 (including November 29, 1990 modification) (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-K Report for the year ended December 31, 1995). * 10.9 Master Trust under the Homestake Mining Company Deferred Compensation Plans as of December 5, 1995 (incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-K Report for the year ended December 31, 1995). * 10.10 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). 10.11 Combination Implementation Agreement dated December 22, 1997 between Homestake Mining Company and Plutonic Resources Limited (incorporated by reference to Appendix A to the Registrant's Preliminary Proxy Statement dated January 26, 1998 and as amended March 11, 1998). 10.12 Arrangement Agreement dated as of September 28, 1998 among Prime Resources Group Inc., Homestake Canada Inc., Homestake Canada Holdings Company and Homestake Mining Company (incorporated by reference to Appendix b to the Registrant's Proxy Statement dated as of October 20, 1998). 10.13 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). 67 10.14 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). 10.15 Agreement dated May 4, 1990 for the sale of the Registrant's 42.5% partnership interest in The Doe Run Company (incorporated by reference to Exhibit 28(a) to the Registrant's Form 8-K dated May 18, 1990). 10.16 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). 10.17 Agreement Amending Joint Venture Agreement made 19 June 1996 between Homestake Gold of Australia Limited, North Kalgoorlie Mines Pty Ltd. and Kalgoorlie Consolidated Gold Mines Pty Ltd. (incorporated by reference to Exhibit 10.14 to the Registrant's Form 10-K for the year ended December 31, 1996). 10.18 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 sulfur project (incorporated by reference to Exhibit 10.16 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.19 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). 10.20 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). 10.21 Letter dated June 17, 1996, amending Amendment No. 1 to Joint Operating Agreement between Freeport McMoran Resource Partners, IMC Fertilizer Inc. and Homestake Sulphur Company (incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-K for the year ended December 31, 1996). 10.22 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). 10.23 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). 10.24 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 68 Exhibit 10.19 to the Registrant's Form 10-K for the year ended December 31, 1992). 10.25 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). 10.26 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). * 10.27 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). 10.28 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). 10.29 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). * 10.30 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). * 10.31 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). * 10.32 Consulting agreement dated as of May 15, 1996 between Harry M. Conger and the Registrant (incorporated by reference to Exhibit 10.30 to the Registrant's Form 10-K for the year ended December 31, 1996). * 10.34 Employees' Stock Option and Share Rights Plan-1988 (incorporated by reference to Exhibit 10(n) to the Registrant's Form 10-K for the year ended December 31, 1987). * 10.35 Homestake Mining Company Stock Option and Share Rights Agreement - 1996 ("1996 Plan") (incorporated by reference to Exhibit A to the Registrant's Proxy Statement for the 1996 Annual Meeting of Shareholders). * 10.36 Form of Stock Option Agreement under the 1996 Plan. (incorporated by reference to Exhibit 10.36 to the Registrant's Form 10-K for the year ended December 31, 1998). * 10.37 Form of Performance Based Share Agreement under the 1996 Plan. (incorporated by reference to Exhibit 10.37 to the Registrant's Form 10-K for the year ended December 31, 1998). * 10.38 Form of Bonus Share Agreement under the 1996 Plan. (incorporated by reference to Exhibit 10.38 to the Registrant's Form 10-K for the year ended December 31, 1998). * 10.39 Form of Matching Stock Agreement under the 1996 Plan. (incorporated by reference to Exhibit 10.39 to the Registrant's Form 10-K for the year ended December 31, 1998). 69 * 10.40 1998 Outside Directors' Stock Compensation Plan. (incorporated by reference to Exhibit 10.40 to the Registrant's Form 10-K for the year ended December 31, 1998). * 10.41 Consulting Agreement between McClintock Associates Pty Limited and Plutonic Resources Limited, composite as amended September 24, 1999 (incorporated by reference to Exhibit 10.41 to the Registrant's Form 8-K dated January 18, 2000). * 10.42 Amended 1999 Executive Supplemental Retirement Plan of Homestake Mining Company, Effective April 1, 1999, amended as of September 1, 1999 (incorporated by reference to Exhibit 10.42 to the Registrant's Form 8-K dated January 18, 2000). * 10.43 1999 Change of Control Severance Plan of Homestake Mining (alternative I, applicable to persons who became participants in the Change of Control Severance Plan prior to May, 1998) (incorporated by reference to Exhibit 10.43 to the Registrant's Form 8-K dated January 18, 2000). * 10.44 1999 Change of Control Severance Plan of Homestake Mining Company (alternative II, applicable to persons who became participants in the Change of Control Severance Plan after May, 1998) (incorporated by reference to Exhibit 10.44 to the Registrant's Form 8-K dated January 18, 2000). * 10.45 First Amendment to the Retirement Plan for Outside Directors of Homestake Mining Company, dated as of January 6, 2000 (incorporated by reference to Exhibit 10.45 to the Registrant's Form 8-K dated January 18, 2000). * 10.46 Amended Form of Stock Option Agreement under the 1996 Plan (incorporated by reference to Exhibit 10.46 to the Registrant's Form 8-K dated January 18, 2000). * 10.47 Amended Form of Performance Based Share Agreement under the 1996 Plan-1997 Grants (incorporated by reference to Exhibit 10.47 to the Registrant's Form 8-K dated January 18, 2000). * 10.48 Amended Form of Performance Based Share Agreement under the 1996 Plan-1998 Grants (incorporated by reference to Exhibit 10.48 to the Registrant's Form 8-K dated January 18, 2000). * 10.49 Amended Form of Performance Based Share Agreement under the 1996 Plan-1999 Grants (incorporated by reference to Exhibit 10.49 to the Registrant's Form 8-K dated January 18, 2000). * 10.50 Amended Form of Bonus Stock Program Agreement under the 1996 Plan (incorporated by reference to Exhibit 10.50 to the Registrant's Form 8-K dated January 18, 2000). * 10.51 Amended Form of Matching Stock Agreement under the 1996 Plan (incorporated by reference to Exhibit 10.51 to the Registrant's Form 8-K dated January 18, 2000). 13 Specified Sections from the Company's 1999 Annual Report to Shareholders that are incorporated herein by reference 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 27 Financial Data Schedule. * Compensatory plan or management contract. (b) Reports Filed on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999. 70 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 23, 2000 By: /s/ Jack E. Thompson --------------------------- --------------------------------- Jack E. Thompson Chairman 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/ David W. Peat Vice President, Finance and March 23, 2000 - ----------------- Chief Financial Officer David W. Peat (Principal Financial Officer) /s/ James B. Hannan Vice President and Controller March 23, 2000 - ------------------- (Principal Accounting Officer) James B. Hannan (Signatures continued on following page.) 71 Signature Capacity Date - --------- -------- ---- /s/ Jack E. Thompson Chairman, Chief Executive March 23, 2000 - -------------------- Officer and Director Jack E. Thompson /s/ Gerhard Ammann Director March 23, 2000 - ------------------ Gerhard Ammann /s/ M. Norman Anderson Director March 23, 2000 - ---------------------- M. Norman Anderson /s/ Richard R. Burt Director March 23, 2000 - ------------------- Richard R. Burt /s/ Robert H. Clark, Jr. Director March 23, 2000 - ------------------------ Robert H. Clark, Jr. /s/ Paul McClintock Director March 23, 2000 - ------------------- Paul McClintock /s/ John Neerhout, Jr. Director March 23, 2000 - ---------------------- John Neerhout, Jr. /s/ Peter J. Neff Director March 23, 2000 - ----------------- Peter J. Neff /s/ Stuart T. Peeler Director March 23, 2000 - -------------------- Stuart T. Peeler /s/ Carol A. Rae Director March 23, 2000 - ---------------- Carol A. Rae /s/ Jeffrey L. Zelms Director March 23, 2000 - -------------------- Jeffrey L. Zelms 72 EXHIBIT INDEX
Exhibit 13 Specified Sections of the 1999 Annual Filed herewith electronically Report to Shareholders 21 List of Subsidiaries Filed herewith electronically 23 Consent of Pricewaterhouse Coopers LLP, Filed herewith electronically Independent Accountants 27 Financial Data Schedule Filed herewith electronically
EX-13 2 SECTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 Index to Exhibit 13: Selected information from the 1999 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 1999 Annual Report to Shareholders. Annual Report Page Management's Discussion and Analysis 24-33 Consolidated Financial Statements 34-38 Notes to Consolidated Financial Statements 39-55 Report of Independent Accountants 56 Management's Responsibility for Financial Reporting 56 Quarterly Selected Data 57 Common Stock Price Range 57 Five-Year Selected Data 58 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Years Ended December 31, 1999, 1998 and 1997 (Unless otherwise stated, the following information relates to amounts included in the consolidated financial statements, without reduction for minority interests. Homestake reports per ounce production costs in accordance with the "Gold Institute Production Cost Standard".) On April 29, 1999, Homestake completed the acquisition of Argentina Gold Corp. ("Argentina Gold"), a publicly-traded Canadian gold exploration company. Homestake issued 20.9 million common shares to acquire all of the shares of Argentina Gold. The transaction has been accounted for as a pooling of interests and accordingly, Homestake's consolidated financial statements include Argentina Gold for all periods presented. Argentina Gold's principal asset is its 60% interest in the Veladero property located in northwest Argentina along the El Indio gold belt. RESULTS OF OPERATIONS Summary Homestake recorded net income of $4.9 million or $0.02 per share in 1999 compared to net losses of $233.8 million or $1.01 per share and $233.4 million or $1.02 per share in 1998 and 1997, respectively. The 1999 net income includes write-downs and unusual items amounting to $20.5 million or $0.08 per share compared to write-downs and unusual items amounting to $205.5 million or $0.89 per share in 1998 and $159.2 million or $0.70 per share in 1997. Excluding the effect of the write-downs and unusual items, Homestake recorded net income of $25.4 million or $0.10 per share in 1999 compared to net losses of $28.3 million or $0.12 per share in 1998 and $74.2 million or $0.32 per share in 1997. The improvement in 1999 results compared to 1998 primarily was due to lower operating costs, lower exploration expense, mark-to-market foreign currency exchange gains and lower minority interest charges, partially offset by lower gold prices. The lower 1998 loss compared to 1997 was due to lower operating costs, lower depreciation and exploration expenses and lower income taxes, partially offset by lower gold prices and mark-to-market foreign exchange losses. A summary of significant write-downs and unusual items in 1999, 1998 and 1997 follows:
Significant Write-downs and Unusual Items (after tax in millions of dollars) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- Resource asset write-downs $ (8.9) $(130.8) $ (60.1) Increase in the estimated accrual for remediation and reclamation expenditures (3.3) (36.0) (21.5) Write-downs of noncurrent investments (3.5) (7.6) (45.7) Business combination and integration costs (4.8) (17.0) Homestake mine restructuring charges (5.9) Write-down of Homestake's investment in the Main Pass 299 sulfur mine (84.9) Gain on termination of Santa Fe merger 47.2 Other (8.2) 5.8 - ----------------------------------------------------------------------------------------------------- $(20.5) $(205.5) $(159.2) - ----------------------------------------------------------------------------------------------------- Gold Operations Summary 1999 1998 1997 - ---------------------------------------------------------------------------------------- Revenues (millions of dollars) $671.6 $782.2 $863.6 Gold equivalent sales (thousands of ounces) 2,417 2,602 2,549 Gold equivalent production (thousands of ounces) Consolidated 2,390 2,532 2,529 Attributable 2,390 2,258 2,266 Average realized price ($ per ounce) $ 290 $ 312 $ 353 Average spot price ($ per ounce) 279 294 331 Consolidated production costs ($ per ounce) Total cash cost $ 192 $ 202 $ 246 Total production cost 246 258 303 - ----------------------------------------------------------------------------------------
Revenues from gold, ore and concentrate sales decreased 14% to $671.6 million during 1999 from 1998 reflecting a 7% decline in the averaged realized gold price and a 7% reduction in sales volumes. The lower sales volumes in 1999 were attributable to a 6% decline in consolidated gold equivalent production reflecting lower production in the United States and Australia, 24 partially offset by higher production in Canada. The 9% decrease in revenues in 1998 from 1997 was due to a 12% decline in average realized gold prices, partially offset by a 2% increase in sales volumes. Lower realized prices in 1999 compared to 1998, and in 1998 compared to 1997, primarily were due to lower average spot gold prices, which declined by 5% and 11%, respectively, during these periods. The Company's hedging activities increased revenues by approximately $28 million, $47 million and $25 million in 1999, 1998 and 1997, respectively. The 6% decline in consolidated gold production in 1999 reflects 10% lower production in the United Sates and Australia, offset by a 2% increase in production in Canada. Lower production from United States operations primarily reflects reduced production from the Open Cut at the Homestake mine. Lower production in Australia reflects reduced throughput rates for a portion of 1999 at the Kalgoorlie operations and the absence of production from the Mt Morgans mine, which ceased operation in November 1998. Higher production from Canadian operations reflects increased ore and concentrate shipments at the Eskay Creek mine and increased production from the Hemlo operations, partially offset by reduced production from the Snip mine, which ceased operation in June 1999. Attributable production increased by 6% during 1999 reflecting Homestake's December 1998 acquisition of the minority interests in Prime Resources Group Inc. ("Prime").
Consolidated Production Costs per Ounce (per ounce of gold) 1999 1998 1997 - ----------------------------------------------------------------------------------- Direct mining costs $ 176 $ 185 $ 222 Deferred stripping adjustments (3) 1 5 Costs of third-party smelters 14 12 14 Other 1 - ----------------------------------------------------------------------------------- Cash Operating Costs 187 198 242 Royalties 4 3 3 Production taxes 1 1 1 - ----------------------------------------------------------------------------------- Total Cash Costs 192 202 246 Depreciation and amortization 48 50 54 Reclamation 6 6 3 - ----------------------------------------------------------------------------------- Total Production Costs $ 246 $ 258 $ 303 - -----------------------------------------------------------------------------------
Total cash costs per ounce in 1999 decreased by 5% compared to 1998 due to continued cost reduction efforts, increased production at the low-cost Eskay Creek mine and a decrease in production at the higher-cost Homestake mine, partially offset by higher average Australian exchange rates. The 18% reduction in total cash costs per ounce in 1998 compared to 1997 reflects cost reduction efforts, weaker Australian and Canadian currencies, the impact of initial production at the low-cost Ruby Hill mine, higher production at the low-cost Eskay Creek mine and a decrease in production at the higher-cost Homestake mine. Homestake's total noncash cost per equivalent ounce was $54 during 1999 compared to $56 and $57 per ounce during 1998 and 1997, respectively. Noncash costs per ounce decreased slightly in 1999 primarily due to asset write-downs in 1998 and the absence of depreciation and reclamation charges at the Snip mine, which was closed in 1999, partially offset by additional depreciation charges relating to the Prime acquisition. Consolidated total cash costs per equivalent ounce have been derived from amounts included in revenues and production costs in the Statements of Consolidated Operations as follows:
Reconciliation of Total Cash Costs per Ounce to Financial Statements (millions of dollars, except per ounce amounts) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- Production Costs per Financial Statements $473.8 $537.3 $627.6 Costs not included in Homestake's production costs: Costs of third-party smelters/a/ 35.0 32.4 34.5 Production costs of consolidated joint ventures (4.5) (4.6) (3.3) Production costs of equity-accounted investments 1.9 1.9 1.9 Sulfur and oil production costs (23.1) (24.2) (25.4) Reclamation accruals (14.7) (13.4) (9.0) By-product silver revenues (2.7) (3.1) (2.6) Inventory movements and other (7.6) (13.8) (6.4) - ------------------------------------------------------------------------------------------------------- Production Costs for Per Ounce Calculation $458.1 $512.5 $617.3 - ------------------------------------------------------------------------------------------------------- Ounces Produced During the Year (in thousands) 2,390 2,532 2,529/b/ - ------------------------------------------------------------------------------------------------------- Total Cash Costs Per Ounce $ 192 $ 202 $ 246 - -------------------------------------------------------------------------------------------------------
a. Eskay Creek sells ore and concentrates containing gold and silver directly to third-party smelters. For comparison purposes, cash operating costs per ounce include estimated third-party costs incurred by smelters and others to produce marketable gold and silver. b. Includes 16,600 ounces produced at the Ruby Hill mine during 1997, prior to commercial production, which are excluded from the cost per ounce calculation. 25 United States United States operations produced 624,200 ounces of gold at a total cash cost of $207 per ounce during 1999 compared to production of 691,500 ounces at a cash cost of $221 per ounce during 1998 and 702,800 ounces at a cash cost of $286 per ounce during 1997. At the Homestake mine in South Dakota, production in 1999 decreased to 212,700 ounces at a cash cost of $261 per ounce from 277,400 ounces at a cash cost of $249 per ounce in 1998 and 397,300 ounces at a cash cost of $310 per ounce in 1997. The lower production and higher cash costs during 1999 reflect significantly lower production from the lower-cost Open Cut. Mining at the Open Cut was completed in September 1998 and open-cut production since that time has been derived from processing lower-grade residual stockpiles, which were depleted in December 1999. In 1998, the underground operations at the Homestake mine were restructured, and as a result, the workforce was reduced by 450 employees, parts of the mine were closed and mining was concentrated on substantially fewer production levels. Lower production and cash costs during 1998 compared to 1997 reflect the restructuring of the underground operations and an increase in the rate of processing the lower-cost, lower-grade Open Cut ore. The Homestake mine is expected to produce approximately 200,000 ounces in 2000 solely from the underground operations. At the Ruby Hill mine in Nevada, which commenced commercial production January 1, 1998, gold production in 1999 increased to 123,800 ounces at a cash cost of $104 per ounce compared to 116,500 ounces in 1998 at a cash cost of $122 per ounce. Higher production and lower cash costs primarily reflect higher ore grades, partially offset by fewer tons processed. Production at the McLaughlin mine in northern California totaled 121,500 ounces at a cash cost of $223 per ounce in 1999 compared to 128,700 ounces at a cash cost of $219 per ounce during 1998 and 118,500 ounces at a cash cost of $254 per ounce during 1997. Mining operations at the McLaughlin mine were completed in 1996 and since that time the operation has processed stockpiled ore through a conventional carbon-in-pulp circuit. The lower production and higher cost per ounce in 1999 is due to lower ore grades as the higher-grade stockpiles were depleted in the third quarter of 1999. The decrease in cash costs per ounce during 1998 compared to 1997 is due to higher grades and cost containment measures. Production in 2000 is expected to decrease slightly and cash costs to increase due to a decline in the grade of the ore to be processed. At currently anticipated production rates, the stockpiles are expected to be depleted in 2002. Homestake's 25% share of 1999 gold production from the Round Mountain mine in Nevada was 135,500 ounces at a cash cost of $198 per ounce, compared to 127,600 ounces at a cash cost of $220 per ounce in 1998 and 120,000 ounces at a cash cost of $226 per ounce in 1997. The increase in production and decrease in costs during 1999 is due to an increase in the tonnage and grade of ore placed on the dedicated leach pad and a significantly higher average grade of ore processed through the mill. The higher production and lower cash costs per ounce in 1998 resulted from increases in mill ore grades, recovery and the amount of course gold encountered during milling operations, partially offset by lower tonnage leached on the reusable pad. Canada Canadian gold production increased to 905,900 equivalent ounces at a total cash cost of $157 per ounce during 1999 compared to production of 890,400 equivalent ounces at a cash cost of $166 per ounce during 1998 and 835,400 equivalent ounces at a cash cost of $186 per ounce during 1997. Production at the Eskay Creek mine, consisting of payable gold and silver in ore and concentrates sold, increased to 558,400 equivalent ounces of gold during 1999 from 504,800 and 417,300 equivalent ounces in 1998 and 1997, respectively. Cash costs per equivalent ounce, including third-party smelter costs, decreased slightly to $131 during 1999 from $133 per equivalent ounce during 1998 and $157 per equivalent ounce during 1997. The increase in 1999 production primarily is due to increased ore and concentrate shipments, partially offset by lower ore grades mined. The increase in 1998 production primarily was due to production from the gravity/flotation mill, which was commissioned in December 1997, and the effect of a lower gold/silver equivalency ratio. Eskay Creek silver production is converted to gold equivalent production using the ratio of the gold market price to the silver market price. During 1999, the Company converted silver to gold using an equivalency factor of 52.7 ounces of silver equals one ounce of gold compared to equivalency factors of 52.6 ounces and 68.2 ounces of silver equals one ounce of gold in 1998 and 1997, respectively. Cash costs per equivalent ounce declined in 1998 compared to 1997 due to the lower-cost production from the mill and the weaker Canadian dollar. Homestake's share of production from the Hemlo mining camp in Ontario, which encompasses the Williams and David Bell mines and the Quarter Claim royalty interest, amounted to 305,200 ounces at a cash cost of $197 per ounce in 1999 compared to 286,300 ounces at a cash cost of $210 per ounce in 1998 and 302,500 ounces at a cash cost of $216 per ounce in 1997. In mid-1999, the David Bell mill was decommissioned and, since that time, both David Bell and Williams ore have been processed at the lower-cost Williams mill. Production from the Hemlo mines in 1999 increased 7% and cash costs per ounce decreased 6% from the prior year primarily due to higher ore 26 grades at the Williams mine and the recovery of 4,700 ounces from the clean up of the David Bell mill following closure, partially offset by lower ore grades at the David Bell mine. The lower production from the Hemlo mines in 1998 compared to 1997 primarily was attributable to lower ore grades, partially offset by increased throughput at the Williams mine. During 1999, production from the Snip mine located in British Columbia was 42,300 ounces at a cash cost of $208 per ounce compared to 99,300 ounces at a cash cost of $205 per ounce during 1998 and 115,600 ounces at a cash cost of $213 per ounce during 1997. All mining and milling activities at the Snip mine were completed during the second quarter of 1999 as the mine's reserves were depleted. All active reclamation activities were completed early in the fourth quarter of 1999. Australia Western Australia gold production of 835,500 ounces at a total cash cost of $219 per ounce during 1999 compares to production of 925,700 ounces at a cash cost of $224 per ounce during 1998 and 974,300 ounces at a cash cost of $269 per ounce during 1997. Homestake's 50% share of production from the Kalgoorlie operations totaled 360,100 ounces at a cash cost of $235 per ounce during 1999 compared to 390,200 ounces at a cash cost of $229 per ounce during 1998 and 425,900 ounces at a cash cost of $259 per ounce during 1997. The decreases in production in 1999 and 1998 primarily are due to lower throughput as a result of mechanical difficulties encountered at the Fimiston SAG mill. From June 1998, until a permanent replacement gear was installed in May 1999, structural cracks in the mill's ring gear required that the mill be operated at a reduced rotation speed to minimize stress on the gears, which limited capacity. During 1999, the Company received insurance proceeds of $4.8 million related to the ring gear failure. Further, as yet undetermined, recoveries are expected in 2000. Cash costs per ounce in 1999 increased as a result of a slightly stronger Australian dollar and a temporary increase in mining costs associated with an interim mining agreement with the contract miner, partially offset by the ring gear insurance proceeds. Production in 1998 also was lower than in the previous year due to a decrease in production at the Mt Charlotte mine. The decrease in cash costs in 1998 from 1997 primarily reflects a weakening of the Australian dollar. During the third quarter of 1999, Homestake and its 50% joint venture partner Normandy Mining Ltd. ("Normandy") began progressively transferring Super Pit mining operations from a mining contractor to owner mining. Once conversion to owner mining is completed in the first quarter of 2000, Homestake expects Super Pit cash operating costs to be significantly reduced. In July 1999, development was suspended and a 40-person reduction in workforce at the Mt Charlotte underground mine was announced. Mining activities since that time have concentrated on previously developed ore blocks. The current mine plan extends to August 2000, but performance of the mine will be monitored to determine whether the operation will continue until that date. Gold production at the Yilgarn operations, which consist of the Plutonic, Lawlers and Darlot mines, was 453,900 ounces at a cash cost of $208 per ounce in 1999 compared to 459,400 ounces at a cash cost of $218 per ounce in 1998 and 427,300 ounces at a cash cost of $252 per ounce in 1997. Production at the Plutonic mine totaled 236,500 ounces at a cash cost of $221 per ounce in 1999 compared to 255,500 ounces at a cash cost of $226 per ounce in 1998 and 274,600 ounces at a cash cost of $234 per ounce in 1997. Production decreased in 1999 compared to 1998 primarily due to a lower average ore grade milled, and in 1998 compared to 1997 primarily due to lower ore grades and lower mill throughput as the mine began its conversion from an open pit to an underground mining operation following depletion of the Main Pit at the end of 1997. During 1999 and 1998, the processing of underground ore was supplemented with ore from lower grade open-pit stockpiles, which enabled the mill to operate at full capacity. During 1999, ore sourced from the underground operations comprised 65% of total production compared to 41% and 26% in 1998 and 1997, respectively. Production at the Darlot mine continued to increase and cash costs per ounce continued to decrease in 1999 as a result of the commencement of mining in the higher-grade Centenary underground orebody in late 1998. Darlot production in 1999 amounted to 113,100 ounces at a cash cost of $198 per ounce compared to production of 77,500 ounces at a cash cost of $250 per ounce in 1998 and 65,200 ounces at a cash cost of $320 per ounce in 1997. Production in 1999 also benefited from the completion of a mill upgrade, which has improved recoveries. Production at the Lawlers mine totaled 104,300 ounces in 1999 compared to 126,400 and 87,500 ounces in 1998 and 1997, respectively. The Lawlers mine now is exclusively an underground operation. Production in 1999 decreased 17% as a result of the completion of open-pit mining in October 1998 and reduced ore grades resulting from difficulties associated with developing high-grade ore sources in the second half of the year. Production in 1998 increased 44% from 1997 due to higher grades and increased throughput, primarily from the New Holland and Fairyland deposits. Cash costs per ounce increased 4% to $189 per ounce in 1999 as the effect of lower production and higher average exchange rates largely were offset by lower operating costs and improved operating efficiencies. Cash costs per ounce declined to $181 per ounce in 1998 compared to 27 $260 per ounce in 1997 as a result of lower costs in conjunction with higher production. During 1998, mining operations were completed at the then 80%-owned Mt Morgans mine and at the 66.7%-owned Peak Hill mine. Processing of lower-grade stockpiles continued at the Mt Morgans mine until November 1998 and at the Peak Hill mine until November 1999. Homestake is continuing active exploration in the vicinity of these properties. Main Pass 299 The Company has a 16.7% undivided interest in the Main Pass 299 sulfur mine and oil recovery operations in the Gulf of Mexico. Homestake recorded Main Pass 299 operating losses of $3.8 million in 1999 compared to operating losses of $5.3 million during 1998 and $3.6 million in 1997. The lower 1999 loss in comparison to 1998 reflects higher sales prices, partially offset by lower sales volumes, for both sulfur and oil, and lower depreciation charges as the oil assets were fully depreciated at the end of 1998. Results in 1998 compared to 1997 reflect lower sales prices and volumes, and higher per unit operating costs. During 1997, due to a prolonged period of low sulfur prices and Homestake's assessment of estimated future cash flows from sulfur operations, the Company wrote-down to zero its then carrying value of $107.8 million of the Main Pass 299 sulfur fixed assets. The Main Pass 299 sulfur 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. In certain circumstances, Homestake can make an annual election to not take its share of the following year's production and not pay for the operating costs related to that year's production. In the fall of 1999, Homestake exercised its right under the sulfur joint operating agreement to not take and not pay for its share of the sulfur production in the year 2000. In December 1999, Freeport-McMoRan Sulphur LLC ("FMS") denied that Homestake had the right to make the election or that Homestake had made the election on a timely basis. Homestake filled suit in Delaware seeking a declaratory judgement affirming that it had the right to make the election and that it had made the election on a timely basis. Subsequently, FMS has refused to pay to Homestake amounts due to it, including amounts due under the oil and gas operating agreement, contending that it has a right to offset those amounts against amounts it claims to be due under the sulfur operating agreement. Homestake has amended its complaint in Delaware seeking damages against FMS for failing to pay the amounts due. FMS has filed its answer disputing Homestake's contention and also seeking declaratory relief and damages. In January 2000, FMS announced that it had reduced its proved sulfur reserves at year end 1999 to 13.7 million long tons, compared to 52.4 million long tons at December 31, 1998. In its announcement, FMS stated that "Although our estimate of physically producible sulfur has not changed, we have reduced our estimates of commercially recoverable reserves primarily based on our expectations of decreased production rates at the mine, partially offset by anticipated decreases in costs. These factors have also caused us to reduce the expected useful life if the mine from 30 years to 10 years, which will result in an increase in abandonment and reclamation accruals by approximately $3.0 million per year. The price of sulfur is a critical factor in the determination of commercially recoverable reserves. A future increase in sulfur prices could result in a restoration of the reserves being reduced at year-end 1999." Based on the foregoing announcement, Homestake has reduced its share of reserves at the mine to 2.3 million tons as of December 31, 1999. Homestake's total estimated reclamation liability with the respect to its 16.7% of the sulfur interest is $9.5 million, of which $1.7 million was accrued at December 31, 1999. Other income (loss) of $40.8 million in 1999 compares to $(24.7) million in 1998 and $63.7 million in 1997. Other income includes pretax unrealized foreign currency gains of $26.7 million in 1999, primarily with respect to foreign currency option contracts and intercompany advances, compared to losses of $38.7 million and $33.8 million during 1998 and 1997, respectively. Other income in 1998 also includes gains on sales of investments of $5.3 million. In 1997, other income also includes gains of $62.9 million related to the fee received on termination of the merger with Santa Fe Pacific Gold Corporation ("Santa Fe"), $10.4 million related to an agreement to sell a right to cancel the Company's option to acquire shares of Great Central Mines Limited, and $13.5 million from the sale of the George Lake and Back River joint venture interests. Depreciation, depletion and amortization declined to $134.5 million during 1999 from $139.4 million during 1998 and $162.8 million during 1997. Depreciation expense decreased in 1999 and 1998 following the asset write-downs recorded in 1998 and 1997. 28 Administrative and general expense declined to $42.0 million during 1999 from $46.8 million during 1998 and $49.5 million during 1997. Reduced administrative and general expenses in 1999 are the result of continuing cost reduction efforts. In July 1999, the Company announced its intent to reduce overhead costs by an additional 10%, which together with reduced exploration spending, is expected to reduce costs by up to $30 million annually. Exploration expense decreased to $39.5 million in 1999 compared to $59.9 million in 1998 and $67.6 million in 1997. Expenditures in 1999 include $2.6 million of exploration expenses incurred by Argentina Gold on the Veladero joint venture property prior to Homestake's acquisition, $3.2 million incurred by Homestake subsequent to the acquisition and $1.1 million for metallurgical studies on the Jeronimo deposit at the Agua de la Falda property in northern Chile. Expenses related to in-mine definition drilling at Homestake's operating mines are included in the individual mine operating expenses and cost per ounce calculations. The reduced exploration spending levels reflect general gold industry trends and an increased exploration focus following the acquisitions of Plutonic in 1998 and Argentina Gold in 1999. Homestake has withdrawn from northern Latin America and Eastern Europe and is concentrating its exploration resources on existing major projects and on the extensive land packages in prime gold belts associated with these acquisitions. The Company currently plans to spend approximately $30 million on exploration activities during 2000, primarily around existing operations and on advanced exploration projects that have the greatest prospect of creating commercially viable mines. In addition, the Company expects to spend approximately $14.2 million on resource development at the Veladero and Jeronimo projects in 2000. Resource asset write-downs: During 1999, the Company reviewed the carrying values of its gold mining operations using $325 per ounce gold price. Based on this review, the Company determined that none of its mining operations was impaired. However, the Company recorded resource asset write-downs of $11.7 million including $10 million to write-off certain exploration properties acquired as part of the Plutonic acquisition and $1.7 million to reduce the carrying value of redundant equipment at the Kalgoorlie operations in Australia. In addition, the Company recorded a $3.5 million write-down related to an investment in an exploration joint venture in Eastern Europe following a decision to exit the venture. During 1998, the Company reviewed the carrying values of its gold mining operations also using a $325 per ounce gold price. As a result of that review, the Company determined that certain assets were impaired and that write-downs were required to reduce the carrying values of those assets. Based on estimated future cash flows, the Company did not expect to recover its remaining investments in property, plant and equipment at the Homestake and Mt Charlotte mines. Accordingly, the Company recorded write-downs of $76.1 million and $38.4 million reducing the remaining carrying values of property, plant and equipment at the Homestake and Mt Charlotte mines, respectively, to zero. The Company also recorded write-downs of $37.1 million related to other mineral properties, including $22.3 million and $10.2 million related to mineral properties acquired as part of the Plutonic and Argentina Gold acquisitions. In 1997, the Company reviewed the carrying values of its gold mining operations and determined that impairment existed and that write-downs were required to reduce the carrying values of several of its assets with short remaining lives. As a result, write-downs were recorded related to the Mt Morgans and Peak Hill mines, the Pinson mine, the Homestake mine's Open Cut, low-grade stockpiled ore and exploration properties at certain locations in Western Australia and redundant mining equipment at the Kalgoorlie operations. Environmental: During 1999, following an environmental audit, the Company recorded a provision of $5.2 million for additional reclamation costs at certain non-operating properties in Australia acquired as a result of the Plutonic acquisition. During 1998, the Company recorded a provision for estimated additional remediation and related reclamation costs at the Homestake mine of $35 million. The recognition of this liability was caused by the findings of an environmental audit and changes in the operation's mining plans. During 1997, the Company increased reclamation accruals for certain of its non-operating properties by $29.2 million, including the Santa Fe and Nickel Plate mines and the Grants uranium complex to reflect revised estimates, changed conditions and more stringent future reclamation requirements. Income and mining taxes: Homestake's consolidated income and mining tax expense was $7.4 million in 1999, compared to tax benefits of $13.1 million and $19.5 million in 1998 and 1997, respectively. Homestake's effective income and mining tax rate was 68.1% on 1999 pretax income compared to 5.7% and 7.9% on 1998 and 1997 pretax losses, respectively. The geographic mix of pretax income and losses dramatically impacts the overall effective tax rate. During 1999, the Company had pretax income of $34.7 million in the United States and $12.3 million in Canada, and pretax losses of $22.1 million and $14.0 million in Australia and South American jurisdictions, respectively. Homestake recorded tax expense of $4.7 million on United States income and $10.0 million on Canadian income, and a tax benefit of $7.3 million on Australian losses. In 1999, no 29 tax benefit was recognized on losses incurred in South American jurisdictions due to the uncertainty of their realization. The statutory tax rate in the United States is 35%. However, while the Company has sufficient tax attributes to shelter regular United States income taxes, it is subject to the 20% Alternative Minimum Tax ("AMT"), which can be reduced by 90% through the use of foreign tax credits. The Company's effective United States tax rate was 13.5% in 1999 reflecting foreign withholding taxes on intercompany interest income and AMT on intercompany dividends from Canada following the Prime acquisition. The Canadian statutory tax rate, including federal and provincial income tax and mining tax is approximately 49.1%. The Company's effective Canadian tax rate in 1999 was 81.5%, primarily due to depreciation expense recorded in the financial statements that is not deductible for tax purposes and a valuation allowance established for Argentina Gold's Canadian losses due to the uncertainty of their realization. These adjustments were partially offset by a reduction in prior years' tax accruals for certain contingencies that were resolved favorably. The Australian statutory tax rate is 36%. The Company's effective Australian tax rate was 33%, reflecting expenses recorded in the financial statements that are not deductible for tax purposes, offset by a tax benefit from a change in corporate tax rates. In December 1999, the Australian government reduced corporate tax rates to 34% for the fiscal year beginning July 1, 2000 and to 30% thereafter. At December 31, 1999 and 1998 the Company had valuation allowances related to its deferred tax assets of $309.1 million and $217.5 million, respectively. Future tax benefits for United States and South America have not been recognized because realization of these benefits is uncertain. In addition, there currently is not a strategy that would result in the realization of certain Australian and Canadian deferred tax assets. Minority interests: Losses allocable to minority interests in consolidated subsidiaries amounted to $1.4 million in 1999 compared to income allocable to minority interests of $3.2 million in 1998 and $4 million in 1997. The reduction in income allocable to minority interests in 1999 from 1998 is due to the December 1999 acquisition of the Prime minority interests. The decrease in income allocable to minority interests in 1998 from 1997 primarily is attributable to the minority interests' share of the Lachlan mineral property write-downs during 1998. Minority interests share of net assets increased during 1999 as a result of additional assets contributed to Agua de La Falda joint venture ("Agua") by Agua's 49% shareholder, Codelco, partially offset by the allocation of losses allocable to minority interests, primarily exploration and prefeasibility expenditures in excess of joint venture operating earnings. LIQUIDITY AND CAPITAL RESOURCES Cash and short term investments totaled $266.6 million at the end of 1999 compared with $301.9 million at the end of 1998 a decrease of $35.3 million. Net cash provided by operations in 1999 amounted to $117.3 million compared to $115.1 million and $157.9 million in 1998 and 1997, respectively. The increase in cash provided by operations during 1999 from 1998 reflects improved operating performance and $35 million of proceeds related to the early close out of forward sales contracts, partially offset by the effect of lower gold prices. The decrease in cash flow from operations in 1998 from 1997 primarily is due to lower gold prices and the inclusion in 1997 cash flows of the $65 million fee received on termination of the merger with Santa Fe. Total debt outstanding, including capital lease obligations, was $315.7 million at December 31, 1999 compared to $357.4 million at the prior year end. The Company has a cross-border credit facility ("Credit Facility") providing a total availability of $430 million. The Credit Facility is available through July 14, 2003 and provides for borrowings in United States, Canadian, or Australian dollars, or gold, or a combination of these. Australian dollar- denominated borrowings outstanding at December 31, 1998 under the credit facility were repaid in 1999. At December 31, 1999, borrowings outstanding under the Credit Facility consisted of Canadian dollar-denominated borrowings of $102.7 million (C$148.2 million). The Company pays a commitment fee on the unused portion of this facility ranging from 0.15% to 0.35% per annum, depending upon rating agencies' ratings for the Company's senior debt. The credit agreement requires, among other provisions, a minimum consolidated net worth, as defined in the agreement (primarily shareholders' equity plus the amount of all noncash write-downs made after December 31, 1997), of $500 million. Interest on the Canadian dollar borrowings is payable quarterly based on the Bankers' Acceptance discount rate plus a stamping fee. At December 31, 1999 this rate was 6.17%. During 1999 the Company entered into capital leases to finance its portion of the purchase of mining equipment at the Kalgoorlie operations. Leased assets of $23 million are included in property, plant and equipment at December 31, 1999. In July 1997, Lawrence County, South Dakota issued $30 million of Solid Waste Disposal Revenue Bonds ("Waste Disposal Bonds") and $18 million of Pollution Control Refunding Revenue Bonds, both of which are due in 2032. The Company is responsible for funding principal and interest payments on these bonds. Due to a reduction in the size of the Homestake mine tailings project, the Company repaid $10 million of the Waste Disposal Bonds in March 1999 out of the funds held in trust. During 1999, the Company repurchased $15 million of the 5.5% Convertible Notes ("Convertible Notes"), which mature on 30 June 23, 2000. At December 31, 1999, the Company has classified $100 million of Convertible Notes as long-term debt since the Company intends to refinance that portion of these obligations under the Credit Facility for a period longer than one year from December 31, 1999. The remaining $35 million of Convertible Notes have been classified as current as the Company expects to retire this debt using cash and equivalent balances. Interest on the notes is payable semiannually in June and December. The notes are convertible into the Company's common shares at a rate of $23.06 per common share. See note 12 to the Consolidated Financial Statements for further information on the Company's long-term debt. Long-term debt repayments, net of borrowings, amounted to $51.5 million in 1999, compared to $8.1 million in 1998 and net borrowings of $76.7 million in 1997. Net debt repayments in 1999 include the repurchase of $15 million of the Convertible Notes, repayment of all Australian dollar-denominated borrowings under the Credit Facility from existing cash and short-term investment balances, repayment of $10 million of the Waste Disposal Bonds, borrowings of $23 million (A$35.2 million) under the capital leases and $99.8 million (C$148.2 million) of Canadian dollar-denominated borrowings under the Credit Facility. In December 1998, Homestake purchased the Prime minority interests for stock. Total acquisition cost was $321.8 million (including $4 million of capitalized direct acquisition costs). The excess of the purchase price paid over the net book value of the minority interests acquired was $224 million of which $174 million ($259.6 million including an increase related to deferred taxes) was allocated to the Eskay Creek mine's ore reserves and $50 million ($74.6 million including an increase related to deferred taxes) was allocated to the Eskay Creek exploration properties. In February 1997, Homestake sold its interests in the George Lake and Back River joint ventures in Canada to Kit Resources Corporation ("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. This transaction resulted in a pretax gain of $13.5 million. In November 1997, Homestake purchased a 20% interest in Navan Bulgarian Mining BV ("Navan BV") for $12 million. In September 1998, Homestake completed its evaluation of Navan BV's Chelopech project and concluded that the project did not warrant Homestake's participation and therefore terminated its participation in Navan BV. Navan BV returned approximately $11 million of Homestake's investment. In 1997, the Company received $37.1 million (A$50 million) upon repayment of Edensor Nominees Pty, Ltd. debt owed to the Company. Capital expenditures of $104.9 million in 1999 include $39.7 million at the Yilgarn operations primarily for underground development work, $33.5 million at the Kalgoorlie operations primarily to acquire equipment for owner mining and $11.2 million at the Homestake mine primarily for underground mobile mining equipment and a raise on the tailings dam. The remaining expenditures primarily were for replacement capital to maintain existing production capacity. In addition to sustaining capital, planned capital expenditures of approximately $70 million during 2000 include $12 million at the Super Pit primarily to complete the purchase of owner mining equipment and to upgrade the Fimiston mill flotation circuit, a total of $20 million at the Yilgarn operations primarily for underground development, $8 million at the Homestake mine related to the Ross Shaft upgrade and restructuring of the underground operations and $3 million at the Eskay Creek mine primarily for a mill expansion project. During 1999, Homestake paid dividends of $.05 per share and $.025 per share in the second and fourth quarters, respectively. At the time the fourth quarter dividend was declared, the Company also announced that under current economic conditions the Board of Directors would consider future payments of dividends once a year during the second half of the year. The Company paid cash income and mining taxes of $33.3 million in 1999, consisting primarily of Canadian taxes. Future results will be impacted by such factors as the market price of gold and, to a lesser extent silver, the Company's ability to expand its ore reserves, and fluctuations of foreign currency exchange rates. The Company believes that the combination of cash, short-term investments, available lines of credit and future cash flows from operations will be sufficient to meet normal operating requirements, planned capital expenditures, and anticipated dividends. Foreign currency, gold and other commitments Homestake's precious metals hedging policy provides for the use of forward sales contracts to hedge up to 30% of each of the following ten year's expected annual gold production, and up to 30% of each of the following five year's expected annual silver production, at prices in excess of certain targeted prices. The policy also provides for the use of combinations of put and call option contracts to establish minimum floor prices. Homestake does not hold or issue financial instruments or derivative financial instruments for trading purposes or to create hedge positions in excess of forecast identifiable exposures. During 1999, 1998 and 1997 the Company delivered or financially settled 449,980, 1,258,000 and 656,000 ounces of gold at average prices of $327, $335 and $421 per ounce, respectively, under maturing forward sales and option contracts. In 1999, the Company also delivered or financially settled option contracts for 3,095,000 ounces of silver at an average price of $6.35 per ounce. In July 1999, the Company closed out and financially settled US dollar denominated forward sales gold 31 contracts covering 245,000 ounces maturing in the years 2001, 2002 and 2003. The pretax gain of $35 million realized as a result of this transaction has been deferred and will be recorded in income as the originally designated production is sold. The estimated fair value of the Company's remaining gold and silver hedging position at December 31, 1999 was approximately $30 million. At December 31, 1999, Homestake's gold hedging program covered approximately 5% of its proven and probable reserves and contained no exposure to floating lease rates or margin call requirements. Under the Company's foreign currency protection program, the Company has entered into foreign currency option contracts to minimize the effects of a strengthening of either the Canadian or Australian currencies in relation to the United States dollar. Realized and unrealized gains and losses on this program are recorded in other income. At December 31,1999 the Company had net unrealized gains of $3.4 million on open contracts under this program. In June 1998, FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting as either a fair value hedge or a cash flow hedge. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows of the hedging instruments and the hedged items. The Company believes that under SFAS 133, changes in unrealized gains and losses on Homestake's foreign currency contracts will qualify for hedge accounting and be deferred in other comprehensive income. The Company also believes that contracts under its precious metals hedging program will qualify as cash flow hedges under SFAS 133. However, there are many complexities to this new standard. The Company currently is evaluating the impact that SFAS 133 will have on reported operating results and financial position. The Company expects to adopt SFAS 133 effective January 1, 2001. See notes 2 and 18 to the consolidated financial statements for additional information regarding the Company's hedging programs. Risks and uncertainties Homestake's operations are affected by the quantity of metals produced, market prices of gold, and to a lesser extent silver, operating costs, interest rates on borrowings and investments, and exploration spending levels. The market price for gold is a worldwide market. Gold prices are subject to volatile price movements over short periods of time and are influenced by numerous factors over which Homestake has no control, including expectations with respect to rates 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 jewelry and industrial products containing gold, speculation, and sales by holders and producers of gold in response to these factors. In addition, because Homestake operates internationally, exposure also exists with respect to fluctuations in currency exchange rates, political risk and levels of taxation. Homestake attempts to manage its exposures to these risks through currency and commodity hedging programs and by maintaining appropriate levels of liquidity and leverage. The Company competes with other mining companies for exploration properties, mining claims, joint-venture agreements and for the acquisition of gold mining assets. Such competition could increase the difficulty of acquiring assets on terms acceptable to Homestake. Homestake's estimates of its remediation and reclamation obligations are based on currently available facts, existing technology and presently enacted laws and regulations. Environmental laws and regulations continually are changing in all of the regions in which Homestake operates. It is not possible to determine the impact of future changes in environmental laws and regulations on its future financial position because of uncertainty surrounding the form such changes may take. The Company regularly reviews these obligations. However, it is reasonably possible that as reclamation plans and associated cost estimates change, the Company's remediation and reclamation liability could change significantly. 32 Year 2000 The Year 2000 ("Y2K") issue is the result of computerized systems using two digits rather than four to identify an applicable year. Date-sensitive systems may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of business operations. In 1999, the Company completed a review of its computer- based information systems and developed a plan to ensure that all of these systems would be Year 2000 compliant. Year 2000 compliant upgrades for the Company's core financial systems were installed and tested. To date, no significant Y2K problems have been encountered during the year 2000 and none are expected. However, factors may exist that could cause Y2K related problems in the future. Homestake's management information systems and operations staff will again monitor critical operations during the December 31, 2000 - January 1, 2001 Y2K rollover dates. The Company has not established systems to track Y2K related costs directly. Total Y2K program expenditures, which are composed primarily of internal payroll costs and external consulting fees, totaled approximately $1.5 million. 33 Homestake Mining Company and Subsidiaries Statements of Consolidated Operations (In thousands, except per share amounts)
For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Revenues Gold and ore sales $ 671,572 $ 782,159 $ 863,628 Sulfur and oil sales 19,376 20,975 26,821 Interest income 16,366 19,501 17,435 Other income (loss) (note 4) 40,811 (24,745) 63,682 - ------------------------------------------------------------------------------------------------------------------------------------ 748,125 797,890 971,566 - ----------------------------------------------------------------------------------------------------------------------------------- Costs and Expenses Production costs 473,775 537,291 627,639 Depreciation, depletion and amortization 134,478 139,371 162,781 Administrative and general expense 42,045 46,832 49,455 Exploration expense 39,511 59,865 67,587 Interest expense 17,827 20,884 20,756 Business combination and integration costs (note 3) 4,764 19,351 - Write-downs and other unusual charges (note 5) 20,415 213,813 285,315 Other expense 4,453 4,165 6,836 - ------------------------------------------------------------------------------------------------------------------------------------ 737,268 1,041,572 1,220,369 - ------------------------------------------------------------------------------------------------------------------------------------ Income (Loss) Before Taxes and Minority Interests 10,857 (243,682) (248,803) Income and Mining Taxes (note 6) (7,388) 13,087 19,458 Minority Interests 1,395 (3,185) (4,009) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) $ 4,864 $ (233,780) $ (233,354) - ------------------------------------------------------------------------------------------------------------------------------------ Net Income (Loss) Per Share (Basic and Diluted) $ 0.02 $ (1.01) $ (1.02) - ------------------------------------------------------------------------------------------------------------------------------------ Average Shares Used in the Computation 259,964 231,747 228,584 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 34 Homestake Mining Company and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amount)
December 31, 1999 and 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and equivalents $ 130,273 $ 147,519 Short-term investments 136,362 154,346 Receivables (note 7) 44,988 45,929 Inventories (note 8) 63,337 78,906 Deferred income and mining taxes (note 6) 14,663 22,792 Other 7,479 5,105 - -------------------------------------------------------------------------------------------------------------------------------- Total current assets 397,102 454,597 Property, Plant and Equipment - net (note 9) 1,132,846 1,102,739 Investments and Other Assets Noncurrent investments 10,473 12,945 Other assets (note 10) 94,048 90,325 - -------------------------------------------------------------------------------------------------------------------------------- Total investments and other assets 104,521 103,270 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,634,469 $ 1,660,606 - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 34,873 $ 43,457 Accrued liabilities (note 11) 64,460 102,113 Income and other taxes payable 3,469 3,151 Current portion of long-term debt (note 12) 37,206 - - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 140,008 148,721 Long-term Liabilities Long-term debt (note 12) 278,494 357,410 Other long-term obligations (note 13) 184,893 176,887 - -------------------------------------------------------------------------------------------------------------------------------- Total long-term liabilities 463,387 534,297 Deferred Gain on Close-out of Forward Sales Contracts (note 18) 34,956 - Deferred Income and Mining Taxes (note 6) 216,958 230,567 Minority Interests in Consolidated Subsidiaries 13,800 7,825 Shareholders' Equity (note 16) Capital stock, $1 par value per preferred and common share: Authorized - Preferred: 10,000 shares; no shares outstanding - Common: 450,000 shares Outstanding - HCI exchangeable shares: 1999 - 6,657; 1998 - 11,139 - Common: 1999 - 253,808; 1998 - 247,483 253,808 247,483 Additional paid-in capital 923,091 920,816 Deficit (382,271) (368,648) Accumulated other comprehensive loss (29,268) (60,455) - -------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 765,360 739,196 - -------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 1,634,469 $ 1,660,606 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingencies - see note 18. The accompanying notes are an integral part of these financial statements.
35 Homestake Mining Company and Subsidiaries Statements of Consolidated Shareholders' Equity (In thousands)
Accumulated Other Comprehensive Income --------------------------------- Additional Retained Accumulated Unrealized For the years ended Common Paid-in Earnings Translation Securities December 31, 1999, 1998 and 1997 Stock Capital (Deficit) Adjustments Gains (Losses) Total - ---------------------------------------------- ------------- ------------ -------------- ----------------- ---------- BALANCES, DECEMBER 31, 1996 $ 228,466 $613,102 $ 151,724 $ 58,468 $ (8,383) $ 1,043,377 Comprehensive income: Net Loss (233,354) (233,354) Other comprehensive income (loss) (92,163) 10,210 (81,953) Dividends paid (31,784) (31,784) Exercise of stock options 277 1,012 1,289 Other 2,216 2,216 ---------- --------- --------- --------- --------- ----------- BALANCES, DECEMBER 31, 1997 228,743 616,330 (113,414) (33,695) 1,827 699,791 Comprehensive income: Net loss (233,780) (233,780) Other comprehensive income (loss) (32,524) 3,937 (28,587) Dividends paid (21,454) (21,454) Stock issued to employee savings plan 148 1,416 1,564 Stock issued for acquisition of Plutonic options and partly-paid shares (note 3) 503 (503) - Stock issued in private placement 1,390 1,845 3,235 Exercise of stock options 34 (10) 24 Stock issued for purchase of Prime minority interests (note 3): Homestake common shares 16,672 173,843 190,515 HCI exchangeable shares 127,285 127,285 Other (7) 610 603 ---------- --------- --------- --------- --------- ----------- BALANCES, DECEMBER 31, 1998 247,483 920,816 (368,648) (66,219) 5,764 739,196 Comprehensive income: Net income 4,864 4,864 Other comprehensive income 28,595 2,592 31,187 Dividends paid (18,487) (18,487) Stock issued to employee savings plan 167 1,285 1,452 Stock issued in exchange for HCI exchangeable shares 4,482 (4,482) - Stock issued in private placement 1,090 5,199 6,289 Exercise of stock options 499 (121) 378 Other 87 394 481 ---------- --------- --------- --------- --------- ----------- BALANCES, DECEMBER 31, 1999 $ 253,808 $923,091 $(382,271) $ (37,624) $ 8,356 $ 765,360 =========== ========= ========= ========= ========= =========== The accompanying notes are an integral part of these financial statements.
36 Homestake Mining Company and Subsidiaries Statements of Consolidated Cash Flows (In thousands)
For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operations Net income (loss) $ 4,864 $ (233,780) $ (233,354) Reconciliation to net cash provided by operations: Depreciation, depletion and amortization 134,478 139,371 162,781 Deferred gains on close-out of forward sales contracts 34,956 - - Write-downs and other unusual charges (note 5) 20,415 204,934 285,315 Foreign currency exchange (gains) losses on intercompany debt (note 4) (9,975) 5,671 5,657 Gains on asset disposals (3,400) (3,664) (16,933) Deferred income and mining taxes (note 6) (17,824) (39,436) (56,318) Minority interests (1,395) 3,185 4,009 Reclamation - net (2,755) 1,404 2,970 Other items - net (64) (12,423) 11,433 Effect of changes in operating working capital items: Receivables 3,239 (6,889) (370) Inventories 12,729 43,815 2,932 Accounts payable (9,837) (15,109) 9,602 Accrued liabilities and taxes payable (34,183) 26,215 (18,199) Other (13,909) 1,760 (1,585) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operations 117,339 115,054 157,940 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Activities Decrease (increase) in short-term investments 19,069 (19,307) (11,063) Additions to property, plant and equipment (104,927) (73,323) (204,629) Proceeds from sale-leaseback of equipment (note 18) 23,044 - - Proceeds from asset sales 6,309 15,606 33,536 Decrease (increase) in restricted cash 11,772 2,429 (15,990) Investments in mining companies - 11,088 (22,950) Decrease in note receivable - - 37,210 Other - (135) (1,376) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investment activities (44,733) (63,642) (185,262) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities Borrowings 99,791 97,697 126,847 Debt repayments (174,287) (105,747) (50,133) Dividends paid (18,487) (22,494) (33,935) Common shares issued 6,707 3,399 1,289 Other - 1,795 4,234 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (86,276) (25,350) 48,302 - ------------------------------------------------------------------------------------------------------------------------------------ Effect of Exchange Rate Changes on Cash and Equivalents (3,576) (7,433) (2,844) - ------------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Equivalents (17,246) 18,629 18,136 Cash and Equivalents, January 1 147,519 128,890 110,754 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and Equivalents, December 31 $ 130,273 $ 147,519 $ 128,890 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 37 Homestake Mining Company and Subsidiaries Statements of Consolidated Comprehensive Income (Loss) (In thousands)
For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 4,864 $ (233,780) $ (233,354) - ------------------------------------------------------------------------------------------------------------------------------- Other Comprehensive Income (Loss) Changes in unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period 4,012 1,213 (32,128) Less: Reclassification adjustments for gains and losses included in net income (loss) 1,033 (1,620) (43,403) - ------------------------------------------------------------------------------------------------------------------------------- 2,979 2,833 11,275 Income taxes (387) 1,104 (1,065) - ------------------------------------------------------------------------------------------------------------------------------- 2,592 3,937 10,210 Foreign currency translation adjustments (before and after tax) 28,595 (32,524) (92,163) - ------------------------------------------------------------------------------------------------------------------------------- Other Comprehensive Income (Loss) 31,187 (28,587) (81,953) - ------------------------------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) $ 36,051 $ (262,367) $ (315,307) - -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 38 Notes to Consolidated Financial Statements (Unless otherwise noted, all tabular amounts are in thousands) Note 1: Nature of Operations Homestake Mining Company ("Homestake" or the "Company") is engaged in gold mining and related activities including exploration, extraction, processing, refining and reclamation. Gold bullion, the Company's principal product, is produced and sold in the United States, Canada, Australia and Chile. Ore and concentrates containing gold and silver from the Eskay Creek mine in Canada are sold directly to smelters. Note 2: Significant Accounting Policies Basis of presentation: The consolidated financial statements include Homestake and its majority-owned subsidiaries, and their undivided interests in joint ventures after elimination of intercompany amounts. Undivided interests in gold mining operations and development projects (the Round Mountain, Pinson and Marigold mines in Nevada; the Kalgoorlie operations and the Peak Hill mine in Western Australia; the Williams and David Bell mines in Canada; and the Veladero project in Argentina) and in the sulfur and oil recovery operations at Main Pass 299 in the Gulf of Mexico are reported using pro rata consolidation whereby the Company reports its proportionate share of assets, liabilities, income and expenses. Use of estimates: The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the related notes thereto. Actual results could differ from those estimates. Cash and equivalents include all highly-liquid investments with original maturities of three months or less at the date of purchase. The Company minimizes its credit risk by investing its cash and equivalents with major international banks and financial institutions located principally in the United States, Canada and Australia. The Company believes that no concentration of credit risk exists with respect to the investment of its cash and equivalents. Short-term investments principally consist of highly-liquid United States and foreign government and corporate securities with original maturities in excess of three months. The Company classifies all short-term investments as available-for-sale. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income, a separate component of shareholders' equity, except that declines in market value judged to be other than temporary are recognized in determining net income. Inventories, which include finished products, ore in process, stockpiled ore, ore in transit, and supplies, are stated at the lower of cost or net realizable value. The cost of gold produced by certain United States operations is determined principally by the last-in, first-out method. 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. Development costs: Following completion of a favorable feasibility study, development costs incurred to place new mines into production and to complete major development projects at operating mines are capitalized. Ongoing costs to maintain production are expensed as incurred. Depreciation, depletion and amortization of mining properties, mine development costs and major plant facilities is computed principally by the units-of-production method based on estimated quantities of ore which can be recovered economically in the future from known mineral deposits. Such estimates are based on current and projected costs and prices. Other equipment and plant facilities are depreciated using straight-line or accelerated methods principally over estimated useful lives of three to ten years. Property evaluations: Long-lived assets are reviewed for impairment annually and when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If deemed impaired, an impairment loss is measured and recorded based on the fair value of the asset, which generally will be computed using discounted cash flows. Estimated future net cash flows from each mine are calculated using estimates of production, future sales prices (considering historical and current prices, price trends and related factors), production costs, capital and reclamation costs. During 1999, 1998 and 1997, the Company estimated future net cash flows from its gold operations using gold prices of $325, $325 and $350 per ounce, respectively, to perform impairment reviews. The Company's estimates of future cash flows are subject to risks and uncertainties. Therefore, it is possible that changes could occur which may affect the recoverability of the Company's investments in mineral properties and other assets. Undeveloped properties upon which the Company has not performed sufficient exploration work to determine whether sig- 39 nificant mineralization exists are carried at original acquisition cost. If it is determined that significant mineralization does not exist, the property is written down to estimated net realizable value at the time of such determination. Reclamation and remediation: Reclamation costs (undiscounted) and related 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 quantities of ore which can be recovered economically in the future from known mineral deposits. Remediation liabilities, including estimated governmental oversight costs, are expensed upon determination that a liability has been incurred and where a minimum cost or reasonable estimate of the cost can be determined. Amounts to be received from the Federal Government for its share of the cost of future reclamation activities are offset against estimated remaining reclamation liabilities and are recorded in the period that such expenditures are made. Based on current environmental regulations and known reclamation requirements, the Company has included its best estimates of these obligations in its reclamation accruals. The Company updates these estimates regularly, however, the Company's estimates of its ultimate reclamation liabilities could change significantly as a result of changes in regulations or cost estimates. Investments: Investments in mining securities that have readily determinable fair values and assets held in trust to fund employee benefits are classified as available-for-sale investments. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income, except that declines in market value judged to be other than temporary are recognized in determining net income. Realized gains and losses on these investments are included in determining net income. Product sales are recognized when title passes at the shipment or delivery point. Derivative financial instruments: The Company uses derivative financial instruments as part of an overall risk-management strategy. These instruments are used as a means of hedging exposure to precious metals prices and foreign currency exchange rates. The Company does not hold or issue derivative financial instruments for trading purposes. The Company uses forward sales contracts and combinations of put and call options to hedge its exposure to precious metals prices. The underlying hedged production is designated at the inception of the hedge. Deferral accounting is applied only if the derivatives continue to reduce the price risk associated with the underlying hedged production. Contracted prices on forward sales contracts and options are recognized in product sales as the designated production is delivered or sold. In the event of early settlement of hedge contracts, gains and losses are deferred and recognized in income at the originally designated delivery date. The Company uses combinations of put and call options to hedge its exposure to foreign currency exchange rates. Currently, these options do not qualify for deferral accounting and, accordingly, are marked to market at each balance sheet date. Realized and unrealized gains and losses on these options are recognized in other income. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the values of derivatives are to be accounted for depending on the use of the derivatives and whether the derivatives qualify for hedge accounting as either a fair value hedge or a cash flow hedge. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows of the hedging instruments and the hedged items. SFAS 133 is effective for fiscal years beginning after June 15, 2000, but earlier adoption is permitted. The Company believes that under SFAS 133, changes in unrealized gains and losses on Homestake's foreign currency derivatives will qualify for hedge accounting and be deferred in accumulated other comprehensive income. The Company also believes that contracts under its precious metals hedging program will qualify as cash flow hedges under SFAS 133. However, there are many complexities to this new standard and the Company continues to evaluate the impact that SFAS 133 will have on reported operating results and financial position. The Company expects to adopt SFAS 133 effective January 1, 2001. Income taxes: The Company follows the liability method of accounting for income taxes whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year. Mining taxes represent Canadian provincial taxes levied on mining operations. Foreign withholding taxes represent Canadian and Australian withholding taxes on intercompany interest. 40 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 in accumulated other comprehensive income. 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. The Company's funding policy for defined benefit pension plans is to fund the plans annually to the extent allowed by the applicable regulations. In addition, the Company provides medical and life insurance benefits for certain retired employees and accrues the cost of such benefits over the period in which active employees become eligible for the benefits. The costs of the postretirement medical and life insurance benefits are paid at the time such benefits are provided. Net income or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding, including the Homestake Canada Inc. ("HCI") exchangeable shares. The Company's basic and diluted net income or loss per share are the same since the exercise of stock options and the conversion of the 5.5% convertible subordinated notes would produce anti- dilutive results. Statement of Position 98-5: In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Cost of Start-up Activities". SOP 98-5 provides guidance on the financial reporting of start-up costs and requires that costs of start-up activities be expensed as incurred, as well as the recognition of a cumulative effect of a change in an accounting principle for retroactive application of the standard. Homestake adopted SOP 98-5 as required on January 1, 1999 and adoption of the standard had no financial statement impact. Preparation of financial statements: Certain 1998 and 1997 amounts have been reclassified to conform to the current year's presentation. All dollar amounts are expressed in United States dollars unless otherwise indicated. Note 3: Acquisitions and Divestitures Agua de la Falda: In October 1999, the Company and Corporacion Nacional del Cobre Chile ("Codelco") contributed additional capital of $14.9 million to Agua de La Falda ("ADLF") in proportion to their ownership interests (Homestake 51% and Codelco 49%). The Company's subscribed capital contribution primarily was in the form of cash. Codelco contributed property, subject to a retained royalty. Argentina Gold Corp: On April 29, 1999, Homestake completed the acquisition of Argentina Gold Corp. ("Argentina Gold"), a publicly-traded Canadian gold exploration company. Homestake issued 20.9 million common shares to acquire all of the shares of Argentina Gold. The business combination with Argentina Gold has been accounted for as a pooling of interests and accordingly, Homestake's consolidated financial statements include Argentina Gold for all periods presented. Argentina Gold's principal asset is its 60% interest in the Veladero property located in northwest Argentina along the El Indio gold belt. In 1999, the Company recorded business combination expenses of $4.8 million related to this transaction. Combined and separate preacquisition results for Homestake and Argentina Gold for the three months ended March 31, 1999 and for the years ended December 31, 1998 and 1997 are as follows:
Homestake Argentina Gold Historical Historical (a) Combined --------------------------------------------------------------- Three months ended March 31, 1999: Revenues $ 178,533 $ 81 $ 178,614 Net income (loss) 2,198 (3,147) (949) Shareholders' equity at March 31 737,843 6,526 744,369 Year ended December 31, 1998: Revenues 797,777 113 797,890 Net loss (218,325) (15,455) (233,780) Shareholders' equity at December 31 735,832 3,364 739,196 Year ended December 31, 1997: Revenues 971,415 151 971,566 Net loss (230,606) (2,748) (233,354) Shareholders' equity at December 31 683,505 16,287 699,792
41 (a) Argentina Gold's historical results have been adjusted to reflect i) United States generally accepted accounting principles and the format, classifications and accounting policies utilized by Homestake, and ii) translation into US dollars using the average exchange rate for each period. Shareholders' equity has been translated into US dollars using the end-of-period exchange rates. Plutonic Resources Limited: In April 1998, Homestake acquired Plutonic Resources Limited ("Plutonic"), a publicly-traded Australian gold producer. Homestake issued 64.4 million common shares in exchange for all of the Plutonic fully-paid ordinary shares, partly-paid shares and options outstanding. The business combination was accounted for as a pooling of interests and accordingly, Homestake's consolidated financial statements include Plutonic for all periods presented. Business combination and integration costs of $19.1 million were incurred in 1998 related to this merger. Prime Resources Group Inc.: In December 1998, Homestake acquired the 49.4% of Prime Resources Group Inc. ("Prime") it did not already own. The Prime minority shareholders received Homestake common shares or HCI exchangeable shares. Each HCI exchangeable share is exchangeable for one Homestake common share at any time at the option of the holder and has essentially the same voting, dividend (payable in Canadian dollars) and other rights as one Homestake common share. Homestake issued 16.7 million Homestake shares and 11.1 million HCI exchangeable shares with a total value of $317.8 million. The acquisition of the Prime minority interests was accounted for as a purchase. Lachlan Resources NL: In April 1997, Lachlan Resources NL ("Lachlan") acquired the 9.3% interest in Archaean Gold NL it did not already own. This acquisition was funded by a $33.2 million (A$50.9 million) loan from the Company to Lachlan. In May 1998, Lachlan repaid this loan by issuing additional shares to the Company which increased the Company's interest in Lachlan from 62.1% to 81.2%. George Lake and Back River Joint Ventures: In February 1997, Homestake sold its interests in the George Lake and Back River joint ventures in Canada to Kit Resources Corporation ("Kit") for $9.3 million in cash and 3.6 million shares of Kit common stock. As a result of this transaction, the Company recorded a pretax gain of $13.5 million, which was included in other income. Note 4: Other Income (Loss)
1999 1998 1997 ------------------------------------------------------- Gains on asset disposals $ 3,304 $ 3,651 $ 16,926 Foreign currency contract gains (losses) 15,814 (34,332) (28,453) Foreign currency exchange gains (losses) on intercompany advances and other 10,913 (4,400) (5,357) Gain on sale of Great Central option - - 10,419 Gain on termination of Santa Fe merger - - 62,925 Other 10,780 10,336 7,222 ------------------------------------------------------- $40,811 $(24,745) $ 63,682 =======================================================
In March 1997, Santa Fe Pacific Gold Corporation terminated its merger agreement with Homestake and paid Homestake a $65 million termination fee. As a result, in 1997 the Company recorded a pretax gain of $62.9 million ($47.2 million after tax), net of merger related expenses of $2.1 million. Note 5: Write-downs and Other Unusual Charges
1999 1998 1997 ------------------------------------------------ Reduction in the carrying values of resource assets (a) $11,730 $151,581 $ 84,655 Increase in the estimated accrual for remediation and reclamation expenditures (b) 5,185 36,000 29,156 Homestake mine restructuring charges (c) - 8,879 - Write-down of Homestake's investment in the Main Pass 299 sulfur mine (d) - - 107,761 Write-downs of noncurrent investments (e) 3,500 8,213 47,932 Other - 9,140 15,811 ------------------------------------------------ $20,415 $213,813 $285,315 ================================================
a) The Company reviews the carrying values of its long-lived assets annually and when events or changes in circumstances indicate an asset may be impaired. As a result of these reviews and other circumstances: i. During 1999, the Company recorded charges of $10 million to write-off an exploration property acquired as part of the Plutonic acquisition and $1.7 million to write down certain redundant equipment at the Kalgoorlie operations in Western Australia. ii. In 1998, the Company recorded a $76.1 million write-down of property, plant and equipment at the Homestake 42 mine in South Dakota and a $34.5 million write-down of property and $3.9 million for severance and other charges at the Mt Charlotte mine in Western Australia. Also in 1998, based on evaluation of the recoverability of the carrying values of other mineral properties, the Company recorded write-downs of $37.1 million, including $22.3 million and $10.2 million related to mineral properties of Plutonic and Argentina Gold, respectively. iii. In 1997, the Company recorded write-downs to reduce the carrying values of several of its assets or operations with short remaining lives, including the Mt Morgans and Peak Hill mines, the Pinson mine, the Homestake mine's Open Cut, low-grade stockpiled ore and exploration properties at certain locations in Western Australia, and redundant mining equipment at the Kalgoorlie operations. b) During 1999, following an environmental audit, the Company recorded a charge of $5.2 million to increase the estimated reclamation liability for certain non-operating properties acquired as a result of the Plutonic acquisition in 1998. In 1998, following an environmental audit at the Homestake mine and a change in that operation's mining plans, the Company recorded a provision for estimated additional remediation and related reclamation costs of $35 million. In addition, a $1 million increase in the provision for reclamation at closed operations was recorded in 1998. In 1997, as a result of a review of the Company's reclamation liabilities, the Company determined that it was necessary to increase reclamation accruals for certain of its non-operating properties, including the Santa Fe mine in Nevada, the Nickel Plate mine in Canada and the Grants uranium complex in New Mexico, to reflect revised estimates, changed conditions and more stringent future reclamation requirements. c) In January 1998, the Company commenced a restructuring of underground operations at the Homestake mine, including a significant reduction in that mine's workforce. As a result of the restructuring, the Company recorded severance and other costs of $8.9 million, net of pension and other postretirement curtailment and settlement gains of $9.3 million. d) Homestake owns a 16.7% undivided interest in the Main Pass 299 sulfur mine. Due to a prolonged period of low sulfur prices and Homestake's assessment of estimated future cash flows from the Main Pass 299 sulfur mine, in 1997 the Company wrote-off its remaining investment in the Main Pass 299 sulfur property, plant and equipment. e) In 1999, 1998 and 1997, the Company recorded in income the reductions in the carrying values of certain marketable securities and other investments that it deemed to be other than temporary. Note 6: Income Taxes The provision for income and mining taxes consists of the following:
1999 1998 1997 ------------------------------------------------------------- Current Income taxes United States $ 3,400 $(11,332) $ 654 Canada 6,275 22,576 25,945 Foreign withholding taxes 2,848 421 464 Mining taxes - Canada 12,689 14,684 9,797 -------------------------------------------------------------- Total current taxes 25,212 26,349 36,860 -------------------------------------------------------------- Deferred Income taxes United States (1,579) 10,911 (27,177) Canada (3,453) (19,286) (7,039) Australia (7,297) (28,947) (22,282) Mining taxes - Canada (5,495) (2,114) 180 -------------------------------------------------------------- Total deferred taxes (17,824) (39,436) (56,318) -------------------------------------------------------------- Total income and mining taxes $ 7,388 $(13,087) $(19,458) ==============================================================
The provision for income taxes is based on pretax income (loss) before minority interests as follows:
1999 1998 1997 ------------------------------------------------------------------------- United States $ 34,667 $(163,374) $(167,570) Canada 12,298 38,058 50,592 Australia (22,115) (94,903) (115,323) South America and other foreign (13,993) (23,463) (16,502) ------------------------------------------------------------------------- $ 10,857 $(243,682) $(248,803) =========================================================================
In December 1999, the Australian government enacted certain significant changes to the structure of taxation in Australia. These changes included a reduction of the statutory corporate tax rate from 36% to 34% for the Australian fiscal year beginning July 1, 2000 and a further reduction to 30% for subsequent years. As a result, the 1999 deferred tax provision includes a tax benefit of $1.8 million reflecting the impact of these reduced rates on the Company's net Australian deferred tax liabilities. Further changes to the structure of taxation, the impact of which currently cannot be estimated, are expected to be enacted during 2000. 43 Deferred tax liabilities and assets as of December 31, 1999 and 1998 relate to the following:
December 31, 1999 1998 --------------------------------------------------- Deferred Tax Liabilities Depreciation and other resource property differences $ 238,000 $ 255,874 Other 60,952 47,176 --------------------------------------------------- Gross deferred tax liabilities 298,952 303,050 --------------------------------------------------- Deferred Tax Assets Tax loss carry-forwards 107,415 84,418 Reclamation costs 45,141 43,882 Depreciation, land and other resource property 35,039 61,855 Employee benefit costs 23,244 28,234 Alternative minimum tax credit carry-forwards 35,955 31,677 Foreign tax credit carry-forwards 111,469 12,007 Unrealized foreign exchange losses - 12,366 Deferred gain on close-out of forward sales contracts 12,724 - Write-downs of noncurrent investments 3,046 11,567 Inventory 9,306 12,804 Other 22,457 13,968 --------------------------------------------------- Gross deferred tax assets 405,796 312,778 Valuation allowance (309,139) (217,503) --------------------------------------------------- Net deferred tax assets 96,657 95,275 --------------------------------------------------- Net deferred tax liability $ 202,295 $ 207,775 =================================================== Net deferred tax liability consists of Current deferred tax assets $ (14,663) $ (22,792) Long-term deferred tax liability 216,958 230,567 --------------------------------------------------- Net deferred tax liability $ 202,295 $ 207,775 ===================================================
The classification of deferred tax assets and liabilities as current or long term 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 valuation allowance represents the portion of the Company's consolidated deferred tax assets as to which, based on projections at December 31, 1999, the Company does not believe realization is "more likely than not". The valuation allowance primarily relates to a full valuation allowance against United States and South American net deferred tax assets of $235.5 million and $42.7 million, respectively. The remaining valuation allowance primarily relates to certain restricted Australian tax loss carry-forwards and Argentina Gold Canadian loss carry-forwards of $19.9 million and $5.1 million, respectively. The Company had a significant increase in United States foreign tax credit carry-forwards as a result of Canadian dividends paid by HCI to its parent company following the Prime acquisition, on which a full valuation allowance has been recorded. The foreign tax credit carry-forwards are due to expire at various times through the year 2004. Argentina tax loss carry-forwards expire if not utilized within five taxable years following the loss year. Australian and Chilean loss carry-forwards can be carried forward indefinitely. Major items causing the Company's income tax provision to differ from the federal statutory rate of 35% were as follows:
1999 1998 1997 ------------------------------------------------------- Income tax expense (benefit) based on statutory rate $ 3,800 $(79,879) $(86,120) Percentage depletion (1,835) (1,806) (900) Earnings in foreign jurisdictions at different rates (3,912) (2,143) 273 Canadian mining taxes 7,217 12,570 9,977 Change in prior year accruals (5,050) (15,953) - Nondeductible expenses 5,537 7,934 37,770 Foreign income less tax credits utilized 4,462 - - Foreign tax credits generated and not utilized (99,462) - - Change in valuation allowance 91,636 61,700 13,800 Other - net 4,995 4,490 5,742 ------------------------------------------------------- Total income and mining taxes $ 7,388 $(13,087) $(19,458) =======================================================
Note 7: Receivables
December 31, 1999 1998 -------------------------------------- Trade accounts $28,096 $29,548 US Government receivable (see note 13) 2,000 4,500 Interest and other 14,892 11,881 -------------------------------------- $44,988 $45,929 ====================================== Note 8: Inventories December 31, 1999 1998 ----------------------------------------- Finished products $ 7,452 $13,312 Ore and in-process 30,591 39,465 Supplies 25,294 26,129 ----------------------------------------- $63,337 $78,906 =========================================
44 Note 9: Property, Plant and Equipment
December 31, 1999 1998 --------------------------------------------- Mining properties and development costs $ 1,562,040 $ 1,436,213 Plant and equipment 1,141,650 1,082,046 Construction and mine development in progress 16,224 7,534 --------------------------------------------- 2,719,914 2,525,793 Accumulated depreciation, depletion and amortization (1,587,068) (1,423,054) --------------------------------------------- $ 1,132,846 $ 1,102,739 ============================================= Note 10: Other Assets December 31, 1999 1998 ------------------------------------------------- Assets held in trust (see note 14) $47,918 $44,756 Restricted cash (see note 12) 1,789 13,561 Ore stockpiles 15,971 9,807 U.S. Government receivable (see note 13) 6,063 3,681 Prepaid pension assets (see note 14) 12,747 8,709 Other 9,560 9,811 ------------------------------------------------- $94,048 $90,325 ================================================= Note 11: Accrued Liabilities December 31, 1999 1998 ------------------------------------------------- Accrued payroll and other compensation $21,730 $ 31,587 Accrued reclamation and closure costs 20,092 23,206 Unrealized loss on foreign currency exchange contracts - 24,003 Other 22,638 23,317 ------------------------------------------------- $64,460 $102,113 =================================================
At December 31, 1999 the Company had an unrealized gain on foreign currency exchange contracts of $3.4 million, which is included in other current assets. Note 12: Long-term Debt
December 31, 1999 1998 ---------------------------------------- Convertible subordinated notes (due 2000) $134,990 $150,000 Pollution control bonds Lawrence County, South Dakota (due 2032) 38,000 48,000 State of California (due 2004) 17,000 17,000 Cross-border credit facility (due 2003) Canadian dollar denominated borrowings 102,666 - Australian dollar denominated borrowings - 142,410 Capital leases (see note 18) 23,044 - ---------------------------------------- 315,700 357,410 Less current portion 37,206 - ----------------------------------------- $278,494 $357,410 ========================================
Convertible subordinated notes: The Company's 5.5% convertible subordinated notes ("Convertible Notes"), which mature on June 23, 2000, are convertible into common shares at a price of $23.06 per common share and are redeemable by the Company in whole at any time. Interest on the notes is payable semiannually in June and December. Issuance costs of $3.9 million were capitalized and are being amortized over the life of the notes. During 1999, the Company repurchased Convertible Notes having a principal amount of $15 million. The Company has classified $100 million of Convertible Notes outstanding at December 31, 1999 as long-term debt since the Company intends to refinance $100 million of these notes for a period longer than one year from December 31, 1999 with funds drawn down on the cross-border credit facility. The remaining $35 million of Convertible Notes have been classified as current as the Company expects to retire this debt using cash and equivalent balances. Pollution control bonds: In July 1997, Lawrence County, South Dakota issued $30 million of South Dakota Solid Waste Disposal Revenue Bonds ("Waste Disposal Bonds") and $18 million of South Dakota Pollution Control Refunding Revenue Bonds, both of which are due in 2032. The Company is responsible for funding principal and interest payments on these bonds. Proceeds from the Waste Disposal Bonds were placed in a trustee account and are being used for construction of a new tailings dam lift and other qualifying expenditures at the Homestake mine. During 1999, Homestake reduced the projected size of the tailings dam project and redeemed $10 million of the Waste Disposal Bonds from funds held in the trustee account. 45 The Company pays interest monthly on the pollution control bonds based on variable short-term, tax-exempt obligation rates. Interest rates at December 31, 1999 and 1998 were 5.1% and 4.8%, respectively. No principal payments are required until cancellation, redemption or maturity. Cross-border credit facility: The Company has a credit facility ("Credit Facility") providing a total borrowing availability of $430 million. This facility is available through July 14, 2003 and provides for borrowings in United States, Canadian, or Australian dollars, or gold, or a combination of these. Australian dollar-denominated borrowings outstanding at December 31, 1998 under the Credit Facility were repaid in 1999. At December 31, 1999 Canadian dollar-denominated borrowings under the Credit Facility of $102.7 million (C$148.2 million) were outstanding. The Company pays a commitment fee on the unused portion of this facility ranging from 0.15% to 0.35% per annum, depending upon credit ratings for the Company's senior debt. The credit agreement requires, among other provisions, a minimum consolidated net worth, as defined in the agreement (primarily shareholders' equity plus the amount of all noncash write-downs made after December 31, 1997), of $500 million. Interest on the Canadian dollar borrowings is payable quarterly based on the Bankers' Acceptance discount rate plus a stamping fee. At December 31, 1999 this rate was 6.17% Note 13: Other Long-term Obligations
December 31, 1999 1998 -------------------------------------- Accrued reclamation and closure costs $116,580 $107,370 Accrued pension and other postretirement benefit obligations (see note 14) 58,299 59,278 Other 10,014 10,239 -------------------------------------- $184,893 $176,887 ======================================
While the ultimate amount of reclamation and site restoration costs to be incurred in the future is uncertain, the Company has estimated that the aggregate amount of these costs for operating properties, plus previously accrued reclamation and remediation liabilities for nonoperating properties, will be approximately $210 million. At December 31, 1999 the Company had accrued $136.7 million for estimated ultimate reclamation and site restoration costs and remediation liabilities (see note 11). Grants: 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. Homestake's former uranium millsite near Grants, New Mexico is listed on the NPL. Pursuant to the Energy Policy Act of 1992, the United States Department of Energy ("DOE") is responsible for 51.2% of past and future costs of reclaiming the Grants site in accordance with Nuclear Regulatory Commission license requirements. Through December 31, 1999, Homestake had received $27.7 million from the DOE and the accompanying balance sheet at December 31, 1999 includes an additional receivable of $8.1 million (see notes 7 and 10) for the DOE's share of reclamation expenditures made by Homestake through 1999. Note 14: Employee Benefit Plans United States pension and other postretirement benefit plans: The Company has pension plans covering substantially all United States employees. Pension plans covering salaried and other nonunion employees provide benefits based on years of service and the employee's highest compensation for a period prior to retirement. Pension plans covering union employees provide defined benefits for each year of service. The Company also has other postretirement plans which provide medical and life insurance benefits for certain retired employees, primarily retirees of the Homestake mine. 46 The following table provides a reconciliation of benefit obligations, plan assets and the funded status of the plans:
Other Postretirement Pension Benefits Benefits ----------------------------------- ------------------------------------- 1999 1998 1999 1998 ----------------------------------- ------------------------------------- Change in benefit obligations Benefit obligations, January 1 $256,674 $237,351 $ 34,750 $ 37,000 Service cost 4,752 4,215 19 188 Interest cost 16,784 16,969 1,931 2,406 Plan amendments and special terminations 3,222 6,222 - (6,450) Actuarial (gains) losses (23,672) 22,859 (7,132) 7,272 Benefits paid (31,880) (23,696) (1,761) (2,373) Curtailments - (7,246) - (3,293) --------------- --------------- ----------------- --------------- Benefit obligations, December 31 $225,880 $256,674 $ 27,807 $ 34,750 =============== =============== ================= =============== Change in plan assets Fair value of plan assets, January 1 $259,371 $257,147 Actual return on plan assets 16,834 24,816 Company contributions 4,583 1,104 $ 1,761 $ 2,373 Benefits paid (31,880) (23,696) (1,761) (2,373) --------------- --------------- ----------------- --------------- Fair value of plan assets, December 31 $248,908 $259,371 $ - $ - =============== =============== ================= =============== Plan assets in excess of (less than) projected benefit obligations $ 23,028 $ 2,697 $(27,807) $(34,750) Unrecognized net actuarial (gains) losses (43,741) (24,927) (4,353) 2,488 Unrecognized prior service cost 10,309 8,527 (5,064) (5,914) Unrecognized net transition asset (1,324) (1,567) - - --------------- --------------- ----------------- --------------- Accrued pension and postretirement benefit obligations $(11,728) $(15,270) $(37,224) $(38,176) =============== =============== ================= ===============
Amounts for pension and postretirement benefits recognized in the consolidated balance sheets consist of the following:
Other Postretirement Pension Benefits Benefits ----------------------------------------- --------------------------------------- 1999 1998 1999 1998 ----------------------------------------- --------------------------------------- Prepaid pension asset $ 12,747 $ 8,709 Intangible asset - 523 Accrued benefit liability - current (1,200) (1,200) $ (2,200) $ (2,200) Accrued benefit liability - long-term (23,275) (23,302) (35,024) (35,976) -------------------- ---------------- ----------------- ----------------- $(11,728) $(15,270) $(37,224) $(38,176) ==================== ================ ================= =================
The weighted-average actuarial assumptions as of December 31 were as follows:
Other Postretirement Pension Benefits Benefits -------------------------------------- ---------------------------------------------- 1999 1998 1997 1999 1998 1997 -------------------------------------- ---------------------------------------------- Discount rate 7.75% 6.50% 7.00% 7.75% 6.50% 7.00% Expected return on plan assets 8.50% 8.50% 8.50% Rate of compensation increase 5.00% 5.00% 5.00%
The Company has assumed a health care cost trend rate of 8.5% for 1999, decreasing ratability to 5.0% in 2006 and thereafter. 47 Net periodic pension and other postretirement benefit costs include the following components:
Pension Benefits ------------------------------------------------------------ 1999 1998 1997 ------------------------------------------------------------ Service cost $ 4,752 $ 4,215 $ 4,308 Interest cost 16,784 16,969 15,958 Expected return on assets (21,496) (21,346) (18,596) Amortization of: Transition asset (242) (370) (370) Prior service costs 1,440 1,005 1,534 Actuarial gains (196) (898) - -------- -------- -------- Net periodic benefit cost 1,042 (425) 2,834 Additional charges (credits): Special termination charges - 3,922 - Curtailment credits - (7,246) - Settlement credits - (2,531) - -------- -------- -------- Total net benefit cost (credit) $ 1,042 $ (6,280) $ 2,834 ======== ======== ======== Other Postretirement Benefits ------------------------------------------------------------ 1999 1998 1997 ------------------------------------------------------------ Service cost $ 19 $ 188 $ 568 Interest cost 1,931 2,406 2,631 Amortization of: Prior service costs (850) (850) 60 Actuarial (gains) losses (291) 60 (660) -------- -------- -------- Net periodic benefit cost 809 1,804 2,599 Additional charges (credits): Special termination charges - 600 - Curtailment credits - (3,293) - -------- -------- -------- Total net benefit cost (credit) $ 809 $ (889) $ 2,599 ======== ======== ========
The projected benefit obligations and accumulated benefit obligations for pension plans with accumulated benefit obligations in excess of plan assets were $30.9 million and $22.9 million, respectively, at December 31, 1999 and $32.4 million and $24.1 million, respectively, at December 31, 1998. These amounts pertain to a nonqualified supplemental pension plan covering certain employees and a nonqualified pension plan covering directors of the Company. These plans are unfunded. The Company has established a grantor trust, consisting of money market funds, mutual funds and corporate-owned life insurance policies, to provide funding for the benefits payable under these nonqualified plans and certain other deferred compensation plans. The grantor trust, which is included in other assets, amounted to $47.9 million and $44.8 million at December 31, 1999 and 1998, respectively. Health care benefits are contributory and were restricted to employees at the Homestake mine whose combined years of age and years of service exceeded 65 as of January 1, 1999. The assumed health care cost trend rate has a significant effect on the amounts reported. A one percentage point change in the assumed health care cost trend rate would have had the following effects on 1999 service and interest costs and the accumulated postretirement benefit obligation at December 31, 1999:
One percentage point change Increase Decrease --------------------------- -------- --------- Effect on service and interest components of net periodic cost $ 223 $ (199) Effect on accumulated postretirement benefit obligation 2,781 (2,258)
Foreign pension plans: Certain of the Company's foreign operations also participate in pension plans. The Company's share of contributions to these plans was $2.2 million in 1999, $2.5 million in 1998, and $2.3 million in 1997. Stock option and share rights plan: The Company's 1996 Stock Option and Share Rights Plan ("1996 Plan") provides for grants of up to 6 million common shares. At December 31, 1999 and 1998, 1.6 million and 3 million shares, respectively, were available for future grants. At December 31, 1999 stock options and share rights for 4 million shares were outstanding under the 1996 Plan and stock options for 2 million shares were outstanding under prior plans. The exercise price of each stock option granted under these plans is equal to or greater than the market price of the Company's stock on the date of grant and an option's maximum term is ten years. Options usually vest over a four-year period. 48 A summary of the status of the Company's stock options as of December 31, 1999, 1998 and 1997 and changes during the years ending on those dates is presented below:
1999 1998 1997 -------------------------------------------------------------------------------------------- Number Average Number Average Number Average of Price Per of Price Per of Price Per Shares Share Shares Share Shares Share -------------------------------------------------------------------------------------------- Balance at January 1 4,947 4,873 4,692 Granted 1,600 $ 9.40 2,129 $ 7.28 902 $13.62 Exercised (500) 0.74 (35) 0.74 (63) 13.99 Plutonic options retired (see note 3) (1,033) 15.52 Expired (394) 16.27 (987) 11.86 (658) 7.53 ---------- ---------- ---------- Balance at December 31 5,653 4,947 4,873 ========== ========== ========== Options exercisable at December 31 2,916 2,136 2,248 Fair value of options granted during the year $ 2.69 $ 3.03 $ 4.95
Note: The above table includes stock option activity of Argentina Gold and Plutonic prior to their acquisition by Homestake in April 1999 and April 1998, respectively. The fair value of each stock option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions: an expected life of 0.8, 1.2 and 1.7 years from the vesting date (with incremental vesting over four years) for 1999, 1998 and 1997, respectively; expected volatility of 35%, 31% and 31% for 1999, 1998 and 1997, respectively; a dividend yield of 1% in each year; and a risk-free interest rate of 5.0%, 5.7% and 6.6% in 1999, 1998 and 1997, respectively. The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable ---------------------------------------------------------------- --------------------------------------- Range of Weighted-Average Weighted-Average Weighted-Average Exercise Prices Number Remaining Exercise Price Number Exercise Price Per Share Outstanding Contractual Life Per Share Exercisable Per Share ---------------- --------------- --------------------- ------------------- --------------- ------------------- $7.85 to $9.41 2,761 8.7 years $ 9.37 534 $9.37 9.74 to 16.25 1,927 5.2 years 14.29 1,487 14.47 16.78 to 39.02 965 4.0 years 19.81 895 19.86 ------------ ------------ 5,653 2,916 ============ ============
At December 31, 1999 there were 0.4 million share rights (1998: 0.3 million) outstanding under the 1996 plan. Share rights are converted into common stock when certain performance measurement or vesting criteria are met. During 1999, 75,000 shares valued at $0.7 million were converted into common stock. The Company elected to use the pro forma disclosure provisions of SFAS 123, "Accounting for Stock-Based Compensation," and has applied Accounting Principles Board Opinion 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for the Company's stock options. The compensation cost for share rights is being recognized based on the fair value of the Company's stock over the period that the performance measurement and vesting criteria are estimated to be met. Had compensation expense for the Company's stock options been determined based on the fair value of options at the grant dates as calculated in accordance with SFAS 123, the Company's net income and earnings per share for the years ended December 31, 1999, 1998 and 1997 would have been as follows:
1999 1998 1997 ------------------------------- ----------------------------- ---------------------------- Earnings Loss Loss Net Earnings Per Share Net Loss Per Share Net Loss Per Share ------------------------------- ----------------------------- ---------------------------- As reported $4,864 $0.02 $(233,780) $(1.01) $(233,354) $(1.02) Pro forma 1,526 0.01 (237,092) (1.02) (236,065) (1.03)
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 $1.8 million in 1999, $1.9 million in 1998 and $2.6 million in 1997. The Company's 1999 and 1998 contributions primarily were in the form of Homestake stock. 49 Note 15: Fair Value of Financial Instruments At December 31, 1999 and 1998 the carrying values of the Company's cash and equivalents, short-term investments, noncurrent investments, long-term debt and foreign currency options approximated their estimated fair values. Note 16: Shareholders' Equity HCI exchangeable shares: In connection with the 1998 acquisition of the minority interests in Prime (see note 3), HCI issued 11.1 million HCI exchangeable shares. Each HCI exchangeable share is exchangeable for one Homestake common share at any time at the option of the holder and has essentially the same voting, dividend (payable in Canadian dollars), and other rights as one Homestake common share. A share of special voting stock, which was issued to the Transfer Agent in trust for the holders of the HCI exchangeable shares, provides the mechanism for holders of the HCI exchangeable shares to receive their voting rights. During 1999, 4.5 million HCI exchangeable shares were exchanged for an equivalent number of Homestake common shares. At December 31, 1999 the Company had reserved 6.7 million shares of common stock for issuance on exchange of the HCI exchangeable shares outstanding. Stock rights: Each share of common stock includes and trades with a right which will become exercisable on a date designated by the Board of Directors following the commencement of, or announcement of an intent to commence, a tender offer by any person, entity or group for 15% or more of the Company's common stock and the HCI exchangeable shares, considered as a single class. When exercisable, each right initially entitles the owner to purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock, par value $1 per share, at a price of $75 per share (the "Purchase Price"). Each one one-hundredth of a share of Series A Preferred Stock is equivalent to one Homestake common share with respect to voting and is entitled, on a quarterly basis, to the greater of a ten cent cash dividend or the dividend payable on one Homestake common share. In addition, if any person, entity or group (an "Acquiring Person") acquires 15% or more of the Company's common stock and the HCI exchangeable shares, considered as a single class, each right (whether or not previously exercisable) thereafter entitles the owner (other than an Acquiring Person or its affiliates and associates) to purchase for the Purchase Price the number of one one-hundredth of a share of Series A Preferred Stock equal to the Purchase Price divided by one-half of the market price of the Company's common stock. In lieu of the rights holder exercising such right, the Board of Directors has the option to issue, in exchange for each right, one-half of the number of shares of preferred stock (or common stock having a value equal to the Purchase Price) that would be issuable on the exercise of the right. If the Board of Directors has not exchanged shares for the rights and the Company engages in a business combination with an Acquiring Person (or affiliate or associate thereof), the holder of rights will be entitled to purchase for the Purchase Price (i) common stock of the surviving company or its publicly-held affiliate having a market value equal to twice the Purchase Price, or (ii) common stock of the surviving company having a book value equal to twice the Purchase Price if the surviving company and its affiliates are not publicly held. The numbers of shares and the Purchase Price are subject to adjustment for stock dividends, stock splits and other changes in capitalization. The rights expire on October 15, 2007. Each HCI exchangeable share trades with an HCI right issued under the HCI rights agreement. The HCI rights entitle the holders to acquire additional HCI exchangeable shares at the same price and in the same amounts and circumstances in which holders of Company rights are entitled to acquire Company common stock. Note 17: Additional Cash Flow Information Cash paid for interest and for income and mining taxes is as follows:
1999 1998 1997 --------------------------------------------------- Interest $18,377 $20,236 $19,506 Income and mining taxes, net of refunds 33,292 22,620 66,227
Certain investing and financing activities of the Company affected its financial position but did not affect its cash flows. See note 3 for discussions of the noncash acquisitions of the interests in Argentina Gold, Plutonic and Prime and additions to property at ADLF. 50 Note 18: Commitments and Contingencies Foreign Currency Contracts Under the Company's foreign currency protection program, the Company has entered into a series of foreign currency option contracts to minimize the effects of a strengthening of either the Canadian or Australian currencies in relation to the United States dollar. At December 31, 1999 net unrealized gains of $3.4 million were outstanding on these contracts compared to net unrealized losses of $24 million at December 31, 1998. Other income for the years ended December 31, 1999, 1998 and 1997 includes income (losses) of $15.8 million, $(34.3) million and $(28.5) million, respectively, related to this program. At December 31, 1999 the Company had foreign currency contracts outstanding as follows:
Expected Maturity or Transaction Date Total or US$ in millions 2000 2001 2002 Average ----------- ----------- ---------- ----------- Canadian $ / US $ option contracts: - ----------------------------------- US $ covered $105.4 $62.1 - $167.5 Written puts, average exchange rate (1) 0.69 0.66 - 0.68 US $ covered $105.4 $66.1 - $171.5 Purchased calls, average exchange rate (2) 0.72 0.69 - 0.71 US $ covered $105.4 $38.3 - $143.7 Purchased puts, average exchange rate (3) 0.65 0.65 - 0.65 Australian $ / US $ option contracts: - ------------------------------------ US $ covered $129.5 $63.3 $26.0 $218.8 Written puts, average exchange rate (1) 0.66 0.65 0.69 0.66 US $ covered $129.5 $63.3 $26.0 $218.8 Purchased calls, average exchange rate (2) 0.68 0.66 0.69 0.67 US $ covered $118.6 $52.3 $26.0 $196.9 Purchased puts, average exchange rate (3) 0.63 0.64 0.66 0.64
(1) Assuming exercise by the counter-party at the expiration date, the Company would exchange US dollars for Canadian or Australian dollars at the put exchange rate. The counter-party would be expected to exercise the option if the spot exchange rate was below the put exchange rate. (2) Assuming exercise by the Company at the expiration date, the Company would exchange US dollars for Canadian or Australian dollars at the call exchange rate. The Company would exercise the option if the spot exchange rate was above the call exchange rate. (3) Assuming exercise by the Company at the expiration date, the Company would exchange Canadian or Australian dollars for US dollars at the put exchange rate. The Company would exercise the option if the spot exchange rate was below the put exchange rate. In addition to amounts related to the foreign currency option contracts, the Company recorded foreign currency gains (losses) on intercompany debt and other of $10.9 million in 1999, $(4.4) million in 1998 and $(5.4) million in 1997 that also were included in other income. These foreign currency exchange gains and losses primarily are mark to market adjustments related to the Company's Canadian and Australian dollar denominated advances to its foreign subsidiaries. Gold and Silver Contracts Homestake's hedging policy provides for the use of forward sales contracts to hedge up to 30% of each of the following ten year's expected annual gold production, and up to 30% of each of the following five year's expected annual silver production, at prices in excess of certain targeted prices. The policy also provides for the use of combinations of put and call option contracts to establish minimum floor prices. During 1999, 1998 and 1997, the Company delivered or financially settled gold and silver production under maturing forward sales and option contracts as follows:
1999 1998 1997 -------------------------------------------------- Gold - ---- Forward sales contracts Ounces 109,900 358,000 656,000 Average price (US$ per oz.) $ 415 $ 359 $ 421 Option contracts Ounces 340,000 900,000 - Average price (US$ per oz.) $ 298 $ 325 - Silver - ------ Option contracts Ounces 3,095,000 - - Average price (US$ per oz.) $6.35 - -
51 In 1999, the Company closed out and financially settled US dollar denominated forward sales contracts covering 245,000 ounces of gold maturing in the years 2001, 2002 and 2003. The pretax gain of $35 million realized as a result of this transaction has been deferred and will be recorded in income as the originally designated production is sold. At December 31, 1999 the Company had gold forward sales and option contracts outstanding as follows:
Expected Maturity or Transaction Date ------------------------------------------------------------------------ There- Total or 2000 2001 2002 2003 2004 after Average ----------------------------------------------------------------------------------------- GOLD US $ denominated contracts: - -------------------------- Forward sales contracts: Ounces 85,080 10,000 10,000 - - 409,200 514,280 Average price ($ per oz.) $ 430 $ 400 $ 403 - - $ 408 $ 411 Put options owned: Ounces 110,000 80,000 - - - - 190,000 Average price ($ per oz.) $ 279 $ 253 - - - - $ 268 Call options written: Ounces 95,000 80,000 - - - - 175,000 Average price ($ per oz.) $ 275 $ 253 - - - - $ 265 Call options purchased: Ounces 80,000 80,000 - - - - 160,000 Average price ($ per oz.) $ 268 $ 268 - - - - $ 268 Australian $ denominated contracts: /(1)/ - ------------------------------------------ Forward sales contracts: Ounces - - 24,800 24,800 24,800 26,000 100,400 Average price (US$ per oz.) - - $ 344 $ 344 $ 344 $ 344 $ 344 Put options owned: Ounces 120,000 120,000 - - - - 240,000 Average price (US$ per oz.) $ 340 $ 350 - - - - $ 345 SILVER US $ denominated contracts: - -------------------------- Forward sales contracts: Ounces 3,020,000 1,200,000 - - - - 4,220,000 Average price ($ per oz.) $ 6.33 $ 6.00 - - - - $ 6.24
(1) Expressed in US dollars at an exchange rate of A$ = US$ 0.6539 52 The Company does not require or place collateral for its foreign currency and gold hedging derivatives. However, the Company minimizes its credit risk by dealing with only major international banks and financial institutions. Lease Commitments During 1999 the Company entered into capital leases to finance its portion of the purchase of mining equipment at the Kalgoorlie operations. Leased assets of $23 million are included in property, plant and equipment at December 31, 1999. The Company also leases certain office facilities and equipment under various noncancellable operating leases. Rental expense for 1999, 1998 and 1997 relating to these operating leases was approximately $2.4 million, $2.6 million and $3.5 million, respectively. Future minimum annual payments under noncancellable leases at December 31, 1999 are as follows:
Operating Capital Leases Leases --------------------------------------- 2000 $ 2,581 $ 3,700 2001 2,669 3,702 2002 2,503 3,715 2003 2,210 3,730 2004 834 3,746 Thereafter 1,742 10,750 --------------- ------------- Total minimum lease payment $12,539 29,343 =============== Less: estimated amount representing interest (6,299) ------------- Present value of net minimum capital lease payments 23,044 Less: current portion (2,216) ------------- Long-term capital lease obligation at December 31, 1999 $20,828 =============
The Company has entered into various commitments during the ordinary course of business including 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. 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. 53 Note 19: Segment Information The Company primarily is engaged in gold mining and related activities. Gold operations are managed and internally reported based on the following geographic areas: North America (United States and Canada), Australia and South America. The Company also has other foreign exploration activities and a sulfur and oil recovery operation in the Gulf of Mexico which are included in "Corporate and All Other". Within each geographic segment, operations are managed on a mine-by-mine basis. However, because each mine has similar characteristics, the Company has geographically aggregated its operations.
REPORTABLE SEGMENTS Corporate North South and All Reconciling America Australia America Other Items Total -------------------------------------------------------------------------------------- 1999 Product sales $ 413,887 $244,223 $13,462 $ 19,376 $ - $ 690,948 Other revenues 16,896 13,614 276 33,596 (7,205) /a/ 57,177 Total revenues 430,783 257,837 13,738 52,972 (7,205) 748,125 Depreciation expense 96,446 33,240 4,227 565 - 134,478 Operating earnings 81,856 35,515 438 29,268 (7,205) /a/ 139,872 Exploration expense 10,305 15,169 13,471 566 - 39,511 Write-downs and unusual items - 16,915 - 3,500 - 20,415 Capital expenditures 24,801 78,939 745 442 - 104,927 Property, plant and equipment 625,596 492,912 11,945 2,393 - 1,132,846 Total assets 706,461 632,893 28,076 267,039 - 1,634,469 Production (equivalent oz. of gold) 1,530,057 835,494 24,409 - - 2,389,960 1998 Product sales $ 468,396 $299,909 $13,854 $ 20,975 $ - $ 803,134 Other revenues (10,345) (7,100) 1,345 13,065 (2,209) /a/ (5,244) Total revenues 458,051 292,809 15,199 34,040 (2,209) 797,890 Depreciation expense 88,132 44,069 4,199 2,971 - 139,371 Operating earnings 60,828 26,678 1,590 34,341 (2,209) /a/ 121,228 Exploration expense 16,495 23,316 15,579 4,475 - 59,865 Write-downs and unusual items 127,476 65,736 10,156 10,445 - 213,813 Capital expenditures 32,337 40,095 141 750 - 73,323 Property, plant and equipment 662,475 426,919 8,776 4,569 - 1,102,739 Total assets 853,906 530,463 22,204 254,033 - 1,660,606 Production (equivalent oz. of gold) 1,581,922 925,700 24,119 - - 2,531,741 1997 Product sales $ 481,541 $371,810 $10,277 $ 26,821 $ - $ 890,449 Other revenues 12,218 (2,190) 927 75,068 /b/ (4,906) /a/ 81,117 Total revenues 493,759 369,620 11,204 101,889 (4,906) 971,566 Depreciation expense 78,180 76,107 2,570 5,924 - 162,781 Operating earnings 85,615 28,313 1,701 70,423 (4,906) /a/ 181,146 Exploration expense 22,308 25,623 18,396 1,260 - 67,587 Write-downs and unusual items 58,408 92,603 - 134,304 /c/ - 285,315 Capital expenditures 109,647 88,878 4,460 1,644 - 204,629 Property, plant and equipment 480,218 523,029 22,995 7,532 - 1,033,774 Total assets 670,975 658,900 33,221 264,048 - 1,627,144 Production (equivalent oz. of gold) 1,538,112 974,289 16,530 - - 2,528,931
a) Primarily intercompany financing. b) Includes Santa Fe merger termination fee of $62.9 million. c) Includes write-down of Homestake's investment in the Main Pass 299 sulfur mine of $107.8 million. 54 Amounts related to United States operations were as follows:
1999 1998 1997 --------------------------------------------------------------- Product sales $211,814 $259,044 $260,102 Property, plant and equipment 117,690 131,121 228,616
Sales to individual customers exceeding 10% of the Company's consolidated revenues were as follows:
1999 1998 1997 ----------------------------------------------------------------- Customer A $ 142,000 $ - $ - B 99,000 75,600 - C 96,000 - - D 77,800 - - E 76,700 108,000 100,000 F - 120,100 - G - 99,200 143,000
Because of the active worldwide market for gold, Homestake believes that the loss of any of these customers would not have a material adverse impact on the Company. Note 20: Homestake Canada Inc. Homestake, through a wholly-owned subsidiary, owns all of HCI's common shares outstanding. At December 31, 1999, HCI had 6.7 million HCI exchangeable shares outstanding, which were held by the public (see notes 3 and 16). Following the 1999 business combination with Argentina Gold, Homestake's investment in Argentina Gold was transferred to HCI in exchange for a Canadian dollar-denominated intercompany note payable by HCI to its parent company of approximately C$282 million (US$191 million). In accordance with United States generally accepted accounting principles, the assets, liabilities and shareholders' equity of Argentina Gold have been recorded in HCI's financial statements at the historical cost basis to the parent company. The difference between the historical cost basis of Argentina Gold shareholders' equity and its fair value at the date of transfer has been recorded as a reduction to HCI's shareholders' equity. Summarized financial information for HCI is as follows:
December 31, 1999 1998 ------------------------------------------------ Current assets $ 43,666 $151,593 Noncurrent assets 498,567 526,463 ------------------ ------------------ Total assets $ 542,233 $678,056 ================== ================== Notes payable to the Company $ 329,105 $144,002 Other current liabilities 19,521 41,839 Long-term debt 102,666 - Other long-term liabilities 10,843 15,882 Deferred income and mining taxes 199,979 193,074 Redeemable preferred stock held by the Company - 36,167 Shareholders' equity: HCI's shareholders' equity 70,991 247,092 Adjustment to conform to the Company's accounting basis (190,872) - ------------------ ------------------ Total liabilities and shareholders' equity $ 542,233 $678,056 ================== ==================
Year ended December 31, ------------------------------------------------------------------ 1999 1998 1997 ------------------------------------------------------------------ Total revenues $234,708 $219,091 $261,318 Costs and expenses 229,084 196,488 213,474 ------------------ ------------------ ------------------ Income before taxes and minority interests $ 5,624 $ 22,603 $ 47,844 ================== ================== ================== Net income (loss) $ (4,875) $ (2,242) $ 7,205 ================== ================== ==================
55 REPORT OF INDEPENDENT ACCOUNTANTS The Shareholders and Board of Directors of Homestake Mining Company: In our opinion, the accompanying consolidated balance sheets and the related statements of consolidated operations, shareholders' equity, comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Homestake Mining Company and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP San Francisco, California February 3, 2000 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Homestake Mining Company and Subsidiaries are prepared by the Company's management in conformity with generally accepted accounting principles. Management is responsible for the fairness of the financial statements, which include estimates based on judgments. The Company maintains accounting and other control systems which management believes provide reasonable assurance that financial records are reliable for the purpose of preparing financial statements and that assets are properly safeguarded and accounted for. Underlying the concept of reasonable assurance is the premise that the cost of controls should not be disproportionate to the benefits expected to be derived from such controls. The Company's internal control structure is reviewed by its internal auditors and to the extent necessary by the external auditors in connection with their independent audit of the Company's consolidated financial statements. The external auditors conduct an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards in order to express their opinion on these financial statements. These standards require that the external auditors plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. The Audit Committee of the Board of Directors, composed entirely of outside directors, meets periodically with management, internal auditors and the external auditors to discuss the annual audit, internal control, internal auditing and financial reporting matters. The external auditors and the internal auditors have direct access to the Audit Committee. /s/ Jack E. Thompson - -------------------- Jack E. Thompson Chairman and Chief Executive Officer /s/ David W. Peat - ----------------- David W. Peat Vice President, Finance and Chief Financial Officer February 3, 2000 56 Quarterly Selected Data (In thousands, except per share amounts)
First Second Third Fourth Quarter Quarter Quarter Quarter Year -------------------------------------------------------------------------------------- 1999: Revenues $178,614 $199,340 $ 175,968 $194,203 $ 748,125 Net income (loss) (949) /1/ 116 /2/ 1,747 /3/ 3,950 /4/ 4,864 /1-4/ Per common share: Net income (loss) /9/ $ - /1/ $ - /2/ $ 0.01 /3/ $ 0.02 /4/ $ 0.02 /1-4/ Dividends paid /10/ - 0.05 - 0.025 0.075 1998: Revenues $216,242 $195,350 $ 183,418 $202,880 $ 797,890 Net loss (7,602) /5/ (43,149) /6/ (182,833) /7/ (196) /8/ (233,780) /5-8/ Per common share: Net loss /9/ $ (0.03) /5/ $ (0.19) /6/ $ (0.80) /7/ $ - /8/ $ (1.01) /5-8/ Dividends paid /10/ - 0.05 - 0.05 0.10
1. Includes business combination and integration costs of $1.3 million ($1.3 million pretax) or $0.01 per share. 2. Includes business combination and integration costs of $3.5 million ($3.5 million pretax) or $0.01 per share and write-down of investment of $3.5 million ($3.5 million pretax) or $0.01 per share. 3. Includes write-downs and unusual charges of $4.4 million ($6.9 million pretax) or $0.02 per share including (i) reductions of $1.1 million ($1.7 million pretax) in the carrying values of resource assets and (ii) an increase of $3.3 million ($5.2 million pretax) in the estimated accrual for remediation and reclamation. 4. Includes write-downs and unusual charges of $7.8 million ($10 million pretax) or $0.03 per share to reduce the carrying values of certain resource assets. 5. Includes business combination and integration costs of $2.7 million ($2.8 million pretax) or $0.01 per share and charges of $5.9 million ($8.9 million pretax) or $0.03 per share related to the restructuring of the Homestake mine. 6. Includes business combination and integration costs of $15 million ($17.9 million pretax) or $0.06 per share and reductions in the carrying values of resource assets of $12.8 million ($13.1 million pretax) or $0.06 per share. 7. Includes write-downs and unusual charges of $165.9 million ($187.9 million pretax) or $0.72 per share including (i) reductions of $115.4 million ($135.9 million pretax) in the carrying values of resource assets, (ii) an increase of $35 million ($35 million pretax) in estimated accruals for remediation and reclamation expenditures, (iii) write-downs of $7.3 million ($7.9 million pretax) of noncurrent investments, and (iv) other charges of $8.2 million ($9.1 million pretax). 8. Includes a reduction in business combination and integration costs of $0.7 million ($1.3 million pretax) and write-downs and unusual charges of $3.9 million ($3.9 million pretax) or $0.01 per share including (i) reductions of $2.6 million ($2.6 million pretax) in the carrying values of resource assets, (ii) an increase of $1 million ($1 million pretax) in estimated accruals for reclamation expenditures, and (iii) write-downs of $0.3 million ($0.3 million pretax) in noncurrent investments. 9. Basic and diluted earnings per share. 10. Homestake only. Common Stock Price Range (Prices as quoted on the New York Stock Exchange)
First Second Third Fourth Quarter Quarter Quarter Quarter Year --------------------------------------------------------------------------------------------------- 1999: High $11.44 $10.75 $10.88 $10.13 $11.44 Low 8.13 7.50 7.19 7.50 7.19 1998: High $11.19 $13.13 $12.69 $15.00 $15.00 Low 7.69 9.31 8.69 8.38 7.69
57 Five-Year Selected Data/1/ (In thousands, except per share amounts)
1999 1998 1997 1996 1995 ----------------------------------------------------------------------------------- Revenues $ 748,125 $ 797,890 $ 971,566 $ 998,793 $ 949,143 Net income (loss) 4,864 /2/ (233,780) /3/ (233,354) /4/ 42,361 /5/ 44,722 Net income (loss) per share /6/ 0.02 /2/ (1.01) /3/ (1.02) /4/ 0.19 /5/ 0.21 Total assets 1,634,469 1,660,606 1,627,144 1,959,778 1,688,368 Long-term debt 278,494 357,410 374,593 255,170 274,942 Other long-term obligations 219,849 /7/ 176,887 152,610 123,475 127,558 Deferred income and mining taxes 216,958 230,567 161,862 218,379 202,607 Minority interests 13,800 7,825 108,116 103,960 100,380 Shareholders' equity 765,360 739,196 699,791 1,043,377 862,078 Dividends per share /8/ 0.075 0.10 0.15 0.20 0.20
1. Five-year selected financial data reflects the 1999 combination of Homestake and Argentina Gold and the 1998 combination of Homestake and Plutonic, both on a pooling-of-interests basis. Accordingly, all periods presented include the results and financial position of Argentina Gold and Plutonic. 2. Includes business combination and integration costs of $4.8 million ($4.8 million pretax) or $0.02 per share and write-downs and other unusual charges of $15.7 million ($20.4 million pretax) or $0.06 per share including (i) reductions in the carrying values of resource assets of $8.9 million ($11.7 million pretax), (ii) an increase in the estimated accrual for remediation and reclamation expenditures of $3.3 million ($5.2 million pretax) and (iii) a write-down of $3.5 million ($3.5 million pretax) for an exploration joint venture. 3. Includes business combination and integration costs of $17 million ($19.4 million pretax) or $0.07 per share and write-downs and other unusual charges of $188.5 million ($213.8 million pretax) or $0.82 per share including (i) a reduction in the carrying values of resource assets of $130.8 million ($151.6 million pretax), (ii) an increase in the estimated accrual for remediation and reclamation expenditures of $36 million ($36 million pretax), (iii) Homestake mine restructuring charges of $5.9 million ($8.9 million pretax), (iv) write-downs of investments of $7.6 million ($8.2 million pretax), and (v) other charges of $8.2 million ($9.1 million pretax). 4. Includes a gain of $47.2 million ($62.9 million pretax) or $0.21 per share on the fee received upon termination of Homestake's merger agreement with Santa Fe Pacific Gold Corporation, a gain of $10.4 million ($10.4 million pretax) or $0.04 per share with respect to the cancellation of an option to acquire Great Central Mines Limited, and a gain of $8.1 million ($13.5 million pretax) or $0.03 per share on the sale of the George Lake and Back River joint venture interests in the Northwest Territories of Canada, and write- downs and unusual charges of $224.9 million ($285.3 million pretax) or $0.98 per share including (i) a write-down of $84.9 million ($107.8 million pretax) in Homestake's investment in the Main Pass 299 sulfur mine, (ii) a reduction of $60.1 million ($84.7 million pretax) in the carrying values of resource assets, (iii) write-downs of $45.7 million ($47.9 million pretax) of certain investments, (iv) an increase of $21.5 million ($29.1 million pretax) in the accrual for estimated future reclamation expenditures, and (v) other charges of $12.7 million ($15.8 million pretax) consisting primarily of foreign exchange losses on intercompany redeemable preferred stock and losses on an intercompany gold loan. 5. Includes income of $24 million or $0.10 per share from a reduction in the Company's accrual for prior year income taxes, a gain of $7.9 million ($7.9 million pretax) or $0.03 per share from the sale of the investment in Eagle Mining Corporation NL, write-downs of $8.3 million ($9 million pretax) or $0.03 per share in the carrying values of investments in mining company securities, and proceeds of $4.9 million ($5.5 million pretax) or $0.02 per share from a litigation recovery. 6. Basic and diluted earnings per share. 7. Includes a deferred gain of $35 million on the early close-out of forward sales contracts. 8. Homestake only. 58 EX-21 3 LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ================================================================================ 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) Gold Ore Inc. (South Dakota) Homestake Mining Company of California (California) HMC Finance Pty Ltd (Northern Territory, Australia) Homestake Canada Holdings Company (Nova Scotia) Homestake Canada Inc. (Ontario) Argentina Gold Corp. (Canadian Federal) Argentina Gold (Bermuda) I Ltd. (Bermuda) Argentina Gold (Bermuda) II Ltd. (Bermuda) Minera Argentina Gold S.A. (Buenos Aires) Minera Rio Frio S.A. (Buenos Aires) 588982 Ontario Inc. (Ontario) E & B Explorations Inc. (Delaware) Galveston Resources (Nevada), Inc. (Nevada) PRG Project Development Corp. (British Columbia) Teck-Corona Operating Corporation (Ontario) - 50% Williams Operating Corporation (Ontario) - 50% Homestake de Argentina, S.A. (Buenos Aires) Homestake do Brasil, S.A. (Brazil) Homestake Forest Products Company (California) Homestake Gold of Australia Limited (South Australia) Homestake Australia Limited (South Australia) Homestake Superannuation Fund Pty Ltd (Queensland) Kalgoorlie Consolidated Gold Mines Pty Ltd (Western Australia) - 50% KCGM Engineering Services Pty Ltd (Western Australia) - 50% Homestake International Minerals Limited (California) Homestake Lead Company of Missouri (California) Homestake Nevada Corporation (California) Homestake-Santa Fe Mine Inc. (Nevada) Homestake Sulphur Company (Delaware) La Jara Mesa Mining Company (New Mexico) Minera Homestake Chile S.A. (Chile) Agua de la Falda, S.A. (Chile) - 51% Minera Patagonia S.R.L. (Argentina) Whitewood Development Corporation (California) Homestake Mining Company (Australia) Limited, formerly Plutonic Resources Limited (New South Wales) Forsayth NL (Western Australia) Bellevue Gold Projects Pty Ltd (New South Wales) Blacksmith Holdings Pty Ltd (Western Australia) Canaustra Holdings Pty Ltd (Western Australia) Forsayth (Gibson) Ltd (Western Australia) Forsayth Group Management Pty Limited (Western Australia) Forsayth Mining Services Ltd (Western Australia) Forsayth (New Zealand) Limited (Western Australia) Forsayth Securities Ltd (Western Australia) Forsayth Tenements Ltd (Western Australia) Patshore Pty Limited (New South Wales) Whim Creek Consolidated NL (Western Australia) Austwhim Resources NL (Western Australia) Red Rock Mining Corporation Ltd (New South Wales) Grants Patch Mining Limited (Queensland) Publishing Investments Company Pty Ltd (Western Australia) Sundowner Minerals NL (New South Wales) Lachlan Resources NL (New South Wales) - (81.2%) Lachlan Pacific NL (New Zealand) - (73.1%) Quotidian No. 101 Pty Ltd (New South Wales) (81.2%) Archaean Gold NL (Western Australia) (81.2%) Plutonic Administration Services Pty Ltd (New South Wales) Plutonic Finance Pty Ltd (New South Wales) Plutonic Gold Pty Ltd (New South Wales) Plutonic Mining Services Pty Ltd (New South Wales) Plutonic Operations Limited (New South Wales) Plutonic (Baxter) Pty Ltd (South Australia) Rubyset Pty Limited (New South Wales) Plutonic Superannuation Pty Ltd (New South Wales) EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS 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. 3 to No. 2-90905 on Form S-8 (originally filed on Form S-3); No. 33-26049 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); No. 333-17357 on Form S-8; No. 333-17359 on Form S-8; No. 333-24711 on Form S-3; and No. 333-66311 on Form S-3 of our report dated February 3, 2000, appearing on Form 10-K of Homestake Mining Company for the year ended December 31, 1999. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP San Francisco, California March 23, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE RELATED STATEMENT OF CONSOLIDATED OPERATIONS FOR THE 12 MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 DEC-31-1999 130,273 136,362 44,988 0 63,337 397,102 2,719,914 (1,587,068) 1,634,469 140,008 278,494 0 0 253,808 511,552 1,634,469 690,948 748,125 608,253 650,298 69,143 0 17,827 10,857 7,388 4,864 0 0 0 4,864 0.02 0.02 INCLUDES PRODUCTION COSTS AND DEPRECIATION, DEPLETION AND AMORTIZATION FROM THE STATEMENT OF CONSOLIDATED OPERATIONS. INCLUDES PRODUCTION COSTS, DEPRECIATION, DEPLETION AND AMORTIZATION AND ADMINISTRATIVE AND GENERAL EXPENSE FROM THE STATEMENT OF CONSOLIDATED OPERATIONS. INCLUDES EXPLORATION EXPENSE, WRITE-DOWNS AND OTHER UNUSUAL CHARGES, BUSINESS COMBINATION AND INTEGRATION COSTS AND OTHER EXPENSE FROM THE STATEMENT OF CONSOLIDATED OPERATIONS.
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