<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] 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 1-8542
----------
ECHO BAY MINES LTD.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Incorporated under the laws
of Canada None
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 1000, 6400 S. Fiddlers Green Circle
Englewood, CO 80111-4957
------------------------------------------ --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 714-8600
--------------------
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
----- -----
Shares Outstanding as of
Title of Class July 31, 1996
---------------------------- -----------------------
Common Shares
without nominal or par value 139,350,281
================================================================================
<PAGE> 2
ECHO BAY MINES LTD.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 34
Item 4. Submission of Matters to a Vote of Security Holders . . 34
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 35
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
ECHO BAY MINES LTD.
CONSOLIDATED STATEMENT
OF EARNINGS Three months ended Six months ended
thousands of U.S. dollars, June 30, June 30,
except for per share data 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 95,086 $ 90,594 $ 162,836 $ 174,803
- - ------------------------------------------------------------------------------------------------------
Expenses:
Operating costs 57,959 55,218 102,524 105,809
Royalties 2,129 2,157 4,232 4,236
Production taxes 787 1,508 1,496 2,871
Depreciation 15,510 13,845 28,395 28,025
Amortization 8,009 8,284 13,621 16,189
Reclamation 1,439 1,233 2,583 2,420
General and administrative 3,550 2,910 6,882 5,617
Exploration expense 13,289 10,753 22,592 17,244
Development properties expense 4,724 4,635 9,429 12,530
Other expense 1,817 1,556 820 2,115
Interest (income) expense 173 (1,279) 324 (2,919)
- - ------------------------------------------------------------------------------------------------------
109,386 100,820 192,898 194,137
- - ------------------------------------------------------------------------------------------------------
Loss before taxes (14,300) (10,226) (30,062) (19,334)
- - ------------------------------------------------------------------------------------------------------
Income tax recovery (expense):
Current (435) (577) (641) (841)
Deferred 132 475 (56) 950
- - ------------------------------------------------------------------------------------------------------
(303) (102) (697) 109
- - ------------------------------------------------------------------------------------------------------
Loss before
preferred stock dividends (14,603) (10,328) (30,759) (19,225)
Preferred stock dividends
of subsidiary -- (2,649) -- (5,411)
- - ------------------------------------------------------------------------------------------------------
Net loss $ (14,603) $ (12,977) $ (30,759) $ (24,636)
======================================================================================================
Loss per share $ (0.11) $ (0.12) $ (0.24) $ (0.22)
======================================================================================================
Weighted average number of
shares outstanding (thousands) 130,514 112,827 130,391 112,763
======================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE> 4
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------
ECHO BAY MINES LTD.
CONSOLIDATED BALANCE SHEET June 30, December 31,
thousands of U.S. dollars 1996 1995
- - ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 134,274 $ 185,843
Interest and accounts receivable 17,566 14,749
Inventories (note 2) 40,760 34,173
Prepaid expenses and other assets 6,183 5,353
- - ---------------------------------------------------------------------------------
198,783 240,118
Plant and equipment (note 3) 243,448 255,868
Mining properties (note 4) 333,821 318,219
Long-term investments and other assets (note 5) 60,682 56,956
- - ---------------------------------------------------------------------------------
$ 836,734 $ 871,161
=================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 61,755 $ 61,781
Income and mining taxes payable 3,250 2,547
Gold and other financings (note 6) 59,970 41,135
Deferred income (note 6) 15,421 25,053
- - ---------------------------------------------------------------------------------
140,396 130,516
Gold and other financings (note 6) 86,006 111,679
Deferred income (note 6) 11,305 --
Other long-term obligations (note 7) 32,673 32,018
Deferred income taxes 8,159 8,096
Commitments and contingencies (notes 10 and 11)
Common shareholders' equity:
Common shares, no par value,
unlimited number authorized; issued and
outstanding - 130,519,366 shares
(129,880,804 shares at December 31, 1995) 623,709 618,965
Deficit (50,763) (15,109)
Foreign currency translation (14,751) (15,004)
- - ---------------------------------------------------------------------------------
558,195 588,852
- - ---------------------------------------------------------------------------------
$ 836,734 $ 871,161
=================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
ECHO BAY MINES LTD.
CONSOLIDATED STATEMENT Three months ended Six months ended
OF CASH FLOW June 30, June 30,
thousands of U.S. dollars 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
OPERATING ACTIVITIES
Working capital provided
from operations $ 11,844 $ 14,099 $ 14,189 $ 30,265
Decrease (increase) in cash
invested in working capital
related to operations 6,898 1,785 (11,343) (11,606)
- - ------------------------------------------------------------------------------------
18,742 15,884 2,846 18,659
- - ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Gold loan repayments (2,464) (2,464) (4,927) (4,927)
Dividends on preferred
stock of subsidiary -- (2,649) -- (5,411)
Common share
dividends (note 8) (4,895) (4,231) (4,895) (4,231)
Common share issues 134 2 4,745 766
- - ------------------------------------------------------------------------------------
(7,225) (9,342) (5,077) (13,803)
- - ------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Mining properties, plant
and equipment (22,067) (8,981) (48,759) (19,154)
Long-term investments and
other assets (5,667) (20,703) (6,718) (21,018)
Proceeds on sale of
long-term investments -- 2,104 5,550 2,155
Other 510 (57) 589 137
- - ------------------------------------------------------------------------------------
(27,224) (27,637) (49,338) (37,880)
- - ------------------------------------------------------------------------------------
Net decrease in
cash and cash equivalents (15,707) (21,095) (51,569) (33,024)
Cash and cash equivalents,
beginning of period 149,981 189,598 185,843 201,527
- - ------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 134,274 $ 168,503 $ 134,274 $ 168,503
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
ECHO BAY MINES LTD.
CONSOLIDATED STATEMENT Three months ended Six months ended
OF RETAINED EARNINGS (DEFICIT) June 30, June 30,
thousands of U.S. dollars 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $ (31,265) $ 32,481 $ (15,109) $ 44,140
Net loss (14,603) (12,977) (30,759) (24,636)
- - ------------------------------------------------------------------------------------
(45,868) 19,504 (45,868) 19,504
Dividends on common
shares (note 8) (4,895) (4,231) (4,895) (4,231)
- - ------------------------------------------------------------------------------------
Balance, end of period $ (50,763) $ 15,273 $ (50,763) $ 15,273
====================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE> 6
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated statement
of earnings, consolidated statement of retained earnings (deficit),
consolidated balance sheet and consolidated statement of cash flow contain all
adjustments, consisting only of normal recurring accruals, necessary to present
fairly in all material respects the consolidated financial position of Echo Bay
Mines Ltd. (the company) as of June 30, 1996 and December 31, 1995 and the
consolidated results of operations and cash flow for the three and six months
ended June 30, 1996 and 1995.
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all the
information and note disclosures required by generally accepted accounting
principles for complete financial statements. For further information, refer
to the financial statements and related footnotes included in the company's
annual report on Form 10-K for the year ended December 31, 1995.
The effective corporate tax rate for interim periods is based on the estimated
annual effective corporate tax rate, excluding certain nonrecurring or unusual
events. The effective tax rate varies from statutory rates due primarily to
resource and depletion allowances and operating losses for which no tax benefit
has been recorded.
The financial statements are prepared on the historical cost basis in
accordance with accounting principles generally accepted in Canada and, in all
material respects, conform with those principles generally accepted in the
United States except as described in note 9 to the company's interim
consolidated financial statements and with International Accounting Standards.
The statements are expressed in U.S. dollars.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Certain of the comparative figures have been reclassified to conform with the
current period's presentation.
4
<PAGE> 7
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
2. INVENTORIES
thousands of U.S. dollars
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
June 30, December 31,
1996 1995
- - ---------------------------------------------------------------------------
<S> <C> <C>
Precious metals - bullion $ 3,582 $ 5,944
- in-process 13,048 10,312
Materials and supplies 24,130 17,917
- - ---------------------------------------------------------------------------
$ 40,760 $ 34,173
===========================================================================
</TABLE>
3. PLANT AND EQUIPMENT
thousands of U.S. dollars
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
June 30, December 31,
1996 1995
- - ---------------------------------------------------------------------------
<S> <C> <C>
Cost $ 618,752 $ 605,442
Less accumulated depreciation 375,304 349,574
- - ---------------------------------------------------------------------------
$ 243,448 $ 255,868
===========================================================================
</TABLE>
4. MINING PROPERTIES
thousands of U.S. dollars
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------
June 30, December 31,
1996 1995
- - ---------------------------------------------------------------------------
<S> <C> <C>
Producing mines' acquisition,
exploration and development costs $ 378,606 $ 364,611
Less accumulated amortization 234,503 221,125
- - ---------------------------------------------------------------------------
144,103 143,486
Development properties' acquisition,
exploration and development costs 109,353 102,204
Deferred mining costs 80,365 72,529
- - ---------------------------------------------------------------------------
$ 333,821 $ 318,219
===========================================================================
</TABLE>
5
<PAGE> 8
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
5. LONG-TERM INVESTMENTS AND OTHER ASSETS
thousands of U.S. dollars
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------
June 30, 1996 December 31, 1995
Market Carrying Market Carrying
Value Value Value Value
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share investments carried at cost:
TVI Pacific Inc.
14,016,845 common shares
(15.6% interest)(1) $ 17,660 $ 11,810 $ 18,715 $ 7,579
Santa Elina Gold Corporation
9,000,000 common shares
(6.7% interest)(2) 13,185 13,073 9,889 13,073
Canarc Resources Corp.
3,000,000 common shares
(10.3% interest)(3) 3,736 4,153 3,055 4,153
Rift Resources Ltd.
1,000,000 common shares
(12.3% interest) 1,282 1,465 -- --
Cluff Resources plc(4) -- -- 6,033 2,899
Other common share investments 11,367 9,518 8,157 8,315
- - --------------------------------------------------------------------------------------
47,230 40,019 45,849 36,019
Equity investment in:
Etruscan Enterprises Ltd.
4,175,275 common shares
(24.5% interest)(5) 12,509 7,322 12,815 8,877
- - --------------------------------------------------------------------------------------
$ 59,739 $ 47,341 $ 58,664 $ 44,896
Property options 7,079 7,764
Other assets 6,262 4,296
- - --------------------------------------------------------------------------------------
$ 60,682 $ 56,956
======================================================================================
</TABLE>
(1) At December 31, 1995, 11,666,667 common shares (15.7% interest).
(2) At December 31, 1995, 9,000,000 common shares (6.7% interest). See note 12
regarding increasing the company's interest in Santa Elina to 50%.
(3) At December 31, 1995, 3,000,000 common shares (10.5% interest).
(4) At December 31, 1995, 3,630,800 common shares (4.8% interest). These shares
were sold in the first quarter of 1996 for a gain of $2.5 million included
in other income.
(5) At December 31, 1995, 4,175,275 common shares (27.0% interest).
Equity Investment
During 1995, the company purchased 4,175,275 common shares of Etruscan
Enterprises, Ltd. ("Etruscan") for $9.0 million, which resulted in an ownership
interest sufficient to account for this investment using the equity method.
Etruscan is the company's joint venture partner in the Koma Bangou project in
Niger, West Africa.
6
<PAGE> 9
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
Share investments
The company has purchased common shares of exploration-oriented companies
that give the company access to exploration and development prospects along
some of the major gold belts of the world, including properties in South
America, West Africa and the Philippines.
Property options
In several cases the company paid a premium over the then-market value of the
common shares of exploration-oriented companies to fund exploration programs on
certain properties, and for the right to acquire direct interests in these
properties. The premium is being expensed as the exploration work is
conducted, until development potential is established. The company holds
options to purchase direct interests in these properties at purchase
considerations dependent on the properties' reserves and other mineralization.
6. GOLD AND OTHER FINANCINGS AND DEFERRED INCOME
<TABLE>
<CAPTION>
Financings Deferred Income
---------------------- ---------------------
June 30, December 31, June 30, December 31,
thousands of U.S. dollars 1996 1995 1996 1995
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold swaps $ 100,309 $ 101,480 $ 27,862 $ 26,925
Gold loan 17,610 23,279 291 291
Debenture payable 28,057 28,055 -- --
Other -- -- (1,427) (2,163)
- - ---------------------------------------------------------------------------------
145,976 152,814 26,726 25,053
Less current portion 59,970 41,135 15,421 25,053
- - ---------------------------------------------------------------------------------
$ 86,006 $ 111,679 $ 11,305 $ --
=================================================================================
</TABLE>
a) Gold swaps
Gold swaps refer to currency loans and related, independently arranged, future
gold delivery commitments. Taken together, the loans and commitments create
obligations effectively denominated in gold and represent hedges of future gold
production. At June 30, 1996 and December 31, 1995, 336,990 ounces of gold
were deliverable under gold swap agreements as described below.
(i) U.S. dollar notes and bonds
In 1990, bonds totaling $84.0 million were swapped for an obligation to deliver
218,000 ounces of gold in 1997, equivalent to a selling price of $385 per
ounce. The effective interest rate on the bond and swap arrangement was 2.58%
at June 30, 1996.
7
<PAGE> 10
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
(ii) Swiss franc bonds
In 1989, the company swapped Swiss franc bonds with a principal amount of
SFr110 million, originally issued in 1986, for an obligation to deliver 175,311
ounces of gold in 1996. In 1991, bonds with a principal amount of SFr88.7
million were converted into common shares, and the 1989 swap arrangement was
renegotiated. All gains relating to changes in the price of gold and changes
in the exchange rate of the Swiss franc to the U.S. dollar have been deferred.
The company's remaining net gold delivery commitment relating to the Swiss
Franc bond and swap arrangement is 118,990 ounces at $374 per ounce, including
deferred amounts. In 1996, the net gold delivery commitment was rescheduled.
The company will now deliver 69,267 ounces in the fourth quarter of 1996 with
the remaining 49,723 ounces spread equally over the following nine quarters.
All deferred gains related to the Swiss franc transactions will be recognized
in earnings on a basis that matches the production originally designated for
delivery in 1996. The effective rate of interest on the Swiss Franc bond and
swap arrangement was 1.06% at June 30, 1996.
b) Gold loan
At June 30, 1996, 46,100 ounces of gold were outstanding under a gold loan
agreement (60,200 ounces at December 31, 1995). The outstanding gold loan was
remeasured to $382 per ounce, the gold price at June 30, 1996 ($387 per ounce
in 1995). Unrealized remeasurement gains or losses are included in deferred
income. This loan has been outstanding since 1992, when the company borrowed
173,000 ounces of gold under a gold bullion agreement with six banks. The
agreement contains both term and revolving loan provisions. The term loan,
which was used to refinance existing debt, is being repaid at the rate of 2,350
ounces per month with the balance of 32,000 ounces due on December 31, 1996.
At June 30, 1996, the company had no amounts outstanding under the revolving
commitment. The company had $75.0 million or gold equivalent available until
1999 under the revolving commitment.
The facility is convertible between gold and dollar borrowings. Interest on
gold borrowings is calculated at the banks' gold rate plus 0.55%, and interest
on dollar borrowings at LIBOR plus 0.55%. The effective interest rate on the
gold loan was 1.58% at June 30, 1996.
c) Debenture payable
A subsidiary of the company has issued a debenture in the amount of $28.1
million, which bears interest at the one-month discount rate for bankers'
acceptances plus 0.325%. This debenture is payable in 1997 and is secured by a
letter of credit.
8
<PAGE> 11
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
d) Other information
Certain of the company's financing arrangements require it to maintain
specified ratios of assets to liabilities and cash flow to debt. The company
is in compliance with these ratios and other covenant requirements.
The company had outstanding letters of credit of $57.8 million at June 30,
1996, primarily relating to the bonding of future reclamation obligations and
to the debenture issued by a subsidiary of the company. Annual fees on the
letters of credit range from 0.50% to 0.55%.
At June 30, 1996, the company had unutilized credit facilities of $86.4
million including the $75.0 million revolving commitment (note 6b). Annual
commitment fees on the unutilized credit facilities are 0.225%
Future gold and silver delivery commitments are summarized in note 10.
7. OTHER LONG-TERM OBLIGATIONS
Other long-term obligations consist primarily of accrued reclamation costs of
$28.9 million at June 30, 1996 and $27.1 million at December 31, 1995.
8. DIVIDENDS ON COMMON SHARES
The company's policy is to declare dividends to shareholders in U.S. funds.
Dividends payable to Canadian residents are converted to and paid in Canadian
dollars. The company paid a semi-annual dividend of U.S.$0.0375 per common
share on June 30, 1996 and 1995.
9. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
The company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in Canada. These differ in some
respects from those in the United States, as described below.
In accordance with Canadian GAAP, certain long-term foreign exchange contracts
are considered to be hedges of the cost of goods to be purchased in foreign
currencies in future periods. Gains and losses related to changes in market
values of such contracts are deferred, then recognized as a component of the
cost of goods when the related hedged purchases occur. Under U.S. GAAP,
changes in market value would be included in current earnings.
In accordance with Canadian GAAP, some of the company's share investments are
carried at cost as long-term investments (note 5). These non-equity method
investments are written down and the loss recognized in earnings
9
<PAGE> 12
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
only when the loss in value is other than a temporary decline. Under U.S.
GAAP, these investments would be marked to market, with unrealized gains or
losses excluded from earnings and reported in a separate component of common
shareholders' equity, net of tax. The unrealized gain on share investments
carried at cost is $12.4 million after a nil tax effect as of June 30, 1996.
The effects on the consolidated statement of earnings of the above differences
would have been as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
thousands of U.S. dollars, June 30, June 30,
except per share data 1996 1995 1996 1995
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss under
Canadian GAAP $ (14,603) $ (12,977) $ (30,759) $ (24,636)
Change in market value of
foreign exchange contracts 146 1,863 807 1,829
- - ---------------------------------------------------------------------------------
Net loss under
U.S. GAAP $ (14,457) $ (11,114) $ (29,952) $ (22,807)
=================================================================================
Loss per share
under U.S. GAAP $ (0.11) $ (0.10) $ (0.23) $ (0.20)
=================================================================================
</TABLE>
Long-term investments and other assets, deficit, and common shareholders'
equity would have been $81.7 million, $42.2 million, and $579.2 million
respectively at June 30, 1996 and $78.6 million, $7.3 million and $610.5
million respectively at December 31, 1995.
In October 1995, the U.S. Financial Accounting Standards Board ("FASB") issued
Statement No. 123, "Accounting and Disclosure of Stock-Based Compensation".
Statement No. 123 is applicable for fiscal years beginning after December 15,
1995 and gives the option to either follow fair value accounting or to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and related Interpretations. The company has
determined that it will elect to continue to follow APB No. 25 and related
Interpretations in accounting for its employee and director stock options in
financial information prepared in conformity with U.S. GAAP.
Effective January 1, 1996, for the purpose of preparing U.S. GAAP financial
information, the company adopted FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present. Implementation of
Statement No. 121 had no effect on the U.S. GAAP financial information of the
company.
10
<PAGE> 13
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
10. HEDGING ACTIVITIES AND COMMITMENTS
The company's profitability is subject to changes in gold and silver prices,
exchange rates, interest rates and certain commodity prices. To reduce the
impact of such changes the company attempts to lock in the future value of
certain of these items through hedging transactions. These transactions are
accomplished through the use of derivative financial instruments, the value of
which is derived from movements in the underlying prices or rates.
The gold- and silver-related instruments used in these transactions include
commodity loans, fixed-forward and spot-deferred contracts, swaps and options.
Sensitivity to changing metal prices is reduced, and future revenues are
hedged, as the company's future production will satisfy these loans and other
delivery commitments. The company engages in forward currency-exchange
contracts to reduce the impact on the Lupin mine's operating costs caused by
fluctuations in the exchange rate of U.S. dollars to Canadian dollars. The
company also engages in crude oil hedging activities, including forward
purchase agreements and swaps, to reduce the impact of fluctuations in crude
oil prices on its operating costs.
a) Gold and silver commitments
As of June 30, 1996, the company's gold and silver commitments were as follows:
<TABLE>
<CAPTION>
Average
Price of Gold Price of
Forward Forward Loans Loans
Sales Sales and Swaps and Swaps
(ounces) (per ounce) (ounces) (per ounce)
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold
- - ----
Balance of 1996 75,000 $ 412 115,367 $ 377
1997 49,333 418 240,100 386
1998 154,000 456 22,100 395
1999 290,667 497 5,523 395
2000 70,000 503 -- --
2001 and beyond 70,000 548 -- --
- - -------------------------------------------------------------------------
709,000 $ 479 383,090 $ 384
=========================================================================
Silver
- - ------
Balance of 1996 1,200,000 $ 5.91
1997 2,600,000 5.96
1998 3,100,000 6.46
1999 2,800,000 6.47
- - --------------------------------------------
9,700,000 $ 6.26
============================================
</TABLE>
11
<PAGE> 14
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
The company's option position as of June 30, 1996 was as follows:
<TABLE>
<CAPTION>
Put Options Purchased Call Options Sold
--------------------- ---------------------
Strike Price Strike Price
Ounces per Ounce Ounces per Ounce
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold
- - ----
Balance of 1996 10,000 $ 390 5,000 $ 421
Silver
- - ------
Balance of 1996 720,000 $ 5.40 720,000 $ 6.43
1997 1,440,000 5.40 1,440,000 6.43
- - --------------------------------------------------------------------------------
2,160,000 $ 5.40 2,160,000 $ 6.43
================================================================================
</TABLE>
b) Currency position
The company's obligations to purchase Canadian dollars as of June 30, 1996 were
as follows:
<TABLE>
<CAPTION>
Canadian Exchange Rate
Dollars (C$ to US$1.00)
- - --------------------------------------------------------------------------------
<S> <C> <C>
Balance of 1996 $ 22,600,000 1.43
1997 25,200,000 1.49
1998 25,200,000 1.52
1999 25,200,000 1.56
2000 25,200,000 1.59
- - --------------------------------------------------------------------------------
$ 123,400,000 1.52
================================================================================
</TABLE>
c) Crude oil position
The company's swap contracts and forward purchase commitments as of June 30,
1996 were as follows:
<TABLE>
<CAPTION>
Barrels of
Crude Oil Price per
Purchased Barrel
- - --------------------------------------------------------------------------------
<S> <C> <C>
Balance of 1996 120,000 $ 18.40
1997 397,000 17.96
1998 390,000 17.57
1999 20,000 17.63
- - --------------------------------------------------------------------------------
927,000 $ 17.85
================================================================================
</TABLE>
12
<PAGE> 15
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
d) Other hedging activity information
The company assesses the exposure that may result from a hedging transaction
prior to entering into the commitment, and only enters into transactions which
it believes accurately hedge the underlying risk and could be safely held to
maturity. The company does not actively engage in the practice of trading
derivative securities for profit. The company regularly reviews its unrealized
gains and losses on hedging transactions.
Shown below are the carrying amounts, estimated fair values, and unrealized
gains or losses on the company's hedging positions at June 30, 1996 and
December 31, 1995.
<TABLE>
<CAPTION>
Carrying Estimated Unrealized
thousands of U.S. dollars Amount Fair Value Gain(loss)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1996
- - -------------
Gold swaps $100,309 $ 95,009 $ 5,300
Gold loan 17,610 17,610 --
Off balance sheet instruments:
Gold forward sales -- 38,700
Silver forward sales -- 7,600
Gold and silver options - puts 2,043
- calls (1,665) 1,400
Foreign currency contracts -- 8,600
Crude oil contracts -- 200
- - ----------------------------------------------------------------------------------------------
$ 61,400
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Carrying Estimated Unrealized
thousands of U.S. dollars Amount Fair Value Gain(loss)
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1995
- - -----------------
Gold swaps $101,480 $ 97,880 $ 3,600
Gold loan 23,279 23,279 --
Off balance sheet instruments:
Gold forward sales -- 34,900
Silver forward sales -- 6,400
Gold and silver options 378 1,100
Foreign currency contracts -- 7,800
Crude oil contracts -- (300)
- - ----------------------------------------------------------------------------------------------
$ 53,500
==============================================================================================
</TABLE>
Fair values are estimated for the contract settlement dates based upon market
quotations of various input variables. These variables were used in valuation
models which estimate the fair market value.
13
<PAGE> 16
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
Hedging gains and losses represent the differences between spot or market
prices and realized amounts. Shown below are the hedging gains and losses
recognized in earnings.
<TABLE>
<CAPTION>
Three months ended Six months ended
Gains (losses) in thousands June 30, June 30,
of U.S. dollars 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Gold loans $ (323) $ (270) $ (681) $ (202)
Gold forward sales 252 603 477 1,392
Silver forward sales 645 (82) 770 1,228
Gold and silver options 101 60 (110) (34)
Operating expenses:
Foreign currency contracts 400 265 677 188
Crude oil contracts 252 166 395 254
Dividends on preferred stock
of subsidiary:
Interest rate swap -- (135) -- (381)
- - ----------------------------------------------------------------------------------------------
$ 1,327 $ 607 $ 1,528 $ 2,445
==============================================================================================
</TABLE>
11. CONTINGENCIES
a) Alaska-Juneau
In December 1994, the U.S. Environmental Protection Agency (EPA) issued a
Technical Assistance Report, concluding that this development project as
configured in the May 1992 Final Environmental Impact Statement would be likely
to violate water quality and other environmental standards. In 1996, the
company's reapplication of permits included a new project description with an
alternative of submarine tailings disposal, which would require a change in EPA
regulations. For that purpose, the EPA has instituted rulemaking procedures to
enable it to consider submarine tailings disposal. To review that proposal and
other options that could enable the Alaska-Juneau project to proceed, the EPA
will prepare a Supplemental Environmental Impact Statement expected to be
completed in 1997. The recoverability of the company's $58.4 million
investment in Alaska-Juneau is dependent on receipt of all necessary permits
and the company's ability to attain profitable production from the property or
from alternative courses of action that the company may pursue.
14
<PAGE> 17
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
b) Summa
There is pending, in Nevada state court, a suit commenced by Summa Corporation
against the company and the predecessor owner of the McCoy/Cove and Manhattan
mines, claiming improper deductions in calculation of royalties payable over
several years from production at McCoy/Cove and the former Manhattan mine.
Summa Corporation filed a motion for summary judgment which sought $10.3
million for allegedly underpaid royalties plus interest. The court denied
Summa's motion. The case is scheduled for trial in February 1997. The company
has accrued $1.5 million related to the Summa litigation, including $1.3
million in 1996.
12. SUBSEQUENT EVENT
On July 16, 1996, the company, Santa Elina Gold Corporation and Sercor Ltd.
("Sercor", a private company that owned 67% of Santa Elina) completed an
agreement which enabled the company to increase its ownership from 7% to 50% of
the outstanding common shares of Santa Elina through a series of transactions.
The transaction was approved by the Santa Elina shareholders on July 9, 1996.
Each shareholder of Santa Elina, other than the company and Sercor, received
one common share of the company for each 6.67 common shares of Santa Elina
held. The company received 23,479,185 common shares of Santa Elina from Sercor
in exchange for 3,520,118 common shares of the company, which is the same ratio
offered to the public shareholders. In addition, the company issued 50,535
common shares in exchange for cancellation of the 1,193,333 outstanding options
on Santa Elina common shares. As a result of the transactions, the company
issued 8,830,915 common shares and the company and Sercor each own 50% of Santa
Elina. The company and Sercor will capitalize Santa Elina with an aggregate
cash contribution of $25.0 million. As of June 30, 1996, the company and
Sercor have each advanced to Santa Elina $2.5 million of this amount.
The company has accounted for the transactions as a purchase of 43% of Santa
Elina. The company's total interest in Santa Elina is 50% when added to its
existing 7% interest. In the third quarter of 1996, Santa Elina will be
consolidated into the company using the proportionate consolidation method, as
the company and Sercor will jointly control Santa Elina. Under the
proportionate consolidation method, 50% of Santa Elina's assets, liabilities,
revenues and expenses will be included in the company's consolidated financial
statements.
15
<PAGE> 18
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(U.S. dollars)
The total cost of the transactions was $106.1 million, including $85.6 million
to purchase the additional 43% interest in Santa Elina, $13.1 million cost of
the company's current 7% interest in Santa Elina, $5.3 million carrying value
of the company's option to acquire a direct 50% interest in the Chapada
property, $1.6 million of transaction costs and $0.5 million to cancel all
outstanding options on the Santa Elina shares. The purchase price will be
allocated to the net assets of Santa Elina based on the relative fair values.
Santa Elina holds interests in mining properties principally in Brazil, and
also in Bolivia.
Unaudited pro forma summarized operating results of the company, assuming the
Santa Elina purchase had been consummated on January 1, 1995, are as follows:
<TABLE>
<CAPTION>
Six months ended
thousands of U.S. dollars, June 30,
except per share amounts 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 165,586 $ 176,387
Net loss $ (34,600) $ (29,689)
Net loss per common share $ (0.25) $ (0.24)
- - --------------------------------------------------------------------------------
</TABLE>
The unaudited pro forma information is based upon historical results of
operations and is not necessarily indicative of results that would have
occurred had the Santa Elina purchase been consummated on January 1, 1995.
16
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
June 30, 1996
(U.S. dollars)
FINANCIAL CONDITION
Working capital provided from operations amounted to $14.2 million for the
first six months of 1996 compared to $30.3 million in the first six months of
1995. The 1996 results reflect lower production levels in the first six months
of 1996 ($6.0 million reduced cash margin), increased operating costs per ounce
($5.6 million) and increased cash exploration expenses ($3.6 million),
partially offset by higher gold and silver prices realized ($3.3 million).
Working capital from operations has been reduced by cash exploration and
development property expenses of $27.7 million in 1996 and $25.7 million in
1995, most of which represent discretionary investments for the future.
The increase in cash invested in working capital related to operations was
$11.3 million in the first six months of 1996. The primary use of the cash
invested in working capital was an increase in material and supplies inventory
($6.1 million) primarily related to the annual resupply of diesel fuel, bulk
materials and other inventory items at the Lupin mine in the Northwest
Territories of Canada and an increase in accounts receivable ($3.3 million)
primarily related to a $2.5 million advance to Santa Elina Gold Corporation.
See note 12 to the interim consolidated financial statements.
The company had gold loan repayments of $4.9 million in the first six months of
1996, paid common share dividends of $4.9 million and issued 0.6 million shares
of common stock on the exercise of stock options, for proceeds of $4.7 million.
The company used $49.3 million of cash in investing activities in the first six
months of 1996, for mining properties, plant and equipment ($48.8 million),
and long-term investments ($6.7 million). The company received $5.6 million on
the sale of a common share investment.
For the remainder of 1996, the company expects to incur $27 million in cash
exploration and development properties expenses; $51 million of capitalized
acquisition, exploration and development costs at development properties
including Kingking, Chapada, Ulu, Paredones Amarillos and Aquarius; and $22
million of capital and deferred mining expenditures at operating properties,
including construction of a mill at Round Mountain.
17
<PAGE> 20
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
June 30, 1996
(U.S. dollars)
The company expects to fund these expenditures from working capital provided by
operations, existing working capital and the refinancing described below. The
company has adequate financial resources and liquidity to pursue additional
acquisition, investment, exploration and development programs. Working capital
from operations was $14.2 million in the first six months of 1996 after
incurring cash exploration and development costs of $27.7 million. In
addition, the company has $134.3 million in cash and cash equivalents, and
$86.4 million in established unutilized credit facilities at June 30, 1996.
Subsequent to June 30, 1996 the company refinanced a gold loan which will now
be repaid over five years. The loan balance was $17.6 million at June 30, 1996
and was originally scheduled to be repaid in 1996. As part of the same
agreement, the company borrowed an additional $34.7 million in a currency loan
which will also be repaid over five years.
The company also has an effective shelf registration statement with the
Securities and Exchange Commission pursuant to which it may sell up to $200.0
million of debt and/or equity securities.
Subsequent to June 30, 1996 the company issued 8,830,915 common shares to
increase its ownership of Santa Elina Gold Corporation to 50% from 7%. The
transaction is valued at $86.1 million based on the company's common share
price of $9.75 on the July 16, 1996 closing date. See note 12 to the interim
consolidated financial statements.
Most of the company's hedging transactions have no margin requirements. In
some instances however, mainly for longer term forward sales and options,
margin deposits are required when the market value exceeds the contract value
by a predetermined amount.
18
<PAGE> 21
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
FINANCIAL REVIEW
Three month results
The company reported a net loss of $14.6 million ($0.11 per share) in the
second quarter of 1996, compared to a net loss of $12.9 million ($0.12 per
share) in the second quarter of 1995. The increase in 1996 from 1995 reflects
increased exploration expense ($2.6 million) and increased depreciation expense
($1.7 million), partially offset by the elimination of preferred share
dividends ($2.6 million).
Gold production increased 12% to 205,601 ounces in the second quarter of 1996
compared to 183,107 ounces in the second quarter of 1995. Increased production
at the Round Mountain, Lupin and Kettle River mines was partially offset by a
decrease at McCoy/Cove. Silver production decreased 50% to 1.6 million ounces
in 1996 from 3.3 million ounces in 1995, a result of lower grade at McCoy/Cove.
Quarterly revenues were $95.1 million in 1996 and $90.6 million in 1995.
Cash operating costs were $239 per ounce of gold in the second quarter of 1996,
the same as in the second quarter of 1995.
Six month results
The company reported a net loss of $30.8 million ($0.24 per share) in the first
six months of 1996, compared to a net loss of $24.6 million ($0.22 per share)
in the first six months of 1995. The increase in 1996 from 1995 reflects
higher cash operating costs per ounce ($5.6 million), increased exploration
expense ($5.4 million) and lower precious metals sales ($4.6 million decreased
earnings margin) partially offset by the elimination of preferred stock
dividends ($5.4 million) and higher prices realized ($3.3 million).
Gold production increased slightly to 366,847 ounces in the first six months of
1996 compared to 365,933 ounces in the first six months of 1995. Increased
production at the Round Mountain, Lupin and Kettle River mines was offset by a
decrease at McCoy/Cove. Silver production decreased 53% to 2.8 million ounces
in 1996 from 6.1 million ounces in 1995, a result of lower grade and recovery
at McCoy/Cove. Revenues were $162.8 million in the first six months of 1996
compared to $174.8 million in the first six months of 1995.
Cash operating costs were higher, $249 per ounce of gold in the first six
months of 1996 versus $237 per ounce of gold in the first six months of 1995,
primarily due to lower grades mined and fewer gold and silver ounces produced
at McCoy/Cove.
See "Operations Review" for further comments as to production and cash
operating cost changes.
The term "ounce" as used in this Form 10-Q means "troy ounce".
19
<PAGE> 22
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
Revenue
Statistics for gold and silver ounces sold and other revenue data are set out
below:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
REVENUE DATA 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold
- - ----
Ounces sold 216,884 188,771 372,073 368,270
Average price realized/ounce $ 392 $ 391 $ 394 $ 388
Average market price/ounce $ 390 $ 388 $ 395 $ 383
Revenue (millions of U.S. $) $ 85.0 $ 73.9 $ 146.6 $ 143.0
Percentage of total revenue 89% 82% 90% 82%
Silver
- - ------
Ounces sold (millions) 1.7 3.1 2.9 6.0
Average price realized/ounce $ 5.77 $ 5.40 $ 5.69 $ 5.27
Average market price/ounce $ 5.30 $ 5.47 $ 5.42 $ 5.09
Revenue (millions of U.S. $) $ 10.1 $ 16.7 $ 16.2 $ 31.8
Percentage of total revenue 11% 18% 10% 18%
- - ------------------------------------------------------------------------------------------------
Total revenue (millions of
U.S. dollars) $ 95.1 $ 90.6 $ 162.8 $ 174.8
================================================================================================
</TABLE>
The effects of changes in sales volume and prices were:
<TABLE>
<CAPTION>
REVENUE
VARIANCE ANALYSIS
1996 VS. 1995 Three months ended Six months ended
June 30, June 30,
- - --------------------------------------------------------------------------------
<S> <C> <C>
Higher prices:
Gold $ 0.1 $ 2.1
Silver 0.7 1.2
Change in volume 3.7 (15.3)
- - --------------------------------------------------------------------------------
Increase (decrease) in revenue $ 4.5 $ (12.0)
================================================================================
</TABLE>
20
<PAGE> 23
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
Production costs
Production cost data per ounce of gold is set out below:
<TABLE>
<CAPTION>
Three months ended Six months ended
PRODUCTION COSTS June 30, June 30,
PER OUNCE OF GOLD PRODUCED 1996 1995 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct mining expense $ 259 $ 226 $ 276 $ 234
Deferred stripping and mine
development costs (10) 4 (20) 3
Inventory movements and other (10) 9 (7) --
- - ------------------------------------------------------------------------------
Cash operating costs 239 239 249 237
Royalties 9 9 10 9
Production taxes 3 7 4 6
- - ------------------------------------------------------------------------------
Total cash costs 251 255 263 252
Depreciation 63 60 69 61
Amortization 33 37 33 37
Reclamation 6 6 6 5
- - ------------------------------------------------------------------------------
Total production costs $ 353 $ 358 $ 371 $ 355
==============================================================================
</TABLE>
Effective January 1, 1996, the company adopted the "Gold Institute Production
Cost Standard" for reporting production costs on a per ounce basis. This
standard defines cash operating costs as those costs directly associated with
the mining and milling of gold and silver, adjusted for such items as changes
in in-process inventories. Other cash costs, specifically royalties and
production taxes, are defined as those costs resulting from, but not directly
related to, the production of gold and silver. Non-cash costs are defined as
costs accounted for ratably over the life of an operation, including
depreciation, amortization, and reclamation costs.
Prior period per ounce costs have been restated to conform with the new
standard.
21
<PAGE> 24
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
Expenses
Operating costs vary with the quantity of gold and silver sold and with the
cost of operating. The cash operating costs were $239 per ounce of gold in the
second quarter of 1996, the same as in the second quarter of 1995. See
"Operations Review".
Reconciliation of Cash Operating
Costs per Ounce to Financial Statements
<TABLE>
<CAPTION>
Three months ended Six months ended
thousands of U.S. dollars, June 30, June 30,
except per ounce amounts 1996 1995 1996 1995
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating costs per $ 57,959 $ 55,218 $ 102,524 $ 105,809
financial statements
Change in finished goods
inventory and other (4,731) (1,040) (334) (1,156)
Co-product cost of silver
produced (4,089) (10,415) (10,845) (18,059)
- - --------------------------------------------------------------------------------------------
Cash operating costs $ 49,139 $ 43,763 $ 91,345 $ 86,594
============================================================================================
Gold ounces produced 205,601 183,107 366,847 365,933
Cash operating costs per ounce $ 239 $ 239 $ 249 $ 237
</TABLE>
Depreciation is a fixed cost, a portion of which is charged to depreciation
expense based on the number of ounces sold and a portion of which is charged to
inventory based on the number of ounces in inventory at the quarter end date.
The decrease in finished precious metals inventory during the second quarter of
1996 resulted in depreciation from the prior quarter being expensed in the
second quarter of 1996. Depreciation expense also increased due to expanded
dewatering facilities and the completion of the mill flotation circuit at
McCoy/Cove.
Amortization varies with the quantity of gold and silver sold and the mix of
production at the four mines. The increase in amortization in the second
quarter of 1996 versus 1995 reflects more ounces sold in the second quarter of
1996.
General and administrative expenses increased in the second quarter of 1996
compared to the second quarter of 1995, reflecting increased support for
exploration, business development and project development activities.
Exploration expense rose 24% in the second quarter of 1996, to $13.3 million,
compared to $10.8 million in the second quarter of 1995. Much of the expanded
1995 exploration activity took place in the last half of 1995. Full year 1996
exploration expense is expected to be $45 million, but is dependent upon
opportunities. 1995 exploration expense totaled $46.5
22
<PAGE> 25
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
million. To increase gold reserves and production, the company has entered
into strategic alliances and joint ventures with exploration-oriented companies
that give the company access to exploration and development prospects along
some of the major gold belts around the world, especially in North America,
South America, West Africa and the Philippines. The company is conducting
exploration drilling programs at prospects in Mexico, South America, the
Philippines, West Africa, Canada and the United States.
Net interest expense of $0.2 million for the second quarter of 1996 compared to
net interest income of $1.3 million for the second quarter of 1995 is primarily
due to a decrease in cash on hand and to a decrease in interest rates for
invested cash balances.
Preferred stock dividends are nil in the second quarter of 1996 compared to
$2.6 million in the second quarter of 1995 due to the fourth quarter 1995
conversion or redemption of all the outstanding preferred shares.
Reserve estimates
The price used in estimating the company's ore reserves at December 31, 1995
was $375 per ounce of gold and $5.00 per ounce of silver. The market price for
gold and silver is currently above these levels. If the company determines
that its reserves should be calculated at a significantly lower price than used
at December 31, 1995, there would likely be a material reduction in the amount
of gold reserves. Should such reductions occur, material write-downs of the
company's investment in mining properties and/or increased amortization charges
may be required.
23
<PAGE> 26
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
OPERATIONS REVIEW
Operating data by mine is set out in the table below:
<TABLE>
<CAPTION>
Three months ended Six months ended
OPERATING DATA June 30, June 30,
BY MINE 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold production (ounces)
- - ------------------------
(a) McCoy/Cove 69,574 80,870 118,464 159,741
(b) Round Mountain (50%) 57,617 40,333 97,333 86,217
(c) Lupin 48,248 37,369 88,558 72,884
(d) Kettle River 30,162 24,535 62,492 47,091
- - ------------------------------------------------------------------------------------------
Total gold 205,601 183,107 366,847 365,933
==========================================================================================
Silver production (ounces)
- - --------------------------
(a) McCoy/Cove 1,649,162 3,327,373 2,824,219 6,060,143
- - ------------------------------------------------------------------------------------------
Total silver 1,649,162 3,327,373 2,824,219 6,060,143
==========================================================================================
</TABLE>
Gold production increased 12% to 205,601 ounces in the second quarter of 1996
from 183,107 ounces in the second quarter of 1995, reflecting higher grade and
a mill expansion at McCoy/Cove, an accelerated loading of ore onto the reusable
pad and a shortened leach cycle at Round Mountain, an increase in tons milled
at Lupin, and a full quarter of production from Kettle River's higher grade
Lamefoot deposit; offset partially by an increase in McCoy/Cove's
work-in-process inventory at quarter's end. Silver production decreased 50% to
1.6 million ounces in the second quarter of 1996 from 3.3 million ounces in the
second quarter of 1995, reflecting lower grades and recovery rates at
McCoy/Cove. For the full year 1996, the gold production target remains at
725,000 to 750,000 ounces and the silver production target is expected to be no
better than the lower end of the target range of 7.5 to 8.5 million ounces.
<TABLE>
<CAPTION>
Three months ended Six months ended
OPERATING DATA June 30, June 30,
BY MINE 1996 1995 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash operating costs
- - --------------------
(per ounce of gold)
-------------------
(a) McCoy/Cove $ 256 $ 223 $ 280 $ 224
(b) Round Mountain (50%) 202 202 208 189
(c) Lupin 264 319 276 321
(d) Kettle River 220 263 194 258
- - --------------------------------------------------------------------------------
Company Average $ 239 $ 239 $ 249 $ 237
================================================================================
</TABLE>
Cash operating costs were $239 per ounce of gold in the second quarter of 1996,
the same as in the second quarter of 1995. Consolidated cash operating costs
are targeted at $245 to $255 per ounce of gold produced for the full year 1996.
24
<PAGE> 27
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
(a) McCoy/Cove, Nevada (100% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
OPERATING DATA 1996 1995 1996 1995
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces):
Milled 54,841 63,588 89,141 127,534
Heap leached 14,733 17,282 29,323 32,207
--------- --------- --------- ---------
Total gold 69,574 80,870 118,464 159,741
Silver produced (ounces):
Milled 1,534,328 3,066,824 2,567,905 5,567,615
Heap leached 114,834 260,549 256,314 492,528
--------- --------- --------- ---------
Total silver 1,649,162 3,327,373 2,824,219 6,060,143
Ore and waste mined
(million tons) 17.2 16.3 32.7 32.9
Mining cost/ton of ore
and waste $ 0.71 $ 0.65 $ 0.70 $ 0.65
Milling cost/ton of ore $ 9.79 $ 11.45 $ 9.85 $ 11.07
Heap leaching cost/ton of ore $ 1.73 $ 2.59 $ 1.88 $ 2.36
Production cost per ounce
of gold produced:
Direct mining expense $ 302 $ 193 $ 330 $ 208
Deferred stripping cost (26) 20 (40) 18
Inventory movements and other (20) 10 (10) (2)
------- ------- ------- -------
Cash operating cost 256 223 280 224
Royalties 4 6 4 5
Production taxes 4 10 6 10
------- ------- ------- -------
Total cash cost 264 239 290 239
Depreciation 74 47 83 53
Amortization 46 45 46 46
Reclamation 6 5 6 5
------- ------- ------- -------
Total production cost $ 390 $ 336 $ 425 $ 343
------- ------- ------- -------
Average gold-to-silver
price ratio(1) 73.5:1 71.3:1 73.0:1 75.2:1
Milled:
Ore processed (tons/day) 8,680 7,149 8,129 7,216
Gold grade (ounce/ton) 0.141 0.110 0.107 0.115
Silver grade (ounce/ton) 4.15 5.72 3.47 5.25
Gold recovery rate (%) 86.5 80.2 81.1 83.2
Silver recovery rate (%) 73.9 80.2 73.4 80.1
Heap leached:
Ore processed (tons/day) 15,661 10,694 13,659 12,494
Gold grade (ounce/ton) 0.023 0.023 0.023 0.020
Silver grade (ounce/ton) 0.33 0.83 0.35 0.61
Recovery rates(2)
=============================================================================================
</TABLE>
25
<PAGE> 28
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
(1) To convert costs per ounce of gold into comparable costs per ounce of
co-product silver, divide the production cost per ounce of gold by the
period's average gold-to-silver price ratio.
(2) Recovery rates on dedicated pads can only be estimated, as actual
recoveries will not be known until leaching is complete. At the
McCoy/Cove mine, the gold recovery rate is estimated at 68% for crushed
ore and 48% for uncrushed, run-of-mine ore, while the silver recovery
rate is estimated at 30% for crushed ore and 10% for uncrushed,
run-of-mine.
At McCoy/Cove, the company's largest producer, 69,574 ounces of gold were
produced during the second quarter of 1996, down 14% from 80,870 ounces in
1995. While tonnage, gold grades and recoveries in the mill were higher than
the second quarter of 1995, production was down as there were approximately
25,000 ounces of gold precipitate in work-in-process inventory at the end of
the second quarter of 1996. The $4.5 million cost associated with the mining
and processing of these inventory ounces will be expensed when the ounces are
poured.
Silver production was 1,649,162 ounces in the second quarter of 1996, compared
with 3,327,373 ounces in the second quarter of 1995. Silver grades and
recoveries were both down during the second quarter of 1996, reflecting lower
silver grades in the portion of the ore body currently being mined. Silver
precipitate contained in the work-in-process inventory was approximately
460,000 ounces at the end of the second quarter of 1996.
During the second quarter of 1996, the number of tons milled per day increased
to 8,680 tons from 7,149 tons in the second quarter of 1995. This increase
resulted from the completion of the mill flotation circuit expansion in mid-
April. The $4 million expansion provides increased retention time for sulfide
ore in the flotation circuit, which improves recoveries. With the mill
capacity increased to a nominal 10,000 tons/day from 7,500 tons/day, the higher
levels of ore throughput will continue in future periods.
Cash operating costs were $256 per ounce of gold produced in the second quarter
of 1996, compared with $223 per ounce in the second quarter of 1995, reflecting
the lower gold and silver production and higher cost of mining the deeper
levels of the pit.
During the second quarter of 1996, the number of tons per day placed on the
heap leach pad increased as well, to 15,661 tons from 10,694 tons in the second
quarter of 1995. Heap leaching accounted for 21% of the gold and 7% of the
silver produced during the second quarter of 1996.
Full-year gold production at McCoy/Cove is currently expected to be around 20%
less than in 1995. Because of lower silver grades, silver production for the
year is currently expected to be no better than the lower end of the previously
announced target range of 7.5 - 8.5 million ounces for the full year.
26
<PAGE> 29
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
(b) Round Mountain, Nevada (50% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
OPERATING DATA 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces):
Reusable heap leach pad (50%) 32,420 22,400 58,392 49,061
Dedicated heap leach pad (50%) 22,940 15,539 36,684 34,762
Other 2,257 2,394 2,257 2,394
------ ------ ------ ------
Total (50%) 57,617 40,333 97,333 86,217
Ore and waste mined 14.2 15.8 28.7 29.4
(million tons)(100%)
Mining cost/ton of ore
and waste $ 0.71 $ 0.54 $ 0.68 $ 0.55
Heap leaching cost/ton of ore $ 0.76 $ 0.51 $ 0.78 $ 0.68
Production cost per ounce of
gold produced:
Direct mining expense $ 211 $ 220 $ 234 $ 202
Deferred stripping costs 3 (26) (10) (14)
Inventory movements and other (12) 8 (16) 1
------ ------ ------ ------
Cash operating cost 202 202 208 189
Royalties 26 30 29 29
Production taxes 6 6 5 5
------ ------ ------ ------
Total cash cost 234 238 242 223
Depreciation 46 64 53 60
Amortization 18 20 18 20
Reclamation 5 5 5 5
------ ------ ------ ------
Total production cost $ 303 $ 327 $ 318 $ 308
------ ------ ------ ------
Reusable heap leach pad:
Ore processed (tons/day)(100%) 30,293 21,518 28,122 20,716
Grade (ounce/ton) 0.038 0.036 0.038 0.033
Recovery rate (%) 66.8 69.3 66.0 76.4
Dedicated heap leach pad:
Ore processed (tons/day)(100%) 96,461 78,466 85,709 56,496
Grade (ounce/ton) 0.0125 0.012 0.0125 0.012
Recovery rate(1)
- - ----------------------------------------------------------------------------------------------
</TABLE>
(1) Recovery rates on dedicated pads can only be estimated, as actual
recoveries will not be known until leaching is complete. At the Round
Mountain mine, the gold recovery rate on the dedicated heap leach pad is
estimated at 50%.
At the 50% owned Round Mountain mine in Nevada, the company's portion of gold
production totaled 57,617 ounces in the second quarter of 1996, compared with
40,333 ounces in the second quarter of 1995, up 43%. Cash operating costs were
$202 per ounce in both periods. Unit costs were flat despite higher production
principally due to the increased volume of tons processed and longer haul
routes.
The increased production during the second quarter of 1996 resulted from
acceleration of the loading of tons of ore on both the reusable and dedicated
leach pad. Leached ores are then moved from the reusable pad to the dedicated
leach pad for additional processing over the longer term.
27
<PAGE> 30
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
Total production from both pads increased approximately 45% over the second
quarter in 1995.
In the second quarter of 1996, 126,754 tons of ore were processed per day at
Round Mountain, up from 99,984 tons in the second quarter of 1995. The
increased ore movement has been facilitated by the use of contract miners and
the addition of four new 190-ton haul trucks to the fleet.
Second quarter 1996 results were in line with the full-year forecast that has
Round Mountain's production increasing 5-10% over 1995 production levels.
Construction of a mill at Round Mountain began in March and is on track with
the company's projection for late 1997 startup. Beginning in 1998, the
8,000-ton/day mill will process large quantities of nonoxidized ore. More
nonoxidized ore is being added to the stockpile each quarter in preparation for
mill startup.
28
<PAGE> 31
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
(c) Lupin, Northwest Territories (100% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
OPERATING DATA 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces) 48,248 37,369 88,558 72,884
Tons of ore mined and milled 214,882 165,514 400,387 319,577
Mining cost/ton of ore C$ 39.48 C$ 48.74 C$ 40.56 C$ 47.54
Milling cost/ton of ore C$ 11.12 C$ 12.63 C$ 11.90 C$ 12.86
Production cost per ounce
of gold produced:
Canadian dollars:
Direct mining expense C$ 359 C$ 447 C$ 390 C$ 470
Deferred mine development cost C$ -- C$ (23) C$ (13) C$ (32)
Inventory movements and other C$ 1 C$ 13 C$ -- C$ 7
------ ------ ------ ------
Cash operating cost C$ 360 C$ 437 C$ 377 C$ 445
U.S. dollars:
Cash operating cost US$ 264 US$ 319 US$ 276 US$ 321
Royalties -- -- -- --
Production taxes -- -- -- --
------ ------ ------ ------
Total cash cost 264 319 276 321
Depreciation 62 78 66 79
Amortization 18 20 18 19
Reclamation 8 7 8 7
------ ------ ------ ------
Total production cost US$ 352 US$ 424 US$ 368 US$ 426
------ ------ ------ ------
Milled:
Ore processed (tons/day) 2,361 1,819 2,200 1,756
Grade (ounce/ton) 0.243 0.245 0.239 0.247
Recovery rate (%) 92.4 92.0 92.4 92.4
- - ------------------------------------------------------------------------------------------------------
</TABLE>
Production at Lupin, located in the Northwest Territories, was 48,248 ounces in
the second quarter of 1996, up from 37,369 ounces in the second quarter of
1995. Cash operating costs decreased to $264 per ounce in the second quarter
of 1996 from $319 in the second quarter of 1995.
Mining of the final phase of the East Zone, which started in the fourth quarter
of 1995, resulted in 30% more tons being milled during the second quarter of
1996 than in the same quarter in 1995, when only the Centre and West Zones
were producing ore. Grades and recoveries were similar during the two periods.
The Centre and West Zones will provide the majority of the millfeed for the
remainder of 1996 as the ore from the East Zone diminishes. Full-year
production at Lupin is currently expected to increase by around 5% over the
172,110 ounces produced in 1995 instead of the 10% projected earlier.
Development permits for the Ulu deposit were received in June. Current
activities at this satellite deposit include camp and road construction.
Portal construction for the underground ramp was started in July. The ramp
will be driven into the mineralization 280 meters (920 feet) under the surface
to confirm the 1.9 million minable tons of mineralized material at average
grades of 0.320 ounces of gold per ton indicated by drilling from the surface.
Upon full development, ore from Ulu would be trucked to the surface and
stockpiled. Beginning in 1998, the stockpiled ore would be trucked to the
Lupin mill over a 100 mile ice road during a five-month period each year. The
ore would then be used as supplemental millfeed year-round.
29
<PAGE> 32
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
(d) Kettle River, Washington (100% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
OPERATING DATA 1996 1995 1996 1995
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces) 30,162 24,535 62,492 47,091
Tons of ore mined and milled 148,877 136,543 281,850 265,261
Mining cost/ton of ore $ 22.38 $ 26.36 $ 22.31 $ 24.64
Milling cost/ton of ore $ 12.46 $ 12.37 $ 12.24 $ 12.97
Production cost per ounce
of gold produced:
Direct mining expense $ 211 $ 251 $ 191 $ 258
Inventory movements and other 9 12 3 --
-------- -------- -------- --------
Cash operating cost 220 263 194 258
Royalties paid 8 8 9 9
Production taxes 2 2 2 2
-------- -------- -------- --------
Total cash cost 230 273 205 269
Depreciation 62 77 59 80
Amortization 45 45 45 45
Reclamation 8 6 8 7
-------- -------- -------- --------
Total production cost $ 345 $ 401 $ 317 $ 401
-------- -------- -------- --------
Milled:
Ore processed (tons/day) 1,636 1,500 1,549 1,457
Grade (ounce/ton) 0.244 0.202 0.258 0.203
Recovery rate (%) 83.1 88.8 85.8 87.4
- - ----------------------------------------------------------------------------------------------------
</TABLE>
At the Kettle River mine in Washington State, gold production increased to
30,162 ounces during the second quarter of 1996 from 24,535 ounces in the
second quarter of 1995, and cash operating costs were reduced to $220 from $263
per ounce. The improvement reflects another quarter of production from the
higher-grade Lamefoot deposit. For the full year 1996, Kettle River's
production target is about 20% more gold than in 1995.
During the second quarter of 1996, development work continued on the K-2
deposit, located adjacent to the original Kettle deposit and approximately 22
miles from the mill. A bulk sample has been processed through the mill to test
for process amenability. Recoveries were in the low 90% range.
The K-2 orebody is being developed in preparation for production to start early
next year. Underground drifting continues to confirm mineralization with
grades and widths equal to or higher than predicted by surface drilling.
30
<PAGE> 33
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
RECENT DEVELOPMENTS
Development Properties
During the second quarter of 1996, in connection with activities to advance its
exploration and development prospects, the company charged $18.0 million
against current earnings and capitalized another $10.8 million. These programs
have the potential to add to reserves and increase production in future years.
The following are highlights of the company's development properties:
o On July 16, 1996, the company completed an agreement to increase its
ownership of Santa Elina to 50%. See note 12 to the interim
consolidated financial statements. Seven exploration drilling rigs are
currently on site at Chapada, Santa Elina's largest asset. This
property has 113 million minable tons of mineralized material at average
grades of 0.012 ounces of gold per ton and 0.43% copper as reported at
year end 1995 (83% to Santa Elina's account). Echo Bay has the right,
through the exercise of an option, to increase its interest in this
property to 66.5% from its current 41.5%. To date, 12,000 meters
(39,400 feet) of drilling have been completed. A detailed feasibility
study is expected to be finished by the end of 1996 incorporating
exploration drill results through October. Exploration work continues
at both the Seo Francisco and Fazenda Nova gold projects. Additional
drill rigs will be brought on site in the third quarter of 1996 to
provide the data necessary to prepare initial feasibility studies on
both properties by year end 1996.
o Eight exploration drill rigs are now employed at the Kingking
copper-gold development property in the Philippines, with two more rigs
on order. Over 45,000 meters (150,000 feet) of drilling are expected to
be completed by the joint venture by year end 1996. Particular emphasis
is being made on the Lumanggang area to better define the gold and
copper values in this richer ore zone. Two drilling rigs will also be
set up in the Tiogdan area to investigate the lateral and depth
extensions of the higher-grade gold-copper Tiogdan-Casagumayan
stockwork. The initial feasibility study is on schedule to be completed
by the end of 1996.
o At Aquarius in the Timmins gold district of Ontario, over 31,500 meters
(105,000 feet) of drilling has been completed, 85% of the 1996 program.
Exploration drilling also continues on an extension of the
mineralization to the southeast. In addition, three wells are being
drilled to test dewatering and pumping requirements, and metallurgical
tests are under way to identify possible processing alternatives. This
information will be included in the detailed feasibility study, which is
scheduled for completion by year end 1996.
o At the 60%-owned Paredones Amarillos development project in Baja
California Sur, Mexico, the in-fill drilling program was completed by
the end of July with a total of over 18,000 meters (59,000 feet) of
drilling completed. Water and other studies are under way at the site
in order to prepare a detailed feasibility study by year end 1996.
Additional drilling targets have been identified, and geological mapping
and soil sampling are under way to further expand the existing
mineralization.
o From mid-1993 until the second quarter of 1995, the company conducted a
$17 million underground drilling program at the Alaska-Juneau
31
<PAGE> 34
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1996
(U.S. dollars)
development project. The program was directed primarily at in-fill
drilling, and not at reserve additions, although some exploration was
conducted. A revised feasibility study is being prepared based on the
significant additional information from the underground program. This
study is addressing the submarine tailings disposal method currently
under consideration by the Environmental Protection Agency. Alternative
mining methods are also being considered. While still in the process of
assembling the information, early indications are that mining zones will
be narrower than previously estimated but perhaps at a better grade.
The revised feasibility study and new ore reserve estimate are expected
to be completed by the year end 1996.
o During the second quarter of 1996, the company acquired a 12.3% interest
in Rift Resources Ltd. as part of a strategic alliance between the two
companies to explore for gold in Ethiopia and Eritrea in northeast
Africa.
U.S. Mining Law Revision
Proposed legislation has been introduced in both houses of the current
Congress to modernize the general mining laws applicable to operations on
federal lands, including a comprehensive bi-partisan bill actively supported by
the mining industry. These proposals include royalty provisions, environmental
controls and requirements for reclamation.
The most material direct economic impact of mining law revision could be from
royalties for production at the McCoy/Cove mine in Nevada, which is on federal
land, and (to a lesser degree) at the 50%-owned Round Mountain mine in Nevada,
24% of whose reserves are on federal land. However, the company has completed
all of the steps currently required under U.S. law to convert the McCoy/Cove
and Round Mountain land to patented status (and thus to be exempt from any
proposed royalty), and it filed applications for patents. During 1994, the
company filed lawsuits against the U.S. Department of the Interior to require
the government to cease its delay and to issue certificates and patents to
which the mines are currently entitled. The government has formally notified
the court that the key certificates, which were the objective of the suits,
were issued to the company March 1, 1995. The Department is expected to
complete its administrative review and issue the patents in accordance with the
regulations.
32
<PAGE> 35
ECHO BAY MINES LTD.
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this release
are forward looking statements that involve risks and uncertainties that could
cause actual results to differ materially from targeted or projected results.
Such forward looking statements include statements regarding targets for gold
and silver production, cash operating costs and certain significant expenses,
percentage increases and decreases in production from the company's principal
mines, schedules for completion of detailed feasibility studies and initial
feasibility studies, potential increases in reserves and production, the timing
and scope of future drilling and other exploration activities, expectations
regarding receipt of permits and commencement of mining or production
anticipated and recovery rates and potential acquisitions or increases in
property interests. Factors that could cause actual results to differ
materially include, among others, changes in gold, silver and copper prices,
unanticipated grade, geological, metallurgical, processing or other problems,
from those expected, results of current exploration activities, conclusions of
pending and future feasibility studies, changes in project parameters as plans
continue to be refined, political, economic and operational risks of foreign
operations, availability of materials and equipment, the timing of receipt of
governmental permits, force majeure events, the failure of plant, equipment or
processes to operate in accordance with specifications or expectations,
accidents, labor relations, delays in start-up dates, environmental costs and
risks, the outcome of acquisitions negotiations and general domestic and
international economic and political conditions, as well as other factors
described herein or in the company's filings with the U.S. Securities and
Exchange Commission. Many of these factors are beyond the company's ability to
predict or control. Readers are cautioned not to put undue reliance on
forward-looking statements.
33
<PAGE> 36
ECHO BAY MINES LTD.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Alaska-Juneau
During 1994, the U.S. Attorney began a grand jury investigation of potential
Clean Water Act violations. The investigation is to determine whether the
company unlawfully discharged pollutants from the drainage tunnel without a
National Pollution Discharge Elimination System (NPDES) permit. The outcome
of this investigation is uncertain.
Summa
See note 11(b) to the interim consolidated financial statements.
Other
The company is also engaged in routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The company's Annual General Meeting was held May 10, 1996.
(c) (1) Election of Directors.
<TABLE>
<CAPTION>
Votes Against
Nominee Votes For or Withheld Abstentions
- - ------- --------- ----------- -----------
<S> <C> <C> <C>
John Norman Abell 90,726,100 470,770 --
Latham Cawthra Burns 90,697,386 499,484 --
Pierre Choquette 90,727,606 469,264 --
John Gilray Christy 90,697,768 499,102 --
Peter Clarke 90,713,827 483,043 --
Carlos Antonio Ferrer 90,622,755 574,115 --
Richard Carl Kraus 90,732,824 464,046 --
Robert Leigh Leclerc, Q.C. 90,734,486 462,384 --
John Frederick McOuat 90,719,790 477,080 --
Monica Elizabeth Sloan 90,704,099 492,771 --
Richard Geoffrey --
Pentland Styles 90,686,737 510,133 --
</TABLE>
(c) (2) Appointment of Ernst & Young as auditors of the company.
<TABLE>
<CAPTION>
Votes Against
Votes For or Withheld Abstentions
--------- ----------- -----------
<S> <C> <C> <C>
Appointment of Ernst & Young 90,721,828 314,602 --
</TABLE>
34
<PAGE> 37
ECHO BAY MINES LTD.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2.1 Share Subscription and Purchase Agreement
among Sercor, Ltd., Echo Bay Mines Ltd. and
Kendall Gold Corporation (incorporated by
reference to the report on Form 8-K of file
no. 1-8542 filed on April 24, 1996).
Exhibit 2.2 Merger Agreement between Santa Elina Gold
Corporation and Kendall Gold Corporation
(incorporated by reference to the report on
Form 8-K of file no. 1-8542 filed on April
24, 1996).
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K Filed on April 11, 1996, reporting the
company's April 9, 1996 agreement to
increase its ownership from 7% to 50% of
the outstanding shares of Santa Elina Gold
Corporation.
Filed on April 23, 1996, related to the
entry into definite agreements with respect
to the aforementioned Santa Elina
transaction.
Filed on July 31, 1996, related to the
completion of the aforementioned Santa
Elina transaction.
Filed on August 5, 1996 amending the Form
8-K filed on July 31, 1996.
35
<PAGE> 38
ECHO BAY MINES LTD.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECHO BAY MINES LTD.
----------------------------------
(Registrant)
August 12, 1996
- - ------------------------
Date
/s/ G. Tywoniuk
----------------------------------
G. TYWONIUK
Vice President, Controller and
Principal Accounting Officer
36
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN ECHO BAY MINES LTD. FORM 10-Q FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<CIK> 0000722080
<NAME> ECHO BAY MINES LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 134,274
<SECURITIES> 0
<RECEIVABLES> 17,566
<ALLOWANCES> 0
<INVENTORY> 40,760
<CURRENT-ASSETS> 198,783
<PP&E> 618,752
<DEPRECIATION> 375,304
<TOTAL-ASSETS> 836,734
<CURRENT-LIABILITIES> 140,396
<BONDS> 86,006
0
0
<COMMON> 623,709
<OTHER-SE> (65,514)
<TOTAL-LIABILITY-AND-EQUITY> 836,734
<SALES> 162,836
<TOTAL-REVENUES> 162,836
<CGS> 102,524
<TOTAL-COSTS> 159,733
<OTHER-EXPENSES> 32,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324
<INCOME-PRETAX> (30,062)
<INCOME-TAX> 697
<INCOME-CONTINUING> (30,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,759)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
