<PAGE>
================================================================================
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 March 31, 1997
--------------
[_] 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 (I.R.S. Employer
of 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 April 25, 1997
-------------- ------------------------
Common Shares 139,370,031
without nominal or par value
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<PAGE>
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.. 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................................... 26
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 26
SIGNATURE........................................................................................... 27
</TABLE>
i
<PAGE>
ECHO BAY MINES LTD.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED BALANCE SHEET March 31 December 31
thousands of U.S. dollars 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 104,847 $ 103,196
Interest and accounts receivable 9,702 9,739
Inventories (note 2) 44,078 33,941
Prepaid expenses and other assets 5,596 6,573
- -------------------------------------------------------------------
164,223 153,449
Plant and equipment (note 3) 231,328 233,984
Mining properties (note 3) 404,474 405,011
Long-term investments and other assets 48,972 39,701
- -------------------------------------------------------------------
$ 848,997 $ 832,145
- -------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 67,970 $ 72,421
Income and mining taxes payable 3,696 3,651
Gold and other financings (note 4) 16,408 129,445
Deferred income (note 4) 14,708 876
- -------------------------------------------------------------------
102,782 206,393
Gold and other financings (note 4) 51,051 53,478
Deferred income (note 4) 55,578 1,581
Other long-term obligations 63,287 69,992
Deferred income taxes 8,789 8,392
Commitments and contingencies (notes 7 and 8)
Common shareholders' equity:
Common shares, no par value, unlimited
number authorized;
issued and outstanding - 139,370,031
shares (139,355,781 shares at
December 31, 1996) 709,593 709,534
Capital securities (note 5) 95,974 --
Deficit (221,974) (201,931)
Foreign currency translation (16,083) (15,294)
- -------------------------------------------------------------------
567,510 492,309
- -------------------------------------------------------------------
$ 848,997 $ 832,145
- -------------------------------------------------------------------
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE>
ECHO BAY MINES, LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS Three months ended
thousands of U.S. dollars, March 31
except for per share data 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Revenue $ 73,838 $ 67,750
- ---------------------------------------------------------------------
Expenses:
Operating costs 51,453 44,565
Royalties 2,244 2,103
Production taxes 439 709
Depreciation and amortization 19,973 18,497
Reclamation and mine closure 2,186 1,144
General and administrative 3,418 3,332
Exploration and development 6,490 14,008
Interest and other 3,641 (846)
- ---------------------------------------------------------------------
89,844 83,512
- ---------------------------------------------------------------------
Loss before income taxes (16,006) (15,762)
- ---------------------------------------------------------------------
Income tax expense:
Current 318 206
Deferred 437 188
- ---------------------------------------------------------------------
755 394
- ---------------------------------------------------------------------
Net loss $(16,761) $(16,156)
- ---------------------------------------------------------------------
Loss per share $ (0.12) $ (0.12)
- ---------------------------------------------------------------------
Weighted average number of shares
outstanding (thousands) 139,357 130,046
- ---------------------------------------------------------------------
</TABLE>
See accompanying notes to interim consolidated financial statements.
2
<PAGE>
ECHO BAY MINES, LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended
OF CASH FLOW March 31
thousands of U.S. dollars 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Working capital provided from operations $ 1,174 $ 2,345
Increase in cash invested in working
capital related to operations (17,918) (18,241)
- -------------------------------------------------------------------------------
(16,744) (15,896)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Debt repayments (118,057) (2,463)
Capital securities issued, net of 96,700 --
issuance costs (note 5)
Common share issues, net of issuance costs 60 4,611
- -------------------------------------------------------------------------------
(21,297) 2,148
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES
Mining properties, plant and equipment (20,822) (26,692)
Proceeds on repurchase of the company's
- gold and silver forward sales (note 7) 54,963 --
- gold swap (note 7) 8,107 --
- foreign exchange contracts (note 7) 6,672 --
Long-term investments and other assets (9,377) (1,051)
Proceeds on sale of mining properties
and long-term investments -- 5,550
Other 149 79
- -------------------------------------------------------------------------------
39,692 (22,114)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and 1,651 (35,862)
cash equivalents
Cash and cash equivalents, beginning of period 103,196 185,843
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $104,847 $149,981
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT Three months ended
OF DEFICIT March 31
thousands of U.S. dollars 1997 1996
- -------------------------------------------------------------------------------
Balance, beginning of period $(201,931) $(15,109)
Net loss (16,761) (16,156)
Interest on capital securities, net of
nil tax effect (note 5) (115) --
Issue costs related to capital
securities (note 5) (3,167) --
- -------------------------------------------------------------------------------
Balance, end of period $(221,974) $(31,265)
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
1. GENERAL
In the opinion of management, the accompanying unaudited consolidated statement
of earnings, consolidated statement of 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
March 31, 1997 and December 31, 1996 and the consolidated results of operations
and cash flow for the three months ended March 31, 1997 and 1996. 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, 1996.
Certain of the comparative figures have been reclassified to conform with the
current period's presentation.
<TABLE>
<S> <C> <C>
2. INVENTORIES
March 31 December 31
1997 1996
- --------------------------------------------------------------------------------
Precious metals -- bullion $ 10,163 $ 4,182
-- in-process 11,488 11,442
Materials and supplies 22,427 18,317
- --------------------------------------------------------------------------------
$ 44,078 $ 33,941
- --------------------------------------------------------------------------------
3. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment March 31 December 31
1997 1996
- --------------------------------------------------------------------------------
Cost $644,878 $635,776
Less accumulated depreciation 413,550 401,792
- --------------------------------------------------------------------------------
$231,328 $233,984
- --------------------------------------------------------------------------------
Mining properties March 31 December 31
1997 1996
- --------------------------------------------------------------------------------
Producing mines' acquisition,
exploration & development costs $391,907 $388,515
Less accumulated amortization 258,066 250,616
- --------------------------------------------------------------------------------
133,841 137,899
Development properties' acquisition,
exploration & development costs 191,339 188,084
Deferred mining costs 79,294 79,028
- --------------------------------------------------------------------------------
$404,474 $405,011
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
<TABLE>
<CAPTION>
4. GOLD AND OTHER FINANCINGS AND DEFERRED INCOME
<S> <C> <C> <C> <C>
Financings Deferred Income
---------------------- ----------------------
March 31 December 31 March 31 December 31
1997 1996 1997 1996
- --------------------------------------------------------------------------------
Gold swap $ -- $ 83,839 $ -- $ --
Gold loans 29,477 33,721 4,017 2,423
Currency loan 32,110 33,846 -- --
Debenture payable -- 27,966 -- --
Capital securities (note 5) 4,026 -- -- --
Repurchase of gold and silver
forward contracts and gold
swap (note 7) -- -- 59,584 --
Repurchase of forward currency
exchange contracts (note 7) -- -- 6,672 --
Other 1,846 3,551 13 34
- --------------------------------------------------------------------------------
67,459 182,923 70,286 2,457
Less current portion 16,408 129,445 14,708 876
- --------------------------------------------------------------------------------
$51,051 $ 53,478 $55,578 $1,581
- --------------------------------------------------------------------------------
</TABLE>
In the first quarter of 1997, proceeds on issuance of $100.0 million of 11%
capital securities (note 5) and proceeds of $69.8 million on the repurchase of
the company's gold and silver forward sales, gold swap and forward currency
exchange contracts (note 7) were used to repay the company's $84.0 million bond
obligation and to repay the company's $28.0 million of debentures payable.
5. CAPITAL SECURITIES
On March 27, 1997, the company issued $100.0 million of 11% capital securities
due in April 2027. Interest on the securities, accruing from the date of
issuance, is payable semi-annually commencing October 1, 1997.
The company has the right to defer interest payments on the securities for a
period not to exceed ten consecutive semi-annual periods. The company may, at
its option, satisfy its deferred interest obligation by delivering common shares
to a trustee. The trustee would sell the company's common shares and remit the
proceeds to the holders of the securities in payment of the deferred interest
obligation.
The present value of the securities' principal amount, $4.0 million, has been
classified as debt within gold and other financings (note 4), and the present
value of the future interest payments, $96.0 million, has been classified as a
separate component of shareholders' equity, as the company has the unrestricted
ability to settle the future interest payments by issuing its own common shares.
Issue costs of $3.3 million have been allocated proportionately to reflect the
debt and equity classifications as follows: $0.1 million to deferred financing
charges and $3.2 million to shareholders' equity. Interest on the debt portion
of the capital securities has been classified as interest expense on the
consolidated statement of earnings and interest on the equity portion of the
capital securities has been charged directly to the deficit on the consolidated
balance sheet.
5
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
6. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
U.S. GAAP financial statements
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 and in the
footnotes to the financial statements included in the company's annual report on
Form 10-K for the year ended December 31, 1996.
In accordance with Canadian GAAP, the present value of the principal amount of
the capital securities issued in March 1997 is classified as debt within gold
and other financings, while the present value of the future interest payments is
classified as a separate component of shareholders' equity. The related issuance
costs have been allocated proportionately to deferred financing charges and
retained earnings based on the debt and equity classifications. Interest on the
capital securities has been allocated proportionately between interest expense
and deficit based on the debt and equity classifications. Under U.S. GAAP, the
face value of the securities would be classified entirely as debt within gold
and other financings, with the related issuance costs classified as deferred
financing charges within long-term investments and other assets and the interest
on the capital securities classified entirely as interest expense. Under U.S.
GAAP, gold and other financings would be $96.0 million higher, and there would
be no capital securities component of shareholders' equity; and long-term
investments and other assets would be $3.2 million higher and the deficit would
be $3.2 million lower at March 31, 1997.
The effects on the consolidated statement of earnings of the GAAP differences
would have been as follows.
<TABLE>
<CAPTION>
Three months ended
March 31
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net loss under Canadian GAAP $(16,761) $(16,156)
Change in market value of
foreign exchange contracts (2,316) 661
Additional interest on capital securities
under U.S. GAAP (115) --
- --------------------------------------------------------------------------------
Net loss under U.S. GAAP $(19,192) $(15,495)
- --------------------------------------------------------------------------------
Loss per share under U.S. GAAP $ (0.14) $ (0.12)
- --------------------------------------------------------------------------------
</TABLE>
The effects on the consolidated balance sheet of the GAAP differences would have
been as follows.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------------------------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments and other assets $ 48,972 $ 56,742 $ 39,701 $ 54,642
Mining properties 404,474 476,935 405,011 447,517
Gold and other financings 67,459 163,433 182,923 182,923
Deferred income 70,286 63,614 2,457 2,457
Deferred income taxes 8,789 55,435 8,392 55,038
Common shares 709,593 746,021 709,534 745,962
Deficit 221,974 221,765 201,931 202,528
Common shareholders' equity 567,510 511,793 492,309 533,110
- ---------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
7. HEDGING ACTIVITIES AND COMMITMENTS
In the first quarter of 1997 the company repurchased its 218,000 ounce gold
commitment which hedged the $84.0 million bond obligation (note 4) and
repurchased all of its gold and silver forward sales positions, which consisted
of 654,000 ounces of gold with delivery dates ranging from 1997 to 2002 and 8.5
million ounces of silver with delivery dates ranging from 1997 to 1999. These
transactions resulted in cash proceeds of $63.1 million which have been deferred
and will be recognized in earnings as the formerly hedged gold and silver
production is sold. The gain will be recognized in revenue as follows: $14.1
million in 1997, $14.8 million in 1998, $27.7 million in 1999 and $6.5 million
in 2000 and beyond. To provide protection against a decrease in gold prices, the
company purchased 450,000 ounces of gold put options and sold 300,000 ounces of
gold call options for a net cost of $0.4 million.
In the first quarter of 1997, the company repurchased a portion of its
outstanding forward currency exchange contracts. The contracts repurchased
consisted of a total commitment of C$75.6 million at an average C$ to US$1.00
exchange rate of 1.55, with purchase dates ranging from 1998 to 2000. The
transaction resulted in cash proceeds of $6.7 million, which have been deferred
and will be recognized as a reduction to operating costs when the hedged
Canadian dollar transactions occur. The gain will be recognized as follows: $2.0
million in 1998, $2.3 million in 1999, and $2.4 million in 2000. To provide
protection against fluctuations in the exchange rate of Canadian dollars to U.S.
dollars, the company entered into obligations to purchase C$75.0 million of
Canadian dollars at a C$ to U.S. $1.00 exchange rate of 1.36, maturing in June
1997.
Shown below are the carrying amounts and unrealized gains or losses on the
company's hedging positions at March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
Carrying Unrealized
Amount Gain (Loss)
- -----------------------------------------------------------
March 31, 1997
- --------------
<S> <C> <C>
Gold loans (note 4) $ 29,477 $ --
Off-balance sheet instruments:
Gold options - puts 2,100 (500)
- calls (1,400) 1,000
Silver options - puts 800 (100)
- calls (800) 1,500
Foreign currency contracts -- 1,000
Crude oil contracts -- 1,300
- -----------------------------------------------------------
$ 4,200
- -----------------------------------------------------------
</TABLE>
7
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
<TABLE>
<CAPTION>
Carrying Unrealized
Amount Gain (Loss)
- -----------------------------------------------------------
December 31, 1996
- -----------------
<S> <C> <C>
Gold swaps $ 83,800 $ 7,100
Gold loan 33,700 --
Off-balance sheet instruments:
Gold forward sales -- 50,300
Silver forward sales -- 8,800
Gold options - puts 400 --
- calls -- --
Silver options - puts 1,000 (300)
- calls (1,000) 1,000
Foreign currency contracts -- 10,000
Crude oil contracts -- 3,000
- -----------------------------------------------------------
$79,900
- -----------------------------------------------------------
</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.
8. CONTINGENCIES
At December 31, 1996, the company accrued $20.0 million for estimated
reclamation and closure costs associated with the Alaska-Juneau development
property. Actual spending related to reclamation and closure costs may differ
from the current estimate of $20.0 million. The provision for future reclamation
and closure costs is reviewed periodically and adjusted as additional
information becomes available.
In 1995, Summa Corporation commenced in Nevada state court a lawsuit 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 of production at McCoy/Cove and the former Manhattan mine. Summa
Corporation filed a motion for summary judgment seeking $10.3 million for
allegedly underpaid royalties plus interest. The court denied Summa's motion.
The case went to trial on April 28, 1997. The company has $2.0 million accrued
related to the Summa litigation.
In 1996, the company recorded a $30.0 provision related to the estimated costs
to remove waste rock from an unstable portion of the Cove pit wall at the
McCoy/Cove mine in Nevada. The cost estimate underlying the provision is based
on a preliminary evaluation of the total tons to be removed and the associated
costs, both of which will be further refined as McCoy/Cove completes its
stabilization plan. This plan could affect a portion of McCoy/Cove ore
reserves, if it is determined that the cost to remove waste rock renders the
portion uneconomic. By March 31, 1997, total spending for the pit wall
stabilization was $2.0 million.
8
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 1997
(U.S. dollars)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Working capital provided from operations amounted to $1.2 million for the first
quarter of 1997 compared to $2.3 million in the first quarter of 1996. The 1997
results reflect increased operating costs ($6.9 million) lower cash gold and
silver prices realized ($8.4 million), increased net interest expense ($1.9
million), and increased reclamation and mine closure costs ($1.1 million);
partially offset by increased volume of gold and silver ounces sold ($11.0
million) and decreased cash exploration and development expenses ($6.3 million).
Most of the exploration spending represents discretionary investments for the
future.
The increase in cash invested in working capital related to operations was $17.9
million in the first quarter of 1997. The primary use of the cash invested in
working capital was the payment of the December 1996 common share dividend in
January 1997 ($5.2 million), an increase in finished goods inventories ($6.0
million) primarily at the McCoy/Cove mine, an increase in material and supplies
inventory ($4.0 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 interest payments ($3.2 million).
In the first quarter of 1997, the company repaid its $84.0 million bond
obligation and $28.0 million of debentures payable. Additionally, the company
had gold loan repayments of $2.7 million and currency loan repayments of $3.4
million.
In the first quarter of 1997, the company received net proceeds of $96.7
million, which reflects issuance costs of $3.3 million, on the issuance of
capital securities.
In the first quarter of 1997, the company received proceeds of $63.1 million
related to the repurchase of its 218,000-ounce gold commitment which hedged an
$84.0 million bond obligation and the repurchase of its outstanding gold and
silver forward sales. In addition, the company received proceeds of $6.7 million
related to the repurchase of a portion of its outstanding forward currency
exchange contracts.
The company invested $20.8 million in mining properties, plant and equipment and
$9.4 million in long-term investments in the first quarter of 1997.
For the remainder of 1997, the company expects to incur $29 million in
exploration expenditures; $87 million of construction costs at the Aquarius and
Paredones Amarillos construction projects; $14 million of capitalized
acquisition, exploration and development costs at development properties
including Kingking, Chapada and Ulu, and $36 million of capital expenditures at
operating properties, including construction of a mill at Round Mountain.
9
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 1997
(U.S. dollars)
The company has adequate resources and liquidity to pursue additional
acquisition, investment, exploration and development programs:
. Working capital provided by operations before exploration expenses was
$7.5 million for the three months ended March 31, 1997.
. The company had $104.8 million in cash at March 31, 1997.
. The company had 111.6 million in unutilized credit facilities at March
31, 1997.
. The company expects to obtain a new $75 million unsecured corporate
credit facility to finance a portion of the construction costs at
Aquarius.
. The company expects to obtain a $36 million non-recourse project loan to
finance a portion of the construction costs at Paredones Amarillos.
. Pursuant to a shelf registration statement filed with the United States
Securities and Exchange Commission in 1994, the company may offer from
time to time up to $100 million in aggregate principal amount of debt
securities, common shares, and/or guarantees of debt securities issued by
Echo Bay Resources, Inc., a wholly owned subsidiary of the company. In
connection with the U.S. shelf registration, the company also filed a
shelf debt prospectus and a shelf equity prospectus with Canadian
securities regulatory authorities. Under these prospectuses, the company
could issue up to $125 million of debt securities and up to 10 million
common shares.
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.
10
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
FINANCIAL REVIEW
The company reported a net loss of $16.8 million ($0.12 per share) in the first
quarter of 1997, compared to a net loss of $16.2 million ($0.12 per share) in
the first quarter of 1996. The slight increase in 1997 from 1996 results from
increased operating costs ($6.9 million), lower gold and silver prices realized
($4.9 million), the absence in 1997 of the 1996 gain on the sale of the
company's investment in Cluff Resources plc ($2.5 million), increased net
interest expense ($1.9 million), increased amortization ($1.2 million), and
increased reclamation and mine closure provisions ($1.1 million); offset by
increased volume of gold and silver ounces sold ($11.0 million) and decreased
exploration and development expenses ($7.5 million).
Gold production increased 14% to 183,328 ounces in the first quarter of 1997
compared to 161,246 ounces in the first quarter of 1996. Increased production
was due to the increase in mill and heap leach tons offset by lower heap leach
grades at McCoy/Cove; increased dedicated leach pad tons at Round Mountain; and
increased mill tons at Kettle River; partially offset by lower grade and
recoveries at Lupin. Silver production increased to 2.4 million ounces in 1997
from 1.2 million ounces in 1996, a result of increased tons milled and higher
mill grade at McCoy/Cove. Quarterly revenues were $73.8 million in 1997 and
$67.7 million in 1996.
Cash operating costs were $255 per ounce of gold in the first quarter of 1997,
versus $261 in 1996, reflecting the increased production.
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."
11
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
Revenue
Statistics for gold and silver ounces sold and other revenue data are set out
below.
<TABLE>
<CAPTION>
Three months ended
March 31
Revenue Data 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Gold
- ----
Ounces sold 171,232 155,189
Average price realized/ounce $ 372 $ 397
Average market price/ounce $ 352 $ 400
Revenue (millions of U.S. $) $ 63.6 $ 61.6
Percentage of total revenue 86% 91%
Silver
- ------
Ounces sold 1,936,345 1,105,256
Average price realized/ounce $ 5.25 $ 5.57
Average market price/ounce $ 4.99 $ 5.46
Revenue (millions of U.S. $) $ 10.2 $ 6.1
Percentage of total revenue 14% 9%
- ----------------------------------------------------------------------
Total revenue (millions of U.S. dollars) $ 73.8 $ 67.7
======================================================================
</TABLE>
The effects of changes in sales prices and volume were as follows.
<TABLE>
<CAPTION>
Revenue Variance Analysis Three months ended
1997 vs. 1996 March 31
- ----------------------------------------------------------------------
<S> <C>
Lower prices:
Gold $ (4.3)
Silver (0.6)
Change in volume 11.0
- ----------------------------------------------------------------------
Increase in revenue $ 6.1
======================================================================
</TABLE>
12
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
Production Costs
Production cost data per ounce of gold is set out below.
<TABLE>
<CAPTION>
Three months ended
Production Costs per March 31
Ounce of Gold Produced 1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Direct mining expense $ 258 $ 298
Deferred stripping and mine
development costs (2) (33)
Inventory movements and other (1) (4)
- -------------------------------------------------------------
Cash operating costs 255 261
Royalties 10 11
Production taxes 2 4
- -------------------------------------------------------------
Total cash costs 267 276
Depreciation 63 76
Amortization 35 33
Reclamation and mine closure 10 6
- -------------------------------------------------------------
Total production costs $ 375 $ 391
- -------------------------------------------------------------
</TABLE>
Expenses
Operating costs per ounce vary with the quantity of gold and silver sold and
with the cost of operations. The cash operating costs were $255 per ounce of
gold in the first quarter of 1997, and $261 in the first quarter of 1996. See
"Operations Review".
<TABLE>
<CAPTION>
Reconciliation of Cash Operating
Costs per Ounce to Financial Statements Three months ended
thousands of U.S. dollars, March 31
except per ounce amounts 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Operating costs per
financial statements $ 51,453 $ 44,565
Change in finished goods
inventory and other 5,046 2,572
Co-product cost of silver
produced (9,750) (5,111)
- ---------------------------------------------------------------
Cash operating costs $ 46,749 $ 42,026
- ---------------------------------------------------------------
Gold ounces produced 183,328 161,246
- ---------------------------------------------------------------
Cash operating costs per ounce $ 255 $ 261
- ---------------------------------------------------------------
</TABLE>
The increase in depreciation and amortization was primarily due to amortization.
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 first quarter
of 1997 versus 1996 is primarily due to the higher gold production in the first
quarter of 1997.
Reclamation and mine closure increased in the first quarter of 1997 due
primarily to increased mine closure provisions at the McCoy/Cove mine.
13
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
Exploration and development decreased in the first quarter of 1997 compared to
the first quarter of 1996 due to a decreased scope of international exploration
activities and due to the discontinuation of further development of the Alaska-
Juneau property.
Interest and other was an expense of $3.6 million in the first quarter of 1997
versus income of $0.8 million in the first quarter of 1996. Net interest expense
was $2.0 million for the first quarter of 1997 compared to $0.2 million for the
first quarter of 1996, primarily due to a decrease in cash on hand and an
increase in currency financings. In addition, 1997 results were absent the 1996
gain on the sale of the company's investment in Cluff Resources plc ($2.5
million).
Reserve estimates
The price used in estimating the company's ore reserves at December 31, 1996 was
$375 per ounce of gold and $5.00 per ounce of silver. The market price for gold
and silver is currently below these levels. If the company determines that its
reserves should be calculated at a significantly lower price than used at
December 31, 1996, 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.
OPERATIONS REVIEW
Operating data by mine is set out in the table below.
<TABLE>
<CAPTION>
Three months ended
March 31
Operating Data by Mine 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Gold production (ounces)
- ------------------------
(a) McCoy/Cove 52,286 48,890
(b) Round Mountain (50%) 56,161 39,716
(c) Lupin 36,602 40,310
(d) Kettle River 38,279 32,330
- --------------------------------------------------------------
Total gold 183,328 161,246
- --------------------------------------------------------------
Silver production (ounces)
- --------------------------
(a) McCoy/Cove 2,437,413 1,175,057
- --------------------------------------------------------------
Total silver 2,437,413 1,175,057
- --------------------------------------------------------------
</TABLE>
Gold production increased 14% to 183,328 ounces in the first quarter of 1997
from 161,246 ounces in the first quarter of 1996, reflecting an increase in mill
and heap leach tons offset by lower heap leach grades at McCoy/Cove; increased
dedicated leach pad tons at Round Mountain; and increased mill tons at Kettle
River; partially offset by lower grade and recoveries at Lupin. Silver
production increased to 2.4 million ounces in the first quarter of 1997 from 1.2
million ounces in the first quarter of 1996, reflecting increased tons and
higher mill grade at McCoy/Cove. For the full year 1997, the gold production
target remains at 700,000 to 725,000 ounces and the silver production target at
about the same as 1996 production of 7 million ounces.
14
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
<TABLE>
<CAPTION>
Three months ended
March 31
Operating Data by Mine 1997 1996
- --------------------------------------------------
<S> <C> <C>
Cash operating costs
- --------------------
(per ounce of gold)
-------------------
(a) McCoy/Cove $ 285 $ 314
(b) Round Mountain (50%) 210 216
(c) Lupin 325 291
(d) Kettle River 185 170
- --------------------------------------------------
Company average $ 255 $ 261
- --------------------------------------------------
</TABLE>
Cash operating costs were $255 per ounce of gold in the first quarter of 1997,
compared to $261 in the first quarter of 1996. Consolidated cash operating costs
are targeted at $265-$275 per ounce of gold produced for the full year 1997.
15
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
(a) McCoy/Cove, Nevada (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Gold produced (ounces):
Milled 40,894 34,300
Heap leached 11,392 14,590
--------- ---------
Total gold 52,286 48,890
Silver produced (ounces):
Milled 2,355,583 1,033,577
Heap leached 81,830 141,480
--------- ---------
Total silver 2,437,413 1,175,057
Ore and waste mined (million tons) 15.5 15.5
Mining cost/ton of ore and waste $ 0.69 $ 0.70
Milling cost/ton of ore $ 8.76 $ 9.92
Heap leaching cost/ton of ore $ 1.64 $ 2.09
Production cost per ounce of gold produced:
Direct mining expense $ 293 $ 369
Deferred stripping cost (12) (58)
Inventory movements and other 4 3
--------- ---------
Cash operating cost 285 314
Royalties 4 4
Production taxes 2 7
--------- ---------
Total cash cost 291 325
Depreciation 70 95
Amortization 45 45
Reclamation and mine closure 10 6
--------- ---------
Total production costs $ 416 $ 471
--------- ---------
Average gold-to-silver price ratio/(1)/ 71.2:1 72.2:1
Milled:
Ore processed (tons/day) 10,076 7,579
Gold grade (ounce/ton) 0.066 0.070
Silver grade (ounce/ton) 3.34 2.70
Gold recovery rate (%) 71.8 75.7
Silver recovery rate (%) 70.2 72.5
Heap leached:
Ore processed (tons/day) 17,648 11,658
Gold grade (ounce/ton) 0.012 0.023
Silver grade (ounce/ton) 0.17 0.38
Recovery rates/(2)/
- ---------------------------------------------------------------------------------------
</TABLE>
/(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.
16
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
McCoy/Cove produced 52,286 ounces of gold during the first quarter of 1997, up
from 48,890 ounces during the first quarter of 1996. Cash operating costs
declined to $285 per ounce of gold produced in the first quarter of 1997 from
$314 per ounce in the first quarter of 1996, reflecting the increased
production.
More than three-quarters of the gold produced at McCoy/Cove is milled, and less
than one-quarter heap leached. Mill production rose to 40,894 ounces of gold in
the first quarter of 1997 from 34,300 ounces in the first quarter of 1996,
reflecting increased mill throughput. Mill production of silver more than
doubled to 2.4 million from 1.0 million ounces, reflecting the increased mill
throughput and also higher silver grades.
Heap leaching production fell in the first quarter of 1997, reflecting lower ore
grades processed. Gold production from heap leach processing was down by 22%, to
11,392 ounces. Silver production from heap leach operations fell to 81,830
ounces in the first quarter of 1997 from 141,480 ounces in the first quarter of
1996.
A series of exploration drill holes are currently being drilled beneath the Cove
pit. In addition, evaluations are ongoing of nearby exploration projects, as
well as known deposits, possibly looking for custom milling opportunities, as
ways to extend the life, maximize the assets, and further utilize the skilled
staff in place at McCoy/Cove.
17
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
(b) Round Mountain, Nevada (50% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1997 1996
- --------------------------------------------------------
<S> <C> <C>
Gold produced (ounces):
Reusable heap leach pad (50%) 31,945 25,972
Dedicated heap leach pad (50%) 24,216 13,744
------- -------
Total (50%) 56,161 39,716
Ore and waste mined
(million tons) (100%) 16.3 14.5
Mining cost/ton of ore and waste $ 0.70 $ 0.64
Heap leaching cost/ton of ore $ 0.69 $ 0.80
Production cost per ounce of
gold produced:
Direct mining expense $ 211 $ 268
Deferred stripping costs -- (29)
Inventory movements and other (1) (23)
------- -------
Cash operating cost 210 216
Royalties 27 34
Production taxes 3 4
------- -------
Total cash cost 240 254
Depreciation 47 62
Amortization 18 18
Reclamation and mine closure 7 5
------- -------
Total production cost $ 312 $ 339
------- -------
Reusable heap leach pad:
Ore processed (tons/day) (100%) 26,904 25,902
Grade (ounce/ton) 0.037 0.038
Recovery rate (%) 65.5 65.6
Dedicated heap leach pad:
Ore processed (tons/day) (100%) 88,539 74,713
Grade (ounce/ton) 0.011 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 50%-owned Round Mountain in Nevada, the company's portion of gold production
totaled 56,161 ounces in the first quarter of 1997, up 41% from 39,716 ounces in
the first quarter of 1996. The increase in production resulted principally from
the reduction of high in-process inventories existing at the end of 1996. Cash
operating costs were $210 per ounce in the first quarter of 1997, down from $216
per ounce in the first quarter of 1996. The lower unit costs were a function of
increased production.
During the first quarter of 1997, 26,904 tons per day were loaded on the
reusable pad and 88,539 tons per day on the dedicated pads, up from 25,902 and
74,713 respectively in the first quarter of 1996. These higher volumes and the
increased solution capacity on the dedicated pad more than offset a slight
decrease in grades treated.
18
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
Construction of the 8,000-ton per day mill facilities to treat nonoxidized ores
is well advanced. Testing is expected to begin late in the second quarter of
1997, with full production scheduled for early in the fourth quarter of 1997.
Mining is currently concentrated in a portion of the ore body containing larger
quantities of nonoxidized ore than in previous periods. These ores are currently
being stockpiled and will be treated at the mill once it is completed. These
larger quantities of nonoxide ores mean that less oxide ore is available for
heap leaching. Consequently, production is expected to be lower in the third
quarter of 1997 until the mill comes into full production. Round Mountain
expects to meet its full-year production target of 190,000 to 200,000 ounces of
gold.
Exploration at the Round Mountain project has been expanded to new targets
within the claim block. Work also continues in further defining the reserves
that exist within the boundaries of the ultimate pit.
19
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
(c) Lupin, Northwest Territories (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Gold produced (ounces) 36,602 40,310
Tons of ore mined and milled 192,930 185,505
Mining cost/ton of ore C $ 46.06 C $ 41.81
Milling cost/ton of ore C $ 11.41 C $ 12.80
Production cost per ounce of gold produced:
Canadian dollars:
Direct mining expense C $ 423 C $ 428
Deferred mine development cost C $ 20 C $ (29)
Inventory movements and other C $ (1) C $ --
-------- --------
Cash operating cost C $ 442 C $ 399
U.S. dollars:
Cash operating cost US $ 325 US $ 291
Royalties -- --
Production taxes -- --
-------- --------
Total cash cost 325 291
Depreciation 80 72
Amortization 29 18
Reclamation and mine closure 14 8
-------- --------
Total production cost US $ 448 US $ 389
-------- --------
Milled:
Ore processed (tons/day) 2,120 2,039
Ore tons milled 192,930 185,505
Grade (ounce/ton) 0.206 0.235
Recovery rate (%) 91.9 92.3
===============================================================================
</TABLE>
Production at Lupin in the Northwest Territories was 36,602 ounces of gold in
the first quarter of 1997 down 9% from 40,310 ounces in the first quarter of
1996. Cash operating costs increased to $325 per ounce in the first quarter of
1997 from $291 per ounce in the first quarter of 1996.
Mining at Lupin continues to move to lower depths with some deterioration of
ground conditions. Ore grades declined in the first quarter of 1997 (0.206 ounce
per ton compared with 0.235 ounce per ton in the first quarter of 1996), and
were only partially offset by increased mill throughput (2,120 tons per day
compared with 2,039 tons per day in the first quarter of 1996).
Mining is scheduled to move to slightly higher-grade sections of the ore body in
the second and third quarters of 1997. As a result, cash operating costs are
anticipated to decrease for the full year 1997 compared to the costs in the
first quarter of 1997.
Transportation of supplies into Lupin via the winter road is complete. Between
late January and early April of 1997, over 25.1 million liters of fuel and
17,425 tonnes of freight were delivered to the site via a 360-mile-long ice road
across the frozen lakes between Yellowknife and Lupin. This is sufficient for a
full year of operations. Additional development and mining equipment was also
trucked in to support development of the satellite Ulu deposit.
20
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
An underground ramp driven into the Ulu deposit has been advanced to a depth of
115 meters (380 feet). Ore-grade mineralization has been encountered on several
levels, but the main mineralization is located at the 175 meter (575 feet)
level. Further definition of the resource will be undertaken with an extensive
diamond drilling program beginning in the second quarter of 1997. Current
activities focus on developing the deposit and securing the permits necessary
for the site to start providing additional ore feed to Lupin in early 1999.
21
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
(d) Kettle River, Washington (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Gold produced (ounces) 38,279 32,330
Tons of ore mined and milled 178,175 132,973
Mining cost/ton of ore $ 20.68 $ 22.24
Milling cost/ton of ore $ 11.57 $ 11.99
Production cost per ounce of gold produced:
Direct mining expense $ 196 $ 172
Deferred mine development cost -- --
Inventory movements and other (11) (2)
-------- --------
Cash operating cost 185 170
Royalties 11 10
Production taxes 2 2
-------- --------
Total cash cost 198 182
Depreciation 51 56
Amortization 45 45
Reclamation and mine closure 12 8
-------- --------
Total production cost $ 306 $ 291
-------- --------
Milled:
Ore processed (tons/day) 1,958 1,461
Ore tons milled 178,175 132,973
Grade (ounce/ton) 0.243 0.274
Recovery rate (%) 88.6 88.6
- ---------------------------------------------------------------------
</TABLE>
At the Kettle River mine in Washington State, gold production increased to
38,279 ounces in the first quarter of 1997 from 32,330 ounces in the first
quarter of 1996. The first quarter of 1997 marked the start of commercial
production of gold from the K-2 ore body, the sixth deposit developed at the
site. The blending of ores from the K-2 and Lamefoot deposits resulted in more
tons per day being treated in the first quarter of 1997 (1,958 tons compared
with 1,461 tons in the first quarter of 1996) but at a lower overall grade
(0.243 ounces per ton compared with 0.274 ounces per ton in the first quarter of
1996). The lower grade and higher mining costs associated with the K-2 deposit
resulted in rising cash operating costs ($185 per ounce in the first quarter of
1997, up from $170 per ounce a year ago).
Close to 50,000 tons of material were mined from the K-2 deposit during the
first quarter of 1997. The ore is transported to the mill, where it is blended
with Lamefoot ore. While the availability of K-2 ores allows for full mill
utilization, the mining of this ore is at a higher cost than at Lamefoot. For
the remainder of 1997, cash operating costs at Kettle River are expected to be
above $200 per ounce.
Exploration efforts continue on extensions of both the Lamefoot and K-2
deposits.
22
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
RECENT DEVELOPMENTS
The company is advancing a number of projects from exploration through
feasibility and development to construction. Construction began at Aquarius in
Canada in the first quarter of 1997. Construction is expected to begin later in
1997 at Paredones Amarillos in Mexico subject to project financing. A detailed
feasibility study, on which a construction decision will be based, is underway
at Chapada in Brazil. Three initial feasibility studies to determine whether or
not to advance the project for further development are moving forward at
Kingking in the Philippines and Fazenda Nova and Sao Francisco in Brazil.
For the first quarter of 1997, in connection with its exploration and
development activities, the company charged $6.5 million against current
earnings and capitalized another $13.2 million.
During the first quarter of 1997, the company continued to pursue increased gold
reserves and future production through a more focused exploration program. As a
result of the company's program of acquisition, exploration and development
activities over the last two years, the company now has a promising pipeline of
projects located mostly in North, South and Central America.
Highlights of these construction and exploration and development programs are
outlined below:
Construction Programs
. In January 1997, the company made the decision to proceed with construction
of the Aquarius gold mine, located 40 kilometers east of Timmins, Ontario.
Detailed engineering is well under way, and contractor bids are being
evaluated. Other activities continue on schedule for the goal of production
startup in late 1998 and full production in early 1999. Preparation of the
site has included timber harvesting and road construction for installation of
the underground freeze wall, a low-cost method for dealing with the large
quantities of subsurface water found at the site. Drilling of the holes
necessary for the piping system is scheduled to begin early in the second
quarter of 1997 and be completed early in the fourth quarter of 1997. The
freezing is projected to take approximately four months and occur while mill
construction is under way. Final environmental studies have been completed,
and mining permits are anticipated by the end of 1997. The land position
associated with the site was increased during the first quarter of 1997, and
additional exploration targets have been identified.
. In January 1997, a contingent construction decision was made on the Paredones
Amarillos gold mine in Mexico, subject to project financing and to Viceroy
Resource Corporation, the company's 40% joint venture partner, approving the
project and obtaining its share of the financing. Paredones Amarillos could
be in full production in early 1999. During the quarter, initiation of
detailed engineering and additional metallurgical work allowed for further
optimization of the process flow sheet. Detailed engineering and definitive
cost estimates are also being completed, with initial construction activities
anticipated early in the third quarter of 1997.
Development Properties
. Feasibility studies on several projects were advanced in the first quarter of
1997 at 51% owned Santa Elina Mines Corporation. The results of the 1996
drill program at Chapada, a low-grade copper/gold porphyry deposit in Brazil,
are being incorporated into a revised estimate of other mineralization on
which mining scenarios and economic parameters will then be applied.
Alternatives are being evaluated for dealing with the issues such as high
capital and transportation costs as well as the treatment and refining costs.
The results of a detailed feasibility study, expected to be completed later
in 1997, will help to determine whether Chapada advances to construction. In-
fill drilling and metallurgical test work are under way at the Sao Francisco
gold project. The results will be incorporated in an initial feasibility
study on the project, currently expected to be completed by the end of 1997.
Mining operations at Sao Vicente, a small-
23
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
scale open pit operation, were suspended early in the first quarter of 1997.
Cost reductions accomplished in the milling operation were not sufficient to
make the project economic at today's gold price. Evaluations are currently
under way to determine if the implementation of lower-cost heap leaching can
sufficiently improve economics to restart the operation. A detailed
feasibility study is expected to be completed on this option by the end of
1997. An initial feasibility study is also being prepared for Fazenda Nova.
The feasibility study is currently expected to be completed later in 1997.
. The initial feasibility study was completed in late April 1997 for the
Kingking copper-gold project in the Philippines. The preliminary estimates of
the contained copper and gold are based on the results of 66,000 meters of
diamond core hole drilling, 46,000 meters of which were completed by the
company and its joint venture partner. The results of the initial feasibility
study will be optimized over the next several months by the joint venture.
Exploration Properties
. At Dolores in Mexico, a step-out drill program will further define and
potentially increase the identified in-place mineralization. Project-to-date
drilling stands at 48 holes for 10,615 meters (35,000 feet). The continuation
of the mineralization to the south of the main zone is also being
investigated.
. At the Youga concession in Burkina Faso, West Africa, a joint venture with
Ashanti Goldfields, the partners have agreed to a six month drilling program.
The 1997 program will include 7,000 meters (23,000 feet) of additional
drilling.
. At Kilgore in Idaho, now 100%-owned by Echo Bay, the 1997 exploration program
will primarily consist of drilling as well as additional mapping and sampling
work. This program is anticipated to start in June 1997.
. Late in 1996, Echo Bay entered into a joint venture on the Jessup property in
Nevada with Americomm Resources Corp. During the first quarter of 1997,
approximately 2,100 meters (7,000 feet) of drilling was completed. A second
round of 5,200 meters (17,000 feet) of drilling commenced in April 1997 to
offset high-grade intercepts.
. In April of 1997, the company formed a strategic alliance with Fairmile Gold
Corp. on the Buffalo Valley project in central Nevada, located 15 miles
northwest of the company's McCoy/Cove mine. The company has agreed to acquire
700,000 common shares of Fairmile for $1.1 million with 80% of the proceeds
directed to the exploration program on Buffalo Valley. Through additional
equity investments and completion of a bankable feasibility study, the company
can earn the right to purchase up to 65% of the Buffalo Valley project.
U.S. Mining Law Revision
Legislation to change the general mining laws applicable to operations on U.S.
federal lands has been introduced into the 105/th/ Congress, which convened in
January 1997, and additional introductions are expected. In addition, Department
of Interior Secretary Babbitt recently announced his intention to require the
Bureau of Land Management to revise the federal regulations applicable to
activities on unpatented mining claims to impose more stringent reclamation and
environmental protection requirements on those activities. Until such time, if
any, as new reform legislation is enacted or administrative action is taken, the
ultimate effects and costs of compliance on the company cannot be estimated.
24
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended
March 31, 1997
(U.S. dollars)
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 report
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 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, access, transportation of supplies, water
availability or other problems, results of current exploration activities,
results of pending and future feasibility studies, changes in project parameters
as plans continue to be refined, political, economic and operational risks of
foreign operations, joint venture relationships, 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 acquisition 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.
25
<PAGE>
ECHO BAY MINES LTD.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Alaska-Juneau
During 1994, the U.S. Attorney began an 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 8 to the interim consolidated financial statements.
Other
The company also is engaged in routine litigation incidental to its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule.
(a) Reports on Form 8-K Filed on January 14, 1997, related to the
construction decisions made on the Aquarius and
Paredones Amarillos projects; the provision for
the Alaska-Juneau development property; and the
suspension of common share dividends.
Filed on March 6, 1997, to file the consent of
independent chartered accountants for the capital
securities offering.
Filed on March 26, 1997, to file the underwriting
agreement, pricing agreement and consent of
independent chartered accountants for the capital
securities offering.
Filed on March 31, 1997, to file the indenture,
first supplemental indenture and global security
for the capital securities offering.
Filed on April 17, 1997, related to clarifying
information on Santa Elina Gold Corporation's
Chapada, Sao Francisco and Sao Vicente properties
in Brazil.
Filed on April 25, 1997, announcing Richard C.
Kraus' resignation as president, chief executive
officer and director of the company.
26
<PAGE>
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)
April 29, 1997
- --------------
Date
/s/ Raymond W. Jenner
-------------------------------------
RAYMOND W. JENNER
Vice President, Treasurer and
Principal Accounting Officer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS INCLUDED IN THE ECHO BAY MINES LTD FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1997.
</LEGEND>
<CIK> 0000722080
<NAME> ECHO BAY MINES LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 104,847
<SECURITIES> 0
<RECEIVABLES> 9,702
<ALLOWANCES> 0
<INVENTORY> 44,078
<CURRENT-ASSETS> 164,223
<PP&E> 644,878
<DEPRECIATION> 413,550
<TOTAL-ASSETS> 848,997
<CURRENT-LIABILITIES> 102,782
<BONDS> 0
0
0
<COMMON> 709,593
<OTHER-SE> (142,083)
<TOTAL-LIABILITY-AND-EQUITY> 848,997
<SALES> 73,838
<TOTAL-REVENUES> 73,838
<CGS> 51,453
<TOTAL-COSTS> 79,713
<OTHER-EXPENSES> 8,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,043
<INCOME-PRETAX> (16,006)
<INCOME-TAX> 755
<INCOME-CONTINUING> (16,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,761)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
