<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, 1999
--------------
[_] 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
------- -------
Title of Class Shares Outstanding as of
-------------- April 30, 1999
Common Shares --------------
without nominal or par value 140,607,145
================================================================================
<PAGE>
ECHO BAY MINES LTD.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements (Unaudited)......................................................................... 1
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................................................................. 24
ITEM 6. Exhibits and Reports on Form 8-K................................................................................... 24
SIGNATURE....................................................................................................................... 25
</TABLE>
i
<PAGE>
ECHO BAY MINES LTD.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET March 31 December 31
thousands of U.S. dollars 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,430 $ 7,987
Short-term investments 3,396 3,336
Interest and accounts receivable 4,278 3,585
Inventories (note 2) 40,919 37,929
Prepaid expenses and other assets 7,755 6,635
- ----------------------------------------------------------------------------------------------------------------------------
59,778 59,472
Plant and equipment (note 3) 188,413 196,670
Mining properties (note 3) 94,338 95,738
Long-term investments and other assets 26,079 16,196
- ----------------------------------------------------------------------------------------------------------------------------
$ 368,608 $ 368,076
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 33,677 $ 43,609
Income and mining taxes payable 2,956 2,941
Gold and other financings (note 4) 11,085 11,652
Deferred income (note 4) 21,993 15,182
- ----------------------------------------------------------------------------------------------------------------------------
69,711 73,384
Gold and other financings (note 4) 45,982 41,119
Deferred income (note 4) 65,995 64,363
Other long-term obligations 48,997 47,943
Deferred income taxes 7,641 7,513
Commitments and contingencies (note 9)
Common shareholders' equity:
Common shares, no par value, unlimited number authorized;
issued and outstanding - 140,607,145 shares 713,343 713,343
Capital securities (note 5) 114,244 110,862
Deficit (672,201) (663,875)
Foreign currency translation (25,104) (26,576)
- ----------------------------------------------------------------------------------------------------------------------------
130,282 133,754
- ----------------------------------------------------------------------------------------------------------------------------
$ 368,608 $ 368,076
============================================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE>
ECHO BAY MINES LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS Three months ended
thousands of U.S. dollars, March 31
except for per share data 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 48,782 $ 52,855
Revenue
- ------------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating costs 32,413 33,305
Royalties 1,748 1,722
Production taxes 86 354
Depreciation and amortization 12,801 13,902
Reclamation and mine closure 1,816 1,651
General and administrative 1,873 2,257
Exploration and development 2,117 3,180
Interest and other (note 6) 954 4,038
- ------------------------------------------------------------------------------------------------------------------------------
53,808 60,409
- ------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (5,026) (7,554)
- ------------------------------------------------------------------------------------------------------------------------------
Income tax expense:
Current 75 72
Deferred -- --
- ------------------------------------------------------------------------------------------------------------------------------
75 72
- ------------------------------------------------------------------------------------------------------------------------------
Net loss $ (5,101) $ (7,626)
==============================================================================================================================
Net loss attributable to common shareholders (note 5) $ (8,326) $ (10,259)
==============================================================================================================================
Loss per share $ (0.06) $ (0.07)
==============================================================================================================================
Weighted average number of shares outstanding (thousands) 140,607 139,370
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended
OF DEFICIT March 31
thousands of U.S. dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $(663,875) $(631,320)
Net loss (5,101) (7,626)
Interest on capital securities, net of nil tax effect (note 5) (3,225) (2,633)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $(672,201) $(641,579)
==============================================================================================================================
</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 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED FROM (USED IN):
OPERATING ACTIVITIES
Net cash flows provided from (used in) operating activities $ 5,487 $(16,992)
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Mining properties, plant and equipment (8,089) (4,629)
Proceeds on repurchase of gold forward sales 1,500 8,673
Short-term investments 485 2,414
Long-term investments and other assets (4,999) 522
Proceeds on the sale of plant and equipment 68 2,309
Proceeds on the sale of mining properties -- 1,195
Other (622) 58
- -----------------------------------------------------------------------------------------------------------------------------
(11,657) 10,542
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Currency borrowings 8,000 --
Debt repayments (4,998) (4,164)
Other (1,389) (112)
- -----------------------------------------------------------------------------------------------------------------------------
1,613 (4,276)
- -----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (4,557) (10,726)
Cash and cash equivalents, beginning of period 7,987 16,953
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3,430 $ 6,227
=============================================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
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 balance
sheet, consolidated statement of operations, consolidated statement of deficit,
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, 1999 and December 31, 1998 and the consolidated results
of operations and cash flow for the three months ended March 31, 1999 and 1998.
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, 1998.
Certain of the comparative figures have been reclassified to conform with the
current period's presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Precious metals -- bullion $19,719 $14,704
-- in-process 6,234 8,568
Materials and supplies 14,966 14,657
- --------------------------------------------------------------------------------------------------------------------------
$40,919 $37,929
==========================================================================================================================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Plant and equipment March 31 December 31
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost $657,739 $653,533
Less accumulated depreciation 469,326 456,863
- --------------------------------------------------------------------------------------------------------------------------
$188,413 $196,670
==========================================================================================================================
Mining properties March 31 December 31
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Producing mines' acquisition, exploration & development costs $270,799 $270,585
Less accumulated amortization 220,344 216,810
- --------------------------------------------------------------------------------------------------------------------------
50,455 53,775
Development properties' acquisition, exploration & development costs 24,334 24,067
Deferred mining costs 19,549 17,896
- --------------------------------------------------------------------------------------------------------------------------
$ 94,338 $ 95,738
==========================================================================================================================
</TABLE>
4
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted.
4. GOLD AND OTHER FINANCINGS AND DEFERRED INCOME
<TABLE>
<CAPTION>
Financings Deferred Income
-------------------------------- --------------------------------
March 31 December 31 March 31 December 31
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold loans $ 3,175 $ 6,867 $ 2,707 $ 3,478
Currency loans 49,035 41,035 -- --
Capital securities (note 5) 4,857 4,869 -- --
Repurchase of gold and silver forward contracts -- -- 52,314 52,283
Repurchase of forward currency exchange contracts -- -- 5,995 5,995
Deferred gain on restructuring of capital securities
swap -- -- 7,534 4,287
Premiums received on gold and silver option contracts -- -- 19,438 13,502
- ---------------------------------------------------------------------------------------------------------------------------
57,067 52,771 87,988 79,545
Less current portion 11,085 11,652 21,993 15,182
- ---------------------------------------------------------------------------------------------------------------------------
$45,982 $41,119 $65,995 $64,363
===========================================================================================================================
</TABLE>
At March 31, 1999, a 11,347 ounce gold term loan and a $26.0 million currency
term loan were outstanding under a gold loan agreement. Under the agreement,
the aggregate gold and currency commitment must be repaid quarterly at a
specified principal amount in dollars and/or the equivalent number of ounces
valued at the original gold loan price of $349 per ounce. The gold loan was
restructured in 1996, resulting in a restructured gold loan price of $388 per
ounce. In the third and fourth quarters of 1998 and the first quarter of 1999,
the Company opted to accelerate its repayment of gold ounces and decelerate its
repayment of the currency loan from the original repayment schedule. The
difference between the restructured gold loan price of $388 per ounce and the
spot price on the repayment date for these accelerated ounces is being deferred
and will be recognized in earnings in accordance with the original repayment
schedule.
5. CAPITAL SECURITIES
In 1997, the Company issued $100.0 million of 11% capital securities due in
April 2027. The Company has the right to defer interest payments on the capital
securities for a period not to exceed 10 consecutive semi-annual periods.
During a period of interest deferral, interest accrues at a rate of 12% per
annum, compounded semi-annually, on the full principal amount and deferred
interest. The Company, at its option, may satisfy its deferred interest
obligation by delivering common shares to the indenture trustee for the capital
securities. The trustee would sell the Company's shares and remit the proceeds
to the holders of the securities in payment of the deferred interest obligation.
The Company has exercised its right to defer the April 1998, the October 1998,
and the April 1999 interest payments to holders of the capital securities. The
deferred interest accrued at March 31, 1999, totaling $19.1 million, has been
classified within the equity component of the capital securities obligation on
the balance sheet as the Company has the option to satisfy the deferred interest
by delivering common shares.
5
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted.
6. INTEREST AND OTHER
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income $ (68) $ (89)
Interest expense 1,100 2,443
Unrealized loss on share investments 23 849
(Gain) loss on sale of share investments (485) 1,058
Gain on sale of plant and equipment -- (1,052)
Gain on sale of interests in mining properties -- (1,195)
Other 384 2,024
- --------------------------------------------------------------------------------------------------------------------------
$ 954 $ 4,038
==========================================================================================================================
</TABLE>
7. 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, 1998.
The effects of the GAAP differences on the consolidated statement of operations
would have been as follows.
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss under Canadian GAAP $(5,101) $ (7,626)
Change in market value of foreign exchange contracts 2,343 1,456
Additional interest expense on capital securities (3,225) (2,633)
Amortization of deferred financing on capital securities (158) (158)
Unrealized/realized loss on share investments 23 252
Recognition of severance expense -- (4,980)
Amortization of mining properties -- 491
- --------------------------------------------------------------------------------------------------------------
Net loss under U.S. GAAP $(6,118) $(13,198)
==============================================================================================================
Loss per share under U.S. GAAP $(0.04) $(0.09)
==============================================================================================================
</TABLE>
6
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted.
The effects of the GAAP differences on the consolidated balance sheet would have
been as follows.
<TABLE>
<CAPTION>
Mining
Foreign Properties Santa Elina
Canadian Exchange Share Amorti- Acquisition/ Capital U.S.
March 31, 1999 GAAP Contracts Investments zation Write-off Securities GAAP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term investments $ 3,396 $ -- $ 877 $ -- $ -- $ -- $ 4,273
Long-term investments and
other assets 26,079 -- -- -- -- 1,900 27,979
Mining properties 94,338 -- -- (11,526) -- -- 82,812
Gold and other financings 57,067 -- -- -- -- 95,143 152,210
Deferred income 87,988 (5,995) -- -- -- -- 81,993
Other long-term obligations 48,997 4,431 -- -- -- 19,101 72,529
Common shares 713,343 -- -- -- 36,428 -- 749,771
Capital securities 114,244 -- -- -- -- (114,244) --
Deficit 672,201 (1,564) (7,579) 11,526 36,428 (1,900) 709,112
Foreign currency translation 25,104 -- 6 -- -- -- 25,110
Net unrealized loss on
share investments -- -- 6,696 -- -- -- 6,696
Common shareholders' equity 130,282 1,564 877 (11,526) -- (112,344) 8,853
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following statement of comprehensive loss would be disclosed in accordance
with U.S. GAAP.
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss under U.S. GAAP $(6,118) $(13,198)
Other comprehensive income, after a nil income tax effect:
Unrealized gain/loss on share investments:
Net unrealized holding gain arising during the period 851 249
Reclassification adjustment for net (gain) loss recognized in earnings (485) 1,058
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized income 366 1,307
Foreign currency translation adjustments 1,473 1,317
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income 1,839 2,624
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive loss $(4,279) $(10,574)
============================================================================================================================
</TABLE>
Additionally, under U.S. GAAP, the equity section of the balance sheet would
present a subtotal for accumulated other comprehensive loss, as follows.
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation $(25,110) $(26,583)
Net unrealized loss on share investments (6,696) (7,547)
- -----------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $(31,806) $(34,130)
===============================================================================================
</TABLE>
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal quarters of fiscal
years beginning after June 15, 1999. The impact of the new
7
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted.
standard on the Company's financial information prepared under U.S. GAAP has not
yet been determined.
8. SEGMENT INFORMATION
The Company's management regularly evaluates the performance of the Company by
reviewing operating results on a minesite by minesite basis. As such, the
Company considers each producing minesite to be an operating segment. In the
first quarter of 1999, the Company had three operating mines: Round Mountain in
Nevada, USA; McCoy/Cove in Nevada, USA; and Kettle River in Washington, USA.
All are 100% owned except for Round Mountain, which is 50% owned. In January
1998, the Company temporarily suspended operations at its Lupin mine in the
Nunavut Territory of Canada.
In making operating decisions and allocating resources, the Company's management
specifically focuses on the production levels and cash operating costs generated
by each operating segment, as summarized in the following tables.
<TABLE>
<CAPTION>
Three months ended
March 31
Gold Production (ounces) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Round Mountain (50%) 59,685 66,067
McCoy/Cove 32,114 39,853
Kettle River 26,965 27,245
- ---------------------------------------------------------------------------------------------
Total gold 118,764 133,165
=============================================================================================
Silver Production (ounces) 1999 1998
- ---------------------------------------------------------------------------------------------
Total silver-all from McCoy/Cove 2,664,838 2,258,456
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31
Cash Operating Costs per Ounce of Gold Produced 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Round Mountain $ 221 $ 194
McCoy/Cove 209 203
Kettle River 228 258
- ---------------------------------------------------------------------------------------------
Company consolidated weighted average $ 216 $ 208
=============================================================================================
</TABLE>
8
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted.
<TABLE>
<CAPTION>
Three months ended
Reconciliation of Cash Operating March 31
Costs per Ounce to Financial Statements 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Operating costs by minesite:
Round Mountain $ 12,434 $ 9,881
McCoy/Cove 14,490 15,784
Kettle River 5,489 5,995
Lupin -- 1,645
- ----------------------------------------------------------------------------------------------
Total operating costs per financial statements 32,413 33,305
Change in finished goods inventories and other 3,500 4,012
Co-product cost of silver produced (10,260) (9,689)
- ----------------------------------------------------------------------------------------------
Cash operating costs $ 25,653 $ 27,628
==============================================================================================
Gold ounces produced 118,764 133,165
==============================================================================================
Cash operating costs per ounce $ 216 $ 208
==============================================================================================
</TABLE>
The Company's management generally monitors revenues on a consolidated basis.
Information regarding the Company's consolidated revenues is provided below.
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Total gold and silver revenues $48,782 $52,855
Average gold price realized per ounce $ 324 $ 341
Average silver price realized per ounce $ 5.52 $ 6.19
- ----------------------------------------------------------------------------------------------
</TABLE>
9. HEDGING ACTIVITIES AND COMMITMENTS
In April 1999, the Company entered into gold forward sales and purchased gold
put options totaling 610,000 ounces at an average price of approximately $335
per ounce, scheduled for delivery in the five years from 2000 through 2004. The
Company has also sold 185,000 ounces of gold call options at $340 per ounce
expiring at various dates in 2004 and 2005. This additional hedging provides
flexibility for the Company in its consideration of reopening the Lupin mine,
which has been on care and maintenance since early 1998. If the Company decides
not to reopen Lupin, the current hedge position, including the April 1999
transactions, would hedge approximately 70% of planned gold production from the
Company's currently producing properties in the years 2000 to 2004.
In the third and fourth quarters of 1998 and the first quarter of 1999 the
Company opted to accelerate its repayment of gold ounces and decelerate its
repayment of a currency loan from the original repayment schedule for
outstanding gold and currency borrowings under a gold loan agreement (note 4).
The difference between the restructured gold loan price and the spot price on
the repayment date for these accelerated ounces is being deferred and will be
recognized in earnings in accordance with the original repayment schedule.
9
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted.
Shown below are the carrying amounts, estimated fair values and unrealized gains
on the Company's gold loans at March 31, 1999 and December 31, 1998 (note 4).
Carrying amounts include deferred income recorded on the balance sheet related
to gold loan remeasurement.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Unrealized Carrying Estimated Unrealized
Amount Fair Value gain Amount Fair Value gain
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Gold loans $4,400 $3,200 $1,200 $9,400 $6,900 $2,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Shown below are the carrying amounts and estimated fair values of the Company's
other hedging instruments at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold forward sales -- $23,400 -- $25,400
Silver forward sales -- 11,600 -- 12,900
Gold options - puts purchased 1,600 3,000 1,600 2,400
- calls sold (1,200) -- -- --
- calls purchased 1,300 700 -- --
Silver options - puts purchased 2,500 2,200 2,500 2,100
- calls sold (6,100) (1,600) (3,400) (500)
- puts sold (12,100) (5,700) (10,100) (6,100)
- calls purchased 14,400 2,600 10,100 700
Foreign currency contracts -- (4,400) -- (6,800)
Crude oil contracts -- -- -- (100)
- ------------------------------------------------------------------------------------------------------------------------------------
$31,800 $30,000
====================================================================================================================================
</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.
10
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 1999
(U.S. dollars)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's profitability is determined in large part by gold and silver
prices. Market prices of gold and silver are determined by factors beyond the
Company's control. The Company's operations continue to be materially affected
by the depressed price of gold, which averaged $287 per ounce during the first
quarter of 1999.
The Company reduces the risk of future gold and silver price declines by hedging
a portion of its production. The principal hedging tools used are gold and
silver loans, fixed and floating forward sales contracts, spot-deferred
contracts, swaps and options.
As of March 31, 1999, the Company has protected itself against gold price
declines in 1999 and 2000 through its hedge portfolio. This portfolio will
ensure a minimum average cash price realized of $345 per ounce for over 90% of
planned 1999 gold production. For the year 2000, the Company has hedged
approximately 262,000 ounces of gold at a minimum average cash price of $345 per
ounce. In addition, the Company has hedged 5.6 million silver ounces at an
average price of $5.72 per ounce in 1999 and 7.5 million ounces of silver at a
minimum average price of $5.87 per ounce in 2000. See note 9 to the interim
consolidated financial statements.
The Company's Lupin mine, located in the Nunavut Territory of Canada, continues
on care and maintenance following the January 1998 temporary suspension of
operations. Additionally, the Company continues to defer final construction
decisions on two planned gold mines, Paredones Amarillos in Mexico and Aquarius
in Canada, and continues to defer further development of the Ulu satellite
deposit near the Lupin mine.
The Company's exploration efforts are focused on projects principally located in
North America where the Company already has extensive gold mining
infrastructure.
In March 1997, the Company issued $100.0 million of 11% capital securities due
2027 (see note 5 to the interim consolidated financial statements). The Company
has the right to defer interest payments on the capital securities for up to 10
consecutive semi-annual periods. During a period of interest deferral, interest
accrues at a rate of 12% per annum, compounded semi-annually on the full
principal amount and deferred interest. The Company, at its option, may satisfy
its deferred interest obligation by delivering common shares to the indenture
trustee for sale, the proceeds of which would be remitted to the holders of the
securities in payment of the deferred interest. The Company has exercised its
right to defer the April 1998, the October 1998 and the April 1999 interest
payments.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided from operating activities was $5.5 million for the first
three months of 1999 compared to net cash flows used in operating activities of
$17.0 million for the first three months of 1998. The 1999 results compared to
1998 reflect the absence of the 1998 payment of severance costs accrued at the
end of 1997 ($9.2 million), lower payments related to vendor, payroll and
interest accruals ($8.3 million), an increased volume of silver ounces sold
($2.2 million), higher cash gold price realized ($1.4 million), decreased
exploration and development expenses ($1.1 million), and decreased operating
costs ($0.9 million), partially offset by lower cash silver prices realized
($1.0 million) and lower volume of gold sold ($3.0 million).
Net cash used in investing activities totaled $11.7 million in the first three
months of 1999, primarily related to mining properties, plant and equipment
($8.1 million) and long-term deposits for reclamation obligations ($5.0
11
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 1999
(U.S. dollars)
million), partially offset by $1.5 million received on the repurchase of gold
forwards entered into in the first quarter of 1999.
Cash provided from financing activities was $1.6 million in the first three
months of 1999, comprised of currency borrowings of $8.0 million, partially
offset by the repayment of gold borrowings ($5.0 million) and the repayment of a
capital lease obligation ($1.4 million).
The Company had $3.4 million in cash and cash equivalents and $3.4 million in
short-term investments at March 31, 1999.
At March 31, 1999, the Company's total debt was $57.1 million, of which $11.1
million was current.
The Company currently has $23.0 million outstanding, and up to $27.0 million or
gold equivalent, subject to covenant limitations, available until 2001, under
its revolving credit facility. The Company currently has no restrictions on the
borrowing capacity of this line, based on the trailing 90-day average spot price
of $287 per ounce of gold. The Company's borrowing capacity under the facility
is measured at the end of each quarter.
At March 31, 1999, the estimated value of the Company's hedge portfolio was
$31.8 million. Margin deposits could be required if the market value exceeds the
contract value by a predetermined amount.
For the full year 1999, the Company expects to incur $12 million in capital
expenditures, of which $0.8 million has been incurred in the first three months
of 1999. Additionally, the Company expects to incur $27 million in deferred
stripping and McCoy/Cove pit wall remediation costs for the full year 1999, of
which $7.0 million has been incurred in the first three months of 1999. The
Company will rely on its operating cash flow and borrowing capacity under its
revolving loan facility to fund the remainder of its planned 1999 spending. The
Company continues to monitor its discretionary spending in view of the current
low gold price environment and the cost structure at the Company's operating
mines.
12
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
FINANCIAL REVIEW
The Company reported a net loss of $5.1 million ($0.06 per share) in the first
quarter of 1999, compared to a net loss of $7.6 million ($0.07 per share) in the
first quarter of 1998. The 1999 results compared to 1998 reflect a net
unrealized/realized gain on the Company's share investment portfolio compared to
a net loss in the prior year ($2.4 million), lower depreciation and amortization
($1.1 million), decreased exploration and development expenses ($1.1 million),
decreased operating costs ($0.9 million), partially offset by lower gold and
silver prices realized ($3.4 million).
Gold production decreased 11% to 118,764 ounces in the first quarter of 1999
compared to 133,165 ounces in the first quarter of 1998. Decreased production
was primarily due to lower heap leach tons placed at Round Mountain and
decreased mill grades at McCoy/Cove.
Cash operating costs were $216 per ounce of gold in the first quarter of 1999,
versus $208 in the first quarter of 1998, reflecting lower production at Round
Mountain and McCoy/Cove, partially offset by increased mill grade at Kettle
River. Total production costs were $316 per ounce in the first quarter of 1999,
versus $317 per ounce in the first quarter of 1998.
The term ounce as used in this Form 10-Q means "troy ounce".
Revenue
Statistics for gold and silver ounces sold and other revenue data are set out
below.
Three months ended
March 31
Revenue Data 1999 1998
- --------------------------------------------------------------------------------
Gold
- ----
Ounces sold 109,711 118,594
Average price realized/ounce - revenue basis $ 324 $ 341
Average price realized/ounce - cash basis /1/ $ 351 $ 338
Average market price/ounce $ 287 $ 294
Revenue (millions of U.S. $) $ 35.6 $ 40.4
Percentage of total revenue 73% 76%
Silver
- ------
Ounces sold 2,393,095 2,016,097
Average price realized/ounce - revenue basis $ 5.52 $ 6.19
Average price realized/ounce - cash basis /1/ $ 5.34 $ 5.76
Average market price/ounce $ 5.30 $ 6.23
Revenue (millions of U.S. $) $ 13.2 $ 12.5
Percentage of total revenue 27% 24%
- --------------------------------------------------------------------------------
Total revenue (millions of U.S. dollars) $ 48.8 $ 52.9
================================================================================
/1/ Excludes non-cash items affecting gold and silver revenues, such as the
recognition of deferred income or deferral of revenue to future periods for
hedge accounting purposes.
13
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
The effects of changes in sales prices and volume were as follows.
<TABLE>
<CAPTION>
Revenue Variance Analysis Three months ended
1999 vs. 1998 March 31
- -------------------------------------------------------------------------------------------------
<S> <C>
Lower gold prices $ (1.8)
Lower silver prices (1.6)
Change in volume (0.7)
- -------------------------------------------------------------------------------------------------
Decrease in revenue $ (4.1)
=================================================================================================
</TABLE>
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 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Direct mining expense $ 213 $ 205
Deferred stripping and mine development costs (11) 1
Inventory movements and other 14 2
- -------------------------------------------------------------------------------------------------------------------------------
Cash operating costs 216 208
Royalties 10 9
Production taxes 1 2
- -------------------------------------------------------------------------------------------------------------------------------
Total cash costs 227 219
Depreciation 59 63
Amortization 21 26
Reclamation and mine closure 9 9
- -------------------------------------------------------------------------------------------------------------------------------
Total production costs $ 316 $ 317
===============================================================================================================================
</TABLE>
Expenses
Operating costs per ounce vary with the quantity of gold and silver sold and
with the cost of operations. Cash operating costs were $216 per ounce of gold
in the first quarter of 1999 and $208 in the first quarter of 1998. 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 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating costs per financial statements $ 32,413 $ 33,305
Change in finished goods inventory and other 3,500 4,012
Co-product cost of silver produced (10,260) (9,689)
- -----------------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 25,653 $ 27,628
=============================================================================================================================
Gold ounces produced 118,764 133,165
=============================================================================================================================
Cash operating costs per ounce $ 216 $ 208
=============================================================================================================================
</TABLE>
The decrease in depreciation and amortization in the first quarter of 1999
compared to the first quarter of 1998 reflects the fact that as McCoy/Cove
approaches the end of its useful life, major groups of its assets are fully
depreciated and are not being replaced.
Exploration and development decreased in the first quarter of 1999 compared to
the first quarter of 1998 due to a decreased scope of exploration activities.
14
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
Reserve estimates
The price used in estimating the Company's ore reserves at December 31, 1998 was
$325 per ounce of gold and $5.75 per ounce of silver. The market price for gold
is currently well below this level. If the Company determines that its reserves
should be calculated at a significantly lower price than used at December 31,
1998, there would likely be a material reduction in the amount of gold reserves.
For example, the Company estimates that, based on extrapolation of information
developed in reserve calculation, but without the same degree of analysis as
required for reserve calculation, if the Company's reserves at December 31, 1998
were based on a price of $300 per ounce of gold, reserves at the operating
properties would decrease approximately 12%. If the Company's reserves at
December 31, 1998 were calculated at $350 per ounce of gold, reserves at the
operating properties would increase approximately 4%. The Company estimates
that such changes in gold price assumptions would not result in material impacts
to the reserve estimations for Aquarius and Paredones Amarillos. Should any
significant reductions in reserves 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 below.
<TABLE>
<CAPTION>
Three months ended
March 31
Operating Data by Mine 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gold production (ounces)
- ------------------------
(a) Round Mountain (50%) 59,685 66,067
(b) McCoy/Cove 32,114 39,853
(c) Kettle River 26,965 27,245
- ------------------------------------------------------------------------------------------------------------------------------
Total gold 118,764 133,165
==============================================================================================================================
Silver production (ounces)
- -------------------------
(b) McCoy/Cove 2,664,838 2,258,456
- ------------------------------------------------------------------------------------------------------------------------------
Total silver 2,664,838 2,258,456
==============================================================================================================================
</TABLE>
Gold production decreased 11% to 118,764 ounces in the first quarter of 1999
compared to 133,165 ounces in the first quarter of 1998. Decreased production
was primarily due to lower heap leach tons placed at Round Mountain and
decreased mill grades at McCoy/Cove. Silver production increased to 2.7 million
ounces in the first quarter of 1999 from 2.3 million ounces in the first quarter
of 1998, reflecting increased mill grades. For the full year 1999, the
Company's gold production target is between 455,000 and 475,000 ounces and the
silver production target is between 7 and 8 million ounces.
<TABLE>
<CAPTION>
Three months ended
March 31
Operating Data by Mine 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash operating costs (per ounce of gold)
- ----------------------------------------
(a) Round Mountain $ 221 $ 194
(b) McCoy/Cove 209 203
(c) Kettle River 228 258
- ------------------------------------------------------------------------------------------------------------------------------
Company average $ 216 $ 208
==============================================================================================================================
</TABLE>
Cash operating costs were $216 per ounce of gold in the first quarter of 1999,
compared to $208 in the first quarter of 1998. The Company has targeted
consolidated cash operating costs of $235 to $245 per ounce of gold produced for
the full year 1999.
15
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
(a) Round Mountain, Nevada (50% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gold produced (ounces):
Heap leached - reusable pad (50%) 19,338 30,407
Heap leached - dedicated pad (50%) 25,235 22,638
Milled (50%) 15,112 12,239
Other (50%) -- 783
------- --------
Total (50%) 59,685 66,067
Ore and waste mined (million tons) (100%) 18.9 16.1
Mining cost/ton of ore and waste $ 0.74 $ 0.65
Heap leaching cost/ton of ore $ 0.75 $ 0.68
Milling cost/ton of ore $ 3.32 $ 3.98
Production cost per ounce of gold produced:
Direct mining expense $ 236 $ 194
Deferred stripping cost (30) 10
Inventory movements and other 15 (10)
------- --------
Cash operating cost 221 194
Royalties 20 17
Production taxes 1 2
------- --------
Total cash cost 242 213
Depreciation 49 40
Amortization 18 18
Reclamation and mine closure 9 7
------- --------
Total production costs $ 318 $ 278
------- --------
Heap leached - reusable pad:
Ore processed (tons/day) (100%) 18,803 26,366
Grade (ounce/ton) 0.036 0.036
Recovery rate (%) 77.6 74.9
Heap leached - dedicated pad:
Ore processed (tons/day) (100%) 91,648 108,297
Grade (ounce/ton) 0.010 0.010
Recovery rate /1/
Milled:
Ore processed (tons/day) (100%) 7,275 7,169
Grade (ounce/ton) 0.086 0.053
Recovery rate (%) 86.0 72.6
===================================================================================================================================
</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 Round Mountain mine in Nevada, the Company's 50% share of production was
59,685 in the first quarter of 1999, down from 66,067 in the first quarter of
1998. Starting in late 1998, the mine entered a period of higher waste
stripping as it began work on a new phase of the mine. Mining more waste tons
during the first quarter of 1999 resulted in fewer ore tons being available for
processing and therefore lower production. This was partially offset by the
processing of higher grade ore through the mill.
16
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
The lower production resulted in cash operating costs rising to $221 per ounce
in the first quarter of 1999 from $194 per ounce in the same quarter of the
previous year. Mining ore tons from the new phase will begin in the second
quarter of 1999 and result in production increasing and cash costs decreasing.
Operations at Round Mountain's mill have continued to improve since its
completion in 1997. During the first quarter of 1999, the mill produced 30,224
ounces of gold (Echo Bay's 50% share, 15,112 ounces), 23% better than the first
quarter of 1998. The increased production was accomplished as a result of the
processing of higher grade ores and improved recoveries. In the Round Mountain
ore body there are small, high grade feeder structures, the grades of which are
hard to determine in advance of mining. Late in the first quarter of 1999,
these structures increased the grade of material available for processing at the
mill. This positive variance is anticipated to continue into the second quarter
of 1999.
The ore tons placed under leach on the reusable pad were down by 30% in the
first quarter of 1999 compared to the same quarter the previous year. With less
higher grade oxide ore tons available for loading on the reusable pad, the
Company's share of production was down to 19,338 ounces during the first quarter
of 1999 compared with 30,407 ounces in the first quarter of 1998.
In 1998, through extensive fieldwork, Round Mountain identified 11 targets
outside the area of known resource. More drilling is planned on two of the
three targets initially drilled in 1998, as well as two additional targets.
This work continues to be aimed at identifying the underlying geological
structures and determining their potential to host gold mineralization.
17
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
(b) McCoy/Cove, Nevada (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gold produced (ounces):
Milled 20,657 25,422
Heap leached 11,457 14,431
---------- ----------
Total gold 32,114 39,853
Silver produced (ounces):
Milled 2,584,340 2,136,149
Heap leached 80,498 122,307
---------- ----------
Total silver 2,664,838 2,258,456
Ore and waste mined (million tons) 11.8 7.6
Mining cost/ton of ore and waste $ 0.72 $ 0.74
Milling cost/ton of ore $ 6.74 $ 6.31
Heap leaching cost/ton of ore $ 1.71 $ 1.57
Production cost per ounce of gold produced:
Direct mining expense $ 190 $ 196
Deferred stripping cost 2 (1)
Inventory movements and other 17 8
---------- ----------
Cash operating cost 209 203
Royalties 3 3
Production taxes -- 2
---------- ----------
Total cash cost 212 208
Depreciation 47 53
Amortization 27 38
Reclamation and mine closure 11 8
---------- ----------
Total production costs $ 297 $ 307
---------- ----------
Average gold-to-silver price ratio /1/ 54.3:1 47.3:1
Milled:
Ore processed (tons/day) 11,516 10,916
Gold grade (ounce/ton) 0.035 0.041
Silver grade (ounce/ton) 3.15 2.62
Gold recovery rate (%) 44.8 55.8
Silver recovery rate (%) 66.3 74.2
Heap leached:
Ore processed (tons/day) 11,589 12,021
Gold grade (ounce/ton) 0.026 0.020
Silver grade (ounce/ton) 0.23 0.37
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
35% for crushed ore and 10% for uncrushed, run-of-mine ore.
18
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
At McCoy/Cove in Nevada, lower gold grades processed through the mill resulted
in lower first quarter 1999 production compared to the first quarter of 1998
(32,114 ounces compared with 39,853 ounces a year ago). Silver grades processed
through the mill increased by 20%, helping to increase production to 2,664,838
ounces of silver in the first quarter of 1999, compared with 2,258,456 ounces in
the first quarter of 1998. The lower equivalent production resulted in cash
operating costs increasing to $209 per ounce in the first quarter of 1999 from
$203 per ounce in the first quarter of 1998. While McCoy/Cove has done an
effective job of controlling costs despite lower production, costs per ounce are
expected to continue to rise over the remaining quarters of 1999.
The remediation of the Cove pit wall is anticipated to be complete by the middle
of 1999. The first ore release from this area is expected to occur in the third
quarter of 1999, but will be low grade leach ore. Higher grade mill ore is
expected to become available beginning in early 2000.
During the first quarter of 1999, the Company began underground development of a
small pod of gold and silver mineralization located off the east side of the
Cove pit. Production of this material began early in the second quarter of 1999
and will continue into the fourth quarter of 1999. Though the extent of this
mineralization is limited (132,000 tons), it is relatively high in grade (0.15
ounces of gold per ton and 9.8 ounces of silver per ton), making it economical
to process using underground mining methods. As mining advances, exploration
drilling continues in order to search for extensions of this mineralization. In
addition, another area of mineralization located near the Cove pit is also being
evaluated for potential underground development.
19
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
(c) Kettle River, Washington (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
OPERATING DATA 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gold produced (ounces) 26,965 27,245
Tons of ore mined 154,378 193,453
Mining cost/ton of ore $ 24.19 $ 20.91
Milling cost/ton of ore $ 11.11 $ 9.76
Production cost per ounce of gold produced:
Direct mining expense $ 231 $ 260
Deferred mine development cost -- --
Inventory movements and other (3) (2)
-------- --------
Cash operating cost 228 258
Royalties 13 11
Production taxes 1 1
-------- --------
Total cash cost 242 270
Depreciation 67 72
Amortization 8 5
Reclamation and mine closure 15 12
-------- --------
Total production costs $ 332 $ 359
-------- --------
Milled:
Ore processed (tons/day) 1,658 2,107
Tons of ore milled 150,838 191,769
Grade (ounce/ton) 0.207 0.176
Recovery rate (%) 86.3 80.5
===================================================================================================================================
</TABLE>
At the Kettle River mine in Washington State, first quarter 1999 gold production
of 26,965 ounces was consistent with first quarter 1998 gold production of
27,245 ounces. The 21% reduction in the number of tons processed was largely
offset by better recoveries and the processing of higher grade ores. Cash
operating costs were lower by $30 per ounce in the first quarter of 1999
compared to the same period in 1998, resulting from lower mill tonnage, only
partially offset by higher mining costs.
As mining gets deeper in the ore bodies and is therefore slower, and with more
of the ore coming from K-2 with its longer trucking distances, fewer tons will
be available for processing and costs per ton will be higher. The majority of
the higher grade ore processed during the first quarter of 1999 was mined from
the K-2 deposit, and the increased grade was sufficient to more than offset the
higher mining costs.
Kettle River has had some success in identifying economic mineralization
associated with extensions of the K-2 deposit to the east and south. More work
will be done in the coming months to quantify the extent of this mineralization.
Regional exploration opportunities continue to be evaluated as potential ore
sources for the Kettle River mill.
20
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
RECENT DEVELOPMENTS
Lupin
In January 1998, the Company announced a temporary suspension of operations at
the Lupin property in the Nunavut Territory, Canada. During the first quarter
of 1999, the Company incurred $1.1 million in care and maintenance costs related
to Lupin. These costs are being expensed as incurred. The Company will
recommission the Lupin mine only when the Company can secure a satisfactory cash
margin over the cash operating costs.
Development Properties
In 1997, the Company deferred final construction decisions on its two planned
gold mines, the 100% owned Aquarius gold mine in Ontario, Canada and the 60%
owned Paredones Amarillos in Mexico. Development holding costs for these
projects are being expensed as incurred. During the first quarter of 1999, the
Company expensed a combined total of $0.1 million in holding costs related to
Aquarius and Paredones Amarillos.
The Company continues exploration work in the area surrounding the Aquarius
project. The Company's goal is to locate additional mineralization which could
add economic value to the project.
The Company is evaluating alternatives for the development of Paredones
Amarillos in light of the depressed price of gold. The existing mine plan for
the project requires a $375 per ounce gold price to achieve an acceptable rate
of return for the Company and its joint venture partners.
Other projects
At the 50% owned Kuranakh project located in the Sakha Republic of the Russian
Federation, negotiations continue with the government committee established for
defining the terms of the production sharing agreement, which will provide the
producer with a fixed life-of-project tax structure in return for a portion of
the ounces being delivered to the Russian government.
Exploration program
The Company's exploration program focuses on those projects located in North
America where the Company already has extensive gold mining infrastructure. For
the first quarter of 1999, the Company charged $1.1 million against current
earnings in connection with its exploration activities.
U.S. Mining Law Revision
In recent years, several proposals to change the general mining laws applicable
to operations on U.S. federal lands have been introduced into Congress. In
addition, the Bureau of Land Management of the U.S. Department of the Interior
has commenced a program to revise the federal regulations applicable to
activities on unpatented mining claims and 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.
Year 2000 Issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. The effects of the Year 2000 issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors such as
slower transaction processing and slower financial reporting to significant
systems
21
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(U.S. dollars)
failure which could affect the Company's ability to conduct normal business
operations, and which may result in the interruption of metal production.
The Company is assessing the Year 2000 issue and is in the process of modifying
or upgrading portions of its software to address the issue. The estimated cost
of this remediation is estimated to be less than $1 million and is being
expensed as incurred. To date, the Company has concluded the planned
modifications to information technology, and expects the user testing of these
modifications to be completed in the second quarter of 1999. The Company is
also performing modifications to embedded computer systems within operating
equipment. The Company plans to complete modifications to critical operating
systems such as the crusher, mill and truck dispatch systems by the end of the
second quarter 1999. Contingency plans have and continue to be developed for
other equipment, such as the rolling back of clocks for date-sensitive
equipment. Additionally, critical third party suppliers of reagents, power,
fuel and other mine site supplies have been contacted to inquire about
uninterrupted delivery of major operating parts and materials. The Company
intends to have fully stocked inventories of critical supplies at the end of
1999. A prolonged delay in the delivery of key supplies such as electrical
power, fuel and reagents could result in the interruption of metal production.
Although the Company expects its systems to be year 2000 compliant before
December 31, 1999, it cannot predict the outcome or success of the year 2000
compliance programs of its suppliers. The Company also cannot predict whether
it will find additional problems that would result in unplanned upgrades of
applications after December 31, 1999.
The expected cost and date of completion of the Year 2000 project are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party compliance and other factors. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ from
those anticipated. It is not possible to be certain that all aspects of the
Year 2000 issue affecting the Company, including those related to the efforts of
suppliers, or other third parties, will be fully resolved.
22
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1999
(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 grades and recovery rates, the ability to secure financing, and
potential acquisitions or increases in property interests. Factors that could
cause actual results to differ materially include, among others, changes in gold
and silver prices, unanticipated grade, geological, metallurgical, processing,
access, transportation of supplies 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, 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, impacts of the year 2000 problem and its
effect on critical third party suppliers to the Company's operations, the
ability of the Company to complete remediation plans to its information
technology and operating systems to address the year 2000 issue, 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.
23
<PAGE>
ECHO BAY MINES LTD.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in routine litigation incidental to its business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K Filed on March 18, 1999, related to the
deferral of the April 1999 interest payment
on the capital securities.
24
<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 30, 1999
- --------------
Date
/s/ Tom S. Q. Yip
----------------------------------------
TOM S. Q. YIP
Vice President, Controller and Principal
Accounting Officer
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ECHO BAY MINES LTD. FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-01-1999
<CASH> 3,430
<SECURITIES> 3,396
<RECEIVABLES> 4,278
<ALLOWANCES> 0
<INVENTORY> 40,919
<CURRENT-ASSETS> 59,778
<PP&E> 972,421
<DEPRECIATION> 689,670
<TOTAL-ASSETS> 368,608
<CURRENT-LIABILITIES> 69,711
<BONDS> 0
0
0
<COMMON> 713,343
<OTHER-SE> (583,061)
<TOTAL-LIABILITY-AND-EQUITY> 368,608
<SALES> 48,782
<TOTAL-REVENUES> 48,782
<CGS> 32,413
<TOTAL-COSTS> 48,864
<OTHER-EXPENSES> 4,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,032
<INCOME-PRETAX> (5,026)
<INCOME-TAX> 75
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<CHANGES> 0
<NET-INCOME> (5,101)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
