<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
[ ] 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
--------------------------- -------------
(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
Suite 540, 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
---------------------------- November 7, 2000
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........ 12
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................................ 27
ITEM 6. Exhibits and Reports on Form 8-K............................................................. 27
SIGNATURE................................................................................................ 28
</TABLE>
i
<PAGE>
ECHO BAY MINES LTD.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET September 30 December 31
thousands of U.S. dollars 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,381 $ 3,401
Short-term investments 1,955 2,042
Interest and accounts receivable 3,925 2,942
Inventories (note 2) 42,172 37,204
Prepaid expenses and other assets 14,694 15,621
----------------------------------------------------------------------------------------------------------------------------
75,127 61,210
Plant and equipment (note 3) 144,475 167,438
Mining properties (note 3) 70,978 81,959
Long-term investments and other assets 22,977 29,255
----------------------------------------------------------------------------------------------------------------------------
$ 313,557 $ 339,862
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 27,760 $ 29,961
Income and mining taxes payable 4,905 3,004
Gold and other financings (note 4) 34,250 13,750
Deferred income (note 5) 10,197 10,525
----------------------------------------------------------------------------------------------------------------------------
77,112 57,240
Gold and other financings (note 4) 5,704 42,919
Deferred income (note 5) 60,674 83,374
Other long-term obligations 50,537 47,847
Deferred income taxes 4,963 7,381
Commitments and contingencies (notes 10 and 11)
Common shareholders' equity:
Common shares, no par value, unlimited number authorized;
140,607,145 shares issued and outstanding 713,343 713,343
Capital securities (note 6) 136,148 124,616
Deficit (709,668) (714,844)
Foreign currency translation (25,256) (22,014)
----------------------------------------------------------------------------------------------------------------------------
114,567 101,101
----------------------------------------------------------------------------------------------------------------------------
$ 313,557 $ 339,862
============================================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE>
ECHO BAY MINES LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS Three months ended Nine months ended
Thousands of U.S. dollars, September 30 September 30
Except for per share data 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 76,415 $ 54,211 $212,505 $153,855
---------------------------------------------------------------------------------------------------------
Expenses:
Operating costs 47,642 35,849 126,731 103,095
Royalties 1,840 1,727 5,842 5,042
Production taxes 137 85 1,469 214
Depreciation and amortization 13,150 13,999 39,079 40,416
Reclamation and mine closure 2,770 1,617 8,018 5,142
General and administrative 1,055 1,723 4,684 5,630
Exploration and development 1,548 1,892 8,978 5,898
Loss on sale of interests in mining and other properties -- 13,795 -- 13,795
Interest and other (note 7) (1,028) 3,445 2,608 6,505
---------------------------------------------------------------------------------------------------------
67,114 74,132 197,409 185,737
---------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 9,301 (19,921) 15,096 (31,882)
---------------------------------------------------------------------------------------------------------
Income tax expense (recovery):
Current 603 (28) 703 143
Deferred (300) -- (2,100) --
---------------------------------------------------------------------------------------------------------
303 (28) (1,397) 143
---------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 8,998 $(19,893) $ 16,493 $(32,025)
=========================================================================================================
Net earnings (loss) attributable to common
shareholders (note 6) $ 5,154 $(23,312) $ 5,176 $(42,093)
=========================================================================================================
Earnings (loss) per share $ 0.04 $ (0.17) $ 0.04 $ (0.30)
=========================================================================================================
Weighted average number of shares outstanding (thousands) 140,607 140,607 140,607 140,607
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended Nine months ended
OF DEFICIT September 30 September 30
thousands of U.S. dollars 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $(714,822) $(682,656) $(714,844) $(663,875)
Net earnings (loss) 8,998 (19,893) 16,493 (32,025)
Interest on capital securities, net of nil tax effect (3,844) (3,419) (11,317) (10,068)
(note 6)
---------------------------------------------------------------------------------------------------------
Balance, end of period $(709,668) $(705,968) $(709,668) $(705,968)
=========================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
2
<PAGE>
ECHO BAY MINES LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended Nine months ended
OF CASH FLOW September 30 September 30
thousands of U.S. dollars 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH PROVIDED FROM (USED IN):
OPERATING ACTIVITIES
Net cash flows provided from operating activities $ 19,974 $10,628 $ 34,454 $ 28,872
---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Mining properties, plant and equipment (1,650) (8,060) (9,425) (23,899)
Long-term investments and other assets 20 (161) (525) (5,175)
Proceeds on repurchase of gold forward sales -- -- -- 1,500
Short-term investments 182 -- 182 485
Proceeds on the sale of plant and equipment 22 141 357 402
Other (371) (77) 937 (1,304)
---------------------------------------------------------------------------------------------------------
(1,797) (8,157) (8,474) (27,991)
---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Currency borrowings -- -- 12,000 11,000
Debt repayments (16,750) (3,285) (29,000) (13,056)
Other -- -- -- (1,389)
---------------------------------------------------------------------------------------------------------
(16,750) (3,285) (17,000) (3,445)
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,427 (814) 8,980 (2,564)
Cash and cash equivalents, beginning of period 10,954 6,237 3,401 7,987
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,381 $ 5,423 $ 12,381 $ 5,423
=========================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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 September 30, 2000 and December 31, 1999 and the consolidated
results of operations and cash flow for the three and nine months ended
September 30, 2000 and 1999. 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, 1999.
2. INVENTORIES
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Precious metals -- bullion $ 16,715 $ 16,033
-- in-process 10,067 7,538
Materials and supplies 15,390 13,633
-------------------------------------------------------------------------------------------------------------
$ 42,172 $ 37,204
=============================================================================================================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Plant and equipment September 30 December 31
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost $ 654,483 $ 661,048
Less accumulated depreciation 510,008 493,610
-------------------------------------------------------------------------------------------------------------
$ 144,475 $ 167,438
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Mining properties September 30 December 31
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Producing mines' acquisition and development costs $ 276,440 $ 272,362
Less accumulated amortization 245,363 230,470
-------------------------------------------------------------------------------------------------------------
31,077 41,892
Development properties' acquisition and development costs 13,471 14,065
Deferred mining costs 26,430 26,002
-------------------------------------------------------------------------------------------------------------
$ 70,978 $ 81,959
=============================================================================================================
</TABLE>
4. GOLD AND OTHER FINANCINGS
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Currency loans $ 34,250 $ 51,250
Capital securities (note 6) 5,704 5,419
-------------------------------------------------------------------------------------------------------------
39,954 56,669
Less current portion 34,250 13,750
-------------------------------------------------------------------------------------------------------------
$ 5,704 $ 42,919
=============================================================================================================
</TABLE>
The Company's revolving credit facility expires August 2001 and the total
indebtedness of $23.0 million is classified as a current liability. The Company
will be seeking to replace this facility over the next several months.
4
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
5. DEFERRED INCOME
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Modification of hedging contracts $ 47,256 $ 61,382
Premiums received on gold and silver option contracts 22,560 30,835
Other 1,055 1,682
-------------------------------------------------------------------------------------------------------------
70,871 93,899
Less current portion 10,197 10,525
-------------------------------------------------------------------------------------------------------------
$ 60,674 $ 83,374
=============================================================================================================
</TABLE>
6. CAPITAL SECURITIES
In 1997, the Company issued $100.0 million of 11% capital securities due in
April 2027, pursuant to a trust indenture. 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. Since April 1998, the Company has exercised its
right to defer its semi-annual interest payments to holders of the capital
securities. The deferred interest accrued at September 30, 2000, totaling $41.9
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.
7. INTEREST AND OTHER
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ (214) $ (145) $ (600) $ (260)
Interest expense 1,334 1,173 4,288 3,402
Alaska-Juneau reclamation (2,048) -- (2,048) --
(Gain) loss on sale of share investments (182) -- (182) (485)
(Gain) loss on sale of plant equipment (6) 338 (210) 300
Unrealized loss on share investments -- 731 -- 1,508
Other 88 1,348 1,360 2,040
----------------------------------------------------------------------------------------------------
$ (1,028) $ 3,445 $ 2,608 $ 6,505
====================================================================================================
</TABLE>
Alaska-Juneau reclamation
By judgement entered on July 6, 2000 the Superior Court for the State of Alaska
found that Echo Bay Alaska Inc., an indirect subsidiary of the Company, had
completed the requirements of a closeout plan relating to final reclamation of
the Alaska-Juneau mine. The Company believes that all obligations in respect of
the Alaska-Juneau project have been satisfied and there is no further liability
to the Company or its subsidiaries relating to the reclamation and closure of
the project. The remaining $2.0 million reclamation accrual was credited to
Other Income in the third quarter.
5
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
8. 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, 1999.
The effects of the GAAP differences on the consolidated statement of operations
would have been as follows.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) under Canadian GAAP $ 8,998 $ (19,893) $ 16,493 $ (32,025)
Unrealized/realized loss on share investments -- 731 -- 1,508
Change in market value of foreign exchange contracts (1,117) 548 (1,750) 4,366
Additional interest expense on capital securities (3,844) (3,419) (11,317) (10,068)
Amortization of deferred financing on capital securities (158) (158) (475) (475)
Unrealized gain (loss) on gold call options sold 1,799 (2,271) 1,160 (2,271)
-----------------------------------------------------------------------------------------------------------
Net earnings (loss) under U.S. GAAP $ 5,678 $ (24,462) $ 4,111 $ (38,965)
===========================================================================================================
Earnings (loss) per share under U.S. GAAP $ 0.04 $ (0.17) $ 0.03 $ (0.28)
===========================================================================================================
</TABLE>
The effects of the GAAP differences on the consolidated balance sheet would have
been as follows.
<TABLE>
<CAPTION>
Santa Elina
Canadian Acquisition/ Capital U.S.
September 30, 2000 GAAP Write-off Securities Other GAAP
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term investments $ 1,955 $ -- $ -- $ 1,460 $ 3,415
Long-term investments and other assets 22,977 -- 950 -- 23,927
Gold and other financings 39,954 -- 94,296 -- 134,250
Deferred income 70,871 -- -- (3,886) 66,985
Other long-term obligations 50,537 -- 41,852 1,860 94,249
Common shares 713,343 36,428 -- -- 749,771
Capital securities 136,148 -- (136,148) -- --
Deficit 709,668 36,428 (950) (3,486) 741,660
Common shareholders' equity (deficit) 114,567 -- (135,198) 3,486 (17,145)
----------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
The following statement of comprehensive income (loss) would be disclosed in
accordance with U.S. GAAP.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) under U.S. GAAP $ 5,678 $(24,462) $ 4,111 $(38,965)
Other comprehensive income (loss), after a nil income tax
effect:
Foreign currency translation adjustments (1,407) (573) (3,242) 3,079
Unrealized gain (loss) on share investments:
Net unrealized holding gain (loss) arising during the period 1,460 (828) 1,460 (1,465)
Reclassification adjustment for net (gain) loss recognized in
earnings -- -- -- (485)
---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 53 (1,401) (1,782) 1,129
---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 5,731 $(25,863) $ 2,329 $(37,836)
=================================================================================================================================
</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>
September 30 December 31
2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized gain (loss) on share investments $ 1,460 $ --
Foreign currency translation (25,256) (22,014)
---------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $(23,796) $(22,014)
=================================================================================================================================
</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, 2000. The impact of the new standard on the
Company's financial information prepared under U.S. GAAP has not yet been
determined.
9. 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
third quarter of 2000, the Company had four operating mines: Round Mountain in
Nevada, USA; McCoy/Cove in Nevada, USA; Lupin in Nunavut, Canada and Kettle
River in Washington, USA. In April 2000, the Company re-commenced production at
its Lupin mine. All of the Company's mines are 100% owned except for Round
Mountain, which is 50% owned.
7
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
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 Nine months ended
September 30 September 30
Gold Production (ounces) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Round Mountain (50%) 79,987 74,422 228,349 204,872
McCoy/Cove 39,362 29,173 131,956 90,863
Lupin 40,696 -- 79,055 --
Kettle River 24,404 24,400 73,734 76,080
---------------------------------------------------------------------------------------------------------------------------------
Total gold 184,449 127,995 513,094 371,815
---------------------------------------------------------------------------------------------------------------------------------
Silver Production (ounces) - all from McCoy/Cove 2,724,463 1,325,650 10,149,307 5,908,967
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
Cash Operating Costs per Ounce of Gold Produced 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Round Mountain $ 201 $ 178 $ 197 $ 197
McCoy/Cove 189 258 165 227
Lupin 199 -- 206 --
Kettle River 206 257 211 242
---------------------------------------------------------------------------------------------------------------------------------
Company consolidated weighted average $ 197 $ 220 $ 185 $ 216
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
Reconciliation of Cash Operating September 30 September 30
Costs per Ounce to Financial Statements 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating costs by minesite:
Round Mountain $ 17,216 $ 13,521 $ 43,776 $ 37,459
McCoy/Cove 16,693 16,477 53,872 48,290
Lupin 8,268 -- 13,709 --
Kettle River 5,465 5,851 15,374 17,346
---------------------------------------------------------------------------------------------------------------------------------
Total operating costs per financial statements 47,642 35,849 126,731 103,095
Change in finished goods inventories and other (2,070) (717) (1,666) 2,626
Co-product cost of silver produced (9,236) (6,973) (30,143) (25,409)
---------------------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 36,336 $ 28,159 $ 94,922 $ 80,312
=================================================================================================================================
Gold ounces produced 184,449 127,995 513,094 371,815
=================================================================================================================================
Cash operating costs per ounce $ 197 $ 220 $ 185 $ 216
=================================================================================================================================
</TABLE>
8
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
The Company's management generally monitors revenue on a consolidated basis.
Information regarding the Company's consolidated revenue is provided below.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total gold and silver revenues (millions) $76.4 $54.2 $212.5 $153.9
Average gold price realized per ounce $ 313 $ 321 $ 318 $ 324
Average silver price realized per ounce $5.13 $7.10 $ 5.34 $ 5.87
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. HEDGING ACTIVITIES AND COMMITMENTS
Gold and silver commitments
The Company's gold and silver commitments at September 30, 2000 were as follows.
<TABLE>
<CAPTION>
Gold Silver
------------------------------------- ----------------------------------
Forward Price of Forward Price of
Sales Forward Sale Sales Forward Sales
(ounces) (per ounce) (ounces) (1) (per ounce)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Remainder of 2000 53,750 $314 900,000 $5.46
2001 115,000 312 1,800,000 5.79
2002 60,000 310 -- --
2003 60,000 310 -- --
2004 60,000 310 -- --
2005 15,000 310 -- --
---------------------------------------------------------------------------------------------------------------------------------
363,750 $311 2,700,000 $5.68
=================================================================================================================================
</TABLE>
(1) 1.2 million ounces of forward sales at $5.46 per ounce are contingent on
the London silver fixing being above $4.85 per ounce. The monthly actual
number of ounces delivered will be based on the ratio of days the London
silver fixing is at, or above, $4.85 per ounce compared to the total number
of London silver fixings.
9
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
The Company's option positions at September 30, 2000 were as follows.
<TABLE>
<CAPTION>
Put Options Purchased Put Options Sold Call Options Purchased Call Options Sold
------------------------ ----------------------- -------------------------- ---------------------------
Strike Strike Strike Strike
Price Price Price Price
Ounces per Ounce Ounces per Ounce Ounces per Ounce Ounces per Ounce
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gold
----
Remainder of 2000 42,500 $ 270 -- $ -- 33,750 $ 349 42,500 $ 360
2001 -- -- -- -- 105,000 351 -- --
2002 -- -- -- -- 60,000 360 -- --
2003 -- -- -- -- 60,000 360 -- --
2004 -- -- -- -- 60,000 360 -- --
2005 -- -- -- -- 120,000 395 105,000 340
------------------------------------------------------------------------------------------------------------------------------------
42,500 $ 270 -- $ -- 438,750 $ 367 147,500 $ 346
====================================================================================================================================
Silver
------
Remainder of 2000 250,000 $6.00 250,000 $4.75 -- $ -- -- $ --
2001 1,000,000 6.00 2,500,000 4.75 1,500,000 6.60 -- --
------------------------------------------------------------------------------------------------------------------------------------
1,250,000 $6.00 2,750,000 $4.75 1,500,000 $6.60 -- $ --
====================================================================================================================================
</TABLE>
Currency position
At September 30, 2000, the Company had an obligation under foreign currency
exchange contracts to purchase C$9.5 million in the remainder of 2000 at an
exchange rate of C$1.38 to U.S.$1.00 and C$20.0 million in 2001 at C$1.46 to
U.S. $1.00.
Shown below are the carrying amounts and estimated fair values of the Company's
hedging instruments at September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
--------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold forward sales $ -- $ 7,300 $ -- $ (900)
Silver forward sales -- 2,000 -- 1,000
Gold options - puts purchased 200 200 1,400 1,700
- calls sold (3,300) (4,000) (4,100) (5,600)
- puts sold -- -- (1,300) (600)
- calls purchased 7,100 4,200 9,100 8,000
Silver options - puts purchased 1,500 1,300 2,500 1,400
- puts sold (1,400) (300) (2,200) (500)
- calls purchased 700 -- 1,000 300
Foreign currency contracts -- (900) -- (1,200)
--------------------------------------------------------------------------------------------------------------------------------
$ 9,800 $ 3,600
================================================================================================================================
</TABLE>
Fair values are estimated based upon market quotations of various input
variables. These variables were used in valuation models that estimate the fair
market value.
10
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
11. OTHER COMMITMENTS AND CONTINGENCIES
Summa
Echo Bay Exploration Inc. and Echo Bay Management Corporation, indirect
subsidiaries of Echo Bay Mines Ltd., have received the decision of the Nevada
Supreme Court in the case involving the companies' obligations to pay certain
royalties to Summa Corporation. In an unpublished order filed April 26, 2000,
the Supreme Court of Nevada reversed the decision of the trial court and
remanded the case back to the trial court for "a calculation of the appropriate
[royalties] in a manner not inconsistent with this order". The companies
believe that the Court's decision is incorrect and intend to pursue all
available remedies to seek the Court's redetermination of its decision.
In September 1992, the Summa Corporation commenced a lawsuit against the Echo
Bay companies, and the predecessor owner of the McCoy/Cove and Manhattan mines,
alleging improper deductions in the calculation of royalties payable over
several years of production at those mines. The matter was tried in the Nevada
State court in April 1997, with Summa claiming more than $13 million, and, in
September 1997, judgement was rendered for the Echo Bay companies. The decision
was appealed by Summa to the Nevada Supreme Court which heard the matter on
November 9, 1999. If the decision is upheld, the royalty calculation at
McCoy/Cove would change and additional royalties would be payable from April
1997.
The case was decided by a panel comprised of three of the seven Justices of the
Supreme Court of Nevada and the Echo Bay defendants petitioned that panel for a
rehearing. The petition was denied by the three member panel and remanded to
the lower court for consideration of other defenses and arguments put forth by
the Echo Bay defendants. The Echo Bay defendants have now filed a petition for a
hearing before the full Court. Both the Echo Bay defendants and their counsel
believe that grounds exist to modify or reverse the decision.
Handy and Harman
On March 29, 2000 Handy & Harman Refining Group, Inc., which operated a facility
used by the Company for the refinement of dore bars, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. The outcome of these proceedings is
uncertain at this time. The Company has gold and silver accounts at this
refining facility with an estimated market value of approximately $2.4 million.
11
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
September 30, 2000
(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 $279 per ounce in 1999 and $282
per ounce during the first nine months of 2000.
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.
The Company's hedge position as of September 30, 2000 partially protects the
Company against gold price declines in the years 2000 through 2005. For the
remainder of 2000, this position includes forward sales of 53,750 ounces at a
forward price of $314 per ounce. Additionally, the Company has purchased put
options on 42,500 ounces of gold at an average strike price of $270 per ounce to
provide downside protection in the remainder of 2000. For the years 2001
through 2005, the Company has forward sales totaling 310,000 ounces of gold at a
forward price of $311 per ounce. In addition, the Company has hedged 0.9
million silver ounces at a minimum average cash price of $5.46 per ounce for the
remainder of 2000 and 1.8 million silver ounces at a minimum average cash price
of $5.79 per ounce for 2001.
See note 10 to the interim consolidated financial statements.
The Company has reopened the Lupin mine, located in the Nunavut Territory of
Canada. The Lupin mine was placed on care and maintenance in early 1998 due to
depressed gold prices and a high cost structure. A reengineering study,
completed in late 1998, identified savings that helped lower costs. Gold
production from Lupin recommenced in April 2000.
The Company continues to defer a final construction decision on Aquarius, a
planned gold mine in Ontario, Canada.
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 6 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 interest payments since April 1998. The Company has deferred a
total of $41.9 million in interest to date.
12
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
September 30, 2000
(U.S. dollars)
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided from operating activities was $34.5 million for the first
nine months of 2000 compared to $28.9 million for the first nine months of 1999.
The 2000 results compared to 1999 reflect increased gold and silver cash sales
($44.1 million). These factors were partially offset by increases in operating
costs ($25.7 million), inventories ($5.5 million), royalties and production
taxes ($2.1 million) and exploration and development spending ($3.1 million).
The increases are related to the recommencement of Lupin operations and
increased production at McCoy/Cove.
Net cash used in investing activities was $8.5 million in the first nine months
of 2000, primarily related to mining properties, plant and equipment.
Net cash used in financing activities was $17 million in the first nine months
of 2000, comprised of currency borrowings of $12 million offset by currency loan
repayments of $29 million.
The Company had $12.4 million in cash and cash equivalents and $2.0 million in
short-term investments at September 30, 2000.
At September 30, 2000, the Company's total debt was $40.0 million. Of this,
$34.3 million has been classified as a current obligation, as the credit
facility is scheduled to mature in August 2001. The Company will be seeking to
replace this facility over the next several months.
At September 30, 2000, the Company had $23.0 million outstanding under its
revolving credit facility and up to an additional $27.0 million in cash or gold
equivalent, subject to covenant limitations, available until August 2001. In
October 2000, the Company repaid an additional $4.0 million under the facility.
The Company has no restrictions on the borrowing capacity of this line, based on
the current trailing 90-day average spot price of gold.
At September 30, 2000, the fair value of the Company's hedge portfolio was $9.8
million, which is within the predetermined margin limits. Margin deposits could
be required if the fair value of the hedge portfolio with certain counterparties
were less than the predetermined margin threshold.
For the full year 2000, the Company expects to incur $12 million in capital
expenditures, of which $8.2 million has been incurred in the first nine months
of 2000. The Company will rely on its operating cash flow and borrowing
capacity under its revolving loan facility to fund the remainder of its planned
2000 capital expenditures. The Company continues to monitor its discretionary
spending in view of the depressed gold price.
During the first quarter of 2000, the Company was advised by The American Stock
Exchange that the Company's listing eligibility is under review. The review has
been undertaken because the Company has fallen below two of the Exchange's
continued listing guidelines: the Company has sustained net losses in its five
most recent fiscal years and, in the Exchange's view, the Company's
shareholders' equity is inadequate. The Company is addressing the Exchange's
concerns but the outcome of the review is uncertain.
See note 11 to the interim consolidated financial statements, "Other Commitments
and Contingencies".
13
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
FINANCIAL REVIEW
Three month results
The Company reported net earnings of $9.0 million ($0.04 per share) in the third
quarter of 2000, compared to a net loss of $19.9 million ($0.17 per share) in
the third quarter of 1999. The 2000 results compared to 1999 reflect increased
gold and silver sales volume ($29.6 million) and the 1999 loss on the sale of
the Company's interest in Paredones Amarillos ($13.8 million), partially offset
by increased operating costs ($11.8 million) and lower gold and silver prices
realized ($7.4 million).
Gold production increased 44% to 184,449 ounces in the third quarter of 2000
compared to 127,995 ounces in the third quarter of 1999. Increased production
reflects the contribution from the Lupin mine of 40,696 ounces after the
successful re-commissioning completed in early April and increased mill grades
and recoveries at McCoy/Cove. Silver production from McCoy/Cove was 2.7 million
ounces, 106% higher than the 1.3 million ounces produced in 1999.
Cash operating costs were $197 per ounce of gold in the third quarter of 2000,
versus $220 in the third quarter of 1999. The decrease was primarily a result
of increased grades and higher production at McCoy/Cove. Total production costs
were $274 per ounce in the third quarter of 2000, versus $324 per ounce in the
third quarter of 1999.
Nine month results
The Company reported net earnings of $16.5 million ($0.04 per share) in the
first nine months of 2000, compared to a net loss of $32.0 million ($0.30 per
share) in the first nine months of 1999. The 2000 results compared to 1999
reflect increased gold and silver sales volume ($67.0 million) and the 1999 loss
on the sale of the Company's interest in Paredones Amarillos ($13.8 million).
These factors were partially offset by increased operating costs ($23.6 million)
and lower gold and silver prices realized ($8.4 million).
Gold production increased 38% to 513,094 ounces in the first nine months of 2000
compared to 371,815 ounces in the first nine months of 1999. Increased
production reflects the re-commissioning of Lupin operations, increased mill
grades and recoveries at McCoy/Cove and higher leach pad tons at Round Mountain.
Silver production from McCoy/Cove was 10.1 million ounces, 72% higher than the
5.9 million ounces produced in 1999.
Cash operating costs were $185 per ounce of gold in the first nine months of
2000, versus $216 in the first nine months of 1999. The decrease was primarily
a result of increased grades and higher production at McCoy/Cove. Total
production costs were $260 per ounce in the first nine months of 2000, versus
$316 per ounce in the first nine months of 1999.
The term ounce as used in this Form 10-Q means "troy ounce".
14
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
Revenue
Statistics for gold and silver ounces sold and other revenue data are set out
below.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
Revenue Data 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold
----
Ounces sold 196,460 124,492 495,626 346,602
Average price realized/ounce - revenue basis $ 313 $ 321 $ 318 $ 324
Average price realized/ounce - cash basis /(1)/ $ 290 $ 340 $ 297 $ 345
Average market price/ounce $ 277 $ 257 $ 282 $ 272
Revenue (millions of U.S. $) $ 61.9 $ 40.1 $ 157.3 $ 112.2
Percentage of total revenue 81% 74% 74% 73%
Silver
------
Ounces sold 2,893,295 2,004,113 10,267,977 7,105,224
Average price realized/ounce - revenue basis $ 5.13 $ 7.10 $ 5.34 $ 5.87
Average price realized/ounce - cash basis /(1)/ $ 5.06 $ 5.14 $ 5.27 $ 5.23
Average market price/ounce $ 4.96 $ 5.24 $ 5.08 $ 5.11
Revenue (millions of U.S. $) $ 14.5 $ 14.2 $ 55.2 $ 41.7
Percentage of total revenue 19% 26% 26% 27%
--------------------------------------------------------------------------------------------------------------------
Total revenue (millions of U.S. dollars) $ 76.4 $ 54.2 $ 212.5 $ 153.9
====================================================================================================================
</TABLE>
/(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.
The effects of changes in sales prices and volume were as follows.
<TABLE>
<CAPTION>
Revenue Variance Analysis Three months ended Nine months ended
2000 vs. 1999 September 30 September 30
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lower gold prices $ (1.7) $ (3.0)
Lower silver prices (5.7) (5.4)
Change in volume 29.6 67.0
--------------------------------------------------------------------------------------------------------------------
Increase in revenue $ 22.2 $ 58.6
====================================================================================================================
</TABLE>
15
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
Production Costs
Production cost data per ounce of gold is set out below.
<TABLE>
<CAPTION>
Three months ended Nine months ended
Production Costs per September 30 September 30
Ounce of Gold Produced 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct mining expense $ 195 $ 260 $ 192 $ 232
Deferred stripping and mine development costs 2 (30) (5) (18)
Inventory movements and other -- (10) (2) 2
--------------------------------------------------------------------------------------------------------------------
Cash operating costs 197 220 185 216
Royalties 8 11 8 10
Production taxes 1 1 2 --
--------------------------------------------------------------------------------------------------------------------
Total cash costs 206 232 195 226
Depreciation 37 63 33 61
Amortization 19 19 20 20
Reclamation and mine closure 12 10 12 9
--------------------------------------------------------------------------------------------------------------------
Total production costs $ 274 $ 324 $ 260 $ 316
====================================================================================================================
</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 $197 per ounce of gold
in the third quarter of 2000 and $220 in the third quarter of 1999. See
"Operations Review."
<TABLE>
<CAPTION>
Reconciliation of Cash Operating
Costs per Ounce to Financial Statements Three months ended Nine months ended
thousands of U.S. dollars, September 30 September 30
except per ounce amounts 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating costs per financial statements $ 47,642 $ 35,849 $126,731 $103,095
Change in finished goods inventory and other (2,070) (717) (1,666) 2,626
Co-product cost of silver produced (9,236) (6,973) (30,143) (25,409)
--------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 36,336 $ 28,159 $ 94,922 $ 80,312
====================================================================================================================
Gold ounces produced 184,449 127,995 513,094 371,815
====================================================================================================================
Cash operating costs per ounce $ 197 $ 220 $ 185 $ 216
====================================================================================================================
</TABLE>
Reserve estimates
The prices used in estimating the Company's ore reserves at December 31, 1999
were $325 per ounce of gold and $5.50 per ounce of silver. The market price for
gold is currently below this level. If the Company determines that its reserves
should be estimated at a significantly lower price than that used at December
31, 1999, there could be a material reduction in the amount of gold reserves.
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.
16
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
OPERATIONS REVIEW
Operating data by mine is set out below.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
Operating Data by Mine 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold production (ounces)
------------------------
(a) Round Mountain (50%) 79,987 74,422 228,349 204,872
(b) McCoy/Cove 39,362 29,173 131,956 90,863
(c) Lupin 40,696 -- 79,055 --
(d) Kettle River 24,404 24,400 73,734 76,080
--------------------------------------------------------------------------------------------------------------------------------
Total gold 184,449 127,995 513,094 371,815
================================================================================================================================
Silver production (ounces)
--------------------------
(b) McCoy/Cove 2,724,463 1,325,650 10,149,307 5,908,967
--------------------------------------------------------------------------------------------------------------------------------
Total silver 2,724,463 1,325,650 10,149,307 5,908,967
================================================================================================================================
</TABLE>
Gold production increased 44% to 184,449 ounces in the third quarter of 2000
compared to 127,995 ounces in the third quarter of 1999. Increased production
reflects the re-commissioning of Lupin operations and increased mill grades and
recoveries at McCoy/Cove. Silver production increased to 2.7 million ounces in
the third quarter of 2000 from 1.3 million ounces in the third quarter of 1999,
reflecting increased grades and recoveries. For the full year 2000, the
Company's gold production target is at the high end of the range forecasted
early in 2000 (between 660,000 and 700,000 ounces) and the silver production
target is 12 million ounces.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
Operating Data by Mine 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash operating costs (per ounce of gold)
----------------------------------------
(a) Round Mountain $ 201 $ 178 $ 197 $ 197
(b) McCoy/Cove 189 258 165 227
(c) Lupin 199 -- 206 --
(d) Kettle River 206 257 211 242
--------------------------------------------------------------------------------------------------------------------------------
Company average $ 197 $ 220 $ 185 $ 216
================================================================================================================================
</TABLE>
Cash operating costs were $197 per ounce of gold in the third quarter of 2000,
compared to $220 in the third quarter of 1999. The Company has targeted
consolidated cash operating costs of $190 to $200 per ounce of gold produced for
the full year 2000.
17
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollar)
(a) Round Mountain, Nevada (50% owned)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
OPERATING DATA 2000 1999 2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces):
Heap leached - reusable pad (50%) 17,747 14,966 53,967 50,923
Heap leached - dedicated pad (50%) 49,686 27,753 123,173 77,186
Milled (50%) 12,257 22,580 48,977 65,662
Other (50%) 297 9,123 2,232 11,101
-------- -------- -------- --------
Total (50%) 79,987 74,422 228,349 204,872
Mining cost/ton of ore and waste $ 0.82 $ 0.69 $ 0.82 $ 0.70
Heap leaching cost/ton of ore $ 0.77 $ 0.70 $ 0.65 $ 0.70
Milling cost/ton of ore $ 2.81 $ 2.70 $ 2.83 $ 3.00
Production cost per ounce of gold produced:
Direct mining expense $ 203 $ 206 $ 208 $ 211
Deferred stripping costs 2 (7) (6) (13)
Inventory movements and other (4) (21) (5) (1)
-------- -------- -------- --------
Cash operating costs 201 178 197 197
Royalties 16 17 17 17
Production taxes -- -- 1 --
-------- -------- -------- --------
Total cash costs 217 195 215 214
Depreciation 44 45 45 46
Amortization 18 18 18 18
Reclamation and mine closure 9 9 9 9
-------- -------- -------- --------
Total production costs $ 288 $ 267 $ 287 $ 287
-------- -------- -------- --------
Heap leached - reusable pad:
Ore processed (tons/day) (100%) 20,280 14,734 25,283 14,691
Total ore processed (000 tons) (100%) 1,845 1,341 6,902 4,011
Grade (ounce/ton) 0.030 0.037 0.028 0.036
Recovery rate (%) 58.7 69.2 59.1 72.4
Heap leached - dedicated pad:
Ore processed (tons/day) (100%) 136,275 137,308 142,249 115,763
Total ore processed (000 tons) (100%) 12,401 12,495 38,834 31,603
Grade (ounce/ton) 0.012 0.011 0.011 0.011
Recovery rate /(1)/
Milled:
Ore processed (tons/day) (100%) 9,359 8,815 8,668 7,934
Total ore processed (000 tons) (100%) 852 802 2,366 2,166
Grade (ounce/ton) 0.045 0.043 0.047 0.068
Recovery rate (%) 82.8 86.5 83.5 87.4
---------------------------------------------------------------------------------------------
</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%.
18
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollar)
The Company has a 50% ownership interest in, and is the operator of, the Round
Mountain mine in Nevada. The Company's share of mine production was 79,987
ounces for the third quarter of 2000 compared with 74,422 ounces in the third
quarter of 1999. The increase in production is attributable to increased heap
leach tonnage and recoveries in the third quarter of 2000 when compared to the
same period in 1999. Cash operating cost per ounce increased to $201 for the
third quarter of 2000, compared to $178 in the third quarter of 1999 due to
increased diesel prices and the costs associated with processing more heap leach
ore.
During 2000, a $1 million exploration program is underway which includes further
drilling, target identification and other activity in the large area of mutual
interest surrounding Round Mountain. This program will allow a better
understanding of the underlying geological structures of these targets and their
ability to support gold mineralization.
19
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollar)
(b) McCoy/Cove, Nevada (100% owned)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
OPERATING DATA 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces):
Milled 28,937 21,997 90,640 58,693
Heap leached 10,425 7,176 41,316 32,170
---------- ---------- ----------- ----------
Total gold 39,362 29,173 131,956 90,863
Silver produced (ounces):
Milled 2,505,429 1,250,475 9,350,219 5,683,146
Heap leached 219,034 75,175 799,088 225,821
---------- ---------- ----------- ----------
Total silver 2,724,463 1,325,650 10,149,307 5,908,967
Mining cost/ton of ore and waste $ 0.79 $ 0.78 $ 0.74 $ 0.69
Milling cost/ton of ore $ 5.90 $ 6.94 $ 6.47 $ 6.36
Heap leaching cost/ton of ore $ n/a $ 2.04 $ 2.12 $ 1.74
Production cost per ounce of gold produced:
Direct mining expense $ 173 $ 332 $ 164 $ 246
Deferred stripping costs 11 (74) 1 (28)
Inventory movements and other 5 -- -- 9
---------- ---------- ----------- ----------
Cash operating costs 189 258 165 227
Royalties 3 2 3 2
Production taxes 1 -- 4 --
---------- ---------- ----------- ----------
Total cash costs 193 260 172 229
Depreciation 28 56 24 51
Amortization 28 26 28 27
Reclamation and mine closure 11 10 11 11
---------- ---------- ----------- ----------
Total production costs $ 260 $ 352 $ 235 $ 318
---------- ---------- ----------- ----------
Average gold-to-silver price ratio /(1)/ 55.7:1 49.0:1 55.5:1 52.7:1
Milled:
Ore processed (tons/day) 11,594 11,251 11,369 12,144
Total ore processed (000 tons) 1,055 1,024 3,104 3,315
Gold grade (ounce/ton) 0.050 0.040 0.055 0.035
Silver grade (ounce/ton) 3.16 2.39 4.00 2.65
Gold recovery rate (%) 46.8 52.8 51.8 44.9
Silver recovery rate (%) 68.8 51.3 71.5 59.5
Heap leached:
Ore processed (tons/day) n/a 9,655 6,628 11,758
Total ore processed (000 tons) n/a 879 1,809 3,210
Gold grade (ounce/ton) n/a 0.021 0.024 0.022
Silver grade (ounce/ton) n/a 0.45 0.96 0.29
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.
20
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollar)
At McCoy/Cove in Nevada, gold production was 39,362 ounces in the third quarter
of 2000 compared with 29,173 ounces in the third quarter of 1999. Silver
production totaled 2.7 million ounces in the third quarter of 2000 compared with
1.3 million ounces in the same period in 1999. In 1999, McCoy/Cove completed
removal of the waste rock associated with the portion of the Cove pit wall that
collapsed in 1996, allowing access to higher grades. As expected, gold grades
were 25% higher and silver grades 32% higher in the third quarter of 2000 than
during the same quarter in 1999. With the higher production, cash operating
costs were $189 per ounce in the third quarter of 2000, down $69 from the third
quarter of 1999.
McCoy/Cove completed mining of the open pits in October, 2000. In 2001, lower
grade stockpiles will be processed, and this will continue through mid 2002.
Production will accordingly decrease next year. Heap leach crushing was
completed during the second quarter as planned. Heap leach processing is
expected to continue into 2001.
Underground mining of the Cove South Deep upper zone encountered higher than
expected water flows during the quarter. Water flows have been reduced and
mining is expected to be completed in the second quarter of 2001. Exploration
of additional underground targets below the existing Cove pit is underway.
21
<PAGE>
ECHO BAY MINES LTD
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
(c) Lupin, Nunavut, Canada (100% owned)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
OPERATING DATA 2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces) 40,696 -- 79,055 --
Mining cost/ton of ore C $ 43.18 C $ -- C $ 40.87 C $ --
Milling cost/ton of ore C $ 13.18 C $ -- C $ 13.84 C $ --
Production cost per ounce of gold produced:
Canadian dollars:
Direct mining expense C $ 325 C $ -- C $ 333 C $ --
Deferred mine development costs C $ (7) C $ -- C $ (6) C $ --
Inventory movements and other C $ -- C $ -- C $ -- C $ --
------ -------- ------- --------
Cash operating costs C $ 318 C $ -- C $ 327 C $ --
U.S. dollars
Cash operating costs US $ 199 US $ -- US $ 206 US $ --
Royalties -- -- -- --
Production taxes -- -- -- --
------ -------- ------- --------
Total cash costs 199 -- 206 --
Depreciation 26 -- 27 --
Amortization 9 -- 9 --
Reclamation and mine closure 17 -- 17 --
------ -------- ------- --------
Total production costs US $ 251 US $ -- US $ 259 US $ --
------ -------- ------- --------
Milled:
Ore processed (tons/day) 1,785 -- 1,859 --
Total ore processed (000 tons) 162 -- 338 --
Grade (ounce/ton) 0.267 -- 0.250 --
Recovery rate (%) 93.8 -- 93.4 --
------------------------------------------------------------------------------------------------
</TABLE>
Gold production for the quarter was 40,696 ounces and cash operating costs were
$199 per ounce. Grades and recovery were as planned with lower than anticipated
spending on equipment and labor. The cash operating costs include a $0.6 million
benefit ($15 per ounce) from hedging Canadian dollars for Lupin expenditures. A
$6.0 million gain was realized when certain contracts were closed during the
first quarter of 1997. The gain was deferred and will be recognized through the
third quarter of 2001.
22
<PAGE>
ECHO BAY MINES LTD
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
(d) Kettle River, Washington (100% owned)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
OPERATING DATA 2000 1999 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces) 24,404 24,400 73,734 76,080
Mining cost/ton of ore $ 19.46 $ 24.02 $ 20.49 $ 24.04
Milling cost/ton of ore $ 11.35 $ 11.79 $ 11.45 $ 11.37
Production cost per ounce of gold produced:
Direct mining expense $ 214 $ 260 $ 230 $ 248
Deferred mine development costs -- -- -- --
Inventory movements and other (8) (3) (19) (6)
------- ------- ------- -------
Cash operating costs 206 257 211 242
Royalties 12 15 13 15
Production taxes 1 3 1 2
------- ------- ------- -------
Total cash costs 219 275 225 259
Depreciation 10 77 10 71
Amortization 8 8 8 8
Reclamation and mine closure 15 15 15 15
------- ------- ------- -------
Total production costs $ 252 $ 375 $ 258 $ 353
------- ------- ------- -------
Milled:
Ore processed (tons/day) 1,575 1,688 1,487 1,656
Total ore processed (000 tons) 143 154 406 452
Grade (ounce/ton) 0.205 0.190 0.215 0.199
Recovery rate (%) 83.1 83.8 84.4 84.6
--------------------------------------------------------------------------------------------
</TABLE>
Production for the third quarter of 2000 was 24,404 ounces, similar to 1999.
Cash operating costs per ounce were $206, down $51 from the third quarter of
1999, due to lower mining costs.
At Kettle River, a series of deposits are mined with the ore feeding a central
mill. In 2000, approximately 60% of ore milled is expected to come from
Lamefoot and 40% from K-2. Lamefoot mining is expected to be completed by the
end of the year.
Work continues on a mine plan to develop an extension to the northeast of the K-
2 deposit. The resource is approximately 400,000 tons grading 0.2 ounces per
ton, which should extend the mine life of K-2 for another year beyond current
reserves.
23
<PAGE>
ECHO BAY MINES LTD
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
RECENT DEVELOPMENTS
Exploration and development programs
With the ongoing low gold price environment, the Company continues to focus its
exploration and development activities primarily in the Western United States
and in the Timmins area of Ontario, where the Company already has, or plans to
have, extensive gold mining infrastructure.
For the third quarter of 2000, the Company spent $1.3 million on exploration
activities. Exploration costs are expensed as incurred.
At the Youga/Bitou property in Burkina Faso, West Africa, (a 50/50 joint venture
with Ashanti Goldfields as the operator) an infill drilling program continues at
the main zone on the Youga concession as well as on nearby ground to extend
known zones of mineralization. In addition, drilling continues on adjacent
concessions where surface sampling has indicated extensive zones of gold
mineralization. The drilling program is expected to be completed by year's end.
Aquarius
The Company is nearing completion of the permitting process. Development and
construction activities are being delayed until the spot price for gold
increases. Aquarius is on care and maintenance to preserve the asset for a
better economic environment. During the third quarter of 2000, the Company
expensed $0.2 million in holding costs related to Aquarius.
Alaska-Juneau
By judgement entered on July 6, 2000 the Superior Court for the State of Alaska
found that Echo Bay Alaska Inc., an indirect subsidiary of the Company, had
completed the requirements of a closeout plan relating to final reclamation of
the Alaska-Juneau mine. Among other findings, the Court concluded, as to those
areas within the mine where Echo Bay Alaska Inc. activities took place, there
exists no risk of a release or threatened release of a hazardous substance in
sufficient concentrations to present a danger to human or ecological receptors.
According to the findings of the Court, a full compromise and settlement of all
claims and courses of action raised by the State of Alaska or which could have
been asserted against Echo Bay Alaska Inc. constitutes the completion of the
closeout plan requirements and related work plans. This finding is based upon
all information made available to the State by Echo Bay Alaska Inc. and its
contractors. The Company believes that all obligations in respect of the
Alaska-Juneau project have been satisfied and there is no further liability to
the Company or its subsidiaries relating to the reclamation and closure of the
project. The remaining $2.0 million reclamation accrual was credited to Other
Income in the third quarter.
Kuranakh/Golden Eagle
Under an agreement with Newmont Gold Company, completed in July 2000, the
Company exchanged its 50% interest in the Kuranakh gold project located in
eastern Russia for Newmont's 75% operating interest in the Golden Eagle project
located in the Republic district of Washington State. The Company may also
receive up to an additional $7 million depending on whether certain permitting,
financing and project completion conditions are achieved in respect of Kuranakh.
Further, each party will be required to pay a production royalty to the other,
starting at 0.5% of its share in production at a $350 per ounce gold price and
increasing to 1% at a $400 gold price. No gain or loss was recorded pursuant to
this agreement.
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ECHO BAY MINES LTD
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(U.S. dollars)
Kuranakh is situated next to an existing mine and milling operation in the Sakha
Republic. Over the past four years the Company conducted exploration and other
work, and concluded that Kuranakh was a good development opportunity. The
Company, with its Russian partners, had conceived various parameters under which
the project might be advanced and had detailed discussions with the Russian
government on a production sharing and gold sales agreement. However,
significant capital would be required and the Company believes that, in a
climate of low gold prices, it would have difficulty obtaining the capital
needed for development and construction. The Company concluded that the Kuranakh
gold project would be a better opportunity for a financially stronger
enterprise. This led to discussions, and ultimately the agreement with Newmont.
Golden Eagle is an advanced gold exploration project located approximately 15
miles from the Company's Kettle River operation. Covering approximately 204
acres of fee land and patented mining claims in a prospective area for mineral
exploration, Golden Eagle represents a good opportunity to extend operations at
Kettle River. The Company commenced a drilling program during the third
quarter. The agreement with Newmont also includes other holdings in the
Republic District representing 3,500 acres where mineral rights and/or surface
rights are held.
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.
Resignation of Director
At its meeting held November 8, 2000, the board of directors of the company
accepted with regret the resignation of Pierre Choquette as a member of the
board. Mr. Choquette, whose resignation was prompted by the needs of his own
business, has been a director since May 1996.
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<PAGE>
ECHO BAY MINES LTD
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2000
(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 changes 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, divestitures or decreases in property
interests. Factors that could cause actual results to differ materially include,
among others; changes in gold and silver prices; fluctuations in grades and
recovery rates; geological, metallurgical, processing, access, transportation or
other problems; results of exploration activities, pending and future
feasibility studies; changes in project parameters as plans continue to be
refined; political, economic and operational risks; 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 for projects; environmental costs and risks; and 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.
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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 None.
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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)
November 10, 2000
-------------------
Date
/s/ David A. Ottewell
-----------------------------
DAVID A. OTTEWELL
Controller and Principal
Accounting Officer
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