<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, 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
- ---------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
----------------- May 3, 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..11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings......................................................................23
ITEM 6. Exhibits and Reports on Form 8-K.......................................................23
SIGNATURE........................................................................................ 24
</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
<S> <C> <C>
thousands of U.S. dollars 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,397 $ 3,401
Short-term investments 2,027 2,042
Interest and accounts receivable 3,020 2,942
Inventories (note 2) 51,940 37,204
Prepaid expenses and other assets 16,194 15,621
- ----------------------------------------------------------------------------------------------------------------------------
75,578 61,210
Plant and equipment (note 3) 159,380 167,438
Mining properties (note 3) 80,040 81,959
Long-term investments and other assets 25,037 29,255
- ----------------------------------------------------------------------------------------------------------------------------
$ 340,035 $ 339,862
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 32,783 $ 29,961
Income and mining taxes payable 3,496 3,004
Gold and other financings (note 4) 14,375 13,750
Deferred income (note 5) 11,282 10,525
- ----------------------------------------------------------------------------------------------------------------------------
61,936 57,240
Gold and other financings (note 4) 49,156 42,919
Deferred income (note 5) 75,177 83,374
Other long-term obligations 49,634 47,847
Deferred income taxes 5,825 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) 128,416 124,616
Deficit (721,142) (714,844)
Foreign currency translation (22,310) (22,014)
- ----------------------------------------------------------------------------------------------------------------------------
98,307 101,101
- ----------------------------------------------------------------------------------------------------------------------------
$ 340,035 $ 339,862
============================================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS Three months ended
thousands of U.S. dollars, March 31
except for per share data 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 51,797 $ 48,782
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating costs 30,209 32,413
Royalties 1,562 1,748
Production taxes 525 86
Depreciation and amortization 11,698 12,801
Reclamation and mine closure 2,269 1,816
General and administrative 1,586 1,873
Exploration and development 6,023 2,117
Interest and other (note 7) 2,023 954
- -----------------------------------------------------------------------------------------------------------------------------
55,895 53,808
- -----------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (4,098) (5,026)
- -----------------------------------------------------------------------------------------------------------------------------
Income tax expense (recovery):
Current 75 75
Deferred (1,500) --
- -----------------------------------------------------------------------------------------------------------------------------
(1,425) 75
- -----------------------------------------------------------------------------------------------------------------------------
Net loss $ (2,673) $ (5,101)
=============================================================================================================================
Net loss attributable to common shareholders (note 6) $ (6,298) $ (8,326)
=============================================================================================================================
Loss per share $ (0.04) $ (0.06)
=============================================================================================================================
Weighted average number of shares outstanding (thousands) 140,607 140,607
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended
OF DEFICIT March 31
<S> <C> <C>
thousands of U.S. dollars 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ (714,844) $ (663,875)
Net loss (2,673) (5,101)
Interest on capital securities, net of nil tax effect (note 6) (3,625) (3,225)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ (721,142) $ (672,201)
=============================================================================================================================
</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 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED FROM (USED IN):
OPERATING ACTIVITIES
Net cash flows provided from (used in) operating activities $ (4,133) $ 5,487
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Mining properties, plant and equipment (4,662) (8,089)
Long-term investments and other assets (395) (4,999)
Proceeds on repurchase of gold forward sales -- 1,500
Short-term investments -- 485
Proceeds on the sale of plant and equipment 44 68
Other 1,267 (622)
- --------------------------------------------------------------------------------------------------------------------------------
(3,746) (11,657)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Currency borrowings 10,000 8,000
Debt repayments (3,125) (4,998)
Other -- (1,389)
- -------------------------------------------------------------------------------------------------------------------------------
6,875 1,613
- -------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,004) (4,557)
Cash and cash equivalents, beginning of period 3,401 7,987
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,397 $ 3,430
===============================================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 2000 and December 31, 1999 and the consolidated results
of operations and cash flow for the three months ended March 31, 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.
New Canadian accounting standards for income taxes were implemented by the
Company on a prospective basis as of January 1, 2000. The adoption of these new
standards had no effect on the Company's financial statements.
2. INVENTORIES
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Precious metals -- bullion $ 22,500 $ 16,033
-- in-process 9,941 7,538
Materials and supplies 19,499 13,633
- --------------------------------------------------------------------------------------------------------------------------
$51,940 $ 37,204
==========================================================================================================================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Plant and equipment March 31 December 31
<S> <C> <C>
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Cost $ 659,152 $ 661,048
Less accumulated depreciation 499,772 493,610
- --------------------------------------------------------------------------------------------------------------------------
$ 159,380 $ 167,438
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Mining properties March 31 December 31
<S> <C> <C>
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Producing mines' acquisition and development costs $ 273,445 $ 272,362
Less accumulated amortization 235,127 230,470
- --------------------------------------------------------------------------------------------------------------------------
38,318 41,892
Development properties' acquisition and development costs 13,967 14,065
Deferred mining costs 27,755 26,002
- --------------------------------------------------------------------------------------------------------------------------
$ 80,040 $ 81,959
==========================================================================================================================
</TABLE>
4. GOLD AND OTHER FINANCINGS
<TABLE>
<CAPTION>
March 31 December 31
<S> <C> <C>
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Currency loans $ 58,125 $ 51,250
Capital securities (note 6) 5,406 5,419
- --------------------------------------------------------------------------------------------------------------------------
63,531 56,669
Less current portion 14,375 13,750
- --------------------------------------------------------------------------------------------------------------------------
$ 49,156 $ 42,919
==========================================================================================================================
</TABLE>
4
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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>
March 31 December 31
2000 1999
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Modification of hedging contracts $ 58,966 $ 61,382
Premiums received on gold and silver option contracts 27,052 30,835
Other 441 1,682
- --------------------------------------------------------------------------------------------------------------------------
86,459 93,899
Less current portion 11,282 10,525
- --------------------------------------------------------------------------------------------------------------------------
$ 75,177 $ 83,374
==========================================================================================================================
</TABLE>
6. 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.
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 March 31, 2000, totaling $33.8 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
March 31
2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Interest income $ (232) $ (68)
Interest expense 1,408 1,100
Unrealized loss on share investments -- 23
(Gain) loss on sale of share investments -- (485)
Other 847 384
- ---------------------------------------------------------------------------------------------------------------------------
$ 2,023 $ 954
===========================================================================================================================
</TABLE>
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.
5
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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 statement of operations
would have been as follows.
<TABLE>
<CAPTION>
Three months ended
March 31
2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net loss under Canadian GAAP $ (2,673) $ (5,101)
Change in market value of foreign exchange contracts 286 2,343
Additional interest expense on capital securities (3,625) (3,225)
Amortization of deferred financing on capital securities (158) (158)
Unrealized loss on gold call options sold (3) --
- ---------------------------------------------------------------------------------------------------------------------------
Net loss under U.S. GAAP $ (6,173) $ (6,141)
===========================================================================================================================
Loss per share under U.S. GAAP $ (0.04) $ (0.04)
===========================================================================================================================
</TABLE>
The effects of the GAAP differences on the consolidated balance sheet would have
been as follows.
<TABLE>
<CAPTION>
Unrealized
Loss on Call Foreign Santa Elina
Canadian Options Exchange Acquisition/ Capital U.S.
March 31, 2000 GAAP Sold Contracts Write-off Securities GAAP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term investments and other assets $ 25,037 $ -- $ -- $ -- $ 1,267 $ 26,304
Gold and other financings 63,531 -- -- -- 94,593 158,124
Deferred income 86,459 -- (5,995) -- -- 80,464
Other long-term obligations 49,634 2,149 947 -- 33,823 86,553
Common shares 713,343 -- -- 36,428 -- 749,771
Capital securities 128,416 -- -- -- (128,416) --
Deficit 721,142 2,149 (5,048) 36,428 (1,267) 753,404
Common shareholders' equity 98,307 (2,149) 5,048 -- (127,149) (25,943)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following statement of comprehensive loss would be disclosed in accordance
with U.S. GAAP.
<TABLE>
<CAPTION>
Three months ended
March 31
1997 2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net loss under U.S. GAAP $ (6,173) $ (6,141)
Other comprehensive income (loss), after a nil income tax effect:
Foreign currency translation adjustments (296) 1,473
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (296) 1,473
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (6,469) $ (4,668)
===========================================================================================================================
</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>
March 31 December 31
2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Foreign currency translation $ (22,310) $ (22,014)
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $ (22,310) $ (22,014)
===========================================================================================================================
</TABLE>
6
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
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
first quarter of 2000, the Company had three operating mines: Round Mountain in
Nevada, USA; McCoy/Cove in Nevada, USA; and Kettle River in Washington, USA. In
January 1998, the Company temporarily suspended operations at its Lupin mine in
the Nunavut Territory of Canada. Production recommenced in April 2000. All of
the Company's mines are 100% owned except for Round Mountain, which is 50%
owned.
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
<S> <C> <C>
Gold Production (ounces) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Round Mountain (50%) 71,954 59,685
McCoy/Cove 43,146 32,114
Kettle River 25,070 26,965
- ----------------------------------------------------------------------------------------------------------------------------
Total gold 140,170 118,764
============================================================================================================================
Silver Production (ounces) - all from McCoy/Cove 3,842,946 2,664,838
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31
<S> <C> <C>
Cash Operating Costs per Ounce of Gold Produced 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Round Mountain $ 185 $ 221
McCoy/Cove 149 209
Kettle River 227 228
- ----------------------------------------------------------------------------------------------------------------------------
Company consolidated weighted average $ 171 $ 216
============================================================================================================================
</TABLE>
7
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended
Reconciliation of Cash Operating March 31
Costs per Ounce to Financial Statements 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Operating costs by minesite:
Round Mountain $ 11,486 $ 12,434
McCoy/Cove 13,961 14,490
Kettle River 4,762 5,489
- -----------------------------------------------------------------------------------------------------------------------------
Total operating costs per financial statements 30,209 32,413
Change in finished goods inventories and other 4,021 3,500
Co-product cost of silver produced (10,261) (10,260)
- -----------------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 23,969 $ 25,653
=============================================================================================================================
Gold ounces produced 140,170 118,764
=============================================================================================================================
Cash operating costs per ounce $ 171 $ 216
=============================================================================================================================
</TABLE>
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
March 31
2000 1999
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Total gold and silver revenue $ 51,797 $ 48,782
Average gold price realized per ounce $ 320 $ 324
Average silver price realized per ounce $ 5.80 $ 5.52
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. HEDGING ACTIVITIES AND COMMITMENTS
Gold and silver commitments
The Company's gold and silver commitments at March 31, 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 174,584 $ 314 2,660,000 $ 5.50
2001 105,000 315 1,800,000 5.79
2002 60,000 315 -- --
2003 60,000 315 -- --
2004 60,000 315 -- --
2005 15,000 315 -- --
- ------------------------------------------------------------------------------------------------------------------
474,584 $ 315 4,460,000 $ 5.62
==================================================================================================================
</TABLE>
(1) 2.7 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 fixings is at, or above, $4.85 per ounce, compared to the total
number of London silver fixings.
8
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 2000 were as follows.
<TABLE>
<CAPTION>
Put Options Purchased Put Options Sold Call Options Purchased Call Options Sold
------------------------- ------------------------ ---------------------------- -----------------------
Strike Price Strike Price Strike Price Strike 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 187,500 $ 270 16,667 $ 290 117,917 $ 345 187,500 $ 360
2001 -- -- -- -- 105,000 351 -- --
2002 -- -- -- -- 60,000 360 -- --
2003 -- -- -- -- 60,000 360 -- --
2004 -- -- -- -- 60,000 360 -- --
2005 -- -- -- -- 120,000 395 105,000 340
- --------------------------------------------------------------------------------------------------------------------------------
187,500 $ 270 16,667 $ 290 522,917 $ 363 292,500 $ 353
================================================================================================================================
Silver
- ------
Remainder of 2000 1,000,000 $ 6.00 750,000 $ 4.75 -- $ -- -- $ --
2001 1,000,000 6.00 2,500,000 4.75 1,500,000 6.60 -- --
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 $ 6.00 3,250,000 $ 4.75 1,500,000 $ 6.60 -- $ --
================================================================================================================================
</TABLE>
Currency position
At March 31, 2000, the Company had an obligation under foreign currency exchange
contracts to purchase C$33.0 million in the remainder of 2000 at an exchange
rate of C$1.39 to U.S.$1.00.
Shown below are the carrying amounts and estimated fair values of the Company's
hedging instruments at March 31, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------------------------- ---------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold forward sales $ -- $ 3,000 $ -- $ (900)
Silver forward sales -- 2,000 -- 1,000
Gold options - puts purchased 800 900 1,400 1,700
- calls sold (4,100) (5,300) (4,100) (5,600)
- puts sold (300) (200) (1,300) (600)
- calls purchased 8,100 6,200 9,100 8,000
Silver options - puts purchased 2,400 1,700 2,500 1,400
- puts sold (1,600) (500) (2,200) (500)
- calls purchased 700 100 1,000 300
Foreign currency contracts -- (900) -- (1,200)
- ------------------------------------------------------------------------------------------------------------------------------
$ 7,000 $ 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.
9
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 will petition that panel for
a rehearing. If the petition is unsuccessful, the Echo Bay defendants will
petition the Supreme Court 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.
10
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 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 $290
per ounce during the first quarter 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 March 31, 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 approximately 175,000 ounces at
a forward price of $314 per ounce. Additionally, the Company has purchased put
options on approximately 188,000 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 300,000 ounces
of gold at a forward price of $315 per ounce. In addition, the Company has
hedged 3.7 million silver ounces at a minimum average cash price of $5.64 per
ounce for the remainder of 2000 and 2.8 million silver ounces at a minimum
average cash price of $5.86 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 $33.8 million in interest to date.
11
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
March 31, 2000
(U.S. dollars)
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow used in operating activities was $4.1 million for the first
quarter of 2000 compared to net cash provided from operating activities of $5.5
million for the first quarter of 1999. The 2000 results compared to 1999
reflect increases in inventories ($12.1 million) and increased exploration and
development spending ($3.9 million) primarily related to the recent
recommencement of Lupin operations, and decreased cash gold prices realized
($5.9 million). These factors were partially offset by increases in accounts
payable associated with timing differences and the recommencement of Lupin
operations ($8.2 million), increased gold and silver sales volume ($3.0
million), and decreased operating costs ($2.2 million).
Net cash used in investing activities was $4.6 million in the first quarter of
2000, primarily related to mining properties, plant and equipment.
Net cash provided by financing activities was $6.9 million in the first quarter
of 2000, comprised of currency borrowings of $10.0 million offset by currency
loan repayments of $3.1 million.
The Company had $2.4 million in cash and cash equivalents and $2.0 million in
short-term investments at March 31, 2000.
At March 31, 2000, the Company's total debt was $63.5 million, of which $14.4
million was current.
At March 31, 2000, the Company had $40.0 million outstanding, and up to an
additional $10.0 million or gold equivalent, subject to covenant limitations,
available until August 2001, under its revolving credit 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 March 31, 2000, the fair value of the Company's hedge portfolio was $7.0
million, which is within the predetermined margin limits. Margin deposits could
be required by certain counterparties if the fair value of the hedge portfolio
were less than the predetermined margin threshold.
For the full year 2000, the Company expects to incur $12 million in capital
expenditures, of which $2.5 million has been incurred in the first quarter 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 and the cost structure at the
Company's operating mines.
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".
12
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
FINANCIAL REVIEW
The Company reported a net loss of $2.7 million ($0.04 per share) in the first
quarter of 2000, compared to a net loss of $5.1 million ($0.06 per share) in the
first quarter of 1999. The 2000 results compared to 1999 reflect increased gold
and silver sales volume ($2.8 million), and decreased operating costs ($2.2
million) and a deferred income tax recovery in the first quarter of 2000 related
to the completion of certain prior year tax audits ($1.5 million). These
factors were partially offset by increased exploration and development spending
($3.9 million).
Gold production increased 18% to 140,170 ounces in the first quarter of 2000
compared to 118,764 ounces in the first quarter of 1999. Increased production
reflects higher mill and leach pad tons at Round Mountain and increased mill
grades and recoveries at McCoy/Cove, partially offset by lower reusable pad and
mill grades and recoveries at Round Mountain.
Cash operating costs were $171 per ounce of gold in the first quarter of 2000,
versus $216 in the first quarter of 1999. The decrease was primarily a result
of higher production at Round Mountain and McCoy. Total production costs were
$252 per ounce in the first quarter of 2000, versus $316 per ounce in the first
quarter of 1999.
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.
<TABLE>
<CAPTION>
Three months ended
March 31
<S> <C> <C>
Revenue Data 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Gold
- ----
Ounces sold 116,794 109,711
Average price realized/ounce - revenue basis $ 320 $ 324
Average price realized/ounce - cash basis (1) $ 301 $ 351
Average market price/ounce $ 290 $ 287
Revenue (millions of U.S. $) $ 37.4 $ 35.6
Percentage of total revenue 72% 73%
Silver
- ------
Ounces sold 2,488,007 2,393,095
Average price realized/ounce - revenue basis $ 5.80 $ 5.52
Average price realized/ounce - cash basis (1) $ 5.67 $ 5.34
Average market price/ounce $ 5.20 $ 5.30
Revenue (millions of U.S. $) $ 14.4 $ 13.2
Percentage of total revenue 28% 27%
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue (millions of U.S. dollars) $ 51.8 $ 48.8
===========================================================================================================================
</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.
13
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
The effects of changes in sales prices and volume were as follows.
<TABLE>
<CAPTION>
Revenue Variance Analysis
2000 vs. 1999 Three months ended
(millions of U.S. dollars) March 31
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Lower gold prices $(0.5)
Higher silver prices 0.7
Change in volume 2.8
- -----------------------------------------------------------------------------------------------------------
Increase in revenue $ 3.0
===========================================================================================================
</TABLE>
Production Costs
Production cost data per ounce of gold is set out below.
<TABLE>
<CAPTION>
Three months ended
Production Costs per March 31
<S> <C> <C>
Ounce of Gold Produced 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Direct mining expense $ 192 $ 213
Deferred stripping and mine development costs (13) (11)
Inventory movements and other (8) 14
- -----------------------------------------------------------------------------------------------------------------------------
Cash operating costs 171 216
Royalties 7 10
Production taxes 3 1
- -----------------------------------------------------------------------------------------------------------------------------
Total cash costs 181 227
Depreciation 38 59
Amortization 22 21
Reclamation and mine closure 11 9
- -----------------------------------------------------------------------------------------------------------------------------
Total production costs $ 252 $ 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 $171 per ounce of gold
in the first quarter of 2000 and $216 in the first quarter of 1999. 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
<S> <C> <C>
except per ounce amounts 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 30,209 $ 32,413
Change in finished goods inventory and other 4,021 3,500
Co-product cost of silver produced (10,261) (10,260)
- -----------------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 23,969 $ 25,653
=============================================================================================================================
Gold ounces produced 140,170 118,764
=============================================================================================================================
Cash operating costs per ounce $ 171 $ 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
14
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
could be a material reduction in the amount of gold reserves. For example, the
Company estimates that based on extrapolation of information developed in
reserve estimation, but without the same degree of analysis as required for
reserve estimation, if the Company's reserves at December 31, 1999 were based on
a price of $300 per ounce of gold, while reserves at the operating properties
would not decrease, reserves at the Aquarius development property would decrease
approximately 11%. 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
<S> <C> <C>
Operating Data by Mine 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Gold production (ounces)
- ------------------------
(a) Round Mountain (50%) 71,954 59,685
(b) McCoy/Cove 43,146 32,114
(c) Kettle River 25,070 26,965
- ----------------------------------------------------------------------------------------------------------------------------
Total gold 140,170 118,764
============================================================================================================================
Silver production (ounces)
- --------------------------
(b) McCoy/Cove 3,842,946 2,664,838
- ----------------------------------------------------------------------------------------------------------------------------
Total silver 3,842,946 2,664,838
============================================================================================================================
</TABLE>
Gold production increased 18% to 140,170 ounces in the first quarter of 2000
compared to 118,764 ounces in the first quarter of 1999. Increased production
was primarily due to higher mill and leach pad tons at Round Mountain and
increased mill grades and recoveries at McCoy/Cove, partially offset by lower
reusable pad and mill grades and recoveries at Round Mountain. Silver
production increased to 3.8 million ounces in the first quarter of 2000 from 2.7
million ounces in the first quarter of 1999, reflecting increased grades and
recoveries. For the full year 2000, the Company's gold production target is
between 660,000 and 700,000 ounces and the silver production target is between 9
and 10 million ounces.
<TABLE>
<CAPTION>
Three months ended
March 31
<S> <C> <C>
Operating Data by Mine 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Cash operating costs (per ounce of gold)
- ----------------------------------------
(a) Round Mountain $ 185 $ 221
(b) McCoy/Cove 149 209
(c) Kettle River 227 228
- ----------------------------------------------------------------------------------------------------------------------------
Company average $ 171 $ 216
============================================================================================================================
</TABLE>
Cash operating costs were $171 per ounce of gold in the first quarter of 2000,
compared to $216 in the first quarter of 1999. The Company has targeted
consolidated cash operating costs of $200 to $210 per ounce of gold produced for
the full year 2000.
15
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
(a) Round Mountain, Nevada (50% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
<S> <C> <C>
OPERATING DATA 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Gold produced (ounces):
Heap leached - reusable pad (50%) 17,768 19,338
Heap leached - dedicated pad (50%) 32,373 25,235
Milled (50%) 19,878 15,112
Other (50%) 1,935 --
-------- -------
Total (50%) 71,954 59,685
Mining cost/ton of ore and waste $ 0.83 $ 0.74
Heap leaching cost/ton of ore $ 0.57 $ 0.73
Milling cost/ton of ore $ 2.90 $ 3.32
Production cost per ounce of gold produced:
Direct mining expense $ 215 $ 236
Deferred stripping costs (19) (30)
Inventory movements and other (11) 15
-------- -------
Cash operating cost 185 221
Royalties 11 20
Production taxes 1 1
-------- -------
Total cash cost 197 242
Depreciation 46 49
Amortization 18 18
Reclamation and mine closure 9 9
-------- -------
Total production costs $ 270 $ 318
-------- -------
Heap leached - reusable pad:
Ore processed (tons/day) (100%) 27,938 18,803
Total ore processed (000 tons) (100%) 2,542 1,711
Grade (ounce/ton) 0.026 0.036
Recovery rate (%) 58.5 77.6
Heap leached - dedicated pad:
Ore processed (tons/day) (100%) 145,275 91,648
Total ore processed (000 tons) (100%) 13,220 8,340
Grade (ounce/ton) 0.011 0.010
Recovery rate (1)
Milled:
Ore processed (tons/day) (100%) 8,063 7,275
Total ore processed (000 tons) (100%) 734 662
Grade (ounce/ton) 0.046 0.086
Recovery rate (%) 84.4 86.0
- -----------------------------------------------------------------------------------------------------------------------------
</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%.
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 71,954
ounces for the first quarter of 2000 compared with 59,685 ounces in the first
quarter of 1999. The increase in production is attributable to the mining of
more ore rather than waste tons in the first quarter of 2000 when compared to
the same period in 1999. This resulted in 57%
16
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
more tons being placed on leach pads in the first quarter of 2000, compared with
the same period last year. Round Mountain completed an area of high stripping at
the end of the third quarter of 1999 and has now returned to the life-of-mine
average ratio. With the higher production, cash cost per ounce decreased to $185
for the first quarter of 2000, compared to $221 in the first quarter of 1999.
During the first quarter of 2000, a $1 million exploration program began 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.
17
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
(b) McCoy/Cove, Nevada (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
<S> <C> <C>
OPERATING DATA 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Gold produced (ounces):
Milled 28,698 20,657
Heap leached 14,448 11,457
---------- ----------
Total gold 43,146 32,114
Silver produced (ounces):
Milled 3,615,276 2,584,340
Heap leached 227,670 80,498
---------- ----------
Total silver 3,842,946 2,664,838
Mining cost/ton of ore and waste $ 0.73 $ 0.72
Milling cost/ton of ore $ 6.79 $ 6.74
Heap leaching cost/ton of ore $ 1.72 $ 1.71
Production cost per ounce of gold produced:
Direct mining expense $ 166 $ 190
Deferred stripping costs (11) 2
Inventory movements and other (6) 17
---------- ----------
Cash operating cost 149 209
Royalties 4 3
Production taxes 3 --
---------- ----------
Total cash cost 156 212
Depreciation 24 47
Amortization 28 27
Reclamation and mine closure 11 11
---------- ----------
Total production costs $ 219 $ 297
---------- ----------
Average gold-to-silver price ratio (1) 55.8:1 54.3:1
Milled:
Ore processed (tons/day) 11,200 11,516
Total ore processed (000 tons) 1,019 1,048
Gold grade (ounce/ton) 0.061 0.035
Silver grade (ounce/ton) 5.10 3.15
Gold recovery rate (%) 55.7 44.8
Silver recovery rate (%) 72.3 66.3
Heap leached:
Ore processed (tons/day) 10,874 11,589
Total ore processed (000 tons) 990 1,055
Gold grade (ounce/ton) 0.027 0.026
Silver grade (ounce/ton) 1.07 0.23
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, 2000
(U.S. dollars)
At McCoy/Cove in Nevada, gold production was 43,146 ounces in the first quarter
of 2000 compared with 32,114 ounces in the first quarter of 1999. Silver
production totaled 3.8 million ounces in the first quarter of 2000 compared with
2.7 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. Gold grades were 74%
higher and silver grades 62% higher in the first quarter of 2000 than during the
same quarter in 1999. With the higher production, cash operating costs were $149
per ounce in the first quarter of 2000, down $60 from the first quarter of 1999.
Underground development of the northern portion of Cove South Deep upper zone
was completed in the first quarter of 2000. This target was identified in 1999
when underground development of the Cove East material began. Extraction of the
northern portion of the Cove South Deep upper zone was underway at the end of
the first quarter of 2000. Development continues to the southern extension of
this zone in the second quarter of 2000 with mining to be completed by the end
of 2000 as planned.
The underground workings now encircle a large section of the Cove Pit providing
a good exploration platform. Exploration drilling from underground commenced
during the first quarter of 2000. Drilling from development drifts and drill
stations will test targets down fault of Cove South Deep.
19
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
(c) Kettle River, Washington (100% owned)
<TABLE>
<CAPTION>
Three months ended
March 31
<S> <C> <C>
OPERATING DATA 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Gold produced (ounces) 25,070 26,965
Mining cost/ton of ore $ 22.01 $ 24.19
Milling cost/ton of ore $ 11.84 $ 11.11
Production cost per ounce of gold produced:
Direct mining expense $ 239 $ 231
Deferred mine development costs -- --
Inventory movements and other (12) (3)
------- -------
Cash operating cost 227 228
Royalties 14 13
Production taxes 1 1
------- -------
Total cash cost 242 242
Depreciation 10 67
Amortization 8 8
Reclamation and mine closure 15 15
------- -------
Total production costs $ 275 $ 332
------- -------
Milled:
Ore processed (tons/day) 1,508 1,658
Total ore processed (000 tons) 137 151
Grade (ounce/ton) 0.219 0.207
Recovery rate (%) 83.3 86.3
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Production for the first quarter of 2000 was 25,070 ounces, down from 26,965
ounces in the first quarter of 1999, reflecting a reduction in tonnage brought
to the mill. At Kettle River, a series of deposits are mined with the ore
feeding a central mill. As mining continues deeper within these deposits the
haulage distance gets longer, contributing to lower gold production. Despite
the decrease in production, cash operating costs per ounce were $227 in the
first quarter of 2000, similar to the same period in 1999.
Exploration continued to test zones to the northeast of the K-2 deposit.
Initial drilling is being done from the decline driven off the K-2 access drift
to determine the extent of the mineralization.
20
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2000
(U.S. dollars)
RECENT DEVELOPMENTS
Lupin
In November 1999, the Company announced its decision to reopen the Lupin mine,
located in Nunavut, Canada. The Lupin mine was placed on care and maintenance in
early 1998 due to falling gold prices and a high cost structure. A
reengineering study, completed late in 1998, identified savings that helped
lower costs. During the first quarter of 2000, necessary fuel, supplies and
other bulk inventory were delivered over the winter ice road. Re-commissioning
activities are now complete and have been accomplished on time and on budget.
During the first quarter of 2000, an investment of $7.2 million in inventory and
other capital was made and initial startup costs of $4.8 million were expensed
as development costs. The first gold pour occurred in April 2000 and total gold
production is on target for 100,000 to 110,000 ounces for 2000. Based on
current reserves of 518,000 ounces and other mineralization, the initial mine
plan estimates production through 2004 at an average annual rate of 150,000
ounces of gold. Drilling indicates additional mineralization at depth, and
confirmation drilling will begin during the latter part of 2000. The Ulu
satellite deposit, located approximately 160 kilometers north of Lupin,
represents the potential for additional mill feed for the site.
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 first quarter of 2000, the Company spent $1.0 million on exploration
activities. Exploration costs are expensed as incurred.
The results of a feasibility study on the Youga/Bitou exploration property in
Burkina Faso, a West Africa joint venture with Ashanti Goldfields Company Ltd
(50% owned by the Company) is being evaluated and the next steps in the program
will be determined by the end of the second quarter of 2000.
In 1997, the Company deferred final construction decisions on its planned gold
mine, the 100% owned Aquarius in Ontario, Canada. The Company expects that a
revised feasibility report on Aquarius will be available by the end of the
second quarter of 2000. This independent study will incorporate the use of
certain mill equipment acquired by the Company at the end of 1999 as well as the
potential represented by the Company's land holdings in the region. Development
holding costs are expensed as incurred. During the first quarter of 2000, the
Company expensed a total of $0.1 million in holding costs related to Aquarius.
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.
21
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 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 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, divestitures or decreases 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, 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.
22
<PAGE>
ECHO BAY MINES LTD.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Summa
See note 11 to the interim consolidated financial statements.
Colorado School of Mines
On January 24, 2000, a subsidiary of the Company was served with a complaint in
the case of Colorado School of Mines vs. AK Steel, et al., Civil Action 99-N-
1863 (USDC Colorado). This lawsuit seeks contribution from numerous parties for
environmental cleanup costs at a federal Comprehensive Environmental Response,
Compensation and Liability Act site. Discovery has commenced and the Company
will vigorously pursue the defense of this claim. The Company does not have
sufficient information at this time to reasonably estimate an amount, if any,
for which the Company's subsidiary may be liable in this matter.
Other
The Company is also 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 28, 2000, related to the deferral
of the April 2000 interest payment on the capital
securities.
23
<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)
May 5, 2000
- -----------
Date
/s/ David A. Ottewell
---------------------
DAVID A. OTTEWELL
Controller and Principal
Accounting Officer
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE ECHO BAY MINES LTD. FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,397
<SECURITIES> 2,027
<RECEIVABLES> 3,020
<ALLOWANCES> 0
<INVENTORY> 51,940
<CURRENT-ASSETS> 75,578
<PP&E> 974,319
<DEPRECIATION> 734,899
<TOTAL-ASSETS> 340,035
<CURRENT-LIABILITIES> 61,936
<BONDS> 0
0
0
<COMMON> 713,343
<OTHER-SE> (615,036)
<TOTAL-LIABILITY-AND-EQUITY> 340,035
<SALES> 51,797
<TOTAL-REVENUES> 51,797
<CGS> 30,209
<TOTAL-COSTS> 46,263
<OTHER-EXPENSES> 9,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,176
<INCOME-PRETAX> (4,098)
<INCOME-TAX> (1,425)
<INCOME-CONTINUING> (2,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,673)
<EPS-BASIC> (0.04)<F1>
<EPS-DILUTED> (0.04)
<FN>
<F1>THE TAGS IN THE FDS WILL NOT BE CHANGED BY THE SEC TO CORRESPOND TO THE NEW
CAPTIONS UNDER SFAS 128. THE SEC EXPECTS REGISTRANTS TO REPORT "EARNINGS PER
SHARE - BASIC" DATA AS THE VALUE FOR THE EPS-PRIMARY TAG AND "EARNINGS PER
SHARE - DILUTED" DATA (AS OPPOSED TO "EPS - FULLY DILUTED") AS THE VALUE FOR THE
EPS-DILUTED TAG. QUERIES REGARDING THESE REQUIREMENTS MAY BE DIRECTED TO THE
OFFICE OF CHIEF ACCOUNTANTS (202-942-2960) OR MEG BLACK IN THE DIVISION OF
CORPORATION FINANCE (202-942-2940).
</FN>
</TABLE>
