<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 June 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
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 540, 6400 S. Fiddlers Green Circle 80111-4957
Englewood, CO ----------
--------------------------------------- (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (303) 714-8600
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
-------
Shares Outstanding as of
Title of Class August 3, 2000
---------------------------- -----------------------
Common Shares 140,607,145
without nominal or par value
================================================================================
<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....................................................................... 27
ITEM 4 Submission of Matters to a Vote of the Security Holders................................. 27
ITEM 6 Exhibits and Reports on Form 8-K........................................................ 28
SIGNATURE......................................................................................... 29
</TABLE>
i
<PAGE>
ECHO BAY MINES LTD.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET June 30 December 31
thousands of U.S. dollars 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,954 $ 3,401
Short-term investments 1,992 2,042
Interest and accounts receivable 3,189 2,942
Inventories (note 2) 48,427 37,204
Prepaid expenses and other assets 14,042 15,621
-------------------------------------------------------------------------------------------
78,604 61,210
Plant and equipment (note 3) 152,006 167,438
Mining properties (note 3) 76,028 81,959
Long-term investments and other assets 23,187 29,255
-------------------------------------------------------------------------------------------
$ 329,825 $ 339,862
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 27,625 $ 29,961
Income and mining taxes payable 4,274 3,004
Gold and other financings (note 4) 15,000 13,750
Deferred income (note 5) 10,512 10,525
-------------------------------------------------------------------------------------------
57,411 57,240
Gold and other financings (note 4) 41,717 42,919
Deferred income (note 5) 67,312 83,374
Other long-term obligations 51,202 47,847
Deferred income taxes 5,391 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) 132,120 124,616
Deficit (714,822) (714,844)
Foreign currency translation (23,849) (22,014)
-------------------------------------------------------------------------------------------
106,792 101,101
-------------------------------------------------------------------------------------------
$ 329,825 $ 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 Six months ended
thousands of U.S. dollars, June 30 June 30
except for per share data 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 84,293 $ 50,862 $136,090 $ 99,644
-------------------------------------------------------------------------------------------------
Expenses:
Operating costs 48,880 34,833 79,089 67,246
Royalties 2,440 1,567 4,002 3,315
Production taxes 807 43 1,332 129
Depreciation and amortization 14,231 13,616 25,929 26,417
Reclamation and mine closure 2,979 1,709 5,248 3,525
General and administrative 2,043 2,034 3,629 3,907
Exploration and development 1,407 1,889 7,430 4,006
Interest and other (note 7) 1,613 2,106 3,636 3,060
-------------------------------------------------------------------------------------------------
74,400 57,797 130,295 111,605
-------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 9,893 (6,935) 5,795 (11,961)
-------------------------------------------------------------------------------------------------
Income tax expense (recovery):
Current 25 96 100 171
Deferred (300) -- (1,800) --
-------------------------------------------------------------------------------------------------
(275) 96 (1,700) 171
-------------------------------------------------------------------------------------------------
Net earnings (loss) $ 10,168 $ (7,031) $ 7,495 $(12,132)
=================================================================================================
Net earnings (loss) attributable to common
shareholders (note 6) $ 6,320 $(10,455) $ 22 $(18,781)
=================================================================================================
Earnings (loss) per share $ 0.04 $ (0.07) $ -- $ (0.13)
=================================================================================================
Weighted average number of shares
outstanding (thousands) 140,607 140,607 140,607 140,607
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended Six months ended
OF DEFICIT June 30 June 30
thousands of U.S. dollars 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $(721,142) $(672,201) $(714,844) $(663,875)
Net earnings (loss) 10,168 (7,031) 7,495 (12,132)
Interest on capital securities, net of
nil tax effect (note 6) (3,848) (3,424) (7,473) (6,649)
-------------------------------------------------------------------------------------------------
Balance, end of period $(714,822) $(682,656) $(714,822) $(682,656)
=================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
2
<PAGE>
ECHO BAY MINES LTD.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT Three months ended Six months ended
OF CASH FLOW June 30 June 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 $18,613 $12,757 $ 14,480 $ 18,244
-------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Mining properties, plant and equipment (3,113) (7,750) (7,775) (15,839)
Long-term investments and other assets (150) (15) (545) (5,014)
Proceeds on repurchase of gold forward
sales -- -- -- 1,500
Short-term investments -- -- -- 485
Proceeds on the sale of plant and
equipment 291 193 335 261
Other 41 (605) 1,308 (1,227)
-------------------------------------------------------------------------------------------------
(2,931) (8,177) (6,677) (19,834)
-------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Currency borrowings 2,000 3,000 12,000 11,000
Debt repayments (9,125) (4,773) (12,250) (9,771)
Other -- -- -- (1,389)
-------------------------------------------------------------------------------------------------
(7,125) (1,773) (250) (160)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 8,557 2,807 7,553 (1,750)
Cash and cash equivalents, beginning of
period 2,397 3,430 3,401 7,987
-------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $10,954 $ 6,237 $ 10,954 $ 6,237
=================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2000 and December 31, 1999 and the consolidated results
of operations and cash flow for the three and six months ended June 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>
June 30 December 31
2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Precious metals -- bullion $19,061 $16,033
-- in-process 10,344 7,538
Materials and supplies 19,022 13,633
-----------------------------------------------------------------------------------------
$48,427 $37,204
=========================================================================================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Plant and equipment June 30 December 31
2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Cost $657,027 $661,048
Less accumulated depreciation 505,021 493,610
-----------------------------------------------------------------------------------------
$152,006 $167,438
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Mining properties June 30 December 31
2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Producing mines' acquisition and development costs $275,037 $272,362
Less accumulated amortization 240,223 230,470
-----------------------------------------------------------------------------------------
34,814 41,892
Development properties' acquisition and
development costs 13,723 14,065
Deferred mining costs 27,491 26,002
-----------------------------------------------------------------------------------------
$ 76,028 $ 81,959
=========================================================================================
</TABLE>
4. GOLD AND OTHER FINANCINGS
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Currency loans $51,000 $51,250
Capital securities (note 6) 5,717 5,419
-----------------------------------------------------------------------------------------
56,717 56,669
Less current portion 15,000 13,750
-----------------------------------------------------------------------------------------
$41,717 $42,919
=========================================================================================
</TABLE>
4
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 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>
June 30 December 31
2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Modification of hedging contracts $53,176 $61,382
Premiums received on gold and silver option contracts 24,821 30,835
Other (173) 1,682
------------------------------------------------------------------------------------------
77,824 93,899
Less current portion 10,512 10,525
------------------------------------------------------------------------------------------
$67,312 $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 June 30, 2000, totaling $34.8 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 Six months ended
June 30 June 30
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ (154) $ (47) $ (386) $ (115)
Interest expense 1,546 1,129 2,954 2,229
Unrealized loss on share investments -- 754 -- 777
(Gain) loss on sale of share investments -- -- -- (485)
Other 221 270 1,068 654
-------------------------------------------------------------------------------------------------
$1,613 $2,106 $3,636 $3,060
=================================================================================================
</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
June 30,2000
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 Six months ended
June 30 June 30
2000 1999 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) under Canadian GAAP $10,168 $(7,031) $ 7,495 $(12,132)
Unrealized/realized gain on share
investments -- 754 -- 777
Change in market value of foreign
exchange contracts (919) 1,475 (633) 3,818
Additional interest expense on capital
securities (3,848) (3,424) (7,473) (6,649)
Amortization of deferred financing on
capital securities (159) (159) (317) (317)
Unrealized loss on gold call options sold (636) -- (639) --
-------------------------------------------------------------------------------------------------
Net earnings (loss) under U.S. GAAP $ 4,606 $(8,385) $(1,567) $(14,503)
=================================================================================================
Earnings (loss) per share under U.S. GAAP $0.03 $(0.06) $(0.01) $(0.10)
=================================================================================================
</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.
June 30, 2000 GAAP Sold Contracts Write-off Securities GAAP
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term investments and
other assets $ 23,187 $ -- $ -- $ -- $ 1,108 $ 24,295
Gold and other financings 56,717 -- -- -- 97,283 154,000
Deferred income 77,824 -- (4,949) -- -- 72,875
Other long-term obligations 51,202 2,785 820 -- 34,837 89,644
Common shares 713,343 -- -- 36,428 -- 749,771
Capital securities 132,120 -- -- -- (132,120) --
Deficit 714,822 2,785 (4,129) 36,428 (1,108) 748,798
Common shareholders' equity
(deficit) 106,792 (2,785) 4,129 -- (131,012) (22,876)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The following statement of comprehensive income (loss) would be disclosed in
accordance with U.S. GAAP.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
2000 1999 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) under U.S. GAAP $ 4,606 $(8,385) $(1,567) $(14,503)
Other comprehensive income (loss), after a
nil income tax effect:
Foreign currency translation adjustments (1,539) 2,179 (1,835) 3,652
Unrealized gain (loss) on share investments:
Net unrealized holding gain (loss) arising
during the period -- (1,488) -- (637)
Reclassification adjustment for net (gain)
loss recognized in
earnings -- -- -- (485)
------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (1,539) 691 (1,835) 2,530
------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 3,067 $(7,694) $(3,402) $(11,973)
================================================================================================
</TABLE>
6
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30,2000
Tabular dollar amounts in thousands of U.S. dollars, except amounts
per share and per ounce or unless otherwise noted
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>
June 30 December 31
2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation $(23,849) $(22,014)
------------------------------------------------------------------------------------------
Accumulated other comprehensive loss $(23,849) $(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
second 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.
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 Six months ended
June 30 June 30
Gold Production (ounces) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Round Mountain (50%) 76,408 70,765 148,362 130,450
McCoy/Cove 49,448 29,576 92,594 61,690
Lupin 38,359 -- 38,359 --
Kettle River 24,260 24,715 49,330 51,680
-----------------------------------------------------------------------------------------------
Total gold 188,475 125,056 328,645 243,820
===============================================================================================
Silver Production (ounces) - all
from McCoy/Cove 3,581,898 1,918,479 7,424,844 4,583,317
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
Cash Operating Costs per Ounce of Gold Produced 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Round Mountain $ 202 $ 195 $ 194 $ 207
McCoy/Cove 163 222 156 215
Lupin 213 -- 213 --
Kettle River 201 243 214 235
-------------------------------------------------------------------------------------------------------------
Company consolidated weighted average $ 186 $ 213 $ 179 $ 215
=============================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
Reconciliation of Cash Operating June 30 June 30
Costs per Ounce to Financial Statements 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating costs by minesite:
Round Mountain $ 15,074 $ 11,504 $ 26,560 $ 23,938
McCoy/Cove 23,218 17,323 37,179 31,813
Lupin 5,441 -- 5,441 --
Kettle River 5,147 6,006 9,909 11,495
---------------------------------------------------------------------------------------------------
Total operating costs per
financial statements 48,880 34,833 79,089 67,246
Change in finished goods
inventories and other (3,214) (215) 656 3,462
Co-product cost of silver produced (10,602) (7,981) (20,864) (18,287)
---------------------------------------------------------------------------------------------------
Cash operating costs $ 35,064 $ 26,637 $ 58,881 $ 52,421
===================================================================================================
Gold ounces produced 188,475 126,056 328,645 243,820
===================================================================================================
Cash operating costs per ounce $ 186 $ 213 $ 179 $ 215
===================================================================================================
</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 Six months ended
June 30 June 30
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total gold and silver revenues $84,293 $50,862 $136,090 $99,644
Average gold price realized per ounce $ 322 $ 326 $ 321 $ 325
Average silver price realized per ounce $ 5.23 $ 5.27 $ 5.42 $ 5.38
-----------------------------------------------------------------------------------------------
</TABLE>
10. HEDGING ACTIVITIES AND COMMITMENTS
Gold and silver commitments
The Company's gold and silver commitments at June 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 117,500 $ 314 1,800,000 $ 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 -- --
-----------------------------------------------------------------------------------------------------------
427,500 $ 312 3,600,000 $ 5.62
===========================================================================================================
</TABLE>
/(1)/ 2.1 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.
8
<PAGE>
ECHO BAY MINES LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 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 85,000 $ 270 -- $ -- 67,500 $ 349 85,000 $ 360
2001 -- -- -- -- 105,000 351 -- --
2002 -- -- -- -- 60,000 360 -- --
2003 -- -- -- -- 60,000 360 -- --
2004 -- -- -- -- 60,000 360 -- --
2005 -- -- -- -- 120,000 395 105,000 340
----------------------------------------------------------------------------------------------------------------------------
85,000 $ 270 -- $ -- 472,500 $ 365 190,000 $ 349
============================================================================================================================
Silver
------
Remainder of 2000 500,000 $ 6.00 500,000 $ 4.75 -- $ -- -- $ --
2001 1,000,000 6.00 2,500,000 4.75 1,500,000 6.60 -- --
----------------------------------------------------------------------------------------------------------------------------
1,500,000 $ 6.00 3,000,000 $ 4.75 1,500,000 $ 6.60 -- $ --
============================================================================================================================
</TABLE>
Currency position
At June 30, 2000, the Company had an obligation under foreign currency exchange
contracts to purchase C$16.5 million in the remainder of 2000 at an exchange
rate of C$1.37 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 June 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------------------------- --------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold forward sales $ -- $ 1,700 $ -- $ (900)
Silver forward sales -- 1,700 -- 1,000
Gold options - puts purchased 340 200 1,400 1,700
- calls sold (3,500) (5,900) (4,100) (5,600)
- puts sold -- -- (1,300) (600)
- calls purchased 7,500 7,500 9,100 8,000
Silver options - puts purchased 1,800 1,300 2,500 1,400
- puts sold (1,500) (300) (2,200) (500)
- calls purchased 700 -- 1,000 300
Foreign currency contracts -- (800) -- (1,200)
---------------------------------------------------------------------------------------------------------------------------
$ 5,400 $ 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
June 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 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
June 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 $285
per ounce during the first six 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 June 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 117,500 ounces at a forward price
of $314 per ounce. Additionally, the Company has purchased put options on 85,000
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 310,000 ounces of gold at a forward price of
$311 per ounce. In addition, the Company has hedged 2.3 million silver ounces at
a minimum average cash price of $5.58 per ounce for the remainder of 2000 and
2.8 million silver ounces at a minimum average cash price of $5.87 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 $34.8 million in interest to date.
11
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
June 30, 2000
(U.S. dollars)
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided from operating activities was $14.5 million for the first
six months of 2000 compared to $18.2 million for the first six months of 1999.
The 2000 results compared to 1999 reflect increases in inventories ($11.2
million), operating costs ($11.8 million), royalties and production taxes ($1.9
million) and exploration and development spending ($3.4 million). The increases
are related to the recent recommencement of Lupin operations and increased
production at McCoy/Cove. These factors were partially offset by increased gold
and silver cash sales ($25.4 million).
Net cash used in investing activities was $6.7 million in the first six months
of 2000, primarily related to mining properties, plant and equipment.
Net cash used in financing activities was $0.3 million in the first six months
of 2000, comprised of currency borrowings of $12.0 million offset by currency
loan repayments of $12.3 million.
The Company had $11.0 million in cash and cash equivalents and $2.0 million in
short-term investments at June 30, 2000.
At June 30, 2000, the Company's total debt was $56.7 million, of which $15.0
million was current.
At June 30, 2000, the Company had $36.0 million outstanding, and up to an
additional $14.0 million or gold equivalent, subject to covenant limitations,
available until August 2001, under its revolving credit facility. In July 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 June 30, 2000, the fair value of the Company's hedge portfolio was $5.4
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 $5.9 million has been incurred in the first six 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 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 and Six Months Ended June 30, 2000
(U.S. dollars)
FINANCIAL REVIEW
Three month results
The Company reported net earnings of $10.2 million ($0.04 per share) in the
second quarter of 2000, compared to a net loss of $7.0 million ($0.07 per share)
in the second quarter of 1999. The 2000 results compared to 1999 reflect
increased gold and silver sales volume ($34.3 million), partially offset by
increased operating costs ($14.1 million).
Gold production increased 51% to 188,475 ounces in the second quarter of 2000
compared to 125,056 ounces in the second quarter of 1999. Increased production
reflects the contribution from the Lupin mine of 38,359 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 3.6 million
ounces, 87% higher than the 1.9 million ounces produced in 1999.
Cash operating costs were $186 per ounce of gold in the second quarter of 2000,
versus $213 in the second quarter of 1999. The decrease was primarily a result
of increased grades and higher production at McCoy/Cove. Total production costs
were $262 per ounce in the second quarter of 2000, versus $314 per ounce in the
second quarter of 1999.
Six month results
The Company reported net earnings of $7.5 million ($0.00 per share) in the first
six months of 2000, compared to a net loss of $12.1 million ($0.13 per share) in
the first six months of 1999. The 2000 results compared to 1999 reflect
increased gold and silver sales volume ($37.2 million). These factors were
partially offset by increased operating costs ($11.9 million) and increased
exploration and development spending ($3.4 million).
Gold production increased 35% to 328,645 ounces in the first six months of 2000
compared to 243,820 ounces in the first six 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 7.4 million ounces, 62% higher than the 4.6
million ounces produced in 1999.
Cash operating costs were $179 per ounce of gold in the first six months of
2000, versus $215 in the first six months of 1999. The decrease was primarily a
result of increased grades and higher production at McCoy/Cove. Total production
costs were $257 per ounce in the first six months of 2000, versus $317 per ounce
in the first six months of 1999.
The term ounce as used in this Form 10-Q means "troy ounce".
13
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 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 Six months ended
June 30 June 30
Revenue Data 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold
----
Ounces sold 182,372 112,399 299,166 222,110
Average price realized/ounce - revenue basis $ 322 $ 326 $ 321 $ 325
Average price realized/ounce - cash basis /(1)/ $ 302 $ 345 $ 301 $ 348
Average market price/ounce $ 280 $ 274 $ 285 $ 281
Revenue (millions of U.S. $) $ 58.7 $ 36.6 $ 96.1 $ 72.2
Percentage of total revenue 70% 72% 71% 72%
Silver
------
Ounces sold 4,886,675 2,708,016 7,374,682 5,101,111
Average price realized/ounce - revenue basis $ 5.23 $ 5.27 $ 5.42 $ 5.38
Average price realized/ounce - cash basis /(1)/ $ 5.18 $ 5.19 $ 5.35 $ 5.26
Average market price/ounce $ 5.06 $ 5.15 $ 5.13 $ 5.22
Revenue (millions of U.S. $) $ 25.6 $ 14.3 $ 40.0 $ 27.4
Percentage of total revenue 30% 28% 29% 28%
-------------------------------------------------------------------------------------------------------------------------------
Total revenue (millions of U.S. dollars) $ 84.3 $ 50.9 $ 136.1 $ 99.6
===============================================================================================================================
</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 Six months ended
2000 vs. 1999 June 30 June 30
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lower gold prices $ (0.6) $ (1.0)
Lower silver prices (0.3) 0.3
Change in volume 34.3 37.2
-----------------------------------------------------------------------------------------------------------------------------
Increase in revenue $ 33.4 $ 36.5
=============================================================================================================================
</TABLE>
14
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000
(U.S. dollars)
Production Costs
Production cost data per ounce of gold is set out below.
<TABLE>
<CAPTION>
Three months ended Six months ended
Production Costs per June 30 June 30
Ounce of Gold Produced 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct mining expense $ 190 $ 227 $ 190 $ 220
Deferred stripping and mine development costs (3) (16) (8) (14)
Inventory movements and other (1) 2 (3) 9
-----------------------------------------------------------------------------------------------------------------------------
Cash operating costs 186 213 179 215
Royalties 10 10 9 10
Production taxes 3 -- 3 --
-----------------------------------------------------------------------------------------------------------------------------
Total cash costs 199 223 191 225
Depreciation 31 60 34 60
Amortization 20 20 21 21
Reclamation and mine closure 12 11 11 11
-----------------------------------------------------------------------------------------------------------------------------
Total production costs $ 262 $ 314 $ 257 $ 317
=============================================================================================================================
</TABLE>
Expenses
Operating costs per ounce vary with the quantity of gold and silver sold and
with the cost of operations. Cash operating costs were $186 per ounce of gold in
the second quarter of 2000 and $213 in the second quarter of 1999.
See "Operations Review."
<TABLE>
<CAPTION>
Reconciliation of Cash Operating
Costs per Ounce to Financial Statements Three months ended Six months ended
thousands of U.S. dollars, June 30 June 30
except per ounce amounts 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating costs per financial statements $ 48,880 $ 34,833 $ 79,089 $ 67,246
Change in finished goods inventory and other (3,214) (215) 656 3,462
Co-product cost of silver produced (10,602) (7,981) (20,864) (18,287)
-----------------------------------------------------------------------------------------------------------------------------
Cash operating costs $ 35,064 $ 26,637 $ 58,881 $ 52,421
=============================================================================================================================
Gold ounces produced 188,475 125,056 328,645 243,820
=============================================================================================================================
Cash operating costs per ounce $ 186 $ 213 $ 179 $ 215
=============================================================================================================================
</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.
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.
15
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000
(U.S. dollars)
OPERATIONS REVIEW
Operating data by mine is set out below.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
Operating Data by Mine 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold production (ounces)
------------------------
(a)Round Mountain (50%) 76,408 70,765 148,362 130,450
(b)McCoy/Cove 49,448 29,576 92,594 61,690
(c)Lupin 38,359 -- 38,359 --
(d)Kettle River 24,260 24,715 49,330 51,680
-----------------------------------------------------------------------------------------------------------------------------
Total gold 188,475 125,056 328,645 243,820
=============================================================================================================================
Silver production (ounces)
--------------------------
(b)McCoy/Cove 3,581,898 1,918,479 7,424,844 4,583,317
-----------------------------------------------------------------------------------------------------------------------------
Total silver 3,581,898 1,918,479 7,424,844 4,583,317
=============================================================================================================================
</TABLE>
Gold production increased 51% to 188,475 ounces in the second quarter of 2000
compared to 125,056 ounces in the second 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 3.6 million ounces in
the second quarter of 2000 from 1.9 million ounces in the second 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 12 million ounces.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
Operating Data by Mine 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash operating costs (per ounce of gold)
----------------------------------------
(a) Round Mountain $ 202 $ 195 $ 194 $ 207
(b) McCoy/Cove 163 222 156 215
(c) Lupin 213 -- 213 --
(d) Kettle River 201 243 214 235
-----------------------------------------------------------------------------------------------------------------------------
Company average $ 186 $ 213 $ 179 $ 215
=============================================================================================================================
</TABLE>
Cash operating costs were $186 per ounce of gold in the second quarter of 2000,
compared to $213 in the second 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.
16
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000
(U.S. dollars)
(a) Round Mountain, Nevada (50% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
OPERATING DATA 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces):
Heap leached - reusable pad (50%) 18,452 16,619 36,220 35,957
Heap leached - dedicated pad (50%) 41,114 24,198 73,487 49,433
Milled (50%) 16,842 27,970 36,720 43,082
Other (50%) -- 1,978 1,935 1,978
--------- --------- --------- ---------
Total (50%) 76,408 70,765 148,362 130,450
Mining cost/ton of ore and waste $ 0.82 $ 0.69 $ 0.82 $ 0.71
Heap leaching cost/ton of ore $ 0.63 $ 0.65 $ 0.60 $ 0.69
Milling cost/ton of ore $ 2.80 $ 3.03 $ 2.85 $ 3.17
Production cost per ounce of gold produced:
Direct mining expense $ 206 $ 194 $ 211 $ 214
Deferred stripping cost (4) (4) (11) (16)
Inventory movements and other -- 5 (6) 9
--------- --------- ---------- ---------
Cash operating cost 202 195 194 207
Royalties 23 14 17 17
Production taxes 1 -- 1 --
--------- --------- --------- ---------
Total cash cost 226 209 212 224
Depreciation 45 45 46 46
Amortization 18 18 18 18
Reclamation and mine closure 9 9 9 9
--------- --------- --------- ---------
Total production costs $ 298 $ 281 $ 285 $ 297
--------- --------- --------- ---------
Heap leached - reusable pad:
Ore processed (tons/day) (100%) 27,630 10,536 27,784 14,669
Total ore processed (000 tons) (100%) 2,514 959 5,057 2,670
Grade (ounce/ton) 0.030 0.034 0.028 0.036
Recovery rate (%) 58.1 73.1 59.9 73.8
Heap leached - dedicated pad:
Ore processed (tons/day) (100%) 145,198 118,334 145,236 104,991
Total ore processed (000 tons) (100%) 13,213 10,768 26,433 19,108
Grade (ounce/ton) 0.011 0.011 0.011 0.011
Recovery rate /(1)/
Milled:
Ore processed (tons/day) (100%) 8,581 7,711 8,322 7,493
Total ore processed (000 tons) (100%) 781 702 1,515 1,364
Grade (ounce/ton) 0.051 0.079 0.049 0.083
Recovery rate (%) 82.9 88.5 83.9 87.7
----------------------------------------------------------------------------------------------------------------------------------
</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 76,408
ounces for the second quarter of 2000 compared with 70,765 ounces in the second
quarter of 1999. The increase in production is attributable to the mining of
more ore rather than waste tons in the second quarter of 2000 when compared to
the same period in 1999. This resulted in 34%
17
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000
(U.S. dollars)
more tons being placed on leach pads in the second 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. Cash operating cost per ounce increased to $202 for
the second quarter of 2000, compared to $195 in the second quarter of 1999 due
to increased diesel prices and the cost of 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.
18
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30,2000
(U.S. dollars)
(b) McCoy/Cove, Nevada (100% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
OPERATING DATA 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces):
Milled 33,005 16,039 61,703 36,696
Heap leached 16,443 13,537 30,891 24,994
---------- ---------- ---------- ----------
Total gold 49,448 29,576 92,594 61,690
Silver produced (ounces):
Milled 3,229,514 1,848,331 6,844,790 4,432,671
Heap leached 352,384 70,148 580,054 150,646
---------- ---------- ---------- ----------
Total silver 3,581,898 1,918,479 7,424,844 4,583,317
Mining cost/ton of ore and waste $ 0.70 $ 0.60 $ 0.72 $ 0.66
Milling cost/ton of ore $ 6.75 $ 5.57 $ 6.77 $ 6.10
Heap leaching cost/ton of ore $ 1.91 $ 1.56 $ 1.80 $ 1.63
Production cost per ounce of gold produced:
Direct mining expense $ 155 $ 244 $ 160 $ 213
Deferred stripping cost 5 (26) (3) (10)
Inventory movements and other 3 4 (1) 12
---------- ---------- ---------- ----------
Cash operating cost 163 222 156 215
Royalties 3 2 3 2
Production taxes 6 -- 5 --
---------- ---------- ---------- ----------
Total cash cost 172 224 164 217
Depreciation 22 52 23 50
Amortization 28 27 28 27
Reclamation and mine closure 11 11 11 11
---------- ---------- ---------- ----------
Total production costs $ 233 $ 314 $ 226 $ 305
---------- ---------- ---------- ----------
Average gold-to-silver price ratio/(1)/ 55.1:1 53.4:1 55.5:1 53.9:1
Milled:
Ore processed (tons/day) 11,313 13,664 11,257 12,590
Total ore processed (000 tons) 1,029 1,243 2,049 2,291
Gold grade (ounce/ton) 0.054 0.030 0.057 0.032
Silver grade (ounce/ton) 3.78 2.46 4.44 2.77
Gold recovery rate (%) 52.2 36.3 54.0 40.5
Silver recovery rate (%) 72.7 58.7 72.5 62.7
Heap leached:
Ore processed (tons/day) 9,010 14,029 9,942 12,809
Total ore processed (000 tons) 820 1,277 1,809 2,331
Gold grade (ounce/ton) 0.019 0.019 0.024 0.022
Silver grade (ounce/ton) 0.83 0.22 0.96 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.
19
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000
(U.S. dollars)
At McCoy/Cove in Nevada, gold production was 49,448 ounces in the second quarter
of 2000 compared with 29,576 ounces in the second quarter of 1999. Silver
production totaled 3.6 million ounces in the first quarter of 2000 compared with
1.9 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 80% higher and silver grades 54% higher in the second quarter of 2000 than
during the same quarter in 1999. With the higher production, cash operating
costs were $163 per ounce in the second quarter of 2000, down $59 from the
second quarter of 1999.
McCoy/Cove is on schedule to complete mining of the open pits by the end of the
year. 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 quarter as planned. Heap leach processing is
expected to continue into 2001.
Underground mining of the Cove South Deep upper zone continued during the
quarter and is scheduled for completion in the first quarter of 2001.
Exploration of additional underground targets below the existing Cove pit is
underway.
20
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2000
(U.S. dollars)
(c) Lupin, Nunavut, Canada (100% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
OPERATING DATA 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gold produced (ounces) 38,359 38,359
Mining cost/ton of ore C $ 38.50 C $ -- C $ 38.50 C $ --
Milling cost/ton of ore C $ 14.45 C $ -- C $ 14.45 C $ --
Production cost per ounce of gold produced:
Canadian dollars:
Direct mining expense C $ 341 C $ -- C $ 341 C $ --
Deferred mine development cost C $ (4) C $ -- C $ (4) C $ --
Inventory movements and other C $ -- C $ -- C $ -- C $ --
--------- --------- --------- ---------
Cash operating cost C $ 337 C $ -- C $ 337 C $ --
U.S. dollars
Cash operating costs US $ 213 US -- US 213 US --
Royalties -- -- -- --
Production taxes -- -- -- --
--------- --------- --------- ---------
Total cash cost 213 -- 213 --
Depreciation 28 -- 28 --
Amortization 9 -- 9 --
Reclamation and mine closure 17 -- 17 --
--------- --------- --------- ---------
Total production costs US $ 267 US $ -- US $ 267 US $ --
--------- --------- --------- ---------
Milled:
Ore processed (tons/day) 1,934 -- 1,934 --
Total ore processed (000 tons) 176 -- 176 --
Grade (ounce/ton) 0.235 -- 0.235 --
Recovery rate (%) 92.9% -- 92.9% --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In November 1999, the Company announced its decision to reopen the Lupin mine,
located in Nunavut, Canada. Re-commissioning activities were completed on time
and on budget, and the first gold pour occurred in mid-April. Gold production
for the quarter was 38,359 ounces and cash operating costs were $213 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.
21
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30,2000
(U.S. dollars)
(d) Kettle River, Washington (100% owned)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
OPERATING DATA 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gold produced (ounces) 24,260 24,715 49,330 51,680
Mining cost/ton of ore $ 20.01 $ 23.91 $ 21.06 $ 24.05
Milling cost/ton of ore $ 11.15 $ 11.21 $ 11.51 $ 11.16
Production cost per ounce of gold produced:
Direct mining expense $ 238 $ 254 $ 238 $ 242
Deferred mine development cost -- -- -- --
Inventory movements and other (37) (11) (24) (7)
---------- --------- ---------- ---------
Cash operating cost 201 243 214 235
Royalties 13 18 13 15
Production taxes 1 1 1 1
--------- --------- --------- ---------
Total cash cost 215 262 228 251
Depreciation 10 72 10 69
Amortization 8 8 8 8
Reclamation and mine closure 15 15 15 15
--------- --------- --------- ---------
Total production costs $ 248 $ 357 $ 261 $ 343
--------- --------- --------- ---------
Milled:
Ore processed (tons/day) 1,378 1,624 1,443 1,641
Total ore processed (000 tons) 125 148 263 299
Grade (ounce/ton) 0.223 0.200 0.221 0.204
Recovery rate (%) 86.9 83.7 85.0 85.0
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Production for the second quarter of 2000 was 24,260 ounces, similar to 24,715
ounces in the second quarter of 1999. Cash operating costs per ounce were $201,
down $42 from the second 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.
Preliminary results of the exploration efforts to test zones to the northeast of
the K-2 deposit have indicated a resource of approximately 400,000 tons grading
0.2 ounces per ton. A mine plan will be developed during the last half of the
year that should extend the mine life of K-2 for another year.
22
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 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 second quarter of 2000, the Company spent $1.4 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) a drilling program is being completed
at the main zone on the Youga concession as well as on nearby ground to extend
known zones of mineralization. In addition, drilling has commenced 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
Aquarius is an advanced development project owned entirely by the Company and
located 40 kilometers east of Timmins in northeastern Ontario. The Company
curtailed all site engineering and construction in early 1998 after completion
of a frozen earth system around the pit perimeter to prevent groundwater from
flowing into the pit from the surrounding water table. All facilities and
equipment are on a scheduled care and maintenance program designed to fully
preserve all assets. During the second quarter of 2000, the Company expensed
$0.2 million in holding costs related to Aquarius.
During the second quarter, M3 Engineering and Technology Corporation (Tucson,
Arizona) completed a bankable engineering study based on a 7,500 tonne per day
on-site mill and an open-pit mine. The study determined that, based on a gold
price of $300 per ounce and a proven and probable ore reserve of 1,191,000
ounces, Aquarius will produce 1,132,000 ounces of gold at a cash operating cost
of $148 per ounce. A change in the processing concept from whole ore leach to a
simplified gravity flotation circuit along with other improvements to the mining
plan contribute to the decrease in estimated operating costs. This improvement
is achieved without compromising gold recovery. The study also determined that
significant savings in capital costs were achievable by incorporating a grinding
circuit, acquired in exchange for the Company's interest in the Paredones
Amarillos project, and reassigning mining and process equipment from the
Company's McCoy/Cove Mine.
On May 16, 2000 the Ontario Technical Standards and Safety Authority issued a
provisional operating permit for the freeze plants. On June 30, 2000 the
Minister of the Environment for Canada announced his approval of the
environmental assessment for Aquarius. The Minister concluded that further
environmental assessment by a review panel or mediator was not necessary because
significant adverse environmental effects were unlikely. The Minister has
referred the project back to the Department of Fisheries and Oceans for
completion of the permitting process. The Company anticipates all permitting for
the Aquarius project will be in place during the third quarter.
Aquarius, with its extensive land holdings and enhanced project economics,
represents an early development opportunity in an improving gold market.
23
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30,2000
(U.S. dollars)
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.
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 will be recorded pursuant
to this agreement.
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 Russan
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 plans to commence 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.
24
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30,2000
(U.S. dollars)
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.
25
<PAGE>
ECHO BAY MINES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
For the Three and Six Months Ended June 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 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.
26
<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 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
(a) The Company's Annual General Meeting was held May 17, 2000.
(c) (1) Election of Directors
<TABLE>
<CAPTION>
Votes Against
Nominee Votes For or Withheld
------- --------- -------------
<S> <C> <C>
John Norman Abell 69,632,843 1,625,156
Latham Cawthra Burns 69,579,846 1,678,153
Pierre Choquette 69,626,126 1,631,873
John Gilray Christy 69,736,053 1,521,946
Peter Clarke 69,669,039 1,588,960
Robert Leigh Leclerc, Q.C. 67,930,761 3,327,238
John Frederick McOuat 69,561,887 1,696,112
Monica Elizabeth Sloan 69,543,222 1,714,777
Richard Geoffrey Pentland Styles 69,585,796 1,672,203
</TABLE>
(c) (2) Appointment of Ernst & Young LLP as Auditors of the Company.
<TABLE>
<CAPTION>
Votes Against
Votes For or Withheld
--------- -------------
<S> <C> <C>
Appointment of Ernst & Young LLP 70,379,282 509,887
</TABLE>
27
<PAGE>
ECHO BAY MINES LTD.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K None.
28
<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)
August 4, 2000
-----------------------------
Date
/s/ David A. Ottewell
-----------------------------
DAVID A. OTTEWELL
Controller and Principal
Accounting Officer
29
