<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the Quarterly Period Ended March 31, 1994
( ) 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 1-8736
HOMESTAKE MINING COMPANY
A Delaware Corporation
IRS Employer Identification No. 94-2934609
650 California Street
San Francisco, California 94108-2788
Telephone: (415) 981-8150
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
---------- -----------
The number of shares of common stock outstanding as of April 30, 1994 was
137,736,666.
Page 1 of 12
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
- - ----------------------------
A. Condensed Consolidated Balance Sheets (unaudited)
------------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 112,029 $ 134,719
Short-term investments 36,685
Receivables 32,084 28,649
Inventories:
Finished products 16,052 9,548
Ore and in-process 28,885 22,465
Supplies 28,376 34,526
Other 4,905 8,303
----------- -----------
Total current assets 259,016 238,210
----------- -----------
Property, plant and equipment - at cost 1,525,693 1,540,218
Accumulated depreciation, depletion
and amortization (712,875) (709,990)
----------- -----------
Net property, plant and equipment 812,818 830,228
----------- -----------
Investments and other assets:
Non-current investments 19,193 20,632
Other assets 30,880 32,180
----------- -----------
Total investments and other assets 50,073 52,812
----------- -----------
Total Assets $1,121,907 $1,121,250
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,919 $ 33,002
Accrued liabilities:
Payroll and other compensation 20,445 19,053
Reclamation 13,949 14,041
Other 21,406 24,653
Income and other taxes payable 6,478 9,816
Current portion of long-term debt 3,785
----------- -----------
Total current liabilities 89,197 104,350
----------- -----------
Long-term liabilities:
Long-term debt 185,000 189,191
Other long-term obligations 93,910 93,674
----------- -----------
Total long-term liabilities 278,910 282,865
----------- -----------
Deferred income and mining taxes 159,965 164,030
Minority interest in consolidated
subsidiaries 55,992 54,761
Shareholders' equity:
Capital stock, $1 par value per share:
Preferred - 10,000 shares authorized;
no shares outstanding
Common - 250,000 shares authorized;
shares outstanding:
1994 - 137,727; 1993 - 137,494 137,727 137,494
Other shareholders' equity 400,116 377,750
----------- -----------
Total shareholders' equity 537,843 515,244
----------- -----------
Total Liabilities and Shareholders' Equity $1,121,907 $1,121,250
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
B. Condensed Statements of Consolidated Income (unaudited)
------------------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months ended March 31,
1994 1993
--------- ---------
<S> <C> <C>
Revenues:
Product sales $165,943 $163,337
Interest and dividends 1,765 746
Equity earnings 328 (827)
Other income 4,366 6,737
--------- ---------
172,402 169,993
--------- ---------
Costs and Expenses:
Production costs 103,187 115,927
Depreciation, depletion
and amortization 20,107 25,032
Administrative and general
expense 8,194 9,165
Exploration expense 3,064 4,291
Interest expense 2,993 1,793
Other expenses 222 2,615
--------- ---------
137,767 158,823
--------- ---------
Income Before Taxes and
Minority Interest 34,635 11,170
Income and Mining Taxes (8,694) (6,187)
Minority Interest (1,727) 578
--------- ---------
Net Income $ 24,214 $ 5,561
========= =========
Net Income Per Share $ 0.18 $ 0.04
========= =========
Average Shares Used
in the Computation 137,675 136,779
========= =========
Dividends Per Common Share $ 0.025 $ 0.025
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
C. Condensed Statements of Consolidated Cash Flows (unaudited)
----------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
--------- ---------
<S> <C> <C>
Cash Flows from Operations:
Net income $ 24,214 $ 5,561
Reconciliation to net cash
provided by operations:
Depreciation, depletion and
amortization 20,107 25,032
Deferred taxes, minority interest
and other 8,068 5,398
Gain on disposal of assets (1,743) (4,191)
Effect of changes in operating
working capital items (18,048) 8,913
--------- ---------
Net cash provided by operations 32,598 40,713
--------- ---------
Investment Activities:
Decrease (increase) in short-term
investments (36,685) 1,754
Additions to property, plant and
equipment (15,173) (13,173)
Proceeds from sales of assets 3,997 4,313
--------- ---------
Net cash used in investment activities (47,861) (7,106)
--------- ---------
Financing Activities:
Debt repayments (8,352) (14,352)
Dividends paid - Homestake common
shares (3,442) (3,419)
Dividends paid - preferred shares (387)
Common shares issued 4,367 151
--------- ---------
Net cash used in financing activities (7,427) (18,007)
--------- ---------
Net increase (decrease) in cash and
equivalents (22,690) 15,600
Cash and equivalents, January 1 134,719 54,208
--------- ---------
Cash and equivalents, March 31 $112,029 $69,808
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
- - ----------------------------------------------------------------
1. The condensed consolidated financial statements included herein should
be read in conjunction with the financial statements and notes
thereto, which include information as to significant accounting
policies, in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
The information furnished in this report reflects all adjustments
which, in the opinion of management, are necessary for a fair
statement of the results for the interim periods. Except as described
in Note 2, such adjustments consist of items of a normal recurring
nature. Results of operations for interim periods are not necessarily
indicative of results for the full year.
2. Effective January 1, 1993 the Company adopted SFAS No. 109,
"Accounting for Income Taxes." This standard, which changed the
criteria for recognition and measurement of deferred tax assets and
certain other requirements of SFAS 96, was adopted on a prospective
basis. The effect on net income was not material and did not result
in the recording of a cumulative effect for adopting this accounting
principle.
3. Under the Company's foreign currency protection program, the Company
has entered into a series of foreign currency option contracts which
established trading ranges within which the United States dollar will
be exchanged for foreign currencies by setting minimum and maximum
exchange rates. Option contracts outstanding as of March 31, 1994
were as follows:
<TABLE>
<CAPTION>
Amount Covered Exchange Rates To U.S.$ Expiration
Currency (U.S. Dollars) Minimum Maximum Date
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian $ 97,300,000 .69 .79 1994-1997
Australian 59,800,000 .61 .70 1994-1995
------------
$157,100,000
</TABLE>
4. In the first quarter of 1994, Prime Resources Group Inc. (Prime)
entered into a transaction under which Prime issued five million
warrants which are convertible into five million common shares of
Prime pending receipt of regulatory approvals. The transaction is
expected to be completed in June or July and will result in net
proceeds of approximately $32.2 million which will be used to fund a
portion of the construction and development costs for the Eskay Creek
project. When completed, this transaction will reduce the Company's
interest in Prime from 54.2% to 50.6%.
5. On May 5, 1994, the Company sold its interest in the Dee mine to
Rayrock Mines, Inc. for $16.5 million. Rayrock assumed responsibility
for and indemnified Homestake against all related environmental and
reclamation matters. This sale will result in a second quarter pretax
gain of approximately $15.8 million.
6. The Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) imposes heavy liabilities on persons who discharge
hazardous substances. The Environmental Protection Agency (EPA)
publishes a National Priorities List (NPL) of known or threatened
releases of such substances.
An 18-mile stretch of Whitewood Creek in the Black Hills of South
Dakota is a site on the NPL. EPA asserts that discharges of tailings
by mining companies, including the Company, for more than 100 years
have contaminated soil and water. In 1990, the Company signed a
consent decree with the EPA that requires the Company to perform
remedial work on the site and long-term monitoring. The onsite
remedial work has been completed. The Company estimates that EPA
oversight and monitoring costs through 1995 will be approximately $2
million.
5
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
The tailings facility at the Company's discontinued uranium mill near
Grants, New Mexico, is a site on the NPL. The EPA asserted that
leakage from the tailings has contaminated a shallow aquifer that
serves nearby residential subdivisions. The Company paid the costs
for installing a municipal water supply and continues to operate an
injection and collection system that has significantly improved the
quality of the aquifer to levels that comply with state groundwater
standards. The Company has commenced to dismantle the mill facilities
and close the tailings impoundments.
Title X of the Energy Policy Act of 1992 (the Act) authorized
appropriations of $310 million to cover the Federal Government's share
of certain costs of reclamation, decommissioning and remedial action
for byproduct material (primarily tailings) generated by certain
licensees as an incident of uranium sales to the Federal Government.
Reimbursement is subject to compliance with regulations now being
finalized by the Department of Energy (DOE) for issuance in 1994. The
DOE has acknowledged that the Company is an eligible participant
pursuant to the Act and that the Company may submit requests for
reimbursement under the Act for 51% of the past and future costs of
reclaiming the Grants site in accordance with EPA requirements. The
Company estimates the total costs to reclaim the Grants facility,
including costs incurred to date by the Company will be $59.2 million.
The DOE's share of these estimated costs will amount to $30.2 million.
Congress has appropriated $41 million dollars for disbursement in 1994
to eligible licensees. As the first installment, the Company intends
to submit in 1994 an initial claim of approximately $13.2 million for
the DOE's share of past costs incurred through December 31, 1993.
In 1983, the state of New Mexico made a claim against the Company for
unspecified natural resource damages resulting from the Grants
tailings. The state of South Dakota made a similar claim in 1983 as
to the Whitewood Creek tailings. The Company denies all liability for
damages at the two CERCLA sites. The two states have taken no action
to enforce the 1983 claims.
The Company believes that the ultimate resolution of these matters
will not have a material adverse impact on its financial condition.
6
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
GOLD PRODUCTION
The following charts detail Homestake's gold production by location and
revenue and costs per ounce.
<TABLE>
<CAPTION>
PRODUCTION CASH OPERATING
COSTS
(Ounces in (Dollars
thousands) per ounce)
Percentage Three Months Three Months
Ownership ended March 31, ended March 31,
Mine (%) 1994 1993 1994 1993
- - ---- -------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Homestake 100 103.2 107.9 $255 $256
McLaughlin 100 66.8 77.3 231 185
Round Mountain 25 34.0 19.1 155 262
Santa Fe 100 8.1 13.8 146 231
Marigold 33 7.1 7.9 241 221
Pinson 26 3.2 3.1 300 302
Dee 44 2.0 2.9 407 507
Mineral Hill 50 - 6.3 - 235
------ ------
Total United States 224.4 238.3
Williams 50 61.7 67.0 199 195
David Bell 50 23.1 28.9 175 135
Quarter Claim 25 1.9 5.7 179 99
Nickel Plate 100 24.0 18.3 278 296
Snip 40 12.7 15.7 158 119
Golden Bear 100 - 15.0 - 263
------ ------
Total Canada 123.4 150.6
Kalgoorlie,
Australia 50 89.8 70.3 265 255
El Hueso, Chile 100 14.6 21.3 339 245
Torres, Mexico 30 2.2 3.2 336 392
------ ------
TOTAL PRODUCTION 454.4 483.7 234 226
Minority Interest (22.4) (20.1)
------ ------
HOMESTAKE'S SHARE 432.0 463.6
====== ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Per Ounce of Gold 1994 1993
- - ----------------- ----- -----
<S> <C> <C>
Revenue $385 $331
Cash Operating Costs 234 226
Non-Cash Costs (1) 47 51
<FN>
(1) Includes depreciation, depletion, amortization and reclamation costs.
</TABLE>
7
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (continued)
- - ------------------------------------------------
RESULTS OF OPERATIONS
(Unless specifically stated otherwise, all comments, production statistics,
etc. relate to amounts included in the consolidated financial statements
including the Company's interests in mining partnerships accounted for
using the equity method, without reduction for minority interest.)
Net income in the first quarter of 1994 was $24.2 million or $0.18 per
share compared to $5.6 million or $0.04 per share in the first quarter of
1993. The improvement in the Company's financial performance was primarily
due to an increase in the average realized gold price along with reductions
in administrative, exploration and other costs.
Revenue from product sales increased by $2.6 million over the prior year's
first quarter to $165.9 million. This increase included a $2.7 million
year-to-year increase in revenues from the Main Pass 299 sulphur project
and a slight $0.1 million decrease in revenues from gold sales. Revenues
from gold sales of $161.0 million compare to revenues of $161.1 million in
the prior year's first quarter reflecting a $54 per ounce increase in the
average realized price which offset a 15% decline in ounces sold. During
the 1994 first quarter 433,200 ounces of gold were sold compared to 508,400
ounces in the 1993 quarter. In addition to the absence of production from
two mines sold during 1993, the lower sales volumes reflect a 21,000 ounce
increase in inventory during the first quarter of 1994 compared to a
reduction of 25,000 ounces in inventory during the first quarter of the
prior year.
The Company's gold production decreased by 6% to 454,400 ounces during the
first quarter of 1994 from 483,700 ounces in the prior year. The lower
production is primarily due to the 1993 sales of the Golden Bear and
Mineral Hill mines, which produced 21,300 ounces in the first quarter of
1993.
Excluding the effect of the 1993 sale of the Mineral Hill mine in Montana,
overall domestic production declined slightly. Production from the
underground operations at the Homestake mine in South Dakota increased due
to improved recoveries and ore grade. However, this increase did not fully
offset a reduction in tonnage from the mine's open pit (Open Cut) due to
development work. Total production at the mine declined by 4% to 103,200
ounces. Development work at the Open Cut should be completed by May at
which time production volumes should return to forecast levels. As
expected, production at the McLaughlin mine in California decreased by 14%
to 66,800 ounces due to a decline in ore grades and recovery rates. This
resulted in an increase in McLaughlin mine cash cost per ounce to $231 in
the first quarter of 1994 from $185 in 1993. Gold production at the Round
Mountain mine in Nevada increased by 78% to 34,000 ounces in 1994. The
significant increase was due to a process improvement strategy of
optimizing the distribution of ore between the reusable and the dedicated
pads and extending the reusable pad leach cycles. As a result, recoveries
on the reusable pad improved from 60% in 1993 to 83% in 1994 and cash cost
per ounce declined from $262 to $155.
Excluding the effect of the sale of the Golden Bear mine in British
Columbia, overall foreign production also declined slightly. Anticipated
lower grade ore at the Williams and David Bell mines resulted in a decrease
in the combined production from the Hemlo mining camp to 84,800 ounces in
1994 compared to 95,900 ounces in 1993. Production at the Nickel Plate
mine increased in 1994 due to the completion of the pit expansion waste
stripping program which commenced in 1993. Production at the Kalgoorlie
operations in Australia increased by 28% to 89,800 ounces in the first
quarter of 1994 compared to 70,300 ounces in 1993 due to an increase in
tons mined, higher grades and improved recoveries. Although production
increased significantly at the Kalgoorlie operations, cash cost per ounce
increased to $265 per ounce in 1994 compared to $255 in 1993 primarily as a
result of the strengthening Australian dollar.
Although sulphur prices remain weak, an increase in sulphur production to
6,000 tons per day at the Main Pass 299 sulphur project resulted in a
decrease in the operating losses in 1994 to $1.1 million compared to $2.7
million in 1993.
8
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (continued)
- - ------------------------------------------------
Administrative and general expenses declined to $8.2 million for the first
quarter of 1994 compared to $9.2 million in 1993 due to continued cost
restraints and the impact from the 1992 and 1993 restructuring programs.
Exploration expense declined to $3.1 million in 1994 primarily due to the
cessation of the North Homestake Project in South Dakota. Drilling results
failed to define sufficient mineralization to warrant continued spending on
the project.
Other expenses of $0.2 million in the first quarter of 1994 declined by
$2.4 million from the 1993 first quarter. Other expenses for the the first
quarter of 1993 included $1.5 million of pre-feasibility costs related to
Eskay Creek.
Approximately one-half of Homestake's gold sales are generated outside the
United States, principally in Canada and Australia. The value of those
countries' currencies can fluctuate significantly compared with the U.S.
dollar. During the first quarter of 1993, the Company implemented a
program to establish exchange rate ranges within which U.S. dollar receipts
from the sale of gold may be converted into the currencies of these
countries. Under existing SEC pronouncements, contracts entered into under
this program do not qualify for hedge accounting and must be marked to
market. At March 31, 1994 the Company had a net unrealized gain of $0.2
million on open contracts.
Other income for the first quarter of 1994 includes net gains of $0.4
million related to contracts entered into under the foreign currency
protection program, $1.8 million of insurance proceeds and a $1.3 million
gain on the sale of HGAL's Fortnum property. Other income for the 1993
first quarter included net gains of $1.2 million associated with the
foreign currency protection program and a $4 million gain on the sale of a
mineral property in Canada.
On May 5, 1994, the Company sold its interest in the Dee mine to Rayrock
Mines, Inc. for $16.5 million. Rayrock assumed responsibility for and
indemnified Homestake against all related environmental and reclamation
matters. This sale will result in a second quarter pretax gain of
approximately $15.8 million.
During the first quarter of 1994, Prime received a mine development
certificate from the British Columbia government for the Eskay Creek
project and mine development has commenced.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totalled $32.6 million in the first quarter of
1994 compared to $40.7 million in the same period in 1993. Working capital
at the end of the first quarter of 1994 was $169.8 million, including
$148.7 million in cash and short-term investments.
Capital additions during the first quarter of 1994 of $15.2 million include
$6.8 million at the Homestake mine primarily for Open Cut development and
$4.2 million on the Eskay Creek project.
In February 1994, the Company repaid its $8.3 million of Australian finance
lease debt. At March 31, 1994, the Company has no required debt payments
until the year 2000. Additionally, the Company has a $150 million line of
credit which provides for borrowings to be drawn in U.S. dollars, Canadian
dollars, gold loans or a combination of these. No amounts have been
borrowed under this facility.
In February 1994, Prime entered into an underwriting agreement to issue
five million special warrants which are exchangeable for five million
common shares of Prime. Net proceeds from this issue of $32.2 million will
be used to fund a portion of the Eskay Creek project development costs.
The funds will be available after receipt of regulatory approvals which is
expected to be in June or July. Following conversion of the warrants,
Homestake's interest in Prime will be 50.6%.
The Company believes that the combination of cash, investments, available
lines of credit and future cash flows from operations is expected to be
sufficient to meet normal operating requirements.
9
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Part II - OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1994.
10
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SIGNATURES
-----------
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.
HOMESTAKE MINING COMPANY
Date: May 12, 1994 By: /s/ Gene G. Elam
------------ ------------------------
Gene G. Elam
Vice President, Finance
and Chief Financial
Officer
Date: May 12, 1994 By: /s/ David W. Peat
------------- -----------------------
David W. Peat
Controller and Chief
Accounting Officer
11
<PAGE>
<PAGE>
Exhibit 11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Computation of Earnings Per Share (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months ended
March 31,
1994 1993
------- -------
<S> <C> <C>
PRIMARY:
Earnings:
Net income $24,214 $5,561
Less Homestake Canada Inc. dividends
on Series 1 second preference
shares (387)
--------- ---------
Net income applicable to primary
earnings per share calculation $24,214 $5,174
========= =========
Weighted average number of shares
outstanding 137,675 136,779
========= =========
Net income per share - primary $ 0.18 $ 0.04
========= =========
FULLY DILUTED:
Earnings:
Net income $24,214 $5,561
Add: Interest relating to 5.5%
convertible subordinated
notes, net of tax 1,647
Amortization of issuance costs
relating to 5.5% convertible
subordinated notes, net of tax 112
Less Homestake Canada Inc. dividends on
Series 1 second preference shares (387)
--------- ---------
Net income applicable to fully diluted
earnings per share calculation $25,973 $5,174
========= =========
Weighted average number of shares
outstanding:
Common shares 137,675 136,779
Additional shares relating to
conversion of 5.5% convertible
subordinated notes 6,504
--------- ---------
144,179 136,779
========= =========
Net income per share - fully diluted $ 0.18(a) $ 0.04
========= =========
<FN>
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No.
15 because it produces an anti-dilutive result.
</TABLE>
12
<PAGE>
