UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ______
Commission file number 1-8736
HOMESTAKE MINING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 94-2934609
(State of Incorporation) (I.R.S. Employer
Identification No.)
650 California Street
San Francisco, California 94108-2788
(Address of principal executive office) (Zip Code)
(415) 981-8150
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1.00 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Participating
Cumulative Preferred Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
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
________ _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $2,203,000,000 as of March 13, 1995.
The number of shares of common stock outstanding as of March 13, 1995 was
137,857,427.
Documents Incorporated by Reference:
Specified sections of Homestake Mining Company's 1994 Annual Report to
Shareholders, as described herein, are incorporated by reference in Parts I
and II of this Form 10-K. Specified sections of the definitive Proxy
Statement for the 1995 Annual Meeting of Shareholders, which will be filed
with the Securities and Exchange Commission within 120 days after December 31,
1994, are incorporated by reference in Part III of this Form 10-K.
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART I
ITEM - 1 BUSINESS
INTRODUCTION
Homestake is a Delaware corporation organized in 1983 as the parent
holding company to a California corporation organized in 1877. In this
report, the terms "Homestake" and "Company" refer to Homestake Mining Company
and its Subsidiaries.
Homestake is engaged in gold mining and related activities, including
exploration, extraction, processing, refining and reclamation. Gold bullion,
the Company's principal product, is produced in the United States, Canada,
Australia, and Chile.
The results of the Company's operations are affected significantly by
the market price of gold. Gold prices are influenced by numerous factors over
which the Company has no control, including expectations with respect to the
rate of inflation, the relative strength of the U.S. dollar and certain other
currencies, interest rates, global or regional political or economic crises,
demand for gold for jewelry and industrial products, and sales by holders and
producers of gold in response to these factors. The supply of gold consists
of a combination of new mine production and sales from existing stocks of
bullion and fabricated gold held by governments, public and private financial
institutions, and individuals.
The Company's general policy is to sell its production at current prices
and not enter into arrangements which establish a price for the sale of its
future gold production. As a result, the Company's profitability is fully
exposed to fluctuations in the current price of gold in world markets.
However, in certain limited circumstances, the Company will enter into forward
sales commitments for small portions of its gold production. During the
fourth quarter of 1994, the Company sold for future delivery 183,200 ounces of
gold it expects to produce at the Nickel Plate mine during 1995 and 1996.
These forward sales represent less than 5% of the gold that Homestake expects
to produce over the next two years. The average price to be received is
approximately $412 per ounce, which should cover the mine's relatively high
cash costs during its two-year remaining life. The forward sales should also
allow for recovery of the Company's remaining investment in the mine and
provide for estimated reclamation costs.
Homestake also owns a 16.7% co-tenancy interest in the Main Pass 299
offshore sulphur and oil deposit in the Gulf of Mexico.
Dollar amounts in this report are in U.S. dollars unless otherwise
indicated.
See Note 24 to the consolidated statements on pages 46 and 47 of the
Company's 1994 Annual Report to Shareholders for geographic and segment
information. Such information is hereby incorporated by reference.
SIGNIFICANT 1994 DEVELOPMENTS
During 1994, gold prices continued to increase. Homestake's average
realized price was $384 per ounce in 1994 compared to $359 per ounce in 1993
and $348 per ounce in 1992.
In May, the Company sold its 44% interest in the Dee mine to Rayrock
Mines, Inc. (Rayrock) for $16.5 million. Rayrock assumed responsibility for
and indemnified Homestake against all related environmental and reclamation
matters. The Company recorded a $15.7 million pretax gain on this sale.
2<PAGE>
In June, Prime Resources Group Inc. (Prime) completed the sale of five
million common shares to the public. Net proceeds of approximately $31.9
million were used to fund a portion of the construction and development costs
of the Eskay Creek mine. This transaction resulted in a reduction of the
Company's interest in Prime from 54.2% to 50.6%. The Company recorded a gain
of $11.2 million on the transaction in recognition of the net increase in the
book value of the Company's investment in Prime.
Construction of the Eskay Creek gold/silver mine was substantially
completed in 1994 and ore shipments to third-party smelters began in January
1995. Proven and probable ore reserves totaled 2.3 million contained ounces
of gold and 101.8 million contained ounces of silver at December 31, 1994.
Through Prime, the Company has a 50.6% interest in these reserves.
At the Kalgoorlie operations approximately $13 million was spent in 1994
and a further $39 million of expenditures are planned during 1995 on an
expansion program at the Fimiston mill.
During 1994, exploration expenses totaling $6.5 million were made on a
delineation drilling program at the new mineralized zone (Ruby Hill) near
Eureka, Nevada. In October 1994, following completion of this program, the
Company announced its decision to proceed with a $4 million feasibility study
on the West Archimedes oxide zone. In addition, exploration expenses of $5
million are planned for this project in 1995.
1995 DEVELOPMENTS
In February 1995, the Company sold its 28% equity interest in the Torres
silver mining complex in Mexico for $6 million.
GLOSSARY OF TERMS
See pages 28-30 GLOSSARY and INFORMATION ON RESERVES, for definitions of
terms used in the following discussion.
GOLD OPERATIONS
UNITED STATES
Homestake conducts operations at the Homestake mine in the Black Hills
of South Dakota and at the McLaughlin mine in northern California. Homestake
also owns a 25% interest in the Round Mountain mine in central Nevada and owns
or has an interest in three smaller mines in Nevada: the Santa Fe mine
(100%), the Marigold mine (33.3%) and the Pinson mine (26.3%). The Company
has exploration offices in Reno, Nevada and Lead, South Dakota.
Homestake Mine
The 118-year old Homestake gold mine is located in Lawrence County in
and near Lead, South Dakota. Homestake owns 100% of the operation.
The Homestake mine properties cover approximately 11,700 acres of which
approximately 8,200 acres are owned in fee and the remainder are held as
unpatented mining claims. Paved public roads provide access to the operation.
The Homestake mine is comprised of underground and open-pit (the Open
Cut) mining operations, an ore processing plant, a waste-water treatment plant
and tailings disposal facilities. The underground mine is serviced by two
5,000-foot vertical shafts from the surface connecting with internal shafts
which provide hoisting and services to the 8,000-foot level. Ore from
underground is hoisted to the surface, crushed and transported to
3
<PAGE>
the nearby processing plant. Open Cut ore is crushed and transported more
than a mile to the processing plant by an enclosed conveyor. The 7,400 tons-
per-day (TPD) processing plant recovers gold through a combination of gravity,
carbon-in-pulp (CIP) and vat leaching processes. Recycled process water is
pumped through a carbon-in-leach (CIL) circuit, also contributing to
production. The refinery produces fine gold bullion. Process tails are used
for underground fill or are deposited in a tailings impoundment facility three
miles from the plant. The capacity of the tailings impoundment will be
adequate through the year 2000, at which time a new lift will be required.
The facilities and equipment at this operation have been upgraded over the
years for technological advances and generally are in good operating
condition.
Untreated water for use in the mine's facilities is obtained from local
watersheds under Homestake mine water rights and potable water is purchased
from the Lead/Deadwood sanitation district. Electric power is purchased by
contract from Black Hills Corporation and is supplemented by Homestake owned
hydroelectric facilities.
During 1994, the main ventilation raise for the underground mine
collapsed and access to the higher-grade mining areas in the lower mine was
restricted. A 14-foot borehole, which was being drilled between the 5,900 and
6,800-foot levels to replace the raise, was completed in March 1995. In
addition, a second bulk air cooling chamber has been constructed on the
6,650-foot level to provide further cooling capability for expanded mining
operations in the lower levels.
Expansion of the Open Cut, which began in 1989, is largely complete with
work continuing on residential and public facilities around the pit. The
highway overpass leading to the main Open Cut waste dump was closed during the
second half of 1994 while stabilization and additional arch support work was
completed to the highway tunnel below. Detailed monitoring of the tunnel
liner will continue.
During the next few years, as mining progresses in the lower levels of
the Homestake mine, the remaining higher-grade ore deposits will become
narrower and less continuous and therefore more difficult to mine. The
Company has developed various alternatives to help minimize the effect that
this may have on future costs. During 1995, a large tonnage, lower-grade
stope in the upper levels of the mine will be bulk-mined. In addition, narrow
vein mining is being tested in other portions of the mine. These trials will
help determine the future underground mine operating strategy.
Hourly employees at the Homestake mine are represented by the United
Steel Workers of America. The current three-year contract expires on June 3,
1995. In March 1995, a new labor contract was ratified covering the period
June 4, 1995 through May 31, 1998.
The Homestake mine has received no notices of violation and is under no
regulatory orders of any kind mandating specific environmental expenditures.
Reclamation projects and the upgrading of environmental practices and
facilities are ongoing.
No royalties are payable on production from the Homestake mine. The
State of South Dakota currently imposes a severance tax of 10% of net profits
from the sale of gold produced in the state, plus $4 per ounce of gold sold
when the price of gold is $499 per ounce or less, increasing by $1 per ounce
for each $100 increment or part thereof in excess of $499 per ounce.
4
<PAGE>
Geology
The Homestake mine is the largest known iron formation hosted gold
deposit. In its 118-year life, the mine has produced in excess of 38 million
ounces of gold from more than 155 million tons of ore. The Homestake gold
deposit is Proterozoic in age (approximately 1.9 billion years).
Mineralization is generally stratabound within the Homestake Formation, which
is a quartz-veined, sulfide-rich sedimentary sequence that has been complexly
deformed by tight folding, faulting and shearing. Ten southeast-plunging fold
structures, locally called ledges, have produced gold ore over a vertical
extent of more than 8,000 feet.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Underground
Tons of ore (000s) 15,595 15,014
Ounces of gold per ton .228 .230
Contained ounces of gold (000s) 3,559 3,448
Open Cut
Tons of ore (000s) 4,787 5,388
Ounces of gold per ton .121 .130
Contained ounces of gold (000s) 579 700
Total
Tons of ore (000s) 20,382 20,402
Ounces of gold per ton .203 .203
Contained ounces of gold (000s) 4,138 4,148
Operating Data
1994 1993
----- -----
Production Statistics:
Tons of ore mined (000s):
Underground 1,331 1,471
Open Cut 1,092 1,048
Ore grade (oz. gold/ton):
Underground .224 .235
Open Cut .100 .111
Open Cut stripping ratio (waste:ore) 10.1:1 8.4:1
Tons of ore milled (000s) 2,590 2,695
Mill feed ore grade (oz. gold/ton) .160 .174
Mill recovery (%) 95 96
Gold recovered (000 ozs.) 394 448
Cost per Ounce of Gold:
Cash operating cost $ 292 $ 268
Noncash cost 31 20
----- -----
Total production cost $ 323 $ 288
</TABLE>
5
<PAGE>
McLaughlin Mine
The McLaughlin gold mine is located at the junction of Lake, Napa and Yolo
Counties in northern California. The McLaughlin mine has been in operation
since 1985 and is 100% owned by Homestake.
The McLaughlin mine properties cover approximately 17,200 acres.
Approximately 15,400 acres, which encompass all of the minable reserves, are
owned and approximately 845 acres are leased. The Company holds 52 unpatented
mining claims covering the remaining acreage. Access to the property is by
paved road.
Ore is mined by open-pit methods using a fleet of 85-ton haul trucks and
two hydraulic shovels. Ore is crushed and transported by slurry pipelines
five miles to the processing site. The processing plant consists of two
parallel circuits. The primary circuit utilizes pressure oxidation
(autoclaves) to treat higher-grade sulfide ores, followed by neutralization
and cyanide leaching. The second circuit uses conventional crushing and
grinding, and sulfide flotation. Concentrates produced from flotation are
added to the sulfide ores prior to treatment through the autoclaves.
Flotation tailings go directly to cyanide leach. Conventional CIP cyanidation
with pressure stripping and electrowinning is used to recover gold and silver.
Total mill capacity through both circuits is approximately 6,000 TPD.
Tailings are deposited in a 28 million ton capacity tailings impoundment that
will be adequate through 1999, at which time a new lift is scheduled to be
added to the existing dam. The new lift will increase the impoundment's
capacity to allow for the treatment of all known remaining reserves.
Facilities are modern and in good operating condition.
The majority of process water is recycled from the tailings pond. Fresh
water make-up is obtained from the Company's reservoir in Yolo County, which
has approximately four years of storage capacity. Electric power is purchased
under interruptible tariff from Pacific Gas and Electric Company.
Cash costs per ounce increased in 1994 primarily due to a decrease in ore
grades.
Gold production had been expected to increase in 1995 as the higher-grade
zones at the bottom of the South Pit are reached. However, heavy rainfall in
northern California in the first quarter of 1995 has caused flooding and other
related operating problems at the McLaughlin mine. As a result, gold
production at McLaughlin in the first quarter of 1995 probably will be about
27% below the first quarter of 1994. Depending upon the amount of any
additional rainfall, more normal levels of gold production at the mine may not
resume before June.
In mid-1996 mining in the South Pit will cease and gold production levels
are expected to decline significantly with production principally derived from
processing lower-grade stockpiles. Processing is expected to continue for
approximately seven years.
An underground exploration program completed in 1994 resulted in a minor
addition to pit reserves. During 1994, the mine operated in compliance with
environmental permits.
McLaughlin mine royalties are equivalent to approximately 2% of revenues.
Geology
The McLaughlin ore body is a structurally-controlled siliceous vein
network, overlain by hotspring terraces (sinter). The mineralization is the
product of 0.5 to 1.0 million year old geothermal activity, induced by
regional volcanism. Precious metals were transported in hot spring fluids
and coprecipitated with quartz, chalcedony and opal in open fractures along
and adjacent to a northeast-dipping structure, known as the Stony Creek fault.
The ore body is wedge-shaped and extends to depths of over 1,000 feet along a
strike-length of more than a mile.
6
<PAGE>
Year-end Proven and Probable Reserves
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Open Pit
Tons of ore (000s) 5,040 7,176
Ounces of gold per ton .101 .101
Contained ounces of gold (000s) 508 727
Stockpiled*
Tons of ore (000s) 17,024 14,866
Ounces of gold per ton .068 .075
Contained ounces of gold (000s) 1,157 1,112
Total
Tons of ore (000s) 22,064 22,042
Ounces of gold per ton .075 .083
Contained ounces of gold (000s) 1,665 1,839
* The cost of mining substantially all the low-grade ore in the stockpiles
has been expensed.
Operating Data
1994 1993
----- -----
Production Statistics:
Tons of ore mined (000s) 2,667 2,043
Stripping ratio (waste:ore) 5.6:1 6.5:1
Tons of ore milled (000s) 2,244 2,164
Mill feed ore grade (oz. gold/ton) .126 .154
Mill recovery (%) 87 92
Gold recovered (000 ozs.) 250 305
Cost per Ounce of Gold:
Cash operating cost $ 252 $ 196
Noncash cost 78 107
----- ------
Total production cost $ 330 $ 303
</TABLE>
Round Mountain Mine
The Round Mountain gold mine is an open-pit gold mine located in Nye
County, Nevada, about 60 miles north of Tonopah. Homestake owns a 25%
undivided interest in the mine. Echo Bay Mines Ltd. owns a 50% undivided
interest and is the operator. The remaining 25% interest is owned by Case,
Pomeroy & Company, Inc. The mine has been in operation since 1977.
The Round Mountain properties cover a total of 28,362 acres of private
property and public domain land, some of which are under patent application
and the remainder of which are subject to unpatented mining claims. Of the
total reserves, 83% are located on the privately-owned land. Paved public
roads provide access to the operations.
7
<PAGE>
Ore from the mine is leached using two methods. The higher-grade ore is
processed on reusable heap-leach pads and the lower-grade ore is leached on a
dedicated pad. During 1994, total ore processed averaged 73,000 TPD. The
reusable heap-leach pads processed 19,000 TPD and the balance was processed on
a dedicated pad. The average ore and waste mining rate was 161,000 TPD. The
reusable pad processing facilities consist of a gyratory crusher, an
intermediate ore storage and reclaim system, secondary and tertiary cone
crushers and screens, and a conveyor system used to transport ore to two
asphalt leach pads. The reusable pads have a total capacity of approximately
four million tons. A separate 11.4 million square foot dedicated heap-leach
pad to process uncrushed run-of-mine ore has a total capacity of 89 million
tons. Facilities are in good condition.
Water is supplied from wells on the property and power is purchased under
contract from Sierra Pacific Power Company.
Homestake's share of total 1994 gold production from the Round Mountain
mine was 105,877 ounces compared to 93,674 ounces in 1993. Gold recoveries on
the reusable pads have improved as a result of placing higher-grade ores and
fewer total tons on the pads, which has allowed longer leaching times. Larger
quantities of lower-grade ore are being processed on the dedicated pad due to
a reduced ore grade cut-off threshold. Gold production in 1994 and 1993 also
benefited from a very high-grade vein ore occurrence from which 8,263 ounces
of gold (Homestake's share) were recovered through gravity separation in 1994
(1993: 13,344 ounces). A small amount of high-grade vein material will be
processed in 1995.
Round Mountain ore reserves increased by 676,000 ounces (100% basis) in
1994 primarily due to exploration drilling which extended pit limits, and the
inclusion of previously leached material following favorable processing tests.
Engineering and permitting for the construction of an 8,000-TPD gravity
mill to process higher-grade sulfide ores is planned for 1995. Estimated
capital costs are $58 million (100% basis). Completion of mill construction
is estimated in 1997.
During 1994, the mine operated in compliance with its permits.
All Round Mountain mine production is subject to royalties determined by a
complex royalty formula based on the price of gold. The royalties range from
approximately 3.5% of gold revenues at prices of $320 per ounce of gold or
less to approximately 6.4% at prices of $440 per ounce of gold or more.
During 1994, the royalty averaged 5.3% of revenues.
Geology
The Round Mountain ore body straddles the margin of a volcanic caldera
complex. Gold bearing hydrothermal fluids were transported along major
structural conduits created by the volcano's collapse and associated faulting.
These ascending fluids deposited gold in permeable zones along a broad
northwest trend. Primary gold mineralization at Round Mountain occurs as
electrum, a natural gold/silver alloy, in association with quartz, adularia
and pyrite. Narrow fractures in shear zones host the higher-grade
mineralization while porous sites within the volcanic rocks host the
disseminated mineralization. Economic gold mineralization is found in both
the volcanic and surrounding sedimentary rocks as well as overlying alluvial
placers. The oblong open-pit mine is well over a mile at its longest
dimension and currently more than 1,000 feet from the highest working level to
the bottom of the pit.
8
<PAGE>
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Tons of ore (000s) 348,910 302,426
Ounces of gold per ton .022 .024
Contained ounces of gold (000s) 7,799 7,123
Operating Data (100% Basis)
1994 1993
------ ------
Production Statistics:
Tons of ore mined (000s) 26,242 25,929
Stripping ratio (waste:ore) 1.2:1 1.2:1
Tons of ore crushed (000s) 6,629 10,130
Tons of ore processed (000s) 25,965 24,443
Weighted average ore grade
placed on pads (oz. gold/ton) .020 .022
Leach recovery - reusable pads (%) 79 69
Gold recovered (000 ozs.) 424 375
Homestake's Cost per Ounce of Gold
Cash operating cost $ 187 $ 230
Noncash cost 59 63
----- -----
Total production cost $ 246 $ 293
</TABLE>
Santa Fe Mine
The Santa Fe gold mine is located in Mineral County, Nevada, approximately
40 miles east of Hawthorne. Homestake owns 100% of this operation. The mine
commenced operations in 1988.
The Santa Fe mine property is comprised of 190 unpatented lode claims, 69
unpatented millsite claims and 24 patented claims on Bureau of Land Management
land covering approximately 3,600 acres. The mining and processing facilities
occupy 900 acres. Access to the property is by paved road.
Mining operations at the Santa Fe mine ceased in late 1993 as ore reserves
were depleted. During 1994, production continued with the leaching of all
four crushed and run-of-mine ore heaps. In 1995, the operations will enter a
reclamation phase. During this period, some gold production will be derived
from rinsing and neutralization of the heaps, a process in which any residual
cyanide is destroyed. Revenues received from gold production during the first
eight months of 1994 were applied toward remaining reclamation expenditures.
Based on current estimates, a full provision for reclamation is included in
the December 31, 1994 financial statements. The mine and its facilities are
fully depreciated.
The carbon absorption capacity of the processing facility was doubled in
1994 in anticipation of rinsing the heaps. Water for the property is obtained
from alluvial wells located two miles from the minesite. Power is purchased
from Sierra Pacific Power Company.
During 1994, the mine operated in compliance with its environmental
permits. The Company has received a notice of noncompliance with respect to a
wildlife mortality and the matter currently is under investigation.
9
<PAGE>
The mine is subject to three separate net smelter royalties aggregating
3.5% to 15% depending upon the grade of ore and the price of gold.
Operating Data
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Production Statistics:
Tons of ore mined (000s) - 2,043
Stripping ratio (waste:ore) - 1.5:1
Tons of ore crushed (000s) - 2,288
Ore grade put on pads (oz. gold/ton) - .034
Leach recovery (%) - 61
Gold recovered (000 ozs.) 22 54
Cost per Ounce of Gold:
Cash operating cost $ 175 $ 269
Noncash cost 171 89
----- -----
Total production cost $346 $ 358
</TABLE>
Marigold Mine
The Marigold gold mine is located approximately 40 miles southeast of
Winnemucca, Nevada. Homestake owns an undivided 33.3% interest in the
Marigold property. Rayrock owns the remaining interest and is the operator.
The mine has operated since 1989.
The property consists of approximately 3,920 acres held by unpatented
mining claims and 14,920 acres of leasehold lands held under leases which
remain in effect as long as the mine continues production. Access to the
property is by two miles of gravel road.
Mining is conducted by conventional open-pit methods. In 1994, ore was
produced from four open-pit mines. Milling operations ceased in early 1995
with the depletion of the ore reserves in the 8-South pit which had provided
most of the mill-grade ore. The other three pits produce mostly lower-grade
ore which is processed by heap leaching. Mill-grade ore from the these pits
will be stockpiled and periodically processed through the mill to maximize
gold recovery. The mill has a capacity of 1,900 TPD. In 1995, 79% of total
gold production will be derived from heap leaching compared to only 28% in
1994. Total material movement is approximately 45,000 TPD. Mine facilities
are in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
The 1994 exploration program concentrated on detailed ore delineation in
the three known pit areas for reserve modeling, pit design and long-range
production scheduling purposes, and for reserve expansion on the property.
During 1994, the mine operated in compliance with all of its permits.
Production royalties were paid to two owners of the leasehold lands in
amounts of 5% of net smelter returns and 3.5% of net profits interest.
Homestake's share of production from the Marigold mine was 28,328 ounces
of gold in 1994 compared to 30,165 ounces in 1993.
10
<PAGE>
Geology
Gold resources at the Marigold mine are distributed within even known
mineralized zones. Ore bodies are associated with broad zones of
silicification and local decalcification largely within the Permian Antler
formation and the underlying Ordovician Valmy formation. Both stratigraphy
and structure control the location and geometry of the zones of
mineralization. The ore bodies are sediment-hosted, disseminated deposits of
micron-size gold, and are entirely oxidized.
Homestake has a 33.3% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Tons of ore (000s) 14,070 15,749
Ounces of gold per ton .033 .034
Contained ounces of gold (000s) 459 536
Operating Data (100% Basis)
1994 1993
------ ------
Production Statistics:
Tons of ore mined 2,247 2,243
Stripping ratio (waste:ore) 3.3:1 2:1
Tons of ore milled (000s) 678 689
Ore grade milled (oz. gold/ton) .097 .108
Mill recovery (%) 92 91
Tons of ore leached (000s) 1,616 1,505
Ore grade leached (oz. gold/ton) .018 .021
Gold recovered (000 ozs.) 85 90
Homestake's Cost per Ounce of Gold:
Cash operating cost $ 226 $ 207
Noncash cost 62 95
----- -----
Total production cost $ 288 $ 302
</TABLE>
Pinson Mine
The Pinson gold mine is located approximately 30 miles northeast of
Winnemucca, Nevada. Homestake owns an undivided 26.3% interest in the Pinson
property. Rayrock owns a 26.5% interest and is the operator. The mine has
operated since 1981.
The Pinson property consists of approximately 22,826 acres of which 11,583
acres are held under leases which remain in effect as long as the mine
continues production. The remaining land is comprised of 7,780 acres of
unpatented mining claims and 3,463 acres of primarily fee lands. Access to
the property is by paved road.
Several open pits are mined simultaneously using conventional open-pit
mining methods. Ore is processed by both heap leaching and conventional
milling methods. Total material movement is between 25,000 to 30,000 TPD. The
mill has a capacity of 1,500 TPD. The process uses both CIP and CIL circuits
due to the mildly refractory nature of a portion of the ore. Low-grade ore is
treated by heap leaching. In 1994, 83% of total gold production was from ore
milled. Mine facilities are in good condition.
Water is obtained from wells on the property and power is purchased from
Sierra Pacific Power Company.
11
<PAGE>
The 1994 exploration program delineated some ore extensions in current
mining areas but did not identify significant new reserves on the property.
Production royalties of 2.2% of net smelter returns are payable on the
principal producing areas of the mine. Overall, the underlying property
ownership is complex, requiring special arrangements with respect to the
commingling of ore from various locations.
During 1994, the mine operated in compliance with all its environmental
permits.
Homestake's share of production from the Pinson mine was 11,817 ounces of
gold in 1994 compared to 13,353 ounces in 1993.
Geology
The Pinson deposit includes six or more zones of gold mineralization
largely hosted by carbonate rocks and calcareous siltstones of the Ordovician
Conus formation. Ore bodies consist of diffuse disseminations of micron-size
gold peripheral to faults cutting favorable stratigraphy. High-grade stringer
zones have been identified deep in the system and are the subject of
continuing investigation.
Homestake has a 26.3% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Tons of ore (000s) 4,743 4,771
Ounces of gold per ton .072 .068
Contained ounces of gold (000s) 343 323
Operating Data (100% Basis)
1994 1993
----- -----
Production Statistics:
Tons of ore mined (000s) 968 882
Stripping ratio (waste:ore) 6.6:1 7:1
Tons of ore milled (000s) 562 552
Ore grade milled (oz. gold/ton) .078 .093
Mill recovery (%) 83 85
Tons of ore leached (000s) 379 415
Ore grade leached (oz. gold/ton) .029 .031
Gold recovered (000 ozs.) 45 51
Homestake's Cost per Ounce of Gold:
Cash operating cost $ 332 $ 267
Noncash cost 44 41
----- -----
Total production cost $ 376 $ 308
</TABLE>
12
<PAGE>
Dee Mine
In May 1994, the Company sold its interest in the Dee gold mine in Nevada
to Rayrock for $16.5 million. Rayrock assumed responsibility for and
indemnified Homestake against all environmental and reclamation matters. The
Company recorded a $15.7 million pretax gain on this sale.
Prior to the sale, the Company's share of gold production for 1994
totaled 1,984 ounces compared to 11,340 ounces during 1993.
CANADA
Homestake has a 50% interest in the Williams and David Bell mines in the
Hemlo mining district in Ontario and a 25% net profits interest in the Quarter
Claim (adjacent to the David Bell mine). Homestake also owns and operates the
Nickel Plate mine in south central British Columbia and has a 50.6% interest
in Prime. Prime owns the Eskay Creek mine and has a 40% interest in the Snip
mine, both of which are located in northwestern British Columbia.
The Company conducts exploration and investigates mineral acquisition and
development opportunities throughout Canada. Canadian activities are managed
from an office in Vancouver, British Columbia.
Eskay Creek Mine
Prime owns 100% of the Eskay Creek gold/silver mine. Through its interest
in Prime, the Company has a 50.6% interest in the mine. Prime has contracted
with Homestake to provide all necessary professional, managerial, and
administrative services in connection with further exploration, development
and operation of the Eskay Creek mine.
The Eskay Creek property consists of five mining leases and various other
mineral and surface rights comprising approximately 3,477 acres located 51
miles north of Stewart, British Columbia. The leases have remaining terms of
approximately 26 to 30 years, subject to renewal rights. Access from the main
highway to the mine is by 38 miles of single-lane gravel road.
A feasibility study conducted in January 1994 determined that the most
economical way of processing the ore was by direct shipment and sale of ore to
smelters. A Mine Development Certificate was received from the Province of
British Columbia on March 31, 1994. Construction of surface facilities
commenced immediately and was completed in late October. Rehabilitation of
the main access ramp and underground ventilation and electrical services was
undertaken prior to the commencement of mining in December 1994. Shipments of
ore commenced in January 1995. Underground mining utilizes a drift-and-fill
method. Ore is processed through a crushing and blending facility located at
the minesite. There are no tailings produced at the minesite. Some of the
mine waste-rock is potentially acid-generating and is disposed of under water
in a nearby barren lake. Workers are on a two-week work schedule followed by
two weeks off.
Two long-term sale contracts have been signed with smelters in Japan and
Quebec. These contracts provide for a combined minimum delivery of 100,000
tons in the first year, with options to increase deliveries to 130,000 tons in
the second year and beyond, subject to smelter approvals. A long-term truck
hauling contract currently is being negotiated for the movement of ore 164
miles to Stewart for shipment to Japan and 224 miles to Kitwanga, British
Columbia for shipment to Quebec. A dedicated ship-loading facility at Stewart
has been upgraded to handle ore shipments. In addition, a new load-out
facility has been constructed at the railhead in Kitwanga. Prime has also
entered into a rail contract with Canadian National Railway to transport ore
to Quebec.
13
<PAGE>
During 1994, Prime entered into agreements with Adrian Resources Ltd. and
the Tagish Group and acquired 100% of mineral claims which cover a small
portion of the Eskay Creek ore body. This acquisition settled all known Eskay
Creek mine title disputes.
In 1995, the mine is expected to produce 100,000 tons of ore containing
approximately 170,000 ounces of gold and 7.3 million ounces of silver. Based
on existing reserves, the mine has a projected life of eight to ten years.
Power is produced on-site by diesel generation.
See page 34 for a discussion of environmental matters.
The mine is subject to an effective 1% net smelter royalty, with the
exception of a small portion of the ore body, which is subject to an effective
2% net smelter royalty.
Geology
The Eskay Creek ore body is a precious metal-enriched volcanogenic massive
sulfide deposit that occurs in association with volcanics of the Jurassic-aged
(190+ million years) Hazelton Group. Eskay Creek mineralization is generally
stratabound and occurs in a contact mudstone and breccia sandwiched between a
rhyolite flow-dome complex and overlain by volcanic rocks in the west limb of
a north-plunging fold. Sphalerite, pyrite, galena and tetrahedrite are the
most abundant ore minerals. Native gold occurs as mostly microscopic
particles located between sulfide grains or in fractures within sulfide
grains, some locked in pyrite. Gold also occurs in volcanic rocks beneath the
contact mudstone with visible gold, coarse grained sphalerite, pyrite and
galena disseminated in quartz veins or stockwork.
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994
------
<S> <C>
Tons of ore (000s) 1,190
Ounces of gold per ton 1.91
Contained ounces of gold (000s) 2,274
Ounces of silver per ton 85.5
Contained ounces of silver (000s) 101,800
</TABLE>
Williams Mine
The Williams gold mine is located in the Hemlo Gold Camp 217 miles east of
Thunder Bay, Ontario adjacent to the Trans Canada Highway. The mine is
operated by Williams Operating Corporation (WOC). Homestake and Teck
Corporation (Teck) each own a 50% interest in WOC. The mine commenced
operations in 1985.
The property consists of 11 patented mining claims covering approximately
400 acres and one Crown mining lease. WOC operates the Williams mine with its
own personnel. Homestake and Teck are required to provide funds equally to
WOC for all costs incurred to operate the mine. Homestake and Teck have
mutual rights of first refusal over each other's interest in the Williams mine
and shares of WOC.
14
<PAGE>
The Williams mine is an underground operation which is accessible by a
4,300-foot shaft. Mining is carried out by the longhole, open-stope method
with cemented rock fill. In addition, 300-400 TPD of low-grade ore is
recovered from a nearby open pit. Waste rock from the open pit is used for
backfill in the underground operations. Cyanidation and the CIP process are
used to recover gold. The mine has a 7,000 TPD capacity mill which operated
at 6,954 TPD during 1994. The Williams and David Bell mines share one
tailings basin facility located approximately two miles from the mill. This
facility was expanded during 1994. Water from the tailings basin is treated
during the summer months in an effluent treatment plant prior to discharge.
The mines continue to reclaim mill process water separately. The mine's
facilities and equipment are modern and in good condition.
Following the installation of new crushing and ventilation systems in
1994, mining between the 9,065 and 9,240-foot levels commenced. In addition,
exploration drifting and diamond drilling were carried out on the 9,175 and
9,450-foot levels and part of the open pit was redesigned and expanded to
maximize ore extraction. Approximately two-thirds of the ore mined in 1994
was replaced by additions to ore reserves.
During the next few years, production at the mine is expected to be
slightly lower as the grades of ore mined more closely approximate the
remaining life-of-mine ore grades.
Water for the property is supplied from Cedar Creek and power is purchased
from Ontario Hydro via long-term contracts. Propane for heating mine air and
surface facilities is also purchased on long-term contracts. A new glycol
heat recovery system was installed during 1994 which will reduce propane
consumption.
All environmental discharges during 1994 were in compliance with permit
levels. The mine has submitted a reclamation and closure plan to the
Government of Ontario for review.
The 11 patented mining claims are subject to three net smelter royalties
totaling a net effective rate of 2.08% and the Crown mining lease is subject
to a net smelter royalty of 0.75%.
Homestake's share of production was 222,660 ounces in 1994 compared to
246,126 ounces in 1993.
Geology
The Hemlo Gold Camp occurs within the east-west striking Heron Bay belt
of metamorphosed Archean aged rocks (3.5 billion years). The steeply
dipping ore bodies lie along the contact between overlying metasedimentary
rocks and underlying volcanic rocks. Gold mineralization is hosted mainly
by a fine grained feldspar porphyry unit associated with pyrite, barite and
molybdenum.
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Tons of ore (000s) 34,050 34,905
Ounces of gold per ton .166 .170
Contained ounces of gold (000s) 5,669 5,934
15
<PAGE>
Operating Data (100% Basis)
1994 1993
------ ------
Production Statistics:
Tons of ore milled (000s) 2,538 2,557
Mill feed ore grade (oz. gold/ton) .184 .202
Mill recovery (%) 95 95
Gold recovered (000s ozs.) 445 492
Homestake's Cost per Ounce of Gold:
Cash operating cost $ 204 $ 199
Noncash cost 42 48
----- -----
Total production cost $ 246 $ 247
</TABLE>
David Bell Mine
The David Bell gold mine is located in the Hemlo Gold Camp. The mine is
operated by the Teck-Corona Operating Corporation (TCOC). Homestake and Teck
each own a 50% interest in TCOC. The mine commenced operations in 1985.
The mine is located on the same ore body as the Williams mine. The
property consists of approximately 650 acres held under two freehold patents.
TCOC operates the David Bell mine with its own personnel. Homestake and Teck
are required to provide funds equally to TCOC for all costs incurred to
operate the mine. Homestake and Teck have mutual rights of first refusal over
each other's interest in the David Bell mine and shares of TCOC.
The David Bell mine is an underground operation which is accessible by a
3,819-foot shaft. Production is from stopes using longhole mining methods
with a mixture of cement, tailings, sand and waste rock produced underground
as backfill. The mill operated at 1,402 TPD in 1994. Cyanidation and the CIP
process are used to recover gold. The facilities and equipment are modern and
in good condition.
Mine development in 1994 included development of the new C-zone by a
contractor and improvements to the mine ventilation network. The average width
of ore at the David Bell mine is decreasing. In an effort to minimize the
costs associated with this decrease, stoping of narrow width ore by
longitudinal longhole retreat continued during the year. Gold production
decreased slightly, reflecting lower ore grades and recoveries and reduced
mill throughput associated with ore shortages from the underground due to
narrower ore widths.
During the next few years, production at the mine is expected to be
slightly lower as the grades of ore mined more closely approximate the
remaining life-of-mine ore grades.
In-mine exploration potential is limited due to property boundary limits.
Homestake and Teck each have a 50% interest in efforts to explore and develop
mineral properties within approximately two miles of the David Bell property.
The current collective bargaining agreement with the United Steel Workers
of America is in effect until October 31, 1995.
Water and power supplies are the same as those at the Williams mine.
During 1994, all environmental discharges were in compliance with permit
levels. The mine has submitted a reclamation and closure plan to the
Government of Ontario for review.
The property is subject to a 3% net smelter royalty.
Homestake's share of production at the David Bell mine was 96,109 ounces
in 1994 compared with 107,594 ounces in 1993.
16
<PAGE>
Geology
See "Williams Mine - Geology."
Homestake has a 50% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Tons of ore (000s) 5,463 6,450
Ounces of gold per ton .317 .316
Contained ounces of gold (000s) 1,731 2,041
Operating Data (100% Basis)
1994 1993
----- -----
Production Statistics:
Tons of ore milled (000s) 512 542
Mill feed ore grade (oz. gold/ton) .399 .416
Mill recovery (%) 94 95
Gold recovered (000 ozs.) 192 215
Homestake's Cost per Ounce of Gold:
Cash operating cost $ 168 $ 154
Noncash cost 43 52
----- -----
Total production cost $ 211 $ 206
</TABLE>
Quarter Claim
The Quarter Claim constitutes approximately one-fourth of a mining claim,
which was originally part of the David Bell property and was optioned to, and
subsequently acquired by, Hemlo Gold Mines Inc. (Hemlo Gold) in 1982. Hemlo
Gold developed a shaft and reserved hoisting and milling capacity of 500 TPD
at its mill to process any ore found on the Quarter Claim. Homestake has a
25% net profits interest in all ore recovered from the Quarter Claim. In
calculating the net profits interest, no allowance is made by Hemlo Gold for
capital costs unless that capital is specifically required for the Quarter
Claim.
Homestake's share of production at the Quarter Claim was 7,745 ounces in
1994 compared with 11,094 ounces in 1993.
17
<PAGE>
Geology
See "Williams Mine - Geology."
Homestake has a 25% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Tons of ore (000s) 1,185 1,380
Ounces of gold per ton .254 .256
Contained ounces of gold (000s) 300 354
Operating Data (100% Basis)
1994 1993
----- -----
Production Statistics:
Tons of ore milled (000s) 114 181
Mill feed ore grade (oz. gold/ton) .281 .255
Mill recovery (%) 97 96
Gold recovered (000 ozs.) 31 44
Homestake's Cost per Ounce of Gold:
Cash operating cost $ 177 $ 144
</TABLE>
Nickel Plate Mine
The Nickel Plate gold mine is located near Hedley, British Columbia and is
owned 100% by Homestake. The mine was an underground gold mine prior to 1930
and from 1934 to 1955. Current operations began in 1987.
The property is comprised of 111 Crown-granted claims, six reverted Crown-
granted claims, two mining leases, 25 mineral claims and certain surface
rights, covering approximately 8,015 acres. A paved road from Penticton,
British Columbia, approximately 30 miles from the mine, provides access to the
site.
Mining is carried out by conventional open-pit methods. Ore is processed
in a 4,000-TPD mill. Mill processing comprises crushing, grinding,
cyanidation and Merrill Crowe gold recovery. Tailings effluent is treated to
destroy residual cyanide before deposition in a closed circuit effluent
discharge impoundment basin. The facilities and equipment are modern and in
good condition.
The majority of the mine's process water is obtained from solutions
recycled from the tailings impoundment basin. Fresh water make-up is supplied
from a local creek during spring run-off and stored in a process water pond.
Power is supplied by West Kootenay Power under an annually renewable contract.
Mining at the Nickel Plate mine will be reduced substantially in early
1995. A milling rate of 4,000 TPD is planned through the end of 1996 at
which time the ore reserve is expected to be depleted. During the fourth
quarter of 1994, the Nickel Plate ore reserve was reduced by 8% reflecting
mining experience in the Stage IV pit. The potential for additional ore
reserves from exploration drilling is very limited.
See page 34 for discussion of environmental matters.
The mine has submitted a revised reclamation and closure plan to the
regulatory agencies for review.
18
<PAGE>
Geology
The Nickel Plate ore body is situated within the rocks of the Jurassic
aged Hedley Formation consisting of thinly bedded calcareous siltstones
and layered to massive limestone units dipping northwest at 20 to 30
degrees. The formation is intruded by Early Jurassic, coarse-
grained porphyritic diorite. A large hydrothermal system was
associated with the diorite intrusions. Gold bearing sulfides
(pyrrhotite, pyrite and chalcopyrite) were emplaced during the
latest phase of this hydrothermal process. Higher grades are associated
with the contacts of the diorite dikes and sills and the Hedley formation
and are confined to the skarn zone.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Tons of ore (000s) 2,889 4,823
Ounces of gold per ton .077 .077
Contained ounces of gold (000s) 223 370
Operating Data
1994 1993
------ ------
Production Statistics:
Tons of ore milled (000s) 1,438 1,412
Mill feed ore grade (oz. gold/ton) .070 .061
Mill recovery (%) 81 85
Gold recovered (000 ozs.) 82 74
Cost per Ounce of Gold:
Cash operating cost $ 351 $ 312
Noncash cost 54 24
----- -----
Total production cost $ 405 $ 336
</TABLE>
Snip Mine
The Snip gold mine is located at the junction of Bronson Creek and the
Iskut River, 56 air miles north of Stewart, in northwestern British Columbia.
The mine is 40% owned by Prime. Cominco Ltd. (Cominco) owns the remaining
interest and is the operator. Cominco receives a management fee for its
services as operator equivalent to 5% of cash expenditures made at the
property. The mine commenced operations in January 1991.
The property consists of a mining lease issued to Cominco for a term of 30
years, together with three mineral claims also recorded in the name of
Cominco, covering approximately 3,637 acres.
The mine is serviced by aircraft which utilize the mine's 4,500-foot long
landing strip. In addition, a hovercraft transports mine concentrates, fuel
and other supplies along the Iskut and Stikine rivers between the mine and
Wrangell, Alaska from late March to early November each year. During the
winter months, the only access is by aircraft due to ice accumulations on the
rivers.
The Snip mine is an underground operation serviced by three adits and a
haulageway at the 400-foot level. Mining is carried out through a combination
of shrinkage, conventional and mechanized cut and fill. Backfill is either
underground waste rock or mill tailings which are pumped to the mine and mixed
with cement. The mill can treat 500 TPD. Approximately 92% of the gold
contained in the ore is recovered. A gravity circuit recovers about 36% of
the gold and the remaining gold is recovered in flotation concentrates
containing approximately ten ounces of gold per ton. The concentrates are
sold to a third-party facility located near Stewart for final gold recovery.
Mill tailings are deposited in a pond close to the mine and reclaimed water is
pumped back to the mill
19
<PAGE>
for reuse. The facilities and equipment are modern and in good condition.
Workers are on a four-week work schedule followed by two weeks off.
Water is supplied from Bronson Creek and power is produced on-site by
diesel generators.
During 1994, all environmental discharges were within permit levels.
There has been recent controversy regarding the environmental impact of the
mine's hovercraft operations on fish in the Iskut river. The Company has
agreed to further studies despite prior investigations indicating little
environmental impact.
Homestake's share of gold production in 1994 was 51,592 compared to 59,790
ounces in 1993.
Geology
The main ore body at the Snip mine is called the Twin Zone, a 1.5
to 50 feet thick quartz-carbonate-sulfide-filled shear structure within a
Triassic sedimentary unit. Gold primarily occurs as finely disseminated
grains along pyrite grain boundaries. Other sulfides within the Twin Zone
include pyrrhotite, chalcopyrite and sphalerite, with trace arsenopyrite.
The vein structure has been traced over a strike length of 3,300 feet and has
a known vertical extent to 1,650 feet.
Prime has a 40% share of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
----- ------
<S> <C> <C>
Tons of ore (000s) 553 722
Ounces of gold per ton .797 .788
Contained ounces of gold (000s) 441 569
Operating Data (100% Basis)
1994 1993
------ ------
Production Statistics:
Tons of ore milled (000s) 190 188
Mill feed ore grade (oz. gold/ton) .743 .865
Mill recovery (%) 92 92
Gold recovered (000 ozs.)* 129 149
Homestake's Cost per Ounce of Gold:*
Cash operating cost $ 171 $ 152
Noncash cost 59 83
----- -----
Total production cost $ 230 $ 235
* Includes recoverable gold contained in dore bars and in concentrates.
</TABLE>
AUSTRALIA
Homestake owns 81.5% of the shares of Homestake Gold of Australia Limited
(HGAL). HGAL is a gold mining and exploration company whose principal asset
is a 50% ownership in Australia's largest gold mining operation, the
consolidated surface and underground gold operations at Kalgoorlie, Western
Australia.
HGAL explores for gold in Australia and has offices in Perth and
Kalgoorlie, Western Australia.
20
<PAGE>
Kalgoorlie Operations
The Kalgoorlie operations are located 340 miles northeast of Perth,
Western Australia on 164 state leases and licenses covering a total of 47
square miles. The mineral leases are renewable on an annual basis for a fee
to the state. Homestake acquired its interest in the original Kalgoorlie
Mining Associates joint venture in 1976. Mining operations in the Kalgoorlie
region date back to 1893. Access to the operations is by paved road.
HGAL owns a 50% interest in three joint ventures in the Kalgoorlie
district: the Fimiston/Paringa Venture (FPV), the Mt Percy Venture and the
Kalgoorlie Mining Associates Venture. Gold Mines of Kalgoorlie Limited and
its affiliates (GMK) own the other 50% interest. HGAL and GMK formed
Kalgoorlie Consolidated Gold Mines Pty Ltd (KCGM), a jointly-owned and
controlled company, to manage all the operations on a consolidated basis under
the direction of a Management Committee.
Mines operated by KCGM include the Super Pit open-pit gold mine and the
Mt. Charlotte underground gold mine. Ore treatment is carried out at the
Croesus, Fimiston, Mt Percy and Oroya mills and the Gidji roaster.
HGAL pays 50% of the costs and is entitled to receive 50% of the
production from all operations, except for the FPV area of the Super Pit where
HGAL pays 50% of venture costs but may not receive 50% of the production. GMK
is entitled to receive more than 50% of gold production from the FPV area
under certain circumstances out of the first 35.8 million tons of ore mined
by open-pit methods from the FPV area of the Super Pit. The disproportionate
quantity of gold to be received by GMK depends upon capital and production
costs, gold prices and volumes mined from the FPV area. In 1994, HGAL paid to
GMK 15,781 ounces under the disproportionate sharing arrangement. Through the
end of 1994, approximately 15.9 million tons of ore have been mined from the
FPV area of the Super Pit. The operations' facilities and equipment generally
are in good condition.
Contractors are employed to conduct surface mining operations, ore and
concentrate haulage and some specialized services. Fresh water is supplied
under allocation from the state water system and is piped 350 miles from
Perth. Salt water is taken from bores and underground mines. Power is
purchased under a number of agreements with the state power authority.
In 1994, the Gidji roaster performed well within SO2 emission limits
established by the Western Australian government. Intercept drainage channels
were constructed to isolate the Oroya tailings dam from the nearby salt water
drainage channel. A safety exclusion zone (SEZ) surrounding the Super Pit has
been established and progressive acquisition of properties within this area is
taking place. The SEZ, combined with measures to reduce noise and dust, has
resulted in a significant improvement in the environment of residents living
close to the mining operations.
Revision of the Super Pit ore resource using computer-aided modelling
techniques, in addition to a review of Mt. Charlotte reserves, expanded year-
end proven and probable reserves by 7% during 1994. The Company's share of
this increase was approximately 0.3 million ounces.
No royalties are payable on production.
Super Pit
This large open pit is located along the "Golden Mile" ore bodies
previously mined from underground.
In 1994, 59.7 million tons of material were mined containing 12.4 million
tons of ore, compared to 59 million tons containing 10 million tons in 1993.
HGAL's share of Super Pit gold production was 289,625 ounces in 1994 and
256,094 ounces in 1993.
21
<PAGE>
Mt. Charlotte
This underground mine uses bulk mining methods and large conventional
diesel powered loaders and trucks to produce ore at the rate of 1.6 million
tons per year. The main production level is 3,200 feet below surface. Long-
hole stoping mining techniques are employed. Ore is crushed underground with
primary crushers before being hoisted to secondary crushers at the surface.
In 1994 and 1993, 1.7 million tons of ore were mined from Mt. Charlotte.
HGAL's share of gold production was 61,021 ounces in 1994 and 70,981 ounces in
1993.
Mt Percy
The Mt Percy open cuts were mined to their planned economic depth in July
1992, at which time mining ceased. Through May 1994, the mill continued to
process previously stockpiled low-grade material blended with non-refractory
ore from the Super Pit and Mt. Charlotte.
HGAL's share of gold production was 1,353 ounces in 1994 and 5,457 ounces
in 1993.
Mills
Fimiston - a 14,550 TPD mill with CIP leaching and refractory sulfide
flotation circuits that processes ore from the Super Pit. Approximately $15
million (100% basis) was spent in 1994 and a further $39 million of
expenditures are planned during 1995 on an expansion program at the Fimiston
mill. This program, which will be completed in 1995, will increase the mill's
capacity to 28,000 TPD, including a 5,000 TPD free-milling sulfide circuit to
treat Mt. Charlotte ore. The increase in capacity will improve the mill's
efficiency and will also replace the capacity of the Oroya mill which is being
dismantled in 1995 to allow for an expansion of the Super Pit.
Oroya - a 7,700 TPD mill with CIP, refractory and non-refractory sulfide
flotation circuits that processes ore from Mt. Charlotte and the Super Pit.
Croesus - a 3,000 TPD mill with CIP and refractory sulfide flotation
circuits that processes ore from the Super Pit.
Mt Percy - a 2,500 TPD mill with a CIP circuit that processes ore from Mt
Percy, the Super Pit and Mt. Charlotte.
Gidji - a roaster complex situated 12 miles north of Kalgoorlie which
comprises two converters and a CIP circuit to process all the concentrates.
The combined mills processed 10.7 million tons of ore in 1994 and 1993.
Cash operating costs were higher in 1994 primarily as a result of
unfavorable foreign exchange rates. A moderate decline in costs was achieved
on an Australian currency basis.
HGAL's share of 1994 gold production from the consolidated Kalgoorlie
operations was 352,081 ounces compared with 332,636 ounces in 1993.
22
<PAGE>
Geology
The ore deposits mined in the Kalgoorlie Goldfields occur within an
intensely mineralized shear zone system in dolerite host rocks, within
the Norseman-Wiluna Greenstone Belt which is part of the Yilgarn Block of
Western Australia. The rocks are of Archaen age. The favorable
structural metamorphic and lithologic setting in conjunction with
hydrothermal activity controlled gold mineralization. In excess of 38
million ounces of gold have been produced at depths of up to
4,000 feet from high-grade lodes and adjacent disseminated
mineralization in the Golden Mile Dolerite, and from the large
stockwork mineralization which characterizes the Mt. Charlotte and
Reward (underground) ore bodies.
HGAL has a 50% share (subject to the disproportionate allocation discussed
above) of the following amounts:
Year-end Proven and Probable Ore Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Tons of ore (000s) 158,790 146,895
Ounces of gold per ton .073 .074
Contained ounces of gold (000s) 11,519 10,813
Operating Data (100% Basis)
1994 1993
------ ------
Production Statistics:
Super Pit
Tons of ore mined (000s) 12,372 9,976
Stripping ratio 3.8:1 4.9:1
Tons of ore milled (000s) 8,963 8,502
Mill feed ore grade (oz. gold/ton) .077 .072
Mill recovery (%) 88 86
Gold recovered (000s) 611 512
Mt Percy
Tons of ore milled (000s) 94 465
Mill feed ore grade (oz. gold/ton) .029 .027
Mill recovery (%) 86 88
Gold recovered (000s) 3 11
Mt. Charlotte
Tons of ore mined (000s) 1,680 1,697
Tons of ore milled (000s) 1,682 1,706
Mill feed ore grade (oz. gold/ton) .085 .096
Mill recovery (%) 87 86
Gold recovered (000s) 122 142
Combined Production Statistics:
Tons of ore mined (000s) 14,052 11,673
Tons of ore milled (000s) 10,740 10,677
Mill feed ore grade (oz. gold/ton) .078 .074
Mill recovery (%) 88 86
Gold recovered (000 ozs.) 736 665
23
<PAGE>
Homestake's Consolidated Cost Per Ounce of Gold:
Cash operating cost $ 259 $ 230
Noncash cost 39 40
----- -----
Total production cost $ 298 $ 270
</TABLE>
Super Pit mining during the last five years has produced approximately
20% more ore than predicted by the ore reserve model.
Fortnum
Fortnum is an open-pit gold mine located 485 miles northeast of Perth,
Western Australia which had been on care and maintenance. On February 17,
1994 HGAL sold its interest in Fortnum to Perilya Mines NL. A gain of
approximately $1.3 million was recorded on this sale.
CHILE
Homestake leases and operates the El Hueso gold mine and also conducts
exploration throughout Chile. Homestake's office is in Santiago, Chile.
El Hueso is an open-pit gold mine in the Maricunga District of Chile on
property leased through June 1998 from Codelco, a government agency. The mine
is located about 600 miles north of Santiago at an elevation of approximately
12,500 feet. The lease includes the right to use the existing plant. The
land included in the original lease term has no applicable royalties.
Operations commenced in 1987 and Homestake assumed control of the operation in
1988. Access to the mine is by 14 miles of dirt road.
In 1991, additional land was contracted from Codelco and incorporated into
the existing lease. This new land was subject to a net profits royalty of 50%
on the first 50,000 ounces of production, which was achieved during 1993, and
is now subject to a 30% net profits royalty.
Ores from the mine are leached by two different methods of production.
Higher-grade ore is crushed in three stages and then heap leached. Low-grade
run-of-mine ore is heap leached without crushing. Gold-bearing solutions from
both ores are treated by zinc precipitation to produce dore bars. The
facilities are in good condition.
Water and power are purchased from Codelco.
Active mining operations at the El Hueso mine and the neighboring leases
ceased in February 1995. Leaching of the piles will continue through to the
end of the year at which time the operation will enter a reclamation phase.
During this period some gold production will be derived from rinsing the
heaps, a process in which residual cyanide is destroyed. Based on current
estimates, full provision for mine closure, after considering the additional
revenues to be received from gold produced during the reclamation phase, is
included in the December 31, 1994 financial statements.
In January 1994, additional new land was leased from Codelco and
exploration activities on this land are ongoing. The Company plans to spend
approximately $1 million in 1995 on an exploration prospect on this land,
which, if successful, could require use of the El Hueso facilities. These new
lands are subject to a 30% net profits royalty.
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<PAGE>
Geology
The El Hueso ore body is hosted by Lower Tertiary volcanic rocks and
decalcified Jurassic sandstones and limestones in the Potrerillos
porphyry copper district. Gold mineralization occurs in vertical
"feeder" structures and disseminated stratabound deposits associated
with quartz, alunite, cervantite, scorodite, jarosite, goethite and stibnite.
Year-end Proven and Probable Ore Reserves
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Tons of ore (000s) 136 3,151
Ounces of gold per ton .039 .039
Contained ounces of gold (000s) 5 122
Operating Data
1994 1993
----- -----
Production Statistics:
Tons of ore mined (000s) 2,895 3,132
Stripping ratio (waste:ore) 3.8:1 2.5:1
Tons high-grade ore leached (000s) 1,720 1,964
Leach feed ore grade (oz. gold/ton) .035 .040
Recovery (%) 80 82
Tons low-grade ore leached (000s) 1,001 1,031
Leach feed ore grade (oz. gold/ton) .014 .015
Recovery (%) 47 47
Gold recovered - all ores (000 ozs.) 56 72
Cost per Ounce of Gold:
Cash operating cost $ 403 $ 299
Noncash cost 13 30
----- -----
Total production cost $ 416 $ 329
</TABLE>
MEXICO
Following a reorganization of its Mexican interests during 1994, Homestake
owned an approximate 28% equity interest in Compania Minera Las Torres, S.A.
De C.V. (Torres). Torres' primary asset is the Torres silver mining complex
located near Guanajuato, about 250 miles northwest of Mexico City. Torres
also owns the Encantada lead/silver mine located in the state of Coahuila, 50
miles south of Big Bend, Texas. Both of these operations are operated by
Industrias Penoles, S.A. de C.V. The Torres silver mining complex covers
approximately 18,000 acres and consists of several small separate silver/gold
mines and a centrally located 2,500-TPD concentrator. Homestake's share of
gold production from Torres totaled 12,884 ounces in 1994 compared to 12,844
ounces in 1993. Homestake received dividends from Torres of $1.6 million and
$0.8 million in 1994 and 1993, respectively. In February 1995, the Company
sold its 28% interest in Torres for $6 million.
SULPHUR
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulphur
deposit, which at December 31, 1994 contained proven recoverable reserves of
approximately 70 million long tons of sulphur. Freeport McMoRan Resource
Partners, Limited Partnership (FRP) owns a 58.3% interest in the deposit and
is the operator under a joint operating agreement. IMC Fertilizer Inc. owns
the remaining 25%.
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<PAGE>
The sulphur deposit is located in the Gulf of Mexico in waters
approximately 210 feet deep, 36 miles east of Venice, Louisiana. The deposit
is approximately 1,500 feet below the sea floor. The federal sulphur lease
under which the deposit is held requires a royalty of 12.5% of the wellhead
value.
The operating agreement provides that each participant pays its share of
capital and operating costs, and has the right to take its share of production
in kind in proportion to its undivided interest.
The sulphur deposit is being mined using the Frasch process, a method of
extraction which injects steam to liquify the sulphur, which is then pumped to
surface. Based on current reserve estimates, projected costs and prices,
annual production is expected to average two million long tons over a
remaining reserve life in excess of 30 years.
Fabrication and installation of production facilities began in 1990.
Initial sulphur production commenced in 1992. Initial production was lower
than anticipated because the production of overlying oil and gas reserves
slowed the heating of the sulphur dome to required production temperatures.
Full sulphur production levels of 5,500 TPD were reached in December 1993.
Sulphur production averaged 6,200 TPD by the end of 1994. Homestake's 16.7%
share of development expenditures through 1994 was approximately $123 million.
FRP filters, blends, markets and delivers Homestake's share of sulphur
production under an agreement having an initial term of ten years from
commencement of production in 1992. Homestake can terminate the agreement by
giving FRP two-years notice.
During 1994, the sulphur market strengthened from a 20-year low which had
lowered average realized prices to approximately $45 per ton at the end of
1993. With a modest increase in prices, Homestake expects its sulphur
operations to break even or provide a small profit during 1995.
Homestake was recently notified by Freeport that sulphur reserves at
December 31, 1994 have been increased by approximately 6.4 million tons (100%
basis). This increase includes 1.8 million tons added as a result of
development drilling and 4.6 million tons added as a result of utilizing a
lower porosity assumption based on experience to date.
During sulphur exploration, oil and gas were discovered overlying the
sulphur deposit. In 1990, the participants acquired the oil and gas rights
from Chevron USA, Inc., for a total of $150 million, including reimbursement
of certain costs incurred in partial development of the reserves. Homestake's
16.7% share of the oil and gas purchase and development costs through 1994 was
approximately $55 million.
The federal oil and gas lease requires a 16.7% royalty payment based on
wellhead value. In addition, Chevron retained the right to share in the
proceeds of future production should the price or volume realized exceed those
which were used by the parties as the basis for determining the purchase
price.
Oil and gas production peaked during 1992 and is expected to decline over
the next five years. Oil production (100% basis) totaled 5.2 million barrels
in 1994 compared to 7.1 million barrels in 1993. In the fourth quarter of
1993, Homestake recorded a $16 million pretax write-down of its investment in
the oil and gas assets due to a decline in oil prices. This write-down was
based on Main Pass 299's realized price of $10.32 per barrel at December 31,
1993. The remaining carrying value of Homestake's investment in the Main Pass
299 oil and gas property is $11.6 million at December 31, 1994.
Homestake's share of remaining recoverable oil reserves at December 31,
1994 is estimated to be 2.1 million barrels after adjusting for the federal
royalty.
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<PAGE>
Homestake has a 16.7% share of the following amounts:
Year-end Proven and Recoverable Reserves
(100% Basis)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Tons of sulphur (000s) 70,321 66,205
Barrels of oil (000s) 15,521 20,751
Production Statistics (100% Basis)
1994 1993
----- ------
Tons of sulphur (000s) 2,259 696
Barrels of oil (000s) 5,240 7,080
Homestake's Per Unit Data
1994 1993
----- ------
Average Sales Realizations:
Per ton of Sulphur $ 53 $ 59
Per barrel of oil 13 14
Costs
Sulphur cash costs per ton $ 49 $ 131
Sulphur noncash costs per ton 11 11
----- ------
Total production cost $ 60 $ 142
Oil cash costs per barrel $ 4 $ 4
Oil noncash costs per barrel 6 9
----- -----
Total production cost $ 10 $ 13
</TABLE>
MINERAL EXPLORATION
As part of the corporate restructuring in 1992, Homestake reorganized its
exploration activities. The Company moved away from a grassroots approach
organized around district offices towards a more consolidated and centralized
system which allows it to focus on large, high-quality, low-cost
opportunities.
United States exploration expenses totaled $11.8 million in 1994 and $11.1
million in 1993. Domestic exploration expenses in 1995 are expected to be
approximately $11 million.
Discovery of a new mineralized zone (Ruby Hill) near Eureka, Nevada, was
announced in November 1993. In 1994, exploration expenses totaling $6.5
million formed part of a delineation drilling program which commenced in
April. In October 1994, following completion of this program, the Company
announced its decision to proceed with a feasibility study on the West
Archimedes oxide zone. This $4 million study will examine the economics of a
portion of the preliminary geological resource estimate of 1.6 million ounces
of gold. Advanced metallurgical studies will also commence in early 1995. In
addition, exploration expenses of $5 million are planned for the Ruby Hill
project in 1995.
Through subsidiaries, Homestake also explores for gold and evaluates gold
acquisition opportunities internationally, primarily in Australia, Canada and
Chile. International exploration expenses totaled $9.5 million in 1994 and
$6.4 million in 1993.
27
<PAGE>
In May 1994, the Company signed a Letter of Intent Agreement with L.B.
Mining Co. for the exploration, development and operation of gold properties
in the Guariche District of Bolivar State, Venezuela. This agreement was
terminated in November 1994 due to disappointing exploration results.
Additionally, the Company entered into an agreement with Corporacion
Venezolana de Guayana for exploration and development of the El Foco mining
property in Bolivar State, Venezuela. Exploration expenses related to the
Venezuelan projects totaled $2.3 million in 1994.
During 1994, the Company made a discovery near its El Hueso operation
which, if follow-up work is successful, could result in the reopening of that
mine. Homestake plans to spend approximately $1 million on exploration of
this prospect located on its Agua de la Falda lease.
Total exploration expenses of $21.3 million in 1994 compares to $17.5
million in 1993. In addition, expenses related to the exploration at
Homestake's operating mines totaled $8.4 million in 1994. These expenses are
included in the individual mine property operating expenses and cost per ounce
calculations.
GLOSSARY AND INFORMATION ON RESERVES
GLOSSARY
The following terms used in the preceding discussion mean:
"Cash operating cost" includes all mining, in-mine exploration, processing and
other plant costs, all royalties, state and local taxes (other than income),
refining and marketing expenses, on-site general and administrative costs, and
other direct costs, but excludes depreciation, depletion and amortization,
corporate general and administrative expense, mineral exploration expense,
Canadian provincial mining taxes, financing costs and long-term reclamation
accruals.
"Noncash cost" includes depreciation, depletion and amortization of capital
assets as well as accruals for the costs of reclamation, long-term monitoring
and care that are usually incurred at the end of mine life.
"Total production cost" includes all cash operating costs and noncash costs.
"In-situ tons" refers to reserves still in the ground. This differs from
previously mined stockpiled reserves that are being stored for future
processing.
"Mineral deposit" is a mineralized body which has been delineated by
appropriate drilling and/or underground sampling. Under SEC standards, a
mineral deposit does not qualify as a reserve unless the recoveries from the
deposit are expected to be sufficient to recover total cash and noncash costs
for the mine and related facilities.
"Run-of-mine ore" is mined ore which has not been subjected to any
pretreatment, such as washing, sorting or crushing, prior to processing.
"Stripping ratio" is the ratio of the number of tons of waste to the number of
tons of ore extracted at an open-pit mine.
"Tonnage" and "grade" refer, respectively, to the quantity of reserves and the
amount of gold (or other products) contained in such reserves and include
estimates for mining dilution but not for other processing losses.
"Tons" means short tons (2,000 lbs.) unless otherwise specified.
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<PAGE>
INFORMATION ON RESERVES
Gold
The proven and probable gold ore reserves stated in this report reflect
estimated quantities and grades of gold in in-situ deposits and in stockpiles
of mined material that Homestake believes can be recovered and sold at prices
sufficient to recover the estimated future cash cost of production and
remaining investment. The estimates of cash costs of production are based on
current and projected costs. Prices are based on estimated future gold
prices. The Company used a spot price of $360 per ounce of gold in its mine-
by-mine evaluation of mining properties and investments at December 31, 1994.
Silver
The proven and probable silver ore reserves have been calculated on the
same basis as gold ore reserves.
Sulphur
Homestake's proved sulphur reserves represent the quantity of sulphur in
the Main Pass 299 deposit for which geological, engineering and marketing data
give reasonable assurance of recovery and sale under projected economic and
operating conditions at prices sufficient to cover the estimated future cash
cost of production and remaining investment.
Oil
Homestake's proved oil reserves at Main Pass 299 are the estimated
quantity of crude oil and condensate which geological and engineering data
give reasonable assurance of recovery and sale under projected operating
conditions at prices sufficient to cover the estimated future cash cost of
production and remaining investment. The estimate is based on limited
reservoir and engineering data.
Calculation of Reserves
Gold reserves are calculated for each of Homestake's properties by
Homestake based upon factors relevant to each deposit. Gold ore reserves for
those properties not operated by Homestake are based on reserve information
provided to Homestake by the operator. Homestake has reviewed but has not
independently confirmed the information provided by these operators.
The sulphur and oil reserves at Main Pass 299 are based on information
provided by the operator. Homestake reviewed the initial reserve data with
independent consultants. Homestake has reviewed subsequent adjustments to
these reserves but has not independently confirmed the reserve adjustments
provided by the operator.
Other Information
Ore reserves are reported as general indicators of the life of mineral
deposits. Changes in reserves generally reflect (i) efforts to develop
additional reserves; (ii) depletion of existing reserves through production;
(iii) actual mining experience; and (iv) price forecasts. Grades of ore
actually fed to process from time to time may be different from stated reserve
grades because of geologic variation in different areas mined, mining
dilution, losses in processing and other factors. Recovery rates vary with
the metallurgical characteristics and grade of ore fed to process.
29
<PAGE>
Neither reserves nor projections of future operations should be
interpreted as assurances of the economic life of mineral deposits or of the
profitability of future operations.
ENVIRONMENTAL MATTERS
General
Homestake has made significant capital expenditures to minimize the
effects of its operations on the environment. Capital expenditures primarily
are for the purchase or development of environmental monitoring equipment and
containment of waste. In 1994, these expenditures totaled approximately $6
million compared to $2 million in 1993. Homestake estimates that during 1995,
capital expenditures for such purposes will be approximately $3 million and
that during the five years ending December 31, 1999, such capital expenditures
will be approximately $6 million.
Homestake also incurs significant operating costs in order to comply with
regulatory requirements. Operating costs include current reclamation costs,
accruals for future reclamation expenditures and air, water and other
environmental monitoring costs. Such additional costs totaled approximately
$16 million in 1994, compared with approximately $10 million in 1993, not
including related depreciation expense of $6 million and $7 million,
respectively. Homestake estimates that environmental and related operating
and depreciation costs in 1995 will approximate the 1994 amounts. The above
amounts exclude expenditures related to the Company's discontinued uranium
operations.
Under applicable law and the terms of permits under which Homestake
operates, Homestake is required to reclaim land disturbed by its operations.
Homestake charges reclamation costs incurred in connection with its
exploration activities as expenses in the year in which incurred. For mining
operations, Homestake makes periodic accruals for costs of reclamation. In
the mining industry, most reclamation work takes place generally after mining
and related operations terminate. However, Homestake has adopted a policy of
conducting reclamation during operations where practical and therefore, an
increasing amount of reclamation is being conducted simultaneously with
mining. At December 31, 1994 and 1993, Homestake had accrued a total of $49.2
million and $36.2 million, respectively, for future reclamation and related
costs.
Homestake believes that the cost of compliance with environmental
requirements will continue to increase. Such costs have not and will not
increase productive capacity, efficiency or revenues. Increased costs cannot
be passed on to Homestake's customers.
Homestake's operations are conducted under permits issued by regulatory
agencies. Many permits require periodic renewal or review of their
conditions. Homestake cannot predict whether it will be able to renew such
permits or whether material changes in permit conditions will be imposed.
RCRA
The United States Environmental Protection Agency (EPA), has not yet
issued final regulations for management of mining wastes under the Resource
Conservation and Recovery Act (RCRA). The ultimate effects and costs of
compliance with RCRA cannot be estimated at this time.
CERCLA
The United States Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA), requires EPA to list known or threatened
releases of hazardous substances, pollutants or contaminants. In 1983, EPA
began publishing the National Priorities List (NPL). The listing of a site
does not constitute a determination that any remedial action is required, nor
that any person is liable for any remedial
30
<PAGE>
action or environmental damage. CERCLA imposes heavy liabilities on any
person who is responsible for an actual or threatened release of any hazardous
substance, including liability for oversight costs incurred by EPA.
Congressional hearings for CERCLA reauthorization occurred in 1994. CERCLA
reauthorization was not enacted in 1994 but is expected to occur in 1995.
Whitewood Creek
Deposits of mine rock tailings on lands along a 21-mile stretch of
Whitewood Creek in western South Dakota constitute a site on the NPL. EPA
asserts that discharges of tailings by mining companies, including Homestake,
beginning in the nineteenth century, have contaminated the soil and stream
bed.
In August 1990, Homestake signed a Consent Decree with EPA in United
States of America v. Homestake Mining Company of California, (U.S. District
Court, W.D., S.D., Civil Action 90-5101). The consent decree required
Homestake to carry out remedial work at Homestake's expense and to reimburse
EPA for oversight costs. The decree also provided for the three counties in
which the property is located to enact institutional controls which would
limit the future use of the properties included within the area of the site.
Remedial field work was completed in 1993. Institutional control ordinances
prepared with the assistance of the Company have been adopted in all three of
the affected counties. Homestake and EPA are involved in negotiations to
terminate the consent decree. The Record of Decision also requires the
Company to continue to perform long-term monitoring of the site. Homestake
expects to demonstrate by 1996 that the site does not present any risk to the
environment or to public health or safety. Homestake has requested deletion
of the site from the NPL and EPA has notified Homestake of their intention to
move forward with the deletion. The Company expects the site to be deleted in
1995. The Company has paid all oversight costs billed to date.
In connection with the program to implement institutional controls, the
Company decided to offer to purchase all properties along Whitewood Creek that
were affected by the institutional controls. Approximately $0.2 million has
been spent to acquire property at the site from two separate landowners.
Negotiations are continuing to acquire more of the site. The Company
estimates that the total cost for purchasing all of the affected property
would be approximately $3 million. These costs will be expensed if and when
incurred.
In 1983, the State of South Dakota filed claims against Homestake for
natural resources damages resulting from the release of tailings into the
Whitewood Creek Site. The State has taken no action to pursue the claims.
Grants Tailings
Homestake's closed uranium mill site near Grants, New Mexico is listed on
the National Priorities List (NPL). EPA asserted that leachate from the
tailings contaminated a shallow aquifer used by adjacent residential
subdivisions. Homestake paid the cost of extending the municipal water supply
to the affected homes. Homestake has operated a water injection and
collection system that has significantly improved the quality of the aquifer
to a point where contaminants are below natural background levels off the
millsite. The estimated costs of continued compliance are included in the
accrued reclamation liability. Homestake has settled with EPA concerning
their oversight cost for this site and no additional oversight costs are
accruing. The consent decree has been terminated.
Under a 1987 EPA Administrative Order on Consent (AOC), Homestake studied
radon levels in houses in the subdivisions near the Grants mill. Based on the
study, EPA concluded that the Homestake mill and tailings facilities are not
contributing significantly to radon concentrations in the subdivisions. The
Nuclear Regulatory Commission and the State of New Mexico have concurred with
EPA's decision to take no further action in this regard. The AOC has been
terminated.
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<PAGE>
Effective March 1990, EPA promulgated National Emissions Standards for
radionuclides emissions under Section 112 of the Clean Air Act. The
regulations generally require closure and compliance by uranium mill tailings
facilities on or before December 1991, or two years after cessation of
operations, whichever is later. Homestake closed its Grants uranium processing
facility in 1990. EPA, several environmental groups and a number of mining
companies, including the Company, entered into an agreement which provided
that EPA's regulations governing radionuclide emissions from uranium mill
tailings disposal sites that are licensed by the Nuclear Regulatory Commission
(NRC) would be rescinded and the NRC would regulate radionuclide emissions in
connection with its regulation of the decommissioning of the uranium mill
tailings facilities. Under NRC regulations, the decommissioning would be
affected in accordance with the provisions of the facility's license. The
facility license sets the closure of the two tailings impoundments for 1996
and 2001, subject to extension under certain circumstances. The NRC and EPA
signed a Memorandum of Understanding in 1993 which has established NRC as the
enforcement agency. Mill decommissioning was completed in 1994 and
reclamation of the Grants large tailings site is scheduled for completion in
1996. During 1994, the Company incurred approximately $14 million of
expenditures at the Grant's facility and an additional $15 million is planned
to be expended during 1995.
Title X of the Energy Policy Act of 1992 provides for reimbursement by the
United States Department of Energy (DOE) for certain costs of reclamation,
decommissioning and remedial action for byproduct material (primarily
tailings) generated as an incident of uranium sales to the United States.
Reimbursement is subject to compliance with the regulations issued by the DOE
and appropriation by Congress from a fund established under the Energy Policy
Act. Congress has appropriated $83 million for disbursement in fiscal years
1994 and 1995. The Company and the DOE have agreed that approximately 51% of
the tailings at Grants were generated as an incident of uranium sales to the
United States. Homestake has submitted an initial reimbursement claim for
$14.2 million for the 1975 to 1993 time period and has received $4.3 million
to date. A claim for approximately $7 million will be submitted in 1995 for
1994 expenditures. Homestake believes that its reclamation reserves for
uranium operations and amounts expected to be received under the Energy Policy
Act are sufficient to provide for all reclamation costs for the Grants site.
In 1983, the State of New Mexico filed claims against Homestake for
natural resource damages resulting from the Grants site. The State has taken
no action to pursue the claims.
Other Uranium
In 1994, the Company (along with a number of other companies and
government agencies) received notice from EPA that it may be a potentially
responsible party with respect to the cleanup of the Colorado School of Mines
Research Institute (CSMRI) site near Denver, Colorado. The Company sent ore
samples, principally uranium ore, to the CSMRI site for testing at various
times over a period in excess of 25 years. EPA has conducted certain remedial
actions at the CSMRI site at a cost in excess of $1 million and proposes to
conduct additional remediation and disposal activities, the cost of which is
not yet determinable. The Company demonstrated to the EPA's satisfaction that
Homestake is a de minimus contributor and has settled the claim such that the
Company has no liability as long as the clean-up costs are less than $20
million.
Lead
Prior to May 1986, Homestake Lead Company of Missouri (HLCM), a wholly-
owned subsidiary of the Company, was a joint venturer and partner with
subsidiaries of AMAX, Inc. (AMAX) in the production of lead and lead
concentrates in Missouri. In May 1986, HLCM acquired AMAX's interest in the
Missouri facilities and operations and agreed to assume certain limited
liabilities of AMAX in connection with the Missouri facilities. In November
1986, HLCM entered into a partnership, The Doe Run Company (Doe Run), with
subsidiaries of Fluor Corporation (Fluor), under which HLCM and the Fluor
subsidiaries combined their existing United States lead businesses. Under the
Doe Run partnership agreement, HLCM contributed to Doe Run certain liabilities
32
<PAGE>
of HLCM arising out of the lead business, including most obligations HLCM had
to AMAX arising in connection with HLCM's acquisition of AMAX's interest in
the Missouri facilities.
In May 1990, HLCM sold its interest in Doe Run to Fluor under an agreement
which provided that Fluor would indemnify HLCM against all liabilities assumed
by Doe Run to the extent that Doe Run was unable to discharge those
liabilities.
In June 1991, HLCM and AMAX were notified of a potential claim by the
Jackson County, Mississippi Port Authority for contamination of soil and water
alleged to have resulted from storage and shipment of lead dross at the Port
of Pascagoula prior to the formation of Doe Run; since that time, a number of
other lead producers and former lead producers have also been so notified.
In July 1991, HLCM tendered the claim to Fluor and Doe Run. They rejected the
tender and HLCM filed suit in the Superior Court of Orange County, California
for breach of contract and declaratory relief (Superior Court, Dept. 20, No.
673777). Subsequent to the filing of that action, HLCM tendered two
additional potential claims arising out of the pre-1986 lead business to Fluor
and Doe Run. Doe Run and Fluor rejected both tenders.
During the pendency of the action, Fluor and Doe Run joined AMAX in the
litigation. AMAX took the position that HLCM was obligated to indemnify AMAX
for off-site environmental liability associated with lead dross and smelter
byproducts, but not for off-site environmental liability associated with lead
metal or lead concentrates. AMAX also took the position that the transfer to
Doe Run of obligations owed by HLCM to AMAX arising in connection with HLCM's
acquisition of AMAX's interest in the Missouri facilities was not binding on
AMAX and did not relieve HLCM of its obligations to AMAX.
In settlement of the matter in respect of AMAX, HLCM agreed to indemnify
AMAX in respect of future off-site environmental liability arising in respect
of lead dross and other smelter byproducts. AMAX has acknowledged that it is
responsible for its proportionate share of off-site environmental liability
associated with lead metal and lead concentrate, and AMAX has acknowledged the
effectiveness of HLCM's transfer to Doe Run of obligations HLCM had to AMAX
arising in connection with HLCM's acquisition of AMAX's interest in the
Missouri facilities. HLCM and Fluor also agreed to dismiss Fluor out of the
litigation on the basis of a stipulation by Fluor acknowledging its
responsibility with respect to obligations of Doe Run to HLCM should Doe Run
be unable to satisfy its obligations.
In December 1993, trial was held with respect to HLCM's claims against Doe
Run and in January 1994, the court ruled against HLCM and in favor of Doe Run.
That ruling is being appealed.
The State of Mississippi Department of Environmental Quality, under the
Mississippi version of CERCLA, is reviewing the Port of Pascagoula site. The
Port of Pascagoula is considered the prime PRP (Potentially Responsible Party)
at this site, but the Port has also made claims for reimbursement against
customers whose material was stored at and shipped through the site.
Homestake and other companies are working with the Port of Pascagoula and the
State of Mississippi to address the potential lead contamination. The State
currently is reviewing analytical data from the site. As a result of
subsequent investigations conducted by the Company and others, the Company
believes that most of the material at the Pascagoula site, and the material
primarily responsible for the contamination, is lead concentrate. Based on
review of shipping records to date, less than half of the lead concentrate
shipped through the Port of Pascagoula was produced and sold for the account
of the Company.
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Foreign Operations
The Nickel Plate mine had been placed on a Pollution Concern List by the
Ministry of Environment, Lands and Parks due to tailings dam seepage and
elevated levels of sulfates and nitrates in run-off water from the waste
dumps. During 1993, significant work was undertaken to modify and further
improve the tailings dam seepage handling system to limit effluent bypassing
the system. Additional reclamation undertaken in 1994 includes the
rehabilitation of waste dumps and a small pit that was mined out in 1992. On
February 22, 1994 the mine was removed from the Pollution Concern List.
During 1993, the Eskay Creek mine was placed on a Pollution Concern List
by the Ministry of Environment, Lands and Parks due to acid drainage from rock
storage areas. In early 1993, a lime treatment plant was installed to treat
the acidic water and the project was removed from the Pollution Concern List
on February 22, 1994.
Homestake believes that its foreign operations comply with applicable
laws, regulations and permit conditions and has no knowledge of any
significant environmental liability or contingent liability resulting from its
foreign operations. Homestake expects that environmental constraints in
foreign countries will become increasingly strict.
CUSTOMERS
Sales of $129 million, $118 million and $100 million to three customers in
1994 were in excess of 10% of Homestake's consolidated revenues. Homestake
believes that the loss of any of these customers would not have a material
adverse impact on Homestake because of the active worldwide market for gold.
CREDIT FACILITIES
See note 14 to the consolidated financial statements on page 41 of the
1994 Annual Report to Shareholders for details of the Company's credit
facilities. Such information is hereby incorporated by reference.
EMPLOYEES
The number of full-time employees at December 31, 1994 of Homestake and
its subsidiaries was:
Homestake mine* 996
McLaughlin mine 343
El Hueso mine* 181
Nickel Plate mine 164
United States corporate staff and other 75
Eskay Creek mine 71
Canada exploration and corporate staff 33
HGAL exploration and corporate staff 28
United States exploration 27
Santa Fe mine 16
Uranium 12
Chile exploration and corporate staff 10
-----
Total 1,956
34
<PAGE>
The number of full-time employees at December 31, 1994 in jointly-owned
operations in which Homestake participates was:
Kalgoorlie Consolidated Gold Mines Pty Ltd* 1,128
Williams Operating Corporation 603
Round Mountain mine 536
Teck-Corona Operating Corporation* 232
Rayrock managed operations (Marigold and
Pinson mines) 212
Snip mine 138
Main Pass 299 150
-----
Total 2,999
* Operations where a portion of the employees are represented by a labor
union.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages at December 31, 1994,
their business experience and principal occupations during the past five years
and their business backgrounds are:
Harry M. Conger - Chairman of the Board and Chief Executive Officer
since December 1982, age 64. He has been Chief Executive Officer since
December 1978 and was President from 1977 to 1986. He is a mining engineer
with over 39 years of professional experience.
Jack E. Thompson - President and Chief Operating Officer since August
1994, age 44. Since August 1994, he has also been Chairman of Prime. He was
Executive Vice President, Canada of the Company and President of Prime from
1992 through August 1994. He also was President of North American Metals
Corp. from 1988 until 1993. He is a mining engineer with over 24 years of
experience in mining and mine management.
Gene G. Elam - Vice President, Finance and Chief Financial Officer
since September 1990, age 55. Before joining Homestake, he was Senior Vice
President, Administrative Services of Pacific Gas and Electric Company from
April 1989 through August 1990 and was Vice President and Controller from
January 1987 through March 1989. He was President and Chief Executive Officer
of The Pacific Lumber Company from 1982 to 1986, President in 1980 and 1981,
and Chief Financial Officer from 1972 until 1980. He is a certified public
accountant with over 33 years of experience in accounting and finance.
Lee A. Graber - Vice President, Corporate Development since 1983, age
46. From 1980 to 1983, he was Manager, Corporate Development and Planning.
He has over 23 years of experience in finance and corporate development.
Wayne Kirk - Vice President, General Counsel and Secretary since
September 1992, age 51. He was a partner in Thelen, Marrin, Johnson & Bridges
from 1976 to 1992. He has practiced law for more than 25 years.
Gillyeard J. Leathley - Vice President, Canadian Operations since
September 1992, age 57. Before joining Homestake, he was Senior Vice
President, Operations for International Corona Corporation from 1986 to
September 1992. He has over 37 years of experience in mining and mine
management.
35
<PAGE>
Ronald D. Parker - Vice President Canada and President, Homestake Canada
Inc. since August 1994, age 44. He also has been President and Chief
Executive Officer of Prime since August 1994. He was the Resident General
Manager of the McLaughlin mine from 1988 until August 1994. He is an engineer
with over 23 years of experience in mining and mine management.
Anthony H. Ransom - Vice President, Exploration since September 1992,
age 48. Before joining Homestake, he was Vice President, Exploration for
International Corona Corporation from 1991 to September 1992. Prior to 1991
he was Director, Western Exploration for International Corona Corporation and
prior to 1988 was President of Pamorex Minerals Inc., a gold mining and
exploration company. He is a geologist with more than 27 years of
professional experience.
Allen S. Winters - Vice President, Mine Operations since 1987, age 54.
From 1978 to 1987, and from July 1992 until December 31, 1994, he was Resident
General Manager of the Homestake Mine. He is a mining engineer with more than
35 years of experience.
Jan P. Berger - Treasurer since August 1992, age 39. He has been with
Homestake since 1989, first as senior analyst in the finance group and from
1991 to 1992 was Manager, Internal Audit. Prior to joining Homestake, he was
an analyst for Bechtel Financing Services Inc. Before Bechtel, he worked as
an engineering and exploration geologist in the consulting and petroleum
industries. He has over 13 years of experience in exploration and finance.
David W. Peat - Controller since September 1992, age 42. Prior to
joining Homestake, he was Vice President, Controller for International Corona
Corporation. Prior to 1987 he served as Assistant Corporate Controller for
Sherritt Gordon Mines Limited. He is a chartered accountant with over 18
years of accounting and finance experience.
No officer is related to any other officer by blood, marriage or
adoption.
Officers are elected to serve until the next annual meeting of the Board
of Directors at which officers are elected or until their successors are
chosen.
No arrangement or understanding exists between any officer and any other
person under which any officer was elected.
ITEM 2 - PROPERTIES
See Item 1 - Business.
ITEM 3 - LEGAL PROCEEDINGS
Certain environmental proceedings in which the Company is or may become
a party are discussed on pages 30 through 34 under the caption "Environmental
Matters."
On October 13, 1993, Goldstake Explorations (S.D.) Inc. filed an action
in the Federal District Court of Colorado against Homestake Mining Company of
California ("Homestake California") and its wholly owned subsidiary, Whitewood
Development Corporation ("Whitewood"), Goldstake Explorations (S.D.) Inc. v.
Homestake Mining Company of California et al., No. 93-M-2149. The complaint
alleged that Homestake California and Whitewood fraudulently induced Goldstake
to enter into a joint venture agreement in 1988 between Goldstake and
Whitewood with respect to the mining of mine tailings in Whitewood Creek, near
the Company's mine in South Dakota. The complaint alleged that Homestake
California and Whitewood misrepresented their intent to mine the tailings in
order to prevent Goldstake from mining the tailings. The
36
<PAGE>
complaint also alleged that Whitewood breached the joint venture agreement
and duties owed to Goldstake under the joint venture agreement in various
respects, that Homestake California induced those breaches, and that Homestake
California and Whitewood engaged in acts of misrepresentation during the
conduct of the joint venture's activities. Goldstake claimed unspecified
compensatory and punitive damages. The litigation was stayed in order for the
matter to be arbitrated. During the second quarter of 1994, Goldstake amended
its claim to allege actual damages of $137.5 million. The arbitration hearing
was held in January 1995. At the arbitration, Goldstake claimed damages of
approximately $79 million. On March 27, 1995 the arbitrators entered their
decision under which Homestake California and Whitewood are to pay Goldstake
$0.5 million within 30 days and promptly apply for all necessary permits to
construct and operate a mine and processing facility. If all permits have not
been obtained by December 31, 1995, Homestake California and Whitewood are to
pay Goldstake an additional $0.5 million. If all permits have not been
obtained by December 31, 1996, Homestake California and Whitewood are to pay
Goldstake an additional $0.5 million.
The Company and its subsidiaries are defendants in various other legal
actions in the ordinary course of business. In the opinion of management,
such matters will be resolved without material affect on the Company's
financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
a. The common stock of Homestake Mining Company is registered and traded
principally on the New York Stock Exchange under the symbol "HM". It is
also listed and traded in Switzerland on the Basel, Geneva and Zurich
stock exchanges under the same symbol.
b. The number of holders of common stock of record as of March 13, 1995 was
25,463.
c. Information about the range of sales prices for the common stock and the
frequency and amount of dividends declared during the past two years
appears in the tables on page 50 in the Registrant's 1994 Annual Report
to Shareholders. The tables setting forth sales prices and dividends
are hereby incorporated by reference. Information about certain
restrictive covenants under the Company's line of credit appears on page
41 in Note 14 entitled "Long-term Debt" in the Notes to Consolidated
Financial Statements in the Company's 1994 Annual Report to
Shareholders. Such information is hereby incorporated by reference.
d. Reference is hereby made to the Note 20 entitled "Shareholders' Equity"
on pages 44 and 45 in the Notes to Consolidated Financial Statements in
the Company's 1994 Annual Report to Shareholders. Such information is
hereby incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
A summary of selected consolidated financial data of the Company and its
subsidiaries for the seven-year period ended December 31, 1994 appears on
pages 48 and 49 in the 1994 Annual Report to Shareholders. The summary of
selected consolidated financial data is hereby incorporated by reference.
37
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations covering the three-year period ended December 31, 1994 appears
on pages 25 through 30 in the 1994 Annual Report to Shareholders and is hereby
incorporated by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The 1994 Annual Report to Shareholders includes the Company's
consolidated balance sheets as of December 31, 1994 and 1993 and related
statements of consolidated operations, consolidated shareholders' equity and
consolidated cash flows for each of the three years in the period ended
December 31, 1994 and the independent auditors' report thereon, and certain
supplementary financial information. The following are hereby incorporated by
reference from the 1994 Annual Report to Shareholders at the pages indicated:
Report of Independent Auditors (page 31)
Statements of Consolidated Operations (page 32)
Consolidated Balance Sheets (page 33)
Statements of Consolidated Shareholders' Equity (page 34)
Statements of Consolidated Cash Flows (page 35)
Notes to Consolidated Financial Statements (pages 36-47)
Quarterly Selected Data (page 50)
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On March 3, 1993, pursuant to the recommendation of the Audit Committee,
the Company terminated Deloitte & Touche LLP as independent auditors for the
Company and its subsidiaries upon completion of their 1992 audit engagement.
Deloitte & Touche LLP's reports on the consolidated financial statements of
the Company for 1991 and 1992 did not contain an adverse opinion or a
disclaimer of opinion and the reports were not qualified or modified as to
uncertainty, audit scope, or accounting principles. During 1992 and the
interim period through the date of termination, there were no disagreements
with Deloitte & Touche LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of Deloitte & Touche LLP would have
caused Deloitte & Touche LLP to make a reference to the subject matter of the
disagreement in connection with its report. During 1992 and the interim
period through the date of termination, there did not occur any kind of event
listed in paragraphs (a)(1)(v)(A) through (D) of Regulation S-K, Item 304.
Effective March 3, 1993, pursuant to the recommendation of the Audit
Committee, the Company engaged Coopers & Lybrand LLP as independent auditors
to audit the Company's financial statements for 1993. During 1992 and the
interim period through the date of termination, neither the Company nor any
person acting on behalf of the Company consulted Coopers & Lybrand LLP
regarding (i) either: the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements; or (ii) any matter
that was either the subject of a disagreement (as defined in paragraph
(a)(1)(iv) of Regulation S-K, Item 304 and the related instructions) or a
reportable event (as described in paragraph (a)(1)(v) of Regulation S-K, Item
304).
38
<PAGE>
PART III
ITEMS 10, 11, 12 AND 13
In accordance with General Instruction G(3), Items 10, 11, 12 and 13
(with the exception of certain information pertaining to executive officers,
which is included in Part I hereof) have been omitted from this report since a
definitive proxy statement is being filed with the Securities and Exchange
Commission and furnished to shareholders pursuant to Regulation 14A.
The information contained in the proxy statement relating to directors,
executive compensation, security ownership and certain relationships (other
than the performance graph and Compensation Committee report contained
therein) is hereby incorporated by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORMS 8-K
(a)1. Financial Statements:
Refer to Part II, Item 8.
2. Financial Statement Schedules:
Schedules for the years ended December 31, 1994, 1993, and 1992 -
II Valuation and Qualifying Accounts
Report of Independent Auditors
Schedules not listed are omitted because they are not required or
because the required information is included elsewhere in this
report.
3. Exhibits
3.1 Restated Certificate of Incorporation of Homestake Mining
Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-4 filed on June
10, 1992 (the "S-4 Registration Statement")).
3.2 Amendment to Restated Certificate of Incorporation of Homestake
Mining Company dated June 3, 1991 (incorporated by reference to
Exhibit 3.2 to the S-4 Registration Statement).
3.3 Certificate of Correction of the Restated Certificate of
Incorporation of Homestake Mining Company dated February 10,
1992 (incorporated by reference to Exhibit 3.3 to the S-4
Registration Statement).
3.4 Bylaws (as amended) of Homestake Mining Company (incorporated
by reference to Exhibit 3.5 to the S-4 Registration Statement).
3.5 Rights Agreement dated October 16, 1987 (incorporated by
reference to Exhibit 10 to the Registrant's Report on Form 8-A
dated October 16, 1987).
4.1 Indenture dated as of January 23, 1993 between Homestake Mining
Company, Issuer and The Chase Manhattan Bank, N.A., Trustee,
with respect to US $150,000,000 principal amount of 5 1/2%
Convertible Subordinated Notes due January 23, 2000
(incorporated by reference to Exhibit 4.2 to the Registrant's
Form 8-K Report dated as of June 23, 1993).
39
<PAGE>
4.2 Registrant hereby agrees to furnish to the Commission, upon
request, a copy of the instruments which define the rights of
the holders of long-term debt of the Company. None of such
instruments not included as exhibits herein collectively
represents long-term debt in excess of 10% of the consolidated
total assets of the Registrant.
10.1 Amended and restated credit agreement dated as of September 30,
1994 between the Registrant, the Lenders, Bank of Nova Scotia
and Canadian Imperial Bank of Commerce as managing agents and
Canadian Imperial Bank of Commerce as administrative agent
(incorporated by reference to Exhibit 10.1 to the Registrant's
Form 8-K dated March 20, 1995).
* 10.2 Retirement plan for outside directors of the Registrant dated
as of July 21, 1994 (incorporated by reference to Exhibit 10.2
to the Registrant's Form 8-K dated March 20, 1995).
10.3 Lease agreement dated June 17, 1988 between the Registrant's
wholly-owned subsidiary, Minera Homestake Chile, S.A. and
CODELCO-Chile (incorporated by reference to Exhibit 10(f) to
the Registrant's Form 10-K for the year ended December 31,
1989).
10.4 Amendment dated September 4, 1991 to the lease agreement dated
June 17, 1988 between the Registrant's wholly-owned subsidiary,
Minera Homestake Chile, S.A. and CODELCO-Chile (incorporated by
reference to Exhibit 10(a) to the Registrant's Form 10-K for
the year ended December 31, 1989).
10.5 Agreement dated October 9, 1991 between the Registrant and
Chevron Minerals Ltd. (incorporated by reference to Exhibit
10(b) to the Registrant's Form 10-K for the year ended
December 31, 1991).
10.6 Guarantee dated December 18, 1991 between the Registrant and
Chevron Minerals Ltd. (incorporated by reference to Exhibit
10(c) to the Registrant's Form 10-K for the year ended
December 31, 1991).
10.7 Agreement dated May 4, 1990 for the sale of the Registrant's
42.5% partnership interest in The Doe Run Company (incorporated
by reference to Exhibit 28(a) to the Registrant's Form 8-K
dated May 18, 1990).
10.8 Purchase and sale agreement dated January 15, 1989 between the
Registrant's subsidiary Homestake Gold of Australia Limited and
North Kalgoorlie Mines Limited (and Group Companies) and
Kalgoorlie Lake View Pty. Ltd. (incorporated by reference to
Exhibit 10(g) to the Registrant's Form 10-K for the year ended
December 31, 1989).
10.9 Joint Operating Agreement dated May 1, 1988 between Freeport-
McMoRan Resources Partners, IMC Fertilizer, Inc. and Felmont
Oil Corporation (a subsidiary of Registrant) relating to the
Main Pass Block 299 sulphur project (incorporated by reference
to Exhibit 10.16 to the Registrant's Form 10-K for the year
ended December 31, 1992).
10.10 Amendment No. 1 dated July 1, 1993 to Joint Operating Agreement
between Freeport McMoRan Resources Partners, IMC Fertilizer, Inc.
and Homestake Sulphur Company (incorporated by reference to
Exhibit 10.8 to the Registrant's Form 10-K for the year ended
December 31, 1993).
10.11 Amendment No. 2 dated November 30, 1993 to Joint Operating
Agreement between Freeport McMoRan Resources Partners, IMC
Fertilizer, Inc. and Homestake Sulphur Company (incorporated by
reference to Exhibit 10.9 to the Registrant's Form 10-K for the
year ended December 31, 1993).
10.12 Amended and Restated Project Agreement (David Bell Mine) dated as
of April 1, 1986 among Teck Corporation, International Corona
Resources Ltd. (a subsidiary of International Corona Corporation,
now Homestake Canada Inc. and a subsidiary of Registrant), Teck-
Hemlo Inc., Corona-Hemlo Inc. (a subsidiary of International
Corona Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant) (incorporated by reference to Exhibit 10.17 to the
Registrant's Form 10-K for the year ended December 31, 1992).
40
<PAGE>
10.13 Amended and Restated Operating Agreement (David Bell Mine) among
Teck Corporation, International Corona Resources Ltd. (a
subsidiary of International Corona Corporation, now Homestake
Canada Inc. and a subsidiary of Registrant), Teck Mining Group
Limited, Teck-Corona Operating Corporation, Teck-Hemlo Inc. and
Corona-Hemlo Inc. (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant) (incorporated by reference to Exhibit 10.18 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.14 Project Agreement (Williams Mine) dated August 11, 1989 among Teck
Corporation, Corona Corporation (now Homestake Canada Inc. and a
subsidiary of Registrant) and Williams Operating Corporation
(incorporated by reference to Exhibit 10.19 to the Registrant's
Form 10-K for the year ended December 31, 1992).
10.15 Operating Agreement (Williams Mine) dated August 11, 1989 among
Teck Corporation, Corona Corporation (now Homestake Canada Inc.
and a subsidiary of Registrant), Teck Mining Group Limited and
Williams Operating Corporation (incorporated by reference to
Exhibit 10.20 to the Registrant's Form 10-K for the year ended
December 31, 1992).
10.16 Shareholders' Agreement dated August 11, 1989 among Corona
Corporation (now Homestake Canada Inc. and a subsidiary of
Registrant), Teck Corporation and Williams Operating Corporation
(incorporated by reference to Exhibit 10.21 to the Registrant's
Form 10-K for the year ended December 31, 1992).
10.17 Agreement dated January 25, 1983 between Noranda Exploration
Company Limited, Teck Corporation and International Corona
Resources Limited (a subsidiary of International Corona
Corporation, now Homestake Canada Inc. and a subsidiary of
Registrant), relating to development of the Quarter Claim mine
(incorporated by reference to Exhibit 10.22 to the Registrant's
Form 10-K for the year ended December 31, 1992).
* 10.18 1986 Deferred Income Plan of Homestake Mining Company
(incorporated by reference to Exhibit 10(a) to the Registrant's
Form 10-K for the year ended December 31, 1990).
* 10.19 First Amendment to the 1986 Deferred Income Plan of Homestake
Mining Company (incorporated by reference to Exhibit 10(b) to the
Registrant's Form 10-K for the year ended December 31, 1990).
* 10.20 Agreement dated July 16, 1982, as amended November 3, 1987 and
February 23, 1990, between the Registrant and H. M. Conger
(incorporated by reference to Exhibit 10(a) to the Registrant's
Form 10-K for the year ended December 31, 1989).
* 10.21 Description of Change of Control Severance Plan applicable to
certain officers of Registrant (incorporated by reference to
Exhibit 10.27 to the Registrant's Form 10-K for the year ended
December 31, 1992).
* 10.22 Executive Supplemental Retirement Plan of Homestake Mining
Company, amended and restated effective January 1, 1990
(incorporated by reference to Exhibit 10(d) to the Registrant's
Form 10-K for the year ended December 31, 1989).
* 10.23 Supplemental Retirement Plan of Homestake Mining Company, amended
and restated effective as of January 1, 1990 (incorporated by
reference to Exhibit 10(e) to the Registrant's Form 10-K for the
year ended December 31, 1989).
* 10.24 Share Incentive Plan effective July 1, 1988 of International
Corona Corporation (now Homestake Canada Inc. and subsidiary of
Registrant), as amended October 22, 1991 (incorporated by
reference to Exhibit 10.32 to the Registrant's Form 10-K for the
year ended December 31, 1992).
10.25 Shareholder Agreement dated January 1, 1989 among Homestake Mining
Company, Case, Pomeroy & Company, Inc. and Hadley Case
(incorporated by reference to Exhibit 10(a) to the Registrant's
Form 10-K for the year ended December 31, 1988).
10.26 Amendment dated March 27, 1992 to Shareholder Agreement dated
January 1, 1989 among Homestake Mining Company, Case, Pomeroy &
Company, Inc., and Hadley Case (incorporated by reference to
Exhibit 10.14 to the S-4 Registration Statement).
41
<PAGE>
* 10.27 Consulting Agreement dated July 24, 1992, between Stuart T. Peeler
and the Registrant (incorporated by reference to Exhibit 10.36 to
the Registrant's Form 10-K for the year ended December 31, 1992).
* 10.28 Consulting agreement dated March 1, 1993 between William A.
Humphrey and the Registrant (incorporated by reference to Exhibit
10.27 to the Registrant's Form 10-K for the year ended December
31, 1993).
* 10.29 Employees Non-Qualified Stock Option Plan--1978 (incorporated by
reference to Exhibit 10(a) to the Registrant's Form 10-K for the
year ended December 31, 1984, Commission File Number 1-1235 and to
Post Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-8 dated March 11, 1988).
* 10.30 1981 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10(b) to the Registrant's Form 10-K for the year ended
December 31, 1984, Commission File Number 1-1235 and to Post
Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-8 dated March 11, 1988).
* 10.31 Long Term Incentive Plan of 1983 of Homestake Mining Company
(incorporated by reference to Exhibit 10(g) to the Registrant's
Registration Statement on Form S-14 dated May 16, 1984).
* 10.32 Employees' Stock Option and Share Rights Plan--1988 (incorporated
by reference to Exhibit 10(n) to the Registrant's Form 10-K for
the year ended December 31, 1987).
11 Computation of Earnings Per Share.
13 Specified sections of the 1994 Annual Report to Shareholders.
22 Subsidiaries of the Registrant.
24 Consent of Coopers & Lybrand LLP, Independent Auditors.
27 Financial Data Schedule.
* Compensatory plan or management contract.
(b) Reports Filed on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1994.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 23, 1995 By /s/ H.M. Conger
--------------- -----------------
H. M. Conger
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ G. G. Elam Vice President, Finance March 23, 1995
-------------- and Chief Financial
G. G. Elam Officer (Principal
Financial Officer)
/s/ D. W. Peat Controller (Principal March 23, 1995
-------------- Accounting Officer)
D. W. Peat
(Signatures continued on following page.)
43
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- -------------
<S> <C> <C>
/s/ Harry M. Conger Chairman of the Board,
------------------- Chief Executive Officer
Harry M. Conger and Director March 23, 1995
/s/ M. Norman Anderson Director March 23, 1995
----------------------
M. Norman Anderson
Director March 23, 1995
---------------
Hadley Case
/s/ Robert H. Clark, Jr. Director March 23, 1995
-----------------------
Robert H. Clark, Jr.
/s/ G. Robert Durham Director March 23, 1995
--------------------
G. Robert Durham
/s/ Douglas W. Fuerstenau Director March 23, 1995
-------------------------
Douglas W. Fuerstenau
/s/ Henry G. Grundstedt Director March 23, 1995
-----------------------
Henry G. Grundstedt
/s/ William A. Humphrey Director March 23, 1995
-----------------------
William A. Humphrey
/s/ Robert K. Jaedicke Director March 23, 1995
----------------------
Robert K. Jaedicke
/s/ John Neerhout, Jr. Director March 23, 1995
---------------------
John Neerhout, Jr.
/s/ Stuart T. Peeler Director March 23, 1995
--------------------
Stuart T. Peeler
/s/ Glen L. Ryland Director March 23, 1995
------------------
Glen L. Ryland
/s/ Berne A. Schepman Director March 23, 1995
---------------------
Berne A. Schepman
/s/ Jack E. Thompson President, Chief March 23, 1995
-------------------- Operating Officer
Jack E. Thompson and Director
</TABLE>
44
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE
BALANCE AT AT
BEGINNING END OF
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD
----------------------------------------------------------------------
DEFERRED TAX ASSET VALUATION ALLOWANCES (1)
<S> <C> <C> <C> <C>
Year ended
December 31, 1994 $52,066 $10,210 $12,437(2) $49,839
Year ended
December 31, 1993 $ 0 $52,066(3) $ 0 $52,066
Year ended
December 31, 1992 Not applicable
<FN>
(1) For further information see Note 7, Income Taxes, in the Notes
to the Financial Statements included in the 1994 Annual Report
to Shareholders.
(2) Deductions in 1994 relate to the reversals of Canadian and
Australian tax loss carry-forwards.
(3) Additions in 1993 relate to the implementation of SFAS 109,
"Accounting for Income Taxes."
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
Homestake Mining Company
We have audited the consolidated financial statements of Homestake Mining
Company and subsidiaries as of December 31, 1994 and 1993, and for each of
the three years in the period ended December 31, 1994, which financial
statements are included on pages 32 through 47 of the 1994 Annual Report to
Shareholders of Homestake Mining Company and incorporated by reference
herein. We have also audited the financial statements schedules listed in
Item 14(a)(2) of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Homestake
Mining Company and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. In addition, in our opinion,
the financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
/s/ Coopers & Lybrand L.L.P.
---------------------------
San Francisco, California
February 8, 1995
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
------- ----------------
<C> <S> <C>
11 Computation of Earnings Per Share Filed herewith
electronically
13 1994 Annual Report to Shareholders Filed herewith
electronically
22 Subsidiaries to Registrant Filed herewith
electronically
24 Consent of Coopers & Lybrand LLP,
Independent Auditors Filed herewith
electronically
27 Financial Data Schedule Filed herewith
electronically
</TABLE>
<PAGE>
EXHIBIT 11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
____________________________________________________________________________
1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY:
Earnings:
Net income (loss) $78,016 $52,494 $(175,836)
Less dividends on:
HCI first preferred
series X shares (118)
HCI series 1 second
preference shares (885) (971)
--------------------------------------
Net income (loss) applicable
to primary earnings per
share calculation $78,016 $51,609 $(176,925)
======================================
Weighted average number of
shares outstanding 137,733 137,046 135,221
======================================
Net income (loss) per share
- primary $ 0.57 $ 0.38 $ (1.31)
======================================
FULLY DILUTED:
Earnings:
Net income (loss) $ 78,016 $52,494 $(175,836)
Less dividends on:
HCI first preferred
series X shares (118)
HCI series 1 second
preference shares (885) (971)
Add:
Interest relating to 5.5%
convertible subordinated
notes, net of tax 6,517 3,447
Amortization of issuance
costs relating to 5.5%
convertible subordinated
notes, net of tax 443 234
--------------------------------------
Net income (loss) applicable
to fully diluted earnings
per share calculation $84,979 $55,290 $(176,925)
======================================
Weighted average number of
shares outstanding:
Common shares 137,733 137,046 135,221
Additional average shares
outstanding assuming
conversion of 5.5%
convertible subordinated
notes 6,505 3,397
-------------------------------------
144,238 140,443 135,221
=====================================
Net income (loss) per share
- fully diluted (a) $0.59 $0.39 $(1.31)
=====================================
<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 produced an anti-dilutive result.
</TABLE>
<PAGE>
EXHIBIT 13
Index to Exhibit 13:
Selected information from the 1994 Annual Report to Shareholders
is incorporated by reference in the Form 10-K and such
information is herewith transmitted electronically as Exhibit 13.
Such selected information is listed below. Noted page references
correspond to pagination in the 1994 Annual Report to
Shareholders.
<TABLE>
<CAPTION>
Annual Report
Page
<S> <C>
Management's Discussion and Analysis 25-30
Report of Independent Auditors 31
Management's Responsibility for
Financial Reporting 31
Consolidated Financial Statements 32-35
Notes to Consolidated Financial Statements 36-47
Seven-Year Selected Financial Data 48-49
Quarterly Selected Data 50
Common Stock Price Range 50
Appendix 1: Description of Bar Charts in Management' s
Discussion and Analysis
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
Homestake Mining Company and Subsidiaries
(Unless specifically stated otherwise, all comments, production statistics,
etc. relate to amounts in the consolidated financial statements, including the
Company's interest in mining partnerships accounted for using the equity
method, without reduction for minority interest.)
RESULTS OF OPERATIONS
Homestake recorded net income of $78 million or $0.57 per share in 1994
compared to net income of $52.5 million or $0.38 per share in 1993 and a net
loss of $175.8 million or $1.31 per share in 1992. The improved 1994 results
reflect after-tax gains of $12.6 million from the sale of the Company's
interest in the Dee mine in Nevada and $11.2 million from dilution of the
Company's interest in Prime Resources Group Inc. (Prime) following Prime's
sale of additional shares to the public, as well as higher gold prices. The
current year's results also include a $7.8 million income tax benefit
resulting from a reorganization of Canadian exploration assets. The 1993
results included a pretax write-down of oil and gas assets of $16 million
compared to pretax write-downs of mining properties and investments of $130.3
million in 1992. The 1993 and 1992 results also included restructuring and
business combination expenses of $8.2 million and $48.4 million, respectively.
See notes 5 and 6 to the consolidated financial statements for details of the
write-downs and the restructuring and business combination expenses.
(See Appendix 1: Description of Bar Chart A "Net Income.")
In May 1994, the Company sold its 44% interest in the Dee mine to
Rayrock Mines, Inc. (Rayrock) for $16.5 million. Rayrock assumed
responsibility for, and indemnified Homestake against, all related
environmental and reclamation matters.
During the second quarter of 1994, Prime completed the sale of five
million common shares to the public. Net proceeds of $31.9 million were used
to fund a portion of the construction and development costs at the Eskay Creek
mine in British Columbia, Canada. As a result, Homestake's interest in Prime
was reduced from 54.2% to 50.6% and a gain of $11.2 million was recorded in
recognition of the net increase in the book value of the Company's interest in
Prime.
Eskay Creek Mine: Construction and development of the Eskay Creek gold/silver
mine was substantially completed by December 1994 and ore shipments to third-
party smelters began in January 1995. The mine is expected to produce 100,000
tons of ore in 1995 containing approximately 170,000 payable ounces of gold
and 7.3 million payable ounces of silver or 270,000 payable ounces of gold and
gold equivalent. The Company estimates that the Eskay Creek mine's average
cash cost per ounce, including the costs of third-party smelters, will
approximate $185 per equivalent ounce during 1995. Proven and probable ore
reserves at the Eskay Creek mine at December 31, 1994 totaled 1.2 million tons
containing 2.3 million ounces of gold and 102 million ounces of silver,
sufficient for eight to ten years of production. Through Prime, the Company
has a 50.6% economic interest in these reserves.
Gold Operations: The results of the Company's operations are affected
significantly by the market price of gold. Gold prices are influenced by
numerous factors over which the Company has no control, including expectations
with respect to the rate of inflation, the relative strength of the U.S.
dollar and certain other currencies, interest rates, global or regional
political or economic crises, demand for gold for jewelry and industrial
products, and sales by holders and producers of gold in response to these
factors. The supply of gold consists of a combination of new mine production
and sales from existing stocks of bullion and fabricated gold held by
governments, public and private financial institutions, and individuals.
(See Appendix 1: Description of Bar Chart B "Gold Production.")
The Company's general policy is to sell its production at current
prices. However, in certain limited circumstances, the Company will enter
into forward sales commitments for small portions of its gold production.
During the fourth quarter of 1994, the Company sold for future delivery
183,200 ounces of gold it expects to produce at the Nickel Plate mine during
1995 and 1996. These forward sales represent less than 5% of the gold that
25<PAGE>
Homestake expects to produce over the next two years. The average price to be
received is approximately $412 per ounce, which should cover the mine's
relatively high cash costs during its two-year remaining life. The forward
sales should also allow for recovery of the Company's remaining investment in
the mine and provide for estimated reclamation costs.
A significant portion of the Company's operating expenses are incurred
in Australian and Canadian currencies. The Company's profitability is impacted
by fluctuations in these currencies' exchange rates relative to the U.S.
dollar. In 1992, the Company implemented a foreign currency protection
program to minimize the effects of these fluctuations. Under the program, the
Company enters into foreign currency option contracts which establish minimum
and maximum exchange rate ranges within which the U.S. dollar may be exchanged
for Australian and Canadian dollars. See note 23 to the consolidated
financial statements for additional information regarding this program.
Gold revenues of $632.0 million in 1994 compare to gold revenues of
$688.1 million and $639.3 million in 1993 and 1992, respectively. The decline
in 1994 revenues from the prior year reflects lower gold sales volumes,
partially offset by higher realized gold prices. The lower 1994 gold sales
volumes are due to lower gold production and a 3,600 ounce increase in gold
inventories during 1994 versus a 65,400 ounce decrease in gold inventories in
1993. The increase in 1993 revenues from 1992 is due to higher gold sales
volumes and higher realized gold prices. During 1994, the Company sold
1,692,800 ounces of gold at an average realized price of $384 per ounce
compared to 1,983,300 ounces sold at an average realized price of $359 during
1993 and 1,945,500 ounces sold at an average realized price of $348 during
1992.
(See Appendix 1: Description of Bar Chart C "Gold Revenues.")
Total gold production of 1,696,400 ounces during 1994 compares to
1,917,900 ounces during 1993 and 1,911,600 ounces during 1992. The 1994
decline in production in part reflects the absence of production following the
sale of the Dee mine effective March 31, 1994, the 1993 sales of the Mineral
Hill and Golden Bear mines, and the completion of mining operations in 1993
at the Santa Fe mine. After adjusting for the foregoing, production from the
Company's remaining operations decreased by 8% in 1994 compared to 1993,
principally due to lower production at the Homestake and McLaughlin mines.
The 1993 increase in production primarily reflects a 51,000 ounce increase in
production at the Homestake mine and the inclusion of 40% (1992 - 22%) of the
Snip mine's production following the consolidation of Prime effective December
31, 1992, partially offset by the absence of production from the operations
sold in 1993.
In 1994, the Company's overall cash cost per ounce increased to $254
from $231 in 1993 and $248 in 1992. The increase in costs per ounce primarily
was due to the Homestake and McLaughlin mines. The effect on total cash costs
of a strengthening Australian dollar was largely offset by a weakening of the
Canadian dollar. The Company's overall noncash cost per ounce was $47 in 1994
compared to $51 and $55 in 1993 and 1992, respectively. The decline in
noncash costs per ounce primarily reflects lower depreciation charges as a
result of the write-downs of mining properties in 1992 and ore reserve
expansions at several of the Company's operations.
(See Appendix 1: Description of Bar Chart D "Cash Costs Per Ounce.")
Production of 393,900 ounces at the Homestake mine in South Dakota in
1994 compares to 447,600 ounces in 1993 and 396,600 ounces in 1992. The
production decline during 1994 primarily was due to lower grades resulting
from an extended pre-stripping and development program in the Open Cut and the
collapse of a ventilation raise in the underground operations during the
second quarter which limited access to the deeper higher-grade mining areas.
A new ventilation shaft was completed in March 1995. Production in 1994 also
was impacted adversely by flooding following a severe storm in October. The
lower production resulted in an increase in cash costs to $292 per ounce
during 1994 from $268 per ounce during 1993. Several operating improvements
were made at the
26
<PAGE>
Homestake mine during 1993, including a grade-control program to better
identify ore and reduce dilution and an improved safety program. These
improvements reduced 1993 cash costs from $316 per ounce experienced in 1992.
During the next few years, as mining progresses in the lower levels of
the Homestake mine, the remaining higher-grade ore deposits will become
narrower and less continuous and therefore more difficult to mine. The
Company has developed various alternatives to help minimize the effect that
this may have on future costs. During 1995, a large tonnage, lower-grade
stope in the upper levels of the mine will be bulk-mined. In addition, narrow
vein mining is being tested in other portions of the mine. These trials will
help determine the future underground mine operating strategy. In-mine
exploration replaced underground ore reserves mined during 1994.
Production at the McLaughlin mine in California decreased to 250,500
ounces in 1994 from 305,300 ounces in 1993 and 291,100 ounces in 1992.
Production in 1994 was derived from the South Pit following completion of
mining in the North Pit in 1993. The grade of ore mined in the South Pit
during 1994 was lower than the grade of ore mined in the North Pit during 1993
and 1992. The lower grade of ore, together with costs associated with an
underground exploration program, increased cash costs to $252 per ounce in
1994 from $196 and $204 in 1993 and 1992, respectively. Gold production is
expected to increase in 1995 as the higher-grade zones at the bottom of the
South Pit are reached. However, during the second quarter of 1996, mining in
the South Pit will cease and gold production levels are expected to decline
significantly with production principally derived from processing lower-grade
stockpiles.
The Company's share of gold production from the Round Mountain mine in
Nevada increased to 105,900 ounces during 1994 from 93,700 ounces during 1993
and 92,600 ounces in 1992. The loading of fewer tons at a higher grade on the
reusable pads has allowed for longer leach times, thereby improving gold
recoveries from 69% in 1993 to 79% in 1994. In addition, larger quantities of
lower-grade ore are being placed on the dedicated pad. The higher production
levels resulted in a decrease in cash costs per ounce to $187 in 1994 from
$230 in 1993 and $233 in 1992. Production during the last few years includes
ounces recovered from a very high-grade vein of gold. Homestake's share of
gold from this vein during 1994, 1993 and 1992 was 8,300 ounces, 13,300 ounces
and 13,000 ounces, respectively. Only 1,600 ounces are expected to be
recovered from the high-grade vein during 1995. The Company's share of Round
Mountain ore reserves increased by 169,000 ounces in 1994 primarily due to
exploration drilling which extended pit limits, and the inclusion of
previously leached material following favorable processing tests.
Mining at the Santa Fe mine in Nevada ceased in November 1993 as ore
reserves were depleted. Re-leaching of ore on existing pads continued during
1994 resulting in production of 22,400 ounces compared to 54,000 ounces and
60,900 ounces during 1993 and 1992, respectively.
The Company's share of gold production from the Williams mine amounted
to 222,700 ounces at an average cash cost of $204 per ounce during 1994
compared to 246,100 ounces at a cost of $199 per ounce during 1993 and 248,500
ounces at a cost of $186 per ounce in 1992. The increase in costs per ounce
during the current year is due to processing lower-grade ore, partially offset
by a weakening in the Canadian dollar in relation to the United States dollar.
In December 1994, a system was installed to capture heat from exhaust air and
mine water. The heat is used to warm fresh air entering the mine. Annual
savings from this process could exceed $0.3 million.
The Company's share of gold production from the David Bell mine amounted
to 96,100 ounces at an average cash cost of $168 per ounce in 1994 compared to
107,600 ounces at a cost of $154 per ounce during 1993 and 105,300 ounces at a
cost of $156 per ounce during 1992. The increase in cash costs per ounce
during the current year is due to processing lower-grade ore, partially offset
by a weakening in the Canadian dollar in relation to the United States dollar.
Mining activity in 1994 included a major underground development program to
prepare the C-zone mining block. The C-zone, which is scheduled to commence
production in June 1995, will provide a third production block and thereby
increase mining flexibility.
During the next few years, production at the Williams and David Bell
mines is expected to be slightly lower as the grades of ore mines more closely
approximate the average remaining life-of-mine ore grades.
Production of 82,100 ounces at the Nickel Plate mine in Canada during
1994 compares to 73,900 ounces in 1993 and 84,700 ounces in 1992. The
increase in 1994 production primarily is due to the processing of higher-
grade ore from the Stage IV pit expansion program which commenced in late
1992. Cash costs increased to $351 per ounce in 1994 compared to $312 per
ounce in 1993 and $295 per ounce in 1992. The increase in cash costs per
ounce during 1994 is due to higher milling costs reflecting the refractory
nature of a portion of the ore which required increased reagent use, and an
increase in the rate of mining. Mining at the Nickel Plate mine will be
reduced substantially in early 1995. A milling rate of 4,000 tons per day is
planned through the end of 1996 at which time the ore reserve is expected to
be depleted.
27
<PAGE>
During the fourth quarter of 1994, the Nickel Plate ore reserve was reduced by
8% reflecting lower than anticipated grades from the Stage IV pit expansion.
The Company's share of production at the Snip mine in Canada in 1994 was
51,600 ounces contained in concentrate and gold dore, with an average cash
cost of $171 per ounce, compared to 59,800 contained ounces at a cost of $152
per ounce in 1993 and 30,600 contained ounces at a cost of $145 per ounce in
1992. The decrease in production and resulting increase in cash costs per
contained ounce during the current year was due to lower grade. The increase
in the Company's share of production in 1993 was due to the consolidation of
Prime effective December 31, 1992.
Homestake Gold of Australia's (HGAL) share of production from its
Kalgoorlie operations in Western Australia increased to 352,100 ounces during
1994 from 332,600 ounces in 1993 and 341,800 ounces in 1992. The 1994
increase in production is due to an increase in tons mined, higher grades and
improved recoveries from the Super Pit, partially offset by a decrease in
production at Mt. Charlotte and the payment of 15,800 ounces to HGAL s joint
venture partner under the disproportionate sharing arrangement. No ounces
were paid to the joint venture partner under this arrangement in 1993 or 1992.
The lower Mt. Charlotte production was due to lower tonnage and grades
resulting from underground operational difficulties which hampered the
movement of ore. These difficulties were rectified during the year. Cash
costs at the Kalgoorlie operations increased to $259 per ounce in 1994 from
$230 per ounce in 1993 and $255 per ounce in 1992. The increase in costs per
ounce during 1994 and decrease in costs per ounce in 1993 primarily are due to
fluctuations in the Australian dollar in relation to the United States dollar.
Cash costs per ounce measured in Australian dollars have shown little change
since 1992.
The El Hueso mine in Chile produced 56,400 ounces at an average cash
cost of $403 per ounce in 1994 compared to 71,700 ounces at a cost of $299 per
ounce in 1993 and 70,400 ounces at a cost of $285 per ounce in 1992. Mining
operations at the El Hueso mine ceased in the first quarter of 1995. Leaching
operations will continue through the end of the year. In 1995, the Company
plans to spend approximately $1 million on exploration at a nearby prospect
which, if successful, could result in the reopening of the El Hueso
operations.
Main Pass 299: Homestake has a 16.7% interest in the Main Pass 299 sulphur
mine in the Gulf of Mexico. Oil and gas operations commenced in 1991 and
sulphur start-up operations began in the second quarter of 1992. Full design
production levels of 5,500 tons of sulphur per day were reached in December
1993. During 1994, sulphur production levels continued to increase and
averaged 6,200 tons per day by year end.
The Company's share of sulphur revenues from Main Pass 299 was $16.9
million in 1994 compared to $2 million in 1993 reflecting the higher sulphur
production levels. The Company's average realized price per ton of sulphur
was $53 in 1994 compared to $59 per ton in 1993. Oil revenues of $10 million
in 1994 compare to $14.2 million in 1993 and $22.1 million in 1992. Oil
production peaked in 1992 and is expected to continue to decline over the next
five years.
Operating losses of $0.2 million were recorded by the Company from Main
Pass 299 operations during 1994 compared to losses of $9.9 million in 1993 and
operating income of $4 million in 1992. The 1994 improvement in Main Pass
operations reflects rising sulphur production levels and increased operating
efficiencies, partially offset by lower oil production and prices. The lower
1993 earnings reflect the commencement of sulphur operations and lower oil
production and prices. In addition, at December 31, 1993 the Company recorded
a pretax write-down of oil and gas assets of $16 million based on a decline in
the market price of oil.
Other Revenues: Interest income of $9.8 million in 1994 compares to $4.8
million in 1993 and $9.9 million in 1992. The increase in interest income in
1994 reflects higher cash and equivalents and short-term investment balances
and a rise in interest rates during the year. The decrease in interest income
in 1993 from 1992 primarily is due to lower cash and equivalents and short-
term investment balances and lower interest rates during 1993. The gain on
sale of stock by subsidiary of $11.2 million represents the gain recorded on
the dilution of the Company's ownership interest in Prime. Other income of
$25.6 million in 1994 includes a pretax gain of $15.7 million on the sale of
the Company s interest in the Dee mine.
Depreciation, Depletion and Amortization: Depreciation, depletion and
amortization declined to $76.2 million in 1994 compared to $103.4 million and
$117.5 million in 1993 and 1992, respectively. The changes primarily were due
to lower 1994 production and the write-downs of oil and gas assets in 1993 and
mining properties in 1992.
28
<PAGE>
Administrative and General: Administrative and general expense decreased to
$38.2 million in 1994 from $40.6 million in 1993 and $48.5 million in 1992.
The decline in administrative and general expense reflects continued cost
constraints and the impact of the 1992 and 1993 restructuring programs.
(See Appendix 1: Description of Bar Chart E "Administrative And General
Expense.")
Exploration: Exploration expense of $21.3 million in 1994 compares to $17.5
million and $27.8 million in 1993 and 1992, respectively. The increase in
exploration expense in 1994 from 1993 reflects increased activity at the Ruby
Hill advanced exploration project, partially offset by the cessation of the
North Homestake mine project in early 1994. The decrease in exploration
expense in 1993 from 1992 primarily reflects the Company's efforts in
concentrating on fewer, higher quality projects.
(See Appendix 1: Description of Bar Chart F "Exploration Expense.")
Interest Expense: Interest expense of $10.1 million in 1994 compares to $9.1
million in 1993 and $13.4 million in 1992. Capitalized interest related to
the development of certain assets amounted to $0.7 million in 1994, compared
to $0.1 million and $3.5 million in 1993 and 1992, respectively. The increase
in interest expense in 1994 from 1993 reflects a full year's interest on the
Company's convertible subordinated notes which were issued in June 1993,
partially offset by the repayment of $8.3 million of Australian finance lease
debt in February 1994. Interest expense declined in 1993 from 1992 primarily
as a result of the repayment of $87 million of debt in the second half of
1992. The average rate of interest on the Company's long-term debt was 5.5%
at December 31, 1994 compared to 5.1% and 4.5% at December 31, 1993 and 1992,
respectively.
Income Taxes: In 1994, the Company benefited from reversals of tax valuation
allowances principally in foreign jurisdictions. These items were fully
utilized in 1994 and, as a result, the Company will be subject to a higher
effective tax rate in 1995.
In 1993, the Company adopted Statement of Financial Accounting Standards
No. (SFAS) 109, "Accounting for Income Taxes." In adopting SFAS 109, the
Company provided a full valuation reserve on a significant portion of its
deferred tax assets. The effect on net income of the adoption of SFAS 109 was
not material and did not result in the recording of a cumulative effect for
adopting this accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
Homestake's cash and equivalents and short-term investments increased by
$70.5 million to $205.2 million at December 31, 1994 as a result of strong
cash flows from the Company's operations. In addition, cash provided by
financing activities before dividend payments in 1994 amounted to $28.9
million and $24.5 million was realized on the sale of assets. During 1993,
net debt repayments amounted to $48 million and a further $15.8 million were
used to redeem preferred shares which had been issued by Homestake Canada Inc.
(See Appendix 1: Description of Bar Chart G "Cash and Equivalents and Short-
Term Investments.")
29
<PAGE>
Additions to property, plant and equipment totaled $88.7 million in 1994
compared to $57.8 million and $63.5 million in 1993 and 1992, respectively.
Capital additions in 1994 include $42 million at the Eskay Creek mine, $20
million at the Homestake mine primarily for Open Cut expansion and $13 million
at the Kalgoorlie operations for mill expansions and modifications. Additions
in 1993 included $19 million at the Nickel Plate mine for a pit expansion and
$12 million at the Homestake mine for the Open Cut expansion and additions in
1992 included $14 million at the Kalgoorlie operations, primarily for Super
Pit development. The remaining expenditures during these years primarily were
for replacement capital to maintain existing production capacity.
(See Appendix 1: Description of Bar Chart H "Cash Provided By Operations.")
In addition to replacement capital at existing operations, expenditures
of $39 million are planned for 1995 at the Kalgoorlie operations to complete
the expansion of the Fimiston mill, which will increase ore processing
efficiency and capability, and replace the capacity of the Oroya mill which
will be dismantled to allow for an expansion of the Super Pit. Additions of
$25 million are planned at the Homestake mine primarily for pre-stripping and
development at the Open Cut and continuing modernization projects.
During 1994, the Company issued 293,000 shares for proceeds of $5.3
million from the exercise of stock options.
Through a series of transactions from 1989 to 1994, the Company acquired
50.6% of Prime's common shares. For further details, see note 3 to the
consolidated financial statements.
In February 1994, HGAL repaid the remaining $8.3 million of its
Australian finance lease debt.
In June 1993, the Company sold $150 million of 5.5% convertible
subordinated notes maturing in the year 2000. The notes are convertible into
the Company's shares at a price of $23.06 per common share and are redeemable
by the Company at any time on or after June 23, 1996. Proceeds from the notes
were used to retire existing gold loans and other long-term debt.
In 1993, the Company entered into a $150 million revolving credit
facility. This facility provides for borrowings denominated in U.S. dollars,
Canadian dollars, ounces of gold or any combination of these. The credit
agreement includes a minimum consolidated net worth requirement of $500
million. In October 1994, the Company amended this facility which resulted in
a reduction of commitment and borrowing fees, a one-year extension of the
facility to 1999 and the elimination of a number of financial covenants. No
amounts have been borrowed under this facility. The Company has no required
debt repayments until the convertible notes mature in the year 2000.
The Company incurred $14.2 million of reclamation-related expenditures
during 1994 at its discontinued uranium facility at Grants, New Mexico. In
accordance with the Energy Policy Act of 1992, the United States Department of
Energy (DOE) is responsible for funding 51% of all past and future reclamation
expenditures at this facility. The total cost for reclamation of the Grants
site is estimated to be $59.2 million, of which $40.1 million had been
expended by December 31, 1994. The Company's share of the cost of reclaiming
the Grants facility is fully provided in the financial statements at December
31, 1994. The Company received $4.3 million in 1994 from the DOE. The
accompanying balance sheet as of December 31, 1994 includes a receivable of
$9.8 million for unreimbursed claims filed with the DOE pertaining to the
DOE's share of reclamation expenditures made by the Company through 1993. For
discussion of certain environmental matters, see note 22 to the consolidated
financial statements.
In May 1994, the Company increased its regular quarterly dividend from
$0.025 to $0.05. Total common share dividends paid by Homestake were $24.1
million in 1994 compared to $13.7 million in 1993 and $23.6 million in 1992.
Future results will be impacted by such factors as the market price of
gold, the Company's ability to expand its ore reserves and the fluctuations of
foreign currency exchange rates. The Company believes that the combination of
cash, investments, available lines of credit and future cash flows from
operations will be sufficient to meet normal operating requirements and
anticipated dividends.
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors of
Homestake Mining Company:
We have audited the consolidated balance sheets of Homestake Mining Company
and Subsidiaries as of December 31, 1994 and 1993, and the related
statements of consolidated operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Homestake Mining Company and Subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
--------------------------
San Francisco, California
February 8, 1995
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Homestake Mining
Company and Subsidiaries are prepared by the Company's management in
conformity with generally accepted accounting principles. Management is
responsible for the fairness of the financial statements, which include
estimates based on judgments.
The Company maintains accounting and other control systems which
management believes provide reasonable assurance that financial records are
reliable for the purposes of preparing financial statements and that assets
are properly safeguarded and accounted for. Underlying the concept of
reasonable assurance is the premise that the cost of controls should not be
disproportionate to the benefits expected to be derived from such controls.
The Company's internal control structure is reviewed by its internal
auditors and by the independent auditors in connection with their audit of
the Company's consolidated financial statements.
The external auditors conduct an independent audit of the consolidated
financial statements in accordance with generally accepted auditing
standards in order to express their opinion on these financial statements.
These standards require that the external auditors plan and perform the
audit to obtain reasonable assurance that the financial statements are free
of material misstatement.
The Audit Committee of the Board of Directors, composed entirely of
outside directors, meets periodically with management, internal auditors
and the external auditors to discuss the annual audit, internal control,
internal auditing and financial reporting matters. The external auditors
and the internal auditors have direct access to the Audit Committee.
/s/ Harry M. Conger
-------------------
Harry M. Conger
Chairman of the Board and Chief Executive Officer
/s/ Gene G. Elam
-------------------
Gene G. Elam
Vice President, Finance and Chief Financial Officer
February 8, 1995
31
<PAGE>
STATEMENTS OF CONSOLIDATED OPERATIONS
Homestake Mining Company and Subsidiaries
For the years ended December 31, 1994, 1993 and 1992
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Revenues
Product sales $656,056 $703,505 $659,646
Interest income 9,762 4,832 9,892
Equity earnings 2,857 795 2,474
Gain on issuance of stock by
subsidiary 11,224
Other income 25,588 13,096 11,508
----------------------------------------------
705,487 722,228 683,520
----------------------------------------------
Costs and Expenses
Production costs 447,129 454,623 470,374
Depreciation, depletion and
amortization 76,171 103,377 117,483
Administrative and general
expense 38,159 40,553 48,514
Exploration expense 21,347 17,457 27,798
Interest expense 10,124 9,147 13,420
Other expense 6,744 4,492 5,694
Write-downs of mining
properties and investments 16,032 130,290
Restructuring and business
combination expenses 8,151 48,442
---------------------------------------------
599,674 653,832 862,015
---------------------------------------------
Income (Loss) Before Taxes
and Minority Interest 105,813 68,396 (178,495)
Income and Mining Taxes (18,880) (12,775) 2,889
Minority Interest (8,917) (3,127) (230)
---------------------------------------------
Net Income (Loss) $78,016 $52,494 $(175,836)
---------------------------------------------
Net Income (Loss) Per Share $0.57 $0.38 $(1.31)
---------------------------------------------
Average Shares Used in
the Computation 137,733 137,046 135,221
---------------------------------------------
</TABLE>
See notes to consolidated financial statements.
32<PAGE>
CONSOLIDATED BALANCE SHEETS
Homestake Mining Company and Subsidiaries
December 31, 1994 and 1993
(In thousands, except per share amount)
<TABLE>
<CAPTION>
1994 1993
--------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 105,701 $ 134,719
Short-term investments 99,479
Receivables 58,994 28,649
Inventories 71,715 66,539
Other 6,910 8,303
--------------------------
Total current assets 342,799 238,210
--------------------------
Property, Plant and Equipment - net 808,221 830,228
--------------------------
Investments and Other Assets
Noncurrent investments 15,774 20,632
Other assets 35,174 32,180
--------------------------
Total investments and other
assets 50,948 52,812
--------------------------
Total Assets $1,201,968 $1,121,250
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 35,674 $ 33,002
Accrued liabilities 54,138 57,747
Income and other taxes payable 7,083 9,816
Current portion of long-term debt 3,785
--------------------------
Total current liabilities 96,895 104,350
--------------------------
Long-term Liabilities
Long-term debt 185,000 189,191
Other long-term obligations 110,719 93,674
--------------------------
Total long-term liabilities 295,719 282,865
--------------------------
Deferred Income Taxes 136,274 164,030
--------------------------
Minority Interest in Consolidated
Subsidiaries 84,310 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 - 137,785;
1993 - 137,494 137,785 137,494
Additional paid-in capital 339,785 334,737
Retained earnings 106,405 52,495
Accumulated currency translation
adjustments 8,869 (5,620)
Other (4,074) (3,862)
--------------------------
Total shareholders' equity 588,770 515,244
--------------------------
Total Liabilities and Shareholders'
Equity $1,201,968 $1,121,250
==========================
</TABLE>
Commitments and Contingencies - see notes 22 and 23.
See notes to consolidated financial statements.
33
<PAGE>
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Homestake Mining Company and Subsidiaries
For the years ended December 31, 1994, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
----------------------------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1991 $132,325 $325,629 $215,886
Net loss (175,836)
Common share dividends (23,624)
Preference share dividends (1,834)
Redemption of HCI preference
shares for common stock 4,271 (4,271)
Exercise of stock options 16 86
Stock issued to employee
savings plan 45 560
Currency translation
adjustments
Other 115 684
-----------------------------------
BALANCES, DECEMBER 31, 1992 136,772 322,688 14,592
Net income 52,494
Common share dividends (13,706)
Preference share dividends (885)
Sale of Homestake stock held
by Prime 1,155
Exercise of stock options 686 10,397
Stock issued to employee
savings plan 36 492
Currency translation
adjustments
Other 5
------------------------------------
BALANCES, DECEMBER 31, 1993 137,494 334,737 52,495
Net income 78,016
Common share dividends (24,106)
Exercise of stock options 291 5,048
Currency translation
adjustments
Unrealized loss on investments
Other
------------------------------------
BALANCES, DECEMBER 31, 1994 $137,785 $339,785 $106,405
====================================
(Table continued)
<CAPTION>
Accumulated
Currency
Translation
Adjustments Other Total
-------------------------------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1991 $7,970 $(6,168) $675,642
Net loss (175,836)
Common share dividends (23,624)
Preference share dividends (1,834)
Redemption of HCI preference
shares for common stock
Exercise of stock options 102
Stock issued to employee
savings plan 605
Currency translation
adjustments (6,837) (6,837)
Other (3,579) (2,780)
-------------------------------------
BALANCES, DECEMBER 31, 1992 1,133 (9,747) 465,438
Net income 52,494
Common share dividends (13,706)
Preference share dividends (885)
Sale of Homestake stock held
by Prime 4,258 5,413
Exercise of stock options 11,083
Stock issued to employee
savings plan 528
Currency translation
adjustments (6,753) (6,753)
Other 1,627 1,632
--------------------------------------
BALANCES, DECEMBER 31, 1993 (5,620) (3,862) 515,244
Net income 78,016
Common share dividends (24,106)
Exercise of stock options 5,339
Currency translation
adjustments 14,489 14,489
Unrealized loss on investments (382) (382)
Other 170 170
--------------------------------------
BALANCES, DECEMBER 31, 1994 $8,869 $(4,074) $588,770
======================================
</TABLE>
See notes to consolidated financial statements.
34<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
Homestake Mining Company and Subsidiaries
For the years ended December 31, 1994, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income (loss) $78,016 $52,494 $(175,836)
Reconciliation to net cash
provided by operations:
Depreciation, depletion
and amortization 76,171 103,377 117,483
Write-downs of mining
properties and
investments 16,032 130,290
Gain on issuance of stock
by subsidiary (11,224)
Gain on disposals of assets (19,521) (7,974) (12,456)
Deferred income taxes (3,665) 2,583 (11,121)
Reclamation - net 3,986 (8,459) (4,160)
Minority interest 8,917 3,127 230
Other noncash items - net 27,222 17,435 9,573
Effect of changes in operating
working capital items:
Receivables (8,824) (18,993) 12,096
Inventories (14,045) 10,357 12,933
Accounts payable 2,484 (4,009) (10,424)
Accrued liabilities and
taxes payable (6,938) 4,877 8,408
Other 1,138 (765) (3,521)
---------------------------------
Net cash provided by operations 133,717 170,082 73,495
---------------------------------
INVESTMENT ACTIVITIES
Decrease (increase) in short-term
investments (99,479) 16,739 115,334
Additions to property, plant
and equipment (88,654) (57,825) (63,453)
Proceeds from sales of assets 24,542 9,649 11,858
Other (8,033) 1,060 7,260
---------------------------------
Net cash provided by (used in)
investment activities (171,624) (30,377) 70,999
---------------------------------
FINANCING ACTIVITIES
Borrowings 146,074 115,239
Debt repayments (8,352) (194,037) (215,251)
Dividends paid on common shares (24,106) (13,706) (23,624)
Dividends paid on preference
shares (885) (1,834)
Common shares issued 5,339 11,611 321
Stock issued by subsidiary 31,870
Redemption of HCI preference shares (15,810) (4,727)
Sale of Homestake stock held by Prime 6,361
Other 1,452 326
---------------------------------
Net cash provided by (used in)
financing activities 4,751 (58,940) (129,550)
---------------------------------
Effect of Exchange Rate Changes
on Cash 4,138 (254) 3,882
---------------------------------
Net Increase (Decrease) in Cash
and Equivalents (29,018) 80,511 18,826
Cash and Equivalents, January 1 134,719 54,208 35,382
---------------------------------
Cash and Equivalents, December 31 $105,701 $134,719 $54,208
=================================
</TABLE>
See notes to consolidated financial statements.
35<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Homestake Mining Company and Subsidiaries
(All tabular amounts in thousands)
Note 1: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Homestake Mining Company (the
Company or Homestake) and its majority-owned subsidiaries and their
undivided interests in joint ventures after elimination of intercompany
amounts. At December 31, 1994 the Company owned 81.5% of Homestake Gold of
Australia Limited (HGAL) and 50.6% of Prime Resources Group Inc. (Prime)
with the remaining interests reflected as minority interest in the
consolidated financial statements. Undivided interests in gold mining
operations (the Round Mountain mine in the United States; HGAL's interest
in the gold mining operations in Kalgoorlie, Western Australia; Homestake
Canada Inc.'s (HCI) interests in the Williams and David Bell mines in
Canada; and Prime's interests in the Eskay Creek and Snip mines in Canada)
and in the sulphur and oil recovery operations at Main Pass 299 in the Gulf
of Mexico are reported using pro rata consolidation whereby the Company
reports its proportionate share of assets, liabilities, income and
expenses. Investments in gold mining venture partnerships over which the
Company exercises significant influence, principally the Pinson and
Marigold mines in Nevada (in which the Company has ownership interests of
26% and 33%, respectively), are reported using the equity method.
Cash and equivalents include all highly-liquid investments with a maturity
of three months or less at the date of purchase. The Company minimizes its
credit risk by placing its cash and equivalents with major international
banks and financial institutions located principally in the United States,
Canada and Australia. The Company believes that no concentration of credit
risk exists with respect to cash and equivalents.
Short-term investments consist principally of highly-liquid U.S. and
foreign government and corporate securities with original maturities in
excess of three months. Effective January 1, 1994 the Company adopted
Statement of Financial Accounting Standards No. (SFAS) 115, "Accounting for
Certain Investments in Debt and Equity Securities." In accordance with
this statement, the Company classifies all short-term investments as
available-for-sale securities and, accordingly, includes all unrealized
gains and losses on these investments as a separate component of
shareholders' equity, except that declines in market value judged to be
other than temporary are recognized in determining net income or loss. The
effect on net income of adoption of SFAS 115 was not material and did not
result in the recording of a cumulative effect on adoption.
Inventories, including finished products, ore in-process, stockpiled ore,
ore in-transit and supplies, are stated at the lower of cost or net
realizable value. The cost of gold produced by United States operations is
determined principally by the last-in, first-out method (LIFO). The cost
of other inventories is determined primarily by averaging methods.
Exploration costs, including those incurred through joint ventures, are
expensed as incurred. All costs related to property acquisitions are
capitalized.
Preoperating and development costs relating to new mines and major programs
at existing mines are capitalized. Ordinary mine development costs to
maintain production are expensed as incurred.
Depreciation, depletion and amortization of mining properties, mine
development costs and major plant facilities is computed principally by the
units-of-production method based on estimated proven and probable ore
reserves. Proven and probable ore reserves reflect estimated quantities of
economically recoverable reserves which can be recovered in the future from
known mineral deposits. Such estimates are based on current and projected
costs and prices. Other equipment and plant facilities are depreciated by
straight-line or accelerated methods principally over estimated useful
lives of three to ten years.
Property evaluation: Recoverability of investments in operating mines is
evaluated periodically. Estimated future net cash flows from each mine are
calculated using estimates of proven and probable ore reserves, estimated
future prices (considering historical and current prices, price trends and
related factors) and operating capital and reclamation costs on an
undiscounted basis. Reductions in the carrying value of each mine are
recorded to the extent the remaining investment exceeds the estimate of
future net cash flows.
Recoverability of the carrying values of non-operating properties is
evaluated periodically based upon estimated future net cash flows from each
property determined as described above using estimates of contained
mineralization, which represent estimated mineralization expected to be
classified as proven and probable reserves, based on geological delineation
to date, upon completion of a feasibility study. In addition, estimated
future net cash flows may be reduced by a discount factor after considering
the uncertainties inherent in developing non-operating properties for which
a feasibility study has not been completed, the length of time before
mining operations may begin, and the expected complexity
36
<PAGE>
of each individual mining plan. The discount factor is based principally
upon the Company's composite United States borrowing rate as well as other
factors affecting the risk of developing such properties. Reductions in
the carrying value of each property are recorded to the extent that the
Company's carrying value in each property exceeds its estimate of future
net cash flows.
Undeveloped properties upon which the Company has not performed
sufficient exploration work to determine whether significant mineralization
exists are carried at original acquisition cost.
Reclamation costs and related accrued liabilities, which are based on the
Company's interpretation of current environmental and regulatory
requirements, are accrued and expensed, principally by the units-of-
production method based on estimated proven and probable ore reserves.
Noncurrent investments, which include mining securities, are carried at the
lower of cost or market. Realized gains and losses are included in
determining net income or loss. Unrealized losses are reported as a
reduction in shareholders' equity, except that declines in market value
judged to be other than temporary are recognized in determining net income
or loss.
Product sales are recognized when title passes at the shipment or delivery
point.
Income taxes: The Company follows the liability method of accounting for
income taxes whereby deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement amounts and the tax bases of certain assets and liabilities.
Changes in deferred tax assets and liabilities include the impact of any
tax rate changes enacted during the year. Mining taxes represent Canadian
taxes levied on mining operations.
Foreign currency: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. Income and expenses are translated at the average exchange rate
for the year. Accumulated currency translation adjustments are included as
a separate component of shareholders' equity. Foreign currency transaction
gains and losses are included in the determination of net income or loss.
Pension plans and other postretirement benefits: Pension costs related to
United States employees are determined using the projected unit credit
actuarial method. Pension plans are funded through annual contributions.
In addition, the Company provides medical and life insurance benefits for
certain retired employees and accrues the cost of such benefits over the
period in which active employees become eligible for the benefits. The
costs of the postretirement medical and life insurance benefits are paid at
the time the services are provided.
Net income (loss) per share is computed by dividing net income less
preference share dividends by the weighted average number of common shares
and common share equivalents outstanding during the year. Fully diluted
net income (loss) per share is not presented since the exercise of stock
options would not result in a material dilution of earnings per share and
the conversion of the 5.5% convertible subordinated notes would produce an
anti-dilutive result.
Reclassifications: Certain amounts for 1993 and 1992 have been
reclassified to conform to the 1994 presentation.
Note 2: HOMESTAKE CANADA INC.
On July 22, 1992 Homestake acquired all of the common shares and first
preference shares of International Corona Corporation (Corona), a publicly
traded Canadian gold producer. In December 1992, Corona's name was changed
to Homestake Canada Inc. Homestake issued 0.35 of a Homestake common share
for each HCI common share, 0.54 of a Homestake common share and $0.42 cash
for each HCI Series A first preference share and 1.08 Homestake common
shares for each HCI Series C first preference share. Homestake issued a
total of 37.2 million Homestake common shares and paid approximately $0.5
million in cash in acquiring 100% of HCI's common and first preference
shares. This business combination was accounted for as a pooling of
interests.
Note 3: PRIME RESOURCES GROUP INC.
In June 1994, Prime sold five million common shares at approximately $6.70
per share to the public. Net proceeds of approximately $31.9 million from
this issue were used to fund a portion of the construction and development
costs of the Eskay Creek gold mine in Canada. This transaction resulted in
a reduction of the Company's interest in Prime from 54.2% to 50.6%. The
Company recorded a gain of $11.2 million on the transaction in recognition
37
<PAGE>
of the net increase in the book value of the Company's investment in Prime.
Deferred income taxes were not provided on this gain since the Company's
tax basis in Prime substantially exceeds its carrying value.
In December 1993, Prime acquired effectively all of the stock of Stikine
Resources Ltd. (Stikine) through a share exchange. This transaction was
accounted for as a corporate reorganization of companies under common
control. Prime and Stikine each had a 50% interest in the Eskay Creek
mine. Following this transaction, the Company owned 54.2% of the
outstanding shares of Prime. Homestake's effective ownership in Prime and
Stikine prior to this transaction was 54.3% and 54.1%, respectively.
In December 1992, HCI acquired two million common shares of Prime for
$3.2 million in cash, representing 4.4% of Prime's shares then outstanding.
As a result of this transaction, Homestake owned in excess of 50% of
Prime's common shares and included Prime in its consolidated financial
statements effective December 31, 1992.
On June 30, 1992 HCI purchased 419,475 Stikine common shares from the
minority shareholders of Stikine in exchange for 419,475 HCI Series 1
second preference shares (Series 1 shares). As a result, HCI increased its
investment in the Eskay Creek mine by approximately $24.9 million and the
Company's ownership of Stikine increased above 50%. Stikine has been
included in the consolidated financial statements as of that date. In July
1993, all of the Series 1 shares were redeemed at par for cash of $54.61
per share, plus unpaid dividends.
Note 4: SALES OF MINING OPERATIONS
Dee mine: In May 1994, the Company sold its 44% interest in the Dee gold
mine in Nevada to Rayrock Mines, Inc. (Rayrock) for $16.5 million. Rayrock
assumed responsibility for and indemnified Homestake against all related
environmental and reclamation matters. This sale resulted in a pretax gain
of $15.7 million, which is included in other income.
NAM: In July 1993, the Company sold its 83% interest in North American
Metals Corp. (NAM), the owner and operator of the Golden Bear mine in
Canada, for approximately $1 million plus a retained royalty interest. The
Company recorded a $0.5 million pretax gain and a $12.9 million tax benefit
on this transaction.
Mineral Hill mine: In November 1993, the Company sold its 50% interest in
the Mineral Hill gold mine in Montana for $4 million in cash and 140,000
common shares of TVX Gold Inc. (TVX). The Company retained a royalty
interest on certain exploration lands and received an indemnification from
TVX for all past, present and future reclamation requirements. This sale
resulted in a pretax gain of $3.6 million, which was included in other
income in 1993.
Note 5: WRITE-DOWNS OF MINING PROPERTIES AND INVESTMENTS
As discussed in note 1, the Company performs periodic property evaluations
to assess the recoverability of its mining properties and investments. In
1993 and 1992, the Company determined that based upon its estimates of
proven and probable reserves, sales prices and operating costs at certain
locations, it would not fully recover its investment in certain assets and,
accordingly, recorded write-downs as a result of these evaluations totaling
$16 million and $130.3 million in 1993 and 1992, respectively.
In 1993, the Company recorded a $16 million write-down of its investment
in the oil and gas assets at the Main Pass 299 sulphur mine due to a
decline in oil prices. In 1992, based on Homestake's assessment of the
then recoverable value of its investment in the Eskay Creek property, the
Company recorded a $70 million write-down of its investments in Prime and
Stikine, the holders of the Eskay Creek property. The write-down was
recorded at the time of the acquisition of HCI to reflect Homestake's
estimates of capital costs and future gold prices. Other write-downs in
1992 included property write-downs of $44.3 million and $12.5 million in
the United States and Canada, respectively, and a $3.5 million reduction of
the carrying value of certain Latin American mining securities.
Note 6: RESTRUCTURING AND BUSINESS COMBINATION EXPENSES
In 1993, the Company recorded restructuring and business combination
expenses totaling $8.2 million primarily related to a second early
retirement and work force reduction program at the Homestake mine in South
Dakota and the reorganization of HGAL, including the relocation of HGAL's
principal office. In 1992, concurrent with the business combination with
HCI, the Company recorded a charge of $48.4 million for the corporate
restructuring of its North American operations. The restructuring included
the consolidation
38
<PAGE>
of many administrative and exploration activities, the closure of several
existing offices and the initiation of an early retirement and work force
reduction program at the Homestake mine.
Note 7: INCOME TAXES
Effective January 1, 1993 the Company adopted SFAS 109, "Accounting for
Income Taxes." The adoption of this standard changed the criteria for
recognition and measurement of deferred tax assets and certain other
requirements of SFAS 96. The standard was adopted on a prospective basis
and amounts presented for prior years were not restated. The effect on net
income of adoption of SFAS 109 was not material and did not result in the
recording of a cumulative effect on adoption.
The provision (credit) for income and mining taxes consists of the
following:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------
<S> <C> <C> <C>
Current
Income taxes
Federal $ 7,560 $(2,465) $ (513)
State 1,258 105 305
Canadian 2,258 1,177 1,936
Other foreign 206 1,013 185
-------------------------------
11,282 (170) 1,913
Canadian mining taxes 9,741 10,287 6,319
-------------------------------
Total current taxes 21,023 10,117 8,232
-------------------------------
Deferred
Income taxes
Federal 6,867 3,639 (11,040)
State (1,086) 95 (601)
Canadian (13,796) 2,203 (3,364)
Other foreign 4,438 (262)
-------------------------------
(3,577) 5,937 (15,267)
Canadian mining taxes 1,434 (3,279) 4,146
-------------------------------
Total deferred taxes (2,143) 2,658 (11,121)
-------------------------------
Total income and mining
taxes (benefit) $18,880 $12,775 $ (2,889)
==============================
</TABLE>
The provision for income taxes is based on pretax income (loss) before
minority interest as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
United States $ 28,415 $ 6,222 $ (86,278)
Canada 49,690 41,434 (91,989)
Other foreign 27,708 20,740 (228)
----------------------------------
$105,813 $68,396 $(178,495)
==================================
</TABLE>
Deferred tax liabilities and assets on the balance sheet as of December
31, 1994 and 1993 relate to the following:
<TABLE>
<CAPTION>
1994 1993
----------------------------
<S> <C> <C>
Deferred tax liabilities
Depreciation and other resource
property differences
United States $ 73,826 $ 65,194
Canada - Federal 46,671 56,289
Canada - Provincial 74,653 84,032
Australia 5,214 5,373
----------------------------
200,364 210,888
Inventory 2,854
Other 11,946 22,397
----------------------------
Gross deferred tax liabilities 215,164 233,285
----------------------------
Deferred tax assets
Tax loss carry-forwards
United States 3,958
Canada - Federal 17,793 17,387
Canada - Provincial 4,836 5,655
Australia 2,972 5,682
Chile 16,363 15,564
---------------------------
45,922 44,288
Reclamation costs
United States 9,957 13,630
Other 4,071 1,949
---------------------------
14,028 15,579
Employee benefit costs 28,120 23,699
Alternative minimum tax credit
carry-forwards 16,476 12,423
Other resource property
- Australia 4,193 2,778
Deductible mining taxes 3,080
Foreign tax credit carry-forwards 2,831 2,442
Reorganization costs 1,649 2,103
Lease obligations not currently
deductible 2,683
Other 12,430 15,326
---------------------------
Gross deferred tax assets 128,729 121,321
Deferred tax asset valuation
allowances (49,839) (52,066)
---------------------------
Net deferred tax assets 78,890 69,255
---------------------------
Net deferred tax liability $136,274 $164,030
===========================
</TABLE>
Deferred tax assets and liabilities are classified in accordance with
SFAS 109, which generally requires classification based on the related
asset or liability creating the deferred tax. Deferred taxes not related
to a specific asset or liability are classified based on the estimated
period of reversal. The net change in the valuation allowance for deferred
tax assets decreased by $2.2 million in 1994. The deferred tax valuation
allowance of $49.8 million at
39
<PAGE>
December 31, 1994 primarily is attributable to United States and Australian
deferred tax assets. Net deferred tax assets at December 31, 1994 include
$9.3 million of Canadian deferred tax assets, the realization of which is
based on the Company s judgement regarding future income.
Major items causing the Company's income tax provision (credit) to
differ from the federal statutory rate of 35% in 1994 and 1993 and 34% in
1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Income tax based on statutory rate $37,035 $23,938 $(60,689)
Nondeductible write-downs 32,122
Percentage depletion (11,106) (14,401) (6,216)
Earnings in foreign jurisdictions
taxed at different rates (6,175) (1,440) (2,433)
State income taxes,
net of federal benefit 1,614 130 (245)
Tax relating to reorganizations 7,682 4,387 6,596
Unrealized minimum tax credits 1,753 23,844 10,617
Nontaxable book income (4,784)
Other nondeductible losses 9,401 3,757 3,539
Deferred tax assets not recognized
in prior years (1) (27,697) (36,706)
Foreign taxes withheld 2,089 2,669
Other - net (2,107) (411) 3,355
------------------------------
Total income taxes 7,705 5,767 (13,354)
Canadian mining taxes 11,175 7,008 10,465
------------------------------
Total income and mining taxes
(benefit) $18,880 $12,775 $(2,889)
==============================
<FN>
(1) The 1994 and 1993 amounts include (i) a reversal of prior year
valuation allowances of $12.4 million and $0, respectively, and (ii)
the realization of additional deferred tax assets that could not be
recognized in prior years of $15.3 million and $36.7 million,
respectively.
</TABLE>
The Company's 1994 income tax expense includes a $3.6 million tax
benefit relating to tax law changes enacted in 1994 and a $9.6 million tax
benefit relating to a change in the Company's judgement concerning the
realizability of deferred tax assets in future years.
For income tax purposes, the Company has foreign tax losses and U.S.
foreign tax credit carry-forwards of approximately $62 million and $2.7
million, respectively, which are due to expire at various times through the
year 2001.
Note 8: RECEIVABLES
<TABLE>
<CAPTION>
December 31,
1994 1993
-----------------------
<S> <C> <C>
Trade $23,318 $ 4,059
Income taxes 3,049 14,966
Uranium receivables 17,616 21
Interest and other 15,011 9,603
-----------------------
$58,994 $28,649
=======================
</TABLE>
Note 9: INVENTORIES
<TABLE>
<CAPTION>
December 31,
1994 1993
-----------------------
<S> <C> <C>
Finished products $15,004 $ 9,548
Ore and in-process 26,889 22,465
Supplies 29,822 34,526
-----------------------
$71,715 $66,539
=======================
</TABLE>
At December 31, 1994 and 1993, the cost of certain finished gold
inventories in the United States stated on the LIFO cost basis aggregated
$2.5 million and $0.4 million, respectively. Such inventories would have
approximated $4.0 million and $1.4 million, respectively, if stated at the
lower of market or current year average production costs. In 1993, 44,750
ounces of gold at an average cost of $175 per ounce were sold from the LIFO
inventory, the effect of which increased pretax income by $5.2 million
compared to the cost of such inventories based on 1993 average production
cost.
Ore stockpiles in the amount of $10.7 million that are not expected to
be processed within the next 12 months are included in other assets (see
note 12).
Note 10: PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
1994 1993
--------------------------
<S> <C> <C>
Mining properties and development
costs $ 714,479 $ 694,885
Plant and equipment 846,547 836,947
Land and royalty interests 3,843 3,955
Construction and mine development
in progress 14,633 4,431
---------------------------
1,579,502 1,540,218
Accumulated depreciation, depletion
and amortization (771,281) (709,990)
---------------------------
$ 808,221 $ 830,228
===========================
</TABLE>
40
<PAGE>
Note 11: NONCURRENT INVESTMENTS
<TABLE>
<CAPTION>
December 31,
1994 1993
------------------------
<S> <C> <C>
Equity investments
Pinson and Marigold mining
partnerships $ 6,298 $ 8,363
Other equity investments 5,041 7,626
Other investments 4,435 4,643
------------------------
$15,774 $20,632
========================
</TABLE>
Note 12: OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
1994 1993
-------------------------
<S> <C> <C>
Uranium receivables and other
uranium assets $ 5,694 $13,567
Ore stockpiles 10,684
Other 18,796 18,613
-------------------------
$35,174 $32,180
=========================
</TABLE>
Note 13: ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
1994 1993
------------------------
<S> <C> <C>
Accrued payroll and other compensation $22,178 $19,053
Accrued reclamation costs 15,266 14,041
Other 16,694 24,653
------------------------
$54,138 $57,747
========================
</TABLE>
Note 14: LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1994 1993
-----------------------
<S> <C> <C>
Long-term debt
Convertible subordinated notes
(due 2000) $150,000 $150,000
Pollution control bonds
Lawrence County, South Dakota
(due 2003) 18,000 18,000
State of California (due 2004) 17,000 17,000
Australian finance lease debt 7,976
------------------------
185,000 192,976
Less current portion 3,785
------------------------
$185,000 $189,191
========================
</TABLE>
Convertible subordinated notes: In June 1993, the Company sold $150
million principal amount of 5.5% convertible subordinated notes which
mature on June 23, 2000. Interest on the notes is payable semi-annually in
June and December. The notes are convertible into common shares of the
Company at a price of $23.06 per common share and are redeemable by the
Company at any time on or after June 23, 1996. Proceeds from the
notes were used to retire existing gold loans and other long-term debt.
Issuance costs of $3.9 million were capitalized and are being amortized
over the life of the notes.
Pollution control bonds: The Company pays interest monthly on the
pollution control bonds based on variable short-term tax-exempt obligation
rates. The rates at December 31, 1994 and 1993 were 5.7% and 3.1%,
respectively. No principal payments are required until cancellation,
redemption or maturity. Bondholders have the right to tender the bonds for
payment at any time on seven-days notice. The Company has arrangements
with underwriters to remarket any tendered bonds and also with a bank to
provide liquidity and credit support to the Company and to purchase and
hold for up to 15 months any tendered bonds that the underwriters are
unable to remarket. The Company has certain rights with respect to bond
redemption and changes in the interest rate terms.
Australian finance lease debt: During 1994, the Company repaid the
remaining balance of its Australian finance lease debt.
Lines of credit: The Company has a U.S./Canadian cross-border credit
facility providing a total availability of $150 million. The Company pays
a commitment fee of 0.25% per annum on the unused portion of this facility.
The credit facility is available through September 30, 1999 and provides
for borrowings in U.S. dollars, Canadian dollars, gold loans or any
combination of these. The credit agreement requires a minimum consolidated
net worth of $500 million. In addition, Prime has a credit facility which
provides a total availability of $7.1 million. No amounts have been
borrowed under these agreements as of December 31, 1994.
The Company has no required debt payments in the five years subsequent
to December 31, 1994.
41
<PAGE>
Note 15: OTHER INCOME
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------
<S> <C> <C> <C>
Gain on disposals of assets $19,521 $ 7,974 $12,456
Royalty income 3,061 4,284 3,309
Foreign currency contracts gains
(losses) 4,569 (1,381) (469)
Foreign currency transaction
losses (6,617) (1,519) (5,500)
Other 5,054 3,738 1,712
-------------------------------
$25,588 $13,096 $11,508
===============================
</TABLE>
Note 16: INTEREST EXPENSE
Interest costs of $10.1 million, $9.1 million and $13.4 million were
expensed in 1994, 1993 and 1992, respectively. During 1994, 1993 and 1992
interest costs of $0.7 million, $0.1 million and $3.5 million,
respectively, related to construction and mine development in progress were
capitalized.
Note 17: OTHER LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
December 31,
1994 1993
------------------------
<S> <C> <C>
Accrued reclamation costs (see
notes 1, 13 and 22) $ 33,892 $22,138
Accrued pension and other postretirement
benefit obligations (see note 18) 64,066 59,626
Other 12,761 11,910
------------------------
$110,719 $93,674
========================
</TABLE>
Note 18: EMPLOYEE BENEFIT PLANTS
Pension plans: The Company has pension plans covering substantially all
United States employees. Plans covering salaried and other non-union
employees provide pension benefits based on years of service and the
employee's highest compensation during any 60 consecutive months prior to
retirement. Plans covering union employees provide defined benefits for
each year of service.
Pension costs for 1994, 1993 and 1992 for the Company sponsored United
States employee plans included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $3,928 $ 3,513 $ 3,854
Interest cost on projected
benefit obligations 13,497 12,957 11,993
Actual net return on assets (1,828) (17,198) (13,390)
Net amortization (deferral) (11, 202) 4,821 1,555
-------------------------------
Net periodic pension cost 4,395 4,093 4,012
Early retirement program cost 4,062 5,000
-------------------------------
$4,395 $ 8,155 $ 9,012
===============================
</TABLE>
Assumptions used in determining net periodic pension cost for 1994, 1993
and 1992 include discount rates of 7%, 8% and 8%, respectively, and assumed
rates of increase in compensation of 5%, 6% and 6%, respectively. The
assumed long-term rate of return on assets was 8.5% for each year.
Assumptions used in determining the projected benefit obligations as of
December 31, 1994 and 1993 include discount rates of 8% and 7%,
respectively, and an assumed rate of increase in compensation of 5%.
The funded status and amounts recognized for pension plans in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Plans Where Plans Where
--------------------------------------------------
Accumulated Accumulated
Assets Exceed Benefits Assets Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
<S> <C> <C> <C> <C>
Actuarial present
value of benefit
obligations
Vested benefits $(99,615) $(51,749) $(101,000) $(50,529)
================================================
Accumulated
benefits $(108,838) $(57,761) $(111,454) $(56,815)
================================================
Projected benefits $(127,006) $(61,261) $(131,078) $(60,100)
Plan assets at fair
value (1) 117,966 37,687 124,095 41,049
------------------------------------------------
Projected benefit
obligation in
excess of plan
assets (9,040) (23,574) (6,983) (19,051)
Unrecognized net loss 1,318 5,353 11 3,760
Unrecognized net
transition
obligation (asset)
amortized over
15 years 77 (3,635) 93 (4,020)
Unrecognized prior
service cost (benefit) (608) 2,322 267 2,133
Additional minimum
liability (612) (1,520)
-----------------------------------------------
Pension liability
recognized in the
consolidated
balance sheets $(8,253) $(20,146) $(6,612) $(18,698)
===============================================
<FN>
(1) Approximately 15% and 20% of the plan assets were invested in fixed-
rate insurance contracts and the balance was invested in listed
stocks and bonds in 1994 and 1993, respectively.
</TABLE>
42
<PAGE>
HGAL participates in several pension plans, primarily defined
contribution plans, covering its employees and, through its 50% ownership
interest in the consolidated Kalgoorlie operations, the employees of
Kalgoorlie Consolidated Gold Mines. HGAL's share of contributions to these
plans was $0.8 million in 1994 and 1993 and $1 million in 1992.
Postretirement benefits other than pensions: The Company provides medical
and life insurance benefits for certain retired employees, primarily
retirees of the Homestake mine. Retirees are generally eligible for
benefits upon retirement if they are at least age 55 and have completed
five years of service. Spouses and dependent children are also covered
until remarriage or upon being covered by another group plan. Net periodic
postretirement benefit costs for 1994, 1993 and 1992 included the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 565 $ 717 $ 625
Interest cost on accumulated
postretirement
benefit obligation 2,860 3,575 2,475
Net amortization and deferral 60 369
---------------------------------
$3,485 $4,661 $3,100
=================================
</TABLE>
In 1993 and 1992, the Company also recorded expenses of $0.9 million and
$2 million, respectively, related to early retirement programs at the
Homestake mine.
The actuarial assumptions used in determining net periodic postretirement
benefit costs include discount rates of 7% for 1994 and 8% for 1993, an
initial health care cost trend rate of 12% grading down to an ultimate
health care cost trend rate of 5% for 1994, and an initial health care cost
trend rate of 12.5% grading down to an ultimate health care cost trend rate
of 6% for 1993. Net periodic postretirement benefit cost assumptions for
1992 included a discount rate of 8% and increases in medical costs of 8%.
The actuarial assumptions used in determining the Company's accumulated
postretirement benefit obligation as of December 31, 1994 and 1993 include
discount rates of 8% and 7%, respectively. A one percentage-point increase
in the assumed health care cost trend rate would result in an increase of
approximately $8 million in the accumulated postretirement benefit
obligation and an increase of approximately $0.6 million in net periodic
postretirement benefit costs.
The following table sets forth amounts recorded in the Company's
consolidated balance sheets at December 31, 1994 and 1993. The Company has
not funded any of its estimated future obligation.
<TABLE>
<CAPTION>
1994 1993
---------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retirees $ (30,000) $(36,000)
Fully-eligible active plan participants (1,000) (1,000)
Other active plan participants (9,000) (11,261)
---------------------------
(40,000) (48,261)
Unrecognized net loss 996 10,549
Unrecognized prior service cost 737 797
---------------------------
Accumulated postretirement benefit
obligation liability recognized in
the consolidated balance sheets $ (38,267) $(36,915)
===========================
</TABLE>
Other plans: Substantially all full-time United States employees of the
Company are eligible to participate in the Company's defined contribution
savings plans. The Company's matching contribution was approximately $1.1
million in 1994 and 1993 and $1.7 million in 1992.
Under the Company's stock option plans, options to buy 2.3 million common
shares at an average price of $18.34 per share were outstanding at
December 31, 1994, of which 1.5 million shares were exercisable. An
additional 0.8 million and 1 million shares were available for future
grants at December 31, 1994 and 1993, respectively.
During 1993, the Company offered to convert all HCI options outstanding
to Homestake options on the basis of 0.35 of a Homestake common share
option for each HCI common share option at an exercise price equal to the
exercise price of the HCI option divided by 0.35 and converted from
Canadian dollars to U.S. dollars based on the July 22, 1992 exchange rate.
All other terms and conditions of the HCI options remained unchanged. As a
result, options covering 787,345 Homestake shares were substituted for HCI
shares under the HCI options at prices ranging
43
<PAGE>
from $17.70 to $42.77 per share. Certain of these converted options had
share appreciation rights and at December 31, 1993 the Company recorded a
charge of $0.2 million with respect to these rights.
Stock option activity was as follows:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------
Average Average Average
Price Price Price
Per Per Per
Number Share Number Share Number Share
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1 2,600 2,193 1,569
HCI converted 787 $29.04
Granted 268 $20.50 516 12.18 688 $14.20
Exercised (293) 15.98 (695) 15.88 (24) 5.75
Expired (274) 15.86 (201) 29.20 (40) 16.10
------------------------------------------------
Balance at
December 31 2,301 2,600 2,193
================================================
</TABLE>
Note 19: FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Estimated Carrying Estimated
Asset/(Liability) Amount Fair Value Amount Fair Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents
and short-term
investments $ 205,180 $ 205,180 $134,719 $134,719
Noncurrent marketable
equity investments 4,435 5,109 4,643 5,319
Long-term debt (185,000) (182,188) (192,976) (224,471)
Off-balance sheet financial
instruments -
Foreign currency
options 651 651 (156) (156)
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and equivalents and short-term investments: The carrying value of
cash and equivalents approximates the fair value due to the short-term
maturities of these instruments. The fair value of short-term investments
was estimated based on quoted market prices. If a quoted market price was
not available, the fair value was estimated using quoted market prices for
similar securities.
Noncurrent marketable equity investments: The fair value of noncurrent
marketable equity investments was estimated based on quoted market prices.
Long-term debt: With the exception of the convertible subordinated notes,
the carrying amounts of the long-term debt items are reasonable estimates
of their fair value. Interest rates on these debt instruments fluctuate at
prevailing market rates. The fair value of the Company's convertible
subordinated notes was estimated based on the quoted market price.
Foreign currency options: The fair value of foreign currency options was
estimated based on the quoted market prices. If a quoted market price was
not available, the fair value was estimated using quoted market prices for
similar options.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1994 and 1993.
Although management is not aware of any factors which would affect the
estimated fair value amounts significantly, such amounts have not been
comprehensively revalued for purposes of these financial statements since
the balance sheet dates, and estimates of fair value at dates subsequent to
December 31, 1994 and 1993 may differ significantly from the amounts
presented herein.
Note 20: SHAREHOLDERS' EQUITY
At December 31, 1994 and 1993 other equity includes deductions of $3.7
million and $3.9 million, respectively, for loans made to certain former
HCI employees and directors for the purchase of common shares. The loans,
which were used for the purchase of shares of HCI, are non-interest
bearing, are secured by a pledge of the shares and are not required to be
paid until the later of 1995 or until the pledged securities are equal to
or greater than the value of the respective loans. Other equity at
December 31, 1992 includes $4.2 million for common shares of Homestake
owned by Prime. These Homestake shares were sold by Prime in 1993.
Effective April 30, 1992 all 2.7 million HCI Series B first preference
shares then outstanding were redeemed for 4.3 million common shares of the
Company.
Each share of common stock includes and trades with a right. Rights are
not exercisable currently but become exercisable on the 10th business day
after any person, entity or group ("the Acquiring Person") acquires 20% or
more of the Company's common stock or announces a tender or exchange offer
which would result in such entity acquiring 20% or more of the Company's
common stock. When exercisable, each right entitles its holder to purchase
from the Company one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock, par value $1 per share, at a share price of
$75. If the Company is subsequently
44
<PAGE>
involved in a merger or other business combination involving the Acquiring
Person, each right will entitle its holder to purchase certain securities
of the surviving company. Rights also provide for protection against self-
dealing transactions by the Acquiring Person. The rights expire on
November 2, 1997.
Note 21: ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest and for income and mining taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------
<S> <C> <C> <C>
Interest, net of amounts capitalized $10,110 $ 8,600 $13,203
Income and mining taxes 10,670 18,170 7,328
</TABLE>
Certain investing and financing activities of the Company affect
financial position but do not affect cash flows. Significant noncash
investing and financing activities were as follows:
In 1992, HCI increased its equity interest in the Marigold mine venture
to 33.3% as a result of a land exchange.
See notes 2 and 3 for discussions of the noncash acquisitions of the
interests in HCI, Prime and Stikine.
In 1992, HCI redeemed its Series B first preference shares for common
stock (see note 20).
The impact on the balance sheet during 1992 as a result of the change in
the accounting for the Company's investments in Prime and Stikine from the
equity method to consolidation (see note 3) was as follows:
<TABLE>
<CAPTION>
Increase/(Decrease)
---------------------
<S> <C>
Cash and equivalents $6,411
Working capital and other assets (2,624)
Property, plant and equipment 194,807
Noncurrent investments (79,476)
Long-term debt 12,287
Deferred income taxes 78,619
Minority interests 32,470
Shareholders' equity (4,258)
</TABLE>
Note 22: CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
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.
Whitewood Creek: An 18-mile stretch of Whitewood Creek in the Black Hills
of South Dakota is a site on the NPL. The EPA asserted that discharges of
tailings by mining companies, including the Company, for more than 100
years, contaminated soil and water. In 1990, the Company signed a consent
decree with the EPA requiring that the Company perform remedial work on the
site and continue long-term monitoring. The on-site remedial work has been
completed. The Company estimates that the remaining cost of actions
required by the decree, including EPA oversight costs, will be less than $1
million.
Grants: 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 contaminated a shallow aquifer that served 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 a
point where contaminates are below natural background levels. The Company
has decommissioned and disposed of the mills and has closed the tailings
impoundments at the site.
Title X of the Energy Policy Act of 1992 (the Act) authorized
appropriations of $270 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 of the Department of Energy (DOE)
which were issued in 1994. Pursuant to the Act, the Company may submit
requests for reimbursement under the Act for 51.2% of the past and future
costs of reclaiming the Grants site in accordance with the approved
reclamation plan and Nuclear Commission license 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 approximately $30.2 million. To date,
Congress has appropriated $83 million for disbursement in fiscal
45
<PAGE>
years 1994 and 1995 to eligible licensees. In 1994, the Company submitted
an initial claim of $14.1 million for the DOE's share of past costs
incurred through December 31, 1993 and the Company expects to file
additional claims on an annual basis for expenditures made in the prior
year. The Company records a receivable and an increase in long-term
accrued reclamation when claims are filed with the DOE. The accompanying
balance sheet at December 31, 1994 includes a receivable of $9.8 million
from the DOE for claims filed, net of $4.3 million reimbursements received
through that date. A claim for approximately $7 million will be submitted
in 1995 for 1994 expenditures.
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 the above matters
will not have a material adverse impact on its financial condition or
results of operations.
OTHER CONTINGENCIES
In addition to the above, the Company is party to legal actions and
administrative proceedings and is subject to claims arising in the ordinary
course of business. While the amounts claimed may be substantial and the
ultimate liability cannot, at this time, be determined, the Company
believes the disposition of these matters will not have a material adverse
effect on its financial position or results of operations.
Note 23: FOREIGN CURRENCY AND OTHER COMMITMENTS
During 1992, the Company established a foreign currency protection program
and entered into a series of foreign currency option contracts which
established trading ranges within which the United States dollar may be
exchanged for foreign currencies by setting minimum and maximum exchange
rates. The Company does not require or place collateral for these
contracts. However, the Company minimizes its credit risk by dealing with
only major international banks and financial institutions. The contracts
are marked to market at each balance sheet date. Unrealized gains (losses)
on contracts outstanding at December 31, 1994 and 1993 totaled $0.7 million
and $(0.2) million, respectively. Other income for the years ended
December 31, 1994 and 1993 includes income (loss) of $4.6 million and
$(1.4) million, respectively, related to the foreign currency protection
program. At December 31, 1994 the Company had outstanding forward
currency contracts as follows:
(In thousands, except exchange rates)
<TABLE>
<CAPTION>
Exchange Rates to U.S. $
Currency Amount Minimum Maximum Expiration Date
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian $112,700 $0.67 $0.78 1995-1997
Australian 66,600 0.70 0.76 1995
---------
$179,300
=========
</TABLE>
In addition to amounts related to the foreign currency option contracts,
the Company realized foreign currency transaction losses (see note 1) of
$6.6 million in 1994, $1.5 million in 1993 and $5.5 million in 1992, which
were recorded as a reduction to other income.
In the fourth quarter of 1994, the Company entered into forward sales
for 183,200 ounces of gold it expects to produce at the Nickel Plate mine
during 1995 and 1996. The prices to be received range from $386 to $437
and average $412 per ounce. The purpose of the forward sales program is
to allow for recovery of the Company's remaining investment in the mine and
provide for estimated reclamation costs.
The Company has entered into various commitments in the ordinary course
of its business, which include commitments to perform assessment work and
other obligations necessary to maintain or protect its interests in mining
properties, financing and other obligations to joint venturers and partners
under venture and partnership agreements, and commitments under federal and
state environmental health and safety permits.
Note 24: GEOGRAPHIC AND SEGMENT INFORMATION
The Company primarily is engaged in gold mining and related activities.
Interests in joint ventures are included in segment operations and
identifiable assets. In determining operating earnings, which are defined
as operating revenues less operating costs and expenses, the following
items have been excluded: mineral exploration costs, corporate income and
expenses, and income and mining taxes. Identifiable assets represent those
assets used in a segment's operations. Corporate assets are principally
cash and equivalents, short-term investments and assets related to
operations not significant enough to require classification as a business
segment.
46
<PAGE>
Sales to individual customers exceeding 10% of the Company's
consolidated revenues were as follows: in 1994 gold sales of $129 million,
$118 million and $100 million to three customers; in 1993 gold sales of
$175 million, $145 million and $105 million to three customers; and in
1992 gold sales of $92 million to one customer. The Company believes that
the loss of any of these customers would not have a material adverse impact
on the Company because of the active worldwide market for gold.
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Revenues
United States (1,2) $ 346,629 $ 380,458 $ 354,018
Canada 192,363 194,755 178,401
Australia 143,944 121,025 124,799
Latin America 22,551 25,990 26,302
------------------------------------
$ 705,487 $ 722,228 $ 683,520
====================================
Operating Earnings (Loss)(3)
United States (1) $ 72,379 $ 33,295 $ (11,666)
Canada 55,804 70,788 40,603
Australia 29,026 29,660 10,284
Latin America (1,359) 2,272 (869)
------------------------------------
$ 155,850 $ 136,015 $ 38,352
====================================
Exploration Expense
United States $ 11,841 $ 11,128 $ 14,735
Canada 2,445 1,907 6,328
Australia 4,008 2,888 4,097
Latin America and other 3,053 1,534 2,638
------------------------------------
$ 21,347 $ 17,457 $ 27,798
====================================
Identifiable Assets as of
December 31
United States $ 598,059 $ 550,645 $ 559,558
Canada 382,575 385,324 406,883
Australia 207,837 165,683 159,993
Latin America 13,497 19,598 18,735
------------------------------------
$1,201,968 $1,121,250 $1,145,169
====================================
<FN>
(1) Includes a gain of $15.7 million in 1994 on the sale of the Company's
interest in the Dee mine.
(2) Includes a gain of $11.2 million in 1994 on the dilution of the
Company's interest in Prime.
(3) Includes write-downs of: $16 million and $28.5 million in 1993 and
1992, respectively, for the United States; $7.1 million in 1992 for
Canada; and $3.5 million in 1992 for Latin America.
</TABLE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Revenues
Gold $ 632,031 $ 688,080 $ 639,253
Sulphur 26,882 16,220 22,867
Interest and other (1,2) 46,574 17,928 21,400
-------------------------------------
$ 705,487 $ 722,228 $ 683,520
=====================================
Operating Earnings (Loss)
Gold (1,3) $ 156,013 $ 161,947 $ 34,318
Sulphur (4) (163) (25,932) 4,034
-------------------------------------
Operating earnings 155,850 136,015 38,352
Exploration expense (21,347) (17,457) (27,798)
Net corporate expense (2,5) (28,690) (50,162) (189,049)
-------------------------------------
Income (Loss) Before Taxes
and Minority Interest $ 105,813 $ 68,396 $ (178,495)
=====================================
Depreciation, Depletion and
Amortization
Gold $ 66,857 $ 90,842 $ 103,569
Sulphur 7,861 10,629 13,133
Corporate 1,453 1,906 781
--------------------------------------
$ 76,171 $ 103,377 $ 117,483
======================================
Exploration Expense
Gold $ 21,318 $ 17,017 $ 27,726
Sulphur 29 440 72
--------------------------------------
$ 21,347 $ 17,457 $ 27,798
======================================
Additions to Property,
Plant and Equipment
Gold $ 83,597 $ 54,219 $ 40,614
Sulphur 3,039 1,828 21,044
Corporate 2,018 1,778 1,795
--------------------------------------
$ 88,654 $ 57,825 $ 63,453
======================================
Identifiable Assets as of
December 31
Gold $ 796,016 $ 788,122 $ 863,017
Sulphur 143,742 142,220 160,616
Corporate:
Cash and equivalents and
short-term investments 205,180 134,719 71,064
Other 57,030 56,189 50,472
-------------------------------------
$1,201,968 $1,121,250 $1,145,169
=====================================
<FN>
(1) Includes a gain of $15.7 million in 1994 on the sale of the Company's
interest in the Dee mine.
(2) Includes a gain of $11.2 million in 1994 on the dilution of the
Company's interest in Prime.
(3) Includes write-downs of mining properties and equity investments of
$39.1 million in 1992.
(4) Includes a write-down of the oil and gas property of $16 million in
1993.
(5) Includes write-downs of non-operating mining properties and
investments of $91.2 million in 1992 and restructuring and business
combination expenses of $8.2 million in 1993 and $48.4 million in
1992.
</TABLE>
47
<PAGE>
SEVEN-YEAR SELECTED DATA (1)
Homestake Mining Company and Subsidiaries
(Dollar amounts in thousands, except per share and per ounce amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991
---------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Revenues $705,487 $722,228 $683,520 $671,600
Production costs 447,129 454,623 470,374 468,107
Depreciation, depletion
and amortization 76,171 103,377 117,483 116,993
Exploration 21,347 17,457 27,798 47,440
Administrative and
general 38,159 40,553 48,514 47,405
Interest and other 16,868 13,639 19,114 12,336
Write-downs and
restructuring costs 24,183 178,732 185,987
Income and mining tax
expense (credit) 18,880 12,775 (2,889) 5,582
Minority interest
(credit) 8,917 3,127 230 (4,494)
---------------------------------------------------
Income (loss) from
continuing
operations 78,016(2) 52,494(3) (175,836)(4,5) (207,756)(6)
Income (loss) from
discontinued
operations (25,359)
Extraordinary gain
Cumulative effect (28,800)(7)
----------------------------------------------------
(2) (3) (4,5) (6,7)
Net income (loss) $78,016 $52,494 $(175,836) $(261,915)
PER SHARE
Income (loss) from
continuing
operations $0.57(2) $0.38(3) $(1.31)(4,5) $(1.57)(6)
Income (loss) from
discontinued
operations (0.19)
Extraordinary gain
Cumulative effect (0.22)(7)
-----------------------------------------------------
Net income (loss) $0.57(2) $0.38(3) $(1.31)(4,5) $(1.98)(6,7)
-----------------------------------------------------
Dividends paid
(Homestake only) $0.175 $0.10 $0.20 $0.20
-----------------------------------------------------
TABLE CONTINUED
<CAPTION>
1990 1989 1988
------------------------------------
<S> <C> <C> <C>
OPERATIONS
Revenues $793,660 $771,126 $520,708
Production costs 473,688 405,246 276,082
Depreciation,
depletion and
amortization 113,443 103,110 59,472
Exploration 50,695 49,394 47,952
Administrative and
general 50,631 44,641 38,674
Interest and other 28,475 33,073 26,315
Write-downs and
restructuring
costs 32,600 44,963 28,163
Income and mining
tax expense (credit) 40,267 56,195 25,702
Minority interest
(credit) (350) (266) 1,036
------------------------------------
Income (loss) from
continuing
operations 4,211(8) 34,770(9) 17,312(11)
Income (loss) from
discontinued
operations 7,979 31,667 15,558
Extraordinary gain 3,678(10)
Cumulative effect 3,125(12)
------------------------------------
(8) (9,10) (11,12)
Net income (loss) $12,190 $70,115 $35,995
PER SHARE
Income (loss) from
continuing
operations $0.02(8) $0.28(9) $0.14(11)
Income (loss) from
discontinued
operations 0.06 0.25 0.13
Extraordinary gain 0.03(10)
Cumulative effect 0.02(12)
--------------------------------------
Net income (loss) $0.08(8) $0.56(9,10) $0.29(11,12)
--------------------------------------
Dividends paid
(Homestake
only) $0.20 $0.20 $0.20
--------------------------------------
<FN>
1 Seven-year selected data reflects the 1992 combination of Homestake
and HCI accounted for as a pooling of interests and treats base
metals, oil and gas, uranium and HCI's non-gold operations as
discontinued operations.
2 Includes a gain of $12.6 million ($15.7 million pretax) or $0.09 per
share on the sale of the Company's interest in the Dee mine and a gain
of $11.2 million (no tax expense) or $0.08 per share on dilution of
the Company's interest in Prime.
3 Includes expense of $12.8 million ($16 million pretax) or $0.09 per
share for the write-down of the Company's investment in the oil and
gas assets at Main Pass 299 and expense of $6.8 million ($8.2 million
pretax) or $0.05 per share for restructuring and business combination
costs.
4 Includes expense of $117.7 million ($130.3 million pretax) or $0.87
per share for write-downs of certain mining properties and
investments.
5 Includes expense of $32.3 million ($48.4 million pretax) or $0.24 per
share for restructuring and business combination costs.
6 Includes expense of $165.5 million ($172.4 million pretax) or $1.25
per share for write-downs of certain mining properties and investments
and expense of $7.8 million ($13.6 million pretax) or $0.06 per share
for HCI's 1991 restructuring.
</TABLE>
48 <PAGE>
Homestake Mining Company and Subsidiaries
(Dollar amounts in thousands, except per share and per ounce amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL POSITION
Cash and short-term
investments $205,180 $134,719 $71,064 $164,353
Other current assets 137,619 103,491 108,288 137,217
Property, plant and
equipment - net 808,221 830,228 911,588 844,909
Other long-term
assets 50,948 52,812 54,229 206,352
---------------------------------------------------
Total assets $1,201,968 $1,121,250 $1,145,169 $1,352,831
===================================================
Current liabilities $96,895 $104,350 $155,894 $191,145
Long-term debt 185,000 189,191 205,174 279,190
Other long-term
obligations 110,719 93,674 88,002 86,193
Deferred income
taxes 136,274 164,030 162,587 100,797
Minority interest (13) 84,310 54,761 68,074 19,864
Shareholders' equity 588,770 515,244 465,438 675,642
---------------------------------------------------
Total liabilities
and shareholders'
equity $1,201,968 $1,121,250 $1,145,169 $1,352,831
===================================================
RATIOS
Debt to Equity 31% 37% 53% 52%
Return on Shareholders'
Equity 14% 11% (31)% (30)%
CAPITAL EXPENDITURES $88,654 $57,825 $63,453 $166,458
OPERATING STATISTICS
Gold production
(thousand ounces) 1,696 1,918 1,912 1,801
Cash cost per ounce $254 $231 $248 $269
Average gold price
realized per ounce $384 $359 $348 $376
RESERVES
Gold (million ounces) 17.9 18.4 17.3 18.5
Eskay Creek Silver
(million ounces) 51.5 55.1
Sulphur (million
long tons) 11.7 11.0 11.2 11.2
TABLE CONTINUED
<CAPTION>
1990 1989 1988
-------------------------------------
<S> <C> <C> <C>
FINANCIAL POSITION
Cash and short-term
investments $332,690 $323,501 $295,538
Other current assets 295,843 209,998 172,936
Property, plant and
equipment - net 902,161 947,494 692,020
Other long-term
assets 381,121 267,504 213,321
-------------------------------------
Total assets $1,911,815 $1,748,497 $1,373,815
=====================================
Current liabilities $205,863 $145,325 $95,926
Long-term debt 408,902 440,888 283,600
Other long-term
obligations 51,253 47,000 41,425
Deferred income
taxes 108,681 114,828 61,663
Minority interest (13) 78,422 98,972 58,976
Shareholders' equity 1,058,694 901,484 832,225
-------------------------------------
Total liabilities and
shareholders'
equity $1,911,815 $1,748,497 $1,373,815
=====================================
RATIOS
Debt to Equity 48% 51% 37%
Return on
Shareholders' Equity 1% 8% 4%
CAPITAL EXPENDITURES $139,352 $266,279 $281,040
OPERATING STATISTICS
Gold production
(thousand ounces) 1,979 1,738 1,312
Cash cost per ounce $248 $247 $263
Average gold price
realized per ounce $392 $394 $434
RESERVES
Gold (million ounces) 19.6 20.6 14.3
Eskay Creek Silver
(million ounces)
Sulphur (million
long tons) 11.2
<FN>
7 Includes expense of $28.8 million (no tax benefit) or $0.22 per share
for the cumulative effect of the change in accounting for
postretirement benefits other than pensions.
8 Includes expense of $32.6 million (no tax benefit) or $0.25 per share
for the write-down of the Company's investment in North American
Metals Corp.
9 Includes expense of $30.7 million ($45 million pretax) or $0.24 per
share for the write-downs of certain mining properties of HCI.
10 Includes an extraordinary gain of $3.7 million or $0.03 per share on
the monetization of gold loans.
11 Includes expense of $28.2 million ($40 million pretax) or $0.23 per
share for write-downs of certain mining properties of HCI.
12 Includes income of $3.1 million or $0.02 per share from the cumulative
effect of the change in accounting for income taxes.
13 Includes redeemable preference shares of wholly-owned subsidiaries of
$15.9 million, $4.9 million, $46.1 million, $50.4 million and $48.9
million at December 31, 1992, 1991, 1990, 1989 and 1988, respectively.
</TABLE>
49
<PAGE>
QUARTERLY SELECTED DATA
Homestake Mining Company and Subsidiaries
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
Revenues $172,402 $202,079 $166,991 $164,015 $705,487
Net income 24,214 32,955(1) 10,849 9,998 78,016(1)
Per common
share:
Net income 0.18 0.24(1) 0.08 0.07 0.57(1)
Dividends
paid 0.025 0.05 0.05 0.05 0.175
1993:
Revenues $169,993 $187,091 $180,440 $184,704 $722,228
Net income 5,561 11,294(2) 22,739(2) 12,900(2,3) 52,494(2,3)
Per common
share:
Net income 0.04 0.08(2) 0.16(2) 0.09(2,3) 0.38(2,3)
Dividends
paid 0.025 0.025 0.025 0.025 0.10
<FN>
(1) Includes a gain of $12.6 million ($15.7 million pretax) or $0.09 per
share on the sale of the Company's interest in the Dee mine and a gain
of $11.2 million (no tax expense) or $0.08 per share on the dilution of
the Company's interest in Prime.
(2) Includes expense of $6.8 million ($8.2 million pretax) or $0.05 per
share for restructuring and business combination costs, including
expenses of $1.9 million or $0.01 per share, $4.8 million or $0.04 per
share and $0.1 million in the second, third and fourth quarters,
respectively.
(3) Includes expense of $12.8 million ($16 million pretax) or $0.09 per
share for the write-down of the Company's investment in the oil and gas
assets at Main Pass 299.
</TABLE>
COMMON STOCK PRICE RANGE
Homestake Mining Company and Subsidiaries
(Prices as quoted on the New York Stock Exchange)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
High $ 24.88 $ 22.63 $22.00 $ 20.75 $ 24.88
Low 18.88 17.38 17.50 16.13 16.13
1993:
High $ 14.63 $ 19.63 $ 21.63 $ 22.88 $ 22.88
Low 9.63 13.38 15.25 16.25 9.63
</TABLE>
50
<PAGE>
APPENDIX 1: Description of Bar Charts in Management's Discussion and Analysis
Bar Chart A:
Chart depicting net income (dollars in millions) as follows:
Year: 1992 1993 1994
Dollars: -$175.8 $52.5 $78.0
Bar Chart B:
Chart depicting gold production (ounces in millions) as follows:
Year: 1992 1993 1994
Ounces:
Homestake's
Interest: 1.75 1.77 1.61
Minority Interest: 0.06 0.09 0.09
Operations Sold: 0.10 0.06 -
Total 1.91 1.92 1.70
Bar Chart C:
Chart depicting gold revenues (dollars in millions) as follows:
Year: 1992 1993 1994
Dollars: $639.3 $688.1 $632.0
Bar Chart D:
Chart depicting cash costs per ounce (dollars per ounce) as follows:
Year: 1992 1993 1994
Dollars: $248 $231 $254
Bar Chart E:
Chart depicting administrative and general expense (dollars in millions) as
follows:
Year: 1992 1993 1994
Dollars: $48.5 $40.6 $38.2
Bar Chart F:
Chart depicting exploration expense (dollars in millions) as follows:
Year: 1992 1993 1994
Dollars:
United States: $14.8 $11.1 $11.8
Canada: $6.3 $1.9 $2.4
Australia: $4.1 $2.9 $4.0
Latin America
and Other: $2.6 $1.6 $3.1
Total $27.8 $17.5 $21.3
Bar Chart G:
Chart depicting cash and equivalents and short-term investments (dollars in
millions) as follows:
Year: 1993 1994
Dollars: $134.7 $205.2
Bar Chart H:
Chart depicting cash provided by operations (dollars in millions) as follows:
Year: 1992 1993 1994
Dollars: $73.5 $170.1 $133.7
<PAGE>
EXHIBIT 22
LIST OF SUBSIDIARIES
Homestake Mining Company, a Delaware Corporation and its Subsidiaries
Interest of Homestake Mining Company is 100% unless otherwise noted
( ) Denotes state, province or country of incorporation
Homestake Mining Company (Delaware)
Homestake Mining Company of California (California)
Denay Creek Gold Mining Company (California)
Homestake Canada Inc. (Ontario)
588982 Ontario Inc. (Ontario)
759290 Ontario Inc. (Ontario)
759291 Ontario Inc. (Ontario)
759292 Ontario Inc. (Ontario)
Corona Gold Inc. (Nevada)
Santa Fe Gold Inc. (Nevada)
E & B Explorations Inc. (Delaware)
Galveston Resources (Nevada), Inc. (Nevada)
Homestake Mineral Development Company Ltd. (British Columbia)
PRG Project Development Corp. (British Columbia)
Pezamerica Resource Corporation (Arizona)
Prime Resources Group Inc. (British Columbia) - 50.6%
Teck-Corona Operating Company (Ontario) - 50%
The Ventora Corporation (Arizona)
Westcan Holdings Inc. (Nevada)
Williams Operating Company (Ontario) - 50%
Homestake de Argentina S.A. (Buenos Aires)
Homestake Forest Products Company (California)
Homestake Gold of Australia Limited (Western Australia) - 81.5%
Homestake Australia Limited (Western Australia) - 81.5%
Homestake Gold (Queensland) Pty. Ltd. (Australia) - 81.5%
Homestake International Minerals Limited (California)
Homestake Lead Company of Missouri (California)
Homestake Nevada Corporation (California)
Homestake Sulphur Company (Delaware)
Black Hills Oil & Gas Company (California)
Homestake Venezuela, S.A. (Venezuela)
Minera Rio Carichapo, S.A. (Venezuela)
Minera Rio Marwani, S.A. (Venezuela)
La Jara Mesa Mining Company (New Mexico)
Minera Homestake Chile S.A. (Chile)
Whitewood Development Corporation (California)
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following
Registration Statements of Homestake Mining Company: Post-
Effective Amendment No. 5 to No. 2-90903 on Form S-8 (originally
filed on Form S-3); Post Effective Amendment No. 3 to No. 2-90905
on Form S-8 (originally filed on Form S-3); No. 33-26049 on Form
S-8; No. 33-32174 on Form S-8; No. 2-66538 on Form S-8; Post-
Effective Amendment No. 1 to No. 33-48526 on Form S-8 (originally
filed on Form S-4) of our report dated February 8, 1995,
appearing in and incorporated by reference in the Annual Report
on Form 10-K of Homestake Mining Company for the year ended
December 31, 1994.
/s/ Coopers & Lybrand L.L.P.
----------------------------
March 23, 1995
Oakland, California<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1994 and the related
Statement of Consolidated Operations for the year ended December 31, 1994
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 105,701
<SECURITIES> 99,479
<RECEIVABLES> 58,994
<ALLOWANCES> 0
<INVENTORY> 71,715
<CURRENT-ASSETS> 342,799
<PP&E> 1,579,502
<DEPRECIATION> 771,281
<TOTAL-ASSETS> 1,201,968
<CURRENT-LIABILITIES> 96,895
<BONDS> 185,000
<COMMON> 137,785
0
0
<OTHER-SE> 450,985
<TOTAL-LIABILITY-AND-EQUITY> 1,201,968
<SALES> 656,056
<TOTAL-REVENUES> 705,487
<CGS> 523,300<F1>
<TOTAL-COSTS> 561,459<F2>
<OTHER-EXPENSES> 28,091<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,124
<INCOME-PRETAX> 105,813
<INCOME-TAX> 18,880
<INCOME-CONTINUING> 78,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,016
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0
<FN>
<F1>Includes Production costs and Depreciation, depletion and amortization from
Statement of Consolidated Operations.
<F2>Includes Production costs and Depreciation, depletion and amortization and
Administrative and general expense from Statement of Consolidated Operations.
<F3>Includes Exploration expense and Other expense from Statement of
Consolidated Operations.
</FN>
</TABLE>
