- --------------------------------------------------------------------------------
This Supplement #2 relates to the Offer
Document dated October 27, 1995 (File
No. 33-62667), and is filed pursuant to
Rule 424(b)(3).
SUPPLEMENT #2 TO OFFER DOCUMENT DATED AS OF 27 OCTOBER 1995
THIS IS AN IMPORTANT DOCUMENT THAT REQUIRES YOUR IMMEDIATE ATTENTION
IF YOU ARE IN DOUBT AS TO HOW TO DEAL WITH IT
PLEASE CONSULT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER
[HOMESTAKE LOGO]
------------------------
HOMESTAKE MINING COMPANY
(A.R.B.N. 070 799 067)
------------------------
UNCONDITIONAL OFFER TO ACQUIRE
ALL OF YOUR FULLY PAID ORDINARY SHARES OF
HOMESTAKE GOLD OF AUSTRALIA LIMITED
(A.C.N. 008 143 137)
ON THE BASIS OF
0.089 SHARES OF HOMESTAKE COMMON STOCK FOR EACH FULLY PAID HGAL ORDINARY SHARE
OR
A$1.90 IN CASH FOR EACH FULLY PAID HGAL ORDINARY SHARE
------------------------
UNLESS EXTENDED, THE OFFER IS DUE TO CLOSE AT 5.00 PM,
SYDNEY, AUSTRALIA TIME ON 22 DECEMBER 1995.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE.
THE DATE OF THIS SUPPLEMENT #2 TO OFFER DOCUMENT IS 13 DECEMBER 1995.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
OFFER BY HOMESTAKE MINING COMPANY (ARBN 070 799 067)
TO ACQUIRE ALL OF YOUR FULLY PAID ORDINARY SHARES IN
HOMESTAKE GOLD OF AUSTRALIA LIMITED (ACN 008 143 137)
This Supplement #2 to Offer Document ("Supplement #2") supplements the Offer
Document dated as of 27 October 1995, as supplemented on 30 November 1995
("Offer Document"), and should be read in conjunction with the Offer Document.
Terms used in this Supplement #2 that are defined in the Offer Document have the
same meaning herein as so defined. The information contained herein updates or
supersedes certain information contained in the Offer Document. Any information
so updated or superseded will not be deemed to constitute part of the Offer
Document.
1. INTRODUCTION
On 31 October 1995 Homestake despatched Offers to acquire the HGAL Shares
not already owned by it. Under the Offers, each HGAL shareholder may
elect to receive either:
(a) 0.089 Homestake Shares for each fully paid HGAL Share (the "Share
Offer"); or
(b) A$1.90 for each fully paid HGAL Share (the "Cash Offer").
On 30 November 1995 Homestake extended the closing date for its Offers to
22 December 1995.
Homestake has now revised the Forecasted Statements of Consolidated
Operations for the Year Ending 31 December 1996 contained in the Offer
Document. The revised forecast now estimates Homestake's consolidated
1996 net income to be U.S.$30.2 million (U.S.$0.21 per share), as
compared to the earlier estimate of U.S.$38.5 million (U.S.$0.27 per
share), and estimates the 1996 net increase in cash balances to be
U.S.$24.4 million, as compared with the earlier estimate of U.S.$56.4
million. The principal reason for the change in net income is that gold
production from HGAL's operations in Western Australia is now expected to
be lower than previously estimated by Homestake. The mine plan now
proposed by the operator at Kalgoorlie for 1996 contemplates a
substantially higher level of waste stripping than previously estimated
by Homestake. The higher level of waste stripping is being undertaken now
to uncover more ore for mining and milling in the future. During the
period of high waste stripping, less higher grade ore will be mined and
more lower grade stockpiled ore will be processed. As a result, 1996 gold
production from Kalgoorlie now is expected to be lower than previously
estimated by Homestake, although it should be higher than 1995 gold
production. (See pages 12-19 below for more detailed information.)
This Supplement #2 presents updated and revised Forecast and Pro Forma
Financial Information for Homestake.
2. QUESTIONS AND ADDITIONAL COPIES OF DOCUMENTS
HGAL shareholders with queries about how to accept Homestake's Offer
should contact Ernst & Young Registry Services Pty Limited in Australia
at Level 2, 321 Kent Street, Sydney, NSW 2000, or by telephone on (02)
290 4111, and The First National Bank of Boston in the United States at
450 Tasso Street, Suite 250, Palo Alto, CA 94301, or by telephone on
(415) 853-0980. HGAL shareholders who may not have received the Offer
Document or Form of Acceptance and Transfer, or who would like another
copy of either of those documents or this Supplement #2, should contact
Ernst & Young Registry Services Pty Limited or The First National Bank of
Boston, and another copy will be sent free of charge.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
3. REVISED PRO FORMA FINANCIAL STATEMENTS AND FORECAST
The information contained in this Clause 3 replaces and should be
considered in lieu of the following information contained in the Part A
statement included in the Offer Document:
<TABLE>
<CAPTION>
LOCATION IN
INFORMATION REPLACED OFFER DOCUMENT
- ---------------------------------------------------------------------------------- ---------------
<S> <C>
Forecast and Pro Forma Selected Financial Information Pages 18-19
Forecast, Pro Forma and Historical Selected Statistical Information Page 20
Per Share Data Page 21
Pro Forma Financial Information Pages 51-56
Financial Forecast Pages 57-64
</TABLE>
3.1 REVISED FORECAST AND PRO FORMA SELECTED FINANCIAL INFORMATION
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE
AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
The following table sets forth certain forecast and pro forma financial
information of Homestake. This information should be read in conjunction
with (i) the historical financial statements of Homestake and HGAL,
including the notes thereto, which are included in Appendices D, E, F, H
and I to the Offer Document and Appendix L to this Supplement #2, (ii)
the Revised Pro Forma Condensed Consolidated Financial Information
contained in this Supplement #2, and (iii) the Revised Forecasted
Condensed Consolidated Financial Statements contained in this Supplement
#2.
Except as noted, the Revised Pro Forma Condensed Consolidated Financial
Information and the Revised Forecasted Condensed Consolidated Financial
Statements reflect the effects of the acquisition of all of the HGAL
Shares not already owned by Homestake, assuming 75% of the HGAL Shares
are exchanged for Homestake Shares and 25% of the HGAL Shares are
acquired for cash as of the beginning of each period.
<TABLE>
<CAPTION>
FORECAST FOR PRO FORMA
THE YEAR FORECAST FOR THE FOR THE YEAR
ENDING SIX MONTHS ENDING PRO FORMA FOR THE ENDED
31 DECEMBER 31 DECEMBER NINE MONTHS ENDED 31 DECEMBER
1996 (1) 1995 (1) 30 SEPTEMBER 1995 1994
------------ ------------------ ------------------- ------------
<S> <C> <C> <C> <C>
Revenues.......................... $ 726,700 $ 370,800 $555,050 $ 703,087
Net income........................ 30,200 12,500 19,160 76,162
Net income per share.............. 0.21 0.09 0.13 0.53
Cash dividends per share.......... 0.20 0.10 0.15 0.175
<CAPTION>
PRO FORMA BALANCES
AT 30 SEPTEMBER
1995
-------------------
<S> <C> <C> <C> <C>
Total assets...................... $ 1,386,080
Long-term obligations............. 301,625
Shareholders' equity.............. 718,163
</TABLE>
See footnotes (2) and (10) of the Homestake Historical Selected Financial
Information contained at pages 15 - 16 of the Offer Document, and the
Revised Pro Forma Condensed Consolidated Financial Information set out
below.
- ------------------------
(1) The forecasts for the six months ending 31 December 1995 and for
the year ending 31 December 1996 assume the acquisition of the 18.5%
of HGAL occurred effective 31 December 1995.
FOOTNOTES CONTINUE ON FOLLOWING PAGE.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
(2) Combined Information for the Year Ending 31 December 1995
The following combined unaudited information has been prepared to
illustrate to the HGAL shareholders the effect on 1995 results of the
proposed acquisition of the 18.5% of HGAL, assuming the acquisition
had occurred effective 1 January 1995. The combined financial
information has been included solely to comply with Australian legal
requirements and does not purport to comply with the SEC rules for
preparation of pro forma or forecasted information.
The combined information for the year ending 31 December 1995 has
been prepared assuming the acquisition of the 18.5% of HGAL occurred
effective 1 January 1995, using Homestake's historical Condensed
Statement of Consolidated Income for the six months ended 30 June 1995
and the Forecasted Condensed Statement of Consolidated Operations for
the six months ending 31 December 1995.
<TABLE>
<CAPTION>
HOMESTAKE
HISTORICAL FOR
THE SIX MONTHS FORECAST FOR THE COMBINED INFORMATION
ENDED SIX MONTHS ENDING FOR THE YEAR ENDING 31
30 JUNE 1995 31 DECEMBER 1995 ADJUSTMENTS(A) DECEMBER 1995
--------------- ----------------- -------------- -----------------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.................... $ 375.5 $ 370.8 ($2.1) $ 744.2
Net income.................. 17.7 12.5 (3.9) 26.3
Net income per share........ 0.13 0.09 (0.04) 0.18
Cash dividends per share.... 0.10 0.10 -- 0.20
</TABLE>
- ------------------------------
a) Adjustments to record the acquisition of the 18.5% of HGAL
effective 1 January 1995, assuming 75% of the HGAL Shares are
exchanged for Homestake Shares and 25% of the HGAL Shares are
acquired for cash, are as follows: (i) to eliminate interest
income in respect of the assumed cash component of the HGAL
purchase price of $41.5 million and related tax effect, (ii) to
record the amortization of excess purchase price paid over the net
book value of assets acquired and related tax effect, and (iii) to
eliminate minority interests' share of HGAL's earnings.
(3) Homestake historical selected financial information for the nine
months ended 30 September 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
30 SEPTEMBER
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues...................................................................... $ 556,950 $ 541,472
Net income.................................................................... 22,684 68,018
Net income per share.......................................................... 0.16 0.49
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
3.2 REVISED FORECAST, PRO FORMA AND HISTORICAL SELECTED STATISTICAL
INFORMATION
(ALL DOLLAR AMOUNTS ARE IN U.S. DOLLARS)
The following table sets forth certain forecast, pro forma and historical
statistical information of Homestake. This information should be read in
conjunction with (i) the Statistical Summary of Homestake, which is
included at pages 36 - 38 of the Offer Document, (ii) the Revised Pro
Forma Financial Information contained in this Supplement #2, and (iii)
the Revised Forecasted Condensed Consolidated Financial Statements,
including the Summary of Significant Assumptions, contained in this
Supplement #2.
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA 31 DECEMBER
31 DECEMBER --------------------------
1994 1994 1993
------------ ------------ ------------
(THOUSANDS OF OUNCES)
<S> <C> <C> <C> <C>
Gold reserves (1).................................................. 19,007 17,942 18,436
Silver reserves (1,2).............................................. 51,507 51,507 55,131
<CAPTION>
FORECAST FOR
FORECAST FOR THE SIX PRO FORMA PRO FORMA
THE YEAR MONTHS FOR THE NINE FOR THE YEAR
ENDING ENDING MONTHS ENDED ENDED
31 DECEMBER 31 DECEMBER 30 SEPTEMBER 31 DECEMBER
1996 1995 (3) 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average realized price per ounce..................... $395 $385 $385 $384
Production (equivalent ounces) (4,5)................. 1,800,000 925,000 1,399,000 1,696,000
Cash costs per equivalent ounce (6).................. $256 $256 $254 $254
Noncash costs per equivalent ounce (7)............... $51 $55 $54 $51
<CAPTION>
HISTORICAL HISTORICAL FOR THE YEAR
FOR THE NINE ENDED
MONTHS ENDED 31 DECEMBER
30 SEPTEMBER --------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C> <C>
Average realized price per ounce................................... $385 $384 $359
Production (equivalent ounces) (4,5)............................... 1,399,000 1,696,000 1,918,000
Cash costs per equivalent ounce (6)................................ $254 $254 $231
Noncash costs per equivalent ounce (7)............................. $51 $47 $51
</TABLE>
- ------------------------------
(1) Homestake's proportionate interest excluding minority interest.
(2) Eskay Creek only.
(3) The forecasts for the six months ending 31 December 1995 and for
the year ending 31 December 1996 assume the acquisition of the 18.5%
of HGAL occurred effective 31 December 1995.
(4) Homestake's proportionate interest including minority interest.
(5) Gold and silver are accounted for as co-products at Eskay Creek
which commenced production in January of 1995. Silver production is
converted to gold equivalents, using the ratio of the gold market
price to the silver market price. The ratios are 72 ounces of silver
equals one ounce of gold for the forecast year ending 31 December
1996, 70 ounces of silver equals one ounce of gold for the forecast
six months ending 31 December 1995 and 74 ounces of silver equals one
ounce of gold for the pro forma and historical nine months ended 30
September 1995.
(6) Cash costs include all site operating expenses, third-party
smelter and treatment charges, and royalties but exclude corporate
administration, non-mine exploration and general expense.
(7) Noncash costs include depreciation, end-of-mine reclamation
accruals, and amortization of the cost of property acquisitions.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
3.3 REVISED PER SHARE DATA
(IN U.S. DOLLARS)
The following table presents HGAL's historical per share data for the six
months ended 30 June 1995 and for the year ended 31 December 1994, and
Homestake's historical and pro forma per share data for the nine months
ended 30 September 1995 and for the year ended 31 December 1994, giving
effect to the proposed acquisition of HGAL Shares to be accounted for as
a purchase, based upon the historical financial statements of Homestake
and HGAL and the Pro Forma Condensed Consolidated Financial Information
contained in this Supplement #2.
The information provided below should be read in conjunction with (i) the
historical financial statements of Homestake and HGAL, including the
notes thereto, which are included in Appendices D, E, F, H and I of the
Offer Document and Appendix L to this Supplement #2, (ii) the Revised Pro
Forma Condensed Consolidated Financial Information contained in this
Supplement #2, and (iii) the historical selected data of Homestake and
HGAL set out at pages 15 - 17 of the Offer Document.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED ENDED
30 JUNE 1995 31 DECEMBER 1994
------------------- -----------------
<S> <C> <C>
HGAL HISTORICAL:
(PREPARED IN ACCORDANCE WITH AUSTRALIAN GAAP; AMOUNTS IN AUSTRALIAN DOLLARS)
Per share of HGAL common stock:
Book value (1)................................................ $ 0.32 $ 0.30
Cash dividends................................................ 0.00 0.00
Net income.................................................... 0.02 0.06
HGAL HISTORICAL:
(PREPARED IN ACCORDANCE WITH U.S. GAAP; AMOUNTS IN AUSTRALIAN DOLLARS)
Per share of HGAL common stock:
Book value (1)................................................ $ 0.31 $ 0.29
Cash dividends................................................ 0.00 0.00
Net income.................................................... 0.02 0.06
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR
ENDED ENDED
30 SEPTEMBER 1995 31 DECEMBER 1994
------------------- -----------------
<S> <C> <C>
HOMESTAKE HISTORICAL:
(PREPARED IN ACCORDANCE WITH U.S. GAAP; AMOUNTS IN U.S. DOLLARS)
Per share of Homestake common stock:
Book value (1)................................................ $ 4.33 $ 4.27
Cash dividends................................................ 0.15 0.175
Net income.................................................... 0.16 0.57
HOMESTAKE PRO FORMA:
(PREPARED IN ACCORDANCE WITH U.S. GAAP; AMOUNTS IN U.S. DOLLARS)
Per share of Homestake common stock:
Book value (1)................................................ $ 4.95 $ 4.91
Cash dividends (2)............................................ 0.15 0.175
Net income.................................................... 0.13 0.53
</TABLE>
- ------------------------------
(1) Book value per share is shareholders' equity divided by common
shares outstanding at the end of the periods indicated.
(2) Pro forma cash dividends per share reflect Homestake's historical
cash dividends declared in the periods indicated.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
3.4 REVISED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Financial Statements have
been prepared by Homestake to illustrate the estimated effects of the
proposed acquisition (the "Acquisition") of the 109,605,000 HGAL Shares
not presently owned by Homestake. The Pro Forma Condensed Consolidated
Financial Statements include a Pro Forma Condensed Consolidated Balance
Sheet as of 30 September 1995, assuming the Acquisition occurred as of
that date, and Pro Forma Condensed Consolidated Statements of Operations
for the nine months ended 30 September 1995 and the year ended 31
December 1994, assuming that the Acquisition occurred as of the beginning
of each period.
Homestake has made an offer to acquire the 109,605,000 HGAL Shares it
does not already own. HGAL shareholders accepting Homestake's offer will
receive, at their option, either 0.089 of a Homestake Share or A$1.90 in
cash for each HGAL share.
The Pro Forma Condensed Consolidated Financial Statements are presented
utilizing the purchase method of accounting whereby the cost of acquiring
the 18.5% of HGAL not already owned by Homestake is determined by the
value of the shares and the cash which Homestake will exchange, plus the
direct costs associated with the Acquisition, which are estimated to be
approximately U.S.$3 million. All amounts in the Pro Forma Condensed
Consolidated Financial Statements are stated in U.S. dollars. The Pro
Forma Condensed Consolidated Financial Statements do not purport to
represent what the financial position or results of operations actually
would have been if the Acquisition had occurred at the beginning of the
periods or to project the financial position or results of operations for
any future date or period.
The Pro Forma Condensed Consolidated Financial Statements should be read
in conjunction with the historical consolidated financial statements,
including the notes thereto, of Homestake, prepared in accordance with
U.S. GAAP, which are included in Appendices D, E and F to the Offer
Document and Appendix L to this Supplement #2. The Pro Forma Condensed
Consolidated Financial Statements also include pro forma adjustments
which are based on available information and certain assumptions that
management of Homestake believes are reasonable in the circumstances.
Such pro forma adjustments reflect the effects of the Acquisition of all
of the HGAL Shares not already owned by Homestake, assuming 75% of the
HGAL Shares are exchanged for Homestake common stock and 25% of the HGAL
Shares are acquired for cash.
At the date the Offer was announced (14 August 1995), Homestake's
investment advisor estimated that 50% of the HGAL Shares tendered would
be exchanged for Homestake Shares based on Homestake's then share price.
Homestake now believes, based on the actual percentage of HGAL Shares
tendered for Homestake Shares during the time the Offer has been open,
that 75% of the HGAL Shares tendered will be exchanged for Homestake
Shares. However, the ultimate number of HGAL Shares which will be
exchanged for Homestake Shares will depend on a number of factors,
including the price of Homestake Shares during the remaining time the
offer is open. The price of Homestake Shares may vary significantly
during that time, due to many factors including changes in the price of
gold.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
30 SEPTEMBER 1995
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
HOMESTAKE PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------ --------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents.................................... $ 131,869 $ (41,500)(A) $ 90,369
Short-term investments.................................. 107,827 107,827
Receivables............................................. 58,688 58,688
Inventories............................................. 70,430 70,430
Other................................................... 9,226 9,226
------------ --------------- ------------
Total current assets.................................. 378,040 (41,500) 336,540
------------ --------------- ------------
Property, Plant and Equipment -- net...................... 794,885 188,100(A) 982,985
------------ --------------- ------------
Investments and Other Assets
Noncurrent investments.................................. 36,883 36,883
Other assets............................................ 29,672 29,672
------------ ------------
Total investments and other assets.................... 66,555 66,555
------------ --------------- ------------
$ 1,239,480 $ 146,600 $ 1,386,080
------------ --------------- ------------
------------ --------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities....................................... $ 88,854 $ 88,854
------------ ------------
Long-term Liabilities
Long-term debt.......................................... 185,000 185,000
Other long-term obligations............................. 116,625 116,625
------------ ------------
Total long-term liabilities........................... 301,625 301,625
------------ ------------
Deferred Income and Mining Taxes.......................... 153,634 $ 49,800(A) 203,434
------------ --------------- ------------
Minority Interests in Consolidated Subsidiaries........... 98,804 (24,800)(A) 74,004
------------ --------------- ------------
Shareholders' Equity...................................... 596,563 121,600(A) 718,163
------------ --------------- ------------
$ 1,239,480 $ 146,600 $ 1,386,080
------------ --------------- ------------
------------ --------------- ------------
</TABLE>
- ------------------------
(A) To reflect the acquisition of the 109,605,000 HGAL Shares that
Homestake does not presently own, assuming the issuance of
7,316,250 Homestake Shares valued at $121,600 and the payment of
$38,500 in cash, plus acquisition and related costs of $3,000.
Accordingly, the total pro forma acquisition cost is $163,100
compared to the book value for minority interest of $24,800. The
actual purchase price will be determined based upon the value of
the Homestake shares issued and cash paid for the purchase of the
HGAL Shares acquired. As discussed below, it is Homestake's
opinion that substantially all of the purchase price in excess of
the net book value of HGAL is attributable to the mineral
property interests held by HGAL. The excess purchase price paid
over the net book value of assets acquired and related deferred
taxes is allocated as follows:
<TABLE>
<S> <C>
Total Purchase Price.................................................................... $ 163,100
Net Book Value of Minority Interests in HGAL, 30 September 1995......................... 24,800
---------
Excess of Purchase Price Paid over Net Book Value of Assets Acquired Attributed to
Mineral Properties..................................................................... 138,300
Increase in Mineral Properties Due to the Recognition of the Deferred Tax Consequences
of Differences Between the Assigned Values and Tax Bases of the Net Assets Acquired.... 49,800
---------
Total Increase in Property, Plant and Equipment......................................... 188,100
Increase in Deferred Taxes.............................................................. (49,800)
---------
Excess of Purchase Price Paid over Net Book Value of Assets Acquired.................... $ 138,300
---------
---------
FOOTNOTE CONTINUES ON FOLLOWING PAGE.
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
With the exception of property, plant and equipment, the assets and liabilities of HGAL included in
Homestake's consolidated financial statements consist primarily of working capital items, the
carrying values of which are substantially at fair market value. Based on the history of the
Kalgoorlie property and the identification and development of mineral deposits and their conversion
to ore reserves, the financial analysis undertaken by Homestake in connection with its decision to
acquire the additional 18.5% of HGAL, and Homestake's experience in ownership and operation at
Kalgoorlie and other long-life mines, it is Homestake's opinion that all of the purchase price in
excess of the net book value of assets acquired is attributable to mineral properties at
Kalgoorlie. Homestake used discounted cash flow analysis to determine the allocation of the
purchase price between reserves and other mineral deposits and mineral properties. This analysis
indicated that approximately 62% of the purchase price allocated to mineral properties is
attributable to reserves and the remainder is attributable to other mineral deposits and mineral
properties, as follows:
Purchase Price Allocated to Property Plant and Equipment:
Acquisition of minority interests' share of property, plant and equipment..... $ 28,600
Allocation of excess purchase price........................................... 188,100
---------
$ 216,700
---------
---------
Allocation of Property, Plant and Equipment:
Proven and probable reserves:
Minority interests' share of property, plant and equipment acquired......... $ 28,600
Excess purchase price allocation............................................ 106,200
---------
134,800 (62%)
Other mineral deposits and mineral properties, allocation of excess purchase
price........................................................................ 81,900 (38%)
---------
$ 216,700 (100%)
---------
---------
The final allocation of the purchase price will be made when the acquisition is completed and when
Homestake completes its annual detailed analysis of reserves as of 31 December 1995. However,
management does not expect the final actual allocation of the purchase price to be materially
different from the pro forma balance sheet.
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 1994
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HOMESTAKE PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
Revenues
Product sales................................................ $ 656,056 $ 656,056
Interest income.............................................. 9,762 $ (2,400)(A) 7,362
Gain on issuance of stock by subsidiary...................... 11,224 11,224
Other income................................................. 28,445 28,445
----------- ------- -----------
705,487 (2,400) 703,087
----------- ------- -----------
Costs and Expenses
Production costs............................................. 447,129 447,129
Depreciation, depletion and amortization..................... 76,171 6,086(B) 82,257
Administrative and general expense........................... 38,159 38,159
Exploration expense.......................................... 21,347 21,347
Interest expense............................................. 10,124 10,124
Other expense................................................ 6,744 6,744
----------- ------- -----------
599,674 6,086 605,760
----------- ------- -----------
Income Before Taxes and Minority Interest...................... 105,813 (8,486) 97,327
Income and Mining Taxes........................................ (18,880) 2,000(C) (16,880)
Minority Interest.............................................. (8,917) 4,632(D) (4,285)
----------- ------- -----------
Net Income..................................................... $ 78,016 $ (1,854) $ 76,162
----------- ------- -----------
----------- ------- -----------
Net Income Per Share........................................... $ 0.57 $ 0.53
----------- -----------
----------- -----------
Average Shares Used in the Computation (thousands)............. 137,733 145,049
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(A) To eliminate interest income, based on the 1994 average earnings
rate of approximately 5.7%, in respect of the assumed cash component
of the HGAL acquisition cost in the amount of $41,500.
(B) To record amortization of the excess purchase price paid over the
net book value of assets acquired, using the units-of-production
method, as follows:
<TABLE>
<C> <S> <C>
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER OUNCE AMOUNT)
1) Excess purchase price allocated to proven and probable reserves -- 1995....... $ 106,200
Reduction in excess purchase price allocated to reserves for 1994 pro forma
purposes due to lower Australian tax rate for 1994........................... (2,300)
---------
$ 103,900
Excess purchase price allocated to proven and probable reserves -- 1994.......
---------
---------
2) Estimate of HGAL's share of ounces of gold to be recovered based on
Homestake's estimate of 6.75 million ounces contained in reserves (see pages
42-44 and page 49 of the Offer Document) and an estimated recovery rate of
89%.......................................................................... 6,007
3) Estimate of recoverable ounces attributed to minority interests' 18.5% of
HGAL......................................................................... 1,111
4) Amortization rate per ounce ((1) divided by (3)).............................. $ 93.50
5) HGAL's 1994 ounces of gold produced (see Statistical Summary at pages 36-38 of 352.1
the Offer Document)..........................................................
6) Minority interests' share of HGAL's 1994 gold production...................... 65.1
7) Pro forma amortization adjustment ((4) times (6))............................. $ 6,086
</TABLE>
(C) To record the tax effects of adjustments (A) and (B) above.
(D) To eliminate the minority interests' share of HGAL's earnings.
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1995
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
HOMESTAKE PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
Revenues
Product sales................................................ $ 534,002 $ 534,002
Interest income.............................................. 12,686 $ (1,900)(A) 10,786
Other income................................................. 10,262 10,262
----------- -------------- -----------
556,950 (1,900) 555,050
----------- -------------- -----------
Costs and Expenses
Production costs............................................. 355,625 355,625
Depreciation, depletion and amortization..................... 73,866 4,200(B) 78,066
Administrative and general expense........................... 28,977 28,977
Exploration expense.......................................... 19,387 19,387
Interest expense............................................. 8,324 8,324
Other expense................................................ 2,155 2,155
----------- -------------- -----------
488,334 4,200 492,534
----------- -------------- -----------
Income Before Taxes and Minority Interest...................... 68,616 (6,100) 62,516
Income and Mining Taxes........................................ (33,091) 1,500(C) (31,591)
Minority Interest.............................................. (12,841) 1,076(D) (11,765)
----------- -------------- -----------
Net Income..................................................... $ 22,684 $ (3,524) $ 19,160
----------- -------------- -----------
----------- -------------- -----------
Net Income Per Share........................................... $ 0.16 $ 0.13
----------- -----------
----------- -----------
Average Shares Used in the Computation (thousands)............. 137,891 145,207
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(A) To eliminate interest income, based on the year-to-date average
earnings rate of approximately 6% per annum, in respect of the assumed
cash component of the HGAL acquisition cost in the amount of $41,500.
(B) To record amortization of the excess purchase price paid over the
net book value of assets acquired, using the units-of-production
method, as follows:
<TABLE>
<C> <S> <C>
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER OUNCE AMOUNT)
1) Excess purchase price allocated to proven and probable reserves -- 1995....... $ 106,200
2) Estimate of HGAL's share of ounces of gold to be recovered based on
Homestake's estimate of 6.75 million ounces contained in reserves (see pages
42-44 and page 49 of the Offer Document) and an estimated recovery rate of
89%.......................................................................... 6,007
3) Estimate of recoverable ounces attributed to minority interests' 18.5% of
HGAL......................................................................... 1,111
4) Amortization rate per ounce ((1) divided by (3)).............................. $ 95.60
5) HGAL's year-to-date September 1995 ounces of gold produced (see Gold
Production summary included in Appendix L to the Offer Document)............. 238.7
6) Minority interests' share of HGAL's year-to-date September 1995 production.... 44.2
7) Pro forma amortization adjustment ((4) times (6))............................. $ 4,200
</TABLE>
(C) To record the tax effects of adjustments (A) and (B) above.
(D) To eliminate the minority interests' share of HGAL's earnings.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
3.5 REVISED FINANCIAL FORECAST
HOMESTAKE MINING COMPANY
REVISED FORECASTED CONDENSED STATEMENTS
OF CONSOLIDATED OPERATIONS
(MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDING YEAR ENDING
31 DECEMBER 1995 31 DECEMBER 1996
------------------ -----------------
<S> <C> <C>
Revenues
Product sales.................................................. $ 354.1 $ 702.7
Interest and other............................................. 16.7 24.0
-------- --------
370.8 726.7
-------- --------
Costs and Expenses
Production costs............................................... 236.4 452.5
Depreciation, depletion and amortization....................... 52.0 97.5
Administrative and general expense............................. 18.9 38.3
Exploration expense............................................ 15.0 29.6
Interest and other............................................. 5.2 12.6
-------- --------
327.5 630.5
-------- --------
Income Before Taxes and Minority Interest........................ 43.3 96.2
Income and Mining Taxes.......................................... (23.3) (51.4)
Minority Interest................................................ (7.5) (14.6)
-------- --------
Net Income....................................................... $ 12.5 $ 30.2
-------- --------
-------- --------
Net Income Per Share............................................. $ 0.09 $ 0.21
-------- --------
-------- --------
Average Shares Used in the Computation (thousands)............... 138,000 145,300
-------- --------
-------- --------
</TABLE>
SEE "SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS" BELOW.
HOMESTAKE MINING COMPANY
REVISED FORECASTED CONDENSED STATEMENTS
OF CONSOLIDATED CASH FLOWS
(MILLIONS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDING YEAR ENDING
31 DECEMBER 1995 31 DECEMBER 1996
----------------- -----------------
<S> <C> <C>
Cash Flow From Operations
Net income...................................................... $ 12.5 $ 30.2
Depreciation, depletion and amortization........................ 52.0 97.5
Changes in working capital and other............................ 24.2 35.8
-------- --------
Net Cash Provided by Operations................................... 88.7 163.5
-------- --------
Investment and Financing Activities
Acquisition of HGAL minority interest (1)....................... 41.5 --
Additions to property plant and equipment....................... 58.9 60.0
Exploration/development projects................................ 24.0 50.0
Dividends....................................................... 13.8 29.1
-------- --------
Net Cash Used in Investment and Financing Activities.............. 138.2 139.1
-------- --------
Net Increase (Decrease) in Cash and Equivalents................... $ (49.5) $ 24.4
-------- --------
-------- --------
</TABLE>
- ------------------------------
(1) The total purchase price of the 18.5% of the HGAL Shares not
already owned by Homestake in the amount of $163.1 million is assumed
to be financed through the issuance of 7.3 million Homestake Shares
valued at $121.6 million and the payment of cash of $38.5 million,
plus acquisition and related costs of $3.0 million.
SEE "SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS" BELOW.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
SUMMARY OF REVISED SIGNIFICANT FORECAST ASSUMPTIONS
FOR THE SIX MONTHS ENDING DECEMBER 31, 1995
AND THE YEAR ENDING DECEMBER 31, 1996
The financial forecast has been prepared to update the financial forecast
in the Offer Document, which was prepared to comply with Australian legal
requirements which require a description of the prospects of the offeror
where the consideration offered includes shares of the offeror. Homestake
will not update this forecast in future regulatory filings. The financial
forecast has been prepared by Homestake's management to provide the
reader with an indication of Homestake's estimated future production,
earnings, cash flow and dividends following the acquisition of the 18.5%
of HGAL not already owned by Homestake.
This financial forecast presents, to the best of management's knowledge
and belief, Homestake's expected consolidated results of operations and
consolidated cash flows for the forecast periods. Accordingly, the
forecast reflects management's judgement as of 8 December 1995, the date
of this forecast, of the expected conditions and its expected course of
action. This forecast updates a previous forecast dated 17 October 1995
included in the Offer Document previously distributed to HGAL
shareholders. Changes in significant assumptions that have been
incorporated in this revised forecast are: (1) the percentage of HGAL
shareholders accepting Homestake shares is now expected to be 75% (see
note 1. below), and; (2) 1996 gold production at HGAL's Kalgoorlie
operations in Western Australia is now expected to be lower (see note 2.
below). The Forecasted Condensed Statement of Consolidated Operations for
the six months ending 31 December 1995 has not been revised as the
changed assumptions did not have a material effect on net income.
The assumptions disclosed herein are those that management believes are
significant to the forecast. There will usually be differences between
forecasted and actual results, because events and circumstances
frequently do not occur as expected, and those differences may be
material. Homestake's Consolidated Financial Statements for the Year
Ended 31 December 1994, which are included in Appendix D to the Offer
Document, should be read for additional information.
HOMESTAKE CAUTIONS READERS THAT A FORECAST IS SUBJECT TO MANY
UNCERTAINTIES AND NEEDS TO BE TREATED WITH CAUTION.
Unless specifically stated otherwise, all comments and production
statistics relate to the consolidated Homestake entity, without reduction
for minority interest.
The forecast has been prepared in accordance with accounting principles
generally accepted in the United States and the accounting policies
adopted by Homestake. (See note 1 to Homestake's 31 December 1994
Consolidated Financial Statements in Appendix D and Appendix K, Homestake
Differences Between U.S. and Australian Generally Accepted Accounting
Principles, to the Offer Document.)
SIGNIFICANT FORECAST ASSUMPTIONS
The following is a summary of the significant assumptions used in the
preparation of the forecast. These assumptions are based on Homestake's
judgement at 8 December 1995, the date the forecast was completed. These
assumptions should not be considered an all-inclusive list of the
assumptions used in the preparation of the forecast.
1) Management has assumed that effective 31 December 1995, Homestake
acquires 100% of the HGAL Shares that it does not already own and
that 75% of the HGAL Shares
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
SUMMARY OF REVISED SIGNIFICANT FORECAST ASSUMPTIONS (CONTINUED)
acquired are exchanged for Homestake Shares and 25% are acquired
for cash. Therefore, the purchase price has been assumed to
consist of approximately 7.3 million Homestake Shares and cash
payments totaling U.S.$38.5 million. Transaction costs associated
with the acquisition of the HGAL Shares are estimated to be
U.S.$3 million. Management has assumed that all cash payments
made in the acquisition of the HGAL Shares are funded from
Homestake's available cash and investment balances and no debt is
incurred by Homestake as a result of this acquisition.
At the date the Offer was announced, Homestake's investment
advisor estimated that 50% of the HGAL Shares tendered would be
exchanged for Homestake Shares based on Homestake's then share
price. Homestake now believes, based on the actual percentage of
HGAL Shares tendered for shares during the time the Offer has
been open, that 75% of the HGAL Shares tendered will be exchanged
for Homestake Shares. However, the ultimate number of HGAL Shares
which will be exchanged for Homestake Shares will depend on a
number of factors including Homestake's Share price during the
remaining time the offer is open. Homestake's Share price may
vary significantly during this time, due to many factors
including changes in the price of gold.
A sensitivity analysis has been included in note 17 below to show
the effects on net income, net income per share and cash and
equivalents of two possible outcomes of the offer: (1) 100% of
the HGAL Shares being acquired for cash and, (2) 100% of the HGAL
Shares being exchanged for Homestake Shares.
2) Homestake has reduced its estimate of forecasted net income and
cash flow for 1996. The principal reason for the reduced estimate
is lower gold production in 1996 from HGAL's operation at
Kalgoorlie in Western Australia than previously estimated by
Homestake. A preliminary budget and mining plan for 1996,
recently provided to HGAL and its joint venture partner by the
operator of the mines and mills at Kalgoorlie, indicates that the
average grade of ore to be processed in 1996 will be lower than
the average grade which was expected at the time Homestake
prepared its previous 1996 forecast. The mine plan now proposed
for 1996 contemplates a substantial stripping of waste during the
year to uncover ore for mining and milling in the future. During
this time, the amount of higher grade ore available to be milled
will be reduced and lower grade stockpiled ore will be processed
in its place. As a result, fewer ounces of gold will be produced
at Kalgoorlie in 1996 than previously estimated by Homestake.
Management assumes that Homestake will produce approximately
925,000 and 1,800,000 equivalent ounces of gold in the six months
ending 31 December 1995 and the year ending 31 December 1996,
respectively.
3) The average spot market price of gold is assumed to be U.S.$385
and U.S.$395 per ounce in the 1995 and 1996 periods,
respectively. The price of gold was U.S.$384 per ounce on 14
August 1995, the day that the offer to acquire the HGAL Shares
was announced. The gold price has varied between U.S.$372 and
U.S.$396 per ounce over the last fourteen months preceding the
date of preparation of this forecast. In determining the gold
price to be used in this forecast, Homestake took into
consideration many factors, including the price of gold available
in the forward markets and consultations with gold market
analysts and trading institutions. A sensitivity analysis is
included in note 17 below to show the impact of 5% movements in
the U.S. dollar gold price.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
SUMMARY OF REVISED SIGNIFICANT FORECAST ASSUMPTIONS (CONTINUED)
4) Average exchange rates used throughout the forecast period were
U.S.$0.745 and U.S.$0.740 in the 1995 and 1996 periods
respectively, for both the Australian and Canadian dollars.
Approximately 19% and 31% of Homestake's forecast 1995 operating
costs and 22% and 29% of Homestake's forecast 1996 operating
costs are denominated in Australian and Canadian currencies,
respectively. To help minimise the effects of fluctuations of the
Australian and Canadian currencies in relation to the U.S.
dollar, Homestake has implemented a foreign currency protection
program by entering into a series of foreign currency option
contracts which establish trading ranges within which the U.S.
dollar may be exchanged for these currencies by setting minimum
and maximum exchange rates. See note 23 to Homestake's 31
December 1994 Consolidated Financial Statements in Appendix D to
the Offer Document for details of this program.
A sensitivity analysis is included in note 17 below to show the
impact of 5% movements in the Australian and Canadian currencies
in relation to the U.S. dollar. This sensitivity analysis
incorporates the effects of the foreign currency protection
program described above.
5) Homestake has engaged in some limited forward selling of gold to
be produced in 1995 and 1996. See note 23 to Homestake's 31
December 1994 Consolidated Financial Statements in Appendix D to
the Offer Document for details of these sales.
6) Ore produced at the Eskay Creek mine currently is sold to two
smelters under long-term ore sales contracts. These contracts
provide for a combined minimum delivery of 100,000 tons in 1995,
with options to increase deliveries to 130,000 tons per year in
1996 and beyond, subject to smelter approvals. Management assumes
that 110,000 tons of Eskay Creek ore will be sold to smelters
during 1996. However, while Homestake believes that the smelters
will accept the additional tonnage, approval for the additional
tonnage has not been received at this time.
7) In determining operating cost levels used in the forecast,
management took into consideration many factors, including
historical operating performance, inflation and continuing cost
improvements, at each of Homestake's operating locations. A
sensitivity analysis is included in note 17 below to show the
impact of 3% movements in production costs.
8) Income and mining taxes for the forecast period are based on
forecast earnings and the statutory tax rates as presently
enacted in the geographical and tax jurisdictions that Homestake
operates. Management also assumes that Homestake will continue to
be subject to the United States alternative minimum tax at a 20%
rate on its United States taxable income throughout 1995 and
1996. Homestake's actual consolidated income and mining tax rate
can vary significantly as a result of numerous factors,
including, but not limited to, changes in the geographical mix of
pretax income or loss, nondeductible expenses, and changes in the
tax rules, rates and regulations of the various taxing regulatory
authorities. The applicable statutory income and mining tax rates
(as reduced by applicable statutory mining incentives) utilized
in the forecast are as follows:
<TABLE>
<S> <C>
United States........................................................ 20%
Canada............................................................... 49%
Australia............................................................ 36%
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
SUMMARY OF REVISED SIGNIFICANT FORECAST ASSUMPTIONS (CONTINUED)
9) Management assumes that Homestake's current levels of exploration
spending will continue throughout the forecast period. No
benefits from this exploration have been included in the
forecast. (See note 13 below.)
10) Management has assumed that the current dividend policies of
Homestake and its subsidiary companies remain unchanged
throughout the forecast period.
11) Other assumptions are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDING YEAR ENDING 31
31 DECEMBER 1995 DECEMBER 1996
----------------- -----------------
<S> <C> <C>
Silver price (per ounce)................................................... U.S. $5.50 U.S. $5.50
Sulphur price (per long ton) (a)........................................... U.S.$75.00 U.S.$76.50
Short-term interest rates
United States............................................................ 6.0% 7.0%
Australia................................................................ 8.0% 8.0%
Canada................................................................... 7.0% 7.0%
</TABLE>
- ------------------------
(a) Forecasted sulphur prices for Main Pass mine sulphur
production have been provided by the operator of the joint
venture who has responsibility for marketing Homestake's
share of production.
12) The excess of purchase price over the underlying book value of
the HGAL Shares to be acquired in the amount of U.S.$138.3
million has been allocated to property, plant and equipment and
deferred taxes in the amounts of U.S.$188.1 million and U.S.$49.8
million, respectively. Homestake expects to allocate U.S.$106.2
million of the excess purchase price allocated to property, plant
and equipment to the proven and probable reserves portion of
mineral properties and U.S.$81.9 million of the excess purchase
price allocated to property, plant and equipment to other mineral
deposits and mineral properties. Homestake will amortize the
excess purchase price allocated to reserves on a
units-of-production basis. Homestake will amortize the excess
purchase price allocated to other mineral deposits and mineral
properties on a units-of-production basis to the extent mineral
deposits are upgraded to reserves or will expense the excess
purchase price if and when and to the extent the carrying value
of the other mineral deposits and mineral properties are
determined to be impaired.
13) Homestake currently is involved in several late stage
exploration/development projects. Ongoing exploration,
prefeasibility and feasibility study costs related to these
projects are included in the forecast.
Forecasted cash flow for the six months ending 31 December 1995
includes $24 million invested in Navan Resources Plc. (Navan) by
Homestake in July 1995, related to the Chelopech mine.
The forecast also includes $50 million of additional
capital/investment during the year ending 31 December 1996 which,
based on Homestake's current understanding of the
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
SUMMARY OF REVISED SIGNIFICANT FORECAST ASSUMPTIONS (CONTINUED)
late stage exploration/development projects, will be required if
these projects proceed. Homestake plans to fund the
capital/investment requirements for these projects through 31
December 1996 from available cash reserves or operating cash
flows.
With the exception of capitalised property and related investment
acquisition costs of U.S.$26 million (including the U.S.$24
million invested in Navan in July 1995), all expenditures on
these projects to date have been expensed. Homestake can
terminate its involvement in these projects at any time. However,
the possibility of recovering expenditures incurred up to the
point of exit may be limited. No benefits from these projects
have been included in the forecast.
14) Homestake currently has outstanding long-term debt obligations of
U.S.$185 million. No payments of principal are due under these
obligations until the year 2000. Homestake also has a
U.S./Canadian cross-border credit facility providing a total
availability of U.S.$150 million. No amounts have been borrowed
under this facility as of the date of this forecast. (See note 14
to Homestake's 31 December 1994 Consolidated Financial Statements
in Appendix D to the Offer Document for details of Homestake's
debt and credit facilities.) Management assumes no debt
repayments or additional borrowings during the forecast period.
15) In 1994, Homestake was awarded U.S.$4.7 million in a lawsuit
Homestake initiated against its former auditor and tax advisor.
The judgement has been appealed and Homestake has deferred
recognition of any gain pending final resolution of this action.
Management assumes resolution of this matter in 1996, and the
forecast for the year ending 31 December 1996 includes proceeds
including interest of U.S.$5 million.
16) In 1990, Homestake entered into a long-term contract for the sale
of its then remaining uranium inventories. The purchaser declared
bankruptcy and defaulted under the terms of the contract. The
bankruptcy court has released the 1.3 million pounds of uranium
to Homestake and the Company has entered into a contract for the
sale of the uranium in December, 1995 for $11.85 per pound. The
forecast for the six months ending 31 December 1995 includes
sales proceeds of U.S.$15.8 million and a pretax gain of U.S.$5.4
million which is included in other income.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
HOMESTAKE MINING COMPANY
SUMMARY OF REVISED SIGNIFICANT FORECAST ASSUMPTIONS (CONTINUED)
17) SENSITIVITY ANALYSIS.
The following sensitivity analysis projects the estimated effects
on results of operations and cash flows of changes in certain
assumptions from those used in the preparation of the forecast.
Except for the acquisition of HGAL Shares, the sensitivities
should not be interpreted as establishing lower and upper limits
of possible outcomes.
(MILLIONS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CHANGES IN NET INCOME,
NET INCOME PER SHARE (EPS) AND CASH FLOW
----------------------------------------------------------------------------
SIX MONTHS ENDING 31 DECEMBER 1995 YEAR ENDING
31 DECEMBER 1996
------------------------------------- -------------------------------------
NET INCOME EPS CASH FLOW NET INCOME EPS CASH FLOW
------------- --------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
5% increase in gold price............. $ 7.9 $ 0.06 $ 10.5 $ 18.6 $ 0.13 $ 26.9
5% decrease in gold price............. (7.9) (0.06) (10.5) (17.7) (0.12) (25.6)
A$ weakens against U.S.$ by 5% (a).... 1.0 0.01 3.5 3.6 0.02 5.3
A$ strengthens against U.S.$ by 5%
(a).................................. (0.3) -- (3.5) (3.7) (0.03) (4.6)
C$ weakens against U.S.$ by 5% (a).... 1.0 0.01 2.7 3.2 0.02 3.5
C$ strengthens against U.S.$ by 5%
(a).................................. 0.6 -- (2.5) (3.3) (0.02) (0.5)
Production costs decrease by 3%....... 3.4 0.02 4.6 8.6 0.06 12.7
Production costs increase by 3%....... (3.4) (0.02) (4.6) (8.8) (0.06) (13.1)
100% HGAL Shares acquired for cash.... -- -- (115.5) (6.5) (0.04) (5.0)
100% HGAL Shares exchanged for
Homestake Shares..................... -- -- 38.5 2.2 0.01 1.7
</TABLE>
- ------------------------
(a) The sensitivity analysis incorporates the effects of the foreign currency
protection program.
18) SIGNIFICANT CHANGES EXPECTED IN 1997
While management has not prepared a financial forecast for the
year ended 31 December 1997, management is not aware of any
non-recurring items, such as those discussed in notes 15 and 16
above, which may have a significant effect on Homestake's results
from operations.
Homestake estimates that based on its current operations,
excluding production from the late stage development/exploration
projects discussed in note 13 above, its 1997 consolidated
production will be approximately 1.7 million equivalent ounces of
gold. McLaughlin mine production is expected to decline
significantly with the shut down of mining operations and
commencement of the processing of lower-grade stockpiles in
mid-1996, and Nickel Plate mine will cease operation in 1996.
Since both of these mines are higher cost operations, these
reductions in production are not expected to have a significant
impact on Homestake's results from operations.
Cash taxes are expected to increase in 1997 as tax deductions for
capital expenditures made in prior years are depleting.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL FORECAST
To the Directors of Homestake Mining Company:
We have examined the accompanying revised forecasted condensed statements
of consolidated operations and revised forecasted condensed statements of
consolidated cash flows of Homestake Mining Company for the six months
and year ending 31 December 1995, and 31 December 1996, respectively,
appearing in this Supplement #2 to Offer Document. Our examination was
made in accordance with standards for an examination of a forecast
established by the American Institute of Certified Public Accountants
and, accordingly, included such procedures as we considered necessary to
evaluate both the assumptions used by management and the preparation and
presentation of the revised forecast.
In our opinion, the accompanying forecast is presented in conformity with
guidelines for presentation of a forecast established by the American
Institute of Certified Public Accountants and the underlying assumptions
provide a reasonable basis for management's forecast. However, there will
usually be differences between the forecasted and actual results, because
events and circumstances frequently do not occur as expected; and those
differences may be material. We have no responsibility to update this
report for events and circumstances occurring after the date of this
report.
Coopers & Lybrand L.L.P.
San Francisco, California
11 December 1995
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
4. APPENDIX L -- HOMESTAKE FORM 10-Q FOR THE QUARTER ENDED
30 SEPTEMBER 1995.
The Homestake Form 10-Q Report for the Quarter Ended 30 September 1995 is
contained herein as Appendix L, and is incorporated by reference in the
Offer Document. The Revised Pro Forma Condensed Consolidated Financial
Information contained in this Supplement #2 was prepared subsequent to
and supersedes the Pro Forma Financial Information contained in the Form
10-Q Report for the Quarter Ended 30 September 1995.
5. PERIOD OF OFFER
Unless extended, the Offer will remain open for acceptance until 5.00 pm
Sydney time on 22 December 1995. Acceptances may be made in Sydney until
5.00 pm Sydney time on that date, or in New York City until 5.00 pm New
York City time on 21 December 1995.
6. HOW TO ACCEPT THE OFFER
If you hold shares in HGAL and have not accepted Homestake's Offer,
Homestake recommends that you take appropriate action as soon as
possible. If you wish to accept Homestake's Offer, you should ensure that
your valid acceptance is received by Homestake by the closing date. Each
business day in Sydney, Ernst & Young Registry Services Pty Limited will
endeavour to process all valid acceptances received during the preceding
business day. In any event, you will be sent the consideration due to you
within 7 days of receipt of your valid acceptance.
If you hold certificates for your HGAL shares, you may only accept
Homestake's Offer by completing and executing the Form of Acceptance and
Transfer enclosed with the Offer Document, and sending it together with
the certificates for your HGAL shares to:
<TABLE>
<CAPTION>
IN AUSTRALIA IN THE UNITED STATES
- --------------------------------------------------------------------- ----------------------------------------------
<S> <C>
Ernst & Young Registry Services Pty Limited BancBoston Trust Company of New York
GPO Box 7045 55 Broadway
Sydney NSW 2001 3rd Floor
or New York, New York 10001
Level 2
321 Kent Street
Sydney NSW 2000
</TABLE>
If you hold your HGAL shares in a CHESS holding, you should instruct your
broker (or whoever is the controlling participant for your holding) to
initiate acceptance of the Offer in accordance with the business rules of
the Securities Clearing House before the end of the offer period.
- --------------------------------------------------------------------------------
20
<PAGE>
L-1
- --------------------------------------------------------------------------------
APPENDIX L
HOMESTAKE FORM 10-Q FOR THE QUARTER ENDED 30 SEPTEMBER 1995
- --------------------------------------------------------------------------------
<PAGE>
L-2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Quarterly Period Ended September 30, 1995
( ) Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from _______ to ________
Commission File Number 1-8736
HOMESTAKE MINING COMPANY
A Delaware Corporation
IRS Employer Identification No. 94-2934609
650 California Street
San Francisco, California 94108-2788
Telephone: (415) 981-8150
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
________ ______
The number of shares of common stock outstanding as of October 31, 1995 was
137,959,336.
Page 1
<PAGE>
L-3
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- -----------------------------
A. Condensed Consolidated Balance Sheets (unaudited)
-------------------------------------
(In thousands, except per share amount)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents ....................................................... $ 131,869 $ 105,701
Short-term investments ..................................................... 107,827 99,479
Receivables ................................................................ 58,688 58,994
Inventories:
Finished products ....................................................... 12,925 15,004
Ore and in-process ...................................................... 27,903 26,889
Supplies ................................................................ 29,602 29,822
Other ...................................................................... 9,226 6,910
----------- -----------
Total current assets .................................................... 378,040 342,799
----------- -----------
Property, plant and equipment - at cost ........................................ 1,638,963 1,579,502
Accumulated depreciation, depletion and amortization ....................... (844,078) (771,281)
----------- -----------
Property, plant and equipment - net ..................................... 794,885 808,221
----------- -----------
Investments and other assets
Noncurrent investments ..................................................... 36,883 15,774
Other assets ............................................................... 29,672 35,174
----------- -----------
Total investments and other assets ...................................... 66,555 50,948
----------- -----------
Total Assets ................................................................... $ 1,239,480 $ 1,201,968
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................................... $ 31,453 $ 35,674
Accrued liabilities:
Payroll and other compensation .......................................... 21,051 22,178
Reclamation ............................................................. 11,546 15,266
Other ................................................................... 18,235 16,694
Income and other taxes payable ............................................. 6,569 7,083
----------- -----------
Total current liabilities ............................................... 88,854 96,895
----------- -----------
Long-term liabilities
Long-term debt ............................................................. 185,000 185,000
Other long-term obligations ................................................ 116,625 110,719
----------- -----------
Total long-term liabilities ............................................. 301,625 295,719
----------- -----------
Deferred income and mining taxes ............................................... 153,634 136,274
Minority interests in consolidated subsidiaries ................................ 98,804 84,310
Shareholders' equity
Capital stock, $1 par value per share:
Preferred - 10,000 shares authorized; no shares outstanding
Common - 250,000 shares authorized; shares outstanding:
1995 - 137,954; 1994 - 137,785 ........................................ 137,954 137,785
Other shareholders' equity ................................................. 458,609 450,985
----------- -----------
Total shareholders' equity .............................................. 596,563 588,770
----------- -----------
Total Liabilities and Shareholders' Equity ..................................... $ 1,239,480 $ 1,201,968
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
L-4
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
B. Condensed Statements of Consolidated Income (unaudited)
-------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues
Gold and ore sales ..................... $ 164,176 $ 156,276 $ 502,301 $ 479,636
Sulphur and oil sales .................. 9,334 7,322 31,701 17,918
Interest income ........................ 4,085 2,723 12,686 6,673
Equity earnings ........................ 1,223 812 1,684 2,312
Gain on issuance of stock by subsidiary 11,224
Other income (expense) ................. 2,610 (142) 8,578 23,709
--------- --------- --------- ---------
181,428 166,991 556,950 541,472
--------- --------- --------- ---------
Costs and Expenses
Production costs ....................... 119,356 111,326 355,625 327,389
Depreciation, depletion and amortization 25,240 19,419 73,866 60,613
Administrative and general expense ..... 8,926 9,028 28,977 27,868
Exploration expense .................... 7,221 6,943 19,387 14,944
Interest expense ....................... 2,551 2,345 8,324 7,872
Other expense .......................... 404 390 2,155 6,154
--------- --------- --------- ---------
163,698 149,451 488,334 444,840
--------- --------- --------- ---------
Income Before Taxes and Minority Interest .... 17,730 17,540 68,616 96,632
Income and Mining Taxes ...................... (7,883) (5,055) (33,091) (23,333)
Minority Interest ............................ (4,902) (1,636) (12,841) (5,281)
--------- --------- --------- ---------
Net Income ................................... $ 4,945 $ 10,849 $ 22,684 $ 68,018
========= ========= ========= =========
Net Income Per Share ......................... $ 0.04 $ 0.08 $ 0.16 $ 0.49
========= ========= ========= =========
Average Shares Used in the Computation ....... 137,949 137,742 137,891 137,717
========= ========= ========= =========
Dividends Per Common Share ................... $ 0.05 $ 0.05 $ 0.15 $ 0.125
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
L-5
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
C. Condensed Statements of Consolidated Cash Flows (unaudited)
------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
-------------------------------
<S> <C> <C>
Cash Flows from Operations
Net income ............................................. $ 22,684 $ 68,018
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization ........... 73,866 60,613
Deferred taxes, minority interest and other ........ 46,838 27,727
Gain on disposals of assets ........................ (4,956) (19,056)
Gain on issuance of stock by subsidiary ............ (11,224)
Effect of changes in operating working capital items (13,785) (30,059)
--------- ---------
Net cash provided by operations ........................ 124,647 96,019
--------- ---------
Investment Activities
Increase in short-term investments ..................... (8,348) (80,431)
Additions to property, plant and equipment ............. (58,142) (56,116)
Investment in Navan Resources plc ...................... (24,000)
Proceeds from sales of assets .......................... 10,554 22,792
Other .................................................. (144) (6,929)
--------- ---------
Net cash used in investment activities ................. (80,080) (120,684)
--------- ---------
Financing Activities
Common shares issued ................................... 2,286 4,928
Dividends paid ......................................... (20,685) (17,216)
Debt repayments ........................................ (8,352)
Stock issued by subsidiary ............................. 31,870
--------- ---------
Net cash provided by (used in) financing activities .... (18,399) 11,230
--------- ---------
Net increase (decrease) in cash and equivalents .............. 26,168 (13,435)
Cash and equivalents, January 1 .............................. 105,701 134,719
--------- ---------
Cash and equivalents, September 30 ........................... $ 131,869 $ 121,284
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
L-6
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
- ----------------------------------------------------
1. The condensed consolidated financial statements included herein should
be read in conjunction with the financial statements and notes thereto,
which include information as to significant accounting policies, in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
The information furnished in this report reflects all adjustments
which, in the opinion of management, are necessary for a fair statement
of the results for the interim periods. Except as described in Notes 2
and 3, such adjustments consist of items of a normal recurring nature.
Results of operations for interim periods are not necessarily
indicative of results for the full year.
All dollar amounts are in United States dollars, unless otherwise
indicated.
2. In June 1994, Prime Resources Group Inc. (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 mine in Canada. This transaction resulted in a reduction of the
Company's interest in Prime from 54.2% to 50.6%. It is the Company's
policy to recognize in the income statement any gains or losses on the
issuance of stock of the Company's subsidiaries. The Company recorded
an $11.2 million gain in the second quarter of 1994 on the transaction
in recognition of the net increase in the book value of the Company's
investment in Prime. Deferred income taxes were not provided for on
the gain since the Company's tax basis in Prime substantially exceeds
its carrying value.
3. Other income for the nine months ended September 30, 1995 includes a
gain of $2.7 million on the February 1995 sale of the Company's 28%
equity interest in the Torres silver mining complex. Proceeds from this
sale totaled $6 million.
Other income for the nine months ended September 30, 1994 included a
$15.7 million gain on the May 1994 sale of the Company's 44% interest
in the Dee mine to Rayrock Mines, Inc. Total proceeds from this sale
were $16.5 million.
Other expense for the nine months ended September 30, 1994 included a
$5 million accrual for additional estimated reclamation costs for
non-operating properties.
4. Under the Company's foreign currency protection program, the Company
has entered into a series of foreign currency option contracts which
established trading ranges within which the United States dollar may be
exchanged for foreign currencies by setting minimum and maximum
exchange rates. Option contracts outstanding as of September 30, 1995
were as follows:
<TABLE>
<CAPTION>
Amount Covered Exchange Rates to U.S. $ Expiration
Currency (U.S. Dollars) Minimum Maximum Date
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian $118,900,000 0.67 0.77 1995-1997
Australian 49,900,000 0.68 0.76 1995-1996
--------------------
$168,800,000
</TABLE>
5. In the fourth quarter of 1994, the Company entered into forward sales
for 183,200 ounces of gold it expected to produce at the Nickel Plate
mine during 1995 and 1996. 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. Results for the
three and nine months ended September 30, 1995 include sales under
this program of 22,500 ounces and 65,400 ounces at an average price of
$400 per ounce and $394 per ounce, respectively. At September 30, 1995
forward sales for 117,800 ounces at an average price of $421 per ounce
remain outstanding under this program. In October 1995, the Company
closed out forward sales contracts covering 24,400 ounces for delivery
in 1996.
5
<PAGE>
L-7
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
6. In July 1995, the Company acquired for $24 million a 10% interest
(fully-diluted) in Navan Resources plc (Navan) and an option to acquire
50% of Navan's interest in the Chelopech gold-copper mining operations
located 45 miles east of Sofia, Bulgaria. Navan is an Irish public
company with diverse mineral interests in Europe. The Company currently
is conducting a study to determine the feasibility of increasing the
annual rate of production at the Chelopech mine. Once the feasibility
study is completed, the Company can acquire 50% of Navan's interest in
the Chelopech operations by investing an additional $48 million, which
would be used to fund a portion of the cost of the expansion.
7. The Company's income and mining tax rate for the nine months ended
September 30, 1995 was 48% compared to 24% for the comparable period of
1994. The 1994 rate was low due to the availability of certain tax
benefits. The higher effective tax rates experienced in 1995 will
continue as the tax benefits available in 1994 have been utilized and
the major portion of the Company's current earnings are in
jurisdictions with higher income and mining tax rates.
The Company's deferred tax liability of $136.3 million at December 31,
1994 was comprised of gross deferred tax liabilities of $215.2 million
less net deferred tax assets of $78.9 million. Deferred tax assets were
net of deferred tax asset valuation allowances of $49.8 million. The
Company's deferred tax valuation allowances represent the portion of
its consolidated deferred tax assets which, based on projections at
December 31, 1994, the Company does not believe that realization is
more likely than not. The $49.8 million of deferred tax valuation
allowances is comprised of United States, Chile and Australia
unrealizable deferred tax assets of $29.2 million, $16.4 million and
$4.2 million, respectively.
The largest portion of the $49.8 million of unrealizable deferred tax
assets is comprised of $23.0 million of future tax benefits (United
States - $18.8 million and Australia - $4.2 million) relating to
expenses (previously charged against consolidated book earnings) that
the Company projects will not be deductible for tax return purposes
until after the year 2009. In projecting U.S. source income beyond this
period, the Company currently does not meet the "more likely than not"
criteria required to recognize the U.S. tax benefit. In addition, there
currently is not a tax strategy which would result in the realization
of the Australian benefit. The remaining $26.8 million principally is
comprised of future tax benefits relating to net operating loss
carry-forwards in Chile and the United States that the Company projects
it will be unable to utilize.
8. In 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. (SFAS) 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, and, if deemed impaired, measurement and
recording of an impairment loss be based on the fair value of the
asset which generally will be computed based on the discounted cash
flows arising from such asset. The Company expects to adopt SFAS 121
for the year beginning January 1, 1996. Based on current carrying
values and estimated undiscounted cash flows of the Company's
long-lived assets, the Company currently does not expect any income
statement impact upon adopting SFAS 121.
9. The Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) imposes heavy liabilities on persons who discharge
hazardous substances. The Environmental Protection Agency (EPA)
publishes a National Priorities List (NPL) of known or threatened
releases of such substances.
An 18-mile stretch of Whitewood Creek in the Black Hills of South
Dakota is a site on the NPL. The EPA asserted that discharges of
tailings by mining companies, including the Company, for more than 100
years have contaminated soil and water. In 1990, the Company signed a
consent decree with the EPA 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 monitoring required by the decree, including EPA
oversight costs, will be less than $1 million. The EPA has certified
that the Company has fully performed remedial actions required by the
decree. The EPA also has notified the Company of its intention to move
forward with the deletion of this site from the NPL, and the Company
expects deletion to occur in the near future.
6
<PAGE>
L-8
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
The tailings facility at the Company's discontinued uranium mill near
Grants, New Mexico, is a site on the NPL. The EPA asserted that leakage
from the tailings 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 off-site are below natural
background levels. The Company has decommissioned and disposed of the
mills and has closed the tailings impoundments at the site. The
estimated costs of continued compliance are included in the accrued
reclamation liability. All EPA oversight costs for the site have been
paid and no additional oversight costs are accruing.
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 years 1994 and 1995
to eligible licensees. In 1994, the Company submitted an initial claim,
which has been approved by the DOE for $13.9 million, for the DOE's
share of past costs incurred through December 31, 1993. A claim for
$7.3 million was submitted in 1995 for 1994 expenditures. The Company
expects to file additional claims on an annual basis for expenditures
made in the preceding year. The accompanying balance sheet at September
30, 1995 includes a receivable of $11.4 million from the DOE for claims
filed, net of $9.8 million reimbursements received through that date.
The Company believes that its reclamation reserves for uranium
operations and amounts expected to be received under the Act are
sufficient to provide for all reclamation costs for the Grants site.
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.
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. The Company believes the disposition of
these matters will not have a material adverse effect on its financial
position or results of operations.
10. On August 14, 1995 the Company announced its intention to acquire the
18.5% of Homestake Gold of Australia Limited (HGAL) it does not
already own. Homestake's offer of .089 of a Homestake share or A$1.90
in cash for each of the 109,605,000 HGAL shares held by the public was
mailed to the HGAL shareholders on October 31, 1995. This offer will
remain open until December 5, 1995. The offer is not subject to any
minimum level of acceptance or any other condition. In accordance with
Australian securities laws, the Company intends to compulsorily
acquire any minority shares of HGAL remaining following the offer. The
Company will be entitled to compulsorily acquire any remaining shares
if it is successful in acquiring at least 90% of all HGAL shares
before the close of the offer, and at least 75% of the shareholders
have disposed of their HGAL shares to the Company or at least 75% of
the HGAL shareholders, registered immediately before the day on which
the offering document was served on HGAL, cease to be registered as
HGAL shareholders within one month after the end of the offer period.
The following Pro Forma Condensed Consolidated Financial Statements
have been prepared to illustrate the estimated effects of the proposed
acquisition (the "Acquisition") of the 109,605,000 shares of HGAL not
presently owned by the Company. The Acquisition will be accounted for
as a purchase under U.S. GAAP. The Pro Forma Condensed Consolidated
Financial Statements include a Pro Forma Condensed Consolidated Balance
Sheet as of September 30, 1995, assuming the Acquisition occurred as of
that date,
7
<PAGE>
L-9
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
and a Pro Forma Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1995, assuming that the Acquisition
occurred on January 1, 1995.
The Pro Forma Condensed Consolidated Financial Statements are presented
utilizing the purchase method of accounting whereby the cost of
acquiring the 18.5% of HGAL not already owned by the Company is
determined by the value of the shares and the cash which the Company
will exchange, plus the direct costs associated with the Acquisition,
which are estimated to be approximately $3 million. The Pro Forma
Condensed Consolidated Financial Statements do not purport to represent
what the financial position or results of operations actually would
have been if the Acquisition had occurred at the beginning of the
periods or to project the financial position or results of operations
for any future date or period.
The Pro Forma Condensed Consolidated Financial Statements should be
read in conjunction with the historical consolidated financial
statements, including the notes thereto, of the Company. The Pro Forma
Condensed Consolidated Financial Statements also include pro forma
adjustments which are based on available information and certain
assumptions that management of the Company believes are reasonable in
the circumstances. Such pro forma adjustments reflect the effects of
the Acquisition of all of the HGAL shares not already owned by the
Company, assuming 50% of HGAL shares are exchanged for Homestake common
stock and 50% of HGAL shares are acquired for cash.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Homestake Pro Forma
Historical Adjustments Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents ................................................... $ 131,869 $ (81,000)(A) $ 50,869
Short-term investments ................................................. 107,827 107,827
Receivables ............................................................ 58,688 58,688
Inventories ............................................................ 70,430 70,430
Other .................................................................. 9,226 9,226
---------- ---------- ----------
Total current assets ................................................ 378,040 (81,000) 297,040
---------- ---------- ----------
Property, plant and equipment - net ......................................... 794,885 189,100 (A) 983,985
---------- ---------- ----------
Investments and other assets
Noncurrent investments ................................................. 36,883 36,883
Other assets ........................................................... 29,672 29,672
---------- ----------
Total investments and other assets .................................. 66,555 66,555
---------- ---------- ----------
Total Assets ................................................................ $1,239,480 $ 108,100 $1,347,580
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities ......................................................... $ 88,854 $ 88,854
---------- ----------
Long-term liabilities
Long-term debt ......................................................... 185,000 185,000
Other long-term obligations ............................................ 116,625 116,625
---------- ----------
Total long-term liabilities ......................................... 301,625 301,625
---------- ----------
Deferred income and mining taxes ............................................ 153,634 $ 50,000 (A) 203,634
---------- ---------- ----------
Minority interests in consolidated subsidiaries ............................. 98,804 (24,800)(A) 74,004
---------- ---------- ----------
Shareholders' equity ........................................................ 596,563 82,900 (A) 679,463
---------- ---------- ----------
Total Liabilities and Shareholders' Equity .................................. $1,239,480 $ 108,100 $1,347,580
========== ========== ==========
</TABLE>
8
<PAGE>
L-10
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
[FN]
(A) To reflect the acquisition of the 109,605,000 HGAL shares that
Homestake does not presently own, assuming the issuance of
4,877,500 Homestake shares valued at $82,900 and the payment
of $78,000 in cash, plus acquisition and related costs of
$3,000. Accordingly, the total pro forma acquisition cost is
$163,900 compared to the book value for minority interest of
$24,800. The actual purchase price will be determined based
upon the value of the Homestake shares issued and cash paid
for the purchase of the HGAL shares acquired. As discussed
below, it is the Company's opinion that substantially all of
the purchase price in excess of the net book value of HGAL is
attributable to the mineral property interests held by HGAL.
The excess purchase price paid over the net book value of
assets acquired and related deferred taxes is allocated as
follows:
<TABLE>
<S> <C>
Total Purchase Price $163,900
Net Book Value of Minority Interest in HGAL, September 30, 1995 24,800
--------
Excess of Purchase Price Paid over Net Book Value of
Assets Acquired Attributed to Mineral Properties 139,100
Increase in Mineral Properties Due to the Recognition of the
Deferred Tax Consequences of Differences Between the
Assigned Values and Tax Bases of the Net Assets Acquired 50,000
-------
Total Increase in Property, Plant and Equipment 189,100
Increase in Deferred Taxes (50,000)
--------
Excess of Purchase Price Paid over Net Book Value of
Assets Acquired $139,100
========
</TABLE>
With the exception of property, plant and equipment, the
assets and liabilities of HGAL included in Homestake's
consolidated financial statements consist primarily of working
capital items, the carrying values of which are substantially
at fair market value. Based on the history of the Kalgoorlie
property and the identification and development of mineral
deposits and their conversion to ore reserves, the financial
analysis undertaken by the Company in connection with its
decision to acquire the additional 18.5% of HGAL, and the
Company's experience in ownership and operation at Kalgoorlie
and other long-life mines, it is the Company's opinion that
all of the purchase price in excess of the net book value of
assets acquired is attributable to mineral properties at
Kalgoorlie. The Company used discounted cash flow analysis to
determine the allocation of the purchase price between
reserves and other mineral deposits. This analysis indicated
that approximately 62% of the purchase price allocated to
mineral properties is attributable to reserves and the
remainder is attributable to other mineral deposits and
mineral properties, as follows:
<TABLE>
Purchase Price Allocated to Property Plant and Equipment:
<S> <C>
Acquisition of minority interests' share of
property, plant and equipment $ 28,600
Allocation of excess purchase price 189,100
---------
$217,700
=========
Allocation of Property, Plant and Equipment:
Proven and probable reserves:
Minority interests' share of property,
plant and equipment acquired $ 28,600
Excess purchase price allocation 106,200
---------
134,800 (62%)
Other mineral deposits and mineral
properties, allocation of excess purchase price 82,900 (38%)
---------
$ 217,700 (100%)
=========
The final allocation of the purchase price will be made when
the acquisition is completed and when the Company completes
its annual detailed analysis of reserves as of December 31,
1995. However, management does not expect the final actual
allocation of the purchase price to be materially different
from the pro forma balance sheet.
</TABLE>
9
<PAGE>
L-11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1995
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Homestake Pro Forma
Historical Adjustments Pro Forma
----------------- --------------- -----------------
<S> <C> <C> <C>
Revenues
Product sales $ 534,002 $ 534,002
Interest income 12,686 $ (3,600)(A) 9,086
Other income 10,262 10,262
----------------- --------------- -----------------
556,950 (3,600) 553,350
----------------- --------------- -----------------
Costs and Expenses
Production costs 355,625 355,625
Depreciation, depletion and amortization 73,866 4,200 (B) 78,066
Administrative and general expense 28,977 28,977
Exploration expense 19,387 19,387
Interest expense 8,324 8,324
Other expense 2,155 2,155
----------------- --------------- -----------------
488,334 4,200 492,534
----------------- --------------- -----------------
Income Before Taxes and Minority Interest 68,616 (7,800) 60,816
Income and Mining Taxes (33,091) 1,800 (C) (31,291)
Minority Interest (12,841) 1,076 (D) (11,765)
----------------- --------------- -----------------
Net Income $ 22,684 $ (4,924) $ 17,760
================= =============== =================
Net Income Per Share $ 0.16 $ 0.12
================= =================
Average Shares Used in the Computation (thousands) 137,891 142,769
================= =================
</TABLE>
[FN]
(A) To eliminate interest income, based on the year-to-date
average earnings rate of approximately 6% per annum, in
respect of the assumed cash component of the HGAL purchase
price in the amount of $81,000.
(B) To record amortization of the excess purchase price paid over
the net book value of assets acquired, using the
units-of-production method, as follows:
<TABLE>
(Tabular amounts in thousands, except per ounce amount)
<S> <C>
1)Excess purchase price allocated to proven
and probable reserves $ 106,200
2)Estimate of HGAL's share of
ounces of gold to be recovered
based on Homestake's estimate of 6.75 million ounces contained
in reserves and an estimated recovery rate of 89% 6,007
3)Estimate of recoverable ounces attributed to minority interests'
18.5% of HGAL 1,111
4)Amortization rate per ounce ((1) divided by (3)) $ 95.60
5)HGAL's year-to-date September 1995 ounces of gold produced 238.7
6)Minority interests' share of HGAL's year-to-date September
1995 production 44.2
7)Pro forma amortization adjustment ((4) times (6)) $ 4,200
(C) To record the tax effects of adjustments (A) and (B) above.
(D) To eliminate the minority interests' share of HGAL's earnings.
</TABLE>
10
<PAGE>
L-12
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial Condition
- ----------------------------------------------------------------------
and Results of Operations
- -------------------------
Results of Operations
(Unless specifically stated otherwise, the following information relates to
amounts included in the consolidated financial statements including the
Company's interests in mining partnerships accounted for using the equity
method, without reduction for minority interest.)
Homestake recorded net income of $4.9 million or 4 cents per share in the third
quarter of 1995 compared to $10.8 million or 8 cents per share in the third
quarter of 1994. The lower 1995 third quarter earnings primarily reflect a
temporary production decline at the Kalgoorlie operations in Western Australia
where a major mill expansion was completed during the quarter, fewer ounces
produced at certain operations in the United States, and a higher effective
income and mining tax rate. Year-to-date net income of $22.7 million or 16 cents
per share compares to 1994 year-to-date net income of $68.0 million or 49 cents
per share. The lower earnings in 1995 reflect $23.8 million of nonrecurring
gains included in the year-to-date 1994 results and a higher income and mining
tax rate in 1995. The 1994 year-to-date net income included nonrecurring pretax
gains of $15.7 million ($12.6 million after tax) on the sale of the Company's
interest in the Dee mine and $11.2 million ($11.2 million after tax) from
dilution of the Company's interest in Prime Resources Group Inc. (Prime)
following Prime's sale of additional shares to the public.
Consolidated production increased 10% to 453,400 ounces in the third quarter of
1995 compared to the prior year's third quarter as a result of production from
the new Eskay Creek mine, partially offset by production declines at other
operations. Revenues from gold operations totaled $164.2 million in the third
quarter of 1995 compared to revenues of $156.3 million in third quarter of 1994.
The higher 1995 third quarter revenues reflect a 9% increase in the ounces of
gold sold. During the third quarter of 1995, the Company sold 457,000 equivalent
ounces of gold at an average realized price of $385 per ounce compared to
417,500 ounces of gold sold at an average realized price of $384 per ounce
during the third quarter of 1994.
In January 1995, commercial production began at the new Eskay Creek mine in
British Columbia. Eskay Creek sold ore containing 48,200 ounces of gold and 2.2
million ounces of silver, equivalent to approximately 79,000 ounces of gold
during the 1995 third quarter. Cash costs, including the costs of third-party
smelters, were $187 per equivalent ounce during the third quarter of 1995. Eskay
Creek's first year of operation continues to exceed expectations and the mine
now is expected to produce ore containing in excess of 310,000 ounces of gold
equivalent during 1995. A recent exploration drilling program at Eskay Creek was
successful in intersecting a high grade gold and silver zone which appears to be
a stratigraphic extension to the northeast end of the main ore zone. This zone,
which has the potential to add to the known reserves, is well located for mining
access from the current underground workings. Additional exploration drilling is
planned in 1996 for this zone and in the area surrounding the Eskay Creek mine.
Domestic production decreased by 5% to 184,500 ounces during the 1995 third
quarter, primarily due to temporary production declines at the Homestake mine in
South Dakota and the Round Mountain mine in Nevada, partially offset by
increased production at the McLaughlin mine in northern California. At the
Homestake mine, production was hampered during the 1995 third quarter by
processing harder than normal ore from the open pit. Steps have been taken to
increase mill throughput and production is expected to return to more normal
levels in the fourth quarter of this year. The Homestake mine produced 90,400
ounces at a cash cost of $316 per ounce during the third quarter of 1995
compared to 97,400 ounces at a cash cost of $295 per ounce during the third
quarter of 1994. Production at the Round Mountain mine decreased by 6,100 ounces
during the 1995 third quarter to 20,600 ounces compared to the prior year's
third quarter, reflecting lower grades and volumes of ore placed on the leach
pads earlier in the year. The quantity of ore placed on the pads was increased
during the 1995 third quarter. However, due to the time lag between the initial
loading and the commencement of leaching, the benefit of this additional tonnage
will not begin to be realized until the fourth quarter of this year. Round
Mountain mine cash costs were $261 per ounce in the third quarter of 1995
compared to $216 per ounce in the third quarter of 1994. Production at the
McLaughlin mine increased by 5% to 62,900 ounces during the 1995 third quarter
compared to the 1994 third quarter, primarily due to slightly higher grades. As
a result, cash costs per ounce decreased to $263 in the third quarter of 1995
from $267 in the third quarter of 1994. Gold production levels at the McLaughlin
mine are expected to decline significantly in 1996 as mining operations will
cease and production will be principally derived from processing lower grade
stockpiles.
11
<PAGE>
L-13
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Overall foreign gold production increased by 26% during the 1995 third quarter
compared to the prior year's third quarter primarily due to the commencement of
production at the Eskay Creek mine, partially offset by decreased production at
the Kalgoorlie operations and the El Hueso mine. Homestake Gold of Australia
Limited's (HGAL) share of production at the Kalgoorlie operations in Western
Australia was 72,000 ounces during the third quarter of 1995 compared to 84,400
ounces during the third quarter of 1994 reflecting a temporary decline in
production while the new Fimiston mill additions were integrated with the
existing complex. As a result, cash costs per ounce at Kalgoorlie increased to
$303 per ounce during the 1995 third quarter from $261 per ounce during the
prior year's third quarter. At the El Hueso mine in Chile, production decreased
from 14,100 ounces during the 1994 third quarter to 3,300 ounces during the 1995
third quarter primarily due to fewer tons leached. Gold mining at El Hueso
ceased in February 1995 and limited production from heap leaching is expected to
continue through 1995.
The Company's overall cash cost per ounce during the third quarter of 1995 was
$260 compared to $259 during the third quarter of 1994.
Main Pass 299 sulphur project revenues increased to $9.3 million during the 1995
third quarter from $7.3 million during the 1994 third quarter and operating
earnings were $0.7 million during the third quarter of 1995 compared to
operating earnings of $0.5 million during the prior year's quarter. The improved
results primarily are attributable to rising sulphur prices and an increase in
the sales volumes of oil.
Year to date, gold and ore sales totaled $502.3 million compared to 1994
year-to-date sales of $479.6 million primarily reflecting increased gold sales
volumes. The higher gold sales volumes are attributable to production from the
Eskay Creek mine, partially offset by temporary production declines at certain
other locations. Production exceeded sales by 1,600 ounces and 8,300 ounces in
the 1995 and 1994 year-to-date periods, respectively. The Company's average
realized price of gold was $385 for the first nine months of 1995 compared to
$384 for the first nine months of 1994.
Depreciation, depletion and amortization expense during the 1995 third quarter
of $25.2 million compares to $19.4 million during the 1994 third quarter, and
1995 year-to-date depreciation expense of $73.9 million compares to $60.6
million during the first nine months of 1994. The increase primarily is a result
of depreciation related to the Eskay Creek mine, partially offset by lower
depreciation due to lower production at other operations.
Exploration expense increased to $19.4 million during the first nine months of
1995 from $14.9 million during the prior year's comparable period. The increase
in exploration expense primarily is due to increased activity at the Ruby Hill
feasibility project in Nevada and continued work near the El Hueso mine and on
the El Foco concession in Venezuela. Exploration expenditures in 1995 will
continue to exceed the prior year's level of spending as the Company pursues
numerous attractive exploration targets and prospects. Total exploration
expenses for 1995 will be approximately $30 million compared to $21 million in
1994. In addition, approximately $9 million will be spent on in-mine exploration
in 1995 compared to $8.4 million in 1994.
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. In the fourth
quarter of 1994, the Company entered into forward sales for 183,200 ounces of
gold it expected to produce at the Nickel Plate mine during 1995 and 1996. 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.
Results for the three and nine months ended September 30, 1995 include sales
under this program of 22,500 ounces and 65,400 ounces at an average price of
$400 per ounce and $394 per ounce, respectively. At September 30, 1995 forward
sales for 117,800 ounces at an average price of $421 per ounce remain
outstanding under this program. In October 1995, the Company closed out forward
sales contracts covering 24,400 ounces for delivery in 1996.
A substantial portion of Homestake's gold sales are generated outside the United
States, principally in Canada and Australia. The value of these countries'
currencies can fluctuate significantly with the U.S. dollar. The Company has a
foreign currency protection program which establishes exchange rate ranges
within which a portion of U.S. dollar receipts from the sale of gold may be
converted into the currencies of these countries. Under existing SEC
pronouncements, contracts entered into under this program do not qualify for
hedge accounting and must be marked to market. At September 30, 1995 the Company
had a net unrealized gain of $1.0 million on open contracts.
12
<PAGE>
L-14
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Other income for the first nine months of 1995 includes a $2.7 million gain on
the February 1995 sale of the Company's 28% interest in the Torres mining
complex in Mexico, a $1.9 million gain on the sale of certain exploration
properties in Australia, and royalty income of $1.7 million. Other income for
the first nine months of 1994 included a $15.7 million gain on the sale of the
Company's 44% interest in the Dee mine in Nevada, royalty income of $2.6
million, $2.1 million of insurance proceeds, a $1.3 million gain related to the
sale of HGAL's Fortnum property and a net foreign currency exchange loss of $1.1
million.
The Company's income and mining tax rate for the first nine months of 1995 was
48% compared to 24% for the comparable period of 1994. The 1994 rate was low due
to the availability of certain tax benefits. The higher effective tax rates
experienced in 1995 will continue as the tax benefits available in 1994 have
been utilized and the major portion of the Company's current earnings are in
jurisdictions with higher income and mining tax rates.
At December 31, 1994 the Company had tax valuation allowances of $49.8 million.
While future circumstances could occur which would permit the Company to reduce
its $49.8 million deferred tax valuation allowances in 1995 and future years,
based on the Company's current projections it does not expect future reductions
to be material. Future events that would allow the Company to materially reduce
such allowances in the future would include (i) generating substantial taxable
income in Chile, (ii) an acceleration of the payment of the Company's
postretirement benefit obligation accrual and (iii) the Company no longer being
subject to the U.S. alternative minimum tax.
Income allocable to minority interests in consolidated subsidiaries increased to
$12.8 million during the first nine months of 1995 from $5.3 million in the
first nine months of 1994. This increase primarily is due to the income derived
from the Eskay Creek mine. Prime, which owns 100% of the Eskay Creek mine, is a
50.6% owned subsidiary of Homestake.
The Company evaluates its accruals for remediation, reclamation and site
restoration regularly. With respect to non-operating properties, the Company
believes it has fully provided for all remediation liabilities and for estimated
reclamation and site restoration costs. With respect to operating properties,
the Company is providing for estimated ultimate reclamation relating to ongoing
and end-of-mine life restoration and closure costs over the lives of its
individual operations using the units-of-production method. While the ultimate
amount of reclamation and site restoration costs to be incurred in the future is
uncertain, the Company has estimated that the aggregate amount of these costs,
plus remediation liabilities, will be $94 million. This figure does not include
approximately $16 million of reclamation costs at the Company's former uranium
facility at Grants, New Mexico, which will be funded by the United States
Federal Government. At September 30, 1995 the Company had accrued $52.1 million
for estimated ultimate reclamation and site restoration costs and remediation
liabilities. For additional discussion of certain environmental matters, see
note 9 to the condensed consolidated financial statements.
13
<PAGE>
L-15
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Gold Production
The following charts detail Homestake's gold production and cash operating costs
per ounce by location, and consolidated revenue, cash operating costs and
noncash costs per ounce.
<TABLE>
<CAPTION>
Production
(Ounces in thousands)
Three Months Ended Nine Months Ended
Percentage September 30, September 30,
Mine Interest (%) 1995 1994 1995 1994
-------------- --------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Homestake 100 90.4 97.4 291.5 298.0
McLaughlin 100 62.9 59.7 178.8 192.6
Round Mountain 25 20.6 26.7 63.7 86.0
Joint Ventures 10.6 9.6 26.6 30.2
----------- ----------- -------------- --------------
Total United States 184.5 193.4 560.6 606.8
Eskay Creek (1) 100 79.0 - 245.1 -
Williams 50 51.9 52.4 152.9 175.2
David Bell 50 25.1 26.1 65.3 79.4
Nickel Plate 100 21.0 19.4 64.9 65.9
Snip (2) 40 13.1 14.1 39.5 39.3
----------- ----------- -------------- --------------
Total Canada 190.1 112.0 567.7 359.8
Kalgoorlie, Australia 50 72.0 84.4 238.7 260.8
El Hueso, Chile 100 3.3 14.1 16.5 42.2
Mines Not Shown or Sold 3.5 8.6 15.4 29.7
----------- ----------- -------------- --------------
Total Production 453.4 412.5 1,398.9 1,299.3
Less Minority Interest 58.8 22.6 184.8 66.9
----------- ----------- -------------- --------------
Homestake's Share 394.6 389.9 1,214.1 1,232.4
=========== =========== ============== ==============
</TABLE>
14
<PAGE>
L-16
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (continued)
- ------------------------------------
<TABLE>
<CAPTION>
Cash Operating Costs
(Dollars per ounce)
Three Months Ended Nine Months Ended
Percentage September 30, September 30,
Mine Interest (%) 1995 1994 1995 1994
- ----- ------------ -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homestake 100 $316 $295 $304 $281
McLaughlin 100 263 267 239 244
Round Mountain 25 261 216 257 189
Joint Ventures 229 249 273 238
Eskay Creek (3) 100 187 - 185 -
Williams 50 214 203 223 196
David Bell 50 160 157 199 166
Nickel Plate 100 418 418 376 323
Snip (3) 40 189 186 174 182
Kalgoorlie 50 303 261 285 261
El Hueso, Chile 100 376 353 402 370
Mines Not Shown or Sold 173 198 151 217
Weighted Average $260 $259 $254 $246
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Per Ounce of Gold 1995 1994 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $385 $385 $385 $384
Cash Operating Costs 260 259 254 246
Noncash Costs (4) 54 49 51 48
<FN>
(1) Ounces produced are expressed on a gold equivalent basis and include
48,200 payable ounces of gold and 2.2 million payable ounces of silver
contained in ore sold to smelters in the 1995 third quarter, and
152,000 payable ounces of gold and 6.9 million payable ounces of silver
contained in ore sold to smelters in the 1995 year-to-date period.
(2) Includes ounces of gold contained in dore and concentrates.
(3) For comparison purposes, cash operating costs per ounce include
estimated third-party costs incurred by smelter owners and others to
produce marketable gold and silver.
(4) Includes depreciation, end-of-mine reclamation accruals, and
amortization of the cost of property acquisitions.
</FN>
</TABLE>
15
<PAGE>
L-17
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (continued)
- -------------------------------------
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations totaled $124.6 million in the first nine months of
1995 compared to $96.0 million in the first nine months of 1994. Working capital
at September 30, 1995 amounted to $289.2 million, including $239.7 in cash and
equivalents and short-term investments.
Capital additions of $58.1 million for the 1995 year-to-date period include
$42.1 million at the Kalgoorlie operations primarily for the Fimiston mill
expansion. The new Fimiston mill was commissioned in August 1995, increasing
milling capacity at the Kalgoorlie operations by approximately one million tons
per year and allowing for further planned expansion of the Super Pit. This
increase in milling capacity, together with processing improvements, will lower
milling costs at Kalgoorlie.
In June 1995, Homestake exercised its option to acquire 5% of Zoloto Mining Ltd.
for $1 million. Zoloto owns a 75% interest in the Pokrovskoye gold deposit
located in the Amur region of eastern Russia. Homestake and Zoloto are preparing
a feasibility study for the 2 million ounce deposit. Following completion of the
feasibility study, Homestake may exercise a second option to acquire an
additional 62% of Zoloto by paying a further $15 million, thereby acquiring a
50% indirect interest in the Pokrovskoye gold deposit.
In July 1995, the Company acquired for $24 million a 10% interest
(fully-diluted) in Navan Resources plc (Navan) and an option to acquire 50% of
Navan's interest in the Chelopech gold-copper mining operations located 45 miles
east of Sofia, Bulgaria. Navan is an Irish public company with diverse mineral
interests in Europe. The Company currently is conducting a study to determine
the feasibility of increasing the annual rate of production at the Chelopech
mine. Once the feasibility study is completed, the Company can acquire 50% of
Navan's interest in the Chelopech operations by investing an additional $48
million, which would be used to fund a portion of the cost of the expansion.
The Company has a $150 million line of credit under which borrowings may be
drawn in U.S. dollars, Canadian dollars, ounces of gold or any combination of
these. No amounts have been borrowed under this facility. The Company's total
debt outstanding at September 30, 1995 is $185 million. The Company has no
required debt payments until the year 2000.
On August 14, 1995 the Company announced its intention to acquire the 18.5% of
Homestake Gold of Australia Limited (HGAL) it does not already own. Homestake's
unconditional offer of .089 of a Homestake share or A$1.90 in cash for each of
the 109,605,000 HGAL shares held by the public was mailed to the HGAL
shareholders on October 31, 1995 and is expected to remain open until December
5, 1995.
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,
short-term investments, available lines of credit and future cash flows from
operations will be sufficient to fund the cash requirements for the acquisition
of the minority interests in HGAL and to meet normal operating requirements and
anticipated dividends.
Part II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- --------------------------
HGAL and Gold Mines of Kalgoorlie Limited and its affiliates (GMK) each own a
50% interest in the Kalgoorlie operations in Western Australia. Under certain
circumstances, GMK is entitled to more than 50% of the gold production sourced
from a specific area of the Kalgoorlie operations. The entitlement in excess of
50%, which is called the "disproportionate share", is calculated by a formula
linked to gold prices, production costs and capital costs. HGAL and GMK disagree
in respect to the interpretation and application of the formula for calculating
the disproportionate share, principally relating to the treatment of the capital
costs for the recent Fimiston expansion.
16
<PAGE>
L-18
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
On October 20, 1995 HGAL was served a writ of summons and a statement of claim
by GMK, North Kalgurli Mines Pty Ltd, et al v. Homestake Gold of Australia
Limited, et al, Supreme Court of Western Australia, Civ. No 2037 of 1995. GMK
claims a number of declarations relating to the correct interpretation and
application of the formula which calculates the disproportionate share. The
statement of claim also alleges that HGAL has received to date a greater
quantity of gold production than it is entitled to pursuant to the
Disproportionate Sharing Arrangement and that HGAL should account to GMK in
respect of the same. The quantity claimed is 8,313 ounces of gold having a value
of approximately $3.2 million. GMK also seeks damages from HGAL in respect of
damage it claims to have suffered because of the application of the formula
which calculates the disproportionate share. Kalgoorlie Consolidated Gold Mines
Pty Ltd, the manager of the Joint Venture, has been joined as the second
defendant to the action. HGAL is of the view that it will successfully defend
these proceedings.
Item 6.
(a) Exhibits Method of Filing
----------------
2 - Plan of acquisition and offer to purchase the 18.5%
of Homestake Gold of Australia Limited not already
owned by the Company (incorporated by reference
to the Registrant's Registration Statement No. 33-62667
on Form S-4, as amended by Post-Effective
Amendment No. 1 filed on October 19, 1995).
11 - Computation of Earnings Per Share Filed herewith
electronically
(b) Reports on Form 8-K
Two reports on Form 8-K were filed during the third quarter ended
September 30, 1995.
Report on Form 8-K dated August 14, 1995
----------------------------------------
The report dated August 14, 1995 announced the Company's intention to
make an offer to acquire the 18.5% of HGAL not already owned by
Homestake.
Report on Form 8-K dated August 25, 1995
----------------------------------------
The report dated August 25, 1995 announced the Company's intention to
file a registration statement under the Securities Act of 1933 with
respect to the shares expected to be issued to acquire the 18.5% of
HGAL not already owned by Homestake.
17
<PAGE>
L-19
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date: November 13, 1995 By: /s/ Gene G. Elam
------------------ ------------------
Gene G. Elam
Vice President, Finance
and Chief Financial Officer
Date: November 13, 1995 By: /s/ David W. Peat
------------------ ------------------
Controller (Chief
Accounting Officer)
18
<PAGE>
L-20
EXHIBIT 11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Computation of Earnings Per Share (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
PRIMARY 1995 1994 1995 1994
=========== =========== ============ ===========
<S> <C> <C> <C> <C>
Earnings:
Net income applicable to primary earnings
per share calculation $ 4,945 $ 10,849 $ 22,684 $ 68,018
=========== =========== ============ ===========
Weighted average number of shares outstanding 137,949 137,742 137,891 137,717
=========== =========== ============ ===========
Net income per share - primary $ 0.04 $ 0.08 $ 0.16 $ 0.49
=========== =========== ============ ===========
FULLY DILUTED
Earnings:
Net income $ 4,945 $ 10,849 $ 22,684 $ 68,018
Add: Interest relating to 5.5% convertible
subordinated notes, net of tax 1,629 1,629 4,888 4,888
Amortization of issuance costs relating
to 5.5% convertible subordinated notes,
net of tax 111 111 332 332
----------- ----------- ------------ -----------
Net income applicable to fully diluted
earnings per share calculation $ 6,685 $ 12,589 $ 27,904 $ 73,238
=========== =========== ============ ===========
Weighted average number of shares outstanding:
Common shares 137,949 137,742 137,891 137,717
Additional shares relating to conversion of
5.5% convertible subordinated notes 6,505 6,505 6,505 6,505
----------- ----------- ------------ -----------
144,454 144,247 144,396 144,222
=========== =========== ============ ===========
Net income per share - fully diluted(a) $ 0.05 $ 0.09 $ 0.19 $ 0.51
=========== =========== ============ ===========
<FN>
(a) This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
</FN>
</TABLE>
