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 June 30, 1996
( ) 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 July 31, 1996 was
146,672,000.
Page 1
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except per share amount)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 144,485 $ 145,957
Short-term investments 63,859 66,416
Receivables 46,574 58,046
Inventories:
Finished products 15,810 13,498
Ore and in-process 31,665 26,027
Supplies 31,847 30,454
Deferred income and mining taxes 20,521 20,521
Other 5,941 7,798
----------------- -----------------
Total current assets 360,702 368,717
----------------- -----------------
Property, plant and equipment - at cost 1,946,485 1,697,737
Accumulated depreciation, depletion and amortization (914,381) (850,961)
----------------- -----------------
Property, plant and equipment - net 1,032,104 846,776
----------------- -----------------
Investments and other assets
Noncurrent investments 36,500 46,188
Other assets 59,848 59,952
----------------- -----------------
Total investments and other assets 96,348 106,140
----------------- -----------------
Total Assets $ 1,489,154 $ 1,321,633
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 33,274 $ 35,170
Accrued liabilities:
Payroll and other compensation 29,059 26,925
Reclamation 17,333 12,383
Other 11,704 14,629
Income and other taxes payable 12,129 9,314
----------------- -----------------
Total current liabilities 103,499 98,421
----------------- -----------------
Long-term liabilities
Long-term debt 185,000 185,000
Other long-term obligations 109,836 120,418
----------------- -----------------
Total long-term liabilities 294,836 305,418
----------------- -----------------
Deferred income and mining taxes 242,953 189,925
Minority interests in consolidated subsidiaries 84,463 92,012
Shareholders' equity
Capital stock, $1 par value per share:
Preferred - 10,000 shares authorized; no shares outstanding
Common - 250,000 shares authorized; shares outstanding:
1996 - 146,672; 1995 - 140,541 146,672 140,541
Other shareholders' equity 616,731 495,316
----------------- -----------------
Total shareholders' equity 763,403 635,857
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 1,489,154 $ 1,321,633
================= =================
</TABLE>
See notes to condensed consolidated financial statements.
2
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HOMESTAKE MINING COMPANY AND SUBSIDIARIES
B. Condensed Statements of Consolidated Income (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Gold and ore sales $ 186,723 $ 178,216 $ 370,223 $ 338,125
Sulphur and oil sales 7,370 10,213 15,793 22,367
Interest income 3,833 4,338 7,929 8,601
Equity earnings 360 541 747 461
Other income 3,206 2,282 9,608 5,968
--------------- -------------- -------------- --------------
201,492 195,590 404,300 375,522
--------------- -------------- -------------- --------------
Costs and Expenses
Production costs 122,704 117,835 247,956 236,269
Depreciation, depletion
and amortization 29,032 25,623 55,361 48,626
Administrative and general expense 9,249 10,760 18,963 20,051
Exploration expense 11,535 7,412 17,576 12,166
Interest expense 2,645 3,141 5,292 5,773
Other expense 786 1,054 1,019 1,751
--------------- -------------- -------------- --------------
175,951 165,825 346,167 324,636
--------------- -------------- -------------- --------------
Income Before Taxes and Minority
Interests 25,541 29,765 58,133 50,886
Income and Mining Taxes (14,745) (13,815) (28,605) (25,208)
Minority Interests (4,020) (4,771) (9,099) (7,939)
--------------- -------------- -------------- --------------
Net Income $ 6,776 $ 11,179 $ 20,429 $ 17,739
=============== ============== ============== ==============
Net Income Per Share $ 0.05 $ 0.08 $ 0.14 $ 0.13
=============== ============== ============== ==============
Average Shares Used in
the Computation 146,662 137,909 145,949 137,862
=============== ============== ============== ==============
Dividends Per Common Share $ 0.05 $ 0.05 $ 0.10 $ 0.10
=============== ============== ============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
3
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HOMESTAKE MINING COMPANY AND SUBSIDIARIES
C. Condensed Statements of Consolidated Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
---------------- ----------------
<S> <C> <C>
Cash Flows from Operations
Net income $ 20,429 $ 17,739
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 55,361 48,626
Deferred taxes, minority interests and other 23,799 27,179
Gains on disposals of assets (2,750) (4,823)
Effect of changes in operating working capital items 12,481 (2,806)
---------------- ----------------
Net cash provided by operations 109,320 85,915
---------------- ----------------
Investment Activities
Decrease in short-term investments 2,557 61
Additions to property, plant and equipment (69,475) (39,487)
Proceeds from asset sales 13,572 10,163
Purchase of HGAL minority interests (6,435) -
Purchase of interest in Snip mine (39,279) -
Other 1,692 324
---------------- ----------------
Net cash used in investment activities (97,368) (28,939)
---------------- ----------------
Financing Activities
Common shares issued 2,349 1,914
Dividends paid - Homestake (14,674) (13,787)
- Prime minority interests (1,099) -
---------------- ----------------
Net cash used in financing activities (13,424) (11,873)
---------------- ----------------
Net increase (decrease) in cash and equivalents (1,472) 45,103
Cash and equivalents, January 1 145,957 105,701
---------------- ----------------
Cash and equivalents, June 30 $ 144,485 $ 150,804
================ ================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (unaudited)
1. The condensed consolidated financial statements included herein should
be read in conjunction with the financial statements and notes thereto,
which include information as to significant accounting policies, in the
Company's Annual Report on Form 10-K for the year ended December 31,
1995.
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
through 5, 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 the fourth quarter of 1995, the Company made an unconditional offer
to acquire the 18.5% of Homestake Gold of Australia Limited ("HGAL")
it did not already own. Homestake offered 0.089 of a Homestake share
or A$1.90 in cash for each of the 109.6 million HGAL shares owned by
the public. Through December 31, 1995 a total of 38.9 million HGAL
shares were acquired at a cost of $59.1 million, including $42.4
million for 2.6 million newly issued shares of the Company, $14.5
million in cash and $2.2 million of transaction expenses. At
December 31, 1995 Homestake owned 88.1% of the shares of HGAL. The
acquisition was completed in the first quarter of 1996 when the
remaining 70.7 million publicly held HGAL shares were acquired at a
cost of $105.8 million, including $99.3 million for 6.0 million newly
issued shares of the Company, $5.0 million in cash and $1.5 million of
transaction expenses. The total purchase price to acquire all of the
18.5% of HGAL held by the minority shareholders was $164.9 million,
including $141.7 million for 8.5 million newly issued shares of the
Company, $19.5 million in cash and $3.7 million of transaction
expenses.
The acquisition of the HGAL minority interests was accounted for as a
purchase. For accounting purposes, the HGAL shares acquired in the
fourth quarter of 1995 and in the first quarter of 1996 are assumed to
have been acquired effective as of December 31, 1995 and January 1,
1996, respectively. Based upon the total purchase price of $164.9
million, the excess of the purchase price paid over the net book value
of the minority interests acquired was $140.7 million. Substantially
all of the excess purchase price is attributable to mineral property
interests and is being amortized in accordance with the Company's
accounting policies for mineral properties.
On a pro forma basis, assuming that the acquisition of the HGAL
minority interests occurred on January 1, 1995, revenues, net income
and net income per share for the six months ended June 30, 1995 have
been estimated at $374.8 million, $16.3 million and $0.11 per share,
respectively. This pro forma information includes adjustments which are
based on available information and certain assumptions that management
of the Company believes are reasonable in the circumstances. The pro
forma information does not purport to represent what the results of
operations actually would have been had the acquisition of the HGAL
minority interests occurred on January 1, 1995 or to project the
results of operations for any future date or period.
3. On April 30, 1996 the Company's 50.6%-owned subsidiary, Prime Resources
Group Inc. ("Prime"), purchased Cominco Ltd.'s ("Cominco") 60% interest
in the Snip mine in British Columbia for approximately $39.3 million in
cash. The purchase price included Cominco's share of the mine's working
capital. Prime now owns 100% of the Snip mine.
4. In June 1996, the Company paid $51.4 million (A$65 million) to Gold
Mines of Kalgoorlie Limited ("GMK") to purchase all rights and
entitlements under the disproportionate sharing arrangement covering
gold production from a portion of the Super Pit operation in
Kalgoorlie, Western Australia. The Company will now share equally with
GMK in all gold produced at the Kalgoorlie operations.
5
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
5. In March, 1996 the Company received proceeds of $5.5 million from a
litigation recovery. A portion of the proceeds related to income taxes,
and accordingly, income tax expense was reduced by $2.6 million. The
remaining balance of $2.9 million was credited to other income.
Other income for the six months ended June 30, 1995 includes a gain of
$2.7 million on the sale of the Company's 28% equity interest in the
Torres silver mining complex. Proceeds from this sale totaled $6.0
million.
6. 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.
At June 30, 1996 the Company had forward currency contracts outstanding
as follows:
<TABLE>
<CAPTION>
Amount Covered Exchange Rates to U.S. Dollars Expiration
Currency (U.S. Dollars) Minimum Maximum Dates
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Canadian $ 93,800,000 0.67 0.77 1996-1997
Australian 28,700,000 0.76 0.82 1996-1997
----------------
$ 122,500,000
</TABLE>
7. During 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 was to allow for
recovery of the Company's remaining investment in the mine and provide
for estimated reclamation costs. Gold sales for the three and six
months ended June 30, 1996 include sales under this program of 23,200
ounces and 45,100 ounces at average prices of $421 per ounce and $418
per ounce, respectively. Gold sales for the three and six months ended
June 30, 1995 include sales under this program of 21,400 ounces and
42,900 ounces at average prices of $394 per ounce and $391 per ounce,
respectively. At June 30, 1996 forward sales for 24,900 ounces at an
average price of $427 per ounce remain outstanding.
8. Effective January 1, 1996 the Company adopted 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 using discounted cash flows. Based on the carrying
values and estimated future undiscounted cash flows of the Company's
long-lived assets, the Company did not record a cumulative effect 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, have contaminated
soil and water for more than 100 years. 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 and the consent decree was terminated
on January 10, 1996. The EPA published a notice on November 30, 1995 of
its intent to delete the site from the NPL. The Company estimates that
6
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
the remaining cost of monitoring, including EPA oversight costs, will
be approximately $1 million.
The Company's former uranium millsite near Grants, New Mexico is listed
on the NPL. The EPA asserted that leachate from the tailings
contaminated a shallow aquifer used by adjacent residential
subdivisions. The Company paid the costs of extending the municipal
water supply to the affected homes and continues to operate a water
injection and collection system that has significantly improved the
quality of the aquifer. The Company has decommissioned and disposed of
the mills and has covered the tailings impoundments at the site. The
total future cost for reclamation, remediation, monitoring and
maintaining compliance at the Grants site is estimated to be $24
million.
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 by-product 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 DOE is responsible for 51.2% of the past and future costs
of reclaiming the Grants site in accordance with Nuclear Regulatory
Commission license requirements. The accompanying balance sheet at June
30, 1996 includes a receivable of $18.7 million for the DOE's share of
reclamation expenditures made by the Company through 1995. The Company
believes that its share of the estimated remaining cost of reclaiming
the Grants facility, net of estimated proceeds from the ultimate
disposals of related assets, is fully provided in the financial
statements at June 30, 1996.
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 with
respect 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.
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 that the ultimate resolution of the above matters
will not have a material adverse impact on its financial condition or
results of operations.
7
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial Condition and 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 interests. Effective January 1, 1996
Homestake adopted the "Gold Institute Production Cost Standard" for reporting of
per ounce production costs. All per ounce production costs in this Form 10-Q are
presented on this basis.)
Results of Operations
Homestake recorded net income of $6.8 million or $0.05 per share during the
second quarter of 1996 compared to net income of $11.2 million or $0.08 per
share during the second quarter of 1995. The decrease in second quarter earnings
primarily was due to a 56% increase in exploration expenditures and higher
production costs. Year-to-date 1996 net income of $20.4 million or $0.14 per
share compares to year-to-date 1995 net income of $17.7 million or $0.13 per
share. The increased 1996 year-to-date earnings reflect higher production and
sales volumes and a higher average realized gold price, partially offset by
increased exploration expenditures and lower returns from the Main Pass 299
sulphur operations. In addition, the 1996 year-to-date results include $5.5
million of proceeds ($4.9 million after tax) from a litigation recovery.
Gold production increased by 9,200 ounces to a record 505,900 ounces produced
during the 1996 second quarter from 496,700 ounces produced during the prior
year's second quarter. Revenues from gold and ore sales totaled $186.7 million
during the second quarter of 1996 compared to $178.2 million during the second
quarter of 1995. During the 1996 second quarter, 512,100 equivalent ounces of
gold were sold at an average realized price of $389 per ounce compared to
495,600 equivalent ounces of gold sold at an average realized price of $388 per
ounce during the 1995 second quarter.
Domestic production decreased slightly to 201,200 ounces during the second
quarter of 1996 from 201,700 ounces during the prior year's second quarter,
primarily due to lower production at the McLaughlin mine in northern California
and the cessation of gold production in 1995 at the Santa Fe mine in Nevada,
partially offset by higher production at the Round Mountain mine in Nevada. The
McLaughlin mine produced 60,700 ounces during the second quarter of 1996
compared to 63,700 ounces during the second quarter of 1995. Although total cash
costs rose to $200 per ounce during the 1996 second quarter from $174 per ounce
during the 1995 second quarter, the increase was substantially less than
expected due to a higher-than-anticipated recovery rate. Mining operations at
McLaughlin ceased on June 27, 1996 as the orebody has been exhausted. The
autoclaves were decommissioned on June 28, 1996. For the next seven years,
lower-grade stockpiled ore will be processed through a conventional
carbon-in-pulp circuit. Gold production is projected at 120,000 ounces for 1997
compared to an estimated 180,000 ounces for the current year. During the 1996
second quarter, the Round Mountain mine produced 28,800 ounces, a 43% increase
over the 1995 second quarter production of 20,100 ounces. The higher production
and corresponding decrease in total cash costs to $230 per ounce from $240 per
ounce during the prior year's second quarter are a result of an increase in the
leaching capacity at the dedicated pad. At the Homestake mine in South Dakota,
gold production during the second quarter of 1996 was 103,200 ounces, slightly
exceeding the 102,400 ounces produced during the second quarter of 1995. Total
cash costs increased by 3% to $300 per ounce during the 1996 second quarter from
$291 per ounce during the 1995 second quarter.
Overall foreign gold production during the second quarter of 1996 increased by
3% to 304,700 ounces over the prior year's second quarter, primarily due to
production increases at the David Bell and Snip mines in Canada, partially
offset by production decreases at the Eskay Creek mine in British Columbia. Gold
production during the 1996 second quarter at the David Bell mine increased to
29,700 ounces from 20,100 ounces during the 1995 second quarter. The increase
8
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
in production resulted in a significant decline in total cash costs to $134
per ounce during the second quarter of 1996 from $199 per ounce during the
second quarter of 1995. In 1995, ground stability problems near the adjacent
Golden Giant mine shaft confined mining operations to lower-grade stopes. At the
Snip mine, gold production was 21,200 ounces during the 1996 second quarter
compared to 13,800 ounces during the 1995 second quarter. Prime Resources Group
Inc. ("Prime"), a 50.6%-owned subsidiary of Homestake, became the sole owner of
the Snip mine on April 30, 1996 when it purchased Cominco Ltd.'s ("Cominco") 60%
interest in this mine for $39.3 million. Total cash costs increased from $170
per ounce during the second quarter of 1995 to $192 per ounce during the second
quarter of 1996, primarily due to a 9% decline in ore grade, fewer tons milled
and a higher proportion of ore mined from conventional stopes versus larger,
mechanized stopes. Production of gold equivalent ounces at the Eskay Creek mine
amounted to 94,800 payable ounces at a total cash cost of $173 per equivalent
ounce during the 1996 second quarter compared to 100,900 payable ounces at a
total cash cost of $182 per equivalent ounce during the 1995 second quarter. The
gold grade returned to the reserve grade average during the second quarter of
1996 after being significantly higher during the previous year's second quarter.
Homestake Gold of Australia Limited's ("HGAL") share of production at the
Kalgoorlie operations in Western Australia decreased slightly to 77,200 ounces
during the 1996 second quarter from 77,800 ounces produced during the 1995
second quarter. Total cash costs, however, were substantially higher at $344 per
ounce during the second quarter of 1996 compared to $293 per ounce during the
prior year's second quarter. The increased total cash costs primarily are a
result of an 11% decrease in ore grade and a stronger Australian dollar. Total
cash costs measured in local currency increased by only 7%.
The Company's total consolidated cash cost per ounce was $246 during the
second quarter of 1996 compared to $239 during the second quarter of 1995.
Year-to-date 1996 revenues from gold and ore sales of $370.2 million were 9%
higher than year-to-date 1995 revenues of $338.1 million, reflecting higher gold
sales volumes and a higher average realized gold price. The higher gold sales
volumes primarily are attributable to production increases at the Eskay Creek
and David Bell mines and a 4,100 ounce decrease in finished gold inventory
during the 1996 first half compared to a 5,300 ounce increase during the 1995
first half. The Company's 1996 year-to-date average realized gold price was $395
per ounce compared to $385 per ounce for the 1995 year-to-date period. Total
cash costs for the first six months of 1996 were $252 per ounce, $2 higher than
the prior year's first half.
The Company's share of revenues from Main Pass 299 sulphur operations declined
to $7.4 million during the second quarter of 1996 from $10.2 million in the
second quarter of 1995. This decrease primarily is due to a weakening sulphur
market and lower sulphur prices, partially offset by higher oil prices. In
response to the weaker sulphur market, Main Pass 299 operations have temporarily
reduced production levels. During the 1996 second quarter, 78,700 tons of
sulphur were produced (Homestake's share) compared to 91,200 tons of sulphur
produced during the 1995 second quarter. Operating earnings from Main Pass 299
were $0.8 million during the second quarter of 1996 compared to $1.3 million
during the second quarter of 1995. Year-to-date 1996 revenues from Main Pass 299
were $15.8 million compared to year-to-date 1995 revenues of $22.4 million, and
year-to-date 1996 operating income declined to $1.1 million from year-to-date
1995 operating income of $3.4 million.
Depreciation, depletion and amortization expense increased to $29.0 million
during the second quarter of 1996 from $25.6 million during the second quarter
of 1995. This increase primarily is due to higher production and additional
amortization relating to the purchase of the HGAL minority interests.
Exploration expense increased to $17.6 million during the first six months of
1996 compared to $12.2 million during the first six months of 1995. This
increase primarily is due to increased
9
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
activity at the Chelopech feasibility study in Bulgaria, the Agua de la
Falda and El Foco projects in Chile and Venezuela and the Homestake mine Open
Cut project, in addition to exploration work at the Eskay Creek and Snip mines
and at the White Pine and Mountain View projects in Nevada. The higher level of
exploration expenditures will continue throughout the second half of 1996 as the
Company pursues numerous exploration targets and prospects.
The Company's general policy is to sell its production at current prices.
However, in certain limited circumstances, the Company will enter into forward
sales commitments for small portions of its gold production. During 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 was to allow for recovery of the Company's remaining
investment in the mine and provide for estimated reclamation costs. Gold sales
for the three and six months ended June 30, 1996 include sales under this
program of 23,200 ounces and 45,100 ounces at average prices of $421 per ounce
and $418 per ounce, respectively. Gold sales for the three and six months ended
June 30, 1995 include sales under this program of 21,400 ounces and 42,900
ounces at average prices of $394 per ounce and $391 per ounce, respectively. At
June 30, 1996 forward sales for 24,900 ounces at an average price of $427 per
ounce remain outstanding.
A significant portion of the Company's operating expenses is incurred in
Australian and Canadian currencies. The Company's profitability is impacted by
fluctuations in these currencies' exchange rates relative to the United States
dollar. 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
Australian and Canadian dollars. At June 30, 1996 there were no unrealized gains
or losses on open contracts.
Other income for the first six months of 1996 includes $2.9 million of income
related to the litigation recovery, a $1.7 million gain on the sale of certain
exploration properties in Australia, $1.4 million of royalty income, and a net
foreign currency exchange gain of $1.2 million. Other income for the first six
months of 1995 includes a $2.7 million gain on the sale of the Company's
interest in the Torres mining complex, a $1.9 million gain on the sale of
certain exploration properties in Australia, $1.2 million of royalty income and
a net foreign currency exchange loss of $1.8 million.
Income and mining tax expense for the first half of 1996 includes a $2.6 million
credit with respect to the litigation recovery relating to previously paid
income taxes. Excluding this credit, the Company's income and mining tax rate
for the first half of 1996 was 54% compared to 50% for the prior year's first
half. The Company's consolidated effective income and mining tax rate will
fluctuate depending on the geographical mix of its pretax income.
10
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
The following charts detail Homestake's gold production, cash operating costs
and total cash costs per ounce by location, and consolidated revenue and
production costs per ounce.
For the three months ended June 30:
<TABLE>
<CAPTION>
Production Cash Operating Costs (4) Total Cash Costs
(Ounces in thousands) (Dollars per ounce) (Dollars per ounce)
Mine (Percentage interest) 1996 1995 1996 1995 1996 1995
- -------------------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Homestake (100) 103.2 102.4 $289 $279 $300 $291
McLaughlin (100) 60.7 63.7 191 166 200 174
Round Mountain (25) 28.8 20.1 207 216 230 240
Marigold (33) 5.9 6.0 254 224 288 256
Pinson (26) 2.6 2.9 348 312 370 320
Santa Fe (100) - 6.6 - 95 - 116
---------- -----------
Total United States 201.2 201.7
Eskay Creek (100) (1,2) 94.8 100.9 170 179 173 182
Williams (50) 51.4 52.9 218 212 225 220
David Bell (50) 29.7 20.1 122 187 134 199
Quarter Claim (25) 2.8 2.7 156 111 167 123
Nickel Plate (100) 25.1 22.4 329 367 329 367
Snip (100) (2,3) 21.2 13.8 192 170 192 170
---------- -----------
Total Canada 225.0 212.8
Kalgoorlie, Australia (50) 77.2 77.8 344 293 344 293
El Hueso, Chile (100) 2.5 4.4 222 448 222 448
---------- -----------
Total Production 505.9 496.7 $238 $232 $246 $239
Less Minority Interests (57.3) (71.1)
---------- -----------
Homestake's Share 448.6 425.6
========== ===========
</TABLE>
For the six months ended June 30:
<TABLE>
<CAPTION>
Production Cash Operating Costs (4) Total Cash Costs
(Ounces in thousands) (Dollars per ounce) (Dollars per ounce)
Mine (Percentage interest) 1996 1995 1996 1995 1996 1995
- -------------------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Homestake (100) 208.5 201.1 $283 $286 $296 $297
McLaughlin (100) 114.8 115.9 229 216 237 224
Round Mountain (25) 48.7 43.1 229 228 254 251
Marigold (33) 12.8 10.7 228 240 263 271
Pinson (26) 4.8 5.3 398 356 419 363
Santa Fe (100) - 11.9 - 114 - 136
---------- -----------
Total United States 389.6 388.0
Eskay Creek (100) (1,2) 194.2 166.1 164 181 167 183
Williams (50) 95.0 101.0 238 219 246 227
David Bell (50) 52.5 36.5 146 212 158 223
Quarter Claim (25) 5.6 3.7 156 147 167 158
Nickel Plate (100) 51.8 43.9 329 354 329 354
Snip (100) (2,3) 33.0 26.4 190 166 190 166
---------- -----------
Total Canada 432.1 377.6
Kalgoorlie, Australia (50) 167.4 166.7 322 274 322 274
El Hueso, Chile (100) 4.9 13.2 231 412 231 412
---------- -----------
Total Production 994.0 945.5 $244 $243 $252 $250
Less Minority Interests (112.2) (126.0)
---------- -----------
Homestake's Share 881.8 819.5
========== ===========
</TABLE>
11
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Per Ounce of Gold 1996 1995 1996 1995
- ----------------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenue $389 $388 $395 $385
Cash Operating Costs (4) 238 232 244 243
Other Cash Costs (5) 8 7 8 7
Noncash Costs (6) 57 48 55 49
<FN>
(1) Gold and silver are accounted for as co-products at Eskay Creek.
Silver is converted to gold equivalent, using the ratio of the silver
market price to the gold market price. These ratios were 74 ounces and
71 ounces of silver equals one ounce of gold for the three months
ended June 30, 1996 and 1995, respectively, and 73 ounces and 75
ounces of silver equals one ounce of gold for the six months ended
June 30, 1996 and 1995, respectively. Eskay Creek production includes
51,700 (60,800 in 1995) payable ounces of gold and 3.2 million (2.9
million in 1995) payable ounces of silver contained in ore sold to
smelters in the second quarter, and 111,700 (103,800 in 1995) payable
ounces of gold and 6.0 million (4.7 million in 1995) payable ounces of
silver contained in ore sold to smelters in the year-to-date period.
(2) For comparison purposes, cash operating costs and total cash costs per
ounce include estimated third-party costs incurred by smelter owners
and others to produce marketable gold and silver.
(3) Includes ounces of gold contained in dore and concentrates. Prime's
ownership percentage in the Snip mine increased from 40% to 100%
effective April 30, 1996.
(4) Cash operating costs are costs directly related to the physical
activities of producing gold; includes mining, milling, third-party
smelting and in-mine exploration expenditures that are related to
production.
(5) Other cash costs are costs that are not directly related to, but may
result from, gold production; includes production taxes and royalties.
(6) Noncash costs are costs that typically are accounted for ratably over
the life of an operation; includes depreciation, depletion, final
reclamation and the amortization of the economic cost of property
acquisitions, but excludes amortization of SFAS 109 deferred tax
purchase adjustments relating to property acquisitions.
</TABLE>
Liquidity and Capital Resources
Cash provided by operations totaled $109.3 million in the first six months of
1996 compared to $85.9 million in the first six months of 1995. Working capital
at June 30, 1996 amounted to $257.2 million, including $208.3 million of cash
and equivalents and short-term investments.
Capital additions of $69.5 million for the first half of 1996 include $51.7
million at the Kalgoorlie operations, primarily for the purchase of all rights
and entitlements under the disproportionate sharing arrangement, $3.1 million at
the advanced-stage Ruby Hill project in Nevada, $2.4 million at the McLaughlin
mine for construction of a tailings lift, and $2.9 million at the Homestake
mine, primarily for numerous projects related to improving the efficiency of the
mine. Capital additions of $39.5 million during the first half of 1995 include
$31.8 million at the Kalgoorlie operations primarily for the Fimiston mill
expansion.
12
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
In the fourth quarter of 1995, the Company made an unconditional offer to
acquire the 18.5% of Homestake Gold of Australia Limited ("HGAL") it did not
already own. Homestake offered 0.089 of a Homestake share or A$1.90 in cash for
each of the 109.6 million HGAL shares owned by the public. Through December 31,
1995 a total of 38.9 million HGAL shares were acquired at a cost of $59.1
million, including $42.4 million for 2.6 million newly issued shares of the
Company, $14.5 million in cash and $2.2 million of transaction expenses. At
December 31, 1995 Homestake owned 88.1% of the shares of HGAL. The acquisition
was completed in the 1996 first quarter when the remaining 70.7 million publicly
held HGAL shares were acquired at a cost of $105.8 million, including $99.3
million for 6.0 million newly issued shares of the Company, $5.0 million in cash
and $1.5 million of transaction expenses. The total purchase price to acquire
all of the 18.5% of HGAL held by minority shareholders was $164.9 million,
including $141.7 million for 8.5 million newly issued shares of the Company,
$19.5 million in cash and $3.7 million of transaction expenses.
In March 1996, the Company exercised its option which will permit Homestake to
acquire from Navan Resources plc ("Navan") up to a 34% interest in Bimak AD
("Bimak"), the owner of the Chelopech gold/copper operations in Bulgaria by
investing an additional $48.0 million. Homestake acquired the option in 1995 in
connection with its investment of $24.0 million to acquire a 10% interest of
Navan, an Irish public company with diverse mineral interests in Europe. The
Company initially will advance up to $12.0 million, subject to the satisfaction
of certain conditions, principally receipt of certain permits from the Bulgarian
government for the expansion of mining at Chelopech from 500,000 to 750,000
metric tons per year and for construction of a roaster. Investment of the
remaining $36 million is conditional upon subsequent approval by the Bulgarian
government, Navan and Homestake of a further mine and mill expansion and the
securing of expansion financing.
On April 30, 1996 the Company's 50.6%-owned subsidiary, Prime, purchased
Cominco's 60% interest in the Snip mine for $39.3 million. The purchase included
Cominco's share of the mine's working capital. Prime now owns 100% of the Snip
mine.
In June 1996, the Company paid $51.4 million (A$65 million) to Gold Mines of
Kalgoorlie Limited ("GMK") to purchase all rights and entitlements under the
disproportionate sharing arrangement covering gold production from a portion of
the Super Pit operation in Kalgoorlie, Western Australia. The Company will now
share equally with GMK in all gold produced at the Kalgoorlie operations.
The Company has a $150 million revolving credit facility which is available
through September 30, 2000. This facility provides for borrowings denominated in
United States dollars, Canadian dollars, ounces of gold or any combination of
these. The credit agreement includes a minimum consolidated net worth
requirement of $500 million. No amounts have been borrowed under this facility.
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 meet normal operating requirements and
anticipated dividends.
Other
In 1995, in connection with Homestake's acquisition of the minority interests in
Homestake Gold of Australia Limited, Homestake issued a financial forecast for
the year ended December 31, 1996. The forecast was required under applicable
Australian law. The forecast was based upon a variety of assumptions regarding
gold production, the price of gold, exchange rates and other significant
matters. Based on an assumed average gold price of $395 per ounce, the forecast
estimated 1996 after-tax net income of $30.2 million ($0.21 per share).
13
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Homestake's earnings are very sensitive to changes in the price of gold.
Homestake's actual realized price during the first six months of 1996 was $395
per ounce. The average realized price of gold during July 1996 was $385 per
ounce. If Homestake realizes an average price of gold of $395 per ounce for the
last six months of 1996, Homestake does not expect that there will be a material
difference between actual and forecasted net income or net income per share for
1996. If Homestake were to realize an average price of $390 per ounce (rather
than $395 per ounce) of gold for the last six months of 1996, Homestake
estimates that the effect on net income would be approximately $2.7 million,
with a comparable change in net income for each $5 change in the average
realized price of gold for the last six months of 1996. The foregoing does not
reflect any gain which may be recognized with respect to the recently announced
pending sale of the Back River/George Lake properties in Canada or other
possible non-recurring events that might occur during the remainder of 1996.
The forecast also estimated a net increase in cash and cash equivalents for the
year 1996 in the amount of $24.4 million. Homestake now estimates that cash and
cash equivalents at December 31, 1996 will be approximately $50 million lower
than estimated in the forecast, principally due to the purchase of all rights
and entitlements under the disproportionate sharing arrangement for $51.4
million and the purchase of the 60% interest in the Snip mine for $39.3 million,
partially offset by the timing of other exploration/development project
expenditures.
Certain of the foregoing statements and the forecast are forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995, and are qualified in their entirety by reference to the Cautionary
Statements included elsewhere in this Form 10-Q Report.
14
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
HGAL and GMK each own a 50% interest in the Kalgoorlie gold operations in
Western Australia. Under applicable agreements, GMK was entitled to more than
50% of the gold production from the first 32.5 million metric tonnes of ore
sourced from a specific area of the Kalgoorlie operations. The entitlement in
excess of 50%, called the "disproportionate share," was calculated under a
formula linked to gold prices, production costs and capital costs.
As reported in Registrant's Form 10-K Report for the year ended December 31,
1995, HGAL and GMK disagreed in respect of the interpretation and application of
the formula for calculating the disproportionate share. Also as reported by
Registrant, on October 20, 1995, HGAL had been served with a writ of summons and
statement of claim by GMK, North Kalgurli Mines Ltd, et al v. Homestake Gold of
Australia Limited, et al, Supreme Court of Western Australia, Civ. No. 2037 of
1995. In the action, GMK claimed damages in respect of alleged past calculation
and underpayment of the disproportionate share and sought a number of
declarations relating to the interpretation and application of the formula in
the future.
As reported in Registrant's Form 8-K Report dated June 13, 1996, HGAL and GMK
agreed that HGAL would purchase all of GMK's rights and entitlements under the
disproportionate sharing agreement for $51.4 million (A$65 million). On June 19,
1996 HGAL paid the agreed-upon purchase price of $51.4 million (A$65 million) in
cash to GMK. As a result, the parties will now share equally in gold production
from the Kalgoorlie operations. In addition, the above referenced litigation has
been dismissed.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 14, 1996, shareholders voted
on and approved (i) the election of four Class III Directors to serve until the
1999 Annual Meeting, (ii) the approval of the Stock Option and Share Rights Plan
- - 1996, and (iii) the appointment of Coopers & Lybrand L.L.P. as independent
auditors for 1996. Shareholder votes were as follows:
(i) Election of four Class III Directors:
Votes for Votes Withheld
Harry M. Conger 102,506,489 1,791,453
G. Robert Durham 102,518,540 1,779,402
Robert K. Jaedicke 102,422,576 1,875,366
Carol A. Rae 102,330,325 1,967,617
In addition to the aforementioned directors, the following directors
continued in office: M. Norman Anderson, Robert H. Clark, Jr., Douglas
W. Fuerstenau, Henry G. Grundstedt, William A. Humphrey, John
Neerhout, Jr., Stuart T. Peeler, Berne A. Schepman and Jack E.
Thompson.
(ii)Approval of the Stock Option and Share Rights Plan - 1996:
Votes for Votes Against Abstain
95,680,807 7,454,359 1,162,775
(iii)Approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors:
Votes for Votes Against Abstain
103,382,330 371,547 544,064
15
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Item 5 - Other Information
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
Homestake Mining Company's reports, filings, press releases and oral discussions
with analysts and others may contain forward looking statements. The purpose of
this cautionary statement is to identify certain important factors and
assumptions on which forward looking statements may be based or which could
cause actual results to differ materially from those expressed in the forward
looking statements.
Risk of Gold Mining. The business of mineral exploration, development and
production by its nature involves significant risks. Among other things, the
business depends on successful location of mineable ore reserves and skillful
management. Mineral exploration is highly speculative in nature, involves many
risks and frequently is non-productive. Once mineralization is discovered and
determined to be economically exploitable, it usually takes a number of years
from the initial phases of exploration until production commences, during which
time the economic feasibility of production may change. Substantial expenditures
are required to establish ore reserves through drilling, to determine means of
production and metallurgical processes to extract the metal from ore, and, in
the case of new properties, to construct mining and processing facilities.
Mining is subject to a variety of risks and hazards, including rock falls and
slides, cave-ins, flooding and other weather conditions, and other acts of God.
The Company maintains and intends to continue to maintain property and liability
insurance consistent with industry practice, but such insurance contains
exclusions and limitations on coverage. For example, coverage for environmental
liability generally is limited and may be totally unavailable. There can be no
assurances that insurance will continue to be available at economically
acceptable premiums. Production costs also can be affected by unforeseen changes
in ore grades and recoveries, permitting requirements, environmental factors,
work interruptions, operating circumstances and ore reserves, unstable or
unexpected ground conditions, and technical issues.
Mining operations and exploration are conducted in a number of countries. Some
countries have higher levels of political and economic risk than others,
including potential for such factors as government instability, uncertainty of
laws and legal enforcement and compliance, defects in or uncertainty as to title
to mining property, expropriation of property, restrictions on production,
export controls, currency inconvertibility, inflation and other general economic
and political uncertainties.
Estimates of Production. Estimates of future production and mine life for
particular properties and production estimates for the Company as a whole are
derived from annual mining plans that have been developed based on, among other
things, mining experience, reserve estimates, assumptions regarding ground
conditions and physical characteristics of ores (such as hardness and presence
or absence of metallurgical characteristics), and estimated rates and costs of
production. Actual production may vary from estimates for a variety of reasons,
including risks and hazards of the type discussed above, and actual ore mined
varying from estimates of grade and characteristics, mining dilution, strikes
and other actions by labor at unionized locations, and other factors. Estimates
of production from properties not yet in production or from operations that are
to be expanded are based on similar factors (including, in some instances,
feasibility reports prepared by company personnel and/or outside consultants)
but, as such estimates do not have the benefit of actual experience, there is a
greater likelihood that actual results will vary from the estimates.
Estimates of Operating Costs and Capital Costs; Capital Projects. Estimates of
total cash costs for existing operations are developed based on past experience,
reserve and production estimates, anticipated mining and ground conditions, and
estimated costs of materials, supplies,
16
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
utilities and other items. Estimates of amortization of non-cash costs are based
on total capital costs and reserve estimates and change at least annually based
on actual amounts of unamortized capital and changes in mineral reserve
estimates. If the net book value of property, plant and equipment exceeds the
estimated future undiscounted cash flows from that mine, then an impairment loss
would be recognized as an expense based on the discounted cash flows in the
period such evaluation is made.
Estimates for reclamation and environmental remediation costs are developed
based on existing and expected legal requirements, past reclamation experience,
cost estimates provided by third- parties and other factors. Estimates also
reflect assumptions with respect to actions of government agencies, including
exercise of discretion and the amount of time government agencies may take in
completing processes required under applicable laws and regulations. As a
result, final costs may vary significantly from estimates. The Company
periodically reevaluates its reclamation cost estimates and reclamation reserves
to take account of such factors.
Estimates of future capital costs are based on a variety of factors and may
include past operating experience, estimated levels of future production,
estimates by and contract terms with third-party suppliers, expectations as to
government and legal requirements, feasibility reports (which may be prepared by
company personnel and/or outside consultants) and other factors. Capital cost
estimates for new operations under development generally are subject to greater
uncertainties than additional capital costs for existing operations.
Estimated periods for completion of capital projects are based on many factors,
including the Company's experience in bringing capital projects on line and
estimates provided by and contract terms with contractors, engineers, suppliers
and others involved in design and construction of projects. Estimates also
reflect assumptions with respect to factors beyond the control of the Company,
including but not limited to the time government agencies may take in processing
applications, issuing permits and otherwise completing processes required under
applicable laws and regulations. Actual time to completion may vary
significantly from estimates.
Estimates of exploration costs are based upon many factors such as past
exploration costs, estimates of the level and cost of future activities, and
assumptions regarding anticipated results on each property. Actual costs vary
during the year as a result of such factors as actual exploration results (which
could result in increasing or decreasing expenditures for particular
properties), changed conditions, and acquisition and disposition of property.
Price Fluctuations; Forward Sales. The results of the Company's operations are
affected significantly by the market price of gold and, to a lesser extent, the
market price of silver. Gold and silver prices are influenced by numerous
factors over which Homestake has no control, including expectations with respect
to the rate of inflation, the relative strength of the United States dollar and
certain other currencies (principally Canadian and Australian dollars), interest
rates, global or regional political or economic crises, demand for jewelry and
industrial products containing gold and silver, speculation, and sales by
central banks and other holders and producers of gold and silver in response to
these factors. The supply of gold and silver consists of a combination of new
mine production and sales from existing stocks of bullion and fabricated gold
and silver held by governments, public and private financial institutions, and
individuals.
Homestake's general policy is to sell its production at current prices and not
to enter into forward sales, derivatives or other hedging arrangements which
establish a price for the sale of future gold and silver production. As a
result, in general, Homestake's profitability is fully exposed to fluctuations
in the current price of gold and silver in world markets. Homestake's average
realized selling prices of gold and silver were US$386 and US$5 per ounce,
respectively in 1995. In certain limited circumstances, Homestake will enter
into forward sales commitments for small portions of its production.
17
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
The Company's results are also affected to a lesser degree by the market price
for sulphur and for oil. Oil prices are affected principally by supply and
demand for gasoline and fuel oil as well as global or regional political or
economic crises. Sulphur prices are affected principally by the demand for
fertilizer and the availability of by-product sulphur recovered during the
refining and processing of oil and natural gas.
Currency Fluctuations. Gold is sold throughout the world principally based on
the United States dollar price, but operating expenses for gold mining companies
are incurred principally in local currencies. Homestake's operations principally
are based in the United States, Canada and Australia. Homestake's Canadian and
Australian subsidiaries engage in currency hedging programs in Canadian and
Australian dollars to protect against significant currency fluctuations relative
to the United States dollar.
Regulation. Homestake's mining operations and exploration activities are subject
to extensive regulation governing development, production, labor standards,
occupational health, waste disposal, use of toxic substances, environmental
regulation, mine safety, and other matters in all jurisdictions in which it
operates. Changes in regulations can have material impacts on anticipated levels
of production, costs and profitability. There can be no assurance that all
required permits and government approvals can be secured and maintained on an
economic basis.
There is a prospect that the United States mining law will be amended. Under
current law, persons staking unpatented mining claims on United States federal
government property open to exploration (unpatented mining claims), on the
making and documenting of a discovery of gold or silver in commercial
quantities, are entitled to mine the property without payment of royalties and
to secure title to the property (patented mining claims) at nominal cost. Under
proposals made in recent years to amend the mining law, the United States
government would be entitled to receive royalties based on either the gross or
net value of production from government-owned property. This would have only
minimal impact on Homestake's current operations, as substantially all of
Homestake's current operations in the United States are conducted on privately
held land. However, the Ruby Hill project currently under development is located
on unpatented mining claims. It is possible that Homestake may be required to
pay royalties on production from that property when it is placed into
production, which would increase the production cost over current estimates, but
the amount of the increase, if any, is not predictable. Expansion at the Round
Mountain mine also may occur on government-owned property, as to which royalties
similarly might be payable. Should the mining law be so amended, it could reduce
the amount of future exploration and development activity conducted by Homestake
on federal government-owned property in the United States.
Taxes. Homestake's operations are conducted in a number of jurisdictions, with
differing rates of taxation. Homestake's income and mining taxes have been
higher in 1995 and 1996 than in prior years in part because a substantial part
of its income is derived from Canada, which has a combined income and mining tax
rate which is significantly higher than income tax rates in the United States
and Australia. Also, under current circumstances, there is only limited ability
to utilize foreign tax credits in calculating Homestake's United States income
taxes.
Reserves. Reported ore reserves reflect estimated quantities and grades of gold
and silver in in-situ deposits and in stockpiles of mined material that
Homestake believes can be mined and sold at prices sufficient to recover the
estimated future cash costs of production, remaining investment, and anticipated
additional capital expenditures. Estimates of cost of production are based on
current and projected costs taking into account past experience and expectations
as to the future. Estimated mining dilution is factored into reserve
calculations.
Ore reserves are reported as general indicators of the life of mineral deposits.
Reserves should not be interpreted as assurances of mine lives or of the
profitability of current or future
18
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
operations. Reserves are estimated for each property based upon factors
relevant to each deposit. Reserves numbers are estimates based upon drilling
results, past experience with property, experience of the persons making the
reserve estimates and many other factors. Reserve estimation is an interpretive
process based upon available data, and the actual quality and characteristics of
ore bodies cannot be known until mining actually has taken place.
Changes in reserves over time generally reflect (i) efforts to develop
additional reserves, (ii) depletion of existing reserves through production,
(iii) actual mining experience, (iv) continued testing and development of
additional information, and (v) price forecasts. Grades of ore actually
processed may be different from the stated reserve grades because of geologic
variations in different areas mined, mining dilution, losses in processing and
other factors. Recovery rates vary with the metallurgical characteristics and
grade of ore processed.
Gold and silver reserves for properties operated by Homestake are prepared by
the Company. Gold and silver ore reserves for properties not operated by
Homestake are based on information provided to Homestake by the operator.
Homestake periodically reviews such information but does not independently
confirm the information provided by these operators. Homestake used a price of
US$375 per ounce of gold in its preparation of reserves estimates at December
31, 1995.
Homestake's sulphur reserves represent the quantity of sulphur in the Main Pass
299 deposit for which geological, engineering and marketing data give reasonable
assurance of recovery and sale under projected economic and operating conditions
at prices sufficient to cover the estimated future cash costs of production, the
remaining investment and estimated future capital expenditures. Homestake's
proven oil reserves at Main Pass 299 are the estimated quantity of crude oil and
condensate which geological and engineering data give reasonable assurance of
recovery and sale under projected operating conditions at prices sufficient to
cover the estimated future cash costs of production, the remaining investment,
and estimated future capital expenditures. The estimates are based on limited
reservoir and engineering data. The reserve estimates are based on information
provided by the operator. The operator principally relies on oil reserve
estimations performed by third-party petroleum engineers.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits Method of Filing
11 - Computation of Earnings Per Share Filed herewith
electronically
27 - Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended June 30,
1996. The report, dated June 13, 1996, announced that HGAL and GMK had
agreed that HGAL would purchase GMK's rights and entitlements under the
disproportionate sharing arrangement for $51.4 million (A$65 million).
In addition, the report announced that GMK would discontinue litigation
commenced against HGAL over past differences in interpretations of the
formula used to calculate the disproportionate share. The Company now
shares equally in all gold produced at the Kalgoorlie operations.
19
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date: August 12, 1996 By /s/ Gene G. Elam
--------------- ----------------
Gene G. Elam
Vice President, Finance and
Chief Financial Officer
Date: August 12, 1996 By /s/ David W. Peat
--------------- -----------------
David W. Peat
Vice President and Controller
(Chief Accounting Officer)
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 June 30, Six Months Ended June 30,
PRIMARY 1996 1995 1996 1995
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Earnings:
Net income applicable to primary earnings
per share calculation $ 6,776 $ 11,179 $ 20,429 $ 17,739
============= ============= ============= ============
Weighted average number of shares outstanding 146,662 137,909 145,949 137,862
============= ============= ============= ============
Net income per share - primary $ 0.05 $ 0.08 $ 0.14 $ 0.13
============= ============= ============= ============
FULLY DILUTED
Earnings:
Net income $ 6,776 $ 11,179 $ 20,429 $ 17,739
Add: Interest relating to 5.5% convertible
subordinated notes, net of tax 1,629 1,629 3,259 3,259
Amortization of issuance costs relating
to 5.5% convertible subordinated notes,
net of tax 110 110 221 221
------------- ------------- ------------- ------------
Net income applicable to fully diluted earnings
per share calculation $ 8,515 $ 12,918 $ 23,909 $ 21,219
============= ============= ============= ============
Weighted average number of shares outstanding:
Common shares 146,662 137,909 145,949 137,862
Additional shares relating to conversion of
5.5% convertible subordinated notes 6,505 6,505 6,505 6,505
------------- ------------- ------------- ------------
153,167 144,414 152,454 144,367
============= ============= ============= ============
Net income per share - fully diluted (a) $ 0.06 $ 0.09 $ 0.16 $ 0.15
============= ============= ============= ============
<FN>
(a) This calculation is submitted in accordance with Regulation S-K item
601 (b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30, 1996 and the related Condensed
Statement of Consolidated Income for the six months ended June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 144,485
<SECURITIES> 63,859
<RECEIVABLES> 46,574
<ALLOWANCES> 0
<INVENTORY> 79,322
<CURRENT-ASSETS> 360,702
<PP&E> 1,946,485
<DEPRECIATION> 914,381
<TOTAL-ASSETS> 1,489,154
<CURRENT-LIABILITIES> 103,499
<BONDS> 185,000
0
0
<COMMON> 146,672
<OTHER-SE> 616,731
<TOTAL-LIABILITY-AND-EQUITY> 1,489,154
<SALES> 386,016
<TOTAL-REVENUES> 404,300
<CGS> 303,317<F1>
<TOTAL-COSTS> 322,280<F2>
<OTHER-EXPENSES> 18,595<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,292
<INCOME-PRETAX> 58,133
<INCOME-TAX> 28,605
<INCOME-CONTINUING> 20,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,429
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0
<FN>
<F1>Includes Production costs and Depreciation, depletion and amortization from
Condensed Statement of Consolidated Income.
<F2>Includes Production costs and Depreciation, depletion and amortization and
Administrative and general expense from Condensed Statement of Consolidated
Income.
<F3>Includes Exploration expense and Other expense from Condensed Statement of
Consolidated Income.
</FN>
</TABLE>
