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 March 31, 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 April 30, 1996 was
146,663,000.
Page 1
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- ----------------------------
<TABLE>
<CAPTION>
A. Condensed Consolidated Balance Sheets (unaudited)
-------------------------------------------------
(In thousands, except per share amount)
March 31, December 31,
1996 1995
---------------- -----------------
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents $ 145,979 $ 145,957
Short-term investments 117,622 66,416
Receivables 53,568 58,046
Inventories:
Finished products 13,928 13,498
Ore and in-process 25,570 26,027
Supplies 30,272 30,454
Deferred income and mining taxes 20,521 20,521
Other 7,714 7,798
---------------- -----------------
Total current assets 415,174 368,717
---------------- -----------------
Property, plant and equipment - at cost 1,848,474 1,697,737
Accumulated depreciation, depletion and amortization (882,318) (850,961)
---------------- -----------------
Property, plant and equipment - net 966,156 846,776
---------------- -----------------
Investments and other assets
Noncurrent investments 35,920 46,188
Other assets 60,437 59,952
---------------- -----------------
Total investments and other assets 96,357 106,140
---------------- -----------------
Total Assets $ 1,477,687 $ 1,321,633
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 33,114 $ 35,170
Accrued liabilities:
Payroll and other compensation 27,824 26,925
Reclamation 17,458 12,383
Other 17,937 14,629
Income and other taxes payable 11,299 9,314
---------------- -----------------
Total current liabilities 107,632 98,421
---------------- -----------------
Long-term liabilities
Long-term debt 185,000 185,000
Other long-term obligations 108,382 120,418
---------------- -----------------
Total long-term liabilities 293,382 305,418
---------------- -----------------
Deferred income and mining taxes 236,115 189,925
Minority interests in consolidated subsidiaries 81,661 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 - 146,630; 1995 - 140,541 146,630 140,541
Other shareholders' equity 612,267 495,316
---------------- -----------------
Total shareholders' equity 758,897 635,857
---------------- -----------------
Total Liabilities and Shareholders' Equity $ 1,477,687 $ 1,321,633
================ =================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
B. Condensed Statements of Consolidated Income (unaudited)
-------------------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------------- ----------------
<S> <C> <C>
Revenues
Gold and ore sales $ 183,500 $ 159,909
Sulphur and oil sales 8,423 12,154
Interest income 4,096 4,263
Equity earnings 387 (80)
Other income 6,402 3,686
----------------- ----------------
202,808 179,932
----------------- ----------------
Costs and Expenses
Production costs 125,252 118,434
Depreciation, depletion and amortization 26,329 23,003
Administrative and general expense 9,714 9,291
Exploration expense 6,041 4,754
Interest expense 2,647 2,632
Other expense 233 697
----------------- ----------------
170,216 158,811
----------------- ----------------
Income Before Taxes and Minority Interests 32,592 21,121
Income and Mining Taxes (13,860) (11,393)
Minority Interests (5,079) (3,168)
----------------- ----------------
Net Income $ 13,653 $ 6,560
================= ================
Net Income Per Share $ 0.09 $ 0.05
================= ================
Average Shares Used in the Computation 145,236 137,816
================= ================
Dividends Per Common Share $ 0.05 $ 0.05
================= ================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
C. Condensed Statements of Consolidated Cash Flows (unaudited)
----------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash Flows from Operations
Net income $ 13,653 $ 6,560
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 26,329 23,003
Deferred taxes, minority interests and other 9,630 10,044
Gain on disposals of assets (769) (4,473)
Effect of changes in operating working capital items 11,807 (6,062)
--------------- ---------------
Net cash provided by operations 60,650 29,072
--------------- ---------------
Investment Activities
Increase in short-term investments (51,206) (43,178)
Additions to property, plant and equipment (9,604) (11,815)
Proceeds from sales of assets 11,484 7,634
Purchase of HGAL minority interests (6,458)
Other 821 331
--------------- ---------------
Net cash used in investment activities (54,963) (47,028)
--------------- ---------------
Financing Activities
Common shares issued 1,738 1,070
Dividends paid (7,403) (6,892)
--------------- ---------------
Net cash used in financing activities (5,665) (5,822)
--------------- ---------------
Net increase (decrease) in cash and equivalents 22 (23,778)
Cash and equivalents, January 1 145,957 105,701
--------------- ---------------
Cash and equivalents, March 31 $ 145,979 $ 81,923
=============== ===============
</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
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 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 paid 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 with the remaining 70.7 million
publicly held HGAL shares being 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 paid 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 paid 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 quarter ended March 31, 1995, have
been estimated at $179.6 million, $6.0 million and $0.04 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. During the three months ended March 31, 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 three months ended March 31, 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.
5
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
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.
At March 31, 1996 the Company had outstanding forward currency
contracts 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>
Canadian $ 85,100,000 0.67 0.77 1996-1997
Australian 16,600,000 0.68 0.74 1996
------------------
$ 101,700,000
</TABLE>
5. 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 first quarters of
1996 and 1995 include sales under this program of 21,900 ounces at an
average price of $415 per ounce and 21,500 ounces at an average price
of $389 per ounce, respectively. At March 31, 1996 forward sales for
48,100 ounces at an average price of $424 per ounce remain outstanding.
6. 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 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.
7. 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
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.
6
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Title X of the Energy Policy Act of 1992 (the "Act") authorized
appropriations of $270.0 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 March 31, 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 March 31, 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. Final regulations for
performing natural resource damage assessments were issued by the
United States Department of Interior on March 25, 1994. CERCLA provides
for a three-year statute of limitations for natural resource damage
assessments after the issuance of final regulations.
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.
8. On April 30, 1996, the Company's 50.6%-owned subsidiary, Prime
Resources Group Inc. ("Prime") purchased Cominco Ltd.'s 60% interest in
the Snip mine in British Columbia for approximately $39 million. The
purchase price included Cominco's share of the mine's working capital.
Prime now owns 100% of the Snip mine.
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 $13.7 million or $0.09 per share during the
first quarter of 1996 compared to net income of $6.6 million or $0.05 per share
during the first quarter of 1995. The higher 1995 earnings reflect increased
production, a higher average realized gold price and lower unit operating costs.
In addition, the 1996 first quarter results include $5.5 million of proceeds
(after tax $4.9 million) from a litigation recovery.
Production from gold operations increased to 488,100 ounces during the first
quarter of 1996, surpassing last year's first quarter production of 448,800
ounces by almost 40,000 ounces. Gold and ore sales for the 1996 first quarter
increased by 15% to $183.5 million over the prior year's first quarter. During
the first three months of 1996, 486,000 ounces of gold equivalent were sold at
an average realized price of $401 per ounce compared to 444,700 ounces sold at
an average realized price of $381 per ounce for the first three months of 1995.
Domestic production increased to 188,400 ounces during the 1996 first quarter
from 186,300 ounces during the 1995 first quarter, primarily due to higher
production at the Homestake mine in South Dakota, partially offset by a decline
in production at the Round Mountain mine in Nevada and the cessation of mining
at the Santa Fe mine in Nevada which is in the final stages of reclamation. At
the Homestake mine, production increased to 105,300 ounces during the first
quarter of 1996 from 98,700 ounces during the first quarter of 1995 and total
cash costs decreased to $291 per ounce compared to $303 per ounce during the
1995 first quarter. The higher production primarily is a result of an increase
in tonnage from the underground operations where production difficulties had
limited access to the deeper, higher-grade stopes in the 1995 first quarter. The
McLaughlin mine in Northern California produced 54,100 ounces during the 1996
first quarter compared to 52,200 ounces produced during the 1995 first quarter.
The increase in production primarily is due to an 8% increase in tons milled and
a slightly higher ore grade. As a result, total cash costs declined to $279 per
ounce during the first quarter of 1996 from $286 per ounce during the first
quarter of 1995. Homestake's share of production from the Round Mountain mine
totaled 19,900 ounces during the 1996 first quarter at a total cash cost of $288
per ounce compared to 23,000 ounces at a total cash cost of $260 per ounce
during the prior year's first quarter. The decline in production and increase in
total cash costs are due to ore placed on the dedicated pads which is leaching
more slowly than anticipated. Production at Round Mountain should increase over
the next few months as additional solution capacity becomes operational.
Overall foreign gold production during the first quarter of 1996 increased by
14% over the prior year's first quarter, primarily due to production increases
at the Eskay Creek, David Bell and Nickel Plate mines in Canada, partially
offset by production declines at the Williams mine in Canada and the El Hueso
mine in Chile. At the Eskay Creek mine, production increased to 99,400 gold
equivalent ounces during the 1996 first quarter from 65,200 gold equivalent
ounces during the 1995 first quarter. The higher production primarily is a
result of an increase in tons shipped and higher than expected silver grades.
Total cash costs, including the costs of third-party smelters, decreased to $162
per equivalent ounce during the first quarter of 1996 compared to $186 per
equivalent ounce during the prior year's first quarter, reflecting higher silver
grades and prices, lower mine development costs and greater operating
efficiencies. The David Bell mine produced 22,800 ounces at a total cash cost of
$190 per ounce during the first quarter of 1996 compared to 16,400 ounces
produced at a total cash cost of $253 per ounce
8
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
during the first quarter of 1995. As expected, the ore grade increased
significantly during the first three months of 1996 as the mine benefited from
additional development completed in 1995. This resulted in significantly lower
unit operating costs in the 1996 first quarter. At the Nickel Plate mine,
production increased to 26,700 ounces during the first quarter of 1996 from
21,500 ounces during the prior year's first quarter, reflecting higher ore
grades and an increase in tons milled. As a result, total cash costs declined to
$328 per ounce during the 1996 first quarter from $340 per ounce during the 1995
first quarter. The Nickel Plate mine is nearing the end of its economic life and
reserves will be exhausted by the end of the year. At the Williams mine,
production of 43,600 ounces during the first quarter of 1996 compares to 48,100
ounces during the first quarter of 1995. The decrease in production is primarily
due to an anticipated decline in ore grades and a 5% reduction in tons milled.
The lower tonnage primarily is due to a weather-related power outage in late
January and to temporary ground control problems in two primary production
stopes. Total cash costs at the Williams mine were $272 per ounce during the
first quarter of 1996 compared to $235 per ounce during the first quarter of
1995.
Homestake Gold of Australia Limited's ("HGAL") share of production at the
Kalgoorlie operations in Western Australia was 90,200 ounces during the 1996
first quarter compared to 88,900 ounces produced during the 1995 first quarter.
A 14% increase in mill throughput was partially offset by a 16% decline in ore
grade. Total cash costs increased to $305 per ounce during the first quarter of
1996 from $258 per ounce during the prior year's first quarter, primarily due to
the lower ore grade and also to a stronger Australian dollar. The effects of the
stronger Australian dollar were partially offset by a foreign currency
protection program. Production at the El Hueso mine decreased to 2,400 ounces
during the 1996 first quarter from 8,800 ounces during the 1995 first quarter.
Gold mining at El Hueso ceased in February 1995 and limited heap-leach
production will continue until mid-1996.
The Company's consolidated total cash cost per ounce during the first
quarter of 1996 was $258 per ounce compared to $262 per ounce during the first
quarter of 1995.
Revenues from the Main Pass 299 sulphur project were $8.4 million during the
1996 first quarter compared to $12.1 million during the prior year's first
quarter, and operating earnings totaled $0.3 million during the first quarter of
1996 compared to $2.1 million during the first quarter of 1995. Sulphur demand
during the first quarter of 1995 was exceptionally strong as 145,400 tons were
sold compared to 87,700 tons sold during the 1996 first quarter. Oil and gas
revenues were similar to the prior year's quarter as higher prices offset lower
production volumes.
Depreciation, depletion and amortization expense increased to $26.3 million
during the 1996 first quarter from $23.0 million during the 1995 first quarter.
This increase primarily is due to higher production and additional amortization
relating to the purchase of the HGAL minority interests.
Exploration expense increased to $6.0 million during the first three months of
1996 from $4.8 million during the first three months of 1995. This increase
primarily is due to increased activity on the Chelopech feasibility study in
Bulgaria and at the Agua de la Falda project in Chile, and exploration work at
the White Pine and Mountain View projects in Nevada. The higher exploration
expenditures will continue throughout 1996 as the Company pursues numerous
attractive exploration targets and prospects. The Company has planned $36
million in exploration expenditures (including $6 million for exploration in and
around existing mine sites which will be included in production costs) during
1996. However, additional funds will be made available if warranted by initial
drilling results.
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 first quarters of 1996
9
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
and 1995 include sales under this program of 21,900 ounces at an average
price of $415 per ounce and 21,500 ounces at an average price of $389 per ounce,
respectively. At March 31, 1996 forward sales for 48,100 ounces at an average
price of $424 per ounce remain outstanding.
A significant portion of the Company's operating expenses are incurred in
Australian and Canadian currencies. The Company's profitability is impacted by
fluctuations in these currencies' exchange rates relative to the 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 March 31, 1996 the Company had a net
unrealized gain of $1.1 million on open contracts.
Other income for the first three months of 1996 includes $2.9 million of income
related to a litigation recovery, a net foreign currency exchange gain of $1.0
million and $0.6 million of royalty income. Other income for the first quarter
of 1995 includes a $2.7 million gain on the sale of the Company's 28% interest
in the Torres silver mining complex in Mexico, a $1.9 million gain on the sale
of certain exploration properties in Australia and a net foreign currency
exchange loss of $2.4 million.
Income and mining tax expense for the first quarter of 1996 includes a $2.6
million credit with respect to a litigation recovery relating to previously paid
income taxes. Excluding this credit, the Company's income and mining tax rate
for the first quarter of 1996 was 51% compared to 54% for the prior year's first
quarter. The Company's consolidated effective income and mining tax rate will
fluctuate depending on the geographical mix of its pretax income.
The following chart details Homestake's gold production, operating cash costs
and total cash costs per ounce by location, and consolidated revenue and
production costs per ounce.
10
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Production Cash Operating Costs (4) Total Cash Costs
(Ounces in thousands) (Dollars per Ounce) (Dollars per Ounce)
Three Months Ended Three Months Ended Three Months Ended
March 31, March 31, March 31,
Mine (Percentage interest) 1996 1995 1996 1995 1996 1995
- -------------------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Homestake (100) 105.3 98.7 $277 $293 $291 $303
McLaughlin (100) 54.1 52.2 271 278 279 286
Round Mountain (25) 19.9 23.0 262 238 288 260
Joint Ventures 9.1 7.1 284 311 294 332
Santa Fe (100) - 5.3 - 137 - 161
---------- -----------
Total United States 188.4 186.3
Eskay Creek (100) (1,2) 99.4 65.2 159 184 162 186
Williams (50) 43.6 48.1 262 228 272 235
David Bell (50) (3) 25.6 17.4 178 242 190 253
Nickel Plate (100) 26.7 21.5 328 340 328 340
Snip (40) (2) 11.8 12.6 185 162 185 162
---------- -----------
Total Canada 207.1 164.8
Kalgoorlie, Australia (50) 90.2 88.9 305 258 305 258
El Hueso, Chile (100) 2.4 8.8 242 394 242 394
---------- -----------
Total Production 488.1 448.8 $251 $256 $258 $262
Less Minority Interests (54.9) (54.9)
---------- -----------
Homestake's Share 433.2 393.9
========== ===========
<CAPTION>
Three Months Ended
March 31,
Per Ounce of Gold 1996 1995
- ----------------- -------------------
<S> <C> <C>
Revenue $401 $381
Cash Operating Costs (4) 251 256
Other Cash Costs (5) 7 6
Noncash Costs (6) 54 51
<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 72 ounces and 81 ounces of
silver equals one ounce of gold in the first quarters of 1996 and 1995,
respectively.
(2) Includes ounces contained in ore or concentrates sold to smelters. 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) Ounces produced includes 2,800 ounces and 1,000 ounces of gold production
for the Quarter Claim in the first quarters of 1996 and 1995,
respectively.
(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>
11
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Liquidity and Capital Resources
Cash provided by operations totaled $60.7 million in the first quarter of 1996
compared to $29.1 million in the first quarter of 1995. Working capital at March
31, 1996 amounted to $307.5 million, including $263.6 million of cash and
equivalents and short-term investments.
Capital additions of $9.6 million for the first quarter of 1996 include $1.5
million at the advanced-stage Ruby Hill project in Nevada, and $3.0 million at
the Kalgoorlie operations in Australia and $2.2 million at the Homestake mine,
primarily for numerous projects related to improving the efficiency of these
operations.
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 paid 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 with the remaining 70.7 million publicly
held HGAL shares being 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 paid 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 paid 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. Receipt of permits is
expected before the end of 1996. Payment of the remaining $36 million is
conditional upon subsequent approval by the Bulgarian government, Navan and
Homestake of a further mine and mill expansion to accommodate processing of
1,750,000 metric tons of ore per year and the securing of expansion financing.
Total cost of the expansions is estimated to be $125 million to sink a new
shaft, install the roaster and a SAG mill and make other processing
improvements.
On April 30, 1996, the Company's 50.6%-owned subsidiary, Prime Resources Group
Inc. ("Prime") purchased Cominco Ltd.'s 60% interest in the Snip mine in British
Columbia for approximately $39 million. The purchase price included Cominco's
share of the mine's working capital. Prime now owns 100% of the Snip mine.
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.
12
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
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 certain
capital costs.
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
----------------
11 - Computation of Earnings Per Share Filed herewith
electronically
27 - Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K
Three reports on Form 8-K were filed during the first quarter ended
March 31, 1996.
1. The report on Form 8-K dated January 12, 1996 announced that the
Company extended until January 25, 1996 its offer to acquire the
shares of HGAL that Homestake did not own already.
2. The report on Form 8-K dated January 25, 1996 announced that the
Company extended until February 9, 1996 its offer to acquire the
shares of HGAL that Homestake did not own already.
3. The report on Form 8-K dated January 31, 1996 announced that the
Company's offer to acquire the shares of HGAL that Homestake did
not own already would close on February 9, 1996, and that the
Company then owned 98.3% of the shares of HGAL and would proceed
with compulsory acquisition of any remaining shares after the
closing date.
13
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date: May 9, 1996 By /s/ Gene G. Elam
----------- -----------------
Gene G. Elam
Vice President, Finance and
Chief Financial Officer
Date: May 9, 1996 By /s/ David W. Peat
----------- ------------------
David W. Peat
Vice President and Controller
(Chief Accounting Officer)
14
EXHIBIT 11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Computation of Earnings Per Share (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
PRIMARY 1996 1995
-------------- ---------------
<S> <C> <C>
Earnings:
Net income applicable to primary earnings per share calculation $ 13,653 $ 6,560
============== ===============
Weighted average number of shares outstanding 145,236 137,816
============== ===============
Net income per share - primary $ 0.09 $ 0.05
============== ===============
FULLY DILUTED
Earnings:
Net income $ 13,653 $ 6,560
Add: Interest relating to 5.5% convertible
subordinated notes, net of tax 1,630 1,630
Amortization of issuance costs relating
to 5.5% convertible subordinated notes, net of tax 111 111
-------------- ---------------
Net income applicable to fully diluted earnings
per share calculation $ 15,394 $ 8,301
============== ===============
Weighted average number of shares outstanding:
Common shares 145,236 137,816
Additional shares relating to conversion of
5.5% convertible subordinated notes 6,505 6,505
-------------- ---------------
151,741 144,321
============== ===============
Net income per share - fully diluted (a) $ 0.10 $ 0.06
============== ===============
<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 March 31, 1996 and the related
Condensed Statement of Consolidated Income for the quarter ended
March 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 145,979
<SECURITIES> 117,622
<RECEIVABLES> 53,568
<ALLOWANCES> 0
<INVENTORY> 69,770
<CURRENT-ASSETS> 415,174
<PP&E> 1,848,474
<DEPRECIATION> 882,318
<TOTAL-ASSETS> 1,477,687
<CURRENT-LIABILITIES> 107,632
<BONDS> 185,000
0
0
<COMMON> 146,630
<OTHER-SE> 612,267
<TOTAL-LIABILITY-AND-EQUITY> 1,477,687
<SALES> 191,923
<TOTAL-REVENUES> 202,808
<CGS> 151,581<F1>
<TOTAL-COSTS> 161,295<F2>
<OTHER-EXPENSES> 6,274<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,647
<INCOME-PRETAX> 32,592
<INCOME-TAX> 13,860
<INCOME-CONTINUING> 13,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,653
<EPS-PRIMARY> 0.09
<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>
