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, 1997
( ) 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
http://www.homestake.com
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 May 1, 1997 was
146,728,000.
<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>
March 31, December 31,
1997 1996
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 154,607 $ 89,599
Short-term investments 115,202 130,158
Receivables 46,819 47,650
Inventories:
Finished products 22,367 21,132
Ore and in process 45,890 39,980
Supplies 29,522 30,015
Deferred income and mining taxes 12,263 12,263
Other 8,093 8,551
---------------- -----------------
Total current assets 434,763 379,348
---------------- -----------------
Property, plant and equipment - at cost 2,005,121 1,970,300
Accumulated depreciation, depletion and amortization (1,004,822) (963,270)
---------------- -----------------
Property, plant and equipment - net 1,000,299 1,007,030
---------------- -----------------
Investments and other assets
Noncurrent investments 34,722 39,606
Other assets 46,947 56,124
---------------- -----------------
Total investments and other assets 81,669 95,730
---------------- -----------------
Total Assets $ 1,516,731 $ 1,482,108
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 37,713 $ 36,171
Accrued liabilities:
Payroll and other compensation 22,794 23,085
Reclamation 9,927 10,055
Other 15,799 9,034
Income and other taxes payable 22,709 38,386
---------------- -----------------
Total current liabilities 108,942 116,731
---------------- -----------------
Long-term liabilities
Long-term debt 185,000 185,000
Other long-term obligations 122,952 114,168
Deferred income and mining taxes 202,733 201,454
---------------- -----------------
Total long-term liabilities 510,685 500,622
---------------- -----------------
Minority interests in consolidated subsidiaries 100,585 96,203
Shareholders' equity
Capital stock, $1 par value per share:
Preferred - 10,000 shares authorized; no shares outstanding
Common - 250,000 shares authorized; shares outstanding:
1997 - 146,728; 1996 - 146,672 146,728 146,672
Other shareholders' equity 649,791 621,880
---------------- -----------------
Total shareholders' equity 796,519 768,552
---------------- -----------------
Total Liabilities and Shareholders' Equity $ 1,516,731 $ 1,482,108
================ =================
</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,
1997 1996
----------------- ----------------
<S> <C> <C>
Revenues
Gold and ore sales $ 164,213 $ 183,500
Sulfur and oil sales 6,952 8,423
Interest income 3,329 4,096
Gain on termination of Santa Fe merger 62,925 -
Other income 12,768 6,789
----------------- ----------------
250,187 202,808
----------------- ----------------
Costs and Expenses
Production costs 118,114 125,252
Depreciation, depletion and amortization 28,155 26,329
Administrative and general expense 9,561 9,714
Exploration expense 8,335 6,041
Interest expense 2,582 2,647
Other expense 642 233
----------------- ----------------
167,389 170,216
----------------- ----------------
Income Before Taxes and Minority Interests 82,798 32,592
Income and Mining Taxes (29,779) (13,860)
Minority Interests (3,159) (5,079)
----------------- ----------------
Net Income $ 49,860 $ 13,653
================= ================
Net Income Per Share $ 0.34 $ 0.09
================= ================
Average Shares Used in the Computation 146,682 145,236
================= ================
Dividends Paid 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,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash Flows from Operations
Net income $ 49,860 $ 13,653
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 28,155 26,329
Gains on asset disposals (13,575) (769)
Deferred taxes, minority interests and other 18,273 9,630
Effect of changes in operating working capital items (16,267) 11,807
--------------- ---------------
Net cash provided by operations 66,446 60,650
--------------- ---------------
Investment Activities
Decrease (increase) in short-term investments 14,956 (51,206)
Additions to property, plant and equipment (22,806) (9,604)
Proceeds from asset sales 9,425 11,484
Purchase of HGAL minority interests - (6,458)
Other 881 821
--------------- ---------------
Net cash provided by (used in) investment activities 2,456 (54,963)
--------------- ---------------
Financing Activities
Common shares issued 781 1,738
Dividends paid (7,334) (7,403)
Other 2,659 -
--------------- ---------------
Net cash used in financing activities (3,894) (5,665)
--------------- ---------------
Net increase in cash and equivalents 65,008 22
Cash and equivalents, January 1 89,599 145,957
--------------- ---------------
Cash and equivalents, March 31 $ 154,607 $ 145,979
=============== ===============
</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,
1996.
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. On March 10, 1997 Santa Fe Pacific Gold Corporation terminated its
previously announced merger agreement with Homestake and paid Homestake
a $65 million termination fee. As a result, the Company recorded a
pretax gain of $62.9 million ($47.2 million after tax), net of
merger-related expenses of $2.1 million incurred in 1997.
3. In February 1997, Homestake completed the sale of its interests in the
George Lake and Back River joint ventures in Canada to Arauco Resources
Corporation ("Arauco") for $9.3 million in cash and 3.6 million shares
of Arauco common stock. As a result of this transaction, the Company
recorded a pretax gain of $13.5 million ($8.1 million after tax), which
is included in other income.
4. 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.
5. In 1995, Homestake made an unconditional offer to acquire the 18.5% of
Homestake Gold of Australia Limited ("HGAL") it did not already own by
offering .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. 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
million newly issued shares of the Company, $5 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. The acquisition of the HGAL minority interests
was accounted for as a purchase.
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.
5
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
At March 31, 1997 the Company had forward currency contracts
outstanding as follows:
<TABLE>
<CAPTION>
Weighted-Average Exchange
Amount Covered Rates to U.S. Dollars Expiration
Currency (U.S. Dollars) Put Options Call Options Dates
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian $151,950 0.72 0.77 1997
Canadian 67,200 0.73 0.77 1998
Australian 83,450 0.77 0.80 1997
Australian 27,400 0.76 0.79 1998
-------------
$330,000
</TABLE>
7. In the fourth quarter of 1996, the Company entered into forward sales
commitments for 680,100 ounces expected to be produced from the
McLaughlin mine stockpiles from 1997 through 2003. Gold sales for the
first quarter of 1997 include sales under this program of 30,000 ounces
at an average price of $380 per ounce. Gold sales for the first quarter
of 1996 include sales under the now-completed Nickel Plate mine forward
sales program of 21,900 ounces at an average price of $415 per ounce.
At March 31, 1997 the Company's forward sales commitments were as
follows:
<TABLE>
<CAPTION>
Average Price of
Forward Sales Forward Sales
Year (ounces) (per ounce)
- -----------------------------------------------------------------------------------
<S> <C> <C>
1997 90,100 $387
1998 120,000 399
1999 109,900 415
2000 85,100 430
2001 85,000 446
2002 85,000 463
2003 75,000 481
-------------
650,100
</TABLE>
8. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 specifies the computation, presentation,
and disclosure requirements for earnings per share. SFAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997. Adoption of SFAS 128 will not have a material impact
on Homestake's previously reported earnings per share.
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.
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 $20.4
million.
6
<PAGE>
Title X of the Energy Policy Act of 1992 (the "Act") and subsequent
amendments to the Act authorized appropriations of $335 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 past
and future costs of reclaiming the Grants site in accordance with
Nuclear Regulatory Commission license requirements. Through March 31,
1997 the Company had received $17.1 million from the DOE and the
accompanying balance sheet at March 31, 1997 includes an additional
receivable of $13.3 million for the DOE's share of reclamation
expenditures made by the Company through 1996. 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, 1997.
In 1983, the state of New Mexico made a claim against the Company for
unspecified natural resource damages resulting from the Grants
tailings. The state of South Dakota made a similar claim in 1983 as to
the Whitewood Creek tailings. The Company denies all liability for
damages at the two CERCLA sites. The two states have taken no action to
enforce the 1983 claims.
The Company believes that the ultimate resolution of the above matters
will not have a material adverse impact on its financial condition or
results of operations.
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 without reduction for
minority interests.)
RESULTS OF OPERATIONS
Homestake recorded net income of $49.9 million or $.34 per share during the
first quarter of 1997 compared to net income of $13.7 million or $.09 per share
during the first quarter of 1996. The increase in first quarter earnings
primarily is attributable to after-tax gains of $47.2 million ($62.9 million
pretax) or $.32 per share from the termination fee received from Santa Fe
Pacific Gold Corporation ("Santa Fe") upon termination of Homestake's merger
agreement with Santa Fe, and $8.1 million ($13.5 million pretax) or $.06 per
share from the sale of the George Lake and Back River joint venture interests in
the Northwest Territories of Canada to Arauco Resources Corporation ("Arauco").
Results for the first quarter of 1996 included an after-tax gain of $4.9 million
($5.5 million pretax) from a litigation recovery.
Excluding the effect of nonrecurring items, the Company incurred a net loss of
$5.4 million or $.04 per share from operations during the 1997 first quarter
compared to net income of $8.8 million or $.06 per share during the 1996 first
quarter. The lower 1997 earnings primarily are attributable to a $48 per ounce
decrease in the average realized gold price received, higher exploration
expenses and increased depreciation and amortization expense resulting from the
acquisitions of additional interests in Homestake Gold of Australia Limited
("HGAL") and in the Snip mine.
Gold production for the 1997 first quarter of 488,500 ounces was relatively
unchanged from the 1996 first quarter production of 488,100 ounces. Gold and ore
sales for the first quarter of 1997 decreased by 11% to $164.2 million from
$183.5 million during the first quarter of 1996 reflecting the lower average
realized gold price. During the first three months of 1997, 484,700 equivalent
ounces of gold were sold at an average realized price of $353 per ounce compared
to 486,000 equivalent ounces of gold sold at an average realized price of $401
per ounce during the first three months of 1996.
Domestic production decreased slightly to 179,700 ounces during the first
quarter of 1997 from 188,400 ounces during the first quarter of 1996 primarily
due to lower production at the McLaughlin mine in northern California, partially
offset by higher production at the Round Mountain mine in Nevada. At the
McLaughlin mine, production of 31,600 ounces during the first quarter of 1997
compares to 54,100 ounces produced during the prior year's first quarter. In
June 1996, mining operations were completed. Lower-grade stockpiled ore is now
being treated through a conventional carbon-in-leach circuit. Total cash costs
decreased to $244 per ounce during the 1997 first quarter from $279 per ounce
during the 1996 first quarter, primarily reflecting lower unit milling costs.
Homestake's share of production at the Round Mountain mine increased by 8,200
ounces to 28,100 ounces during the first quarter of 1997 from 19,900 ounces
produced during the first quarter of 1996. Increased tonnages were placed on
both the dedicated and reusable leach pads and solution capacity was increased
on the dedicated pads. As a result, total cash costs declined to $236 per ounce
during the 1997 first quarter from $288 per ounce during the 1996 first quarter.
An 8,000 tons-per-day gravity mill is under construction at Round Mountain to
process higher-grade ores. It is expected to be in operation in the fourth
quarter of 1997. At the Homestake mine, gold production during the first quarter
of 1997 increased slightly to 106,400 ounces from 105,300 ounces produced during
the first quarter of 1996. Total cash costs were $316 per ounce during the 1997
first quarter compared to $291 per ounce during the 1996 first quarter,
reflecting lower underground ore grades as a result of higher dilution, a lower
gold recovery rate, higher milling costs and ore stockpile valuation
adjustments.
8
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Total foreign gold production during the first three months of 1997 increased by
3% to 308,800 equivalent ounces over the comparable period for the prior year,
primarily due to production increases at the Snip and Williams mines in Canada
and at the Kalgoorlie operations in Western Australia, partially offset by a
slight decline at the Eskay Creek mine in British Columbia and the absence of
production at the Nickel Plate mine in British Columbia, which ceased operations
last October.
Homestake's share of production at the Snip mine increased to 28,200 ounces
during the 1997 first quarter from 11,800 ounces during the 1996 first 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's Ltd.'s ("Cominco") 60% interest in this mine for $39.3 million.
Excluding the effects of the purchase of Cominco's 60% interest, production at
the Snip mine decreased by 4%, reflecting lower tons milled, partially offset by
higher ore grades. Total cash costs increased from $185 per ounce during the
first quarter of 1996 to $204 per ounce during the first quarter of 1997,
primarily due to increased mining in conventional stopes rather than in
lower-cost mechanized stopes. The Williams mine produced 51,400 ounces at a
total cash cost of $234 per ounce during the first quarter of 1997 compared to
43,600 ounces produced at a total cash cost of $272 per ounce during the first
quarter of 1996. In 1996, problems related to ground control and weather led to
a shortfall in tons milled and lower ore grades. Mill throughput and ore grades
returned to more normal levels in 1997. Production at the Eskay Creek mine
declined slightly from 99,400 gold equivalent ounces during the first quarter of
1996 to 94,600 gold equivalent ounces during the first quarter of 1997,
reflecting an expected decline in silver grades, partially offset by an increase
in tons shipped. Total cash costs, including transportation and third-party
smelter costs, were $165 per equivalent ounce during the 1997 first quarter
compared to $162 per equivalent ounce during the 1996 first quarter. Prime plans
to construct a gravity/flotation mill with a capital cost of $12 million which
will improve profit margins on ore currently shipped directly to third-party
smelters and allow for the processing of additional ore that is not presently
economic. Pending regulatory approval, construction of the mill facility at the
Eskay Creek site will begin in July 1997 with completion scheduled in the fourth
quarter of 1997.
HGAL's share of production at the Kalgoorlie operations in Western Australia
totaled 108,300 ounces during the first three months of 1997 compared to 90,200
ounces during the first three months of 1996. The increase in production
reflects a 16% increase in ore grades and a 13% increase in tons milled. Total
cash costs decreased to $273 per ounce during the 1997 first quarter from $305
per ounce during the 1996 first quarter. In February 1997, development work
commenced on a 1.6-mile decline from surface to the northern end of the Super
Pit. This decline will provide access to the upper level remnants of the Mt.
Charlotte underground mine's northern orebody. The decline is estimated to cost
$6 million and is scheduled for completion in the first quarter of 1998.
The Company's consolidated total cash cost per equivalent ounce decreased to
$245 during the 1997 first quarter from $258 during the 1996 first quarter.
The Company's share of revenues at the Main Pass 299 operations in the Gulf of
Mexico totaled $7 million during the first quarter of 1997 compared to $8.4
million during the first quarter of 1996, and operating losses were $.6 million
during the 1997 first quarter compared to operating earnings of $.3 million
during the first quarter of 1996. The 1997 results reflect lower sulfur prices
and sales, partially offset by higher oil prices.
At March 31, 1997 the carrying value of the Company's investment in the Main
Pass 299 sulfur mine was $109 million. In accordance with the Company's
accounting policy for reviewing the recoverability of its investments in
operating mines, the Company has estimated future Main Pass undiscounted net
cash flows based on its share of proven reserves, estimated future sales prices
9
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
(considering historical and current prices, price trends and related factors),
production costs and operating capital and reclamation costs. In estimating its
future undiscounted net cash flows, the Company has assumed an average future
sales price for sulfur of approximately $70 per ton over the expected remaining
30 year life of the mine. Although the current market for sulfur is depressed,
during the past 10 years the market for sulfur has been cyclical with prices
ranging between $55 and $142 per ton and averaging over $96 per ton (Tampa
market). During April 1997, the Company realized a price of $60 per ton, during
the quarter ended March 31, 1997, the Company realized a price of $58 per ton,
and for the years ended December 31, 1996 and 1995, the Company realized prices
of $60 and $68 per ton, respectively. The Company does not expect significant
improvement in sulfur prices during the remainder of 1997. However, the Company
believes that future prices over the life of the mine will be sufficient to
recover its investment. This view is based on the historical volatility of
sulfur prices and on the Main Pass mine's low operating cost structure.
Estimates of future cash flows are subject to risks and uncertainties and it is
possible that changes could occur in the near term which may affect the
recoverability of the Company's investment in the Main Pass operations. If the
sulfur market remains depressed for a period of time, the Company may not be
able to recover all of its investment in the Main Pass mine and future
write-downs of up to $109 million may be required.
The Company's general policy is to sell its gold production at current prices.
However, in certain circumstances, the Company will enter into forward sales
commitments. In the fourth quarter of 1996, the Company sold for future
delivery, at an average price of $426 per ounce, 680,100 ounces of the gold it
expects to produce from the McLaughlin mine stockpiles through 2003. Gold sales
for the first quarter of 1997 include sales under this program of 30,000 ounces
at an average price of $380 per ounce. At March 31, 1997 forward sales for
650,100 ounces at an average price of $427 per ounce remain outstanding. The
Company's gold hedging policy is subject to review and could change.
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 establish
trading ranges within which the United States dollar may be exchanged for
Australian and Canadian dollars. At March 31, 1997 the Company had a net
unrealized loss of $.5 million on open contracts under this program.
Other income for the first three months of 1997 includes a $13.5 million gain on
sale of the George Lake/Back River joint venture interests and a net foreign
currency exchange loss of $1.7 million. Other income for the first three months
of 1996 includes $2.9 million related to a litigation recovery and a net foreign
currency exchange gain of $1 million.
Depreciation, depletion and amortization expense increased to $28.2 million
during the 1997 first quarter from $26.3 million during the first quarter of
1996. The increase primarily is due to additional amortization at the Kalgoorlie
operations as a result of increased production and the higher amortization rate
related to the purchase by HGAL of the disproportionate sharing arrangement at
Kalgoorlie and higher depreciation related to the purchase of Cominco's 60%
interest in the Snip mine.
Exploration expense for the first three months of 1997 increased by 38% to $8.3
million during the first quarter of 1997 from $6 million during the first
quarter of 1996, primarily due to increased activity as the Company pursues
numerous prospective exploration targets and prospects. The Company expects to
spend at least $42 million for exploration in 1997.
10
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Income and mining tax expense for the quarter ended March 31, 1997 was $29.8
million compared to $13.9 million for the quarter ended March 31, 1996. The
increase reflects taxes of $15.7 million provided on the break-up fee received
from Santa Fe upon termination of Homestake's merger agreement with Santa Fe. In
addition, a $2.6 million credit was recorded during the first quarter of 1996
with respect to a litigation recovery relating to previously paid income taxes.
The Company's income and mining tax rate was 36% in the 1997 first quarter
compared to 43% in the 1996 first quarter. The Company's consolidated effective
income and mining tax rate will fluctuate depending on the geographical mix of
pretax income, and is expected to be higher throughout the remainder of 1997.
Minority interests in the income of consolidated subsidiaries decreased to $3.2
million during the first quarter of 1997 from $5.1 million during the first
quarter of 1996. The decrease is primarily attributable to lower income due to
lower gold prices and exploration expenses incurred during the quarter by the
Company's 51%-owned subsidiary, Agua de la Falda S.A., which was formed in July
1996.
The following chart details Homestake's gold production and total cash costs
per ounce by location, and consolidated revenue and production costs per
ounce.
<TABLE>
<CAPTION>
Production Total Cash Costs
(Ounces in thousands) (Dollars per ounce)
Three Months Ended Three Months Ended
March 31, March 31,
Mine (Percentage interest) 1997 1996 1997 1996
- ------------------------- --------------------------- --------------------------
<S> <C> <C> <C> <C>
Homestake (100) 106.4 105.3 $316 $291
McLaughlin (100) 31.6 54.1 244 279
Round Mountain (25) 28.1 19.9 236 288
Pinson (50) (1) 6.4 2.2 312 464
Marigold (33) 7.2 6.9 229 241
------------ -----------
Total United States 179.7 188.4
Eskay Creek (100) (2,3) 94.6 99.4 165 162
Williams (50) 51.4 43.6 234 272
David Bell (50) 23.0 22.8 194 190
Quarter Claim (25) 2.8 2.8 175 168
Snip (100) (3,4) 28.2 11.8 204 185
Nickel Plate (100) - 26.7 - 328
------------ -----------
Total Canada 200.0 207.1
Kalgoorlie, Australia (50) 108.3 90.2 273 305
El Hueso, Chile (100) 0.5 2.4 310 242
------------ -----------
Total Production 488.5 488.1 $245 $258
Less Minority Interests (60.6) (54.9)
------------ -----------
Homestake's Share 427.9 433.2
============ ===========
</TABLE>
11
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Per Ounce of Gold 1997 1996
- ----------------- ----------------------------
<S> <C> <C>
Revenue $353 $401
============================
Per Ounce Costs
Cash Operating Costs (5) $239 $251
Other Cash Costs (6) 6 7
----------------------------
Total Cash Costs 245 258
Noncash Costs (7) 54 54
----------------------------
Total Production Costs $299 $312
============================
<FN>
(1) Homestake increased its interest in the Pinson mine from 26.3% to 50% in
December 1996.
(2) 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 70 ounces and 72 ounces of silver
equals one ounce of gold in the first quarters of 1997 and 1996,
respectively. Eskay Creek production includes 54,300 (59,900 in 1996)
payable ounces of gold and 2.8 million (2.8 million in 1996) payable ounces
of silver contained in ore sold to smelters.
(3) For comparison purposes, total cash costs per ounce include estimated
third-party costs incurred by smelter owners and others to produce
marketable gold and silver.
(4) 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.
(5) Cash operating costs are costs directly related to the physical activities
of producing gold; includes mining, milling, third-party smelting and
in-mine drilling expenditures that are related to production.
(6) Other cash costs are costs that are not directly related to, but may
result from, gold production; includes production taxes and royalties.
(7) Noncash costs are costs that typically are accounted for ratably over the
life of an operation; includes depreciation, depletion, accruals for 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 $66.4 million during the first quarter of
1997 compared to $60.7 million during the first quarter of 1996. The increase in
cash provided by operations includes the termination fee received from Santa Fe
upon termination of Homestake's merger agreement with Santa Fe. This was
partially offset by an increase of $36 million in payments for income and mining
taxes, primarily payments made in the first quarter of 1997 related to Prime's
1996 taxable income, as well as the effect of the lower gold prices. Working
capital at March 31, 1997 amounted to $325.8 million, including $270 million in
cash and equivalents and short-term investments.
Capital additions of $22.8 million for the first quarter of 1997 include $6.7
million for construction and development work at the Ruby Hill mine, $4.6
million at the Round Mountain mine primarily for a new mill to process the
higher-grade sulfide material, $3.7 million primarily for a tailings dam lift
and improvements in the underground operations at the Homestake mine, and $3.2
million at
12
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
the Kalgoorlie operations primarily for a decline from surface and a ventilation
raise at the Mt. Charlotte mine.
On March 10, 1997 Santa Fe terminated its previously announced merger agreement
with Homestake and paid Homestake a $65 million termination fee. As a result,
the Company recorded a pretax gain of $62.9 million ($47.2 million after tax),
net of merger-related expenses of $2.1 million incurred in 1997.
In February 1997, Homestake completed the sale of its interests in the George
Lake and Back River joint ventures in Canada to Arauco for $9.3 million in cash
and 3.6 million shares of Arauco common stock. As a result of this transaction,
the Company recorded a pretax gain of $13.5 million ($8.1 million after tax),
which is included in other income.
In February 1997, Homestake received the final permit for the Ruby Hill mine
near Eureka, Nevada. Construction has commenced and production is expected to
begin in the fourth quarter of 1997. Production is estimated at an annual rate
of 105,000-110,000 ounces per year at a total cash cost of $140 per ounce and a
total production cost of $258 per ounce.
The Company has a United States/Canadian/Australian cross-border credit facility
providing a total availability of $275 million. The Company pays a commitment
fee of 0.15% per annum on the unused portion of this facility. The credit
facility is available through September 2001 and provides for borrowings in
United States, Canadian, or Australian dollars, or gold, or a combination of
these. The credit agreement requires a minimum consolidated net worth of $500
million. No amounts have been borrowed under this credit agreement.
In February 1997, the Company paid a cash dividend of 5 cents per share. In
March 1997, the Company reduced its annual dividend rate to 10 cents per share
from 20 cents per share and declared a semi-annual dividend of 5 cents per share
payable in May 1997.
In April 1997, the Company filed with the Securities and Exchange Commission a
shelf registration statement (effective date - April 21, 1997) for the potential
sale of up to 20 million shares of common stock. The proceeds from any such
offering would be available for general corporate purposes, which could include
future acquisitions which have the potential to add to the Company's gold
reserves and future gold production, capital expenditures and repayment of debt.
Future results will be impacted by such factors as the market price of gold,
silver and sulfur, 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, planned capital expenditures, and anticipated dividends.
13
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Part II - OTHER INFORMATION
- ---------------------------
Item 5.
- -------
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Form 10-Q that are not statements of
historical facts are "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based on
beliefs of management, as well as assumptions made by and information currently
available to management. Forward looking statements include those preceded by
the words "believe," "estimate," "expect," "intend," "will," and similar
expressions, and include estimates of future production, costs per ounce, dates
of construction completion, costs of capital projects and commencement of
operations. Forward looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from expected
results. Some important factors and assumptions that could cause actual results
to differ materially from expected results are discussed below. Those listed are
not exclusive.
Estimates of future production for particular properties and for the Company as
a whole are derived from annual mine plans that have been developed based on
mining experience, reserve estimates, assumptions regarding ground conditions
and physical characteristics of ore (such as hardness and metallurgical
characteristics), expected rates and costs of production, and estimated future
sales prices. Actual production may vary for a variety of reasons, such as the
factors described above, ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, actions by labor, and
government imposed restrictions. Estimates of production from properties and
facilities not yet in production are based on similar factors but there is a
greater likelihood that actual results will vary from estimates due to a lack of
actual experience. Cash cost estimates are based on such things as past
experience, reserve and production estimates, anticipated mining conditions,
estimated costs of materials, supplies and utilities, and estimated exchange
rates. Noncash cost estimates are based on total capital costs and reserve
estimates, change based on actual amounts of unamortized capital, changes in
reserve estimates, and changes in estimates of final reclamation. Estimates of
future capital costs are based on a variety of factors and 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 by Company personnel and outside
consultants, and other factors. Capital cost estimates for new projects are
subject to greater uncertainties than additional capital costs for existing
operations. Estimated time for completion of capital projects is based on such
factors as the Company's experience in completing capital projects, and
estimates provided by and contract terms with contractors, engineers, suppliers
and others involved in design and construction of projects. Estimates reflect
assumptions about factors beyond the Company's control, such as the time
government agencies take in processing applications, issuing permits and
otherwise completing processes required under applicable laws and regulations.
Actual time to completion can vary significantly from estimates.
See the Company's Form 10-K Report for the year ended December 31, 1996, Part
IV, "FORWARD LOOKING STATEMENTS" and "RISK FACTORS," for a more detailed
discussion of factors that may impact on expected future results.
Item 6.
- -------
(a) Exhibits Method of Filing
----------------
11 - Computation of Earnings Per Share Filed herewith
electronically
27 - Financial Data Schedule Filed herewith
electronically
14
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
(b) Reports on Form 8-K
Eight reports on Form 8-K and three reports on Form 8-K/A were filed
during the quarter ended March 31, 1997.
The report on Form 8-K dated February 3, 1997 was submitted in
order to file a Press Release announcing the 1996 year-end ore
reserves and mineralized material for Homestake's 50.6%-owned
subsidiary, Prime Resources Group Inc.("Prime").
The report on Form 8-K dated February 7, 1997 was submitted in
order to file a Press Release announcing Homestake's earnings for
the quarter ending December 31, 1996.
The reports on Form 8-K/A dated February 3, 1997 and February 7,
1997 were submitted in order to file the following: (a) text of
News Release Correction issued by Homestake on February 14, 1997,
and (b) text of News Release Correction issued by Homestake on
February 18, 1997.
The report on Form 8-K dated February 10, 1997 was submitted in
order to file a Press Release announcing that the Company had
received permits to develop the West Archimedes orebody at the
Ruby Hill mine.
The report on Form 8-K dated February 28, 1997 was submitted in
order to file a Press Release announcing that Prime received a
positive feasibility study for the construction of a gravity
flotation processing facility at the Eskay Creek mine.
The report on Form 8-K/A dated March 6, 1997 announced that
Homestake and GeoBiotics, Inc. had entered into a strategic
alliance to develop biooxidation technology.
The following reports on Form 8-K relate to the now terminated
proposed merger with Santa Fe:
The report on Form 8-K dated January 15, 1997 was submitted in
order to file the following: (a) letter dated January 14, 1997
from Homestake to Santa Fe shareholders, (b) letter dated January
14, 1997 from Homestake to Homestake shareholders, and (c)
Homestake management slide presentation to Homestake and Santa Fe
shareholders.
The report on Form 8-K dated January 21, 1997 announced that the
proposed acquisition of Santa Fe had cleared government antitrust
review.
The report on Form 8-K dated February 27, 1997 announced that the
Company was advised of the Securities and Exchange Commission's
decision that the payment by Santa Fe of a break-up fee of $65
million to Homestake would not prevent Newmont Mining Company from
using pooling of interests accounting treatment in any subsequent
acquisition of Santa Fe.
The report on Form 8-K dated March 10, 1997 announced that Santa
Fe had terminated its previously announced merger agreement with
Homestake and, as a result, paid Homestake a $65 million
termination break-up fee.
15
<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 13, 1997 By /s/ Gene G. Elam
------------ -----------------
Gene G. Elam
Vice President, Finance and
Chief Financial Officer
Date: May 13, 1997 By /s/ David W. Peat
------------ -----------------
Vice President and Controller
(Chief Accounting Officer)
16
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 1997 1996
--------------- ---------------
<S> <C> <C>
Earnings:
Net income applicable to primary earnings
per share calculation $ 49,860 $ 13,653
=============== ===============
Weighted average number of shares outstanding 146,682 145,236
=============== ===============
Net income per share - primary $ 0.34 $ 0.09
=============== ===============
FULLY DILUTED
Earnings:
Net income $ 49,860 $ 13,653
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 $ 51,601 $ 15,394
=============== ===============
Weighted average number of shares outstanding:
Common shares 146,682 145,236
Additional shares relating to conversion of
5.5% convertible subordinated notes 6,505 6,505
--------------- ---------------
153,187 151,741
=============== ===============
Net income per share - fully diluted (a) $ 0.34 $ 0.10
=============== ===============
<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, 1997 and the related Condensed
Statement of Consolidated Income for the quarter ended March 31, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 154,607
<SECURITIES> 115,202
<RECEIVABLES> 46,819
<ALLOWANCES> 0
<INVENTORY> 97,779
<CURRENT-ASSETS> 434,763
<PP&E> 2,005,121
<DEPRECIATION> 1,004,822
<TOTAL-ASSETS> 1,516,731
<CURRENT-LIABILITIES> 108,942
<BONDS> 185,000
0
0
<COMMON> 146,728
<OTHER-SE> 649,791
<TOTAL-LIABILITY-AND-EQUITY> 1,516,731
<SALES> 171,165
<TOTAL-REVENUES> 250,187
<CGS> 146,269<F1>
<TOTAL-COSTS> 155,830<F2>
<OTHER-EXPENSES> 8,977<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,582
<INCOME-PRETAX> 82,798
<INCOME-TAX> 29,779
<INCOME-CONTINUING> 49,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,860
<EPS-PRIMARY> 0.34
<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>
