<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential. For Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
</TABLE>
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HOMESTAKE MINING COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, $1.00 PAR VALUE
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
64,354,945
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
Estimated solely for purposes of calculating the filing fee, pursuant to
the transaction described herein, Homestake will receive the equivalent of
approximately 189,279,250 Plutonic Ordinary Shares, comprised of Ordinary
Shares, Partly Paid Shares and Options (the "Plutonic Securities"). The Plutonic
Securities are being valued at US$2.79 per share, representing the average of
the high and low price (A$4.21) reported for Ordinary Shares on the Australian
Stock Exchange as of January 20, 1998, multiplied by the exchange rate (A$1.00 =
US$0.6637) on that date.
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$528,879,727
- --------------------------------------------------------------------------------
(5) Total fee paid:
$105,776
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary material:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPIES
[HOMESTAKE LETTERHEAD]
--, 1998
Dear Stockholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Stockholders of Homestake Mining Company to be held at -- local time, on --
, 1998, at -- , relating to a proposed acquisition by Homestake of
Plutonic Resources Limited.
At this important special meeting, you will be asked to approve a proposal
to issue shares of Homestake Common Stock to effect the acquisition of Plutonic.
As a consequence of the transaction, holders of Plutonic fully paid ordinary
shares, partly paid shares and options outstanding will receive shares of
Homestake Common Stock based on the Exchange Ratios described in the
accompanying Proxy Statement. It is expected that Homestake will issue a total
of approximately 64,354,945 shares of Homestake Common Stock to the holders of
Plutonic shares and options.
On completion of the acquisition, Plutonic will operate as a wholly-owned
subsidiary of Homestake.
The reasons you should approve the Combination include the following:
- The Combined Company will have:
-- an exciting growth profile and a large, geographically diverse
prospective land package from which we expect to generate future
discoveries;
-- an excellent asset base, strong balance sheet and cash flow, and the
ability to compete more effectively for acquisition, exploration and
development opportunities throughout the world;
-- higher gold production and lower cash operating costs per ounce; and
-- the financial strength to weather a low gold price environment.
- The Combination will be immediately accretive to Homestake's 1998 cash
flow and operating results (before one time transaction and restructuring
costs).
- The additional low cost production will give Homestake added flexibility
to reduce per ounce production costs in the future.
The Homestake Board of Directors has determined unanimously that the
transaction is fair to and in the best interests of the Homestake stockholders.
Accordingly, the Homestake Board of Directors recommends that the Homestake
stockholders vote "FOR" the proposal to issue shares of Homestake Common Stock
to effect the acquisition of Plutonic.
We are excited about the opportunities created by the combination of
Homestake and Plutonic. We believe that this transaction will result in a
larger, more diverse company that will be well-positioned to capitalize on
opportunities for future growth. We strongly recommend that you support this
proposal.
Very truly yours,
Harry M. Conger
Chairman of the Board
Jack E. Thompson
President and Chief Executive Officer
<PAGE> 3
PRELIMINARY COPIES
[LOGO] HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94108-2788
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON -- , 1998
To The Stockholders of Homestake Mining Company:
Notice is hereby given that a Special Meeting of Stockholders of Homestake
Mining Company, a Delaware corporation ("Homestake"), will be held at
-- local time, on -- , 1998, at -- , for the
following purposes:
1. To consider and vote upon a proposal to issue Homestake Common
Stock to acquire Plutonic Resources Limited ("Plutonic") pursuant to a
Combination Implementation Agreement dated
22 December 1997. As a consequence of the transaction:
(a) Holders of Plutonic fully paid ordinary shares, par value
A$0.50 ("Ordinary Shares"), other than Homestake, will receive 0.34
shares of Homestake Common Stock for each Ordinary Share owned by them.
(b) Holders of Plutonic partly paid shares, par value A$0.50, paid
up to A$0.05 each ("Partly Paid Shares"), will receive shares of
Homestake Common Stock for their Partly Paid Shares, with the number to
be received determined in accordance with a valuation formula described
in the accompanying Proxy Statement.
(c) Holders of options granted pursuant to the Plutonic Directors'
Option Plan or the Plutonic Employee Share Plan ("Options") will receive
shares of Homestake Common Stock for their Options, with the number to
be received determined in accordance with a valuation formula described
in the accompanying Proxy Statement.
It is expected that Homestake will issue approximately 63,840,365
shares of Homestake Common Stock to the holders of Ordinary Shares,
approximately 322,405 shares of Homestake Common Stock to the holders of
Partly Paid Shares, and approximately 192,175 shares of Homestake Common
Stock to the holders of Options, resulting in a total issuance of
approximately 64,354,945 shares of Homestake Common Stock.
2. To transact such other business as may properly come before the
Homestake Special Meeting or any adjournments thereof.
The Homestake Board of Directors has fixed the close of business on
-- , 1998 as the Homestake Record Date for determining the holders of
Homestake Common Stock entitled to receive notice of, and to vote at, the
Homestake Special Meeting and any adjournments thereof. Only the record holders
of Homestake Common Stock as of the Homestake Record Date are entitled to vote
at the Homestake Special Meeting or any adjournments thereof.
All stockholders are cordially invited to attend the Homestake Special
Meeting in person. It is important that your shares of Homestake Common Stock be
represented at the Homestake Special Meeting regardless of the number of shares
you hold. TO ENSURE THAT YOU ARE REPRESENTED AT THE HOMESTAKE SPECIAL MEETING,
PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
using the return envelope which requires no postage if mailed in the United
States. Your early attention to the enclosed proxy will be greatly appreciated
because it will reduce the cost Homestake incurs in obtaining voting
instructions from its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO ISSUE SHARES OF HOMESTAKE COMMON STOCK TO ACQUIRE PLUTONIC.
By Order of the Board of Directors,
Wayne Kirk
Secretary
, 1998
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY.
(i)
<PAGE> 4
PRELIMINARY COPIES
HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET
SAN FRANCISCO, CA 94108-2788
-- , 1998
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished to the stockholders of Homestake
Mining Company in connection with the solicitation of proxies by the Board of
Directors of Homestake Mining Company for use at a special meeting of
stockholders to be held on , 1998. This Proxy Statement and the
accompanying form of proxy are first being mailed to the stockholders of
Homestake Mining Company on or about , 1998.
This Proxy Statement consists of certain preliminary information, a
summary, a supplement ("Supplement") and several appendices (collectively, the
"Proxy Statement"). Capitalized terms used herein are defined in "Certain
Defined Terms" on page -- of the Supplement.
MATTERS TO BE CONSIDERED
At the Homestake Special Meeting, the holders of Homestake Common Stock
will be asked to consider the following matters:
1. To consider and vote upon a proposal to issue Homestake Common
Stock to acquire Plutonic Resources Limited ("Plutonic") pursuant to a
Combination Implementation Agreement dated as of 22 December 1997. As a
consequence of the transaction:
(a) Holders of Plutonic Ordinary Shares, other than Homestake, will
receive 0.34 shares of Homestake Common Stock for each Ordinary Share
owned by them.
(b) Holders of Plutonic Partly Paid Shares will receive shares of
Homestake Common Stock for their Partly Paid Shares, with the number to
be received determined in accordance with a valuation formula described
in "The Agreement -- Schemes of Arrangement" in the Supplement.
(c) Holders of Plutonic Options will receive shares of Homestake
Common Stock for their Options, with the number to be received
determined in accordance with a valuation formula described in "The
Agreement -- Schemes of Arrangement" in the Supplement.
It is expected that Homestake will issue approximately 63,840,365
shares of Homestake Common Stock to the holders of Ordinary Shares,
approximately 322,405 shares of Homestake Common Stock to the holders of
Partly Paid Shares, and approximately 192,175 shares of Homestake Common
Stock to the holders of Options resulting in a total issuance of
approximately 64,354,945 shares of Homestake Common Stock (the "Share
Issuance").
2. To transact such other business as may properly come before the
Homestake Special Meeting or any adjournments thereof.
VOTING RIGHTS; VOTE REQUIRED
A majority of the shares of Homestake Common Stock outstanding on the
Homestake Record Date must be represented in person or by proxy at the Homestake
Special Meeting for a quorum to be present at the Homestake Special Meeting. In
the event a quorum is not present at the Homestake Special Meeting, the meeting
will be adjourned to solicit additional proxies.
1
<PAGE> 5
Approval of the Share Issuance requires the approval of a majority of the
votes cast on the proposal, provided that the total votes cast on the proposal
represents over 50% of all shares of Homestake Common Stock that are entitled to
vote on the proposal.
Only the record holders of Homestake Common Stock on the Homestake Record
Date are entitled to receive notice of and to vote at the Homestake Special
Meeting. On the Homestake Record Date, there were -- shares of Homestake Common
Stock outstanding held by -- record holders.
Record holders of Homestake Common Stock on the Homestake Record Date are
entitled to one vote per share on each matter to be considered at the Homestake
Special Meeting. The Homestake Board is not aware of any matter to be presented
at the Homestake Special Meeting other than the Share Issuance.
At the close of business on --, 1998, directors and executive officers of
Homestake and their affiliates beneficially owned -- shares of Homestake Common
Stock, which represented approximately --% of the shares of Homestake Common
Stock outstanding on such date, and were entitled to vote -- shares of Homestake
Common Stock, which represented approximately --% of the shares of Homestake
Common Stock outstanding on such date. Each such director and executive officer
of Homestake has indicated his or her present intention to vote, or cause to be
voted, the Homestake Common Stock owned by him or her "FOR" the Share Issuance.
THE HOMESTAKE BOARD UNANIMOUSLY RECOMMENDS THAT THE HOMESTAKE STOCKHOLDERS
VOTE "FOR" THE SHARE ISSUANCE.
ABSENCE OF DISSENTERS APPRAISAL RIGHTS
The Homestake Stockholders are not entitled to dissenters appraisal rights
in respect of the Combination or the Share Issuance. See "The
Combination -- Absence of Dissenters Appraisal Rights" in the Supplement.
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for
the Homestake Special Meeting will be voted in the manner specified by the
holders thereof. Properly executed proxies for shares of Homestake Common Stock
that do not contain voting instructions will be voted in favor of the Share
Issuance.
Shares of Homestake Common Stock represented at the Homestake Special
Meeting but not voting, including shares with respect to which the holders
thereof have abstained on any matter, will be treated as present for purposes of
determining the presence or absence of a quorum for the transaction of all
business.
The persons named as proxies by a Homestake Stockholder may propose and
vote for one or more adjournments of the Homestake Special Meeting, including,
without limitation, adjournments to permit further solicitations of proxies in
favor of the Share Issuance; provided, however, that no proxy that is voted
against the Share Issuance will be voted in favor of any adjournment to permit
such further solicitations.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
Homestake Stockholder from voting in person. A Homestake Stockholder may revoke
a proxy at any time prior to its exercise by filing with the Secretary of
Homestake a duly executed revocation of proxy, by submitting a duly executed
proxy bearing a later date or by appearing at the Homestake Special Meeting and
voting in person. Attendance at the Homestake Special Meeting will not, in and
of itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
Homestake will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Homestake may solicit proxies from the Homestake Stockholders by
telephone or telegram or in person. Arrangements will also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of Homestake Common
Stock, and Homestake will reimburse such custodians, nominees and
2
<PAGE> 6
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
D.F. King & Co., Inc. will assist in the solicitation of proxies by Homestake
and will receive $12,000 plus reimbursement of its expenses.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOMESTAKE.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY
JURISDICTION IN WHICH IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION OR
TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
CERTAIN INFORMATION
This Proxy Statement consists of certain preliminary information, a
summary, the Supplement and several appendices. Capitalized terms used herein
are defined in "Certain Defined Terms" beginning on page S-7 of the Supplement.
The information concerning Plutonic contained in this Proxy Statement,
including financial information, has been provided by Plutonic and its
affiliates and advisors ("Plutonic Information"). Neither Homestake nor its
affiliates or advisors assume any responsibility for the accuracy or
completeness of the Plutonic Information.
The information concerning Homestake contained in this Proxy Statement,
including financial information, has been provided by Homestake and its
affiliates and advisors ("Homestake Information"). Neither Plutonic nor its
affiliates or advisors assume any responsibility for the accuracy or
completeness of the Homestake Information.
The information concerning the Combined Company contained in this Proxy
Statement, including pro forma financial information, has been prepared by
Homestake, based on the Homestake Information and the Plutonic Information.
In this Proxy Statement, unless otherwise indicated, Homestake Information
presents financial information in US dollars and Plutonic Information presents
financial information in Australian dollars. The consolidated financial
statements of Homestake are prepared in accordance with U.S. GAAP. The
consolidated financial statements of Plutonic are prepared in accordance with
Australian GAAP. Significant differences between U.S. GAAP and Australian GAAP,
as they relate to Homestake, are summarized in Appendix F. Significant
differences between U.S. GAAP and Australian GAAP, as they relate to Plutonic,
are summarized in Appendix D.
3
<PAGE> 7
TABLE OF CONTENTS
PROXY STATEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SPECIAL MEETING OF STOCKHOLDERS...................................................... 1
Matters to be Considered........................................................... 1
Voting Rights; Vote Required....................................................... 1
Absence of Dissenters Appraisal Rights............................................. 2
Voting of Proxies.................................................................. 2
Revocability of Proxies............................................................ 2
Solicitation of Proxies............................................................ 2
CERTAIN INFORMATION.................................................................. 3
SUMMARY.............................................................................. 8
Description of the Combination..................................................... 8
Exchange Ratios; Entitlement to Homestake Common Stock............................. 9
Comparative Stock Prices and Premium to Plutonic Shareholders...................... 10
Homestake Mining Company........................................................... 10
Plutonic Resources Limited......................................................... 13
Homestake's Reasons for the Combination; Recommendation of the Homestake Board..... 13
Opinion of Homestake's Financial Advisor........................................... 14
Plutonic's Reasons for the Combination; Recommendation of the Plutonic Board....... 15
The Combined Company............................................................... 15
Risk Factors....................................................................... 17
Certain Australian Income and United States Federal Income Tax Consequences........ 19
Anticipated Accounting Treatment................................................... 20
Interests of Certain Persons in the Combination.................................... 20
Conditions to the Combination...................................................... 20
Termination of the Agreement....................................................... 20
Regulatory Matters................................................................. 21
SELECTED FINANCIAL DATA AND OTHER INFORMATION........................................ 22
Homestake Selected Consolidated Historical Financial Data.......................... 22
Homestake Selected Operating Data.................................................. 23
Plutonic Selected Consolidated Historical Financial Data (Australian GAAP)......... 24
Plutonic Selected Operating Data................................................... 25
Plutonic Selected Consolidated Historical Financial Data (U.S. GAAP)............... 26
Unaudited Pro Forma Combined Selected Financial Data............................... 27
COMPARATIVE PER SHARE DATA........................................................... 28
SUPPLEMENT
AVAILABLE INFORMATION................................................................ S-5
EXCHANGE RATES....................................................................... S-5
CERTAIN DEFINED TERMS................................................................ S-7
CERTAIN MEASUREMENTS................................................................. S-9
RISK FACTORS......................................................................... S-11
Risks Inherent in Gold Exploration, Development and Production..................... S-11
Risks of Gold and Silver Price Fluctuations and Hedging Activities................. S-11
Risk of Inability to Achieve Combined Company Cost Savings......................... S-12
Risks Associated with Reserve Realization.......................................... S-12
Risks of Government Regulation of Mining Activities................................ S-13
Risks of Currency Fluctuations..................................................... S-13
Risks of Native Title Claims....................................................... S-14
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CAUTIONARY STATEMENTS................................................................ S-15
Reliance By Homestake and Plutonic on Information Provided by the Other............ S-16
Reserves........................................................................... S-16
Estimates of Production............................................................ S-17
Estimates of Operating Costs and Capital Costs; Capital Projects................... S-17
Taxes.............................................................................. S-18
Western Australia Royalty.......................................................... S-18
PRICE RANGE AND TRADING VOLUME OF HOMESTAKE COMMON STOCK AND THE PLUTONIC ORDINARY
SHARES; DIVIDENDS.................................................................. S-20
Price Ranges and Trading Volumes................................................... S-20
Comparison of Stock Price Performances............................................. S-22
Dividends.......................................................................... S-22
THE COMBINATION...................................................................... S-24
General............................................................................ S-24
Exchange Ratios.................................................................... S-24
Background of the Combination...................................................... S-25
Homestake's Reasons for the Combination; Recommendation of the Homestake Board..... S-27
Opinion of Homestake's Financial Advisor........................................... S-31
Plutonic's Reasons for the Combination; Recommendation of the Plutonic Board....... S-35
Certain Australian and United States Federal Income Tax Consequences............... S-36
Anticipated Accounting Treatment................................................... S-42
Regulatory Matters................................................................. S-42
Absence of Dissenters Appraisal Rights............................................. S-42
Interests of Certain Persons in the Combination.................................... S-43
Resale of Homestake Common Stock................................................... S-45
HOMESTAKE MINING COMPANY............................................................. S-46
Background......................................................................... S-46
Significant 1997 and 1998 Developments............................................. S-47
Statistical Summary................................................................ S-48
Business and Property Description.................................................. S-51
Mineral Exploration and Development................................................ S-74
Information on Reserves............................................................ S-75
Environmental Matters.............................................................. S-76
Legal Proceedings.................................................................. S-81
PLUTONIC RESOURCES LIMITED........................................................... S-82
Background......................................................................... S-82
Significant Recent Developments.................................................... S-83
Statistical Summary................................................................ S-84
Mineral Exploration and Development................................................ S-95
Information on Reserves............................................................ S-95
Estimation of Reserves............................................................. S-96
Other Information.................................................................. S-96
Native Title Claims................................................................ S-96
Environmental...................................................................... S-96
Customers.......................................................................... S-97
Employees.......................................................................... S-97
Legal Proceedings.................................................................. S-98
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE AGREEMENT........................................................................ S-99
General............................................................................ S-99
Schemes of Arrangement............................................................. S-99
Representations and Warranties..................................................... S-99
Conduct of Business Pending the Combination........................................ S-100
Certain Actions With Respect to Takeover Proposals................................. S-101
Conditions to the Consummation of the Combination.................................. S-101
Termination........................................................................ S-102
Superior Proposal.................................................................. S-103
Termination Fees................................................................... S-103
Effect of Termination.............................................................. S-104
Enforcement........................................................................ S-104
Release of Officers and Directors.................................................. S-104
Definitions........................................................................ S-104
HOMESTAKE HISTORICAL SELECTED FINANCIAL DATA AND OTHER INFORMATION................... S-107
Historical Selected Financial Data................................................. S-107
Selected Operating Data............................................................ S-108
PLUTONIC HISTORICAL SELECTED FINANCIAL DATA AND OTHER INFORMATION (AUSTRALIAN
GAAP).............................................................................. S-109
Historical Selected Financial Data................................................. S-109
Selected Operating Data............................................................ S-110
PLUTONIC SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (U.S. GAAP)................. S-111
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.......................... S-112
COMPARATIVE PER SHARE DATA........................................................... S-125
DIRECTORS AND MANAGEMENT OF HOMESTAKE AFTER THE COMBINATION.......................... S-127
Board of Directors of Homestake After the Combination.............................. S-127
Directors and Management of Homestake after the Combination; Intentions about
Plutonic........................................................................ S-130
BENEFICIAL OWNERSHIP OF SECURITIES................................................... S-132
Security Ownership of Certain Beneficial Owners of Homestake....................... S-132
Ownership of Common Stock By Homestake's Management................................ S-132
DESCRIPTION OF HOMESTAKE CAPITAL STOCK............................................... S-134
General............................................................................ S-134
"Fair Price" Charter Provision..................................................... S-134
Homestake Rights Agreement......................................................... S-135
COMPARISON OF SHAREHOLDERS' RIGHTS................................................... S-137
Vote Required for Ordinary Transactions; Quorum.................................... S-137
Vote Required for Extraordinary Transactions....................................... S-137
Distribution on Winding-Up......................................................... S-138
Transactions Involving Shareholders, Officers or Directors......................... S-138
Takeover Regulation................................................................ S-139
Dissenters Appraisal Rights........................................................ S-140
Oppression Remedy.................................................................. S-141
Limitation of Director Liability................................................... S-141
Distributions and Dividends........................................................ S-142
INDEPENDENT ACCOUNTANTS.............................................................. S-143
LEGAL MATTERS........................................................................ S-143
STOCKHOLDER PROPOSALS................................................................ S-143
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
APPENDIX A: HOMESTAKE MINING COMPANY AND PLUTONIC RESOURCES LIMITED COMBINATION
IMPLEMENTATION AGREEMENT........................................................... A-1
APPENDIX B: OPINION OF HOMESTAKE'S INVESTMENT ADVISOR................................ B-1
APPENDIX C: HOMESTAKE MINING COMPANY CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA................................................................. C-1
APPENDIX D: PLUTONIC RESOURCES LIMITED AND CONTROLLED ENTITITES CONSOLIDATED
FINANCIAL STATEMENTS............................................................... D-1
APPENDIX E: COMPARISON OF CERTAIN SEC AND JORC CODE REPORTING REQUIREMENTS........... E-1
APPENDIX F: HOMESTAKE DIFFERENCES BETWEEN U.S. AND AUSTRALIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.............................................................. F-1
APPENDIX G: OVERVIEW OF AUSTRALIAN, CANADIAN AND UNITED STATES REGULATION OF MINING
RIGHTS............................................................................. G-1
</TABLE>
7
<PAGE> 11
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement, including the Supplement and the Appendices. Consequently,
reference is made to, and this Summary is qualified in its entirety by, the more
detailed information contained in this Proxy Statement. Stockholders are urged
to read this Proxy Statement, which includes the Supplement and the Appendices,
in its entirety.
DESCRIPTION OF THE COMBINATION
The Combination
Subject to the terms and conditions of the Agreement, following the
implementation of the Combination, Plutonic will be a wholly-owned subsidiary of
Homestake.
At -- 1998, Plutonic had 188,115,785 Ordinary Shares outstanding,
1,077,087 Partly Paid Shares outstanding, and Options outstanding to acquire
3,218,000 Plutonic Shares. Homestake will purchase 350,000 Ordinary Shares
(approximately 0.19%) in open market purchases on the ASX before approximately
March 1, 1998. Homestake does not have a beneficial interest in any other
Plutonic Securities.
Pursuant to the Agreement and in accordance with applicable law in
Australia, Plutonic will prepare an Explanatory Statement containing the
disclosures required by Australian law and will seek to obtain the approval of
its securityholders by convening separate meetings of holders of the Ordinary
Shares, holders of the Partly Paid Shares, and holders of the Options to
consider and approve separate "Schemes of Arrangement" with respect to the
Ordinary Shares, the Partly Paid Shares and the Options (each, a class of
"Plutonic Securities"). Each Scheme provides for the cancellation of all
Plutonic Securities of that class in consideration of receipt by the holders
thereof of Homestake Common Stock, except that the 350,000 Ordinary Shares held
by Homestake will continue to be outstanding and will not be cancelled.
Each Scheme must be approved by (i) a majority in number of the holders of
the applicable class of Plutonic Securities present or represented by proxy at
the respective Scheme of Arrangement meeting, and (ii) 75% of the applicable
class of Plutonic Securities present or represented by proxy at such meeting.
These approvals are required under the Agreement, but Homestake has the right to
waive the approvals with respect to the Partly Paid Scheme and the Option
Scheme. Following approval of the Share Issuance by Homestake Stockholders and
following approval of the separate Schemes by each class of Plutonic Securities,
the Supreme Court of New South Wales will make a final determination of the
fairness of the Combination to the holders of Plutonic Securities and may grant
its approval to the Schemes, such approval being subject to such alterations and
conditions as it deems appropriate and issue its order approving the Schemes
(the "Second Court Order"). Thereafter, and subject to the terms and conditions
of the Agreement, Homestake Common Stock will be issued to the holders of the
Plutonic Securities (other than Homestake) on the basis of the applicable
Exchange Ratio and Homestake will own 100% of the Plutonic Securities
outstanding.
Homestake Common Stock to be issued in the Combination will be issued
approximately two weeks after the Second Court Order approving the Schemes in
order to comply with ASX requirements for orderly termination of trading and
final settlement of trades outstanding. Fractional shares of Homestake Common
Stock will not be issued and cash will be paid (in Australian dollars) in lieu
of fractional shares.
It is a condition of the Agreement that the Share Issuance must be approved
by the Homestake Stockholders.
There are no dissenters appraisal rights available to Homestake
Stockholders who vote against the Share Issuance. Similarly, a holder of a
Plutonic Security whose class of securities approves the Combination will be
bound by the applicable Scheme and will have no rights equivalent to dissenters
appraisal rights.
Pursuant to the Homestake Rights Agreement, each share of Homestake Common
Stock issued in the Combination will be accompanied by one Homestake Right. See
"Description of Homestake Capital Stock -- Homestake Rights Agreement" in the
Supplement.
8
<PAGE> 12
As a consequence of the Combination, it is expected that Homestake will
issue a total of approximately 64,345,945 shares of Homestake Common Stock,
representing approximately 30.48% of the capital stock of Homestake outstanding
after the transaction (29.09% on a fully-diluted basis).
EXCHANGE RATIOS; ENTITLEMENT TO HOMESTAKE COMMON STOCK
The Exchange Ratios established for the Plutonic Securities are as follows:
ORDINARY SHARES
Holders of Ordinary Shares will be entitled to receive 0.34 shares of
Homestake Common Stock in consideration of the cancellation of each Ordinary
Share owned by them.
PARTLY PAID SHARES
There are three groups of Partly Paid Shares outstanding that are held by
employees of Plutonic (each an "Employee Grantee") or, at the election of the
Employee Grantee, an affiliate of the Employee Grantee. The Partly Paid Shares
have been paid up as to A$0.05 per share, and the remainder of the purchase
price has not yet been paid. A holder of Partly Paid Shares is not required to
pay the remainder of the purchase price therefor until the earlier of six months
after termination of employment of the applicable Employee Grantee (or such
longer period as the Plutonic Board may determine) and the date the Partly Paid
Shares are to be sold.
In valuing each of the Partly Paid Shares, Homestake and Plutonic agreed to
use as the basis therefor the value of 0.34 shares of Homestake Common Stock
(based on the closing price of Homestake Common Stock on the NYSE on December
19, 1997) converted into Australian dollars, and reduced by the unpaid purchase
price applicable to each Partly Paid Share. It was also assumed each Partly Paid
Share would be paid up in full within five years.
Based on the foregoing, the relative value of each Partly Paid Share to one
Ordinary Share was determined and a relative exchange ratio was established, as
follows:
<TABLE>
<CAPTION>
EXCHANGE RATIO (SHARES OF HOMESTAKE
COMMON STOCK TO EACH PARTLY PAID
PLUTONIC PARTLY PAID SHARES SHARE)
-------------------------------------------------- --------------------------------------
<S> <C>
211,250 Partly Paid Shares, unpaid as to A$0.75 0.303
per share
702,962 Partly Paid Shares, unpaid as to A$0.85 0.299
per share
162,875 Partly Paid Shares, unpaid as to A$0.90 0.296
per share
</TABLE>
A total of 322,405 shares of Homestake Common Stock will be exchanged for
the 1,077,087 Partly Paid Shares outstanding.
OPTIONS
There are eleven separate groups of Options outstanding, exercisable on
dates ranging from October 12, 1999 through June 4, 2002, at prices ranging from
A$5.66 to A$8.75. In valuing the Options, Homestake and Plutonic agreed to apply
the Black-Scholes option valuation method, using as the basis therefor the value
of 0.34 shares of Homestake Common Stock (based on the closing price of
Homestake Common Stock on the NYSE on December 19, 1997) converted into
Australian dollars. Based on the foregoing, the relative value of each Option to
one Ordinary Share was determined and a relative exchange ratio was established
for each Option. Exchange Ratios for the Options vary from 0.048 to 0.104 shares
of Homestake Common Stock per Option, for a total of 192,175 shares of Homestake
Common Stock to be exchanged for the Options outstanding to subscribe for
3,218,000 Plutonic Shares.
9
<PAGE> 13
COMPARATIVE STOCK PRICES AND PREMIUM TO PLUTONIC SHAREHOLDERS
Homestake and Plutonic publicly announced the Combination on December 21,
1997 in the United States (December 22, 1997 in Australia). The following table
shows the closing prices for Homestake Common Stock on the NYSE and for Ordinary
Shares on the ASX on December 19, 1997 (the last trading day before the
Combination was announced) and comparable price data on -- , 1998 (the last
trading day prior to the date of this Proxy Statement):
<TABLE>
<CAPTION>
HOMESTAKE COMMON PLUTONIC ORDINARY SHARES
STOCK (NYSE) (ASX)
------------------- ------------------------
<S> <C> <C> <C>
December 19, 1997............. US$9.9375 A$2.80 (US$1.82*)
-- , 1998................... US$ A$ (US$ *)
</TABLE>
- ---------------
* US dollar amounts are calculated by multiplying the actual Australian dollar
amounts by the Exchange Rate on the applicable date.
The following table shows the equivalent market price (in both US and
Australian dollars) on December 19, 1997 and -- , 1998 for 0.34 shares of
Homestake Common Stock, being the Exchange Ratio of Homestake Common Stock for
each Ordinary Share, based on the closing prices of Homestake Common Stock on
the NYSE on those days:
<TABLE>
<S> <C> <C>
December 19, 1997........................................ US$3.38 A$5.20**
-- , 1998.............................................. US$ A$ **
</TABLE>
Based on the market value of Homestake Common Stock at December 19, 1997
and -- , 1998, the Combination offers a premium of 86% to the holders of
Ordinary Shares at December 19, 1997 and a premium of --% at -- , 1998 based
upon the closing prices of Ordinary Shares on December 19, 1997.
- ---------------
** Australian dollar amounts are calculated by multiplying the actual US dollar
amounts by the Exchange Rate on the applicable date.
HOMESTAKE MINING COMPANY
Homestake is engaged principally in gold mining and related activities,
including exploration, extraction, processing, refining and reclamation. Gold
bullion, Homestake's principal product, is produced in the United States,
Canada, Australia and Chile. Homestake is actively engaged in exploration in the
United States, Canada, Australia, Eastern Europe, Brazil, Chile and the Andean
region of South America, and participates in a development project in Bulgaria.
Homestake is incorporated under Delaware law. The Homestake Common Stock is
listed on the NYSE under the symbol "HM," on the ASX and on the Swiss Stock
Exchange (Basel, Geneva and Zurich). Homestake's principal executive offices are
located at 650 California Street, San Francisco, California 94108-2788
(telephone number: (415) 981-8150). See "Homestake Mining Company" in the
Supplement.
10
<PAGE> 14
The following table presents certain information regarding Homestake's
significant properties. Where the percentage interest shown below is less than
100%, reserves and mineralized material data represent Homestake's share of
total reserves and mineralized material. All tons are presented in short tons of
2,000 pounds, except tons of sulfur, which are presented in long tons of 2,240
pounds.
<TABLE>
<CAPTION>
MINERALIZED
MATERIAL AT
RESERVES AT DECEMBER 31,
DECEMBER 31, 1996
1996 ---------------------
OWNERSHIP 1996 ------------ WEIGHTED
INTEREST PRODUCTION CONTAINED AVERAGE
---------- ---------- OUNCES TONS(1) GRADE
GOLD MINES PERCENTAGE OUNCES (THOUSANDS) (MILLIONS) (OZ/TON)
- ---------------------------------------------------------- ---------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
UNITED STATES
The HOMESTAKE MINE, located in Lead, South Dakota, has 100 407,322 4,662 24.0 0.173
operated for over 122 years and produced more than 38.5
million ounces of gold. Operations consist of an 8,000
foot deep underground mine, an open pit mine (scheduled to
close in 1998), a mill and a refinery. On January 26,
1998, Homestake announced a major restructuring that will
substantially reduce production and costs per ounce of
production at the mine.
The ROUND MOUNTAIN MINE is located in central Nevada, 25 102,744 2,263 26.5 0.015
about 60 miles north of Tonopah. The operation is one of
the largest heap leach gold mines in the world. An 8,000
TPD gravity mill to process higher-grade sulfide ores was
completed in the third quarter of 1997.
The RUBY HILL MINE is located near Eureka in central 100 -- 755 9.2 0.067
Nevada. Production commenced in the fourth quarter of
1997. Production for 1998 is estimated to be 110,000
ounces at a total cash cost of approximately US$123 per
ounce and at a total production cost of US$241 per ounce.
Ore from this open pit mine is heap leached.
The MCLAUGHLIN MINE is located in northern California. 100 185,458 1,048 -- --
Mining ceased in 1996 and processing of stockpiled ore
will continue until 2003 at a significantly reduced level
of gold production.
The MARIGOLD MINE is located about 40 miles southeast of 33.3 24,485 203 -- --
Winnemucca, Nevada. Mining is conducted by conventional
open pit methods. The mine is primarily a heap leach
operation with intermittent milling operations.
The PINSON MINE, located about 30 miles northeast of 50 12,098 92 -- --
Winnemucca, Nevada. Mining is conducted by conventional
open pit methods in several different areas. Ore is
processed by both heap leaching and conventional milling
methods. In December 1996, Homestake increased its
interest in the Pinson Mine from 26.3% to 50% and became
operator of the mine.
CANADA
The ESKAY CREEK MINE is located approximately 50 air miles 100 372,279 Gold 0.1 Gold
north of Stewart, British Columbia. This underground mine (3)(4) 1,224 0.541
is one of Canada's highest-grade and Homestake's lowest
cost operations. Ore at Eskay Creek is crushed and blended Silver Silver
prior to the sale to third-party smelters for final 56,070 31.62
processing. Construction of a new gravity/flotation mill
was completed in November 1997. The mill will improve
profit margins on ore currently shipped to third-party
smelters and will allow for the treatment of some lower
grade ores that otherwise could not be processed
economically.(2)
The SNIP MINE is an underground mine located approximately 100 101,827 135 -- 0.555
56 air miles north of Stewart, British Columbia. It is a (3)
small high-grade mine. In April 1996, Prime Resources
Group Inc. increased its ownership in the Snip Mine from
40% to 100%. Absent additional exploration success, the
Snip Mine is expected to close in the second quarter of
1999.(2)
The WILLIAMS MINE, Canada's largest underground gold mine, 50 205,519 2,585 4.3 0.121
is located in the Hemlo Gold Camp, immediately north of
Lake Superior near Marathon, Ontario.
The DAVID BELL MINE, which is adjacent to the Williams 50 109,098 871 -- --
Mine, is a smaller, higher-grade underground mine.
Included with the David Bell mine is a "Quarter Claim"
royalty interest in a neighboring mine. The Williams and
David Bell Mines are modern and low cost.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
MINERALIZED
MATERIAL AT
RESERVES AT DECEMBER 31,
DECEMBER 31, 1996
1996 ---------------------
OWNERSHIP 1996 ------------ WEIGHTED
INTEREST PRODUCTION CONTAINED AVERAGE
---------- ---------- OUNCES TONS(1) GRADE
GOLD MINES PERCENTAGE OUNCES (THOUSANDS) (MILLIONS) (OZ/TON)
- ---------------------------------------------------------- ---------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
AUSTRALIA
The consolidated surface and underground operations at 50 368,816 6,446 82.9 0.073
KALGOORLIE comprise Australia's largest gold mining
complex. During 1995, a $90 million (100% basis) mill
expansion increased the milling capacity at Kalgoorlie to
35,000 TPD and will allow for further expansion of the
Super Pit. In 1997, a 1.6-mile long decline was completed
from the Super Pit to the Mt Charlotte underground mine.
CHILE
The AGUA DE LA FALDA MINE is located approximately 600 100 -- 95 3.0 0.158
miles north of Santiago. Ore from this underground mine is
heap leached. Mining commenced in January 1997 and the
first gold was poured in April 1997. Annualized production
is currently at a rate of approximately 40,000 ounces per
year (100% basis), at a total cash cost of US$230 per
ounce and a total production cost of US$325 per ounce.(5)
</TABLE>
<TABLE>
<CAPTION>
RESERVES AT
SULFUR MINE OWNERSHIP INTEREST 1996 PRODUCTION DECEMBER 31, 1996
- ---------------------------------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
The MAIN PASS 299 sulfur deposit is located in the Gulf of 16.7 Sulfur Sulfur
Mexico off the coast of Louisiana. Main Pass 299 is the 324,959 11.0 million
largest Frasch sulfur mine discovered in North America tons(1) tons(1)(6)
since 1920. In September 1997 Homestake wrote off its
entire remaining investment in the sulfur property. In Oil Oil
addition to sulfur, oil reserves overlie the deposit. 541,706 2.1 million
barrels barrels(6)
</TABLE>
- ---------------
(1) All tons are presented in short tons of 2,000 pounds, except tons of sulfur,
which are presented in long tons of 2,240 pounds.
(2) The Eskay Creek and Snip mines are owned 100% by Prime, of which Homestake
owns 50.6% of the stock outstanding. The ownership interest and 1996
production amounts shown are Homestake's interests without reduction for the
49.4% minority interest in Prime. Reserves and mineralized material amounts
shown are Homestake's interests after reduction for the 49.4% minority
interest in Prime.
(3) Includes contained ounces of gold and equivalent ounces of gold contained in
ore and concentrates sold to smelters.
(4) Includes silver converted into equivalent ounces of gold at a ratio of 74.9
ounces of silver equals one ounce of gold.
(5) Homestake owns 51% of Agua de la Falda, S.A. Reserves and mineralized
material amounts shown are Homestake's interest after reduction for the 49%
minority interest.
(6) Reserve amounts are before royalties.
RECENT DEVELOPMENTS
On January 26, 1998, Homestake announced that it will implement a major
restructuring of operations at the Homestake mine to reduce operating costs.
Annual production will be reduced to approximately 150,000 to 180,000 ounces per
year. Implementation of the plan will require a major reduction in the level of
employment and a complete reorganization of the methods of operation. To most
effectively implement the plan, Homestake has suspended underground mining while
it completes the final details of the new operating plan and readies the
underground mine to begin operating on the restructured basis. During the
shutdown period, the mill will operate at a reduced level sufficient to process
ore from the Open Cut, which will continue to operate during the shutdown
period. The new operating plan will involve closing parts of the mine and
concentrating on substantially fewer production levels. To achieve the new
operating plan, Homestake will invest US$20 million to US$30 million by the end
of 1999. On completion of the restructuring, total cash cost
12
<PAGE> 16
for the underground mine is expected to decline from the current cost of
approximately US$335 per ounce to approximately US$280 per ounce by the end of
1999. Before taking into account the Combination, the restructuring is expected
to reduce Homestake's weighted average cash costs by approximately US$8 per
ounce by the end of 1999. Homestake is now in the process of evaluating ore
reserves and mineralized material at the mine in light of the new operating
plan. Preliminary estimates are that it will result in a decline of about 1.5
million ounces in the mine's proven and probable reserves from the 4.6 million
ounces reported at the end of 1996 (before taking account of 1997 production).
Mineralized material also will be reduced in light of the changed circumstances.
However, the new operating plan will significantly increase the mine's net
present value and total cash flow.
PLUTONIC RESOURCES LIMITED
Plutonic is engaged principally in gold mining and related activities,
including exploration, extraction, processing and reclamation. Plutonic also has
interests in base metal activities through Lachlan Resources NL, its 62% owned
subsidiary. Plutonic has interests in five gold mines in Western Australia and
conducts exploration in the Australian states of Western Australia, Queensland,
New South Wales, Victoria and Tasmania. Plutonic is incorporated in New South
Wales. The Ordinary Shares are listed on the ASX under the symbol "PLU."
Plutonic's principal offices are located at Level 37, 100 Miller Street, North
Sydney, NSW 2060, Australia (telephone number: (02) 9900-5000). See "Plutonic
Resources Limited" in the Supplement.
The following table presents certain information regarding Plutonic's
significant properties. Where the percentage interest is less than 100%,
production, reserves and mineralized material represent Plutonic's share of
total production, reserves and mineralized material. All tons are presented in
short tons of 2,000 pounds.
<TABLE>
<CAPTION>
RESERVES
AT 31 MINERALIZED MATERIAL
DECEMBER AT 31 DECEMBER 1996
1996 -----------------------
----------- WEIGHTED
OWNERSHIP 1996 CONTAINED AVERAGE
INTEREST PRODUCTION OUNCES TONS GRADE
GOLD MINES PERCENTAGE OUNCES (THOUSANDS) (MILLIONS) (OZ/TON)
- ----------------------------------------------- ---------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
The PLUTONIC MINE, 180 kilometres from 100 183,688 1,127 28.2 0.219
Meekatharra, is an open pit mine transitioning
to one of the largest underground mines in
Australia. Production began in 1990 and the
first millionth ounce was produced in 1996.
The DARLOT/CENTENARY MINE, 110 kilometres from 100 62,757 468 8.5 0.169
Leonora is an underground mine. A decline has
been driven from the Darlot mine to access the
new, major Centenary discovery, and development
at Centenary commenced in October 1997.
The LAWLERS MINE, 120 kilometres from Leonora, 100 50,603 212 2.8 0.105
is an open pit mine, with additional
underground development underway. Mining
operations will continue for two more years in
absence of additional discoveries.
The MT MORGANS MINE, 50 kilometres from 80 75,067 306 1.0 0.114
Laverton, was acquired in late 1995.
Development activity has been suspended and
production will continue from developed stoping
blocks through early 1998.
The PEAK HILL MINE, 130 kilometres from 66.67 60,380 65 1.6 0.073
Meekatharra, was acquired in December 1992. Ore
processing is expected to continue to at least
mid-1998.
</TABLE>
HOMESTAKE'S REASONS FOR THE COMBINATION; RECOMMENDATION OF THE HOMESTAKE BOARD
Homestake believes that the Combination will result in a number of benefits
to Homestake and its stockholders, including the following:
- The transaction will be immediately accretive to Homestake's 1998 cash
flow and operating results, before one-time transaction costs.
- The transaction will result in a significant growth of low-cost
production and will reduce Homestake's total cash cost per ounce of gold
produced. Homestake's gold production for 1997 was 1,996,000
13
<PAGE> 17
equivalent ounces of gold at a total cash cost of $237 per ounce. After
taking into account the proposed restructuring of operations at the
Homestake mine, combined production of Homestake and Plutonic is expected
to be approximately 2,325,000 equivalent ounces of gold at a total cash
cost of $223 per ounce for 1998 and approximately 2,406,000 equivalent
ounces of gold at a total cash cost of $215 per ounce for 1999.
- The transaction will help Homestake to weather the current environment of
low gold prices and position Homestake to thrive when gold prices return
to more normal levels.
- The transaction will increase Homestake's reserves and mineralized
material at December 31, 1996 by approximately 11% and 65%, respectively,
creating the third largest North American-based gold producer (based on
production and reserves and mineralized materials).
- The transaction will provide Homestake with an additional four operated
mines and the high quality reserves at the Plutonic and Darlot/Centenary
mines, with excellent potential for conversion of a substantial part of
mineralization into reserves. These mines also have excellent exploration
potential.
- Plutonic has a large number of attractive exploration prospects in
Australia's most prolific gold region, the Yilgarn Greenstone Belt.
- With principal operations in the United States, Canada and Australia, the
Combined Company will have the lowest political risk profile of any major
North American-based gold mining company.
- Homestake's recognized underground mining expertise will be a major
positive factor in developing the expanding underground operations at the
Plutonic and Darlot/Centenary mines.
- The Combined Company will be the operator of 11 of its 18 mines,
resulting in greater experience in mine operations and greater ability to
attract high quality personnel.
- The Combined Company will have an excellent asset base, and a strong
balance sheet and cash flow, which should enable the Combined Company to
compete more effectively for acquisition, exploration and development
opportunities throughout the world.
- The Combined Company expects to realize significant exploration and
administrative cost savings, aggregating approximately $20 million on an
annualized basis by the end of 1998.
- The Combination will be accounted for as a pooling-of-interests, whereby
Homestake will record the acquisition of the Plutonic assets at their
U.S. GAAP historical carrying values.
No assurance can be given as to if, when or the extent to which the
foregoing benefits will be realized. See "Risk Factors" herein and "Risk
Factors" and "Cautionary Statements" in the Supplement.
The Homestake Board has determined unanimously that the Combination is fair
to and in the best interests of the Homestake Stockholders. Accordingly, the
Homestake Board unanimously recommends that the Homestake Stockholders vote
"FOR" the Share Issuance. See "The Combination -- Homestake's Reasons for the
Combination; Recommendation of the Homestake Board" in the Supplement.
OPINION OF HOMESTAKE'S FINANCIAL ADVISOR
SBC Warburg Dillon Read Inc., Homestake's Financial Advisor ("Homestake's
Financial Advisor"), has delivered its written opinion to the Homestake Board to
the effect that, based upon and subject to certain matters stated therein, as of
December 22, 1997, the Exchange Ratio for Ordinary Shares was fair to the
Homestake Stockholders from a financial point of view. See "The
Combination -- Opinion of Homestake's Financial Advisor" in the Supplement for a
summary of the material quantitative analyses performed by Homestake's Financial
Advisor in arriving at its opinion, as well as a description of the assumptions
and qualifications made, matters considered and limitations relating thereto. A
copy of the full text of the written opinion of Homestake's Financial Advisor,
set forth in Appendix B hereto, is incorporated herein by reference and should
be read carefully in its entirety.
14
<PAGE> 18
PLUTONIC'S REASONS FOR THE COMBINATION; RECOMMENDATION OF THE PLUTONIC BOARD
On December 22, 1997 the Plutonic Board unanimously recommended the
Combination to the Plutonic Shareholders.
The recommendation on that date took into account a number of benefits,
including the following:
- Homestake's offer valued Plutonic at A$970 million, which represented a
premium of 86% to Plutonic's market capitalization (based on the closing
share price on December 19, 1997, the last trading day prior to
announcement of the offer).
- Homestake's recognized underground mining expertise will contribute
significantly in developing the Centenary deposit and the underground
mine operations at the Plutonic mine and in capitalizing on the potential
within the Yilgarn greenstone belts in Western Australia.
- Homestake is a large, quality gold mining company and Homestake Common
Stock is a highly liquid US dollar denominated stock.
In accordance with commercial practice in Australia, the Plutonic Board
intends to meet to consider the final terms of its recommendation immediately
prior to finalizing the Explanatory Statement relating to the proposed Schemes.
THE COMBINED COMPANY
DIRECTORS AND MANAGEMENT OF HOMESTAKE AFTER THE COMBINATION
Following the Combination, the existing members of the Homestake Board will
continue as directors of Homestake. In addition, the existing officers of
Homestake are expected to continue to hold their respective positions. It is
also the expectation of Homestake that the Homestake Board will invite Mr. Paul
McClintock, the Chairman of the Board of Plutonic, to become a member of the
Homestake Board following consummation of the Combination.
15
<PAGE> 19
GOLD PRODUCTION AND RESERVES
The following table shows the relative position of Homestake and the
Combined Company in respect of gold production and reserves, as compared with
the four largest North American-based gold mining companies for 1996. The data
in the table have been obtained from annual reports and other information
disseminated to the public by the respective companies. The table also shows the
relative position of Homestake, Plutonic and the Combined Company's Australian
sourced gold production and reserves, as compared with the five largest
Australian-based gold mining companies whose production and reserves are
primarily from Australia. Except as noted, the Australian comparisons are for
the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
PRODUCTION RESERVES
---------- --------
(000 OUNCES)
<S> <C> <C>
NORTH AMERICAN-BASED GOLD MINING COMPANIES(1)
Newmont Gold Company(2)............................. 3,244 55,217
Barrick Gold Corporation............................ 3,149 51,117
HOMESTAKE/PLUTONIC(3)............................... 2,418(4) 22,567
Placer Dome Inc..................................... 1,914 26,528
Homestake Mining Company............................ 1,968(4) 20,379
Battle Mountain Gold Company........................ 918 10,931
AUSTRALIAN-BASED GOLD MINING COMPANIES(5)
Normandy Mining Limited(6).......................... 1,228 9,831
HOMESTAKE/PLUTONIC(7)............................... 927 9,750
Great Central Mines Limited(8)...................... 671 3,304
Plutonic Resources Limited(9)....................... 510 3,316
Sons of Gwalia Limited.............................. 510 3,290
Newcrest Mining Limited............................. 474 2,800
Homestake Mining Company(10)........................ 417 6,446
Acacia Resources Limited(11)........................ 330 2,955
</TABLE>
- ---------------
(1) Amounts for the year ending December 31, 1996.
(2) Restated to include Santa Fe Pacific Gold Corporation ("Santa Fe").
(3) Includes Plutonic production and reserves for the year ended December 31,
1996.
(4) Without reduction of 234,000 ounces for minority interests.
(5) Includes only production and reserves for Australian properties.
(6) Production and Reserves exclude that amount attributable to minority
interest.
(7) Includes Homestake and Plutonic amounts described below.
(8) Restated to include the acquisition of Eagle Mining Corporation N.L. and
Wiluna Mines Corporation Limited. Includes Eagle Mining production for the
12 months ended June 30, 1997 and reserves at June 30, 1997. Includes
Wiluna Mines production for the 12 months ended June 30, 1997 and reserves
at December 31, 1996.
(9) Plutonic production restated to conform with Australian fiscal year
reporting for the 12 months ended June 30, 1997. Plutonic reserves as at
December 31, 1996 updated to include revised Darlot/Centenary reserves
announced December 17, 1997.
(10) Homestake's Australian production restated to conform with Australian
fiscal year reporting for the 12 months ended June 30, 1997. Reserves
include only Homestake's Australian reserves at December 31, 1996.
(11) Reserves are at December 31, 1996.
16
<PAGE> 20
HOMESTAKE'S BUSINESS PLAN AFTER THE COMBINATION
Following the Combination, Homestake expects to focus its exploration and
development activities, taking into account the best prospects of Homestake and
Plutonic. Homestake plans to continue a substantial exploration program. In
addition, Homestake expects to continue evaluating prospects for acquisitions
and mergers with a view to continued acquisition of attractive companies and
properties that will enhance value for the Homestake Stockholders.
The Homestake Bank Credit Agreement permits total borrowings of up to
US$275 million. At December 31, 1997, borrowings under the Homestake Bank Credit
Agreement were US$54 million. Homestake's Bank Credit Agreement also limits the
amount of indebtedness that may be incurred or maintained by certain
subsidiaries. At December 31, 1997, the borrowings by Plutonic under its bank
credit agreement were approximately A$170 million (approximately US$114 million
at A$1 = US$0.67), which is in excess of the borrowings which would be permitted
for Plutonic operating as a subsidiary of Homestake under the Homestake Bank
Credit Agreement. Plutonic's bank credit agreement provides that lenders under
that agreement have the right to request repayment of outstanding indebtedness
following a change of control of Plutonic. The Combination will constitute a
change of control of Plutonic for purposes of the Plutonic bank credit
agreement. Plutonic's bank credit agreement also permits Plutonic to prepay
outstanding indebtedness at any time. Homestake does not expect any difficulty
in securing the consent of its lenders and the Plutonic lenders to maintain the
existing Plutonic indebtedness outstanding or to refinance the outstanding
Plutonic indebtedness under the Homestake Bank Credit Agreement.
INTENTIONS ABOUT PLUTONIC
On completion of the Combination, Plutonic will cease to be a separate,
publicly-held company. As a result, certain administrative, treasury and other
activities of Plutonic will no longer need to be performed. It is the intention
of Homestake to integrate the management, administrative, exploration,
operational and other activities of Plutonic and Homestake Gold of Australia
Limited ("HGAL"), Homestake's principal Australian subsidiary. As a part of that
integration, Homestake expects to close the Plutonic offices in Sydney and to
relocate the continuing Plutonic activities to Perth. Plutonic exploration
functions performed in Sydney, as well as HGAL's exploration department in
Perth, will be relocated to Plutonic's existing Perth exploration offices.
As a part of the integration process, Plutonic and Homestake management
will work together to determine an appropriate organizational structure and the
nature and number of management, administrative, exploration, operational and
other positions for the consolidated group. Plutonic and Homestake management
will also evaluate the personnel employed by HGAL and Plutonic to determine the
persons best qualified from both companies, taking into account the extent to
which Plutonic personnel may be prepared to relocate to Perth. Following that
evaluation process, Homestake management will select the appropriate senior
management and other personnel from both companies and take other appropriate
action to implement the administrative reorganization.
Because of the relocation of the headquarters, the elimination of certain
functions, and the restructuring of the organizations, there will be a reduction
in the combined workforce. As a result, Homestake anticipates that some number
of existing Plutonic and HGAL employees will cease to be employed in the newly
consolidated group, although it cannot now determine the extent thereof.
Homestake will provide severance packages to all employees whose positions are
eliminated on terms at least as favorable as those generally offered to
similarly situated persons in the location of employment and the Australian gold
mining sector.
Except as set out above, Homestake does not intend to materially alter the
business of Plutonic or to dispose of or redeploy any of Plutonic's material
assets as a result of the Combination.
RISK FACTORS
The risk factors identified below should be considered by Homestake
Stockholders in deciding whether to vote for the Share Issuance. These factors
also should be considered in conjunction with the information
17
<PAGE> 21
contained in the sections entitled "Risk Factors" and "Cautionary Statements"
and the other information contained in the Supplement.
RISKS INHERENT IN GOLD EXPLORATION, DEVELOPMENT AND PRODUCTION
The business of gold exploration, development and production by its nature
involves significant risks. Among other things, the business depends on
successful location of reserves and skillful management. Gold exploration is
highly speculative in nature, involves many risks and frequently is
non-productive. Production costs can be affected by unforeseen changes in ore
grades and recoveries, permitting requirements, environmental factors, work
interruptions, operating circumstances, unexpected changes in the quantity or
quality of reserves, unstable or unexpected ground conditions and technical
issues.
RISKS OF GOLD AND SILVER PRICE FLUCTUATIONS AND HEDGING ACTIVITIES
The results of Homestake's and Plutonic's operations are affected
significantly by the market price of gold. The results of Homestake's operations
are also affected, to a lesser extent, by the market price of silver. The
markets for gold and silver are worldwide markets. Gold and silver prices are
subject to volatile price movements over short periods of time and are
influenced by numerous factors over which Homestake and Plutonic have no
control.
In general, hedging enables a gold producer to "lock in" a future price for
hedged gold that is higher than the then current spot price for gold. However,
to the extent that sales of future gold production are hedged, the ability to
realize future increases in gold prices may be reduced, subject to the gold
producer's ability to extend the expiry dates of the hedge contracts.
Homestake has adopted a gold hedging policy under which Homestake will, in
appropriate circumstances, enter into forward-sales contracts for approximately
30% of its gold production in each of the subsequent ten years at prices in
excess of certain targeted prices. In appropriate circumstances, Homestake also
will use combinations of put and call option contracts, which provide an
effective price floor for sales while permitting participation in future price
increases.
Plutonic's hedging strategy is designed to permit Plutonic to support the
long term viability of its mining and exploration activities and to provide
shareholders with the opportunity to benefit from future gold price increases.
Plutonic's current policy is to limit forward sales transactions to the lesser
of 1.75 million ounces or 100% of reserves.
Homestake expects to continue its general gold hedging policy following the
Combination.
RISK OF INABILITY TO ACHIEVE COMBINED COMPANY COST SAVINGS
Estimates of cost savings for the Combined Company are based in part on the
expectation that the Combined Company will integrate various functions to
eliminate certain overlapping operating, exploration and general and
administrative expenses that currently are incurred separately by Homestake and
Plutonic. Homestake expects to (i) combine its Australian exploration program
with Plutonic's exploration program and (ii) reorganize certain management,
administrative, exploration, operational and other positions. As a result of the
foregoing, certain positions within HGAL and Plutonic will be eliminated. Actual
cost savings resulting from the Combination may be lower than anticipated, and
realization of cost savings may be delayed. Accordingly, no assurances can be
given as to if, when or the extent to which such cost savings may be realized.
RISKS ASSOCIATED WITH RESERVE REALIZATION
Gold and silver reserves reported by Homestake and Plutonic reflect
estimated quantities and grades of gold and silver in deposits and in stockpiles
of mined material that Homestake or Plutonic, as the case may be, believes can
be mined, processed and sold at prices sufficient to recover the estimated
future cash costs of production, remaining investment and anticipated additional
capital expenditures. Reserves are estimates based upon drilling results, past
experience with mining properties, experience of the persons making the
18
<PAGE> 22
reserve estimates and many other factors. Reserve estimation is an interpretive
process based upon available data. The actual quality and characteristics of ore
deposits cannot be known until mining has taken place. Further, reserves are
valued based on estimates of future costs and future prices. Homestake gold
reserves at December 31, 1996 are based on an assumed price of US$375 per ounce
and gold reserves at December 31, 1997 are based on an assumed price of US$325
per ounce for short-lived operations and US$350 per ounce for other operations.
Plutonic's reserve estimates are made by persons considered "competent
persons" in accordance with the JORC Code. Plutonic's reserve estimates as of
December 31, 1996 were based on assumed gold prices of A$500 to A$525 per ounce
for its various operations. The gold price in 1997 averaged A$446. The estimate
of reserves for Centenary announced on December 17, 1997 was based on a price of
A$450 per ounce.
Actual quality and characteristics of ore deposits and gold prices will
differ from the assumptions used to develop reserves. Such differences may be
significant.
RISKS OF GOVERNMENT REGULATION OF MINING ACTIVITIES
Homestake's and Plutonic's exploration activities and mining operations are
subject to extensive regulations governing development, production, labor
standards, occupation health, waste disposal, use of toxic substances,
environmental regulations, mine safety and other matters in all jurisdictions in
which they operate. 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 governmental approvals can be secured
and maintained on an economic basis.
RISKS OF CURRENCY FLUCTUATIONS
Gold is sold throughout the world principally based on the US dollar price,
but operating expenses of gold mining companies generally are incurred 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 US dollar. Because Homestake's
production of gold in Australia will increase as a result of the Combination,
Homestake expects it will engage in currency hedging with respect to Plutonic's
operations.
The majority of Plutonic's gold production is initially sold forward based
on the US dollar price with the proceeds being simultaneously converted to
Australian dollars. There are occasions when the future US dollar proceeds will
be hedged and converted to Australian dollars. At December 31, 1997 Plutonic had
hedged a total of US$20 million to cover future US dollar gold proceeds.
RISKS OF NATIVE TITLE CLAIMS
In both Australia and Canada rights of aboriginal populations impact on the
granting of rights by governments to conduct mining operations. Homestake and
Plutonic believe that mining at their existing mining operations will not be
adversely affected by native title claims, but native title claims may impact on
rights of exploration and mining of new discoveries in the future. See "Risk
Factors -- Risks of Native Title Claims," "Homestake Mining Company" and
"Plutonic Resources Limited -- Native Title Claims" in the Supplement.
CERTAIN AUSTRALIAN INCOME AND UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
See "Certain Australian Income and United States Federal Income Tax
Consequences" in the Supplement for the opinion of Allen Allen & Hemsley with
respect to certain Australian income tax consequences to the holders of Plutonic
Securities and the opinion of Thelen, Marrin, Johnson & Bridges LLP with respect
to certain United States federal income tax consequences. Because Homestake
Stockholders will continue to hold their shares, there are no income tax
consequences to Homestake Stockholders as a result of the Combination.
19
<PAGE> 23
ANTICIPATED ACCOUNTING TREATMENT
The Combination is expected to be accounted for as a pooling-of-interests
in accordance with U.S. GAAP. It is a condition to the consummation of the
Combination that Homestake and Plutonic receive letters from their respective
independent accountants, Coopers & Lybrand L.L.P. and Ernst & Young to the
effect that the Combination will qualify for pooling-of-interests accounting
treatment. See "The Combination -- Anticipated Accounting Treatment" and "The
Agreement -- Conditions to the Consummation of the Combination" in the
Supplement.
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
The directors and certain executive officers of Homestake have interests in
the Combination that are different from, or in addition to, the interests of
Homestake Stockholders. Such interests relate to or arise from, under certain
circumstances, the availability of severance benefits and the early vesting in
stock options and contingent stock rights granted to senior executives of
Homestake.
Certain executives and directors of Plutonic have interests in the
Combination that are different from, or in addition to, the interests of holders
of Plutonic Securities. Specifically, (i) one executive director has an
employment agreement, (ii) one director has a contract that guarantees the
payment of directors' fees for a specified period of time, (iii) one director is
affiliated with a financial advisor that will be paid fees for services in
connection with the implementation of the Combination and (iv) certain
executives and directors hold Options that currently are out of the money, for
which the executives and directors will receive Homestake Common Stock.
See "The Combination -- Interests of Certain Persons in the Combination" in
the Supplement.
CONDITIONS TO THE COMBINATION
The obligations of Homestake and Plutonic to consummate the Combination are
subject to various conditions, including: (i) approval of the Schemes by the
holders of Plutonic Ordinary Shares, Partly Paid Shares and Options and by the
Supreme Court of New South Wales; (ii) receipt of Homestake Stockholder
Approval; (iii) approval for listing on the NYSE and the quotation on the ASX of
the shares of Homestake Common Stock to be issued pursuant to the Agreement;
(iv) the absence of legal restraints or prohibitions preventing the consummation
of the Combination; (v) the receipt of letters from Coopers & Lybrand L.L.P. and
Ernst & Young to the effect that the Combination qualifies as a
pooling-of-interests; (vi) the absence of certain material litigation; (vii) the
representations and warranties of the other party contained in the Agreement
being materially true; (viii) the performance of the other party in all material
respects of all obligations contained in the Agreement; and (ix) the absence of
material adverse changes with respect to the other party. See "The
Combination -- Regulatory Matters" and "The Agreement -- Conditions to the
Consummation of the Combination" in the Supplement.
TERMINATION OF THE AGREEMENT
Subject to certain limitations, the Agreement is subject to termination at
the option of either Homestake or Plutonic if the Combination is not consummated
on or before June 30, 1998 and prior to such time upon the occurrence of certain
events (such as a material adverse change in Homestake or Plutonic, regulatory
approvals not being obtained or other conditions). The Agreement also may be
terminated by either Homestake or Plutonic if such company receives a superior
proposal by a third party to acquire 15% or more of such company pursuant to a
takeover bid, tender offer, merger, sale of assets or the like and certain other
conditions are met (a "Superior Proposal"). If there is a material breach of the
Agreement by a party or a Superior Proposal for Homestake or Plutonic, the
defaulting party or Homestake or Plutonic, respectively, will be required to pay
to the other party a fee in the amount of US$4.5 million (the "Termination Fee")
upon the termination of the Agreement. In addition, Homestake will be required
to reimburse Plutonic up to US$1 million of expenses if Plutonic terminates the
Agreement because Homestake Stockholder Approval is not obtained. See "The
Agreement -- Termination Fees" in the Supplement.
20
<PAGE> 24
REGULATORY MATTERS
The Combination is subject to approval by the Supreme Court of New South
Wales. The Combination also is subject to the Treasurer of the Commonwealth of
Australia not objecting (or not responding within the statutory notice period of
40 days) to Homestake's acquisition of Plutonic. See "The Combination --
Regulatory Matters" in the Supplement.
21
<PAGE> 25
SELECTED FINANCIAL DATA AND OTHER INFORMATION
HOMESTAKE SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth certain financial data relating to
Homestake. The financial data should be read in conjunction with (i) the
historical financial statements of Homestake, including the notes thereto, which
are set forth in Appendix C, (ii) the explanation of significant differences
between U.S. GAAP and Australian GAAP, as applicable to Homestake, as set forth
in Appendix F, and (iii) the Unaudited Pro Forma Condensed Combined Financial
Statements, which are included in the Supplement. Financial data for the nine
months ended September 30, 1997 and 1996 reflect, in the opinion of Homestake,
all adjustments necessary for a fair presentation of such data. Results for the
nine months ended September 30, 1997 and 1996 are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.
(IN US DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 766,936 $ 746,365 $ 705,487 $ 722,228 $ 683,520
Net income (loss)........... 30,281(1) 30,327 78,016(2) 52,494(3) (175,836)(4)
Net income (loss) per
share..................... 0.21(1) 0.22 0.57(2) 0.38(3) (1.31)(4)
Cash dividends per share.... 0.20 0.20 0.175 0.10 0.20
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets................ $ 1,482,108 $1,321,633 $1,201,968 $1,121,250 $1,145,169
Long-term obligations(5).... 299,168 305,418 295,719 282,865 293,176
Shareholders' equity........ 768,552 635,857 588,770 515,244 465,438
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
1997 1996
------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 577,070 $ 587,983
Net income (loss)........... (130,044)(6) 27,856(7)
Net income (loss) per
share..................... (0.89)(6) 0.19(7)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C> <C> <C> <C> <C>
Total assets................ $ 1,334,470
Long-term obligations(5).... 367,401
Shareholders' equity........ 594,244
</TABLE>
- ---------------
(1) Includes income of $24 million, or $0.16 per share, from a reduction in
Homestake's accrual for prior year income taxes, a foreign currency exchange
loss on intercompany advances of $7.4 million ($8.9 million pretax), or
$0.05 per share, primarily related to Homestake's Canadian-dollar
denominated advances to Homestake Canada Inc., write-downs of $8.3 million
($9 million pretax), or $0.06 per share, in the carrying value of
investments in mining company securities, costs of $2.8 million ($3.4
million pretax), or $0.02 per share, related to the terminated proposed
merger with Santa Fe, and income of $4.9 million ($5.5 million pretax), or
$0.03 per share, from a litigation recovery.
(2) Includes a gain of $12.6 million ($15.7 million pretax), or $0.09 per share,
on the sale of Homestake's interest in the Dee mine and a gain of $11.2
million (no tax expense), or $0.08 per share, on dilution of the Company's
interest in Prime.
22
<PAGE> 26
(3) Includes expense of $12.8 million ($16 million pretax), or $0.09 per share,
for the write-down of oil assets at Main Pass 299 and expense of $6.8
million ($8.2 million pretax), or $0.05 per share, for restructuring and
business combination costs.
(4) Includes expense of $117.7 million ($130.3 million pretax), or $0.87 per
share, for write-downs of certain mining properties and investments and
expense of $32.3 million ($48.4 million pretax), or $0.24 per share, for
restructuring and business combination costs.
(5) Long-term obligations include:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt.............. $ 222,183 $185,000 $185,000 $185,000 $189,191 $205,174
Accrued reclamation costs... 73,908 45,388 44,051 33,892 22,138 32,344
Accrued pension and other
postretirement benefit
obligations............... 60,957 59,273 63,092 64,066 59,626 49,900
Other....................... 10,353 9,507 13,275 12,761 11,910 5,758
-------- -------- -------- -------- -------- --------
$ 367,401 $299,168 $305,418 $295,719 $282,865 $293,176
======== ======== ======== ======== ======== ========
</TABLE>
(6) Includes a first-quarter gain of $47.2 million ($62.9 million pretax), or
$0.32 per share, from the fee received from Santa Fe upon termination of
Homestake's merger agreement with Santa Fe, a first-quarter gain of $8.1
million ($13.5 million pretax), or $0.06 per share, from the sale of the
George Lake and Back River joint venture interests, and third-quarter
write-downs and unusual charges of $145.1 million ($183.6 million pretax),
or $0.99 per share, including (i) a write-down of $84.9 million ($107.8
million pretax) of Homestake's investment in the Main Pass 299 sulfur mine,
(ii) a reduction of $18.2 million ($24.3 million pretax), in the carrying
values of short-lived mining properties, (iii) an increase in the estimated
accrual for future reclamation of $21.5 million ($29.1 million pretax), (iv)
write-downs of $14.7 million ($16.5 million pretax) of certain investments,
and (v) other charges of $5.8 million ($5.9 million pretax) primarily
related to foreign exchange losses on intercompany redeemable preferred
stock.
(7) Includes income of $2.7 million, or $0.02 per share, from a reduction of
Homestake's accrual for prior year income taxes and income of $4.9 million
($5.5 million pretax), or $0.03 per share, from a litigation recovery.
HOMESTAKE SELECTED OPERATING DATA
(IN US DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DEBT TO EQUITY RATIO (at December
31)................................. 24% 29% 31% 37% 53%
CAPITAL EXPENDITURES (thousands of
dollars)............................ $ 105,923 $80,979 $88,654 $57,825 $63,453
OPERATING STATISTICS
Gold production (thousands of
ounces)............................. 1,968 1,877 1,696 1,918 1,912
Average gold price realized per
ounce............................... $ 389 $ 386 $ 384 $ 359 $ 348
Total cash costs per ounce............ $ 248 $ 257 $ 252 $ 229 $ 246
RESERVES (at December 31)
Gold (millions of ounces)............. 20.4 21.5 17.9 18.4 17.3
Eskay Creek silver (millions of
ounces)............................. 56.1 47.4 51.5 55.1
Sulfur (millions of long tons)........ 11.0 11.4 11.7 11.0 11.2
</TABLE>
23
<PAGE> 27
PLUTONIC SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (AUSTRALIAN GAAP)
The following table sets forth certain financial data and other information
relating to Plutonic. The financial data should be read in conjunction with (i)
the historical financial statements of Plutonic, including the notes thereto,
which are set forth in Appendix D and (ii) the Unaudited Pro Forma Condensed
Combined Financial Statements, which are included in the Supplement. Financial
data for the nine months ended 30 September 1997 and 1996 reflect, in the
opinion of Plutonic, all adjustments necessary for a fair presentation of such
data. Results for the nine months ended 30 September 1997 and 1996 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
(IN AUSTRALIAN DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH AUSTRALIAN GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 DECEMBER
-----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Operating revenue.................... $340,461 $222,691 $214,363 $239,098 $99,869
Net income........................... 40,702 40,124 38,055 35,223 30,506
Net income per share................. 0.22 0.22 0.21 0.22 0.19
Cash dividends per share............. 0.11 0.095 0.08 0.06 0.05
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets........................ $678,011 $540,134 $396,730 $377,848 $251,960
Long-term obligations(1)............ 90,184 122,415 4,415 13,517 1,238
Shareholders' equity................ 416,569 354,967 331,708 300,122(2) 171,428
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED 30 SEPTEMBER
--------------------------
1997 1996
------------- --------
<S> <C> <C> <C> <C> <C>
Operating revenue................. $ 260,804 $257,855
Net income (loss)................. (44,716) 20,251
Net income (loss) per share....... (0.24) 0.11
</TABLE>
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
-------------
<S> <C> <C> <C> <C> <C>
Total assets...................... $ 621,758
Long-term obligations(1).......... 199,067
Shareholders' equity.............. 370,142
</TABLE>
- ---------------
(1) Long-term obligations consist of:
<TABLE>
<CAPTION>
30
SEPTEMBER 31 DECEMBER
----------- -------------------------------------------------------
1997 1996 1995 1994 1993
----------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Creditors and
borrowings.............. $ 194,500 $ 87,500 $120,000 $3,970 $13,517 $ 874
Mine rehabilitation....... 2,956 1,984 1,955
Employee entitlements..... 240 134 117 142
Other long-term
obligations............. 1,371 566 343 445 222
------- ------- ------- ------- ------- ------
$ 199,067 $ 90,184 $122,415 $4,415 $13,517 $1,238
======= ======= ======= ======= ======= ======
</TABLE>
During 1995, Plutonic borrowed $120 million under an unsecured finance
facility. During 1996, a total of $180 million was borrowed under the
finance facility, of which $92.5 million was included in the current portion
of creditors and borrowings.
24
<PAGE> 28
(2) During 1993, Plutonic completed a rights issue of 19,935,000 Ordinary Shares
at a price of $6.30 per Ordinary Share on the basis of one Ordinary Share
for every eight Ordinary Shares held.
PLUTONIC SELECTED OPERATING DATA
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 DECEMBER,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DEBT TO EQUITY RATIO (at 31 December)....... 44% 34% 4% 8% 0%
CAPITAL EXPENDITURES (thousands of
dollars).................................. $126,437 $64,666 $76,396 $30,914 $14,525
OPERATING STATISTICS
Gold production (thousands of ounces)....... 449.8 348.7 332.8 391.8 166.6
Average gold price realized per ounce....... $ 600 $ 612 $ 579 $ 532 $ 507
Total cash costs per ounce.................. $ 403 $ 378 $ 304 $ 295 $ 238
RESERVES (at 31 December)
Gold (millions of ounces)................... 2.2 2.1 1.6 1.2 0.7
</TABLE>
25
<PAGE> 29
PLUTONIC SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (U.S. GAAP)
The following table sets forth certain financial data and other information
relating to Plutonic. The financial data should be read in conjunction with (i)
the historical financial statements of Plutonic, including the notes thereto,
which are set forth in Appendix D, and (ii) the Unaudited Pro Forma Condensed
Combined Financial Statements, which are included in the Supplement. Financial
data for the nine months ended 30 September 1997 and 1996 reflect, in the
opinion of Plutonic, all adjustments necessary for a fair presentation of such
data. Results for the nine months ended 30 September 1997 and 1996 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
(IN AUSTRALIAN DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 DECEMBER
-----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................. $302,976 $218,291 $203,941 $233,086 $89,692
Net income........................... 24,242 27,147 20,521 34,600 19,923
Net income per share................. 0.13 0.15 0.11 0.22 0.13
Cash dividends per share............. 0.11 0.095 0.08 0.06 0.05
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets........................ $651,918 $531,227 $380,375 $381,279 $263,330
Long-term obligations(1)............ 90,184 122,415 4,415 13,517 1,238
Shareholders' equity................ 336,812 297,689 282,053 282,528 130,935
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED 30 SEPTEMBER
--------------------------
1997 1996
------------- --------
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 259,106 $224,332
Net income (loss)....................... (24,186) 9,736
Net income (loss) per share............. (0.13) 0.05
</TABLE>
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
-------------
<S> <C> <C> <C> <C> <C>
Total assets............................ $ 619,222
Long-term obligations(1)................ 199,067
Shareholders' equity.................... 306,335
</TABLE>
- ---------------
(1) Long-term obligations consist of:
<TABLE>
<CAPTION>
30 SEPTEMBER 31 DECEMBER
------------ ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Creditors and borrowings............ $194,500 $87,500 $120,000 $3,970 $13,517 $ 874
Mine rehabilitation................. 2,956 1,984 1,955
Employee entitlements............... 240 134 117 142
Other long-term obligations......... 1,371 566 343 445 222
-------- ------- -------- ------ ------- ------
$199,067 $90,184 $122,415 $4,415 $13,517 $1,238
======== ======= ======== ====== ======= ======
</TABLE>
During 1995, Plutonic borrowed $120 million under an unsecured finance
facility. During 1996, a total of $180 million was borrowed under the
finance facility, of which $92.5 million was included in the current
portion of creditors and borrowings.
26
<PAGE> 30
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following tables present unaudited pro forma combined selected
financial data for Homestake giving effect to the Combination and accounting for
the Combination as a pooling-of-interests. The pro forma financial data do not
purport to represent what the combined financial position or results of
operations would actually have been if the Combination had occurred at the
beginning of the periods or to project the combined financial position or
results of operations for any future date or period.
The information below should be read in conjunction with (i) the historical
financial statements of Homestake and Plutonic, including the notes thereto,
which are set forth in Appendices C and D, respectively, (ii) the Unaudited Pro
Forma Condensed Combined Financial Statements, which are included in the
Supplement and (iii) the historical selected financial information of Homestake
and Plutonic above.
(IN US DOLLARS)
(TABULAR AMOUNTS ARE IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 997,641 $ 948,022 $ 829,934 $ 855,834 $ 748,306
Net income (loss).................... 47,141 58,189 93,631 68,737 (161,637)
Net income (loss) per share.......... 0.22 0.29 0.47 0.36 (0.86)
Cash dividends per share (1)......... 0.20 0.20 0.175 0.10 0.20
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets......................... $1,997,039 $1,716,217 $1,484,756 $1,365,644 $1,324,980
Long-term obligations................ 370,973 396,507 299,150 291,951 294,027
Shareholders' equity................. 1,034,081 856,917 799,376 697,185 554,698
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1997 1996
---------------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 766,729 $759,142
Net income (loss).................... (151,017) 32,700
Net income (loss) per share.......... (0.72) 0.16
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
----------------
<S> <C> <C> <C> <C> <C>
Total assets......................... $1,771,757
Long-term obligations................ 510,391
Shareholders' equity................. 796,484
</TABLE>
- ---------------
(1) Pro forma combined cash dividends per share reflect Homestake's historical
cash dividend rate per share paid in the periods indicated.
27
<PAGE> 31
COMPARATIVE PER SHARE DATA
The following table presents Homestake's and Plutonic's historical per
share data and pro forma combined per share data for the nine months ended
September 30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and
1994, giving effect to the Combination and accounting for the Combination as a
pooling-of-interests, based upon the consolidated historical financial
statements of Homestake and Plutonic and the Unaudited Pro Forma Condensed
Combined Financial Statements. The pro forma combined information does not
purport to represent what the combined financial position or results of
operations would actually have been if the Combination had occurred at the
beginning of each of the periods or to project the combined financial position
or results of operations for any future data or period.
The information presented below should be read in conjunction with (i) the
historical financial statements of Homestake and Plutonic, including the notes
thereto, which are set forth in Appendices C and D, respectively, (ii) the
Unaudited Pro Forma Condensed Combined Financial Statements, which are included
in the Supplement and (iii) the historical selected financial information of
Homestake and Plutonic.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------------
1997 1996 1996 1995 1994
------ ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts
in US dollars)
Book value (1)................................ $ 4.05 $ 5.21 $ 5.24 $ 4.52 $ 4.27
Cash dividends paid........................... 0.10 0.15 0.20 0.20 0.175
Net income (loss)............................. (0.89) 0.19 0.21 0.22 0.57
Per Plutonic Ordinary Share:
(Prepared in accordance with Australian GAAP;
amounts in Australian dollars)
Book value (1)................................ $ 1.97 $ 2.18 $ 2.22 $ 1.97 $ 1.84
Cash dividends paid........................... 0.070 0.055 0.095 0.090 0.090
Net income (loss)............................. (0.24) 0.11 0.22 0.22 0.21
Per Plutonic Ordinary Share:
(Prepared in accordance with U.S. GAAP; amounts
in Australian dollars)
Book value(1)................................. $ 1.63 $ 1.72 $ 1.80 $ 1.65 $ 1.57
Cash dividends paid........................... 0.070 0.055 0.095 0.090 0.090
Net income (loss)............................. (0.13) 0.05 0.13 0.15 0.11
PRO FORMA:
Combined per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts
in US dollars)
Book value(1)................................. $ 3.78 $ 4.83 $ 4.91 $ 4.25 $ 4.02
Cash dividends paid(2)........................ 0.10 0.15 0.20 0.20 0.175
Net income (loss)............................. (0.72) 0.16 0.22 0.29 0.47
Combined per Plutonic Ordinary Share
equivalent:(3)
(Prepared in accordance with U.S. GAAP; amounts
in US dollars)
Book value(1)................................. $ 1.29 $ 1.64 $ 1.67 $ 1.44 $ 1.37
Cash dividends paid........................... 0.03 0.05 0.07 0.07 0.06
Net income (loss)............................. (0.24) 0.05 0.07 0.10 0.16
</TABLE>
28
<PAGE> 32
- ---------------
(1) Book value per share is shareholders' equity divided by common shares (or in
the case of Plutonic, Ordinary Shares) outstanding at September 30, 1997 and
1996 and December 31, 1996, 1995 and 1994.
(2) Pro forma combined cash dividends per share of Homestake Common Stock
reflect Homestake's historical cash dividend rate per share paid in the
periods indicated.
(3) Pro forma combined per Ordinary Share equivalent information reflects the
pro forma combined per share of Homestake Common Stock amount multiplied by
the Exchange Ratio of 0.34 shares of Homestake Common Stock for each
Ordinary Share.
29
<PAGE> 33
SUPPLEMENT
TO
PROXY STATEMENT
AND
EXPLANATORY STATEMENT
This Supplement consists of information regarding Homestake and Plutonic
and the proposed Combination of the two companies. The Supplement is included as
part of the Proxy Statement that is being provided to Homestake Stockholders and
as part of the Explanatory Statement that is being provided to the holders of
Plutonic Ordinary Shares, Partly Paid Shares and Options.
S-1
<PAGE> 34
TABLE OF CONTENTS
SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION................................................................ S-5
EXCHANGE RATES....................................................................... S-5
CERTAIN DEFINED TERMS................................................................ S-7
CERTAIN MEASUREMENTS................................................................. S-9
RISK FACTORS......................................................................... S-11
Risks Inherent in Gold Exploration, Development and Production..................... S-11
Risks of Gold and Silver Price Fluctuations and Hedging Activities................. S-11
Risk of Inability to Achieve Combined Company Cost Savings......................... S-12
Risks Associated with Reserve Realization.......................................... S-12
Risks of Government Regulation of Mining Activities................................ S-13
Risks of Currency Fluctuations..................................................... S-13
Risks of Native Title Claims....................................................... S-14
CAUTIONARY STATEMENTS................................................................ S-15
Reliance By Homestake and Plutonic on Information Provided by the Other............ S-16
Reserves........................................................................... S-16
Estimates of Production............................................................ S-17
Estimates of Operating Costs and Capital Costs; Capital Projects................... S-17
Taxes.............................................................................. S-18
Western Australia Royalty.......................................................... S-18
PRICE RANGE AND TRADING VOLUME OF HOMESTAKE COMMON STOCK AND THE PLUTONIC ORDINARY
SHARES; DIVIDENDS.................................................................. S-20
Price Ranges and Trading Volumes................................................... S-20
Comparison of Stock Price Performances............................................. S-22
Dividends.......................................................................... S-22
THE COMBINATION...................................................................... S-24
General............................................................................ S-24
Exchange Ratios.................................................................... S-24
Background of the Combination...................................................... S-25
Homestake's Reasons for the Combination; Recommendation of the Homestake Board..... S-27
Opinion of Homestake's Financial Advisor........................................... S-31
Plutonic's Reasons for the Combination; Recommendation of the Plutonic Board....... S-35
Certain Australian and United States Federal Income Tax Consequences............... S-36
Anticipated Accounting Treatment................................................... S-42
Regulatory Matters................................................................. S-42
Absence of Dissenters Appraisal Rights............................................. S-42
Interests of Certain Persons in the Combination.................................... S-43
Resale of Homestake Common Stock................................................... S-45
</TABLE>
S-2
<PAGE> 35
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HOMESTAKE MINING COMPANY............................................................. S-46
Background......................................................................... S-46
Significant 1997 and 1998 Developments............................................. S-47
Statistical Summary................................................................ S-48
Business and Property Description.................................................. S-51
Mineral Exploration and Development................................................ S-74
Information on Reserves............................................................ S-75
Environmental Matters.............................................................. S-76
Legal Proceedings.................................................................. S-81
PLUTONIC RESOURCES LIMITED........................................................... S-82
Background......................................................................... S-82
Significant Recent Developments.................................................... S-83
Statistical Summary................................................................ S-84
Mineral Exploration and Development................................................ S-95
Information on Reserves............................................................ S-95
Estimation of Reserves............................................................. S-96
Other Information.................................................................. S-96
Native Title Claims................................................................ S-96
Environmental...................................................................... S-96
Customers.......................................................................... S-97
Employees.......................................................................... S-97
Legal Proceedings.................................................................. S-98
THE AGREEMENT........................................................................ S-99
General............................................................................ S-99
Schemes of Arrangement............................................................. S-99
Representations and Warranties..................................................... S-99
Conduct of Business Pending the Combination........................................ S-100
Certain Actions With Respect to Takeover Proposals................................. S-101
Conditions to the Consummation of the Combination.................................. S-101
Termination........................................................................ S-102
Superior Proposal.................................................................. S-103
Termination Fees................................................................... S-103
Effect of Termination.............................................................. S-104
Enforcement........................................................................ S-104
Release of Officers and Directors.................................................. S-104
Definitions........................................................................ S-104
HOMESTAKE HISTORICAL SELECTED FINANCIAL DATA AND OTHER INFORMATION................... S-107
Historical Selected Financial Data................................................. S-107
Selected Operating Data............................................................ S-108
PLUTONIC HISTORICAL SELECTED FINANCIAL DATA AND OTHER INFORMATION (AUSTRALIAN
GAAP).............................................................................. S-109
Historical Selected Financial Data................................................. S-109
Selected Operating Data............................................................ S-110
PLUTONIC SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (U.S. GAAP)................. S-111
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.......................... S-112
COMPARATIVE PER SHARE DATA........................................................... S-125
</TABLE>
S-3
<PAGE> 36
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DIRECTORS AND MANAGEMENT OF HOMESTAKE AFTER THE COMBINATION.......................... S-127
Board of Directors of Homestake After the Combination.............................. S-127
Directors and Management of Homestake after the Combination; Intentions about
Plutonic........................................................................ S-130
BENEFICIAL OWNERSHIP OF SECURITIES................................................... S-132
Security Ownership of Certain Beneficial Owners of Homestake....................... S-132
Ownership of Common Stock By Homestake's Management................................ S-132
DESCRIPTION OF HOMESTAKE CAPITAL STOCK............................................... S-134
General............................................................................ S-134
"Fair Price" Charter Provision..................................................... S-134
Homestake Rights Agreement......................................................... S-135
COMPARISON OF SHAREHOLDERS' RIGHTS................................................... S-137
Vote Required for Ordinary Transactions; Quorum.................................... S-137
Vote Required for Extraordinary Transactions....................................... S-137
Distribution on Winding-Up......................................................... S-138
Transactions Involving Shareholders, Officers or Directors......................... S-138
Takeover Regulation................................................................ S-139
Dissenters Appraisal Rights........................................................ S-140
Oppression Remedy.................................................................. S-141
Limitation of Director Liability................................................... S-141
Distributions and Dividends........................................................ S-142
INDEPENDENT ACCOUNTANTS.............................................................. S-143
LEGAL MATTERS........................................................................ S-143
STOCKHOLDER PROPOSALS................................................................ S-143
APPENDIX A: HOMESTAKE MINING COMPANY AND PLUTONIC RESOURCES LIMITED COMBINATION
IMPLEMENTATION AGREEMENT........................................................... A-1
APPENDIX B: OPINION OF HOMESTAKE'S INVESTMENT ADVISOR................................ B-1
APPENDIX C: HOMESTAKE MINING COMPANY CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA................................................................. C-1
APPENDIX D: PLUTONIC RESOURCES LIMITED AND CONTROLLED ENTITITES CONSOLIDATED
FINANCIAL STATEMENTS............................................................... D-1
APPENDIX E: COMPARISON OF CERTAIN SEC AND JORC CODE REPORTING REQUIREMENTS........... E-1
APPENDIX F: HOMESTAKE DIFFERENCES BETWEEN U.S. AND AUSTRALIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.............................................................. F-1
APPENDIX G: OVERVIEW OF AUSTRALIAN, CANADIAN AND UNITED STATES REGULATION OF MINING
RIGHTS............................................................................. G-1
</TABLE>
S-4
<PAGE> 37
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS DOCUMENT IN CONNECTION WITH THE
SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOMESTAKE OR
PLUTONIC. THIS DOCUMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY
JURISDICTION IN WHICH IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION OR
TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
Homestake is subject to the informational requirements of the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the United States Securities and Exchange Commission (the "SEC"). Reports, proxy
statements and other information filed by Homestake with the SEC may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the SEC's regional offices at Suite 1300, Seven World Trade Center, New York,
New York 10048, and at The Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington D.C.
20549 at prescribed rates. The SEC maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. Such reports, proxy and information
statements and other information may be found on the SEC's Web site address,
http://www.sec.gov. In addition, Homestake Common Stock is listed on the New
York Stock Exchange, Inc. (the "NYSE"), and material filed by Homestake may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Plutonic Ordinary Shares and Homestake Common Stock are quoted on the
Australian Stock Exchange Limited (the "ASX"). As a publicly listed company in
Australia, Plutonic is subject to regulation by the Australian Securities
Commission (the "ASC") and the ASX. Homestake is an exempt foreign listed
company and, as such, is also subject to certain limited ASC and ASX
regulations. The public can obtain information held by the ASC about Plutonic
and Homestake by application to ASC business centers located in the capital
cities of Australia. Members of the public are entitled to obtain copies of most
documents lodged with the ASC. The ASC also maintains a comprehensive on-line
computer database and a more limited Web site. The public can also access
information held by the ASX about any public company on application to any of
the ASX business centers located in the capital cities of Australia.
EXCHANGE RATES
The exchange rates expressed in United States dollars for A$1.00 at the end
of each of the years in the five years ended December 31, 1997 and the period
from January 1, 1998 to --, 1998, and the average, the high and the low exchange
rates for each of such periods were as follows (being the noon buying rates in
New York City for cable transfers in Australian dollars as certified for custom
purposes by the Federal Reserve Bank of New York (the "Exchange Rate")):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
----------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
At end of period....................... .6515 .7944 .7432 .7753 .6783
Average for period*.................... .7385 .7847 .7398 .7345 .6785
High for period........................ .7978 .8180 .7703 .7778 .7213
Low for period......................... .6490 .7318 .7100 .6840 .6450
</TABLE>
- ---------------
* Based on the average of the Exchange Rates on the last business day of each
month during the period.
S-5
<PAGE> 38
The Exchange Rates expressed in Australian dollars for US$1.00 at the end
of each of the years in the five year period ended December 31, 1997 and the
period from January 1, 1998 to -- , 1998, and the average, the high and
the low Exchange Rates for each of such periods were as follows (being the
inverse of the Exchange Rates set forth in the table above):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
At end of period.................. 1.5349 1.2588 1.3455 1.2898 1.4743
Average for period*............... 1.3541 1.2744 1.3517 1.3615 1.4738
High for period................... 1.5408 1.3665 1.4085 1.4620 1.5504
Low for period.................... 1.2534 1.2225 1.2982 1.2857 1.3864
</TABLE>
- ---------------
* Based on the average of the Exchange Rates on the last business day of each
month during the period.
The Exchange Rates for Australian dollars on December 19, 1997 and on
-- , 1998 were, respectively, A$1.00 = US$0.6530 and A$1.00 =
US$ , and the inverse of such rates were US$1.00 = A$1.5314 and US$1.00
= A$ , respectively.
S-6
<PAGE> 39
CERTAIN DEFINED TERMS
In this Document:
"A$" refers to Australian dollars.
"Agreement" refers to the Combination Implementation Agreement dated 22
December 1997 between Homestake and Plutonic.
"ASC" refers to the Australian Securities Commission.
"ASX" refers to the Australian Stock Exchange Limited.
"Australian GAAP" refers to generally accepted accounting principles in
Australia.
"Board" refers to the Board of Directors of the relevant corporation.
"Business Day" refers to a weekday on which trading banks are open for
business in both Sydney and San Francisco.
"Combination" refers to the combination of Plutonic and Homestake pursuant
to the terms of the Agreement and the issue of Homestake Common Stock to the
Plutonic Shareholders and Plutonic Option Holders in exchange for their Ordinary
Shares, Partly Paid Shares and Options, as the case may be.
"Combined Company" refers to Homestake following the Combination.
"Court Order Time" refers to the time the Supreme Court of New South Wales
makes an order confirming such of the Schemes (and the reductions of capital
incidental to those Schemes) as are approved by the relevant Scheme
Participants.
"DGCL" refers to the Delaware General Corporation Law, as amended.
"Document" refers to the Proxy Statement (in the case of Homestake
Stockholders) and the Explanatory Statement (in the case of holders of Plutonic
Securities).
"Effective Date" means the date on which the Ordinary Scheme, the Partly
Paid Scheme and the Option Scheme become effective in accordance with the Second
Court Order.
"Exchange Act" refers to the United States Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder.
"Exchange Rate" refers to the noon buying rate in New York City for cable
transfers in Australian dollars expressed in US dollars as certified for customs
purposes by the Federal Reserve Bank of New York, or the inverse thereof, as the
case may be.
"Exchange Ratio" refers to (i) an exchange ratio of 0.34 shares of
Homestake Common Stock for one Ordinary Share when used in connection with the
Ordinary Scheme, (ii) exchange ratios ranging from 0.296 to 0.303 shares of
Homestake Common Stock for each Partly Paid Share, as described in "The
Agreement -- Schemes of Arrangement," when used in connection with the Partly
Paid Scheme and (iii) exchange ratios ranging from 0.048 to 0.104 shares of
Homestake Common Stock for each Option, as described in "The
Agreement -- Schemes of Arrangement," when used in connection with the Option
Scheme. When used generally for descriptive purposes, "Exchange Ratios" refer
collectively to each of the ratios described in the preceding sentence.
"Explanatory Statement" refers to the documents required to be sent to
holders of Plutonic Securities under section 412 of the NSWL.
"FIRB" refers to the Australian Foreign Investment Review Board.
"First Court Date" refers to the date on which the Supreme Court of New
South Wales makes an order under Section 411(1) of the NSWL for Plutonic to
convene the meetings of Scheme Participants to consider the Schemes.
"HGAL" refers to Homestake Gold of Australia Limited, a South Australian
corporation.
"Homestake" or the "Company" refers to Homestake Mining Company, a Delaware
corporation, and, where the context so requires, Homestake and its subsidiaries
and predecessor entities.
S-7
<PAGE> 40
"Homestake California" refers to Homestake Mining Company of California, a
California corporation and a wholly-owned subsidiary of Homestake.
"Homestake Board" refers to the Board of Directors of Homestake.
"Homestake Charter" refers to the Restated Certificate of Incorporation of
Homestake, as amended.
"Homestake Common Stock" refers to the common stock, $1.00 par value, of
Homestake.
"Homestake Preferred Stock" refers to the preferred stock, $1.00 par value,
of Homestake.
"Homestake Record Date" refers to -- , 1998, the record date for
the Homestake Special Meeting.
"Homestake Rights" refer to the rights to purchase or receive Homestake
Preferred Stock or Homestake Common Stock in certain circumstances pursuant to
the Homestake Rights Agreement.
"Homestake Rights Agreement" refers to the Rights Agreement dated October
16, 1987, and amended as of October 15, 1997, between Homestake and BankBoston
N.A., as Rights Agent.
"Homestake Special Meeting" refers to the special meeting of the Homestake
Stockholders to be held on -- , 1998.
"Homestake Stockholders" refers to the holders of Homestake Common Stock.
"Homestake Stockholder Approval" refers to the approval by the Homestake
Stockholders of the Share Issuance.
"JORC Code" refers to the Australasian Code for Reporting of Identified
Mineral Resources and Ore Reserves.
"NSWL" refers to the Corporations Law, as amended, as it applies in New
South Wales, Australia.
"NYSE" refers to the New York Stock Exchange, Inc.
"Option" refers to an option to subscribe for Ordinary Shares granted
pursuant to the Plutonic Directors' Option Plan or an option to subscribe for
Partly Paid Shares granted pursuant to the Plutonic Employee Share Plan.
"Option Holders" refers to the holders of Plutonic Options.
"Option Scheme" refers to the Scheme between Plutonic and the Plutonic
Option Holders as described in "The Agreement -- Schemes of Arrangement."
"Ordinary Scheme" refers to the Scheme between Plutonic and the Ordinary
Scheme Members as described in "The Agreement -- Schemes of Arrangement."
"Ordinary Scheme Member" refers to each person, other than Homestake or any
of its subsidiaries, who is registered in the register of members of Plutonic as
the holder of an Ordinary Share as at the Plutonic Combination Record Date.
"Ordinary Share" refers to a fully paid ordinary share, par value A$0.50,
of Plutonic.
"Partly Paid Scheme" refers to the Scheme between Plutonic and the Partly
Paid Scheme Members as described in "The Agreement -- Schemes of Arrangement."
"Partly Paid Scheme Member" refers to each person who is registered in the
register of members of Plutonic as the holder of a Partly Paid Share as at the
Plutonic Combination Record Date.
"Partly Paid Share" refers to a partly paid Ordinary Share, par value
A$0.50, paid to A$0.05 each, issued by Plutonic pursuant to the Plutonic
Employee Share Plan.
"Plutonic" refers to Plutonic Resources Limited, a New South Wales
corporation and where the context so requires, Plutonic and its subsidiaries and
predecessor entities.
"Plutonic Board" refers to the Board of Directors of Plutonic.
S-8
<PAGE> 41
"Plutonic Combination Record Date" refers to the date which is one Business
Day before the Second Court Order comes into effect or any other date agreed
with the ASX, being the record date to determine entitlement to receive shares
of Homestake Common Stock as a result of the Combination.
"Plutonic Meeting Record Date" refers to the time and date specified for
determining entitlements to attend and vote at the meetings of the Ordinary
Scheme Members, the Partly Paid Scheme Members and the Option Holders.
"Plutonic Option Holder" refers to each person who is registered in the
register of option holders of Plutonic as an Option Holder as at the Plutonic
Combination Record Date.
"Plutonic Securities" refers to the Ordinary Shares, the Partly Paid Shares
and the Options.
"Plutonic Shareholder" refers to each person who is registered in the
register of Plutonic as a holder of Ordinary Shares or Partly Paid Shares on the
Plutonic Combination Record Date or on the Plutonic Meeting Record Date, as
appropriate.
"Plutonic Share Plan" refers to the Plutonic Employee Share Plan and the
Plutonic Directors Option Plan.
"Plutonic Shares" refers to the Ordinary Shares and the Partly Paid Shares,
as the case may be.
"Prime" refers to Prime Resources Group Inc., a British Columbia company.
"Scheme Participants" refers to the Ordinary Scheme Members, the Partly
Paid Scheme Members and the Option Holders.
"Scheme" refers to the Ordinary Scheme, the Partly Paid Scheme and the
Option Scheme.
"Scheme Securities" refers to the Ordinary Shares (other than Ordinary
Shares held by Homestake or any subsidiary of Homestake), the Partly Paid Shares
and the Options.
"SEC" refers to the United States Securities and Exchange Commission.
"Second Court Date" refers to the day upon which the Second Court Order is
made.
"Second Court Order" refers to the order of the Supreme Court of New South
Wales approving the Schemes following the approval of the Schemes by the Scheme
Participants.
"Securities Act" refers to the United States Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"Share Issuance" refers to the issuance of up to approximately 64,354,945
shares of Homestake Common Stock to the Plutonic Shareholders and Plutonic
Option Holders pursuant to the Agreement.
"US$" or "$" refers to United States dollars.
"U.S. GAAP" refers to generally accepted accounting principles in the
United States.
CERTAIN MEASUREMENTS
An "acre" equals 0.405 hectares.
A "foot" equals .3048 meters.
A "gold ounce" is a troy ounce of 12 ounces per pound.
A "gram" or "gramme" equals 0.032 ounces (troy).
A "hectare" equals 2.47 acres.
A "kilogram" equals 2.2046 pounds.
A "kilometer" equals 0.62 miles.
A "long ton" refers to a long ton of 2,240 pounds or 1.016 tonnes.
A "meter" equals 39.37 inches.
A "mile" equals 1.609 kilometers.
S-9
<PAGE> 42
An "ounce" equals 31.1 grams.
A "pound" equals 0.454 kilograms.
A "short ton" refers to a short ton of 2,000 pounds or 0.907 tonnes.
A "square kilometer" equals 0.3861 square miles.
A "square mile" equals 2.590 square kilometers.
A "tonne" refers to a metric ton of 1,000 kilograms, 2,204.6 pounds or
1.102 short tons.
"TPD" refers to short tons per day with respect to Homestake Information,
and tonnes per day with respect to Plutonic Information.
S-10
<PAGE> 43
RISK FACTORS
The risk factors identified below should be considered by Homestake
Stockholders in deciding whether to vote for the Share Issuance and should be
considered by the holders of Plutonic Securities in deciding whether to vote for
their respective Scheme. These risk factors also should be considered in
conjunction with the information contained in the section entitled "Cautionary
Statements" and other information contained in this Document.
RISKS INHERENT IN GOLD EXPLORATION, DEVELOPMENT AND PRODUCTION
The business of gold exploration, development and production by its nature
involves significant risks. Among other things, the business depends on
successful location of reserves and skillful management. Gold exploration is
highly speculative in nature, involves many risks and frequently is
non-productive. Once mineralization is discovered and determined to be
economically recoverable, it usually takes a number of years from the initial
phase of exploration until production commences, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish 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. Homestake and Plutonic each maintain and, after the Combination, Homestake
intends 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 assurance 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, unexpected changes in the quantity or quality of reserves,
unstable or unexpected ground conditions, and technical issues.
The United States, Australia and Canada are the locations of substantially
all of Homestake's and Plutonic's operating activities. Homestake also conducts
development, operations and exploration activities in a number of other
countries. Some countries have higher levels of political and economic risk than
others, including potential for 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 non-convertibility, fluctuations in currency exchange rates,
inflation and other general economic and political uncertainties.
RISKS OF GOLD AND SILVER PRICE FLUCTUATIONS AND HEDGING ACTIVITIES
The results of Homestake's and Plutonic's operations are affected
significantly by the market price of gold. The results of Homestake's operations
are also affected, to a lesser extent, by the market price of silver. The
markets for gold and silver are worldwide markets. Gold and silver prices are
subject to volatile price movements over short periods of time and are
influenced by numerous factors over which Homestake and Plutonic have no
control, including expectations with respect to the rate of inflation, the
relative strength of the United States, 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 includes a combination
of new mine production, recycling of industrial products containing gold and
silver, and sales from existing stocks of bullion and fabricated gold and silver
held by governments, public and private financial institutions, and individuals.
In general, hedging enables a gold producer to "lock in" a future price for
hedged gold that is higher than the then current spot price for gold. However,
to the extent that sales of future gold production are hedged, the ability to
realize future increases in gold prices may be reduced, subject to the gold
producer's ability to extend the expiry dates of the hedge contracts. Each of
Homestake and Plutonic engages in hedging programs.
S-11
<PAGE> 44
Homestake has adopted a gold hedging policy under which Homestake will, in
appropriate circumstances, enter into forward-sales transactions for
approximately 30% of its gold production in each of the subsequent ten years at
prices in excess of certain targeted prices. Homestake will also, in appropriate
circumstances, use combinations of put and call option contracts, which provide
an effective price floor for sales while permitting participation in future
price increases. To the extent Homestake has not hedged its production in
forward-sales transactions or established price floors, Homestake's
profitability is fully exposed to fluctuations in the current price of gold and
silver in world markets.
Plutonic's hedging strategy is designed to permit Plutonic to support the
long term viability of its mining and exploration activities and to provide
shareholders with the opportunity to benefit from future gold price increases.
Plutonic's current policy is to limit forward sales transactions to the lesser
of 1.75 million ounces or 100% of reserves.
Homestake expects to continue its general gold hedging policy following the
Combination.
Homestake's results are also affected to a lesser degree by the market
prices for sulfur and for crude oil. Sulfur prices are affected principally by
the demand for fertilizer and the availability of by-product sulfur recovered
during the refining and processing of oil and natural gas. Crude oil prices are
affected principally by supply and demand for gasoline and fuel oil as well as
global or regional political or economic crises.
RISK OF INABILITY TO ACHIEVE COMBINED COMPANY COST SAVINGS
Estimates of cost savings for the Combined Company are based in part on the
expectation that the Combined Company will integrate various functions to
eliminate certain overlapping operating, exploration, administrative and general
expenses that currently are incurred separately by Homestake and Plutonic.
Homestake expects to close the Plutonic offices in Sydney and consolidate
administrative and general activities in Homestake's Perth office. Certain
Plutonic functions, such as those associated with Plutonic being a publicly
listed company, will be eliminated. In addition, Homestake will combine its
Australian exploration program with Plutonic's exploration program. This will
involve consolidating Plutonic's and Homestake's Australian exploration
activities in Plutonic's Perth exploration office, evaluating and prioritizing
the exploration prospects for both companies, and pursuing an exploration
program for the best properties of both companies. Cost savings are expected to
be achieved by eliminating certain overlapping exploration administrative
expenses and by a reduction of the total exploration budget as a result of
concentrating on fewer total exploration projects than the two companies
presently are pursuing separately. There can be no assurance that the Combined
Company will be able to eliminate overlapping administrative and operating
functions of Homestake and Plutonic within a reasonable time.
Factors which could delay the combination of the exploration programs, or
which could affect the level of costs, include the ability to terminate or
modify commitments with respect to existing exploration projects, and the
emergence of unanticipated difficulties or changes at existing exploration
projects, which could lead Homestake to decide to postpone certain aspects of
the combined exploration program.
Actual cost savings resulting from the Combination may be lower than
anticipated, and realization of cost savings may be delayed. Accordingly, no
assurance can be given as to if, when or the extent to which such cost savings
may be realized. See "The Combination -- Homestake's Reasons for the
Combination; Recommendation of the Homestake Board."
RISKS ASSOCIATED WITH RESERVE REALIZATION
Gold and silver reserves reported by Homestake and Plutonic reflect
estimated quantities and grades of gold and silver in deposits and in stockpiles
of mined material that Homestake or Plutonic, as the case may be, believes can
be mined, processed and sold at prices sufficient to recover the estimated
future cash costs of production, remaining investment and anticipated additional
capital expenditures. Reserves are estimates based upon drilling results, past
experience with mining properties, experience of the person making the reserve
estimates and many other factors. Reserve estimation is an interpretive process
based upon available data. The actual quality and characteristics of ore
deposits cannot be known until mining has taken place.
S-12
<PAGE> 45
Further, reserves are valued based on estimates of future costs and future
prices. Homestake's gold reserves at December 31, 1997 are based on an assumed
price of US$325 per ounce for short-lived operations, and US$350 per ounce for
other operations. Homestake's silver reserves at December 31, 1997 and 1996 are
based on an assumed price of US$5 per ounce. Homestake gold reserves at December
31, 1996 are based on an assumed price of US$375 per ounce.
Plutonic's reserve estimates are made by persons considered "competent
persons" in accordance with the JORC Code. Plutonic's reserve estimates as of
December 31, 1996 were based on assumed gold prices of A$500 to A$525 per ounce
for its various operations. The gold price in 1997 averaged A$446. The estimate
of reserves for Centenary announced December 17, 1997 was based on a price of
A$450 per ounce.
Actual quality and characteristic of ore deposits and gold and silver
prices will differ from the assumptions used to develop reserves. Such
differences may be significant.
Sulfur and oil reserve realization is subject to similar risks. In the
third quarter of 1997, Homestake wrote off its entire sulfur mine investment in
light of the continued depressed world market for sulfur.
RISKS OF GOVERNMENT REGULATION OF MINING ACTIVITIES
Homestake's and Plutonic'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 regulations, mine safety and other matters in all jurisdictions in
which they operate. 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.
The United States Mining Law of 1872 (the "Mining Law") has been the
subject of substantial debate and proposals for change for several years. While
changes in the Mining Law may occur, Homestake cannot predict when or if changes
will occur, or the extent to which any new legislation will exempt or otherwise
"grandfather" existing mining operations, unpatented mining claims on which
commercial discoveries have been made or unpatented mining claims for which the
patenting process is partially complete. Under current law, persons staking
unpatented mining claims on United States federal government property open to
exploration (unpatented mining claims), upon the making and documenting of a
discovery of most minerals (including gold and 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, other than its operations at Ruby Hill, are
conducted on privately held land. It is possible that Homestake may be required
to pay royalties on production from the Ruby Hill operation, which would
increase the production cost over current estimates, but the amount of the
increase, if any, is not predictable. Expansion at Homestake's 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 the
Combined Company on federal government-owned property in the United States.
Mining activities in Australia and Canada also are subject to governmental
regulation. See Appendix G, Overview of Australian, Canadian and U.S. Regulation
of Mining Rights.
RISKS OF CURRENCY FLUCTUATIONS
Gold is sold throughout the world principally based on the US dollar price,
but operating expenses of gold mining companies generally are incurred 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 US dollar. Because Homestake
production of gold in Australia will increase as a
S-13
<PAGE> 46
result of the Combination, Homestake expects it will engage in currency hedging
with respect to the Plutonic operations.
The majority of Plutonic's gold production is initially sold forward based
on the US dollar price with the proceeds being simultaneously converted to
Australian dollars. There are occasions when the future US dollar proceeds will
be hedged and converted to Australian dollars. At December 31, 1997 Plutonic had
hedged a total of US$20 million to cover future US dollar gold proceeds.
RISKS OF NATIVE TITLE CLAIMS
AUSTRALIA
The decision of the High Court of Australia in 1992 in Mabo and Others v
Queensland (No. 2) recognized traditional native title rights to land. That
decision and the Racial Discrimination Act raised the possibility that mining
and exploration tenements granted by the Crown after October 31, 1975 over areas
in which there were existing native title rights might be invalid to the extent
of any inconsistency with those native title rights. The High Court recently
held in The Wik Peoples v Queensland that the grant of pastoral leases will not
necessarily extinguish native title rights. (Many mining leases have been
granted over areas of pastoral leasehold.)
The Commonwealth and States have passed legislation in relation to native
title which provides for native title claims to be made. This legislation is
subject to amendments currently before Parliament. The legislation provides for
a right to negotiate before the grant or renewal of certain tenements (other
than renewals of tenements as of right, in accordance with the terms of their
original grant or renewals of validated tenements) after January 1, 1994.
Negotiations must take place between the native title holders or claimants, the
grantee party and the government party.
The native title legislation also validates mining tenements granted before
January 1, 1994 and suspends native title over the mining tenements area. Any
compensation for the suspension is payable by the government that granted the
tenement.
There are native title claims relating to the area of Homestake's 50% owned
Kalgoorlie operations. However, all of the mining leases with respect to active
mining operations at Kalgoorlie are pre-1994 leases and therefore native title
claims will not adversely affect the operations. Similarly, there are native
title claims relating to the areas in which Plutonic's mining operations are
conducted. However, with one exception, all of the mining leases with respect to
the current and proposed mining areas at Plutonic's active mines are pre-1994
leases. Native title claims are not expected to adversely affect those
operations.
One Plutonic mining lease was granted between January 1, 1994 and March 16,
1995, when Western Australia did not comply with the requirement of negotiation
in granting these titles. Although there has been no decision on the point to
date, titles granted during that period may be open to challenge on native title
grounds. It is possible that proposed Commonwealth legislation may validate such
titles to put them beyond doubt. If such titles are found to be invalid due to
native title, the state of Western Australia has indicated that it will
facilitate regrants and pay any compensation due to aggrieved native title
parties.
Some of Homestake's and Plutonic's exploration tenements in Australia are
subject to multiple native title claims. Should the Combined Company be
successful in its exploration activities in these areas and seek to convert its
interests to mining leases, it will be necessary to comply with the right to
negotiate provisions of the Native Title Act and any agreement reached as a
result of negotiations may include provisions with respect to payment of
compensation by the Combined Company to the native title claimants. If agreement
cannot be reached and the matter has to be determined by the National Native
Title Tribunal, the National Native Title Tribunal is entitled to include in its
determination as to whether or not the titles may be granted, conditions with
respect to compensation of native title claimants. The requirements for
negotiation and the possibility of a requirement to pay compensation may result
in delay and increased costs for mining in the affected mining areas.
S-14
<PAGE> 47
CANADA
In the Delgamuukw decision in December 1997, the Supreme Court of Canada
affirmed that aboriginal tribal groups continue to have aboriginal rights in
lands in British Columbia used or occupied by their ancestors in 1846. Those
rights may vary from rights of limited use up to aboriginal title. The decision
has created uncertainty regarding property rights in Canada (including mineral
and other resource rights), particularly in British Columbia and other areas
where treaties were not concluded with aboriginal groups. The Court stated these
principles in broad terms, and did not apply them to any particular lands. The
decision also did not address how aboriginal rights or title are to be
reconciled with property and tenure rights previously sold or granted by the
government. The Court did confirm that the extent of the aboriginal rights
(including whether the rights rise to the level of aboriginal title) will depend
on, among other things, the extent of prior aboriginal use and occupation. The
Court also stated that, depending on the nature of the aboriginal rights,
consultation with and compensation to (and possibly consent of) aboriginal
groups may be required in connection with sales of government-owned land or
granting of mining, forestry and other rights to use government-owned land. The
Court indicated that rights of compensation derive from the government's
fiduciary obligations to the aboriginal groups. The application of the
principles enunciated in the decision will not be possible until subsequent
decisions provide clarification, and the application of these principles to any
particular land will not be possible until the exact nature of historical
aboriginal use and occupancy and the resulting rights in the particular property
has been determined.
There are aboriginal claims that extend to the areas of British Columbia in
which the Eskay Creek and Snip mines are located. These mining operations are
conducted under government mining leases which grant the exclusive right to
mine. There has not been any determination of the existence of any valid claim
of aboriginal rights or title in these areas. Homestake does not expect any
interruption of its existing mining operations, and Homestake does not believe
that its existing Canadian operations will be materially adversely affected by
aboriginal claims. However, Homestake expects that future Canadian activities,
including exploration and development of new mines, could be slowed and could be
adversely affected, depending on future legal developments in this area and the
extent of aboriginal rights in any particular property. See "Homestake Mining
Company."
UNITED STATES
There are no native title issues for Homestake's properties in the United
States.
CAUTIONARY STATEMENTS
This Document contains certain forward-looking statements (as such term is
defined in the United States Private Securities Litigation Reform Act of 1995)
and information relating to Homestake and Plutonic that are based on the beliefs
of the managements of Homestake and Plutonic, as applicable, as well as
assumptions made by and information currently available to the managements of
Homestake and Plutonic, as applicable. Any statements made in this Document that
are not historical in nature, including statements preceded by the words
"anticipate," "believe," "estimate," "expect," "intend," "will" and similar
expressions, as they relate to Homestake or Plutonic or the managements of
either of them, are forward-looking statements. Estimates of reserves, future
production and future cash costs per ounce of gold-equivalent production are
also forward-looking statements.
The purpose of these cautionary statements 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
forward looking statements. The important factors and assumptions set forth
below should be read in conjunction with "Risk Factors" herein.
S-15
<PAGE> 48
RELIANCE BY HOMESTAKE AND PLUTONIC ON INFORMATION PROVIDED BY THE OTHER
The information concerning Plutonic contained in this Proxy Statement,
including financial information, has been provided by Plutonic ("Plutonic
Information"). Homestake and its affiliates and advisors do not assume any
responsibility for the accuracy or completeness of the Plutonic Information.
The information concerning Homestake contained in this Proxy Statement,
including financial information, has been provided by Homestake ("Homestake
Information"). Plutonic and its affiliates and advisors do not assume any
responsibility for the accuracy or completeness of the Homestake Information.
The information concerning the Combined Company contained in this Proxy
Statement, including pro forma financial information, has been prepared by
Homestake, based on the Homestake Information and the Plutonic Information.
RESERVES
Information with respect to ore reserves of Homestake has been prepared in
accordance with SEC definitions and practices. Information with respect to ore
reserves of Plutonic has been prepared in accordance with the JORC Code. See
Appendix E to this Document for a comparison of the SEC and JORC Code reporting
requirements.
Gold and silver reserves reported by Homestake and Plutonic reflect
estimated quantities and grades of gold and silver in deposits and in stockpiles
of mined material that Homestake or Plutonic believes can be mined, processed
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.
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 operations. Reserves are estimated for
each property based upon factors relevant to each deposit. Reserves are
estimates based upon drilling results, past experience with the 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 deposits cannot be known until mining
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 and cost 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 and other
characteristics and grade of ore processed.
Gold and silver reserve calculations for properties operated by Homestake
are prepared by Homestake. Gold and silver reserve calculations 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
gold reserves at December 31, 1997 are based on an assumed price of US$325 per
ounce for short-lived operations, and US$350 per ounce for other operations.
Homestake's silver reserves at December 31, 1997 and 1996 are based on an
assumed price of US$5 per ounce. Homestake's gold reserves at December 31, 1996
are based on an assumed price of US$375 per ounce.
Plutonic's reserve estimates are made by persons considered "competent
persons" in accordance with the JORC Code. Plutonic's reserve estimates of
December 31, 1996 were based on assumed gold prices of A$500 to A$525 per ounce
in preparation of its reserve estimates at December 31, 1996. The gold price in
1997 averaged A$446. The estimate for reserves for Centenary announced on
December 17, 1997 was based on a price of A$450 per ounce. For determining 1997
reserves Plutonic used a price of A$ per ounce.
S-16
<PAGE> 49
Actual quality and characteristics of ore deposits and gold and silver
prices will differ from the assumptions used to develop reserves. Such
differences may be significant.
Homestake's sulfur reserves represent the quantity of sulfur 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, 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. In the third quarter
of 1997, Homestake wrote off its entire investment in the sulfur mine in light
of the continued depressed market for sulfur.
ESTIMATES OF PRODUCTION
Estimates of future production and mine life for particular properties 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 certain 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 types discussed above, actual ore
mined varying from estimates of grade and metallurgical and other
characteristics, mining dilution, strikes and other actions by labor at
unionized locations, restrictions imposed by government agencies 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 cash costs for mining operations are developed based on past
experience, reserve and production estimates, anticipated mining and ground
conditions, metallurgical recoveries, estimated costs of materials, supplies and
utilities, exchange rates and other items. Estimates of amortization of noncash
costs are based on total capital costs and reserve estimates and may change at
least annually based on actual amounts of unamortized capital and changes in
reserve estimates. If the net book value of mining operations exceeds the fair
value, usually determined based on the estimated future undiscounted cash flows
from that mine, then an impairment loss based on the discounted cash flows would
be recognized as an expense 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 company employees and 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. Each of Homestake and Plutonic 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 projects 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 Homestake's and Plutonic's respective experience in
completing capital projects, and estimates provided by and contract
S-17
<PAGE> 50
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 Homestake and Plutonic, 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 may
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 acquisitions and dispositions of property.
TAXES
Homestake's operations are conducted in a number of jurisdictions, with
differing rates of taxation. Homestake's income and mining taxes were higher in
1996, in part because a substantial portion of Homestake's income is earned in
Canada, which has a combined income tax and mining tax rate which is
significantly higher than income tax rates in the United States and Australia.
Homestake's total income and mining taxes were lower in 1997, due to lower gold
prices.
The Canadian statutory tax rate, including federal and provincial income
tax and mining tax is approximately 49%. The applicable United States tax rate
is 21% (20% alternative minimum tax plus 1% state tax). The Australian statutory
rate is 36%.
Homestake's effective tax rate varies from the statutory rate because of
certain differences between the tax laws and the accounting treatment of income
and expenditures. For example, some of Homestake's foreign exploration costs are
expensed for accounting purposes but are not yet deductible for tax purposes.
Therefore, the tax benefit related to those expenditures cannot be recognized
until there is sufficient taxable income generated in the jurisdictions where
such expenditures are incurred. In addition, certain Canadian accounting
expenses cannot be deducted in calculating the mining tax. Homestake also has
limited ability to utilize foreign tax credits in calculating its United States
income tax.
Homestake's overall effective tax rate is dramatically impacted by the
geographic mix of its pretax income and losses. A greater proportion of income
in a high tax jurisdiction, like Canada, will cause the consolidated effective
tax rate to rise. The additional Australian production following the Combination
will change the geographic mix of pretax income, reducing the proportion of
income subject to the higher Canadian rate.
Homestake's overall effective rate can also fluctuate significantly during
a period of low gold prices, because the tax rate is the ratio of tax expense to
pretax income. Low pretax income or pretax losses can produce unusually high or
unusually low effective tax rates (including the possibility of negative rates).
This can occur if mining and income tax expense continues to accrue on
profitable mines in high tax jurisdictions while losses are incurred in low tax
jurisdictions. The tax expense in the high tax jurisdiction is not fully offset
by the tax benefit from losses generated in the low tax jurisdictions. As a
result, as the income and tax expenses from all jurisdictions are blended into a
consolidated total, the overall effective rate is disproportionately impacted.
WESTERN AUSTRALIA ROYALTY
Each of Homestake and Plutonic has operations in the State of Western
Australia. Until recently, no royalties have been payable on gold production in
Western Australia. However, in late 1997, a gold royalty was formally adopted.
The principal features of the royalty are as follows:
- A 1.25% royalty will be payable between July 1, 1998 and June 30, 2000 on
the realized value of all gold produced, increasing to 2.5% on or after
July 1, 2000. No royalty is payable in respect of production prior to
July 1, 1998.
S-18
<PAGE> 51
- Realized value is to be calculated by multiplying the total gold produced
during each month by the average of the gold spot prices for that month.
- If, in any quarter between July 1, 2000 and June 30, 2005 the average
spot gold price for any quarter is less than A$450 per ounce, the rate of
royalty for that quarter will fall to 1.25%.
- An exemption from payment of the royalty will apply in respect of the
first 2,500 ounces of gold produced during each financial year from gold
produced or obtained from the same gold royalty project. A "gold royalty
project" is defined as one or more mining tenements from which anyone
(not just the royalty paying producer in question) produces or obtains
gold that is treated or processed at a common treatment facility or
combination of treatment facilities (other than a refinery).
S-19
<PAGE> 52
PRICE RANGE AND TRADING VOLUME OF HOMESTAKE COMMON STOCK
AND THE PLUTONIC ORDINARY SHARES; DIVIDENDS
PRICE RANGES AND TRADING VOLUMES
Homestake Common Stock is listed on the NYSE and the ASX and in Switzerland
on the Basel, Geneva and Zurich stock exchanges. The price ranges of Homestake
Common Stock on the NYSE, the principal exchange on which shares of Homestake
Common Stock are traded, and the volume of trading (in millions of shares) as
shown on the NYSE Composite Transaction Tape are set forth in the following
table for the periods indicated:
HOMESTAKE COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW VOLUME
------ ------ ------------------
(US$) MILLIONS OF SHARES
<S> <C> <C> <C>
1996
First Quarter............................................ $20.63 $15.75 82.8
Second Quarter........................................... 20.88 16.88 53.0
Third Quarter............................................ 18.00 14.25 42.3
Fourth Quarter........................................... 16.63 13.63 77.1
1997
First Quarter............................................ 16.63 13.13 73.0
Second Quarter........................................... 15.25 12.75 48.0
Third Quarter............................................ 15.38 12.31 45.9
Fourth Quarter
October 1-December 19................................. 15.56 9.38 69.1
December 20-December 31............................... 9.44 8.31J
1998
January 1- --............................................
</TABLE>
The Plutonic Ordinary Shares are listed on the ASX. The volume of trading
and price ranges of the Plutonic Ordinary Shares on the ASX in Australian
dollars are set forth in the following table for the periods indicated, and as
converted into US dollars:
PLUTONIC ORDINARY SHARES
<TABLE>
<CAPTION>
HIGH LOW VOLUME HIGH LOW
------ ------ ---------- ------ ------
(A$) (US$)*
<S> <C> <C> <C> <C> <C>
1996
First Quarter......................... $ 7.92 $ 6.45 33,035,100 $ 6.00 $ 4.80
Second Quarter........................ 7.84 6.30 25,393,568 6.19 4.98
Third Quarter......................... 6.60 5.10 27,328,764 5.22 4.04
Fourth Quarter........................ 6.24 4.89 23,390,084 4.94 3.87
1997
First Quarter......................... 5.95 4.89 20,766.364 4.73 3.85
Second Quarter........................ 5.15 4.13 22,545,556 4.01 3.08
Third Quarter......................... 4.40 3.24 26,379,132 3.32 2.40
Fourth Quarter
October 1-December 19.............. 4.11 1.95 29,544,723 3.00 1.32
December 20-December 31............ 4.56 4.00 17,415,997 2.99 2.61
1998
January 1- --.........................
</TABLE>
- ---------------
* US dollar amounts were calculated by multiplying the actual Australian dollars
amounts by the Exchange Rate on the relevant date.
S-20
<PAGE> 53
Homestake and Plutonic publicly announced the Combination on December 21,
1997 in the United States (December 22, 1997 in Australia). The following table
shows the closing prices for Homestake Common Stock on the NYSE and for Ordinary
Shares (in Australian dollars) on the ASX (and converted into US dollars) on
December 19, 1997 (the last trading day before the Combination was announced)
and comparable price data on , 1998 (the last trading day prior to
the date of this Proxy Statement):
<TABLE>
<CAPTION>
HOMESTAKE COMMON PLUTONIC ORDINARY SHARES
STOCK (NYSE) (ASX)
------------------- ------------------------
<S> <C> <C> <C>
December 19, 1997............. US$9.9375 A$2.80 (US$1.82)*
, 1998............ US$ A$ (US$ )*
</TABLE>
- ---------------
* US dollars amounts were calculated by multiplying the actual Australian dollar
amounts by the Exchange Rate on that date.
The following table shows the equivalent market price (in both US and
Australian dollars) on December 19, 1997 and , 1998 for 0.34 shares
of Homestake Common Stock, being the Exchange Ratio of Homestake Common Stock
for each Ordinary Share, based on the closing prices of Homestake Common Stock
on the NYSE on those days:
<TABLE>
<S> <C> <C>
December 19, 1997..................................... US$3.38 A$5.20**
, 1998..................................... US$ A$**
</TABLE>
- ---------------
** Australian dollar amounts were calculated by multiplying the actual US dollar
amounts by the Exchange Rate on that date.
Based on the market value of Homestake Common Stock at December 19, 1997
and , 1998, the Combination offers a premium of 86% to the holders of
Ordinary Shares at December 19, 1997 and a premium of % at ,
1998 based upon the closing price of Ordinary Shares on December 19, 1997.
The market value of the shares of Homestake Common Stock that Plutonic
Shareholders will receive in the Combination may vary significantly from the
prices shown above. Plutonic Shareholders are urged to obtain current quotations
for the market prices of Homestake Common Stock.
S-21
<PAGE> 54
COMPARISON OF STOCK PRICE PERFORMANCES
The following graph compares the relative stock price performances of
Homestake Common Stock and Plutonic Ordinary Shares from January 1, 1997 to
December 19, 1997. The graph also compares such stock price performances to the
S&P Gold and Precious Metals Index and the Australian Stock Exchange Gold Index
for the same period. The stock prices for the Ordinary Shares and the Australian
Stock Exchange Gold Index figures have been converted from Australian dollars to
US dollars using the daily Exchange Rates.
<TABLE>
<CAPTION>
Measurement Period ASE Gold Index
(Fiscal Year Covered) Homestake Plutonic (US$) S&P Gold Index (US$)
<S> <C> <C> <C> <C>
1/1/97 100.00 100.00 100.00 100.00
1/2/97 98.25 101.15 97.71 99.07
1/3/97 95.61 95.74 95.79 97.64
1/6/97 92.11 92.63 92.35 95.69
1/7/97 96.05 86.96 94.19 92.68
1/8/97 93.86 86.66 92.27 92.45
1/9/97 97.37 86.29 95.55 91.54
1/10/97 97.37 87.01 96.84 92.38
1/13/97 98.25 86.45 96.17 92.62
1/14/97 95.61 87.09 93.32 92.54
1/15/97 94.74 86.90 92.90 91.48
1/16/97 97.37 85.80 95.30 91.92
1/17/97 100.88 86.27 97.12 93.06
1/20/97 99.12 86.34 95.45 93.93
1/21/97 98.25 84.68 95.86 92.63
1/22/97 97.37 84.51 93.49 92.47
1/23/97 97.37 83.32 92.97 91.05
1/24/97 99.12 83.30 95.14 91.20
1/27/97 100.88 83.15 97.29 91.04
1/28/97 100.00 85.22 96.05 91.70
1/29/97 101.75 85.40 96.82 91.79
1/30/97 98.25 85.79 94.30 91.45
1/31/97 99.12 86.12 94.13 90.29
2/3/97 100.00 82.65 95.70 89.90
2/4/97 99.12 83.26 95.14 90.09
2/5/97 97.37 82.75 93.39 90.05
2/6/97 96.49 82.25 92.05 90.39
2/7/97 99.12 82.02 93.87 89.74
2/10/97 98.25 82.27 92.67 89.48
2/11/97 97.37 83.56 91.69 90.34
2/12/97 103.51 82.03 95.49 89.74
2/13/97 103.51 84.26 95.80 92.82
2/14/97 107.89 82.42 97.39 92.83
2/17/97 107.89 82.42 97.39 92.83
2/18/97 109.65 85.65 98.10 94.27
2/19/97 109.65 88.20 97.70 94.64
2/20/97 112.28 86.76 100.76 94.15
2/21/97 113.16 87.93 100.83 96.54
2/24/97 114.04 88.04 102.59 97.19
2/25/97 112.28 87.79 102.28 96.68
2/26/97 112.28 87.42 99.99 95.89
2/27/97 114.91 85.48 103.22 95.15
2/28/97 115.79 85.36 104.07 95.65
3/3/97 114.04 85.19 102.44 95.85
3/4/97 109.65 86.20 100.26 96.42
3/5/97 109.65 85.38 99.56 94.92
3/6/97 107.89 84.62 98.46 94.65
3/7/97 105.26 84.48 97.04 94.99
3/10/97 112.28 85.47 97.90 95.16
3/11/97 114.04 85.63 99.48 95.41
3/12/97 114.04 85.53 98.31 95.30
3/13/97 115.79 86.14 98.73 94.43
3/14/97 114.04 87.54 98.11 94.43
3/17/97 112.28 88.83 96.44 94.16
'3/18/97 111.40 86.32 96.60 91.51
3/19/97"' 110.53 84.54 96.19 90.13
3/20/97 110.53 83.08 94.24 90.64
3/21/97 109.65 82.89 93.80 90.16
3/24/97 107.89 84.05 92.97 89.77
3/25/97 107.02 82.52 92.24 89.00
3/26/97 109.65 82.94 93.87 88.66
3/27/97 104.39 83.31 89.40 89.65
3/28/97 104.39 83.31 89.40 89.65
3/31/97 105.26 83.51 88.50 89.86
4/1/97 105.26 81.34 88.12 87.74
4/2/97 104.39 80.20 89.20 87.64
4/3/97 103.51 76.05 88.31 86.22
4/4/97 103.51 79.70 88.06 85.28
4/7/97 101.75 79.70 87.20 85.05
4/8/97 100.88 80.54 86.94 85.40
4/9/97 99.12 82.81 85.96 86.09
4/10/97 101.75 81.55 88.38 85.46
4/11/97 100.00 78.68 85.66 85.03
4/14/97 98.25 77.15 84.25 83.17
4/15/97 96.49 81.00 82.91 83.21
4/16/97 95.61 80.64 83.79 82.55
4/17/97 97.37 81.73 85.15 82.80
4/18/97 97.37 83.84 83.27 84.32
4/21/97 95.61 84.86 83.13 85.31
4/22/97 95.61 84.08 81.65 85.64
4/23/97 93.86 82.94 80.33 84.79
4/24/97 92.11 83.47 78.72 84.62
4/25/97 92.11 83.55 79.18 84.71
4/28/97 91.23 83.30 79.07 84.25
4/29/97 92.98 82.72 80.19 83.72
4/30/97 92.98 82.43 80.31 83.92
5/1/97 94.74 82.81 81.84 83.84
5/2/97 97.37 82.73 82.54 84.05
5/5/97 97.37 81.63 84.21 83.16
5/6/97 98.25 83.31 84.82 83.12
5/7/97 100.00 83.78 88.66 82.30
5/8/97 101.75 82.53 88.98 83.07
5/9/97 103.51 82.93 91.45 83.58
5/12/97 101.75 85.48 89.96 84.89
5/13/97 100.88 85.98 88.18 84.79
5/14/97 98.25 85.73 86.70 84.81
5/15/97 100.00 82.98 89.07 83.96
5/16/97 96.49 84.01 87.07 83.85
5/19/97 96.49 83.31 87.04 83.04
5/20/97 97.37 83.23 87.70 82.15
5/21/97 95.18 81.92 87.14 83.13
5/22/97 94.74 82.50 87.06 82.95
5/23/97 94.74 81.58 87.70 80.91
5/26/97 94.74 81.58 87.70 80.91
5/27/97 96.49 83.84 89.59 81.13
5/28/97 98.25 82.91 88.60 81.47
5/29/97 100.00 80.43 90.93 81.52
5/30/97 97.37 78.81 89.49 81.87
6/2/97 95.61 79.21 87.40 82.02
6/3/97 93.86 79.41 85.87 82.14
6/4/97 92.98 78.33 84.06 81.68
6/5/97 95.61 77.28 86.66 81.08
6/6/97 95.61 77.65 86.85 81.48
6/9/97 96.49 77.82 88.19 81.66
6/10/97 94.74 78.36 87.87 81.96
6/11/97 95.61 79.21 88.93 81.07
6/12/97 95.61 78.57 89.74 79.99
6/13/97 95.61 77.15 89.70 79.96
6/16/97 95.61 75.41 88.28 79.24
6/17/97 93.86 74.28 87.64 78.92
6/18/97 92.11 73.05 85.40 78.96
6/19/97 93.86 69.86 86.55 77.78
6/20/97 91.23 69.98 83.85 77.63
6/23/97 92.11 68.84 82.01 76.89
6/24/97 91.67 70.34 81.27 76.50
6/25/97 92.98 69.21 83.10 75.55
6/26/97 93.42 68.58 83.37 75.14
6/27/97 91.23 67.09 82.12 75.54
6/30/97 91.67 66.75 82.16 75.51
7/1/97 92.11 69.69 83.81 75.91
7/2/97 92.11 69.58 82.20 75.80
7/3/97 91.23 67.85 81.40 74.09
7/4'97 91.23 67.85 81.40 74.09
7/7/97 87.28 62.07 74.82 65.21
7/8/97 88.60 54.75 77.45 61.41
7/9/97 87.72 55.46 76.74 63.01
7/10/97 92.54 56.79 79.66 63.37
7/11/97 93.42 60.92 81.20 66.40
7/14/97 92.98 61.06 78.67 65.38
7/15/97 91.23 60.06 77.73 64.67
7/16/97 90.35 61.39 78.64 65.18
7/17/97 92.54 59.83 81.53 65.58
7/18/97 96.05 60.52 84.06 66.84
7/21/97 93.86 59.05 81.64 66.91
7/22/97 94.30 58.23 82.15 65.81
7/23/97 92.54 58.96 81.25 65.48
7/24/97 93.42 56.77 81.49 63.82
7/25/97 94.30 56.98 82.46 64.41
7/28/97 96.05 58.29 83.58 65.63
7/29/97 95.18 59.56 83.31 68.10
7/30/97 96.49 60.92 85.00 68.53
7/31/97 96.93 63.82 85.22 67.96
8/1/97 96.49 63.71 85.25 68.11
8/4/97 95.18 62.64 84.91 67.28
8/5/97 93.86 60.98 82.95 66.56
8/6/97 95.18 59.78 84.50 65.55
8/7/97 96.05 59.40 85.46 64.79
8/8/97 99.56 59.49 89.06 64.57
8/11/97 100.44 60.16 89.35 65.39
8/12/97 99.12 61.81 88.45 66.12
8/13/97 99.56 60.64 89.04 65.76
8/14/97 97.81 61.90 86.72 66.87
8/15/97 99.12 62.78 87.52 68.48
8/18/97 96.93 60.42 87.22 67.20
8/19/97 96.93 61.57 85.96 67.19
8/20/97 96.49 63.10 86.19 67.78
8/21/97 96.93 63.04 87.07 68.77
8/22/97 100.44 61.96 87.96 69.09
8/25/97 99.12 62.04 87.48 69.71
8/26/97 99.12 62.38 87.39 69.67
8/27/97 98.25 61.42 85.93 68.68
8/28/97 98.25 61.03 86.24 67.60
8/29/97 98.25 61.33 85.65 65.94
9/1/97 98.25 61.33 85.65 65.94
9/2/97 98.25 61.68 85.67 65.22
9/3/97 96.05 62.15 85.05 65.65
9/4/97 96.93 63.85 85.33 66.10
9/5/97 97.81 63.68 84.76 65.97
9/8/97 96.93 61.61 82.09 66.26
9/9/97 97.37 62.10 82.69 65.92
'9/10/97 95.61 60.34 82.53 65.33
9/11/97"' 93.86 59.18 81.36 63.95
9/12/97 93.86 59.78 81.36 63.93
9/15/97 92.11 58.93 80.14 63.31
9/16/97 90.79 56.67 79.58 61.83
9/17/97 90.79 56.85 80.36 61.84
9/18/97 92.11 57.06 82.33 60.96
9/19/97 90.79 57.37 82.22 61.88
9/22/97 89.91 57.32 80.42 61.92
9/23/97 92.11 56.73 82.21 61.54
9/24/97 95.61 54.92 84.94 61.28
9/25/97 101.75 57.54 89.51 62.67
9/26/97 100.88 57.03 88.50 63.81
9/29/97 102.63 55.70 91.12 62.79
9/30/97 107.89 59.07 94.37 64.67
10/1/97 104.82 63.60 93.35 67.95
10/2/97 103.95 63.99 92.35 68.03
10/3/97 105.70 61.60 94.02 66.50
10/6/97 103.95 60.77 91.97 67.30
10/7/97 103.51 61.01 91.66 66.63
10/8/97 106.58 62.61 94.06 66.78
10/9/97 100.88 63.35 91.25 67.53
10/10/97 104.39 62.00 92.71 67.16
10/13/97 101.75 61.34 92.73 67.62
10/14/97 102.63 59.63 91.26 67.19
10/15/97 103.95 56.92 90.37 66.68
10/16/97 100.88 55.85 88.45 66.54
10/17/97 101.75 52.08 87.41 65.54
10/20/97 100.00 51.57 85.76 64.55
10/21/97 99.12 50.83 88.28 64.53
10/22/97 101.32 48.61 90.97 62.59
10/23/97 102.63 48.25 91.69 61.70
10/24/97 92.54 47.85 83.79 60.28
10/27/97 85.09 40.18 74.33 52.72
10/28/97 85.96 35.90 77.46 47.70
10/29/97 84.65 37.96 74.91 51.84
10/30/97 89.47 36.14 78.87 50.35
10/31/97 86.84 38.53 76.38 52.12
11/3/97 87.28 39.91 76.60 52.58
11/4/97 88.16 41.54 76.01 52.52
11/5/97 85.96 41.49 74.76 51.88
11/6/97 85.53 42.40 73.53 51.61
11/7/97 81.58 38.32 70.69 50.35
11/10/97 82.02 37.79 70.07 49.91
11/11/97 82.89 37.53 70.10 49.84
11/12/97 79.82 36.87 66.15 49.00
11/13/97 80.26 36.02 68.35 48.39
11/14/97 78.07 35.86 66.94 47.75
11/17/97 78.95 33.98 66.78 46.18
11/18/97 78.07 34.55 65.99 45.65
11/19/97 78.07 35.60 65.31 44.12
11/20/97 79.82 36.92 67.32 43.39
11/21/97 79.39 38.42 66.86 45.15
11/24/97 78.07 37.33 65.29 45.17
11/25/97 77.19 33.91 64.08 43.47
11/26/97 75.44 32.34 62.68 42.31
11/27/97 75.44 32.34 62.68 42.31
11/28/97 73.68 31.37 62.10 40.56
12/1/97 74.12 33.85 61.91 40.58
12/2/97 72.81 33.75 62.11 40.46
12/3/97 70.18 34.05 60.72 41.44
12/4/97 68.42 33.57 57.42 40.78
12/5/97 69.30 31.77 59.08 39.99
12/8/97 68.42 31.63 57.86 40.35
12/9/97 67.11 30.14 56.51 40.27
12/10/97 69.74 29.25 59.12 39.19
12/11/97 67.98 30.12 57.91 39.16
12/12/97 68.42 33.22 59.42 39.11
12/15/97 69.74 31.51 60.42 38.64
12/16/97' 69.74 31.91 60.31 38.11
12/17/97 74.56 34.43 65.78 39.93
12/18/97 71.49 37.41 64.08 41.82
12/19/97 69.74 39.40 62.59 41.49
</TABLE>
DIVIDENDS
In March 1997, the Homestake Board elected to change from quarterly
dividends to semi-annual dividends. On a semi-annual basis, the Homestake Board
evaluates the financial circumstances and requirements of Homestake to determine
whether a dividend should be paid and the amount thereof. Homestake can give no
assurance that dividends will continue to be paid on a regular basis or in
amounts previously paid. Any decision whether to pay dividends will be made
based on the financial requirements of Homestake as determined by the Homestake
Board from time to time.
S-22
<PAGE> 55
The following table sets forth, for the calendar quarters indicated,
dividends per share paid on the Homestake Common Stock:
<TABLE>
<CAPTION>
CALENDAR PERIOD DIVIDENDS
---------
(US$)
<S> <C>
1996
First Quarter.................................................. $ .05
Second Quarter................................................. .05
Third Quarter.................................................. .05
Fourth Quarter................................................. .05
1997
First Quarter.................................................. .05
Second Quarter................................................. .05
Third Quarter.................................................. --
Fourth Quarter................................................. .05
</TABLE>
For the convenience of Australian residents, Homestake will pay dividends
in Australian dollars to stockholders who have an Australian address in its
register of stockholders. Those dividends will not be franked and will be
subject to U.S. withholding tax for non-U.S. residents (currently 15% for
Australian residents).
The following table sets forth, for the periods indicated, the dividends
per share declared on the Ordinary Shares:
<TABLE>
<CAPTION>
CALENDAR PERIOD DIVIDENDS
---------
(A$)
<S> <C>
1996
First Half..................................................... $ 0.04
Final.......................................................... 0.07
1997
First Half..................................................... NIL
Final.......................................................... see below
</TABLE>
Plutonic historically declares and pays dividends on a semi-annual and an
annual basis. The final dividend for 1997 will be declared in February 1998 and
paid in April 1998.
S-23
<PAGE> 56
THE COMBINATION
GENERAL
The Homestake Board and the Plutonic Board have approved the Agreement,
which provides that subject to the terms and conditions of the Agreement, and in
accordance with the DGCL and the NSWL, at the Effective Date Homestake and
Plutonic will consummate the Combination. As a consequence of the Combination
Plutonic will become a wholly-owned subsidiary of Homestake, and holders of
Plutonic Securities will receive the following consideration:
(a) All holders of Ordinary Shares, other than Homestake, will receive
0.34 shares of Homestake Common Stock for each Ordinary Share owned by
them, and their Ordinary Shares will be cancelled.
(b) Holders of each class of Partly Paid Shares will receive shares of
Homestake Common Stock for their Partly Paid Shares, with the number to be
received having been determined in accordance with a valuation formula
described in "The Agreement -- Schemes of Arrangement," and their Partly
Paid Shares will be cancelled.
(c) Holders of each class of Options will receive shares of Homestake
Common Stock for their Options, with the number to be received having been
determined in accordance with a valuation formula described in "The
Agreement -- Schemes of Arrangement," and their Options will be cancelled.
It is expected that Homestake will issue approximately 63,840,365 shares of
Homestake Common Stock to the holders of Ordinary Shares, approximately 322,405
shares of Homestake Common Stock to holders of Partly Paid Shares, and
approximately 192,175 shares of Homestake Common Stock to the holders of
Options. A total of approximately 64,354,945 shares of Homestake Common Stock
will be issued in the Combination if all of the Schemes are approved.
EXCHANGE RATIOS
The Exchange Ratios established for the Plutonic Securities are as follows:
ORDINARY SHARES
Holders of Ordinary Shares will be entitled to receive 0.34 shares of
Homestake Common Stock in consideration of the cancellation of each Ordinary
Share owned by them.
PARTLY PAID SHARES
There are three groups of Partly Paid Shares outstanding that are held by
employees of Plutonic (each, an "Employee Grantee") or, at the election of the
Employee Grantee, an affiliate of the Employee Grantee. The Partly Paid Shares
have been paid up as to A$0.05 per share, and the remainder of the purchase
price has not yet been paid. A holder of Partly Paid Shares is not required to
pay the remainder of the purchase price therefor until the earlier of six months
after termination of employment of the applicable Employee Grantee (or such
longer period as the Plutonic Board may determine) and the date the shares are
to be sold.
In valuing each of the Partly Paid Shares, Homestake and Plutonic agreed to
use, as the basis therefor, the value of 0.34 shares of Homestake Common Stock
(based on the closing price of Homestake Common Stock on the NYSE on December
19, 1997) converted into Australian dollars, and reduced by the unpaid purchase
price applicable to each Partly Paid Share. It was also assumed each Partly Paid
Share would be paid up in full within five years.
S-24
<PAGE> 57
Based on the foregoing, the relative value of each Partly Paid Share to one
Ordinary Share was determined and a relative exchange ratio was established, as
follows:
<TABLE>
<CAPTION>
EXCHANGE RATIO
(SHARES OF HOMESTAKE
COMMON STOCK TO EACH
PARTLY PAID SHARES PARTLY PAID SHARE)
----------------------------------------------------------------- ---------------------
<S> <C>
211,250 Partly Paid Shares, unpaid as to A$0.75 per share 0.303
702,962 Partly Paid Shares, unpaid as to A$0.85 per share 0.299
162,875 Partly Paid Shares, unpaid as to A$0.90 per share 0.296
</TABLE>
A total of 322,405 shares of Homestake Common Stock will be exchanged for
the 1,077,087 Partly Paid Shares outstanding.
OPTIONS
There are eleven separate groups of Options outstanding, exercisable on
dates ranging from October 12, 1999 through June 4, 2002, at prices ranging from
A$5.66 to A$8.75. In valuing the Options, Homestake and Plutonic agreed to apply
the Black-Scholes option valuation model, using as the basis therefor, the value
of 0.34 shares of Homestake Common Stock (based on the closing price of
Homestake Common Stock on the NYSE on December 19, 1997) converted into
Australian dollars. Based on the foregoing, the relative value of each Option to
one Ordinary Share was determined and a relative exchange ratio was established
for each Option. Exchange Ratios for the Options vary from 0.048 to 0.104 shares
of Homestake Common Stock per Option, for a total of 192,175 shares of Homestake
Common Stock to be exchanged for the Options outstanding to subscribe for
3,218,000 Plutonic Shares.
BACKGROUND OF THE COMBINATION
For at least the past three years, Homestake has engaged in a continuing
evaluation of strategic alternatives, including evaluation of possible
acquisition and merger candidates, both as a means of acquiring attractive
operating properties and as a means of acquiring exploration property with
potential. In 1996, Homestake and Santa Fe Pacific Gold Corporation pursued
negotiations, which led to the announcement of a merger agreement on December 8,
1996. In March 1997, that agreement was terminated by Santa Fe. Santa Fe paid
Homestake a US$65 million termination fee and subsequently consummated a merger
with Newmont Gold Company.
Following the termination of the Santa Fe merger agreement, Homestake
reactivated its evaluation of other gold mining acquisition candidates, with an
emphasis on Australian producers and other companies having strong international
production, potential for reserve growth, and exploration property with
potential. Homestake identified three preferred candidates, including Plutonic.
On March 28, 1997, Homestake initiated contact with Malaysia Mining
Corporation Berhad, a company whose subsidiaries and affiliates own
approximately 35% of Plutonic (collectively, "MMC"). On April 23, 1997, Messrs.
Lee A. Graber, Homestake's Vice President of Corporate Development, and Richard
A. Tastula, Managing Director of HGAL, met with Mr. Lim Che Wan, Chief Executive
Officer of one of the MMC affiliates. During that initial meeting, Messrs.
Graber and Tastula provided Mr. Lim with a presentation that included the
possible benefits and rationale for an arrangement involving a combination of
Homestake and Plutonic. No agreements were reached but the parties decided that
they should maintain contact, become better acquainted and further explore
prospects of a mutually satisfactory collaboration in the gold mining business.
On July 11, 1997, Mr. Graber sent a letter to Mr. Lim, outlining the
potential benefits of a collaboration between Homestake and MMC regarding
Plutonic.
At the July 24, 1997 meeting of the Homestake Board, the Homestake Board
was provided with an analysis of Plutonic and the two other companies that had
been identified as preferred candidates for
S-25
<PAGE> 58
acquisition or other arrangement. The Homestake Board instructed management to
proceed further with exploration of the opportunities.
On August 1, 1997, Mr. Lim responded to Mr. Graber's letter and agreed that
the parties should meet again for further discussion. The parties met in Kuala
Lumpur during the week of September 29, 1997.
At the September 25, 1997 meeting of the Homestake Board, the Homestake
Board was advised of the status of analyses and discussions between Homestake
and some of the companies under consideration.
On September 29 and 30, 1997, representatives of Homestake and SBC Warburg
Dillon Read Inc. ("SBC Warburg Dillon Read" or "Homestake's Financial Advisor")
met with representatives of MMC in Kuala Lumpur to further discuss possible
transactions involving Homestake and Plutonic. Homestake advanced two proposals,
including a proposal to combine Homestake and Plutonic using Homestake Common
Stock as consideration, which would result in MMC becoming Homestake's largest
stockholder. Although MMC indicated during these discussions that MMC's interest
in Plutonic was not for sale, the parties discussed the implications of MMC
becoming a significant stockholder of Homestake. On October 17, 1997, MMC
advised Homestake that Homestake's proposals did not satisfy MMC's business
requirements. As a result, Homestake focused on other alternatives then under
consideration.
On November 2, 1997, MMC contacted Homestake regarding possible further
discussions of matters discussed in the September meetings. Homestake suggested
meeting again to revisit outstanding issues. On November 11 and 12, 1997,
representatives of Homestake met with representatives of MMC in Honolulu to
discuss their common interest in proposals for a combination of Homestake and
Plutonic. Homestake proposed issuing Homestake Common Stock for Plutonic
Securities. The parties explored alternative ways to achieve their respective
objectives. The parties discussed various trading ratios and price expectations
but failed to reach any agreement. The parties did decide that if a transaction
were to proceed, it should be a negotiated transaction between Homestake and
Plutonic directly.
At the November 21, 1997 meeting of the Homestake Board, the Homestake
Board was advised of the status of discussions between Homestake and MMC and the
expectation that Homestake would commence direct discussions with Plutonic. The
Homestake Board was provided with the most recent analysis prepared by Homestake
management, including the reasons Homestake's management recommended pursuing a
combination with Plutonic, and analysis and presentations by Homestake's
Financial Advisor as to the benefits of the proposed transaction. The Homestake
Board then authorized management to proceed with the negotiation of possible
terms of a transaction which would result in a combination of Homestake and
Plutonic, with Homestake Common Stock to be issued to the holders of Plutonic
Securities.
The parties subsequently agreed to meet on December 3, 1997 in Kuala
Lumpur. Jack E. Thompson, President and Chief Executive Officer of Homestake,
and other representatives of Homestake and Homestake's Financial Advisor met
with Tan Sri Ibrahim Menudin, Group Chief Executive of MMC, Paul McClintock,
Chairman of Plutonic, and other representatives of MMC and Plutonic. The parties
discussed the possible structures of a transaction, the accounting treatment,
the share exchange ratio, the scope of due diligence, transaction documentation
and the timing of the next steps.
As a result of these discussions, Homestake and Plutonic agreed that they
should enter into a confidentiality agreement and continue negotiations
regarding the terms of a possible combination transaction for presentation to
the Boards of each company. The parties also agreed that any transaction would
be structured as a scheme of arrangement under Australian law and that it would
be accounted for as a pooling of interest under U.S. GAAP. During the period of
December 4-8, 1997, representatives of the parties discussed during telephone
meetings their respective due diligence requirements and agreed on the next
steps to conduct due diligence and negotiate the terms of a definitive
agreement. Also during that period, the parties negotiated the terms of a
confidentiality agreement, which was executed on December 8, 1997.
Negotiation of the terms of a definitive agreement also began during the
week of December 8-12, 1997. Also, during the week of December 8-12, 1997,
representatives of Plutonic met with Homestake representatives in Homestake's
offices in San Francisco. During these meetings, the Plutonic representatives
attended presentations by and interviewed Homestake's key officers regarding
Homestake's operations, prospects, finances and liabilities. The parties also
discussed the benefits of the combination of the companies, personnel matters
and the plan of integrating Homestake's and Plutonic's Australian activities.
Also during that period,
S-26
<PAGE> 59
Homestake representatives and Homestake's Financial Advisor met with Plutonic
representatives in Sydney to conduct due diligence, and other Homestake
representatives reviewed geological, operating and other data that had been
provided by Plutonic to Homestake.
Due diligence and negotiation of the terms of a definitive agreement
continued during the period of December 12-18, 1997 in Sydney and in San
Francisco. Mr. Thompson and other representatives of Homestake and Homestake's
Financial Advisor attended a Plutonic Board meeting on December 17, 1997 in
Sydney and Homestake gave a presentation to the Plutonic Board regarding
Homestake, the benefits of a combination between Homestake and Plutonic, and
Homestake's plans to integrate the Australian operations of the companies.
On December 18, 1997, the Homestake Board met in San Francisco to consider
the transaction. Homestake's management reviewed the results of due diligence
and the negotiations between the two companies, including the principal terms
that had been agreed upon and those issues that were yet to be resolved.
Following that review, the Homestake Board authorized management to proceed with
the combination, contingent upon the parties reaching a definitive agreement and
resolution of the remaining unresolved issues.
Negotiations of the remaining unresolved issues continued until December
21, 1997, San Francisco time, when final agreement was reached. The Plutonic
Board approved the agreement on December 22, 1997 (Australian time). The
definitive agreement was executed and announced on December 21, 1997 in the
United States (December 22, 1997 in Australia).
HOMESTAKE'S REASONS FOR THE COMBINATION; RECOMMENDATION OF THE HOMESTAKE BOARD
In connection with its consideration of the Combination, the Homestake
Board received and considered presentations by Homestake management and
presentations by and advice from its legal and financial advisors regarding the
proposed Combination. After careful consideration, on December 18, 1997, the
Homestake Board unanimously approved the Combination and the Share Issuance as
being fair and in the best interests of the Homestake Stockholders. In reaching
that decision, the Homestake Board considered a number of factors, including
those listed below. In view of the wide variety of factors considered by the
Homestake Board in connection with its evaluation of the Combination and the
complexity of those matters, the Homestake Board did not consider it practicable
to, nor did it attempt to, quantify or otherwise assign relative weights to the
specific factors it considered in reaching its decision. In addition, individual
members of the Homestake Board may have given different weight to different
factors.
General Industry Factors. The Homestake Board reviewed the generally
prevailing conditions in the gold industry in the United States and worldwide.
The Homestake Board believes that in the current low gold price environment,
there will be a significant consolidation in the gold mining industry in North
America and worldwide, and that companies that continue to reduce their costs,
become more efficient and add quality reserves will weather the low gold price
environment and thrive when gold prices return to more normal levels. In
addition, companies that consolidate and increase their reserves and exploration
prospects will be much better positioned to compete in the future than those
companies that do not take the opportunity to grow during this period of
depressed valuations. Finally, recent experiences of a number of gold companies
in many parts of the world have demonstrated the value of continuing to grow and
to build strong production and explorations bases in countries with low
political risk profiles.
The combination of Homestake and Plutonic will create the third largest
North American-based gold mining company in terms of production and reserves and
mineralized material, and the second largest gold mining company in Australia
(measured by Australian production and reserves). As of December 31, 1996, the
Combined Company would have approximately 22.6 million ounces of gold equivalent
reserves and approximately 198 million tons of mineralized material averaging a
grade of 0.109 ounces of gold equivalents per ton (in each case after reduction
for minority interests), increases of 11% and 65%, respectively, over
Homestake's reserves and mineralized material at December 31, 1996. The Combined
Company also will benefit significantly in terms of production growth and lower
cash costs. Homestake's 1996 and 1997 production was 1.968 and 1.996 million
ounces of gold equivalents, respectively. Before taking into account the
S-27
<PAGE> 60
restructuring of operations at the Homestake mine discussed below, production
for the Combined Company was expected to total 2.470 million ounces of gold
equivalents in 1998 and 2.478 million ounces of gold equivalents in 1999.
Homestake's 1996 and 1997 total cash production costs were US$248 and US$237 per
gold equivalent ounce, respectively. Before taking into account the
restructuring of operations at the Homestake mine, the Combined Company's 1998
total cash production cost was expected to be approximately US$225 per gold
equivalent ounce, decreasing to US$222 per gold equivalent ounce in 1999. (After
taking into account the restructuring of operations at the Homestake mine, 1998
production for the Combined Company is expected to total 2.325 million ounces at
a total cash production cost of US$223 per ounce, and 1999 production for the
Combined Company is expected to total 2.406 million ounces at a total cash
production cost of US$215 per ounce.) Homestake believes that the Combined
Company will have the lowest political risk profile of any major North
American-based gold mining company, with a strong balance sheet and significant
cash flow.
The following table shows the relative position of Homestake and the
Combined Company in respect of gold production and reserves, as compared with
the four largest North American-based gold mining companies for 1996. The data
in the table have been obtained from annual reports and other information
disseminated to the public by the respective companies. The table also shows the
relative position of Homestake, Plutonic and the Combined Company's Australian
sourced gold production and reserves, as compared with the five largest
Australian-based gold mining companies whose production and reserves are
primarily from Australia. Except as noted, the Australian comparisons are for
the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
PRODUCTION RESERVES
---------- --------
(000 OUNCES)
<S> <C> <C>
NORTH AMERICAN-BASED GOLD MINING COMPANIES(1)
Newmont Gold Company(2)............................. 3,244 55,217
Barrick Gold Corporation............................ 3,149 51,117
HOMESTAKE/PLUTONIC(3)............................... 2,418(4) 22,567
Placer Dome Inc..................................... 1,914 26,528
Homestake Mining Company............................ 1,968(4) 20,379
Battle Mountain Gold Company........................ 918 10,931
AUSTRALIAN-BASED GOLD MINING COMPANIES(5)
Normandy Mining Limited(6).......................... 1,228 9,831
HOMESTAKE/PLUTONIC(7)............................... 927 9,750
Great Central Mines Limited(8)...................... 671 6,329
Plutonic Resources Limited(9)....................... 510 3,304
Sons of Gwalia Limited.............................. 510 3,290
Newcrest Mining Limited............................. 474 2,800
Homestake Mining Company(10)........................ 417 6,446
Acacia Resources Limited(11)........................ 330 2,955
</TABLE>
- ---------------
(1) Amounts for the year ending December 31, 1996.
(2) Restated to include Santa Fe Pacific Gold Corporation.
(3) Includes Plutonic production and reserves for the year ended December 31,
1996.
(4) Without reduction of 234,000 ounces for minority interests.
(5) Includes only production and reserves for Australian properties.
(6) Production and Reserves exclude those amounts attributable to minority
interest.
(7) Includes Homestake and Plutonic amounts described below.
S-28
<PAGE> 61
(8) Restated to include the acquisition of Eagle Mining Corporation N.L. and
Wiluna Mines Corporation Limited. Includes Eagle Mining production for the
12 months ended June 30, 1997 and reserves at June 30, 1997. Includes
Wiluna Mines production for the 12 months ended June 30, 1997 and reserves
at December 31, 1996.
(9) Plutonic production restated to conform with Australian fiscal year
reporting for the 12 months ended June 30, 1997. Plutonic reserves as at
December 31, 1996 updated to include revised Darlot/Centenary reserves
announced December 17, 1997.
(10) Homestake's Australian production restated to conform with Australian
fiscal year reporting for the 12 months ended June 30, 1997. Reserves
include only Homestake's Australian reserves at December 31, 1996.
(11) Reserves are at December 31, 1996.
The Combined Company will benefit from the combination of the Homestake
exploration program in Nevada, Australia, Canada and other parts of the world
with the Plutonic exploration program in Australia, particularly the exploration
potential in the area around the Plutonic and Darlot/Centenary mines and
Plutonic's other large tenement holdings in Western Australia, the location of
some of the most significant gold discoveries in Australia over the past 20
years.
These factors should permit the Combined Company to pursue aggressive
acquisition, exploration and development opportunities in the United States,
Australia, Canada and elsewhere throughout the world, and will give the Combined
Company the financial ability to compete more effectively for attractive
opportunities available only to the largest competitors.
Business, Conditions, and Prospects of Homestake and Plutonic; Relative
Prices of Stock. In evaluating the Combination, the Homestake Board considered
information with respect to the business, conditions and prospects of both
Homestake and Plutonic, including results of investigations by Homestake's
management with respect to the current operations, assets, financial condition,
management, prospects and liabilities of Plutonic. Among other factors, the
annual production of gold from Plutonic's Darlot/Centenary and Plutonic mines,
both of which are young and developing, long-lived mines, is expected to
increase over the next several years at significantly reduced cash costs per
ounce, making a major contribution to the Combined Company. In addition, the
Darlot/Centenary and Plutonic mines have excellent potential for conversion of
mineralized material to reserves over the next several years and excellent
exploration potential for the discovery of additional reserves and
mineralization. Finally, Homestake's strong balance sheet and both companies'
cash flow should permit the Combined Company to easily manage debt service and
provide increased opportunities for timely asset acquisitions.
The Homestake Board also considered the relative prices of the two
companies' stock in its evaluation. As a result of the general deterioration of
prices of gold stocks in the Australian market relative to the U.S. market, as
well as the decline in the relative value of the Australian dollar against the
value of the US dollar, the current circumstances created an opportunity for
Homestake to acquire Plutonic at an acceptable price to Homestake which would,
at the same time, provide an attractive premium to the holders of Plutonic
Securities. The Homestake Board noted the view of SBC Warburg Dillon Read that
the range of potential premiums being offered by Homestake was driven to a
substantial extent by the factors listed above and was not inconsistent with the
proposed transaction being favorable to Homestake.
Pro Forma Impact of the Combination on the Homestake Stockholders. The
Homestake Board considered the likely pro forma impact of the Combination on the
current Homestake Stockholders. The Combination is expected to be accretive to
the Homestake Stockholders in 1998 and 1999 (before one-time transaction and
restructuring costs) and over the next several years in terms of earnings per
share and cash flow from operations, even at current, reduced gold prices, due
in part to the US$20 million synergies from the transaction (described below)
and the reduction of the Combined Company's production costs per ounce. At the
Exchange Ratio of 0.34 to 1, the current Homestake Stockholders will own
approximately 70% of the Combined Company.
S-29
<PAGE> 62
Although the Combination initially will be dilutive to the Homestake
Stockholders on the basis of both reserves per share of Homestake Common Stock
and production per share of Homestake Common Stock, the extent of the dilution
is expected to be eliminated over time as a result of conversion of Plutonic's
mineralized material into reserves. See "Risk Factors" and "Cautionary
Statements" for a discussion of risks and uncertainties associated with
projections of earnings and production.
Stock Market Considerations. During the past few years, Homestake Common
Stock has traded at multiples that were significantly lower than those of other
major North American gold producers, principally Barrick Gold Corporation,
Newmont Gold Company and Placer Dome Inc., due in large part to the higher cost
per ounce and the lower growth profile for Homestake. Although Homestake's stock
price has somewhat improved relative to the stock prices of the other three
North American major producers in the past year, the Homestake Board believes
that the Combined Company has a much greater opportunity to trade at stock
market multiples comparable to those of these other major producers due to the
restored growth profile and reduced average cash costs that will result from the
Combination.
Synergies and Cost Savings. In evaluating the Combination, the Homestake
Board considered the opportunities for synergies and cost savings that exist
between Homestake and Plutonic. Homestake has underground mining expertise
involving virtually every underground mining method, which will be a major
positive factor in the continued development of the Darlot/Centenary and
Plutonic mines. Plutonic operates four of its five mines. As a result of the
Combination, the Combined Company will directly operate and manage 11 mines
throughout the world, which will give the Combined Company increased experience
in mine operation and greater ability to attract high quality operating
personnel in Australia and throughout the world. There are considerable
opportunities for cost savings for the Combined Company. The Combined Company
will be able to eliminate certain overlapping operating expenses and
administrative and general expenses that currently are incurred separately by
Homestake and Plutonic. Homestake will close the Sydney office of Plutonic and
consolidate administrative activities in Homestake's Perth office. In addition,
certain Plutonic functions, such as those associated with Plutonic being a
publicly listed company, will be eliminated. Homestake estimates that the
savings in this area will approximate US$5 million per year by year end 1998.
Homestake will also combine its exploration program with that of Plutonic.
This will involve consolidating Plutonic's and Homestake's Australian principal
exploration offices in Plutonic's Perth office. It will also involve evaluating
and prioritizing the exploration prospects for both companies and pursuing an
exploration program for the best properties of both companies', with the
Combined Company's Australian exploration program focused in the area around the
Plutonic and Darlot/Centenary mines. Cost savings are expected to be achieved by
eliminating overlapping exploration and administrative expenses and a reduction
of the total exploration budget as a result of concentrating on the best
prospects of both companies. Overall, Homestake expects the total exploration
savings to be approximately US$15.0 million on an annualized basis by year end
1998.
Accounting Treatment. The Combination will be accounted for as a
pooling-of-interests, whereby Homestake will record the acquisition of Plutonic
assets at Plutonic's historical carrying values, after adjusting for U.S. GAAP
and Homestake accounting policy differences.
Analyses and Advice of SBC Warburg Dillon Read. As part of its
deliberations, the Homestake Board considered the oral and written analyses and
advice of SBC Warburg Dillon Read, its financial advisor, regarding the
Combination. Among other things, SBC Warburg Dillon Read reviewed the benefits
to Homestake of the Combination, the historical trading prices for both
Homestake and Plutonic capital stock, trading levels for companies which in SBC
Warburg Dillon Read's judgment were generally comparable, the opportunity
created by the current Australian market for gold stocks and currency exchange
rates, recent acquisitions in the gold industry, and the respective
contributions of both Homestake and Plutonic to the Combined Company. The
Homestake Board requested that SBC Warburg Dillon Read undertake the analysis
necessary to form an opinion as to the fairness of the Exchange Ratio for the
Ordinary Shares to the Homestake Stockholders from a financial point of view.
See "-- Opinion of Homestake's Financial Advisor," and see the full text of the
written opinion set out in Appendix B.
S-30
<PAGE> 63
On December 18, 1997, the Homestake Board concluded that the Combination
was in the best interests of the Homestake Stockholders. At its Board meetings
on January 22-23, 1998 the Homestake Board reviewed the impact of the Homestake
mine restructuring on the Combination. The Homestake Board determined that all
of the conclusions previously reached continued to be applicable and that the
Combined Company would be further strengthened as a result of the restructuring
of the Homestake mine operations.
After considering the matter, including all of the factors described above,
the Homestake Board believes that the Combination is in the best interests of
the Homestake Stockholders. Accordingly, THE HOMESTAKE BOARD UNANIMOUSLY
RECOMMENDS THAT THE HOMESTAKE STOCKHOLDERS VOTE "FOR" THE SHARE ISSUANCE.
OPINION OF HOMESTAKE'S FINANCIAL ADVISOR
Homestake retained SBC Warburg Dillon Read to act as its financial advisor
in connection with the Combination.
SBC Warburg Dillon Read has delivered its written opinion, dated January
23, 1998, to the Homestake Board to the effect that, and based upon and subject
to the assumptions, limitations and qualifications set forth therein, as of
December 22, 1997 (the date of the execution of the Agreement), the exchange
ratio of 0.34 shares of Homestake Common Stock for each Plutonic fully paid
Ordinary Share (the "Conversion Number") was fair to Homestake Stockholders from
a financial point of view.
THE FULL TEXT OF SBC WARBURG DILLON READ'S OPINION DATED JANUARY 23, 1998,
WHICH SETS FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS SET
OUT IN APPENDIX B. SBC Warburg Dillon Read's opinion does not constitute a
recommendation to any Homestake Stockholder as to how such Stockholder should
vote at the Homestake Special Meeting. Homestake Stockholders are urged to read
the opinion carefully in its entirety, especially with regard to the assumptions
made and matters considered by SBC Warburg Dillon Read. The summary of the
opinion set forth in this Document is qualified in its entirety by reference to
the full text of such opinion. Unless otherwise indicated, all references to
dollars or "$" are to United States dollars.
In arriving at its opinion, SBC Warburg Dillon Read among other things: (i)
reviewed certain publicly available business and historical financial
information relating to Homestake and Plutonic, (ii) reviewed certain internal
financial information and other data relating to the business and prospects of
Homestake, including financial estimates prepared by the management of
Homestake, that were provided to SBC Warburg Dillon Read by Homestake and are
not publicly available, (iii) reviewed certain internal financial information
and other data relating to the business and prospects of Plutonic, including
financial estimates prepared by Homestake, that were provided to SBC Warburg
Dillon Read by Homestake and are not publicly available, (iv) conducted
discussions with members of the senior management of Homestake, (v) reviewed the
historical market prices and trading activity of the common stocks of Homestake
and Plutonic, (vi) considered certain pro forma effects of the Combination on
the financial results of Homestake (including the effects of assumed Combination
savings that were provided to SBC Warburg Dillon Read by Homestake), (vii)
reviewed publicly available financial and stock market data with respect to
certain other publicly traded companies that SBC Warburg Dillon Read believed to
be generally comparable to Homestake and Plutonic, (viii) compared the financial
terms of the Combination with the financial terms of certain other mergers and
acquisitions that SBC Warburg Dillon Read believed to be relevant, (ix) reviewed
the Agreement, and (x) conducted such other financial studies, analyses and
investigations, and considered such other information as SBC Warburg Dillon Read
deemed necessary or appropriate, but none of which was individually, material.
SBC Warburg Dillon Read's opinion was necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made available
to SBC Warburg Dillon Read as of, the date thereof.
In connection with its review, SBC Warburg Dillon Read did not, with
Homestake's consent, assume any responsibility for independent verification of
any of the information reviewed by it for the purpose of its opinion and, with
Homestake's consent, relied on its being complete and accurate in all material
respects. In addition, with Homestake's consent, SBC Warburg Dillon Read did not
make any independent evaluation or
S-31
<PAGE> 64
appraisal of any of the assets or liabilities (contingent or otherwise) of
Homestake or Plutonic, nor was SBC Warburg Dillon Read furnished with any such
evaluation or appraisal. With respect to the financial estimates (including the
effects of assumed Combination savings) provided to or otherwise reviewed by or
discussed with it, SBC Warburg Dillon Read assumed, with Homestake's consent,
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of Homestake's management as to the future
financial performance of each company. With respect to the business and
financial information pertaining to Plutonic, SBC Warburg Dillon Read did not,
with Homestake's consent, hold any independent discussions with Plutonic's
management as to any aspect of the information provided to SBC Warburg Dillon
Read. With the consent of Homestake, SBC Warburg Dillon Read also assumed that
the Combination would not result in taxable income for Homestake or the
Homestake Stockholders and would be accounted for as a pooling-of-interests.
Homestake did not place any limitations upon SBC Warburg Dillon Read regarding
the procedures to be followed and the factors to be considered in rendering its
opinion.
In arriving at its opinion, SBC Warburg Dillon Read did not assign any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments based on its experience in providing such opinions and on
then existing economic, monetary, market and other conditions as to the
significance and relevance of each analysis and factor. Accordingly, SBC Warburg
Dillon Read believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying its opinion. In its analyses, SBC Warburg
Dillon Read made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Homestake, Plutonic, or SBC Warburg Dillon Read. Any
assumed estimates contained in SBC Warburg Dillon Read's analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. Such estimates relating to the value of a business or securities do not
purport to be appraisals or necessarily reflect the prices at which companies or
securities may actually be sold.
SBC Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly engages in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Homestake Board
selected SBC Warburg Dillon Read on the basis of its experience and
independence. In the past, SBC Warburg Dillon Read and its predecessors have
provided investment banking services to Homestake and have received customary
compensation for such services. In the ordinary course of business, SBC Warburg
Dillon Read and its affiliates may actively trade or hold the equity securities
of Homestake and Plutonic for their own account or the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to the engagement letter dated as of July 16, 1997, between
Homestake and SBC Warburg Dillon Read, Homestake has agreed to pay SBC Warburg
Dillon Read a fee of $6,000,000 in connection with a combination in which the
business, company or assets acquired (collectively an "Acquisition") are valued
at $1.0 billion, $4,000,000 in an Acquisition valued at $500 million, or an
interpolated amount in an Acquisition valued at between $500 million and $1.0
billion, for services provided in connection with the Acquisition. The payment
of this fee is contingent upon the consummation of the Combination, and it will
be credited by $1,237,000, representing $325,000 paid as retainer fees between
July and December, 1997 and $912,000 paid upon announcement by Homestake of the
execution of the Agreement. Homestake has also agreed to reimburse SBC Warburg
Dillon Read for the expenses reasonably incurred by it in connection with its
engagement (including reasonable counsel fees) and to indemnify SBC Warburg
Dillon Read and its officers, directors, employees, agents and controlling
persons against certain expenses, losses, claims, damages or liabilities in
connection with its services, including those arising under the federal
securities laws.
In connection with rendering its opinion, SBC Warburg Dillon Read employed
a variety of valuation methods. The material valuation methods used are
summarized below.
S-32
<PAGE> 65
Pro Forma Impact. SBC Warburg Dillon Read examined the impact of the
Combination on Homestake's net income per share, Cash Flow from Operations
(defined as net income plus depreciation, depletion and amortization and
deferred taxes) per share, gold reserves per share, gold reserves plus
mineralized material per share and gold production per share based on operating
and financial estimates for the two companies. The estimates of such net income,
Cash Flow from Operations, gold reserves, gold reserves plus mineralized
material and gold production were based upon operating estimates provided by
Homestake management for Homestake, assuming the Combination did not take place,
operating estimates for Plutonic provided by Homestake management, assuming the
Combination did not take place, and the cost savings expected to result from the
Combination, as estimated by Homestake management. This analysis indicated that
the Combination would be accretive to Homestake net income per share in the
years 1998 through 2002, accretive to Homestake Cash Flow from Operations per
share in the years 1998 through 2002, dilutive to Homestake gold reserves per
share, dilutive to Homestake gold reserves plus mineralized material per share,
and dilutive to Homestake gold production per share in the years 1998 through
2002. The pro forma results above assumed pre-tax cost savings of $20 million
per year, beginning in 1998, and one-time transaction costs of $11 million in
1998.
Contribution Analysis. SBC Warburg Dillon Read analyzed the percentage of
(i) EBITDA (defined as earnings before interest, tax, depreciation, depletion
and amortization), (ii) EBITDA less capital expenditures, (iii) earnings before
interest and taxes, (iv) net income, (v) Cash Flow from Operations, (vi) book
value of equity, (vii) gold reserves, (viii) gold reserves plus mineralized
material, and (ix) gold production on an equity basis that each of Homestake and
Plutonic would contribute to the total of the Combined Company. Based upon data
for the latest 12 months and operating and financial estimates for both
Homestake and Plutonic provided by the management of Homestake, Plutonic's
contribution to the Combined Company ranged from 13.7% (for reserves) to 73.6%
(for 1999 estimated net income). Based upon the Conversion Number, the current
Plutonic Shareholders would own approximately 30.5% of the equity of the
Combined Company, within the range of contribution based upon the statistics
considered.
Discounted Cashflow Analysis. SBC Warburg Dillon Read performed a
discounted cashflow analysis of Homestake and Plutonic, each on a stand alone
basis, based upon estimates provided by the management of Homestake. The
analysis attributed no value to the exploration potential of either company and,
accordingly, all exploration costs were excluded from the cash flows subject to
the analysis. In addition, the financial estimates for Plutonic terminated on a
date that was prior to the end of the expected operating life of some of
Plutonic's projects. As a result, certain incremental production was not
included in the analysis. No value was attributed to any such incremental
production. The purpose of the analysis was to determine the relative
theoretical contribution of the existing projects of each company and was not
expected to calculate the full net present value of either company as an ongoing
entity. The analysis assumed no inflation and an unlevered after-tax discount
rate range of 2.0% to 8.0%. The results were adjusted for corporate expenses,
net debt and other balance sheet items to arrive at a range of theoretical net
present values attributable to the equity of each company. Using this
methodology, Plutonic's contribution to the equity value of the Combined Company
ranged from 28.6% to 31.9%. Based upon the Conversion Number, the current
Plutonic Shareholders would own approximately 30.5% of the equity of the
Combined Company, within the range of contribution calculated above.
Summary of Recent Acquisition Transactions. Using publicly available
information, SBC Warburg Dillon Read reviewed the purchase prices and multiples
paid in selected mergers and acquisitions involving gold mining companies in the
North American and Australian markets which in SBC Warburg Dillon Read's
judgment were generally comparable to the Combination for the purposes of this
analysis.
The North American transactions considered involved the following gold
companies (target and acquiror, respectively): (i) Santa Fe Pacific Gold
Corporation and Newmont Mining Corporation, (ii) Dayton Mining Corporation and
Pegasus Gold Inc., (iii) Arequipa Resources Ltd. and Barrick Gold Corporation,
(iv) Hemlo Gold Mines Inc. and Battle Mountain Gold Company, (v) Lac Minerals
Ltd. and American Barrick Resources Corporation, (vi) International Corona
Corporation and Homestake, and (vii) Freeport-McMoRan Gold Company and Minorco
S.A. The Australian transactions considered involved the following gold
companies (target and acquiror, respectively): (i) Gasgoyne Gold Mines NL and
Sons of Gwalia
S-33
<PAGE> 66
Limited, (ii) Burmine Limited and Sons of Gwalia Limited, (iii) Orion Resources
NL and Sons of Gwalia Limited, (iv) Mt. Edon Gold Mines (Aust.) Limited and
Camelot Resources Limited/Teck Corporation, (v) Eagle Mining Corporation NL and
Great Central Mines Limited and (vi) Wiluna Mines Limited and Great Central
Mines Limited.
SBC Warburg Dillon Read reviewed certain multiples implied by these
transactions, including ratios of (i) Enterprise Value (defined as consideration
offered for the equity plus the book value of debt less the cash and cash
equivalents) per ounce of gold reserves, (ii) Enterprise Value per ounce of gold
reserves plus mineralized material, (iii) Enterprise Value per ounce of gold
production over the latest reported twelve months ("LTM"), and (iv) Enterprise
Value to LTM EBITDA. The high, low and median multiples for such ratios for the
selected North American transactions were (i) $318/oz., $148/oz. and $213/oz.,
(ii) $175/oz., $91/oz. and $154/oz., (iii) $4,004/oz., $1,219/oz. and
$3,095/oz., and (iv) 25.6x, 8.3x and 21.9x. Based upon the closing price of
Homestake Common Stock of $9.9375 on December 19, 1997 (the last trading day
before the announcement of the Combination), the implied multiples for the
Combination based upon the Conversion Number are (i) $226/oz., within the range
for the transactions considered, (ii) $65/oz., below the range for the
transactions considered, (iii) $1,376/oz., within the range for the transactions
considered, and (iv) 13.6x (based upon U.S. GAAP), within the range for the
transactions considered.
The high, low and median multiples for such ratios for the selected
Australian transactions were (i) A$399/oz., A$201/oz. and A$268/oz., (ii)
A$177/oz., A$46/oz. and A$83/oz., (iii) A$2,544/oz., A$1,146/oz. and
A$1,887/oz., and (iv) 14.5x, 6.7x and 10.9x. Based upon the closing price of
Homestake Common Stock and an exchange rate of A$1=$0.65 on December 19, 1997,
the implied multiples for the Combination based upon the Conversion Number are
(i) A$348/oz., within the range for the transactions considered, (ii) A$100/oz.,
within the range for the transactions considered, (iii) A$2,117/oz., within the
range for the transactions considered, and (iv) 11.9x (based upon Australian
GAAP), within the range for the transactions considered.
SBC Warburg Dillon Read also considered the premiums of the offer prices
(defined as the share price of the offering company multiplied by the exchange
ratio in the case of stock-for-stock transactions) compared to the target
company's share price, (i) one day, (ii) one week, (iii) one month, (iv) three
months, and (v) six months prior to the announcement date of the relevant
transaction. The high, low and median premiums for the North American
transactions for the respective periods were (i) 72.0%, 19.5% and 30.7%, (ii)
79.6%, 16.2% and 29.3%, (iii) 73.8%, 16.7% and 25.2%, (iv) 104.2%, 10.5% and
43.6%, and (v) 423.9%, (8.7)% and 57.0%. The high, low and median premiums for
the Australian transactions for the respective periods were (i) 55.2%, 11.1% and
25.8%, (ii) 54.1%, 13.6% and 25.6%, (iii) 52.7%, 1.1% and 26.8%, (iv) 70.2%,
(4.3)% and 30.3%, and (v) 83.3%, 4.7% and 42.7%. Based upon the closing price of
Homestake Common Stock and the exchange rate on December 19, 1997, and the
Australian dollar price of the Ordinary Shares on the respective dates, the
implied premiums for the Combination based on the Conversion Number are (i)
85.6%, above the range for the transactions considered, (ii) 123.1%, above the
range for the transactions considered, (iii) 116.6%, above the range for the
transactions considered, (iv) 40.5%, within the range for the transactions
considered, and (v) 19.8%, within the range for the transactions considered,
respectively. SBC Warburg Dillon Read noted in this context that the
deterioration in the market for the shares of gold companies in Australia
relative to that for the shares of gold companies in the United States, together
with the volatility in the Australian dollar exchange rate, that occurred prior
to December 22, 1997, resulted in the "one day," "one week" and "one month"
premium calculations for the Combination being significantly higher than the
"three month" and "six month" calculations.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, SBC Warburg Dillon Read reviewed the stock prices and
market multiples of the common stocks of companies which in SBC Warburg Dillon
Read's judgment were generally comparable to Plutonic for the purposes of this
analysis. These companies consisted of (i) the following North American gold
mining companies: Amax Gold Inc., Battle Mountain Gold Company, Cambior Inc.,
Getchell Gold Corporation, Kinross Gold Corporation, and TVX Gold Inc., and (ii)
the following Australian gold mining companies: Acacia Resources Limited, Delta
Gold NL, Goldfields Limited, Great Central Mines Limited, Newcrest Mining
Limited, Normandy Mining Limited, Resolute Limited, and Sons of Gwalia Limited.
S-34
<PAGE> 67
The analysis considered, among other things, the ratio of (i) Enterprise
Value per ounce of gold reserves, (ii) Enterprise Value per ounce of gold
reserves plus mineralized material, (iii) Enterprise Value per ounce of LTM gold
production, and (iv) Enterprise Value to LTM EBITDA. The analysis indicated that
the high, low and median multiples for such ratios for the selected North
American companies were (i) $119/oz., $52/oz. and $95/oz., (ii) $81/oz., $18/oz.
and $35/oz., (iii) $2,917/oz., $499/oz. and $1,296/oz., and (iv) 17.4x, 5.9x and
7.6x. For the selected Australian companies, the high, low and median multiples
for such ratios were (i) $146/oz., $36/oz. and $79/oz., (ii) $59/oz., $12/oz.
and $33/oz., (iii) $1,379/oz., $254/oz. and $649/oz., and (iv) 7.5x, 2.5x and
5.8x. Based upon the closing price of Homestake Common Stock on December 19,
1997, the implied multiples for the Combination based upon the Conversion Number
are (i) $226/oz., above the range for both the North American and the Australian
companies, (ii) $65/oz., within the range for the North American companies and
above the range for the Australian companies, (iii) $1,376/oz., within the range
for both the North American and the Australian companies, and (iv) 13.6x
(according to U.S. GAAP), within the range for the North American companies, and
11.9x (according to Australian GAAP), above the range for the Australian
companies.
No company, transaction or business used in the analysis described under
"-- Summary of Recent Acquisition Transactions" and "-- Analysis of Selected
Publicly Traded Comparable Companies" above is identical to Homestake, Plutonic
or the Combination. Accordingly, an analysis of the results thereof necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
transaction or the public trading or other values of the company or companies to
which they are being compared. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using comparable
acquisition or company data.
Historical Trading Analysis. To provide contextual and comparative market
data, SBC Warburg Dillon Read reviewed the recent historical stock market
performance of Homestake Common Stock and the Ordinary Shares and their relative
relationship, together with the respective exchange rates, during certain
periods ended December 19, 1997, including, among other periods, the preceding
(i) one month, (ii) three months, (iii) six months, (iv) one year and (v) two
years. The average exchange ratios between the share prices of Homestake Common
Stock and the Ordinary Shares over these periods were (i) 0.151, (ii) 0.164,
(iii) 0.189, (iv) 0.231 and (v) 0.262. The Conversion Number of 0.34 represents
a premium to the average exchange ratios for these periods of (i) 125%, (ii)
107%, (iii) 80%, (iv) 47% and (v) 30%. The exchange ratios between the share
prices of Homestake Common Stock and the Ordinary Shares at the start of these
periods were (i) 0.149, (ii) 0.206, (iii) 0.243, (iv) 0.321 and (v) 0.301. The
Conversion Number of 0.34 represents a premium to the exchange ratios for these
dates of (i) 128%, (ii) 65%, (iii) 40%, (iv) 6% and (v) 13%. SBC Warburg Dillon
Read noted in this context that the deterioration in the market for the shares
of gold companies in Australia relative to that for the shares of gold companies
in the United States, together with the volatility in the Australian dollar
exchange rate, that occurred prior to December 22, 1997, resulted in the "one
month," "three months" and "six months" premium calculations for the Combination
being significantly higher than the "one year" and "two year" calculations. At
the closing market price of Homestake Common Stock of $9.9375 and an exchange
rate of A$1 = US$0.65, both on December 19, 1997, the Conversion Number of 0.34
represents a premium of 86% to the closing price of the Ordinary Shares of
A$2.80 on December 19, 1997, a premium of 156% to the low Ordinary Shares price
over the preceding twelve months and a discount of 13% to the high Ordinary
Shares price over the preceding twelve months.
PLUTONIC'S REASONS FOR THE COMBINATION; RECOMMENDATION OF THE PLUTONIC BOARD
On December 22, 1997 the Plutonic Board unanimously recommended the
Combination to the Plutonic Shareholders.
The recommendation on that date took into account a number of benefits,
including the following:
- Homestake's offer valued Plutonic at A$970 million, which represented a
premium of 86% to Plutonic's market capitalization (based on the closing
share price on December 19, 1997, the last trading day prior to
announcement of the offer).
S-35
<PAGE> 68
- Homestake's recognized underground mining expertise would contribute
significantly in developing the Centenary deposit and the underground
mine operations at the Plutonic mine and in capitalizing on the potential
within the Yilgarn greenstone belts in Western Australia.
- Homestake is a large, quality gold mining company and Homestake Common
Stock is a highly liquid US dollar denominated stock.
In accordance with commercial practice in Australia, the Plutonic Board
intends to meet to consider the final terms of its recommendation immediately
prior to finalizing the Explanatory Statement relating to the proposed Schemes.
CERTAIN AUSTRALIAN AND UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
EACH PLUTONIC SHAREHOLDER AND OPTION HOLDER IS ADVISED TO CONSULT WITH HIS
OR HER OWN TAX ADVISOR REGARDING THE CONSEQUENCES OF ACQUIRING, HOLDING OR
DISPOSING OF PLUTONIC SHARES OR OPTIONS, HOMESTAKE COMMON STOCK OR AUSTRALIAN
DOLLARS IN LIGHT OF CURRENT TAX LAWS, THE SHAREHOLDER'S OR OPTION HOLDER'S
PARTICULAR INVESTMENT CIRCUMSTANCES AND THE APPLICATION OF FEDERAL, STATE, LOCAL
AND FOREIGN TAX LAWS.
AUSTRALIAN INCOME TAX CONSIDERATIONS
The following is the opinion of Allen Allen & Hemsley, Sydney, Australia,
Australian tax counsel to Plutonic as to the principal Australian income tax
consequences generally applicable to a Plutonic Shareholder who disposes of
Plutonic Shares or a Plutonic Option Holder who disposes of Options under one of
the Schemes. The opinion reflects counsel's interpretation of the Convention
between the Government of Australia and the Government of the United States for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
respect to Taxes on Income (the "Australian/United States Tax Treaty"), the
current provisions of the Australian Income Tax Assessment Act 1936 and the
Income Tax Assessment Act 1997 and the regulations thereunder, taking into
account currently proposed amendments and counsel's understanding of the current
administrative practices of the Australian Taxation Office. The opinion does not
otherwise take into account or anticipate changes in the law, whether by way of
judicial decision or legislative action, nor does it take into account tax
legislation of other countries. Nor does this opinion express any view in
relation to the income tax consequences which may arise for Plutonic
Shareholders or Plutonic Option Holders dealing in, exercising or refraining
from exercising Homestake Rights.
Shareholders who are Australian Residents
The Australian tax consequences of the Combination for holders of Plutonic
Shares and Options, who are residents of Australia for tax purposes, are
generally as follows:
(I) DISPOSAL OF PLUTONIC SHARES AND OPTIONS
WHERE HELD AS CAPITAL ASSETS
The cancellation of Plutonic Shares as a result of a Scheme will generally
result in a disposal of Plutonic Shares for capital gains tax purposes. However,
any cancellation of the Plutonic Shares acquired prior to September 20, 1985
generally should not be subject to the capital gains tax regime.
A capital gain will arise if Plutonic Shares are disposed of for a
consideration receivable in excess of their cost base. In this regard, the
consideration receivable for the Plutonic Shares cancelled under a Scheme is the
market value of the Homestake Common Stock received at the time of the disposal
of the Plutonic Shares together with any cash adjustment for fractional shares.
The time of disposal will be the date on which, after the Scheme has been
approved by the Court, the office copy of the approval is lodged with the ASC.
The cost base of the Plutonic Shares should generally equal the consideration
provided by the holder to acquire those Plutonic Shares. The unpaid portion of
the amount outstanding on any Partly Paid Share will not comprise relevant
consideration for these purposes. Where the holder has held the Plutonic Shares
for more than 12 months, the cost base will be indexed for inflation over the
period for which those Plutonic Shares have
S-36
<PAGE> 69
been held. Generally, if the Plutonic Shareholder has capital losses available
the capital gain will be reduced by the amount of those capital losses. A
taxable capital gain will be included in the taxable income of the Plutonic
Shareholder and taxed accordingly.
A capital loss should arise if Plutonic Shares are disposed of for a
consideration receivable which is less than their cost base. In this regard, the
consideration receivable is as set out above. No indexation of the cost base
will occur for these purposes. A capital loss may be offset against capital
gains arising in the current or future years of income but not carried back to
offset capital gains of earlier years. A capital loss cannot be offset against
ordinary income.
WHERE HELD AS REVENUE ASSETS
Plutonic Shareholders who hold the shares as revenue assets, such as banks,
insurance companies and some classes of profit-taking investors, will have any
profits realised on disposal taxed as ordinary income without any adjustment for
inflation and any losses realised on disposal allowed as deductions.
The capital gain tax regime will also apply, in the manner described above,
to the disposal of Plutonic Shares held on capital account but the amount of any
capital gain will be reduced by any amount that is treated as ordinary income.
This should have the effect of reducing the capital gain otherwise arising on
the disposal to nil.
WHERE HELD AS TRADING STOCK
Plutonic Shareholders who dispose of shares held as trading stock, will
derive assessable income equal to the value of the Homestake Common Stock
received under a Scheme together with any cash adjustment for fractional shares.
Those values/amounts will not be adjusted for inflation. Additionally, those
shareholders will be allowed the cost of the Plutonic Shares disposed of by them
under the Scheme as a deduction at the time of disposal. The capital gains tax
regime will not apply to the disposal of trading stock.
THE POSITION OF PLUTONIC OPTION HOLDERS
The position of Plutonic Option Holders should be generally the same as
that set out above for Plutonic Shareholders.
WHERE HELD BY EMPLOYEES
The income tax consequences arising for a Plutonic Shareholder or a
Plutonic Option Holder who disposes of Plutonic Shares or Plutonic Options, as
the case may be, acquired under an employee share scheme may be affected by
specific tax provisions concerning such schemes.
(II) HOMESTAKE SHARES HELD BY AUSTRALIAN HOLDERS
Dividends paid on shares of Homestake Common Stock would generally be
subject to U.S. withholding tax at the rate of 15%. This tax would be deducted
by Homestake before the dividend is paid.
Generally, such dividends will also be subject to Australian income tax.
The entire amount of the dividend will be taxable including the amount of U.S.
tax withheld by Homestake. The Australian tax payable on such dividends will
generally be reduced by the amount of any U.S. tax withheld. Dividends paid by
Homestake cannot be franked and a shareholder will not be entitled to franking
rebates. Dividends paid by Homestake will not qualify for the inter-corporate
dividend rebate.
Dividends will be exempt from Australian tax if paid to an Australian
resident company which has a voting interest in Homestake of greater than 10%.
Because of the nature of the business activities of Homestake the
Australian rules relating to the taxation of foreign investment funds do not
currently apply to investors who hold Homestake Common Stock.
S-37
<PAGE> 70
(III) SUBSEQUENT SALE OF HOMESTAKE COMMON STOCK BY AUSTRALIAN STOCKHOLDERS
A gain or loss from the sale or other disposal of Homestake Common Stock
will generally be subject to the same tax rules as those referred to at item (i)
above.
The cost base of the Homestake Common Stock should be the market value of
the Plutonic Shares disposed of at the time of the acquisition of the Homestake
Common Stock less any cash adjustments received for fractional shares.
The sale of Homestake Common Stock on the ASX will generally be subject to
share transfer duty at the rate of 0.3%, half of which will be payable by the
shareholder disposing of those shares. The transfer of Homestake Common Stock on
a branch register of Homestake in Australia (other than those pursuant to a sale
on the ASX) generally will be subject to share transfer duty at the rate of
0.6%, payable in full by the purchaser.
Plutonic Shareholders who are not Australian Residents
The Australian tax consequences of the Combination for holders of Plutonic
Shares who are not residents of Australia for tax purposes are generally as
follows:
(I) DISPOSAL OF PLUTONIC SHARES
WHERE HELD AS CAPITAL ASSETS
Generally, if the Plutonic Shares held by a shareholder (plus any Plutonic
Shares held by an associate) during the five years preceding the disposal of
such shares pursuant to a Scheme represent less than 10% of the issued shares in
Plutonic, their sale or other disposal pursuant to the Scheme will not give rise
to any Australian tax liability arising from the capital gains tax provisions.
In any other case, the shares will comprise taxable Australian assets for
capital gains tax purposes and the consequences of disposal of Plutonic Shares
by residents of Australia described above will apply, subject to any double tax
treaty protection (see below).
WHERE HELD AS REVENUE ASSETS
Plutonic Shareholders who hold the shares as revenue assets, such as banks,
insurance companies and some classes of profit-taking investors, will have any
profits realised on disposal taxed as ordinary income without any adjustment for
inflation and any losses realised on disposal allowed as deductions. However,
this will only apply when the profits or losses have an Australian source.
If the shares are taxable Australian assets (see above), the capital gains
tax regime will also apply to the disposal of the shares (regardless of the
question of source of the gain), again subject to the operation of any relevant
double tax treaty. If the profits realised on disposal have an Australian source
and are taxed as ordinary income, then the amount of any capital gain will be
reduced by any amount that is treated as ordinary income above. This should have
the effect of reducing the capital gain otherwise arising on the disposal (if
any) to nil.
WHERE HELD AS TRADING STOCK
Plutonic Shareholders who hold the shares as trading stock, will have the
value of the Homestake Common Stock received under a Scheme together with any
cash payments made under the Scheme taxed as ordinary income without any
adjustment for inflation and will be effectively allowed the cost of the
Plutonic Shares disposed of by them under the Scheme as a deduction, where the
proceeds of disposal have an Australian source.
SOURCE OF INCOME
Determining the source of income is a factual matter which depends on all
the surrounding circumstances. However, if the shareholder is resident in a
country with which Australia has a double tax treaty, it is possible that the
terms of the particular treaty could deem any profit arising on the approval of
a Scheme and the consequential disposal of the Plutonic Shares to have an
Australian source.
S-38
<PAGE> 71
POSSIBLE DOUBLE TAX TREATY PROTECTION
In some cases a holder of Plutonic Shares may be entitled to relief in
respect of the disposal of those Plutonic Shares under the terms of a relevant
double tax treaty (although the Australian Taxation Office currently takes the
view that such relief is not normally available).
(II) DIVIDENDS
Any dividend paid by Homestake to a non-Australian resident shareholder
will generally not be taxable in Australia.
(III) SUBSEQUENT SALE OF HOMESTAKE COMMON STOCK
A gain or loss arising from the sale or other disposal of Homestake Common
Stock by a shareholder who is not a resident of Australia will generally not be
subject to Australian tax.
The sale of Homestake Common Stock on the ASX in Australia will generally
be subject to share transfer duty at the rate of 0.3%, half of which will be
payable by the vendor disposing of those shares. The transfer of Homestake
Common Stock on a branch register of Homestake in Australia (other than those
pursuant to a sale of the ASX) generally will be subject to share transfer duty
at the rate of 0.6%, payable in full by the purchaser.
(IV) PLUTONIC OPTIONS
Allen Allen & Hemsley assumed that Options are only held by residents of
Australia. If this is not the case, the position of Plutonic Option Holders
should be generally the same as that set out above for non-resident Plutonic
Shareholders, subject to any application of the employee share scheme
provisions, to them.
(V) WHERE HELD BY EMPLOYEES
The income tax consequences arising for a Plutonic Shareholder or a
Plutonic Option Holder who is not a resident and who disposes of Plutonic Shares
or Plutonic Options, as the case may be, which were acquired under an employee
share scheme, may be affected by specific tax provisions concerning such
schemes.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is the opinion of Thelen, Marrin, Johnson & Bridges LLP of
San Francisco, California, United States counsel to Homestake, as to the
principal United States federal income tax consequences generally applicable to
a Plutonic Shareholder who receives Homestake Common Stock in exchange for
Ordinary Shares pursuant to a Scheme. Generally, this opinion describes the
principal tax consequences to United States citizens or residents, corporations
or other entities taxable as corporations created or organized in or under the
laws of the United States or any state thereof (including the District of
Columbia), estates the income of which is includible in gross income for United
States federal tax purposes regardless of its source and trusts if (i) a United
States court is able to exercise primary supervision over the administration of
such trusts and (ii) one or more United States persons have the authority to
control all substantial decisions of such trusts ("U.S. Holders"). Income or
gains derived with respect to Ordinary Shares by U.S. Holders through
partnerships generally will be taxed as described herein. In addition, the
opinion describes the United States federal income tax consequences of ownership
and disposition of Homestake Common Stock by holders who are not U.S. Holders
("Non-U.S. Holders").
The opinion reflects counsel's interpretation of the Australia/United
States Tax Treaty, the provisions of the United States Internal Revenue Code of
1986, as amended (the "Tax Code"), applicable Treasury regulations thereunder,
judicial authority and administrative rulings and practices now in effect, as
applied to the proposed transactions. There can be no assurance that the
Internal Revenue Service (the "Service") will not take a different position
concerning the consequences of the ownership or disposition of the Ordinary
Shares or Homestake Common Stock or that any such position would not be
sustained. Thus, future
S-39
<PAGE> 72
legislative, judicial or administrative changes or interpretations, which may or
may not be retroactive, could produce United States tax consequences different
from those expressed in counsel's opinion.
The opinion does not describe the United States tax consequences of the
disposition of Partly Paid Shares or of Options. The opinion does not discuss
all aspects of federal income taxation that may be relevant to a particular
holder in light of the holder's particular investment circumstances, or to
certain types of holders subject to special treatment under the federal income
tax laws (for example, life insurance companies, tax-exempt entities, dealers in
securities or currencies, persons having a "functional currency" other than the
US dollar for federal income tax purposes and persons holding Ordinary Shares or
Homestake Common Stock as part of a straddle, hedge or conversion transaction),
and does not discuss any aspect of state, local or foreign tax laws.
United States Shareholders
(I) DISPOSAL OF ORDINARY SHARES
In view of Homestake's cash purchase of 350,000 Ordinary Shares as an
integral part of the Schemes, all exchanges of Ordinary Shares for Homestake
Common Stock by U.S. Holders pursuant to the Combination should be taxable
transactions for United States federal income tax purposes. A U.S. Holder will
recognize taxable gain or loss on the exchange measured by the difference
between the holder's tax basis in the Ordinary Shares surrendered and the sum of
(1) the fair market value of the Homestake Common Stock and (2) the fair market
value, expressed in US dollars, of the Australian dollar payment, if any, in
lieu of fractional shares of Homestake Common Stock received in exchange for the
Ordinary Shares. A U.S. Holder's tax basis in any Homestake Common Stock or
Australian dollars received in exchange for Ordinary Shares will be the fair
market value of the Homestake Common Stock or Australian dollars on the date of
the exchange.
A gain or loss on an exchange of Ordinary Shares for Homestake Common Stock
pursuant to the Combination will generally be a capital gain or loss if the
Ordinary Shares are held as capital assets. In the case of a U.S. Holder who is
an individual, such gain or loss will be short-term if the Ordinary Shares were
held for not more than one year, mid-term if such shares were held for more than
one year but not more than eighteen months, and long-term if such shares were
held for more than eighteen months. For individuals, net short-term capital
gains are taxed at the same rates as ordinary income, net mid-term capital gains
are taxed at a rate not in excess of 28%, and net long-term capital gains are
taxed at a rate not in excess of 20%. Capital losses of individuals are deducted
first against capital gains and then against ordinary income to the extent of
$3,000; excess capital losses of individuals may be carried forward indefinitely
to future tax years and deducted in such years subject to the same limitations.
A person whose exchange of Ordinary Shares pursuant to the Schemes is
subject to tax in both Australia and the United States should consult a tax
advisor concerning the availability of foreign tax credits or other benefits
under the Australia/United States Tax Treaty.
(II) DIVIDENDS ON HOMESTAKE COMMON STOCK
Dividends paid on the Homestake Common Stock to U.S. Holders will be
treated as ordinary income to the extent of Homestake's current or accumulated
earnings and profits (as computed for United States federal income tax
purposes). Dividends paid on the Homestake Common Stock will be eligible for the
deduction for dividends received by corporations, provided the U.S. Holder
otherwise satisfies the requirements for such deduction.
(III) SUBSEQUENT SALE OR DISPOSITION OF HOMESTAKE COMMON STOCK
Upon the sale, exchange or other taxable disposition of Homestake Common
Stock, a U.S. Holder will recognize gain or loss equal to the difference between
(i) the amount of cash plus the fair market value of any property received and
(ii) the U.S. Holder's tax basis in the Homestake Common Stock.
S-40
<PAGE> 73
Non-U.S. Shareholders
(I) DIVIDENDS ON HOMESTAKE COMMON STOCK
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a rate of 30% of the amount of the dividend, or at a
lower rate prescribed by an applicable tax treaty, unless such dividends are
effectively connected with the holder's conduct of a trade or business within
the United States. The Australia/United States Tax Treaty prescribes a United
States withholding tax rate of 15% for Australian residents. In determining the
applicability of a tax treaty providing for a lower rate of withholding during
1998, dividends paid to an address in a foreign country are presumed under
current Treasury regulations to be paid to a resident of that country.
On October 6, 1997, the Service issued final regulations relating to income
tax withholding, information reporting and backup withholding from the Non-U.S.
Holders (the "Final Regulations"). Under the Final Regulations, which will be
applicable to payments of dividends made after December 31, 1998, a Non-U.S.
Holder must comply with certain certification requirements, generally satisfied
by delivering a Form W-8 to the payor, to obtain the benefit of any applicable
tax treaty providing for a lower rate of withholding tax on dividends. Form W-8
will require a Non-U.S. Holder to certify, under penalties of perjury, as to the
following information: (i) name, (ii) permanent residence address, (iii)
classification (if not an individual), (iv) country under whose laws the
Non-U.S. Holder is organized (if not an individual), and (v) any other required
information. Under the Final Regulations, a dividend paid directly to a Non-U.S.
Holder may be subject to United States backup withholding at the rate of 31% if
Homestake does not possess documentary evidence of the holder's non-U.S. status
prior to the payment date. See "Information Reporting and Backup Withholding"
below.
In general, dividends paid to a Non-U.S. Holder that are effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States will not be subject to United States withholding tax discussed
above, but will be subject to federal net income tax at regular rates.
(II) SALE OF HOMESTAKE COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the disposition of Homestake Common Stock
unless:
(a) Homestake is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which Homestake does not
believe that it is or is likely to become within the foreseeable future)
and the Non-U.S. Holder held, directly or indirectly, at any time during
the five-year period ending on the date of disposition, more than 5% of all
outstanding Homestake Common Stock;
(b) the gain is effectively connected with a trade or business carried
on by the Non-U.S. Holder within the United States;
(c) the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of the disposition and
certain other conditions are met; or
(d) the Non-U.S. Holder is subject to tax pursuant to the provisions
of the U.S. federal tax law applicable to certain non-resident aliens who
have surrendered United States citizenship or lawful permanent resident
status with a principal purpose of tax avoidance.
(III) INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividends. Homestake must report annually to the Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld.
This information may be made available to the tax authorities in the Non-U.S.
Holder's country of residence. During 1998, United States backup withholding
generally will not apply to dividends paid on Homestake Common Stock to a
non-U.S. Holder at an address outside the United States. Under the Final
Regulations, dividends paid directly to an individual after 1998 may be subject
to 31% backup withholding unless Homestake possesses documentary evidence
sufficient to establish the holder's non-U.S. status. Backup
S-41
<PAGE> 74
withholding will be inapplicable to dividends paid to a bank or other foreign
financial account of a Non-U.S. Holder without regard to whether Homestake
possesses documentary evidence of the holder's non-U.S. status.
Sale or Other Disposition of Homestake Common Stock. If a Non-U.S. Holder
disposes of Homestake Common Stock through a U.S. office of any broker or
through the foreign office of a broker having certain types of relationships
with the United States, the broker will be required to report the proceeds of
disposition to the Service and the Non-U.S. Holder, unless the holder certifies
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption from reporting. If the disposition is made through the U.S. office of
a broker, back-up withholding at the rate of 31% will also be required unless
the holder certifies its non-U.S. status or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be credited
against the Non-U.S. Holder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the Service.
(IV) ESTATE TAX
Homestake Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as specially defined for United States federal estate
tax purposes) of the United States at the time of death will be includible in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable tax treaty provides otherwise. Such individual's estate may
be subject to United States federal estate tax on the property includible in the
estate for United States federal estate tax purposes.
ANTICIPATED ACCOUNTING TREATMENT
The Combination is expected to be accounted for as a pooling-of-interests
in accordance with U.S. GAAP. Under this method of accounting, after addressing
any conformity issues, the recorded assets and liabilities of Plutonic will be
carried forward to Homestake's balance sheet and results for prior periods will
be combined and restated as income of Homestake. The Agreement provides that a
condition to the consummation of the Combination is the receipt of letters from
Coopers & Lybrand L.L.P. and Ernst & Young to the effect that the Combination
qualifies for pooling-of-interests accounting treatment under U.S. GAAP. See
"The Agreement -- Conditions to the Consummation of the Combination."
In connection with the Combination, one-time transaction costs are
estimated to be US$13 million and one-time post-combination restructuring costs,
primarily for severance, lease termination and relocation charges are estimated
to be US$4 million. The majority of these costs will be incurred and expensed
during 1998. In addition, in connection with the preparation of the pro forma
information included elsewhere in this Document, management of Homestake and
Plutonic have conformed certain differences in accounting practice. See
"Unaudited Pro Forma Condensed Combined Financial Statements" and Appendix F,
Homestake Differences between U.S. and Australian Generally Accepted Accounting
Principles.
REGULATORY MATTERS
Homestake has applied to FIRB for approval for the acquisition by Homestake
of the interest in Plutonic to be acquired under the Schemes. FIRB is the
Australian regulatory body that reviews foreign investment applications and
advises the Treasurer of the Commonwealth of Australia in relation to them. The
Treasurer has a statutory period of 40 days, which may be extended, to consider
the application and respond. A response from the Treasurer of the Commonwealth
of Australia, on advice from FIRB, would be expected in the normal course within
the statutory period.
ABSENCE OF DISSENTERS APPRAISAL RIGHTS
Homestake Stockholders who fail to vote in favor of the transaction will
have no dissenters appraisal rights if the Share Issuance is approved.
Similarly, a holder of a Plutonic Security whose class of securities approves
the Combination will be bound by the applicable Scheme and will have no rights
equivalent to dissenters appraisal rights if the relevant Scheme is implemented.
S-42
<PAGE> 75
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
HOMESTAKE
Certain members of Homestake management may be deemed to have certain
interests in the Combination that are in addition to their interests as
Homestake Stockholders generally. The Homestake Board was aware of these
interests and considered them, among other matters, in approving the
Combination.
A total of 12 senior Homestake management personnel have severance
agreements with Homestake under which they are entitled to receive benefits in
the event of a "Change of Control" followed by certain events. The Combination
is a Change of Control for purposes of these severance agreements and for
purposes of the other matters described below. Under the severance agreements,
entitlement to benefits arises if, within three years following the consummation
of a Change of Control, such person's employment is terminated other than for
cause or such person elects to terminate his employment ("Terminates for Good
Reason") following (i) a reduction in salary or certain benefits, (ii) a change
in location of employment, (iii) a change in position, duties, responsibilities
or status inconsistent with such person's prior position, or (iv) a reduction in
responsibilities, title or office as in effect just before the consummation of
the Change of Control. Benefits consist of (i) a lump sum payment equal to two
times such person's highest annual salary and bonus (including deferred
compensation) during the three years prior to termination, (ii) continuation of
participation in insurance and certain other fringe benefits for two years,
(iii) continued vesting of stock options, and (iv) relocation assistance. Such
benefits are in lieu of severance benefits otherwise payable under Homestake's
general severance policy.
The same 12 management personnel are also participants in Homestake's
Executive Supplemental Retirement Plan (the "Homestake ESRP"). The Homestake
ESRP provides that participating employees accrue retirement benefits at the
rate of 4 1/3% times years of service up to a maximum of 15 years. Service
credit is then multiplied by average monthly compensation during the 36
consecutive months of highest compensation (salary and bonus) to determine a
monthly retirement benefit. Benefits are payable on retirement at age 62 after
10 continuous years of service, with provision for early retirement between ages
55 and 62. Within two years following a Change in Control, if any participant's
employment is terminated by Homestake other than for cause or if such
participant Terminates for Good Reason, such participant will fully vest in the
maximum benefits payable under the Homestake ESRP to the extent such participant
is not already fully vested, and will be entitled to commence receiving such
benefits at age 55. Benefits payable under the Homestake ESRP are reduced to the
extent of retirement benefits otherwise payable under any other Homestake
retirement plan (except the Homestake Mining Company Savings Plan).
There are employee stock options for a total of 2,862,252 shares of
Homestake Common Stock outstanding to key employees and managers of Homestake,
including the 12 senior management personnel described above. Those options
provide that if, within one year of a Change of Control, an employee holding an
option is terminated other than for cause or the employee Terminates for Good
Reason, all unvested options held by such employee vest and become immediately
exercisable and remain exercisable until the expiration date of the option.
In April 1997, 13 key employees and managers of Homestake, including the 12
senior management personnel described above, were granted Performance Based
Stock Rights ("Stock Rights") to receive a total of 125,400 shares of Homestake
Common Stock. Under the terms of the Stocks Rights, if on each of December 31,
1997, 1998, 1999 and 2000 (the "Measurement Date"), the Company achieves the
"Annual Performance Goal" set out for the Measurement Date, the grantee will
vest as to 25% of the shares subject to the grantee's Stock Rights, plus any
shares as to which the Stock Rights could have but did not vest on any prior
Measurement Date because the Annual Performance Goal for the prior Measurement
Date was not achieved. The Stock Rights also provide that if, within one year of
a Change of Control, an employee holding a Stock Right is terminated other than
for cause or the employee Terminates for Good Reason, the employee will vest in
the Stock Rights (to the extent not already vested) in the same proportion as
the number of months from date of grant to the date of termination bears to the
total number of months from date of grant until the final vesting date for the
Stock Rights (in this case, 45 months).
S-43
<PAGE> 76
In May 1997, seven of the senior management personnel described above
elected to enter into agreements with the Company providing for "Matching Stock
Awards." Under the Matching Stock Award agreements, the participating employees
are entitled to "enroll" Homestake Common Stock owned by them. If they hold the
enrolled shares continuously for a period of 60 months from the enrollment date,
they are entitled to receive, for no additional consideration, one share of
Homestake Common Stock for each three shares so enrolled. The seven employees
enrolled a total of 67,838 shares of Homestake Common Stock which, if held
continuously for the five years, would entitle them to receive 22,613 shares of
Homestake Common Stock. The Matching Stock Awards also provide that if, within
one year of a Change of Control, an employee holding a Matching Stock Award is
terminated other than for cause or the employee Terminates for Good Reason, the
employee will vest in the shares subject to his or her one for three Matching
Stock Award with respect to the continuously enrolled shares in the same
proportion as the number of months from date of grant to the date of termination
bears to the total number of months from date of grant until the final vesting
date for the Matching Stock Award (60 months).
In July 1997, eight of the senior management personnel described above
entered into Contingent Stock Award agreements with the Company. Under the
Contingent Stock Award agreements, the employees agreed to exchange the right to
receive a designated amount of year-end cash bonus, if awarded, for the
contingent right to receive Homestake Common Stock equal in value on the date of
the cash bonus award to 150% of the foregone cash bonus. On November 21, 1997,
the seven senior management personnel described above gave up cash bonuses in
the total amount of US$253,700 for the contingent right to receive a total of
33,638 shares of Homestake Common Stock. The right to receive the Homestake
Common Stock vests as to 50% of the shares on the first anniversary of grant, as
to 25% of the shares on the second anniversary of grant, and as to 25% of the
shares on the third anniversary of the grant, but only on condition that the
employee continues to be employed by the Company on such anniversary. If this
condition is not met, the unvested shares are forfeited and no part of the cash
bonus is payable. The Contingent Stock Award agreements also provide that if,
within one year of a Change of Control, an employee holding a Stock Right is
terminated other than for cause or the employee Terminates for Good Reason, the
employee will vest in all of the shares subject to his or her Contingent Stock
Award.
PLUTONIC
Certain members of Plutonic management may be deemed to have certain
interests in the Combination that are in addition to their interests as
stockholders of Plutonic generally. The Plutonic Board was aware of these
interests and considered them, among other matters, in approving the
Combination.
The employment contract of the managing director of Plutonic, Mr. Ronald
Hawkes, was due to expire on January 31, 1998. Mr. Hawkes and Plutonic have
agreed to extend the term of that contract until April 30, 1998, on the same
terms and conditions which are currently applicable.
Mr. J.M. Clark, a director appointed to the Plutonic Board in August 1997,
is entitled to receive directors' fees through August 1998, regardless of
whether he is removed as a director or is requested by Homestake to resign as a
director prior to that date.
Eleven executives and five Plutonic directors hold options to acquire a
total of 2,360,000 Plutonic Shares. Based on the closing price of Homestake
Common Stock on the NYSE on December 22, 1997, the exercise price of those
Options is above the value attributed to Ordinary Shares by the Exchange Ratio.
The executives and directors will receive Homestake Common Stock in the
Combination in exchange for their Options. Eight executives and 2 directors hold
a total of 1,054,212 Partly Paid Shares. The amount to be paid up on these
shares ranges from A$0.75 to A$0.90 per share.
Mr. Paul McClintock is a director of McClintock Associates Pty Limited
("MAL") and a 33.3% shareholder in that company. MAL has for many years acted as
the financial and business adviser to MMC and its Australian subsidiary,
Malaysia Mining Australia Corporation Pty Limited, in connection with certain
Australian investments, including its investments in Plutonic. MAL has also
provided financial and business advice to Plutonic in connection with the
Combination for fees of A$48,000. MAL will not be providing any further advice
to Plutonic in connection with the Combination. In relation to 1997, MAL was
paid fees of
S-44
<PAGE> 77
A$212,000 and US$200,000 by MMC in connection with the services and advice
given. While MAL and MMC have not negotiated a retainer for MAL to provide
financial and business advice in 1998, MAL expects one will be negotiated and
that the fee will reflect the significant work undertaken by MAL in 1997 and
1998 in order to implement and complete the Combination.
RESALE OF HOMESTAKE COMMON STOCK
The Homestake Common Stock issued pursuant to the Agreement will not be
subject to any restrictions on transfer arising under the Securities Act, except
for shares issued to any holder of Plutonic Securities who may be deemed to be
an "affiliate" of Plutonic for purposes of Rule 145 under the Securities Act or
for purposes of qualifying the Combination for pooling-of-interests accounting
treatment. It is expected that each such affiliate will enter into an agreement
(a "Plutonic Affiliate Letter") with Homestake providing that such affiliate
will not transfer any Homestake Common Stock received in the Combination except
in compliance with the Securities Act. In addition, it is expected that each
such affiliate will represent that he or she has not transferred Plutonic
Securities for a specified period before the Combination is completed or
Homestake Common Stock thereafter until after such time as financial results
have been published covering at least 30 days of combined operations of
Homestake and Plutonic after the Combination. Pursuant to the Plutonic Affiliate
Letters and the Agreement, Homestake has agreed to publish such financial
results as promptly as practicable, and in any event within 30 days following
the end of the first full calendar month following the Combination.
The Plutonic Affiliate Letters also provide certain registration rights to
Plutonic Shareholders who are "affiliates" of Plutonic and who will receive,
pursuant to the Schemes, more than one percent (1%) of the Homestake Common
Stock outstanding after the consummation of the Schemes. It is expected that MMC
will be the only Plutonic Shareholder in this category. For one year following
acquisition of such Homestake Common Stock, such Plutonic Shareholder will have
the right to demand that Homestake register in accordance with the Securities
Act, some or all of the Homestake Common Stock acquired by such Plutonic
Shareholder in the Schemes. Homestake shall have the obligation to effect a
maximum of two registrations pursuant to the Plutonic Affiliate Letters and
shall do all things reasonable and customary in connection with each such
registration, including preparation and filing of the applicable registration
statement, entry into customary underwriting arrangements and the payment of
reasonable and customary registration expenses incident to each such
registration. The registrations described in the Plutonic Affiliate Letters may
be delayed for up to 90 days if filing or effectiveness of the applicable
registration statement would require disclosure that would, in the reasonable
judgment of Homestake, require disclosure that would be detrimental to
Homestake.
Other than as described above, Homestake Common Stock may be freely
transferred following allotment. Once allotted, Homestake Common Stock will be
automatically listed on and available for sale through the NYSE and the Swiss
Stock Exchange. Homestake will apply for official quotation of the Homestake
Common Stock allotted under the Schemes on the ASX but quotation is not
guaranteed or automatic. Once quoted, Homestake Common Stock may also be sold on
the ASX.
Options on shares of Homestake Common Stock are also traded on the NYSE and
the Chicago Board of Options Exchange.
S-45
<PAGE> 78
HOMESTAKE MINING COMPANY
BACKGROUND
Homestake Mining Company is a Delaware corporation incorporated in 1983 as
the parent holding company of Homestake Mining Company of California ("Homestake
California"), which has been engaged in the gold mining business since 1877.
Homestake is one of the largest North American-based gold mining companies.
Operations of Homestake include mineral exploration, extraction, processing and
refining. Gold bullion is Homestake's principal product. Homestake has
significant operations in the United States, Canada and Australia. Homestake
also has operations in Chile. Homestake is engaged in active exploration
projects in the United States, Canada, Australia, Eastern Europe, Brazil, Chile
and the Andean region of South America, and participates in a development
project in Bulgaria.
Homestake California was founded to develop the Homestake Mine discovered
in the Black Hills of the Dakota Territory in 1876. Homestake was predominately
a gold mining company until its diversification into uranium mining and
production in the early 1950s and into lead and zinc in the 1960s. In 1984,
Homestake further diversified into the oil and gas business, principally as a
result of the acquisition of Felmont Oil Company. In 1989 and 1990, Homestake
disposed of its oil and gas business. In 1990, Homestake closed its last
remaining uranium mine and sold its interest in its base metals business.
In 1975, Homestake made its initial investment in the Kalgoorlie gold
district of Western Australia (known as the Golden Mile) when Homestake Gold of
Australia Limited ("HGAL") acquired a 48% interest in the Kalgoorlie Mining
Associates partnership. In 1987, Homestake sold 20% of its shares of HGAL to the
public. Subsequently, HGAL increased its interest in Kalgoorlie Mining
Associates to 50% and acquired a 50% interest in adjacent joint ventures and
properties. In late 1995 and early 1996, Homestake acquired the HGAL shares that
it did not then own.
In 1989, Homestake joined with two partners in the development of a major
sulfur discovery, Main Pass 299, in the Gulf of Mexico.
In 1992, Homestake acquired International Corona Corporation (now known as
Homestake Canada, Inc.), a large Canadian gold producer. As a result of the
acquisition, Homestake added approximately 600,000 ounces to its annual gold
production and increased its gold reserves by more than 5.4 million ounces. In
addition, Homestake acquired an interest in the high-grade Eskay Creek deposit
in British Columbia. Commercial production at Eskay Creek commenced in January
1995. Homestake now holds a 50.6% interest in the Eskay Creek mine through its
shareholding in Prime Resources Group Inc., a British Columbia company
("Prime"). The common shares of Prime are listed on The Toronto Stock Exchange
and the American Stock Exchange.
Homestake has adopted a gold hedging policy under which Homestake will, in
the appropriate circumstances, enter into forward sales transactions for
approximately 30% of its gold production in each of the subsequent 10 years at
prices in excess of certain targeted prices. Homestake will also, in appropriate
circumstances, use combinations of put and call option contracts to establish an
effective price floor for sales while permitting participation in future price
increases. At December 31, 1997 Homestake's gold forward sales commitments
totaled 580,052 ounces, deliverable over the period 1998-2003, at an average
contract settlement price of US$433.72 per ounce. The estimated liquidation
value of the contracts at December 31, 1997 was US$53.1 million. During 1997,
Homestake entered into a series of put and call option contracts which provide a
floor price of US$325 per ounce for 900,000 ounces of Homestake's 1998 gold
production. Homestake purchased put options for 900,000 ounces of gold
exercisable during 1998 at a price of US$325 per ounce. Homestake also sold call
options for 900,000 ounces of gold exercisable during 1998 at a price of US$325
per ounce and purchased call options for 900,000 ounces of gold exercisable
during 1998 at US$336 per ounce. Homestake also purchased put options for 30,000
ounces of gold exercisable during the year 2000 at a price of US$350 per ounce
and sold call options for 15,000 ounces of gold exercisable during 2000 at an
average price of US$395 per ounce. The estimated liquidation value of the option
position at December 31, 1997 was US$26.4 million, bringing the liquidation
value of the total hedge position to US$79.5 million.
S-46
<PAGE> 79
See "Risk Factors" and "Cautionary Statements" for a discussion of factors
and assumptions on which forward looking statements in this Document may be
based or which could cause actual results to differ materially from those
expressed in the forward looking statements.
SIGNIFICANT 1997 AND 1998 DEVELOPMENTS
In December 1996, Homestake and Santa Fe Pacific Gold Corporation ("Santa
Fe") announced that they had entered into a definitive agreement whereby
Homestake would acquire Santa Fe. In March 1997, Santa Fe terminated the
agreement and, in accordance with the terms of the agreement, paid Homestake a
US$65 million termination fee. As a result, in the first quarter of 1997
Homestake recorded a pretax gain of approximately US$63 million (US$47 million
after tax), net of transaction-related expenses of approximately US$2 million
incurred in 1997.
In February 1997, Homestake completed the sale of its interest in the
George Lake and Back River ventures in Canada to Kit Resources Corporation
("Kit") for US$9.3 million in cash and 3.6 million shares of Kit. As a result of
this transaction, Homestake recorded a pretax gain of approximately US$14
million (US$8 million after tax).
During the third quarter of 1997, Homestake recorded write-downs and other
unusual charges of US$183.6 million (US$145.1 million after tax). Due to a
prolonged period of low sulfur prices and Homestake's current assessment of
estimated future cash flows, the Company wrote off its entire US$107.8 million
investment in the Main Pass 299 sulfur mine in the Gulf of Mexico. The Company
also wrote down the carrying value of several of its short-lived assets or
operations, certain redundant assets and investments in certain mining
securities. It also increased its reclamation accruals at several properties to
reflect revised cost estimates, changed conditions and more stringent
reclamation requirements.
In October 1997, the gravity mill for processing higher-grade sulfide ores
at Round Mountain was completed at a cost of US$62.2 million (Homestake's
share -- US$15.5 million) The mill results in higher gold recoveries than
otherwise would be obtained by crushing and leaching the higher-grade sulfide
ore. The mill has a capacity to process 8,000 tons per day of sulfide ore.
During the fourth quarter of 1997, Prime completed construction of a small
gravity and flotation mill facility at the Eskay Creek mine site in British
Columbia, Canada, at a total capital cost of US$12 million. The mill will
improve the profitability of certain Eskay Creek ore that otherwise would be
shipped directly to third-party smelters and will permit processing of lower
grade material that otherwise would not be economic for direct shipment.
In December 1997, Homestake completed construction at the Ruby Hill mine,
near Eureka, Nevada, at a total capital cost of approximately US$64.7 million.
Initial gold production occurred on November 6, 1997. The operation is expected
to produce 110,000 ounces of gold in 1998 at a total cash cost of US$123 per
ounce and a total production cost of US$241 per ounce.
In December 1997, KCGM completed a 1.6 mile decline from surface at the
northern end of the Kalgoorlie Super Pit to access from underground the upper
level remnants of the Mt Charlotte orebody and the recently delineated northern
orebody. HGAL's share of the decline's cost is approximately US$2.6 million.
In October 1997, Homestake and Prime entered into an agreement with Inmet
Mining Corporation ("Inmet") to purchase the Troilus mine in Quebec for US$110
million plus working capital. In December 1997, Homestake and Prime terminated
the agreement after determining that, on the basis of due diligence studies,
conditions to closing the transaction would not be satisfied. Inmet has advised
Homestake and Prime that it disputes the termination of the agreement, but to
date Inmet has taken no legal action with respect to the termination.
In September and November of 1997, the State of South Dakota, the United
States government and the Cheyenne River Sioux Tribe filed actions against
Homestake claiming unspecified and unquantified damages to natural resources
alleged to result from disposal of mine tailings in Whitewood Creek beginning in
the
S-47
<PAGE> 80
nineteenth century. Disposal of the tailings in Whitewood Creek was in
compliance with all applicable laws. Further, the site was a licensed waste
disposal facility. Homestake answered the complaints denying the claims and
filed crossclaims seeking cost recoupment, contribution and indemnity from the
plaintiffs in the actions. Homestake intends to vigorously defend and, as
appropriate, join other government and non-government entities that also
disposed of material in the affected area. See "Environmental Matters."
In January 1998, Homestake announced that it will implement a major
restructuring of operations at the Homestake mine to reduce operating costs.
Annual production will be reduced to approximately 150,000 to 180,000 ounces per
year. Implementation of the plan will require a major reduction in the level of
employment and a complete reorganization of the methods of operation. To
implement the plan, Homestake has suspended underground mining while it
completes the final details of the new operating plan and readies the
underground mine to begin operating on the restructured basis. The new operating
plan will involve closing parts of the mine and concentrating on substantially
fewer production levels. The new operating plan will result in a decline in the
mine's proven and probable reserves and in mineralized material. However, the
new operating plan will significantly increase the mine's net present value and
total cash flow.
STATISTICAL SUMMARY
The information in the following table is a summary of certain 1997 and
1996 statistical information regarding ownership of gold mines, production
costs, reserves and mineralized material of Homestake's significant properties.
Mineralized material is reported in short tons of 2,000 pounds (equivalent to
0.9071 metric tons). The statistical information included in the table is
derived from studies, analyses and other information prepared by or for, or
available to, Homestake.
Information in this Document with respect to reserves and mineralized
material for Homestake has been prepared and defined in accordance with SEC
definitions and requirements. These definitions and requirements are different
than those used in the JORC Code applicable in Australia. SEC requirements do
not permit Homestake to report in SEC-filed documents (including this Document)
reserves and resources, as they would be reported under the JORC Code. In
Australia, what would be reported as resources includes reserves; in the United
States, the same information must be reported separately as reserves (reported
in ounces) and mineralized material (reported in tons and grade). Under SEC
definitions, mineralized material is generally comparable to that material
reported in Australia as resources, after subtracting that portion of the
resource that contains the proven and probable ore reserves. A more complete
description of the differences between the SEC requirements and the JORC Code is
contained in Appendix E to this Document.
S-48
<PAGE> 81
Statistical Summary
<TABLE>
<CAPTION>
GOLD PRODUCTION
...............................................
INTEREST TONS PROCESSED GRADE RECOVERY OUNCES
% (MILLIONS) (OZ/TON) % PRODUCED
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
1997
UNITED STATES
...............................................................................................
Homestake 100
Round Mountain(2) 25
Ruby Hill 100
McLaughlin 100
Pinson(4) 50
Marigold(4) 33
CANADA
...............................................................................................
Eskay Creek(5,6) 100
Williams 50
David Bell(7) 50
Snip(5) 100
AUSTRALIA
...............................................................................................
Kalgoorlie 50
CHILE
...............................................................................................
Agua de la Falda(8) 100
...............................................................................................
Total production
Minority interests(9)
...............................................................................................
Homestake's share of gold
- -----------------------------------------------------------------------------------------------
1996
UNITED STATES
...............................................................................................
Homestake 100 2.6 0.166 95 407,322
Round Mountain(2) 25 10.2 0.017 71 102,744
Ruby Hill 100 -- -- -- --
McLaughlin 100 2.5 0.096 77 185,458
Pinson(3,4) 50 0.3 0.051 79 12,098
Marigold(4) 33 1.0 0.029 93 24,485
CANADA
...............................................................................................
Eskay Creek(5,6) 100 0.1 3.382 95 372,279
Williams 50 1.3 0.167 95 205,519
David Bell(7) 50 0.3 0.476 96 109,098
Nickel Plate 100 1.1 0.078 81 70,199
Snip(5,10) 100 0.1 0.799 92 101,827
George Lake/Back
River(11) 74 -- -- -- --
AUSTRALIA
...............................................................................................
Kalgoorlie 50 6.4 0.067 88 368,816
CHILE
...............................................................................................
El Hueso 100 -- -- -- 8,274
Agua de la Falda(8) 100 -- -- -- --
...............................................................................................
Total production 1,968,119
Minority interests(9) (234,208)
...............................................................................................
Homestake's share of gold 1,733,911
- -----------------------------------------------------------------------------------------------
ESKAY CREEK -- SILVER
1997
1996
- -----------------------------------------------------------------------------------------------
<CAPTION>
PRODUCTION COSTS PER OUNCE(1)
...............................
OPERATING OTHER
CASH(C) CASH(D) NONCASH(E)
<S> <C<C> <C> <C> <C>
- ----------------------------------------------------------------
1997
UNITED STATES
.........................
Homestake $ $ $
Round Mountain(2)
Ruby Hill
McLaughlin
Pinson(4)
Marigold(4)
CANADA
.........................
Eskay Creek(5,6)
Williams
David Bell(7)
Snip(5)
AUSTRALIA
.........................
Kalgoorlie
CHILE
.........................
Agua de la Falda(8)
.........................
Total production
Minority interests(9)
.........................
Homestake's share of gold
- ----------------------------------------------------------------------------------
1996
UNITED STATES
.........................
Homestake $ 293 $11 $ 35
Round Mountain(2) 230 26 61
Ruby Hill -- -- --
McLaughlin 242 8 123
Pinson(3,4) 355 14 63
Marigold(4) 231 36 46
CANADA
.........................
Eskay Creek(5,6) 167 3 43
Williams 214 8 39
David Bell(7) 161 11 45
Nickel Plate 347 -- 46
Snip(5,10) 190 -- 151
George Lake/Back
River(11) -- -- --
AUSTRALIA
.........................
Kalgoorlie 291 -- 60
CHILE
.........................
El Hueso 275 -- --
Agua de la Falda(8) -- -- --
.........................
Total production $ 241 $ 7 $ 58
Minority interests(9)
.........................
Homestake's share of gold
- -----------------------------------------------------------------------------------------------
ESKAY CREEK -- SILVER
1997
1996
- -----------------------------------------------------------------------------------------------
</TABLE>
S-49
<PAGE> 82
<TABLE>
<CAPTION>
RESERVES(A) MINERALIZED MATERIAL(B)
........................................ ......................
TONS GRADE CONTAINED OUNCES TONS GRADE
(MILLIONS) (OZ/TON) (THOUSANDS) (MILLIONS) (OZ/TON)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
- -------------------------------------------------------------------------------------
..............................................................................................
23.8 0.196 4,662 24.0 0.173
119.2 0.019 2,263 26.5 0.015
7.6 0.099 755 9.2 0.067
16.6 0.063 1,048 -- --
1.3 0.072 92 -- --
6.0 0.034 203 -- --
..............................................................................................
0.7 1.732 1,224 0.1 0.541
17.7 0.146 2,585 4.3 0.121
3.0 0.288 871 -- --
-- -- -- -- --
0.2 0.722 135 -- 0.555
-- -- -- 2.6 0.322
..............................................................................................
98.3 0.066 6,446 82.9 0.073
..............................................................................................
-- -- -- -- --
0.5 0.181 95 3.0 0.158
..............................................................................................
..............................................................................................
294.9 20,379 152.6
- -------------------------------------------------------------------------------------
-- -- -- -- --
0.7 79.3 56,070 0.1 31.62
- -------------------------------------------------------------------------------------
</TABLE>
DEFINITIONS:
(a) A proven and probable RESERVE is that part of a mineral deposit which could
be extracted or produced economically and legally at the time of the
reserve determination.
(b) MINERALIZED MATERIAL is gold-bearing material that has been physically
delineated by one or more of a number of methods including drilling,
underground work, surface trenching and other types of sampling. This
material has been found to contain a sufficient amount of mineralization of
an average grade of metal or metals to have economic potential that
warrants further exploration evaluation. While this material is not
currently or may never be classified as reserves, it is reported as
mineralized material only if the potential exists for reclassification into
the reserves category. This material has established geologic continuity,
but cannot be classified in the reserves category until final technical,
economic and legal factors have been determined and the project containing
the material has been approved for development.
(c) OPERATING CASH 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.
(d) OTHER CASH COSTS are costs that are not directly related to, but may result
from, gold production; includes production taxes and royalties.
(e) 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.
NOTES:
(1) 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 Statistical Summary are presented on this basis.
(2) Recovery relates to reusable pad at the Round Mountain Mine.
(3) Homestake increased its interest in the Pinson Mine to 50% in December
1996.
(4) Recovery and grade relate to ore milled at the Pinson and Marigold Mines.
(5) The Eskay Creek and (effective April 1996) Snip Mines are owned 100% by
Prime. Homestake owns 50.6% of Prime. The ownership interests and
production amounts shown are Homestake's consolidated interests without
reduction for minority interests. Production amounts include gold
equivalent ounces contained in ore or concentrates sold to smelters.
Reserves and mineralized material amounts are Homestake's interests after
reduction for the 49.4% minority interests in Prime.
(6) Gold and silver are accounted for as co-products at Eskay Creek. Silver
production is converted into gold equivalent, using the ratio of the gold
market price to the silver market price. For the years ended December 31,
1997 and 1996, the ratio was -- and 74.9 ounces of silver equals one ounce
of gold production, respectively. Reserves and mineralized material on this
line relate to gold only. Silver is shown at the bottom of this chart.
(7) Ounces produced includes -- and 11,362 ounces of gold production from the
Quarter Claim in 1997 and 1996, respectively. Reserves include a 25% net
profits interest in the Quarter Claim.
(8) Homestake owns 51% of Agua de la Falda, S.A. Reserves and mineralized
material are Homestake's interests after reduction for the 49% minority
interests.
(9) Minority interests in production include minority interests' 49.4% share of
Prime's production in 1997 and 1996 and a 49% share of Agua's production in
1997.
(10) Prime purchased the remaining 60% interest in the Snip Mine in April 1996.
(11) Homestake completed the sale of its interest in the George Lake and Back
River ventures in February 1997.
S-50
<PAGE> 83
BUSINESS AND PROPERTY DESCRIPTION
UNITED STATES GOLD OPERATIONS
Homestake conducts operations at the Homestake mine in the Black Hills of
South Dakota, at the Ruby Hill mine in Nevada, at the McLaughlin mine in
northern California and at the 50% owned Pinson mine in north central Nevada. In
addition, Homestake owns a 25% interest in the Round Mountain mine in central
Nevada and a 33.3% interest in the Marigold mine in north central Nevada. The
Company's principal exploration office is in Reno, Nevada.
Homestake Mine
The Homestake gold mine is located in Lawrence County in and near Lead,
South Dakota. The mine has been in operation since 1876. Homestake owns 100% of
the operation. Paved public roads provide access to the operation.
The Homestake mine properties cover approximately 11,700 acres, of which
approximately 8,200 acres are owned in fee and the remainder are held as
unpatented mining claims. All mining is conducted on owned property.
The Homestake mine is comprised of underground and open-pit (the "Open
Cut") mining operations, an ore processing plant, final product refinery, a
waste-water treatment plant, and tailings disposal facilities. The underground
mine is serviced by two 5,000-foot vertical shafts from the surface connecting
with internal shafts which provide hoisting and services to the 8,000-foot
level. Ore from underground is hoisted to the surface, crushed and transported
to the nearby processing plant. Open Cut ore is crushed and transported more
than a mile to the processing plant by an enclosed conveyor. The 7,400
tons-per-day ("TPD") capacity processing plant recovers gold through a
combination of gravity, carbon-in-pulp ("CIP") and vat leaching processes.
Recycled process water is pumped through a carbon-in-leach ("CIL") circuit to
recover residual gold in solution. The refinery produces 0.997 fine gold
bullion. Process tails are used for underground fill or are deposited in a
tailings impoundment facility three miles from the plant.
The first phase of a major tailings dam lift expansion commenced in 1996.
Construction of an interim raise of ten feet was completed in 1997 at a cost of
approximately US$11.8 million, and construction of the full 50 foot raise will
be completed in 1999 at a cost of approximately US$14.2 million. The expansion
will provide an additional 26 million tons of tailings storage capacity, which
should be sufficient for projected mining activity through the year 2010, and
additional flood storage capacity. Facilities and equipment at this operation
continue to be upgraded, and during 1997 capital expenditures totaled
approximately US$16 million, principally for tailings dam lift and electrical
facilities upgrades. The facilities and equipment are generally in good
operating condition, but the basic mine and major facilities have been in
service for many years and are less efficient than more recently designed and
developed mines and facilities.
Untreated water for use in the mine's facilities is obtained from local
watersheds under Homestake mine water rights and potable water is purchased from
the Lead/Deadwood Sanitation District. Approximately 80% of the electric power
consumption is purchased under contract from Black Hills Corporation and the
remainder is provided by Homestake-owned hydroelectric facilities.
During the third quarter of 1997, certain Open Cut assets were deemed to be
impaired and were written down, resulting in a pre-tax charge of US$10.2
million. Open Cut mining currently is scheduled to be completed in April 1998.
Open Cut ore stockpiles will continue to be processed through the end of 1998.
As underground mining has progressed into the lower levels of the Homestake
mine, the remaining higher-grade ore deposits have become narrower, less
continuous and more difficult to mine, with resulting higher costs. On January
26, 1998, Homestake announced that, in response to increasing costs for the
underground mine and the low gold price, it will implement a major restructuring
of operations at the Homestake mine. Homestake will implement a new operating
plan intended to reduce costs significantly, so as to position the mine to
continue operating for many additional years. The plan will require a
substantial reduction in annual production, a major reduction in the level of
employment and a complete reorganization of the methods of operation. The new
operating plan will also involve closing parts of the mine and concentrating on
substantially fewer production levels in order to reduce continuing
infrastructure and other operating costs.
S-51
<PAGE> 84
To most effectively implement the new operating plan, Homestake has suspended
underground mining while it completes the final details of the new operating
plan and readies the underground mine to begin operating on the restructured
basis. During the shutdown period, operations at the mill will be reduced to a
level sufficient to process ore from the Open Cut, which will continue to
operate during the planned shutdown period.
Upon completion of the restructuring and restart of the mine, production is
expected to be reduced to a rate of approximately 150,000 to 180,000 ounces per
year by the beginning of 1999, as contrasted with 1997 production of 397,298
ounces. Homestake also expects to reduce the total cash cost for the underground
mine from in excess of the current amount of US$335 per ounce to approximately
US$280 per ounce by the end of 1999. To achieve the new operating plan,
Homestake expects to invest US$20 to $30 million by the end of 1999. Before
taking into account the proposed Combination with Plutonic, the restructuring is
expected to reduce the Company's weighted average cash costs by approximately
US$8 per ounce by the end of 1999. Although the final level of employment has
yet to be determined, it is expected that the work force will be reduced by more
than 50%.
By reducing costs, concentrating on the best ore bodies, and eliminating
operations in marginal areas, the new operating plan will significantly increase
the mine's net present value and total cash flow. However, as a result of the
new mining plan, the amount of reserves and mineralized material will be
reduced. The Company is now in the process of evaluating ore reserves and
mineralized material at the mine in light of the new operating plan. Preliminary
estimates are that it will result in a decline of about 1.5 million ounces in
the mine's proven and probable reserves from the 4.6 million ounces reported at
the end of 1996 (before taking account of 1997 production). Mineralized material
also will be reduced in light of the changed circumstances.
Hourly employees at the Homestake mine are represented by the United
Steelworkers of America. The current three year labor contract expires in May
1998. Negotiations with respect to a new contract will commence in the first
quarter of 1998. The Company expects that negotiations will involve a number of
matters that arise as a result of the restructuring of the operation and the
reduction of the work force described above.
During 1997, the mine operated in compliance with its environmental
permits, except that in November 1997, the mine had one reportable spill of
tailings into Whitewood Creek. The Homestake mine is under no regulatory orders
of any kind mandating specific environmental expenditures.
No royalties are payable on production from the Homestake mine. The State
of South Dakota imposes a severance tax of 10% of net profits from the sale of
gold produced in the state, plus US$4 per ounce of gold sold when the price of
gold is US$499 per ounce or less, increasing by US$1 per ounce for each US$100
increment or part thereof in excess of US$499 per ounce.
GEOLOGY
The Homestake mine is the largest known iron formation hosted gold deposit.
In its 122-year life, the mine has produced in excess of 38.5 million ounces of
gold. The Homestake gold deposit is Proterozoic in age (approximately 1.9
billion years). Mineralization is generally stratabound within the Homestake
Formation, which is a quartz-veined, sulfide-rich sedimentary sequence that has
been complexly deformed by tight
S-52
<PAGE> 85
folding, faulting and shearing. Ten southeast-plunging fold structures, locally
called ledges, have produced gold ore over a vertical extent of more than 8,000
feet.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
UNDERGROUND:
Tons of ore (000).............................. 19,764 20,886
Ounces of gold per ton......................... 0.220 0.218
Contained ounces of gold (000)................. 4,345 4,551
OPEN CUT:
Tons of ore (000).............................. 3,990 5,117
Ounces of gold per ton......................... 0.079 0.111
Contained ounces of gold (000)................. 317 568
TOTAL:
Tons of ore (000).............................. 23,754 26,003
Ounces of gold per ton......................... 0.196 0.197
Contained ounces of gold (000)................. 4,662 5,119
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000):
Underground............................. 1,376 1,461
Open Cut................................ 1,683 1,217
Ore grade mined (oz. gold/ton):
Underground............................. 0.211 0.219
Open Cut................................ 0.115 0.093
Open Cut stripping ratio (waste:ore)....... 4.9:1 7.3:1
Tons of ore milled (000)................... 2,566 2,460
Mill feed ore grade (oz. gold/ton)......... 0.166 0.171
Mill recovery (%).......................... 95 96
Gold recovered (000 ozs.).................. 407 403
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs....................... US$293 US$292
Other cash costs........................... 11 11
Noncash costs.............................. 35 32
------ ------ ------
Total production costs..................... US$339 US$335
</TABLE>
Round Mountain Mine
The Round Mountain gold mine is an open-pit mine located in Nye County,
Nevada, about 60 miles north of Tonopah. Homestake owns a 25% interest in the
mine. Echo Bay Mines Ltd. owns a 50% interest and is the operator. The remaining
25% interest is owned by Case, Pomeroy & Company, Inc. The mine has been in
operation since 1977. Paved public roads provide access to the operations.
The Round Mountain properties cover approximately 24,968 acres of land, of
which 645 acres are privately owned, 405 acres are under patent application, and
the remainder are held under unpatented mining claims. Approximately 73% of the
total reserves are located on the privately-owned land.
Most of the ore is heap leached, and the remainder, consisting of
higher-grade sulfide ore, is milled in the newly-completed mill. Ore is
heap-leached using two methods. The higher-grade oxide ore is crushed and
processed on reusable heap-leach pads for 100 to 150 days and then hauled to
dedicated pads and releached.
S-53
<PAGE> 86
Lower grade, uncrushed run-of-mine oxide ore is heap-leached on dedicated pads
along with previously leached ore from the reusable pad.
The reusable pad processing facilities consist of a gyratory crusher, an
intermediate ore storage and a reclamation system, secondary and tertiary cone
crushers and screens, a conveyor system used to transport ore to two asphalt
leach pads, and a solution pumping system. The reusable pads have a total
capacity of approximately three million tons. The separate, dedicated heap leach
pads and solution pumping system, covering an area of 24.2 million square feet,
have the capacity to process 195 million tons of ore. Ongoing construction of an
additional 7.8 million square foot dedicated pad facility and solution pumping
system is expected to be completed in February 1998 at a cost of approximately
US$13.5 million (Homestake's share -- US$3.4 million). This expansion will be
sufficient for mining and processing activity through mid-1999. The dedicated
pad facilities are planned to be expanded to approximately 51.2 million square
feet and 485 million tons over the life of the project. During 1997, total ore
processed averaged 134,300 TPD, the reusable heap-leach pads processed 26,600
TPD and the balance was processed on the dedicated pads, the average ore and
waste mining rate was 197,200 TPD, and the total mining rate, including
stockpiles, was 265,000 TPD.
The gravity mill for processing higher-grade sulfide ores was completed
ahead of schedule in October 1997 and under budget at a cost of US$62.2 million
(Homestake's share -- US$15.5). The mill provides higher gold recoveries than
otherwise would be obtained by crushing and leaching the higher-grade sulfide
ores on the reusable pad. The mill has a capacity to process 8,000 tons per day
of sulfide ore. Mill tailings are impounded at a newly constructed tailings
facility.
Water is supplied from company-owned wells on the property and from water
reclaimed from tailings dams, and power is purchased under contract from Sierra
Pacific Power Company.
Homestake's share of total 1997 gold production from the Round Mountain
mine was 119,960 ounces compared to 102,744 ounces in 1996. The higher 1997
production is a result of improved mining efficiency, higher grades and
recoveries from the reusable pads, and an increase in dedicated pad leaching
capacity (partially offset by a lower grade of ore on the dedicated pad). Gold
production from gravity treatment of high-grade ores declined to 1,799 ounces
(Homestake's share) in 1997 compared to 3,137 in 1996 due to lower ore grades.
Round Mountain ore reserves decreased by 2.01 million ounces (100% basis)
in 1997, net of 1997 production, primarily due to a new pit design and mine plan
that was implemented during the year. The new pit design and new mine plan will
significantly increase the mine's net present value and total cash flow but
reduces the total economically recoverable gold reserve. The new schedule and
pit design will require the movement of a number of shops and other facilities
during 1998. Cost for construction of the new facilities and demolition of the
old facilities is estimated at approximately US$15.5 million (Homestake's
share -- US$3.9) and should be completed by the third quarter of 1998.
Pit water discharges began to exceed the permitted levels for arsenic
during 1997. A new pit dewatering system has since been designed that utilizes
pit water within the operation, and eliminates pit water discharges outside of
the property. During 1997, one minor air quality citation was issued by the
Nevada Bureau of Air Quality for fugitive dust emissions. Otherwise, during 1997
the mine operated in compliance with its permits.
All Round Mountain mine production is subject to a royalty determined by a
complex formula based on the price of gold. The royalties range from
approximately 3.5% of gold revenues at prices of US$320 per ounce of gold to
approximately 6.4% of gold revenues at prices of US$440 per ounce of gold or
more. During 1997, the royalties averaged 3.78% of revenues.
GEOLOGY
The Round Mountain ore body straddles the margin of a volcanic caldera
complex. Gold-bearing hydrothermal fluids were transported along major
structural conduits created by the volcano's collapse and associated faulting.
These ascending fluids deposited gold in permeable zones along a broad northwest
trend. Primary gold mineralization at Round Mountain occurs as electrum, a
natural gold/silver alloy, in association with quartz, adularia and pyrite.
Narrow fractures in shear zones host higher-grade mineralization while porous
sites within the volcanic rocks host the disseminated mineralization. Economic
gold mineralization is
S-54
<PAGE> 87
found in both the volcanic and surrounding sedimentary rocks as well as
overlying alluvial placers. The oblong open-pit mine is over a mile at its
longest dimension and currently more than 1,200 feet from the highest working
level to the bottom of the pit.
Homestake has a 25% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Tons of ore (000)......................... 476,509 508,820
Ounces of gold per ton.................... 0.019 0.020
Contained ounces of gold (000)............ 9,050 10,000
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)........................ 31,947 32,723
Stripping ratio (waste:ore).................... 0.8:1 0.8:1
Tons of ore crushed (000)...................... 9,894 7,711
Tons of ore processed (000).................... 40,867 31,395
Weighted average ore grade placed on the pads
(oz. gold/ton).............................. 0.017 0.018
Leach recovery -- reusable pads (%)............ 66 71
Gold recovered (000 ozs.)...................... 411 344
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs........................... US$230 US$231
Other cash costs............................... 26 23
Noncash costs.................................. 61 74
------ ------ ------
Total production costs......................... US$317 US$328
</TABLE>
Ruby Hill Mine
The Ruby Hill mine is located one mile northwest of Eureka, Nevada.
Homestake acquired a 100% interest in the property in 1992. Access to the
property is by a 1.5 mile gravel road from U.S. Highway 50.
The Ruby Hill properties consist of approximately 24,831 acres, of which
23,386 acres are unpatented mining claims and 1,445 acres are privately owned.
Exploration activities have resulted in the discovery of several
mineralized zones. A positive feasibility study on the West Archimedes deposit
was completed during the fourth quarter of 1995, and construction of a mine,
heap leach pads and a mill facility commenced in early 1997 and was completed in
December 1997. Total capital cost, including the pre-stripping of the overlying
alluvium, was approximately US$64.7 million.
The operation utilizes conventional open-pit mining methods and heap
leaching. High grade ore is ground in a ball mill, leached and filtered, and
then combined with the crushed low-grade ore in a rotating agglomeration drum
prior to being placed on the leach pad. The feasibility study estimated that the
mine would produce an average of 105,000 ounces of gold per year over its
six-year life at a total cash cost of approximately US$140 per ounce. The first
gold was poured on November 6, 1997. The operation is budgeted to produce
110,000 ounces in 1998 at a total cash cost of US$123 per ounce and a total cost
of US$241 per ounce.
Water is available from on-site wells and power is available from Mount
Wheeler Power Company.
A production royalty of 3% of net smelter returns is payable on production
over 500,000 ounces of gold.
S-55
<PAGE> 88
GEOLOGY
The West Archimedes gold mineralization is hosted primarily within
brecciated jasperoid and decalcified limestones of the uppermost Goodwin and
Antelope Valley units of the Ordivician Pogonip Group. The micron-size gold is
finely disseminated and the ore body is entirely oxidized. Exploration and
delineation drilling are continuing in the nearby East Archimedes and Ruby Deeps
zones and at depth below the West Archimedes deposit.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)............................. 7,616
Ounces of gold per ton........................ 0.099
Contained ounces of gold (000)................ 755
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000).....................
Stripping ratio (waste:ore).................
Tons of ore crushed (000)...................
Tons of ore milled (000)....................
Mill recovery (%)*..........................
Weighted average ore grade stacked on the
pad (oz. gold/ton........................
Leach pad recovery (%)*.....................
Gold recovered (000 oz.)....................
</TABLE>
- ---------------
* Mill and leach pad recoveries reflect gold production and year-end in-process
inventory.
McLaughlin Mine
The McLaughlin gold mine is located at the junction of Lake, Napa and Yolo
Counties in northern California. The McLaughlin mine commenced operation in 1985
and is 100% owned by Homestake. Access to the property is by paved road.
The McLaughlin mine properties cover approximately 16,200 acres.
Approximately 15,100 acres are owned and approximately 950 acres are leased. The
Company holds seven unpatented mining claims and six millsite claims covering
the remaining property.
Mining was completed in June 1996 and ore is now sourced exclusively from
lower-grade stockpiles which were built up over the life of the mine. The
autoclave and flotation circuits were decommissioned following the completion of
mining due to the absence of high grade ores. The plant now operates as a
direct-cyanidation circuit utilizing cyanide leaching followed by CIP circuits,
pressure stripping and electrowinning. Total mill capacity is approximately
7,600 TPD. In 1996, the embankment at the tailings impoundment was raised,
increasing the impoundment's capacity to allow for the treatment of all but the
lowest-grade ore remaining in the stockpiles. A final tailings dam lift,
currently scheduled to be added in 1999 at an estimated cost of US$2.4 million,
will allow for the processing of the then remaining ore. Facilities are modern
and in good operating condition.
The majority of process water is recycled from the tailings pond.
Additional water is obtained from the Company's reservoir in Yolo County, which
has approximately four years of storage capacity. Electric power is purchased
under interruptible tariff from Pacific Gas and Electric Company.
Gold production, which is expected to continue through approximately 2003,
has declined significantly due to the completion of mining and exhaustion of
high grade ores. Processing costs also have declined
S-56
<PAGE> 89
significantly due to the shutdown of the higher cost autoclave and flotation
circuits, allowing economic treatment of the lower-grade stockpiled ore. During
1996, the Company entered into long term hedging contracts for the sale of
future production from the mine to ensure recovery of the remaining investment
and to cover remaining reclamation costs.
During 1997, the mine operated in compliance with its environmental
permits.
McLaughlin mine royalties are equivalent to approximately 2% of revenues.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPEN PIT:
Tons of ore (000).................................. -- 1,411
Ounces of gold per ton............................. -- 0.103
Contained ounces of gold (000)..................... -- 145
STOCKPILED:
Tons of ore (000).................................. 16,627 17,931
Ounces of gold per ton............................. 0.063 0.065
Contained ounces of gold (000)..................... 1,048 1,170
TOTAL:
Tons of ore (000).................................. 16,627 19,342
Ounces of gold per ton............................. 0.063 0.068
Contained ounces of gold (000)..................... 1,048 1,315
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)............................ -- 826 2,056
Stripping ratio (waste:ore)........................ -- 4.0:1 5.9:1
Tons of ore milled (000)........................... 2,485 2,296
Mill feed ore grade (oz. gold/ton)................. 0.096 0.120
Mill recovery (%).................................. 77 88
Gold recovered (000 ozs.).......................... 185 242
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs............................... US$242 US$234
Other cash costs................................... 8 8
Noncash costs...................................... 123 111
------ ------ ------
Total production costs............................. US$373 US$353
</TABLE>
Pinson Mine
The Pinson gold mine is located in Humboldt County approximately 30 miles
northeast of Winnemucca, Nevada. In December 1996, Homestake increased its
interest in the Pinson Partnership to 50% and became the operator of the Pinson
mine. Barrick Gold Corporation ("Barrick") owns the remaining interest. The mine
has operated since 1981. Access to the property is by paved and gravel roads.
The Pinson properties consist of approximately 22,826 acres of which 11,583
acres are held under leases, the terms of which are sufficient to allow for the
mining of all known reserves. The remaining land is comprised of 7,780 acres of
unpatented mining claims and 3,463 acres of primarily fee lands. Homestake and
Barrick are conducting an extensive deep drilling exploration program on the
Pinson properties.
Mining is conducted by conventional open-pit methods in several different
areas. Ore is processed by both heap-leaching and conventional milling methods.
Total material mined averaged approximately 32,510 TPD in 1997. The mill has a
capacity of 1,550 TPD using both CIP and CIL methods. In 1997, 73% of total gold
S-57
<PAGE> 90
production was from milled ore. Low grade ore is treated by heap-leaching
methods. The facilities are in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
During 1997, the mine operated in compliance with all of its environmental
permits.
Production royalties of 3.2% of net smelter returns are currently payable
on the principal producing areas of the property. Overall, the underlying
property ownership is complex, requiring special arrangements with respect to
the commingling of ore from various locations. Lease negotiations are continuing
with respect to portions of the property where leases expire by the year 2000.
Homestake's share of production from the Pinson mine was 25,829 ounces of
gold in 1997 compared to 12,098 ounces in 1996.
As a result of lower gold prices, in the third quarter of 1997 the Company
reviewed its carrying value of the Pinson mine. The Company used a gold price of
US$325 per ounce in the evaluation due to the fact that existing reserves are
sufficient for continued operations for approximately two years. Based on that
evaluation, the Company wrote down the entire carrying value of its investment
in the Pinson mine to zero. However, the Company continues to regard the Pinson
property as having good exploration potential, and the Company plans to continue
with its exploration program for portions of the property.
GEOLOGY
The Pinson deposit includes more than six zones of mineralization largely
hosted in carbonate rocks and calcareous siltstones of the Ordovician Comus
Formation. Ore bodies consist of disseminations of micron-size gold peripheral
to faults in favorable stratigraphy. High-grade stringer zones have been
identified and are the subject of continuing investigations.
Homestake had a 26.25% share of the following reserves through November
1996 and a 50% share thereafter.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)................................................ 2,563 4,074
Ounces of gold per ton........................................... 0.072 0.073
Contained ounces of gold (000)................................... 184 297
</TABLE>
Operating data is presented below on a 100% basis. In December 1996,
Homestake increased its interest to 50%. Prior to December 1996, Homestake had a
26.25% share of the following amounts:
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)........................................ 1,257 1,164
Stripping ratio (waste:ore).................................... 6.1:1 6.0:1
Tons of ore milled (000)....................................... 549 559
Ore grade milled (oz. gold/ton)................................ 0.077 0.088
Mill recovery (%).............................................. 79 79
Tons of ore leached (000)...................................... 669 574
Ore grade leached (oz. gold/ton)............................... 0.030 0.027
Gold recovered (000 ozs.)...................................... 42 48
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs........................................... US$355 US$307
Other cash costs............................................... 14 15
Noncash costs.................................................. 63 51
------ ------ ------
Total production costs......................................... US$432 US$373
</TABLE>
S-58
<PAGE> 91
Marigold Mine
The Marigold gold mine is located in Humboldt County approximately 40 miles
southeast of Winnemucca, Nevada. Homestake owns a 33.3% interest in the Marigold
partnership. Rayrock Mines, Inc. ("Rayrock") owns the remaining interest and is
the operator. The mine has operated since 1989. Access to the property is via a
five-mile long gravel road.
The property consists of approximately 3,920 acres of unpatented mining
claims and 14,920 acres held under leases which remain in effect as long as the
mine continues production.
Mining is conducted by conventional open-pit methods. Ore is processed by
heap-leaching and milling methods. Mill-grade ore is stockpiled and periodically
processed through the mill to maximize gold recovery. Milling operations were
intermittent during 1997. Mine facilities are in good condition.
Water is supplied from on-site wells and power is purchased from Sierra
Pacific Power Company.
The 1997 exploration program replaced the 1997 mined reserves in the area
of the known deposits.
During 1997, the mine operated in compliance with all its environmental
permits.
Production royalties are paid to two lease holders in amounts of 5% of net
smelter returns and 3.5% of net profits.
Homestake's share of production from the Marigold mine was 25,547 ounces of
gold in 1997 compared to 24,485 ounces in 1996.
GEOLOGY
Gold resources at the Marigold mine are hosted largely in the Permian
Antler Formation and the Ordovician Valmy Formation and are associated with
broad bands of silicification and local decalcification. Both stratigraphy and
structure control the geometry of the mineralized zones. The ore bodies are
sediment-hosted, disseminated deposits of micron-size gold, and are entirely
oxidized.
Homestake has a 33.3% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)................................ 18,068 14,585
Ounces of gold per ton........................... 0.034 0.036
Contained ounces of gold (000)................... 610 527
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore mined (000)........................ 2,882 3,412
Stripping ratio (waste:ore).................... 2.9:1 2.2:1
Tons of ore milled (000)....................... 428 440
Ore grade milled (oz. gold/ton)................ 0.086 0.071
Mill recovery (%).............................. 93 92
Tons of ore leached (000)...................... 2,491 2,969
Ore grade leached (oz. gold/ton)............... 0.019 0.022
Gold recovered (000 ozs.)...................... 73 70
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs........................... US$231 US$225
Other cash costs............................... 36 29
Noncash costs.................................. 46 59
------ ------ ------
Total production costs......................... US$313 US$313
</TABLE>
S-59
<PAGE> 92
CANADA
Homestake has a 50% interest in the Williams and David Bell mines in the
Hemlo mining district in Ontario and a 25% net profits interest in the Quarter
Claim (adjacent to the David Bell mine). Homestake also has a 50.6% interest in
Prime, which owns the Eskay Creek and Snip mines in northwestern British
Columbia. Prime has no employees and has contracted with Homestake to provide
all necessary professional, managerial, operational and administrative services
in connection with exploration, development and operation of the Eskay Creek and
Snip mines. During 1996, mining was completed at Homestake's Nickel Plate mine
in south central British Columbia.
The Company conducts exploration and investigates mineral acquisition and
development opportunities throughout Canada. Canadian activities are managed
from an office in Vancouver, British Columbia.
Eskay Creek Mine
Prime owns 100% of the Eskay Creek gold/silver mine, located in
northwestern British Columbia approximately 50 air miles north of Stewart,
British Columbia. Through its interest in Prime, Homestake has a 50.6% interest
in the mine. Access is by 38 miles of privately owned single-lane gravel road,
from a point off of Highway 37 approximately 125 miles south of Dease Lake. Road
maintenance and snow removal are provided under contract by a local company.
The Eskay Creek property consists of five mining leases and various other
mineral and surface rights comprising approximately 3,390 acres. The leases have
remaining terms of approximately 23 to 27 years, subject to renewal rights.
The Eskay Creek mine commenced commercial production in January 1995. The
mine is an underground operation accessible through three surface portals.
Mining is conducted by a mining contractor using equipment owned by Prime. The
mine utilizes a drift-and-fill mining method with cemented rock backfill. The
mine and facilities and equipment are new and in good condition. During 1997,
direct-shipped ore was crushed and blended in a facility located at the minesite
prior to shipment and sale to third-party smelters for final processing. Mine
waste-rock and tailings from the newly completed mill are disposed of underwater
in a nearby barren lake. Eskay Creek workers are on a two-week work schedule
followed by two weeks off.
In July 1997 Eskay Creek received regulatory approval to construct a
gravitation and flotation mill. Mill construction was completed ahead of
schedule in November 1997 and on budget at a cost of US$12 million. Mill
commissioning began immediately and commercial production commenced January 1,
1998. This mill is expected to treat 165 tons of ore per day producing a gravity
concentrate, which is sold to a Canadian refinery, and flotation concentrates
which are sold to smelters in Japan and Canada. The mill will improve the
profitability of certain Eskay Creek ore that would otherwise be directly
shipped to third-party smelters and will permit processing of other lower grade
material that is not economic for direct shipment. Recovery from the milled ores
is expected to be approximately 90%, net of third-party smelter payables. It is
estimated that the mill will produce approximately 70,000 payable ounces of gold
equivalent each year, a net increase of approximately 30,000 ounces over the
levels of production that would be achieved in the absence of the mill.
Two long-term ore sale contracts with smelters in Japan and Quebec provide
for combined target ore sales of 99,200 tons annually, with options to increase
sales to 132,300 tons, subject to mutual agreement with the smelters. During
1997, spot ore sales totaling approximately 12,000 tons were made to one other
smelter. Ore is trucked by a contractor 164 miles to Stewart for shipment to
Japan and 224 miles to Kitwanga, British Columbia for shipment to Quebec. A
contract loading facility for ships at Stewart handles ore shipments destined
for Japan and a company-owned loading facility is utilized at the railhead in
Kitwanga for shipments to Quebec.
Water is supplied from the Eskay and Argillite creeks and power is produced
on-site by diesel generators.
The mine produced approximately 303 TPD in 1996 and 333 TPD in 1997. Based
on existing reserves and current production rates, the mine has a projected
remaining life of approximately nine years.
Exploration drilling at Eskay Creek in 1997 was focused on an area known as
the 21C zone located west of the main 21B ore zone. The drilling program
identified 213,000 tons of mineralized material with an
S-60
<PAGE> 93
average grade of 0.7 ounces of gold equivalent. Preliminary test work has
indicated that this rhyolite hosted mineralization is amenable to flotation
processing.
The planned extension of the No. 5 ramp and the associated hanging wall
exploration drift at the north end of the mine were completed in 1997.
Exploration drilling from the hanging wall drift into the NEX and MW zones
started in the fourth quarter of 1997 and was focused on upgrading and expanding
ore reserves in these zones.
During 1997 there were four occasions where water effluent permit levels
were exceeded. The incidents were properly reported and in each instance
corrective action was taken immediately. No citations have been issued and none
are expected. With these exceptions the mine operated in compliance with all
environmental permits in 1997. During 1997, the mine's environmental health and
safety programs were recognized for a number of achievements. The mine received
an environmental award from the British Columbia Mining Association and the
Ministry of Employment and Investment for British Columbia for reclamation work
conducted on the original exploration camp sites. In addition, during 1997 the
mine received the British Columbia Small Mine Safety Award and the prestigious
John T. Ryan Award in recognition of its exemplary safety performance.
The mine is subject to a 1% net smelter royalty, with the exception of a
small portion of the ore body, which is subject to a 2% net smelter royalty.
There are aboriginal claims relating to areas of British Columbia and other
parts of Canada, including a claim by the Tahltan Nation to the area which
includes the Eskay Creek mine. The nature and extent and validity of such claims
has not been determined. Prime has entered into several services contracts for
the Eskay Creek mine with the Tahltan Nation Development Corporation, and
approximately 39% of the employees at the mine are members of the Tahltan
Nation. Prime believes that its relations with aboriginal groups, including the
Tahltan Nation, are excellent. Homestake does not believe that aboriginal claims
at Eskay Creek will have any material adverse effect. However, future
exploration for and development of new mines in Canada could be slowed and could
be adversely affected, depending on future legal developments in this area. The
extent of any such effect, if any, is not known.
GEOLOGY
The Eskay Creek ore body is a precious metal-enriched volcanogenic massive
sulfide deposit that occurs in association with volcanics of the Jurassic-aged
(141 to 195 million years) Hazelton Group. Eskay Creek mineralization is
generally stratabound and occurs in a contact mudstone and breccia bounded below
by a rhyolite flow-dome complex and overlain by volcanic rocks in the west limb
of a north-plunging fold. Sphalerite, pyrite, galena and tetrahedrite are the
most abundant ore minerals. Native gold occurs as mostly microscopic particles
located between sulfide grains, in fractures within sulfide grains, or locked in
pyrite. Gold also occurs in volcanic rocks beneath the contact mudstone, along
with coarse grained sphalerite, pyrite and galena in quartz veins or stockworks.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tons of ore (000)..................................... 1,397 1,124
Ore grade (ozs. gold/ton)............................. 1.732 1.875
Contained ounces of gold (000)........................ 2,418 2,108
Ore grade (ozs. silver/ton)........................... 79.3 83.4
Contained ounces of silver (000)...................... 110,810 93,752
Contained gold equivalent ounces(1)(000).............. 3,857 3,326
</TABLE>
S-61
<PAGE> 94
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore shipped (000).......................... 116 104
Ore grade (ozs. gold/ton).......................... 1.922 1.989
Ore grade (ozs. silver/ton)........................ 106.6 100.9
Ounces of payable gold (000)....................... 211 197
Ounces of payable silver (000)..................... 12,054 9,945
Total gold equivalent ounces(1) (000 ozs.)......... 372 331
HOMESTAKE'S PRODUCTION COST PER OUNCE OF GOLD
EQUIVALENT:
Cash operating costs(2)............................ US$167 US$182
Other cash costs................................... 3 3
Noncash costs...................................... 43 45
------ ------ ------
Total production costs............................. US$213 US$230
</TABLE>
- ---------------
(1) Gold and silver are accounted for as co-products at Eskay Creek. Silver
production is converted into gold equivalent, using the ratio of the average
gold market price to the average silver market price. The ratio was 68.2
ounces and 74.9 ounces of silver equals one ounce of gold equivalent for
production calculations for the years ended December 31, 1997 and 1996,
respectively, and 77 ounces of silver equals one ounce of gold equivalent
for reserve calculations at December 31, 1997 and 1996.
(2) For comparison purposes, cash operating costs per ounce include estimated
third-party costs incurred by smelter owners and others to produce
marketable gold and silver.
Williams Mine
The Williams gold mine is located in the Hemlo Gold Camp 217 miles east of
Thunder Bay, Ontario, adjacent to the TransCanada Highway. The mine is operated
by Williams Operating Corporation ("WOC") with its own personnel. Homestake and
Teck Corporation ("Teck") each owns a 50% interest in WOC. The mine commenced
operations in 1985.
The property consists of 11 mining claims covering approximately 380 acres
and one Crown mining lease. Homestake and Teck are required to provide funds
equally to WOC for all costs incurred to operate the mine. Homestake and Teck
have mutual rights of first refusal over each other's interest in the Williams
mine and shares of WOC.
The Williams mine is an underground operation which is accessible by a
4,300-foot shaft. The mine utilizes the longhole, open-stope mining method with
cemented and uncemented rock backfill. In addition, 650-750 TPD of lower-grade
ore is recovered from a nearby open pit. Waste rock from the open pit is used
for backfill in the underground operations. The mine has a 7,000 TPD capacity
mill which operated at 7,277 TPD during 1997 with gold recovery at 94.9%. The
Williams and David Bell mines share one tailings basin facility located
approximately two miles from the mill. Cyanidation and the CIP process are used
to recover gold. Water from the tailings basin is treated during the summer
months in an effluent treatment plant prior to discharge. Both mines recycle
mill make-up water from the tailings pond. The facilities and equipment are
modern and in good condition.
Fresh water for the property is supplied from Cedar Creek and power is
purchased from Ontario Hydro via a longterm contract. Propane for heating mine
air and surface facilities is purchased under contract.
During 1997, ore was mined primarily from the Block 3 and Block 4 zones.
Ground control problems were experienced during the year limiting access to high
grade stopes. However, by increasing output from the open pit and other areas of
the mine, ounces produced were at budget. Ground conditions will continue to be
a concern, but increased use of ground support technology and careful stope
scheduling should help mitigate future problems.
S-62
<PAGE> 95
The mine will continue to operate at the average ore reserve grade for the
remaining life of the operation. Approximately 43% of the ounces mined in 1997
have been replaced with reserve additions in the Block 3 zone and lower "C"
zone.
During 1997, under an agreement with Franco Nevada Ltd. ("Franco"), a drift
was driven, at Franco's expense, from the Williams property onto Franco's
adjacent property to carry out an underground exploration program. The agreement
gives WOC a right of first proposal for any mineralization which Franco may
discover during its exploration activity. During 1997 Franco conducted
approximately 34,000 feet of exploration drilling from the Franco drift.
During 1997 the mine had five minor spills. All incidents were properly
reported and corrective action was taken immediately. No citations have been
issued and none are expected. With these exceptions, the mine operated in
compliance with all environmental permits during 1997.
The owned property is subject to three net smelter royalties totaling a net
effective rate of 2.08% and the Crown mining lease is subject to a net smelter
royalty of 0.75%.
Homestake's share of production was 201,098 ounces in 1997 compared to
205,519 ounces in 1996.
GEOLOGY
The Hemlo Gold Camp occurs within the east-west striking Heron Bay belt of
metamorphosed Archean aged rocks (3.5 billion years). The steeply dipping ore
bodies lie along the contact between overlying metasedimentary rocks and
underlying volcanic rocks. Gold mineralization is hosted primarily by a fine-
grained feldspar porphyry unit and is associated with pyrite, barite and
molybdenite.
Homestake has a 50% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)............................ 35,449 36,765
Ounces of gold per ton....................... 0.146 0.150
Contained ounces of gold (000)............... 5,169 5,497
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000)................... 2,583 2,608
Mill feed ore grade (oz. gold/ton)......... 0.167 0.163
Mill recovery (%).......................... 95 95
Gold recovered (000 ozs.).................. 411 405
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs....................... US$214 US$214
Other cash costs........................... 8 8
Noncash costs.............................. 39 38
------ ------
Total production costs..................... US$261 US$260
</TABLE>
David Bell Mine
The David Bell gold mine is located in the Hemlo Gold Camp. The mine is
operated by the Teck-Corona Operating Corporation ("TCOC") with TCOC personnel.
Homestake and Teck each own a 50% interest in TCOC. The mine commenced
operations in 1985.
The mine is located on the same ore trend as the Williams mine. The
property consists of approximately 640 acres held under two freehold patents.
Homestake and Teck are required to provide funds equally to TCOC for all costs
incurred to operate the mine. Homestake and Teck have mutual rights of first
refusal over
S-63
<PAGE> 96
each other's interest in the David Bell mine and shares of TCOC. Homestake and
Teck each have a 50% interest in efforts to explore and develop mineral
properties within approximately two miles of the David Bell property.
The David Bell mine is an underground operation which is accessible by a
3,819-foot shaft. Production is from stopes using longhole mining methods, with
cement, tailings, sand and waste rock utilized as backfill. Mill throughput was
1.297 million TPD in 1997. Cyanidation and CIP processes are used to recover
gold. The facilities and equipment are modern and in good condition.
Water and power supplies are the same as those at the Williams mine.
Treated reclaimed process water is used to service the underground operations.
The average width of ore at the David Bell mine is decreasing as mining
progresses away from the central core of the ore body. In an effort to optimize
ore extraction and to minimize development costs, stoping of narrow-width ore by
longitudinal longhole retreat continued during the year. Production in 1997
decreased by 6% compared to 1996 as a result of processing lower grade ore. The
1997 ore grade declined, approaching average life-of-mine reserve grade. This
trend will continue in 1998 and beyond.
Approximately 42% of the ounces mined in 1997 have been replaced with ore
reserve additions despite a 28% increase in the cut off ore grade.
The hourly work force at David Bell is unionized and the collective
bargaining agreement with the United Steel Workers of America is in effect
through October 1998.
In December 1997, the mine had a minor propane emission. The incident was
properly reported and corrective action was taken immediately. No citation was
issued and none is expected. Except as noted, during 1997, the mine operated in
compliance with all of its environmental permits.
The property is subject to a 3% net smelter return royalty.
Homestake's share of production at the David Bell mine was 89,982 ounces in
1997 compared with 97,736 ounces in 1996.
GEOLOGY
See "Williams Mine -- Geology."
Homestake has a 50% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)................................ 5,574 5,424
Ounces of gold per ton........................... 0.291 0.309
Contained ounces of gold (000)................... 1,621 1,677
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000)....................... 427 487
Mill feed ore grade (oz. gold/ton)............. 0.476 0.347
Mill recovery (%).............................. 96 94
Gold recovered (000 ozs.)...................... 195 159
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs........................... US$161 US$192
Other cash costs............................... 11 11
Noncash costs.................................. 45 48
------ ------ ------
Total production costs......................... US$217 US$251
</TABLE>
S-64
<PAGE> 97
Quarter Claim
The Quarter Claim constitutes approximately one-fourth of a mining claim,
which was originally part of the David Bell property, and was optioned to and
subsequently acquired by Battle Mountain Gold Company ("Battle Mountain") in
1982. Battle Mountain developed a shaft on the Quarter Claim and reserved
hoisting and milling capacity of 500 TPD at its mill to process any ore found on
the Quarter Claim. Homestake has a 25% net profits interest in all ore recovered
from the Quarter Claim. The net profits interest is based on a deemed production
rate, deemed production costs and the market price of gold. The deemed
production rate is based upon committed throughput of 500 TPD multiplied by (a)
the average ore grade of the remaining Quarter Claim reserves, (b) a recovery
factor, and (c) 95%.
Homestake's share of production at the Quarter Claim was 11,331 ounces in
1997 compared with 11,362 ounces in 1996.
GEOLOGY
See "Williams Mine -- Geology."
Homestake has a 25% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)................................ 930 1,113
Ounces of gold per ton........................... 0.258 0.258
Contained ounces of gold (000)................... 240 287
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000)....................... 183 115
Mill feed ore grade (oz. gold/ton)............. 0.257 0.257
Mill recovery (%).............................. 96 96
Gold recovered (000 ozs.)...................... 45 29
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs........................... US$156 US$155
Other cash costs............................... 12 12
Noncash costs.................................. 1 1
------ ------ ------
Total production costs......................... US$169 US$168
</TABLE>
Snip Mine
The Snip gold mine is located at the junction of Bronson Creek and the
Iskut River, 56 air miles north of Stewart in northwestern British Columbia. In
April 1996 Prime purchased Cominco's 60% interest in the Snip mine, and Prime
now owns 100% of the Snip mine. Through its interest in Prime, the Company has a
50.6% interest in the mine. The mine commenced operations in 1991.
The property consists of a mining lease with a remaining term of 22 years,
together with four mineral claims covering approximately 4,944 acres.
The mine is serviced by aircraft which utilize a 4,500-foot long landing
strip at the minesite to transport personnel, mine concentrates, fuel and other
supplies.
The Snip mine is an underground operation serviced by adits and a
haulageway at the mill elevation level. Mining is carried out through a
combination of shrinkage, conventional and mechanized cut and fill. Backfill
consists of mill tailings and ground waste rock, which is pumped to the mine,
and underground waste rock. The mill has a capacity of 500 TPD. Mill tailings
not used for backfill are deposited in a tailings facility
S-65
<PAGE> 98
located adjacent to the mine and reclaimed water is pumped back to the mill. The
facilities and equipment are modern and in good condition. Employees work three
weeks on followed by three weeks off.
Approximately 92% of the gold contained in the ore is recovered. A gravity
circuit recovers about 36% of the gold and the remaining gold is recovered in
flotation concentrates containing approximately ten ounces of gold per ton. The
concentrates are sold under a life-of-mine contract to a smelter located in
Japan
Water is supplied from Bronson Creek and power is produced on site by
diesel generators.
The 1997 surface exploration program was not successful in making any
significant additions to the ore reserves. The underground exploration program
added modest reserves and based on current milling rates and existing reserves,
the mine has a projected remaining life of 1.5 years. Diamond drilling scheduled
for the first quarter of 1998 will test the remaining exploration targets. If
the program is unsuccessful in identifying additional ore grade material, all
exploration activity at the Snip mine will be suspended.
During 1997, the Snip mine had two incidents of diesel spills which were
both minor in nature. The incidents were properly reported and corrective action
was taken immediately. No citations have been issued and none are expected. With
these exceptions, the mine operated in compliance with all environmental permits
during 1997.
Homestake's share of gold production in 1997 was 115,644 ounces compared to
101,827 ounces in 1996.
GEOLOGY
The main Twin Zone ore body at the Snip mine is a 1.5 foot to 50-foot thick
quartz-carbonate-sulfide-filled shear structure within a Triassic sedimentary
unit. Gold primarily occurs as finely disseminated grains along pyrite grain
boundaries. Other sulfides within the Twin Zone include pyrrhotite, chalcopyrite
and sphalerite, with minor arsenopyrite. The vein structure has been traced over
a strike length of 3,300 feet and has a known vertical extent to 1,650 feet. In
addition to the Twin Zone, mining is conducted on footwall and hanging wall
veins. The 150 vein is the largest of these secondary, narrow veins. It joins
the Twin Zones in the west and strikes away at about 300 to it in the footwall
in the east. In 1997 mining commenced on a small reserve in the T West Zone,
which is located to the west of the tailings impoundment.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of ore (000)................................ 369 383
Ounces of gold per ton........................... 0.722 0.776
Contained ounces of gold (000)................... 267 297
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore milled (000)....................... 171 187
Mill feed ore grade (oz. gold/ton)............. 0.787 0.751
Mill recovery (%).............................. 92 91
Gold recovered(1) (000 ozs.)................... 124 128
HOMESTAKE'S COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs........................... US$190 US$176
Noncash costs.................................. 151 56
------ ------ ------
Total production costs......................... US$341 US$232
</TABLE>
- ---------------
(1) Includes recoverable gold contained in dore and in concentrates.
S-66
<PAGE> 99
Nickel Plate Mine
Mining and ore processing at the Nickel Plate mine, located near Hedley,
British Columbia, was completed in 1996. Reclamation of the property, in
accordance with a plan filed with British Columbia's regulatory agencies, is in
progress. At the end of 1997, approximately 79% of the total land affected by
mining activities had been reclaimed. Reclamation work includes sloping,
covering with soil, and seeding all rock dumps. It will also include treating
all water in the tailings impoundment prior to release into the environment.
When the water treatment is complete, the plant will be removed and the
approximate 80 acre plant site area will be reclaimed. During 1997, the property
operated in compliance with all of its environmental permits.
AUSTRALIA
HGAL is a 50% owner in Australia's largest gold mining operation, the
consolidated surface and underground gold operations at Kalgoorlie, Western
Australia. HGAL also explores for gold throughout Australia. Australian
activities are managed from an office in Perth, Western Australia.
Kalgoorlie Operations
The Kalgoorlie operations are located 340 miles northeast of Perth, Western
Australia on 164 state leases and licenses covering approximately 30,000 acres
adjacent to the town of Kalgoorlie. The mineral leases are granted on
application for a term of 21 years on conditions covering rental, royalties,
expenditure conditions and reporting. They are renewable in the final year.
Homestake acquired its interest in the original Kalgoorlie Mining Associates
joint venture in 1976. Mining operations in the Kalgoorlie region date back to
1893. Access to the operations is by paved road.
HGAL owns a 50% interest in the Kalgoorlie operations. Subsidiaries of
Normandy Mining Limited ("Normandy") own the other 50% interest. HGAL and
Normandy jointly own and control Kalgoorlie Consolidated Gold Mines Pty Ltd
("KCGM"), which manages the operations under the direction of a joint management
committee. Prior to June 1996, HGAL and Normandy each paid 50% of the costs but
under certain circumstances Normandy was entitled to more than 50% of the
production from one area of the Super Pit (the "Disproportionate Share"). In
June 1996, HGAL purchased Normandy's rights under the Disproportionate Share and
HGAL now shares equally with Normandy in all gold produced at the Kalgoorlie
operations.
The Kalgoorlie operation is comprised of two mines, the Super Pit open-pit
mine and the Mt Charlotte underground gold mine. Ore from both of these
operations is treated at the Fimiston mill. Two smaller facilities, the Mt Percy
and Croesus mills were closed in 1997. The Croesus mill has been demolished and
the Mt Percy mill has been mothballed. Sulfide concentrates produced at the
Fimiston mill are roasted at the Gidji roaster, located 12 miles north of the
main Kalgoorlie operations, prior to final processing at the Fimiston mill. The
facilities and equipment at the Kalgoorlie operations generally are in good
condition.
Contractors are employed to conduct the open pit mining operations, ore and
concentrate haulage and some specialized services. Ore from the Mt Charlotte
mine is conveyed to the Fimiston mill by an open conveyor. Fresh water is
supplied under allocation from the state water system and is piped 340 miles
from Perth. Remaining process water requirements are satisfied using salt water
taken from bores and the underground mine. Until September 1996, power was
purchased under a number of agreements with the state power authority. Power is
provided under a power supply agreement with Normandy Power Pty Ltd, a company
associated with Normandy.
During 1996, the Kalgoorlie operations had a solutions spill from one of
its tailings ponds. The spill was timely reported and remediated. During 1997
the operations were cited for the 1996 spill and paid a fine of A$2,000. Also,
during 1997, there was one instance where sulfur dioxide levels in the
Kalgoorlie area exceeded air quality limits. The Department of Environmental
Protection and KCGM are investigating to determine whether the Gidgi roaster was
a principal contributor to the event. With this possible exception, during 1997
the mine operations were in compliance with all environmental permits.
HGAL's share of gold production from the consolidated Kalgoorlie operations
was 425,914 ounces in 1997 compared to 368,816 ounces in 1996. No royalties
currently are payable on production. See "Cautionary Statements -- Western
Australia Royalty."
S-67
<PAGE> 100
Super Pit
This large open-pit mine is located along the "Golden Mile" ore bodies
previously mined from underground.
In 1997, 75.9 million tons of material were mined containing 10.8 million
tons of ore, compared to 78.5 million tons of material mined containing 11.8
million tons of ore in 1996. HGAL's share of Super Pit gold production was
343,644 ounces in 1997 and 305,837 ounces in 1996. The increase in production in
1997 primarily was due to increases in throughput, grade and recoveries.
Mt Charlotte
This underground mine uses bulk mining methods and large conventional
diesel powered loaders and trucks. The main production level is 3,200 feet below
surface. Longhole mass-blast mining techniques are employed. Ore is crushed
underground with primary crushers before being hoisted to the surface and
conveyed to the Fimiston mill. In February 1997, development work began on a 1.6
mile decline from surface at the northern end of the Super Pit to access from
underground the upper level remnants of the Mt Charlotte orebody and the
recently delineated northern orebody. The decline was completed ahead of
schedule and below budget in December 1997. HGAL's share of the decline's cost
is approximately US$2.6 million.
Ore production and mill throughput increased by 13% at Mt Charlotte during
1997 due to successful mass blasts that allowed greater flexibility for
production.
In 1997, 1.9 million tons of ore were mined from Mt Charlotte compared to
1.7 million tons of ore mined in 1996. HGAL's share of gold production was
81,160 ounces in 1997 and 61,024 ounces in 1996.
Mt Percy
The Mt Percy open cuts were mined to their planned economic depth in July
1992, at which time mining ceased. Previously stockpiled low-grade Mt Percy ore
was blended with non-refractory ore from the Super Pit and treated in the Mt
Percy mill until it was shut down in June 1997. HGAL's share of Mt Percy gold
production was 1,110 ounces in 1997 and 1,955 ounces in 1996.
Mills
The Fimiston mill is a 35,000-TPD mill with CIP leaching and refractory
sulfide flotation circuits. Approximately US$90 million (100% basis) was spent
during 1995 and 1994 on an expansion program at the Fimiston mill, including a
5,000-TPD free-milling sulfide circuit to treat Mt Charlotte ore. Additional
capital expenditures (100% basis) of US$4.4 million in 1996 and US$4.2 million
in 1997 were incurred for efficiency improvements at the mill. The increased
capacity improved the mill's efficiency and replaced the capacity of the Oroya
mill, which was dismantled in 1995 to allow for further planned expansion of the
Super Pit. The Fimiston mill processed 12.2 million tons of ore in 1997 and 10.6
million tons in 1996.
The Gidji roaster complex, which comprises two roasters and a CIP circuit,
processes all sulfide concentrates produced at the Fimiston mill. The Gidji
roaster processed 0.3 million tons of concentrate in 1997 and 0.2 million tons
in 1996.
The Mt Percy mill, a 2,500-TPD mill with a CIP circuit, was mothballed in
June 1997.
Cash operating costs per ounce in 1997 were US$262. Cash costs were lower
in 1997 compared to 1996 primarily due to higher grades, higher tonnage
processed and lower milling costs, partially offset by higher mining costs. In
addition, there was an 18% decline in the value of the Australian dollar
compared to the US dollar.
There are a number of native title claims relating to the area of the
Kalgoorlie operations, but the validity of those claims has not been determined.
In any event, all of the mining leases with respect to active mining operations
at Kalgoorlie are pre-1994 leases, and therefore native title claims will not
adversely affect the operations. Thirteen mining titles were granted between
January 1, 1994 and March 16, 1995, when Western Australia did not comply with
the requirement of negotiation in granting these and associated titles. Although
there has been no decision on the point to date, titles granted during that
period may be open to challenge on native title grounds. It is possible that
proposed Commonwealth legislation may validate such titles to put
S-68
<PAGE> 101
them beyond doubt. If such titles are found to be invalid due to native title,
the State of Western Australia has indicated that it will facilitate regrants
and pay any compensation due to aggrieved native title parties. KCGM is in the
process of converting two prospecting licenses to mining leases for use of the
property for waste rock disposal, and it will be necessary to comply with the
right to negotiate process of the Native Title Act in order to ensure the
validity of the grant of the mining leases. Native title issues are expected to
arise in the process. KCGM is engaged in general discussions with several of the
claimants, and KCGM has implemented aboriginal training and employment programs.
Homestake does not expect native title issues to have any material adverse
effect on the Kalgoorlie operations.
GEOLOGY
The ore deposits mined in the Kalgoorlie Goldfields occur within an
intensely mineralized shear zone system in dolerite host rocks, within the
Norseman-Wiluna Greenstone Belt which is part of the Yilgarn Block of Western
Australia. The rocks are of Archaen age. The favorable structural metamorphic
and lithologic setting in conjunction with hydrothermal activity controlled gold
mineralization. During its history of operations since 1893, in excess of 45
million ounces of gold have been produced from the Kalgoorlie properties at
depths of up to 4,000 feet from high-grade lodes and adjacent disseminated
mineralization in the Golden Mile Dolerite, and from the large stockwork zones
which characterize the Mt Charlotte and Reward (underground) ore bodies.
HGAL has a 50% share (subject to the Disproportionate Share prior to June
1996) of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tons of ore (000)............................. 196,589 184,136
Ounces of gold per ton........................ 0.066 0.072
Contained ounces of gold (000)................ 12,892 13,180
</TABLE>
S-69
<PAGE> 102
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
SUPER PIT:
Tons of ore mined (000)........... 11,836 8,670
Stripping ratio (waste:ore)....... 5.6:1 7.1:1
Tons of ore milled (000).......... 10,926 9,186
Mill feed ore grade (oz.
gold/ton)....................... 0.065 0.067
Mill recovery (%)................. 87 88
Gold recovered (000 ozs.)......... 612 551
MT PERCY:
Tons of stockpiled ore milled
(000)........................... 200 125
Mill feed ore grade (oz.
gold/ton)....................... 0.025 0.026
Mill recovery (%)................. 83 85
Gold recovered (000 ozs.)......... 4 3
MT CHARLOTTE:
Tons of ore mined (000)........... 1,694 1,440
Tons of ore milled (000).......... 1,707 1,429
Mill feed ore grade (oz.
gold/ton)....................... 0.079 0.076
Mill recovery (%)................. 91 88
Gold recovered (000 ozs.)......... 122 95
COMBINED PRODUCTION STATISTICS:
Tons of ore mined (000)........... 13,530 10,110
Tons of ore milled (000).......... 12,833 10,740
Mill feed ore grade (oz.
gold/ton)....................... 0.067 0.068
Mill recovery (%)................. 88 88
Gold recovered (000 ozs.)......... 738 649
HOMESTAKE'S CONSOLIDATED COST PER
OUNCE OF GOLD PRODUCED:
Cash operating costs.............. US$291 US$296
Noncash costs..................... 60 46
------ ------ ------
Total production costs............ US$351 US$342
</TABLE>
CHILE
Homestake conducts exploration programs throughout Chile. Homestake's
office is in Santiago, Chile.
In July 1996, Homestake and Corporacion Nacional del Cobre Chile
("Codelco"), a state-owned mining company in Chile, formed a new company, Agua
de la Falda S.A. ("La Falda"), to explore near Homestake's former El Hueso mine
in northern Chile. Homestake and Codelco contributed property interests in the
area to the new company. In addition, Codelco contributed the existing El Hueso
plant which had been under lease to Homestake. Homestake owns 51% of the
corporation and Codelco owns the remaining 49% interest.
La Falda holds mining properties covering approximately 8,336 acres.
Included within those properties is the new Agua de la Falda mine that was
developed, and is operated by La Falda, to mine the 187,000 ounces of oxide
reserves discovered on the property by Homestake. The Agua de la Falda mine is
located approximately three miles northeast of the former El Hueso mine, in the
Maricunga District of Chile about 600 miles north of Santiago at an elevation of
approximately 12,500 feet. Access to the property is by 14 miles of dirt road.
Construction of facilities and underground mine development for the Agua de
la Falda mine commenced in late 1996. Construction was completed ahead of
schedule and below budget at a total cost of approximately US$6.5 million.
Mining commenced in January 1997 and gold production began in April 1997. The
operation utilizes both room-and-pillar and post-pillar underground mining
methods. The existing El Hueso facility is used to heap leach the Agua de la
Falda ore using the Merrill Crowe process to recover the gold from solution.
S-70
<PAGE> 103
Production in 1997 was 31,417 ounces. Production is expected to average 40,000
to 45,000 ounces annually during 1998 through 2000.
Water and power is purchased from Codelco.
Exploration drilling conducted in 1997 encountered an additional oxide ore
zone, adding 300,000 tons grading 0.18 ounces of gold per ton to the reserve.
This additional ore will be mined through the La Falda mine.
No royalties are payable on the production from the current Agua de la
Falda reserves. However, any ores which may be extracted from the northern area
of the property are subject to royalty payment of 1.5% of net smelter returns on
production of over one million ounces.
Drilling and metallurgical testing continues on the much larger Jeronimo
deposit, where, to date, approximately 9.0 million tons of unoxidized
mineralized material, at an average grade of 0.158 ounces per ton, have been
outlined. Metallugical testwork is underway to develop an economic treatment
method.
In February 1995, the El Hueso mine closed as reserves were depleted.
Reclamation of the El Hueso mine site continued during 1997. There is little
flora or fauna present in the Maricunga District, and no water sources are
located nearby. Nonetheless, continued environmental monitoring will be carried
out for a period of time.
GEOLOGY
The La Falda property is located within the Potrerillos porphyry copper
district and comprises Mesozoic marine sediments that have been overlain by
Tertiary volcanics and intruded by Tertiary porphyries. Gold mineralization has
been mined historically in sediments and volcanics but the Agua de la Falda and
Jeronimo deposits are hosted largely by a single, permeable, gently dipping
carbonate unit.
Homestake has a 51% share of the following amounts:
YEAR-END PROVEN AND PROBABLE ORE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tons of ore (000)....................... 1,032
Ounces of gold per ton.................. 0.181
Contained ounces of gold (000).......... 187
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
PRODUCTION STATISTICS:
Tons of ore (000)..................... --
Ore grade (oz. gold/ton).............. --
Recovery (%).......................... --
Gold recovered (000 ozs.)............. --
COST PER OUNCE OF GOLD PRODUCED:
Cash operating costs.................. --
Noncash costs......................... --
--------- --------- ---------
Total production costs................ --
</TABLE>
BULGARIA
During 1997, Homestake entered into new agreements with Navan Resources
Plc, an Irish public company ("Navan"), with regard to the Chelopech mine and
exploration activities in Bulgaria. In November, 1997, Homestake purchased a 20%
interest in Navan Bulgarian Mining BV, a Netherlands company ("Navan BV"), that
was formerly a wholly-owned subsidiary of Navan. Homestake's initial debt and
equity investment in Navan BV was US$12 million. Navan BV owns a 68% interest in
Bimak AD, a Bulgarian company that
S-71
<PAGE> 104
owns and operates the surface facilities at the Chelopech copper-gold mine near
Sofia, Bulgaria. The other 32% of Bimak is owned by Chelopech EAD, a government
owned corporation that owns and operates the Chelopech mine. Bimak AD provides
consulting services to Chelopech and purchases the ore from the Chelopech mine
at cost plus a 1% gross royalty.
Homestake has agreed, under certain circumstances, to invest an additional
US$18 million in debt and equity of Navan BV, which would result in Homestake
owning 51% of Navan BV, and give Homestake the right to become operator of the
project. The investment of the additional US$18 million is dependent on
satisfactory outcome of the Chelopech EAD privatization and concession grant
discussions described below, approval by Homestake and Navan of an expansion
plan for the mine and mill, and receipt of financial commitments from lenders
for additional funding for the expansion plan. Under certain circumstances, (i)
each of Homestake and Navan will severally guarantee up to US$10 million of
financing for an expansion and (ii) Homestake will provide up to an additional
US$10 million if financing of up to US$20 million from third-party lenders is
not available.
The Chelopech mine is Europe's largest gold deposit now in production.
Production in 1996 was 571,200 tonnes of ore, grading 3.63 grammes of gold and
1.10% copper, and production for 1997 is estimated at 597,293 tonnes of ore,
grading 3.41 grammes of gold and 1.20% copper. Production from the Bimak mill,
including recoverable gold and copper per contained in concentrates and black
sands sold to others for processing, was 56,604 ounces of gold and 10.97 million
pounds of copper in 1996, and an estimated 56,318 ounces of gold and 12.89
million pounds of copper in 1997. Mineralized material at the Chelopech mine is
estimated at approximately 26 million tonnes, grading 0.12 ounces of gold and
1.40% copper.
Homestake and Navan are now engaged in discussions with the Bulgarian
government regarding the privatization of Chelopech EAD and the confirmation of
secure concession rights in mineralization in and around the mine for the
privatized company. Those discussions contemplate that Navan BV or Bimak (or
other company owned by Homestake and Navan) would acquire a minimum of 80% of
Chelopech EAD, with up to 20% to be made available principally to employees of
Chelopech. Homestake is also engaged in the development of an expansion plan for
the Chelopech mine and the related Bimak mill and facilities, the implementation
of which would be dependent upon the outcome of the privatization discussions
with the Bulgarian government.
During November 1997, Homestake bought a 32% interest in Navan's Bulgarian
exploration projects and program for US$4 million. Homestake is obligated to
invest an additional US$4 million in the exploration program during the next
three years, which will result in Homestake's owning a 50% interest in and
having the right to become the operator of the exploration program.
Sulfur
Homestake owns an undivided 16.7% interest in the Main Pass 299 sulfur
deposit, which at December 31, 1997 contained proven recoverable reserves of
approximately 64.2 million long tons of sulfur. Freeport McMoRan Sulphur Inc.
("FMS") owns the remaining 83.3% of the deposit and is the operator under a
joint operating agreement.
The sulfur deposit is located in the Gulf of Mexico approximately 36 miles
east of Venice, Louisiana in water approximately 210 feet deep. The deposit is
approximately 1,500 feet below the sea floor. A royalty of 12.5% of the wellhead
value is payable under the terms of the federal sulfur leases.
The operating agreement provides that each participant pay its share of
capital and operating costs, and has the right to take its share of production
in kind in proportion to its undivided interest.
The sulfur deposit is being mined using the Frasch process, a method of
extraction which injects steam to liquefy the sulfur, which is then pumped to
surface. Initial sulfur production commenced in 1992 and full sulfur production
levels of 5,500 TPD were reached in December 1993. Sulfur production averaged
5,200 TPD during 1997, down from 5,500 TPD in 1996. The reduction was a planned
response to a weakening sulfur market. Based on current reserve estimates,
projected costs and prices, annual production is expected to average two million
long tons over a remaining reserve life currently in excess of 30 years.
S-72
<PAGE> 105
FMS filters, blends, markets and delivers Homestake's share of sulfur
production under an agreement having an initial term of ten years from
commencement of production in 1992. Homestake can terminate the agreement by
giving FMS two years notice.
Homestake's realized sales price for sulfur is a blend of various market
prices, including the Tampa market, and is net of a 2.625% marketing fee.
In the third quarter of 1997, and due to a prolonged period of low sulfur
prices and Homestake's current assessment of estimated future cash flows, the
Company wrote off its entire remaining US$107.8 million investment in the Main
Pass 299 sulfur mine. As a result, the Company's carrying value of the Main Pass
299 sulfur mine was reduced to zero at September 30, 1997.
During sulfur exploration, oil and gas were discovered overlying the sulfur
deposit. In 1990, the participants acquired the oil and gas rights from Chevron
USA Inc.
The federal oil and gas lease requires a 16.7% royalty payment based on
wellhead value. In addition, Chevron retained the right to share in the proceeds
of future production should the price or volume realized exceed those which were
used by the parties as the basis for determining the purchase price.
Oil and gas production, which peaked during 1992, is expected to continue
to decline over the next few years. Oil production (100% basis) totaled 3.3
million barrels in 1997 compared to 3.9 million barrels in 1996. Homestake's
share of remaining recoverable oil reserves at December 31, 1997 is estimated to
be -- million barrels after adjusting for the federal royalty and future
production due to Chevron. The remaining carrying value of Homestake's
investment in the Main Pass 299 oil and gas property is approximately US$3.9
million at December 31, 1997.
Homestake has a 16.7% share of the following amounts:
YEAR-END PROVEN AND RECOVERABLE RESERVES
(100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of sulfur (000)................................. 66,182 68,130
Barrels of oil (000)................................. 12,751 15,873
</TABLE>
PRODUCTION STATISTICS (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tons of sulfur (000)................................. 1,950 2,190
Barrels of oil (000)................................. 3,900 4,535
</TABLE>
HOMESTAKE'S PER UNIT DATA
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
AVERAGE SALES REALIZATION:
Per ton of sulfur.................................. US$ 60 US$ 68
Per barrel of oil.................................. 19 16
PRODUCTION COSTS:
Sulfur cash operating costs per ton................ 57 55
Sulfur noncash costs per ton....................... 11 11
------ ------ ------
Total production costs............................. 68 66
Oil cash operating costs per barrel................ 5 5
Oil noncash costs per barrel....................... 7 8
------ ------ ------
Total production costs............................. US$ 12 US$ 13
</TABLE>
S-73
<PAGE> 106
MINERAL EXPLORATION AND DEVELOPMENT
Total exploration expenses, including in-mine grass roots exploration at
Homestake's operating mines, were approximately US$48 million in 1997 and
US$45.4 million in 1996. After taking into account the proposed transaction,
exploration spending in 1998 for existing Homestake exploration projects
(including exploration overhead) is budgeted to be approximately US$35 million.
Expenses related to the in-mine definition drilling at Homestake's operating
mines totaled an additional US$7 million in 1997 and US$5.0 million in 1996.
In-mine definition drilling expenses are included in the individual mine
property operating expenses and cost per ounce calculations.
UNITED STATES
United States exploration expenses totaled approximately US$13.2 million in
1997 and US$11.9 million in 1996. Domestic exploration expenses in 1998 are
expected to be US$10.3 million, including US$1.5 million at the Pinson
Partnership.
Exploration of a deep sulfide gold system beneath the Ruby Hill open pit
established that the mineralization occurs in two zones of altered carbonate
rocks. Delineation drilling of the East Archimedes deposit completed in 1997
indicates mineralization of 7.2 million tons grading 0.073 ounces of gold per
ton at a 14:1 strip ratio. Evaluation and testing of this deposit will continue
in 1998. Exploration plans for 1998 include several wide-spaced deep holes to
search for larger concentrations of better grade material and the testing of
additional shallow targets to search for more oxide reserves. Exploration
expenditures totaled approximately US$2.4 million during 1997 and US$1.7 million
of work is planned for 1998.
At Pinson, 50% owned by Homestake and Barrick and managed by Homestake,
1997 expenditures totaled US$4.8 million (100% basis), including US$0.7 million
in in-mine target drilling. Drilling of deep target zones in 1997 yielded
several holes of possible interest that will be followed up in 1998. Homestake
has budgeted US$1.5 million for its share of 1998 exploration expenditures.
Homestake has secured a major land position in the old Pioche mining
district in eastern Nevada and has delineated several targets. Drill testing
began in the fourth quarter of 1997 and will continue into 1998. Expenditures
for 1997 totaled US$1.5 million and US$0.8 million is budgeted for 1998.
In-mine target exploration at the Round Mountain mine (25% owned by
Homestake) expanded in 1997, and Homestake's share of cost was US$0.5 million. A
similar level program is planned for 1998.
At the Homestake mine, exploration for new targets within the mine has
resumed, and two areas of prospective iron formation have been selected for test
drilling. Total expenditures for new target testing and in-mine resource
drilling in the Homestake mine in 1997 were US$1.9 million. Planned expenditures
for 1998 are US$1.1 million.
INTERNATIONAL
Homestake conducts gold exploration in a number of countries outside of the
United States. International exploration expenses totaled approximately US$31.4
million in 1997 and US$33.5 million in 1996, with US$24.9 million planned for
1998 before taking into account the proposed transaction.
In Canada, Homestake exploration is conducted jointly with Prime (Homestake
51%, Prime 49%) under an agreement that extends through 1998. This agreement
covers all of Canada except for areas of interest surrounding current operating
mines and some pre-agreement exploration properties.
At Eskay Creek, surface and in-mine target drilling in 1997 discovered
additional mineralization lateral to both the 21B and 21C zones. At the northern
end of the 21B orebody, two exploration holes with significant gold intercepts
were drilled down plunge and these will be followed up by future underground
drilling. In mid-1997 an exploration agreement was signed on the Corey property,
located 15 kilometers south of the Eskay Creek mine and covering similar
geology. The 1997 exploration program for the Eskay Creek district totaled
US$3.6 million, and 1998 expenditures are estimated at US$3.5 million.
Homestake explores for gold in several geologic belts in the Andes, with
emphasis on northern Chile, northern Argentina and central Peru. In Chile gold
production started in 1997 from the oxide portion of the Jeronimo deposit on the
Agua de la Falda property. Drilling and metallurgical testing continues on the
much
S-74
<PAGE> 107
larger refractory portion of the Jeronimo deposit where, to date, approximately
9.0 million tons of unoxidized mineralized material, at an average grade of
0.158 ounces per ton, has been outlined. Metallurgical testwork is underway to
develop an economic treatment method. Drill testing of several other targets is
ongoing. Exploration expenditures on the property were US$2.0 million in 1997
and will be similar in 1998.
In the northern part of South America, exploration in Venezuela and French
Guiana has been disappointing. In northern Brazil, a large land package has been
acquired in a poorly explored gold belt and this will be the exploration focus
for 1998. Total exploration expenditures for the northern part of South America
will be reduced from US$8.4 million in 1997 to US$2.2 million in 1998.
Homestake explores for gold in several areas of Australia, with an emphasis
on the Yilgarn area of Western Australia. During 1997 a discovery of
poly-metallic mineralization was made at the Kundip Project in the southern part
of Western Australia. The project is at an early stage and several additional
targets are being prepared for ongoing drill testing. Exploration expenditures
in Australia, including Homestake's 50% share of exploration at Kalgoorlie, were
US$8.5 million in 1997 and are budgeted at US$6.7 million for 1998.
During 1997, Homestake significantly increased its involvement and
commitment in Eastern Europe. Homestake acquired a 32% interest in Navan's
Bulgarian exploration concessions for US$4 million. Over the next three years,
Homestake will fund US$4 million of exploration expenditures and will then hold
a 50% position and will be operator of the Bulgarian exploration program.
Homestake is also exploring several concessions in western Poland with FX Energy
Inc., and other properties are under investigation in Hungary and Romania.
Expenditures were US$1.4 million in 1997 and will increase to US$4.2 million in
1998.
INFORMATION ON RESERVES
GOLD
The proven and probable gold ore reserves stated in this report reflect
estimated quantities and grades of gold in in-situ deposits and in stockpiles of
mined material that Homestake believes can be recovered and sold at prices
sufficient to recover the estimated future cash costs of production and
remaining investment. The estimates of cash costs of production are based on
current and projected costs. Estimated mining dilution has been factored into
the reserve calculation. The Company used a price of US$325 per ounce of gold in
its mine-by-mine evaluation of short lived properties and a price of US$350 per
ounce of gold for its other gold mining properties at December 31, 1997. The
Company used a price of US$375 per ounce of gold in calculating reserves at
December 31, 1996.
SILVER
The proven and probable silver ore reserves have been calculated on the
same basis as gold ore reserves and were based on a spot price of US$5 per ounce
of silver in 1996 and 1997.
SULFUR
Homestake's proved sulfur reserves represent the quantity of sulfur 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. As noted above, in the third quarter of 1997, the Company wrote down
its investment in Main Pass 299 to zero.
OIL
Homestake's proved oil reserves at Main Pass 299 are the estimated quantity
of crude oil and condensate which geological and engineering data give
reasonable assurance of recovery and sale under projected operating conditions
at prices sufficient to cover the estimated future cash costs of production and
the remaining investment. The estimate is based on limited reservoir and
engineering data.
ESTIMATION OF RESERVES
Gold and silver reserves are estimated for each of the properties operated
by Homestake based upon factors relevant to each deposit. Gold ore reserves for
those properties not operated by Homestake are based
S-75
<PAGE> 108
on reserve information provided to Homestake by the operator. Homestake has
reviewed but has not independently confirmed the information provided by these
operators.
The sulfur and oil reserves at Main Pass 299 are based on information
provided by the operator. Homestake reviewed the initial reserve data with
independent consultants. Homestake has reviewed subsequent adjustments to these
reserves but has not independently confirmed the reserve adjustments provided by
the operator.
OTHER INFORMATION
Ore reserves are reported as general indicators of the life of mineral
deposits. Changes in reserves generally reflect (i) efforts to develop
additional reserves; (ii) depletion of existing reserves through production;
(iii) actual mining experience; and (iv) price forecasts. Grades of ore actually
processed from time to time may be different from stated reserve grades because
of geologic variation in different areas mined, mining dilution, losses in
processing and other factors. Recovery rates vary with the metallurgical and
other characteristics and grade of ore processed.
Neither reserves nor projections of future operations should be interpreted
as assurances of the economic life of mineral deposits or of the profitability
of future operations.
ENVIRONMENTAL MATTERS
GENERAL
Homestake has a policy of conducting extensive environmental audits of its
operations in order to minimize the impact of its operations on the environment
and to monitor compliance with applicable environmental laws and regulations. A
committee of the Homestake Board oversees the establishment and implementation
of environmental policy. Environmental audits have been conducted on all of
Homestake's operations within the last three years.
Homestake has made significant capital expenditures to minimize the effects
of its operations on the environment. Capital expenditures primarily are for the
purchase or development of environmental monitoring equipment and containment of
tailings and waste rock. In 1997, these expenditures totaled approximately $--
million compared to $4 million in 1996. Homestake estimates that during 1998,
capital expenditures for such purposes will be approximately $-- million and
that during the five years ending December 31, 2002, such capital expenditures
will be approximately $-- million.
Homestake also incurs significant operating costs in order to protect the
environment. Operating costs include current reclamation costs, costs for
environmental monitoring and studies to identify and quantify environmental
impacts, if any, and accruals for future reclamation expenditures. Such
additional costs totaled approximately $-- million in 1997, compared with
approximately $17 million in 1996, not including related depreciation expense of
$-- million and $3 million, respectively. Homestake estimates that environmental
and related operating and depreciation costs in 1998 will approximate $--. The
above amounts exclude expenditures related to the Company's discontinued uranium
operations.
Under applicable law and the terms of permits under which Homestake
operates, Homestake is required to reclaim land disturbed by its operations. In
the mining industry, most reclamation work takes place after mining and related
operations terminate. With respect to non-operating properties, Homestake
believes that it has fully provided for all remediation liabilities and for
estimated reclamation and site restoration costs. That provision is evaluated
annually and adjusted when necessary. Homestake charges reclamation costs
incurred in connection with its exploration activities as expenses in the year
in which incurred. For mining operations, Homestake provides for final
reclamation on a units-of-production basis over the individual operating mine
lives. In addition, Homestake has adopted a policy of conducting reclamation
concurrently with mining operations where practical. As a result, an increasing
amount of reclamation is being conducted simultaneously with mining. At December
31, 1996 and 1995, Homestake had accrued a total of $55.4 million and $56.4
million, respectively, for future reclamation and related costs.
S-76
<PAGE> 109
Homestake's operations are conducted under permits issued by regulatory
agencies. Many permits require periodic renewal or review of their conditions.
Homestake cannot predict whether it will be able to renew such permits or
whether material changes in permit conditions will be imposed.
RCRA
The United States Environmental Protection Agency ("EPA") has not yet
issued final regulations for management of mining wastes under the United States
Resource Conservation and Recovery Act ("RCRA"). The ultimate effects and costs
of compliance with RCRA cannot be estimated at this time.
CERCLA
The United States Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") imposes heavy liabilities on any person who is
responsible for an actual or threatened release of any hazardous substance,
including liability for oversight costs incurred by the EPA. Legislative
proposals and congressional hearings for CERCLA reauthorization have occurred in
1994 through 1997. CERCLA reauthorization is expected to be enacted in 1998.
WHITEWOOD CREEK
Whitewood Creek, in Western South Dakota, was a site where mining companies
operating in the Black Hills of South Dakota, including Homestake, placed mine
tailings beginning in the nineteenth century. Some tailings placed in Whitewood
Creek eventually flowed into the Belle Fourche River, the Cheyenne River and
downstream therefrom. Placement of mine tailings into Whitewood Creek was
authorized by the laws of the United States, the Dakota territory and the State
of South Dakota, and Whitewood Creek was later specifically designated by the
State of South Dakota as a disposal stream for mine tailings and for the
disposal of raw sewage and other municipal waste. Consequently, all mine
tailings placed by Homestake in Whitewood Creek were placed there with the
consent and encouragement of the State of South Dakota and the United States
government and in compliance with applicable laws. In response to changes in
legal requirements, Homestake ceased the placement of mine tailings into
Whitewood Creek in 1977 and for more than 20 years the Homestake mine has
impounded all mine tailings that are not redeposited in the mine.
In 1983, the United States EPA designated an 18-mile stretch of Whitewood
Creek and adjacent land as a superfund site and placed it on the National
Priorities List ("NPL") under CERCLA. The EPA asserted that the discharges of
tailings by mining companies, including Homestake, contaminated the soil and
stream bed. During the period from 1982 through 1990 extensive studies of the
superfund site were conducted at Homestake's expense to identify any public
health and environmental issues related to the site and appropriate remedial
action. In August 1990, Homestake signed a consent decree with the United States
Environmental Protection Agency ("EPA") in United States of America v. Homestake
Mining Company of California, U.S. Dist. Ct., W.D.S.D., Civ. Action No. 90-5101.
Under the consent decree, Homestake conducted remedial work at its expense and
also reimbursed the EPA for its oversight costs. Remedial field work was
completed in 1993. The decree also provided for the three counties in which the
property is located to enact institutional controls which would limit the future
use of the property included within the area of the superfund site.
Institutional controls were adopted in all three counties. In addition,
Homestake offered to purchase all properties along Whitewood Creek that were
affected by the institutional controls. Approximately $3 million has been spent
to date to acquire property along Whitewood Creek and the Company estimates that
the total cost for purchasing all of the remaining affected property would be an
additional $3 million. These costs are expensed as and when incurred.
The consent decree was terminated by the court on January 10, 1996. The
Whitewood Creek site was deleted from the NPL on August 13, 1996. In the
deletion notice, the EPA stated that "EPA, in consultation with the State of
South Dakota, have determined that the Site poses no significant threat to
public health or the environment." Whitewood Creek now supports a thriving trout
fishery and the adjacent area provides significant wildlife habitat for a number
of species, as well as water and grazing for cattle and other farm animals.
In July 1997, Homestake received a letter from the United States Fish and
Wildlife Service and the Cheyenne River Sioux Tribe stating that the Department
of the Interior intended to file suit against
S-77
<PAGE> 110
Homestake to recover alleged natural resource damages and assessment costs under
CERCLA and the Clean Water Act with respect to alleged releases of hazardous
substances at Whitewood Creek in South Dakota. HMCC agreed to a limited waiver
of statutes of limitations until November 25, 1997 to facilitate settlement
discussion.
On September 25, 1997 the State of South Dakota filed an action against
Homestake, State of South Dakota v. Homestake Mining Company of California, U.S.
Dist. Ct., W.D.S.D., Civ. Action No. 97-5078. The action relates to the same
general matter which is the subject of the above referenced letter -- placement
of mine tailings in Whitewood Creek. In the complaint, the State of South Dakota
alleged that HMCC disposed of mine tailings in Whitewood Creek and that such
disposal resulted in injuries to natural resources in Whitewood Creek and
downstream in the Belle Fourche River, the Cheyenne River and Lake Oahe on the
Missouri River (the "NRD Site"). The complaint also alleged that the State of
South Dakota incurred assessment costs. The State of South Dakota claims that it
is a trustee authorized under CERCLA to bring such action. The complaint also
contained a pendent state law claim, alleging that the tailings placed in
Whitewood Creek constitute a continuing public nuisance in and around the NRD
Site downstream from Whitewood Creek. The complaint asks for abatement of the
nuisance, damages in an unascertained amount, costs and interest.
In its answer to the state complaint, Homestake denied that there has been
any continuing damage to natural resources or nuisance caused by Homestake as a
result of the placement of tailings in Whitewood Creek. Among other defenses, it
is also the position of Homestake that as a result of the State of South
Dakota's ownership of Whitewood Creek and designation of Whitewood Creek as an
authorized disposal site under state authority, the State of South Dakota was
and is the owner and operator of the waste disposal facility and is responsible
for all past and future damages and any continuing nuisance resulting therefrom.
Homestake has also counterclaimed against the State of South Dakota seeking cost
recoupment, contribution and indemnity from the State of South Dakota, in its
capacity as an owner and operator of a disposal facility, for expenses
previously incurred and to be incurred in the future with respect to Whitewood
Creek and downstream areas.
On November 25, 1997, the United States government and the Cheyenne River
Sioux Tribe (the "Federal Trustees") filed an action against HMCC, United States
of America et al. v. Homestake Mining Company of California, U.S. Dist. Ct,
W.D.S.D., Civ. Action No. 97-5100. This action relates to the matters referenced
in the letter described above and which are the subject of the federal cause of
action brought by the State of South Dakota, described above, with respect to
the NRD Site. The complaint seeks response costs and damages in unspecified
amounts, costs and attorneys fees.
In its answer to the complaint by the Federal Trustees, Homestake denied
that there has been any continuing damage to natural resources. Among other
defenses, it is also the position of Homestake that the United States government
approved and authorized deposit of tailings in Whitewood Creek, including
designation of Whitewood Creek as a disposal site under federal authority, and
is therefore responsible for any past and future damages, and that the matters
at issue have been previously litigated and are the subject of a prior final
judgment between Homestake and the United States government. Homestake has also
counterclaimed against the Federal Trustees seeking cost recoupment,
contribution and indemnity.
HMCC intends to vigorously defend these actions and to seek cost
recoupment, contribution and indemnity from the State of South Dakota, federal,
state and other government entities and agencies, and other persons who
participated in ownership and/or operation or otherwise encouraged use of
Whitewood Creek as a waste disposal site, who disposed of waste in Whitewood
Creek or its receiving waters, or who have owned property or otherwise conducted
activities which may have contributed to any alleged damage in the NRD Site.
In the opinion of the Company, there is no basis for the claims by the
State of South Dakota or by the federal government and the Cheyenne River Sioux
Tribe. The Company is also of the opinion that Homestake has valid defenses and
counterclaims against the State of South Dakota, the United States government
and the Cheyenne River Sioux Tribe, as well as potential counterclaims and
crossclaims against other governmental entities and agencies, and other persons
who participated in ownership and/or operation or otherwise encouraged use of
Whitewood Creek as a waste disposal site, who disposed of waste in the NRD Site,
or who
S-78
<PAGE> 111
have owned property or otherwise conducted activity within the NRD Site which
may have contributed to any alleged damage. The Company does not believe that
resolution of these matters will have a material adverse effect on the business
or financial condition or results of operations of the Company.
GRANTS TAILINGS
Homestake's closed uranium mill site near Grants, New Mexico is listed on
the NPL. The EPA asserted that leachate from the tailings contaminated a shallow
aquifer used by some of the residents in adjacent residential subdivisions.
Homestake paid the cost of extending the municipal water supply to the
subdivisions. Homestake also has operated a water injection and collection
system since 1976 that has significantly improved the quality of the aquifer.
The estimated costs of continued remediation are included in the accrued
reclamation liability. Homestake has settled with the EPA concerning its
oversight costs for this site and no additional oversight costs are accruing.
Homestake signed a Consent Decree with the EPA related to the ground water
issues and an Administrative Order on Consent ("AOC") for radon studies of the
adjacent subdivisions. The radon studies in the subdivisions determined that
there was no contamination or impact. The work required by the Consent Decree
and AOC has been completed and both have been terminated.
Under Nuclear Regulatory Commission ("NRC") regulations, the
decommissioning of the uranium mill tailings facilities is in accordance with
the provisions of the facility's license. The facility license sets the closure
of the two tailings impoundments as 2004 and 2013, subject to extension under
certain circumstances. The NRC and EPA signed a Memorandum of Understanding in
1993 which has established the NRC as the oversight and enforcement agency for
decommissioning and reclamation of the site. Mill decommissioning was completed
in 1994 and final closure of the Grants large tailings site is scheduled for
completion in 2003. During 1997, the Company incurred approximately US$3 million
of reclamation expenditures at the Grant's facility and an additional US$3.7
million is planned to be expended during 1998.
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 the past and future costs of reclaiming the Grants site
in accordance with Nuclear Regulatory Commission license requirements. Through
December 31, 1997 the Company has received US$21.1 million from the DOE and the
accompanying balance sheet at December 31, 1997 includes an additional
receivable of US$10.8 million for the DOE's share of reclamation expenditures
made by the Company through 1997. 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 December 31, 1997.
In 1983, the State of New Mexico filed claims against Homestake for natural
resource damages resulting from the Grants site. The State has taken no action
to pursue the claims.
LEAD
Prior to May 1986, Homestake Lead Company of Missouri ("HLCM"), a
wholly-owned subsidiary of the Company, was a joint venturer and partner with
subsidiaries of AMAX, Inc. ("AMAX") in the production of lead metal and lead
concentrates in Missouri. In May 1986, HLCM acquired AMAX's interest in the
Missouri facilities and operations and agreed to assume certain limited
liabilities of AMAX in connection with the Missouri facilities. In June 1991,
HLCM and AMAX were notified of a potential claim by the Jackson County,
Mississippi Port Authority for contamination of soil and water alleged to have
resulted from storage and shipment of lead dross at the Port of Pascagoula prior
to May 1986. Since that time, a number of other lead producers and former lead
producers have also been so notified. The Port of Pascagoula is taking primary
responsibility for conducting an investigation of the site, but the Port of
Pascagoula also has made claims for reimbursement against customers whose
material was stored at and shipped through the site. As a result of subsequent
investigations conducted by the Company and others, the Company believes that
most of the material at the Pascagoula site, as well as the material primarily
responsible for any contamination, is lead concentrate. Based on a review of
shipping records to date, less than half of the lead concentrate
S-79
<PAGE> 112
shipped through the Port of Pascagoula was produced and sold for the account of
the Company. The State of Mississippi Department of Environmental Quality is,
through regulatory oversight, reviewing the investigation efforts and
remediation plans that are being developed by the Port Authority. Based on
information currently available, the Company believes the remediation costs
should not exceed $1 million. The Company's position is that the Port is
primarily responsible for the cost of remediation as owner of the property and
as lessor with the ability to control the activities of the stevedoring company,
and also because the Port contributed to the contamination by moving stored
material from a storage building and depositing it on the ground. The Company
believes that any future costs it may incur in connection with this matter will
not be material.
FOREIGN OPERATIONS
Homestake believes that its foreign operations comply with applicable laws,
regulations and permit conditions and has no knowledge of any significant
environmental liability or contingent liability resulting from its foreign
operations. Homestake expects that environmental constraints in foreign
countries will become increasingly strict.
CUSTOMERS
Sales to individual customers exceeding 10% of Homestake's consolidated
revenues are stated below. Homestake believes that the loss of any of these
customers would not have a material adverse impact on Homestake because of the
active worldwide market for gold.
<TABLE>
<CAPTION>
1997 1996
-------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Customer A......................................... $129,000
B......................................... 117,000
C......................................... 77,000
D......................................... 77,000
E.........................................
F.........................................
</TABLE>
EMPLOYEES
The number of full-time employees at December 31, 1997 of Homestake and its
subsidiaries was:
<TABLE>
<S> <C>
Homestake mine(1)...................................................
McLaughlin mine.....................................................
Ruby Hill mine......................................................
Nickel Plate mine...................................................
Eskay Creek mine....................................................
Snip mine...........................................................
Agua de la Falda mine(1)............................................
United States corporate staff and other.............................
Canada exploration and corporate staff..............................
HGAL exploration and corporate staff................................
United States exploration...........................................
Uranium.............................................................
Chile exploration and corporate staff...............................
Total.....................................................
</TABLE>
S-80
<PAGE> 113
The number of full-time employees at December 31, 1997 in jointly-owned
operations in which Homestake participates was:
<TABLE>
<S> <C>
Kalgoorlie Consolidated Gold Mines Pty Ltd(1).......................
Williams Operating Corporation......................................
Round Mountain mine.................................................
Teck-Corona Operating Corporation(1)................................
Pinson Mining Company...............................................
Marigold Mining Company.............................................
Main Pass 299.......................................................
Total.....................................................
</TABLE>
- ---------------
(1) Operations where a portion of the employees are represented by a labor
union.
As a result of the reorganization of the Homestake mine operation described
above, employment at the Homestake mine is expected to be reduced by more than
50%.
Labor relations at all locations are believed to be good. The union
contracts at Lead and David Bell will expire in May 1998 and October 1998,
respectively. Negotiations for a new contract at Lead will commence in the first
quarter of 1998. The Company expects that negotiations at Lead will involve a
number of matters that arise as a result of the restructuring of the operation
and the reduction of work force.
LEGAL PROCEEDINGS
Certain environmental proceedings in which the Company is or may become a
party are discussed under the caption "Environmental Matters."
In October 1997, Homestake and Prime entered into an agreement with Inmet
Mining Corporation to purchase the Troilus mine in Quebec for US$110 million
plus working capital. In December 1997, Homestake and Prime terminated the
agreement after determining that, on the basis of due diligence studies,
conditions to closing the transaction would not be satisfied. Inmet has advised
the Company and Prime that it disputes the termination of the purchase
agreement, but to date Inmet has taken no legal action with respect to the
termination.
The Company and its subsidiaries are defendants in various legal actions in
the ordinary course of business. In the opinion of management, such matters will
be resolved without material affect on the Company's financial condition.
S-81
<PAGE> 114
PLUTONIC RESOURCES LIMITED
BACKGROUND
Plutonic Resources Limited was incorporated as Noranda Limited in Victoria
in 1984 and listed on the Australian Associated Stock Exchange in August 1985.
It transferred its incorporation to New South Wales in 1990. In this document,
the term "Plutonic" refers to Plutonic Resources Limited and its subsidiaries.
In 1989 Plutonic acquired the Plutonic property in Western Australia
following discovery of the gold deposit in 1988. It subsequently explored,
developed and constructed its first mine, the Plutonic Gold Mine, which
commenced production in August 1990. The mine produced its millionth ounce in
1996 and is one of the larger gold mines in Australia based on annual
production.
Plutonic has interests in five gold mines in Western Australia, namely
Plutonic (100%), Darlot/Centenary (100%), Lawlers (100%), Mt Morgans (80%) and
Peak Hill (66.67%), and has exploration interests in Western Australia,
Queensland, New South Wales, Victoria and Tasmania. Total production
attributable to Plutonic from those mines in 1997 was approximately 550,000
ounces. Plutonic has an interest in base metals exploration through its 62%
interest in Lachlan Resources NL ("Lachlan"). Lachlan's exploration, evaluation
and development efforts are concentrated on polymetallic base metal deposits
principally at Balcooma in Queensland and at the Mt Goode nickel prospect near
Plutonic's Bellevue Gold Mine in Western Australia.
Plutonic has adopted a gold hedging strategy with the dual objectives of
supporting the long term viability of its mining and exploration activities and
providing shareholders with the opportunity to benefit from future gold price
increases. Plutonic's current policy is to limit forward sales transactions to
the lesser of 1.75 million ounces or 100% of Reserves. Plutonic has considerable
mineralised material which it expects to provide future gold production.
Plutonic's average realised selling prices were A$600 per ounce for 1996 and
A$564 per ounce for 1997. At December 1997 Plutonic had 1.227 million ounces of
gold sold forward with the following delivery dates and prices, at an average
future price of A$507.
<TABLE>
<CAPTION>
HEDGING COMMITMENTS -- 31 DECEMBER 1997
- ------------------------------------------------------
YEARS CONTRACTS OZ FUTURE PRICE
- ---------- -------------- ------ ------------
('000) ($A/OZ)
<S> <C> <C> <C>
1998 Spot Deferred 745 459
Fixed Forward 200 575
---
945 484
1999 Fixed Forward 82 649
2000 Fixed Forward 25 526
2001/2005 Fixed Forward 175 562
---
Total 1,227 507
---
</TABLE>
The mark-to-market value of the contracts at 31 December 1997 was A$47.2
million.
As the December 1997 hedging commitment of 1.227 million ounces represents
a modest percentage of the Plutonic's reserves and mineralised material there is
scope to take advantage of any future improvement in the gold price.
At 31 December 1996 Plutonic's reserves totalled 2.20 million ounces of
gold. Total attributable mineralised material at Plutonic's mines was 42.6
million tons at 0.184 ounces of gold per ton.
The Plutonic Board has given approval for management to undertake a limited
hedging/option strategy in respect of US currency/gold deliveries and domestic
interest rates. Apart from a total of US$20 million hedged, no other hedging in
respect of this strategy was outstanding at 31 December 1997.
See "Risk Factors" and "Cautionary Statements" for a discussion of factors
and assumptions on which forward looking statements in this Document may be
based or which could cause actual results to differ materially from those
expressed in the forward looking statements.
S-82
<PAGE> 115
SIGNIFICANT RECENT DEVELOPMENTS
On 30 April 1997 Plutonic closed the Bellevue Gold Mine. In the third
quarter 1997, Plutonic suspended all underground mine development activity at
the Mt Morgans Gold Mine and stated that future production would be derived from
developed stoping blocks and existing ore stockpiles.
On 23 June 1997, a formal agreement for an A$400 million syndicated debt
facility was executed by Plutonic and a syndicate of banks including ABN AMRO
Australia Limited, The Chase Manhattan Bank and Credit Suisse First Boston. The
facility comprises an A$115 million one year standby facility and an A$285
million 5 year term facility. At 31 December 1997 an amount of A$170 million was
outstanding under the A$285 million term facility.
At 30 June 1997, Plutonic wrote down the carrying value of mining assets
and investments by A$93.3 million (after tax, A$71.2 million). This action was
taken in light of the continued weak gold price and its impact on the operations
including the high cost Mt Morgans mine and the declining Peak Hill mine. In
making the determination, Plutonic used a price of A$450 per ounce in the
evaluation.
In September 1997, the decline access to the Centenary orebody intersected
ore at a depth of 350 metres. The first development ore was processed through
the existing Darlot treatment plant. Development expenditure on Centenary in
1997 amounted to approximately A$12 million.
At the Plutonic Gold Mine, during the third quarter 1997, after almost two
years of development, two declines entered Zone 124 at approximately 400 to 450
metres depth. Development on ore of Zone 124, the principal underground ore
zone, commenced immediately. Mine development capital expenditure during 1997,
including the West Decline and Zone 550 Decline, totalled approximately A$33.2
million.
In September 1997, a new 19MW gas-fired power station was put into
operation at the Plutonic Gold Mine at a projected cost of A$21.7 million. Gas
is drawn from the Goldfields Gas Transmission pipeline via a 20 kilometre
lateral line.
In July 1996, Plutonic sold a right to cancel its option to acquire shares
of Great Central Mines Limited to Edensor Nominees Pty Ltd ("Edensor"). In
August 1997, Edensor exercised its right to cancel the option by paying Plutonic
a cancellation payment of A$8.5 million and repaying a A$50 million loan.
Between July 1996 and August 1997 Plutonic received additional payments of
A$11.5 million in respect of the right to cancel the option. On 6 November 1997,
Plutonic, in response to a takeover bid for Wiluna Mines Limited, sold its 19.9%
holding in that company for approximately A$24 million.
On 17 December 1997, a new reserve estimate for the Centenary Deposit of
1.4 million contained ounces of gold was announced. The reserve estimate at 31
December 1996 was 284,000 contained ounces.
Plutonic has a 45% interest in the Coronation Hill Joint Venture which owns
mineral leases and exploration tenements in the Northern Territory. On 24 June
1991 the Australian Federal Government (the "Federal Government") issued a
Proclamation incorporating the Conservation Zone in Kakadu National Park and
thereby prohibited mining of Plutonic's Coronation Hill gold, platinum and
palladium deposit and exploration -- and potentially mining -- of Plutonic's
other mineral tenements in the highly prospective Conservation Zone. The Joint
Venturers received no compensation and sought a ruling from the High Court of
Australia that the Federal Government's proclamation in June 1991 of Stage III
of Kakadu National Park was invalid.
On 14 August 1997 the High Court of Australia handed down its decision
regarding the purported acquisition of mining leases at Coronation Hill by the
Federal Government. The Court found that, with two exceptions, the leases had
not been validly acquired by the Federal Government and that they continue to
exist. If they are to be validly acquired by the Federal Government then just
compensation will be payable. The Coronation Hill Joint Venturers (Plutonic 45%,
Newcrest Mining Limited 45% and North Limited 10%) are now considering what
options are available to them in relation to all leases. Any claims, including
claims for compensation, will be a matter for further action by the Joint
Venturers. Plutonic has, in previous years' accounts, written off all its
expenditure on Coronation Hill.
In September 1997, Plutonic announced its intention to reduce its
shareholding in Lachlan to no more than 15% by the distribution of its Lachlan
shares to Plutonic Shareholders. At the same time it was
S-83
<PAGE> 116
announced that Lachlan would repay an A$50.9 million loan (including capitalized
interest) owed by it to Plutonic through either an underwritten rights issue or
a placement to a Plutonic group company at A$0.30 per share. The loan had
earlier been made to Lachlan to fund its cash takeover bid for Archaean Gold NL.
Immediately preceding the bid Lachlan and Plutonic entered into a
subunderwriting agreement pursuant to which Plutonic agreed to subunderwrite a
rights issue of Lachlan shares. Following the announcement of the proposed
Combination, Plutonic announced on 29 December 1997 that it did not intend to
proceed with the proposed distribution of shares in Lachlan to Plutonic
Shareholders. Plutonic is reviewing its strategy in relation to its interest in
Lachlan (including the timing of the repayment of the loan) in conjunction with
the Lachlan Board.
STATISTICAL SUMMARY
The information in the following tables is a summary of material 1997 and
1996 statistical information regarding ownership of mines, production costs,
reserves and mineralised material for Plutonic's significant properties. The
statistical information included in the tables is derived from studies, analyses
and other information prepared by or for, or available to, Plutonic.
In Australia Plutonic reports in accordance with the JORC Code. A
description of the differences between the SEC requirements and the JORC Code is
contained in Appendix E to this Document. Information in this statistical
summary with respect to reserves and mineralized material for Plutonic has been
prepared in accordance with the JORC Code but is presented in this statistical
summary in accordance with SEC presentation requirements. Plutonic believes that
its reserve estimates (reported in ounces in this Document) are approximately
the same as those that would result from the application of the SEC definitions
and requirements with respect to reserves. Plutonic's estimates of mineralized
material for purposes of this Document are Plutonic's resources less that
portion of resources from which reserves have been derived, and reported in tons
and grade. Plutonic believes that the estimates are approximately the same as
would result from the application of the SEC definitions and requirements with
respect to mineralized material.
Production Summary 1997
<TABLE>
<CAPTION>
ATTRIBUTABLE GOLD PRODUCTION(1) PRODUCTION COSTS
....................................... PER OUNCE
TONS ..............
INTEREST PROCESSED GRADE RECOVERY OUNCES OPERATING NON
% (MILLIONS) (OZ/TON) % PRODUCED CASH(2) CASH(3)
------ --------- -------- -------- -------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Plutonic.............................. 100
Darlot/Centenary...................... 100
Lawlers............................... 100
Mt Morgans............................ 80
Peak Hill............................. 66.67
Bellevue.............................. 100 (4)
Total Production
</TABLE>
Production Summary 1996
<TABLE>
<CAPTION>
ATTRIBUTABLE GOLD PRODUCTION(1) PRODUCTION COSTS
....................................... PER OUNCE
TONS ..............
INTEREST PROCESSED GRADE RECOVERY OUNCES OPERATING NON
% (MILLIONS) (OZ/TON) % PRODUCED CASH(2) CASH(3)
------ --------- -------- -------- -------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Plutonic.............................. 100 2.2 0.105 80 183,691 373 56
Darlot/Centenary...................... 100 0.6 0.120 95 62,757 448 71
Lawlers............................... 100 0.7 0.082 90 50,603 553 48
Mt Morgans............................ 80 1.0 0.088 92 75,067 491 120
Peak Hill............................. 66.67 0.8 0.117 98 60,380 209 194
Bellevue.............................. 100 0.2 0.082 89 17,313
Total Production...................... 449,811 403(4)
</TABLE>
S-84
<PAGE> 117
- ---------------
(1) Production is Plutonic's share
(2) Cash operating costs are costs directly related to the physical activities
of producing gold and include all expenditures incurred for mining
operations adjusted for costs attributable to stockpile movements and
current pre-stripping, but exclude exploration, finance and corporate
expenses. No government royalties are currently applicable to Plutonic's
production. A minor private royalty payable on portion of the Plutonic Gold
Mine production is not included in cash operating costs.
(3) Non cash costs are depreciation and amortisation of acquisition cost of the
property.
(4) Cash operating costs exclude Bellevue.
Reserves and Mineralised Material Attributable to Plutonic at 31 December
1997
<TABLE>
<CAPTION>
RESERVES
--------------------------------------- MINERALISED MATERIAL
CONTAINED -----------------------
INTEREST TONS GRADE OUNCES TONS GRADE
% (MILLIONS) (OZ/TON) (THOUSANDS) (MILLIONS) (OZ/TON)
-------- ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Plutonic...................... 100
Darlot/Centenary.............. 100
Lawlers....................... 100
Mt Morgans.................... 80
Peak Hill..................... 66.67
Bellevue...................... 100
Total.........................
</TABLE>
Reserves and Mineralised Material Attributable to Plutonic at 31 December
1996
<TABLE>
<CAPTION>
RESERVES
--------------------------------------- MINERALISED MATERIAL
CONTAINED -----------------------
INTEREST TONS GRADE OUNCES TONS GRADE
% (MILLIONS) (OZ/TON) (THOUSANDS) (MILLIONS) (OZ/TON)
-------- ---------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Plutonic...................... 100 10.2 0.111 1,127 28.2 0.219
Darlot/Centenary.............. 100 3.3 0.143 468 8.5 0.169
Lawlers....................... 100 1.5 0.137 212 2.8 0.105
Mt Morgans.................... 80 5.1 0.047 245 1.0 0.114
Peak Hill..................... 66.67 1.2 0.053 65 1.6 0.073
Bellevue...................... 100 0.3 0.277 70 0.5 0.230
Total......................... 21.6 0.101 2,187 42.6 0.184
</TABLE>
Business and Property Description
Plutonic has interests in five operating gold mines, all located 650 to 900
kilometres north and north-east of Perth in Western Australia.
Plutonic Gold Mine
The Plutonic Gold Mine, 100% owned by Plutonic, is located 180 kilometres
north-east of Meekatharra, Western Australia, approximately 12 kilometres from
the Great Northern Highway. Tenement holdings (25 Mining Leases and two
Prospecting Licences) total 18,660 hectares. Plutonic also holds the Three
Rivers Pastoral Lease on which the mine is located.
The Main Pit and the underground workings are located on three mining
leases of a group of nine mining leases which are not subject to any
non-government royalty. However, 16 mining leases to the east of the Main Pit
which contain a relatively small proportion of the project's overall reserves
and mineralised material are subject to a royalty based on tonnage and grade.
The mine commenced production in August 1990 and is operated on a fly-in
fly-out basis by approximately 146 staff employees and 275 contractor personnel
working on a two weeks on and one week off roster. Underground mining is
performed by contractors with technical supervision and control provided by
Plutonic employees. All mining is by mechanised trackless systems.
S-85
<PAGE> 118
The mine is being transformed from a large open pit to a large underground
operation. Initial underground development commenced early in 1995 and by the
end of 1997 some 30 kilometres of development had been completed as the mine
continued to expand rapidly. Capital expenditure of approximately A$32.5 million
during 1997 on mine development at Plutonic included three development declines,
one ventilation decline and underground pre-production. Underground production
for 1997 was about 0.5 million tonnes (0.55 million tons)of ore.
The Main Pit was the predominant ore source from the commencement of
operations until its depletion in December 1997. Primary ore is now sourced from
the underground operation and from extensive primary ore and laterite stockpiles
built-up as the Main Pit was mined. Oxide ore is derived from the Perch and
Salmon Pits located on the Freshwater tenements. A new laterite and oxide ore
pit at Area 4 is expected to commence in early 1998. Open pit mining with
selective mining techniques is undertaken by a mining contractor utilising one
100 tonne excavator and a fleet of 85 tonne trucks.
The underground mine consists of three main working areas, namely;
- North West Extension, including Zone 19
- North Decline/Ventilation Decline including Zone 124, Area 54 and Zone
61
- Zone 550
The North West Extension area is accessed via the West Decline. It
currently accesses 12 levels, 15 metres apart, from which ore is produced from
both development and uphole retreat open stoping. The decline portal is located
within the Main Pit approximately 80 metres below the natural surface. The lodes
typically dip at 45 degrees to 70 degrees, are 3 to 5 metres thick and have a
strike length of 30 to 100 metres. Stopes do not require filling. Typically five
to eight sub-parallel lodes are mined on each level. The current production rate
from the North West Extension area is approximately 0.5 million tonnes (0.55
million tons) per annum. Ore is hauled to the portal in 40 tonne rigid body
trucks and is transported from there to the crusher by the open pit contractor.
The North Decline and the Ventilation Decline provide access to Zone 61,
Area 54 and Zone 124. The North Decline commences from the West Decline
approximately 400 metres from the portal, while the Ventilation Decline has its
own portal within the Main Pit, some 110 metres below the natural surface.
Significant production commenced from the North Decline in late 1997 when it
reached the Area 54 orebodies. In-fill underground drilling and mine development
from both the North Decline and the Ventilation Decline confirm the presence of
continuous, high grade lodes amenable to flat dip room and pillar mining.
The Zone 550 Decline commenced in mid-1996 from a 35 metre deep box-cut.
The decline had progressed to about 150 metres below surface by the end of 1997.
Initial ore development of the relatively small Zone 550 deposit has commenced
on two levels.
Geotechnical conditions in Zone 124 and Area 54 are such that mine fill
will not be required. At Zone 550, additional ground support has been necessary.
The original treatment plant flowsheet was based on conventional primary
crushing, semi-autogenous (SAG) mill and ball mill grinding, leach and
adsorption tanks and a gold recovery section at a design throughput of 1.4
million tonnes (1.54 million tons) per annum. This approach was appropriate for
relatively soft oxide and laterite ore available at that time which was treated
at an actual rate of 1.8 million tonnes per annum. In 1994, the plant was
upgraded to treat 1.8 million tonnes (2.0 million tons) per annum of hard
primary ore with the addition of a new three stage crushing circuit, conversion
of the SAG mill to a ball mill and the installation of a third ball mill. A 14MW
diesel fired power station was installed as part of this upgrade. The plant has
consistently treated 1.85 million tonnes (2.0 million tons) per annum since this
upgrade was completed in October 1994.
Primary ore metallurgical performance is variable with recoveries in the
range of 75% to 90% depending on ore source and mineralogy.
Potable quality process water is sourced from two borefields with most
coming from a borefield, located some 12 kilometres from the mine.
S-86
<PAGE> 119
In November 1996, the existing treatment facility was augmented with a
parallel facility with an annual capacity of 1.2 million tonnes (1.3 million
tons) of oxide ore. Total annual capacity is now around 3 million tonnes (3.3
million tons). The augmentation plant consists of a SAG and ball mill grinding
circuit, leach and adsorption tanks and associated infrastructure. Oxide ore
metallurgical recovery is typically 93%.
In 1997, a gas-fired power station was put into operation on site at a
projected cost of A$21.7 million. Gas is provided via a 20 kilometre lateral
line from the Goldfields Gas Transmission pipeline. The gas station incorporates
four Wartsila 18V 34SG engines with a rated station capacity of 19MW. The move
to gas will provide power cost savings.
All plant and equipment is modern, well constructed and well maintained.
Production for 1997 of approximately 275,000 ounces is an increase of about
91,000 ounces over the 1996 production of 183,688 ounces. The increased
production is due primarily to the first full year's operation of the
augmentation plant for an increase of 65,000 ounces, with the balance due to the
higher grades derived from the Main Pit and the increasing production levels of
high grade underground ore.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C> <C>
Tonnes of ore (000)................ 9,266 9,650
Grammes of gold per tonne.......... 3.8 4.5
Contained ounces of gold (000)..... 1,127.6 1,396.2
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C> <C>
Total Volume Mined Open Pit........ (000bcm) 12,584 11,876
Underground Development............ (m) 9,961 4,477
Ore Mined.......................... (000t) 3,190 2,447
Ore Treated........................ (000t) 2,015 1,871
Ore Head Grade..................... (Au g/t) 3.6 3.2
Metallurgical Recovery............. (%) 80.1 85.3
Fine Gold Produced................. (000oz) 183.7 165.9
Cash Operating Cost
-- per tonne treated............. (A$/t) 34.01 28.20
(US$/t) 26.63 20.83
-- per fine ounce Produced....... (A$/oz) 373 318
(US$/oz) 292 235
</TABLE>
t = metric tonnes (one metric tonne = 1.1023 short tons), bcm = bank cubic
metres, g/t = grammes per tonne
Total Plutonic Gold Mine mineralised material as at 31 December 1996 was
estimated at 28.2 million tons at 0.219 ounces of gold per ton. Reserves of
1.127 million contained ounces of gold were estimated at that date.
GEOLOGY
Gold lodes occur predominantly within mafic volcanics in an Archaean
sequence of ultramafic volcanics, mafic volcanics and sediments. The sequence in
the immediate mine area consists of upper and lower ultramafic volcanic units
separated by a dominantly mafic volcanic unit. Gold mineralisation occurs within
multiple, sub-parallel, north-west striking lodes, which generally dip in a
north-east direction. The lodes are hosted mainly by the mafic volcanic unit.
Lodes range from one to ten metres thick and display good continuity often for
several hundred metres. Gold is associated with sulphides, particularly
arsenopyrite and pyrrhotite.
Exploration potential of the extensive property is high.
Waste dump slopes and tailings storage facility walls are rehabilitated on
an ongoing basis and as early as possible within an orderly mining operation.
S-87
<PAGE> 120
Recently the mine was notified of non-compliance under four of its
Department of Environmental Protection ("DEP") licence conditions by the DEP.
The non-compliance areas have been rectified or are being addressed. Plutonic
does not consider the non-compliance to be material or that the remediation will
involve material cost.
Darlot/Centenary Gold Project
The Darlot/Centenary Gold Project is located 110 kilometres north of
Leonora, Western Australia. Plutonic's property covers an extensive goldfield
discovered more than 100 years ago.
Modern mining, including development of the Darlot Pit, commenced in 1988.
The Pit was completed in 1995 and the mine is now an entirely underground
operation based on both the original Darlot orebody and the new Centenary
orebody.
The mine is a fly-in fly-out operation with about 61 staff employees and
120 contractor personnel working a two weeks on and one week off roster.
The Darlot/Centenary Gold Mine Project encompasses an area of approximately
13,845 hectares, comprising 16 mining leases, 32 prospecting licences and one
exploration licence. The tenements are held 100% by Plutonic or in two joint
ventures. Darlot and Centenary orebodies are within a 100% owned Mining Lease
located on the Melrose Pastoral Lease which is held by Plutonic. With the
exception of a production royalty on M37/252 (which has no known reserves or
mineralised material), no non-government royalties are payable on production
from any Darlot tenement.
The Darlot and Centenary deposits are located within Mining Lease M37/155,
100% owned by Plutonic, which was granted in 1988 for a 21 year term and is
renewable.
Open pit operations were completed in 1995, with the Darlot lode adjacent
to the pit being subsequently accessed with a decline from the base of the pit.
The underground production rate is currently around 0.5 million tonnes (0.55
million tons) per annum.
Mining at Darlot utilises mechanised trackless equipment. Access is via a
decline from a portal in the Darlot Pit located approximately 115 metres below
the natural surface. During the second quarter 1996, the mine successfully
completed the transition to a full-scale underground operation. The workings now
extend to about 220 metres below the surface with mining taking place in about
four different sub-lode systems within the main Darlot structure.
Stoping of the Darlot lode is by a mixture of room and pillar mining in the
thinner sections of the deposit, generally using longhole blastholes, while
sub-level open stoping techniques are utilised in the thicker sections.
Geotechnical conditions are such that mine fill is not required.
The nature of the Darlot project has been significantly altered by the
discovery, in late 1996, of the Centenary deposit about 1.2 kilometres from the
existing mine workings.
In August 1996 a vertical exploration drillhole intersected the Centenary
deposit, an undiscovered gold mineralised zone of substantial thickness. The
drillhole showed mineralisation is associated with multiple, thin, shallowly
dipping quartz veinlets with associated pyritic alteration in dolerite.
Follow-up holes have confirmed this discovery and showed the Centenary deposit
to be of appreciable lateral extent. The grade, thickness and continuity of the
Centenary mineralisation indicate its capacity to support a substantial, low
cost, underground mining operation. Mine planning and evaluation have indicated
that the Centenary deposit is amenable to low cost bulk stoping, that the
geotechnical conditions are very good and that there is minimal groundwater.
Additionally, the Centenary mineralisation is free milling, as is the Darlot
lode.
Access to Centenary is via an extension of the Darlot decline which
intersected the Centenary deposit in September 1997 approximately 350 metres
below the surface. First development ore was subsequently fed to the upgraded
Darlot processing plant. A raise bored ventilation shaft is currently being
constructed, which will complete the Centenary ventilation circuit and also
provide the second egress for the mine. Initial orebody development and in-fill
diamond drilling has commenced. It is planned that initial sub-level stoping of
the thick central section of the Centenary deposit will commence prior to
mid-1998. The thinner extremities of
S-88
<PAGE> 121
the deposit are suitable for sub-level open stoping or room and pillar stoping
as successfully utilised at Darlot. Production options remain subject to an
ongoing feasibility study.
The treatment plant comprises a three stage crushing circuit, primary and
secondary ball mills, leaching, adsorption and gold recovery circuits. Coarse
gold, which is about 50% of the total production, is recovered within a gravity
circuit. Ore throughput is about 0.68 million tonnes per annum, based on the
current blend of 100% primary material.
The treatment plant is in good condition reflecting regular maintenance and
recent upgrades to the gravity, leach and grinding circuits have remedied any
significant maintenance issues.
Power is provided on site by diesel generators owned by Plutonic and
located in two power stations. Underground power is provided by the mining
contractor, but two new generators, currently on order and due for commissioning
in early 1998, will result in all power being provided by Plutonic.
Water is available from a borefield eight kilometres from the treatment
plant.
Production in 1997 of about 65,000 ounces is similar to the 1996 level of
62,757 ounces as the key physical operating parameters have remained largely
unchanged.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Tonnes of ore (000)............................... 2,976 777
Grammes of gold per tonne......................... 4.9 4.4
Contained ounces of gold (000).................... 468.1 110.6
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C> <C>
Total Volume Mined Open Pit............ (000bcm) N.A. 776
Underground Development................ (m) 7,657 5,002
Ore Mined.............................. (000t) 462 286
Ore Treated............................ (000t) 504 334
Ore Head Grade......................... (Au g/t) 4.1 4.0
Metallurgical Recovery................. (%) 95.0 95.7
Fine Gold Produced..................... (000oz) 62.8 41.1
Cash Operating Cost
-- per tonne treated................... (A$/t) 55.82 65.69
(US$/t) 43.70 48.44
-- per fine ounce Produced............. (A$/oz) 448 533
(US$/oz) 351 394
</TABLE>
Total Darlot Gold Mine mineralised material (including Centenary) as at 31
December 1996 was 8.5 million tons at 0.169 ounces of gold per ton. Reserves at
that date were 468,000 ounces of gold including 284,000 ounces attributable to
the Centenary deposit.
On 17 December 1997 a new reserve estimate for Centenary of 1.4 million
contained ounces of gold was announced.
GEOLOGY
Darlot is situated within an Archaean sequence of mostly intrusive and
extrusive mafic rocks. The Darlot orebody occurs within a corridor of
north-north-west trending structures.
The Darlot orebody is a shear-hosted, gold-mineralised, quartz vein system
about 1.5 kilometres long. The structure is continuous along strike with
mineralisation open down dip indicating potential for depth extensions.
S-89
<PAGE> 122
The Centenary orebody is a large, structurally controlled, quartz vein
hosted gold deposit. The lode, which extends for more than 1.2 kilometres,
varies from 5 metres to more than 50 metres in thickness. The full extent of the
lode is not yet known.
Within the extensive Darlot property several areas with geological features
analogous to the Darlot and Centenary deposits are currently being explored.
Zones of mineralisation have been located at several prospects but, as yet, no
deposits with sizes comparable to either Darlot or Centenary have been
discovered. Exploration is continuing as the recent discovery of Centenary has
affirmed the high prospectivity of the property.
Darlot complies with all environmental conditions and no material breaches
were reported in 1997. Options for suppression of excess dust from the open fine
ore stockpile are currently being evaluated. Minor tailings storage facility
seepage is being collected in cut-off drains for return to the storage facility.
Lawlers Gold Mine
Lawlers Gold Mine is located 120 kilometres north-west of Leonora, Western
Australia. Plutonic has a 100% interest in the mine which has operated since
1986. The mine is a fly-in fly-out operation with about 67 staff employees and
104 contractor personnel working on a two weeks on and one week off or six weeks
on, one week off roster basis.
The Lawlers Gold Mine property consists of two proximal groups of
contiguous tenements totalling approximately 27,850 hectares and consisting of
three exploration licences, 89 prospecting licences and 13 mining leases. All
tenements are owned 100% by Plutonic. No non-government royalties are payable on
production.
Mining leases which encompass current mining operations or known reserves
vary in date of grant and expiry. One mining lease from which production is
currently derived was granted by the Western Australian Government post 1
January 1994.
Since 1986, almost 600,000 ounces of gold have been produced from several
open pits and one underground source in the Lawlers goldfields. During 1997
production was principally derived from the New Holland Pit where mining is
undertaken by conventional selective mining techniques utilising a contractor
operating a 100 tonne excavator and a fleet of 85 tonne trucks, under the
supervision of Plutonic personnel.
Recently, mining at New Holland ceased temporarily to allow commencement of
the New Holland South underground project which will extract the southern down
plunge extension of the orebody, initially by decline on-ore development, and
later by room and pillar stoping. During this interruption to mining at New
Holland in the fourth quarter of 1997, open pit mining of the Fairyland deposit
commenced. Ore haulage from the New Holland and Fairyland Pits, which are remote
from the treatment plant, is by 100 tonne trucks, also provided and operated by
contractors.
The treatment plant is capable of treating approximately 0.5 to 0.7 million
tonnes (0.55 to 0.77 million tons) per annum of oxide, transition and primary
ore depending on the blend. Three stage crushing is followed by single stage
milling through two parallel ball mills. The grinding circuit incorporates a
gravity circuit for the recovery of coarse gold. The slurry is then transferred
to a conventional carbon-in-pulp circuit. The gravity component is typically
40%, with total gold recovery in the range of 90 to 95% depending on ore source.
Power is supplied by contract diesel generators. Good quality process water is
available from a borefield 15 kilometres north-east of the plant. The plant is
well maintained and in good condition.
Production in 1997 was about 87,000 ounces, plus a further 14,000 ounces
derived by processing ore from Plutonic's Bellevue mine. This compares with
50,603 ounces of Lawlers production and 17,313 ounces of Bellevue production in
1996. The increased production in 1997 was due almost entirely to the high grade
ore sourced from the New Holland Pit during the year.
GEOLOGY
Gold ore is derived from two distinct geological domains -- a western
sedimentary domain (New Holland) and an eastern mafic/ultramafic volcanic domain
(Fairyland).
S-90
<PAGE> 123
The western area deposits are high grade ladder quartz veins within
sandstones enclosed in finer sediments. Exploration involves deep, close-spaced
drilling to locate high grade, shallow plunging ore shoots within the favourable
rock unit. Recent discovery of extensions to the New Holland Pit mineralisation
indicates the high prospectivity of the western domain.
Discovery of the Fairyland deposit in 1996 in mafic volcanics of the
eastern domain attests to its high prospectivity. The eastern domain is also
highly prospective for nickel and ore grade intersections have already been
obtained in laterite from limited drilling. The underlying ultramafic rocks are
part of the nickeliferous Agnew-Mt Keith-Yakabindie-Honeymoon Well sequence
which hosts major nickel deposits north of Lawlers.
YEAR-END PROVEN AND PROBABLE ORE RESERVES
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Tonnes of ore (000)............................... 1,400 1,279
Grammes of gold per tonne......................... 4.7 3.2
Contained ounces of gold (000).................... 212.4 133.5
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C> <C>
Total Volume Mined Open Pit............ (000bcm) 5,569 4,154
Underground Development................ (m) N.A. N.A.
Ore Mined.............................. (000t) 606 721
Ore Treated............................ (000t) 627 727
Ore Head Grade......................... (Au g/t) 2.8 1.9
Metallurgical Recovery................. (%) 90.4 91.6
Fine Gold Produced..................... (000oz) 50.6 42.5
Cash Operating Cost
-- per tonne treated................... (A$/t) 44.63 36.24
(US$/t) 34.94 26.76
-- per fine ounce Produced............. (A$/oz) 553 620
(US$/oz) 433 458
</TABLE>
Total Lawlers Gold Mine mineralised material as at 31 December 1996 was 2.8
million tons at 0.105 ounces of gold per ton.
On 30 April 1997 a mineralised material estimate of 1.3 million tons at
0.105 ounces of gold per ton was announced for the Fairyland deposit (cf. 0.64
million tons at the same grade as of 31 December 1996).
Drilling under and south of the New Holland Pit and north towards the
Genesis Pit has encountered multiple high grade gold lodes. In the fourth
quarter 1997 underground development of the high grade southern extensions of
the New Holland lode began. This development is based on an initial reserve of
65,000 contained ounces of gold. Deeper zones of mineralisation will be drilled
from the underground workings.
Open pit mining commenced at the Fairyland prospect, located 12.5
kilometres east of the treatment plant in October, 1997. Exploration and
development drilling is on-going. The excellent grade of deeper drill
intersections suggests a modest scale underground operation might also
ultimately be developed, although the geotechnical conditions may adversely
impact on the project economics.
Feasibility studies are underway to assess underground projects at Genesis
and Genesis North as well as the deeper mineralisation at New Holland South.
Lawlers complies with the environmental conditions of the licences under
which it operates. Over the last few years the backlog of open pit waste dumps
and tailings storage facility wall rehabilitation has been brought up to date. A
contaminated groundwater plume exists south-west of the tailings dams. This
plume is being monitored and controlled. No material environmental breaches
occurred in 1997.
S-91
<PAGE> 124
Mt Morgans Gold Mine
The Mt Morgans Gold Mine is located 50 kilometres west of Laverton, Western
Australia. The Mt Morgans goldfield has been operated intermittently since 1896
and has produced in excess of 1.2 million ounces. The mine is operated on a
fly-in fly-out basis with about 60 staff employees and 92 contractor personnel
working a two weeks on and one week off roster.
The Mt Morgans Gold Mine, which is jointly owned by Plutonic (80%) and
Abednego Nickel Limited (20%), is operated on a joint venture basis by the Mt
Morgans Joint Venture (MMJV). Plutonic manages all mining and exploration
activities on behalf of the MMJV. All known economic mineralisation is on
tenements owned by the MMJV which is also earning varying interests in four
joint venture properties within an area of influence surrounding the MMJV-owned
properties.
The MMJV holds six exploration licences, 117 prospecting licences and 27
mining leases totalling approximately 46,000 hectares. Mining Leases associated
with current mining activity at Transvaal and Jupiter and the treatment plant
were all granted prior to 1 January 1994.
Mt Morgans is currently producing gold at an annual rate of 94,000 ounces
(100%) with the mill processing 1.0 million tonnes (1.1 million tons) per annum.
Mill feed is sourced from the Transvaal underground mine, the remaining ore
stockpiles from the now completed Jupiter Pit and the retreatment of the
Westralia tailings. A dump leach operation based on low grade Jupiter ore
provides minor production.
The Transvaal operation is accessed via a decline from the Transvaal Pit.
The main portal is located about 75 metres below the natural surface and the
decline extends to a depth of 125 metres vertically below the portal.
Underground ore is mined by uphole retreat open stoping. Typical orebody
dimensions are 100 metres long by 3 metres thick and 40 to 50 metres up and down
dip. Orebody dip averages 75 degrees. Up to three sub-parallel lodes are present
on each level. Stopes are not filled.
Underground development and stoping activities utilise contractors under
Plutonic supervision. Ore haulage is by 40 tonne low profile trucks to the
treatment plant, located approximately 3 kilometres from the portal.
The Westralia underground operation has recently ceased following the
extraction of all reserves.
The treatment plant, capable of treating 1 million tonnes (1.1 million
tons) per annum of hard rock, consists of a primary crusher, open stockpile, SAG
mill, pebble crusher and secondary ball mill grinding circuit, followed by a
conventional carbon-in-pulp leach/adsorption section. Westralia tailings are
reclaimed from old dams, slurried up and introduced into the circuit with the
cyclone feed. Metallurgical recovery is 85 to 90%. The plant, which was in poor
condition when Plutonic acquired the operation in late 1995, has undergone major
refurbishment over the last two years and is now in good condition.
Power is supplied by diesel generators owned by the MMJV, whilst process
water is sourced from a borefield located eight kilometres from the plant. The
power station underwent a major upgrade in late 1996.
Production in 1997 was about 92,000 ounces (100% basis) which is similar to
the 1996 production.
GEOLOGY
Most production to date has come from lodes in Archaean banded iron
formation, but currently underground production from Transvaal comes from a
shear zone in basalts. The now depleted Jupiter pit contained low grade gold
mineralisation in a syenite intrusive.
YEAR-END PROVEN AND PROBABLE ORE RESERVES (100% basis)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C> <C>
Tonnes of ore (000).................... 5,777 4,743
Grammes of gold per tonne.............. 1.6 2.2
Contained ounces of gold (000)......... 306.1 332.9
</TABLE>
S-92
<PAGE> 125
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995**
----- ----- -----
<S> <C> <C> <C> <C>
Total Volume Mined Open Pit............ (000bcm) 1,516 648
Underground Development................ (m) 6,144 998
Ore Mined.............................. (000t) 1,299 306
Ore Treated............................ (000t) 887 290
Ore Head Grade......................... (Au g/t) 3.0 3.0
Metallurgical Recovery................. (%) 91.9 92.5
Fine Gold Produced*.................... (000oz) 75.0 24.9
Cash Operating Cost
-- per tonne treated................... (A$/t) 51.97 41.88
(US$/t) 40.68 30.93
-- per fine ounce Produced............. (A$/oz) 491 390
(US$/oz) 384 288
</TABLE>
- ---------------
* Plutonic's 80% equity share of production
** Owned for one quarter from 1 October 1995
Plutonic's share of Mt Morgans Gold Mine mineralised material at 31
December 1996 was estimated at 1.0 million tons at 0.114 ounces of gold per ton.
The mining operation has been a high cost producer in recent years. In July
1997, steps were taken to ensure the operation's costs would be substantially
reduced. Underground development largely ceased. Mining has concentrated on
extraction of ore from the three levels of the Transvaal Mine which were already
fully developed. Costs have subsequently reduced substantially, however, in the
absence of significant exploration success, mining and treatment of stockpiled
ore is expected to be completed in 1998.
In 1997, the operation complied in all material aspects with the
environmental conditions imposed upon it. No material breaches existed.
Environmental rehabilitation from open pit mining activities is up to date with
dumps contoured, topsoil spread and seeds planted. The standard of environmental
performance is such that in August 1997 the site was awarded a Golden Gecko
Certificate of Merit for Environmental Excellence by the Department of Minerals
and Energy of Western Australia.
A contaminated groundwater cyanide plume from the active tailings storage
facilities exists. The plume is being monitored and addressed in conjunction
with the relevant governmental authorities. Minor tailings storage wall leaks
are also being addressed. The commissioning of a new tailings storage facility
in January 1998 is expected to reduce the impact on the environment from the
currently active storages as they will be decommissioned.
Peak Hill Gold Mine
The Peak Hill Gold Mine is situated 130 kilometres north of Meekatharra,
Western Australia.
The Peak Hill Gold Field is more than 100 years old, but modern operations
commenced only in 1988. In recent times the Peak Hill Gold Mine has produced
about 600,000 ounces from four open pits.
The Peak Hill Gold Mine is owned by a joint venture (Plutonic 66.67%, North
Limited 33.33%). North currently manages the mining operation although Plutonic
has the right to assume management. Exploration of the joint venture's tenements
is managed by Plutonic which also has extensive non-joint venture exploration
interests in the region surrounding the Peak Hill Gold Mine.
The mine is a fly-in fly-out operation with approximately 25 staff
employees and 11 contractor personnel working a two weeks on and one week off
roster.
The Peak Hill Gold Mine tenements which are owned by the Plutonic-North
joint venture are two exploration licences, 41 prospecting licences and 18
mining leases totalling 17,900 hectares. Plutonic, either by itself or in joint
ventures, has interests in surrounding tenements. In all Plutonic has fifteen
projects in the Peak Hill District (10 joint ventures) totalling 73,100 hectares
in 105 tenements.
S-93
<PAGE> 126
Open pit mining at the Harmony Pit, located 9 kilometres west of the plant,
was completed in November 1997. Ore processing is expected to continue until at
least mid-1998.
The plant has a capacity of 0.6 million tonnes per annum (0.66 million
tons) of soft oxide ore. Hard primary ore is blended or fine crushed to maintain
this rate. There is a SAG/ball mill grinding circuit with a conventional
carbon-in-pulp and pressure Zadra elution circuit. The gold recovery has varied
from 93% to 98% over the past ten years.
Power is generated by diesel generators. Good quality water is available
from a borefield 11 kilometres north-east of the plant.
GEOLOGY
Gold mineralisation occurs as multiple lodes within altered Proterozoic
mafic volcanics. Weathering extends to 100 metres beneath a well developed
laterite profile.
YEAR-END PROVEN AND PROBABLE ORE RESERVES (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C> <C>
Tonnes of ore (000).................... 1,637 2,491
Grammes of gold per tonne.............. 1.8 3.0
Contained ounces of gold(000).......... 97.8 240.3
</TABLE>
OPERATING DATA (100% BASIS)
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C> <C>
Total Volume Mined Open Pit............ (000bcm) 4,779 3,278
Underground Development................ (m) N.A. N.A.
Ore Mined.............................. (000t) 1,275 715
Ore Treated............................ (000t) 719 583
Ore Head Grade......................... (Au g/t) 4.0 4.7
Metallurgical Recovery................. (%) 97.7 97.5
Fine Gold Produced *................... (000oz) 60.4 56.7
Cash Operating Cost
-- per tonne treated................... (A$/t) 26.31 26.97
(US$/t) 20.60 19.92
-- per fine ounce Produced............. (A$/oz) 209 183
(US$/oz) 164 135
</TABLE>
- ---------------
* Plutonic's equity share of production; 50% until 31 January 1995 and 66.67%
thereafter
Total Peak Hill Gold Project mineralised material at 31 December 1996 was
estimated at 1.6 million tons at 0.073 ounces of gold per ton.
In general, reasonable potential exists for finding additional deposits
similar to those mined at Peak Hill in recent years.
Continuous rehabilitation has ensured that only active areas are still to
be rehabilitated. During 1997 the operation was in compliance with relevant
environmental legislation.
Bellevue Gold Mine
The Bellevue Gold Mine is located 175 kilometres north of Leonora and 120
kilometres south of Wiluna, Western Australia. The project was placed on care
and maintenance in April 1997 following some 10 years of modern underground and
open pit production. The area has been mined since 1896, producing some 750,000
ounces of gold, mostly in recent years. The project is 100% owned by Plutonic.
The Bellevue Gold Project tenements comprise nine mining leases, eight
prospecting licences and two exploration licences. Four mining leases were
granted pre 1 January 1994.
S-94
<PAGE> 127
Treatment at Bellevue ceased in August 1996, with mining completed in April
1997 at which time the operation was placed on care and maintenance. Ore
produced after August 1996 was trucked to the nearby Lawlers plant for
treatment. Ore production in 1997 was sourced from Bellevue 13 level
underground, other underground remnants and the Henderson North and Vanguard
Pits. These sources are now effectively exhausted.
The Bellevue property is prospective for both gold and nickel
mineralisation. Any gold reserves discovered in the future are likely to be
transported to the nearby Lawlers treatment plant. Drilling has, in recent
months, intersected wide intervals of low to moderate grade nickel sulphide
mineralisation. Another party recently discovered a significant high grade
nickel sulphide deposit about 200 metres north of Plutonic's Bellevue property.
Plutonic has entered into an agreement with its 62% owned subsidiary, Lachlan,
under which Lachlan has acquired the rights to non-gold mineralisation on ten of
the Bellevue tenements subject to a 25% Net Profits Interest to Plutonic.
At the time of closure in mid-1997 all rehabilitation was up to date with
open pit dumps contoured and the filled No. 1 tailings storage facility capped.
The plant site remains largely intact, while the active No. 2 tailings storage
facility has not been capped pending further exploration and a decision on
permanent mine closure.
MINERAL EXPLORATION AND DEVELOPMENT
Plutonic began as a mineral exploration company and continues to maintain a
strong commitment to mineral exploration. Plutonic's large team of professional
explorers has identified targets which have warranted drilling of between
200,000 metres and 480,000 metres per year in recent years. Plutonic has
discovered more than ten million ounces of gold since 1989.
The Plutonic group (including Lachlan) holds in its own right, or in joint
ventures, tenements or tenement applications covering more than 9,000 squares
kilometres. The tenements and tenement applications exceed 1,000 in number.
Mining leases total 294 covering approximately 1,250 square kilometres.
Exploration is concentrated on the extensive tenement holding surrounding
the Company's gold mines. In late 1996 substantial success was achieved at
Darlot with the discovery of the Centenary deposit.
Substantial exploration programmes are also conducted on properties distant
from the mines. Exploration offices are established at Perth, Western Australia
and Townsville, Queensland.
Significant advanced exploration projects include:
<TABLE>
<CAPTION>
PROJECT MINERALISED MATERIAL (100% BASIS)
- ------------------------------- -------------------------------------------------
<S> <C>
Twin Hills Joint Venture*...... 2.6 million tons at 0.149 ounces of gold per ton
Keith Kilkenny Joint
Venture**.................... 7.8 million tons at 0.082 ounces of gold per ton
Kundana (100%)................. 1.6 million tons at 0.088 ounces of gold per ton
</TABLE>
- ---------------
* Plutonic 51% interest, increasing to 65%
** Plutonic 45.45% interest
Properties with copper-lead-zinc and zinc-silver mineralisation are owned
by Plutonic's 62.5% subsidiary Lachlan Resources NL which is managed by Plutonic
and contains most of the base metal assets of the Plutonic group. Lachlan which
has debt of approximately $51 million to Plutonic, as of 5 January 1998, had a
market capitalisation of approximately A$30 million.
In 1996 Plutonic's exploration expenditure was A$30 million and in 1997
expenditure was approximately A$32 million.
INFORMATION ON RESERVES
The proven and probable gold ore reserves stated in this report reflect
estimated quantities and grades of gold in in-situ deposits and in stockpiles of
mined material that Plutonic believes can be recovered and sold at prices
sufficient to recover the estimated future cash costs of production and
remaining investment. The estimates of cash costs of production are based on
current and projected costs. Estimated mining dilution has
S-95
<PAGE> 128
been factored into the reserve calculation. Plutonic used a gold price of A$500
to A$525 per ounce of gold in its mine-by-mine evaluation of mining properties
at 31 December 1996. It has used A$450 per ounce in making the estimate of
reserves for Centenary announced 17 December 1997.
ESTIMATION OF RESERVES
Gold reserves are estimated for each of the properties operated by Plutonic
based upon factors relevant to each deposit. Gold ore reserves for Peak Hill,
which is not operated by Plutonic, are based on reserve information provided to
Plutonic by the operator. Plutonic has reviewed, but has not independently
confirmed, the information provided by the operator.
OTHER INFORMATION
Changes in reserves generally reflect (i) results of efforts to develop
additional reserves; (ii) depletion of existing reserves through production;
(iii) actual mining experience; and (iv) price forecasts. Grades of ore actually
processed from time to time may be different from stated reserve grades because
of geologic variation in different areas mined, mining dilution, sampling errors
and assaying and other factors. Recovery rates vary with the metallurgical and
other characteristics and grade of ore processed.
Neither reserves nor projections of future operations should be interpreted
as assurances of the economic life of mineral deposits or of the profitability
of future operations.
NATIVE TITLE CLAIMS
In respect of tenements granted before 1 January 1994, Plutonic believes
that any native title rights over the relevant land have probably been suspended
at least to the extent that those rights are inconsistent with the rights
conferred by the tenement. Various claims have been entered on the Register of
Native Title Claims under the Commonwealth Native Title Act which affect
Plutonic's mining tenements, but Plutonic is not aware of any determination of
native title with respect to those claims.
In respect of tenements granted to Plutonic after 1 January 1994, native
title claims have been made in respect of some of the land covered by those
tenements but Plutonic does not believe that it will be prevented from carrying
out exploration or mining operations under these tenements in any material way
as a result of those claims.
Most of Plutonic's key exploration targets in Western Australia are covered
by mining leases surrounding existing mines. If Plutonic is successful in its
exploration activities in these areas it will be able to develop the deposits
under those mining leases and any native title claims relating to the land
covered by those mining leases will not prevent that development.
ENVIRONMENTAL
Plutonic has a strong commitment to excellence in environmental
performance. Particular emphasis is placed on the elimination of unnecessary
disturbance of the natural environment and appropriate rehabilitation of areas
affected by mining activity. Plutonic fosters an environmentally responsible
culture within its workforce by integrating environmental management into all
areas of operations from the exploration phase through to mining and,
ultimately, decommissioning.
Plutonic has made significant expenditures to minimise the effects of its
operations on the environment. Expenditures primarily are for the earthmoving,
fertilising and reseeding costs associated with the final contouring and
rehabilitation of waste dumps and tailings storage facilities. In 1996, these
expenditures totalled approximately A$1.8 million over and above the contractor
earthmoving costs. Basic dump contouring is included within the contractor load
and haul rates. Plutonic estimates that during 1997, expenditures for such
purposes will be approximately A$1.0 million.
Under applicable law and the terms of permits under which Plutonic
operates, Plutonic is required to rehabilitate land disturbed by its operations.
In the mining industry, much of the reclamation work takes place during mining
and related operations, while the balance of the work is completed once mining
and treatment is finished. Plutonic charges reclamation costs incurred in
connection with its exploration activities as expenses in the year in which
incurred. For mining operations, Plutonic provides for final reclamation on an
estimate of
S-96
<PAGE> 129
anticipated costs to rehabilitate the site at the date of the estimate, for each
individual operating mine site. In addition, Plutonic has adopted a policy of
conducting reclamation concurrently with mining operations where practical. As a
result, an increasing amount of reclamation is being conducted simultaneously
with mining. At December 31, 1996 Plutonic had accrued a total of A$2.0 million
for future rehabilitation and related costs. This figure had increased to A$2.9
million as at 30 June 1997.
Plutonic's operations are conducted under licences issued by regulatory
authorities. Many licences require periodic renewal or review of their
conditions. Plutonic cannot predict whether it will be able to renew such
permits or whether material changes in permit conditions will be imposed.
In early 1996 the first formal internal annual environmental audit of each
managed site was completed. These audits and regular environmental reviews have
discovered no material environmental issues. Issues which receive the highest
priority are the rehabilitation of waste dumps and tailings storage facilities,
the minimisation of groundwater contamination from tailings facilities and the
suppression of dust.
Areas rehabilitated and new surface disturbance statistics for 1996 for
managed mines are summarised below:
<TABLE>
<S> <C>
Area Rehabilitated................................... 323 hectares
New Area Disturbed................................... 147 hectares
Rehabilitation Expenditure........................... A$1.8 million
</TABLE>
The bulk of the expenditure outlined above was incurred on major waste dump
rehabilitation programs which were completed at the Lawlers and Mt Morgans Gold
Mines. Significant portions of the waste dumps which were rehabilitated resulted
from mining activities prior to Plutonic's ownership of these sites.
During 1996 and 1997, no material environmental breaches occurred, no fines
were imposed and there were no non-compliance issues apart from those listed
under Plutonic Gold Mine, all of which are being addressed and will have largely
been rectified by January 1998.
In August 1997 the Mt Morgans Gold Mine was awarded a Golden Gecko
Certificate of Merit for Environmental Excellence by the Department of Minerals
and Energy of Western Australia.
CUSTOMERS
Sales to individual customers exceeding 10% of Plutonics consolidated
revenues are stated below. Plutonic believes that the loss of any of these
customers would not have a material adverse impact on Plutonic because of the
active worldwide market for gold.
<TABLE>
<CAPTION>
1997 1996
------- -------
(A$000) (A$000)
<S> <C> <C>
Customer A......................................... 38,504 47,409
B......................................... 129,323 179,262
C......................................... 135,880 30,499
------- -------
Total.............................................. 303,707 257,170
</TABLE>
EMPLOYEES
The number of full-time employees of Plutonic and its subsidiaries and
employees of major contractors to Plutonic was:
<TABLE>
<CAPTION>
FULL TIME
PERMANENT CONTRACT
--------- --------
<S> <C> <C>
Plutonic Gold Mine.............................. 146 275
Darlot Gold Mine................................ 61 120
Lawlers Gold Mine............................... 67 104
Bellevue Gold Mine.............................. 3 0
Exploration Staff............................... 73 43
Corporate Staff................................. 33 4
--- ---
Total........................................... 383 546
</TABLE>
S-97
<PAGE> 130
The number of full-time employees at 31 December 1997 in jointly-owned
operations in which Plutonic participates was:
<TABLE>
<CAPTION>
FULL TIME
PERMANENT CONTRACT
--------- --------
<S> <C> <C>
Mt Morgans Gold Mine............................ 60 92
Peak Hill Gold Mine............................. 25 11
--- ---
Total........................................... 85 103
</TABLE>
LEGAL PROCEEDINGS
Plutonic and its subsidiaries are defendants in various legal actions in
the ordinary course of business. In the opinion of management, such matters will
be resolved without material affect on Plutonic's financial condition.
S-98
<PAGE> 131
THE AGREEMENT
GENERAL
This section of the Document describes the material terms of the Agreement.
The description does not purport to be complete and is qualified in its entirety
by reference to the Agreement, a copy of which is attached hereto as Appendix A
and which is incorporated herein by reference. All Homestake Stockholders,
Plutonic Shareholders and Plutonic Option Holders are urged to carefully read
the Agreement in its entirety.
SCHEMES OF ARRANGEMENT
The Agreement provides that Plutonic will propose at least three schemes of
arrangement under the NSWL. If the Schemes are implemented, the following will
occur. Pursuant to the Ordinary Scheme, all of the Ordinary Shares other than
those held by or on behalf of Homestake will be cancelled and the Ordinary
Scheme Members will receive 0.34 shares of Homestake Common Stock as
consideration for the cancellation of each Ordinary Share held on the Plutonic
Combination Record Date.
Pursuant to the Partly Paid Scheme, all of the Partly Paid Shares will be
cancelled and the Partly Paid Scheme Members will receive a number of shares of
Homestake Common Stock set forth in the chart below for each Partly Paid Share
held on the Plutonic Combination Record Date.
<TABLE>
<CAPTION>
EXCHANGE RATIO
CLASS OF UNPAID FOR A PLUTONIC
CAPITAL PARTLY PAID SHARE
- ----------------- -------------------
<S> <C>
A$ 0.75 0.303
A$ 0.85 0.299
A$ 0.90 0.296
</TABLE>
Pursuant to the Option Scheme, all of the Plutonic Options will be
cancelled and the Plutonic Option Holders will receive a number of shares of
Homestake Common Stock set forth in the chart below for each Option held on the
Plutonic Combination Record Date.
<TABLE>
<CAPTION>
EXERCISE EXCHANGE
OPTION EXPIRY DATE PRICE(A$) RATIO
------------------------------------------------------ --------- --------
<S> <C> <C>
October 12, 1999...................................... 6.04 0.070
November 28, 2000..................................... 5.87 0.088
December 5, 2000...................................... 6.04 0.084
May 21, 2001.......................................... 7.75 0.060
May 21, 2001.......................................... 8.75 0.048
June 24, 2001......................................... 7.75 0.060
June 24, 2001......................................... 8.75 0.049
June 26, 2001......................................... 7.75 0.061
June 26, 2001......................................... 8.75 0.049
June 4, 2002.......................................... 5.66 0.104
June 4, 2002.......................................... 6.40 0.089
</TABLE>
The Agreement provides that (i) the Ordinary Scheme is subject to and
conditional upon the Partly Paid Scheme and the Option Scheme becoming
effective, (ii) the Partly Paid Scheme is subject to and conditional upon the
Ordinary Scheme and the Option Scheme becoming effective and (iii) the Option
Scheme is subject to and conditional upon the Ordinary Scheme and the Partly
Paid Scheme becoming effective. The conditions described in clauses (ii) and
(iii) can be waived only by Homestake. Homestake currently does not intend to
waive these conditions.
REPRESENTATIONS AND WARRANTIES
The Agreement contains customary mutual representations and warranties
relating to, among other things, (i) the accuracy of information supplied by
each of Homestake and Plutonic in connection with the Document, (ii) the capital
structure of each of Homestake and Plutonic, (iii) the execution, delivery and
performance of the Agreement and related matters, (iv) the absence of certain
litigation and native title claims, (v) the compliance of financial statements
with U.S. GAAP, in the case of Homestake, and
S-99
<PAGE> 132
Australian GAAP, in the case of Plutonic, (vi) documents filed by Homestake with
the SEC and by Plutonic with the ASC, the accuracy of information contained
therein and the absence of undisclosed liabilities or obligations of each of
Homestake and Plutonic, (vii) the conduct of business of the parties since
December 31, 1996, including that each business was operated only in the
ordinary course, (viii) the absence of material changes relating to either
party, (ix) environmental matters and (x) the possession by each party of all
necessary certificates, franchises, licenses, leases, mining tenements, permits,
authorizations and approvals of governmental authorities necessary to conduct
its business.
CONDUCT OF BUSINESS PENDING THE COMBINATION
Pursuant to the Agreement, Homestake and Plutonic each has agreed to carry
on its respective businesses in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the execution of the
Agreement. In addition, Plutonic has agreed that, among other things and subject
to certain exceptions, neither it nor any of its subsidiaries may, without the
written consent of Homestake: (a) incur any expenditure that: (i) would
individually or in aggregate cause actual expenditures to exceed by 10% or more,
the amount provided for that type of expenditure in the operating budget (the
"Budget") of Plutonic and its subsidiaries to be completed pursuant to the
Agreement; or (ii) is in excess of A$200,000 for any single item or A$1 million
in the aggregate which is not provided for in the Budget; (b) acquire or agree
to acquire: (i) by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, limited liability company, joint venture association
or other business organization or division thereof; or (ii) any assets that are
material, individually or in the aggregate, to Plutonic and its subsidiaries
taken as a whole; (c) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of (which for the purposes of this
clause includes disposing of any economic or beneficial interest) any company
property (or agree to do any of these things) other than: (i) sales and
dispositions of interests or rights with respect to raw materials, obsolete
equipment, mine output and other inventories, in each case only if in the
ordinary course of business consistent with past practice; and (ii) encumbrances
that are incurred in the ordinary course of business consistent with past
practice; (d) except pursuant to existing employment agreements and as
previously disclosed or as required by applicable laws, (i) increase the
compensation payable or to become payable to its executive officers or
employees; (ii) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director or executive officer or
employee of Plutonic or any of its subsidiaries; or (iii) establish, adopt,
enter into or amend or take any action to accelerate any rights or benefits
under any collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee, officer or director of Plutonic or any of its subsidiaries; or (e)
authorize any of, or commit or agree to take any of, the foregoing actions.
Each of Homestake and Plutonic has also covenanted in the Agreement not to
take any action and not to fail to take any action which action or failure to
act would prevent, or would be likely to prevent the Combination from qualifying
for pooling-of-interests accounting treatment. Without limiting the generality
of the foregoing, the Agreement provides that except as previously disclosed,
from November 11, 1997, neither Homestake nor Plutonic nor any of their
respective subsidiaries will: (a) issue ordinary shares, options or other types
of equity securities or securities convertible into equity securities, except
pursuant to previously outstanding agreements or except in the ordinary course
consistent with past practice in the case of employee stock options and
directors share rights; (b) enter into or amend employment or termination
agreements with officers or directors that would be triggered by completion of
the Combination; (c) enter into agreements to dispose of significant assets; or
(d) distribute assets to its shareholders, other than regular dividends in the
ordinary course and time at rates consistent with past practices (which for
Plutonic would be a final dividend for the year ended December 31, 1997 not
exceeding A$0.03 per Ordinary Share), or purchase, redeem or otherwise acquire
any shares of capital stock of Plutonic or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities except for the purchase by Homestake or one of its
subsidiaries of Ordinary Shares prior to the Court Order Time.
S-100
<PAGE> 133
CERTAIN ACTIONS WITH RESPECT TO TAKEOVER PROPOSALS
The Agreement provides that neither party shall, nor shall either party
permit any of its subsidiaries to, nor shall it authorize or permit any
affiliate, officer, director or employee of, or any investment banker, attorney
or other advisor or representative of, such party, any of its subsidiaries or
affiliates to: (i) directly or indirectly solicit, initiate or encourage the
submission of any Takeover Proposal (as defined below) for such party; or (ii)
enter into any agreement with respect to any Takeover Proposal for such party or
directly or indirectly participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal for
such party. Notwithstanding the foregoing, after the First Court Date but only
to the extent required by the fiduciary obligations of the Board of such party,
as determined in good faith by it based on the written opinion of outside
counsel, such party may, in response to a Takeover Proposal for such party that
was not solicited by such party and that did not otherwise result from a breach
or a deemed breach of the covenant described in the preceding sentence: (A)
furnish information with respect to such party to any person pursuant to a
customary confidentiality agreement not less restrictive of such person than the
Confidentiality Agreement dated as of December 8, 1997 between Homestake and
Plutonic, as amended by such parties as of December 21, 1997; and (B)
participate in discussions or negotiations with such person regarding any
Takeover Proposal for such party.
The Agreement also provides that neither the Board of any party nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to the other party, the approval or recommendation
by such Board or committee of the Agreement or the Combination or (ii) approve
any letter of intent, agreement in principle, acquisition agreement or similar
agreement relating to any Takeover Proposal for such party, unless (in either
case) the Board of such party determines in good faith (based on the written
opinion of outside counsel) that it is required to do so by its fiduciary
obligations.
Immediately following the provision (in writing or orally) of any
information in relation to Homestake or Plutonic as a result of a Takeover
Proposal for such party or any discussions or negotiations by such party to or
with any person in relation to a Takeover Proposal for such party, such party
shall advise the other party in writing of the general terms of the Takeover
Proposal (including details on timing, nationality of offeror, gold
company/diversified resource company, stock/cash, nature of offer and the
material conditions relating thereto and whether the market capitalization of
the acquiring person exceeds $1 billion). Such party shall also (i) keep the
other party informed of any change in the general terms of the Takeover
Proposal, (ii) provide to the other party as soon as practicable after delivery
thereof, full details of the written material relating to such party provided to
other persons in connection with the Takeover Proposal or inquiry and where the
relevant information has not already been given to the other party, provide
copies of the information to the other party, (iii) provide to the other party
as soon as practicable after receipt thereof any information or analysis
regarding the other party or the other party's stock provided to such party by
any person in connection or association with the Takeover Proposal, and (iv)
within 14 days of first entering into discussions with the person who has made a
Takeover Proposal, notify the other party in writing (A) of the determinations
described in clause (b) of "-- Superior Proposal" below and all material terms
(including the parties) of the Superior Proposal, or (B) that the targeted party
has ceased discussions in relation to that Takeover Proposal.
The Agreement provides that without limiting the foregoing, it is
understood that any violation of the restrictions set forth above by any
executive officer of a party or any of its subsidiaries or affiliates,
investment bankers, attorneys or other advisors or representatives of such party
or any of its subsidiaries, whether or not such person is purporting to act on
behalf of such party or any of its subsidiaries or otherwise, shall be deemed to
be a breach by such party.
CONDITIONS TO THE CONSUMMATION OF THE COMBINATION
Homestake's and Plutonic's respective obligations to effect the Combination
are subject to the satisfaction or waiver on or prior to the Second Court Date
of various conditions, including: (a) (i) a notice in writing shall have been
issued by or on behalf of the Treasurer of the Commonwealth of Australia stating
that the Commonwealth Government does not object to Homestake entering into and
completing the Agreement
S-101
<PAGE> 134
or (ii) the Treasurer of the Commonwealth of Australia shall be or shall become
precluded from making an order in respect of the entry into or completion by
Homestake of the Agreement under the Australian Foreign Acquisitions and
Takeovers Act 1975; (b) the waiting periods with respect to the Combination
under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
applicable, shall have been terminated or shall have expired; (c) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Combination shall be in effect; (d) Homestake
and Plutonic shall each have received a letter dated as of the day before the
date of dispatch of the Document and reaffirmed as at the Second Court Date from
Coopers & Lybrand L.L.P. and Ernst & Young, respectively, to the effect that the
Combination will qualify for pooling-of-interests accounting treatment; and (e)
the Homestake Common Stock to be issued to the Ordinary Scheme Members, the
Partly Paid Scheme Members and the Option Holders pursuant to the Schemes shall
have been approved for listing on the NYSE, subject to official notice of
issuance, and approved for official quotation by the ASX, in each case, prior to
the Second Court Date.
In addition, Homestake's and Plutonic's respective obligations to effect
the Combination are subject to the following additional conditions (any of which
may be waived by such party): (i) the representations and warranties of the
other party set forth in the Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of such other
party set forth in the Agreement that are not so qualified shall be true and
correct in all material respects, in each case as of the date of the Agreement
and as of the Second Court Date as though made on and as of the Second Court
Date, except to the extent any such representation or warranty expressly relates
to an earlier date (in which case as of such date); (ii) the other party to the
Agreement shall have performed in all material respects all obligations required
to be performed by it under the Agreement at or prior to the Second Court Date;
(iii) there shall not have occurred since the date of the Agreement any Material
Adverse Change (as defined below) relating to the other party; (iv) there shall
not have occurred since the date of the Agreement any Prescribed Occurrence (as
defined below) relating to the other party; (v) a certified copy of the court
orders approving the Schemes shall have been lodged with the ASC within fifteen
trading days of the Second Court Date; and (vi) each of Homestake and Plutonic
shall have received affiliate letters from the affiliates of the other party
relating to resale restrictions imposed on such affiliates in relation to
Homestake Common Stock.
TERMINATION
The Agreement provides that it can be terminated at any time prior to the
Second Court Date:
(a) By either Homestake or Plutonic if at a duly held meeting of
Homestake Stockholders the Share Issuance is not approved.
(b) By either Homestake or Plutonic if any court or government agency
has issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Combination and such
order, decree, ruling or other action has become final and nonappealable.
(c) By Homestake or Plutonic, as applicable, in accordance with
"-- Superior Proposal" below.
(d) By Plutonic if the Homestake Board has:
(i) failed to recommend to the Homestake stockholders that they
approve the Share Issuance;
(ii) taken any action described in either clause (i) or (ii) of the
second paragraph under "-- Certain Actions With Respect to Takeover
Proposals" above; or
(iii) failed to publicly reaffirm in terms no less favorable than
and subject to no further qualifications than those contained in their
original announcement that they approve the Share Issuance within 14
days after Plutonic has made a written request to Homestake to do so
(which written request may be made by Plutonic at any time after the
public disclosure of a Takeover Proposal for Homestake).
(e) By Homestake if the Plutonic Board has:
(i) failed to recommend to the Scheme Participants that they
approve the Ordinary Scheme, the Partly Paid Scheme and the Option
Scheme;
S-102
<PAGE> 135
(ii) taken any action described in either clause (i) or (ii) of the
second paragraph under "-- Certain Actions With Respect to Takeover
Proposals" above; or
(iii) failed to publicly reaffirm in terms no less favourable than
and subject to no further qualifications than those contained in their
original announcement that they approve the Schemes within 14 days after
Homestake has made a written request to Plutonic to do so (which written
request may be made by Homestake at any time after the public disclosure
of a Takeover Proposal for Plutonic).
(f) By either Homestake or Plutonic if the other is in material breach
of any clause of the Agreement (other than a warranty which is qualified by
a materiality test, in which case any breach shall suffice) before the
Second Court Date, provided that either Homestake or Plutonic, as the case
may be, has given notice to the other setting out the relevant
circumstances and stating an intention to terminate and the relevant
circumstances continue to exist seven business days (or any shorter period
ending at 12 noon on the day before the Second Court Date) from the time
such notice is given.
(g) By either Homestake or Plutonic if the Combination is not
consummated by June 30, 1998.
(h) By:
(i) either Homestake or Plutonic if at a duly held meeting the
Ordinary Scheme Members; or
(ii) by Homestake if at a duly held meeting the Partly Paid Scheme
Members or the Option Holders
do not approve the applicable Scheme by the majorities required under
the NSWL.
(i) By Homestake if Plutonic takes any action in breach of the first
paragraph under "-- Certain Actions With Respect to Takeover Proposals"
above or any action permitted by the second sentence of that paragraph.
(j) By Plutonic if Homestake takes any action in breach of the first
paragraph under "-- Certain Actions With Respect to Takeover Proposals"
above or any action permitted by the second sentence of that paragraph.
SUPERIOR PROPOSAL
Plutonic or Homestake may terminate the Agreement pursuant to clause (c)
under "-- Termination" above only if: (a) the Board of the terminating party has
received a Superior Proposal; (b) in light of such Superior Proposal such Board
has determined in good faith, based upon the written advice of outside counsel,
that it is necessary for such Board to withdraw or modify its approval or
recommendation of the Combination or the Agreement in order to comply with its
fiduciary duty under applicable law; (c) the terminating party is in compliance
with its obligations under "-- Certain Actions With Respect to Takeover
Proposals" above; and (d) such Board concurrently approves or recommends the
implementation of the Superior Proposal.
TERMINATION FEES
Plutonic shall pay to Homestake a fee of US$4.5 million if Homestake
terminates the Agreement pursuant to clause (f) under "-- Termination" above or
Plutonic or Homestake terminates the Agreement where Plutonic has approved or
recommended the implementation of a Superior Proposal for Plutonic in accordance
with the terms of the Agreement.
Homestake shall pay to Plutonic a fee of US$4.5 million if Plutonic
terminates the Agreement pursuant to clause (f) under "-- Termination" above or
Homestake or Plutonic terminates the Agreement where Homestake has approved or
recommended the implementation of a Superior Proposal for Homestake in
accordance with the terms of the Agreement. Homestake shall reimburse certain of
Plutonic's costs in relation to the Combination up to a maximum of US$1 million
if Plutonic terminates the Agreement pursuant to clause (a) under
"-- Termination" above.
S-103
<PAGE> 136
EFFECT OF TERMINATION
In the event of termination of the Agreement, except to the extent that
such termination results from a wilful breach by any party of its obligations
under the Agreement (other than under "-- Representations and Warranties"), the
Agreement shall become void and have no effect, without any liability or
obligation on the part of Homestake or Plutonic, other than obligations of
confidentiality and the obligations described under "-- Termination Fees" above.
ENFORCEMENT
The Agreement provides that if any clause of the Agreement is held to be
invalid as a consequence of a breach of the duties of the directors of Plutonic
caused by Plutonic entering into the Agreement, the Agreement is void.
Each party acknowledges in the Agreement that (i) the Schemes would only be
available for consideration by Scheme Participants if the directors of Plutonic
agreed to each provision in the Agreement and (ii) the restrictions and
obligations in the Agreement are reciprocal in all material respects and
supported by valuable consideration.
RELEASE OF OFFICERS AND DIRECTORS
The Agreement provides that neither Homestake nor any officer or director
of Homestake, and, subject to section 241 of the NSWL, neither Plutonic nor any
officer or director of Plutonic, will be liable for anything done or purported
to be done in connection with the Combination or any transaction contemplated by
the Agreement in good faith, but nothing in this clause excludes any liability
that may arise from a grossly negligence act or omission on the part of such a
person. The Agreement provides that Homestake or, as applicable, Plutonic
receives and holds the benefit of the aforesaid release, to the extent it
relates to its officers and directors as agent for them.
DEFINITIONS
For the purposes of the above summary of the contents of the Agreement, the
following terms have the meaning indicated below:
Material Adverse Change means one or more occurrences or matters
individually or in aggregate (other than as previously disclosed) that:
(a) have a material adverse effect on the business, properties,
financial condition or results of operations of a party and its
subsidiaries, taken as a whole (other than effects relating to the gold
mining industry in general) in relation to which creates or could
reasonably be expected to create liabilities, or results or could
reasonably be expected to result in a diminution of the value of such
party's assets, which in aggregate exceed US$150 million for Homestake or
A$50 million for Plutonic; or
(b) prevent such party and its subsidiaries from performing their
respective obligations under the Agreement.
Homestake Prescribed Occurrence means, other than as previously disclosed
or as required by the Agreement or the Schemes, between the date of the
Agreement and the Effective Date:
(a) Homestake reclassifying, reducing or splitting its outstanding
stock by way of capital stock split, payment of any dividend payable in
stock, or otherwise;
(b) the Homestake Board, enacting a resolution providing for the
reduction, by repurchase or otherwise, of the number of outstanding shares
of capital stock of such entity;
(c) Homestake entering into an agreement to purchase any of its
outstanding shares of capital stock, or the Homestake Board enacting a
resolution approving the terms of such an agreement;
(d) Homestake, or a subsidiary thereof, issuing or selling, or
granting an option to purchase, any of its shares of capital stock or
agreeing to issue or sell, or to grant an option to purchase, any such
shares except in the ordinary operation of stock option plans, savings plan
and directors' rights plans;
(e) Homestake, or a subsidiary thereof, issuing, or agreeing to issue,
convertible notes;
S-104
<PAGE> 137
(f) Homestake, or any subsidiary thereof, disposing, agreeing to
dispose, of the whole, or a substantial part, of the business or property
of the Homestake group as a whole;
(g) Homestake, or any subsidiary thereof, mortgaging, pledging or
otherwise encumbering, or agreeing to mortgage, pledge or otherwise
encumber, the whole, or a substantial part, of the business or property of
the Homestake group as a whole;
(h) the Homestake Board, or any board of any subsidiary of Homestake,
enacting a resolution providing for the winding up, bankruptcy, liquidation
or dissolution of Homestake or a subsidiary thereof, except for a
subsidiary having assets of less than US$250,000;
(i) the appointment of a receiver, bankruptcy trustee, liquidator,
administrator, custodian or other similar official of Homestake or any
subsidiary thereof, except for a subsidiary having assets of less than
US$250,000;
(j) the entry by a court of competent jurisdiction of an order or
decree providing for the winding up of Homestake or a subsidiary thereof,
except for a subsidiary having assets of less than US$250,000; or
(k) Homestake, or a subsidiary thereof, entering into a Chapter 11
bankruptcy.
Plutonic Prescribed Occurrence means, other than as previously disclosed or
as required by the Agreement or the Schemes, between the date of the Agreement
and the Effective Date:
(a) any one or more of the provisions of the constitution of Plutonic
or any material subsidiary of Plutonic being altered in any of the ways
mentioned in section 193(1) of the NSWL;
(b) Plutonic or any material subsidiary of Plutonic resolving to
reduce its share capital in any way;
(c) Plutonic making an allotment of, or granting an option to
subscribe for, any of its Ordinary Shares, Partly Paid Shares or Options or
agreeing to make such an allotment or to grant such an option other than
allotments of Ordinary Shares or Partly Paid Shares following an election
to convert by the holder of an Option or any subsidiary of Plutonic doing
any of the foregoing with respect to its own securities;
(d) Plutonic or a subsidiary of Plutonic issuing, or agreeing to
issue, convertible notes or other debt securities (other than the issue of
non-convertible debt securities in the ordinary course of business);
(e) Plutonic or any material subsidiary of Plutonic disposing, or
agreeing to dispose, of the whole, or a substantial part, of its business
or property;
(f) Plutonic or any material subsidiary of Plutonic creating, or
agreeing to create, any mortgage, charge, lien or other encumbrance over
the whole, or a substantial part, of its business or property otherwise
than in the ordinary course of business;
(g) Plutonic or any subsidiary entering into any onerous or long term
contract or commitment otherwise than in the ordinary course of business;
(h) Plutonic or any material subsidiary of Plutonic resolving that it
be wound up;
(i) the appointment of a provisional liquidator or administrator of
Plutonic or of any material subsidiary of Plutonic;
(j) the making of an order by a court for the winding up of Plutonic
or of any material subsidiary of Plutonic;
(k) an administrator of Plutonic, or of any material subsidiary of
Plutonic being appointed under sections 436A, 436B or 436C of the NSWL;
(l) Plutonic or any material subsidiary of Plutonic executing a deed
of company arrangement;
(m) the appointment of a receiver or a receiver and manager, in
relation to the whole, or a substantial part, of the property of Plutonic
or of any material subsidiary of Plutonic; or
S-105
<PAGE> 138
(n) Plutonic or any material subsidiary of Plutonic:
(i) entering into a buy-back agreement; or
(ii) resolving to approve the terms of a buy-back agreement under
the NSWL.
For the purposes of this definition a material subsidiary includes any
subsidiary that has assets of more than A$100,000.
Takeover Proposal means any proposal for a takeover bid, share purchase,
scheme, capital reconstruction purchase of assets, merger, amalgamation,
consolidation or other business combination involving Homestake or Plutonic, as
applicable, or any of its subsidiaries, any proposal for the issuance by such
party of a material amount of its equity securities as consideration for the
assets or securities of another person or any proposal or offer to acquire in
any manner, directly or indirectly, a material equity interest in, any voting
securities of, or a substantial portion of the assets of Homestake or Plutonic
or any of its subsidiaries, other than the transactions contemplated by the
Agreement.
Superior Proposal means any proposal made by a third party to acquire a
significant proportion (15% or more) of either Homestake or Plutonic pursuant to
a takeover bid, share purchase, scheme, capital reconstruction, tender or
exchange offer, a merger, a sale of all or substantially all of its assets or
otherwise on terms that the Board of such party determines in its good faith
judgment to be more favorable to the holders of the shares of such party than
the transactions contemplated by the Agreement (based on the written opinion,
with only customary qualifications, of such party's independent financial
advisor), taking into account all the terms and conditions of such proposal and
the Agreement.
S-106
<PAGE> 139
HOMESTAKE HISTORICAL SELECTED FINANCIAL DATA AND OTHER INFORMATION
HISTORICAL SELECTED FINANCIAL DATA
The following table sets forth certain financial data and other information
relating to Homestake. The financial data should be read in conjunction with (i)
the historical financial statements of Homestake, including the notes thereto,
which are set forth in Appendix C, (ii) the explanation of significant
differences between U.S. GAAP and Australian GAAP applicable to Homestake, as
set forth in Appendix F, as applicable to Homestake, and (iii) the Unaudited Pro
Forma Condensed Combined Financial Statements, which are included in this
Supplement. Financial Data for the nine months ended September 30, 1997 and 1996
reflect, in the opinion of Homestake, all adjustments necessary for a fair
presentation of such data. Results for the nine months ended September 30, 1997
and 1996 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
(IN US DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 766,936 $ 746,365 $ 705,487 $ 722,228 $ 683,520
Net income (loss)........... 30,281(1) 30,327 78,016(2) 52,494(3) (175,836)(4)
Net income (loss) per
share..................... 0.21(1) 0.22 0.57(2) 0.38(3) (1.31)(4)
Cash dividends per share.... 0.20 0.20 0.175 0.10 0.20
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets................ $ 1,482,108 $1,321,633 $1,201,968 $1,121,250 $1,145,169
Long-term obligations(5).... 299,168 305,418 295,719 282,865 293,176
Shareholders' equity........ 768,552 635,857 588,770 515,244 465,438
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------------
1997 1996
------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 577,070 $ 587,983
Net income (loss)........... (130,044)(6) 27,856(7)
Net income (loss) per
share..................... (0.89)(6) 0.19(7)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C> <C> <C> <C> <C>
Total assets................ $ 1,334,470
Long-term obligations(5).... 367,401
Shareholders' equity........ 594,244
</TABLE>
- ---------------
(1) Includes income of $24 million, or $0.16 per share, from a reduction in
Homestake's accrual for prior year income taxes, a foreign currency exchange
loss on intercompany advances of $7.4 million ($8.9 million pretax), or
$0.05 per share, primarily related to Homestake's Canadian-dollar
denominated advances to Homestake Canada Inc., write-downs of $8.3 million
($9 million pretax), or $0.06 per share, in the carrying value of
investments in mining company securities, costs of $2.8 million ($3.4
million pretax), or $0.02 per share, related to the terminated proposed
merger with Santa Fe, and income of $4.9 million ($5.5 million pretax), or
$0.03 per share, from a litigation recovery.
(2) Includes a gain of $12.6 million ($15.7 million pretax), or $0.09 per share,
on the sale of Homestake's interest in the Dee mine and a gain of $11.2
million (no tax expense), or $0.08 per share, on dilution of the Company's
interest in Prime.
(3) Includes expense of $12.8 million ($16 million pretax), or $0.09 per share,
for the write-down of oil assets at Main Pass 299 and expense of $6.8
million ($8.2 million pretax), or $0.05 per share, for restructuring and
business combination costs.
S-107
<PAGE> 140
(4) Includes expense of $117.7 million ($130.3 million pretax), or $0.87 per
share, for write-downs of certain mining properties and investments and
expense of $32.3 million ($48.4 million pretax) or $0.24 per share for
restructuring and business combination costs.
(5) Long-term obligations include:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt.............. $222,183 $185,000 $185,000 $185,000 $189,191 $205,174
Accrued reclamation costs... 73,908 45,388 44,051 33,892 22,138 32,344
Accrued pension and other
postretirement benefit
obligations............... 60,957 59,273 63,092 64,066 59,626 49,900
Other....................... 10,353 9,507 13,275 12,761 11,910 5,758
-------- -------- -------- -------- -------- --------
$367,401 $299,168 $305,418 $295,719 $282,865 $293,176
======== ======== ======== ======== ======== ========
</TABLE>
(6) Includes a first-quarter gain of $47.2 million ($62.9 million pretax), or
$0.32 per share, from the fee received from Santa Fe upon termination of
Homestake's merger agreement with Santa Fe, a first-quarter gain of $8.1
million ($13.5 million pretax), or $0.06 per share, from the sale of the
George Lake and Back River joint venture interests, and third-quarter
write-downs and unusual charges of $145.1 million ($183.6 million pretax),
or $0.99 per share, including (i) a write-down of $84.9 million ($107.8
million pretax) of Homestake's investment in the Main Pass 299 sulfur mine,
(ii) a reduction of $18.2 million ($24.3 million pretax), in the carrying
values of short-lived mining properties, (iii) an increase in the estimated
accrual for future reclamation of $21.5 million ($29.1 million pretax), (iv)
write-downs of $14.7 million ($16.5 million pretax) of certain investments,
and (v) other charges of $5.8 million ($5.9 million pretax) primarily
related to foreign exchange losses on intercompany redeemable preferred
stock.
(7) Includes income of $2.7 million, or $0.02 per share, from a reduction of
Homestake's accrual for prior year income taxes and income of $4.9 million
($5.5 million pretax), or $0.03 per share, from a litigation recovery.
SELECTED OPERATING DATA
(IN US DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DEBT TO EQUITY RATIO (at December 31)....... 24% 29% 31% 37% 53%
CAPITAL EXPENDITURES (thousands of
dollars).................................. $105,923 $80,979 $88,654 $57,825 $63,453
OPERATING STATISTICS
Gold production (thousands of ounces)....... 1,968 1,877 1,696 1,918 1,912
Average gold price realized per ounce....... $ 389 $ 386 $ 384 $ 359 $ 348
Total cash costs per ounce.................. $ 248 $ 257 $ 252 $ 229 $ 246
RESERVES (at December 31)
Gold (millions of ounces)................... 20.4 21.5 17.9 18.4 17.3
Eskay Creek silver (millions of ounces)..... 56.1 47.4 51.5 55.1
Sulfur (millions of long tons).............. 11.0 11.4 11.7 11.0 11.2
</TABLE>
S-108
<PAGE> 141
PLUTONIC HISTORICAL SELECTED FINANCIAL DATA AND OTHER INFORMATION
(AUSTRALIAN GAAP)
HISTORICAL SELECTED FINANCIAL DATA
The following table sets forth certain financial data and information
relating to Plutonic. The financial data should be read in conjunction with (i)
the historical financial statements of Plutonic, including the notes thereto,
which are set forth in Appendix D and as applicable to Homestake, and (ii) the
Unaudited Pro Forma Condensed Combined Financial Statements, which are included
in this Supplement. Data for the nine months ended 30 September 1997 and 1996
reflect, in the opinion of Plutonic, all adjustments necessary for a fair
presentation of such data. Results for the nine months ended 30 September 1997
and 1996 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
(IN AUSTRALIAN DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH AUSTRALIAN GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 DECEMBER
-----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Operating revenue.................... $340,461 $222,691 $214,363 $239,098 $99,869
Net income........................... 40,702 40,124 38,055 35,223 30,506
Net income per share................. 0.22 0.22 0.21 0.22 0.19
Cash dividends per share............. 0.11 0.095 0.08 0.06 0.05
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets........................ $678,011 $540,134 $396,730 $377,848 $251,960
Long-term obligations(1)............ 90,184 122,415 4,415 13,517 1,238
Shareholders' equity................ 416,569 354,967 331,708 300,122(2) 171,428
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED 30 SEPTEMBER
--------------------------
1997 1996
------------- --------
<S> <C> <C> <C> <C> <C>
Operating revenue................. $ 260,804 $257,855
Net income (loss)................. (44,716) 20,251
Net income (loss) per share....... (0.24) 0.11
</TABLE>
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
-------------
<S> <C> <C> <C> <C> <C>
Total assets...................... $ 621,758
Long-term obligations(1).......... 199,067
Shareholders' equity.............. 370,142
</TABLE>
- ---------------
(1) Long-term obligations consist of:
<TABLE>
<CAPTION>
31 DECEMBER
30 SEPTEMBER ------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Creditors and borrowings... $194,500 $87,500 $120,000 $3,970 $13,517 $ 874
Mine rehabilitation........ 2,956 1,984 1,955
Employee entitlements...... 240 134 117 142
Other long-term
obligations.............. 1,371 566 343 445 222
-------- ------- -------- ------ ------- ------
$199,067 $90,184 $122,415 $4,415 $13,517 $1,238
======== ======= ======== ====== ======= ======
</TABLE>
During 1995, Plutonic borrowed $120 million under an unsecured finance
facility. During 1996, a total of $180 million was borrowed under the
finance facility, of which $92.5 million was included in the current portion
of creditors and borrowings.
S-109
<PAGE> 142
(2) During 1993, Plutonic completed a rights issue of 19,935,000 Ordinary Shares
at a price of $6.30 per Ordinary Share on the basis of one Ordinary Share
for every eight Ordinary Shares held.
SELECTED OPERATING DATA
(IN AUSTRALIAN DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DEBT TO EQUITY RATIO (At 31 December)....... 44% 34% 4% 8% 0%
CAPITAL EXPENDITURES (thousands of
dollars).................................. $126,437 $64,666 $76,396 $30,914 $14,525
OPERATING STATISTICS
Gold production (thousands of ounces)....... 449.8 348.7 332.8 391.8 166.6
Average gold price realized per ounce....... $ 600 $ 612 $ 579 $ 532 $ 507
Total cash costs per ounce.................. $ 403 $ 378 $ 304 $ 295 $ 238
RESERVES (At 31 December)
Gold (millions of ounces)................... 2.2 2.1 1.6 1.2 0.7
</TABLE>
S-110
<PAGE> 143
PLUTONIC SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(U.S. GAAP)
The following table sets forth certain financial data and information
relating to Plutonic. The financial data should be read in conjunction with (i)
the historical financial statements of Plutonic, including the notes thereto,
which are set forth in Appendix D and Appendix F and (ii) the Unaudited Pro
Forma Condensed Combined Financial Statements, which are included in this
Supplement. Data for the nine months ended 30 September 1997 and 1996 reflect,
in the opinion of Plutonic, all adjustments necessary for a fair presentation of
such data. Results for the nine months ended 30 September 1997 and 1996 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
(IN AUSTRALIAN DOLLARS)
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 31 DECEMBER
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $302,976 $218,291 $203,941 $233,086 $ 89,692
Net income.......................... 24,242 27,147 20,521 34,600 19,923
Net income per share................ 0.13 0.15 0.11 0.22 0.13
Cash dividends per share............ 0.11 0.095 0.08 0.06 0.05
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets.................................. $651,918 $531,227 $380,375 $381,279 $263,330
Long-term obligations(1)...................... 90,184 122,415 4,415 13,517 1,238
Shareholders' equity.......................... 336,812 297,689 282,053 282,528 130,935
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED 30 SEPTEMBER
--------------------------
1997 1996
------------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 259,106 $224,332
Net income (loss)................................ (24,186) 9,736
Net income (loss) per share...................... (0.13) 0.05
</TABLE>
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
-------------
<S> <C> <C> <C> <C> <C>
Total assets..................................... $ 585,737
Long-term obligations(1)......................... 199,067
Shareholders' equity............................. 306,335
</TABLE>
- ---------------
(1) Long-term obligations consist of:
<TABLE>
<CAPTION>
31 DECEMBER
30 SEPTEMBER ------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Creditors and borrowings............ $194,500 $87,500 $120,000 $3,970 $13,517 $ 874
Mine rehabilitation................. 2,956 1,984 1,955
Employee entitlements............... 240 134 117 142
Other long-term obligations......... 1,371 566 343 445 222
------- ------- ------ ------ ------ ------
$199,067 $90,184 $122,415 $4,415 $13,517 $1,238
======= ======= ====== ====== ====== ======
</TABLE>
During 1995, Plutonic borrowed $120 million under an unsecured finance
facility. During 1996, a total of $180 million was borrowed under the
finance facility, of which $92.5 million was included in the current
portion of creditors and borrowings.
S-111
<PAGE> 144
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(TABULAR DOLLAR AMOUNTS ARE IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE
AMOUNTS)
(PREPARED IN ACCORDANCE WITH U.S. GAAP)
The following Unaudited Pro Forma Condensed Combined Balance Sheet and
Unaudited Pro Forma Condensed Combined Statements of Operations (collectively
the "Pro Forma Financial Statements") were prepared by Homestake to illustrate
the estimated effects of the Combination accounted for as a pooling-of-interests
under U.S. GAAP. See "The Combination -- Anticipated Accounting Treatment."
Accordingly, the financial information of Homestake and Plutonic has been
combined for all prior periods. All amounts in the Pro Forma Financial
Statements are stated in US dollars unless otherwise stated. The Pro Forma
Financial Statements give effect to material differences between Homestake's and
Plutonic's accounting policies which are expected to have a material impact on
the combined financial statements, and reflect adjustments made to conform to
Homestake's presentation and U.S. GAAP. The Pro Forma Financial Statements do
not purport to represent what the combined financial position or results of
operations actually would have been if the Combination had occurred at the
beginning of the periods or to project the combined financial position or
results of operations for any future date or period. The Unaudited Pro Forma
Condensed Combined Balance Sheet gives effect to the Combination as if it had
occurred on September 30, 1997. The Unaudited Pro Forma Condensed Combined
Statements of Operations are presented for the nine months ended September 30,
1997 and 1996 and for the years ended December 31, 1996, 1995, and 1994, giving
effect to the Combination as if it had occurred at the beginning of the earliest
period presented.
The Pro Forma Financial Statements should be read in conjunction with the
historical consolidated financial statements, including notes thereto, of
Homestake, prepared in accordance with U.S. GAAP and Plutonic, prepared in
accordance with Australian GAAP, which are included elsewhere in this Document.
Plutonic's historical financial statements have been adjusted to conform with
U.S. GAAP and translated into U.S. dollars.
The Pro Forma Financial Statements are presented utilizing the
pooling-of-interests method of accounting whereby the recorded assets,
liabilities, shareholders' equity and results of operations of Homestake and
Plutonic become the combined assets, liabilities, shareholders' equity and
results of operations. The Pro Forma Financial Statements also include pro forma
adjustments which are based upon available information and certain assumptions
that management of Homestake believes are reasonable in the circumstances. Such
pro forma adjustments reflect the effects of (1) the exchange of each Ordinary
Share for 0.34 shares of Homestake Common Stock, (2) the exchange of
approximately 322,405 shares of Homestake Common Stock for the Partly Paid
Shares, (3) the exchange of approximately 192,175 shares of Homestake Common
Stock for the Options, and (4) conforming Plutonic's U.S. GAAP adjusted
financial information to Homestake's basis of accounting.
S-112
<PAGE> 145
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS OF US DOLLARS)
ASSETS
<TABLE>
<CAPTION>
PLUTONIC
HOMESTAKE HISTORICAL PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(A) ADJUSTMENTS COMBINED
---------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Current Assets
Cash and equivalents................ $ 61,080 $ 20,656 $ -- $ 81,736
Short-term investments.............. 168,882 168,882
Receivables......................... 32,903 4,994 37,897
Gold bullion........................ 28,864 (28,864)(B) --
Inventories......................... 89,366 25,658 21,364(B) 136,388
Deferred income and mining taxes.... 12,263 4,781 17,044
Other............................... 6,802 4,887 11,689
---------- -------- -------- ----------
Total current assets............. 371,296 89,840 (7,500) 453,636
---------- -------- -------- ----------
Property, Plant and
Equipment -- net.................... 856,230 267,679 1,123,909
---------- -------- -------- ----------
Investments and Other Assets
Noncurrent investments.............. 25,285 28,608 53,893
Other assets........................ 81,659 17,866 99,525
Deferred income taxes............... 40,794 40,794
---------- -------- -------- ----------
Total investments and other
assets......................... 106,944 87,268 194,212
---------- -------- -------- ----------
Total Assets................ $1,334,470 $444,787 $ (7,500) $1,771,757
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities................... $ 115,504 $ 23,766 $ (2,699)(C) $ --
13,000(D) 149,571
---------- -------- -------- ----------
Long-term Liabilities
Long-term debt...................... 222,183 139,709 361,892
Other long-term obligations......... 145,218 3,281 148,499
Deferred income taxes............... 152,699 53,360 206,059
---------- -------- -------- ----------
Total long-term liabilities...... 520,100 196,350 -- 716,450
---------- -------- -------- ----------
Minority Interests.................... 104,622 4,630 109,252
---------- -------- -------- ----------
Shareholders' Equity.................. 594,244 220,041 (7,500)(B)
2,699(C)
(13,000)(D) 796,484
---------- -------- -------- ----------
Total Liabilities and
Shareholders' Equity...... $1,334,470 $444,787 $ (7,500) $1,771,757
========== ======== ======== ==========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Balance Sheet.
S-113
<PAGE> 146
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(A) The Plutonic historical balance sheet at September 30, 1997 has been
adjusted to reflect (1) presentation in accordance with U.S. GAAP and the format
and classifications utilized by Homestake and (2) translation into US dollars at
the September 30, 1997 exchange rate of approximately 0.7183 US dollars for each
Australian dollar. The following table shows adjustments made to reflect the
historical Plutonic Australian dollar balance sheet in conformity with
Homestake's presentation and U.S. GAAP (see Note 3 "Reconciliation to U.S. GAAP"
in Plutonic's historical consolidated financial statements for the nine months
ended 30 September 1997 included in Appendix D in this Document) (in thousands):
<TABLE>
<CAPTION>
AUSTRALIAN DOLLARS
--------------------------------------------- PLUTONIC
ADJUSTED HISTORICAL
PLUTONIC PLUTONIC AS ADJUSTED
HISTORICAL ADJUSTMENTS HISTORICAL (US DOLLARS)
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............. $ 28,757 $ -- $ 28,757 $ 20,656
Receivables...................... 6,952 6,952 4,994
Gold bullion..................... 40,184 40,184 28,864
Inventories...................... 35,721 35,721 25,658
Deferred income and mining
taxes......................... 6,656(4c) 6,656 4,781
Other............................ 6,804 6,804 4,887
-------- --------- -------- --------
Total current assets.......... 118,418 6,656 125,074 89,840
-------- --------- -------- --------
Property, Plant and
Equipment -- net................. 123,381 (2,000)(4b)
251,275(8) 372,656 267,679
-------- --------- -------- --------
Investments and Other Assets
Noncurrent investments........... 42,852 (3,025)(7) 39,827 28,608
Other assets..................... 24,873 24,873 17,866
Deferred cost of mineral
properties.................... 295,695 (94,045)(1)
13,272(2)
761(3)
50,892(4a)
(15,300)(4b)
(251,275)(8) -- --
Deferred income taxes............ 16,539 (6,656)(4c)
46,909(5) 56,792 40,794
-------- --------- -------- --------
Total investments and other
assets...................... 379,959 (258,467) 121,492 87,268
-------- --------- -------- --------
Total Assets............. $ 621,758 $ (2,536) $ 619,222 $444,787
======== ========= ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities................ $ 26,990 $ 6,097(4c) $ 33,087 $ 23,766
-------- --------- -------- --------
Long-term Liabilities
Long-term debt................... 194,500 194,500 139,709
Other long-term obligations...... 4,568 4,568 3,281
Deferred income taxes............ 25,558 50,892(4a)
(6,097)(4c)
3,933(5) 74,286 53,360
-------- --------- -------- --------
Total long-term liabilities... 224,626 48,728 273,354 196,350
-------- --------- -------- --------
Minority Interests................. 10,970(6a)
(4,524)(6b) 6,446 4,630
-------- --------- -------- --------
Shareholders' Equity............... 370,142 (94,045)(1)
13,272(2)
761(3)
(17,300)(4b)
42,976(5)
(10,970)(6a)
4,524(6b)
(3,025)(7) 306,335 220,041
-------- --------- -------- --------
Total Liabilities and
Shareholders' Equity... $ 621,758 $ (2,536) $ 619,222 $444,787
======== ========= ======== ========
</TABLE>
S-114
<PAGE> 147
- ---------------
(1) Plutonic defers ongoing exploration expenditures until the viability of a
project is determined. If a decision is made to proceed with a project the
expenditures are transferred to pre-production cost to be amortized over the
life of the mine. If a decision is made to abandon a project the
expenditures are written off at the time of such determination. Under U.S.
GAAP, exploration expenditures incurred prior to the completion of a
favorable feasibility study are expensed as incurred. Following completion
of a favorable feasibility study, development and drilling expenditures are
capitalized and are amortized using the units-of-production method based on
proven and probable reserves when commercial production begins.
(2) Plutonic accounts for business combinations using the purchase method. In
its application of the purchase method, Plutonic may assign a portion of the
purchase price to acquired exploration potential ("AEP"). AEP is amortized
using the straight-line method over periods not exceeding ten years. If it
is subsequently determined that the exploration properties acquired in a
business combination do not contain significant mineralization, the
remaining unamortized AEP associated with that business combination would be
written down at the time of such determination. Under U.S. GAAP, AEP would
be specifically allocated to individual exploration properties. If it is
subsequently determined that significant mineralization does not exist on
any of these individual properties, they would be written down at the time
of such determination. If a property becomes a producing mine, its carrying
value would be amortized using the units-of-production method based on
proven and probable reserves.
(3) Plutonic amortizes mine development and pre-production expenditures together
with estimates of expected future development expenditures using the
units-of-production method based on its estimate of future life-of-mine
production. Plutonic's estimate of future life-of-mine production includes
proven and probable reserves plus a portion of mineralized material which
has not yet been converted to reserves but which Plutonic believes there is
sufficient confidence that such material will be converted to reserves after
further delineation drilling. Plutonic has a history of successfully
converting mineralized material included in its life-of-mine plans into
reserves. If a significant change in the estimated future life-of-mine
production occurs during the period, amortization expense is adjusted to
reflect the change. Under U.S. GAAP, mine development expenditures,
excluding any provision for expected future development expenditures, are
amortized using the units-of-production method based on proven and probable
reserves only. Any significant changes in proven and probable reserves are
accounted for prospectively for amortization purposes from the date of the
change.
(4) Plutonic uses the liability method of accounting for income taxes, which
also is required under U.S. GAAP. However, there are differences in the
application of the liability method under U.S. GAAP. The most significant
differences relate to acquisitions accounted for using the purchase method,
recognition of future income tax benefits, and the presentation of the
current and long-term portions of future tax benefits and deferred tax
liabilities in the balance sheet.
a) Under Australian GAAP, when an acquisition price exceeds the
underlying net book value of the assets acquired, the excess purchase price
is allocated to the acquired assets and liabilities based on fair values.
Deferred taxes are not established for any differences between the book and
tax bases of assets, which may arise from this allocation. The assets are
then amortized in accordance with the company's normal depreciation
policies. Under U.S. GAAP, when an acquisition is accounted for using the
purchase method, the excess purchase price paid above the net book value of
the assets acquired also is allocated to the acquired assets and
liabilities based on fair values. However, to the extent that such
allocation creates a temporary difference, deferred taxes are established
and the excess purchase price is increased by an equal amount. The assets
are then amortized in accordance with the company's normal depreciation
policies and the deferred tax provision is accounted for in accordance with
the company's normal tax accounting policies.
b) Under Australian GAAP, future income tax benefits relating to
timing differences are not recognized unless realization of the benefit is
assured beyond reasonable doubt. Future income tax benefits resulting from
net operating losses are not recognized unless there is virtual certainty
of realization of the benefit. Acquired tax benefits are valued at market
at the time of acquisition, and
S-115
<PAGE> 148
subsequent to acquisition are recognized in accordance with the foregoing
criteria. Under U.S. GAAP, a deferred tax asset is recognized for
deductible temporary differences and operating loss and tax credit
carry-forwards. A valuation allowance is recognized if, based on the weight
of available evidence, it is more likely than not that some portion or all
of the deferred tax asset will not be realized.
c) Under Australian GAAP, the current and long-term portions of future
tax benefits and deferred tax liabilities are not separately disclosed in
the balance sheet. Under U.S. GAAP, the current and long-term portions of
future tax benefits and deferred tax liabilities are separately disclosed
in the balance sheet.
(5) Represents the income tax effect that results from the U.S. GAAP adjustments
(1) through (4) above.
(6) (a) To present minority interests outside of shareholders' equity in
accordance with U.S. GAAP.
(b) To reflect minority interests' share of the U.S. GAAP adjustments
(1) through (5) above.
(7) Plutonic carries investments in listed and unlisted companies at cost except
that declines in market value judged to be other than temporary are
recognized in determining net income. Under U.S. GAAP, Plutonic's
investments would be classified as available-for-sale investments and would
be carried at market value. Unrealized gains and losses on these investments
are recorded as a separate component of shareholders' equity except that
declines in market value judged to be other than temporary are recognized in
determining net income.
(8) To reclassify deferred mining costs to conform to Homestake's presentation.
(B) Plutonic recognizes revenue and records a receivable for gold bullion
at the time it is delivered to a refinery. Homestake records gold bullion as
inventory at the lower of cost or net realizable value and recognizes revenue
when title passes.
(C) Plutonic's income tax liabilities have been adjusted to give effect to
the pro forma adjustments.
(D) Homestake and Plutonic estimate that they will incur a total of
approximately $13 million of transaction costs, consisting primarily of
investment bankers fees, stamp duty taxes, attorneys and accountants fees,
financial printing, and other related charges. These estimates of merger-related
expenses are preliminary and therefore are subject to change. These nonrecurring
expenses are being charged to operations as incurred. The Pro Forma Condensed
Combined Balance Sheet gives effect to the estimated $13 million of transaction
costs as if they had been incurred as of September 30, 1997. The Pro Forma
Condensed Combined Statements of Operations do not give effect to the estimated
$13 million of merger-related expenses.
Homestake and Plutonic also estimate that they will incur approximately $4
million of one-time post-Combination severance, lease termination and relocation
charges. The Pro Forma Financial Statements do not give effect to these
post-Combination severance, lease termination and relocation charges.
S-116
<PAGE> 149
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PLUTONIC
HOMESTAKE HISTORICAL PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(A) ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales............................ $ 497,786 $ 178,058 $ (7,572)(B) $ 668,272
Interest income.......................... 10,488 2,746 13,234
Gain on termination of Santa Fe merger... 62,925 62,925
Other income............................. 5,871 16,427 22,298
--------- --------- --------- ---------
577,070 197,231 (7,572) 766,729
--------- --------- --------- ---------
Costs and Expenses
Production costs......................... 354,305 118,293 (3,569)(B) 469,029
Depreciation, depletion and
amortization.......................... 85,509 18,252 103,761
Administrative and general expense....... 30,304 4,467 34,771
Exploration expense...................... 36,659 13,568 50,227
Interest expense......................... 7,659 6,940 14,599
Write-downs and other unusual charges.... 183,646 66,603 250,249
Other expense............................ 4,879 2,193 7,072
--------- --------- --------- ---------
702,961 230,316 (3,569) 929,708
--------- --------- --------- ---------
Income (Loss) Before Taxes and Minority
Interests................................ (125,891) (33,085) (4,003) (162,979)
Income and Mining Taxes.................... 3,960 12,747 1,441(C) 18,148
Minority Interests......................... (8,113) 1,927 (6,186)
--------- --------- --------- ---------
Net Income (Loss).......................... $(130,044) $ (18,411) $ (2,562) $(151,017)
========= ========= ========= =========
Net Income (Loss) Per Share................ $ (0.89) $ (0.10) (0.72)
========= ========= =========
Average Shares Used in the Computation..... 146,714 187,700 (187,700)(D)
63,818(D) 210,532
========= ========= ========= =========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
S-117
<PAGE> 150
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PLUTONIC
HOMESTAKE HISTORICAL PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(A) ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales.............................. $564,696 $157,022 $ (3,573)(B) $ 718,145
Interest income............................ 11,246 4,053 15,299
Other income............................... 12,041 13,657 25,698
-------- --------- --------- ---------
587,983 174,732 (3,573) 759,142
-------- --------- --------- ---------
Costs and Expenses
Production costs........................... 361,504 105,418 707(B) 467,629
Depreciation, depletion and amortization... 83,539 32,368 115,907
Administrative and general expense......... 27,804 8,899 36,703
Exploration expense........................ 29,527 14,147 43,674
Interest expense........................... 7,974 5,754 13,728
Other expense.............................. 1,304 (1,110) 194
-------- --------- --------- ---------
511,652 165,476 707 677,835
-------- --------- --------- ---------
Income (Loss) Before Taxes and Minority
Interests.................................. 76,331 9,256 (4,280) 81,307
Income and Mining Taxes...................... (37,709) (2,230) 1,541(C) (38,398)
Minority Interests........................... (10,766) 557 (10,209)
-------- --------- --------- ---------
Net Income (Loss)............................ $ 27,856 $ 7,583 $ (2,739) $ 32,700
======== ========= ========= =========
Net Income (Loss) Per Share.................. $ 0.19 $ 0.04 $ 0.16
======== ========= =========
Average Shares Used in the Computation....... 146,190 187,400 (187,400)(D)
63,716(D) 209,906
======== ========= ========= =========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
S-118
<PAGE> 151
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PLUTONIC
HOMESTAKE HISTORICAL PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(A) ADJUSTMENTS COMBINED
--------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Product sales............................ $742,935 $208,644 $ (6,555)(B) $ 945,024
Interest income.......................... 15,054 5,338 20,392
Other income............................. 8,947 23,278 32,225
-------- --------- --------- --------
766,936 237,260 (6,555) 997,641
-------- --------- --------- --------
Costs and Expenses
Production costs......................... 475,333 139,962 (3,237)(B) 612,058
Depreciation, depletion and
amortization.......................... 112,353 39,499 151,852
Administrative and general expense....... 36,965 11,831 48,796
Exploration expense...................... 45,382 21,981 67,363
Interest expense......................... 10,644 8,496 19,140
Other expense............................ 14,575 1,066 15,641
-------- --------- --------- --------
695,252 222,835 (3,237) 914,850
-------- --------- --------- --------
Income (Loss) Before Taxes and Minority
Interests................................ 71,684 14,425 (3,318) 82,791
Income and Mining Taxes.................... (26,333) 2,757 1,194(C) (22,382)
Minority Interests......................... (15,070) 1,802 (13,268)
-------- --------- --------- --------
Net Income (Loss).......................... $ 30,281 $ 18,984 $ (2,124) $ 47,141
======== ========= ========= ========
Net Income (Loss) Per Share................ $ 0.21 $ 0.10 $ 0.22
======== ========= ========
Average Shares Used in the Computation..... 146,311 187,400 (187,400)(D)
63,716(D) 210,027
======== ========= ========= ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
S-119
<PAGE> 152
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PLUTONIC
HOMESTAKE HISTORICAL PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(A) ADJUSTMENTS COMBINED
--------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales.............................. $715,842 $156,920 $ 39,817(B) $ 912,579
Interest income............................ 16,737 2,415 19,152
Other income............................... 13,786 2,505 16,291
-------- -------- --------- --------
746,365 161,840 39,817 948,022
-------- -------- --------- --------
Costs and Expenses
Production costs........................... 481,886 92,376 28,302(B) 602,564
Depreciation, depletion and amortization... 99,602 23,732 123,334
Administrative and general expense......... 37,283 7,186 44,469
Exploration expense........................ 27,541 15,740 43,281
Interest expense........................... 11,297 1,162 12,459
Other expense.............................. 3,290 675 3,965
-------- -------- --------- --------
660,899 140,871 28,302 830,072
-------- -------- --------- --------
Income (Loss) Before Taxes and Minority
Interests.................................. 85,466 20,969 11,515 117,950
Income and Mining Taxes...................... (39,141) (1,884) (3,779)(C) (44,804)
Minority Interests........................... (15,998) 1,041 (14,957)
-------- -------- --------- --------
Net Income (Loss)............................ $ 30,327 $ 20,126 $ 7,736 $ 58,189
======== ======== ========= ========
Net Income (Loss) Per Share.................. $ 0.22 $ 0.11 $ 0.29
======== ======== ========
Average Shares Used in the Computation....... 138,117 180,200 (180,200)(D)
61,268(D) 199,385
======== ======== ========= ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
S-120
<PAGE> 153
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PLUTONIC
HOMESTAKE HISTORICAL PRO FORMA PRO FORMA
HISTORICAL AS ADJUSTED(A) ADJUSTMENTS COMBINED
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Product sales.............................. $ 656,056 $ 141,837 $ (24,755)(B) $ 773,138
Interest income............................ 9,762 4,136 13,898
Other income............................... 39,669 3,229 42,898
--------- --------- --------- ---------
705,487 149,202 (24,755) 829,934
--------- --------- --------- ---------
Costs and Expenses
Production costs........................... 447,129 75,619 (25,654)(B) 497,094
Depreciation, depletion and amortization... 76,171 23,397 99,568
Administrative and general expense......... 38,159 4,831 42,990
Exploration expense........................ 21,347 17,517 38,864
Interest expense........................... 10,124 958 11,082
Other expense.............................. 6,744 1,249 7,993
--------- --------- --------- ---------
599,674 123,571 (25,654) 697,591
--------- --------- --------- ---------
Income (Loss) Before Taxes and Minority
Interests.................................. 105,813 25,631 899 132,343
Income and Mining Taxes...................... (18,880) (10,919) (296)(C) (30,095)
Minority Interests........................... (8,917) 300 (8,617)
--------- --------- --------- ---------
Net Income (Loss)............................ $ 78,016 $ 15,012 $ 603 $ 93,631
========= ========= ========= =========
Net Income (Loss) Per Share.................. $ 0.57 $ 0.08 $ 0.47
========= ========= =========
Average Shares Used in the Computation....... 137,733 179,800 (179,800)(D)
61,132(D) 198,865
========= ========= ========= =========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
S-121
<PAGE> 154
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(ALL AMOUNTS ARE IN US DOLLARS UNLESS OTHERWISE INDICATED)
(A) The Plutonic historical statements of operations for the nine months
ended September 30, 1997 and 1996, and for the years ended December 31, 1996,
1995, and 1994 have been adjusted to reflect (1) presentation in accordance with
U.S. GAAP and the format and classifications utilized by Homestake and (2)
translation into U.S. dollars using the average exchange rate for each period
(approximately 0.7612 United States dollars for each Australian dollar in the
nine month period ended September 30, 1997, 0.7789 in the nine month period
ended September 30, 1996, 0.7831 in the year 1996, 0.7414 in the year 1995, and
0.7316 in the year 1994). Adjustments to the statements of operations may differ
in amount from similar adjustments made to the balance sheet due to converting
balance sheet amounts at the period end exchange rate and statements of
operations amounts at the average exchange rate for each period. The following
table shows adjustments made to reflect the historical Plutonic Australian
dollar statements of operations in conformity with U.S. GAAP (see
"Reconciliation to U.S. GAAP", Notes 3, 35, and 34 in Plutonic's historical
consolidated financial statements for the periods ended 30 September 1997, 31
December 1996, and 31 December 1995, respectively, included in Appendix D in
this Document) (in thousands) :
<TABLE>
<CAPTION>
NINE MONTHS ENDED
30 SEPTEMBER FOR THE YEAR ENDED 31 DECEMBER
--------------------- -------------------------------------
INCREASE(DECREASE) 1997 1996 1996 1995 1994
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenue........................ $ 2,663(4) $(2,044)(4) $ (2,740)(4) -- --
Depreciation, depletion and
amortization................. (2,787)(2) (2,845)(2) (3,814)(2) $(2,269)(2) $ (1,038)(2)
(6,825)(3) 2,112(3) 269(3) (1,521)(3) 5,162(3)
3,728(5a) 4,075(5a) 5,212(5a) 2,831(5a) 668(5a)
Exploration expense............ 10,442(1) 11,622(1) 18,577(1) 12,373(1) 12,865(1)
Write-downs and other unusual
charges...................... (7,876)(3)
Income tax expense............. (5,176)(5b) (5,297)(5b) 3,994(5b) (4,374)(5b) --
(3,269)(6) (2,950)(6) (12,902)(6) 3,817(6) (4,562)(6)
Minority interests............. (1,201)(7) (571)(7) (1,185)(7) (1,236)(7) (268)(7)
------- ------- -------- ------- --------
Net Income (Loss).............. $15,627 $(8,190) $(12,891) $(9,621) $(12,827)
======= ======= ======== ======= ========
</TABLE>
- ---------------
(1) Plutonic defers ongoing exploration expenditures until the viability of a
project is determined. If a decision is made to proceed with a project the
expenditures associated with that project are transferred to pre-production
costs to be amortized over the life of the mine. If a decision is made to
abandon a project the expenditures are written off at the time of such
determination. Under U.S. GAAP, exploration expenditures incurred prior to
the completion of a favorable feasibility study are expensed as incurred.
Following completion of a favorable feasibility study, pre-production
exploration expenditures are capitalized and amortized using the
units-of-production method based on proven and probable reserves.
(2) Plutonic accounts for business combinations using the purchase method. In
its application of the purchase method, Plutonic may assign a portion of the
purchase price to acquired exploration potential ("AEP"). AEP is amortized
using the straight-line method over periods not exceeding ten years. If it
is subsequently determined that the exploration properties acquired in a
business combination do not contain significant mineralization, the
remaining unamortized AEP associated with that business combination would be
written down at the time of such determination. Under U.S. GAAP, AEP would
be specifically allocated to individual exploration properties. If it is
subsequently determined that significant mineralization does not exist on
any of these individual properties, they would be written down at the time
of such determination. If a property becomes a producing mine its carrying
value would be amortized using the units-of-production method based on
proven and probable reserves.
(3) Plutonic amortizes mine development and pre-production expenditures together
with estimates of expected future development expenditures using the
units-of-production method based on its estimate of
S-122
<PAGE> 155
future life-of-mine production. Plutonic's estimate of future life-of-mine
production includes proven and probable reserves plus a portion of
mineralized material which has not yet been converted to reserves but which
Plutonic believes there is sufficient confidence that such material will be
converted to reserves after further delineation drilling. Plutonic has a
history of successfully converting mineralized material included in its
life-of-mine plans into reserves. If a significant change in the estimated
future life-of-mine production occurs during the period, amortization
expense is adjusted to reflect the change. Under U.S. GAAP, mine development
and pre-production expenditures, excluding any provision for expected future
development expenditures, are amortized using the units-of-production method
based on proven and probable reserves only. Any significant changes in
proven and probable reserves are accounted for prospectively for
amortization purposes from the date of the change.
(4) In 1996, Plutonic recognized a gain of A$13 million on the early close out
of certain gold forward sales contracts. Under U.S. GAAP, these forward
sales contracts would have been classified as hedges of future designated
production and the gain realized on the early close out would have been
deferred and recognized in income as the designated production was
delivered. Accordingly, under U.S. GAAP approximately 73% of this gain would
have been included in income in the year ended December 31, 1996 with the
balance included in income in the nine months ended September 30, 1997.
(5) Plutonic uses the liability method of accounting for income taxes, which
also is required under U.S. GAAP. However, there are differences in the
application of the liability method under U.S. GAAP. The most significant
differences relate to acquisitions accounted for using the purchase method
and recognition of future income tax benefits.
a) Under Australian GAAP, when an acquisition price exceeds the
underlying net book value of the assets acquired, the excess purchase price
is allocated to the acquired assets and liabilities based on fair values.
Deferred taxes are not established for any differences between the book and
tax bases of assets, which may arise from this allocation. The assets are
then amortized in accordance with the company's normal depreciation
policies. Under U.S. GAAP, when an acquisition is accounted for using the
purchase method, the excess purchase price paid above the net book value of
the assets acquired also is allocated to the acquired assets and
liabilities based on fair values. However, to the extent that such
allocation creates a temporary difference, deferred taxes are established
and the excess purchase price is increased by an equal amount. The assets
are then amortized in accordance with the company's normal depreciation
policies and the deferred tax provision is accounted for in accordance with
the company's normal tax accounting policies.
b) Under Australian GAAP, future income tax benefits relating to
timing differences are not recognized unless realization of the benefit is
assured beyond reasonable doubt. Future income tax benefits resulting from
net operating losses are not recognized unless there is virtual certainty
of realization of the benefit. Acquired tax benefits are valued at market
at the time of acquisition, and subsequent to acquisition are recognized in
accordance with the foregoing criteria. Under U.S. GAAP, a deferred tax
asset is recognized for deductible temporary differences and operating loss
and tax credit carry-forwards. A valuation allowance is recognized if,
based on the weight of available evidence, it is more likely than not that
some portion or all of the deferred tax asset will not be realized.
(6) Represents the income tax effect that results from the U.S. GAAP adjustments
1) through 5) above.
(7) To reflect minority interests' share of the above U.S. GAAP adjustments.
(B) Plutonic recognizes revenue and records a receivable for gold bullion
at the time it is delivered to a refinery. Homestake carries final product as
inventory at the lower of cost or net realizable value and recognizes revenue
when title passes.
(C) Plutonic's deferred tax assets and liabilities have been adjusted to
give effect to the pro forma adjustments above.
(D) Reflects the pro forma adjustment to average shares outstanding for
each year based on the exchange ratio of 0.34 shares of Homestake Common Stock
for each Plutonic Ordinary Share.
(E) Homestake and Plutonic estimate that they will incur a total of
approximately $13 million of transaction costs, consisting primarily of
investment bankers fees, stamp duty taxes, attorneys and accountants
S-123
<PAGE> 156
fees, financial printing, and other related charges. These estimates of
merger-related expenses are preliminary and therefore are subject to change.
These nonrecurring expenses are being charged to operations as incurred. The Pro
Forma Condensed Combined Balance Sheet gives effect to the estimated $13 million
of transaction costs as if they had been incurred as of September 30, 1997. The
Pro Forma Condensed Combined Statements of Operations do not give effect to the
estimated $13 million of merger-related expenses.
Homestake and Plutonic also estimate that they will incur approximately $4
million of one-time post-Combination severance, lease termination and relocation
charges. The Pro Forma Financial Statements do not give effect to these
post-Combination severance, lease termination and relocation charges.
S-124
<PAGE> 157
COMPARATIVE PER SHARE DATA
The following table presents Homestake's and Plutonic's historical per
share data and pro forma combined per share data for the nine months ended
September 30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and
1994, giving effect to the Combination and accounting for the Combination as a
pooling-of-interests, based upon the consolidated historical financial
statements of Homestake and Plutonic and the Unaudited Pro Forma Condensed
Combined Financial Statements. The pro forma combined information does not
purport to represent what the combined financial position or results of
operations would actually have been if the Combination had occurred at the
beginning of each of the periods or to project the combined financial position
or results of operations for any future data or period.
The information presented below should be read in conjunction with (i) the
historical financial statements of Homestake and Plutonic, including the notes
thereto, which are set forth in Appendices C and D, respectively, (ii) the
Unaudited Pro Forma Condensed Combined Financial Statements, which are included
in the Supplement and (iii) the historical selected financial data of Homestake
and Plutonic.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------------
1997 1996 1996 1995 1994
------ ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts
in US dollars)
Book value (1)................................ $ 4.05 $ 5.21 $ 5.24 $ 4.52 $ 4.27
Cash dividends paid........................... 0.10 0.15 0.20 0.20 0.175
Net income (loss)............................. (0.89) 0.19 0.21 0.22 0.57
Per Plutonic Ordinary Share:
(Prepared in accordance with Australian GAAP;
amounts in Australian dollars)
Book value (1)................................ $ 1.97 $ 2.18 $ 2.22 $ 1.97 $ 1.84
Cash dividends paid........................... 0.070 0.055 0.095 0.090 0.090
Net income (loss)............................. (0.24) 0.11 0.22 0.22 0.21
Per Plutonic Ordinary Share:
(Prepared in accordance with U.S. GAAP; amounts
in Australian dollars)
Book value(1)................................. $ 1.63 $ 1.72 $ 1.80 $ 1.65 $ 1.57
Cash dividends paid........................... 0.070 0.055 0.095 0.090 0.090
Net income (loss)............................. (0.13) 0.05 0.13 0.15 0.11
PRO FORMA:
Combined per share of Homestake Common Stock:
(Prepared in accordance with U.S. GAAP; amounts
in US dollars)
Book value(1)................................. $ 3.78 $ 4.83 $ 4.91 $ 4.25 $ 4.02
Cash dividends paid(2)........................ 0.10 0.15 0.20 0.20 0.175
Net income (loss)............................. (0.72) 0.16 0.22 0.29 0.47
Combined per Plutonic Ordinary Share
equivalent:(3)
(Prepared in accordance with U.S. GAAP; amounts
in US dollars)
Book value(1)................................. $ 1.29 $ 1.64 $ 1.67 $ 1.44 $ 1.37
Cash dividends paid........................... 0.03 0.05 0.07 0.07 0.06
Net income (loss)............................. (0.24) 0.05 0.07 0.10 0.16
</TABLE>
S-125
<PAGE> 158
- ---------------
(1) Book value per share is shareholders' equity divided by common shares (or in
the case of Plutonic, Ordinary Shares) outstanding at September 31, 1997 and
1996 and December 31, 1996, 1995 and 1994.
(2) Pro forma cash combined cash dividends per share of Homestake Common Stock
reflect Homestake's historical cash dividend rate per share paid in the
periods indicated.
(3) Pro forma combined per Ordinary Share of equivalent information reflects the
pro forma combined per share of Homestake Common Stock amount multiplied by
the Exchange Ratio of 0.34 shares of Homestake Common Stock for each
Ordinary Share.
S-126
<PAGE> 159
DIRECTORS AND MANAGEMENT OF HOMESTAKE AFTER THE COMBINATION
BOARD OF DIRECTORS OF HOMESTAKE AFTER THE COMBINATION
The names, principal occupations and certain other information regarding
the existing members of the Homestake Board, all of whom will continue as
directors of Homestake after the Combination, are set forth below.
The information appearing in the tables and certain information regarding
beneficial ownership of securities by such directors contained in this
Supplement has been furnished to Homestake by the directors.
<TABLE>
<CAPTION>
AGE AT
JAN. 31, DIRECTOR
1998 SINCE BIOGRAPHICAL INFORMATION
-------- -------- ---------------------------------------------------
<S> <C> <C> <C>
M. Norman Anderson........ 67 1992 Mr. Anderson is President of Norman Anderson &
Associates Ltd. (mining consultants). Mr. Anderson
was a director of Homestake Canada Inc. ("HCI")
from 1987 to 1993, and was the Chairman of the
Board of Directors of HCI from February 1991 to
July 1992, when Homestake acquired the outstanding
voting shares of HCI. He is a director of Prime
(gold mining), Solv-ex Corporation (tar sands
processing), Finning Ltd. (construction equipment
sales and service), Buenaventura S.A. (gold and
silver mining) and Toronto Dominion Bank.
Richard R. Burt........... 50 1997 Mr. Burt has been the Chairman of IEP Advisors
(strategic and financial advisory services) since
June 1993. From April 1991 to June 1993, he was a
partner in McKinsey & Company (management
consultants). Mr. Burt was the United States
Ambassador to the Federal Republic of Germany from
1985 to 1989. He is a director of Archer Daniels
Midland Company (processing and sales of
agricultural commodities), Hollinger International
Inc. (publishing), Weirton Steel Company
(integrated steel producer) and VLT, Inc. (gaming
software design).
Robert H. Clark, Jr....... 56 1984 Mr. Clark has been Chief Executive Officer since
1993, President since 1983, and a director since
1968 of Case, Pomeroy & Company, Inc. (mining, oil
and gas, real estate). Mr. Clark is a director of
FINOVA Group Inc. (financial services).
Harry M. Conger........... 67 1977 Mr. Conger has been Chairman of the Board of
Homestake since 1982. He also was Chief Executive
Officer from 1978 until May 1996. He was also
President of Homestake from 1977 to 1986. He is a
director of ASA Limited (investment company), Baker
Hughes Incorporated (oil service and equipment
manufacturing), CalMat Company (aggregates,
asphalt, and property development), and Pacific Gas
and Electric Company and Apex Silver Mines Limited.
</TABLE>
S-127
<PAGE> 160
<TABLE>
<CAPTION>
AGE AT
JAN. 31, DIRECTOR
1998 SINCE BIOGRAPHICAL INFORMATION
-------- -------- ---------------------------------------------------
<S> <C> <C> <C>
G. Robert Durham.......... 68 1990 Mr. Durham has been a director and Chief Executive
Officer of Walter Industries, Inc. (building
materials, home building, mortgage financing and
natural resource development) since June 1991,
President from June 1991 to October 1995, and
Chairman since October 1995. He was Chairman of the
Board and President of Phelps Dodge Corporation
(mining) from 1987 to 1989, President and Chief
Operating Officer from 1985 to 1987, and held other
executive positions with Phelps Dodge Corporation
or affiliated corporations beginning in 1977. He is
a director of FINOVA Group Inc. (financial
services), a director of Mincorp Ltd. (engineering
services), and a trustee of Mutual Life Insurance
Company of New York.
Douglas W. Fuerstenau..... 69 1977 Mr. Fuerstenau has been a Professor of Metallurgy,
Department of Materials Science and Mineral
Engineering, University of California, Berkeley
since 1959. He was P. Malozemoff Professor of
Mineral Engineering from 1987 to 1993, professor
emeritus from 1993 to July 1994, and has been a
professor in the Graduate School since July 1994.
Henry G. Grundstedt....... 69 1992 Mr. Grundstedt is a mining consultant. He was
Senior Vice President of Capital Guardian Trust
Company (money manager of pension and mutual funds)
from 1973 to 1991 and held other executive
positions with that firm beginning in 1972,
specializing in the mining and metals industry.
John Neerhout, Jr......... 67 1989 Mr. Neerhout has been the Managing Director of
Union Railways Limited (rail transportation) since
April 1997, and a director of London and
Continental Railways Ltd. since March 1997. He has
been a director of The Energy Group Plc (gas and
coal production, power generation and sales) since
February 1997. Mr. Neerhout retired as Executive
Vice President of Bechtel Group Inc. (engineering
and construction) in October 1996, a position he
held since 1986. Mr. Neerhout was also a director
of and held executive positions with Bechtel Group
Inc. and other of its affiliated companies prior to
his retirement.
Stuart T. Peeler.......... 68 1981 Mr. Peeler has been a petroleum industry consultant
since 1989. From 1982 until 1988 he was Chairman of
the Board and Chief Executive Officer of Statex
Petroleum, Inc. He is a director of CalMat Company
(aggregates, asphalt, and property development),
Chieftain International, Inc. (oil and gas
exploration and production) and Chieftain Interna-
tional Funding Corp. (financial services).
</TABLE>
S-128
<PAGE> 161
<TABLE>
<CAPTION>
AGE AT
JAN. 31, DIRECTOR
1998 SINCE BIOGRAPHICAL INFORMATION
-------- -------- ---------------------------------------------------
<S> <C> <C> <C>
Carol A. Rae.............. 51 1995 Ms. Rae has been the President and Chief Executive
Officer of Integrated Media and Marketing, LLC
(producer of educational video and multimedia
products) since 1995, and the President of MedVal
Technologies International, Inc. (manufacturer of
orthopedic splints) since 1984. She has been a
member of the Board of Directors of the U.S.
Chamber of Commerce since 1994. She was Senior Vice
President and General Manager of the Refractive
Division of Chiron Vision Corporation (manufacturer
of ophthalmic intraocular lenses) from 1994 until
1995 and since 1995 has been Senior Vice President
of Government Affairs of the Refractories Division
of Chiron Vision. She has also been the President
of MedVal Technologies International, Inc.
(manufacturer of orthopedic splints) since 1982.
She was the President and Chief Executive Officer
of Magnum Diamond Corporation (manufacturer of
surgical instruments) from 1989 to 1995.
Jack E. Thompson.......... 47 1994 Mr. Thompson has been the Chief Executive Officer
of Homestake since May 1996, and President and a
director of Homestake since August 1994. He was
Executive Vice President-Canada of Homestake and
President and Chief Executive Officer of Prime and
HCI from July 1992 to August 1994. He was President
of Homestake Mineral Development Company and North
American Metals Corp. (gold mining) from 1988 until
July 1992.
Jeffrey L. Zelms.......... 53 1997 Mr. Zelms has been the President since 1986 and the
Chief Executive Officer since 1992 of The Doe Run
Company (lead, zinc and copper mining, lead
fabrication and recycling). He is a director of
Phoenix Textile Corporation (linen supplier for the
health industry) and BW/IP International, Inc.
(provider of engineered pumps and seals for
refinery and chemical industries).
</TABLE>
The Homestake Charter provides for the Homestake Board to be divided into
three classes. Each class of directors elected at an annual meeting of
stockholders is elected for a three-year term. Homestake's directors can be
removed from office only for cause.
The Homestake Board has six committees: the Executive Committee, the
Finance Committee, the Audit Committee, the Compensation Committee, the Director
Affairs Committee and the Environmental, Health and Safety Committee.
The Executive Committee has authority to exercise most of the powers of the
Homestake Board. It is intended to function on a standby basis.
The Finance Committee reviews and makes recommendations to the Homestake
Board about proposed dividends, investments and financial matters, and oversees
pension and savings plan investments.
The Audit Committee recommends to the Homestake Board appointment of the
firm of independent accountants to audit and report to stockholders on the
consolidated financial statements of Homestake, and receives and considers the
reports of the independent accountants. The Committee also oversees Homestake's
internal auditing.
S-129
<PAGE> 162
The Compensation Committee evaluates and recommends to the full Homestake
Board the levels of compensation and benefits for officers and key employees.
The Compensation Committee also administers Homestake's stock option plans and
its Deferred Compensation Plan and Executive Supplemental Retirement Plan.
The Director Affairs Committee reviews and evaluates candidates for
director, including nominees recommended by stockholders, makes recommendations
on candidates to the Homestake Board, evaluates director performance, and make
recommendations regarding director compensation and stock ownership.
Applications and communications relating to candidates for director may be sent
to the Secretary of Homestake at the corporate offices in San Francisco.
The Environment, Health and Safety Committee oversees Homestake's
compliance with environmental, health and safety laws and policies.
DIRECTORS AND MANAGEMENT OF HOMESTAKE AFTER THE COMBINATION; INTENTIONS ABOUT
PLUTONIC
Following the Combination, the existing members of the Homestake Board will
continue as directors of Homestake. It is the expectation of Homestake that
Homestake's Board will invite Mr. Paul McClintock, Chairman of the Plutonic
Board, to become a member of the Homestake Board. In addition, the existing
officers of Homestake are expected to continue to hold their respective
positions.
On completion of the Combination, Plutonic will cease to be a separate,
publicly-held company. As a result, certain administrative, treasury and other
activities of Plutonic will no longer need to be performed after the Combination
is completed. It is also the intention of Homestake to integrate the management,
administrative, exploration, operational and other activities of Plutonic and
HGAL, Homestake's principal Australian company. As a part of that integration,
Homestake expects to close the Plutonic offices in Sydney and to relocate the
continuing Plutonic activities to Perth. Plutonic exploration functions
performed in Sydney, as well as HGAL's exploration department in Perth, will be
relocated to Plutonic's existing Perth exploration offices.
As a part of the integration process, Plutonic and Homestake management
will work together to determine an appropriate organizational structure and the
nature and number of management, administrative, exploration, operational and
other positions for the consolidated group. Plutonic and Homestake management
will also evaluate the personnel employed by HGAL and Plutonic to determine the
persons best qualified from both companies, taking into account the extent to
which Plutonic personnel may be prepared to relocate to Perth. Following that
evaluation process, Homestake management will select the appropriate senior
management and other personnel from both companies and take other appropriate
action to implement the administrative reorganization.
Because of the headquarters move, the elimination of certain functions, and
restructuring of the organizations, there will be a reduction in the combined
workforce. As a result, Homestake anticipates that some number of existing
Plutonic and HGAL employees will cease to be employed in the newly consolidated
group, although it cannot now determine the extent thereof. Homestake will
provide and expects that it will cause Plutonic to provide, severance packages
to all employees whose positions are eliminated that are on terms at least as
favorable as those generally offered to similarly situated persons in the
location of employment and the Australian gold mining sector.
The Homestake Bank Credit Agreement permits total borrowings of up to
US$275 million. At December 31, 1997, borrowings under the Homestake Bank Credit
Agreement were US$54 million. Homestake's Bank Credit Agreement also limits the
amount of indebtedness that may be incurred or maintained by certain
subsidiaries. At December 31, 1997, the borrowings by Plutonic under its bank
credit agreement were approximately A$170 million (approximately US$114 million
at A$1 = US$0.67), which is in excess of the borrowings which would be permitted
for Plutonic operating as a subsidiary of Homestake under the Homestake Bank
Credit Agreement. Plutonic's bank credit agreement provides that lenders under
that agreement have the right to request repayment of outstanding indebtedness
following a change of control of Plutonic. The Combination will constitute a
change of control of Plutonic for purposes of the Plutonic bank
S-130
<PAGE> 163
credit agreement. Plutonic's bank credit agreement also permits Plutonic to
prepay outstanding indebtedness at any time. Homestake does not expect any
difficulty in securing the consent of its lenders and the Plutonic lenders to
maintain the existing Plutonic indebtedness outstanding or to refinance the
outstanding Plutonic indebtedness under the Homestake Bank Credit Agreement.
Except as set forth above, Homestake does not intend to materially alter
the business of Plutonic, or dispose of or redeploy any of Plutonic's material
assets, as a result of the Combination.
S-131
<PAGE> 164
BENEFICIAL OWNERSHIP OF SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF HOMESTAKE
As of the date of this Proxy Statement, no person was known to Homestake to
own 5% or more of the Homestake Common Stock outstanding.
OWNERSHIP OF COMMON STOCK BY HOMESTAKE'S MANAGEMENT
The following table shows: (i) the number of shares of Homestake Common
Stock beneficially owned by directors and the five highest paid executive
officers, and all directors and executive officers as a group, as of December
31, 1997 (excluding shares which such persons have the right to acquire within
60 days of December 31, 1997 but do not actually own), (ii) the number of shares
of Homestake Common Stock which such persons have the right to acquire within 60
days of December 31, 1997, but do not actually own and (iii) the total number of
shares of Homestake Common Stock which such persons own and have the right to
acquire within 60 days of December 31, 1997. The shares so shown include shares
held in Homestake's Savings Plan for the accounts of executive officers and
directors share rights granted under Homestake's Stock Option and Share Rights
Plan -- 1988 and 1996, which entitle outside directors to receive shares on the
date of ceasing to serve as a director. Including the shares held by Case,
Pomeroy & Company, Inc. (described in footnote 2 below) and the shares which the
identified persons have the right to acquire but do not own, the shares of
Homestake Common Stock beneficially owned by all directors, nominees and
executive officers as a group represent approximately 5.5 percent of the total
number of shares of Homestake Common Stock outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES RIGHT TO
BENEFICIALLY ACQUIRE
OWNED AS OF SHARES
DECEMBER 31, WITHIN 60 TOTAL NUMBER
1997, EXCLUDING DAYS OF OF SHARES
RIGHT TO ACQUIRE DECEMBER 31, BENEFICIALLY
NAME SHARES(1) 1997 OWNED
- -------------------------------------------------- ---------------- ------------ ------------
<S> <C> <C> <C>
M. Norman Anderson................................ 2,529 6,193 8,722
Richard R. Burt................................... 0 0 0
Robert H. Clark, Jr.(2)........................... 6,448,776 1,961 6,450,737
Harry M. Conger(3)................................ 176,835 545,725 722,560
G. Robert Durham.................................. 5,000 1,536 6,536
Douglas W. Fuerstenau............................. 1,478 1,972 3,450
Henry G. Grundstedt............................... 1,000 1,105 2,105
John Neerhout, Jr. ............................... 1,000 1,506 2,506
Stuart T. Peeler.................................. 10,000 2,124 12,124
Carol A. Rae...................................... 500 383 883
Jack E. Thompson.................................. 31,490 150,550 182,040
Jeffrey L. Zelms.................................. 50 0 50
Gene G. Elam...................................... 11,394 109,575 120,969
Wayne Kirk(4)..................................... 7,888 89,050 96,938
Gil J. Leathley................................... 3,182 60,467 63,649
William F. Lindqvist.............................. 0 79,300 79,300
All Directors and Executive Officers as a Group
(23 persons).................................... 6,730,311 1,347,424 8,077,735
</TABLE>
- ---------------
(1) In some instances voting and investment power is shared with the spouse of
the identified person.
(2) Includes 13,000 shares owned by Mr. Clark's spouse. Also includes 6,411,776
shares owned by Case, Pomeroy & Company, Inc. Mr. Clark is the President and
Chief Executive Officer and, with family members, is a controlling
shareholder of Case Pomeroy.
S-132
<PAGE> 165
(3) Includes 447 shares held of record by a Savings Plan Trust for Mr. Conger's
spouse. Mr. Conger disclaims beneficial ownership of these shares.
(4) Includes 414 shares held of record by two of Mr. Kirk's children. Mr. Kirk
disclaims beneficial ownership of these shares.
S-133
<PAGE> 166
DESCRIPTION OF HOMESTAKE CAPITAL STOCK
GENERAL
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the DGCL, the Homestake Charter and the
terms of the Homestake Rights Agreement.
The Homestake Charter currently authorizes the issuance of 250,000,000
shares of Homestake Common Stock and 10,000,000 shares of Homestake Preferred
Stock.
The Homestake Common Stock is listed on the NYSE under the symbol "HM," on
the Swiss Stock Exchange (Basel, Geneva and Zurich) and on the ASX. The transfer
agent and registrar for Homestake Common Stock is BankBoston N.A. Corporate
Registry Services Pty. Ltd. is the Australian co-transfer agent for Homestake
Common Stock.
Homestake Preferred Stock may be issued in one or more series in the
discretion of the Homestake Board, with such rights, preferences and privileges
as to dividends, voting rights, conversion rights, liquidation preferences and
redemption provisions as the Homestake Board may in its discretion establish at
the time of creation of such series.
Holders of Homestake Common Stock are entitled to one vote per share on all
matters requiring a vote of stockholders. Homestake does not have cumulative
voting and, as a result, the holders of a majority of the Homestake Common Stock
represented at a meeting of stockholders and entitled to vote in an election of
directors are able to elect all directors to be elected at the meeting.
Holders of Homestake Common Stock are entitled to receive dividends when
and as declared by the Homestake Board from funds legally available therefor,
subject to the dividend rights of holders of any Homestake Preferred Stock that
may be issued in the future.
The Homestake Common Stock is not redeemable and does not have conversion
or pre-emptive rights.
"FAIR PRICE" CHARTER PROVISION
The Homestake Charter contains a "Fair Price" provision which applies to
mergers and certain other types of business combinations with "Related Persons."
The Fair Price provision defines "Related Person" to include any person who,
together with any affiliate or associate, beneficially owns (or within the
preceding five years owned) 10% or more of the Homestake Common Stock
outstanding or of the voting stock of Homestake outstanding. The Fair Price
provision defines "Business Combination" to include mergers, reorganizations,
sales of assets, issuances of securities, mortgages, leases, and a variety of
transactions which involve the securities or assets of Homestake.
The Fair Price provision requires that Business Combinations between
Homestake and a Related Person meet certain alternative criteria. If none of the
alternative criteria are met, such transactions must be approved by (1) not less
than 80% of the total voting power of Homestake stock entitled to vote on the
matter, and (2) not less than 50% of the voting power held by holders other than
the Related Person and its affiliates and associates. The alternative criteria,
one of which must be met to avoid the special voting requirements, are the
following:
(a) if the Business Combination is approved by the Homestake Board
before the Related Person first became a Related Person;
(b) if the Homestake Board unanimously approves in advance the Related
Person becoming a Related Person and the Business Combinations is then
approved by the Homestake Board after the Related Person became a Related
Person;
(c) if the Business Combination involves solely Homestake and one of
its subsidiaries (50% or more of the voting stock of which is owned by
Homestake and none of which is owned by a Related Person) and all
stockholders are treated equally and receive or retain common stock in the
surviving corporation or other party to the Business Combination;
S-134
<PAGE> 167
(d) if all of the following conditions are satisfied:
(1) the per share consideration to be received by holders of the
Homestake Common Stock in the Business Combination (other than the
Related Person) is not less than the higher of (i) the highest per share
price paid by such Related Person in acquiring any of the Homestake
Common Stock, or (ii) a percentage premium over the market price of
Homestake Common Stock immediately prior to the announcement of such
Business Combination which is at least as high as the percentage premium
paid by the Related Person over the market price of the Homestake Common
Stock immediately prior to the commencement of the acquisition of
Homestake Common Stock by such Related Person, but in no event in excess
of two times the highest per share price determined under (i) above;
(2) after becoming a Related Person and prior to the consummation
of such Business Combination, (i) such Related Person must not have
acquired any newly issued shares from Homestake (except upon conversion
of convertible securities acquired prior to becoming a Related Person or
upon compliance with the Fair Price provision or as a result of a pro
rata stock dividend or stock split) and (ii) such Related Person must
not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances, guarantees,
pledges or other financial assistance or tax credits provided by
Homestake, or made any major change in Homestake's business or equity
capital structure; and
(3) a proxy statement meeting the requirements of the United States
federal securities laws must be used for the purpose of soliciting
stockholder approval of such Business Combination. The proxy statement
must also contain (i) any recommendation as to the advisability of the
Business Combination which any continuing or independent or "outside"
directors may choose to state, and (ii) the opinion of a reputable
national investment banking firm in the United States as to the fairness
of the terms of such Business Combination from the point of view of the
remaining public stockholders of Homestake. The investment banking firm
must be engaged solely on behalf of the public stockholders and must be
selected by a majority of any continuing directors and outside
directors.
The Fair Price provision further provides that if there is a Related
Person, the Fair Price provision cannot be amended or repealed unless such a
change is approved at least 80% of the total voting power and also by a majority
of the total power held by holders who are independent of the Related Person.
All of the foregoing could discourage, delay or prevent certain types of
transactions involving an actual or potential change in control of Homestake,
including transactions in which stockholders might otherwise receive a premium
for their shares over current market prices, and could therefore have a negative
impact on the price of the Homestake Common Stock.
The Fair Price provision does not apply to the Combination.
HOMESTAKE RIGHTS AGREEMENT
On October 16, 1987, Homestake issued one Homestake Right for each issued
and outstanding share of Homestake Common Stock. Pursuant to the Homestake
Rights Agreement, each share of Homestake Common Stock is accompanied by one
Homestake Right. Each Homestake Right entitles the holder thereof to purchase
1/100th of a Series A Participating Cumulative Preferred Share of Homestake at a
price of $75, subject to adjustment (the "Purchase Price").
The Homestake Rights are not exercisable until the "Distribution Date" and
will expire on October 15, 2007 (the "Expiration Date"), unless they are earlier
redeemed by Homestake. The Distribution Date is defined to be the earlier of (i)
such time as Homestake learns that a person or group, together with affiliates
or associates acquired or obtained the right to acquire beneficial ownership of
more than 15% of the Homestake Common Stock outstanding (an "Acquiring Person")
and (ii) such date, as may be designated by the Homestake Board following the
commencement of, or first public disclosure of an intent to commence, a
S-135
<PAGE> 168
tender or exchange offer for outstanding Homestake Common Stock, if upon
consummation, such person could be an Acquiring Person.
Upon a person becoming an Acquiring Person, a holder of a Homestake Right
(except Acquiring Persons) may exercise the right by purchasing for the Purchase
Price such number of one-hundredths ( 1/100ths) of a share of Homestake
Preferred Stock equal to the result obtained by multiplying the Purchase Price
by a fraction, the numerator of which is one and the denominator of which is 50%
of the market value of the Homestake Common Stock on the date on which such
person became an Acquiring Person.
The Homestake Board may, at its option, at any time after a person becomes
an Acquiring Person exchange all or part of then outstanding and exercisable
Homestake Rights (other than Homestake Rights held by an Acquiring Person) for
consideration per Homestake Right consisting of one-half of the securities that
would be otherwise issuable upon the exercise of a Homestake Right, as described
above.
In the event that, following the Distribution Date, Homestake is acquired
in any merger or other business combination by an Acquiring Person (or such
Acquiring Person is merged into Homestake) or 50% or more of Homestake's assets
or assets representing 50% or more of its earning power are sold, leased
exchanged or otherwise transferred to an Acquiring Person and such surviving
corporation or Acquiring Person is a publicly traded corporation, each Homestake
Right will entitle its holder to purchase for the Purchase Price the number of
common shares of the surviving corporation or the Acquiring Person which at the
time of the transaction would have a market value of twice the Purchase Price.
In the event that the surviving corporation or the Acquiring Person is not a
publicly traded corporation, each Homestake Right will entitle its holder to
purchase for the Purchase Price, at such holder's option (i) that number of
shares of such entity which at the time of transaction would have a book value
of twice the Purchase Price or (ii) if such entity has an affiliate which has
publicly traded common shares, that number of shares of such affiliate which at
the time of the transaction would have a market value of twice the Purchase
Price.
Any rights that are at any time beneficially owned by an Acquiring Person
will become null and void and any holder of any such right will be unable to
exercise any such right.
The Homestake Board may redeem the Homestake Rights at any time prior to
the earliest of such time as a person becomes an Acquiring Person and the
Expiration Date for cash or securities equivalent to $0.01 per Homestake Right.
Until a Homestake Right is exercised, the holder will have no rights as a
stockholder of Homestake with respect to the shares purchasable upon exercise of
the Homestake Right.
All of the foregoing could discourage, delay or prevent certain types of
transactions involving an actual or potential change in control of Homestake,
including transactions in which stockholders might otherwise receive a premium
for their shares over current market prices, and could therefore have a negative
impact on the price of the Homestake Common Stock.
The Homestake Rights Agreement does not apply to the Combination.
S-136
<PAGE> 169
COMPARISON OF SHAREHOLDERS' RIGHTS
If the Combination is consummated, Plutonic Shareholders and Plutonic
Option Holders will become stockholders of a Delaware corporation and will have
rights and privileges as set out in the Delaware General Corporation Law
("DGCL"), and the Homestake Charter and by-laws (which generally are the
equivalent of the memorandum and articles of an Australian company,
respectively). While the rights and privileges of stockholders of a Delaware
corporation are, in some instances, comparable to those of shareholders of an
Australian corporation, there are some material differences, which are
summarized below.
VOTE REQUIRED FOR ORDINARY TRANSACTIONS; QUORUM
Under the DGCL and the Homestake Charter, matters requiring stockholder
approval generally must be approved by the vote of holders of a majority of the
shares present in person or represented by proxy at the meeting.
With respect to election of directors, the nominees receiving the highest
number of votes are elected. Directors of Homestake are appointed for a term of
three years, with approximately one-third of the directors elected each year.
A majority of the shares of voting stock outstanding on the record date,
present in person or represented by proxy, constitutes a quorum for the
transaction of business at a meeting of stockholders.
Under Australian law, matters which are decided by a general meeting of
shareholders generally require the approval of the shareholders by ordinary
resolution, which is a resolution passed by the majority of shares present in
person or represented by proxy. Some matters (such as amendments to the articles
of association) require approval by special resolution, which is a resolution
passed by at least 75% of the shares present in person or represented by proxy,
where at least 21 days notice of the resolution has been given.
Three shareholders present in person or represented by proxy constitute a
quorum for a meeting under Plutonic's articles of association, except for a
meeting of a class of shareholders, where the quorum is two.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
Under Australian law, a combination of Plutonic with another company would
require:
(a) a takeover scheme or takeover announcement in respect of the
shares in Plutonic under Chapter 6 of the NSWL; or
(b) a scheme of arrangement under section 411 of the NSWL.
Neither a takeover scheme nor a takeover announcement requires shareholder
approval. However, a scheme of arrangement requires approval by shareholders at
court convened meetings together with court approval of the scheme. The votes
required to approve the scheme are a majority in number of all shareholders (or
shareholders in a particular class) present and voting, being a majority of
shareholders whose shares have a nominal value of at least 75% of the total
nominal value of all the shares of the shareholders (or of shareholders in a
particular class) present and voting.
A merger of two or more corporations into a single constituent corporation
(a "merger") or the consolidation of two or more corporations into a new
corporation formed by the consolidation (a "consolidation"), in either case
involving Homestake, will be governed, at least in part, by the DGCL. Under the
DGCL, a merger or consolidation requires the approval of each constituent
corporation, except as described in the final sentence of this paragraph. For
Delaware corporations the approval must be of a majority of the outstanding
stock of such corporation entitled to vote thereon. Unless specifically required
in a corporation's certificate of incorporation, and notwithstanding the first
sentence of this paragraph, no vote of stockholders of a constituent corporation
surviving a merger is necessary if (i) the merger is between two Delaware
corporations, (ii) the merger agreement does not amend the certificate of
incorporation of the surviving corporation and (iii) not more than 20% of the
shares of common stock of the surviving corporation outstanding immediately
prior to the merger will be issued pursuant to the merger. (The Homestake
Charter does not require stockholder
S-137
<PAGE> 170
approval in these circumstances.) Approval of stockholders is generally not
required for the issuance of common stock under the DGCL but the NYSE Listing
Rules require stockholder approval if the issuance equals 20% or more of the
common or voting stock of the corporation outstanding immediately prior to the
issuance. (However, stockholder approval is required to increase Homestake's
authorized capital.) Where the corporation is a 90% parent of another
corporation, stockholder approval is not required under the DGCL from either
corporation to merge or consolidate the parent and the other corporation
provided that such merger or consolidation is permitted by the jurisdiction of
incorporation of each constituent corporation and the surviving corporation is a
Delaware corporation.
The dissolution or sale of substantially all the assets of a corporation
governed by the DGCL requires the approval of a majority of the outstanding
stock of such corporation entitled to vote thereon. The dissolution of a
corporation incorporated in Australia requires stockholder approval by way of
special resolution (75% of the shares present or represented by proxy at the
meeting) while the sale of substantially all the assets of a corporation
incorporated in Australia and listed on the ASX requires stockholder approval by
way of ordinary resolution (a majority of the shares present or represented by
proxy at the meeting).
The Homestake Charter contains a "Fair Price" provision which applies to
mergers, reorganizations, sales of assets and a variety of other transactions.
See "Description of Homestake Capital Stock -- "Fair Price" Charter Provision."
The Homestake Rights Agreement also may affect such transactions. See
"Description of Homestake Capital Stock -- Homestake Rights Agreement."
DISTRIBUTION ON WINDING-UP
On a winding up of Homestake, holders of Homestake Common Stock would
receive a distribution on a pro rata basis, after the payment of creditors and
preferred stockholders. (Although the Homestake Charter authorizes the issuance
of preferred stock, none is currently outstanding.)
TRANSACTIONS INVOLVING SHAREHOLDERS, OFFICERS OR DIRECTORS
The ASX Listing Rules require shareholder approval by ordinary resolution
before a listed company may purchase, gain, obtain or otherwise acquire or give,
sell or otherwise dispose of (whether by means of an agreement transaction;
subscription for securities or otherwise) any assets or securities in excess of
5% of shareholders' funds to:
(i) a subsidiary or a related party, including any director, or
secretary of the listed company or its parent entity, or a spouse, de facto
spouse, or a parent, or daughter of such person (at the relevant time or
within the previous six months);
(ii) a shareholder with an entitlement to 10% or more of the company's
voting shares (at the relevant time or within the previous six months);
(iii) a person who is an associate of a person in (i) or (ii); or
(iv) a person whose association with any of the foregoing is such that
the ASX decides the proposed acquisition should be referred to
shareholders.
The DGCL has no equivalent provisions. However, the NYSE Listing Rules
require shareholder approval for the issuance of securities of more than 1%
of the common or voting stock of a corporation to a director, officer,
substantial security holder or any respective affiliate thereof, for the
purchase of certain types of assets from such person.
The NSWL also prohibits a public company or an entity controlled by it from
giving any type of financial benefit to a "related party" (including parent
companies, controlling entities, directors and their families, and entities
which they control) unless the financial benefit:
(i) constitutes reasonable remuneration to an officer;
(ii) is a loan of less than A$2,000;
S-138
<PAGE> 171
(iii) is given between wholly owned entities;
(iv) is given on arm's length terms or pursuant to a court order;
(v) constitutes a benefit given to shareholders in their capacity as
shareholders and does not discriminate unfairly between shareholders (e.g.
a dividend); or
(vi) is approved by a general meeting of shareholders.
The DGCL has no equivalent provisions.
In the case of Homestake, with certain exceptions described below, the DGCL
prohibits a "business combination" between the corporation and an "interested
stockholder" within three years of the stockholder becoming an "interested
stockholder." An "interested stockholder" is one who, directly or indirectly,
controls 15% or more of the issued voting shares. A "business combination"
includes a merger, consolidation, sale or other disposition of assets having an
aggregate value in excess of 10% of the consolidated assets of the corporation,
and certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation. This provision does not apply
where:
(i) the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder acquired its shares;
(ii) the interested stockholder acquired at least 85% of the issued
and outstanding voting shares of the corporation in the transaction in
which the stockholder became an interested stockholder excluding, in
determining the number of shares outstanding, shares held by persons who
are directors and also officers and by employee stock plans in which
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered; or
(iii) the business combination is approved by a majority of the board
of directors and affirmative vote of two-thirds of the votes entitled to be
cast by disinterested shareholders at an annual or special meeting.
As noted above, the Homestake Charter contains a "Fair Price" provision which
will apply to business combinations between Homestake and "Related Persons." See
"Description of Homestake Capital Stock -- "Fair Price" Charter Provisions." The
Homestake Rights Agreement will apply also to certain business combinations. See
"Description of Homestake Capital Stock -- Homestake Rights Agreement."
The DGCL provides that a contract or transaction ("transaction") between a
Delaware corporation and one or more of its directors or officers (an
"interested person"), or an entity in which such person is an officer or
director or has a financial interest, is not void or voidable solely because
such interested person is present at or participates in a board or committee
meeting approving the transaction or solely because such interested person's
votes are counted for such purposes if:
(i) the material facts of the relationship or interest and the
transaction are disclosed to the board or committee and approved in good
faith by a majority of the disinterested directors;
(ii) the material facts of the relationship or interest and the
transaction are disclosed to, and approved in good faith by, the
stockholders; or
(iii) the transaction is fair as to the corporation.
Failure to obtain approval as set out in (i) or (ii) above, means, in
essence, that if the transaction is challenged, the interested person has the
burden of proving that the transaction was fair as to the corporation.
TAKEOVER REGULATION
Takeovers in Australia are regulated principally by Chapter 6 of the NSWL.
Persons who acquire an entitlement in 5% or more of a corporation subject to
Chapter 6 must make public disclosure of that entitlement, and of any changes to
that entitlement of 1% or more. A person must not acquire an entitlement to more
than 20% of the voting shares of such a corporation, unless that entitlement is
acquired under a
S-139
<PAGE> 172
takeover scheme or announcement (subject to a limited number of exemptions). A
takeover scheme or announcement must include an offer to all shareholders. The
consideration offered must be no less than the consideration paid by the offeror
for shares in the target in the 4 months preceding the bid. The offeror must
also send a disclosure document to all shareholders with the offer, and the
target company must respond with a disclosure document, the contents of which
are prescribed by Chapter 6.
Under U.S. federal securities laws a stockholder may accumulate up to but
not including 5% of a class of equity securities of a corporation without making
public disclosure. At or above the 5% level, the stockholder must make public
disclosure including such stockholder's intentions regarding its holdings (i.e.
whether the accumulation is for investment purposes or to seek control of the
corporation).
There is no U.S. legal requirement to extend an offer to purchase
securities of a corporation to all security holders solely as a result of
accumulations of securities above a certain threshold of ownership. If, however,
a tender offer is made to purchase securities, certain procedural and disclosure
rules must be followed, including:
(i) provision of a disclosure document to all security holders;
(ii) a requirement that the offer remain open for at least 20 business
days;
(iii) pro rata allocation of tenders if the tender offer is for less
than all the securities outstanding;
(iv) availability of the offer to all security holders on the same
terms;
(v) offer consideration that is no less than the highest consideration
paid or to be paid by the offeror to any security holder during the time of
the tender offer; and
(vi) a requirement for a response to the tender offer from the target
board of directors within 10 business days of the filing of the offeror's
disclosure document.
Compulsory acquisition of securities is permitted under the DGCL if a
person acquires at least 90% of the outstanding shares of each class of the
stock of a corporation. In that case, the persons from whom securities are to be
acquired will have the dissenters appraisal rights described below.
DISSENTERS APPRAISAL RIGHTS
The DGCL generally entitles a stockholder voting against a merger or
consolidation to exercise dissenters appraisal rights upon a merger or
consolidation of the corporation if the stockholder complies with certain
procedural requirements. Exercise of appraisal rights requires the acquisition
by the surviving corporation of the dissenters' shares at a fair value,
generally determined by a court.
Unless specified in the corporation's certificate of incorporation, the
DGCL does not provide dissenters appraisal rights for stockholders of a
corporation that engages in:
(i) a sale of substantially all its assets;
(ii) an amendment to its certificate of incorporation; or
(iii) a merger or consolidation where the consideration received
consists solely of shares of the surviving or resulting corporation, or
shares of any other corporation listed on a national securities exchange in
the United States or held by more than 2,000 stockholders (and cash in lieu
of fractional shares) and either:
(A) the corporation before the merger or consolidation was listed
on a national securities exchange or its shares were held by more than
2,000 stockholders; or
(B) the corporation survived the merger or consolidation and the
approval of its stockholders was not required because the merger or
consolidation agreement did not amend the surviving corporation's
certificates of incorporation and did not provide for the issue of
common shares of the survivor in excess of 20% of such survivor's shares
issued and outstanding immediately prior to the merger or consolidation.
S-140
<PAGE> 173
The Homestake Charter does not provide dissenters appraisal rights in such
circumstances.
Because Homestake Common Stock is listed on the NYSE (a national securities
exchange) and the Homestake Charter does not provide otherwise, Homestake
Stockholders would not have dissenters appraisal rights in the event that
Homestake is a constituent corporation to a merger or consolidation which
otherwise would give rise to dissenters appraisal rights under the DGCL and the
consideration meets the requirement of (iii) above.
The NSWL has no equivalent provisions.
OPPRESSION REMEDY
Under the NSWL, a shareholder or the ASC (following an investigation) may
apply to the court if that person or the ASC, following an investigation,
believes:
(i) the affairs of the company are being conducted in a manner which
is oppressive or unfairly prejudicial to, or unfairly discriminatory
against, a shareholder or shareholders, or in a manner that is contrary to
the interests of the shareholders as a whole; or
(ii) that an actual or proposed act or omission by or on behalf of the
company or an actual or proposed resolution of a class of shareholders was
or would be oppressive or unfairly prejudicial to, or unfairly
discriminatory against, a shareholder or shareholders, or was or would be
contrary to the interests of the shareholders as a whole.
The court has power to make such order or orders as it sees fit to deal
with any oppressive or unfairly prejudicial matter. These orders include orders
for:
(i) winding up of the company;
(ii) regulation of the company's affairs or appointment of a receiver
or receiver and manager; or
(iii) purchase of shares by another shareholder or by the company.
The NSWL and the general law also provide a range of legal and equitable
remedies for breach of duty by directors of a company.
The DGCL does not provide a statutory remedy like the NWSL oppression
remedy. However, the DGCL provides a variety of legal and equitable remedies to
a corporation's shareholders for improper acts or omissions of its officers and
directors. Under the DGCL, stockholders can bring an action alleging a breach of
fiduciary duty by the directors of a corporation. In order to be successful, the
stockholder must overcome the "business judgment rule" which, simply stated,
means that absent a showing of intentional misconduct, gross negligence or a
conflict of interest, disinterested directors' decisions are presumed (subject
to rebuttal) by the courts to have been made in good faith and in the best
interests of the corporation.
LIMITATION OF DIRECTOR LIABILITY
The NSWL provides that a company or related body corporate must not
indemnify a person who is or has been an officer (including a director) or
auditor against a liability incurred in that capacity, or exempt such a person
from such a liability. However, a person may be indemnified:
(i) against a liability (other than to the company) unless the
liability arises out of conduct involving a lack of good faith; or
(ii) against a liability for costs and expenses incurred in defending
civil or criminal proceedings where judgment is given in favour of the
person, the person is acquitted or the court grants relief to the person
under the NSWL.
S-141
<PAGE> 174
The Homestake Charter contains a provision, permitted by the DGCL, limiting
the personal monetary liability of directors for breach of fiduciary duties as a
director. The DGCL provides that such a provision does not eliminate or limit
liability:
(i) for any breach of the director's duty of loyalty to Homestake or
its stockholders;
(ii) for unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided in the DGCL;
(iii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
(iv) for any transaction from which the director derived an improper
personal benefit.
The DGCL permits indemnification against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with actions, suits, or proceedings in which an officer,
director, employee or agent is a party by reason of the fact that he is or was
such a director, officer, employee or agent, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. However, in connection
with actions by or in the right of the corporation, such indemnification is not
permitted if such person has been adjudged liable for negligence or misconduct
in the performance of his duty to the corporation unless the court determines
that, under all of the circumstances, such person is nonetheless fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
Under Homestake's by-laws, Homestake must indemnify directors and officers to
the fullest extent permitted by law.
The DGCL also permits a corporation to purchase and maintain insurance on
behalf of its directors and officers against any liability which may be asserted
against, or incurred by, such persons in their capacities as directors or
officers of the corporation whether or not the corporation would have the power
to indemnify such persons against such liabilities. Homestake has purchased such
insurance. The DGCL further provides that the statutory provision is not
exclusive of any right which may exist under any by-law, agreement, vote of
stockholders or independent directors, or otherwise.
DISTRIBUTIONS AND DIVIDENDS
Under the NSWL, a corporation may only pay dividends out of profits, as
determined under Australian law and accounting standards, or, in certain
instances, out of the share premium account. The Plutonic articles of
association add that declaration of dividends is a matter for the discretion of
the directors, where profits are available for distribution. The directors are
empowered to declare dividends and fix a time for the distribution of such
dividends.
Under the DGCL, directors of a corporation may pay dividends out of surplus
and, if there is no surplus, out of net profits for the current and/or the
preceeding fiscal year, unless the net assets of the corporation are less than
the capital represented by issued and outstanding stock having a preference on
asset distributions. Surplus is defined in the DGCL as the excess of the net
assets (essentially, the amount by which total assets exceed total liabilities)
over capital (essentially, the aggregate par value of the shares of the
corporation having a par value that have been issued plus consideration paid for
shares without par value), as such capital may be adjusted by the corporation's
board of directors.
The Homestake Charter allows the Homestake Board to set the dividend
structure, if any, of any shares of preferred stock. Frequently, the certificate
of designation for preferred stock provides that no dividends shall be paid to
holders of common stock until all accrued and unpaid dividends are paid to the
holders of preferred stock. No shares of Homestake Preferred Stock have been
issued. Consequently, there are currently no limitations on the payment of
dividends to the holders of Homestake Common Stock, except as otherwise imposed
by the DGCL, and except that Homestake's bank credit agreement requires that
Homestake maintain consolidated net worth of not less than US$500 million. At
September 30, 1997, Homestake's consolidated net worth was US$587.4 million.
S-142
<PAGE> 175
INDEPENDENT ACCOUNTANTS
Homestake's consolidated financial statements as of December 31, 1996 and
for each of the three years in the period ended December 31, 1996, included in
this Document, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as stated in their report appearing herein.
Plutonic's consolidated financial statements as of 31 December 1996 and for
the year then ended, and Plutonic's consolidated financial statements as of 31
December 1995 and for the year then ended, included in this Document, have been
audited by Ernst & Young, independent accountants, as stated in their reports
appearing herein.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Homestake Special Meeting and will have the opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.
Representatives of Ernst & Young are expected to be present at the Scheme
meetings.
LEGAL MATTERS
Certain United States federal income tax consequences of the Combination
will be passed upon for Homestake by Thelen, Marrin, Johnson & Bridges LLP, San
Francisco, California, and certain Australian income tax consequences of the
Combination will be passed upon for Plutonic by Allen Allen & Hemsley, Sydney,
NSW, Australia.
STOCKHOLDER PROPOSALS
Homestake anticipates that its 1998 Annual Meeting of Stockholders will be
held on or about July 24, 1998 (the "Homestake Annual Meeting"). In such event,
any Homestake Stockholder who wishes to submit a proposal for presentation to
the Homestake Annual Meeting must submit the proposal to Homestake not later
than March 12, 1998, for inclusion, if appropriate, in Homestake's proxy
statement and the form of proxy relating to the Homestake Annual Meeting.
S-143
<PAGE> 176
APPENDIX A
HOMESTAKE MINING COMPANY
AND
PLUTONIC RESOURCES LIMITED
COMBINATION IMPLEMENTATION AGREEMENT
A-1
<PAGE> 177
COMBINATION IMPLEMENTATION AGREEMENT
AGREEMENT dated 22 December 1997 between
1. HOMESTAKE MINING COMPANY of 650 California Street, San Francisco,
California (Homestake); and
2. PLUTONIC RESOURCES LIMITED (ACN 006 245 629) of Level 37, 100 Miller
Street, North Sydney, New South Wales (Plutonic).
RECITALS
A. Homestake and Plutonic have agreed to combine by means of schemes of
arrangement under Part 5.1 of the Corporations Law between Plutonic and each
class of its members and Plutonic and the Option Holders.
B. Plutonic has agreed in good faith to implement each of the schemes of
arrangement upon and subject to the terms and conditions of this Agreement.
IT IS AGREED as follows.
1. AGREEMENT TO PROCEED WITH PLUTONIC SCHEMES
The parties agree to propose the Plutonic Schemes upon and subject to the
terms and conditions of this Agreement.
2. CONDITIONS PRECEDENT
2.1 Subject to this clause 2, the obligations of the parties under this
Agreement are subject to the satisfaction of each of the following conditions
precedent to the extent and in the manner set out in clauses 2.2 and 2.3:
(a) FIRB: One of the following events occurs prior to the Second Court
Date:
(i) A notice in writing is issued by or on behalf of the Treasurer
of the Commonwealth of Australia stating that the Commonwealth
Government does not object to Homestake entering into and completing
this Agreement; or
(ii) The Treasurer of the Commonwealth of Australia is or becomes
precluded from making an order in respect of the entry into or
completion by Homestake of this Agreement under the Foreign Acquisitions
and Takeovers Act 1975 (Cth).
HSR: The expiry or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable,
prior to the Second Court Date.
OTHER: No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition preventing the consummation of
the Combination shall be in effect.
(b) COMPLIANCE BY PLUTONIC WITH CLAUSE 8.1: Plutonic and its directors
have complied in all material respects with their obligations under clause
8.1.
(c) PLUTONIC MATERIAL ADVERSE CHANGE: Between the date of this
Agreement and the Second Court Date, no Plutonic Material Adverse Change
occurs.
(d) PLUTONIC PRESCRIBED OCCURRENCE: Between the date of this Agreement
and the Second Court Date, no Plutonic Prescribed Occurrence occurs other
than as required or contemplated by this Agreement or the Plutonic Schemes.
(e) POOLING LETTERS: Homestake has received a letter from Coopers &
Lybrand LLP dated as of the Business Day preceding the date of despatch of
the Proxy Statement and reaffirmed as at the Second
A-2
<PAGE> 178
Court Date and addressed to Homestake, and Plutonic shall have received a
letter from Ernst & Young LLP dated as of the Business Day preceding the
date of despatch of the Proxy Statement and reaffirmed as at the Second
Court Date and addressed to Plutonic, in each case stating that the
Combination will qualify as a pooling-of-interests transaction under
Opinion 16 of the Accounting Principles Board.
(f) HOMESTAKE PRESCRIBED OCCURRENCE: Between the date of this
Agreement and the Second Court Date, no Homestake Prescribed Occurrence
occurs other than as required or contemplated by this Agreement or the
Plutonic Schemes.
(g) COMPLIANCE BY HOMESTAKE WITH CLAUSE 8.2: Homestake and its
directors have complied in all material respects with their obligations
under clause 8.2.
(h) LISTING OF HOMESTAKE STOCK: The Homestake Stock to be issued to
Scheme Participants shall have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, and approved for
official quotation by the ASX, in each case, prior to the Second Court
Date.
(i) HOMESTAKE MATERIAL ADVERSE CHANGE: Between the date of this
Agreement and the Second Court Date, no Homestake Material Adverse Change
occurs.
(j) HOMESTAKE REPRESENTATIONS AND WARRANTIES: The representations and
warranties of Homestake set forth in this Agreement that are qualified as
to materiality shall be true and correct, and the representations and
warranties of Homestake set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Second Court Date as though
made on and as of the Second Court Date, except to the extent any such
representation or warranty expressly relates to an earlier date (in which
case as of such date).
(k) PLUTONIC REPRESENTATIONS AND WARRANTIES: The representations and
warranties of Plutonic set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and
warranties of Plutonic set forth in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as of the date of this Agreement and as of the Second Court Date as though
made on and as of the Second Court Date, except to the extent any such
representation or warranty expressly relates to an earlier date (in which
case as of such date).
(l) COURT ORDERS: A certified copy of the Court orders approving such
of the Plutonic Schemes as are approved by the relevant Scheme Participants
at the Court convened Meetings shall have been lodged with the Commission
within fifteen Trading Days of the Second Court Date.
(m) PLUTONIC AFFILIATE LETTERS: Homestake has received the affiliate
letters from Plutonic referred to in clause 13.1.
(n) HOMESTAKE AFFILIATE LETTERS: Plutonic has received the affiliate
letters from Homestake referred to in clause 13.2.
2.2 Obligations affected by conditions precedent
(a) HOMESTAKE'S OBLIGATIONS: The obligations of Homestake under
clauses 3, 4 and 5 are subject to satisfaction of each of the conditions
precedent in clause 2.1 that are, pursuant to clause 2.3, for Homestake's
benefit.
(b) PLUTONIC'S OBLIGATIONS: The obligations of Plutonic under clauses
3, 4 and 5 are subject to satisfaction of each of the conditions precedent
in clauses 2.1 that are, pursuant to clause 2.3, for Plutonic's benefit.
2.3 Benefit of certain conditions precedent
(a) HOMESTAKE'S BENEFIT: Homestake alone has the benefit of the
conditions precedent in clauses 2.1(b), (c), (d), (k), (l) and (m) and any
breach or non-fulfilment of any such conditions may be relied upon only by
Homestake which may at any time and from time to time in its sole and
absolute discretion waive the breach or non-fulfilment.
A-3
<PAGE> 179
(b) PLUTONIC'S BENEFIT: Plutonic alone has the benefit of the
conditions precedent in clauses 2.1(f), (g), (i), (j) and any breach or
non-fulfilment of those conditions may be relied upon only by Plutonic
which may at any time and from time to time in its sole and absolute
discretion waive the breach or non-fulfilment.
(c) EACH PARTY'S BENEFIT: Plutonic and Homestake together have the
benefit of the Regulatory Condition and the conditions precedent in clauses
2.1(e), (h) and (n) and any breach or non-fulfilment of those conditions
may only be waived with the written consent of both parties.
2.4 Best endeavours
Each of Homestake and Plutonic agrees to use its best endeavours to procure
that each of the conditions precedent in clause 2.1 is satisfied as soon as
practicable after the date of this Agreement or that there is no occurrence that
would prevent the conditions in clause 2.1 being satisfied (as the context
requires). Without limiting the generality of the foregoing:
(a) Homestake shall promptly apply for the FIRB approval and provide
to Plutonic a copy of that application;
(b) Homestake will prepare and provide to Plutonic the Homestake
Information for inclusion in the Scheme Booklets;
(c) Plutonic will prepare the Scheme Booklets in accordance with the
Corporations Law, PS 60, the Listing Rules of the ASX and any applicable
provisions of the Securities Act and the Exchange Act:
(i) with a view to ensuring that the terms of the Plutonic Schemes
are fully and fairly portrayed; and
(ii) in consultation with Homestake and subject to Homestake's
approval, such approval limited solely to ensuring that the final text
of the Scheme Booklets complies with the Securities Act and the Exchange
Act (such approval not to be unreasonably withheld);
(d) Plutonic will prepare and provide to Homestake the Plutonic
Information for inclusion in the Proxy Statement;
(e) Homestake will prepare the Proxy Statement in accordance with all
applicable provisions of the Securities Act and the Exchange Act in
consultation with Plutonic and subject to Plutonic's approval, such
approval limited solely to ensuring that the final text of the Proxy
Statement complies with the Corporations Law and the Listing Rules of the
ASX (such approval not to be unreasonably withheld);
(f) Between the date of this Agreement and the Second Court Date,
Plutonic will ensure that a Plutonic Prescribed Occurrence does not occur;
and
(g) Between the date of this Agreement and the Second Court Date,
Homestake will ensure that a Homestake Prescribed Occurrence does not
occur.
2.5 Approval of Scheme Booklets and the Proxy Statement
(a) PLUTONIC TO PROVIDE SCHEME BOOKLETS: As soon as practicable after
Plutonic has completed the preparation of the final form of the Scheme
Booklets, Plutonic will forward copies to Homestake.
(b) HOMESTAKE TO PROVIDE THE PROXY STATEMENT: As soon as practicable
after Homestake has completed the preparation of the final form of the
Proxy Statement, Homestake will forward copies to Plutonic.
(c) MEETING OF DIRECTORS OF PLUTONIC: As soon as practicable after
preparation of the final form of the Scheme Booklets and the Proxy
Statement, a meeting of the Plutonic Board will be convened for the purpose
of approving the Scheme Booklets.
A-4
<PAGE> 180
(d) MEETING OF DIRECTORS OF HOMESTAKE: As soon as practicable after
preparation of the final form of the Scheme Booklets and the Proxy
Statement, a meeting of the Homestake Board will be convened for the
purpose of approving the Proxy Statement.
2.6 Public announcements of Plutonic Schemes
Forthwith after the execution of this Agreement, Plutonic and Homestake
will issue public announcements in the form of Schedule III or such other form
acceptable to the parties but including:
(a) a unanimous recommendation by the directors of Plutonic directed
to Scheme Participants that all of the Plutonic Schemes be approved; and
(b) the unanimous approval by the directors of Homestake of the
Combination.
2.7 Consultation on failure of condition precedents
(a) CONSULTATION: If a condition precedent contained in clause 2.1 is
not satisfied or there is an occurrence that will prevent a condition
precedent being satisfied by the date specified in this Agreement for its
satisfaction or the Effective Date has not occurred by the Quit Date,
Plutonic and Homestake will consult in good faith:
(i) with a view to determining whether the Plutonic Schemes, or the
Plutonic Scheme in issue, may proceed by way of alternative means or
methods; or
(ii) to extend the relevant date or Quit Date.
(b) FAILURE TO AGREE: If the parties are unable to reach agreement
under clause 2.7(a) within 5 Business Days after the relevant date or Quit
Date:
(i) subject to sub-paragraph (ii), either party may terminate this
Agreement; or
(ii) if a condition precedent contained in clause 2.1 exists for
the benefit of one party only, that party only may waive that condition
precedent or terminate this Agreement,
in each case without any liability to the other party by reason of that
termination unless the failure of the condition precedent to be
satisfied or of the Effective Date to occur arises out of a breach by
the terminating party of clause 8 or this clause 2.
2.8 Certain Notices
(a) NOTICE OF A HOMESTAKE OR A PLUTONIC PRESCRIBED OCCURRENCE: If,
prior to the Second Court Date, any event which constitutes a Homestake or
a Plutonic Prescribed Occurrence occurs, or any event that will prevent a
condition precedent being satisfied, Plutonic or Homestake, as the case may
be, will forthwith give written notice to the other of that event.
(b) NOTICE OF CHANGES: Homestake and Plutonic shall promptly advise
the other party orally and in writing of any change or event causing, or
which, insofar as can reasonably be foreseen, would cause:
(i) a representation or warranty provided in this Agreement to be
false; or
(ii) a Homestake Material Change or a Plutonic Material Change (as
the case may be).
3. ORDINARY SCHEME
3.1 Ordinary Scheme
Plutonic agrees to propose a Scheme under which all of the Ordinary Shares
other than those held by or on behalf of Homestake or any of its subsidiaries
will be cancelled and the Ordinary Scheme Members will be entitled to receive a
number of Homestake Stock calculated in accordance with clause 3.2 by way of
Scheme Consideration, for each Ordinary Share held at the Record Date.
A-5
<PAGE> 181
3.2 Scheme Consideration
Homestake covenants in favour of Plutonic (in its own right and on behalf
of the Ordinary Scheme Members) that in consideration for the delivery up and
cancellation of an Ordinary Share held by an Ordinary Share Member under the
terms of the Ordinary Scheme and for the allotment to Homestake of the
Recapitalisation Shares, Homestake will issue to such Ordinary Scheme Member
0.34 Homestake Stock for each such Ordinary Share.
3.3 Condition
The Ordinary Scheme shall be subject to and conditional upon the PP Scheme
and the Option Scheme becoming Effective provided that such condition may be
waived, in whole or in part, by Homestake in its absolute discretion by notice
in writing given to Plutonic within 5 Business Days of the date on which either
the PP Scheme or the Option Scheme is rejected by PP Scheme Members or Option
Holders, as the case may be.
4. PP SCHEME
4.1 PP Scheme
Plutonic agrees to propose a Scheme under which all of the PP Shares will
be cancelled and the PP Scheme Members will be entitled to receive a number of
Homestake Stock calculated in accordance with clause 4.2 by way of Scheme
Consideration for each PP Share held at the Record Date.
4.2 Scheme Consideration
Homestake covenants in favour of Plutonic (in its own right and on behalf
of the PP Scheme Members) that in consideration for the delivery up and
cancellation of a PP Share under the terms of the PP Scheme and for the
allotment to Homestake of the Recapitalisation Shares, Homestake will issue to
such PP Scheme Member the number of Homestake Stock as determined below:
<TABLE>
<CAPTION>
CLASS BY EXCHANGE RATIO
UNPAID CAPITAL FOR A PP SHARE
- -------------- ----------------
<S> <C>
$ 0.75 0.303
$ 0.85 0.299
$ 0.90 0.296
</TABLE>
4.3 Condition
The PP Scheme shall be subject to and conditional upon the Ordinary Scheme
and the Option Scheme becoming Effective provided that such condition may be
waived in whole or part by Homestake in its absolute discretion by notice in
writing given to Plutonic within 5 Business Days of the date on which either the
Ordinary Scheme or the Option Scheme is rejected by Ordinary Scheme Members or
Option Holders as the case may be.
5. OPTION SCHEME
5.1 Option Scheme
Plutonic agrees to propose a Scheme under which all of the Options will be
cancelled and the Option Holders will be entitled to receive a number of
Homestake Stock calculated in accordance with clause 5.2 by way of Scheme
Consideration for each Option held at the Record Date.
5.2 Scheme Consideration
Homestake covenants in favour of Plutonic (in its own right and on behalf
of the Option Holders) that in consideration for the delivery up and
cancellation of an Option held by an Option Holder under the terms of the Option
Scheme and for the allotment to Homestake of the Recapitalisation Shares
Homestake will allot to
A-6
<PAGE> 182
such Option Holder for each Ordinary Share over which an Option is held on the
Record Date the number of Homestake Stock as determined below:
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY SHARES
OVER WHICH NUMBER OF EXERCISE EXCHANGE
EXPIRY OPTIONS GRANTED OPTIONS PRICE RATIO
------------------------------------ ---------------- --------- -------- --------
<S> <C> <C> <C> <C>
October 12, 1999.................... 228,000 8 $ 6.04 0.070
November 28, 2000................... 40,000 1 $ 5.87 0.088
December 5, 2000.................... 200,000 1 $ 6.04 0.084
May 21, 2001........................ 200,000 1 $ 7.75 0.060
May 21, 2001........................ 200,000 1 $ 8.75 0.048
June 24, 2001....................... 765,000 11 $ 7.75 0.060
June 24, 2001....................... 765,000 11 $ 8.75 0.049
June 26, 2001....................... 340,000 13 $ 7.75 0.061
June 26, 2001....................... 340,000 13 $ 8.75 0.049
June 4, 2002........................ 70,000 3 $ 5.66 0.104
June 4, 2002........................ 70,000 3 $ 6.40 0.089
</TABLE>
5.3 Condition
The Option Scheme shall be subject to and conditional upon the Ordinary
Scheme and the PP Scheme becoming Effective provided that such condition may be
waived in whole or part by Homestake in its absolute discretion by notice in
writing given to Plutonic within 5 Business Days of the date on which either the
Ordinary Scheme or the PP Scheme is rejected by Ordinary Scheme Members or PP
Scheme Members, as the case may be.
6. SHARE PURCHASE
Prior to the Court Order Time (subject to compliance with the Corporations
Law) Homestake or one of its subsidiaries will purchase Plutonic Shares.
7. TERMINATION
7.1 This Agreement may be terminated at any time prior to the Second Court
Date:
(a) By either Homestake or Plutonic if at a duly held stockholders
meeting of Homestake the Homestake Resolutions are defeated.
(b) By either Homestake or Plutonic if any Court or Government Agency
has issued an order, decree of ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the merger and such order,
decree, ruling or other action shall have become final and nonappealable.
(c) By Plutonic in accordance with clause 7.3(a).
(d) By Plutonic if the Homestake Board has:
(i) failed to recommend to Homestake's stockholders that they
approve the Homestake Resolutions;
(ii) taken any action described in clause 11.2(b)(i) or (ii); or
(iii) failed to publicly reaffirm in terms no less favourable than
and subject to no further qualifications than those contained in the
announcement made pursuant to clause 2.6 to Homestake stockholders that
they approve the Homestake Resolutions within 14 days after Plutonic has
made a written request to Homestake to do so (which written request may
be made by Plutonic at any time after the public disclosure of a
Homestake Takeover Proposal).
A-7
<PAGE> 183
(e) By Homestake if the Plutonic Board has:
(i) failed to recommend to the Scheme Participants that they
approve the Ordinary Scheme, the PP Scheme and the Option Scheme;
(ii) taken any action described in clause 11.1(b)(i)or (ii); or
(iii) failed to publicly reaffirm in terms no less favourable than
and subject to no further qualifications than those contained in the
announcement made pursuant to clause 2.6 to Plutonic shareholders that
they approve the Plutonic Schemes within 14 days after Homestake has
made a written request to Plutonic to do so (which written request may
be made by Homestake at any time after the public disclosure of a
Plutonic Takeover Proposal).
(f) By either Homestake or Plutonic if the other is in material breach
of any clause of this Agreement (other than a warranty in schedule 1 or
schedule 2 which is qualified by a materiality test, in which case any
breach shall suffice) before the Second Court Date provided that either
Homestake or Plutonic, as the case may be, has given notice to the other
setting out the relevant circumstances and stating an intention to
terminate and, if the relevant circumstances continue to exist seven
Business Days (or any shorter period ending at 12 noon on the day before
the Second Court Date) from the time such notice is given, the terminating
party may, in its absolute discretion, terminate this Agreement by a
further notice in writing to the other party.
(g) By either Homestake or Plutonic in accordance with clause 2.7(b).
(h) By:
(i) either Homestake or Plutonic if at a duly held meeting the
Ordinary Scheme Members; or
(ii) by Homestake if at a duly held meeting the PP Scheme Members
or the Option Holders do not approve the applicable Scheme by the
majorities required under the Corporations Law.
(i) By Homestake if Plutonic takes any action in breach of clause
11.1(a) or any action permitted by the proviso to that clause.
(j) By Plutonic if Homestake takes any action in breach of clause
11.2(a) or any action permitted by the proviso to that clause.
(k) By Homestake in accordance with clause 7.3(b).
7.2 Effect of Termination
In the event of termination of this Agreement by either Homestake or
Plutonic pursuant to clause 7, except to the extent that such termination
results from a wilful breach by any party of its obligations under this
Agreement (other than under clause 10) this Agreement shall become void and have
no effect, without any liability or obligation on the part of Homestake or
Plutonic, other than the provisions of clauses 22 and 26.
7.3 Termination in respect of Superior Proposals
(a) Plutonic may terminate this Agreement pursuant to clause 7.1(c)
only if:
(i) the Plutonic Board has received a Superior Plutonic Proposal;
(ii) in light of such Superior Plutonic Proposal the Plutonic Board
has determined in good faith, based upon the written advice of outside
counsel, that it is necessary for the Plutonic Board to withdraw or
modify its approval or recommendation of the Combination or this
Agreement in order to comply with its fiduciary duty under applicable
law;
(iii) Plutonic is in compliance with clause 11.1; and
(iv) the Plutonic Board concurrently approves or recommends the
implementation of such Superior Plutonic Proposal.
A-8
<PAGE> 184
(b) Homestake may terminate this Agreement pursuant to clause 7.1(k)
only if:
(i) the Homestake Board has received a Superior Homestake Proposal;
(ii) in the light of such Superior Homestake Proposal the board of
directors of Homestake has determined in good faith, based upon the
written advice of outside counsel, that it is necessary for the
Homestake Board to withdraw or modify its approval or recommendation of
the Combination or this Agreement in order to comply with its fiduciary
duty under applicable law;
(iii) Homestake is in compliance with clause 11.2; and
(iv) the Homestake Board concurrently approves or recommends the
implementation of such Superior Homestake Proposal.
(c) Homestake may only terminate this Agreement pursuant to clause
7.1(i) and Plutonic may only terminate this Agreement pursuant to clause
7.1(j) if, at the time the terminating party purports to terminate this
Agreement, the other party has not given written notice to the terminating
party that it has (and has in fact) ceased to participate in the
discussions and to provide the information which gave rise to the right to
terminate.
7.4 Notwithstanding any other provision of this Agreement a breach of the
warranties and representations given by Plutonic in paragraphs (h) or (i) of
Schedule II to this Agreement or given by Homestake in paragraph (h) of Schedule
I to this Agreement shall:
(a) not entitle Homestake or Plutonic, as the case may be, to
terminate this Agreement; and
(b) not amount to a failure to satisfy the condition precedent in
clause 2.1(k),
unless such breach results in or discloses anything which would amount to a
Plutonic Material Adverse Change or a Homestake Material Adverse Change, as the
case may be.
8. IMPLEMENTATION
8.1 Plutonic's Obligations
Plutonic shall execute all documents and do all acts and things necessary
for the implementation and performance of the Plutonic Schemes including the
following.
(a) SCHEME BOOKLETS: The preparation and the despatch of a Scheme
Booklet in respect of each Plutonic Scheme to be despatched to the Scheme
Participants which shall comply with the Corporations Law, PS 60, the
Listing Rules of the ASX and any applicable provisions of the Securities
Act and the Exchange Act.
(b) DIRECTORS' RECOMMENDATION: Plutonic will state (on the basis of
statements made to it by each of its directors) that each of the directors
of Plutonic recommends to Scheme Participants that all of the Plutonic
Schemes be approved, which statement shall be made on or immediately
following the execution of this Agreement in the announcements contemplated
by clause 2.6.
(c) EMPLOYEE SHARE PLAN: Such actions as shall be necessary to ensure
that between the date of this Agreement and the Effective Date no new
shares or options are allotted or issued or agreed to be allotted or issued
under the Plutonic Share Plans except new shares issued pursuant to options
granted prior to the date of this Agreement;
(d) s.411(17)(b) STATEMENT: Apply to the Commission for the production
of a statement pursuant to section 411(17)(b) of the Corporations Law
stating that the Commission has no objection to the Plutonic Schemes.
(e) COURT CONVENED MEETINGS: Apply to the Court for orders convening
the Court Convened Meetings, each to be held on the same day.
A-9
<PAGE> 185
(f) GENERAL MEETINGS: The convening of the following general meetings
of Plutonic to be held immediately following the Court Convened Meetings:
(i) REDUCTION OF CAPITAL: a general meeting to consider and, if
thought fit, approve special resolutions to cancel the Scheme Securities
in accordance with the terms of the Plutonic Schemes; and
(ii) RECAPITALISATION: a general meeting to consider and, if
thought fit, approve resolutions to allot sufficient ordinary shares in
Plutonic to Homestake to ensure, in accordance with the terms of the
Plutonic Schemes, that Plutonic is in Homestake's opinion adequately
capitalised, being the number of such shares specified in writing by
Homestake to Plutonic for the purpose.
(g) COURT APPROVAL: Apply to the Court for:
(i) orders approving such of the Plutonic Schemes as are approved
by the relevant Scheme Participants at the Court Convened Meetings; and
(ii) for orders confirming the reductions of capital incidental to
those Plutonic Schemes.
(h) LODGE COPY OF COURT ORDERS: Forthwith lodge with the Commission a
certified copy of the Court orders approving such of the Plutonic Schemes
as are approved by the relevant Scheme Participants at the Court Convened
Meetings.
(i) ALLOTMENT OF RECAPITALISATION SHARES: Immediately following the
Effective Date, Plutonic shall allot the Recapitalisation Shares, which
shares shall be allotted fully paid up by capitalising the capital
reduction reserve created by Plutonic following the cancellation of the
Scheme Securities.
(j) CONDUCT OF BUSINESS BY PLUTONIC: During the period from the date
of this Agreement to the Effective Date, Plutonic shall, and shall cause
its subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, use
reasonable efforts to preserve intact their current business organisations,
keep available the services of their current officers and employees and
preserve their relationships with customers, suppliers, licensors,
licensees and others having business dealings with them. Without limiting
the generality of the foregoing, during the period from the date of this
Agreement to the Effective Date, Plutonic shall not and shall not permit
any of its subsidiaries (without the consent of Homestake such consent not
to be unreasonably withheld or delayed) to:
(i) incur any expenditure which:
(A) would individually or in aggregate cause actual expenditure
to exceed by 10% or more, the amount provided for that type of
expenditure in the Budget; or
(B) is in excess of $200,000 for any single item or $1 million
in aggregate which is not provided for in the Budget,
without the written consent of Homestake;
(ii) acquire or agree to acquire:
(A) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, limited liability company,
joint venture, association or other business organisation or division
thereof; or
(B) any assets that are material, individually or in the
aggregate, to Plutonic and its subsidiaries taken as a whole;
A-10
<PAGE> 186
(iii) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose (which for the purposes of this
clause includes disposing of any economic or beneficial interest) of any
company property (or agree to do any of these things) other than:
(A) sales and dispositions of interests or rights with respect
to raw materials, obsolete equipment, mine output and other
inventories, in each case only if in the ordinary course of business
consistent with past practice; and
(B) encumbrances that are incurred in the ordinary course of
business consistent with past practice;
(iv) except pursuant to existing employment agreements (or
arrangements set out in the Plutonic Disclosure Letter) or as required
by applicable laws:
(A) increase the compensation payable or to become payable to
its executive officers or employees;
(B) grant any severance or termination pay to, or enter into any
employment or severance agreement with, and director or executive
officer or employee of Plutonic or any of its subsidiaries; or
(C) establish, adopt, enter into or amend or take any action to
accelerate any rights or benefits under any collective bargaining
agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalisation, medical or
other plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee,
officer or director of Plutonic or any of its subsidiaries; or
(v) authorise any of, or commit or agree to take any of, the
foregoing actions.
8.2 Homestake's Obligations
Homestake shall execute all documents and do all acts and things necessary
for the implementation and performance of the Plutonic Schemes, including:
(a) STOCKHOLDER MEETINGS: The convening of a general meeting of
Homestake (using a proxy statement prepared in accordance with applicable
laws) to be held at least 1 Business Day before the Court Convened Meetings
are held to consider, and if thought fit, approve the issue of Homestake
Stock as the Scheme Consideration; and
(b) REPRESENTATION: Procuring that Homestake is represented by counsel
at the Court hearings convened for the purposes of section 411(4)(b) of the
Corporations Law, at which through its counsel Homestake will undertake (if
requested by the Court) to do all such things and take all such steps
within its power as may be necessary in order to ensure the fulfilment of
its obligations under this Agreement and the Plutonic Schemes.
(c) PROXY STATEMENT: Homestake will prepare and file with the SEC the
Proxy Statement. Homestake will use its best efforts to act to cause the
Proxy Statement to be mailed to Homestake's stockholders as soon as
practicable after the date hereof.
(d) CONDUCT OF BUSINESS BY HOMESTAKE: During the period from the date
of this Agreement to the Effective Date, Homestake shall, and shall cause
its subsidiaries to, carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, use
reasonable efforts to preserve intact their current business organisations,
keep available the services of their current officers and employees and
preserve their relationships with customers, suppliers, licensors,
licensees and others having business dealings with them.
A-11
<PAGE> 187
8.3 Accounting Treatment
Each of Homestake and Plutonic shall not take any action and shall not fail
to take any action which action or failure to act would prevent, or be likely to
prevent the Combination from qualifying for pooling-of-interests accounting
treatment.
8.4 Pooling Covenants
Except as disclosed in the Plutonic Disclosure Letter or the Homestake
Disclosure Letter from 11 November 1997 neither Homestake nor Plutonic nor any
of their respective subsidiaries has and from that date will not:
(a) Issue ordinary shares, options or other types of equity securities
or securities convertible into equity securities, except pursuant to
previously outstanding agreements or except in the ordinary course
consistent with past practice in the case of employee or director stock
options and directors share rights.
(b) Enter into or amend employment or termination agreements with
officers or directors that would be triggered by completion of the
transaction.
(c) Dispose of (or enter into agreements to dispose of) any
significant assets. For purposes of this provision, dispose includes
disposing of any economic or beneficial interest in an asset and all of the
following apply:
(i) the relative value of the assets disposed of cannot exceed 10%
of the disposing party's consolidated net assets on a book value or
market value basis;
(ii) the revenue of the business being disposed of cannot exceed
10% of the disposing party's consolidated prior year's revenues.
(iii) the earnings of the business being disposed of cannot exceed
10% of the disposing party's prior year's earnings;
(iv) the gain or loss recognised on the disposition cannot exceed
10% of the disposing party's prior year's earnings.
(d) Except as permitted by clause 6 distribute assets to its
shareholders, other than regular dividends in the ordinary course and time
at rates consistent with past practices (which for Plutonic would be a
final dividend for the year ended 31 December 1997 not exceeding $0.03 per
Ordinary Share), or purchase, redeem or otherwise acquire any shares of
capital stock of Plutonic or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities.
8.5 Appointment of Plutonic Directors
As soon as practicable:
(a) after the Second Court Date, Plutonic shall use its best
endeavours to appoint three nominees of Homestake to the Plutonic Board;
and
(b) after the Scheme Consideration has been paid Plutonic shall use
its best endeavours to ensure that all directors other than Homestake
nominees resign.
8.6 Budget
The parties shall negotiate in good faith and use their best endeavours to
agree, an operating budget for Plutonic and its subsidiaries for the period from
the date of this Agreement until 30 June 1998. Without affecting each party's
obligation of good faith, if the parties are unable to agree on such budget or
any item in such budget, either party may elect to refer the matter to a nominee
of Homestake and a nominee of Plutonic for negotiation. If the matter is not
resolved within 7 days, then the matter will be referred to the Plutonic board
for its determination which will bind both parties.
A-12
<PAGE> 188
9. RANKING
9.1 All Homestake Stock to be issued to Scheme Participants pursuant to
the Plutonic Schemes shall, as from the date of issue, rank equally with all
other Homestake Stock on issue.
10. REPRESENTATIONS AND WARRANTIES
10.1 Homestake's Representations
Homestake represents and warrants to Plutonic at the date of this Agreement
and as at the Second Court Date as set forth in Schedule I.
10.2 Plutonic's Representations
Plutonic represents and warrants to Homestake and its directors at the date
of this Agreement and as at the Second Court Date as set forth in Schedule II.
10.3 Non-Survival of Representation and Warranties
The representations and warranties in clauses 10.1 and 10.2 shall expire on
the Second Court Date.
10.4 Release of officers and directors
(a) Neither Homestake nor any officer or director of Homestake will be
liable for anything done or purported to be done in connection with the
Combination or any transaction contemplated by this Agreement in good
faith, but nothing in this clause shall exclude any liability that may
arise from a grossly negligent act or omission on the part of such a
person. Homestake receives and holds the benefit of this release, to the
extent it relates to its officers and directors as agent for them.
(b) Subject to section 241 of the Corporations Law, neither Plutonic
nor any officer or director of Plutonic will be liable for anything done or
purported to be done in connection with the Combination or any transaction
contemplated by this Agreement in good faith, but nothing in this clause
shall exclude any liability which may arise from a grossly negligent act or
omission on the part of such a person. Plutonic receives and holds the
benefit of this release, to the extent it relates to its officers and
directors as agent for them.
11. EXCLUSIVITY
11.1 No Solicitation by Plutonic
(a) Plutonic shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorise or permit any affiliate, officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, Plutonic, any of its subsidiaries or affiliates to:
(i) directly or indirectly solicit, initiate or encourage the
submission of any Plutonic Takeover Proposal; or
(ii) enter into any agreement with respect to any Plutonic Takeover
Proposal or directly or indirectly participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected
to lead to, any Plutonic Takeover Proposal,
provided, however, that after the First Court Date but only to the extent
required by the fiduciary obligations of the Plutonic Board, as determined
in good faith by it based on the written opinion of outside counsel,
Plutonic may, in response to a Plutonic Takeover Proposal that was not
solicited by Plutonic and that did not otherwise result from a breach or a
deemed breach of this clause 11.1(a), and subject to the compliance with
clause 11.1(c):
(A) furnish information with respect to Plutonic and to any
person pursuant to a customary confidentiality agreement not less
restrictive of the other party than the Confidentiality Agreement;
and
A-13
<PAGE> 189
(B) participate in discussions or negotiations with such person
regarding any Plutonic Takeover Proposal.
(b) Unless the Plutonic Board determines in good faith (based on the
written opinion of outside counsel) that it is required to do so by its
fiduciary obligations, until this Agreement is terminated in accordance
with clause 7.1, neither the Plutonic Board nor any committee thereof
shall:
(i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Homestake, the approval or recommendation by the
Plutonic Board or any such committee of this Agreement or the
Combination; or
(ii) approve any letter of intent, agreement in principle,
acquisition agreement or similar agreement relating to any Plutonic
Takeover Proposal.
(c) Plutonic shall:
(i) immediately following
(A) the provision (in writing or orally) of any information in
relation to Plutonic; or
(B) any discussions or negotiations,
by Plutonic or any person referred to in clause 11.1(d) to or with
any person in relation to a Plutonic Takeover Proposal, advise
Homestake in writing of the general terms of any Plutonic Takeover
Proposal (including details on timing, Australian/foreign offeror,
gold company/ diversified resource company, scrip/cash, scheme of
arrangement/takeover bid and the material conditions relating thereto
and whether the market capitalisation of the other party exceeds $1
billion);
(ii) keep Homestake informed of any change to the general terms of
any Plutonic Takeover Proposal;
(iii) provide to Homestake as soon as practicable after delivery
thereof, full details of the written material relating to Plutonic
provided to other persons in connection with any Plutonic Takeover
Proposal or inquiry and where the relevant information has not already
been given to Homestake, provide copies of the information to Homestake;
(iv) provide to Homestake as soon as practicable after receipt
thereof, any information or analysis regarding Homestake or Homestake
Stock provided (in writing or orally) to Plutonic by any person in
connection or association with a Plutonic Takeover Proposal;
(v) within 14 days of first entering into discussions with the
person who has made a Plutonic Takeover Proposal, notify Homestake in
writing:
(A) of the determinations described in clause 7.3(a)(ii) and all
material terms (including the parties) of the Superior Plutonic
Proposal; or
(B) that Plutonic has ceased discussions in relation to that
Plutonic Takeover Proposal; and
(vi) at least seven days following receipt by Homestake of a notice
referred to in clause 11.1(c)(v)(A), and taking into account any revised
proposal made by Homestake since receipt of a notice referred to in
clause 11.1(c)(v)(A) notify Homestake in writing that the Superior
Plutonic Proposal remains a Superior Plutonic Proposal and the Plutonic
Board has again made the determinations referred to in clause
7.3(a)(ii).
(d) Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this clause 11.1 by any
executive officer of Plutonic or any of its subsidiaries or affiliates,
investment bankers, attorneys or other advisors or representatives of
Plutonic or any of its subsidiaries, whether or not such person is
purporting to act on behalf of Plutonic or any of its subsidiaries or
otherwise, shall be deemed to be a breach of this clause 11.1 by Plutonic.
A-14
<PAGE> 190
11.2 No Solicitation by Homestake
(a) Homestake shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorise or permit any affiliate, officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, Homestake, any of its subsidiaries or affiliates to:
(i) directly or indirectly solicit, initiate or encourage the
submission of any Homestake Takeover Proposal;
(ii) enter into any agreement with respect to any Homestake
Takeover Proposal or directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Homestake Takeover Proposal,
provided, however, that to the extent required by the fiduciary obligations
of the Homestake Board, as determined in good faith by it based on the
written opinion of outside counsel, Homestake may, in response to a
Homestake Takeover Proposal that was not solicited by Homestake and that
did not otherwise result from a breach or a deemed breach of this clause
11.2(a), and subject to the compliance with clause 11.2(c):
(A) furnish information with respect to Homestake and to any
person pursuant to a customary confidentiality agreement not less
restrictive of the other party than the Confidentiality Agreement;
and
(B) participate in discussions or negotiations with such person
regarding any Homestake Takeover Proposal,
(b) Unless the Homestake Board determines in good faith (based on the
written opinion of outside counsel) that it is required to do so by its
fiduciary obligations, until this Agreement is terminated in accordance
with clause 7.1, neither the Homestake Board nor any committee thereof
shall:
(i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Plutonic, the approval or recommendation by the
Homestake Board or any such committee of this Agreement or the
Combination; or
(ii) approve any letter of intent, agreement in principle,
acquisition agreement or similar agreement relating to any Homestake
Takeover Proposal.
(c) Homestake shall:
(i) immediately following
(A) the provision (in writing or orally) of any information in
relation to Homestake; or
(B) any discussions or negotiations,
by Homestake or any person referred to in clause 11.2(d) to or with
any person in relation to a Homestake Takeover Proposal, advise
Plutonic in writing of the general terms of any Homestake Takeover
Proposal (including details on timing, US/foreign offeror, gold
company/diversified resource company, scrip/cash, nature of offer and
the material conditions relating thereto and whether the market
capitalisation of the other party exceeds $1 billion);
(ii) keep Plutonic informed of any change to the general terms of
any Homestake Takeover Proposal;
(iii) provide to Plutonic as soon as practicable after delivery
thereof, full details of the written material relating to Homestake
provided to other persons in connection with any Homestake Takeover
Proposal or inquiry and where the relevant information has not already
been given to Plutonic, provide copies of the information to Plutonic;
A-15
<PAGE> 191
(iv) provide to Plutonic as soon as practicable after receipt
thereof, any information or analysis regarding Plutonic provided (in
writing or orally) to Homestake by any person in connection or
association with a Homestake Takeover Proposal;
(v) within 14 days of first entering into discussions with the
person who has made a Homestake Takeover Proposal, notify Plutonic in
writing:
(A) of the determinations described in clause 7.3(b)(ii) and all
material terms (including the parties) of the Superior Homestake
Proposal; or
(B) that Homestake has ceased discussions in relation to that
Homestake Takeover Proposal;
(vi) at least seven days following receipt by Plutonic of a notice
referred to in clause 11.2(c)(v)(A), and taking into account any revised
proposal made by Plutonic since receipt of a notice referred to in
clause 11.2(c)(v)(A) notify Plutonic in writing that the Superior
Homestake Proposal remains a Superior Homestake Proposal and the
Homestake Board has again made the determinations referred to in clause
7.3(b)(ii);
(d) Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this clause 11.2 by any
executive officer of Homestake or any of its subsidiaries or affiliates,
investment bankers, attorneys or other advisors or representatives of
Homestake or any of its subsidiaries, whether or not such person is
purporting to act on behalf of Homestake or any of its subsidiaries or
otherwise, shall be deemed to be a breach of this clause 11.2 by Homestake.
12. ACCESS TO INFORMATION
12.1 Each of Plutonic and Homestake shall, and shall cause each of its
respective subsidiaries to, afford to the other party and to the officers,
directors, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Date to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of Plutonic and Homestake shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party:
(a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of
applicable corporate or securities laws; and
(b) all other information concerning its business, properties and
personnel as such other party may reasonably request.
Without limiting the generality of the foregoing, Plutonic shall, within 2
business days of request therefor, provide to Homestake:
(i) access without requiring Homestake to comply with any procedural
requirements prescribed by law, to any information which a shareholder of
Plutonic is entitled to receive or gain access to under the Corporations
Law and to any registers or other information required to be kept by
Plutonic under the Corporations Law;
(ii) provide any information in relation to Plutonic's share register
including any CHESS subregister and any other subregister, whether
electronic or otherwise; and
(iii) provide any indications of the voting intentions of Plutonic's
shareholders which Plutonic has received, including information regarding
proxies.
12.2 The information to be provided pursuant to clause 12.1 shall be used
to satisfy the obligations, fiduciary and otherwise, of the parties and their
directors, officers and advisors under applicable corporate and securities laws,
to solicit approval of the Plutonic Schemes from Scheme Participants, to verify
that the representations and warranties in this Agreement are not materially
incorrect, to verify the satisfaction of conditions precedent and (in the case
of Homestake) to assist in integrating the two companies.
A-16
<PAGE> 192
13. AFFILIATES
13.1 Prior to the First Court Date Plutonic shall deliver to Homestake a
letter identifying all persons who are at that time Affiliates (including all
directors of Plutonic) of Plutonic. Prior to the Second Court Date Plutonic
shall deliver to Homestake an updated letter identifying all persons who are at
the time of the Court Convened Meetings Affiliates of Plutonic. Plutonic shall
use reasonable efforts to cause each such person to deliver to Homestake prior
to the Second Court Date or such later date as the parties agree a written
agreement substantially in the form of Schedule IV.
13.2 Prior to the First Court Date Homestake shall deliver to Plutonic a
letter identifying all persons who are at that time Affiliates of Homestake.
Prior to the Second Court date Homestake shall deliver to Plutonic an updated
letter identifying all persons who were at the time of the Homestake
Stockholders Meeting Affiliates of Homestake. Homestake shall use reasonable
efforts to cause each such person to deliver to Plutonic prior to the Second
Court Date or such later date as the parties agree a written agreement
substantially in the form of Schedule V.
14. BUSINESS DAY
Except where otherwise expressly provided, where under this Agreement the
day on which any act, matter or thing is to be done is a day other than a
Business Day, such act matter or thing shall be done on the immediately
succeeding Business Day.
15. WAIVER, REMEDIES CUMULATIVE
15.1 Waiver
The waiver by either party of a breach or default by the other party of
this Agreement or a failure to satisfy a condition shall not be construed as a
waiver of any other breach or default or non-fulfilment of this Agreement or of
any other provisions of this Agreement and shall not impair the exercise of any
rights accruing to it under this Agreement thereafter. All waivers must be in
writing. Any delay or omission on the part of either party to exercise or avail
itself of any rights accruing to it under this Agreement shall not operate as a
waiver by such party of any breach or default by the other party of any of the
said provisions.
15.2 Remedies Cumulative
All rights and remedies provided in this Agreement are cumulative and are
not exclusive of any rights or remedies provided by law.
16. NOTICES
Any notice given under this Agreement:
(a) must be in writing addressed to the intended recipient at the
address shown below or the address last notified by the intended recipient
to the sender:
<TABLE>
<S> <C>
Homestake
Attention: VP, General Counsel and Company Secretary
Fax: 415 397 0952
Copied to: VP, Corporate Development
Fax: 415 397 2641
Plutonic
Attention: Chairman
Fax: 2 9221 8364
</TABLE>
(b) must be signed by a person duly authorised by the sender; and
(c) will be taken to have been given when delivered, received or left
at the above address (whether by fax or otherwise). If delivery or receipt
occurs on a day when business is not generally carried on in the
A-17
<PAGE> 193
place to which the notice is sent, or is later than 4 pm (local time), it
will be taken to have been duly given at the commencement of business on
the next day when business is generally carried on in that place.
17. ENTIRE AGREEMENT
Subject to clause 23, this Agreement and the Confidentiality Agreement:
(a) contain the entire agreement of the parties with respect to their
subject matter; and
(b) set out the only conduct relied on by the parties and supersedes
all earlier conduct and any written agreement by the parties covering or
with respect to the subject matter of these agreements.
18. AMENDMENT
This Agreement may be amended only by another agreement executed by each
party.
19. ASSIGNMENT
The rights and obligations of each party under this Agreement are personal.
They cannot be assigned, charged or otherwise dealt with, and no party shall
attempt or purport to do so, without the prior written consent of the other
party.
20. NO MERGER
The rights and obligations of the parties will not merge on completion of
any transaction under this Agreement. They will survive the execution and
delivery of any assignment or other document entered into for the purpose of
implementing any transaction.
21. PUBLIC ANNOUNCEMENT
21.1 Public Announcement and Submissions
No public announcement of a transaction undertaken in connection with any
Transaction Document and no submission for the approval of any Regulatory
Authority pursuant to this Agreement shall be made other than in a form approved
by both parties, but each party will use all reasonable endeavours to provide
such approval as soon as practicable.
21.2 Required Disclosure
Where a party is required by law to make any announcement or make any
disclosure relating to matters the subject of a Transaction Document, it may do
so only after it has given at least seven days or such lesser period as may be
required or permitted by the effect of a legal obligation, but in any event
prior notice to the other party and has consulted to the fullest extent possible
with the other party and its legal advisers.
22. CONFIDENTIALITY
22.1 Confidentiality Agreement
Each Party acknowledges and agrees that it continues to be bound by the
Confidentiality Agreement in respect of all information received by it from the
other party before or after the date of this Agreement.
22.2 Survival of Obligations
The rights and obligations of the parties with respect to confidentiality
shall survive termination of this Agreement.
A-18
<PAGE> 194
23. FURTHER ASSURANCES
Each party shall exercise all such powers as are available to it, do all
such acts matters and things and sign, execute and deliver all such documents
and instruments as may be necessary or reasonably required to give full force
and effect to the provisions of this Agreement.
24. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and such counterparts shall
together constitute one and the same instrument.
25. ATTORNEYS
Each of the Attorneys executing this Agreement respectively states in the
presence of each other person executing this Agreement that he has at the time
of execution no notice of revocation of the power of attorney under the
authority of which he does so.
26. COSTS
26.1 Except as provided below, each party shall bear its own costs charges
and expenses arising out of or incidental to the negotiations leading to or the
preparation of this Agreement and the proposed, attempted or actual
implementation of this Agreement, the Plutonic Schemes and the Transaction
Documents. Homestake shall pay any stamp duty that is payable in relation to
this Agreement or the Plutonic Schemes or the steps to be taken under the
Plutonic Schemes.
26.2 Plutonic shall pay to Homestake a fee of US$4,500,000 if Homestake
terminates this Agreement pursuant to clause 7.1(f) or Plutonic or Homestake
terminates this Agreement where Plutonic has approved or recommended the
implementation of a Superior Plutonic Proposal in accordance with the terms of
this Agreement.
26.3 Any fee due under clause 26.2 shall be paid by wire transfer of
same-day funds on the date of termination of this Agreement.
26.4 Homestake shall pay to Plutonic a fee of US$4,500,000 if Plutonic
terminates this Agreement pursuant to clause 7.1(f) or Homestake or Plutonic
terminates this Agreement where Homestake has approved or recommended the
implementation of a Superior Homestake Proposal in accordance with the terms of
this Agreement. Homestake shall reimburse certain of Plutonic's costs in
relation to the Combination up to a maximum of US$1 million if Plutonic
terminates this Agreement pursuant to clause 7.1(a) but only if Plutonic
provides invoices in relation to the costs referred to in clause 26.6.
26.5 Any fee or reimbursement due under clause 26.4 shall be paid by wire
transfer of same-day funds on the date of termination of this Agreement.
26.6 (a) The parties acknowledge that each party will suffer significant
costs and losses if the parties enter into this Agreement to participate in the
Combination and the Combination is subsequently not implemented. These costs
include:
(i) advisory costs, legal costs, costs of increased advertising
expenditure, costs of management and directors' time and costs of
convening and holding shareholder meetings;
(ii) costs of planning and merging information technology,
software, telecommunications and other services of Homestake and
Plutonic;
(iii) costs of not pursuing independent or alternative co-operative
arrangements in relation to information technology, software,
telecommunications and other services in contemplation of the Scheme;
and
A-19
<PAGE> 195
(iv) costs of any other steps that Homestake or Plutonic could have
taken to further its business objectives on a stand alone basis (or
taking different steps in relation to any of those matters from those it
could have taken on a stand alone basis);
(v) without limiting clauses (iii) and (iv) above, costs of not
pursuing alternative acquisitions or strategic initiatives;
(vi) the reputational costs associated with a failed transaction
and the implications of those costs in the event either party seeks to
execute alternative acquisitions in the future; and
(vii) costs of the uncertainty and possible long-term harm to the
trading price of the parties' securities.
(b) Each party acknowledges that the costs outlined in this clause
26.6 are hard to calculate and that US$4,500,000 represents a fair and
reasonable estimate thereof. Each party acknowledges that the other party
has requested the inclusion of portions of this clause 26 and would not
otherwise have entered into this Agreement or the other Transaction
Documents to participate in the Combination. Each party believes that the
Combination will provide significant benefits to such party and its
shareholders and that it is appropriate to agree to inclusion of this
clause 26 in order to secure such benefits.
27. GOVERNING LAW
This Agreement is governed by the laws of New South Wales. The parties
submit to the non-exclusive jurisdiction of courts exercising jurisdiction
there.
28. ENFORCEMENT
(a) If any clause of this Agreement is held to be invalid as a
consequence of a breach of the duties of the directors of Plutonic caused
by Plutonic entering into this Agreement, this Agreement shall be void.
(b) Each party acknowledges that:
(i) the Plutonic Schemes would only be available for consideration
by Scheme Participants if the directors of Plutonic agreed to each
provision in this Agreement; and
(ii) the restrictions and obligations in this Agreement are
reciprocal in all material respects and supported by valuable
consideration.
29. LACHLAN RESOURCES NL
The parties agree that for the purposes of the definition of Plutonic
Prescribed Occurrence and clause 8.4 an occurrence in relation to Lachlan
Resources NL which would otherwise be a Plutonic Prescribed Occurrence or breach
clause 8.4 shall not be a Plutonic Prescribed Occurrence or breach clause 8.4 if
it is an occurrence or event which has been approved by Homestake, such approval
not to be unreasonably withheld or delayed except where the occurrence or event
would:
(a) prejudice the Combination qualifying as a pooling-of-interests; or
(b) cause or reasonably be expected to cause or have a material
adverse effect on Plutonic of more than $10 million.
A-20
<PAGE> 196
30. DEFINITIONS AND INTERPRETATION
30.1 Definitions
In this document unless the context otherwise requires the following words
and expressions shall have meanings as follows:
ACCOUNTS means, collectively, the audited consolidated financial
statements for Plutonic for the year ended 31 December 1996, and the
unaudited consolidated financial statements for Plutonic for the nine
months ended 30 September 1997.
AFFILIATE means for the purposes of clause 13.1 and 13.2, an affiliate
as such term is:
(a) defined for the purposes of paragraphs (c) and (d) of Rule 145
of the general rules and regulations of the SEC under the Securities
Act; or
(b) used in and for the purposes of Accounting Series Releases 130
and 135, as amended, of the SEC.
APPLICATIONS means the rights, titles, leases, concessions, licences
and other entitlements to explore for, mine, extract and process all and
any Minerals applied for by the Company or any of its subsidiaries anywhere
in the world.
ASX means Australian Stock Exchange Limited.
AUSTRALIAN GAAP means generally accepted accounting principles in
Australia.
BUDGET means the operating budget of Plutonic and its subsidiaries
contemplated by clause 8.6.
BUSINESS DAY means a weekday on which trading banks are open for
business in Sydney and San Francisco.
COMBINATION means the implementation of the Plutonic Schemes.
COMMISSION means the Australian Securities Commission.
CONFIDENTIALITY AGREEMENT means the agreement dated 8 December 1997
entered into between Homestake and Plutonic as amended by Annexure A.
CONTROL in relation to a corporation means having the capacity and
power (whether directly or indirectly and whether by the ownership of share
capital, the possession of voting power, contract or otherwise) to appoint
and/or remove the majority of the directors of that corporation or
otherwise to control or have the power to control the affairs and policies
of that corporation.
CORPORATIONS LAW means the Corporations Law as it applies in New
Plutonic Wales.
COURT means a court of competent jurisdiction under the Corporations
Law.
COURT CONVENED MEETINGS means each of the meetings to be convened by
the Court pursuant to the Plutonic Schemes.
COURT ORDER TIME means the time the Court makes an order confirming
the reduction of capital referred to in clause 8.1(g).
DIRECTORS OPTION PLAN means the Plutonic Non-Executive Directors
Option Scheme.
EFFECTIVE, when used in relation to a Scheme, means the coming into
effect, pursuant to section 411(10) of the Corporations Law, of the order
of the Court made under section 411(4)(b) in relation to that Scheme.
EFFECTIVE DATE means the date on which the Ordinary Scheme, the PP
Scheme and the Option Scheme becomes Effective.
EMPLOYEE SHARE PLAN means the Plutonic Employee Share Participation
Plan.
A-21
<PAGE> 197
ENVIRONMENTAL LAW means any law concerning environmental matters and
includes, but is not limited to, a law concerning land use, development,
pollution, waste disposal, toxic and hazardous substances, conservation of
natural or cultural resources, resource allocation or the exploration for
or development of any natural resource.
ENVIRONMENTAL LIABILITY means any obligation, expense, penalty or fine
under Environmental Law that would or could be imposed upon such person or
any of its subsidiaries or any occupier of its properties as a result of
activities carried on during the ownership or occupation of the property by
such person or any of its subsidiaries, or by the members predecessor in
title or any previous occupier of the Properties.
EXCHANGE ACT means the United States Securities Exchange Act of 1934
and the rules and regulations thereunder.
EXCHANGES means the New York Stock Exchange and the Australian Stock
Exchange Limited.
FIRB means the Australian Foreign Investment Review Board.
FIRST COURT DATE means the date on which the Court makes an order
under Section 411(1) of the Corporation Law to convene the Court Convened
Meetings.
GENERAL RESOLUTION means the special resolution of Plutonic
shareholders approving the reduction of capital contemplated by the
Plutonic Schemes pursuant to Section 195(1) of the Corporations Law.
GOVERNMENTAL AGENCY means any federal, State or territory government
in Australia or the United States of America or any federal, State or
territory governmental, regulatory, semi-governmental or judicial entity or
authority in Australia or the United States of America.
HOMESTAKE BOARD means the board of directors of Homestake.
HOMESTAKE DISCLOSURE LETTER means the letter from Homestake to
Plutonic, dated the date of this Agreement, disclosing various matters
pertaining to the business and operations of Homestake.
HOMESTAKE INFORMATION means such information regarding Homestake and
Homestake Stock required under the Corporations Law or as may be
appropriate under PS 60 to enable the applications for the Regulatory
Approvals and the Scheme Booklets to be prepared and completed.
HOMESTAKE MATERIAL ADVERSE CHANGE: means one or more occurrences or
matters individually or in aggregate (other than disclosed in the Homestake
Disclosure Letter) that:
(a) have a material adverse effect on the business, properties,
financial condition or results of operations of Homestake and its
subsidiaries, taken as a whole (other than effects relating to the gold
mining industry in general) in relation to which creates or could
reasonably be expected to create liabilities, or results or could
reasonably be expected to result in a diminution of the value of
Homestake's assets, which in aggregate exceed US$150 million; or
(b) prevent Homestake and its subsidiaries from performing their
respective obligations under this Agreement.
HOMESTAKE PRESCRIBED OCCURRENCE means other than disclosed in the
Homestake Disclosure Letter or as required by this Agreement or the
Plutonic Schemes, between the date of this Agreement and the Effective
Date, none of the following shall have occurred in relation to Homestake:
(a) Homestake reclassifying, reducing or splitting its outstanding
stock by way of capital stock split, payment of any dividend payable in
stock, or otherwise.
(b) The board of directors of Homestake, enacting a resolution
providing for the reduction, by repurchase or otherwise, of the number
of outstanding shares of capital stock of such entity;
A-22
<PAGE> 198
(c) Homestake entering into an agreement to purchase any of its
outstanding shares of capital stock, or the board of directors of
Homestake enacting a resolution approving the terms of such an
agreement;
(d) Homestake, or a subsidiary thereof, issuing or selling, or
granting an option to purchase, any of its shares of capital stock or
agreeing to issue or sell, or to grant an option to purchase, any such
shares except in the ordinary operation of stock option plans, savings
plan and directors' rights plans.
(e) Homestake, or a subsidiary thereof, issuing, or agreeing to
issue, convertible notes;
(f) Homestake, or any subsidiary thereof, disposing, agreeing to
dispose, of the whole, or a substantial part, of the business or
property of the Homestake group as a whole;
(g) Homestake, or any subsidiary thereof, mortgaging, pledging or
otherwise encumbering, or agreeing to mortgage, pledge or otherwise
encumber, the whole, or a substantial part, of the business or property
of the Homestake group as a whole;
(h) The board of directors of Homestake, or any subsidiary thereof,
enacting a resolution providing for the winding up, bankruptcy,
liquidation or dissolution of Homestake or a subsidiary thereof except
for a subsidiary having assets of less than US$250,000;
(i) The appointment of a receiver, bankruptcy trustee, liquidator,
administrator, custodian or other similar official of Homestake or any
subsidiary thereof except for a subsidiary having assets of less than
US$250,000;
(j) The entry by a court of competent jurisdiction of an order or
decree providing for the winding up of Homestake or a subsidiary thereof
except for a subsidiary having assets of less than US$250,000; or
(k) Homestake, or a subsidiary thereof, entering into a Chapter 11
bankruptcy.
HOMESTAKE RESOLUTIONS means the resolutions to be put to stockholders
of Homestake to approve the issue of Homestake Stock as the Scheme
Consideration pursuant to the Schemes described in this Agreement.
HOMESTAKE STOCK means common stock, par value US$1.00 of Homestake.
HOMESTAKE STOCKHOLDERS MEETING means the meeting of stockholders of
Homestake to which the Homestake Resolutions will be put.
HOMESTAKE TAKEOVER PROPOSAL means any proposal for a takeover bid,
share purchase, scheme, capital reconstruction purchase of assets, merger,
amalgamation, consolidation or other business combination involving
Homestake or any of its subsidiaries, any proposal for the issuance by
Homestake of a material amount of its equity securities as consideration
for the assets or securities of another person or any proposal or offer to
acquire in any manner, directly or indirectly, a material equity interest
in, any voting securities of, or a substantial portion of the assets of
Homestake or any of its subsidiaries, other than the transactions
contemplated by this Agreement.
LIEN means and includes all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever.
MINERALS means the minerals mined, produced, processed, sold or traded
by the Company.
MINERAL RIGHTS means all rights, titles, leases, concessions, licences
and other entitlements to explore for, mine, extract and process all and
any Minerals including, without limitation (and where the context so
requires), the Applications.
OPTION means an option granted pursuant to the Directors' Option Plan
or the Employee Share Plan.
A-23
<PAGE> 199
OPTION HOLDER means each person who is registered in the register of
option holders' of Plutonic as the holder of an Option as at the Record
Date.
OPTION SCHEME means the Scheme between Plutonic and the Option Holders
as described in clause 5.
ORDINARY SCHEME means the Scheme between Plutonic and the Ordinary
Scheme Members as described in clause 3.
ORDINARY SCHEME MEMBER means each person, other than Homestake or any
of its subsidiaries, who is registered in the register of members of
Plutonic as the holder of an Ordinary Share as at the Record Date.
ORDINARY SHARE means a fully paid ordinary share of $0.50 each in
Plutonic.
PERMITS means all certificates, franchises, licenses, leases, mining
tenements, permits, authorisations and approvals issued to or granted by
Governmental Agencies.
PLUTONIC BOARD means the board of directors of Plutonic.
PLUTONIC DISCLOSURE LETTER means the letter from Plutonic to
Homestake, dated the date of this Agreement, disclosing various matters
pertaining to the business and operations of Plutonic.
PLUTONIC INFORMATION means such information regarding Plutonic and its
operations as is required by Homestake and applicable U.S. securities laws
to prepare and file with the SEC the Proxy Statement or to enable
preparation of the applications for the Regulatory Approvals.
PLUTONIC MATERIAL ADVERSE CHANGE means one or more occurrences or
matters individually or in aggregate (other than disclosed in the Plutonic
Disclosure Letter) that:
(a) have a material adverse effect on the business, properties,
financial condition or results of operations of Plutonic and its
subsidiaries, taken as a whole (other than effects relating to the gold
mining industry in general) which creates or could reasonably be
expected to create liabilities, or results or could reasonably be
expected to result in a diminution of the value of Plutonic's assets,
which in aggregate exceed $50 million; or
(b) prevent Plutonic and its subsidiaries from performing their
respective obligations under this Agreement.
PLUTONIC PRESCRIBED OCCURRENCE means other than disclosed in the
Plutonic Disclosure Letter or as required by the Agreement or the Plutonic
Schemes, between the date of this Agreement and the Effective Date, none of
the following shall have occurred in relation to Plutonic:
(a) any one or more of the provisions of the constitution of
Plutonic or any material subsidiary of Plutonic being altered in any of
the ways mentioned in section 193(1) of the Corporations Law;
(b) Plutonic or any material subsidiary of Plutonic resolving to
reduce its share capital in any way;
(c) Plutonic making an allotment of, or granting an option to
subscribe for, any of its Ordinary Shares, PP Shares or Options or
agreeing to make such an allotment or to grant such an option other than
allotments of Ordinary Shares or PP Shares following an election to
convert by the holder of an Option or any material subsidiary of
Plutonic doing any of the foregoing with respect to its own securities;
(d) Plutonic or a subsidiary of Plutonic issuing, or agreeing to
issue, convertible notes or other debt securities (other than the issue
of non-convertible debt securities in the ordinary course of business);
(e) Plutonic or any material subsidiary of Plutonic disposing, or
agreeing to dispose, of the whole, or a substantial part, of its
business or property;
A-24
<PAGE> 200
(f) Plutonic or any material subsidiary of Plutonic creating, or
agreeing to create, any mortgage, charge, lien or other encumbrance over
the whole, or a substantial part, of its business or property otherwise
than in the ordinary course of business;
(g) Plutonic or any material subsidiary entering into any onerous
or long term contract or commitment otherwise than in the ordinary
course of business;
(h) Plutonic or any material subsidiary of Plutonic resolving that
it be wound up;
(i) the appointment of a provisional liquidator or administrator of
Plutonic or of any material subsidiary of Plutonic;
(j) the making of an order by a Court for the winding up of
Plutonic or of any material subsidiary of Plutonic;
(k) an administrator of Plutonic, or of any material subsidiary of
Plutonic being appointed under sections 436A, 436B or 436C of the
Corporations Law;
(l) Plutonic or any material subsidiary of Plutonic executing a
deed of company arrangement;
(m) the appointment of a receiver or a receiver and manager, in
relation to the whole, or a substantial part, of the property of
Plutonic or of any material subsidiary of Plutonic; or
(n) Plutonic or any material subsidiary of Plutonic:
(i) entering into a buy-back agreement; or
(ii) resolving to approve the terms of a buy-back agreement
under the Corporations Law.
For the purposes of this definition a material subsidiary includes any
subsidiary which has assets of more than $100,000.
PLUTONIC SCHEMES means the Ordinary Scheme, the PP Scheme and the
Option Scheme.
PLUTONIC SHARE PLANS means the Employee Share Plan and the Directors
Option Plan.
PLUTONIC TAKEOVER PROPOSAL means any proposal for a takeover bid,
share purchase, scheme, capital reconstruction, purchase of assets, merger,
amalgamation, consolidation or other business combination involving
Plutonic or any of its subsidiaries, any proposal for the issuance by
Plutonic of a material amount of its equity securities as consideration for
the assets or securities of another person or any proposal or offer to
acquire in any manner, directly or indirectly, a material equity interest
in, any voting securities of, or a substantial proportion of the assets of
Plutonic or any of its subsidiaries, other than the transactions
contemplated by this Agreement.
PP SCHEME means the Scheme between Plutonic and the PP Scheme Members
as described in clause 4.
PP SCHEME MEMBER means each person who is registered in the register
of members of Plutonic as the holder of a PP Share as at the Record Date.
PP SHARE means a partly paid ordinary share of par value $0.50 paid to
$0.05 each issued by Plutonic pursuant to the Employee Share Plan.
PROPERTIES means the properties owned, leased or occupied under
licence by such person or any of its subsidiaries.
PROXY STATEMENT means a proxy statement issued by Homestake in
relation to the Homestake Resolutions complying with the provisions of
Regulation 14A promulgated under the Exchange Act.
PS 60 means Policy Statement 60 issued by the Commission on 15 July
1993.
QUIT DATE means 30 June 1998.
A-25
<PAGE> 201
RECAPITALISATION SHARES means the number of Ordinary Shares specified
by Homestake under clause 8.1(f)(ii).
REGULATORY APPROVALS means such consent, approvals or other acts by a
Regulatory Authority necessary to satisfy the Regulatory Conditions.
REGULATORY AUTHORITY includes:
(a) government or governmental, semi-governmental or judicial
entity or authority;
(b) minister, department, office, commission, delegate,
instrumentality, agency, board, authority or organisation of
any government;
(c) any regulatory organisation established under statute; and
(d) the Exchanges.
REGULATORY CONDITION means the conditions precedent specified in
clause 2.1(a).
RECORD DATE means 5.00pm on the Business Day preceding the Effective
Date.
SCHEME means a scheme of arrangement under Part 5.1 of the
Corporations Law.
SCHEME BOOKLETS means, in respect of the Plutonic Schemes, the
information described in clause 8.1(a) to be despatched to the Scheme
Participants and approved by the Court which must include the Plutonic
Schemes, an explanatory statement complying with the requirements of the
Corporations Law and notices of meeting and proxy forms in such form as the
parties may agree.
SCHEME CONSIDERATION means:
(a) in respect of the Ordinary Scheme, the consideration to be
provided by Homestake under clause 3.2;
(b) in respect of the PP Scheme, the consideration to be provided
by Homestake under clause 4.2; and
(c) in respect of the Option Scheme, the consideration to be
provided by Homestake under clause 5.2.
SCHEME PARTICIPANTS means the Ordinary Scheme Members, the PP Scheme
Members and the Option Holders.
SCHEME SECURITIES means the Ordinary Shares (other than Ordinary
Shares held by Homestake or any wholly owned subsidiary of Homestake), the
PP Shares and the Options.
SEC means the United States Securities and Exchange Commission.
SECOND COURT DATE means the day on which the Court makes an order
pursuant to Section 411(4)(b) approving each of the Plutonic Schemes.
SECURITIES ACT means the United States Securities Act of 1933 and the
rules and regulations thereunder.
SUPERIOR HOMESTAKE PROPOSAL means any proposal made by a third party
to acquire a significant proportion (15% or more) of Homestake pursuant to
a takeover bid, share purchase, scheme, capital reconstruction, tender or
exchange offer, a merger, a sale of all or substantially all of its assets
or otherwise on terms which the board of directors of Homestake determines
in its good faith judgment to be more favourable to the holders of
Homestake Stock than the transactions contemplated by this Agreement (based
on the written opinion, with only customary qualifications, of Homestake's
independent financial advisor), taking into account all the terms and
conditions of such proposal and this Agreement.
A-26
<PAGE> 202
SUPERIOR PLUTONIC PROPOSAL means any proposal made by a third party to
acquire a significant proportion (15% or more) of Plutonic pursuant to a
takeover bid, share purchase, scheme, capital reconstruction, tender or
exchange offer, a merger, a sale of all or substantially all of its assets
or otherwise on terms which the board of directors of Plutonic determines
in its good faith judgment to be more favourable to the holders of Ordinary
Shares than the transactions contemplated by this Agreement (based on the
written opinion, with only customary qualifications, of Plutonic's
independent financial advisor), taking into account all the terms and
conditions of such proposal and this Agreement.
TAX means any tax, levy, charge, impost, duty, fee, deduction,
compulsory loan or withholding, which is assessed, levied, imposed or
collected by any Governmental Agency and includes, but is not limited to
any interest, fine, penalty, charge, fee or any other amount imposed on, or
in respect of any of the above.
TRADING DAY means a day upon which the ASX is open for trading.
TRANSACTION DOCUMENTS means this Agreement, the Proxy Statement, the
Confidentiality Agreement and the Scheme Booklets.
U.S. GAAP means generally accepted accounting principles in the United
States.
30.2 Interpretation
HEADINGS are for convenience only and do not affect interpretation.
The following rules of interpretation apply unless the context requires
otherwise.
(a) The singular includes the plural and conversely.
(b) A gender includes all genders.
(c) Where a word or phrase is defined, its other grammatical forms
have a corresponding meaning.
(d) A reference to a person includes a body corporate, an
unincorporated body or other entity and conversely.
(e) A reference to a clause or schedule is to a clause of or
schedule to this Agreement.
(f) A reference to any agreement or document is to that agreement
or document as amended, novated, supplemented, varied or replaced from
time to time, except to the extent prohibited by this Agreement or that
other agreement or document.
(g) A reference to any legislation or to any provision of any
legislation includes any modification or re-enactment of it, any
legislative provision substituted for it and all regulations and
statutory instruments issued under it.
(h) Mentioning anything after include, includes or including does
not limit what else might be included.
(i) A reference to dollars or $ is to Australian currency.
(j) A reference to a particular time of day shall be a reference to
that time in Sydney.
(k) A word or expression to which a meaning is attributed in the
Corporations Law shall bear that meaning.
EXECUTED in Sydney.
A-27
<PAGE> 203
<TABLE>
<S> <C>
SIGNED FOR AND ON BEHALF OF
HOMESTAKE MINING COMPANY
by Wayne Kirk
in the presence of:
/s/ CATHY COLE KIRK /s/ WAYNE KIRK
- --------------------------------------------- ---------------------------------------------
Witness
SIGNED FOR AND ON BEHALF OF
PLUTONIC RESOURCES LIMITED
by E P McClintock
in the presence of:
/s/ STUART MCCULLOCH /s/ E P MCCLINTOCK
- --------------------------------------------- ---------------------------------------------
Witness
</TABLE>
A-28
<PAGE> 204
SCHEDULE I
HOMESTAKE REPRESENTATIONS AND WARRANTIES
Except as disclosed in the Homestake Disclosure Letter Homestake represents
and warrants to Plutonic that:
(a) The Homestake Information provided to Plutonic for inclusion in
the Scheme Booklets will, as at the First Court Date, be sufficient to
allow Plutonic to comply with the requirements of Part 5.1 of the
Corporations Law, the ASX Listing Rules and PS60.
(b) The Homestake Information will be provided in good faith and on
the understanding that Plutonic will rely on the Homestake Information for
the purposes of preparing the Scheme Booklets and proposing and
implementing the Plutonic Schemes.
(c) The Homestake Information contained in the Scheme Booklets, as at
the date the Scheme Booklets are despatched to Scheme Participants, will
not contain any material statement which is false or misleading nor contain
any material omission.
(d) Homestake will, as a continuing obligation, provide to Plutonic
all such further or new information which may arise after the Scheme
Booklets have been despatched until the date of the Court Convened Meetings
which may be necessary to ensure that there would be no breach of paragraph
(b) if it applied as at the date upon which that information arose.
(e) The authorised capital of Homestake consists of 250,000,000 shares
of common stock, US$1 par value per share and 10,000,000 shares of
preferred stock, par value US$1 per share of which 2,500,000 are "Series A"
preferred stock. The issued capital of Homestake consists of 146,734,868
shares of common stock. Neither Homestake nor any of its subsidiaries is
under any obligation to issue or allot, nor has granted any person the
right to call for the issue or allotment, of any shares or other securities
of Homestake or any of its subsidiaries.
(f) The execution and delivery by Homestake of this Agreement do not,
and the performance by Homestake of the transactions contemplated thereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
consent, termination, purchase, cancellation or acceleration of any
obligation or to loss of any property, rights or benefits under, or result
in the imposition of any additional obligation under, or result in the
creation of any Lien upon any of the properties or assets of Homestake or
and of its subsidiaries under:
(i) the Restated Certificate of Incorporation or By-laws of
Homestake or the comparable organisational documents of any of its
subsidiaries;
(ii) any contract, instrument, or other legally binding agreement,
whether oral or written, applicable to Homestake or any of its
subsidiaries or their respective properties or assets; or
(iii) subject to the approval of any Governmental Agency, any
judgment, law or regulation applicable to Homestake or any of its
subsidiaries or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations or defaults etc that individually or in the aggregate would not
cause a Homestake Material Adverse Change.
(g) There is no suit, action or proceeding pending or, to the
knowledge of Homestake, threatened against Homestake or any of its
subsidiaries (and Homestake does not have any reasonable basis to expect
any such suit, action or proceeding to be commenced) that, individually or
in the aggregate, could reasonably be expected to cause a Homestake
Material Adverse Change, and there is not any judgment, decree, injunction,
rule or order of any Governmental Agency or arbitrator outstanding against
Homestake or any of its subsidiaries causing, or which, insofar as
reasonably can be foreseen, in the future would cause, any Homestake
Material Adverse Change.
(h) (i) Homestake has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1996 (the
Homestake SEC Documents). As of its date, each
A-29
<PAGE> 205
Homestake SEC Document complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Homestake SEC Documents. None of the Homestake SEC
Documents contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except to the extent that
such statements have been modified or superseded by a later filed
Homestake SEC Document. The consolidated financial statements of
Homestake included in the Homestake SEC Documents comply as to form in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with US GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated
in the notes thereto) and fairly present the consolidated financial
position of Homestake as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(ii) All information given in writing by or on behalf of Homestake
or its advisers to Plutonic or its advisers prior to the date of this
Agreement in connection with Homestake's investigation of the
Transactions is accurate and complete in all material respects.
(iii) Except as set forth in the Homestake SEC Documents, neither
Homestake nor any of its subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise)
required by GAAP to be set forth on a consolidated balance sheet of
Homestake and its consolidated subsidiaries or in the notes thereto and
which, individually or in the aggregate, could reasonably be expected to
cause a Homestake Material Adverse Change. Except for Prime Resources
Group Inc. none of Homestake's subsidiaries is, or has been, subject to
the reporting requirements of Sections 13(a) or 15 of the Exchange Act
since 1 January 1993.
(i) Except as disclosed in the Homestake SEC Documents, from 31
December 1996, to the date of this Agreement, Homestake has conducted its
business only in the ordinary course and there has not been any Homestake
Material Adverse Change.
(j) Neither Homestake nor any of its subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any governmental entity applicable to its
business or operations, except for violations and failures to comply that
could not, individually or in the aggregate, reasonably be expected to
cause a Homestake Material Adverse Change.
(k) (i) There is no material Environmental Liability, nor factors
likely to give rise to any material Environmental Liability, affecting
any of the material Properties of Homestake or any of its subsidiaries
apart from those disclosed in the Homestake SEC Documents or in the
Homestake Disclosure Letter that, individually or in the aggregate,
could reasonably be expected to cause a Homestake Material Adverse
Change.
(ii) Neither Homestake nor any of its subsidiaries has materially
violated or materially infringed any Environmental Law now in effect or
has materially violated or materially infringed any then current
Environmental Law as applied at that time that, individually or in the
aggregate, could reasonably be expected to cause a Homestake Material
Adverse Change.
(l) Except as disclosed in the Homestake Disclosure Letter, Homestake
and its subsidiaries possess all Permits, including pursuant to any
Environmental Law, necessary to conduct their business as such business is
currently conducted or is expected to be conducted, except for such
Permits, the lack of possession of which has not, and is not reasonably
expected to cause, a Homestake Material Adverse Change. Except as disclosed
in the Homestake Disclosure Letter:
(i) all such Permits are validly held by Homestake or one of its
subsidiaries, and Homestake and its subsidiaries have complied in all
respects with all terms and conditions thereof, except for such
instances where the failure to validly hold such Permits or the failure
to have complied with
A-30
<PAGE> 206
such Permits has not caused, and is not reasonably expected to cause, a
Homestake Material Adverse Change;
(ii) none of such Permits will be subject to suspension,
modification, revocation or non-renewal as a result of the execution and
delivery of this Agreement or the consummation of the Combination, other
than such Permits the suspension, modification or non-renewal of which,
individually or in the aggregate, have not had and could not reasonably
be expected to cause a Homestake Material Adverse Change; and
(iii) between 31 December 1996 and the date of this Agreement,
neither Homestake nor any of its subsidiaries has received any written
warning, notice, notice of violation or probable violation, notice of
revocation, or other written communication from or on behalf of any
Governmental Agency, alleging:
(A) any violation of such Permit; or
(B) that Homestake or any of its subsidiaries requires any
Permit required for its business, as such business is currently
conducted that is not currently held by it,
which if sustained and acted upon by the Governmental Agency could
reasonably be expected, individually or in the aggregate, to cause a
Homestake Material Adverse Change.
(m) The Homestake Stock to be issued as the Scheme Consideration will
either be registered under or exempt from registration under the Securities
Act.
A-31
<PAGE> 207
SCHEDULE II
PLUTONIC REPRESENTATIONS AND WARRANTIES
Except as disclosed in the Plutonic Disclosure Letter Plutonic represents
and warrants to Homestake that:
(a) The Plutonic Information will, as at the date of filing and
despatch of the Proxy Statement to Homestake's Stockholders not contain any
material statement which is false or misleading nor contain any material
omission.
(b) The Plutonic Information was and will be provided in good faith
and on the understanding that Homestake will rely on that information for
the purposes of preparing the Proxy Statement and implementing the Plutonic
Schemes.
(c) Plutonic will, as a continuing obligation, provide to Homestake
all such further or new information which may arise after the Proxy
Statement has been filed and despatched until the date of the Homestake
Stockholders Meeting which may be necessary to ensure that there would be
no breach of paragraph (a) if it applied as at the date upon which that
information arose.
(d) Plutonic will, as a continuing obligation, provide to Homestake
all such further or new information which may arise after the Scheme
Booklets have been despatched until the date of the Court Convened Meetings
which may be necessary to ensure that there would be no breach of paragraph
(a) if it applied as at the date upon which that information arose.
(e) The issued share capital of Plutonic is:
- 188,115,785 Ordinary Shares; and
- 1,077,087 PP Shares of which 211,250 remain unpaid as to 75c,
702,962 remain unpaid as to 85c and 162,875 remain unpaid as to
90c.
The number of options Plutonic has issued is as follows:
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY SHARES
OVER WHICH NUMBER OF EXERCISE
EXPIRY OPTIONS GRANTED OPTIONS PRICE
----------------------------------------- --------------- --------- --------
<S> <C> <C> <C>
October 12, 1999......................... 228,000 8 $ 6.04
November 28, 2000........................ 40,000 1 $ 5.87
December 5, 2000......................... 200,000 1 $ 6.04
May 21, 2001............................. 200,000 1 $ 7.75
May 21, 2001............................. 200,000 1 $ 8.75
June 24, 2001............................ 765,000 11 $ 7.75
June 24, 2001............................ 765,000 11 $ 8.75
June 26, 2001............................ 340,000 13 $ 7.75
June 26, 2001............................ 340,000 13 $ 8.75
June 4, 2002............................. 70,000 3 $ 5.66
June 4, 2002............................. 70,000 3 $ 6.40
</TABLE>
Except as disclosed above neither Plutonic nor any of its subsidiaries is
under any obligation to issue or allot, nor has granted any person the right to
call for the issue or allotment, of any shares or other securities of Plutonic
or any of its subsidiaries.
(f) The execution and delivery by Plutonic of this Agreement do not,
and the performance by Plutonic of the transactions contemplated thereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
consent, termination, purchase, cancellation or acceleration of any
obligation or to loss of any property, rights or
A-32
<PAGE> 208
benefits under, or result in the imposition of any additional obligation
under, or result in the creation of any Lien upon any of the properties or
assets of Plutonic or and of its subsidiaries under:
(i) the Memorandum or Articles of Association of Plutonic or the
comparable organisational documents of any of its subsidiaries;
(ii) any contract, instrument, or other legally binding agreement,
whether oral or written, applicable to Plutonic or any of its
subsidiaries or their respective properties or assets; or
(iii) subject to the approval of any Governmental Agency, any
judgment, law or regulation applicable to Plutonic or any of its
subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts or violations or
default etc that individually or in the aggregate would not cause a
Plutonic Material Adverse Change.
(g) There is no suit, action or proceeding pending or, to the
knowledge of Plutonic, threatened against Plutonic or any of its
subsidiaries (and Plutonic does not have any reasonable basis to expect any
such suit, action or proceeding to be commenced) that, individually or in
the aggregate, could reasonably be expected to cause a Plutonic Material
Adverse Change, and there is not any judgment, decree, injunction, rule or
order of any Governmental Agency or arbitrator outstanding against Plutonic
or any of its subsidiaries causing, or which, insofar as reasonably can be
foreseen, in the future would cause, any Plutonic Material Adverse Change.
Except as disclosed in the Plutonic Disclosure letter, no native title
claims have been lodged with the Native Title Tribunal or otherwise in
relation to the Mineral Rights and the Company is not aware of any
threatened or potential native title claims in relation to the Mineral
Rights that, individually or in the aggregate, could reasonably be expected
to cause a Plutonic Material Adverse Change.
(h) The Accounts, as provided to Homestake:
(i) have been prepared in accordance with Australian GAAP;
(ii) show a true and far view of the consolidated financial
position and the assets and liabilities of Plutonic at their respective
dates and of the consolidated income, expenses and results of the
operations of Plutonic for the financial period then ended;
(iii) include and disclose all gains and losses, whether realised
or unrealised;
(iv) include all reserves and provisions for taxation that are
necessary to cover all Taxes of Plutonic and its subsidiaries in respect
of any period;
(v) include all consolidated liabilities of Plutonic at their
respective dates; and
(vi) set out all consolidated contingent liabilities of Plutonic at
their respective dates.
(i) (i) Plutonic has filed all required forms, reports and documents
with the Australian Securities Commission since January 1, 1996 (the
Australian Securities Documents). As of its respective date, each
Plutonic Australian Securities Document complied in all material
respects with the requirements of the Australian Corporations Law. As of
its respective date, none of the Australian Securities Documents
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under
which they were made, not misleading. Neither Plutonic nor any of its
subsidiaries is, or has been, subject to the reporting requirements of
Sections 13(a) or 15 of the Exchange Act.
(ii) All information given in writing by or on behalf of Plutonic
[or its advisers] to Homestake or its advisers prior to the date of this
Agreement in connection with Homestake's investigation of the
Transactions is accurate and complete in all material respects.
(iii) Except as set forth in the Australian Securities Documents,
neither Plutonic nor any of its subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) required by Australian GAAP to be set forth on a consolidated
balance sheet of Plutonic
A-33
<PAGE> 209
and the consolidated Plutonic Subsidiaries or in the notes thereto and
which, individually or in the aggregate, could reasonably be expected to
cause a Plutonic Material Adverse Change.
(j) Except as disclosed in the Australian Securities Documents, from
December 31, 1996, to the date of this Agreement, Plutonic has conducted
its business only in the ordinary course and there has not been any
Plutonic Material Adverse Change.
(k) Neither Plutonic nor any of its subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree or order of any governmental entity applicable to its
business or operations, except for violations and failures to comply that
could not, individually or in the aggregate, reasonably be expected to
cause a Plutonic Material Adverse Change.
(l) (i) There is no material Environmental Liability, nor factors
likely to give rise to any material Environmental Liability, affecting
any of the material Properties of Plutonic or any of its subsidiaries
apart from those disclosed in the Accounts or in the Plutonic Disclosure
Letter that, individually or in the aggregate, could reasonably be
expected to cause a Plutonic Material Adverse Change.
(ii) Neither Plutonic nor any of its subsidiaries has materially
violated or materially infringed any Environmental Law now in effect or
has materially violated or materially infringed any then current
Environmental Law as applied at that time that, individually or in the
aggregate, could reasonably be expected to cause a Plutonic Material
Adverse Change.
(m) Except as disclosed in the Plutonic Disclosure Letter, Plutonic
and its subsidiaries possess all Permits, including pursuant to any
Environmental Law, necessary to conduct their business as such business is
currently conducted or is expected to be conducted, except for such
Permits, the lack of possession of which has not, and is not reasonably
expected to cause, a Plutonic Material Adverse Change. Except as disclosed
in the Plutonic Disclosure letter:
(i) all such Permits are validly held by Plutonic or one of its
subsidiaries, and Plutonic and its subsidiaries have complied in all
respects with all terms and conditions thereof, except for such
instances where the failure to validly hold such Permits or the failure
to have complied with such Permits has not caused, and is not reasonably
expected to cause, a Plutonic Material Adverse Change;
(ii) none of such Permits will be subject to suspension,
modification, revocation or non-renewal as a result of the execution and
delivery of this Agreement or the consummation of the Combination, other
than such Permits the suspension, modification or non-renewal of which,
individually or in the aggregate, have not had and could not reasonably
be expected to cause a Plutonic Material Adverse Change; and
(iii) between December 31, 1996 and the date of this Agreement,
neither Plutonic nor any of its subsidiaries has received any written
warning, notice, notice of violation or probable violation, notice of
revocation, or other written communication from or on behalf of any
Governmental Agency, alleging:
(A) any violation of such Permit; or
(B) that Plutonic or any of its subsidiaries requires any Permit
required for its business, as such business is currently conducted
that is not currently held by it,
which if sustained and acted upon by the Governmental Agency could
reasonably be expected, individually or in the aggregate, to cause a
Plutonic Material Adverse Change.
A-34
<PAGE> 210
SCHEDULE III
CLAUSE 2.6
PUBLIC ANNOUNCEMENTS
[OMITTED]
A-35
<PAGE> 211
SCHEDULE IV
CLAUSE 13
PLUTONIC AFFILIATE LETTERS
, 199
Homestake Mining Company
650 California Street
San Francisco, CA
Ladies and Gentlemen:
This letter agreement (this "Agreement") is being delivered in accordance
with clause 13.1 of the Combination Implementation Agreement, dated as of
December , 1997, (the "Implementation Agreement"), by and between HOMESTAKE
MINING COMPANY, a Delaware corporation ("Homestake") and PLUTONIC RESOURCES
LIMITED (ACN 006 245 629), an Australian corporation ("Plutonic"). The
Implementation Agreement provides, among other things, that Homestake will issue
shares of Homestake common stock ("Homestake Common Shares") to all holders of
all Plutonic ordinary shares and Plutonic partly paid shares outstanding, except
the Plutonic ordinary shares held by Homestake. Pursuant to the Scheme (as
defined in the Implementation Agreement), in consideration of the issue of
Homestake Common Shares, all Plutonic ordinary shares other than those held by
Homestake will be cancelled, so that only the Plutonic ordinary shares held by
Homestake will continue to be outstanding.
1. The undersigned ("Stockholder") hereby represents, warrants, covenants
and agrees with respect to all Homestake Common Shares received as a result of
the Scheme as follows:
(a) Stockholder understands that as of the date of this letter
Stockholder may be deemed to be an "affiliate" of Plutonic as such term is
(i) defined for purposes of paragraphs (c) and (d) of Rule 145 of the
general rules and regulations (the "Rules and Regulations") of the United
States Securities and Exchange Commission (the "Commission") under the
United States Securities Act of 1933, as amended (the "Act"), or (ii) used
in and for purposes of Accounting Series Releases 130 and 135, as amended,
of the Commission (in either such case, an "Affiliate").
(b) Stockholder shall not make any sale, transfer or other disposition
of Homestake Common Stock in violation of the Act or the Rules and
Regulations.
(c) Stockholder has carefully read this letter and the Implementation
Agreement and has had an opportunity to discuss the requirements of such
documents and any other applicable limitations upon Stockholder's ability
to sell, transfer or otherwise dispose of Homestake Common Shares with his
counsel or counsel for Plutonic.
(d) Stockholder has been advised that the issuance of Homestake Common
Shares to Stockholder pursuant to the Scheme has been registered with the
Commission under the Act or was exempt from registration. Stockholder also
has been advised that, since at the time the Scheme is submitted to a vote
of the stockholders of Plutonic, Stockholder may be deemed to be an
Affiliate of Plutonic and the distribution by Stockholder of Homestake
Common Shares will not have been registered under the Act, Stockholder may
not offer to sell, sell, transfer or otherwise dispose of Homestake Common
Shares issued to Stockholder in the Scheme unless (i) such offer, sale,
transfer or other disposition has been registered under the Act or is made
in conformity with Rule 145 under the Act, or (ii) in the opinion of
counsel reasonably acceptable to Homestake, or pursuant to a "no-action"
letter obtained by Stockholder from the staff of the Commission, such sale,
transfer or other disposition is otherwise exempt from registration under
the Act.
(e) Stockholder understands that Homestake will give stop transfer
instructions to Homestake's transfer agent with respect to Homestake Common
Shares, that the Homestake Common Shares issued
A-36
<PAGE> 212
to Stockholder will all be in certified form and that the certificates
therefor, or any substitutions thereof, will bear a legend substantially to
the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT DATED , 199 , BETWEEN THE REGISTERED HOLDER HEREOF
AND HOMESTAKE, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF HOMESTAKE."
(f) Stockholder also understand that unless the transfer by
Stockholder of Stockholder's Homestake Common Shares has been registered
under the Act or is a sale made in conformity with the provisions of Rule
145, Homestake reserves the right to place a legend substantially to the
following effect on the certificates issued to any transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN ACQUIRED BY
THE HOLDER WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933."
(g) It is understood and agreed that the legends set forth in Sections
1(e) and 1(f) above shall be removed by delivery of substitute certificates
without such legend if such legend is not required for purposed of the Act.
It is understood and agreed that, unless Stockholder is an Affiliate of
Homestake at such time, such legends and the stop orders referred to above
will be removed if (i) one year shall have elapsed from the date
Stockholder acquired Homestake Common Shares in the Scheme and the
provisions of Rule 145(d)(2) are then available to the undersigned, (ii)
two years shall have elapsed from the date Stockholder acquired Homestake
Common Shares in the Scheme and the provisions of Rule 145(d)(3) are then
available to the undersigned, or (iii) Homestake has received either an
opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Homestake, or a "no-action" letter obtained by Stockholder
from the staff of the Commission, to the effect that the restrictions
impose by Rule 145 under the Act no longer apply to Stockholder.
(h) This Section 1(h) will apply for the benefit of any Stockholder
who is an Affiliate of Plutonic and who will receive pursuant to the Scheme
more than one percent (1%) of the Homestake Common Shares outstanding after
the consummation of the Scheme (a "Specified Affiliate"). At any time from
and after the date (the "Acquisition Date") upon which a Specified
Affiliate receives Homestake Common Shares in the Scheme (such shares
received, the "Registrable Securities") to but excluding the date one year
from the Acquisition Date, such Specified Affiliate shall have the right to
request (the "Demand") in writing that Homestake register pursuant to the
Act some or all of the Registrable Securities of such Specified Affiliate
by filing with the Commission a registration statement (the "Registration
Statement") covering the Registrable Securities sought to be registered.
Homestake shall have the obligation to effect only two registrations
pursuant to this Section 1(h) and in connection with each such registration
shall be obligated to:
(1) as soon as practicable after the Demand, prepare the
Registration Statement and cause it to be filed with the Commission;
(2) use reasonable efforts to cause the Registration Statement to
become effective and to keep the Registration Statement continuously
effective for up to 30 days after its effective date;
A-37
<PAGE> 213
(3) enter into customary arrangements (including underwriting
agreements in customary form, and including provisions with respect to
indemnity of the underwriters and the Specified Affiliate in customary
form) with underwriters who shall be selected by such Specified
Affiliate with the consent of Homestake (such consent not to be
unreasonably withheld);
(4) pay reasonable and customary registration expenses incident to
the registration contemplated by this Section 1(h) (not including
underwriting discounts or commissions or similar fees, or counsel fees
of the Specified Affiliate); and
(5) do all other things reasonable and customary in connection with
the registration contemplated by this Section 1(h).
A registration pursuant to this Section 1(h) may be delayed for up to 90 days if
Homestake, prior to the time it would otherwise have been required to file the
Registration Statement or cause it to become effective, determines, in its
reasonable judgment, that such filing or effectiveness would require disclosure
that would be detrimental to Homestake.
2. Stockholder understands that implementation of the Scheme will be
accounted for using the "pooling-of-interests" method and that such treatment
for financial accounting purposes is dependent upon the accuracy of certain of
the representations and warranties, and the compliance by Stockholder with
certain of the covenants and agreements, set forth herein. Accordingly,
Stockholder further hereby represents and covenants that Stockholder has not
since November 11, 1997, sold transferred or otherwise disposed of, or reduced
its risk with respect to, (except pursuant to the Scheme) any Plutonic ordinary
shares or Plutonic partly paid shares and that Stockholder will not sell,
transfer or otherwise dispose of, or reduce its risk with respect to, (except
pursuant to the Scheme) any Plutonic ordinary shares or Plutonic partly paid
shares or any Homestake Common Shares received by Stockholder in the Scheme, in
each case until after Homestake shall have publicly released a report (the
"Combined Financial Results Report") including the combined financial results of
Homestake and Plutonic for a period of at least 30 days of combined operations
of Homestake and Plutonic. Stockholder understands that stop transfer
instructions may be given to the transfer agent of Homestake in order to prevent
any breach of the covenants and agreements made by Stockholder in this Section
2, although such stop transfer instructions will be promptly rescinded upon the
publication of the Combined Financial Report.
3. Homestake will publish the Combined Financial Results Report as promptly
as practicable following completion of the Scheme, and in any event within 30
days after the end of the first full calendar month following completion of the
Scheme.
4. Stockholder further understands and agrees that the representations,
warranties, covenants and agreements of Stockholder set forth herein are for the
benefit of Homestake and Plutonic and will be relied upon by such entities and
their respective counsel and accountants.
5. This Agreement will be binding upon the enforceable against
administrators, executors, representatives, heirs, legatees and devisees of
Stockholder and any pledgees holding Plutonic ordinary shares or Homestake
Common Shares as collateral. If the Implementation Agreement is terminated in
accordance with its terms prior to completion of the Scheme, this Agreement will
thereupon automatically terminated.
A-38
<PAGE> 214
Execution of this letter should not be considered an admission on the
Stockholder's part that it is an "Affiliate" of Plutonic as described in Section
(a) of this Agreement.
Very truly yours,
--------------------------------------
Name:
Address:
Agreed to and accepted:
HOMESTAKE MINING COMPANY
BY:
------------------------------------------------
Name:
Title:
A-39
<PAGE> 215
SCHEDULE V
CLAUSE 13
HOMESTAKE AFFILIATE LETTERS
, 1997
Homestake Mining Company
650 California Street
San Francisco, CA
Ladies and Gentlemen:
This letter agreement (this "Agreement") is being delivered in accordance
with clause 13.2 of the Combination Implementation Agreement, dated as of
December , 1997, (the "Implementation Agreement"), by and between HOMESTAKE
MINING COMPANY, a Delaware corporation ("Homestake") and PLUTONIC RESOURCES
LIMITED (ACN 006 245 629), an Australian corporation ("Plutonic"). The
Implementation Agreement provides, among other things, that Homestake will issue
shares of Homestake common stock ("Homestake Common Shares") to all holders of
all Plutonic ordinary shares and Plutonic partly paid shares outstanding, except
the Plutonic ordinary shares held by Homestake. Pursuant to the Scheme (as
defined in the Implementation Agreement), in consideration of the issue of
Homestake Common Shares, all Plutonic ordinary shares other than those held by
Homestake will be cancelled, so that only the Plutonic ordinary shares held by
Homestake will continue to be outstanding.
1. The undersigned ("Stockholder") hereby represents, warrants, covenants
and agrees as follows:
(a) Stockholder understands that as of the date of this letter
Stockholder may be deemed to be an "affiliate" of Homestake as such term is
used in and for purposes of Accounting Series Releases 130 and 135, as
amended, of the Commission (an "Affiliate").
(b) Stockholder has carefully read this letter and the Implementation
Agreement and has had an opportunity to discuss the requirements of such
documents and any other applicable limitations upon Stockholder's ability
to sell, transfer or otherwise dispose of Homestake Common Shares with his
counsel or counsel for Plutonic.
2. Stockholder understands that implementation of the Scheme will be
accounted for using the "pooling-of-interests" method and that such treatment
for financial accounting purposes is dependent upon the accuracy of certain of
the representations and warranties, and the compliance by Stockholder with
certain of the covenants and agreements, set forth herein. Accordingly,
Stockholder further hereby represents and covenants that Stockholder has not
since November 11, 1997, sold, transferred or otherwise disposed of, or reduced
its risk with respect to, any Homestake Common Shares and that Stockholder will
not sell, transfer or otherwise dispose of, or reduced its risk with respect to,
any Homestake Common Shares until after Homestake shall have publicly released a
report (the "Combined Financial Results Report") including the combined
financial results of Homestake and Plutonic for a period of at least 30 days of
combined operations of Homestake and Plutonic. Stockholder understands that stop
transfer instructions may be given to the transfer agents of Homestake in order
to prevent any breach of the covenants and agreements made by Stockholder in
this Section 2, although such stop transfer instructions will be promptly
rescinded upon the publication of the Combined Financial Report.
3. Homestake will publish the Combined Financial Results Report as promptly
as practicable following the Scheme, and in any event within 30 days after the
end of the first full calendar month following the Scheme.
4. Stockholder further understands and agrees that the representations,
warranties, covenants and agreements of Stockholder set forth herein are for the
benefit of Homestake and Plutonic and will be relied upon by such entities and
their respective counsel and accountants.
5. This Agreement will be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees and devisees of
Shareholder and any pledgees holding Homestake Common Shares as
A-40
<PAGE> 216
collateral. If the Implementation Agreement is terminated in accordance with its
terms prior to completion of the Scheme, this Agreement will thereupon
automatically terminate.
Execution of this letter should not be considered an admission on the
Stockholder's part that it is an "Affiliate" of Homestake as described in
Section 1(a) of this Agreement.
Very truly yours,
--------------------------------------
Name:
Address:
Agreed to and accepted:
HOMESTAKE MINING COMPANY
By:
----------------------------------------------
Name:
Title:
, 1997
A-41
<PAGE> 217
ANNEX A
CLAUSE 30
AMENDMENT TO CONFIDENTIALITY AGREEMENT
[OMITTED]
A-42
<PAGE> 218
APPENDIX B
OPINION OF HOMESTAKE'S INVESTMENT ADVISOR
<PAGE> 219
January 23, 1998
Board of Directors
Homestake Mining Company
650 California Street
San Francisco, California 94108-2788
Madam and Gentlemen:
We understand that the Homestake Mining Company ("Homestake" or the
"Company") is considering a transaction (the "Combination") whereby, as a result
of the issuance of shares of common stock, par value $1.00 per share, of the
Company ("Homestake Common Stock") to holders of fully paid ordinary shares, par
value A$0.50 per share ("Ordinary Shares"), partly paid shares and stock options
of Plutonic Resources Limited ("Plutonic"), pursuant to the terms of the
Combination Implementation Agreement, dated December 22, 1997 (the
"Implementation Agreement"), Plutonic will become a wholly-owned subsidiary of
the Company. In the Combination, each fully paid Ordinary Share would be
canceled in consideration of the issue of 0.34 shares (the "Conversion Number")
of Homestake Common Stock. Partly paid shares and stock options would also be
canceled in consideration of the issue of Homestake Common Stock in amounts
provided in the Implementation Agreement, which you have advised us were
calculated with reference to the Conversion Number. The terms and conditions of
the Combination are more fully set forth in the Implementation Agreement.
You have requested our opinion as to whether the Conversion Number is fair
to the stockholders of the Company from a financial point of view.
SBC Warburg Dillon Read Inc. ("SBC Warburg Dillon Read") has acted as
financial advisor to the Board of Directors of the Company in connection with
the Combination and will receive a fee for its services, a substantial portion
of which is contingent upon the consummation of the Combination. In the past,
SBC Warburg Dillon Read and its predecessors have provided investment banking
services to the Company and have received customary compensation for the
rendering of such services. In the ordinary course of business, SBC Warburg
Dillon Read and its affiliates may actively trade or hold the equity securities
of the Company or Plutonic for their own accounts and the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion does not address the Company's underlying business decision to
effect the Combination or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the Combination.
Our opinion does not imply any conclusion as to the likely trading range for the
Homestake Common Stock following the consummation of the Combination, which may
vary depending on numerous factors which generally influence the prices of
securities. With your consent, we have assumed that the Combination will not
result in taxable income for the Company or its stockholders and will be
accounted for as a pooling-of-interests.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company and Plutonic, (ii) reviewed certain internal financial
information and other data relating to the business and prospects of the
Company, including financial estimates prepared by the management of the
Company, that were provided to us by the Company and are not publicly available,
(iii) reviewed certain internal financial information and other data relating to
the business and prospects of Plutonic, including financial estimates prepared
by Homestake, that were provided to us by Homestake and are not publicly
available, (iv) conducted discussions with members of the senior management of
the Company, (v) reviewed the historical market prices and trading activity of
the common stocks of the Company and Plutonic, (vi) considered certain pro forma
effects of the Combination on the financial results of the Company (including
the effects of assumed Combination savings that were provided to us by
Homestake), (vii) reviewed publicly available financial and stock market data
with respect to certain other publicly traded companies that we believe to be
generally comparable to the Company and Plutonic, (viii) compared the financial
terms of the Combination with the financial terms of certain other mergers and
acquisitions that we believe to be relevant, (ix) reviewed the Implementation
Agreement, and (x) conducted
B-1
<PAGE> 220
such other financial studies, analyses and investigations, and considered such
other information as we deemed necessary or appropriate.
In connection with our review, we have not, with your consent, assumed any
responsibility for independent verification of any of the information reviewed
by us for the purpose of this opinion and have, with your consent, relied on its
being complete and accurate in all material respects. In addition, with your
consent, we have not made any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of the Company or Plutonic, nor
have we been furnished with any such evaluation or appraisal. With respect to
the financial estimates (including the effects of assumed Combination savings)
provided to or otherwise reviewed by or discussed with us, we have assumed, with
your consent, that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's management as
to the future financial performance of each company. With respect to the
business and financial information pertaining to Plutonic, we have not, with
Homestake's consent, held any independent discussions with Plutonic's management
as to any aspect of the information provided. Our opinion is necessarily based
on economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of
December 22, 1997, the Conversion Number is fair to the stockholders of the
Company from a financial point of view.
Very truly yours,
SBC WARBURG DILLON READ INC.
B-2
<PAGE> 221
APPENDIX C
HOMESTAKE MINING COMPANY
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(ALL DOLLAR AMOUNTS ARE UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
INDEX
<TABLE>
<CAPTION>
PAGE*
----
<S> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996:
Management's Discussion and Analysis............................................... C-1
Condensed Statements of Consolidated Operations for the Nine Months Ended September
30, 1997 and 1996 (unaudited)................................................... C-8
Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31,
1996 (unaudited)................................................................ C-9
Condensed Statements of Consolidated Cash Flows for the Nine Months Ended September
30, 1997 and 1996 (unaudited)................................................... C-10
Notes to Condensed Consolidated Financial Statements (unaudited)................... C-11
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994:
Management's Discussion and Analysis............................................... C-17
Statements of Consolidated Income for the Years Ended December 31, 1996, 1995, and
1994............................................................................ C-26
Consolidated Balance Sheets as of December 31, 1996 and 1995....................... C-27
Statements of Consolidated Shareholders' Equity for the Years Ended December 31,
1996, 1995, and 1994............................................................ C-28
Statements of Consolidated Cash Flows for the Years Ended December 31, 1996, 1995,
and 1994........................................................................ C-29
Notes to Consolidated Financial Statements......................................... C-30
Report of Independent Auditors..................................................... C-50
Quarterly Selected Data (unaudited)................................................ C-51
</TABLE>
<PAGE> 222
HOMESTAKE MANAGEMENT'S DISCUSSION AND ANALYSIS
(ALL AMOUNTS IN US DOLLARS UNLESS OTHERWISE INDICATED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unless specifically stated otherwise, the following information relates to
amounts included in the consolidated financial statements without reduction for
minority interests. Reference is made to the sections entitled "Risk Factors"
and "Cautionary Statements" in the Supplement.)
RESULTS OF OPERATIONS
Homestake recorded a net loss of $130 million or $0.89 per share during the
nine months ended September 30, 1997 compared to 1996 nine-month earnings of
$27.9 million or $0.19 per share. The year-to-date 1997 net loss included after
tax write-downs and other unusual charges of $145.1 million ($183.6 million
pretax) or $0.99 per share recorded in the third quarter. Details of these
noncash charges are as follows:
- $84.9 million ($107.8 million pretax) write-down of Homestake's
investment in the Main Pass 299 sulfur mine: Homestake owns a 16.7%
undivided interest in the Main Pass 299 sulfur mine located in the Gulf
of Mexico. Planned write-downs by Homestake's joint venture partners
caused the Company to reexamine the carrying value of its investment in
Main Pass 299. Due to a prolonged period of low sulfur prices and
Homestake's current assessment of estimated future cash flows from the
Main Pass 299 sulfur mine, the Company recorded a write-down of $107.8
million in its investment in Main Pass 299. As a result of this
write-down, the Company's carrying value of the Main Pass 299 sulfur
property, plant and equipment was reduced to zero at September 30, 1997.
- $18.2 million ($24.3 million pretax) reduction in the carrying values of
short-lived mining properties: As a result of lower gold prices, the
Company reviewed the carrying values of its gold mining operations using
a $325 per ounce gold price for its short-lived operations and a $350 per
ounce gold price for its operations with longer lives. The Company
determined that impairment write-downs were required to reduce the
carrying value of several of its assets or operations with short
remaining lives, including the Pinson mine in Nevada, the Homestake
mine's Open Cut in South Dakota, and low-grade stockpiled ore and certain
redundant mining equipment at the Kalgoorlie operations in Western
Australia. The Company determined that no adjustments to the carrying
values of its longer-lived operations were required.
- $21.5 million ($29.1 million pretax) increase in the estimated accrual
for future reclamation expenditures: As a result of a review of the
Company's reclamation liabilities, the Company determined that it was
necessary to increase the reclamation accruals at certain of its
nonoperating properties including the Santa Fe mine in Nevada, the Nickel
Plate mine in Canada and the Grants uranium complex in New Mexico to
reflect revised estimates, changed conditions and more stringent future
reclamation requirements.
- $14.7 million ($16.5 million pretax) write-down of certain
investments: Low gold prices and lower market valuations for junior
mining companies have caused the value of certain of the Company's
investments in other companies to decline significantly. The Company
reduced the carrying values of certain of its mining investments to
reflect reductions in value that it deemed to be other than temporary.
- $5.8 million ($5.9 million pretax) in other charges, primarily foreign
exchange losses on intercompany redeemable preferred stock.
The decreased 1997 nine-month earnings reflect the write-downs and other
unusual charges detailed above, partially offset by after-tax gains recorded in
the 1997 first quarter of $47.2 million ($62.9 million pretax) or $0.32 per
share from the fee received from Santa Fe upon termination of Homestake's merger
agreement with Santa Fe, and $8.1 million ($13.5 million pretax) or $0.06 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 1996 nine-month period included an after-tax gain of
C-1
<PAGE> 223
$4.9 million ($5.5 million pretax) from a litigation recovery. Excluding the
effects of the nonrecurring items, the Company incurred a net loss of $40.2
million or $0.27 per share during the first nine months of 1997 compared to net
income of $23 million or $0.16 per share for the first nine months of 1996,
primarily reflecting a significantly lower average realized gold price, higher
exploration expenditures and increased administrative and general expenses.
Gold production during the first nine months of 1997 decreased slightly to
1,468,900 ounces from 1,478,100 ounces produced during the comparable period of
1996. Year-to-date 1997 revenues from gold and ore sales totaled $477.7 million
compared to gold and ore sales of $541.7 million during the comparable period
for 1996. The decrease in revenues is due to a $52 per ounce decrease in the
average realized gold price. During the first nine months of 1997, 1,472,800
ounces were sold at an average realized price of $341 per ounce compared to
sales of 1,470,700 ounces sold at an average realized price of $393 per ounce
during the first nine months of 1996. Total cash costs during the first nine
months of 1997 decreased to $243 per ounce from $249 per ounce during the first
nine months of 1996.
Domestic production during the first nine months of 1997 decreased 7% to
524,600 ounces compared to 562,700 ounces produced during the comparable 1996
period, primarily due to lower production at the McLaughlin mine in northern
California. Production at the McLaughlin mine decreased by 59,600 ounces to
93,700 ounces during the 1997 period compared to 153,300 ounces produced during
the 1996 nine-month period, reflecting a 26% decrease in ore grades. Mining
operations ceased at the end of June 1996 and lower grade stockpiled ore will be
processed over the next six years. Total year-to date cash costs increased to
$247 per ounce in the 1997 period compared to $239 in the corresponding 1996
period. Homestake's share of production at the Round Mountain mine in Nevada
increased to 92,000 ounces during the 1997 period from 78,400 ounces produced
during the first nine months of 1996. Total cash costs decreased by 11% to $225
per ounce during the 1997 period from $253 per ounce during the 1996 period,
primarily due to the increased production. Construction of an 8,000 tons-per-day
gravity mill to treat higher grade ore was completed in July 1997, and the mill
began commercial production in November 1997. At the Homestake mine in Lead,
South Dakota, production was 301,300 ounces during the first nine months of 1997
compared to 306,500 ounces during the corresponding period of 1996 as a result
of a slightly lower grade and recovery rate, partially offset by an increase in
tons processed. Total cash costs were $318 per ounce during the 1997 period
compared to $298 per ounce during the comparable period for the prior year.
Homestake's share of production from the Pinson mine more than doubled to 18,900
ounces in the first nine months of 1997 compared to 7,700 ounces in the first
nine months of 1996 primarily as a result of Homestake's December 1996 purchase
which increased Homestake's interest in the mine from 26.3% to 50%.
Total foreign gold production increased by 3% to 944,300 ounces from the
prior year's year-to-date period, primarily due to production increases at the
Kalgoorlie operations in Western Australia and the Eskay Creek and Snip mines in
Canada, as well as production at the new Agua de la Falda mine in Chile, which
poured its first gold in April 1997. These increases were partially offset by a
production decline at the David Bell mine in Canada and the absence of
production at the Nickel Plate mine.
Homestake's share of production at the Kalgoorlie operations totaled
317,800 ounces at a total cash cost of $265 per ounce during the first nine
months of 1997 compared to 259,300 ounces produced at a total cash cost of $309
per ounce during the corresponding 1996 period. The improved production reflects
an 11% increase in grade and a 5% increase in throughput. The decrease in total
cash costs primarily is due to higher production and the installation of a
recycle crusher at the Fimiston mill earlier this year.
Production at the Eskay Creek mine increased to 300,900 ounces at a total
cash cost (including third-party smelter charges) of $162 per ounce during the
year-to-date 1997 period from 281,700 ounces produced at a total cash cost of
$170 per ounce during the year-to-date 1996 period. The improved results reflect
higher gold grades and an increase in tons of ore shipped. Construction of a new
gravity/flotation mill at Eskay Creek commenced in July 1997 and was completed
by the end of 1997. The mill will improve profit margins on ore previously
directly shipped to third-party smelters and allow for the treatment of certain
lower grade ores that otherwise could not be processed economically. The capital
cost of the mill is estimated to be $12 million. The mill will add approximately
30,000 ounces to Eskay Creek's average annual production over
C-2
<PAGE> 224
its remaining life. Prime Resources Group, Inc. ("Prime"), Homestake's
50.6%-owned subsidiary, became the sole owner of the Snip mine when it purchased
Cominco Ltd.'s 60% interest in this mine for $39.3 million in April 1996.
Production at the Snip mine was 90,700 ounces during the first nine months of
1997. Prime's share of production from the Snip mine for the corresponding
year-to-date 1996 period was 69,800 ounces. Total cash costs increased to $210
per ounce during the first nine months of 1997 compared to $175 per ounce during
the first nine months of 1996 reflecting an increase in the more labor-intensive
conventional mining. Homestake's share of production at the Williams mine in
Canada totaled 145,400 ounces during the 1997 year-to-date period compared to
149,300 ounces produced during the first nine months of the prior year.
Production declined as a result of lower grade, partially offset by increased
mill throughput. Total cash costs increased to $240 per ounce during the 1997
period from $228 per ounce during the corresponding year-to-date 1996 period.
Homestake's share of production at the David Bell mine in Canada was 61,500
ounces during the first nine months of 1997 compared to 72,200 ounces produced
during the corresponding 1996 period. Total cash costs increased to $214 per
ounce in 1997 from $170 per ounce during the 1996 year-to-date period. The lower
David Bell mine production and corresponding increase in total cash costs
results from lower ore grades, the mining of narrower and smaller stopes, and
ground control difficulties encountered during 1997.
The new Agua de la Falda mine (51% owned by Homestake, 49% by Codelco)
commenced mining operations late in 1996 and the first gold was poured in April
1997. The mine produced 19,000 ounces of gold during the first nine months of
1997. Both the average ore grade and ore production rates have been higher than
expected. As a result, total cash costs of $219 per ounce are well below
projections. The Agua de la Falda mine is expected to produce 28,000 ounces of
gold in 1997.
The Company's share of revenues at the Main Pass 299 operations in the Gulf
of Mexico totaled $20.1 million during the first nine months of 1997 compared to
revenues of $23 million during the first nine months of 1996. Operating losses
of $1.5 million (excluding the 1997 write-down) were incurred during the 1997
period compared to operating earnings of $1.5 million during the comparable 1996
period. These results primarily reflect lower prices, production and sales
volumes for both sulfur and oil. As discussed above, at September 30, 1997 the
Company recorded a write-down of $107.8 million in its investment in the Main
Pass 299 sulfur mine.
To provide protection against a decrease in gold prices, during the 1997
third quarter the Company entered into a series of put and call option contracts
which will provide a floor price of $325 per ounce for 900,000 ounces of
Homestake's 1998 gold production. The Company purchased put options for 900,000
ounces of gold exercisable during 1998 at a price of $325 per ounce. The Company
also sold call options for 900,000 ounces of gold exercisable during 1998 at a
price of $325 per ounce and purchased call options for 900,000 ounces of gold
exercisable during 1998 at $336 per ounce. These option contracts were
established at no net cost to the Company.
In addition, the Company purchased put options for 30,000 ounces of gold
exercisable during 2000 at a price of $350 per ounce and sold call options for
15,000 ounces of gold exercisable during 2000 at an average price of $395 per
ounce.
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. In addition, during the second quarter of
1997 the Company entered into forward sales commitments for 20,000 ounces of
gold to be produced in 2001 and 2002. Gold sales for the nine months ended
September 30, 1997 include sales of 90,000 ounces at an average price of $383
per ounce. Gold sales for the nine months ended September 30, 1996 include sales
under the now-completed Nickel Plate mine forward sales program of 70,000 ounces
at an average price of $421 per ounce. At September 30, 1997 forward sales for
610,100 ounces at an average price of $432 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 establish
trading ranges within which the United States dollar may be exchanged for
Australian and Canadian dollars. At September 30, 1997 the
C-3
<PAGE> 225
Company has recorded a net unrealized loss of $5.1 million on open contracts
under this program. (At December 31, 1997 the unrealized loss on open contracts
increased to $20 million reflecting a significant weakening of both the Canadian
and Australian currencies in relation to the U.S. dollar during the fourth
quarter of 1997.)
ADMINISTRATIVE AND GENERAL EXPENSE of $30.3 million for the first nine
months of 1997 compares to $27.8 million for the first nine months of 1996. The
increase primarily reflects costs associated with relocating employees to the
new Ruby Hill and Agua de la Falda mines and higher investment banking fees.
EXPLORATION EXPENSE for the nine months ended September 30, 1997 was $36.7
million, compared to exploration expense of $29.5 million for the nine months
ended September 30, 1996. The higher exploration expenses reflect increased
activity as the Company pursues numerous exploration targets and prospects.
INCOME AND MINING TAX for the nine months ended September 30, 1997 was a $4
million credit compared to income and mining tax expense of $37.7 million for
the nine months ended September 30, 1996. Tax credits totaling $38.5 million
with respect to the write-downs and other unusual charges were recorded in the
third quarter of 1997. In addition, the year-to-date period includes $15.7
million of expense associated with the termination fee received from Santa Fe
and $5.4 million of expense related to gain on sale of the George Lake and Back
River joint venture interests. During the first nine months of 1996, a $2.6
million credit was recorded with respect to a litigation recovery relating to
previously paid income taxes. The Company's consolidated effective income and
mining tax rate will fluctuate depending on the geographical mix of pretax
income.
MINORITY INTERESTS in the income of consolidated subsidiaries decreased to
$8.1 million during the first nine months of 1997 from $10.8 million during the
first nine months of 1996. The decrease primarily is attributable to lower
income due to lower gold prices realized by Prime and higher exploration
expenses incurred during the first nine months of 1997 by the Company's
51%-owned subsidiary, Agua de la Falda S.A., which was formed in July 1996.
C-4
<PAGE> 226
The following charts detail Homestake's gold production and total cash
costs per ounce by location, and consolidated revenue and production costs per
ounce.
<TABLE>
<CAPTION>
PRODUCTION
NINE MONTHS TOTAL CASH COSTS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
MINE (PERCENTAGE INTEREST) 1997 1996 1997 1996
------------------------------------ ------- ------- ---- ----
(DOLLARS PER
(OUNCES IN OUNCE)
THOUSANDS)
<S> <C> <C> <C> <C>
Homestake (100)..................... 301.3 306.5 $318 $298
McLaughlin (100).................... 93.7 153.3 247 239
Round Mountain (25)................. 92.0 78.4 225 253
Pinson (50)(1)...................... 18.9 7.7 343 392
Marigold (33)....................... 18.7 16.8 260 282
------ ------
Total United States............ 524.6 562.7
Eskay Creek (100)(2,3).............. 300.9 281.7 162 170
Williams (50)....................... 145.4 149.3 240 228
David Bell (50)..................... 61.5 72.2 214 170
Quarter Claim (25).................. 8.5 8.5 173 167
Snip (100)(3,4)..................... 90.7 69.8 210 175
Nickel Plate (100).................. -- 67.9 -- 342
------ ------
Total Canada................... 607.0 649.4
Kalgoorlie, Australia (50).......... 317.8 259.3 265 309
Agua de la Falda (100).............. 19.0 -- 219 --
El Hueso (100)...................... 0.5 6.7 310 270
------ ------
Total Chile.................... 19.5 6.7
------ ------
TOTAL............................... 1,468.9 1,478.1 $243 $249
Less Minority Interests............. (202.7) (173.7)
------ ------
HOMESTAKE'S SHARE................... 1,266.2 1,304.4
====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
PER OUNCE OF GOLD 1997 1996
------------------------------------------------------------ ---- ----
<S> <C> <C>
Revenue..................................................... $341 $393
==== ====
Per Ounce Costs
Cash Operating Costs(5)................................... $238 $242
Other Cash Costs(6)....................................... 5 7
---- ----
Total Cash Costs.......................................... 243 249
Noncash Costs(7).......................................... 55 58
---- ----
Total Production Costs.................................... $298 $307
==== ====
</TABLE>
- ---------------
(1) Homestake increased its ownership percentage 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 71 ounces and 74 ounces of silver
equals one ounce of gold for the nine months ended September 30, 1997 and
1996, respectively. Eskay Creek production includes 174,000 (160,100 in
1996) payable ounces of gold and 9.1 million (9 million in 1996) payable
ounces of silver contained in ore sold to smelters in the 1997 year-to-date
period.
(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.
C-5
<PAGE> 227
(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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $97.1 million during the first nine
months of 1997 compared to $151.6 million during the first nine months of 1996.
Working capital at September 30, 1997 amounted to $255.8 million, including $230
million of cash and short-term investments.
Capital additions of $106.7 million for the first nine months of 1997
include $50.7 million for construction and development work at the Ruby Hill
mine, $12.5 million at the Round Mountain mine primarily for a new mill to
process higher-grade sulfide ore, $11.7 million at the Kalgoorlie operations
primarily for a decline from surface and a ventilation raise at the Mt Charlotte
mine, $10.8 million at the Eskay Creek mine primarily for the construction of a
new gravity/flotation mill, and $10.2 million at the Homestake mine primarily
for a new tailings dam lift and improvements in the underground operations.
In July 1997, Lawrence County, South Dakota issued $30 million of South
Dakota Solid Waste Disposal Revenue Bonds and $18 million of South Dakota
Pollution Control Refunding Revenue Bonds, both of which are due in 2032.
Proceeds from the Solid Waste Disposal Revenue Bonds were relent to the Company
and proceeds from the Pollution Control Refunding Revenue Bonds were used to
redeem outstanding South Dakota pollution control bonds. The Company is
responsible for funding principal and interest payments on these bonds. Proceeds
from the Solid Waste Disposal Revenue Bonds are being used for construction of a
new tailings dam lift and other qualifying expenditures at the Homestake mine.
Qualifying expenditures of $11.5 million had been incurred through September 30,
1997 and the remaining $18.5 million is held in a trustee account committed for
the construction of the new tailings dam lift and other qualifying expenditures.
This $18.5 million of restricted cash is included in other assets in the
accompanying balance sheet at September 30, 1997.
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. At September 30, 1997 Homestake Gold of Australia Limited ("HGAL") had
$7.2 million of borrowings outstanding under this agreement. In October 1997,
HGAL borrowed an additional $46.8 million under this agreement to repay
intercompany advances.
On November 6, 1997 the Company's new Ruby Hill mine in Nevada poured its
first gold. The mine is now processing ore at the design capacity of 3,500 tons
per day. Starting in 1998, Ruby Hill will produce between 105,000 and 110,000
ounces of gold annually at an estimated total cash cost of approximately $140
per ounce.
In March 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
C-6
<PAGE> 228
result of this transaction, the Company recorded a pretax gain of $13.5 million
($8.1 million after tax), which is included in other income.
In February 1997, the Company paid a cash dividend of 5 cents per share. In
March 1997, the Company reduced its annual dividend rate to 10 cents per share
from 20 cents per share and declared a semi-annual dividend of 5 cents per share
which was paid in May 1997. In September 1997, the Company declared a semi-
annual dividend of 5 cents per share which was paid in November 1997.
In April 1997, the Company filed a shelf registration with the SEC for the
potential sale of up to 20 million shares of Homestake Common Stock. The
proceeds from any such offering would be available for general corporate
purposes, which could include capital expenditures, repayment of debt and future
acquisitions which have the potential to add to the Company's gold reserves and
future gold production.
Future results will be impacted by such factors as the market prices of
gold, silver and sulfur, the Company's ability to expand its ore reserves and
the fluctuations of foreign currency exchange rates. The Company believes that
the combination of cash, short-term investments, available lines of credit and
future cash flows from operations will be sufficient to meet normal operating
requirements, planned capital expenditures, and anticipated dividends.
C-7
<PAGE> 229
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS OF US$, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- --------
<S> <C> <C>
Revenues
Gold and ore sales.................................................. $ 477,660 $541,691
Sulfur and oil sales................................................ 20,126 23,005
Interest income..................................................... 10,488 11,246
Gain on termination of Santa Fe merger.............................. 62,925 --
Other income........................................................ 5,871 12,041
--------- --------
577,070 587,983
--------- --------
Costs and Expenses
Production costs.................................................... 354,305 361,504
Depreciation, depletion and amortization............................ 85,509 83,539
Administrative and general expense.................................. 30,304 27,804
Exploration expense................................................. 36,659 29,527
Interest expense.................................................... 7,659 7,974
Write-downs and other unusual charges............................... 183,646 --
Other expense....................................................... 4,879 1,304
--------- --------
702,961 511,652
--------- --------
Income (Loss) Before Taxes and Minority Interests..................... (125,891) 76,331
Income and Mining Taxes............................................... 3,960 (37,709)
Minority Interests.................................................... (8,113) (10,766)
--------- --------
Net Income (Loss)..................................................... $(130,044) $ 27,856
========= ========
Net Income (Loss) Per Share........................................... $ (0.89) $ 0.19
========= ========
Average Shares Used in the Computation................................ 146,714 146,190
========= ========
Dividends Paid Per Common Share....................................... $ 0.10 $ 0.15
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
C-8
<PAGE> 230
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS OF US$, EXCEPT PER SHARE AMOUNT)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Current assets
Cash and equivalents..................................................... $ 61,080 $ 89,599
Short-term investments................................................... 168,882 130,158
Receivables.............................................................. 32,903 47,650
Inventories:
Finished products...................................................... 20,328 21,132
Ore and in process..................................................... 40,408 39,980
Supplies............................................................... 28,630 30,015
Deferred income and mining taxes......................................... 12,263 12,263
Other.................................................................... 6,802 8,551
---------- ----------
Total current assets.............................................. 371,296 379,348
---------- ----------
Property, plant and equipment -- at cost................................... 2,002,307 1,970,300
Accumulated depreciation, depletion and amortization..................... (1,146,077) (963,270)
---------- ----------
Property, plant and equipment -- net................................... 856,230 1,007,030
---------- ----------
Investments and other assets
Noncurrent investments................................................... 25,285 39,606
Other assets............................................................. 81,659 56,124
---------- ----------
Total investments and other assets................................ 106,944 95,730
---------- ----------
Total Assets...................................................... $ 1,334,470 $1,482,108
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable......................................................... $ 37,924 $ 36,171
Accrued liabilities:
Payroll and other compensation......................................... 23,653 23,085
Reclamation............................................................ 14,307 10,055
Other.................................................................. 25,889 9,034
Income and other taxes payable........................................... 13,731 38,386
---------- ----------
Total current liabilities......................................... 115,504 116,731
---------- ----------
Long-term liabilities
Long-term debt........................................................... 222,183 185,000
Other long-term obligations.............................................. 145,218 114,168
Deferred income and mining taxes......................................... 152,699 201,454
---------- ----------
Total long-term liabilities....................................... 520,100 500,622
---------- ----------
Minority interests in consolidated subsidiaries............................ 104,622 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 -- 146,744; 1996 -- 146,672..................................... 146,744 146,672
Other shareholders' equity............................................... 447,500 621,880
---------- ----------
Total shareholders' equity........................................ 594,244 768,552
---------- ----------
Total Liabilities and Shareholders' Equity........................ $ 1,334,470 $1,482,108
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
C-9
<PAGE> 231
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF US$)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operations
Net income (loss).................................................. $(130,044) $ 27,856
Reconciliation to net cash provided by operations:
Write-downs and other unusual charges........................... 183,646 --
Depreciation, depletion and amortization........................ 85,509 83,539
Gains on asset disposals........................................ (15,140) (3,260)
Deferred taxes, minority interests and other.................... (26,467) 33,523
Effect of changes in operating working capital items............ (388) 9,895
--------- ---------
Net cash provided by operations.................................... 97,116 151,553
--------- ---------
Investment Activities
Increase in short-term investments................................. (38,724) (98,041)
Additions to property, plant and equipment......................... (106,712) (85,759)
Proceeds from asset sales.......................................... 12,619 14,918
Increase in restricted cash........................................ (18,488) --
Purchase of HGAL minority interests................................ -- (6,435)
Purchase of interest in Snip mine.................................. -- (39,279)
Other.............................................................. 488 2,547
--------- ---------
Net cash used in investment activities............................. (150,817) (212,049)
--------- ---------
Financing Activities
Borrowings......................................................... 55,430 --
Debt repayments.................................................... (18,000) --
Common shares issued............................................... 852 2,355
Dividends paid -- Homestake........................................ (14,670) (22,008)
-- Prime minority interests........................ (1,085) (1,099)
Other.............................................................. 2,655 --
--------- ---------
Net cash provided by (used in) financing activities................ 25,182 (20,752)
--------- ---------
Net decrease in cash and equivalents................................. (28,519) (81,248)
Cash and equivalents, January 1...................................... 89,599 145,957
--------- ---------
Cash and equivalents, September 30................................... $ 61,080 $ 64,709
========= =========
</TABLE>
See notes to condensed consolidated financial statements
C-10
<PAGE> 232
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED
1. The condensed consolidated financial statements for the nine months
ended September 30, 1997 should be read in conjunction with the financial
statements and notes thereto, which include information as to significant
accounting policies, in the Company's consolidated financial statements for the
year ended December 31, 1996, included elsewhere in this Document.
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 6, 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. During the third quarter of 1997, Homestake recorded pretax write-downs
and other unusual charges of $183.6 million ($145.1 million after tax) as
follows (in millions):
<TABLE>
<CAPTION>
THREE AND NINE
MONTHS ENDED
SEPTEMBER 30, 1997
PRETAX AFTER TAX
------ ---------
<S> <C> <C>
Write-down of investment in the Main Pass 299 sulfur
mine(a)................................................. $107.8 $ 84.9
Reduction in carrying values of short-lived mining
properties(b)........................................... 24.3 18.2
Increase in estimated accrual for future reclamation
expenditures(c)......................................... 29.1 21.5
Write-down of certain investments(d)...................... 16.5 14.7
Other charges, primarily foreign exchange losses on
intercompany redeemable preferred stock................. 5.9 5.8
------ ------
$183.6 $ 145.1
====== ======
</TABLE>
- ---------------
(a) Homestake owns a 16.7% undivided interest in the Main Pass 299 sulfur mine
located in the Gulf of Mexico. Planned write-downs by Homestake's joint
venture partners caused the Company to reexamine the carrying value of its
investment in Main Pass 299. Due to a prolonged period of low sulfur prices
and Homestake's current assessment of estimated future cash flows from the
Main Pass 299 sulfur mine, the Company recorded a write-down of $107.8
million in its investment in Main Pass 299. As a result of this write-down,
the Company's carrying value of the Main Pass 299 sulfur property, plant and
equipment was reduced to zero at September 30, 1997.
(b) As a result of lower gold prices, the Company reviewed the carrying values
of its gold mining operations using a $325 per ounce gold price for its
short-lived operations and a $350 per ounce gold price for its operations
with longer lives. The Company determined that impairment write-downs were
required to reduce the carrying value of several of its assets or operations
with short remaining lives, including the Pinson mine in Nevada, the
Homestake mine's Open Cut in South Dakota, and low-grade stockpiled ore and
certain redundant mining equipment at the Kalgoorlie operations in Western
Australia. The Company determined that no adjustments to the carrying values
of its longer-lived operations were required.
(c) As a result of a review of the Company's reclamation liabilities, the
Company determined that it was necessary to increase the reclamation
accruals at certain of its nonoperating properties including the Santa Fe
mine in Nevada, the Nickel Plate mine in Canada and the Grants uranium
complex in New Mexico to reflect revised estimates, changed conditions and
more stringent future reclamation requirements.
(d) Low gold prices and lower market valuations for junior mining companies have
caused the value of certain of the Company's investments in other companies
to decline significantly. The Company reduced
C-11
<PAGE> 233
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED
the carrying values of certain of its mining investments to reflect
reductions in value that it deemed to be other than temporary.
3. Other income for the nine months ended September 30 is as follows (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
---------------
1997 1996
----- -----
<S> <C> <C>
Gains on asset disposals..................................... $15.1 $ 3.3
Royalty income............................................... 1.8 2.1
Foreign currency contract gains (losses)..................... (8.0) 1.4
Foreign currency exchange losses on intercompany advances.... (4.5) (0.3)
Other foreign currency gains (losses)........................ (0.3) 0.3
Litigation recovery.......................................... -- 2.9
Other........................................................ 1.8 2.3
----- -----
$ 5.9 $12.0
===== =====
</TABLE>
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) during the first quarter of 1997.
Arauco subsequently changed its name to Kit Resources ("Kit"). The write-down of
investments recorded at September 30, 1997 (see note 2(d)) included a pretax
write-down of $4.6 million ($3.1 million after tax) related to the Company's
investment in Kit.
4. In March 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.
5. In April 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 $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.
6. In 1995, Homestake offered 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
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 shares of the Company, $19.5 million in cash and $3.7 million of
transaction expenses. The acquisition of the HGAL minority interests was
accounted for as a purchase.
C-12
<PAGE> 234
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED
7. Long-term debt is as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Convertible subordinated notes (due 2000).......... $ 150.0 $150.0
Pollution control bonds
Lawrence County, South Dakota (due 2032)......... 48.0 --
Lawrence County, South Dakota (due 2003)......... -- 18.0
State of California (due 2004)................... 17.0 17.0
Borrowings under credit agreement (due 2001)....... 7.2 --
------ ------
$ 222.2 $185.0
====== ======
</TABLE>
SOUTH DAKOTA POLLUTION CONTROL BONDS: In July 1997, Lawrence County, South
Dakota issued $30 million of South Dakota Solid Waste Disposal Revenue Bonds and
$18 million of South Dakota Pollution Control Refunding Revenue Bonds, both of
which are due in 2032. Proceeds from the Solid Waste Disposal Revenue Bonds were
relent to the Company and proceeds from the Pollution Control Refunding Revenue
Bonds were used to redeem outstanding South Dakota pollution control bonds. The
Company is responsible for funding principal and interest payments on these
bonds. Proceeds from the Solid Waste Disposal Revenue Bonds are being used for
construction of a new tailings dam lift and other qualifying expenditures at the
Homestake mine. Qualifying expenditures of $11.5 million had been incurred
through September 30, 1997 and the remaining $18.5 million is held in a trustee
account committed for the construction of the new tailings dam lift and other
qualifying expenditures. This $18.5 million of restricted cash is included in
other assets in the accompanying balance sheet at September 30, 1997.
The Company pays interest monthly on its pollution control bonds based on
variable short-term, tax-exempt obligation rates. At September 30, 1997 the
interest rate was 4.1%.
8. Under the Company's foreign currency protection program, the Company
enters into a series of foreign currency option contracts which establish
trading ranges within which the United States dollar may be exchanged for
foreign currencies by setting minimum and maximum exchange rates. The contracts
are marked to market at each balance sheet date and the resulting changes in
market value are included in the determination of net income or loss. Net
unrealized losses on contracts outstanding at September 30, 1997 totaled $5.1
million.
At September 30, 1997 the Company had forward currency contracts
outstanding as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE EXCHANGE
RATES TO U.S. DOLLARS
AMOUNT COVERED ---------------------------- EXPIRATION
CURRENCY (U.S. DOLLARS) PUT OPTIONS CALL OPTIONS DATES
-------------------------- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Canadian.................. $ 52.7 0.72 0.76 1997
Canadian.................. 152.2 0.72 0.76 1998
Canadian.................. 7.0 0.72 0.75 1999
Australian................ 27.6 0.77 0.80 1997
Australian................ 93.5 0.75 0.78 1998
Australian................ 6.5 0.72 0.75 1999
------
$339.5
======
</TABLE>
9. In the fourth quarter of 1996, the Company entered into forward sales
commitments for 680,100 ounces of gold expected to be produced from the
McLaughlin mine stockpiles from 1997 through 2003. In
C-13
<PAGE> 235
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED
addition, during the second quarter of 1997 the Company entered into forward
sales commitments for 20,000 ounces of gold to be produced in 2001 and 2002.
Gold sales for the nine months ended September 30, 1997 include sales of 90,000
ounces at average price of $383 per ounce. Gold sales for the nine months ended
September 30, 1996 include sales under the now-completed Nickel Plate mine
forward sales program of 70,000 ounces at an average prices of $421 per ounce.
At September 30, 1997 the Company's gold forward sales commitments were as
follows:
<TABLE>
<CAPTION>
AVERAGE PRICE OF
FORWARD SALES FORWARD SALES
YEAR (OUNCES) (PER OUNCE)
----------------------------------- ------------- ----------------
<S> <C> <C>
1997............................... 30,100 $391
1998............................... 120,000 399
1999............................... 109,900 415
2000............................... 85,100 430
2001............................... 95,000 441
2002............................... 95,000 457
2003............................... 75,000 481
-------
610,100
</TABLE>
To provide protection against a decrease in gold prices, the Company
entered into a series of put and call option contracts during the 1997 third
quarter which will provide a floor price of $325 per ounce for 900,000 ounces of
Homestake's 1998 gold production. The Company purchased put options for 900,000
ounces of gold exercisable during 1998 at a price of $325 per ounce. The Company
also sold call options for 900,000 ounces of gold exercisable during 1998 at a
price of $325 per ounce and purchased call options for 900,000 ounces of gold
exercisable during 1998 at $336 per ounce. These option contracts were
established at no net cost to the Company.
The Company also purchased put options for 30,000 ounces of gold
exercisable during 2000 at a price of $350 per ounce and sold call options for
15,000 ounces of gold exercisable during 2000 at an average price of $395 per
ounce.
10. In September 1997, the Company's Board of Directors authorized the
amendment of certain terms of the Rights Agreement (effective -- October 1997).
A summary of the amended Rights Agreement is as follows:
Each share of common stock includes and trades with a right. Rights are not
exercisable currently. Rights will become exercisable on a date designated by
the Board of Directors following the commencement of, or announcement of an
intent to commence, a tender offer by any person, entity or group for 15% or
more of the Company's common stock. When so exercisable, each right initially
entitles the owner to purchase from the Company one one-hundredth of a share of
Series A Participating Preferred Stock, par value $1 per share, at a price of
$75 per share (the "Purchase Price"). In addition, if any person, entity or
group (an "Acquiring Person") acquires 15% or more of the Company's common
stock, each right (whether or not previously exercisable) thereafter entitles
the owner (other than an Acquiring Person or its affiliates and associates) to
purchase for the Purchase Price the number of one one-hundredth of a share of
Series A Preferred Stock equal to the Purchase Price divided by one-half of the
market price of the Company's common stock. In lieu of the rights holder
exercising such right, the Board of Directors has the option to issue, in
exchange for each right, one-half of the number of shares of preferred stock (or
common stock having a value equal to the Purchase Price) that would be issuable
on exercise of the right. If the Board of Directors has not exchanged shares for
the rights and the Company engages in a business combination with an Acquiring
Person (or
C-14
<PAGE> 236
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED
affiliate or associate thereof), the holder of rights will be entitled to
purchase for the Purchase Price (i) common stock of the surviving company or its
publicly held affiliate having a market value equal to twice the Purchase Price,
or (ii) common stock of the surviving company having a book value equal to twice
the Purchase Price if the surviving company and its affiliates are not publicly
held. The numbers of shares and the Purchase Price are subject to adjustment for
stock dividends, stock splits and other changes in capitalization. The rights
expire on October 15, 2007.
11. In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Adoption of SFAS 131 will not have a material
impact on Homestake's current geographic and segment disclosures.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
SFAS 130 establishes standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). The purpose of
reporting comprehensive income is to present a measure of all changes in
shareholders' equity that result from recognized transactions and other economic
events of the period, other than transactions with owners in their capacity as
owners. SFAS 130 is effective for financial statements issued for periods ending
after December 15, 1997. Adoption of SFAS 130 will result in additional
disclosures in Homestake's financial statements but will not impact the
Company's reported net income or net income per share.
In February 1997, the FASB issued SFAS 128, "Earnings Per Share." 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.
12. 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.
GRANTS
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 approximately $19 million.
Title X of the Energy Policy Act of 1992 (the "Act") and subsequent
amendments to the Act authorized appropriations of $335 million to cover the
Federal Government's share of certain costs of reclamation, decommissioning and
remedial action for by-product material (primarily tailings) generated by
certain licensees as an incident of uranium sales to the Federal Government.
Reimbursement is subject to compliance with regulations of the Department of
Energy ("DOE"), which were issued in 1994. Pursuant to the Act, the DOE is
responsible for 51.2% of past and future costs of reclaiming the Grants site in
accordance with Nuclear Regulatory Commission license requirements. Through
September 30, 1997 the Company had received
C-15
<PAGE> 237
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
ALL AMOUNTS IN US$ UNLESS OTHERWISE INDICATED
$17.1 million from the DOE and the accompanying balance sheet at September 30,
1997 includes an additional receivable of $13.2 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
is fully provided in the financial statements at September 30, 1997.
In 1983, the state of New Mexico made a claim against the Company for
unspecified natural resource damages resulting from the Grants tailings. New
Mexico has taken no action to enforce its claim.
WHITEWOOD CREEK
Deposits of tailings (ground rock) along an 18-mile stretch of Whitewood
Creek in western South Dakota formerly constituted a site on the NPL. The EPA
asserted that discharges of tailings beginning in the nineteenth century by
mining companies, including Homestake, contaminated the soil and streambed.
Homestake signed a Consent Decree with the EPA and carried out remedial work,
and the site was deleted from the NPL on August 13, 1996.
On July 23, 1997 the Company received a letter from the Mountain-Prairie
Region of the United States Fish and Wildlife Service stating that the
"Department [of the Interior] intends to file suit, subject to final approval by
the Department of Justice, against your company to recover natural resource
damages and assessment costs" in respect of tailings placed in Whitewood Creek,
South Dakota, under CERCLA, the Clean Water Act and other applicable laws. The
letter stated that other federal agencies may participate in such litigation and
also stated that the Cheyenne River Sioux Tribe intended to file such an action.
The letter invited Homestake to participate in discussions with the Department
of the Interior and the Tribe over the next 60 days and indicated that absent an
agreement, "the Department intends to request that the Department of Justice
file a lawsuit for natural resource damages against Homestake upon the
expiration of the 60-day notice period." The Company agreed to a limited waiver
of statutes of limitations until November 24, 1997, and discussions with the
federal trustees and the Cheyenne River Sioux Tribe regarding this matter have
continued.
In 1983, the state of South Dakota made a claim for unspecified natural
resource damages in respect of the placement of tailings in Whitewood Creek. On
September 25, 1997 the state filed an action pursuant to CERCLA and a pendent
state claim for damages to natural resources in a quantity yet to be
ascertained. Homestake has filed an answer denying the allegation and
counterclaiming against the State of South Dakota.
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.
See "Homestake Mining Company -- Environmental Matters" included in the
Supplement in this Document.
C-16
<PAGE> 238
HOMESTAKE MANAGEMENT'S DISCUSSION AND ANALYSIS
(ALL AMOUNTS IN US DOLLARS UNLESS OTHERWISE INDICATED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Unless specifically stated otherwise, the following information relates to
amounts included in the consolidated financial statements, without reduction for
minority interests, and includes the Company's interests in mining partnerships
accounted for using the equity method. 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 Management's Discussion
and Analysis are presented on this basis. Reference is made to the sections
entitled "Risk Factors" and "Cautionary Statements" in the Supplement.)
RESULTS OF OPERATIONS
Homestake recorded net income of $30.3 million or $0.21 per share during
1996 compared to net income of $30.3 million or $0.22 per share during 1995 and
$78 million or $0.57 per share during 1994. After adjusting for one-time
nonrecurring items of $10.4 million or $0.07 per share, the 1996 earnings
reflect higher gold production and sales volumes, higher gold prices and lower
per ounce total cash costs, offset by higher depreciation charges, substantially
increased exploration expenditures and lower returns from the Main Pass 299
sulfur operations. Nonrecurring items in 1996 included a $24 million reduction
in the Company's accrual for prior year income taxes, $5.5 million ($4.9 million
after tax) of proceeds from a litigation recovery, foreign exchange losses of
$8.9 million ($7.4 million after tax) primarily on advances to Homestake's
wholly-owned subsidiary, Homestake Canada Inc. ("HCI"), the write-down of mining
investments by $9 million ($8.3 million after tax), and expenses of $3.4 million
($2.8 million after tax) related to Homestake's now terminated proposed
combination with Santa Fe. The decrease in net income in 1995 from 1994 reflects
nonrecurring gains in 1994 of $23.8 million or $0.17 per share compared to
nonrecurring gains in 1995 of $6.7 million or $0.05 per share, and a higher
effective income and mining tax rate in 1995. Nonrecurring items in 1995
included a gain of $5.4 million ($4.2 million after tax) on the sale of the
Company's remaining uranium inventory. Nonrecurring items in 1994 included a
gain of $15.7 million ($12.6 million after tax) on the sale of the Company's
interest in the Dee mine, a gain of $11.2 million ($11.2 million after tax) on
the dilution of the Company's interest in Prime Resources Group Inc. ("Prime")
following Prime's sale of additional shares to the public, a $7.8 million tax
benefit resulting from a reorganization of Canadian exploration assets, and a
foreign exchange loss of $6 million ($4.7 million after tax) on advances to HCI.
GOLD OPERATIONS: The results of the Company's operations are affected
significantly by the market price of gold. Gold prices are influenced by
numerous factors over which the Company has no control, including expectations
with respect to the rate of inflation, the relative strength of the United
States dollar and certain other currencies, interest rates, global or regional
political or economic crises, demand for gold for jewelry and industrial
products, and sales by holders and producers of gold in response to these
factors.
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. In 1994, the Company
sold for future delivery 183,200 ounces of the gold it expected to produce at
the Nickel Plate mine during 1995 and 1996. During 1996 and 1995, contracts for
70,000 ounces and 113,200 ounces, respectively, were financially settled under
the Nickel Plate program. The purpose of both of these forward sales programs
was to help assure recovery of the Company's remaining investment in these
operations and to provide for remaining unaccrued reclamation costs. At December
31, 1996 all sales and obligations under the Nickel Plate mine forward sales
program had been completed. See note 22 to the consolidated financial statements
for further information and details of these forward sales programs. See
"Homestake Management's Discussion and Analysis For the Periods Ended September
30, 1997 and 1996."
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
C-17
<PAGE> 239
United States dollar may be exchanged for Australian and Canadian dollars. See
note 22 to the consolidated financial statements for additional information
regarding this program.
Revenues from gold and ore sales totaled $712.2 million during 1996
compared to revenues of $675.2 million in 1995 and $629.2 million in 1994. The
revenue increases in 1996 and 1995 reflect higher sales volumes and higher gold
prices. During 1996, the Company sold 1,952,400 equivalent ounces of gold at an
average price of $389 per equivalent ounce compared to 1,873,500 equivalent
ounces sold at an average price of $386 per equivalent ounce during 1995 and
1,692,800 ounces sold at an average price of $384 per ounce during 1994.
Total gold production increased to 1,968,100 equivalent ounces during 1996
compared to 1,877,300 equivalent ounces produced during 1995 and 1,696,400
ounces produced during 1994. The higher 1996 production primarily is due to
production increases at the Kalgoorlie, Eskay Creek, David Bell and Round
Mountain operations and the purchase of an additional 60% interest in the Snip
mine, partially offset by lower production following the completion of mining
operations at the McLaughlin and Nickel Plate mines. The increase in production
in 1995 from 1994 primarily is due to the commencement of production at the
Eskay Creek mine, partially offset by production declines at certain other
locations.
At the Homestake mine in South Dakota, production increased slightly to
407,300 ounces during 1996 from 402,900 ounces during 1995 and 393,900 ounces
during 1994. The increase in production in 1996 primarily is a result of an
increase in production from the Open Cut, partially offset by lower production
from the underground operations. During 1995, harder than normal ore from the
Open Cut had reduced mill throughput. The increase in 1995 production from 1994
is due to higher ore grades, partially offset by the lower Open Cut mill
throughput. Total cash costs of $304 per ounce during 1996 compare to total cash
costs of $303 per ounce during 1995 and $291 per ounce during 1994.
Open Cut mining currently is scheduled to be completed in 1998. Open Cut
ore stockpiles will continue to be processed, although at a lower rate, through
2000. On completion of Open Cut mining, underground production is expected to
increase, which will partially offset the decline in production from the Open
Cut. However, Homestake mine cash costs per ounce are expected to increase,
reflecting the increase in production from the higher cost underground
operations.
Production at the McLaughlin mine in northern California decreased to
185,500 ounces during 1996 from 241,800 ounces during 1995 and 250,500 ounces
during 1994. In June 1996, mining operations were completed and the autoclaves
were shut down as the orebody has now been mined out. For the next six years,
lower-grade stockpiled ore will be processed through a conventional
carbon-in-pulp circuit. The decline in production was offset by reduced
operating costs and resulted in only a small change in total cash costs per
ounce in 1996. Total cash costs in 1996 were $250 per ounce compared to $242 per
ounce in 1995 and $249 per ounce in 1994. Gold production in 1997 is projected
at 122,000 ounces and total cash costs per ounce are expected to remain similar
to 1996 costs.
The Company's share of production from the Round Mountain mine in Nevada
totaled 102,700 ounces in 1996 compared to production of 86,100 ounces in 1995
and 105,900 ounces in 1994. The higher 1996 production is a result of higher
throughput and grades on the reusable pad and an increase in dedicated pad
leaching capacity, partially offset by a lower grade of ore on the dedicated
pad. The increase in dedicated pad capacity has allowed the processing of
lower-grade stockpiled ore and previously leached lower-grade material which
resulted in a lower overall 1996 dedicated pad ore grade in comparison to 1995
and 1994. Total cash costs of $256 per ounce are similar to 1995 costs of $254
per ounce, and reflect the higher 1996 production offset by the effect of the
lower dedicated pad ore grade. The lower production in 1995, in comparison to
1994, was due in part to lower grades and volumes of ore placed on both the
reusable and dedicated pads early in the year and lower high-grade production.
Production from the high-grade vein amounted to 3,100 ounces in both 1996 and
1995 compared to 8,300 ounces in 1994. In addition, in the latter part of 1995,
the rate of placement of ore on the dedicated pad was increased. Due to the
length of time between the initial loading of ore onto the dedicated pad and the
commencement of leaching, a significant portion of the gold contained in the
dedicated pad ore was not recovered until 1996. As a result, total cash costs
increased to $254 per ounce during 1995 from $182 per ounce during 1994.
Construction of the $68 million (Homestake's share -- $17 million)
C-18
<PAGE> 240
8,000 tons-per-day gravity mill to process higher-grade sulfide ores commenced
in 1996 and mill start-up is expected in late 1997.
In January 1995, commercial production began at the Eskay Creek mine in
British Columbia, Canada. During 1996, Eskay Creek sold 115,900 tons of ore
containing 211,300 ounces of gold and 12.1 million ounces of silver, equivalent
to approximately 372,300 ounces of gold compared to 104,100 tons of ore sold
during 1995 containing 196,500 ounces of gold and 9.9 million ounces of silver,
equivalent to approximately 331,300 ounces of gold. The higher 1996 shipments
include 14,000 tons of spot ore sales to two additional smelters. Total cash
costs, including third-party smelter costs, decreased to $170 per equivalent
ounce during 1996 from $185 per equivalent ounce during 1995. The lower 1996
costs per ounce primarily are a result of lower development costs, higher gold
and silver ore grades and productivity improvements. Following a successful 1996
exploration program, Eskay Creek proven and probable ore reserves increased by
28% or 903,000 equivalent ounces at December 31, 1996, after adjusting for 1996
production. Tons sold and gold and silver production in 1997 are expected to
approximate the results achieved in 1996. In February 1997, Prime announced its
intention to construct a gravity/flotation mill facility at the Eskay Creek mine
site. This mill, estimated to cost $12 million, will improve the profitability
of certain Eskay Creek ore that would otherwise be directly shipped to
third-party smelters and upgrade other material that currently is not economic.
Construction of the mill, which is expected to increase Eskay Creek's annual
production by approximately 30,000 ounces per annum over the mine's remaining
life, was completed in the fourth quarter of 1997.
The Company's share of gold production from the Williams mine in the Hemlo
mining camp in Canada amounted to 205,500 ounces at a total cash cost of $222
per ounce during 1996 compared to 202,600 ounces produced at a total cash cost
of $222 per ounce during 1995 and 222,700 ounces produced at a cost of $203 per
ounce during 1994. The decreases in production and increases in total cash costs
during 1996 and 1995 compared to 1994 primarily are due to the higher grade of
ore processed in 1994. Production at the Williams mine is expected to remain at
current levels for the next few years.
The Company's share of production at the David Bell mine, also in the Hemlo
mining camp, amounted to 97,700 ounces during 1996 compared to production of
79,400 ounces during 1995 and 96,100 ounces during 1994. During 1996, mining in
the higher-grade areas of the mine offset production difficulties that reduced
throughput. An accelerated development program has commenced to provide access
to more mining areas, which should increase throughput. Production also had been
reduced during 1995 as only two areas were available for mining for most of the
year which reduced mining flexibility and resulted in lower mill throughput and
a lower grade of ore processed. In addition, ground stability problems in 1995
near the adjacent Golden Giant mine shaft restricted mining to available
lower-grade stopes. Total cash costs were $172 per ounce during 1996 compared to
$203 per ounce during 1995 and $167 per ounce during 1994.
Production from the Nickel Plate mine in Canada totaled 70,200 ounces
during 1996 compared to 91,400 ounces during 1995 and 82,100 ounces during 1994.
Mining activities at the Nickel Plate mine ceased in July 1996 as the ore
reserves were fully depleted. The processing of stockpiled ore continued through
October 1996. Total cash costs were $347 per ounce during 1996 compared to $379
per ounce during 1995 and $349 per ounce during 1994.
On April 30, 1996 Prime, a 50.6%-owned subsidiary of Homestake, became the
sole owner of the Snip mine in Canada when it purchased Cominco Ltd.'s
("Cominco") 60% interest in the mine for $39.3 million. Homestake's share of
production from the Snip mine increased to 101,800 ounces during 1996 from
51,300 ounces during 1995 and 51,600 ounces during 1994. Excluding the effects
of the purchase of the additional interest, production at the Snip mine
decreased by 3% during 1996. The lower production primarily is due to an
increase in more labor-intensive conventional mining, partially offset by higher
ore grades. Total cash costs increased to $190 per ounce during 1996 from $176
per ounce during 1995 and $173 per ounce during 1994.
HGAL's share of production from the Kalgoorlie operations in Western
Australia totaled 368,800 ounces during 1996 compared to 311,400 ounces during
1995 and 352,100 ounces during 1994. The increase in production during 1996
primarily is a result of an increase in mill throughput and the purchase of the
disproportionate sharing arrangement from HGAL's joint venture partner, Gold
Mines of Kalgoorlie Limited
C-19
<PAGE> 241
("GMK") (see "Liquidity and Capital Resources" section below). During 1995 and
1994, HGAL paid 13,000 ounces and 15,800 ounces, respectively, to GMK under the
disproportionate sharing arrangement. In addition, the lower 1995 production
reflects a temporary decline in production while the new Fimiston mill additions
were integrated with the existing complex, and lower production at the Mt
Charlotte mine due to operational difficulties which hampered production early
in the year. Total cash costs at the Kalgoorlie operations decreased to $291 per
ounce in 1996 from $296 per ounce in 1995. The decrease in total cash costs
during 1996 reflects higher production, partially offset by the effects of a
stronger Australian dollar, which increased total cash costs by $16 per ounce.
The increase in total cash costs per ounce during 1995 to $296 per ounce from
$257 per ounce in 1994 is primarily due to the lower production.
CONSOLIDATED PRODUCTION COSTS PER OUNCE:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(PER OUNCE OF GOLD)
<S> <C> <C> <C>
Direct mining costs................................... $222 $233 $250
Deferred stripping adjustments........................ 7 2 (1)
Costs of third-party smelters......................... 17 16 --
Other................................................. (5) (1) (4)
---- ---- ----
Cash Operating Costs.................................. 241 250 245
Royalties............................................. 4 4 5
Production taxes...................................... 3 3 2
---- ---- ----
Total Cash Costs...................................... 248 257 252
Depreciation and amortization......................... 53 46 41
Reclamation........................................... 5 5 7
---- ---- ----
Total Production Costs................................ $306 $308 $300
==== ==== ====
</TABLE>
Homestake's consolidated total cash cost per equivalent ounce amounted to
$248 during 1996 compared to $257 and $252 during 1995 and 1994, respectively.
The lower 1996 per ounce costs reflect the higher silver grades at the Eskay
Creek mine, higher production at the Kalgoorlie and David Bell operations, an
increase in ownership at the low-cost Snip mine and purchase of the
disproportionate sharing arrangement, partially offset by lower production at
the McLaughlin mine and the effects of a stronger Australian dollar. The
increase in total cash costs per ounce during 1995 from 1994 primarily reflects
the temporary production declines at the Round Mountain, David Bell and
Kalgoorlie operations and higher costs at the Homestake mine, partially offset
by production from the low-cost Eskay Creek mine. Homestake's total noncash cost
per equivalent ounce increased to $58 during 1996 from $51 during 1995 and $48
during 1994. The higher 1996 noncash costs reflect additional depreciation and
amortization charges resulting from the purchases of the HGAL minority
interests, the disproportionate sharing arrangement and the additional interest
in the Snip mine. The increase in noncash costs during 1995 primarily was a
result of the commencement of production at the Eskay Creek mine which has
relatively high per unit depreciation and amortization charges.
C-20
<PAGE> 242
RECONCILIATION OF TOTAL CASH COSTS PER OUNCE TO FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER OUNCE
AMOUNTS)
<S> <C> <C> <C>
Production Costs per Financial Statements...... $ 475,333 $ 481,886 $ 447,129
Costs not included in Homestake's production
costs:
Costs of third-party smelters................ 33,098 29,214 464
Production costs of equity-accounted
investments............................... 12,907 11,752 15,683
Sulfur and oil production costs................ (23,208) (26,917) (19,210)
Reclamation accruals........................... (9,579) (8,754) (12,112)
By-product silver revenues..................... (3,059) (2,334) (2,326)
Inventory movements and other.................. 2,993 (2,659) (1,298)
--------- --------- ---------
Production Costs for Per Ounce Calculation
Purposes..................................... $ 488,485 $ 482,188 $ 428,330
========= ========= =========
Ounces Produced During the Year................ 1,968,119 1,877,329 1,696,389
Total Cash Costs Per Ounce..................... $ 248 $ 257 $ 252
</TABLE>
MAIN PASS 299: The Company has a 16.7% undivided interest in the Main Pass
299 sulfur mine and oil recovery operations in the Gulf of Mexico. At December
31, 1996 the Main Pass 299 sulfur mine had proven recoverable reserves of
approximately 66 million long tons of sulfur. Main Pass 299 oil production,
which peaked in 1992, is expected to continue to decline over the next few
years. During 1996, lower sulfur prices were partially offset by higher oil
prices, and the combined operations recorded an operating profit of $1.3 million
compared to an operating profit of $5.7 million during 1995 and an operating
loss of $0.2 million during 1994.
The sulfur operations incurred an operating loss of $3.1 million in 1996
compared to operating earnings of $3.7 million in 1995 and an operating loss of
$2.9 million in 1994. In response to a weakening sulfur market, Main Pass 299
operations have temporarily reduced production levels. The Company's share of
sulfur revenues totaled $20.1 million during 1996 compared to $30.5 million
during 1995 and $16.9 million during 1994. During 1996, the Company sold 333,300
tons of sulfur at an average price of $60 per ton compared to 445,600 tons at an
average price of $68 per ton during 1995 and 317,700 tons at an average price of
$53 per ton during 1994. The Company's share of production was 325,000 tons in
1996 compared to 365,100 tons in 1995 and 376,600 tons in 1994.
The Company wrote-off its investment in the Main Pass 299 sulfur mine at
September 30, 1997. See "Homestake Management's Discussion and Analysis -- For
the Nine Months Ended September 30, 1997 and 1996."
The Company's share of oil revenues amounted to $10.7 million in 1996
compared to $10.1 million and $10 million in 1995 and 1994, respectively.
Operating earnings from oil operations totaled $4.4 million in 1996 compared to
operating earnings of $2.1 million in 1995 and $2.7 million in 1994. The
improved 1996 results primarily are due to higher oil prices and lower operating
costs, partially offset by a decline in production. The decrease in operating
earnings during 1995 reflects lower sales volumes and increased costs, partially
offset by rising oil prices.
INTEREST AND OTHER INCOME: Interest income of $15.1 million in 1996
compares to $16.7 million in 1995 and $9.8 million in 1994. The decrease in
interest income during 1996 primarily is due to slightly lower interest rates.
The increase in interest income in 1995 reflects higher cash and equivalents and
short-term investments balances and a rise in interest rates during the year.
Other income of $7.4 million in 1996 compares to $11.6 million in 1995 and $25.6
million in 1994. Other income in 1996 includes a $2.9 million gain from the
litigation recovery and $8.9 million of foreign exchange losses, primarily on
advances to HCI which are denominated in Canadian dollars. Repayment in December
1996 and January 1997 of a portion of these advances, and an assumption that the
remaining advances will be repaid in the future, has necessitated marking to
market the remaining advances. Prior to these repayments, the advances to HCI
had been considered permanent in nature. The decrease in other income in 1995
from 1994 primarily is due to the
C-21
<PAGE> 243
pretax gain in 1994 of $15.7 million on the sale of the Company's interest in
the Dee mine in Nevada, partially offset by a foreign exchange loss of $6
million in 1994 on advances to HCI.
DEPRECIATION, DEPLETION AND AMORTIZATION: Depreciation, depletion and
amortization increased to $112.4 million during 1996 from $99.6 million during
1995 and $76.2 million during 1994. The increase in 1996 from 1995 primarily is
due to higher production, and additional depreciation charges resulting from the
purchases of the HGAL minority interests, the disproportionate sharing
arrangement and the additional interest in the Snip mine. The 1995 increase is a
result of additional depreciation charges related to the Eskay Creek mine,
partially offset by reserve expansions at certain locations and lower production
at other locations.
EXPLORATION EXPENSE: Exploration expense, excluding capitalized costs
associated with development stage projects, increased to $45.4 million during
1996 from $27.5 million in 1995 and $21.3 million in 1994. The increase in
exploration expense in 1996 primarily is due to increased activity as the
Company pursues numerous prospective exploration targets and prospects. During
1996, advanced exploration continued at the Jeronimo project near Homestake's El
Hueso mine in Chile, at the El Foco concession in Venezuela and at the Ruby Hill
property in Nevada. In addition, exploration activities were conducted at and
around the Open Cut, Eskay Creek, Snip and Kalgoorlie operations. The increase
in exploration expense in 1995 from 1994 reflects increased activity at Ruby
Hill and continued work in Chile and on the El Foco concession. The increased
level of exploration activity in 1996 is expected to continue in 1997.
INTEREST EXPENSE: Interest expense of $10.6 million in 1996 compares to
$11.3 million in 1995 and $10.1 million in 1994. Interest expense decreased in
1996 from 1995 primarily as a result of lower interest rates on the pollution
control bonds. Interest expense increased in 1995 primarily due to $0.7 million
of interest which was capitalized in 1994. The Company's average rate of
interest on its long-term debt was 5.1% in 1996 compared to 5.5% in 1995 and
1994, respectively.
OTHER EXPENSE: Other expense of $14.6 million in 1996 compares to $3.3
million in 1995 and $6.7 million in 1994. The current year's other expense
includes the write-downs of investments in mining securities totaling $9 million
and $3.4 million of costs related to Homestake's now terminated proposed
acquisition of Santa Fe.
INCOME AND MINING TAXES: The Company's income and mining tax rate was 37%
during 1996 compared to 46% during 1995 and 18% during 1994. Income and mining
tax expense in 1996 includes a $24 million decrease in the consolidated tax
provision and a $2.6 million gain relating to the tax portion of the litigation
recovery, partially offset by the effect of incurring approximately $14 million
of exploration expenses, primarily in South America, which are not deductible
for United States income tax purposes and for which a foreign income tax benefit
cannot be recognized currently. The $24 million decrease in the consolidated tax
provision principally results from a reduction in prior years' income tax
accruals for certain contingencies which have now been resolved. The 1994 income
and mining rate was low due to the availability of certain tax benefits. The
higher effective tax rates experienced in 1996 (after adjusting for the $26.6
million in credits noted above) and 1995 will continue as the major portion of
the Company's current earnings are in jurisdictions with higher income and
mining tax rates. The Company's consolidated effective income and mining tax
rate will fluctuate depending on the geographical mix of its pretax income.
At December 31, 1996 and 1995 the Company had tax valuation allowances of $72.2
million and $59.6 million, respectively. While circumstances could occur which
would permit the Company to reduce its deferred tax valuation allowances in
future years, based on the Company's current projections it does not expect
significant future reductions. Events that would allow the Company to reduce
such allowances in the future would include (i) generating substantial taxable
income in Chile, (ii) an acceleration of the payment of the Company's
postretirement benefit obligation accrual and (iii) an acceleration of the
disposal of certain non-amortizable United States and Australia land and mineral
properties which are located either on, or in proximity to, the Company's
existing operating minesites.
MINORITY INTERESTS: Income allocable to minority interests in consolidated
subsidiaries was $15 million in 1996 compared to $16 million in 1995 and $8.9
million in 1994. The decrease in 1996 reflects higher earnings from the Eskay
Creek mine, offset by Corporacion Nacional del Cobre Chile's ("Codelco")
interest in
C-22
<PAGE> 244
exploration expenses of the Company's newly-formed, 51%-owned subsidiary, Agua
de la Falda S.A. (see "Liquidity and Capital Resources" section below) and the
purchase of the HGAL minority interests. The increase in 1995 primarily is due
to the income from the Eskay Creek mine.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, Homestake's cash and equivalents and short-term investments
balances increased by $7.4 million to $219.8 million as a result of strong cash
flows from the Company's operations, partially offset by capital expenditures of
$105.9 million and the purchase of Cominco's interest in the Snip mine for $39.3
million. Net cash provided by operations was $180.4 million in 1996 compared to
$153.5 million in 1995 and $133.7 million in 1994. In addition, $16.1 million
was realized on the sale of assets in 1996 compared to $13.3 million and $24.5
million in 1995 and 1994, respectively.
In 1995, Homestake 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 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. See note 3 to the consolidated financial
statements for further information.
In June 1996, the Company paid $51.4 million to GMK to purchase past and
all future rights and entitlements under the disproportionate sharing
arrangement ("DSA") covering gold production from a portion of the Super Pit
operation in Kalgoorlie, Western Australia. The Company now shares equally with
GMK in all gold produced at the Kalgoorlie operations. The amount paid to GMK
includes $4 million previously accrued and expensed by HGAL for prior 1995 and
1996 amounts due under the DSA, and $47.4 million for the acquisition of future
DSA rights. The $47.4 million purchase price for the acquisition of the future
DSA rights has been included in 1996 capital additions and is being depreciated
over the remaining life of the operation.
In April 1996, Prime purchased Cominco's 60% interest in the Snip mine for
$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.
In July 1996, Homestake and Codelco, a state-owned mining company in Chile,
formed a new company, Agua de la Falda S.A. ("La Falda"). La Falda is developing
the Agua de la Falda mine, which is located near Homestake's El Hueso mine in
northern Chile and contains 187,000 ounces of oxide reserves. The Agua de la
Falda mine is scheduled to commence production in April 1997 and produce
approximately 27,000 ounces at a total cash cost of $250 per ounce during 1997.
Production is expected to average 40,000 to 45,000 ounces annually from 1998
through 2000 at a total cash cost of approximately $220 per ounce. In addition,
La Falda will continue drilling and metallurgical testing of the adjacent much
larger Jeronimo deposit, where 6.1 million tons of mineralized material at a
grade of .158 ounces of gold per ton have been outlined to date. Homestake owns
51% of the corporation and Codelco owns the remaining 49%. Codelco and Homestake
have contributed property interests in the area to the new company. In addition,
Codelco contributed the existing El Hueso plant, which had been under lease to
Homestake. Homestake also has contributed $5.1 million for exploration and
development, including $3.7 million of exploration and development expenditures
incurred prior to the formation of La Falda.
In 1995, Homestake acquired for $24 million a 10% interest in Navan
Resources plc ("Navan"), an Irish public company with diverse mineral interests
in Europe. The purchase price included an option which will
C-23
<PAGE> 245
permit Homestake to acquire from Navan up to a 50% interest in Navan Bulgarian
Mining BV ("Navan BV"), which in turn owns 68% of Bimak AD, the owner of the
Chelopech gold/copper operations in Bulgaria.
In December 1996, Homestake in consultation with Navan, determined that due
to the deteriorating political and economic situation in Bulgaria, it was likely
that further development of the Chelopech project would be delayed
substantially. In light of the uncertainty surrounding the project, Homestake
considered it had an other than temporary impairment of its investment and
reduced the carrying value of the investment in Navan, including the option to
acquire the 50% interest in Navan BV, to the quoted market value of the Navan
securities. The resulting charge of $7.2 million was recorded in the fourth
quarter of 1996. See "Homestake Mining Company -- Bulgaria" in the Supplement of
this Document for further information regarding Navan and the Chelopech project.
Additions to property, plant and equipment in 1996 totaled $105.9 million
compared to $81 million and $88.7 million in 1995 and 1994, respectively.
Capital additions in 1996 included $57.6 million at the Kalgoorlie operations,
primarily for the purchase of all rights and entitlements under the
disproportionate sharing arrangement, $7.7 million at the Round Mountain mine
primarily for the new gravity mill project, $15.9 million at the Homestake mine,
primarily for numerous projects related to improving the efficiency of the mine,
and $8.2 million at the Ruby Hill mine. The remaining expenditures primarily
were for replacement capital to maintain existing production capacity.
In May and November 1996, Prime paid semi-annual dividends of $0.04 per
share. Total common share dividends paid by Prime to minority shareholders
amounted to $2.2 million during 1996. Total common share dividends paid by the
Company, including dividends paid by Prime to minority shareholders, were $31.5
million during 1996 compared to $27.6 million during 1995 and $24.1 million
during 1994. In May 1994, the Company increased its regular quarterly dividend
from $0.025 to $0.05 per share.
Cash income and mining taxes paid by the Company (net of tax refunds) were
$17.1 million, $22.7 million and $10.7 million in 1996, 1995 and 1994,
respectively. Beginning in 1997, cash income and mining taxes are expected to be
substantially higher, as the majority of the Company's Canadian income and
mining tax pools were exhausted during 1996.
In September 1996, the Company replaced its credit agreement with a new
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.
The Company incurred $3.8 million of reclamation-related expenditures
during 1996 at its discontinued uranium facility at Grants, New Mexico. In
accordance with the Energy Policy Act of 1992, the United States Department of
Energy ("DOE") is responsible for 51.2% of all past and future reclamation
expenditures at this facility. The Company has received $14.2 million to date
from the DOE and the accompanying balance sheet at December 31, 1996 includes a
receivable of $16.2 million for the DOE's share of reclamation expenditures made
by the Company through 1996. The total future cost for reclamation, remediation,
monitoring and maintaining compliance at the Grants site is estimated to be
$20.4 million. The Company believes that its share of the estimated remaining
cost of reclaiming the Grants facility, net of estimated proceeds on the
ultimate disposals of related assets, is fully provided in the financial
statements at December 31, 1996.
The Company evaluates its accruals for remediation, reclamation and site
restoration regularly. With respect to nonoperating properties, the Company
believes it has fully provided for all remediation liabilities and for estimated
reclamation and site restoration costs. With respect to operating properties,
the Company is providing for estimated ultimate reclamation relating to ongoing
and end-of-mine life restoration and closure costs over the lives of its
individual operations using the units-of-production method. See note 21 to the
consolidated financial statements for discussion of certain environmental
matters.
C-24
<PAGE> 246
Homestake has made significant capital expenditures to minimize the effects
of its operations on the environment. Capital expenditures primarily are for the
purchase or development of environmental monitoring equipment and containment of
waste. In 1996, these expenditures totaled approximately $7 million compared to
$4 million in 1995.
Homestake also incurs significant operating costs in order to protect the
environment. Operating costs include current reclamation costs, costs for
environmental monitoring and studies to identify and quantify environmental
impacts, if any, and accruals for future reclamation expenditures. Such
additional costs totaled approximately $17 million in 1996, compared with
approximately $15 million in 1995, not including related depreciation expense of
$3 million and $5 million, respectively. Homestake estimates that environmental
and related operating and depreciation costs in 1997 will approximate the 1996
amounts. The above amounts exclude expenditures related to the Company's
discontinued uranium operations.
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.
On December 9, 1996, Homestake and Santa Fe announced that they had entered
into a definitive agreement whereby Homestake would acquire Santa Fe by an
exchange of common stock for common stock. On March 10, 1997, the Company
announced that Santa Fe had terminated the agreement and, in accordance with the
terms of the merger agreement, had paid Homestake a $65 million termination fee.
As a result, in the first quarter of 1997 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.
C-25
<PAGE> 247
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Gold and ore sales....................................... $712,186 $675,222 $629,174
Sulfur and oil sales..................................... 30,749 40,620 26,882
Interest income.......................................... 15,054 16,737 9,762
Equity earnings.......................................... 1,588 2,155 2,857
Gain on issuance of stock by subsidiary (note 4)......... 11,224
Other income (note 15)................................... 7,359 11,631 25,588
-------- -------- --------
766,936 746,365 705,487
-------- -------- --------
COSTS AND EXPENSES:
Production costs......................................... 475,333 481,886 447,129
Depreciation, depletion and amortization................. 112,353 99,602 76,171
Administrative and general expense....................... 36,965 37,283 38,159
Exploration expense...................................... 45,382 27,541 21,347
Interest expense......................................... 10,644 11,297 10,124
Other expense (note 16).................................. 14,575 3,290 6,744
-------- -------- --------
695,252 660,899 599,674
-------- -------- --------
INCOME BEFORE TAXES AND MINORITY INTERESTS................. 71,684 85,466 105,813
INCOME AND MINING TAXES (NOTE 6)........................... (26,333) (39,141) (18,880)
MINORITY INTERESTS......................................... (15,070) (15,998) (8,917)
-------- -------- --------
NET INCOME................................................. $ 30,281 $ 30,327 $ 78,016
======== ======== ========
NET INCOME PER SHARE....................................... $ 0.21 $ 0.22 $ 0.57
======== ======== ========
AVERAGE SHARES USED IN THE COMPUTATION..................... 146,311 138,117 137,733
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
C-26
<PAGE> 248
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents.............................................. $ 89,599 $ 145,957
Short-term investments............................................ 130,158 66,416
Receivables (note 7).............................................. 47,650 58,046
Inventories (note 8).............................................. 91,127 69,979
Deferred income and mining taxes (note 6)......................... 12,263 20,521
Other............................................................. 8,551 7,798
---------- ----------
Total current assets...................................... 379,348 368,717
PROPERTY, PLANT AND EQUIPMENT -- NET (notes 3 and 9)................ 1,007,030 846,776
INVESTMENTS AND OTHER ASSETS
Noncurrent investments (note 10).................................. 39,606 46,188
Other assets (note 11)............................................ 56,124 59,952
---------- ----------
Total investments and other assets........................ 95,730 106,140
---------- ----------
TOTAL ASSETS.............................................. $1,482,108 $1,321,633
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................................. $ 36,171 $ 35,170
Accrued liabilities (note 12)..................................... 42,174 53,937
Income and other taxes payable.................................... 38,386 9,314
---------- ----------
Total current liabilities................................. 116,731 98,421
LONG-TERM LIABILITIES
Long-term debt (note 13).......................................... 185,000 185,000
Other long-term obligations (note 14)............................. 114,168 120,418
---------- ----------
Total long-term liabilities............................... 299,168 305,418
DEFERRED INCOME AND MINING TAXES (NOTE 6)........................... 201,454 189,925
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES..................... 96,203 92,012
SHAREHOLDERS' EQUITY (NOTE 19)
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
Additional paid-in capital........................................ 477,880 382,314
Retained earnings................................................. 110,085 109,145
Accumulated currency translation adjustments...................... 37,753 7,828
Other............................................................. (3,838) (3,971)
---------- ----------
Total shareholders' equity................................ 768,552 635,857
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $1,482,108 $1,321,633
========== ==========
</TABLE>
Commitments and Contingencies -- see notes 21 and 22.
See notes to consolidated financial statements.
C-27
<PAGE> 249
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL CURRENCY
FOR THE YEARS ENDED COMMON PAID-IN RETAINED TRANSLATION
DECEMBER 31, 1996, 1995 AND 1994 STOCK CAPITAL EARNINGS ADJUSTMENTS OTHER TOTAL
- ---------------------------------- -------- ---------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993....... $137,494 $ 334,737 $ 52,495 $(5,620) $(3,862) $515,244
Net income...................... 78,016 78,016
Dividends paid.................. (24,106) (24,106)
Exercise of stock options....... 291 5,048 5,339
Currency translation
adjustments.................. 14,489 14,489
Unrealized loss on
investments.................. (382) (382)
Other........................... 170 170
-------- -------- -------- ------- ------- --------
BALANCES, DECEMBER 31, 1994....... 137,785 339,785 106,405 8,869 (4,074) 588,770
Net income...................... 30,327 30,327
Dividends paid.................. (27,587) (27,587)
Exercise of stock options....... 206 2,680 2,886
Stock issued for purchase of
HGAL minority interests (note
3)........................... 2,550 39,849 42,399
Currency translation
adjustments.................. (1,041) (1,041)
Change in unrealized loss on
investments.................. 162 162
Other........................... (59) (59)
-------- -------- -------- ------- ------- --------
BALANCES, DECEMBER 31, 1995....... 140,541 382,314 109,145 7,828 (3,971) 635,857
Net income...................... 30,281 30,281
Dividends paid.................. (29,341) (29,341)
Exercise of stock options....... 167 2,431 2,598
Stock issued for purchase of
HGAL minority interests (note
3)........................... 5,976 93,370 99,346
Currency translation
adjustments.................. 29,925 29,925
Change in unrealized loss on
investments.................. 10 10
Other........................... (12) (235) 123 (124)
-------- -------- -------- ------- ------- --------
BALANCES, DECEMBER 31, 1996....... $146,672 $ 477,880 $110,085 $37,753 $(3,838) $768,552
======== ======== ======== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
C-28
<PAGE> 250
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income............................................. $ 30,281 $ 30,327 $ 78,016
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization............ 112,353 99,602 76,171
Write-downs of investments in mining securities
(note 16)......................................... 8,983
Foreign currency exchange losses on intercompany
debt (note 15).................................... 8,943 883 5,959
Gains on asset disposals............................ (3,836) (1,969) (19,521)
Gain on issuance of stock by subsidiary (note 4).... (11,224)
Deferred income and mining taxes (note 6)........... (15,615) 19,475 (3,665)
Minority interests.................................. 15,070 15,998 8,917
Reclamation -- net.................................. (1,472) (6,044) 3,986
Other noncash items -- net.......................... 6,984 2,579 21,263
Effect of changes in operating working capital
items:
Receivables....................................... 13,754 821 (8,824)
Inventories....................................... (15,851) 1,324 (14,045)
Accounts payable.................................. (450) (852) 2,484
Accrued liabilities and taxes payable............. 21,451 (7,456) (6,938)
Other............................................. (217) (1,231) 1,138
--------- -------- ---------
Net cash provided by operations........................ 180,378 153,457 133,717
--------- -------- ---------
INVESTMENT ACTIVITIES:
Decrease (increase) in short-term investments.......... (63,742) 33,063 (99,479)
Proceeds from asset sales.............................. 16,141 13,295 24,542
Additions to property, plant and equipment............. (105,923) (80,979) (88,654)
Investments in mining companies........................ (12,224) (37,314)
Purchase of HGAL minority interests (note 3)........... (6,435) (16,714)
Purchase of interest in Snip mine (note 3)............. (39,279)
Other.................................................. 3,264 3,296 (8,033)
--------- -------- ---------
Net cash used in investment activities................. (208,198) (85,353) (171,624)
--------- -------- ---------
FINANCING ACTIVITIES:
Debt repayments........................................ (8,352)
Dividends paid on common shares -- Homestake........... (29,341) (27,587) (24,106)
-- Prime minority
interests........................................... (2,205)
Common shares issued................................... 2,599 2,886 5,339
Stock issued by subsidiary (note 4).................... 31,870
--------- -------- ---------
Net cash provided by (used in) financing activities.... (28,947) (24,701) 4,751
--------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
EQUIVALENTS............................................ 409 (3,147) 4,138
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS.......... (56,358) 40,256 (29,018)
CASH AND EQUIVALENTS, JANUARY 1.......................... 145,957 105,701 134,719
--------- -------- ---------
CASH AND EQUIVALENTS, DECEMBER 31........................ $ 89,599 $145,957 $ 105,701
========= ======== =========
</TABLE>
See notes to consolidated financial statements.
C-29
<PAGE> 251
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 1: NATURE OF OPERATIONS
Homestake Mining Company ("Homestake" or the "Company") is engaged in gold
mining and related activities including exploration, extraction, processing,
refining and reclamation. Gold bullion, the Company's principal product, is
produced and sold in the United States, Canada, Australia and Chile. Ore and
concentrates, containing gold and silver, from the Eskay Creek and Snip mines in
Canada are sold directly to smelters. Through its investment in Main Pass 299,
the Company also produces and sells sulfur and oil.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Homestake and its
majority-owned subsidiaries and their undivided interests in joint ventures
after elimination of intercompany amounts. At December 31, 1996 the Company
owned 50.6% of Prime Resources Group Inc. ("Prime") and 51% of Agua de la Falda
S.A. with the remaining interests reflected as minority interests in the
consolidated financial statements. Undivided interests in gold mining operations
(the Round Mountain mine in the United States; Homestake Gold of Australia
Limited's ("HGAL") interest in the gold mining operations in Kalgoorlie, Western
Australia; and Homestake Canada Inc.'s ("HCI") interests in the Williams and
David Bell mines in Canada) and in the sulfur and oil recovery operations at
Main Pass 299 in the Gulf of Mexico are reported using pro rata consolidation
whereby the Company reports its proportionate share of assets, liabilities,
income and expenses.
USE OF ESTIMATES: The preparation of financial statements in conformity
with United States generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND EQUIVALENTS include all highly-liquid investments with a maturity
of three months or less at the date of purchase. The Company minimizes its
credit risk by investing its cash and equivalents with major international banks
and financial institutions located principally in the United States, Canada and
Australia. The Company believes that no concentration of credit risk exists with
respect to investment of its cash and equivalents.
SHORT-TERM INVESTMENTS principally consist of highly-liquid United States
and foreign government and corporate securities with original maturities in
excess of three months. The Company classifies all short-term investments as
available-for-sale securities. Unrealized gains and losses on these investments
are recorded as a separate component of shareholders' equity, except that
declines in market value judged to be other than temporary are recognized in
determining net income.
INVENTORIES, which include finished products, ore in process, stockpiled
ore, ore in transit, and supplies, are stated at the lower of cost or net
realizable value. The cost of gold produced by certain United States operations
is determined principally by the last-in, first-out method ("LIFO"). The cost of
other inventories is determined primarily by averaging methods.
EXPLORATION COSTS are expensed as incurred. All costs related to property
acquisitions are capitalized.
DEVELOPMENT COSTS: Following completion of a favorable feasibility study,
development costs incurred to place new mines into production and to complete
major development projects at operating mines are capitalized. Ongoing costs to
maintain production are expensed as incurred.
DEPRECIATION, DEPLETION AND AMORTIZATION of mining properties, mine
development costs and major plant facilities is computed principally by the
units-of-production method based on estimated proven and probable ore reserves.
Proven and probable ore reserves reflect estimated quantities of ore which can
be recovered economically in the future from known mineral deposits. Such
estimates are based on current and projected
C-30
<PAGE> 252
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
costs and prices. Other equipment and plant facilities are depreciated using
straight-line or accelerated methods principally over estimated useful lives of
three to ten years.
PROPERTY EVALUATIONS: 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 at January 1, 1996,
the Company did not record a cumulative effect upon adopting SFAS 121.
Estimated future net cash flows from each mine and nonoperating property
are calculated using estimates of proven and probable ore reserves for operating
properties and estimated contained mineralization expected to be classified as
proven and probable reserves based on geological delineation to date for
nonoperating properties, estimated future sales prices (considering historical
and current prices, price trends and related factors), production costs, capital
and reclamation costs. Homestake used gold and silver market prices of $375 and
$5 per ounce, respectively, and a sulfur price of $70 per long ton in preparing
its estimates of future cash flows at December 31, 1996 (see note 9).
The Company's estimates of future cash flows are subject to risks and
uncertainties. Therefore, it is possible that changes could occur which may
affect the recoverability of the Company's investments in mineral properties and
other assets.
Undeveloped properties upon which the Company has not performed sufficient
exploration work to determine whether significant mineralization exists are
carried at original acquisition cost.
RECLAMATION AND REMEDIATION: Reclamation costs and related accrued
liabilities, which are based on the Company's interpretation of current
environmental and regulatory requirements, are accrued and expensed, principally
by the units-of-production method based on estimated proven and probable ore
reserves. Remediation liabilities, including estimated governmental oversight
costs, are expensed upon determination that a liability has been incurred and
where a minimum cost or reasonable estimate of the cost can be determined.
The Company provides for all costs of reclamation, including long-term care
and monitoring and maintenance costs. The Company uses undiscounted current
costs in preparing its estimates of future reclamation costs. The Company
regularly updates its estimates of reclamation costs. Amounts to be received
from the United States Federal Government for its 51.2% share of the cost of
future reclamation activities at the Grants, New Mexico uranium facility are
offset against the remaining estimated Grants reclamation liabilities.
Receivables are recorded for the United States Federal Government's share of
reclamation expenditures at the Grants uranium facility in the period that such
expenditures are made.
Based on current environmental regulations and known reclamation
requirements, the Company has included its best estimates of these obligations
in its reclamation accruals. However, the Company's estimates of its ultimate
reclamation liabilities could change as a result of changes in regulations or
cost estimates.
NONCURRENT INVESTMENTS include equity investments, mining securities and
assets held in trust to fund employee benefits.
Investments in gold mining partnerships over which the Company exercises
significant influence are reported using the equity method. Equity investments
are carried at the lower of cost or market.
C-31
<PAGE> 253
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
Investments in mining securities and assets held in trust to fund employee
benefits are classified as available-for-sale investments. Unrealized gains and
losses on these investments are recorded as a separate component of
shareholders' equity, except that declines in market value judged to be other
than temporary are recognized in determining net income. Realized gains and
losses on these investments are included in determining net income.
PRODUCT SALES are recognized when title passes at the shipment or delivery
point.
INCOME TAXES: The Company follows the liability method of accounting for
income taxes whereby deferred income taxes are recognized for the tax
consequences of temporary differences by applying statutory tax rates applicable
to future years to differences between the financial statement carrying amounts
and the tax bases of certain assets and liabilities. Changes in deferred tax
assets and liabilities include the impact of any tax rate changes enacted during
the year. Mining taxes represent Canadian provincial taxes levied on mining
operations.
FOREIGN CURRENCY: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. Revenues and expenses are translated at the average exchange rate for
the period. Accumulated currency translation adjustments are included as a
separate component of shareholders' equity. Foreign currency transaction gains
and losses are included in the determination of net income.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: Pension costs related to
United States employees are determined using the projected unit credit actuarial
method. Pension plans are funded through annual contributions. In addition, the
Company provides medical and life insurance benefits for certain retired
employees and accrues the cost of such benefits over the period in which active
employees become eligible for the benefits. The costs of the postretirement
medical and life insurance benefits are paid at the time such benefits are
provided.
NET INCOME PER SHARE is computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the year. Fully diluted net income per share is not presented since the exercise
of stock options would not result in a material dilution of earnings per share
and the conversion of the 5.5% convertible subordinated notes would produce
anti-dilutive results.
PREPARATION OF FINANCIAL STATEMENTS: Certain amounts for 1995 and 1994 have
been reclassified to conform to the current year's presentation. All dollar
amounts are expressed in United States dollars unless otherwise indicated.
NOTE 3: ACQUISITIONS
HOMESTAKE GOLD OF AUSTRALIA LIMITED
In 1995, the Company made an unconditional offer to acquire the 18.5% of
HGAL it did not already own. Homestake offered .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 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 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.
C-32
<PAGE> 254
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
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 at Kalgoorlie. The Company used
discounted cash flow analysis to determine the allocation of the purchase price
between reserves and other mineralized material. This analysis indicated that
approximately 62% of the purchase price allocated to mineral properties was
attributable to reserves and the remainder was attributable to other mineralized
material and 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 year ended December 31, 1995 have been estimated at $745 million,
$25.6 million and $.17 per share, respectively. This pro forma information
includes adjustments which are based on available information and certain
assumptions that the Company believes are reasonable in the circumstances. The
pro forma information is unaudited and 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.
SNIP MINE
On April 30, 1996 Prime purchased Cominco Ltd.'s ("Cominco") 60% interest
in the Snip mine in British Columbia, Canada for $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.
AGUA DE LA FALDA S.A.
In July 1996, Homestake and Corporacion Nacional del Cobre Chile
("Codelco"), a state-owned mining company in Chile, formed a new company, Agua
de la Falda S.A. ("La Falda") to conduct exploration and mining activities near
Homestake's former El Hueso mine in northern Chile. Homestake owns 51% of the
corporation and Codelco owns 49%. Codelco and Homestake have contributed
property interests in the area to the new company. In addition, Codelco
contributed the existing El Hueso plant, which had been under lease to
Homestake. Homestake also contributed $5.1 million for exploration and
development, including $3.7 million of exploration and development expenditures
incurred prior to the formation of La Falda. La Falda is developing the Agua de
la Falda mine, which contains 187,000 ounces of oxide reserves, and will
continue drilling and metallurgical testing of the much larger Jeronimo deposit
where 6.1 million tons of mineralized material at a grade of .158 ounces of gold
per ton have been outlined to date.
PINSON MINING COMPANY
In December 1996, Homestake increased its interest in the Pinson Mining
Company partnership ("Pinson Partnership") from 26.25% to 50% and became the
operator of the Pinson mine. Barrick Gold Corporation ("Barrick") owns the
remaining 50% interest. The purchase price for the additional 23.75% partnership
interest consisted of $4.4 million in cash, a net smelter royalty on certain
future Pinson Partnership production and assumption of a proportionate increase
of the Pinson Partnership's liabilities, including reclamation.
NOTE 4: PRIME RESOURCES GROUP INC.
In 1994, Prime sold 5 million common shares at approximately $6.70 per
share to the public. Net proceeds of approximately $31.9 million from this issue
were used to fund a portion of the construction and development costs of the
Eskay Creek mine. This transaction resulted in a reduction of the Company's
interest
C-33
<PAGE> 255
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
in Prime from 54.2% to 50.6%. It is the Company's policy to include any gains or
losses on the issuances of stock of the Company's subsidiaries in the
determination of net income. The Company recorded a gain of $11.2 million on the
transaction in recognition of the net increase in the book value of the
Company's investment in Prime. Deferred income taxes were not provided on this
gain since the Company's tax basis in Prime substantially exceeds its carrying
value.
NOTE 5: SALES OF MINING OPERATIONS
TORRES MINING COMPLEX: In 1995, the Company sold its 28% equity interest in
the Torres silver mining complex in Mexico for $6 million. This sale resulted in
a pretax gain of $2.7 million, which was included in other income.
DEE MINE: In 1994, the Company sold its 44% interest in the Dee gold mine
in Nevada to Rayrock Mines, Inc. ("Rayrock") for $16.5 million. Rayrock assumed
responsibility for and indemnified Homestake against all related environmental
and reclamation matters. This sale resulted in a pretax gain of $15.7 million,
which was included in other income.
NOTE 6: INCOME TAXES
The provision for income and mining taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Current
Income taxes
Federal................................ $ (1,999) $ 7,375 $ 7,560
State.................................. 211 (61) 1,258
Canadian............................... 28,367 1,928 2,258
Other foreign.......................... 405 176 206
-------- ------- --------
26,984 9,418 11,282
Canadian mining taxes..................... 14,964 10,248 9,741
-------- ------- --------
Total current taxes....................... 41,948 19,666 21,023
-------- ------- --------
Deferred
Income taxes
Federal................................ (3,879) (3,743) 6,867
State.................................. (1,300) 436 (1,086)
Canadian............................... (14,588) 25,347 (13,796)
Other foreign.......................... 1,981 (2,041) 4,438
-------- ------- --------
(17,786) 19,999 (3,577)
Canadian mining taxes..................... 2,171 (524) 1,434
-------- ------- --------
Total deferred taxes...................... (15,615) 19,475 (2,143)
-------- ------- --------
Total income and mining taxes..... $ 26,333 $39,141 $ 18,880
======== ======= ========
</TABLE>
The provision for income taxes is based on pretax income before minority
interests as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
United States............................... $(14,003) $17,607 $ 28,415
Canada...................................... 95,548 71,333 49,690
Other foreign............................... (9,861) (3,474) 27,708
-------- ------- --------
$ 71,684 $85,466 $105,813
======== ======= ========
</TABLE>
C-34
<PAGE> 256
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
Deferred tax liabilities and assets as of December 31, 1996 and 1995 relate
to the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities
Depreciation and other resource property differences
United States..................................... $ 64,855 $ 65,763
Canada -- Federal................................. 32,395 52,068
Canada -- Provincial.............................. 69,069 76,792
Australia......................................... 74,869 29,921
-------- --------
241,188 224,544
Inventory -- Australia............................... 3,590 859
Other................................................ 11,752 11,738
-------- --------
Gross deferred tax liabilities......................... 256,530 237,141
-------- --------
Deferred tax assets
Tax loss carry-forwards
United States..................................... 162 2,533
Canada -- Federal................................. 2,001 8,073
Australia......................................... 16,680 7,681
Chile............................................. 19,929 18,344
-------- --------
38,772 36,631
Reclamation costs
United States..................................... 6,783 8,502
Other............................................. 6,226 5,314
-------- --------
13,009 13,816
Employee benefit costs............................... 26,959 28,573
Alternative minimum tax credit carry-forwards........ 14,215 13,922
Land and other resource property..................... 15,225 12,759
Deductible mining taxes.............................. 1,059 3,257
Foreign tax credit carry-forwards.................... 12,725 4,600
Reorganization costs................................. 286 1,038
Other................................................ 17,241 12,752
-------- --------
Gross deferred tax assets.............................. 139,491 127,348
Deferred tax asset valuation allowances................ (72,152) (59,611)
-------- --------
Net deferred tax assets................................ 67,339 67,737
-------- --------
Net deferred tax liability............................. $189,191 $169,404
======== ========
Net deferred tax liability consists of
Current deferred tax assets.......................... $(12,263) $(20,521)
Long-term deferred tax liability..................... 201,454 189,925
-------- --------
Net deferred tax liability........................ $189,191 $169,404
======== ========
</TABLE>
The classification of deferred tax assets and liabilities is based on the
related asset or liability creating the deferred tax. Deferred taxes not related
to a specific asset or liability are classified based on the estimated period of
reversal. The change in the valuation allowance for deferred tax assets has
increased by $12.5 million in 1996, of which $8.1 million relates to an increase
in the Company's foreign tax credit carryover. For income
C-35
<PAGE> 257
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
tax purposes, the Company has United States foreign tax credit carry-forwards of
approximately $12.7 million which are due to expire at various times through the
year 2002. The $72.2 million deferred tax valuation allowance at December 31,
1996 represents the portion of the Company's consolidated deferred tax assets
which, based on projections at December 31, 1996, the Company does not believe
that realization is "more likely than not." Such $72.2 million of deferred tax
valuation allowance consists of United States, Chile and Australia unrealized
deferred tax assets of $45.5 million, $20.8 million and $5.9 million,
respectively.
The largest portion of the $72.2 million of unrealized deferred tax assets
is comprised of $38.6 million of future United States ($32.7 million) and
Australia ($5.9 million) tax benefits relating to expenses that the Company
projects will not be deductible for tax return purposes until after the year
2010. In projecting United States source income beyond this period, the Company
currently does not meet the SFAS 109 "more likely than not" criteria required to
recognize the United States tax benefits. In addition, there currently is not a
tax strategy which would result in the realization of the Australian tax
benefit. The remaining $33.6 million principally is comprised of future Chilean
tax benefits and United States foreign tax credit carry-forwards that the
Company projects it will be unable to realize.
Major items causing the Company's income tax provision to differ from the
federal statutory rate of 35% were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income tax based on statutory rate.................... $25,089 $29,913 $37,035
Percentage depletion.................................. (7,611) (9,879) (11,106)
Earnings in foreign jurisdictions at different
rates............................................... (1,899) (1,019) (6,175)
State income taxes, net of federal benefit............ 333 340 1,614
Australian investment allowance....................... (2,097)
Tax relating to reorganizations....................... 7,682
Unrealized minimum tax credits........................ 5,645 4,790 1,753
Nontaxable income..................................... (287) (777) (4,784)
Reduction of prior year accruals...................... (24,048)
Other nondeductible losses............................ 13,340 6,231 9,401
Deferred tax assets not recognized in prior years..... (2,504) (1,262) (27,697)
Foreign taxes withheld................................ 1,430 1,965 2,089
Litigation recovery................................... (2,629)
Other -- net.......................................... 2,339 1,212 (2,107)
------- ------- -------
Total income taxes.................................... 9,198 29,417 7,705
Canadian mining taxes................................. 17,135 9,724 11,175
------- ------- -------
Total income and mining taxes............... $26,333 $39,141 $18,880
======= ======= =======
</TABLE>
The Company's 1996 income tax expense includes a $24 million benefit
relating to a reduction of prior years' income tax accruals for certain
contingencies which have now been resolved and a $2.6 million benefit relating
to the tax portion of litigation recovery proceeds.
Deferred tax assets not recognized in prior years include (i) reversals of
prior year valuation allowances of $2.5 million in 1996, $1.3 million in 1995
and $12.4 million in 1994, and (ii) realization of additional deferred tax
assets that could not be recognized in prior years of $15.3 million in 1994.
C-36
<PAGE> 258
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 7: RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Trade accounts........................................... $24,485 $37,907
U.S. Government receivable (see note 21)................. 5,500 5,500
Interest and other....................................... 17,665 14,639
------- -------
$47,650 $58,046
======= =======
</TABLE>
NOTE 8: INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Finished products........................................ $21,132 $13,498
Ore and in-process....................................... 39,980 26,027
Supplies................................................. 30,015 30,454
------- -------
$91,127 $69,979
======= =======
</TABLE>
At December 31, 1996 and 1995, the cost of certain finished gold
inventories in the United States stated on the LIFO cost basis totaled $2.1
million and $2 million, respectively. Such inventories would have approximated
$3.7 million and $3.6 million, respectively, if stated at the lower of market or
current year average production costs.
At December 31, 1996 and 1995, ore stockpiles in the amounts of $10.9
million and $11.1 million, respectively, not expected to be processed within the
12 months following the end of each year are included in other noncurrent assets
(see note 11).
NOTE 9: PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Mining properties and development costs............. $1,013,309 $ 790,335
Plant and equipment................................. 932,826 891,277
Land and royalty interests.......................... 3,905 3,843
Construction and mine development in progress....... 20,260 12,282
---------- ----------
1,970,300 1,697,737
Accumulated depreciation, depletion and
amortization...................................... (963,270) (850,961)
---------- ----------
$1,007,030 $ 846,776
========== ==========
</TABLE>
Included in property, plant and equipment above is the Company's $110
million investment in its 16.7% undivided interest in the Main Pass 299 sulfur
mine which contained proven recoverable reserves of approximately 66 million
long tons of sulfur at December 31, 1996. In accordance with the Company's
accounting policy for reviewing the recoverability of its investment 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
(considering historical and current prices, price trends and related factors),
production costs, 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. The current market for
sulfur is depressed. However, during the past 10 years the market for sulfur has
been cyclical with
C-37
<PAGE> 259
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
prices ranging between $50 and $142 per ton and averaging over $99 per ton.
During the years ended December 31, 1996 and 1995, the Company realized prices
of $60 and $68 per ton, respectively. Although the Company does not expect
significant improvement in sulfur prices during 1997, the Company believes that
future prices over the life of this mine will be sufficient to recover its
investment. This view is based on the historical volatility of sulfur prices and
on the low operating cost structure of the Main Pass mine.
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 $110 million may be required.
NOTE 10: NONCURRENT INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Equity investments
Pinson (50%) and Marigold (33%) mines (see note 3)..... $ 8,640 $ 4,121
Other equity investments............................... 1,956 1,963
Navan Resources plc...................................... 16,800 24,000
Other investments........................................ 12,210 16,104
------- -------
$39,606 $46,188
======= =======
</TABLE>
In 1995, Homestake acquired for $24 million a 10% interest in Navan
Resources plc ("Navan"), an Irish public company with diverse mineral interests
in Europe. The purchase price included an option which will permit Homestake to
acquire from Navan up to a 50% interest in Navan Bulgarian Mining BV ("Navan
BV"), which in turn owns 68% of Bimak AD, the owner of the Chelopech gold/copper
operations in Bulgaria, by investing an additional $48 million. Homestake's
initial $12 million investment in Navan BV is conditioned upon receipt of all
necessary permits for construction of a roaster and an increase in the mining
rate at Chelopech from 500,000 to 750,000 metric tons per year, approval of the
project by the Boards of Directors of both companies and agreement on a suitable
project management team. Investment of the remaining $36 million in Navan BV is
conditioned on subsequent approval by the Bulgarian government, Navan and
Homestake of a further mine and mill expansion and the securing of expansion
financing. In March 1996, Homestake exercised its option to acquire up to a 50%
interest in Navan BV. However, pending satisfaction of certain conditions, to
date no amounts have been advanced in respect of this option.
In December 1996, Homestake in consultation with Navan, determined that due
to the deteriorating political and economic situation in Bulgaria, it was likely
that further development of the Chelopech project would be delayed
substantially. In light of the uncertainty surrounding the project, Homestake
considered it had an other than temporary impairment of its investment and
reduced the carrying value of the investment in Navan, including the option to
acquire the 50% interest in Navan BV, to the quoted market value of the Navan
securities. The resulting charge of $7.2 million was recorded in the fourth
quarter of 1996.
Other investments at December 31, 1995 included $10 million related to a
1995 investment in Orion Resources NL ("Orion"). In January 1996, after further
evaluation of the investment opportunity, the Company sold its investment in
Orion and recorded a gain of $.2 million.
C-38
<PAGE> 260
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 11: OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Assets held in trust (see note 17)....................... $25,252 $23,741
Ore stockpiles........................................... 10,946 11,118
U.S. Government receivable (see note 21)................. 10,663 13,166
Other.................................................... 9,263 11,927
------- -------
$56,124 $59,952
======= =======
</TABLE>
NOTE 12: ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Accrued payroll and other compensation................... $23,085 $26,925
Accrued reclamation and closure costs.................... 10,055 12,383
Other.................................................... 9,034 14,629
------- -------
$42,174 $53,937
======= =======
</TABLE>
NOTE 13: LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Convertible subordinated notes (due 2000).............. $150,000 $150,000
Pollution control bonds
Lawrence County, South Dakota (due 2003)............. 18,000 18,000
State of California (due 2004)....................... 17,000 17,000
-------- --------
$185,000 $185,000
======== ========
</TABLE>
CONVERTIBLE SUBORDINATED NOTES: The Company's 5.5% convertible subordinated
notes, which mature on June 23, 2000, are convertible into common shares at a
price of $23.06 per common share and are redeemable by the Company in whole at
any time. Interest on the notes is payable semi-annually in June and December.
Issuance costs of $3.9 million were capitalized and are being amortized over the
life of the notes.
POLLUTION CONTROL BONDS: The Company pays interest monthly on the pollution
control bonds based on variable short-term, tax-exempt obligation rates.
Interest rates at December 31, 1996 and 1995 were 4.3% and 5%, respectively. No
principal payments are required until cancellation, redemption or maturity.
Bondholders have the right to tender the bonds for payment at any time on seven
days notice. The Company has arrangements with underwriters to remarket any
tendered bonds and also with a bank to provide liquidity and credit support to
the Company and to purchase and hold for up to 15 months any tendered bonds that
the underwriters are unable to remarket.
LINES OF CREDIT: In September 1996, the Company replaced its credit
agreement with a new United States/Canadian/Australian cross-border credit
facility providing a total availability of $275 million. The Company pays a
commitment fee of .15% per annum on the unused portion of this facility. The
credit facility is available through September 20, 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. In addition, Prime has a $11 million credit facility. At
December 31 1996 and 1995, no amounts had been borrowed under these credit
agreements.
C-39
<PAGE> 261
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 14: OTHER LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued reclamation and closure costs.................. $ 45,388 $ 44,051
Accrued pension and other postretirement benefit
obligations (see note 17)............................ 59,273 63,092
Other.................................................. 9,507 13,275
-------- --------
$114,168 $120,418
======== ========
</TABLE>
While the ultimate amount of reclamation and site restoration costs to be
incurred in the future is uncertain, the Company has estimated that the
aggregate amount of these costs for operating properties, plus previously
accrued reclamation and remediation liabilities for nonoperating properties,
will be approximately $110 million. This figure includes approximately $10.6
million of reclamation costs at the Grants uranium facility which will be funded
by the United States Federal Government. At December 31, 1996 the Company had
accrued $55.4 million for estimated ultimate reclamation and site restoration
costs and remediation liabilities (see notes 12 and 21).
NOTE 15: OTHER INCOME
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Gains on asset disposals....................... $3,836 $ 5,024 $19,521
Royalty income................................. 2,888 2,252 3,061
Foreign currency contract gains (losses)....... 1,632 (151) 4,569
Foreign currency exchange losses on
intercompany advances........................ (8,943) (883) (5,959)
Other foreign currency gains (losses).......... 595 249 (658)
Pension curtailment gain....................... 1,868
Other.......................................... 5,483 5,140 5,054
------ ------- -------
$7,359 $11,631 $25,588
====== ======= =======
</TABLE>
NOTE 16: OTHER EXPENSE
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Write-downs of investments in mining securities
(see note 10)................................. $ 8,983
Expenses related to proposed merger (see note
24)........................................... 3,424
Other........................................... 2,168 $3,290 $6,744
------- ------ ------
$14,575 $3,290 $6,744
======= ====== ======
</TABLE>
NOTE 17: EMPLOYEE BENEFIT PLANS
PENSION PLANS: The Company has pension plans covering substantially all
United States employees. Plans covering salaried and other nonunion employees
provide pension benefits based on years of service and the employee's highest
compensation during any 60 consecutive months prior to retirement. Plans
covering union employees provide defined benefits for each year of service.
C-40
<PAGE> 262
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
Pension costs for 1996, 1995 and 1994 for Company-sponsored United States
employee plans included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the
year..................................... $ 4,519 $ 3,573 $ 3,928
Interest cost on projected benefit
obligations.............................. 15,319 14,476 13,497
Actual net return on assets................ (34,693) (44,788) (1,828)
Net amortization (deferral)................ 20,696 32,405 (11,202)
Pension curtailment gain................... (1,868)
-------- -------- --------
$ 3,973 $ 5,666 $ 4,395
======== ======== ========
</TABLE>
Assumptions used in determining net periodic pension cost for 1996, 1995
and 1994 include discount rates of 7%, 8%, and 7%, respectively, an assumed rate
of increase in compensation of 5% for each year and an assumed long-term rate of
return on assets of 8.5% for each year. Assumptions used in determining the
projected benefit obligations at December 31, 1996 and 1995 include discount
rates of 7% and an assumed rate of increase in compensation of 5%.
The funded status and amounts recognized for pension plans in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
PLANS WHERE PLANS WHERE
----------------------------- -----------------------------
ACCUMULATED ACCUMULATED
ASSETS EXCEED BENEFITS ASSETS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations
Vested benefits........................ $(162,100) $ (17,700) $(159,400) $ (16,300)
========= ======== ========= ========
Accumulated benefits................... $(180,800) $ (18,900) $(175,400) $ (17,500)
========= ======== ========= ========
Projected benefits..................... $(202,200) $ (21,000) $(195,300) $ (19,800)
Plan assets at fair value(1)............. 224,064 192,565
--------- -------- --------- --------
Plan assets in excess of (less than)
projected benefit obligation........... 21,864 (21,000) (2,735) (19,800)
Unrecognized net loss (gain)............. (22,467) 51 (7,285) 114
Unrecognized net transition obligation
(asset) amortized over 15 years........ (3,364) 547 (3,916) 792
Unrecognized prior service cost
(benefit).............................. 141 2,459 680 3,081
Additional minimum liability............. (957) (1,687)
--------- -------- --------- --------
Pension liability recognized in the
consolidated balance sheets............ $ (3,826) $ (18,900) $ (13,256) $ (17,500)
========= ======== ========= ========
</TABLE>
- ---------------
(1) Approximately 98% and 93% of the plan assets were invested in listed stocks
and bonds and the balance was invested in fixed-rate insurance contracts at
December 31, 1996 and 1995, respectively.
Amounts shown under "plans where accumulated benefits exceed assets" at
December 31, 1996 and 1995 consist of liabilities for a nonqualified
supplemental pension plan covering certain employees and a nonqualified pension
plan covering directors of the Company. These plans are unfunded. In 1995, the
Company established a grantor trust, consisting of a money market fund, mutual
funds and corporate-owned life insurance policies, to provide funding for the
benefits payable under these nonqualified plans and certain
C-41
<PAGE> 263
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
other deferred compensation plans. The grantor trust, which is included in other
assets, amounted to $25.3 million at December 31, 1996 and $23.7 million at
December 31, 1995.
Certain of the Company's foreign operations participate in pension plans.
The Company's share of contributions to these plans was $1.4 million in 1996,
$1.1 million in 1995, and $0.8 million in 1994.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides medical
and life insurance benefits for certain retired employees, primarily retirees of
the Homestake mine. Retirees generally are eligible for benefits upon retirement
if they are at least age 55 and have completed five years of service. Net
periodic postretirement benefit costs were $3.1 million in 1996 and $3.5 million
in 1995 and 1994.
The actuarial assumptions used in determining net periodic postretirement
benefit costs include discount rates of 7% for 1996, 8% for 1995, and 7% for
1994, an initial health care trend rate of 10% grading down to an ultimate
health care cost trend rate of 5% for 1996, and an initial health care cost
trend rate of 9.5% grading down to an ultimate health care cost trend rate of 5%
for 1997. The ultimate trend rate is expected to be achieved by 2006. The
actuarial assumptions used in determining the Company's accumulated
postretirement benefit obligation at December 31, 1996 and 1995 include a
discount rate of 7%. A one percentage-point increase in the assumed health care
cost trend rate would result in an increase of approximately $5 million in the
accumulated postretirement benefit obligation at December 31, 1996 and an
increase of approximately $.5 million in net periodic postretirement benefit
costs for 1996.
The following table sets forth amounts recorded in the Company's
consolidated balance sheets at December 31, 1996 and 1995. The Company has not
funded any of its estimated future obligation.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees............................................. $(29,000) $(27,000)
Fully-eligible active plan participants.............. (1,000) (1,000)
Other active plan participants....................... (7,000) (7,000)
------- -------
(37,000) (35,000)
Unrecognized net gain.................................. (4,364) (5,412)
Unrecognized prior service cost........................ 617 677
------- -------
Accumulated postretirement benefit obligation liability
recognized in the consolidated balance sheets........ $(40,747) $(39,735)
======= =======
</TABLE>
STOCK OPTION PLANS: The Company may grant stock options for up to 6 million
common shares under its 1996 stock option plan. The exercise price of each
option granted under the 1996 and prior plans is equal to the market price of
the Company's stock on the date of grant and an option's maximum term is ten
years. Options usually vest over a four-year period.
C-42
<PAGE> 264
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
A summary of the status of the Company's stock option plans as of December
31, 1996, 1995 and 1994 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF PRICE PER OF PRICE PER OF PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1........... 2,309 2,301 2,600
Granted...................... 466 $ 19.19 361 $ 15.58 268 $ 20.50
Exercised.................... (168) 19.71 (206) 13.90 (293) 15.98
Expired...................... (4) 19.38 (147) 16.92 (274) 15.86
----- ----- -----
Balance at December 31......... 2,603 2,309 2,301
===== ===== =====
Options exercisable at December
31........................... 1,854 1,500 1,481
Fair value of options granted
during the year.............. $ 5.84 $ 5.06
</TABLE>
The fair value of each stock option is estimated on the date of grant using
a Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 1.8 years from the vest date (with incremental
vesting over four years) for 1996 and 1995, expected volatility of 31.7% and
33.3% for 1996 and 1995, a dividend yield of 1% and 1.3% for 1996 and 1995,
respectively, and a risk-free interest rate of 5.4% and 6.9% in 1996 and 1995,
respectively.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- --------------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
PER SHARE OUTSTANDING CONTRACTUAL LIFE PER SHARE EXERCISABLE PER SHARE
- ------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$12.18 to $15.38 881 5.9 years $13.76 637 $13.51
15.43 to 19.13 1,111 6.6 years 17.65 691 16.84
19.70 to 42.77 611 4.0 years 27.98 526 29.18
----- -----
2,603 1,854
===== =====
</TABLE>
An additional 6 million and .6 million shares were available for future
grants at December 31, 1996 and 1995, respectively.
The Financial Accounting Standards Board issued SFAS 123, "Accounting for
Stock-Based Compensation," which is effective for periods beginning after
December 15, 1995, requires that companies either recognize compensation expense
for grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of the effect of the grants on net income
and earnings per share in the notes to the financial statements as if such
compensation expense had been recognized. The Company has elected to use the pro
forma disclosure provisions of SFAS 123 in 1996 and has applied Accounting
Principles Board Opinion 25 and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for the Company's
stock option plans. Had compensation expense for the Company's stock-based
compensation plans been determined based on the fair value of options at the
grant dates as
C-43
<PAGE> 265
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
calculated in accordance with SFAS 123, the Company's net income and earnings
per share for the years ended December 31, 1996 and 1995 would have been as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
EARNINGS EARNINGS
NET INCOME PER SHARE NET INCOME PER SHARE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
As reported........................ $ 30,281 $0.21 $ 30,327 $0.22
Pro forma.......................... 28,913 0.20 29,773 0.22
</TABLE>
During the initial phase-in period of SFAS 123, disclosures are not likely
to be representative of the pro forma effects on reported net income for future
years, as the disclosures only include the pro forma effects of options granted
on or after January 1, 1995.
OTHER PLANS: Substantially all full-time United States employees of the
Company are eligible to participate in the Company's defined contribution
savings plans. The Company's matching contribution was approximately $2.2
million in 1996, $1.6 million in 1995 and $1.1 million in 1994.
NOTE 18: FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996 and 1995 the carrying values of the Company's cash and
equivalents and short-term investments, noncurrent investments, long-term debt
and foreign currency options approximated their estimated fair values.
NOTE 19: SHAREHOLDERS' EQUITY
Other equity includes deductions of $3.5 million and $3.7 million at
December 31, 1996 and 1995, respectively, for loans made to certain former HCI
employees and directors for the purchase of HCI common shares. The loans are
non-interest bearing, are secured by a pledge of shares, and are not required to
be paid until the securities purchased are equal to or greater than the value of
the respective loans.
Each share of common stock includes and trades with a right. Rights are not
exercisable currently but become exercisable on the 10th business day after any
person, entity or group ("the Acquiring Person") acquires 20% or more of the
Company's common stock or announces a tender or exchange offer which would
result in such entity acquiring 20% or more of the Company's common stock. When
exercisable, each right entitles its holder to purchase from the Company one
one-hundredth of a share of Series A Participating Cumulative Preferred Stock,
par value $1 per share, at a share price of $75. If the Acquiring Person
acquires 30% or more of the Company's common stock other than pursuant to a cash
tender offer for all of the Company's stock or engages in certain self-dealing
transactions, each right will entitle its holder to purchase Company common
stock at one-half the market price therefor. If the Company is subsequently
involved in a merger or other business combination involving the Acquiring
Person, each right will entitle its holder to purchase certain securities of the
surviving company at one-half the market price therefor. The rights expire on
November 2, 1997.
NOTE 20: ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest and for income and mining taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest, net of amounts capitalized.......... $10,643 $11,292 $10,110
Income and mining taxes....................... 17,163 22,650 10,670
</TABLE>
Certain investing and financing activities of the Company affected its
financial position but did not affect its cash flows. See note 3 for a
discussion of the noncash acquisitions of the additional interests in HGAL.
C-44
<PAGE> 266
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 21: CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes heavy liabilities on persons who discharge hazardous
substances. The Environmental Protection Agency ("EPA") publishes a National
Priorities List ("NPL") of known or threatened releases of such substances.
WHITEWOOD CREEK: An 18-mile stretch of Whitewood Creek in the Black Hills
of South Dakota formerly was a site on the NPL. The EPA asserted that discharges
of tailings by mining companies, including the Company, 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. At December 31, 1996 the
Company had accrued approximately $1 million as its estimate of the total
remaining cost of long-term monitoring at the Whitewood Creek site. The EPA
deleted the site from the NPL on August 13, 1996.
GRANTS: 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.
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
December 31, 1996, the Company had received $14.2 million from the DOE and the
accompanying balance sheet at December 31, 1996 includes an additional
receivable of $16.2 million (see notes 7 and 11) 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 December 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 as to the Whitewood Creek
tailings. The Company denies all liability for damages at the two CERCLA sites.
The two states have taken no action to enforce the 1983 claims.
The Company believes that the ultimate resolution of the above matters will
not have a material adverse impact on its financial condition or results of
operations.
OTHER CONTINGENCIES
In addition to the above, the Company is party to legal actions and
administrative proceedings and is subject to claims arising in the ordinary
course of business. The Company believes the disposition of these matters will
not have a material adverse effect on its financial position or results of
operations.
C-45
<PAGE> 267
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
NOTE 22: FOREIGN CURRENCY AND OTHER COMMITMENTS
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. The Company
does not require or place collateral for these contracts. However, the Company
minimizes its credit risk by dealing with only major international banks and
financial institutions. The contracts are marked to market at each balance sheet
date. Net unrealized gains on contracts outstanding at December 31, 1996 and
1995 totaled $.3 million. Other income for the years ended December 31, 1996,
1995 and 1994 included income (loss) of $1.6 million, $(.2) million, and $4.6
million, respectively, related to the foreign currency protection program. At
December 31, 1996 the Company had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE EXCHANGE
RATES TO U.S. DOLLARS
AMOUNT COVERED --------------------------- EXPIRATION
CURRENCY (U.S. DOLLARS) PUT OPTIONS CALL OPTIONS DATES
----------------------------- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Canadian..................... $149,120 0.71 0.77 1997
Canadian..................... 29,000 0.73 0.77 1998
Australian................... 94,400 0.77 0.80 1997
Australian................... 6,000 0.77 0.80 1998
--------
$278,520
</TABLE>
In addition to amounts related to the foreign currency option contracts,
the Company realized foreign currency transaction losses of $8.3 million in
1996, $.6 million in 1995, and $6.6 million in 1994 which were included in other
income. The 1996 net foreign currency transaction loss includes the recognition
of an $8.9 million foreign exchange loss primarily related to the Company's
Canadian-dollar denominated advances to HCI.
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. The Company does not require or place
collateral for these contracts. At December 31, 1996 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............................. 120,100 $385
1998............................. 120,000 399
1999............................. 109,900 415
2000............................. 85,100 430
2001............................. 85,000 446
2002............................. 85,000 463
2003............................. 75,000 481
-------
680,100
</TABLE>
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. In
October 1995, the Company closed out forward sales covering 24,400 ounces at an
average price of $435 per ounce for delivery in 1996, realizing a gain of $.8
million. Gold sales for 1996 and 1995 included 70,000 ounces and 88,800 ounces
sold under this program at an average price of $421 per ounce and $398 per
ounce, respectively. At December 31, 1996 all sales and obligations under this
forward sales program had been completed.
The purpose of both of the above forward sales programs was to help assure
recovery of the Company's remaining investment in the mines and provide for
remaining unaccrued reclamation costs.
C-46
<PAGE> 268
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
The Company has entered into various commitments during the ordinary course
of its business, which include commitments to perform assessment work and other
obligations necessary to maintain or protect its interests in mining properties,
financing and other obligations to joint ventures and partners under venture and
partnership agreements, and commitments under federal and state environmental
health and safety permits.
NOTE 23: GEOGRAPHIC AND SEGMENT INFORMATION
The Company primarily is engaged in gold mining and related activities.
Interests in joint ventures are included in segment operations and identifiable
assets. Operating earnings, which are defined as operating revenues less
operating costs and exploration expenses, exclude corporate income and expenses,
and income and mining taxes. Identifiable assets represent those assets used in
a segment's operations. Corporate assets are principally cash and equivalents,
short-term investments and assets related to operations not significant enough
to require classification as a business segment.
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
United States(1,2)................................... $ 310,881 $ 349,461 $ 346,629
Canada(3)............................................ 304,530 264,548 192,363
Australia............................................ 147,241 120,898 143,944
Latin America(4)..................................... 4,284 11,458 22,551
---------- ---------- ----------
$ 766,936 $ 746,365 $ 705,487
---------- ---------- ----------
EXPLORATION EXPENSE
United States........................................ $ 11,861 $ 12,750 $ 11,841
Canada............................................... 9,751 2,797 2,445
Australia............................................ 7,863 4,745 4,008
Latin America and other.............................. 15,907 7,249 3,053
---------- ---------- ----------
$ 45,382 $ 27,541 $ 21,347
---------- ---------- ----------
OPERATING EARNINGS
United States(2)..................................... $ 23,124 $ 32,623 $ 60,538
Canada............................................... 103,640 86,662 53,359
Australia............................................ 1,914 4,516 25,018
Latin America and other(4)........................... (14,606) (6,544) (4,412)
---------- ---------- ----------
$ 114,072 $ 117,257 $ 134,503
---------- ---------- ----------
IDENTIFIABLE ASSETS AS OF DECEMBER 31
United States........................................ $ 522,565 $ 618,267 $ 598,059
Canada............................................... 494,083 432,087 382,575
Australia............................................ 451,973 264,238 207,837
Latin America and other.............................. 13,487 7,041 13,497
---------- ---------- ----------
$1,482,108 $1,321,633 $1,201,968
---------- ---------- ----------
</TABLE>
- ---------------
(1) Includes a foreign currency exchange loss of $8.9 million in 1996 primarily
related to the Company's Canadian-dollar denominated advances to HCI.
(2) Includes a gain of $15.7 million in 1994 on the sale of the Company's
interest in the Dee mine.
(3) Includes a gain of $11.2 million in 1994 on the dilution of the Company's
interest in Prime.
(4) Includes a gain of $2.7 million in 1995 on the sale of the Company's
interest in the Torres mining complex.
C-47
<PAGE> 269
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
SEGMENT INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Gold................................................. $ 713,774 $ 677,377 $ 632,031
Sulfur and oil....................................... 30,749 40,620 26,882
Interest and other(1)(2)............................. 22,413 28,368 46,574
---------- ---------- ----------
$ 766,936 $ 746,365 $ 705,487
========== ========== ==========
OPERATING EARNINGS
Gold(1).............................................. $ 112,800 $ 111,564 $ 134,695
Sulfur and oil....................................... 1,272 5,693 (192)
---------- ---------- ----------
Operating earnings................................... 114,072 117,257 134,503
Net corporate expense(2)(3).......................... (42,388) (31,791) (28,690)
---------- ---------- ----------
Income Before Taxes and Minority Interests............. $ 71,684 $ 85,466 $ 105,813
========== ========== ==========
DEPRECIATION, DEPLETION AND AMORTIZATION
Gold................................................. $ 105,020 $ 90,237 $ 66,857
Sulfur and oil....................................... 6,302 8,055 7,861
Corporate............................................ 1,031 1,310 1,453
---------- ---------- ----------
$ 112,353 $ 99,602 $ 76,171
========== ========== ==========
EXPLORATION EXPENSE
Gold................................................. $ 45,382 $ 27,541 $ 21,318
Sulfur and oil....................................... -- -- 29
---------- ---------- ----------
$ 45,382 $ 27,541 $ 21,347
========== ========== ==========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Gold(4).............................................. $ 262,235 $ 147,549 $ 83,597
Sulfur and oil....................................... 1,541 1,604 3,039
Corporate............................................ 440 483 2,018
---------- ---------- ----------
$ 264,216 $ 149,636 $ 88,654
========== ========== ==========
IDENTIFIABLE ASSETS AS OF DECEMBER 31
Gold................................................. $1,038,156 $ 870,512 $ 796,016
Sulfur and oil....................................... 126,499 134,990 143,742
Corporate:
Cash and equivalents and short-term investments... 219,757 212,373 205,180
Other............................................. 97,696 103,758 57,030
---------- ---------- ----------
$1,482,108 $1,321,633 $1,201,968
========== ========== ==========
</TABLE>
- ---------------
(1) Includes a gain of $2.7 million in 1995 on the sale of the Company's
interest in the Torres mining complex and a gain of $15.7 million in 1994 on
the sale of the Company's interest in the Dee mine.
(2) Includes a foreign currency exchange loss of $8.9 million in 1996 primarily
related to the Company's Canadian-dollar denominated advances to HCI and a
gain of $11.2 million in 1994 on the dilution of the Company's interest in
Prime.
(3) Includes, in 1996, write-downs of $9 million in the carrying value of
investments in mining company securities and costs of $3.4 million related
to Homestake's now terminated proposed merger with Santa Fe.
C-48
<PAGE> 270
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNLESS OTHERWISE NOTED, ALL TABULAR AMOUNTS ARE IN THOUSANDS)
(4) Includes additions to property, plant and equipment of $35.6 million in 1996
related to the purchase of Cominco's 60% interest in the Snip mine and
additions of $122.6 million and $68.7 million in 1996 and 1995,
respectively, related to the acquisition of the 18.5% of HGAL the Company
did not already own (including deferred tax purchase adjustments of $32.5
million and $18.2 million, respectively).
Sales to individual customers exceeding 10% of the Company's consolidated
revenues were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Customer A................................. $129,000 $ 92,000 $129,000
B................................ 117,000 102,000
C................................ 77,000
D................................ 77,000
E................................ 101,000 118,000
F................................ 91,000 100,000
</TABLE>
Because of the active worldwide market for gold, Homestake believes that
the loss of any of these customers would not have a material adverse impact on
the Company.
NOTE 24: SUBSEQUENT EVENTS
On March 10, 1997, the Company announced that Santa Fe Pacific Gold
Corporation had terminated its previously announced merger agreement with
Homestake and, in accordance with the terms of the merger agreement, had paid
Homestake a $65 million termination fee. As a result, in the first quarter of
1997 the Company will record a pretax gain of approximately $63 million ($49
million after tax), net of merger related expenses of approximately $2 million
incurred in 1997.
In February 1997, Homestake completed the previously announced sale of its
interests in the George Lake and Back River ventures in Canada to Arauco
Resources Corporation ("Arauco") for $10 million in cash and 3.6 million shares
of Arauco common stock. As a result of this transaction, the Company will record
a pretax gain of approximately $14 million ($8 million after tax) in the first
quarter of 1997.
C-49
<PAGE> 271
REPORT OF INDEPENDENT AUDITORS
The Shareholders and
Board of Directors of
Homestake Mining Company:
We have audited the consolidated balance sheets of Homestake Mining Company
and Subsidiaries as of December 31, 1996 and 1995, and the related statements of
consolidated income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Homestake
Mining Company and Subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
San Francisco, California
February 7, 1997, except for Note 24 as to
which the date is March 10, 1997.
C-50
<PAGE> 272
QUARTERLY SELECTED DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1996:
Revenues............ $202,808 $201,492 $183,683 $178,953 $766,936
Net income.......... 13,653(1) 6,776 7,427(2) 2,425(2)(3)(4) 30,281 2)(3)(4)
Per common share:
Net income........ $ 0.09(1) $ 0.05 $ 0.05(2) $ 0.02(2)(3)(4) $ 0.21 2)(3)(4)
Dividends paid.... 0.05 0.05 0.05 0.05 0.20
1995:
Revenues............ $179,932 $195,590 $181,428 $189,415 $746,365
Net income.......... 6,560 11,179 4,945 7,643 30,327
Per common share:
Net income........ $ 0.05 $ 0.08 $ 0.04 $ 0.05 $ 0.22
Dividends paid.... 0.05 0.05 0.05 0.05 0.20
</TABLE>
- ---------------
(1) Includes income of $4.9 million ($5.5 million pretax) or $0.03 per share
from a litigation recovery.
(2) Includes $2.7 million or $0.02 per share and $21.3 million or $0.14 per
share in the third and fourth quarters, respectively, for reductions in the
Company's accrual for prior year income taxes.
(3) Includes foreign currency exchange losses on intercompany advances of $7.2
million ($8.7 million pretax) or $0.05 per share and $7.4 million ($8.9
million pretax) or $0.05 per share in the 1996 fourth quarter and
year-to-date periods, respectively, primarily related to the Company's
Canadian-dollar denominated advances to HCI.
(4) Includes write-downs of $8.3 million ($9 million pretax) or $0.06 per share
in the carrying value of investments in mining company securities, and costs
of $2.8 million ($3.4 million pretax) or $0.02 per share related to
Homestake's now terminated proposed merger with Santa Fe.
C-51
<PAGE> 273
APPENDIX D
PLUTONIC RESOURCES LIMITED
A.C.N. 006 245 629
AND CONTROLLED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE AUSTRALIAN DOLLARS UNLESS OTHERWISE STATED)
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED 31 DECEMBER 1996, 1995 AND
1994 AND FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1997 AND 1996..................... D-1
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1996:
Directors' Report................................................................. D-9
Profit and Loss Statements for the year ended 31 December 1996.................... D-13
Balance Sheets As At 31 December 1996............................................. D-14
Statements of Cash Flows for the year ended 31 December 1996...................... D-15
Notes To and Forming Part of the Financial Statements At 31 December 1996......... D-16
Statement by Directors............................................................ D-49
Independent Auditor's Report...................................................... D-50
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1995:
Directors' Report................................................................. D-52
Profit and Loss Statements for the year ended 31 December 1995.................... D-57
Balance Sheets As At 31 December 1995............................................. D-58
Statements of Cash Flows for the year ended 31 December 1995...................... D-59
Notes To and Forming Part of the Financial Statements At 31 December 1995......... D-60
Statement by Directors............................................................ D-93
Independent Auditor's Report...................................................... D-94
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1997:
Profit and Loss Statement for the nine month period ended 30 September 1997....... D-96
Balance Sheet As At 30 September 1997............................................. D-97
Statements of Cash Flows for the nine month period ended 30 September 1997........ D-99
Notes To and Forming Part of the Financial Statements At 30 September 1997........ D-100
</TABLE>
THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1996,
OTHER THAN NOTE 35 TO THE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
AT 31 DECEMBER 1996, ARE EXTRACTED FROM THE 1996 PLUTONIC ANNUAL REPORT. THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1995, OTHER
THAN NOTE 34 TO THE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS AT 31
DECEMBER 1995, ARE EXTRACTED FROM THE 1995 PLUTONIC ANNUAL REPORT. REFERENCES
THEREIN TO "THIS REPORT" REFER TO THE RESPECTIVE ANNUAL REPORTS.
<PAGE> 274
PLUTONIC RESOURCES LIMITED
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL POSITION 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. All amounts included are in Australian Dollars. References
to the "Company" are to Plutonic Resources Limited and, where the context so
requires, its subsidiaries and predecessor entities. Reference is made to the
sections entitled "Risk Factors" and "Cautionary Statements" in the Supplement.)
Plutonic Resources Limited was incorporated as Noranda Limited in Victoria
in 1984 and listed on the Australian Stock Exchange ("ASX") in August 1985. It
transferred its incorporation to New South Wales in 1990. In this document, the
term "Plutonic" or the "Company" refers to Plutonic Resources Limited and its
subsidiaries.
The Company currently has interests in five active gold mines in Western
Australia with operations at the Plutonic, Darlot, Lawlers, Mt Morgans and Peak
Hill gold mines. The Bellevue gold mine was placed on care and maintenance on 30
April 1997. The operations all lie within a circle of 300 kilometre radius,
stretching from the Plutonic mine in the north to the Mt Morgans mine in the
south, an area which the Company terms the Plutonic Circle.
Plutonic also has a portfolio of exploration and pre-development base metal
interests through its 62% owned subsidiary Lachlan Resources NL (Lachlan), a
company listed on the ASX. Lachlan's exploration is focused on a number of base
metal deposits located throughout Australia. Despite the significance of the
Lachlan portfolio, the base metal assets of Lachlan are a relatively minor
proportion of the total asset base of Plutonic.
TWELVE MONTHS ENDED 31 DECEMBER 1996, 1995 AND 1994
RESULTS OF OPERATIONS
Plutonic recorded consolidated operating profit attributable to members of
the Company after income tax of $40.7 million ($0.22 per share) during 1996,
$40.1 million ($0.22 per share) during 1995 and $38.1 million ($0.21 per share)
during 1994. After adjusting for one-time non-recurring items of $18.4 million
after tax, the 1996 earnings reflect higher gold production and sales volumes
offset by higher production costs and higher depreciation. Non-recurring items
in 1996 included a realised gain of $8.3 million after tax on a close out of
forward contracts covering 200,000 ounces of gold and a gain of $10.1 million
after tax on the sale of an investment in Eagle Mining Corporation NL ("Eagle
Mining") which was acquired in 1995. Non-recurring items in 1995 included a tax
benefit of $17.4 million for previously unrecorded income tax benefits.
Gold Operations. Plutonic's profitability is affected by the market price
of gold. Gold prices are influenced by numerous factors over which Plutonic has
no control, including expectations with respect to the rate of inflation, the
relative strength of the Australian dollar in relation to the US dollar,
interest rates, global or regional political or economic crises, demand for gold
jewellery and industrial products and sales by holders and producers of gold in
response to these factors. The supply of gold consists of a combination of a new
mine production and sales from existing stocks of bullion and fabricated gold
held by governments, public and private financial institutions, and individuals.
Plutonic's general policy is to forward sell or hedge a portion of future
production in Australian dollars. This strategy has the dual objectives of
underpinning the continued long term viability of the operations and, at the
same time, allowing shareholders the opportunity to benefit from future
increases in the gold price. During 1996, 1995 and 1994 all of the Company's
gold production was covered by the forward sales program. At 31 December 1996,
the Company had committed 770,040 ounces of gold for sale under forward
contracts at an average price of $581 per ounce. Refer to Note 27 of the
consolidated financial statements for details of these forward sales.
D-1
<PAGE> 275
Revenues from gold sales during 1996 totaled $279.4 million compared to
revenues of $211.7 million in 1995 and $193.9 million in 1994. The revenue
increases in 1996 and 1995 reflect higher gold sales volumes and realised
prices. During 1996, the Company recorded revenue for 450,000 ounces of gold at
an average price of $628 per ounce compared to 349,000 ounces at an average
price of $612 per ounce during 1995 and 333,000 ounces at an average price of
$579 per ounce during 1994.
Total gold production increased to 449,800 ounces during 1996 compared to
348,700 ounces produced during 1995 and 332,800 ounces produced during 1994. The
higher 1996 production primarily is due to production increases at the Plutonic,
Darlot and Lawlers operations together with production from the 80% interest in
the Mt Morgans mine which was acquired in late 1995, partially offset by lower
production resulting from a reduction in the level of mining operations at the
Bellevue mine.
At the Plutonic Gold Mine, located 180 kilometres northeast of Meekatharra
in Western Australia, production hit a new record in 1996 of 183,700 ounces
compared to 165,900 and 173,300 ounces in 1995 and 1994, respectively. This
increase in production was the result of higher ore grade from both the open pit
and underground operations and increasing ore throughput due to the completion
of the plant expansion project in November 1996. The effect of the higher grades
and recoveries were partially offset by lower metallurgical recovery from
primary ores. The decrease in 1995 production from 1994 was due to a decrease in
grade and metallurgical recovery slightly offset by increased mill throughput.
Cash operating costs of $373 per ounce were achieved in 1996 compared to $318
per ounce during 1995 and $246 per ounce during 1994. The increase in production
costs reflects the shift from mining soft oxide ore to mining harder primary
ore.
The Plutonic mine is being transformed over time from being a large
open-pit operation to one of Australia's largest underground gold mining
operations with ore sourced from the underground providing 22% of total
production in 1996 compared to only 3% in 1995. The 1996 year was one of major
change and expansion as the underground mine became a significant ore source,
the Main Pit moved to a depth where all ore was derived from hard, fresh rock
and the Perch and Salmon pits commenced supplying oxide ore to the newly
constructed expansion plant. A decision was also taken to proceed with the
construction of a gas fired power station on site. Gas will be provided via a 20
kilometres spur line from the Goldfields Gas Transmission pipeline. The
conversion to gas will reduce cash operating costs.
Production at the Darlot Gold Mine, located 110 kilometres north of Leonora
in Western Australia, increased to 62,800 ounces in 1996 compared to 41,400 and
63,200 ounces during 1995 and 1994, respectively. Most of the production in 1996
was sourced from the expanding underground mine, with the balance from low-grade
stockpiles. During 1995, the mine underwent a major transformation from an open
pit to an underground operation. The open pit was completed in 1995 and
underground development of the Darlot lode below the pit commenced on a trial
basis. The gravity and leach circuits in the treatment plant were upgraded
during 1996 to maximise gold recovery and were commissioned in February 1997.
Production was also hindered in 1995 due to delays in the stoping of the
underground orebody and completing the open pit, and difficulties in obtaining
acceptable mill throughput due to the high proportion of hard primary ore in the
mill feed. As a result, cash operating costs of $448 per ounce were achieved in
1996 compared to $533 per ounce during 1995 and $259 per ounce in 1994.
Production at the Lawlers Gold Mine, located about 120 kilometres northwest
of Lenora, Western Australia, increased to 50,600 ounces in 1996 compared to
42,500 and 55,100 ounces during 1995 and 1994, respectively. Difficulties
encountered in 1995 as a result of lower than anticipated grades in all pits
were partially rectified during 1996 and resulted in improved production and
unit costs. Cash operating costs of $553 per ounce were achieved in 1996
compared to $620 per ounce during 1995 and $429 per ounce in 1994. The cost
structure at this mine is high, and efforts are being directed to achieving a
reduction in costs.
The Company's share of production from the Bellevue Gold Project, located
40 kilometres north of Leinster in Western Australia, was 17,300 ounces in 1996,
compared to 17,600 ounces in 1995 and 24,500 ounces in 1994. In July 1995 the
Company increased its interest in this mine from 50% to 100%. Excluding the
effects of the purchase of the additional 50% interest, production continued to
decline in 1996 primarily due to a reduction in the level of operations in 1995
as underground mineable reserves were depleted or became inaccessible. Following
completion of mining in the Orleans open pit in August 1996, the treatment plant
was
D-2
<PAGE> 276
placed on care and maintenance with all subsequent ore produced from underground
sources being trucked 80 kilometres to the mill at the Lawlers mine for
treatment. In April 1997 the remaining mining operations were placed on care and
maintenance due to insufficient ore sources being available to cover site
overheads.
Effective 1 October 1995, the Company acquired an 80% interest in the Mt
Morgans Gold Mine, located 50 kilometres west of Laverton. The Mt Morgans mine
consists of the Jupiter open pit and the Westralia and Transvaal underground
mines. The Company's share of production from the Mt Morgans mine was 75,000
ounces in 1996 compared to 24,900 ounces for the fourth quarter of 1995. Cash
operating costs were $491 per ounce in 1996 compared to $390 during the fourth
quarter of 1995. The annualised decline in production and increase in production
costs during 1996 was largely due to lower than expected head grade and ore
tonnage from the Jupiter open pit, and stope wall failures in the Westralia
underground mine which reduced production. Mining from the Jupiter open pit
ceased by the end of 1996. During 1997, ore will be sourced from the Transvaal
and Westralia underground mines with the balance of the mill feed derived from
Jupiter stockpiles and Westralia tailings. Mining operations at Mt Morgans are
likely to cease during 1998.
The Company's share of production from the Peak Hill Mine (66.67%
interest), located approximately 130 kilometres west of the Plutonic mine,
increased to 60,400 ounces from 56,700 ounces in 1995 and 16,700 ounces in 1994.
The increase in production between 1994 and 1995 mainly was due to production
from the Contact Deposit (Harmony Pit) which commenced production in 1995 and as
a result of Plutonic increasing its interest in the Peak Hill mine from 50% to
66.67% effective 1 February 1995. Cash operating costs were $209 per ounce in
1996 compared to $183 per ounce during 1995 and $483 per ounce in 1994. The
higher operating costs in 1994 were due to lower grade and a higher stripping
ratio in the west wall cutback of the Five Ways Pit.
Base Metals. The Company has interests in base metal exploration and
pre-development projects through its 62% owned subsidiary, Lachlan. In 1996,
Lachlan added to its portfolio of base metal properties through acquisition of
Archaean Gold NL ("Archaean"), which owns a silver-zinc discovery near
Kalgoorlie.
Interest Income. Interest income of $6.8 million in 1996 compares to $3.3
million in 1995 and $5.7 million in 1994. The increase in interest income in
1996 reflects higher average cash and equivalent balances during the year. The
decrease in interest income in 1995 from 1994 reflects lower cash and equivalent
balances during 1995 and lower interest rates.
Other Income. Other income of $33.2 million in 1996 compares to $3.8
million in 1995 and $4.4 million in 1994. The increase in other income in 1996
includes a realised gain of $12.9 million on the early close out of forward
contracts covering 200,000 ounces of gold, a gain of $10.1 million on the sale
of an investment in Eagle Mining which was acquired in 1995, and $6 million from
execution of an agreement to sell a right to cancel the Company's option to
acquire 19.9% of the issued capital of Great Central Mines Limited ("Great
Central") under certain conditions.
Amortisation and Depreciation. Amortisation and depreciation increased to
$48.3 million during 1996 from $33.3 million during 1995 and $25.4 million
during 1994. The increase in 1996 from 1995 and 1994 primarily is due to
increased production, a full year of depreciation on new capital additions and
additional depreciation charges resulting from amortisation of acquired
exploration potential and other acquisition costs.
Exploration Written Off. Exploration expenditure written off relates to
areas of interest where incurred exploration expenditure is expensed in
accordance with the Company's accounting policy as set out in Note 1 to the
financial statements. Exploration expenditure written off amounted to $4.3
million during 1996, $4.5 million in 1995 and $6.4 million in 1994.
Interest Expense. Interest expense of $10.4 million in 1996 compares to
$1.1 million in 1995 and $1.1 million in 1994. Interest expense increased
significantly in 1996 from 1995 primarily as a result of the draw down of $120
million on the Company's finance facility in late 1995 and an additional net $60
million draw down in 1996. The Company's average rate of interest on its
long-term debt was 8% in 1996 compared to 9% and 7% in 1995 and 1994,
respectively.
D-3
<PAGE> 277
Income Taxes. The Company's effective income tax rate was 16% during 1996
compared to 8% during 1995 and 36% during 1994. Income tax expense in 1996 and
1995 includes the effect of recognition of previously unrecognised income tax
benefits related to tax deductions acquired in past acquisitions.
At 31 December 1996 and 1995 the Company had unrecognized future income tax
benefits of $42.3 million and $56.6 million, respectively. While circumstances
could occur which would permit the Company to recognize these income tax
benefits in future years, based on the Company's current projections it does not
expect significant amounts to be recognized in the immediate future.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, Plutonic's cash and equivalents decreased by $11.3 million to
$49.1 million as a result of capital expenditures of $126.4 million, the
purchase by Lachlan of Archaean for $41.5 million, and the purchase of
investments of $31.4 million, offset by $41.0 million of proceeds received from
the issue of shares to shareholders of Dominion Mining Limited ("Dominion"),
$50.3 million of proceeds realised on the sale of investments and other
non-current investments, an increase in net debt outstanding of $60 million and
strong cash flows from the Company's operations. Net cash provided from
operating activities was $60.1 million in 1996 compared to $49.8 million in 1995
and $70.9 million in 1994.
Capital expenditures in 1996 totaled $126.4 million consisting of $31.6
million for plant and equipment and $94.8 for deferred costs of mineral
properties. This compares to 1995 capital expenditures of $64.7 million and
$76.4 million in 1994.
Additions to property, plant and equipment of $31.6 million in 1996
compares to $9.7 million in 1995 and $38.6 million in 1994. Capital additions in
1996 included $22.1 million at the Plutonic mine for projects related to
improving the mine's efficiency including a $14.7 million plant expansion, $3.7
million at the Mt Morgans mine and $2.7 million at the Darlot mine for various
efficiency improvement projects. Remaining property, plant and equipment
expenditures primarily were for replacement capital to maintain existing
production capacity.
Additions to deferred costs of mineral properties in 1996 totaled $97.1
million compared to $55.0 million in 1995 and $37.8 million in 1994. The 1996
additions included $35.8 million for the Plutonic mine including $23.6 million
for underground development, $7.7 million for open cut pre-stripping costs and
$4.1 million for exploration, $9.8 million at Lawlers mine including $5.2
million for open cut pre-stripping costs and $1.8 million for exploration, $11.3
million at the Darlot mine including $6.2 million for exploration, $11.2 million
at the Bellevue mine including $1.6 million for pre-stripping costs and $1.4
million for exploration, $8.1 million at the Mt Morgans mine including $6.5
million for development of the Transvaal underground operations and $1.1 million
for exploration. In addition, a further $13.1 million of exploration expenditure
was spent at other locations within or surrounding the Plutonic Circle region.
During 1997 the Company installed, at the Plutonic mine, a 19MW base load
gas fired power station. The Wartsila station will be fuelled by gas delivered
via a lateral pipeline from the recently constructed Goldfields Gas Pipeline.
The station and associated infrastructure cost approximately $22 million.
Total dividends paid during 1996 were $20.6 million compared to $17.5
million during 1995 and $14.4 million during 1994. During 1996, the annual
dividend rate was increased to 7 cents per share unfranked compared to 5.5 cents
and 5 cents per share unfranked in 1995 and 1994, respectively.
The Company received a net income tax refund in 1996 of $1.6 million
compared to net cash taxes paid of $8.0 million and $8.4 million in 1995 and
1994, respectively. The Company expects to pay only $1.6 million of cash taxes
during 1997 due to the availability of carried forward tax losses and other tax
credits.
At 31 December 1996, the Company had drawn down $180,000,000 under its
$250,000,000 unsecured finance facility with ABN AMRO Australia Limited compared
to $120,000,000 drawn down at the end of 1995. This unsecured finance facility,
which expires in August 1999, provides for borrowings in either Australian or US
dollars. During 1995, the previous finance facility with the Bank of Western
Australia and AIDC Ltd was repaid in full.
D-4
<PAGE> 278
Effective 1 October 1995, Plutonic acquired most of Dominion's gold assets
including an 80% interest in the Mt Morgans Gold Project, a 100% interest in the
Meekatharra Project and other exploration interests in Western Australia,
Queensland and the Northern Territory. The net purchase price after working
capital adjustments was $52.7 million. As part of its agreement with Dominion,
Plutonic issued a prospectus dated 22 December 1995 offering Dominion
shareholders the opportunity to apply their entitlement to a return of capital
to subscribe for Plutonic shares which resulted in 6,684,417 shares being issued
to Dominion shareholders on 29 January 1996 for consideration of $41 million.
In January 1996, the Company made an unsuccessful bid for all the shares in
Coolawin Resources Limited, the owner of a 20% interest in the Mt Morgans mine,
but exited with a small gain after covering costs in connection with this offer.
In June 1996, the Company recorded a gain of $10.1 million on the sale of
its 17.3% holding in Eagle Mining. Plutonic acquired its interest in Eagle
Mining from Dominion in November 1995. At the same time, the Company acquired a
further 15% interest in Wiluna Mines Limited bringing its interest to 19.9%.
In July 1996, Lachlan made a $47 million takeover offer for Archaean. As a
result, Lachlan and its associates became entitled to a 90.7% interest in
Archaean and have subsequently implemented a scheme of arrangement for the
remaining shareholders and option holders which resulted in Archaean becoming a
wholly-owned subsidiary within the Plutonic/Lachlan group. This takeover was
funded by a loan from Plutonic.
In 1995, Plutonic agreed to provide Edensor Nominees Pty Ltd ("Edensor")
with a loan facility up to $50 million and was granted an option to acquire
19.9% of the issued capital of Great Central in consideration for this loan. In
July 1996, an agreement was concluded for the sale of a right to cancel
Plutonic's option to acquire 19.9% of the shares of Great Central. In 1996,
Plutonic was paid $6 million on execution of the agreement.
In October 1996, the Company discovered the Centenary gold deposit. The
high grade, thickness and continuity of the Centenary deposit's mineralisaton
indicate its capacity to support a substantial, low cost, underground mining
operation. Mine planning and evaluation have indicated that this deposit is
amenable to low cost bulk stoping, that geotechnical conditions are very good
and that there is minimal groundwater. Access to Centenary is via an extension
of the Darlot decline which intersected the Centenary deposit in September 1997
approximately 350 metres below the surface. First development ore was
subsequently fed to the upgraded Darlot processing plant. A raise bored
ventilation shaft is currently being constructed, which will complete the
Centenary ventilation circuit and also provide the second egress for the mine.
Initial orebody development and in-fill diamond drilling has commenced. It is
planned that initial sub-level stoping of the thick central section of the
Centenary deposit will commence prior to mid-1998. The thinner extremities of
the deposit are suitable for sub-level open stoping or room and pillar stoping
as successfully utilised at Darlot. A feasibility study to determine optimum
plant size is continuing as the size of the Centenary deposit is further defined
from on-going exploration drilling.
The Company evaluates its accruals for restoration, rehabilitation and
environmental costs regularly. With respect to non-operating properties, the
Company believes it has fully provided for all estimated reclamation and site
restoration costs. With respect to operating properties, the Company is
providing for estimated ultimate reclamation relating to ongoing and end-of-mine
life restoration and closure costs over the life of its individual operations
using the units of production method. During 1996, the first formal
environmental audit of each managed site was completed. These audits and regular
environmental reviews revealed no new significant environmental issues.
In 1996, expenditure on rehabilitation totalled $1.8 million as compared to
$0.6 million in 1995 and $1.6 million in 1994. Major waste dump rehabilitation
programs were completed at the Lawlers and Mt Morgans mines. Significant
portions of these programs related to mining activities carried out prior to
Plutonic's ownership of these sites.
D-5
<PAGE> 279
RECONCILIATION TO U.S. GAAP
The Company has reconciled its 1996 and 1995 consolidated profit and loss
accounts determined in accordance with generally accepted accounting principles
in Australia to net income under accounting principles generally accepted in the
United States. Refer to Note 35 of the 1996 financial statements for details of
this reconciliation to U.S. GAAP.
NINE MONTHS ENDED 30 SEPTEMBER 1997
RESULTS OF OPERATIONS
Plutonic recorded an operating loss attributable to members of the Company
after income tax of $44.7 million (24 cents per share) during the nine months
ended 30 September 1997 compared to a profit of $20.3 million (11 cents per
share) for the same period in 1996. After adjusting for one time non-recurring
items of $83.8 million ($61.7 million after tax), the earnings for the nine
months ended 30 September 1997 reflect increased gold production and lower
production costs offset by lower gold prices and higher amortisation and
depreciation.
During the first half of 1997, the Company reassessed its operations in
light of continued weak gold prices and determined that the carrying value of
certain mining assets and investments should be based on a gold Australian
dollar price of not more that $450 per ounce. As a result, the Company recorded
non-recurring abnormal charges of $93.3 million ($71.2 million after tax)
consisting of $70.8 million ($51.4 million after tax) relating to mining
properties and related assets, including the carrying values for the high cost
Mt Morgans mine and the declining Peak Hill mine, $19.5 million ($19.5 million
after tax) for provisions against recoverability of the Company's strategic
investments in listed securities and $7.5 million ($4.8 million after tax) in
respect of mining contract variations. These abnormal charges incurred during
1997 were partially offset by non-recurring abnormal income totalling $4.5
million ($4.5 million after tax) received from Edensor resulting from the
exercise of its right to cancel Plutonic's option over 19.9% of the issued
capital of Great Central.
Revenue from gold sales during the nine months to 30 September 1997
totalled $233.9 million compared to revenue of $201.6 million for the same
period in 1996. The revenue increase in 1997 reflects increased sales volumes
offset by lower gold prices. During the nine months to 30 September 1997, the
Company recorded revenue for 407,500 ounces of gold at an average price of $574
per ounce compared to 316,600 ounces at an average price of $637 per ounce for
the same period during 1996.
Plutonic's general policy is to forward sell or hedge a portion of future
production in Australian dollars. This strategy has the dual objectives of
underpinning the continued long-term viability of the operations and, at the
same time, allowing shareholders the opportunity to benefit from future
increases in the gold price. All of Plutonic's gold production during 1997 and
1996 was covered by the forward sales program. At 30 September 1997, the Company
had 1,085,100 ounces of gold forward sold at an average market close out price
of $498 per ounce at that date.
D-6
<PAGE> 280
The following chart details Plutonic's gold production and cash operating
costs per ounce by location for the nine months ended 30 September 1997 and for
the same period in 1996.
<TABLE>
<CAPTION>
CASH
OPERATING
PRODUCTION COSTS
('000 OZ'S) ($ PER OZ)
NINE MONTHS NINE MONTHS
ENDED ENDED
30 SEPTEMBER 30 SEPTEMBER
PERCENTAGE ---------------- -------------
OWNERSHIP 1997 1996 1997 1996
--------- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Plutonic Gold Mine............................... 100.00% 207.4 115.9 $324 $401
Peak Hill Gold Mine.............................. 66.67% 26.4 49.8 371 194
Darlot Gold Mine................................. 100.00% 47.7 47.1 414 438
Mt Morgans Gold Mine............................. 80.00% 55.6 52.2 492 442
Lawlers Gold Mine................................ 100.00% 60.6 41.2 327 514
Bellevue Gold Project............................ 100.00% 12.5 11.0 (1) (1)
----- ----- ---- ----
410.3 317.3 $373 $428
===== ===== ==== ====
</TABLE>
- ---------------
(1) This operation has been placed on care and maintenance. Therefore, it is not
meaningful to report cash operating costs.
Total gold production increased to 410,300 ounces during the nine months
ended 30 September 1997 compared to 317,300 ounces produced during the same
period during 1996. The higher 1997 production primarily is due to production
increases at the Plutonic and Lawlers operations offset by lower production at
the depleting Peak Hill mine.
Increased production at the Plutonic mine in 1997 is primarily due to
54,800 ounces of new production from the Perch and Salmon open pits, which were
activated to provide ore for the plant expansion project and an increase of
22,200 ounces of production from the expanding Plutonic underground operations.
The decrease in production and increase in cash operating costs at the Peak
Hill mine in 1997 is attributable to the declining reserves at this operation
combined with higher operating costs which principally reflect the impact of
treating an increasing proportion of hard ore. The Harmony Pit ceased production
in the fourth quarter of 1997 and stockpiled ore will continue to be processed
through to mid-1998 with longer term production being dependent on development
of satellite deposits.
Production at the Lawlers mine increased during 1997 as new ore was sourced
from the New Holland pit. Mining has progressed through the known depletion zone
with grades and ore tonnages now increasing in line with reserve estimates. Cash
operating costs decreased further during 1997. Approval has been given to
commence the Stage I Underground Development of the New Holland South
underground orebody which consists of a 320m exploration drive largely in ore
which is a down plunge continuation of the orebody mined in the New Holland Pit.
At the new Fairyland pit, top soil clearing, grade control drilling and haul
road construction have commenced in preparation for ore excavation which began
in November 1997.
The Bellevue mine produced 12,500 ounces in 1997 before underground and
open pit mining was suspended on 30 April 1997 and the project was placed on a
limited care and maintenance programme. Stockpiles will continue to be treated
at the Lawlers mill as and when appropriate.
The effective income tax rate for the Company in 1997 has increased from
the prior year. In 1996, the Company benefited from the effect of recognition of
previously unrecognised income tax benefits related to tax deductions acquired
in past acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents increased from $49.1 million at 31 December 1996 to
$68.9 million at 30 September 1997. The increase in cash and equivalents is due
to the loan repayment by Edensor Nominees offset by operational cash needs.
D-7
<PAGE> 281
In June 1997, the Company replaced its unsecured debt facility with ABN
AMRO Australia Limited with a $400 million unsecured syndicated debt facility
arranged by the Chase Manhattan Bank, Credit Suisse First Boston and ABN AMRO
Australia Limited, which expires June 2002. At 30 September 1997, the Company
had drawn down $194.5 million under this facility.
Capital expenditures, including exploration, for the nine months to 30
September 1997 totaled $107.1 million consisting of $33.7 million for plant and
equipment, $46.8 million for mine development and $26.4 million for exploration.
This compares to 1996 capital expenditures for the same period of $82.8 million.
Additions to plant and equipment in 1997 of $33.7 million included $22.0
million at the Plutonic mine for the 19 MW base load gas fired power station and
$5.8 million at the Darlot mine for expansion of the treatment plant to increase
annual throughput from 480,000 tonnes to approximately 680,000 tonnes. Remaining
property, plant and equipment expenditures primarily were for replacement
capital to maintain existing production capacity. Additions to mine development
of $44.1 million included $26.0 million for further Plutonic mine underground
development, $12.3 million at the Darlot mine primarily for the Centenary
decline and $4.2 million for underground development at the Mt Morgans mine.
Total exploration expenditure of $26.4 million includes $22.0 million for
exploration undertaken on the Company's tenements within the Plutonic Circle
including new exploration around existing mines and $4.4 million of exploration
expenditure incurred by Lachlan.
In August 1997, Edensor Nominees repaid the $50 million loan advance, and
following Edensor's decision to exercise the option cancellation right, a
payment of $8.5 million was also received. Between July 1996 and August 1997
Plutonic received additional payments of $11.5 million in respect of the right
to cancel the option.
D-8
<PAGE> 282
DIRECTORS' REPORT
The Directors of Plutonic Resources Limited ("the Chief Entity" or
"Company") present their report for the year ended 31 December 1996.
DIRECTORS
The Directors of the Chief Entity in office at the date of this report are:
MR E PAUL MCCLINTOCK. Chairman. BA, LLB. Director of McClintock
Associates Group, Tower Life Australia Limited and The Institute of
Respiratory Medicine.
MR RONALD J HAWKES. Managing Director: Geologist, B.Sc, F AusIMM,
FGAC, M.C.I.M, 32 years experience in the mining industry. Director of
Lachlan Resources N.L. and Archaean Gold NL.
MR ABDUL SAMAD HAJI ALIAS. B. Com., FCA (Aust), CPA. Managing Partner,
Arthur Andersen Malaysia. Director of Malaysia Mining Corporation Berhad.
Director of Ashton Mining Limited and IGB Corporation Berhad.
MR WILLIAM A BENNETT. B. Eng. (Hons), M. Sc., AMICE, FAICD, Director
of Brambles Industries Limited, Eastern Aluminium Limited and Barnardos
Australia.
MR DONALD L COOPER. Solicitor: LL.B., Consultant to the firm of
Deacons, Graham & James, Melbourne. Director of various proprietary
companies associated with clients of that firm.
TAN SRI IBRAHIM MENUDIN. B. Com., CA, ACA. Group Chief Executive
Officer of Malaysia Mining Corporation Berhad, Chairman of Malaysian
Smelting Corporation Berhad. Director of Ashton Mining Limited and National
Consolidated Limited.
MR CHE WAN LIM. Alternate Director for Tan Sri Ibrahim Menudin.
Mechanical and Mining Engineer: P. Eng., C. Eng., B.E. (Mech) (Hons), B.E.
(Mining) (Hons), M.I.M.E., M.I.M.M., Director and Chief Executive Officer
of Tronoh Mines Malaysia Berhad. Director of Ashton Mining Limited.
Alternate Director of Lachlan Resources N.L.
MR LEONG KIM PHAN. Alternate Director for Mr Abdul Samad Haji Alias.
FCA (ICAEW). Group General Manager Finance of Malaysia Mining Corporation
Berhad. Alternate director of Ashton Mining Limited and National
Consolidated Limited.
DIRECTORS' INTERESTS
Mr R J Hawkes has notified the chief entity of his interest in a service
contract between himself and a controlled entity which encompasses the terms of
his employment.
No other Director has any interest in a contract or proposed contract with
the Chief Entity being an interest in the nature of which has been declared in
accordance with section 231 of the Corporations Law.
PRINCIPAL ACTIVITIES
The principal activities for the year were gold mining and direct
participation and investment in mineral exploration. There were no significant
changes in the nature of those activities during the year.
CONSOLIDATED RESULT
<TABLE>
<CAPTION>
1996 1995
------ ------
$000 $000
<S> <C> <C>
The operating profit of the Economic Entity for the period
after income tax expense was............................. 39,914 40,387
Amounts attributable to outside equity interests........... 788 (263)
------ ------
Profit attributable to members of Plutonic Resources
Limited.................................................. 40,702 40,124
====== ======
</TABLE>
D-9
<PAGE> 283
DIVIDENDS
An unfranked dividend of 5.5 cents per share was declared out of profits of
the Chief Entity for the year ended 31 December 1995 and was paid on 3 April
1996.
An unfranked interim dividend of 4 cents per share was declared out of
profits for the year ended 31 December 1996 and was paid on 2 October 1996.
No other dividends were paid or declared during the year.
The directors declared a final dividend of 7 cents per share unfranked be
paid out of profits for the year.
REVIEW OF OPERATIONS
A review of the operations of the Economic Entity during the financial year
and the results of those operations are given on pages 9 to 24 of this report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Economic
Entity during the year.
SUBSEQUENT EVENTS
There were no significant events occurring after balance date.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Information relating to likely developments in the operations of the
Economic Entity and the expected results of those operations in the financial
years subsequent to the year ended 31 December 1996 is included on pages 2 to 24
of this report.
OPTIONS
Options granted by the Company during the financial year were as follows:
(a) On 21 May 1996, Mr Ronald J Hawkes was granted two options under
the Plutonic Resources Limited Employee Share Participation Plan, each in
respect of 200,000 ordinary fifty cent shares. One option has an exercise
price of $7.75 per share, the other, an exercise price of $8.75 per share.
Both options are exercisable on a staged basis with 10% of the shares
subject to the option able to be exercised on or after 21 May 1997, 20% on
or after 21 May 1998, 30% on or after 21 May 1999 and 40% on or after 21
May 2000. The options expire on 21 May 2001. Mr Hawkes does not have and
has not had a right to participate in a share issue of any other body
corporate by virtue of the options.
(b) On 24 June 1996, twenty options under the Plutonic Resources
Limited Employee Share Participation Plan were granted to ten executive
officers of the Company or their nominated associates. The options granted
were in respect of a total of 1.53 million ordinary fifty cent shares and
are exercisable on a staged basis with 10% of the shares subject to the
option able to be exercised on or after 24 June 1997, 20% on or after 24
June 1998, 30% on or after 24 June 1999 and 40% on or after 24 June 2000.
The options expire on 24 June 2001. None of the options have been
exercised.
(c) On 26 June 1996, thirty eight options under the Plutonic Resources
Limited Employee Share Participation Plan were granted to nineteen
employees of the Company or their nominated associates. The options granted
were in respect of a total of 920,000 ordinary fifty cent shares and are
exercisable on a staged basis with 10% of the shares subject to the option
able to be exercised on or after 24 June 1997, 19 December 1997 or 4 March
1998 (depending on the date on which the employee commenced employment with
the Company), 20% on or after 26 June 1998, 30% on or after 26 June 1999
and 40% on or after 26 June 2000. The options expire on 24 June 2001. None
of the options have been exercised.
D-10
<PAGE> 284
DIRECTORS' SHAREHOLDINGS AT THE DATE OF THIS REPORT
<TABLE>
<CAPTION>
SHARES
SHARES OPTIONS SUBJECT TO
HELD HELD OPTIONS
--------- ------ ----------
<S> <C> <C> <C> <C>
E PAUL MCCLINTOCK
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 14,000
LACHLAN RESOURCES N.L.
Ordinary fully paid shares....................... (i) 78,000
RONALD J HAWKES
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 4,551
Partly paid shares............................... (ii) 1,111,250
Options at $7.75 per share....................... (ii) 1 200,000
Options at $8.75 per share....................... (ii) 1 200,000
ABDUL SAMAD HAJI ALIAS
PLUTONIC RESOURCES LIMITED
Options at $5.87 per share....................... (iii) 40,000 40,000
WILLIAM A BENNETT..................................... Nil Nil Nil
DONALD L COOPER
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 48,200
TAN SRI IBRAHIM MENUDIN
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 48,200
CHE WAN LIM (ALTERNATE)
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 1,500
LACHLAN RESOURCES N.L.
Ordinary fully paid shares....................... (i) 10,000
LEONG KIM PHAN (ALTERNATE)............................ Nil Nil Nil
</TABLE>
- ---------------
(i) Beneficial interest
(ii) Pursuant to Employee Share Participation Plan.
(iii) Pursuant to Non-Executive Directors Option Scheme.
INDEMNIFICATION AND INSURANCE OF OFFICERS
During the financial year:
(a) pursuant to Article 156 of the Company's Articles of Association,
the Company agreed to indemnify:
(i) each of the directors named on page 2 and the secretary, Ms K
Everett; and
(ii) every person who is or has been a general manager, manager or
treasurer of the Company; and
(b) pursuant to deeds of indemnity, the Company agreed to indemnify
directors of the Company's wholly-owned subsidiaries
D-11
<PAGE> 285
against any liability:
(a) incurred by that person in his or her capacity as an officer of
the Company or a director of a wholly-owned subsidiary of the Company (as
the case may be) to any other person (other than the Company or a related
body corporate) unless the liability arises out of conduct involving a lack
of good faith; and
(b) for costs and expenses incurred by that person in defending any
proceedings in which judgement is given in that person's favour or in which
the person is acquitted and in connection with an application in relation
to those proceedings in which the court grants relief to the person under
the Corporations Law.
During or since the end of the financial year, the Company has paid or
agreed to pay premiums in respect of contracts insuring against liability:
(a) each of the directors named on page 2 and the secretary, Ms K
Everett;
(b) every person who is or has been a general manager, manager or
treasurer of the Company; and
(c) each of the directors of the Company's wholly-owned subsidiaries.
The contracts of insurance prohibit the disclosure of the amount of the
premiums and the nature of the liability.
DIRECTORS' BENEFITS
During or since the end of the financial year, no Director of the Company
has received or become entitled to receive a benefit (other than a benefit
included in the aggregate amount of emoluments received or due and receivable by
the Directors shown in Note 29 of the financial statements) by reason of a
contract entered into by the Company or a controlled entity or related body
corporate of the Company with a Director, a firm or which a Director is a member
or an entity in which the Director has a substantial financial interest with the
exception of:
(a) Mr R J Hawkes who was granted two options under the Plutonic
Resources Limited Employee Share Participation Plan pursuant to two
agreements dated 21 May 1996 details of which are set out in this report;
and
(b) Mr D L Cooper who is a consultant to the firm of Deacons, Graham
and James, Melbourne which received fees for legal services rendered to the
Company in the ordinary course of business.
This report is made in accordance with a resolution of the Directors.
On behalf of the Board
Paul McClintock --------------------------------------
Chairman
Ronald J Hawkes --------------------------------------
Managing Director
Sydney, 27 February 1997.
D-12
<PAGE> 286
PROFIT AND LOSS STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
NOTE
----- PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C> <C>
Operating Revenue........................... 2 340,461 222,691 35,294 16,727
======= ======= ======= =======
Operating profit before income tax.......... 3,4 47,770 43,680 29,233 13,086
Income tax expense.......................... 5 (7,856) (3,293) 209 741
------- ------- ------- -------
Operating profit after income tax........... 39,914 40,387 29,442 13,827
Outside Equity Interest..................... 23 788 (263) 0 0
------- ------- ------- -------
OPERATING PROFIT AFTER INCOME TAX
ATTRIBUTABLE TO MEMBERS OF PLUTONIC
RESOURCES LIMITED......................... 6 40,702 40,124 29,442 13,827
Retained profits brought forward............ 127,225 104,623 1,832 5,527
------- ------- ------- -------
Retained profits available for
appropriation............................. 167,927 144,747 31,274 19,354
Dividends................................... 7 (20,630) (17,522) (20,630) (17,522)
------- ------- ------- -------
RETAINED PROFITS AT END OF YEAR............. 147,297 127,225 10,644 1,832
======= ======= ======= =======
</TABLE>
The accompanying notes form part of these financial statements.
D-13
<PAGE> 287
BALANCE SHEETS
AS AT 31 DECEMBER 1996
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
NOTE 1996 1995 1996 1995
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash........................................ 8 18,912 48,234 82 128
Receivables and Bullion..................... 9 37,547 27,289 112 154
Inventories................................. 10 35,092 42,695 0 0
Other....................................... 11 4,838 3,782 0 0
------- ------- ------- -------
Total Current Assets.............. 96,389 122,000 194 282
======= ======= ======= =======
NON-CURRENT ASSETS
Receivables................................. 12 50,000 41,573 233,530 165,079
Investments................................. 13 63,109 60,669 133,846 133,846
Inventories................................. 10 40,625 0 0 0
Property, Plant and Equipment............... 14 97,299 76,913 0 0
Other....................................... 15 330,589 238,979 608 526
------- ------- ------- -------
Total Non-Current Assets.......... 581,622 418,134 367,984 299,451
======= ======= ======= =======
TOTAL ASSETS...................... 678,011 540,134 368,178 299,733
======= ======= ======= =======
CURRENT LIABILITIES
Creditors and Borrowings.................... 16 117,187 26,445 74 171
Provisions.................................. 17 15,891 12,854 13,126 10,294
------- ------- ------- -------
Total Current Liabilities......... 133,078 39,299 13,200 10,465
======= ======= ======= =======
NON-CURRENT LIABILITIES
Creditors and Borrowings.................... 18 87,500 120,000 87,602 72,192
Provisions.................................. 19 40,864 25,868 148 181
--
------- ------- ------- -------
Total Non-Current Liabilities..... 128,364 145,868 87,750 72,373
======= ======= ======= =======
TOTAL LIABILITIES................. 261,442 185,167 100,950 82,838
======= ======= ======= =======
NET ASSETS........................ 416,569 354,967 267,228 216,895
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share Capital............................... 20 93,828 90,223 93,828 90,223
Reserves.................................... 22 162,756 124,840 162,756 124,840
Retained Profits............................ 147,297 127,225 10,644 1,832
------- ------- ------- -------
Shareholders Equity attributable to Plutonic
Resources Limited......................... 403,881 342,288 267,228 216,895
Outside Equity Interests.................... 23 12,688 12,679 0 0
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY........ 416,569 354,967 267,228 216,895
======= ======= ======= =======
</TABLE>
The accompanying notes form part of these financial statements.
D-14
<PAGE> 288
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 1996
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
NOTE 1996 1995 1996 1995
---- -------- -------- ------- -------
$000 $000 $000 $000
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of
operations.............................. 281,952 212,311 0 2
Cash payments in the course of
operations.............................. (223,497) (154,559) (2,399) (3,177)
Income tax refund (paid).................. 1,618 (7,990) 0 0
-------- -------- ------ ------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.................... 34 60,073 49,762 (2,399) (3,175)
-------- -------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received........................ 335 562 0 0
Interest received -- external entities.... 6,817 3,258 179 35
Proceeds on sale of investments........... 39,179 3,051 0
Recoveries from joint venture parties..... 2,491 639 175 0
Proceeds on sale of property, plant and
equipment............................... 3,064 436 0 0
Proceeds on sale of non-current assets.... 2,014 0 0 0
Proceeds on sale of option................ 6,000 0 0 0
Payment for investments................... (31,413) (33,436) 0 0
Payments for acquisition of controlled
entities................................ (41,504) (52,645) 0 0
Cash acquired from increase in ownership
of
a JV.................................... 0 222 0 0
Cash acquired from acquisition of
controlled entities..................... 5,516 262 0 0
Advances of loans -- external entities.... (8,427) (41,272) 0 0
Payments for property, plant and
equipment............................... (31,633) (9,699) 0 0
Payment for advanced stripping costs...... (14,460) (8,009) 0 0
Payments for tenement exploration......... (32,574) (25,282) (493) (197)
Payments for preproduction activities..... (47,770) (21,676) 0 0
Payments for tenement acquisition......... (2,358) 0 0 0
-------- -------- ------ ------
NET CASH INVESTING ACTIVITIES... (144,723) (183,589) (139) (162)
======== ======== ====== ======
CASH FLOWS FROM FINANCING ACTIVITIES
Interest paid............................. (10,397) (1,148) 0 0
Proceeds from share issue................. 41,521 394 41,521 394
Proceeds from borrowings
-- external entities.................... 72,500 120,000 0 0
-- related entities..................... 0 0 (21,228) 18,278
Repayments of borrowings
-- external entities.................... (12,500) (13,500) 0 0
Lease payments............................ 0 (12) 0 0
Dividends paid............................ (17,798) (16,229) (17,798) (16,229)
-------- -------- ------ ------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.................... 73,326 89,505 2,495 2,443
======== ======== ====== ======
Net(decrease) in cash held................ (11,324) (44,322) (43) (894)
Cash at the beginning of the financial
year.................................... 60,472 104,794 125 1,019
-------- -------- ------ ------
CASH AT THE END OF THE FINANCIAL
YEAR.......................... 34 49,148 60,472 82 125
======== ======== ====== ======
</TABLE>
The accompanying notes form part of these financial statements.
D-15
<PAGE> 289
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
AT 31 DECEMBER 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial report is a general purpose financial report which has been
prepared in accordance with the requirements of the Corporations Law which
include disclosures required by Schedule 5 and applicable Accounting Standards.
Other mandatory professional requirements (Urgent Issues Group Consensus Views)
have also been complied with.
(a) Principles of Consolidation
The consolidated accounts are those of the Economic Entity, comprising
Plutonic Resources Limited (the Chief Entity) and all entities which Plutonic
Resources Limited controlled from time to time during the year and at year end.
All intercompany balances and transactions, and unrealised profits resulting
from intra-economic entity transactions have been eliminated. The interests of
outside shareholders in the operating results and net assets of controlled
entities are stated separately in the consolidated profit and loss statement and
balance sheet respectively. Where there is a gain or loss of control of a
controlled entity, the consolidated accounts include the results for the part of
the reporting period during which the parent entity had control. A list of
controlled entities is included in Note 13.
(b) Income Tax
The Economic Entity adopts the liability method of tax effect accounting
whereby the income tax expense shown in the profit and loss statement is based
on the operating profit before income tax adjusted for any permanent
differences.
Timing differences which arise due to the different accounting periods in
which items of revenue and expense are included in the determination of
operating profit before income tax and taxable income are brought to account as
either provision for deferred income tax or an asset described as future income
tax benefit at the rate of income tax applicable to the period in which the
benefit will be received or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of
the asset is assured beyond reasonable doubt. Future income tax benefits in
relation to tax losses are not brought to account unless there is virtual
certainty of realisation of the benefit.
The amount of benefits brought to account or which may be realised in the
future is based on the assumption that no adverse change will occur in income
taxation legislation, the anticipation that the Economic Entity will derive
sufficient future assessable income to enable the benefit to be realised and
comply with the conditions of deductibility imposed by law.
(c) Cash
Cash is represented by cash on hand, at financial institutions at call and
bank bills and deposits.
(d) Revenue Recognition
Revenue from production of gold is recognised when all of the following
"collective tests" have been met:
(i) the product is in a form suitable for delivery and no further
processing is required by or on behalf of the Economic Entity;
(ii) the quantity and quality of the product can be determined with
reasonable accuracy;
(iii) the selling price can be determined with reasonable accuracy;
D-16
<PAGE> 290
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(iv) the product has been despatched to a refiner and is no longer
under the physical control of the Economic Entity.
(e) Bullion
In accordance with the policy on revenue recognition, gold bullion is taken
up as a sale when it is delivered to a gold refinery. Gold bullion held at the
refinery at the end of the year is valued at net realisable value which is
either the market price ruling on that date or the forward rate where gold has
subsequently been delivered and the revenue realised. Gold bullion is shown as a
receivable in the financial statements. Bullion includes gold poured within
three days of the end of the year.
(f) Inventories
(i) Gold in Process. Gold is valued at the lower of cost and net realisable
value using market price at year end or where applicable a forward contract
price. Gold in process includes gold in circuit and gold contained in stockpiled
ore as determined by production records. The cost of gold in process includes
the cost of direct materials, labour and variable and fixed overheads relating
to mining activities.
(ii) Consumable Stores and Spare Parts. Consumable stores and spare parts
have been measured by physical stocktake and valued at the lower of cost and net
realisable value.
(iii) Other. Other inventories have been measured by physical stocktake and
valued at the lower of cost and net realisable value.
(g) Investments
The Economic Entity's interests in companies (other than controlled
entities) are shown as investments, and dividend income only is taken into
profit as it is received. Long term investments are stated at cost less amounts
provided against permanent diminution in the value of investments. Investments
held for re-sale are stated at the lower of cost or net realisable value.
(h) Property Plant and Equipment
Fixed assets are included at cost. The cost of fixed assets constructed
within the Economic Entity includes the cost of materials, direct labour and an
appropriate proportion of fixed and variable overheads.
(i) Depreciation
(i) Plant Construction Costs. The cost of these assets is being depreciated
over their useful economic lives using the straight line method.
(ii) Other Fixed Assets. Other fixed assets including buildings, but
excluding land, are depreciated over their useful economic lives using the
diminishing value method.
D-17
<PAGE> 291
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Exploration Expenditure
Costs arising from exploration and evaluation related to an area of
interest are written off as incurred, except that they may be carried forward as
deferred costs provided the rights to tenure of the area of interest are
current; and
(i) exploration activities in each area of interest have not yet
reached a stage which permits a reasonable assessment of the existence or
otherwise of economically recoverable reserves, and active and significant
operations in relation to the area are continuing; or
(ii) such costs are expected to be recouped through successful
development and exploitation of each area of interest, or alternatively, by
its sale.
(k) Acquired Exploration Expenditure
The fair value of exploration tenements attributable as part of the
acquisition of a business is amortised over a period not exceeding ten years.
(l) Acquisition Costs
(i) Mines. The direct cost of acquiring mining leases is being amortised
based on the production output method.
(ii) Other. The direct costs of acquiring mining properties is carried
forward as a deferred cost until such time as:
(1) a mining operation is commenced when it will be amortised over the
life of the mine; or
(2) the project is sold or abandoned,
provided that the carrying value does not exceed the amount that it would have
been reasonable for the company to spend to acquire the asset at the end of the
financial year.
(m) Preproduction Costs
Preproduction costs for each tenement comprise direct development
expenditure, pre-operating and equipment start-up costs, exploration expenditure
carried forward at the date of the decision to mine plus any continuing
exploration expenditure on the area of interest.
Preproduction costs are carried forward to the extent to which recoupment
out of future revenues from the sale of product from the property is reasonably
assured.
Preproduction costs are amortised over the life of the relevant mine using
the production output method.
(n) Employee Entitlements
(i) Wages, Annual Leave, Long Service Leave, Sick Leave. The provision for
employee entitlements relating to wages annual leave and sick leave is based on
legal and contractual entitlements and assessments having regard to the Economic
Entity's experience of staff departures and leave utilisation. Vested
entitlements are shown as current liabilities.
Current wage rates and on-costs are used in the calculation of this
provision.
D-18
<PAGE> 292
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The provision for employee entitlements relating to long service leave
represents the net present value of the estimated future cash outflows to be
made resulting from employees' services provided up to the balance date. In
assessing the liability for employee entitlements which are not expected to be
settled within twelve months the relevant cash flows have been discounted.
Consideration has been given to future salary increases and the economic
entity's experience with staff departures. Related costs have also been included
in the calculation of the provision.
(ii) Superannuation. Contributions are made by the economic entity to
employee superannuation funds and are charged to expenses when incurred.
The economic entity does not record, as an asset or a liability, the
difference between the employer established defined benefit superannuation
plan's accrued benefits and the net market value of the plan's assets.
(o) Restoration, Rehabilitation and Environmental Costs
Restoration and rehabilitation of mine sites is carried out on an on-going
basis during the production life of the mine.
Provision is made for the cost of any restoration and rehabilitation work
required to be completed at the end of the production life of the mine. This
provision is assessed by technically qualified personnel on an annual basis. The
provision is raised progressively over the life of the project using current
undiscounted costs. Any revisions in the estimates of costs are reflected in the
provision when they are made.
(p) Foreign Currency
Amounts payable to and by the company in foreign currencies have been
translated to Australian currency at rates of exchange ruling at year end.
The results of a controlled entity are denominated in New Zealand dollars.
Monetary assets and liabilities have been translated at the year end exchange
rate while non monetary assets have been translated at the historical exchange
rate. All profits and losses arising from translation have been taken directly
to the profit and loss account during the period.
(q) Joint Ventures
The Economic Entity's interest in exploration joint ventures are brought to
account based on the actual expenditures incurred by the Economic Entity in
contributing to the joint venture's exploration programme and is included in
deferred cost of mineral prospects.
The Economic Entity's interests in mining joint ventures are recorded in
the accounts by including in the respective classifications the entity's share
of assets employed, the share of liabilities incurred and the share of any
expenses incurred. Details are shown in Note 26.
(r) Leases
Payments made under operating leases are charged against profits in equal
instalments over the accounting periods covered by the term of the lease.
Details of commitments under leases are included in Note 27(b).
The Economic Entity has not entered into any finance leases at 31 December
1996.
D-19
<PAGE> 293
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) Recoverable Amount
Non-current assets are not revalued to an amount above their recoverable
amount, and where carrying values exceed this recoverable amount assets are
written down. In determining recoverable amount the expected net cash flows have
not been discounted to their present values.
(t) Comparative Figures
Where required, comparative figures have been adjusted to conform with
changes in presentation for the current financial year.
2. OPERATING REVENUE
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
------------------- -----------------
1996 1995 1996 1995
------- ------- ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Gold mining revenues.................................. 279,394 211,654 0 0
Wet Mess sales........................................ 2,558 1,657 0 0
Dividends received from controlled entity............. 0 0 20,000 14,458
Dividends received from non-related entities.......... 335 562 0 0
Interest received from non-related entities........... 6,817 3,258 179 35
Interest received from controlled entities............ 0 0 8,677 1,848
Proceeds on sale of plant and equipment............... 3,064 436 0 0
Proceeds on sale of option............................ 6,000 0 6,000 0
Proceeds on sale of investments....................... 39,179 3,051 0 0
Other................................................. 3,114 2,073 438 386
------- ------- ------ ------
Operating Revenue..................................... 340,461 222,691 35,294 16,727
======= ======= ====== ======
</TABLE>
D-20
<PAGE> 294
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
3. OPERATING PROFIT
Operating profit before income tax has been determined after:
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
------------------- -----------------
1996 1995 1996 1995
------- ------- ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(a) Charging as Expenses:
Amounts received or due and receivable by Chief Entity
auditors for:
-- Auditing......................................... 229 198 50 122
-- Other Services (the auditors received no other
benefits)........................................ 260 171 59 16
Amounts received or due and receivable by other
auditors for:
-- Auditing......................................... 2 0 0 0
-- Other Services (the auditors received no other
benefits)........................................ 0 0 0 0
Amounts set aside to provision for:
Amortisation of acquisition costs................... 16,076 11,042 0 0
Amortisation of acquired exploration expenditure.... 5,082 3,590 0 0
Amortisation of preproduction costs................. 18,419 10,856 0 0
Depreciation of fixed assets........................ 8,735 7,815 0 0
Employee benefits................................... 304 876 0 0
Restoration and rehabilitation...................... 364 0 0 0
Bad debts written off................................. 28 0 0 0
Borrowing costs....................................... 452 418 0 0
Exploration expenditure written off................... 4,347 4,541 411 0
Interest paid to non-related entities................. 10,397 1,148 0 0
Interest paid to controlled entities.................. 0 0 3,248 353
Lease Finance charges................................. 0 1 0 0
Loss on sale of plant and equipment................... 25 112 0 0
Loss on sale of investments........................... 0 192 0 0
Operating Lease Rental................................ 1,522 1,337 0 0
Superannuation contributions to defined benefits
scheme.............................................. 964 729 0 0
(b) Crediting as Revenue:
Dividends received.................................... 335 562 20,000 14,458
Interest received..................................... 6,817 3,258 8,856 1,883
Profit on sale of investments......................... 10,340 35 0 0
Profit on sale of plant and equipment................. 450 709 0 0
Amounts written back from provision for:
Doubtful debts...................................... 12 58 0 0
Diminution of Investments........................... 134 0 0 0
Profit on close out of forward contracts.............. 12,960 5 0 0
Profit on sale of option.............................. 6,000 0 6,000 0
</TABLE>
D-21
<PAGE> 295
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
4. ABNORMAL ITEM
Included in the operating profit is the following abnormal item:
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
------------------- -----------------
1996 1995 1996 1995
------- ------- ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Profit on sale of investment.......................... 10,077 0 0 0
Applicable income tax................................. 0 0 0 0
------- ------- ------ ------
10,077 0 0 0
======= ======= ====== ======
</TABLE>
5. INCOME TAX
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
------------------- -----------------
1996 1995 1996 1995
------- ------- ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(a) Income tax expense
Prima facie income tax expense on operating
profit......................................... 17,197 15,725 10,524 4,710
Income tax effect of
(a) Permanent Differences:
Amortisation of acquisition costs................ 5,787 3,975 0 0
Amortisation of acquired exploration
expenditure.................................... 1,829 1,293 0 0
Non allowable expenses........................... 993 178 39 0
Rebateable dividends............................. (119) (186) (7,200) (4,661)
Other items (net)................................ 0 280 0 0
Non allowable tax losses......................... 594 0 0 0
Non assessable capital gain...................... 0 0 (2,160) 0
(b) Future tax benefits not previously brought to
account relating to:
Deferred exploration expenditure
-- Current year................................. (12,457) (17,355) 0 0
Carry forward tax losses......................... 0 0 (1,412) 0
Capital losses................................... (5,873) 0 0 0
Overprovision in prior years..................... (95) (1,749) 0 (808)
(c) Change in the company tax rate from 33% to 36%.... 0 1,132 0 18
------ ------ ------ ------
Income tax expense............................... 7,856 3,293 (209) (741)
====== ====== ====== ======
Income Tax expense comprises amounts set aside
as:
Provision for income tax attributable to current
year........................................... (1,638) 2,020 0 (808)
Provision for income tax attributable to future
years:
-- Provision for deferred income tax............. 14,727 2,898 (33) 80
-- Future income tax benefits.................... (5,233) (1,625) (176) (13)
------ ------ ------ ------
Income Tax Expense.................................... 7,856 3,293 (209) (741)
====== ====== ====== ======
</TABLE>
D-22
<PAGE> 296
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
6. CONSOLIDATED PROFIT
<TABLE>
<CAPTION>
1996 1995
------ ------
$000 $000
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Contributions to Consolidated Profit:
Plutonic Resources Limited............................................. 6,250 (87)
Plutonic Operations Limited............................................ 28,513 30,154
Plutonic Administration Services Pty Ltd............................... 40 227
Plutonic Finance Pty Ltd............................................... (808) (1,796)
Plutonic Gold Pty Ltd.................................................. (1,123) 3,509
Plutonic Mining Services Pty Ltd....................................... (406) (303)
Plutonic (Baxter) Pty Ltd.............................................. 9,340 4,140
Rubyset Pty Limited.................................................... 396 93
Lachlan Resources N.L.................................................. (869) 456
Lachlan Pacific N.L.................................................... (1) 4
Quotidian No. 101 Pty Limited.......................................... (2) (28)
Archaean Gold NL....................................................... (378) 0
Forsayth N.L........................................................... 546 1,698
Forsayth (Gibson) Ltd.................................................. (3) (117)
Forsayth Group Management Pty Ltd...................................... 0 0
Forsayth Mining Services Ltd........................................... 0 (7)
Forsayth (New Zealand) Ltd............................................. 0 (3)
Forsayth Securities Ltd................................................ 0 (1)
Forsayth Tenements Ltd................................................. 0 (1)
Blacksmith Holdings Pty Ltd............................................ 302 517
Canaustra Holdings Pty Ltd............................................. 0 0
Bellevue Gold Project Pty Ltd.......................................... 0 0
Red Rock Mining Corporation Ltd........................................ 549 406
Red Rock Canada Inc.................................................... 0 0
Red Rock Pacific Ltd................................................... 0 0
Red Rock Europe BV..................................................... 0 0
Grants Patch Mining Limited............................................ (2,685) 6,283
Publishing Investments Company Pty Ltd................................. 0 (1)
Sundowner Minerals N.L................................................. (1,019) (4,152)
Patshore Pty Ltd....................................................... 6 0
Austwhim Resources NL.................................................. 1,534 (744)
Whim Creek Consolidated NL............................................. 520 (123)
------ ------
40,702 40,124
====== ======
</TABLE>
D-23
<PAGE> 297
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
7. DIVIDENDS PAID OR PROVIDED
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1996 1995 1996 1995
------ ------ ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
PAID
Under provision from prior years paid from
profit and loss......................... 5 28 5 28
Interim dividend of 4 cents unfranked
(1995: 4 cents unfranked)............... 7,499 7,200 7,499 7,200
PROVIDED
Final dividend of 7 cents per share
unfranked (1995 -- 5.5 cents
unfranked).............................. 13,126 10,294 13,126 10,294
------ ------ ------ ------
20,630 17,522 20,630 17,522
====== ====== ====== ======
</TABLE>
8. CASH
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1996 1995 1996 1995
------ ------ ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
Cash on hand.............................. 13,779.. 31,878 82 128
Commercial Bills and Deposits............. 5,133 16,356 0 0
------ ------ ------ ------
18,912 48,234 82 128
====== ====== ====== ======
</TABLE>
9. RECEIVABLES AND BULLION -- CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1996 1995 1996 1995
------ ------ ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
Trade Receivables......................... 3,627.. 3,236 112 0
Other Receivables......................... 3,714.. 2,211 0 0
Less provision for doubtful debts......... (30) (24) 0 0
------ ------ ------ ------
7,311 5,423 112 0
Amounts due from controlled entities...... 0 0 0 154
Gold Bullion.............................. 30,236.. 21,866 0 0
------ ------ ------ ------
37,547 27,289 112 154
====== ====== ====== ======
</TABLE>
D-24
<PAGE> 298
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
10. INVENTORIES
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
CURRENT
Gold (at cost)........................ 9,444 36,076 0 0
Gold (at net realisable value)........ 18,243 0 0 0
Consumable Stores and Spares (at
cost)............................... 7,206 6,458 0 0
Other (at cost)....................... 199 161 0 0
------ ------ ------ ------
35,092 42,695 0 0
====== ====== ====== ======
NON-CURRENT
Gold (at cost)*....................... 31,899.. 0 0 0
Gold (at net realisable value)*....... 8,726 0 0 0
------ ------ ------ ------
40,625 0 0 0
====== ====== ====== ======
75,717 42,695 0 0
====== ====== ====== ======
</TABLE>
- ---------------
* represents stockpiled ore which is not expected to be processed in the
following twelve months.
11. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
Prepayments........................... 4,671 3,603 0 0
Refundable deposits................... 167 179 0 0
------ ------ ------- -------
4,838 3,782 0 0
====== ====== ======= =======
</TABLE>
12. RECEIVABLES -- NON-CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
Receivables........................... 50,000 41,573 0 0
Amounts receivable from
controlled entities................. 0 0 233,530 165,079
------ ------ ------- -------
50,000 41,573 233,530 165,079
====== ====== ======= =======
</TABLE>
D-25
<PAGE> 299
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
13. INVESTMENTS
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
----------------- -------------------
1996 1995 1996 1995
------ ------ ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Investments comprise:
INVESTMENTS IN CONTROLLED ENTITIES
Shares listed on a prescribed stock exchange -- at
cost................................................ 0 0 29,622 29,622
Less provision for diminution in value................ 0 0 (9,253) (9,253)
------ ------ ------- -------
0 0 20,369 20,369
------ ------ ------- -------
Shares in unlisted corporations -- at cost............ 0 0 106,806 106,806
------ ------ ------- -------
0 0 127,175 127,175
====== ====== ======= =======
INVESTMENTS IN OTHER CORPORATIONS
Shares listed on a prescribed stock exchange -- at
cost................................................ 63,900 61,573 6,671 6,671
Less provision for diminution in value................ (791) (904) 0 0
------ ------ ------- -------
63,109 60,669 6,671 6,671
====== ====== ======= =======
Shares in unlisted corporations -- at cost............ 2,041 1,836 0 0
Units in unlisted corporations -- at cost............. 495 495 0 0
Less provision for diminution in value................ (2,536) (2,331) 0 0
------ ------ ------- -------
0 0 0 0
====== ====== ======= =======
63,109 60,669 133,846 133,846
====== ====== ======= =======
Aggregate quoted market value of shares listed on a
prescribed stock exchange at 31 December 1996
-- controlled entities.............................. 0 0 28,118 27,079
------ ------ ------- -------
-- other investments................................ 53,257 59,659 3,457 5,223
====== ====== ======= =======
</TABLE>
The directors consider that the underlying value of the investments is not less
than the current carrying value.
<TABLE>
<CAPTION>
PERCENTAGE HELD
BY PLUTONIC AMOUNT OF PLUTONIC
RESOURCES RESOURCES LIMITED'S
LIMITED DIRECT INVESTMENT
--------------- -------------------
1996 1995 1996 1995
----- ----- ------- -------
% % $000 $000
<S> <C> <C> <C> <C>
Plutonic Operations Limited(1).......................... 100 100 24,500 24,500
CONTROLLED ENTITIES OF PLUTONIC OPERATIONS LIMITED
Rubyset Pty Limited(1)............................. 100 100 -- --
Plutonic (Baxter) Pty Ltd(1)............................ 100 100 -- --
Plutonic Administration Services Pty Ltd(1,7)........... 100 100 0 0
Plutonic Finance Pty Ltd(1,7)........................... 100 100 0 0
Plutonic Gold Pty Ltd(1,7).............................. 100 100 0 0
Plutonic Mining Services Pty Ltd(1,7)................... 100 100 0 0
Lachlan Resources N.L.(1)............................... 62.13 62.13 29,622 29,622
</TABLE>
D-26
<PAGE> 300
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
<TABLE>
<CAPTION>
PERCENTAGE HELD
BY PLUTONIC AMOUNT OF PLUTONIC
RESOURCES RESOURCES LIMITED'S
LIMITED DIRECT INVESTMENT
1996 1995 1996 1995
------- -------
% % $000 $000
<S> <C> <C> <C> <C>
</TABLE>
13. INVESTMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
CONTROLLED ENTITIES OF LACHLAN RESOURCES N.L.
Lachlan Pacific N.L.(5,6,8)........................ 55.91 55.91 -- --
Quotidian No. 101 Pty Limited(1)................... 62.13 62.13 -- --
Archaean Gold NL(9,10,1)........................... 57.50 0 -- --
Forsayth N.L.(1)................................... 100 100 82,306 82,306
CONTROLLED ENTITIES OF FORSAYTH N.L.
Forsayth (New Zealand) Ltd(1)...................... 100 100 -- --
Forsayth Securities Ltd(1)......................... 100 100 -- --
Forsayth Tenements Ltd(1).......................... 100 100 -- --
Forsayth Mining Services Ltd(1).................... 100 100 -- --
Forsayth (Gibson) Ltd(1)........................... 100 100 -- --
Forsayth Group Management Pty Ltd(1)............... 100 100 -- --
Blacksmith Holdings Pty Ltd(1)..................... 100 100 -- --
Canaustra Holdings Pty Ltd(1)...................... 100 100 -- --
Bellevue Gold Project Pty Ltd(1)................... 100 100 -- --
Patshore Pty Ltd(1)................................ 100 100 -- --
CONTROLLED ENTITIES OF PATSHORE PTY LTD
Austwhim Resources NL(1)........................... 100 100 -- --
Whim Creek Consolidated NL(1)...................... 100 100 -- --
Red Rock Mining Corp Ltd(1)........................ 100 100 -- --
CONTROLLED ENTITIES OF RED ROCK MINING CORP LTD
Red Rock Canada Inc(2,6)........................... 100 100 -- --
Red Rock Pacific Ltd(3,6).......................... 100 100 -- --
Red Rock Europe BV(4,6)............................ 100 100 -- --
Grants Patch Mining Limited(1)..................... 100 100 -- --
CONTROLLED ENTITIES OF GRANTS PATCH MINING LIMITED
Publishing Investments Company Pty Ltd(1).......... 100 100 -- --
Sundowner Minerals NL(1)........................... 100 100 -- --
------- -------
136,428 136,428
Less provision for diminution in value.................. (9,253) (9,253)
------- -------
127,175 127,175
======= =======
</TABLE>
- ---------------
(1) Incorporated in Australia
(2) Incorporated in Canada
(3) Incorporated in Cook Islands
(4) Incorporated in Netherlands
(5) Incorporated in New Zealand
(6) These companies operate in their country of incorporation
D-27
<PAGE> 301
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
13. INVESTMENTS (CONTINUED)
(7) Rounding off to the nearest thousand dollars has eliminated the following
investments.
<TABLE>
<C> <S> <C> <C>
Actual dollars are shown below:
Plutonic Administration Services Pty Ltd.............................. 1 1
Plutonic Finance Pty Ltd.............................................. 1 1
Plutonic Gold Pty Ltd................................................. 1 1
Plutonic Mining Services Pty Ltd...................................... 2 2
</TABLE>
(8) Audited by Ernst & Young, Hamilton, New Zealand
(9) Acquired 87.67% by Lachlan Resources NL and 3% by Forsayth NL during the
year
(10) Audited by Stanton Partners, Perth.
14. PROPERTY PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------
1996 1995 1996 1995
------- ------- ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Land and Buildings
Freehold land -- at cost............................... 249 332 0 0
Buildings -- at cost................................... 13,363 14,661 0 0
Accumulated depreciation............................... (8,358) (11,831) 0 0
------ ------- ---- ---
5,254 3,162 0 0
------ ------- ---- ---
Motor vehicles
At cost................................................ 5,568 4,564 0 0
Accumulated depreciation............................... (2,325) (1,696) 0 0
------ ------- ---- ---
3,243 2,868 0
------ ------- ---- ---
Plant and equipment
At cost................................................ 12,196 8,924 0 0
Accumulated depreciation............................... (5,989) (4,435) 0 0
------ ------- ---- ---
6,207 4,489 0 0
------ ------- ---- ---
Plant Construction Costs
At cost................................................ 84,238 79,920 0 0
Accumulated depreciation............................... (21,882) (17,487) 0 0
------ ------- ---- ---
62,356 62,433 0 0
------ ------- ---- ---
Capital Works in Progress at cost...................... 20,239 3,961 0 0
------ ------- ---- ---
97,299 76,913 0 0
====== ======= ==== ===
</TABLE>
D-28
<PAGE> 302
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
15. OTHER NON-CURRENT ASSETS
A. DEFERRED COST OF MINERAL PROSPECTS
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------
1996 1995 1996 1995
------- ------- ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(A) EXPLORATION EXPENDITURE
Opening Balance................................... 63,235 65,871 504 307
Acquisition of Controlled Entity.................. 37,644 13,148 0 0
Incurred during year.............................. 32,574 21,869 493 197
------ ------- ---- ---
133,453 100,888 997 504
Less:
Amounts recovered from Joint Venture parties...... (2,491) (639) (175) 0
Other proceeds.................................... (2,014) 0 0 0
Amounts written off............................... (4,347) (4,541) (411) 0
Amortisation...................................... (5,082) (3,590) 0 0
Transferred to acquisition costs.................. (305) (22,000) 0 0
Transferred to preproduction costs................ (9,896) (6,883) 0 0
------ ------- ---- ---
109,318 63,235 411 504
====== ======= ==== ===
(B) ACQUISITION COSTS
Opening Balance................................... 82,877 51,287 0 0
Incurred during year.............................. 2,358 20,632 0 0
Transferred from exploration costs................ 305 22,000 0 0
------ ------- ---- ---
85,540 93,919 0 0
Amortisation...................................... (16,076) (11,042) 0 0
------ ------- ---- ---
69,464 82,877 0 0
====== ======= ==== ===
(C) PREPRODUCTION COSTS
Opening Balance................................... 66,581 48,878 0 0
Incurred during year.............................. 47,770 21,676 0 0
Transferred from exploration expenditure.......... 9,896 6,883 0 0
------ ------- ---- ---
124,247 77,437 0 0
Amortisation...................................... (18,419) (10,856) 0 0
------ ------- ---- ---
105,828 66,581 0 0
====== ======= ==== ===
(D) ADVANCED STRIPPING COSTS
Opening Balance................................... 8,009 0 0 0
Net movement for year............................. 14,460 8,009 0 0
------ ------- ---- ---
22,469 8,009 0 0
====== ======= ==== ===
307,079 220,702 411 504
====== ======= ==== ===
</TABLE>
D-29
<PAGE> 303
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
15. OTHER NON-CURRENT ASSETS (CONTINUED)
B. FUTURE INCOME TAX BENEFITS RECOGNISED
The future income tax benefit is made up of the following estimated tax
benefits:
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------
1996 1995 1996 1995
------- ------- ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Tax losses............................................. 12,082 3,379 0 0
Timing differences..................................... 11,428 14,898 197 22
------ ------- --- ---
23,510 18,277 197 22
====== ======= === ===
330,589 238,979 608 526
====== ======= === ===
</TABLE>
C. FUTURE INCOME TAX BENEFITS NOT RECOGNISED
Future income tax benefits not brought to account, the benefits of which
will only be realised if the conditions for deductibility set out in Note 1(b)
occur.
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Timing differences.................................. 25,161 30,335 0 0
Tax losses.......................................... 17,166 26,123 0 0
------ ------- ------ ------
42,327 56,458 0 0
====== ======= ====== ======
</TABLE>
16. CREDITORS AND BORROWINGS -- CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Bank Overdraft -- Unsecured......................... 0 9,628 0 3
Bank Loan -- Unsecured (Note 24).................... 92,500 0 0 0
Trade creditors and accruals........................ 21,762 14,277 46 140
Other creditors..................................... 2,925 2,540 28 28
------ ------- ------ ------
117,187 26,445 74 171
====== ======= ====== ======
</TABLE>
D-30
<PAGE> 304
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
17. PROVISIONS -- CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Income Tax.......................................... 0 16 0 0
Dividends........................................... 13,126 10,294 13,126 10,294
Employee entitlements............................... 2,672 2,385 0 0
Other............................................... 93 159 0 0
------ ------- ------ ------
15,891 12,854 13,126 10,294
====== ======= ====== ======
</TABLE>
18. CREDITORS AND BORROWINGS -- NON CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Amounts payable to controlled entities.............. 0 0 87,602 72,192
Bank Loan -- Unsecured (Note 24).................... 87,500 120,000 0 0
------ ------- ------ ------
87,500 120,000 87,602 72,192
====== ======= ====== ======
</TABLE>
19. PROVISIONS -- NON-CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Deferred Income Tax................................. 38,180 23,453 148 181
Employee entitlements............................... 134 117 0 0
Mine Rehabilitation................................. 1,984 1,955 0 0
Other............................................... 566 343 0 0
------ ------- --- ---
40,864 25,868 148 181
====== ======= === ===
</TABLE>
D-31
<PAGE> 305
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
20. SHARE CAPITAL
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Authorised 800,000,000 ordinary shares of 50c each
(1995 -- 800,000,000 shares)...................... 400,000 400,000 400,000 400,000
Issued and paid up 187,487,785 ordinary shares of
50c each fully paid (1995 -- 180,416,677
shares)........................................... 93,743 90,208 93,743 90,208
1,705,087 ordinary shares of 50c each paid to 5c
(1995 -- 291,125 shares).......................... 85 15 85 15
------- ------- ------ ------
Total Issued Share Capital................ 93,828 90,223 93,828 90,223
======= ======= ====== ======
</TABLE>
(a) Issues during year
(i) 6,684,417 fully paid ordinary 50c shares to shareholders of Dominion
Mining Limited on 29 January 1996;
(ii) 207,500 fully paid ordinary 50c shares (1995 -- 271,375) and 560 bonus
shares (1995 -- 16,080) on the exercise of options issued under the Plutonic
Resources Limited Employee Share Participation Plan;
(iii) 95,000 fully paid ordinary 50c shares (1995 -- 90,000) and 6,756
bonus shares (1995 -- 3,200) on the exercise of options issued under the
Plutonic Resources Non-Executive Directors' Option Scheme;
(iv) 76,875 fully paid ordinary 50c shares (1995 -- 13,000) issued on
partly paid shares being paid in full; and
(v) 1,490,837 ordinary 50c shares each paid to 5c (1995 -- 291,125) on the
exercise of options issued under the Plutonic Resources Limited Employee Share
Participation Plan.
(b) Partly Paid Shares
<TABLE>
<CAPTION>
CALLS TO BE ON ISSUE OPTIONS CALLS ON ISSUE
RECEIVED 31.12.95 EXERCISED RECEIVED 31.12.96
- ----------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
$ .75 236,250 -- 25,000 211,250
.84 9,000 -- 9,000 --
.85 32,375 1,330,462 31,875 1,330,962
.89 -- 8,000 8,000 --
.90 13,500 149,375 -- 162,875
$5.99 -- 3,000 3,000 --
------- --------- ------ ---------
291,125 1,490,837 76,875 1,705,087
------- --------- ------ ---------
</TABLE>
21. OPTIONS
(A) PLUTONIC RESOURCES EMPLOYEE SHARE PARTICIPATION PLAN ("THE PLAN")
The plan operates by the granting of options over shares in the Chief
Entity to employees. The options can be exercised at the discretion of the
employee over a period of five years to the maximum extent of 10, 20, 30 and 40
percent per annum from the date of grant and the 1st, 2nd and 3rd anniversaries
of the date of grant respectively. Options are granted by the directors at
various times. The maximum number of shares which may be subject to employee
options is 5% of the issued capital of the Chief Entity. Options over a further
D-32
<PAGE> 306
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
21. OPTIONS (CONTINUED)
6,036,389 shares may be granted. The options expire after five years from the
date of grant of the option or on termination of the employees' services,
whichever occurs first.
Employees may exercise their options by paying either 5 cents per share or
by paying the full exercise price per share.
Options and partly paid shares are not transferable until the full exercise
price has been paid and fully paid shares issued to the option holder.
The Chief Entity does not provide any assistance to employees in funding
the exercise of options.
The share price at 31 December was $5.75 (1995: $6.30).
The total market value of shares issued during the year was $1,521,533
(1995 -- $1,535,000). Proceeds from the issue of these shares was $301,680
(1995 -- $272,000).
Details of movements during the year are shown in the table below.
<TABLE>
<CAPTION>
MOVEMENT DURING YEAR IN THE NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED UNDER THE PLAN
- ------------------------------------------------------------------------------------------
DATE OUTSTANDING OUTSTANDING
OF EXERCISE AT LAPSED ON AT
GRANT PRICE 31.12.95 GRANTED EXERCISED TERMINATION 31.12.96
- --------- ----- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
04.12.91 $ .90 1,455,962 0 1,455,962 0 0
04.12.91 .95 181,875 0 181,875 0 0
09.01.92 .90 24,250 0 23,000 1,250 0
09.01.92 .95 4,500 0 4,500 0 0
12.10.94 6.04 320,000 0 25,000 7,000 288,000
08.12.95 6.04 200,000 0 0 0 200,000
21.05.96 7.75 0 200,000 0 0 200,000
21.05.96 8.75 0 200,000 0 0 200,000
24.06.96 7.75 0 765,000 0 0 765,000
24.06.96 8.75 0 765,000 0 0 765,000
26.06.96 7.75 0 460,000 0 0 460,000
26.06.96 8.75 0 460,000 0 0 460,000
--------- --------- --------- ----- ---------
2,186,587 2,850,000 1,690,337 8,250 3,338,000
========= ========= ========= ===== =========
</TABLE>
(B) PLUTONIC RESOURCES NON-EXECUTIVE DIRECTORS' OPTION SCHEME (THE SCHEME)
The scheme operates by the granting of options over shares in the Chief
Entity to Directors. The options can be exercised at the discretion of the
director at any time within five years of the date of grant. Options recommended
by the directors are approved for granting by shareholders at the Annual General
Meeting. The maximum number of shares which may be subject to non-executive
director options is 500,000 shares. Options over a further 460,000 shares may be
granted. The options expire after five years from the date of grant or on
resignation of the director from the Board.
Options are not transferable until the full exercise price has been paid
and fully paid shares issued to the option holder.
The Chief Entity does not provide any assistance to directors in funding
the exercise of options.
D-33
<PAGE> 307
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
21. OPTIONS (CONTINUED)
The total market value of shares issued during the year was $677,100
(1995 -- $605,000). Proceeds from the issue of these shares was $89,300
(1995 -- $110,250).
Details of movements during the year are shown in the table below.
<TABLE>
<CAPTION>
MOVEMENT DURING YEAR IN THE NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED UNDER
THE SCHEME
- -------------------------------------------------------------------------------
DATE OUTSTANDING OUTSTANDING
OF EXERCISE AT AT
GRANT PRICE 31.12.95 GRANTED EXERCISED 31.12.96
- -------- -------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
31.05.91 $ .94 95,000 0 95,000 0
28.11.95 $ 5.87 40,000 0 0 40,000
------- --- ------ ------
135,000 0 95,000 40,000
======= === ====== ======
</TABLE>
22. RESERVES
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST
THOUSAND DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Share premium account................................ 162,756 124,840 162,756 124,840
======= ======= ======= =======
Balance at 31 December 1995.......................... 124,840 124,657 124,840 124,657
Premium on shares issued pursuant to:
-- Share Issue..................................... 37,633 0 37,633 0
-- Employee Share Participation Plan............... 245 128 245 128
-- Non-Executive Directors' Option Scheme.......... 42 65 42 65
Bonus Issue of ordinary shares pursuant to:
-- Employee Share Participation Plan............... 0 (8) 0 (8)
-- Non-Executive Directors' Option Scheme......... (4) (2) (4) (2)
------- ------- ------- -------
BALANCE AT 31 DECEMBER 1996.......................... 162,756 124,840 162,756 124,840
======= ======= ======= =======
</TABLE>
23. OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
SHARE CAPITAL RESERVES PROFIT & LOSS TOTAL
------------- -------- ------------- ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST
THOUSAND DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Balance at 31 December 1995...................... 15,869 1,795 (4,985) 12,679
Movement for year................................ 784 78 (65) 797
Profit/(Loss) for year........................... 0 0 (788) (788)
------ ------ ------ ------
Net movement for year............................ 784 78 (835) 9
------ ------ ------ ------
BALANCE 31 DECEMBER 1996......................... 16,653 1,873 (5,838) 12,688
====== ====== ====== ======
</TABLE>
24. UNSECURED FINANCE FACILITY
The finance facility represents advances which may be drawn down with ABN
AMRO Australia Limited. At 31 December 1996 $180,000,000 (1995 -- $120,000,000)
has been drawn down. The maximum amount available is $250,000,000
(1995 -- $250,000,000).
D-34
<PAGE> 308
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
25. SUPERANNUATION COMMITMENTS
The Economic Entity contributes to three active superannuation funds
covering all of its employees.
The Plutonic Resources Superannuation Plan provides defined pension and/or
lump sum benefits for certain employees on retirement or death based on years of
plan membership and average salary over the last three years of employment.
Benefits on an accumulation basis are provided for terminations other than
retirement or death. The Plan is non-contributory whereby only the company
contributes to the Plan at rates determined by the Plan Actuary.
The last actuarial review of the Plan dated 21 December 1995 covered the
actuarial assessment as at 1 July 1995, and was made by consulting actuaries
William M Mercer Pty Ltd (Actuary Mr Ian W Orchard FIA FIAA). The next actuarial
review of this plan will be carried out as at 1 July 1998.
The following details were shown in the Plan's financial statements as at
30 June 1996 being the date to which the latest financial statements of the plan
have been prepared.
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO
THE NEAREST
THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C>
Net market value of Plan assets as at 30 June 1996....................... 3,510 2,724
Accrued benefits at the date of the last actuarial review(1)............. 2,526 2,526
----- -----
Surplus of Net Market Value of Plan assets over Accrued Benefits......... 984 198
----- -----
Vested benefits of the plan as at 30 June 1996........................... 2,199 1,667
===== =====
</TABLE>
- ---------------
(1) Accrued benefits as at 1 July 1995 being the date of the last actuarial
review.
All other employees have contributions made to funds providing benefits on
an accumulation basis, covering award productivity superannuation requirements
and personal superannuation requirements with transportability of benefits.
The economic entity has satisfied the legally enforceable contribution rate
of 6% of employees wages and salaries.
26. JOINT VENTURES:
The economic entity has interests in the following material joint ventures,
whose principal activities are exploration and the production of gold:
<TABLE>
<CAPTION>
JOINT VENTURE CONTRIBUTION TO
OPERATING PROFIT/(LOSS)
-------------------------------------
INTEREST HELD INTEREST HELD 1996 1995
31 DECEMBER 1996 31 DECEMBER 1995 ------ ------
---------------- ---------------- $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C> <C> <C>
Baxter................. 66.67% 66.67% 11,088 5,520
Keith Kilkenny......... 50.00% 50.00% 0 0
Mt Morgans............. 80.00% 80.00% 3,410 (744)
Peak Hill.............. 66.67% 66.67% 0 4,903
------ ------
14,498 9,679
====== ======
</TABLE>
D-35
<PAGE> 309
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
26. JOINT VENTURES (CONTINUED):
The interests in joint ventures are included in the account as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Current assets
Cash and deposits................................ 1,268 2,217
Receivables and bullion.......................... 8,030 5,317
Inventories...................................... 19,277 10,901
Other Current Assets............................. 43 0
------ ------
28,618 18,435
====== ======
Non-current assets
Deferred costs of mining properties.............. 18,403 16,631
Other Non-Current Assets......................... 8,478 9,761
------ ------
26,881 26,392
====== ======
Current liabilities
Creditors and borrowings......................... 5,739 10,259
Provisions....................................... 592 373
------ ------
6,331 10,632
====== ======
Non-current liabilities
Provisions....................................... 678 634
====== ======
</TABLE>
27. COMMITMENTS
ECONOMIC ENTITY
(A) EXPLORATION JOINT VENTURES
Controlled Entities are contributing parties to exploration joint venture
agreements. Under the terms of those agreements the controlled entities will be
required to contribute toward the exploration and other costs if they are to
maintain or increase their percentage holdings.
Expenditure commitments as at 31 December 1996 are:
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
----------------- -------------------
1996 1995 1996 1995
------ ------ ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Not later than 1 year................................. 317 1,071 0 0
Later than 1 year and not later than 2 year........... 0 1,306 0 0
Later than 2 years and not later than 5 years......... 14,312 8,341 0 0
Later than 5 years.................................... 850 0 0 0
------ ------- --- ---
15,479 10,718 0 0
====== ======= === ===
</TABLE>
D-36
<PAGE> 310
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
27. COMMITMENTS (CONTINUED)
(B) LEASE COMMITMENTS
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
----------------- -----------------
1996 1995 1996 1995
------ ------ ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Operating Leases:
Office and equipment lease commitments:
Not later than 1 year................................. 860 1,105 0 0
Later than 1 year and not later than 2 years.......... 828 37 0 0
Later than 2 years and not later than 5 years......... 1,449 0 0 0
Later than 5 years.................................... 0 0 0 0
----- ----- --- ---
3,137 1,142 0 0
===== ===== === ===
</TABLE>
(C) CAPITAL EXPENDITURE
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
----------------- -----------------
1996 1995 1996 1995
------ ------ ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Contracts for capital expenditure committed at 31
December 1996......................................... 21,600 10,000 0 0
</TABLE>
(D) TENEMENT EXPENDITURE COMMITMENTS
Expenditure required to maintain tenements in good standing.
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
----------------- -----------------
1996 1995 1996 1995
------ ------ ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(i) Rentals 1997........................................ 2,126 1,309 24 23
(ii) Expenditure requirements 1997...................... 26,235 17,437 348 381
</TABLE>
(E) FORWARD GOLD SALES CONTRACTS
As at 31 December 1996, 770,040 ounces (1995 -- 780,950 ounces ) of gold
had been committed for sale under forward contracts at a year end value of $581
(1995 -- $612) per ounce.
28. CONTINGENT LIABILITIES
CHIEF ENTITY
UNSECURED
Guarantees
The Chief Entity has given guarantees to third parties in respect of leases
of controlled entities. The maximum amount of the liability is $3,137,000
(1995 -- $627,395).
D-37
<PAGE> 311
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
28. CONTINGENT LIABILITIES (CONTINUED)
ECONOMIC ENTITY
UNSECURED
(a) Service Agreements
The maximum contingent liability of the Chief Entity and its controlled
entities for termination benefits under service agreements with directors and
persons who take part in the management of the company as at 31 December 1996
was $1,588,613 (1995 -- $2,397,000).
(b) Further amounts payable on the acquisition of assets
Controlled entities have purchased interests in tenements and Joint
Ventures and shares in controlled entities. The purchase agreements provide that
additional purchase price may be paid conditional upon certain events. The
maximum amount to be paid is $4m.
SECURED
Security Deposits
Controlled entities have given guarantees amounting to $3,522,700
(1995 -- $1,695,000) in respect of security deposits relating to various
tenements. The guarantees are secured by deposits with the bank.
29. REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
-------------- -------------------
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Amounts received or due and receivable by directors of the
Economic Entity including retirement benefits........... 1,652 648
Amounts received or receivable by directors of Plutonic
Resources Limited....................................... 826 648
</TABLE>
D-38
<PAGE> 312
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
29. REMUNERATION OF DIRECTORS (CONTINUED)
Number of directors of Plutonic Resources Limited whose remuneration
including retirement benefits were within the following bands.
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
LIMITED
-------------------
1996 1995
---- ----
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO
THE NEAREST
THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C>
$ 0 - $ 9,999...................................................... 0 2
$ 10,000 - $ 19,999...................................................... 0 1
$ 30,000 - $ 39,999...................................................... 1 4
$ 40,000 - $ 49,999...................................................... 3 0
$ 70,000 - $ 79,999...................................................... 1 1
$ 80,000 - $ 89,999...................................................... 0 1
$190,000 - $199,999...................................................... 1 0
$320,000 - $329,999...................................................... 0 1
$390,000 - $399,999...................................................... 1 0
</TABLE>
The economic entity has adopted ASC Class Order 96/1171 with respect to
disclosure of directors' remuneration.
30. REMUNERATION OF EXECUTIVES
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
--------------- -----------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Amounts received or due and receivable by executive
officers of the Economic Entity whose remuneration
exceeds $100,000........................................ 3,168 1,828
Number of executives whose remuneration exceeds
$100,000................................................ 19 10
Amounts received or due and receivable by executive
officers of Plutonic Resources Limited including
executive directors whose remuneration exceeds
$100,000................................................ 3,168 1,828
Number of executives whose remuneration exceeds
$100,000................................................ 19 10
</TABLE>
D-39
<PAGE> 313
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
30. REMUNERATION OF EXECUTIVES (CONTINUED)
Number of executive officers of Plutonic Resources Limited who received
remuneration in excess of $100,000 were within the following bands:
<TABLE>
<S> <C> <C>
$100,000 - $109,999.................................. 1 0
$110,000 - $119,999.................................. 5 0
$120,000 - $129,999.................................. 2 0
$130,000 - $139,999.................................. 1 1
$140,000 - $149,999.................................. 1 0
$150,000 - $159,999.................................. 1 2
$160,000 - $169,999.................................. 0 3
$170,000 - $179,999.................................. 1 1
$180,000 - $189,999.................................. 3 0
$190,000 - $199,999.................................. 0 2
$200,000 - $209,999.................................. 2 0
$230,000 - $239,999.................................. 1 0
$320,000 - $329,999.................................. 0 1
$390,000 - $399,999.................................. 1 0
</TABLE>
31. SEGMENT REPORTING
The Economic Entity carries out mining operations and mineral exploration
predominantly in Australia.
32. RELATED PARTY DISCLOSURES
The names of the Directors of the Chief Entity who held office during the
year are:
<TABLE>
<S> <C>
Mr E P McClintock Mr R J Hawkes
Tan Sri Ibrahim Menudin Mr Abdul Samad Haji Alias
Mr W A Bennett Mr D L Cooper
Sir Eric McClintock (Retired
22.3.96)
</TABLE>
Alternate Directors
Mr C W Lim (alternate for Tan Sri Ibrahim Menudin)
Mr L K Phan (alternate for Mr Abdul Samad Haji Alias -- appointed 23 May
1996)
Mr R Rae (alternate for Mr Abdul Samad Haji Alias -- resigned 23 May
1996)
Transactions with related parties during the year were as follows:
(A) DIRECTORS
Legal fees amounting to $2,902,512 (1995 -- $586,000) were paid to Deacons
Graham & James, Melbourne (of which Mr D L Cooper is a consultant).
These payments were made for services rendered in the ordinary course of
business and on normal commercial terms and conditions.
D-40
<PAGE> 314
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
32. RELATED PARTY DISCLOSURES (CONTINUED)
(B) CONTROLLED ENTITIES -- WHOLLY OWNED
Controlled entities made payments and received funds on behalf of the Chief
Entity and other controlled entities by way of intercompany loan accounts with
each controlled entity. These transactions are in the normal course of business
and on normal terms and conditions.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C>
Interest received................................ 8,677 1,848
Dividend received................................ 20,000 14,458
Interest paid.................................... 3,248 353
Other Income..................................... 6,000 0
</TABLE>
The amounts receivable from controlled entities at balance date:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C>
Receivables -- Non-Current....................... 233,530 165,079
Creditors and Borrowings -- Non-Current.......... 87,602 72,192
</TABLE>
(C) JOINT VENTURE PARTIES
Controlled entities acted as operators of projects conducted with joint
venture parties. Amounts receivable from joint venture parties as at 31 December
1996 totalled $881,250 (1995-$424,089).
33. EARNINGS PER SHARE
(A) BASIC
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Weighted average number of ordinary shares (millions) on issue
used in the calculation of basic earnings per share.......... 187.4 180
Basic Earnings per share (cents per share)..................... 21.7 22.3
</TABLE>
(B) DILUTED
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Weighted average number of ordinary shares (millions) and
options on issue used in the calculation of diluted earnings
per share.................................................... 190.8 183.0
Diluted Earnings per share (cents per share)................... 21.3 21.9
</TABLE>
D-41
<PAGE> 315
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
34. CASH FLOW STATEMENT
(A) RECONCILIATION OF CASH
Cash includes cash, short term bills and deposits at call and gold bullion,
net of outstanding overdrafts. Cash as at the end of the financial year as shown
in the statements of cash flows is reconciled to the related items in the
balance sheet as follows:
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Cash................................................ 13,779 31,878 82 128
Commercial bills and deposits....................... 5,133 16,356 0 0
Gold bullion........................................ 30,236 21,866 0 0
Bank overdraft...................................... 0 (9,628) 0 (3)
------- ------- ---- ----
49,148 60,472 82 125
======= ======= ==== ====
</TABLE>
D-42
<PAGE> 316
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
34. CASH FLOW STATEMENT (CONTINUED)
(B) RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Operating profit after income tax................... 39,914 40,387 29,442 13,827
Add (less) items classified as investing/financing
activities:
(Profit)/loss on sale of investments................ (10,340) 2,041 0 0
(Profit)/loss on sale of non-current assets......... (450) (709) 0 0
Interest paid -- external entities.................. 10,397 1,148 0 0
Dividends received -- external entities............. (335) (562) 0 0
Interest received -- external entities.............. (6,817) (3,258) (179) (35)
Exploration expenditure written off................. 4,347 4,541 411 0
Profit on sale of option............................ (6,000) 0 0 0
Add (less) non cash items:
Amounts set aside to provision for:
Amortisation of acquired exploration
expenditure.................................... 5,082 3,590 0 0
Amortisation of acquisition costs................. 16,076 11,042 0 0
Amortisation of pre-production costs.............. 18,419 10,856 0 0
Depreciation of non-current assets................ 8,735 7,815 0 0
Diminution of investments (written back).......... 134 (1,884) 0 0
Employee benefits................................. 304 876 0 0
Doubtful debts (written back)..................... 28 (58) 0 0
Restoration and rehabilitation.................... 364 0 0 0
Interest paid -- related entity..................... 0 0 3,248 353
Interest received -- related entity................. 0 0 (8,677) (1,848)
Other income -- related entity...................... 0 0 (6,000) 0
Overhead recovery fees received..................... 0 0 (384) (384)
Dividend received -- related entity................. 0 0 (20,000) (14,458)
(Decrease)/increase in income taxes payable......... (16) (9,220) 0 (808)
(Decrease)/increase in deferred taxes payable....... 9,494 4,523 (208) 67
------ ------ ------ -----
Net cash provided by (used in) operating activities
before change in assets and liabilities........... 89,336 71,128 (2,347) (3,286)
Change in assets and liabilities adjusted for
effects of purchase of a controlled entity during
the financial year:
(Increase)/decrease in receivables.................. (1,809) (9,621) 42 0
(Increase)/decrease in other current assets......... (34,062) (21,367) 0 0
(Decrease)/increase in creditors.................... 7,100 7,539 (94) 111
(Decrease)/increase in provisions................... (492) 2,083 0 0
------ ------ ------ -----
Net cash provided by (used in) operating
activities........................................ 60,073 49,762 (2,399) (3,175)
====== ====== ====== =====
</TABLE>
D-43
<PAGE> 317
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
34. CASH FLOW STATEMENT (CONTINUED)
(C) CONTROLLED ENTITIES ACQUIRED
On 1 July 1996, Lachlan Resources NL, a controlled entity, acquired a
controlling interest in the issued capital of Archaean Gold NL
On 15 December 1995 Forsayth NL, a controlled entity, acquired a 100%
interest in the issued capital of Patshore Pty Ltd.
<TABLE>
<CAPTION>
FAIR VALUE OF NET ASSETS OF ENTITY ACQUIRED: 1996 1995
------ ------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Cash................................................. 3,032 262
Short-term bills and deposits........................ 2,484 0
Plant and equipment.................................. 132 12,565
Inventories.......................................... 0 3,625
Prepayments.......................................... 16 273
Deferred cost of mineral prospects................... 37,644 33,300
Receivables.......................................... 79 2,771
Trade creditors and accruals......................... (772) (8,496)
Provisions........................................... (314) (2,126)
Future Income Tax Benefit............................ 0 10,471
------ ------
42,301 52,645
Outside equity interests at acquisition.............. (797) 0
------ ------
Consideration........................................ 41,504 52,645
====== ======
</TABLE>
35. RECONCILIATION TO U.S. GAAP
The following footnote has been prepared in order to comply with United
States generally accepted accounting principles for presentation in Homestake
Mining Company's ("Homestake") document relating to Homestake and Plutonic
agreeing to combine by means of a scheme of arrangement.
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"). In
Australia, financial statements are prepared in accordance with accounting
standards issued by the Australian Accounting Standards Board ("Australian
GAAP"), which are codified in Australian Corporations Law. Certain differences
between U.S. GAAP and Australian GAAP as they relate to the conversion of
Plutonic's financial statements to U.S. GAAP are summarised below:
(a) Plutonic defers ongoing exploration expenditures until the
viability of a project is determined. If a decision is made to
proceed with a project the expenditures are transferred to pre-
production cost to be amortised over the life of the mine. If a
decision is made to abandon a project the expenditures are written
off at the time of such determination. Under U.S. GAAP, exploration
expenditures incurred prior to the completion of a favourable
feasibility study are expensed as incurred. Following completion of
a favourable feasibility study, pre-production exploration
expenditures are capitalised and amortised using the
units-of-production method based on proven and probable reserves.
D-44
<PAGE> 318
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
35. RECONCILIATION TO U.S. GAAP (CONTINUED)
(b) Plutonic accounts for business combinations using the purchase
method. In its application of the purchase method, Plutonic may
assign a portion of the purchase price to acquired exploration
potential ("AEP"). AEP is amortised using the straight-line method
over periods not exceeding ten years. If it is subsequently
determined that the exploration properties acquired in a business
combination do not contain significant mineralisation, the
remaining unamortised AEP associated with that business combination
would be written down at the time of such determination. Under U.S.
GAAP, AEP would be specifically allocated to individual exploration
properties. If it is subsequently determined that significant
mineralisation does not exist on any of these individual
properties, they would be written down at the time of such
determination. If a property becomes a producing mine, its carrying
value would be amortised using the units-of-production method based
on proven and probable reserves.
(c) Plutonic amortises mine development and pre-production expenditures
together with estimates of expected future development expenditures
using the units-of-production method based on its estimate of
future life-of-mine production. Plutonic's estimate of future
life-of-mine production includes proven and probable reserves plus
a portion of resources which has not yet been converted to reserves
but which Plutonic believes there is sufficient confidence that
such resources will be converted to reserves after further
delineation drilling. Plutonic has a history of successfully
converting resources included in its life-of-mine plans into
reserves. If a significant change in estimated future life-of-mine
production occurs during the period, amortisation expense for that
period is adjusted to reflect the change. Under U.S. GAAP, mine
development and pre-production expenditures, excluding any
provision for expected future development expenditures, are
amortised using the units-of-production method based on published
proven and probable reserves only. A significant change in proven
and probable reserves is treated prospectively for amortisation
purposes.
(d) In 1996, Plutonic recognised a gain of $13 million on the early
close out of certain gold forward sales contracts. Under U.S. GAAP,
these forward sales contacts would have been classified as hedges
of future designated production and the gain realised on the early
close out would have been deferred and recognised in income as the
designated production was delivered.
(e) Plutonic uses the liability method of accounting for income taxes,
which also is required under U.S. GAAP. However, there are
differences in the application of the liability method under U.S.
GAAP. The most significant differences relate to acquisitions
accounted for using the purchase method, recognition of future
income tax benefits and the presentation of the current and
long-term portion of future tax benefits and deferred tax
liabilities in the Balance Sheet.
1. Under Australian GAAP, when an acquisition price exceeds the
underlying net book value of the assets acquired, the excess
purchase price is allocated to the acquired assets and liabilities
based on fair values. Deferred taxes are not established for any
differences between the book and tax bases of assets, which may
arise from this allocation. The assets are then amortised in
accordance with the company's normal depreciation policies. Under
U.S. GAAP, when an acquisition is accounted for using the purchase
method, the excess purchase price paid above the net book value of
the assets acquired also is allocated to the acquired assets and
liabilities based on fair values. However, to the extent that such
allocation creates a temporary difference, deferred taxes are
established and the excess purchase price is increased by an equal
amount. The assets are then amortised in accordance with the
company's normal depreciation policies and the deferred tax
provision is accounted for in accordance with the company's normal
tax accounting policies.
D-45
<PAGE> 319
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
35. RECONCILIATION TO U.S. GAAP (CONTINUED)
2. Under Australian GAAP, future income tax benefits relating to
timing differences are not recognised unless realisation of the
benefit is assured beyond reasonable doubt. Future income tax
benefits resulting from net operating losses are not recognised
unless there is virtual certainty of realisation of the benefit.
Acquired tax benefits are valued at market at the time of
acquisition and subsequent to acquisition recognised in accordance
with the foregoing criteria. Under U.S. GAAP, a deferred tax asset
is recognised for deductible temporary differences and operating
loss and tax credit carry-forwards. A valuation allowance is
recognised if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax
asset will not be realised.
3. Under Australian GAAP, the current and long-term portion of future
tax benefits and deferred tax liabilities are not separately
disclosed in the Balance Sheet. Under U.S. GAAP, the current and
long term portions of future tax benefits and deferred tax
liabilities are separately disclosed.
(f) Represents the income tax effect resulting from (a) to (e) above.
(g) To reflect minority interests' share of the above U.S. GAAP
adjustments and to present minority interest outside of
shareholders' equity in accordance with U.S. GAAP.
(h) Plutonic carries investments in listed and unlisted companies at
cost except that declines in market value judged to be other than
temporary are recognised in determining net income. Under U.S.
GAAP, Plutonic's investments would be classified as
available-for-sale investments and would be carried at market
value. Unrealised gains and losses on these investments are
recorded as a separate component of shareholders' equity except
that declines in market value judged to be other than temporary are
recognised in determining net income.
(i) Plutonic retroactively records common stock dividends declared
after an accounting period has ended but before the financial
statements are issued. Under U.S. GAAP, common stock dividends
payable are recorded in the period in which they are declared.
<TABLE>
<CAPTION>
FOR THE
YEAR
ENDED
31 DECEMBER
1996
$'000
-----------
<S> <C> <C>
Operating profit after income tax and outside equity interests as
reported under Australian GAAP.......................................... 40,702
Reconciliation to U.S. GAAP:
Accounting for ongoing exploration expenditure (a)................... (23,722)
Accounting for acquired exploration properties (b)................... 4,871
Accounting for capitalised expenditure (c)................... (344)
Accounting for forward contract closeouts (d)................... (3,499)
Accounting for income taxes: (e) 1................. (6,655)
(e) 2................. (5,100)
Income tax effect of above (f)................... 16,476
Accounting for minority interests (g)................... 1,513
Net income in accordance with U.S. GAAP................................. 24,242
=======
Earnings per share in accordance with U.S. GAAP......................... 0.13
=======
</TABLE>
D-46
<PAGE> 320
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
35. RECONCILIATION TO U.S. GAAP (CONTINUED)
Consolidated balance sheets prepared in accordance with U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
AUSTRALIAN U.S.
GAAP ADJUSTMENTS GAAP
$'000 $'000 $'000
---------- ---------- -------
<S> <C> <C> <C> <C>
As at 31 December 1996
Current Assets
Cash...................................................... 18,912 18,912
Receivables & Bullion..................................... 37,547 37,547
Inventories............................................... 35,092 35,092
Other..................................................... 4,838 4,838
Future income tax benefits................................ 0 (e)3 9,359 9,359
TOTAL CURRENT ASSETS............................... 96,389 105,748
------- -------
Non-Current Assets
Receivables............................................... 50,000 50,000
Investments............................................... 63,109 (h) (9,852) 53,257
Inventories............................................... 40,625 40,625
Property, plant & equipment............................... 97,299 (e)2 (2,000) 95,299
Deferred cost of mineral prospects........................ 307,079 (a) (80,327)
(b) 9,611
(c) (18,552)
(e)1 53,896
(e)2 (15,300) 256,407
Future income tax benefits................................ 23,510 (e)3 (9,359)
(f) 36,431 50,582
TOTAL NON-CURRENT ASSETS........................... 581,622 546,170
------- -------
TOTAL ASSETS................................................ 678,011 651,918
======= =======
As at 31 December 1996
Current Liabilities
Creditors and borrowings.................................. 117,187 117,187
Provisions and other...................................... 15,891 (d) 3,499
(i) (13,126) 6,264
Deferred income taxes..................................... 0 (e)3 7,458 7,458
TOTAL CURRENT LIABILITIES.......................... 133,078 130,909
------- -------
Non-Current Liabilities
Creditors and borrowings.................................. 87,500 87,500
Provisions................................................ 2,684 2,684
Deferred income taxes..................................... 38,180 (e)1 53,896
(e)3 (7,458)
(f) (348) 84,270
TOTAL NON-CURRENT LIABILITIES...................... 128,364 174,454
------- -------
TOTAL LIABILITIES........................................... 261,442 305,363
======= =======
NET ASSETS.................................................. 416,569 346,555
======= =======
</TABLE>
D-47
<PAGE> 321
PLUTONIC RESOURCES LIMITED
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1996
<TABLE>
<CAPTION>
AUSTRALIAN U.S.
GAAP ADJUSTMENTS GAAP
$'000 $'000 $'000
------- ------- -------
<S> <C> <C> <C> <C>
</TABLE>
35. RECONCILIATION TO U.S. GAAP (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Shareholders' Equity
Share capital............................................. 93,828 93,828
Reserves.................................................. 162,756 162,756
Unrealized gain (loss) on investments..................... 0 (h) (9,852) (9,852)
Accumulated profits....................................... 147,297 (a) (80,327)
(b) 9,611
(c) (18,552)
(d) (3,499)
(e)2 (17,300)
(f) 36,779
(g) 2,946
(i) 13,126 90,081
Outside equity interests.................................. 12,688 (g) (2,946) 9,742
------- -------
TOTAL SHAREHOLDERS' EQUITY.................................. 416,569 346,555
======= =======
</TABLE>
D-48
<PAGE> 322
STATEMENT BY DIRECTORS
In accordance with a resolution of the directors of Plutonic Resources
Limited, we state that --
(1) In the opinion of the directors:
(a) the profit and loss account is drawn up so as to give a true and
fair view of the profit of the Company for the financial year ended 31
December 1996;
(b) the balance sheet is drawn up so as to give a fair view of the
state of affairs of the Company as at 31 December 1996; and
(c) at the date of this statement there are reasonable grounds to
believe that the Company will be able to pay its debts as and when they
fall due.
(2) In the opinion of the directors the consolidated accounts:
(a) give a true and fair view of:
(i) the profit of the Economic Entity, constituted by the Company
and its entities it controlled from time to time during the financial
year, for the financial year ended 31 December 1996; and
(ii) the state of affairs of the Economic Entity constituted by the
Company and its entities that it controls at the year's end, as at 31
December 1996; and
(b) have been made out in accordance with Divisions 4A and 4B of Part
3.6 of the Corporations Law
On behalf of the Board.
<TABLE>
<S> <C>
Paul McClintock /s/ PAUL MCCLINTOCK
---------------------------------------------
Chairman
Ronald J Hawkes /s/ RONALD J HAWKES
---------------------------------------------
Managing Director
Sydney, 27 February 1997.
</TABLE>
THIS STATEMENT BY DIRECTORS IS DATED AS OF 27 FEBRUARY 1997 AND ACCORDINGLY
DOES NOT RELATE TO NOTE 35, WHICH IS DATED AS OF 15 JANUARY 1998.
D-49
<PAGE> 323
INDEPENDENT AUDITOR'S REPORT
To the Members of Plutonic Resources Limited
SCOPE
We have audited the accompanying financial statements of Plutonic Resources
Limited, being the Profit and Loss Statements for the year ended 31 December
1996, the Balance Sheets at 31 December 1996 and the Statements of Cash Flows
for the year ended 31 December 1996, Notes and the Statement by Directors. The
financial statements include the accounts of Plutonic Resources Limited and the
consolidated accounts of the economic entity comprising Plutonic Resources
Limited and the entities it controlled from time to time during the financial
year and at the year's end. The company's directors are responsible for the
preparation and presentation of the financial statements and the information
they contain. We have conducted an independent audit of these financial
statements in order to express an opinion on them to the members of the company.
Our audit has been conducted in accordance with the Australian Auditing
Standards, which do not differ in any material respect from auditing standards
generally accepted in the United States, to provide reasonable assurance as to
whether the financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements, and the evaluation of
accounting policies and significant accounting estimates. These procedures have
been undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Australian
accounting standards, statutory requirements and other mandatory professional
requirements so as to present a view which is consistent with our understanding
of the company's and the economic entity's financial position and the results
and cash flows of their operations.
The names of the entities controlled during all or part of, and at the end
of the year, but of which we have not acted as auditor are disclosed in Note 13.
We have, however, received sufficient information and explanations concerning
these controlled entities to enable us to form an opinion on the consolidated
accounts.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of Plutonic Resources Limited are
properly drawn up:
(a) so as to give a true and fair view of:
(i) the state of affairs of the company and of the economic entity
as at 31 December 1996, and of the profit and cash flows of the
company and of the economic entity for the financial year ended
on that date; and
(ii) the other matters required by Division 4, 4A and 4B of Part
3.6 of the Corporations Law to be dealt with in the financial
statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other
mandatory professional requirements.
Accounting principles generally accepted in Australia vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of consolidated
operating profit for the year ended 31 December 1996 and the determination of
consolidated shareholders' equity attributable to shareholders of Plutonic
Resources Limited as at 31 December 1996 to the approximate extent indicated in
Note 35 to the financial statements.
ERNST & YOUNG
/s/ I. R. BAGGIE
--------------------------------------
I. R. Baggie
Partner
Date opinion formed: 27 February 1997, except for Note 35 for which the opinion
was formed on 15 January 1998.
D-50
<PAGE> 324
PLUTONIC RESOURCES LIMITED
A.C.N. 006 245 629
AND CONTROLLED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 1995
D-51
<PAGE> 325
DIRECTORS' REPORT
The Directors of Plutonic Resources Limited ("the Chief Entity") present
their report for the year ended 31 December 1995.
DIRECTORS
The Directors of the Chief Entity in office at the date of this report are:
SIR ERIC MCCLINTOCK. Chairman: also Chairman of McClintock Associates
Group.
MR R J HAWKES. Managing Director: Geologist, B.Sc, F AusIMM, FGAC,
MAIMM, 31 years experience in the mining industry. Director of Lachlan
Resources N.L.
MR D L COOPER. Solicitor: LLB, Consultant to the firm of Deacons
Graham & James (Melbourne), Director of various proprietary companies
associated with clients of that firm.
TAN SRI DATUK IBRAHIM MENUDIN. B. Com, CA, ACA, Group Chief Executive
Officer of Malaysia Mining Corporation Berhad, Chairman of Malaysian
Smelting Corporation Berhad. Director of Ashton Mining Limited and National
Consolidated Limited.
MR W A BENNETT. B. Eng. (Hons), M. Sc. Director of Brambles Industries
Limited, Eastern Aluminium Limited and Barnardos Australia.
ENCIK ABDUL SAMAD HAJI ALIAS. B.Com, FCA (Aust), CPA Managing Partner
of Arthur Andersen, Malaysia. Director of Malaysia Mining Corporation
Berhad. Director of Ashton Mining Limited and I.G.B. Corporation Berhad.
MR E PAUL MCCLINTOCK. B.A., LL.B., Director of McClintock Associates
Group, Ashton Mining Limited, Tower Life Australia Limited and Institute of
Respiratory Medicine. Alternate Director of Lachlan Resources NL.
MR R K RAE. B. Com (Hons). Alternate Director for Encik Abdul Samad
Haji Alias. Director of McClintock Associates Group and National
Consolidated Limited. Alternate Director of Ashton Mining Limited.
MR C W LIM. Mechanical and Mining Engineer P. Eng, C. Eng,
B.E.(Mech)(Hons), B.E.(Mining)(Hons) M.I.E.M., M.I.M.M., M.I.M.E. Alternate
Director for Tan Sri Datuk Ibrahim Menudin. Director and CEO of Tronoh
Mines Malaysia Berhad and Director of Lachlan Resources NL. Alternate
Director of Ashton Mining Limited.
DIRECTORS INTERESTS
Mr R J Hawkes has notified the Chief Entity of his interest in a service
contract between himself and a controlled entity which encompasses the terms of
his employment.
No other Director has any interest in a contract or proposed contract with
the Chief Entity being an interest in the nature of which has been declared in
accordance with section 231 of the Corporations Law.
D-52
<PAGE> 326
PRINCIPAL ACTIVITIES
The principal activities for the year were gold mining and direct
participation and investment in mineral exploration. There were no significant
changes in the nature of those activities during the year.
CONSOLIDATED RESULT
<TABLE>
<CAPTION>
1995 1994
------ ------
$000 $000
<S> <C> <C>
The operating profit of the Economic Entity for the period
after income tax expense was............................. 40,387 38,011
Amounts attributable to outside equity interests........... (263) 44
------ ------
Profit attributable to members of Plutonic Resources
Limited.................................................. 40,124 38,055
====== ======
</TABLE>
DIVIDENDS
A fully franked dividend of 5 cents per share was declared out of profits
of the Chief Entity for the year ended 31 December 1994 and was paid on 31 May
1995.
A fully franked interim dividend of 4 cents per share was declared out of
profits for the year ended 31 December 1995 and was paid on 29 September 1995.
No other dividends were paid or declared during the year.
The directors declared a final dividend of 5.5 cents per share unfranked be
paid out of profits for the year.
SHARE CAPITAL
Shares were issued to certain employees and Directors as a result of the
exercise of options issued pursuant to the Employee Share Participation Plan and
the Non-Executive Directors Option Scheme.
REVIEW OF OPERATIONS
A review of the operations of the Economic Entity during the financial year
and the results of those operations is given on pages 8 to 16 of this report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Economic
Entity during the year.
SUBSEQUENT EVENTS
On 29 December 1995 the company announced a Part C offer for Coolawin
Resources Limited at 60 cents per share expiring 14 February 1996 and advised
that it had acquired 19.9% of the share capital of Coolawin. As at the date of
this report the company's interest in the share capital of Coolawin Resources
Limited is less than 1%.
On 29 January 1996 6,684,417 fully paid ordinary shares were issued in
accordance with the terms of the prospectus dated 22 December 1995 in relation
to the purchase of gold assets from Dominion Mining NL.
On 28 February 1996 the company announced the resignation of Sir Eric
McClintock as Chairman effective 22 March 1996 and the appointment of Mr E Paul
McClintock as the new Chairman of the Company on that date.
There were no other significant events occurring after balance date.
D-53
<PAGE> 327
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Information relating to likely developments in the operations of the
Economic Entity and the expected results of those operations in the financial
years subsequent to the year ended 31 December 1995 is included on pages 4 to 19
of this report.
OPTIONS
Options over 200,000 shares were granted during the financial year pursuant
to the Employee Share Participation Plan. Full details of options outstanding at
31 December 1995 are included in Note 20.
ROUNDING OF AMOUNTS
The Chief Entity is of a kind referred to in regulation 3.6.05(b) of the
Corporations Law being a Chief Entity with total assets of the Economic Entity
in excess of $10,000,000. Accordingly amounts shown in the financial statements
and in the Directors Report have been rounded off to the nearest thousand
dollars.
DIRECTORS MEETINGS
The following table sets out the number of meetings of directors of the
Chief Entity held during the year ended 31 December 1995 and the number of
meetings attended by each director.
<TABLE>
<CAPTION>
COMMITTEE MEETINGS
FULL MEETING --------------------------------------------------------
OF DIRECTORS REMUNERATION AUDIT SUPERANNUATION PROSPECTUS
------------ ------------ ----- -------------- ----------
<S> <C> <C> <C> <C> <C>
NUMBER OF MEETINGS HELD 11 1 2 1 4
Sir Eric McClintock...... 11 1 N/A N/A N/A
R J Hawkes............... 11 1 2 1 3
D L Cooper............... 11 1 2 1 4
C N Davison(1)........... 2 N/A 1 N/A N/A
Tan Sri Datuk Ibrahim
Menudin................ 9 1 N/A N/A N/A
W A Bennett(2)........... 4 N/A 1 N/A 4
E P McClintock........... 11 1 N/A 1 N/A
R K Rae (Alternate)...... 11 1 N/A N/A N/A
Encik Abdul Samad Haji
Alias.................. 7 1 2 N/A N/A
C W Lim (Alternate)(3)... 0 N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Resigned 16 May 1995. Maximum number of meetings 4.
(2) Appointed 1 July 1995. Maximum number of meetings 5.
(3) Appointed 11 December 1995. Maximum number of meetings 0.
D-54
<PAGE> 328
DIRECTORS SHAREHOLDINGS AT THE DATE OF THIS REPORT
<TABLE>
<CAPTION>
SHARES
SHARES OPTIONS SUBJECT TO
HELD HELD OPTIONS
------- ------- ----------
<S> <C> <C> <C> <C>
SIR ERIC MCCLINTOCK
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 17,394
Options at 94 cents per share................... (iii) 44,444 50,000
LACHLAN RESOURCES NL
Ordinary fully paid shares...................... (i) 33,000
RONALD J HAWKES
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 26,293
Partly paid shares.............................. (ii) 231,250
Options at 90 cents per share................... (ii) 1 1,052,500
DONALD L COOPER
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 48,200
TAN SRI DATUK IBRAHIM MENUDIN
PLUTONIC RESOURCES LIMITED
Options at 94 cents per share.................... (iii) 40,000 45,000
ENCIK ABDUL SAMAD HAJI ALIAS
PLUTONIC RESOURCES LIMITED
Options at $5.87 per share....................... (iii) 40,000 40,000
WILLIAM A BENNETT
PLUTONIC RESOURCES LIMITED......................... Nil Nil Nil
E PAUL MCCLINTOCK
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 9,000 Nil Nil
LACHLAN RESOURCES NL
Ordinary fully paid shares...................... (i) 53,000 Nil Nil
ROBERT K RAE
PLUTONIC RESOURCES LIMITED
Ordinary fully paid shares....................... (i) 4,000 Nil Nil
LACHLAN RESOURCES NL
Ordinary fully paid shares...................... (i) 33,000 Nil Nil
C W LIM
PLUTONIC RESOURCES LIMITED......................... Nil Nil Nil
</TABLE>
- ---------------
(i) Beneficial interest
(ii) Pursuant to Employee Share Participation Plan.
(iii) Pursuant to Non-Executive Directors Option Scheme.
INDEMNIFYING OFFICER
(i) Article 164 of the company's Articles of Association (inserted by
special resolution on 18 May 1994) provides that, to the extent not prohibited
by law, the persons named below and executive officers of the company shall be
indemnified by the company against all costs, losses and expenses which the
person may incur or become liable to pay by reason of any conduct entered into
or act or thing done by the person or omission or failure to do any act as a
Director or Secretary in any way in discharge of the person's duty to the
company.
D-55
<PAGE> 329
<TABLE>
<S> <C>
DIRECTORS EXECUTIVE OFFICERS
Sir Eric McClintock B H Bolton
R J Hawkes P F Bruce
Tan Sri Datuk Ibrahim Menudin W R Bucknell
D L Cooper D E Clarke
Abdul Samad Haji Alias R J Hanson
E P McClintock D F Hatch
R K Rae M R Hulmes
W A Bennett A M Law
C N Davison K P McHugh
C W Lim T C Walsh
A J Coles
G W Collins
SECRETARIES
G Clegg
K S J Everett
</TABLE>
During or since the end of the financial year the Chief Entity has agreed
to pay premiums to insure the above mentioned directors and officers of the
company against liabilities for costs and expenses in defending legal
proceedings arising out of their conduct while acting in their capacity of
officer of the company.
The company is prohibited by a confidentiality agreement within the
contract for insurance from disclosing any further details of the insurance.
DIRECTORS' BENEFITS
Since the end of the previous financial year no Director of the Chief
Entity has received or become entitled to receive a benefit other than a benefit
included in the aggregate amount of emoluments received or due and receivable by
the Directors shown in the accounts or the fixed salary of a full time employee
of the Chief Entity or its controlled entities, by reason of a contract entered
into by the Chief Entity or a related entity with a Director, a firm of which a
Director is a member, a company in which a Director has a substantial financial
interest except for amounts paid to associated companies of the directors,
details of which are provided in Note 31 Related Party Disclosures.
This report is made in accordance with a Resolution of the Directors.
On behalf of the Board
Sir Eric McClintock
/s/ SIR ERIC MCCLINTOCK
--------------------------------------
Chairman
Ronald J Hawkes
/s/ RONALD J HAWKES
--------------------------------------
Managing Director
Sydney, 4 March 1996.
D-56
<PAGE> 330
PROFIT AND LOSS STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
NOTE 1995 1994 1995 1994
---- ------- ------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C> <C>
Operating Revenue............................ 2 222,691 214,363 16,727 29,963
======= ======= ======= =======
Operating profit before income tax........... 3 43,680 59,172 13,086 18,560
Income tax expense........................... 4 (3,293) (21,161) 741 (912)
------- ------- ------- -------
Operating profit after income tax............ 40,387 38,011 13,827 17,648
Outside Equity Interest...................... 22 (263) 44 0 0
------- ------- ------- -------
OPERATING PROFIT AFTER INCOME TAX
ATTRIBUTABLE TO MEMBERS OF PLUTONIC
RESOURCES LIMITED.......................... 5 40,124 38,055 13,827 17,648
Retained profits brought forward............. 104,623 80,992 5,527 2,303
------- ------- ------- -------
Retained profits available for
appropriation.............................. 144,747 119,047 19,354 19,951
Dividends.................................... 6 (17,522) (14,424) (17,522) (14,424)
------- ------- ------- -------
RETAINED PROFITS AT END OF YEAR.............. 127,225 104,623 1,832 5,527
======= ======= ======= =======
</TABLE>
The accompanying notes form part of these financial statements.
D-57
<PAGE> 331
BALANCE SHEETS
AS AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- -------------------
NOTE 1995 1994 1995 1994
---- ------- ------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash........................................ 7 48,234 31,168 128 1,024
Receivables and Bullion..................... 8 27,289 77,829 154 125
Inventories................................. 9 42,695 21,282 0 0
Other....................................... 10 3,782 1,187 0 0
------- ------- ------- -------
Total Current Assets.............. 122,000 131,466 282 1,149
======= ======= ======= =======
NON-CURRENT ASSETS
Receivables................................. 11 41,573 243 165,079 105,595
Investments................................. 12 60,669 30,441 133,846 133,846
Property, Plant and Equipment............... 13 76,913 59,113 0 0
Other....................................... 14 238,979 175,467 526 316
------- ------- ------- -------
Total Non-Current Assets.......... 418,134 265,264 299,451 239,757
======= ======= ======= =======
TOTAL ASSETS...................... 540,134 396,730 299,733 240,906
======= ======= ======= =======
CURRENT LIABILITIES
Creditors and borrowings.................... 15 26,445 20,392 171 62
Provisions.................................. 16 12,854 19,660 10,294 9,809
------- ------- ------- -------
Total Current Liabilities......... 39,299 40,052 10,465 9,871
======= ======= ======= =======
NON-CURRENT LIABILITIES
Creditors and borrowings.................... 17 120,000 3,970 72,192 10,738
Provisions.................................. 18 25,868 21,000 181 101
Total Non-Current Liabilities..... 145,868 24,970 72,373 10,839
======= ======= ======= =======
TOTAL LIABILITIES................. 185,167 65,022 82,838 20,710
======= ======= ======= =======
NET ASSETS........................ 354,967 331,708 216,895 220,196
======= ======= ======= =======
SHAREHOLDERS' EQUITY
Share Capital............................... 19 90,223 90,012 90,223 90,012
Reserves.................................... 21 124,840 124,657 124,840 124,657
Retained Profits............................ 127,225 104,623 1,832 5,527
------- ------- ------- -------
Shareholders Equity attributable to Plutonic
Resources Limited......................... 342,288 319,292 216,895 220,196
Outside Equity Interests.................... 22 12,679 12,416 0 0
------- ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY........ 354,967 331,708 216,895 220,196
======= ======= ======= =======
</TABLE>
The accompanying notes form part of these financial statements.
D-58
<PAGE> 332
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 1995
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- --------------------
NOTE 1995 1994 1995 1994
---- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of
operations............................. 212,311 193,873 2 162
Cash payments in the course of
operations............................. (154,559) (114,573) (3,177) (1,820)
Income Tax Paid.......................... (7,990) (8,418) 0 0
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES......... 33 49,762 70,882 (3,175) (1,658)
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received....................... 562 8 0 0
Interest received -- external entities... 3,258 5,654 35 2,225
Proceeds from sale of investments........ 3,051 10,825 0 7,200
Recoveries from joint venture parties.... 639 128 0 0
Proceeds from the sale of non-current
assets................................. 436 527 0 0
Payment for investments.................. (33,436) (33,697) 0 (25,297)
Payments for acquisition of controlled
entities............................... (52,645) (33,263) 0 0
Cash acquired from increase in ownership
of a JV................................ 222 0 0 0
Cash acquired from acquisition of
controlled entity...................... 262 246 0 0
Advances of loans -- external entities... (41,272) 0 0 0
Advances of loans -- related entities.... 0 0 0 (88,808)
Payments for property, plant and
equipment.............................. (9,699) (38,593) 0 0
Payment for advanced stripping costs..... (8,009) 0 0 0
Payments for tenement exploration........ (25,282) (24,071) (197) (308)
Payments for preproduction activities.... (21,676) (13,732) 0 0
-------- -------- ------- --------
NET CASH (USED IN) INVESTING ACTIVITIES... (183,589) (125,968) (162) (104,988)
======== ======== ======= ========
CASH FLOWS FROM FINANCING ACTIVITIES
Interest paid............................ (1,148) (1,052) 0 (2)
Proceeds from share issue................ 394 567 394 567
Costs of rights issue.................... 0 (32) 0 (32)
Proceeds from borrowings................. 120,000 0 0 0
-- external entities
-- related entities.................... 0 0 18,278 0
Repayments of borrowings
-- external entities................... (13,500) (15,635) 0 0
Lease payments........................... (12) 0 0 0
Dividends paid........................... (16,229) (16,197) (16,229) (16,197)
Minority interest share of rights issue
by controlled entity................... 0 7,464 0 0
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES......... 89,505 (24,885) 2,443 (15,664)
======== ======== ======= ========
Net increase (decrease) in cash held..... (44,322) (79,971) (894) (122,310)
Cash at the beginning of the financial
year................................... 104,794 184,765 1,019 123,329
-------- -------- ------- --------
CASH AT THE END OF THE
FINANCIAL YEAR............... 33 60,472 104,794 125 1,019
======== ======== ======= ========
</TABLE>
The accompanying notes form part of these financial statements.
D-59
<PAGE> 333
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
AT 31 DECEMBER 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Chief Entity and Consolidated financial statements have been drawn up
in accordance with applicable Accounting Standards and the Corporations Law.
They have been prepared in accordance with the principles of the historical cost
convention and the accounting policies adopted are consistent with those of the
previous year except where indicated.
(a) Principles of Consolidation
The consolidated accounts are those of the Economic Entity, comprising
Plutonic Resources Limited (the Chief Entity) and all entities which Plutonic
Resources Limited controlled from time to time during the year and at year end.
All intercompany balances and transactions, and unrealised profits resulting
from intra-economic entity transactions have been eliminated. The interests of
outside shareholders in the operating results and net assets of controlled
entities are stated separately in the consolidated profit and loss statement and
balance sheet respectively. Where there is a gain or loss of control of a
controlled entity, the consolidated accounts include the results for the part of
the reporting period during which the parent entity had control. A list of
controlled entities is included in Note 12.
(b) Income Tax
The Economic Entity adopts the liability method of tax effect accounting
whereby the income tax expense shown in the profit and loss statement is based
on the operating profit before income tax adjusted for any permanent
differences.
Timing differences, which arise due to the different accounting periods in
which items of revenue and expense are included in the determination of
operating profit before income tax and taxable income are brought to account as
either provision for deferred income tax or an asset described as future income
tax benefit at the rate of income tax applicable to the period in which the
benefit will be received or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of
the asset is assured beyond reasonable doubt. Future income tax benefits in
relation to tax losses are not brought to account unless there is virtual
certainty of realisation of the benefit.
The amount of benefits brought to account or which may be realised in the
future is based on the assumption that no adverse change will occur in income
taxation legislation, the anticipation that the Economic Entity will derive
sufficient future assessable income to enable the benefit to be realised and
comply with the conditions of deductibility imposed by law.
(c) Cash
Cash is represented by cash on hand, at financial institutions at call and
bank bills and deposits.
(d) Revenue Recognition
Revenue from production of gold is recognised when all of the following
"collective tests" have been met:
(i) the product is in a form suitable for delivery and no further
processing is required by or on behalf of the Economic Entity;
(ii) the quantity and quality of the product can be determined with
reasonable accuracy;
(iii) the selling price can be determined with reasonable accuracy;
D-60
<PAGE> 334
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(iv) the product has been despatched to a refiner and is no longer
under the physical control of the Economic Entity.
(e) Bullion
In accordance with the policy on revenue recognition, gold bullion is taken
up as a sale when it is delivered to a gold refinery. Gold bullion held at the
refinery at the end of the year is valued at net realisable value which is
either the market price ruling on that date or the forward rate where gold has
subsequently been delivered and the revenue realised. Gold bullion is shown as a
receivable in the financial statements. Bullion includes gold poured within
three days of the end of the year.
(f) Inventories
(i) Gold. Gold is valued at the lower of cost and net realisable value.
Gold on hand includes gold in dore form, gold in circuit and gold contained in
stockpiled ore as determined by production records, The cost of gold includes
the cost of direct materials, labour and variable and fixed overheads relating
to mining activities.
(ii) Consumable Stores and Spare Parts. Consumable stores and spare parts
have been measured by physical stocktake and valued at the lower of cost and net
realisable value.
(iii) Other. Other inventories have been measured by physical stocktake and
valued at the lower of cost and net realisable value.
(g) Investments
The Economic Entity's interests in companies (other than controlled
entities) are shown as investments, and dividend income only is taken into
profit as it is received. Long term investments are stated at cost less amounts
provided against permanent diminution in the value of investments. Investments
held for re-sale are stated at the lower of cost or net realisable value.
(h) Property, Plant and Equipment
Fixed assets are included at cost. The cost of fixed assets constructed
within the Economic Entity includes the cost of materials, direct labour and an
appropriate proportion of fixed and variable overheads.
(i) Depreciation
(i) Plant Construction Costs. The cost of these assets is being depreciated
over their useful economic lives using the straight line method.
(ii) Other Fixed Assets. Other fixed assets including buildings, but
excluding land, are depreciated over their useful economic lives using the
diminishing value method.
D-61
<PAGE> 335
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Exploration Expenditure
Costs arising from exploration and evaluation related to an area of
interest are written off as incurred, except that they may be carried forward as
deferred costs provided the following conditions are met:
(i) the rights to tenure of the area of interest are current; and
(ii) exploration activities in each area of interest have not yet
reached a stage which permits a reasonable assessment of the existence or
otherwise of economically recoverable reserves, and active and significant
operations in relation to the area are continuing; and
(iii) such costs are expected to be recouped through successful
development and exploitation of each area of interest, or alternatively, by
its sale.
(k) Acquired Exploration Expenditure
The fair value of exploration tenements attributable as part of the
acquisition of the business is amortised over a period not exceeding ten years.
(l) Acquisition Costs
(i) Mines. The direct cost of acquiring mining leases is being amortised
based on the production output method.
(ii) Other. The direct costs of acquiring mining properties is carried
forward as a deferred cost until such time as:
(1) a mining operation is commenced when it will be amortised over the
life of the mine; or
(2) the project is sold or abandoned,
provided that the carrying value does not exceed the amount that it would have
been reasonable for the company to spend to acquire the asset at the end of the
financial year.
(m) Preproduction Costs
Preproduction costs for each tenement comprise direct development
expenditure, pre-operating and equipment start-up costs, exploration expenditure
carried forward at the date of the decision to mine plus any continuing
exploration expenditure on the tenement.
Preproduction costs are carried forward to the extent to which recoupment
out of future revenues from the sale of product from the property is reasonably
assured.
Preproduction costs are amortised over the life of the relevant mine using
the production output method.
(n) Employee Entitlements
(i) Wages, Annual Leave, Long Service Leave, Sick Leave. The provision for
employee entitlements relating to wages, annual leave and sick leave is based on
legal and contractual entitlements and assessments having regard to the Economic
Entity's experience of staff departures and leave utilisation. Vested
entitlements are shown as current liabilities.
Current wage rates and on-costs are used in the calculation of this
provision.
D-62
<PAGE> 336
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The provision for employee entitlements relating to long service leave
represents the net present value of the estimated future cash outflows to be
made resulting from employees' services provided up to the balance date. In
assessing the liability for employee entitlements which are not expected to be
settled within twelve months the relevant cash flows have been discounted.
Consideration has been given to future salary increases and the economic
entity's experience with staff departures. Related on costs have also been
included in the calculation of the provision.
(ii) Superannuation. Contributions are made by the economic entity to
employee superannuation funds and are charged to expenses when incurred.
The economic entity does not record, as an asset or a liability, the
difference between the employer established defined benefit superannuation
plan's accrued benefits and the net market value of the plan's assets.
(o) Restoration, Rehabilitation and Environmental Costs
Restoration and rehabilitation of mine sites is carried out on an on-going
basis during the production life of the mine.
Provision is made for the cost of any restoration and rehabilitation work
required to be completed at the end of the production life of the mine. This
provision is assessed by technically qualified personnel on an annual basis. The
provision is raised progressively over the life of the project using current
undiscounted costs. Any revisions in the estimates of costs are reflected in the
provision when they are made.
(p) Foreign Currency
Amounts payable to and by the company in foreign currencies have been
translated to Australian currency at rates of exchange ruling at year end.
The results of a controlled entity are denominated in New Zealand dollars.
Monetary assets and liabilities have been translated at the year end exchange
rate while non monetary assets have been translated at the historical exchange
rate. All profits and losses arising from translation have been taken directly
to the profit and loss account during the period.
(q) Joint Ventures
The Economic Entity's interest in exploration joint ventures is brought to
account based on the actual expenditures incurred by the Economic Entity in
contributing to the joint venture's exploration programme and is included in
deferred cost of mineral prospects.
The Economic Entity's interests in mining joint ventures are recorded in
the accounts by including in the respective classifications the entity's share
of assets employed, the share of liabilities incurred and the share of any
expenses incurred. Details are shown in Note 25.
(r) Leases
Leases of plant and equipment under which the Economic Entity assumes
substantially the risks and benefits of ownership are classified as finance
leases. All other leases are classified as operating leases.
At 31 December 1995 the Economic Entity had not entered into any finance
leases.
D-63
<PAGE> 337
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Payments made under operating leases are charged against profits in equal
instalments over the accounting periods covered by the term of the lease.
Details of commitments under leases are included in Note 26(b).
(s) Recoverable Amount
Non-current assets are not revalued to an amount above their recoverable
amount, and where carrying values exceed this recoverable amount assets are
written down. In determining recoverable amount the expected net cash flows have
not been discounted to their present values.
(t) Comparative Figures
Where required, comparative figures have been adjusted to conform with
changes in presentation for the current financial year.
2. OPERATING REVENUE
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
------------------- -----------------
1995 1994 1995 1994
------- ------- ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Gold Mining Revenues.................................. 211,654 193,873 0 0
Sales................................................. 1,657 1,450 0 0
Dividends received from controlled entity............. 0 0 14,458 16,187
Dividends received from non-related entities.......... 562 8 0 0
Interest received from non-related entities........... 3,258 5,654 35 2,225
Interest received from controlled entities............ 0 0 1,848 3,829
Proceeds on sale of plant and equipment............... 436 527 0 0
Proceeds on sale of investments....................... 3,051 10,825 0 7,200
Other................................................. 2,073 2,026 386 522
------- ------- ------ ------
Operating Revenue..................................... 222,691 214,363 16,727 29,963
======= ======= ====== ======
</TABLE>
D-64
<PAGE> 338
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
3. OPERATING PROFIT
Operating profit before income tax has been determined after:
<TABLE>
<CAPTION>
PLUTONIC
CONSOLIDATED RESOURCES LIMITED
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(a) Charging as Expenses:
Auditors Remuneration
-- Auditing........................................... 198 171 122 90
-- Other Services..................................... 171 327 16 4
(the auditors receive no other benefits)
Amounts set aside to provision for:
Amortisation of acquisition costs..................... 11,042 10,164 0 0
Amortisation of acquired exploration expenditure...... 3,590 1,410 0 0
Amortisation of preproduction costs................... 10,856 7,267 0 0
Depreciation of fixed assets.......................... 7,815 6,589 0 0
Diminution of Investments............................. 0 187 0 300
Doubtful debts........................................ 0 101 0 0
Employee benefits..................................... 876 (144) 0 0
Bad debts written off................................... 0 13 0 0
Borrowing Costs......................................... 418 256 0 0
Exploration expenditure written off..................... 4,541 6,358 0 1
Interest paid to non-related entities................... 1,148 1,052 0 2
Interest paid to controlled entities.................... 0 0 353 2,297
Lease Finance charges................................... 1 2 0 0
Loss on sale of plant and equipment..................... 112 35 0 0
Loss on sale of investments............................. 192 0 0 0
Operating Lease Rental.................................. 1,337 908 0 0
(b) Crediting as Revenue:
Dividends received...................................... 562 8 14,458 16,187
Interest received....................................... 3,258 5,654 1,883 6,054
Profit on sale of investments........................... 35 2,236 0 1,072
Profit on sale of plant and equipment................... 709 179 0 0
Amounts written back from provision for doubtful
debts................................................. 58 0 0 0
</TABLE>
D-65
<PAGE> 339
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
4. INCOME TAX
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ------------------
1995 1994 1995 1994
------- ------ ------ ------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
(a) Income tax expense
Prima facie income tax expense on operating
profit.............................................. 15,725 19,527 4,710 6,123
Income tax effect of
(i) Permanent Differences:
Amortisation of Acquisition Costs.............. 3,975 3,354 0 0
Amortisation of acquired exploration
expenditure....................................... 1,293 465 0 0
Non allowable expenses......................... 178 117 0 22
Rebateable Dividends........................... (186) (3) (4,661) (5,342)
Investment allowance........................... 0 (924) 0 0
Other items (net).............................. 280 (196) 0 109
(ii) Future tax benefits not previously brought to
account relating to:
Deferred exploration expenditure
-- current year................................ (17,355) 0 0 0
Carry forward tax losses....................... 0 (1,179) 0 0
Overprovision in prior years................... (1,749) 0 (808) 0
(iii) Change in the company tax rate from 33% to
36%........................................... 1,132 0 18 0
------- ------ ------ ------
Income tax expense............................. 3,293 21,161 (741) 912
======= ====== ====== ======
Income Tax expense comprises amounts set aside
as:
Provision for income tax attributable to
current year................................... 2,020 9,642 (808) 808
Provision for income tax attributable to future
years
-- Provision for deferred income tax........... 2,898 12,733 80 101
-- Future income tax benefits.................. (1,625) (1,214) (13) 3
------- ------ ------ ------
Income Tax Expense............................. 3,293 21,161 (741) 912
======= ====== ====== ======
</TABLE>
D-66
<PAGE> 340
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
5. CONSOLIDATED PROFIT
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------
1995 1994
------ ------
$000 $000
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Contributions to Consolidated profit:
Plutonic Resources Limited............................................. (87) 229
Plutonic Operations Limited............................................ 30,154 29,924
Plutonic Administration Services Pty Ltd............................... 227 1,324
Plutonic Finance Pty Ltd............................................... (1,796) (76)
Plutonic Gold Pty Ltd.................................................. 3,509 3,335
Plutonic Mining Services Pty Ltd....................................... (303) 134
Plutonic (Baxter) Pty Ltd.............................................. 4,140 0
Rubyset Pty Limited.................................................... 93 102
Lachlan Resources N.L.................................................. 456 (57)
Lachlan Pacific N.L.................................................... 4 (2)
Quotidian No. 101 Pty Limited.......................................... (28) (12)
Orome Pty Ltd.......................................................... 0 0
Forsayth N.L........................................................... 1,698 (1,122)
Forsayth (Gibson) Ltd.................................................. (117) 1,253
Forsayth Group Management Pty Ltd...................................... 0 0
Forsayth Mining Services Ltd........................................... (7) (6)
Forsayth (New Zealand) Ltd............................................. (3) (11)
Forsayth Securities Ltd................................................ (1) 72
Forsayth Tenements Ltd................................................. (1) (3)
Blacksmith Holdings Pty Ltd............................................ 517 (3)
Canaustra Holdings Pty Ltd............................................. 0 (87)
Bellevue Gold Project Pty Ltd.......................................... 0 0
Red Rock Mining Corporation Ltd........................................ 406 2,177
Red Rock Canada Inc.................................................... 0 0
Red Rock Pacific Ltd................................................... 0 0
Red Rock Europe BV..................................................... 0 0
Grants Patch Mining Limited............................................ 6,283 (1,298)
Grants Patch Mining International Ltd.................................. 0 0
Flinsworth Limited..................................................... 0 0
Publishing Investments Company Pty Ltd................................. (1) (302)
Sundowner Minerals N.L................................................. (4,152) 2,484
Patshore Pty Ltd....................................................... 0 0
Austwhim Resources NL.................................................. (744) 0
Whim Creek Consolidated NL............................................. (123) 0
------ ------
40,124 38,055
====== ======
</TABLE>
D-67
<PAGE> 341
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
6. DIVIDENDS PAID OR PROVIDED
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
PAID
Final dividend of 5 cents per share
franked -- under provision from prior
years paid from profit and loss......... 28 26 28 26
Interim dividend of 4 cents per share
franked................................. 7,200 5,397 7,200 5,397
PROVIDED
Final dividend of 5.5 cents per share
unfranked (1994 -- 5 cents per share)... 10,294 9,001 10,294 9,001
------ ------ ------ ------
Total Dividends Paid or
Provided...................... 17,522 14,424 17,522 14,424
====== ====== ====== ======
</TABLE>
7. CASH
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Cash on hand.............................. 31,878 10,564 128 13
Commercial Bills and Deposits............. 16,356 20,604 0 1,011
------ ------ ------ ------
48,234 31,168 128 1,024
====== ====== ====== ======
</TABLE>
8. RECEIVABLES AND BULLION -- CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Trade Receivables......................... 3,236 719 0 0
Other Receivables......................... 2,211 1,706 0 0
Less provision for doubtful debts......... (24) (107) 0 0
------ ------ ------ ------
5,423 2,318 0 0
Amounts due from controlled entities...... 0 0 154 125
Gold Bullion.............................. 21,866 75,511 0 0
------ ------ ------ ------
27,289 77,829 154 125
====== ====== ====== ======
</TABLE>
D-68
<PAGE> 342
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
9. INVENTORIES
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Gold...................................... 36,076 17,730 0 0
Consumable Stores and Spares.............. 6,458 3,480 0 0
Other..................................... 161 72 0 0
------ ------ ------ ------
42,695 21,282 0 0
====== ====== ====== ======
</TABLE>
10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Prepayments............................... 3,603 87 0 0
Refundable deposits....................... 179 1,100 0 0
------ ------ ------ ------
3,782 1,187 0 0
====== ====== ====== ======
</TABLE>
11. RECEIVABLES -- NON-CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Receivables............................... 41,573 2,032 0 0
Less provision for doubtful debts......... 0 (1,789) 0 0
------ ------ ------- -------
41,573 243 0 0
Amounts receivable from controlled
entities................................ 0 0 165,079 105,595
------ ------ ------- -------
41,573 243 165,079 105,595
====== ====== ======= =======
</TABLE>
D-69
<PAGE> 343
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
12. INVESTMENTS
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
----------------- -------------------
1995 1994 1995 1994
------ ------ ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Investments comprise:
INVESTMENTS IN CONTROLLED ENTITIES
Shares listed on a prescribed stock exchange -- at
cost................................................ 0 0 29,622 29,622
Less provision for diminution in value................ 0 0 (9,253) (9,253)
------ ------ ------- -------
0 0 20,369 20,369
------ ------ ------- -------
Shares in unlisted corporations -- at cost............ 0 0 106,806 106,806
------ ------ ------- -------
0 0 127,175 127,175
====== ====== ======= =======
INVESTMENTS IN OTHER CORPORATIONS
Shares listed on a prescribed stock exchange -- at
cost................................................ 61,573 32,346 6,671 6,671
Less provision for diminution in value................ (904) (1,905) 0 0
------ ------ ------- -------
60,669 30,441 6,671 6,671
====== ====== ======= =======
Shares in unlisted corporations -- at cost............ 1,836 1,837 0 0
Units in unlisted corporations -- at cost............. 495 495 0 0
Less provision for diminution in value................ (2,331) (2,332) 0 0
------ ------ ------- -------
0 0 0 0
------ ------ ------- -------
TOTAL INVESTMENTS........................... 60,669 30,441 133,846 133,846
====== ====== ======= =======
Aggregate quoted market value of shares listed on a
prescribed stock exchange at 31 December 1995
-- controlled entities.............................. 0 0 27,079 32,287
------ ------ ------- -------
-- other investments................................ 59,659 25,107 5,223 4,321
====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE HELD
BY PLUTONIC AMOUNT OF PLUTONIC
RESOURCES RESOURCES LIMITED'S
LIMITED DIRECT INVESTMENT
--------------- -------------------
NAME 1995 1994 1995 1994
- -------------------------------------------------------- ----- ----- ------- -------
% % $000 $000
<S> <C> <C> <C> <C>
Plutonic Operations Limited(1).......................... 100 100 24,500 24,500
CONTROLLED ENTITY OF PLUTONIC OPERATIONS LIMITED
Rubyset Pty Limited(1)............................. 100 100 -- --
Plutonic (Baxter) Pty Ltd(1)....................... 100 100 -- --
Plutonic Administration Services Pty Ltd(1,8)........... 100 100 0 0
Plutonic Finance Pty Ltd(1,8)........................... 100 100 0 0
Plutonic Gold Pty Ltd(1,8).............................. 100 100 0 0
Plutonic Mining Services Pty Ltd(1,8)................... 100 100 0 0
Lachlan Resources N.L.(1)............................... 62.13 62.13 29,622 29,622
CONTROLLED ENTITIES OF LACHLAN RESOURCES N.L.
Lachlan Pacific N.L.(6,7,9) 55.91 55.91 -- --
Quotidian No 101 Pty Limited(1).................... 62.13 62.13 -- --
Orome Pty Limited(1,11)............................ 0 62.13 -- --
Forsayth N.L.(1)........................................ 100 100 82,306 82,306
</TABLE>
D-70
<PAGE> 344
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
PERCENTAGE HELD
BY PLUTONIC AMOUNT OF PLUTONIC
RESOURCES RESOURCES LIMITED'S
LIMITED DIRECT INVESTMENT
NAME 1995 1994 1995 1994
- -------------------------------------------------------- ----- ----- ------- -------
% % $000 $000
<S> <C> <C> <C> <C>
</TABLE>
12. INVESTMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
CONTROLLED ENTITIES OF FORSAYTH N.L.
Forsayth (New Zealand) Ltd(1)...................... 100 100 -- --
Forsayth Securities Ltd(1)......................... 100 100 -- --
Forsayth Tenements Ltd(1).......................... 100 100 -- --
Forsayth Mining Services Ltd(1).................... 100 100 -- --
Forsayth (Gibson) Ltd(1)........................... 100 100 -- --
Forsayth Group Management Pty Ltd(1)............... 100 100 -- --
Blacksmith Holdings Pty Ltd(1)..................... 100 100 -- --
Canaustra Holdings Pty Ltd(1)...................... 100 100 -- --
Flinsworth Limited(4,7)............................ 100 100 -- --
Grants Patch Mining International Ltd(4,7)......... 100 100 -- --
Bellevue Gold Project Pty Ltd(1,10)................ 100 50 --
Patshore Pty Ltd(1,10)............................. 100 0 --
CONTROLLED ENTITIES OF PATSHORE PTY LTD
Austwhim Resources NL(1,10)........................ 100 0 -- --
Whim Creek Consolidated NL(1,10)................... 100 0 -- --
Red Rock Mining Corp Ltd(1)........................ 100 100 --
CONTROLLED ENTITIES OF RED ROCK MINING CORP LTD
Red Rock Canada Inc(2,7)........................... 100 100 -- --
Red Rock Pacific Ltd(3,7).......................... 100 100 -- --
Red Rock Europe BV(5,7)............................ 100 100 -- --
Grants Patch Mining Limited(1)..................... 100 100 -- --
CONTROLLED ENTITIES OF GRANTS PATCH MINING LIMITED
Publishing Investments Company Pty Ltd(1).......... 100 100 -- --
Sundowner Minerals NL(1)........................... 100 100 -- --
------- -------
136,428 136,428
Less provision for diminution in value.................. (9,253) (9,253)
127,175 127,175
======= =======
</TABLE>
- ---------------
(1) Incorporated in Australia
(2) Incorporated in Canada
(3) Incorporated in Cook Islands
(4) Incorporated in Hong Kong
(5) Incorporated in Netherlands
(6) Incorporated in New Zealand
(7) These companies operate in their country of incorporation
(8) Rounding off to the nearest dollars has eliminated the following
investments
Actual dollars are shown below:
<TABLE>
<S> <C> <C>
Plutonic Administration Services Pty Ltd 1 1
Plutonic Finance Pty Ltd 1 1
Plutonic Gold Pty Ltd 1 1
Plutonic Mining Services Pty Ltd 2 2
</TABLE>
(9) Audited by Ernst & Young; Hamilton, New Zealand
(10) Acquired during the year
(11) Sold during the year
D-71
<PAGE> 345
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
13. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- ---------------------
1995 1994 1995 1994
------- ------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Land and Buildings
Freehold land -- at cost...................... 332 138 0 0
Buildings -- at cost.......................... 14,661 1,522 0 0
Accumulated depreciation...................... (11,831) (502) 0 0
------- ------- ------- -------
3,162 1,158 0 0
------- ------- ------- -------
Motor vehicles
At cost....................................... 4,564 2,476 0 0
Accumulated depreciation...................... (1,696) (1,187) 0 0
------- ------- ------- -------
2,868 1,289 0 0
------- ------- ------- -------
Plant and equipment
At cost....................................... 8,924 9,624 0 0
Accumulated depreciation...................... (4,435) (6,311) 0 0
------- ------- ------- -------
4,489 3,313 0 0
------- ------- ------- -------
Plant and Equipment
Leased........................................ 0 25 0 0
Accumulated Amortisation...................... 0 (10) 0 0
------- ------- ------- -------
0 15 0 0
------- ------- ------- -------
Plant Construction Costs
At cost....................................... 79,920 64,932 0 0
Accumulated depreciation...................... (17,487) (12,600) 0 0
------- ------- ------- -------
62,433 52,332 0 0
------- ------- ------- -------
Capital Works in Progress..................... 3,961 1,006 0 0
------- ------- ------- -------
TOTAL PROPERTY, PLANT AND
EQUIPMENT......................... 76,913 59,113 0 0
======= ======= ======= =======
</TABLE>
D-72
<PAGE> 346
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
14. OTHER NON-CURRENT ASSETS
A. DEFERRED COST OF MINERAL PROSPECTS
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
------------------- -----------------
1995 1994 1995 1994
------- ------- ---- ----
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C> <C>
(A) EXPLORATION EXPENDITURE
Opening Balance................................... 65,871 47,311 307 0
Acquisition of Controlled Entity.................. 13,148 33,256 0 0
Incurred during year.............................. 21,869 24,071 197 308
------- ------- --- ---
100,888 104,638 504 308
Less:
Amounts recovered from Joint Venture parties...... (639) (128) 0 0
Amounts written off............................... (4,541) (6,358) 0 (1)
Amortisation...................................... (3,590) (1,410) 0 0
Transferred to
-- acquisition costs.............................. (22,000) 0 0 0
-- preproduction costs............................ (6,883) (30,871) 0 0
------- ------- --- ---
TOTAL EXPLORATION EXPENDITURE..................... 63,235 65,871 504 307
======= ======= === ===
(B) ACQUISITION COSTS
Opening Balance................................... 51,287 61,451 0 0
Incurred during year.............................. 20,632 0 0 0
Transferred from exploration costs................ 22,000 0 0 0
------- ------- --- ---
93,919 61,451 0 0
Amortisation...................................... (11,042) (10,164) 0 0
------- ------- --- ---
TOTAL ACQUISITION COSTS........................... 82,877 51,287 0 0
======= ======= === ===
(C) PREPRODUCTION COSTS
Opening Balance................................... 48,878 11,542 0 0
Incurred during year.............................. 21,676 13,732 0 0
Transferred from exploration expenditure.......... 6,883 30,871 0 0
------- ------- --- ---
77,437 56,145 0 0
Amortisation...................................... (10,856) (7,267) 0 0
------- ------- --- ---
TOTAL PRE-PRODUCTION COSTS........................ 66,581 48,878 0 0
======= ======= === ===
(D) ADVANCED STRIPPING COSTS
Opening Balance................................... 0 0 0 0
Incurred during year.............................. 8,009 0 0 0
------- ------- --- ---
TOTAL ADVANCED STRIPPING COSTS.................... 8,009 0 0 0
======= ======= === ===
TOTAL DEFERRED COST OF MINERAL PROSPECTS.......... 220,702 166,036 504 307
======= ======= === ===
</TABLE>
D-73
<PAGE> 347
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
14. OTHER NON-CURRENT ASSETS (CONTINUED)
B. FUTURE INCOME TAX BENEFITS RECOGNISED
The future income tax benefit is made up of the following estimated tax
benefits:
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Tax losses........................................ 3,379 4,965 0 0
Timing differences................................ 14,898 4,466 22 9
------- ------- --- ---
18,277 9,431 22 9
------- ------- --- ---
Total Other Non-Current Assets.......... 238,979 175,467 526 316
======= ======= === ===
</TABLE>
C. FUTURE INCOME TAX BENEFITS NOT RECOGNISED
Future income tax benefits not brought to account, the benefits of which
will only be realised if the conditions for deductibility set out in Note 1(b)
occur.
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Timing differences................................ 30,335 12,375 0 0
Tax losses........................................ 26,123 18,150 0 0
------- ------- --- ---
56,458 30,525 0 0
======= ======= === ===
</TABLE>
15. CREDITORS AND BORROWINGS -- CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Bank Overdraft -- Unsecured....................... 9,628 1,885 3 5
Bank Loan -- Secured (Note 23).................... 0 9,530 0 0
Trade creditors and accruals...................... 14,277 7,366 140 29
Other creditors................................... 2,540 1,599 28 28
Lease Liability................................... 0 12 0 0
------- ------- --- ---
26,445 20,392 171 62
======= ======= === ===
</TABLE>
D-74
<PAGE> 348
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
16. PROVISIONS -- CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Income Tax........................................ 16 9,236 0 808
Dividends......................................... 10,294 9,001 10,294 9,001
Employee entitlements............................. 2,385 1,303 0 0
Other............................................. 159 120 0 0
------ ------ ------ -----
12,854 19,660 10,294 9,809
====== ====== ====== =====
</TABLE>
17. CREDITORS AND BORROWINGS -- NON-CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Amounts payable to controlled entities............ 0 0 72,192 10,738
Bank Loan -- Unsecured (Note 23).................. 120,000 0 0 0
Bank Loan -- Secured (Note 23).................... 0 3,970 0 0
------- ----- ------ ------
120,000 3,970 72,192 10,738
======= ===== ====== ======
</TABLE>
18. PROVISIONS -- NON-CURRENT
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Deferred Income Tax............................... 23,453 20,555 181 101
Employee Entitlements............................. 117 0 0 0
Mine Rehabilitation............................... 1,955 0 0 0
Other............................................. 343 445 0 0
------ ------ --- ---
25,868 21,000 181 101
====== ====== === ===
</TABLE>
D-75
<PAGE> 349
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
19. SHARE CAPITAL
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------------- -------------------
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Authorised 800,000,000 ordinary shares of 50c
each (1994 -- 800,000,000 shares)............ 400,000 400,000 400,000 400,000
Issued and paid up 180,416,677 ordinary shares
of 50c each fully paid (1994 -- 180,023,022
shares)...................................... 90,208 90,011 90,208 90,011
299,125 ordinary shares of 50c each paid to 5c
(1994 -- 13,000 shares)...................... 15 1 15 1
------- ------- ------- -------
Total issued Share Capital.............. 90,223 90,012 90,223 90,012
======= ======= ======= =======
</TABLE>
(a) Issues during year
(i) Nil (1994 -- 19,934,634) ordinary shares were allotted pursuant to the
terms of the 1 for 8 rights issue completed on 20 December 1993.
(ii) 271,375 (1994 -- 540,625) ordinary shares and 16,080 (1994 -- 7,520)
bonus shares were issued on the exercise of options granted pursuant to the
Employee Share Participation Plan.
(iii) 90,000 (1994 -- 40,000) ordinary shares and 3,200 (1994 -- 1,244)
bonus shares were issued on the exercise of options issued pursuant to the
Non-Executive Directors Option Scheme.
(iv) 13,000 (1994 -- 40,125) ordinary shares were issued on receipt of
calls due on partly paid shares.
(v) 299,125 (1994 -- 30,125) ordinary shares paid to 5 cents were issued
pursuant to the Employee Share Participation Plan.
(b) Partly Paid Shares
<TABLE>
<CAPTION>
CALLS TO BE ON ISSUE OPTIONS CALLS ON ISSUE
RECEIVED 31.12.94 EXERCISED RECEIVED 31.12.95
- -------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
.75 0 231,250 0 231,250
.85 4,000 39,500 8,500 35,000
.89 0 8,000 0 8,000
.90 9,000 20,375 4,500 24,875
------ ------- ------ -------
13,000 299,125 13,000 299,125
====== ======= ====== =======
</TABLE>
20. OPTIONS
(A) PLUTONIC RESOURCES EMPLOYEE SHARE PARTICIPATION PLAN ("THE PLAN").
The plan operates by the granting of options over shares in the Chief
Entity to employees. The options can be exercised at the discretion of the
employee over a period of five years to the maximum extent of 10, 20, 30 and 40
percent per annum from the date of grant and the 1st, 2nd and 3rd anniversaries
of the date of grant respectively. Options are granted by the directors at
various times. The maximum number of shares which may be subject to employee
options is 5% of the issued capital of the Chief Entity. Options over a further
6,226,000 shares may be granted. The options expire after five years from the
date of grant of the option or on termination of the employees services,
whichever occurs first,
D-76
<PAGE> 350
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
20. OPTIONS (CONTINUED)
Employees may exercise their options by paying either 5 cents per share or
by paying the full exercise price per share.
Options and partly paid shares are not transferable until the full exercise
price has been paid and fully paid shares issued to the option holder.
The Chief Entity does not provide any assistance to employees in funding
the exercise of options.
The share price at 31 December was $6.30 (1994: $5.75).
The total market value of shares issued during the year was $1,535,000
(1994 -- $3,956,000). Proceeds from the issue of these shares was $272,000
(1994 -- $439,000).
The names of all employees currently holding options are entered in the
register kept by the company pursuant to Section 215 of the Law. The register
may be inspected free of charge.
The company has adopted Class Order 94/284 in relation to the disclosure of
the names of the employees to whom options were granted during the year.
Details of movements during the year are shown in the table below.
<TABLE>
<CAPTION>
MOVEMENT DURING YEAR IN THE NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED UNDER THE PLAN
- -----------------------------------------------------------------------------------------------
DATE OUTSTANDING OUTSTANDING
OF EXERCISE AT LAPSED ON AT
GRANTED PRICE 31.12.94 GRANTED EXERCISED TERMINATION 31.12.95
- -------- -------- ----------- ------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
16.02.90 .80c... 231,250 0 231,250 0 0
12.11.90 .94c... 9,000 0 9,000 0 0
04.12.91 .90c... 1,547,212 0 91,250 0 1,455,962
04.12.91 .95c... 236,875 0 55,000 0 181,875
09.01.92(2) .90c... 154,500 0 130,250 0 24,250
09.01.92(2) .95c... 56,250 0 51,750 0 4,500
12.10.94(2) 6$.04... 340,000 0 2,000 18,000 320,000
8.12.95(1) 6$.04... 0 200,000 0 0 200,000
--------- ------- ------- ------ ---------
2,575,087 200,000 570,500 18,000 2,186,587
========= ======= ======= ====== =========
</TABLE>
- ---------------
(1) These options were issued during the year.
(2) These options may only be exercised at a time when the company has a current
prospectus on issue.
(B) PLUTONIC RESOURCES NON-EXECUTIVE DIRECTORS OPTION SCHEME (THE SCHEME).
The scheme operates by the granting of options over shares in the Chief
Entity to Directors. The options can be exercised at the discretion of the
director at any time within five years of the date of grant. Options recommended
by the directors are approved for granting by shareholders at the Annual General
Meeting. The maximum number of shares which may be subject to non-executive
director options is 500,000 shares. Options over a further 360,000 shares may be
granted. The options expire after five years from the date of grant or on
resignation of the director from the Board.
Options are not transferable until the full exercise price has been paid
and fully paid shares issued to the option holder.
The Chief Entity does not provide any assistance to directors in funding
the exercise of options.
D-77
<PAGE> 351
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
20. OPTIONS (CONTINUED)
The total market value of shares issued during the year was $605,000
(1994 -- $116,000). Proceeds from the issue of these shares was $110,250
(1994 -- $16,000).
Details of movements during the year are shown in the table below.
<TABLE>
<CAPTION>
MOVEMENT DURING YEAR IN THE NUMBER OF SHARES SUBJECT TO OPTIONS GRANTED UNDER
THE SCHEME
- -------------------------------------------------------------------------------
DATE OUTSTANDING OUTSTANDING
OF EXERCISE AT AT
GRANT PRICE 31.12.94 GRANTED EXERCISED 31.12.95
- -------- -------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
31.05.91 .94c 140,000 0 45,000 95,000
31.05.92 $ 1.51 45,000 0 45,000 0
28.11.95(1) $ 5.87 0 40,000 0 40,000
------- ------ ------ -------
185,000 40,000 90,000 135,000
======= ====== ====== =======
</TABLE>
- ---------------
(1) These options were issued during the year to Abdul Samad Haji Alias.
21. RESERVES
<TABLE>
<CAPTION>
CONSOLIDATED PLUTONIC RESOURCES
------------------- LIMITED
1995 1994 -------------------
------- ------- 1995 1994
------- -------
$000 $000
$000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Share premium account............................... 124,840 124,657 124,840 124,657
======= ======= ======= =======
Balance at 31 December 1994......................... 124,657 10,388 124,657 10,388
Premium on shares issued pursuant to:
-- Rights Issue................................... 0 115,621 0 115,621
-- Employee Share Participation Plan.............. 128 239 128 239
-- Non-Executive Directors Option Scheme.......... 65 17 65 17
Bonus Issue of ordinary shares pursuant to:
-- Employee Share Participation Plan.............. (8) (3) (8) (3)
-- Non-Executive Directors Option Scheme.......... (2) (1) (2) (1)
Costs of Rights Issue............................... 0 (1,604) 0 (1,604)
------- ------- ------- -------
BALANCE AT 31 DECEMBER 1995......................... 124,840 124,657 124,840 124,657
======= ======= ======= =======
</TABLE>
22. OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES
<TABLE>
<CAPTION>
SHARE CAPITAL RESERVES PROFIT AND LOSS TOTAL
------------- -------- --------------- ------
$000 $000 $000 $000
(ROUNDED OFF TO THE NEAREST THOUSAND DOLLARS
AS ADOPTED)
<S> <C> <C> <C> <C>
Balance at 31 December 1994................... 15,869 1,795 (5,248) 12,416
Movement for year.............................
Profit/(Loss) for year........................ 0 0 263 263
------ ----- ------ ------
Net movement for year......................... 0 0 263 263
------ ----- ------ ------
BALANCE AT 31 DECEMBER 1995................... 15,869 1,795 (4,985) 12,679
====== ===== ====== ======
</TABLE>
D-78
<PAGE> 352
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
23. FINANCE FACILITY
(a) UNSECURED
The finance facility represents advances which may be drawn down under a
facility with ABN AMRO Australia Limited. At 31 December 1995 $120,000,000
(1994 -- Nil) has been drawn down. The maximum amount available is $250,000,000
(1994 -- Nil).
(b) SECURED
The finance facility with Bank of Western Australia Limited and AIDC Ltd
which was secured by a registered mortgage debenture over the whole of the
assets of a controlled entity has been repaid in full and the securities
discharged.
24. SUPERANNUATION COMMITMENTS
The Economic Entity contributes to three active superannuation funds
covering all of its employees.
The Plutonic Resources Superannuation Plan provides defined pension and/or
lump sum benefits for certain employees on retirement or death based on years of
plan membership and average salary over the last three years of employment.
Benefits on an accumulation basis are provided for terminations other than
retirement or death. The Plan is non-contributory whereby only the company
contributes to the Plan at rates determined by the Plan Actuary.
The last actuarial review of the Plan dated 21 December 1995 covered the
actuarial assessment as at 1 July 1995, and was made by consulting actuaries
William M Mercer Pty Ltd (Actuary Mr Ian W Orchard FIA FIAA). The next actuarial
review of this plan will be carried out as at 1 July 1998.
The following details were shown in the Plan's financial statements as at
30 June 1995 being the date to which the latest financial statements of the plan
have been prepared.
<TABLE>
<CAPTION>
1995 1994
----- -----
$000 $000
(ROUNDED OFF TO THE
NEAREST THOUSAND
DOLLARS
AS ADOPTED)
<S> <C> <C>
Net market value of Plan assets as at 30 June 1995....................... 2,724 2,135
Accrued benefits at the date of the last actuarial review(1)............. 2,526 1,055
----- -----
Surplus of Net Market Value of Plan assets over Accrued Benefits......... 198 1,080
----- -----
Vested benefits of the plan as at 30 June 1995........................... 1,667 1,396
===== =====
</TABLE>
- ---------------
(1) Accrued benefits as at 1 July 1995 being the date of the last actuarial
review (1994 as at 1 July 1992).
All other employees have contributions made to funds providing benefits on
an accumulation basis, covering award productivity superannuation requirements
and personal superannuation requirements with transportability of benefits.
D-79
<PAGE> 353
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
25. JOINT VENTURES
The economic entity has interests in the following material joint ventures,
whose principal activities are exploration and the production of gold:
<TABLE>
<CAPTION>
JOINT VENTURE CONTRIBUTION TO
OPERATING PROFIT/(LOSS)
-----------------------------------
INTEREST HELD INTEREST HELD 1995 1994
31 DECEMBER 1995 31 DECEMBER 1994 ------ ------
---------------- ---------------- $000 $000
(ROUNDED OFF TO THE NEAREST THOUSAND DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C> <C> <C>
Baxter................. 66.67% 75% 5,520 0
Bellevue............... 100% 50% (180) (1,600)
Keith Kilkenny......... 50% 50% 0 0
Mt Morgans............. 80% 0 (744) 0
Peak Hill.............. 66.67% 50% 4,903 (861)
----- -----
9,499 (2,461)
===== =====
</TABLE>
The interests in joint ventures are included in the accounts as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
$000 $000
(ROUNDED OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Current assets
Cash and deposits...................................... 2,217 1,180
Receivables and bullion................................ 5,317 11,426
Inventories............................................ 10,901 1,194
Other Current Assets................................... 0 217
------ ------
18,435 14,017
====== ======
Non-current assets
Deferred costs of mining properties.................... 16,631 48,974
Other Non-Current Assets............................... 9,761 1,536
------ ------
26,392 50,510
====== ======
Current liabilities
Creditors and borrowings............................... 10,259 1,867
Provisions............................................. 373 106
------ ------
10,632 1,973
====== ======
Non-current liabilities
Provisions............................................. 634 435
====== ======
</TABLE>
D-80
<PAGE> 354
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
26. COMMITMENTS
ECONOMIC ENTITY
(A) EXPLORATION JOINT VENTURES
Controlled Entities are contributing parties to exploration joint venture
agreements. Under the terms of those agreements the controlled entities will be
required to contribute toward the exploration and other costs if they are to
maintain or increase their percentage holdings.
Expenditure commitments as at 31 December 1995 are:
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
---------------- -------------
1995 1994 1995 1994
------ ----- ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDED OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Not later than one year.................................. 1,071 775 0 0
Later than one year and not later than
two years.............................................. 1,306 521 0 0
Later than two years and not later than
five years............................................. 8,341 1,226 0 0
Later than five years.................................... 0 0 0 0
------ ------ ---- ----
10,718 2,522 0 0
====== ====== ==== ====
</TABLE>
(B) LEASE COMMITMENTS
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
---------------- -------------
1995 1994 1995 1994
------ ----- ---- ----
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDED OFF TO THE NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(i) Operating Leases
Office and equipment lease commitments
Not later than one year............................. 1,105 1,174 0 0
Later than one year and not later than two years.... 37 1,019 0 0
Later than two years and not later than five
years............................................. 0 335 0 0
Later than five years............................... 0 0 0 0
------ ----- ---- ----
1,142 2,528 0 0
====== ===== ==== ====
(ii) Finance Leases
Lease Commitments
Not later than one year............................. 0 13 0 0
Later than one year and not later than two years.... 0 0 0 0
Later than two years and not later than five
years............................................. 0 0 0 0
Later than five years............................... 0 0 0 0
------ ----- ---- ----
0 13 0 0
Deduct future finance charges....................... 0 (1) 0 0
------ ----- ---- ----
Lease Liability..................................... 0 12 0 0
====== ===== ==== ====
</TABLE>
D-81
<PAGE> 355
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
26. COMMITMENTS (CONTINUED)
(C) CAPITAL EXPENDITURE
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDED OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Contracts for capital expenditure committed at 31
December 1995..................................... 10,000 0 0 0
</TABLE>
(D) TENEMENT EXPENDITURE COMMITMENTS
Expenditure required to maintain tenements in good standing.
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
$000 $000 $000 $000
<CAPTION>
(ROUNDED OFF TO THE NEAREST THOUSAND
DOLLARS HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
(i) Rentals 1996.................................. 1,309 940 23 23
(ii) Expenditure requirements 1996................ 17,437 11,520 381 381
</TABLE>
(E) FORWARD GOLD SALES CONTRACTS
As at 31 December 1995, 780,950 ounces (1994 -- 784,997 ounces) of gold had
been committed for sale under forward contracts at a year end value of $612
(1994 -- $571) per ounce.
Since the end of the financial year a further 390,000 ounces
(1994 -- 96,010 ounces) of gold has been committed for sale under similar
forward contracts.
27. CONTINGENT LIABILITIES
CHIEF ENTITY
UNSECURED
Guarantees
The Chief Entity has given guarantees to third parties in respect of leases
of controlled entities. The maximum amount of the liability is $627,395
(1994 -- $1,389,057).
ECONOMIC ENTITY
UNSECURED
(a) Service Agreements
The maximum contingent liability of the Chief Entity and its controlled
entities for termination benefits under service agreements with directors and
persons who take part in the management of the company as at 31 December 1995
was $2,397,000 (1994 -- $1,422,000).
(b) Further amounts payable on the acquisition of assets
Controlled entities have purchased interests in tenements and Joint
Ventures and shares in controlled entities. The purchase agreements provide that
additional purchase price may be paid conditional upon certain events. The
maximum amount to be paid is $4m.
D-82
<PAGE> 356
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
27. CONTINGENT LIABILITIES (CONTINUED)
SECURED
Security Deposits
Controlled entities have given guarantees in favour of Westpac Banking
Corporation amounting to $1,695,000 (1994 -- $1,039,000) in respect of security
deposits relating to various tenements. The guarantees are secured by deposits
with the bank.
28. REMUNERATION OF DIRECTORS
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
--------------- ------------------------
1995 1994 1995 1994
---- ---- -------- ---------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Amounts received or due and receivable by
directors of the Economic Entity............... 648 432
Amounts received or receivable by directors of
Plutonic Resources Limited paid by a controlled
entity......................................... 648 432
</TABLE>
Number of directors of Plutonic Resources Limited whose remuneration were
within the following bands.
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
LIMITED
---------------------
1995 1994
-------- --------
$000 $000
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
$ 0 - $ 9,999................................................. 2 2
$ 10,000 - $ 19,999.................................................. 1 0
$ 20,000 - $ 29,999.................................................. 0 3
$ 30,000 - $ 39,999.................................................. 4 1
$ 50,000 - $ 59,999.................................................. 0 1
$ 70,000 - $ 79,999.................................................. 1 0
$ 80,000 - $ 89,999.................................................. 1 0
$270,000 - $279,999.................................................. 0 1
$320,000 - $329,999.................................................. 1 0
</TABLE>
The economic entity has adopted ASC Class Order 95/741 with respect to
disclosure of directors remuneration.
D-83
<PAGE> 357
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
29. REMUNERATION OF EXECUTIVES
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
----------------- ------------------------
1995 1994 1995 1994
----- ----- -------- ---------
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
Amounts received or due and receivable by
executive officers of the Economic Entity
whose remuneration exceeds $100,000......... 1,828 1,385
----- -----
Number of executives whose remuneration
exceeds $100,000............................ 10 9
----- -----
Amounts received or due and receivable by
executive officers of Plutonic Resources
Limited including executive directors whose
remuneration exceeds $100,000............... 1,828 1,385
Number of executives whose remuneration
exceeds $100,000............................ 10 9
----- -----
</TABLE>
Number of executive officers of Plutonic Resources Limited who received
remuneration in excess of $100,000 were within the following bands:
<TABLE>
<S> <C> <C>
$110,000 - $119,999............................................. 0 1
$120,000 - $129,999............................................. 0 3
$130,000 - $139,999............................................. 1 0
$140,000 - $149,999............................................. 0 1
$150,000 - $159,999............................................. 2 2
$160,000 - $169,999............................................. 3 1
$170,000 - $179,999............................................. 1 0
$190,000 - $199,999............................................. 2 0
$270,000 - $279,999............................................. 0 1
$320,000 - $329,999............................................. 1 0
</TABLE>
30. SEGMENT REPORTING
The Economic Entity carries out mining operations and mineral exploration
predominantly in Australia.
31. RELATED PARTY DISCLOSURES
The names of the Directors of the Chief Entity who held office during the
year are:
<TABLE>
<S> <C>
Mr R J Hawkes Tan Sri Datuk Ibrahim Menudin
Sir Eric McClintock Abdul Samad Haji Alias
Mr C N Davison (Resigned 16.5.95) W A Bennett (Appointed 1.7.95)
Mr D L Cooper Mr E Paul McClintock
</TABLE>
Alternate Directors
Mr R K Rae (alternate for Encik Abdul Samad Haji Alias)
Mr C W Lim (alternate for Tan Sri Ibrahim Menudin).
D-84
<PAGE> 358
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
31. RELATED PARTY DISCLOSURES (CONTINUED)
Transactions with related parties during the year were as follows:
(A) DIRECTORS
Legal fees amounting to $586,000 (1994 - $271,000) were paid to Deacons
Graham & James, Melbourne (of which Mr D L Cooper is a consultant).
These payments were made for services rendered in the ordinary course of
business and on commercial terms and conditions.
(B) CONTROLLED ENTITIES -- WHOLLY OWNED
Controlled entities made payments and received funds on behalf of the Chief
Entity and other controlled entities by way of intercompany loan accounts with
each controlled entity. These transactions are in the normal course of business
and on normal terms and conditions.
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Interest received.................................... 1,848 3,829
Dividend received.................................... 14,458 16,187
Interest paid........................................ 353 2,297
</TABLE>
The amounts receivable from controlled entities at balance date:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS HAS BEEN
ADOPTED)
<S> <C> <C>
Receivables -- Non-Current........................... 165,079 105,595
Creditors and Borrowings -- Non-Current.............. 72,192 10,738
</TABLE>
(C) JOINT VENTURE PARTIES
Controlled entities acted as operators of projects conducted with joint
venture parties. Amounts receivable from joint venture parties as at 31 December
1995 totalled $424,089 (1994 -- $123,871).
32. EARNINGS PER SHARE
(I) BASIC
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Weighted average number of ordinary shares (millions) on issue
used in the calculation of basic earnings per share.......... 180.2 179.8
Basic Earnings per share (cents per share)..................... 22.3 21.2
</TABLE>
(II) DILUTED
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Weighted average number of ordinary shares (millions) and
options on issue used in the calculation of diluted earnings
per share.................................................... 183.0 182.3
Diluted Earnings per share (cents per share)................... 21.9 20.9
</TABLE>
D-85
<PAGE> 359
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
33. CASH FLOW STATEMENT
(I) RECONCILIATION OF CASH
Cash includes cash on hand and at bank, short term bills and deposits at
call and gold bullion, net of outstanding overdrafts. Cash as at the end of the
financial year as shown in the Statements of Cash Flows is reconciled to the
related items in the balance sheet as follows:
<TABLE>
<CAPTION>
PLUTONIC
RESOURCES
CONSOLIDATED LIMITED
------------------- ----------------
1994 1994
------- 1995 -----
----
1995 $000 $000
------ $000
$000
(ROUNDING OFF TO THE NEAREST THOUSAND
DOLLARS HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
Cash.................................................. 31,878 10,564 128 13
Commercial bills and deposits......................... 16,356 20,604 0 1,011
Gold bullion.......................................... 21,866 75,511 0 0
Bank overdraft........................................ (9,628) (1,885) 3 5
------ ------- --- -----
60,472 104,794 125 1,019
====== ======= === =====
</TABLE>
(II) RECONCILIATION OF OPERATING PROFIT AFTER INCOME TAX TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
------------------- ---------------------
1994 1995 1994
------ ------- -------
1995 $000 $000 $000
-------
$000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS
BEEN ADOPTED)
<S> <C> <C> <C> <C>
Operating profit after income tax................ 40,387 38,011 13,827 17,648
Add (less) items classified as
investing/financing activities:
(Profit)/loss on sale of investments............. 2,041 (2,236) 0 (1,072)
(Profit)/loss on sale of non-current assets...... (709) (179) 0 0
Interest paid -- external entities............... 1,148 1,052 0 2
Dividends received -- external entities.......... (562) (8) 0 0
Interest received -- external entities........... (3,258) (5,654) (35) (2,225)
Exploration expenditure written off.............. 4,541 6,358 0 1
Add (less) non cash items:
Amounts set aside to provision for:
Amortisation of acquired exploration
expenditure................................. 3,590 1,410 0 0
Amortisation of acquisition costs.............. 11,042 10,164 0 0
Amortisation of pre-production costs........... 10,856 7,267 0 0
Depreciation of non-current assets............. 7,815 6,589 0 0
Diminution of investments (written back)....... (1,884) 187 0 300
Employee benefits.............................. 876 0 0 0
Doubtful debts (written back).................. (58) 101 0 0
Interest paid -- related entity.................. 0 0 353 2,297
Interest received -- related entity.............. 0 0 (1,848) (3,829)
Overhead recovery fees received.................. 0 0 (384) (360)
Dividend received -- related entity.............. 0 0 (14,458) (16,187)
(Decrease)/increase in income taxes payable...... (9,220) (1,029) (808) 808
(Decrease)/increase in deferred taxes payable.... 4,523 13,947 67 104
------- ------- --- -----
Net cash provided by (used in) operating
activities before change in assets and
liabilities.................................... 71,128 75,980 (3,286) (2,513)
</TABLE>
D-86
<PAGE> 360
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
PLUTONIC RESOURCES
CONSOLIDATED LIMITED
1995 1994 1995 1994
------- ------- --- -----
$000 $000 $000 $000
(ROUNDING OFF TO THE NEAREST THOUSAND DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C> <C> <C>
</TABLE>
33. CASH FLOW STATEMENT (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Change in assets and liabilities adjusted for
effects of purchase of a controlled entity
during the financial year:
(Increase)/decrease in receivables............... (9,621) 6,784 0 2,368
(Increase)/decrease in other current assets...... (21,367) (5,551) 0 0
(Decrease)/increase in creditors................. 7,539 (6,721) 111 (1,513)
(Decrease)/increase in provisions................ 2,083 390 0 0
------- ------- --- -----
Net cash provided by (used in) operating
activities..................................... 49,762 70,882 (3,175) (1,658)
======= ======= === =====
</TABLE>
(III) CONTROLLED ENTITIES ACQUIRED
On 15 December 1995 Forsayth NL, a controlled entity, acquired a 100%
interest in the issued capital of Patshore Pty Ltd.
On 1 December 1994 Plutonic Operations Limited, a controlled entity,
purchased a 100% interest in the issued capital of Plutonic (Baxter) Pty Ltd
(formerly Afmeco Pty Ltd). Details of the acquisitions are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
$000 $000
<CAPTION>
(ROUNDING OFF TO THE
NEAREST THOUSAND
DOLLARS
HAS BEEN ADOPTED)
<S> <C> <C>
Consideration.......................................... 0 0
Existing investment.................................... 52,645 33,263
------ ------
Outflow of cash........................................ 52,645 33,263
====== ======
</TABLE>
FAIR VALUE OF NET ASSETS OF ENTITY ACQUIRED IN ACCORDANCE WITH
THE REQUIREMENTS OF AASB 1013.
<TABLE>
<S> <C> <C>
Cash................................................... 262 109
Short-term bills and deposits.......................... 0 137
Plant and equipment.................................... 12,565 0
Inventories............................................ 3,625 0
Prepayments............................................ 273 0
Deferred cost of mineral prospects..................... 33,300 33,256
Receivables............................................ 2,771 473
Trade creditors and accruals........................... (8,496) (712)
Provisions............................................. (2,126) 0
Future Income Tax Benefit.............................. 10,471 0
------ ------
Consideration.......................................... 52,645 33,263
====== ======
</TABLE>
D-87
<PAGE> 361
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
34. RECONCILIATION TO U.S. GAAP
The following footnote has been prepared in order to comply with United
States generally accepted accounting principles for presentation in Homestake
Mining Company's ("Homestake") document relating to Homestake and Plutonic
agreeing to combine by means of a scheme of arrangement.
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"). In
Australia, financial statements are prepared in accordance with accounting
standards issued by the Australian Accounting Standards Board ("Australian
GAAP"), which are codified in Australian Corporations Law. Certain differences
between U.S. GAAP and Australian GAAP as they relate to the conversion of
Plutonic's financial statements to U.S. GAAP are summarised below:
(a) Plutonic defers ongoing exploration expenditures until the
viability of a project is determined. If a decision is made to proceed with
a project the expenditures are transferred to pre-production cost to be
amortised over the life of the mine. If a decision is made to abandon a
project the expenditures are written off at the time of such determination.
Under U.S. GAAP, exploration expenditures incurred prior to the completion
of a favourable feasibility study are expensed as incurred. Following
completion of a favourable feasibility study, pre-production exploration
expenditures are capitalised and amortised using the units-of-production
method based on proven and probable reserves.
(b) Plutonic accounts for business combinations using the purchase
method. In its application of the purchase method, Plutonic may assign a
portion of the purchase price to acquired exploration potential ("AEP").
AEP is amortised using the straight-line method over periods not exceeding
ten years. If it is subsequently determined that the exploration properties
acquired in a business combination do not contain significant
mineralisation, the remaining unamortised AEP associated with that business
combination would be written down at the time of such determination. Under
U.S. GAAP, AEP would be specifically allocated to individual exploration
properties. If it is subsequently determined that significant
mineralisation does not exist on any of these individual properties, they
would be written down at the time of such determination. If a property
becomes a producing mine, its carrying value would be amortised using the
units-of-production method based on proven and probable reserves.
(c) Plutonic amortises mine development and pre-production
expenditures together with estimates of expected future development
expenditures using the units-of-production method based on its estimate of
future life-of-mine production. Plutonic's estimate of future life-of-mine
production includes proven and probable reserves plus a portion of
resources which has not yet been converted to reserves but which Plutonic
believes there is sufficient confidence that such resources will be
converted to reserves after further delineation drilling. Plutonic has a
history of successfully converting resources included in its life-of-mine
plans into reserves. If a significant change in estimated future
life-of-mine production occurs during the period, amortisation expense for
that period is adjusted to reflect the change. Under U.S. GAAP, mine
development and pre-production expenditures, excluding any provision for
expected future development expenditures, are amortised using the
units-of-production method based on published proven and probable reserves
only. A significant change in proven and probable reserves is treated
prospectively for amortisation purposes.
(d) Under Australian GAAP, gains or losses resulting from the early
close out of gold forward sales contracts can be recognized during that
period. Under U.S. GAAP, these forward sales contracts would have been
classified as hedges of future designated production and the gain realised
on the early close out would have been deferred and recognised in income as
the designated production was delivered. (Not applicable for 1995).
D-88
<PAGE> 362
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
34. RECONCILIATION TO U.S. GAAP (CONTINUED)
(e) Plutonic uses the liability method of accounting for income taxes,
which also is required under U.S. GAAP. However, there are differences in
the application of the liability method under U.S. GAAP. The most
significant differences relate to acquisitions accounted for using the
purchase method, recognition of future income tax benefits and the
presentation of the current and long-term portion of future tax benefits
and deferred tax liabilities in the Balance Sheet.
(1.) Under Australian GAAP, when an acquisition price exceeds the
underlying net book value of the assets acquired, the excess purchase
price is allocated to the acquired assets and liabilities based on fair
values. Deferred taxes are not established for any differences between
the book and tax bases of assets, which may arise from this allocation.
The assets are then amortised in accordance with the company's normal
depreciation policies. Under U.S. GAAP, when an acquisition is accounted
for using the purchase method, the excess purchase price paid above the
net book value of the assets acquired also is allocated to the acquired
assets and liabilities based on fair values. However, to the extent that
such allocation creates a temporary difference, deferred taxes are
established and the excess purchase price is increased by an equal
amount. The assets are then amortised in accordance with the company's
normal depreciation policies and the deferred tax provision is accounted
for in accordance with the company's normal tax accounting policies.
(2.) Under Australian GAAP, future income tax benefits relating to
timing differences are not recognised unless realisation of the benefit
is assured beyond reasonable doubt. Future income tax benefits resulting
from net operating losses are not recognised unless there is virtual
certainty of realisation of the benefit. Acquired tax benefits are
valued at market at the time of acquisition and subsequent to
acquisition recognised in accordance with the foregoing criteria. Under
U.S. GAAP, a deferred tax asset is recognised for deductible temporary
differences and operating loss and tax credit carry-forwards. A
valuation allowance is recognised if, based on the weight of available
evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realised.
(3.) Under Australian GAAP, the current and long-term portion of
future tax benefits and deferred tax liabilities are not separately
disclosed in the Balance Sheet. Under U.S. GAAP, the current and long
term portions of future tax benefits and deferred tax liabilities are
separately disclosed.
(f) Represents the income tax effect resulting from (a) to (e) above.
(g) To reflect minority interests' share of the above U.S. GAAP
adjustments and to present minority interest outside of shareholders'
equity in accordance with U.S. GAAP.
(h) Plutonic carries investments in listed and unlisted companies at
cost except that declines in market value judged to be other than temporary
are recognised in determining net income. Under U.S. GAAP, Plutonic's
investments would be classified as available-for-sale investments and would
be carried at market value. Unrealised gains and losses on these
investments are recorded as a separate component of shareholders' equity
except that declines in market value judged to be other than temporary are
recognised in determining net income.
D-89
<PAGE> 363
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
34. RECONCILIATION TO U.S. GAAP (CONTINUED)
(i) Plutonic retroactively records common stock dividends declared
after an accounting period has ended but before the financial statements
are issued. Under U.S. GAAP, common stock dividends payable are recorded in
the period in which they are declared.
<TABLE>
<CAPTION>
FOR THE
YEAR
ENDED
31 DECEMBER
-----------
1995
$'000
-----------
<S> <C> <C>
Operating profit after income tax and outside equity interests
as reported under Australian GAAP............................... 40,124
Reconciliation to U.S. GAAP:
Accounting for ongoing exploration
expenditure (a)............... (16,689)
Accounting for acquired exploration
properties (b)............... 3,061
Accounting for capitalised expenditure (c)............... 2,052
Accounting for income taxes: (e)(1)............ (3,819)
(e)(2)............ 5,900
Income tax effect of (a) to (e) (f)............... (5,149)
Accounting for minority interests (g)............... 1,667
Net income in accordance with U.S. GAAP......................... 27,147
======
Earnings per share in accordance with U.S. GAAP................. 0.15
======
</TABLE>
D-90
<PAGE> 364
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
34. RECONCILIATION TO U.S. GAAP (CONTINUED)
Consolidated balance sheets prepared in accordance with U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
AUSTRALIAN U.S.
GAAP ADJUSTMENTS GAAP
$'000 $'000 $'000
---------- ----------- -------
<S> <C> <C> <C> <C>
As at 31 December 1995
Current Assets
Cash................................................... 48,234 48,234
Receivables & Bullion................................ 27,289 27,289
Inventories............................................ 42,695 42,695
Other.................................................. 3,782 3,782
Future income tax benefits........................... 0 (e)3 3,503 3,503
TOTAL CURRENT ASSETS......................... 122,000 125,503
------- -------
Non-Current Assets
Receivables.......................................... 41,573 41,573
Investments.......................................... 60,669 (h) (1,010) 59,659
Property, plant & equipment.......................... 76,913 (e)2 (2,000) 74,913
Deferred cost of mineral prospects................... 220,702 (a) (56,605)
(b) 4,740
(c) (18,208)
(e)1 47,745
(e)2 (15,300) 183,074
Future income tax benefits............................. 18,277 (e)3 (3,503)
(f) 31,731 46,505
TOTAL NON-CURRENT ASSETS..................... 418,134 405,724
------- -------
TOTAL ASSETS........................................... 540,134 531,227
======= =======
</TABLE>
D-91
<PAGE> 365
PLUTONIC RESOURCES LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 31 DECEMBER 1995
34. RECONCILIATION TO U.S. GAAP (CONTINUED)
<TABLE>
<CAPTION>
AUSTRALIAN U.S.
GAAP ADJUSTMENTS GAAP
$'000 $'000 $'000
---------- ----------- -------
<S> <C> <C> <C> <C>
As at 31 December 1995
Current Liabilities
Creditors and borrowings............................. 26,445 26,445
Provisions and other................................. 12,854 (i) (10,293) 2,561
Deferred income taxes................................ 0 (e)3 4,409 4,409
TOTAL CURRENT LIABILITIES.................... 39,299 33,415
------- -------
Non-Current Liabilities
Creditors and borrowings............................. 120,000 120,000
Provisions............................................. 2,415 2,415
Deferred income taxes................................ 23,453 (e)1 47,745
(e)3 (4,409)
(f) (327) 66,462
TOTAL NON-CURRENT LIABILITIES................ 145,868 188,877
------- -------
TOTAL LIABILITIES...................................... 185,167 222,292
------- -------
NET ASSETS............................................. 354,967 308,935
======= =======
Shareholders' Equity
Share capital........................................ 90,223 90,223
Reserves............................................. 124,840 124,840
Unrealised gains (losses) on investments............. 0 (h) (1,010) (1,010)
Accumulated profits.................................. 127,225 (a) (56,605)
(b) 4,740
(c) (18,208)
(e)2 (17,300)
(f) 32,058
(g) 1,433
(i) 10,293 83,636
Outside equity interests............................. 12,679 (g) (1,433) 11,246
------- -------
TOTAL SHAREHOLDERS' EQUITY............................. 354,967 308,935
======= =======
</TABLE>
D-92
<PAGE> 366
STATEMENT BY DIRECTORS
In the opinion of the Directors of Plutonic Resources Limited:
(a) the accounts of the Chief Entity and of the Economic Entity are
drawn up so as to give a true and fair view of:
(i) the results of the Chief Entity and of the Economic Entity for
the financial year ended 31 December 1995, and
(ii) the state of affairs of the Chief Entity and of the Economic
Entity as at 31 December 1995
so far as they concern members of Plutonic Resources Limited
(b) at the date of this Statement, there are reasonable grounds to
believe that the Chief Entity will be able to pay its debts as and when
they fall due;
(c) the accounts have been made out in accordance with Divisions 4A
and 4B of Part 3.6 of the Corporation Law.
Signed in accordance with a resolution of the Directors.
<TABLE>
<S> <C>
Sir Eric McClintock /s/ SIR ERIC MCCLINTOCK
-----------------------------------------------
Chairman
Ronald J Hawkes /s/ RONALD J HAWKES
-----------------------------------------------
Managing Director
Sydney, 4 March 1996.
</TABLE>
THIS STATEMENT BY DIRECTORS IS DATED AS OF 4 MARCH 1996 AND ACCORDINGLY
DOES NOT RELATE TO NOTE 34, WHICH IS DATED AS OF 15 JANUARY 1998.
D-93
<PAGE> 367
INDEPENDENT AUDITOR'S REPORT
To the Members of Plutonic Resources Limited
SCOPE
We have audited the financial statements of Plutonic Resources Limited for
the year ended 31 December 1995, as set out on pages D-57 to D-93, including the
Statement by Directors. The financial statements include the accounts of
Plutonic Resources Limited, and the consolidated accounts of the economic entity
comprising Plutonic Resources Limited and the entities it controlled from time
to time during the financial year. The company's directors are responsible for
the preparation and presentation of the financial statements and the information
they contain. We have conducted an independent audit of these financial
statements in order to express an opinion on them to the members of the company.
Our audit has been conducted in accordance with Australian Auditing
Standards, which do not differ in any material respect from auditing standards
generally accepted in the United States, to provide reasonable assurance as to
whether the financial statements are free of material misstatement. Our
procedures included examination, on a test basis, of evidence supporting the
amounts and other disclosures in the financial statements, and the evaluation of
accounting policies and significant accounting estimates. These procedures have
been undertaken to form an opinion as to whether, in all material respects, the
financial statements are presented fairly in accordance with Australian
accounting standards, other mandatory professional reporting requirements and
statutory requirements, so as to present a view which is consistent with our
understanding of the company's and the economic entity's financial position and
the results of their operations and their cash flows.
The names of the entities controlled during all or part of, or at the end
of, the financial year, but of which we have not acted as auditor are disclosed
in Note 12. We have, however, received sufficient information and explanations
concerning these controlled entities to enable us to form an opinion on the
consolidated accounts.
The audit opinion expressed in this report has been formed on the above
basis.
AUDIT OPINION
In our opinion, the financial statements of Plutonic Resources Limited are
properly drawn up:
(a) so as to give a true and fair view of:
(i) the state of affairs as at 31 December 1995, and of the profit
and cash flows for the financial year ended on that date of the
company and of the economic entity; and
(ii) the other matters required by Division 4, 4A and 4B of Part 3.6
of the Corporations Law to be dealt with in the financial
statements;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other
mandatory professional requirements.
Accounting principles generally accepted in Australia vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of consolidated
operating profit for the year ended 31 December 1995 and the determination of
consolidated shareholders' equity attributable to shareholders of Plutonic
Resources Limited as at 31 December 1995 to the approximate extent indicated in
Note 34 to the financial statements.
ERNST & YOUNG
/s/ I.R. BAGGIE
I.R. Baggie
Partner
Date opinion formed: 4 March, 1996, except for Note 34 for which the opinion was
formed on 15 January 1998
D-94
<PAGE> 368
PLUTONIC RESOURCES LIMITED
A.C.N. 006 245 629
AND ITS CONTROLLED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS
9 MONTH PERIOD ENDED
30 SEPTEMBER 1997
D-95
<PAGE> 369
PROFIT AND LOSS STATEMENT
FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER
<TABLE>
<CAPTION>
1997 1996
$'000 $'000
------- -------
<S> <C> <C>
Operating revenue........................................................ 260,804 257,855
------- -------
Operating (loss)/profit before income tax................................ (51,321) 33,719
Income tax credit/(expense).............................................. 5,651 (13,450)
------- -------
Operating (loss)/profit after income tax................................. (45,670) 20,269
Outside equity interest.................................................. 954 (18)
------- -------
Operating (loss)/profit after income tax attributable to members of
Plutonic Resources Limited............................................. (44,716) 20,251
Retained profits brought forward......................................... 147,297 127,225
------- -------
Available for appropriation.............................................. 102,581 147,476
Dividends................................................................ (6) (7,505)
------- -------
Retained profits at end of period........................................ 102,575 139,971
======= =======
</TABLE>
D-96
<PAGE> 370
BALANCE SHEET
AS AT 30 SEPTEMBER 1997
<TABLE>
<CAPTION>
SEPTEMBER
1997
$'000
---------
<S> <C>
CURRENT ASSETS
Cash............................................................................. 28,757
Receivables and Bullion.......................................................... 47,136
Inventories...................................................................... 35,721
Other............................................................................ 6,804
-------
TOTAL CURRENT ASSETS............................................................... 118,418
=======
NON-CURRENT ASSETS
Investments...................................................................... 42,852
Inventories...................................................................... 24,873
Property, Plant and Equipment.................................................... 123,381
Deferred Cost of Mineral Prospects............................................... 295,695
Future Income Tax Benefit........................................................ 16,539
-------
TOTAL NON-CURRENT ASSETS........................................................... 503,340
=======
TOTAL ASSETS....................................................................... 621,758
=======
CURRENT LIABILITIES
Accounts payable................................................................. 21,688
Provisions....................................................................... 3,205
Other............................................................................ 2,097
-------
TOTAL CURRENT LIABILITIES.......................................................... 26,990
=======
NON CURRENT LIABILITIES
Borrowings....................................................................... 194,500
Provisions....................................................................... 30,126
-------
TOTAL NON CURRENT LIABILITIES...................................................... 224,626
=======
TOTAL LIABILITIES.................................................................. 251,616
=======
NET ASSETS......................................................................... 370,142
=======
</TABLE>
D-97
<PAGE> 371
BALANCE SHEET
AS AT 30 SEPTEMBER 1997
<TABLE>
<CAPTION>
SEPTEMBER
1997
$'000
---------
<S> <C>
SHAREHOLDERS' EQUITY
Parent entity interest
Issued Capital.............................................................. 93,832
Reserve..................................................................... 162,765
Retained Profits............................................................ 102,575
-------
Parent Entity Interest in Equity............................................... 359,172
=======
Outside Equity Interest
Issued Capital.............................................................. 15,731
Reserve..................................................................... 1,778
Retained Profits/(Losses)................................................... (6,539)
-------
Outside Equity Interest........................................................ 10,970
=======
TOTAL EQUITY..................................................................... 370,142
=======
</TABLE>
D-98
<PAGE> 372
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED 30 SEPTEMBER
<TABLE>
<CAPTION>
1997 1996
$'000 $'000
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipts in the course of operations................................ 234,629 202,819
Cash payments in the course of operations................................ (163,296) (157,980)
Income taxes refunded.................................................... -- 1,689
-------- --------
Net cash provided by operating activities................................ 71,333 46,528
======== ========
CASH FLOW FROM INVESTING ACTIVITIES
Dividends received....................................................... 189 204
Interest received........................................................ 4,887 5,203
Proceeds from sale of investments........................................ 2,417 38,980
Recoveries from joint venture parties.................................... 1,169 1,361
Proceeds from sale of non-current assets................................. 121 2,826
Proceeds on sale of option............................................... 14,000 5,000
Payment for investments.................................................. (1,509) (31,283)
Payments for property, plant and equipment............................... (33,738) (17,703)
Payments for tenement exploration........................................ (26,366) (19,469)
Payments for pre-production activities................................... (44,141) (35,503)
Payments for tenement acquisition........................................ (77) --
Advanced stripping costs deferred........................................ (2,827) (10,122)
Loans repayment (advance) to other entities.............................. 50,000 (10,000)
Payment for acquisition of outside equity interest in controlled
entity................................................................. (5,918) (40,114)
Cash acquired from acquisition of controlled entities.................... -- 5,516
-------- --------
Net cash (used in) investing activities.................................. (41,793) (105,104)
======== ========
CASH FLOW FROM FINANCING ACTIVITIES
Interest paid............................................................ (9,509) (7,387)
Proceeds from issue of shares............................................ 12 41,412
Repayments of borrowings................................................. 14,500 17,500
Tax prepaid.............................................................. (1,618) --
Dividends paid........................................................... (13,132) (10,299)
-------- --------
Net cash (used in) provided by financing activities...................... (9,747) 41,226
-------- --------
Net increase (decrease) in cash held..................................... 19,793 (17,350)
Cash at the beginning of the financial period............................ 49,148 60,472
-------- --------
Cash at the end of the financial period.................................. 68,941 43,122
======== ========
</TABLE>
D-99
<PAGE> 373
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
AT 30 SEPTEMBER 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These general purpose Consolidated financial statements have been drawn up
in accordance with Accounting Standard AASB 1029, other applicable accounting
standards and the Corporations Law. They have been prepared in accordance with
the historical cost convention. The accounting policies adopted are consistent
with those of the previous year except where there is a note of a change in the
accounting policy.
It is recommended that these financial statements be read in conjunction
with the financial statements for the year ended 31 December 1996 and any public
announcements made by Plutonic Resources Limited and controlled entities during
the nine months ended 30 September 1997 in accordance with any continuous
disclosure obligations arising under the Corporations Law.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated accounts are those of the Economic Entity, comprising
Plutonic Resources Limited (the Chief Entity) and all entities which Plutonic
Resources Limited controlled from time to time during the year and at year end.
All intercompany balances and transactions, and unrealised profits resulting
from intra-economic entity transactions have been eliminated. The interests of
outside shareholders in the operating results and net assets of controlled
entities are stated separately in the consolidated profit and loss statement and
balance sheet respectively. Where there is a gain or loss of control of a
controlled entity, the consolidated accounts include the results for the part of
the reporting period during which the parent entity had control.
(B) INCOME TAX
The Economic Entity adopts the liability method of tax effect accounting
whereby the income tax expense shown in the profit and loss statement is based
on the operating profit before income tax adjusted for any permanent
differences.
Timing differences, which arise due to the different accounting periods in
which items of revenue and expense are included in the determination of
operating profit before income tax and taxable income are brought to account as
either provision for deferred income tax or an asset described as future income
tax benefit at the rate of income tax applicable to the period in which the
benefit will be received or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of
the asset is assured beyond reasonable doubt. Future income tax benefits in
relation to tax losses are not brought to account unless there is virtual
certainty of realisation of the benefit.
The amount of benefits brought to account or which may be realised in the
future is based on the assumption that no adverse change will occur in income
taxation legislation, the anticipation that the Economic Entity will derive
sufficient future assessable income to enable the benefit to be realised and
comply with the conditions of deductibility imposed by law.
(C) CASH
Cash is represented by cash on hand, at financial institutions at call and
bank bills and deposits.
(D) REVENUE RECOGNITION
Revenue from production of gold is recognised when all of the following
"collective tests" have been met:
(i) the product is in a form suitable for delivery and no further
processing is required by or on behalf of the Economic Entity;
(ii) the quantity and quality of the product can be determined with
reasonable accuracy;
D-100
<PAGE> 374
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
(iii) the selling price can be determined with reasonable accuracy;
(iv) the product has been despatched to a refiner and is no longer
under the physical control of the Economic Entity.
(E) BULLION
In accordance with the policy on revenue recognition, gold bullion is taken
up as a sale when it is delivered to a gold refinery. Gold bullion held at the
refinery at the end of the year is valued at net realisable value which is
either the market price ruling on that date or the forward rate where gold has
subsequently been delivered and the revenue realised. Gold bullion is shown as a
receivable in the financial statements. Bullion includes gold poured within
three days of the end of the period.
(F) INVENTORIES
(i) Gold in Process. Gold is valued at the lower of cost and net realisable
value using market price at year end or where applicable a forward contract
price. Gold in process includes gold in circuit and gold contained in stockpiled
ore as determined by production records. The cost of gold in process includes
the cost of direct materials, labour and variable and fixed overheads relating
to mining activities.
(ii) Consumable Stores and Spare Parts. Consumable stores and spare parts
have been measured by physical stocktake and valued at the lower of cost and net
realisable value.
(iii) Other. Other inventories have been measured by physical stocktake and
valued at the lower of cost and net realisable value.
(G) INVESTMENTS
The Economic Entity's interests in companies (other than controlled
entities) are shown as investments, and dividend income only is taken into
profit as it is received. Long term investments are stated at cost less amounts
provided against permanent diminution in the value of investments. Investments
held for re-sale are stated at the lower of cost or net realisable value.
(H) PROPERTY PLANT AND EQUIPMENT
Fixed assets are included at cost. The cost of fixed assets constructed
within the Economic Entity includes the cost of materials, direct labour and an
appropriate proportion of fixed and variable overheads.
(I) DEPRECIATION
(i) Plant Construction Costs. The cost of these assets is being depreciated
over their useful economic lives using the straight line method.
(ii) Other Fixed Assets. Other fixed assets including buildings, but
excluding land, are depreciated over their useful economic lives using the
diminishing value method.
(J) EXPLORATION EXPENDITURE
Costs arising from exploration and evaluation related to an area of
interest are written off as incurred, except that they may be carried forward as
deferred costs provided the rights to tenure of the area of interest are
current; and
(i) exploration activities in each area of interest have not yet
reached a stage which permits a reasonable assessment of the existence or
otherwise of economically recoverable reserves, and active and significant
operations in relation to the area are continuing; or
D-101
<PAGE> 375
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
(ii) such costs are expected to be recouped through successful
development and exploitation of each area of interest, or alternatively, by
its sale.
Exploration expenditure is carried forward at cost in the balance sheet and
the Directors are satisfied this complies with Accounting Standard 1022.
In addition, the Directors have considered their obligation under Section
294(4) of the Corporations Law. Archaean's exploration area of interest with a
cost of $27.7m was acquired within the preceding fifteen months. It is not
possible to presently conclude whether it would have been reasonable for the
company to spend that amount to acquire these assets as at the end of the
accounting period until further exploration work is carried out on this area of
interest.
(K) ACQUIRED EXPLORATION EXPENDITURE
The fair value of exploration tenements attributable as part of the
acquisition of the business is amortised over a period not exceeding ten years.
(L) ACQUISITION COSTS
(i) Mines. The direct cost of acquiring mining leases is being amortised
based on the production output method.
(ii) Other. The direct costs of acquiring mining properties is carried
forward as a deferred cost until such time as:
(i) a mining operation is commenced when it will be amortised over the
life of the mine; or
(ii) the project is sold or abandoned,
provided that the carrying value does not exceed the amount that it would have
been reasonable for the company to spend to acquire the asset at the end of the
period.
(M) PRODUCTION COSTS
Preproduction costs for each tenement comprise direct development
expenditure, pre-operating and equipment start-up costs, exploration expenditure
carried forward at the date of the decision to mine plus any continuing
exploration expenditure on the tenement.
Preproduction costs are carried forward to the extent to which recoupment
out of future revenues from the sale of product from the property is reasonably
assured.
Preproduction costs are amortised over the life of the relevant mine using
the production output method.
(N) EMPLOYEE ENTITLEMENTS
(i) Wages, Annual Leave, Long Service Leave, Sick Leave. The provision for
employee entitlements relating to wages annual leave and sick leave is based on
legal and contractual entitlements and assessments having regard to the Economic
Entity's experience of staff departures and leave utilisation. Vested
entitlements are shown as current liabilities.
Current wage rates and on-costs are used in the calculation of this
provision.
The provision for employee entitlements relating to long service leave
represents the net present value of the estimated future cash outflows to be
made resulting from employees' services provided up to the balance date. In
assessing the liability for employee entitlements which are not expected to be
settled within twelve months the relevant cash flows have been discounted.
Consideration has been given to future salary increases
D-102
<PAGE> 376
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
and the economic entity's experience with staff departures. Related on costs
have also been included in the calculation of the provision.
(ii) Superannuation. Contributions are made by the economic entity to
employee superannuation funds and are charged to expenses when incurred.
The economic entity does not record, as an asset or a liability, the
difference between the employer established defined benefit superannuation
plan's accrued benefits and the net market value of the plan's assets.
(O) RESTORATION, REHABILITATION AND ENVIRONMENTAL COSTS
Restoration and rehabilitation of mine sites is carried out on an on-going
basis during the production life of the mine.
Provision is made for the cost of any restoration and rehabilitation work
required to be completed at the end of the production life of the mine. This
provision is assessed by technically qualified personnel on an annual basis. The
provision is raised progressively over the life of the project using current
undiscounted costs. Any revisions in the estimates of costs are reflected in the
provision when they are made.
(P) FOREIGN CURRENCY
Amounts payable to and by the company in foreign currencies have been
translated to Australian currency at rates of exchange ruling at period end.
The results of a controlled entity are denominated in New Zealand dollars.
Monetary assets and liabilities have been translated at the period end exchange
rate while non monetary assets have been translated at the historical exchange
rate. All profits and losses arising from translation have been taken directly
to the profit and loss account during the period.
(Q) JOINT VENTURES
The Economic Entity's interest in exploration joint ventures is brought to
account based on the actual expenditures incurred by the Economic Entity in
contributing to the joint venture's exploration programme and is included in
deferred cost of mineral prospects.
The Economic Entity's interests in mining joint ventures are recorded in
the accounts by including in the respective classifications the entity's share
of assets employed, the share of liabilities incurred and the share of any
expenses incurred.
(R) LEASES
Leases of plant and equipment under which the Economic Entity assumes
substantially the risks and benefits of ownership are classified as finance
leases. All other leases are classified as operating leases.
Payments made under operating leases are charged against profits in equal
instalments over the accounting periods covered by the term of the lease.
(S) RECOVERABLE AMOUNT
Non-current assets are not revalued to an amount above their recoverable
amount, and where carrying values exceed this recoverable amount assets are
written down. In determining recoverable amount the expected net cash flows have
not been discounted to their present values.
D-103
<PAGE> 377
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
(T) COMPARATIVE FIGURES
Where required, comparative figures have been adjusted to conform with
changes in presentation for the current period.
2. ABNORMAL ITEM
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
1997 1996
--------- ---------
<S> <C> <C>
Included in the operating profit (loss) are the
following items:
Profit on sale of investment...................... 0 10,077
Applicable income tax............................. 0 0
------- ------
0 10,077
Write-down of mine carrying values and related
assets............................................ (70,809) 0
Applicable income tax............................... 19,430 0
------- ------
(51,379) 0
------- ------
Write-down of investments........................... (19,536) 0
Applicable income tax............................... 0 0
------- ------
(19,536) 0
------- ------
Mining contract variations.......................... (7,500) 0
Applicable income tax............................... 2,700 0
------- ------
(4,800) 0
------- ------
Edensor option payments............................. 14,000 0
Applicable income tax............................... 0 0
------- ------
14,000 0
------- ------
Total Abnormals..................................... (83,845) 10,077
Applicable income tax............................... 22,130 0
------- ------
(61,715) 10,077
------- ------
</TABLE>
3. RECONCILIATION TO U.S. GAAP
The following footnote has been prepared in order to comply with United
States generally accepted accounting principles for presentation in Homestake
Mining Company's (Homestake) document relating to Homestake and Plutonic
agreeing to combine by means of a scheme of arrangement.
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"). In
Australia, financial statements are prepared in accordance with accounting
standards issued by the Australian Accounting Standards Board ("Australian
GAAP"), which are codified in Australian Corporations Law. Certain differences
between U.S. GAAP and Australian GAAP as they relate to the conversion of
Plutonic's financial statements to U.S. GAAP are summarised below:
(a) Plutonic defers ongoing exploration expenditures until the
viability of a project is determined. If a decision is made to
proceed with a project the expenditures are transferred to
pre-production cost to be amortised over the life of the mine. If
a decision is made to abandon a project the expenditures are
written off at the time of such determination. Under U.S. GAAP,
exploration expenditures incurred prior to the completion of a
favourable feasibility study are expensed as incurred. Following
completion of a favourable feasibility study, pre-production
exploration
D-104
<PAGE> 378
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
expenditures are capitalised and amortised using the
units-of-production method based on proven and probable reserves.
(b) Plutonic accounts for business combinations using the purchase
method. In its application of the purchase method, Plutonic may
assign a portion of the purchase price to acquired exploration
potential ("AEP"). AEP is amortised using the straight-line method
over periods not exceeding ten years. If it is subsequently
determined that the exploration properties acquired in a business
combination do not contain significant mineralisation, the
remaining unamortised AEP associated with that business
combination would be written down at the time of such
determination. Under U.S. GAAP, AEP would be specifically
allocated to individual exploration properties. If it is
subsequently determined that significant mineralisation does not
exist on any of these individual properties, they would be written
down at the time of such determination. If a property becomes a
producing mine, its carrying value would be amortised using the
units-of-production method based on proven and probable reserves.
(c) Plutonic amortises mine development and pre-production
expenditures together with estimates of expected future
development expenditures using the units-of-production method
based on its estimate of future life-of-mine production.
Plutonic's estimate of future life-of-mine production includes
proven and probable reserves plus a portion of resources which has
not yet been converted to reserves but which Plutonic believes
there is sufficient confidence that such resources will be
converted to reserves after further delineation drilling. Plutonic
has a history of successfully converting resources included in its
life-of-mine plans into reserves. If a significant change in
estimated future life-of-mine production occurs during the period,
amortisation expense for that period is adjusted to reflect the
change. Under U.S. GAAP, mine development and pre-production
expenditures, excluding any provision for expected future
development expenditures, are amortised using the
units-of-production method based on published proven and probable
reserves only. A significant change in proven and probable
reserves is treated prospectively for amortisation purposes.
(d) In 1996, Plutonic recognised a gain of $13 million on the early
close out of certain gold forward sales contracts. Under U.S.
GAAP, these forward sales contacts would have been classified as
hedges of future designated production and the gain realised on
the early close out would have been deferred and recognised in
income as the designated production was delivered.
(e) Plutonic uses the liability method of accounting for income taxes,
which also is required under U.S. GAAP. However, there are
differences in the application of the liability method under U.S.
GAAP. The most significant differences relate to acquisitions
accounted for using the purchase method, recognition of future
income tax benefits and the presentation of the current and
long-term portion of future tax benefits and deferred tax
liabilities in the Balance Sheet.
1. Under Australian GAAP, when an acquisition price exceeds the
underlying net book value of the assets acquired, the excess
purchase price is allocated to the acquired assets and liabilities
based on fair values. Deferred taxes are not established for any
differences between the book and tax bases of assets, which may
arise from this allocation. The assets are then amortised in
accordance with the company's normal depreciation policies. Under
U.S. GAAP, when an acquisition is accounted for using the purchase
method, the excess purchase price paid above the net book value of
the assets acquired also is allocated to the acquired assets and
liabilities based on fair values. However, to the extent that such
allocation creates a temporary difference, deferred taxes are
established and the excess purchase price is increased by an equal
amount. The assets are then amortised in accordance with the
company's normal depreciation policies and the deferred tax
provision is accounted for in accordance with the company's normal
tax accounting policies.
D-105
<PAGE> 379
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
2. Under Australian GAAP, future income tax benefits relating to
timing differences are not recognised unless realisation of the
benefit is assured beyond reasonable doubt. Future income tax
benefits resulting from net operating losses are not recognised
unless there is virtual certainty of realisation of the benefit.
Acquired tax benefits are valued at market at the time of
acquisition and subsequent to acquisition recognised in
accordance with the foregoing criteria. Under U.S. GAAP, a
deferred tax asset is recognised for deductible temporary
differences and operating loss and tax credit carryforwards. A
valuation allowance is recognised if, based on the weight of
available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realised.
3. Under Australian GAAP, the current and long-term portion of
future tax benefits and deferred tax liabilities are not
separately disclosed in the Balance Sheet. Under US GAAP, the
current and long term portions of future tax benefits and
deferred tax liabilities are separately disclosed.
(f) Represents the income tax effect resulting from (a) to (e) above.
(g) To reflect minority interests' share of the above U.S. GAAP
adjustments and to present minority interest outside of
shareholders' equity in accordance with U.S. GAAP.
(h) Plutonic carries investments in listed and unlisted companies at
cost except that declines in market value judged to be other than
temporary are recognised in determining net income. Under U.S.
GAAP, Plutonic's investments would be classified as
available-for-sale investments and would be carried at market
value. Unrealised gains and losses on these investments are
recorded as a separate component of shareholders' equity except
that declines in market value judged to be other than temporary
are recognised in determining net income.
<TABLE>
<CAPTION>
FOR THE 9 MONTHS
ENDED
30 SEPTEMBER
-------------------
1997 1996
$'000 $'000
------- -------
<S> <C> <C> <C>
Operating profit (loss) after income tax as reported under
Australian GAAP and outside equity interests................... (44,716) 20,251
Reconciliation to U.S. GAAP:
Accounting for ongoing exploration expenditure (a).......... (13,718) (14,920)
Accounting for acquired exploration properties (b).......... 3,661 3,653
Accounting for capitalised expenditure (c).......... 19,313 (2,712)
Accounting for forward contract closeouts (d).......... 3,499 (2,624)
Accounting for income taxes: (e)1......... (4,897) (5,232)
(e)2......... 6,800 6,800
Income tax effect of above (f).......... 4,294 3,787
Accounting for minority interests (g).......... 1,578 733
Net income (loss) in accordance with U.S. GAAP................. (24,186) 9,736
======= =======
Earnings (loss) per share in accordance with U.S. GAAP......... (0.13) 0.05
======= =======
</TABLE>
D-106
<PAGE> 380
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
Consolidated balance sheets prepared in accordance with U.S. GAAP are as
follows:
<TABLE>
<CAPTION>
AUSTRALIAN U.S.
GAAP ADJUSTMENTS GAAP
$'000 $'000 $'000
---------- ----------- -------
<S> <C> <C> <C> <C>
As at 30 September 1997
Current Assets
Cash.................................................. 28,757 28,757
Receivables & Bullion................................. 47,136 47,136
Inventories........................................... 35,721 35,721
Other................................................. 6,804 6,804
Future income tax benefits............................ 0 (e)3 6,656 6,656
TOTAL CURRENT ASSETS.......................... 118,418 125,074
------- -------
Non-Current Assets
Investments........................................... 42,852 (h) (3,025) 39,827
Inventories........................................... 24,873 24,873
Property, plant & equipment........................... 123,381 (e)2 (2,000) 121,381
Deferred cost of mineral prospects.................... 295,695 (a) (94,045)
(b) 13,272
(c) 761
(e)1 50,892
(e)2 (15,300) 251,275
Future income tax benefits............................ 16,539 (e)3 (6,656)
(f) 46,909 56,792
TOTAL NON-CURRENT ASSETS...................... 503,340 494,148
------- -------
TOTAL ASSETS............................................ 621,758 619,222
======= =======
</TABLE>
D-107
<PAGE> 381
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED)
AT 30 SEPTEMBER 1997
<TABLE>
<CAPTION>
AUSTRALIAN U.S.
GAAP ADJUSTMENTS GAAP
$'000 $'000 $'000
---------- ----------- -------
<S> <C> <C> <C> <C>
As at 30 September 1997
Current Liabilities
Creditors and borrowings.............................. 21,688 21,688
Provisions and other.................................. 5,302 5,302
Deferred income taxes................................. 0 (e)3 6,097 6,097
TOTAL CURRENT LIABILITIES..................... 26,990 33,087
------- -------
Non-Current Liabilities
Creditors and borrowings.............................. 194,500 194,500
Provisions............................................ 4,568 4,568
Deferred income taxes................................. 25,558 (e)1 50,892
(e)3 (6,097)
(f) 3,933 74,286
------- -------
TOTAL NON-CURRENT LIABILITIES................. 224,626 273,354
------- -------
TOTAL LIABILITIES....................................... 251,616 306,441
------- -------
NET ASSETS.............................................. 370,142 312,781
------- -------
Shareholders' Equity
Share capital......................................... 93,832 93,832
Reserves.............................................. 162,765 162,765
Unrealised gains/losses on investments................ 0 (h) (3,025) (3,025)
Accumulated profits................................... 102,575 (a) (94,045)
(b) 13,272
(c) 761
(e)2 (17,300)
(f) 42,976
(g) 4,524 52,763
Outside equity interests.............................. 10,970 (g) (4,524) 6,446
------- -------
TOTAL SHAREHOLDERS' EQUITY.............................. 370,142 312,781
======= =======
</TABLE>
D-108
<PAGE> 382
APPENDIX E
COMPARISON OF CERTAIN SEC AND JORC CODE
REPORTING REQUIREMENTS
<PAGE> 383
Following is a comparison of United States Securities and Exchange
Commission ("SEC") requirements for reporting ore reserves and the Australasian
Code for Reporting of Identified Mineral Resources and Ore Reserves ("JORC
Code").
Information in the accompanying Document with respect to ore reserves and
mineralization for Homestake has been prepared and defined in accordance with
SEC definitions and practices, as follows.
"Mineralization" is a mineralized body which has been delineated by
appropriate drilling and/or underground sampling to support a sufficient
tonnage and average grade of metal. Under SEC standards, mineralization
does not qualify as a reserve until a comprehensive evaluation, based upon
unit cost, grade recoveries and other factors necessary to conclude
economic viability is concluded. Under SEC requirements, reporting issuers
may report mineralization in terms of tons and grade, but mineralization is
not reportable in ounces of contained metal, and is not reportable as a
"resource."
"Ore Reserves" are that part of a mineralized body which can be
economically and legally extracted or produced at the time of the reserve
determination.
Under SEC practice, "reserves" are reported separately from and are not
included as part of "mineralization."
For SEC purposes, ore reserves may be proven or probable:
"Proven (Measured) Reserves" are those reserves for which (a) quantity
is computed from dimensions revealed in outcrops, trenches, workings, or
drill holes; grade and/or quality are computed from results of detailed
sampling and (b) the sites for inspection, sampling, and measurement are so
closely spaced and the geologic character is so well defined that size,
shape, depth, and mineral content of reserves are well-established.
"Probable (Indicated) Reserves" are those reserves for which quantity
and grade and/or quality are computed from information similar to that for
proven (measured) reserves, but the sites for inspection, sampling, and
measurement are farther apart or are otherwise less adequately spaced. The
degree of assurance, although lower then that for proven (measured)
reserves, is high enough to assume continuity between points of
observation.
The JORC Code applicable in Australia provides that Australian companies
reporting on mineralization are to prepare information on the following bases.
"Mineral Resource" is defined as an identified in-situ mineral
occurrence from which valuable or useful minerals may be recovered. Mineral
resources are subdivided into:
- Measured Mineral Resources;
- Indicated Mineral Resources; and
- Inferred Mineral Resources.
In reporting a mineral resource, there is a clear implication that there
are reasonable prospects for eventual economic exploitation.
"Measured Mineral Resource" means a mineral resource intersected and
tested by drill holes, underground openings or other sampling procedures at
locations which are spaced closely enough to confirm continuity and where
geoscientific data are reliably known. A measured mineral resource estimate
will be based on a substantial amount of reliable data, interpretation and
evaluation of which allows a clear determination to be made of shapes,
sizes, densities and grades.
"Indicated Mineral Resource" means a mineral resource sampled by drill
holes, underground opening or other sampling procedures at locations too
widely spaced to ensure continuity but close enough to give a reasonable
indication of continuity and where geoscientific date are known with a
reasonable level of reliability. An indicated mineral resource estimate
will be based on more data, and therefore will be more reliable, than an
inferred mineral resource estimate.
E-1
<PAGE> 384
"Inferred Mineral Resource" means a mineral resource inferred from
geoscientific evidence, drill holes, underground openings or other sampling
procedures where the lack of data is such that continuity cannot be
predicted with confidence and where geoscientific data may not be known
with a reasonable level of reliability.
Under the JORC Code, "Ore Reserve" is defined as that part of a measured or
indicated mineral resource which could be mined, inclusive of dilution, and from
which valuable or useful minerals could be recovered economically under
conditions realistically assumed at the time of reporting. Ore reserves are
subdivided into proved ore reserves and probable ore reserves.
"Proved Ore Reserve" means an ore reserve stated in terms of minable
tonnes/volume and grade in which the corresponding identified mineral
resource has been defined in three dimensions by excavation or drilling
(including minor extensions beyond actual openings and drill holes), and
where the geological factors that limit the ore body are known with
sufficient confidence that the mineral resource is categorized as
"measured."
"Probable Ore Reserve" means an ore reserve stated in terms of minable
tonnes/volume and grades where the corresponding identified mineral
resource has been defined by drilling, sampling of excavation (including
extensions beyond actual openings and drill holes), and where the
geological factors that control the ore body are known with sufficient
confidence that the mineral resource is categorized as "indicated."
Under the JORC Code, "reserves" are reported as an identified component of
"resources", in contrast to the SEC practice where "reserves" are separately
reported from "mineralization."
HOMESTAKE RECONCILIATION
Except with respect to the Mt Charlotte underground mine at Kalgoorlie,
Homestake believes that its ore reserve estimates reported in the Document,
based on SEC definitions, are approximately the same as those that would result
from the application of the JORC Code for determining proved and probable ore
reserves. Also except with respect to the Mt Charlotte underground mine,
Homestake believes that its mineralization estimates, based on SEC requirements,
are approximately the same as would result from the application of the JORC Code
for mineral resources, after subtracting that portion of the resource that
contains the proved and probable ore reserves. Exceptions are as follows:
- Kalgoorlie Consolidated Gold Mines Limited ("KCGM"), the operator of the
Kalgoorlie mines, only includes as proved and probable ore reserves that
mineralization for which a mining plan has been prepared, i.e., stope
design and scheduling has been completed. This is not required by SEC
guidelines and, accordingly, Homestake examines and when necessary,
recalculates Mt Charlotte ore reserves for its reporting purposes. As so
recalculated, Homestake's estimates of Mt Charlotte reserves included an
additional 317,000 ounces of reserves at December 31, 1996 (Homestake's
50% share). These additional reserves would have been reported as a part
of resources other than reserves under the JORC Code. At December 31,
1997, no modifications were made and the reserves reported under the JORC
Code were accepted by Homestake for its reporting according to SEC
guidelines.
Although Homestake ore reserve and mineral deposit estimates are believed to
have been prepared and evaluated reliably and professionally, ore reserve and
mineral deposit estimates involve interpretation of known data and subjective
judgments regarding grade, mineralization, continuity and, in the case of ore
reserves, economic factors.
For 1997 reserve calculations, Homestake used US$325 per ounce as the gold
price in evaluating Homestake's short lived operations, and US$350 per ounce for
other operations. For 1996 reserve calculations, Homestake used US$375 per
ounce. Future market price fluctuations, production costs, recovery rates and
many other factors may result in an ore reserve becoming uneconomic or a mineral
deposit being upgraded into an ore reserve.
E-2
<PAGE> 385
PLUTONIC RECONCILIATION
Plutonic ore reserve estimates reported in the Document are prepared in
accordance with the JORC Code. Plutonic believes that its ore reserve estimates
are approximately the same as those that would result from the application of
the SEC requirements. Plutonic mineralized material reported in the Document
represent Plutonic's estimated resources less that portion of resources from
which reserves have been derived, as prepared in accordance with the JORC Code,
and reported in tonnes and grade. Plutonic believes that its mineralization
estimates are approximately the same as would result from the application of the
SEC requirements.
Plutonic used A$ per ounce and A$500 to A$525 per ounce,
respectively for its 1997 and 1996 ore reserve calculations. Future market price
fluctuations, production costs, recovery rates and many other factors may result
in an ore reserve becoming uneconomic or a mineral deposit being upgraded into
an ore reserve.
E-3
<PAGE> 386
APPENDIX F
HOMESTAKE DIFFERENCES BETWEEN U.S. AND AUSTRALIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
<PAGE> 387
Financial statements in the United States are prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"). In
Australia, financial statements are prepared in accordance with accounting
standards issued by the Australian Accounting Standards Board ("Australian
GAAP"), which are codified in the Australian Corporations Law. Certain
differences between U.S. GAAP and Australian GAAP as they relate to Homestake's
financial statements presented in the Document are summarised below. This
information has not been audited and may not necessarily detail all differences
between U.S. GAAP and Australian GAAP applicable to Homestake.
BUSINESS COMBINATIONS
Under U.S. GAAP, business combinations are accounted for by either the
purchase method or the pooling-of-interests method. During 1992, Homestake
entered into a business combination with Homestake Canada Inc. ("HCI") which was
accounted for using the pooling-of-interests method.
Under Australian GAAP business combinations may only be accounted for using
the purchase method.
The criteria for the pooling-of-interests method relate to the attributes
of the combining enterprises before the combination, the manner of combining the
enterprises, and the absence of certain planned transactions after the
combination. The pooling-of-interests method accounts for a business combination
as the uniting of the ownership interests of two or more companies by exchange
of equity securities. No acquisition is recognized because the combination is
accomplished without disbursing resources of the constituents. Ownership
interests continue and the former bases of accounting are retained. The recorded
assets and liabilities of the constituents are carried forward to the combined
corporation at their U.S. GAAP amounts. Income of the combined corporation
includes income of the constituents for the entire fiscal period in which the
combination occurs. The U.S. GAAP income of the constituents for prior periods
are combined and restated as income of the combined corporation.
The purchase method accounts for a business combination as the acquisition
of one enterprise by another. The acquiring corporation records at its cost the
acquired assets less liabilities assumed. A difference between the cost of an
acquired enterprise and the sum of the fair values of tangible and identifiable
intangible assets less liabilities assumed is recorded as goodwill. The reported
income of an acquiring corporation includes the results of operations of the
acquired enterprise only after the acquisition, based on the cost to the
acquiring corporation.
INCOME TAXES
U.S. GAAP and Australian GAAP require the use of the liability method of
accounting for income taxes. However, there are differences in the application
of the liability method under U.S. GAAP. The most significant differences relate
to acquisitions accounted for using the purchase method and recognition of
future income tax benefits.
Under Australian GAAP, when an acquisition price exceeds the underlying net
book value of the assets acquired, the excess purchase price is allocated to the
acquired assets and liabilities based on fair values. Deferred taxes are not
established for any differences between the book and tax bases of assets, which
may arise from this allocation. The assets are then amortized in accordance with
the company's normal depreciation policies. Under U.S. GAAP, when an acquisition
is accounted for using the purchase method, the excess purchase price paid above
the net book value of the assets acquired also is allocated to the acquired
assets and liabilities based on fair values. However, to the extent that such
allocation creates a temporary difference, deferred taxes are established and
the excess purchase price is increased by an equal amount. The asset is then
amortized in accordance with the company's normal depreciation policies and the
deferred tax provision is accounted for in accordance with the company's normal
tax accounting policies.
In addition, for Australian GAAP purposes, future income tax benefits
relating to timing differences are not recognized unless realization of the
benefit is assured beyond reasonable doubt. Future income tax benefits resulting
from net operating losses are not recognized unless there is virtual certainty
of realization of the benefit. Under U.S. GAAP, a deferred tax asset is
recognized for deductible temporary differences and
F-1
<PAGE> 388
operating loss and tax credit carry-forwards. A valuation allowance is
recognized if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax asset will not be realized.
EQUITY ACCOUNTING
U.S. GAAP requires investments in associates, where more than 20% but less
than 50% of the voting shares of the associate are owned, to be accounted for
using the equity method. Under the equity method, the investor's percentage of
the associate's net earnings is included in the investor's net income, and the
carrying value of the investment is adjusted accordingly. Dividends received
from the associate reduce the carrying value of the investment. Under Australian
GAAP, companies account for investments in associates using the cost method.
Under the cost method, the investment is recorded at cost, and dividends paid by
the associate are included in earnings as received. Supplementary financial
information about the associate is disclosed in a note to the financial
statements.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES
U.S. GAAP requires that investments (other than those accounted for under
the equity method as discussed above) in equity securities that have readily
determinable fair values be classified as either "trading securities" or
"available-for-sale securities" and be reported on the balance sheet at fair
value. Changes in unrealized gains and losses on losses on trading securities
are included in earnings. Unrealized gains and losses on available-for-sale
securities are excluded from earnings and are reported as a separate component
of shareholders' equity, except that declines in market value judged to be other
than temporary are included in earnings. Homestake classifies its investments in
equity securities as available-for-sale securities.
Under Australian GAAP, investments in equity securities are carried at
cost, except that declines in market value judged to be other than temporary are
included in earnings.
FOREIGN CURRENCY HEDGING PROGRAM
Under U.S. GAAP, Homestake's foreign currency exchange contracts are deemed
to be hedges of anticipated transactions which do not qualify for hedge
accounting treatment. Therefore, changes in the unrealized gains or losses on
the contracts are included in earnings.
Under Australian GAAP, only realised gains and losses relating to the
foreign currency exchange contracts are included in earnings.
INTEREST CAPITALISED
Under both U.S. GAAP and Australian GAAP interest on debt is capitalised
with respect to assets under construction. Under Australian GAAP interest
capitalised is limited to interest incurred on specific borrowings for such
assets. Under U.S. GAAP any interest within the consolidated entity may be
capitalised.
RETIREMENT BENEFITS
In accounting for retirement benefits, Australian GAAP requires the
recognition of expense only when contributions are paid and payable to the
pension plans.
Under U.S. GAAP, the amount charged to the income statement in each
accounting period is the net periodic retirement benefit expense. This expense
is actuarially determined and is comprised of the actual service cost of the
plan, the interest cost of the projected benefit obligations of the plan, the
amortization of any unrecognized prior service costs, and the amortization of
any actuarial gains or losses (including the effects of changes in the actuarial
assumptions) to the extent recognized, less the actual return achieved by the
assets invested in the plan.
F-2
<PAGE> 389
INVENTORY ACCOUNTING
Under U.S. GAAP, the last-in, first-out method (LIFO) is allowable for
determining the cost of inventory. Homestake uses the LIFO method as the basis
for determining the cost of gold produced at certain of its United States
operations. LIFO cannot be used under Australian GAAP.
AMORTISATION OF MINING INTERESTS
Under U.S. GAAP, the impact of a reassessment of reserves on the
determination of amortisation of mining interests is prospective. Under
Australian GAAP, the amortisation calculation is amended from the commencement
of the reporting period.
CONSOLIDATED FINANCIAL STATEMENTS
Under U.S. GAAP, companies only report consolidated financial results.
Under Australian GAAP, companies also are required to disclose the separate
financial statements of the holding company.
INCOME STATEMENT DISCLOSURE
U.S. GAAP requires a higher level of detail to be disclosed in the income
statement than required by Australian GAAP. Homestake separately discloses
expenses for production costs, administrative and general expense, and
exploration expenses in its statements of consolidated operations.
Under Australian GAAP, items of income or expense which are abnormal by
virtue of their nature or size and are material in amount are required to be
disclosed as abnormal items. Under U.S. GAAP such items are included in the net
income. Items that would be likely to be disclosed as abnormal for Australian
GAAP purposes in Homestake's historical financial statements have been disclosed
by way of footnote in Homestake's Selected Financial Data included elsewhere in
this Document.
CASH FLOW STATEMENT
Australian GAAP requires that statements of cash flow be presented using
the direct method. U.S. GAAP requires that cash flows be classified according to
whether they originate from operating, investing, or financing activities and
allows both direct and indirect methods. Homestake uses the indirect method.
OUTSIDE EQUITY INTERESTS
Outside equity interests (minority interests) are classified as liabilities
for U.S. GAAP purposes but are included as part of total shareholders' equity
under Australian GAAP.
F-3
<PAGE> 390
APPENDIX G
OVERVIEW OF
AUSTRALIAN, CANADIAN AND
UNITED STATES REGULATION OF MINING RIGHTS
<PAGE> 391
AUSTRALIA
The mining of hard rock minerals onshore in Australia is regulated by State
or Territory legislation and regulation which is administered by a responsible
government department within each jurisdiction. Each State and Territory has its
own separate mining regime and there is little uniformity of legislation and
regulations on an Australia-wide basis. In all States and Federal Territories,
gold, silver and uranium belong to the Crown. As a general rule, the Crown is
also vested with ownership of other minerals. Private ownership can, however,
occur in all Australian jurisdictions other than in South Australia and the
Northern Territory. In general, rights to explore, mine and produce minerals
onshore are granted by the State or Territory government where those rights are
sought.
In general, exploration is authorised by statutory title with some
jurisdictions providing for a suite of exploration titles with varying rights
and fees, according to the amount of samples that may be extracted. Such titles
are usually granted for relatively short periods and, in some cases, only upon
approval by the relevant government department of a program of work and
expenditure or subject to minimum expenditure commitments.
Titles which allow mining may be granted, usually with priority given to
the holder of the underlying exploration title for that land, upon application
to the government department in the jurisdiction where the deposit is located.
In respect of most minerals, royalties are payable to the government of the
jurisdiction where production occurs.
A special regime applies in most jurisdictions in respect of mining on
private land. This usually obliges the title holder to pay compensation to the
landowner for losses arising from the exercise of rights to enter, explore or
mine the land.
CANADA
Mining rights are within the authority of the individual provinces.
Although there are some variations among the provinces with regard to specific
features, the general requirements are similar. The ownership of and the
granting of rights to exploit minerals generally remains in the government.
Persons seeking to exploit most minerals (including gold and silver) may stake
claims on government property open to exploitation. An initial fee is payable on
staking of a mining claim. There are annual minimum work requirements although
cash may be paid in lieu of minimum work requirements in most provinces. The
development of a mine requires that mining claims be converted to mining leases.
Mining leases are granted for a specific term of years (up to 21 years in
Ontario and up to 30 years in British Columbia), with the right of renewal.
There are generally limited annual rental or royalty payments. There may be
overlapping use rights on the same property, such as mining and forestry, in
which case the terms on which multiple uses take place will generally be
negotiated between the parties and will be specified in the mining lease.
In December 1997, the Supreme Court of Canada re-affirmed the existence of
aboriginal tribal rights in land in British Columbia used or occupied by their
ancestors in 1846. Those rights may vary from limited rights of use up to
aboriginal title. The decision did not address how aboriginal rights or title
are to be reconciled with property and tenure rights previously sold or granted
by the government. The Court did confirm that the extent of the aboriginal
rights (including whether the rights rise to the level of "aboriginal title")
will depend on, among other things, the extent of prior aboriginal use and
occupation. The Court also confirmed that, depending on the nature of the
aboriginal rights, consultation with and compensation to (and possibly consent
of) aboriginal groups may be required in connection with sales of government
land or granting of mining, forestry and other rights to use government owned
land. In the future, it can be expected that the granting of mining claims and
mining leases may be subject to the determination of aboriginal rights in the
affected property, and may involve negotiation of training and employment,
community improvement, compensation and other agreements with aboriginal groups
having rights in the property. The law in this area is new and developing.
G-1
<PAGE> 392
In some areas there are mineral rights that are privately owned, the rights
having been previously alienated by governmental action. In the case of
privately held mineral rights, the owner is free to negotiate terms on which
mining may take place. If the surface and minerals are held by different
persons, negotiations between the surface and mineral rights holder will be
required if the matter is not governed by pre-existing agreements. In some
jurisdictions disagreements over rights of surface use may be resolved by a
government agency having authority to determine use and compensation.
UNITED STATES
Title to and right to mine hard rock minerals in the United States is
governed by the law of each state, except as to public lands of the United
States federal government that are open to exploration, which are governed by
the Mining Law of 1872, as amended.
In general, real property law in the United States is based on the English
common law of real property. In general, under the law of each state in the
United States, title to minerals and the right to mine is vested in the surface
owner, unless separately alienated. The surface owner can transfer all or part
of the mineral rights separate from the surface, or can transfer the surface and
retain ownership of mineral rights. Mineral rights may be further alienated, may
be leased and subleased, and also may be subdivided among more than one owner,
including alienation with the disposing party retaining the right to receive
royalties or other payments.
If the surface and the mineral rights are held by different persons, state
laws vary as to priority and other rights as between the parties. Transfer
documents by which the surface and mineral rights were separated may govern. In
the absence of agreement or provision in title documentation, in some states,
mineral right holders have priority of use and occupancy but must compensate the
surface holder for injury to the surface estate. In some states, the mineral
right holders have priority of use and no compensation obligation. A few states
have private condemnation statutes, which permit holders of mineral rights to
exercise the power of eminent domain to secure access to minerals and to provide
a portion of the surface for use in the conduct of mining.
Mineral rights holders have no royalty or payment obligation in respect of
minerals to a government entity unless the government entity happens to hold
title to or a royalty or payment interest in the mineral rights in the same way
as a private owner. However, some states have enacted severance taxes applicable
to production of minerals from property within the jurisdiction.
Under the United States Mining Law of 1872, United States citizens
(including corporations incorporated in the United States) may stake mining
claims upon United States federal government property open to exploration
("unpatented mining claims"). An initial fee is payable on staking and annual
maintenance fees are also payable. Under current law, persons staking such
unpatented mining claims, upon the making and documenting of a discovery of most
minerals (including gold and silver) in commercial quantities, are entitled to
mine for the mineral without payment of royalties or other fees (other than the
annual claim maintenance fee). In addition, the holder of an unpatented mining
claim who has made a commercial discovery is entitled to secure title to the
mineral and surface estates of the property subject to the mining claim
("patented mining claim") at nominal cost. Only certain federal public lands,
principally in the Western United States, are open to exploration. A patented
mining claim gives the holder the full fee interest in the property. Holders of
unpatented and patented mining claims may sell or lease claims in the same way
as fee property. See "Risk Factors -- Risks of Government Regulation of Mining
Activities" in the Supplement for a discussion of recent proposals to change the
United States Mining Law of 1872.
G-2
<PAGE> 393
PRELIMINARY COPIES
HOMESTAKE MINING COMPANY
650 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94108
SPECIAL MEETING OF STOCKHOLDERS - _________ __, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jack E. Thompson, Gene G. Elam and Wayne
Kirk as proxies, each with the power to appoint a substitute, and hereby
authorizes a majority (or if only one, then that one) of them to represent and
to vote, as designated on the reverse side, all shares of common stock of
Homestake Mining Company held of record by the undersigned on _______ __, 1998
at the special meeting of stockholders, or any postponement or adjournment
thereof.
[X] Please mark votes as in this example.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS ARE GIVEN, THIS PROXY
WILL BE VOTED FOR ITEM NUMBER 1.
1. Approval of issuance of Homestake Common Stock to acquire Plutonic
Resources Limited.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
By execution of this proxy the undersigned hereby authorizes such proxies or
their substitutes to vote in their discretion on such other business as may
properly come before the meeting.
Sign exactly as name appears on this proxy card. If shares are held jointly,
each holder should sign. Executors, administrators, trustees, guardians,
attorneys and agents should give their full titles. If stockholder is a
corporation, sign in full corporate name by an authorized officer.
Signature: _____________ Date: ________ Signature: _____________ Date: ________
