UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Quarterly Period Ended March 31, 1999
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______ to ________
Commission File Number 1-8736
HOMESTAKE MINING COMPANY
A Delaware Corporation
IRS Employer Identification No. 94-2934609
650 California Street
San Francisco, California 94108-2788
Telephone: (415) 981-8150
http://www.homestake.com
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
-----------
The number of shares of common stock outstanding as of May 1, 1999 was
260,195,700.*
* Includes 7,366,000 Homestake Canada Inc. exchangeable shares that may
be exchanged at any time for Homestake common stock on a one-for-one basis.
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except per share amount)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- ----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 141,000 $ 145,069
Short-term investments 126,275 154,346
Receivables 34,787 45,891
Inventories:
Finished products 15,977 13,312
Ore and in process 45,052 39,465
Supplies 24,806 26,129
Deferred income and mining taxes 20,486 22,792
Other 5,167 5,102
--------------- ----------------
Total current assets 413,550 452,106
--------------- ----------------
Property, Plant and Equipment - at cost 2,565,569 2,523,717
Accumulated depreciation, depletion and amortization (1,464,178) (1,422,853)
--------------- ----------------
Property, plant and equipment - net 1,101,391 1,100,864
--------------- ----------------
Investments and Other Assets
Noncurrent investments 12,650 12,945
Other assets 70,267 81,616
--------------- ----------------
Total investments and other assets 82,917 94,561
--------------- ----------------
Total Assets $ 1,597,858 $ 1,647,531
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 31,982 $ 42,580
Accrued liabilities:
Payroll and other compensation 30,160 31,587
Reclamation and closure costs 22,740 23,206
Unrealized loss on foreign currency exchange contracts 12,083 24,003
Other 40,571 23,192
Income and other taxes payable 5,130 3,151
--------------- ----------------
Total current liabilities 142,666 147,719
--------------- ----------------
Long-term Liabilities
Long-term debt 303,955 357,410
Other long-term obligations 170,683 168,178
--------------- ----------------
Total long-term liabilities 474,638 525,588
--------------- ----------------
Deferred Income and Mining Taxes 235,277 230,567
Minority Interests in Consolidated Subsidiaries 7,434 7,825
Shareholders' Equity
Capital stock, $1 par value per share:
Authorized - Preferred: 10,000 shares; no shares outstanding
- Common: 450,000 shares
Outstanding - HCI exchangeable shares: 1999 - 8,087; 1998 - 11,139
- Common: 1999 - 231,121; 1998 - 228,012 231,121 228,012
Other shareholders' equity 506,722 507,820
--------------- ----------------
Total shareholders' equity 737,843 735,832
--------------- ----------------
Total Liabilities and Shareholders' Equity $ 1,597,858 $ 1,647,531
=============== ================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
B. Condensed Statements of Consolidated Operations (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------------- ----------------
<S> <C> <C>
Revenues
Gold and ore sales $ 159,227 $ 194,339
Sulfur and oil sales 3,851 6,133
Interest income 4,119 4,259
Other income 11,336 11,486
----------------- ----------------
178,533 216,217
----------------- ----------------
Costs and Expenses
Production costs 108,787 135,557
Depreciation, depletion and amortization 31,662 36,090
Administrative and general expense 10,981 12,565
Exploration expense 7,737 10,297
Interest expense 4,545 5,112
Business combination expenses - 2,776
Write-downs and other unusual charges - 8,879
Other expense 586 379
----------------- ----------------
164,298 211,655
----------------- ----------------
Income Before Taxes and Minority Interests 14,235 4,562
Income and Mining Taxes (12,472) (7,220)
Minority Interests 435 (3,928)
----------------- ----------------
Net Income (Loss) $ 2,198 $ (6,586)
================= ================
Net Income (Loss) Per Share - Basic and Diluted $ 0.01 $ (0.03)
================= ================
Average Shares Used in the Computation 239,179 210,659
================= ================
Dividends Paid Per Common Share $ - $ -
================= ================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
C. Condensed Statements of Consolidated Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---------------- ---------------
<S> <C> <C>
Cash Flows from Operations
Net income (loss) $ 2,198 $ (6,586)
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 31,662 36,090
Gains on asset disposals (232) (192)
Deferred taxes, minority interests and other 4,882 (10,284)
Effect of changes in operating working capital items (11,961) 3,300
---------------- ---------------
Net cash provided by operations 26,549 22,328
---------------- ---------------
Investment Activities
Decrease in short-term investments 29,103 21,637
Additions to property, plant and equipment (13,255) (17,974)
Proceeds from asset sales 329 678
Decrease (increase) in restricted cash 11,836 (212)
Other - (982)
---------------- ---------------
Net cash provided by investment activities 28,013 3,147
---------------- ---------------
Financing Activities
Debt repayments (58,000) -
Other - 3,343
---------------- ---------------
Net cash provided by (used in) financing activities (58,000) 3,343
---------------- ---------------
Effect of Exchange Rate Changes on Cash and Equivalents (631) 318
---------------- ---------------
Net Increase (Decrease) in Cash and Equivalents (4,069) 29,136
Cash and Equivalents, January 1 145,069 124,083
---------------- ---------------
Cash and Equivalents, March 31 $ 141,000 $ 153,219
================ ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
1. The condensed consolidated financial statements included herein should be
read in conjunction with the financial statements and notes thereto, which
include information as to significant accounting policies, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
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 4,
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. Other income for the three months ended March 31 is as follows
(in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Gains on asset disposals $0.2 $0.2
Gain on sales of Rabbi Trust investments - 4.0
Royalty income 0.6 0.6
Foreign currency contract gains 7.9 4.1
Foreign currency exchange gains on inter-
company advances 1.3 0.9
Other foreign currency gains 0.2 0.1
Other 1.1 1.6
-------------- -------------
$11.3 $11.5
============== =============
</TABLE>
3. In January 1998, the Company commenced a restructuring of underground
operations at the Homestake mine, including a significant reduction in that
mine's workforce. As a result of the restructuring, in the first quarter of
1998 the Company recorded severance and other costs of $8.9 million, net of
pension and other postretirement curtailment and settlement gains of $9.3
million.
4. On April 30, 1998 Homestake acquired Plutonic Resources Limited
("Plutonic"), a publicly-traded Australian gold producer, by an exchange of
common stock for common stock. Homestake issued 64.4 million common shares
to acquire Plutonic based on an exchange ratio of 0.34 Homestake common
shares for each Plutonic share. The business combination with Plutonic was
accounted for as a pooling of interests and, accordingly, Homestake's
consolidated financial statements include Plutonic for all periods.
Business combination expenses of $2.8 million related to this acquisition
were recorded in the three months ended March 31, 1998.
5
<PAGE>
Homestake Mining Company and Subsidiaries
5. Long-term debt is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------------------------------
<S> <C> <C>
Convertible subordinated notes (due 2000) $ 150,000 $ 150,000
Pollution control bonds
Lawrence County, South Dakota (due 2032) 38,000 48,000
State of California (due 2004) 17,000 17,000
Cross-border credit facility (due 2003) 98,955 142,410
---------------------------------------------
$ 303,955 $ 357,410
=============================================
</TABLE>
During the first quarter of 1999, the Company repaid $48 million (A$75
million) of Australian dollar-denominated borrowings under the credit
facility from existing cash balances and $10 million of the South Dakota
Waste Disposal Bonds from funds held in trust. Borrowings outstanding at
March 31, 1999 under the cross-border credit facility consist of Australian
dollar-denominated borrowings of A$158 million.
6. Under the Company's foreign currency protection program, the Company has
entered into a series of foreign currency option contracts which establish
trading ranges within which the United States dollar may be exchanged for
foreign currencies by setting minimum and maximum exchange rates.
At March 31, 1999 the Company had foreign currency option contracts
outstanding as follows:
<TABLE>
<CAPTION>
Expected Maturity or Transaction Date
Total or
US$ in millions 1999 2000 2001 Average
------------------------ ------------ -------------
<S> <C> <C> <C> <C>
Canadian $ / US $ option contracts:
US $ covered $97.7 $93.4 $63.1 $254.2
Average put exchange rate (1) 0.69 0.69 0.66 0.68
Average call exchange rate (2) 0.72 0.72 0.69 0.71
Australian $ / US $ option contracts:
US $ covered $69.2 $68.6 $23.0 $160.8
Average put exchange rate (1) 0.65 0.64 0.60 0.64
Average call exchange rate (2) 0.68 0.67 0.63 0.67
<FN>
(1) Assuming exercise by the counter-party at the expiration date, the
Company would exchange US dollars for Canadian or Australian dollars at
the put exchange rate if the spot exchange rate was below the put
exchange rate.
(2) Assuming exercise by the Company at the expiration date, the Company
would exchange US dollars for Canadian or Australian dollars at the
call exchange rate if the spot exchange rate was above the call
exchange rate.
</FN>
</TABLE>
6
<PAGE>
Homestake Mining Company and Subsidiaries
7. 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. Homestake's
current hedging policy provides for the use of forward sales contracts to
hedge up to 30% of each of the following ten year's expected annual gold
production, and up to 30% of each of the following five year's expected
annual silver production, at prices in excess of certain targeted prices.
The policy also provides for the use of combinations of put and call option
contracts to establish minimum floor prices.
At March 31, 1999 the Company had gold forward sales and option contracts
outstanding as follows:
<TABLE>
<CAPTION>
Expected Maturity or Transaction Date
---------------------------------------------------------
There- Total or
1999 2000 2001 2002 2003 after Average
--------- ---------- -------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
US $ denominated contracts:
Forward sales contracts:
Ounces (thousands) 82.4 85.1 95.0 95.0 75.0 432.5
Average price ($ per oz.) $417 $430 $441 $457 $481 $445
Put options owned:
Ounces (thousands) 260.0 30.0 290.0
Average price ($ per oz.) $285 $350 $291
Call options written:
Ounces (thousands) 120.0 15.0 135.0
Average price ($ per oz.) $300 $395 $311
Australian $ denominated contracts: (1)
Forward sales contracts:
Ounces (thousands) 24.8 24.8 24.8 24.8 50.8 150.0
Average price (US$ per oz.) $330 $330 $330 $330 $330 $330
Put options owned:
Ounces (thousands) 90.0 120.0 120.0 330.0
Average price (US$ per oz.) $317 $325 $335 $327
<FN>
(1) Expressed in US dollars at an exchange rate of A$ = US$ 0.6263
</FN>
</TABLE>
During the three months ended March 31, 1999, the Company delivered or
financially settled 27,500 ounces of gold at an average price of $409 per
ounce under forward sales contracts and 30,000 ounces of gold at an average
price of $318 per ounce under option contracts. This compares to the first
quarter of 1998 when Homestake delivered or financially settled 153,000
ounces of gold at an average price of $338 per ounce under forward sales
and option contracts. Homestake also delivered or financially settled
755,000 ounces of silver during the first quarter of 1999 at an average
price of $6.34 per ounce under option contracts. The
7
<PAGE>
Homestake Mining Company and Subsidiaries
Company's gold hedging activities increased first quarter 1999 revenues by
approximately $6 million.
8. In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company primarily is engaged in
gold mining and related activities. Gold operations are managed and
internally reported based on the following geographic areas: United States,
Australia and Canada. The Company also has gold operations in Chile, other
foreign exploration activities and a sulfur operation in the Gulf of Mexico
which are included in "Corporate and All Other". Within each geographic
segment, operations are managed on a mine-by-mine basis. However, due to
each mine having similar characteristics, the Company has adopted the
aggregation approach available under SFAS 131. Segment information for the
three months ended March 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Corporate
United and All Reconciling
States Australia Canada Other Items Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenues $ 42,849 $64,352 $60,287 $ 19,778 $ (8,733) $178,533
Operating
earnings (loss) 3,418 13,377 19,659 10,363 (8,733) 38,084
1998
Revenues $ 63,060 $73,958 $62,093 $ 17,936 $ (830) $216,217
Operating
earnings (loss) 7,504 5,587 23,905 8,404 (830) 44,570
</TABLE>
9. Homestake's comprehensive income (loss) for the three months ended March
31, 1999 and 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
--------------- --------------
<S> <C> <C>
Net Income (Loss) $ 2,198 $(6,586)
Other Comprehensive Income (Loss)
Currency translation adjustments 10,147 5,917
Unrealized losses on securities (35) (2,294)
--------------- --------------
Total Other Comprehensive Income 10,112 3,623
--------------- --------------
Comprehensive Income (Loss) $12,310 $(2,963)
=============== ==============
</TABLE>
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires that all derivatives be recognized as assets
or liabilities and be measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for
depending on the use of the derivatives and whether they qualify for hedge
accounting as either a fair value hedge or a cash flow hedge. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows of the hedging instruments and
8
<PAGE>
Homestake Mining Company and Subsidiaries
the hedged items. SFAS 133 is effective for fiscal years beginning after
June 15, 1999 but earlier adoption is permitted. The Company believes that
under SFAS 133, changes in unrealized gains and losses on Homestake's
foreign currency contracts will qualify for hedge accounting and be
deferred in other comprehensive income. However, there are many
complexities to this new standard and the Company currently is evaluating
the impact that SFAS 133 will have on reported operating results and
financial position and has not yet determined whether it will adopt SFAS
133 earlier than January 1, 2000.
10. 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: Homestake's former uranium millsite near Grants, New Mexico is
listed on the NPL. The total future cost for reclamation, remediation,
monitoring and maintaining compliance at the Grants site is estimated to be
$14 million.
Pursuant to the Energy Policy Act of 1992, the United States Department of
Energy ("DOE") is responsible for 51.2% of past and future costs of
reclaiming the Grants site in accordance with Nuclear Regulatory Commission
license requirements. Through March 31, 1999, Homestake had received $25.6
million from the DOE and the accompanying balance sheet at March 31, 1999
includes an additional receivable of $8.2 million for the DOE's share of
reclamation expenditures made by Homestake through 1998. Homestake believes
that its share of the estimated remaining cost of reclaiming the Grants
facility is fully provided in the financial statements at March 31, 1999.
In 1983, the State of New Mexico made a claim against Homestake 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 along an 18-mile stretch of Whitewood
Creek formerly constituted a site on the NPL. Whitewood Creek 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 Lake Oahe. Homestake ceased the
placement of mine tailings into Whitewood Creek in 1977 and for more than
21 years the Homestake mine has impounded all mine tailings that are not
redeposited in the mine. The site was deleted from the NPL in 1996.
In September 1997, the State of South Dakota filed an action against
Homestake, alleging that Homestake's disposal of mine tailings in Whitewood
Creek resulted in injuries to natural resources in Whitewood Creek, the
Belle Fourche River, the Cheyenne River and Lake Oahe. The complaint also
contained a pendent state law claim, alleging that the tailings constitute
a continuing public nuisance. The complaint asks for abatement of the
nuisance, damages in an unascertained amount, litigation costs and
interest. In November 1997, the United States government and the Cheyenne
River Sioux Tribe (the "Federal Trustees") filed a similar action alleging
injuries to natural resources and seeking response costs, damages in
unspecified amounts, litigation costs and attorneys fees. In its answers,
Homestake denies that
9
<PAGE>
Homestake Mining Company and Subsidiaries
there has been any continuing damage to natural resources or nuisance as a
result of the placement of tailings in Whitewood Creek. Homestake has also
counterclaimed against the State of South Dakota and the Federal Trustees
seeking cost recoupment, contribution and indemnity.
Homestake, the State of South Dakota and the Federal Trustees are engaged
in settlement discussions with respect to these actions. If settlement is
not achieved, Homestake intends to vigorously defend these actions and to
seek cost recoupment, contribution and indemnity from the State of South
Dakota and the Federal Trustees for past and future expenditures. Homestake
also expects to seek recovery, contribution and indemnity from other
government entities and other persons who participated in ownership and/or
operation of Whitewood Creek as a waste disposal site or who disposed of
waste in the NRD Site.
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.
11. On December 3, 1998 Homestake completed the acquisition of the 49.4% of
Prime Resources Group Inc. ("Prime") it did not already own. Under the Plan
of Arrangement, Prime shareholders had the option of receiving 0.74 of a
Homestake common share or 0.74 of a Homestake Canada Inc. ("HCI")
exchangeable share for each Prime share. Each HCI exchangeable share is
exchangeable for one Homestake common share at any time at the option of
the holder and has essentially the same voting, dividend (payable in
Canadian dollars), and other rights as a Homestake common share. A share of
special voting stock was issued to Montreal Trust Company of Canada, in
trust for the holders of the HCI exchangeable share, and provides the
mechanism for holders of HCI exchangeable shares to receive voting rights
in Homestake. Homestake owns all of HCI's common shares outstanding. At
March 31, 1999, HCI had 8.1 million HCI exchangeable shares outstanding all
of which were held by the public. Summarized financial information for HCI
is as follows:
10
<PAGE>
Homestake Mining Company and Subsidiaries
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ --------------------
<S> <C> <C>
Current assets $ 53,341 $ 149,102
Noncurrent assets 523,077 524,588
------------------ --------------------
Total assets $ 576,418 $ 673,690
================== ====================
Notes payable to the Company $ 125,643 $ 144,002
Other current liabilities 26,781 40,837
Long-term liabilities 16,496 15,882
Deferred income and mining taxes 197,973 193,074
Redeemable preferred stock
held by the Company - 36,167
Shareholders' equity 209,525 243,728
------------------ --------------------
Total liabilities and
shareholders' equity $ 576,418 $ 673,690
================== ====================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Total revenues $ 57,918 $ 62,093
Costs and expenses 46,471 41,747
------------------ ------------------
Income before taxes and
minority interests $ 11,447 $ 20,346
================== ==================
Net income $ 3,951 $ 4,920
================== ==================
</TABLE>
12. Subsequent Event - Argentina Gold Corp.
On April 27, 1999, shareholders of Argentina Gold Corp. ("Argentina Gold")
approved a Plan of Arrangement for Homestake to acquire the Vancouver-based
Argentina Gold for approximately $190 million in Homestake common shares.
Argentina Gold's principal asset is its 60% interest in the Veladero
property located in northwest Argentina along the El Indio gold belt. The
transaction closed on April 29,1999. Under the Plan of Arrangement,
Argentina Gold shareholders received 0.545 Homestake common shares for
each share of Argentina Gold. Homestake issued approximately 21 million
common shares to acquire all of the shares of Argentina Gold. The
transaction will be accounted for as a pooling of interests.
11
<PAGE>
Homestake Mining Company and Subsidiaries
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Unless specifically stated otherwise, the following information relates to
amounts included in the consolidated financial statements without reduction for
minority interests. Homestake reports per ounce production costs in accordance
with the "Gold Institute Production Cost Standard.")
On April 30, 1998 Homestake acquired Plutonic Resources Limited
("Plutonic"), an Australian gold producer, by issuing 64.4 million Homestake
common shares. This business combination was accounted for as a pooling of
interests, and accordingly, the Company's consolidated financial statements
include Plutonic for all periods.
RESULTS OF OPERATIONS
Homestake recorded net income of $2.2 million or $0.01 per share during
the first quarter of 1999 compared to a net loss of $6.6 million or $0.03 per
share during the first quarter of 1998. First quarter of 1999 results include
pretax foreign currency exchange gains of $9.4 million compared to pretax
foreign currency exchange gains of $5.1 million and gains on the sale of Rabbi
Trust investments of $4 million in the first quarter of 1998. The first quarter
of 1998 also included after-tax unusual charges totaling $8.6 million or $0.04
per share. No charges for unusual items were recorded during the first quarter
of 1999.
Consolidated production for the 1999 first quarter totaled 559,000 gold
equivalent ounces, a 13% reduction from the 1998 first quarter production of
641,300 gold equivalent ounces. This reduction primarily is due to lower
production from the Homestake, Eskay Creek, Kalgoorlie and Plutonic operations
and the absence of production from the closed Mt Morgans mine, partially offset
by higher production from the Darlot and Williams mines. Gold and ore sales for
the first quarter of 1999 decreased to $159.2 million from $194.3 million during
the first quarter of 1998 reflecting lower gold prices and decreased sales
volumes resulting from the lower production. During the first three months of
1999, 554,000 equivalent ounces of gold were sold at an average realized price
of $298 per ounce compared to 638,700 equivalent ounces of gold sold at an
average realized price of $317 per ounce during the first three months of 1998.
Consolidated cash costs per ounce during the first quarter of 1999 declined by
9% to $193 per ounce from $213 per ounce during the corresponding first quarter
of 1998. Approximately $8 per ounce of this decrease is attributable to lower
average Australian and Canadian dollar exchange rates in the first quarter of
1999 compared to the first quarter of 1998.
United States production decreased to 142,400 ounces during the first
quarter of 1999 from 182,300 ounces during the first quarter of 1998. The
decrease primarily is due to lower production at the Homestake mine following
the completion of open-pit mining during 1998, along with lower production at
the Ruby Hill and Pinson mines. The weighted average United States cash cost was
$218 per ounce during the first quarter of 1999 compared to $219 per ounce
during the first quarter of 1998.
12
<PAGE>
Homestake Mining Company and Subsidiaries
Gold production at the Homestake mine in South Dakota during the first
quarter of 1999 was 45,700 ounces compared to 76,000 ounces produced during the
first quarter of 1998. The Homestake mine is now mining ore exclusively from the
underground operation. Open Cut mining operations were completed during the
fourth quarter of 1998, but three to five months of stockpiled low-grade ore
from the former surface mine remain to be processed in 1999. Processing of this
stockpiled ore was restricted during the first quarter of 1999 due to above
average precipitation, which resulted in higher than normal water volumes
collecting in the tailings impoundment. Almost all of the mine's production in
the first quarter of 1999 was sourced from the underground mine whereas
approximately 78% of the first quarter 1998 production came from the lower-cost
Open Cut operations due to the temporary shut down in January 1998 of the
underground operations. As a result, cash costs at the Homestake mine increased
to $271 per ounce during the first quarter of 1999 from $244 per ounce during
the first quarter of 1998. Gold production at the Ruby Hill mine near Eureka,
Nevada totaled 25,200 ounces at a cash cost of $121 per ounce during the first
quarter of 1999 compared to 30,600 ounces at a cash cost $129 per ounce during
the prior year's first quarter. The decrease in production is due to the
exceptionally high ore grades during the first quarter of 1998 as initial mining
occurred in higher-grade areas of the pit. Current mining grades are more
comparable to the average life-of-mine reserve. Cash costs per ounce declined
due to a larger percentage of high-grade ore being amenable to conventional
milling resulting in higher recoveries compared to heap leaching. First quarter
1999 production from the processing of residual stockpiles at the McLaughlin
operation in northern California totaled 30,200 ounces of gold, relatively
unchanged from the 30,100 ounces produced during the first quarter of 1998.
Increased throughput offset a 12% decline in ore grade, but resulted in a 5%
increase in cash costs to $244 per ounce during the 1999 first quarter from $233
per ounce during the 1998 first quarter. Homestake's share of production from
the Round Mountain mine in central Nevada declined to 29,800 ounces in the first
quarter of 1999 from 33,000 ounces during the prior year's first quarter. Cash
costs declined to $196 per ounce during the 1999 first quarter compared to $207
per ounce during the 1998 first quarter. Reusable pad gold production was lower
during the quarter as mining equipment was diverted to conduct
higher-than-normal overburden stripping. Production from Round Mountain is
expected to improve during the second quarter of 1999 as the overburden removal
increases access to additional ore. The Pinson mine near Winnemucca, Nevada was
placed on care and maintenance in January 1999 due to continuing low gold prices
and production shortfalls. Homestake's 50% share of residual recovery from the
heap-leach pads was 3,600 ounces of gold at a cash cost of $242 per ounce during
the first quarter of 1999 compared to production of 6,400 ounces at $321 per
ounce during the comparable period in 1998. The operation is conducting
reclamation of the tailings impoundment and waste rock disposal areas.
Exploration continues to further define the deep mineralization discovered
during the 1998 drilling program.
Canadian gold production decreased to 218,000 ounces during the first
quarter of 1999 from 230,500 ounces during the first quarter of 1998, primarily
due to lower production at the Eskay Creek mine. During the first quarter of
1999, the weighted average cash costs per ounce from the Company's operations in
Canada decreased to $162 per ounce from $165 per ounce during the comparable
period of the prior year primarily due to a lower Canadian/U.S. dollar exchange
rate. On a local currency basis, weighted average Canadian cash cost per ounce
increased by 3%.
13
<PAGE>
Homestake Mining Company and Subsidiaries
At the Eskay Creek mine, first quarter 1999 gold production decreased
to 123,500 gold equivalent ounces from 141,100 gold equivalent ounces in the
corresponding period of 1998. Cash costs for both periods were $121 per ounce.
Gold and silver production during the first quarter of 1999 was 70,200 ounces
and 2.9 million ounces, respectively, compared to 73,400 ounces and 3.2 million
ounces, respectively, during the comparable period in 1998. Gold equivalent
production was lower in the 1999 first quarter due to lower ore shipments and an
increase in the silver to gold equivalency ratio, partially offset by a 31%
increase in mill throughput. Homestake's 50% share of gold production at the
Williams mine increased to 51,900 ounces for the first quarter of 1999 from
44,700 ounces during the similar period in 1998 due to a 15% increase in ore
grade. A seismic event that occurred at the end of March 1999 resulted in damage
to access drifts and an orepass. Expenses for restoration and repairs are not
expected to significantly impact operating costs or adversely impact production
during the year. Cash costs declined to $220 per ounce during the first quarter
of 1999 compared to $244 per ounce during the similar period in 1998 primarily
due to the higher ore grade. Work to increase the capacity of the Williams mill
is progressing on schedule. The operation expects to process the first ore from
the David Bell mine by mid-year 1999. Homestake's 50% share of gold production
at the David Bell mine totaled 18,700 ounces at a cash cost of $214 per ounce
compared to 18,200 ounces at a cash cost of $238 per ounce during the first
quarter of 1998. The lower cash costs per ounce resulted from higher ore grades
and a lower exchange rate. During the first quarter of 1999, the Snip mine
produced 21,100 ounces of gold at a cash cost of $214 per ounce compared to
23,700 ounces at a cash cost of $224 per ounce during the comparable period in
1998. The operation is scheduled to cease production at the end of May 1999.
Reclamation has commenced and will continue after completion of mining.
Australian gold production declined to 192,000 ounces during the first
quarter of 1999 compared to 222,900 ounces during the first quarter of 1998
primarily due to lower production from the Kalgoorlie and Plutonic operations
and absence of production from the closed Mt Morgans mine, partially offset by
higher production from the Darlot mine. During the first quarter of 1999,
Australian cash costs per ounce decreased to $210 per ounce from $256 per ounce
during the comparable period of the prior year. Eleven dollars of this decline
is attributable to the 5% decline in the Australian/U.S. dollar exchange rate.
Homestake's share of production at the Kalgoorlie operations in Western
Australia totaled 83,000 ounces at a cash cost of $210 per ounce during the
first quarter of 1999 compared to 94,100 ounces at a cash cost of $262 per ounce
during the first three months of 1998. The decrease in production primarily
resulted from reduced mill throughput in an effort to minimize stress on the
Fimiston Mill's cracked ring gear. A replacement gear is scheduled for
installation in May 1999. Cash costs per ounce were lower as a result of the
improved performance at the restructured Mt Charlotte mine along with the lower
exchange rates. The conversion from contractor to owner mining is proceeding on
schedule and mining equipment is being ordered in the second quarter of 1999.
Gold production at the Plutonic mine was 48,300 ounces at a cash cost of $264
per ounce during the first quarter of 1999 compared to 56,300 ounces at a cash
cost of $266 per ounce during the first quarter of 1998. In March 1999, the
operation incurred minor production disruptions due to adverse weather from
Cyclone Vance. Gold production was lower than planned from the open pits and
treatment of lower grade stockpile ore was required to maintain full process
plant capacity. Gold production at the Lawlers mine was 27,300 ounces at a cash
cost of $162 per ounce during the first
14
<PAGE>
Homestake Mining Company and Subsidiaries
quarter compared to 31,600 ounces at a cash cost of $189 per ounce during the
corresponding quarter in 1998. The decline in gold production is due to
completion of open-pit mining. In 1999, production is primarily from the
underground mine. Additional underground declines have been started to access
ore lenses that trend below the New Holland South and Genesis pits. Development
drilling completed in various areas of the Glasgow-Lass trend continues to
produce positive results confirming continuity in the existing ore lenses and
indicating the presence of several new lenses. During the first quarter of 1999,
the Darlot mine produced 27,900 ounces of gold at a cash cost of $174 per ounce
compared to 15,600 ounces of gold at a cash cost of $334 per ounce during the
corresponding period in 1998. The improved performance is attributable to
increased production from the higher-grade Centenary ore body. A treatment plant
upgrade project was started during the first quarter and is expected to increase
gold recoveries following completion in the third quarter of 1999.
The Company's share of revenues at the Main Pass 299 operations in the
Gulf of Mexico totaled $3.9 million during the first quarter of 1999 compared to
$6.1 million during the first quarter of 1998, and operating losses of $1.4
million were recorded during the 1999 first quarter compared to operating losses
of $0.7 million during the first quarter of 1998.
Homestake's hedging policy provides for the use of forward sales
contracts to hedge up to 30% of each of the following ten year's expected annual
gold production, and up to 30% of each of the following five year's expected
annual silver production, at prices in excess of certain targeted prices. The
policy also provides for the use of combinations of put and call option
contracts to establish minimum floor prices. During the first quarter of 1999,
Homestake delivered or financially settled 57,500 ounces of gold at an average
price of $362 per ounce under forward sales and option contracts. This compares
to the first quarter of 1998 when Homestake delivered or financially settled
153,000 ounces of gold at an average price of $338 per ounce under forward sales
and option contracts. Homestake also delivered or financially settled 755,000
ounces of silver during the first quarter of 1999 at an average price of $6.34
per ounce under option contracts. The Company's gold and silver hedging
activities increased first quarter 1999 revenues by approximately $6 million.
The estimated fair value of the Company's gold and silver hedging position at
March 31, 1999 was approximately $83 million.
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. For the three months ended March 31, 1999
the Company recorded gains of $7.9 million on these contracts. At March 31,
1999, the Company's provision for net unrealized losses on open contracts under
this program was $12 million.
Other income for the first three months of 1999 includes foreign currency
exchange gains of $9.4 million, including $7.9 million for foreign currency
option contracts and $1.5 million primarily for intercompany advances. Other
income in the corresponding period of 1998 includes foreign currency exchange
gains of $5 million and gains on sales of investments of $4 million.
15
<PAGE>
Homestake Mining Company and Subsidiaries
Depreciation, depletion and amortization expense decreased to $31.7 million
during the 1999 first quarter from $36.1 million during the first quarter of
1998 reflecting write-downs of property, plant and equipment at the Homestake
and Mt Charlotte mines during the third quarter of 1998, partially offset by an
increase in depreciation expense at the Eskay Creek mine as a result of the
December 1998 acquisition of the Prime minority interests.
Exploration expense for the first three months of 1999 decreased to $7.7 million
compared to $10.3 million during the first quarter of 1998. The Company expects
to spend approximately $43 million on exploration activities during 1999
(excluding approximately $3 million of exploration expense incurred by Argentina
Gold Corp. prior to its April 1999 business combination with Homestake).
Income and mining tax expense for the three months ended March 31, 1999 was
$12.5 million compared to $7.2 million for the same period in 1998. The increase
in tax expense resulted from the increase in pretax income and a one-time charge
of approximately $3 million related to the repatriation of cash to the United
States from the Company's Canadian subsidiaries. In addition to this one-time
charge, the consolidated effective tax rate of 87.6% during the first quarter of
1999, reflects the geographic mix of pretax income and losses. Homestake had
pretax earnings in Canada and Australia, which are subject to high rates of tax
and pretax losses in other foreign jurisdictions on which it was unable to
record a tax benefit due to the uncertainty of realization. The Company's
consolidated effective income and mining tax rate will fluctuate depending on
the geographical mix of pretax income.
Minority interests: During the 1999 first quarter, minority interests' share of
losses in consolidated subsidiaries of $0.4 million compares to minority
interests' share of income in consolidated subsidiaries of $3.9 million in the
first quarter of 1998. The decrease in minority interests' share of income is
due to Homestake's December 1998 acquisition of the minority interests of Prime
Resources Group Inc.
The following chart details Homestake's gold production and total cash
costs per ounce by location, and consolidated revenue and production costs per
ounce.
16
<PAGE>
Homestake Mining Company and Subsidiaries
<TABLE>
<CAPTION>
Production Total Cash Costs
(Ounces in thousands) (Dollars per ounce)
Three Months Ended Three Months Ended
March 31, March 31,
Mine (Percentage interest) 1999 1998 1999 1998
- ---------------------------------- ---------------------------- -----------------------------
<S> <C> <C> <C> <C>
United States
Homestake (100) 45.7 76.0 $271 $244
Ruby Hill (100) 25.2 30.6 121 129
McLaughlin (100) 30.2 30.1 244 233
Round Mountain (25) 29.8 33.0 196 207
Pinson (50) 3.6 6.4 242 321
Marigold (33) 7.9 6.2 190 246
------------ ------------
Total United States 142.4 182.3
Canada
Eskay Creek (100) (1,3) 123.5 141.1 121 121
Williams (50) 51.9 44.7 220 244
David Bell (50) 18.7 18.2 214 238
Quarter Claim (25) 2.8 2.8 162 171
Snip (100) (2,3) 21.1 23.7 214 224
------------ ------------
Total Canada 218.0 230.5
Australia
Kalgoorlie (50) 83.0 94.1 210 262
Plutonic (100) 48.3 56.3 264 266
Darlot (100) 27.9 15.6 174 334
Lawlers (100) 27.3 31.6 162 189
Peak Hill (67) 5.5 5.8 177 308
Mt Morgans (80) - 19.5 - 231
------------ ------------
Total Australia 192.0 222.9
Chile
Agua de la Falda (51) 6.6 5.6 212 215
------------ ------------ ------------- --------------
Total Production 559.0 641.3 $193 $213
============= ==============
Minority Interests - (81.4)
------------ ------------
Homestake's Share 559.0 559.9
============ ============
17
<PAGE>
Homestake Mining Company and Subsidiaries
<CAPTION>
Three Months Ended
March 31,
Per Ounce of Gold 1999 1998
------------------------------------
<S> <C> <C>
Revenue $298 $317
====================================
Per Ounce Costs
Cash Operating Costs (4) $189 $210
Other Cash Costs (5) 4 3
------------------------------------
Total Cash Costs 193 213
Noncash Costs (6) 55 57
------------------------------------
Total Production Costs $248 $270
====================================
<FN>
(1) Ounces produced are expressed on a gold equivalent basis and include 70,200
(73,400 in 1998) ounces of gold and 2.9 million (3.2 million in 1998)
ounces of silver contained in ore and concentrates sold to smelters in the
first quarter.
(2) Includes ounces of gold contained in dore and concentrates.
(3) For comparison purposes, total cash costs per ounce include estimated
third-party costs incurred by smelter owners and others to produce
marketable gold and silver.
(4) 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.
(5) Other cash costs are costs that are not directly related to, but may result
from, gold production; includes production taxes and royalties.
(6) Noncash costs are costs that typically are accounted for ratably over the
life of an operation; includes depreciation, depletion, accruals for final
reclamation. Noncash costs do not include amortization of additions to
property resulting from SFAS 109 deferred tax purchase accounting
adjustments, as these additions did not involve any economic resources of
the Company.
</FN>
</TABLE>
18
<PAGE>
Homestake Mining Company and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $26.5 million during the first
quarter of 1999 compared to $22.3 million during the first quarter of 1998.
Working capital at March 31, 1999 amounted to $270.9 million, including cash and
equivalents and short-term investments of $267.3 million.
Capital expenditures of $13.3 million during the first quarter of 1999
compare to expenditures of $18 million during the first quarter of 1998. Capital
expenditures in 1999 include approximately $7.1 million at the Plutonic, Darlot
and Lawlers mines primarily for underground development work. The balance of the
1999 capital expenditures primarily relate to underground mobile mining
equipment purchases at the Homestake mine and sustaining capital at the
Company's other operating mines. Capital additions during 1998 include $18
million, primarily for underground development work at the Plutonic and Darlot
mines, development work at the Kalgoorlie operations, and new shops and other
facilities at the Round Mountain mine.
The Company has a United States/Canadian/Australian cross-border credit
facility providing a total availability of $430 million. This facility is
available through July 14, 2003 and provides for borrowings in United States,
Canadian, or Australian dollars, or gold, or a combination of these. During the
first quarter of 1999, the Company repaid $48 million (A$75 million) of
Australian dollar-denominated borrowings under the credit facility from existing
cash balances. At March 31, 1999 borrowings under the Australian dollar credit
facility of $99 million (A$158 million) were outstanding. The Company pays a
commitment fee on the unused portion of this facility ranging from 0.15% to
0.35% per annum, depending upon rating agencies' ratings for the Company's
senior debt. The credit agreement requires a minimum consolidated net worth, as
defined in the agreement (primarily shareholders' equity plus the amount of all
noncash write-downs made after December 31, 1997), of $500 million. Interest on
the Australian dollar borrowings is payable quarterly and is based on the
Australian Bank Bill Swap Rate plus a margin of up to 1.125%. At March 31, 1999
this interest rate was 5.88%.
In July 1997, Lawrence County, South Dakota issued $30 million of South
Dakota Solid Waste Disposal Revenue Bonds ("Waste Disposal Bonds") and $18
million of South Dakota Pollution Control Refunding Revenue Bonds, both of which
are due in 2032. The Company is responsible for funding principal and interest
payments on these bonds. Due to a reduction in the size of the Homestake mine
tailings project, the Company redeemed $10 million of the Waste Disposal Bonds
in March 1999 out of the funds held in trust.
The Company has $150 million of 5.5% convertible subordinated notes
outstanding which mature on June 23, 2000. Interest on the notes is payable
semiannually in June and December. The notes are convertible into the Company's
common shares at a rate of $23.06 per common share and are redeemable by the
Company in whole at any time. The Company expects to refinance these notes prior
to their maturity.
In March 1999, Company declared a semi-annual dividend of $0.05 per
common share and C$0.075 per HCI exchangeable share, both payable May 10, 1999
to shareholders of record on April 20, 1999.
19
<PAGE>
Homestake Mining Company and Subsidiaries
In June 1998, FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 requires that all derivatives be recognized as assets or
liabilities and be measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting as
either a fair value hedge or a cash flow hedge. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows of the hedging
instruments and the hedged items. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 but earlier adoption is permitted. The Company
believes that under SFAS 133, changes in unrealized gains and losses on
Homestake's foreign currency contracts will qualify for hedge accounting and be
deferred in other comprehensive income. However, there are many complexities to
this new standard and the Company currently is evaluating the impact that SFAS
133 will have on reported operating results and financial position and has not
yet determined whether it will adopt SFAS 133 earlier than January 1, 2000.
Future results will be impacted by such factors as the market price of
gold and silver, the Company's ability to expand its ore reserves, and
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.
Year 2000 Compliance
The Company has completed a review of its computer-based information
systems and has developed a plan to ensure all of these systems will be Year
2000 compliant. Year 2000 compliant upgrades for the Company's core financial
systems have been installed and testing of these systems is continuing. All
other critical Company information systems hardware and software will be brought
into compliance by mid-1999.
The Company currently is in the process of reviewing all
microprocessor-controlled devices, including process-monitoring systems, in use
at its operating locations to determine whether they are Year 2000 compliant.
The identification phase has been completed and assessment research of the
identified devices is ongoing. The Company will upgrade systems and/or develop
contingency plans based on this research. Any necessary remediation and testing
is planned to be completed by mid-1999. In addition, the Company is monitoring
similar Year 2000 related activities at its joint venture operations where it is
not the operator. A Year 2000 related microprocessor problem that is not
identified or remedied at an operating location potentially could result in a
short-term production disruption at that location.
The Company's total expenditures for the above Year 2000 activities are
expected to be approximately $1.5 million and should not adversely impact other
information system initiatives. Year 2000 expenditures to date total
approximately $1 million.
20
<PAGE>
Homestake Mining Company and Subsidiaries
The Company currently is surveying all major suppliers and customers to
assess their Year 2000 compliance and, where practical, will make specific
contingency plans based on the results of this survey. The greatest risk to the
Company in this regard would be interruptions in the supply of power and/or
water to certain of its operating locations. A disruption in the supply of
either of these utilities could significantly hamper or curtail production at an
operating location until the service is restored. A disruption in the supply of
other services or supplies at an operating location potentially could result in
a short-term production disruption at that location.
With the exception of ore and concentrates produced at the Eskay Creek
and Snip mines, which are sold directly to smelters, the Company's principal
product is finished gold bullion, which is sold to major financial institutions.
Because of government mandated Year 2000 compliance programs in the financial
industry, the Company expects that their core financial operating systems will
be Year 2000 compliant, and that there will be no significant disruption in the
Company's ability to sell its gold production. The smelters which purchase the
ore and concentrates produced at the Eskay Creek and Snip mines have been
contacted directly, and though they have not completed all of their Year 2000
compliance activities, they do not expect any significant disruptions related to
Year 2000 issues.
Homestake will develop contingency plans if and when determined
necessary based on its compliance efforts.
The foregoing Year 2000 disclosures are based on Homestake's current
expectations, estimates and projections. Because of uncertainties, the actual
effects of the Year 2000 issues on Homestake may be different from the Company's
current assessment. Factors, many of which are outside the control of the
Company, that could affect Homestake's ability to be Year 2000 compliant by the
end of 1999 include the failure of customers, suppliers, governmental entities
and others to achieve compliance, and Homestake's inability or failure to
identify all critical Year 2000 issues or to develop appropriate contingency
plans for all Year 2000 issues that ultimately may arise.
Argentina Gold Corp.
On April 27, 1999, shareholders of Argentina Gold Corp. ("Argentina Gold")
approved a Plan of Arrangement for Homestake to acquire the Vancouver-based
Argentina Gold for approximately $190 million in Homestake common shares.
Argentina Gold's principal asset is its 60% interest in the Veladero property
located in northwest Argentina along the El Indio gold belt. The transaction
closed on April 29, 1999. Under the Plan of Arrangement, Argentina Gold
shareholders received 0.545 Homestake common shares for each share of
Argentina Gold. Homestake issued approximately 21 million common shares to
acquire all of the shares of Argentina Gold. The transaction will be accounted
for as a pooling of interests.
21
<PAGE>
Homestake Mining Company and Subsidiaries
Part II - OTHER INFORMATION
Item 5. - Other Information
(a) Business Combination - Argentina Gold Corporation
On April 27, 1999, shareholders of Argentina Gold Corp. ("Argentina
Gold") approved a Plan of Arrangement for Homestake to acquire the
Vancouver-based Argentina Gold for approximately $190 million in
Homestake common shares. Argentina Gold's principal asset is its 60%
interest in the Veladero property located in northwest Argentina along
the El Indio gold belt. The transaction closed on April 29, 1999. Under
the Plan of Arrangement, Argentina Gold shareholders received 0.545
Homestake common shares for each share of Argentina Gold. Homestake
issued approximately 21 million common shares to acquire all of the
shares of Argentina Gold. The transaction will be accounted for as a
pooling of interests.
(b) CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Certain statements contained in this Form 10-Q that are not statements
of historical facts are "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such
statements are based on beliefs of management, as well as assumptions
made by and information currently available to management. Forward
looking statements include those preceded by the words "believe,"
"estimate," "expect," "intend," "will," and similar expressions, and
include estimates of future production, costs per ounce, dates of
construction completion, costs of capital projects and commencement of
operations. Forward looking statements are subject to risks,
uncertainties and other factors that could cause actual results to
differ materially from expected results. Some important factors and
assumptions that could cause actual results to differ materially from
expected results are discussed below. Those listed are not exclusive.
Estimates of future production for particular properties and for the
Company as a whole are derived from annual mine plans that have been
developed based on mining experience, reserve estimates, assumptions
regarding ground conditions and physical characteristics of ore (such
as hardness and metallurgical characteristics), expected rates and
costs of production, and estimated future sales prices. Actual
production may vary for a variety of reasons, such as the factors
described above, ore mined varying from estimates of grade and
metallurgical and other characteristics, mining dilution, actions by
labor, and government imposed restrictions. Estimates of production
from properties and facilities not yet in production are based on
similar factors but there is a greater likelihood that actual results
will vary from estimates due to a lack of actual experience. Cash cost
estimates are based on such things as past experience, reserve and
production estimates, anticipated mining conditions, estimated costs of
materials, supplies and utilities, and estimated exchange rates.
Noncash cost estimates are based on total capital costs and reserve
estimates, change based
22
<PAGE>
Homestake Mining Company and Subsidiaries
on actual amounts of unamortized capital, changes in reserve estimates,
and changes in estimates of final reclamation. Estimates of future
capital costs are based on a variety of factors and include past
operating experience, estimated levels of future production, estimates
by and contract terms with third-party suppliers, expectations as to
government and legal requirements, feasibility reports by Company
personnel and outside consultants, and other factors. Capital cost
estimates for new projects are subject to greater uncertainties than
additional capital costs for existing operations. Estimated time for
completion of capital projects is based on such factors as the
Company's experience in completing capital projects, and estimates
provided by and contract terms with contractors, engineers, suppliers
and others involved in design and construction of projects. Estimates
reflect assumptions about factors beyond the Company's control, such as
the time government agencies take in processing applications, issuing
permits and otherwise completing processes required under applicable
laws and regulations. Actual time to completion can vary significantly
from estimates.
See the Company's Form 10-K Report for the year ended December 31,
1998, "RISK FACTORS" and "CAUTIONARY STATEMENTS" included under Part I
- Item 1, for a more detailed discussion of factors that may impact on
expected future results.
23
<PAGE>
Homestake Mining Company and Subsidiaries
Item 6.
(a) Exhibits Method of Filing
11 Computation of Earnings Per Share Filed herewith
electronically
27 Financial Data Schedule Filed herewith
electronically
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended March 31,
1999. The report dated March 10, 1999 announced that Homestake and
Argentina Gold had entered into an agreement for Homestake to acquire
Argentina Gold.
24
<PAGE>
Homestake Mining Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date: May 10, 1999 By /s/ David W. Peat
------------ -----------------
David W. Peat
Vice President, Finance and
Chief Financial Officer
25
EXHIBIT 11
HOMESTAKE MINING COMPANY AND SUBSIDIARIES
Computation of Earnings Per Share (unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
BASIC 1999 1998
--------------- ---------------
<S> <C> <C>
Earnings:
Net income (loss) applicable to basic earnings
per share calculation $ 2,198 $ (6,586)
=============== ===============
Weighted average number of shares outstanding 239,179 210,659
=============== ===============
Net income (loss) per share - basic $ 0.01 $ (0.03)
=============== ===============
DILUTED
Earnings:
Net income (loss) $ 2,198 $ (6,586)
Add: Interest relating to 5.5% convertible
subordinated notes, net of tax 2,062 1,630
Amortization of issuance costs relating
to 5.5% convertible subordinated notes,
net of tax 140 111
--------------- ---------------
Net income (loss) applicable to diluted earnings
per share calculation $ 4,400 $ (4,845)
=============== ===============
Weighted average number of shares outstanding:
Common shares 239,179 210,659
Additional average shares outstanding assuming:
Conversion of 5.5% convertible subordinated notes 6,505 6,505
--------------- ---------------
245,684 217,164
=============== ===============
Net income (loss) per share - diluted (a) $ 0.02 $ (0.03)
=============== ===============
<FN>
(a) This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 13 of SFAS 128 because it
produces an anti-dilutive result. Diluted net income (loss) per share
computed in accordance with SFAS 128 was the same as basic earnings per
share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1999 and the related Statement of
Consolidated Operations for the three months ended March 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 141,000
<SECURITIES> 126,275
<RECEIVABLES> 34,787
<ALLOWANCES> 0
<INVENTORY> 85,835
<CURRENT-ASSETS> 413,550
<PP&E> 2,565,569
<DEPRECIATION> 1,464,178
<TOTAL-ASSETS> 1,597,858
<CURRENT-LIABILITIES> 142,666
<BONDS> 303,955
0
0
<COMMON> 231,121
<OTHER-SE> 506,722
<TOTAL-LIABILITY-AND-EQUITY> 1,597,858
<SALES> 163,078
<TOTAL-REVENUES> 178,533
<CGS> 140,449 <F1>
<TOTAL-COSTS> 151,430 <F2>
<OTHER-EXPENSES> 8,323 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,545
<INCOME-PRETAX> 14,235
<INCOME-TAX> 12,472
<INCOME-CONTINUING> 2,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,198
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<FN>
<F1> Includes Production costs and Depreciation, depletion and amortization
from the Statement of Consolidated Operations.
<F2> Includes Production costs, Depreciation, depletion and amortization and
Administrative and general expense from the Statement of Consolidated
Operations.
<F3> Includes Exploration expense and Other expense from the Statement of
Consolidated Operations.
</FN>
</TABLE>
